485BPOS 1 a2048523z485bpos.txt 485BPOS As filed with the Securities and Exchange Registration No. 33-75988* Commission on April 15, 2002 Registration No. 811-2513 -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-4 POST-EFFECTIVE AMENDMENT NO. 26 TO REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 and Amendment to REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 -------------------------------------------------------------------------------- Variable Annuity Account C of ING Life Insurance and Annuity Company (formerly Variable Annuity Account C of Aetna Life Insurance and Annuity Company) ING Life Insurance and Annuity Company (formerly Aetna Life Insurance and Annuity Company) 151 Farmington Avenue, TS31, Hartford, Connecticut 06156 Depositor's Telephone Number, including Area Code: (860) 273-4686 Julie E. Rockmore, Counsel ING Life Insurance and Annuity Company 151 Farmington Avenue, TS31, Hartford, Connecticut 06156 (NAME AND ADDRESS OF AGENT FOR SERVICE) -------------------------------------------------------------------------------- It is proposed that this filing will become effective: immediately upon filing pursuant to paragraph (b) of Rule 485 ------- X on May 1, 2002 pursuant to paragraph (b) of Rule 485 ------- *Pursuant to Rule 429(a) under the Securities Act of 1933, Registrant has included a combined prospectus under this Registration Statement which includes all the information which would currently be required in a prospectus relating to the securities covered by the following earlier Registration Statements: 33-75972; 33-76024; and 33-89858. PROSPECTUS - MAY 1, 2002 -------------------------------------------------------------------------------- THE CONTRACTS. The contracts described in this prospectus are individual deferred fixed or variable annuity contracts issued by ING Life Insurance and Annuity Company (the Company, we, us, our) (formerly known as Aetna Life Insurance and Annuity Company). They are issued to you, the contract holder as either a traditional Individual Retirement Annuity (IRA) under section 408(b) of the Internal Revenue Code of 1986 as amended (Tax Code) or a Roth IRA under section 408A. Additionally, the traditional IRA may be used as a funding option for a Simplified Employee Pension (SEP) plan under section 408(k). The contracts are not currently available as a Simple IRA under section 408(p). WHY READING THIS PROSPECTUS IS IMPORTANT. This prospectus contains facts about the contract and its investment options that you should know before purchasing. This information will help you decide if the contract is right for you. Please read this prospectus carefully. TABLE OF CONTENTS . . . PAGE 3 INVESTMENT OPTIONS. The contract offers variable investment options and fixed interest options. When we establish your account you instruct us to direct account dollars to any of the available options. THE FUNDS ING VP Ascent Portfolio (Class R Shares)(1) ING PIMCO Total Return Portfolio (Service Class) ING VP Balanced Portfolio, Inc. (Class R Shares)(1) ING Salomon Brothers Capital Portfolio (Service Class)(1) ING VP Bond Portfolio (Class R Shares)(1) ING Salomon Brothers Investors Value Portfolio (Service ING VP Crossroads Portfolio (Class R Shares)(1) Class)(1) ING VP Growth Portfolio (Class R Shares)(1) ING Scudder International Growth Portfolio (Initial ING VP Growth and Income Portfolio (Class R Shares)(1) Class)(1) ING VP Index Plus LargeCap Portfolio (Class R Shares)(1) ING T. Rowe Price Growth Equity Portfolio (Initial ING VP Index Plus MidCap Portfolio (Class R Shares)(1) Class)(1) ING VP Index Plus SmallCap Portfolio (Class R Shares)(1) ING UBS Tactical Asset Allocation Portfolio (Service ING VP International Equity Portfolio (Class R Shares)(1) Class)(1) ING VP Legacy Portfolio (Class R Shares)(1) ING Van Kampen Comstock Portfolio (Service Class) ING VP Money Market Portfolio (Class R Shares)(1) AIM V.I. Capital Appreciation Fund (Series I) ING VP Small Company Portfolio (Class R Shares)(1) AIM V.I. Core Equity Fund (Series I)(1) ING VP Technology Portfolio (Class R Shares)(1) AIM V.I. Growth Fund (Series I) ING VP Value Opportunity Portfolio (Class R Shares)(1) AIM V.I. Premier Equity Fund (Series I)(1) ING VP Growth Opportunities Portfolio (Class R Shares)(1) Calvert Social Balanced Portfolio ING VP International Value Portfolio (Class R Shares)(1) Fidelity-Registered Trademark- VIP ING VP MidCap Opportunities Portfolio (Class R Shares)(1) Contrafund-Registered Trademark- Portfolio (Initial Class) ING VP SmallCap Opportunities Portfolio (Class R Shares)(1) Fidelity-Registered Trademark- VIP Equity-Income Portfolio ING Alger Aggressive Growth Portfolio (Service Class)(1) (Initial Class) ING Alger Growth Portfolio (Service Class)(1) Fidelity-Registered Trademark- VIP Growth Portfolio ING American Century Small Cap Value Portfolio (Service (Initial Class) Class) Fidelity-Registered Trademark- VIP Overseas Portfolio ING Baron Small Cap Growth Portfolio (Service Class) (Initial Class) ING DSI Enhanced Index Portfolio (Service Class)(1) Franklin Small Cap Value Securities Fund (Class 2 ING Goldman Sachs-Registered Trademark- Capital Growth Shares)(1) Portfolio (Service Class)(1)(2) Janus Aspen Aggressive Growth Portfolio (Institutional ING JPMorgan Mid Cap Value Portfolio (Service Class) Shares) ING MFS Capital Opportunities Portfolio (Initial Class)(1) Janus Aspen Balanced Portfolio (Institutional Shares) ING MFS Emerging Equities Portfolio (Initial Class)(1) Janus Aspen Capital Appreciation Portfolio (Service Shares) ING MFS Global Growth Portfolio (Service Class) Janus Aspen Flexible Income Portfolio (Institutional ING MFS Research Portfolio (Initial Class)(1) Shares) ING OpCap Balanced Value Portfolio (Service Class)(1) Janus Aspen Growth Portfolio (Institutional Shares) Janus Aspen Worldwide Growth Portfolio (Institutional Shares) Lord Abbett Growth and Income Portfolio (Class VC Shares) Lord Abbett Mid-Cap Value Portfolio (Class VC Shares) Oppenheimer Global Securities Fund/VA Oppenheimer Strategic Bond Fund/VA Pioneer Equity Income VCT Portfolio (Class I Shares) Pioneer Fund VCT Portfolio (Class I Shares) Pioneer Mid Cap Value VCT Portfolio (Class I Shares)
(1) Effective May 1, 2002 this fund has changed its name to the name listed above. See Appendix IV on page 44 for a complete list of former and current fund names. (2) Goldman Sachs-Registered Trademark- is a registered service mark of Goldman, Sachs & Co., and it is used by agreement with Goldman, Sachs & Co. VARIABLE INVESTMENT OPTIONS. These options are called subaccounts. The subaccounts are within Variable Annuity Account C (the separate account), a separate account of the Company. Each subaccount invests in one of the mutual funds (funds) listed on this page. Earnings on amounts invested in a subaccount will vary depending upon the performance of its underlying fund. You do not invest directly in or hold shares of the funds. PROSPECTUS - MAY 1, 2002 (CONTINUED) -------------------------------------------------------------------------------- RISKS ASSOCIATED WITH INVESTING IN THE FUNDS. The funds in which the subaccounts invest have various risks. Information about the risks of investing in the funds is located in the "Investment Options" section on page 14, Appendix IV--Description of Underlying Funds, and each fund prospectus. Read this prospectus in conjunction with the fund prospectuses and retain the prospectuses for future reference. GETTING ADDITIONAL INFORMATION. You may obtain the May 1, 2002 Statement of Additional Information (SAI) about the separate account by indicating your request on your application or calling us at 1-800-262-3862. You may also obtain an SAI for any of the funds by calling that number. This prospectus, the SAI and other information about the separate account may be obtained by accessing the Securities and Exchange Commission's (SEC) website, www.sec.gov. Copies of this information may also be obtained, after paying a duplicating fee, by contacting the SEC Public Reference Room. Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090 or 1-800-SEC-0330, e-mailing publicinfo@sec.gov or by writing to SEC Public Reference Room, 450 Fifth Street, N.W., Washington, DC 20549. The SAI table of contents is listed on page 39 of this prospectus. The SAI is incorporated into this prospectus by reference. ADDITIONAL DISCLOSURE INFORMATION. Neither the SEC nor any state securities commission has approved or disapproved the securities offered through this prospectus or passed on the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense. This prospectus is valid in New York (subject to regulatory approval) only when accompanied by the Guaranteed Accumulation Account prospectus, if applicable. We do not intend for this prospectus to be an offer to sell or a solicitation of an offer to buy these securities in any state that does not permit their sale. We have not authorized anyone to provide you with information that is different from that contained in this prospectus FIXED INTEREST OPTIONS. -- Guaranteed Interest Account -- Fixed Account -- Guaranteed Accumulation Account (available in New York only) Except as specifically mentioned, this prospectus describes only the variable investment options. However, we describe the fixed interest options in appendices to this prospectus. There is also a separate Guaranteed Accumulation Account prospectus. AVAILABILITY OF OPTIONS. Some funds or fixed interest options may be unavailable through your contract or in your state. TABLE OF CONTENTS CONTRACT OVERVIEW............................... 4 Contract Design 1994 Contracts and 1992 Contracts Contract Facts Questions: Contacting the Company (sidebar) Sending Forms and Written Requests in Good Order (sidebar) Contract Phases: The Accumulation Phase, The Income Phase FEE TABLE......................................... 6 CONDENSED FINANCIAL INFORMATION................... 14 INVESTMENT OPTIONS................................ 14 TRANSFERS AMONG INVESTMENT OPTIONS................ 15 PURCHASE.......................................... 17 RIGHT TO CANCEL................................... 18 FEES.............................................. 19 YOUR ACCOUNT VALUE................................ 23 WITHDRAWALS....................................... 25 SYSTEMATIC DISTRIBUTION OPTIONS................... 26 DEATH BENEFIT..................................... 27 THE INCOME PHASE.................................. 28 TAXATION.......................................... 31 OTHER TOPICS...................................... 35 The Company - Variable Annuity Account C - Contract Distribution - Payment Delay or Suspension - Performance Reporting - Voting Rights - Contract Modification - Involuntary Terminations - Legal Matters and Proceedings CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION....................................... 39 APPENDIX I - GUARANTEED INTEREST ACCOUNT.......... 40 APPENDIX II - FIXED ACCOUNT....................... 41 APPENDIX III - GUARANTEED ACCUMULATION ACCOUNT.... 42 APPENDIX IV - DESCRIPTION OF UNDERLYING FUNDS..... 44 APPENDIX V - CONDENSED FINANCIAL INFORMATION...... 85
3 [SIDE NOTE] QUESTIONS: CONTACTING THE COMPANY. To answer your questions, contact your sales representative or write or call our Home Office at: ING Individual Annuity Services 151 Farmington Avenue Hartford, CT 06156-1258 1-800-262-3862 SENDING FORMS AND WRITTEN REQUESTS IN GOOD ORDER. If you are writing to change your beneficiary, request a withdrawal, or for any other purpose, contact us or your sales representative to learn what information is required in order for the request to be in "good order." Generally, a request is considered to be in "good order" when it is signed, dated and made with such clarity and completeness that we are not required to exercise any discretion in carrying it out. We can only act upon written requests that are received in good order. [END SIDE NOTE] CONTRACT OVERVIEW ---------------------------------------------- The following is intended as a summary. Please read each section of this prospectus for additional information. CONTRACT DESIGN ------------------------------------------------------------------- The contracts described in this prospectus are individual, deferred, fixed or variable annuity contracts. They are intended to be retirement savings vehicles that offer a variety of investment options to help meet long-term financial goals. 1994 CONTRACTS AND 1992 CONTRACTS ------------------------------------------------------------------- Throughout the prospectus we refer to 1994 contracts and 1992 contracts. 1994 CONTRACTS. We began selling these contracts in 1994 and we are currently selling these contracts. You have a 1994 contract if your contract form number, located on the bottom left corner of each page of your contract, begins with the letters IRA-CDA-IC. In some cases the form number will appear as IRA-CDA-93, IRA-CDA-97 or IRA-CDA-98. 1992 CONTRACTS. We began selling these contracts in 1992 and stopped sale of them during 1994. You have a 1992 contract if your contract form number, located on the bottom left corner of each page of your contract, begins with the letters IP-CDA-IB. CONTRACT FACTS ------------------------------------------------------------------- FREE LOOK/RIGHT TO CANCEL. You may cancel your contract within ten days (some states require more than ten days) of receipt. See "Right to Cancel." DEATH BENEFIT. Your beneficiary may receive a financial benefit in the event of your death prior to the income phase. Any death benefit during the income phase will depend upon the income phase payment option selected. See "Death Benefit" and "The Income Phase." WITHDRAWALS. During the accumulation phase, you may withdraw all or part of your account value. Certain fees, taxes and early withdrawal penalties may apply. See "Withdrawals" and "Taxation." Amounts withdrawn from the Guaranteed Accumulation Account may be subject to a market value adjustment. See Appendix III. SYSTEMATIC DISTRIBUTION OPTIONS. These are made available for you to receive periodic withdrawals from your account, while retaining the account in the accumulation phase. See "Systematic Distribution Options." FEES. Certain fees are deducted from your account value. See "Fee Table" and "Fees." TAXATION. You will generally not pay taxes on any earnings from the annuity contract described in this prospectus until they are withdrawn. Tax-qualified retirement arrangements (e.g., IRAs) also defer payment of taxes on earnings until they are withdrawn. Because you are considering an annuity for your IRA, you should know that the annuity contract does not provide any additional tax deferral of earnings beyond the tax deferral provided by other types of IRAs. However, annuities do provide other features and benefits which may be valuable to you. You should discuss your decision with your financial representative. Taxes will generally be due when you receive a distribution. Tax penalties may apply in some circumstances. See "Taxation." 4 CONTRACT PHASES ------------------------------------------------------------------- I. THE ACCUMULATION PHASE (accumulating dollars under your contract) STEP 1: You provide us with your completed application and initial purchase payment. We establish an account for you and credit that account with your initial purchase payment. STEP 2: You direct us to invest your purchase payment in one or more of the following investment options: (a) Fixed Interest Options; or (b) Variable Investment Options (The variable investment [LOGO] options are the subaccounts of Variable Annuity Account C. Each one invests in a specific mutual fund.) STEP 3: Each subaccount you select purchases shares of its corresponding fund. II. THE INCOME PHASE (receiving income phase payments from your contract) When you want to begin receiving payments from your contract, you may select from the options available. The contract offers several income phase payment options (see "The Income Phase"). In general, you may: -- Receive income phase payments for a specified period of time or for life; -- Receive income phase payments monthly, quarterly, semi-annually or annually; -- Select an income phase option that provides for payments to your beneficiary; and -- Select income phase payments that are fixed or vary based on the performance of the variable investment options you select. 5 [SIDE NOTE] IN THIS SECTION: -- Maximum Transaction Fees -- Maximum Fees Deducted from Investments in the Separate Account -- Fees Deducted by the Funds -- Hypothetical Examples ALSO SEE THE "FEES" SECTION FOR: -- How, When and Why Fees are Deducted -- Reduction, Waiver and/or Elimination of Certain Fees -- Premium and Other Taxes -- Charges for ING GET Fund ALSO SEE "THE INCOME PHASE" SECTION FOR: -- Fees During the Income Phase [END SIDE NOTE] FEE TABLE ---------------------------------------------- The tables and examples in this section show the fees that may affect your account value during the accumulation phase. See "The Income Phase" for fees that may apply after you begin receiving income phase payments under the contract. The fees shown below do not reflect any premium tax that may apply. MAXIMUM TRANSACTION FEES EARLY WITHDRAWAL CHARGE. (As a percentage of the amount withdrawn.)(1) See "Fees--Early Withdrawal Charge" for a description of which early withdrawal charge schedule applies to each contract. ------------------------------------------------------------------------ SCHEDULE A ------------------------------------------------------------------------ Contract Years Early Withdrawal Charge ----------------------------------- ----------------------------------- Fewer than 1 1% 1 or more 0% ------------------------------------------------------------------------ ------------------------------------------------------------------------ SCHEDULE B ------------------------------------------------------------------------ Contract Years Early Withdrawal Charge ----------------------------------- ----------------------------------- Less than 5 5% 5 or more but fewer than 6 4% 6 or more but fewer than 7 3% 7 or more but fewer than 8 2% 8 or more but fewer than 9 1% 9 or more 0% ------------------------------------------------------------------------ ------------------------------------------------------------------------ SCHEDULE C ------------------------------------------------------------------------ Contract Years Early Withdrawal Charge ----------------------------------- ----------------------------------- Less than 2 6% 2 or more but fewer than 3 5% 3 or more but fewer than 4 4% 4 or more but fewer than 5 3% 5 or more but fewer than 6 2% 6 or more but fewer than 7 1% 7 or more 0% ------------------------------------------------------------------------
ANNUAL MAINTENANCE FEE ............................................... $25.00(2) TRANSFER CHARGE ....................................................... $0.00(3) MAXIMUM FEES DEDUCTED FROM INVESTMENTS IN THE SEPARATE ACCOUNT (Daily deductions equal to the given percentage of values invested in the subaccounts on an annual basis) MORTALITY AND EXPENSE RISK CHARGE................. 1.25%(4) ADMINISTRATIVE EXPENSE CHARGE..................... 0.00% - 0.25%(5) ---------------------- TOTAL SEPARATE ACCOUNT EXPENSES................... 1.25% - 1.50% ======================
-------------------------- 1 The total early withdrawal charge deducted will not exceed 8.5% of the total purchase payments made to a contract. See "Fees--Early Withdrawal Charge." 2 The annual maintenance fee may be waived if your account value is $10,000 or greater on the day before the maintenance fee is deducted. Additionally, for 1992 contracts, if the initial purchase payment was $10,000 or greater, the annual maintenance fee is $0. See "Fees--Annual Maintenance Fee." 3 During the accumulation phase, we allow you twelve free transfers among investment options each calendar year. We reserve the right to charge $10 for each additional transfer. We currently do not impose this charge. See "Transfers." 4 This illustrates the maximum mortality and expense risk charge that may be deducted under the contracts. For 1994 contracts, which we currently sell, this charge may be reduced to 1.15% under certain circumstances. See "Fees--Mortality and Expense Risk Charge." 5 We currently do not impose this charge, however, if allowed by your contract, we reserve the right to charge up to 0.25% annually. See "Fees--Administrative Expense Charge." 6 FEES DEDUCTED BY THE FUNDS USING THIS INFORMATION. The following table shows the investment advisory fees, 12b-1 fees and other expenses including service fees (if applicable) charged annually by each fund. See the "Fees" section of this prospectus, and the fund prospectuses for additional information. HOW FEES ARE DEDUCTED. Fund fees are not deducted from account values. Instead, they are deducted from the value of the fund shares on a daily basis, which in turn affects the value of each subaccount that purchases fund shares. Except as noted below, the following figures are a percentage of the average net assets of each fund and are based on figures for the year ended December 31, 2001.
FUND EXPENSE TABLE(1) TOTAL FEES AND TOTAL NET MANAGEMENT FUND EXPENSES FUND (ADVISORY) 12B-1 OTHER ANNUAL WAIVED OR ANNUAL FUND NAME FEES FEE EXPENSES EXPENSES REIMBURSED EXPENSES --------- ---------- ------- -------- -------- ---------- --------- ING VP Ascent Portfolio (Class R Shares)(2) 0.60% -- 0.14% 0.74% -- 0.74% ING VP Balanced Portfolio, Inc. (Class R Shares)(2) 0.50% -- 0.09% 0.59% -- 0.59% ING VP Bond Portfolio (Class R Shares)(2) 0.40% -- 0.10% 0.50% -- 0.50% ING VP Crossroads Portfolio (Class R Shares)(2) 0.60% -- 0.14% 0.74% 0.04% 0.70% ING VP Growth Portfolio (Class R Shares)(2) 0.60% -- 0.10% 0.70% -- 0.70% ING VP Growth and Income Portfolio (Class R Shares)(2) 0.50% -- 0.09% 0.59% -- 0.59% ING VP Index Plus LargeCap Portfolio (Class R Shares)(2) 0.35% -- 0.10% 0.45% -- 0.45% ING VP Index Plus MidCap Portfolio (Class R Shares)(2) 0.40% -- 0.15% 0.55% -- 0.55% ING VP Index Plus SmallCap Portfolio (Class R Shares)(2) 0.40% -- 0.31% 0.71% 0.11% 0.60% ING VP International Equity Portfolio (Class R Shares)(2) 0.85% -- 0.41% 1.26% 0.11% 1.15% ING VP Legacy Portfolio (Class R Shares)(2) 0.60% -- 0.16% 0.76% 0.11% 0.65% ING VP Money Market Portfolio (Class R Shares)(2) 0.25% -- 0.09% 0.34% -- 0.34% ING VP Small Company Portfolio (Class R Shares)(2) 0.75% -- 0.11% 0.86% -- 0.86% ING VP Technology Portfolio (Class R Shares)(2) 0.95% -- 0.16% 1.11% -- 1.11% ING VP Value Opportunity Portfolio (Class R Shares)(2) 0.60% -- 0.11% 0.71% -- 0.71% ING VP Growth Opportunities Portfolio (Class R Shares)(3) 0.75% -- 1.07% 1.82% 0.92% 0.90% ING VP International Value Portfolio (Class R Shares)(3) 1.00% -- 0.53% 1.53% 0.53% 1.00% ING VP MidCap Opportunities Portfolio (Class R Shares)(3) 0.75% -- 1.91% 2.66% 1.76% 0.90% ING VP SmallCap Opportunities Portfolio (Class R Shares)(3) 0.75% -- 0.40% 1.15% 0.25% 0.90% ING MFS Capital Opportunities Portfolio (Initial Class) 0.65% 0.25% 0.90% -- 0.90% ING MFS Emerging Equities Portfolio (Initial Class) 0.68% 0.13% 0.81% -- 0.81% ING MFS Research Portfolio (Initial Class) 0.69% 0.15% 0.84% -- 0.84% ING Scudder International Growth Portfolio (Initial Class) 0.80% 0.20% 1.00% -- 1.00% ING T. Rowe Price Growth Equity Portfolio (Initial Class) 0.60% 0.15% 0.75% -- 0.75% ING Alger Aggressive Growth Portfolio (Service Class)(4) 0.85% 0.45% 1.30% -- 1.30% ING Alger Growth Portfolio (Service Class)(4) 0.80% 0.45% 1.25% -- 1.25% ING American Century Small Cap Value Portfolio (Service Class)(4) 1.00% 0.65% 1.65% -- 1.65% ING Baron Small Cap Growth Portfolio (Service Class)(4) 0.85% 0.65% 1.50% -- 1.50% ING DSI Enhanced Index Portfolio (Service Class)(4) 0.60% 0.45% 1.05% -- 1.05% ING Goldman Sachs-Registered Trademark- Capital Growth Portfolio (Service Class)(4) 0.85% 0.45% 1.30% -- 1.30% ING JPMorgan Mid Cap Value Portfolio (Service Class)(4) 0.75% 0.60% 1.35% -- 1.35% ING MFS Global Growth Portfolio (Service Class)(4) 0.60% 0.85% 1.45% -- 1.45% ING OpCap Balanced Value Portfolio (Service Class)(4) 0.80% 0.45% 1.25% -- 1.25% ING PIMCO Total Return Portfolio (Service Class)(4) 0.50% 0.60% 1.10% -- 1.10% ING Salomon Brothers Capital Portfolio (Service Class)(4) 0.90% 0.45% 1.35% -- 1.35%
7
TOTAL FEES AND TOTAL NET MANAGEMENT FUND EXPENSES FUND (ADVISORY) 12B-1 OTHER ANNUAL WAIVED OR ANNUAL FUND NAME FEES FEE EXPENSES EXPENSES REIMBURSED EXPENSES --------- ---------- ------- -------- -------- ---------- --------- ING Salomon Brothers Investors Value Portfolio (Service Class)(4) 0.80% 0.45% 1.25% -- 1.25% ING UBS Tactical Asset Allocation Portfolio (Service Class)(4) 0.90% 0.45% 1.35% -- 1.35% ING Van Kampen Comstock Portfolio (Service Class)(4) 0.60% 0.60% 1.20% -- 1.20% AIM V.I. Capital Appreciation Fund (Series I Shares)(5) 0.61% -- 0.24% 0.85% -- 0.85% AIM V.I. Core Equity Fund (Series I Shares)(5) 0.61% -- 0.21% 0.82% -- 0.82% AIM V.I. Growth Fund (Series I Shares)(5) 0.62% -- 0.26% 0.88% -- 0.88% AIM V.I. Premier Equity Fund (Series I Shares)(5) 0.60% -- 0.25% 0.85% -- 0.85% Calvert Social Balanced Portfolio(6) 0.70% 0.18% 0.88% -- 0.88% Fidelity-Registered Trademark- VIP Contrafund-Registered Trademark- Portfolio (Initial Class)(7) 0.58% -- 0.10% 0.68% -- 0.68% Fidelity-Registered Trademark- VIP Equity-Income Portfolio (Initial Class)(7) 0.48% -- 0.10% 0.58% -- 0.58% Fidelity-Registered Trademark- VIP Growth Portfolio (Initial Class)(7) 0.58% -- 0.10% 0.68% -- 0.68% Fidelity-Registered Trademark- VIP Overseas Portfolio (Initial Class)(7) 0.73% -- 0.19% 0.92% -- 0.92% Franklin Small Cap Value Securities Fund (Class 2 Shares)(8) 0.60% 0.25% 0.20% 1.05% -- 1.05% Janus Aspen Aggressive Growth Portfolio (Institutional Shares)(9) 0.65% -- 0.02% 0.67% -- 0.67% Janus Aspen Balanced Portfolio (Institutional Shares)(9) 0.65% -- 0.01% 0.66% -- 0.66% Janus Aspen Capital Appreciation Portfolio (Service Shares)(10) 0.65% 0.25% 0.01% 0.91% -- 0.91% Janus Aspen Flexible Income Portfolio (Institutional Shares)(9) 0.64% -- 0.03% 0.67% -- 0.67% Janus Aspen Growth Portfolio (Institutional Shares)(9) 0.65% -- 0.01% 0.66% -- 0.66% Janus Aspen Worldwide Growth Portfolio (Institutional Shares)(9) 0.65% -- 0.04% 0.69% -- 0.69% Lord Abbett Growth and Income Portfolio (Class VC Shares)(11) 0.50% -- 0.47% 0.97% -- 0.97% Lord Abbett Mid-Cap Value Portfolio (Class VC Shares)(12) 0.75% -- 0.35% 1.10% -- 1.10% Oppenheimer Global Securities Fund/VA 0.64% -- 0.06% 0.70% -- 0.70% Oppenheimer Strategic Bond Fund/VA(13) 0.74% -- 0.05% 0.79% -- 0.79% Pioneer Equity Income VCT Portfolio (Class I Shares) 0.65% -- 0.10% 0.75% -- 0.75% Pioneer Fund VCT Portfolio (Class I Shares) 0.65% -- 0.09% 0.74% -- 0.74% Pioneer Mid Cap Value VCT Portfolio (Class I Shares) 0.65% -- 0.14% 0.79% -- 0.79%
FOOTNOTES TO "FUND EXPENSE TABLE" (1) The Company may receive compensation from each of the funds or the funds' affiliates based on an annual percentage of the average net assets held in that fund by the Company. The percentage paid may vary from one fund company to another. For certain funds, some of this compensation may be paid out of 12b-1 fees or service fees that are deducted from fund assets. Any such fees deducted from fund assets are disclosed in this Fund Expense Table and the fund prospectuses. The Company may also receive additional compensation from certain funds for administrative, recordkeeping or other services provided by the Company to the funds or the funds' affiliates. These additional payments are made by the funds or the funds' affiliates to the Company and do not increase, directly or indirectly, the fees and expenses shown above. See "Fees--Fund Expenses" for additional information. (2) ING Investments, LLC, the investment adviser to each Portfolio, has entered into written expense limitation agreements with each Portfolio (except Balanced, Growth and Income, Bond and Money Market) under which it will limit expenses of the Portfolios, excluding interest, brokerage and extraordinary expenses, subject to possible reimbursement to ING Investments, LLC within three years. The amount of each Portfolio's expenses waived or reimbursed during the last fiscal year by the Portfolio's investment adviser is shown under the heading "Fees and Expenses Waived or Reimbursed" in the table above. For each Portfolio, the expense limits will continue through at least December 31, 2002. 8 (3) ING Investments, LLC has entered into written expense limitation agreements with each Portfolio under which it will limit expenses of the Portfolio, excluding interest, taxes, brokerage and extraordinary expenses subject to possible reimbursement to ING Investments, LLC within three years. The amount of each Portfolio's expenses waived or reimbursed during the last fiscal year by ING Investments, LLC is shown under the heading "Fees and Expenses Waived or Reimbursed" in the table above. For the remaining ING VP portfolios, the expense limits will continue through at least October 31, 2002. (4) Other Expenses shown in the above table are based on estimated amounts for the current fiscal year and include a Shareholder Services fee of 0.25%. (5) Compensation to the Company for administrative or recordkeeping services may be paid out of fund assets in an amount up to 0.25% annually. Any such fees paid from the AIM Funds' assets are included in the "Other Expenses" column. (6) "Management (Advisory) Fees" include an administrative fee paid by the Fund to Calvert Administrative Services Company, an affiliate of Calvert. "Other Expenses" listed above reflect an indirect fee of 0.01% resulting from the Portfolio's offset arrangement with the custodian bank whereby the custodian's and transfer agent's fees may be paid indirectly by credits earned on the Portfolio's uninvested cash balances. These credits are used to reduce the Portfolio's expenses. A voluntary reduction of fees paid indirectly is not reflected in the above table. If this voluntary reduction was reflected, the amounts shown under "Other Expenses" and "Total Net Fund Annual Expenses" would be 0.17% and 0.87%, respectively. (7) Actual annual class operating expenses were lower because a portion of the brokerage commissions that the fund paid was used to reduce the fund's expenses. In addition, through arrangements with the fund's custodian, credits realized as a result of uninvested cash balances are used to reduce a portion of the fund's custodian expenses. These offsets may be discontinued at any time. (8) The Fund's Class 2 distribution plan or "Rule 12b-1 plan" is described in the Fund's prospectus. The Fund's manager had agreed in advance to make a reduction of 0.03% to its fee to reflect reduced services resulting from the Fund's investment in a Franklin Templeton money fund. This reduction is required by the Fund's Board of Trustees and an order of the Securities and Exchange Commission. The amounts shown under "Management (Advisory) Fees" and "Total Net Fund Annual Expenses" do not reflect this voluntary reduction of fees. If this reduction was reflected, the amounts shown under "Management (Advisory) Fees" and "Total Net Fund Annual Expenses" would be 0.57% and 1.02%, respectively. (9) All expenses are shown without the effect of any expense offset arrangements. (10) Long-term shareholders may pay more than the economic equivalent of the maximum front-end sales charges permitted by the National Association of Securities Dealers, Inc. All expenses are shown without the effect of any expense offset arrangements. (11) The Lord Abbett Growth and Income Portfolio has entered into an arrangement with its custodian pursuant to which any daily uninvested cash balances among the Portfolio's assets are used to reduce the Portfolio's custody fees. For the fiscal year ended December 31, 2001, this reduction was less than 0.01% of the Portfolio's average daily net assets. "Other Expenses" also includes 0.25% for a non 12b-1 service fee arrangement. (12) The information in the chart above has been restated to reflect the fees and expenses that will be applicable during 2002. For the year 2001, Lord, Abbett & Co. (Lord Abbett), the Portfolio's investment adviser, voluntarily waived a portion of its management fees of 0.75% of average daily net assets and voluntarily reimbursed a portion of the Portfolio's expenses to the extent necessary to maintain its "Other Expenses" at an aggregate of 0.35% of its average daily net assets. For the year 2001, "Fees and Expenses Waived or Reimbursed" for the Portfolio were 0.21%, and absent any waivers and reimbursements the "Total Fund Annual Expenses" for the Portfolio would have been 1.20%. For the year 2002, Lord Abbett does not intend to waive its management fees for the Portfolio but has contractually agreed to continue to reimburse a portion of the Portfolio's expenses to the extent necessary to maintain its "Other Expenses" at an aggregate of 0.35% of its average daily net assets. "Other Expenses" also includes 0.25% for a non 12b-1 service fee arrangement. (13) OppenheimerFunds, Inc., will reduce the management fee by 0.10% as long as the fund's trailing 12-month performance at the end of the quarter is in the fifth Lipper peer-group quintile; and by 0.05% as long as it is in the fourth quintile. The waiver is voluntary and may be terminated by the Manager at any time. 9 HYPOTHETICAL EXAMPLES ACCOUNT FEES YOU MAY INCUR OVER TIME. The following hypothetical examples show the fees and expenses paid over time if you invest $1,000 in the contract and assume a 5% annual return on the investment. For the purpose of these examples, we deducted total fund annual expenses, the maximum mortality and expense risk charge of 1.25% annually, the maximum administrative expense charge of 0.25% annually and an annual maintenance fee of $25 (converted to a percentage of assets equal to 0.126%). The total fund expenses are those shown in the column "Total Net Fund Annual Expenses" in the Fund Expense Table, assuming that any applicable fee waivers or reimbursements would apply during all periods shown. EXAMPLE A EXAMPLE B -- These examples are purely hypothetical. IF YOU WITHDRAW YOUR ENTIRE IF YOU WITHDRAW YOUR ENTIRE -- They should not be considered a representation ACCOUNT VALUE AT THE END OF THE ACCOUNT VALUE AT THE END OF THE of past or future fees or expected returns. PERIODS SHOWN, YOU WOULD PAY THE PERIODS SHOWN, YOU WOULD PAY THE -- Actual expenses and/or returns may be more or FOLLOWING EXPENSES, INCLUDING FOLLOWING EXPENSES, INCLUDING less than those shown in these examples. ANY CHARGE ASSESSED UNDER EARLY ANY CHARGE ASSESSED UNDER EARLY WITHDRAWAL CHARGE SCHEDULE A: WITHDRAWAL CHARGE SCHEDULE B:
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- ------ ------- ------- -------- ING VP Ascent Portfolio (Class R Shares) $24 $ 74 $126 $270 $75 $128 $172 $270 ING VP Balanced Portfolio, Inc. (Class R Shares) $22 $ 69 $119 $255 $74 $124 $165 $255 ING VP Bond Portfolio (Class R Shares) $22 $ 67 $114 $246 $73 $121 $160 $246 ING VP Crossroads Portfolio (Class R Shares) $24 $ 73 $124 $266 $75 $127 $170 $266 ING VP Growth Portfolio (Class R Shares) $24 $ 73 $124 $266 $75 $127 $170 $266 ING VP Growth and Income Portfolio (Class R Shares) $22 $ 69 $119 $255 $74 $124 $165 $255 ING VP Index Plus LargeCap Portfolio (Class R Shares) $21 $ 65 $112 $241 $73 $120 $158 $241 ING VP Index Plus MidCap Portfolio (Class R Shares) $22 $ 68 $117 $251 $73 $122 $163 $251 ING VP Index Plus SmallCap Portfolio (Class R Shares) $23 $ 70 $119 $256 $74 $124 $165 $256 ING VP International Equity Portfolio (Class R Shares) $28 $ 86 $147 $311 $79 $140 $191 $311 ING VP Legacy Portfolio (Class R Shares) $23 $ 71 $122 $261 $74 $125 $168 $261 ING VP Money Market Portfolio (Class R Shares) $20 $ 62 $106 $229 $71 $116 $152 $229 ING VP Small Company Portfolio (Class R Shares) $25 $ 77 $132 $282 $76 $131 $178 $282 ING VP Technology Portfolio (Class R Shares) $28 $ 85 $145 $307 $79 $138 $189 $307 ING VP Value Opportunity Portfolio (Class R Shares) $24 $ 73 $125 $267 $75 $127 $170 $267 ING VP Growth Opportunities Portfolio (Class R Shares) $26 $ 79 $134 $286 $77 $132 $180 $286 ING VP International Value Portfolio (Class R Shares) $27 $ 82 $139 $296 $78 $135 $184 $296 ING VP MidCap Opportunities Portfolio (Class R Shares) $26 $ 79 $134 $286 $77 $132 $180 $286 ING VP SmallCap Opportunities Portfolio (Class R Shares) $26 $ 79 $134 $286 $77 $132 $180 $286 ING Alger Aggressive Growth Portfolio (Service Class) $30 $ 91 $154 $325 $81 $144 $198 $325 ING Alger Growth Portfolio (Service Class) $29 $ 89 $152 $320 $80 $142 $196 $320 ING American Century Small Cap Value Portfolio (Service Class) $33 $101 $171 $357 $84 $153 $215 $357 ING Baron Small Cap Growth Portfolio (Service Class) $32 $ 96 $164 $344 $82 $149 $208 $344 ING DSI Enhanced Index Portfolio (Service Class) $27 $ 83 $142 $301 $78 $137 $187 $301 ING Goldman Sachs-Registered Trademark- Capital Growth Portfolio (Service Class) $30 $ 91 $154 $325 $81 $144 $198 $325 ING JPMorgan Mid Cap Value Portfolio (Service Class) $30 $ 92 $157 $330 $81 $145 $201 $330 ING MFS Capital Opportunities Portfolio (Initial Class) $26 $ 79 $134 $286 $77 $132 $180 $286
10
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- ------ ------- ------- -------- ING MFS Emerging Equities Portfolio (Initial Class) $25 $ 76 $130 $277 $76 $130 $175 $277 ING MFS Global Growth Portfolio (Service Class) $31 $ 95 $161 $339 $82 $148 $205 $339 ING MFS Research Portfolio (Initial Class) $25 $ 77 $132 $281 $76 $131 $177 $281 ING OpCap Balanced Value Portfolio (Service Class) $29 $ 89 $152 $320 $80 $142 $196 $320 ING PIMCO Total Return Portfolio (Service Class) $28 $ 85 $144 $306 $79 $138 $189 $306 ING Salomon Brothers Capital Portfolio (Service Class) $30 $ 92 $157 $330 $81 $145 $201 $330 ING Salomon Brothers Investors Value Portfolio (Service Class) $29 $ 89 $152 $320 $80 $142 $196 $320 ING Scudder International Growth Portfolio (Initial Class) $27 $ 82 $139 $296 $78 $135 $184 $296 ING T. Rowe Price Growth Equity Portfolio (Initial Class) $24 $ 74 $127 $271 $75 $128 $172 $271 ING UBS Tactical Asset Allocation Portfolio (Service Class) $30 $ 92 $157 $330 $81 $145 $201 $330 ING Van Kampen Comstock Portfolio (Service Class) $29 $ 88 $149 $315 $80 $141 $194 $315 AIM V.I. Capital Appreciation Fund (Series I Shares) $25 $ 77 $132 $281 $76 $131 $177 $281 AIM V.I. Core Equity Fund (Series I Shares) $25 $ 76 $130 $278 $76 $130 $176 $278 AIM V.I. Growth Fund (Series I Shares) $25 $ 78 $133 $284 $77 $132 $179 $284 AIM V.I. Premier Equity Fund (Series I Shares) $25 $ 77 $132 $281 $76 $131 $177 $281 Calvert Social Balanced Portfolio $25 $ 78 $133 $284 $77 $132 $179 $284 Fidelity-Registered Trademark- VIP Contrafund-Registered Trademark- Portfolio (Initial Class) $23 $ 72 $123 $264 $75 $126 $169 $264 Fidelity-Registered Trademark- VIP Equity-Income Portfolio (Initial Class) $22 $ 69 $118 $254 $74 $123 $164 $254 Fidelity-Registered Trademark- VIP Growth Portfolio (Initial Class) $23 $ 72 $123 $264 $75 $126 $169 $264 Fidelity-Registered Trademark- VIP Overseas Portfolio (Initial Class) $26 $ 79 $135 $288 $77 $133 $180 $288 Franklin Small Cap Value Securities Fund (Class 2 Shares) $27 $ 83 $142 $301 $78 $137 $187 $301 Janus Aspen Aggressive Growth Portfolio (Institutional Shares) $23 $ 72 $123 $263 $75 $126 $169 $263 Janus Aspen Balanced Portfolio (Institutional Shares) $23 $ 71 $122 $262 $75 $126 $168 $262 Janus Aspen Capital Appreciation Portfolio (Service Shares) $26 $ 79 $135 $287 $77 $133 $180 $287 Janus Aspen Flexible Income Portfolio (Institutional Shares) $23 $ 72 $123 $263 $75 $126 $169 $263 Janus Aspen Growth Portfolio (Institutional Shares) $23 $ 71 $122 $262 $75 $126 $168 $262 Janus Aspen Worldwide Growth Portfolio (Institutional Shares) $23 $ 72 $124 $265 $75 $126 $169 $265 Lord Abbett Growth and Income Portfolio (Class VC Shares) $26 $ 81 $138 $293 $77 $134 $183 $293 Lord Abbett Mid-Cap Value Portfolio (Class VC Shares) $28 $ 85 $144 $306 $79 $138 $189 $306 Oppenheimer Global Securities Fund/VA $24 $ 73 $124 $266 $75 $127 $170 $266 Oppenheimer Strategic Bond Fund/VA $24 $ 75 $129 $275 $76 $129 $174 $275 Pioneer Equity Income VCT Portfolio (Class I Shares) $24 $ 74 $127 $271 $75 $128 $172 $271 Pioneer Fund VCT Portfolio (Class I Shares) $24 $ 74 $126 $270 $75 $128 $172 $270 Pioneer Mid Cap Value VCT Portfolio (Class I Shares) $24 $ 75 $129 $275 $76 $129 $174 $275
11 HYPOTHETICAL EXAMPLES (CONTINUED) EXAMPLE C EXAMPLE D IF YOU LEAVE YOUR ENTIRE ACCOUNT -- These examples are purely hypothetical. IF YOU WITHDRAW YOUR ENTIRE VALUE INVESTED OR IF YOU SELECT -- They should not be considered a representation ACCOUNT VALUE AT THE END OF THE AN INCOME PHASE PAYMENT OPTION of past or future fees or expected returns. PERIODS SHOWN, YOU WOULD PAY THE AT THE END OF THE PERIODS SHOWN, -- Actual expenses and/or returns may be more or FOLLOWING EXPENSES, INCLUDING YOU WOULD PAY THE FOLLOWING less than those shown in these examples. ANY CHARGE ASSESSED UNDER EARLY EXPENSES, (NO EARLY WITHDRAWAL WITHDRAWAL CHARGE SCHEDULE C: CHARGE IS REFLECTED):*
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- ------ ------- ------- -------- ING VP Ascent Portfolio (Class R Shares) $86 $117 $149 $270 $24 $ 74 $126 $270 ING VP Balanced Portfolio, Inc. (Class R Shares) $84 $113 $142 $255 $22 $ 69 $119 $255 ING VP Bond Portfolio (Class R Shares) $83 $110 $137 $246 $22 $ 67 $114 $246 ING VP Crossroads Portfolio (Class R Shares) $85 $116 $147 $266 $24 $ 73 $124 $266 ING VP Growth Portfolio (Class R Shares) $85 $116 $147 $266 $24 $ 73 $124 $266 ING VP Growth and Income Portfolio (Class R Shares) $84 $113 $142 $255 $22 $ 69 $119 $255 ING VP Index Plus LargeCap Portfolio (Class R Shares) $83 $109 $135 $241 $21 $ 65 $112 $241 ING VP Index Plus MidCap Portfolio (Class R Shares) $84 $112 $140 $251 $22 $ 68 $117 $251 ING VP Index Plus SmallCap Portfolio (Class R Shares) $84 $113 $142 $256 $23 $ 70 $119 $256 ING VP International Equity Portfolio (Class R Shares) $89 $129 $169 $311 $28 $ 86 $147 $311 ING VP Legacy Portfolio (Class R Shares) $85 $114 $145 $261 $23 $ 71 $122 $261 ING VP Money Market Portfolio (Class R Shares) $82 $105 $129 $229 $20 $ 62 $106 $229 ING VP Small Company Portfolio (Class R Shares) $87 $121 $155 $282 $25 $ 77 $132 $282 ING VP Technology Portfolio (Class R Shares) $89 $128 $167 $307 $28 $ 85 $145 $307 ING VP Value Opportunity Portfolio (Class R Shares) $85 $116 $148 $267 $24 $ 73 $125 $267 ING VP Growth Opportunities Portfolio (Class R Shares) $87 $122 $157 $286 $26 $ 79 $134 $286 ING VP International Value Portfolio (Class R Shares) $88 $125 $162 $296 $27 $ 82 $139 $296 ING VP MidCap Opportunities Portfolio (Class R Shares) $87 $122 $157 $286 $26 $ 79 $134 $286 ING VP SmallCap Opportunities Portfolio (Class R Shares) $87 $122 $157 $286 $26 $ 79 $134 $286 ING Alger Aggressive Growth Portfolio (Service Class) $91 $133 $176 $325 $30 $ 91 $154 $325 ING Alger Growth Portfolio (Service Class) $90 $132 $174 $320 $29 $ 89 $152 $320 ING American Century Small Cap Value Portfolio (Service Class) $94 $143 $193 $357 $33 $101 $171 $357 ING Baron Small Cap Growth Portfolio (Service Class) $93 $139 $186 $344 $32 $ 96 $164 $344 ING DSI Enhanced Index Portfolio (Service Class) $88 $126 $164 $301 $27 $ 83 $142 $301 ING Goldman Sachs-Registered Trademark- Capital Growth Portfolio (Service Class) $91 $133 $176 $325 $30 $ 91 $154 $325 ING JPMorgan Mid Cap Value Portfolio (Service Class) $91 $134 $179 $330 $30 $ 92 $157 $330 ING MFS Capital Opportunities Portfolio (Initial Class) $87 $122 $157 $286 $26 $ 79 $134 $286 ING MFS Emerging Equities Portfolio (Initial Class) $86 $119 $153 $277 $25 $ 76 $130 $277 ING MFS Global Growth Portfolio (Service Class) $92 $137 $183 $339 $31 $ 95 $161 $339 ING MFS Research Portfolio (Initial Class) $87 $120 $155 $281 $25 $ 77 $132 $281 ING OpCap Balanced Value Portfolio (Service Class) $90 $132 $174 $320 $29 $ 89 $152 $320
12
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- ------ ------- ------- -------- ING PIMCO Total Return Portfolio (Service Class) $89 $127 $167 $306 $28 $ 85 $144 $306 ING Salomon Brothers Capital Portfolio (Service Class) $91 $134 $179 $330 $30 $ 92 $157 $330 ING Salomon Brothers Investors Value Portfolio (Service Class) $90 $132 $174 $320 $29 $ 89 $152 $320 ING Scudder International Growth Portfolio (Initial Class) $88 $125 $162 $296 $27 $ 82 $139 $296 ING T. Rowe Price Growth Equity Portfolio (Initial Class) $86 $117 $150 $271 $24 $ 74 $127 $271 ING UBS Tactical Asset Allocation Portfolio (Service Class) $91 $134 $179 $330 $30 $ 92 $157 $330 ING Van Kampen Comstock Portfolio (Service Class) $90 $130 $171 $315 $29 $ 88 $149 $315 AIM V.I. Capital Appreciation Fund (Series I Shares) $87 $120 $155 $281 $25 $ 77 $132 $281 AIM V.I. Core Equity Fund (Series I Shares) $86 $119 $153 $278 $25 $ 76 $130 $278 AIM V.I. Growth Fund (Series I Shares) $87 $121 $156 $284 $25 $ 78 $133 $284 AIM V.I. Premier Equity Fund (Series I Shares) $87 $120 $155 $281 $25 $ 77 $132 $281 Calvert Social Balanced Portfolio $87 $121 $156 $284 $25 $ 78 $133 $284 Fidelity-Registered Trademark- VIP Contrafund-Registered Trademark- Portfolio (Initial Class) $85 $115 $146 $264 $23 $ 72 $123 $264 Fidelity-Registered Trademark- VIP Equity-Income Portfolio (Initial Class) $84 $112 $141 $254 $22 $ 69 $118 $254 Fidelity-Registered Trademark- VIP Growth Portfolio (Initial Class) $85 $115 $146 $264 $23 $ 72 $123 $264 Fidelity-Registered Trademark- VIP Overseas Portfolio (Initial Class) $87 $122 $158 $288 $26 $ 79 $135 $288 Franklin Small Cap Value Securities Fund (Class 2 Shares) $88 $126 $164 $301 $27 $ 83 $142 $301 Janus Aspen Aggressive Growth Portfolio (Institutional Shares) $85 $115 $146 $263 $23 $ 72 $123 $263 Janus Aspen Balanced Portfolio (Institutional Shares) $85 $115 $145 $262 $23 $ 71 $122 $262 Janus Aspen Capital Appreciation Portfolio (Service Shares) $87 $122 $157 $287 $26 $ 79 $135 $287 Janus Aspen Flexible Income Portfolio (Institutional Shares) $85 $115 $146 $263 $23 $ 72 $123 $263 Janus Aspen Growth Portfolio (Institutional Shares) $85 $115 $145 $262 $23 $ 71 $122 $262 Janus Aspen Worldwide Growth Portfolio (Institutional Shares) $85 $116 $147 $265 $23 $ 72 $124 $265 Lord Abbett Growth and Income Portfolio (Class VC Shares) $88 $124 $160 $293 $26 $ 81 $138 $293 Lord Abbett Mid-Cap Value Portfolio (Class VC Shares) $89 $127 $167 $306 $28 $ 85 $144 $306 Oppenheimer Global Securities Fund/VA $85 $116 $147 $266 $24 $ 73 $124 $266 Oppenheimer Strategic Bond Fund/VA $86 $119 $152 $275 $24 $ 75 $129 $275 Pioneer Equity Income VCT Portfolio (Class I Shares) $86 $117 $150 $271 $24 $ 74 $127 $271 Pioneer Fund VCT Portfolio (Class I Shares) $86 $117 $149 $270 $24 $ 74 $126 $270 Pioneer Mid Cap Value VCT Portfolio (Class I Shares) $86 $119 $152 $275 $24 $ 75 $129 $275
-------------------------- * This example does not apply during the income phase if you select a nonlifetime income phase payment option with variable payments and take a lump-sum withdrawal within five years after you begin receiving payments (or within three years for 1992 contracts). In these circumstances, the lump-sum payment is treated as a withdrawal during the accumulation phase and may be subject to an early withdrawal charge (refer to examples A, B or C). 13 CONDENSED FINANCIAL INFORMATION ---------------------------------------------- UNDERSTANDING CONDENSED FINANCIAL INFORMATION. In Appendix V of this prospectus, we provide condensed financial information about the Variable Annuity Account C (the separate account) subaccounts you may invest in through the contract. The numbers show the year-end unit values of each subaccount over the past ten years. For subaccounts that were not available ten years ago, we give a history from the date of first availability. INVESTMENT OPTIONS ---------------------------------------------- The contract offers variable investment options and fixed interest options. VARIABLE INVESTMENT OPTIONS. These options are called subaccounts. The subaccounts are within Variable Annuity Account C, a separate account of the Company. Each subaccount invests in a specific mutual fund. You do not invest directly in or hold shares in the funds. -- MUTUAL FUND (FUND) DESCRIPTIONS. We provide brief descriptions of the funds in Appendix IV. Investment results of the funds are likely to differ significantly and there is no assurance that any of the funds will achieve their respective investment objectives. Shares of the funds will rise and fall in value and you could lose money by investing in the funds. Shares of the funds are not bank deposits and are not guaranteed, endorsed or insured by any financial institution, the Federal Deposit Insurance Corporation or any other government agency. Unless otherwise noted, all funds are diversified as defined under the Investment Company Act of 1940. Please refer to the fund prospectuses for additional information. Fund prospectuses may be obtained, free of charge, from our Home Office at the address and telephone number listed in "Contract Overview--Questions: Contacting the Company," by accessing the SEC's web site or by contacting the SEC Public Reference Room. FIXED INTEREST OPTIONS. For descriptions of the fixed interest options, see Appendices I, II and III and the Guaranteed Accumulation Account prospectus. SELECTING INVESTMENT OPTIONS - CHOOSE OPTIONS APPROPRIATE FOR YOU. Your sales representative can help you evaluate which investment options may be appropriate for your financial goals. - UNDERSTAND THE RISKS ASSOCIATED WITH THE OPTIONS YOU CHOOSE. Some subaccounts invest in funds that are considered riskier than others. Funds with additional risks are expected to have values that rise and fall more rapidly and to a greater degree than other funds. For example, funds investing in foreign or international securities are subject to risks not associated with domestic investments, and their investment performance may vary accordingly. Also, funds using derivatives in their investment strategy may be subject to additional risks. - BE INFORMED. Read this prospectus, the fund prospectuses, the Guaranteed Interest Account, Fixed Account and Guaranteed Accumulation Account appendices and the Guaranteed Accumulation Account prospectus. 14 LIMITS ON AVAILABILITY OF OPTIONS. Some funds or fixed interest options may be unavailable through your contract or in your state. We may add, withdraw or substitute funds, subject to the conditions in your contract and compliance with regulatory requirements. In the case of a substitution, the new fund may have different fees and charges than the fund it replaced. LIMITS ON HOW MANY INVESTMENT OPTIONS YOU MAY SELECT. You may select no more than 18 investment options during the accumulation phase. Each subaccount, the Fixed Account, and each classification of the Guaranteed Interest Account and Guaranteed Accumulation Account that you select is considered an option, even if you no longer have amounts allocated to it. For 1994 contracts, you may select no more than ten investment options at any one time. LIMITS IMPOSED BY THE UNDERLYING FUND. Orders for the purchase of fund shares may be subject to acceptance by the fund. We reserve the right to reject, without prior notice, any allocation of a purchase payment to a subaccount if the subaccount's investment in the corresponding fund is not accepted by the fund for any reason. ADDITIONAL RISKS OF INVESTING IN THE FUNDS (MIXED AND SHARED FUNDING). "Shared funding" occurs when shares of a fund, which the subaccounts buy for variable annuity contracts, are also bought by other insurance companies for their variable annuity contracts. "Mixed funding" occurs when shares of a fund, which the subaccounts buy for variable annuity contracts, are bought for variable life insurance contracts issued by us or other insurance companies. -- Shared--bought by more than one company. -- Mixed--bought for annuities and life insurance. It is possible that a conflict of interest may arise due to mixed and/or shared funding, which could adversely impact the value of a fund. For example, if a conflict of interest occurred and one of the subaccounts withdrew its investment in a fund, the fund may be forced to sell its securities at disadvantageous prices, causing its share value to decrease. Each fund's Board of Directors or Trustees will monitor events to identify any conflicts which may arise and to determine what action, if any, should be taken to address such conflicts. TRANSFERS AMONG INVESTMENT OPTIONS ---------------------------------------------- During the accumulation phase, you may transfer amounts among the available subaccounts. We allow you 12 free transfers each calendar year. We reserve the right to charge $10.00 for each additional transfer. We currently do not impose this charge. Transfers from fixed interest options are restricted as outlined in Appendices I, II and III. Transfers must be made in accordance with the terms of the contract. You may not make transfers once you enter the income phase. See "The Income Phase." TRANSFER REQUESTS. Requests may be made in writing, by telephone or, where applicable, electronically. 15 LIMITS ON FREQUENT TRANSFERS. The contracts are not designed to serve as vehicles for frequent trading in response to short-term fluctuations in the market. Such frequent trading can disrupt management of a fund and raise its expenses. This in turn can have an adverse effect on fund performance. Accordingly, organizations or individuals that use market-timing investment strategies and make frequent transfers should not purchase the contracts. We reserve the right to restrict, in our sole discretion and without prior notice, transfers initiated by a market-timing organization or individual or other party authorized to give transfer instructions on behalf of multiple contract holders. Such restrictions could include: (1) not accepting transfer instructions from an agent acting on behalf of more than one contract holder; and (2) not accepting preauthorized transfer forms from market timers or other entities acting on behalf of more than one contract holder at a time. We further reserve the right to impose, without prior notice, restrictions on any transfers that we determine, in our sole discretion, will disadvantage or potentially hurt the rights or interests of other contract holders. Additionally, orders for the purchase of fund shares may be subject to acceptance by the fund. We reserve the right to reject, without prior notice, any transfer request to a subaccount if the subaccount's investment in the corresponding fund is not accepted for any reason. VALUE OF TRANSFERRED DOLLARS. The value of amounts transferred into or out of the funds will be based on the subaccount unit values next determined after we receive your transfer request in good order at our Home Office, or if you are participating in the dollar cost averaging program, after your scheduled transfer or reallocation. TELEPHONE AND ELECTRONIC TRANSACTIONS: SECURITY MEASURES. To prevent fraudulent use of telephone and electronic transactions (including, but not limited to, internet transactions), we have established security procedures. These include recording calls on our toll-free telephone lines and requiring use of a personal identification number (PIN) to execute transactions. You are responsible for keeping your PIN and account information confidential. If we fail to follow reasonable security procedures, we may be liable for losses due to unauthorized or fraudulent telephone or other electronic transactions. We are not liable for losses resulting from telephone or electronic instructions we believe to be genuine. If a loss occurs when we rely on such instructions, you will bear the loss. THE DOLLAR COST AVERAGING PROGRAM. The 1994 contract, which we currently sell, permits participation in our dollar cost averaging program. Dollar cost averaging is an investment strategy whereby you purchase fixed dollar amounts of an investment at regular intervals, regardless of price. Under this program a fixed dollar amount is automatically transferred from certain variable investment options to one or more of the subaccounts you select. The amount applied must be no less than $100 per month over a period of at least 12 months. Allocations for periods of longer than 24 months must be consented to by the Company. Dollar Cost Averaging is not available for fixed interest options (the Fixed Account, the Guaranteed Interest Account or the Guaranteed Accumulation Account). Dollar cost averaging neither ensures a profit nor guarantees against loss in a declining market. You should consider your financial ability to continue purchases through periods of low price levels. There is no additional charge for this program and transfers made under this program do not count as transfers when determining the number of free transfers that may be made each calendar year. For additional information about this program, contact your sales representative or call us at the number listed in the "Contract Overview-- Questions: Contacting the Company" section. 16 PURCHASE ---------------------------------------------- CONTRACTS AVAILABLE FOR PURCHASE. The contracts available for purchase are intended to qualify under the Tax Code as one of the following: -- A traditional Individual Retirement Annuity (IRA) under Tax Code section 408(b); or -- A Roth IRA under Tax Code section 408A. The traditional IRA may be used as a funding option for a Simplified Employee Pension (SEP) plan under Tax Code section 408(k). The contract is not available as a "Simple IRA" as defined in Tax Code section 408(p). ELIGIBILITY. Eligibility to contribute to a traditional IRA on a pre-tax basis or to establish a Roth IRA or to rollover or transfer from a traditional IRA to a Roth IRA depends upon your adjusted gross income. HOW TO PURCHASE. Complete the application and submit it and your initial purchase payment to the Company directly or through your sales representative. ACCEPTANCE OR REJECTION OF YOUR APPLICATION. We must accept or reject your application within two business days of receipt. If the application is incomplete, we may hold any forms and accompanying purchase payment(s) for five business days. We may hold purchase payments for longer periods, pending acceptance of the application only with your permission. If the application is rejected, the application and any purchase payments will be returned to you. PURCHASE PAYMENT METHODS. The following purchase payment methods are allowed: -- Annual contributions. The initial purchase payment must be at least $1,000 and subsequent payments may be added as long as they meet our minimum requirements in place at that time. Installment purchase payments are allowed, provided that each installment purchase payment must be at least $85 (or $1,000 annually). Monthly installments must be made via automatic bank check plan. -- Rollovers or transfers from one or more of the following sources: - A traditional IRA under Tax Code section 408(b); - A Roth IRA under Tax Code section 408A; - An individual retirement account under Tax Code section 408(a) or 403(a); - A tax-deferred annuity or custodial account under Tax Code section 403(b); - A qualified pension or profit sharing plan under Tax Code section 401(a) or 401(k); or - A governmental plan that qualifies under Tax Code section 457(b). Rollovers or transfers must be a minimum of $1,500, and subsequent rollovers or payments may be added as long as they meet our minimum requirements in place at that time. FACTORS TO CONSIDER IN THE PURCHASE DECISION. The decision to purchase the contract should be discussed with your financial representative, making sure that you understand the investment options it provides, its other features, the risks and potential benefits you will face, and the fees and expenses you will incur. You should pay attention to the following issues, among others: (1) Long-Term Investment--This contract is a long-term investment, and is typically most useful as part of a personal retirement plan. Early withdrawals 17 may be restricted by the Tax Code or your plan or may expose you to early withdrawal charges or tax penalties. The value of deferred taxation on earnings grows with the amount of time funds are left in the contract. You should not participate in this contract if you are looking for a short-term investment or expect to need to make withdrawals before you are 59 1/2. (2) Investment Risk--The value of investment options available under this contract may fluctuate with the markets and interest rates. You should not participate in this contract in order to invest in these options if you cannot risk getting back less money than you put in. (3) Features and Fees--The fees for this contract reflect costs associated with the features and benefits it provides. As you consider this contract, you should determine the value that these various benefits and features have for you, given your particular circumstances, and consider the charges for those features. (4) Exchanges--If this contract will be a replacement for another annuity contract, you should compare the two options carefully, compare the costs associated with each, and identify additional benefits available under this contract. You should consider whether these additional benefits justify incurring a new schedule of early withdrawal charges or any increased charges that might apply under this contract Also, be sure to talk to your financial professional or tax adviser to make sure that the exchange will be handled so that it is tax-free. Rollovers and direct transfers are permitted from a 401, 403(a) 403(b) or governmental 457(b) arrangement to a traditional IRA. Distributions from these arrangements are not permitted to be transferred or rolled over to a Roth IRA. A Roth IRA can accept transfers/rollovers only from a traditional IRA, subject to ordinary income tax, or from another Roth IRA. PURCHASE IN THE STATE OF NEW YORK. The 1994 contract, which we currently sell, is available in New York subject to regulatory approval. Upon regulatory approval the 1994 contract will be available in New York only if you purchase the contract with an internal rollover from another contract issued by us or one of our affiliates. ALLOCATING PURCHASE PAYMENTS TO THE INVESTMENT OPTIONS. We will allocate your purchase payments among the investment options you select. Allocations must be in whole percentages and there may be limits on the number of investment options you may select. When selecting investment options, you may find it helpful to review the "Investment Options" section. RIGHT TO CANCEL ---------------------------------------------- WHEN AND HOW TO CANCEL. You may cancel your contract within ten days of receipt (some states require more than ten days) by returning it to our Home Office along with a written notice of cancellation. REFUNDS. We will issue you a refund within seven days of our receipt of your contract and written notice of cancellation. Your refund will equal all purchase payments made. If the purchase payments for your cancelled contract came from a rollover from another contract issued by us or one of our affiliates where an early withdrawal charge was reduced or eliminated, the purchase payments will be restored to your prior contract. 18 [SIDE NOTE] TYPES OF FEES There are five types of fees or deductions which may affect your account: -- Transaction Fees - Early Withdrawal Charge - Annual Maintenance Fee - Transfer Charge -- Fees Deducted from Investments in the Separate Account - Mortality and Expense Risk Charge - Administrative Expense Charge -- Fees Deducted by the Funds -- Premium and Other Taxes -- Charges for ING GET Fund [END SIDE NOTE] FEES ---------------------------------------------- The following repeats and adds to information provided in the "Fee Table" section. Please review both sections for information on fees. TRANSACTION FEES EARLY WITHDRAWAL CHARGE Withdrawals of all or a portion of your account value may be subject to a charge. In the case of a partial withdrawal, the amount withdrawn from your account will be the amount you specified plus adjustment for any applicable early withdrawal charge. AMOUNT. The charge is a percentage of the amount that you withdraw. The percentage will be determined by the early withdrawal charge schedule that applies to your contract. The schedules are listed below and appear on your contract schedule page. The charge will never be more than 8 1/2% of your total purchase payments to the contract. PURPOSE. This is a deferred sales charge. It reimburses us for some of the sales and administrative expenses associated with the contract. If our expenses are greater than the amount we collect for the early withdrawal charge, we may use any of our corporate assets, including potential profit that may arise from the mortality and expense risk charge, to make up any difference. EARLY WITHDRAWAL CHARGE SCHEDULES (YOUR CONTRACT SCHEDULE PAGE SHOWS WHICH OF THE FOLLOWING EARLY WITHDRAWAL CHARGE SCHEDULES APPLIES TO YOU.) ------------------------------------------------------------------------ SCHEDULE A ------------------------------------------------------------------------ CONTRACT YEARS EARLY WITHDRAWAL CHARGE ----------------------------------- ----------------------------------- Fewer than 1 1% 1 or more 0% ------------------------------------------------------------------------
SCHEDULE A applies to 1994 contracts established with amounts that were transferred or rolled over from the Company's unregistered contracts, including amounts rolled over into a Roth IRA in connection with a conduit traditional IRA and Company general account contracts issued in connection with Tax Code sections 401, 403 and governmental 457 plans. It also applies to previously-issued 1992 contracts established with amounts transferred from certain contracts issued by the Company under certain pension or profit sharing retirement plans only where you were not subject to an early withdrawal charge (deferred sales charge) under the prior contract at the time of transfer. The early withdrawal charge is based on the number of completed contract years since the date of initial payment to the new contract. ------------------------------------------------------------------------ SCHEDULE B ------------------------------------------------------------------------ CONTRACT YEARS EARLY WITHDRAWAL CHARGE ----------------------------------- ----------------------------------- Less than 5 5% 5 or more but fewer than 6 4% 6 or more but fewer than 7 3% 7 or more but fewer than 8 2% 8 or more but fewer than 9 1% 9 or more 0% ------------------------------------------------------------------------
SCHEDULE B applies to 1992 contracts established with amounts that were transferred from certain existing contracts issued by the Company where the 19 contract holder had been subject to an early withdrawal charge (deferred sales charge). The beginning early withdrawal charge is based on the number of completed contract years since the initial payment to the predecessor contract. ------------------------------------------------------------------------ SCHEDULE C ------------------------------------------------------------------------ CONTRACT YEARS EARLY WITHDRAWAL CHARGE ----------------------------------- ----------------------------------- Less than 2 6% 2 or more but fewer than 3 5% 3 or more but fewer than 4 4% 4 or more but fewer than 5 3% 5 or more but fewer than 6 2% 6 or more but fewer than 7 1% 7 or more 0% ------------------------------------------------------------------------
