PROSPECTUS
================================================================================
The Contracts offered in connection with this Prospectus are two group deferred
variable annuity contracts ("Contracts") issued by Aetna Life Insurance and
Annuity Company (the "Company"). One allows lump sum payments ("Single Purchase
Payment Contracts") and the other allows installment payments ("Installment
Purchase Payment Contracts"). The Contracts are available through participation
in the "Opportunity Plus" retirement programs which receive favorable tax
deferred treatment under Federal income tax law. (See "Purchase.") Interests in
these Contracts are offered to employees of school boards and public
universities in the state of New York.
The Contracts provide that contributions may be allocated to one or more of the
Credited Interest Options or to one or more of the Subaccounts of Variable
Annuity Account C, a separate account of the Company. The Subaccounts invest
directly in shares of the following Funds:
[bullet] Aetna Variable Fund
[bullet] Aetna Income Shares
[bullet] Aetna Variable Encore Fund
[bullet] Aetna Investment Advisers Fund, Inc.
[bullet] Alger American Growth Portfolio
[bullet] Alger American Small Cap Portfolio
[bullet] American Century VP Capital Appreciation (formerly TCI Growth)
[bullet] Calvert Responsibly Invested Balanced Portfolio
[bullet] Fidelity VIP II Asset-Manager Portfolio
[bullet] Fidelity VIP II Contrafund Portfolio
[bullet] Fidelity VIP II Index 500 Portfolio
[bullet] Fidelity VIP Equity-Income Portfolio
[bullet] Franklin Government Securities Trust
[bullet] Janus Aspen Aggressive Growth Portfolio
[bullet] Janus Aspen Growth Portfolio
[bullet] Janus Aspen Short-Term Bond Portfolio
[bullet] Janus Aspen Worldwide Growth Portfolio
[bullet] Lexington Emerging Markets Fund, Inc.
[bullet] Lexington Natural Resources Trust
[bullet] Neuberger & Berman Growth Portfolio
[bullet] Scudder International Portfolio Class A Shares
The Credited Interest Options currently available under the Contract are the
Guaranteed Accumulation Account and the Fixed Account. Except as specifically
mentioned, this Prospectus describes only investments through the Separate
Account. A brief description of each of the Credited Interest Options is
contained in Appendices to this Prospectus. Additional information concerning
the Guaranteed Accumulation Account is contained in a separate prospectus.
The availability of the Funds and the Credited Interest Options is subject to
applicable regulatory authorization. Not all Funds or Credited Interest Options
may be available under all Contracts. Please check with your employer to
determine option availability. (See "Investment Options.")
This Prospectus provides investors with the information that they should know
about the Separate Account before investing in the Contract through the Separate
Account. Additional information about the Separate Account is contained in a
Statement of Additional Information ("SAI") which is available at no charge. The
SAI has been filed with the Securities and Exchange Commission and is
incorporated herein by reference. The Table of Contents for the SAI is printed
on page 16 in this Prospectus. An SAI may be obtained by indicating the request
on the enrollment form or on the prospectus receipt contained in this
Prospectus, or by calling the number listed under the "Inquiries" section of the
Prospectus Summary. You may also obtain an SAI for any of the Funds by calling
that phone number.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES OF
THE FUNDS AND THE GUARANTEED ACCUMULATION ACCOUNT. ALL PROSPECTUSES SHOULD BE
READ AND RETAINED FOR FUTURE REFERENCE.
THIS PROSPECTUS, THE STATEMENT OF ADDITIONAL INFORMATION AND OTHER INFORMATION
ABOUT THE SEPARATE ACCOUNT REQUIRED TO BE FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION (SEC) CAN BE FOUND IN THE SEC'S WEB SITE AT http://www.sec.gov.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION
ARE DATED MAY 1, 1997.
<PAGE>
TABLE OF CONTENTS
================================================================================
DEFINITIONS ...................................................... DEFINITIONS
PROSPECTUS SUMMARY .................................................... SUMMARY
FEE TABLE ........................................................... FEE TABLE
CONDENSED FINANCIAL INFORMATION ................................. AUV SUMMARY
THE COMPANY .............................................................. 1
VARIABLE ANNUITY ACCOUNT C ............................................... 1
INVESTMENT OPTIONS ..................................................... 1
The Funds .............................................................. 1
Credited Interest Options ............................................ 3
PURCHASE ................................................................. 4
Contract Availability .................................................. 4
Purchasing Interests in the Contract ................................... 4
Right to Cancel ........................................................ 4
CHARGES AND DEDUCTIONS .................................................. 4
Daily Deductions from the Separate Account ............................. 4
Maintenance Fee ........................................................ 5
Deferred Sales Charge .................................................. 5
Fund Expenses ........................................................ 6
Premium and Other Taxes ............................................... 6
CONTRACT VALUATION ..................................................... 7
Account Value ........................................................ 7
Accumulation Units ..................................................... 7
Net Investment Factor .................................................. 7
TRANSFERS .............................................................. 7
WITHDRAWALS .............................................................. 8
Reinvestment Privilege ............................................... 8
CONTRACT LOANS ........................................................... 8
ADDITIONAL WITHDRAWAL OPTIONS ............................................ 8
DEATH BENEFIT DURING ACCUMULATION PERIOD ................................ 9
ANNUITY PERIOD ........................................................... 10
Annuity Period Elections ............................................... 10
Annuity Options ........................................................ 10
Annuity Payments ..................................................... 10
Charges Deducted During the Annuity Period ............................. 11
Death Benefit Payable During the Annuity Period ....................... 11
TAX STATUS .............................................................. 11
Introduction ........................................................... 11
Taxation of the Company ............................................... 11
Contracts Used with Certain Retirement Plans .......................... 12
<PAGE>
MISCELLANEOUS .......................................................... 14
Opportunity Plus Processing Office ..................................... 14
Distribution .......................................................... 14
Delay or Suspension of Payments ........................................ 14
Performance Reporting ................................................. 14
Voting Rights .......................................................... 15
Changes in Beneficiary Designations .................................. 15
Modification of the Contract ........................................... 15
Agreements with the Company ........................................... 15
Legal Matters and Proceedings ........................................ 15
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION ...................... 16
APPENDIX I--GUARANTEED ACCUMULATION ACCOUNT ............................... 17
APPENDIX II--FIXED ACCOUNT .............................................. 18
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. THE COMPANY DOES NOT AUTHORIZE ANY
PERSON TO GIVE INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE
OFFERING CONTAINED IN THIS PROSPECTUS EXCEPT AS OTHERWISE CONTAINED HEREIN.
<PAGE>
DEFINITIONS
================================================================================
The following terms are defined as they are used in this Prospectus:
Account: A record established for each Participant to identify contract values
accumulated on each Participant's behalf during the Accumulation Period. For any
given Participant, the Account includes amounts held under an Installment
Purchase Payment Contract and a Single Purchase Payment Contract.
Account Value: The total dollar value of amounts held in an Account as of each
Valuation Date during the Accumulation Period.
Account Year: A period of twelve months measured from the date on which an
Account is established (the effective date) or from an anniversary of such
effective date.
Accumulation Period: The period during which Purchase Payment(s) credited to an
Account are invested to fund future Annuity payments.
Accumulation Unit: A measure of the value of each Subaccount before annuity
payments begin.
Annuitant: The person on whose life or life expectancy the annuity payments are
based.
Annuity: A series of payments for life, a definite period or a combination of
the two.
Annuity Date: The date on which annuity payments begin.
Annuity Period: The period during which Annuity payments are made.
Annuity Unit: A measure of the value of each Subaccount selected during the
Annuity Period.
Beneficiary(ies): The person or persons identified in the enrollment form who
are to receive any death benefit proceeds payable under the Contract.
Code: Internal Revenue Code of 1986, as amended.
Company (We, Us): Aetna Life Insurance and Annuity Company.
Contracts: The group deferred, variable annuity contracts offered by this
Prospectus.
Contract Holder: The person or entity to whom the Contract is issued. The
Contract Holder of the Contract is usually the employer.
Credited Interest Options: The fixed interest options under the Contract. The
Credited Interest Options currently consist of the Guaranteed Accumulation
Account and the Fixed Account, each of which is described in an Appendix to this
Prospectus. Amounts allocated to the Credited Interest Options are included in
the Account Value.
Fund(s): An open-end registered management investment company whose shares are
purchased by the Separate Account to fund the benefits provided by the Contract.
Home Office: The Company's principal executive offices, located at 151
Farmington Avenue, Hartford, Connecticut 06156.
NYSUT: New York State United Teachers Trust.
Opportunity Plus Processing Office: The Opportunity Plus administrative
headquarters. The mailing address is P.O. Box 12894, Albany, New York
12212-2894.
Participant (You): A person participating in a Plan maintained by an eligible
organization.
Plan(s): Tax-deferred retirement plans under Section 403(b) of the Code for
employees of public school systems.
Purchase Payment(s): The gross payment(s) made to the Company under a Contract.
- --------------------------------------------------------------------------------
DEFINITIONS - 1
<PAGE>
Purchase Payment Periods: For "Installment Purchase Payment Contracts," the
period of time for completion of the agreed upon annual number and amount of
Purchase Payments. For example, if it is determined that the Purchase Payment
Period will consist of 12 payments per year and only 11 payments are made, the
Purchase Payment Period is not completed until the twelfth Purchase Payment is
made.
Separate Account: Variable Annuity Account C, a separate account established by
the Company for the purpose of funding variable annuity contracts issued by the
Company.
Subaccount(s): The portion of the assets of the Separate Account that is
allocated to a particular Fund. Each Subaccount invests in the shares of only
one corresponding Fund.
UUP: United University Professions.
Valuation Date: The date and time at which the Accumulation Unit Value and
Annuity Unit Value of a Subaccount is calculated. Currently, this calculation
occurs after the close of business of the New York Stock Exchange on any normal
business day, Monday through Friday, that the New York Stock Exchange is open.
- --------------------------------------------------------------------------------
DEFINITIONS - 2
<PAGE>
PROSPECTUS SUMMARY
================================================================================
CONTRACTS OFFERED
The two Contracts offered in connection with this Prospectus are group
deferred variable annuity contracts issued by Aetna Life Insurance and Annuity
Company (the "Company"). One allows lump sum payments ("Single Purchase Payment
Contracts") and the other allows installment payments ("Installment Purchase
Payment Contracts"). The purpose of the Contract is to accumulate values and to
provide benefits upon retirement for retirement plans under Section 403(b) of
the Code. The Contracts are available for school boards and public universities
in the State of New York, specifically for Participants who are members of NYSUT
and UUP.
The Contracts are available to Plans that include a variable annuity
contract alone or in conjunction with retail mutual funds for which Systemized
Benefits Administrators, Inc. ("SBA"), an affiliate of the Company, has agreed
to perform recordkeeping services and to provide consolidated statements. SBA
may receive compensation for these services, but such compensation will
generally not be charged to the Separate Account or deducted from a
Participant's Account under the Contract.
CONTRACT PURCHASE
The Contracts may be purchased by eligible organizations on behalf of a
group made up of their employees. Eligible employees may participate in the
Contract by completing the enrollment form and submitting it to the Opportunity
Plus Processing Office. Purchase Payments can be applied to the Contract either
through a lump-sum transfer from a pre-
existing plan or through salary reduction. (See "Purchase.")
FREE LOOK PERIOD
Contract Holders and Participants have the right to cancel their purchase
within 10 days after receiving the Contract or other document evidencing
interest in the Contract by returning it to the Opportunity Plus Processing
Office along with a written notice of cancellation. The amount received upon
cancellation will be the full value of Purchase Payments plus any increase or
minus any decrease in the Account Value allocated to the Subaccounts. (See
"Right to Cancel.")
INVESTMENT OPTIONS
The Company has established Variable Annuity Account C, a registered unit
investment trust, for the purpose of funding the variable portion of the
Contracts. The Separate Account is divided into Subaccounts which invest
directly in shares of the Funds described herein, as designated by the
Participant. The Contracts allow investment in any or all of the Subaccounts, as
well as in the Credited Interest Options described below. The total number of
investment options that may be selected during the Accumulation Period is
limited. For a complete list of the Funds available under the Contracts, a
description of the investment objectives of each of the Funds and their
investment advisers, and a description of the limitations on the number of
investment options, see "Investment Options--The Funds" in this Prospectus, as
well as the prospectuses for each of the Funds.
The Contracts also provide for investment in Credited Interest Options
which allow you to earn fixed rates of interest. The fixed options available
under the Contracts are the Guaranteed Accumulation Account ("GAA") and the
Fixed Account. (See the Appendices to this Prospectus.)
CHARGES AND DEDUCTIONS
Certain charges are associated with these Contracts. These charges include
daily deductions from the Separate Account (the mortality and expense risk
charges and an administrative charge), as well as any annual maintenance fee and
premium and other taxes. The Funds also incur certain fees and expenses which
are deducted directly from the Funds. A deferred sales charge may apply upon a
full or partial withdrawal of the Account Value. (See the Fee Table and "Charges
and Deductions.")
- --------------------------------------------------------------------------------
SUMMARY - 1
<PAGE>
TRANSFERS
Prior to the Annuity Date, and subject to certain limitations, Account
Values may be transferred among the Subaccounts and the Credited Interest
Options without charge. Transfers can be requested in writing or by telephone in
accordance with the Company's transfer procedures. (See the Appendices for a
full description of the restrictions applicable to transfers made from the
Credited Interest Options.) (See "Transfers.")
WITHDRAWALS
All or a part of the Account Value may be withdrawn prior to the Annuity
Date by properly completing a disbursement form and sending it to the Company.
Certain charges may be assessed upon withdrawal. The withdrawal may also be
subject to income tax and a federal tax penalty. The Code restricts full and
partial withdrawals in some circumstances. (See "Withdrawals.")
The Contract also offers certain Additional Withdrawal Options during the
Accumulation Period to persons meeting certain criteria. Additional Withdrawal
Options may not be suitable in every situation. (See "Additional Withdrawal
Options.")
LOANS
Participants under Section 403(b) Plans may request a loan from their
Account Value at any time during the Accumulation Period. (See "Contract
Loans.")
DEATH BENEFIT
A death benefit is payable if the Participant dies before the Annuity Date.
Death benefit proceeds will be paid to the Beneficiary in an amount equal to the
Account Value. Until the election of a method of payment, the Account Value will
remain invested under the Contract. The Beneficiary may elect to receive the
proceeds in a lump sum or under any of the payment options available under the
Contract. However, the Code requires that distributions begin within a certain
time period. (See "Death Benefit During Accumulation Period.")
After Annuity Payments have commenced, a death benefit may be payable to
the Beneficiary depending upon the terms of the Contract and the Annuity Option
selected. (See "Death Benefit Payable During the Annuity Period.")
THE ANNUITY PERIOD
On the Annuity Date, you may elect to begin receiving Annuity payments.
Annuity payments can be made on either a fixed, variable or combination fixed
and variable basis. If a variable payout is selected, the payments will continue
to vary with the investment performance of the Subaccount(s) selected. The
Company reserves the right to limit the number of Subaccounts that may be
available during the Annuity Period. (See "Annuity Period.")
TAXES
Contributions and earnings are not generally taxed until you or your
Beneficiary(ies) actually receive a distribution from the Contract. A 10%
federal tax penalty and a 20% withholding for income tax may be imposed on
certain withdrawals. (See "Tax Status.")
INQUIRIES
[bullet] Questions, inquiries or requests for additional information can be
directed to your agent or local representative, or you may contact the
Company through the Opportunity Plus Processing Office by writing to
P.O. Box 12894, Albany, New York 12212-2894, or by calling
1-800-OPP-INFO (1-800-677-4636). (See "Miscellaneous--Opportunity Plus
Processing Office.")
- --------------------------------------------------------------------------------
SUMMARY - 2
<PAGE>
FEE TABLE
================================================================================
This Fee Table describes the various charges and expenses associated with the
Contracts during the Accumulation Period. For amounts deducted during the
Annuity Period, see "Annuity Period--Charges Deducted During the Annuity
Period." No sales charge is paid upon purchase of the Contracts. All costs that
are borne directly or indirectly under the Subaccounts and Funds are shown
below. For more information regarding expenses paid out of the assets of a
particular Fund, see the Fund's prospectus.
CONTRACT HOLDER TRANSACTION EXPENSES
Deferred Sales Charge (as a percentage of the amount withdrawn).*
INSTALLMENT PURCHASE PAYMENT CONTRACTS:
Purchase Payment Deferred Sales
Periods Completed Charge Deduction
- ----------------------------- ------------------
Less than 5 5%
5 or more but less than 7 4%
7 or more but less than 9 3%
9 or more but less than 10 2%
More than 10 0%
Annual Contract Maintenance Fee ..................................... $5.00**
* The total amount deducted for the deferred sales charge will not exceed 8.5%
of the total Purchase Payments applied to the Account under the Installment
Purchase Payment Contract. For Single Purchase Payment Contracts, there is no
deduction for deferred sales charges. For Installment Purchase Payment
Contracts, the deferred sales charge is waived for amounts deposited in the
Subaccounts (or GAA) on or after April 1, 1995. (See "Charges and Deductions--
Deferred Sales Charge.")
**The maintenance fee will generally be deducted quarterly during the
Accumulation Period. Effective July 1, 1997 the quarterly maintenance fee
will be reduced from $3.75 per quarter to $1.25 per quarter, resulting in an
annual maintenance fee of $5.00 for the period from May 1, 1997 to May 1,
1998. Effective January 1, 1999 the quarterly maintenance fee will be
reduced to $0.00, thereby eliminating the maintenance fee charge.
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.) Separate Account Annual Expenses are:
Mortality and Expense Risk Charge ...... 1.25%
Administrative Expense Charge ......... 0.00%***
------
Total Separate Account Charges ......... 1.25%
======
*** We currently do not impose an Administrative Expense Charge. However, we
reserve the right to deduct a daily charge of not more than 0.25% per year
from the Subaccounts.
- --------------------------------------------------------------------------------
FEE TABLE - 1
<PAGE>
ANNUAL EXPENSES OF THE FUNDS
The following table illustrates the advisory fees and other expenses applicable
to the Funds. Except as noted, these figures are a percentage of each Fund's
average net assets and are based on figures for the year ended December 31,
1996. A Fund's "Other Expenses" include operating costs of the Fund. These
expenses are reflected in the Fund's net asset value and are not deducted from
the Account Value under the Contract.
<TABLE>
<CAPTION>
Investment
Advisory Fees(1) Other Expenses
(after expense (after expense Total Fund
reimbursement) reimbursement) Annual Expenses
------------------- ----------------- -----------------
<S> <C> <C> <C>
Aetna Variable Fund(2) 0.50% 0.06% 0.56%
Aetna Income Shares(2) 0.40% 0.08% 0.48%
Aetna Variable Encore Fund(2) 0.25% 0.10% 0.35%
Aetna Investment Advisers Fund, Inc.(2) 0.50% 0.08% 0.58%
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 Asset Manager Portfolio(5) 0.64% 0.10% 0.74%
Fidelity VIP II Contrafund Portfolio(5) 0.61% 0.13% 0.74%
Fidelity VIP II Index 500 Portfolio(6) 0.13% 0.15% 0.28%
Fidelity VIP Equity-Income Portfolio(5) 0.51% 0.07% 0.58%
Franklin Government Securities Trust(7) 0.63% 0.07% 0.70%
Janus Aspen Aggressive Growth Portfolio(8) 0.72% 0.04% 0.76%
Janus Aspen Growth Portfolio(8) 0.65% 0.04% 0.69%
Janus Aspen Short-Term Bond Portfolio(8) 0.47% 0.19% 0.66%
Janus Aspen Worldwide Growth Portfolio(8) 0.66% 0.14% 0.80%
Lexington Emerging Markets Fund, Inc.(9) 0.85% 1.38% 2.23%
Lexington Natural Resources Trust 1.00% 0.42% 1.42%
Neuberger & Berman Growth Portfolio(10) 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 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 and Aetna Investment Advisers Fund, Inc. Therefore, 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.
Effective August 1, 1996, Investment Advisory Fees were increased for Aetna
Variable Fund, Aetna Income Shares and Aetna Investment Advisers Fund,
Inc. 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%.
(5)A portion of the brokerage commission 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, 0.73% for Asset Manager
Portfolio; and 0.71% for Contrafund Portfolio.
- --------------------------------------------------------------------------------
FEE TABLE - 2
<PAGE>
(6)The Fund's investment adviser agreed to reimburse a portion of Index 500
Portfolio's expenses during the period. Without this reimbursement, the
fund's management fee, other expenses and total expenses would have been
0.28%, 0.15% and 0.43%, respectively, for Index 500 Index Portfolio.
(7)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.
(8)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 is net of fee waivers or
reductions from Janus Capital. Fee reductions for the Aggressive Growth,
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; 0.79%, 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.
(9)The Fund's investment adviser has agreed to voluntarily limit the total
expenses of the Fund (excluding interest, taxes, brokerage commissions, and
extraordinary expenses, but including management fees and operating
expenses) to an annual rate of 1.75% of the Fund's average net assets from
May 1, 1996 through April 30, 1997. For the period ending December 31,
1996, the Total Fund Annual Expenses, after reimbursement, was 1.64%.
Effective May 1, 1997, an expense limitation is no longer in effect. The
Advisory Fees, Other Expenses and Total Fund 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. The example
shown in the table above should not be considered a representation of past
or future expenses and actual expenses may be greater or less than those
shown.
(10)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.
The following Examples illustrate the expenses that would have been paid
assuming a $1,000 investment in the Contract and a 5% return on assets. For the
purposes of these Examples, the maintenance fee of $5.00 that is deducted under
the Contract has been converted to a percentage of assets equal to 0.013%.
<TABLE>
<CAPTION>
EXAMPLE A
--------------------------------------------
If you withdraw your entire Account
Value at the end of the periods shown,
you would pay the following expenses,
including any applicable deferred
sales charge:*
1 year 3 years 5 years 10 years
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Aetna Variable Fund $70 $112 $157 $214
Aetna Income Shares $69 $110 $153 $205
Aetna Variable Encore Fund $68 $106 $147 $191
Aetna Investment Advisers Fund, Inc. $70 $113 $158 $216
Alger American Growth Portfolio $72 $119 $168 $238
Alger American Small Cap Portfolio $73 $122 $173 $248
American Century VP Capital Appreciation $74 $125 $178 $260
Calvert Responsibly Invested Balanced Portfolio $73 $120 $171 $243
Fidelity VIP II Asset Manager Portfolio $72 $117 $166 $233
Fidelity VIP II Contrafund Portfolio $72 $117 $166 $233
Fidelity VIP II Index 500 Portfolio $67 $104 $143 $184
Fidelity VIP Equity-Income Portfolio $70 $113 $158 $216
Franklin Government Securities Trust $71 $116 $164 $229
Janus Aspen Aggressive Growth Portfolio $72 $118 $167 $235
Janus Aspen Growth Portfolio $71 $116 $163 $228
Janus Aspen Short-Term Bond Portfolio $71 $115 $162 $225
Janus Aspen Worldwide Growth Portfolio $72 $119 $169 $239
Lexington Emerging Markets Fund, Inc. $86 $159 $235 $377
Lexington Natural Resources Trust $78 $137 $198 $302
Neuberger & Berman Growth Portfolio $74 $123 $175 $252
Scudder International Portfolio Class A Shares $75 $126 $181 $265
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE B
-------------------------------------------
If you do not withdraw your Account
Value, or if you annuitize at the end of
the periods shown, you would pay the
following expenses (no deferred sales
charge is reflected):**
1 year 3 years 5 years 10 years
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Aetna Variable Fund $19 $57 $99 $214
Aetna Income Shares $18 $55 $95 $205
Aetna Variable Encore Fund $16 $51 $88 $191
Aetna Investment Advisers Fund, Inc. $19 $58 $100 $216
Alger American Growth Portfolio $21 $64 $110 $238
Alger American Small Cap Portfolio $22 $67 $115 $248
American Century VP Capital Appreciation $23 $71 $121 $260
Calvert Responsibly Invested Balanced Portfolio $21 $66 $113 $243
Fidelity VIP II Asset Manager Portfolio $20 $63 $108 $233
Fidelity VIP II Contrafund Portfolio $20 $63 $108 $233
Fidelity VIP II Index 500 Portfolio $16 $49 $84 $184
Fidelity VIP Equity-Income Portfolio $19 $58 $100 $216
Franklin Government Securities Trust $20 $62 $106 $229
Janus Aspen Aggressive Growth Portfolio $21 $63 $109 $235
Janus Aspen Growth Portfolio $20 $61 $105 $228
Janus Aspen Short-Term Bond Portfolio $20 $60 $104 $225
Janus Aspen Worldwide Growth Portfolio $21 $65 $111 $239
Lexington Emerging Markets Fund, Inc. $35 $107 $181 $377
Lexington Natural Resources Trust $27 $83 $142 $302
Neuberger & Berman Growth Portfolio $22 $68 $117 $252
Scudder International Portfolio Class A Shares $23 $72 $124 $265
</TABLE>
- ------------------
* For Single Purchase Payment Accounts, there is no deduction for deferred sales
charges. For Installment Purchase Payment Accounts, the deferred sales charge
is waived for amounts deposited in the Subaccounts (or GAA) on or after
April 1, 1995.
