VARIABLE ANNUITY ACCOUNT C
AetnaPlus--Group Variable Annuity Contracts for Tax-Deferred
Annuity Plans (Section 403(b)) and
Defined Contribution Plans (Section 401(a))
May 1, 1998 Supplement to May 1, 1998 Prospectus
St. John's Regional Health Center
The following is a negotiated provision regarding the deferred sales charge
applicable to the St. John's Regional Health Center tax-deferred annuity plan.
(See "Deferred Sales Charge--Reduction or Elimination of the Deferred Sales
Charge.")
Participants may withdraw up to 10% of the current Account Value
annually without a deferred sales charge. This applies only to the first
partial withdrawal in each calendar year. The 10% partial withdrawal
amount will be calculated using the Account Value on the date of the
withdrawal request. This provision is available to all Participants up
to age 70-1/2 (instead of between the ages of 59-1/2 and 70-1/2). Any
loans outstanding on a 403(b) Account are excluded from the Account
Value when calculating the 10% partial withdrawal amount. This provision
is not applicable to a full withdrawal of the Account. It is also not
applicable to a partial withdrawal due to loan defaults.
Form No. XCS.75964-98SJ
<PAGE>
VARIABLE ANNUITY ACCOUNT C
AetnaPlus--Group Variable Annuity Contracts For
Tax-Deferred Annuity Plans (Section 403(b))
May 1, 1998 Supplement to May 1, 1998 Prospectus
Suburban Hospital
The following is a negotiated provision regarding the deferred sales charge
applicable to the Suburban Hospital tax-deferred annuity plan. (See "Deferred
Sales Charge--Reduction or Elimination of the Deferred Sales Charge.")
In addition to the exceptions listed in this Prospectus for 403(b)
Plans, no deferred sales charge will be deducted from any Account Value
which is withdrawn due to the Participant's separation from service.
(The Contract Holder must submit documentation satisfactory to the
Company confirming the Participant is no longer providing services to
the employer.)
Form No. XCS.75964-98SH
<PAGE>
PROSPECTUS
================================================================================
The Contracts offered in connection with this Prospectus are group and
individual deferred variable annuity contracts ("Contracts") issued by Aetna
Life Insurance and Annuity Company (the "Company"). The Contracts are available
for public school systems and certain tax-exempt (Section 501(c)(3))
organizations for their employees under Section 403(b) of the Internal Revenue
Code of 1986 as amended ("Code"), and for qualified defined contribution plans
under Section 401(a) of the Code. (See "Purchase.")
The Contracts provide that contributions may be allocated to one or more of the
Credited Interest Options or to one or more of the Subaccounts of Variable
Annuity Account C, a separate account of the Company. The Subaccounts invest
directly in shares of the following Funds:
[bullet] Aetna Ascent VP (formerly Aetna Ascent Variable Portfolio)
[bullet] Aetna Balanced VP, Inc. (formerly Aetna Investment Advisers Fund,
Inc.)
[bullet] Aetna Income Shares d/b/a Aetna Bond VP
[bullet] Aetna Crossroads VP (formerly Aetna Crossroads Variable Portfolio)
[bullet] Aetna Growth VP (formerly Aetna Variable Growth Portfolio)
[bullet] Aetna Variable Fund d/b/a Aetna Growth and Income Fund VP
[bullet] Aetna High Yield VP
[bullet] Aetna Index Plus Large Cap VP (formerly Aetna Variable Index Plus
Portfolio)
[bullet] Aetna Index Plus Mid Cap VP
[bullet] Aetna Index Plus Small Cap VP
[bullet] Aetna International VP
[bullet] Aetna Legacy VP (formerly Aetna Legacy Variable Portfolio)
[bullet] Aetna Variable Encore Fund d/b/a Aetna Money Market VP
[bullet] Aetna Real Estate Securities VP
[bullet] Aetna Small Company VP (formerly Aetna Variable Small Company
Portfolio)
[bullet] Aetna Value Opportunity VP (formerly Aetna Variable Capital
Appreciation Portfolio)
[bullet] Calvert Social Balanced Portfolio (formerly Calvert Responsibly
Invested Balanced Portfolio)
[bullet] Fidelity VIP II Contrafund Portfolio
[bullet] Fidelity VIP Equity-Income Portfolio
[bullet] Fidelity VIP Growth Portfolio
[bullet] Fidelity VIP Overseas Portfolio
[bullet] Janus Aspen Aggressive Growth Portfolio
[bullet] Janus Aspen Balanced Portfolio
[bullet] Janus Aspen Flexible Income Portfolio
[bullet] Janus Aspen Growth Portfolio
[bullet] Janus Aspen Worldwide Growth Portfolio
[bullet] Lexington Natural Resources Trust*
[bullet] Oppenheimer Global Securities Fund
[bullet] Oppenheimer Strategic Bond Fund
[bullet] Portfolio Partners MFS Emerging Equities Portfolio
[bullet] Portfolio Partners MFS Research Growth Portfolio
[bullet] Portfolio Partners MFS Value Equity Portfolio
[bullet] Portfolio Partners Scudder International Growth Portfolio
[bullet] Portfolio Partners T. Rowe Price Growth Equity Portfolio
*This Fund is only available for investment by Participants who established an
Account under the Contract before May 1, 1998. As soon as all such Participants
have redirected their allocations to other investment options, the Fund will be
closed to all new investment (except reinvested dividends and capital gains
earned on amounts already invested in the Fund through the Separate Account and
loan repayments automatically deposited into the Fund pursuant to the Company's
loan repayment procedures).
The Credited Interest Options currently available under the Contract are the
Guaranteed Accumulation Account, the Fixed Account and the Fixed Plus Account.
Except as specifically mentioned, this Prospectus describes only investments
through the Separate Account. A brief description of each of the Credited
Interest Options is contained in Appendices to this Prospectus. Additional
information concerning the Guaranteed Accumulation Account is contained in a
separate prospectus.
Availability of the Funds and the Credited Interest Options is subject to
applicable regulatory authorization. Not all Funds or Credited Interest Options
may be available in all jurisdictions, under all Contracts or in all Plans.
Please check with your employer to determine option availability. (See
"Investment Options.")
This Prospectus provides investors with the information that they should know
about the Separate Account before investing in the Contract. Additional
information about the Separate Account is contained in a Statement of
Additional Information ("SAI") which is available at no charge. The SAI has
been filed with the Securities and Exchange Commission and is incorporated
herein by reference. The Table of Contents for the SAI is printed on page 22 of
this Prospectus. An SAI may be obtained by indicating the request on the
Enrollment Materials or on the prospectus receipt contained in this Prospectus,
or by calling the number listed under the "Inquiries" section of the Prospectus
Summary. You may also obtain an SAI for any of the Funds by calling that phone
number.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES OF
THE FUNDS AND THE GUARANTEED ACCUMULATION ACCOUNT. ALL PROSPECTUSES SHOULD BE
READ AND RETAINED FOR FUTURE REFERENCE.
<PAGE>
THIS PROSPECTUS, THE STATEMENT OF ADDITIONAL INFORMATION AND OTHER INFORMATION
ABOUT THE SEPARATE ACCOUNT REQUIRED TO BE FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION (SEC) CAN BE FOUND IN THE SEC'S WEB SITE AT
http://www.sec.gov.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS, ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION ARE DATED MAY 1,
1998.
<PAGE>
TABLE OF CONTENTS
================================================================================
DEFINITIONS ................................................. DEFINITIONS - 1
PROSPECTUS SUMMARY .......................................... SUMMARY - 1
FEE TABLE ................................................... FEE TABLE - 1
CONDENSED FINANCIAL INFORMATION .......................................... 1
THE COMPANY .............................................................. 1
VARIABLE ANNUITY ACCOUNT C ............................................... 1
INVESTMENT OPTIONS ....................................................... 1
The Funds ............................................................. 1
Credited Interest Options ............................................. 5
PURCHASE ................................................................. 5
Contract Availability ................................................. 5
Purchasing Interests in the Contract .................................. 6
Purchase Payments ..................................................... 6
Transfer Credits ...................................................... 6
Right to Cancel ....................................................... 6
CHARGES AND DEDUCTIONS ................................................... 6
Daily Deductions from the Separate Account ............................ 6
Maintenance Fee ....................................................... 7
Deferred Sales Charge ................................................. 8
Deferred Sales Charge Schedule for GAA for New York Contracts ......... 9
Fund Expenses ......................................................... 10
Premium and Other Taxes ............................................... 10
CONTRACT VALUATION ....................................................... 10
Account Value ......................................................... 10
Accumulation Units .................................................... 10
Net Investment Factor ................................................. 10
TRANSFERS ................................................................ 11
Telephone Transfers ................................................... 11
Dollar Cost Averaging Program ......................................... 11
WITHDRAWALS .............................................................. 11
Reinvestment Privilege ................................................ 12
CONTRACT LOANS ........................................................... 13
SYSTEMATIC DISTRIBUTION OPTIONS .......................................... 13
DEATH BENEFIT DURING ACCUMULATION PERIOD ................................. 13
ANNUITY PERIOD ........................................................... 14
Annuity Period Elections .............................................. 14
Annuity Options ....................................................... 14
Annuity Payments ...................................................... 15
Charges Deducted During the Annuity Period ............................ 15
Death Benefit Payable During the Annuity Period ....................... 15
TAX STATUS ............................................................... 16
Introduction .......................................................... 16
Taxation of the Company ............................................... 16
<PAGE>
Contracts Used with Certain Retirement Plans ............. 16
MISCELLANEOUS ............................................... 19
Distribution ............................................. 19
Delay or Suspension of Payments .......................... 19
Performance Reporting .................................... 19
Voting Rights ............................................ 20
Changes in Beneficiary Designations ...................... 20
Modification of the Contract ............................. 20
Legal Matters and Proceedings ............................ 20
Year 2000 ................................................ 20
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION ......... 22
APPENDIX I--GUARANTEED ACCUMULATION ACCOUNT ................. 24
APPENDIX II--THE FIXED ACCOUNT .............................. 25
APPENDIX III--THE FIXED PLUS ACCOUNT ........................ 26
APPENDIX IV--CONDENSED FINANCIAL INFORMATION ................ 28
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. THE COMPANY DOES NOT AUTHORIZE ANY
PERSON TO GIVE INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH
THE OFFERING CONTAINED IN THIS PROSPECTUS EXCEPT AS OTHERWISE CONTAINED HEREIN.
<PAGE>
DEFINITIONS
================================================================================
The following terms are defined as they are used in this Prospectus:
Account: A record which identifies contract values accumulated on behalf of
each Participant during the Accumulation Period. One or more Accounts may be
established for each Participant.
Account Value: The total dollar value of amounts held in an Account as of each
Valuation Date during the Accumulation Period.
Account Year: A period of twelve months measured from the date on which an
Account is established (the effective date) or from an anniversary of such
effective date.
Accumulation Period: The period during which Purchase Payment(s) credited to an
Account are invested to fund future annuity payments.
Accumulation Unit: A measure of the value of each Subaccount before annuity
payments begin.
Annuitant: The person on whose life or life expectancy the annuity payments are
based.
Annuity: A series of payments for life, a definite period or a combination of
the two.
Annuity Date: The date on which annuity payments begin.
Annuity Period: The period during which annuity payments are made.
Annuity Unit: A measure of the value of each Subaccount selected during the
Annuity Period.
Beneficiary(ies): The person(s) entitled to receive any death benefit upon
death of the Participant.
Code: Internal Revenue Code of 1986, as amended.
Company (We, Us): Aetna Life Insurance and Annuity Company.
Contract: The group and individual deferred, variable annuity contracts offered
by this Prospectus.
Contract Holder: The person or entity to whom the Contract is issued. The
Contract Holder of a group Contract is usually the employer; the Contract
Holder of an individual Contract is the Participant.
Credited Interest Options: The fixed interest options under the Contract. The
Credited Interest Options currently consist of the Guaranteed Accumulation
Account, the Fixed Account and the Fixed Plus Account, each of which is
described in an Appendix to this Prospectus. Amounts allocated to the Credited
Interest Options are included in the Account Value.
Enrollment Materials: An application for an individual contract or an
enrollment form for participation under a group contract.
Fund(s): An open-end registered management investment company whose shares are
purchased by the Separate Account to fund the benefits provided by the
Contract.
Home Office: The Company's principal executive offices located at 151
Farmington Avenue, Hartford, Connecticut 06156.
Participant (You): A person participating in a Plan maintained by an eligible
organization.
Plan(s): Tax-deferred annuity plans established under Section 403(b) of the
Code for employees of public school systems and certain tax-exempt
organizations (Section 501(c)(3) organizations), and defined contribution plans
established under Section 401(a) of the Code.
Purchase Payment(s): The gross payment(s) made to the Company under a Contract.
- --------------------------------------------------------------------------------
DEFINITIONS - 1
<PAGE>
Purchase Payment Periods: For "Installment Purchase Payment Accounts," the
period of time for completion of the agreed upon annual number and amount of
Purchase Payments. For example, if it is determined that the Purchase Payment
Period will consist of 12 payments per year and only 11 payments are made, the
Purchase Payment Period is not completed until the twelfth Purchase Payment is
made.
Separate Account: Variable Annuity Account C, a separate account established by
the Company for the purpose of funding variable annuity contracts issued by the
Company.
Subaccount(s): The portion of the assets of the Separate Account that is
allocated to a particular Fund. Each Subaccount invests in the shares of only
one corresponding Fund.
Valuation Date: The date and time at which the Accumulation Unit Value and
Annuity Unit Value of a Subaccount is calculated. Currently, this calculation
occurs after the close of business of the New York Stock Exchange on any normal
business day, Monday through Friday, that the New York Stock Exchange is open.
- --------------------------------------------------------------------------------
DEFINITIONS - 2
<PAGE>
PROSPECTUS SUMMARY
================================================================================
CONTRACTS OFFERED
The Contracts offered in connection with this Prospectus are group and
individual deferred variable annuity contracts issued by Aetna Life Insurance
and Annuity Company (the "Company"). The purpose of the Contract is to
accumulate values and to provide benefits upon retirement. The Contracts are
available for public school systems and certain tax-exempt (Section 501(c)(3))
organizations for their employees under Section 403(b) of the Code, and for
qualified defined contribution plans under Section 401(a) of the Code.
CONTRACT PURCHASE
The Contract may be purchased by eligible organizations on behalf of a
group made up of their employees. The individual contracts may be purchased by
individuals under Plans that permit such purchase. Eligible employees may
participate in the Contract by completing the Enrollment Materials (and any
other required forms) and submitting them to the Company in good order.
Purchase Payments can be applied to the Contract either through a lump-sum
transfer from a pre-existing plan or through periodic salary reductions or
employer contributions. (See "Purchase.")
FREE LOOK PERIOD
Participation under the Contract may be canceled within 10 days (longer if
required by state law) after You receive the Contract or other document
evidencing your interest in the Contract by returning it to the Company along
with a written notice of cancellation. Unless state law requires otherwise, the
amount you will receive upon cancellation will reflect the investment
performance of the Subaccounts into which your Purchase Payments were
deposited. The amount refunded may be more or less than the amount of your
Purchase Payments. (See "Purchase--Right to Cancel.")
INVESTMENT OPTIONS
The Company has established Variable Annuity Account C, a registered unit
investment trust, for the purpose of funding the variable portion of the
Contracts. The Separate Account is divided into Subaccounts which invest
directly in shares of the Funds described herein, as designated by the
Participant. The Contract allows investment in any of the Subaccounts, as well
as in the Credited Interest Options described below subject to the limitations
described in "Investment Options". The total number of investment options that
may be selected at any one time is limited. For a complete list of the Funds
available under the Contracts, a description of the investment objectives of
each of the Funds and their investment advisers, and a description of the
limitations on the number of investment options, see "Investment Options--The
Funds" in this Prospectus, as well as the prospectuses for each of the Funds.
The Contract also provides for investment in Credited Interest Options
which allow you to earn fixed rates of interest. The fixed options available
under the Contract are the Guaranteed Accumulation Account ("GAA"), the Fixed
Account, and the Fixed Plus Account. (See the Appendices to this Prospectus.)
CHARGES AND DEDUCTIONS
Certain charges are associated with these Contracts. These charges include
daily deductions from the Separate Account (the mortality and expense risk
charges and an administrative charge), as well as any annual maintenance fee
and premium and other taxes. The Funds also incur certain fees and expenses
which are deducted directly from the Funds. A deferred sales charge may apply
upon a full or partial withdrawal of the Account Value. (See the Fee Table and
"Charges and Deductions.")
TRANSFERS
Prior to the Annuity Date, and subject to certain limitations, Account
Values may be transferred among the Subaccounts and the Credited Interest
Options without charge. Transfers can be requested in writing or by telephone
in accordance with the Company's transfer procedures. (See the Appendices for a
full description of the restrictions applicable to transfers from the Credited
Interest Options.) (See "Transfers.")
- --------------------------------------------------------------------------------
SUMMARY - 1
<PAGE>
WITHDRAWALS
All or a part of the Account Value may be withdrawn prior to the Annuity
Date, subject to Plan provisions, by properly completing a disbursement form
and sending it to the Company. Limitations apply to withdrawals from the Fixed
Plus Account. Certain charges may be assessed upon withdrawal. The withdrawal
may also be subject to income tax and a federal tax penalty. The Code restricts
full and partial withdrawals in some circumstances. (See "Withdrawals.")
The Contract also offers certain Systematic Distribution Options during the
Accumulation Period to persons meeting certain criteria. Systematic
Distribution Options are not available in all states and may not be suitable
in every situation. (See "Systematic Distribution Options.")
LOANS
Participants under Section 403(b) Plans may request a loan from their
Account Value at any time during the Accumulation Period. Loans are not
available from Contracts issued under Section 401(a) Plans. (See "Contract
Loans.")
DEATH BENEFIT
A death benefit is payable if the Participant dies before the Annuity
Date. Death benefit proceeds will be paid to the Beneficiary in an amount equal
to the Account Value. Until the election of a method of payment, the Account
Value will remain invested under the Contract. The Beneficiary may elect to
receive the proceeds in a lump sum or under any of the payment options
available under the Contract. However, the Code requires that distributions
begin within a certain time period. (See "Death Benefit During Accumulation
Period.")
After Annuity Payments have commenced, a death benefit may be payable to
the Beneficiary depending upon the terms of the Contract and the Annuity Option
selected. (See "Death Benefit Payable During the Annuity Period.")
THE ANNUITY PERIOD
On the Annuity Date, you may elect to begin receiving Annuity Payments
which may be made on either a fixed, variable or combination fixed and variable
basis. If a variable Annuity is selected, the payments will vary with the
investment performance of the Subaccount(s) selected. The Company reserves the
right to limit the number of Subaccounts that may be available during the
Annuity Period. (See "Annuity Period.")
TAXES
Contributions and earnings are not generally taxed until you or your
beneficiary(ies) actually receive a distribution from the Contract. A 10%
federal tax penalty and a 20% withholding for income tax may be imposed on
certain withdrawals. (See "Tax Status.")
INQUIRIES
Questions, inquiries or requests for additional information can be
directed to your agent or local representative, or you may contact the Company
as follows:
[bullet] Write to: Aetna Life Insurance and Annuity Company
151 Farmington Avenue
Hartford, Connecticut 06156-1277
Attention: Customer Service
[bullet] Call Customer Service: 1-800-525-4225 (for automated transfers or
changes in the allocation of Account
Values, call: 1-800-262-3862)
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SUMMARY - 2
<PAGE>
FEE TABLE
================================================================================
This Fee Table describes the various charges and expenses associated with the
Contract during the Accumulation Period. For amounts deducted during the
Annuity Period, see "Annuity Period--Charges Deducted During the Annuity
Period." No sales charge is paid upon purchase of the Contract. All costs that
are borne directly or indirectly under the Subaccounts and Funds are shown
below. Some expenses may vary as explained under "Charges and Deductions."
Charges shown do not include premium taxes that may be applicable. For more
information regarding fees and expenses paid out of the assets of a particular
Fund, see the Fund's prospectus.
CONTRACT HOLDER TRANSACTIONS EXPENSES
Deferred Sales Charge (as a percentage of the amount withdrawn).(1)
INSTALLMENT PURCHASE PAYMENT ACCOUNTS:
Purchase Payment Deferred Sales
Periods Completed Charge Deduction
- ---------------------------------------------
Less than 5 5%
5 or more but less than 7 4%
7 or more but less than 9 3%
9 or more but less than 10 2%
More than 10 0%
SINGLE PURCHASE PAYMENT ACCOUNTS:
Account Years Deferred Sales
Completed Charge Deduction
- -----------------------------------------------
Less than 5 5%
5 or more but less than 6 4%
6 or more but less than 7 3%
7 or more but less than 8 2%
8 or more but less than 9 1%
9 or more 0%
<TABLE>
<S> <C>
Annual Contract Maintenance Fee: Installment Purchase Payment Accounts .. $20.00(2)
Single Purchase Payment Accounts ....... $ 0.00
</TABLE>
SEPARATE ACCOUNT ANNUAL EXPENSES
(Daily deductions, equal to the percentage shown on an annual basis, made from
amounts allocated to the variable options under each Contract.)
For all Contracts except those for which an Administrative Expense Charge is
imposed (see "Charges and Deductions"), Separate Account Annual/Expenses are:
Mortality and Expense Risk Charge .............................. 1.25%(3)
Administrative Expense Charge .................................. 0.00%(4)
----
Total Separate Account Charges ................................ 1.25%
====
For Contracts for which an Administrative Expense Charge is imposed (see
"Charges and Deductions"), Separate Account Annual Expenses are:
Mortality and Expense Risk Charge .............................. 1.25%(3)
Administrative Expense Charge .................................. 0.25%(4)
----
Total Separate Account Charges ................................ 1.50%
====
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FEE TABLE - 1
<PAGE>
(1) The total amount deducted for the deferred sales charge will not
exceed 8.5% of the total Purchase Payments applied to the Account.
(2) The maintenance fee will generally be deducted annually from each
Installment Purchase Payment Account during the Accumulation Period.
The amount of the maintenance fee may be reduced or eliminated for
group Contracts. The amount shown is the maximum maintenance fee that
can be deducted under each Account.
(3) Under certain Contracts the mortality and expense risk charge during
the Accumulation Period may be reduced. See "Charges and Deductions".
(4) Effective July 1, 1997, during the Annuity Period, an administrative
expense charge of 0.25% will apply for all Participants who enrolled
in a group Contract or became covered under an individual Contract on
or after November 5, 1984.
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FEE TABLE - 2
<PAGE>
ANNUAL EXPENSES OF THE FUNDS
The following table illustrates the advisory fees and other expenses applicable
to the Funds. Except as noted, these figures are a percentage of each Fund's
average net assets and are based on figures for the year ended December 31,
1997. A Fund's "Other Expenses" include operating costs of the Fund. The
expenses shown below are reflected in the Fund's net asset value and are not
deducted from the Account Value under the Contract.
<TABLE>
<CAPTION>
Investment
Advisory Fees(1) Other Expenses
(after expense (after expense Total Fund
reimbursement) reimbursement) Annual Expenses
------------------ ---------------- ----------------
<S> <C> <C> <C>
Aetna Ascent VP(2)(3) 0.57% 0.23% 0.80%
Aetna Balanced VP, Inc.(3) 0.50% 0.10% 0.60%
Aetna Bond VP(3) 0.40% 0.10% 0.50%
Aetna Crossroads VP(2)(3) 0.55% 0.25% 0.80%
Aetna Growth VP(2)(3) 0.16% 0.64% 0.80%
Aetna Growth and Income VP(3) 0.50% 0.09% 0.59%
Aetna High Yield VP(2)(3) 0.47% 0.33% 0.80%
Aetna Index Plus Large Cap VP(2)(3) 0.32% 0.23% 0.55%
Aetna Index Plus Mid Cap VP(2)(3) 0.27% 0.33% 0.60%
Aetna Index Plus Small Cap VP(2)(3) 0.27% 0.33% 0.60%
Aetna International VP(2)(3) 0.77% 0.38% 1.15%
Aetna Legacy VP(2)(3) 0.49% 0.31% 0.80%
Aetna Money Market VP(3) 0.25% 0.10% 0.35%
Aetna Real Estate Securities VP(2)(3) 0.62% 0.33% 0.95%
Aetna Small Company VP(2)(3) 0.35% 0.60% 0.95%
Aetna Value Opportunity VP(2)(3) 0.20% 0.60% 0.80%
Calvert Responsibly Invested Balanced Portfolio(4) 0.69% 0.12% 0.81%
Fidelity VIP Equity-Income Portfolio(5) 0.50% 0.08% 0.58%
Fidelity VIP Growth Portfolio(5) 0.60% 0.09% 0.69%
Fidelity VIP Overseas Portfolio(5) 0.75% 0.17% 0.92%
Fidelity VIP II Contrafund Portfolio(5) 0.60% 0.11% 0.71%
Janus Aspen Aggressive Growth Portfolio(6) 0.73% 0.03% 0.76%
Janus Aspen Balanced Portfolio(6) 0.76% 0.07% 0.83%
Janus Aspen Flexible Income Portfolio 0.65% 0.10% 0.75%
Janus Aspen Growth Portfolio(6) 0.65% 0.05% 0.70%
Janus Aspen Worldwide Growth Portfolio(6) 0.66% 0.08% 0.74%
Lexington Natural Resources Trust 1.00% 0.25% 1.25%
Oppenheimer Global Securities Fund 0.70% 0.06% 0.76%
Oppenheimer Strategic Bond Fund 0.75% 0.08% 0.83%
Portfolio Partners, Inc. MFS Emerging Equities Portfolio(7)(8) 0.68% 0.13% 0.81%
Portfolio Partners, Inc. MFS Research Growth Portfolio(7)(8) 0.70% 0.15% 0.85%
Portfolio Partners, Inc. MFS Value Equity Portfolio(7) 0.65% 0.25% 0.90%
Portfolio Partners, Inc. Scudder International Portfolio(7) 0.80% 0.20% 1.00%
Portfolio Partners, Inc. T. Rowe Price Growth Equity Portfolio(7) 0.60% 0.15% 0.75%
</TABLE>
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FEE TABLE - 3
<PAGE>
(1) Certain of the 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) Effective May 1, 1998, the Portfolios' adviser has agreed to waive a portion
of its fee or to reimburse certain expenses so that aggregate expenses do
not exceed the total expenses shown above. These fee waiver/expense
reimbursement arrangements will increase total return and may be modified or
terminated at any time.
Without Fund Annual Operating fee waiver/expense reimbursement arrangements
Management Fees and Total Fund Annual Operating Expenses for the Portfolio
would be higher. Management Fees and Total Expenses would be as follows:
0.60% and 0.83% for Ascent VP; 0.60% and 0.85% for Crossroads VP; 0.60% and
1.24% for Growth VP; 0.65% and 0.98% for High Yield VP; 0.35% and 0.58% for
Index Plus Large Cap VP; 0.40% and 0.73% for Index Plus Mid Cap VP; 0.40%
and 0.73% for Index Plus Small Cap VP; 0.85% and 1.23% for International VP;
0.60% and 0.91% for Legacy VP; 0.75% and 1.08% for Real Estate Securities
VP; 0.75% and 1.35% for Small Company VP; and 0.60% and 1.20% for Value
Opportunity VP, respectively.
(3) Prior to May 1, 1998, the investment adviser provided administrative
services to the Fund and assumed the Fund's ordinary recurring direct costs
under an Administrative Services Agreement. Effective May 1, 1998, the
investment adviser will continue to provide administrative services to the
Fund but will no longer assume all of the Fund's ordinary recurring direct
costs under the Administrative Services Agreement. The Administrative Fee is
0.075% on the first $5 billion in assets and 0.050% on all assets over $5
billion. The "Other Expenses" shown are not based on actual figures for the
year ended December 31, 1997, but reflect the fee payable under the new
Administrative Services Agreement and estimates of the Fund's ordinary
recurring direct costs. High Yield VP, Index Plus Mid Cap VP, Index Plus
Small Cap VP, International VP and Real Estate VP commenced operations in
December 1997, therefore, estimates are based on expenses incurred for
similar funds. Actual expenses incurred may be more or less than the
amounts shown above.
(4) The figures above are based on expenses for the fiscal year 1997, and have
been restated to reflect an increase in transfer agency expenses of 0.01%
for the Portfolio expected to be incurred in 1998. "Management Fees"
includes a performance adjustment, which depending on performance, could
cause the fee to be as high as 0.85% or as low as 0.55%. "Other Expenses"
reflect an indirect fee of 0.03% (relating to an expense offset arrangement
with the Portfolio's custodian). Net fund operating expenses after
reductions for fees paid indirectly (again, restated) would be 0.78%.
(5) A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, certain funds have entered into
arrangements with their custodian whereby credits realized, as a result of
uninvested cash balances were used to reduce custodian expenses. Including
these reductions, the total operating expenses would have been 0.57% for
Equity-Income Portfolio; 0.67% for Growth Portfolio; 0.90% for Overseas
Portfolio, and 0.68% for Contrafund Portfolio.
(6) Management fees for Aggressive Growth, Balanced, Growth and Worldwide Growth
Portfolios reflect a reduced fee schedule effective July 1, 1997. The
management fees shown above are based on the new rate applied to net assets
as of December 31, 1997. Other expenses are based on gross expenses of the
Shares before expense offset arrangements for the fiscal year ended December
31, 1997. The information for each Portfolio is net of fee waivers or
reductions from Janus Capital. Fee reductions for the Aggressive Growth,
Balanced, Growth and Worldwide Growth Portfolios reduce the management fee
to the level of the corresponding Janus retail fund. Other waivers, if
applicable, are first applied against the management fee and then against
other expenses. Without such waivers or reductions, the Management Fee,
Other Expenses and Total Fund Annual Operating Expenses for the Shares would
have been 0.74%, 0.04%, and 0.78% Fund Annual Aggressive Growth Portfolio;
0.77%, 0.06%, and 0.83% for Balanced Portfolio; 0.74%, 0.04%, and 0.78% for
Growth Portfolio; and 0.72%, 0.09%, and 0.81% for Worldwide Growth
Portfolio, respectively. Janus Capital may modify or terminate the waivers
or reductions at any time upon at least 90 days' notice to the Trustees.
(7) Each Portfolio's aggregate expenses are contractually limited to the
advisory and administrative fees disclosed above. The investment adviser
will not seek an increase in its advisory or administrative fee at any time
prior to May 1, 1999.
(8) The advisory fee is 0.70% of the first $500 million in assets and 0.65% on
the excess.
- --------------------------------------------------------------------------------
FEE TABLE - 4
<PAGE>
HYPOTHETICAL ILLUSTRATION (EXAMPLE)
THIS EXAMPLE IS PURELY HYPOTHETICAL. IT SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OR EXPECTED RETURN. ACTUAL EXPENSES
AND/OR RETURN MAY BE MORE OR LESS THAN THOSE SHOWN BELOW.
WITHOUT ADMINISTRATIVE EXPENSE CHARGE:
The following Examples illustrate the expenses that would have been paid
assuming a $1,000 investment in the Contract and a 5% return on assets. This
example assumes that no Administrative Expense Charge is imposed. For the
purposes of these Examples, the maximum maintenance fee of $20.00 that can be
deducted under the Contract has been converted to a percentage of assets equal
to 0.054%
<TABLE>
<CAPTION>
EXAMPLE A EXAMPLE B
--------------------------------------- --------------------------------------
If you withdraw your entire Account If you do not withdraw your Account
Value at the end of the periods shown, Value, or if you annuitize at the end of
you would pay the following expenses, the periods shown, you would pay the
including any applicable deferred following expenses (no deferred sales
sales charge: charge is reflected):
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 Ascent VP $73 $120 $171 $244 $21 $66 $113 $244
Aetna Balanced VP, Inc. $71 $115 $161 $223 $19 $60 $103 $223
Aetna Bond VP $70 $112 $156 $212 $18 $57 $ 98 $212
Aetna Crossroads VP $73 $120 $171 $244 $21 $66 $113 $244
Aetna Growth VP $73 $120 $171 $244 $21 $66 $113 $244
Aetna Growth and Income VP $71 $114 $161 $222 $19 $60 $102 $222
Aetna High Yield VP $73 $120 $171 $244 $21 $66 $113 $244
Aetna Index Plus Large Cap VP $70 $113 $159 $217 $19 $58 $100 $217
Aetna Index Plus Mid Cap VP $71 $115 $161 $223 $19 $60 $103 $223
Aetna Index Plus Small Cap VP $71 $115 $161 $223 $19 $60 $103 $223
Aetna International VP $76 $130 $187 $279 $25 $76 $131 $279
Aetna Legacy VP $73 $120 $171 $244 $21 $66 $113 $244
Aetna Money Market VP $68 $107 $149 $196 $17 $52 $ 90 $196
Aetna Real Estate Securities VP $74 $125 $178 $259 $23 $70 $121 $259
Aetna Small Company VP $74 $125 $178 $259 $23 $70 $121 $259
Aetna Value Opportunity VP $73 $120 $171 $244 $21 $66 $113 $244
Calvert Social Balanced Portfolio $73 $121 $171 $245 $21 $66 $114 $245
Fidelity VIP Equity-Income Portfolio $71 $114 $160 $221 $19 $59 $102 $221
Fidelity VIP Growth Portfolio $72 $117 $165 $232 $20 $63 $107 $232
Fidelity VIP Overseas Portfolio $74 $124 $177 $256 $23 $70 $119 $256
Fidelity VIP II Contrafund Portfolio $72 $118 $166 $234 $20 $63 $108 $234
Janus Aspen Aggressive Growth Portfolio $72 $119 $169 $239 $21 $65 $111 $239
Janus Aspen Balanced Portfolio $73 $121 $172 $247 $22 $67 $115 $247
Janus Aspen Flexible Income Portfolio $72 $119 $168 $238 $21 $64 $111 $238
Janus Aspen Growth Portfolio $72 $117 $166 $233 $20 $63 $108 $233
Janus Aspen Worldwide Growth Portfolio $72 $119 $168 $237 $21 $64 $110 $237
Lexington Natural Resources Trust $77 $133 $192 $289 $26 $79 $136 $289
Oppenheimer Global Securities Fund $72 $119 $169 $239 $21 $65 $111 $239
Oppenheimer Strategic Bond Fund $73 $121 $172 $247 $22 $67 $115 $247
Portfolio Partners MFS Emerging Equities
Portfolio $73 $121 $171 $245 $21 $66 $114 $245
Portfolio Partners MFS Research Growth
Portfolio $73 $122 $173 $249 $22 $67 $116 $249
Portfolio Partners MFS Value Equity
Portfolio $74 $123 $176 $254 $22 $69 $118 $254
Portfolio Partners Scudder International
Growth Portfolio $75 $126 $180 $264 $23 $72 $123 $264
Portfolio Partners T. Rowe Price Growth
Equity Portfolio $72 $119 $168 $238 $21 $64 $111 $238
</TABLE>
- ------------------
*This Example would not apply if a non-lifetime variable annuity option is
selected, and a lump sum settlement is requested before a minimum number of
years of payments (as specified in the Contract) have been completed since the
lump sum payment will be treated as a withdrawal during the Accumulation Period
and will be subject to any deferred sales charge that would then apply. (Refer
to Example A.)
- --------------------------------------------------------------------------------
FEE TABLE - 5
<PAGE>
THIS EXAMPLE IS PURELY HYPOTHETICAL. IT SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OR EXPECTED RETURN. ACTUAL EXPENSES
AND RETURN MAY BE MORE OR LESS THAN THOSE SHOWN BELOW.
WITH ADMINISTRATIVE EXPENSE CHARGE:
The following Examples illustrate the expenses that would have been paid
assuming a $1,000 investment in the Contract and a 5% return on assets. This
example assumes that an Administrative Expense Charge is imposed. For the
purposes of these Examples, the maximum maintenance fee of $20.00 that can be
deducted under the Contract has been converted to a percentage of assets equal
to 0.054%.
<TABLE>
<CAPTION>
EXAMPLE A EXAMPLE B
--------------------------------------- --------------------------------------
If you withdraw your entire Account If you do not withdraw your Account
Value at the end of the periods shown, Value, or if you annuitize at the end of
you would pay the following expenses, the periods shown, you would pay the
including any applicable deferred following expenses (no deferred sales
sales charge: charge is reflected):*
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 Ascent VP $75 $128 $183 $269 $24 $73 $126 $269
Aetna Balanced VP, Inc. $73 $122 $173 $249 $22 $67 $116 $249
Aetna Bond VP $72 $119 $168 $238 $21 $64 $111 $238
Aetna Crossroads VP $75 $128 $183 $269 $24 $73 $126 $269
Aetna Growth VP $75 $128 $183 $269 $24 $73 $126 $269
Aetna Growth and Income VP $73 $122 $173 $248 $22 $67 $115 $248
Aetna High Yield VP $75 $128 $183 $269 $24 $73 $126 $269
Aetna Index Plus Large Cap VP $73 $120 $171 $244 $21 $66 $113 $244
Aetna Index Plus Mid Cap VP $73 $122 $173 $249 $22 $67 $116 $249
Aetna Index Plus Small Cap VP $73 $122 $173 $249 $22 $67 $116 $249
Aetna International VP $78 $137 $199 $304 $27 $84 $143 $304
Aetna Legacy VP $75 $128 $183 $269 $24 $73 $126 $269
Aetna Money Market VP $71 $115 $161 $223 $19 $60 $103 $223
Aetna Real Estate Securities VP $77 $132 $190 $284 $25 $78 $133 $284
Aetna Small Company VP $77 $132 $190 $284 $25 $78 $133 $284
Aetna Value Opportunity VP $75 $128 $183 $269 $24 $73 $126 $269
Calvert Social Balanced Portfolio $75 $128 $183 $270 $24 $74 $126 $270
Fidelity VIP Equity-Income Portfolio $73 $121 $172 $247 $22 $67 $115 $247
Fidelity VIP Growth Portfolio $74 $124 $177 $258 $23 $70 $120 $258
Fidelity VIP Overseas Portfolio $76 $131 $188 $281 $25 $77 $132 $281
Fidelity VIP II Contrafund Portfolio $74 $125 $178 $260 $23 $71 $121 $260
Janus Aspen Aggressive Growth Portfolio $75 $126 $181 $265 $23 $72 $124 $265
Janus Aspen Balanced Portfolio $75 $128 $184 $272 $24 $74 $127 $272
Janus Aspen Flexible Income Portfolio $75 $126 $180 $264 $23 $72 $123 $264
Janus Aspen Growth Portfolio $74 $125 $178 $259 $23 $70 $121 $259
Janus Aspen Worldwide Growth Portfolio $75 $126 $180 $263 $23 $72 $123 $263
Lexington Natural Resources Trust $79 $140 $204 $313 $28 $87 $148 $313
Oppenheimer Global Securities Fund $75 $126 $181 $265 $23 $72 $124 $265
Oppenheimer Strategic Bond Fund $75 $128 $184 $272 $24 $74 $127 $272
Portfolio Partners MFS Emerging Equities
Portfolio $75 $128 $183 $270 $24 $74 $126 $270
Portfolio Partners MFS Research Growth
Portfolio $76 $129 $185 $274 $24 $75 $128 $274
Portfolio Partners MFS Value Equity
Portfolio $76 $130 $187 $279 $25 $76 $131 $279
Portfolio Partners Scudder International
Growth Portfolio $77 $133 $192 $289 $26 $79 $136 $289
Portfolio Partners T. Rowe Price Growth
Equity Portfolio $75 $126 $180 $264 $23 $72 $123 $264
</TABLE>
- ------------------
*This Example would not apply if a non-lifetime variable annuity option is
selected, and a lump sum settlement is requested before a minimum number of
years of payments (as specified in the Contract) have been completed, since the
lump sum payment will be treated as a withdrawal during the Accumulation Period
and will be subject to any deferred sales charge that would then apply. (Refer
to Example A.)
- --------------------------------------------------------------------------------
FEE TABLE - 6
<PAGE>
CONDENSED FINANCIAL INFORMATION
================================================================================
Condensed financial information for the Accumulation Units under the
Contracts is shown in Appendix IV
THE COMPANY
================================================================================
Aetna Life Insurance and Annuity Company (the "Company") is the issuer of
the Contract, and as such, it is responsible for providing the insurance and
annuity benefits under the Contract. The Company is a stock life insurance
company organized under the insurance laws of the State of Connecticut in 1976.
Through a merger, it succeeded to the business of Aetna Variable Annuity Life
Insurance Company (formerly Participating Annuity Life Insurance Company, an
Arkansas life insurance company organized in 1954). The Company is engaged in
the business of issuing life insurance policies and variable annuity contracts
in all states of the United States. The Company's principal executive offices
are located at 151 Farmington Avenue, Hartford, Connecticut 06156.
The Company is a wholly owned subsidiary of Aetna Retirement Holdings,
Inc., which is in turn a wholly owned subsidiary of Aetna Retirement Services,
Inc., and an indirect wholly owned subsidiary of Aetna Inc.
VARIABLE ANNUITY ACCOUNT C
================================================================================
The Company established Variable Annuity Account C (the "Separate
Account") in 1976 as a segregated asset account for the purpose of funding its
variable annuity contracts. The Separate Account is registered as a unit
investment trust under the Investment Company Act of 1940 (the "1940 Act"), and
meets the definition of "separate account" under the federal securities laws.
The Separate Account is divided into "subaccounts" which do not invest directly
in stocks, bonds or other investments. Instead, each Subaccount buys and sells
shares of a corresponding Fund.
Although the Company holds title to the assets of the Separate Account,
such assets are not chargeable with liabilities of any other business conducted
by the Company. Income, gains or losses of the Separate Account are credited to
or charged against the assets of the Separate Account without regard to other
income, gains or losses of the Company. All obligations arising under the
Contracts are obligations of the Company.
INVESTMENT OPTIONS
================================================================================
THE FUNDS
Purchase Payments may be allocated to one or more of the Subaccounts as
designated on the Enrollment Materials. In turn, the Subaccounts invest in the
corresponding Funds at net asset value. The Contract Holder may decide to offer
only a select number of Funds as funding options under its Plan, or may decide
to change which Funds it offers. No more than 18 different investment options
may be selected at any one time, unless you have an outstanding loan, in which
case as of the date of this Prospectus no more than 18 different choices of
investment options may be made during the Accumulation Period. (For Contracts
with a loan, a higher total may be available in the future.) For the purposes
of either limit, each Fund, the Fixed Account, the Fixed Plus Account, and
each classification of GAA counts as one option. If you have an outstanding
loan the limit applies over the entire Accumulation Period. Once an investment
option is selected, it counts towards the limit even if amounts are no longer
allocated to that option. Please check with your local representative or
contact the Company at the toll-free number in the "Inquiries" section of the
Prospectus summary to determine if these limitations apply to you or to
determine if you may select more than 18 investment options during the
Accumulation Period if you have a loan.
Under all Contracts, the Company may add, withdraw or substitute Funds,
subject to the conditions in the Contract and in compliance with regulatory
requirements. The availability of the Funds may also be
- --------------------------------------------------------------------------------
1
<PAGE>
subject to applicable regulatory authorization. Not all Funds may be available
in all jurisdictions, under all Contracts or in all Plans.
The investment results of the Funds described below are likely to differ
significantly and there is no assurance that any of the Funds will achieve
their respective investment objectives. Except where otherwise noted, all of
the Funds are diversified, as defined in the 1940 Act.
[bullet] Aetna Balanced VP, Inc. (formerly Aetna Investment Advisers Fund, Inc)
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 investment
adviser's judgment of which of those sectors or mix thereof offers the
best investment prospects.(1)
[bullet] Aetna Income Shares d/b/a Aetna Bond VP seeks to maximize total
return, consistent with reasonable risk, through investments in a
diversified portfolio consisting primarily of debt securities.(1)
[bullet] Aetna Variable Fund d/b/a Aetna Growth and Income VP seeks to maximize
total return through investments in a diversified portfolio of common
stocks and securities convertible into common stock.(1)
[bullet] Aetna Variable Encore Fund d/b/a Aetna Money Market VP seeks to
provide high current return, consistent with preservation of capital
and liquidity, through investment in high-quality money market
instruments. An investment in the Fund is neither insured nor
guaranteed by the U.S. Government.(1)
[bullet] Aetna Generation Portfolios, Inc.--Aetna Ascent VP (formerly Aetna
Ascent Variable Portfolio) seeks to provide capital appreciation. The
Portfolio is designed for investors who have an investment horizon
exceeding 15 years, and who have a high level of risk tolerance.(1)
[bullet] Aetna Generation Portfolios, Inc.--Aetna Crossroads VP (formerly Aetna
Crossroads Variable Portfolio) seeks to provide total return (i.e.,
income and capital appreciation, both realized and unrealized). The
Portfolio is designed for investors who have an investment horizon
exceeding 10 years and who have a moderate level of risk tolerance.(1)
[bullet] Aetna Generation Portfolios, Inc.--Aetna Legacy VP (formerly Aetna
Legacy Variable Portfolio) seeks to provide total return consistent
with preservation of capital. The Portfolio is designed for investors
who have an investment horizon exceeding five years and who have a low
level of risk tolerance.(1)
[bullet] Aetna Variable Portfolios, Inc.--Aetna Growth VP (formerly Aetna
Variable Growth Portfolio) seeks growth of capital through investment
in a diversified portfolio of common stocks and securities convertible
into common stocks believed to offer growth potential.(1)
[bullet] Aetna Variable Portfolios, Inc.--Aetna High Yield VP seeks high current
income and growth of capital primarily through investment in a
diversified portfolio of fixed income securities rated lower than BBB-
by Standard & Poor's Corporation or lower than Baa3 by Moody's
Investor Services, Inc.(1)
[bullet] Aetna Variable Portfolios, Inc.--Aetna Index Plus Large Cap VP
(formerly Aetna Variable Index Plus Portfolio) seeks to outperform the
total return performance of publicly traded common stocks represented
in the S&P 500 Composite Price Index.(1)
[bullet] Aetna Variable Portfolios, Inc.--Aetna Index Plus Mid Cap VP seeks to
outperform the total return performance of publicly traded common
stocks represented in the S&P 400.(1)
[bullet] Aetna Variable Portfolios, Inc.--Aetna Index Plus Small Cap VP seeks to
outperform the total return performance of publicly traded common
stocks represented by the S&P 600 Small Cap Index, a stock market index
composed of 600 common stocks selected by Standard & Poor's
Corporation.(1)
[bullet] Aetna Variable Portfolios, Inc.--Aetna International VP seeks long-term
capital growth primarily through investment in a diversified portfolio
of common stocks principally traded in countries outside of the United
States. Aetna International VP will not target any given level of
current income.(1)
[bullet] Aetna Variable Portfolios, Inc.--Aetna Real Estate Securities VP seeks
maximum total return primarily through investment in a diversified
portfolio of equity securities issued by real estate companies, the
majority of which are real estate investment trusts (REITs).(1)
- --------------------------------------------------------------------------------
2
<PAGE>
[bullet] Aetna Variable Portfolios, Inc.--Aetna Small Company VP (formerly
Aetna Variable Small Company Portfolio) seeks growth of capital
primarily through investment in a diversified portfolio of common
stocks and securities convertible into common stocks of companies with
smaller market capitalizations.(1)
[bullet] Aetna Variable Portfolios, Inc.--Aetna Value Opportunity VP (formerly
Aetna Variable Capital Appreciation Portfolio) seeks growth of capital
primarily through investment in a diversified portfolio of common
stocks and securities convertible into common stock.(1)
[bullet] Calvert Social Balanced Portfolio (formerly Calvert Responsibly
Invested Balanced Portfolio) is a nondiversified portfolio that seeks
to achieve a total return above the rate of inflation through an
actively managed, nondiversified portfolio of common and preferred
stocks, bonds and money market instruments which offer income and
capital growth opportunity and which satisfy the social criteria
established for the Portfolio.(2)
[bullet] Fidelity Investments Variable Insurance Products Fund--Equity-Income
Portfolio seeks reasonable income by investing primarily in
income-producing equity securities. In selecting investments, the Fund
also considers the potential for capital appreciation.(3)
[bullet] Fidelity Investments Variable Insurance Products Fund--Growth
Portfolio seeks capital appreciation by investing mainly in common
stocks, although its investments are not restricted to any one type of
security.(3)
[bullet] Fidelity Investments Variable Insurance Products Fund--Overseas
Portfolio seeks long-term growth by investing mainly in foreign
securities (at least 65% of the Fund's total assets in securities of
foreign issuers. Foreign investments involve greater risks than U.S.
investments, including political and economic risks and the risk of
currency fluctuation.(3)
[bullet] Fidelity Investments Variable Insurance Products Fund II--Contrafund
Portfolio seeks maximum total return over the long term by investing
mainly in securities of companies whose value the investment adviser
believes is not fully recognized by the public.(3)
[bullet] Janus Aspen Series--Aggressive Growth Portfolio is a nondiversified
portfolio that seeks long-term growth of capital. The Portfolio pursues
its investment objective by normally investing at least 50% of its
equity assets in securities issued by medium-sized companies.
Medium-sized companies are those whose market capitalizations fall
within the range of companies in the S & P MidCap 400 Index, which as
of December 31, 1997 included companies with capitalizations between
approximately $213 million and $13.7 billion, but which is expected to
change on a regular basis.(4)
[bullet] Janus Aspen Series--Balanced Portfolio seeks long-term capital growth,
consistent with preservation of capital and balanced by current income.
The Portfolio pursues its investment objective by, under normal
circumstances, investing 40%-60% of its assets in securities selected
primarily for their growth potential and 40%-60% of its assets in
securities selected primarily for their income potential.(4)
[bullet] Janus Aspen Series--Flexible Income Portfolio seeks to obtain maximum
total return, consistent with preservation of capital. Total return is
expected to result from a combination of current income and capital
appreciation. The Portfolio invests in all types of income-producing
securities and may have substantial holdings of debt securities rated
below investment grade (e.g., junk bonds).(4)
[bullet] Janus Aspen Series--Growth Portfolio seeks long-term growth of capital
in a manner consistent with the preservation of capital. The Portfolio
pursues its investment objective by investing primarily in common
stocks of companies of any size. This Portfolio generally invests in
larger, more established issuers.(4)
- --------------------------------------------------------------------------------
3
<PAGE>
[bullet] Janus Aspen Series--Worldwide Growth Portfolio seeks long-term growth
of capital in a manner consistent with preservation of capital. The
Portfolio pursues its investment objective primarily through
investments in common stocks of foreign and domestic issuers.(4)
[bullet] Lexington Natural Resources Trust is a nondiversified portfolio that
seeks long-term growth of capital through investment primarily in
common stocks of companies which own or develop natural resources and
other basic commodities or supply goods and services to such
companies.
This Fund is only available for investment by Participants who were
directing current allocations into the Fund as of May 1, 1998. As soon
as all such Participants have redirected their allocations to other
investment options, the Fund will be closed to all new investments
(except reinvested dividends and capital gains earned on amounts
already invested in the Fund through the Separate Account and loan
repayments automatically deposited into the Fund pursuant to the
Company's loan repayment procedures).(5)
[bullet] Oppenheimer Global Securities Fund seeks long-term capital appreciation
by investing a substantial portion of its assets in securities of
foreign issuers, "growth-type" companies, cyclical industries and
special situations which are considered to have appreciation
possibilities but which may be considered to be speculative.(6)
[bullet] Oppenheimer Strategic Bond Fund seeks a high level of current income
principally derived from interest on debt securities and seeks to
enhance such income by writing covered call options on debt securities.
The Fund intends to invest principally in: (i) foreign government and
corporate debt securities, (ii) securities of the U.S. Government and
its agencies and instrumentalities ("U.S. Government Securities"), and
(iii) lower-rated high yield domestic debt securities, commonly known
as "junk bonds," which are subject to a greater risk of loss of
principal and nonpayment of interest than higher-rated securities.