SCHEDULE C applies to 1994 contracts established with amounts that were transferred from contracts issued by the Company in connection with Tax Code sections 401, 403 and 457 plans, (other than those contracts described above under Schedule A), and rollovers from IRAs under Tax Code sections 408 and 408A. Rather than assessing an early withdrawal charge on the predecessor contract, the early withdrawal charge is based on the number of completed contract years since the date of initial payment to the predecessor contract. Schedule C also applies to all new purchases that are not connected with an internal transfer (e.g., external rollovers or contracts established with at least a $1,000 annual contribution), and to internal rollovers from certain variable life insurance contracts funding Tax Code section 401 qualified plans. WAIVER. The early withdrawal charge is waived if the amount withdrawn is due to one or more of the following: -- Used to provide income phase payments to you; -- Paid due to your death; -- Withdrawn under a systematic distribution option (See "Systematic Distribution Options"); -- Paid upon a full withdrawal where your account value is $2,500 or less and no part of the account has been withdrawn during the prior 12 months; or -- Withdrawn in an amount of 10% or less of your account value, provided you are at least age 59 1/2. This applies only to the first partial withdrawal in each calendar year and does not apply to full withdrawals, unless your contract is issued in the states of Washington, Florida or New Jersey. The 10% amount will be calculated using your account value as of the date the request is received in good order at our Home Office. When a systematic distribution option is selected, this provision includes any amounts paid under that election. ANNUAL MAINTENANCE FEE MAXIMUM AMOUNT. $25.00 WHEN/HOW. Each year during the accumulation phase we deduct this fee on your contract anniversary. It is deducted on a pro rata basis from each subaccount and fixed interest option in which you have interest. PURPOSE. This fee reimburses us for our administrative expenses related to establishing and maintaining your account. REDUCTION OR ELIMINATION. We will eliminate the maintenance fee if your account value is $10,000 or greater on the day before the maintenance fee is deducted. Additionally for 1992 contracts, the maintenance fee is eliminated if your initial purchase payment was $10,000 or greater. 20 Additionally, we may reduce or eliminate the maintenance fee if we anticipate savings on our administrative expenses for the sale because of one or more of the following: -- The size and type of group to whom the contract is offered; or -- The amount of expected purchase payments. We will not unfairly discriminate against any person if we reduce or eliminate the maintenance fee. Any reduction or elimination of this fee will be done 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. TRANSFER CHARGE AMOUNT. $0.00 During the accumulation phase, we currently allow you 12 free transfers each calendar year. We reserve the right, however, to charge $10 for each additional transfer. We currently do not impose this charge. PURPOSE. This charge reimburses us for administrative expenses associated with transferring your dollars among investment options. FEES DEDUCTED FROM INVESTMENTS IN THE SEPARATE ACCOUNT MORTALITY AND EXPENSE RISK CHARGE MAXIMUM AMOUNT. This charge, on an annual basis, is equal to 1.25% of your account value invested in the subaccounts. WHEN/HOW. We deduct this charge daily from the subaccounts corresponding to the funds you select. We do not deduct this fee from any fixed interest option. This charge is deducted during the accumulation phase and the income phase. PURPOSE. This charge compensates us for the mortality and expense risks we assume under the contracts. -- The mortality risks are those risks associated with our promise to make lifetime income phase payments based on annuity rates specified in the contract. -- The expense risk is the risk that the actual expenses we incur under the contract will exceed the maximum costs that we can charge. If the amount we deduct for this charge is not enough to cover our mortality costs and expenses under the contract, we will bear the loss. We may use any excess to recover distribution costs relating to the contract and as a source of profit. We expect to make a profit from this charge. REDUCTION. For 1994 contracts, which we currently sell, we will reduce this charge to 1.15% provided one or more of the following conditions are met: (1) The contract has remained in the accumulation phase for ten years following the initial payment; (2) The initial payment is $250,000 or more; or (3) The value of the contract is $250,000 or more on any anniversary of the date the initial purchase payment was applied. 21 ADMINISTRATIVE EXPENSE CHARGE AMOUNT. 0.00% We currently do not impose this charge. We reserve the right, however, to charge up to 0.25% annually of your account value invested in the subaccounts. WHEN/HOW. If imposed, we deduct this charge daily from the subaccounts corresponding to the funds you select. We do not deduct this charge from the fixed interest options. This charge may be assessed during the accumulation phase and/or the income phase. If we are imposing this charge when you enter the income phase, the charge will apply to you during the entire income phase. PURPOSE. This charge helps defray our administrative expenses that cannot be covered by the mortality and expense risk charge described above. The charge is not intended to exceed the average expected cost of administering the contract. We do not expect to make a profit from this charge. FEES DEDUCTED BY THE FUNDS AMOUNT. Each fund determines its own advisory fee, service fees or 12b-1 fees (if applicable) and other expenses. Service fees and 12b-1 fees are generally deducted from fund assets in order to pay for the servicing or distribution of fund shares. If a fund has such fees, some or all of such fees may be remitted to the Company as compensation for distribution or shareholder services performed by the Company with respect to the use of the funds as investment options under the contracts. The Fund Expense Table in this prospectus identifies which funds have service fees or 12b-1 fees. In addition to any service fees or 12b-1 fees that the Company may receive from a fund or its affiliate, the Company also receives compensation from certain funds or their affiliates for administrative, recordkeeping or other services provided by the Company to the fund or the fund affiliates. Such additional payments do not increase, directly or indirectly, the fund's fees and expenses. As of December 31, 2001, the amount of such additional payments ranged up to 0.425% annually for affiliated funds, and 0.25% annually for unaffiliated funds, of the average net assets held in a fund by the Company. For the AIM Funds, payments for administrative, recordkeeping or other services provided by the Company may be paid out of fund assets in an amount up to 0.25% annually. For a list of fund fees, see "Fee Table." The fees are described in more detail in each fund prospectus. WHEN/HOW. A fund's fees and expenses are not deducted from your account. Instead, they are reflected in the daily value of fund shares, which in turn will affect the daily value of the subaccounts. PURPOSE. These fees and expenses help to pay the fund's investment adviser and operating expenses. PREMIUM AND OTHER TAXES MAXIMUM AMOUNT. Some states and municipalities charge a premium tax on annuities. These taxes currently range from 0% to 4%, depending upon the jurisdiction. WHEN/HOW. We reserve the right to deduct premium taxes from your account value or from your purchase payments to the account at any time, but not before there is a tax liability under state law. For example, we may deduct premium taxes at the time of a complete withdrawal or we may reflect the cost of premium taxes in our income phase payment rates when you commence income phase payments. We will not deduct a charge for any municipal premium tax of 1% or less, but we reserve the right to reflect such an expense in our annuity purchase rates. 22 In addition, we reserve the right to assess a charge for any federal taxes due against the separate account. See "Taxation." CHARGES FOR ING GET FUND Various series of ING GET Fund may be offered from time to time, and additional charges may apply if you elect to invest in one of these series. If a series is available, it will be described in a supplement to this prospectus at the time it is offered. The supplement will include fee table information about the option. YOUR ACCOUNT VALUE ---------------------------------------------- During the accumulation phase, your account value at any given time equals: -- The current dollar value of amounts invested in the subaccounts; plus -- The current dollar value of amounts invested in the fixed interest options, including interest earnings to date. SUBACCOUNT ACCUMULATION UNITS. When you select a fund as an investment option, your account dollars invest in "accumulation units" of the Variable Annuity Account C subaccount corresponding to that fund. The subaccount invests directly in the fund shares. The value of your interests in a subaccount is expressed as the number of accumulation units you hold multiplied by an "Accumulation Unit Value," as described below, for each unit. ACCUMULATION UNIT VALUE (AUV). The value of each accumulation unit in a subaccount is called the accumulation unit value or AUV. The AUV varies daily in relation to the underlying fund's investment performance. The value also reflects deductions for fund fees and expenses, the mortality and expense risk charge and the administrative expense charge (if any). We discuss these deductions in more detail in "Fee Table" and "Fees." VALUATION. We determine the AUV every normal business day after the close of the New York Stock Exchange (normally at 4:00 p.m. Eastern Time). At that time we calculate the current AUV by multiplying the AUV last calculated by the net investment factor of the subaccount. The net investment factor measures the investment performance of the subaccount from one valuation to the next. Current AUV = Prior AUV x Net Investment Factor NET INVESTMENT FACTOR. The net investment factor for a subaccount between two consecutive valuations equals the sum of 1.0000 plus the net investment rate. NET INVESTMENT RATE. The net investment rate is computed according to a formula that is equivalent to the following: -- The net assets of the fund held by the subaccount as of the current valuation; minus -- The net assets of the fund held by the subaccount at the preceding valuation; plus or minus -- Taxes or provisions for taxes, if any, due to subaccount operations (with any federal income tax liability offset by foreign tax credits to the extent allowed); divided by -- The total value of the subaccount's units at the preceding valuation; minus 23 -- A daily deduction for the mortality and expense risk charge, the administrative expense charge, if any, and any other fees, such as guarantee charges for ING GET Fund, deducted from investments in the separate account. See "Fees." The net investment rate may be either positive or negative. HYPOTHETICAL ILLUSTRATION. As a hypothetical illustration, assume that your initial purchase payment to a contract is $5,000 and you direct us to invest $3,000 in Fund A and $2,000 in Fund B. Also assume that on the day we receive the purchase payment the applicable AUVs after the next close of business of the New York Stock Exchange (normally at 4:00 p.m. Eastern Time) are $10 for Subaccount A and $20 for Subaccount B. Your account is credited with 300 accumulation units of Subaccount A, and 100 accumulation units of Subaccount B. STEP 1: You make an initial purchase payment of $5000. STEP 2: A. You direct us to invest $3,000 in Fund A. The purchase payment purchases 300 accumulation units of Subaccount A ($3,000 divided by the current $10 AUV). [GRAPH] B. You direct us to invest $2,000 in Fund B. The purchase payment purchases 100 accumulation units of Subaccount B ($2,000 divided by the current $20 AUV). STEP 3: The separate account purchases shares of the applicable funds at the current market value (net asset value or NAV). Each fund's subsequent investment performance, expenses and charges, and the daily charges deducted from the subaccount, will cause the AUV to move up or down on a daily basis. PURCHASE PAYMENTS TO YOUR ACCOUNT. If all or a portion of your initial purchase payment is directed to the subaccounts, it will purchase subaccount accumulation units at the AUV next computed after our acceptance of your application as described in "Purchase." Subsequent purchase payments or transfers directed to the subaccounts will purchase subaccount accumulation units at the AUV next computed following our receipt of the purchase payment or transfer request in good order. The value of subaccounts may vary day to day. 24 [SIDE NOTE] TAXES, FEES AND OTHER DEDUCTIONS Amounts withdrawn may be subject to one or more of the following: -- Early Withdrawal Charge (see "Fees--Early Withdrawal Charge") -- Annual Maintenance Fee (see "Fees--Annual Maintenance Fee") -- Market Value Adjustment (see Appendix III and the Guaranteed Accumulation Account prospectus) -- Tax Penalty (see "Taxation") -- Tax Withholding (see "Taxation") To determine which may apply to you, refer to the appropriate sections of this prospectus, contact your sales representative or call us at the number listed in "Contract Overview--Questions: Contacting the Company." [END SIDE NOTE] WITHDRAWALS ---------------------------------------------- You may withdraw all or a portion of your account value at any time during the accumulation phase. STEPS FOR MAKING A WITHDRAWAL -- Select the withdrawal amount. (1) Full Withdrawal: You will receive, reduced by any required withholding tax, your account value allocated to the subaccounts, the Guaranteed Interest Account (with reduced interest yield), the Fixed Account, and the Guaranteed Accumulation Account (plus or minus any applicable market value adjustment), minus any applicable early withdrawal charge and annual maintenance fee. (2) Partial Withdrawal (Percentage or Specified Dollar Amount): You will receive, reduced by any required withholding tax, the amount you specify, subject to the value available in your account. However, the amount actually withdrawn from your account will be adjusted by any applicable early withdrawal charge and any positive or negative market value adjustment for amounts withdrawn from the Guaranteed Accumulation Account or a reduced interest yield from the Guaranteed Interest Account. -- Select investment options. If you do not specify this, we will withdraw dollars proportionally from each of your investment options. -- Properly complete a disbursement form and submit it to our Home Office. See Appendices I, II, III and the Guaranteed Accumulation Account prospectus for more information about withdrawals from the fixed interest options. CALCULATION OF YOUR WITHDRAWAL. We determine your account value every normal business day after the close of the New York Stock Exchange (normally at 4:00 p.m. Eastern Time). We pay withdrawal amounts based on your account value as of the next valuation after we receive a request for withdrawal in good order at our Home Office, or on such later date as you specify on the disbursement form. DELIVERY OF PAYMENT. Payments for withdrawal requests will be made in accordance with SEC requirements. Normally, your withdrawal amount will be sent no later than seven calendar days following our receipt of your disbursement form in good order. REINVESTING A FULL WITHDRAWAL. Within 30 days after a full withdrawal, if allowed by law and the contract, you may elect to reinvest all or a portion of your withdrawal. We must receive any reinvested amounts within 60 days of the withdrawal. We reserve the right, however, to accept a reinvestment election received more than 30 days after the withdrawal and accept proceeds received more than 60 days after the withdrawal. We will credit your account for the amount reinvested based on the subaccount values next computed following our receipt of your request and the amount to be reinvested. We will credit the amount reinvested proportionally for annual maintenance fees and early withdrawal charges imposed at the time of withdrawal. We will deduct from the amounts reinvested any annual maintenance fee which fell due after the withdrawal and before the reinvestment. We will reinvest in the same investment options and proportions in place at the time of withdrawal. If you withdraw amounts from a series of the ING GET Fund and then elect to reinvest them, we will reinvest them in a GET Fund series that is then accepting deposits, if one is available. If one is not available, we will reallocate your GET amounts among other investment options in which you invested, on a pro rata basis. The 25 [SIDE NOTE] FEATURES OF A SYSTEMATIC DISTRIBUTION OPTION A systematic distribution option allows you to receive regular payments from the contract, without moving into the income phase. By remaining in the accumulation phase, you retain certain rights and investment flexibility not available during the income phase. [END SIDE NOTE] reinvestment privilege may be used only once. Special rules may apply to reinvestments of amounts withdrawn from the Guaranteed Interest Account and the Guaranteed Accumulation Account (see Appendices I and III). We will not credit your account for market value adjustments that we deducted at the time of your withdrawal from the Guaranteed Accumulation Account. Seek competent advice regarding the tax consequences associated with reinvestment. SYSTEMATIC DISTRIBUTION OPTIONS ---------------------------------------------- These options may be exercised at any time during the accumulation phase of the contract. The following systematic distribution options may be available: -- SWO--SYSTEMATIC WITHDRAWAL OPTION. SWO is a series of automatic partial withdrawals from your account based on a payment method you select. Consider this option if you would like a periodic income while retaining investment flexibility for amounts accumulated in the account. -- 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 Tax Code requires each year. Under ECO, we calculate the minimum distribution amount required by law generally at age 70 1/2 and pay you that amount once a year. ECO is not available under Roth IRA contracts. An early withdrawal charge will not be deducted from and a market value adjustment will not be applied to any part of your account value paid under an ECO. OTHER SYSTEMATIC DISTRIBUTION OPTIONS. We may add additional systematic distribution options from time to time. You may obtain additional information relating to any of the systematic distribution options from your sales representative or by calling us at the number listed in "Contract Overview-- Questions: Contacting the Company." SYSTEMATIC DISTRIBUTION OPTION AVAILABILITY. If allowed by applicable law, we may discontinue the availability of one or more of the systematic distribution options for new elections at any time, and/or to change the terms of future elections. ELIGIBILITY FOR A SYSTEMATIC DISTRIBUTION OPTION. To determine if you meet the age and account value criteria and to assess terms and conditions that may apply, contact your sales representative or call us at the number listed in "Contract Overview--Questions: Contacting the Company." TERMINATING A SYSTEMATIC DISTRIBUTION OPTION. You may revoke a systematic distribution option at any time by submitting a written request to our Home Office. ECO, once revoked, may not, unless allowed under the Tax Code, be elected again. CHARGES AND TAXATION. When you elect a systematic distribution option, your account value remains in the accumulation phase and subject to the charges and deductions described in "Fees" and "Fee Table" sections. Taking a withdrawal under a systematic distribution option may have tax consequences. If you are concerned about tax implications, consult a qualified tax adviser before electing an option. 26 [SIDE NOTE] This section provides information about the death benefit during the accumulation phase. For death benefit information applicable to the income phase, see "The Income Phase." [END SIDE NOTE] DEATH BENEFIT ---------------------------------------------- DURING THE ACCUMULATION PHASE. The contract provides a death benefit in the event of your death during the accumulation phase. WHO RECEIVES THE DEATH BENEFIT PROCEEDS? If you would like certain individuals to receive the death benefit when it becomes payable, you may name them as your beneficiaries. If you die and no beneficiary exists, the death benefit will be paid in a lump sum to your estate. DESIGNATING YOUR BENEFICIARY. You may designate a beneficiary on your application or by contacting your sales representative or by calling us at the number listed in "Contract Overview--Questions: Contacting the Company." DEATH BENEFIT AMOUNT. The amount of the death benefit is equal to your account value as of the next time we value your account following the date on which we receive proof of your death in good order. In addition to this amount, some states require we pay interest calculated from date of death at a rate specified by state law. For amounts held in the Guaranteed Interest Account, the full annual Guaranteed Interest Rate will be credited. For amounts held in the Guaranteed Accumulation Account, any positive aggregate market value adjustment (the sum of all market value adjustments calculated due to a withdrawal) will be included in your account value. If a negative aggregate market value adjustment applies, it would be deducted only if the death benefit is withdrawn more than six months after your death. We describe the market value adjustment in Appendix III and in the Guaranteed Accumulation Account prospectus. DEATH BENEFIT PAYMENT OPTIONS. Unless otherwise requested, we will mail payment to the beneficiary within seven days after we receive proof of death and payment request acceptable to us. If allowed by the Tax Code, the designated beneficiary may elect to have the death benefit proceeds paid in any one of the following ways: -- Lump-sum payment; -- Payment in accordance with any of the available income phase payment options (see "The Income Phase"); or -- If the beneficiary is your spouse, payment in accordance with any of the available systematic distribution options (see "Systematic Distribution Options"). The following options are also available to the beneficiary, however, the Tax Code limits how long the death benefit proceeds may be left in these options: -- Leave the account value invested in the contract; or -- For certain contracts, leave the account value on deposit in the Company's general account, and receive monthly, quarterly, semi-annual or annual interest payments at the interest rate then being credited on such deposits. The beneficiary can withdraw the balance on deposit at any time or request to receive income payments in accordance with any of the available income phase payment options. See "The Income Phase." TAXATION. The Tax Code requires distribution of death benefit proceeds within a certain period of time. Failure to begin receiving death benefit payments within those 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 "Taxation" for additional information. 27 [SIDE NOTE] We may have used the following terms in prior prospectuses: ANNUITY PHASE--Income Phase ANNUITY OPTION--Income Phase Payment Option ANNUITY PAYMENT--Income Phase Payment ANNUITIZATION--Initiating Income Phase Payments [END SIDE NOTE] THE INCOME PHASE ---------------------------------------------- During the income phase you stop contributing dollars to the contract and start receiving payments from your accumulated account value. INITIATING PAYMENTS. At least 30 days prior to the date you want to start receiving payments, you must notify us in writing of the following: -- Payment start date; -- Income phase payment option (see the income phase payment options table in this section); -- Payment frequency (i.e., monthly, quarterly, semi-annually or annually); -- Choice of fixed, variable or a combination of both fixed and variable payments; and -- Selection of subaccounts and an assumed net investment rate (only if variable payments are elected). Your account will continue in the accumulation phase until you properly initiate income phase payments. Once an income phase payment option is selected, it may not be changed. WHAT AFFECTS PAYMENT AMOUNTS? Some of the factors that may affect the amount of your income phase payments include your age (or adjusted age under some contracts), gender, account value, the income phase payment option selected, the number of guaranteed payments selected (if any), and whether you select fixed, variable or a combination of both fixed and variable income phase payments and, for variable payments, the assumed net investment rate selected. FIXED PAYMENTS. Amounts funding fixed income phase payments will be held in the Company's general account. The amount of fixed payments does not vary with investment performance over time. VARIABLE PAYMENTS. Amounts funding your variable income phase payments will be held in the subaccount(s) you select. Not all subaccounts available during the accumulation phase will necessarily be available during the income phase. Payment amounts will vary depending upon the investment performance of the subaccounts you select. For variable payments, you must also select an assumed net investment rate. ASSUMED NET INVESTMENT RATE. If you select variable income phase payments, you must also select an assumed net investment rate of either 5% or 3 1/2%. If you select a 5% rate, your first income phase payment will be higher, but subsequent payments will increase only if the investment performance of the subaccounts you selected is greater than 5% annually after deduction of fees. Payment amounts will decline if the investment performance is less than 5% after deduction of fees. If you select a 3 1/2% rate, your first income phase payment will be lower and subsequent payments will increase more rapidly or decline more slowly depending upon the investment performance of the subaccounts selected. For more information about selecting an assumed net investment rate, call us for a copy of the SAI. See "Contract Overview--Questions: Contacting the Company." SELECTING SUBACCOUNTS. The subaccounts currently available during the income phase are: the ING VP Growth and Income Portfolio, the ING VP Bond 28 Portfolio and the ING VP Balanced Portfolio, Inc. Prior to selecting a subaccount, review the prospectus of each of these funds. You may not transfer among subaccounts during the income phase. MINIMUM PAYMENT AMOUNTS. For 1994 contracts, which we currently sell, the income phase payment option you select must result in one of the following: -- A first income phase payment of at least $50; or -- Total yearly income phase payments of at least $250. If your account value is too low to meet these minimum payment amounts, you will receive one lump-sum payment. For 1992 contracts the payment option you select must result in one of the following: -- A first payment of at least $20; or -- Total yearly payments of at least $100. If your account value is too low to meet these minimum payment amounts, you will receive one lump-sum payment. RESTRICTIONS ON START DATES AND THE DURATION OF PAYMENTS. When income phase payments start, the age of the annuitant plus the number of years for which income phase payments are guaranteed, must not exceed 95. Certain tax rules may also limit the length of income phase payments. For Roth IRAs those minimum distribution rules do not apply. See "Taxation." Regardless of your income phase payment start date, your income phase payments will not begin until you have selected an income phase payment option. Failure to select an income phase payment option may have adverse tax consequences. You should consult with a qualified tax adviser if you are considering this course of action. CHARGES DEDUCTED. When you select an income phase payment option (one of the options listed in the tables immediately below), a mortality and expense risk charge, consisting of a daily deduction of 1.25% on an annual basis, will be deducted from amounts held in the subaccounts. This charge compensates us for mortality and expense risks we assume under variable income phase payout options and is applicable to all variable income phase payout options, including variable nonlifetime options under which we do not assume mortality risk. Although we expect to make a profit from this fee, we do not always do so. We may also deduct a daily administrative expense charge from amounts held in the subaccounts. See "Fees." DEATH BENEFIT DURING THE INCOME PHASE. The death benefits that may be available to a beneficiary are outlined in the Income Phase Payment Options table below. If a lump-sum payment is due as a death benefit, payment will be sent within seven days following our receipt of proof of death and the payment request in good order at our Home Office. Any death benefit payable must be distributed to the beneficiary at least as rapidly as under the method of distribution in effect on the date of death. CALCULATION OF DEATH BENEFIT. We will calculate the value of any death benefit at the next valuation after we receive proof of death acceptable to us and the payment request in good order. Such value will be reduced by any payments made after the date of death. TAXATION. To avoid certain tax penalties, you or your beneficiary must meet the distribution rules imposed by the Tax Code. Additionally, when selecting an income phase payment option, the Tax Code requires that your expected payments will not exceed certain durations. See "Taxation" for additional information. 29 INCOME PHASE PAYMENT OPTIONS The following table lists the income phase payment options and accompanying death benefits available during the income phase. We may offer additional income phase payment options under the contract from time to time. Once income phase payments begin, the income phase payment option selected may not be changed. TERMS TO UNDERSTAND: ANNUITANT(S): The person(s) on whose life expectancy(ies) the income phase payments are based. BENEFICIARY(IES): The person(s) or entity(ies) entitled to receive a death benefit under the contract. --------------------------------------------------------------------------------------- LIFETIME PAYMENT OPTIONS LENGTH OF PAYMENTS: For as long as the annuitant lives. It is possible that only one payment will be made if the Life Income annuitant dies prior to the second payment's due date. DEATH BENEFIT--NONE: All payments end upon the annuitant's death. --------------------------------------------------------------------------------------- LENGTH OF PAYMENTS: For as long as the annuitant lives, with payments guaranteed for your choice of 5, 10, 15 or 20 years or as otherwise specified in the contract. Life Income-- DEATH BENEFIT--PAYMENT TO THE BENEFICIARY: If the annuitant Guaranteed Payments dies before we have made all the guaranteed payments, we will continue to pay the beneficiary the remaining payments, unless the beneficiary elects to receive a lump-sum payment equal to the present value of the remaining guaranteed payments. --------------------------------------------------------------------------------------- LENGTH OF PAYMENTS: For as long as either annuitant lives. It is possible that only one payment will be made if both annuitants die before the second payment's due date. CONTINUING PAYMENTS: When you select this option you choose for either: Life Income--Two (A) 100%, 66 2/3% or 50% of the payment to continue to the Lives surviving annuitant after the first death; or (b) 100% of the payment to continue to the annuitant on the second annuitant's death, and 50% of the payment will continue to the second annuitant on the annuitant's death. DEATH BENEFIT--NONE: All payments end upon the deaths of both annuitants. --------------------------------------------------------------------------------------- LENGTH OF PAYMENTS: For as long as either annuitant lives, with payments guaranteed for ten or more years as specified in the contract. CONTINUING PAYMENTS: 100% of the payment to continue to the Life Income--Two surviving annuitant after the first death. Lives--Guaranteed DEATH BENEFIT--PAYMENT TO THE BENEFICIARY: If both Payments annuitants die before the guaranteed payments have all been paid, we will continue to pay the beneficiary the remaining payments, unless the beneficiary elects to receive a lump-sum payment equal to the present value of the remaining guaranteed payments. NONLIFETIME PAYMENT OPTION --------------------------------------------------------------------------------------- LENGTH OF PAYMENTS: You may select payments for 3 through 30 years under 1992 contracts or 5 through 30 years under 1994 contracts. In certain cases a lump-sum payment may be Nonlifetime-- requested at any time (see below). Guaranteed DEATH BENEFIT--PAYMENT TO THE BENEFICIARY: If the annuitant Payments dies before we make all the guaranteed payments, we will continue to pay the beneficiary the remaining payments, unless the beneficiary elects to receive a lump-sum payment equal to the present value of the remaining guaranteed payments. We will not impose any early withdrawal charge. --------------------------------------------------------------------------------------- LUMP-SUM PAYMENTS: If the "Nonlifetime--Guaranteed Payments" option is elected with variable payments, you may request at any time that all or a portion of the present value of the remaining payments be paid in one lump sum. A lump sum elected before five years (for 1994 contracts) or three years (for 1992 contracts) of payments have been completed will be treated as a withdrawal during the accumulation phase and we will charge any applicable early withdrawal charge. See "Fees--Early Withdrawal Charge." ---------------------------------------------------------------------------------------
CALCULATION OF LUMP--SUM PAYMENTS. If a lump-sum payment is available to a beneficiary or to you under the income phase payment options listed in the table above, the rate we use to calculate the present value of the remaining guaranteed payments is the same rate we use to calculate the income payments (i.e., the actual fixed rate used for the fixed payments, or the 3 1/2% or 5% assumed net investment rate for variable payments.) 30 [SIDE NOTE] IN THIS SECTION -- Introduction -- Taxation of Gains Prior to Distribution -- Contract Type -- Withdrawals and Other Distributions -- 10% Penalty Tax -- Withholding for Federal Income Tax Liability -- Minimum Distribution Requirements -- Assignment or Transfer of Contracts -- Taxation of the Company When consulting a tax adviser, be certain that he or she has expertise in the Tax Code sections applicable to your tax concerns. [END SIDE NOTE] TAXATION ---------------------------------------------- INTRODUCTION This section discusses our understanding of current federal income tax laws affecting the contract. You should keep the following in mind when reading it: -- Your tax position (or the tax position of the designated beneficiary, as applicable) determines federal taxation of amounts held or paid out under the contract; -- Tax laws change. It is possible that a change in the future could affect contracts issued in the past; -- This section addresses federal income tax rules and does not discuss federal estate and gift tax implications, state and local taxes or any other tax provisions; and -- We do not make any guarantee about the tax treatment of the contract or any transactions involving the contract. We do not intend this information to be tax advice. For advice about the effect of federal income taxes or any other taxes on amounts held or paid out under the contract, consult a tax adviser. TAXATION OF GAINS PRIOR TO DISTRIBUTION You generally will not pay taxes on any earnings from the annuity contract described in this prospectus until they are withdrawn. Tax qualified retirement arrangements under Tax Code sections 408(b) and 408A also generally defer payment of taxes until they are withdrawn. (See "Withdrawals and Other Distributions" later in this "Taxation" section for a discussion of how distributions under the various types of arrangements are taxed.) Because you are considering an annuity for your IRA, you should know that the annuity contract does not provide any additional tax deferral of earnings beyond the tax deferral provided by other types of IRAs. However, annuities do provide other features and benefits which may be valuable to you. You should discuss your decision with your financial representative. Additionally, although earnings under the contract are generally not taxed until withdrawn, the Internal Revenue Service (IRS) has stated in published rulings that a variable contract owner will be considered the owner of separate account assets if the contract owner possesses incidents of investment control over the assets. In these circumstances, income and gains from the separate account assets would be currently includible in the variable contract owner's gross income. The Treasury announced that it will issue guidance 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 contract holder from being considered the federal tax owner of a pro rata share of the assets of the separate account. 31 CONTRACT TYPE The contract is designed for use with certain retirement arrangements that qualify under Tax Code sections 408(b), 408(k) or 408A. Tax Code section 408(b) permits eligible individuals to contribute to a traditional IRA on a pre-tax (deductible) basis. Employers may establish SEP plans under Tax Code section 408(k) and contribute to a traditional IRA owned by the employee. Tax Code section 408A permits eligible individuals to contribute to a Roth IRA on an after-tax (nondeductible) basis. THE CONTRACT. You are responsible for determining that contributions, distributions and other transactions satisfy applicable laws. Legal counsel and a tax adviser should be consulted regarding the suitability of the contract. If the contract is purchased in conjunction with a retirement plan, the plan is not a part of the contract and we are not bound by the plan's terms or conditions. WITHDRAWALS AND OTHER DISTRIBUTIONS Certain tax rules apply to distributions from the contract. A distribution is any amount taken from the contract including withdrawals, income phase payments, rollovers, exchanges and death benefit proceeds. We report the taxable portion of all distributions to the IRS. 408(b) IRAS. All distributions from a traditional IRA are taxed as received unless either one of the following is true: -- The distribution is rolled over to a plan eligible to receive rollovers or to another traditional IRA in accordance with the Tax Code; or -- You made after-tax contributions to the IRA. In this case, the distribution will be taxed according to rules detailed in the Tax Code. 408A ROTH IRAS. A qualified distribution from a Roth IRA is not taxed when it is received. A qualified distribution is a distribution: -- Made after the five-taxable year period beginning with the first taxable year for which a contribution was made; and -- Made after you attain age 59 1/2, die, become disabled as defined in the Tax Code, or for a qualified first-time home purchase. If a distribution is not qualified, it will be taxable to the extent of the accumulated earnings. A partial distribution will first be treated as a return of contributions which is not taxable and then as taxable accumulated earnings. TAXATION OF DEATH BENEFIT PROCEEDS. In general, payments received by your beneficiaries after your death are taxed in the same manner as if you had received those payments. 10% PENALTY TAX Under certain circumstances, the Tax Code may impose a 10% penalty tax on the taxable portion of any distribution from a 408(b) or 408A arrangement. 32 The 10% penalty tax applies to the taxable portion of a distribution unless certain exceptions apply, including one or more of the following: -- You have attained age 59 1/2; -- You have become disabled as defined in the Tax Code; -- You have died; -- The distribution is rolled over in accordance with the Tax Code; -- The distribution 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 designated beneficiary; -- The distribution equals unreimbursed medical expenses that qualify for a deduction as specified in the Tax Code; -- The distribution is used to pay for health insurance premiums for certain unemployed individuals; -- The amount withdrawn is for a qualified first-time home purchase; or -- The amount withdrawn is for qualified higher education expenses. These exceptions also apply to a distribution from a Roth IRA that is not a qualified distribution or a rollover to a Roth IRA that is not a qualified rollover contribution. WITHHOLDING FOR FEDERAL INCOME TAX LIABILITY Any taxable distributions under the contract are generally subject to withholding. Federal income tax liability rates vary according to the type of distribution and the recipient's tax status. Generally, you or your designated beneficiary may elect not to have tax withheld from distributions. NON-RESIDENT ALIENS. If you or your designated beneficiary are a non-resident alien, then any withholding is governed by Tax Code section 1441 based on the individual's citizenship, the country of domicile and treaty status. MINIMUM DISTRIBUTION REQUIREMENTS To avoid certain tax penalties, you and any designated beneficiary must meet the minimum distribution requirements imposed by the Tax Code. The requirements do not apply to Roth IRA contracts except with regard to death benefits. These rules may dictate one or more of the following: -- Start date for distributions; -- The time period in which all amounts in your account(s) must be distributed; or -- Distribution amounts. START DATE. Generally, you must begin receiving distributions from a traditional IRA by April 1 of the calendar year following the calendar year in which you attain age 70 1/2. TIME PERIOD. We must pay out distributions from the contract over one of the following time periods: -- Over your life or the joint lives of you and your designated beneficiary; or -- Over a period not greater than your life expectancy or the joint life expectancies of you and your designated beneficiary. 33 DISTRIBUTION AMOUNTS. The amount of each periodic distribution must be calculated in accordance with IRS regulations. 50% EXCISE TAX. 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. MINIMUM DISTRIBUTION OF DEATH BENEFIT PROCEEDS. The following applies to 408(b) and 408A plans. Different distribution requirements apply if your death occurs: -- After you begin receiving minimum distributions under the contract; or -- Before you begin receiving such distributions. If your death occurs after you begin receiving minimum distributions under the contract, distributions must be made at least as rapidly as under the method in effect at the time of your death. Code section 401(a)(9) provides specific rules for calculating the minimum required distributions at your death. If your death occurs before you begin receiving minimum distributions under the contract, your entire balance must be distributed by December 31 of the calendar year containing the fifth anniversary of the date of your death. For example, if you die on September 1, 2002, your entire balance must be distributed to the designated beneficiary by December 31, 2007. However, if the distributions begin by December 31 of the calendar year following the calendar year of your death, and you have named a designated beneficiary, then payments may be made over either of the following time-frames: -- Over the life of the designated beneficiary; or -- Over a period not extending beyond the life expectancy of the designated beneficiary. START DATES FOR SPOUSAL BENEFICIARIES. If the designated beneficiary is your spouse, distributions must begin on or before the later of the following: -- December 31 of the calendar year following the calendar year of your death; or -- December 31 of the calendar year in which you would have attained age 70 1/2. SPECIAL RULE FOR IRA SPOUSAL BENEFICIARIES. In lieu of taking a distribution under these rules, a spousal beneficiary may elect to treat the account as his or her own IRA. In such case, the surviving spouse will be able to make contributions to the account, make rollovers from the account, and defer taking a distribution until his or her age 70 1/2. The surviving spouse is deemed to have made such an election if the surviving spouse makes a rollover to or from the account, makes additional contributions to the account, or fails to take a distribution within the required time period. ASSIGNMENT OR TRANSFER OF CONTRACTS Adverse tax consequences may result if you assign or transfer your interest in the contract to persons other than your spouse incident to a divorce or separate maintenance decree. Anyone contemplating such an assignment or transfer should contact a qualified tax adviser regarding the potential tax effects of such a transaction. 34 TAXATION OF THE COMPANY We are taxed as a life insurance company under the Tax Code. Variable Annuity Account C is not a separate entity from us. Therefore, it is not taxed separately as a "regulated investment company," but is taxed as part of the Company. We automatically apply investment income and capital gains attributable to the separate account to increase reserves under the contracts. Because of this, under existing federal tax law we believe that any such income and gains will not be taxed. In addition, any foreign tax credits attributable to the separate account will be first used to reduce any income taxes imposed on the separate account before being used by the Company. In summary, we do not expect that we will incur any federal income tax liability attributable to the separate account and we do not intend to make any provision for such taxes. However, changes in federal tax laws and/or their interpretation may result in our being taxed on income or gains attributable to the separate account. In this case, we may impose a charge against the separate account (with respect to some or all of the contracts) to set aside provisions to pay such taxes. We may deduct this amount from the separate account, including from your account value invested in the subaccounts. OTHER TOPICS ---------------------------------------------- THE COMPANY We issue the contract described in this prospectus and are responsible for providing each contract's insurance and annuity benefits. We are a stock life insurance company organized under the insurance laws of the State of Connecticut in 1976 and an indirect wholly-owned subsidiary of ING Groep N.V., a global financial institution active in the fields of insurance, banking and asset management. Through a merger, our operations include the business of Aetna Variable Annuity Life Insurance Company (formerly known as Participating Annuity Life Insurance Company, an Arkansas life insurance company organized in 1954). Prior to May 1, 2002, the Company was known as Aetna Life Insurance and Annuity Company. We are engaged in the business of issuing life insurance and annuities. Our principal executive offices are located at: 151 Farmington Avenue Hartford Connecticut 06156 VARIABLE ANNUITY ACCOUNT C We established Variable Annuity Account C (the separate account) under Connecticut Law in 1976 as a continuation of the separate account established in 1974 under Arkansas Law by Aetna Variable Annuity Life Insurance Company. The separate account was established as a segregated asset account to fund our variable annuity contracts. The separate account is registered as a unit investment trust under the Investment Company Act of 1940. It also meets the definition of "separate account" under the federal securities laws. The separate account is divided into subaccounts. The subaccounts invest directly in shares of a pre-assigned fund. Although we hold title to the assets of the separate account, such assets are not chargeable with the liabilities of any other business that we conduct. Income, gains or losses of the separate account are credited to or charged against the assets of the separate account without regard to other income, gains or losses of the Company. All obligations arising under the contracts are obligations of the Company. 35 CONTRACT DISTRIBUTION Our subsidiary, ING Financial Advisers, LLC (IFA), (prior to May 1, 2002 known as Aetna Investment Services, LLC) serves as the principal underwriter for the contracts. IFA, a Delaware limited liability company, is registered as a broker- dealer with the SEC. IFA is also a member of the National Association of Securities Dealers, Inc. (NASD) and the Securities Investor Protection Corporation. IFA's principal office is located at 151 Farmington Avenue, Hartford, Connecticut 06156. Broker-dealers which have or may enter into selling agreements with IFA include the following broker-dealers which are affiliated with the Company: Aeltus Capital, Inc. ING Direct Funds Limited BancWest Investment Services, Inc. ING DIRECT Securities, Inc. Baring Investment Services, Inc. ING Funds Distributor, Inc. Compulife Investor Services, Inc. ING Furman Selz Financial Services LLC Directed Services, Inc. ING TT&S (U.S.) Securities, Inc. Financial Network Investment Corporation Locust Street Securities, Inc. Financial Northeastern Securities, Inc. Multi-Financial Securities Corporation Granite Investment Services, Inc. PrimeVest Financial Services, Inc. Guaranty Brokerage Services, Inc. Systematized Benefits Administrators, Inc. IFG Network Securities, Inc. United Variable Services, Inc. ING America Equities, Inc. VESTAX Securities Corporation ING Barings Corp. Washington Square Securities, Inc.
The contracts are offered to the public by individuals who are registered representatives of IFA or other broker-dealers which have entered into a selling arrangement with IFA. We refer to IFA and the other broker-dealers selling the contracts as "distributors." All registered representatives selling the contracts must also be licensed as insurance agents for the Company. COMMISSION PAYMENTS. Persons who offer and sell the contracts may be paid a commission. The maximum percentage amount that will be paid as commission with respect to a given purchase payment is the first-year percentage which ranges from 2% to a maximum of 4% of the first year purchase payments to an account. Renewal commissions may also be paid on purchase payments made after the first year and service fees. The average of all payments made is estimated to equal approximately 3% of the total purchase payments made over the life of an average contract. 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 additional compensation if the overall amount of investments in the funds advised by the Company or its affiliates increases over time. The total compensation package for sales, supervisory and management personnel of affiliated or related broker-dealers may be positively impacted if the overall amount of investments in the contracts and other products issued or advised by the Company or its affiliates increases over time. We may pay wholesaling fees to certain distributors that may be calculated as a percentage of the commissions paid to distributors or of purchase payments received under the contracts. Sales management personnel may also receive compensation that may be calculated as a percentage of the commissions paid to distributors or of purchase payments received under the contracts. Distributors may also be reimbursed for certain expenses. The names of the distributor and the registered representative responsible for your account are stated in your enrollment materials. 36 PAYMENT DELAY OR SUSPENSION We reserve the right to suspend or postpone the date of any payment of benefits or values under the following circumstances: -- On any valuation date when the New York Stock Exchange is closed (except customary holidays or weekends or when trading on the New York Stock Exchange is restricted); -- When an emergency exists as determined by the SEC so that disposal of the securities held in the subaccounts is not reasonably practicable or it is not reasonably practicable to determine the value of the subaccount's assets; or -- During any other periods the SEC permits 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 We may advertise different types of historical performance for the subaccounts including: -- Standardized average annual total returns; and -- Non-standardized average annual total returns. STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS. We calculate standardized average annual total returns according to a formula prescribed by the SEC. This shows the percentage return applicable to $1,000 invested in the subaccount over the most recent one, five and ten-year periods. If the investment option was not available for the full period, we give a history from the date money was first received in that option under the separate account. Standardized average annual total returns reflect deduction of all recurring charges during each period (i.e., maintenance fees (if any), mortality and expense risk charges, administrative expense charges (if any) and any applicable early withdrawal charges). NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS. We calculate non-standardized average annual total returns in a similar manner as that stated above, except we do not include the deduction of any applicable early withdrawal charge. Some non-standardized returns may also exclude the effect of a maintenance fee. If we reflected these charges in the calculation, they would decrease the level of performance reflected by the calculation. Non-standardized returns may also include performance from the fund's inception date, if that date is earlier than the one we use for standardized returns. We may also advertise certain ratings, rankings or other information related to the Company, the subaccounts or the funds. For further details regarding performance reporting and advertising, you may request a Statement of Additional Information (SAI) by calling us at the number listed in the "Contract Overview--Questions: Contacting the Company" section. VOTING RIGHTS Each of the subaccounts holds shares in a fund and each is entitled to vote at regular and special meetings of that fund. Under our current view of applicable law, we will vote the shares for each subaccount as instructed by persons having a voting interest in the subaccount. We will vote shares for which instructions have not been received in the same proportion as those for which we received instructions. Each person who has a voting interest in the separate account will receive periodic reports relating to the funds 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 a written communication at least 14 days before the meeting. 37 The number of votes (including fractional votes) you are entitled to direct will be determined as of the record date set by any fund you invest in through the subaccounts. -- During the accumulation phase the number of votes is equal to the portion of your account value invested in the fund, divided by the net asset value of one share of that fund. -- During the income phase the number of votes is equal to the portion of reserves set aside for the contract's share of the fund, divided by the net asset value of one share of that fund. CONTRACT MODIFICATION We may modify the contract when we deem an amendment appropriate by providing you written notice 30 days before the effective date of the change. The most likely reason for a change to the contract would be to ensure compliance with applicable law. Certain changes will require the approval of appropriate state or federal regulatory authorities. INVOLUNTARY TERMINATIONS Subject to state regulatory approval, following the completion of two contract years in which no purchase payments have been made, the Company reserves the right to pay your full account value to you if that value is less than $1,500, provided the Company gives you 90 days written notice. Such account value paid may not utilize the reinvestment privilege. The full account value payable to you will not be reduced by any early withdrawal charge, and amounts withdrawn from the Guaranteed Interest Account, if applicable, will not receive a reduced rate of interest. Amounts withdrawn from the Guaranteed Interest Account will receive a guaranteed effective annual yield to the date of contract termination as if the amounts had remained in the Guaranteed Interest Account until the end of a guaranteed term, see Appendix I. Amounts withdrawn from the Guaranteed Accumulation Account will receive the greater of (a) the aggregate MVA amount from all guaranteed terms prior to the end of those terms; or (b) the applicable portion of your account value in the Guaranteed Accumulation Account. This provision does not apply if you have initiated income phase payments. LEGAL MATTERS AND PROCEEDINGS We are aware of no material legal proceedings pending which involve the separate account as 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. In recent years, a number of companies have been named as defendants in class action lawsuits relating to life insurance sales practices. The Company is a defendant in one such lawsuit, a purported class action which was filed against the Company in the United States District Court for the Middle District of Florida on June 30, 2000, by Helen Reese, Richard Reese, Villere Bergeron, and Alan Eckert (the "Reese Complaint"). The Reese Complaint claims that the Company engaged in unlawful sales practices in marketing life insurance policies. The Company has moved to dismiss the Reese Complaint for failure to state a claim upon which relief can be granted. Certain discovery is under way. The Company intends to defend this action vigorously. The Company also is a party to other litigation and arbitration proceedings in the ordinary course of its business, none of which is expected to have a material adverse effect on the Company. 38 CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION ---------------------------------------------- The Statement of Additional Information (SAI) 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 Income Phase Payments Sales Material and Advertising Independent Auditors Financial Statements of the Separate Account Financial Statements of ING Life Insurance and Annuity Company and Subsidiaries You may request an SAI by calling the Company at the number listed in "Contract Overview--Questions: Contacting the Company."
39 APPENDIX I GUARANTEED INTEREST ACCOUNT (availability subject to regulatory approval) -------------------------------------------------------------------------------- The Guaranteed Interest Account (GIA) is an investment option available during the accumulation phase. Amounts allocated to GIA are held in a nonunitized separate account of the Company, as described below. GENERAL DISCLOSURE. Interests in GIA have not been registered with the SEC in reliance on exemptions under the Securities Act of 1933, as amended. Disclosure in this prospectus regarding GIA, 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 GIA has not been reviewed by the SEC. OVERVIEW. Amounts that you invest in GIA will earn a guaranteed interest rate if amounts are left in GIA for the specified period of time. Interest is credited daily at a rate that will provide the guaranteed effective yield by the end of the stated period of time. If amounts are withdrawn or transferred before the end of a stated period of time (except if pursuant to the Company's termination of the contract, see "Other Topics--Involuntary Terminations"), we will pay a reduced rate of interest, but never less than the minimum stated in the contract. During a stated period, you may apply all or a portion of your account value to any or all available guaranteed terms within the short-term and long-term classifications. -- Short-Term Classification--Three years or less -- Long-Term Classification--Ten years or less, but greater than three years As a guaranteed term matures, assets accumulating under GIA may be (a) transferred to a new guaranteed term, (b) transferred to the other available investment options, or (c) withdrawn. Amounts withdrawn may be subject to an early withdrawal charge and/or tax liabilities. ALLOCATIONS TO A NONUNITIZED SEPARATE ACCOUNT OF THE COMPANY. Amounts allocated to long-term classifications of GIA and amounts allocated to short-term classifications of GIA will be deposited in a nonunitized separate account. To the extent provided in the contract, the assets of the separate account are not chargeable with liabilities resulting from any other business of the Company. Income, gains and losses of the separate account are credited to or charged against the separate account without regard to other income, gains or losses of the Company. MORTALITY AND EXPENSE RISK CHARGE. We make no deductions from the credited interest rate for mortality and expense risks; these risks are considered in determining the credited interest rate. TRANSFERS. Transfers are permitted from guaranteed terms of one classification to available guaranteed terms of another classification. We will apply a reduced rate of interest to amounts transferred prior to the end of a guaranteed term. Transfers of GIA values due to a maturity are not subject to a reduced rate of interest. INCOME PHASE. By notifying us at least 30 days before income phase payments begin, you may elect to have amounts that have been accumulating under GIA transferred to one or more of the subaccounts currently available during the income phase to provide variable income phase payments. GIA cannot be used as an investment option during the income phase. REINVESTMENT PRIVILEGE. Any amounts reinvested in GIA 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. 40 APPENDIX II FIXED ACCOUNT (availability subject to regulatory approval) -------------------------------------------------------------------------------- GENERAL DISCLOSURE. -- The Fixed Account is an investment option available during the accumulation phase under the contracts. -- Amounts allocated to the Fixed Account are held in the Company's general account which supports insurance and annuity obligations. -- Interests in the Fixed Account have not been registered with the SEC in reliance on exemptions under the Securities Act of 1933, as amended. -- Disclosure in this prospectus regarding the Fixed Account may be subject to certain generally applicable provisions of the federal securities laws relating to the accuracy and completeness of the statements. -- Disclosure in this appendix regarding the Fixed Account has not been reviewed by the SEC. -- Additional information about this option may be found in the contract. INTEREST RATES. -- The Fixed Account guarantees that amounts allocated to this option will earn the minimum interest rate specified in the contract. We may credit a higher interest rate from time to time, but the rate we credit will never fall below the guaranteed minimum specified in the contract. Amounts applied to the Fixed Account will earn the interest rate in effect at the time money is applied. Amounts in the Fixed Account will reflect a compound interest rate as credited by us. The rate we quote is an annual effective yield. Among other factors, the safety of the interest rate guarantees depends upon the claims-paying ability of the Company. -- Our determination of credited interest rates reflects a number of factors, including mortality and expense risks, interest rate guarantees, the investment income earned on invested assets and the amortization of any capital gains and/or losses realized on the sale of invested assets. Under this option, we assume the risk of investment gain or loss by guaranteeing the amounts you allocate to this option and promising a minimum interest rate and income phase payment. WITHDRAWALS. Under certain emergency conditions, we may defer payment of any withdrawal for up to six months or as provided by federal law. Additionally, if allowed by state law, we may pay withdrawals in equal payments with interest, over a period not to exceed 60 months when: (a) The Fixed Account withdrawal value exceeds $100,000 ($250,000 for 1992 contracts); or (b) The sum of the current Fixed Account withdrawal and total of all Fixed Account withdrawals within the past 12 calendar months exceeds 20% of the amount in the Fixed Account on the day before the current withdrawal. During the payment period, the interest rate credited to amounts held in the Fixed Account will be determined in the manner set forth in the contract. In no event will the interest rate be less than the guaranteed minimum stated in the contract. CHARGES. We do not make deductions from amounts in the Fixed Account to cover mortality and expense risks. We consider these risks when determining the credited rate. If you make a withdrawal from amounts in the Fixed Account, an early withdrawal charge may apply. See "Fees." TRANSFERS. During the accumulation phase, you may transfer account dollars from the Fixed Account to any other available investment option. We may vary the dollar amount that you are allowed to transfer, but it will never be less than 10% of your account value held in the Fixed Account. Additionally, your account value remaining in the Fixed Account may be transferred in its entirety to any other investment option if one of the following applies: (a) Your account value in the Fixed Account is $2,000 or less; or (b) You transferred the maximum amount allowed from the Fixed Account in the last four consecutive calendar years and no additional payments have been allocated to the Fixed Account during that same time period. INCOME PHASE. By notifying us at least 30 days before income phase payments begin, you may elect to have amounts transferred to one or more of the subaccounts available during the income phase to provide variable payments. The Fixed Account is not available as an investment option during the income phase. 41 APPENDIX III GUARANTEED ACCUMULATION ACCOUNT (offered in New York only, subject to regulatory approval of the contract) -------------------------------------------------------------------------------- The Guaranteed Accumulation Account is a fixed interest option that may be available during the accumulation phase under the contracts. This appendix is only a summary of certain facts pertaining to the Guaranteed Accumulation Account. Review the Guaranteed Accumulation Account prospectus before investing in this option. GENERAL DISCLOSURE. Amounts that you invest in the Guaranteed Accumulation Account will earn a guaranteed interest rate if amounts are left in the Guaranteed Accumulation Account for the specified period of time. If you withdraw or transfer those amounts before the specified period of time has elapsed, we may apply a market value adjustment, which may be positive or negative. When you decide to invest money in the Guaranteed Accumulation Account, you will want to contact your sales representative or our Home Office to learn: -- The interest rate we will apply to the amounts that you invest in the Guaranteed Accumulation Account. We change this rate periodically, so be certain that you know what rate we guarantee on the day your account dollars are invested into the Guaranteed Accumulation Account. -- The period of time your account dollars need to remain in the Guaranteed Accumulation Account in order to earn that rate. You are required to leave your account dollars in the Guaranteed Accumulation Account for a specified period of time (guaranteed term), in order to earn the guaranteed interest rate. DEPOSIT PERIODS. A deposit period is the time during which we offer a specific interest rate if you deposit dollars for a certain guaranteed term. To have a particular interest rate and guaranteed term apply to your account dollars, you must invest them during the deposit period for which that rate and term are offered. INTEREST RATES. We guarantee different interest rates, depending upon when account dollars are invested in the Guaranteed Accumulation Account. The interest rate we guarantee is an annual effective yield; that means that the rate reflects a full year's interest. We credit interest daily at a rate that will provide the guaranteed annual effective yield over one year. The guaranteed interest rate will never be less than the rate stated in the contract. Among other factors, the safety of the interest rate guarantees depends upon the claims-paying ability of the Company. FEES AND OTHER DEDUCTIONS. If all or a portion of your account value in the Guaranteed Accumulation Account is withdrawn, you may incur the following: -- Market Value Adjustment (MVA)--as described in this appendix and in the Guaranteed Accumulation Account prospectus; -- Tax Penalties and/or Tax Withholding. See "Taxation"; -- Early Withdrawal Charge. See "Fees"; or -- Maintenance Fee. See "Fees". We do not make deductions from amounts in the Guaranteed Accumulation Account to cover mortality and expense risks. Rather, we consider these risks when determining the credited rate. MARKET VALUE ADJUSTMENT (MVA). If you withdraw or transfer your account value from the Guaranteed Accumulation Account before the guaranteed term is completed, an MVA may apply. The MVA reflects the change in the value of the investment due to changes in interest rates since the date of deposit. The MVA may be positive or negative. -- If interest rates at the time of withdrawal have increased since the date of deposit, the value of the investment decreases and the MVA will be negative. This could result in your receiving less than the amount you paid into the Guaranteed Accumulation Account. -- If interest rates at the time of withdrawal have decreased since the date of deposit, the value of the investment increases and the MVA will be positive. 42 GUARANTEED TERMS. The guaranteed term is the period of time account dollars must be left in the Guaranteed Accumulation Account in order to earn the guaranteed interest rate. We offer different guaranteed terms at different times. Check with your sales representative or our Home Office to learn what terms are currently being offered. In general we offer the following guaranteed terms: -- Short Term--three years or fewer; and -- Long Term--ten years or less, but greater than three years. At the end of a guaranteed term you may: -- Transfer dollars to a new guaranteed term; -- Transfer dollars to other available investment options; or -- Withdraw dollars. Deductions may apply to withdrawals. See "Fees and Other Deductions" in this appendix. TRANSFERS. Generally, account dollars invested in the Guaranteed Accumulation Account may be transferred among guaranteed terms offered through the Guaranteed Accumulation Account, and/or to other investment options offered through the contract. However, transfers may not be made during the deposit period in which your account dollars are invested in the Guaranteed Accumulation Account or for 90 days after the close of that deposit period. We will apply an MVA to transfers made before the end of a guaranteed term. THE INCOME PHASE. The Guaranteed Accumulation Account can not be used as an investment option during the income phase, however, by making a request in good order to our Home Office at least 30 days in advance, you may elect to transfer your Guaranteed Accumulation Account dollars to any of the subaccounts available during the income phase. REINVESTMENT PRIVILEGE. If amounts are withdrawn from the Guaranteed Accumulation Account and then reinvested in the Guaranteed Accumulation Account, we will apply the reinvested amount to the current deposit period. This means that the guaranteed annual interest rate and guaranteed terms available on the date of reinvestment will apply. Amounts will be reinvested proportionately in the same way as they were allocated before withdrawal. Your account value will not be credited for any negative MVA that was deducted at the time of withdrawal. 43 APPENDIX IV DESCRIPTION OF UNDERLYING FUNDS ------------------------------------------------------------------ LIST OF FUND NAME CHANGES --------------------------------------------------------------------------------
CURRENT FUND NAME FORMER FUND NAME ING Generation Portfolios, Inc. -- ING VP Ascent Aetna Generation Portfolios, Inc. -- Aetna Ascent Portfolio (Class R Shares) VP ING VP Balanced Portfolio, Inc. (Class R Shares) Aetna Balanced VP, Inc. ING VP Bond Portfolio (Class R Shares) Aetna Income Shares d/b/a Aetna Bond VP ING Generation Portfolios, Inc. -- ING VP Aetna Generation Portfolios, Inc. -- Aetna Crossroads Portfolio (Class R Shares) Crossroads VP ING Variable Portfolios, Inc. -- ING VP Growth Aetna Variable Portfolios, Inc. -- Aetna Growth VP Portfolio (Class R Shares) ING Variable Funds -- ING VP Growth and Income Aetna Variable Fund d/b/a Aetna Growth and Income Portfolio (Class R Shares) VP ING Variable Portfolios, Inc. -- ING VP Index Plus Aetna Variable Portfolios, Inc. -- Aetna Index LargeCap Portfolio (Class R Shares) Plus Large Cap VP ING Variable Portfolios, Inc. -- ING VP Index Plus Aetna Variable Portfolios, Inc. -- Aetna Index MidCap Portfolio (Class R Shares) Plus Mid Cap VP ING Variable Portfolios, Inc. -- ING VP Index Plus Aetna Variable Portfolios, Inc. -- Aetna Index SmallCap Portfolio (Class R Shares) Plus Small Cap VP ING Variable Portfolios, Inc. -- ING VP Aetna Variable Portfolios, Inc. -- Aetna International Equity Portfolio (Class R Shares) International VP ING Generation Portfolios, Inc. -- ING VP Legacy Aetna Generation Portfolios, Inc. -- Aetna Legacy Portfolio (Class R Shares) VP ING VP Money Market Portfolio (Class R Shares) Aetna Variable Encore Fund d/b/a Aetna Money Market VP ING Variable Portfolios, Inc. -- ING VP Small Aetna Variable Portfolios, Inc. -- Aetna Small Company Portfolio (Class R Shares) Company VP ING Variable Portfolios, Inc. -- ING VP Technology Aetna Variable Portfolios, Inc. -- Aetna Portfolio (Class R Shares) Technology VP ING Variable Portfolios, Inc. -- ING VP Value Aetna Variable Portfolios, Inc. -- Aetna Value Opportunity Portfolio (Class R Shares) Opportunity VP ING Variable Products Trust -- ING VP Growth Pilgrim Variable Products Trust -- Pilgrim VP Opportunities Portfolio (Class R Shares) Growth Opportunities Portfolio (Class R Shares) ING Variable Products Trust -- ING VP Pilgrim Variable Products Trust -- Pilgrim VP International Value Portfolio (Class R Shares) International Value Portfolio (Class R Shares) ING Variable Products Trust -- ING VP MidCap Pilgrim Variable Products Trust -- Pilgrim VP Opportunities Portfolio (Class R Shares) MidCap Opportunities Portfolio (Class R Shares) ING Variable Products Trust -- ING VP SmallCap Pilgrim Variable Products Trust -- Pilgrim VP Opportunities Portfolio (Class R Shares) SmallCap Opportunities Portfolio (Class R Shares) ING Partners, Inc. -- ING Alger Aggressive Growth Portfolio Partners, Inc. -- PPI Alger Aggressive Portfolio (Service Class) Growth Portfolio (Service Class) ING Partners, Inc. -- ING Alger Growth Portfolio Portfolio Partners, Inc. -- PPI Alger Growth (Service Class) Portfolio (Service Class) ING Partners, Inc. -- ING DSI Enhanced Index Portfolio Partners, Inc. -- PPI DSI Enhanced Index Portfolio (Service Class) Portfolio (Service Class) ING Partners, Inc. -- ING Goldman Sachs-Registered Portfolio Partners, Inc. -- PPI Goldman Trademark- Capital Growth Portfolio* (Service Sachs-Registered Trademark- Capital Growth Class) Portfolio* (Service Class)
44
CURRENT FUND NAME FORMER FUND NAME ING Partners, Inc. -- ING MFS Capital Portfolio Partners, Inc. (PPI) MFS Capital Opportunities Portfolio (Initial Class) Opportunities Portfolio (Initial Class) ING Partners, Inc. -- ING MFS Emerging Equities Portfolio Partners, Inc. (PPI) MFS Emerging Portfolio (Initial Class) Equities Portfolio (Initial Class) ING Partners, Inc. -- ING MFS Research Portfolio Portfolio Partners, Inc. (PPI) MFS Research Growth (Initial Class) Portfolio (Initial Class) ING Partners, Inc. -- ING OpCap Balanced Value Portfolio Partners, Inc. -- PPI OpCap Balanced Portfolio (Service Class) Value Portfolio (Service Class) ING Partners, Inc. -- ING Salomon Brothers Capital Portfolio Partners, Inc. -- PPI Salomon Brothers Portfolio (Service Class) Capital Portfolio (Service Class) ING Partners, Inc. -- ING Salomon Brothers Portfolio Partners, Inc. -- PPI Salomon Brothers Investors Value Portfolio (Service Class) Investors Value Portfolio (Service Class) ING Partners, Inc. -- ING Scudder International Portfolio Partners, Inc. (PPI) Scudder Growth Portfolio (Initial Class) International Growth Portfolio (Initial Class) ING Partners, Inc. -- ING T. Rowe Price Growth Portfolio Partners, Inc. (PPI) T. Rowe Price Equity Portfolio (Initial Class) Growth Equity Portfolio (Initial Class) ING Partners, Inc. -- ING UBS Tactical Asset Portfolio Partners, Inc. -- PPI Brinson Tactical Allocation Portfolio (Service Class) Asset Allocation Portfolio (Service Class) AIM Variable Insurance Funds -- AIM V.I. Core AIM Variable Insurance Funds -- AIM V.I. Growth Equity Fund (Series I Shares) and Income Fund (Series I Shares) AIM Variable Insurance Funds -- AIM V.I. Premier AIM Variable Insurance Funds -- AIM V.I. Value Equity Fund (Series I Shares) Fund (Series I Shares) Franklin Templeton Variable Insurance Products Franklin Templeton Variable Insurance Products Trust -- Franklin Small Cap Value Securities Trust -- Franklin Value Securities Fund Fund (Class 2 Shares) (Class 2 Shares)