** This Example would not apply if a nonlifetime variable annuity option is
selected, and a lump sum settlement is requested within three years after
annuity payments start since the lump sum payment will be treated as a
withdrawal during the Accumulation Period and will be subject to any deferred
sales charge that would then apply. (Refer to Example A.)
- --------------------------------------------------------------------------------
FEE TABLE - 4
<PAGE>
CONDENSED FINANCIAL INFORMATION
(Selected data for accumulation units outstanding throughout each period)
================================================================================
The condensed financial information presented below for each of the years in the
ten-year period ended December 31, 1996 (as applicable), is derived from the
financial statements of the Account, which financial statements have been
audited by KPMG Peat Marwick LLP, independent auditors. The financial statements
and the independent auditors' report thereon are included in the Statement of
Additional Information.
<TABLE>
<CAPTION>
1996 1995 1994 1993
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
AETNA VARIABLE FUND
Value at beginning of period $ 137.869 $ 105.558 $ 107.925 $ 102.383
Value at end of period $ 169.448 $ 137.869 $ 105.558 $ 107.925
Increase (decrease) in value of
accumulation unit(1) 22.91% 30.61% (2.19)% 5.41%
Number of accumulation units
outstanding at end of period 2,071,139 6,364,000 13,966,072 21,148,863
AETNA INCOME SHARES
Value at beginning of period $ 46.913 $ 40.173 $ 42.283 $ 39.038
Value at end of period $ 47.992 $ 46.913 $ 40.173 $ 42.283
Increase (decrease) in value of
accumulation unit(1) 2.30% 16.78% (4.99)% 8.31%
Number of accumulation units
outstanding at end of period 835,724 2,377,622 5,108,720 8,210,666
AETNA VARIABLE ENCORE FUND
Value at beginning of period $ 37.988 $ 36.271 $ 35.282 $ 34.619
Value at end of period $ 39.528 $ 37.988 $ 36.271 $ 35.282
Increase (decrease) in value of
accumulation unit(1) 4.05% 4.73% 2.80% 1.92%
Number of accumulation units
outstanding at end of period 597,656 1,836,260 3,679,802 5,086,515
AETNA INVESTMENT ADVISERS
FUND, INC.
Value at beginning of period $ 17.954 $ 14.270 $ 14.519 $ 13.379
Value at end of period $ 20.419 $ 17.954 $ 14.270 $ 14.519
Increase (decrease) in value of
accumulation unit(1) 13.73% 25.82% (1.71)% 8.52%
Number of accumulation units
outstanding at end of period 2,716,641 9,193,181 21,990,186 30,784,750
ALGER AMERICAN GROWTH PORTFOLIO
Value at beginning of period $ 11.715 $10.000(14)
Value at end of period $ 13.113 $ 11.715
Increase (decrease) in value of
accumulation unit(1) 11.93% 17.15%
Number of accumulation units
outstanding at end of period 1,023,908 530,263
ALGER AMERICAN SMALL CAP PORTFOLIO
Value at beginning of period $ 13.558 $ 9.513 $ 10.072 $ 10.000(3)
Value at end of period $ 13.949 $ 13.558 $ 9.513 $ 10.072
Increase (decrease) in value of
accumulation unit(1) 2.88% 42.52% (5.55)% 0.72%
Number of accumulation units
outstanding at end of period 2,373,178 1,714,187 665,518 51,327
AMERICAN CENTURY VP
CAPITAL APPRECIATION*
Value at beginning of period $ 14.464 $ 11.172 $ 11.443 $ 10.495
Value at end of period $ 13.650 $ 14.464 $ 11.172 $ 11.443
Increase (decrease) in value of
accumulation unit(1) (5.63)% 29.47% (2.37)% 9.03%
Number of accumulation units
outstanding at end of period 1,566,276 1,784,552 1,608,362 1,016,894
</TABLE>
<TABLE>
<CAPTION>
1992 1991 1990 1989 1988 1987
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
AETNA VARIABLE FUND
Value at beginning of period $ 97.165 $ 77.845 $ 76.311 $ 59.871 $ 52.885 $ 50.760
Value at end of period $ 102.383 $ 97.165 $ 77.845 $ 76.311 $ 59.871 $ 52.885
Increase (decrease) in value of
accumulation unit(1) 5.37% 24.82% 2.01% 27.46% 13.21% 4.19%
Number of accumulation units
outstanding at end of period 24,201,565 20,948,226 18,362,906 17,142,820 16,455,396 16,497,406
AETNA INCOME SHARES
Value at beginning of period $ 36.789 $ 31.192 $ 28.943 $ 25.574 $ 24.061 $ 23.308
Value at end of period $ 39.038 $ 36.789 $ 31.192 $ 28.943 $ 25.574 $ 24.061
Increase (decrease) in value of
accumulation unit(1) 6.11% 17.94% 7.77% 13.17% 6.29% 3.23%
Number of accumulation units
outstanding at end of period 8,507,292 7,844,412 6,984,793 6,202,834 5,955,293 5,372,271
AETNA VARIABLE ENCORE FUND
Value at beginning of period $ 33.812 $ 32.138 $ 30.012 $ 27.783 $ 26.171 $ 24.812
Value at end of period $ 34.619 $ 33.812 $ 32.138 $ 30.012 $ 27.783 $ 26.171
Increase (decrease) in value of
accumulation unit(1) 2.39% 5.21% 7.08% 8.02% 6.16% 5.48%
Number of accumulation units
outstanding at end of period 7,534,662 8,430,082 10,220,110 8,286,033 8,154,644 7,326,151
AETNA INVESTMENT ADVISERS
FUND, INC.
Value at beginning of period $ 12.736 $ 10.896 $ 10.437 $ 10.000(2)
Value at end of period $ 13.379 $ 12.736 $ 10.896 $ 10.437
Increase (decrease) in value of
accumulation unit(1) 5.05% 16.89% 4.40% 4.37%
Number of accumulation units
outstanding at end of period 34,802,433 22,898,099 17,078,985 9,535,986
ALGER AMERICAN GROWTH PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
ALGER AMERICAN SMALL CAP PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
AMERICAN CENTURY VP
CAPITAL APPRECIATION*
Value at beginning of period $10.000(12)
Value at end of period $ 10.495
Increase (decrease) in value of
accumulation unit(1) 4.95%
Number of accumulation units
outstanding at end of period 232,832
</TABLE>
- --------------------------------------------------------------------------------
AUV HISTORY - 1
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
================================================================================
<TABLE>
<CAPTION>
1996 1995 1994 1993
--------- ---------- --------- -------
<S> <C> <C> <C> <C>
CALVERT RESPONSIBLY INVESTED
BALANCED PORTFOLIO**
Value at beginning of period $ 17.951 $ 13.990 $ 14.640 $13.726
Value at end of period $ 19.965 $ 17.951 $ 13.990 $14.640
Increase (decrease) in value of
accumulation unit(1) 11.22% 28.31% (4.44)% 6.66%
Number of accumulation units
outstanding at end of period 898,279 856,361 743,464 705,415
FIDELITY VIP II ASSET MANAGER
PORTFOLIO
Value at beginning of period $ 10.912 $ 9.447 $10.000(5)
Value at end of period $ 12.349 $ 10.912 $ 9.447
Increase (decrease) in value of
accumulation unit(1) $ 13.17% 15.51% (5.53)%
Number of accumulation units
outstanding at end of period 1,384,927 1,316,916 1,254,504
FIDELITY VIP II CONTRAFUND
PORTFOLIO
Value at beginning of period $ 11.763 $10.000(14)
Value at end of period $ 14.092 $ 11.763
Increase (decrease) in value of
accumulation unit(1) 19.79% 17.63%
Number of accumulation units
outstanding at end of period 1,522,169 525,476
FIDELITY VIP EQUITY-INCOME
PORTFOLIO
Value at beginning of period $ 11.617 $10.000(14)
Value at end of period $ 13.110 $ 11,617
Increase (decrease) in value of
accumulation unit(1) 12.86% 16.17%
Number of accumulation units
outstanding at end of period 1,454,755 628,582
FIDELITY VIP II INDEX 500
PORTFOLIO
Value at beginning of period $ 11.740 $10.000(14)
Value at end of period $ 14.240 $ 11.740
Increase (decrease) in value of
accumulation unit(1) 21.29% 17.40%
Number of accumulation units
outstanding at end of period 1,490,937 290,547
FRANKLIN GOVERNMENT
SECURITIES TRUST
Value at beginning of period $ 16.495 $ 14.190 $ 14.929 $14.050
Value at end of period $ 16.952 $ 16.495 $ 14.109 $14.990
Increase (decrease) in value of
accumulation unit(1) 2.77% 16.24% (4.95)% 6.26%
Number of accumulation units
outstanding at end of period 767,910 809,414 804,457 960,629
JANUS ASPEN AGGRESSIVE
GROWTH PORTFOLIO
Value at beginning of period $ 15.323 $ 12.169 $10.000(7)
Value at end of period $ 16.334 $ 15.323 $ 12.169
Increase (decrease) in value of
accumulation unit(1) 6.60% 25.91% 21.69%
Number of accumulation units
outstanding at end of period 1,893,718 1,280,953 393,553
JANUS ASPEN GROWTH PORTFOLIO
Value at beginning of period $ 11.859 $10.000(13)
Value at end of period $ 13.872 $ 11.859
Increase (decrease) in value of
accumulation unit(1) 16.98% 18.59%
Number of accumulation units
outstanding at end of period 663,945 109,717
</TABLE>
<TABLE>
<CAPTION>
1992 1991 1990 1989 1988 1987
------- ------- ------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
CALVERT RESPONSIBLY INVESTED
BALANCED PORTFOLIO**
Value at beginning of period $12.913 $11.233 $10.568 $ 10.000(4)
Value at end of period $13.726 $12.913 $11.233 $ 10.568
Increase (decrease) in value of
accumulation unit(1) 6.30% 14.96% 6.29% 5.68%
Number of accumulation units
outstanding at end of period 503,006 355,851 148,576 20,710
FIDELITY VIP II ASSET MANAGER
PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
FIDELITY VIP II CONTRAFUND
PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
FIDELITY VIP EQUITY-INCOME
PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
FIDELITY VIP II INDEX 500
PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
FRANKLIN GOVERNMENT
SECURITIES TRUST
Value at beginning of period $13.219 $11.545 $10.581 $ 10.000(6)
Value at end of period $14.050 $13.219 $11.545 $ 10.581
Increase (decrease) in value of
accumulation unit(1) 6.29% 14.50% 9.11% 5.81%
Number of accumulation units
outstanding at end of period 810,155 627,552 178,761 25,258
JANUS ASPEN AGGRESSIVE
GROWTH PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
JANUS ASPEN GROWTH PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
</TABLE>
- --------------------------------------------------------------------------------
AUV HISTORY - 2
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
================================================================================
<TABLE>
<CAPTION>
1996 1995 1994 1993
--------- ----------- ---------- --------
<S> <C> <C> <C> <C>
JANUS ASPEN SHORT-TERM
BOND PORTFOLIO
Value at beginning of period $ 10.393 $ 10.000(13)
Value at end of period $ 10.671 $ 10.393
Increase (decrease) in value of
accumulation unit(1) 2.68% 3.93%
Number of accumulation units
outstanding at end of period 54,215 18,473
JANUS ASPEN WORLDWIDE
GROWTH PORTFOLIO
Value at beginning of period $ 12.158 $ 10.000(13)
Value at end of period $ 15.493 $ 12.158
Increase (decrease) in value of
accumulation unit(1) 27.43% 21.58%
Number of accumulation units
outstanding at end of period 2,090,908 314,653
LEXINGTON EMERGING
MARKETS FUND, INC.
Value at beginning of period $ 8.323 $ 8.772 $ 10.000(8)
Value at end of period $ 8.832 $ 8.323 $ 8.772
Increase (decrease) in value of
accumulation unit(1) 6.12% (5.12)% (12.28)%
Number of accumulation units
outstanding at end of period 548,618 371,156 144,750
LEXINGTON NATURAL
RESOURCES TRUST
Value at beginning of period $ 10.862 $ 9.412 $ 10.071 $ 9.193
Value at end of period $ 13.611 $ 10.862 $ 9.412 $ 10.071
Increase (decrease) in value of
accumulation unit(1) 25.31% 15.41% (6.54)% 9.55%
Number of accumulation units
outstanding at end of period 587,248 530,562 533,016 341,771
NEUBERGER & BERMAN
GROWTH PORTFOLIO
Value at beginning of period $ 17.430 $ 13.398 $ 14.278 $ 13.536
Value at end of period $ 18.786 $ 17.430 $ 13.398 $ 14.278
Increase (decrease) in value of
accumulation unit(1) 7.78% 30.09% (6.16)% 5.48%
Number of accumulation units
outstanding at end of period 2,169,362 2,359,090 2,107,525 1,927,674
SCUDDER INTERNATIONAL
PORTFOLIO CLASS A SHARES***
Value at beginning of period $ 14.515 $ 13.227 $ 13.508 $ 9.922
Value at end of period $ 16.453 $ 14.515 $ 13.227 $ 13.508
Increase (decrease) in value of
accumulation unit(1) 13.35% 9.74% (2.08)% 36.14%
Number of accumulation units
outstanding at end of period 3,684,698 3,823,292 4,240,412 2,371,037
</TABLE>
<TABLE>
<CAPTION>
1992 1991 1990 1989 1988 1987
------- ------- ------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
JANUS ASPEN SHORT-TERM
BOND PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
JANUS ASPEN WORLDWIDE
GROWTH PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
LEXINGTON EMERGING
MARKETS FUND, INC.
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
LEXINGTON NATURAL
RESOURCES TRUST
Value at beginning of period $ 9.018 $ 9.608 $ 11.441 $ 10.000(9)
Value at end of period $ 9.193 $ 9.018 $ 9.608 $ 11.441
Increase (decrease) in value of
accumulation unit(1) 1.94% (6.14)% (16.02)% 14.41%
Number of accumulation units
outstanding at end of period 198,338 144,139 75,052 11,481
NEUBERGER & BERMAN
GROWTH PORTFOLIO
Value at beginning of period $ 12.511 $ 9.769 $ 10.772 $10.000(10)
Value at end of period $ 13.536 $12.511 $ 9.769 $ 10.772
Increase (decrease) in value of
accumulation unit(1) 8.19% 28.07% (9.31)% 7.72%
Number of accumulation units
outstanding at end of period 1,346,898 971,985 482,220 68,885
SCUDDER INTERNATIONAL
PORTFOLIO CLASS A SHARES***
Value at beginning of period $10.239** $ 9.256 $ 10.306 $10.000(11)
Value at end of period $ 9.922 $10.239 $ 9.256 $ 10.306
Increase (decrease) in value of
accumulation unit(1) (3.10)% 10.62% (10.19)% 3.06%
Number of accumulation units
outstanding at end of period 1,161,007 779,667 317,829 32,902
</TABLE>
(1)The above figures are calculated by subtracting the beginning Accumulation
Unit value from the ending Accumulation Unit value during a calendar year,
and dividing the result by the beginning Accumulation Unit value. These
figures do not reflect the deferred sales charge or the fixed dollar annual
maintenance fee, if any. Inclusion of these charges would reduce the
investment results shown.
(2)Reflects less than a full year of performance activity. The initial
Accumulation Unit value was established at $10.000 on June 23, 1989, the
date on which the Fund commenced operations.
(3)Reflects less than a full year of performance activity. The initial
Accumulation Unit value was established at $10.000 on September 17, 1993.
The Portfolio became available under the Contract on March 15, 1994.
(4)Reflects less than a full year of performance activity. The initial
Accumulation Unit value was established at $10.000 on May 31, 1989, the
date on which the Fund became available under the Contract.
(5)Reflects less than a full year of performance activity. The initial
Accumulation Unit value was established at $10.000 during March 1994, when
funds were first received under this option.
(6)Reflects less than a full year of performance activity. The initial
Accumulation Unit value was established at $10.000 on June 7, 1989, the
date on which the Fund became available under the Contract.
(7)Reflects less than a full year of performance activity. The initial
Accumulation Unit value was established at $10.000 during June 1994, when
funds were first received in this option.
- --------------------------------------------------------------------------------
AUV HISTORY - 3
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
================================================================================
(8)Reflects less than a full year of performance activity. The initial
Accumulation Unit value was established at $10.000 during October 1994,
when funds were first received in this option.
(9)Reflects less than a full year of performance activity. The initial
Accumulation Unit value was established at $10.000 on May 31, 1989, the
date on which the Fund became available under the Contract.
(10)Reflects less than a full year of performance activity. The initial
Accumulation Unit value was established at $10.000 on May 31, 1989, the
date on which the Portfolio became available under the Contract.
(11)Reflects less than a full year of performance activity. The initial
Accumulation Unit value was established at $10.000 on July 5, 1989, the
date on which the Portfolio became available under the Contract.
(12)Reflects less than a full year of performance activity. The initial
Accumulation Unit value was established at $10.000 on September 21, 1992,
the date on which the Portfolio became available under the Contract.
(13)Reflects less than a full year of performance activity. The initial
Accumulation Unit value was established at $10.000 during July 1995, when
the Fund became available under the Contract.
(14)Reflects less than a full year of performance activity. The initial
Accumulation Unit value was established at $10.000 during May 1995, when
the Fund became available under the Contract.
* Formerly TCI Portfolios, Inc.--TCI Growth.
** Formerly Calvert Socially Responsible Series.
*** Formerly T. Rowe Price International Equity Fund. On April 27, 1992, the
Fund's assets were liquidated and merged into Scudder Variable Life
Investment Fund--Managed International Portfolio. The Accumulation Unit
value following the merger was $10.051.
- --------------------------------------------------------------------------------
AUV HISTORY - 4
<PAGE>
THE COMPANY
================================================================================
Aetna Life Insurance and Annuity Company (the "Company") is the issuer of
the Contract, and as such, it is responsible for providing the insurance and
annuity benefits under the Contract. The Company is a stock life insurance
company organized under the insurance laws of the State of Connecticut in 1976.
Through a merger, it succeeded to the business of Aetna Variable Annuity Life
Insurance Company (formerly Participating Annuity Life Insurance Company, an
Arkansas life insurance company organized in 1954). The Company is engaged in
the business of issuing life insurance policies and variable annuity contracts
in all states of the United States. The Company's principal executive offices
are located at 151 Farmington Avenue, Hartford, Connecticut 06156.
The Company is a wholly owned subsidiary of Aetna Retirement Holdings,
Inc., which is in turn a wholly owned subsidiary of Aetna Retirement Services,
Inc. and an indirect wholly owned subsidiary of Aetna Inc.
VARIABLE ANNUITY ACCOUNT C
================================================================================
The Company established Variable Annuity Account C (the "Separate
Account") in 1976 as a segregated asset account for the purpose of funding its
variable annuity contracts. The Separate Account is registered as a unit
investment trust under the Investment Company Act of 1940 (the "1940 Act") and
meets the definition of "separate account" under federal securities laws. The
Separate Account is divided into "subaccounts" which do not invest directly in
stocks, bonds or other investments. Instead, each Subaccount buys and sells
shares of a corresponding Fund.
Although the Company holds title to the assets of the Separate Account,
such assets are not chargeable with liabilities arising out of any other
business we 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 our other income, gains or losses. All obligations arising under the
Contracts are our general corporate obligations.
INVESTMENT OPTIONS
================================================================================
THE FUNDS
Purchase Payments may be allocated to one or more of the Subaccounts as
designated on the enrollment form. In turn, the Subaccounts invest in the
corresponding Funds at net asset value. The total number of investment options
that you may select during the Accumulation Period is limited to 18. Each
Subaccount selected, the Fixed Account and each guaranteed term of GAA counts as
one option, even if you no longer have amounts allocated to that option.
The Contract Holder may decide to offer only a select number of Funds
under its Plan. In addition, the Company may add, withdraw or substitute Funds,
subject to the conditions in the Contract and in compliance with regulatory
requirements. The availability of Funds may also be subject to applicable
regulatory authorization. Not all Funds may be available in all jurisdictions,
under all Contracts or in all Plans.
The investment results of the Funds described below are likely to differ
significantly and there is no assurance that any of the Funds will achieve their
respective investment objectives. Except where otherwise noted, all of the Funds
are diversified, as defined in the 1940 Act.
[bullet] Aetna Variable Fund seeks to maximize total return through investments
in a diversified portfolio of common stocks and securities convertible
into common stock.(1)
[bullet] Aetna Income Shares seeks to maximize total return, consistent with
reasonable risk, through investments in a diversified portfolio
consisting primarily of debt securities.(1)
[bullet] Aetna Variable Encore Fund seeks to provide high current return,
consistent with preservation of capital and liquidity, through
investment in high-quality money market instruments. An investment in
the Fund is neither insured nor guaranteed by the U.S. Government.(1)
[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
- --------------------------------------------------------------------------------
1
<PAGE>
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] Alger American Fund--Alger American Growth Portfolio seeks long-term
capital appreciation by investing in a diversified, actively managed
portfolio of equity securities. The Portfolio primarily invests in
equity securities of companies which have a market capitalization of $1
billion or greater.(2)
[bullet] Alger American Fund--Alger American Small Capitalization Portfolio
seeks long-term capital appreciation. Except during temporary defensive
periods, the Portfolio invests at least 65% of its total assets in
equity securities of companies that, at the time of purchase of such
securities, have total market capitalization within the range of
companies included in the Russell 2000 Growth Index ("Russell Index")
and the S&P 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 the 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 Twentieth Century Portfolios--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--Asset Manager
Portfolio seeks high total return with reduced risk over the long-term
by allocating its assets among stocks, bonds and short-term
fixed-income instruments.
[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 II--Index 500
Portfolio seeks to provide investment results that correspond to the
total return of common stocks publicly traded in the United States by
duplicating the composition and total return of the Standard & Poor's
500 Composite Index of 500 stocks.(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] 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--Growth Portfolio seeks long-term growth of capital
in a manner consistent with the preservation of capital. The Portfolio
pursues its investment objective by investing in common stocks of
companies of any size.(7)
[bullet] Janus Aspen Series--Short-Term Bond Portfolio seeks as high a level of
current income as is consistent with preservation of capital. The
Portfolio pursues its investment objective by investing primarily in
short- and intermediate-term fixed income securities.(7)
[bullet] Janus Aspen Series--Worldwide Growth Portfolio seeks long-term growth
of capital in a manner consistent with preservation of capital. The
Portfolio pursues its investment objective primarily through
investments in common stocks of foreign and domestic issuers.(7)
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2
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[bullet] Lexington Emerging Markets Fund, Inc seeks long-term growth of capital
primarily through investment in equity securities of companies
domiciled in, or doing business in emerging countries and emerging
markets. Investments in emerging markets involve risks not present in
domestic markets. See the Fund's prospectus for information on risks
inherent in this investment.(8)
[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. (sub-adviser--Natural Resources Trust only)
(9) Neuberger & Berman Management Inc.
(Investment Manager); Neuberger & Berman, L.P.
(Sub-Adviser)
(10) Scudder, Stevens & Clark, Inc.
Risks Associated with Investment in the Funds. Some of the Funds may use
instruments known as derivatives as part of their investment strategies. The use
of certain derivatives may involve high risk of volatility to a Fund, and the
use of leverage in connection with such derivatives can also increase risk of
losses. Some of the Funds may also invest in foreign or international securities
which involve greater risks than U.S. investments.