These securities may be considered to be speculative. Current income is
not an objective.(6)
[bullet] Portfolio Partners, Inc. MFS Emerging Equities Portfolio seeks to
provide long-term growth of capital. Dividend and interest income from
Portfolio securities, if any, is incidental to the Portfolio's
investment objective.(7)(a)
[bullet] Portfolio Partners, Inc. MFS Research Growth Portfolio seeks long-term
growth of capital and future income.(7)(a)
[bullet] Portfolio Partners, Inc. MFS Value Equity Portfolio seeks capital
appreciation. Dividend income, if any, is a consideration incidental to
the Portfolio's investment objective of capital appreciation.(7)(a)
[bullet] Portfolio Partners, Inc. Scudder International Growth Portfolio seeks
long-term growth of capital primarily through a diversified portfolio
of marketable foreign equity securities.(7)(b)
[bullet] Portfolio Partners, Inc. T. Rowe Price Growth Equity Portfolio seeks
long-term growth of capital and, secondarily, to increase dividend
income by investing primarily in common stocks of well-established
growth companies.(7)(c)
Investment Advisers for each of the Funds:
(1) Aeltus Investment Management, Inc. (adviser)
(2) Calvert Asset Management Company, Inc.
(3) Fidelity Management & Research Company
(4) Janus Capital Corporation
(5) Lexington Management Corporation (adviser); Market Systems Research
Advisors, Inc. (subadviser)
(6) OppenheimerFunds, Inc.
(7) Aetna Life Insurance and Annuity Company (adviser):
(a) Massachusetts Financial Services Company (sub-adviser)
(b) Scudder Kemper Investments, Inc. (sub-adviser)
(c) T. Rowe Price Associates, Inc. (sub-adviser)
Risks Associated with Investment in the Funds. Some of the Funds may use
instruments known as derivatives as part of their investment strategies. The
use of certain derivatives may involve high risk of volatility to a Fund, and
the use of leverage in connection with such derivatives can also increase risk
of losses. Some of the Funds may also invest in foreign or international
securities which involve greater risks than U.S. investments.
- --------------------------------------------------------------------------------
4
<PAGE>
More comprehensive information, including a discussion of potential
risks, is found in the current prospectus for each Fund which is distributed
with and accompanies this Prospectus. You should read the Fund prospectuses and
consider carefully, and on a continuing basis, which Fund or combination of
Funds is best suited to your long-term investment objectives. Additional
prospectuses and Statements of Additional Information for this Prospectus and
for each of the Funds can be obtained from the Company's Home Office at the
address and telephone number listed under the "Inquiries" section of the
Prospectus Summary.
Conflicts of Interest (Mixed and Shared Funding). Shares of the Funds are
sold to each of the Subaccounts for funding the variable annuity contracts
issued by the Company. Shares of the Funds may also be sold to other insurance
companies for the same purpose. This is referred to as "shared funding." Shares
of the Funds may also be used for funding variable life insurance contracts
issued by the Company or by third parties. This is referred to as "mixed
funding."
Because the Funds available under the Contract are sold to fund variable
annuity contracts and variable life insurance policies issued by us or by other
companies, certain conflicts of interest could arise. If a conflict of interest
were to occur, one of the separate accounts might withdraw its investment in a
Fund, which might force that Fund to sell portfolio securities at
disadvantageous prices, causing its per share value to decrease. Each Fund's
Board of Directors or Trustees has agreed to monitor events in order to
identify any material irreconcilable conflicts which might arise and to
determine what action, if any, should be taken to address such conflict.
CREDITED INTEREST OPTIONS
Purchase Payments may be allocated to one or more of the Credited
Interest Options available under the Contract, as described below. Under group
Contracts, the Contract Holder may elect not to offer all Credited Interest
Options under its Plan.
[bullet] The Guaranteed Accumulation Account (GAA) is a credited interest
option through which we guarantee stipulated rates of interest for
stated periods of time. Amounts must remain in the GAA for the full
guaranteed term to receive the quoted interest rates, or a market
value adjustment (which may be positive or negative) will be applied.
(See Appendix I)
[bullet] The Fixed Account is a part of the Company's general account. The
Fixed Account guarantees a minimum interest rate, as specified in the
Contract. The Company may credit higher interest rates from time to
time. Transfers from the Fixed Account are limited. (See Appendix II.)
[bullet] The Fixed Plus Account is also a part of the Company's general account
and guarantees a minimum interest rate, as specified in the Contract.
The Company may credit higher interest rates in its discretion.
Withdrawals and transfers from the Fixed Plus Account are limited.
(See Appendix III.)
PURCHASE
================================================================================
CONTRACT AVAILABILITY
The Contracts are designed to fund Plans adopted by (1) public school
systems and certain tax-exempt (Section 501(c)(3)) organizations for their
employees under Section 403(b) of the Code, and (2) qualified defined
contribution plans under Section 401(a) of the Code. The Contract Holder must
notify the Company of the applicability of Title I of the Employee Retirement
Income Security Act of 1974 ("ERISA"), as amended by subsequent law, including
the Retirement Equity Act of 1984, to the Plan.
Eligible participants in the Plan seeking to invest and accumulate money
for retirement can purchase individual interests in group Contracts, or under
some Plans, they may purchase individual Contracts. The group Contract is
generally owned by the employer or association, and individual accounts are
established for each Participant. An individual Contract will be owned by the
Participant under Plans that permit such purchase. In both cases, a
Participant's interest in the Contract is known as his or her "Account."
For group Contracts issued in connection with Section 403(b) Plans, the
employer has no right, title or interest in the amounts held under the Contract
or in the Account; Participants make all elections under the Contract. For
group Contracts issued in connection with Section 401(a) Plans, the Participant
has such rights as
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5
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are set forth in the Plan. Under individual Contracts, Participants have all
contract rights.
PURCHASING INTERESTS IN THE CONTRACT
Eligible organizations may acquire a group Contract by submitting the
appropriate forms to the Company. Once we approve the forms, a group Contract
is issued to the employer or association as the group Contract Holder.
Participants may purchase interests in a group Contract by submitting an
enrollment form to the Company. For Plans that allow Participants to purchase
an individual contract, Participants will submit an individual application to
the Company. The enrollment forms and individual application are collectively
referred to in this Prospectus as the "Enrollment Materials."
The Company must accept or reject the Enrollment Materials within two
business days of receipt. If the Enrollment Materials are incomplete, the
Company may hold any forms and accompanying Purchase Payments for five days.
Purchase Payments may be held for a longer period pending acceptance of the
forms only with consent of the Participant, or under certain circumstances
described below, with the consent of the group Contract Holder. Under limited
circumstances the Company may agree, with respect to a particular Plan, to hold
Purchase Payments for longer than the five business days, based on the consent
of the group Contract Holder, in which case these Purchase Payments will be
deposited in the Aetna Money Market VP Subaccount until the forms are
completed.
PURCHASE PAYMENTS
Generally, two types of Purchase Payments may be made under the Contract,
and depending upon which type of payment is made, different Accounts may be
established for each payment type. Continuing, periodic payments will be placed
in "Installment Purchase Payment Accounts." Lump-sum transfers of amounts
accumulated under a pre-existing plan may be placed in "Single Purchase Payment
Accounts" in accordance with the Company's procedures and minimums in effect at
the time of purchase. The Code imposes a maximum limit on annual Purchase
Payments which may be excluded from a Participant's gross income. (See "Tax
Status.")
Allocation of Purchase Payments. Purchase Payments will initially be
allocated to the Subaccounts or Credited Interest Options as specified by the
Participant on the Enrollment Materials. Changes in such allocation may be made
in writing or by telephone transfer. Allocations must be in whole percentages,
and there may be limitations on the number of investment options that can be
selected during the Accumulation Period. (See "Investment Options--The Funds.")
TRANSFER CREDITS
The Company may provide a transfer credit on "transferred assets,"
subject to certain conditions and state approvals. Transferred assets are the
value of contributions made on your behalf under this Plan or a prior plan
before such amounts are applied to this Contract. The transfer credit will
equal a percentage of the transferred assets applied to the Contract that
remain in the Contract after a specified period of time. Once a transfer credit
is applied to your Contract, all provisions of the Contract apply. This benefit
is provided on a nondiscriminatory basis. If a transfer credit is due under the
Contract, you will be provided with additional information specific to the
Contract.
RIGHT TO CANCEL
Participation under the Contract may be canceled without penalty by
returning it (or other document evidencing your interest) to the Company with a
written notice of your intent to cancel. In most states, you have ten days to
exercise this right; some states allow you a longer free-look period. When we
receive your request for cancellation, we will return your Account Value,
unless the laws of the state in which the Contract was issued require that we
return the initial Purchase Payment (if greater than the Account Value). In
states that do not require a return of Purchase Payments, you bear the entire
investment risk for amounts allocated among the Subaccounts during the free
look period. Account Values will be determined as of the next Valuation Date
following our receipt of your request for cancellation at our Home Office.
CHARGES AND DEDUCTIONS
================================================================================
DAILY DEDUCTIONS FROM THE SEPARATE ACCOUNT
Mortality and Expense Risk Charge. The Company makes a daily deduction
from each of the Subaccounts for the mortality and expense risk charge. The
Charge is equal, on an annual basis, to 1.25% of the daily net assets of the
Subaccounts and compensates the
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Company for the assumption of the mortality and expense risks under the
Contract. The mortality risks are those assumed for our promise to make
lifetime payments according to annuity rates specified in the Contract. The
expense risk is the risk that the actual expenses for costs incurred under the
Contract will exceed the maximum costs that can be charged under the Contract.
The mortality and expense risk charge may be reduced for a Contract Holder
under various conditions as agreed to by Us and the Contract Holder in writing.
Whether such a reduction is available will be determined by the Company based
upon consideration of some or all of the following factors:
[bullet] The size of the prospective group.
[bullet] The number of eligible participants and the program's participation
rate.
[bullet] The projected annual Purchase Payments for the number of Participants
estimated to choose the Contract.
[bullet] The frequency of projected distributions.
[bullet] The type and level of administrative and sales services to be
provided.
[bullet] The Contract Holder's support and involvement in the communication,
enrollment, and Participant education.
[bullet] The frequency, consistency and method of submitting Purchase Payments.
[bullet] The retirement program design. For example, the program may favor the
stability of invested assets and limit the conditions for withdrawals,
loans and investment options which in turn will lower administrative
expenses.
[bullet] The type and level of other factors that affect the overall
administrative expense.
Prospective purchasers eligible for a reduction in the mortality and
expense risk charge will be notified of their eligibility and the amount of the
charge applicable to their Contract prior to the Company's acceptance of an
application for the Contract. We may also make reductions after the Contract
has been issued, according to the Company's rules in effect at the time there
is a material change in any of the above factors. We will notify the Contract
Holder of any reduction prior to it occurring. Any reduction of the mortality
and expense risk charge will not be unfairly discriminatory against any person.
If the amount deducted for mortality and expense risks is not sufficient
to cover the mortality costs and expense shortfalls, the loss is borne by the
Company. If the deduction is more than sufficient, the excess may be used to
recover distribution expenses relating to the Contracts and as a source of
profit to the Company. The Company expects to make a profit from the mortality
and expense risk charge.
Administrative Expense Charge. The Company reserves the right to make a
deduction from each of the Subaccounts for an administrative 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.
The administrative expense charge during the Accumulation Period equals,
on an annual basis, 0.25% for Contracts effective prior to October 31, 1996
where the number of Participants with assets in the Contract is less than 30 as
of November 30, 1996 and the Contract Holder has chosen not to elect one of the
Company's electronic standards for cash collection and application of
participant contribution data. There is currently no administrative expense
charge assessed during the Accumulation Period for any other Contracts.
In addition, the administrative expense charge will not be imposed for
participants who enrolled in a group contract prior to November 5, 1984, for
any participants in individual Contracts issued prior to November 5, 1984, or
for Contracts issued to public school systems.
During the Annuity Period, the administrative expense charge equals, on
an annual basis, 0.25% of the daily net assets allocated to the Subaccounts for
all Participants who enrolled in a group Contract or became covered under an
individual Contract on or after November 5, 1984.
MAINTENANCE FEE
During the Accumulation Period, the Company will deduct an annual
maintenance fee from each Installment Purchase Payment Account on its
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<PAGE>
anniversary date. The maintenance fee is to reimburse the Company for some of
its administrative expenses relating to the establishment and maintenance of
the Accounts.
The maximum maintenance fee that can be deducted under the Contract is
$20. However, under group Contracts the maintenance fee may be reduced or
eliminated depending upon certain criteria described below. The maintenance fee
will be deducted on a pro rata basis from each Subaccount in which you have an
interest. If the Account Value is withdrawn, the full maintenance fee will be
deducted at the time of withdrawal.
Reduction or Elimination of the Maintenance Fee. Under group Contracts,
the annual maintenance fee may be reduced or eliminated under various
conditions as agreed to by us and by the Contract Holder in writing. Any
reduction or elimination of the annual maintenance fee will reflect differences
in administrative costs and services after taking into consideration factors
such as the following:
[bullet] the size, characteristics, and nature of the group to which a Contract
is issued;
[bullet] the level of our anticipated expenses in administering the Contract,
such as billing for Purchase Payments, producing periodic reports,
providing for the direct payment of Contract charges rather than
having them deducted from Account Values, and any other factors
pertaining to the level and expense of administrative services which
will be provided under the Contract.
Any reduction or elimination of maintenance fees will not be unfairly
discriminatory against any person. We will make any reduction in annual
maintenance fees according to our own rules in effect at the time an
application for a Contract is approved. We may also make reductions after the
Contract has been issued according to the Company's rules in effect at the time
there is a material change in any of the above factors. We will notify the
Contract Holder of any reduction prior to it occurring. We reserve the right to
change these rules from time to time.
DEFERRED SALES CHARGE
Withdrawals of all or a portion of the Account Value may be subject to a
deferred sales charge. The deferred sales charge is a percentage of the amounts
withdrawn from the Subaccounts, the Fixed Account and the Guaranteed
Accumulation Account. No deferred sales charge is deducted from amounts
withdrawn from the Fixed Plus Account.
For Installment Purchase Payment Accounts, the deferred sales charge is
based on the number of completed Purchase Payment Periods. For Single Purchase
Payment Accounts (and for all Accounts under Contracts issued to the State of
Montana and the Board of Trustees-University of Illinois), it is based on the
number of Account Years that have elapsed since the Purchase Payments were
made. The amount of the deferred sales charge is determined in accordance with
the schedule set forth in the following tables:
INSTALLMENT PURCHASE PAYMENT ACCOUNT:
Purchase Payment Deferred Sales
Periods Completed* Charge Deduction
- -----------------------------------------------
Less than 5 5%
5 or more but less than 7 4%
7 or more but less than 9 3%
9 or more but less than 10 2%
More than 10 0%
SINGLE PURCHASE PAYMENT ACCOUNT:
Account Years Deferred Sales
Completed Charge Deduction
- ----------------------------------------------
Less than 5 5%
5 or more but less than 6 4%
6 or more but less than 7 3%
7 or more but less than 8 2%
8 or more but less than 9 1%
9 or more 0%
Generally, if you transfer the total account value under another similar
annuity contract issued by the Company to an Account under this Contract, the
effective date of the new Account will be the same effective date as your
former contract for the purpose of calculating the applicable deferred sales
charge under this Contract.
A deferred sales charge will not be deducted from any portion of the
Account Value if the withdrawal is:
[bullet] applied to provide Annuity benefits;
[bullet] taken on or after the tenth anniversary of the effective date of the
Account;
[bullet] paid due to your death before Annuity payments begin;
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[bullet] made due to the election of a Systematic Distribution Option(s)(see
"Systematic Distribution Options");
[bullet] paid where the Account Value is $3,500 or less and no amount has been
withdrawn, taken as a loan, or used to purchase Annuity benefits
during the prior 12 months;
[bullet] subject to state regulatory approval, paid as a premium for a Single
Premium Immediate Annuity issued by the Company or one of its
affiliates, provided that the "Right to Cancel" under such other
annuity contract is not exercised by the Participant. An exercise of
the "Right to Cancel" under such other annuity contract shall be
treated as a request for Reinstatement under this Contract of the
amount refunded, and, at the option of the Participant, may then be
withdrawn subject to any Deferred Sales Charge applicable to this
Contract at the time the Account Value was first applied toward such
other annuity contract; or
[bullet] taken from an installment Purchase Payment Account by a Participant
who is at least age 59 1/2 and who has completed nine Purchase Payment
Periods.
The deduction for the deferred sales charge will not exceed 8.5% of the
total Purchase Payments actually made to the Account. The Company does not
anticipate that the deferred sales charge will cover all sales and
administrative expenses which it incurs in connection with the Contract. The
difference will be covered by the general assets of the Company which are
attributable, in part, to mortality and expense risk charges under the Contract
described above.
Free Withdrawals. For Participants between the ages of 59 1/2 and 70 1/2,
up to 10% of the current Account Value may be withdrawn during each calendar
year without imposition of a Deferred Sales Charge. The free withdrawal applies
only to the first partial withdrawal in each calendar year. The 10% amount will
be based on the Account Value calculated on the Valuation Date next following
our receipt of your request for withdrawal. Any outstanding contract loans are
excluded from the Account Value when calculating the 10% free withdrawal
amount. This provision does not apply to a full withdrawal of the Account, or
to partial withdrawals due to a default on a contract loan (see "Contract
Loans"). This provision may not be exercised if SWO is elected. ("Systematic
Distribution Options.")
Reduction or Elimination of the Deferred Sales Charge. For a particular
plan, we may reduce, waive or eliminate the deferred sales charge. Any
reduction, waiver or elimination of such charges will reflect differences or
expected differences in the amounts of unrecovered distribution costs or
services of the types that the charge is intended to defray. When considering
whether to reduce or eliminate such charges or to grant such a waiver, we will
take into account factors which may include the following:
[bullet] the number of participants under the Plan;
[bullet] the expected level of assets or cash flow under the Plan;
[bullet] the level of agent involvement in sales activities;
[bullet] the level of our sales-related expenses;
[bullet] the specific distribution provisions under the Plan;
[bullet] the Plan's purchase of one or more other variable annuity contracts
from us and the features of those contracts;
[bullet] the level of employer involvement in determining eligibility for
distributions under the Contract; and
[bullet] our assessment of financial risk to the Company relating to
surrenders.
Any reduction, waiver or elimination of deferred sales charges will not
be unfairly discriminatory against any person.
We may also negotiate provisions regarding the deferred sales charge with
respect to Contracts issued to certain employer groups or associations which
have negotiated on behalf of its employees. All variations in, or elimination
of, provisions regarding the deferred sales charge resulting from such
negotiations will be offered uniformly to all employees within the group. For
specific information on fees applicable to your Account, please call the number
listed under the "Inquiries" section.
We will make any reduction in deferred sales charge according to our own
rules in effect at the time an application for a Contract is approved. We
reserve the right to change these rules from time to time.
DEFERRED SALES CHARGE SCHEDULE FOR GAA FOR CERTAIN NEW YORK CONTRACTS
The following deferred sales charge schedule applies for withdrawals from
the Guaranteed
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Accumulation Account for group Installment and Single Purchase Payment master
Contracts that offer such option which are issued after July 29, 1993 in the
State of New York. This schedule is based on the number of completed Account
Years for Single and Installment Purchase Payment Contracts as follows:
Completed Deferred Sales
Account Years Charge Deduction
- ----------------------------- -----------------
Less than 3 5%
3 or more but less than 4 4%
4 or more but less than 5 3%
5 or more but less than 6 2%
6 or more but less than 7 1%
7 or more 0%
FUND EXPENSES
Each Fund incurs certain expenses which are paid out of its net assets.
These expenses include, among other things, the investment advisory or
"management" fee. The expenses of the Funds are set forth in the Fee Table in
this Prospectus and described more fully in the accompanying Fund prospectuses.
PREMIUM AND OTHER TAXES
Several states and municipalities impose a premium tax on Annuities.
These taxes currently range from 0% to 4%. The Company reserves the right to
deduct premium tax against Purchase Payments or Account Values at anytime, but
no earlier than when we have a tax liability under state law. The Company's
current practice is to deduct for premium taxes at the time of complete
withdrawal or annuitization. In addition to the premium tax, the Company
reserves the right to assess a charge for any state or federal taxes due
against the Contract or the Separate Account assets. (See "Tax Status.")
CONTRACT VALUATION
================================================================================
ACCOUNT VALUE
Until the Annuity Date, the Account Value is the total dollar value of
amounts held in your Account as of any Valuation Date. The Account Value at any
given time is based on the value of the units held in each Subaccount, plus the
value of amounts held in any of the Credited Interest Options.
ACCUMULATION UNITS
The value of your interests in a Subaccount is expressed as the number of
"Accumulation Units" that you hold multiplied by an "Accumulation Unit Value"
(or "AUV") for each unit. The AUV on any Valuation Date is determined by
multiplying the value on the immediately preceding Valuation Date by the net
investment factor of that Subaccount for the period between the immediately
preceding Valuation Date a and the current Valuation Date. (See "Net Investment
Factor" below.) The Accumulation Unit Value will be affected by the investment
performance, expenses and charges of the applicable Fund and is reduced each
day by a percentage that accounts for the daily assessment of mortality and
expense risk charges and the administrative charge (if any).
Initial Purchase Payments will be credited to your Account at the AUV next
computed following our acceptance of the Enrollment Materials, as described
under "Purchase--Purchasing Interests in the Contract." Each subsequent Purchase
Payment (or amount transferred) received by the Company by the close of business
of the New York Stock Exchange will be credited to your Account at the AUV next
computed following our receipt of your payment or transfer request. The value of
an Accumulation Unit may increase or decrease.
NET INVESTMENT FACTOR
The net investment factor is used to measure the investment performance
of a Subaccount from one Valuation Date to the next. The net investment factor
for a Subaccount for any valuation period is equal to the sum of 1.0000 plus
the net investment rate. The net investment rate equals:
(a) the net assets of the Fund held by the Subaccount on the current
Valuation Date, minus
(b) the net assets of the Fund held by the Subaccount on the preceding
Valuation Date, plus or minus
(c) taxes or provisions for taxes, if any, attributable to the operation
of the Subaccount;
(d) divided by the total value of the Subaccount's Accumulation and
Annuity Units on the preceding Valuation Date;
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(e) minus a daily charge for mortality and expense risks and up to 0.25%
as an administrative expense charge.
The net investment rate may be either positive or negative.
TRANSFERS
================================================================================
At any time prior to the Annuity Date, you can transfer amounts held
under your Contract from one Subaccount to another. Transfers between the
Credited Interest Options and the Subaccounts are subject to certain
restrictions. (See Appendices I, II and III.) A request for transfer can be
made either in writing or by telephone (See "Telephone Transfers" below). All
transfers must be in accordance with the terms of the Contract and your Plan,
as applicable.
The Company currently allows unlimited transfers of accumulated amounts
to available investment options without charge. The minimum transfer amount may
not be less than $500. However, the total number of investment options that you
may select at any one time is limited. (See "Investment Options--The Funds.")
Any transfer will be based on the Accumulation Unit Value next determined after
the Company receives a valid transfer request at its Home Office. Transfers are
not available during the Annuity Period.
TELEPHONE TRANSFERS
Subject to the Contract Holder's approval, You automatically have the
right to make transfers among Funds by telephone. We have enacted procedures to
prevent abuses of Account transactions by telephone, including requiring the
use of a personal identification number (PIN) to execute transactions. You are
responsible for safeguarding your PIN, and for keeping Account information
confidential. Although the Company's failure to follow reasonable procedures
may result in the Company's liability for any losses due to unauthorized or
fraudulent telephone transfers, the Company will not be liable for following
instructions communicated by telephone which it reasonably believes to be
genuine. Any losses incurred pursuant to actions taken by the Company in
reliance on telephone instructions reasonably believed to be genuine shall be
borne by you. To ensure authenticity, we record all calls on the 800 line.
Note: all Account information and transactions permitted are subject to the
terms of the Plan(s).
DOLLAR COST AVERAGING PROGRAM
You may establish automated transfers of Account Values on a monthly or
quarterly basis through the Company's Dollar Cost Averaging Program, if
available under your Plan*. There is no additional charge for the Program.
Dollar Cost Averaging is a system for investing a fixed amount of money at
regular intervals over a period of time. Dollar Cost Averaging does not ensure
a profit nor guarantee against loss in a declining market. You should consider
your financial ability to continue purchases through periods of low price
levels. Please refer to the "Inquiries" section of the Prospectus Summary which
describes how you can obtain further information.
* Effective May 1, 1998, dollar cost averaging is not permitted into the
Lexington Natural Resources Trust Subaccount.
WITHDRAWALS
================================================================================
All or a portion of the Account Value may be withdrawn at any time during
the Accumulation Period, subject to limitations on withdrawals from the Fixed
Plus Account and to the withdrawal restrictions under Section 403(b) Contracts
described below. To request a withdrawal, you must properly complete a
disbursement form and send it to our Home Office. Payments for withdrawal
requests will be made in accordance with SEC requirements, but normally not
later than seven calendar days following our receipt of a disbursement form.
Withdrawals may be requested as in one of the following forms:
[bullet] Full Withdrawal of an Account: The amount paid upon a full withdrawal
will be the Account Value allocated to the Subaccounts, the Guaranteed
Accumulation Account (plus or minus a market value adjustment) (see
Appendix I), and the Fixed Account, minus any applicable deferred
sales charge and maintenance fee due, plus the amount available
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for withdrawal from the Fixed Plus Account (see Appendix III).
[bullet] Partial Withdrawals (Percentage): The amount paid will be the
percentage of the Account Value requested minus any applicable
deferred sales charge; however, the amounts available for withdrawal
from the Fixed Plus Account is limited (see Appendix III).
[bullet] Partial Withdrawal (Specified Dollar Amount): The amount paid will be
the dollar amount requested. However, the amount withdrawn from the
Account will equal the amount requested plus any applicable deferred
sales charge. The amount available for withdrawal from the Fixed Plus
Account is limited (see Appendix III).
For any partial withdrawal, amounts will be withdrawn proportionately
from each Subaccount or Credited Interest Option in which the Account is
invested, unless you request otherwise in writing. All amounts paid will be
based on Account Values as of the next Valuation Date after we receive a
request for withdrawal at our Home Office, or on such later date as the
disbursement form may specify. A 20% federal income tax may be withheld from
amounts paid directly to you. (See "Tax Status--Contracts Used with Certain
Retirement Plans.")
Withdrawal Restrictions from 403(b) Plans. Under Section 403(b)
Contracts, a withdrawal of salary reduction contributions and earnings on such
contributions is generally prohibited prior to the Participant's death,
disability, attainment of age 59 1/2, separation from service or financial
hardship. (See "Tax Status.")
Restrictions on Withdrawals Under the Texas Optional Retirement Program.
A Participant in the Texas Optional Retirement Program may not elect to receive
any form of distribution from the Contract before retirement, except upon
becoming totally disabled or terminating employment with the Texas public
institutions of higher learning. These restrictions limit the conditions under
which a Participant may exercise the right to a full or partial withdrawal of
Account Values, and the right to advance the date on which Annuity payments are
to begin. The Company may require verification of eligibility from the employer
prior to any distributions from the Contract. These restrictions are imposed by
reason of an opinion of the Texas Attorney General interpreting applicable
Texas law.
Restrictions on Withdrawals Under the Ball State University Plan. In
connection with the Ball State University Alternate Pension Plan only, the
Participant may not withdraw Account Values attributable to employer
contributions and applicable earnings under the Alternate Pension Plan
("Employer Account Value") unless the Participant's employment is terminated
with Ball State University due to the Participant's death, retirement or
separation from service. The Company reserves the right to require satisfactory
documentation that the Participant is no longer providing service to Ball State
University before a withdrawal request payable directly to a Participant will
be considered in good order. The Contract Holder may withdraw the Employer
Account Value without regard to this restriction, and Participants may transfer
Employer Account Values pursuant to an Internal Revenue Service Revenue Ruling
90-24 transfer ("90-24 Transfer") without regard to this restriction. No
deferred sales charge will apply to the first 20% of such Employer Account
Value transferred pursuant to a 90-24 Transfer in a calendar year. This waiver
does not apply to a transfer of the full Employer Account Value pursuant to a
90-24 Transfer.
REINVESTMENT PRIVILEGE
Within 30 days after a withdrawal, if allowed by law, a Participant may
elect to reinvest all or a portion of the proceeds received for the full
withdrawal of an Account. Reinvested amounts must be received by the Company
within 60 days of the withdrawal. Accumulation Units will be credited to the
Account for the amount reinvested, as well as 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 amounts reinvested. Reinvested
amounts will be reallocated to the applicable investment options in the same
proportion as they were allocated at the time of withdrawal. Accumulation Units
will be credited to your Account based on the Accumulation Unit Value next
computed following our receipt of your request along with the amount to be
reinvested. See Appendix I for a discussion of amounts withdrawn from GAA and
then reinvested. The reinvestment privilege may be used only once. If you are
contemplating reinvestment, you should seek competent advice regarding the tax
consequences associated with such a transaction.
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CONTRACT LOANS
================================================================================
During the Accumulation Period, Participants in 403(b) Plans may request
a loan from their Account Value, if allowed by their Plan. Loans can only be
taken from those Account Values held in the Subaccounts or from those Credited
Interest Options that allow loans. (See Appendices I, II and III.) A loan may
be obtained by reviewing and reading the terms of the loan agreement, properly
completing a loan request form and submitting it to the Company's Home Office.
Loans are not available from Contracts issued to 401(a) Plans, unless provided
for under your Contract.
SYSTEMATIC DISTRIBUTION OPTIONS
================================================================================
The Company offers certain withdrawal options under the Contract that are
not considered annuity options ("Systematic Distribution Options"). To exercise
these options, your Account Value must meet the minimum dollar amounts and age
criteria applicable to that option.
The Systematic Distribution Options currently available under the
Contract include the following:
[bullet] SWO--Systematic Withdrawal Option. SWO is a series of partial
withdrawals from your Account based on a payment method you select. It
is designed for those who want a periodic income while retaining
investment flexibility for amounts accumulated under a Contract. (This
option may not be elected if you have an outstanding contract loan.)
[bullet] ECO--Estate Conservation Option. ECO offers the same investment
flexibility as SWO but is designed for those who want to receive only
the minimum distribution that the Code requires each year. Under ECO,
the Company calculates the minimum distribution amount required by law
at the later of age 70 1/2 or retirement, or for 5% owners at age
70 1/2 and pays you that amount once a year.
Other Systematic Distribution Options may be added from time to time.
Additional information relating to any of the Systematic Distribution Options
may be obtained from your local representative or from the Company at its Home
Office.
If you select one of the Systematic Distribution Options, you will retain
all of the rights and flexibility permitted under the Contract during the
Accumulation Period. Your Account Value will continue to be subject to the
charges and deductions described in this Prospectus. Taking a withdrawal under
one of these Systematic Distribution Options may have tax consequences. Any
person concerned about tax implications should consult a competent tax advisor
prior to election an option.
Once you elect a Systematic Distribution Options, you may revoke it any
time by submitting a written request to our Home Office. Once an option is
revoked, it may not be elected again, nor may any other Systematic Distribution
Options be elected unless permitted by the Code. The Company reserves the right
to discontinue the availability of one or all of these Systematic Distribution
Options at any time, and/or to change the terms of future elections.
DEATH BENEFIT DURING ACCUMULATION PERIOD
================================================================================
The Contract provides that a death benefit is payable to the
Beneficiary(ies) upon the death of the Participant before the Annuity Date. The
amount of the death benefit will be equal to the Account Value. Death benefit
proceeds may be paid to the Beneficiary:
[bullet] in a lump sum;
[bullet] in accordance with any of the Annuity Options available under the
Contract; or
[bullet] under any Systematic Distribution Options available under the Contract
(if the Beneficiary is your spouse).
The Beneficiary may instead elect one of the following two options;
however, the Code limits how
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long the death benefit proceeds may be left in these options (see below):
[bullet] to leave the Account Value invested in the Contract; or
[bullet] to leave the Account Value on deposit in the Company's general
account, and to receive monthly, quarterly, semi-annual or annual
interest payments at the interest rate then being credited on such
deposits. The balance on deposit can be withdrawn at any time or
applied to an Annuity Option.
When paying the Beneficiary, we will determine the Account Value on the
Valuation Date following the date on which we receive proof of death acceptable
to the Company. Interest, if any, will be paid from the date of death at a rate
no less than required by law. We will mail payment to the Beneficiary within
seven days after we receive proof of death.
The Code requires that distribution of death proceeds begin within a
certain period of time. Generally, either payments must begin by December 31 of
the year following the year of your death, or the entire value of your benefits
must be distributed by December 31 of the fifth year following the year of your
death. If your Beneficiary is your spouse, he or she is not required to begin
distributions until the year you would have attained age 70 1/2. In no event may
payments extend beyond the life expectancy of the Beneficiary or any period
certain greater than the Beneficiary's life expectancy. If no elections are
made, no distributions will be made. Failure to commence distributions within
the above time periods can result in tax penalties. Regardless of the method of
payment, death benefit proceeds will generally be taxed to the Beneficiary in
the same manner as if you had received those payments. (See "Tax Status.")
ANNUITY PERIOD
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ANNUITY PERIOD ELECTIONS
The Code generally requires that minimum annual distributions of the
Account Value must begin by April 1st of the calendar year following the
calendar year in which a Participant attains age 70 1/2 or retires, if later. In
addition, distributions must be in a form and amount sufficient to satisfy the
Code requirements. These requirements may be satisfied by the election of
certain Annuity Options or Systematic Distribution Options. (See "Tax Status.")
At least 30 days prior to the Annuity Date, you must notify us in writing
of the following:
[bullet] the date on which you would like to start receiving annuity payments;
[bullet] the Annuity Option under which you want your payments to be calculated
and paid;
[bullet] whether the payments are to be made monthly, quarterly, semi-annually
or annually; and
[bullet] the investment option(s) used to provide annuity payments (i.e., a
fixed annuity using the general account or any of the Subaccounts
available at the time of annuitization). As of the date of this
Prospectus, Aetna Balanced VP, Inc., Aetna Bond VP and Aetna Growth
and Income VP are the only Subaccounts available.
Annuity Payments will not begin until you have selected an Annuity
Option. Until a date and option are elected, the Account will continue in the
Accumulation Period. If your Plan is subject to ERISA, you must also submit the
appropriate joint and survivor annuity waiver and spousal consent form(s) to
us. Once Annuity Payments begin, the Annuity Option may not be changed, nor may
transfers be made among the investment option(s) selected.
ANNUITY OPTIONS
You may choose one of the following Annuity Options:
Lifetime Annuity Options:
[bullet] Option 1--Life Annuity--An annuity with payments ending on the
Annuitant's death.
[bullet] Option 2--Life Annuity with Guaranteed Payments-- An annuity with
payments guaranteed for 5, 10, 15 or 20 years, or such other periods
as the Company may offer at the time of annuitization.
[bullet] Option 3--Life Income based Upon Lives of Two Payees--An annuity will
be paid during the lives of the Annuitant and a second Annuitant, with
100%, 66 2/3% or 50% of the payment to continue after the first death,
or 100% of the payment to continue at the death of the second
Annuitant and 50% of the payment to continue at the death of the
Annuitant.
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[bullet] Option 4--Life Income based Upon the Lives of Two Payees--An annuity
with payments for a minimum of 120 months, with 100% of the payment to
continue after the first death.
If Option 1 or 3 is elected, it is possible that only one Annuity Payment
will be made if the Annuitant under Option 1, or the surviving Annuitant under
Option 3, should die prior to the due date of the second Annuity Payment. Once
lifetime Annuity payments begin, the Annuitant cannot elect to receive a
lump-sum settlement.
Non-lifetime Annuity Options:
[bullet] Option 1--Payments for a Specified Period-- payments will continue for
a specified period of time, as provided for under your Contract.
Under the non-lifetime option, the type of annuity available (fixed or
variable) is determined by the investment options used prior to annuitization.
For amounts held in the Fixed Plus Account, the annuity must be paid on a fixed
basis. For amounts held in the Subaccounts, the Guaranteed Accumulation Account
or the Fixed Account, an annuity may be selected on a fixed or variable basis.
(Under Contracts issued to the State of Montana and the Board of Trustees--
University of Illinois, for amounts held in any investment option, the
non-lifetime option is available only on a fixed basis.) If this option is
elected on a variable basis, the Annuitant may request at any time during the
payment period that the present value of all or any portion of the remaining
variable payments be paid in one sum. However, any lump-sum elected before a
minimum number of years of payments (as provided in your Contract) have been
completed will be treated as a withdrawal during the Accumulation Period and any
applicable deferred sales charge will be assessed. (See "Charges and
Deductions--Deferred Sales Charge.") The non-lifetime option is not available on
a variable basis under a Contract which provides for immediate Annuity benefits.
We may also offer additional Annuity Options under your Contract from
time to time.
ANNUITY PAYMENTS
Date Payouts Start. When payments start, the age of the Annuitant plus
the number of years for which payments are guaranteed must not exceed 95.
Annuity payments may not extend beyond (a) the life of the Annuitant, (b) the
joint lives of the Annuitant and beneficiary, (c) a period certain greater than
the Annuitant's life expectancy, or (d) a period certain greater than the joint
life expectancies of the Annuitant and beneficiary.
Amount of Each Annuity Payment. The amount of each payment depends on the
size of your Account Value, how you allocate it between fixed and variable
payouts, and the Annuity Option chosen. No election may be made that would
result in a first Annuity payment of less than $20 or total yearly payments of
less than $100. If your Account Value on the Annuity Date is insufficient to
elect an option for the minimum amount specified, a lump-sum payment must be
elected.
If Annuity Payments are to be made on a variable basis, the first and
subsequent payments will vary depending on the assumed net investment rate
selected (3 1/2% or 5% per annum). Selection of a 5% rate causes a higher first
payment, but Annuity Payments will increase thereafter only to the extent that
the net investment rate exceeds 5% on an annualized basis. Annuity Payments
would decline if the rate were below 5%. Use of the 3 1/2% assumed rate causes a
lower first payment, but subsequent payments would increase more rapidly or
decline more slowly as changes occur in the net investment rate. (See the
Statement of Additional Information for further discussion on the impact of
selecting an assumed net investment rate.)
CHARGES DEDUCTED DURING THE ANNUITY PERIOD
We make a daily deduction for mortality and expense risks from any
amounts held on a variable basis. Therefore, electing the nonlifetime option on
a variable basis will result in a deduction being made even though we assume no
mortality risk. We will also deduct a daily administrative charge of 0.25% on
annual basis from amounts held under the variable options for Participants who
enrolled in a group Contract or became covered under an individual Contract on
or after November 5, 1984. (See "Charges and Deductions.")
DEATH BENEFIT PAYABLE DURING THE ANNUITY PERIOD
If an Annuitant dies after Annuity Payments have begun, any death benefit
payable will depend on the terms of the Contract and the Annuity Option
selected. If Option 1 or Option 3 was elected, Annuity Payments will cease on
the death of the Annuitant under Option 1 or the death of the surviving
Annuitant under Option 3.
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If Lifetime Option 2 or Option 4 was elected and the death of the
Annuitant under Option 2, or the surviving Annuitant under Option 4, occurs
prior to the end of the guaranteed minimum payment period, we will pay to the
beneficiary in a lump sum, unless otherwise requested, the present value of the
guaranteed Annuity Payments remaining.
If the non-lifetime option was elected, and the Annuitant dies before all
payments are made, the value of any remaining payments may be paid in a
lump-sum to the beneficiary (unless otherwise requested), and no deferred sales
charge will be imposed.
If the Annuitant dies after Annuity payments have begun and if there is a
death benefit payable under the Annuity option elected, the remaining value
must be distributed to the beneficiary at least as rapidly as under the
original method of distribution.
Any lump-sum payment paid under the applicable lifetime or nonlifetime
Annuity Options will be made within seven calendar days after proof of death
acceptable to us, and a request for payment are received at our Home Office.
The value of any death benefit proceeds will be determined as of the next
Valuation Date after we receive acceptable proof of death and a request for
payment. Under Options 2 and 4, such value will be reduced by any payments made
after the date of death.
TAX STATUS
================================================================================
INTRODUCTION
The following provides a general discussion and is not intended as tax
advice. This discussion reflects the Company's understanding of current federal
income tax law. Such laws may change in the future, and it is possible that any
change could be retroactive (i.e., effective prior to the date of the change).
The Company makes no guarantee regarding the tax treatment of any contract or
transaction involving a Contract. The ultimate effect of federal income taxes
on the amounts held under a Contract, on Annuity Payments, and on the economic
benefit to the Contract Holder, Participant or Beneficiary may depend upon the
tax status of the individual concerned. Moreover, no attempt has been made to
consider any applicable state or other tax laws. Any person concerned about
these tax implications should consult a competent tax adviser before initiating
any transaction.
TAXATION OF THE COMPANY
The Company is taxed as a life insurance company under the Code. Since
the Separate Account is not an entity separate from the Company, it will not be
taxed separately as a "regulated investment company" under the Code. Investment
income and realized capital gains are automatically applied to increase
reserves under the Contracts. Under existing federal income tax law, the
Company believes that the Separate Account investment income and realized net
capital gains will not be taxed to the extent that such income and gains are
applied to increase the reserves under the Contracts.
Accordingly, the Company does not anticipate that it will incur any
federal income tax liability attributable to the Separate Account and,
therefore, the Company does not intend to make provisions for any such taxes.
However, if changes in the federal tax laws or interpretation thereof result in
the Company being taxed on income or gains attributable to the Separate
Account, then the Company may impose a charge against the Separate Account
(with respect to some or all Contracts) in order to set aside provisions to pay
such taxes.
CONTRACTS USED WITH CERTAIN RETIREMENT PLANS
In General. The Contract is designed for use with Section 403(b) plans
and Section 401(a) plans. The tax rules applicable to retirement plans vary
according to the type of plan and the terms and conditions of the plan.
The Company makes no attempt to provide more than general information
about use of the Contracts with the various types of retirement plans.
Participants as well as Beneficiaries are cautioned that the rights of any
person to any benefits under the Contracts may be subject to the terms and
conditions of the Plans themselves, in addition to the terms and conditions of
the Contracts issued in connection with such Plans. Some retirement plans are
subject to limitations on distribution and other requirements that are not
incorporated in the Contracts. Purchasers are responsible for determining that
contributions, distributions and other transactions with respect to the
Contracts satisfy applicable laws, and should
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consult their legal counsel and tax adviser regarding the suitability of the
Contract.
Minimum Distribution Requirements. The Code has required distribution
rules for Section 403(b) and 401(a) Plans. Under 403(b) Plans, distributions of
amounts held as of December 31, 1986 must generally begin by the end of the
calendar year in which you attain age 75 or retire, if later. However, special
rules require that some or all of that balance be distributed earlier if any
distributions are taken in excess of the minimum required amount. For all
Participants, other than 5% owners, distributions under 401(a) Plans, and
distributions attributable to contributions under Section 403(b) Plans on or
after January 1, 1987 (including any earnings on the entire Account Value after
that date), must generally begin by April 1 of the calendar year following the
calendar year in which you attain age 70 1/2 or retire, if later. For 5% owners,
such distributions must begin by April 1st of the calendar year following the
calendar year in which you attain age 70 1/2.
In general, annuity payments must be distributed over your life or the
joint lives of you and your Beneficiary, or over a period not greater than your
life expectancy or the joint life expectancies of you and your Beneficiary.
If you die after the required minimum distribution has commenced,
distributions to your beneficiary must be made at least as rapidly as under the
method of distribution in effect at the time of your death. However, if the
minimum required distribution is calculated each year based on your single life
expectancy or the joint life expectancies of you and your beneficiary, the
regulations for Code Section 401(a)(9) provide specific rules for calculating
the minimum required distributions at your death. For example, if you have
elected ECO with the calculation based on your single life expectancy, and the
life expectancy is recalculated each year, your recalculated life expectancy
becomes zero in the calendar year following your death and the entire remaining
interest must be distributed to your beneficiary by December 31 of the year
following your death. However, a spousal beneficiary has certain rollover
rights which can only be exercised in the year of your death. The rules are
complex and you should consult your tax adviser before electing the method of
calculation to satisfy the minimum distribution requirements.
If you die before the required minimum distribution has commenced, your
entire interest must be distributed by December 31 of the calendar year
containing the fifth anniversary of the date of your death. Alternatively,
payments may be made over the life of the beneficiary or over a period not
extending beyond the life expectancy of the beneficiary provided the
distribution begins by December 31 of the calendar year following the calendar
year of your death. If the Beneficiary is your spouse, the distribution must
begin on or before the later of: (1) December 31 of the calendar year following
the calendar year of your death, or (2) December 31 of the calendar year in
which you would have attained age 70 1/2.
If you fail to receive the minimum required distribution for any tax
year, a 50% excise tax is imposed on the required amount that was not
distributed.
Taxation of Distributions. All distributions will be taxed as they are
received unless you made a rollover contribution of the distribution to another
plan of the same type or to a traditional retirement annuity/
account ("IRA") in accordance with the Code, or unless you have made after-tax
contributions to the plan, which are not taxed upon distribution. The Code has
specific rules that apply, depending on the type of distribution received, if
after-tax contributions were made.
In general, payments received by your Beneficiaries after your death are
taxed in the same manner as if you had received those payments, except that a
limited death benefit exclusion may apply to payments made for deaths occurring
on or before August 20, 1996.
Pension and annuity distributions generally are subject to withholding
for the recipient's federal income tax liability at rates that vary according
to the type of distribution and the recipient's tax status. Recipients may be
provided the opportunity to elect not to have tax withheld from distributions;
however, certain distributions from annuities are subject to mandatory 20%
federal income tax withholding. If the Participant or Beneficiary is a
non-resident alien, any withholding will be governed by Code Section 1441 based
on the individual's citizenship, the country of domicile and treaty status. We
will report to the IRS the taxable portion of all distributions. The Code
imposes a 10% penalty tax on the taxable portion of any distribution unless
made when (a) you have attained age 59 1/2, (b) you have become disabled, (c)
you have died, (d) you
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have separated from service with the plan sponsor at or after age 55, (e) the
distribution amount is rolled over into another plan of the same type in
accordance with the terms of the Code, or (f) the distribution amount is made
in substantially equal periodic payments (at least annually) over your life or
life expectancy or the joint lives or joint life expectancies of you and your
Beneficiary, provided you have separated from service with the plan sponsor. In
addition, the penalty tax does not apply for the amount of a distribution equal
to unreimbursed medical expenses incurred by you that qualify for deduction as
specified in the Code. The Code may impose other penalty taxes in other
circumstances.
Section 403(b) Plans. Under Section 403(b), contributions made by public
school systems and Section 501(c)(3) tax-exempt organizations to purchase
annuity contracts for their employees are generally excludable from the gross
income of the employee.
In order to be excludable from taxable income, total annual contributions
made by you and your employer cannot exceed either of two limits set by the
Code. The first limit, under Section 415, is generally the lesser of 25% of
your compensation or $30,000. Compensation means your compensation from the
employer sponsoring the Plan and, for years beginning after December 31, 1997,
includes any elective deferrals under Code Section 402(g) and any amounts not
included in gross income under Code Section 125 or 457. The second limit, which
is the exclusion allowance under Section 403(b), is usually calculated
according to a formula that takes into account your length of employment any
pretax contributions you and your employer have already made under the Plan,
and any pretax contributions to certain other retirement plans. These two
limits apply to your contributions as well as to any contributions made by your
employer on your behalf. There is an additional limit that specifically limits
your salary reduction contributions to generally no more than $10,000 annually
(subject to indexing); your own limit may be higher or lower, depending on
certain conditions. In addition Purchase Payments will be excluded from a
Participant's gross income only if the Plan meets certain non-discrimination
requirements.
Code Section 403(b)(11) restricts the distribution under Section 403(b)
contracts of: (1) salary reduction contributions made after December 31, 1988;
(2) earnings on those contributions; and (3) earnings during such period on
amounts held as of December 31, 1988. Subject to the terms of the Plan,
distribution of those amounts may only occur upon death of the employee,
attainment of age 59, separation from service, disability, or financial
hardship. In addition, income attributable to salary reduction contributions
may not be distributed in the case of hardship.
If, pursuant to Revenue Ruling 90-24, the Company agrees to accept, under
any of the Contracts covered by this Prospectus, amounts transferred from a
Code Section 403(b)(7) custodial account, such amounts will be subject to the
withdrawal restrictions set forth in Code Section 403(b)(7)(A)(ii).
Generally, no amounts accumulated under the Contract will be taxable
prior to the time of actual distribution. However, the IRS has stated in
published rulings that a variable contract owner, including participants under
Section 403(b) Plans, will be considered the owner of separate account assets
if the owner possesses incidents of investment control over the assets. In
these circumstances, income and gains from the separate account assets would be
currently includible in the variable contract owner's gross income. The
Treasury announced that guidance would be issued in the future regarding the
extent to which owners could direct their investments among Subaccounts without
being treated as owners of the underlying assets of the Separate Account. It is
possible that the Treasury's position, when announced, may adversely affect the
tax treatment of existing contracts. The Company therefore reserves the right
to modify the Contract as necessary to attempt to prevent the owner from being
considered the federal tax owner of the assets of the Separate Account.
Section 401(a) Plans. Section 401(a) permits certain employers to
establish various types of retirement plans for employees, and permits
self-employed individuals to establish various types of retirement plans for
themselves and for their employees. These retirement plans may permit the
purchase of the Contracts to accumulate retirement savings under the plans.
Adverse tax consequences to the plan, to the participant or to both may result
if this Contract is assigned or transferred to any individual except to a
participant as a means to provide benefit payments.
The Code imposes a maximum limit on annual Purchase Payments that may be
excluded from a Participant's gross income. Such limit must be
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calculated under the Plan by the employer in accordance with Section 415 of the
Code. This limit is generally the lesser of 25% of your compensation or
$30,000. Compensation means your compensation from the employer sponsoring the
Plan and, for years beginning after December 31, 1997, includes any elective
deferrals under Code Section 402(g) and any amounts not included in gross
income under Code Section 125 or 457. In addition, Purchase Payments will be
excluded from a Participant's gross income only if the 401(a) Plan meets
certain nondiscrimination requirements.
MISCELLANEOUS
================================================================================
DISTRIBUTION
The Company will serve as the Principal Underwriter for the securities
sold by this Prospectus. The Company is registered as a broker-dealer with the
Securities and Exchange Commission and is a member of the National Association
of Securities Dealers, Inc. (NASD). As Underwriter, the Company will contract
with one or more registered broker-dealers ("Distributors"), including at least
one affiliate of the Company, to offer and sell the Contracts. All persons
offering and selling the Contracts must be registered representatives of the
Distributors and must also be licensed as insurance agents to sell variable
annuity contracts. These registered representatives may also provide services
to Participants in connection with establishing their Accounts under the
Contract.
Payment of Commissions. Persons offering and selling the Contracts may
receive commissions in connection with the sale of the Contracts. The maximum
percentage amount that the Company will ever pay as commission with respect to
any given Purchase Payment is with respect to those made during the first year
of Purchase Payments under an Account. The percentage amount will range from 1%
to 7% of those Purchase Payments. The Company may also pay renewal commissions
on Purchase Payments made after the first year and, under group Contracts,
asset-based service fees. The average of all payments made by the Company is
estimated to equal approximately 3% of the total Purchase Payments made over
the life of an average Contract. In addition, some sales personnel may receive
various types of non-cash compensation as special sales incentives, including
trips and educational and/or business seminars. Supervisory and other
management personnel of the Company may receive compensation that will vary
based on the relative profitability to the Company of the funding options you
select. Funding options that invest in Funds advised by the Company or its
affiliates are generally more profitable to the Company. The Company may also
reimburse the Distributor for certain expenses. The name of the Distributor and
the registered representative responsible for your Account are set forth in
your Enrollment Materials. Commissions and sales related expenses are paid by
the Company and are not deducted from Purchase Payments. See "Charges and
Deductions--Deferred Sales Charge."