* Goldman Sachs-Registered Trademark- is a registered service mark of Goldman, Sachs & Co., and it is used by agreement with Goldman, Sachs & Co. 45 FUND DESCRIPTIONS -------------------------------------------------------------------------------- THE INVESTMENT RESULTS OF THE MUTUAL FUNDS (FUNDS) ARE LIKELY TO DIFFER SIGNIFICANTLY AND THERE IS NO ASSURANCE THAT ANY OF THE FUNDS WILL ACHIEVE THEIR RESPECTIVE INVESTMENT OBJECTIVES. SHARES OF THE FUNDS WILL RISE AND FALL IN VALUE AND YOU COULD LOSE MONEY BY INVESTING IN THE FUNDS. SHARES OF THE FUNDS ARE NOT BANK DEPOSITS AND ARE NOT GUARANTEED, ENDORSED OR INSURED BY ANY FINANCIAL INSTITUTION, THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. EXCEPT AS NOTED, ALL FUNDS ARE DIVERSIFIED, AS DEFINED UNDER THE INVESTMENT COMPANY ACT OF 1940. PLEASE REFER TO THE FUND PROSPECTUSES FOR ADDITIONAL INFORMATION. FUND PROSPECTUSES MAY BE OBTAINED FREE OF CHARGE, FROM OUR HOME OFFICE AT THE ADDRESS AND TELEPHONE NUMBER LISTED IN "CONTRACT OVERVIEW -- QUESTIONS", BY ACCESSING THE SEC'S WEB SITE OR BY CONTACTING THE SEC PUBLIC REFERENCE ROOM. CERTAIN FUNDS OFFERED UNDER THE CONTRACTS HAVE INVESTMENT OBJECTIVES AND POLICIES SIMILAR TO OTHER FUNDS MANAGED BY THE FUND'S INVESTMENT ADVISER. THE INVESTMENT RESULTS OF A FUND MAY BE HIGHER OR LOWER THAN THOSE OF OTHER FUNDS MANAGED BY THE SAME ADVISER. THERE IS NO ASSURANCE AND NO REPRESENTATION IS MADE THAT THE INVESTMENT RESULTS OF ANY FUND WILL BE COMPARABLE TO THOSE OF ANOTHER FUND MANAGED BY THE SAME INVESTMENT ADVISER. ING GENERATION PORTFOLIOS, INC. -- ING VP ASCENT PORTFOLIO (FORMERLY AETNA GENERATION PORTFOLIOS, INC. -- AETNA ASCENT VP) (CLASS R SHARES)) INVESTMENT OBJECTIVE Seeks to provide capital appreciation. PRINCIPAL STRATEGIES Managed for investors seeking capital appreciation who generally have an investment horizon exceeding 15 years and who have a high level of risk tolerance. Under normal market conditions, allocates assets among several classes of equities, fixed-income securities (including up to 15% of total assets in high-yield instruments) and money market instruments. Aeltus (the Portfolio's subadviser) has instituted both a benchmark percentage allocation and a Portfolio level range allocation for each asset class. Asset allocation may vary from the benchmark allocation (within the permissible range) based on Aeltus' ongoing evaluation of the expected returns and risks of each asset class relative to other classes. Among the criteria that Aeltus evaluates to determine allocations are economic and market conditions, including changes in circumstances with respect to particular asset classes, geographic regions, industries or issuers, and interest rate movements. In selecting individual portfolio securities, Aeltus considers such factors as: expected dividend yields and growth rates; bond yields; and current relative value compared to historic averages. The benchmark portfolio is 80% equities and 20% fixed-income under neutral market conditions. PRINCIPAL RISKS The success of the Portfolio's strategy depends significantly on Aeltus' skill in choosing investments and in allocating assets among the different investment classes. Principal risks are those generally attributable to stock and bond investing. For stock investments, risks include sudden and unpredictable drops in the value of the market as a whole and periods of lackluster or negative performance. Stocks of smaller companies tend to be less liquid and more volatile than stocks of larger companies, and can be particularly sensitive to expected changes in interest rates, borrowing costs and earnings. Risks associated with real estate securities include periodic declines in the value of real estate generally, and declines in the rents and other income generated by real estate caused by such factors as periodic over-building. For bonds, generally, when interest rates rise, bond prices fall. Also, economic and market conditions may cause issuers to default or go bankrupt. Values of high-yield bonds are even more sensitive to economic and market conditions than other bonds. Prices of mortgage-related securities, in addition to being sensitive to changes in interest rates, also are sensitive to changes in the prepayment patterns on the underlying instruments. Foreign securities present additional risks. Some foreign securities tend to be less liquid and more volatile than their U.S. counterparts. In addition, accounting standards and market regulations tend to be less standardized in certain foreign countries. Investments outside of the U.S. may also be affected by administrative difficulties such as delays in clearing and settling portfolio transactions. These risks are usually higher for securities of companies in emerging markets. Securities of foreign companies may be denominated in foreign currency. Foreign currency exchange rate fluctuations may reduce or eliminate gains or create losses. Hedging strategies intended to reduce this risk may not perform as expected. INVESTMENT ADVISER: ING Investments, LLC SUBADVISER: Aeltus Investment Management, Inc. (Aeltus) 46 ING VP BALANCED PORTFOLIO, INC. (FORMERLY AETNA BALANCED VP, INC.) (CLASS R SHARES) INVESTMENT OBJECTIVE Seeks to maximize investment return, consistent with reasonable safety of principal, by investing in a diversified portfolio of one or more of the following asset classes: stocks, bonds and cash equivalents, based on the judgment of the Fund's management, of which of those sectors or mix thereof offers the best investment prospects. PRINCIPAL STRATEGIES Under normal market conditions, allocates assets between the following asset classes: equities, such as common and preferred stocks; and debt, such as bonds, mortgage-related and other asset-backed securities, U.S. Government securities and money market instruments. Typically, maintains approximately 60% of total assets in equities and approximately 40% of total assets in debt (including money market instruments), although those percentages may vary from time to time depending on Aeltus (the Portfolio's subadviser)'s view of the relative attractiveness of each asset class. In making asset allocation decisions, Aeltus uses current market statistics and economic indicators to attempt to forecast returns for the equity and debt sectors of the securities market, using quantitative computer models to evaluate financial criteria in an attempt to identify those issuers whose perceived value is not reflected in their equity or debt securities. In managing the equity component, Aeltus typically emphasizes investment in stocks of larger companies, although it may invest in stocks of smaller companies and stocks of foreign issuers. In managing the debt component, Aeltus looks to select investments with the opportunity to enhance the portfolio's yield and total return, focusing on performance over the long term. May invest up to 15% of total assets in high-yield instruments and may also invest in foreign debt securities. PRINCIPAL RISKS Principal risks are those generally attributable to stock and bond investing. The success of the Portfolio's strategy depends on Aeltus' skill in allocating Portfolio assets between equities and debt and in choosing investments within those categories. Because the Portfolio's assets are allocated between equities and fixed income securities, the Portfolio may underperform stock portfolios when stocks are in favor and underperform bond portfolios when bonds are in favor. Risks attributable to stock investing include sudden and unpredictable drops in the value of the market as a whole and periods of lackluster or negative performance. Stocks of smaller companies tend to be less liquid and more volatile than stocks of larger companies and can be particularly sensitive to expected changes in interest rates, borrowing costs and earnings. Fixed income investments are subject to the risk that interest rates will rise, which generally causes bond prices to fall. Also, economic and market conditions may cause issuers to default or go bankrupt. In either case, the value of the Portfolio may decline. High-yield instruments are even more sensitive to economic and market conditions than other fixed income securities. Prices of mortgage-related securities, in addition to being sensitive to changes in interest rates, also are sensitive to changes in the prepayment patterns on the underlying instruments. Foreign securities present additional risk. Some foreign securities tend to be less liquid and more volatile than their U.S. counterparts. In addition, accounting standards and market regulations tend to be less standardized in certain foreign countries. Investments outside the U.S. may also be affected by administrative difficulties, such as delays in clearing and settling portfolio transactions. These risks are usually higher for securities of companies in emerging markets. Foreign currency exchange rate fluctuations may reduce or eliminate gains or create losses. Hedging strategies intended to reduce this risk may not perform as expected. INVESTMENT ADVISER: ING Investments, LLC SUBADVISER: Aeltus Investment Management, Inc. (Aeltus) ING VP BOND PORTFOLIO (FORMERLY AETNA INCOME SHARES D/B/A AETNA BOND VP) (CLASS R SHARES) INVESTMENT OBJECTIVE Seeks to maximize total return as is consistent with reasonable risk, through investment in a diversified portfolio consisting of debt securities. PRINCIPAL STRATEGIES Under normal market conditions, invests at least 80% of net assets in high-grade corporate bonds, mortgage-related and other asset-backed securities, and securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities. High-grade securities are rated at least A by Standard & Poor's Corporation (S&P) or Moody's Investor Services, Inc. (Moody's) or, if unrated, considered by Aeltus (the Portfolio's subadviser) to be of 47 comparable quality. May also invest up to 15% of total assets in high-yield instruments, and up to 25% of total assets in foreign debt securities. May invest in zero coupon securities. In managing the Portfolio, Aeltus looks to construct an intermediate-term (generally consisting of securities with an average maturity of between 5-10 years), high-quality portfolio by selecting investments with the opportunity to enhance the portfolio's overall total return and yield, while managing volatility. Aeltus uses quantitative computer models to identify issuers whose perceived value is not reflected in their security prices. It is anticipated that capital appreciation and investment income will both be major factors in achieving total return. PRINCIPAL RISKS Principal risks are those generally attributable to debt investing, including increases in interest rates and loss of principal. Generally, when interest rates rise, bond prices fall. Bonds with longer maturities tend to be more sensitive to changes in interest rates. For all bonds there is a risk that the issuer will default. High-yield bonds generally are more susceptible to the risk of default than higher rated bonds. The risks associated with high-yield bonds also apply to zero coupon securities. Prices of mortgage-related securities, in addition to being sensitive to changes in interest rates, also are sensitive to changes in the prepayment patterns on the underlying instruments. Foreign securities present additional risks. Some foreign securities tend to be less liquid and more volatile than their U.S. counterparts. In addition, accounting standards and market regulations tend to be less standardized in certain foreign countries. Investments outside the U.S. may also be affected by administrative difficulties, such as delays in clearing and settling portfolio transactions. These risks are usually higher for securities of companies in emerging markets. Foreign currency exchange rate fluctuations may reduce or eliminate gains or create losses. Hedging strategies intended to reduce this risk may not perform as expected. INVESTMENT ADVISER: ING Investments, LLC SUBADVISER: Aeltus Investment Management, Inc. (Aeltus) ING GENERATION PORTFOLIOS, INC. -- ING VP CROSSROADS PORTFOLIO (FORMERLY AETNA GENERATION PORTFOLIOS, INC. -- AETNA CROSSROADS VP) (CLASS R SHARES) INVESTMENT OBJECTIVE Seeks to provide total return (i.e., income and capital appreciation, both realized and unrealized). PRINCIPAL STRATEGIES Managed for investors seeking a balance between income and capital appreciation who generally have an investment horizon exceeding ten years and who have a moderate level of risk tolerance. Under normal market conditions, allocates assets among several classes of equities, fixed-income securities (including up to 15% of total assets in high-yield instruments) and money market instruments. Aeltus (the Portfolio's subadviser) has instituted both a benchmark percentage allocation and a Portfolio level range allocation for each asset class. Asset allocation may vary from the benchmark allocation (within the permissible range) based on Aeltus' ongoing evaluation of the expected returns and risks of each asset class relative to other classes. Among the criteria that Aeltus evaluates to determine allocations are economic and market conditions, including changes in circumstances with respect to particular asset classes, geographic regions, industries or issuers, and interest rate movements. In selecting individual portfolio securities, Aeltus considers such factors as: expected dividend yields and growth rates; bond yields; and current relative value compared to historic averages. The benchmark portfolio is 60% equities and 40% fixed-income under neutral market conditions. PRINCIPAL RISKS The success of the Portfolio's strategy depends significantly on Aeltus' skill in choosing investments and in allocating assets among the different investment classes. Principal risks are those generally attributable to stock and bond investing. For stock investments, risks include sudden and unpredictable drops in the value of the market as a whole and periods of lackluster or negative performance. Stocks of smaller companies tend to be less liquid and more volatile than stocks of larger companies, and can be particularly sensitive to expected changes in interest rates, borrowing costs and earnings. Risks associated with real estate securities include periodic declines in the value of real estate generally, and declines in the rents and other income generated by real estate caused by such factors as periodic over-building. For bonds, generally, when interest rates rise, bond prices fall. Also, economic and market conditions may cause issuers to default or go bankrupt. Values of high-yield bonds are even more sensitive to economic and market conditions than other bonds. Prices of mortgage-related securities, in addition to being sensitive to changes in interest rates, also are sensitive to changes in the prepayment patterns on the underlying 48 instruments. Foreign securities present additional risks. Some foreign securities tend to be less liquid and more volatile than their U.S. counterparts. In addition, accounting standards and market regulations tend to be less standardized in certain foreign countries. Investments outside of the U.S. may also be affected by administrative difficulties such as delays in clearing and settling portfolio transactions. These risks are usually higher for securities of companies in emerging markets. Securities of foreign companies may be denominated in foreign currency. Foreign currency exchange rate fluctuations may reduce or eliminate gains or create losses. Hedging strategies intended to reduce this risk may not perform as expected. INVESTMENT ADVISER: ING Investments, LLC SUBADVISER: Aeltus Investment Management, Inc. (Aeltus) ING VARIABLE PORTFOLIOS, INC. -- ING VP GROWTH PORTFOLIO (FORMERLY AETNA VARIABLE PORTFOLIOS, INC. -- AETNA GROWTH VP) (CLASS R SHARES) INVESTMENT OBJECTIVE Seeks growth of capital through investment in a diversified portfolio consisting primarily of common stocks and securities convertible into common stocks believed to offer growth potential. PRINCIPAL STRATEGIES Under normal market conditions, invests at least 65% of total assets in common stocks and securities convertible into common stock. In managing the Portfolio, Aeltus (the Portfolio's subadviser) emphasizes stocks of larger companies, although may invest in companies of any size. Aeltus also uses internally developed quantitative computer models to evaluate the financial characteristics of approximately 1,000 companies. Aeltus analyzes these characteristics in an attempt to identify companies it believes have strong growth characteristics or demonstrate a positive trend in earnings estimates but whose perceived value is not reflected in the stock price. Aeltus focuses on companies it believes have strong, sustainable and improving earnings growth, and established market positions in a particular industry. PRINCIPAL RISKS Principal risks are those generally attributable to stock investing. They include sudden and unpredictable drops in the value of the market as a whole and periods of lackluster or negative performance. Growth-oriented stocks typically sell at relatively high valuations as compared to other types of stocks. If a growth stock does not exhibit the consistent level of growth expected, its price may drop sharply. Historically, growth-oriented stocks have been more volatile than value-oriented stocks. INVESTMENT ADVISER: ING Investments, LLC SUBADVISER: Aeltus Investment Management, Inc. (Aeltus) ING VARIABLE FUNDS -- ING VP GROWTH AND INCOME PORTFOLIO (FORMERLY AETNA VARIABLE FUND D/B/A AETNA GROWTH AND INCOME VP) (CLASS R SHARES)) INVESTMENT OBJECTIVE Seeks to maximize total return through investments in a diversified portfolio of common stocks and securities convertible into common stock. It is anticipated that capital appreciation and investment income will both be major factors in achieving total return. PRINCIPAL STRATEGIES Under normal market conditions, invests at least 65% of total assets in common stocks that Aeltus (the Portfolio's subadviser) believes have significant potential for capital appreciation or income growth or both. In managing the Portfolio, Aeltus: emphasizes stocks of larger companies; looks to invest the Portfolio's assets in stocks of small and medium-sized companies and stocks of foreign issuers, depending upon market conditions; and combines internally developed quantitative computer models with a qualitative overlay to evaluate company financial characteristics to select securities within each class. In analyzing these characteristics, Aeltus attempts to identify positive earnings momentum and positive valuation characteristics in selecting securities whose perceived value is not reflected in their price. 49 PRINCIPAL RISKS Principal risks are those generally attributable to stock investing. These risks include sudden and unpredictable drops in the value of the market as a whole and periods of lackluster or negative performance. Although Aeltus emphasizes large cap stocks, to the extent the Portfolio is diversified across asset classes, it may not perform as well as less diversified portfolios when large cap stocks are in favor. Additionally, stocks of medium-sized and smaller companies tend to be more volatile and less liquid than stocks of larger companies. Foreign securities present additional risks. Some foreign securities tend to be less liquid and more volatile than their U.S. counterparts. In addition, accounting standards and market regulations tend to be less standardized in certain foreign countries. Investments outside the U.S. may also be affected by administrative difficulties, such as delays in clearing and settling portfolio transactions. These risks are usually higher for securities of companies in emerging markets. Foreign currency exchange rate fluctuations may reduce or eliminate gains or create losses. Hedging strategies intended to reduce this risk may not perform as expected. INVESTMENT ADVISER: ING Investments, LLC SUBADVISER: Aeltus Investment Management, Inc. (Aeltus) ING VARIABLE PORTFOLIOS, INC. -- ING VP INDEX PLUS LARGECAP PORTFOLIO (FORMERLY AETNA VARIABLE PORTFOLIOS, INC. -- AETNA INDEX PLUS LARGE CAP VP) (CLASS R SHARES) INVESTMENT OBJECTIVE Seeks to outperform the total return performance of the Standard & Poor's 500 Composite Index (S&P 500), while maintaining a market level of risk. PRINCIPAL STRATEGIES Invests at least 80% of net assets in stocks included in the S&P 500. The S&P 500 is a stock market index comprised of common stocks of 500 of the largest companies traded in the U.S. and selected by Standard & Poor's Corporation. In managing the Portfolio, Aeltus (the Portfolio's subadviser) attempts to achieve the Portfolio's objective by overweighting those stocks in the S&P 500 that Aeltus believes will outperform the index, and underweighting (or avoiding altogether) those stocks that Aeltus believes will underperform the index. In 50 determining stock weightings, Aeltus uses internally developed quantitative computer models to evaluate various criteria, such as the financial strength of each company and its potential for strong, sustained earnings growth. At any one time, Aeltus generally includes in the portfolio between 400 and 450 of the stocks included in the S&P 500. Although the Portfolio will not hold all of the stocks in the S&P 500, Aeltus expects that there will be a close correlation between the performance of the Portfolio and that of the S&P 500 in both rising and falling markets. PRINCIPAL RISKS Principal risks are those generally attributable to stock investing. These risks include sudden and unpredictable drops in the value of the market as a whole and periods of lackluster or negative performance. The success of the Portfolio's strategy depends significantly on Aeltus' skill in determining which securities to overweight, underweight or avoid altogether. INVESTMENT ADVISER: ING Investments, LLC SUBADVISER: Aeltus Investment Management, Inc. (Aeltus) ING VARIABLE PORTFOLIOS, INC. -- ING VP INDEX PLUS MIDCAP PORTFOLIO (FORMERLY AETNA VARIABLE PORTFOLIOS, INC. -- AETNA INDEX PLUS MID CAP VP) (CLASS R SHARES) INVESTMENT OBJECTIVE Seeks to outperform the total return performance of the Standard & Poor's MidCap 400 Index (S&P 400), while maintaining a market level of risk. PRINCIPAL STRATEGIES Invests at least 80% of net assets in stocks included in the S&P 400. The S&P 400 is a stock market index comprised of common stocks of 400 mid-capitalization companies traded in the U.S. and selected by Standard & Poor's Corporation. In managing the Portfolio, Aeltus (the Portfolio's subadviser) attempts to achieve the Portfolio's objective by overweighting those stocks in the S&P 400 that Aeltus believes will outperform the index, and underweighting (or avoiding altogether) those stocks that Aeltus believes will underperform the index. In determining stock weightings, Aeltus uses internally developed quantitative computer models to evaluate various criteria, such as the financial strength of each issuer and its potential for strong, sustained earnings growth. Although the Portfolio will not hold all of the stocks in the S&P 400, Aeltus expects that there will be a close correlation between the performance of the Portfolio and that of the S&P 400 in both rising and falling markets. PRINCIPAL RISKS Principal risks are those generally attributable to stock investing. These risks include sudden and unpredictable drops in the value of the market as a whole and periods of lackluster or negative performance. In addition, stocks of medium sized companies tend to be more volatile and less liquid than stocks of larger companies. The success of the Portfolio's strategy depends significantly on Aeltus' skill in determining which securities to overweight, underweight or avoid altogether. INVESTMENT ADVISER: ING Investments, LLC SUBADVISER: Aeltus Investment Management, Inc. (Aeltus) ING VARIABLE PORTFOLIOS, INC. -- ING VP INDEX PLUS SMALLCAP PORTFOLIO (FORMERLY AETNA VARIABLE PORTFOLIOS, INC. -- AETNA INDEX PLUS SMALL CAP VP) (CLASS R SHARES) INVESTMENT OBJECTIVE Seeks to outperform the total return performance of the Standard and Poor's SmallCap 600 Index (S&P 600), while maintaining a market level of risk. PRINCIPAL STRATEGIES Invests at least 80% of net assets in stocks included in the S&P 600. The S&P 600 is a stock market index comprised of common stocks of 600 small-capitalization companies traded in the U.S. and selected by Standard & Poor's Corporation. In managing the Portfolio, Aeltus (the Portfolio's subadviser) attempts to achieve the Portfolio's objective by overweighting those stocks in the S&P 600 that Aeltus believes will outperform the index, and underweighting (or avoiding altogether) those stocks that Aeltus believes will underperform the index. In determining stock weightings, Aeltus uses internally developed quantitative computer models to evaluate various criteria, such as the financial strength of each issuer and its potential for strong, sustained earnings growth. Although the Portfolio will not hold all of the stocks in the S&P 600, Aeltus expects that there will be a close correlation between the performance of the Portfolio and that of the S&P 600 in both rising and falling markets. PRINCIPAL RISKS Principal risks are those generally attributable to stock investing which include sudden and unpredictable drops in the value of the market as a whole and periods of lackluster or negative performance. Stocks of smaller companies carry higher risks than stocks of larger companies because smaller companies may lack the management experience, financial resources, product diversification, and competitive strengths of larger companies. In many instances, the frequency and volume of trading in small cap stocks are substantially less than stocks of larger companies which may result in wider price fluctuations. When selling a large quantity of a particular stock, the Portfolio may have to sell at a discount from quoted prices or may have to make a series of small sales over an extended period of time due to the more limited trading volume of smaller company stocks. Stocks of smaller companies tend to be more volatile than stocks of larger companies and can be particularly sensitive to expected changes in interest rates, borrowing costs and earnings. The success of the Portfolio's strategy depends significantly on Aeltus' skill in determining which securities to overweight, underweight or avoid altogether. INVESTMENT ADVISER: ING Investments, LLC SUBADVISER: Aeltus Investment Management, Inc. (Aeltus) ING VARIABLE PORTFOLIOS, INC. -- ING VP INTERNATIONAL EQUITY PORTFOLIO (FORMERLY AETNA VARIABLE PORTFOLIOS, INC. -- AETNA INTERNATIONAL VP) (CLASS R SHARES) INVESTMENT OBJECTIVE Seeks long-term capital growth primarily through investment in a diversified portfolio of common stocks principally traded in countries outside of the United States. The Portfolio will not target any given level of current income. 51 PRINCIPAL STRATEGIES Under normal market conditions, invests at least 80% of assets in equity securities and at least 65% of its assets in securities principally traded in three or more countries outside of the U.S. These securities may include common stocks as well as securities convertible into common stock. In managing the Portfolio, Aeltus (the Portfolio's subadviser) looks to: diversify the Portfolio by investing in a mix of stocks that it believes have the potential for long-term growth, as well as stocks that appear to be trading below their perceived value; allocate assets among several geographic regions and individual countries, investing primarily in those areas that it believes have the greatest potential for growth as well as stable exchange rates; invest primarily in established foreign securities markets, although it may invest in emerging markets as well; use internally developed quantitative computer models to evaluate the financial characteristics of over 2,000 companies. Aeltus analyzes cash flows, earnings and dividends of each company, in an attempt to select companies with long-term sustainable growth characteristics and employs currency hedging strategies to protect the portfolio from adverse effects on the U.S. dollar. PRINCIPAL RISKS Principal risks are those generally attributable to stock investing which include sudden and unpredictable drops in the value of the market as a whole and periods of lackluster or negative performance. Stocks of foreign companies tend to be less liquid and more volatile than their U.S. counterparts. Accounting standards and market regulations tend to be less standardized in certain foreign countries, and economic and political climates tend to be less stable. Stocks of foreign companies may be denominated in foreign currency. Exchange rate fluctuations may reduce or eliminate gains or create losses. Hedging strategies intended to reduce this risk may not perform as expected. Investments in emerging markets are subject to the same risks applicable to foreign investments generally, although those risks may be increased due to conditions in such countries. Investments outside the U.S. may also be affected by administrative difficulties, such as delays in clearing and settling portfolio transactions. INVESTMENT ADVISER: ING Investments, LLC SUBADVISER: Aeltus Investment Management, Inc. (Aeltus) ING GENERATION PORTFOLIOS, INC. -- ING VP LEGACY PORTFOLIO (FORMERLY AETNA GENERATION PORTFOLIOS, INC. -- AETNA LEGACY VP) (CLASS R SHARES) INVESTMENT OBJECTIVE Seeks to provide total return consistent with preservation of capital. PRINCIPAL STRATEGIES Managed for investors primarily seeking total return consistent with capital preservation who generally have an investment horizon exceeding five years and who have a low level of risk tolerance. Under normal market conditions, allocates assets among several classes of equities, fixed-income securities (including up to 15% of total assets in high-yield instruments) and money market instruments. Aeltus (the Portfolio's subadviser) has instituted both a benchmark percentage allocation and a Portfolio level range allocation for each asset class. Asset allocation may vary from the benchmark allocation (within the permissible range) based on Aeltus' ongoing evaluation of the expected returns and risks of each asset class relative to other classes. Among the criteria that Aeltus evaluates to determine allocations are economic and market conditions, including changes in circumstances with respect to particular asset classes, geographic regions, industries or issuers, and interest rate movements. In selecting individual portfolio securities, Aeltus considers such factors as: expected dividend yields and growth rates; bond yields; and current relative value compared to historic averages. The benchmark portfolio is 40% equities and 60% fixed-income under neutral market conditions. PRINCIPAL RISKS The success of the Portfolio's strategy depends significantly on Aeltus' skill in choosing investments and in allocating assets among the different investment classes. Principal risks are those generally attributable to stock and bond investing. For stock investments, risks include sudden and unpredictable drops in the value of the market as a whole and periods of lackluster or negative performance. Stocks of smaller companies tend to be less liquid and more volatile than stocks of larger companies, and can be particularly sensitive to expected changes in interest rates, borrowing costs and earnings. Risks associated with real estate securities include periodic declines in the value of real estate generally, and declines in the rents and other income generated by real estate caused by such factors as periodic over-building. For bonds, generally, when interest rates rise, bond prices fall. Also, economic and market conditions may cause issuers to default or go bankrupt. Values of high-yield bonds are even more sensitive 52 to economic and market conditions than other bonds. Prices of mortgage-related securities, in addition to being sensitive to changes in interest rates, also are sensitive to changes in the prepayment patterns on the underlying instruments. Foreign securities present additional risks. Some foreign securities tend to be less liquid and more volatile than their U.S. counterparts. In addition, accounting standards and market regulations tend to be less standardized in certain foreign countries. Investments outside of the U.S. may also be affected by administrative difficulties such as delays in clearing and settling portfolio transactions. These risks are usually higher for securities of companies in emerging markets. Securities of foreign companies may be denominated in foreign currency. Foreign currency exchange rate fluctuations may reduce or eliminate gains or create losses. Hedging strategies intended to reduce this risk may not perform as expected. INVESTMENT ADVISER: ING Investments, LLC SUBADVISER: Aeltus Investment Management, Inc. (Aeltus) ING VP MONEY MARKET PORTFOLIO (FORMERLY AETNA VARIABLE ENCORE FUND D/B/A AETNA MONEY MARKET VP) (CLASS R SHARES) INVESTMENT OBJECTIVE Seeks to provide high current return, consistent with preservation of capital and liquidity, through investment in high-quality money market instruments. PRINCIPAL STRATEGIES Invests in a diversified portfolio of high-quality fixed income securities denominated in U.S. dollars, with short remaining maturities. These securities include U.S. Government securities (such as U.S. Treasury bills and securities issued or sponsored by U.S. Government agencies), corporate debt securities, commercial paper, asset-backed securities, mortgage-related securities and certain obligations of U.S. and foreign banks, each of which must be highly rated by independent rating agencies or, if unrated, considered by Aeltus (the Portfolio's subadviser) to be of comparable quality. Aeltus seeks to maintain a dollar-weighted average portfolio maturity of 90 days or less. PRINCIPAL RISKS Although the Portfolio seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Portfolio. Investments in the Portfolio are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. A weak economy, strong equity markets and changes by the Federal Reserve in its monetary policies all could affect short-term interest rates and, therefore, the value and yield of the Portfolio's shares. Risks also include adverse changes in the actual or perceived creditworthiness of issuers and adverse changes in the economic or political environment. INVESTMENT ADVISER: ING Investments, LLC SUBADVISER: Aeltus Investment Management, Inc. (Aeltus) ING VARIABLE PORTFOLIOS, INC. -- ING VP SMALL COMPANY PORTFOLIO (FORMERLY AETNA VARIABLE PORTFOLIOS, INC. -- AETNA SMALL COMPANY VP) (CLASS R SHARES) INVESTMENT OBJECTIVE 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. PRINCIPAL STRATEGIES Under normal market conditions, invests at least 80% of net assets in common stocks and securities convertible into common stock of small-capitalization companies, defined as: 1) the 2,000 smallest of the 3,000 largest U.S. companies (as measured by market capitalization); 2) all companies not included above that are included in the Standard & Poor's SmallCap 600 Index or the Russell 2000 Index; and 3) companies with market capitalizations lower than companies included in the first two categories. In managing the Portfolio, Aeltus (the Portfolio's subadviser) invests in stocks that it believes have the potential for long-term growth, as well as those that appear to be trading below their perceived value. Aeltus also uses internally developed quantitative computer models to evaluate financial characteristics of over 2,000 companies. Aeltus analyzes these characteristics in an attempt to identify companies whose perceived value is not reflected in the stock price. Aeltus considers the potential of each 53 company to create or take advantage of unique product opportunities, its potential to achieve long-term sustainable growth and the quality of its management. The Portfolio may invest, to a limited extent, in foreign stocks. PRINCIPAL RISKS Principal risks are those generally attributable to stock investing which include sudden and unpredictable drops in the value of the market as a whole and periods of lackluster or negative performance. Stocks of smaller companies carry higher risks than stocks of larger companies. This is because smaller companies may lack the management experience, financial resources, product diversification, and competitive strengths of larger companies. In many instances, the frequency and volume of trading in small cap stocks are substantially less than of stocks of larger companies. As a result, the stocks of smaller companies may be subject to wider price fluctuations and/or may be less liquid. When selling a large quantity of a particular stock, the Portfolio may have to sell at a discount from quoted prices or may have to make a series of small sales over an extended period of time due to the more limited trading volume of smaller company stocks. Stocks of smaller companies can be particularly sensitive to expected changes in interest rates, borrowing costs and earnings. Foreign securities present additional risks. Some foreign securities tend to be less liquid and more volatile than their U.S. counterparts. In addition, accounting standards and market regulations tend to be less standardized in certain foreign countries. Investments outside the U.S. may also be affected by administrative difficulties, such as delays in clearing and settling portfolio transactions. These risks are usually higher for securities of companies in emerging markets. Foreign currency exchange rate fluctuations may reduce or eliminate gains or create losses. Hedging strategies intended to reduce this risk may not perform as expected. INVESTMENT ADVISER: ING Investments, LLC SUBADVISER: Aeltus Investment Management, Inc. (Aeltus) ING VARIABLE PORTFOLIOS, INC. -- ING VP TECHNOLOGY PORTFOLIO (FORMERLY AETNA VARIABLE PORTFOLIOS, INC. -- AETNA TECHNOLOGY VP) (CLASS R SHARES) INVESTMENT OBJECTIVE Seeks long-term capital appreciation. PRINCIPAL STRATEGIES Invests at least 80% of net assets in common stocks and securities convertible into common stock of companies in the information technology industry sector. These companies include companies that EAM (the Portfolio's subadviser) considers to be principally engaged in the development, production, or distribution of products or services related to the processing, storage, transmission, or presentation of information or data. EAM considers a company to be principally engaged in the information technology industries if at the time of investment at least 50% of the company's assets, gross income, or net profits are committed to, or derived from, those industries. EAM will also consider a company to be principally engaged in the information technology industries if it has the potential for capital appreciation primarily as a result of particular products, technology, patents, or other market advantages in those industries. In selecting stocks for the Portfolio, EAM looks at a company's valuation relative to its potential long-term growth rate. EAM may look to see whether a company offers a new or improved product, service, or business operation; whether it has experienced a positive change in its financial or business condition; whether the market for its goods or services has expanded or experienced a positive change; and whether there is a potential catalyst for positive change in the company's business or stock price. The Portfolio may sell a security if EAM determines that the company has become overvalued due to price appreciation or has experienced a change in its business fundamentals, if the company's growth rate slows substantially, or if EAM believes that another investment offers a better opportunity. PRINCIPAL RISKS Principal risks are those generally attributable to stock investing which include sudden and unpredictable drops in the value of the market as a whole and periods of lackluster or negative performance. Stocks of smaller companies tend to be less liquid and more volatile than stocks of larger companies. Further, stocks of smaller companies also can be particularly sensitive to expected changes in interest rates, borrowing costs and earnings. Because the Portfolio's investments are concentrated in the information technology industries, the Portfolio may be subject to more abrupt swings in value than a portfolio which invests in a broader range of industries. Investments in information technology companies may be highly volatile. The Portfolio may experience difficulty in establishing 54 or closing out positions in these securities at prevailing market prices. Also, there may be less publicly available information about small companies or less market interest in their securities as compared to larger companies, and it may take longer for the prices of the securities to reflect the full value of their issuers' earnings potential or assets. INVESTMENT ADVISER: ING Investments, LLC SUBADVISER: Elijah Asset Management, LLC (EAM) ING VARIABLE PORTFOLIOS, INC. -- ING VP VALUE OPPORTUNITY PORTFOLIO (FORMERLY AETNA VARIABLE PORTFOLIOS, INC. -- AETNA VALUE OPPORTUNITY VP) (CLASS R SHARES) INVESTMENT OBJECTIVE Seeks growth of capital primarily through investment in a diversified portfolio of common stocks and securities convertible into common stock. PRINCIPAL STRATEGIES Under normal market conditions, invests at least 65% of total assets in common stocks and securities convertible into common stock. In managing the Portfolio, Aeltus (the Portfolio's subadviser) tends to invest in larger companies that it believes are trading below their perceived value, although may invest in companies of any size. Aeltus believes that the Portfolio's investment objective can best be achieved by investing in companies whose stock price has been excessively discounted due to perceived problems or for other reasons. In searching for investments, Aeltus evaluates financial and other characteristics of companies, attempting to find those companies that appear to possess a catalyst for positive change, such as strong management, solid assets, or market position, rather than those companies whose stocks are simply inexpensive. Aeltus looks to sell a security when company business fundamentals deteriorate or when price objectives are reached. PRINCIPAL RISKS Principal risks are those generally attributable to stock investing which include sudden and unpredictable drops in the value of the market as a whole and periods of lackluster or negative performance. Stocks that appear to be undervalued may never appreciate to the extent expected. Further, because the prices of value-oriented stocks tend to correlate more closely with economic cycles than growth-oriented stocks, they generally are more sensitive to changing economic conditions, such as changes in interest rates, corporate earnings and industrial production. INVESTMENT ADVISER: ING Investments, LLC SUBADVISER: Aeltus Investment Management, Inc. (Aeltus) ING VARIABLE PRODUCTS TRUST -- ING VP GROWTH OPPORTUNITIES PORTFOLIO (FORMERLY PILGRIM VARIABLE PRODUCTS TRUST -PILGRIM VP GROWTH OPPORTUNITIES PORTFOLIO) (CLASS R SHARES) INVESTMENT OBJECTIVE Seeks long-term growth of capital. PRINCIPAL STRATEGIES Invests primarily in common stock of U.S. companies that the portfolio managers feel have above average prospects for growth. Under normal market conditions, invests at least 65% of total assets in securities purchased on the basis of the potential for capital appreciation. Securities may be from large-cap, mid-cap or small-cap companies. Portfolio managers use a "top-down" disciplined investment process, which includes extensive database screening, frequent fundamental research, identification and implementation of a trend-oriented approach in structuring the portfolio and a sell discipline. Portfolio managers seek to invest in companies expected to benefit most from major social, economic and technological trends that are likely to shape the future of business and commerce over the next three to five years and attempt to provide a framework for identifying such industries and companies. This top-down approach is combined with rigorous fundamental research (a "bottom-up" approach) to guide stock selection and portfolio structure. PRINCIPAL RISKS You could lose money on an investment in the Portfolio. The Portfolio may be affected by the following risks, among others: price volatility, market trends and inability to sell securities. The Portfolio has exposure to financial 55 and market risks that accompany investments in equities. In exchange for higher growth potential, investing in stocks of small- and medium-sized companies may entail greater price volatility than investing in stocks of larger companies. INVESTMENT ADVISER: ING Investments, LLC (ING Investments) (formerly ING Pilgrim Investments, LLC) ING VARIABLE PRODUCTS TRUST -- ING VP INTERNATIONAL VALUE PORTFOLIO (FORMERLY PILGRIM VARIABLE PRODUCTS TRUST -- PILGRIM INTERNATIONAL VALUE PORTFOLIO) (CLASS R SHARES) INVESTMENT OBJECTIVE Seeks long-term capital appreciation. PRINCIPAL STRATEGIES Invests primarily in foreign companies with market capitalizations greater than $1 billion, but may hold up to 25% of assets in companies with smaller market capitalization. Portfolio managers apply the technique of "value investing" by seeking stocks that their research indicates are priced below their long-term value. Holds common stocks, preferred stocks, American, European and global depository receipts, as well as convertible securities. Under normal circumstances, will invest at least 65% of total assets in securities of companies located in at least three countries other than the U.S., which may include emerging market countries. May invest up to the greater of 20% of assets in any on country or industry, or, 150% of the weighting of the country or industry in the Morgan Stanley Capital International Europe Australia Far East (MSCI EAFE) Index, as long as the Portfolio meets any industry concentration or diversification requirements under the Investment Company Act of 1940, as amended. Also may lend portfolio securities on a short-term or long-term basis, up to 33 1/3% of total assets. PRINCIPAL RISKS You could lose money on an investment in the Portfolio. The Portfolio may be affected by the following risks, among others: risks of foreign investing, price volatility, market trends, inability to sell securities and securities lending. International investing does pose special risks, including currency fluctuation, economic and political risks not found in investments that are solely domestic. Risks of foreign investing are generally intensified for investments in emerging markets. In exchange for higher growth potential, investing in stocks of small and medium-sized companies may entail greater price volatility than investing in stocks of larger companies. Investing in Portfolios that are concentrated in a smaller number of holdings poses greater risk than those with a larger number of holdings because each investment has a greater effect on the Portfolio's performance. INVESTMENT ADVISER: ING Investments, LLC (ING Investments) (formerly ING Pilgrim Investments, LLC) SUBADVISER: Brandes Investment Partners, L.P. ING VARIABLE PRODUCTS TRUST -- ING VP MIDCAP OPPORTUNITIES PORTFOLIO (FORMERLY PILGRIM VARIABLE PRODUCTS TRUST -- PILGRIM VP MIDCAP OPPORTUNITIES PORTFOLIO) (CLASS R SHARES) INVESTMENT OBJECTIVE Seeks long-term capital appreciation. PRINCIPAL STRATEGIES Normally invests at least 80% of assets in the common stocks of mid -sized U.S. companies. Normally invests in companies that the portfolio managers feel have above average prospects for growth. For this Portfolio, mid-size companies are those with market capitalizations that fall within the range of companies in the Standard & Poor's MidCap 400 Index (S&P MidCap 400 Index). The market capitalization range will change with market conditions as the range of the companies included in the S&P MidCap 400 Index changes. Portfolio managers use a "top-down" disciplined investment process, which includes extensive database screening, frequent fundamental research, identification and implementation of a trend-oriented approach in structuring the portfolio and a sell discipline. Portfolio managers seek to invest in companies expected to benefit most from the major social, economic and technological trends that are likely to shape the future of business and commerce over the next three to five years, and attempt to provide a framework for identifying such industries and companies expected to benefit most. This top-down approach is combined with rigorous fundamental research (a bottom-up approach) to guide stock selection and portfolio structure. May invest in initial public offerings. 56 PRINCIPAL RISKS You could lose money on an investment in the Portfolio. The Portfolio may be affected by the following risks, among others: price volatility, market trends and inability to sell securities. The Portfolio has exposure to financial and market risks that accompany investments in equities. Securities of mid-sized companies may be more susceptible to price swings than investments in larger companies. Investing in Portfolios that are concentrated in a smaller number of holdings poses greater risk than those with a larger number of holdings; each investment has a greater effect on the Portfolio's performance. INVESTMENT ADVISER: ING Investments, LLC (ING Investments) (formerly ING Pilgrim Investments, LLC) ING VARIABLE PRODUCTS TRUST -- ING VP SMALLCAP OPPORTUNITIES PORTFOLIO (FORMERLY PILGRIM VARIABLE PRODUCTS TRUST -- PILGRIM VP SMALLCAP OPPORTUNITIES PORTFOLIO) (CLASS R SHARES) INVESTMENT OBJECTIVE Seeks long-term capital appreciation. PRINCIPAL STRATEGIES Normally invests at least 80% of assets in the common stock of smaller, lesser-known U.S. companies that the portfolio manager believes have above average prospects for growth. For this Portfolio, smaller companies are those with market capitalizations that fall within the range of companies in the Russell 2000 Index, which is an index that measures the performance of small companies. The market capitalization range will change with market conditions as the range of the companies included in the Russell 2000 Index changes. The portfolio manager uses a "top-down" disciplined investment process, which includes extensive database screening, frequent fundamental research, identification and implementation of a trend-oriented approach in structuring the portfolio and a sell discipline. The portfolio manager seeks to invest in companies expected to benefit most from the major social, economic and technological trends that are likely to shape the future of business and commerce over the next three to five years, and attempts to provide a framework for identifying such industries and companies expected to benefit most. This top-down approach is combined with rigorous fundamental research (a bottom-up approach) to guide stock selection and portfolio structure. May invest in initial public offerings. PRINCIPAL RISKS You could lose money on an investment in the Portfolio. The Portfolio may be affected by the following risks, among others: price volatility, market trends and inability to sell securities. In exchange for higher growth potential, investing in stocks of smaller companies may entail greater price volatility than investing in stocks of larger companies. INVESTMENT ADVISER: ING Investments, LLC (ING Investments) (formerly ING Pilgrim Investments, LLC) ING PARTNERS, INC. -- ING ALGER AGGRESSIVE GROWTH PORTFOLIO (FORMERLY PORTFOLIO PARTNERS, INC. -- PPI ALGER AGGRESSIVE GROWTH PORTFOLIO) (SERVICE CLASS) INVESTMENT OBJECTIVE Seeks long-term capital appreciation. PRINCIPAL STRATEGIES Invests primarily (at least 65% of total assets) in the equity securities of companies having a market capitalization within the range of companies in the S&P MidCap 400 Index. The Portfolio's subadviser focuses on midsize companies with promising growth potential. Investments may include securities listed on a securities exchange or traded in the over the counter markets. PRINCIPAL RISKS Subject to the following principal risks: -- Market and Company Risk: The value of the securities in which the Portfolio invests may decline due to changing economic, political or market conditions, or due to the financial condition of the company which issued the security. -- Over the Counter Risk: Equity securities that are traded over the counter may be more volatile than exchange-listed securities and the Portfolio may experience difficulty in purchasing or selling these securities at a fair price. 57 -- Growth Stock Risk: Securities of growth companies may be more volatile since such companies usually invest a high portion of earnings in their business, and they may lack the dividends of value stocks that can cushion stock prices in a falling market. In addition, earnings disappointments often lead to sharply falling prices because investors buy growth stocks in anticipation of superior earnings growth. -- Mid Cap Growth Risk: Securities of medium-sized companies may be more volatile than larger, more established companies owing to such factors as inexperienced management and limited financial resources. -- Active or Frequent Trading Risk: Frequent trading increases transaction costs, which could detract from the Portfolio's performance. INVESTMENT ADVISER: ING Life Insurance and Annuity Company (formerly Aetna Life Insurance and Annuity Company) SUBADVISER: Fred Alger Management, Inc. (Alger) ING PARTNERS, INC. -- ING ALGER GROWTH PORTFOLIO (FORMERLY PORTFOLIO PARTNERS, INC. -- PPI ALGER GROWTH PORTFOLIO) (SERVICE CLASS) INVESTMENT OBJECTIVE Seeks long-term capital appreciation. PRINCIPAL STRATEGIES Invests primarily (at least 65% of total assets) in the equity securities of large companies having a market capitalization of $10 billion or greater. The Portfolio's subadviser focuses on growing companies that generally have broad product lines, markets, financial resources and depth of management. Investments may include securities listed on a securities exchange or traded in the over the counter markets. PRINCIPAL RISKS Subject to the following principal risks: -- Market and Company Risk: The value of the securities in which the Portfolio invests may decline due to changing economic, political or market conditions, or due to the financial condition of the company which issued the security. -- Over the Counter Risk: Equity securities that are traded over the counter may be more volatile than exchange-listed securities, and the Portfolio may experience difficulty in purchasing or selling these securities at a fair price. -- Growth Stock Risk: Securities of growth companies may be more volatile since such companies usually invest a high portion of earnings in their business, and they may lack the dividends of value stocks that can cushion stock prices in a falling market. In addition, earnings disappointments often lead to sharply falling prices because investors buy growth stocks in anticipation of superior earnings growth. -- Active or Frequent Trading Risk: Frequent trading increases transaction costs, which could detract from the Portfolio's performance. INVESTMENT ADVISER: ING Life Insurance and Annuity Company (formerly Aetna Life Insurance and Annuity Company) SUBADVISER: Fred Alger Management, Inc. (Alger) ING PARTNERS, INC. -- ING AMERICAN CENTURY SMALL CAP VALUE PORTFOLIO (SERVICE CLASS) INVESTMENT OBJECTIVE Seeks long-term growth of capital; income is a secondary objective. PRINCIPAL STRATEGIES Seeks to achieve its investment objective by investing primarily (at least 80% of net assets under normal circumstances) in equity securities of smaller companies. The Portfolio's subadviser considers smaller companies to include those with a market capitalization no bigger than that of the largest company in the S&P Small Cap 600 Index or the Russell 2000 Index. The subadviser looks for companies whose stock price is less than they believe the company is worth and attempts to purchase the stocks of these undervalued companies and hold them until their stock price has increased to, or is higher than, a level that is believed to more accurately reflect the fair value of the company. 58 PRINCIPAL RISKS Subject to the following principal risks: -- Market and Company Risk: The value of the securities in which the Portfolio invests may decline due to changing economic, political or market conditions, or due to the financial condition of the company which issued the security. -- Small Capitalization Company Risk: Investment in small capitalization companies involves a substantial risk of loss. Small cap companies and the market for their equity securities are more likely to be more sensitive to changes in earnings results and investor expectations. These companies are also likely to have more limited product lines, capital resources, management depth and their securities trade less frequently and in more limited volumes than securities of larger companies. -- Foreign Markets Risk and Currency Risk: Investment in foreign securities involves additional risks relating to political, social and economic developments abroad. Other risks from these investments result from the differences between the regulations to which U.S. and foreign issuers and markets are subject. Exposure to foreign currencies may cause the value of a Portfolio to decline in the event that the U.S. dollar strengthens against these currencies, or in the event that foreign governments intervene in the currency markets. -- Active or Frequent Trading Risk: Frequent trading increases transaction costs, which could detract from the Portfolio's performance. INVESTMENT ADVISER: ING Life Insurance and Annuity Company (formerly Aetna Life Insurance and Annuity Company) SUBADVISER: American Century Investment Management, Inc. (American Century) ING PARTNERS, INC. -- ING BARON SMALL CAP GROWTH PORTFOLIO (SERVICE CLASS) INVESTMENT OBJECTIVE Seeks capital appreciation. PRINCIPAL STRATEGIES Invests primarily in common stocks of smaller companies selected for capital appreciation potential. Invests primarily (at least 80% of net assets under normal circumstances) in small sized companies with market values under $1.5 billion measured at the time of purchase. The Portfolio's subadviser will not sell positions just because their market values have increased. BAMCO will add to positions in a company even though its market capitalization has increased through appreciation within the limits stated, if, in BAMCO's judgment, the company is still an attractive investment. Also may invest in other equity-type securities such as convertible bonds and debentures, preferred stocks, warrants and convertible preferred stocks. Investment income is not a consideration in securities selection. PRINCIPAL RISKS Subject to the following principal risks: -- Market and Company Risk: The value of the securities in which the Portfolio invests may decline due to changing economic, political or market conditions, or due to the financial condition of the company which issued the security. -- Small Capitalization Company Risk: Investment in small capitalization companies involves a substantial risk of loss. Small cap companies and the market for their equity securities are more likely to be more sensitive to changes in earnings results and investor expectations. These companies are also likely to have more limited product lines, capital resources, management depth and their securities trade less frequently and in more limited volumes than securities of larger companies. -- Active or Frequent Trading Risk: Frequent trading increases transaction costs, which could detract from the Portfolio's performance. -- Growth Stock Risk: Securities of growth companies may be more volatile since such companies usually invest a high portion of earnings in their business, and they may lack the dividends of value stocks that can cushion stock prices in a falling market. In addition, earnings disappointments often lead to sharply falling prices because investors buy growth stocks in anticipation of superior earnings growth. 59 -- Large Positions Risk: The Portfolio may establish significant positions in companies in which the subadviser has the greatest conviction. If the stock price of one or more of the companies should decrease, it would have a big impact on the Portfolio's net asset value. The Portfolio's returns may be more volatile than those of a less concentrated portfolio. INVESTMENT ADVISER: ING Life Insurance and Annuity Company (formerly Aetna Life Insurance and Annuity Company) SUBADVISER: BAMCO, Inc. (BAMCO) ING PARTNERS, INC. -- ING DSI ENHANCED INDEX PORTFOLIO (FORMERLY PORTFOLIO PARTNERS, INC. -- PPI DSI ENHANCED INDEX PORTFOLIO) (SERVICE CLASS) INVESTMENT OBJECTIVE Seeks higher total return over the long term than the Standard & Poor's 500 Index (S&P 500). PRINCIPAL STRATEGIES Seeks to achieve its investment objective by using DSI's, the subadviser's, proprietary enhanced S&P 500 strategy to invest in a selection of common stocks that are included in the S&P 500 Index. Normally invests in approximately 250 to 500 stocks and weights its holdings of individual stocks based on DSI's proprietary enhanced S&P 500 strategy. Compared to the stock weightings in the S&P 500 Index, the Portfolio overweights stocks that its strategy ranks positively and underweights stocks that its strategy ranks negatively. Seeks to control the risk of its portfolio by maintaining an overall close correlation between its performance and the performance of the S&P 500 Index over time with a relatively low tracking error. Generally expects to rebalance its portfolio monthly, but may do so more often if DSI considers it appropriate to do so. PRINCIPAL RISKS Subject to the following principal risks: -- Market and Company Risk: The value of the securities in which the Portfolio invests may decline due to changing economic, political or market conditions, or due to the financial condition of the company which issued the security. -- Stock Risk: Stock prices have historically risen and fallen in periodic cycles. Recently, U.S. stock markets and certain foreign stock markets have experienced substantial price volatility and, at times, have traded at or close to record high levels. There is no guarantee that such levels will be reached or maintained in the future. -- DSI Proprietary Strategy Risk: DSI's proprietary strategy may not result in outperformance of the designated index and may even result in underperformance. -- Index Tracking Risk: The Portfolio expects a close correlation between the performance of the portion of its assets allocated to stocks and that of the S&P 500 Index in both rising and falling markets. Performance, however, generally will not be identical to that of the Index because of the fees and expenses borne by the Portfolio and investor purchases and sales of Portfolio shares, which can occur daily. -- Derivatives Risk: Loss may result from the Portfolio's investments in options, futures, swaps, structured securities and other derivative instruments. These instruments may be leveraged so that small changes may produce disproportionate losses to the Portfolio. A Portfolio investing in a derivative instrument could lose more than the principal amount invested. -- Foreign Markets Risk and Currency Risk: Investment in foreign securities involves additional risks relating to political, social and economic developments abroad. Other risks result from the differences between the regulations to which U.S. and foreign issuers and markets are subject. Exposure to foreign currencies may cause the value of the Portfolio to decline in the event that the U.S. dollar strengthens against these currencies, or in the event that foreign governments intervene in the currency markets. -- Active or Frequent Trading Risk: Frequent trading increases transaction costs, which could detract from Portfolio performance. INVESTMENT ADVISER: ING Life Insurance and Annuity Company (formerly Aetna Life Insurance and Annuity Company) SUBADVISER: DSI International Management, Inc. (DSI) 60 ING PARTNERS, INC. -- ING GOLDMAN SACHS-REGISTERED TRADEMARK- CAPITAL GROWTH PORTFOLIO (FORMERLY PORTFOLIO PARTNERS, INC. -- PPI GOLDMAN SACHS-REGISTERED TRADEMARK- CAPITAL GROWTH PORTFOLIO) (SERVICE CLASS) INVESTMENT OBJECTIVE Seeks long-term growth of capital. PRINCIPAL STRATEGIES Invests, under normal circumstances, at least 90% of total assets in equity investments. Seeks to achieve its investment objective by investing in a diversified portfolio of equity securities that are considered by the Portfolio's subadviser to have long-term capital appreciation potential. Although the Portfolio invests primarily in publicly traded U.S. securities, it may invest up to 10% of total assets in foreign securities, including securities of issuers in emerging countries and securities quoted in foreign currencies. PRINCIPAL RISKS Subject to the following principal risks: -- Market and Company Risk: The value of the securities in which the Portfolio invests may decline due to changing economic, political or market conditions, or due to the financial condition of the company which issued the security. -- Growth Stock Risk: Securities of growth companies may be more volatile since such companies usually invest a high portion of earnings in their business, and they may lack the dividends of value stocks that can cushion stock prices in a falling market. In addition, earnings disappointments often lead to sharply falling prices because investors buy growth stocks in anticipation of superior earnings growth. -- Foreign Markets Risk and Currency Risk: Investment in foreign securities involves additional risks relating to political, social and economic developments abroad. Other risks result from the differences between the regulations to which U.S. and foreign issuers and markets are subject. Exposure to foreign currencies may cause the value of the Portfolio to decline in the event that the U.S. dollar strengthens against these currencies, or in the event that foreign governments intervene in the currency markets. -- Emerging Markets Risk: Emerging markets are generally defined as countries in the initial states of their industrialization cycles with low per capita income. Investments in emerging markets securities involve all of the risks of investments in foreign securities, and also have additional risks. INVESTMENT ADVISER: ING Life Insurance and Annuity Company (formerly Aetna Life Insurance and Annuity Company) SUBADVISER: Goldman Sachs Asset Management (Goldman) ING PARTNERS, INC. -- ING JP MORGAN MID CAP VALUE PORTFOLIO (SERVICE CLASS) INVESTMENT OBJECTIVE A NONDIVERSIFIED Portfolio that seeks growth from capital appreciation. PRINCIPAL STRATEGIES Invests primarily (at least 80% of net assets under normal circumstances) in a broad portfolio of common stocks of companies with market capitalizations of $1 billion to $20 billion at the time of purchase that the Portfolio's subadviser believes to be undervalued. Under normal market conditions, will only purchase securities that are traded on registered exchanges or the over-the-counter market in the United States. May invest in other equity securities, which include preferred stocks, convertible securities and foreign securities, which may take the form of despositary receipts. May use derivatives to hedge various market risks or to increase the Portfolio's income. PRINCIPAL RISKS Subject to the following principal risks: -- Market and Company Risk: The value of the securities in which the Portfolio invests may decline due to changing economic, political or market conditions, or due to the financial condition of the company which issued the security. -- Foreign Markets Risk: Investment in foreign securities involves additional risks relating to political, social and economic developments abroad. Other risks result from the differences between the regulations to which U.S. and foreign issuers and markets are subject. The Portfolio limits foreign investments to securities denominated in U.S. dollars, and is generally not subject to the risk of changes in currency valuations. 61 -- Interest Rate Risk: The Portfolio's investment in debt securities involves risks relating to interest rate movement. If interest rates go up, the value of any debt securities held by the Portfolio will decline. Securities with longer durations tend to be more sensitive to changes in interest rates, usually making them more volatile than securities with shorter durations. -- Small and Mid-Capitalization Company Risk: Investment in small and mid-capitalization companies involves a substantial risk of loss. Small and mid cap companies and the market for their equity securities are more likely to be more sensitive to changes in earnings results and investor expectations. These companies are also likely to have more limited product lines, capital resources and management depth than larger companies. -- Over the Counter Risk: Equity securities that are traded over the counter may be more volatile than exchange-listed securities and the Portfolio may experience difficulty in purchasing or selling these securities at a fair price. -- Depositary Receipt Risk: Unsponsored depositary receipts may not provide as much information about the underlying issuer and may not carry the same voting privileges as sponsored depositary receipts. -- Derivatives Risk: Loss may result from investments in options, futures, swaps, structured securities and other derivative instruments. These instruments may be leveraged so that small changes may produce disproportionate losses to the Portfolio. A Portfolio investing in a derivative instrument could lose more than the principal amount invested. -- Active or Frequent Trading Risk: Frequent trading increases transaction costs, which could detract from the Portfolio's performance. INVESTMENT ADVISER: ING Life Insurance and Annuity Company (formerly Aetna Life Insurance and Annuity Company) SUBADVISER: Robert Fleming Inc., a subsidiary of J.P. Morgan Chase & Co. (Fleming) ING PARTNERS, INC. -- ING MFS CAPITAL OPPORTUNITIES PORTFOLIO (FORMERLY PORTFOLIO PARTNERS, INC. (PPI) MFS CAPITAL OPPORTUNITIES PORTFOLIO) (INITIAL CLASS) INVESTMENT OBJECTIVE Seeks capital appreciation. PRINCIPAL STRATEGIES Invests primarily (at least 65% of net assets) in common stocks and related securities, such as preferred stocks, convertible securities and depositary receipts. Focuses on companies that the Portfolio's subadviser believes have favorable growth prospects and attractive valuations based on current and expected earnings or cash flows. Investments may include securities listed on a securities exchange or traded in the over the counter markets. MFS selects securities based upon fundamental analysis (such as an analysis of earnings, cash flows, competitive position and management's abilities) performed by the Portfolio's manager and MFS' large group of equity research analysts. May invest in foreign securities (including emerging market securities) and may have exposure to foreign currencies through its investment in these securities, its direct holdings of foreign currencies or through its use of foreign currency exchange contracts for the purchase or sale of a fixed quantity of a foreign currency at a future date. May engage in active and frequent trading to achieve its principal investment strategy. PRINCIPAL RISKS Subject to the following principal risks: -- Market and Company Risk: The value of the securities in which the Portfolio invests may decline due to changing economic, political or market conditions, or due to the financial condition of the company which issued the security. -- Over the Counter Risk: Equity securities that are traded over the counter may be more volatile than exchange-listed securities and the Portfolio may experience difficulty in purchasing or selling these securities at a fair price. -- Foreign Markets Risk and Currency Risk: Investment in foreign securities involves additional risks relating to political, social and economic developments abroad. Other risks result from the differences between the regulations to which U.S. and foreign issuers and markets are subject. Exposure to foreign currencies may cause the value of the Portfolio to decline in the event that the U.S. dollar strengthens against these currencies, or in the event that foreign governments intervene in the currency markets. -- Emerging Markets Risk: Emerging markets are generally defined as countries in the initial stages of their industrialization cycles with low per capita income. Investments in emerging markets securities involve all of the risks of investment in foreign securities, and also have additional risks. 62 -- Depositary Receipt Risk: Unsponsored depositary receipts may not provide as much information about the underlying issuer and may not carry the same voting privileges as sponsored depositary receipts. -- Active or Frequent Trading Risk: Frequent trading increases transaction costs, which could detract from the Portfolio's performance. INVESTMENT ADVISER: ING Life Insurance and Annuity Company (formerly Aetna Life Insurance and Annuity Company) SUBADVISER: Massachusetts Financial Services Company (MFS) ING PARTNERS, INC. -- ING MFS EMERGING EQUITIES PORTFOLIO (FORMERLY PORTFOLIO PARTNERS, INC. (PPI) MFS EMERGING EQUITIES PORTFOLIO) (INITIAL CLASS) INVESTMENT OBJECTIVE Seeks long-term growth of capital. PRINCIPAL STRATEGIES Invests primarily (at least 80% of net assets under normal circumstances) in common stocks and related securities, such as preferred stocks, convertible securities and depositary receipts, of emerging growth companies. Emerging growth companies are companies that MFS, the Portfolio's subadviser, believes are early in their life cycle and have the potential to become major enterprises, or are major enterprises whose rates of earnings growth MFS believes will accelerate. Investments may include securities listed on a securities exchange or traded in the over the counter markets. MFS selects securities based upon fundamental analysis (such as an analysis of earnings, cash flows, competitive position and management's abilities) performed by the Portfolio's manager and MFS' large group of equity research analysts. May invest in foreign securities (including emerging market securities) and may have exposure to foreign currencies through its investment in these securities, its direct holdings of foreign currencies or through its use of foreign currency exchange contracts for the purchase or sale of a fixed quantity of foreign currency at a future date. May engage in active and frequent trading to achieve its principal investment strategy. PRINCIPAL RISKS Subject to the following principal risks: -- Market and Company Risk: The value of the securities in which the Portfolio invests may decline due to changing economic, political or market conditions, or due to the financial condition of the company which issued the security. -- Emerging Growth Risk: The Portfolio's performance is particularly sensitive to changes in the value of emerging growth companies. Investments in emerging growth companies may be subject to more abrupt or erratic market movements and may involve greater risks than investments in other companies. -- Over the Counter Risk: Equity securities that are traded over the counter may be more volatile than exchange-listed securities and the Portfolio may experience difficulty in purchasing or selling these securities at a fair price. -- Foreign Markets Risk and Currency Risk: Investment in foreign securities involves additional risks relating to political, social and economic developments abroad. Other risks from these investments result from the differences between the regulations to which U.S. and foreign issuers and markets are subject. Exposure to foreign currencies may cause the value of the Portfolio to decline in the event that the U.S. dollar strengthens against these currencies, or in the event that foreign governments intervene in the currency markets. -- Emerging Markets Risk: Emerging markets are generally defined as countries in the initial stages of their industrialization cycles with low per capita income. Investments in emerging markets securities involve all of the risks of investment in foreign securities, and also have additional risks. -- Active or Frequent Trading Risk: Frequent trading increases transaction costs, which could detract from the Portfolio's performance. -- Depositary Receipt Risk: Unsponsored depositary receipts may not provide as much information about the underlying issuer and may not carry the same voting privileges as sponsored depositary receipts. INVESTMENT ADVISER: ING Life Insurance and Annuity Company (formerly Aetna Life Insurance and Annuity Company) SUBADVISER: Massachusetts Financial Services Company (MFS) 63 ING PARTNERS, INC. -- ING MFS GLOBAL GROWTH PORTFOLIO (SERVICE CLASS) INVESTMENT OBJECTIVE A NONDIVERSIFIED Portfolio that seeks capital appreciation. PRINCIPAL STRATEGIES Invests primarily (at least 65% of net assets under normal circumstances) in common stocks and related equity securities such as preferred stock, convertible securities and depositary receipts. Seeks to achieve its investment objective by investing in securities of companies worldwide growing at rates expected to be well above the growth rate of the overall U.S. economy. Invests in equity securities which are derived from companies in three distinct market sectors: (1) U.S. emerging growth companies, which are domestic companies that MFS, the Portfolio's subadviser, believes are either early in their life cycle but which have the potential to become major enterprises, or are major enterprises whose rates of earnings growth are expected to accelerate due to special factors; (2) foreign growth companies, which are foreign companies located in more developed securities markets that MFS believes have favorable growth prospects and attractive valuations based on current and expected earnings and cash flow; and, (3) emerging market securities, which are securities of issuers whose principal activities are located in emerging market countries. Under normal circumstances, invests in at least three different countries, one of which may be the United States. Investments may include securities listed on a securities exchange or traded in the over the counter markets. Also may engage in active and frequent trading to achieve its principal investment strategies. PRINCIPAL RISKS Subject to the following principal risks: -- Market and Company Risk: The value of the securities in which the Portfolio invests may decline due to changing economic, political or market conditions, or due to the financial condition of the company which issued the security. -- Asset Allocation Risk: May miss attractive investment opportunities by underweighting markets where there are significant returns. May lose value by underweighting markets where there are significant declines. -- Foreign Markets Risk and Currency Risk: Investment in foreign securities involves additional risks relating to political, social and economic developments abroad. Other risks result from the differences between the regulations to which U.S. and foreign issuers and markets are subject. Exposure to foreign currencies may cause the value of the Portfolio to decline in the event that the U.S. dollar strengthens against these currencies, or in the event that foreign governments intervene in the currency markets. -- Emerging Growth Risk: The Portfolio's performance is particularly sensitive to changes in the value of emerging growth companies. Investments in emerging growth companies may be subject to more abrupt or erratic market movements and may involve greater risks than investments in other companies. -- Geographic Focus Risk: If the Portfolio focuses its investments by investing a substantial amount of its assets in issuers located in a single country or a limited number of countries, it assumes the risk that economic, political and social conditions in those countries will have a significant impact on its investment performance. -- Emerging Markets Risk: Emerging markets are generally defined as countries in the initial stages of their industrialization cycles with low per capita income. Investments in emerging markets securities involve all of the risks of investment in foreign securities, and also have additional risks. -- Over the Counter Risk: Equity securities that are traded over the counter may be more volatile than exchange-listed securities and the Portfolio may experience difficulty in purchasing or selling these securities at a fair price. -- Active or Frequent Trading Risk: Frequent trading increases transaction costs, which could detract from the Portfolio's performance. -- Depositary Receipt Risk: Unsponsored depositary receipts may not provide as much information about the underlying issuer and may not carry the same voting privileges as sponsored depositary receipts. INVESTMENT ADVISER: ING Life Insurance and Annuity Company (formerly Aetna Life Insurance and Annuity Company) SUBADVISER: Massachusetts Financial Services Company (MFS) ING PARTNERS, INC. -- ING MFS RESEARCH PORTFOLIO (FORMERLY PORTFOLIO PARTNERS, INC. (PPI) MFS RESEARCH GROWTH PORTFOLIO) (INITIAL CLASS) INVESTMENT OBJECTIVE Seeks long-term growth of capital and future income. 64 PRINCIPAL STRATEGIES Invests primarily (at least 80% of total assets) in common stocks and related securities, such as preferred stocks, convertible securities and depositary receipts. Focuses on companies that the Portfolio's subadviser (MFS) believes have favorable prospects for long-term growth, attractive valuations based on current and expected earnings or cash flows, dominant or growing market share and superior management. May invest in companies of any size. Investments may also include securities traded on securities exchanges or in the over the counter markets. A committee of investment research analysts selects portfolio securities for the Portfolio. This committee includes investment analysts employed not only by MFS, but also by MFS' investment advisory affiliates. May invest in foreign securities (including emerging market securities) and may have exposure to foreign currencies through its investment in these securities, its direct holdings of foreign currencies or through its use of foreign currency exchange contracts for the purchase or sale of a fixed quantity of foreign currency at a future date. May engage in active and frequent trading to achieve its principal investment strategy. PRINCIPAL RISKS Subject to the following principal risks: -- Market and Company Risk: The value of the securities in which the Portfolio invests may decline due to changing economic, political or market conditions, or due to the financial condition of the company which issued the security. -- Over the Counter Risk: Equity securities that are traded over the counter may be more volatile than exchange-listed securities and the Portfolio may experience difficulty in purchasing or selling these securities at a fair price. -- Foreign Markets Risk and Currency Risk: Investment in foreign securities involves additional risks relating to political, social and economic developments abroad. Other risks result from the differences between the regulations to which U.S. and foreign issuers and markets are subject. Exposure to foreign currencies may cause the value of the Portfolio to decline in the event that the U.S. dollar strengthens against these currencies, or in the event that foreign governments intervene in the currency markets. -- Emerging Markets Risk: Emerging markets are generally defined as countries in the initial stages of their industrialization cycles with low per capita income. Investments in emerging markets securities involve all of the risks of investment in foreign securities, and also have additional risks. -- Depositary Receipt Risk: Unsponsored depositary receipts may not provide as much information about the underlying issuer and may not carry the same voting privileges as sponsored depositary receipts. -- Active or Frequent Trading Risk: Frequent trading increases transaction costs, which could detract from the Portfolio's performance. INVESTMENT ADVISER: ING Life Insurance and Annuity Company (formerly Aetna Life Insurance and Annuity Company) SUBADVISER: Massachusetts Financial Services Company (MFS) ING PARTNERS, INC. -- ING OPCAP BALANCED VALUE PORTFOLIO (FORMERLY PORTFOLIO PARTNERS, INC. -- PPI OPCAP BALANCED VALUE PORTFOLIO) (SERVICE CLASS) INVESTMENT OBJECTIVE Seeks capital growth, and secondarily, investment income. PRINCIPAL STRATEGIES Under normal market conditions, invests at least 25% of total assets in equity securities, including common stocks and preferred stocks and expects to have between 50% to 70% of total assets invested in equities. Also invests at least 25% of total assets in fixed-income senior securities including bonds, debentures, notes, participation interests in loans, convertible securities, U.S. Government securities and cash equivalents. To seek growth, the Portfolio invests mainly in common stocks of established U.S. issuers that the sub-adviser believes are undervalued in the marketplace in relation to company assets, earnings, growth potential and cash flows. The Portfolio also invests in other equity securities, such as preferred stock and securities convertible into common stock. The Portfolio also buys corporate and government bonds, notes, and other debt securities for investment income, which can include securities below investment grade. The sub-adviser allocates the Portfolio's investments among equity and debt securities after assessing the relative values of these different types of investments under prevailing market conditions. 65 PRINCIPAL RISKS Subject to the following principal risks: -- Market and Company Risk: The value of the securities in which the Portfolio invests may decline due to changing economic, political or market conditions, or due to the financial condition of the company which issued the security. -- Industry Focus Risk: To the extent that the Portfolio is emphasizing investments in a particular industry, its shares may fluctuate in response to events affecting that industry. Stocks of issuers in a particular industry may be affected by changes in economic conditions, government regulations, availability of basic resources or supplies, or other events that affect that industry more than others. -- Interest Rate Risk: The Portfolio's investment in debt securities involves risks relating to interest rate movement. If interest rates go up, the value of any debt securities held by the Portfolio will decline. Securities with longer durations tend to be more sensitive to changes in interest rates, usually making them more volatile than securities with shorter durations. -- Credit Risk: Invests in non-investment grade debt securities whose issuers may be more likely to have difficulty making timely payments of interest or principal. -- Active or Frequent Trading Risk: Frequent trading increases transaction costs, which could detract from the Portfolio's performance. INVESTMENT ADVISER: ING Life Insurance and Annuity Company (formerly Aetna Life Insurance and Annuity Company) SUBADVISER: OpCap Advisors LLP (OpCap) ING PARTNERS, INC. -- ING PIMCO TOTAL RETURN PORTFOLIO (SERVICE CLASS) INVESTMENT OBJECTIVE Seeks maximum total return, consistent with capital preservation and prudent investment management. PRINCIPAL STRATEGIES Invests under normal circumstances at least 65% of its assets in a diversified portfolio of fixed income instruments of varying maturities. The average portfolio duration of this Portfolio normally varies within a three- to six-year time frame based on the Portfolio's subadviser's forecast for interest rates. Invests primarily in investment grade debt securities, but may invest up to 10% of its assets in high yield securities ("junk bonds") rated B or higher by Moody's or S&P, or, if unrated, determined by PIMCO to be of comparable quality. May invest up to 20% of its assets in securities denominated in foreign currencies, and may invest beyond this limit in U.S. dollar-denominated securities of foreign issuers. The Portfolio will normally hedge at least 75% of its exposure to foreign currency to reduce the risk of loss due to fluctuations in currency exchange rates. May invest all of its assets in derivative instruments, such as options, futures contracts or swap agreements, or in mortgage- or asset-backed securities. May, without limitation, seek to obtain market exposure to the securities in which it primarily invests by entering into a series of purchase and sale contracts or by using other investment techniques (such as buybacks or dollar rolls). PRINCIPAL RISKS Subject to the following principal risks: -- Market and Company Risk: The value of the securities in which the Portfolio invests may decline due to changing economic, political or market conditions, or due to the financial condition of the company which issued the security. -- Foreign Markets Risk and Currency Risk: Investment in foreign securities involves additional risks relating to political, social and economic developments abroad. Other risks result from the differences between the regulations to which U.S. and foreign issuers and markets are subject. Exposure to foreign currencies may cause the value of the Portfolio to decline in the event that the U.S. dollar strengthens against these currencies, or in the event that foreign governments intervene in the currency markets. -- Credit Risk: Invests in non-investment grade debt securities whose issuers may be more likely to have difficulty making timely payments of interest or principal. -- Interest Rate Risk: The Portfolio's investment in debt securities involves risks relating to interest rate movement. If interest rates go up, the value of any debt securities held by the Portfolio will decline. Securities with longer durations tend to be more sensitive to changes in interest rates, usually making them more volatile than securities with shorter durations. 