More comprehensive information, including a discussion of potential risks,
is found in the current prospectus for each Fund which is distributed with and
accompanies this Prospectus. You should read the Fund prospectuses and consider
carefully, and on a continuing basis, which Fund or combination of Funds is best
suited to your long-term investment objectives. Additional prospectuses and
Statements of Additional Information for this Prospectus and for each of the
Funds can be obtained from the Company's Home Office at the address and
telephone number listed under the "Inquiries" section of the Prospectus Summary.
Conflicts of Interest (Mixed and Shared Funding). Shares of the Funds are
sold to each of the Subaccounts for funding the variable annuity contracts
issued by the Company. Shares of the Funds may also be sold to other insurance
companies for the same purpose. This is referred to as "shared funding." Shares
of the Funds may also be used for funding variable life insurance contracts
issued by the Company or by third parties. This is referred to as "mixed
funding."
Because the Funds available under the Contract are sold to fund variable
annuity contracts and variable life insurance policies issued by us or by other
companies, certain conflicts of interest could arise. If a conflict of interest
were to occur, one of the separate accounts might withdraw its investment in a
Fund, which might force that Fund to sell portfolio securities at
disadvantageous prices, causing its per share value to decrease. Each Fund's
Board of Directors or Trustees has agreed to monitor events in order to identify
any material irreconcilable conflicts which might arise and to determine what
action, if any, should be taken to address such conflict.
CREDITED INTEREST OPTIONS
Purchase Payments may be allocated to one or more of the Credited Interest
Options available under the Contracts as described below. The Contract Holder
may elect not to offer all Credited Interest Options under its Plan. The
Credited Interest Options currently available under the Contract include the
Guaranteed Accumulation Account and the Fixed Account.
[bullet] The Guaranteed Accumulation Account (GAA) is a credited interest option
through which we guarantee stipulated rates of interest for stated
periods of time. Amounts must remain in the GAA for the full guaranteed
term to received the quoted interest rates, or a market value
adjustment (which may be positive or negative) will be applied. (See
Appendix I.)
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[bullet] The Fixed Account is a part of the Company's general account. The Fixed
Account guarantees a minimum interest rate, as specified in the
Contract. The Company may credit higher interest rates from time to
time. Transfers from the Fixed Account are limited. (See Appendix II.)
PURCHASE
================================================================================
CONTRACT AVAILABILITY
The Contracts are designed to allow the accumulation of assets and to
provide retirement benefits under retirement plans under Section 403(b) of the
Code by school boards and public universities in the state of New York, for
Participants who are members of NYSUT or UUP.
Two group contracts may be issued to cover all present and future
Participants. The group Contracts are generally owned by the employer and
individual Accounts are established for each Participant. Single Purchase
Payment Contracts are issued for lump-sum transfers to us of amounts accumulated
under a pre-existing Plan. Installment Purchase Payment Contracts are
established to accept continuing periodic payments. We reserve the right to set
a minimum Purchase Payment on Single Purchase Payment Contracts. Lump Sum
transfers below this minimum will be applied to an Installment Purchase Payment
Contract.
Under the Plans, the employer has no right, title or interest in the
amounts held under the Contract or in the Account; Participants make all
elections under the Contract.
PURCHASING INTERESTS IN THE CONTRACT
Eligible organizations may acquire Contracts by submitting an application
to the Opportunity Plus Processing Office at 18 Corporate Woods Boulevard,
Fourth Floor, Albany, New York 12211. Once we approve the forms, the Contract
will be issued to the employer as the group Contract Holder. Participants may
purchase interests in a group Contract by submitting enrollment materials to the
Opportunity Plus Processing Office.
The Company must accept or reject the application or enrollment forms
within two business days of receipt. If the forms 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 the five business days based on the consent of the Contract Holder, the
Purchase Payments will be deposited in the Aetna Variable Encore Fund Subaccount
until the forms are completed.
Allocation of Purchase Payments. Purchase Payments will initially be
allocated to the Subaccounts or Credited Interest Options as specified by the
Participant on the enrollment form. Changes in such allocation may be made in
writing or by telephone transfer. Allocations must be in whole percentages.
RIGHT TO CANCEL
Contract Holders and Participants have the right to cancel their purchase
within 10 days of receiving the Contract (or other document evidencing your
interest) by returning it to the Opportunity Plus Processing Office with a
written notice of intent to cancel. When we receive your request for
cancellation, we will return your Account Value. You bear the entire investment
risk for amounts allocated among the Subaccounts during the free look period.
Account Values will be determined as of the Valuation Date on which we receive
your request for cancellation at the Opportunity Plus Processing Office.
CHARGES AND DEDUCTIONS
================================================================================
DAILY DEDUCTIONS FROM THE SEPARATE ACCOUNT
Mortality and Expense Risk Charge. The Company makes a daily deduction
from each of the Subaccounts for the mortality and expense risk charge. The
charge is equal, on an annual basis, to 1.25% of the daily net assets of the
Subaccounts and compensates the Company for the assumption of the mortality and
expense risks under the Contract. The mortality risks are those assumed for our
promise to make lifetime payments according to annuity rates specified in the
Contract. The expense risk is the risk that the actual expenses for costs
incurred under the Contract will exceed the maximum costs that can be charged
under the Contract.
If the amount deducted for mortality and expense risks is not sufficient
to cover the mortality costs and
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4
<PAGE>
expense shortfalls, the loss is borne by the Company. If the deduction is more
than sufficient, the excess may be used to recover distribution expenses
relating to the Contracts and as a source of profit to the Company. The Company
expects to make a profit from the mortality and expense risk charge.
Administrative Expense Charge. The Company reserves the right to make a
deduction from each of the Subaccounts for an administrative expense charge. The
administrative expense charge compensates the Company for administrative
expenses that exceed revenues from the maintenance fee described below. The
charge is set at a level which does not exceed the average expected cost of the
administrative services to be provided while the Contract is in force. The
Company does not expect to make a profit from this charge.
Under the Contract, the amount of the administrative expense charge may be
of an amount equal, on an annual basis, to a maximum of 0.25% of the daily net
assets of the Subaccounts. There is currently no administrative expense charge
during the Accumulation Period or Annuity Period. Once an Annuity Option is
elected, the charge will be established and will be effective during the entire
Annuity Period.
MAINTENANCE FEE
During the Accumulation Period, the Company will deduct an annual
maintenance fee from the Account Value. The maintenance fee is to reimburse the
Company for some of its administrative expenses relating to the establishment
and maintenance of the Accounts.
For the period from May 1, 1997 to May 1, 1998, the maintenance fee will
be $5 on an annual basis, with one fourth of this fee ($1.25) deducted during
the first month after the end of each calendar quarter. Effective January 1,
1999, the quarterly maintenance fee will be reduced to $0.00, thereby
eliminating the maintenance fee charge. The maintenance fee will be deducted on
a pro rata basis from each investment option in which you have an interest.
DEFERRED SALES CHARGE
Withdrawals of all or a portion of the Account Value may be subject to a
deferred sales charge. The deferred sales charge is a percentage of the amounts
withdrawn from the Subaccounts, the Fixed Account and the Guaranteed
Accumulation Account.
For Installment Purchase Payment Contracts, the deferred sales charge is
based on the number of completed Purchase Payment Periods. There is no deferred
sales charge provision on Single Purchase Payment Contracts. However, if amounts
are transferred from a Single Purchase Payment Contract to an Installment
Purchase Payment Contract, the applicable deferred sales charge provisions apply
to all amounts in the Installment Purchase Payment Contract.
For Installment Purchase Payment Contracts, the amount of the deferred
sales charge is determined in accordance with the schedule set forth in the
following table:
INSTALLMENT PURCHASE PAYMENT CONTRACTS:
Purchase Payment Deferred Sales
Periods Completed Charge Deduction
- ----------------------------- ------------------
Less than 5 5%
5 or more but less than 7 4%
7 or more but less than 9 3%
9 or more but less than 10 2%
More than 10 0%
In addition, if a nonlifetime Annuity Option is elected on a variable
basis and the remaining value is withdrawn before three years of Annuity
payments have been completed, the applicable deferred sales charge will be
assessed (see "Annuity Options").
The deduction for the deferred sales charge will not exceed 8.5% of the
total Purchase Payments actually made to the Account. The Company does not
anticipate that the deferred sales charge will cover all sales and
administrative expenses which it incurs in connection with the Contract. The
difference will be covered by the general assets of the Company which are
attributable, in part, to mortality and expense risk charges under the Contract
described above.
Generally, if you transfer the total account value under another similar
annuity contract issued by the Company to an Account under this Contract, the
effective date of the new Account will be the same effective date as your former
contract for the purpose of calculating the applicable deferred sales charge
under this Contract.
A deferred sales charge will not be deducted from any portion of the
Account Value if the withdrawal is:
[bullet] applied to provide Annuity benefits;
[bullet] taken on or after the tenth anniversary of the effective date of the
Account;
[bullet] paid due to your death before Annuity payments begin;
[bullet] made due to the election of an Additional Withdrawal Option (see
"Additional Withdrawal Options");
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<PAGE>
[bullet] paid where the Account Value is $2,500 or less and no amount has been
withdrawn, taken as a loan, or used to purchase Annuity benefits during
the prior 12 months;
[bullet] taken from an Installment Purchase Payment Contract by a Participant
who is at least age 591/2 and who has completed nine Purchase Payment
Periods;
[bullet] withdrawn due to disability as specified in the Code;
[bullet] withdrawn due to financial hardship as specified in the Code;
[bullet] withdrawn due to separation from service while meeting the age and
service requirements to receive benefits under the New York State
Teachers' or Employees' Retirement Systems (even if you are not a
member of either system); or
[bullet] withdrawn from the portion of the Account Value invested in the
Subaccount(s) and/or GAA attributable to Purchase Payments made on or
after April 1, 1995. This waiver does not apply to amounts deposited in
the Fixed Account. If amounts are deposited in a Subaccount or GAA and
then transferred to the Fixed Account, the waiver would no longer
apply. If amounts are deposited in the Fixed Account and then
transferred to a Subaccount or GAA, the waiver would not apply to
amounts that came from the Fixed Account. No deferred sales charge
would be assessed unless and until these amounts are withdrawn from the
Account. For any withdrawal, the Account Value of the Purchase
Payment(s) made on or after April 1, 1995 will be withdrawn first.
Then, the remaining Account Value will be used to satisfy the
disbursement request.
Free Withdrawals. For Participants between the ages of 591/2 and 701/2, up
to 10% of the current Account Value may be withdrawn during each calendar year
without imposition of a deferred sales charge. The free withdrawal applies only
to the first partial withdrawal in each calendar year. The 10% amount will be
based on the Account Value calculated on the Valuation Date next following our
receipt of your request for withdrawal. Any outstanding contract loans are
excluded from the Account Value when calculating the 10% free withdrawal amount.
This provision does not apply to a full withdrawal of the Account, or to partial
withdrawals due to a default on a contract loan (see "Contract Loans"). This
provision may not be exercised if ECO or SWO is elected. (See "Additional
Withdrawal Options.")
In the instances cited above, no deferred sales charge is deducted.
However, the amount withdrawn may be subject to the 10% federal penalty tax.
(See "Tax Status.")
DEFERRED SALES CHARGE SCHEDULE FOR GAA FOR
CERTAIN NEW YORK CONTRACTS
The following deferred sales charge schedule applies for withdrawals from
the Guaranteed Accumulation Account, where available, for Installment Purchase
Payment Master Contracts which are issued after July 29, 1993 in the State of
New York. This schedule is based on the number of completed Account Years, as
follows:
Completed Deferred Sales
Account Years Charge Deduction
- ---------------------------- ------------------
Less than 3 5%
3 or more but less than 4 4%
4 or more but less than 5 3%
5 or more but less than 6 2%
6 or more but less than 7 1%
7 or more 0%
FUND EXPENSES
Each Fund incurs certain expenses which are paid out of its net assets.
These expenses include, among other things, the investment advisory or
"management" fee. The expenses of the Funds are set forth in the Fee Table in
this Prospectus and described more fully in the accompanying Fund prospectuses.
PREMIUM AND OTHER TAXES
Currently, there is no premium tax on annuities under New York
regulations. However, if the state does impose a premium tax, it would be
deducted from the amount applied to an annuity option. We reserve the right to
deduct a state premium tax at any time from the Purchase Payment(s) or from the
Account Value at any time, but no earlier than when we have a tax liability
under state law. (See "Tax Status.")
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<PAGE>
CONTRACT VALUATION
================================================================================
ACCOUNT VALUE
Until the Annuity Date, the Account Value is the total dollar value of
amounts held in the Account as of any Valuation Date. The Account Value at any
given time is based on the value of the units held in each Subaccount, plus the
value of amounts held in any of the Credited Interest Options.
ACCUMULATION UNITS
The value of your interests in a Subaccount is expressed as the number of
"Accumulation Units" that you hold multiplied by an "Accumulation Unit Value"
(or "AUV") for each unit. The AUV on any Valuation Date is determined by
multiplying the value on the immediately preceding Valuation Date by the net
investment factor of that Subaccount for the period between the immediately
preceding Valuation Date and the current Valuation Date. (See "Net Investment
Factor" below.) The Accumulation Unit Value will be affected by the investment
performance, expenses and charges of the applicable Fund and is reduced each day
by a percentage that accounts for the daily assessment of mortality and expense
risk charges and the administrative expense charge (if any).
Initial Purchase Payments will be credited to your Contract at the AUV
computed on the next Valuation Date following our acceptance of the enrollment
materials, as described under "Purchase--Purchasing Interests in the Contract."
Each subsequent Purchase Payment (or amount transferred) received by the Company
by the close of business of the New York Stock Exchange will be credited to your
Contract at the AUV computed on the next Valuation Date following our receipt of
your payment or transfer request. The value of an Accumulation Unit may increase
or decrease.
NET INVESTMENT FACTOR
The net investment factor is used to measure the investment performance of
a Subaccount from one Valuation Date to the next. The net investment factor for
a Subaccount for any valuation period is equal to the sum of 1.0000 plus the net
investment rate. The net investment rate equals:
(a) the net assets of the Fund held by the Subaccount on the current
Valuation Date, minus
(b) the net assets of the Fund held by the Subaccount on the preceding
Valuation Date, plus or minus
(c) taxes or provisions for taxes, if any, attributable to the operation
of the Subaccount;
(d) divided by the total value of the Subaccounts' Accumulation and
Annuity Units the preceding Valuation Date;
(e) minus a daily charge at the annual effective rate of 1.25% for
mortality and expense risks and up to 0.25% as an administrative
expense charge (currently 0%).
The net investment rate may be either positive or negative.
TRANSFERS
================================================================================
At any time prior to the Annuity Date, you can transfer amounts held under
the Contracts from one Subaccount to another. Transfers between the Credited
Interest Options and the Subaccounts are subject to certain restrictions. (See
Appendices I and II.) A request for transfer can be made either in writing or by
telephone. The telephone transfer privilege is available automatically; no
special election is necessary. All transfers must be in accordance with the
terms of the Contracts and your Plan, as applicable.
The Company currently allows unlimited transfers of accumulated amounts to
available investment options without charge. The minimum transfer amount may not
be less than $500. The total number of investment options in which you may
invest during the Accumulation Period is limited. (See "Investment Options--The
Funds.") Any transfer will be based on the Accumulation Unit Value next
determined after the Company receives a valid transfer request at the
Opportunity Plus Processing Office. Transfers are not available during the
Annuity Period.
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<PAGE>
WITHDRAWALS
================================================================================
Subject to the withdrawal restrictions under Section 403(b) Contracts
described below, all or a portion of the Account Value may be withdrawn at any
time during the Accumulation Period. To request a withdrawal, you must properly
complete a disbursement form and send it to the Opportunity Plus Processing
Office. Payments for withdrawal requests will be made in accordance with SEC
requirements, but normally not later than seven calendar days following our
receipt of a disbursement form.
Withdrawals may be requested as in one of the following forms:
[bullet] Full Withdrawal of an Account: The amount paid upon a full withdrawal
will be the full Account Value, minus any applicable deferred sales
charge and maintenance fee due.
[bullet] Partial Withdrawals (Percentage): The amount paid will be the
percentage of the Account Value requested minus any applicable deferred
sales charge.
[bullet] Partial Withdrawal (Specified Dollar Amount): The amount paid will be
the dollar amount requested. However, the amount withdrawn from the
Account will equal the amount requested plus any applicable deferred
sales charge.
For any partial withdrawal, amounts will be withdrawn proportionately from
each Subaccount or Credited Interest Option in which the Account is invested,
unless you request otherwise in writing. All amounts paid will be based on
Account Values as of the next Valuation Date after we receive a request for
withdrawal at our Home Office, or on such later date as the disbursement form
may specify. A 20% federal income tax may be withheld from amounts paid directly
to you. (See "Tax Status--Contracts Used with Certain Retirement Plans.")
Withdrawal Restrictions from 403(b) Plans. Under Section 403(b) Contracts,
a withdrawal of salary reduction contributions and earnings on such
contributions is generally prohibited prior to the Participant's death,
disability, attainment of age 591/2, separation from service or financial
hardship. (See "Tax Status.")
REINVESTMENT PRIVILEGE
You may elect to reinvest all or a portion of the proceeds received from a
full withdrawal of your Account within 30 days after such withdrawal has been
made. Accumulation Units will be credited to the Account for the amount
reinvested, as well as any maintenance fee and any deferred sales charge imposed
at the time of withdrawal. Any maintenance fee which falls due after the
withdrawal and before the reinvestment will be deducted from the amounts
reinvested. Reinvested amounts will be reallocated to the applicable investment
options in the same proportion as they were allocated at the time of withdrawal.
Accumulation Units will be credited to your Account based on the Accumulation
Unit Value next computed following our receipt of your request along with the
amount to be reinvested. The reinvestment privilege may be used only once. See
Appendix I for a discussion of amounts withdrawn from GAA and then reinvested.
If you are contemplating reinvestment, you should seek competent advice
regarding the tax consequences associated with such a transaction.
CONTRACT LOANS
================================================================================
During the Accumulation Period, Participants may request a loan from their
Account Value. Loans can only be taken from those Account Values held in the
Subaccounts or from those Credited Interest Options that allow loans. (See
Appendices I and II.) A loan may be obtained by reviewing and reading the terms
of the loan agreement, properly completing a loan request form and submitting it
to the Opportunity Plus Processing Office.
ADDITIONAL WITHDRAWAL OPTIONS
================================================================================
The Company offers certain withdrawal options under the Contract that are
not considered annuity options ("Additional Withdrawal Options"). To exercise
these options, your Account Value must meet the minimum dollar amounts and age
criteria applicable to that option.
The Additional Withdrawal Options currently available under the Contract
include the following:
[bullet] SWO--Systematic Withdrawal Option. SWO is a series of partial
withdrawals from your Account based on a
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<PAGE>
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 701/2 or retirement, or for 5% owners at age 701/2
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 the
Opportunity Plus Processing Office.
If you select one of the Additional Withdrawal Options, you will retain
all of the rights and flexibility permitted under the Contract during the
Accumulation Period. Your Account Value will continue to be subject to the
charges and deductions described in this Prospectus. 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 you elect an Additional Withdrawal Option, you may revoke it any time
by submitting a written request to the Opportunity Plus Processing Office. Once
an option is revoked, it may not be elected again, nor may any other Additional
Withdrawal Options be elected unless permitted by the Code. The Company reserves
the right to discontinue the availability of one or all of these Additional
Withdrawal Options at any time, and/or to change the terms of future elections.
DEATH BENEFIT DURING ACCUMULATION PERIOD
================================================================================
The Contract provides that a death benefit is payable to the
Beneficiary(ies) upon the death of the Participant before the Annuity Date. The
amount of the death benefit will be equal to the Account Value. Death benefit
proceeds may be paid to the Beneficiary:
[bullet] in a lump sum;
[bullet] in accordance with any of the Annuity Options available under the
Contract; or
[bullet] under any Additional Withdrawal Options available under the Contract
(if the Beneficiary is your spouse).
The Beneficiary may instead elect one of the following two options;
however, the Code limits how long the death benefit proceeds may be left in
these options (see below):
[bullet] to leave the Account Value invested in the Contract; or
[bullet] to leave the Account Value on deposit in the Company's general account,
and to receive monthly, quarterly, semi-annual or annual interest
payments at the interest rate then being credited on such deposits. The
balance on deposit can be withdrawn at any time or applied to an
Annuity Option.
When paying the Beneficiary, we will determine the Account Value on the
Valuation Date following the date on which we receive proof of death acceptable
to the Company. Interest, if any, will be paid from the date of death at a rate
no less than required by law. We will mail payment to the Beneficiary within
seven days after we receive proof of death.
The Code requires that distribution of death proceeds begin within a
certain period of time. Generally, either annuity payments must begin by
December 31 of the year following the year of your death, or the entire value of
your benefits must be distributed by December 31 of the fifth year following the
year of your death. If your Beneficiary is your spouse, he or she is not
required to begin distributions until the year you would have attained age
701/2. In no event may payments extend beyond the life expectancy of the
Beneficiary or any period certain greater than the Beneficiary's life
expectancy.
If no elections are made, no distributions will be made. Failure to
commence distributions within the above time periods can result in tax
penalties.
Regardless of the method of payment, death benefit proceeds will generally
be taxed to the Beneficiary in the same manner as if you had received those
payments. (See "Tax Status.")
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<PAGE>
ANNUITY PERIOD
================================================================================
ANNUITY PERIOD ELECTIONS
The Code generally requires that minimum annual distributions of the
Account Value must begin by April 1st of the calendar year following the
calendar year in which a Participant attains age 701/2, or retires, if later. In
addition, distributions must be in a form and amount sufficient to satisfy the
Code requirements. These requirements may be satisfied by the election of
certain Annuity Options or Additional Withdrawal Options. (See "Tax Status.")
At least 30 days prior to the Annuity Date, you must notify us in writing
of the following:
[bullet] the date on which you would like to start receiving annuity payments;
[bullet] the Annuity Option under which you want your payments to be calculated
and paid;
[bullet] whether the payments are to be made monthly, quarterly, semi-annually
or annually; and
[bullet] the investment option(s) used to provide annuity payments (i.e., a
fixed annuity using the general account or any of the Subaccounts
available at the time of annuitization). As of the date of this
Prospectus, Aetna Variable Fund, Aetna Income Shares and Aetna
Investment Advisers Fund, Inc. are the only Subaccounts available.
Annuity payments will not begin until you have selected an Annuity Option.
Until a date and option are elected, the Account will continue in the
Accumulation Period. Once annuity payments begin, the Annuity Option may not be
changed, nor may transfers be made among the investment option(s) selected.
ANNUITY OPTIONS
You may choose one of the following Annuity Options:
Lifetime Annuity Options:
[bullet] Option 1--Life Annuity--An annuity with payments ending on the
Annuitant's death.
[bullet] Option 2--Life Annuity with Guaranteed Payments--An annuity with
payments guaranteed for 5, 10, 15 or 20 years, or such other periods as
the Company may offer at the time of annuitization.
[bullet] Option 3--Life Income based Upon the Lives of Two Payees--An annuity
will be paid during the lives of the Annuitant and a second Annuitant,
with 100%, 662/3% or 50% of the payment to continue after the first
death, or 100% of the payment to continue at the death of the second
Annuitant and 50% of the payment to continue at the death of the
Annuitant.
[bullet] Option 4--Life Income based Upon the Lives of Two Payees--An annuity
with payments for a minimum of 120 months, with 100% of the payment to
continue after the first death.
If Option 1 or 3 is elected, it is possible that only one Annuity Payment
will be made if the Annuitant under Option 1, or the surviving Annuitant under
Option 3, should die prior to the due date of the second Annuity Payment. Once
lifetime Annuity payments begin, the Annuitant cannot elect to receive a
lump-sum settlement.
Nonlifetime Annuity Options:
[bullet] Option 1--Payments for a Specified Period--payments will continue for a
specified period of time, as provided for under your Contract.
Under the Nonlifetime Option, an annuity may be selected on a fixed or
variable basis and payments may be made for 3-30 years. If this option is
elected on a variable basis, the Annuitant may request at any time during the
payment period that the present value of all or any portion of the remaining
variable payments be paid in one sum. However, under an Installment Purchase
Payment Contract, any lump-sum elected before three years of payments have been
completed will be treated as a withdrawal during the Accumulation Period and any
applicable deferred sales charge will be assessed. (See "Charges and
Deductions--Deferred Sales Charge.")
