VARIABLE ANNUITY ACCOUNT C
Prospectus Dated:
May 1, 1997
Group Installment Variable Annuity Contracts for HR 10 Plans and Rewrite of
Qualified 401 Plans
================================================================================
The Contracts offered in connection with this Prospectus are group installment
Variable Annuity Contracts (the "Contracts") issued by Aetna Life Insurance and
Annuity Company (the "Company"). The Contract is designed to fund Plans
("Plans") that provide for retirement income. The Plans may be entitled to
tax-deferred treatment under the Internal Revenue Code of 1986, as amended (the
"Code").
The Contract allows values to accumulate under credited interest or variable
options, or a combination of these options. It also provides for the payment of
annuity benefits on a fixed or variable basis, or a combination thereof.
The variable funding options currently available through the Separate Account
under the Contract described in this Prospectus are as follows:
[bullet] Aetna Variable Fund
[bullet] Aetna Income Shares
[bullet] Aetna Variable Encore Fund
[bullet] Aetna Investment Advisers Fund, Inc.
[bullet] American Century VP Capital Appreciation (formerly TCI Growth)
The credited interest options available for the accumulation of values are the
Guaranteed Accumulation Account and the Fixed Account. The Guaranteed
Accumulation Account and the Fixed Account are offered only in those states in
which they are approved. Except as specifically mentioned, this Prospectus
describes only the variable options of the Contract. Information about the
Guaranteed Accumulation Account and the Fixed Account is found in Appendix I and
Appendix II, respectively.
This Prospectus contains the information about Variable Annuity Account C (the
"Separate Account") that a prospective investor should know before investing.
Additional information about the Separate Account is contained in a Statement of
Additional Information ("SAI") dated May 1, 1997 which has been filed with the
Securities and Exchange Commission and is incorporated herein by reference. The
Table of Contents for the SAI is printed in this prospectus. An SAI may be
obtained without charge by indicating the request on the prospectus receipt
contained in this prospectus or by calling 1-800-232-5422. 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.
NO PERSON IS AUTHORIZED BY THE COMPANY TO GIVE INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFERS CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION ARE DATED MAY 1,
1997.
<PAGE>
TABLE OF CONTENTS
===============================================================================
DEFINITIONS ................................................ DEFINITIONS - 1
PROSPECTUS SUMMARY .......................................... SUMMARY - 1
FEE TABLE ................................................... FEE TABLE - 1
CONDENSED FINANCIAL INFORMATION .............................. AUV HISTORY - 1
THE COMPANY ............................................................ 1
VARIABLE ANNUITY ACCOUNT C ............................................. 1
THE FUNDS ............................................................... 1
Fund Investment Advisers ............................................. 2
Mixed and Shared Funding ............................................. 2
Fund Additions, Limitations and Substitutions ........................ 2
404(c) Protection ................................................... 2
THE CONTRACT ............................................................ 3
Contract Purchase ................................................... 3
Net Purchase Payments ................................................ 3
Distribution ......................................................... 4
DETERMINING CONTRACT VALUE ............................................. 4
Accumulation Units ................................................... 4
Net Investment Factor ................................................ 5
CONTRACT RIGHTS ......................................................... 5
Right to Cancel ...................................................... 5
Rights Under the Contract ............................................. 5
Transfers and Allocation Changes .................................... 5
Withdrawals ......................................................... 5
Reinvestment Privilege ................................................ 6
CHARGES AND DEDUCTIONS ................................................ 6
Maintenance Fee ...................................................... 6
Mortality and Expense Risk Charges .................................... 7
Administrative Expense Charge ....................................... 7
Fund Expenses ......................................................... 7
Allocation and Transfer of Fees ....................................... 7
Deferred Sales Charge ................................................ 7
Premium Tax ......................................................... 8
ADDITIONAL WITHDRAWAL OPTIONS .......................................... 8
General ............................................................... 8
Estate Conservation Option .......................................... 9
Systematic Withdrawal Option .......................................... 9
ANNUITY PERIOD ......................................................... 10
Annuity Period Elections ............................................. 10
Annuity Options ...................................................... 10
DEATH BENEFIT ......................................................... 12
Accumulation Period ................................................... 12
Annuity Period ...................................................... 12
<PAGE>
TAX STATUS ................................................... 13
Federal Tax Status of the Company ........................ 13
Use of the Contract ....................................... 13
Tax Status of Amounts Distributed Under The Contract ...... 13
MISCELLANEOUS ................................................ 14
Performance Reporting .................................... 14
Voting Rights ............................................. 14
Modification of the Contract .............................. 15
Contract Holder Inquiries ................................. 15
Telephone Transfers ....................................... 15
Transfer of Ownership; Assignment ........................ 15
Legal Proceedings .......................................... 15
Legal Matters ............................................. 15
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION ......... 16
APPENDIX I--GUARANTEED ACCUMULATION ACCOUNT .................. 17
APPENDIX II--FIXED ACCOUNT .................................... 18
<PAGE>
DEFINITIONS
===============================================================================
As used in this Prospectus, the following terms have the meanings shown:
Account Value: The dollar value of amounts held in an Account as of any
Valuation Period, including the value of the Accumulation Units in the Funds,
the amounts held in GAA, and any amounts invested in the Fixed Account, plus
interest earned on those amounts, less any maintenance fees due, but excluding
amounts used for Annuity Options.
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 the Separate Account assets
attributable to each Fund used as a variable funding option.
Aggregate Purchase Payment(s): The sum of all Purchase Payment(s) made under a
Contract.
Annuitant: A natural person on whose life an Annuity payment is based.
Annuity: A series of payments for life, for a definite period, or a combination
of the two.
Annuity Period: The period during which Annuity payments are made.
Annuity Unit: A unit of measure used to calculate the amount of each variable
annuity payment.
Code: Internal Revenue Code of 1986, as amended.
Company: Aetna Life Insurance and Annuity Company, sometimes referred to as "we"
or "us".
Contract: The group installment Purchase Payment variable annuity contracts
offered by this Prospectus.
Contract Holder: The entity to which the Contract is issued. The Contract Holder
is usually the trustee of a trusteed Plan.
Contract Year: For HR 10 Contracts issued before June 1, 1992, and for all
Corporate 401 Contracts, the period of 12 months measured from the Contract's
effective date or from any anniversary of such effective date. For HR 10
Contracts issued on and after June 1, 1992, the period of 12 months measured
from the date the first Purchase Payment is applied to the Contract or from any
anniversary of such date, subject to state approval.
Corporate 401 Contracts: Contracts designed for Corporate 401 Plans.
Distributor(s): The registered broker-dealer(s) which have entered into selling
agreements with the Company to offer and sell the Contracts. The Company may
also serve as a Distributor.
Effective Date: The date on which the Company accepts and approves the Contract
application.
ERISA: The Employee Retirement Income Security Act of 1974, as amended.
Funds: An open-end registered management investment company whose shares are
purchased by the Separate Account to fund the benefits provided by the Contract.
GAA: Guaranteed Accumulation Account, the credited interest option available in
most jurisdictions for deposits under the Contract.
Home Office: The Company's principal executive offices located at 151 Farmington
Avenue, Hartford, Connecticut 06156.
HR 10 Contracts: Contracts designed for HR 10 Plans.
Individual Account: A record established for each Participant to identify
Contract values accumulated on the Participant's behalf during the Accumulation
Period.
Market Value Adjustment: An amount deducted or added to amounts withdrawn early
from the Guaranteed Accumulation Account to reflect changes in the market value
of the investment since the date of deposit. See Appendix I and the
- -------------------------------------------------------------------------------
DEFINITIONS - 1
<PAGE>
prospectus for the Guaranteed Accumulation Account for a discussion of how the
market value adjustment is actually calculated.
Net Purchase Payments(s): The Purchase Payment(s) less premium taxes, if
applicable.
Participant ("You"): An eligible person participating in a Plan.
Plan(s): There are two types of plans described in this Prospectus: Qualified
tax-deferred retirement plans established by self-employed individuals ("HR 10
Plans"); and qualified tax-deferred retirement plans established by corporations
that have elected to rewrite their individual pension annuity contracts
("Corporate 401 Plans"). HR 10 Plans for sole proprietorships or partnerships
are sometimes referred to as Keogh Plans.
Plan Account: The record established for a Contract Holder of the Net Purchase
Payment(s) accumulated under a Contract where Individual Accounts are not
maintained.
Purchase Payment(s): The gross payment(s) made to the Company under a Contract.
SEC: Securities and Exchange Commission.
Separate Account: Variable Annuity Account C, an account whose assets are
segregated from other assets of the Company and which holds shares of the Funds
acquired for the Contracts. The Company holds title to the assets held in the
Separate Account.
Underwriter: The registered broker-dealer which contracts with other registered
broker-dealers on behalf of the Separate Account to offer and sell the
Contracts.
Valuation Period: The period of time from when the Company determines the
Accumulation Unit Value and Annuity Unit Value of a variable investment option
until the next time it determines such unit value. Currently, the calculation
occurs after the close of business of the New York Stock Exchange on any normal
business day, Monday through Friday, that the New York Stock Exchange is open.
Valuation Reserve: A reserve established pursuant to the insurance laws of
Connecticut to measure voting rights during the Annuity Period and the value of
a commutation right available under the "Payments for a Specified Period"
nonlifetime Annuity option when elected on a variable basis under the Contract.
Variable Annuity Contract: An Annuity Contract providing for the accumulation of
values and for Annuity payments which vary in dollar amount with investment.
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DEFINITIONS - 2
<PAGE>
PROSPECTUS SUMMARY
===============================================================================
CONTRACT PURCHASE
The Contracts are designed for Plans established by self-employed
individuals ("HR 10 Contracts"), or established by employers for their employees
to provide retirement benefits under Corporate 401 Plans ("Corporate 401
Contracts"). The Contracts may be purchased by completing the proper application
form and submitting it to the Distributor with the initial Purchase Payment.
"Contract Purchase" in this Prospectus outlines the complete process of
purchasing a Variable Annuity Contract.
REDEMPTION
The Contract Holder may withdraw all or a portion of the Contract or an
Individual Account value during the Accumulation Period by properly completing
and submitting to the Company a disbursement form provided by the Company.
Certain charges and deductions may be assessed upon withdrawal. (See "Charges
and Deductions.")
DEFERRED SALES CHARGE
The maximum deferred sales charge that could be assessed on a full or
partial withdrawal is 5% of the amount withdrawn. (See "Deferred Sales Charge"
and "Withdrawals.")
TAXES AND WITHHOLDING
Certain distributions are subject to mandatory withholding. A 10% federal
penalty tax may be imposed on a premature distribution paid to the Participants.
(See "Tax Status of Amounts Distributed Under the Contract.")
CONTRACT CHARGES
Certain other charges are associated with this Contract such as the
maintenance fee, mortality and expense risk charges, administrative expense
charge, fund expenses, allocation and transfer fees, and premium tax. (See
"Charges and Deductions" for a compete explanation of these charges.)
FREE LOOK
The Contract Holder may cancel the Contract no later than ten days after
receiving it (or as otherwise allowed by state law) by returning it along with a
written notice of cancellation to the Company. Unless state law requires
otherwise, the amount you will receive on cancellation under this provision will
reflect the investment performance of the Purchase Payments deposited in the
Separate Account while invested. In certain cases, this may be less than the
amount of your Purchase Payments. (See "Contract Rights--Right to Cancel.")
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SUMMARY - 1
<PAGE>
FEE TABLE
(Based on year ended December 31, 1996)
===============================================================================
The purpose of the Fee Table is to assist Contract Holders in understanding the
various costs and expenses that will be borne, directly or indirectly, under the
Contract. The information listed reflects the charges due under the Contract as
well as the fees and expenses deducted from the Funds. Additional information
regarding the charges and deductions assessed under the Contract can be found
under "Charges and Deductions" in this Prospectus. Charges and expenses shown do
not take into account premium taxes that may be applicable.