66 -- Derivatives Risk: Loss may result from investments in options, futures, swaps, structured securities and other derivative instruments. These instruments may be leveraged so that small changes may produce disproportionate losses to the Portfolio. A Portfolio investing in a derivative instrument could lose more than the principal amount invested. -- Liquidity Risk: Investments in illiquid securities may reduce the returns of the Portfolio because it may be unable to sell the illiquid securities at an advantageous time or price. A Portfolio has the greatest exposure to liquidity risk due to its investments in foreign securities, derivatives, and securities with substantial market and credit risk. -- Mortgage Risk: Rising interest rates tend to extend the duration of mortgage-related securities, making them more sensitive to changes in interest rates. As a result, in a period of rising interest rates, a Portfolio that holds mortgage-related securities may exhibit additional volatility. In addition, mortgage-related securities are subject to prepayment risk. This can reduce the returns of a Portfolio. -- Leveraging Risk: Leveraging may cause a Portfolio to liquidate portfolio positions when it may not be advantageous to do so. Leverage, including borrowing, may cause the Portfolio to be more volatile than if the Portfolio had not been leveraged. -- Active or Frequent Trading Risk: Frequent trading increases transaction costs, which could detract from the Portfolio's performance. INVESTMENT ADVISER: ING Life Insurance and Annuity Company (formerly Aetna Life Insurance and Annuity Company) SUBADVISER: Pacific Investment Management Company LLC (PIMCO) ING PARTNERS, INC. -- ING SALOMON BROTHERS CAPITAL PORTFOLIO (FORMERLY PORTFOLIO PARTNERS, INC. -- PPI SALOMON BROTHERS CAPITAL PORTFOLIO) (SERVICE CLASS) INVESTMENT OBJECTIVE A NONDIVERSIFIED Portfolio that seeks capital appreciation. PRINCIPAL STRATEGIES Invests primarily in equity securities of U.S. companies ranging in size from established large capitalization companies (over $5 billion in market capitalization) to mid capitalization companies at the beginning of their life cycles. May invest in investment grade fixed-income securities and may invest up to 20% of net assets in non-convertible debt securities rated below investment grade or, if unrated, of equivalent quality as determined by the Portfolio's subadviser. May invest without limit in convertible debt securities emphasizing those convertible debt securities that offer the appreciation potential of common stocks. May also invest up to 20% of its assets in securities of foreign issuers. Additionally, may invest up to 10% of its assets in bank loans, including participation and assignments. SBAM emphasizes individual security selection while diversifying the Portfolio's investments across industries. SBAM seeks to identify those companies that offer the greatest potential for capital appreciation through careful fundamental analysis of each company and its financial characteristics. PRINCIPAL RISKS Subject to the following principal risks: -- Market and Company Risk: The value of the securities in which the Portfolio invests may decline due to changing economic, political or market conditions, or due to the financial condition of the company which issued the security. -- Small Capitalization Company Risk: Investment in small capitalization companies involves a substantial risk of loss. Small cap companies and the market for their equity securities are more likely to be more sensitive to changes in earnings results and investor expectations. These companies are also likely to have more limited product lines, capital resources, management depth and their securities trade less frequently and in more limited volumes than securities of larger companies. -- Foreign Markets Risk and Currency Risk: Investment in foreign securities involves additional risks relating to political, social and economic developments abroad. Other risks result from the differences between the regulations to which U.S. and foreign issuers and markets are subject. Exposure to foreign currencies may cause the value of the Portfolio to decline in the event that the U.S. dollar strengthens against these currencies, or in the event that foreign governments intervene in the currency markets. -- Credit Risk: Invests in non-investment grade debt securities whose issuers may be more likely to have difficulty making timely payments of interest or principal. 67 -- Interest Rate Risk: The Portfolio's investment in debt securities involves risks relating to interest rate movement. If interest rates go up, the value of any debt securities held by the Portfolio will decline. Securities with longer durations tend to be more sensitive to changes in interest rates, usually making them more volatile than securities with shorter durations. -- Derivatives Risk: Loss may result from investments in options, futures, swaps, structured securities and other derivative instruments. These instruments may be leveraged so that small changes may produce disproportionate losses to the Portfolio. A Portfolio investing in a derivative instrument could lose more than the principal amount invested. -- Active or Frequent Trading Risk: Frequent trading increases transaction costs, which could detract from the Portfolio's performance. INVESTMENT ADVISER: ING Life Insurance and Annuity Company (formerly Aetna Life Insurance and Annuity Company) SUBADVISER: Salomon Brothers Asset Management Inc. (SBAM) ING PARTNERS, INC. -- ING SALOMON BROTHERS INVESTORS VALUE PORTFOLIO (FORMERLY PORTFOLIO PARTNERS, INC. -- PPI SALOMON BROTHERS INVESTORS VALUE PORTFOLIO) (SERVICE CLASS) INVESTMENT OBJECTIVE Seeks long-term growth of capital, and secondarily, current income. PRINCIPAL STRATEGIES Invests primarily in common stocks of established U.S. companies. May also invest in other equity securities. To a lesser degree, invests in income producing securities such as debt securities. May also invest up to 20% of its assets in securities of foreign issuers. SBAM, the Portfolio's subadviser, emphasizes individual security selection while diversifying the Portfolio's investments across industries, which may help to reduce risk. SBAM focuses on established large capitalization companies (over $5 billion in market capitalization), seeking to identify those companies with solid growth potential at reasonable values. SBAM employs fundamental analysis to analyze each company, ranking its management, strategy and competitive market position. PRINCIPAL RISKS Subject to the following principal risks: -- Market and Company Risk: The value of the securities in which the Portfolio invests may decline due to changing economic, political or market conditions, or due to the financial condition of the company which issued the security. -- Foreign Markets Risk and Currency Risk: Investment in foreign securities involves additional risks relating to political, social and economic developments abroad. Other risks result from the differences between the regulations to which U.S. and foreign issuers and markets are subject. Exposure to foreign currencies may cause the value of the Portfolio to decline in the event that the U.S. dollar strengthens against these currencies, or in the event that foreign governments intervene in the currency markets. -- Over the Counter Risk: Equity securities that are traded over the counter may be more volatile than exchange-listed securities and the Portfolio may experience difficulty in purchasing or selling these securities at a fair price. -- Interest Rate Risk: The Portfolio's investment in debt securities involves risks relating to interest rate movement. If interest rates go up, the value of any debt securities held by the Portfolio will decline. Securities with longer durations tend to be more sensitive to changes in interest rates, usually making them more volatile than securities with shorter durations. -- Credit Risk: Invests in non-investment grade debt securities whose issuers may be more likely to have difficulty making timely payments of interest or principal. -- Derivatives Risk: Loss may result from investments in options, futures, swaps, structured securities and other derivative instruments. These instruments may be leveraged so that small changes may produce disproportionate losses to the Portfolio. A Portfolio investing in a derivative instrument could lose more than the principal amount invested. INVESTMENT ADVISER: ING Life Insurance and Annuity Company (formerly Aetna Life Insurance and Annuity Company) SUBADVISER: Salomon Brothers Asset Management Inc. (SBAM) 68 ING PARTNERS, INC. -- ING SCUDDER INTERNATIONAL GROWTH PORTFOLIO (FORMERLY PORTFOLIO PARTNERS, INC. (PPI) SCUDDER INTERNATIONAL GROWTH PORTFOLIO) (INITIAL CLASS) INVESTMENT OBJECTIVE Seeks long-term growth of capital. PRINCIPAL STRATEGIES Invests primarily (at least 65% of total assets) in the equity securities of foreign companies that the Portfolio's subadviser believes have high growth potential. Will normally invest in securities of at least three different countries other than the U.S. and will invest in securities in both developed and developing markets. Seeks to invest in those companies that Scudder believes are best able to capitalize on the growth and changes taking place within and between various regions of the world. Typically, these are companies with leading or rapidly-developing business franchises, strong financial positions, and high quality management capable of defining and implementing company strategies to take advantage of local, regional or global market changes. Also may invest in debt securities issued by both U.S. and foreign companies, including non-investment grade debt securities. PRINCIPAL RISKS Subject to the following principal risks: -- Market and Company Risk: The value of the securities in which the Portfolio invests may decline due to changing economic, political or market conditions, or due to the financial condition of the company which issued the security. -- Emerging Markets Risk: Emerging markets are generally defined as countries in the initial stages of their industrialization cycles with low per capita income. Investments in emerging markets securities involve all of the risks of investment in foreign securities, and also have additional risks. -- Geographic Focus Risk: If the Portfolio focuses its investments by investing a substantial amount of its assets in issuers located in a single country or a limited number of countries, it assumes the risk that economic, political and social conditions in those countries will have a significant impact on its investment performance. The Portfolio's investment performance may also be more volatile if it focuses its investments in certain countries, especially emerging market countries. -- Foreign Markets Risk and Currency Risk: Investment in foreign securities involves additional risks relating to political, social and economic developments abroad. Other risks result from the differences between the regulations to which U.S. and foreign issuers and markets are subject. Exposure to foreign currencies may cause the value of the Portfolio to decline in the event that the U.S. dollar strengthens against these currencies, or in the event that foreign governments intervene in the currency markets. -- Interest Rate Risk: The Portfolio's investment in debt securities involves risks relating to interest rate movement. If interest rates go up, the value of any debt securities held by the Portfolio will decline. Securities with longer durations tend to be more sensitive to changes in interest rates, usually making them more volatile than securities with shorter durations. -- Credit Risk: Invests in non-investment grade debt securities whose issuers may be more likely to have difficulty making timely payments of interest or principal. INVESTMENT ADVISER: ING Life Insurance and Annuity Company (formerly Aetna Life Insurance and Annuity Company) SUBADVISER: Deutsche Investment Management Americas Inc. (Deutsche) ING PARTNERS, INC. -- ING T. ROWE PRICE GROWTH EQUITY PORTFOLIO (FORMERLY PORTFOLIO PARTNERS, INC. (PPI) T. ROWE PRICE GROWTH EQUITY PORTFOLIO) (INITIAL CLASS) INVESTMENT OBJECTIVE Seeks long-term capital growth, and secondarily, increasing dividend income. PRINCIPAL STRATEGIES Invests primarily (at least 80% of net assets under normal circumstances) in the common stocks. The Portfolio concentrates its investments in growth companies. The Portfolio's subadviser seeks investments in companies that have the ability to pay increasing dividends through strong cash flows and whose rates of earnings growth are considered above average. In addition, T. Rowe seeks companies with a lucrative niche in the economy that T. Rowe believes will give them the ability to sustain earnings momentum even during times of slow economic growth. 69 It is T. Rowe's belief that when a company's earnings grow faster than both inflation and the overall economy, the market will eventually reward it with a higher stock price. May also purchase foreign stocks, futures, and options, in keeping with its objectives. May have exposure to foreign currencies through its investment in foreign securities, its direct holdings of foreign currencies or through its use of foreign currency exchange contracts for the purchase or sale of a fixed quantity of foreign currency at a future date. Investments in foreign securities are limited to 30% of total assets. PRINCIPAL RISKS Subject to the following principal risks: -- Market and Company Risk: The value of the securities in which the Portfolio invests may decline due to changing economic, political or market conditions, or due to the financial condition of the company which issued the security. -- Growth Stock Risk: Securities of growth companies may be more volatile since such companies usually invest a high portion of earnings in their business, and they may lack the dividends of value stocks that can cushion stock prices in a falling market. In addition, earnings disappointments often lead to sharply falling prices because investors buy growth stocks in anticipation of superior earnings growth. -- Foreign Markets Risk and Currency Risk: Investment in foreign securities involves additional risks relating to political, social and economic developments abroad. Other risks result from the differences between the regulations to which U.S. and foreign issuers and markets are subject. Exposure to foreign currencies may cause the value of the Portfolio to decline in the event that the U.S. dollar strengthens against these currencies, or in the event that foreign governments intervene in the currency markets. -- Active or Frequent Trading Risk: Frequent trading increases transaction costs, which could detract from the Portfolio's performance. INVESTMENT ADVISER: ING Life Insurance and Annuity Company (formerly Aetna Life Insurance and Annuity Company) SUBADVISER: T. Rowe Price Associates, Inc. (T. Rowe) ING PARTNERS, INC. -- ING UBS TACTICAL ASSET ALLOCATION PORTFOLIO (FORMERLY PORTFOLIO PARTNERS, INC. -- PPI BRINSON TACTICAL ASSET ALLOCATION PORTFOLIO) (SERVICE CLASS) INVESTMENT OBJECTIVE Seeks total return, consisting of long-term capital appreciation and current income. PRINCIPAL STRATEGIES Allocates assets between a stock portion designed to track the performance of the Standard & Poor's Composite Index of 500 Stocks (S&P 500 Index) and a fixed income portion consisting of either five-year U.S. Treasury notes or U.S. Treasury bills with remaining maturities of 30 days. The Portfolio's subadviser reallocates the Portfolio's assets in accordance with the recommendations of its own Tactical Allocation Model on the first business day of each month. The Tactical Allocation Model attempts to track the performance of the S&P 500 Index in periods of strong market performance. The Model attempts to take a more defensive posture by reallocating assets to bonds or cash when the Model signals a potential bear market, prolonged downturn in stock prices or significant loss in value. PRINCIPAL RISKS Subject to the following principal risks: -- Market and Company Risk: The value of the securities in which the Portfolio invests may decline due to changing economic, political or market conditions, or due to the financial condition of the company which issued the security. -- Asset Allocation Risk: The Tactical Allocation Model may not correctly predict the times to shift the Portfolio's assets from one type of investment to another. -- Interest Rate Risk: The Portfolio's investment in debt securities involves risks relating to interest rate movement. If interest rates go up, the value of any debt securities held by the Portfolio will decline. Securities with longer durations tend to be more sensitive to changes in interest rates, usually making them more volatile than securities with shorter durations. 70 -- Index Tracking Risk: The Portfolio expects a close correlation between the performance of the portion of its assets allocated to stocks and that of the S&P 500 Index in both rising and falling markets. The performance of the Portfolio's stock investments, however, generally will not be identical to that of the Index because of the fees and expenses borne by the Portfolio and investor purchases and sales of Portfolio shares, which can occur daily. -- Derivatives Risk: Loss may result from investments in options, futures, swaps, structured securities and other derivative instruments. These instruments may be leveraged so that small changes may produce disproportionate losses to the Portfolio. A Portfolio investing in a derivative instrument could lose more than the principal amount invested. -- Active or Frequent Trading Risk: Frequent trading increases transaction costs, which could detract from the Portfolio's performance. INVESTMENT ADVISER: ING Life Insurance and Annuity Company (formerly Aetna Life Insurance and Annuity Company) SUBADVISER: UBS Global Asset Management Inc. (formerly Brinson Advisors, Inc.) (UBS) ING PARTNERS, INC. -- ING VAN KAMPEN COMSTOCK PORTFOLIO (SERVICE CLASS) INVESTMENT OBJECTIVE Seeks capital growth and income. PRINCIPAL STRATEGIES Invests in a portfolio of equity securities, including common stocks, preferred stocks and securities convertible into common and preferred stocks consisting principally of common stocks. Emphasizes a value style of investing seeking well-established, undervalued companies believed to posses the potential for capital growth and income. Portfolio securities are typically sold when the assessments of the Portfolio's subadviser of the capital growth and income potential for such securities materially change. May invest up to 25% of total assets in securities of foreign issuers and may purchase and sell certain derivative instruments, such as options, futures and options on futures, for various portfolio management purposes. Also may invest up to 10% of total assets in high quality short-term debt securities and investment grade corporate debt securities in order to provide liquidity. PRINCIPAL RISKS Subject to the following principal risks: -- Market and Company Risk: The value of the securities in which the Portfolio invests may decline due to changing economic, political or market conditions, or due to the financial condition of the company which issued the security. -- Small and Mid-Capitalization Company Risk: Investment in small and mid-capitalization companies involves a substantial risk of loss. Small and mid cap companies and the market for their equity securities are more likely to be more sensitive to changes in earnings results and investor expectations. These companies are also likely to have more limited product lines, capital resources and management depth than larger companies. -- Foreign Markets Risk and Currency Risk: Investment in foreign securities involves additional risks relating to political, social and economic developments abroad. Other risks result from the differences between the regulations to which U.S. and foreign issuers and markets are subject. Exposure to foreign currencies may cause the value of the Portfolio to decline in the event that the U.S. dollar strengthens against these currencies, or in the event that foreign governments intervene in the currency markets. -- Derivatives Risk: Loss may result from investments in options, futures, swaps, structured securities and other derivative instruments. These instruments may be leveraged so that small changes may produce disproportionate losses to the Portfolio. A Portfolio investing in a derivative instrument could lose more than the principal amount invested. -- Interest Rate Risk: Investment in debt securities involves risks relating to interest rate movement. If interest rates go up, the value of any debt securities held by the Portfolio will decline. Securities with longer durations tend to be more sensitive to changes in interest rates, usually making them more volatile than securities with shorter durations. -- Active or Frequent Trading Risk: Frequent trading increases transaction costs, which could detract from the Portfolio's performance. INVESTMENT ADVISER: ING Life Insurance and Annuity Company (formerly Aetna Life Insurance and Annuity Company) SUBADVISER: Morgan Stanley Investment Management Inc. d/b/a Van Kampen 71 AIM VARIABLE INSURANCE FUNDS -- AIM V.I. CAPITAL APPRECIATION FUND (SERIES I SHARES) INVESTMENT OBJECTIVE Seeks growth of capital. PRINCIPAL STRATEGIES Seeks to meet its objective by investing principally in common stocks of companies the portfolio managers believe are likely to benefit from new or innovative products, services or processes as well as those that have experienced above-average, long-term growth in earnings and have excellent prospects for future growth. Portfolio managers consider whether to sell a particular security when any of those factors materially changes. May also invest up to 25% of total assets in foreign securities. In anticipation of or in response to adverse market conditions, for cash management purposes, or for defensive purposes, may temporarily hold all or a portion of its assets in cash or liquid assets. PRINCIPAL RISKS Prices of equity securities change in response to many factors including the historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity. This is especially true with respect to common stocks of smaller companies, whose prices may go up and down more than common stocks of larger, more-established companies. Also, since common stocks of smaller companies may not be traded as often as common stocks of larger, more-established companies, it may be difficult or impossible for the fund to sell securities at a desirable price. Prices of foreign securities may be further affected by other factors, including currency exchange rates, political and economic conditions, regulations, and markets. These factors may affect the prices of securities issued by foreign companies located in developing countries more than those in countries with mature economies. Transaction costs are often higher in developing countries and there may be delays in settlement procedures. To the extent the fund holds cash or liquid assets rather than equity securities, the fund may not achieve its investment objective. INVESTMENT ADVISER: A I M Advisors, Inc. AIM VARIABLE INSURANCE FUNDS -- AIM V.I. CORE EQUITY FUND (FORMERLY AIM V.I. GROWTH AND INCOME FUND) (SERIES I SHARES) INVESTMENT OBJECTIVE Seeks growth of capital with a secondary objective of current income. PRINCIPAL STRATEGIES Seeks to meet its objectives by investing, normally, at least 80% of net assets in equity securities, including convertible securities, of established companies that have long-term above-average growth in earnings and dividends, and growth companies that the portfolio managers believe have the potential for above-average growth in earnings and dividends. In complying with this 80% requirement, investments may include synthetic instruments. Synthetic instruments are investments that have economic characteristics similar to the Fund's direct investments, and may include warrants, futures, options, exchange-traded funds and ADRs. May also invest up to 25% of total assets in foreign securities. For risk management purposes, may hold a portion of its assets in cash or the following liquid assets: money market instruments, shares of affiliated money market funds, or high-quality debt instruments. PRINCIPAL RISKS Prices of equity securities change in response to many factors including the historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity. Values of the convertible securities in which the fund may invest also will be affected by market interest rates, the risk that the issuer may default on interest or principal payments and the value of the underlying common stock into which these securities may be converted. Specifically, since these types of convertible securities pay fixed interest and dividends, their values may fall if market interest rates rise and rise if market interest rates fall. Additionally, an issuer may have the right to buy back certain of the convertible securities at a time and at a price that is unfavorable to the fund. Prices of foreign securities may be further affected by other factors, including currency exchange rates, political and economic conditions, regulations, and markets. These factors may affect the 72 prices of securities issued by foreign companies located in developing countries more than those in countries with mature economies. Transaction costs are often higher in developing countries and there may be delays in settlement procedures. INVESTMENT ADVISER: A I M Advisors, Inc. AIM VARIABLE INSURANCE FUNDS -- AIM V.I. GROWTH FUND (SERIES I SHARES) INVESTMENT OBJECTIVE Seeks growth of capital. PRINCIPAL STRATEGIES Seeks to meet its investment objective by investing principally in seasoned and better capitalized companies considered to have strong earnings momentum. May invest up to 25% of its assets in foreign securities. Portfolio managers focus on companies that have experienced above-average growth in earnings and have excellent prospects for future growth and consider whether to sell a particular security when any of those factors materially changes. In anticipation of or in response to adverse market conditions, for cash management purposes, or for defensive purposes, may temporarily hold all or a portion of its assets in cash, money market instruments, shares of affiliated money market funds, bonds or other debt securities. May engage in active and frequent trading of portfolio securities to achieve its investment objective which may result in increased transaction costs and brokerage commissions, both of which can lower the actual return on investment. PRINCIPAL RISKS Prices of equity securities change in response to many factors including the historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity. Prices of foreign securities may be further affected by other factors, including currency exchange rates, political and economic conditions, regulations, and markets. These factors may affect the prices of securities issued by foreign companies located in developing countries more than those in countries with mature economies. Transaction costs are often higher in developing countries and there may be delays in settlement procedures. INVESTMENT ADVISER: A I M Advisors, Inc. AIM VARIABLE INSURANCE FUNDS -- AIM V.I. PREMIER EQUITY FUND (FORMERLY AIM V.I. VALUE FUND) (SERIES I SHARES) INVESTMENT OBJECTIVE Seeks to achieve long-term growth of capital with a secondary objective of income. PRINCIPAL STRATEGIES Seeks to meet its objectives by investing, normally, at least 80% of net assets in equity securities, including convertible securities. In complying with the 80% requirement, investments may include synthetic instruments. Synthetic instruments are investments that have economic characteristics similar to the fund's direct investments, and may include warrants, futures, options, exchange-traded funds and ADRs. Also may invest in preferred stocks and debt instruments that have prospects for growth of capital. Also may invest up to 25% of total assets in foreign securities. Portfolio managers focus on undervalued equity securities of (1) out-of-favor cyclical growth companies; (2) established growth companies that are undervalued compared to historical relative valuation parameters; (3) companies where there is early but tangible evidence of improving prospects that are not yet reflected in the price of the company's equity securities; and (4) companies whose equity securities are selling at prices that do not reflect the current market value of their assets and where there is reason to expect realization of this potential in the form of increased equity values. Portfolio managers consider whether to sell a particular security when they believe the company no longer fits into any of the above categories. PRINCIPAL RISKS Prices of equity securities change in response to many factors including the historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity. Prices of foreign securities may be further affected by other factors, including currency exchange rates, political and economic conditions, regulations, and markets. These factors may affect the prices of securities issued by foreign companies located in developing countries more than those in countries with mature economies. 73 Transaction costs are often higher in developing countries and there may be delays in settlement procedures. If the seller of a repurchase agreement in which the fund invests defaults on its obligation or declares bankruptcy, the fund may experience delays in selling the securities underlying the repurchase agreement. As a result, the fund may incur losses arising from decline in the value of those securities, reduced levels of income and expenses of enforcing its rights. INVESTMENT ADVISER: A I M Advisors, Inc. CALVERT VARIABLE SERIES, INC. -- CALVERT SOCIAL BALANCED PORTFOLIO INVESTMENT OBJECTIVE Seeks to achieve a competitive total return through an actively managed NONDIVERSIFIED portfolio of stocks, bonds and money market instruments which offer income and capital growth opportunity and which satisfy the investment and social criteria for the Portfolio. PRINCIPAL STRATEGIES Typically invests about 60% of its assets in stocks and 40% in bonds or other fixed-income investments. Stock investments are primarily common stock in large-cap companies, while the fixed-income investments are primarily a wide variety of investment grade bonds. Invests in a combination of stocks, bonds and money market instruments in an attempt to provide a complete investment portfolio in a single product. The Portfolio's investment adviser rebalances the Portfolio quarterly to adjust for changes in market value. The Portfolio is a large-cap, growth-oriented U.S. domestic portfolio, although it may have other investments, including some foreign securities and some mid-cap stocks. For the equity portion, the Portfolio seeks companies with better than average expected growth rates at lower than average valuations. The fixed-income portion reflects an active trading strategy, seeking total return. Equity investments are selected by the subadviser, while the investment adviser manages the fixed-income assets and determines the overall mix for the Portfolio depending upon its view of market conditions and economic outlook. PRINCIPAL RISKS The Portfolio could underperform for any of the following reasons: the stock or bond market goes down; the individual stocks and bonds in the Portfolio do not perform as well as expected; or for the fixed-income portion of the Portfolio, the investment adviser's forecast as to interest rates is not correct. Investment in foreign securities involves additional risks relating to political, social and economic developments abroad. Other risks from these investments result from the differences between the regulations to which U.S. and foreign issuers and markets are subject, the potential for foreign markets to be less liquid than U.S. markets, and the currency risk associated with securities that trade in currencies other than the U.S. dollar. If the investment adviser's allocation among different sectors of the stock and bond markets does not perform as well as expected, the Portfolio could also underperform. Since the Portfolio is NONDIVERSIFIED, compared to other funds the Portfolio may invest more of its assets in a smaller number of companies. Gains or losses on a single stock or bond may have greater impact on the Portfolio. INVESTMENT ADVISER: Calvert Asset Management Company, Inc. SUBADVISER: NCM Capital Management Group, Inc. FIDELITY-REGISTERED TRADEMARK- VARIABLE INSURANCE PRODUCTS -- FIDELITY VIP CONTRAFUND-REGISTERED TRADEMARK- PORTFOLIO (INITIAL CLASS) INVESTMENT OBJECTIVE Seeks long-term capital appreciation. PRINCIPAL STRATEGIES Normally invests primarily in common stocks of companies whose value the Portfolio's investment adviser believes is not fully recognized by the public. May invest in securities of both domestic and foreign issuers. Invests in either "growth" stocks or "value" stocks or both. Uses fundamental analysis of each issuer's financial condition and industry position and market and economic conditions to select investments. 74 PRINCIPAL RISKS Subject to the following principal investment risks: stock market volatility, foreign exposure, and issuer-specific changes. Stock market volatility refers to the risk that stock markets are volatile and can decline significantly in response to adverse issuer, political, regulatory, market or economic developments. Different parts of the market can react differently to these developments. Foreign exposure refers to the risk that foreign markets can be more volatile than the U.S. market due to increased risks of adverse issuer, political, regulatory, market or economic developments and can perform differently from the U.S. market. Issuer-specific changes refer to the risk that the value of an individual security or particular type of security can be more volatile than the market as a whole and can perform differently from the value of the market as a whole. INVESTMENT ADVISER: Fidelity Management & Research Company SUBADVISERS: Fidelity Management & Research (U.K.) Inc.; Fidelity Management & Research (Far East) Inc.; Fidelity Investments Japan Limited; FMR Co., Inc. FIDELITY-REGISTERED TRADEMARK- VARIABLE INSURANCE PRODUCTS -- FIDELITY VIP EQUITY-INCOME PORTFOLIO (INITIAL CLASS) INVESTMENT OBJECTIVE Seeks reasonable income. Also considers the potential for capital appreciation. Seeks to achieve a yield which exceeds the composite yield on the securities comprising the Standard & Poor's 500 Index. PRINCIPAL STRATEGIES Normally invests at least 80% of total assets in income-producing equity securities, which tends to lead to investments in large cap "value" stocks. May also invest in other types of equity securities and debt securities, including lower-quality debt securities. May invest in securities of both domestic and foreign issuers. Uses fundamental analysis of each issuer's financial condition and industry position and market and economic conditions to select investments. PRINCIPAL RISKS Subject to the following principal investment risks: stock market volatility, interest rate changes, foreign exposure, issuer-specific changes, and "value" investing. Stock market volatility refers to the risk that stock markets are volatile and can decline significantly in response to adverse issuer, political, regulatory, market or economic developments. Different parts of the market can react differently to these developments. Interest rate changes refers to the risk that interest rate increases can cause the price of a debt security to decrease. Foreign exposure refers to the risk that foreign markets can be more volatile than the U.S. market due to increased risks of adverse issuer, political, regulatory, market or economic developments and can perform differently from the U.S. market. Issuer-specific changes refers to the risk that the value of an individual security or particular type of security can be more volatile than the market as a whole and can perform differently from the value of the market as a whole. Lower-quality debt securities (those of less than investment-grade quality) can be more volatile due to increased sensitivity to adverse issuer, political, regulatory, market or economic developments. "Value" investing refers to the risk that "value" stocks can perform differently from the market as a whole and other types of stocks and can continue to be undervalued by the market for long periods of time. INVESTMENT ADVISER: Fidelity Management & Research Company SUBADVISER: FMR Co., Inc. FIDELITY-REGISTERED TRADEMARK- VARIABLE INSURANCE PRODUCTS -- FIDELITY VIP GROWTH PORTFOLIO (INITIAL CLASS) INVESTMENT OBJECTIVE Seeks to achieve capital appreciation. PRINCIPAL STRATEGIES Normally invests primarily in common stocks of companies the investment adviser believes have above-average growth potential (often called "growth" stocks). May invest in securities of both domestic and foreign issuers. Uses fundamental analysis of each issuer's financial condition and industry position and market and economic conditions to select investments. 75 PRINCIPAL RISKS Subject to the following principal investment risks: stock market volatility, foreign exposure, issuer-specific changes, and "growth" investing. Stock market volatility refers to the risk that stock markets are volatile and can decline significantly in response to adverse issuer, political, regulatory, market or economic developments. Different parts of the market can react differently to these developments. Foreign exposure refers to the risk that foreign markets can be more volatile than the U.S. market due to increased risks of adverse issuer, political, regulatory, market or economic developments and can perform differently from the U.S. market. Issuer-specific changes refers to the risk that the value of an individual security or particular type of security can be more volatile than the market as a whole and can perform differently from the value of the market as a whole. "Growth" investing refers to the risk that "growth" stocks can perform differently from the market as a whole and other types of stocks and can be more volatile than other types of stocks. INVESTMENT ADVISER: Fidelity Management & Research Company SUBADVISER: FMR Co., Inc. FIDELITY-REGISTERED TRADEMARK- VARIABLE INSURANCE PRODUCTS -- FIDELITY VIP OVERSEAS PORTFOLIO (INITIAL CLASS) INVESTMENT OBJECTIVE Seeks long-term growth of capital. PRINCIPAL STRATEGIES Normally invests at least 80% of total assets in foreign securities, primarily in common stocks. Investments are allocated across countries and regions considering the size of the market in each country and region relative to the size of the international market as a whole. Uses fundamental analysis of each issuer's financial condition and industry position and market and economic conditions to select investments. PRINCIPAL RISKS Subject to the following principal investment risks: stock market volatility, foreign exposure, and issuer-specific changes. Stock market volatility refers to the risk that stock markets are volatile and can decline significantly in response to adverse issuer, political, regulatory, market or economic developments. Different parts of the market can react differently to these developments. Foreign exposure refers to the risk that foreign markets, particularly emerging markets, can be more volatile than the U.S. market due to increased risks of adverse issuer, political, regulatory, market or economic developments and can perform differently from the U.S. market. Issuer-specific changes refers to the risk that the value of an individual security or particular type of security can be more volatile than the market as a whole and can perform differently from the value of the market as a whole. INVESTMENT ADVISER: Fidelity Management & Research Company SUBADVISERS: Fidelity Management & Research (U.K.) Inc.; Fidelity Management & Research (Far East) Inc.; Fidelity International Investment Advisors; Fidelity International Investment Advisors (U.K.) Limited; Fidelity Investments Japan Limited; FMR Co., Inc. FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST -- FRANKLIN SMALL CAP VALUE SECURITIES FUND (FORMERLY FRANKLIN VALUE SECURITIES FUND) (CLASS 2 SHARES) INVESTMENT OBJECTIVE A NONDIVERSIFIED fund that seeks long-term total return. Income, while not a goal, is a secondary consideration. PRINCIPAL STRATEGIES The fund will normally invest at least 80% of net assets in investments of small capitalization companies that have market capitalization values not exceeding $2.5 billion, at the time of purchase. The fund will invest in equity securities of companies that the fund's manager believes are selling substantially below the underlying value of their assets or their private market value (what a sophisticated investor would pay for the entire company). PRINCIPAL RISKS While stocks have historically outperformed other asset classes over the long term, their value tends to go up and down more dramatically over the short term. The manager may invest in value securities if it believes the market may have overreacted to adverse developments or failed to appreciate positive changes. However, value securities 76 may not increase in value as anticipated by the manager and may even decline further. Historically, smaller company securities have been more volatile in price and have fluctuated independently from larger company securities, especially over the short term. By having significant investments in particular sectors from time to time, the fund carries greater risk of adverse developments than a fund that always invests in a wide variety of sectors. Because the fund is NONDIVERSIFIED, it may invest a greater portion of its assets in one issuer and have a smaller number of issuers than a diversified fund. Therefore, the fund may be more sensitive to economic, business, political or other changes affecting similar issuers or securities. INVESTMENT ADVISER: Franklin Advisory Services, LLC JANUS ASPEN SERIES -- AGGRESSIVE GROWTH PORTFOLIO (INSTITUTIONAL SHARES) INVESTMENT OBJECTIVE A NONDIVERSIFIED Portfolio that seeks long-term growth of capital. PRINCIPAL STRATEGIES A NONDIVERSIFIED Portfolio that invests primarily in common stocks selected for their growth potential and normally invests at least 50% of its equity assets in medium-sized companies. Medium-sized companies are those whose market capitalization falls within the range of companies in the Standard and Poor's (S&P) MidCap 400 Index. The market capitalizations within the Index will vary, but as of December 31, 2001, they ranged from approximately $225 million to $10.5 billion. The portfolio manager applies a "bottom up" approach in choosing investments. This approach identifies individual companies with earnings growth potential that may not be recognized by the market at large. Assessment is made by looking at companies one at a time, regardless of size, country of organization, place of principal business activity, or other similar selection criteria. If the portfolio manager is unable to find investments with earnings growth potential, a significant portion of assets may be in cash or similar investments. PRINCIPAL RISKS Because the Portfolio may invest substantially all of its assets in common stocks, the main risk is that the value of the stocks it holds might decrease in response to the activities of an individual company or in response to general market and/or economic conditions. In addition, a NONDIVERSIFIED Portfolio may hold larger positions in a smaller number of issuers. As a result, a single security's increase or decrease in value may have a greater impact on the Portfolio's net asset value and total return than a comparable diversified Portfolio. Performance may also be affected by risks specific to certain types of investments, such as foreign securities, derivative investments, non- investment grade debt securities (high-yield/high-risk bonds or "junk" bonds) or companies with relatively small market capitalizations. Smaller or newer companies may suffer more significant losses as well as realize more substantial growth than larger or more established issuers. Investments in such companies tend to be more volatile and somewhat more speculative. Issues associated with investing in foreign securities include currency risk, political and economic risk, regulatory risk, market risk and transaction costs. High-yield/high-risk bonds present greater risk of default (the failure to make timely interest and principal payments) than higher quality bonds. INVESTMENT ADVISER: Janus Capital JANUS ASPEN SERIES -- BALANCED PORTFOLIO (INSTITUTIONAL SHARES) INVESTMENT OBJECTIVE Seeks long-term capital growth, consistent with preservation of capital and balanced by current income. PRINCIPAL STRATEGIES Normally invests 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. Will normally invest at least 25% of its assets in fixed-income securities. The portfolio manager applies a "bottom up" approach in choosing investments. This approach identifies individual companies with earnings growth potential that may not be recognized by the market at large. Assessment is made by looking at companies one at a time, regardless of size, country of organization, place of principal business activity, or other similar selection criteria. If the portfolio manager is unable to find investments with earnings growth potential, a significant portion of assets may be in cash or similar investments. 77 PRINCIPAL RISKS Because the Portfolio may invest a significant portion of its assets in common stocks, the main risk is that the value of the stocks it holds might decrease in response to the activities of an individual company or in response to general market and/or economic conditions. The income component of the Portfolio's holdings includes fixed-income securities which generally will decrease in value when interest rates rise. Another fundamental risk associated with fixed-income securities is the risk that an issuer of a bond will be unable to make principal and interest payments when due (i.e. credit risk). Performance may also be affected by risks specific to certain types of investments, such as foreign securities, derivative investments, non-investment grade debt securities (high-yield/ high-risk bonds or "junk" bonds) or companies with relatively small market capitalizations. Smaller or newer companies may suffer more significant losses as well as realize more substantial growth than larger or more established issuers. Investments in such companies tend to be more volatile and somewhat more speculative. Issues associated with investing in foreign securities include currency risk, political and economic risk, regulatory risk, market risk and transaction costs. High-yield/high-risk bonds present greater risk of default (the failure to make timely interest and principal payments) than higher quality bonds. INVESTMENT ADVISER: Janus Capital JANUS ASPEN SERIES -- CAPITAL APPRECIATION PORTFOLIO (SERVICE SHARES) INVESTMENT OBJECTIVE A NONDIVERSIFIED Portfolio that seeks long-term growth of capital. PRINCIPAL STRATEGIES A NONDIVERSIFIED Portfolio that invests primarily in common stocks selected for their growth potential. May invest in companies of any size, from larger, well-established companies to smaller, emerging growth companies. The portfolio manager applies a "bottom up" approach in choosing investments. This approach identifies individual companies with earnings growth potential that may not be recognized by the market at large. Assessment is made by looking at companies one at a time, regardless of size, country of organization, place of principal business activity, or other similar selection criteria. This approach is used for both domestic and foreign securities. If the portfolio manager is unable to find investments with earnings growth potential, a significant portion of assets may be in cash or similar investments. PRINCIPAL RISKS Because the Portfolio may invest substantially all of its assets in common stocks, the main risk is that the value of the stocks it holds might decrease in response to the activities of an individual company or in response to general market and/or economic conditions. In addition, a NONDIVERSIFIED Portfolio may hold larger positions in a smaller number of issuers. As a result, a single security's increase or decrease in value may have a greater impact on the Portfolio's net asset value and total return than a comparable diversified Portfolio. Performance may also be affected by risks specific to certain types of investments, such as foreign securities, derivative investments, non- investment grade debt securities, initial public offerings (IPOs) or companies with relatively small market capitalizations. Smaller or newer companies may suffer more significant losses as well as realize more substantial growth than larger or more established issuers. Investments in such companies tend to be more volatile and somewhat more speculative. Issues associated with investing in foreign securities include currency risk, political and economic risk, regulatory risk, market risk and transaction costs. INVESTMENT ADVISER: Janus Capital JANUS ASPEN SERIES -- FLEXIBLE INCOME PORTFOLIO (INSTITUTIONAL SHARES) INVESTMENT OBJECTIVE Seeks to obtain maximum total return, consistent with preservation of capital. PRINCIPAL STRATEGIES Invests primarily in a wide variety of income-producing securities such as corporate bonds and notes, government securities and preferred stock. Will invest at least 80% of its assets in income-producing securities. May own an unlimited amount of high-yield/high-risk bonds which may be a big part of the portfolio. The portfolio manager applies a "bottom up" approach in choosing investments. This approach identifies individual income-producing 78 securities one at a time considering economic factors such as the effect of interest rates on the Portfolio's investments. If the portfolio manager is unable to find investments that meet his investment criteria, the Portfolio's assets may be in cash or similar investments. PRINCIPAL RISKS Because the Portfolio invests substantially all of its assets in fixed-income securities, it is subject to risks such as credit or default risks or decreased value due to interest rate increases. Generally, a fixed-income security will increase in value when interest rates fall and decrease in value when interest rates rise. Performance may also be affected by risks specific to certain types of investments, such as foreign securities, derivative investments and initial public offerings (IPOs). One of the fundamental risks associated with all fixed-income funds is credit risk, which is the risk that an issuer will be unable to make principal and interest payments when due. Corporate debt securities, particularly those rated below investment grade, present the highest credit risk. Issues associated with investing in foreign securities include currency risk, political and economic risk, regulatory risk, market risk and transaction costs. INVESTMENT ADVISER: Janus Capital JANUS ASPEN SERIES -- GROWTH PORTFOLIO (INSTITUTIONAL SHARES) INVESTMENT OBJECTIVE Seeks long-term growth of capital in a manner consistent with the preservation of capital. PRINCIPAL STRATEGIES Invests primarily in common stocks selected for their growth potential. Although it can invest in companies of any size, it generally invests in larger, more established companies. The portfolio manager applies a "bottom up" approach in choosing investments. This approach identifies individual companies with earnings growth potential that may not be recognized by the market at large. Assessment is made by looking at companies one at a time, regardless of size, country of organization, place of principal business activity, or other similar selection criteria. If the portfolio manager is unable to find investments with earnings growth potential, a significant portion of assets may be in cash or similar investments. PRINCIPAL RISKS Because the Portfolio may invest substantially all of its assets in common stocks, the main risk is that the value of the stocks it holds might decrease in response to the activities of an individual company or in response to general market and/or economic conditions. Performance may also be affected by risks specific to certain types of investments, such as foreign securities, derivative investments, non-investment grade debt securities (high-yield/ high-risk bonds or "junk" bonds) or companies with relatively small market capitalizations. Smaller or newer companies may suffer more significant losses as well as realize more substantial growth than larger or more established issuers. Investments in such companies tend to be more volatile and somewhat more speculative. Issues associated with investing in foreign securities include currency risk, political and economic risk, regulatory risk, market risk and transaction costs. High-yield/high-risk bonds present greater risk of default (the failure to make timely interest and principal payments) than higher quality bonds. INVESTMENT ADVISER: Janus Capital JANUS ASPEN SERIES -- WORLDWIDE GROWTH PORTFOLIO (INSTITUTIONAL SHARES) INVESTMENT OBJECTIVE Seeks long-term growth of capital in a manner consistent with the preservation of capital. PRINCIPAL STRATEGIES Invests primarily in common stocks of companies of any size located throughout the world. Normally invests in issuers from at least five different countries, including the United States. May at times invest in fewer than five countries or even in a single country. Portfolio managers apply a "bottom up" approach in choosing investments. This approach identifies individual companies with earnings growth potential that may not be recognized by the market at large. Assessment is made by looking at companies one at a time, regardless of size, country of organization, place of principal business activity, or other similar selection criteria. Foreign securities are generally 79 selected on a stock-by-stock basis without regard to any defined allocation among countries or geographic regions. However, certain factors such as expected levels of inflation, government policies influencing business conditions, the outlook for currency relationships, and prospects for economic growth among countries, regions or geographic areas may warrant greater consideration in selecting foreign securities. PRINCIPAL RISKS Because the Portfolio may invest substantially all of its assets in common stocks, the main risk is that the value of the stocks it holds might decrease in response to the activities of an individual company or in response to general market and/or economic conditions. Performance may also be affected by risks specific to certain types of investments, such as foreign securities, derivative investments, non-investment grade debt securities (high-yield/ high-risk bonds or "junk" bonds) or companies with relatively small market capitalizations. Smaller or newer companies may suffer more significant losses as well as realize more substantial growth than larger or more established issuers. Investments in such companies tend to be more volatile and somewhat more speculative. Issues associated with investing in foreign securities include currency risk, political and economic risk, regulatory risk, market risk and transaction costs. The Portfolio may have significant exposure to foreign markets and may be affected to a large degree by fluctuations in currency exchange rates or political or economic conditions in a particular country. High-yield/high-risk bonds present greater risk of default (the failure to make timely interest and principal payments) than higher quality bonds. INVESTMENT ADVISER: Janus Capital LORD ABBETT SERIES FUND, INC. -- GROWTH AND INCOME PORTFOLIO (CLASS VC SHARES) INVESTMENT OBJECTIVE Seeks long-term growth of capital and income without excessive fluctuations in market value. PRINCIPAL STRATEGIES Primarily purchases equity securities of large, seasoned, U.S. and multinational companies which Lord Abbett, the Fund's investment adviser, believes are undervalued. May invest in equity securities such as common stocks, convertible bonds, convertible preferred stocks and warrants and similar instruments. Under normal circumstances, will invest at least 80% of net assets in equity securities of large companies with market capitalizations of at least $5 billion at the time of purchase. This market capitalization may vary in response to changes in the markets. In selecting investments, the Fund attempts to invest in securities selling at reasonable prices in relation to Lord Abbett's assessment of their potential value. The Fund generally sells a stock when Lord Abbett thinks it seems less likely to benefit from the current market and economic environment, shows deteriorating fundamentals, or has reached the Fund's valuation target. PRINCIPAL RISKS Subject to the general risks and considerations associated with equity investing, as well as the particular risks associated with value stocks. The value of an investment will fluctuate in response to movements in the stock market in general and to the changing prospects of individual companies in which the Fund invests. Large value stocks may perform differently than the market as a whole and other types of stocks, such as small company stocks and growth stocks. This is because different types of stocks tend to shift in and out of favor depending on market and economic conditions. The market may fail to recognize the intrinsic value of particular value stocks for a long time. In addition, if the Fund's assessment of a company's value or prospects for exceeding earnings expectations or market conditions is wrong, the Fund could suffer losses or produce poor performance relative to other funds, even in a rising market. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund is not a complete investment program and may not be appropriate for all investors. Investments in the Fund could lose money. INVESTMENT ADVISER: Lord, Abbett & Co. (Lord Abbett) LORD ABBETT SERIES FUND, INC. -- MID-CAP VALUE PORTFOLIO (CLASS VC SHARES) INVESTMENT OBJECTIVE Seeks capital appreciation through investments, primarily in equity securities, which are believed to be undervalued in the marketplace. 80 PRINCIPAL STRATEGIES Normally invests at least 80% of net assets, plus the amount of any borrowings for investment purposes, in equity securities of mid-sized companies, those with market capitalizations of roughly $500 million to $10 billion, at the time of purchase. This market capitalization range may vary in response to changes in the markets. The Fund will provide shareholders with at least 60 days notice of any change in this 80% policy. Equity securities in which the Fund may invest include common stocks, convertible bonds, convertible preferred stocks and warrants. In selecting investments, the Fund, using a value approach, tries to identify stocks of companies that have the potential for significant market appreciation, due to growing recognition of improvement in their financial results, or increasing anticipation of such improvement. In trying to identify those companies, the Fund looks for such factors as: changes in economic and financial environment; new or improved products or services; new or rapidly expanding markets; changes in management or structure of the company; price increases for the company's products or services; improved efficiencies resulting from new technologies or changes in distribution; and changes in government regulations, political climate or competitive conditions. PRINCIPAL RISKS Subject to the general risks and considerations associated with equity investing, as well as the particular risks associated with value and mid-sized company stocks. The value of an investment will fluctuate in response to movements in the stock market in general and to the changing prospects of individual companies in which the Fund invests. The stocks of mid-sized companies may perform differently than the market as a whole and other types of stocks, such as large company stocks and growth stocks. The market may fail to recognize the intrinsic value of particular stocks for a long time. In addition, if the Fund's assessment of a company's value or prospects for exceeding earnings expectations or market conditions is wrong, the Fund could suffer losses or produce poor performance relative to other funds, even in a rising market. Investments in mid-sized company stocks generally involve greater risks than investments in large-company stocks. Mid-sized companies may be less able to weather economic shifts or other adverse developments than larger, more established companies. They may have relatively less experienced management and unproven track records. They may rely on limited product lines and have more limited financial resources. In addition, there may be less liquidity in mid-sized company stocks, subjecting them to greater price fluctuations than larger company stocks. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund is not a complete investment program and may not be appropriate for all investors. Investments in the Fund could lose money. INVESTMENT ADVISER: Lord, Abbett & Co. (Lord Abbett) OPPENHEIMER VARIABLE ACCOUNT FUNDS -- OPPENHEIMER GLOBAL SECURITIES FUND/VA INVESTMENT OBJECTIVE Seeks long-term capital appreciation by investing a substantial portion of assets in securities of foreign issuers, "growth-type" companies, cyclical industries and special situations that are considered to have appreciation possibilities. PRINCIPAL STRATEGIES Invests mainly in common stocks and can also buy other equity securities, including preferred stocks and convertible securities in the U.S. and foreign countries. Can invest without limit in any country, including countries with developed or emerging markets, but currently emphasizes investments in developed markets. Normally will invest in at least three countries (one of which may be the United States). Can also use hedging instruments and certain derivative investments. In selecting securities, the portfolio manager looks primarily for foreign and U.S. companies with high growth potential, using fundamental analysis of a company's financial statements and management structure, and analysis of the company's operations and product development, as well as the industry of which the issuer is part. The portfolio manager considers overall and relative economic conditions in U.S. and foreign markets, and seeks broad diversification in different countries to help moderate the special risks of foreign investing. PRINCIPAL RISKS Stocks fluctuate in price, and their short-term volatility at times may be great. Additionally, stocks of issuers in a particular industry may be affected by changes in economic conditions that affect that industry more than others, or by changes in government regulations, availability of basic resources or supplies, or other events. The value of 81 foreign investments may be affected by exchange control regulations, expropriation or nationalization of a company's assets, foreign taxes, changes in governmental economic or monetary policy in the U.S. or abroad or other political and economic factors. Investing in derivative investments carries the risk that if the issuer of the derivative does not pay the amount due, the Fund can lose money on the investment. Also, the underlying security or investment on which the derivative is based, and the derivative itself, might not perform the way the investment adviser expected it to perform. INVESTMENT ADVISER: OppenheimerFunds, Inc. OPPENHEIMER VARIABLE ACCOUNT FUNDS -- OPPENHEIMER STRATEGIC BOND FUND/VA INVESTMENT OBJECTIVE Seeks a high level of current income principally derived from interest on debt securities. PRINCIPAL STRATEGIES Invests mainly in debt securities of issuers in three market sectors: foreign governments and companies, U.S. Government securities, and lower-grade high-yield securities of U.S. and foreign companies. Can invest up to 100% of its assets in any one sector at any time, if the Fund's investment adviser believes that in doing so the Fund can achieve its objective without undue risk. Can invest in securities having short, medium or long-term maturities and may invest without limit in lower-grade high-yield debt obligations, also called "junk bonds." Foreign investments can include debt securities of issuers in developed markets as well as emerging markets, which have special risks. Can also use hedging instruments and certain derivative investments to try to enhance income or to try to manage investment risks. In selecting securities, the portfolio managers analyze the overall investment opportunities and risks in individual national economies with an overall strategy of building a broadly-diversified portfolio of debt securities to help moderate the special risks of investing in high-yield debt instruments and foreign securities. PRINCIPAL RISKS Debt securities are subject to credit risk which refers to the risk that if the issuer fails to pay interest, or if the issuer fails to repay principal, the value of that security and of the Fund's shares might be reduced. Credit risks of lower-grade securities are greater than those of investment-grade bonds. Lower-grade debt securities may be subject to greater market fluctuations and greater risks of loss of income and principal. The value of foreign investments may be affected by exchange control regulations, expropriation or nationalization of a company's assets, foreign taxes, delays in settlement of transactions, changes in governmental economic or monetary policy in the U.S. or abroad, or other political and economic factors. Securities of issuers in emerging and developing markets may be more difficult to sell at an acceptable price and their prices may be more volatile than securities of issuers in more developed markets. The Fund is also subject to interest rate risk and prepayment risk. The investment adviser's expectations about the relative performance of the three principal sectors in which the Fund invests may be inaccurate, and the Fund's returns might be less than other funds using similar strategies. Investing in derivative investments carries the risk that if the issuer of the derivative does not pay the amount due, the Fund can lose money on the investment. Also, the underlying security or investment on which the derivative is based, and the derivative itself, might not perform the way the investment adviser expected it to perform. INVESTMENT ADVISER: OppenheimerFunds, Inc. PIONEER VARIABLE CONTRACTS TRUST -- PIONEER EQUITY INCOME VCT PORTFOLIO (CLASS I SHARES) INVESTMENT OBJECTIVE Seeks current income and long-term growth of capital from a portfolio consisting primarily of income producing equity securities of U.S. corporations. PRINCIPAL STRATEGIES Invests at least 80% of total assets in income producing equity securities of U.S. issuers. Income producing equity securities in which the Portfolio may invest include common stocks, preferred stocks and interests in real estate investment trusts. Remainder of the Portfolio may be invested in debt securities, most of which are expected to be convertible into common stocks. Pioneer, the Portfolio's investment adviser, uses a value approach to select the Portfolio's investments. Using this investment style, Pioneer seeks securities selling at substantial discounts to their underlying values and then holds these securities until the market values reflect their intrinsic values. Pioneer 82 evaluates a security's potential value, including the attractiveness of its market valuation, based on the company's assets and prospects for earnings growth. Pioneer also considers a security's potential to provide a reasonable amount of income. In making these assessments, Pioneer employs due diligence and fundamental research, an evaluation of the issuer based on its financial statements and operations, employing a bottom-up analytic style. Factors Pioneer looks for in selecting investments include: favorable expected returns relative to perceived risk; management with demonstrated ability and commitment to the company; low market valuations relative to earnings forecast, book value, cash flow and sales; and good prospects for dividend growth. PRINCIPAL RISKS Even though the Portfolio seeks current income and long-term growth of capital, you could lose money on your investment or not make as much as if you invested elsewhere if the stock market goes down (this risk may be greater in the short term), if value stocks fall out of favor with investors, or if the Portfolio's assets remain undervalued or do not have the potential value originally expected. Other risks include the possibility that stocks selected for income may not achieve the same return as securities selected for capital appreciation and that interest rates or inflation may increase. INVESTMENT ADVISER: Pioneer Investment Management, Inc. (Pioneer) PIONEER VARIABLE CONTRACTS TRUST -- PIONEER FUND VCT PORTFOLIO (CLASS I SHARES) INVESTMENT OBJECTIVE Seeks reasonable income and capital growth. PRINCIPAL STRATEGIES Invests in a broad list of carefully selected, reasonably priced securities rather than in securities whose prices reflect a premium resulting from their current market popularity. Invests the major portion of its assets in equity securities, primarily of U.S. issuers. Equity securities include common stocks and other equity instruments, such as convertible debt, depositary receipts, warrants, rights, interest in real estate investment trusts and preferred stocks. Although the Portfolio focuses on securities that have paid dividends in the preceding 12 months, it may purchase or hold securities that do not provide income if the Portfolio expects them to increase in value. Pioneer, the Portfolio's investment adviser, uses a value approach to select the Portfolio's investments. Using this investment style, Pioneer seeks securities selling at reasonable prices or substantial discounts to their underlying values and holds these securities until the market values reflect their intrinsic values. Pioneer evaluates a security's potential value, including the attractiveness of its market valuation, based on the company's assets and prospects for earnings growth. In making that assessment, Pioneer employs due diligence and fundamental research, and an evaluation of the issuer based on its financial statements and operations. Pioneer focuses on the quality and price of individual issuers, not on economic sector or market-timing strategies. Factors Pioneer looks for in selecting investments include: favorable expected returns relative to perceived risk; above average potential for earnings and revenue growth; low market valuations relative to earnings forecast, book value, cash flow and sales; and a sustainable competitive advantage, such as a brand name, customer base, proprietary technology or economies of scale. PRINCIPAL RISKS Even though the Portfolio seeks reasonable income and capital growth, you could lose money on your investment or not make as much as if you invested elsewhere if the stock market goes down (this risk may be greater in the short term) or if value stocks fall out of favor with investors. The Portfolio's assets may also remain undervalued or not realize the potential value originally expected or the stocks selected for income may not achieve the same return as securities selected for capital growth. INVESTMENT ADVISER: Pioneer Investment Management, Inc. (Pioneer) PIONEER VARIABLE CONTRACTS TRUST -- PIONEER MID CAP VALUE VCT PORTFOLIO (CLASS I SHARES) INVESTMENT OBJECTIVE Seeks capital appreciation by investing in a diversified portfolio of securities consisting primarily of common stocks. 83 PRINCIPAL STRATEGIES Normally, invests at least 80% of total assets in equity securities of mid-size companies, that is, companies with market values within the range of market values of companies included in Standard & Poor's MidCap 400 Index. Equity securities include common stocks and other equity instruments, such as convertible debt, depositary receipts, warrants, rights, interests in real estate investment trusts and preferred stocks. Pioneer, the Portfolio's investment adviser, uses a value approach to select the Portfolio's investments. Using this investment style, Pioneer seeks securities selling at substantial discounts to their underlying values and holds these securities until the market values reflect their intrinsic values. Pioneer evaluates a security's potential value, including the attractiveness of its market valuation, based on the company's assets and prospects for earnings growth. In making that assessment, Pioneer employs due diligence and fundamental research, an evaluation of the issuer based on its financial statements and operations, employing a bottom-up analytic style. Pioneer focuses on the quality and price of individual issuers, not on economic sector or market-timing strategies. Factors Pioneer looks for in selecting investments include: favorable expected returns relative to perceived risk; management with demonstrated ability and commitment to the company; low market valuations relative to earnings forecast, book value, cash flow and sales; turnaround potential for companies that have been through difficult periods; estimated private market value in excess of current stock price; and issuers in industries with strong fundamentals such as increasing or sustainable demand and barriers to entry. PRINCIPAL RISKS Even though the Portfolio seeks capital appreciation, you could lose money on your investment or not make as much as if you invested elsewhere if the stock market goes down (this risk may be greater in the short term), if mid-size or value stocks fall out of favor with investors, or if the Portfolio's assets remain undervalued or do not have the potential value originally expected. The Portfolio also has risks associated with investing in mid-size companies. Compared to large companies, mid-size companies and the market for their equity securities, are likely to be more sensitive to changes in earnings results and investor expectations, have more limited product lines and capital resources, and experience sharper swings in the market values. It also might be harder to sell at the times and prices Pioneer thinks is appropriate and there may be a greater potential for gain and loss. INVESTMENT ADVISER: Pioneer Investment Management, Inc. (Pioneer) 84 APPENDIX V CONDENSED FINANCIAL INFORMATION ------------------------------------------------------------------ TABLE I FOR CONTRACTS ISSUED AFTER MARCH 1994 WITH TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES OF 1.25%* (SELECTED DATA FOR ACCUMULATION UNITS OUTSTANDING THROUGHOUT EACH PERIOD) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- THE CONDENSED FINANCIAL INFORMATION PRESENTED BELOW FOR THE PERIOD ENDED DECEMBER 31, 2001 IS DERIVED FROM THE FINANCIAL STATEMENTS OF THE SEPARATE ACCOUNT, WHICH HAVE BEEN AUDITED BY ERNST & YOUNG LLP, INDEPENDENT AUDITORS. THE CONDENSED FINANCIAL INFORMATION PRESENTED BELOW FOR EACH OF THE PERIODS IN THE SEVEN-YEAR PERIOD ENDED DECEMBER 31, 2000 (AS APPLICABLE), IS DERIVED FROM THE FINANCIAL STATEMENTS OF THE SEPARATE ACCOUNT, WHICH HAVE BEEN AUDITED BY OTHER AUDITORS. THE FINANCIAL STATEMENTS AND THE INDEPENDENT AUDITORS' REPORT THEREON FOR THE YEAR ENDED DECEMBER 31, 2001 ARE INCLUDED IN THE STATEMENT OF ADDITIONAL INFORMATION.