We may also offer additional Annuity Options under the Contract from time
to time.
ANNUITY PAYMENTS
Date Payouts Start. When payments start, the age of the Annuitant plus the
number of years for which payments are guaranteed must not exceed 95. Annuity
payments may not extend beyond (a) the life of the Annuitant, (b) the joint
lives of the Annuitant and beneficiary, (c) a period certain greater than the
Annuitant's life expectancy, or (d) a period certain greater than the joint life
expectancies of the Annuitant and beneficiary.
Amount of Each Annuity Payment. The amount of each payment depends on the
size of your Account Value, how you allocate it between fixed and variable
payouts, and
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<PAGE>
the Annuity Option chosen. No election may be made that would result in the
first Annuity payment of less than $20, or total yearly Annuity payments of less
than $100. If your Account Value on the Annuity Date is insufficient to elect an
option for the minimum amount specified, a lump-sum payment must be elected.
If Annuity Payments are to be made on a variable basis, the first and
subsequent payments will vary depending on the assumed net investment rate
selected (31/2% or 5% per annum). Selection of a 5% rate causes a higher first
payment, but Annuity Payments will increase thereafter only to the extent that
the net investment rate exceeds 5% on an annualized basis. Annuity Payments
would decline if the rate were below 5%. Use of the 31/2% assumed rate causes a
lower first payment, but subsequent payments would increase more rapidly or
decline more slowly as changes occur in the net investment rate. (See the
Statement of Additional Information for further information on the impact of
selecting a particular net investment rate.)
CHARGES DEDUCTED DURING THE ANNUITY PERIOD
We make a daily deduction for mortality and expense risks from any amounts
held on a variable basis. Therefore, electing the nonlifetime option on a
variable basis will result in a deduction being made even though we assume no
mortality risk. We may also deduct a daily administrative charge from amounts
held under the variable options. (See "Charges and Deductions.")
DEATH BENEFIT PAYABLE DURING THE ANNUITY PERIOD
If an Annuitant dies after Annuity Payments have begun, any death benefit
payable will depend on the terms of the Contract and the Annuity Option
selected. If Option 1 or Option 3 was elected, Annuity Payments will cease on
the death of the Annuitant under Option 1 or the death of the surviving
Annuitant under Option 3.
If Lifetime Option 2 or Option 4 was elected and the death of the
Annuitant under Option 2, or the surviving Annuitant under Option 4, occurs
prior to the end of the guaranteed minimum payment period, we will pay to the
beneficiary in a lump sum, unless otherwise requested, the present value of the
guaranteed annuity payments remaining.
If the nonlifetime option was elected, and the Annuitant dies before all
payments are made, the value of any remaining payments may be paid in a lump-sum
to the beneficiary (unless otherwise requested), and no deferred sales charge
will be imposed.
If the Annuitant dies after Annuity payments have begun and if there is a
death benefit payable under the Annuity option elected, the remaining value must
be distributed to the beneficiary at least as rapidly as under the original
method of distribution.
Any lump-sum payment paid under the applicable lifetime or nonlifetime
Annuity options will be made within seven calendar days after proof of death
acceptable to us, and a request for payment are received at our Home Office. The
value of any death benefit proceeds will be determined as of the next Valuation
Date after we receive acceptable proof of death and a request for payment. Under
Options 2 and 4, such value will be reduced by any payments made after the date
of death.
TAX STATUS
================================================================================
INTRODUCTION
The following provides a general discussion and is not intended as tax
advice. This discussion reflects the Company's understanding of current federal
income tax law. Such laws may change in the future, and it is possible that any
change could be retroactive (i.e., effective prior to the date of the change).
The Company makes no guarantee regarding the tax treatment of any contract or
transaction involving a Contract. The ultimate effect of federal income taxes on
the amounts held under a Contract, on Annuity Payments, and on the economic
benefit to the Contract Holder, Participant or Beneficiary may depend upon the
tax status of the individual concerned. Any person concerned about these tax
implications should consult a competent tax adviser before initiating any
transaction.
TAXATION OF THE COMPANY
The Company is taxed as a life insurance company under the Code. Since the
Separate Account is not an entity separate from the Company, it will not be
taxed separately as a "regulated investment company" under the Code. Investment
income and realized capital gains are automatically applied to increase reserves
under the Contracts. Under existing federal income tax law, the Company believes
that the Separate Account 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.
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Accordingly, the Company does not anticipate that it will incur any
federal income tax liability attributable to the Separate Account and,
therefore, the Company does not intend to make provisions for any such taxes.
However, if changes in the federal tax laws or interpretation thereof result in
the Company being taxed on income or gains attributable to the Separate Account,
then the Company may impose a charge against the Separate Account (with respect
to some or all Contracts) in order to set aside provisions to pay such taxes.
CONTRACTS USED WITH CERTAIN RETIREMENT PLANS
In General. The Contract is designed for use with Section 403(b) plans.
The tax rules applicable to retirement plans vary according to the type of plan
and the terms and conditions of the plan.
The Company makes no attempt to provide more than general information
about use of the Contracts with the various types of retirement plans.
Participants as well as beneficiaries are cautioned that the rights of any
person to any benefits under the Contracts may be subject to the terms and
conditions of the plans themselves, in addition to the terms and conditions of
the Contracts issued in connection with such plans. Some retirement plans are
subject to limitations on distribution and other requirements that are not
incorporated in the Contracts. Purchasers are responsible for determining that
contributions, distributions and other transactions with respect to the
Contracts satisfy applicable laws, and should consult their legal counsel and
tax adviser regarding the suitability of the Contract.
Section 403(b) Plans. Under Section 403(b), contributions made by public
school systems to purchase annuity contracts for their employees are generally
excludable from the gross income of the employee.
In order to be excludable from taxable income, total annual contributions
made by you and your employer cannot exceed either of two limits set by the
Code. The first limit, under Section 415, is generally the lesser of 25% of your
includible compensation or $30,000. The second limit, which is the exclusion
allowance under Section 403(b), is usually calculated according to a formula
that takes into account your length of employment and any pretax contributions
to certain other retirement plans. These two limits apply to your contributions
as well as to any contributions made by your employer on your behalf. There is
an additional limit that specifically limits your salary reduction contributions
to generally no more than $9,500 annually (subject to indexing); your own limit
may be higher or lower, depending on certain conditions. In addition Purchase
Payments will be excluded from your gross income only if the Plan meets certain
non-discrimination requirements.
Section 403(b)(11) restricts the distribution under Section 403(b)
contracts of: (1) salary reduction contributions made after December 31, 1988;
(2) earnings on those contributions; and (3) earnings during such period on
amounts held as of December 31, 1988. Distribution of those amounts may only
occur upon death of the employee, attainment of age 591/2, separation from
service, disability, or financial hardship. In addition, income attributable to
salary reduction contributions may not be distributed in the case of hardship.
If, pursuant to Revenue Ruling 90-24, the Company agrees to accept, under
any of the Contracts covered by this Prospectus, amounts transferred from a Code
Section 403(b)(7) custodial account, such amounts will be subject to the
withdrawal restrictions set forth in Code Section 403(b)(7)(A)(ii).
Generally, no amounts accumulated under the Contract will be taxable prior
to the time of actual distribution. However, the IRS has stated in published
rulings that a variable contract owner, including participants under Section
403(b) Plans, will be considered the owner of separate account assets if the
owner possesses incidents of investment control over the assets. In these
circumstances, income and gains from the separate account assets would be
currently includible in the variable contract owner's gross income. The Treasury
announced that guidance would be issued in the future regarding the extent to
which owners could direct their investments among Subaccounts without being
treated as owners of the underlying assets of the Separate Account. It is
possible that the Treasury's position, when announced, may adversely affect the
tax treatment of existing contracts. The Company therefore reserves the right to
modify the Contract as necessary to attempt to prevent the owner from being
considered the federal tax owner of the assets of the Separate Account.
Minimum Distribution Requirements. The Code has required distribution
rules for Section 403(b) 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
Participants other than 5% owners,
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<PAGE>
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 701/2 or retire, whichever occurs later.
For 5% owners, such distributions must begin April 1st of the calendar year
following the calendar year in which you attain age 701/2.
In general, annuity payments must be distributed over your life or the
joint lives of you and your beneficiary, or over a period not greater than your
life expectancy or the joint life expectancies of you and your beneficiary.
If you die after the required minimum distribution has commenced,
distributions to your beneficiary must be made at least as rapidly as under the
method of distribution in effect at the time of your death. However, if the
minimum required distribution is calculated each year based on your single life
expectancy or the joint life expectancies of you and your beneficiary, the
regulations for Code Section 401(a)(9) provide specific rules for calculating
the minimum required distributions at your death. For example, if you have
elected ECO with the calculation based on your single life expectancy, and the
life expectancy is recalculated each year, your recalculated life expectancy
becomes zero in the calendar year following your death and the entire remaining
interest must be distributed to your beneficiary by December 31 of the year
following your death. However, a spousal beneficiary has certain rollover rights
which can only be exercised in the year of your death. The rules are complex and
you should consult your tax adviser before electing the method of calculation to
satisfy the minimum requirements.
If you die before the required minimum distribution has commenced, your
entire interest must be distributed by December 31 of the calendar year
containing the fifth anniversary of the date of your death. Alternatively,
payments may be made over the life of the beneficiary or over a period not
extending beyond the life expectancy of the beneficiary provided the
distribution begins by December 31 of the calendar year following the calendar
year of your death, or December 31 of the calendar year in which you would have
attained age 701/2.
If you fail to receive the minimum required distribution for any tax year,
a 50% excise tax is imposed on the required amount that was not distributed.
Taxation of Distributions. All distributions will be taxed as they are
received unless you made a rollover contribution of the distribution to another
plan of the same type or to an individual retirement annuity/account ("IRA") in
accordance with the Code, or unless you have made after-tax contributions to the
plan, which are not taxed upon distribution. The Code has specific rules that
apply, depending on the type of distribution received, if after-tax
contributions were made.
In general, payments received by your 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 may be provided
the opportunity to elect not to have tax withheld from distributions; however,
certain distributions from annuities are subject to mandatory federal income tax
withholding. We will report to the IRS the taxable portion of all distributions.
The Code imposes a 10% penalty tax on the taxable portion of any
distribution unless made when (a) you have attained age 591/2, (b) you have
become disabled, (c) you have died, (d) you have separated from service with the
plan sponsor at or after age 55, (e) the distribution amount is rolled over into
another plan of the same type in accordance with the terms of the Code, or (f)
the distribution amount is made in substantially equal periodic payments (at
least annually) over your life or life expectancy or the joint lives or joint
life expectancies of you and your plan beneficiary, provided you have separated
from service with the plan sponsor. In addition, the penalty tax does not apply
for the amount of a distribution equal to unreimbursed medical expenses incurred
by you that qualify for deduction as specified in the Code. The Code may impose
other penalty taxes in other circumstances.
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MISCELLANEOUS
================================================================================
OPPORTUNITY PLUS PROCESSING OFFICE
We have established the Opportunity Plus Processing Office to provide
administrative support to Participants of the Opportunity Plus Program. This
office will handle enrollments, billing, transfers, redemptions and inquiries
for all Opportunity Plus Participants. All forms and correspondence should be
sent to:
Aetna Life Insurance and Annuity Company
Opportunity Plus Processing Office
P.O. Box 12894
Albany, New York 12212-2894
Telephone Number: 1-800-677-4636
DISTRIBUTION
The Company will serve as the Principal Underwriter for the securities
sold by this Prospectus. The Company is registered as a broker-dealer with the
Securities and Exchange Commission and is a member of the National Association
of Securities Dealers, Inc. (NASD). As Underwriter, the Company will contract
with one or more registered broker-dealers ("Distributors"), including at least
one affiliate of the Company, to offer and sell the Contracts. All persons
offering and selling the Contracts must be registered representatives of the
Distributors and must also be licensed as insurance agents to sell variable
annuity contracts. These registered representatives may also provide services to
Participants in connection with establishing their Accounts under the Contract.
Payment of Commissions. Persons offering and selling the Contracts may
receive commissions in connection with the sale of the Contracts. The maximum
percentage amount that the Company will ever pay as commission with respect to
any given Purchase Payment is with respect to those made during the first year
of Purchase Payments under an Account. The percentage amount will range from 1%
to 4% of those Purchase Payments. The Company may also pay renewal commissions
on Purchase Payments made after the first year and asset-based service fees. The
average of all payments made by the Company is estimated to equal approximately
3% of the total Purchase Payments made over the life of an average Contract. In
addition, some sales personnel may receive various types of non-cash
compensation as special sales incentives, including trips and educational and/or
business seminars. Supervisory and other management personnel of the Company may
receive compensation that will vary based on the relative profitability to the
Company of the funding options you select. Funding options that invest in Funds
advised by the Company or its affiliates are generally more profitable to the
Company. The Company may also reimburse the Distributor for certain expenses.
The name of the Distributor and the registered representative responsible for
your Account are set forth in your enrollment materials. Commissions and sales
related expenses are paid by the Company and are not deducted from Purchase
Payments. (See "Charges and Deductions--Deferred Sales Charge.")
DELAY OR SUSPENSION OF PAYMENTS
The Company reserves the right to suspend or postpone the date of payment
for any benefit or values (a) on any Valuation Date on which the New York Stock
Exchange ("Exchange") is closed (other than customary weekend and holiday
closings) or when trading on the Exchange is restricted; (b) when an emergency
exists, as determined by the SEC, so that disposal of securities held in the
Subaccounts is not reasonably practicable or it is not reasonably practicable
for the Company fairly to determine the value of the Subaccount's assets; or (c)
during such other periods as the SEC may by order permit for the protection of
investors. The conditions under which restricted trading or an emergency exists
shall be determined by the rules and regulations of the SEC.
PERFORMANCE REPORTING
From time to time, the Company may advertise different types of historical
performance for the Subaccounts of the Separate Account. The Company may
advertise the "standardized average annual total returns" of the Subaccounts,
calculated in a manner prescribed by the SEC, as well as the "non-standardized
returns." "Standardized average annual total returns" are computed according to
a formula in which a hypothetical investment of $1,000 is applied to the
Subaccount and then related to the ending redeemable values over the most recent
one, five and ten-year periods (or since inception, if less than ten years).
Standardized returns will reflect the reduction of all recurring charges during
each period (e.g., mortality and expense risk charges, annual maintenance fees,
administrative expense charge (if any) and any applicable deferred sales
charge). "Non-standardized returns" will be calculated in a similar manner,
except that non-standardized figures will not reflect the deduction of any
applicable deferred sales charge (which would decrease the level of performance
shown if reflected in these calculations). The non-standardized figures may also
include monthly, quarterly, year-to-date and three-year periods.
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The Company may also advertise certain ratings, rankings or other
information related to the Company, the Subaccounts or the Funds. Further
details regarding performance reporting and advertising are described in the
Statement of Additional Information.
VOTING RIGHTS
In accordance with the Company's view of present applicable law, it will
vote the shares of each of the Funds held by the Separate Account at regular and
special meetings of Fund shareholders in accordance with instructions received
from each Contract Holder. Participants and Annuitants have a fully vested
(100%) interest in the benefits provided under the Contract and may instruct the
Contract Holder how to direct the Company to cast the votes for the portion of
the Account Value or valuation reserve attributable to their individual
Accounts. Currently, for group contracts used with Section 403(b) plans, the
Company obtains participant voting instructions directly from the participants,
subject to receipt of authorization from the Contract Holder to accept such
instructions. The Company will vote shares for which it has not received
instructions in the same proportion as it votes shares for which it has received
instructions.
Each person having a voting interest in the Separate Account will receive
periodic reports relating to the Fund(s) in which he or she has an interest, as
well as any proxy materials and a form on which to give voting instructions.
Voting instructions will be solicited by written communication at least 14 days
before such meeting. The number of votes to which each person may give direction
will be determined as of the record date set by the Fund.
The number of votes each Contract Holder or Participant, as applicable,
may cast during the Accumulation Period is equal to the portion of the Account
Value to that Fund, divided by the net asset value of one share of that Fund.
During the Annuity Period, the number of votes is equal to the valuation reserve
applicable to the portion of the Contract attributable to that Fund, divided by
the net asset value of one share of that Fund. In determining the number of
votes, fractional votes will be recognized.
CHANGES IN BENEFICIARY DESIGNATIONS
The designated Beneficiary may be changed at any time. Such change will
not become effective until written notice of the change is received by the
Company.
MODIFICATION OF THE CONTRACT
The Company may change the Contract as required by federal or state law.
In addition, the Company may, upon 30 days written notice to the Contract
Holder, make other changes to the Contracts that would apply only to individuals
who become Participants under that Contract after the effective date of such
changes. If the Contract Holder does not agree to a change, no new Participants
will be covered under the Contract. Certain changes will require the approval of
appropriate state or federal regulatory authorities.
AGREEMENTS WITH THE COMPANY
In 1994, NYSUT and the Company entered into an arrangement which calls for
NYSUT to exclusively endorse the Opportunity Plus program and for the Company to
provide educational programs focusing on financial planning for retirement. The
educational program is provided to all NYSUT members including agency fee
payors. Trained personnel have been hired by the Company to conduct these
programs exclusively for NYSUT members. NYSUT is reimbursed for direct
out-of-pocket expenses incurred in the promotion of the Opportunity Plus program
up to a maximum of $75,000 per year. In addition, the Company will pay NYSUT
between $30,000-$42,000 per month from 1994 through 1998. NYSUT has indicated to
the Company that it intends to use these amounts to enhance benefits to the
membership.
The Company compensates UUP $48,000 per year for the use of on-site campus
facilities, the endorsement of the Opportunity Plus program and for the use of
UUP payroll slots.
LEGAL MATTERS AND PROCEEDINGS
The Company knows of no material legal proceedings pending to which the
Separate Account or the Company is a party or which would materially affect the
Separate Account. The validity of the securities offered by this Prospectus has
been passed upon by Counsel to the Company.
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CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
================================================================================
The Statement of Additional Information contains more specific information
on the Separate Account and the Contract, as well as the financial statements of
the Separate Account and the Company. A list of the contents of the SAI is set
forth below:
General Information and History
Variable Annuity Account C
Offering and Purchase of Contracts
Performance Data
General
Average Annual Total Return Quotations
Annuity Payments
Sales Material and Advertising
Independent Auditors
Financial Statements of the Separate Account
Financial Statements of the Company
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APPENDIX I
GUARANTEED ACCUMULATION ACCOUNT
================================================================================
The Guaranteed Accumulation Account ("GAA") is a Credited Interest Option
available during the Accumulation Period under the Contracts described in this
Prospectus. Amounts allocated to Long-Term Classifications of GAA are held in a
noninsulated, nonunitized separate account. Amounts allocated to Short-Term
Classifications of GAA are held in the Company's general account. This Appendix
is a summary of GAA and is not intended to replace the GAA prospectus. You
should read the accompanying GAA prospectus carefully before investing.
GAA is a Credited Interest Option in which we guarantee stipulated rates of
interest for stated periods of time on amounts directed to GAA. The interest
rate stipulated is an annual effective yield; that is, it reflects a full year's
interest. Interest is credited daily at a rate that will provide the guaranteed
annual effective yield for one year. This option guarantees the minimum interest
rate specified in the Contract.
During a specified period of time (the "deposit period"), amounts may be
applied to any or all available Guaranteed Terms within the Short-Term and
Long-Term classifications. Short-Term GAA has Guaranteed Terms from one to three
years, and Long-Term GAA has Guaranteed Terms from three to ten years.
Purchase Payments must remain in GAA for the full Guaranteed Term to
receive the quoted interest rates. Withdrawals or transfers from a Guaranteed
Term before the end of that Guaranteed Term may be subject to a market value
adjustment ("MVA"). An MVA reflects the change in the value of the investments
due to changes in interest rates since the date of deposit. When interest rates
increase after the date of deposit, the value of the investment decreases and
the MVA is negative. Conversely, when interest rates decrease after the date of
deposit, the value of the investment increases, and the MVA is positive. It is
possible that a negative MVA could result in the Participant receiving an amount
which is less than the amount paid into GAA.
As a Guaranteed Term matures, assets accumulating under GAA may be (a)
transferred to a new Guaranteed Term, (b) transferred to other available
investment options, or (c) withdrawn. Amounts withdrawn may be subject to a
deferred sales charge and/or federal tax penalties or mandatory income tax
withholding.
By notifying us at least 30 days prior to the Annuity Date, you may elect a
variable annuity and have amounts that have been accumulating under GAA
transferred to one or more of the Subaccounts available during the Annuity
Period. GAA cannot be used as an investment option during the Annuity Period.
MORTALITY AND EXPENSE RISK CHARGES
We make no deductions from the credited interest rate for mortality and
expense risks; these risks are considered in determining the credited rate.
TRANSFERS
Transfers are permitted among Guaranteed Terms. However, amounts applied to
GAA may not be transferred to another Guaranteed Term of GAA, or to any other
Subaccount or Credited Interest Option available under the Contract, during the
deposit period or the 90 days after the close of the deposit period. We will
apply an MVA to transfers made before the end of a Guaranteed Term, unless such
transfer is due to the maturity of the Guaranteed Term.
CONTRACT LOANS
Loans may not be made against amounts held in GAA, although such value is
included in determining the Account Value against which a loan may be made.
REINVESTMENT PRIVILEGE
If amounts are withdrawn from GAA and reinvested, they will be applied to
the current deposit period. Amounts are proportionately reinvested to the
classifications in the same manner as they were allocated before the withdrawal.
Any negative MVA amount applied to a withdrawal is not included in the
reinvestment.
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APPENDIX II
FIXED ACCOUNT
================================================================================
The following summarizes material information concerning the Fixed Account.
Amounts allocated to the Fixed Account are held in the Company's general account
that supports general insurance and annuity obligations. Interests in the Fixed
Account have not been registered with the SEC in reliance on exemptions under
the Securities Act of 1933, as amended. Disclosure in the Prospectus regarding
the Fixed Account, may, however, be subject to certain generally applicable
provisions of the federal securities laws relating to the accuracy and
completeness of such statements. Disclosure in this Appendix regarding the Fixed
Account has not been reviewed by the SEC.
The Fixed Account guarantees the minimum interest rate specified in the
Contract. The Company may credit a higher interest rate from time to time. The
current rate is subject to change at any time, but will never fall below the
guaranteed minimum. The Company's determination of interest rates reflects the
investment income earned on invested assets and the amortization of any capital
gains and/or losses realized on the sale of invested assets. Under the Fixed
Account, the Company assumes the risk of investment gain or loss by guaranteeing
Account Values and promising a minimum interest rate and Annuity Payment. The
Fixed Account is available under Installment Purchase Payment Contracts only.
Under certain emergency conditions, we may defer payment of a Fixed Account
withdrawal value (a) for a period of up to six months, or (b) as provided by
federal law.
Amounts applied to the Fixed Account will earn the interest rate in effect
when actually applied to the Fixed Account.
The Fixed Account will reflect a compound interest rate credited by us. The
interest rate quoted is an annual effective yield. We make no deductions from
the credited interest rate for mortality and expense risks; these risks are
considered in determining the credited rate.
If a withdrawal is made from the Fixed Account, a deferred sales charge may
apply. See "Charges and Deductions--Deferred Sales Charge."
TRANSFERS AMONG INVESTMENT OPTIONS
Transfers from the Fixed Account to any other available investment
options(s) are allowed in each calendar year during the Accumulation Period.
There is no limit on the number of transfers that you can make out of the Fixed
Account in a calendar year; however, the amount you are allowed to transfer from
the Fixed Account is the current value of your Fixed Account multiplied by the
current maximum percentage of the transfer allowed (the "window") minus any
previous transfers made during the calendar year.
By notifying us at the Opportunity Plus Processing Office at least 30 days
before Annuity payments begin, you may elect to have amounts which have been
accumulating under the Fixed Account transferred to one or more of the
Subaccounts available during the Annuity Period to provide variable Annuity
Payments.
CONTRACT LOANS
Loans may be made from Account Values held in the Fixed Account.
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<PAGE>
For Master Applications Only
I hereby acknowledge receipt of an Account C "Opportunity Plus" Group Deferred
Variable Annuity prospectus dated May 1, 1997, as well as all current
prospectuses pertaining to the variable investment options available under the
Contracts.
___ Please send an Account C Statement of Additional Information (Form No.
SAI.75962-97) dated May 1, 1997.