CONTRACT HOLDER TRANSACTION EXPENSES
Deferred Sales Charge (as a percentage of amount withdrawn)(1):
Completed Contract Years 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%
10 or more 0%
Allocation and Transfer Fees(2) ......... $ 0.00
Annual Contract Maintenance Fee(3) ...... $30.00
SEPARATE ACCOUNT ANNUAL EXPENSES (HR 10 CONTRACTS)
(Daily deductions, equal to the percentage shown on an annual basis, made from
amounts allocated to the variable options)
Mortality and Expense Risk Fees ............... 1.25%
Administrative Expense Charge(4) ............... 0%
------
Total Separate Account Annual Expenses ...... 1.25%
======
SEPARATE ACCOUNT ANNUAL EXPENSES (CORPORATE 401 CONTRACTS)
(Daily deductions, equal to the percentage shown on an annual basis, made from
amounts allocated to the variable options)
Mortality and Expense Risk Fees ............... 1.19%
Administrative Expense Charge(4) ............... 0%
------
Total Separate Account Annual Expenses ...... 1.19%
======
- ------------------
(1) The total amount deducted for the deferred sales charge will not exceed 8.5%
of the Purchase Payments made to the Individual Account. The deferred sales
charge may be referred to in the Contract as a "surrender fee." See
"Deferred Sales Charge" for instances in which this charge is not deducted.
(2) The Company currently allows an unlimited number of transfers or allocation
changes without charge. However, we reserve the right to impose a fee of $10
for each transfer or allocation change in excess of 12 per calendar year.
(See "Transfers and Allocation Changes.")
(3) A Maintenance fee, to the extent permitted by state law, is also deducted
upon termination of an Account.
(4) The Company currently does not impose an Administrative Expense Charge.
However, the Company reserves the right to deduct a daily charge of not more
than 0.25% per year from the variable portion of contract values.
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FEE TABLE - 1
<PAGE>
MUTUAL FUND ANNUAL EXPENSES
(Except as noted, the following figures are a percentage of average net assets
and, except where otherwise indicated, are based on figures for the year ended
December 31, 1996)
<TABLE>
<CAPTION>
Investment Other
Advisory Fees(1) Expenses(2)
(after expense (after expense Total Fund
reimbursement) reimbursement) Annual Expenses
------------------- ----------------- -----------------
<S> <C> <C> <C>
Aetna Variable Fund(3) 0.50% 0.06% 0.56%
Aetna Income Shares(3) 0.40% 0.08% 0.48%
Aetna Variable Encore Fund(3) 0.25% 0.10% 0.35%
Aetna Investment Advisers Fund, Inc.(3) 0.50% 0.08% 0.58%
American Century VP Capital Appreciation (formerly "TCI Growth")(4) 1.00% 0.00% 1.00%
</TABLE>
- ------------------
(1) Certain of the unaffiliated Fund advisers reimburse the Company for
administrative costs incurred in connection with administering the Funds as
variable funding options under the Contract. These reimbursements are paid
out of the investment advisory fees and are not charged to investors.
(2) A Fund's "Other Expenses" include operating costs of the fund. The expenses
are factored into the Fund's net asset value and are not deducted from the
Contract Holder's or Participant's Account Value.
(3) 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.
(4) The Portfolio's investment adviser pays all expenses of the Portfolio except
brokerage commissions, taxes, interest, fees and expenses of the
non-interested person directors (including counsel fees) and extraordinary
expenses. These expenses have historically represented a very small
percentage (less than 0.01%) of total net assets in a fiscal year.
- -------------------------------------------------------------------------------
FEE TABLE - 2
<PAGE>
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.
Assuming a 5% annual return on assets, you would have paid the following on a
$1,000 investment:(1)
HR 10 CONTRACTS
<TABLE>
<CAPTION>
EXAMPLE A EXAMPLE B
------------------------------------------- -------------------------------------------
If you make a complete withdrawal If you do not make a complete
of your contract at the end of the withdrawal of your contract or if you
applicable time period: annuitize:*
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
--------- ---------- ---------- ----------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Variable Fund $70 $113 $147 $218 $19 $59 $101 $218
Aetna Income Shares $70 $111 $143 $210 $18 $56 $ 97 $210
Aetna Variable Encore Fund $68 $107 $137 $196 $17 $52 $ 90 $196
Aetna Investment Advisers Fund, Inc. $71 $114 $148 $220 $19 $59 $102 $220
American Century VP Capital Appreciation
(formerly TCI Growth) $75 $126 $169 $264 $23 $72 $123 $264
</TABLE>
CORPORATE 401 CONTRACTS
<TABLE>
<CAPTION>
EXAMPLE A EXAMPLE B
------------------------------------------- -------------------------------------------
If you make a complete withdrawal If you do not make a complete
of your contract at the end of the withdrawal of your contract or if you
applicable time period: annuitize:*
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
--------- ---------- ---------- ----------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Variable Fund $70 $112 $144 $212 $18 $57 $98 $212
Aetna Income Shares $69 $109 $140 $203 $17 $54 $93 $203
Aetna Variable Encore Fund $68 $105 $134 $189 $16 $50 $87 $189
Aetna Investment Advisers Fund, Inc. $70 $112 $145 $214 $19 $57 $99 $214
American Century VP Capital Appreciation
(formerly TCI Growth) $74 $124 $166 $258 $23 $70 $120 $258
</TABLE>
- ------------------
(1) The illustration reflects the $30.00 annual maintenance fee as an annual
charge of 0.051% of assets.
* 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 than apply. (See Example A.)
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FEE TABLE - 3
<PAGE>
CONDENSED FINANCIAL INFORMATION
Corporate 401 Contracts
(Selected data for accumulation units outstanding throughout each period)
===============================================================================
The condensed financial information presented below for each of the years in the
ten-year period ended December 31, 1996 (as applicable), is derived from the
financial statements of the Separate Account, which financial statements have
been audited by KPMG Peat Marwick LLP, Independent auditors. The financial
statements as of and for the year ended December 31, 1996 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 $180.879 $138.406 $141.424 $134.081
Value at end of period $222.444 $180.879 $138.406 $141.424
Increase (decrease) in value
of accumulation unit(1) 22.98% 30.69% (2.13)% 5.48%
Number of accumulation
units outstanding at end of
period 340,229 549,056 1,258,166 1,616,018
AETNA INCOME SHARES
Value at beginning of period $ 47.405 $ 40.570 $ 42.675 $ 39.376
Value at end of period $ 48.524 $ 47.405 $ 40.570 $ 42.675
Increase (decrease) in value
of accumulation unit(1) 2.36% 16.85% (4.93)% 8.38%
Number of accumulation
units outstanding at end of
period 43,327 72,902 181,535 241,551
AETNA VARIABLE ENCORE FUND
Value at beginning of period $ 38.485 $ 36.723 $ 35.701 $ 35.009
Value at end of period $ 40.069 $ 38.485 $ 36.723 $ 35.701
Increase (decrease) in value
of accumulation unit(1) 4.12% 4.80% 2.88% 1.98%
Number of accumulation
units outstanding at end of
period 93,727 150,480 241,159 312,350
AETNA INVESTMENT ADVISERS FUND, INC.
Value at beginning of period $ 18.024 $ 14.317 $ 14.558 $ 13.407
Value at end of period $ 20.511 $ 18.024 $ 14.317 $ 14.558
Increase (decrease) in value
of accumulation unit(1) 13.80% 25.89% (1.66)% 8.59%
Number of accumulation
units outstanding at end of
period 280,547 393,613 756,261 1,142,268
AMERICAN CENTURY VP CAPITAL APPRECIATION*
Value at beginning of period $ 10.000(3)
Value at end of period $ 9.428
Increase (decrease) in value
of accumulation unit(1) (5.72)%(3)
Number of accumulation
units outstanding at
end of period 91,885
<CAPTION>
1992 1991 1990 1989 1988 1987
------------ ------------ ------------ --------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
AETNA VARIABLE FUND
Value at beginning of period $ 127.171 $ 101.824 $ 99.758 $ 78.220 $ 69.051 $ 66.237
Value at end of period $ 134.080 $ 127.171 $ 101.824 $ 99.758 $ 78.220 $ 69.051
Increase (decrease) in value
of accumulation unit(1) 5.43% 24.89% 2.07% 27.54% 13.28% 4.25%
Number of accumulation
units outstanding at end of
period 1,829,160 1,956,479 2,169,721 2,496,795 3,030,548 3,740,739
AETNA INCOME SHARES
Value at beginning of period $ 37.086 $ 31.424 $ 29.142 $ 25.734 $ 24.197 $ 23.426
Value at end of period $ 39.376 $ 37.086 $ 31.424 $ 29.142 $ 25.734 $ 24.197
Increase (decrease) in value
of accumulation unit(1) 6.17% 18.02% 7.83% 13.24% 6.35% 9.29%
Number of accumulation
units outstanding at end of
period 263,105 283,119 251,861 248,678 284,650 251,513
AETNA VARIABLE ENCORE FUND
Value at beginning of period $ 34.172 $ 32.460 $ 30.295 $ 28.028 $ 26.387 $ 25.001
Value at end of period $ 35.009 $ 34.172 $ 32.460 $ 30.295 $ 28.028 $ 26.387
Increase (decrease) in value
of accumulation unit(1) 2.45% 5.27% 7.15% 8.09% 6.22% 5.54%
Number of accumulation
units outstanding at end of
period 471,585 470,248 624,613 542,581 637,833 627,039
AETNA INVESTMENT ADVISERS FUND, INC.
Value at beginning of period $ 12.755 $ 10.906 $ 10.440 $ 10.000(2)
Value at end of period $ 13.407 $ 12.755 $ 10.906 $ 10.440
Increase (decrease) in value
of accumulation unit(1) 5.11% 16.86% 4.46% 4.40%
Number of accumulation
units outstanding at end of
period 1,129,453 725,598 619,748 470,302
AMERICAN CENTURY VP CAPITAL APPRECIATION*
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>
(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) 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 during April 1996 when the Fund
became available under the Contract, when Funds were first received under
this option or when the applicable daily asset charge was first utilized.
*Formerly TCI Portfolios, Inc.-TCI Growth.
- -------------------------------------------------------------------------------
AUV HISTORY - 1
<PAGE>
CONDENSED FINANCIAL INFORMATION
HR 10 Contracts
(Selected data for accumulation units outstanding throughout each period)
===============================================================================
The condensed financial information presented below for each of the years in the
ten-year period ended December 31, 1996 (as applicable), is derived from the
financial statements of the Separate Account, which financial statements have
been audited by KPMG Peat Marwick LLP, Independent Auditors. The financial
statements as of and for the year ended December 31, 1996 and the Independent
Auditors' report thereon, are included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------------- ------------ -------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
AETNA VARIABLE FUND
Value at beginning of period $ 137.869 $ 105.558 $ 107.925 $ 102.383 $ 97.165
Value at end of period $ 169.448 $ 137.869 $ 105.558 $ 107.925 $ 102.383
Increase (decrease) in value of
accumulation unit(1) 22.91% 30.61% (2.19)% 5.41% 5.37%
Number of accumulation units
outstanding at end of period 2,071,139 6,364,000 13,966,072 21,148,863 24,201,565
AETNA INCOME SHARES
Value at beginning of period $ 46.913 $ 40.173 $ 42.283 $ 39.038 $ 36.789
Value at end of period $ 47.992 $ 46.913 $ 40.173 $ 42.283 $ 39.038
Increase (decrease) in value of
accumulation unit(1) 2.30% 16.78% (4.99)% 8.31% 6.11%
Number of accumulation units
outstanding at end of period 835,724 2,377,622 5,108,720 8,210,666 8,507,292
AETNA VARIABLE ENCORE FUND
Value at beginning of period $ 37.988 $ 36.271 $ 35.282 $ 34.619 $ 33.812
Value at end of period $ 39.528 $ 37.988 $ 36.271 $ 35.282 $ 34.619
Increase (decrease) in value of
accumulation unit(1) 4.05% 4.73% 2.80% 1.92% 2.39%
Number of accumulation units
outstanding at end of period 597,656 1,836,260 3,679,802 5,086,515 7,534,662
AETNA INVESTMENT ADVISERS FUND, INC.