2001 2000 1999 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- ---- ---- ---- ING VP ASCENT PORTFOLIO Value at beginning of period $18.100 $18.450 $16.337 $15.860 $13.395 $10.976 $10.000(1) Value at end of period $15.811 $18.100 $18.450 $16.337 $15.860 $13.395 $10.976 Number of accumulation units outstanding at end of period 366,303 423,053 473,603 592,247 554,873 201,475 49,748 ING VP BALANCED PORTFOLIO, INC. Value at beginning of period $23.936 $24.372 $21.723 $18.811 $15.551 $13.673 $10.868 $11.057(1) Value at end of period $22.642 $23.936 $24.372 $21.723 $18.811 $15.551 $13.673 $10.868 Number of accumulation units outstanding at end of period 4,053,042 4,540,991 5,427,321 6,268,762 6,663,594 7,803,572 940,933 261,895 ING VP BOND PORTFOLIO Value at beginning of period $15.007 $13.859 $14.137 $13.238 $12.377 $12.098 $10.360 $10.905(1) Value at end of period $16.115 $15.007 $13.859 $14.137 $13.238 $12.377 $12.098 $10.360 Number of accumulation units outstanding at end of period 1,882,061 1,685,438 2,085,755 2,490,832 2,482,652 3,717,900 354,993 148,193 ING VP CROSSROADS PORTFOLIO Value at beginning of period $16.707 $16.847 $15.478 $14.797 $12.744 $10.862 $10.000(1) Value at end of period $15.345 $16.707 $16.847 $15.478 $14.797 $12.744 $10.862 Number of accumulation units outstanding at end of period 266,564 314,495 372,046 514,093 424,250 165,860 47,204 ING VP GROWTH PORTFOLIO Value at beginning of period $20.761 $23.875 $17.912 $13.173 $11.137(1) Value at end of period $14.953 $20.761 $23.875 $17.912 $13.173 Number of accumulation units outstanding at end of period 546,125 644,933 516,658 289,055 21,371 ING VP GROWTH AND INCOME PORTFOLIO Value at beginning of period $25.588 $29.100 $25.094 $22.194 $17.302 $14.077 $10.778 $11.020(1) Value at end of period $20.618 $25.588 $29.100 $25.094 $22.194 $17.302 $14.077 $10.778 Number of accumulation units outstanding at end of period 13,049,579 15,052,266 17,496,241 19,989,922 21,842,444 29,130,769 2,370,234 602,838 ING VP INDEX PLUS LARGECAP PORTFOLIO Value at beginning of period $20.618 $23.044 $18.772 $14.444 $10.924 $10.000(1) Value at end of period $17.587 $20.618 $23.044 $18.772 $14.444 $10.924 Number of accumulation units outstanding at end of period 1,322,389 1,239,414 1,067,590 616,724 159,461 13,142 ING VP INDEX PLUS MIDCAP PORTFOLIO Value at beginning of period $14.751 $12.455 $10.891 $9.925(1) Value at end of period $14.374 $14.751 $12.455 $10.891 Number of accumulation units outstanding at end of period 284,426 185,615 51,901 35,031 ING VP INDEX PLUS SMALLCAP PORTFOLIO Value at beginning of period $10.461 $9.645 $8.815 $9.918(1) Value at end of period $10.579 $10.461 $9.645 $8.815 Number of accumulation units outstanding at end of period 134,002 91,047 73,715 40,793
85 CONDENSED FINANCIAL INFORMATION (CONTINUED) ------------------------------------------------------------------
2001 2000 1999 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- ---- ---- ---- ING VP INTERNATIONAL EQUITY PORTFOLIO Value at beginning of period $11.484 $14.594 $9.765 $10.182(1) Value at end of period $8.632 $11.484 $14.594 $9.765 Number of accumulation units outstanding at end of period 80,579 102,558 55,009 25,090 ING VP LEGACY PORTFOLIO Value at beginning of period $15.667 $15.135 $14.310 $13.550 $11.982 $10.626 $10.000(2) Value at end of period $15.104 $15.667 $15.135 $14.310 $13.550 $11.982 $10.626 Number of accumulation units outstanding at end of period 336,932 359,253 412,346 507,368 382,217 188,303 20,531 ING VP MONEY MARKET PORTFOLIO Value at beginning of period $13.571 $12.917 $12.447 $11.951 $11.473 $11.026 $10.528 $10.241(1) Value at end of period $13.929 $13.571 $12.917 $12.447 $11.951 $11.473 $11.026 $10.528 Number of accumulation units outstanding at end of period 2,629,444 2,471,828 2,636,397 2,329,195 2,227,782 3,510,588 544,383 334,746 ING VP SMALL COMPANY PORTFOLIO Value at beginning of period $18.568 $17.617 $13.633 $13.654 $10.816(1) Value at end of period $19.070 $18.568 $17.617 $13.633 $13.654 Number of accumulation units outstanding at end of period 366,998 295,893 183,701 208,454 71,911 ING VP TECHNOLOGY PORTFOLIO Value at beginning of period $5.831 $9.999(1) Value at end of period $4.436 $5.831 Number of accumulation units outstanding at end of period 394,229 276,443 ING VP VALUE OPPORTUNITY PORTFOLIO Value at beginning of period $20.602 $18.930 $16.030 $13.261 $10.977(1) Value at end of period $18.388 $20.602 $18.930 $16.030 $13.261 Number of accumulation units outstanding at end of period 305,477 157,727 118,476 112,739 33,295 AIM V.I. CAPITAL APPRECIATION FUND Value at beginning of period $12.101 $13.753 $10.217(1) Value at end of period $9.168 $12.101 $13.753 Number of accumulation units outstanding at end of period 103,951 105,550 7,992 AIM V.I. GROWTH FUND Value at beginning of period $9.477 $12.069 $9.819(1) Value at end of period $6.188 $9.477 $12.069 Number of accumulation units outstanding at end of period 139,899 141,427 31,910 AIM V.I. CORE EQUITY FUND Value at beginning of period $9.887 $11.716 $9.627(1) Value at end of period $7.534 $9.887 $11.716 Number of accumulation units outstanding at end of period 251,216 219,944 53,572 AIM V.I. PREMIER EQUITY FUND Value at beginning of period $9.699 $11.506 $9.746(1) Value at end of period $8.375 $9.699 $11.506 Number of accumulation units outstanding at end of period 162,645 124,167 49,173 ING VP INTERNATIONAL VALUE PORTFOLIO Value at beginning of period $9.844(1) Value at end of period $9.542 Number of accumulation units outstanding at end of period 23,434 ING VP MIDCAP OPPORTUNITIES PORTFOLIO Value at beginning of period $10.042(2) Value at end of period $9.446 Number of accumulation units outstanding at end of period 2,083
86 CONDENSED FINANCIAL INFORMATION (CONTINUED) ------------------------------------------------------------------
2001 2000 1999 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- ---- ---- ---- ING SMALLCAP OPPORTUNITIES PORTFOLIO Value at beginning of period $10.123(2) Value at end of period $8.945 Number of accumulation units outstanding at end of period 2,593 CALVERT SOCIAL BALANCED PORTFOLIO Value at beginning of period $11.133 $11.637 $10.500 $9.839(2) Value at end of period $10.231 $11.133 $11.637 $10.500 Number of accumulation units outstanding at end of period 36,379 23,977 29,860 17,068 FIDELITY-REGISTERED TRADEMARK- VIP EQUITY-INCOME PORTFOLIO Value at beginning of period $24.567 $22.942 $21.848 $19.818 $15.664 $13.880 $10.403 $10.000(2) Value at end of period $23.057 $24.567 $22.942 $21.848 $19.818 $15.664 $13.880 $10.403 Number of accumulation units outstanding at end of period 1,042,820 946,481 1,171,916 1,332,063 1,311,211 1,166,495 766,360 100,574 FIDELITY-REGISTERED TRADEMARK- VIP GROWTH PORTFOLIO Value at beginning of period $31.791 $36.160 $26.641 $19.339 $15.858 $14.000 $10.472 $10.000(2) Value at end of period $25.853 $31.791 $36.160 $26.641 $19.339 $15.858 $14.000 $10.472 Number of accumulation units outstanding at end of period 1,454,622 1,500,686 1,477,316 1,278,104 1,110,079 994,616 612,992 121,070 FIDELITY-REGISTERED TRADEMARK- VIP OVERSEAS PORTFOLIO Value at beginning of period $15.838 $19.825 $14.074 $12.640 $11.473 $10.262 $9.474 $10.000(2) Value at end of period $12.330 $15.838 $19.825 $14.074 $12.640 $11.473 $10.262 $9.474 Number of accumulation units outstanding at end of period 137,442 146,480 164,209 194,687 221,450 182,533 166,303 54,387 FIDELITY-REGISTERED TRADEMARK- VIP CONTRAFUND-REGISTERED TRADEMARK- PORTFOLIO Value at beginning of period $24.923 $27.024 $22.023 $17.156 $13.994 $11.681 $10.000(3) Value at end of period $21.598 $24.923 $27.024 $22.023 $17.156 $13.994 $11.681 Number of accumulation units outstanding at end of period 742,484 805,532 888,915 834,976 811,557 500,034 174,259 FRANKLIN SMALL CAP VALUE SECURITIES FUND Value at beginning of period $8.071(3) Value at end of period $10.293 Number of accumulation units outstanding at end of period 1,354 JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO Value at beginning of period $30.318 $45.025 $20.226 $15.254 $13.710 $12.861 $10.000(3) Value at end of period $18.127 $30.318 $45.025 $20.226 $15.254 $13.710 $12.861 Number of accumulation units outstanding at end of period 1,307,191 1,454,286 1,118,453 565,275 493,462 495,557 167,920 JANUS ASPEN BALANCED PORTFOLIO Value at beginning of period $24.969 $25.859 $20.657 $15.576 $12.917 $11.259 $10.000(1) Value at end of period $23.498 $24.969 $25.859 $20.657 $15.576 $12.917 $11.259 Number of accumulation units outstanding at end of period 1,038,256 960,790 760,024 447,035 241,028 127,631 34,072 JANUS ASPEN FLEXIBLE INCOME PORTFOLIO Value at beginning of period $10.971 $10.455 $10.419 $10.054(1) Value at end of period $11.672 $10.971 $10.455 $10.419 Number of accumulation units outstanding at end of period 162,059 88,906 58,739 54,517 JANUS ASPEN GROWTH PORTFOLIO Value at beginning of period $26.504 $31.406 $22.086 $16.485 $13.599 $11.626 $10.000(1) Value at end of period $19.699 $26.504 $31.406 $22.086 $16.485 $13.599 $11.626 Number of accumulation units outstanding at end of period 827,887 955,552 773,103 465,446 376,501 250,918 78,126 JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO Value at beginning of period $32.342 $38.832 $23.910 $18.779 $15.566 $12.216 $10.000(3) Value at end of period $24.771 $32.342 $38.832 $23.910 $18.779 $15.566 $12.216 Number of accumulation units outstanding at end of period 1,480,954 1,661,140 1,490,250 1,360,741 1,206,175 526,646 65,384
87 CONDENSED FINANCIAL INFORMATION (CONTINUED) ------------------------------------------------------------------
2001 2000 1999 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- ---- ---- ---- LORD ABBETT GROWTH AND INCOME PORTFOLIO Value at beginning of period $9.621(4) Value at end of period $9.703 Number of accumulation units outstanding at end of period 3,183 LORD ABBETT MID-CAP VALUE PORTFOLIO Value at beginning of period $8.988(1) Value at end of period $9.341 Number of accumulation units outstanding at end of period 11,047 OPPENHEIMER GLOBAL SECURITIES FUND / VA Value at beginning of period $16.275 $15.681 $10.018 $9.865(1) Value at end of period $14.137 $16.275 $15.681 $10.018 Number of accumulation units outstanding at end of period 210,818 166,004 29,387 11,129 OPPENHEIMER STRATEGIC BOND FUND / VA Value at beginning of period $10.185 $10.048 $9.895 $9.988(1) Value at end of period $10.545 $10.185 $10.048 $9.895 Number of accumulation units outstanding at end of period 63,326 29,298 20,573 13,885 PIONEER EQUITY INCOME VCT PORTFOLIO Value at beginning of period $9.810(1) Value at end of period $9.610 Number of accumulation units outstanding at end of period 3,382 PIONEER MID CAP VALUE VCT PORTFOLIO Value at beginning of period $9.785(2) Value at end of period $9.961 Number of accumulation units outstanding at end of period 3,865 ING MFS CAPITAL OPPORTUNITIES PORTFOLIO Value at beginning of period $14.359 $15.421 $10.495 $9.828(1) Value at end of period $10.670 $14.359 $15.421 $10.495 Number of accumulation units outstanding at end of period 367,527 318,660 77,143 42,213 ING MFS EMERGING EQUITIES PORTFOLIO Value at beginning of period $20.033 $28.481 $19.114 $14.927 $15.114(2) Value at end of period $14.795 $20.033 $28.481 $19.114 $14.927 Number of accumulation units outstanding at end of period 1,153,477 1,261,315 1,234,595 1,369,984 1,368,373 ING MFS RESEARCH PORTFOLIO Value at beginning of period $19.365 $20.527 $16.758 $13.795 $14.067(2) Value at end of period $15.129 $19.365 $20.527 $16.758 $13.795 Number of accumulation units outstanding at end of period 744,284 850,004 930,521 1,054,685 1,200,982 ING SCUDDER INTERNATIONAL GROWTH PORTFOLIO Value at beginning of period $24.820 $31.255 $19.978 $16.986 $16.776(2) Value at end of period $17.910 $24.820 $31.255 $19.978 $16.986 Number of accumulation units outstanding at end of period 357,693 408,735 437,547 467,484 516,231 ING T. ROWE PRICE GROWTH EQUITY PORTFOLIO Value at beginning of period $24.245 $24.557 $20.328 $16.131 $15.809(2) Value at end of period $21.496 $24.245 $24.557 $20.328 $16.131 Number of accumulation units outstanding at end of period 612,057 636,137 668,583 717,872 701,952
---------------------------------- * This table applies to all 1994 and 1992 internal rollover contracts issued on or after March 23, 1994 and all contracts not connected with an internal transfer (i.e., external rollovers or contracts established with at least a $1,000 annual purchase payment) issued on or after March 29, 1994. FOOTNOTES FOR PERIOD ENDED DECEMBER 31, 2001: (1) Funds were first received in this option during July 2001. 88 CONDENSED FINANCIAL INFORMATION (CONTINUED) ------------------------------------------------------------------ (2) Funds were first received in this option during August 2001. (3) Funds were first received in this option during September 2001. (4) Funds were first received in this option during December 2001. FOOTNOTE FOR PERIOD ENDED DECEMBER 31, 2000: (1) Funds were first received in this option during May 2000. FOOTNOTE FOR PERIOD ENDED DECEMBER 31, 1999: (1) Funds were first received in this option during May 1999. FOOTNOTES FOR PERIOD ENDED DECEMBER 31, 1998: (1) Funds were first received in this option during May 1998. (2) Funds were first received in this option during June 1998. FOOTNOTES FOR PERIOD ENDED DECEMBER 31, 1997: (1) Funds were first received in this option during May 1997. (2) Funds were first received in this option during November 1997. FOOTNOTE FOR PERIOD ENDED DECEMBER 31, 1996: (1) The initial accumulation unit value was established during August 1996, when the portfolio became available under the contract, when funds were first received in this option or when the applicable daily asset charge was first utilized. FOOTNOTES FOR PERIOD ENDED DECEMBER 31, 1995: (1) Funds were first available in this option during June 1995. (2) Funds were first available in this option during July 1995. (3) Funds were first available in this option during May 1995. FOOTNOTES FOR PERIOD ENDED DECEMBER 31, 1994: (1) Funds were first received in this option during April 1994. (2) Funds were first received in this option during May 1994. 89 CONDENSED FINANCIAL INFORMATION ------------------------------------------------------------------ TABLE II FOR CONTRACTS WITH TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES OF 1.15% (SELECTED DATA FOR ACCUMULATION UNITS OUTSTANDING THROUGHOUT EACH PERIOD) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- THE CONDENSED FINANCIAL INFORMATION PRESENTED BELOW FOR THE PERIOD ENDED DECEMBER 31, 2001 IS DERIVED FROM THE FINANCIAL STATEMENTS OF THE SEPARATE ACCOUNT, WHICH HAVE BEEN AUDITED BY ERNST & YOUNG LLP, INDEPENDENT AUDITORS. THE CONDENSED FINANCIAL INFORMATION PRESENTED BELOW FOR EACH OF THE PERIODS IN THE SEVEN-YEAR PERIOD ENDED DECEMBER 31, 2000 (AS APPLICABLE), IS DERIVED FROM THE FINANCIAL STATEMENTS OF THE SEPARATE ACCOUNT, WHICH HAVE BEEN AUDITED BY OTHER AUDITORS. THE FINANCIAL STATEMENTS AND THE INDEPENDENT AUDITORS' REPORT THEREON FOR THE YEAR ENDED DECEMBER 31, 2001 ARE INCLUDED IN THE STATEMENT OF ADDITIONAL INFORMATION.
2001 2000 1999 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- ---- ---- ---- ING VP ASCENT PORTFOLIO Value at beginning of period $18.200 $18.533 $16.395 $15.900 $13.415 $10.982 $10.000(1) Value at end of period $15.914 $18.200 $18.533 $16.395 $15.900 $13.415 $10.982 Number of accumulation units outstanding at end of period 8,989 12,362 11,214 21,004 20,154 28,982 15,055 ING VP BALANCED PORTFOLIO, INC. Value at beginning of period $24.108 $24.523 $21.836 $18.889 $15.600 $13.703 $10.880 $10.951(1) Value at end of period $22.827 $24.108 $24.523 $21.836 $18.889 $15.600 $13.703 $10.880 Number of accumulation units outstanding at end of period 96,619 98,020 144,540 167,720 166,915 172,588 138,271 49,333 ING VP BOND PORTFOLIO Value at beginning of period $15.115 $13.945 $14.211 $13.293 $12.416 $12.125 $10.373 $10.367(2) Value at end of period $16.248 $15.115 $13.945 $14.211 $13.293 $12.416 $12.125 $10.373 Number of accumulation units outstanding at end of period 82,489 62,380 71,392 102,450 98,338 92,017 50,261 16,110 ING VP CROSSROADS PORTFOLIO Value at beginning of period $16.799 $16.923 $15.532 $14.835 $12.763 $10.868 $10.000(1) Value at end of period $15.445 $16.799 $16.923 $15.532 $14.835 $12.763 $10.868 Number of accumulation units outstanding at end of period 18,902 18,918 39,125 35,562 20,404 15,074 2,394 ING VP GROWTH PORTFOLIO Value at beginning of period $20.839 $23.940 $17.943 $13.183 $14.472(1) Value at end of period $15.024 $20.839 $23.940 $17.943 $13.183 Number of accumulation units outstanding at end of period 6,452 23,305 30,865 26,153 2,122 ING VP GROWTH AND INCOME PORTFOLIO Value at beginning of period $25.772 $29.280 $25.225 $22.287 $17.357 $14.108 $10.791 $10.875(2) Value at end of period $20.788 $25.772 $29.280 $25.225 $22.287 $17.357 $14.108 $10.791 Number of accumulation units outstanding at end of period 331,651 481,222 488,810 548,039 461,571 405,331 273,578 110,420 ING VP INDEX PLUS LARGECAP PORTFOLIO Value at beginning of period $20.707 $23.120 $18.815 $14.463 $11.406(2) Value at end of period $17.681 $20.707 $23.120 $18.815 $14.463 Number of accumulation units outstanding at end of period 27,451 66,254 56,950 45,787 10,121 ING VP INDEX PLUS MIDCAP PORTFOLIO Value at beginning of period $14.791 $13.477(1) Value at end of period $14.427 $14.791 Number of accumulation units outstanding at end of period 8,546 4,514 ING VP INDEX PLUS SMALLCAP PORTFOLIO Value at beginning of period $10.489 $9.661 $9.414(1) Value at end of period $10.618 $10.489 $9.661 Number of accumulation units outstanding at end of period 16,834 1,442 1,062 ING VP INTERNATIONAL EQUITY PORTFOLIO Value at beginning of period $11.514 $14.618 $11.160(2) Value at end of period $8.664 $11.514 $14.618 Number of accumulation units outstanding at end of period 1,073 1,073 7,828
90 CONDENSED FINANCIAL INFORMATION (CONTINUED) ------------------------------------------------------------------
2001 2000 1999 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- ---- ---- ---- ING VP LEGACY PORTFOLIO Value at beginning of period $15.753 $15.203 $14.360 $13.583 $12.000 $10.631 $10.000(2) Value at end of period $15.202 $15.753 $15.203 $14.360 $13.583 $12.000 $10.631 Number of accumulation units outstanding at end of period 15,761 17,675 43,422 76,396 77,495 19,864 17,106 ING VP MONEY MARKET PORTFOLIO Value at beginning of period $13.669 $12.997 $12.512 $12.002 $11.510 $11.051 $10.541 $10.484(1) Value at end of period $14.044 $13.669 $12.997 $12.512 $12.002 $11.510 $11.051 $10.541 Number of accumulation units outstanding at end of period 190,821 258,757 348,708 190,680 137,699 173,308 145,629 9,736 ING VP SMALL COMPANY PORTFOLIO Value at beginning of period $18.638 $17.665 $13.657 $13.664 $11.541(3) Value at end of period $19.160 $18.638 $17.665 $13.657 $13.664 Number of accumulation units outstanding at end of period 2,885 22,613 20,668 20,254 13,843 ING VP TECHNOLOGY PORTFOLIO Value at beginning of period $3.266(1) Value at end of period $4.443 Number of accumulation units outstanding at end of period 2,277 ING VP VALUE OPPORTUNITY PORTFOLIO Value at beginning of period $20.679 $18.982 $16.754(3) $13.271 $12.904(4) Value at end of period $18.476 $20.679 $18.982 $16.057 $13.271 Number of accumulation units outstanding at end of period 5,522 2,242 2,242 0 1,510 AIM V.I. CAPITAL APPRECIATION FUND Value at beginning of period $12.121 $13.762 $10.465(4) Value at end of period $12.871 $12.121 $13.762 Number of accumulation units outstanding at end of period 0 79 79 AIM V.I. GROWTH FUND Value at beginning of period $9.493 $12.077 $10.207(4) Value at end of period $6.204 $9.493 $12.077 Number of accumulation units outstanding at end of period 1,135 1,149 14 AIM V.I. CORE EQUITY FUND Value at beginning of period $9.903 $10.853(2) Value at end of period $7.554 $9.903 Number of accumulation units outstanding at end of period 19,314 19,412 AIM V.I. PREMIER EQUITY FUND Value at beginning of period $9.715 $11.514 $10.171(4) Value at end of period $8.397 $9.715 $11.514 Number of accumulation units outstanding at end of period 1,875 1,771 662 FIDELITY-REGISTERED TRADEMARK- VIP EQUITY-INCOME PORTFOLIO Value at beginning of period $24.729 $23.071 $21.948 $19.890 $15.705 $13.902 $10.409 $10.000(3) Value at end of period $23.233 $24.729 $23.071 $21.948 $19.890 $15.705 $13.902 $10.409 Number of accumulation units outstanding at end of period 75,694 84,691 94,759 114,565 162,627 194,798 118,679 43,852 FIDELITY-REGISTERED TRADEMARK- VIP GROWTH PORTFOLIO Value at beginning of period $32.002 $36.363 $26.764 $19.409 $15.900 $14.023 $10.479 $10.000(1) Value at end of period $26.050 $32.002 $36.363 $26.764 $19.409 $15.900 $14.023 $10.479 Number of accumulation units outstanding at end of period 59,994 66,459 90,675 76,869 83,442 87,971 45,765 32,592 FIDELITY-REGISTERED TRADEMARK- VIP OVERSEAS PORTFOLIO Value at beginning of period $15.943 $19.936 $14.140 $12.686 $11.503 $10.278 $9.480 $10.000(1) Value at end of period $12.424 $15.943 $19.936 $14.140 $12.686 $11.503 $10.278 $9.480 Number of accumulation units outstanding at end of period 8,057 9,199 8,089 15,876 23,721 35,293 4,284 5,098
91 CONDENSED FINANCIAL INFORMATION (CONTINUED) ------------------------------------------------------------------
2001 2000 1999 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- ---- ---- ---- FIDELITY-REGISTERED TRADEMARK- VIP CONTRAFUND-REGISTERED TRADEMARK- PORTFOLIO Value at beginning of period $25.063 $27.150 $22.103 $17.201 $14.016 $11.689 $10.000(3) Value at end of period $21.741 $25.063 $27.150 $22.103 $17.201 $14.016 $11.689 Number of accumulation units outstanding at end of period 5,754 16,464 21,611 19,136 16,983 13,300 5,453 JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO Value at beginning of period $30.490 $45.235 $20.300 $15.295 $13.733 $12.869 $10.000(3) Value at end of period $18.249 $30.490 $45.235 $20.300 $15.295 $13.733 $12.869 Number of accumulation units outstanding at end of period 52,073 58,338 57,150 15,876 13,373 24,366 22,050 JANUS ASPEN BALANCED PORTFOLIO Value at beginning of period $25.109 $25.978 $20.731 $15.616 $12.938 $11.265 $10.000(1) Value at end of period $23.652 $25.109 $25.978 $20.731 $15.616 $12.938 $11.265 Number of accumulation units outstanding at end of period 73,228 85,789 73,950 22,911 24,214 15,488 9,383 JANUS ASPEN GROWTH PORTFOLIO Value at beginning of period $26.652 $31.550 $22.165 $16.528 $13.621 $11.633 $10.000(1) Value at end of period $19.829 $26.652 $31.550 $22.165 $16.528 $13.621 $11.633 Number of accumulation units outstanding at end of period 44,920 54,279 44,364 33,676 7,407 6,308 3,238 JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO Value at beginning of period $32.523 $39.011 $23.996 $18.828 $15.592 $12.223 $10.000(3) Value at end of period $24.936 $32.523 $39.011 $23.996 $18.828 $15.592 $12.223 Number of accumulation units outstanding at end of period 30,178 66,342 58,658 74,104 59,450 33,350 2,617 OPPENHEIMER GLOBAL SECURITIES FUND / VA Value at beginning of period $16.319 $15.707 $10.923(4) Value at end of period $14.189 $16.319 $15.707 Number of accumulation units outstanding at end of period 15,615 15,425 658 ING MFS CAPITAL OPPORTUNITIES PORTFOLIO Value at beginning of period $14.398 $15.447 $10.502 $9.473(1) Value at end of period $10.709 $14.398 $15.447 $10.502 Number of accumulation units outstanding at end of period 5,863 11,758 12,266 12,126 ING MFS EMERGING EQUITIES PORTFOLIO Value at beginning of period $20.179 $28.661 $19.216 $14.991 $15.178(5) Value at end of period $14.919 $20.179 $28.661 $19.216 $14.991 Number of accumulation units outstanding at end of period 32,390 36,463 48,709 72,542 97,555 ING MFS RESEARCH PORTFOLIO Value at beginning of period $19.503 $20.653 $16.844 $13.852 $14.124(5) Value at end of period $15.252 $19.503 $20.653 $16.844 $13.852 Number of accumulation units outstanding at end of period 10,200 10,200 12,985 5,155 1,447 ING SCUDDER INTERNATIONAL GROWTH PORTFOLIO Value at beginning of period $24.997 $31.447 $20.081 $17.056 $16.844(5) Value at end of period $18.055 $24.997 $31.447 $20.081 $17.056 Number of accumulation units outstanding at end of period 32,985 35,392 34,626 27,591 34,030 ING T. ROWE PRICE GROWTH EQUITY PORTFOLIO Value at beginning of period $24.380 $24.669 $20.400 $16.172 $15.848(5) Value at end of period $21.637 $24.380 $24.669 $20.400 $16.172 Number of accumulation units outstanding at end of period 24,854 30,566 43,662 47,436 44,362
---------------------------------- FOOTNOTE FOR PERIOD ENDED DECEMBER 31, 2001: (1) Funds were first received in this option during September 2001. FOOTNOTES FOR PERIOD ENDED DECEMBER 31, 2000: (1) Funds were first received in this option during March 2000. 92 CONDENSED FINANCIAL INFORMATION (CONTINUED) ------------------------------------------------------------------ (2) Funds were first received in this option during January 2000. FOOTNOTES FOR PERIOD ENDED DECEMBER 31, 1999: (1) Funds were first received in this option during December 1999. (2) Funds were first received in this option during October 1999. (3) Funds were first received in this option during September 1999. (4) Funds were first received in this option during August 1999. FOOTNOTE FOR PERIOD ENDED DECEMBER 31, 1998: (1) Funds were first received in this option during November 1998. FOOTNOTES FOR PERIOD ENDED DECEMBER 31, 1997: (1) Funds were first received in this option during October 1997. (2) Funds were first received in this option during January 1997. (3) Funds were first received in this option during June 1997. (4) Funds were first received in this option during August 1997. (5) Funds were first received in this option during November 1997. FOOTNOTES FOR PERIOD ENDED DECEMBER 31, 1995: (1) Funds were first available in this option during June 1995. (2) Funds were first available in this option during July 1995. (3) Funds were first available in this option during May 1995. FOOTNOTES FOR PERIOD ENDED DECEMBER 31, 1994: (1) Funds were first received in this option during November 1994. (2) Funds were first received in this option during October 1994. (3) Funds were first received in this option during September 1994. 93 CONDENSED FINANCIAL INFORMATION ------------------------------------------------------------------ TABLE III 1992 CONTRACTS ISSUED PRIOR TO MARCH 1994* (SELECTED DATA FOR ACCUMULATION UNITS OUTSTANDING THROUGHOUT EACH PERIOD) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- THE CONDENSED FINANCIAL INFORMATION PRESENTED BELOW FOR THE PERIOD ENDED DECEMBER 31, 2001 IS DERIVED FROM THE FINANCIAL STATEMENTS OF THE SEPARATE ACCOUNT, WHICH HAVE BEEN AUDITED BY ERNST & YOUNG LLP, INDEPENDENT AUDITORS. THE CONDENSED FINANCIAL INFORMATION PRESENTED BELOW FOR EACH OF THE PERIODS IN THE NINE-YEAR PERIOD ENDED DECEMBER 31, 2000 (AS APPLICABLE), IS DERIVED FROM THE FINANCIAL STATEMENTS OF THE SEPARATE ACCOUNT, WHICH HAVE BEEN AUDITED BY OTHER AUDITORS. THE FINANCIAL STATEMENTS AND THE INDEPENDENT AUDITORS' REPORT THEREON FOR THE YEAR ENDED DECEMBER 31, 2001 ARE INCLUDED IN THE STATEMENT OF ADDITIONAL INFORMATION.
2001 2000 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- ---- ---- ING VP ASCENT PORTFOLIO Value at beginning of period $17.601 $17.940 $15.886 $15.422 $13.291(1) Value at end of period $15.374 $17.601 $17.940 $15.886 $15.422 Number of accumulation units outstanding at end of period 203 149 33,852 21,430 380 ING VP BALANCED PORTFOLIO, INC. Value at beginning of period $31.424 $32.002 $28.524 $24.700 $20.419 $17.954 $14.270 Value at end of period $29.730 $31.424 $32.002 $28.524 $24.700 $20.419 $17.954 Number of accumulation units outstanding at end of period 35,756 148,870 2,155,445 2,294,877 2,160,305 2,716,641 9,193,181 ING VP BOND PORTFOLIO Value at beginning of period $58.190 $53.738 $54.819 $51.330 $47.992 $46.913 $40.173 Value at end of period $62.489 $58.190 $53.738 $54.819 $51.330 $47.992 $46.913 Number of accumulation units outstanding at end of period 11,856 6,930 867,416 994,987 959,336 835,724 2,377,622 ING VP CROSSROADS PORTFOLIO Value at beginning of period $16.322 $16.458 $15.120 $14.456 $12.577(1) Value at end of period $14.991 $16.322 $16.458 $15.120 $14.456 Number of accumulation units outstanding at end of period 35 30 30,738 31,468 873 ING VP GROWTH PORTFOLIO Value at beginning of period $15.760 $18.124 $13.597 $11.392(1) Value at end of period $11.351 $15.760 $18.124 $13.597 Number of accumulation units outstanding at end of period 675 840 781 17 ING VP GROWTH AND INCOME PORTFOLIO Value at beginning of period $250.600 $284.994 $245.765 $217.359 $169.448 $137.869 $105.558 Value at end of period $201.929 $250.600 $284.994 $245.765 $217.359 $169.448 $137.869 Number of accumulation units outstanding at end of period 10,924 11,885 1,555,542 1,747,097 1,826,355 2,071,139 6,364,000 ING VP INDEX PLUS LARGECAP PORTFOLIO Value at beginning of period $20.618 $23.044 $18.772 $14.444 $14.493(2) Value at end of period $17.587 $20.618 $23.044 $18.772 $14.444 Number of accumulation units outstanding at end of period 884 529 2,748,955 1,302,825 17,771 ING VP INDEX PLUS MIDCAP PORTFOLIO Value at beginning of period $14.669(1) $12.967 $11.338 $9.928(2) Value at end of period $14.965 $13.325 $12.967 $11.338 Number of accumulation units outstanding at end of period 9 0 73,984 35,201 ING VP INDEX PLUS SMALLCAP PORTFOLIO Value at beginning of period $10.019 $9.157 $10.193(2) Value at end of period $10.234 $10.019 $9.157 Number of accumulation units outstanding at end of period 0 118,433 81,388 ING VP LEGACY PORTFOLIO Value at beginning of period $15.599 $15.070 $14.248 $13.491 $12.296(3) Value at end of period $15.039 $15.599 $15.070 $14.248 $13.491 Number of accumulation units outstanding at end of period 621 490 46,462 95,526 2,279 ING VP MONEY MARKET PORTFOLIO Value at beginning of period $46.754 $44.501 $42.883 $41.174 $39.528 $37.988 $36.271 Value at end of period $47.989 $46.754 $44.501 $42.883 $41.174 $39.528 $37.988 Number of accumulation units outstanding at end of period 4,461 3,601 845,679 564,537 455,502 597,656 1,836,260 1994 1993 1992 ---- ---- ---- ING VP ASCENT PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period ING VP BALANCED PORTFOLIO, INC. Value at beginning of period $14.519 $13.379 $12.736 Value at end of period $14.270 $14.519 $13.379 Number of accumulation units outstanding at end of period 21,990,186 30,784,750 34,802,433 ING VP BOND PORTFOLIO Value at beginning of period $42.283 $39.038 $36.789 Value at end of period $40.173 $42.283 $39.038 Number of accumulation units outstanding at end of period 5,108,720 8,210,666 8,507,292 ING VP CROSSROADS PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period ING VP GROWTH PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period ING VP GROWTH AND INCOME PORTFOLIO Value at beginning of period $107.925 $102.383 $97.165 Value at end of period $105.558 $107.925 $102.383 Number of accumulation units outstanding at end of period 13,966,072 21,148,863 24,201,565 ING VP INDEX PLUS LARGE CAP PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period ING VP INDEX PLUS MID CAP PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period ING VP INDEX PLUS SMALL CAP PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period ING VP LEGACY PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period ING VP MONEY MARKET PORTFOLIO Value at beginning of period $35.282 $34.619 $33.812 Value at end of period $36.271 $35.282 $34.619 Number of accumulation units outstanding at end of period 3,679,802 5,086,515 7,534,662
94 CONDENSED FINANCIAL INFORMATION (CONTINUED) ------------------------------------------------------------------
2001 2000 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- ---- ---- ING VP VALUE OPPORTUNITY PORTFOLIO Value at beginning of period $14.274 $12.088 $11.472(2) Value at end of period $13.820 $14.274 $12.088 Number of accumulation units outstanding at end of period 0 74,768 33,957 AIM V.I. PREMIER EQUITY FUND Value at beginning of period $9.942 $11.650(1) Value at end of period $8.584 $9.942 Number of accumulation units outstanding at end of period 53 18 CALVERT SOCIAL BALANCED PORTFOLIO Value at beginning of period $28.827 $30.131 $27.186 $23.675 $19.965 $17.951 $13.990 Value at end of period $26.491 $28.827 $30.131 $27.186 $23.675 $19.965 $17.951 Number of accumulation units outstanding at end of period 19,629 17,779 880,319 917,567 929,282 898,279 856,361 FIDELITY-REGISTERED TRADEMARK- VIP EQUITY-INCOME PORTFOLIO Value at beginning of period $20.561 $19.201 $18.285 $16.587 $13.110 $11.617 $10.000(1) Value at end of period $19.298 $20.561 $19.201 $18.285 $16.587 $13.110 $11.617 Number of accumulation units outstanding at end of period 916 876 2,271,494 2,533,673 2,139,178 1,454,755 628,582 FIDELITY-REGISTERED TRADEMARK- VIP GROWTH PORTFOLIO Value at beginning of period $23.158 $26.340 $19.406 $14.087 $11.843(4) Value at end of period $18.832 $23.158 $26.340 $19.406 $14.087 Number of accumulation units outstanding at end of period 289 163 78 72 29 FIDELITY-REGISTERED TRADEMARK- VIP CONTRAFUND-REGISTERED TRADEMARK- PORTFOLIO Value at beginning of period $25.097 $27.214 $22.177 $17.276 $14.092 $11.763 $10.000(1) Value at end of period $21.749 $25.097 $27.214 $22.177 $17.276 $14.092 $11.763 Number of accumulation units outstanding at end of period 2,117 1,721 3,780,287 3,333,320 2,706,862 1,522,169 525,476 JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO Value at beginning of period $36.122 $53.644 $24.098 $18.174 $16.334 $15.323 $12.169 Value at end of period $21.598 $36.122 $53.644 $24.098 $18.174 $16.334 $15.323 Number of accumulation units outstanding at end of period 73,818 82,204 3,274,450 2,142,130 1,939,607 1,893,718 1,280,953 JANUS ASPEN BALANCED PORTFOLIO Value at beginning of period $24.071 $24.929 $19.914 $15.016 $12.453 $10.853 $10.000(2) Value at end of period $22.652 $24.071 $24.929 $19.914 $15.016 $12.453 $10.853 Number of accumulation units outstanding at end of period 675 592 476 3,698 7,873 231 161 JANUS ASPEN FLEXIBLE INCOME PORTFOLIO Value at beginning of period $16.372 $15.601 $15.548 $14.430 $13.074 $12.124 $9.911 Value at end of period $17.419 $16.372 $15.601 $15.548 $14.430 $13.074 $12.124 Number of accumulation units outstanding at end of period 6,498 2,254 6,629 8,967 5,211 3,761 3,345 JANUS ASPEN GROWTH PORTFOLIO Value at beginning of period $27.035 $32.036 $22.529 $16.816 $13.872 $11.859 $10.000(2) Value at end of period $20.094 $27.035 $32.036 $22.529 $16.816 $13.872 $11.859 Number of accumulation units outstanding at end of period 1,949 1,534 2,721,885 1,354,047 1,109,942 663,945 109,717 JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO Value at beginning of period $32.189 $38.648 $23.797 $18.690 $15.493 $12.158 $10.000(2) Value at end of period $24.654 $32.189 $38.648 $23.797 $18.690 $15.493 $12.158 Number of accumulation units outstanding at end of period 2,206 1,678 5,548,674 4,687,167 3,873,511 2,090,908 314,653 OPPENHEIMER GLOBAL SECURITIES FUND / VA Value at beginning of period $16.737 $16.126 $10.303 $10.077(3) Value at end of period $14.538 $16.737 $16.126 $10.303 Number of accumulation units outstanding at end of period 67 44 59,571 20,548 OPPENHEIMER STRATEGIC BOND FUND / VA Value at beginning of period $10.089 $9.935 $10.055(2) Value at end of period $10.095 $10.089 $9.935 Number of accumulation units outstanding at end of period 0 173,219 100,555 1994 1993 1992 ---- ---- ---- ING VP VALUE OPPORTUNITY PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period AIM V.I. PREMIER EQUITY FUND Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period CALVERT SOCIAL BALANCED PORTFOLIO Value at beginning of period $14.640 $13.726 $12.913 Value at end of period $13.990 $14.640 $13.726 Number of accumulation units outstanding at end of period 743,464 705,415 503,006 FIDELITY-REGISTERED TRADEMARK- VIP EQUITY-INCOME PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period FIDELITY-REGISTERED TRADEMARK- VIP GROWTH PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period FIDELITY-REGISTERED TRADEMARK- VIP CONTRAFUND-REGISTERED TRADEMARK- PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO Value at beginning of period $10.000(1) Value at end of period $12.169 Number of accumulation units outstanding at end of period 393,553 JANUS ASPEN BALANCED PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period JANUS ASPEN FLEXIBLE INCOME PORTFOLIO Value at beginning of period $10.000(2) Value at end of period $9.911 Number of accumulation units outstanding at end of period 1,555 JANUS ASPEN GROWTH PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period OPPENHEIMER GLOBAL SECURITIES FUND / VA Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period OPPENHEIMER STRATEGIC BOND FUND / VA Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period
95 CONDENSED FINANCIAL INFORMATION (CONTINUED) ------------------------------------------------------------------
2001 2000 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- ---- ---- ING MFS CAPITAL OPPORTUNITIES PORTFOLIO Value at beginning of period $40.144 $43.112 $29.339 $23.440 $23.106(5) Value at end of period $29.828 $40.144 $43.112 $29.339 $23.440 Number of accumulation units outstanding at end of period 52,756 54,583 2,448,587 2,244,308 2,018,219 ING MFS EMERGING EQUITIES PORTFOLIO Value at beginning of period $20.194 $28.710 $19.268 $15.046 $15.236(5) Value at end of period $14.914 $20.194 $28.710 $19.268 $15.046 Number of accumulation units outstanding at end of period 101,413 96,466 3,024,975 3,101,880 2,707,904 ING MFS RESEARCH PORTFOLIO Value at beginning of period $16.788 $17.796 $14.528 $11.960 $12.195(5) Value at end of period $13.116 $16.788 $17.796 $14.528 $11.960 Number of accumulation units outstanding at end of period 75,613 78,522 194,296 1,379,653 232,418 ING SCUDDER INTERNATIONAL GROWTH PORTFOLIO Value at beginning of period $25.876 $32.585 $20.829 $17.709 $17.490(5) Value at end of period $18.672 $25.876 $32.585 $20.829 $17.709 Number of accumulation units outstanding at end of period 33,687 35,301 2,807,485 2,962,631 3,237,710 ING T. ROWE PRICE GROWTH EQUITY PORTFOLIO Value at beginning of period $24.962 $25.283 $20.929 $16.608 $16.276(5) Value at end of period $22.131 $24.962 $25.283 $20.929 $16.608 Number of accumulation units outstanding at end of period 383 199 1,549,310 1,564,888 1,317,058 1994 1993 1992 ---- ---- ---- ING MFS CAPITAL OPPORTUNITIES PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period ING MFS EMERGING EQUITIES PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period ING MFS RESEARCH PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period ING SCUDDER INTERNATIONAL GROWTH PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period ING T. ROWE PRICE GROWTH EQUITY PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period
---------------------------------- * This table applies to 1992 internal rollover contracts issued prior to March 23, 1994 and 1992 contracts not connected with an internal transfer (i.e., external rollovers or contracts established with at least a $1,000 annual purchase payment) issued prior to March 29, 1994. FOOTNOTE FOR PERIOD ENDED DECEMBER 31, 2001: (1) Funds were first received in this option during July 2001. FOOTNOTE FOR PERIOD ENDED DECEMBER 31, 2000: (1) Funds were first received in this option during June 2000. FOOTNOTES FOR PERIOD ENDED DECEMBER 31, 1998: (1) Funds were first received in this option during September 1998. (2) Funds were first received in this option during May 1998. (3) Funds were first received in this option during June 1998. FOOTNOTES FOR PERIOD ENDED DECEMBER 31, 1997: (1) Funds were first received in this option during February 1997. (2) Funds were first received in this option during December 1997. (3) Funds were first received in this option during May 1997. (4) Funds were first received in this option during January 1997. (5) Funds were first received in this option during November 1997. FOOTNOTES FOR PERIOD ENDED DECEMBER 31, 1995: (1) The initial accumulation unit value was established at $10.000 during May 1995, when the fund became available under the contract. (2) The initial accumulation unit value was established at $10.000 during July 1995, when the fund became available under the contract. FOOTNOTES FOR PERIOD ENDED DECEMBER 31, 1994: (1) The initial accumulation unit value was established at $10.000 during June 1994, when funds were first received in this option. (2) The initial accumulation unit value was established at $10.000 during November 1994, when funds were first received in this option. 96 PLEASE ATTACH TO YOUR APPLICATION ------------------------------------------------------------------ I HEREBY ACKNOWLEDGE RECEIPT OF AN ACCOUNT C INDIVIDUAL VARIABLE ANNUITY CONTRACT PROSPECTUS DATED MAY 1, 2002 FOR INDIVIDUAL RETIREMENT ANNUITIES AND SIMPLIFIED EMPLOYEE PENSION PLANS, AS WELL AS THE CURRENT PROSPECTUS PERTAINING TO THE GUARANTEED ACCUMULATION ACCOUNT, IF APPLICABLE. ____ PLEASE SEND AN ACCOUNT C STATEMENT OF ADDITIONAL INFORMATION (FORM NO. SAI.75988-02) DATED MAY 1, 2002. -------------------------------------------------------------------------------- CONTRACT HOLDER'S SIGNATURE -------------------------------------------------------------------------------- DATE PRO.75988-02 VARIABLE ANNUITY ACCOUNT C OF AETNA LIFE INSURANCE AND ANNUITY COMPANY STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 2002 Individual Deferred Fixed or Variable Annuity Contracts for Individual Retirement Annuities under Section 408(b), Roth Individual Retirement Annuities under Section 408A and Simplified Employee Pension Plans under Section 408(k) 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, 2002. A free prospectus is available upon request from the local ING Life Insurance and Annuity Company office or by writing to or calling: ING Individual Annuity Services 151 Farmington Avenue Hartford, Connecticut 06156-1277 1-800-262-3862 Read the prospectus before you invest. Unless otherwise indicated, terms used in this Statement of Additional Information shall have the same meaning as in the prospectus. TABLE OF CONTENTS
PAGE ---- General Information and History 2 Variable Annuity Account C 2 Offering and Purchase of Contracts 3 Performance Data 3 General 3 Average Annual Total Return Quotations 4 Income Phase Payments 18 Sales Material and Advertising 19 Independent Auditors 20 Financial Statements of the Separate Account S-1 Financial Statements of ING Life Insurance and Annuity Company and Subsidiaries F-1
GENERAL INFORMATION AND HISTORY ING Life Insurance and Annuity Company (the Company, we, us, our) issues the contract described in the prospectus and is responsible for providing each contract's insurance and annuity benefits. We are a stock life insurance company organized under the insurance laws of the State of Connecticut in 1976 and an indirect wholly-owned subsidiary of ING Groep N.V., a global financial institution active in the fields of insurance, banking and asset management. Prior to May 1, 2002, the Company was known as Aetna Life Insurance and Annuity Company. Through a merger, our operations include the business of Aetna Variable Annuity Life Insurance Company (formerly known as Participating Annuity Life Insurance Company, an Arkansas life insurance company organized in 1954). Our Home Office is located at 151 Farmington Avenue, Hartford, Connecticut 06156. As of December 31, 2001, the Company and its subsidiary life company had $48 billion invested through their products, including $33 billion in their separate accounts (of which the Company or its affiliate ING Investments, LLC manages or oversees the management of $21 billion). The Company is ranked among the top 1% of all U.S. life insurance companies rated by A.M. Best Company based on assets as of December 31, 2000. In addition to serving as the depositor for the separate account, the Company is a registered investment adviser under the Investment Advisers Act of 1940. We provide 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 charge and administrative expense charge, if any, described in the prospectus, all expenses incurred in the operations of the separate account are borne by the Company. However, the Company does receive compensation for certain administrative costs or distribution costs from the funds or affiliates of the funds used as funding options under the contract. (See "Fees" in the prospectus.) 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. From this point forward, the term "contract(s)" refers only to those offered through the prospectus. VARIABLE ANNUITY ACCOUNT C Variable Annuity Account C is a separate account established by the Company for the purpose of funding variable annuity contracts issued by the Company. The separate account is registered with the Securities and Exchange Commission (SEC) as a unit investment trust under the Investment Company Act of 1940, as amended. Purchase payments to accounts 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. We may make additions to, deletions from or substitutions of available investment options as permitted by law and subject to the conditions of the contract. The availability of the funds is subject to applicable regulatory authorization. Not all funds are available in all jurisdictions or under all contracts. 2 The funds currently available under the contract are as follows: ING VP Ascent Portfolio (Class R Shares)(1) ING PIMCO Total Return Portfolio (Service Class) ING VP Balanced Portfolio, Inc. (Class R Shares)(1) ING Salomon Brothers Capital Portfolio (Service Class)(1) ING VP Bond Portfolio (Class R Shares)(1) ING Salomon Brothers Investors Value Portfolio (Service ING VP Crossroads Portfolio (Class R Shares)(1) Class)(1) ING VP Growth Portfolio (Class R Shares)(1) ING Scudder International Growth Portfolio (Initial Class)(1) ING VP Growth and Income Portfolio (Class R Shares)(1) ING T. Rowe Price Growth Equity Portfolio (Initial Class)(1) ING VP Index Plus LargeCap Portfolio (Class R Shares)(1) ING UBS Tactical Asset Allocation Portfolio (Service Class)(1) ING VP Index Plus MidCap Portfolio (Class R Shares)(1) ING Van Kampen Comstock Portfolio (Service Class) ING VP Index Plus SmallCap Portfolio (Class R Shares)(1) AIM V.I. Capital Appreciation Fund (Series I) ING VP International Equity Portfolio (Class R Shares)(1) AIM V.I. Core Equity Fund (Series I)(1) ING VP Legacy Portfolio (Class R Shares)(1) AIM V.I. Growth Fund (Series I) ING VP Money Market Portfolio (Class R Shares)(1) AIM V.I. Premier Equity Fund (Series I)(1) ING VP Small Company Portfolio (Class R Shares)(1) Calvert Social Balanced Portfolio ING VP Technology Portfolio (Class R Shares)(1) Fidelity(R)VIP Contrafund(R)Portfolio (Initial Class) ING VP Value Opportunity Portfolio (Class R Shares)(1) Fidelity(R)VIP Equity-Income Portfolio (Initial Class) ING VP Growth Opportunities Portfolio (Class R Shares)(1) Fidelity(R)VIP Growth Portfolio (Initial Class) ING VP International Value Portfolio (Class R Shares)(1) Fidelity(R)VIP Overseas Portfolio (Initial Class) ING VP MidCap Opportunities Portfolio (Class R Shares)(1) Franklin Small Cap Value Securities Fund (Class 2 Shares)(1) ING VP SmallCap Opportunities Portfolio (Class R Shares)(1) Janus Aspen Aggressive Growth Portfolio (Institutional Shares) ING Alger Aggressive Growth Portfolio (Service Class)(1) Janus Aspen Balanced Portfolio (Institutional Shares) ING Alger Growth Portfolio (Service Class)(1) Janus Aspen Capital Appreciation Portfolio (Service Shares) ING American Century Small Cap Value Portfolio (Service Class) Janus Aspen Flexible Income Portfolio (Institutional Shares) ING Baron Small Cap Growth Portfolio (Service Class) Janus Aspen Growth Portfolio (Institutional Shares) ING DSI Enhanced Index Portfolio (Service Class)(1) Janus Aspen Worldwide Growth Portfolio (Institutional Shares) ING Goldman Sachs(R)Capital Growth Portfolio (Service Lord Abbett Growth and Income Portfolio (Class VC Shares) Class)(1)(2) Lord Abbett Mid-Cap Value Portfolio (Class VC Shares) ING JPMorgan Mid Cap Value Portfolio (Service Class) Oppenheimer Global Securities Fund/VA ING MFS Capital Opportunities Portfolio (Initial Class)(1) Oppenheimer Strategic Bond Fund/VA ING MFS Emerging Equities Portfolio (Initial Class)(1) Pioneer Equity Income VCT Portfolio (Class I Shares) ING MFS Global Growth Portfolio (Service Class) Pioneer Fund VCT Portfolio (Class I Shares) ING MFS Research Portfolio (Initial Class)(1) Pioneer Mid Cap Value VCT Portfolio (Class I Shares) ING OpCap Balanced Value Portfolio (Service Class)(1)
(1) Effective May 1, 2002 this fund has changed its name to the name listed above. See Appendix IV on page 44 of the prospectus for a complete list of former and current fund names. (2) Goldman Sachs-Registered Trademark- is a registered service mark of Goldman, Sachs & Co., and it is used by agreement with Goldman, Sachs & Co. Complete descriptions of each of the funds, including their investment objectives, policies, risks and fees and expenses, are contained in the prospectuses and statements of additional information for each of the funds. OFFERING AND PURCHASE OF CONTRACTS The Company's subsidiary, ING Financial Advisers, LLC (IFA) (prior to May 1, 2002, known as Aetna Investment Services, LLC) serves as the principal underwriter for the contracts. IFA, a Delaware limited liability company, is registered as a broker-dealer with the SEC. IFA is also a member of the National Association of Securities Dealers, Inc., and the Securities Investor Protection Corporation. IFA' principal office is located at 151 Farmington Avenue, Hartford, Connecticut 06156. The contracts are distributed through life insurance agents licensed to sell variable annuities who are registered representatives of IFA or of other registered broker-dealers who have entered into sales arrangements with IFA. 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 entitled "Purchase " and "Your Account Value." PERFORMANCE DATA GENERAL From time to time we may advertise different types of historical performance for the subaccounts of the separate account available under the contract. We may advertise the "standardized average annual total returns," calculated in a manner prescribed by the SEC (the "standardized return"), as well as "non-standardized returns," both of which are described below. 3 The standardized total return figures are computed according to a formula in which a hypothetical initial purchase payment of $1,000 is applied under a deferred annuity contract 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. 1/N TR = ((ERV/P) ) - 1 Where: TR = The standardized returns net of subaccount recurring charges. ERV = The ending redeemable value of the hypothetical account at the end of the period. P = A hypothetical initial payment of $1,000. N = The number of years in the period. The standardized figures use the actual returns of the fund since the date contributions were first received in the fund under the separate account, adjusted to reflect the deduction of the maximum recurring charges under the contract during each period (i.e., 1.25% mortality and expense risk charge, $25 annual maintenance fee and early withdrawal charges as described below). Table I reflects the early withdrawal charge schedule of 1% during the first contract year and 0% thereafter as shown in Schedule A of the prospectus, Table II reflects the early withdrawal charge of 5% grading down to 0% after nine contract years as shown in Schedule B of the prospectus and Table III reflects the early withdrawal charge of 6% grading down to 0% after seven years as shown in Schedule C of the prospectus. 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 contract described in the prospectus. The total return figures shown below may be different from the actual historical total return under your contract because for periods prior to 1994 the subaccount's investment performance was based on the performance of the underlying fund plus any cash held by the subaccount. The non-standardized figures will be calculated in a similar manner, except that they will not reflect the deduction of any applicable early withdrawal charge, and in some advertisements will also exclude the effect of the annual maintenance fee. The deduction of the early withdrawal charge and the annual maintenance fee 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 contributions were first received in the fund under the separate account. The non-standardized returns shown in the tables below reflect the deduction of the maximum recurring charges under the contract except the early withdrawal charge. The annual maintenance fee has been deducted for the purposes of calculating the returns. Investment results of the funds will fluctuate over time, and any presentation of the subaccounts' total return quotations for any prior period should not be considered as a representation of how the subaccounts will perform in any future period. Additionally, the account value upon redemption may be more or less than your original cost. AVERAGE ANNUAL TOTAL RETURN QUOTATIONS - STANDARDIZED AND NON-STANDARDIZED The tables below reflect the average annual standardized and non-standardized total return quotation figures for the periods ended December 31, 2001 for the subaccounts under the contract. The standardized returns assume the maximum charges under the contract as described under "General" above. The non-standardized returns assume the same charges but do not include the early withdrawal charges. For the ING MFS Capital Opportunities Portfolio (Initial Class), ING MFS Emerging Equities Portfolio (Initial Class), ING MFS Research Portfolio (Initial Class), ING Scudder International Growth Portfolio 4 (Initial Class) and ING T. Rowe Price Growth Equity Portfolio (Initial Class) subaccounts, two sets of performance returns are shown for each subaccount: one showing performance based solely on the performance of the ING Partners, Inc. (IPI) 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 contracts and; (b) after November 26, 1997, based on the performance of the IPI 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 the average annual total return since the fund's inception date. 5
DATE TABLE I CONTRIBUTIONS (corresponding with early withdrawal charge Schedule A) STANDARDIZED FIRST RECEIVED UNDER THE SEPARATE ACCOUNT ------------------------------------------------------------------------------------------------------------------------------------ SINCE SUBACCOUNT 1 YEAR 5 YEAR 10 YEAR INCEPTION* ------------------------------------------------------------------------------------------------------------------------------------ ING VP Ascent Portfolio (Class R Shares) (12.77%) 3.25% 7.19% 07/05/1995 ING VP Balanced Portfolio, Inc. (Class R Shares)(1) (5.53%) 7.68% 8.72% ING VP Bond Portfolio (Class R Shares)(1) 7.26% 5.30% 5.31% ING VP Crossroads Portfolio (Class R Shares) (8.28%) 3.66% 6.70% 07/05/1995 ING VP Growth Portfolio (Class R Shares) (28.10%) 6.64% 05/30/1997 ING VP Growth and Income Portfolio (Class R Shares)(1) (19.55%) 3.44% 7.47% ING VP Index Plus LargeCap Portfolio (Class R Shares) (14.83%) 9.87% 10.49% 10/31/1996 ING VP Index Plus MidCap Portfolio (Class R Shares) (2.68%) 9.97% 05/04/1998 ING VP Index Plus SmallCap Portfolio (Class R Shares) 1.00% 1.43% 05/04/1998 ING VP International Equity Portfolio (Class R Shares) (24.96%) (4.54%) 05/04/1998 ING VP Legacy Portfolio (Class R Shares) (3.72%) 4.61% 6.64% 07/05/1995 ING VP Money Market Portfolio (Class R Shares)(1)(2) 2.52% 3.83% 3.44% ING VP Small Company Portfolio (Class R Shares) 2.57% 11.92% 05/30/1997 ING VP Technology Portfolio (Class R Shares) (24.05%) (38.72%) 05/01/2000 ING VP Value Opportunity Portfolio (Class R Shares) (10.87%) 11.77% 05/30/1997 ING VP International Value Portfolio (Class R Shares) (4.16%) 07/26/2001 ING VP MidCap Opportunities Portfolio (Class R Shares) (7.01%) 08/02/2001 ING VP SmallCap Opportunities Portfolio (Class R Shares) (11.90%) 08/03/2001 ING MFS Capital Opportunities Portfolio (Initial Class) (25.82%) 6.32% 11/28/1997 Neuberger Berman AMT Growth/ING MFS Capital Opportunities(3) (25.82%) 9.56% 8.95% ING MFS Emerging Equities Portfolio (Initial Class) (26.27%) (0.65%) 11/28/1997 Alger American Small Cap/ING MFS Emerging Equities(3) (26.27%) 1.22% 5.00% 09/30/1993 ING MFS Research Portfolio (Initial Class) (22.00%) 1.67% 11/28/1997 American Century VP Capital Appreciation/ING MFS Research(3) (22.00%) 0.87% 4.33% 08/31/1992 ING Scudder International Growth Portfolio (Initial Class) (27.97%) 1.48% 11/28/1997 Scudder VLIF International/ING Scudder International Growth(3) (27.97%) 2.44% 5.93% ING T. Rowe Price Growth Equity Portfolio (Initial Class) (11.46%) 7.68% 11/28/1997 Alger American Growth/ING T. Rowe Price Growth Equity(3) (11.46%) 10.91% 13.52% 10/31/1994 AIM V.I. Capital Appreciation Fund (Series I Shares) (24.37%) (2.68%) 05/07/1999 AIM V.I. Core Equity Fund (Series I Shares) (23.93%) (8.98%) 05/10/1999 AIM V.I. Growth Fund (Series I Shares) (34.84%) (15.06%) 05/04/1999 AIM V.I. Premier Equity Fund (Series I Shares) (13.78%) (5.73%) 05/05/1999 Calvert Social Balanced Portfolio(1) (8.23%) 5.70% 7.31% Fidelity(R) VIP Contrafund(R) Portfolio (Initial Class) (13.47%) 8.94% 12.47% 05/31/1995 Fidelity(R) VIP Equity-Income Portfolio (Initial Class) (6.27%) 7.91% 11.57% 05/31/1994 Fidelity(R) VIP Growth Portfolio (Initial Class) (18.81%) 10.14% 13.15% 05/31/1994 Fidelity(R) VIP Overseas Portfolio (Initial Class) (22.28%) 1.32% 2.99% 05/31/1994 Franklin Small Cap Value Securities Fund (Class 2 Shares) 2.51% 08/31/2001 Janus Aspen Aggressive Growth Portfolio (Institutional Shares) (40.34%) 5.62% 10.78% 06/30/1994 Janus Aspen Balanced Portfolio (Institutional Shares) (5.98%) 12.58% 13.64% 06/30/1995 Janus Aspen Capital Appreciation Portfolio (Service Shares) (17.16%) 02/21/2001 Janus Aspen Flexible Income Portfolio (Institutional Shares) 6.27% 5.78% 7.89% 10/31/1994 Janus Aspen Growth Portfolio (Institutional Shares) (25.80%) 7.57% 10.46% 06/30/1995 Janus Aspen Worldwide Growth Portfolio (Institutional Shares) (23.53%) 9.61% 14.51% 05/31/1995 Lord Abbett Growth and Income Portfolio (Class VC Shares) 11.29% 09/17/2001 Lord Abbett Mid-Cap Value Portfolio (Class VC Shares) 2.76% 07/26/2001 Oppenheimer Global Securities Fund/VA (13.26%) 9.56% 05/04/1998 Oppenheimer Strategic Bond Fund/VA 3.41% 1.30% 05/07/1998 Pioneer Equity Income VCT Portfolio (Class I Shares) (3.15%) 07/26/2001 Pioneer Fund VCT Portfolio (Class I Shares) 9.89% 09/27/2001 Pioneer Mid Cap Value VCT Portfolio (Class I Shares) 0.65% 08/09/2001 ------------------------------------------------------------------------------------------------------------------------------------