Third Party Compensation Arrangements. Occasionally, we may pay
commissions and fees to Distributors which are affiliated or associated with
the Contract Holder or the Participants. We may also enter into agreements with
some entities associated with the Contract Holder or Participants in which we
would agree to pay the entity for certain services in connection with
administering the Contracts. In both these circumstances there may be an
understanding that the Distributor or entity would endorse the Company as a
provider of the Contract. You will be notified if you are purchasing a Contract
that is subject to these arrangements.
DELAY OR SUSPENSION OF PAYMENTS
The Company reserves the right to suspend or postpone the date of payment
for any benefit or values (a) on any Valuation Date on which the New York Stock
Exchange ("Exchange") is closed (other than customary weekend and holiday
closings) or when trading on the Exchange is restricted; (b) when an emergency
exists, as determined by the SEC, so that disposal of securities held in the
Subaccounts is not reasonably practicable or it is not reasonably practicable
for the Company fairly to determine the value of the Subaccount's assets; or
(c) during such other periods as the SEC may by order permit for the protection
of investors. The conditions under which restricted trading or an emergency
exists shall be determined by the rules and regulations of the SEC.
PERFORMANCE REPORTING
From time to time, the Company may advertise different types of
historical performance for the
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Subaccounts of the Separate Account. The Company may advertise the
"standardized average annual total returns" of the Subaccounts, calculated in a
manner prescribed by the SEC, as well as the "non-standardized returns."
"Standardized average annual total returns" are computed according to a formula
in which a hypothetical investment of $1,000 is applied to the Subaccount and
then related to the ending redeemable values over the most recent one, five and
ten-year periods (or since contributions were first received in the Fund under
the Separate Account, if less than the full period). Standardized returns will
reflect the reduction of all recurring charges during each period (e.g.,
mortality and expense risk charges, annual maintenance fees, administrative
expense charge (if any) and any applicable deferred sales charge).
"Non-standardized returns" will be calculated in a similar manner, except that
non-standardized figures will not reflect the deduction of any applicable
deferred sales charge (which would decrease the level of performance shown if
reflected in these calculations). The non-standardized figures may also include
monthly, quarterly, year-to-date or three-year periods and may also be
calculated from the Fund's inception date.
The Company may also advertise certain ratings, rankings or other
information related to the Company, the Subaccounts or the Funds. Further
details regarding performance reporting and advertising are described in the
Statement of Additional Information.
VOTING RIGHTS
In accordance with the Company's view of present applicable law, it will
vote the shares of each of the Funds held by the Separate Account at regular
and special meetings of Fund shareholders in accordance with instructions
received from persons having a voting interest in the Separate Account. Under
group Contracts, Participants and Annuitants have a fully vested (100%)
interest in the benefits provided under the Contract and may instruct the
Contract Holder how to direct the Company to cast the votes for the portion of
the Account Value or valuation reserve attributable to their Accounts.
Currently, for group Contracts used with Section 403(b) plans, the Company
obtains Participant voting instructions directly from the Participants, subject
to receipt of authorization from the Contract Holder to accept such
instructions. The Company will vote shares for which it has not received
instructions in the same proportion as it votes shares for which it has
received instructions. Each person having a voting interest in the Separate
Account will receive periodic reports relating to the Fund(s) in which he or
she has an interest, as well as any proxy materials and a form on which to give
voting instructions. Voting instructions will be solicited by written
communication at least 14 days before such meeting. The number of votes to
which each person may give direction will be determined as of the record date
set by the Fund.
The number of votes each Contract Holder or Participant, as applicable,
may cast during the Accumulation Period is equal to the portion of the Account
Value to that Fund, divided by the net asset value of one share of that Fund.
During the Annuity Period, the number of votes is equal to the valuation
reserve applicable to the portion of the Contract attributable to that Fund,
divided by the net asset value of one share of that Fund. In determining the
number of votes, fractional votes will be recognized.
CHANGES IN BENEFICIARY DESIGNATIONS
The designated Beneficiary may be changed at any time prior to the
Annuity Date, subject to limitations contained in the Code and other applicable
laws. Such change will not become effective until written notice of the change
is received by the Company.
MODIFICATION OF THE CONTRACT
The Company may change the Contract as required by federal or state law.
In addition, the Company may, upon 30 days written notice to the Contract
Holder, make other changes to group Contracts that would apply only to
individuals who become Participants under that Contract after the effective
date of such changes. If the Contract Holder does not agree to a change, no new
Participants will be covered under the Contract. Certain changes will require
the approval of appropriate state or federal regulatory authorities.
LEGAL MATTERS AND PROCEEDINGS
The Company knows of no material legal proceedings pending to which the
Separate Account or the Company is a party or which would materially affect the
Separate Account. The validity of the securities offered by this Prospectus has
been passed upon by Counsel to the Company.
YEAR 2000
As a healthcare and financial services enterprise, Aetna Inc. (referred to
collectively with its affiliates and subsidiaries as Aetna), is dependent on
computer systems and applications to conduct its business.
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Aetna has developed and is currently executing a comprehensive risk-based plan
designed to make its computer systems, applications and facilities Year 2000
ready. The plan covers four stages including (i) inventory, (ii) assessment,
(iii) remediation and (iv) testing and certification. At year end 1997, Aetna,
including the Company, had substantially completed the inventory and assessment
stages. The remediation process is currently underway and targeted for
completion by December 31, 1998. Testing and certification of these systems and
applications are targeted for completion by mid-1999. The costs of these efforts
will not affect the Separate Account.
The Company, its affiliates and the mutual funds that serve as investment
options for the Separate Account also have relationships with investment
advisers, broker dealers, transfer agents, custodians or other securities
industry participants or other service providers that are not affiliated with
Aetna. Aetna, including the Company, is initiating communications with its
critical external relationships to determine the extent to which Aetna may be
vulnerable to such parties' failure to resolve their own Year 2000 issues.
Where practicable Aetna and the Company will assess and attempt to mitigate
their risks with respect to the failure of these parties to be Year 2000 ready.
There can be no assurance that failure of third parties to complete adequate
preparations in a timely manner, and any resulting systems interruptions or
other consequences, would not have an adverse effect, directly or indirectly,
on the Separate Account, including, without limitation, its operation or the
valuation of its assets and units.
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CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
================================================================================
The Statement of Additional Information contains more specific information
on the Separate Account and the Contract, as well as the financial statements
of the Separate Account and the Company. A list of the contents of the SAI is
set forth below:
General Information and History
Variable Annuity Account C
Offering and Purchase of Contracts
Performance Data
General
Average Annual Total Return Quotations
Annuity Payments
Sales Material and Advertising
Independent Auditors
Financial Statements of the Separate Account
Financial Statements of the Company
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OREGON EDUCATION ASSOCIATION CHOICE PERSONAL BENEFIT TRUST ("OEA TRUST") AND
THE COMPANY'S AGREEMENT
Under an agreement between the Company and the Oregon Education Association
("OEA") Choice Personal Benefit Trust ("OEA Trust"), the OEA Trust endorsed
exclusively the Company's variable annuity for sale to its members as a variable
tax deferred annuity and agreed to provide administrative assistance to the
Company to facilitate OEA members' access to the variable annuity. The Company
and OEA recently entered into an agreement that continues OEA Trust's exclusive
endorsement of the Company's variable annuity and its agreement to provide
administrative assistance to the Company. OEA Trust assists the Company by
providing administrative services to the Company, such as office space and
secretarial/clerical support. In addition, through an OEA Trust employee who is
a registered representative of an affiliate of the Company, OEA Trust assists
the Company by advertising the Company in OEA's newsletter, facilitating and
coordinating meetings and workshops at which registered representatives of the
Company's affiliate present the annuity to OEA members, and acting as a liaison
between the Company and OEA members. The Company compensates OEA Trust to help
it defray the costs incurred in providing the administrative and other support.
The Company also reimburses OEA Trust for out-of-pocket travel and meeting
expenses of an OEA Trust employee who is also a registered representative of an
affiliate of the Company. During 1997, the Company compensated OEA Trust
$180,000 as reimbursement for the costs and services described above. During
1998, the Company expects to compensate OEA Trust approximately $200,000 as
reimbursement for the costs and services described above. The OEA Trust
receives no commissions or other transaction-based compensation from the sale
of the Company's endorsed variable annuity.
- --------------------------------------------------------------------------------
23
<PAGE>
APPENDIX I
GUARANTEED ACCUMULATION ACCOUNT
================================================================================
The Guaranteed Accumulation Account ("GAA") is a Credited Interest Option
available during the Accumulation Period under the Contracts discussed in this
Prospectus. Amounts allocated to GAA are held by the Company as described in
the GAA Prospectus. This Appendix is a summary of GAA and is not intended to
replace the GAA prospectus. You should read the accompanying GAA prospectus
carefully before investing.
GAA is a Credited Interest Option in which we guarantee stipulated rates
of interest for stated periods of time on amounts directed to GAA, as specified
in the Contract. The interest rate stipulated is an annual effective yield;
that is, it reflects a full year's interest. Interest is credited daily at a
rate that will provide the guaranteed annual effective yield for one year. This
option guarantees the minimum interest rate specified in the Contract.
During a specified period of time, amounts may be applied to any or all
available Guaranteed Terms within the Short-Term and Long-Term classifications.
Short-Term GAA has Guaranteed Terms from one to three years, and Long-Term GAA
has Guaranteed Terms from three to ten years.
Purchase Payments must remain in GAA for the full Guaranteed Term to
receive the quoted interest rates. Withdrawals or transfers from a Guaranteed
Term before the end of that Guaranteed Term may be subject to a market value
adjustment ("MVA"). An MVA reflects the change in the value of the investments
due to changes in interest rates since the date of deposit. When interest rates
increase after the date of deposit, the value of the investment decreases and
the MVA is negative. Conversely, when interest rates decrease after the date of
deposit, the value of the investment increases, and the MVA is positive. It is
possible that a negative MVA could result in the Participant receiving an
amount which is less than the amount paid into GAA.
As a Guaranteed Term matures, assets accumulating under GAA may be (a)
transferred to a new Guaranteed Term, (b) transferred to other available
investment options, or (c) withdrawn. Amounts withdrawn may be subject to a
deferred sales charge and/or federal tax penalties or mandatory income tax
withholding.
By notifying us at least 30 days prior to the Annuity Date, you may elect
a variable annuity and have amounts that have been accumulating under GAA
transferred to one or more of the Subaccounts available during the Annuity
Period. GAA cannot be used as an investment option during the Annuity Period.
MORTALITY AND EXPENSE RISK CHARGES
We make no deductions from the credited interest rate for mortality and
expense risks; these risks are considered in determining the credited rate.
TRANSFERS
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. We will apply an MVA to
transfers made before the end of a Guaranteed Term, unless such transfer is due
to the maturity of the Guaranteed Term.
CONTRACT LOANS
Loans may not be made against amounts held in GAA, although such value is
included in determining the Account Value against which a loan may be made.
REINVESTMENT PRIVILEGE
If amounts are withdrawn from GAA and reinvested, they will be applied to
the current deposit period. Amounts are proportionately reinvested to the
classifications in the same manner as they were allocated before the
withdrawal. Any negative MVA amount applied to a withdrawal is not included in
the reinvestment.
- --------------------------------------------------------------------------------
24
<PAGE>
APPENDIX II
FIXED ACCOUNT
================================================================================
The following summarizes material information concerning the Fixed
Account. Amounts allocated to the Fixed Account are held in the Company's
general account that supports general insurance and annuity obligations.
Interests in the Fixed Account have not been registered with the SEC in
reliance on exemptions under the Securities Act of 1933, as amended. Disclosure
in the Prospectus regarding the Fixed Account, may, however, be subject to
certain generally applicable provisions of the federal securities laws relating
to the accuracy and completeness of such statements. Disclosure in this
Appendix regarding the Fixed Account has not been reviewed by the SEC.
The Fixed Account guarantees the minimum interest rate specified in the
Contract. The Company may credit a higher interest rate from time to time. The
current rate is subject to change at any time, but will never fall below the
guaranteed minimum. The Company's determination of interest rates reflects the
investment income earned on invested assets and the amortization of any capital
gains and/or losses realized on the sale of invested assets. Under the Fixed
Account, the Company assumes the risk of investment gain or loss by
guaranteeing Account Values and promising a minimum interest rate and Annuity
Payment. The Fixed Account is available under Installment Purchase Payment
contracts only.
Amounts applied to the Fixed Account will earn the interest rate in effect
when actually applied to the Fixed Account.
The Fixed Account will reflect a compound interest rate credited by us.
The interest rate quoted is an annual effective yield. We make no deductions
from the credited interest rate for mortality and expense risks; these risks
are considered in determining the credited interest rate.
Under certain emergency conditions, we may defer payment of a Fixed
Account withdrawal value (a) for a period of up to six months, or (b) as
provided by federal law.
If a withdrawal is made from the Fixed Account, a deferred sales charge
may apply. (See "Charges and Deductions--Deferred Sales Charge.")
TRANSFERS AMONG INVESTMENT OPTIONS
Transfers from the Fixed Account to any other available investment
options(s) are allowed in each calendar year during the Accumulation Period.
The amount which may be transferred may vary at our discretion; however, it
will never be less than 10% of the amount held under the Fixed Account.
Transfers to the Fixed Plus Account (if available under the Contract) will be
permitted without regard to this limitation. By notifying us at our Home Office
at least 30 days before Annuity payments begin, you may elect to have amounts
which have been accumulating under the Fixed Account transferred to one or more
of the Subaccounts available during the Annuity Period to provide variable
Annuity Payments.
CONTRACT LOANS
Loans may be made from Account Values held in the Fixed Account.
- --------------------------------------------------------------------------------
25
<PAGE>
APPENDIX III
FIXED PLUS ACCOUNT
================================================================================
The following summarizes material information concerning the Fixed Plus
Account. Amounts allocated to the Fixed Plus Account are held in the Company's
general account that supports general insurance and annuity obligations.
Interests in the Fixed Plus Account have not been registered with the SEC in
reliance on exemptions under the Securities Act of 1933, as amended. Disclosure
in the Prospectus regarding the Fixed Plus Account, may, however, be subject to
certain generally applicable provisions of the federal securities laws relating
to the accuracy and completeness of such statements. Disclosure in this
Appendix regarding the Fixed Plus Account has not been reviewed by the SEC.
The Fixed Plus Account guarantees the minimum Fixed Plus interest rate
specified in the Contract. The Company may credit a higher interest rate from
time to time. The current rate is subject to change at any time, but will never
fall below the guaranteed minimum. The Company's determination of interest
rates reflects the investment income earned on invested assets and the
amortization of any capital gains and/or losses realized on the sale of
invested assets. Under the Fixed Plus Account, the Company assumes the risk of
investment gain or loss by guaranteeing Account Values and promising a minimum
interest rate and Annuity Payment.
The Fixed Plus Account will reflect a compound interest rate credited by
us. The interest rate quoted is an annual effective yield. Amounts applied to
the Fixed Plus Account will earn the Fixed Plus interest rate in effect when
actually applied to the Fixed Plus Account. We make no deductions from the
credited interest rate for mortality and expense risks; these risks are
considered in determining the credited rate.
Beginning on the tenth Account Year, we will credit amounts held in the
Fixed Plus Account with an interest rate that is at least 0.25% higher than the
then-declared interest rate for the Fixed Plus Accounts for Accounts that have
not reached their tenth anniversary.
FIXED PLUS ACCOUNT WITHDRAWALS
The amount eligible for partial withdrawal is 20% of the amount held in
the Fixed Plus Account on the day the Company receives a written request at its
Home Office. This 20% amount will be reduced by any Fixed Plus Account
withdrawals, transfers, loan or annuitizations made in the prior 12 months. In
calculating the 20% limit, we reserve the right to include payments made due to
the election of a Systematic Distribution Option.
The 20% limit is waived if the partial withdrawal is due to annuitization
under a fixed lifetime or non-lifetime Annuity option, or a variable lifetime
Annuity option, or due to death. The waiver upon death will only be exercised
once and must occur within six months after the Participant's date of death.
Any such surrender or annuitization must also be made pro rata from all
Subaccounts and Credited Interest Options available under the Contract.
If a full withdrawal is requested, we will pay any amounts held in the
Fixed Plus Account, with interest, in five annual payments that will be equal
to:
1. One-fifth of the Fixed Plus Account Value on the day the request is
received, reduced by any Fixed Plus Account withdrawals, transfers,
annuitizations, or loans made during the prior 12 months;
2. One-fourth of the remaining Fixed Plus Account Value 12 months later;
3. One-third of the remaining Fixed Plus Account Value 12 months later;
4. One-half of the remaining Fixed Plus Account Value 12 months later; and
The balance of the Fixed Plus Account Value 12 months later.
Once we receive a request for a full withdrawal, no further withdrawals,
loans or transfers will be permitted from the Fixed Plus Account. A full
withdrawal from the Fixed Plus Account may be canceled at any time before the
end of the five-payment period. We will waive the Fixed Plus Account full
withdrawal provision if a full withdrawal is made due to (a) the Participant's
death before the Annuity Date; (b) the election of a fixed lifetime or
non-lifetime
- --------------------------------------------------------------------------------
26
<PAGE>
Annuity option or a variable lifetime Annuity option; or (c) if the Fixed Plus
Account value is $3,500 or less and no withdrawals, transfers, loan or
annuitizations have been made from the Account within the prior 12 months.
For a description of these rules as they relate to contracts issued to the
State of Montana and the Board of Trustees--
University of Illinois, see "Fixed Plus Account withdrawals--State of Montana
and University of Illinois" below.
FIXED PLUS ACCOUNT WITHDRAWALS--STATE OF MONTANA AND UNIVERSITY OF ILLINOIS
Under Contracts issued to the State of Montana and the Board of
Trustees--University of Illinois, during a calendar year any withdrawal
requested from an Account Fixed Plus Account Value may not exceed 20% of the
Account's Fixed Plus Account current value as of the date the withdrawal
request is received in good order at the Home Office. The withdrawal value will
be reduced by any Fixed Plus Account withdrawals, transfers, loans or
annuitizations made during the calendar year.
If a full withdrawal is requested from an Account, we will pay any Fixed
Plus Account withdrawal value from the Account with interest, in five annual
payments of:
One-fifth of the Fixed Plus Account withdrawal value minus any Fixed Plus
Account withdrawals, transfers, loans or annuitizations made during the
calendar year;
One-fourth of the remaining Fixed Plus Account withdrawal value 12 months
later;
One-third of the remaining Fixed Plus Account withdrawal value 12 months
later;
One-half of the remaining Fixed Plus Account withdrawal value 12 months
later; and
The balance of the Fixed Plus Account withdrawal value as the fifth and
final payment 12 months later.
Once we receive a request for a full withdrawal from an Account, no
further withdrawals, transfers or loans will be permitted from the Fixed Plus
Account.
If the withdrawal is due to death or annuitization, or if the Fixed Plus
Account value is less than $3,500, the entire Fixed Plus Account value will be
paid in one sum.
TRANSFERS AMONG INVESTMENT OPTIONS
The amount eligible for transfer from the Fixed Plus Account is 20% of the
amount held in the Fixed Plus Account on the day we receive a written request
at our Home Office. This 20% amount will be reduced by any Fixed Plus Account
withdrawals, transfers, loans or annuitizations made during the prior 12
months. In calculating the 20% limit, we reserve the right to include payments
made due to the election of any of the Systematic Distribution Options. The 20%
limit on transfers will be waived when the value in the Fixed Plus Account is
$1,000 or less.
Under Contracts issued to the State of Montana and the Board of
Trustees--University of Illinois, unlimited transfers from the Fixed Plus
Account to any other available investment option(s) are allowed. For each
calendar year, the amount of such transfers is limited to 20% of the amount
held in the Fixed Plus Account minus amounts previously withdrawn or
transferred during that year.
By notifying us at our Home Office at least 30 days before the Annuity
Date, you may elect to have amounts which have been accumulating under the
Fixed Plus Account transferred to one or more of the Subaccounts available
during the Annuity Period to provide lifetime variable Annuity Payments.
SWO
The Systematic Withdrawal Option may not be elected if you have requested
a Fixed Plus Account transfer or withdrawal within the prior 12 month period.
CONTRACT LOANS
Loans may be made from Account Values held in the Fixed Plus Account. See
the loan agreement for a description of the amount available and the
consequences upon loan default if more than 20% of the Fixed Plus Account Value
is used for a loan.
- --------------------------------------------------------------------------------
27
<PAGE>
APPENDIX IV
Condensed Financial Information
================================================================================
(Selected data for accumulation units outstanding throughout each period)
The condensed financial information presented below for each of the periods
in the ten-year period ended December 31, 1997 (as applicable), is derived from
the financial statements of the Separate Account, which have been audited by
KPMG Peat Marwick LLP, independent auditors. The financial statements and the
independent auditors' report thereon for the year ended December 31, 1997 are
included in the Statement of Additional Information.
Table I
(For Contracts with total Separate Account charges of 1.25%)
<TABLE>
<CAPTION>
1997 1996 1995 1994
------------------- ----------------- -------------------- ----------------------
<S> <C> <C> <C> <C>
AETNA ASCENT VP
Value at beginning of period $13.025 $10.673 $10.000(2)
Value at end of period $15.422 $13.025 $10.673
Increase (decrease) in value of
accumulation unit(1) 18.40% 22.04% 6.73%
Number of accumulation units
outstanding at end of period 3,543,367 1,314,997 393,053
AETNA BALANCED VP
Value at beginning of period $15.551 $13.673 $10.868 $11.057
Value at end of period $18.811 $15.551 $13.673 $10.868
Increase (decrease) in value of
accumulation unit(1) 20.96% 13.73% 25.81% (1.71)%
Number of accumulation units
outstanding at end of period 34,194,804 36,147,028 38,152,395 23,139,604
AETNA BOND VP
Value at beginning of period $12.377 $12.098 $10.360 $10.905
Value at end of period $13.238 $12.377 $12.098 $10.360
Increase (decrease) in value of
accumulation unit(1) 6.96% 2.30% 16.78% (5.00)%
Number of accumulation units
outstanding at end of period 18,047,780 20,036,622 21,379,976 11,713,354
AETNA CROSSROADS VP
Value at beginning of period $12.450 $10.612 $10.000(2)
Value at end of period $14.456 $12.450 $10.612
Increase (decrease) in value of
accumulation unit(1) 16.11% 17.32% 6.12%
Number of accumulation units
outstanding at end of period 2,469,082 918,336 294,673
AETNA GROWTH VP
Value at beginning of period $11.635
Value at end of period $13.173
Increase (decrease) in value of
accumulation unit(1) 13.22%(6)
Number of accumulation units
outstanding at end of period 41,928
AETNA GROWTH AND
INCOME VP
Value at beginning of period $17.302 $14.077 $10.778 $11.020
Value at end of period $22.194 $17.302 $14.077 $10.778
Increase (decrease) in value of
accumulation unit(1) 28.28% 22.91% 30.61% (2.20)%
Number of accumulation units
outstanding at end of period 177,627,474 185,328,132 188,964,022 114,733,035
<CAPTION>
1993 1992 1991 1990 1989
----------------- ---------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
AETNA ASCENT VP
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
AETNA BALANCED VP
Value at beginning of period $10.189 $12.736 $10.896 $10.437 $10.000(4)
Value at end of period $11.057 $10.189(3) $12.736 $10.896 $10.437
Increase (decrease) in value of
accumulation unit(1) 8.52% (3) 16.89% 4.40% 4.37%
Number of accumulation units
outstanding at end of period 11,368,365 11,508 22,898,099 17,078,985 9,535,986
AETNA BOND VP
Value at beginning of period $10.068 $36.789 $31.192 $28.943 $25.574
Value at end of period $10.905 $10.068(5) $36.789 $31.192 $28.943
Increase (decrease) in value of
accumulation unit(1) 8.31% (5) 17.94% 7.77% 13.17%
Number of accumulation units
outstanding at end of period 4,084,142 3,870 7,844,412 6,984,793 6,202,834
AETNA CROSSROADS VP
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
AETNA GROWTH VP
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
AETNA GROWTH AND
INCOME VP
Value at beginning of period $10.454 $97.165 $77.845 $76.311 $59.871
Value at end of period $11.020 $10.454(7) $97.165 $77.845 $76.311
Increase (decrease) in value of
accumulation unit(1) 5.41% (7) 24.82% 2.01% 27.46%
Number of accumulation units
outstanding at end of period 44,166,470 21,250 20,948,226 18,362,906 17,142,820
<CAPTION>
1988
---------------
<S> <C>
AETNA ASCENT VP
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
AETNA BALANCED VP
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
AETNA BOND VP
Value at beginning of period $24.061
Value at end of period $25.574
Increase (decrease) in value of
accumulation unit(1) 6.29%
Number of accumulation units
outstanding at end of period 5,955,293
AETNA CROSSROADS VP
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
AETNA GROWTH VP
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
AETNA GROWTH AND
INCOME VP
Value at beginning of period $52.885
Value at end of period $59.871
Increase (decrease) in value of
accumulation unit(1) 13.21%
Number of accumulation units
outstanding at end of period 16,455,396
</TABLE>
- --------------------------------------------------------------------------------
28
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
================================================================================
<TABLE>
<CAPTION>
1997 1996 1995 1994
--------------------- ------------------ -------------------- ----------------
<S> <C> <C> <C> <C>
AETNA INDEX PLUS LARGE
CAP VP
Value at beginning of period $10.924 $10.000(8)
Value at end of period $14.444 $10.924
Increase (decrease) in value of
accumulation unit(1) 32.23% 9.24%
Number of accumulation units
outstanding at end of period 4,796,644 879,588
AETNA LEGACY VP
Value at beginning of period $11.930 $10.580 $10.000(2)
Value at end of period $13.491 $11.930 $10.580
Increase (decrease) in value of
accumulation unit(1) 13.08% 12.76% 5.80%
Number of accumulation units
outstanding at end of period 1,624,842 513,590 143,637
AETNA MONEY MARKET VP
Value at beginning of period $11.473 $11.026 $10.528 $10.241
Value at end of period $11.951 $11.473 $11.026 $10.528
Increase (decrease) in value of
accumulation unit(1) 4.16% 4.05% 4.73% 2.80%
Number of accumulation units
outstanding at end of period 12,191,085 13,898,826 12,999,680 7,673,528
AETNA SMALL COMPANY VP
Value at beginning of period $12.299
Value at end of period $13.654
Increase (decrease) in value of
accumulation unit(1) 11.02%(10)
Number of accumulation units
outstanding at end of period 253,548
AETNA VALUE
OPPORTUNITY VP
Value at beginning of period $12.913
Value at end of period $13.261
Increase (decrease) in value of
accumulation unit(1) 2.69%(11)
Number of accumulation units
outstanding at end of period 100,928
CALVERT SOCIAL
BALANCED PORTFOLIO
Value at beginning of period $15.044 $13.527 $10.554 $11.036
Value at end of period $17.840 $15.044 $13.527 $10.554
Increase (decrease) in value of
accumulation unit(1) 18.59% 11.22% 28.17% (4.37)%
Number of accumulation units
outstanding at end of period 1,499,989 1,313,324 966,098 521,141
FIDELITY VIP EQUITY-
INCOME PORTFOLIO
Value at beginning of period $12.518 $11.092 $10.000(2)
Value at end of period $15.837 $12.518 $11.092
Increase (decrease) in value of
accumulation unit(1) 26.52% 12.86% 10.92%
Number of accumulation units
outstanding at end of period 7,111,490 5,007,706 1,660,304
FIDELITY VIP GROWTH
PORTFOLIO
Value at beginning of period $11.402 $10.066 $10.000(2)
Value at end of period $13.904 $11.402 $10.066
Increase (decrease) in value of
accumulation unit(1) 21.95% 13.27% 0.66%
Number of accumulation units
outstanding at end of period 6,586,698 5,171,098 1,833,794
<CAPTION>
1993 1992 1991 1990 1989 1988
---------------- ------------------ -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
AETNA INDEX PLUS LARGE
CAP VP
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
AETNA LEGACY VP
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
AETNA MONEY MARKET VP
Value at beginning of period $10.048 $33.812 $32.138 $30.012 $27.783 $26.171
Value at end of period $10.241 $10.048(9) $33.812 $32.138 $30.012 $27.783
Increase (decrease) in value of
accumulation unit(1) 1.92% (9) 5.21% 7.08% 8.02% 6.16%
Number of accumulation units
outstanding at end of period 2,766,044 825 8,430,082 10,220,110 8,286,033 8,154,644
AETNA SMALL COMPANY VP
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
AETNA VALUE
OPPORTUNITY VP
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
CALVERT SOCIAL
BALANCED PORTFOLIO
Value at beginning of period $10.278 $10.000(12)
Value at end of period $11.036 $10.278
Increase (decrease) in value of
accumulation unit(1) 7.37% 2.78%
Number of accumulation units
outstanding at end of period 144,168 2,556
FIDELITY VIP EQUITY-
INCOME PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
FIDELITY VIP GROWTH
PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
</TABLE>
- --------------------------------------------------------------------------------
29
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
================================================================================
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- --------------------
<S> <C> <C> <C>
FIDELITY VIP OVERSEAS
PORTFOLIO
Value at beginning of period $11.137 $9.961 $10.000 (2)
Value at end of period $12.269 $11.137 $9.961
Increase (decrease) in value of
accumulation unit(1) 10.17% 11.80% (0.39)%
Number of accumulation units
outstanding at end of period 718,565 487,709 196,090
FIDELITY VIP II
CONTRAFUND PORTFOLIO
Value at beginning of period $12.455 $10.397 $10.000 (2)
Value at end of period $15.270 $12.455 $10.397
Increase (decrease) in value of
accumulation unit(1) 22.60% 19.79% 3.97%
Number of accumulation units
outstanding at end of period 11,399,666 6,812,870 2,116,732
JANUS ASPEN AGGRESSIVE
GROWTH PORTFOLIO
Value at beginning of period $14.202 $13.322 $10.581
Value at end of period $15.801 $14.202 $13.322
Increase (decrease) in value of
accumulation unit(1) 11.26% 6.60% 25.91%
Number of accumulation units
outstanding at end of period 9,271,525 8,835,470 4,887,060
JANUS ASPEN BALANCED
PORTFOLIO
Value at beginning of period $12.449 $10.850 $10.000 (2)
Value at end of period $15.012 $12.449 $10.850
Increase (decrease) in value of
accumulation unit(1) 20.58% 14.73% 8.50%
Number of accumulation units
outstanding at end of period 1,911,789 996,510 93,304
JANUS ASPEN FLEXIBLE
INCOME PORTFOLIO
Value at beginning of period $13.022 $12.077 $9.873
Value at end of period $14.373 $13.022 $12.077
Increase (decrease) in value of
accumulation unit(1) 10.37% 7.83% 22.33%
Number of accumulation units
outstanding at end of period 934,053 619,287 315,361
JANUS ASPEN GROWTH
PORTFOLIO
Value at beginning of period $12.716 $10.870 $10.000(2)
Value at end of period $15.414 $12.716 $10.870
Increase (decrease) in value of
accumulation unit(1) 21.22% 16.98% 8.70%
Number of accumulation units
outstanding at end of period 3,100,436 2,018,527 259,196
JANUS ASPEN WORLDWIDE
GROWTH PORTFOLIO
Value at beginning of period $13.860 $10.877 $10.000(2)
Value at end of period $16.720 $13.860 $10.877
Increase (decrease) in value of
accumulation unit(1) 20.64% 27.43% 8.77%
Number of accumulation units
outstanding at end of period 17,194,687 8,715,825 1,036,040
<CAPTION>
1994 1993 1992 1991 1990 1989 1988
------------------ ------ ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
FIDELITY VIP OVERSEAS
PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
FIDELITY VIP II
CONTRAFUND PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
JANUS ASPEN AGGRESSIVE
GROWTH PORTFOLIO
Value at beginning of period $10.000(13)
Value at end of period $10.581
Increase (decrease) in value of
accumulation unit(1) 5.81%
Number of accumulation units
outstanding at end of period 753,862
JANUS ASPEN BALANCED
PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
JANUS ASPEN FLEXIBLE
INCOME PORTFOLIO
Value at beginning of period $10.000(13)
Value at end of period $9.873
Increase (decrease) in value of
accumulation unit(1) (1.27)%
Number of accumulation units
outstanding at end of period 28,543
JANUS ASPEN GROWTH
PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
JANUS ASPEN WORLDWIDE
GROWTH PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
</TABLE>
- --------------------------------------------------------------------------------
30
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
================================================================================
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------- ------------ ------------
<S> <C> <C> <C>
LEXINGTON NATURAL
RESOURCES TRUST
Value at beginning of period $14.686 $11.720 $10.154
Value at end of period $15.541 $14.686 $11.720
Increase (decrease) in value of
accumulation unit(1) 5.82% 25.31% 15.42%
Number of accumulation units
outstanding at end of period 1,786,409 966,482 711,892
PORTFOLIO PARTNERS MFS
EMERGING EQUITIES
PORTFOLIO
Value at beginning of period $15.114
Value at end of period $14.927
Increase (decrease) in value of
accumulation unit(1) (1.24)%(14)
Number of accumulation units
outstanding at end of period 16,549,322
PORTFOLIO PARTNERS MFS
RESEARCH PORTFOLIO
Value at beginning of period $14.067
Value at end of period $13.795
Increase (decrease) in value of
accumulation unit(1) (1.93)%(14)
Number of accumulation units
outstanding at end of period 11,539,850
PORTFOLIO PARTNERS MFS
VALUE EQUITY PORTFOLIO
Value at beginning of period $19.016
Value at end of period $19.291
Increase (decrease) in value of
accumulation unit(1) 1.45% (14)
Number of accumulation units
outstanding at end of period 2,879,845
PORTFOLIO PARTNERS
SCUDDER INTERNATIONAL
GROWTH PORTFOLIO
Value at beginning of period $16.776
Value at end of period $16.986
Increase (decrease) in value of
accumulation unit(1) 1.25% (14)
Number of accumulation units
outstanding at end of period 6,242,299
PORTFOLIO PARTNERS
T. ROWE PRICE GROWTH
EQUITY PORTFOLIO
Value at beginning of period $14.112
Value at end of period $14.400
Increase (decrease) in value of
accumulation unit(1) 2.04% (14)
Number of accumulation units
outstanding at end of period 8,296,964
<CAPTION>
1994 1993 1992 1991 1990 1989 1988
-------------- ------------- ------------------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
LEXINGTON NATURAL
RESOURCES TRUST
Value at beginning of period $10.877 $9.832 $10.000(12)
Value at end of period $10.154 $10.877 $9.832
Increase (decrease) in value of
accumulation unit(1) (6.65)% 10.63% (1.68)%
Number of accumulation units
outstanding at end of period 703,676 135,614 561
PORTFOLIO PARTNERS MFS
EMERGING EQUITIES
PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
PORTFOLIO PARTNERS MFS
RESEARCH PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
PORTFOLIO PARTNERS MFS
VALUE EQUITY PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
PORTFOLIO PARTNERS
SCUDDER INTERNATIONAL
GROWTH PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
PORTFOLIO PARTNERS
T. ROWE PRICE GROWTH
EQUITY PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
</TABLE>
(1) The above figures are calculated by subtracting the beginning Accumulation
Unit value from the ending Accumulation Unit value and dividing the result
by the beginning Accumulation Unit value. These figures do not reflect the
deferred sales charges or the fixed dollar annual maintenance fee, if any.
Inclusion of these charges would reduce the investment results shown.
(2) Reflects less than a full year of performance activity. The initial
Accumulation Unit value was established at $10.000 during August 1995, when
the Fund became available under the Contract.
(3) The Accumulation Unit value was converted to $10.000 on August 21, 1992
upon the commencement of a new administrative system. Immediately prior to
that date, the Accumulation Unit value of the Fund was $13.118. On the date
of conversion, additional units were issued so that account values were not
changed as a result of the conversion. The percentage change in the
Accumulation Unit value from the beginning of the year to the date of
conversion was 2.99%; the percentage change in the Accumulation Unit value
from the date of conversion to the end of the year was 1.89%.
- --------------------------------------------------------------------------------
31
<PAGE>
(4) Reflects less than a full year of performance activity. The initial
Accumulation Unit value was established at $10.000 on June 23, 1989, the
date on which the Fund commenced operations.
(5) The Accumulation Unit value was converted to $10.000 on August 21, 1992
upon the commencement of a new administrative system. Immediately prior to
that date, the Accumulation Unit value of the Fund was $38.521. On the date
of conversion, additional units were issued so that account values were not
changed as a result of the conversion. The percentage change in the
Accumulation Unit value from the beginning of the year to the date of
conversion was 4.70%; the percentage change in the Accumulation Unit value
from the date of conversion to the end of the year was 0.68%.
(6) Reflects less than a full year of performance activity. Funds were first
received in this option during June 1997.
(7) The Accumulation Unit value was converted to $10.000 on August 21, 1992
upon the commencement of a new administrative system. Immediately prior to
that date, the Accumulation Unit value of the Fund was $97.817. On the date
of conversion, additional units were issued so that account values were not
changed as a result of the conversion. The percentage change in the
Accumulation Unit value from the beginning of the year to the date of
conversion was 0.67%; the percentage change in the Accumulation Unit value
from the date of conversion to the end of the year was 4.54%.
(8) Reflects less than a full year of performance activity. The initial
Accumulation Unit value was established at $10.000 during August 1996, when
the Portfolio became available under the Contract.
(9) The Accumulation Unit value was converted to $10.000 on August 21, 1992
upon the commencement of a new administrative system. Immediately prior to
that date, the Accumulation Unit value of the Fund was $34.397. On the date
of conversion, additional units were issued so that account values were not
changed as a result of the conversion. The percentage change in the
Accumulation Unit value from the beginning of the year to the date of
conversion was 1.73%; the percentage change in the Accumulation Unit value
from the date of conversion to the end of the year was 0.48%.
(10) Reflects less than a full year of performance activity. Funds were first
received in this option during July 1997.
(11) Reflects less than a full year of performance activity. Funds were first
received in this option during August 1997.
(12) Reflects less than a full year of performance activity. The initial
Accumulation Unit value was established at $10.000 on August 21, 1992, the
date on which the Fund/Portfolio became available under the Contract.
(13) Reflects less than a full year of performance activity. The initial
Accumulation Unit value was established at $10.000 during October 1994,
when the funds were first received in this option.
(14) Reflects less than a full year of performance activity. Funds were first
received in this option during November 1997.
The condensed financial information presented below for the period ended
December 31, 1997 is derived from the financial statements of the Separate
Account, which have been audited by KPMG Peat Marwick LLP, independent auditors.
The financial statements and the independent auditors' report thereon for the
year ended December 31, 1997, are included in the Statement of Additional
Information.
Table II
(For Contracts with total Separate Account charges of 1.50%, including
a 0.25% administrative expense charge beginning April 7, 1997)
1997
-------------------
AETNA ASCENT VP
Value at beginning of period $13.020
Value at end of period $15.394
Increase (decrease) in value of
accumulation unit(1) 18.24%(2)
Number of accumulation units
outstanding at end of period 29,840
AETNA BALANCED VP
Value at beginning of period $15.674
Value at end of period $18.776
Increase (decrease) in value of
accumulation unit(1) 19.79%(2)
Number of accumulation units
outstanding at end of period 478,177
AETNA BOND VP
Value at beginning of period $12.302
Value at end of period $13.213
Increase (decrease) in value of
accumulation unit(1) 7.41%(2)
Number of accumulation units
outstanding at end of period 215,650
- --------------------------------------------------------------------------------
32
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
================================================================================
1997
--------------------
AETNA CROSSROADS VP
Value at beginning of period $12.449
Value at end of period $14.430
Increase (decrease) in value of
accumulation unit(1) 15.91%(2)
Number of accumulation units
outstanding at end of period 26,483
AETNA GROWTH VP(10)
Value at beginning of period $12.739
Value at end of period $13.149
Increase (decrease) in value of
accumulation unit(1) 3.22%(3)
Number of accumulation units
outstanding at end of period 3,326
AETNA GROWTH AND
INCOME VP
Value at beginning of period $17.861
Value at end of period $22.153
Increase (decrease) in value of
accumulation unit(1) 24.03%(2)
Number of accumulation units
outstanding at end of period 1,699,982
AETNA INDEX PLUS LARGE
CAP VP
Value at beginning of period $11.345
Value at end of period $14.418
Increase (decrease) in value of
accumulation unit(1) 27.09%(2)
Number of accumulation units
outstanding at end of period 27,945
AETNA LEGACY VP
Value at beginning of period $11.873
Value at end of period $13.467
Increase (decrease) in value of
accumulation unit(1) 13.42%(2)
Number of accumulation units
outstanding at end of period 14,817
AETNA MONEY MARKET VP
Value at beginning of period $11.592
Value at end of period $11.929
Increase (decrease) in value of
accumulation unit(1) 2.91%(2)
Number of accumulation units
outstanding at end of period 176,703
AETNA SMALL COMPANY VP
Value at beginning of period $13.629
Value at end of period $13.629
Increase (decrease) in value of
accumulation unit(1) 0.00%(3)
Number of accumulation units
outstanding at end of period 82
AETNA VALUE
OPPORTUNITY VP
Value at beginning of period $13.237
Value at end of period $13.237
Increase (decrease) in value of
accumulation unit(1) 0.00%(3)
Number of accumulation units
outstanding at end of period 84
-------------------------------------------------------------------------------
33
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
================================================================================
1997
-------------------
CALVERT SOCIAL
BALANCED PORTFOLIO
Value at beginning of period $14.934
Value at end of period $17.808
Increase (decrease) in value of
accumulation unit(1) 19.24%(2)
Number of accumulation units
outstanding at end of period 20,521
FIDELITY VIP EQUITY-
INCOME PORTFOLIO
Value at beginning of period $12.711
Value at end of period $15.808
Increase (decrease) in value of
accumulation unit(1) 24.37%(2)
Number of accumulation units
outstanding at end of period 117,588
FIDELITY VIP GROWTH
PORTFOLIO
Value at beginning of period $11.373
Value at end of period $13.879
Increase (decrease) in value of
accumulation unit(1) 22.03%(2)
Number of accumulation units
outstanding at end of period 104,982
FIDELITY VIP OVERSEAS
PORTFOLIO
Value at beginning of period $11.253
Value at end of period $12.247
Increase (decrease) in value of
accumulation unit(1) 8.83%(2)
Number of accumulation units
outstanding at end of period 8,098
FIDELITY VIP II CONTRAFUND
PORTFOLIO
Value at beginning of period $12.388
Value at end of period $15.242
Increase (decrease) in value of
accumulation unit(1) 23.04%(2)
Number of accumulation units
outstanding at end of period 146,381
JANUS ASPEN AGGRESSIVE
GROWTH PORTFOLIO
Value at beginning of period $12.594
Value at end of period $15.773
Increase (decrease) in value of
accumulation unit(1) 25.24%(2)
Number of accumulation units
outstanding at end of period 85,304
JANUS ASPEN BALANCED
PORTFOLIO
Value at beginning of period $12.760
Value at end of period $14.984
Increase (decrease) in value of
accumulation unit(1) 17.43%(2)
Number of accumulation units
outstanding at end of period 19,967
- --------------------------------------------------------------------------------
34
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
================================================================================
1997
-------------------
JANUS ASPEN FLEXIBLE
INCOME PORTFOLIO
Value at beginning of period $13.025
Value at end of period $14.347
Increase (decrease) in value of
accumulation unit(1) 10.15%(2)
Number of accumulation units
outstanding at end of period 8,189
JANUS ASPEN GROWTH
PORTFOLIO
Value at beginning of period $12.975
Value at end of period $15.386
Increase (decrease) in value of
accumulation unit(1) 18.58%(2)
Number of accumulation units
outstanding at end of period 53,182
JANUS ASPEN WORLDWIDE
GROWTH PORTFOLIO
Value at beginning of period $14.439
Value at end of period $16.689
Increase (decrease) in value of
accumulation unit(1) 15.59%(2)
Number of accumulation units
outstanding at end of period 168,191
LEXINGTON NATURAL
RESOURCES TRUST
Value at beginning of period $13.756
Value at end of period $15.512
Increase (decrease) in value of
accumulation unit(1) 12.77%(2)
Number of accumulation units
outstanding at end of period 26,426
PORTFOLIO PARTNERS MFS
EMERGING EQUITIES
PORTFOLIO
Value at beginning of period $15.090
Value at end of period $14.899
Increase (decrease) in value of
accumulation unit(1) (1.26)%(4)
Number of accumulation units
outstanding at end of period 131,565
PORTFOLIO PARTNERS MFS
RESEARCH PORTFOLIO
Value at beginning of period $14.044
Value at end of period $13.770
Increase (decrease) in value of
accumulation unit(1) (1.95)%(4)
Number of accumulation units
outstanding at end of period 149,523
PORTFOLIO PARTNERS MFS
VALUE EQUITY
PORTFOLIO
Value at beginning of period $18.985
Value at end of period $19.256
Increase (decrease) in value of
accumulation unit(1) 1.42%(4)
Number of accumulation units
outstanding at end of period 25,830
- --------------------------------------------------------------------------------
35
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
================================================================================
1997
-------------------
PORTFOLIO PARTNERS
SCUDDER INTERNATIONAL
GROWTH PORTFOLIO
Value at beginning of period $16.749
Value at end of period $16.955
Increase (decrease) in value of
accumulation unit(1) 1.23%(4)
Number of accumulation units
outstanding at end of period 48,385
PORTFOLIO PARTNERS
T. ROWE PRICE GROWTH
EQUITY PORTFOLIO
Value at beginning of period $14.090
Value at end of period $14.374
Increase (decrease) in value of
accumulation unit(1) 2.02%(4)
Number of accumulation units
outstanding at end of period 79,799
(1) The above figures are calculated by subtracting the beginning Accumulation
Unit value from the ending Accumulation Unit value and dividing the result
by the beginning Accumulation Unit value. These figures do not reflect the
deferred sales charges or the fixed dollar annual maintenance fee, if any.
Inclusion of these charges would reduce the investment results shown.
(2) Reflects less than a full year of performance activity. Funds were first
received in this option during April 1997.
(3) Reflects less than a full year of performance activity. Funds were first
received in this option during December 1997.
(4) Reflects less than a full year of performance activity. Funds were first
received in this option during November 1997.
The condensed financial information presented below for the period ended
December 31, 1997 is derived from the financial statements of the Separate
Account, which have been audited by KPMG Peat Marwick LLP, independent auditors.
The financial statements and the independent auditors' report thereon for the
year ended December 31, 1997 are included in the Statement of Additional
Information.
Table III
(For Contracts containing limits on fees)
1997
-------------------
AETNA ASCENT VP
Value at beginning of period $13.971
Value at end of period $15.453
Increase (decrease) in value of
accumulation unit(1) 10.61%(2)
Number of accumulation units
outstanding at end of period 10,257
AETNA BALANCED VP
Value at beginning of period $16.739
Value at end of period $18.837
Increase (decrease) in value of
accumulation unit(1) 12.53%(2)
Number of accumulation units
outstanding at end of period 454,232
AETNA BOND VP
Value at beginning of period $12.629
Value at end of period $13.249
Increase (decrease) in value of
accumulation unit(1) 4.91%(2)
Number of accumulation units
outstanding at end of period 453,723
- --------------------------------------------------------------------------------
36
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
================================================================================
1997
---------------------
AETNA CROSSROADS VP
Value at beginning of period $13.199
Value at end of period $14.485
Increase (decrease) in value of
accumulation unit(1) 9.74%(2)
Number of accumulation units
outstanding at end of period 50,297
AETNA GROWTH VP(10)
Value at beginning of period $12.615
Value at end of period $13.173
Increase (decrease) in value of
accumulation unit(1) 4.42%(3)
Number of accumulation units
outstanding at end of period 1,565
AETNA GROWTH AND
INCOME VP
Value at beginning of period $19.673
Value at end of period $22.226
Increase (decrease) in value of
accumulation unit(1) 12.97%(2)
Number of accumulation units
outstanding at end of period 6,093,102
AETNA INDEX PLUS LARGE
CAP VP
Value at beginning of period $12.748
Value at end of period $14.452
Increase (decrease) in value of
accumulation unit(1) 13.37%(2)
Number of accumulation units
outstanding at end of period 13,748
AETNA LEGACY VP
Value at beginning of period $12.496
Value at end of period $13.518
Increase (decrease) in value of
accumulation unit(1) 8.18%(2)
Number of accumulation units
outstanding at end of period 16,060
AETNA MONEY MARKET VP
Value at beginning of period $11.674
Value at end of period $11.951
Increase (decrease) in value of
accumulation unit(1) 2.37%(2)
Number of accumulation units
outstanding at end of period 591,901
AETNA SMALL COMPANY VP
Value at beginning of period $13.092
Value at end of period $13.654
Increase (decrease) in value of
accumulation unit(1) 4.29%(3)
Number of accumulation units 1,779
outstanding at end of period
CALVERT SOCIAL
BALANCED PORTFOLIO
Value at beginning of period $16.178
Value at end of period $17.840
Increase (decrease) in value of
accumulation unit(1) 10.27%(2)
Number of accumulation units
outstanding at end of period 3,576
- --------------------------------------------------------------------------------
37
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
================================================================================
1997
-------------------
FIDELITY VIP EQUITY-
INCOME PORTFOLIO
Value at beginning of period $14.065
Value at end of period $15.837
Increase (decrease) in value of
accumulation unit(1) 12.60%(2)
Number of accumulation units
outstanding at end of period 49,884
FIDELITY VIP GROWTH
PORTFOLIO
Value at beginning of period $12.498
Value at end of period $13.904
Increase (decrease) in value of
accumulation unit(1) 11.26%(2)
Number of accumulation units
outstanding at end of period 31,477
FIDELITY VIP OVERSEAS
PORTFOLIO
Value at beginning of period $12.518
Value at end of period $12.269
Increase (decrease) in value of
accumulation unit(1) (1.99)%(2)
Number of accumulation units
outstanding at end of period 1,206
FIDELITY VIP II
CONTRAFUND
PORTFOLIO
Value at beginning of period $13.443
Value at end of period $15.270
Increase (decrease) in value of
accumulation unit(1) 13.59%(2)
Number of accumulation units
outstanding at end of period 29,365
JANUS ASPEN AGGRESSIVE
GROWTH PORTFOLIO
Value at beginning of period $14.156
Value at end of period $15.801
Increase (decrease) in value of
accumulation unit(1) 11.62%(2)
Number of accumulation units
outstanding at end of period 26,177
JANUS ASPEN BALANCED
PORTFOLIO
Value at beginning of period $13.573
Value at end of period $15.012
Increase (decrease) in value of
accumulation unit(1) 10.60%(2)
Number of accumulation units
outstanding at end of period 8,663
JANUS ASPEN FLEXIBLE
INCOME PORTFOLIO
Value at beginning of period $13.448
Value at end of period $14.373
Increase (decrease) in value of
accumulation unit(1) 6.88%(2)
Number of accumulation units
outstanding at end of period 323
- --------------------------------------------------------------------------------
38
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
================================================================================
1997
-------------------
JANUS ASPEN GROWTH
PORTFOLIO
Value at beginning of period $13.985
Value at end of period $15.414
Increase (decrease) in value of
accumulation unit(1) 10.22%(2)
Number of accumulation units
outstanding at end of period 6,389
JANUS ASPEN WORLDWIDE
GROWTH PORTFOLIO
Value at beginning of period $15.828
Value at end of period $16.720
Increase (decrease) in value of
accumulation unit(1) 5.64%(2)
Number of accumulation units
outstanding at end of period 63,534
LEXINGTON NATURAL
RESOURCES TRUST
Value at beginning of period $15.221
Value at end of period $15.541
Increase (decrease) in value of
accumulation unit(1) 2.10%(2)
Number of accumulation units
outstanding at end of period 8,053
PORTFOLIO PARTNERS MFS
EMERGING EQUITIES
PORTFOLIO
Value at beginning of period $15.114
Value at end of period $14.927
Increase (decrease) in value of
accumulation unit(1) (1.24)%(4)
Number of accumulation units
outstanding at end of period 56,819
PORTFOLIO PARTNERS MFS
RESEARCH PORTFOLIO
Value at beginning of period $14.067
Value at end of period $13.795
Increase (decrease) in value of
accumulation unit(1) (1.93)%(4)
Number of accumulation units
outstanding at end of period 55,233
PORTFOLIO PARTNERS MFS
VALUE EQUITY
PORTFOLIO
Value at beginning of period $19.016
Value at end of period $19.291
Increase (decrease) in value of
accumulation unit(1) 1.45%(4)
Number of accumulation units
outstanding at end of period 7,188
PORTFOLIO PARTNERS
SCUDDER INTERNATIONAL
GROWTH PORTFOLIO
Value at beginning of period $16.776
Value at end of period $16.986
Increase (decrease) in value of
accumulation unit(1) 1.25%(4)
Number of accumulation units
outstanding at end of period 6,970
- --------------------------------------------------------------------------------
39
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
================================================================================
1997
-------------------
PORTFOLIO PARTNERS
T. ROWE PRICE GROWTH
EQUITY PORTFOLIO
Value at beginning of period $14.112
Value at end of period $14.400
Increase (decrease) in value of
accumulation unit(1) 2.04%(4)
Number of accumulation units
outstanding at end of period 24,650
(1) The above figures are calculated by subtracting the beginning Accumulation
Unit value from the ending Accumulation Unit value and dividing the result
by the beginning Accumulation Unit value. These figures do not reflect the
deferred sales charges or the fixed dollar annual maintenance fee, if any.