Value at beginning of period $ 17.954 $ 14.270 $ 14.519 $ 13.379 $ 12.736
Value at end of period $ 20.419 $ 17.954 $ 14.270 $ 14.519 $ 13.379
Increase (decrease) in value of
accumulation unit(1) 13.73% 25.82% (1.71)% 8.52% 5.05%
Number of accumulation units
outstanding at end of period 2,716,641 9,193,181 21,990,186 30,784,750 34,802,433
AMERICAN CENTURY VP CAPITAL APPRECIATION*
Value at beginning of period $ 13.224 $ 10.213 $ 10.463 $ 10.000(3)
Value at end of period $ 12.480 $ 13.224 $ 10.213 $ 10.463
Increase (decrease) in value of
accumulation unit(1) (5.63)% 29.47% (2.39)% 4.63%
Number of accumulation units
outstanding at end of period 741,392 4,184,701 12,096,73 12,272,15
<CAPTION>
1991 1990 1989 1988 1987
------------- ------------- ---------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
AETNA VARIABLE FUND
Value at beginning of period $ 77.845 $ 76.311 $ 59.871 $ 52.885 $ 50.760
Value at end of period $ 97.165 $ 77.845 $ 76.311 $ 59.871 $ 52.885
Increase (decrease) in value of
accumulation unit(1) 24.82% 2.01% 27.46% 13.21% 4.19%
Number of accumulation units
outstanding at end of period 20,948,226 18,362,906 17,142,820 16,455,396 16,497,406
AETNA INCOME SHARES
Value at beginning of period $ 31.192 $ 28.943 $ 25.574 $ 24.061 $ 23.308
Value at end of period $ 36.789 $ 31.192 $ 28.943 $ 25.574 $ 24.061
Increase (decrease) in value of
accumulation unit(1) 17.94% 7.77% 13.17% 6.29% 3.23%
Number of accumulation units
outstanding at end of period 7,844,412 6,984,793 6,202,834 5,955,293 5,372,271
AETNA VARIABLE ENCORE FUND
Value at beginning of period $ 32.138 $ 30.012 $ 27.783 $ 26.171 $ 24.812
Value at end of period $ 33.812 $ 32.138 $ 30.012 $ 27.783 $ 26.171
Increase (decrease) in value of
accumulation unit(1) 5.21% 7.08% 8.02% 6.16% 5.48%
Number of accumulation units
outstanding at end of period 8,430,082 10,220,110 8,286,033 8,154,644 7,326,151
AETNA INVESTMENT ADVISERS FUND, INC.
Value at beginning of period $ 10.896 $ 10.437 $ 10.000(2)
Value at end of period $ 12.736 $ 10.896 $ 10.437
Increase (decrease) in value of
accumulation unit(1) 16.89% 4.40% 4.37%
Number of accumulation units
outstanding at end of period 22,898,099 17,078,985 9,535,986
AMERICAN CENTURY VP CAPITAL APPRECIATION*
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>
- ------------------
(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 deductions from Purchase Payments for sales load.
Inclusion of these charges would reduce the investment results shown.
(2) The initial Accumulation Unit value was established at $10.000 on June 23,
1989, the date on which the Fund commenced operations.
(3) The initial Accumulation Unit value was established at $10.000 on February
1, 1993, the date on which the Portfolio became available under the
Contract.
*Formerly TCI Portfolios, Inc.-TCI Growth.
- -------------------------------------------------------------------------------
AUV HISTORY - 2
<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
===============================================================================
Variable Annuity Account C is a Separate Account established by the
Company in 1976 pursuant to the insurance laws of the State of Connecticut. The
Separate Account was formed for the purpose of segregating assets attributable
to the variable portions of Contracts from other assets of the Company. The
Separate Account is registered as a unit investment trust under the Investment
Company Act of 1940, and meets the definition of "separate account" under the
federal securities laws.
Although the Company holds title to the assets of the Separate Account,
such assets are not chargeable with liabilities arising out of any other
business the Company may conduct. Income, gains or losses of the Separate
Account are credited to or charged against all assets of the Separate Account
without regard to other income, gains or losses of the Company. All obligations
arising under the Contracts are general corporate obligations of the Company.
THE FUNDS
===============================================================================
The Contract Holder will designate some or all of the Funds described
below as variable funding options under the Contract. The Contract Holder, or
the Participant, if allowed by the Contract Holder may select one or more of the
Funds for investment of the Purchase Payments made on their behalf. Except where
noted, all of the Funds are diversified as defined in the Investment Company Act
of 1940.
[bullet] Aetna Variable Fund seeks to maximize total return through investments
in a diversified portfolio of common stocks and securities convertible
into common stock.
[bullet] Aetna Income Shares seeks to maximize total return, consistent with
reasonable risk, through investments in a diversified portfolio
consisting primarily of debt securities.
[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.
[bullet] Aetna Investment Advisers Fund, Inc. is a managed fund which seeks to
maximize investment return consistent with reasonable safety of
principal by investing in one or more of the following asset classes:
stocks, bonds and cash equivalents based on the Company's judgment of
which of those sectors or mix thereof offers the best investment
prospects.
[bullet] American Century Variable Portfolio, Inc.--American Century VP Capital
Appreciation (formerly TCI Growth) seeks capital growth. The fund seeks
to achieve its objective by investing in common stocks (including
securities convertible into common stocks) and other securities that
meet certain fundamental and technical standards of selection and, in
the opinion of the Fund's investment manager, have better than average
potential for appreciation.
There is no assurance that the Funds will achieve their investment
objectives. Contract Holders bear the full investment risk of investments in the
Funds selected.
- ------------------------------------------------------------------------------
1
<PAGE>
Some of the above funds may use instruments known as derivatives as part
of their investment strategies as described in their respective prospectuses.
The use of certain derivatives such as inverse floaters and principal only debt
instruments may involve higher risk of volatility to a Fund. The use of leverage
in connection with derivatives can also increase risk of losses. See the
prospectus for the Funds for a discussion of the risks associated with an
investment in those funds.
More comprehensive information, including a discussion of potential risks,
is found in the current prospectus for each Fund which is distributed with and
accompanies this Prospectus. 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 telephone number
listed on the cover of this Prospectus.
FUND INVESTMENT ADVISERS
The following identifies the investment adviser for each Fund.
Fund Investment Adviser
- ----------------------------- -----------------------------
Aetna Variable Fund Aetna Life Insurance and
Annuity Company (ALIAC)*
Aetna Income Shares ALIAC*
Aetna Variable Encore Fund ALIAC*
Aetna Investment Advisers ALIAC*
Fund, Inc.
American Century VP American Century Investment
Capital Appreciation Management, Inc.
(formerly TCI Growth)
* Aeltus Investment Management, Inc., Subadviser
MIXED AND SHARED FUNDING
Shares of the Funds are sold to the Company for funding variable
annuities. The Funds may be sold to other 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 policies through variable life separate accounts
sponsored by the Company or by third parties. This is referred to as "mixed
funding."
It is conceivable that, in the future, it may be disadvantageous for
variable annuity separate accounts and variable life separate accounts to invest
in these Funds simultaneously, since the interests of the contract holders or
policy owners may differ. Each Fund's Board of Trustees or Directors has agreed
to monitor events in order to identify any material irreconcilable conflicts
that may possibly arise and to determine what action, if any, should be taken in
response thereto. If such a conflict were to occur, one of the separate accounts
might withdraw its investment in a Fund. This might force that Fund to sell
portfolio securities at disadvantageous prices.
FUND ADDITIONS, LIMITATIONS AND SUBSTITUTIONS
The Company may, from time to time, add, withdraw or substitute Funds as
eligible variable funding options under the Contracts, subject to the conditions
in the Contract and to compliance with regulatory requirements.
The Company's current policy is to allow only Aetna Variable Fund, Aetna
Income Shares and Aetna Investment Advisers Fund, Inc. to be used as variable
investment options during the Annuity Period. (See "Annuity Period Elections.")
The Contract Holder may decide to offer only a select number of Funds as
funding options under its Plan.
404(c) PROTECTION
The Employee Retirement Income Security Act of 1974 (ERISA) imposes a
"prudent man" standard of investment selection and monitoring on employers and
other pension plan fiduciaries. Fiduciaries can be held liable for plan
investment losses if they fail to invest plan assets prudently. However, Section
404(c) of ERISA provides limited relief from liability in participant-directed
individual account plans where the plans' investment options meet special
conditions.
The five mutual fund options offered under the Contract allow plan
trustees to take advantage of the 404(c) protection. These five funds qualify as
"core funds" under the 404(c) rules since they are broadly diversified, have
different risk/return characteristics, are supported by pre-
and post-enrollment disclosure material, are valued and accessible daily, and
are look-through investment vehicles (mandatory for employees with small account
balances). The Fixed and Guaranteed Accumulation Accounts are designed to be
additional investments (not 404(c) core funds) which, in combination with the
Funds, provide employers with both a well-rounded portfolio and 404(c)
protection without the need for outside investment managers.
Although the Contract can provide employers and trustees with 404(c)
protection, it is important to understand that the Company is not a designated
fiduciary nor investment manager for any pension plan, since the Company has no
discretionary authority over the plan or its investments. Rather, the Company's
responsibility is to
- -------------------------------------------------------------------------------
2
<PAGE>
carry out the investment instructions received from the trustee and/or employees
in accordance with applicable federal and state requirements. The employer and
plan trustee always have overall fiduciary responsibility for their plan. It is
also important to note that the plan trustees must take certain affirmative
actions in order to avail themselves of 404(c) protection and should carefully
review the applicable Department of Labor regulations (29 C.F.R. [sec]
2550.404c-1).
Contract Holders and Participants should read the accompanying
prospectuses of the Funds carefully before investing. Fund prospectuses may be
obtained from the Company at its Home Office.
THE CONTRACT
===============================================================================
CONTRACT PURCHASE
An organization eligible to establish HR 10 Plans may acquire a group HR
10 Contract for its Plan by filling out the appropriate master application form
and returning it to the Company or to a Distributor for delivery to the Company.
Once we approve the application, a group Contract is issued to the organization
as Contract Holder. The Contract Holder exercises all rights under the
Contracts. (See "Contract Rights.") Purchase Payments to the HR 10 Contract may
not be less than $25 per payment per Participant and annual Aggregate Purchase
Payments must be at least $6,000 ($2,000 average per Participant, if less than
three Individual Accounts).
The Corporate 401 Contract was available, through the Company's rewrite
program, only to Contract Holders of Individual Pension Trust Contracts issued
prior to May 1, 1975, who elected to discontinue Purchase Payments to their
existing Contracts and direct future Purchase Payments to new Contracts. The
Contract is no longer available for new sales.
Participants may fill out an enrollment form or forms and return them to
the Company or to a Distributor for delivery to the Company for review,
acceptance or rejection. The Company must accept or reject an application or
enrollment form within two business days of its receipt. If the application or
enrollment form is incomplete, the Company may hold it and any accompanying
Purchase Payment for five days. Purchase Payments may be held for longer periods
only with the consent of the Contract Holder or Participant, pending acceptance
of the application or enrollment form. If the application or enrollment form is
accepted, a Contract will be issued to the Contract Holder. Any Purchase Payment
accompanying the application or enrollment form or received prior to acceptance
of the application, will be invested as of the date of acceptance. If the
application or enrollment form is rejected, the application or enrollment form
and any Purchase Payments will be returned to the Contract Holder.
A single master group Contract is issued to cover all present and future
Participants. If a group Contract is not permitted by the state, an individual
Contract will be issued. Group Contracts may be issued in either allocated or
unallocated form. An allocated Contract provides for the establishment of an
Individual Account for each Participant. An unallocated Contract does not
provide for the establishment of Individual Accounts but all Purchase Payments
are applied to a single Plan Account.