Please refer to the discussion preceding the tables for an explanation of the charges included and methodology used in calculating the standardized and non-standardized figures. These figures represent historical performance and should not be considered a projection of future performance. 6 * 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 seven-day period ended December 31, 2001 (on an annualized basis) was 0.81%. Current yield more closely reflects current earnings than does total return. 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 1% early withdrawal charge. (3) The fund first listed was replaced with the applicable ING 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 ING Portfolio after that date. The replaced fund may not have been available under all contracts. The "Date Contributions First Received Under the Separate Account" refers to the applicable date for the replaced fund. If no date is shown, contributions were first received in the replaced fund under the separate account more than ten years ago. 7
TABLE I (PART 2) FUND (corresponding with early withdrawal charge Schedule A) NON-STANDARDIZED INCEPTION DATE ------------------------------------------------------------------------------------------------------------------------------------ SINCE SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION** ------------------------------------------------------------------------------------------------------------------------------------ ING VP Ascent Portfolio (Class R Shares) (12.77%) (1.21%) 3.25% 7.19% 07/05/1995 ING VP Balanced Portfolio, Inc. (Class R Shares)(1) (5.53%) 1.26% 7.68% 8.72% ING VP Bond Portfolio (Class R Shares)(1) 7.26% 4.34% 5.30% 5.31% ING VP Crossroads Portfolio (Class R Shares) (8.28%) (0.41%) 3.66% 6.70% 07/05/1995 ING VP Growth Portfolio (Class R Shares) (28.10%) (5.97%) 8.19% 8.43% 12/13/1996 ING VP Growth and Income Portfolio (Class R Shares)(1) (19.55%) (6.47%) 3.44% 7.47% ING VP Index Plus LargeCap Portfolio (Class R Shares) (14.83%) (2.28%) 9.87% 11.14% 09/16/1996 ING VP Index Plus MidCap Portfolio (Class R Shares) (2.68%) 9.57% 13.50% 12/16/1997 ING VP Index Plus SmallCap Portfolio (Class R Shares) 1.00% 6.14% 4.90% 12/19/1997 ING VP International Equity Portfolio (Class R Shares) (24.96%) (4.15%) 1.47% 12/22/1997 ING VP Legacy Portfolio (Class R Shares) (3.72%) 1.69% 4.61% 6.64% 07/05/1995 ING VP Money Market Portfolio (Class R Shares)(1)(2) 2.52% 3.70% 3.83% 3.44% ING VP Small Company Portfolio (Class R Shares) 2.57% 11.71% 13.03% 13.27% 12/27/1996 ING VP Technology Portfolio (Class R Shares) (24.05%) (38.72%) 05/01/2000 ING VP Value Opportunity Portfolio (Class R Shares) (10.87%) 4.56% 13.67% 13.99% 12/13/1996 ING VP Growth Opportunities Portfolio (Class R Shares) (39.47%) (31.18%) 04/30/2000 ING VP International Value Portfolio (Class R Shares) (12.91%) 9.53% 10.11% 08/08/1997 ING VP MidCap Opportunities Portfolio (Class R Shares) (33.91%) (26.85%) 04/30/2000 ING VP SmallCap Opportunities Portfolio (Class R Shares) (30.30%) 18.29% 16.96% 15.27% 05/06/1994 ING Alger Aggressive Growth Portfolio (Service Class) 2.05% 12/10/2001 ING Alger Growth Portfolio (Service Class) 0.83% 12/10/2001 ING DSI Enhanced Index Portfolio (Service Class) 0.54% 12/10/2001 ING Goldman Sachs(R) Capital Growth Portfolio (Service Class) 0.71% 12/10/2001 ING MFS Capital Opportunities Portfolio (Initial Class) (25.82%) 0.43% 6.28% 11/28/1997 Neuberger Berman AMT Growth/ING MFS Capital Opportunities(3) (25.82%) 0.43% 9.56% 8.95% ING MFS Emerging Equities Portfolio (Initial Class) (26.27%) (8.31%) (0.65%) 11/28/1997 Alger American Small Cap/ING MFS Emerging Equities(3) (26.27%) (8.31%) 1.22% 5.29% ING MFS Research Portfolio (Initial Class) (22.00%) (3.48%) 1.67% 11/28/1997 American Century VP Capital Appreciation/ING MFS Research(3) (22.00%) (3.48%) 0.87% 2.78% ING OpCap Balanced Value Portfolio (Service Class) (0.52%) 12/10/2001 ING Salomon Brothers Capital Portfolio (Service Class) 1.10% 12/10/2001 ING Salomon Brothers Investors Value Portfolio (Service Class) 1.30% 12/10/2001 ING Scudder International Growth Portfolio (Initial Class) (27.97%) (3.70%) 1.48% 11/28/1997 Scudder VLIF International/ING Scudder International Growth(3) (27.97%) (3.71%) 2.44% 5.93% ING T. Rowe Price Growth Equity Portfolio (Initial Class) (11.46%) 1.75% 7.68% 11/28/1997 Alger American Growth/ING T. Rowe Price Growth Equity(3) (11.46%) 1.75% 10.91% 12.97% ING UBS Tactical Asset Allocation Portfolio (Service Class) 0.48% 12/10/2001 AIM V.I. Capital Appreciation Fund (Series I Shares) (24.37%) (1.75%) 4.57% 10.24% 05/05/1993 AIM V.I. Core Equity Fund (Series I Shares) (23.93%) (5.30%) 5.83% 9.86% 05/02/1994 AIM V.I. Growth Fund (Series I Shares) (34.84%) (11.99%) 2.47% 7.35% 05/05/1993 AIM V.I. Premier Equity Fund (Series I Shares) (13.78%) (2.39%) 8.20% 11.88% 05/05/1993 Calvert Social Balanced Portfolio(1) (8.23%) (0.98%) 5.70% 7.31% Fidelity(R) VIP Contrafund(R) Portfolio (Initial Class) (13.47%) (0.77%) 8.94% 14.20% 01/03/1995 Fidelity(R) VIP Equity-Income Portfolio (Initial Class)(1) (6.27%) 1.69% 7.91% 12.07% Fidelity(R) VIP Growth Portfolio (Initial Class)(1) (18.81%) (1.12%) 10.14% 11.87% Fidelity(R) VIP Overseas Portfolio (Initial Class)(1) (22.28%) (4.44%) 1.32% 4.45% Franklin Small Cap Value Securities Fund (Class 2 Shares) 12.26% 11.47% 1.82% 05/01/1998 Janus Aspen Aggressive Growth Portfolio (Institutional Shares) (40.34%) (3.71%) 5.62% 10.99% 09/13/1993 Janus Aspen Balanced Portfolio (Institutional Shares) (5.98%) 4.26% 12.58% 12.77% 09/13/1993 Janus Aspen Capital Appreciation Portfolio (Service Shares)(4) (22.93%) 0.28% 15.72% 05/01/1997 Janus Aspen Flexible Income Portfolio (Institutional Shares) 6.27% 3.73% 5.78% 6.67% 09/13/1993 Janus Aspen Growth Portfolio (Institutional Shares) (25.80%) (3.87%) 7.57% 10.31% 09/13/1993 Janus Aspen Worldwide Growth Portfolio (Institutional Shares) (23.53%) 1.06% 9.61% 14.19% 09/13/1993 Lord Abbett Growth and Income Portfolio (Class VC Shares)(1) (8.01%) 6.56% 10.63% 12.59% Lord Abbett Mid-Cap Value Portfolio (Class VC Shares) 6.58% 21.94% 09/15/1999
8
TABLE I (PART 2) FUND (corresponding with early withdrawal charge Schedule A) NON-STANDARDIZED INCEPTION DATE ------------------------------------------------------------------------------------------------------------------------------------ SINCE SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION** ------------------------------------------------------------------------------------------------------------------------------------ Oppenheimer Global Securities Fund/VA(1) (13.26%) 12.04% 13.84% 12.36% Oppenheimer Strategic Bond Fund/VA 3.41% 2.02% 2.93% 4.17% 05/03/1993 Pioneer Equity Income VCT Portfolio (Class I Shares) (8.24%) 1.25% 10.72% 13.04% 03/01/1995 Pioneer Fund VCT Portfolio (Class I Shares) (12.08%) 0.13% 6.77% 10/31/1997 Pioneer Mid Cap Value VCT Portfolio (Class I Shares) 5.05% 10.90% 9.71% 11.38% 03/01/1995 ------------------------------------------------------------------------------------------------------------------------------------
Please refer to the discussion preceding the tables for an explanation of the charges included and methodology used in calculating 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 seven-day period ended December 31, 2001 (on an annualized basis) was 0.81%. Current yield more closely reflects current earnings than does total return. The current yield reflects the deduction of all charges under the contract that are deducted from the total return quotations shown above. As in the table above, the maximum 1% early withdrawal charge is not reflected. (3) The fund first listed was replaced with the applicable ING 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 ING 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. (4) The performance of the Service Shares prior to December 31, 1999 reflects the performance of a different class of Janus Aspen Series, restated based on the Service Shares estimated fees and expenses, ignoring any fee and expense limitations. 9
DATE TABLE II CONTRIBUTIONS (corresponding with early withdrawal charge Schedule B) STANDARDIZED FIRST RECEIVED UNDER THE SEPARATE ACCOUNT ------------------------------------------------------------------------------------------------------------------------------------ SINCE SUBACCOUNT 1 YEAR 5 YEAR 10 YEAR INCEPTION* ------------------------------------------------------------------------------------------------------------------------------------ ING VP Ascent Portfolio (Class R Shares) (17.14%) 2.41% 6.69% 07/05/1995 ING VP Balanced Portfolio, Inc. (Class R Shares)(1) (10.26%) 6.80% 8.72% ING VP Bond Portfolio (Class R Shares)(1) 1.89% 4.44% 5.31% ING VP Crossroads Portfolio (Class R Shares) (12.87%) 2.81% 6.20% 07/05/1995 ING VP Growth Portfolio (Class R Shares) (31.70%) 5.46% 05/30/1997 ING VP Growth and Income Portfolio (Class R Shares)(1) (23.58%) 2.60% 7.47% ING VP Index Plus LargeCap Portfolio (Class R Shares) (19.09%) 8.97% 9.62% 10/31/1996 ING VP Index Plus MidCap Portfolio (Class R Shares) (7.55%) 8.44% 05/04/1998 ING VP Index Plus SmallCap Portfolio (Class R Shares) (4.05%) 0.02% 05/04/1998 ING VP International Equity Portfolio (Class R Shares) (28.72%) (5.87%) 05/04/1998 ING VP Legacy Portfolio (Class R Shares) (8.54%) 3.76% 6.14% 07/05/1995 ING VP Money Market Portfolio (Class R Shares)(1)(2) (2.62%) 2.98% 3.44% ING VP Small Company Portfolio (Class R Shares) (2.56%) 10.67% 05/30/1997 ING VP Technology Portfolio (Class R Shares) (27.86%) (40.58%) 05/01/2000 ING VP Value Opportunity Portfolio (Class R Shares) (15.34%) 10.53% 05/30/1997 ING VP International Value Portfolio (Class R Shares) (8.04%) 07/26/2001 ING VP MidCap Opportunities Portfolio (Class R Shares) (10.77%) 08/02/2001 ING VP SmallCap Opportunities Portfolio (Class R Shares) (15.46%) 08/03/2001 ING MFS Capital Opportunities Portfolio (Initial Class) (29.54%) 4.99% 11/28/1997 Neuberger Berman AMT Growth/ING MFS Capital Opportunities(3) (29.54%) 8.67% 8.95% ING MFS Emerging Equities Portfolio (Initial Class) (29.96%) (1.89%) 11/28/1997 Alger American Small Cap/ING MFS Emerging Equities(3) (29.96%) 0.40% 4.87% 09/30/1993 ING MFS Research Portfolio (Initial Class) (25.91%) 0.40% 11/28/1997 American Century VP Capital Appreciation/ING MFS Research(3) (25.91%) 0.05% 4.33% 08/31/1992 ING Scudder International Growth Portfolio (Initial Class) (31.58%) 0.22% 11/28/1997 Scudder VLIF International/ING Scudder International Growth(3) (31.58%) 1.60% 5.93% ING T. Rowe Price Growth Equity Portfolio (Initial Class) (15.90%) 6.33% 11/28/1997 Alger American Growth/ING T. Rowe Price Growth Equity(3) (15.90%) 10.01% 13.20% 10/31/1994 AIM V.I. Capital Appreciation Fund (Series I Shares) (28.15%) (4.55%) 05/07/1999 AIM V.I. Core Equity Fund (Series I Shares) (27.74%) (10.73%) 05/10/1999 AIM V.I. Growth Fund (Series I Shares) (38.10%) (16.68%) 05/04/1999 AIM V.I. Premier Equity Fund (Series I Shares) (18.10%) (7.53%) 05/05/1999 Calvert Social Balanced Portfolio(1) (12.82%) 4.83% 7.31% Fidelity(R) VIP Contrafund(R) Portfolio (Initial Class) (17.80%) 8.05% 11.95% 05/31/1995 Fidelity(R) VIP Equity-Income Portfolio (Initial Class) (10.96%) 7.03% 11.28% 05/31/1994 Fidelity(R) VIP Growth Portfolio (Initial Class) (22.87%) 9.25% 12.85% 05/31/1994 Fidelity(R) VIP Overseas Portfolio (Initial Class) (26.17%) 0.50% 2.72% 05/31/1994 Franklin Small Cap Value Securities Fund (Class 2 Shares) (1.63%) 08/31/2001 Janus Aspen Aggressive Growth Portfolio (Institutional Shares) (43.33%) 4.76% 10.48% 06/30/1994 Janus Aspen Balanced Portfolio (Institutional Shares) (10.69%) 11.67% 13.11% 06/30/1995 Janus Aspen Capital Appreciation Portfolio (Service Shares) (20.51%) 02/21/2001 Janus Aspen Flexible Income Portfolio (Institutional Shares) 0.95% 4.92% 7.59% 10/31/1994 Janus Aspen Growth Portfolio (Institutional Shares) (29.52%) 6.69% 9.95% 06/30/1995 Janus Aspen Worldwide Growth Portfolio (Institutional Shares) (27.36%) 8.72% 13.98% 05/31/1995 Lord Abbett Growth and Income Portfolio (Class VC Shares) 6.79% 09/17/2001 Lord Abbett Mid-Cap Value Portfolio (Class VC Shares) (1.40%) 07/26/2001 Oppenheimer Global Securities Fund/VA (17.61%) 8.03% 05/04/1998 Oppenheimer Strategic Bond Fund/VA (1.77%) (0.12%) 05/07/1998 Pioneer Equity Income VCT Portfolio (Class I Shares) (7.07%) 07/26/2001 Pioneer Fund VCT Portfolio (Class I Shares) 5.44% 09/27/2001 Pioneer Mid Cap Value VCT Portfolio (Class I Shares) (3.42%) 08/09/2001 ------------------------------------------------------------------------------------------------------------------------------------
Please refer to the discussion preceding the tables for an explanation of the charges included and methodology used in calculating the standardized and non-standardized figures. These figures represent historical performance and should not be considered a projection of 10 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 seven-day period ended December 31, 2001 (on an annualized basis) was 0.81%. Current yield more closely reflects current earnings than does total return. 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% early withdrawal charge. (3) The fund first listed was replaced with the applicable ING 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 ING Portfolio after that date. The replaced fund may not have been available under all contracts. The "Date Contributions First Received Under the Separate Account" refers to the applicable date for the replaced fund. If no date is shown, contributions were first received in the replaced fund under the separate account more than ten years ago. 11
TABLE II (PART 2) FUND (corresponding with early withdrawal charge Schedule B) NON-STANDARDIZED INCEPTION DATE ------------------------------------------------------------------------------------------------------------------------------------ SINCE SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION** ------------------------------------------------------------------------------------------------------------------------------------ ING VP Ascent Portfolio (Class R Shares) (12.77%) (1.21%) 3.25% 7.19% 07/05/1995 ING VP Balanced Portfolio, Inc. (Class R Shares)(1) (5.53%) 1.26% 7.68% 8.72% ING VP Bond Portfolio (Class R Shares)(1) 7.26% 4.34% 5.30% 5.31% ING VP Crossroads Portfolio (Class R Shares) (8.28%) (0.41%) 3.66% 6.70% 07/05/1995 ING VP Growth Portfolio (Class R Shares) (28.10%) (5.97%) 8.19% 8.43% 12/13/1996 ING VP Growth and Income Portfolio (Class R Shares)(1) (19.55%) (6.47%) 3.44% 7.47% ING VP Index Plus LargeCap Portfolio (Class R Shares) (14.83%) (2.28%) 9.87% 11.14% 09/16/1996 ING VP Index Plus MidCap Portfolio (Class R Shares) (2.68%) 9.57% 13.50% 12/16/1997 ING VP Index Plus SmallCap Portfolio (Class R Shares) 1.00% 6.14% 4.90% 12/19/1997 ING VP International Equity Portfolio (Class R Shares) (24.96%) (4.15%) 1.47% 12/22/1997 ING VP Legacy Portfolio (Class R Shares) (3.72%) 1.69% 4.61% 6.64% 07/05/1995 ING VP Money Market Portfolio (Class R Shares)(1)(2) 2.52% 3.70% 3.83% 3.44% ING VP Small Company Portfolio (Class R Shares) 2.57% 11.71% 13.03% 13.27% 12/27/1996 ING VP Technology Portfolio (Class R Shares) (24.05%) (38.72%) 05/01/2000 ING VP Value Opportunity Portfolio (Class R Shares) (10.87%) 4.56% 13.67% 13.99% 12/13/1996 ING VP Growth Opportunities Portfolio (Class R Shares) (39.47%) (31.18%) 04/30/2000 ING VP International Value Portfolio (Class R Shares) (12.91%) 9.53% 10.11% 08/08/1997 ING VP MidCap Opportunities Portfolio (Class R Shares) (33.91%) (26.85%) 04/30/2000 ING VP SmallCap Opportunities Portfolio (Class R Shares) (30.30%) 18.29% 16.96% 15.27% 05/06/1994 ING Alger Aggressive Growth Portfolio (Service Class) 2.05% 12/10/2001 ING Alger Growth Portfolio (Service Class) 0.83% 12/10/2001 ING DSI Enhanced Index Portfolio (Service Class) 0.54% 12/10/2001 ING Goldman Sachs(R) Capital Growth Portfolio (Service Class) 0.71% 12/10/2001 ING MFS Capital Opportunities Portfolio (Initial Class) (25.82%) 0.43% 6.28% 11/28/1997 Neuberger Berman AMT Growth/ING MFS Capital Opportunities(3) (25.82%) 0.43% 9.56% 8.95% ING MFS Emerging Equities Portfolio (Initial Class) (26.27%) (8.31%) (0.65%) 11/28/1997 Alger American Small Cap/ING MFS Emerging Equities(3) (26.27%) (8.31%) 1.22% 5.29% ING MFS Research Portfolio (Initial Class) (22.00%) (3.48%) 1.67% 11/28/1997 American Century VP Capital Appreciation/ING MFS Research(3) (22.00%) (3.48%) 0.87% 2.78% ING OpCap Balanced Value Portfolio (Service Class) (0.52%) 12/10/2001 ING Salomon Brothers Capital Portfolio (Service Class) 2.10% 12/10/2001 ING Salomon Brothers Investors Value Portfolio (Service Class) 1.30% 12/10/2001 ING Scudder International Growth Portfolio (Initial Class) (27.97%) (3.70%) 1.48% 11/28/1997 Scudder VLIF International/ING Scudder International Growth(3) (27.97%) (3.71%) 2.44% 5.93% ING T. Rowe Price Growth Equity Portfolio (Initial Class) (11.46%) 1.75% 7.68% 11/28/1997 Alger American Growth/ING T. Rowe Price Growth Equity(3) (11.46%) 1.75% 10.91% 12.97% ING UBS Tactical Asset Allocation Portfolio (Service Class) 0.48% 12/10/2001 AIM V.I. Capital Appreciation Fund (Series I Shares) (24.37%) (1.75%) 4.57% 10.24% 05/05/1993 AIM V.I. Core Equity Fund (Series I Shares) (23.93%) (5.30%) 5.83% 9.86% 05/02/1994 AIM V.I. Growth Fund (Series I Shares) (34.84%) (11.99%) 2.47% 7.35% 05/05/1993 AIM V.I. Premier Equity Fund (Series I Shares) (13.78%) (2.39%) 8.20% 11.88% 05/05/1993 Calvert Social Balanced Portfolio(1) (8.23%) (0.98%) 5.70% 7.31% Fidelity(R) VIP Contrafund(R) Portfolio (Initial Class) (13.47%) (0.77%) 8.94% 14.20% 01/03/1995 Fidelity(R) VIP Equity-Income Portfolio (Initial Class)(1) (6.27%) 1.69% 7.91% 12.07% Fidelity(R) VIP Growth Portfolio (Initial Class)(1) (18.81%) (1.12%) 10.14% 11.87% Fidelity(R) VIP Overseas Portfolio (Initial Class)(1) (22.28%) (4.44%) 1.32% 4.45% Franklin Small Cap Value Securities Fund (Class 2 Shares) 12.26% 11.47% 1.82% 05/01/1998 Janus Aspen Aggressive Growth Portfolio (Institutional Shares) (40.34%) (3.71%) 5.62% 10.99% 09/13/1993 Janus Aspen Balanced Portfolio (Institutional Shares) (5.98%) 4.26% 12.58% 12.77% 09/13/1993 Janus Aspen Capital Appreciation Portfolio (Service Shares)(4) (22.93%) 0.28% 15.72% 05/01/1997 Janus Aspen Flexible Income Portfolio (Institutional Shares) 6.27% 3.73% 5.78% 6.67% 09/13/1993 Janus Aspen Growth Portfolio (Institutional Shares) (25.80%) (3.87%) 7.57% 10.31% 09/13/1993 Janus Aspen Worldwide Growth Portfolio (Institutional Shares) (23.53%) 1.06% 9.61% 14.19% 09/13/1993 Lord Abbett Growth and Income Portfolio (Class VC Shares)(1) (8.01%) 6.56% 10.63% 12.59% Lord Abbett Mid-Cap Value Portfolio (Class VC Shares) 6.58% 21.94% 09/15/1999
12
TABLE II (PART 2) FUND (corresponding with early withdrawal charge Schedule B) NON-STANDARDIZED INCEPTION DATE ------------------------------------------------------------------------------------------------------------------------------------ SINCE SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION** ------------------------------------------------------------------------------------------------------------------------------------ Oppenheimer Global Securities Fund/VA(1) (13.26%) 12.04% 13.84% 12.36% Oppenheimer Strategic Bond Fund/VA 3.41% 2.02% 2.93% 4.17% 05/03/1993 Pioneer Equity Income VCT Portfolio (Class I Shares) (8.24%) 1.25% 10.72% 13.04% 03/01/1995 Pioneer Fund VCT Portfolio (Class I Shares) (12.08%) 0.13% 6.77% 10/31/1997 Pioneer Mid Cap Value VCT Portfolio (Class I Shares) 5.05% 10.90% 9.71% 11.38% 03/01/1995 ------------------------------------------------------------------------------------------------------------------------------------
Please refer to the discussion preceding the tables for an explanation of the charges included and methodology used in calculating 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 seven-day period ended December 31, 2001 (on an annualized basis) was 0.81%. Current yield more closely reflects current earnings than does total return. The current yield reflects the deduction of all charges under the contract that are deducted from the total return quotations shown above. As in the table above, the maximum 5% early withdrawal charge is not reflected. (3) The fund first listed was replaced with the applicable ING 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 ING 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. (4) The performance of the Service Shares prior to December 31, 1999 reflects the performance of a different class of Janus Aspen Series, restated based on the Service Shares estimated fees and expenses, ignoring any fee and expense limitations. 13
DATE TABLE III CONTRIBUTIONS (corresponding with early withdrawal charge Schedule C) STANDARDIZED FIRST RECEIVED UNDER THE SEPARATE ACCOUNT ------------------------------------------------------------------------------------------------------------------------------------ SINCE SUBACCOUNT 1 YEAR 5 YEAR 10 YEAR INCEPTION* ------------------------------------------------------------------------------------------------------------------------------------ ING VP Ascent Portfolio (Class R Shares) (18.02%) 2.83% 7.03% 07/05/1995 ING VP Balanced Portfolio, Inc. (Class R Shares)(1) (11.21%) 7.24% 8.72% ING VP Bond Portfolio (Class R Shares)(1) 0.82% 4.87% 5.31% ING VP Crossroads Portfolio (Class R Shares) (13.79%) 3.24% 6.53% 07/05/1995 ING VP Growth Portfolio (Class R Shares) (32.42%) 5.94% 05/30/1997 ING VP Growth and Income Portfolio (Class R Shares)(1) (24.38%) 3.03% 7.47% ING VP Index Plus LargeCap Portfolio (Class R Shares) (19.95%) 9.42% 10.06% 10/31/1996 ING VP Index Plus MidCap Portfolio (Class R Shares) (8.53%) 8.75% 05/04/1998 ING VP Index Plus SmallCap Portfolio (Class R Shares) (5.07%) 0.31% 05/04/1998 ING VP International Equity Portfolio (Class R Shares) (29.47%) (5.60%) 05/04/1998 ING VP Legacy Portfolio (Class R Shares) (9.50%) 4.19% 6.48% 07/05/1995 ING VP Money Market Portfolio (Class R Shares)(1)(2) (3.64%) 3.41% 3.44% ING VP Small Company Portfolio (Class R Shares) (3.59%) 11.18% 05/30/1997 ING VP Technology Portfolio (Class R Shares) (28.62%) (40.96%) 05/01/2000 ING VP Value Opportunity Portfolio (Class R Shares) (16.23%) 11.03% 05/30/1997 ING VP International Value Portfolio (Class R Shares) (9.01%) 07/26/2001 ING VP MidCap Opportunities Portfolio (Class R Shares) (11.71%) 08/02/2001 ING VP SmallCap Opportunities Portfolio (Class R Shares) (16.35%) 08/03/2001 ING MFS Capital Opportunities Portfolio (Initial Class) (30.28%) 5.53% 11/28/1997 Neuberger Berman AMT Growth/ING MFS Capital Opportunities(3) (30.28%) 9.12% 8.95% ING MFS Emerging Equities Portfolio (Initial Class) (30.70%) (1.38%) 11/28/1997 Alger American Small Cap/ING MFS Emerging Equities(3) (30.70%) 0.81% 5.00% 09/30/1993 ING MFS Research Portfolio (Initial Class) (26.96%) 0.91% 11/28/1997 American Century VP Capital Appreciation/ING MFS Research(3) (26.69%) 0.47% 4.33% 08/31/1992 ING Scudder International Growth Portfolio (Initial Class) (32.30%) 0.73% 11/28/1997 Scudder VLIF International/ING Scudder International Growth(3) (32.30%) 2.02% 5.93% ING T. Rowe Price Growth Equity Portfolio (Initial Class) (16.78%) 6.88% 11/28/1997 Alger American Growth/ING T. Rowe Price Growth Equity(3) (16.78%) 10.46% 13.52% 10/31/1994 AIM V.I. Capital Appreciation Fund (Series I Shares) (28.91%) (4.55%) 05/07/1999 AIM V.I. Core Equity Fund (Series I Shares) (28.50%) (10.73%) 05/10/1999 AIM V.I. Growth Fund (Series I Shares) (38.76%) (16.68%) 05/04/1999 AIM V.I. Premier Equity Fund (Series I Shares) (18.96%) (7.53%) 05/05/1999 Calvert Social Balanced Portfolio(1) (13.74%) 5.27% 7.31% Fidelity(R) VIP Contrafund(R) Portfolio (Initial Class) (18.67%) 8.50% 12.30% 05/31/1995 Fidelity(R) VIP Equity-Income Portfolio (Initial Class) (11.90%) 7.48% 11.57% 05/31/1994 Fidelity(R) VIP Growth Portfolio (Initial Class) (23.69%) 9.70% 13.15% 05/31/1994 Fidelity(R) VIP Overseas Portfolio (Initial Class) (26.95%) 0.92% 2.99% 05/31/1994 Franklin Small Cap Value Securities Fund (Class 2 Shares) (2.67%) 08/31/2001 Janus Aspen Aggressive Growth Portfolio (Institutional Shares) (43.92%) 5.19% 10.78% 06/30/1994 Janus Aspen Balanced Portfolio (Institutional Shares) (11.63%) 12.13% 13.47% 06/30/1995 Janus Aspen Capital Appreciation Portfolio (Service Shares) (21.35%) 02/21/2001 Janus Aspen Flexible Income Portfolio (Institutional Shares) (0.12%) 5.35% 7.89% 10/31/1994 Janus Aspen Growth Portfolio (Institutional Shares) (30.26%) 7.13% 10.29% 06/30/1995 Janus Aspen Worldwide Growth Portfolio (Institutional Shares) (28.13%) 9.17% 14.33% 05/31/1995 Lord Abbett Growth and Income Portfolio (Class VC Shares) 5.66% 09/17/2001 Lord Abbett Mid-Cap Value Portfolio (Class VC Shares) (2.44%) 07/26/2001 Oppenheimer Global Securities Fund/VA (18.48%) 8.34% 05/04/1998 Oppenheimer Strategic Bond Fund/VA (2.80%) 0.17% 05/07/1998 Pioneer Equity Income VCT Portfolio (Class I Shares) (8.05%) 07/26/2001 Pioneer Fund VCT Portfolio (Class I Shares) 4.33% 09/27/2001 Pioneer Mid Cap Value VCT Portfolio (Class I Shares) (4.44%) 08/09/2001 ------------------------------------------------------------------------------------------------------------------------------------
Please refer to the discussion preceding the tables for an explanation of the charges included and methodology used in calculating the standardized and non-standardized figures. These figures represent historical performance and should not be considered a projection of 14 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 seven-day period ended December 31, 2001 (on an annualized basis) was 0.81%. Current yield more closely reflects current earnings than does total return. 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 6% early withdrawal charge. (3) The fund first listed was replaced with the applicable ING 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 ING Portfolio after that date. The replaced fund may not have been available under all contracts. The "Date Contributions First Received Under the Separate Account" refers to the applicable date for the replaced fund. If no date is shown, contributions were first received in the replaced fund under the separate account more than ten years ago. 15
TABLE III FUND (corresponding with early withdrawal charge Schedule C) NON-STANDARDIZED INCEPTION DATE ------------------------------------------------------------------------------------------------------------------------------------ SINCE SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION** ------------------------------------------------------------------------------------------------------------------------------------ ING VP Ascent Portfolio (Class R Shares) (12.77%) (1.21%) 3.25% 7.19% 07/05/1995 ING VP Balanced Portfolio, Inc. (Class R Shares)(1) (5.53%) 1.26% 7.68% 8.72% ING VP Bond Portfolio (Class R Shares)(1) 7.26% 4.34% 5.30% 5.31% ING VP Crossroads Portfolio (Class R Shares) (8.28%) (0.41%) 3.66% 6.70% 07/05/1995 ING VP Growth Portfolio (Class R Shares) (28.10%) (5.97%) 8.19% 8.43% 12/13/1996 ING VP Growth and Income Portfolio (Class R Shares)(1) (19.55%) (6.47%) 3.44% 7.47% ING VP Index Plus LargeCap Portfolio (Class R Shares) (14.83%) (2.28%) 9.87% 11.14% 09/16/1996 ING VP Index Plus MidCap Portfolio (Class R Shares) (2.68%) 9.57% 13.50% 12/16/1997 ING VP Index Plus SmallCap Portfolio (Class R Shares) 1.00% 6.14% 4.90% 12/19/1997 ING VP International Equity Portfolio (Class R Shares) (24.96%) (4.15%) 1.47% 12/22/1997 ING VP Legacy Portfolio (Class R Shares) (3.72%) 1.69% 4.61% 6.64% 07/05/1995 ING VP Money Market Portfolio (Class R Shares)(1)(2) 2.52% 3.70% 3.83% 3.44% ING VP Small Company Portfolio (Class R Shares) 2.57% 11.71% 13.03% 13.27% 12/27/1996 ING VP Technology Portfolio (Class R Shares) (24.05%) (38.72%) 05/01/2000 ING VP Value Opportunity Portfolio (Class R Shares) (10.87%) 4.56% 13.67% 13.99% 12/13/1996 ING VP Growth Opportunities Portfolio (Class R Shares) (39.47%) (31.18%) 04/30/2000 ING VP International Value Portfolio (Class R Shares) (12.91%) 9.53% 10.11% 08/08/1997 ING VP MidCap Opportunities Portfolio (Class R Shares) (33.91%) (26.85%) 04/30/2000 ING VP SmallCap Opportunities Portfolio (Class R Shares) (30.30%) 18.29% 16.96% 15.27% 05/06/1994 ING Alger Aggressive Growth Portfolio (Service Class) 2.05% 12/10/2001 ING Alger Growth Portfolio (Service Class) 0.83% 12/10/2001 ING DSI Enhanced Index Portfolio (Service Class) 0.54% 12/10/2001 ING Goldman Sachs(R) Capital Growth Portfolio (Service Class) 0.71% 12/10/2001 ING MFS Capital Opportunities Portfolio (Initial Class) (25.82%) 0.43% 6.28% 11/28/1997 Neuberger Berman AMT Growth/ING MFS Capital Opportunities(3) (25.82%) 0.43% 9.56% 8.95% ING MFS Emerging Equities Portfolio (Initial Class) (26.27%) (8.31%) (0.65%) 11/28/1997 Alger American Small Cap/ING MFS Emerging Equities(3) (26.27%) (8.31%) 1.22% 5.29% ING MFS Research Portfolio (Initial Class) (22.00%) (3.48%) 1.67% 11/28/1997 American Century VP Capital Appreciation/ING MFS Research(3) (22.00%) (3.48%) 0.87% 2.78% ING OpCap Balanced Value Portfolio (Service Class) (0.52%) 12/10/2001 ING Salomon Brothers Capital Portfolio (Service Class) 2.10% 12/10/2001 ING Salomon Brothers Investors Value Portfolio (Service Class) 1.30% 12/10/2001 ING Scudder International Growth Portfolio (Initial Class) (27.97%) (3.70%) 1.48% 11/28/1997 Scudder VLIF International/ING Scudder International Growth(3) (27.97%) (3.71%) 2.44% 5.93% ING T. Rowe Price Growth Equity Portfolio (Initial Class) (11.46%) 1.75% 7.68% 11/28/1997 Alger American Growth/ING T. Rowe Price Growth Equity(3) (11.46%) 1.75% 10.91% 12.97% ING UBS Tactical Asset Allocation Portfolio (Service Class) 0.48% 12/10/2001 AIM V.I. Capital Appreciation Fund (Series I Shares) (24.37%) (1.75%) 4.57% 10.24% 05/05/1993 AIM V.I. Core Equity Fund (Series I Shares) (23.93%) (5.30%) 5.83% 9.86% 05/02/1994 AIM V.I. Growth Fund (Series I Shares) (34.84%) (11.99%) 2.47% 7.35% 05/05/1993 AIM V.I. Premier Equity Fund (Series I Shares) (13.78%) (2.39%) 8.20% 11.88% 05/05/1993 Calvert Social Balanced Portfolio(1) (8.23%) (0.98%) 5.70% 7.31% Fidelity(R) VIP Contrafund(R) Portfolio (Initial Class) (13.47%) (0.77%) 8.94% 14.20% 01/03/1995 Fidelity(R) VIP Equity-Income Portfolio (Initial Class)(1) (6.27%) 1.69% 7.91% 12.07% Fidelity(R) VIP Growth Portfolio (Initial Class)(1) (18.81%) (1.12%) 10.14% 11.87% Fidelity(R) VIP Overseas Portfolio (Initial Class)(1) (22.28%) (4.44%) 1.32% 4.45% Franklin Small Cap Value Securities Fund (Class 2 Shares) 12.26% 11.47% 1.82% 05/01/1998 Janus Aspen Aggressive Growth Portfolio (Institutional Shares) (40.34%) (3.71%) 5.62% 10.99% 09/13/1993 Janus Aspen Balanced Portfolio (Institutional Shares) (5.98%) 4.26% 12.58% 12.77% 09/13/1993 Janus Aspen Capital Appreciation Portfolio (Service Shares)(4) (22.93%) 0.28% 15.72% 05/01/1997 Janus Aspen Flexible Income Portfolio (Institutional Shares) 6.27% 3.73% 5.78% 6.67% 09/13/1993 Janus Aspen Growth Portfolio (Institutional Shares) (25.80%) (3.87%) 7.57% 10.31% 09/13/1993 Janus Aspen Worldwide Growth Portfolio (Institutional Shares) (23.53%) 1.06% 9.61% 14.19% 09/13/1993 Lord Abbett Growth and Income Portfolio (Class VC Shares)(1) (8.01%) 6.56% 10.63% 12.59% Lord Abbett Mid-Cap Value Portfolio (Class VC Shares) 6.58% 21.94% 09/15/1999
16
TABLE III FUND (corresponding with early withdrawal charge Schedule C) NON-STANDARDIZED INCEPTION DATE ------------------------------------------------------------------------------------------------------------------------------------ SINCE SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION** ------------------------------------------------------------------------------------------------------------------------------------ Oppenheimer Global Securities Fund/VA(1) (13.26%) 12.04% 13.84% 12.36% Oppenheimer Strategic Bond Fund/VA 3.41% 2.02% 2.93% 4.17% 05/03/1993 Pioneer Equity Income VCT Portfolio (Class I Shares) (8.24%) 1.25% 10.72% 13.04% 03/01/1995 Pioneer Fund VCT Portfolio (Class I Shares) (12.08%) 0.13% 6.77% 10/31/1997 Pioneer Mid Cap Value VCT Portfolio (Class I Shares) 5.05% 10.90% 9.71% 11.38% 03/01/1995 ------------------------------------------------------------------------------------------------------------------------------------
Please refer to the discussion preceding the tables for an explanation of the charges included and methodology used in calculating 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 seven-day period ended December 31, 2001 (on an annualized basis) was 0.81%. Current yield more closely reflects current earnings than does total return. The current yield reflects the deduction of all charges under the contract that are deducted from the total return quotations shown above. As in the table above, the maximum 6% early withdrawal charge is not reflected. (3) The fund first listed was replaced with the applicable ING 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 ING 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. (4) The performance of the Service Shares prior to December 31, 1999 reflects the performance of a different class of Janus Aspen Series, restated based on the Service Shares estimated fees and expenses, ignoring any fee and expense limitations. 17 INCOME PHASE PAYMENTS When you begin receiving payments under the contract during the income phase (see "The Income Phase" in the prospectus), the value of your account is determined using accumulation unit values as of the tenth valuation before the first income phase payment is due. Such value (less any applicable premium tax charge) is applied to provide income phase payments to you in accordance with the income phase payment option and investment options elected. The annuity option tables found in the contract show, for each option, the amount of the first income phase payment for each $1,000 of value applied. Thereafter, variable income phase payments fluctuate as the annuity unit value(s) fluctuates with the investment experience of the selected investment option(s). The first income phase payment and subsequent income phase payments also vary depending upon the assumed net investment rate selected (3.5% or 5% per annum). Selection of a 5% rate causes a higher first income phase payment, but income phase payments will increase thereafter only to the extent that the investment performance of the subaccounts you selected is greater than 5% annually, after deduction of fees. Income phase payments would decline if the performance was less than 5%. Use of the 3.5% assumed rate causes a lower first income phase payment, but subsequent income phase payments would increase more rapidly or decline more slowly as changes occur in the performance of the subaccounts selected. When the income phase 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 income phase 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 to the next (see "Your Account Value" in the prospectus); such fluctuations reflect changes in the net investment factor for the appropriate subaccount(s) (with a ten valuation lag which gives the Company time to process income phase 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 income phase. EXAMPLE: Assume that, at the date income phase payments are to begin, there are 3,000 accumulation units credited under a particular contract and that the value of an accumulation unit for the tenth valuation prior to retirement was $13.650000. This produces a total value of $40,950. Assume also that no premium tax charge is payable and that the annuity table in the contract provides, for the income phase payment option elected, a first monthly variable income phase payment of $6.68 per $1000 of value applied; the annuitant's first monthly income phase payment would thus be $40.950 multiplied by $6.68, or $273.55. Assume then that the value of an annuity unit upon the valuation on which the first income phase payment was due was $13.400000. When this value is divided into the first monthly income phase 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. 18 If the net investment factor with respect to the appropriate subaccount is 1.0015000 as of the tenth valuation preceding the due date of the second monthly income phase payment, multiplying this factor by .9999058* (to take into account 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 (assume such value to be $13.504376) to produce an annuity unit value of $13.523359 for the valuation occurring when the second income phase payment is due. The second monthly income phase 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 an income phase payment of $276.07. *If an assumed net investment rate of 5% is elected, the appropriate factor to take into account such assumed rate would be .9998663. SALES MATERIAL AND ADVERTISING We may include hypothetical illustrations in our sales literature that explain the mathematical principles of dollar cost averaging, compounded interest, tax deferred accumulation, and the mechanics of variable annuity contracts. We may also discuss the difference between variable annuity contracts and other types of savings or investment products such as 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 such as The Wall Street Journal, Money magazine, USA Today and The VARDS Report. We may provide in advertising, sales literature, periodic publications or other materials information on various topics of interest to current and prospective contract holders. 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 contract and the characteristics of and market for such financial instruments. 19 INDEPENDENT AUDITORS Ernst & Young LLP, 225 Asylum Street, Hartford, Connecticut 06103, are the independent auditors for the separate account and for the Company. The services provided to the separate account include primarily the audit of the separate account's financial statements and review of filings made with the SEC. Prior to May 3, 2001, KPMG LLP were the independent auditors for the separate account and the Company. 20 FINANCIAL STATEMENTS VARIABLE ANNUITY ACCOUNT C INDEX
PAGE -------- Statement of Assets and Liabilities......................... S-2 Statement of Operations..................................... S-8 Statements of Changes in Net Assets......................... S-8 Condensed Financial Information............................. S-9 Notes to Financial Statements............................... S-42 Report of Independent Auditors.............................. S-61
S-1 VARIABLE ANNUITY ACCOUNT C STATEMENT OF ASSETS AND LIABILITIES - December 31, 2001 ASSETS: Investments, at net asset value: (Note 1)
Net Shares Cost Assets ------ ---- ------ Aetna Ascent VP 5,255,708 $ 76,163,930 $ 67,010,283 Aetna Balanced VP, Inc. 63,527,168 941,395,632 768,043,464 Aetna Bond VP 31,629,056 411,092,484 409,596,277 Aetna Crossroads VP 4,633,460 62,509,495 57,037,891 Aetna GET Fund, Series D 29,598,965 297,508,659 288,293,920 Aetna GET Fund, Series E 11,999,667 120,781,409 118,196,723 Aetna GET Fund, Series G 3,405,259 34,322,636 33,746,120 Aetna GET Fund, Series H 2,570,498 26,011,100 25,807,795 Aetna GET Fund, Series I 125,859 1,271,493 1,252,292 Aetna GET Fund, Series J 38,632 390,384 380,525 Aetna GET Fund, Series K 227,934 2,301,390 2,274,781 Aetna GET Fund, Series L 132,321 1,332,026 1,304,688 Aetna GET Fund, Series Q 363,917 3,639,983 3,641,608 Aetna Growth and Income VP 173,976,346 5,426,258,664 3,399,497,793 Aetna Growth VP 12,527,440 182,697,142 120,764,519 Aetna Index Plus Large Cap VP 33,160,607 583,684,457 459,606,019 Aetna Index Plus Mid Cap VP 6,535,530 90,551,160 88,491,082 Aetna Index Plus Small Cap VP 2,487,919 28,270,439 28,859,864 Aetna International VP 1,389,613 10,503,134 10,977,941 Aetna Legacy VP 3,093,907 38,755,806 37,095,947 Aetna Money Market VP 28,106,423 372,750,420 374,568,678 Aetna Small Company VP 8,045,577 130,577,951 134,200,221 Aetna Technology VP 7,009,738 40,956,370 31,754,112 Aetna Value Opportunity VP 8,955,479 132,460,735 118,660,092 AIM V.I. Funds: Capital Appreciation Fund 875,993 29,357,433 19,026,559 Growth and Income Fund 2,192,023 63,888,717 44,278,866 Growth Fund 951,036 26,653,938 15,568,467 Value Fund 956,508 28,186,119 22,334,468 American Century Income and Growth Fund 23,013 642,973 628,951 Calvert Social Balanced Portfolio 33,166,811 65,972,466 58,340,420 Chapman DEM-Registered Trademark- Equity Fund 4,887 84,557 92,273 Fidelity-Registered Trademark- Investments Variable Insurance Products Funds: Asset Manager Portfolio -- Initial Class 1,487,902 24,287,386 21,589,463 Contrafund-Registered Trademark- Portfolio -- Initial Class 18,643,176 390,047,585 375,287,140 Equity-Income Portfolio -- Initial Class 10,431,395 243,068,260 237,314,227 Growth Portfolio -- Initial Class 11,554,630 479,838,036 388,351,107 High Income Portfolio -- Initial Class 420,323 2,744,118 2,694,271 Index 500 Portfolio -- Initial Class 738,808 111,739,318 96,096,738 Overseas Portfolio -- Initial Class 1,063,822 15,101,338 14,765,849 Franklin Value Securities Fund 11,912 116,804 129,725 Janus Aspen Series: Aggressive Growth Portfolio -- I Shares 25,905,823 1,101,530,359 569,410,000 Balanced Portfolio -- I Shares 14,995,572 354,396,600 338,450,060
S-2 VARIABLE ANNUITY ACCOUNT C STATEMENT OF ASSETS AND LIABILITIES - December 31, 2001 (continued):
Net Shares Cost Assets ------ ---- ------ Capital Appreciation Portfolio -- S Shares 25,781 $ 545,981 $ 530,322 Flexible Income Portfolio -- I Shares 4,866,544 56,838,167 56,743,899 Growth Portfolio -- I Shares 15,373,195 426,395,893 305,619,111 Worldwide Growth Portfolio -- I Shares 27,458,173 909,329,194 783,656,268 Janus Twenty Fund 12,915 642,222 496,725 Lord Abbett Funds: Growth and Income Portfolio 53,053 1,201,597 1,226,053 Mid-Cap Value Portfolio 17,155 257,998 265,038 MFS-Registered Trademark- Total Return Series 1,140,677 21,279,207 21,227,997 Oppenheimer Funds: Developing Markets Fund 16,784 218,990 222,893 Global Securities Fund/VA 3,808,514 96,231,723 86,986,470 Strategic Bond Fund/VA 2,124,804 9,891,651 9,816,595 PAX World Balanced Fund 115,981 2,418,556 2,309,174 Pilgrim Funds: Emerging Markets Fund 1,119,442 5,261,516 5,518,849 Natural Resources Trust Fund 1,028,305 13,623,422 12,750,984 Pilgrim Variable Funds: Growth Opportunities Portfolio -- Class R 1,738 9,527 9,527 International Value Portfolio -- Class R 149,031 1,512,553 1,529,054 Mid Cap Opportunities Portfolio -- Class R 4,863 29,633 29,521 Small Cap Opportunities Portfolio -- Class R 3,139 56,426 59,269 Pioneer Funds: Equity-Income VCT Portfolio 4,805 87,585 88,405 Fund VCT Portfolio 469 8,944 8,945 Mid-Cap Value VCT Portfolio 4,662 76,248 80,892 Portfolio Partners, Inc. (PPI): PPI MFS Capital Opportunities Portfolio -- I Class 7,964,827 316,304,508 216,006,116 PPI MFS Emerging Equities Portfolio -- I Class 7,494,156 373,169,708 305,236,978 PPI MFS Research Growth Portfolio -- I Class 21,266,928 219,343,753 172,262,113 PPI Scudder International Growth Portfolio -- I Class 14,513,049 144,260,565 145,565,880 PPI T. Rowe Price Growth Equity Portfolio -- I Class 4,937,177 241,450,739 223,752,864 Wachovia Special Values Fund 198,772 3,938,370 3,925,737 --------------- --------------- NET ASSETS $14,798,227,582 $11,141,346,898 =============== ===============
S-3 VARIABLE ANNUITY ACCOUNT C STATEMENT OF ASSETS AND LIABILITIES - December 31, 2001 (continued): NET ASSETS REPRESENTED BY: Reserves for annuity contracts in accumulation and payment period: (Notes 1 and 6) Aetna Ascent VP Annuity contracts in accumulation............. $ 67,010,283 Aetna Balanced VP, Inc. Annuity contracts in accumulation............. 739,144,233 Annuity contracts in payment period........... 28,899,231 Aetna Bond VP Annuity contracts in accumulation............. 403,727,419 Annuity contracts in payment period........... 5,868,858 Aetna Crossroads VP Annuity contracts in accumulation............. 56,976,436 Annuity contracts in payment period........... 61,455 Aetna GET Fund, Series D Annuity contracts in accumulation............. 288,293,920 Aetna GET Fund, Series E Annuity contracts in accumulation............. 118,196,723 Aetna GET Fund, Series G Annuity contracts in accumulation............. 33,746,120 Aetna GET Fund, Series H Annuity contracts in accumulation............. 25,807,795 Aetna GET Fund, Series I Annuity contracts in accumulation............. 1,252,292 Aetna GET Fund, Series J Annuity contracts in accumulation............. 380,525 Aetna GET Fund, Series K Annuity contracts in accumulation............. 2,274,781 Aetna GET Fund, Series L Annuity contracts in accumulation............. 1,304,688 Aetna GET Fund, Series Q Annuity contracts in accumulation............. 3,641,608 Aetna Growth and Income VP Annuity contracts in accumulation............. 3,170,240,934 Annuity contracts in payment period........... 229,256,859 Aetna Growth VP Annuity contracts in accumulation............. 120,456,683 Annuity contracts in payment period........... 307,836 Aetna Index Plus Large Cap VP Annuity contracts in accumulation............. 457,492,812 Annuity contracts in payment period........... 2,113,207 Aetna Index Plus Mid Cap VP Annuity contracts in accumulation............. 88,491,082 Aetna Index Plus Small Cap VP Annuity contracts in accumulation............. 28,859,864 Aetna International VP Annuity contracts in accumulation............. 10,977,941 Aetna Legacy VP Annuity contracts in accumulation............. 36,927,158 Annuity contracts in payment period........... 168,789
S-4 VARIABLE ANNUITY ACCOUNT C STATEMENT OF ASSETS AND LIABILITIES - December 31, 2001 (continued): Aetna Money Market VP Annuity contracts in accumulation............. $ 374,418,757 Annuity contracts in payment period........... 149,921 Aetna Small Company VP Annuity contracts in accumulation............. 134,140,868 Annuity contracts in payment period........... 59,353 Aetna Technology VP Annuity contracts in accumulation............. 31,754,112 Aetna Value Opportunity VP Annuity contracts in accumulation............. 118,660,092 AIM V.I. Funds: Capital Appreciation Fund Annuity contracts in accumulation............. 19,026,559 Growth and Income Fund Annuity contracts in accumulation............. 44,278,866 Growth Fund Annuity contracts in accumulation............. 15,568,467 Value Fund Annuity contracts in accumulation............. 22,334,468 American Century Income and Growth Fund Annuity contracts in accumulation............. 628,951 Calvert Social Balanced Portfolio Annuity contracts in accumulation............. 58,340,420 Chapman DEM-Registered Trademark- Equity Fund Annuity contracts in accumulation............. 92,273 Fidelity-Registered Trademark- Investments Variable Insurance Products Funds: Asset Manager Portfolio -- Initial Class Annuity contracts in accumulation............. 21,589,463 Contrafund-Registered Trademark- Portfolio -- Initial Class Annuity contracts in accumulation............. 375,287,140 Equity-Income Portfolio -- Initial Class Annuity contracts in accumulation............. 237,314,227 Growth Portfolio -- Initial Class Annuity contracts in accumulation............. 388,351,107 High Income Portfolio -- Initial Class Annuity contracts in accumulation............. 2,645,583 Annuity contracts in payment period........... 48,688 Index 500 Portfolio -- Initial Class Annuity contracts in accumulation............. 96,096,738 Overseas Portfolio -- Initial Class Annuity contracts in accumulation............. 14,765,849 Franklin Value Securities Fund Annuity contracts in accumulation............. 129,725 Janus Aspen Series: Aggressive Growth Portfolio -- I Shares Annuity contracts in accumulation............. 569,410,000 Balanced Portfolio -- I Shares Annuity contracts in accumulation............. 338,450,060 Capital Appreciation Portfolio -- S Shares Annuity contracts in accumulation............. 530,322
S-5 VARIABLE ANNUITY ACCOUNT C STATEMENT OF ASSETS AND LIABILITIES - December 31, 2001 (continued): Flexible Income Portfolio -- I Shares Annuity contracts in accumulation............. $ 56,743,899 Growth Portfolio -- I Shares Annuity contracts in accumulation............. 304,891,580 Annuity contracts in payment period........... 727,531 Worldwide Growth Portfolio -- I Shares Annuity contracts in accumulation............. 782,779,890 Annuity contracts in payment period........... 876,378 Janus Twenty Fund Annuity contracts in accumulation............. 496,725 Lord Abbett Funds: Growth and Income Portfolio Annuity contracts in accumulation............. 1,226,053 Mid-Cap Value Portfolio Annuity contracts in accumulation............. 265,038 MFS-Registered Trademark- Total Return Series Annuity contracts in accumulation............. 21,227,997 Oppenheimer Funds: Developing Markets Fund Annuity contracts in accumulation............. 222,893 Global Securities Fund/VA Annuity contracts in accumulation............. 86,986,470 Strategic Bond Fund/VA Annuity contracts in accumulation............. 9,799,961 Annuity contracts in payment period........... 16,634 PAX World Balanced Fund Annuity contracts in accumulation............. 2,309,174 Pilgrim Funds: Emerging Markets Fund Annuity contracts in accumulation............. 5,518,849 Natural Resources Trust Fund Annuity contracts in accumulation............. 12,750,984 Pilgrim Variable Funds: Growth Opportunities Portfolio -- Class R Annuity contracts in accumulation............. 9,527 International Value Portfolio -- Class R Annuity contracts in accumulation............. 1,529,054 Mid Cap Opportunities Portfolio -- Class R Annuity contracts in accumulation............. 29,521 Small Cap Opportunities Portfolio -- Class R Annuity contracts in accumulation............. 59,269 Pioneer Funds: Equity-Income VCT Portfolio Annuity contracts in accumulation............. 88,405 Fund VCT Portfolio Annuity contracts in accumulation............. 8,945 Mid-Cap Value VCT Portfolio Annuity contracts in accumulation............. 80,892
S-6 VARIABLE ANNUITY ACCOUNT C STATEMENT OF ASSETS AND LIABILITIES - December 31, 2001 (continued): Portfolio Partners, Inc. (PPI): PPI MFS Capital Opportunities Portfolio -- I Class Annuity contracts in accumulation............. $ 215,627,607 Annuity contracts in payment period........... 378,509 PPI MFS Emerging Equities Portfolio -- I Class Annuity contracts in accumulation............. 305,126,330 Annuity contracts in payment period........... 110,648 PPI MFS Research Growth Portfolio -- I Class Annuity contracts in accumulation............. 172,262,113 PPI Scudder International Growth Portfolio -- I Class Annuity contracts in accumulation............. 145,560,773 Annuity contracts in payment period........... 5,107 PPI T. Rowe Price Growth Equity Portfolio -- I Class Annuity contracts in accumulation............. 223,625,073 Annuity contracts in payment period........... 127,791 Wachovia Special Values Fund Annuity contracts in accumulation............. 3,925,737 -------------- $11,141,346,898 ==============
See Notes to Financial Statements S-7 VARIABLE ANNUITY ACCOUNT C STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2001 ----------------- INVESTMENT INCOME: Income: (Notes 1, 3 and 5) Dividends....................................... $ 464,350,375 Expenses: (Notes 2 and 5) Valuation period deductions..................... (132,666,634) --------------- Net investment income............................. $ 331,683,741 --------------- NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS: Net realized loss on sales of investments: (Notes 1, 4 and 5) Proceeds from sales............................. $ 3,331,253,418 Cost of investments sold........................ (3,763,191,632) --------------- Net realized loss on investments.............. (431,938,214) --------------- Net unrealized loss on investments: (Note 5) Beginning of year............................... (1,381,531,716) End of year..................................... (3,656,880,684) --------------- Net change in unrealized loss on investments................................. (2,275,348,968) --------------- Net realized and unrealized loss on investments... (2,707,287,182) --------------- Net decrease in net assets resulting from operations...................................... $(2,375,603,441) ===============
See Notes to Financial Statements -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 2001 2000 ---- ---- FROM OPERATIONS: Net investment income................... $ 331,683,741 $ 1,296,974,423 Net realized (loss) gain on investments........................... (431,938,214) 324,558,619 Net change in unrealized loss on investments........................... (2,275,348,968) (3,605,027,788) --------------- --------------- Net decrease in net assets resulting from operations....................... (2,375,603,441) (1,983,494,746) --------------- --------------- FROM UNIT TRANSACTIONS: Variable annuity contract purchase payments.............................. 1,150,499,362 1,255,425,118 Transfer (to) from the Company for mortality guarantee adjustments....... (691,770) 3,371,394 Transfer (to) from the Company's other variable annuity accounts............. (426,771,909) 254,674,124 Redemptions by contract holders......... (859,262,313) (1,257,770,002) Annuity Payments........................ (34,629,019) (47,041,158) Other................................... (1,478,438) 1,019,544 --------------- --------------- Net (decrease) increase in net assets from unit transactions (Note 6)..... (172,334,087) 209,679,020 --------------- --------------- Change in net assets.................... (2,547,937,528) (1,773,815,726) NET ASSETS: Beginning of year....................... 13,689,284,426 15,463,100,152 --------------- --------------- End of year............................. $11,141,346,898 $13,689,284,426 =============== ===============
See Notes to Financial Statements S-8 VARIABLE ANNUITY ACCOUNT C CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2001