Inclusion of these charges would reduce the investment results shown.
(2) Reflects less than a full year of performance activity. Funds were first
received in this option during June 1997.
(3) Reflects less than a full year of performance activity. Funds were first
received in this option during December 1997.
(4) Reflects less than a full year of performance activity. Funds were first
received in this option during November 1997.
- --------------------------------------------------------------------------------
40
<PAGE>
For Master Applications Only
I hereby acknowledge receipt of an Account C Group Deferred Variable Annuity
prospectus dated May 1, 1998 for Section 403(b) Tax-Deferred Annuity Plans, as
well as all current prospectuses pertaining to the variable investment options
available under the Contracts.
_____ Please send an Account C Statement of Additional Information (Form No.
SAI.75964-98) dated May 1, 1998.
- --------------------------------------------------------------------------------
CONTRACT HOLDER'S SIGNATURE
- --------------------------------------------------------------------------------
DATE
PROS.OEA-98
- --------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
================================================================================
The Contracts offered in connection with this Prospectus are group and
individual deferred variable annuity contracts ("Contracts") issued by Aetna
Life Insurance and Annuity Company (the "Company"). The Contracts are available
for public school systems and certain tax-exempt (Section 501(c)(3))
organizations for their employees under Section 403(b) of the Internal Revenue
Code of 1986 as amended ("Code"), and for qualified defined contribution plans
under Section 401(a) of the Code. (See "Purchase.")
The Contracts provide that contributions may be allocated to one or more of the
Credited Interest Options or to one or more of the Subaccounts of Variable
Annuity Account C, a separate account of the Company. The Subaccounts invest
directly in shares of the following Funds:
[bullet] Aetna Ascent VP (formerly Aetna Ascent Variable Portfolio)
[bullet] Aetna Balanced VP, Inc. (formerly Aetna Investment Advisers Fund,
Inc.)
[bullet] Aetna Income Shares d/b/a Aetna Bond VP
[bullet] Aetna Crossroads VP (formerly Aetna Crossroads Variable Portfolio)
[bullet] Aetna Growth VP (formerly Aetna Variable Growth Portfolio)
[bullet] Aetna Variable Fund d/b/a Aetna Growth and Income Fund VP
[bullet] Aetna High Yield VP
[bullet] Aetna Index Plus Large Cap VP (formerly Aetna Variable Index Plus
Portfolio)
[bullet] Aetna Index Plus Mid Cap VP
[bullet] Aetna Index Plus Small Cap VP
[bullet] Aetna International VP
[bullet] Aetna Legacy VP (formerly Aetna Legacy Variable Portfolio)
[bullet] Aetna Variable Encore Fund d/b/a Aetna Money Market VP
[bullet] Aetna Real Estate Securities VP
[bullet] Aetna Small Company VP (formerly Aetna Variable Small Company
Portfolio)
[bullet] Aetna Value Opportunity VP (formerly Aetna Variable Capital
Appreciation Portfolio)
[bullet] Calvert Social Balanced Portfolio (formerly Calvert Responsibly
Invested Balanced Portfolio)
[bullet] Fidelity VIP II Contrafund Portfolio
[bullet] Fidelity VIP Equity-Income Portfolio
[bullet] Fidelity VIP Growth Portfolio
[bullet] Fidelity VIP Overseas Portfolio
[bullet] Janus Aspen Aggressive Growth Portfolio
[bullet] Janus Aspen Balanced Portfolio
[bullet] Janus Aspen Flexible Income Portfolio
[bullet] Janus Aspen Growth Portfolio
[bullet] Janus Aspen Worldwide Growth Portfolio
[bullet] Lexington Natural Resources Trust*
[bullet] Oppenheimer Global Securities Fund
[bullet] Oppenheimer Strategic Bond Fund
[bullet] Portfolio Partners MFS Emerging Equities Portfolio
[bullet] Portfolio Partners MFS Research Growth Portfolio
[bullet] Portfolio Partners MFS Value Equity Portfolio
[bullet] Portfolio Partners Scudder International Growth Portfolio
[bullet] Portfolio Partners T. Rowe Price Growth Equity Portfolio
*This Fund is only available for investment by Participants who established an
Account under the Contract before May 1, 1998. As soon as all such Participants
have redirected their allocations to other investment options, the Fund will be
closed to all new investment (except reinvested dividends and capital gains
earned on amounts already invested in the Fund through the Separate Account and
loan repayments automatically deposited into the Fund pursuant to the Company's
loan repayment procedures).
The Credited Interest Options currently available under the Contract are the
Guaranteed Accumulation Account, the Fixed Account and the Fixed Plus Account.
Except as specifically mentioned, this Prospectus describes only investments
through the Separate Account. A brief description of each of the Credited
Interest Options is contained in Appendices to this Prospectus. Additional
information concerning the Guaranteed Accumulation Account is contained in a
separate prospectus.
Availability of the Funds and the Credited Interest Options is subject to
applicable regulatory authorization. Not all Funds or Credited Interest Options
may be available in all jurisdictions, under all Contracts or in all Plans.
Please check with your employer to determine option availability. (See
"Investment Options.")
This Prospectus provides investors with the information that they should know
about the Separate Account before investing in the Contract. Additional
information about the Separate Account is contained in a Statement of
Additional Information ("SAI") which is available at no charge. The SAI has
been filed with the Securities and Exchange Commission and is incorporated
herein by reference. The Table of Contents for the SAI is printed on page 22 of
this Prospectus. An SAI may be obtained by indicating the request on the
Enrollment Materials or on the prospectus receipt contained in this Prospectus,
or by calling the number listed under the "Inquiries" section of the Prospectus
Summary. You may also obtain an SAI for any of the Funds by calling that phone
number.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES OF
THE FUNDS AND THE GUARANTEED ACCUMULATION ACCOUNT. ALL PROSPECTUSES SHOULD BE
READ AND RETAINED FOR FUTURE REFERENCE.
<PAGE>
THIS PROSPECTUS, THE STATEMENT OF ADDITIONAL INFORMATION AND OTHER INFORMATION
ABOUT THE SEPARATE ACCOUNT REQUIRED TO BE FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION (SEC) CAN BE FOUND IN THE SEC'S WEB SITE AT
http://www.sec.gov.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS, ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION ARE DATED MAY 1,
1998.
<PAGE>
TABLE OF CONTENTS
================================================================================
DEFINITIONS ................................................. DEFINITIONS - 1
PROSPECTUS SUMMARY .......................................... SUMMARY - 1
FEE TABLE ................................................... FEE TABLE - 1
CONDENSED FINANCIAL INFORMATION .......................................... 1
THE COMPANY .............................................................. 1
VARIABLE ANNUITY ACCOUNT C ............................................... 1
INVESTMENT OPTIONS ....................................................... 1
The Funds ............................................................. 1
Credited Interest Options ............................................. 5
PURCHASE ................................................................. 5
Contract Availability ................................................. 5
Purchasing Interests in the Contract .................................. 6
Purchase Payments ..................................................... 6
Transfer Credits ...................................................... 6
Right to Cancel ....................................................... 6
CHARGES AND DEDUCTIONS ................................................... 6
Daily Deductions from the Separate Account ............................ 6
Maintenance Fee ....................................................... 7
Deferred Sales Charge ................................................. 8
Deferred Sales Charge Schedule for GAA for New York Contracts ......... 9
Fund Expenses ......................................................... 10
Premium and Other Taxes ............................................... 10
CONTRACT VALUATION ....................................................... 10
Account Value ......................................................... 10
Accumulation Units .................................................... 10
Net Investment Factor ................................................. 10
TRANSFERS ................................................................ 11
Telephone Transfers ................................................... 11
Dollar Cost Averaging Program ......................................... 11
WITHDRAWALS .............................................................. 11
Reinvestment Privilege ................................................ 12
CONTRACT LOANS ........................................................... 13
SYSTEMATIC DISTRIBUTION OPTIONS .......................................... 13
DEATH BENEFIT DURING ACCUMULATION PERIOD ................................. 13
ANNUITY PERIOD ........................................................... 14
Annuity Period Elections .............................................. 14
Annuity Options ....................................................... 14
Annuity Payments ...................................................... 15
Charges Deducted During the Annuity Period ............................ 15
Death Benefit Payable During the Annuity Period ....................... 15
TAX STATUS ............................................................... 16
Introduction .......................................................... 16
Taxation of the Company ............................................... 16
<PAGE>
Contracts Used with Certain Retirement Plans ............. 16
MISCELLANEOUS ............................................... 19
Distribution ............................................. 19
Delay or Suspension of Payments .......................... 19
Performance Reporting .................................... 19
Voting Rights ............................................ 20
Changes in Beneficiary Designations ...................... 20
Modification of the Contract ............................. 20
Legal Matters and Proceedings ............................ 20
Year 2000 ................................................ 20
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION ......... 22
APPENDIX I--GUARANTEED ACCUMULATION ACCOUNT ................. 24
APPENDIX II--THE FIXED ACCOUNT .............................. 25
APPENDIX III--THE FIXED PLUS ACCOUNT ........................ 26
APPENDIX IV--CONDENSED FINANCIAL INFORMATION ................ 28
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. THE COMPANY DOES NOT AUTHORIZE ANY
PERSON TO GIVE INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH
THE OFFERING CONTAINED IN THIS PROSPECTUS EXCEPT AS OTHERWISE CONTAINED HEREIN.
<PAGE>
DEFINITIONS
================================================================================
The following terms are defined as they are used in this Prospectus:
Account: A record which identifies contract values accumulated on behalf of
each Participant during the Accumulation Period. One or more Accounts may be
established for each Participant.
Account Value: The total dollar value of amounts held in an Account as of each
Valuation Date during the Accumulation Period.
Account Year: A period of twelve months measured from the date on which an
Account is established (the effective date) or from an anniversary of such
effective date.
Accumulation Period: The period during which Purchase Payment(s) credited to an
Account are invested to fund future annuity payments.
Accumulation Unit: A measure of the value of each Subaccount before annuity
payments begin.
Annuitant: The person on whose life or life expectancy the annuity payments are
based.
Annuity: A series of payments for life, a definite period or a combination of
the two.
Annuity Date: The date on which annuity payments begin.
Annuity Period: The period during which annuity payments are made.
Annuity Unit: A measure of the value of each Subaccount selected during the
Annuity Period.
Beneficiary(ies): The person(s) entitled to receive any death benefit upon
death of the Participant.
Code: Internal Revenue Code of 1986, as amended.
Company (We, Us): Aetna Life Insurance and Annuity Company.
Contract: The group and individual deferred, variable annuity contracts offered
by this Prospectus.
Contract Holder: The person or entity to whom the Contract is issued. The
Contract Holder of a group Contract is usually the employer; the Contract
Holder of an individual Contract is the Participant.
Credited Interest Options: The fixed interest options under the Contract. The
Credited Interest Options currently consist of the Guaranteed Accumulation
Account, the Fixed Account and the Fixed Plus Account, each of which is
described in an Appendix to this Prospectus. Amounts allocated to the Credited
Interest Options are included in the Account Value.
Enrollment Materials: An application for an individual contract or an
enrollment form for participation under a group contract.
Fund(s): An open-end registered management investment company whose shares are
purchased by the Separate Account to fund the benefits provided by the
Contract.
Home Office: The Company's principal executive offices located at 151
Farmington Avenue, Hartford, Connecticut 06156.
Participant (You): A person participating in a Plan maintained by an eligible
organization.
Plan(s): Tax-deferred annuity plans established under Section 403(b) of the
Code for employees of public school systems and certain tax-exempt
organizations (Section 501(c)(3) organizations), and defined contribution plans
established under Section 401(a) of the Code.
Purchase Payment(s): The gross payment(s) made to the Company under a Contract.
- --------------------------------------------------------------------------------
DEFINITIONS - 1
<PAGE>
Purchase Payment Periods: For "Installment Purchase Payment Accounts," the
period of time for completion of the agreed upon annual number and amount of
Purchase Payments. For example, if it is determined that the Purchase Payment
Period will consist of 12 payments per year and only 11 payments are made, the
Purchase Payment Period is not completed until the twelfth Purchase Payment is
made.
Separate Account: Variable Annuity Account C, a separate account established by
the Company for the purpose of funding variable annuity contracts issued by the
Company.
Subaccount(s): The portion of the assets of the Separate Account that is
allocated to a particular Fund. Each Subaccount invests in the shares of only
one corresponding Fund.
Valuation Date: The date and time at which the Accumulation Unit Value and
Annuity Unit Value of a Subaccount is calculated. Currently, this calculation
occurs after the close of business of the New York Stock Exchange on any normal
business day, Monday through Friday, that the New York Stock Exchange is open.
- --------------------------------------------------------------------------------
DEFINITIONS - 2
<PAGE>
PROSPECTUS SUMMARY
================================================================================
CONTRACTS OFFERED
The Contracts offered in connection with this Prospectus are group and
individual deferred variable annuity contracts issued by Aetna Life Insurance
and Annuity Company (the "Company"). The purpose of the Contract is to
accumulate values and to provide benefits upon retirement. The Contracts are
available for public school systems and certain tax-exempt (Section 501(c)(3))
organizations for their employees under Section 403(b) of the Code, and for
qualified defined contribution plans under Section 401(a) of the Code.
CONTRACT PURCHASE
The Contract may be purchased by eligible organizations on behalf of a
group made up of their employees. The individual contracts may be purchased by
individuals under Plans that permit such purchase. Eligible employees may
participate in the Contract by completing the Enrollment Materials (and any
other required forms) and submitting them to the Company in good order.
Purchase Payments can be applied to the Contract either through a lump-sum
transfer from a pre-existing plan or through periodic salary reductions or
employer contributions. (See "Purchase.")
FREE LOOK PERIOD
Participation under the Contract may be canceled within 10 days (longer if
required by state law) after You receive the Contract or other document
evidencing your interest in the Contract by returning it to the Company along
with a written notice of cancellation. Unless state law requires otherwise, the
amount you will receive upon cancellation will reflect the investment
performance of the Subaccounts into which your Purchase Payments were
deposited. The amount refunded may be more or less than the amount of your
Purchase Payments. (See "Purchase--Right to Cancel.")
INVESTMENT OPTIONS
The Company has established Variable Annuity Account C, a registered unit
investment trust, for the purpose of funding the variable portion of the
Contracts. The Separate Account is divided into Subaccounts which invest
directly in shares of the Funds described herein, as designated by the
Participant. The Contract allows investment in any of the Subaccounts, as well
as in the Credited Interest Options described below subject to the limitations
described in "Investment Options". The total number of investment options that
may be selected at any one time is limited. For a complete list of the Funds
available under the Contracts, a description of the investment objectives of
each of the Funds and their investment advisers, and a description of the
limitations on the number of investment options, see "Investment Options--The
Funds" in this Prospectus, as well as the prospectuses for each of the Funds.
The Contract also provides for investment in Credited Interest Options
which allow you to earn fixed rates of interest. The fixed options available
under the Contract are the Guaranteed Accumulation Account ("GAA"), the Fixed
Account, and the Fixed Plus Account. (See the Appendices to this Prospectus.)
CHARGES AND DEDUCTIONS
Certain charges are associated with these Contracts. These charges include
daily deductions from the Separate Account (the mortality and expense risk
charges and an administrative charge), as well as any annual maintenance fee
and premium and other taxes. The Funds also incur certain fees and expenses
which are deducted directly from the Funds. A deferred sales charge may apply
upon a full or partial withdrawal of the Account Value. (See the Fee Table and
"Charges and Deductions.")
TRANSFERS
Prior to the Annuity Date, and subject to certain limitations, Account
Values may be transferred among the Subaccounts and the Credited Interest
Options without charge. Transfers can be requested in writing or by telephone
in accordance with the Company's transfer procedures. (See the Appendices for a
full description of the restrictions applicable to transfers from the Credited
Interest Options.) (See "Transfers.")
- --------------------------------------------------------------------------------
SUMMARY - 1
<PAGE>
WITHDRAWALS
All or a part of the Account Value may be withdrawn prior to the Annuity
Date, subject to Plan provisions, by properly completing a disbursement form
and sending it to the Company. Limitations apply to withdrawals from the Fixed
Plus Account. Certain charges may be assessed upon withdrawal. The withdrawal
may also be subject to income tax and a federal tax penalty. The Code restricts
full and partial withdrawals in some circumstances. (See "Withdrawals.")
The Contract also offers certain Systematic Distribution Options during the
Accumulation Period to persons meeting certain criteria. Systematic
Distribution Options are not available in all states and may not be suitable
in every situation. (See "Systematic Distribution Options.")
LOANS
Participants under Section 403(b) Plans may request a loan from their
Account Value at any time during the Accumulation Period. Loans are not
available from Contracts issued under Section 401(a) Plans. (See "Contract
Loans.")
DEATH BENEFIT
A death benefit is payable if the Participant dies before the Annuity
Date. Death benefit proceeds will be paid to the Beneficiary in an amount equal
to the Account Value. Until the election of a method of payment, the Account
Value will remain invested under the Contract. The Beneficiary may elect to
receive the proceeds in a lump sum or under any of the payment options
available under the Contract. However, the Code requires that distributions
begin within a certain time period. (See "Death Benefit During Accumulation
Period.")
After Annuity Payments have commenced, a death benefit may be payable to
the Beneficiary depending upon the terms of the Contract and the Annuity Option
selected. (See "Death Benefit Payable During the Annuity Period.")
THE ANNUITY PERIOD
On the Annuity Date, you may elect to begin receiving Annuity Payments
which may be made on either a fixed, variable or combination fixed and variable
basis. If a variable Annuity is selected, the payments will vary with the
investment performance of the Subaccount(s) selected. The Company reserves the
right to limit the number of Subaccounts that may be available during the
Annuity Period. (See "Annuity Period.")
TAXES
Contributions and earnings are not generally taxed until you or your
beneficiary(ies) actually receive a distribution from the Contract. A 10%
federal tax penalty and a 20% withholding for income tax may be imposed on
certain withdrawals. (See "Tax Status.")
INQUIRIES
Questions, inquiries or requests for additional information can be
directed to your agent or local representative, or you may contact the Company
as follows:
[bullet] Write to: Aetna Life Insurance and Annuity Company
151 Farmington Avenue
Hartford, Connecticut 06156-1277
Attention: Customer Service
[bullet] Call Customer Service: 1-800-525-4225 (for automated transfers or
changes in the allocation of Account
Values, call: 1-800-262-3862)
- --------------------------------------------------------------------------------
SUMMARY - 2
<PAGE>
FEE TABLE
================================================================================
This Fee Table describes the various charges and expenses associated with the
Contract during the Accumulation Period. For amounts deducted during the
Annuity Period, see "Annuity Period--Charges Deducted During the Annuity
Period." No sales charge is paid upon purchase of the Contract. All costs that
are borne directly or indirectly under the Subaccounts and Funds are shown
below. Some expenses may vary as explained under "Charges and Deductions."
Charges shown do not include premium taxes that may be applicable. For more
information regarding fees and expenses paid out of the assets of a particular
Fund, see the Fund's prospectus.
CONTRACT HOLDER TRANSACTIONS EXPENSES
Deferred Sales Charge (as a percentage of the amount withdrawn).(1)
INSTALLMENT PURCHASE PAYMENT ACCOUNTS:
Purchase Payment Deferred Sales
Periods Completed Charge Deduction
- ---------------------------------------------
Less than 5 5%
5 or more but less than 7 4%
7 or more but less than 9 3%
9 or more but less than 10 2%
More than 10 0%
SINGLE PURCHASE PAYMENT ACCOUNTS:
Account Years Deferred Sales
Completed Charge Deduction
- -----------------------------------------------
Less than 5 5%
5 or more but less than 6 4%
6 or more but less than 7 3%
7 or more but less than 8 2%
8 or more but less than 9 1%
9 or more 0%
<TABLE>
<S> <C>
Annual Contract Maintenance Fee: Installment Purchase Payment Accounts .. $20.00(2)
Single Purchase Payment Accounts ....... $ 0.00
</TABLE>
SEPARATE ACCOUNT ANNUAL EXPENSES
(Daily deductions, equal to the percentage shown on an annual basis, made from
amounts allocated to the variable options under each Contract.)
For all Contracts except those for which an Administrative Expense Charge is
imposed (see "Charges and Deductions"), Separate Account Annual/Expenses are:
Mortality and Expense Risk Charge .............................. 1.25%(3)
Administrative Expense Charge .................................. 0.00%(4)
----
Total Separate Account Charges ................................ 1.25%
====
For Contracts for which an Administrative Expense Charge is imposed (see
"Charges and Deductions"), Separate Account Annual Expenses are:
Mortality and Expense Risk Charge .............................. 1.25%(3)
Administrative Expense Charge .................................. 0.25%(4)
----
Total Separate Account Charges ................................ 1.50%
====
- --------------------------------------------------------------------------------
FEE TABLE - 1
<PAGE>
(1) The total amount deducted for the deferred sales charge will not
exceed 8.5% of the total Purchase Payments applied to the Account.
(2) The maintenance fee will generally be deducted annually from each
Installment Purchase Payment Account during the Accumulation Period.
The amount of the maintenance fee may be reduced or eliminated for
group Contracts. The amount shown is the maximum maintenance fee that
can be deducted under each Account.
(3) Under certain Contracts the mortality and expense risk charge during
the Accumulation Period may be reduced. See "Charges and Deductions".
(4) Effective July 1, 1997, during the Annuity Period, an administrative
expense charge of 0.25% will apply for all Participants who enrolled
in a group Contract or became covered under an individual Contract on
or after November 5, 1984.
- --------------------------------------------------------------------------------
FEE TABLE - 2
<PAGE>
ANNUAL EXPENSES OF THE FUNDS
The following table illustrates the advisory fees and other expenses applicable
to the Funds. Except as noted, these figures are a percentage of each Fund's
average net assets and are based on figures for the year ended December 31,
1997. A Fund's "Other Expenses" include operating costs of the Fund. The
expenses shown below are reflected in the Fund's net asset value and are not
deducted from the Account Value under the Contract.
<TABLE>
<CAPTION>
Investment
Advisory Fees(1) Other Expenses
(after expense (after expense Total Fund
reimbursement) reimbursement) Annual Expenses
------------------ ---------------- ----------------
<S> <C> <C> <C>
Aetna Ascent VP(2)(3) 0.57% 0.23% 0.80%
Aetna Balanced VP, Inc.(3) 0.50% 0.10% 0.60%
Aetna Bond VP(3) 0.40% 0.10% 0.50%
Aetna Crossroads VP(2)(3) 0.55% 0.25% 0.80%
Aetna Growth VP(2)(3) 0.16% 0.64% 0.80%
Aetna Growth and Income VP(3) 0.50% 0.09% 0.59%
Aetna High Yield VP(2)(3) 0.47% 0.33% 0.80%
Aetna Index Plus Large Cap VP(2)(3) 0.32% 0.23% 0.55%
Aetna Index Plus Mid Cap VP(2)(3) 0.27% 0.33% 0.60%
Aetna Index Plus Small Cap VP(2)(3) 0.27% 0.33% 0.60%
Aetna International VP(2)(3) 0.77% 0.38% 1.15%
Aetna Legacy VP(2)(3) 0.49% 0.31% 0.80%
Aetna Money Market VP(3) 0.25% 0.10% 0.35%
Aetna Real Estate Securities VP(2)(3) 0.62% 0.33% 0.95%
Aetna Small Company VP(2)(3) 0.35% 0.60% 0.95%
Aetna Value Opportunity VP(2)(3) 0.20% 0.60% 0.80%
Calvert Responsibly Invested Balanced Portfolio(4) 0.69% 0.12% 0.81%
Fidelity VIP Equity-Income Portfolio(5) 0.50% 0.08% 0.58%
Fidelity VIP Growth Portfolio(5) 0.60% 0.09% 0.69%
Fidelity VIP Overseas Portfolio(5) 0.75% 0.17% 0.92%
Fidelity VIP II Contrafund Portfolio(5) 0.60% 0.11% 0.71%
Janus Aspen Aggressive Growth Portfolio(6) 0.73% 0.03% 0.76%
Janus Aspen Balanced Portfolio(6) 0.76% 0.07% 0.83%
Janus Aspen Flexible Income Portfolio 0.65% 0.10% 0.75%
Janus Aspen Growth Portfolio(6) 0.65% 0.05% 0.70%
Janus Aspen Worldwide Growth Portfolio(6) 0.66% 0.08% 0.74%
Lexington Natural Resources Trust 1.00% 0.25% 1.25%
Oppenheimer Global Securities Fund 0.70% 0.06% 0.76%
Oppenheimer Strategic Bond Fund 0.75% 0.08% 0.83%
Portfolio Partners, Inc. MFS Emerging Equities Portfolio(7)(8) 0.68% 0.13% 0.81%
Portfolio Partners, Inc. MFS Research Growth Portfolio(7)(8) 0.70% 0.15% 0.85%
Portfolio Partners, Inc. MFS Value Equity Portfolio(7) 0.65% 0.25% 0.90%
Portfolio Partners, Inc. Scudder International Portfolio(7) 0.80% 0.20% 1.00%
Portfolio Partners, Inc. T. Rowe Price Growth Equity Portfolio(7) 0.60% 0.15% 0.75%
</TABLE>
- --------------------------------------------------------------------------------
FEE TABLE - 3
<PAGE>
(1) Certain of the 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) Effective May 1, 1998, the Portfolios' adviser has agreed to waive a portion
of its fee or to reimburse certain expenses so that aggregate expenses do
not exceed the total expenses shown above. These fee waiver/expense
reimbursement arrangements will increase total return and may be modified or
terminated at any time.
Without Fund Annual Operating fee waiver/expense reimbursement arrangements
Management Fees and Total Fund Annual Operating Expenses for the Portfolio
would be higher. Management Fees and Total Expenses would be as follows:
0.60% and 0.83% for Ascent VP; 0.60% and 0.85% for Crossroads VP; 0.60% and
1.24% for Growth VP; 0.65% and 0.98% for High Yield VP; 0.35% and 0.58% for
Index Plus Large Cap VP; 0.40% and 0.73% for Index Plus Mid Cap VP; 0.40%
and 0.73% for Index Plus Small Cap VP; 0.85% and 1.23% for International VP;
0.60% and 0.91% for Legacy VP; 0.75% and 1.08% for Real Estate Securities
VP; 0.75% and 1.35% for Small Company VP; and 0.60% and 1.20% for Value
Opportunity VP, respectively.
(3) Prior to May 1, 1998, the investment adviser provided administrative
services to the Fund and assumed the Fund's ordinary recurring direct costs
under an Administrative Services Agreement. Effective May 1, 1998, the
investment adviser will continue to provide administrative services to the
Fund but will no longer assume all of the Fund's ordinary recurring direct
costs under the Administrative Services Agreement. The Administrative Fee is
0.075% on the first $5 billion in assets and 0.050% on all assets over $5
billion. The "Other Expenses" shown are not based on actual figures for the
year ended December 31, 1997, but reflect the fee payable under the new
Administrative Services Agreement and estimates of the Fund's ordinary
recurring direct costs. High Yield VP, Index Plus Mid Cap VP, Index Plus
Small Cap VP, International VP and Real Estate VP commenced operations in
December 1997, therefore, estimates are based on expenses incurred for
similar funds. Actual expenses incurred may be more or less than the
amounts shown above.
(4) The figures above are based on expenses for the fiscal year 1997, and have
been restated to reflect an increase in transfer agency expenses of 0.01%
for the Portfolio expected to be incurred in 1998. "Management Fees"
includes a performance adjustment, which depending on performance, could
cause the fee to be as high as 0.85% or as low as 0.55%. "Other Expenses"
reflect an indirect fee of 0.03% (relating to an expense offset arrangement
with the Portfolio's custodian). Net fund operating expenses after
reductions for fees paid indirectly (again, restated) would be 0.78%.
(5) A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, certain funds have entered into
arrangements with their custodian whereby credits realized, as a result of
uninvested cash balances were used to reduce custodian expenses. Including
these reductions, the total operating expenses would have been 0.57% for
Equity-Income Portfolio; 0.67% for Growth Portfolio; 0.90% for Overseas
Portfolio, and 0.68% for Contrafund Portfolio.
(6) Management fees for Aggressive Growth, Balanced, Growth and Worldwide Growth
Portfolios reflect a reduced fee schedule effective July 1, 1997. The
management fees shown above are based on the new rate applied to net assets
as of December 31, 1997. Other expenses are based on gross expenses of the
Shares before expense offset arrangements for the fiscal year ended December
31, 1997. The information for each Portfolio is net of fee waivers or
reductions from Janus Capital. Fee reductions for the Aggressive Growth,
Balanced, Growth and Worldwide Growth Portfolios reduce the management fee
to the level of the corresponding Janus retail fund. Other waivers, if
applicable, are first applied against the management fee and then against
other expenses. Without such waivers or reductions, the Management Fee,
Other Expenses and Total Fund Annual Operating Expenses for the Shares would
have been 0.74%, 0.04%, and 0.78% Fund Annual Aggressive Growth Portfolio;
0.77%, 0.06%, and 0.83% for Balanced Portfolio; 0.74%, 0.04%, and 0.78% for
Growth Portfolio; and 0.72%, 0.09%, and 0.81% for Worldwide Growth
Portfolio, respectively. Janus Capital may modify or terminate the waivers
or reductions at any time upon at least 90 days' notice to the Trustees.
(7) Each Portfolio's aggregate expenses are contractually limited to the
advisory and administrative fees disclosed above. The investment adviser
will not seek an increase in its advisory or administrative fee at any time
prior to May 1, 1999.
(8) The advisory fee is 0.70% of the first $500 million in assets and 0.65% on
the excess.
- --------------------------------------------------------------------------------
FEE TABLE - 4
<PAGE>
HYPOTHETICAL ILLUSTRATION (EXAMPLE)
THIS EXAMPLE IS PURELY HYPOTHETICAL. IT SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OR EXPECTED RETURN. ACTUAL EXPENSES
AND/OR RETURN MAY BE MORE OR LESS THAN THOSE SHOWN BELOW.
WITHOUT ADMINISTRATIVE EXPENSE CHARGE:
The following Examples illustrate the expenses that would have been paid
assuming a $1,000 investment in the Contract and a 5% return on assets. This
example assumes that no Administrative Expense Charge is imposed. For the
purposes of these Examples, the maximum maintenance fee of $20.00 that can be
deducted under the Contract has been converted to a percentage of assets equal
to 0.054%
<TABLE>
<CAPTION>
EXAMPLE A EXAMPLE B
--------------------------------------- --------------------------------------
If you withdraw your entire Account If you do not withdraw your Account
Value at the end of the periods shown, Value, or if you annuitize at the end of
you would pay the following expenses, the periods shown, you would pay the
including any applicable deferred following expenses (no deferred sales
sales charge: charge is reflected):
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 Ascent VP $73 $120 $171 $244 $21 $66 $113 $244
Aetna Balanced VP, Inc. $71 $115 $161 $223 $19 $60 $103 $223
Aetna Bond VP $70 $112 $156 $212 $18 $57 $ 98 $212
Aetna Crossroads VP $73 $120 $171 $244 $21 $66 $113 $244
Aetna Growth VP $73 $120 $171 $244 $21 $66 $113 $244
Aetna Growth and Income VP $71 $114 $161 $222 $19 $60 $102 $222
Aetna High Yield VP $73 $120 $171 $244 $21 $66 $113 $244
Aetna Index Plus Large Cap VP $70 $113 $159 $217 $19 $58 $100 $217
Aetna Index Plus Mid Cap VP $71 $115 $161 $223 $19 $60 $103 $223
Aetna Index Plus Small Cap VP $71 $115 $161 $223 $19 $60 $103 $223
Aetna International VP $76 $130 $187 $279 $25 $76 $131 $279
Aetna Legacy VP $73 $120 $171 $244 $21 $66 $113 $244
Aetna Money Market VP $68 $107 $149 $196 $17 $52 $ 90 $196
Aetna Real Estate Securities VP $74 $125 $178 $259 $23 $70 $121 $259
Aetna Small Company VP $74 $125 $178 $259 $23 $70 $121 $259
Aetna Value Opportunity VP $73 $120 $171 $244 $21 $66 $113 $244
Calvert Social Balanced Portfolio $73 $121 $171 $245 $21 $66 $114 $245
Fidelity VIP Equity-Income Portfolio $71 $114 $160 $221 $19 $59 $102 $221
Fidelity VIP Growth Portfolio $72 $117 $165 $232 $20 $63 $107 $232
Fidelity VIP Overseas Portfolio $74 $124 $177 $256 $23 $70 $119 $256
Fidelity VIP II Contrafund Portfolio $72 $118 $166 $234 $20 $63 $108 $234
Janus Aspen Aggressive Growth Portfolio $72 $119 $169 $239 $21 $65 $111 $239
Janus Aspen Balanced Portfolio $73 $121 $172 $247 $22 $67 $115 $247
Janus Aspen Flexible Income Portfolio $72 $119 $168 $238 $21 $64 $111 $238
Janus Aspen Growth Portfolio $72 $117 $166 $233 $20 $63 $108 $233
Janus Aspen Worldwide Growth Portfolio $72 $119 $168 $237 $21 $64 $110 $237
Lexington Natural Resources Trust $77 $133 $192 $289 $26 $79 $136 $289
Oppenheimer Global Securities Fund $72 $119 $169 $239 $21 $65 $111 $239
Oppenheimer Strategic Bond Fund $73 $121 $172 $247 $22 $67 $115 $247
Portfolio Partners MFS Emerging Equities
Portfolio $73 $121 $171 $245 $21 $66 $114 $245
Portfolio Partners MFS Research Growth
Portfolio $73 $122 $173 $249 $22 $67 $116 $249
Portfolio Partners MFS Value Equity
Portfolio $74 $123 $176 $254 $22 $69 $118 $254
Portfolio Partners Scudder International
Growth Portfolio $75 $126 $180 $264 $23 $72 $123 $264
Portfolio Partners T. Rowe Price Growth
Equity Portfolio $72 $119 $168 $238 $21 $64 $111 $238
</TABLE>
- ------------------
*This Example would not apply if a non-lifetime variable annuity option is
selected, and a lump sum settlement is requested before a minimum number of
years of payments (as specified in the Contract) have been completed since the
lump sum payment will be treated as a withdrawal during the Accumulation Period
and will be subject to any deferred sales charge that would then apply. (Refer
to Example A.)
- --------------------------------------------------------------------------------
FEE TABLE - 5
<PAGE>
THIS EXAMPLE IS PURELY HYPOTHETICAL. IT SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OR EXPECTED RETURN. ACTUAL EXPENSES
AND RETURN MAY BE MORE OR LESS THAN THOSE SHOWN BELOW.
WITH ADMINISTRATIVE EXPENSE CHARGE:
The following Examples illustrate the expenses that would have been paid
assuming a $1,000 investment in the Contract and a 5% return on assets. This
example assumes that an Administrative Expense Charge is imposed. For the
purposes of these Examples, the maximum maintenance fee of $20.00 that can be
deducted under the Contract has been converted to a percentage of assets equal
to 0.054%.
<TABLE>
<CAPTION>
EXAMPLE A EXAMPLE B
--------------------------------------- --------------------------------------
If you withdraw your entire Account If you do not withdraw your Account
Value at the end of the periods shown, Value, or if you annuitize at the end of
you would pay the following expenses, the periods shown, you would pay the
including any applicable deferred following expenses (no deferred sales
sales charge: charge is reflected):*
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 Ascent VP $75 $128 $183 $269 $24 $73 $126 $269
Aetna Balanced VP, Inc. $73 $122 $173 $249 $22 $67 $116 $249
Aetna Bond VP $72 $119 $168 $238 $21 $64 $111 $238
Aetna Crossroads VP $75 $128 $183 $269 $24 $73 $126 $269
Aetna Growth VP $75 $128 $183 $269 $24 $73 $126 $269
Aetna Growth and Income VP $73 $122 $173 $248 $22 $67 $115 $248
Aetna High Yield VP $75 $128 $183 $269 $24 $73 $126 $269
Aetna Index Plus Large Cap VP $73 $120 $171 $244 $21 $66 $113 $244
Aetna Index Plus Mid Cap VP $73 $122 $173 $249 $22 $67 $116 $249
Aetna Index Plus Small Cap VP $73 $122 $173 $249 $22 $67 $116 $249
Aetna International VP $78 $137 $199 $304 $27 $84 $143 $304
Aetna Legacy VP $75 $128 $183 $269 $24 $73 $126 $269
Aetna Money Market VP $71 $115 $161 $223 $19 $60 $103 $223
Aetna Real Estate Securities VP $77 $132 $190 $284 $25 $78 $133 $284
Aetna Small Company VP $77 $132 $190 $284 $25 $78 $133 $284
Aetna Value Opportunity VP $75 $128 $183 $269 $24 $73 $126 $269
Calvert Social Balanced Portfolio $75 $128 $183 $270 $24 $74 $126 $270
Fidelity VIP Equity-Income Portfolio $73 $121 $172 $247 $22 $67 $115 $247
Fidelity VIP Growth Portfolio $74 $124 $177 $258 $23 $70 $120 $258
Fidelity VIP Overseas Portfolio $76 $131 $188 $281 $25 $77 $132 $281
Fidelity VIP II Contrafund Portfolio $74 $125 $178 $260 $23 $71 $121 $260
Janus Aspen Aggressive Growth Portfolio $75 $126 $181 $265 $23 $72 $124 $265
Janus Aspen Balanced Portfolio $75 $128 $184 $272 $24 $74 $127 $272
Janus Aspen Flexible Income Portfolio $75 $126 $180 $264 $23 $72 $123 $264
Janus Aspen Growth Portfolio $74 $125 $178 $259 $23 $70 $121 $259
Janus Aspen Worldwide Growth Portfolio $75 $126 $180 $263 $23 $72 $123 $263
Lexington Natural Resources Trust $79 $140 $204 $313 $28 $87 $148 $313
Oppenheimer Global Securities Fund $75 $126 $181 $265 $23 $72 $124 $265
Oppenheimer Strategic Bond Fund $75 $128 $184 $272 $24 $74 $127 $272
Portfolio Partners MFS Emerging Equities
Portfolio $75 $128 $183 $270 $24 $74 $126 $270
Portfolio Partners MFS Research Growth
Portfolio $76 $129 $185 $274 $24 $75 $128 $274
Portfolio Partners MFS Value Equity
Portfolio $76 $130 $187 $279 $25 $76 $131 $279
Portfolio Partners Scudder International
Growth Portfolio $77 $133 $192 $289 $26 $79 $136 $289
Portfolio Partners T. Rowe Price Growth
Equity Portfolio $75 $126 $180 $264 $23 $72 $123 $264
</TABLE>
- ------------------
*This Example would not apply if a non-lifetime variable annuity option is
selected, and a lump sum settlement is requested before a minimum number of
years of payments (as specified in the Contract) have been completed, since the
lump sum payment will be treated as a withdrawal during the Accumulation Period
and will be subject to any deferred sales charge that would then apply. (Refer
to Example A.)
- --------------------------------------------------------------------------------
FEE TABLE - 6
<PAGE>
CONDENSED FINANCIAL INFORMATION
================================================================================
Condensed financial information for the Accumulation Units under the
Contracts is shown in Appendix IV
THE COMPANY
================================================================================
Aetna Life Insurance and Annuity Company (the "Company") is the issuer of
the Contract, and as such, it is responsible for providing the insurance and
annuity benefits under the Contract. The Company is a stock life insurance
company organized under the insurance laws of the State of Connecticut in 1976.
Through a merger, it succeeded to the business of Aetna Variable Annuity Life
Insurance Company (formerly Participating Annuity Life Insurance Company, an
Arkansas life insurance company organized in 1954). The Company is engaged in
the business of issuing life insurance policies and variable annuity contracts
in all states of the United States. The Company's principal executive offices
are located at 151 Farmington Avenue, Hartford, Connecticut 06156.
The Company is a wholly owned subsidiary of Aetna Retirement Holdings,
Inc., which is in turn a wholly owned subsidiary of Aetna Retirement Services,
Inc., and an indirect wholly owned subsidiary of Aetna Inc.
VARIABLE ANNUITY ACCOUNT C
================================================================================
The Company established Variable Annuity Account C (the "Separate
Account") in 1976 as a segregated asset account for the purpose of funding its
variable annuity contracts. The Separate Account is registered as a unit
investment trust under the Investment Company Act of 1940 (the "1940 Act"), and
meets the definition of "separate account" under the federal securities laws.
The Separate Account is divided into "subaccounts" which do not invest directly
in stocks, bonds or other investments. Instead, each Subaccount buys and sells
shares of a corresponding Fund.
Although the Company holds title to the assets of the Separate Account,
such assets are not chargeable with liabilities of any other business conducted
by the Company. Income, gains or losses of the Separate Account are credited to
or charged against the assets of the Separate Account without regard to other
income, gains or losses of the Company. All obligations arising under the
Contracts are obligations of the Company.
INVESTMENT OPTIONS
================================================================================
THE FUNDS
Purchase Payments may be allocated to one or more of the Subaccounts as
designated on the Enrollment Materials. In turn, the Subaccounts invest in the
corresponding Funds at net asset value. The Contract Holder may decide to offer
only a select number of Funds as funding options under its Plan, or may decide
to change which Funds it offers. No more than 18 different investment options
may be selected at any one time, unless you have an outstanding loan, in which
case as of the date of this Prospectus no more than 18 different choices of
investment options may be made during the Accumulation Period. (For Contracts
with a loan, a higher total may be available in the future.) For the purposes
of either limit, each Fund, the Fixed Account, the Fixed Plus Account, and
each classification of GAA counts as one option. If you have an outstanding
loan the limit applies over the entire Accumulation Period. Once an investment
option is selected, it counts towards the limit even if amounts are no longer
allocated to that option. Please check with your local representative or
contact the Company at the toll-free number in the "Inquiries" section of the
Prospectus summary to determine if these limitations apply to you or to
determine if you may select more than 18 investment options during the
Accumulation Period if you have a loan.
Under all Contracts, the Company may add, withdraw or substitute Funds,
subject to the conditions in the Contract and in compliance with regulatory
requirements. The availability of the Funds may also be
- --------------------------------------------------------------------------------
1
<PAGE>
subject to applicable regulatory authorization. Not all Funds may be available
in all jurisdictions, under all Contracts or in all Plans.
The investment results of the Funds described below are likely to differ
significantly and there is no assurance that any of the Funds will achieve
their respective investment objectives. Except where otherwise noted, all of
the Funds are diversified, as defined in the 1940 Act.
[bullet] Aetna Balanced VP, Inc. (formerly Aetna Investment Advisers Fund, Inc)
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 investment
adviser's judgment of which of those sectors or mix thereof offers the
best investment prospects.(1)
[bullet] Aetna Income Shares d/b/a Aetna Bond VP seeks to maximize total
return, consistent with reasonable risk, through investments in a
diversified portfolio consisting primarily of debt securities.(1)
[bullet] Aetna Variable Fund d/b/a Aetna Growth and Income VP seeks to maximize
total return through investments in a diversified portfolio of common
stocks and securities convertible into common stock.(1)
[bullet] Aetna Variable Encore Fund d/b/a Aetna Money Market VP seeks to
provide high current return, consistent with preservation of capital
and liquidity, through investment in high-quality money market
instruments. An investment in the Fund is neither insured nor
guaranteed by the U.S. Government.(1)
[bullet] Aetna Generation Portfolios, Inc.--Aetna Ascent VP (formerly Aetna
Ascent Variable Portfolio) seeks to provide capital appreciation. The
Portfolio is designed for investors who have an investment horizon
exceeding 15 years, and who have a high level of risk tolerance.(1)
[bullet] Aetna Generation Portfolios, Inc.--Aetna Crossroads VP (formerly Aetna
Crossroads Variable Portfolio) seeks to provide total return (i.e.,
income and capital appreciation, both realized and unrealized). The
Portfolio is designed for investors who have an investment horizon
exceeding 10 years and who have a moderate level of risk tolerance.(1)
[bullet] Aetna Generation Portfolios, Inc.--Aetna Legacy VP (formerly Aetna
Legacy Variable Portfolio) seeks to provide total return consistent
with preservation of capital. The Portfolio is designed for investors
who have an investment horizon exceeding five years and who have a low
level of risk tolerance.(1)
[bullet] Aetna Variable Portfolios, Inc.--Aetna Growth VP (formerly Aetna
Variable Growth Portfolio) seeks growth of capital through investment
in a diversified portfolio of common stocks and securities convertible
into common stocks believed to offer growth potential.(1)
[bullet] Aetna Variable Portfolios, Inc.--Aetna High Yield VP seeks high current
income and growth of capital primarily through investment in a
diversified portfolio of fixed income securities rated lower than BBB-
by Standard & Poor's Corporation or lower than Baa3 by Moody's
Investor Services, Inc.(1)
[bullet] Aetna Variable Portfolios, Inc.--Aetna Index Plus Large Cap VP
(formerly Aetna Variable Index Plus Portfolio) seeks to outperform the
total return performance of publicly traded common stocks represented
in the S&P 500 Composite Price Index.(1)
[bullet] Aetna Variable Portfolios, Inc.--Aetna Index Plus Mid Cap VP seeks to
outperform the total return performance of publicly traded common
stocks represented in the S&P 400.(1)
[bullet] Aetna Variable Portfolios, Inc.--Aetna Index Plus Small Cap VP seeks to
outperform the total return performance of publicly traded common
stocks represented by the S&P 600 Small Cap Index, a stock market index
composed of 600 common stocks selected by Standard & Poor's
Corporation.(1)
[bullet] Aetna Variable Portfolios, Inc.--Aetna International VP seeks long-term
capital growth primarily through investment in a diversified portfolio
of common stocks principally traded in countries outside of the United
States. Aetna International VP will not target any given level of
current income.(1)
[bullet] Aetna Variable Portfolios, Inc.--Aetna Real Estate Securities VP seeks
maximum total return primarily through investment in a diversified
portfolio of equity securities issued by real estate companies, the
majority of which are real estate investment trusts (REITs).(1)
- --------------------------------------------------------------------------------
2
<PAGE>
[bullet] Aetna Variable Portfolios, Inc.--Aetna Small Company VP (formerly
Aetna Variable Small Company Portfolio) seeks growth of capital
primarily through investment in a diversified portfolio of common
stocks and securities convertible into common stocks of companies with
smaller market capitalizations.(1)
[bullet] Aetna Variable Portfolios, Inc.--Aetna Value Opportunity VP (formerly
Aetna Variable Capital Appreciation Portfolio) seeks growth of capital
primarily through investment in a diversified portfolio of common
stocks and securities convertible into common stock.(1)
[bullet] Calvert Social Balanced Portfolio (formerly Calvert Responsibly
Invested Balanced Portfolio) is a nondiversified portfolio that seeks
to achieve a total return above the rate of inflation through an
actively managed, nondiversified portfolio of common and preferred
stocks, bonds and money market instruments which offer income and
capital growth opportunity and which satisfy the social criteria
established for the Portfolio.(2)
[bullet] Fidelity Investments Variable Insurance Products Fund--Equity-Income
Portfolio seeks reasonable income by investing primarily in
income-producing equity securities. In selecting investments, the Fund
also considers the potential for capital appreciation.(3)
[bullet] Fidelity Investments Variable Insurance Products Fund--Growth
Portfolio seeks capital appreciation by investing mainly in common
stocks, although its investments are not restricted to any one type of
security.(3)
[bullet] Fidelity Investments Variable Insurance Products Fund--Overseas
Portfolio seeks long-term growth by investing mainly in foreign
securities (at least 65% of the Fund's total assets in securities of
foreign issuers. Foreign investments involve greater risks than U.S.
investments, including political and economic risks and the risk of
currency fluctuation.(3)
[bullet] Fidelity Investments Variable Insurance Products Fund II--Contrafund
Portfolio seeks maximum total return over the long term by investing
mainly in securities of companies whose value the investment adviser
believes is not fully recognized by the public.(3)
[bullet] Janus Aspen Series--Aggressive Growth Portfolio is a nondiversified
portfolio that seeks long-term growth of capital. The Portfolio pursues
its investment objective by normally investing at least 50% of its
equity assets in securities issued by medium-sized companies.
Medium-sized companies are those whose market capitalizations fall
within the range of companies in the S & P MidCap 400 Index, which as
of December 31, 1997 included companies with capitalizations between
approximately $213 million and $13.7 billion, but which is expected to
change on a regular basis.(4)
[bullet] Janus Aspen Series--Balanced Portfolio seeks long-term capital growth,
consistent with preservation of capital and balanced by current income.
The Portfolio pursues its investment objective by, under normal
circumstances, investing 40%-60% of its assets in securities selected
primarily for their growth potential and 40%-60% of its assets in
securities selected primarily for their income potential.(4)
[bullet] Janus Aspen Series--Flexible Income Portfolio seeks to obtain maximum
total return, consistent with preservation of capital. Total return is
expected to result from a combination of current income and capital
appreciation. The Portfolio invests in all types of income-producing
securities and may have substantial holdings of debt securities rated
below investment grade (e.g., junk bonds).(4)
[bullet] Janus Aspen Series--Growth Portfolio seeks long-term growth of capital
in a manner consistent with the preservation of capital. The Portfolio
pursues its investment objective by investing primarily in common
stocks of companies of any size. This Portfolio generally invests in
larger, more established issuers.(4)
- --------------------------------------------------------------------------------
3
<PAGE>
[bullet] Janus Aspen Series--Worldwide Growth Portfolio seeks long-term growth
of capital in a manner consistent with preservation of capital. The
Portfolio pursues its investment objective primarily through
investments in common stocks of foreign and domestic issuers.(4)
[bullet] Lexington Natural Resources Trust is a nondiversified portfolio that
seeks long-term growth of capital through investment primarily in
common stocks of companies which own or develop natural resources and
other basic commodities or supply goods and services to such
companies.
This Fund is only available for investment by Participants who were
directing current allocations into the Fund as of May 1, 1998. As soon
as all such Participants have redirected their allocations to other
investment options, the Fund will be closed to all new investments
(except reinvested dividends and capital gains earned on amounts
already invested in the Fund through the Separate Account and loan
repayments automatically deposited into the Fund pursuant to the
Company's loan repayment procedures).(5)
[bullet] Oppenheimer Global Securities Fund seeks long-term capital appreciation
by investing a substantial portion of its assets in securities of
foreign issuers, "growth-type" companies, cyclical industries and
special situations which are considered to have appreciation
possibilities but which may be considered to be speculative.(6)
[bullet] Oppenheimer Strategic Bond Fund seeks a high level of current income
principally derived from interest on debt securities and seeks to
enhance such income by writing covered call options on debt securities.