The Purchase Payments made on behalf of a Participant in a defined
contribution Plan are determined by the Plan contribution formula. Generally,
Code section 415 imposes an annual limit of the lesser of $30,000 or 25% of
includible compensation for each Participant. Purchase Payments for a defined
benefit Plan are determined on an actuarial basis to provide Plan benefits for
all Participants. These Purchase Payments are held in a single Plan Account.
Under Code Section 415, a Plan can provide annual benefits of the lesser of
$125,000 (for 1997) or 100% of includible compensation for each Participant.
Under Code Section 402(g) for 401(k) Plans, the maximum elected deferral is
$9,500 (for 1997).
NET PURCHASE PAYMENTS
Each Purchase Payment is forwarded to the Company through a Distributor.
Each Net Purchase Payment, to the extent it is to be accumulated on a variable
basis, is placed in the Separate Account and credited to the Contract.
The Contract Holder or, if permitted by a Plan, the Participant may elect
to have the Net Purchase Payment(s) accumulate (a) on a variable basis by
allocation to one of
- -------------------------------------------------------------------------------
3
<PAGE>
more of the available Funds; (b) on a fixed basis under one or more of the
available credited interest options; or (c) in a combination of any of the
available investment options. The Net Purchase Payment(s) must be allocated to
the respective options in increments of whole percentage amounts.
The Contract Holder or, if permitted by a Plan, the Participant may elect
to change the allocation of future Net Purchase Payments to any accumulation
option described above.
DISTRIBUTION
The Company will serve as Underwriter for the securities sold by this
Prospectus. The Company is registered as a broker-dealer with the Securities and
Exchange Commission and is a member of the National Association of Securities
Dealers, Inc. (NASD). As Underwriter, the Company will contract with one or more
registered broker dealers ("Distributors"), including at least one affiliate of
the Company, to offer and sell the Contracts. All persons offering and selling
the Contracts must be registered representatives of the Distributors and must
also be licensed as insurance agents to sell Variable Annuity Contracts. These
registered representatives may also provide service to Participants in
connection with establishing their Accounts under the Contract.
Persons offering and selling the Contracts may receive commissions in
connection with the sale of the Contracts. The maximum amount that the Company
will ever pay as commission with respect to any given Purchase Payment is in the
first Purchase Payment Period and range from 2% of that Purchase Payment. The
Company may also pay renewal commissions and service fees. In limited
circumstances, we also pay certain of these professionals profit sharing and
other compensation, overrides or reimbursement for expenses. The average of all
payments made by the Company is equal to approximately 2% of the total Purchase
Payments made over the estimated life of the 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 name of the Distributor and the registered representative responsible for
your Account are set forth on your enrollment form. Commissions and sales
related expenses are paid by the Company and are not deducted from Purchase
Payments. See "Charges and Deductions--Deferred Sales Charges."
Occasionally, we may pay commissions and fees to Distributors which are
affiliated or associated with the Contract Holder or the Participants. We may
also enter into agreements with some entities associated with the Contract
Holder or Participants in which we would agree to pay the association for
certain services in connection with administering the Contracts. In both these
circumstances there may be an understanding that the Distributor or association
would endorse the Company as a provider of the Contract. Participants will be
notified if they are purchasing a Contract that is subject to these
arrangements.
DETERMINING CONTRACT VALUE
===============================================================================
ACCUMULATION UNITS
A Purchase Payment that is directed to one or more of the Funds is
deposited in the Separate Account and credited to the Account in the form of
Accumulation Units for each Fund selected. The number of Accumulation Units
credited is determined by dividing the applicable portion of the Purchase
Payment by the Contract's Accumulation Unit value of the appropriate Fund. The
Accumulation Unit value used is that next-computed following the date on which a
Purchase Payment is received, unless the application has not been accepted. In
that event, Purchase Payments will be credited at the Accumulation Unit value
next determined after acceptance of the application. Shares of the Funds are
purchased by the Separate Account at the net asset value next determined by the
Fund following receipt of Purchase Payments by the Separate Account. The value
of Accumulation Units attributable to the Funds will be affected by the
investment performance, expenses and charges of those Funds. Generally, if the
net asset value of the fund increases, so does the Accumulation Unit value;
however, performance of the Separate Account is reduced by charges and
deductions under 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 the Contract at the Accumulation Unit Value next determined after receipt by
the Company of your payment or transfer request.
- -------------------------------------------------------------------------------
4
<PAGE>
NET INVESTMENT FACTOR
The value of an Accumulation Unit for any Valuation Period is calculated
by multiplying the Accumulation Unit value for the immediately preceding
Valuation Period by the net investment factor of the appropriate investment
option for the current period.
The net investment factor is calculated separately for each Fund in which
assets of the Separate Account are invested. It is determined by adding
1.0000000 to the net investment rate.
The net investment rate equals (a) the net assets of the Fund held by the
Separate Account at the end of a Valuation Period, minus (b) the net assets of
the Fund held by the Separate Account at the beginning of a Valuation Period,
plus or minus (c) taxes or provision for taxes, if any, attributable to the
operation of the Separate Account, divided by (d) the value of the Fund's
Accumulation and Annuity Units held by the Separate Account at the beginning of
the Valuation Period, minus (e) a daily charge at an annual rate of 1.25% for HR
10 Contracts, and 1.19% for Corporate 401 Contracts, for the Annuity mortality
and expense risks, and a daily administrative expense charge which will not
exceed 0.25% on an annual basis. The administrative expense charge is currently
0%. The net investment rate may be more or less than zero.
CONTRACT RIGHTS
===============================================================================
RIGHT TO CANCEL
The Contract Holder may cancel the Contract no later than ten days after
receiving it (or as otherwise allowed by state law) by returning it along with a
written notice of cancellation of the Company. The Company will produce a refund
not later than seven days after it receives the Contract and the written notice
at the Home Office. Unless the applicable state law requires a refund of
Purchase Payments only, the Company will refund the Purchase Payment(s) plus any
increase or minus any decrease in the value attributable to any Purchase
Payments allocated to the variable option(s).
RIGHTS UNDER THE CONTRACT
All rights under the Contract rest with the Contract Holder, which is
usually the employer. In the case of a trusteed Plan, the Plan trustee will be
the Contract Holder. Benefits available to Participants are governed exclusively
by the provisions of the Plan. Some of the options and elections under the
Contract may not be available to Participants under the provisions of the Plan.
TRANSFERS AND ALLOCATION CHANGES
During each calendar year, the Contract Holder, or if applicable, the
Participant may change the allocation of future Net Purchase Payments among the
allowable investment options. Currently, an unlimited number of allocation
changes may be made in a calendar year free of charge. However, the Company
reserves the right to charge $10 for each allocation change in excess of 12 in a
calendar year.
During the Accumulation Period only, the Company currently permits an
unlimited number of free transfers of accumulated values in the Individual or
Plan Account each calendar year. The Company reserves the right to charge $10
for each transfer in excess of 12 in a calendar year. Transfers may be made
among the available Funds or from any of the Funds to a credited interest
option. Any transfer will be based on the Accumulation Unit value next
determined after a proper request is received at the Home Office. See Appendix I
and II for information on transfers from credited interest options.
During the Annuity Period, no transfers of accumulated value are allowed.
WITHDRAWALS
The Contract Holder may withdraw all or a portion of the Individual or
Plan Account value during the Accumulation Period. To do so, the Contract Holder
must properly complete a disbursement form provided by the Company and send it
to the Company's Home Office. Disbursement forms are available from the Company
and its representatives. Withdrawals may be requested in one of the following
ways:
[bullet] Full withdrawal of the Contract: The amount paid will be the full value
of the Plan Accounts minus any applicable deferred sales charge(s) and
maintenance fees due.
[bullet] Full withdrawal of an Individual Account: The amount paid will be the
full value of the Individual Account minus any applicable deferred
sales charge and maintenance fee due.*
[bullet] Partial withdrawal (percentage): The amount paid will be the percentage
of the Individual or Plan Account value requested minus any applicable
deferred sales charge.*
[bullet] Partial withdrawal (specific dollar amount): The amount paid will be
the dollar amount requested. However, the
- -------------------------------------------------------------------------------
5
<PAGE>
amount withdrawn from the Individual or Plan Account will equal the dollar
amount requested minus any applicable deferred sales charge.*
* A 20% income tax may be withheld from amounts paid directly to a Participant.
See "Tax Status of Amounts Distributed Under the Contract."
All amounts paid will be based on Individual or Plan Account values as of
the end of the Valuation Period for which the request is received in the Home
Office or such later date as the disbursement form may specify. For any partial
withdrawal, unless requested otherwise by the Contract Holder, the value of the
Accumulation Units cancelled will be withdrawn proportionately from each
investment option used under the Individual or Plan Account.
Payments for withdrawal requests will be made in accordance with SEC
requirements, but normally not later than seven calendar days after a properly
completed withdrawal form is received at the Company's Home Office or within
seven calendar days of the date the withdrawal from may specify. Payments may be
delayed for: (a) any period in which the New York Stock Exchange ("Exchange") is
closed (other than customary weekend and holiday closings) or in which trading
on the Exchange is restricted; (b) any period in which an emergency exists where
disposal of securities held by the funds is not reasonably practicable or is not
reasonably practicable for the value of the assets of the Funds to be fairly
determined; or (c) such other periods as the SEC may by order permit for the
protection of Contract Holders and Participants. The conditions under which
restricted trading or an emergency exists shall be determined by the rules and
regulations of the SEC.
REINVESTMENT PRIVILEGE
The Contract Holder may elect to reinvest all or a portion of the proceeds
received from the full withdrawal of a Plan or Individual Account within 30 days
after such withdrawal. Accumulation Units will be credited to the Plan or
Individual Account for the amount reinvested, as well as for any applicable
maintenance fee and any appropriate portion of 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 amount
reinvested. Reinvested amounts will be reallocated to the applicable investment
options in the same proportion as they were allocated at the time of withdrawal.
The number of Accumulation Units credited will be based upon the
Accumulation Unit value(s) next computed after the Company's Home Office
receives the reinvestment request along with the amount to be reinvested. The
reinvestment privilege may be used only once. A Contract Holder contemplating
reinvestment should seek competent advice regarding the tax consequences
associated with such a transaction.
CHARGES AND DEDUCTIONS
===============================================================================
MAINTENANCE FEE
An annual maintenance fee is deducted during the Accumulation Period from
each Individual or Plan Account on its anniversary date (or, if not a valuation
date, on the next valuation date). This fee is to reimburse the Company for some
of its administrative expenses relating to the establishment and maintenance of
the Individual or Plan Account. The Company deducts this fee from each
respective investment option in the same proportion as the values held under
each option bear to the total value of the Individual Account. The maintenance
fee, to the extent permitted by state law, is also deducted upon termination of
an Individual or Plan Account.
The annual maintenance fee is $30 for each Individual Account. The annual
maintenance fee for a Plan Account is $30 for each Participant for whom payments
are being made to the Contract to a maximum of $240 for the Plan Account.
The Contract Holder may elect to pay the annual maintenance fee directly
to the Company for all Participants. In this case, the maintenance fee will not
be deducted from the current value.
For HR 10 Contracts, the Contract Holder may be eligible for a maintenance
fee reduction. At installation, if the Contract has 25 or more active
participants and the Contract Holder meets and adheres to the terms of an
agreement to remit automated payments and enrollments, the maintenance fee for
all participants will be reduced by $10. Subsequent to the installation and for
Contracts effective prior to June 1, 1992, the maintenance fee for all
participants will be reduced by $5 if the Contract has 25 or more active
participants and the Contract Holder meets and adheres to the terms of an
agreement to remit automated payments.
- -------------------------------------------------------------------------------
6
<PAGE>
For Corporate 401 Contracts, the maintenance fee will be reduced by $5 if
the Contract has 25 or more active Participants and the Contract Holder meets
and adheres to the terms of an agreement to remit automated payments.
For all Contracts, the maintenance fee is waived if (a) a Participant has
a total of less than $100 in his or her Individual Accounts, (b) a Participant
enrolls within 90 days of the maintenance fee deduction, or (c) upon termination
of an Individual or Plan Account, a maintenance fee has been deducted within the
previous 90 days.