--------------------------------------------------------------------------------------------------------------------------------- Value Per Unit Units -------- Outstanding Net Assets Beginning End of Total Expense Investment at End at End of Year Year Return Ratio Income Ratio of Year of Year --------------------------------------------------------------------------------------------------------------------------------- AETNA ASCENT VP: 0.00% to 1.75% 1.60% Qualified III $ 17.601 $ 15.374 (12.65%) 202.6 $ 3,115 Qualified V 17.449 15.218 (12.79%) 1,522.1 23,163 Qualified VI 17.601 15.374 (12.65%) 2,337,041.6 35,929,678 Qualified VIII 17.593 15.367 (12.65%) 8.6 132 Qualified X (1.15) 18.200 15.914 (12.56%) 8,988.9 143,049 Qualified X (1.25) 18.100 15.811 (12.65%) 366,302.8 5,791,614 Qualified XI 17.927 15.755 (12.12%) 76,262.0 1,201,508 Qualified XII (0.05) 16.762 15.691 (6.39%) (6) 6,000.4 94,152 Qualified XII (0.35) 10.744 9.471 (11.85%) 149,119.8 1,412,314 Qualified XII (0.40) 15.873 13.985 (11.89%) 2,197.3 30,729 Qualified XII (0.45) 10.716 9.436 (11.94%) 87,049.2 821,396 Qualified XII (0.55) 10.688 9.402 (12.03%) 3,470.0 32,625 Qualified XII (0.60) 10.376 9.385 (9.55%) (2) 788.6 7,401 Qualified XII (0.65) 10.660 9.368 (12.12%) 251,064.4 2,351,971 Qualified XII (0.70) 10.646 9.352 (12.15%) 28,974.2 270,967 Qualified XII (0.75) 10.633 9.335 (12.21%) 214,582.9 2,003,131 Qualified XII (0.80) 11.292 9.908 (12.26%) 239,231.2 2,370,303 Qualified XII (0.85) 15.761 13.823 (12.30%) 146,445.5 2,024,316 Qualified XII (0.90) 11.104 9.734 (12.34%) 2,015.3 19,617 Qualified XII (0.95) 15.688 13.745 (12.39%) 63,532.1 873,249 Qualified XII (1.00) 15.652 13.707 (12.43%) 489,143.9 6,704,696 Qualified XII (1.05) 15.616 13.668 (12.47%) 76,585.6 1,046,772 Qualified XII (1.10) 15.580 13.630 (12.52%) 44,705.8 609,340 Qualified XII (1.15) 15.544 13.591 (12.56%) 17,199.5 233,759 Qualified XII (1.20) 15.508 13.553 (12.61%) 39,012.2 528,733 Qualified XII (1.25) 15.472 13.515 (12.65%) 8,645.2 116,840 Qualified XII (1.30) 15.436 13.477 (12.69%) 7,856.6 105,883 Qualified XII (1.35) 15.400 13.439 (12.73%) 8.5 114 Qualified XII (1.40) 15.365 13.401 (12.78%) 5,178.6 69,399 Qualified XII (1.50) 15.294 13.326 (12.87%) 4,550.4 60,638 Qualified XV 17.815 15.609 (12.38%) 8,828.9 137,810 Qualified XVI 17.437 15.194 (12.86%) 36,844.7 559,818 Qualified XVII 17.821 15.622 (12.34%) 1,132.8 17,696 Qualified XVIII 18.328 16.066 (12.34%) 8,286.1 133,124 Qualified XXI 17.858 15.670 (12.25%) 9,375.6 146,916 Qualified XXII 17.888 15.709 (12.18%) 10,461.1 164,333 Qualified XXIV 15.662 13.734 (12.31%) 18,369.2 252,282 Qualified XXV 17.628 15.499 (12.08%) 9,106.5 141,141 Qualified XXVI 17.620 15.469 (12.21%) 626.3 9,688 Qualified XXVII 17.624 15.425 (12.48%) 33,425.3 515,585 Qualified XXVIII 17.601 15.375 (12.65%) 3,335.7 51,286 --------------------------------------------------------------------------------------------------------------------------------- AETNA BALANCED VP, INC.: 0.00% to 1.75% 5.73% Qualified I 31.647 29.954 (5.35%) 30,859.6 924,367 Qualified III 31.424 29.730 (5.39%) 35,755.7 1,063,018 Qualified V 23.779 22.457 (5.56%) 4,739.3 106,430 Qualified VI 23.936 22.642 (5.41%) 15,791,704.0 357,555,763 Qualified VII 23.063 21.829 (5.35%) 193,770.1 4,229,808 Qualified VIII 22.215 21.013 (5.41%) 4,681.1 98,364 Qualified IX 22.557 21.445 (4.93%) 1,928.9 41,365 Qualified X (1.15) 24.108 22.827 (5.31%) 96,618.9 2,205,519 Qualified X (1.25) 23.936 22.642 (5.41%) 4,053,041.6 91,768,969 Qualified XI 24.380 23.202 (4.83%) 684,729.6 15,887,097 Qualified XII (0.05) 23.584 23.108 (2.02%) (6) 121,395.5 2,805,207 Qualified XII (0.35) 11.974 11.430 (4.54%) 1,197,262.2 13,684,707 Qualified XII (0.40) 17.181 16.392 (4.59%) 9,835.3 161,220 Qualified XII (0.45) 11.943 11.389 (4.64%) 174,642.2 1,989,000 Qualified XII (0.55) 11.912 11.348 (4.73%) 179,399.6 2,035,827 Qualified XII (0.60) 12.058 11.327 (6.06%) (2) 618,049.1 7,000,642 Qualified XII (0.65) 11.881 11.307 (4.83%) 123,202.5 1,393,051 Qualified XII (0.70) 11.865 11.286 (4.88%) 224,541.6 2,534,177 Qualified XII (0.75) 11.850 11.266 (4.93%) 553,197.3 6,232,321
S-9 VARIABLE ANNUITY ACCOUNT C CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2001 (continued):
--------------------------------------------------------------------------------------------------------------------------------- Value Per Unit Units -------- Outstanding Net Assets Beginning End of Total Expense Investment at End at End of Year Year Return Ratio Income Ratio of Year of Year --------------------------------------------------------------------------------------------------------------------------------- AETNA BALANCED VP, INC.: (continued): Qualified XII (0.80) $ 12.628 $ 11.999 (4.98%) 3,038,118.3 $ 36,454,382 Qualified XII (0.85) 17.060 16.203 (5.02%) 1,663,296.8 26,950,398 Qualified XII (0.90) 12.379 11.751 (5.07%) 18,354.1 215,679 Qualified XII (0.95) 16.981 16.112 (5.12%) 627,673.6 10,113,077 Qualified XII (1.00) 16.942 16.067 (5.16%) 3,179,028.9 51,077,458 Qualified XII (1.05) 16.903 16.021 (5.22%) 165,847.8 2,657,048 Qualified XII (1.10) 16.864 15.976 (5.27%) 60,130.4 960,644 Qualified XII (1.15) 16.825 15.931 (5.31%) 72,759.3 1,159,128 Qualified XII (1.20) 16.786 15.886 (5.36%) 63,930.6 1,015,602 Qualified XII (1.25) 16.747 15.842 (5.40%) 7,084.8 112,238 Qualified XII (1.30) 16.708 15.797 (5.45%) 3,720.5 58,772 Qualified XII (1.35) 16.670 15.752 (5.51%) 531.0 8,364 Qualified XII (1.40) 16.631 15.708 (5.55%) 11,109.1 174,501 Qualified XII (1.50) 16.554 15.620 (5.64%) 1,077.2 16,826 Qualified XV 24.228 22.987 (5.12%) 85,982.2 1,976,472 Qualified XVI 23.714 22.375 (5.65%) 304,552.9 6,814,371 Qualified XVII 24.150 22.902 (5.17%) 266,175.7 6,095,955 Qualified XVIII 24.150 22.902 (5.17%) 414,099.1 9,483,697 Qualified XIX 31.930 30.298 (5.11%) 22,072.9 668,766 Qualified XX 31.710 30.072 (5.17%) 84,038.1 2,527,193 Qualified XXI 24.286 23.078 (4.97%) 95,721.6 2,209,063 Qualified XXII 24.327 23.135 (4.90%) 91,052.4 2,106,497 Qualified XXIV 16.953 16.098 (5.04%) 338,782.1 5,453,715 Qualified XXV 23.973 22.825 (4.79%) 258,873.9 5,908,797 Qualified XXVI 23.962 22.781 (4.93%) 27,462.4 625,621 Qualified XXVII 31.470 29.827 (5.22%) 1,490,555.3 44,458,794 Qualified XXVIII 31.429 29.731 (5.40%) 143,093.2 4,254,303 Qualified XXIX 31.429 29.730 (5.41%) 10,380.9 308,623 Qualified XXX 31.429 29.650 (5.66%) 120,114.6 3,561,397 Annuity contracts in payment period 28,899,231 --------------------------------------------------------------------------------------------------------------------------------- AETNA BOND VP: 0.00% to 1.75% 6.40% Qualified I 58.977 63.372 7.45% 11,659.0 738,855 Qualified III 58.190 62.489 7.39% 11,856.0 740,869 Qualified V 15.115 16.205 7.21% 13,280.4 215,209 Qualified VI 15.007 16.115 7.38% 11,769,148.7 189,659,832 Qualified VII 13.904 14.941 7.46% 132,442.9 1,978,830 Qualified VIII 13.816 14.836 7.38% 9,231.3 136,956 Qualified IX 14.146 15.252 7.82% 2,039.1 31,101 Qualified X (1.15) 15.115 16.248 7.50% 82,489.2 1,340,284 Qualified X (1.25) 15.007 16.115 7.38% 1,882,061.4 30,329,419 Qualified XI 15.286 16.514 8.03% 525,416.9 8,676,734 Qualified XII (0.05) 15.886 16.447 3.53% (6) 22,510.2 370,226 Qualified XII (0.35) 11.377 12.329 8.37% 416,127.1 5,130,431 Qualified XII (0.40) 13.041 14.124 8.30% 1,646.4 23,254 Qualified XII (0.45) 11.348 12.284 8.25% 91,516.0 1,124,183 Qualified XII (0.55) 11.318 12.240 8.15% 48,530.9 594,018 Qualified XII (0.60) 11.539 12.218 5.88% (2) 128,150.2 1,565,739 Qualified XII (0.65) 11.289 12.196 8.03% 162,515.5 1,982,039 Qualified XII (0.70) 11.274 12.174 7.98% 140,186.1 1,706,626 Qualified XII (0.75) 11.259 12.152 7.93% 279,302.0 3,394,078 Qualified XII (0.80) 11.406 12.304 7.87% 1,192,571.4 14,673,398 Qualified XII (0.85) 12.949 13.961 7.82% 904,309.7 12,625,068 Qualified XII (0.90) 11.388 12.273 7.77% 8,759.9 107,510 Qualified XII (0.95) 12.889 13.883 7.71% 471,124.5 6,540,621 Qualified XII (1.00) 12.859 13.844 7.66% 2,285,455.5 31,639,846 Qualified XII (1.05) 12.829 13.805 7.61% 129,865.3 1,792,790 Qualified XII (1.10) 12.800 13.766 7.55% 68,465.6 942,498 Qualified XII (1.15) 12.770 13.727 7.49% 62,226.1 854,178 Qualified XII (1.20) 12.740 13.688 7.44% 50,803.6 695,399 Qualified XII (1.25) 12.711 13.650 7.39% 28,418.3 387,910 Qualified XII (1.30) 12.681 13.611 7.33% 4,920.7 66,976
S-10 VARIABLE ANNUITY ACCOUNT C CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2001 (continued):
--------------------------------------------------------------------------------------------------------------------------------- Value Per Unit Units -------- Outstanding Net Assets Beginning End of Total Expense Investment at End at End of Year Year Return Ratio Income Ratio of Year of Year --------------------------------------------------------------------------------------------------------------------------------- AETNA BOND VP: (continued): Qualified XII (1.35) $ 12.652 $ 13.573 7.28% 480.2 $ 6,518 Qualified XII (1.40) 12.623 13.535 7.22% 10,134.0 137,164 Qualified XII (1.50) 12.564 13.459 7.12% 1,612.0 21,696 Qualified XV 15.190 16.361 7.71% 47,583.9 778,520 Qualified XVI 14.868 15.926 7.12% 176,719.8 2,814,440 Qualified XVII 15.087 16.226 7.55% 259,850.2 4,216,330 Qualified XVIII 15.087 16.226 7.55% 504,658.6 8,188,591 Qualified XIX 59.293 63.808 7.61% 8,586.4 547,880 Qualified XX 58.502 62.918 7.55% 15,083.7 949,035 Qualified XXI 15.227 16.426 7.87% 23,648.1 388,444 Qualified XXII 15.252 16.466 7.96% 69,345.0 1,141,835 Qualified XXIV 12.867 13.871 7.80% 158,918.9 2,204,364 Qualified XXV 15.030 16.246 8.09% 94,842.7 1,540,815 Qualified XXVI 15.023 16.214 7.93% 46,816.6 759,084 Qualified XXVII 58.266 62.692 7.60% 697,898.0 43,752,623 Qualified XXVIII 58.190 62.490 7.39% 232,374.0 14,521,050 Qualified XXIX 58.190 62.489 7.39% 1,960.2 122,489 Qualified XXX 58.180 62.321 7.12% 25,218.9 1,571,664 Annuity contracts in payment period 5,868,858 --------------------------------------------------------------------------------------------------------------------------------- AETNA CROSSROADS VP: 0.00% to 1.75% 2.54% Qualified III 16.322 14.991 (8.15%) 34.6 518 Qualified V 16.181 14.838 (8.30%) 806.1 11,961 Qualified VI 16.322 14.991 (8.15%) 1,945,392.2 29,163,374 Qualified X (1.15) 16.799 15.445 (8.06%) 18,902.1 291,943 Qualified X (1.25) 16.707 15.345 (8.15%) 266,564.1 4,090,426 Qualified XI 16.625 15.362 (7.60%) 71,563.7 1,099,362 Qualified XII (0.05) 16.042 15.300 (4.63%) (6) 5,741.8 87,849 Qualified XII (0.35) 10.777 9.988 (7.32%) 77,523.5 774,305 Qualified XII (0.40) 14.962 13.860 (7.37%) 572.7 7,938 Qualified XII (0.45) 10.749 9.952 (7.41%) 190,721.8 1,898,063 Qualified XII (0.55) 10.721 9.916 (7.51%) 2,933.3 29,087 Qualified XII (0.60) 10.501 9.898 (5.74%) (2) 887.1 8,781 Qualified XII (0.65) 10.693 9.880 (7.60%) 88,213.8 871,552 Qualified XII (0.70) 10.679 9.862 (7.65%) 56,178.5 554,032 Qualified XII (0.75) 10.665 9.845 (7.69%) 220,372.4 2,169,566 Qualified XII (0.80) 11.232 10.363 (7.74%) 158,589.2 1,643,460 Qualified XII (0.85) 14.857 13.700 (7.79%) 97,325.0 1,333,352 Qualified XII (0.90) 11.061 10.195 (7.83%) 2,379.9 24,263 Qualified XII (0.95) 14.788 13.623 (7.88%) 54,305.9 739,809 Qualified XII (1.00) 14.754 13.585 (7.92%) 195,525.0 2,656,207 Qualified XII (1.05) 14.719 13.547 (7.96%) 75,355.2 1,020,837 Qualified XII (1.10) 14.685 13.508 (8.01%) 57,924.4 782,443 Qualified XII (1.15) 14.651 13.470 (8.06%) 13,895.5 187,173 Qualified XII (1.20) 14.617 13.432 (8.11%) 352,350.4 4,732,771 Qualified XII (1.25) 14.584 13.395 (8.15%) 13,693.2 183,421 Qualified XII (1.30) 14.550 13.357 (8.20%) 5,656.9 75,559 Qualified XII (1.40) 14.483 13.282 (8.29%) 11,787.3 156,559 Qualified XII (1.50) 14.416 13.207 (8.39%) 842.4 11,126 Qualified XV 16.521 15.220 (7.87%) 8,971.7 136,550 Qualified XVI 16.170 14.814 (8.39%) 34,726.2 514,434 Qualified XVII 16.526 15.232 (7.83%) 28,421.9 432,923 Qualified XVIII 16.917 15.592 (7.83%) 10,453.4 162,990 Qualified XXI 16.561 15.279 (7.74%) 5,458.3 83,397 Qualified XXII 16.588 15.317 (7.66%) 11,974.0 183,405 Qualified XXIV 14.763 13.611 (7.80%) 7,213.9 98,188 Qualified XXV 16.347 15.113 (7.55%) 4,884.5 73,820 Qualified XXVI 16.340 15.083 (7.69%) 361.3 5,450 Qualified XXVII 16.343 15.040 (7.97%) 43,445.1 653,415 Qualified XXVIII 16.322 14.991 (8.15%) 1,742.8 26,127 Annuity contracts in payment period 61,455 ---------------------------------------------------------------------------------------------------------------------------------
S-11 VARIABLE ANNUITY ACCOUNT C CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2001 (continued):
--------------------------------------------------------------------------------------------------------------------------------- Value Per Unit Units -------- Outstanding Net Assets Beginning End of Total Expense Investment at End at End of Year Year Return Ratio Income Ratio of Year of Year --------------------------------------------------------------------------------------------------------------------------------- AETNA GET FUND, SERIES D: 0.25% to 1.75% 1.46% Qualified III $ 10.188 $ 10.235 0.46% 5,679.9 $ 58,134 Qualified VI 10.188 10.235 0.46% 11,004,023.9 112,626,185 Qualified X (1.15) 10.188 10.235 0.46% 132,698.1 1,358,165 Qualified X (1.25) 10.188 10.235 0.46% 2,396,910.6 24,532,380 Qualified XI 10.292 10.403 1.08% 2,082,570.1 21,664,977 Qualified XII (0.30) 10.414 10.391 (0.22%) (6) 113,240.1 1,176,678 Qualified XII (0.60) 10.394 10.537 1.38% 109,223.6 1,150,889 Qualified XII (0.65) 10.376 10.515 1.34% 1,176.9 12,375 Qualified XII (0.70) 10.370 10.503 1.28% 36,796.9 386,478 Qualified XII (0.80) 10.347 10.469 1.18% 26,177.6 274,053 Qualified XII (0.85) 10.455 10.453 (0.02%) (2) 78,932.0 825,076 Qualified XII (0.90) 10.324 10.436 1.08% 21,619.4 225,620 Qualified XII (0.95) 10.313 10.419 1.03% 50,425.8 525,386 Qualified XII (1.00) 10.301 10.402 0.98% 169,250.0 1,760,539 Qualified XII (1.05) 10.290 10.385 0.92% 2,245,229.0 23,316,703 Qualified XII (1.10) 10.279 10.368 0.87% 157,582.8 1,633,818 Qualified XII (1.20) 10.256 10.335 0.77% 311,695.2 3,221,370 Qualified XII (1.25) 10.244 10.318 0.72% 4,834,394.4 49,881,281 Qualified XII (1.30) 10.233 10.302 0.67% 49,869.4 513,755 Qualified XII (1.35) 10.222 10.285 0.62% 12,912.6 132,806 Qualified XII (1.40) 10.210 10.268 0.57% 9,072.6 93,157 Qualified XII (1.50) 10.188 10.235 0.46% 5,628.6 57,609 Qualified XII (1.65) 10.171 10.186 0.15% (1) 692.5 7,054 Qualified XV 10.256 10.335 0.77% 76,150.5 787,015 Qualified XVI 10.131 10.153 0.22% 101,063.2 1,026,095 Qualified XVII 10.188 10.235 0.46% 89,461.7 915,640 Qualified XVIII 10.188 10.235 0.46% 477,459.9 4,886,802 Qualified XXI 10.282 10.377 0.92% 50,652.0 525,616 Qualified XXII 10.282 10.377 0.92% 397,209.4 4,121,842 Qualified XXIV 10.251 10.339 0.86% 63,863.9 660,289 Qualified XXV 10.203 10.318 1.13% 52,237.4 538,985 Qualified XXVI 10.199 10.298 0.97% 18,663.1 192,193 Qualified XXVII 10.201 10.269 0.67% 2,843,992.1 29,204,955 --------------------------------------------------------------------------------------------------------------------------------- AETNA GET FUND, SERIES E: 0.25% to 1.75% 0.79% Qualified V 10.114 10.026 (0.87%) 489.8 4,911 Qualified VI 10.139 10.068 (0.70%) 4,823,676.8 48,564,778 Qualified X (1.15) 10.109 10.013 (0.95%) 132,151.9 1,323,237 Qualified X (1.25) 10.107 10.010 (0.96%) 1,256,793.2 12,580,500 Qualified XI 10.221 10.210 (0.11%) 725,679.4 7,409,187 Qualified XII (0.30) 10.126 10.197 0.70% (6) 139,947.4 1,427,044 Qualified XII (0.70) 10.265 10.275 0.10% 9,878.6 101,503 Qualified XII (0.80) 10.249 10.249 0.00% 24,170.4 247,722 Qualified XII (0.85) 10.295 10.236 (0.57%) (2) 70,223.1 718,804 Qualified XII (0.95) 10.226 10.210 (0.16%) 102,170.2 1,043,158 Qualified XII (1.00) 10.218 10.197 (0.21%) 46,435.2 473,500 Qualified XII (1.05) 10.210 10.184 (0.25%) 961,600.7 9,792,942 Qualified XII (1.10) 10.202 10.171 (0.30%) 36,429.3 370,522 Qualified XII (1.20) 10.186 10.145 (0.40%) 127,627.8 1,294,784 Qualified XII (1.25) 10.178 10.132 (0.45%) 1,567,937.4 15,886,342 Qualified XII (1.30) 10.171 10.119 (0.51%) 15,370.2 155,531 Qualified XII (1.35) 10.163 10.106 (0.56%) 5,406.2 54,635 Qualified XII (1.40) 10.155 10.093 (0.61%) 1,902.5 19,202 Qualified XII (1.50) 10.139 10.068 (0.70%) 6,631.1 66,762 Qualified XII (1.65) 10.092 10.029 (0.62%) (1) 3,252.1 32,615 Qualified XV 10.186 10.145 (0.40%) 86,412.4 876,654 Qualified XVI 10.100 10.004 (0.95%) 21,398.0 214,066 Qualified XVII 10.139 10.068 (0.70%) 116,742.8 1,175,367 Qualified XVIII 10.107 10.010 (0.96%) 61,374.6 614,360 Qualified XXI 10.210 10.184 (0.25%) 16,970.1 172,823 Qualified XXII 10.210 10.184 (0.25%) 155,762.6 1,586,286 Qualified XXIV 10.185 10.152 (0.32%) 23,112.9 234,642
S-12 VARIABLE ANNUITY ACCOUNT C CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2001 (continued):
--------------------------------------------------------------------------------------------------------------------------------- Value Per Unit Units -------- Outstanding Net Assets Beginning End of Total Expense Investment at End at End of Year Year Return Ratio Income Ratio of Year of Year --------------------------------------------------------------------------------------------------------------------------------- AETNA GET FUND, SERIES E: (continued): Qualified XXV $ 10.155 $ 10.149 (0.06%) 120,853.4 $ 1,226,541 Qualified XXVI 10.118 10.130 0.12% (2) 43,101.8 436,621 Qualified XXVII 10.153 10.100 (0.52%) 999,176.6 10,091,684 --------------------------------------------------------------------------------------------------------------------------------- AETNA GET FUND, SERIES G: 0.25% to 1.75% 0.39% Qualified VI 9.914 9.903 (0.11%) 1,295,879.0 12,833,090 Qualified X (1.25) 9.888 9.853 (0.35%) 442,314.4 4,358,124 Qualified XI 9.983 10.033 0.50% 84,837.2 851,172 Qualified XII (0.30) 9.941 10.020 0.79% (6) 6,579.1 65,923 Qualified XII (0.60) 10.031 10.111 0.80% 4,874.1 49,282 Qualified XII (0.80) 10.004 10.065 0.61% 1,379.6 13,886 Qualified XII (0.85) 10.013 10.053 0.40% (10) 5,422.2 54,509 Qualified XII (0.90) 9.991 10.041 0.50% 359.6 3,611 Qualified XII (0.95) 9.925 10.030 1.06% (7) 8,989.9 90,169 Qualified XII (1.00) 9.978 10.018 0.40% 22,600.3 226,410 Qualified XII (1.05) 9.972 10.007 0.35% 169,969.4 1,700,884 Qualified XII (1.10) 9.965 9.995 0.30% 51,610.0 515,842 Qualified XII (1.15) 9.946 9.984 0.38% (2) 1,860.4 18,574 Qualified XII (1.20) 9.952 9.972 0.20% 34,302.1 342,061 Qualified XII (1.25) 9.946 9.961 0.15% 536,929.7 5,348,357 Qualified XII (1.30) 9.939 9.949 0.10% 4,364.8 43,425 Qualified XII (1.35) 9.933 9.938 0.05% 3,769.3 37,459 Qualified XII (1.40) 9.926 9.926 0.00% 3,654.3 36,273 Qualified XII (1.45) 9.920 9.915 (0.05%) 30,622.5 303,622 Qualified XV 9.952 9.972 0.20% 30,156.2 300,718 Qualified XVI 9.881 9.846 (0.35%) 5,834.6 57,447 Qualified XVII 9.914 9.903 (0.11%) 29,548.4 292,618 Qualified XVIII 9.888 9.853 (0.35%) 68,752.5 677,418 Qualified XXI 9.972 10.007 0.35% 2,661.3 26,632 Qualified XXII 9.972 10.007 0.35% 18,134.7 181,474 Qualified XXIV 9.952 9.980 0.28% 6,204.6 61,922 Qualified XXV 9.929 9.984 0.55% 8,607.1 85,933 Qualified XXVI 9.913 9.964 0.51% (2) 8,750.2 87,187 Qualified XXVII 9.927 9.936 0.09% 511,483.3 5,082,098 --------------------------------------------------------------------------------------------------------------------------------- AETNA GET FUND, SERIES H: 0.25% to 1.75% 0.47% Qualified VI 10.069 9.985 (0.83%) 1,081,741.0 10,801,184 Qualified X (1.15) 10.051 9.943 (1.07%) 46,788.1 465,214 Qualified X (1.25) 10.049 9.941 (1.07%) 228,130.1 2,267,841 Qualified XI 10.127 10.104 (0.23%) 106,426.3 1,075,331 Qualified XII (0.30) 10.127 10.091 (0.36%) (6) 3,361.0 33,916 Qualified XII (0.60) 10.163 10.171 0.08% 331.5 3,372 Qualified XII (0.80) 10.142 10.129 (0.13%) 13,648.7 138,248 Qualified XII (0.85) 9.871 10.119 2.51% (4) 1,991.4 20,151 Qualified XII (0.90) 10.131 10.109 (0.22%) 1,483.1 14,993 Qualified XII (0.95) 10.126 10.098 (0.28%) 15,062.1 152,097 Qualified XII (1.00) 10.121 10.088 (0.33%) 14,009.1 141,324 Qualified XII (1.05) 10.116 10.078 (0.38%) 315,951.1 3,184,155 Qualified XII (1.10) 10.111 10.067 (0.44%) 23,491.4 236,488 Qualified XII (1.20) 10.100 10.047 (0.52%) 13,950.2 140,158 Qualified XII (1.25) 10.095 10.037 (0.57%) 277,780.7 2,788,085 Qualified XII (1.30) 10.090 10.026 (0.63%) 1,295.0 12,984 Qualified XII (1.35) 10.084 10.016 (0.67%) 9,055.2 90,697 Qualified XII (1.40) 10.079 10.006 (0.72%) 5,910.0 59,135 Qualified XII (1.45) 10.074 9.996 (0.77%) 1,273.3 12,728 Qualified XV 10.100 10.047 (0.52%) 15,669.0 157,426 Qualified XVI 10.043 9.934 (1.09%) 9,652.2 95,885 Qualified XVII 10.069 9.985 (0.83%) 34,877.5 348,252 Qualified XVIII 10.049 9.941 (1.07%) 58,342.7 579,985 Qualified XXI 10.116 10.078 (0.38%) 1,711.4 17,247 Qualified XXII 10.116 10.078 (0.38%) 24,037.4 242,249 Qualified XXV 10.084 10.066 (0.18%) 1,790.0 18,018 Qualified XXVI 10.080 10.047 (0.33%) 1,932.0 19,411 Qualified XXVII 10.082 10.018 (0.63%) 268,638.6 2,691,221 ---------------------------------------------------------------------------------------------------------------------------------
S-13 VARIABLE ANNUITY ACCOUNT C CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2001 (continued):
--------------------------------------------------------------------------------------------------------------------------------- Value Per Unit Units -------- Outstanding Net Assets Beginning End of Total Expense Investment at End at End of Year Year Return Ratio Income Ratio of Year of Year --------------------------------------------------------------------------------------------------------------------------------- AETNA GET FUND, SERIES I: 1.75% 0.24% Qualified X (1.25) $ 9.863 $ 9.804 (0.60%) 112,434.8 $ 1,102,311 Qualified XVIII 9.863 9.804 (0.60%) 15,297.9 149,981 --------------------------------------------------------------------------------------------------------------------------------- AETNA GET FUND, SERIES J: 1.75% 0.16% Qualified X (1.25) 9.731 9.686 (0.46%) 32,661.5 316,359 Qualified XVIII 9.731 9.686 (0.46%) 6,624.6 64,166 --------------------------------------------------------------------------------------------------------------------------------- AETNA GET FUND, SERIES K: 1.30% to 1.75% 0.00% Qualified X (1.25) 10.041 9.788 (2.52%) 43,521.5 425,988 Qualified XXVII 10.046 9.836 (2.09%) 187,961.9 1,848,793 --------------------------------------------------------------------------------------------------------------------------------- AETNA GET FUND, SERIES L: 1.30% 4.60% Qualified XXVII 10.015 9.979 (0.36%) 130,743.4 1,304,688 --------------------------------------------------------------------------------------------------------------------------------- AETNA GET FUND, SERIES Q: 1.05% 0.00% Qualified XXVII 9.999 10.000 0.01% (12) 364,160.8 3,641,608 --------------------------------------------------------------------------------------------------------------------------------- AETNA GROWTH AND INCOME VP: 0.00% to 1.75% 0.60% Qualified I 329.769 265.883 (19.37%) 86,477.3 22,992,856 Qualified III 250.600 201.929 (19.42%) 10,923.7 2,205,820 Qualified V 25.448 20.473 (19.55%) 18,076.0 370,069 Qualified VI 25.588 20.618 (19.42%) 75,994,481.3 1,566,854,215 Qualified VII 24.151 19.472 (19.37%) 6,275,874.0 122,203,819 Qualified VIII 23.756 19.140 (19.43%) 53,917.0 1,031,972 Qualified IX 24.020 19.453 (19.01%) 12,412.5 241,461 Qualified X (1.15) 25.772 20.788 (19.34%) 331,651.2 6,894,366 Qualified X (1.25) 25.588 20.618 (19.42%) 13,049,579.3 269,056,225 Qualified XI 26.063 21.129 (18.93%) 4,010,571.4 84,739,364 Qualified XII (0.05) 23.506 21.043 (10.48%) (6) 462,701.7 9,736,631 Qualified XII (0.35) 10.545 8.575 (18.68%) 4,800,393.2 41,163,372 Qualified XII (0.40) 17.368 14.115 (18.73%) 53,877.3 760,478 Qualified XII (0.45) 10.518 8.544 (18.77%) 847,662.1 7,242,425 Qualified XII (0.55) 10.490 8.513 (18.85%) 928,095.3 7,900,875 Qualified XII (0.60) 10.163 8.497 (16.39%) (2) 1,639,325.8 13,929,351 Qualified XII (0.65) 10.463 8.482 (18.93%) 445,025.1 3,774,703 Qualified XII (0.70) 10.450 8.467 (18.98%) 962,323.7 8,147,995 Qualified XII (0.75) 10.436 8.451 (19.02%) 3,065,149.9 25,903,582 Qualified XII (0.80) 11.429 9.251 (19.06%) 11,126,932.7 102,935,254 Qualified XII (0.85) 17.246 13.953 (19.09%) 5,556,404.1 77,528,507 Qualified XII (0.90) 11.094 8.971 (19.14%) 90,959.9 816,001 Qualified XII (0.95) 17.166 13.874 (19.18%) 3,054,662.3 42,380,385 Qualified XII (1.00) 17.127 13.835 (19.22%) 13,342,020.8 184,586,858 Qualified XII (1.05) 17.087 13.796 (19.26%) 525,252.3 7,246,381 Qualified XII (1.10) 17.047 13.757 (19.30%) 294,161.5 4,046,780 Qualified XII (1.15) 17.008 13.718 (19.34%) 284,047.7 3,896,567 Qualified XII (1.20) 16.969 13.680 (19.38%) 209,140.8 2,861,046 Qualified XII (1.25) 16.929 13.641 (19.42%) 75,992.2 1,036,610 Qualified XII (1.30) 16.890 13.603 (19.46%) 10,253.0 139,472 Qualified XII (1.35) 16.851 13.565 (19.50%) 262.3 3,558 Qualified XII (1.40) 16.812 13.526 (19.55%) 43,851.3 593,133 Qualified XII (1.50) 16.734 13.450 (19.62%) 9,104.8 122,460 Qualified XV 25.900 20.933 (19.18%) 832,516.0 17,427,058 Qualified XVI 25.351 20.376 (19.62%) 1,096,214.3 22,336,463 Qualified XVII 25.817 20.855 (19.22%) 3,760,767.6 78,430,809 Qualified XVIII 25.817 20.855 (19.22%) 3,988,776.8 83,185,940 Qualified XIX 332.719 268.938 (19.17%) 47,243.1 12,705,454 Qualified XX 252.842 204.249 (19.22%) 102,140.7 20,862,132 Qualified XXI 25.963 21.015 (19.06%) 350,781.1 7,371,665 Qualified XXII 26.006 21.067 (18.99%) 1,117,594.4 23,544,362 Qualified XXIV 17.138 13.862 (19.12%) 1,142,703.5 15,840,156 Qualified XXV 25.628 20.786 (18.89%) 671,177.3 13,951,091 Qualified XXVI 25.617 20.745 (19.02%) 85,130.2 1,766,027
S-14 VARIABLE ANNUITY ACCOUNT C CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2001 (continued):
--------------------------------------------------------------------------------------------------------------------------------- Value Per Unit Units -------- Outstanding Net Assets Beginning End of Total Expense Investment at End at End of Year Year Return Ratio Income Ratio of Year of Year --------------------------------------------------------------------------------------------------------------------------------- AETNA GROWTH AND INCOME VP: (continued): Qualified XXVII $250.928 $202.587 (19.26%) 1,137,553.0 $ 230,453,445 Qualified XXVIII 250.600 201.933 (19.42%) 25,678.1 5,185,262 Qualified XXIX 250.600 201.929 (19.42%) 2,840.6 573,604 Qualified XXX 250.558 201.386 (19.62%) 65,867.9 13,264,875 Annuity contracts in payment period 229,256,859 --------------------------------------------------------------------------------------------------------------------------------- AETNA GROWTH VP: 0.00% to 1.75% 11.29% Qualified III 15.760 11.351 (27.98%) 675.3 7,665 Qualified V 20.638 14.840 (28.09%) 3,890.9 57,741 Qualified VI 20.761 14.953 (27.98%) 3,666,867.6 54,830,671 Qualified VIII 20.755 14.948 (27.98%) 634.9 9,490 Qualified X (1.15) 20.839 15.024 (27.90%) 6,451.8 96,932 Qualified X (1.25) 20.761 14.953 (27.98%) 546,125.1 8,166,209 Qualified XI 21.069 15.266 (27.54%) 282,640.9 4,314,796 Qualified XII (0.05) 17.528 15.247 (13.01%) (6) 36,220.0 552,247 Qualified XII (0.35) 13.544 9.844 (27.32%) 175,057.4 1,723,265 Qualified XII (0.40) 21.242 15.431 (27.36%) 1,049.6 16,196 Qualified XII (0.45) 13.509 9.808 (27.40%) 352,265.5 3,455,020 Qualified XII (0.55) 13.474 9.773 (27.47%) 20,044.8 195,898 Qualified XII (0.60) 13.456 9.755 (27.50%) 4,506.0 43,956 Qualified XII (0.65) 13.439 9.738 (27.54%) 20,761.3 202,174 Qualified XII (0.70) 13.421 9.720 (27.58%) 164,211.1 1,596,132 Qualified XII (0.75) 13.404 9.703 (27.61%) 227,866.4 2,210,988 Qualified XII (0.80) 15.239 11.026 (27.65%) 1,211,713.4 13,360,352 Qualified XII (0.85) 21.073 15.239 (27.68%) 150,712.6 2,296,710 Qualified XII (0.90) 14.801 10.698 (27.72%) 19,301.6 206,488 Qualified XII (0.95) 20.994 15.167 (27.76%) 142,509.7 2,161,444 Qualified XII (1.00) 20.955 15.131 (27.79%) 946,969.4 14,328,594 Qualified XII (1.05) 20.916 15.095 (27.83%) 77,946.8 1,176,607 Qualified XII (1.10) 20.878 15.059 (27.87%) 18,104.9 272,642 Qualified XII (1.15) 20.839 15.024 (27.90%) 19,163.2 287,908 Qualified XII (1.20) 20.800 14.988 (27.94%) 13,386.2 200,632 Qualified XII (1.25) 20.761 14.953 (27.98%) 14,689.9 219,658 Qualified XII (1.30) 20.723 14.918 (28.01%) 4,066.9 60,670 Qualified XII (1.35) 20.684 14.882 (28.05%) 788.9 11,740 Qualified XII (1.40) 20.646 14.847 (28.09%) 8,807.6 130,766 Qualified XII (1.50) 20.569 14.777 (28.16%) 4,078.0 60,261 Qualified XV 20.994 15.167 (27.76%) 34,573.2 524,371 Qualified XVI 20.569 14.777 (28.16%) 65,576.0 969,017 Qualified XVII 20.761 14.953 (27.98%) 50,159.9 750,041 Qualified XVIII 21.022 15.194 (27.72%) 51,320.0 779,756 Qualified XXI 21.045 15.226 (27.65%) 37,527.1 571,387 Qualified XXII 21.045 15.239 (27.59%) 125,991.5 1,919,984 Qualified XXIV 20.969 15.161 (27.70%) 61,211.1 928,022 Qualified XXV 20.793 15.075 (27.50%) 63,366.1 955,244 Qualified XXVI 20.784 15.045 (27.61%) 13,347.8 200,818 Qualified XXVII 7.718 5.570 (27.83%) 108,472.4 604,191 Annuity contracts in payment period 307,836 --------------------------------------------------------------------------------------------------------------------------------- AETNA INDEX PLUS LARGE CAP VP: 0.00% to 1.75% 4.07% Qualified V 20.478 17.439 (14.84%) 1,498.6 26,134 Qualified VI 20.618 17.587 (14.70%) 11,127,272.0 195,695,332 Qualified VIII 20.612 17.580 (14.71%) 2,059.4 36,205 Qualified X (1.15) 20.707 17.681 (14.61%) 27,450.8 485,357 Qualified X (1.25) 20.618 17.587 (14.70%) 1,322,388.5 23,256,846 Qualified XI 20.959 17.986 (14.18%) 907,894.5 16,329,391 Qualified XII (0.05) 19.435 17.950 (7.64%) (6) 359,184.4 6,447,360 Qualified XII (0.35) 12.651 10.890 (13.92%) 437,895.4 4,768,681 Qualified XII (0.40) 21.131 18.180 (13.97%) 1,662.8 30,230 Qualified XII (0.45) 12.618 10.850 (14.01%) 677,370.4 7,349,469 Qualified XII (0.55) 12.585 10.811 (14.10%) 144,312.8 1,560,166 Qualified XII (0.60) 12.569 10.792 (14.14%) 72,835.6 786,042 Qualified XII (0.65) 12.553 10.772 (14.19%) 232,973.4 2,509,590
S-15 VARIABLE ANNUITY ACCOUNT C CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2001 (continued):
--------------------------------------------------------------------------------------------------------------------------------- Value Per Unit Units -------- Outstanding Net Assets Beginning End of Total Expense Investment at End at End of Year Year Return Ratio Income Ratio of Year of Year --------------------------------------------------------------------------------------------------------------------------------- AETNA INDEX PLUS LARGE CAP VP: (continued): Qualified XII (0.70) $ 12.536 $ 10.753 (14.22%) 199,252.0 $ 2,142,557 Qualified XII (0.75) 12.520 10.733 (14.27%) 606,971.6 6,514,626 Qualified XII (0.80) 13.950 11.953 (14.32%) 2,847,404.2 34,035,022 Qualified XII (0.85) 20.975 17.964 (14.36%) 743,884.8 13,363,146 Qualified XII (0.90) 13.500 11.556 (14.40%) 39,494.0 456,393 Qualified XII (0.95) 20.885 17.869 (14.44%) 520,590.3 9,302,428 Qualified XII (1.00) 20.841 17.822 (14.49%) 2,957,522.3 52,708,963 Qualified XII (1.05) 20.796 17.775 (14.53%) 177,687.1 3,158,388 Qualified XII (1.10) 20.751 17.728 (14.57%) 112,980.0 2,002,909 Qualified XII (1.15) 20.707 17.681 (14.61%) 42,375.2 749,236 Qualified XII (1.20) 20.663 17.634 (14.66%) 31,870.5 562,004 Qualified XII (1.25) 20.618 17.587 (14.70%) 34,502.9 606,802 Qualified XII (1.30) 20.574 17.541 (14.74%) 12,542.8 220,014 Qualified XII (1.35) 20.530 17.494 (14.79%) 592.5 10,365 Qualified XII (1.40) 20.486 17.448 (14.83%) 41,187.6 718,642 Qualified XII (1.50) 20.399 17.356 (14.92%) 5,902.2 102,438 Qualified XIV 20.618 17.587 (14.70%) 883.9 15,545 Qualified XV 20.870 17.856 (14.44%) 52,914.0 944,832 Qualified XVI 20.427 17.381 (14.91%) 152,444.3 2,649,634 Qualified XVII 20.692 17.668 (14.61%) 70,818.2 1,251,216 Qualified XVIII 20.877 17.871 (14.40%) 85,028.4 1,519,542 Qualified XXI 20.920 17.926 (14.31%) 79,445.3 1,424,136 Qualified XXII 20.936 17.954 (14.24%) 175,012.7 3,142,178 Qualified XXIV 20.854 17.857 (14.37%) 88,176.0 1,574,558 Qualified XXV 20.650 17.730 (14.14%) 105,874.5 1,877,154 Qualified XXVI 20.641 17.696 (14.27%) 24,496.6 433,491 Qualified XXVII 20.645 17.645 (14.53%) 2,246,477.0 39,639,087 Qualified XXVIII 20.618 17.588 (14.70%) 971,497.8 17,086,703 Annuity contracts in payment period 2,113,207 --------------------------------------------------------------------------------------------------------------------------------- AETNA INDEX PLUS MID CAP VP: 0.00% to 1.75% 5.86% Qualified III 14.669 14.965 2.02% (7) 9.0 134 Qualified V 14.688 14.290 (2.71%) 1,289.3 18,424 Qualified VI 14.751 14.374 (2.56%) 2,436,649.8 35,024,404 Qualified VIII 14.748 14.370 (2.56%) 1,615.4 23,214 Qualified X (1.15) 14.791 14.427 (2.46%) 8,545.9 123,292 Qualified X (1.25) 14.751 14.374 (2.56%) 284,425.7 4,088,335 Qualified XI 14.923 14.630 (1.96%) 203,746.6 2,980,813 Qualified XII (0.05) 14.784 14.611 (1.17%) (6) 65,668.5 959,482 Qualified XII (0.35) 15.460 15.202 (1.67%) 76,014.1 1,155,566 Qualified XII (0.40) 15.046 14.787 (1.72%) 559.3 8,271 Qualified XII (0.45) 15.419 15.147 (1.76%) 57,830.7 875,962 Qualified XII (0.55) 15.379 15.092 (1.87%) 15,014.7 226,602 Qualified XII (0.60) 15.183 15.065 (0.78%) (2) 70,045.6 1,055,237 Qualified XII (0.65) 15.339 15.038 (1.96%) 12,404.4 186,538 Qualified XII (0.70) 15.319 15.011 (2.01%) 46,084.5 691,774 Qualified XII (0.75) 15.299 14.984 (2.06%) 73,912.7 1,107,508 Qualified XII (0.80) 14.930 14.615 (2.11%) 457,672.1 6,688,878 Qualified XII (0.85) 14.910 14.588 (2.16%) 145,443.4 2,121,728 Qualified XII (0.90) 14.890 14.561 (2.21%) 6,947.3 101,159 Qualified XII (0.95) 14.870 14.534 (2.26%) 156,767.2 2,278,455 Qualified XII (1.00) 14.851 14.508 (2.31%) 543,328.0 7,882,602 Qualified XII (1.05) 14.831 14.481 (2.36%) 69,170.8 1,001,662 Qualified XII (1.10) 14.811 14.454 (2.41%) 37,048.2 535,495 Qualified XII (1.15) 14.791 14.427 (2.46%) 5,029.2 72,556 Qualified XII (1.20) 14.771 14.401 (2.50%) 7,819.4 112,607 Qualified XII (1.25) 14.751 14.374 (2.56%) 9,458.9 135,962 Qualified XII (1.30) 14.731 14.348 (2.60%) 1,284.6 18,431 Qualified XII (1.35) 14.712 14.321 (2.66%) 1,324.1 18,963 Qualified XII (1.40) 14.692 14.295 (2.70%) 10,547.1 150,771 Qualified XII (1.50) 14.653 14.242 (2.80%) 918.1 13,076 Qualified XV 14.870 14.534 (2.26%) 20,748.7 301,561
S-16 VARIABLE ANNUITY ACCOUNT C CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2001 (continued):
--------------------------------------------------------------------------------------------------------------------------------- Value Per Unit Units -------- Outstanding Net Assets Beginning End of Total Expense Investment at End at End of Year Year Return Ratio Income Ratio of Year of Year --------------------------------------------------------------------------------------------------------------------------------- AETNA INDEX PLUS MID CAP VP: (continued): Qualified XVI $ 14.653 $ 14.242 (2.80%) 42,162.1 $ 600,472 Qualified XVII 14.751 14.374 (2.56%) 7,620.3 109,534 Qualified XVIII 14.751 14.374 (2.56%) 15,433.5 221,841 Qualified XXI 14.906 14.592 (2.11%) 18,728.1 273,280 Qualified XXII 14.906 14.603 (2.03%) 38,319.9 559,585 Qualified XXIV 14.860 14.536 (2.18%) 37,986.4 552,170 Qualified XXV 14.774 14.491 (1.92%) 41,096.5 595,530 Qualified XXVI 14.768 14.463 (2.07%) 13,045.8 188,682 Qualified XXVII 15.377 15.014 (2.36%) 517,509.4 7,769,886 Qualified XXVIII 15.357 14.965 (2.55%) 511,903.8 7,660,640 --------------------------------------------------------------------------------------------------------------------------------- AETNA INDEX PLUS SMALL CAP VP: 0.00% to 1.75% 4.91% Qualified V 10.416 10.516 0.96% 758.0 7,971 Qualified VI 10.461 10.579 1.13% 1,157,605.9 12,246,313 Qualified VIII 9.941 10.576 6.39% (1) 1,138.0 12,035 Qualified X (1.15) 10.489 10.618 1.23% 16,834.1 178,744 Qualified X (1.25) 10.461 10.579 1.13% 134,001.8 1,417,605 Qualified XI 10.583 10.767 1.74% 108,657.5 1,169,915 Qualified XII (0.05) 10.431 10.753 3.09% (6) 23,304.9 250,598 Qualified XII (0.35) 11.144 11.372 2.05% 38,549.2 438,382 Qualified XII (0.40) 10.338 10.882 5.26% (1) 77.1 839 Qualified XII (0.45) 11.115 11.331 1.94% 11,408.5 129,270 Qualified XII (0.55) 10.898 11.290 3.60% (1) 3,235.0 36,523 Qualified XII (0.60) 11.130 11.270 1.26% (2) 3,181.3 35,853 Qualified XII (0.65) 11.057 11.249 1.74% 60,052.2 675,527 Qualified XII (0.70) 11.042 11.229 1.69% 20,120.5 225,933 Qualified XII (0.75) 11.028 11.209 1.64% 16,254.9 182,201 Qualified XII (0.80) 10.588 10.756 1.59% 110,246.3 1,185,809 Qualified XII (0.85) 10.574 10.736 1.53% 48,920.3 525,208 Qualified XII (0.90) 10.559 10.716 1.49% 1,349.9 14,465 Qualified XII (0.95) 10.545 10.696 1.43% 58,078.3 621,206 Qualified XII (1.00) 10.531 10.677 1.39% 180,346.2 1,925,556 Qualified XII (1.05) 10.517 10.657 1.33% 7,455.4 79,452 Qualified XII (1.10) 10.503 10.637 1.28% 8,426.1 89,628 Qualified XII (1.15) 10.489 10.618 1.23% 3,338.2 35,445 Qualified XII (1.20) 10.475 10.598 1.17% 3,370.9 35,725 Qualified XII (1.25) 10.461 10.579 1.13% 4,434.8 46,916 Qualified XII (1.30) 10.447 10.559 1.07% 171.5 1,811 Qualified XII (1.35) 10.433 10.540 1.03% 227.5 2,398 Qualified XII (1.40) 10.419 10.520 0.97% 7,759.9 81,634 Qualified XII (1.50) 10.391 10.481 0.87% 91.9 963 Qualified XV 10.545 10.696 1.43% 9,281.7 99,277 Qualified XVI 10.391 10.481 0.87% 18,942.8 198,539 Qualified XVII 10.461 10.579 1.13% 12,866.1 136,111 Qualified XVIII 10.461 10.579 1.13% 7,169.3 75,844 Qualified XXI 10.571 10.739 1.59% 5,890.8 63,261 Qualified XXII 10.571 10.747 1.66% 21,656.7 232,745 Qualified XXIV 10.538 10.698 1.52% 10,634.0 113,763 Qualified XXV 10.477 10.665 1.79% 9,997.8 106,627 Qualified XXVI 10.303 10.644 3.31% (1) 6,129.0 65,237 Qualified XXVII 10.881 11.025 1.32% 292,146.5 3,220,915 Qualified XXVIII 10.866 10.989 1.13% 263,319.7 2,893,620 --------------------------------------------------------------------------------------------------------------------------------- AETNA INTERNATIONAL VP: 0.00% to 1.75% 0.11% Qualified V 11.434 8.581 (24.95%) 11.5 99 Qualified VI 11.484 8.632 (24.83%) 715,656.3 6,177,545 Qualified VIII 11.481 8.630 (24.83%) 13.0 112 Qualified X (1.15) 11.514 8.664 (24.75%) 1,072.9 9,296 Qualified X (1.25) 11.484 8.632 (24.83%) 80,579.1 695,559 Qualified XI 11.617 8.786 (24.37%) 17,216.9 151,268 Qualified XII (0.05) 9.713 8.774 (9.67%) (6) 1,974.0 17,320 Qualified XII (0.35) 11.462 8.695 (24.14%) 17,234.2 149,851 Qualified XII (0.45) 11.433 8.663 (24.23%) 56,668.9 490,923
S-17 VARIABLE ANNUITY ACCOUNT C CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2001 (continued):
--------------------------------------------------------------------------------------------------------------------------------- Value Per Unit Units -------- Outstanding Net Assets Beginning End of Total Expense Investment at End at End of Year Year Return Ratio Income Ratio of Year of Year --------------------------------------------------------------------------------------------------------------------------------- AETNA INTERNATIONAL VP: (continued): Qualified XII (0.55) $ 11.403 $ 8.632 (24.30%) 723.2 $ 6,243 Qualified XII (0.60) 9.095 8.616 (5.27%) (8) 905.3 7,800 Qualified XII (0.65) 11.373 8.601 (24.37%) 1,682.8 14,474 Qualified XII (0.70) 11.358 8.585 (24.41%) 40,837.0 350,586 Qualified XII (0.75) 11.344 8.570 (24.45%) 7,954.3 68,168 Qualified XII (0.80) 11.623 8.777 (24.49%) 64,928.2 569,875 Qualified XII (0.85) 11.608 8.760 (24.53%) 36,688.7 321,393 Qualified XII (0.90) 11.592 8.744 (24.57%) 2,215.6 19,373 Qualified XII (0.95) 11.576 8.728 (24.60%) 25,721.5 224,497 Qualified XII (1.00) 11.561 8.712 (24.64%) 104,110.0 907,006 Qualified XII (1.05) 11.545 8.696 (24.68%) 3,613.5 31,423 Qualified XII (1.10) 11.530 8.680 (24.72%) 5,097.8 44,249 Qualified XII (1.15) 11.514 8.664 (24.75%) 2,847.6 24,672 Qualified XII (1.20) 11.499 8.648 (24.79%) 1,171.4 10,130 Qualified XII (1.25) 11.484 8.632 (24.83%) 3,880.9 33,500 Qualified XII (1.30) 11.468 8.616 (24.87%) 91.5 788 Qualified XII (1.40) 11.437 8.584 (24.95%) 3,040.8 26,102 Qualified XII (1.50) 11.407 8.553 (25.02%) 587.9 5,028 Qualified XV 11.576 8.728 (24.60%) 1,565.0 13,659 Qualified XVI 11.407 8.553 (25.02%) 8,303.5 71,020 Qualified XVIII 11.484 8.632 (24.83%) 8,478.8 73,189 Qualified XXI 11.604 8.763 (24.48%) 2,750.9 24,106 Qualified XXII 11.604 8.770 (24.42%) 28,216.2 247,456 Qualified XXIV 11.568 8.729 (24.54%) 11,002.6 96,042 Qualified XXV 11.501 8.702 (24.34%) 6,894.0 59,992 Qualified XXVI 11.496 8.685 (24.45%) 289.8 2,517 Qualified XXVII 8.094 6.096 (24.68%) 5,360.9 32,680 --------------------------------------------------------------------------------------------------------------------------------- AETNA LEGACY VP: 0.00% to 1.75% 4.35% Qualified III 15.599 15.039 (3.59%) 621.2 9,342 Qualified V 15.465 14.885 (3.75%) 584.6 8,702 Qualified VI 15.599 15.039 (3.59%) 1,083,315.3 16,291,979 Qualified X (1.15) 15.753 15.202 (3.50%) 15,761.2 239,602 Qualified X (1.25) 15.667 15.104 (3.59%) 336,932.1 5,089,023 Qualified XI 15.889 15.411 (3.01%) 48,909.5 753,744 Qualified XII (0.05) 15.689 15.349 (2.17%) (6) 43,588.6 669,042 Qualified XII (0.35) 11.234 10.929 (2.71%) 38,156.5 417,012 Qualified XII (0.40) 14.600 14.196 (2.77%) 145.5 2,065 Qualified XII (0.45) 11.204 10.889 (2.81%) 67,498.1 734,987 Qualified XII (0.55) 11.175 10.850 (2.91%) 13,869.1 150,480 Qualified XII (0.60) 11.137 10.830 (2.76%) (2) 18.7 203 Qualified XII (0.65) 11.146 10.811 (3.01%) 68,036.3 735,540 Qualified XII (0.70) 11.132 10.791 (3.06%) 35,171.9 379,540 Qualified XII (0.75) 11.117 10.772 (3.10%) 66,844.2 720,046 Qualified XII (0.80) 11.514 11.151 (3.15%) 117,599.1 1,311,348 Qualified XII (0.85) 14.497 14.033 (3.20%) 71,453.5 1,002,707 Qualified XII (0.90) 11.412 11.040 (3.26%) 3,429.6 37,863 Qualified XII (0.95) 14.430 13.954 (3.30%) 32,433.4 452,575 Qualified XII (1.00) 14.397 13.914 (3.35%) 280,328.4 3,900,489 Qualified XII (1.05) 14.363 13.875 (3.40%) 42,207.4 585,628 Qualified XII (1.10) 14.330 13.836 (3.45%) 30,463.7 421,496 Qualified XII (1.15) 14.297 13.797 (3.50%) 10,286.2 141,919 Qualified XII (1.20) 14.264 13.758 (3.55%) 17,388.0 239,224 Qualified XII (1.25) 14.231 13.720 (3.59%) 8,424.7 115,587 Qualified XII (1.30) 14.198 13.681 (3.64%) 2,682.7 36,702 Qualified XII (1.35) 13.694 13.642 (0.38%) (4) 3.3 45 Qualified XII (1.40) 14.132 13.604 (3.74%) 2,548.0 34,663 Qualified XII (1.50) 14.067 13.527 (3.84%) 188.6 2,551 Qualified XV 15.789 15.268 (3.30%) 5,920.4 90,392 Qualified XVI 15.454 14.862 (3.83%) 19,581.0 291,013 Qualified XVII 15.795 15.281 (3.25%) 19,598.1 299,478 Qualified XVIII 15.864 15.348 (3.25%) 46,201.7 709,104
S-18 VARIABLE ANNUITY ACCOUNT C CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2001 (continued):
--------------------------------------------------------------------------------------------------------------------------------- Value Per Unit Units -------- Outstanding Net Assets Beginning End of Total Expense Investment at End at End of Year Year Return Ratio Income Ratio of Year of Year --------------------------------------------------------------------------------------------------------------------------------- AETNA LEGACY VP: (continued): Qualified XXI $ 15.828 $ 15.328 (3.16%) 5,228.6 $ 80,144 Qualified XXII 15.855 15.367 (3.08%) 5,463.5 83,958 Qualified XXIV 14.406 13.942 (3.22%) 2,428.7 33,861 Qualified XXV 15.623 15.161 (2.96%) 4,304.9 65,267 Qualified XXVI 15.616 15.131 (3.11%) 527.1 7,976 Qualified XXVII 15.620 15.088 (3.41%) 51,195.7 772,440 Qualified XXVIII 14.862 15.039 1.19% (12) 626.4 9,421 Annuity contracts in payment period 168,789 --------------------------------------------------------------------------------------------------------------------------------- AETNA MONEY MARKET VP: 0.00% to 1.75% 5.45% Qualified I 47.509 48.793 2.70% 22,886.2 1,116,684 Qualified III 46.754 47.989 2.64% 4,461.3 214,095 Qualified V 13.435 13.767 2.47% 20,324.7 279,810 Qualified VI 13.571 13.929 2.64% 9,788,389.4 136,342,476 Qualified VII 13.500 13.865 2.70% 268,289.9 3,719,839 Qualified VIII 13.066 13.410 2.63% 11,518.0 154,457 Qualified IX 13.531 13.923 2.90% 2,006.5 27,937 Qualified X (1.15) 13.669 14.044 2.74% 190,821.4 2,679,896 Qualified X (1.25) 13.571 13.929 2.64% 2,629,444.0 36,625,525 Qualified XI 13.823 14.274 3.26% 453,275.7 6,470,058 Qualified XII (0.05) 14.025 14.216 1.36% (6) 59,698.3 848,671 Qualified XII (0.35) 11.443 11.852 3.57% 535,159.4 6,342,709 Qualified XII (0.40) 12.448 12.886 3.52% 2,530.5 32,608 Qualified XII (0.45) 11.413 11.809 3.47% 106,827.0 1,261,520 Qualified XII (0.55) 11.383 11.767 3.37% 38,644.1 454,725 Qualified XII (0.60) 11.396 11.745 3.06% (2) 37,494.3 440,370 Qualified XII (0.65) 11.354 11.724 3.26% 319,091.5 3,741,029 Qualified XII (0.70) 11.339 11.703 3.21% 291,538.0 3,411,869 Qualified XII (0.75) 11.324 11.682 3.16% 354,704.5 4,143,658 Qualified XII (0.80) 11.456 11.812 3.11% 1,739,521.5 20,547,228 Qualified XII (0.85) 12.360 12.737 3.05% 515,676.5 6,568,171 Qualified XII (0.90) 11.398 11.740 3.00% 14,164.7 166,293 Qualified XII (0.95) 12.303 12.666 2.95% 907,363.0 11,492,660 Qualified XII (1.00) 12.274 12.630 2.90% 2,364,040.2 29,857,828 Qualified XII (1.05) 12.246 12.594 2.84% 134,426.8 1,692,971 Qualified XII (1.10) 12.218 12.559 2.79% 121,076.6 1,520,601 Qualified XII (1.15) 12.189 12.524 2.75% 76,506.1 958,163 Qualified XII (1.20) 12.161 12.488 2.69% 51,519.2 643,372 Qualified XII (1.25) 12.133 12.453 2.64% 31,486.5 392,102 Qualified XII (1.30) 12.105 12.418 2.59% 17,087.6 212,194 Qualified XII (1.35) 12.077 12.383 2.53% 5,210.1 64,517 Qualified XII (1.40) 12.049 12.348 2.48% 28,987.0 357,931 Qualified XII (1.50) 11.993 12.279 2.38% 4,958.5 60,885 Qualified XV 13.736 14.142 2.96% 48,394.0 684,388 Qualified XVI 13.445 13.765 2.38% 171,506.9 2,360,793 Qualified XVII 13.571 13.929 2.64% 391,787.1 5,457,203 Qualified XVIII 13.571 13.929 2.64% 778,425.0 10,842,682 Qualified XIX 47.509 48.793 2.70% 12,744.6 621,845 Qualified XX 46.754 47.989 2.64% 68,117.3 3,268,880 Qualified XXI 13.769 14.197 3.11% 77,731.6 1,103,555 Qualified XXII 13.792 14.232 3.19% 135,175.9 1,923,823 Qualified XXIV 12.282 12.655 3.04% 143,580.1 1,817,006 Qualified XXV 13.592 14.042 3.31% 125,327.2 1,759,844 Qualified XXVI 13.586 14.015 3.16% 37,077.3 519,639 Qualified XXVII 47.123 48.828 3.62% 764,353.3 37,321,843 Qualified XXVIII 46.754 47.990 2.64% 459,087.8 22,031,624 Qualified XXIX 46.754 47.989 2.64% 2,218.5 106,462 Qualified XXX 46.746 47.860 2.38% 36,697.0 1,756,318 Annuity contracts in payment period 149,921 ---------------------------------------------------------------------------------------------------------------------------------
S-19 VARIABLE ANNUITY ACCOUNT C CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2001 (continued):
--------------------------------------------------------------------------------------------------------------------------------- Value Per Unit Units -------- Outstanding Net Assets Beginning End of Total Expense Investment at End at End of Year Year Return Ratio Income Ratio of Year of Year --------------------------------------------------------------------------------------------------------------------------------- AETNA SMALL COMPANY VP: 0.00% to 1.75% 3.51% Qualified V $ 18.458 $ 18.926 2.54% 1,465.8 $ 27,741 Qualified VI 18.568 19.070 2.70% 2,827,320.3 53,916,999 Qualified VIII 18.563 19.063 2.69% 749.9 14,296 Qualified X (1.15) 18.638 19.160 2.80% 2,884.7 55,271 Qualified X (1.25) 18.568 19.070 2.70% 366,997.9 6,998,650 Qualified XI 18.843 19.469 3.32% 163,782.6 3,188,683 Qualified XII (0.05) 18.893 19.444 2.92% (6) 36,062.8 701,205 Qualified XII (0.35) 12.732 13.195 3.64% 69,886.0 922,146 Qualified XII (0.40) 18.998 19.678 3.58% 311.1 6,122 Qualified XII (0.45) 12.699 13.147 3.53% 210,230.7 2,763,903 Qualified XII (0.55) 12.666 13.100 3.43% 23,550.8 308,516 Qualified XII (0.60) 12.779 13.076 2.32% (2) 36,305.4 474,730 Qualified XII (0.65) 12.633 13.052 3.32% 14,063.3 183,554 Qualified XII (0.70) 12.616 13.029 3.27% 40,459.1 527,142 Qualified XII (0.75) 12.600 13.005 3.21% 216,921.8 2,821,068 Qualified XII (0.80) 13.419 13.844 3.17% 2,121,732.5 29,373,265 Qualified XII (0.85) 18.847 19.434 3.11% 131,464.6 2,554,883 Qualified XII (0.90) 13.048 13.447 3.06% 22,618.7 304,154 Qualified XII (0.95) 18.777 19.342 3.01% 133,977.4 2,591,390 Qualified XII (1.00) 18.742 19.296 2.96% 798,137.7 15,400,865 Qualified XII (1.05) 18.707 19.251 2.91% 28,139.5 541,713 Qualified XII (1.10) 18.673 19.205 2.85% 22,420.7 430,589 Qualified XII (1.15) 18.638 19.160 2.80% 13,689.4 262,288 Qualified XII (1.20) 18.603 19.115 2.75% 15,471.4 295,736 Qualified XII (1.25) 18.568 19.070 2.70% 15,435.1 294,348 Qualified XII (1.30) 18.534 19.024 2.64% 4,253.5 80,918 Qualified XII (1.35) 18.499 18.979 2.59% 371.9 7,058 Qualified XII (1.40) 18.465 18.935 2.55% 8,634.3 163,491 Qualified XII (1.50) 18.396 18.845 2.44% 2,243.4 42,276 Qualified XV 18.777 19.342 3.01% 17,879.2 345,819 Qualified XVI 18.396 18.845 2.44% 44,050.3 830,127 Qualified XVII 18.568 19.070 2.70% 10,911.8 208,088 Qualified XVIII 18.801 19.377 3.06% 11,229.6 217,596 Qualified XXI 18.822 19.418 3.17% 17,604.7 341,849 Qualified XXII 18.822 19.434 3.25% 65,181.2 1,266,731 Qualified XXIV 18.754 19.334 3.09% 79,781.6 1,542,498 Qualified XXV 18.597 19.224 3.37% 28,245.7 542,996 Qualified XXVI 18.589 19.187 3.22% 9,989.7 191,673 Qualified XXVII 9.145 9.410 2.90% 361,369.9 3,400,491 Annuity contracts in payment period 59,353 --------------------------------------------------------------------------------------------------------------------------------- AETNA TECHNOLOGY VP: 0.00% to 1.75% 0.00% Qualified V 5.824 4.424 (24.04%) 4,187.8 18,527 Qualified VI 5.831 4.436 (23.92%) 3,252,927.4 14,429,986 Qualified VIII 5.830 4.435 (23.93%) 1,374.3 6,095 Qualified X (1.15) 3.266 4.443 36.04% (9) 2,277.1 10,117 Qualified X (1.25) 5.831 4.436 (23.92%) 394,228.6 1,748,798 Qualified XI 5.854 4.481 (23.45%) 316,766.1 1,419,429 Qualified XII (0.05) 4.815 4.475 (7.06%) (6) 52,058.5 232,962 Qualified XII (0.35) 5.865 4.503 (23.22%) 86,256.3 388,412 Qualified XII (0.45) 3.259 4.495 37.93% (9) 855.4 3,845 Qualified XII (0.55) 5.857 4.487 (23.39%) 14,659.2 65,776 Qualified XII (0.60) 6.538 4.483 (31.43%) (2) 6,940.4 31,114 Qualified XII (0.70) 5.851 4.476 (23.50%) 33,874.4 151,622 Qualified XII (0.75) 5.849 4.472 (23.54%) 85,592.6 382,770 Qualified XII (0.80) 5.847 4.468 (23.58%) 882,962.4 3,945,076 Qualified XII (0.85) 5.845 4.464 (23.63%) 126,835.3 566,193 Qualified XII (0.90) 5.842 4.460 (23.66%) 15,740.4 70,202 Qualified XII (0.95) 5.840 4.456 (23.70%) 126,033.2 561,604 Qualified XII (1.00) 5.838 4.453 (23.72%) 881,479.7 3,925,229 Qualified XII (1.05) 5.836 4.449 (23.77%) 17,208.8 76,562 Qualified XII (1.10) 5.834 4.445 (23.81%) 19,649.9 87,344
S-20 VARIABLE ANNUITY ACCOUNT C CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2001 (continued):
--------------------------------------------------------------------------------------------------------------------------------- Value Per Unit Units -------- Outstanding Net Assets Beginning End of Total Expense Investment at End at End of Year Year Return Ratio Income Ratio of Year of Year --------------------------------------------------------------------------------------------------------------------------------- AETNA TECHNOLOGY VP: (continued): Qualified XII (1.15) $ 5.832 $ 4.441 (23.85%) 8,801.6 $ 39,088 Qualified XII (1.20) 5.830 4.437 (23.89%) 16,960.8 75,255 Qualified XII (1.25) 5.828 4.434 (23.92%) 10,886.6 48,271 Qualified XII (1.30) 5.826 4.430 (23.96%) 2,130.7 9,439 Qualified XII (1.35) 5.893 4.426 (24.89%) (2) 764.8 3,385 Qualified XII (1.40) 5.822 4.422 (24.05%) 9,124.2 40,347 Qualified XII (1.50) 5.818 4.414 (24.13%) 296.6 1,309 Qualified XV 5.842 4.458 (23.69%) 29,524.9 131,622 Qualified XVI 5.821 4.417 (24.12%) 31,262.4 138,086 Qualified XVII 5.841 4.454 (23.75%) 24,538.4 109,294 Qualified XVIII 5.841 4.454 (23.75%) 16,949.7 75,494 Qualified XXI 5.848 4.469 (23.58%) 37,134.9 165,956 Qualified XXII 5.848 4.473 (23.51%) 161,904.3 724,198 Qualified XXIV 5.842 4.461 (23.64%) 78,902.5 351,984 Qualified XXV 5.840 4.472 (23.42%) 44,851.5 200,576 Qualified XXVI 5.837 4.463 (23.54%) 6,338.6 28,289 Qualified XXVII 5.710 4.352 (23.78%) 342,338.2 1,489,856 --------------------------------------------------------------------------------------------------------------------------------- AETNA VALUE OPPORTUNITY VP: 0.00% to 1.75% 4.66% Qualified V 20.480 18.250 (10.89%) 1,569.4 28,641 Qualified VI 20.602 18.388 (10.75%) 2,189,268.1 40,256,262 Qualified VIII 20.596 18.382 (10.75%) 447.1 8,218 Qualified X (1.15) 20.679 18.476 (10.65%) 5,521.9 102,022 Qualified X (1.25) 20.602 18.388 (10.75%) 305,476.9 5,617,110 Qualified XI 20.907 18.774 (10.20%) 142,063.4 2,667,099 Qualified XII (0.05) 20.990 18.750 (10.67%) (6) 3,204.1 60,076 Qualified XII (0.35) 13.931 12.547 (9.93%) 101,406.7 1,272,350 Qualified XII (0.40) 21.079 18.975 (9.98%) 330.2 6,266 Qualified XII (0.45) 13.895 12.502 (10.03%) 29,097.7 363,779 Qualified XII (0.55) 13.858 12.457 (10.11%) 28,686.6 357,349 Qualified XII (0.60) 14.318 12.434 (13.16%) (2) 65,723.6 817,207 Qualified XII (0.65) 13.822 12.412 (10.20%) 93,824.8 1,164,553 Qualified XII (0.70) 13.804 12.389 (10.25%) 182,613.9 2,262,404 Qualified XII (0.75) 13.786 12.367 (10.29%) 254,222.9 3,143,975 Qualified XII (0.80) 15.163 13.595 (10.34%) 1,164,757.4 15,834,877 Qualified XII (0.85) 20.911 18.740 (10.38%) 100,115.0 1,876,155 Qualified XII (0.90) 14.834 13.287 (10.43%) 11,962.3 158,943 Qualified XII (0.95) 20.834 18.651 (10.48%) 131,375.0 2,450,275 Qualified XII (1.00) 20.795 18.607 (10.52%) 840,710.3 15,643,096 Qualified XII (1.05) 20.756 18.563 (10.57%) 31,764.9 589,651 Qualified XII (1.10) 20.718 18.519 (10.61%) 12,379.8 229,262 Qualified XII (1.15) 20.679 18.476 (10.65%) 9,254.3 170,982 Qualified XII (1.20) 20.641 18.432 (10.70%) 14,690.6 270,778 Qualified XII (1.25) 20.602 18.388 (10.75%) 7,402.4 136,115 Qualified XII (1.30) 20.564 18.345 (10.79%) 1,796.0 32,947 Qualified XII (1.35) 20.526 18.302 (10.84%) 165.4 3,027 Qualified XII (1.40) 20.488 18.258 (10.88%) 5,533.7 101,034 Qualified XII (1.50) 20.412 18.172 (10.97%) 906.3 16,469 Qualified XV 20.834 18.651 (10.48%) 9,959.9 185,762 Qualified XVI 20.412 18.172 (10.97%) 23,921.9 434,708 Qualified XVII 20.602 18.388 (10.75%) 18,333.3 337,112 Qualified XVIII 20.861 18.685 (10.43%) 19,225.8 359,234 Qualified XXI 20.884 18.725 (10.34%) 20,417.1 382,311 Qualified XXII 20.884 18.740 (10.27%) 40,212.6 753,584 Qualified XXIV 20.809 18.644 (10.40%) 49,202.7 917,336 Qualified XXV 20.634 18.538 (10.16%) 21,307.3 394,995 Qualified XXVI 20.625 18.502 (10.29%) 8,353.4 154,555 Qualified XXVII 15.556 13.911 (10.57%) 698,721.6 9,719,916 Qualified XXVIII 15.536 13.867 (10.74%) 676,401.3 9,379,657 ---------------------------------------------------------------------------------------------------------------------------------
S-21 VARIABLE ANNUITY ACCOUNT C CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2001 (continued):
--------------------------------------------------------------------------------------------------------------------------------- Value Per Unit Units -------- Outstanding Net Assets Beginning End of Total Expense Investment at End at End of Year Year Return Ratio Income Ratio of Year of Year --------------------------------------------------------------------------------------------------------------------------------- AIM V.I. FUNDS: CAPITAL APPRECIATION FUND: 0.00% to 1.75% 7.37% Qualified V $ 12.068 $ 9.128 (24.36%) 361.4 $ 3,299 Qualified VI 12.101 9.168 (24.24%) 1,022,140.5 9,370,984 Qualified VIII 12.099 9.166 (24.24%) 1,258.8 11,538 Qualified X (1.25) 12.101 9.168 (24.24%) 103,950.8 953,021 Qualified XI 12.205 9.303 (23.78%) 39,241.3 365,062 Qualified XII (0.05) 10.267 9.266 (9.75%) (6) 26,847.6 248,770 Qualified XII (0.35) 12.286 9.393 (23.55%) 23,528.7 221,005 Qualified XII (0.45) 7.662 9.368 22.27% (9) 2,190.8 20,523 Qualified XII (0.55) 12.245 9.342 (23.71%) 10,960.4 102,392 Qualified XII (0.60) 12.235 9.330 (23.74%) 5,426.3 50,627 Qualified XII (0.65) 12.224 9.317 (23.78%) 3,349.1 31,204 Qualified XII (0.70) 12.214 9.305 (23.82%) 22,118.2 205,810 Qualified XII (0.75) 12.204 9.292 (23.86%) 23,785.0 221,010 Qualified XII (0.80) 12.193 9.280 (23.89%) 141,985.2 1,317,623 Qualified XII (0.85) 12.183 9.267 (23.93%) 76,050.9 704,764 Qualified XII (0.90) 12.173 9.255 (23.97%) 4,934.0 45,664 Qualified XII (0.95) 12.162 9.242 (24.01%) 77,644.9 717,594 Qualified XII (1.00) 12.152 9.230 (24.05%) 191,701.8 1,769,408 Qualified XII (1.05) 12.142 9.217 (24.09%) 9,773.8 90,085 Qualified XII (1.10) 12.132 9.205 (24.13%) 9,957.2 91,656 Qualified XII (1.15) 12.121 9.192 (24.16%) 2,161.7 19,870 Qualified XII (1.20) 12.111 9.180 (24.20%) 6,231.4 57,204 Qualified XII (1.25) 12.101 9.168 (24.24%) 8,717.7 79,924 Qualified XII (1.30) 12.091 9.155 (24.28%) 1,796.9 16,451 Qualified XII (1.35) 12.081 9.143 (24.32%) 1,035.4 9,467 Qualified XII (1.40) 12.070 9.131 (24.35%) 10,569.5 96,510 Qualified XII (1.50) 12.050 9.106 (24.43%) 2,666.9 24,285 Qualified XV 12.130 9.218 (24.01%) 8,511.8 78,462 Qualified XVI 12.050 9.106 (24.43%) 24,465.8 222,786 Qualified XVII 12.106 9.172 (24.24%) 3,533.4 32,408 Qualified XVIII 12.106 9.172 (24.24%) 6,261.7 57,432 Qualified XXI 12.160 9.254 (23.90%) 8,301.8 76,825 Qualified XXII 12.160 9.262 (23.83%) 48,529.9 449,484 Qualified XXIV 12.160 9.248 (23.95%) 34,825.4 322,065 Qualified XXV 12.115 9.225 (23.85%) 16,204.2 149,484 Qualified XXVI 12.110 9.207 (23.97%) 2,546.3 23,444 Qualified XXVII 7.500 5.693 (24.09%) 134,976.1 768,419 --------------------------------------------------------------------------------------------------------------------------------- GROWTH AND INCOME FUND: 0.00% to 1.75% 0.05% Qualified V 9.860 7.501 (23.92%) 33.3 250 Qualified VI 9.887 7.534 (23.80%) 2,942,079.4 22,165,626 Qualified VIII 9.885 7.532 (23.80%) 716.4 5,396 Qualified X (1.15) 9.903 7.554 (23.72%) 19,314.0 145,898 Qualified X (1.25) 9.887 7.534 (23.80%) 251,216.4 1,892,664 Qualified XI 9.972 7.645 (23.34%) 51,947.9 397,142 Qualified XII (0.05) 8.677 7.615 (12.24%) (6) 20,638.2 157,160 Qualified XII (0.15) 8.315 7.760 (6.67%) (7) 49.2 382 Qualified XII (0.35) 10.038 7.719 (23.10%) 61,032.5 471,110 Qualified XII (0.45) 10.021 7.698 (23.18%) 11,083.4 85,320 Qualified XII (0.55) 10.004 7.677 (23.26%) 47,385.8 363,781 Qualified XII (0.60) 9.996 7.667 (23.30%) 38,496.5 295,153 Qualified XII (0.65) 9.987 7.657 (23.33%) 2,706.5 20,724 Qualified XII (0.70) 9.979 7.646 (23.38%) 37,707.2 288,309 Qualified XII (0.75) 9.970 7.636 (23.41%) 106,588.9 813,913 Qualified XII (0.80) 9.962 7.626 (23.45%) 517,888.5 3,949,418 Qualified XII (0.85) 9.954 7.615 (23.50%) 153,707.8 1,170,485 Qualified XII (0.90) 9.945 7.605 (23.53%) 8,876.4 67,505 Qualified XII (0.95) 9.937 7.595 (23.57%) 137,710.2 1,045,909 Qualified XII (1.00) 9.928 7.585 (23.60%) 860,278.6 6,525,213 Qualified XII (1.05) 9.920 7.574 (23.65%) 63,880.6 483,832 Qualified XII (1.10) 9.912 7.564 (23.69%) 30,661.4 231,923