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CONTRACT HOLDER'S SIGNATURE
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DATE
PROS.75962-97
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<PAGE>
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VARIABLE ANNUITY ACCOUNT C
OF
AETNA LIFE INSURANCE AND ANNUITY COMPANY
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Statement of Additional Information dated May 1, 1997
for
OPPORTUNITY PLUS
Group Variable Multiple Option Annuity Contracts
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the current prospectus for Variable Annuity Account C (the
"Separate Account") dated May 1, 1997.
A free prospectus is available upon request from the local Aetna Life Insurance
and Annuity Company office or by writing to or calling:
Aetna Life Insurance and Annuity Company
Opportunity Plus Processing Office
P. O. Box 12894
Albany, New York 12212-2894
1-800-677-4636
Read the prospectus before you invest. Unless otherwise indicated, terms used in
this Statement of Additional Information have the same meaning as in the
prospectus.
TABLE OF CONTENTS
Page
General Information and History..................................... 2
Variable Annuity Account C.......................................... 3
Offering and Purchase of Contracts.................................. 3
Performance Data.................................................... 3
General....................................................... 3
Average Annual Total Return Quotations........................ 4
Annuity Payments.................................................... 7
Sales Material and Advertising...................................... 8
Independent Auditors................................................ 8
Financial Statements of the Separate Account........................ S-1
Financial Statements of Aetna Life Insurance
and Annuity Company............................................. F-1
<PAGE>
GENERAL INFORMATION AND HISTORY
Aetna Life Insurance and Annuity Company (the "Company") is a stock life
insurance company which was organized under the insurance laws of the State of
Connecticut in 1976. Through a merger, it succeeded to the business of Aetna
Variable Annuity Life Insurance Company (formerly Participating Annuity Life
Insurance Company organized in 1954). As of December 31, 1996, the Company had
$30.1 billion invested through its products, including $15.0 billion in its
separate accounts (of which the Company oversees the management of $10.5
billion) and $1.1 billion in its mutual funds offered outside of its separate
accounts. As of December 31, 1995, it ranked among the top 2% of all U.S. life
insurance companies based on assets. The Company is a wholly owned subsidiary of
Aetna Retirement Holdings, Inc., which is in turn a wholly owned subsidiary of
Aetna Retirement Services, Inc., and an indirect wholly owned subsidiary of
Aetna Inc. The Company is engaged in the business of issuing life insurance
policies and annuity contracts in all states of the United States. The Company's
Home Office is located at 151 Farmington Avenue, Hartford, Connecticut 06156.
In addition to serving as the principal underwriter and the depositor for
the Separate Account, the Company is also a registered investment adviser under
the Investment Advisers Act of 1940, and a registered broker-dealer under the
Securities Exchange Act of 1934. The Company provides investment advice to
several of the registered management investment companies offered as variable
investment options under the Contracts funded by the Separate Account (see
"Variable Annuity Account C" below).
The Company has established the Opportunity Plus Processing Office to provide
administrative support to Contract Holders and Participants investing in the
Opportunity Plus Contract. This office will handle enrollments, billing,
transfers, redemptions, and inquiries for all Opportunity Plus Contract Holders
and Participants. All forms and correspondence should be sent to:
Aetna Life Insurance and Annuity Company
Opportunity Plus Processing Office
P. O. Box 12894
Albany, New York 12212-2894
Telephone number: 1-800-677-4636
Other than the mortality and expense risk charges and administrative expense
charge described in the prospectus, all expenses incurred in the operations of
the Separate Account are borne by the Company. See "Charges and Deductions" in
the prospectus. The Company receives reimbursement for certain administrative
costs from some unaffiliated sponsors of the Funds used as funding options under
the Contract. These fees generally range up to 0.25%.
The assets of the Separate Account are held by the Company. The Separate Account
has no custodian. However, the Funds in whose shares the assets of the Separate
Account are invested each have custodians, as discussed in their respective
prospectuses.
2
<PAGE>
VARIABLE ANNUITY ACCOUNT C
Variable Annuity Account C (the "Separate Account") is a separate account
established by the Company for the purpose of funding variable annuity contracts
issued by the Company. The Separate Account is registered with the Securities
and Exchange Commission as a unit investment trust under the Investment Company
Act of 1940, as amended. Purchase Payments made under the Contract may be
allocated to one or more of the Subaccounts. Each Subaccount invests in the
shares of only one of the Funds listed below. The Company may make additions to,
deletions from or 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, under all Contracts, or under all Plans. The
Funds currently available under the Contract are as follows:
Aetna Variable Fund
Aetna Income Shares
Aetna Variable Encore Fund
Aetna Investment Advisers Fund, Inc.
Alger American Growth Portfolio
Alger American Small Cap Portfolio
American Century VP Capital Appreciation
(formerly TCI Growth)
Calvert Responsibly Invested Balanced Portfolio
Fidelity VIP II Asset Manager Portfolio
Fidelity VIP II Contrafund Portfolio
Fidelity VIP II Index 500 Portfolio
Fidelity VIP Equity-Income Portfolio
Franklin Government Securities Trust
Janus Aspen Aggressive Growth Portfolio
Janus Aspen Growth Portfolio
Janus Aspen Short-Term Bond Portfolio
Janus Aspen Worldwide Growth Portfolio
Lexington Emerging Markets Fund, Inc.
Lexington Natural Resources Trust
Neuberger & Berman Growth Portfolio
Scudder International Portfolio Class A Shares
Complete descriptions of each of the Funds, including their investment
objectives, policies, risks and fees and expenses, is contained in the
prospectuses and statements of additional information for each of the Funds.
OFFERING AND PURCHASE OF CONTRACTS
The Company is both the depositor and the principal underwriter for the
securities sold by the prospectus. The Company offers the Contracts through life
insurance agents licensed to sell variable annuities who are registered
representatives of the Company or of other registered broker-dealers who have
sales agreements with the Company. The offering of the Contracts is continuous.
A description of the manner in which Contracts are purchased may be found in the
prospectus under the sections titled "Purchase" and "Contract Valuation."
PERFORMANCE DATA
General
From time to time, the Company may advertise different types of historical
performance for the Subaccounts of the Separate Account available under the
Contracts issued by the Company in connection with Plans described in the
prospectus. The Company may advertise the "standardized average annual total
returns," calculated in a manner prescribed by the Securities and Exchange
Commission (the "standardized return"), as well as "non-standardized returns,"
both of which are described below.
3
<PAGE>
The standardized and non-standardized total return figures are computed
according to a formula in which a hypothetical initial Purchase Payment of
$1,000 is applied to the various Subaccounts under the Contract, and then
related to the ending redeemable values over one, five and ten year periods (or
fractional periods thereof). The redeemable value is then divided by the initial
investment and this quotient is taken to the Nth root (N represents the number
of years in the period) and 1 is subtracted from the result which is then
expressed as a percentage, carried to at least the nearest hundredth of a
percent. The standardized figures use the actual returns of the Fund since
inception and then adjust them to reflect the deduction of all recurring charges
under the Contracts during each period (e.g., mortality and expense risk
charges, maintenance fees, administrative expense charges, and deferred sales
charges). These charges will be deducted on a pro rata basis in the case of
fractional periods. The maintenance fee is converted to a percentage of assets
based on the average account size under the Contracts described in the
prospectus. The total return figures shown below may be different from the
actual historical total return under your Contract because for periods prior to
1994, the Subaccount's investment performance was based on the performance of
the underlying Fund plus any cash held by the Subaccount.
The non-standardized figures will be calculated in a similar manner, except that
they will not reflect the deduction of any applicable deferred sales charge
(which would decrease the level of performance shown if reflected in these
calculations). The non-standardized figures may also include monthly, quarterly,
year-to-date and three year periods.
Investment results of the Subaccounts will fluctuate over time, and any
presentation of the Subaccounts' total return quotations for any prior period
should not be considered as a representation of how the Subaccounts will perform
in any future period. Additionally, the Account Value upon redemption may be
more or less than your original cost.
AVERAGE ANNUAL TOTAL RETURN QUOTATIONS - Standardized and Non-Standardized
The tables shown below represent each type of Contract provided for in this
Statement of Additional Information. The first table reflects the average annual
standardized and non-standardized total return quotation figures for the period
ended December 31, 1996 for the Subaccounts under Single Purchase Payment
Contracts issued by the Company. The second table reflects the average annual
standardized and non-standardized total return quotation figures for the period
ended December 31, 1996 for the Subaccounts under Installment Purchase Payment
Contracts with a $5 annual maintenance fee, deducted quarterly. For those
Subaccounts where results are not available for the full calendar period
indicated, the percentage shown is an average annual return since inception
(denoted with an *).
4
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
Fund
SINGLE PURCHASE PAYMENT CONTRACT STANDARDIZED NON-STANDARDIZED Inception
($0 MAINTENANCE FEE) 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 22.91% 11.76% 12.81% 22.91% 16.22% 11.76% 12.81% 05/01/75
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Income Shares 2.30% 5.44% 7.48% 2.30% 4.28% 5.44% 7.48% 05/15/73
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Encore Fund 4.05% 3.16% 4.77% 4.05% 3.84% 3.16% 4.77% 08/01/75
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Investment Advisers Fund, Inc. 13.73% 9.89% 9.91%* 13.73% 12.00% 9.89% 9.91%* 04/03/89
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Growth Portfolio 11.93% 15.19% 17.21%* 11.93% 14.74% 15.19% 17.21%* 01/09/89
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Small Cap Portfolio 2.88% 9.64% 18.74%* 2.88% 11.46% 9.64% 18.74%* 09/21/88
- ------------------------------------------------------------------------------------------------------------------------------------
American Century VP Capital
Appreciation (5.52%) 4.86% 9.44%* (5.52%) 6.09% 4.86% 9.44%* 11/20/87
- ------------------------------------------------------------------------------------------------------------------------------------
Calvert Responsibly Invested
Balanced Portfolio 11.22% 9.08% 9.74% 11.22% 10.86% 9.08% 9.74% 09/02/86
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Asset Manager 13.17% 9.88% 10.32%* 13.17% 6.63% 9.88% 10.32%* 09/06/89
Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund Portfolio 19.71% 28.68%* n/a 19.71% 28.68%* n/a n/a 01/03/95
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Index 500 Portfolio 21.29% 15.66%* n/a 21.29% 17.93% 15.66%* n/a 08/27/92
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio 12.86% 16.52% 12.33% 12.86% 16.78% 16.52% 12.33% 10/09/86
- ------------------------------------------------------------------------------------------------------------------------------------
Franklin Government Securities Trust 2.77% 5.11% 7.15%* 2.77% 4.33% 5.11% 7.15%* 02/17/89
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Aggressive Growth
Portfolio 6.60% 19.78%* n/a 6.60% 15.53% 19.78%* n/a 9/13/93
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Growth Portfolio 16.98% 14.74%* n/a 16.98% 15.14% 14.74%* n/a 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Short-Term Bond Portfolio 2.68% 3.11%* n/a 2.68% 3.45% 3.11%* n/a 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Worldwide Growth
Portfolio 27.43% 21.63%* n/a 27.43% 17.14% 21.63%* n/a 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund 6.12% 0.18%* n/a 6.12% 0.18%* n/a n/a 03/30/94
- ------------------------------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust 25.31% 8.58% 8.65%* 25.31% 10.56% 8.58% 8.65%* 10/14/91
- ------------------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Growth Portfolio 7.78% 8.47% 10.06% 7.78% 9.58% 8.47% 10.06% 09/10/84
- ------------------------------------------------------------------------------------------------------------------------------------
Scudder International Portfolio
Class A Shares 13.35% 9.68% 8.57%* 13.35% 6.80% 9.68% 8.57%* 05/01/87
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Please refer to the discussion preceding the Tables for an explanation of the
charges included in the Standardized and Non-Standardized figures. These figures
represent historical performance and should not be considered a projection of
future performance.
5
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
Fund
INSTALLMENT PURCHASE PAYMENT STANDARDIZED NON-STANDARDIZED Inception
CONTRACT Date
($5 MAINTENANCE FEE)
- ------------------------------------------------------------------------------------------------------------------------------------
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 16.75% 10.61% 12.80% 22.89% 16.21% 11.75% 12.80% 05/01/75
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Income Shares (2.83%) 4.36% 7.47% 2.29% 4.27% 5.43% 7.47% 05/15/73
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Encore Fund (1.16%) 2.10% 4.75% 4.04% 3.83% 3.15% 4.75% 08/01/75
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Investment Advisers Fund, Inc. 8.03% 8.76% 9.18%* 13.72% 11.98% 9.88% 9.90%* 04/03/89
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Growth Portfolio 6.32% 14.00% 16.44%* 11.92% 14.73% 15.18% 17.19%* 01/09/89
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Small Cap Portfolio (2.28%) 8.51% 17.99%* 2.87% 11.45% 9.63% 18.72%* 09/21/88
- ------------------------------------------------------------------------------------------------------------------------------------
American Century VP Capital
Appreciation (10.26%) 3.77% 8.82%* (5.53%) 6.08% 4.84% 9.43%* 11/20/8
- ------------------------------------------------------------------------------------------------------------------------------------
Calvert Responsibly Invested
Balanced Portfolio 5.64% 7.95% 9.72% 11.20% 10.84% 9.07% 9.72% 09/02/86
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Asset Manager 7.50% 8.74% 9.54%* 13.16% 6.62% 9.87% 10.31%* 09/06/89
Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund Portfolio 13.71% 25.40%* n/a 19.69% 28.67%* n/a n/a 01/03/95
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Index 500 Portfolio 15.21% 14.29%* n/a 21.28% 17.92% 15.65%* n/a 08/27/92
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio 7.20% 15.32% 12.32% 12.84% 16.76% 16.51% 12.32% 10/09/86
- ------------------------------------------------------------------------------------------------------------------------------------
Franklin Government Securities Trust (2.38%) 4.02% 6.44%* 2.76% 4.32% 5.10% 7.14%* 02/17/89
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Aggressive Growth
Portfolio 1.26% 17.92%* n/a 6.59% 15.52% 19.77%* n/a 9/13/93
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Growth Portfolio 11.11% 12.96%* n/a 16.96% 15.13% 14.73%* n/a 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Short-Term Bond Portfolio (2.47%) 1.51%* n/a 2.67% 3.44% 3.10%* n/a 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Worldwide Growth
Portfolio 21.04% 19.74%* n/a 27.42% 17.13% 21.62%* n/a 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund 0.80% (1.68%)* n/a 6.11% 0.16%* n/a n/a 03/30/94
- ------------------------------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust 19.03% 7.46% 7.57%* 25.30% 10.55% 8.57% 8.63%* 10/14/91
- ------------------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Growth Portfolio 2.38% 7.35% 10.04% 7.77% 9.56% 8.45% 10.04% 09/10/84
- ------------------------------------------------------------------------------------------------------------------------------------
Scudder International Portfolio
Class A Shares 7.67% 8.55% 7.99%* 13.34% 6.78% 9.67% 8.56%* 05/01/87
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Please refer to the discussion preceding the Tables for an explanation of the
charges included in the Standardized and Non-Standardized figures. These figures
represent historical performance and should not be considered a projection of
future performance.
6
<PAGE>
ANNUITY PAYMENTS
When Annuity payments are to begin, the value of the Account is determined using
Accumulation Unit values as of the tenth Valuation Date before the first annuity
payment is due. Such value (less any applicable premium tax) is applied to
provide an Annuity in accordance with the annuity and investment options
elected.
The Annuity option tables found in the Contract show, for each form of Annuity,
the amount of the first annuity payment for each $1,000 of value applied.
Thereafter, variable annuity payments fluctuate as the Annuity Unit value(s)
fluctuates with the investment experience of the selected investment option(s).
The first payment and subsequent payments also vary depending on the assumed net
investment rate selected (3.5% or 5% per annum). Selection of a 5% rate causes a
higher first payment, but Annuity payments will increase thereafter only to the
extent that the net investment rate increases by more than 5% on an annual
basis. Annuity payments would decline if the rate failed to increase by 5%. Use
of the 3.5% assumed rate causes a lower first payment, but subsequent payments
would increase more rapidly or decline more slowly as changes occur in the net
investment rate.
When the Annuity Period begins, the Annuitant is credited with a fixed number of
Annuity Units (which does not change thereafter) in each of the designated
investment options. This number is calculated by dividing (a) by (b), where (a)
is the amount of the first annuity payment based on a particular investment
option, and (b) is the then current Annuity Unit value for that investment
option. As noted, Annuity Unit values fluctuate from one Valuation Date to the
next; such fluctuations reflect changes in the net investment factor for the
appropriate Subaccount(s) (with a ten Valuation Date lag which gives the Company
time to process Annuity payments) and a mathematical adjustment which offsets
the assumed net investment rate of 3.5% or 5% per annum.
The operation of all these factors can be illustrated by the following
hypothetical example. These procedures will be performed separately for the
investment options selected during the Annuity Period.
EXAMPLE:
Assume that, at the date Annuity payments are to begin, there are 3,000
Accumulation Units credited under a particular Contract or Account and that the
value of an Accumulation Unit for the tenth Valuation Date prior to retirement
was $13.650000. This produces a total value of $40,950.
Also assume 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 $1,000 of value applied; the Annuitant's first monthly
payment would thus be 40.950 multiplied by $6.68, or $273.55.
Assume then that the value of an Annuity Unit for the Valuation Date on which
the first payment was due was $13.400000. When this value is divided into the
first monthly payment, the number of Annuity Units is determined to be 20.414.
The value of this number of Annuity Units will be paid in each subsequent month.
If the net investment factor with respect to the appropriate Subaccount is
1.0015000 as of the tenth Valuation Date preceding the due date of the second
monthly payment, multiplying this factor by .9999058* (to neutralize the assumed
net investment rate of 3.5% per annum built into the number of Annuity Units
determined above) produces a result of 1.0014057. This is then multiplied by the
Annuity Unit value for the prior Valuation Date (assume such value to be
$13.504376) to produce an Annuity Unit value of $13.523359 for the Valuation
Date on which the second payment is due. The second monthly
7
<PAGE>
payment is then determined by multiplying the number of Annuity Units by the
current Annuity Unit value, or 20.414 times $13.523359, which produces a
payment of $276.07.
*If an assumed net investment rate of 5% is elected, the appropriate factor to
neutralize such assumed rate would be .9998663.
SALES MATERIAL AND ADVERTISING
The Company may include hypothetical illustrations in its sales literature that
explain the mathematical principles of dollar cost averaging, compounded
interest, tax deferred accumulation, and the mechanics of variable annuity
contracts. The Company may also discuss the difference between variable annuity
contracts and other types of savings or investment products, including, but not
limited to, personal savings accounts and certificates of deposit.
We may distribute sales literature that compares the percentage change in
Accumulation Unit values for any of the Subaccounts to established market
indices such as the Standard & Poor's 500 Stock Index and the Dow Jones
Industrial Average or to the percentage change in values of other management
investment companies that have investment objectives similar to the Subaccount
being compared.
We may publish in advertisements and reports, the ratings and other information
assigned to us by one or more independent rating organizations such as A.M. Best
Company, Duff & Phelps, Standard & Poor's Corporation and Moody's Investors
Services, Inc. The purpose of the ratings is to reflect our financial strength
and/or claims-paying ability. We may also quote ranking services such as
Morningstar's Variable Annuity/Life Performance Report and Lipper's Variable
Insurance Products Performance Analysis Service (VIPPAS), which rank variable
annuity or life Subaccounts or their underlying funds by performance and/or
investment objective. We may illustrate in advertisements the performance of the
underlying funds, if accompanied by performance which also shows the performance
of such funds reduced by applicable charges under the Separate Account. We may
also show in advertisements the portfolio holdings of the underlying funds,
updated at various intervals. From time to time, we will quote articles from
newspapers and magazines or other publications or reports, including, but not
limited to The Wall Street Journal, Money magazine, USA Today and The VARDS
Report.
The Company may provide in advertising, sales literature, periodic publications
or other materials information on various topics of interest to current and
prospective Contract Holders or Participants. These topics may include the
relationship between sectors of the economy and the economy as a whole and its
effect on various securities markets, investment strategies and techniques (such
as value investing, market timing, dollar cost averaging, asset allocation,
constant ratio transfer and account rebalancing), the advantages and
disadvantages of investing in tax-deferred and taxable investments, customer
profiles and hypothetical purchase and investment scenarios, financial
management and tax and retirement planning, and investment alternatives to
certificates of deposit and other financial instruments, including comparison
between the Contracts and the characteristics of and market for such financial
instruments.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, CityPlace II, Hartford, Connecticut 06103-4103, are the
independent auditors for the Separate Account and for the Company. The services
provided to the Separate Account include primarily the examination of the
Separate Account's financial statements and the review of filings made with the
SEC.