MORTALITY AND EXPENSE RISK CHARGES
The Company makes a daily deduction from the variable portion of Contract
values for mortality and expense risks. This deduction, made as part of the
calculation of Accumulation and Annuity Unit value(s), is equivalent to 1.25%
per year for HR 10 Contracts and 1.19% per year for Corporate 401 Contracts.
The mortality risk charge is to compensate the Company for the risk it
assumes when it promises to continue making payments for the lives of individual
Annuitants according to Annuity rates specified in the Contract at issue. The
expense risk charge is to compensate the Company for the risk that actual
expenses for costs incurred under the Contract will exceed the maximum costs
that can be charged under the Contract. For the year ending December 31, 1996,
the Company received $93,446,331 for mortality and expense risks and other
valuation period deductions from contracts funded through the Separate Account.
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
an amount equal, on an annual basis, of up to 0.25% of the daily net assets of
the Subaccounts. There is currently no administrative charge during the
Accumulation Period or the Annuity Period. Once an Annuity option is elected,
the charge will be established and will be effective during the entire Annuity
Period.
FUND EXPENSES
Each Fund incurs certain expenses which are paid out of its net assets.
These expenses include, among other things, the investment advisory or
"management" fee. The expenses of the Funds are set forth in the Fee Table in
this Prospectus and described more fully in the accompanying Fund prospectuses.
ALLOCATION AND TRANSFER OF FEES
Once 12 allocation changes or 12 transfers have been made in a calendar
year, we reserve the right to charge a fee of not more than $10 for each
additional change or transfer. We currently do not impose a fee.
DEFERRED SALES CHARGE
There are no deductions from Purchase Payments for sales commissions or
related expenses. Sales commissions and expenses are advanced by the Company and
recovered out of any deferred sales charges or, if deferred sales charges are
insufficient, out of its profits from investment activities, including the
mortality and expense risk charges under the Contract. For sales commissions
paid in connection with the sale of Contracts, see "Contract
Purchase--Distribution." Deferred sales charges may be deducted from amounts
withdrawn during the first 10 Contract Years, as set forth in the table below.
The deferred sales charge will apply to withdrawals during the Accumulation
Period. It will apply during the Annuity Period if the nonlifetime Annuity
Option is elected on a variable basis and the remaining value is withdrawn
before three years of Annuity payments have been completed. (See "Annuity
Period--Annuity Options.") There are additional restrictions and deductions on
withdrawals. (See "Contract Rights--Withdrawals.") The following table reflects
the deferred sales charge deduction as a percentage of the amount withdrawn:
Deferred Sales
Completed Contract Years 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%
10 or more 0%
The deduction for the deferred sales charge will not exceed 8.5% of the
total Purchase Payments actually made to the Individual or Plan Account.
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A deferred sales charge is not deducted from any portion of the Individual
or Plan Account value that is:
(a) applied to provide Annuity benefits;
(b) paid due to the death of the Participant;
(c) withdrawn on or after the completion of 10 Contract Years;
(d) withdrawn due to the election of the Systematic Withdrawal or Estate
Conservation Option;
(e) withdrawn as a rollover to another pension or IRA Contract issued by
the Company; or
(f) paid where the Individual Account value is less than $2,500 and no
withdrawals have been made from that Individual Account within the
prior 12 months. All individual Account values held on behalf of the
Participant will be added together to determine eligibility for the
$2,500 exemption. This provision is not available under Plan Accounts
(where Individual Accounts are not maintained by the Company) or
applicable to the withdrawal of all Individual Accounts under one
Contract established with the Company.
In the instances cited in the above paragraphs, no deferred sales charge
is deducted. However, the amount withdrawn may be subject to the 10% federal
penalty tax. (See "Tax Status of Amounts Distributed Under the Contract.")
Based on its actuarial determination, the Company does not anticipate that
the deterred sales charge will cover all sales and administrative expenses which
the Company will incur in connection with the Contract. Also, the Company does
not intend to profit from either the annual maintenance fee or the
administrative expense charge, if imposed. The Company does hope to profit from
the daily deduction for mortality and expense risks. Any such profit, as well as
any other profit realized by the Company and held in the general account (which
supports insurance and annuity obligations), would be available for any proper
corporate purpose, including, but not limited to, payment of sales and
distribution expenses.
PREMIUM TAX
Several states and municipalities impose a premium tax on annuities. These
taxes currently range from 0% to 4%. The Company reserves the right to deduct
premium tax against Purchase Payments or Contract Values at any time but no
earlier than when we have a tax liability under state law. The Company's current
practice is to deduct for premium taxes at the time of complete withdrawal or
annuitization. In addition to the premium tax, the Company reserves the right to
assess a charge for any state or federal taxes due against the Contract or the
Separate Account assets. (See "Tax Status.")
Any municipal premium tax assessed at a rate in excess of 1% will be
deducted from the Purchase Payment(s) or from the amount applied to an Annuity
Option based upon our determination of when such tax is due. The Company will
absorb any municipal premium tax that is assessed at 1% or less. We reserve the
right, however, to reflect this added expense in our Annuity purchase rates for
residents of such municipalities.
ADDITIONAL WITHDRAWAL OPTIONS
===============================================================================
GENERAL
The Company currently offers two additional withdrawal options that are
not considered Annuity options: the Estate Conservation Option ("ECO") and the
Systematic Withdrawal Option ("SWO"). These options are available to
Participants with contract values of at least $25,000 at the time of election
and are available at certain ages as described below. Under SWO, Participants
receive a series of partial withdrawals from the account based on the payment
method selected. It is designed for those who want a periodic income while
retaining investment flexibility for amounts accumulating under the Contract.
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 and pays you that amount once a year.
Amounts withdrawn for ECO and SWO will be deducted from the Contract in
the same manner as for any other withdrawals during the Accumulation Period
except that no deferred sales charge will be applied. (See "Contract
Rights--Withdrawals" and "Charges and Deductions--Deferred Sales Charge.") Since
ECO and SWO are not Annuity options, the Individual or Plan Account remains in
the Accumulation Period, retains all the rights and flexibility described in
this Prospectus, and is subject to all other Contract charges. The value of the
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Accumulation Units cancelled will be withdrawn from the respective investment
options in the same proportion as their respective values bear to the total
value of the portion of the Plan Account. The Company reserves the right to
discontinue the availability of these options and to change the terms for future
elections. In addition, other Additional Withdrawal Options may be added from
time to time.
Once elected, these options may be revoked by the Contract Holder at any
time, but only by submitting a written request to the Home Office. Any
revocation will apply only to the amounts not yet paid. Once ECO or SWO is
revoked, it may not be elected again.
Participants should determine the availability of ECO and SWO under their
Plan (by checking with the Contract Holder), and the terms and conditions that
may apply.
SWO is different from ECO in the following ways: (1) SWO payments are made
for a fixed dollar amount or fixed time period, whereas ECO payments vary in
dollar amount and can continue indefinitely during the Contract Holder's or
Participant's lifetime and (2) generally, SWO payments will be higher than
expected ECO payments. Participants should carefully assess their future income
needs when considering the election of these distribution options.
Participants should also consult their tax adviser before to requesting
the election of these conditions due to the potential for adverse tax
consequences.
In the event of the Participant's death, payments may be continued if
allowed by the Plan.
ESTATE CONSERVATION OPTION
The Company will calculate and distribute an annual amount using the
method contained in the Code's minimum distribution regulations. The annual
distribution is determined by dividing the prior December 31 value of the
Individual or Participant's portion of the Plan Account, as directed by the
Contract Holder, by a life expectancy factor from tables designated by the
Internal Revenue Service ("IRS"). The factor will be based on either the
Participant's life expectancy or the joint life expectancies of the participant
and the Participant's spouse. If ECO is elected based on the Participant's life
expectancy, the full value of the Individual or Participant's portion of the
Plan Account must be distributed in the year following the Participant's death,
as required by current IRS regulations. Factors will be redetermined for each
year's distribution. The value of the Individual or Participant's portion of the
Plan Account to be used in this calculation is the value on the December 31st
prior to the year for which payment is being made. This calculation will be
changed, if necessary, to conform to changes in the Code or applicable
regulations.
At the time of ECO election, the total aggregate value of all Individual
Accounts or portions of Plan Accounts to which ECO is applied must be $25,000 or
more. Distributions may not start earlier than the year the Participant attains
age 70 1/2, or such later time when distributions must commence as specified
under the Code, whichever is appropriate.
SYSTEMATIC WITHDRAWAL OPTION
The Company will distribute a portion of the Individual or Participant's
portion of the Plan Account, as directed by the Contract Holder, annually. The
Company reserves the right to provide payments more frequently.
The annual minimum SWO distribution, or maximum SWO time period, will be
determined, as directed by the Contract Holder, by a life expectancy factor from
tables designated by the IRS. The factor will be based on either the
Participant's life expectancy or the joint life expectancies of the Participant
and Participant's spouse. Factors will be reduced by one for each distribution
year.
At the time of SWO election, the total aggregate value of all Individual
Accounts or portions of Plan Accounts to which SWO is applied must be $25,000 or
more. Distributions may not start earlier than the year the Participant attains
age 70 1/2, or such later time when distributions must commence as specified
under the Code, whichever is appropriate.
One of two methods of distribution may be elected:
(a) Specified Payment--payments of a designated dollar amount. The minimum
specified payment is determined by dividing the value of the Individual or
Participant's portion of the Plan Account by the life expectancy factor. The
value of the Individual or Participant's portion of the Plan Account to be used
in this calculation is the value on the December 31st prior to the year for
which the payment is being made. The dollar amount chosen must be at least $250
annually but cannot be greater than 10% of the cash value applied to SWO. This
amount will remain constant unless a higher amount is required under Code
minimum distribution regulations. If a payment is less than the amount
determined under the Code's minimum distribution regulations, the Company will
calculate and pay the minimum distribution amount.
(b) Specified Period--payments for a designated time period. The specified
period must be at least 10 years but
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<PAGE>
no greater than the Participant's life expectancy factor. The first distribution
must be at least $250. Each annual distribution is determined by dividing the
Individual Account or total portions of the Plan Accounts' value by the number
of years remaining in the elected period. The value to be used in this
calculation is the value on the December 31st prior to the year for which the
payment is being made.
ANNUITY PERIOD
===============================================================================
ANNUITY PERIOD ELECTIONS
The Contract Holder must notify the Company in writing of the Annuity
start date and Annuity Option elected. Until a date and option are elected, the
Individual or Plan Account will continue in the Accumulation Period.
The Contract Holder may give written notice to the Company at least 30
days before Annuity payments begin by electing or changing (a) the date on which
Annuity payments are to start, (b) the Annuity option, (c) whether the payments
are to be made monthly, quarterly, semiannually or annually, and (d) the
investment option(s) used to provide Annuity payments (i.e., a fixed annuity
using the general account, Aetna Variable Fund, Aetna Income Shares, Aetna
Investment Advisers Fund, Inc., or any combination thereof). No other Funds may
currently be used as investment options during the Annuity Period. Once Annuity
Payments begin, the Annuity Option may not be changed, nor may transfers be made
among funding options.
If Annuity payments are to be made on a variable basis (i.e., Aetna
Variable Fund, Aetna Income Shares and/or Aetna Investment Advisers Fund, Inc.
are chosen), the first and subsequent payments will vary depending on the
assumed net investment rate (3 1/2% per annum, unless a 5% annual rate is
elected). Selection of a 5% rate causes a higher first payment, but Annuity
payments will increase thereafter only to the extent that the net investment
rate exceeds 5% on an annualized basis. Annuity payments would decline if the
rate were below 5%. Use of the 3 1/2% assumed rate causes a lower first payment
but subsequent payments would increase more rapidly or decline more slowly as
changes occur in the net investment rate.
No election may be made that would result in a first Annuity payment of
less than $20 or total yearly Annuity payments of less than $100. If the value
of the Contract is insufficient to elect an option for the minimum amount
specified, a lump-sum payment must be elected.