The Fund intends to invest principally in: (i) foreign government and
corporate debt securities, (ii) securities of the U.S. Government and
its agencies and instrumentalities ("U.S. Government Securities"), and
(iii) lower-rated high yield domestic debt securities, commonly known
as "junk bonds," which are subject to a greater risk of loss of
principal and nonpayment of interest than higher-rated securities.
These securities may be considered to be speculative. Current income is
not an objective.(6)
[bullet] Portfolio Partners, Inc. MFS Emerging Equities Portfolio seeks to
provide long-term growth of capital. Dividend and interest income from
Portfolio securities, if any, is incidental to the Portfolio's
investment objective.(7)(a)
[bullet] Portfolio Partners, Inc. MFS Research Growth Portfolio seeks long-term
growth of capital and future income.(7)(a)
[bullet] Portfolio Partners, Inc. MFS Value Equity Portfolio seeks capital
appreciation. Dividend income, if any, is a consideration incidental to
the Portfolio's investment objective of capital appreciation.(7)(a)
[bullet] Portfolio Partners, Inc. Scudder International Growth Portfolio seeks
long-term growth of capital primarily through a diversified portfolio
of marketable foreign equity securities.(7)(b)
[bullet] Portfolio Partners, Inc. T. Rowe Price Growth Equity Portfolio seeks
long-term growth of capital and, secondarily, to increase dividend
income by investing primarily in common stocks of well-established
growth companies.(7)(c)
Investment Advisers for each of the Funds:
(1) Aeltus Investment Management, Inc. (adviser)
(2) Calvert Asset Management Company, Inc.
(3) Fidelity Management & Research Company
(4) Janus Capital Corporation
(5) Lexington Management Corporation (adviser); Market Systems Research
Advisors, Inc. (subadviser)
(6) OppenheimerFunds, Inc.
(7) Aetna Life Insurance and Annuity Company (adviser):
(a) Massachusetts Financial Services Company (sub-adviser)
(b) Scudder Kemper Investments, Inc. (sub-adviser)
(c) T. Rowe Price Associates, Inc. (sub-adviser)
Risks Associated with Investment in the Funds. Some of the Funds may use
instruments known as derivatives as part of their investment strategies. The
use of certain derivatives may involve high risk of volatility to a Fund, and
the use of leverage in connection with such derivatives can also increase risk
of losses. Some of the Funds may also invest in foreign or international
securities which involve greater risks than U.S. investments.
- --------------------------------------------------------------------------------
4
<PAGE>
More comprehensive information, including a discussion of potential
risks, is found in the current prospectus for each Fund which is distributed
with and accompanies this Prospectus. You should read the Fund prospectuses and
consider carefully, and on a continuing basis, which Fund or combination of
Funds is best suited to your long-term investment objectives. Additional
prospectuses and Statements of Additional Information for this Prospectus and
for each of the Funds can be obtained from the Company's Home Office at the
address and telephone number listed under the "Inquiries" section of the
Prospectus Summary.
Conflicts of Interest (Mixed and Shared Funding). Shares of the Funds are
sold to each of the Subaccounts for funding the variable annuity contracts
issued by the Company. Shares of the Funds may also be sold to other insurance
companies for the same purpose. This is referred to as "shared funding." Shares
of the Funds may also be used for funding variable life insurance contracts
issued by the Company or by third parties. This is referred to as "mixed
funding."
Because the Funds available under the Contract are sold to fund variable
annuity contracts and variable life insurance policies issued by us or by other
companies, certain conflicts of interest could arise. If a conflict of interest
were to occur, one of the separate accounts might withdraw its investment in a
Fund, which might force that Fund to sell portfolio securities at
disadvantageous prices, causing its per share value to decrease. Each Fund's
Board of Directors or Trustees has agreed to monitor events in order to
identify any material irreconcilable conflicts which might arise and to
determine what action, if any, should be taken to address such conflict.
CREDITED INTEREST OPTIONS
Purchase Payments may be allocated to one or more of the Credited
Interest Options available under the Contract, as described below. Under group
Contracts, the Contract Holder may elect not to offer all Credited Interest
Options under its Plan.
[bullet] The Guaranteed Accumulation Account (GAA) is a credited interest
option through which we guarantee stipulated rates of interest for
stated periods of time. Amounts must remain in the GAA for the full
guaranteed term to receive the quoted interest rates, or a market
value adjustment (which may be positive or negative) will be applied.
(See Appendix I)
[bullet] The Fixed Account is a part of the Company's general account. The
Fixed Account guarantees a minimum interest rate, as specified in the
Contract. The Company may credit higher interest rates from time to
time. Transfers from the Fixed Account are limited. (See Appendix II.)
[bullet] The Fixed Plus Account is also a part of the Company's general account
and guarantees a minimum interest rate, as specified in the Contract.
The Company may credit higher interest rates in its discretion.
Withdrawals and transfers from the Fixed Plus Account are limited.
(See Appendix III.)
PURCHASE
================================================================================
CONTRACT AVAILABILITY
The Contracts are designed to fund Plans adopted by (1) public school
systems and certain tax-exempt (Section 501(c)(3)) organizations for their
employees under Section 403(b) of the Code, and (2) qualified defined
contribution plans under Section 401(a) of the Code. The Contract Holder must
notify the Company of the applicability of Title I of the Employee Retirement
Income Security Act of 1974 ("ERISA"), as amended by subsequent law, including
the Retirement Equity Act of 1984, to the Plan.
Eligible participants in the Plan seeking to invest and accumulate money
for retirement can purchase individual interests in group Contracts, or under
some Plans, they may purchase individual Contracts. The group Contract is
generally owned by the employer or association, and individual accounts are
established for each Participant. An individual Contract will be owned by the
Participant under Plans that permit such purchase. In both cases, a
Participant's interest in the Contract is known as his or her "Account."
For group Contracts issued in connection with Section 403(b) Plans, the
employer has no right, title or interest in the amounts held under the Contract
or in the Account; Participants make all elections under the Contract. For
group Contracts issued in connection with Section 401(a) Plans, the Participant
has such rights as
- --------------------------------------------------------------------------------
5
<PAGE>
are set forth in the Plan. Under individual Contracts, Participants have all
contract rights.
PURCHASING INTERESTS IN THE CONTRACT
Eligible organizations may acquire a group Contract by submitting the
appropriate forms to the Company. Once we approve the forms, a group Contract
is issued to the employer or association as the group Contract Holder.
Participants may purchase interests in a group Contract by submitting an
enrollment form to the Company. For Plans that allow Participants to purchase
an individual contract, Participants will submit an individual application to
the Company. The enrollment forms and individual application are collectively
referred to in this Prospectus as the "Enrollment Materials."
The Company must accept or reject the Enrollment Materials within two
business days of receipt. If the Enrollment Materials are incomplete, the
Company may hold any forms and accompanying Purchase Payments for five days.
Purchase Payments may be held for a longer period pending acceptance of the
forms only with consent of the Participant, or under certain circumstances
described below, with the consent of the group Contract Holder. Under limited
circumstances the Company may agree, with respect to a particular Plan, to hold
Purchase Payments for longer than the five business days, based on the consent
of the group Contract Holder, in which case these Purchase Payments will be
deposited in the Aetna Money Market VP Subaccount until the forms are
completed.
PURCHASE PAYMENTS
Generally, two types of Purchase Payments may be made under the Contract,
and depending upon which type of payment is made, different Accounts may be
established for each payment type. Continuing, periodic payments will be placed
in "Installment Purchase Payment Accounts." Lump-sum transfers of amounts
accumulated under a pre-existing plan may be placed in "Single Purchase Payment
Accounts" in accordance with the Company's procedures and minimums in effect at
the time of purchase. The Code imposes a maximum limit on annual Purchase
Payments which may be excluded from a Participant's gross income. (See "Tax
Status.")
Allocation of Purchase Payments. Purchase Payments will initially be
allocated to the Subaccounts or Credited Interest Options as specified by the
Participant on the Enrollment Materials. Changes in such allocation may be made
in writing or by telephone transfer. Allocations must be in whole percentages,
and there may be limitations on the number of investment options that can be
selected during the Accumulation Period. (See "Investment Options--The Funds.")
TRANSFER CREDITS
The Company may provide a transfer credit on "transferred assets,"
subject to certain conditions and state approvals. Transferred assets are the
value of contributions made on your behalf under this Plan or a prior plan
before such amounts are applied to this Contract. The transfer credit will
equal a percentage of the transferred assets applied to the Contract that
remain in the Contract after a specified period of time. Once a transfer credit
is applied to your Contract, all provisions of the Contract apply. This benefit
is provided on a nondiscriminatory basis. If a transfer credit is due under the
Contract, you will be provided with additional information specific to the
Contract.
RIGHT TO CANCEL
Participation under the Contract may be canceled without penalty by
returning it (or other document evidencing your interest) to the Company with a
written notice of your intent to cancel. In most states, you have ten days to
exercise this right; some states allow you a longer free-look period. When we
receive your request for cancellation, we will return your Account Value,
unless the laws of the state in which the Contract was issued require that we
return the initial Purchase Payment (if greater than the Account Value). In
states that do not require a return of Purchase Payments, you bear the entire
investment risk for amounts allocated among the Subaccounts during the free
look period. Account Values will be determined as of the next Valuation Date
following our receipt of your request for cancellation at our Home Office.
CHARGES AND DEDUCTIONS
================================================================================
DAILY DEDUCTIONS FROM THE SEPARATE ACCOUNT
Mortality and Expense Risk Charge. The Company makes a daily deduction
from each of the Subaccounts for the mortality and expense risk charge. The
Charge is equal, on an annual basis, to 1.25% of the daily net assets of the
Subaccounts and compensates the
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Company for the assumption of the mortality and expense risks under the
Contract. The mortality risks are those assumed for our promise to make
lifetime payments according to annuity rates specified in the Contract. The
expense risk is the risk that the actual expenses for costs incurred under the
Contract will exceed the maximum costs that can be charged under the Contract.
The mortality and expense risk charge may be reduced for a Contract Holder
under various conditions as agreed to by Us and the Contract Holder in writing.
Whether such a reduction is available will be determined by the Company based
upon consideration of some or all of the following factors:
[bullet] The size of the prospective group.
[bullet] The number of eligible participants and the program's participation
rate.
[bullet] The projected annual Purchase Payments for the number of Participants
estimated to choose the Contract.
[bullet] The frequency of projected distributions.
[bullet] The type and level of administrative and sales services to be
provided.
[bullet] The Contract Holder's support and involvement in the communication,
enrollment, and Participant education.
[bullet] The frequency, consistency and method of submitting Purchase Payments.
[bullet] The retirement program design. For example, the program may favor the
stability of invested assets and limit the conditions for withdrawals,
loans and investment options which in turn will lower administrative
expenses.
[bullet] The type and level of other factors that affect the overall
administrative expense.
Prospective purchasers eligible for a reduction in the mortality and
expense risk charge will be notified of their eligibility and the amount of the
charge applicable to their Contract prior to the Company's acceptance of an
application for the Contract. We may also make reductions after the Contract
has been issued, according to the Company's rules in effect at the time there
is a material change in any of the above factors. We will notify the Contract
Holder of any reduction prior to it occurring. Any reduction of the mortality
and expense risk charge will not be unfairly discriminatory against any person.
If the amount deducted for mortality and expense risks is not sufficient
to cover the mortality costs and expense shortfalls, the loss is borne by the
Company. If the deduction is more than sufficient, the excess may be used to
recover distribution expenses relating to the Contracts and as a source of
profit to the Company. The Company expects to make a profit from the mortality
and expense risk charge.
Administrative Expense Charge. The Company reserves the right to make a
deduction from each of the Subaccounts for an administrative 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.
The administrative expense charge during the Accumulation Period equals,
on an annual basis, 0.25% for Contracts effective prior to October 31, 1996
where the number of Participants with assets in the Contract is less than 30 as
of November 30, 1996 and the Contract Holder has chosen not to elect one of the
Company's electronic standards for cash collection and application of
participant contribution data. There is currently no administrative expense
charge assessed during the Accumulation Period for any other Contracts.
In addition, the administrative expense charge will not be imposed for
participants who enrolled in a group contract prior to November 5, 1984, for
any participants in individual Contracts issued prior to November 5, 1984, or
for Contracts issued to public school systems.
During the Annuity Period, the administrative expense charge equals, on
an annual basis, 0.25% of the daily net assets allocated to the Subaccounts for
all Participants who enrolled in a group Contract or became covered under an
individual Contract on or after November 5, 1984.
MAINTENANCE FEE
During the Accumulation Period, the Company will deduct an annual
maintenance fee from each Installment Purchase Payment Account on its
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anniversary date. The maintenance fee is to reimburse the Company for some of
its administrative expenses relating to the establishment and maintenance of
the Accounts.
The maximum maintenance fee that can be deducted under the Contract is
$20. However, under group Contracts the maintenance fee may be reduced or
eliminated depending upon certain criteria described below. The maintenance fee
will be deducted on a pro rata basis from each Subaccount in which you have an
interest. If the Account Value is withdrawn, the full maintenance fee will be
deducted at the time of withdrawal.
Reduction or Elimination of the Maintenance Fee. Under group Contracts,
the annual maintenance fee may be reduced or eliminated under various
conditions as agreed to by us and by the Contract Holder in writing. Any
reduction or elimination of the annual maintenance fee will reflect differences
in administrative costs and services after taking into consideration factors
such as the following:
[bullet] the size, characteristics, and nature of the group to which a Contract
is issued;
[bullet] the level of our anticipated expenses in administering the Contract,
such as billing for Purchase Payments, producing periodic reports,
providing for the direct payment of Contract charges rather than
having them deducted from Account Values, and any other factors
pertaining to the level and expense of administrative services which
will be provided under the Contract.
Any reduction or elimination of maintenance fees will not be unfairly
discriminatory against any person. We will make any reduction in annual
maintenance fees according to our own rules in effect at the time an
application for a Contract is approved. We may also make reductions after the
Contract has been issued according to the Company's rules in effect at the time
there is a material change in any of the above factors. We will notify the
Contract Holder of any reduction prior to it occurring. We reserve the right to
change these rules from time to time.
DEFERRED SALES CHARGE
Withdrawals of all or a portion of the Account Value may be subject to a
deferred sales charge. The deferred sales charge is a percentage of the amounts
withdrawn from the Subaccounts, the Fixed Account and the Guaranteed
Accumulation Account. No deferred sales charge is deducted from amounts
withdrawn from the Fixed Plus Account.
For Installment Purchase Payment Accounts, the deferred sales charge is
based on the number of completed Purchase Payment Periods. For Single Purchase
Payment Accounts (and for all Accounts under Contracts issued to the State of
Montana and the Board of Trustees-University of Illinois), it is based on the
number of Account Years that have elapsed since the Purchase Payments were
made. The amount of the deferred sales charge is determined in accordance with
the schedule set forth in the following tables:
INSTALLMENT PURCHASE PAYMENT ACCOUNT:
Purchase Payment Deferred Sales
Periods Completed* Charge Deduction
- -----------------------------------------------
Less than 5 5%
5 or more but less than 7 4%
7 or more but less than 9 3%
9 or more but less than 10 2%
More than 10 0%
SINGLE PURCHASE PAYMENT ACCOUNT:
Account Years Deferred Sales
Completed Charge Deduction
- ----------------------------------------------
Less than 5 5%
5 or more but less than 6 4%
6 or more but less than 7 3%
7 or more but less than 8 2%
8 or more but less than 9 1%
9 or more 0%
Generally, if you transfer the total account value under another similar
annuity contract issued by the Company to an Account under this Contract, the
effective date of the new Account will be the same effective date as your
former contract for the purpose of calculating the applicable deferred sales
charge under this Contract.
A deferred sales charge will not be deducted from any portion of the
Account Value if the withdrawal is:
[bullet] applied to provide Annuity benefits;
[bullet] taken on or after the tenth anniversary of the effective date of the
Account;
[bullet] paid due to your death before Annuity payments begin;
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[bullet] made due to the election of a Systematic Distribution Option(s)(see
"Systematic Distribution Options");
[bullet] paid where the Account Value is $3,500 or less and no amount has been
withdrawn, taken as a loan, or used to purchase Annuity benefits
during the prior 12 months;
[bullet] subject to state regulatory approval, paid as a premium for a Single
Premium Immediate Annuity issued by the Company or one of its
affiliates, provided that the "Right to Cancel" under such other
annuity contract is not exercised by the Participant. An exercise of
the "Right to Cancel" under such other annuity contract shall be
treated as a request for Reinstatement under this Contract of the
amount refunded, and, at the option of the Participant, may then be
withdrawn subject to any Deferred Sales Charge applicable to this
Contract at the time the Account Value was first applied toward such
other annuity contract; or
[bullet] taken from an installment Purchase Payment Account by a Participant
who is at least age 59 1/2 and who has completed nine Purchase Payment
Periods.
The deduction for the deferred sales charge will not exceed 8.5% of the
total Purchase Payments actually made to the Account. The Company does not
anticipate that the deferred sales charge will cover all sales and
administrative expenses which it incurs in connection with the Contract. The
difference will be covered by the general assets of the Company which are
attributable, in part, to mortality and expense risk charges under the Contract
described above.
Free Withdrawals. For Participants between the ages of 59 1/2 and 70 1/2,
up to 10% of the current Account Value may be withdrawn during each calendar
year without imposition of a Deferred Sales Charge. The free withdrawal applies
only to the first partial withdrawal in each calendar year. The 10% amount will
be based on the Account Value calculated on the Valuation Date next following
our receipt of your request for withdrawal. Any outstanding contract loans are
excluded from the Account Value when calculating the 10% free withdrawal
amount. This provision does not apply to a full withdrawal of the Account, or
to partial withdrawals due to a default on a contract loan (see "Contract
Loans"). This provision may not be exercised if SWO is elected. ("Systematic
Distribution Options.")
Reduction or Elimination of the Deferred Sales Charge. For a particular
plan, we may reduce, waive or eliminate the deferred sales charge. Any
reduction, waiver or elimination of such charges will reflect differences or
expected differences in the amounts of unrecovered distribution costs or
services of the types that the charge is intended to defray. When considering
whether to reduce or eliminate such charges or to grant such a waiver, we will
take into account factors which may include the following:
[bullet] the number of participants under the Plan;
[bullet] the expected level of assets or cash flow under the Plan;
[bullet] the level of agent involvement in sales activities;
[bullet] the level of our sales-related expenses;
[bullet] the specific distribution provisions under the Plan;
[bullet] the Plan's purchase of one or more other variable annuity contracts
from us and the features of those contracts;
[bullet] the level of employer involvement in determining eligibility for
distributions under the Contract; and
[bullet] our assessment of financial risk to the Company relating to
surrenders.
Any reduction, waiver or elimination of deferred sales charges will not
be unfairly discriminatory against any person.
We may also negotiate provisions regarding the deferred sales charge with
respect to Contracts issued to certain employer groups or associations which
have negotiated on behalf of its employees. All variations in, or elimination
of, provisions regarding the deferred sales charge resulting from such
negotiations will be offered uniformly to all employees within the group. For
specific information on fees applicable to your Account, please call the number
listed under the "Inquiries" section.
We will make any reduction in deferred sales charge according to our own
rules in effect at the time an application for a Contract is approved. We
reserve the right to change these rules from time to time.
DEFERRED SALES CHARGE SCHEDULE FOR GAA FOR CERTAIN NEW YORK CONTRACTS
The following deferred sales charge schedule applies for withdrawals from
the Guaranteed
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Accumulation Account for group Installment and Single Purchase Payment master
Contracts that offer such option which are issued after July 29, 1993 in the
State of New York. This schedule is based on the number of completed Account
Years for Single and Installment Purchase Payment Contracts as follows:
Completed Deferred Sales
Account Years Charge Deduction
- ----------------------------- -----------------
Less than 3 5%
3 or more but less than 4 4%
4 or more but less than 5 3%
5 or more but less than 6 2%
6 or more but less than 7 1%
7 or more 0%
FUND EXPENSES
Each Fund incurs certain expenses which are paid out of its net assets.
These expenses include, among other things, the investment advisory or
"management" fee. The expenses of the Funds are set forth in the Fee Table in
this Prospectus and described more fully in the accompanying Fund prospectuses.
PREMIUM AND OTHER TAXES
Several states and municipalities impose a premium tax on Annuities.
These taxes currently range from 0% to 4%. The Company reserves the right to
deduct premium tax against Purchase Payments or Account Values at anytime, but
no earlier than when we have a tax liability under state law. The Company's
current practice is to deduct for premium taxes at the time of complete
withdrawal or annuitization. In addition to the premium tax, the Company
reserves the right to assess a charge for any state or federal taxes due
against the Contract or the Separate Account assets. (See "Tax Status.")
CONTRACT VALUATION
================================================================================
ACCOUNT VALUE
Until the Annuity Date, the Account Value is the total dollar value of
amounts held in your Account as of any Valuation Date. The Account Value at any
given time is based on the value of the units held in each Subaccount, plus the
value of amounts held in any of the Credited Interest Options.
ACCUMULATION UNITS
The value of your interests in a Subaccount is expressed as the number of
"Accumulation Units" that you hold multiplied by an "Accumulation Unit Value"
(or "AUV") for each unit. The AUV on any Valuation Date is determined by
multiplying the value on the immediately preceding Valuation Date by the net
investment factor of that Subaccount for the period between the immediately
preceding Valuation Date a and the current Valuation Date. (See "Net Investment
Factor" below.) The Accumulation Unit Value will be affected by the investment
performance, expenses and charges of the applicable Fund and is reduced each
day by a percentage that accounts for the daily assessment of mortality and
expense risk charges and the administrative charge (if any).
Initial Purchase Payments will be credited to your Account at the AUV next
computed following our acceptance of the Enrollment Materials, as described
under "Purchase--Purchasing Interests in the Contract." Each subsequent Purchase
Payment (or amount transferred) received by the Company by the close of business
of the New York Stock Exchange will be credited to your Account at the AUV next
computed following our receipt of your payment or transfer request. The value of
an Accumulation Unit may increase or decrease.
NET INVESTMENT FACTOR
The net investment factor is used to measure the investment performance
of a Subaccount from one Valuation Date to the next. The net investment factor
for a Subaccount for any valuation period is equal to the sum of 1.0000 plus
the net investment rate. The net investment rate equals:
(a) the net assets of the Fund held by the Subaccount on the current
Valuation Date, minus
(b) the net assets of the Fund held by the Subaccount on the preceding
Valuation Date, plus or minus
(c) taxes or provisions for taxes, if any, attributable to the operation
of the Subaccount;
(d) divided by the total value of the Subaccount's Accumulation and
Annuity Units on the preceding Valuation Date;
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(e) minus a daily charge for mortality and expense risks and up to 0.25%
as an administrative expense charge.
The net investment rate may be either positive or negative.
TRANSFERS
================================================================================
At any time prior to the Annuity Date, you can transfer amounts held
under your Contract from one Subaccount to another. Transfers between the
Credited Interest Options and the Subaccounts are subject to certain
restrictions. (See Appendices I, II and III.) A request for transfer can be
made either in writing or by telephone (See "Telephone Transfers" below). All
transfers must be in accordance with the terms of the Contract and your Plan,
as applicable.
The Company currently allows unlimited transfers of accumulated amounts
to available investment options without charge. The minimum transfer amount may
not be less than $500. However, the total number of investment options that you
may select at any one time is limited. (See "Investment Options--The Funds.")
Any transfer will be based on the Accumulation Unit Value next determined after
the Company receives a valid transfer request at its Home Office. Transfers are
not available during the Annuity Period.
TELEPHONE TRANSFERS
Subject to the Contract Holder's approval, You automatically have the
right to make transfers among Funds by telephone. We have enacted procedures to
prevent abuses of Account transactions by telephone, including requiring the
use of a personal identification number (PIN) to execute transactions. You are
responsible for safeguarding your PIN, and for keeping Account information
confidential. Although the Company's failure to follow reasonable procedures
may result in the Company's liability for any losses due to unauthorized or
fraudulent telephone transfers, the Company will not be liable for following
instructions communicated by telephone which it reasonably believes to be
genuine. Any losses incurred pursuant to actions taken by the Company in
reliance on telephone instructions reasonably believed to be genuine shall be
borne by you. To ensure authenticity, we record all calls on the 800 line.
Note: all Account information and transactions permitted are subject to the
terms of the Plan(s).
DOLLAR COST AVERAGING PROGRAM
You may establish automated transfers of Account Values on a monthly or
quarterly basis through the Company's Dollar Cost Averaging Program, if
available under your Plan*. There is no additional charge for the Program.
Dollar Cost Averaging is a system for investing a fixed amount of money at
regular intervals over a period of time. Dollar Cost Averaging does not ensure
a profit nor guarantee against loss in a declining market. You should consider
your financial ability to continue purchases through periods of low price
levels. Please refer to the "Inquiries" section of the Prospectus Summary which
describes how you can obtain further information.
* Effective May 1, 1998, dollar cost averaging is not permitted into the
Lexington Natural Resources Trust Subaccount.
WITHDRAWALS
================================================================================
All or a portion of the Account Value may be withdrawn at any time during
the Accumulation Period, subject to limitations on withdrawals from the Fixed
Plus Account and to the withdrawal restrictions under Section 403(b) Contracts
described below. To request a withdrawal, you must properly complete a
disbursement form and send it to our Home Office. Payments for withdrawal
requests will be made in accordance with SEC requirements, but normally not
later than seven calendar days following our receipt of a disbursement form.
Withdrawals may be requested as in one of the following forms:
[bullet] Full Withdrawal of an Account: The amount paid upon a full withdrawal
will be the Account Value allocated to the Subaccounts, the Guaranteed
Accumulation Account (plus or minus a market value adjustment) (see
Appendix I), and the Fixed Account, minus any applicable deferred
sales charge and maintenance fee due, plus the amount available
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for withdrawal from the Fixed Plus Account (see Appendix III).
[bullet] Partial Withdrawals (Percentage): The amount paid will be the
percentage of the Account Value requested minus any applicable
deferred sales charge; however, the amounts available for withdrawal
from the Fixed Plus Account is limited (see Appendix III).
[bullet] Partial Withdrawal (Specified Dollar Amount): The amount paid will be
the dollar amount requested. However, the amount withdrawn from the
Account will equal the amount requested plus any applicable deferred
sales charge. The amount available for withdrawal from the Fixed Plus
Account is limited (see Appendix III).
For any partial withdrawal, amounts will be withdrawn proportionately
from each Subaccount or Credited Interest Option in which the Account is
invested, unless you request otherwise in writing. All amounts paid will be
based on Account Values as of the next Valuation Date after we receive a
request for withdrawal at our Home Office, or on such later date as the
disbursement form may specify. A 20% federal income tax may be withheld from
amounts paid directly to you. (See "Tax Status--Contracts Used with Certain
Retirement Plans.")
Withdrawal Restrictions from 403(b) Plans. Under Section 403(b)
Contracts, a withdrawal of salary reduction contributions and earnings on such
contributions is generally prohibited prior to the Participant's death,
disability, attainment of age 59 1/2, separation from service or financial
hardship. (See "Tax Status.")
Restrictions on Withdrawals Under the Texas Optional Retirement Program.
A Participant in the Texas Optional Retirement Program may not elect to receive
any form of distribution from the Contract before retirement, except upon
becoming totally disabled or terminating employment with the Texas public
institutions of higher learning. These restrictions limit the conditions under
which a Participant may exercise the right to a full or partial withdrawal of
Account Values, and the right to advance the date on which Annuity payments are
to begin. The Company may require verification of eligibility from the employer
prior to any distributions from the Contract. These restrictions are imposed by
reason of an opinion of the Texas Attorney General interpreting applicable
Texas law.
Restrictions on Withdrawals Under the Ball State University Plan. In
connection with the Ball State University Alternate Pension Plan only, the
Participant may not withdraw Account Values attributable to employer
contributions and applicable earnings under the Alternate Pension Plan
("Employer Account Value") unless the Participant's employment is terminated
with Ball State University due to the Participant's death, retirement or
separation from service. The Company reserves the right to require satisfactory
documentation that the Participant is no longer providing service to Ball State
University before a withdrawal request payable directly to a Participant will
be considered in good order. The Contract Holder may withdraw the Employer
Account Value without regard to this restriction, and Participants may transfer
Employer Account Values pursuant to an Internal Revenue Service Revenue Ruling
90-24 transfer ("90-24 Transfer") without regard to this restriction. No
deferred sales charge will apply to the first 20% of such Employer Account
Value transferred pursuant to a 90-24 Transfer in a calendar year. This waiver
does not apply to a transfer of the full Employer Account Value pursuant to a
90-24 Transfer.
REINVESTMENT PRIVILEGE
Within 30 days after a withdrawal, if allowed by law, a Participant may
elect to reinvest all or a portion of the proceeds received for the full
withdrawal of an Account. Reinvested amounts must be received by the Company
within 60 days of the withdrawal. Accumulation Units will be credited to the
Account for the amount reinvested, as well as 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 amounts reinvested. Reinvested
amounts will be reallocated to the applicable investment options in the same
proportion as they were allocated at the time of withdrawal. Accumulation Units
will be credited to your Account based on the Accumulation Unit Value next
computed following our receipt of your request along with the amount to be
reinvested. See Appendix I for a discussion of amounts withdrawn from GAA and
then reinvested. The reinvestment privilege may be used only once. If you are
contemplating reinvestment, you should seek competent advice regarding the tax
consequences associated with such a transaction.
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CONTRACT LOANS
================================================================================
During the Accumulation Period, Participants in 403(b) Plans may request
a loan from their Account Value, if allowed by their Plan. Loans can only be
taken from those Account Values held in the Subaccounts or from those Credited
Interest Options that allow loans. (See Appendices I, II and III.) A loan may
be obtained by reviewing and reading the terms of the loan agreement, properly
completing a loan request form and submitting it to the Company's Home Office.
Loans are not available from Contracts issued to 401(a) Plans, unless provided
for under your Contract.
SYSTEMATIC DISTRIBUTION OPTIONS
================================================================================
The Company offers certain withdrawal options under the Contract that are
not considered annuity options ("Systematic Distribution Options"). To exercise
these options, your Account Value must meet the minimum dollar amounts and age
criteria applicable to that option.
The Systematic Distribution Options currently available under the
Contract include the following:
[bullet] SWO--Systematic Withdrawal Option. SWO is a series of partial
withdrawals from your Account based on a payment method you select. It
is designed for those who want a periodic income while retaining
investment flexibility for amounts accumulated under a Contract. (This
option may not be elected if you have an outstanding contract loan.)
[bullet] ECO--Estate Conservation Option. ECO offers the same investment
flexibility as SWO but is designed for those who want to receive only
the minimum distribution that the Code requires each year. Under ECO,
the Company calculates the minimum distribution amount required by law
at the later of age 70 1/2 or retirement, or for 5% owners at age
70 1/2 and pays you that amount once a year.
Other Systematic Distribution Options may be added from time to time.
Additional information relating to any of the Systematic Distribution Options
may be obtained from your local representative or from the Company at its Home
Office.
If you select one of the Systematic Distribution Options, you will retain
all of the rights and flexibility permitted under the Contract during the
Accumulation Period. Your Account Value will continue to be subject to the
charges and deductions described in this Prospectus. Taking a withdrawal under
one of these Systematic Distribution Options may have tax consequences. Any
person concerned about tax implications should consult a competent tax advisor
prior to election an option.
Once you elect a Systematic Distribution Options, you may revoke it any
time by submitting a written request to our Home Office. Once an option is
revoked, it may not be elected again, nor may any other Systematic Distribution
Options be elected unless permitted by the Code. The Company reserves the right
to discontinue the availability of one or all of these Systematic Distribution
Options at any time, and/or to change the terms of future elections.
DEATH BENEFIT DURING ACCUMULATION PERIOD
================================================================================
The Contract provides that a death benefit is payable to the
Beneficiary(ies) upon the death of the Participant before the Annuity Date. The
amount of the death benefit will be equal to the Account Value. Death benefit
proceeds may be paid to the Beneficiary:
[bullet] in a lump sum;
[bullet] in accordance with any of the Annuity Options available under the
Contract; or
[bullet] under any Systematic Distribution Options available under the Contract
(if the Beneficiary is your spouse).
The Beneficiary may instead elect one of the following two options;
however, the Code limits how
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long the death benefit proceeds may be left in these options (see below):
[bullet] to leave the Account Value invested in the Contract; or
[bullet] to leave the Account Value on deposit in the Company's general
account, and to receive monthly, quarterly, semi-annual or annual
interest payments at the interest rate then being credited on such
deposits. The balance on deposit can be withdrawn at any time or
applied to an Annuity Option.
When paying the Beneficiary, we will determine the Account Value on the
Valuation Date following the date on which we receive proof of death acceptable
to the Company. Interest, if any, will be paid from the date of death at a rate
no less than required by law. We will mail payment to the Beneficiary within
seven days after we receive proof of death.
The Code requires that distribution of death proceeds begin within a
certain period of time. Generally, either payments must begin by December 31 of
the year following the year of your death, or the entire value of your benefits
must be distributed by December 31 of the fifth year following the year of your
death. If your Beneficiary is your spouse, he or she is not required to begin
distributions until the year you would have attained age 70 1/2. In no event may
payments extend beyond the life expectancy of the Beneficiary or any period
certain greater than the Beneficiary's life expectancy. If no elections are
made, no distributions will be made. Failure to commence distributions within
the above time periods can result in tax penalties. Regardless of the method of
payment, death benefit proceeds will generally be taxed to the Beneficiary in
the same manner as if you had received those payments. (See "Tax Status.")
ANNUITY PERIOD
================================================================================
ANNUITY PERIOD ELECTIONS
The Code generally requires that minimum annual distributions of the
Account Value must begin by April 1st of the calendar year following the
calendar year in which a Participant attains age 70 1/2 or retires, if later. In
addition, distributions must be in a form and amount sufficient to satisfy the
Code requirements. These requirements may be satisfied by the election of
certain Annuity Options or Systematic Distribution Options. (See "Tax Status.")
At least 30 days prior to the Annuity Date, you must notify us in writing
of the following:
[bullet] the date on which you would like to start receiving annuity payments;
[bullet] the Annuity Option under which you want your payments to be calculated
and paid;
[bullet] whether the payments are to be made monthly, quarterly, semi-annually
or annually; and
[bullet] the investment option(s) used to provide annuity payments (i.e., a
fixed annuity using the general account or any of the Subaccounts
available at the time of annuitization). As of the date of this
Prospectus, Aetna Balanced VP, Inc., Aetna Bond VP and Aetna Growth
and Income VP are the only Subaccounts available.
Annuity Payments will not begin until you have selected an Annuity
Option. Until a date and option are elected, the Account will continue in the
Accumulation Period. If your Plan is subject to ERISA, you must also submit the
appropriate joint and survivor annuity waiver and spousal consent form(s) to
us. Once Annuity Payments begin, the Annuity Option may not be changed, nor may
transfers be made among the investment option(s) selected.
ANNUITY OPTIONS
You may choose one of the following Annuity Options:
Lifetime Annuity Options:
[bullet] Option 1--Life Annuity--An annuity with payments ending on the
Annuitant's death.
[bullet] Option 2--Life Annuity with Guaranteed Payments-- An annuity with
payments guaranteed for 5, 10, 15 or 20 years, or such other periods
as the Company may offer at the time of annuitization.
[bullet] Option 3--Life Income based Upon Lives of Two Payees--An annuity will
be paid during the lives of the Annuitant and a second Annuitant, with
100%, 66 2/3% or 50% of the payment to continue after the first death,
or 100% of the payment to continue at the death of the second
Annuitant and 50% of the payment to continue at the death of the
Annuitant.
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[bullet] Option 4--Life Income based Upon the Lives of Two Payees--An annuity
with payments for a minimum of 120 months, with 100% of the payment to
continue after the first death.
If Option 1 or 3 is elected, it is possible that only one Annuity Payment
will be made if the Annuitant under Option 1, or the surviving Annuitant under
Option 3, should die prior to the due date of the second Annuity Payment. Once
lifetime Annuity payments begin, the Annuitant cannot elect to receive a
lump-sum settlement.
Non-lifetime Annuity Options:
[bullet] Option 1--Payments for a Specified Period-- payments will continue for
a specified period of time, as provided for under your Contract.
Under the non-lifetime option, the type of annuity available (fixed or
variable) is determined by the investment options used prior to annuitization.
For amounts held in the Fixed Plus Account, the annuity must be paid on a fixed
basis. For amounts held in the Subaccounts, the Guaranteed Accumulation Account
or the Fixed Account, an annuity may be selected on a fixed or variable basis.
(Under Contracts issued to the State of Montana and the Board of Trustees--
University of Illinois, for amounts held in any investment option, the
non-lifetime option is available only on a fixed basis.) If this option is
elected on a variable basis, the Annuitant may request at any time during the
payment period that the present value of all or any portion of the remaining
variable payments be paid in one sum. However, any lump-sum elected before a
minimum number of years of payments (as provided in your Contract) have been
completed will be treated as a withdrawal during the Accumulation Period and any
applicable deferred sales charge will be assessed. (See "Charges and
Deductions--Deferred Sales Charge.") The non-lifetime option is not available on
a variable basis under a Contract which provides for immediate Annuity benefits.
We may also offer additional Annuity Options under your Contract from
time to time.
ANNUITY PAYMENTS
Date Payouts Start. When payments start, the age of the Annuitant plus
the number of years for which payments are guaranteed must not exceed 95.
Annuity payments may not extend beyond (a) the life of the Annuitant, (b) the
joint lives of the Annuitant and beneficiary, (c) a period certain greater than
the Annuitant's life expectancy, or (d) a period certain greater than the joint
life expectancies of the Annuitant and beneficiary.
Amount of Each Annuity Payment. The amount of each payment depends on the
size of your Account Value, how you allocate it between fixed and variable
payouts, and the Annuity Option chosen. No election may be made that would
result in a first Annuity payment of less than $20 or total yearly payments of
less than $100. If your Account Value on the Annuity Date is insufficient to
elect an option for the minimum amount specified, a lump-sum payment must be
elected.
If Annuity Payments are to be made on a variable basis, the first and
subsequent payments will vary depending on the assumed net investment rate
selected (3 1/2% or 5% per annum). Selection of a 5% rate causes a higher first
payment, but Annuity Payments will increase thereafter only to the extent that
the net investment rate exceeds 5% on an annualized basis. Annuity Payments
would decline if the rate were below 5%. Use of the 3 1/2% assumed rate causes a
lower first payment, but subsequent payments would increase more rapidly or
decline more slowly as changes occur in the net investment rate. (See the
Statement of Additional Information for further discussion on the impact of
selecting an assumed net investment rate.)
CHARGES DEDUCTED DURING THE ANNUITY PERIOD
We make a daily deduction for mortality and expense risks from any
amounts held on a variable basis. Therefore, electing the nonlifetime option on
a variable basis will result in a deduction being made even though we assume no
mortality risk. We will also deduct a daily administrative charge of 0.25% on
annual basis from amounts held under the variable options for Participants who
enrolled in a group Contract or became covered under an individual Contract on
or after November 5, 1984. (See "Charges and Deductions.")
DEATH BENEFIT PAYABLE DURING THE ANNUITY PERIOD
If an Annuitant dies after Annuity Payments have begun, any death benefit
payable will depend on the terms of the Contract and the Annuity Option
selected. If Option 1 or Option 3 was elected, Annuity Payments will cease on
the death of the Annuitant under Option 1 or the death of the surviving
Annuitant under Option 3.
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If Lifetime Option 2 or Option 4 was elected and the death of the
Annuitant under Option 2, or the surviving Annuitant under Option 4, occurs
prior to the end of the guaranteed minimum payment period, we will pay to the
beneficiary in a lump sum, unless otherwise requested, the present value of the
guaranteed Annuity Payments remaining.
If the non-lifetime option was elected, and the Annuitant dies before all
payments are made, the value of any remaining payments may be paid in a
lump-sum to the beneficiary (unless otherwise requested), and no deferred sales
charge will be imposed.
If the Annuitant dies after Annuity payments have begun and if there is a
death benefit payable under the Annuity option elected, the remaining value
must be distributed to the beneficiary at least as rapidly as under the
original method of distribution.
Any lump-sum payment paid under the applicable lifetime or nonlifetime
Annuity Options will be made within seven calendar days after proof of death
acceptable to us, and a request for payment are received at our Home Office.
The value of any death benefit proceeds will be determined as of the next
Valuation Date after we receive acceptable proof of death and a request for
payment. Under Options 2 and 4, such value will be reduced by any payments made
after the date of death.
TAX STATUS
================================================================================
INTRODUCTION
The following provides a general discussion and is not intended as tax
advice. This discussion reflects the Company's understanding of current federal
income tax law. Such laws may change in the future, and it is possible that any
change could be retroactive (i.e., effective prior to the date of the change).
The Company makes no guarantee regarding the tax treatment of any contract or
transaction involving a Contract. The ultimate effect of federal income taxes
on the amounts held under a Contract, on Annuity Payments, and on the economic
benefit to the Contract Holder, Participant or Beneficiary may depend upon the
tax status of the individual concerned. Moreover, no attempt has been made to
consider any applicable state or other tax laws. Any person concerned about
these tax implications should consult a competent tax adviser before initiating
any transaction.
TAXATION OF THE COMPANY
The Company is taxed as a life insurance company under the Code. Since
the Separate Account is not an entity separate from the Company, it will not be
taxed separately as a "regulated investment company" under the Code. Investment
income and realized capital gains are automatically applied to increase
reserves under the Contracts. Under existing federal income tax law, the
Company believes that the Separate Account investment income and realized net
capital gains will not be taxed to the extent that such income and gains are
applied to increase the reserves under the Contracts.
Accordingly, the Company does not anticipate that it will incur any
federal income tax liability attributable to the Separate Account and,
therefore, the Company does not intend to make provisions for any such taxes.
However, if changes in the federal tax laws or interpretation thereof result in
the Company being taxed on income or gains attributable to the Separate
Account, then the Company may impose a charge against the Separate Account
(with respect to some or all Contracts) in order to set aside provisions to pay
such taxes.
CONTRACTS USED WITH CERTAIN RETIREMENT PLANS
In General. The Contract is designed for use with Section 403(b) plans
and Section 401(a) plans. The tax rules applicable to retirement plans vary
according to the type of plan and the terms and conditions of the plan.
The Company makes no attempt to provide more than general information
about use of the Contracts with the various types of retirement plans.
Participants as well as Beneficiaries are cautioned that the rights of any
person to any benefits under the Contracts may be subject to the terms and
conditions of the Plans themselves, in addition to the terms and conditions of
the Contracts issued in connection with such Plans. Some retirement plans are
subject to limitations on distribution and other requirements that are not
incorporated in the Contracts. Purchasers are responsible for determining that
contributions, distributions and other transactions with respect to the
Contracts satisfy applicable laws, and should
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consult their legal counsel and tax adviser regarding the suitability of the
Contract.
Minimum Distribution Requirements. The Code has required distribution
rules for Section 403(b) and 401(a) Plans. Under 403(b) Plans, distributions of
amounts held as of December 31, 1986 must generally begin by the end of the
calendar year in which you attain age 75 or retire, if later. However, special
rules require that some or all of that balance be distributed earlier if any
distributions are taken in excess of the minimum required amount. For all
Participants, other than 5% owners, distributions under 401(a) Plans, and
distributions attributable to contributions under Section 403(b) Plans on or
after January 1, 1987 (including any earnings on the entire Account Value after
that date), must generally begin by April 1 of the calendar year following the
calendar year in which you attain age 70 1/2 or retire, if later. For 5% owners,
such distributions must begin by April 1st of the calendar year following the
calendar year in which you attain age 70 1/2.
In general, annuity payments must be distributed over your life or the
joint lives of you and your Beneficiary, or over a period not greater than your
life expectancy or the joint life expectancies of you and your Beneficiary.
If you die after the required minimum distribution has commenced,
distributions to your beneficiary must be made at least as rapidly as under the
method of distribution in effect at the time of your death. However, if the
minimum required distribution is calculated each year based on your single life
expectancy or the joint life expectancies of you and your beneficiary, the
regulations for Code Section 401(a)(9) provide specific rules for calculating
the minimum required distributions at your death. For example, if you have
elected ECO with the calculation based on your single life expectancy, and the
life expectancy is recalculated each year, your recalculated life expectancy
becomes zero in the calendar year following your death and the entire remaining
interest must be distributed to your beneficiary by December 31 of the year
following your death. However, a spousal beneficiary has certain rollover
rights which can only be exercised in the year of your death. The rules are
complex and you should consult your tax adviser before electing the method of
calculation to satisfy the minimum distribution requirements.
If you die before the required minimum distribution has commenced, your
entire interest must be distributed by December 31 of the calendar year
containing the fifth anniversary of the date of your death. Alternatively,
payments may be made over the life of the beneficiary or over a period not
extending beyond the life expectancy of the beneficiary provided the
distribution begins by December 31 of the calendar year following the calendar
year of your death. If the Beneficiary is your spouse, the distribution must
begin on or before the later of: (1) December 31 of the calendar year following
the calendar year of your death, or (2) December 31 of the calendar year in
which you would have attained age 70 1/2.
If you fail to receive the minimum required distribution for any tax
year, a 50% excise tax is imposed on the required amount that was not
distributed.
Taxation of Distributions. All distributions will be taxed as they are
received unless you made a rollover contribution of the distribution to another
plan of the same type or to a traditional retirement annuity/
account ("IRA") in accordance with the Code, or unless you have made after-tax
contributions to the plan, which are not taxed upon distribution. The Code has
specific rules that apply, depending on the type of distribution received, if
after-tax contributions were made.
In general, payments received by your Beneficiaries after your death are
taxed in the same manner as if you had received those payments, except that a
limited death benefit exclusion may apply to payments made for deaths occurring
on or before August 20, 1996.
Pension and annuity distributions generally are subject to withholding
for the recipient's federal income tax liability at rates that vary according
to the type of distribution and the recipient's tax status. Recipients may be
provided the opportunity to elect not to have tax withheld from distributions;
however, certain distributions from annuities are subject to mandatory 20%
federal income tax withholding. If the Participant or Beneficiary is a
non-resident alien, any withholding will be governed by Code Section 1441 based
on the individual's citizenship, the country of domicile and treaty status. We
will report to the IRS the taxable portion of all distributions. The Code
imposes a 10% penalty tax on the taxable portion of any distribution unless
made when (a) you have attained age 59 1/2, (b) you have become disabled, (c)
you have died, (d) you
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have separated from service with the plan sponsor at or after age 55, (e) the
distribution amount is rolled over into another plan of the same type in
accordance with the terms of the Code, or (f) the distribution amount is made
in substantially equal periodic payments (at least annually) over your life or
life expectancy or the joint lives or joint life expectancies of you and your
Beneficiary, provided you have separated from service with the plan sponsor. In
addition, the penalty tax does not apply for the amount of a distribution equal
to unreimbursed medical expenses incurred by you that qualify for deduction as
specified in the Code. The Code may impose other penalty taxes in other
circumstances.
Section 403(b) Plans. Under Section 403(b), contributions made by public
school systems and Section 501(c)(3) tax-exempt organizations to purchase
annuity contracts for their employees are generally excludable from the gross
income of the employee.
In order to be excludable from taxable income, total annual contributions
made by you and your employer cannot exceed either of two limits set by the
Code. The first limit, under Section 415, is generally the lesser of 25% of
your compensation or $30,000. Compensation means your compensation from the
employer sponsoring the Plan and, for years beginning after December 31, 1997,
includes any elective deferrals under Code Section 402(g) and any amounts not
included in gross income under Code Section 125 or 457. The second limit, which
is the exclusion allowance under Section 403(b), is usually calculated
according to a formula that takes into account your length of employment any
pretax contributions you and your employer have already made under the Plan,
and any pretax contributions to certain other retirement plans. These two
limits apply to your contributions as well as to any contributions made by your
employer on your behalf. There is an additional limit that specifically limits
your salary reduction contributions to generally no more than $10,000 annually
(subject to indexing); your own limit may be higher or lower, depending on
certain conditions. In addition Purchase Payments will be excluded from a
Participant's gross income only if the Plan meets certain non-discrimination
requirements.
Code Section 403(b)(11) restricts the distribution under Section 403(b)
contracts of: (1) salary reduction contributions made after December 31, 1988;
(2) earnings on those contributions; and (3) earnings during such period on
amounts held as of December 31, 1988. Subject to the terms of the Plan,
distribution of those amounts may only occur upon death of the employee,
attainment of age 59, separation from service, disability, or financial
hardship. In addition, income attributable to salary reduction contributions
may not be distributed in the case of hardship.
If, pursuant to Revenue Ruling 90-24, the Company agrees to accept, under
any of the Contracts covered by this Prospectus, amounts transferred from a
Code Section 403(b)(7) custodial account, such amounts will be subject to the
withdrawal restrictions set forth in Code Section 403(b)(7)(A)(ii).
Generally, no amounts accumulated under the Contract will be taxable
prior to the time of actual distribution. However, the IRS has stated in
published rulings that a variable contract owner, including participants under
Section 403(b) Plans, will be considered the owner of separate account assets
if the owner possesses incidents of investment control over the assets. In
these circumstances, income and gains from the separate account assets would be
currently includible in the variable contract owner's gross income. The
Treasury announced that guidance would be issued in the future regarding the
extent to which owners could direct their investments among Subaccounts without
being treated as owners of the underlying assets of the Separate Account. It is
possible that the Treasury's position, when announced, may adversely affect the
tax treatment of existing contracts. The Company therefore reserves the right
to modify the Contract as necessary to attempt to prevent the owner from being
considered the federal tax owner of the assets of the Separate Account.
Section 401(a) Plans. Section 401(a) permits certain employers to
establish various types of retirement plans for employees, and permits
self-employed individuals to establish various types of retirement plans for
themselves and for their employees. These retirement plans may permit the
purchase of the Contracts to accumulate retirement savings under the plans.
Adverse tax consequences to the plan, to the participant or to both may result
if this Contract is assigned or transferred to any individual except to a
participant as a means to provide benefit payments.
The Code imposes a maximum limit on annual Purchase Payments that may be
excluded from a Participant's gross income. Such limit must be
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calculated under the Plan by the employer in accordance with Section 415 of the
Code. This limit is generally the lesser of 25% of your compensation or
$30,000. Compensation means your compensation from the employer sponsoring the
Plan and, for years beginning after December 31, 1997, includes any elective
deferrals under Code Section 402(g) and any amounts not included in gross
income under Code Section 125 or 457. In addition, Purchase Payments will be
excluded from a Participant's gross income only if the 401(a) Plan meets
certain nondiscrimination requirements.
MISCELLANEOUS
================================================================================
DISTRIBUTION
The Company will serve as the Principal Underwriter for the securities
sold by this Prospectus. The Company is registered as a broker-dealer with the
Securities and Exchange Commission and is a member of the National Association
of Securities Dealers, Inc. (NASD). As Underwriter, the Company will contract
with one or more registered broker-dealers ("Distributors"), including at least
one affiliate of the Company, to offer and sell the Contracts. All persons
offering and selling the Contracts must be registered representatives of the
Distributors and must also be licensed as insurance agents to sell variable
annuity contracts. These registered representatives may also provide services
to Participants in connection with establishing their Accounts under the
Contract.
Payment of Commissions. Persons offering and selling the Contracts may
receive commissions in connection with the sale of the Contracts. The maximum
percentage amount that the Company will ever pay as commission with respect to
any given Purchase Payment is with respect to those made during the first year
of Purchase Payments under an Account. The percentage amount will range from 1%
to 7% of those Purchase Payments. The Company may also pay renewal commissions
on Purchase Payments made after the first year and, under group Contracts,
asset-based service fees. The average of all payments made by the Company is
estimated to equal approximately 3% of the total Purchase Payments made over
the life of an average Contract. In addition, some sales personnel may receive
various types of non-cash compensation as special sales incentives, including
trips and educational and/or business seminars. Supervisory and other
management personnel of the Company may receive compensation that will vary
based on the relative profitability to the Company of the funding options you
select. Funding options that invest in Funds advised by the Company or its
affiliates are generally more profitable to the Company. The Company may also
reimburse the Distributor for certain expenses. The name of the Distributor and
the registered representative responsible for your Account are set forth in
your Enrollment Materials. Commissions and sales related expenses are paid by
the Company and are not deducted from Purchase Payments. See "Charges and
Deductions--Deferred Sales Charge."