8
<PAGE>
FINANCIAL STATEMENTS
VARIABLE ANNUITY ACCOUNT C
Index
Statement of Assets and Liabilities............................. S-2
Statements of Operations and Changes in Net Assets.............. S-5
Notes to Financial Statements .................................. S-6
Independent Auditors' Report.................................... S-12
S-1
<PAGE>
Variable Annuity Account C
Statement of Assets and Liabilities - December 31, 1996:
<TABLE>
<S> <C>
ASSETS:
Investments, at net asset value: (Note 1)
Aetna Variable Fund; 151,485,109 shares (cost $4,579,080,272) ............................. $4,906,825,216
Aetna Income Shares; 28,507,123 shares (cost $369,163,545)................................ 359,849,312
Aetna Variable Encore Fund; 18,592,739 shares (cost $246,054,502) ......................... 245,304,466
Aetna Investment Advisers Fund, Inc.; 53,928,968 shares (cost $718,075,860) ............... 815,295,428
Aetna GET Fund, Series B; 4,575,463 shares (cost $47,775,458) ............................. 65,062,153
Aetna GET Fund, Series C; 19,458,746 shares (cost $196,074,278) ........................... 199,058,163
Aetna Ascent Variable Portfolio; 1,716,448 shares (cost $19,943,767) ...................... 21,660,591
Aetna Crossroads Variable Portfolio; 1,232,084 shares (cost $13,920,592) .................. 14,758,921
Aetna Legacy Variable Portfolio; 805,622 shares (cost $8,954,520) ......................... 9,067,002
Aetna Variable Index Plus Portfolio; 976,838 shares (cost $10,573,112) .................... 10,653,437
Alger American Funds:
Growth Portfolio; 3,054,826 shares (cost $98,141,364) ................................... 104,872,172
Small Capitalization Portfolio; 7,916,675 shares (cost $284,506,629) .................... 323,871,170
Calvert Responsibly Invested Balanced Fund; 22,541,903 shares (cost $37,025,408) .......... 39,989,335
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio; 5,062,740 shares (cost $95,793,557) ............................ 106,469,428
Growth Portfolio; 2,583,239 shares (cost $75,185,783) ................................... 80,442,047
Overseas Portfolio; 448,481 shares (cost $7,799,758) .................................... 8,449,388
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio; 1,010,226 shares (cost $14,600,538) ............................ 17,103,129
Contrafund Portfolio; 7,179,138 shares (cost $103,725,028) .............................. 118,886,521
Index 500 Portfolio; 238,202 shares (cost $18,926,038) .................................. 21,230,903
Franklin Government Securities Trust; 1,774,843 shares (cost $22,950,984) .................. 23,356,943
Janus Aspen Series:
Aggressive Growth Portfolio; 9,477,882 shares (cost $155,207,650) ....................... 172,876,567
Balanced Portfolio; 1,034,616 shares (cost $14,529,701) ................................. 15,281,267
Flexible Income Portfolio; 748,885 shares (cost $8,276,798) ............................. 8,417,464
Growth Portfolio; 2,630,613 shares (cost $38,608,238) ................................... 40,800,809
Short-Term Bond Portfolio; 169,569 shares (cost $1,697,074) ............................. 1,690,606
Worldwide Growth Portfolio; 8,868,224 shares (cost $155,687,884) ........................ 172,398,274
Lexington Emerging Markets Fund; 480,702 shares (cost $4,742,490) ......................... 4,845,481
Lexington Natural Resources Trust Fund; 1,668,604 shares (cost $19,847,176) ............... 23,844,347
Neuberger and Berman Advisers Management Trust -
Growth Portfolio; 3,688,195 shares (cost $85,622,163) ................................... 95,081,684
Scudder Variable Life Investment Fund -
International Portfolio; 14,454,018 shares (cost $162,216,238) .......................... 191,515,746
TCI Portfolios Inc. - Growth Fund; 33,812,929 shares (cost $338,104,873) .................... 346,244,393
--------------
NET ASSETS (cost $7,952,811,278)............................................................ $8,565,202,363
==============
Net assets represented by:
Reserves for annuity contracts in accumulation and payment period: (Notes 1 and 5)
Aetna Variable Fund:
Annuity contracts in accumulation.......................................................... $4,694,078,344
Annuity contracts in payment period........................................................ 212,746,872
Aetna Income Shares:
Annuity contracts in accumulation.......................................................... 354,233,289
Annuity contracts in payment period........................................................ 5,616,023
Aetna Variable Encore Fund:
Annuity contracts in accumulation.......................................................... 245,304,466
Aetna Investment Advisers Fund, Inc.:
Annuity contracts in accumulation.......................................................... 800,532,626
Annuity contracts in payment period........................................................ 14,762,802
</TABLE>
S-2
<PAGE>
Variable Annuity Account C
Statement of Assets and Liabilities - December 31, 1996 (continued):
<TABLE>
<S> <C>
Aetna GET Fund, Series B:
Annuity contracts in accumulation......................................................... $65,062,153
Aetna GET Fund, Series C:
Annuity contracts in accumulation......................................................... 199,058,163
Aetna Ascent Variable Portfolio:
Annuity contracts in accumulation......................................................... 21,660,591
Aetna Crossroads Variable Portfolio:
Annuity contracts in accumulation......................................................... 14,758,921
Aetna Legacy Variable Portfolio:
Annuity contracts in accumulation......................................................... 9,067,002
Aetna Variable Index Plus Portfolio:
Annuity contracts in accumulation......................................................... 10,653,437
Alger American Funds:
Growth Portfolio:
Annuity contracts in accumulation......................................................... 104,872,172
Small Capitalization Portfolio:
Annuity contracts in accumulation......................................................... 323,871,170
Calvert Responsibly Invested Balanced Fund:
Annuity contracts in accumulation......................................................... 39,989,335
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio:
Annuity contracts in accumulation......................................................... 106,469,428
Growth Portfolio:
Annuity contracts in accumulation......................................................... 80,442,047
Overseas Portfolio:
Annuity contracts in accumulation......................................................... 8,449,388
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio:
Annuity contracts in accumulation......................................................... 17,103,129
Contrafund Portfolio:
Annuity contracts in accumulation......................................................... 118,886,521
Index 500 Portfolio:
Annuity contracts in accumulation......................................................... 21,230,903
Franklin Government Securities Trust Fund:
Annuity contracts in accumulation......................................................... 23,356,943
Janus Aspen Series:
Aggressive Growth Portfolio:
Annuity contracts in accumulation......................................................... 172,876,567
Balanced Portfolio:
Annuity contracts in accumulation......................................................... 15,281,267
Flexible Income Portfolio:
Annuity contracts in accumulation......................................................... 8,417,464
Growth Portfolio:
Annuity contracts in accumulation......................................................... 40,800,809
Short-Term Bond Portfolio:
Annuity contracts in accumulation......................................................... 1,690,606
Worldwide Growth Portfolio:
Annuity contracts in accumulation......................................................... 172,398,274
Lexington Emerging Markets Fund:
Annuity contracts in accumulation......................................................... 4,845,481
Lexington Natural Resources Trust Fund:
Annuity contracts in accumulation......................................................... 23,844,347
Neuberger and Berman Advisers Management Trust -
Growth Portfolio:
Annuity contracts in accumulation......................................................... 95,081,684
Scudder Variable Life Investment Fund - International Portfolio:
Annuity contracts in accumulation......................................................... 191,515,746
</TABLE>
S-3
<PAGE>
Variable Annuity Account C
Statement of Assets and Liabilities - December 31, 1996 (continued):
<TABLE>
<S> <C>
TCI Portfolios, Inc. - Growth Fund:
Annuity contracts in accumulation......................................................... $346,244,393
--------------
$8,565,202,363
==============
</TABLE>
See Notes to Financial Statements
S-4
<PAGE>
Variable Annuity Account C
Statements of Operations and Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Income: (Notes 1, 3 and 5)
Dividends ..................................................... $712,854,599 $730,430,612
Expenses: (Notes 2 and 5)
Valuation Period Deductions ................................... (93,446,331) (71,090,542)
-------------- --------------
Net investment income ............................................ 619,408,268 659,340,070
-------------- --------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on sales of investments: (Notes 1, 4 and 5)
Proceeds from sales ............................................ 2,060,808,031 570,154,582
Cost of investments sold ....................................... 1,547,239,509 409,480,615
-------------- --------------
Net realized gain ............................................ 513,568,522 160,673,967
Net unrealized gain on investments: (Note 5)
Beginning of year .............................................. 594,083,184 73,479,233
End of year .................................................... 612,391,085 594,083,184
-------------- --------------
Net change in unrealized gain ................................ 18,307,901 520,603,951
-------------- --------------
Net realized and unrealized gain on investments .................. 531,876,423 681,277,918
-------------- --------------
Net increase in net assets resulting from operations ............. 1,151,284,691 1,340,617,988
-------------- --------------
FROM UNIT TRANSACTIONS:
Variable annuity contract purchase payments ...................... 951,293,520 771,594,245
Sales and administrative charges deducted by the Company ......... (61,783) (98,694)
-------------- --------------
Net variable annuity contract purchase payments............... 951,231,737 771,495,551
Transfer from the Company for mortality guarantee adjustments .... 3,247,064 3,678,430
Transfers (to) from the Company's fixed account options .......... 187,508,331 (44,377,350)
Redemptions by contract holders .................................. (339,383,183) (287,945,984)
Annuity Payments ................................................. (20,948,181) (14,807,537)
Other ............................................................ 144,245 1,144,770
-------------- --------------
Net increase in net assets from unit transactions (Note 5) ... 781,800,013 429,187,880
-------------- --------------
Change in net assets ............................................. 1,933,084,704 1,769,805,868
NET ASSETS:
Beginning of year ................................................ 6,632,117,659 4,862,311,791
-------------- --------------
End of year ...................................................... $8,565,202,363 $6,632,117,659
============== ==============
</TABLE>
See Notes to Financial Statements
S-5
<PAGE>
Variable Annuity Account C
Notes to Financial Statements - December 31, 1996
1. Summary of Significant Accounting Policies
Variable Annuity Account C ("Account") is a separate account established by
Aetna Life Insurance and Annuity Company and is registered under the
Investment Company Act of 1940 as a unit investment trust. The Account is
sold exclusively for use with variable annuity contracts that are qualified
under the Internal Revenue Code of 1986, as amended.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported therein. Although actual results
could differ from these estimates, any such differences are expected to be
immaterial to the net assets of the Account.
a. Valuation of Investments
Investments in the following Funds are stated at the closing net asset
value per share as determined by each Fund on December 31, 1996:
Aetna Variable Fund
Aetna Income Shares
Aetna Variable Encore Fund
Aetna Investment Advisers Fund, Inc.
Aetna GET Fund, Series B
Aetna GET Fund, Series C
Aetna Ascent Variable Portfolio
Aetna Crossroads Variable Portfolio
Aetna Legacy Variable Portfolio
Aetna Variable Index Plus Portfolio
Alger American Funds:
[bullet] Growth Portfolio
[bullet] Small Capitalization Portfolio
Calvert Responsibly Invested Balanced Portfolio
Fidelity Investments Variable Insurance Products Fund:
[bullet] Equity-Income Portfolio
[bullet] Growth Portfolio
[bullet] Overseas Portfolio
Fidelity Investments Variable Insurance Products Fund II:
[bullet] Asset Manager Portfolio
[bullet] Contrafund Portfolio
[bullet] Index 500 Portfolio
Franklin Government Securities Trust
Janus Aspen Series:
[bullet] Aggressive Growth Portfolio
[bullet] Balanced Portfolio
[bullet] Flexible Income Portfolio
[bullet] Growth Portfolio
[bullet] Short-Term Bond Portfolio
[bullet] Worldwide Growth Portfolio
Lexington Fund Emerging Markets Fund
Lexington Natural Resources Trust Fund
Neuberger & Berman Advisers Management Trust -
Growth Portfolio
Scudder Variable Life Investment Fund -
International Portfolio
TCI Portfolios, Inc. - Growth Fund
b. Other
Investment transactions are accounted for on a trade date basis and
dividend income is recorded on the ex-dividend date. The cost of
investments sold is determined by specific identification.
c. Federal Income Taxes
The operations of the Account form a part of, and are taxed with, the total
operations of Aetna Life Insurance and Annuity Company ("Company") which is
taxed as a life insurance company under the Internal Revenue Code of 1986,
as amended.
S-6
<PAGE>
Variable Annuity Account C
Notes to Financial Statements - December 31, 1996 (continued):
d. Annuity Reserves
Annuity reserves held in the Separate Accounts are computed for currently
payable contracts according to the Progressive Annuity, a49, 1971
Individual Annuity Mortality, 1971 Group Annuity Mortality, 83a, and 1983
Group Annuity Mortality tables using various assumed interest rates not to
exceed seven percent. Mortality experience is monitored by the Company.
Charges to annuity reserves for mortality experience are reimbursed to the
Company if the reserves required are less than originally estimated. If
additional reserves are required, the Company reimburses the Account.
2. Valuation Period Deductions
Deductions by the Account for mortality and expense risk charges are made
in accordance with the terms of the contracts and are paid to the Company.
3. Dividend Income
On an annual basis, the Funds distribute substantially all of their taxable
income and realized capital gains to their shareholders. Distributions to
the Account are automatically reinvested in shares of the Funds. The
Account's proportionate share of each Fund's undistributed net investment
income (distributions in excess of net investment income) and accumulated
net realized gain (loss) on investments is included in net unrealized gain
(loss) in the Statements of Operations and Changes in Net Assets.
4. Purchases and Sales of Investments
The cost of purchases and proceeds from sales of investments other than
short-term investments for the years ended December 31, 1996 and December
31, 1995 aggregated $3,462,016,312 and $2,060,808,031; $1,658,682,532 and
$570,154,582, respectively.
S-7
<PAGE>
Variable Annuity Account C
Notes to Financial Statements - December 31, 1996 (continued):
5. Supplemental Information to Statements of Operations and Changes in
Net Assets - Year Ended December 31, 1996
<TABLE>
<CAPTION>
Net Unrealized
Valuation Proceeds Cost of Net Gain (Loss)
Period from Investments Realized Beginning
Dividends Deductions Sales Sold Gain (Loss) of Year
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aetna Variable Fund: $515,238,366 ($54,321,686) $1,237,963,630 $841,837,896 $396,125,734 $267,567,573
Annuity contracts in accumulation
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Income Shares: 23,144,319 (4,611,478) 155,474,786 153,469,788 2,004,998 3,230,862
Annuity contracts in accumulation
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Encore Fund: 14,058,252 (2,878,790) 175,207,017 167,163,639 8,043,378 9,204,418
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Investment Advisers Fund, Inc.: 72,699,670 (9,562,496) 223,353,174 160,905,519 62,447,655 122,622,603
Annuity contracts in accumulation
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna GET Fund, Series B: 5,304,368 (1,100,778) 25,117,816 18,596,857 6,520,959 13,423,804
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna GET Fund, Series C: 969,084 (280,865) 229,569 224,240 5,329 0
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Ascent Variable Portfolio: 963,171 (137,931) 514,612 443,710 70,902 105,405
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads Variable Portfolio: 797,511 (106,179) 755,620 679,118 76,502 68,967
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Legacy Variable Portfolio: 595,666 (63,355) 1,206,903 1,119,490 87,413 36,214
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Index Plus Portfolio: 57,328 (16,537) 356,603 338,531 18,072 0
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Alger American Funds:
Growth Portfolio: 2,138,198 (966,404) 3,326,813 3,149,890 176,923 (285,937)
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Small Capitalization Portfolio: 1,173,212 (3,731,877) 24,333,106 17,577,100 6,756,006 38,038,924
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Calvert Responsibly Invested Balanced Fund: 3,000,539 (425,159) 1,793,014 1,429,393 363,621 2,175,908
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio: 2,269,871 (994,896) 3,851,613 3,166,678 684,935 2,759,687
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 2,304,888 (707,334) 623,639 453,561 170,078 505,388
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Overseas Portfolio: 115,737 (82,498) 2,280,928 2,065,136 215,792 163,196
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio: 955,910 (196,386) 2,016,939 1,797,456 219,483 1,530,985
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio: 357,388 (910,633) 1,299,964 1,078,898 221,066 285,166
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Index 500 Portfolio: 219,199 (139,391) 1,105,697 943,071 162,626 223,865
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Franklin Government Securities Trust: 1,223,061 (290,354) 5,788,894 5,646,267 142,627 831,241
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-8
<PAGE>
Variable Annuity Account C
Notes to Financial Statements - December 31, 1996 (continued):
5. Supplemental Information to Statements of Operations and Changes in
Net Assets - Year Ended December 31, 1996
<TABLE>
<CAPTION>
Net
Net Unrealized Net Increase(Decrease)
Gain (Loss) Change in In Net Assets Net Assets
End Unrealized from Unit Beginning End
of Year Gain (Loss) Transactions of Year of Year
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Variable Fund: $327,744,944 $60,177,371 $39,664,335
Annuity contracts in accumulation $3,805,891,355 $4,694,078,344
Annuity contracts in payment period 144,049,741 212,746,872
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Income Shares: (9,314,233) (12,545,095) (34,151,027)
Annuity contracts in accumulation 380,937,626 354,233,289
Annuity contracts in payment period 5,069,969 5,616,023
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Encore Fund: (750,036) (9,954,454) 5,744,394
Annuity contracts in accumulation 230,291,686 245,304,466
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Investment Advisers Fund, Inc.: 97,219,569 (25,403,034) (7,904,062)
Annuity contracts in accumulation 713,304,833 800,532,626
Annuity contracts in payment period 9,712,862 14,762,802
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna GET Fund, Series B: 17,286,695 3,862,891 (22,661,545)
Annuity contracts in accumulation 73,136,258 65,062,153
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna GET Fund, Series C: 2,983,885 2,983,885 195,380,730
Annuity contracts in accumulation 0 199,058,163
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Ascent Variable Portfolio: 1,716,824 1,611,419 14,244,294
Annuity contracts in accumulation 4,908,736 21,660,591
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads Variable Portfolio: 838,329 769,362 9,552,968
Annuity contracts in accumulation 3,668,757 14,758,921
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Legacy Variable Portfolio: 112,482 76,268 6,451,330
Annuity contracts in accumulation 1,919,680 9,067,002
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Index Plus Portfolio: 80,325 80,325 10,514,249
Annuity contracts in accumulation 0 10,653,437
- -----------------------------------------------------------------------------------------------------------------------------------
Alger American Funds:
Growth Portfolio: 6,730,808 7,016,745 58,052,710
Annuity contracts in accumulation 38,454,000 104,872,172
- -----------------------------------------------------------------------------------------------------------------------------------
Small Capitalization Portfolio: 39,364,541 1,325,617 77,101,765
Annuity contracts in accumulation 241,246,447 323,871,170
- -----------------------------------------------------------------------------------------------------------------------------------
Calvert Responsibly Invested Balanced Fund: 2,963,927 788,019 7,573,554
Annuity contracts in accumulation 28,688,761 39,989,335
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio: 10,675,870 7,916,183 58,569,396
Annuity contracts in accumulation 38,023,939 106,469,428
- -----------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 5,256,264 4,750,876 46,205,811
Annuity contracts in accumulation 27,717,728 80,442,047
- -----------------------------------------------------------------------------------------------------------------------------------
Overseas Portfolio: 649,630 486,434 3,994,936
Annuity contracts in accumulation 3,718,987 8,449,388
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio: 2,502,591 971,606 782,358
Annuity contracts in accumulation 14,370,158 17,103,129
- -----------------------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio: 15,161,493 14,876,327 73,985,256
Annuity contracts in accumulation 30,357,117 118,886,521
- -----------------------------------------------------------------------------------------------------------------------------------
Index 500 Portfolio: 2,304,865 2,081,000 15,496,325
Annuity contracts in accumulation 3,411,144 21,230,903
- -----------------------------------------------------------------------------------------------------------------------------------
Franklin Government Securities Trust: 405,959 (425,282) 664,776
Annuity contracts in accumulation 22,042,115 23,356,943
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-9
<PAGE>
Variable Annuity Account C
Notes to Financial Statements - December 31, 1996 (continued):
5. Supplemental Information to Statements of Operations and Changes in
Net Assets - Year Ended December 31, 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Janus Aspen Series:
Aggressive Growth Portfolio: $1,589,459 ($1,739,222) $4,803,682 $3,702,615 $1,101,067
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio: 238,807 (87,725) 1,671,701 1,511,274 160,427
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Flexible Income Portfolio: 499,929 (72,736) 1,541,843 1,429,353 112,490
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 630,364 (245,877) 1,130,979 963,703 167,276
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Short-Term Bond Portfolio: 61,378 (14,453) 726,351 729,002 (2,651)
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio: 1,725,690 (1,035,043) 1,942,344 1,492,553 449,791
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund: 0 (55,554) 905,228 870,164 35,064
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust Fund: 80,144 (231,100) 7,649,108 6,026,027 1,623,081
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Neuberger and Berman Advisers Management Trust -
Growth Portfolio: 8,437,018 (1,199,983) 15,336,623 13,853,081 1,483,542
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Scudder Variable Life Investment Fund -
International Portfolio: 4,063,525 (2,264,627) 26,981,873 22,523,390 4,458,483
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
TCI Portfolios, Inc. - Growth Fund: 47,942,547 (4,974,984) 131,517,962 112,052,109 19,465,853
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Total Variable Annuity Account C $712,854,599 ($93,446,331) $2,060,808,031 $1,547,239,509 $513,568,522
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Net Net
Unrealized Net Increase (Decrease)
Gain (Loss) Change in In Net Assets Net Assets
Beginning End Unrealized from Unit Beginning End
of Year of Year Gain (Loss) Transactions of Year of Year
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Janus Aspen Series:
Aggressive Growth Portfolio: $13,091,398 $17,668,916 $4,577,518 $79,952,029
Annuity contracts in accumulation $87,395,716 $172,876,567
- ------------------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio: 60,530 751,567 691,037 12,773,551
Annuity contracts in accumulation 1,505,170 15,281,267
- ------------------------------------------------------------------------------------------------------------------------------------
Flexible Income Portfolio: 167,581 140,666 (26,915) 4,046,573
Annuity contracts in accumulation 3,858,123 8,417,464
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 145,978 2,192,571 2,046,593 33,135,966
Annuity contracts in accumulation 5,066,487 40,800,809
- ------------------------------------------------------------------------------------------------------------------------------------
Short-Term Bond Portfolio: (354) (6,468) (6,114) 1,108,236
Annuity contracts in accumulation 544,210 1,690,606
S-10
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio: 786,497 16,710,390 15,923,893 139,287,080
Annuity contracts in accumulation 16,046,863 172,398,274
- ------------------------------------------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund: (46,118) 102,991 149,109 1,627,816
Annuity contracts in accumulation 3,089,046 4,845,481
- ------------------------------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust Fund: 1,277,740 3,997,171 2,719,431 5,442,307
Annuity contracts in accumulation 14,210,484 23,844,347
- ------------------------------------------------------------------------------------------------------------------------------------
Neuberger and Berman Advisers Management Trust -
Growth Portfolio: 11,656,721 9,459,521 (2,197,200) (937,272)
Annuity contracts in accumulation 89,495,579 95,081,684
- ------------------------------------------------------------------------------------------------------------------------------------
Scudder Variable Life Investment Fund -
International Portfolio: 12,783,439 29,299,509 16,516,070 4,017,712
Annuity contracts in accumulation 164,724,583 191,515,746
- ------------------------------------------------------------------------------------------------------------------------------------
TCI Portfolios, Inc. - Growth Fund: 91,671,503 8,139,519 (83,531,984) (57,916,538)
Annuity contracts in accumulation 425,259,499 346,244,393
- ------------------------------------------------------------------------------------------------------------------------------------
Total Variable Annuity Account C $594,083,184 $612,391,085 $18,307,901 $781,800,013 $6,632,117,659 $8,565,202,363
===================================================================================================================================
</TABLE>
S-11
<PAGE>
Independent Auditors' Report
The Board of Directors of Aetna Life Insurance and Annuity Company and Contract
Owners of Variable Annuity Account C:
We have audited the accompanying statement of assets and liabilities of Aetna
Life Insurance and Annuity Company Variable Annuity Account C (the "Account") as
of December 31, 1996, and the related statements of operations and changes in
net assets for each of the years in the two-year period then ended and condensed
financial information for the year ended December 31, 1996. These financial
statements and condensed financial information are the responsibility of the
Account's management. Our responsibility is to express an opinion on these
financial statements and condensed financial information based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and condensed
financial information are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1996, by correspondence with the custodian. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and condensed financial information
referred to above present fairly, in all material respects, the financial
position of Aetna Life Insurance and Annuity Company Variable Annuity Account C
as of December 31, 1996, the results of its operations and the changes in its
net assets for each of the years in the two-year period then ended and condensed
financial information for the year ended December 31, 1996 in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Hartford, Connecticut
February 14, 1997
S-12
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBIDIARIES
Index to Consolidated Financial Statements
Page
Independent Auditors' Report F-2
Consolidated Financial Statements:
Consolidated Statements of Income for the Years Ended
December 31, 1996, 1995 and 1994 F-3
Consolidated Balance Sheets as of December 31, 1996
and 1995 F-4
Consolidated Statements of Changes in Shareholder's Equity
for the Years Ended December 31, 1996, 1995 and 1994 F-5
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1996, 1995 and 1994 F-6
Notes to Consolidated Financial Statements F-7
F-1
<PAGE>
Independent Auditors' Report
The Shareholder and Board of Directors
Aetna Life Insurance and Annuity Company:
We have audited the accompanying consolidated balance sheets of Aetna Life
Insurance and Annuity Company and Subsidiaries as of December 31, 1996 and 1995,
and the related consolidated statements of income, changes in shareholder's
equity and cash flows for each of the years in the three-year period ended
December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Aetna Life Insurance
and Annuity Company and Subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
February 4, 1997
F-2
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Income
(millions)
Years Ended December 31,
--------------------------------
1996 1995 1994
---- ---- ----
Revenue:
Premiums $133.6 $212.7 $191.6
Charges assessed against policyholders 396.5 318.9 279.0
Net investment income 1,045.6 1,004.3 917.2
Net realized capital gains 19.7 41.3 1.5
Other income 45.4 42.0 10.3
------- ------- -------
Total revenue 1,640.8 1,619.2 1,399.6
------- ------- -------
Benefits and expenses:
Current and future benefits 968.6 997.2 921.5
Operating expenses 342.2 310.8 225.7
Amortization of deferred policy
acquisition costs 69.8 48.0 31.5
Severance and facilities charges 61.3 -- --
------- ------- -------
Total benefits and expenses 1,441.9 1,356.0 1,178.7
------- ------- -------
Income before income taxes 198.9 263.2 220.9
Income taxes 57.8 87.3 75.6
------- ------- -------
Net income $141.1 $175.9 $145.3
======= ======= =======
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Balance Sheets
(millions, except share data)
December 31,
-------------------------
1996 1995
---- ----
Assets
- ------
Investments:
Debt securities, available for sale:
(amortized cost: $12,539.1 and $11,923.7) $12,905.5 $12,720.8
Equity securities, available for sale:
Non-redeemable preferred stock
(cost: $107.6 and $51.3) 119.0 57.6
Investment in affiliated mutual funds
(cost: $77.3 and $173.4) 81.1 191.8
Common stock (cost: $0.0 and $6.9) 0.3 8.2
Short-term investments 34.8 15.1
Mortgage loans 13.0 21.2
Policy loans 399.3 338.6
--------- ---------
Total investments 13,553.0 13,353.3
Cash and cash equivalents 459.1 568.8
Accrued investment income 159.0 175.5
Premiums due and other receivables 26.6 37.3
Deferred policy acquisition costs 1,515.3 1,341.3
Reinsurance loan to affiliate 628.3 655.5
Other assets 33.7 26.2
Separate Account assets 15,318.3 10,987.0
--------- ---------
Total assets $31,693.3 $27,144.9
========= =========
Liabilities and Shareholder's Equity
- -------------------------------------
Liabilities:
Future policy benefits $3,617.0 $3,594.6
Unpaid claims and claim expenses 28.9 27.2
Policyholders' funds left with the Company 10,663.7 10,500.1
--------- ---------
Total insurance reserve liabilities 14,309.6 14,121.9
Other liabilities 354.7 257.2
Income taxes:
Current 20.7 26.2
Deferred 80.5 169.6
Separate Account liabilities 15,318.3 10,987.0
--------- ---------
Total liabilities 30,083.8 25,561.9
--------- ---------
Shareholder's equity:
Common stock, par value $50 (100,000 shares
authorized; 55,000 shares issued and
outstanding) 2.8 2.8
Paid-in capital 418.0 407.6
Net unrealized capital gains 60.5 132.5
Retained earnings 1,128.2 1,040.1
--------- ---------
Total shareholder's equity 1,609.5 1,583.0
--------- ---------
Total liabilities and shareholder's equity $31,693.3 $27,144.9
========= =========
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Changes in Shareholder's Equity
(millions)
Years Ended December 31,
-----------------------------------
1996 1995 1994
---- ---- ----
Shareholder's equity, beginning of year $1,583.0 $1,088.5 $1,246.7
Capital contributions 10.4 -- --
Net change in unrealized capital gains (losses) (72.0) 321.5 (303.5)
Net income 141.1 175.9 145.3
Other changes (49.5) -- --
Common stock dividends declared (3.5) (2.9) --
-------- -------- --------
Shareholder's equity, end of year $1,609.5 $1,583.0 $1,088.5
======== ======== ========
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Cash Flows
(millions)
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $141.1 $175.9 $145.3
Adjustments to reconcile net income to net
cash (used for) provided by operating activities:
Decrease (increase) in accrued investment income 16.5 (33.3) (17.5)
Decrease in premiums due and other receivables 1.6 25.4 1.3
Increase in policy loans (60.7) (89.9) (46.0)
Increase in deferred policy acquisition costs (174.0) (177.0) (105.9)
Decrease in reinsurance loan to affiliate 27.2 34.8 27.8
Net increase in universal life account balances 243.2 393.4 164.7
(Decrease) increase in other insurance
reserve liabilities (211.5) 79.0 75.1
Net increase in other liabilities and other assets 3.1 13.0 52.5
Decrease in income taxes (26.7) (4.5) (10.3)
Net accretion of discount on investments (68.0) (66.4) (77.9)
Net realized capital gains (19.7) (41.3) (1.5)
Other, net 1.1 -- (1.0)
-------- -------- --------
Net cash (used for) provided by operating activities (126.8) 309.1 206.6
-------- -------- --------
Cash Flows from Investing Activities:
Proceeds from sales of:
Debt securities available for sale 5,182.2 4,207.2 3,593.8
Equity securities 190.5 180.8 93.1
Mortgage loans 8.7 10.7 --
Limited partnership -- 26.6 --
Investment maturities and collections of:
Debt securities available for sale 885.2 583.9 1,289.2
Short-term investments 35.0 106.1 30.4
Cost of investment purchases in:
Debt securities available for sale (6,534.3) (6,034.0) (5,621.4)
Equity securities (118.1) (170.9) (162.5)
Short-term investments (54.7) (24.7) (106.1)
Mortgage loans -- (21.3) --
Limited partnership -- -- (25.0)
Other, net (17.6) -- --
-------- -------- --------
Net cash used for investing activities (423.1) (1,135.6) (908.5)
-------- -------- --------
Cash Flows from Financing Activities:
Deposits and interest credited for investment contracts 1,579.5 1,884.5 1,737.8
Withdrawals of investment contracts (1,146.2) (1,109.6) (948.7)
Additional capital contributions 10.4 -- --
Dividends paid to shareholder (3.5) (2.9) --
-------- -------- --------
Net cash provided by financing activities 440.2 772.0 789.1
-------- -------- --------
Net (decrease) increase in cash and cash equivalents (109.7) (54.5) 87.2
Cash and cash equivalents, beginning of year 568.8 623.3 536.1
-------- -------- --------
Cash and cash equivalents, end of year $459.1 $568.8 $623.3
======== ======== ========
Supplemental cash flow information:
Income taxes paid, net $85.5 $92.8 $85.9
======== ======== ========
See Notes to Consolidated Financial Statements.