When payments start, the age of the Annuitant plus the number of years for
which payments are guaranteed must not exceed 95.
The retirement date and the Annuity Options available to Participants are
normally established by the terms of the plan, subject to applicable provisions
of the Code.
Generally, distributions for all Plan Participants other than 5% owners
must begin no later than April 1 of the calendar year following the calendar
year in which the Participant attains age 70 1/2, or retires, if later. For
Participants who are 5% owners, such distributions must begin by April 1 of the
calendar year following the calendar year in which the Participant attains age
70 1/2.
In determining the amount of benefit payments, the minimum distribution
incidental death benefit rule described in IRS regulations* must be satisfied.
This distribution rule does not apply if any of the Annuity Options under (b)
below are elected with the spouse as the sole beneficiary. (See "Annuity
Options.")
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.
* This rule assures that any death benefits payable under the Plan are
incidental to the primary purpose of the Plan which is to provide retirement
benefits or deferred compensation to the Participant. The amount to be
distributed under this rule is determined based on the Participant's age and
tables contained in the IRS regulations.
The Participant will be subject to a 50% federal penalty tax on the amount
of distribution required each year which is not distributed under the Code's
minimum distribution rules.
ANNUITY OPTIONS
Lifetime:
(a) Life Annuity--an Annuity with payments guaranteed to the date of the
Annuitant's death. This option may be elected with payments guaranteed for
5, 10, 15 or
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<PAGE>
20 years or such other periods as we may offer at the time of
annuitization. Because it provides a specified minimum number of Annuity
payments, the election of a guaranteed payment period results in somewhat
lower payments.
(b) Life Income Based Upon the Lives of Two Payees--An Annuity will be paid
during the lives of the Annuitant and a second Annuitant. Payments will
continue until both Annuitants have died. When this option is chosen, a
choice must be made of:
(i) 100% of the payment to continue after the first death;
(ii) 662/3% of the payment to continue after the first death;
(iii) 50% of the payment to continue after the first death;
(iv) payments for a minimum of 120 months, with 100% of the payment to continue
after the first death; or
(v) 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
Because (iv) provides a specified minimum number of Annuity payments, the
election of the guaranteed payment period results in somewhat lower payments.
Payments under any lifetime Annuity Option will be determined without
regard to the sex of the Annuitant(s). Such Annuity payments will be based
solely on the age of the Annuitant(s)
If a lifetime option is elected without a guaranteed minimum payment
period, it is possible that only one Annuity payment will be made if the
Annuitant under (a), or the surviving Annuitant under (b), should die prior to
the due date of the second Annuity payment.
Once lifetime annuity payments begin, neither the Contract Holder nor the
Annuitant can elect to receive a lump-sum settlement.
Nonlifetime:
Payments for a Specified Period an Annuity with payments to be made for 3
to 30 years, as selected. If this option is elected on a variable basis, the
Contract Holder may request at any time during the payment period that the
present value of all or any portion of the remaining variable payments be paid
in one sum. However, any lump sum elected before 3 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 "Deferred Sales
Charge.") This option is not available on a variable basis under a Contract
which provides for immediate Annuity benefits.
The Company makes a daily deduction for mortality and expense risks from
any Contract values held on a variable basis. (See "Mortality and Expense Risk
Charges.") Therefore, electing the nonlifetime option on a variable basis will
result in a deduction being made even though the Company assumes no mortality
risk.
The Company may make available to Contact Holders and other payees
optional methods of payment in addition to the Annuity Options described.
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<PAGE>
DEATH BENEFIT
===============================================================================
ACCUMULATION PERIOD
At the direction of the Contract Holder, who in most plans is the
beneficiary, a portion or all of any death proceeds may be (a) paid to the
Participant's beneficiary under the Plan in a lump sum; (b) applied under any of
the Annuity Options; (c) subject to applicable provisions of the Code, left in
the variable investment options; or (d) subject to applicable provisions of the
Code, left on deposit in the Company's general account with the Participant's
beneficiary electing to receive monthly, quarterly, semiannual or annual
interest payments at the interest rate then currently being credited on such
deposits. (The balance on deposit can be withdrawn at any time or applied under
any "Annuity Options.") Any lump-sum payment paid during the Accumulation Period
or under the applicable lifetime or nonlifetime Annuity options will normally be
made within seven calendar days after proof of death acceptable to the Company
and a request for payment are received at the Company's Home Office.
Until the election of method of payment, amounts will remain invested as
they were before the death, and the beneficiary will assume all rights under the
Contract. The Code requires that distributions begin within a certain time
period. If the Participant's beneficiary under the Plan is the surviving spouse,
the Code allows a Plan to give the Participant's beneficiary until the
Participant would have attained age 701/2 to begin Annuity payments or to
receive a lump-sum distribution. If the Participant's beneficiary under the Plan
is not the surviving spouse, Annuity payments must begin by December 31 of the
year following the year of death, or the entire value must be distributed by
December 31 of the fifth year following the year of your death. In no event may
payments to any beneficiary expend beyond the life of the beneficiary or any
period certain greater than the beneficiary's life expectancy. If no elections
are made concerning distribution, no distributions will be made. Failure to
commence distribution within the above time periods can result in tax penalties.
In no event may payments to any Participant's beneficiary extend beyond the life
of the Participant's beneficiary or any period certain greater than the
Participant's beneficiary's life expectancy.
If a lump-sum distribution is elected, the beneficiary will receive the
value of the Contract determined as of the Valuation Period in which proof of
death acceptable to us and a request for payment are received at the Home
Office. If an Annuity Option is elected, the value applied to the Annuity Option
is determined in the same manner as a lump-sum distribution; the amount of
payout will depend on the Annuity Option elected and the investment option(s)
used to provide such payments. (See "Annuity Period.") If amounts are left in
the variable investment options, the Account Value will continue to be affected
by the investment performance of the investment option(s) selected. If amounts
are left on deposit in the general account, the principal amount is guaranteed
by interest payments may vary. In general, regardless of the method of payment,
payments received by your beneficiaries after your death are taxed in the same
manner as if you had received those payments. (See "Tax Status.")
ANNUITY PERIOD
Should an Annuitant die after Annuity payments have begun, any death
benefit payable will depend upon the terms of the Contract and the Annuity
Option selected.
If lifetime option (a) or (b) was elected without a guaranteed minimum
payment period under the Contract, Annuity payments will cease upon the death of
the Annuitant under a Life Annuity or the death of the second Annuitant under
options (b)(i)(ii), (iii), or (v).
Under the Contract, if lifetime option (a) or (b) was elected with a
guaranteed minimum payment period and the death of the Annuitant under option
(a) or the surviving Annuitant under option (b)(iv) occurs before the end of
that period, the Company will pay to the designated beneficiary in lump sum,
unless otherwise requested, the present value of the guaranteed Annuity payments
remaining. Such value will be determined as of the Valuation Period in which
proof of death acceptable to the Company and a request for payment are received
at its Home Office. The value will be reduced by any payments made after the
date of death.
If the nonlifetime option was elected under the Contract 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 and no deferred sales charge will be
imposed. Such value will be determined as of the Valuation Period in which proof
of death acceptable to the Company and a request for payment are received at the
Home Office.
Any lump sum payment paid under the applicable lifetime or nonlifetime
Annuity Options will normally be
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made within seven calendar days after proof of death acceptable to us, and a
request for payment are received at our Home Office.
Under the Code, if the Annuitant under a Plan dies after Annuity payments
have begun and if there is a death benefit payable under the Annuity option
elected, the remaining values must be distributed to the Participant's
beneficiary under the Plan at least as rapidly as under the original method of
distribution.
TAX STATUS
===============================================================================
FEDERAL TAX STATUS OF THE COMPANY
The Company is taxed as a life insurance company in accordance with the
Code. For federal income tax purposes, the operations of the Separate Account
form a part of the Company's total operations and are not taxed independently,
although operations of the Separate Account are treated separately for
accounting and financial statement purposes. Under the current provisions of the
Code, the investment income and realized capital gains of the Separate Account
(i.e., income and capital gains distributed to the Separate Account by the
Funds) will not be taxable to the Company to the extent such amounts are
credited to the Contracts. Based on this, no charge is being made currently to
the Separate Account for federal income taxes. However, the Company reserves the
right to make a deduction for federal income taxes attributable to the Contracts
should such taxes be imposed in the future.
USE OF THE CONTRACT
There are two Contracts described in this Prospectus. One Contract is
intended to provide retirement benefits to Participants under qualified Plans
established by self-employed individuals (HR 10 Plans). The other Contract is
designed for qualified tax-deferred retirement plans established by corporations
(401 Plans). Some of the options and elections under the Contracts may not be
available to Participants under the provisions of the Plans.
TAX STATUS OF AMOUNTS DISTRIBUTED UNDER THE CONTRACT
The following description of the federal income tax status of amounts
distributed under the Contracts is not exhaustive and is not intended to cover
all situations. Contract Holders and Participants should seek advice from their
tax advisers as to the application of federal (and where applicable, state and
local) tax laws to amounts received by them and by their beneficiaries under the
Contracts.
The Code imposes a 10% penalty tax on the taxable portion of any
distribution unless made when (a) the Participant has attained age 59 1/2, (b)
the Participant has become disabled, (c) the Participant has died, (d) the
Participant has attained age 55 and has separated from service with the Plan
sponsor, (e) the distribution amount is rolled over into an Individual
Retirement Annuity or Account ("IRA") in accordance with terms of the Code, or
(f) the distribution amount is annuitized over the life or life expectancy of
the Participant or the joint lives or life expectancies of the Participant and
beneficiary, provided the Participant has separated from service with the Plan
sponsor. In addition, the penalty tax is abated for the amount of a distribution
equal to unreimbursed medical expenses incurred by the Participant that qualify
for deduction as specified in the Code.
Whether the Participant elects a lump sum or Annuity payments, if a
Participant has made after-tax contributions to the Plan, the Participant will
have a cost basis (equal to such contributions) which can be recovered tax free
from distributions from the Plan.
The Contract Holder, on behalf of a payee (a Participant, surviving
spouse, and former spouse, if entitled to benefits under certain divorce orders)
entitled to a distribution under this Contract on or after January 1, 1993, may
elect a direct rollover of an eligible rollover distribution. A direct rollover
is the payment by the Company to another eligible retirement plan. The election
of a direct rollover must be made in accordance with the Company's procedures.
An eligible rollover distribution is a distribution of all or any portion
of an amount payable except for any distribution: (1) that is one of a series of
equal payments (made at least once a year) for the life/life expectancy of the
payee or payee and beneficiary, or for a period of ten years or more; (2) that
is a required minimum distribution under Code Section 401(a)(9); and (3) any
distribution or portion thereof that is not taxable.
If a direct rollover of an eligible rollover distribution is made, the
Company must report the amount of the distribution to the IRS and the
Participant, but is not required to withhold any federal or state income tax. If
an eligible rollover distribution is paid to the payee (as defined
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above), the Company must withhold 20% federal income tax and any required state
income tax. For taxable amounts that are not eligible rollover distributions, if
payable to the Participant, he or she has the right to choose not to have
federal income tax withheld.
If a Participant receives a payment prior to reaching age 59 1/2, and
does not roll the payment over, in addition to the tax withholding, a 10%
penalty tax on the taxable portion of the payment may apply (unless the payment
is subject to an exception listed above).
Federal income and state taxes will be withheld from any payments paid
directly to a Participant, unless instructed otherwise. The Company will report
to the IRS the taxable portion of all distributions whether or not income taxes
are withheld.
a. Accumulation Period
The Purchase Payments and investment results of the Separate Account
credited to the value of the Contract are not taxable to Participants until
distributed. Lump-sum payments will generally be taxed to Participants as
ordinary income in the year received. Special provisions of the Code may afford
more favorable tax treatment for lump-sum distributions under HR 10 Plans or
Corporate 401 Plans.
b. Annuity Period
Annuity payments will generally be fully taxable to Participants as
ordinary income when received.