Third Party Compensation Arrangements. Occasionally, we may pay
commissions and fees to Distributors which are affiliated or associated with
the Contract Holder or the Participants. We may also enter into agreements with
some entities associated with the Contract Holder or Participants in which we
would agree to pay the entity for certain services in connection with
administering the Contracts. In both these circumstances there may be an
understanding that the Distributor or entity would endorse the Company as a
provider of the Contract. You will be notified if you are purchasing a Contract
that is subject to these arrangements.
DELAY OR SUSPENSION OF PAYMENTS
The Company reserves the right to suspend or postpone the date of payment
for any benefit or values (a) on any Valuation Date on which the New York Stock
Exchange ("Exchange") is closed (other than customary weekend and holiday
closings) or when trading on the Exchange is restricted; (b) when an emergency
exists, as determined by the SEC, so that disposal of securities held in the
Subaccounts is not reasonably practicable or it is not reasonably practicable
for the Company fairly to determine the value of the Subaccount's assets; or
(c) during such other periods as the SEC may by order permit for the protection
of investors. The conditions under which restricted trading or an emergency
exists shall be determined by the rules and regulations of the SEC.
PERFORMANCE REPORTING
From time to time, the Company may advertise different types of
historical performance for the
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Subaccounts of the Separate Account. The Company may advertise the
"standardized average annual total returns" of the Subaccounts, calculated in a
manner prescribed by the SEC, as well as the "non-standardized returns."
"Standardized average annual total returns" are computed according to a formula
in which a hypothetical investment of $1,000 is applied to the Subaccount and
then related to the ending redeemable values over the most recent one, five and
ten-year periods (or since contributions were first received in the Fund under
the Separate Account, if less than the full period). Standardized returns will
reflect the reduction of all recurring charges during each period (e.g.,
mortality and expense risk charges, annual maintenance fees, administrative
expense charge (if any) and any applicable deferred sales charge).
"Non-standardized returns" will be calculated in a similar manner, except that
non-standardized figures will not reflect the deduction of any applicable
deferred sales charge (which would decrease the level of performance shown if
reflected in these calculations). The non-standardized figures may also include
monthly, quarterly, year-to-date or three-year periods and may also be
calculated from the Fund's inception date.
The Company may also advertise certain ratings, rankings or other
information related to the Company, the Subaccounts or the Funds. Further
details regarding performance reporting and advertising are described in the
Statement of Additional Information.
VOTING RIGHTS
In accordance with the Company's view of present applicable law, it will
vote the shares of each of the Funds held by the Separate Account at regular
and special meetings of Fund shareholders in accordance with instructions
received from persons having a voting interest in the Separate Account. Under
group Contracts, Participants and Annuitants have a fully vested (100%)
interest in the benefits provided under the Contract and may instruct the
Contract Holder how to direct the Company to cast the votes for the portion of
the Account Value or valuation reserve attributable to their Accounts.
Currently, for group Contracts used with Section 403(b) plans, the Company
obtains Participant voting instructions directly from the Participants, subject
to receipt of authorization from the Contract Holder to accept such
instructions. The Company will vote shares for which it has not received
instructions in the same proportion as it votes shares for which it has
received instructions. Each person having a voting interest in the Separate
Account will receive periodic reports relating to the Fund(s) in which he or
she has an interest, as well as any proxy materials and a form on which to give
voting instructions. Voting instructions will be solicited by written
communication at least 14 days before such meeting. The number of votes to
which each person may give direction will be determined as of the record date
set by the Fund.
The number of votes each Contract Holder or Participant, as applicable,
may cast during the Accumulation Period is equal to the portion of the Account
Value to that Fund, divided by the net asset value of one share of that Fund.
During the Annuity Period, the number of votes is equal to the valuation
reserve applicable to the portion of the Contract attributable to that Fund,
divided by the net asset value of one share of that Fund. In determining the
number of votes, fractional votes will be recognized.
CHANGES IN BENEFICIARY DESIGNATIONS
The designated Beneficiary may be changed at any time prior to the
Annuity Date, subject to limitations contained in the Code and other applicable
laws. Such change will not become effective until written notice of the change
is received by the Company.
MODIFICATION OF THE CONTRACT
The Company may change the Contract as required by federal or state law.
In addition, the Company may, upon 30 days written notice to the Contract
Holder, make other changes to group Contracts that would apply only to
individuals who become Participants under that Contract after the effective
date of such changes. If the Contract Holder does not agree to a change, no new
Participants will be covered under the Contract. Certain changes will require
the approval of appropriate state or federal regulatory authorities.
LEGAL MATTERS AND PROCEEDINGS
The Company knows of no material legal proceedings pending to which the
Separate Account or the Company is a party or which would materially affect the
Separate Account. The validity of the securities offered by this Prospectus has
been passed upon by Counsel to the Company.
YEAR 2000
As a healthcare and financial services enterprise, Aetna Inc. (referred to
collectively with its affiliates and subsidiaries as Aetna), is dependent on
computer systems and applications to conduct its business.
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Aetna has developed and is currently executing a comprehensive risk-based plan
designed to make its computer systems, applications and facilities Year 2000
ready. The plan covers four stages including (i) inventory, (ii) assessment,
(iii) remediation and (iv) testing and certification. At year end 1997, Aetna,
including the Company, had substantially completed the inventory and assessment
stages. The remediation process is currently underway and targeted for
completion by December 31, 1998. Testing and certification of these systems and
applications are targeted for completion by mid-1999. The costs of these efforts
will not affect the Separate Account.
The Company, its affiliates and the mutual funds that serve as investment
options for the Separate Account also have relationships with investment
advisers, broker dealers, transfer agents, custodians or other securities
industry participants or other service providers that are not affiliated with
Aetna. Aetna, including the Company, is initiating communications with its
critical external relationships to determine the extent to which Aetna may be
vulnerable to such parties' failure to resolve their own Year 2000 issues.
Where practicable Aetna and the Company will assess and attempt to mitigate
their risks with respect to the failure of these parties to be Year 2000 ready.
There can be no assurance that failure of third parties to complete adequate
preparations in a timely manner, and any resulting systems interruptions or
other consequences, would not have an adverse effect, directly or indirectly,
on the Separate Account, including, without limitation, its operation or the
valuation of its assets and units.
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CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
================================================================================
The Statement of Additional Information contains more specific information
on the Separate Account and the Contract, as well as the financial statements
of the Separate Account and the Company. A list of the contents of the SAI is
set forth below:
General Information and History
Variable Annuity Account C
Offering and Purchase of Contracts
Performance Data
General
Average Annual Total Return Quotations
Annuity Payments
Sales Material and Advertising
Independent Auditors
Financial Statements of the Separate Account
Financial Statements of the Company
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OREGON EDUCATION ASSOCIATION CHOICE PERSONAL BENEFIT TRUST ("OEA TRUST") AND
THE COMPANY'S AGREEMENT
Under an agreement between the Company and the Oregon Education Association
("OEA") Choice Personal Benefit Trust ("OEA Trust"), the OEA Trust endorsed
exclusively the Company's variable annuity for sale to its members as a variable
tax deferred annuity and agreed to provide administrative assistance to the
Company to facilitate OEA members' access to the variable annuity. The Company
and OEA recently entered into an agreement that continues OEA Trust's exclusive
endorsement of the Company's variable annuity and its agreement to provide
administrative assistance to the Company. OEA Trust assists the Company by
providing administrative services to the Company, such as office space and
secretarial/clerical support. In addition, through an OEA Trust employee who is
a registered representative of an affiliate of the Company, OEA Trust assists
the Company by advertising the Company in OEA's newsletter, facilitating and
coordinating meetings and workshops at which registered representatives of the
Company's affiliate present the annuity to OEA members, and acting as a liaison
between the Company and OEA members. The Company compensates OEA Trust to help
it defray the costs incurred in providing the administrative and other support.
The Company also reimburses OEA Trust for out-of-pocket travel and meeting
expenses of an OEA Trust employee who is also a registered representative of an
affiliate of the Company. During 1997, the Company compensated OEA Trust
$180,000 as reimbursement for the costs and services described above. During
1998, the Company expects to compensate OEA Trust approximately $200,000 as
reimbursement for the costs and services described above. The OEA Trust
receives no commissions or other transaction-based compensation from the sale
of the Company's endorsed variable annuity.
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APPENDIX I
GUARANTEED ACCUMULATION ACCOUNT
================================================================================
The Guaranteed Accumulation Account ("GAA") is a Credited Interest Option
available during the Accumulation Period under the Contracts discussed in this
Prospectus. Amounts allocated to GAA are held by the Company as described in
the GAA Prospectus. This Appendix is a summary of GAA and is not intended to
replace the GAA prospectus. You should read the accompanying GAA prospectus
carefully before investing.
GAA is a Credited Interest Option in which we guarantee stipulated rates
of interest for stated periods of time on amounts directed to GAA, as specified
in the Contract. The interest rate stipulated is an annual effective yield;
that is, it reflects a full year's interest. Interest is credited daily at a
rate that will provide the guaranteed annual effective yield for one year. This
option guarantees the minimum interest rate specified in the Contract.
During a specified period of time, amounts may be applied to any or all
available Guaranteed Terms within the Short-Term and Long-Term classifications.
Short-Term GAA has Guaranteed Terms from one to three years, and Long-Term GAA
has Guaranteed Terms from three to ten years.
Purchase Payments must remain in GAA for the full Guaranteed Term to
receive the quoted interest rates. Withdrawals or transfers from a Guaranteed
Term before the end of that Guaranteed Term may be subject to a market value
adjustment ("MVA"). An MVA reflects the change in the value of the investments
due to changes in interest rates since the date of deposit. When interest rates
increase after the date of deposit, the value of the investment decreases and
the MVA is negative. Conversely, when interest rates decrease after the date of
deposit, the value of the investment increases, and the MVA is positive. It is
possible that a negative MVA could result in the Participant receiving an
amount which is less than the amount paid into GAA.
As a Guaranteed Term matures, assets accumulating under GAA may be (a)
transferred to a new Guaranteed Term, (b) transferred to other available
investment options, or (c) withdrawn. Amounts withdrawn may be subject to a
deferred sales charge and/or federal tax penalties or mandatory income tax
withholding.
By notifying us at least 30 days prior to the Annuity Date, you may elect
a variable annuity and have amounts that have been accumulating under GAA
transferred to one or more of the Subaccounts available during the Annuity
Period. GAA cannot be used as an investment option during the Annuity Period.
MORTALITY AND EXPENSE RISK CHARGES
We make no deductions from the credited interest rate for mortality and
expense risks; these risks are considered in determining the credited rate.
TRANSFERS
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. We will apply an MVA to
transfers made before the end of a Guaranteed Term, unless such transfer is due
to the maturity of the Guaranteed Term.
CONTRACT LOANS
Loans may not be made against amounts held in GAA, although such value is
included in determining the Account Value against which a loan may be made.
REINVESTMENT PRIVILEGE
If amounts are withdrawn from GAA and reinvested, they will be applied to
the current deposit period. Amounts are proportionately reinvested to the
classifications in the same manner as they were allocated before the
withdrawal. Any negative MVA amount applied to a withdrawal is not included in
the reinvestment.
- --------------------------------------------------------------------------------
24
<PAGE>
APPENDIX II
FIXED ACCOUNT
================================================================================
The following summarizes material information concerning the Fixed
Account. Amounts allocated to the Fixed Account are held in the Company's
general account that supports general insurance and annuity obligations.
Interests in the Fixed Account have not been registered with the SEC in
reliance on exemptions under the Securities Act of 1933, as amended. Disclosure
in the Prospectus regarding the Fixed Account, may, however, be subject to
certain generally applicable provisions of the federal securities laws relating
to the accuracy and completeness of such statements. Disclosure in this
Appendix regarding the Fixed Account has not been reviewed by the SEC.
The Fixed Account guarantees the minimum interest rate specified in the
Contract. The Company may credit a higher interest rate from time to time. The
current rate is subject to change at any time, but will never fall below the
guaranteed minimum. The Company's determination of interest rates reflects the
investment income earned on invested assets and the amortization of any capital
gains and/or losses realized on the sale of invested assets. Under the Fixed
Account, the Company assumes the risk of investment gain or loss by
guaranteeing Account Values and promising a minimum interest rate and Annuity
Payment. The Fixed Account is available under Installment Purchase Payment
contracts only.
Amounts applied to the Fixed Account will earn the interest rate in effect
when actually applied to the Fixed Account.
The Fixed Account will reflect a compound interest rate credited by us.
The interest rate quoted is an annual effective yield. We make no deductions
from the credited interest rate for mortality and expense risks; these risks
are considered in determining the credited interest rate.
Under certain emergency conditions, we may defer payment of a Fixed
Account withdrawal value (a) for a period of up to six months, or (b) as
provided by federal law.
If a withdrawal is made from the Fixed Account, a deferred sales charge
may apply. (See "Charges and Deductions--Deferred Sales Charge.")
TRANSFERS AMONG INVESTMENT OPTIONS
Transfers from the Fixed Account to any other available investment
options(s) are allowed in each calendar year during the Accumulation Period.
The amount which may be transferred may vary at our discretion; however, it
will never be less than 10% of the amount held under the Fixed Account.
Transfers to the Fixed Plus Account (if available under the Contract) will be
permitted without regard to this limitation. By notifying us at our Home Office
at least 30 days before Annuity payments begin, you may elect to have amounts
which have been accumulating under the Fixed Account transferred to one or more
of the Subaccounts available during the Annuity Period to provide variable
Annuity Payments.
CONTRACT LOANS
Loans may be made from Account Values held in the Fixed Account.
- --------------------------------------------------------------------------------
25
<PAGE>
APPENDIX III
FIXED PLUS ACCOUNT
================================================================================
The following summarizes material information concerning the Fixed Plus
Account. Amounts allocated to the Fixed Plus Account are held in the Company's
general account that supports general insurance and annuity obligations.
Interests in the Fixed Plus Account have not been registered with the SEC in
reliance on exemptions under the Securities Act of 1933, as amended. Disclosure
in the Prospectus regarding the Fixed Plus Account, may, however, be subject to
certain generally applicable provisions of the federal securities laws relating
to the accuracy and completeness of such statements. Disclosure in this
Appendix regarding the Fixed Plus Account has not been reviewed by the SEC.
The Fixed Plus Account guarantees the minimum Fixed Plus interest rate
specified in the Contract. The Company may credit a higher interest rate from
time to time. The current rate is subject to change at any time, but will never
fall below the guaranteed minimum. The Company's determination of interest
rates reflects the investment income earned on invested assets and the
amortization of any capital gains and/or losses realized on the sale of
invested assets. Under the Fixed Plus Account, the Company assumes the risk of
investment gain or loss by guaranteeing Account Values and promising a minimum
interest rate and Annuity Payment.
The Fixed Plus Account will reflect a compound interest rate credited by
us. The interest rate quoted is an annual effective yield. Amounts applied to
the Fixed Plus Account will earn the Fixed Plus interest rate in effect when
actually applied to the Fixed Plus Account. We make no deductions from the
credited interest rate for mortality and expense risks; these risks are
considered in determining the credited rate.
Beginning on the tenth Account Year, we will credit amounts held in the
Fixed Plus Account with an interest rate that is at least 0.25% higher than the
then-declared interest rate for the Fixed Plus Accounts for Accounts that have
not reached their tenth anniversary.
FIXED PLUS ACCOUNT WITHDRAWALS
The amount eligible for partial withdrawal is 20% of the amount held in
the Fixed Plus Account on the day the Company receives a written request at its
Home Office. This 20% amount will be reduced by any Fixed Plus Account
withdrawals, transfers, loan or annuitizations made in the prior 12 months. In
calculating the 20% limit, we reserve the right to include payments made due to
the election of a Systematic Distribution Option.
The 20% limit is waived if the partial withdrawal is due to annuitization
under a fixed lifetime or non-lifetime Annuity option, or a variable lifetime
Annuity option, or due to death. The waiver upon death will only be exercised
once and must occur within six months after the Participant's date of death.
Any such surrender or annuitization must also be made pro rata from all
Subaccounts and Credited Interest Options available under the Contract.
If a full withdrawal is requested, we will pay any amounts held in the
Fixed Plus Account, with interest, in five annual payments that will be equal
to:
1. One-fifth of the Fixed Plus Account Value on the day the request is
received, reduced by any Fixed Plus Account withdrawals, transfers,
annuitizations, or loans made during the prior 12 months;
2. One-fourth of the remaining Fixed Plus Account Value 12 months later;
3. One-third of the remaining Fixed Plus Account Value 12 months later;
4. One-half of the remaining Fixed Plus Account Value 12 months later; and
The balance of the Fixed Plus Account Value 12 months later.
Once we receive a request for a full withdrawal, no further withdrawals,
loans or transfers will be permitted from the Fixed Plus Account. A full
withdrawal from the Fixed Plus Account may be canceled at any time before the
end of the five-payment period. We will waive the Fixed Plus Account full
withdrawal provision if a full withdrawal is made due to (a) the Participant's
death before the Annuity Date; (b) the election of a fixed lifetime or
non-lifetime
- --------------------------------------------------------------------------------
26
<PAGE>
Annuity option or a variable lifetime Annuity option; or (c) if the Fixed Plus
Account value is $3,500 or less and no withdrawals, transfers, loan or
annuitizations have been made from the Account within the prior 12 months.
For a description of these rules as they relate to contracts issued to the
State of Montana and the Board of Trustees--
University of Illinois, see "Fixed Plus Account withdrawals--State of Montana
and University of Illinois" below.
FIXED PLUS ACCOUNT WITHDRAWALS--STATE OF MONTANA AND UNIVERSITY OF ILLINOIS
Under Contracts issued to the State of Montana and the Board of
Trustees--University of Illinois, during a calendar year any withdrawal
requested from an Account Fixed Plus Account Value may not exceed 20% of the
Account's Fixed Plus Account current value as of the date the withdrawal
request is received in good order at the Home Office. The withdrawal value will
be reduced by any Fixed Plus Account withdrawals, transfers, loans or
annuitizations made during the calendar year.
If a full withdrawal is requested from an Account, we will pay any Fixed
Plus Account withdrawal value from the Account with interest, in five annual
payments of:
One-fifth of the Fixed Plus Account withdrawal value minus any Fixed Plus
Account withdrawals, transfers, loans or annuitizations made during the
calendar year;
One-fourth of the remaining Fixed Plus Account withdrawal value 12 months
later;
One-third of the remaining Fixed Plus Account withdrawal value 12 months
later;
One-half of the remaining Fixed Plus Account withdrawal value 12 months
later; and
The balance of the Fixed Plus Account withdrawal value as the fifth and
final payment 12 months later.
Once we receive a request for a full withdrawal from an Account, no
further withdrawals, transfers or loans will be permitted from the Fixed Plus
Account.
If the withdrawal is due to death or annuitization, or if the Fixed Plus
Account value is less than $3,500, the entire Fixed Plus Account value will be
paid in one sum.
TRANSFERS AMONG INVESTMENT OPTIONS
The amount eligible for transfer from the Fixed Plus Account is 20% of the
amount held in the Fixed Plus Account on the day we receive a written request
at our Home Office. This 20% amount will be reduced by any Fixed Plus Account
withdrawals, transfers, loans or annuitizations made during the prior 12
months. In calculating the 20% limit, we reserve the right to include payments
made due to the election of any of the Systematic Distribution Options. The 20%
limit on transfers will be waived when the value in the Fixed Plus Account is
$1,000 or less.
Under Contracts issued to the State of Montana and the Board of
Trustees--University of Illinois, unlimited transfers from the Fixed Plus
Account to any other available investment option(s) are allowed. For each
calendar year, the amount of such transfers is limited to 20% of the amount
held in the Fixed Plus Account minus amounts previously withdrawn or
transferred during that year.
By notifying us at our Home Office at least 30 days before the Annuity
Date, you may elect to have amounts which have been accumulating under the
Fixed Plus Account transferred to one or more of the Subaccounts available
during the Annuity Period to provide lifetime variable Annuity Payments.
SWO
The Systematic Withdrawal Option may not be elected if you have requested
a Fixed Plus Account transfer or withdrawal within the prior 12 month period.
CONTRACT LOANS
Loans may be made from Account Values held in the Fixed Plus Account. See
the loan agreement for a description of the amount available and the
consequences upon loan default if more than 20% of the Fixed Plus Account Value
is used for a loan.
- --------------------------------------------------------------------------------
27
<PAGE>
APPENDIX IV
Condensed Financial Information
================================================================================
(Selected data for accumulation units outstanding throughout each period)
The condensed financial information presented below for each of the periods
in the ten-year period ended December 31, 1997 (as applicable), is derived from
the financial statements of the Separate Account, which have been audited by
KPMG Peat Marwick LLP, independent auditors. The financial statements and the
independent auditors' report thereon for the year ended December 31, 1997 are
included in the Statement of Additional Information.
Table I
(For Contracts with total Separate Account charges of 1.25%)
<TABLE>
<CAPTION>
1997 1996 1995 1994
------------------- ----------------- -------------------- ----------------------
<S> <C> <C> <C> <C>
AETNA ASCENT VP
Value at beginning of period $13.025 $10.673 $10.000(2)
Value at end of period $15.422 $13.025 $10.673
Increase (decrease) in value of
accumulation unit(1) 18.40% 22.04% 6.73%
Number of accumulation units
outstanding at end of period 3,543,367 1,314,997 393,053
AETNA BALANCED VP
Value at beginning of period $15.551 $13.673 $10.868 $11.057
Value at end of period $18.811 $15.551 $13.673 $10.868
Increase (decrease) in value of
accumulation unit(1) 20.96% 13.73% 25.81% (1.71)%
Number of accumulation units
outstanding at end of period 34,194,804 36,147,028 38,152,395 23,139,604
AETNA BOND VP
Value at beginning of period $12.377 $12.098 $10.360 $10.905
Value at end of period $13.238 $12.377 $12.098 $10.360
Increase (decrease) in value of
accumulation unit(1) 6.96% 2.30% 16.78% (5.00)%
Number of accumulation units
outstanding at end of period 18,047,780 20,036,622 21,379,976 11,713,354
AETNA CROSSROADS VP
Value at beginning of period $12.450 $10.612 $10.000(2)
Value at end of period $14.456 $12.450 $10.612
Increase (decrease) in value of
accumulation unit(1) 16.11% 17.32% 6.12%
Number of accumulation units
outstanding at end of period 2,469,082 918,336 294,673
AETNA GROWTH VP
Value at beginning of period $11.635
Value at end of period $13.173
Increase (decrease) in value of
accumulation unit(1) 13.22%(6)
Number of accumulation units
outstanding at end of period 41,928
AETNA GROWTH AND
INCOME VP
Value at beginning of period $17.302 $14.077 $10.778 $11.020
Value at end of period $22.194 $17.302 $14.077 $10.778
Increase (decrease) in value of
accumulation unit(1) 28.28% 22.91% 30.61% (2.20)%
Number of accumulation units
outstanding at end of period 177,627,474 185,328,132 188,964,022 114,733,035
<CAPTION>
1993 1992 1991 1990 1989
----------------- ---------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
AETNA ASCENT VP
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
AETNA BALANCED VP
Value at beginning of period $10.189 $12.736 $10.896 $10.437 $10.000(4)
Value at end of period $11.057 $10.189(3) $12.736 $10.896 $10.437
Increase (decrease) in value of
accumulation unit(1) 8.52% (3) 16.89% 4.40% 4.37%
Number of accumulation units
outstanding at end of period 11,368,365 11,508 22,898,099 17,078,985 9,535,986
AETNA BOND VP
Value at beginning of period $10.068 $36.789 $31.192 $28.943 $25.574
Value at end of period $10.905 $10.068(5) $36.789 $31.192 $28.943
Increase (decrease) in value of
accumulation unit(1) 8.31% (5) 17.94% 7.77% 13.17%
Number of accumulation units
outstanding at end of period 4,084,142 3,870 7,844,412 6,984,793 6,202,834
AETNA CROSSROADS VP
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
AETNA GROWTH VP
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
AETNA GROWTH AND
INCOME VP
Value at beginning of period $10.454 $97.165 $77.845 $76.311 $59.871
Value at end of period $11.020 $10.454(7) $97.165 $77.845 $76.311
Increase (decrease) in value of
accumulation unit(1) 5.41% (7) 24.82% 2.01% 27.46%
Number of accumulation units
outstanding at end of period 44,166,470 21,250 20,948,226 18,362,906 17,142,820
<CAPTION>
1988
---------------
<S> <C>
AETNA ASCENT VP
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
AETNA BALANCED VP
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
AETNA BOND VP
Value at beginning of period $24.061
Value at end of period $25.574
Increase (decrease) in value of
accumulation unit(1) 6.29%
Number of accumulation units
outstanding at end of period 5,955,293
AETNA CROSSROADS VP
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
AETNA GROWTH VP
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
AETNA GROWTH AND
INCOME VP
Value at beginning of period $52.885
Value at end of period $59.871
Increase (decrease) in value of
accumulation unit(1) 13.21%
Number of accumulation units
outstanding at end of period 16,455,396
</TABLE>
- --------------------------------------------------------------------------------
28
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
================================================================================
<TABLE>
<CAPTION>
1997 1996 1995 1994
--------------------- ------------------ -------------------- ----------------
<S> <C> <C> <C> <C>
AETNA INDEX PLUS LARGE
CAP VP
Value at beginning of period $10.924 $10.000(8)
Value at end of period $14.444 $10.924
Increase (decrease) in value of
accumulation unit(1) 32.23% 9.24%
Number of accumulation units
outstanding at end of period 4,796,644 879,588
AETNA LEGACY VP
Value at beginning of period $11.930 $10.580 $10.000(2)
Value at end of period $13.491 $11.930 $10.580
Increase (decrease) in value of
accumulation unit(1) 13.08% 12.76% 5.80%
Number of accumulation units
outstanding at end of period 1,624,842 513,590 143,637
AETNA MONEY MARKET VP
Value at beginning of period $11.473 $11.026 $10.528 $10.241
Value at end of period $11.951 $11.473 $11.026 $10.528
Increase (decrease) in value of
accumulation unit(1) 4.16% 4.05% 4.73% 2.80%
Number of accumulation units
outstanding at end of period 12,191,085 13,898,826 12,999,680 7,673,528
AETNA SMALL COMPANY VP
Value at beginning of period $12.299
Value at end of period $13.654
Increase (decrease) in value of
accumulation unit(1) 11.02%(10)
Number of accumulation units
outstanding at end of period 253,548
AETNA VALUE
OPPORTUNITY VP
Value at beginning of period $12.913
Value at end of period $13.261
Increase (decrease) in value of
accumulation unit(1) 2.69%(11)
Number of accumulation units
outstanding at end of period 100,928
CALVERT SOCIAL
BALANCED PORTFOLIO
Value at beginning of period $15.044 $13.527 $10.554 $11.036
Value at end of period $17.840 $15.044 $13.527 $10.554
Increase (decrease) in value of
accumulation unit(1) 18.59% 11.22% 28.17% (4.37)%
Number of accumulation units
outstanding at end of period 1,499,989 1,313,324 966,098 521,141
FIDELITY VIP EQUITY-
INCOME PORTFOLIO
Value at beginning of period $12.518 $11.092 $10.000(2)
Value at end of period $15.837 $12.518 $11.092
Increase (decrease) in value of
accumulation unit(1) 26.52% 12.86% 10.92%
Number of accumulation units
outstanding at end of period 7,111,490 5,007,706 1,660,304
FIDELITY VIP GROWTH
PORTFOLIO
Value at beginning of period $11.402 $10.066 $10.000(2)
Value at end of period $13.904 $11.402 $10.066
Increase (decrease) in value of
accumulation unit(1) 21.95% 13.27% 0.66%
Number of accumulation units
outstanding at end of period 6,586,698 5,171,098 1,833,794
<CAPTION>
1993 1992 1991 1990 1989 1988
---------------- ------------------ -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
AETNA INDEX PLUS LARGE
CAP VP
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
AETNA LEGACY VP
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
AETNA MONEY MARKET VP
Value at beginning of period $10.048 $33.812 $32.138 $30.012 $27.783 $26.171
Value at end of period $10.241 $10.048(9) $33.812 $32.138 $30.012 $27.783
Increase (decrease) in value of
accumulation unit(1) 1.92% (9) 5.21% 7.08% 8.02% 6.16%
Number of accumulation units
outstanding at end of period 2,766,044 825 8,430,082 10,220,110 8,286,033 8,154,644
AETNA SMALL COMPANY VP
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
AETNA VALUE
OPPORTUNITY VP
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
CALVERT SOCIAL
BALANCED PORTFOLIO
Value at beginning of period $10.278 $10.000(12)
Value at end of period $11.036 $10.278
Increase (decrease) in value of
accumulation unit(1) 7.37% 2.78%
Number of accumulation units
outstanding at end of period 144,168 2,556
FIDELITY VIP EQUITY-
INCOME PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
FIDELITY VIP GROWTH
PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
</TABLE>
- --------------------------------------------------------------------------------
29
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
================================================================================
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ---------------- --------------------
<S> <C> <C> <C>
FIDELITY VIP OVERSEAS
PORTFOLIO
Value at beginning of period $11.137 $9.961 $10.000 (2)
Value at end of period $12.269 $11.137 $9.961
Increase (decrease) in value of
accumulation unit(1) 10.17% 11.80% (0.39)%
Number of accumulation units
outstanding at end of period 718,565 487,709 196,090
FIDELITY VIP II
CONTRAFUND PORTFOLIO
Value at beginning of period $12.455 $10.397 $10.000 (2)
Value at end of period $15.270 $12.455 $10.397
Increase (decrease) in value of
accumulation unit(1) 22.60% 19.79% 3.97%
Number of accumulation units
outstanding at end of period 11,399,666 6,812,870 2,116,732
JANUS ASPEN AGGRESSIVE
GROWTH PORTFOLIO
Value at beginning of period $14.202 $13.322 $10.581
Value at end of period $15.801 $14.202 $13.322
Increase (decrease) in value of
accumulation unit(1) 11.26% 6.60% 25.91%
Number of accumulation units
outstanding at end of period 9,271,525 8,835,470 4,887,060
JANUS ASPEN BALANCED
PORTFOLIO
Value at beginning of period $12.449 $10.850 $10.000 (2)
Value at end of period $15.012 $12.449 $10.850
Increase (decrease) in value of
accumulation unit(1) 20.58% 14.73% 8.50%
Number of accumulation units
outstanding at end of period 1,911,789 996,510 93,304
JANUS ASPEN FLEXIBLE
INCOME PORTFOLIO
Value at beginning of period $13.022 $12.077 $9.873
Value at end of period $14.373 $13.022 $12.077
Increase (decrease) in value of
accumulation unit(1) 10.37% 7.83% 22.33%
Number of accumulation units
outstanding at end of period 934,053 619,287 315,361
JANUS ASPEN GROWTH
PORTFOLIO
Value at beginning of period $12.716 $10.870 $10.000(2)
Value at end of period $15.414 $12.716 $10.870
Increase (decrease) in value of
accumulation unit(1) 21.22% 16.98% 8.70%
Number of accumulation units
outstanding at end of period 3,100,436 2,018,527 259,196
JANUS ASPEN WORLDWIDE
GROWTH PORTFOLIO
Value at beginning of period $13.860 $10.877 $10.000(2)
Value at end of period $16.720 $13.860 $10.877
Increase (decrease) in value of
accumulation unit(1) 20.64% 27.43% 8.77%
Number of accumulation units
outstanding at end of period 17,194,687 8,715,825 1,036,040
<CAPTION>
1994 1993 1992 1991 1990 1989 1988
------------------ ------ ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
FIDELITY VIP OVERSEAS
PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
FIDELITY VIP II
CONTRAFUND PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
JANUS ASPEN AGGRESSIVE
GROWTH PORTFOLIO
Value at beginning of period $10.000(13)
Value at end of period $10.581
Increase (decrease) in value of
accumulation unit(1) 5.81%
Number of accumulation units
outstanding at end of period 753,862
JANUS ASPEN BALANCED
PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
JANUS ASPEN FLEXIBLE
INCOME PORTFOLIO
Value at beginning of period $10.000(13)
Value at end of period $9.873
Increase (decrease) in value of
accumulation unit(1) (1.27)%
Number of accumulation units
outstanding at end of period 28,543
JANUS ASPEN GROWTH
PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
JANUS ASPEN WORLDWIDE
GROWTH PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
</TABLE>
- --------------------------------------------------------------------------------
30
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
================================================================================
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------- ------------ ------------
<S> <C> <C> <C>
LEXINGTON NATURAL
RESOURCES TRUST
Value at beginning of period $14.686 $11.720 $10.154
Value at end of period $15.541 $14.686 $11.720
Increase (decrease) in value of
accumulation unit(1) 5.82% 25.31% 15.42%
Number of accumulation units
outstanding at end of period 1,786,409 966,482 711,892
PORTFOLIO PARTNERS MFS
EMERGING EQUITIES
PORTFOLIO
Value at beginning of period $15.114
Value at end of period $14.927
Increase (decrease) in value of
accumulation unit(1) (1.24)%(14)
Number of accumulation units
outstanding at end of period 16,549,322
PORTFOLIO PARTNERS MFS
RESEARCH PORTFOLIO
Value at beginning of period $14.067
Value at end of period $13.795
Increase (decrease) in value of
accumulation unit(1) (1.93)%(14)
Number of accumulation units
outstanding at end of period 11,539,850
PORTFOLIO PARTNERS MFS
VALUE EQUITY PORTFOLIO
Value at beginning of period $19.016
Value at end of period $19.291
Increase (decrease) in value of
accumulation unit(1) 1.45% (14)
Number of accumulation units
outstanding at end of period 2,879,845
PORTFOLIO PARTNERS
SCUDDER INTERNATIONAL
GROWTH PORTFOLIO
Value at beginning of period $16.776
Value at end of period $16.986
Increase (decrease) in value of
accumulation unit(1) 1.25% (14)
Number of accumulation units
outstanding at end of period 6,242,299
PORTFOLIO PARTNERS
T. ROWE PRICE GROWTH
EQUITY PORTFOLIO
Value at beginning of period $14.112
Value at end of period $14.400
Increase (decrease) in value of
accumulation unit(1) 2.04% (14)
Number of accumulation units
outstanding at end of period 8,296,964
<CAPTION>
1994 1993 1992 1991 1990 1989 1988
-------------- ------------- ------------------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
LEXINGTON NATURAL
RESOURCES TRUST
Value at beginning of period $10.877 $9.832 $10.000(12)
Value at end of period $10.154 $10.877 $9.832
Increase (decrease) in value of
accumulation unit(1) (6.65)% 10.63% (1.68)%
Number of accumulation units
outstanding at end of period 703,676 135,614 561
PORTFOLIO PARTNERS MFS
EMERGING EQUITIES
PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
PORTFOLIO PARTNERS MFS
RESEARCH PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
PORTFOLIO PARTNERS MFS
VALUE EQUITY PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
PORTFOLIO PARTNERS
SCUDDER INTERNATIONAL
GROWTH PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
PORTFOLIO PARTNERS
T. ROWE PRICE GROWTH
EQUITY PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
</TABLE>
(1) The above figures are calculated by subtracting the beginning Accumulation
Unit value from the ending Accumulation Unit value and dividing the result
by the beginning Accumulation Unit value. These figures do not reflect the
deferred sales charges or the fixed dollar annual maintenance fee, if any.
Inclusion of these charges would reduce the investment results shown.
(2) Reflects less than a full year of performance activity. The initial
Accumulation Unit value was established at $10.000 during August 1995, when
the Fund became available under the Contract.
(3) The Accumulation Unit value was converted to $10.000 on August 21, 1992
upon the commencement of a new administrative system. Immediately prior to
that date, the Accumulation Unit value of the Fund was $13.118. On the date
of conversion, additional units were issued so that account values were not
changed as a result of the conversion. The percentage change in the
Accumulation Unit value from the beginning of the year to the date of
conversion was 2.99%; the percentage change in the Accumulation Unit value
from the date of conversion to the end of the year was 1.89%.
- --------------------------------------------------------------------------------
31
<PAGE>
(4) Reflects less than a full year of performance activity. The initial
Accumulation Unit value was established at $10.000 on June 23, 1989, the
date on which the Fund commenced operations.
(5) The Accumulation Unit value was converted to $10.000 on August 21, 1992
upon the commencement of a new administrative system. Immediately prior to
that date, the Accumulation Unit value of the Fund was $38.521. On the date
of conversion, additional units were issued so that account values were not
changed as a result of the conversion. The percentage change in the
Accumulation Unit value from the beginning of the year to the date of
conversion was 4.70%; the percentage change in the Accumulation Unit value
from the date of conversion to the end of the year was 0.68%.
(6) Reflects less than a full year of performance activity. Funds were first
received in this option during June 1997.
(7) The Accumulation Unit value was converted to $10.000 on August 21, 1992
upon the commencement of a new administrative system. Immediately prior to
that date, the Accumulation Unit value of the Fund was $97.817. On the date
of conversion, additional units were issued so that account values were not
changed as a result of the conversion. The percentage change in the
Accumulation Unit value from the beginning of the year to the date of
conversion was 0.67%; the percentage change in the Accumulation Unit value
from the date of conversion to the end of the year was 4.54%.
(8) Reflects less than a full year of performance activity. The initial
Accumulation Unit value was established at $10.000 during August 1996, when
the Portfolio became available under the Contract.
(9) The Accumulation Unit value was converted to $10.000 on August 21, 1992
upon the commencement of a new administrative system. Immediately prior to
that date, the Accumulation Unit value of the Fund was $34.397. On the date
of conversion, additional units were issued so that account values were not
changed as a result of the conversion. The percentage change in the
Accumulation Unit value from the beginning of the year to the date of
conversion was 1.73%; the percentage change in the Accumulation Unit value
from the date of conversion to the end of the year was 0.48%.
(10) Reflects less than a full year of performance activity. Funds were first
received in this option during July 1997.
(11) Reflects less than a full year of performance activity. Funds were first
received in this option during August 1997.
(12) Reflects less than a full year of performance activity. The initial
Accumulation Unit value was established at $10.000 on August 21, 1992, the
date on which the Fund/Portfolio became available under the Contract.
(13) Reflects less than a full year of performance activity. The initial
Accumulation Unit value was established at $10.000 during October 1994,
when the funds were first received in this option.
(14) Reflects less than a full year of performance activity. Funds were first
received in this option during November 1997.
The condensed financial information presented below for the period ended
December 31, 1997 is derived from the financial statements of the Separate
Account, which have been audited by KPMG Peat Marwick LLP, independent auditors.
The financial statements and the independent auditors' report thereon for the
year ended December 31, 1997, are included in the Statement of Additional
Information.
Table II
(For Contracts with total Separate Account charges of 1.50%, including
a 0.25% administrative expense charge beginning April 7, 1997)
1997
-------------------
AETNA ASCENT VP
Value at beginning of period $13.020
Value at end of period $15.394
Increase (decrease) in value of
accumulation unit(1) 18.24%(2)
Number of accumulation units
outstanding at end of period 29,840
AETNA BALANCED VP
Value at beginning of period $15.674
Value at end of period $18.776
Increase (decrease) in value of
accumulation unit(1) 19.79%(2)
Number of accumulation units
outstanding at end of period 478,177
AETNA BOND VP
Value at beginning of period $12.302
Value at end of period $13.213
Increase (decrease) in value of
accumulation unit(1) 7.41%(2)
Number of accumulation units
outstanding at end of period 215,650
- --------------------------------------------------------------------------------
32
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
================================================================================
1997
--------------------
AETNA CROSSROADS VP
Value at beginning of period $12.449
Value at end of period $14.430
Increase (decrease) in value of
accumulation unit(1) 15.91%(2)
Number of accumulation units
outstanding at end of period 26,483
AETNA GROWTH VP(10)
Value at beginning of period $12.739
Value at end of period $13.149
Increase (decrease) in value of
accumulation unit(1) 3.22%(3)
Number of accumulation units
outstanding at end of period 3,326
AETNA GROWTH AND
INCOME VP
Value at beginning of period $17.861
Value at end of period $22.153
Increase (decrease) in value of
accumulation unit(1) 24.03%(2)
Number of accumulation units
outstanding at end of period 1,699,982
AETNA INDEX PLUS LARGE
CAP VP
Value at beginning of period $11.345
Value at end of period $14.418
Increase (decrease) in value of
accumulation unit(1) 27.09%(2)
Number of accumulation units
outstanding at end of period 27,945
AETNA LEGACY VP
Value at beginning of period $11.873
Value at end of period $13.467
Increase (decrease) in value of
accumulation unit(1) 13.42%(2)
Number of accumulation units
outstanding at end of period 14,817
AETNA MONEY MARKET VP
Value at beginning of period $11.592
Value at end of period $11.929
Increase (decrease) in value of
accumulation unit(1) 2.91%(2)
Number of accumulation units
outstanding at end of period 176,703
AETNA SMALL COMPANY VP
Value at beginning of period $13.629
Value at end of period $13.629
Increase (decrease) in value of
accumulation unit(1) 0.00%(3)
Number of accumulation units
outstanding at end of period 82
AETNA VALUE
OPPORTUNITY VP
Value at beginning of period $13.237
Value at end of period $13.237
Increase (decrease) in value of
accumulation unit(1) 0.00%(3)
Number of accumulation units
outstanding at end of period 84
-------------------------------------------------------------------------------
33
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
================================================================================
1997
-------------------
CALVERT SOCIAL
BALANCED PORTFOLIO
Value at beginning of period $14.934
Value at end of period $17.808
Increase (decrease) in value of
accumulation unit(1) 19.24%(2)
Number of accumulation units
outstanding at end of period 20,521
FIDELITY VIP EQUITY-
INCOME PORTFOLIO
Value at beginning of period $12.711
Value at end of period $15.808
Increase (decrease) in value of
accumulation unit(1) 24.37%(2)
Number of accumulation units
outstanding at end of period 117,588
FIDELITY VIP GROWTH
PORTFOLIO
Value at beginning of period $11.373
Value at end of period $13.879
Increase (decrease) in value of
accumulation unit(1) 22.03%(2)
Number of accumulation units
outstanding at end of period 104,982
FIDELITY VIP OVERSEAS
PORTFOLIO
Value at beginning of period $11.253
Value at end of period $12.247
Increase (decrease) in value of
accumulation unit(1) 8.83%(2)
Number of accumulation units
outstanding at end of period 8,098
FIDELITY VIP II CONTRAFUND
PORTFOLIO
Value at beginning of period $12.388
Value at end of period $15.242
Increase (decrease) in value of
accumulation unit(1) 23.04%(2)
Number of accumulation units
outstanding at end of period 146,381
JANUS ASPEN AGGRESSIVE
GROWTH PORTFOLIO
Value at beginning of period $12.594
Value at end of period $15.773
Increase (decrease) in value of
accumulation unit(1) 25.24%(2)
Number of accumulation units
outstanding at end of period 85,304
JANUS ASPEN BALANCED
PORTFOLIO
Value at beginning of period $12.760
Value at end of period $14.984
Increase (decrease) in value of
accumulation unit(1) 17.43%(2)
Number of accumulation units
outstanding at end of period 19,967
- --------------------------------------------------------------------------------
34
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
================================================================================
1997
-------------------
JANUS ASPEN FLEXIBLE
INCOME PORTFOLIO
Value at beginning of period $13.025
Value at end of period $14.347
Increase (decrease) in value of
accumulation unit(1) 10.15%(2)
Number of accumulation units
outstanding at end of period 8,189
JANUS ASPEN GROWTH
PORTFOLIO
Value at beginning of period $12.975
Value at end of period $15.386
Increase (decrease) in value of
accumulation unit(1) 18.58%(2)
Number of accumulation units
outstanding at end of period 53,182
JANUS ASPEN WORLDWIDE
GROWTH PORTFOLIO
Value at beginning of period $14.439
Value at end of period $16.689
Increase (decrease) in value of
accumulation unit(1) 15.59%(2)
Number of accumulation units
outstanding at end of period 168,191
LEXINGTON NATURAL
RESOURCES TRUST
Value at beginning of period $13.756
Value at end of period $15.512
Increase (decrease) in value of
accumulation unit(1) 12.77%(2)
Number of accumulation units
outstanding at end of period 26,426
PORTFOLIO PARTNERS MFS
EMERGING EQUITIES
PORTFOLIO
Value at beginning of period $15.090
Value at end of period $14.899
Increase (decrease) in value of
accumulation unit(1) (1.26)%(4)
Number of accumulation units
outstanding at end of period 131,565
PORTFOLIO PARTNERS MFS
RESEARCH PORTFOLIO
Value at beginning of period $14.044
Value at end of period $13.770
Increase (decrease) in value of
accumulation unit(1) (1.95)%(4)
Number of accumulation units
outstanding at end of period 149,523
PORTFOLIO PARTNERS MFS
VALUE EQUITY
PORTFOLIO
Value at beginning of period $18.985
Value at end of period $19.256
Increase (decrease) in value of
accumulation unit(1) 1.42%(4)
Number of accumulation units
outstanding at end of period 25,830
- --------------------------------------------------------------------------------
35
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
================================================================================
1997
-------------------
PORTFOLIO PARTNERS
SCUDDER INTERNATIONAL
GROWTH PORTFOLIO
Value at beginning of period $16.749
Value at end of period $16.955
Increase (decrease) in value of
accumulation unit(1) 1.23%(4)
Number of accumulation units
outstanding at end of period 48,385
PORTFOLIO PARTNERS
T. ROWE PRICE GROWTH
EQUITY PORTFOLIO
Value at beginning of period $14.090
Value at end of period $14.374
Increase (decrease) in value of
accumulation unit(1) 2.02%(4)
Number of accumulation units
outstanding at end of period 79,799
(1) The above figures are calculated by subtracting the beginning Accumulation
Unit value from the ending Accumulation Unit value and dividing the result
by the beginning Accumulation Unit value. These figures do not reflect the
deferred sales charges or the fixed dollar annual maintenance fee, if any.
Inclusion of these charges would reduce the investment results shown.
(2) Reflects less than a full year of performance activity. Funds were first
received in this option during April 1997.
(3) Reflects less than a full year of performance activity. Funds were first
received in this option during December 1997.
(4) Reflects less than a full year of performance activity. Funds were first
received in this option during November 1997.
The condensed financial information presented below for the period ended
December 31, 1997 is derived from the financial statements of the Separate
Account, which have been audited by KPMG Peat Marwick LLP, independent auditors.
The financial statements and the independent auditors' report thereon for the
year ended December 31, 1997 are included in the Statement of Additional
Information.
Table III
(For Contracts containing limits on fees)
1997
-------------------
AETNA ASCENT VP
Value at beginning of period $13.971
Value at end of period $15.453
Increase (decrease) in value of
accumulation unit(1) 10.61%(2)
Number of accumulation units
outstanding at end of period 10,257
AETNA BALANCED VP
Value at beginning of period $16.739
Value at end of period $18.837
Increase (decrease) in value of
accumulation unit(1) 12.53%(2)
Number of accumulation units
outstanding at end of period 454,232
AETNA BOND VP
Value at beginning of period $12.629
Value at end of period $13.249
Increase (decrease) in value of
accumulation unit(1) 4.91%(2)
Number of accumulation units
outstanding at end of period 453,723
- --------------------------------------------------------------------------------
36
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
================================================================================
1997
---------------------
AETNA CROSSROADS VP
Value at beginning of period $13.199
Value at end of period $14.485
Increase (decrease) in value of
accumulation unit(1) 9.74%(2)
Number of accumulation units
outstanding at end of period 50,297
AETNA GROWTH VP(10)
Value at beginning of period $12.615
Value at end of period $13.173
Increase (decrease) in value of
accumulation unit(1) 4.42%(3)
Number of accumulation units
outstanding at end of period 1,565
AETNA GROWTH AND
INCOME VP
Value at beginning of period $19.673
Value at end of period $22.226
Increase (decrease) in value of
accumulation unit(1) 12.97%(2)
Number of accumulation units
outstanding at end of period 6,093,102
AETNA INDEX PLUS LARGE
CAP VP
Value at beginning of period $12.748
Value at end of period $14.452
Increase (decrease) in value of
accumulation unit(1) 13.37%(2)
Number of accumulation units
outstanding at end of period 13,748
AETNA LEGACY VP
Value at beginning of period $12.496
Value at end of period $13.518
Increase (decrease) in value of
accumulation unit(1) 8.18%(2)
Number of accumulation units
outstanding at end of period 16,060
AETNA MONEY MARKET VP
Value at beginning of period $11.674
Value at end of period $11.951
Increase (decrease) in value of
accumulation unit(1) 2.37%(2)
Number of accumulation units
outstanding at end of period 591,901
AETNA SMALL COMPANY VP
Value at beginning of period $13.092
Value at end of period $13.654
Increase (decrease) in value of
accumulation unit(1) 4.29%(3)
Number of accumulation units 1,779
outstanding at end of period
CALVERT SOCIAL
BALANCED PORTFOLIO
Value at beginning of period $16.178
Value at end of period $17.840
Increase (decrease) in value of
accumulation unit(1) 10.27%(2)
Number of accumulation units
outstanding at end of period 3,576
- --------------------------------------------------------------------------------
37
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
================================================================================
1997
-------------------
FIDELITY VIP EQUITY-
INCOME PORTFOLIO
Value at beginning of period $14.065
Value at end of period $15.837
Increase (decrease) in value of
accumulation unit(1) 12.60%(2)
Number of accumulation units
outstanding at end of period 49,884
FIDELITY VIP GROWTH
PORTFOLIO
Value at beginning of period $12.498
Value at end of period $13.904
Increase (decrease) in value of
accumulation unit(1) 11.26%(2)
Number of accumulation units
outstanding at end of period 31,477
FIDELITY VIP OVERSEAS
PORTFOLIO
Value at beginning of period $12.518
Value at end of period $12.269
Increase (decrease) in value of
accumulation unit(1) (1.99)%(2)
Number of accumulation units
outstanding at end of period 1,206
FIDELITY VIP II
CONTRAFUND
PORTFOLIO
Value at beginning of period $13.443
Value at end of period $15.270
Increase (decrease) in value of
accumulation unit(1) 13.59%(2)
Number of accumulation units
outstanding at end of period 29,365
JANUS ASPEN AGGRESSIVE
GROWTH PORTFOLIO
Value at beginning of period $14.156
Value at end of period $15.801
Increase (decrease) in value of
accumulation unit(1) 11.62%(2)
Number of accumulation units
outstanding at end of period 26,177
JANUS ASPEN BALANCED
PORTFOLIO
Value at beginning of period $13.573
Value at end of period $15.012
Increase (decrease) in value of
accumulation unit(1) 10.60%(2)
Number of accumulation units
outstanding at end of period 8,663
JANUS ASPEN FLEXIBLE
INCOME PORTFOLIO
Value at beginning of period $13.448
Value at end of period $14.373
Increase (decrease) in value of
accumulation unit(1) 6.88%(2)
Number of accumulation units
outstanding at end of period 323
- --------------------------------------------------------------------------------
38
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
================================================================================
1997
-------------------
JANUS ASPEN GROWTH
PORTFOLIO
Value at beginning of period $13.985
Value at end of period $15.414
Increase (decrease) in value of
accumulation unit(1) 10.22%(2)
Number of accumulation units
outstanding at end of period 6,389
JANUS ASPEN WORLDWIDE
GROWTH PORTFOLIO
Value at beginning of period $15.828
Value at end of period $16.720
Increase (decrease) in value of
accumulation unit(1) 5.64%(2)
Number of accumulation units
outstanding at end of period 63,534
LEXINGTON NATURAL
RESOURCES TRUST
Value at beginning of period $15.221
Value at end of period $15.541
Increase (decrease) in value of
accumulation unit(1) 2.10%(2)
Number of accumulation units
outstanding at end of period 8,053
PORTFOLIO PARTNERS MFS
EMERGING EQUITIES
PORTFOLIO
Value at beginning of period $15.114
Value at end of period $14.927
Increase (decrease) in value of
accumulation unit(1) (1.24)%(4)
Number of accumulation units
outstanding at end of period 56,819
PORTFOLIO PARTNERS MFS
RESEARCH PORTFOLIO
Value at beginning of period $14.067
Value at end of period $13.795
Increase (decrease) in value of
accumulation unit(1) (1.93)%(4)
Number of accumulation units
outstanding at end of period 55,233
PORTFOLIO PARTNERS MFS
VALUE EQUITY
PORTFOLIO
Value at beginning of period $19.016
Value at end of period $19.291
Increase (decrease) in value of
accumulation unit(1) 1.45%(4)
Number of accumulation units
outstanding at end of period 7,188
PORTFOLIO PARTNERS
SCUDDER INTERNATIONAL
GROWTH PORTFOLIO
Value at beginning of period $16.776
Value at end of period $16.986
Increase (decrease) in value of
accumulation unit(1) 1.25%(4)
Number of accumulation units
outstanding at end of period 6,970
- --------------------------------------------------------------------------------
39
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
================================================================================
1997
-------------------
PORTFOLIO PARTNERS
T. ROWE PRICE GROWTH
EQUITY PORTFOLIO
Value at beginning of period $14.112
Value at end of period $14.400
Increase (decrease) in value of
accumulation unit(1) 2.04%(4)
Number of accumulation units
outstanding at end of period 24,650
(1) The above figures are calculated by subtracting the beginning Accumulation
Unit value from the ending Accumulation Unit value and dividing the result
by the beginning Accumulation Unit value. These figures do not reflect the
deferred sales charges or the fixed dollar annual maintenance fee, if any.