</TABLE>
F-6
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Aetna Life Insurance and Annuity Company and its wholly owned subsidiaries
(collectively, the "Company") is a provider of financial services and life
insurance products in the United States. The Company has two business
segments: financial services and individual life insurance.
Financial services products include annuity contracts that offer a variety
of funding and payout options for individual and employer-sponsored
retirement plans qualified under Internal Revenue Code Sections 401, 403,
408 and 457, and non-qualified annuity contracts. These contracts may be
deferred or immediate ("payout annuities"). Financial services also include
investment advisory services, financial planning and pension plan
administrative services.
Individual life insurance products include universal life, variable
universal life, traditional whole life and term insurance.
Basis of Presentation
The consolidated financial statements include Aetna Life Insurance and
Annuity Company and its wholly owned subsidiaries, Aetna Insurance Company
of America and Aetna Private Capital, Inc. Aetna Life Insurance and Annuity
Company is a wholly owned subsidiary of Aetna Retirement Holdings, Inc.
("HOLDCO"). HOLDCO is a wholly owned subsidiary of Aetna Retirement
Services, Inc., whose ultimate parent is Aetna Inc. ("Aetna").
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles. Certain reclassifications have
been made to 1995 and 1994 financial information to conform to the 1996
presentation.
Future Application of Accounting Standards
Financial Accounting Standard ("FAS") No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, was
issued in June 1996. This statement provides accounting and reporting
standards for transfers of financial assets and extinguishments of
liabilities. Transactions covered by this statement would include
securitizations, sales of partial interests in assets, repurchase
agreements and securities lending. This statement requires that after a
transfer of financial assets, an entity would recognize any assets it
controls and liabilities it has incurred. An entity would not recognize
assets when control has been surrendered or liabilities have been
satisfied. Portions of this statement are effective for each of 1997 and
1998 financial statements and early adoption is not permitted. The Company
does not expect adoption of this statement to have a material effect on its
financial position or results of operations.
F-7
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from reported results
using those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, money market instruments
and other debt issues with a maturity of 90 days or less when purchased.
Investments
All of the Company's debt and equity securities are classified as available
for sale and carried at fair value. These securities are written down (as
realized capital losses) for other than temporary declines in value.
Unrealized capital gains and losses related to available for sale other
than amounts allocable to experience rated contractholders, are reflected
in shareholder's equity, net of related taxes.
Fair values for debt and equity securities are based on quoted market
prices or dealer quotations. Where quoted market prices or dealer
quotations are not available, fair values are measured utilizing quoted
market prices for similar securities or by using discounted cash flow
methods. Cost for mortgage-backed securities is adjusted for unamortized
premiums and discounts, which are amortized using the interest method over
the estimated remaining term of the securities, adjusted for anticipated
prepayments.
Purchases and sales of debt and equity securities are recorded on the trade
date.
The investment in affiliated mutual funds primarily represents an
investment in the Aetna Series Fund, Inc., a retail mutual fund which has
been seeded by the Company, and is carried at fair value.
Mortgage loans and policy loans are carried at unpaid principal balances,
net of impairment reserves. Sales of mortgage loans are recorded on the
closing date.
Short-term investments, consisting primarily of money market instruments
and other debt issues purchased with a maturity of 91 days to one year, are
considered available for sale and are carried at fair value, which
approximates amortized cost.
F-8
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued)
Futures contracts are carried at fair value and require daily cash
settlement. Changes in the fair value of futures contracts that qualify as
hedges are deferred and recognized as an adjustment to the hedged asset or
liability. Deferred gains or losses on such futures contracts are amortized
over the life of the acquired asset or liability as a yield adjustment or
through net realized capital gains or losses upon disposal of an asset.
Changes in the fair value of futures contracts that do not qualify as
hedges are recorded in net realized capital gains or losses. Hedge
designation requires specific asset or liability identification, a
probability at inception of high correlation with the position underlying
the hedge, and that high correlation be maintained throughout the hedge
period. If a hedging instrument ceases to be highly correlated with the
position underlying the hedge, hedge accounting ceases at that date and
excess gains and losses on the hedging instrument are reflected in net
realized capital gains or losses.
Swap agreements which are designated as interest rate risk management
instruments at inception are accounted for using the accrual method.
Accordingly, the difference between amounts paid and received on such
agreements is reported in net investment income. There is no recognition in
the Consolidated Balance Sheets for changes in the fair value of the
agreement.
Deferred Policy Acquisition Costs
Certain costs of acquiring insurance business are deferred. These costs,
all of which vary with and are primarily related to the production of new
and renewal business, consist principally of commissions, certain expenses
of underwriting and issuing contracts, and certain agency expenses. For
fixed ordinary life contracts, such costs are amortized over expected
premium-paying periods (up to 20 years). For universal life and certain
annuity contracts, such costs are amortized in proportion to estimated
gross profits and adjusted to reflect actual gross profits over the life of
the contracts (up to 20 years).
Deferred policy acquisition costs are written off to the extent that it is
determined that future policy premiums and investment income or gross
profits are not adequate to cover related losses and expenses.
Insurance Reserve Liabilities
Future Policy Benefits include reserves for universal life, immediate
annuities with life contingent payouts and traditional life insurance
contracts. Reserves for universal life contracts are equal to cumulative
deposits less charges and withdrawals plus credited interest thereon.
Reserves for immediate annuities with life contingent payouts and
traditional life insurance contracts are computed on the basis of assumed
investment yield, mortality, and expenses, including a margin for adverse
deviations. Such assumptions generally vary by plan, year of issue and
policy duration. Reserve interest rates range from 2.25% to 12.00%.
Investment yield is based on the Company's experience. Mortality and
withdrawal rate assumptions are based on relevant Aetna experience and are
periodically reviewed against both industry standards and experience.
F-9
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued)
Policyholders' Funds Left With the Company include reserves for deferred
annuity investment contracts and immediate annuities without life
contingent payouts. Reserves on such contracts are equal to cumulative
deposits less charges and withdrawals plus credited interest thereon (rates
range from 4.00% to 7.00%), net of adjustments for investment experience
that the Company is entitled to reflect in future credited interest.
Reserves on contracts subject to experience rating reflect the rights of
contractholders, plan participants and the Company.
Unpaid claims for all lines of insurance include benefits for reported
losses and estimates of benefits for losses incurred but not reported.
Premiums, Charges Assessed Against Policyholders, Benefits and Expenses
For universal life and certain annuity contracts, charges assessed against
policyholders' funds for the cost of insurance, surrender charges,
actuarial margin and other fees are recorded as revenue in charges assessed
against policyholders. Other amounts received for these contracts are
reflected as deposits and are not recorded as revenue. Life insurance
premiums, other than premiums for universal life and certain annuity
contracts, are recorded as premium revenue when due. Related policy
benefits are recorded in relation to the associated premiums or gross
profit so that profits are recognized over the expected lives of the
contracts. When annuity payments begin under contracts with life contingent
payouts that were initially investment contracts, the accumulated balance
in the account is treated as a single premium for the purchase of an
annuity, reflected as an offsetting amount in both premiums and current and
future benefits in the Consolidated Statements of Income.
Separate Accounts
Assets held under variable universal life and variable annuity contracts
are segregated in Separate Accounts and are invested, as designated by the
contractholder or participant under a contract, in shares of Aetna Variable
Fund, Aetna Income Shares, Aetna Variable Encore Fund, Aetna Investment
Advisers Fund, Inc., Aetna GET Fund, the Aetna Series Fund Inc., or the
Aetna Generation Funds (collectively, "Funds"), which are managed by the
Company, or other selected mutual funds not managed by the Company.
Separate Accounts assets and liabilities are carried at fair value except
for those relating to a guaranteed interest option. Since the Company bears
the investment risk where the contract is held to maturity, the assets of
the Separate Account supporting the guaranteed interest option are carried
at an amortized cost of $515.6 million for 1996 (fair value $523.0 million)
and $322.2 million for 1995 (fair value $343.9 million). Reserves relating
to the guaranteed interest option are maintained at fund value and reflect
interest credited at rates ranging from 4.10% to 8.00% in 1996 and 4.50% to
8.38% in 1995.
F-10
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued)
Separate Accounts assets and liabilities are shown as separate captions in
the Consolidated Balance Sheets. Deposits, investment income and net
realized and unrealized capital gains and losses of the Separate Accounts
are not reflected in the Consolidated Statements of Income (with the
exception of realized capital gains and losses on the sale of assets
supporting the guaranteed interest option). The Consolidated Statements of
Cash Flows do not reflect investment activity of the Separate Accounts.
Income Taxes
The Company is included in the consolidated federal income tax return of
Aetna. The Company is taxed at regular corporate rates after adjusting
income reported for financial statement purposes for certain items.
Deferred income tax expenses/benefits result from changes during the year
in cumulative temporary differences between the tax basis and book basis of
assets and liabilities.
F-11
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
2. Investments
Debt securities available for sale as of December 31, 1996 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
(millions)
<S> <C> <C> <C> <C>
U.S. government and government
agencies and authorities $ 1,072.4 $ 20.5 $ 4.5 $ 1,088.4
States, municipalities and political
subdivisions 6.0 1.2 -- 7.2
U.S. corporate securities:
Financial 2,143.4 43.1 9.7 2,176.8
Food & fiber 198.2 4.6 1.3 201.5
Healthcare & consumer products 735.9 20.2 6.3 749.8
Media & broadcast 274.9 7.0 2.8 279.1
Natural resources 187.7 4.5 0.4 191.8
Transportation & capital goods 521.9 22.0 1.8 542.1
Utilities 448.8 14.8 2.8 460.8
Other 141.5 3.0 -- 144.5
--------- --------- --------- ---------
Total U.S. corporate securities 4,652.3 119.2 25.1 4,746.4
Foreign Securities:
Government 758.6 36.0 5.7 788.9
Utilities 187.8 16.1 -- 203.9
Other 945.5 30.9 6.3 970.1
--------- --------- --------- ---------
Total foreign securities 1,891.9 83.0 12.0 1,962.9
Residential mortgage-backed securities:
Pass-throughs 792.2 78.3 3.1 867.4
Collateralized mortgage obligations 2,227.8 94.9 13.7 2,309.0
--------- --------- --------- ---------
Total residential mortgage-
backed securities 3,020.0 173.2 16.8 3,176.4
Commercial/Multifamily mortgage-
backed securities 1,008.7 24.8 5.6 1,027.9
Other asset-backed securities 887.8 10.7 2.2 896.3
--------- --------- --------- ---------
Total Debt Securities $12,539.1 $ 432.6 $ 66.2 $12,905.5
========= ========= ========= =========
</TABLE>
F-12
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
2. Investments (Continued)
Debt securities available for sale as of December 31, 1995 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
(millions)
<S> <C> <C> <C> <C>
U.S. government and government
agencies and authorities $ 539.5 $ 47.5 $ -- $ 587.0
States, municipalities and political
subdivisions 41.4 12.4 -- 53.8
U.S. Corporate securities:
Financial 2,764.4 110.3 2.1 2,872.6
Food & fiber 310.8 20.8 0.6 331.0
Healthcare & consumer products 766.0 59.2 0.2 825.0
Media & broadcast 191.7 10.0 -- 201.7
Natural resources 186.9 12.6 0.2 199.3
Transportation & capital goods 602.4 46.7 0.2 648.9
Utilities 454.4 27.8 1.0 481.2
Other 119.9 10.2 -- 130.1
--------- --------- --------- ---------
Total U.S. corporate securities 5,396.5 297.6 4.3 5,689.8
Foreign securities:
Government 316.4 26.1 2.0 340.5
Utilities 236.3 32.9 269.2
Other 749.9 60.5 3.5 806.9
--------- --------- --------- ---------
Total foreign securities 1,302.6 119.5 5.5 1,416.6
Residential mortgage-backed securities:
Pass-throughs 556.7 99.2 1.8 654.1
Collateralized mortgage obligations 2,383.9 167.6 2.2 2,549.3
--------- --------- --------- ---------
Total residential mortgage-
backed securities 2,940.6 266.8 4.0 3,203.4
Commercial/multifamily mortgage-
backed securities 741.9 32.3 0.2 774.0
Other asset-backed securities 961.2 35.5 0.5 996.2
--------- --------- --------- ---------
Total Debt Securities $11,923.7 $ 811.6 $ 14.5 $12,720.8
========= ========= ========= =========
</TABLE>
F-13
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
2. Investments (Continued)
At December 31, 1996 and 1995, net unrealized appreciation of $366.4
million and $797.1 million, respectively, on available for sale debt
securities included $288.5 million and $619.1 million, respectively,
related to experience rated contracts, which were not reflected in
shareholder's equity but in Future Policy Benefits and Policyholders' Funds
Left With the Company.
The amortized cost and fair value of debt securities for the year ended
December 31, 1996 are shown below by contractual maturity. Actual
maturities may differ from contractual maturities because securities may be
restructured, called, or prepaid.
Amortized Fair
Cost Value
--------- -----
(millions)
Due to mature:
One year or less $ 424.4 $ 425.7
After one year through five years 2,162.4 2,194.2
After five years through ten years 2,467.4 2,509.6
After ten years 2,568.4 2,675.4
Mortgage-backed securities 4,028.7 4,204.3
Other asset-backed securities 887.8 896.3
--------- ---------
Total $12,539.1 $12,905.5
========= =========
The Company engages in securities lending whereby certain securities from
its portfolio are loaned to other institutions for short periods of time.
Collateral, primarily cash, which is in excess of the market value of the
loaned securities, is deposited by the borrower with a lending agent, and
retained and invested by the lending agent to generate additional income
for the Company. The market value of the loaned securities is monitored on
a daily basis with additional collateral obtained or refunded as the market
value fluctuates. At December 31, 1996 and 1995, the Company had loaned
securities (which are reflected as invested assets) with a market value of
approximately $444.7 million and $264.5 million, respectively.
At December 31, 1996 and 1995, debt securities carried at $7.6 million and
$7.4 million, respectively, were on deposit as required by regulatory
authorities.
The carrying value of non-income producing investments was $0.9 million and
$0.1 million at December 31, 1996 and 1995, respectively.
The Company did not have any investments in a single issuer, other than
obligations of the U.S. government, with a carrying value in excess of 10%
of the Company's shareholder's equity at December 31, 1996.
F-14
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
2. Investments (Continued)
Included in the Company's total debt securities were residential
collateralized mortgage obligations ("CMOs") supporting the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
Fair Amortized Fair Amortized
Value Cost Value Cost
----- ---- ----- ----
(millions)
<S> <C> <C> <C> <C>
Total residential CMOs (1) $2,309.0 $2,227.8 $2,549.4 $2,383.9
======== ======== ======== ========
Percentage of total:
Supporting experience rated products 84.2% 85.3%
Supporting remaining products 15.8% 14.7%
-------- --------
100.0% 100.0%
======== ========
</TABLE>
(1) At December 31, 1996 and 1995, approximately 71% and 81%,
respectively, of the Company's residential CMO holdings were backed by
government agencies such as GNMA, FNMA, FHLMC.
There are various categories of CMOs which are subject to different degrees
of risk from changes in interest rates and, for nonagency-backed CMOs,
defaults. The principal risks inherent in holding CMOs are prepayment and
extension risks related to dramatic decreases and increases in interest
rates resulting in the repayment of principal from the underlying mortgages
either earlier or later than originally anticipated.
At December 31, 1996 and 1995, approximately 68% and 79%, respectively, of
the Company's CMO holdings were in planned amortization class ("PAC") and
sequential structure tranches, which are subject to less prepayment and
extension risk than other types of CMO instruments. At December 31, 1996
and 1995, approximately 3% of the Company's CMO holdings were in the
interest-only ("IOs") and principal-only ("POs") tranches, which are
subject to more prepayment and extension risks than other types of CMO
instruments. Remaining CMO holdings are in other tranches that have
prepayment and extension risks which fall between the degree of risk
associated with PACs and sequentials, and IOs and POs.
F-15
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
2. Investments (Continued)
Investments in available for sale equity securities were as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ---------- ---------- -----
(millions)
1996
Equity Securities $ 184.9 $ 16.3 $ 0.8 $ 200.4
======= ======= ======= =======
1995
Equity Securities $ 231.6 $ 27.2 $ 1.2 $ 257.6
======= ======= ======= =======
3. Financial Instruments
Estimated Fair Value
The carrying values and estimated fair values of certain of the Company's
financial instruments at December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
------------------ -----------------
Carrying Fair Carrying Fair
Value Value Value Value
----- ----- ----- -----
(millions)
<S> <C> <C> <C> <C>
Assets:
Mortgage loans $ 13.0 $ 13.2 $ 21.2 $ 21.9
Liabilities:
Investment contract liabilities:
With a fixed maturity $ 1,014.1 $ 1,028.8 $ 989.1 $ 1,001.2
Without a fixed maturity 9,649.6 9,427.6 9,511.0 9,298.4
</TABLE>
Fair value estimates are made at a specific point in time, based on
available market information and judgments about the financial instrument,
such as estimates of timing and amount of future cash flows. Such estimates
do not reflect any premium or discount that could result from offering for
sale at one time the Company's entire holdings of a particular financial
instrument, nor do they consider the tax impact of the realization of
unrealized gains or losses. In many cases, the fair value estimates cannot
be substantiated by comparison to independent markets, nor can the
disclosed value be realized in immediate settlement of the instrument. In
evaluating the Company's management of interest rate, price and liquidity
risks, the fair values of all assets and liabilities should be taken into
consideration, not only those presented above.
F-16
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
3. Financial Instruments (Continued)
The following valuation methods and assumptions were used by the Company in
estimating the fair value of the above financial instruments:
Mortgage loans: Fair values are estimated by discounting expected mortgage
loan cash flows at market rates which reflect the rates at which similar
loans would be made to similar borrowers. The rates reflect management's
assessment of the credit quality and the remaining duration of the loans.
Investment contract liabilities (included in Policyholders' Funds Left With
the Company):
With a fixed maturity: Fair value is estimated by discounting cash flows at
interest rates currently being offered by, or available to, the Company for
similar contracts.
Without a fixed maturity: Fair value is estimated as the amount payable to
the contractholder upon demand. However, the Company has the right under
such contracts to delay payment of withdrawals which may ultimately result
in paying an amount different than that determined to be payable on demand.
Off-Balance-Sheet and Other Financial Instruments (including Derivative
Financial Instruments)
The Company uses off-balance-sheet and other financial instruments
primarily to manage portfolio risks, including interest rate,
prepayment/call, credit, price, and liquidity risks. In 1996, Treasury
futures contracts were used to manage interest rate risk in the Company's
bond portfolio and stock index futures contracts were used to manage price
risk in the Company's equity portfolio. In 1996 and 1995, interest rate
swaps and forward commitments to enter into interest rate swaps,
respectively, were also used to manage interest rate risk in the Company's
bond portfolio.
Futures Contracts:
Futures contracts represent commitments to either purchase or sell
underlying assets at a specified future date. Futures contracts trade on
organized exchanges and, therefore, have minimal credit risk. Cash
settlements are made daily based on changes in the prices of the underlying
assets. There were no futures contracts open as of December 31, 1996 and
1995.
F-17
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
3. Financial Instruments (Continued)
Interest Rate Swaps:
Under interest rate swaps, the Company agrees with other parties to
exchange interest amounts calculated by reference to an agreed notional
principal amount. Generally, no cash is exchanged at the outset of the
contract and no principal payments are made. A single net payment is
usually made by one counterparty at each due date or upon termination of
the contract. The Company would be exposed to credit-related losses in the
event of nonperformance by counterparties to financial instruments,
however, the Company controls its exposure to credit risk through credit
approvals, credit limits and regular monitoring procedures. The credit
exposure of interest rate swaps is represented by the fair value (market
value) of contracts with a positive fair value (market value) at the
reporting date. There were no interest rate swap agreements open as of
December 31, 1996. At December 31, 1995, the Company had an open forward
swap agreement with a notional amount of $100.0 million and a fair value of
$0.1 million.
During 1995, the Company received $0.4 million for writing call options on
underlying securities. The Company did not write any call options in 1996.
As of December 31, 1996 and 1995, there were no option contracts
outstanding.