MISCELLANEOUS
===============================================================================
PERFORMANCE REPORTING
From time to time, the Company may advertise different types of historical
performance for the variable funding options under the Separate Account. The
Company may advertise the "standardized average annual total returns,"
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
variable funding option and then related to the ending redeemable values over
the most recent one, five and ten-year periods (or since inception, if less than
ten years). Standardized returns will reflect the reduction of all recurring
charges during each period (e.g., mortality and expense risk charges, annual
maintenance fees, administrative expense charge (if any) and any applicable
deferred sales charge). "Non-standardized returns" will be calculated in a
similar manner, except that non-standardized figures will not reflect the
deduction of any applicable deferred sales charge (which would decrease the
level of performance shown if reflected in these calculations). The
non-standardized figures may also include a monthly, quarterly, year-to-date and
three-year periods.
The Company may also advertise certain ratings, rankings or other
information related to the Company, the Separate Account or the Funds. Further
details regarding performance reporting and advertising are described in the
Statement of Additional Information.
VOTING RIGHTS
Each Contract Holder may direct the Company in the voting of shares at
meetings of shareholders of the appropriate Fund(s). The number of votes to
which each Contract Holder may give direction will be determined as of the
record date.
The number of votes each Contract Holder is entitled to direct with
respect to a particular Fund during the Accumulation Period is equal to the
portion of the current value of the Contract attributable to that Fund divided
by the net asset value of one share of that Fund. During the Annuity Period, the
number of votes is equal to the Valuation Reserve applicable to the portion of
the Contract attributable to that Fund, divided by the net asset value of one
share of the Fund. In determining the number of votes, fractional votes will be
recognized. Where the value of the Contract or Valuation Reserve relates to more
than one Fund, the calculation of votes will be performed separately for each
Fund.
Each Contract Holder will receive a notice of each meeting of the
shareholders, together with any proxy solicitation materials, and a statement of
the number of votes attributable to the Contract. Votes attributable to Contract
Holders who do not direct the Company will be cast by the Company in the same
proportion as the votes for which directions have been received by the Company.
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MODIFICATION OF THE CONTRACT
The Company may modify the Contract when it deems an amendment
appropriate, subject to the limitations described below, by giving written
notice to the Contract Holder 30 days before the effective date of the change.
The following Contract provisions may be considered material by the Company and
cannot be changed without the approval of appropriate state or federal
regulatory authorities:
(a) transfers among investment options;
(b) notification to the Contract Owner;
(c) conditions governing payments of withdrawal values;
(d) terms of Annuity options;
(e) death benefit payments; and
(f) maintenance fee provisions
However, changes to items (a) thorough (g) listed below will apply only to
new Participants enrolled under a Contract after the effective date of the
modification:
(a) the Annuity options,
(b) the contractual promise that no deduction will be made from Purchase
Payments for sales or administrative expenses,
(c) increasing the deferred sales charge,
(d) increasing the mortality and expense risk charges,
(e) increasing the administrative expense charge provision, if applicable,
(f) increasing the annual maintenance fee charge, and
(g) the maximum allocation and transfer fees.
If the Contract Holder has not accepted the proposed change at the time of
the effective date, no new Participants may be enrolled under the Contract.
However, additional Purchase Payments may continue to be made on behalf of
Participants already enrolled under the Contract.
No change may effect any Annuity beginning before the effective date of
such modification unless deemed necessary for the Plan or Contract to comply
with the requirements of the Code or other laws and regulations affecting the
Plan or Contract.
CONTRACT HOLDER INQUIRIES
A Contract Holder may direct inquiries to a local representative of the
Distributor or may write directly to the Company at the address shown on the
cover page of this prospectus.
TELEPHONE TRANSFERS
The Participant automatically has the right to make transfers among Funds
by telephone. The Company has enacted procedures to prevent abuses of Individual
Account transactions via the 800 number. The procedures include requiring the
use of a personal identification number (PIN) to execute transactions. The
Participant is responsible for safeguarding his or her PIN, and for keeping
account information confidential. If the Company fails to follow its procedures,
it would be liable for any losses to the Participant's Individual Account
resulting from the failure. To ensure authenticity, the Company records all
calls on the 800 line. Note: all Individual Account information and transactions
permitted are subject to the terms of the Plan(s).
TRANSFER OF OWNERSHIP; ASSIGNMENT
Unless contrary to applicable law, assignment of the Contract or an
Individual or Plan Account is prohibited.
LEGAL PROCEEDINGS
We know of no material legal proceedings pending to which the Separate
Account is party or which would materially affect the Separate Account.
LEGAL MATTERS
The validity of the securities offered by this Prospectus has been passed
upon by Counsel to the Company.
- -------------------------------------------------------------------------------
15
<PAGE>
CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
===============================================================================
General Information and History
Variable Annuity Account C
Offering and Purchase of Contracts
Annuity Payments
Sales Material and Advertising
Independent Auditors
Financial Statements of the Separate Account
Financial Statements of Aetna Life Insurance and Annuity Company
- ------------------------------------------------------------------------------
16
<PAGE>
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. Contract Holders and Participants should read the accompanying GAA
prospectus carefully before investing. This Appendix is a summary of GAA and is
not intended to replace the GAA prospectus. Amounts allocated to Long-Term
Classifications of GAA are held in a noninsulated, nonunitized Separate Account.
Amount allocated to Short-Term Classifications of GAA are held in the Company's
general account.
GAA is a credited interest option where the Company guarantees stipulated
rates of interest for stated periods of time on amounts directed to GAA. The
interest rate stipulated is an annual effective yield; that is, it reflects a
full year's interest. Interest is credited daily at a rate that will provide the
guaranteed annual effective yield over the period of one year. This option
guarantees the minimum interest rate specified in the Contract.
During a specified period of time, amounts may be applied to any or all of
available Guaranteed Terms within the Short-Term and Long-Term Classifications.
The Short-Term Classification consists of all Guaranteed Terms of 3 years or
less and the Long-Term Classification consists of all Guaranteed Terms of 10
years or less, but greater than 3 years.
Withdrawals or transfers from a Guaranteed Term prior to the end of that
Guaranteed Term may be subject to a Market Value Adjustment ("MVA"). An MVA
reflects the change in the value of the investment due to changes in interest
rates since the date of deposit. When interest rates increase after the date of
deposit, the value of the investment decreases, and the MVA is negative.
Conversely, when interest rates decrease after the date of deposit, the value of
the investment increases, and the MVA is positive. It is possible that a
negative MVA could result in the Contract Holder or, if applicable, 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 the other available
investment options or (c) withdrawn. Amounts withdrawn may be subject to a
deferred sales charge, tax penalties and/or withholding.
By notifying the Company at its Home Office at least 30 days before Annuity
payments begin, the Contract Holder or, if permitted by the Plan, the
Participant may elect to have amounts which have been accumulating under GAA
transferred to one or more of the Funds available during the Annuity Period, to
provide variable Annuity payments. GAA cannot be used as an investment option
during the Annuity Period.
MORTALITY AND EXPENSE RISK CHARGES
The Company makes no deductions from the credited interest rate for
mortality and expense risks; these risks are considered in determining the
credited rate.
TRANSFERS
Amounts applied to a Guaranteed Term during a deposit period may not be
transferred to any other funding option or to another Guaranteed Term during
that deposit period or for 90 days after the close of that deposit period.
Transfers are permitted from Guaranteed Terms of one Classification to available
Guaranteed Terms of another Classification. The Company will apply an MVA to GAA
transfers made before the end of a Guaranteed Term. Transfers of GAA values due
to a maturity are not subject to an MVA and are not counted as one of the 12
free transfers of accumulated values in the Individual or Plan Account.
REINVESTMENT PRIVILEGE
Any amounts reinvested in GAA will be applied to the current deposit
period. Amounts are proportionately reinvested to the Classifications in the
same manner as they were allocated prior to withdrawal. Any negative MVA amount
applied to a withdrawal is not included in the reinvestment.
- ------------------------------------------------------------------------------
17
<PAGE>
APPENDIX II
FIXED ACCOUNT
===============================================================================
The Fixed Account is an investment option available during the Accumulation
Period under the Contracts. The following summarizes material information
concerning the Fixed Account that is offered as an option under the Contract.
Additional information may be found in the Contract. Amounts allocated to the
Fixed Account are held in the Company's general account that supports 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 this prospectus regarding the Fixed Account, however, may
be subject to certain generally applicable provisions of the federal securities
laws relating to the accuracy and completeness of the statements. Disclosure in
this Appendix regarding the Fixed Account has not been reviewed by the SEC.
CREDITED INTEREST OPTION FIXED ACCOUNT
This option guarantees that amounts allocated to this option will earn the
minimum interest rates specified in the Contract. (This minimum interest rate
cannot be changed by the Company.) The Company may credit a higher interest rate
from time to time. The Company's determination of interest rates reflects the
investment income earned on invested assets and the amortization of any capital
gains and/or losses realized on the sale of invested assets. Under this option,
the Company assumes the risk of investment gain or loss by guaranteeing Net
Purchase Payment values and promising a minimum interest rate and Annuity
payment.
The Company may pay any Fixed Account withdrawal value in one lump sum to
the Contract Holder if (a) the total of the current Fixed Account withdrawal and
(b) the total of all Fixed Account withdrawals from the Contract within the past
12 calendar months is less than $250,000 for HR 10 Contracts, or $500,000 for
Corporate 401 Contracts. However, if the total is equal to or greater than
$250,000 for HR 10 Contracts, or $500,000 for Corporate 401 Contracts, the
Company will pay the Fixed Account withdrawal value in equal payments, with
interest, over a period not to exceed 60 months. This interest will not be more
than two percentage points below any rate determined prospectively by the Board
of Directors for this class of Contract. In no event will the interest rate be
less than the minimum stated in the Contract. In addition, under certain
emergency conditions, the Company may defer payment (a) for a period of up to 6
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.
MORTALITY AND EXPENSE RISK CHARGES
The Fixed Account will reflect a compound interest rate credited by the
Company. The interest rate quoted is an annual effective yield. The Company
makes no deductions from the credited interest rate for mortality and expense
risks; these risks are considered in determining the credited rate.
TRANSFERS AMONG INVESTMENT OPTIONS
Transfers from the Fixed Account to any other available investment option
are allowed in each calendar year during the Accumulation Period. The amount
which may be transferred may vary at the Company's discretion; however, it will
never be less than 10% of the amount held under the Fixed Account.
By notifying the Company at its Home Office at least 30 days before Annuity
payments begin, the Contract Holder or, if permitted by the Plan, the
Participant may elect to have amounts which have been accumulating under the
Fixed Account transferred to one or more of the Funds available during the
Annuity Period, to provide variable Annuity payments.
- -------------------------------------------------------------------------------
18
<PAGE>
- --------------------------------------------------------------------------------
VARIABLE ANNUITY ACCOUNT C
OF
AETNA LIFE INSURANCE AND ANNUITY COMPANY
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1997
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the current prospectus for Variable Annuity Account C (the
"Separate Account") dated May 1, 1997.
A free prospectus is available upon request from the local Aetna Life Insurance
and Annuity Company office or by writing to or calling:
Aetna Life Insurance and Annuity Company
Customer Service
151 Farmington Avenue
Hartford, Connecticut 06156
1-800-232-5422
Read the prospectus before you invest. Terms used in this Statement of
Additional Information shall have the same meaning as in the prospectus.