Inclusion of these charges would reduce the investment results shown.
(2) Reflects less than a full year of performance activity. Funds were first
received in this option during June 1997.
(3) Reflects less than a full year of performance activity. Funds were first
received in this option during December 1997.
(4) Reflects less than a full year of performance activity. Funds were first
received in this option during November 1997.
- --------------------------------------------------------------------------------
40
<PAGE>
For Master Applications Only
I hereby acknowledge receipt of an Account C Group Deferred Variable Annuity
prospectus dated May 1, 1998 for Section 403(b) Tax-Deferred Annuity Plans, as
well as all current prospectuses pertaining to the variable investment options
available under the Contracts.
_____ Please send an Account C Statement of Additional Information (Form No.
SAI.75964-98) dated May 1, 1998.
- --------------------------------------------------------------------------------
CONTRACT HOLDER'S SIGNATURE
- --------------------------------------------------------------------------------
DATE
PROS.OEA-98
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
VARIABLE ANNUITY ACCOUNT C
OF AETNA LIFE INSURANCE AND ANNUITY COMPANY
- --------------------------------------------------------------------------------
Statement of Additional Information dated May 1, 1998
Group and Individual Variable Annuity Contracts
Available under Section 403(b) and 401(a)
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the current prospectus for Variable Annuity Account C (the
"Separate Account") dated May 1, 1998.
A free prospectus is available upon request from the local Aetna Life Insurance
and Annuity Company office or by writing to or calling:
Aetna Life Insurance and Annuity Company
Customer Service
151 Farmington Avenue
Hartford, Connecticut 06156
1-800-525-4225
Read the prospectus before you invest. Terms used in this Statement of
Additional Information shall have the same meaning as in the prospectus.
TABLE OF CONTENTS
Page
General Information and History........................................... 1
Variable Annuity Account C................................................ 1
Offering and Purchase of Contracts........................................ 2
Performance Data.......................................................... 2
General............................................................. 2
Average Annual Total Return Quotations.............................. 3
Annuity Payments.......................................................... 8
Sales Material and Advertising.............................................9
Independent Auditors...................................................... 9
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, 1997 the Company
(ALIAC) had $40.7 billion invested through its products, including $22.3 billion
in its separate accounts (of which the Company, or an affiliate oversees the
management of $17.6 billion) and $1.3 billion in its mutual funds offered
outside of its separate accounts. The Company is ranked among the top 2% of all
U.S. life insurance companies based on assets as of December 31, 1996. The
Company is a wholly owned subsidiary of Aetna Retirement Holdings, Inc., which
is in turn a wholly owned subsidiary of Aetna Retirement Services, Inc., and an
indirect wholly owned subsidiary of Aetna Inc. The Company is engaged in the
business of issuing life insurance policies and annuity contracts in all states
of the United States. The Company's Home Office is located at 151 Farmington
Avenue, Hartford, Connecticut 06156.
In addition to serving as the principal underwriter and the depositor for the
Separate Account, the Company is also a registered investment adviser under the
Investment Advisers Act of 1940, and a registered broker-dealer under the
Securities Exchange Act of 1934. The Company provides investment advice to
several of the registered management investment companies offered as variable
investment options under the Contracts funded by the Separate Account (see
"Variable Annuity Account C" below).
Other than the mortality and expense risk charges and administrative expense
charge described in the prospectus, all expenses incurred in the operations of
the Separate Account are borne by the Company. See "Charges and Deductions" in
the prospectus. The Company receives reimbursement for certain administrative
costs from some advisers of the Funds used as funding options under the
Contract. These fees generally range up to 0.25%.
The assets of the Separate Account are held by the Company. The Separate Account
has no custodian. However, the Funds in whose shares the assets of the Separate
Account are invested each have custodians, as discussed in their respective
prospectuses.
VARIABLE ANNUITY ACCOUNT C
Variable Annuity Account C (the "Separate Account") is a separate account
established by the Company for the purpose of funding variable annuity contracts
issued by the Company. The Separate Account is registered with the Securities
and Exchange Commission as a unit investment trust under the Investment Company
Act of 1940, as amended. Purchase Payments made under the Contract may be
allocated to one or more of the Subaccounts. Each Subaccount invests in the
shares of only one of the Funds listed below. The Company may make additions to,
deletions from or substitution of available investment options as permitted by
law and subject to the conditions of the Contract. The availability of the Funds
is subject to applicable regulatory authorization. Not all Funds are available
in all jurisdictions, under all Contracts, or under all Plans.
1
<PAGE>
The Funds currently available under the Contract are as follows:
<TABLE>
<S> <C>
Aetna Ascent VP (formerly Aetna Ascent Variable Fidelity VIP Equity-Income Portfolio
Portfolio)
Aetna Balanced VP, Inc. (formerly Aetna Investment Fidelity VIP Growth Portfolio
Advisers Fund, Inc.)
Aetna Income Shares d/b/a Aetna Bond VP Fidelity VIP Overseas Portfolio
Aetna Crossroads VP (formerly Aetna Crossroads Fidelity VIP II Contrafund Portfolio
Variable Portfolio)
Aetna Growth VP (formerly Aetna Variable Growth Janus Aspen Aggressive Growth
Portfolio) Portfolio
Aetna Variable Fund d/b/a
Aetna Growth and Income VP Janus Aspen Balanced Portfolio
Aetna High Yield VP Janus Aspen Flexible Income Portfolio
Aetna Index Plus Large Cap VP (formerly Aetna Janus Aspen Growth Portfolio
Variable Index Plus Portfolio)
Aetna Index Plus Mid Cap VP Janus Aspen Worldwide Growth Portfolio
Aetna Index Plus Small Cap VP Lexington Natural Resources Trust*
Aetna International VP Oppenheimer Global Securities Fund
Aetna Legacy VP (formerly Aetna Legacy Oppenheimer Strategic Bond Fund
Variable Portfolio)
Aetna Variable Encore Fund d/b/a Aetna Money Market VP Portfolio Partners MFS Emerging Equities Portfolio
Aetna Real Estate Securities VP Portfolio Partners MFS Research Growth Portfolio
Aetna Small Company VP (formerly Aetna Variable Small Portfolio Partners MFS Value Equity Portfolio
Company Portfolio)
Aetna Value Opportunity VP (formerly Aetna Variable Portfolio Partners Scudder International Growth Portfolio
Capital Appreciation Portfolio)
Calvert Social Balanced Portfolio (formerly Calvert Portfolio Partners T. Rowe Price Growth Equity Portfolio
Responsibly Invested Balanced Portfolio)
</TABLE>
Complete descriptions of each of the Funds, including their investment
objectives, policies, risks and fees and expenses, are contained in the
prospectuses and statements of additional information for each of the Funds.
* This Fund is only available for investment by Participants who established an
Account under the Contract before May 1, 1998. As soon as all such Participants
have redirected their allocations to other investment options, the Fund will be
closed to all new investment (except reinvested dividends and capital gains
earned on amounts already invested in the Fund through the Separate Account and
loan repayments automatically deposited into the Fund pursuant to the Company's
loan repayment procedures).
OFFERING AND PURCHASE OF CONTRACTS
The Company is both the depositor and the principal underwriter for the
securities sold by the prospectus. The Company offers the Contracts through life
insurance agents licensed to sell variable annuities who are registered
representatives of the Company or of other registered broker-dealers who have
sales agreements with the Company. The offering of the Contracts is continuous.
A description of the manner in which Contracts are purchased may be found in the
prospectus under the sections titled "Purchase" and "Contract Valuation."
PERFORMANCE DATA
GENERAL
From time to time, the Company may advertise different types of historical
performance for the Subaccounts of the Separate Account available under the
Contracts issued by the Company in connection with Plans described in the
prospectus. The Company may advertise the "standardized average annual total
returns," calculated in a manner prescribed by the Securities and Exchange
Commission (the "standardized return"), as well as "non-standardized returns,"
both of which are described below.
The standardized and non-standardized total return figures are computed
according to a formula in which a hypothetical initial Purchase Payment of
$1,000 is applied to the various Subaccounts under the Contract, and then
related to the ending redeemable values over one, five and ten year periods (or
fractional periods thereof). The redeemable value is then divided by the initial
investment and this quotient is taken to the Nth root (N represents the number
of years in the period) and 1 is subtracted from the result which is then
expressed as a percentage, carried to at least the nearest hundredth of a
percent. The standardized figures use the actual returns of the Fund since the
date contributions were first received in the Fund under the Separate Account
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
2
<PAGE>
expense charges if applicable during the period shown and deferred sales
charges). These charges will be deducted on a pro rata basis in the case of
fractional periods. The maintenance fee is converted to a percentage of assets
based on the average account size under the Contracts described in the
prospectus. The total return figures shown below may be different from the
actual historical total return under your Contract because for periods prior to
1994, the Subaccount's investment performance reflected the investment
performance of the underlying Fund plus any cash held by the Subaccount.
The non-standardized figures will be calculated in a similar manner, except that
they will not reflect the deduction of any applicable deferred sales charge
(which would decrease the level of performance shown if reflected in these
calculations). The non-standardized figures may also include monthly, quarterly,
year-to-date and three year periods, and may include returns calculated from the
Fund's inception date and/or the date the Fund was added to the Separate
Account.
Investment results of the Subaccounts will fluctuate over time, and any
presentation of the Subaccounts' total return quotations for any prior period
should not be considered as a representation of how the Subaccounts will perform
in any future period. Additionally, the Account Value upon redemption may be
more or less than your original cost.
AVERAGE ANNUAL TOTAL RETURN QUOTATIONS - Standardized and Non-Standardized
Table A shown below reflects the average annual standardized and
non-standardized total return quotation figures for the periods ended December
31, 1997 for the Subaccounts available under Single Payment Accounts issued by
the Company as of December 31, 1997 (not all such Funds are currently available,
as indicated). No maintenance fee applies to these single premium Accounts.
Table B reflects the average annual standardized and non-standardized total
return quotation figures for the periods ended December 31, 1997 for the
Subaccounts available under Installment Payment Accounts with a $20 annual
maintenance fee as of December 31, 1997 (not all such Funds are currently
available, as indicated). The Company may also advertise total return quotations
for Installment Payment Accounts with a $15 and a $7.50 annual maintenance fee.
The returns shown below reflect the 0.25% administrative expense charge
applicable to some Contracts. The Company may also advertise returns that do not
reflect such charges. In both sets of tables shown below, for those Subaccounts
where results are not available for the full calendar period indicated, the
percentage shown is an average annual return since the date the Fund first
received contributions through the Separate Account (in the case of standardized
performance) or since inception of the Fund (in the case of non-standardized
performance). Percentages reflecting partial periods are denoted with an
asterisk.
For the Subaccounts funded by the Portfolio Partners portfolios, two sets of
performance returns are shown for each Subaccount; one showing performance
based solely on the performance of the Portfolio Partners portfolio from
November 28, 1997, the date the Portfolio commenced operations; and one
quotation based on (a) performance through November 26, 1997 of the fund it
replaced under many Company contracts and; (b) after November 26, 1997, based
on the performance of the Portfolio Partners portfolio.
For those Subaccounts where results are not available for the full calendar
period indicated, performance for such partial periods is shown in the column
labeled "Since Inception." For standardized performance, the "Since Inception"
column shows the average annual return since the date contributions were first
received in the Fund under the Separate Account. For non-standardized
performance, the "Since Inception" column shows average annual total return
since the Fund's inception date.
3
<PAGE>
<TABLE>
<CAPTION>
TABLE A
- ----------------------------------------------------------------------------------------------------------------------------
Date
Contributions
Single Payment Account First
($0 Maintenance Fee) STANDARDIZED Received
Under the
Separate
Account
- ----------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT 1 Year 5 Years 10 Years Inception*
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Ascent VP 12.20% 16.80% 07/31/95
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Balanced VP, Inc. 14.63% 11.82% 10.72% 04/03/89
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Bond VP(1) 1.35% 4.49% 7.60%
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads VP 10.03% 14.36% 07/04/95
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Growth VP 12.88% 05/30/97
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income(1) 21.56% 15.01% 14.90%
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP 25.30% 26.06% 10/31/96
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Legacy VP 7.16% 10.58% 07/31/95
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP(1)(2) (1.29%) 2.42% 4.38%
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Small Company VP 14.46% 05/30/97
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Value Opportunity VP 14.60% 05/30/97
- ----------------------------------------------------------------------------------------------------------------------------
Calvert Social Balanced Portfolio 12.38% 10.31% 10.11% 05/31/89
- ----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio 19.89% 19.13% 05/31/94
- ----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio 15.56% 18.05% 05/31/94
- ----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Overseas Portfolio 4.40% 5.66% 05/31/94
- ----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund Portfolio 16.18% 21.03% 05/31/95
- ----------------------------------------------------------------------------------------------------------------------------
Janus Aspen Aggressive Growth Portfolio 5.44% 16.80% 06/30/94
- ----------------------------------------------------------------------------------------------------------------------------
Janus Aspen Balanced Portfolio 14.27% 15.93% 06/30/95
- ----------------------------------------------------------------------------------------------------------------------------
Janus Aspen Flexible Income Portfolio 4.59% 10.12% 10/31/94
- ----------------------------------------------------------------------------------------------------------------------------
Janus Aspen Growth Portfolio 14.87% 18.21% 06/30/95
- ----------------------------------------------------------------------------------------------------------------------------
Janus Aspen Worldwide Growth Portfolio 14.32% 24.40% 05/31/95
- ----------------------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust 0.28% 8.23% 7.39% 10/14/91
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Emerging Equities Portfolio (6.20%) 11/28/97
- ----------------------------------------------------------------------------------------------------------------------------
Alger American Small Cap/Portfolio Partners MFS
Emerging Equities(3) 2.22% 8.82% 09/30/93
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Research Growth Portfolio (6.86%) 11/28/97
- ----------------------------------------------------------------------------------------------------------------------------
American Century VP Capital Appreciation/
Portfolio Partners MFS Research Growth(3) (9.18%) 3.40% 5.00% 08/31/92
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Value Equity Portfolio (3.65%) 11/28/97
- ----------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT Growth/Portfolio Partners MFS
Value Equity(3) 18.24% 10.42% 9.85% 05/31/89
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio Partners Scudder International Growth Portfolio (3.83%) 11/28/97
- ----------------------------------------------------------------------------------------------------------------------------
Scudder International Portfolio Class A/
Portfolio Partners Scudder International Growth(3) 2.00% 11.10% 7.52% 07/31/89
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio Partners T. Rowe Price Growth Equity Portfolio (3.08%) 11/28/97
- ----------------------------------------------------------------------------------------------------------------------------
Alger American Growth/Portfolio Partners T. Rowe Price
Growth Equity(3) 20.02% 19.74% 10/31/94
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Please refer to the discussion preceding Table A for an explanation of the
charges included and methodology used in the standardized and non-standardized
figures. These figures represent historical performance and should not be
considered a projection of future performance.
* Reflects performance from the date contributions were first received in the
Fund under the Separate Account.
(1) These Funds have been available through the Separate Account for more than
ten years.
(2) The current yield for the Subaccount for the 7-day period ended December 31,
1997 (on an annualized basis) was 3.98%. The current yield reflects the
deduction of all charges under the Contract that are deducted from the total
return quotations shown above except the maximum 5% deferred sales charge.
(3) The Fund first listed was replaced with the applicable Portfolio Partners
Portfolio after the close of business on November 26, 1997. The performance
shown is based on the performance of the replaced Fund until November 26,
1997, and the performance of the applicable Portfolio Partners Portfolio
after that date. The replaced Fund may not have been available under all
Contracts. The "Date Contributions First Received Under Separate Account"
refers to the applicable date for the replaced Fund.
4
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Single Payment Account NON-STANDARDIZED Fund
($0 Maintenance Fee) Inception
Date
- ------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT 1 Year 3 Years 5 Years 10 Years Inception**
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aetna Ascent VP 18.11% 20.03% 07/05/95
- ------------------------------------------------------------------------------------------------------------------------------
Aetna Balanced VP, Inc. 20.66% 19.72% 12.74% 10.85% 04/03/89
- ------------------------------------------------------------------------------------------------------------------------------
Aetna Bond VP(1) 6.69% 8.24% 5.34% 7.60%
- ------------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads VP 15.82% 16.73% 07/05/95
- ------------------------------------------------------------------------------------------------------------------------------
Aetna Growth VP 31.03% 30.99% 12/13/96
- ------------------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP(1) 27.96% 26.91% 15.95% 14.90%
- ------------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP 31.90% 32.59% 09/16/96
- ------------------------------------------------------------------------------------------------------------------------------
Aetna Legacy VP 12.80% 13.25% 07/05/95
- ------------------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP(1)(2) 3.91% 4.06% 3.26% 4.38%
- ------------------------------------------------------------------------------------------------------------------------------
Aetna Small Company VP 32.49% 33.43% 12/27/96
- ------------------------------------------------------------------------------------------------------------------------------
Aetna Value Opportunity VP 37.29% 37.81% 12/13/96
- ------------------------------------------------------------------------------------------------------------------------------
Calvert Social Balanced Portfolio(1) 18.29% 18.83% 11.22% 10.75%
- ------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio(1) 26.20% 23.66% 18.38% 15.00%
- ------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio(1) 21.64% 22.38% 16.25% 15.45%
- ------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Overseas Portfolio(1) 9.89% 9.81% 12.43% 8.00%
- ------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund Portfolio 22.29% 26.30% 01/03/95
- ------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Aggressive Growth Portfolio 10.99% 14.02% 17.45% 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Balanced Portfolio 20.28% 19.17% 14.57% 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Flexible Income Portfolio 10.10% 13.06% 8.40% 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Growth Portfolio 20.92% 21.86% 15.93% 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Worldwide Growth Portfolio 20.34% 24.28% 21.09% 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust 5.55% 14.95% 9.12% 7.92% 10/14/91
- ------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Global Securities Fund 20.60% 12.12% 17.04% 10.59% 11/12/90
- ------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Strategic Bond Fund 7.09% 10.33% 6.03% 05/03/93
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Emerging Equities Portfolio (1.27%) 11/28/97
- ------------------------------------------------------------------------------------------------------------------------------
Alger American Small Cap/Portfolio Partners MFS
Emerging Equities(3) 7.60% 16.23% 10.54% 17.22% 09/21/88
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Research Growth Portfolio (1.96%) 11/28/97
- ------------------------------------------------------------------------------------------------------------------------------
American Century VP Capital Appreciation/
Portfolio Partners MFS Research Growth(3) (4.40%) 5.18% 4.25% 7.11%
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Value Equity Portfolio 1.28% 11/28/97
- ------------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT Growth/Portfolio Partners
MFS Value Equity(3) 24.46% 20.20% 11.33% 12.95%
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners Scudder International Growth Portfolio 1.44% 11/28/97
- ------------------------------------------------------------------------------------------------------------------------------
Scudder International Portfolio Class A/
Portfolio Partners Scudder International Growth(3) 7.37% 9.94% 12.01% 10.13%
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners T. Rowe Price Growth Equity Portfolio 1.89% 11/28/97
- ------------------------------------------------------------------------------------------------------------------------------
Alger American Growth/Portfolio Partners T. Rowe Price
Growth Equity(3) 26.34% 23.76% 17.98% 17.93% 01/09/89
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Please refer to the discussion preceding Table A for an explanation of the
charges included and methodology used in the standardized and non-standardized
figures. These figures represent historical performance and should not be
considered a projection of future performance.
** Reflects performance from the Fund's inception date.
(1) These Funds have been in operation for more than ten years.
(2) The current yield for the Subaccount for the 7-day period ended December 31,
1997 (on an annualized basis) was 3.98%. The current yield reflects the
deduction of all charges under the Contract that are deducted from the total
return quotations shown. As in the table above, the maximum 5% deferred
sales charge is not reflected.
(3) The Fund first listed was replaced with the applicable Portfolio Partners
Portfolio after the close of business on November 26, 1997. The performance
shown is based on the performance of the replaced Fund until November 26,
1997, and the performance of the applicable Portfolio Partners Portfolio
after that date. The replaced Fund may not have been available under all
Contracts. The "Fund Inception Date" refers to the applicable date for the
replaced Fund. If no date is shown, the replaced Fund has been in operation
for more than ten years.
5
<PAGE>
<TABLE>
<CAPTION>
TABLE B
- -----------------------------------------------------------------------------------------------------------------------------
Date
Contributions
Installment Payment Account STANDARDIZED First
($20 Maintenance Fee) Received
Under the
Separate
Account
- -----------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT 1 Year 5 Year 10 Year Inception*
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Ascent VP 12.15% 16.75% 07/31/95
- -----------------------------------------------------------------------------------------------------------------------------
Aetna Balanced VP, Inc. 14.57% 11.53% 10.15% 04/03/89
- -----------------------------------------------------------------------------------------------------------------------------
Aetna Bond VP(1) 1.30% 4.21% 7.54%
- -----------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads VP 9.98% 14.30% 07/04/95
- -----------------------------------------------------------------------------------------------------------------------------
Aetna Growth VP 12.83% 05/30/97
- -----------------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP(1) 21.50% 14.72% 14.85%
- -----------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP 25.25% 26.01% 10/31/96
- -----------------------------------------------------------------------------------------------------------------------------
Aetna Legacy VP 7.11% 10.53% 07/31/95
- -----------------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP(1)(2) (1.34%) 2.15% 4.32%
- -----------------------------------------------------------------------------------------------------------------------------
Aetna Small Company VP 14.41% 05/30/97
- -----------------------------------------------------------------------------------------------------------------------------
Aetna Value Opportunity VP 14.54% 05/30/97
- -----------------------------------------------------------------------------------------------------------------------------
Calvert Social Balanced Portfolio 12.32% 10.03% 9.53% 05/31/89
- -----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio 19.84% 19.07% 05/31/94
- -----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio 15.51% 18.00% 05/31/94
- -----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Overseas Portfolio 4.35% 5.60% 05/31/94
- -----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund Portfolio 16.13% 20.97% 05/31/95
- -----------------------------------------------------------------------------------------------------------------------------
Janus Aspen Aggressive Growth Portfolio 5.38% 16.74% 06/30/94
- -----------------------------------------------------------------------------------------------------------------------------
Janus Aspen Balanced Portfolio 14.22% 15.88% 06/30/95
- -----------------------------------------------------------------------------------------------------------------------------
Janus Aspen Flexible Income Portfolio 4.54% 10.06% 10/31/94
- -----------------------------------------------------------------------------------------------------------------------------
Janus Aspen Growth Portfolio 14.82% 18.16% 06/30/95
- -----------------------------------------------------------------------------------------------------------------------------
Janus Aspen Worldwide Growth Portfolio 14.26% 24.35% 05/31/95
- -----------------------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust 0.22% 7.95% 6.97% 10/14/91
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Emerging Equities Portfolio (6.25%) 11/28/97
- -----------------------------------------------------------------------------------------------------------------------------
Alger American Small Cap/Portfolio Partners MFS
Emerging Equities(3) 2.17% 8.77% 09/30/93
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Research Growth Portfolio (6.91%) 11/28/97
- -----------------------------------------------------------------------------------------------------------------------------
American Century VP Capital Appreciation/
Portfolio Partners MFS Research Growth(3) (9.24%) 3.13% 4.74% 08/31/92
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Value Equity Portfolio (3.70%) 11/28/97
- -----------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT Growth/Portfolio Partners MFS
Value Equity(3) 18.19% 10.14% 9.27% 05/31/89
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio Partners Scudder International Growth Portfolio (3.89%) 11/28/97
- -----------------------------------------------------------------------------------------------------------------------------
Scudder International Portfolio Class A/
Portfolio Partners Scudder International Growth(3) 1.94% 10.81% 6.94% 07/31/89
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio Partners T. Rowe Price Growth Equity Portfolio (3.14%) 11/28/97
- -----------------------------------------------------------------------------------------------------------------------------
Alger American Growth/Portfolio Partners T. Rowe Price
Growth Equity(3) 19.97% 19.69% 10/31/94
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Please refer to the discussion preceding Table A for an explanation of the
charges included and methodology used in the standardized and non-standardized
figures. These figures represent historical performance and should not be
considered a projection of future performance.
* Reflects performance from the date contributions were first received in the
Fund under the Separate Account.
(1) These Funds have been available through the Separate Account for more than
ten years.
(2) The current yield for the Subaccount for the 7-day period ended December 31,
1997 (on an annualized basis) was 3.926%. The current yield reflects the
deduction of all charges under the Contract that are deducted from the total
return quotations shown above except the maximum 5% deferred sales charge.
(3) The Fund first listed was replaced with the applicable Portfolio Partners
Portfolio after the close of business on November 26, 1997. The performance
shown is based on the performance of the replaced Fund until November 26,
1997, and the performance of the applicable Portfolio Partners Portfolio
after that date. The replaced Fund may not have been available under all
Contracts. The "Date Contributions First Received Under Separate Account"
refers to the applicable date for the replaced Fund.
6
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Installment Payment Account NON-STANDARDIZED Fund
($20 Maintenance Fee) Inception
Date
- ------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT 1 Year 3 Years 5 Years 10 Years Inception**
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aetna Ascent VP 18.06% 19.98% 07/05/95
- ------------------------------------------------------------------------------------------------------------------------------
Aetna Balanced VP, Inc. 20.61% 19.66% 12.68% 10.79% 04/03/89
- ------------------------------------------------------------------------------------------------------------------------------
Aetna Bond VP(1) 6.63% 8.19% 5.29% 7.54%
- ------------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads VP 15.77% 16.68% 07/05/95
- ------------------------------------------------------------------------------------------------------------------------------
Aetna Growth VP 30.97% 30.94% 12/13/96
- ------------------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP(1) 27.90% 26.85% 15.90% 14.85%
- ------------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP 31.84% 32.53% 09/16/96
- ------------------------------------------------------------------------------------------------------------------------------
Aetna Legacy VP 12.75% 13.20% 07/05/95
- ------------------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP(1)(2) 3.85% 4.00% 3.21% 4.32%
- ------------------------------------------------------------------------------------------------------------------------------
Aetna Small Company VP 32.43% 33.38% 12/27/96
- ------------------------------------------------------------------------------------------------------------------------------
Aetna Value Opportunity VP 37.23% 37.76% 12/13/96
- ------------------------------------------------------------------------------------------------------------------------------
Calvert Social Balanced Portfolio(1) 18.24% 18.77% 11.17% 10.70%
- ------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio(1) 26.15% 23.61% 18.33% 14.94%
- ------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio(1) 21.59% 22.33% 16.20% 15.40%
- ------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Overseas Portfolio(1) 9.84% 9.76% 12.37% 7.94%
- ------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund Portfolio 22.24% 26.24% 01/03/95
- ------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Aggressive Growth Portfolio 10.93% 13.96% 17.40% 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Balanced Portfolio 20.23% 19.12% 14.52% 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Flexible Income Portfolio 10.04% 13.00% 8.34% 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Growth Portfolio 20.87% 21.80% 15.87% 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Worldwide Growth Portfolio 20.28% 24.22% 21.04% 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust 5.50% 14.90% 9.06% 7.86% 10/14/91
- ------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Global Securities Fund 20.55% 12.07% 16.99% 10.54% 11/12/90
- ------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Strategic Bond Fund 7.03% 10.28% 5.98% 05/03/93
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Emerging Equities Portfolio (1.33%) 11/28/97
- ------------------------------------------------------------------------------------------------------------------------------
Alger American Small Cap/Portfolio Partners MFS
Emerging Equities 7.55% 16.17% 10.49% 17.17% 09/21/88
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Research Growth Portfolio (2.02%) 11/28/97
- ------------------------------------------------------------------------------------------------------------------------------
American Century VP Capital Appreciation/
Portfolio Partners MFS Research Growth(3) (4.46%) 5.13% 4.20% 7.05%
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Value Equity Portfolio 1.23% 11/28/97
- ------------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT Growth/Portfolio Partners MFS
Value Equity(3) 24.41% 20.15% 11.27% 12.89%
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners Scudder International Growth Portfolio 1.39% 11/28/97
- ------------------------------------------------------------------------------------------------------------------------------
Scudder International Portfolio Class A/
Portfolio Partners Scudder International Growth(3) 7.31% 9.89% 11.95% 10.08%
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners T. Rowe Price Growth Equity Portfolio 1.84% 11/28/97
- ------------------------------------------------------------------------------------------------------------------------------
Alger American Growth/Portfolio Partners T. Rowe Price
Growth Equity(3) 26.29% 23.70% 17.93% 17.88% 01/09/89
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Please refer to the discussion preceding Table A for an explanation of the
charges included and methodology used in the standardized and non-standardized
figures. These figures represent historical performance and should not be
considered a projection of future performance.
** Reflects performance from the Fund's inception date.
(1) These Funds have been in operation for more than ten years.
(2) The current yield for the Subaccount for the 7-day period ended December 31,
1997 (on an annualized basis) was 3.926%. The current yield reflects the
deduction of all charges under the Contract that are deducted from the total
return quotations shown. As in the table above, the maximum 5% deferred
sales charge is not reflected.
(3) The Fund first listed was replaced with the applicable Portfolio Partners
Portfolio after the close of business on November 26, 1997. The performance
shown is based on the performance of the replaced Fund until November 26,
1997, and the performance of the applicable Portfolio Partners Portfolio
after that date. The replaced Fund may not have been available under all
Contracts. The "Fund Inception Date" refers to the applicable date for the
replaced Fund. If no date is shown, the replaced Fund has been in operation
for more than ten years.
7
<PAGE>
ANNUITY PAYMENTS
When Annuity payments are to begin, the value of the Account is determined using
Accumulation Unit values as of the tenth Valuation Date before the first Annuity
payment is due. Such value (less any applicable premium tax) is applied to
provide an Annuity in accordance with the Annuity and investment options
elected.
The Annuity option tables found in the Contract show, for each form of Annuity,
the amount of the first Annuity payment for each $1,000 of value applied.
Thereafter, variable Annuity payments fluctuate as the Annuity Unit value(s)
fluctuates with the investment experience of the selected investment option(s).
The first payment and subsequent payments also vary depending on the assumed net
investment rate selected (3.5% or 5% per annum). Selection of a 5% rate causes a
higher first payment, but Annuity payments will increase thereafter only to the
extent that the net investment rate increases by more than 5% on an annual
basis. Annuity payments would decline if the rate failed to increase by 5%. Use
of the 3.5% assumed rate causes a lower first payment, but subsequent payments
would increase more rapidly or decline more slowly as changes occur in the net
investment rate.
When the Annuity Period begins, the Annuitant is credited with a fixed number of
Annuity Units (which does not change thereafter) in each of the designated
investment options. This number is calculated by dividing (a) by (b), where (a)
is the amount of the first Annuity payment based on a particular investment
option, and (b) is the then current Annuity Unit value for that investment
option. As noted, Annuity Unit values fluctuate from one Valuation Date to the
next; such fluctuations reflect changes in the net investment factor for the
appropriate Subaccount(s) (with a ten Valuation Date lag which gives the Company
time to process Annuity payments) and a mathematical adjustment which offsets
the assumed net investment rate of 3.5% or 5% per annum.
The operation of all these factors can be illustrated by the following
hypothetical example. These procedures will be performed separately for the
investment options selected during the Annuity Period.
EXAMPLE:
Assume that, at the date Annuity payments are to begin, there are 3,000
Accumulation Units credited under a particular Account and that the value of an
Accumulation Unit for the tenth Valuation Date prior to retirement was
$13.650000. This produces a total value of $40,950.
Assume also that no premium tax is payable and that the Annuity table in the
Contract provides, for the option elected, a first monthly variable Annuity
payment of $6.68 per $1000 of value applied; the Annuitant's first monthly
payment would thus be 40.950 multiplied by $6.68, or $273.55.
Assume then that the value of an Annuity Unit for the Valuation Date on which
the first payment was due was $13.400000. When this value is divided into the
first monthly payment, the number of Annuity Units is determined to be 20.414.
The value of this number of Annuity Units will be paid in each subsequent month.
If the net investment factor with respect to the appropriate Subaccount is
1.0015000 as of the tenth Valuation Date preceding the due date of the second
monthly payment, multiplying this factor by .9999058* (to neutralize the assumed
net investment rate of 3.5% per annum built into the number of Annuity Units
determined above) produces a result of 1.0014057. This is then multiplied by the
Annuity Unit value for the prior Valuation Date (assume such value to be
$13.504376) to produce an Annuity Unit value of $13.523359 for the Valuation
Date on which the second payment is due.
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.
8
<PAGE>
SALES MATERIAL AND ADVERTISING
The Company may include hypothetical illustrations in its sales literature that
explain the mathematical principles of dollar cost averaging, compounded
interest, tax deferred accumulation, and the mechanics of variable annuity
contracts. The Company may also discuss the difference between variable annuity
contracts and other types of savings or investment products, including, but not
limited to, personal savings accounts and certificates of deposit.
We may distribute sales literature that compares the percentage change in
Accumulation Unit values for any of the Subaccounts to established market
indices such as the Standard & Poor's 500 Stock Index and the Dow Jones
Industrial Average or to the percentage change in values of other management
investment companies that have investment objectives similar to the Subaccount
being compared.
We may publish in advertisements and reports, the ratings and other information
assigned to us by one or more independent rating organizations such as A.M. Best
Company, Duff & Phelps, Standard & Poor's Corporation and Moody's Investors
Service, 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 categorize the underlying Funds in terms of the
asset classes they represent and use such categories in marketing materials for
the Contracts. 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.
9
<PAGE>
VARIABLE ANNUITY ACCOUNT C
FINANCIAL STATEMENTS
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-17
S-1
<PAGE>
Variable Annuity Account C
Statement of Assets and Liabilities - December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at net asset value: (Note 1)
Aetna Variable Fund; 189,402,635 shares (cost $5,932,019,068) ........................ $ 6,370,594,954
Aetna Income Shares; 29,481,519 shares (cost $379,976,337) ........................... 378,848,309
Aetna Variable Encore Fund; 17,984,272 shares (cost $234,633,355) .................... 240,346,197
Aetna Investment Advisers Fund, Inc.; 61,720,862 shares (cost $848,048,432) .......... 989,547,679
Aetna GET Fund, Series B; 5,058,054 shares (cost $56,606,586) ........................ 79,552,932
Aetna GET Fund, Series C; 18,780,804 shares (cost $190,080,319) ...................... 236,822,693
Aetna Ascent Variable Portfolio; 5,107,825 shares (cost $66,607,510) ................. 72,115,304
Aetna Crossroads Variable Portfolio; 3,801,191 shares (cost $47,125,006) ............. 49,739,310
Aetna Legacy Variable Portfolio; 2,710,978 shares (cost $32,214,576) ................. 32,802,912
Aetna Variable Portfolios, Inc.:
Aetna Variable Capital Appreciation Portfolio; 171,171 shares (cost $2,313,642) ..... 2,039,640
Aetna Variable Growth Portfolio; 111,560 shares (cost $1,335,706) ................... 1,098,483
Aetna Variable Index Plus Portfolio; 5,933,809 shares (cost $76,210,503) ............ 83,175,077
Aetna Variable Small Company Portfolio; 388,120 shares (cost $5,122,912) ............ 4,956,212
Calvert Social Balanced Portfolio; 27,469,430 shares (cost $47,247,774) .............. 54,444,411
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio; 7,855,657 shares (cost $156,737,051) ....................... 190,735,350
Growth Portfolio; 3,457,071 shares (cost $105,862,746) .............................. 128,257,345
Overseas Portfolio; 700,480 shares (cost $13,223,729) ............................... 13,449,206
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio; 1,288,137 shares (cost $19,277,286) ........................ 23,199,341
Contrafund Portfolio; 12,866,038 shares (cost $206,330,826) ......................... 256,548,805
Index 500 Portfolio; 504,605 shares (cost $46,209,224) .............................. 57,721,771
Janus Aspen Series:
Aggressive Growth Portfolio; 10,248,197 shares (cost $174,115,177) .................. 210,600,444
Balanced Portfolio; 2,143,788 shares (cost $32,647,487) ............................. 37,451,981
Flexible Income Portfolio; 1,252,635 shares (cost $14,374,926) ...................... 14,756,039
Growth Portfolio; 4,330,541 shares (cost $68,345,213) ............................... 80,028,403
Worldwide Growth Portfolio; 18,350,150 shares (cost $366,705,134).................... 429,210,001
Lexington Emerging Markets Fund; 649,673 shares (cost $6,756,872)..................... 5,788,593
Lexington Natural Resources Trust Fund; 2,881,672 shares (cost $41,178,832)........... 42,965,725
Portfolio Partners, Inc. (PPI):
PPI MFS Emerging Equities Portfolio; 8,228,209 shares (cost $356,891,357)............. 352,990,165
PPI MFS Research Growth Portfolio; 23,381,050 shares (cost $231,196,214).............. 227,029,997
PPI MFS Value Equity Portfolio; 3,887,887 shares (cost $114,649,620).................. 116,286,704
PPI Scudder International Growth Portfolio; 14,375,874 shares (cost $199,666,185)..... 202,699,815
PPI T. Rowe Price Growth Equity Portfolio; 3,885,589 shares (cost $166,078,985) ...... 169,450,553
---------------
NET ASSETS (cost $10,239,788,590) ..................................................... $11,155,254,351
===============
Net assets represented by:
Reserves for annuity contracts in accumulation and payment period: (Notes 1 and 5)
Aetna Variable Fund:
Annuity contracts in accumulation .................................................... $ 6,078,549,136
Annuity contracts in payment period .................................................. 292,045,818
Aetna Income Shares:
Annuity contracts in accumulation .................................................... 372,629,553
Annuity contracts in payment period .................................................. 6,218,756
</TABLE>
S-2
<PAGE>
Variable Annuity Account C
Statement of Assets and Liabilities - December 31, 1997 (continued):
<TABLE>
<S> <C>
Aetna Variable Encore Fund:
Annuity contracts in accumulation ...................... $ 240,346,197
Aetna Investment Advisers Fund, Inc.:
Annuity contracts in accumulation ...................... 968,354,403
Annuity contracts in payment period .................... 21,193,276
Aetna GET Fund, Series B:
Annuity contracts in accumulation ...................... 79,552,932
Aetna GET Fund, Series C:
Annuity contracts in accumulation ...................... 236,822,693
Aetna Ascent Variable Portfolio:
Annuity contracts in accumulation ...................... 72,115,304
Aetna Crossroads Variable Portfolio:
Annuity contracts in accumulation ...................... 49,739,310
Aetna Legacy Variable Portfolio:
Annuity contracts in accumulation ...................... 32,749,254
Annuity contracts in payment period .................... 53,658
Aetna Variable Portfolios, Inc.:
Aetna Variable Capital Appreciation Portfolio:
Annuity contracts in accumulation ...................... 2,039,640
Aetna Variable Growth Portfolio:
Annuity contracts in accumulation ...................... 1,098,483
Aetna Variable Index Plus Portfolio:
Annuity contracts in accumulation ...................... 83,098,319
Annuity contracts in payment period .................... 76,758
Aetna Variable Small Company Portfolio:
Annuity contracts in accumulation ...................... 4,956,212
Calvert Social Balanced Portfolio:
Annuity contracts in accumulation ...................... 54,444,411
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio:
Annuity contracts in accumulation ...................... 190,735,350
Growth Portfolio:
Annuity contracts in accumulation ...................... 128,257,345
Overseas Portfolio:
Annuity contracts in accumulation ...................... 13,449,206
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio:
Annuity contracts in accumulation ...................... 23,199,341
Contrafund Portfolio:
Annuity contracts in accumulation ...................... 256,548,805
Index 500 Portfolio:
Annuity contracts in accumulation ...................... 57,721,771
Janus Aspen Series:
Aggressive Growth Portfolio:
Annuity contracts in accumulation ...................... 210,600,444
Balanced Portfolio:
Annuity contracts in accumulation ...................... 37,451,981
Flexible Income Portfolio:
Annuity contracts in accumulation ...................... 14,756,039
Growth Portfolio:
Annuity contracts in accumulation ...................... 79,992,417
Annuity contracts in payment period .................... 35,986
</TABLE>
S-3
<PAGE>
Variable Annuity Account C
Statement of Assets and Liabilities - December 31, 1997 (continued):
<TABLE>
<S> <C>
Worldwide Growth Portfolio:
Annuity contracts in accumulation ........... $ 429,093,163
Annuity contracts in payment period ......... 116,838
Lexington Emerging Markets Fund:
Annuity contracts in accumulation ........... 5,788,593
Lexington Natural Resources Trust Fund:
Annuity contracts in accumulation ........... 42,965,725
Portfolio Partners, Inc.:
PPI MFS Emerging Equities Portfolio:
Annuity contracts in accumulation ........... 352,966,999
Annuity contracts in payment period ......... 23,166
PPI MFS Research Growth Portfolio:
Annuity contracts in accumulation ........... 227,029,997
PPI MFS Value Equity Portfolio:
Annuity contracts in accumulation ........... 116,286,704
PPI Scudder International Growth Portfolio:
Annuity contracts in accumulation ........... 202,699,815
PPI T. Rowe Price Growth Equity Portfolio:
Annuity contracts in accumulation ........... 169,450,553
---------------
$11,155,254,351
===============
</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,
1997 1996
------------------- -----------------
<S> <C> <C>
INVESTMENT INCOME:
Income: (Notes 1, 3 and 5)
Dividends ............................................................ $ 1,552,106,208 $ 712,854,599
Expenses: (Notes 2 and 5)
Valuation period deductions .......................................... (120,867,375) (93,446,331)
--------------- --------------
Net investment income ................................................. 1,431,238,833 619,408,268
--------------- --------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on sales of investments: (Notes 1, 4 and 5)
Proceeds from sales .................................................. 2,013,561,413 2,060,808,031
Cost of investments sold ............................................. 1,773,010,971 1,547,239,509
--------------- --------------
Net realized gain ................................................... 240,550,442 513,568,522
Net unrealized gain on investments: (Note 5)
Beginning of year .................................................... 612,391,085 594,083,184
End of year .......................................................... 915,465,761 612,391,085
--------------- --------------
Net change in unrealized gain ....................................... 303,074,676 18,307,901
--------------- --------------
Net realized and unrealized gain on investments ....................... 543,625,118 531,876,423
--------------- --------------
Net increase in net assets resulting from operations .................. 1,974,863,951 1,151,284,691
--------------- --------------
FROM UNIT TRANSACTIONS:
Variable annuity contract purchase payments ........................... 1,039,130,530 951,293,520
Sales and administrative charges deducted by the Company .............. (17,373) (61,783)
--------------- --------------
Net variable annuity contract purchase payments ...................... 1,039,113,157 951,231,737
Transfer from the Company for mortality guarantee adjustments ......... 2,085,609 3,247,064
Transfers from the Company's fixed account options .................... 166,510,610 187,508,331
Transfers to the Company's other variable annuity accounts ............ (88,238,000) 0
Redemptions by contract holders ....................................... (474,257,152) (339,383,183)
Annuity Payments ...................................................... (31,253,253) (20,948,181)
Other ................................................................. 1,227,066 144,245
--------------- --------------
Net increase in net assets from unit transactions (Note 5) ........... 615,188,037 781,800,013
--------------- --------------
Change in net assets .................................................. 2,590,051,988 1,933,084,704
NET ASSETS:
Beginning of year ..................................................... 8,565,202,363 6,632,117,659
--------------- --------------
End of year ........................................................... $11,155,254,351 $8,565,202,363
=============== ==============
</TABLE>
See Notes to Financial Statements
S-5
<PAGE>
Variable Annuity Account C
Notes to Financial Statements - December 31, 1997
1. Summary of Significant Accounting Policies
Variable Annuity Account C (the "Account") is a separate account
established by Aetna Life Insurance and Annuity Company (the "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, 1997:
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 Portfolios, Inc.:
[bullet] Aetna Variable Capital Appreciation Portfolio
[bullet] Aetna Variable Growth Portfolio
[bullet] Aetna Variable Index Plus Portfolio
[bullet] Aetna Variable Small Company Portfolio
Calvert Social 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 Manger Portfolio
[bullet] Contrafund Portfolio
[bullet] Index 500 Portfolio
Janus Aspen Series:
[bullet] Aggressive Growth Portfolio
[bullet] Balanced Portfolio
[bullet] Flexible Income Portfolio
[bullet] Growth Portfolio
[bullet] Worldwide Growth Portfolio
Lexington Emerging Markets Fund
Lexington Natural Resources Trust Fund
Portfolio Partners, Inc.:
[bullet] PPI MFS Emerging Equities Portfolio
[bullet] PPI MFS Research Growth Portfolio
[bullet] PPI MFS Value Equity Portfolio
[bullet] PPI Scudder International Growth Portfolio
[bullet] PPI T. Rowe Price Growth Equity Portfolio
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 the Company which is taxed as a life insurance company under
the Internal Revenue Code of 1986, as amended.
d. Annuity Reserves
Annuity reserves held in the Account 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, 1997 and 1996
aggregated $4,059,988,283 and $2,013,561,413; $3,462,016,312 and
$2,060,808,031, respectively.