The Company also had investments in certain debt instruments with
derivative characteristics, including those whose market value is at least
partially determined by, among other things, levels of or changes in
domestic and/or foreign interest rates (short or long term), exchange
rates, prepayment rates, equity markets or credit ratings/spreads. The
amortized cost and fair value of these securities, included in the debt
securities portfolio, as of December 31, 1996 was as follows:
Amortized Fair
Cost Value
---- -----
(millions)
Residential collateralized mortgage obligations $ 2,227.8 $ 2,309.0
Principal-only strips (included above) 44.5 53.3
Interest-only strips (included above) 10.3 22.8
Other structured securities with derivative
characteristics (1) 126.3 129.2
(1) Represents non-leveraged instruments whose fair values and credit risk
are based on underlying securities, including fixed income securities
and interest rate swap agreements.
F-18
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
4. Net Investment Income
Sources of net investment income were as follows:
1996 1995 1994
---- ---- ----
(millions)
Debt securities $ 945.3 $ 891.5 $ 823.9
Preferred stock 5.9 4.2 3.9
Investment in affiliated mutual funds 14.3 14.9 5.2
Mortgage loans 2.2 1.4 1.4
Policy loans 18.4 13.7 11.5
Reinsurance loan to affiliate 44.1 46.5 51.5
Cash equivalents 29.4 38.9 29.5
Other 2.1 8.4 6.7
-------- -------- --------
Gross investment income 1,061.7 1,019.5 933.6
Less investment expenses (16.1) (15.2) (16.4)
-------- -------- --------
Net investment income $1,045.6 $1,004.3 $ 917.2
======== ======== ========
Net investment income includes amounts allocable to experience rated
contractholders of $787.6 million, $744.2 million and $677.1 million for
the years ended December 31, 1996, 1995 and 1994, respectively. Interest
credited to contractholders is included in Current and Future Benefits.
5. Dividend Restrictions and Shareholder's Equity
The Company paid $3.5 million in cash dividends to HOLDCO in 1996. In 1995,
the Company dividended $2.9 million in the form of two of its subsidiaries,
Systematized Benefits Administrators, Inc. and Aetna Investment Services,
Inc., to Aetna Retirement Services, Inc. (the Company's former parent).
The amount of dividends that may be paid to the shareholder in 1997 without
prior approval by the Insurance Commissioner of the State of Connecticut is
$71.1 million.
The Insurance Department of the State of Connecticut (the "Department")
recognizes as net income and shareholder's capital and surplus those
amounts determined in conformity with statutory accounting practices
prescribed or permitted by the Department, which differ in certain respects
from generally accepted accounting principles. Statutory net income was
$57.8 million, $70.0 million and $64.9 million for the years ended December
31, 1996, 1995 and 1994, respectively. Statutory capital and surplus was
$713.6 million and $670.7 million as of December 31, 1996 and 1995,
respectively.
As of December 31, 1996 the Company does not utilize any statutory
accounting practices which are not prescribed by state regulatory
authorities that, individually or in the aggregate, materially affect
statutory capital and surplus.
F-19
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
6. Capital Gains and Losses on Investment Operations
Realized capital gains or losses are the difference between the carrying
value and sale proceeds of specific investments sold.
Net realized capital gains on investments were as follows:
1996 1995 1994
---- ---- ----
(millions)
Debt securities $ 11.1 $ 32.8 $ 1.0
Equity securities 8.6 8.3 0.2
Mortgage loans -- 0.2 0.3
-------- -------- -------
Pretax realized capital gains $ 19.7 $ 41.3 $ 1.5
======== ======= =======
After tax realized capital gains $ 13.0 $ 25.8 $ 1.0
======== ======= =======
Net realized capital gains of $53.1 million and $61.1 million for 1996 and
1995, respectively, and net realized capital losses of $29.1 million for
1994, allocable to experience rated contracts, were deducted from net
realized capital gains (losses) and an offsetting amount was reflected in
policyholder funds' left with the Company. Net unamortized gains were $53.3
million and $7.3 million at December 31, 1996 and 1995, respectively.
Changes to the mortgage loan valuation reserve and writedowns on debt
securities for other than temporary declines in value are included in net
realized capital gains (losses) and amounted to $(3.3) million, $3.1
million and $1.1 million, of which $(3.2) million, $2.2 million and $0.8
million were allocable to experience rated contractholders, for the years
ended December 31, 1996, 1995 and 1994, respectively. There was no
valuation reserve for mortgage loans at December 31, 1996 or at December
31, 1995.
Proceeds from the sale of available for sale debt securities and the
related gross gains and losses were as follows:
1996 1995 1994
---- ---- ----
(millions)
Proceeds on Sales $5,182.2 $4,207.2 $3,593.8
Gross gains 24.3 44.6 26.6
Gross losses 13.2 11.8 25.6
F-20
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
6. Capital Gains and Losses on Investment Operations (Continued)
Changes in shareholder's equity related to changes in unrealized capital
gains (losses), (excluding those related to experience rated
contractholders), were as follows:
1996 1995 1994
---- ---- ----
(millions)
Debt securities $ (100.1) $ 255.9 $ (242.1)
Equity securities (10.5) 27.3 (13.3)
Limited partnership -- 1.8 (1.8)
-------- -------- --------
(110.6) 285.0 (257.2)
Deferred income taxes (See Note 8) (38.6) (36.5) 46.3
-------- -------- --------
Net change in unrealized
capital gains (losses) $ (72.0) $ 321.5 $ (303.5)
======== ======== ========
Net unrealized capital gains allocable to experience rated contracts of
$245.2 million and $43.3 million at December 31, 1996 and $515.0 million
and $104.1 million at December 31, 1995 are reflected on the Consolidated
Balance Sheets in Policyholders' Funds Left With the Company and Future
Policy Benefits, respectively, and are not included in shareholder's
equity.
Shareholder's equity included the following unrealized capital gains
(losses), which are net of amounts allocable to experience rated
contractholders, at December 31:
1996 1995 1994
---- ---- ----
(millions)
Debt securities
Gross unrealized capital gains $101.7 $179.3 $ 27.4
Gross unrealized capital losses (23.8) (1.3) (105.2)
------ ------ --------
77.9 178.0 (77.8)
Equity securities
Gross unrealized capital gains 16.3 27.2 6.5
Gross unrealized capital losses (0.8) (1.2) (7.9)
------ ------ --------
15.5 26.0 (1.4)
Limited Partnership -- -- --
Gross unrealized capital gains -- -- --
Gross unrealized capital losses -- -- (1.8)
------ ------ --------
-- -- (1.8)
Deferred income taxes (See Note 8) 32.9 71.5 108.0
------ ------ --------
Net unrealized capital gains (losses) $ 60.5 $132.5 $(189.0)
====== ====== ========
F-21
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
7. Severance and Facilities Charges
Severance and facilities charges during 1996, as described below, included
the following (pretax):
<TABLE>
<CAPTION>
Vacated
Asset Leased Corporate
(Millions) Severance Write-Off Property Other Allocation Total
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Financial Services $ 29.1 $ 1.0 $ 1.3 $ 1.7 $ -- $ 33.1
Individual Life Insurance 12.5 0.4 0.5 0.8 -- 14.2
Corporate Allocation -- -- -- -- 14.0 14.0
---------------------------------------------------------------
Total Company $ 41.6 $ 1.4 $ 1.8 $ 2.5 $ 14.0 $ 61.3
- --------------------------------------------------------------------------------------------
</TABLE>
In the third quarter of 1996, the Company recorded a $30.7 million after
tax ($47.3 million pretax) charge principally related to actions taken or
expected to be taken to improve its cost structure relative to its
competitors. The severance portion of the charge is based on a plan to
eliminate 702 positions (primarily customer service, sales and information
technology support staff). The facilities portion of the charge is based on
a plan to consolidate sales/service field offices.
In addition to the above charge, Aetna recorded a facilities and severance
charge in the second quarter of 1996, primarily as a result of actions
taken or expected to be taken to reduce the level of corporate expenses and
other costs previously absorbed by Aetna's property-casualty operations.
The cost allocated to the Company associated with this charge was $9.1
million after tax ($14.0 million pretax).
The activity during 1996 within the severance and facilities reserve
(pretax, in millions) and the number of positions eliminated related to
such actions were as follows:
Reserve Positions
---------------------------------------------------------------------------
Beginning of year $ -- --
Severance and facilities charges 47.3 702
Corporate Allocation 14.0 --
Actions taken (1) (13.4) (178)
-------------------------------
End of year $ 47.9 524
---------------------------------------------------------------------------
(1) Includes $8.0 million of severance-related actions and $4.1 million of
corporate allocation-related actions.
The Company's severance actions are expected to be substantially completed
by March 31, 1998. The corporate allocation actions and the vacating of the
leased office space are expected to be substantially completed in 1997.
F-22
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
8. Income Taxes
The Company is included in the consolidated federal income tax return and
combined Connecticut and New York state income tax returns of Aetna. Aetna
allocates to each member an amount approximating the tax it would have
incurred were it not a member of the consolidated group, and credits the
member for the use of its tax saving attributes used in the consolidated
returns.
Income taxes for the years ended December 31, consist of:
1996 1995 1994
---- ---- ----
(millions)
Current taxes (benefits):
Income Taxes:
Federal $ 50.9 $ 82.9 $ 78.7
State 3.7 3.2 4.4
Net realized capital gains (losses) 25.3 28.5 (33.2)
------ ------ ------
79.9 114.6 49.9
------ ------ ------
Deferred taxes (benefits):
Income Taxes:
Federal (3.5) (14.4) (8.0)
Net realized capital gains (losses) (18.6) (12.9) 33.7
------ ------ ------
(22.1) (27.3) 25.7
------ ------ ------
Total $ 57.8 $ 87.3 $ 75.6
====== ====== ======
Income taxes were different from the amount computed by applying the
federal income tax rate to income before income taxes for the following
reasons:
1996 1995 1994
---- ---- ----
(millions)
Income before income taxes $198.9 $263.2 $220.9
Tax rate 35% 35% 35%
------ ------ ------
Application of the tax rate 69.6 92.1 77.3
------ ------ ------
Tax effect of:
State income tax, net of federal benefit 2.4 2.1 2.9
Excludable dividends (8.7) (9.3) (8.6)
Other, net (5.5) 2.4 4.0
------ ------ ------
Income taxes $ 57.8 $ 87.3 $ 75.6
====== ====== ======
F-23
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
8. Income Taxes (Continued)
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities at December 31 are presented below:
1996 1995
---- ----
(millions)
Deferred tax assets:
Insurance reserves $ 344.6 $ 290.4
Unrealized gains allocable to
experience rated contracts 100.8 216.7
Investment losses 7.5 7.3
Postretirement benefits other
than pensions 27.0 7.7
Deferred compensation 25.0 18.9
Pension 7.6 5.7
Other 29.3 9.2
------- -------
Total gross assets 541.8 555.9
Deferred tax liabilities:
Deferred policy acquisition costs 482.1 433.0
Market discount 6.8 4.4
Net unrealized capital gains 133.7 288.2
Other (0.3) (0.1)
------- -------
Total gross liabilities 622.3 725.5
------- -------
Net deferred tax liability $ 80.5 $ 169.6
======= =======
Net unrealized capital gains and losses are presented in shareholder's
equity net of deferred taxes. Valuation allowances are provided when it is
not considered more likely than not that deferred tax assets will be
realized. As of December 31, 1996 and 1995, no valuation allowances were
required for unrealized capital gains and losses.
The "Policyholders' Surplus Account," which arose under prior tax law, is
generally that portion of a life insurance company's statutory income that
has not been subject to taxation. As of December 31, 1983, no further
additions could be made to the Policyholders' Surplus Account for tax
return purposes under the Deficit Reduction Act of 1984. The balance in
such account was approximately $17.2 million at December 31, 1996. This
amount would be taxed only under certain conditions. No income taxes have
been provided on this amount since management believes the conditions under
which such taxes would become payable are remote.
F-24
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
8. Income Taxes (Continued)
The Internal Revenue Service ("Service") has completed examinations of the
consolidated federal income tax returns of Aetna through 1990. Discussions
are being held with the Service with respect to proposed adjustments.
Management believes there are adequate defenses against, or sufficient
reserves to provide for, any such adjustments. The Service has commenced
its examinations for the years 1991 through 1994.
9. Benefit Plans
Employee Pension Plans - The Company, in conjunction with Aetna, has
noncontributory defined benefit pension plans covering substantially all
employees. The plans provide pension benefits based on years of service and
average annual compensation (measured over 60 consecutive months of highest
earnings in a 120-month period). Contributions are determined using the
Projected Unit Credit Method and, for qualified plans subject to ERISA
requirements, are limited to the amounts that are tax-deductible. As of
December 31, 1996, Aetna's accrued pension cost has been allocated to its
subsidiaries, including the Company, under an allocation based on eligible
salaries. Data on a separate company basis regarding the proportionate
share of the projected benefit obligation and plan assets is not available.
The accumulated benefit obligation and plan assets are recorded by Aetna.
As of the measurement date (i.e., September 30), the accumulated plan
assets exceeded accumulated plan benefits. Allocated pretax charges to
operations for the pension plan (based on the Company's total salary cost
as a percentage of Aetna's total salary cost) were $4.3 million, $6.1
million and $5.5 million for the years ended December 31, 1996, 1995 and
1994, respectively.
Employee Postretirement Benefits - In addition to providing pension
benefits, Aetna currently provides health care and life insurance benefits,
subject to certain caps, for retired employees. A comprehensive medical and
dental plan is offered to all full-time employees retiring at age 50 with
15 years of service or at age 65 with 10 years of service. Retirees are
generally required to contribute to the plans based on their years of
service with Aetna. The costs to the Company associated with the Aetna
postretirement plans for 1996, 1995 and 1994 were $1.8 million, $1.4
million and $1.0 million, respectively.
As of December 31, 1996, Aetna transferred to the Company approximately
$77.7 million of accrued liabilities, primarily related to the pension and
postretirement benefit plans described above, that had been previously
recorded by Aetna. The after tax amount of this transfer (approximately
$50.5 million) is reported as a reduction in retained earnings.
Agent Pension Plans - The Company, in conjunction with Aetna, has a
non-qualified pension plan covering certain agents. The plan provides
pension benefits based on annual commission earnings. As of the measurement
date (i.e., September 30), the accumulated plan assets exceeded accumulated
plan benefits.
F-25
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
9. Benefit Plans (Continued)
Agent Postretirement Benefits - The Company, in conjunction with Aetna,
also provides certain postretirement health care and life insurance
benefits for certain agents. The costs to the Company associated with the
agents' postretirement plans for 1996, 1995 and 1994 were $0.7 million,
$0.8 million and $0.7 million, respectively.
Incentive Savings Plan - Substantially all employees are eligible to
participate in a savings plan under which designated contributions, which
may be invested in common stock of Aetna or certain other investments, are
matched, up to 5% of compensation, by Aetna. Pretax charges to operations
for the incentive savings plan were $5.4 million, $4.9 million and $3.3
million in 1996, 1995 and 1994, respectively.
Stock Plans - Aetna has a stock incentive plan that provides for stock
options, deferred contingent common stock or equivalent cash awards or
restricted stock to certain key employees. Executive and middle management
employees may be granted options to purchase common stock of Aetna at or
above the market price on the date of grant. Options generally become 100%
vested three years after the grant is made, with one-third of the options
vesting each year. Aetna does not recognize compensation expense for stock
options granted at or above the market price on the date of grant under its
stock incentive plans. In addition, executives may be granted incentive
units which are rights to receive common stock or an equivalent value in
cash. The incentive units may vest within a range from 0% to 175% at the
end of a four year period based on the attainment of performance goals. The
costs to the Company associated with the Aetna stock plans for 1996, 1995
and 1994, were $8.1 million, $6.3 million and $1.7 million, respectively.
As of December 31, 1996, Aetna transferred to the Company approximately
$1.1 million of deferred tax benefits related to stock options. This amount
is reported as an increase in retained earnings.
10. Related Party Transactions
The Company is compensated by the Separate Accounts for bearing mortality
and expense risks pertaining to variable life and annuity contracts. Under
the insurance contracts, the Separate Accounts pay the Company a daily fee
which, on an annual basis, ranges, depending on the product, from .10% to
1.90% of their average daily net assets. The Company also receives fees
from the variable life and annuity mutual funds and The Aetna Series Fund
for serving as investment adviser. Under the advisory agreements, the Funds
pay the Company a daily fee which, on an annual basis, ranges, depending on
the fund, from .25% to .85% of their average daily net assets. The Company
also receives fees (expressed as a percentage of the average daily net
assets) from the variable life and annuity mutual funds and The Aetna
Series Fund for providing administration services, and from The Aetna
Series Fund for providing shareholder services and promoting sales. The
amount of compensation and fees received from the Separate Accounts and
Funds, included in Charges Assessed Against Policyholders, amounted to
$185.4 million, $128.1 million and $104.6 million in 1996, 1995 and 1994,
respectively. The Company may waive advisory fees at its discretion.
F-26
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
10. Related Party Transactions (Continued)
The Company acts as an investment adviser for its affiliated mutual funds.
Since August 1996, Aeltus Investment Management, Inc. ("Aeltus"), a wholly
owned subsidiary of HOLDCO and an affiliate of the Company, has been acting
as Subadvisor of all affiliated mutual funds and of most of the General
Account assets. Fees paid by the Company to Aeltus, included in both
Charges Assessed Against Policyholders and Net Investment Income, on an
annual basis, range from .06% to .55% of the average daily net assets under
management. For the year ended December 31, 1996, the Company paid $16.0
million in such fees.
The Company may, from time to time, make reimbursements to a Fund for some
or all of its operating expenses. Reimbursement arrangements may be
terminated at any time without notice.
Since 1981, all domestic individual non-participating life insurance of
Aetna and its subsidiaries has been issued by the Company. Effective
December 31, 1988, the Company entered into a reinsurance agreement with
Aetna Life Insurance Company ("Aetna Life") in which substantially all of
the non-participating individual life and annuity business written by Aetna
Life prior to 1981 was assumed by the Company. A $108.0 million commission,
paid by the Company to Aetna Life in 1988, was capitalized as deferred
policy acquisition costs. An additional $6.1 million commission, paid by
the Company to Aetna Life in 1996, was capitalized as deferred policy
acquisition costs. The Company maintained insurance reserves of $628.3
million and $655.5 million as of December 31, 1996 and 1995, respectively,
relating to the business assumed. In consideration for the assumption of
this business, a loan was established relating to the assets held by Aetna
Life which support the insurance reserves. The loan is being reduced in
accordance with the decrease in the reserves. The fair value of this loan
was $625.3 million and $663.5 million as of December 31, 1996 and 1995,
respectively, and is based upon the fair value of the underlying assets.
Premiums of $25.3 million, $28.0 million and $32.8 million and current and
future benefits of $39.5 million, $43.0 million and $43.8 million were
assumed in 1996, 1995 and 1994, respectively.
Investment income of $44.1 million, $46.5 million and $51.5 million was
generated from the reinsurance loan to affiliate in 1996, 1995 and 1994,
respectively. Net income of approximately $8.1 million, $18.4 million and
$25.1 million resulted from this agreement in 1996, 1995 and 1994,
respectively.
On December 16, 1988, the Company assumed $25.0 million of premium revenue
from Aetna Life for the purchase and administration of a life contingent
single premium variable payout annuity contract. In addition, the Company
also is responsible for administering fixed annuity payments that are made
to annuitants receiving variable payments. Reserves of $28.9 million and
$28.0 million were maintained for this contract as of December 31, 1996 and
1995, respectively.
Effective February 1, 1992, the Company increased its retention limit per
individual life to $2.0 million and entered into a reinsurance agreement
with Aetna Life to reinsure amounts in excess of this limit, up to a
maximum of $8.0 million on any new individual life business, on a yearly
renewable term basis. Premium amounts related to this agreement were $5.2
million, $3.2 million and $1.3 million for 1996, 1995 and 1994,
respectively.
F-27
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
10. Related Party Transactions (Continued)
The Company received a capital contribution of $10.4 million in cash from
HOLDCO in 1996. The Company received no capital contributions in 1995 or
1994.
The Company paid $3.5 million in cash dividends to HOLDCO in 1996. In 1995,
the Company dividended $2.9 million in the form of two of its subsidiaries,
Systematized Benefits Administrators, Inc. and Aetna Investment Services,
Inc., to Aetna Retirement Services, Inc. (the Company's former parent).
Premiums due and other receivables include $2.8 million and $5.7 million
due from affiliates in 1996 and 1995, respectively. Other liabilities
include $10.7 million and $12.4 million due to affiliates for 1996 and
1995, respectively.
Substantially all of the administrative and support functions of the
Company are provided by Aetna and its affiliates. The financial statements
reflect allocated charges for these services based upon measures
appropriate for the type and nature of service provided.
11. Reinsurance
The Company utilizes indemnity reinsurance agreements to reduce its
exposure to large losses in all aspects of its insurance business. Such
reinsurance permits recovery of a portion of losses from reinsurers,
although it does not discharge the primary liability of the Company as
direct insurer of the risks reinsured. The Company evaluates the financial
strength of potential reinsurers and continually monitors the financial
condition of reinsurers. Only those reinsurance recoverables deemed
probable of recovery are reflected as assets on the Company's Consolidated
Balance Sheets.
F-28
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
11. Reinsurance (Continued)
The following table includes premium amounts ceded/assumed to/from
affiliated companies as discussed in Note 10 above.
Ceded to Assumed
Direct Other from Other Net
Amount Companies Companies Amount
------ --------- --------- ------
(millions)
1996
Premiums:
Life Insurance $ 34.6 $ 11.2 $ 25.3 $ 48.7
Accident and Health Insurance 6.3 6.3 -- --
Annuities 84.3 -- 0.6 84.9
======= ======= ======= =======
Total earned premiums $ 125.2 $ 17.5 $ 25.9 $ 133.6
======= ======= ======= =======
1995
Premiums:
Life Insurance $ 28.8 $ 8.6 $ 28.0 $ 48.2
Accident and Health Insurance 7.5 7.5 -- --
Annuities 164.0 -- 0.5 164.5
======= ======= ======= =======
Total earned premiums $ 200.3 $ 16.1 $ 28.5 $ 212.7
======= ======= ======= =======
1994
Premiums:
Life Insurance $ 27.3 $ 6.0 $ 32.8 $ 54.1
Accident and Health Insurance 9.3 9.3 -- --
Annuities 137.3 -- 0.2 137.5
======= ======= ======= =======
Total earned premiums $ 173.9 $ 15.3 $ 33.0 $ 191.6
======= ======= ======= =======
12. Commitments and Contingent Liabilities
Commitments
Through the normal course of investment operations, the Company commits to
either purchase or sell securities or money market instruments at a
specified future date and at a specified price or yield. The inability of
counterparties to honor these commitments may result in either higher or
lower replacement cost. Also, there is likely to be a change in the value
of the securities underlying the commitments. At December 31, 1996, the
Company had commitments to purchase investments of $17.9 million. The fair
value of the investments at December 31, 1996 approximated $18.3 million.
F-29
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
12. Commitments and Contingent Liabilities (Continued)
Litigation
The Company is involved in numerous lawsuits arising, for the most part, in
the ordinary course of its business operations. While the ultimate outcome
of litigation against the Company cannot be determined at this time, after
consideration of the defenses available to the Company and any related
reserves established, it is not expected to result in liability for amounts
material to the financial condition of the Company, although it may
adversely affect results of operations in future periods.
F-30
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
13. Segment Information (1)
The Company's operations are reported through two major business segments:
Financial Services and Individual Life Insurance.
Summarized financial information for the Company's principal operations was
as follows:
(Millions) 1996 1995 1994
- --------------------------------------------------------------------------------
Revenue:
Financial Services $ 1,195.1 $ 1,211.3 $ 1,013.5
Individual Life Insurance 445.7 407.9 386.1
---------------------------------
Total revenue $ 1,640.8 $ 1,619.2 $ 1,399.6
- --------------------------------------------------------------------------------
Income before income taxes: (2)
Financial Services $ 129.9 $ 160.1 $ 122.5
Individual Life Insurance 83.0 103.1 98.4
---------------------------------
Total income before income taxes $ 212.9 $ 263.2 $ 220.9
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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
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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
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Total assets under management $30,098.6 $25,125.3 $20,343.4
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(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.75962-97 ALIAC Ed. May 1997