TABLE OF CONTENTS
Page
General Information and History........................................... 2
Variable Annuity Account C................................................ 2
Offering and Purchase of Contracts........................................ 3
Performance Data.......................................................... 3
General............................................................... 3
Average Annual Total Return Quotations................................ 4
Annuity Payments.......................................................... 6
Sales Material and Advertising............................................ 7
Independent Auditors...................................................... 7
Financial Statements of the Separate Account.............................. S-1
Financial Statements of Aetna Life Insurance and Annuity Company.......... F-1
<PAGE>
GENERAL INFORMATION AND HISTORY
Aetna Life Insurance and Annuity Company (the "Company") is a stock life
insurance company which was organized under the insurance laws of the State of
Connecticut in 1976. Through a merger, it succeeded to the business of Aetna
Variable Annuity Life Insurance Company (formerly Participating Annuity Life
Insurance Company organized in 1954). As of December 31, 1996, the Company had
$30.1 billion invested through its products, including $15.0 billion in its
separate accounts (of which the Company oversees the management of $10.5
billion) and $1.1 billion in its mutual funds offered outside of its separate
accounts. As of December 31, 1995, it ranked among the top 2% of all U.S. life
insurance companies based on assets. The Company is a wholly owned subsidiary of
Aetna Retirement Holdings, Inc., which is in turn a wholly owned subsidiary of
Aetna Retirement Services, Inc., and an indirect wholly owned subsidiary of
Aetna Inc. The Company is engaged in the business of issuing life insurance
policies and annuity contracts in all states of the United States. The Company's
Home Office is located at 151 Farmington Avenue, Hartford, Connecticut 06156.
In addition to serving as the principal underwriter and the depositor for
the Separate Account, the Company is also a registered investment adviser under
the Investment Advisers Act of 1940, and a registered broker-dealer under the
Securities Exchange Act of 1934. The Company provides investment advice to
several of the registered management investment companies offered as variable
investment options under the Contracts funded by the Separate Account (see
"Variable Annuity Account C" below).
Other than the mortality and expense risk charges and administrative expense
charge, if any, described in the prospectus, all expenses incurred in the
operations of the Separate Account are borne by the Company. (See "Charges and
Deductions" in the prospectus.) The Company receives reimbursement for certain
administrative costs from some unaffiliated sponsors of the Funds used as
funding options under the Contract. These fees generally range up to 0.25%.
The assets of Separate Account are held by the Company. The Separate Account has
no custodian. However, the Funds in whose shares the assets of the Separate
Account are invested each have custodians, as discussed in their respective
prospectuses.
VARIABLE ANNUITY ACCOUNT C
Variable Annuity Account C (the "Separate Account") is a separate account
established by the Company for the purpose of funding variable annuity contracts
issued by the Company. The Separate Account is registered with the Securities
and Exchange Commission as a unit investment trust under the Investment Company
Act of 1940, as amended. Purchase Payments made under the Contract may be
allocated to one or more of the Funds. The Company may make additions to,
deletions from or substitutions of available investment options as permitted by
law and subject to the conditions in the Contract. The availability of the Funds
is subject to applicable regulatory authorization. Not all Funds are available
in all jurisdictions or under all Contracts.
2
<PAGE>
The Funds currently available under the Contract are as follows:
Aetna Variable Fund
Aetna Income Shares
Aetna Variable Encore Fund
Aetna Investment Advisers Fund, Inc.
American Century VP Capital Appreciation (formerly TCI Growth)
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 section titled "Contract Purchase" and "Determining
Contract Value."
PERFORMANCE DATA
GENERAL
From time to time, the Company may advertise different types of historical
performance for the variable investment options available under the Contracts
issued by the Company in connection with Plans described in the prospectus. The
Company may advertise the "standardized average annual total returns,"
calculated in a manner prescribed by the Securities and Exchange Commission (the
"standardized return"), as well as "non-standardized returns," both of which are
described below.
The standardized and non-standardized total return figures are computed
according to a formula in which a hypothetical initial Purchase Payment of
$1,000 is applied to the various variable investment options under the Contract,
and then related to the ending redeemable values over one, five and ten year
periods (or fractional periods thereof). The redeemable value is then divided by
the initial investment and this quotient is taken to the Nth root (N represents
the number of years in the period) and 1 is subtracted from the result which is
then expressed as a percentage, carried to at least the nearest hundredth of a
percent. The standardized figures use the actual returns of the Fund since
inception and then adjust them to reflect the deduction of all recurring charges
under the Contracts during each period (e.g., mortality and expense risk
charges, 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 investment performance was based on the performance of the underlying
Fund plus any cash held in the Separate Account.
3
<PAGE>
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 investment options will fluctuate over time, and any
presentation of the total return quotations for any prior period should not be
considered as a representation of how the investment options 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 reflect the average annual standardized and
non-standardized total return quotation figures for the periods ended December
31, 1996 for the variable investment options available under the Contracts.
There are two sets of total return quotations shown below: one for HR 10
Contracts and one for Corporate 401 Contracts. The standardized returns for HR
10 Contracts assume a mortality and expense risk charge of 1.25%, a $30 annual
maintenance fee and a deferred sales charge for ten years. The standardized
returns for Corporate 401 Contracts assume a mortality and expense risk charge
of 1.19%, a $30 annual maintenance fee and a deferred sales charge for ten
years.
The non-standardized returns assume the same charges but do not include the
deferred sales charge. In both sets of tables, for those variable investment
options 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>
HR 10 CONTRACTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FUND
($30 MAINTENANCE FEE) STANDARDIZED NON-STANDARDIZED INCEPTION
DATE
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPTION 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 16.72% 10.81% 12.77% 22.87% 16.18% 11.72% 12.77% 05/01/75
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Income Shares (2.86%) 4.55% 7.44% 2.26% 4.24% 5.40% 7.44% 05/15/73
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Encore Fund (1.19%) 2.28% 4.73% 4.01% 3.80% 3.12% 4.73% 08/01/75
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Investment Advisers Fund, Inc. 8.00% 8.96% 9.44%* 13.69% 11.96% 9.85% 9.87%* 04/03/89
- -----------------------------------------------------------------------------------------------------------------------------------
American Century VP Aggressive Growth
(formerly TCI Growth) (10.28%) 3.96% 9.16%* (5.56%) 6.05% 4.81% 9.40%* 11/20/87
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Please refer to the discussion preceding the Tables for an explanation of the
charges included in the Standardized and Non-Standardized figures. These figures
represent historical performance and should not be considered a projection of
future performance.
CORPORATE 401 CONTRACTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FUND
($30 MAINTENANCE FEE) STANDARDIZED NON-STANDARDIZED INCEPTION
DATE
INVESTMENT OPTION 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Variable Fund 16.76% 10.85% 12.81% 22.91% 16.22% 11.76% 12.81% 05/01/75
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Income Shares (2.83%) 4.58% 7.48% 2.29% 4.28% 5.44% 7.48% 05/15/73
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Encore Fund (1.16%) 2.32% 4.76% 4.05% 3.83% 3.16% 4.76% 08/01/75
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Investment Advisers Fund, Inc. 8.04% 9.00% 9.48%* 13.73% 12.00% 9.89% 9.91%* 04/03/89
- -----------------------------------------------------------------------------------------------------------------------------------
American Century VP Aggressive Growth
(formerly TCI Growth) (10.26%) 4.00% 9.20%* (5.53%) 6.09% 4.85% 9.44% 11/20/87
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Please refer to the discussion preceding the Tables for an explanation of the
charges included in the Standardized and Non-Standardized figures. These figures
represent historical performance and should not be considered a projection of
future performance.
5
<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 Period before the first
Annuity payment is due. Such value (less any applicable premium tax) is applied
to provide an Annuity in accordance with the Annuity and investment options
elected.
The Annuity option tables found in the Contract show, for each form of Annuity,
the amount of the first 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 Date 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 Period to the
next; such fluctuations reflect changes in the net investment factor for the
appropriate Fund(s) (with a ten Valuation Period lag which gives the Company
time to process Annuity payments) and a mathematical adjustment which offsets
the assumed net investment rate of 3.5% or 5% per annum.
The operation of all these factors can be illustrated by the following
hypothetical example. These procedures will be performed separately for the
investment options selected during the Annuity Date.
EXAMPLE:
Assume that, at the date Annuity payments are to begin, there are 3,000
Accumulation Units credited under a particular Account and that the value of an
Accumulation Unit for the tenth Valuation Period prior to retirement was
$13.650000. This produces a total value of $40,950.
Assume also that no premium tax is payable and that the Annuity table in the
Contract provides, for the option elected, a first monthly variable Annuity
payment of $6.68 per $1000 of value applied; the Annuitant's first monthly
payment would thus be 40.950 multiplied by $6.68, or $273.55.
Assume then that the value of an Annuity Unit for the Valuation Period in which
the first payment was due was $13.400000. When this value is divided into the
first monthly payment, the number of 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 Fund is 1.0015000
as of the tenth Valuation Period preceding the due date of the second monthly
payment, multiplying this factor by .9999058* (to neutralize the assumed net
investment rate of 3.5% per annum built into the number of Annuity Units
determined above) produces a result of 1.0014057. This is then multiplied by the
Annuity Unit value for the prior Valuation Period (assume such value to be
$13.504376) to produce an Annuity Unit value of $13.523359 for the Valuation
Period in which the second payment is due.
6
<PAGE>
The second monthly payment is then determined by multiplying the number of
Annuity Units by the current Annuity Unit value, or 20.414 times $13.523359,
which produces a payment of $276.07.
*If an assumed net investment rate of 5% is elected, the appropriate factor to
neutralize such assumed rate would be .9998663.
SALES MATERIAL AND ADVERTISING
The Company may include hypothetical illustrations in its sales literature that
explain the mathematical principles of dollar cost averaging, compounded
interest, tax deferred accumulation, and the mechanics of variable annuity
contracts. The Company may also discuss the difference between variable annuity
contracts and other types of savings or investment products, including, but not
limited to, personal savings accounts and certificates of deposit.
We may distribute sales literature that compares the percentage change in
Accumulation Unit values for any of the variable investment options to
established market indices such as the Standard & Poor's 500 Stock Index and the
Dow Jones Industrial Average or to the percentage change in values of other
management investment companies that have investment objectives similar to the
variable investment option 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.
7
<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
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AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
12. Commitments and Contingent Liabilities (Continued)
Litigation
The Company is involved in numerous lawsuits arising, for the most part, in
the ordinary course of its business operations. While the ultimate outcome
of litigation against the Company cannot be determined at this time, after
consideration of the defenses available to the Company and any related
reserves established, it is not expected to result in liability for amounts
material to the financial condition of the Company, although it may
adversely affect results of operations in future periods.
F-30
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
13. Segment Information (1)
The Company's operations are reported through two major business segments:
Financial Services and Individual Life Insurance.
Summarized financial information for the Company's principal operations was
as follows:
(Millions) 1996 1995 1994
- --------------------------------------------------------------------------------
Revenue:
Financial Services $ 1,195.1 $ 1,211.3 $ 1,013.5
Individual Life Insurance 445.7 407.9 386.1
---------------------------------
Total revenue $ 1,640.8 $ 1,619.2 $ 1,399.6
- --------------------------------------------------------------------------------
Income before income taxes: (2)
Financial Services $ 129.9 $ 160.1 $ 122.5
Individual Life Insurance 83.0 103.1 98.4
---------------------------------
Total income before income taxes $ 212.9 $ 263.2 $ 220.9
- --------------------------------------------------------------------------------
Net income: (2)
Financial Services $ 94.3 $ 113.8 $ 85.5
Individual Life Insurance 55.9 62.1 59.8
---------------------------------
Net income $ 150.2 $ 175.9 $ 145.3
- --------------------------------------------------------------------------------
Assets under management: (3)
Financial Services $27,268.1 $22,534.4 $18,122.9
Individual Life Insurance 2,830.5 2,590.9 2,220.5
- --------------------------------------------------------------------------------
Total assets under management $30,098.6 $25,125.3 $20,343.4
- --------------------------------------------------------------------------------
(1) The 1996 results include severance and facilities charges of $30.7 million,
after tax. Of this charge $21.5 million related to the Financial Services
segment and $9.2 million related to the Individual Life Insurance segment.
(2) Excludes any effect of the corporate facilities and severance charge
recorded in 1996 which is not directly allocable to the Financial Services
and Individual Life Insurance segments. (Refer to Note 7).
(3) Excludes net unrealized capital gains (losses) of $366.4 million, $797.1
million and $(386.4) million at December 31, 1996, 1995 and 1994,
respectively.
F-31
<PAGE>
FORM NO. SAI.75980-97 ALIAC ED. MAY 1997