S-6
<PAGE>
Variable Annuity Account C
Notes to Financial Statements - December 31, 1997 (continued):
5. Supplemental Information to Statements of Operations and Changes in Net
Assets
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Year Ended December 31, 1997
Valuation
Period
Dividends Deductions
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Aetna Variable Fund: $1,291,034,822 ($ 68,500,273)
Annuity contracts in accumulation
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------
Aetna Income Shares: 22,258,737 (4,263,839)
Annuity contracts in accumulation
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------
Aetna Variable Encore Fund: 9,635,587 (2,938,575)
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------
Aetna Investment Advisers Fund, Inc.: 128,304,517 (10,844,018)
Annuity contracts in accumulation
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------
Aetna GET Fund, Series B: 13,341,021 (1,078,816)
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------
Aetna GET Fund, Series C: 3,678,012 (3,257,441)
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------
Aetna Ascent Variable Portfolio: 4,541,482 (578,657)
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------
Aetna Crossroads Variable Portfolio: 3,316,159 (392,434)
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------
Aetna Legacy Variable Portfolio: 1,788,369 (229,584)
Annuity contracts in accumulation
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------
Aetna Variable Portfolios Inc:
Aetna Variable Capital Appreciation Portfolio: 312,433 (2,197)
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------
Aetna Variable Growth Portfolio: 249,335 (1,093)
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------
Aetna Variable Index Plus Portfolio: 3,327,658 (542,532)
Annuity contracts in accumulation
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------
Aetna Variable Small Company Portfolio: 269,004 (5,868)
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------
Alger American Funds:
Growth Portfolio: (1) 1,199,482 (1,526,918)
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------
Small Capitalization Portfolio: 11,721,861 (3,575,543)
Annuity contracts in accumulation
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------
Year Ended December 31, 1997
Proceeds Cost of Net
from Investments Realized
Sales Sold Gain (Loss)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aetna Variable Fund: $205,088,291 $150,120,010 $ 54,968,281
Annuity contracts in accumulation
Annuity contracts in payment period
- --------------------------------------------------------------------------------------------------
Aetna Income Shares: 46,789,033 49,260,722 (2,471,689)
Annuity contracts in accumulation
Annuity contracts in payment period
- --------------------------------------------------------------------------------------------------
Aetna Variable Encore Fund: 206,958,669 210,166,945 (3,208,276)
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------
Aetna Investment Advisers Fund, Inc.: 37,558,168 27,770,494 9,787,674
Annuity contracts in accumulation
Annuity contracts in payment period
- --------------------------------------------------------------------------------------------------
Aetna GET Fund, Series B: 7,648,728 4,940,723 2,708,005
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------
Aetna GET Fund, Series C: 13,972,003 11,896,317 2,075,686
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------
Aetna Ascent Variable Portfolio: 498,613 380,091 118,522
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------
Aetna Crossroads Variable Portfolio: 409,248 325,568 83,680
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------
Aetna Legacy Variable Portfolio: 2,265,127 2,019,840 245,287
Annuity contracts in accumulation
Annuity contracts in payment period
- --------------------------------------------------------------------------------------------------
Aetna Variable Portfolios Inc:
Aetna Variable Capital Appreciation Portfolio: 123,165 113,851 9,314
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------
Aetna Variable Growth Portfolio: 80,207 72,190 8,017
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------
Aetna Variable Index Plus Portfolio: 29,980,862 29,823,433 157,429
Annuity contracts in accumulation
Annuity contracts in payment period
- --------------------------------------------------------------------------------------------------
Aetna Variable Small Company Portfolio: 478,457 428,319 50,138
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------
Alger American Funds:
Growth Portfolio: (1) 169,481,196 134,718,793 34,762,403
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------
Small Capitalization Portfolio: 403,516,606 343,440,431 60,076,175
Annuity contracts in accumulation
Annuity contracts in payment period
- --------------------------------------------------------------------------------------------------
</TABLE>
S-7
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Net Unrealized Net
Gain (Loss) Net Increase (Decrease) Net Assets
----------- Change in In 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>
$327,744,944 $438,575,885 $110,830,941 $ 75,435,966
$4,694,078,344 $6,078,549,136
212,746,872 292,045,818
- -----------------------------------------------------------------------------------------------------------------------
(9,314,233) (1,128,028) 8,186,205 (4,710,418)
354,233,289 372,629,553
5,616,023 6,218,756
- -----------------------------------------------------------------------------------------------------------------------
(750,036) 5,712,842 6,462,878 (14,909,883)
245,304,466 240,346,197
- -----------------------------------------------------------------------------------------------------------------------
97,219,569 141,499,248 44,279,679 2,724,400
800,532,626 968,354,403
14,762,802 21,193,276
- -----------------------------------------------------------------------------------------------------------------------
17,286,695 22,946,346 5,659,651 (6,139,082)
65,062,153 79,552,932
- -----------------------------------------------------------------------------------------------------------------------
2,983,885 46,742,374 43,758,489 (8,490,216)
199,058,163 236,822,693
- -----------------------------------------------------------------------------------------------------------------------
1,716,824 5,507,794 3,790,970 42,582,396
21,660,591 72,115,304
- -----------------------------------------------------------------------------------------------------------------------
838,329 2,614,303 1,775,974 30,197,010
14,758,921 49,739,310
- -----------------------------------------------------------------------------------------------------------------------
112,482 588,337 475,855 21,455,983
9,067,002 32,749,254
0 53,658
- -----------------------------------------------------------------------------------------------------------------------
0 (274,002) (274,002) 1,994,092
0 2,039,640
- -----------------------------------------------------------------------------------------------------------------------
0 (237,223) (237,223) 1,079,447
0 1,098,483
- -----------------------------------------------------------------------------------------------------------------------
80,325 6,964,574 6,884,249 62,694,836
10,653,437 83,098,319
0 76,758
- -----------------------------------------------------------------------------------------------------------------------
0 (166,700) (166,700) 4,809,638
0 4,956,212
- -----------------------------------------------------------------------------------------------------------------------
6,730,808 0 (6,730,808) (132,576,331)
104,872,172 0
- -----------------------------------------------------------------------------------------------------------------------
39,364,541 0 (39,364,541) (352,729,122)
323,871,170 0
0 0
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
S-8
<PAGE>
Variable Annuity Account C
Notes to Financial Statements - December 31, 1997 (continued):
5. Supplemental Information to Statements of Operations and Changes in Net
Assets (continued):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Year Ended December 31, 1997
Valuation
Period
Dividends Deductions
- -------------------------------------------------------------------------------------------
<S> <C> <C>
American Century Investments -
Capital Appreciation Fund: (2) $ 5,882,464 ($ 2,974,651)
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------
Calvert Social Balanced Portfolio: 3,787,208 (578,804)
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio: 11,536,379 (1,844,101)
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------
Growth Portfolio: 3,033,640 (1,277,878)
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------
Overseas Portfolio: 762,691 (144,474)
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio: 2,134,313 (253,981)
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------
Contrafund Portfolio: 4,376,096 (2,382,593)
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------
Index 500 Portfolio: 890,215 (515,853)
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------
Franklin Government Securities Trust: (3) 1,578,341 (279,189)
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio: 0 (2,188,842)
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------
Balanced Portfolio: 940,676 (329,511)
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------
Flexible Income Portfolio: 757,640 (131,213)
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------
Growth Portfolio: 1,871,919 (768,752)
Annuity contracts in accumulation
Annuity contracts in payment period
- -------------------------------------------------------------------------------------------
Short-Term Bond Portfolio: (4) 64,108 (25,465)
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------
Worldwide Growth Portfolio: 5,510,563 (4,109,527)
Annuity contracts in accumulation
Annuity contracts in payment period
- -------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1997
Proceeds Cost of Net
from Investments Realized
Sales Sold Gain (Loss)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
American Century Investments -
Capital Appreciation Fund: (2) $347,378,690 $348,986,817 ($ 1,608,127)
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------
Calvert Social Balanced Portfolio: 1,767,421 1,342,657 424,764
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio: 2,876,456 2,187,102 689,354
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------
Growth Portfolio: 1,967,157 1,268,813 698,344
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------
Overseas Portfolio: 6,265,740 5,529,606 736,134
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio: 1,353,806 1,132,813 220,993
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------
Contrafund Portfolio: 989,526 754,795 234,731
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------
Index 500 Portfolio: 2,042,782 1,517,607 525,175
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------
Franklin Government Securities Trust: (3) 35,001,358 34,302,739 698,619
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio: 16,697,333 12,596,723 4,100,610
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------
Balanced Portfolio: 1,236,230 981,509 254,721
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------
Flexible Income Portfolio: 4,035,296 3,816,553 218,743
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------
Growth Portfolio: 1,933,431 1,461,183 472,248
Annuity contracts in accumulation
Annuity contracts in payment period
- -------------------------------------------------------------------------------------------------------------
Short-Term Bond Portfolio: (4) 5,452,797 5,400,161 52,636
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio: 16,620,763 10,266,465 6,354,298
Annuity contracts in accumulation
Annuity contracts in payment period
- -------------------------------------------------------------------------------------------------------------
</TABLE>
S-9
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Net Unrealized Net
Gain (Loss) Net Increase (Decrease) Net Assets
----------- Change in In 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>
$ 8,139,519 $0 ($8,139,519) ($339,404,560)
$346,244,393 $0
- ----------------------------------------------------------------------------------------------------------------
2,963,927 7,196,636 4,232,709 6,589,199
39,989,335 54,444,411
- ----------------------------------------------------------------------------------------------------------------
10,675,870 33,998,298 23,322,428 50,561,862
106,469,428 190,735,350
- ----------------------------------------------------------------------------------------------------------------
5,256,264 22,394,599 17,138,335 28,222,857
80,442,047 128,257,345
- ----------------------------------------------------------------------------------------------------------------
649,630 225,478 (424,152) 4,069,619
8,449,388 13,449,206
- ----------------------------------------------------------------------------------------------------------------
2,502,591 3,922,056 1,419,465 2,575,422
17,103,129 23,199,341
- ----------------------------------------------------------------------------------------------------------------
15,161,493 50,217,979 35,056,486 100,377,564
118,886,521 256,548,805
- ----------------------------------------------------------------------------------------------------------------
2,304,865 11,512,547 9,207,682 26,383,649
21,230,903 57,721,771
- ----------------------------------------------------------------------------------------------------------------
405,959 0 (405,959) (24,948,755)
23,356,943 0
- ----------------------------------------------------------------------------------------------------------------
17,668,916 36,485,267 18,816,351 16,995,758
172,876,567 210,600,444
- ----------------------------------------------------------------------------------------------------------------
751,567 4,804,494 4,052,927 17,251,901
15,281,267 37,451,981
- ----------------------------------------------------------------------------------------------------------------
140,666 381,113 240,447 5,252,958
8,417,464 14,756,039
- ----------------------------------------------------------------------------------------------------------------
2,192,571 11,683,190 9,490,619 28,161,560
40,800,809 79,992,417
0 35,986
- ----------------------------------------------------------------------------------------------------------------
(6,468) 0 6,468 (1,788,353)
1,690,606 0
- ----------------------------------------------------------------------------------------------------------------
16,710,390 62,504,868 45,794,478 203,261,915
172,398,274 429,093,163
0 116,838
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
S-10
<PAGE>
Variable Annuity Account C
Notes to Financial Statements - December 31, 1997 (continued):
5. Supplemental Information to Statements of Operations and Changes in Net
Assets (continued):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Year Ended December 31, 1997
Valuation
Period
Dividends Deductions
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Lexington Emerging Markets Fund: $4,375 ($79,412)
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------
Lexington Natural Resources Trust Fund: 1,239,038 (531,930)
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------
Neuberger and Berman Advisers Management Trust -
Growth Portfolio: (5) 8,158,940 (1,195,227)
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------
Portfolio Partners, Inc.:
PPI MFS Emerging Equities Portfolio: 0 (406,682)
Annuity contracts in accumulation
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio: 0 (262,081)
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio: 0 (133,426)
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------
PPI MFS Scudder International Growth Portfolio: 0 (235,626)
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------
PPI MFS T. Rowe Price Growth Equity Portfolio: 0 (193,734)
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------
Scudder Variable Life Investment Fund -
International Portfolio: (6) 4,599,123 (2,286,635)
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------
Total Variable Annuity Account C $1,552,106,208 ($ 120,867,375)
========================================================================================
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Year Ended December 31, 1997
Proceeds Cost of Net
from Investments Realized
Sales Sold Gain (Loss)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Lexington Emerging Markets Fund: $1,639,618 $1,424,729 $214,889
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust Fund: 14,866,827 11,618,994 3,247,833
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------
Neuberger and Berman Advisers Management Trust -
Growth Portfolio: (5) 128,039,479 103,983,767 24,055,712
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------
Portfolio Partners, Inc.:
PPI MFS Emerging Equities Portfolio: 3,797,005 3,880,012 (83,007)
Annuity contracts in accumulation
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio: 1,453,829 1,486,006 (32,177)
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio: 928,145 929,114 (969)
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------
PPI MFS Scudder International Growth Portfolio: 13,091,485 12,881,912 209,573
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------
PPI MFS T. Rowe Price Growth Equity Portfolio: 891,088 887,544 3,544
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------
Scudder Variable Life Investment Fund -
International Portfolio: (6) 278,386,778 238,895,623 39,491,155
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------
Total Variable Annuity Account C $2,013,561,413 $1,773,010,971 $240,550,442
=========================================================================================================
</TABLE>
(1) Effective November 28, 1997, this funds assets were transferred to the PPI
T. Rowe Price Growth Equity Portfolio.
(2) Effective November 28, 1997, this funds assets were transferred to the PPI
MFS Research Growth Portfolio.
(3) Effective November 28, 1997, this funds assets were transferred to Aetna
Income Shares.
(4) Effective November 28, 1997, this funds assets were transferred to the Aetna
Variable Encore Fund.
(5) Effective November 28, 1997, this funds assets were transferred to the PPI
MFS Value Equity Portfolio.
(6) Effective November 28, 1997, this funds assets were transferred to the PPI
Scudder International Growth Portfolio.
S-11
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Net Unrealized Net
Gain (Loss) Net Increase (Decrease) Net Assets
----------- Change in In 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>
$102,991 ($968,279) ($1,071,270) $1,874,530
$4,845,481 $5,788,593
- ------------------------------------------------------------------------------------------------------------------------
3,997,171 1,786,893 (2,210,278) 17,376,715
23,844,347 42,965,725
- ------------------------------------------------------------------------------------------------------------------------
9,459,521 0 (9,459,521) (116,641,588)
95,081,684 0
- ------------------------------------------------------------------------------------------------------------------------
0 (3,901,193) (3,901,193) 357,381,047
0 352,966,999
0 23,166
- ------------------------------------------------------------------------------------------------------------------------
0 (4,166,217) (4,166,217) 231,490,472
0 227,029,997
- ------------------------------------------------------------------------------------------------------------------------
0 1,637,084 1,637,084 114,784,015
0 116,286,704
- ------------------------------------------------------------------------------------------------------------------------
0 3,033,630 3,033,630 199,692,238
0 202,699,815
- ------------------------------------------------------------------------------------------------------------------------
0 3,371,568 3,371,568 166,269,175
0 169,450,553
- ------------------------------------------------------------------------------------------------------------------------
29,299,509 0 (29,299,509) (204,019,879)
191,515,746 0
- ------------------------------------------------------------------------------------------------------------------------
$612,391,085 $915,465,761 $303,074,676 $615,188,037 $8,565,202,363 $11,155,254,351
========================================================================================================================
</TABLE>
S-12
<PAGE>
Variable Annuity Account C
Notes to Financial Statements - December 31, 1997 (continued):
5. Supplemental Information to Statements of Operations and Changes in Net
Assets (continued):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Year Ended December 31, 1996
Valuation
Period
Dividends Deductions
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Aetna Variable Fund: $515,238,366 ($54,321,686)
Annuity contracts in accumulation
Annuity contracts in payment period
- ----------------------------------------------------------------------------------------------
Aetna Income Shares: 23,144,319 (4,611,478)
Annuity contracts in accumulation
Annuity contracts in payment period
- ----------------------------------------------------------------------------------------------
Aetna Variable Encore Fund: 14,058,252 (2,878,790)
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------
Aetna Investment Advisers Fund, Inc.: 72,699,670 (9,562,496)
Annuity contracts in accumulation
Annuity contracts in payment period
- ----------------------------------------------------------------------------------------------
Aetna GET Fund, Series B: 5,304,368 (1,100,778)
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------
Aetna GET Fund, Series C: 969,084 (280,865)
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------
Aetna Ascent Variable Portfolio: 963,171 (137,931)
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------
Aetna Crossroads Variable Portfolio: 797,511 (106,179)
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------
Aetna Legacy Variable Portfolio: 595,666 (63,355)
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------
Aetna Variable Index Plus Portfolio: 57,328 (16,537)
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------
Alger American Funds:
Growth Portfolio: 2,138,198 (966,404)
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------
Small Capitalization Portfolio: 1,173,212 (3,731,877)
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------
Calvert Responsibly Invested Balanced Fund: 3,000,539 (425,159)
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio: 2,269,871 (994,896)
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------
Growth Portfolio: 2,304,888 (707,334)
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------
Overseas Portfolio: 115,737 (82,498)
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio: 955,910 (196,386)
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1996
Proceeds Cost of Net
from Investments Realized
Sales Sold Gain (Loss)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aetna Variable Fund: $1,237,963,630 $841,837,896 $396,125,734
Annuity contracts in accumulation
Annuity contracts in payment period
- --------------------------------------------------------------------------------------------------------------
Aetna Income Shares: 155,474,786 153,469,788 2,004,998
Annuity contracts in accumulation
Annuity contracts in payment period
- --------------------------------------------------------------------------------------------------------------
Aetna Variable Encore Fund: 175,207,017 167,163,639 8,043,378
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------
Aetna Investment Advisers Fund, Inc.: 223,353,174 160,905,519 62,447,655
Annuity contracts in accumulation
Annuity contracts in payment period
- --------------------------------------------------------------------------------------------------------------
Aetna GET Fund, Series B: 25,117,816 18,596,857 6,520,959
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------
Aetna GET Fund, Series C: 229,569 224,240 5,329
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------
Aetna Ascent Variable Portfolio: 514,612 443,710 70,902
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------
Aetna Crossroads Variable Portfolio: 755,620 679,118 76,502
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------
Aetna Legacy Variable Portfolio: 1,206,903 1,119,490 87,413
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------
Aetna Variable Index Plus Portfolio: 356,603 338,531 18,072
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------
Alger American Funds:
Growth Portfolio: 3,326,813 3,149,890 176,923
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------
Small Capitalization Portfolio: 24,333,106 17,577,100 6,756,006
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------
Calvert Responsibly Invested Balanced Fund: 1,793,014 1,429,393 363,621
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio: 3,851,613 3,166,678 684,935
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------
Growth Portfolio: 623,639 453,561 170,078
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------
Overseas Portfolio: 2,280,928 2,065,136 215,792
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio: 2,016,939 1,797,456 219,483
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------
</TABLE>
S-13
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Net Unrealized Net
Gain (Loss) Net Increase (Decrease) Net Assets
----------- Change in In 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>
$267,567,573 $327,744,944 $60,177,371 $39,664,335
$3,805,891,355 $4,694,078,344
144,049,741 212,746,872
- --------------------------------------------------------------------------------------------------------------------------
3,230,862 (9,314,233) (12,545,095) (34,151,027)
380,937,626 354,233,289
5,069,969 5,616,023
- --------------------------------------------------------------------------------------------------------------------------
9,204,418 (750,036) (9,954,454) 5,744,394
230,291,686 245,304,466
- --------------------------------------------------------------------------------------------------------------------------
122,622,603 97,219,569 (25,403,034) (7,904,062)
713,304,833 800,532,626
9,712,862 14,762,802
- --------------------------------------------------------------------------------------------------------------------------
13,423,804 17,286,695 3,862,891 (22,661,545)
73,136,258 65,062,153
- --------------------------------------------------------------------------------------------------------------------------
0 2,983,885 2,983,885 195,380,730
0 199,058,163
- --------------------------------------------------------------------------------------------------------------------------
105,405 1,716,824 1,611,419 14,244,294
4,908,736 21,660,591
- --------------------------------------------------------------------------------------------------------------------------
68,967 838,329 769,362 9,552,968
3,668,757 14,758,921
- --------------------------------------------------------------------------------------------------------------------------
36,214 112,482 76,268 6,451,330
1,919,680 9,067,002
- --------------------------------------------------------------------------------------------------------------------------
0 80,325 80,325 10,514,249
0 10,653,437
- --------------------------------------------------------------------------------------------------------------------------
(285,937) 6,730,808 7,016,745 58,052,710
38,454,000 104,872,172
- --------------------------------------------------------------------------------------------------------------------------
38,038,924 39,364,541 1,325,617 77,101,765
241,246,447 323,871,170
- --------------------------------------------------------------------------------------------------------------------------
2,175,908 2,963,927 788,019 7,573,554
28,688,761 39,989,335
- --------------------------------------------------------------------------------------------------------------------------
2,759,687 10,675,870 7,916,183 58,569,396
38,023,939 106,469,428
- --------------------------------------------------------------------------------------------------------------------------
505,388 5,256,264 4,750,876 46,205,811
27,717,728 80,442,047
- --------------------------------------------------------------------------------------------------------------------------
163,196 649,630 486,434 3,994,936
3,718,987 8,449,388
- --------------------------------------------------------------------------------------------------------------------------
1,530,985 2,502,591 971,606 782,358
14,370,158 17,103,129
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-14
<PAGE>
Variable Annuity Account C
Notes to Financial Statements - December 31, 1997 (continued):
5. Supplemental Information to Statements of Operations and Changes in Net
Assets (continued):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Year Ended December 31, 1996
Valuation
Period
Dividends Deductions
- -------------------------------------------------------------------------------------
<S> <C> <C>
Contrafund Portfolio: $357,388 ($910,633)
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------
Index 500 Portfolio: 219,199 (139,391)
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------
Franklin Government Securities Trust: 1,223,061 (290,354)
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio: 1,589,459 (1,739,222)
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------
Balanced Portfolio: 238,807 (87,725)
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------
Flexible Income Portfolio: 499,929 (72,736)
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------
Growth Portfolio: 630,364 (245,877)
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------
Short-Term Bond Portfolio: 61,378 (14,453)
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------
Worldwide Growth Portfolio: 1,725,690 (1,035,043)
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------
Lexington Emerging Markets Fund: 0 (55,554)
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------
Lexington Natural Resources Trust Fund: 80,144 (231,100)
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------
Neuberger and Berman Advisers Management Trust -
Growth Portfolio: 8,437,018 (1,199,983)
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------
Scudder Variable Life Investment Fund -
International Portfolio: 4,063,525 (2,264,627)
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------
TCI Portfolios, Inc. - Growth Fund: 47,942,547 (4,974,984)
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------
Total Variable Annuity Account C $712,854,599 ($ 93,446,331)
=====================================================================================
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Year Ended December 31, 1996
Proceeds Cost of Net
from Investments Realized
Sales Sold Gain (Loss)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Contrafund Portfolio: $1,299,964 $1,078,898 $221,066
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------
Index 500 Portfolio: 1,105,697 943,071 162,626
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------
Franklin Government Securities Trust: 5,788,894 5,646,267 142,627
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio: 4,803,682 3,702,615 1,101,067
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------
Balanced Portfolio: 1,671,701 1,511,274 160,427
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------
Flexible Income Portfolio: 1,541,843 1,429,353 112,490
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------
Growth Portfolio: 1,130,979 963,703 167,276
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------
Short-Term Bond Portfolio: 726,351 729,002 (2,651)
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio: 1,942,344 1,492,553 449,791
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund: 905,228 870,164 35,064
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust Fund: 7,649,108 6,026,027 1,623,081
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------
Neuberger and Berman Advisers Management Trust -
Growth Portfolio: 15,336,623 13,853,081 1,483,542
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------
Scudder Variable Life Investment Fund -
International Portfolio: 26,981,873 22,523,390 4,458,483
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------
TCI Portfolios, Inc. - Growth Fund: 131,517,962 112,052,109 19,465,853
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------
Total Variable Annuity Account C $2,060,808,031 $1,547,239,509 $513,568,522
========================================================================================================
</TABLE>
S-15
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Net Unrealized Net
Gain (Loss) Net Increase (Decrease) Net Assets
----------- Change in In 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>
$285,166 $15,161,493 $14,876,327 $73,985,256
$30,357,117 $118,886,521
- ----------------------------------------------------------------------------------------------------------------------
223,865 2,304,865 2,081,000 15,496,325
3,411,144 21,230,903
- ----------------------------------------------------------------------------------------------------------------------
831,241 405,959 (425,282) 664,776
22,042,115 23,356,943
- ----------------------------------------------------------------------------------------------------------------------
13,091,398 17,668,916 4,577,518 79,952,029
87,395,716 172,876,567
- ----------------------------------------------------------------------------------------------------------------------
60,530 751,567 691,037 12,773,551
1,505,170 15,281,267
- ----------------------------------------------------------------------------------------------------------------------
167,581 140,666 (26,915) 4,046,573
3,858,123 8,417,464
- ----------------------------------------------------------------------------------------------------------------------
145,978 2,192,571 2,046,593 33,135,966
5,066,487 40,800,809
- ----------------------------------------------------------------------------------------------------------------------
(354) (6,468) (6,114) 1,108,236
544,210 1,690,606
- ----------------------------------------------------------------------------------------------------------------------
786,497 16,710,390 15,923,893 139,287,080
16,046,863 172,398,274
- ----------------------------------------------------------------------------------------------------------------------
(46,118) 102,991 149,109 1,627,816
3,089,046 4,845,481
- ----------------------------------------------------------------------------------------------------------------------
1,277,740 3,997,171 2,719,431 5,442,307
14,210,484 23,844,347
- ----------------------------------------------------------------------------------------------------------------------
11,656,721 9,459,521 (2,197,200) (937,272)
89,495,579 95,081,684
- ----------------------------------------------------------------------------------------------------------------------
12,783,439 29,299,509 16,516,070 4,017,712
164,724,583 191,515,746
- ----------------------------------------------------------------------------------------------------------------------
91,671,503 8,139,519 (83,531,984) (57,916,538)
425,259,499 346,244,393
- ----------------------------------------------------------------------------------------------------------------------
$ 594,083,184 $612,391,085 $ 18,307,901 $ 781,800,013 $6,632,117,659 $8,565,202,363
======================================================================================================================
</TABLE>
S-16
<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, 1997, 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, 1997. 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 and condensed financial information. Our procedures
included confirmation of securities owned as of December 31, 1997, 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, 1997, the results of its operations and 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, 1997 in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
February 27, 1998
S-17
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
Index to Consolidated Financial Statements
------------------------------------------
Page
Independent Auditors' Report F-2
Consolidated Financial Statements:
Consolidated Statements of Income for the Years Ended
December 31, 1997, 1996 and 1995 F-3
Consolidated Balance Sheets as of December 31, 1997
and 1996 F-4
Consolidated Statements of Changes in Shareholder's Equity
for the Years Ended December 31, 1997, 1996 and 1995 F-5
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1997, 1996 and 1995 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 Subsidiary as of December 31, 1997 and 1996,
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, 1997. 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 statements 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 Subsidiary at December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
February 3, 1998
F-2
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Income
(millions)
Years Ended December 31,
--------------------------------
1997 1996 1995
------- ------- -------
Revenue:
Premiums $267.1 $133.6 $212.7
Charges assessed against policyholders 475.0 396.5 318.9
Net investment income 1,080.5 1,045.6 1,004.3
Net realized capital gains 36.0 19.7 41.3
Other income 39.7 45.4 42.0
------- ------- -------
Total revenue 1,898.3 1,640.8 1,619.2
------- ------- -------
Benefits and expenses:
Current and future benefits 1,127.8 968.6 997.2
Operating expenses 347.4 342.2 310.8
Amortization of deferred policy
acquisition costs 128.4 69.8 48.0
Severance and facilities charges -- 61.3 --
------- ------- -------
Total benefits and expenses 1,603.6 1,441.9 1,356.0
------- ------- -------
Income before income taxes 294.7 198.9 263.2
Income taxes 89.4 57.8 87.3
------- ------- -------
Net income $205.3 $141.1 $175.9
======= ======= =======
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Balance Sheets
(millions, except share data)
<TABLE>
<CAPTION>
December 31, December 31,
Assets 1997 1996
- ------ ---- ----
<S> <C> <C>
Investments:
Debt securities available for sale, at fair value
(amortized cost: $12,912.2 and $12,539.1) $13,463.8 $12,905.5
Equity securities, available for sale:
Nonredeemable preferred stock (cost: $131.7 and $107.6) 147.6 119.0
Investment in affiliated mutual funds (cost: $78.1 and $77.3) 83.0 81.1
Common stock (cost: $0.2 and $0.0) .6 .3
Short-term investments 95.6 34.8
Mortgage loans 12.8 13.0
Policy loans 469.6 399.3
--------- --------
Total investments 14,273.0 13,553.0
Cash and cash equivalents 565.4 459.1
Accrued investment income 163.0 159.0
Premiums due and other receivables 63.7 26.6
Deferred policy acquisition costs 1,654.6 1,515.3
Reinsurance loan to affiliate 397.2 628.3
Other assets 46.8 33.7
Separate accounts assets 22,982.7 15,318.3
--------- --------
Total assets $40,146.4 $31,693.3
========= ========
Liabilities and Shareholder's Equity
Liabilities:
Future policy benefits $3,763.7 $3,617.0
Unpaid claims and claim expenses 38.0 28.9
Policyholders' funds left with the Company 11,143.5 10,663.7
--------- --------
Total insurance reserve liabilities 14,945.2 14,309.6
Other liabilities 312.8 354.7
Income taxes:
Current 12.4 20.7
Deferred 72.0 80.5
Separate accounts liabilities 22,970.0 15,318.3
--------- --------
Total liabilities 38,312.4 30,083.8
--------- --------
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 418.0 418.0
Accumulated other comprehensive income 92.9 60.5
Retained earnings 1,320.3 1,128.2
--------- --------
Total shareholder's equity 1,834.0 1,609.5
--------- --------
Total liabilities and shareholder's equity $40,146.4 $31,693.3
========= ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Changes in Shareholder's Equity
(millions)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Shareholder's equity, beginning of year $1,609.5 $1,583.0 $1,088.5
Comprehensive income
Net income 205.3 141.1 175.9
Other comprehensive income, net of tax
Unrealized gains (losses) on securities ($50.1
million, $(110.8) million and $494.6 million, 32.4 (72.0) 321.5
pretax, respectively)
-------- -------- --------
Total comprehensive income 237.7 69.1 497.4
-------- -------- --------
Capital contributions -- 10.4 0.0
Other changes 4.1 (49.5) 0.0
Common stock dividends (17.3) (3.5) (2.9)
-------- -------- --------
Shareholder's equity, end of year $1,834.0 $1,609.5 $1,583.0
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Cash Flows
(millions)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $205.3 $141.1 $175.9
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
(Increase) decrease in accrued investment income (4.0) 16.5 (33.3)
(Increase) decrease in premiums due and other receivables (33.3) 1.6 25.4
Increase in policy loans (70.3) (60.7) (89.9)
Increase in deferred policy acquisition costs (139.3) (174.0) (177.0)
Decrease in reinsurance loan to affiliate 231.1 27.2 34.8
Net increase in universal life account balances 286.4 243.2 393.4
(Decrease) increase in other insurance reserve liabilities (249.6) (211.5) 79.0
Net (decrease) increase in other liabilities and other assets (41.7) 3.1 13.0
Decrease in income taxes (31.4) (26.7) (4.5)
Net accretion of discount on investments (66.4) (68.0) (66.4)
Net realized capital gains (36.0) (19.7) (41.3)
Other, net -- 1.1 --
-------- -------- --------
Net cash provided by (used for) operating activities 50.8 (126.8) 309.1
-------- -------- --------
Cash Flows from Investing Activities:
Proceeds from sales of:
Debt securities available for sale 5,311.3 5,182.2 4,207.2
Equity securities 103.1 190.5 180.8
Mortgage loans 0.2 8.7 10.7
Limited partnership -- -- 26.6
Investment maturities and collections of:
Debt securities available for sale 1,212.7 885.2 583.9
Short-term investments 89.3 35.0 106.1
Cost of investment purchases in:
Debt securities available for sale (6,732.8) (6,534.3) (6,034.0)
Equity securities (113.3) (118.1) (170.9)
Short-term investments (149.9) (54.7) (24.7)
Mortgage loans -- -- (21.3)
Other, net -- (17.6) --
-------- -------- --------
Net cash used for investing activities (279.4) (423.1) (1,135.6)
-------- -------- --------
Cash Flows from Financing Activities:
Deposits and interest credited for investment contracts 1,621.2 1,579.5 1,884.5
Withdrawals of investment contracts (1,256.3) (1,146.2) (1,109.6)
Capital contribution to Separate Account (25.0) -- --
Return of capital from Separate Account 12.3 -- --
Capital contribution from HOLDCO -- 10.4 --
Dividends paid to shareholder (17.3) (3.5) (2.9)
-------- -------- --------
Net cash provided by financing activities 334.9 440.2 772.0
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 106.3 (109.7) (54.5)
Cash and cash equivalents, beginning of year 459.1 568.8 623.3
-------- -------- --------
Cash and cash equivalents, end of year $565.4 $459.1 $568.8
======== ======== ========
Supplemental cash flow information:
Income taxes paid, net $119.6 $85.5 $92.8
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(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 subsidiary
(collectively, the "Company") are providers 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 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 subsidiary, Aetna Insurance Company of
America. 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 1996 and 1995 financial information to conform to the 1997
presentation.
New Accounting Standard
-----------------------
As of December 31, 1997 the Company adopted Financial Accounting Standard
("FAS") No. 130, Reporting Comprehensive Income. This statement establishes
standards for the reporting and presentation of comprehensive income and
its components in a full set of financial statements. Comprehensive income
encompasses all changes in shareholder's equity (except those arising from
transactions with shareholders) and includes net income and net unrealized
capital gains or losses on available-for-sale securities. As this new
standard only requires additional information in a financial statement, it
does not affect the Company's financial position or results of operations.
Future Application of Accounting Standards
------------------------------------------
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities
FAS No. 125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, was issued in June 1996 and provides
accounting and reporting standards for transfers of financial assets and
extinguishments of liabilities.
F-7
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued)
Future Application of Accounting Standards (Continued)
FAS No. 125 is effective for 1997 financial statements; however, certain
provisions relating to accounting for repurchase agreements and securities
lending are not effective until January 1, 1998. Provisions effective in
1997 did not have a material effect on the Company's financial position or
results of operations. The Company does not expect adoption of this
statement for provisions effective in 1998 to have a material effect on its
financial position or results of operations.
Accounting by Insurance and Other Enterprises for Insurance-Related
Assessments
In December 1997, the American Institute of Certified Public Accountants
issued Statement of Position 97-3, Accounting by Insurance and Other
Enterprises for Insurance-Related Assessments, which provides guidance for
determining when an insurance or other enterprise should recognize a
liability for guaranty-fund and other insurance related assessments and
guidance for measuring the liability. This statement is effective for 1999
financial statements with early adoption permitted. The Company does not
expect adoption of this statement to have a material effect on its
financial position or results of operations.
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
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 investments, 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.
F-8
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued)
Investments (Continued)
The company engages in securities lending whereby certain securities from
its portfolio are loaned to other institutions for short periods of time.
Initial collateral, primarily cash, is required at a rate of 102% of the
market value of a loaned domestic security and 105% of the market value of
a loaned foreign security. The collateral is deposited by the borrower with
a lending agent, and retained and invested by the lending agent according
to the Company's guidelines to generate additional income. The market value
of the loaned securities is monitored on a daily basis with additional
collateral obtained or refunded as the market value of the loaned
securities fluctuates. At December 31, 1997 and 1996, the Company loaned
securities (which are reflected as invested assets) with a market value of
approximately $385.1 million and $444.7 million, respectively.
Purchases and sales of debt and equity securities are recorded on the trade
date.
The investment in affiliated mutual funds represents an investment in Aetna
managed mutual funds which have 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.
The Company utilizes futures contracts, swap agreements and warrants for
other than trading purposes in order to manage investment returns and price
risk and to align maturities, interest rates, and funds availability with
its obligations. (Refer to Note 3.)
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.
Interest rate 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
F-9
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued)
Investments (Continued)
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.
Warrants represent the right to purchase specific securities and are
accounted for as hedges. Upon exercise, the cost of the warrants are added
to the basis of the securities purchased.
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% for all
years presented. 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.
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 3.50% to 9.50% for all years presented) 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.
F-10
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued)
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 with life contingencies begin under
contracts that were initially investment contracts, the accumulated balance
in the account is treated as a single premium for the purchase of an
annuity and 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 mutual 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 $658.6 million for 1997 (fair value $668.7 million)
and $515.6 million for 1996 (fair value $523.0 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 both 1997 and in
1996.
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 SUBSIDIARY
(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, 1997 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 $1,219.7 $74.0 $0.1 $1,293.6
States, municipalities and political
subdivisions 0.3 -- -- 0.3
U.S. corporate securities:
Financial 2,370.7 84.6 1.3 2,454.0
Food & fiber 195.4 9.3 -- 204.7
Healthcare & consumer products 728.5 27.0 2.6 752.9
Media & broadcast 252.9 14.7 0.1 267.5
Natural resources 143.5 5.5 - 149.0
Transportation & capital goods 528.2 33.2 0.1 561.3
Utilities 521.3 23.5 0.9 543.9
Other corporate securities 96.9 3.2 - 100.1
---------- -------- -------- -----------
Total U.S. corporate securities 4,837.4 201.0 5.0 5,033.4
Foreign Securities:
Government 612.5 36.7 23.6 625.6
Utilities 177.5 28.7 -- 206.2
Other 857.9 27.7 42.8 842.8
---------- -------- -------- -----------
Total foreign securities 1,647.9 93.1 66.4 1,674.6
Residential mortgage-backed securities:
Pass-throughs 784.4 71.3 2.0 853.7
Collateralized mortgage obligations 2,280.5 137.4 2.0 2,415.9
---------- -------- -------- -----------
Total residential mortgage-
backed securities 3,064.9 208.7 4.0 3,269.6
Commercial/Multifamily mortgage-
backed securities 1,127.8 34.0 0.4 1,161.4
Other asset-backed securities 1,014.2 17.1 0.4 1,030.9
---------- -------- -------- -----------
Total Debt Securities $12,912.2 $627.9 $76.3 $13,463.8
========== ======== ======== ===========
</TABLE>
F-12
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(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, 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 corporate securities 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-13
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
2. Investments (Continued)
At December 31, 1997 and 1996, net unrealized appreciation of $551.6
million and $366.4 million, respectively, on available-for-sale debt
securities included $429.3 million and $288.5 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 carrying and fair value of debt securities for the year ended December
31, 1997 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 $367.3 $367.6
After one year through five years 2,165.1 2,195.4
After five years through ten years 2,367.3 2,407.0
After ten years 2,805.6 3,031.9
Mortgage-backed securities 4,192.7 4,431.0
Other asset-backed securities 1,014.2 1,030.9
--------- ---------
Total $12,912.2 $13,463.8
========= =========
At December 31, 1997 and 1996, debt securities carried at $8.2 million and
$7.6 million, respectively, were on deposit as required by regulatory
authorities.
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, 1997.
F-14
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
2. Investments (Continued)
Included in the Company's debt securities were residential collateralized
mortgage obligations ("CMOs") supporting the following:
<TABLE>
<CAPTION>
1997 1996
--------------------- ------------------------
Fair Amortized Fair Amortized
Value Cost Value Cost
-------- -------- -------- --------
(millions)
<S> <C> <C> <C> <C>
Total residential CMOs(1) $2,415.9 $2,280.5 $2,309.0 $2,227.8
======== ======== ======== ========
Percentage of total:
Supporting experience rated products 81.6% 84.2%
Supporting remaining products 18.4% 15.8%
----- -----
100.0% 100.0%
===== =====
</TABLE>
(1) At December 31, 1997 and 1996, approximately 73% and 71%,
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, 1997
and 1996, approximately 4% and 3%, respectively, of the Company's CMO
holdings were invested in types of CMOs which are subject to more
prepayment and extension risk than traditional CMOs (such as interest- or
principal-only strips).
F-15
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
2. Investments (Continued)
Investments in equity securities available for sale were as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
(millions)
1997
Equity Securities $210.0 $21.3 $0.1 $231.2
====== ===== ==== ======
1996
Equity Securities $184.9 $16.3 $0.8 $200.4
====== ===== ==== ======
3. Financial Instruments
Estimated Fair Value
--------------------
The carrying values and estimated fair values of certain of the Company's
financial instruments at December 31, 1997 and 1996 were as follows:
1997 1996
-------------------- -----------------
Carrying Fair Carrying Fair
Value Value Value Value
--------- ------ -------- -----
(millions)
Assets:
Mortgage loans $ 12.8 $ 12.4 $ 13.0 $ 13.2
Liabilities:
Investment contract
liabilities:
With a fixed maturity $ 1,030.3 $1,005.4 $1,014.1 $1,028.8
Without a fixed
maturity 10,113.2 9,587.5 9,649.6 9,427.6
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 SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
3. Financial Instruments (Continued)
Estimated Fair Value (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
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 1997 and 1996,
Treasury futures contracts were used to manage interest rate risk in the
Company's bond portfolio; and, in 1996, 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
securities at a specified future date and at a specified price or yield.
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, 1997 and 1996.
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
F-17
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
3. Financial Instruments (Continued)
Off-Balance-Sheet and Other Financial Instruments (Including Derivative
Instruments) (Continued)
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, 1997 and 1996.
During 1995, the Company received $0.4 million for writing call options on
underlying securities. The Company did not write any call options in 1997
and 1996.
Warrants:
Warrants are instruments giving the Company the right, but not the
obligation to buy a security at a given price during a specified period. As
of December 31, 1997 and 1996, the Company had open warrants to purchase
equity securities with a fair value of $0.6 million and $0.3 million,
respectively.
Debt Instruments with Derivative Characteristics:
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, 1997 was as follows:
Amortized Fair
Cost Value
--------- ----
(millions)
Residential collateralized mortgage
obligations $2,280.5 $2,415.9
Principal-only strips (included above) 59.0 67.0
Interest-only strips (included above) 12.8 24.3
Other structured securities with derivative
characteristics (1) 107.4 105.2
(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 SUBSIDIARY
(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:
1997 1996 1995
---- ---- ----
(millions)
Debt securities $962.8 $945.3 $891.5
Nonredeemable preferred stock 13.7 5.9 4.2
Investment in affiliated
mutual funds 4.9 14.3 14.9
Mortgage loans 1.3 2.2 1.4
Policy loans 19.9 18.4 13.7
Reinsurance loan to affiliate 37.5 44.1 46.5
Cash equivalents 44.2 29.4 38.9
Other 10.0 2.1 8.4
-------- -------- --------
Gross investment income 1,094.3 1,061.7 1,019.5
Less investment expenses (13.8) (16.1) (15.2)
-------- -------- --------
Net investment income $1,080.5 $1,045.6 $1,004.3
======== ======== ========
Net investment income includes amounts allocable to experience rated
contractholders of $823.1 million, $787.6 million and $744.2 million for
the years ended December 31, 1997, 1996 and 1995, respectively. Interest
credited to contractholders is included in current and future benefits.
5. Dividend Restrictions and Shareholder's Equity
The Company paid $17.3 million and $3.5 million in cash dividends to HOLDCO
in 1997 and 1996, respectively.
The amount of dividends that may be paid to the shareholder in 1998 without
prior approval by the Insurance Commissioner of the State of Connecticut is
$77.6 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
$80.5 million, $57.8 million and $70.0 million for the years ended December
31, 1997, 1996 and 1995, respectively. Statutory capital and surplus was
$778.7 million and $713.6 million as of December 31, 1997 and 1996,
respectively.
As of December 31, 1997 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 SUBSIDIARY
(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:
1997 1996 1995
---- ---- ----
(millions)
Debt securities $22.5 $11.1 $32.8
Equity securities 9.9 8.6 8.3
Other 3.6 -- 0.2
------ -------- ------
Pretax realized capital gains $36.0 $19.7 $41.3
====== ======== ======
After tax realized capital gains $23.2 $13.0 $25.8
====== ======== ======
Net realized capital gains of $96.1 million, $53.1 million and $61.1
million for 1997, 1996 and 1995, respectively, allocable to experience
rated contracts, were deducted from net realized capital gains and an
offsetting amount was reflected in policyholders' funds left with the
Company. Net unamortized gains were $138.1 million and $53.3 million at
December 31, 1997 and 1996, respectively.
Proceeds from the sale of available-for-sale debt securities and the
related gross gains and losses were as follows:
1997 1996 1995
----- ----- ----
(millions)
Proceeds on Sales $5,311.3 $5,182.2 $4,207.2
Gross Gains 25.8 24.3 44.6
Gross Losses 3.3 13.2 11.8
F-20
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(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 accumulated other
comprehensive income (unrealized capital gains and losses on securities)
(excluding those related to experience rated contractholders) were as
follows:
1997 1996 1995
---- ---- ----
(millions)
Debt securities $44.3 $(100.1) $255.9
Equity securities 5.6 (10.5) 27.3
Limited partnership -- -- 1.8
----- ------- ------
49.9 (110.6) 285.0
Increase (decrease) in deferred
income taxes (See Note 8) 17.5 (38.6) (36.5)
----- ------- ------
Net changes in accumulated other
comprehensive income $32.4 $(72.0) $321.5
===== ======= ======
Net unrealized capital gains allocable to experience rated contracts of
$356.7 million and $72.6 million at December 31, 1997 and $245.2 million
and $43.3 million at December 31, 1996 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 accumulated other comprehensive
income, which are net of amounts allocable to experience rated
contractholders, at December 31:
1997 1996 1995
---- ---- ----
(millions)
Debt securities
Gross unrealized capital gains $140.6 $101.7 $179.3
Gross unrealized capital losses (18.4) (23.8) (1.3)
----- ----- -----
122.2 77.9 178.0
Equity securities
Gross unrealized capital gains 21.2 16.3 27.2
Gross unrealized capital losses (0.1) (0.8) (1.2)
---- ---- -----
21.1 15.5 26.0
Deferred income taxes (See Note 8) 50.4 32.9 71.5
---- ---- -----
Net accumulated other
comprehensive income $92.9 $60.5 $132.5
==== ==== =====
F-21
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(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 accumulated other comprehensive income related to changes in
unrealized gains (losses) on securities (excluding those related to
experience rated contractholders) were as follows:
1997 1996 1995
---- ---- ----
(millions)
Unrealized holding gains (losses)
arising during the period (1) $98.8 $(14.8) $390.5
Less: reclassification adjustment
for gains and other items included
in net income (2) 66.4 57.2 69.0
----- ------ ------
Net unrealized gains (losses)
on securities $32.4 $(72.0) $321.5
===== ====== ======
(1) Pretax unrealized holding gains (losses) arising during the
period were $152.0 million, ($22.8) million and $600.8 million
for 1997, 1996 and 1995, respectively.
(2) Pretax reclassification adjustments for gains and other items
included in net income were $102.4 million, $87.7 million and
$107.5 million for 1997, 1996 and 1995, respectively.
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.
F-22
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
7. Severance and Facilities Charges (Continued)
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,
which were sold in April 1996. The cost allocated to the Company associated
with this charge was $9.1 million after tax ($14.0 million pretax).
Activity for 1997 and 1996 within the severance and facilities reserve
(pretax, in millions) and the number of positions eliminated related to
such actions were as follows:
(Millions) Reserve Positions
----------------------------------- ---------- ---------
Balance at December 31, 1995 $ -- --
Severance and facilities charges 47.3 702
Corporate Allocation 14.0 --
Actions taken (1) (13.4) (178)
---------- ---------
Balance at December 31, 1996 47.9 524
Actions taken (1) (27.1) (163)
---------- ---------
Balance at December 31, 1997 $20.8 361
========== =========
(1) Includes $15.9 million and $8.0 million in 1997 and 1996,
respectively, of severance-related actions and $7.9 million and $4.1
million in 1997 and 1996, respectively, of corporate
allocation-related actions.
The Company's severance actions are expected to be substantially completed
by September 30, 1998. The corporate allocation actions were substantially
completed in 1997.
F-23
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(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, the
Illinois Unitary return and the Connecticut and the New York combined 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 federal income tax return.
Income taxes for the years ended December 31, consist of:
1997 1996 1995
---- ---- ----
(millions)
Current taxes:
Income Taxes:
Federal income tax $64.5 $50.9 $82.9
State income tax 3.7 3.7 3.2
Net realized capital gains 45.6 25.3 28.5
----- ---- ----
113.8 79.9 114.6
----- ---- -----
Deferred taxes (benefits):
Income taxes:
Federal 8.4 (3.5) (14.4)
Net realized capital gains (losses) (32.8) (18.6) (12.9)
----- ----- -----
(24.4) (22.1) (27.3)
----- ----- -----
Total $89.4 $57.8 $87.3
===== ===== =====
Income taxes were different from the amount computed by applying the
federal income tax rate to income before income taxes for the following
reasons:
1997 1996 1995
---- ---- ----
(millions)
Income before income taxes $294.7 $198.9 $263.2
Tax rate 35% 35% 35%
------- ------- -------
Application of the tax rate 103.1 69.6 92.1
------- ------- -------
Tax effect of:
State income tax, net of
federal benefit 2.4 2.4 2.1
Excludable dividends (15.9) (8.7) (9.3)
Other, net (0.2) (5.5) 2.4
------- ------- --------
Income taxes $89.4 $57.8 $87.3
======= ======= ========
F-24
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(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:
1997 1996
---- ----
(millions)
Deferred tax assets:
Insurance reserves $415.8 $344.6
Unrealized gains allocable to
experience rated contracts 150.1 100.8
Investment losses 6.6 7.5
Postretirement benefits other
than pensions 26.3 27.0
Deferred compensation 31.2 25.0
Pension (3.6) 7.6
Restructuring charge 9.5 17.6
Depreciation 3.9 2.6
Other 8.8 9.1
--------- --------
Total gross assets 648.6 541.8
Deferred tax liabilities:
Deferred policy acquisition costs 515.6 482.1
Market discount 5.1 6.8
Net unrealized capital gains 200.5 133.7
Other (0.6) (0.3)
--------- ---------
Total gross liabilities 720.6 622.3
--------- ---------
Net deferred tax liability $72.0 $80.5
========= =========
Net unrealized capital gains and losses are presented in shareholder's
equity net of deferred taxes. As of December 31, 1997 and 1996, 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, 1997. 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-25
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(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 amounts that are tax-deductible. As of
December 31, 1997, 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 $2.7 million, $4.3
million and $6.1 million for the years ended December 31, 1997, 1996 and
1995, respectively.
Employee Postretirement Benefits - In addition to providing pension
benefits, Aetna currently provides certain health care and life insurance
benefits 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. There is a cap on the
portion of the cost paid by the Company relating to medical and dental
benefits. 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 1997, 1996 and 1995 were $2.7
million, $1.8 million and $1.4 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. In 1997,
other changes in shareholder's equity includes an additional $0.8 million
reduction reflecting revisions to the allocation of these accrued
liabilities.
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-26
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(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 1997, 1996 and 1995 were $0.6 million,
$0.7 million and $0.8 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 $4.4 million, $5.4 million and $4.9
million in 1997, 1996 and 1995, 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 1997, 1996
and 1995, were $2.9 million, $8.1 million and $6.3 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. In 1997, other changes in
shareholder's equity include an additional increase of $2.3 million
reflecting revisions to the allocation of the deferred tax benefit.
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 0.10% to
1.90% of their average daily net assets. The Company also receives fees
from Aetna managed mutual funds for serving as investment adviser. Under
the advisory agreements, these funds pay the Company a daily fee which, on
an annual basis, ranges, depending on the fund, from 0.25% to 0.85% of
their average daily net assets. The Company also receives fees (expressed
as a percentage of the average daily net assets) from some of its funds 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 mutual funds,
included in charges assessed against policyholders, amounted to $271.2
million, $186.8 million and $128.1 million in 1997, 1996 and 1995,
respectively. The Company may waive advisory fees at its discretion.
F-27
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(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 for affiliated mutual funds and adviser for 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 0.06% to 0.55% of the average daily net assets
under management. For the years ended December 31, 1997 and 1996, the
Company paid $45.5 million and $16.0 million in such fees.
The Company may, from time to time, make reimbursements to an Aetna managed
mutual 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 $6.1 million and a $108.0
million commission, paid by the Company to Aetna Life in 1996 and 1988,
respectively, was capitalized as deferred policy acquisition costs. 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. Effective January 1, 1997, this agreement has been amended to
transition (based on underlying investment rollover in Aetna Life) from a
modified coinsurance to a coinsurance arrangement. As a result of this
change, reserves will be ceded to the Company from Aetna Life as investment
rollover occurs and the loan previously established will be reduced. The
Company maintained insurance reserves of $574.5 million ($397.2 million
relating to the modified coinsurance agreement and $177.3 million relating
to the coinsurance agreement) and $628.3 million as of December 31, 1997
and 1996, respectively, relating to the business assumed. The fair value of
the loan relating to assets held by Aetna Life was $412.3 million and
$625.3 million as of December 31, 1997 and 1996, respectively, and is based
upon the fair value of the underlying assets. Premiums of $176.7 million,
$25.3 million and $28.0 million and current and future benefits of $183.9
million, $39.5 million and $43.0 million were assumed in 1997, 1996 and
1995, respectively.
Investment income of $37.5 million, $44.1 million and $46.5 million was
generated from the reinsurance loan to affiliate in 1997, 1996 and 1995,
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 $32.5 million and
$28.9 million were maintained for this contract as of December 31, 1997 and
1996, 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
F-28
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
10. Related Party Transactions (Continued)
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 $5.9 million, $5.2 million and $3.2 million for 1997, 1996 and 1995,
respectively.
Effective October 1, 1997, the Company entered into a reinsurance agreement
with Aetna Life to assume amounts in excess of $0.2 million for certain of
its participating life insurance, on a yearly renewable term basis. Premium
amounts related to this agreement were $0.7 million in 1997.
The Company received a capital contribution of $10.4 million in cash from
HOLDCO in 1996. The Company received no capital contributions in 1997 or
1995.
The Company paid $17.3 million and $3.5 million in cash dividends to HOLDCO
in 1997 and 1996, respectively. 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 $37.0 million and $2.8 million
due from affiliates in 1997 and 1996, respectively. Other liabilities
include $1.2 million and $10.7 million due to affiliates for 1997 and 1996,
respectively.
As of December 31, 1997, Aetna transferred to the Company $2.5 million
based on its decision not to settle state tax liabilities for the years
1996 and 1997. This amount has been reported as an other increase in
retained earnings.
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-29
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(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.
<TABLE>
<CAPTION>
Ceded to Assumed
Direct Other from Other Net
Amount Companies Companies Amount
(millions)
------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
1997
----
Premiums:
Life Insurance $ 35.7 $15.1 $177.4 $198.0
Accident and Health Insurance 5.6 5.6 -- --
Annuities 67.9 -- 1.2 69.1
------- ------------- ----------- ---------
Total earned premiums $109.2 $20.7 $178.6 $267.1
======= ============= =========== =========
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
======= ============= =========== =========
</TABLE>
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, 1997, the
Company had commitments to purchase investments of $38.7 million. The fair
value of the investments at December 31, 1997 approximated $39.0 million.
F-30
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(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.
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:
1997 1996 1995
--------- --------- ---------
(millions)
Revenue:
Financial Services $1,277.9 $1,195.1 $1,211.3
Individual Life Insurance 620.4 445.7 407.9
--------- --------- ---------
Total revenue $1,898.3 $1,640.8 $1,619.2
========= ========= =========
Income before income taxes: (2)
Financial Services $188.2 $129.9 $160.1
Individual Life Insurance 106.5 83.0 103.1
--------- --------- ---------
Total income before
income taxes $294.7 $212.9 $263.2
========= ========= =========
Net income: (2)
Financial Services $137.5 $94.3 $113.8
Individual Life Insurance 67.8 55.9 62.1
--------- --------- ---------
Net income $205.3 $150.2 $175.9
========= ========= =========
Assets under management: (3)
Financial Services (4) $37,609.3 $27,268.1 $22,534.4
Individual Life Insurance 3,096.1 2,830.5 2,590.9
--------- --------- ---------
Total assets under management 40,705.4 $30,098.6 $25,125.3
========= ========= =========
(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 $551.5 million,
$366.4 million and $797.1 million at December 31, 1997, 1996 and
1995, respectively.
(4) The December 31, 1997 balance includes the transfer of $4,078.5
million of assets under management that were previously reported
by an affiliate.
F-31
<PAGE>
Form No. SAI.75964-98 ALIAC Ed. May 1998