S-22 VARIABLE ANNUITY ACCOUNT C CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2001 (continued):
--------------------------------------------------------------------------------------------------------------------------------- Value Per Unit Units -------- Outstanding Net Assets Beginning End of Total Expense Investment at End at End of Year Year Return Ratio Income Ratio of Year of Year --------------------------------------------------------------------------------------------------------------------------------- GROWTH AND INCOME FUND: (continued): Qualified XII (1.15) $ 9.903 $ 7.554 (23.72%) 10,181.0 $ 76,907 Qualified XII (1.20) 9.895 7.544 (23.76%) 31,088.0 234,528 Qualified XII (1.25) 9.887 7.534 (23.80%) 19,323.6 145,584 Qualified XII (1.30) 9.878 7.523 (23.84%) 9,769.1 73,493 Qualified XII (1.35) 9.870 7.513 (23.88%) 1,186.7 8,916 Qualified XII (1.40) 9.862 7.503 (23.92%) 16,419.7 123,197 Qualified XII (1.50) 9.845 7.483 (23.99%) 3,567.0 26,692 Qualified XV 9.911 7.575 (23.57%) 8,420.6 63,786 Qualified XVI 9.845 7.483 (23.99%) 38,470.3 287,873 Qualified XVII 9.891 7.537 (23.80%) 12,096.1 91,168 Qualified XVIII 9.891 7.537 (23.80%) 8,995.9 67,802 Qualified XXI 9.935 7.605 (23.45%) 2,816.0 21,416 Qualified XXII 9.935 7.611 (23.39%) 15,602.4 118,750 Qualified XXIV 9.935 7.599 (23.51%) 28,282.9 214,922 Qualified XXV 9.898 7.581 (23.41%) 14,348.1 108,773 Qualified XXVI 9.894 7.566 (23.53%) 24,172.1 182,886 Qualified XXVII 7.842 5.988 (23.64%) 309,796.3 1,855,060 --------------------------------------------------------------------------------------------------------------------------------- GROWTH FUND: 0.00% to 1.75% 0.21% Qualified V 9.452 6.161 (34.82%) 392.6 2,419 Qualified VI 9.477 6.188 (34.71%) 1,216,675.2 7,528,786 Qualified X (1.15) 9.493 6.204 (34.65%) 1,134.8 7,040 Qualified X (1.25) 9.477 6.188 (34.71%) 139,899.3 865,697 Qualified XII (0.05) 7.058 6.273 (11.12%) (6) 8,770.6 55,018 Qualified XII (0.35) 9.622 6.340 (34.11%) 29,608.0 187,715 Qualified XII (0.45) 5.651 6.322 11.87% (9) 1,399.4 8,847 Qualified XII (0.55) 9.590 6.305 (34.25%) 13,383.2 84,381 Qualified XII (0.60) 9.160 6.297 (31.26%) (2) 4,758.1 29,962 Qualified XII (0.65) 9.574 6.288 (34.32%) 4,471.1 28,114 Qualified XII (0.70) 9.566 6.280 (34.35%) 19,066.7 119,739 Qualified XII (0.75) 9.558 6.272 (34.38%) 26,166.1 164,114 Qualified XII (0.80) 9.550 6.263 (34.42%) 289,852.9 1,815,349 Qualified XII (0.85) 9.542 6.255 (34.45%) 98,664.6 617,147 Qualified XII (0.90) 9.533 6.246 (34.48%) 31,877.4 199,106 Qualified XII (0.95) 9.525 6.238 (34.51%) 91,693.3 571,983 Qualified XII (1.00) 9.517 6.229 (34.55%) 244,743.6 1,524,508 Qualified XII (1.05) 9.509 6.221 (34.58%) 18,977.5 118,059 Qualified XII (1.10) 9.501 6.213 (34.61%) 10,507.3 65,282 Qualified XII (1.15) 9.493 6.204 (34.65%) 4,995.5 30,992 Qualified XII (1.20) 9.485 6.196 (34.68%) 12,714.8 78,781 Qualified XII (1.25) 9.477 6.188 (34.71%) 16,455.6 101,827 Qualified XII (1.30) 9.469 6.179 (34.74%) 2,225.3 13,750 Qualified XII (1.35) 9.461 6.171 (34.77%) 1,346.0 8,306 Qualified XII (1.40) 9.453 6.163 (34.80%) 10,441.0 64,348 Qualified XII (1.50) 9.437 6.146 (34.87%) 905.1 5,563 Qualified XV 9.529 6.240 (34.52%) 5,934.9 37,034 Qualified XVI 9.437 6.146 (34.87%) 29,225.7 179,621 Qualified XVII 9.481 6.190 (34.71%) 7,892.4 48,854 Qualified XVIII 9.481 6.190 (34.71%) 5,703.9 35,307 Qualified XXI 9.552 6.265 (34.41%) 4,499.1 28,187 Qualified XXII 9.552 6.270 (34.36%) 22,059.2 138,311 Qualified XXIV 9.524 6.242 (34.46%) 24,342.4 151,945 Qualified XXV 9.489 6.226 (34.39%) 11,787.8 73,391 Qualified XXVI 9.485 6.214 (34.49%) 10,043.0 62,407 Qualified XXVII 7.162 4.685 (34.59%) 110,261.9 516,577 --------------------------------------------------------------------------------------------------------------------------------- VALUE FUND: 0.00% to 1.75% 2.33% Qualified III 9.942 8.584 (13.66%) 53.0 455 Qualified V 9.673 8.339 (13.79%) 70.4 587 Qualified VI 9.699 8.375 (13.65%) 1,044,830.1 8,750,452 Qualified VIII 9.685 8.373 (13.55%) (5) 4.7 39 Qualified X (1.15) 9.715 8.397 (13.57%) 1,875.2 15,746 Qualified X (1.25) 9.699 8.375 (13.65%) 162,644.9 1,362,151
S-23 VARIABLE ANNUITY ACCOUNT C CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2001 (continued):
--------------------------------------------------------------------------------------------------------------------------------- Value Per Unit Units -------- Outstanding Net Assets Beginning End of Total Expense Investment at End at End of Year Year Return Ratio Income Ratio of Year of Year --------------------------------------------------------------------------------------------------------------------------------- VALUE FUND: (continued): Qualified XII (0.05) $ 9.222 $ 8.461 (8.25%) (6) 16,434.0 $ 139,048 Qualified XII (0.35) 9.848 8.580 (12.88%) 15,826.6 135,792 Qualified XII (0.45) 9.831 8.557 (12.96%) 85,810.0 734,276 Qualified XII (0.55) 9.814 8.534 (13.04%) 4,707.3 40,172 Qualified XII (0.60) 9.806 8.523 (13.08%) 3,593.1 30,624 Qualified XII (0.65) 9.798 8.511 (13.14%) 3,470.2 29,535 Qualified XII (0.70) 9.790 8.500 (13.18%) 111,847.3 950,702 Qualified XII (0.75) 9.781 8.488 (13.22%) 36,169.5 307,007 Qualified XII (0.80) 9.773 8.477 (13.26%) 367,238.2 3,113,078 Qualified XII (0.85) 9.765 8.465 (13.31%) 53,598.3 453,710 Qualified XII (0.90) 9.757 8.454 (13.35%) 18,378.9 155,375 Qualified XII (0.95) 9.748 8.443 (13.39%) 64,852.4 547,549 Qualified XII (1.00) 9.740 8.431 (13.44%) 255,962.3 2,158,018 Qualified XII (1.05) 9.732 8.420 (13.48%) 19,125.5 161,037 Qualified XII (1.10) 9.724 8.408 (13.53%) 25,349.4 213,138 Qualified XII (1.15) 9.715 8.397 (13.57%) 7,327.9 61,532 Qualified XII (1.20) 9.707 8.386 (13.61%) 5,729.4 48,047 Qualified XII (1.25) 9.699 8.375 (13.65%) 23,858.5 199,815 Qualified XII (1.30) 9.691 8.363 (13.70%) 1,317.4 11,017 Qualified XII (1.35) 9.683 8.352 (13.75%) 5,422.8 45,291 Qualified XII (1.40) 9.675 8.341 (13.79%) 4,552.1 37,969 Qualified XII (1.50) 9.658 8.318 (13.87%) 1,183.0 9,840 Qualified XV 9.719 8.417 (13.40%) 7,626.6 64,193 Qualified XVI 9.658 8.318 (13.87%) 18,992.4 157,979 Qualified XVII 9.703 8.378 (13.66%) 22,232.5 186,264 Qualified XVIII 9.703 8.378 (13.66%) 5,600.4 46,920 Qualified XXI 9.742 8.450 (13.26%) 2,694.0 22,764 Qualified XXII 9.742 8.457 (13.19%) 26,866.7 227,212 Qualified XXIV 9.746 8.448 (13.32%) 51,883.3 438,310 Qualified XXV 9.711 8.427 (13.22%) 5,138.7 43,304 Qualified XXVI 9.707 8.411 (13.35%) 1,332.4 11,207 Qualified XXVII 8.315 7.194 (13.48%) 197,986.2 1,424,313 --------------------------------------------------------------------------------------------------------------------------------- AMERICAN CENTURY INCOME & GROWTH FUND: 0.00% to 1.75% 1.36% Qualified XII (1.10) 31.141 27.255 (12.48%) (1) 4,490.7 122,394 Qualified XXVII 9.317 8.823 (5.30%) (2) 57,413.2 506,557 --------------------------------------------------------------------------------------------------------------------------------- CALVERT SOCIAL BALANCED PORTFOLIO: 0.00% to 1.75% 5.40% Qualified III 28.827 26.491 (8.10%) 19,628.9 519,989 Qualified V 22.095 20.272 (8.25%) 1,947.4 39,477 Qualified VI 21.722 19.962 (8.10%) 947,780.1 18,919,586 Qualified VIII 19.729 18.129 (8.11%) 5,131.9 93,037 Qualified X (1.25) 11.133 10.231 (8.10%) 36,378.6 372,189 Qualified XI 22.125 20.456 (7.54%) 69,838.5 1,428,617 Qualified XII (0.05) 21.386 20.374 (4.73%) (6) 395.0 8,048 Qualified XII (0.35) 11.574 10.733 (7.27%) 147,280.5 1,580,762 Qualified XII (0.40) 16.152 14.971 (7.31%) 179.8 2,692 Qualified XII (0.45) 11.543 10.694 (7.36%) 65,634.7 701,898 Qualified XII (0.55) 11.513 10.655 (7.45%) 12,082.9 128,743 Qualified XII (0.60) 11.035 10.636 (3.62%) (7) 8,855.2 94,184 Qualified XII (0.65) 11.483 10.617 (7.54%) 4,909.6 52,125 Qualified XII (0.70) 11.468 10.598 (7.59%) 31,092.2 329,515 Qualified XII (0.75) 11.453 10.579 (7.63%) 74,558.2 788,751 Qualified XII (0.80) 12.041 11.116 (7.68%) 193,795.3 2,154,229 Qualified XII (0.85) 16.038 14.798 (7.73%) 209,908.6 3,106,227 Qualified XII (0.90) 11.918 10.991 (7.78%) 2,330.5 25,615 Qualified XII (0.95) 15.964 14.715 (7.82%) 74,268.1 1,092,855 Qualified XII (1.00) 15.927 14.673 (7.87%) 297,804.5 4,369,686 Qualified XII (1.05) 15.890 14.632 (7.92%) 25,366.1 371,157 Qualified XII (1.10) 15.853 14.591 (7.96%) 37,567.5 548,147 Qualified XII (1.15) 15.816 14.550 (8.00%) 9,675.2 140,774 Qualified XII (1.20) 15.780 14.509 (8.05%) 2,958.2 42,920 Qualified XII (1.25) 15.743 14.468 (8.10%) 3,685.8 53,326
S-24 VARIABLE ANNUITY ACCOUNT C CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2001 (continued):
--------------------------------------------------------------------------------------------------------------------------------- Value Per Unit Units -------- Outstanding Net Assets Beginning End of Total Expense Investment at End at End of Year Year Return Ratio Income Ratio of Year of Year --------------------------------------------------------------------------------------------------------------------------------- CALVERT SOCIAL BALANCED PORTFOLIO: (continued): Qualified XII (1.30) $ 15.707 $ 14.427 (8.15%) 1,988.5 $ 28,688 Qualified XII (1.35) 15.670 14.386 (8.19%) 1,718.8 24,727 Qualified XII (1.40) 15.634 14.346 (8.24%) 4,470.9 64,140 Qualified XII (1.50) 15.562 14.265 (8.33%) 370.5 5,285 Qualified XV 21.987 20.267 (7.82%) 5,994.8 121,496 Qualified XVI 21.521 19.727 (8.34%) 28,749.1 567,133 Qualified XVII 21.722 19.962 (8.10%) 802.8 16,025 Qualified XVIII 11.133 10.231 (8.10%) 9,409.3 96,267 Qualified XXI 22.040 20.347 (7.68%) 3,726.2 75,818 Qualified XXII 22.077 20.397 (7.61%) 3,677.9 75,018 Qualified XXIV 15.937 14.702 (7.75%) 23,099.4 339,607 Qualified XXV 21.748 20.087 (7.64%) 5,566.7 111,818 Qualified XXVI 21.739 20.048 (7.78%) 270.3 5,418 Qualified XXVII 28.864 26.578 (7.92%) 679,479.5 18,059,207 Qualified XXVIII 28.827 26.492 (8.10%) 67,387.3 1,785,224 --------------------------------------------------------------------------------------------------------------------------------- CHAPMAN DEM-REGISTERED TRADEMARK- EQUITY FUND: 0.00% to 1.75% 0.00% Qualified XXVII 7.647 6.879 (10.04%) (2) 13,413.7 92,273 --------------------------------------------------------------------------------------------------------------------------------- FIDELITY-REGISTERED TRADEMARK- INVESTMENTS VARIABLE INSURANCE PRODUCTS FUNDS: ASSET MANAGER PORTFOLIO -- INITIAL CLASS: 1.05% to 1.25% 5.70% Qualified XXVII 17.427 16.538 (5.10%) 1,202,497.5 19,886,903 Qualified XXVIII 17.405 16.484 (5.29%) 103,285.6 1,702,560 --------------------------------------------------------------------------------------------------------------------------------- CONTRAFUND-REGISTERED TRADEMARK- PORTFOLIO -- INITIAL CLASS: 0.00% to 1.75% 3.44% Qualified III 25.097 21.749 (13.34%) 2,117.4 46,052 Qualified V 22.141 19.156 (13.48%) 5,199.5 99,601 Qualified VI 22.182 19.223 (13.34%) 8,115,293.2 156,000,282 Qualified VIII 22.324 19.344 (13.35%) 5,541.9 107,202 Qualified X (1.15) 25.063 21.741 (13.25%) 5,754.2 125,102 Qualified X (1.25) 24.923 21.598 (13.34%) 742,484.4 16,036,178 Qualified XI 22.594 19.698 (12.82%) 227,960.8 4,490,371 Qualified XII (0.05) 20.390 19.619 (3.78%) (6) 32,888.2 645,234 Qualified XII (0.15) 11.840 11.652 (1.59%) (7) 32.7 381 Qualified XII (0.35) 13.229 11.569 (12.55%) 396,981.8 4,592,683 Qualified XII (0.40) 20.503 17.920 (12.60%) 2,183.4 39,126 Qualified XII (0.45) 13.195 11.527 (12.64%) 591,944.6 6,823,345 Qualified XII (0.55) 13.160 11.485 (12.73%) 108,307.3 1,243,909 Qualified XII (0.60) 12.621 11.465 (9.16%) (2) 266,408.6 3,054,375 Qualified XII (0.65) 13.126 11.444 (12.81%) 275,047.2 3,147,640 Qualified XII (0.70) 13.109 11.423 (12.86%) 168,312.6 1,922,635 Qualified XII (0.75) 13.092 11.403 (12.90%) 497,659.6 5,674,812 Qualified XII (0.80) 14.375 12.514 (12.95%) 1,442,523.6 18,051,740 Qualified XII (0.85) 20.359 17.714 (12.99%) 318,515.6 5,642,186 Qualified XII (0.90) 14.009 12.183 (13.03%) 17,291.1 210,657 Qualified XII (0.95) 20.265 17.614 (13.08%) 545,556.7 9,609,436 Qualified XII (1.00) 20.218 17.564 (13.13%) 2,242,467.1 39,386,693 Qualified XII (1.05) 20.171 17.515 (13.17%) 167,705.1 2,937,354 Qualified XII (1.10) 20.124 17.466 (13.21%) 87,802.3 1,533,555 Qualified XII (1.15) 20.078 17.416 (13.26%) 50,343.1 876,775 Qualified XII (1.20) 20.031 17.367 (13.30%) 35,772.8 621,267 Qualified XII (1.25) 19.985 17.319 (13.34%) 27,983.1 484,639 Qualified XII (1.30) 19.938 17.270 (13.38%) 6,241.2 107,785 Qualified XII (1.35) 19.892 17.221 (13.43%) 199.7 3,439 Qualified XII (1.40) 19.846 17.173 (13.47%) 24,303.8 417,369 Qualified XII (1.50) 19.755 17.076 (13.56%) 9,811.0 167,532 Qualified XV 22.453 19.516 (13.08%) 43,865.4 856,078 Qualified XVI 21.977 18.997 (13.56%) 156,910.4 2,980,827 Qualified XVII 22.182 19.223 (13.34%) 15,976.3 307,112 Qualified XVIII 24.923 21.598 (13.34%) 18,840.1 406,909 Qualified XXI 22.507 19.593 (12.95%) 56,333.1 1,103,735 Qualified XXII 22.544 19.641 (12.88%) 133,617.8 2,624,387 Qualified XXIV 20.231 17.599 (13.01%) 145,751.7 2,565,085
S-25 VARIABLE ANNUITY ACCOUNT C CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2001 (continued):
--------------------------------------------------------------------------------------------------------------------------------- Value Per Unit Units -------- Outstanding Net Assets Beginning End of Total Expense Investment at End at End of Year Year Return Ratio Income Ratio of Year of Year --------------------------------------------------------------------------------------------------------------------------------- CONTRAFUND-REGISTERED TRADEMARK- PORTFOLIO -- INITIAL CLASS: (continued): Qualified XXV $ 22.209 $ 19.343 (12.90%) 71,480.5 $ 1,382,647 Qualified XXVI 22.199 19.306 (13.03%) 11,888.4 229,518 Qualified XXVII 25.130 21.820 (13.17%) 3,132,235.5 68,345,379 Qualified XXVIII 25.097 21.749 (13.34%) 477,544.2 10,386,108 --------------------------------------------------------------------------------------------------------------------------------- EQUITY-INCOME PORTFOLIO -- INITIAL CLASS: 0.00% to 1.75% 5.91% Qualified III 20.561 19.298 (6.14%) 916.2 17,680 Qualified V 19.397 18.176 (6.29%) 2,244.3 40,793 Qualified VI 19.632 18.426 (6.14%) 5,040,744.0 92,880,749 Qualified VIII 19.557 18.354 (6.15%) 5,099.7 93,600 Qualified X (1.15) 24.729 23.233 (6.05%) 75,694.0 1,758,598 Qualified X (1.25) 24.567 23.057 (6.15%) 1,042,819.6 24,044,291 Qualified XI 19.996 18.882 (5.57%) 286,003.3 5,400,315 Qualified XII (0.05) 19.888 18.805 (5.45%) (6) 19,227.7 361,577 Qualified XII (0.35) 11.419 10.815 (5.29%) 276,277.5 2,987,941 Qualified XII (0.40) 17.374 16.447 (5.34%) 795.6 13,086 Qualified XII (0.45) 11.389 10.776 (5.38%) 325,193.9 3,504,290 Qualified XII (0.55) 11.360 10.737 (5.48%) 59,829.7 642,391 Qualified XII (0.60) 11.454 10.718 (6.43%) (2) 292,698.5 3,137,143 Qualified XII (0.65) 11.330 10.698 (5.58%) 126,486.8 1,353,156 Qualified XII (0.70) 11.315 10.679 (5.62%) 170,131.2 1,816,831 Qualified XII (0.75) 11.300 10.660 (5.66%) 262,003.8 2,792,960 Qualified XII (0.80) 12.310 11.606 (5.72%) 875,115.5 10,156,591 Qualified XII (0.85) 17.252 16.257 (5.77%) 409,548.3 6,658,027 Qualified XII (0.90) 12.083 11.381 (5.81%) 11,263.8 128,193 Qualified XII (0.95) 17.172 16.166 (5.86%) 409,962.2 6,627,449 Qualified XII (1.00) 17.132 16.120 (5.91%) 743,883.4 11,991,400 Qualified XII (1.05) 17.092 16.075 (5.95%) 109,945.7 1,767,377 Qualified XII (1.10) 17.053 16.029 (6.00%) 91,020.1 1,458,961 Qualified XII (1.15) 17.013 15.984 (6.05%) 24,882.1 397,716 Qualified XII (1.20) 16.974 15.939 (6.10%) 31,625.2 504,074 Qualified XII (1.25) 16.935 15.894 (6.15%) 25,563.1 406,300 Qualified XII (1.30) 16.896 15.850 (6.19%) 8,324.9 131,949 Qualified XII (1.35) 16.856 15.805 (6.24%) 1,669.0 26,378 Qualified XII (1.40) 16.817 15.760 (6.29%) 18,021.8 284,024 Qualified XII (1.50) 16.740 15.672 (6.38%) 4,805.1 75,306 Qualified XV 19.871 18.707 (5.86%) 24,294.6 454,480 Qualified XVI 19.450 18.209 (6.38%) 136,761.5 2,490,291 Qualified XVII 19.632 18.426 (6.14%) 10,111.4 186,312 Qualified XVIII 24.567 23.057 (6.15%) 18,453.7 425,488 Qualified XXI 19.919 18.780 (5.72%) 23,278.3 437,166 Qualified XXII 19.952 18.827 (5.64%) 54,503.1 1,026,129 Qualified XXIV 17.143 16.152 (5.78%) 96,374.9 1,556,648 Qualified XXV 19.655 18.541 (5.67%) 37,990.6 704,384 Qualified XXVI 19.647 18.505 (5.81%) 20,834.3 385,539 Qualified XXVII 20.588 19.360 (5.96%) 1,746,305.9 33,808,483 Qualified XXVIII 20.561 19.298 (6.14%) 745,163.3 14,380,161 --------------------------------------------------------------------------------------------------------------------------------- GROWTH PORTFOLIO -- INITIAL CLASS: 0.00% to 1.75% 7.04% Qualified I 21.644 17.611 (18.63%) 2,093.4 36,866 Qualified III 23.158 18.832 (18.68%) 289.0 5,443 Qualified V 22.940 18.625 (18.81%) 2,897.4 53,964 Qualified VI 22.858 18.588 (18.68%) 9,927,690.0 184,535,902 Qualified VIII 23.130 18.808 (18.69%) 9,044.9 170,117 Qualified X (1.15) 32.002 26.050 (18.60%) 59,993.6 1,562,832 Qualified X (1.25) 31.791 25.853 (18.68%) 1,454,621.6 37,606,333 Qualified XI 23.282 19.048 (18.19%) 715,648.5 13,631,673 Qualified XII (0.05) 20.968 18.971 (9.52%) (6) 43,076.6 817,206 Qualified XII (0.35) 14.798 12.143 (17.94%) 630,664.9 7,658,164 Qualified XII (0.40) 21.270 17.446 (17.98%) 1,710.2 29,837 Qualified XII (0.45) 14.760 12.100 (18.02%) 280,103.7 3,389,255 Qualified XII (0.55) 14.721 12.056 (18.10%) 133,394.6 1,608,205 Qualified XII (0.60) 14.702 12.034 (18.15%) 344,984.5 4,151,543
S-26 VARIABLE ANNUITY ACCOUNT C CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2001 (continued):
--------------------------------------------------------------------------------------------------------------------------------- Value Per Unit Units -------- Outstanding Net Assets Beginning End of Total Expense Investment at End at End of Year Year Return Ratio Income Ratio of Year of Year --------------------------------------------------------------------------------------------------------------------------------- GROWTH PORTFOLIO -- INITIAL CLASS: (continued): Qualified XII (0.65) $ 14.683 $ 12.012 (18.19%) 331,027.6 $ 3,976,304 Qualified XII (0.70) 14.664 11.991 (18.23%) 230,639.0 2,765,592 Qualified XII (0.75) 14.645 11.969 (18.27%) 581,233.1 6,956,779 Qualified XII (0.80) 16.023 13.089 (18.31%) 2,269,302.5 29,702,901 Qualified XII (0.85) 21.120 17.245 (18.35%) 792,593.8 13,668,280 Qualified XII (0.90) 15.596 12.727 (18.40%) 60,877.3 774,785 Qualified XII (0.95) 21.023 17.147 (18.44%) 756,415.6 12,970,258 Qualified XII (1.00) 20.974 17.099 (18.48%) 1,960,651.3 33,525,177 Qualified XII (1.05) 20.926 17.051 (18.52%) 223,900.4 3,817,726 Qualified XII (1.10) 20.877 17.003 (18.56%) 105,975.1 1,801,895 Qualified XII (1.15) 20.829 16.955 (18.60%) 54,245.0 919,724 Qualified XII (1.20) 20.781 16.907 (18.64%) 85,637.1 1,447,867 Qualified XII (1.25) 20.733 16.860 (18.68%) 47,069.6 793,594 Qualified XII (1.30) 20.684 16.812 (18.72%) 14,251.7 239,600 Qualified XII (1.35) 20.637 16.765 (18.76%) 2,316.2 38,831 Qualified XII (1.40) 20.589 16.718 (18.80%) 51,222.0 856,330 Qualified XII (1.50) 20.494 16.624 (18.88%) 4,426.5 73,586 Qualified XV 23.137 18.872 (18.43%) 73,610.9 1,389,184 Qualified XVI 22.646 18.369 (18.89%) 211,009.7 3,876,037 Qualified XVII 22.858 18.588 (18.68%) 47,724.1 887,096 Qualified XVIII 31.791 25.853 (18.68%) 67,987.7 1,757,685 Qualified XXI 23.193 18.946 (18.31%) 76,737.3 1,453,865 Qualified XXII 23.231 18.993 (18.24%) 96,334.6 1,829,683 Qualified XXIV 20.988 17.133 (18.37%) 199,670.9 3,420,961 Qualified XXV 22.885 18.704 (18.27%) 179,206.1 3,351,870 Qualified XXVI 22.876 18.668 (18.39%) 42,755.4 798,157 --------------------------------------------------------------------------------------------------------------------------------- HIGH INCOME PORTFOLIO -- INITIAL CLASS: 0.75% to 1.50% 12.33% Qualified XXVII 7.389 6.453 (12.67%) 227,667.6 1,469,139 Qualified XXVIII 7.379 6.432 (12.83%) 182,904.9 1,176,444 Annuity contracts in payment period 48,688 --------------------------------------------------------------------------------------------------------------------------------- INDEX 500 PORTFOLIO -- INITIAL CLASS: 1.05% to 1.25% 1.12% Qualified XXVII 25.246 21.956 (13.03%) 3,861,877.2 84,791,375 Qualified XXVIII 25.213 21.885 (13.20%) 516,580.4 11,305,363 --------------------------------------------------------------------------------------------------------------------------------- OVERSEAS PORTFOLIO -- INITIAL CLASS: 0.00% to 1.75% 13.21% Qualified V 15.241 11.846 (22.28%) 207.2 2,455 Qualified VI 15.374 11.968 (22.15%) 619,426.7 7,413,299 Qualified VIII 15.367 11.962 (22.16%) 357.0 4,270 Qualified X (1.15) 15.943 12.424 (22.07%) 8,056.9 100,099 Qualified X (1.25) 15.838 12.330 (22.15%) 137,441.8 1,694,658 Qualified XI 15.659 12.264 (21.68%) 23,597.9 289,405 Qualified XII (0.05) 13.786 12.215 (11.40%) (6) 1,811.2 22,124 Qualified XII (0.35) 10.828 8.506 (21.44%) 56,983.4 484,701 Qualified XII (0.40) 15.074 11.835 (21.49%) 251.2 2,973 Qualified XII (0.45) 10.799 8.475 (21.52%) 20,631.5 174,852 Qualified XII (0.55) 10.771 8.444 (21.60%) 8,801.3 74,318 Qualified XII (0.60) 10.096 8.429 (16.51%) (2) 10,449.5 88,079 Qualified XII (0.65) 10.743 8.414 (21.68%) 23,263.1 195,736 Qualified XII (0.70) 10.729 8.399 (21.72%) 19,219.4 161,424 Qualified XII (0.75) 10.715 8.384 (21.75%) 17,806.7 149,291 Qualified XII (0.80) 11.957 9.350 (21.80%) 51,087.8 477,671 Qualified XII (0.85) 14.968 11.699 (21.84%) 38,755.2 453,397 Qualified XII (0.90) 11.949 9.335 (21.88%) 5,300.6 49,481 Qualified XII (0.95) 14.898 11.633 (21.92%) 24,429.0 284,183 Qualified XII (1.00) 14.864 11.600 (21.96%) 80,175.9 930,041 Qualified XII (1.05) 14.830 11.568 (22.00%) 10,958.2 126,764 Qualified XII (1.10) 14.795 11.535 (22.03%) 11,538.1 133,092 Qualified XII (1.15) 14.761 11.502 (22.08%) 6,014.3 69,177 Qualified XII (1.20) 14.727 11.470 (22.12%) 2,348.8 26,941 Qualified XII (1.25) 14.693 11.438 (22.15%) 9,530.9 109,015 Qualified XII (1.30) 14.659 11.406 (22.19%) 1,871.1 21,342
S-27 VARIABLE ANNUITY ACCOUNT C CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2001 (continued):
--------------------------------------------------------------------------------------------------------------------------------- Value Per Unit Units -------- Outstanding Net Assets Beginning End of Total Expense Investment at End at End of Year Year Return Ratio Income Ratio of Year of Year --------------------------------------------------------------------------------------------------------------------------------- OVERSEAS PORTFOLIO -- INITIAL CLASS: (continued): Qualified XII (1.35) $ 14.625 $ 11.373 (22.24%) 121.0 $ 1,376 Qualified XII (1.40) 14.591 11.341 (22.27%) 2,207.9 25,040 Qualified XII (1.50) 14.523 11.278 (22.34%) 36.8 415 Qualified XV 15.561 12.151 (21.91%) 4,798.1 58,302 Qualified XVI 15.231 11.827 (22.35%) 15,492.2 183,226 Qualified XVII 15.374 11.968 (22.15%) 1,363.7 16,321 Qualified XVIII 15.838 12.330 (22.15%) 1,213.1 14,958 Qualified XXI 15.599 12.198 (21.80%) 7,543.9 92,020 Qualified XXII 15.625 12.229 (21.73%) 17,638.3 215,699 Qualified XXIV 14.874 11.623 (21.86%) 25,655.9 298,198 Qualified XXV 15.392 12.043 (21.76%) 9,165.3 110,378 Qualified XXVI 15.386 12.020 (21.88%) 1,792.3 21,544 Qualified XXVII 8.471 6.608 (21.99%) 28,690.1 189,584 --------------------------------------------------------------------------------------------------------------------------------- FRANKLIN VALUE SECURITIES FUND: 0.00% to 1.75% 0.00% Qualified VI 8.108 10.293 26.95% (9) 9,278.7 95,506 Qualified X (1.25) 8.071 10.293 27.53% (9) 1,354.4 13,941 Qualified XII (0.95) 10.307 10.307 0.00% (12) 236.9 2,442 Qualified XII (1.50) 9.925 10.282 3.60% (8) 17.0 175 Qualified XVIII 8.325 10.293 23.64% (10) 1,715.8 17,661 --------------------------------------------------------------------------------------------------------------------------------- JANUS ASPEN SERIES: AGGRESSIVE GROWTH PORTFOLIO -- I SHARES: 0.00% to 1.75% 0.00% Qualified I 21.908 13.107 (40.17%) 2,338.3 30,648 Qualified III 36.122 21.598 (40.21%) 73,818.2 1,594,325 Qualified V 31.095 18.562 (40.31%) 5,814.7 107,932 Qualified VI 31.406 18.778 (40.21%) 13,156,545.6 247,053,614 Qualified VIII 31.390 18.767 (40.21%) 10,005.8 187,778 Qualified X (1.15) 30.490 18.249 (40.15%) 52,073.2 950,284 Qualified X (1.25) 30.318 18.127 (40.21%) 1,307,190.7 23,695,445 Qualified XI 31.989 19.243 (39.84%) 927,250.3 17,843,077 Qualified XII (0.05) 22.649 19.165 (15.38%) (6) 175,169.2 3,357,118 Qualified XII (0.15) 12.937 11.259 (12.97%) (7) 33.4 376 Qualified XII (0.35) 18.526 11.178 (39.66%) 990,670.0 11,073,709 Qualified XII (0.40) 21.535 12.987 (39.69%) 5,603.2 72,769 Qualified XII (0.45) 18.477 11.137 (39.73%) 407,157.8 4,534,516 Qualified XII (0.55) 18.429 11.097 (39.79%) 161,687.6 1,794,247 Qualified XII (0.60) 18.405 11.077 (39.82%) 446,282.1 4,943,467 Qualified XII (0.65) 18.381 11.057 (39.85%) 259,793.1 2,872,532 Qualified XII (0.70) 18.357 11.037 (39.88%) 329,052.2 3,631,749 Qualified XII (0.75) 18.333 11.017 (39.91%) 710,208.1 7,824,363 Qualified XII (0.80) 19.747 11.861 (39.94%) 3,594,800.5 42,637,929 Qualified XII (0.85) 21.383 12.837 (39.97%) 1,011,774.8 12,988,153 Qualified XII (0.90) 19.367 11.621 (40.00%) 49,490.4 575,128 Qualified XII (0.95) 21.284 12.765 (40.03%) 1,103,526.2 14,086,512 Qualified XII (1.00) 21.235 12.729 (40.06%) 3,633,556.8 46,251,544 Qualified XII (1.05) 21.186 12.693 (40.09%) 252,869.2 3,209,669 Qualified XII (1.10) 21.137 12.657 (40.12%) 170,758.9 2,161,295 Qualified XII (1.15) 21.088 12.621 (40.15%) 77,962.4 983,963 Qualified XII (1.20) 21.039 12.586 (40.18%) 103,448.0 1,301,996 Qualified XII (1.25) 20.990 12.550 (40.21%) 72,227.6 906,457 Qualified XII (1.30) 20.942 12.515 (40.24%) 18,926.5 236,865 Qualified XII (1.35) 20.893 12.479 (40.27%) 5,094.0 63,568 Qualified XII (1.40) 20.845 12.444 (40.30%) 61,717.5 768,012 Qualified XII (1.50) 20.748 12.374 (40.36%) 13,963.3 172,782 Qualified XV 31.789 19.065 (40.03%) 137,586.9 2,623,094 Qualified XVI 31.115 18.557 (40.36%) 235,033.5 4,361,517 Qualified XVII 31.406 18.778 (40.21%) 53,201.9 999,026 Qualified XVIII 30.318 18.127 (40.21%) 67,109.2 1,216,488 Qualified XXI 31.866 19.140 (39.94%) 158,484.4 3,033,391 Qualified XXII 31.919 19.187 (39.89%) 183,873.9 3,527,988 Qualified XXIV 21.249 12.754 (39.98%) 336,511.1 4,291,862 Qualified XXV 31.443 18.895 (39.91%) 276,563.4 5,225,665
S-28 VARIABLE ANNUITY ACCOUNT C CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2001 (continued):
--------------------------------------------------------------------------------------------------------------------------------- Value Per Unit Units -------- Outstanding Net Assets Beginning End of Total Expense Investment at End at End of Year Year Return Ratio Income Ratio of Year of Year --------------------------------------------------------------------------------------------------------------------------------- AGGRESSIVE GROWTH PORTFOLIO -- I SHARES: (continued): Qualified XXVI $ 31.430 $ 18.859 (40.00%) 75,023.1 $ 1,414,860 Qualified XXVII 36.169 21.668 (40.09%) 3,316,994.3 71,872,632 Qualified XXVIII 36.122 21.598 (40.21%) 598,743.2 12,931,655 --------------------------------------------------------------------------------------------------------------------------------- BALANCED PORTFOLIO -- I SHARES: 0.00% to 1.75% 2.71% Qualified III 24.071 22.652 (5.90%) 674.5 15,279 Qualified V 23.857 22.415 (6.04%) 1,116.4 25,024 Qualified VI 24.064 22.646 (5.89%) 7,232,078.8 163,777,656 Qualified VIII 24.054 22.634 (5.90%) 4,349.7 98,451 Qualified X (1.15) 25.109 23.652 (5.80%) 73,228.0 1,731,989 Qualified X (1.25) 24.969 23.498 (5.89%) 1,038,256.0 24,396,940 Qualified XI 24.511 23.206 (5.32%) 450,547.4 10,455,403 Qualified XII (0.05) 23.624 23.112 (2.17%) (6) 86,430.4 1,997,580 Qualified XII (0.35) 14.550 13.817 (5.04%) 398,904.8 5,511,667 Qualified XII (0.40) 21.980 20.862 (5.09%) 1,945.9 40,595 Qualified XII (0.45) 14.512 13.767 (5.13%) 710,875.0 9,786,616 Qualified XII (0.55) 14.474 13.717 (5.23%) 154,190.0 2,115,024 Qualified XII (0.60) 14.455 13.692 (5.28%) 289,818.9 3,968,201 Qualified XII (0.65) 14.436 13.668 (5.32%) 278,332.0 3,804,242 Qualified XII (0.70) 14.418 13.643 (5.38%) 160,844.1 2,194,396 Qualified XII (0.75) 14.399 13.618 (5.42%) 498,519.5 6,788,838 Qualified XII (0.80) 15.540 14.690 (5.47%) 1,370,457.7 20,132,023 Qualified XII (0.85) 21.825 20.621 (5.52%) 238,039.2 4,908,606 Qualified XII (0.90) 15.203 14.357 (5.56%) 36,137.4 518,825 Qualified XII (0.95) 21.724 20.505 (5.61%) 453,463.4 9,298,267 Qualified XII (1.00) 21.674 20.447 (5.66%) 1,820,729.5 37,228,457 Qualified XII (1.05) 21.623 20.390 (5.70%) 160,978.8 3,282,358 Qualified XII (1.10) 21.573 20.332 (5.75%) 73,038.5 1,485,018 Qualified XII (1.15) 21.523 20.275 (5.80%) 69,825.5 1,415,712 Qualified XII (1.20) 21.474 20.218 (5.85%) 44,269.9 895,049 Qualified XII (1.25) 21.424 20.161 (5.90%) 29,572.1 596,203 Qualified XII (1.30) 21.374 20.104 (5.94%) 14,744.2 296,418 Qualified XII (1.35) 21.325 20.048 (5.99%) 1,251.1 25,083 Qualified XII (1.40) 21.276 19.991 (6.04%) 46,952.6 938,629 Qualified XII (1.50) 21.177 19.879 (6.13%) 3,645.6 72,471 Qualified XV 24.358 22.991 (5.61%) 47,389.8 1,089,538 Qualified XVI 23.841 22.379 (6.13%) 154,836.8 3,465,092 Qualified XVII 24.064 22.646 (5.89%) 27,092.5 613,536 Qualified XVIII 24.969 23.498 (5.89%) 76,043.9 1,786,879 Qualified XXI 24.417 23.082 (5.47%) 35,056.4 809,172 Qualified XXII 24.457 23.138 (5.39%) 66,355.9 1,535,343 Qualified XXIV 21.688 20.487 (5.54%) 120,125.2 2,461,004 Qualified XXV 24.093 22.787 (5.42%) 147,460.5 3,360,183 Qualified XXVI 24.083 22.743 (5.56%) 22,726.3 516,864 Qualified XXVII 9.491 8.949 (5.71%) 559,998.8 5,011,429 --------------------------------------------------------------------------------------------------------------------------------- CAPITAL APPRECIATION PORTFOLIO -- S SHARES: 0.00% to 1.75% 1.25% Qualified XXVII 8.800 7.388 (16.05%) (2) 71,781.5 530,322 --------------------------------------------------------------------------------------------------------------------------------- FLEXIBLE INCOME PORTFOLIO -- I SHARES: 0.00% to 1.75% 6.11% Qualified III 16.372 17.419 6.40% 6,497.9 113,187 Qualified V 16.147 17.152 6.22% 1,470.3 25,219 Qualified VI 16.308 17.351 6.40% 1,460,674.5 25,344,164 Qualified VIII 16.300 17.341 6.39% 201.0 3,485 Qualified X (1.25) 10.971 11.672 6.39% 162,058.9 1,891,551 Qualified XI 16.611 17.780 7.04% 81,053.5 1,441,131 Qualified XII (0.05) 17.060 17.708 3.80% (6) 12,175.5 215,603 Qualified XII (0.35) 11.206 12.031 7.36% 103,464.0 1,244,775 Qualified XII (0.40) 13.980 15.001 7.30% 652.4 9,787 Qualified XII (0.45) 11.177 11.987 7.25% 126,824.7 1,520,248 Qualified XII (0.55) 11.148 11.944 7.14% 32,870.0 392,599 Qualified XII (0.60) 11.340 11.922 5.13% (2) 55,975.4 667,339 Qualified XII (0.65) 11.119 11.901 7.03% 119,542.2 1,422,672
S-29 VARIABLE ANNUITY ACCOUNT C CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2001 (continued):
--------------------------------------------------------------------------------------------------------------------------------- Value Per Unit Units -------- Outstanding Net Assets Beginning End of Total Expense Investment at End at End of Year Year Return Ratio Income Ratio of Year of Year --------------------------------------------------------------------------------------------------------------------------------- FLEXIBLE INCOME PORTFOLIO -- I SHARES: (continued): Qualified XII (0.70) $ 11.104 $ 11.879 6.98% 125,912.2 $ 1,495,711 Qualified XII (0.75) 11.090 11.858 6.93% 47,112.2 558,656 Qualified XII (0.80) 11.308 12.085 6.87% 362,170.7 4,376,833 Qualified XII (0.85) 13.881 14.828 6.82% 105,379.2 1,562,563 Qualified XII (0.90) 11.280 12.044 6.77% 4,325.7 52,099 Qualified XII (0.95) 13.817 14.745 6.72% 111,627.1 1,645,942 Qualified XII (1.00) 13.785 14.703 6.66% 622,608.5 9,154,213 Qualified XII (1.05) 13.753 14.662 6.61% 30,937.1 453,600 Qualified XII (1.10) 13.722 14.621 6.55% 39,214.6 573,357 Qualified XII (1.15) 13.690 14.579 6.49% 10,047.1 146,476 Qualified XII (1.20) 13.658 14.538 6.44% 14,538.2 211,356 Qualified XII (1.25) 13.626 14.497 6.39% 10,487.5 152,037 Qualified XII (1.30) 13.595 14.457 6.34% 773.0 11,175 Qualified XII (1.35) 13.563 14.416 6.29% 1,067.8 15,394 Qualified XII (1.40) 13.532 14.375 6.23% 13,733.4 197,418 Qualified XII (1.50) 13.469 14.294 6.13% 820.4 11,727 Qualified XV 16.507 17.615 6.71% 7,227.8 127,317 Qualified XVI 16.157 17.147 6.13% 25,089.8 430,215 Qualified XVII 16.308 17.351 6.40% 1,231.1 21,360 Qualified XVIII 11.175 11.672 4.45% (2) 7,152.4 83,483 Qualified XXI 16.547 17.685 6.88% 10,388.6 183,722 Qualified XXII 16.575 17.728 6.96% 9,818.8 174,068 Qualified XXIV 13.794 14.732 6.80% 26,491.3 390,270 Qualified XXV 16.328 17.459 6.93% 16,604.6 289,899 Qualified XXVI 16.321 17.425 6.76% 7,646.9 133,248 --------------------------------------------------------------------------------------------------------------------------------- GROWTH PORTFOLIO -- I SHARES: 0.00% to 1.75% 0.25% Qualified I 21.330 15.863 (25.63%) 48.4 767 Qualified III 27.035 20.094 (25.67%) 1,948.6 39,155 Qualified V 24.589 18.246 (25.80%) 1,851.0 33,773 Qualified VI 24.782 18.419 (25.68%) 6,230,644.3 114,762,237 Qualified VIII 24.792 18.425 (25.68%) 2,885.5 53,166 Qualified X (1.15) 26.652 19.829 (25.60%) 44,919.9 890,716 Qualified X (1.25) 26.504 19.699 (25.68%) 827,886.5 16,308,537 Qualified XI 25.242 18.875 (25.22%) 467,541.0 8,824,837 Qualified XII (0.05) 22.306 18.799 (15.72%) (6) 44,598.6 838,410 Qualified XII (0.35) 14.289 10.717 (25.00%) 404,888.4 4,339,189 Qualified XII (0.40) 21.734 16.292 (25.04%) 1,809.7 29,483 Qualified XII (0.45) 14.251 10.678 (25.07%) 560,456.5 5,984,555 Qualified XII (0.55) 14.214 10.639 (25.15%) 88,296.5 939,386 Qualified XII (0.60) 15.428 10.620 (31.16%) (1) 260,337.9 2,764,788 Qualified XII (0.65) 14.177 10.601 (25.22%) 51,355.8 544,423 Qualified XII (0.70) 14.159 10.582 (25.26%) 327,185.9 3,462,281 Qualified XII (0.75) 14.140 10.563 (25.30%) 382,926.3 4,044,850 Qualified XII (0.80) 15.543 11.604 (25.34%) 1,806,994.7 20,968,366 Qualified XII (0.85) 21.581 16.104 (25.38%) 635,214.3 10,229,491 Qualified XII (0.90) 15.062 11.234 (25.41%) 22,306.1 250,587 Qualified XII (0.95) 21.481 16.014 (25.45%) 421,489.2 6,749,728 Qualified XII (1.00) 21.431 15.969 (25.49%) 1,110,536.4 17,734,156 Qualified XII (1.05) 21.382 15.924 (25.53%) 116,083.2 1,848,509 Qualified XII (1.10) 21.332 15.879 (25.56%) 72,514.0 1,151,450 Qualified XII (1.15) 21.283 15.834 (25.60%) 32,481.6 514,314 Qualified XII (1.20) 21.234 15.789 (25.64%) 49,169.7 776,341 Qualified XII (1.25) 21.184 15.745 (25.68%) 39,970.2 629,331 Qualified XII (1.30) 21.135 15.701 (25.71%) 10,656.9 167,324 Qualified XII (1.35) 21.086 15.656 (25.75%) 1,405.2 22,000 Qualified XII (1.40) 21.038 15.612 (25.79%) 24,527.3 382,920 Qualified XII (1.50) 20.940 15.524 (25.86%) 6,364.6 98,804 Qualified XV 25.084 18.700 (25.45%) 50,761.7 949,243 Qualified XVI 24.552 18.202 (25.86%) 129,065.2 2,349,244 Qualified XVII 24.782 18.419 (25.68%) 37,110.8 683,544 Qualified XVIII 26.504 19.699 (25.68%) 38,107.3 750,675
S-30 VARIABLE ANNUITY ACCOUNT C CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2001 (continued):
--------------------------------------------------------------------------------------------------------------------------------- Value Per Unit Units -------- Outstanding Net Assets Beginning End of Total Expense Investment at End at End of Year Year Return Ratio Income Ratio of Year of Year --------------------------------------------------------------------------------------------------------------------------------- GROWTH PORTFOLIO -- I SHARES: (continued): Qualified XXI $ 25.145 $ 18.774 (25.34%) 58,649.5 $ 1,101,086 Qualified XXII 25.187 18.820 (25.28%) 96,674.2 1,819,408 Qualified XXIV 21.445 16.000 (25.39%) 105,687.1 1,690,993 Qualified XXV 24.812 18.534 (25.30%) 124,839.1 2,313,767 Qualified XXVI 24.801 18.498 (25.41%) 22,400.2 414,359 Qualified XXVII 27.071 20.159 (25.53%) 2,654,330.2 53,508,643 Qualified XXVIII 27.035 20.094 (25.67%) 693,079.7 13,926,744 Annuity contracts in payment period 727,531 --------------------------------------------------------------------------------------------------------------------------------- WORLDWIDE GROWTH PORTFOLIO -- I SHARES: 0.00% to 1.75% 0.45% Qualified I 24.185 18.535 (23.36%) 2,110.6 39,120 Qualified III 32.189 24.654 (23.41%) 2,206.4 54,397 Qualified V 28.765 21.997 (23.53%) 4,269.0 93,906 Qualified VI 28.796 22.056 (23.41%) 14,623,767.5 322,541,817 Qualified VIII 28.703 21.983 (23.41%) 10,551.0 231,942 Qualified X (1.15) 32.523 24.936 (23.33%) 30,177.7 752,512 Qualified X (1.25) 32.342 24.771 (23.41%) 1,480,954.3 36,684,718 Qualified XI 29.330 22.601 (22.94%) 1,008,881.3 22,801,726 Qualified XII (0.05) 25.296 22.510 (11.01%) (6) 176,426.0 3,971,349 Qualified XII (0.15) 11.575 10.980 (5.14%) (7) 35.1 385 Qualified XII (0.35) 14.104 10.901 (22.71%) 1,191,347.0 12,986,874 Qualified XII (0.40) 24.188 18.686 (22.75%) 5,871.6 109,717 Qualified XII (0.45) 14.068 10.862 (22.79%) 1,074,941.9 11,676,019 Qualified XII (0.55) 14.031 10.823 (22.86%) 190,558.7 2,062,417 Qualified XII (0.60) 14.013 10.803 (22.91%) 697,543.5 7,535,562 Qualified XII (0.65) 13.994 10.784 (22.94%) 272,886.1 2,942,804 Qualified XII (0.70) 13.976 10.764 (22.98%) 454,510.2 4,892,348 Qualified XII (0.75) 13.958 10.745 (23.02%) 1,176,543.2 12,641,957 Qualified XII (0.80) 16.390 12.611 (23.06%) 4,694,956.2 59,208,093 Qualified XII (0.85) 24.018 18.471 (23.10%) 972,146.9 17,956,526 Qualified XII (0.90) 15.998 12.297 (23.13%) 51,113.2 628,539 Qualified XII (0.95) 23.907 18.367 (23.17%) 992,482.0 18,228,916 Qualified XII (1.00) 23.852 18.315 (23.21%) 3,691,115.2 67,602,774 Qualified XII (1.05) 23.796 18.263 (23.25%) 331,090.3 6,046,702 Qualified XII (1.10) 23.741 18.212 (23.29%) 151,240.6 2,754,393 Qualified XII (1.15) 23.686 18.161 (23.33%) 89,662.1 1,628,353 Qualified XII (1.20) 23.632 18.109 (23.37%) 79,146.4 1,433,262 Qualified XII (1.25) 23.577 18.058 (23.41%) 51,270.7 925,846 Qualified XII (1.30) 23.522 18.008 (23.44%) 12,768.1 229,928 Qualified XII (1.35) 23.468 17.957 (23.48%) 3,170.9 56,940 Qualified XII (1.40) 23.414 17.906 (23.52%) 49,760.8 891,017 Qualified XII (1.50) 23.305 17.806 (23.60%) 12,160.7 216,534 Qualified XV 29.147 22.392 (23.18%) 119,182.2 2,668,727 Qualified XVI 28.529 21.796 (23.60%) 248,276.3 5,411,431 Qualified XVII 28.796 22.056 (23.41%) 63,484.3 1,400,210 Qualified XVIII 32.342 24.771 (23.41%) 72,903.7 1,805,898 Qualified XXI 29.217 22.480 (23.06%) 115,698.8 2,600,910 Qualified XXII 29.266 22.536 (23.00%) 205,808.3 4,638,095 Qualified XXIV 23.867 18.351 (23.11%) 254,989.5 4,679,312 Qualified XXV 28.830 22.193 (23.02%) 175,568.0 3,896,381 Qualified XXVI 28.818 22.151 (23.13%) 60,851.2 1,347,915 Qualified XXVII 32.231 24.735 (23.26%) 4,384,838.9 108,458,991 Qualified XXVIII 32.189 24.655 (23.41%) 1,056,362.9 26,044,627 Annuity contracts in payment period 876,378 --------------------------------------------------------------------------------------------------------------------------------- JANUS TWENTY FUND: 0.00% to 1.75% 1.72% Qualified XII (0.95) 7.345 5.150 (29.88%) 63,184.5 325,400 Qualified XII (1.10) 7.820 5.140 (34.27%) (1) 33,331.7 171,325 --------------------------------------------------------------------------------------------------------------------------------- LORD ABBETT FUNDS: GROWTH AND INCOME PORTFOLIO: 0.00% to 1.75% 4.84% Qualified VI 8.622 9.703 12.54% (9) 119,941.5 1,163,792 Qualified X (1.25) 9.621 9.703 0.85% (12) 3,183.3 30,888
S-31 VARIABLE ANNUITY ACCOUNT C CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2001 (continued):
--------------------------------------------------------------------------------------------------------------------------------- Value Per Unit Units -------- Outstanding Net Assets Beginning End of Total Expense Investment at End at End of Year Year Return Ratio Income Ratio of Year of Year --------------------------------------------------------------------------------------------------------------------------------- GROWTH AND INCOME PORTFOLIO: (continued): Qualified XII (0.95) $ 9.716 $ 9.716 0.00% (12) 3,165.0 $ 30,751 Qualified XII (1.25) 9.427 9.703 2.93% (11) 4.2 41 Qualified XII (1.40) 8.366 9.696 15.90% (9) 59.9 581 --------------------------------------------------------------------------------------------------------------------------------- MID-CAP VALUE PORTFOLIO: 0.00% to 1.75% 0.63% Qualified VI 8.112 9.341 15.15% (9) 6,563.1 61,306 Qualified X (1.25) 8.988 9.341 3.93% (7) 11,046.6 103,186 Qualified XII (0.95) 9.354 9.354 0.00% (12) 10,694.4 100,035 Qualified XII (1.00) 8.963 9.352 4.34% (11) 54.6 511 --------------------------------------------------------------------------------------------------------------------------------- MFS-REGISTERED TRADEMARK- TOTAL RETURN SERIES: 1.05% to 1.25% 3.77% Qualified XXVII 12.300 12.200 (0.81%) 694,079.4 8,467,769 Qualified XXVIII 12.284 12.161 (1.00%) 1,049,274.6 12,760,228 --------------------------------------------------------------------------------------------------------------------------------- OPPENHEIMER FUNDS: DEVELOPING MARKETS FUND: 0.00% to 1.75% 2.90% Qualified VI 13.820 13.823 0.02% (8) 11.3 156 Qualified XXVII 10.467 9.145 (12.63%) (2) 24,356.2 222,737 --------------------------------------------------------------------------------------------------------------------------------- GLOBAL SECURITIES FUND/VA: 0.00% to 1.75% 10.25% Qualified III 16.737 14.538 (13.14%) 66.9 973 Qualified V 16.205 14.054 (13.27%) 910.0 12,789 Qualified VI 16.275 14.137 (13.14%) 1,933,782.3 27,337,880 Qualified VIII 16.272 14.133 (13.15%) 866.6 12,248 Qualified X (1.15) 16.319 14.189 (13.05%) 15,614.6 221,555 Qualified X (1.25) 16.275 14.137 (13.14%) 210,817.9 2,980,332 Qualified XI 16.464 14.388 (12.61%) 143,471.9 2,064,274 Qualified XII (0.05) 15.011 14.370 (4.27%) (6) 42,420.8 609,587 Qualified XII (0.35) 16.624 14.572 (12.34%) 83,344.8 1,214,500 Qualified XII (0.40) 16.600 14.543 (12.39%) 585.8 8,520 Qualified XII (0.45) 16.581 14.519 (12.44%) 17,738.7 257,548 Qualified XII (0.55) 16.538 14.467 (12.52%) 11,434.0 165,415 Qualified XII (0.60) 16.648 14.441 (13.26%) (2) 71,246.7 1,028,873 Qualified XII (0.65) 16.495 14.414 (12.62%) 7,458.6 107,508 Qualified XII (0.70) 16.473 14.388 (12.66%) 41,409.6 595,802 Qualified XII (0.75) 16.452 14.362 (12.70%) 176,662.0 2,537,220 Qualified XII (0.80) 16.473 14.374 (12.74%) 690,023.7 9,918,401 Qualified XII (0.85) 16.451 14.347 (12.79%) 107,763.6 1,546,084 Qualified XII (0.90) 16.429 14.321 (12.83%) 6,138.0 87,902 Qualified XII (0.95) 16.407 14.294 (12.88%) 145,711.8 2,082,804 Qualified XII (1.00) 16.385 14.268 (12.92%) 784,685.1 11,195,887 Qualified XII (1.05) 16.363 14.242 (12.96%) 28,236.9 402,150 Qualified XII (1.10) 16.341 14.215 (13.01%) 19,087.7 271,331 Qualified XII (1.15) 16.319 14.189 (13.05%) 8,600.5 122,032 Qualified XII (1.20) 16.297 14.163 (13.09%) 7,918.8 112,154 Qualified XII (1.25) 16.275 14.137 (13.14%) 11,458.2 161,985 Qualified XII (1.30) 16.253 14.111 (13.18%) 1,534.6 21,655 Qualified XII (1.35) 16.231 14.085 (13.22%) 1,170.3 16,483 Qualified XII (1.40) 16.210 14.059 (13.27%) 8,512.1 119,672 Qualified XII (1.50) 16.166 14.007 (13.36%) 611.0 8,558 Qualified XV 16.407 14.294 (12.88%) 8,813.0 125,973 Qualified XVI 16.166 14.007 (13.36%) 38,712.4 542,245 Qualified XVII 16.275 14.137 (13.14%) 9,583.2 135,477 Qualified XVIII 16.275 14.137 (13.14%) 10,883.3 153,857 Qualified XXI 16.446 14.351 (12.74%) 15,527.9 222,841 Qualified XXII 16.446 14.362 (12.67%) 21,852.5 313,845 Qualified XXIV 16.395 14.296 (12.80%) 62,869.6 898,784 Qualified XXV 16.294 14.225 (12.70%) 25,717.8 365,836 Qualified XXVI 16.288 14.198 (12.83%) 7,948.0 112,845 Qualified XXVII 16.759 14.586 (12.97%) 793,849.2 11,579,084 Qualified XXVIII 16.737 14.538 (13.14%) 503,065.1 7,313,561 ---------------------------------------------------------------------------------------------------------------------------------
S-32 VARIABLE ANNUITY ACCOUNT C CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2001 (continued):
--------------------------------------------------------------------------------------------------------------------------------- Value Per Unit Units -------- Outstanding Net Assets Beginning End of Total Expense Investment at End at End of Year Year Return Ratio Income Ratio of Year of Year --------------------------------------------------------------------------------------------------------------------------------- STRATEGIC BOND FUND/VA: 0.00% to 1.75% 6.28% Qualified V $ 10.142 $ 10.483 3.36% 72.9 $ 764 Qualified VI 10.185 10.545 3.53% 250,139.9 2,637,725 Qualified VIII 10.183 10.542 3.53% 983.2 10,365 Qualified X (1.25) 10.185 10.545 3.53% 63,325.5 667,767 Qualified XI 10.304 10.733 4.16% 11,080.0 118,922 Qualified XII (0.05) 10.393 10.719 3.14% (6) 1,097.9 11,768 Qualified XII (0.35) 10.437 10.905 4.48% 11,212.8 122,276 Qualified XII (0.45) 10.410 10.865 4.37% 18,216.6 197,923 Qualified XII (0.55) 10.793 10.826 0.31% (3) 729.4 7,896 Qualified XII (0.60) 10.611 10.806 1.84% (3) 1,419.9 15,343 Qualified XII (0.65) 10.356 10.787 4.16% 4,591.5 49,529 Qualified XII (0.70) 10.342 10.767 4.11% 4,338.2 46,709 Qualified XII (0.75) 10.329 10.748 4.06% 15,582.7 167,483 Qualified XII (0.80) 10.309 10.722 4.01% 26,225.3 281,188 Qualified XII (0.85) 10.295 10.702 3.95% 12,570.8 134,533 Qualified XII (0.90) 10.281 10.683 3.91% 99.2 1,060 Qualified XII (0.95) 10.268 10.663 3.85% 23,416.8 249,693 Qualified XII (1.00) 10.254 10.643 3.79% 40,851.9 434,787 Qualified XII (1.05) 10.240 10.624 3.75% 5,843.1 62,077 Qualified XII (1.10) 10.226 10.604 3.70% 4,182.8 44,354 Qualified XII (1.15) 10.213 10.584 3.63% 1,152.7 12,200 Qualified XII (1.20) 10.199 10.565 3.59% 1,928.5 20,375 Qualified XII (1.25) 10.185 10.545 3.53% 2,707.1 28,546 Qualified XII (1.30) 10.172 10.526 3.48% 133.3 1,403 Qualified XII (1.35) 10.562 10.507 (0.52%) (3) 31.9 335 Qualified XII (1.40) 10.144 10.487 3.38% 2,047.8 21,475 Qualified XII (1.50) 10.117 10.449 3.28% 200.7 2,097 Qualified XV 10.268 10.663 3.85% 4,691.8 50,029 Qualified XVI 10.117 10.449 3.28% 2,600.0 27,167 Qualified XVII 10.549 10.545 (0.04%) (3) 272.3 2,871 Qualified XVIII 10.185 10.545 3.53% 10,401.7 109,686 Qualified XXI 10.292 10.705 4.01% 2,751.2 29,452 Qualified XXII 10.292 10.713 4.09% 7,366.7 78,919 Qualified XXIV 10.260 10.664 3.94% 9,974.4 106,367 Qualified XXV 10.197 10.611 4.06% 1,762.2 18,699 Qualified XXVI 10.193 10.591 3.90% 635.9 6,735 Qualified XXVII 10.240 10.623 3.74% 156,054.7 1,657,769 Qualified XXVIII 10.226 10.588 3.54% 223,240.8 2,363,674 Annuity contracts in payment period 16,634 --------------------------------------------------------------------------------------------------------------------------------- PAX WORLD BALANCED FUND: 0.00% to 1.75% 4.11% Qualified XXVII 9.850 9.102 (7.59%) (2) 253,699.6 2,309,174 --------------------------------------------------------------------------------------------------------------------------------- PILGRIM FUNDS: EMERGING MARKETS FUND, INC.: 1.00% to 1.25% 20.84% Qualified XXVII 7.254 6.429 (11.37%) 628,973.1 4,043,668 Qualified XXVIII 7.244 6.408 (11.54%) 230,209.3 1,475,181 --------------------------------------------------------------------------------------------------------------------------------- NATURAL RESOURCES TRUST FUND: 0.00% to 1.75% 0.00% Qualified III 15.061 12.503 (16.98%) 3,386.0 42,335 Qualified V 16.636 13.789 (17.11%) 3,109.8 42,881 Qualified VI 16.250 13.490 (16.98%) 332,943.8 4,491,412 Qualified VIII 14.083 11.690 (16.99%) 1,114.5 13,028 Qualified XI 16.552 13.824 (16.48%) 20,341.4 281,199 Qualified XII (0.05) 14.677 13.768 (6.19%) (6) 401.9 5,533 Qualified XII (0.35) 10.347 8.668 (16.23%) 25,030.0 216,960 Qualified XII (0.40) 12.897 10.799 (16.27%) 236.2 2,551 Qualified XII (0.45) 10.320 8.637 (16.31%) 11,986.8 103,530 Qualified XII (0.55) 10.293 8.605 (16.40%) 2,562.7 22,052 Qualified XII (0.60) 8.529 8.590 0.72% (7) 8,577.6 73,682 Qualified XII (0.65) 10.266 8.574 (16.48%) 1,127.7 9,669 Qualified XII (0.70) 10.253 8.559 (16.52%) 10,939.2 93,629 Qualified XII (0.75) 10.240 8.544 (16.56%) 17,619.5 150,541
S-33 VARIABLE ANNUITY ACCOUNT C CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2001 (continued):
--------------------------------------------------------------------------------------------------------------------------------- Value Per Unit Units -------- Outstanding Net Assets Beginning End of Total Expense Investment at End at End of Year Year Return Ratio Income Ratio of Year of Year --------------------------------------------------------------------------------------------------------------------------------- NATURAL RESOURCES TRUST FUND: (continued): Qualified XII (0.80) $ 11.184 $ 9.327 (16.60%) 96,811.1 $ 902,957 Qualified XII (0.85) 12.806 10.674 (16.65%) 24,509.6 261,616 Qualified XII (0.90) 11.304 9.295 (17.77%) (2) 522.8 4,859 Qualified XII (0.95) 12.747 10.614 (16.73%) 23,358.3 247,925 Qualified XII (1.00) 12.717 10.584 (16.77%) 87,224.6 923,185 Qualified XII (1.05) 12.688 10.554 (16.82%) 4,112.7 43,405 Qualified XII (1.10) 12.659 10.525 (16.86%) 2,203.3 23,190 Qualified XII (1.15) 12.629 10.495 (16.90%) 3,014.6 31,638 Qualified XII (1.20) 12.600 10.465 (16.94%) 4,776.6 49,987 Qualified XII (1.25) 11.497 10.436 (9.23%) (1) 39.8 415 Qualified XII (1.40) 11.955 10.348 (13.44%) (4) 81.9 848 Qualified XV 16.448 13.696 (16.73%) 9,110.3 124,774 Qualified XVI 16.099 13.331 (17.19%) 4,742.9 63,227 Qualified XVII 16.250 13.490 (16.98%) 718.2 9,689 Qualified XXI 16.488 13.750 (16.61%) 4,701.1 64,640 Qualified XXII 16.515 13.784 (16.54%) 2,935.8 40,467 Qualified XXIV 12.726 10.605 (16.67%) 6,887.9 73,046 Qualified XXV 16.269 13.574 (16.57%) 4,187.4 56,840 Qualified XXVI 16.262 13.548 (16.69%) 1,208.0 16,366 Qualified XXVII 15.080 12.543 (16.82%) 261,254.5 3,276,915 Qualified XXVIII 15.061 12.503 (16.98%) 78,860.5 985,993 --------------------------------------------------------------------------------------------------------------------------------- PILGRIM VARIABLE FUNDS: GROWTH OPPORTUNITIES PORTFOLIO -- CLASS R: 0.00% to 1.75% 0.00% Qualified XII (0.95) 8.916 8.916 0.00% (12) 1,068.5 9,527 --------------------------------------------------------------------------------------------------------------------------------- INTERNATIONAL VALUE PORTFOLIO -- CLASS R: 0.00% to 1.75% 2.41% Qualified V 9.511 9.535 0.25% (12) 452.9 4,318 Qualified VI 8.697 9.542 9.72% (9) 359.0 3,426 Qualified X (1.25) 9.844 9.542 (3.07%) (7) 23,433.6 223,603 Qualified XII (0.75) 9.564 9.564 0.00% (12) 41.6 398 Qualified XII (0.95) 9.555 9.555 0.00% (12) 3,902.9 37,292 Qualified XII (1.00) 8.701 9.553 9.79% (9) 131,897.5 1,260,017 --------------------------------------------------------------------------------------------------------------------------------- MID CAP OPPORTUNITIES PORTFOLIO -- CLASS R: 0.00% to 1.75% 0.00% Qualified VI 8.835 9.446 6.92% (11) 34.5 326 Qualified X (1.25) 10.042 9.446 (5.94%) (8) 2,082.7 19,673 Qualified XII (0.95) 9.458 9.458 0.00% (12) 1,006.8 9,522 --------------------------------------------------------------------------------------------------------------------------------- SMALL CAP OPPORTUNITIES PORTFOLIO -- CLASS R: 0.00% to 1.75% 0.00% Qualified VI 7.835 8.945 14.17% (10) 2,339.4 20,926 Qualified X (1.25) 10.123 8.945 (11.64%) (8) 2,593.4 23,198 Qualified XII (0.95) 8.958 8.958 0.00% (12) 1,639.3 14,685 Qualified XII (1.00) 8.622 8.956 3.87% (11) 51.4 460 --------------------------------------------------------------------------------------------------------------------------------- PIONEER FUNDS: EQUITY-INCOME VCT PORTFOLIO: 0.00% to 1.75% 0.50% Qualified VI 9.279 9.610 3.57% (10) 2,341.8 22,505 Qualified X (1.25) 9.810 9.610 (2.04%) (7) 3,382.0 32,501 Qualified XII (0.95) 9.623 9.623 0.00% (12) 3,339.5 32,136 Qualified XII (1.00) 9.407 9.621 2.27% (11) 68.9 663 Qualified XII (1.40) 9.055 9.603 6.05% (9) 62.5 600 --------------------------------------------------------------------------------------------------------------------------------- FUND VCT PORTFOLIO: 0.00% to 1.75% 0.00% Qualified XII (0.95) 9.433 9.433 0.00% (12) 945.0 8,914 Qualified XII (1.40) 8.475 9.414 11.08% (9) 3.3 31 --------------------------------------------------------------------------------------------------------------------------------- MID-CAP VALUE VCT PORTFOLIO: 0.00% to 1.75% 0.00% Qualified VI 8.496 9.961 17.24% (9) 3,545.1 35,313 Qualified X (1.25) 9.785 9.961 1.80% (8) 3,865.0 38,499 Qualified XII (0.95) 9.974 9.974 0.00% (12) 439.3 4,382 Qualified XII (1.50) 9.832 9.949 1.19% (8) 271.2 2,698 ---------------------------------------------------------------------------------------------------------------------------------
S-34 VARIABLE ANNUITY ACCOUNT C CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2001 (continued):
--------------------------------------------------------------------------------------------------------------------------------- Value Per Unit Units -------- Outstanding Net Assets Beginning End of Total Expense Investment at End at End of Year Year Return Ratio Income Ratio of Year of Year --------------------------------------------------------------------------------------------------------------------------------- PORTFOLIO PARTNERS, INC. (PPI): PPI MFS CAPITAL OPPORTUNITIES PORTFOLIO -- I CLASS: 0.00% to 1.75% 18.63% Qualified III $ 40.144 $ 29.828 (25.70%) 52,755.8 $ 1,573,599 Qualified V 32.806 24.337 (25.82%) 7,887.5 191,957 Qualified VI 33.037 24.548 (25.70%) 2,564,561.1 62,954,846 Qualified VIII 28.396 21.098 (25.70%) 10,210.1 215,413 Qualified X (1.15) 14.398 10.709 (25.62%) 5,862.7 62,784 Qualified X (1.25) 14.359 10.670 (25.69%) 367,526.5 3,921,508 Qualified XI 33.651 25.156 (25.24%) 275,367.0 6,927,131 Qualified XII (0.05) 28.829 25.054 (13.09%) (6) 20,611.2 516,392 Qualified XII (0.35) 14.877 11.155 (25.02%) 179,325.1 2,000,372 Qualified XII (0.40) 21.815 16.349 (25.06%) 920.9 15,056 Qualified XII (0.45) 14.838 11.114 (25.10%) 131,701.4 1,463,729 Qualified XII (0.55) 14.799 11.074 (25.17%) 80,209.6 888,241 Qualified XII (0.60) 14.780 11.054 (25.21%) 82,016.6 906,612 Qualified XII (0.65) 14.761 11.034 (25.25%) 22,069.5 243,515 Qualified XII (0.70) 14.741 11.014 (25.28%) 149,886.7 1,650,852 Qualified XII (0.75) 14.722 10.995 (25.32%) 183,731.2 2,020,125 Qualified XII (0.80) 16.643 12.423 (25.36%) 821,647.3 10,207,325 Qualified XII (0.85) 21.662 16.161 (25.39%) 452,342.2 7,310,302 Qualified XII (0.90) 16.057 11.973 (25.43%) 7,723.9 92,478 Qualified XII (0.95) 21.561 16.070 (25.47%) 248,057.0 3,986,276 Qualified XII (1.00) 21.512 16.024 (25.51%) 1,201,444.7 19,251,950 Qualified XII (1.05) 21.462 15.979 (25.55%) 55,243.1 882,729 Qualified XII (1.10) 21.412 15.934 (25.58%) 32,215.5 513,321 Qualified XII (1.15) 21.363 15.889 (25.62%) 28,373.3 450,824 Qualified XII (1.20) 21.313 15.845 (25.66%) 23,150.0 366,812 Qualified XII (1.25) 21.264 15.800 (25.70%) 9,841.0 155,488 Qualified XII (1.30) 21.214 15.755 (25.73%) 3,331.1 52,482 Qualified XII (1.35) 21.165 15.711 (25.77%) 597.0 9,380 Qualified XII (1.40) 21.116 15.667 (25.81%) 10,076.1 157,863 Qualified XII (1.50) 21.019 15.579 (25.88%) 1,301.9 20,283 Qualified XV 33.440 24.923 (25.47%) 26,053.8 649,338 Qualified XVI 32.731 24.260 (25.88%) 44,604.4 1,082,103 Qualified XVII 33.037 24.548 (25.70%) 4,221.6 103,632 Qualified XVIII 14.359 10.670 (25.69%) 11,004.8 117,421 Qualified XXI 33.521 25.021 (25.36%) 17,946.4 449,038 Qualified XXII 33.577 25.083 (25.30%) 38,024.6 953,771 Qualified XXIV 21.526 16.056 (25.41%) 50,045.7 803,533 Qualified XXV 33.077 24.702 (25.32%) 29,739.7 734,629 Qualified XXVI 33.063 24.654 (25.43%) 5,482.6 135,168 Qualified XXVII 40.196 29.926 (25.55%) 2,239,840.2 67,029,457 Qualified XXVIII 40.144 29.829 (25.69%) 488,111.3 14,559,872 Annuity contracts in payment period 378,509 --------------------------------------------------------------------------------------------------------------------------------- PPI MFS EMERGING EQUITIES PORTFOLIO -- I CLASS: 0.00% to 1.75% 6.20% Qualified III 20.194 14.914 (26.15%) 101,412.9 1,512,472 Qualified V 19.892 14.668 (26.26%) 8,247.3 120,971 Qualified VI 20.033 14.795 (26.15%) 8,308,496.0 122,924,198 Qualified VIII 20.982 15.495 (26.15%) 13,219.2 204,831 Qualified X (1.15) 20.179 14.919 (26.07%) 32,389.6 483,220 Qualified X (1.25) 20.033 14.795 (26.15%) 1,153,476.5 17,065,685 Qualified XI 20.405 15.162 (25.69%) 674,542.9 10,227,419 Qualified XII (0.05) 16.984 15.101 (11.09%) (6) 107,223.7 1,619,185 Qualified XII (0.35) 11.747 8.755 (25.47%) 736,762.3 6,450,354 Qualified XII (0.40) 13.619 10.145 (25.51%) 5,751.6 58,350 Qualified XII (0.45) 11.716 8.723 (25.55%) 329,339.6 2,872,829 Qualified XII (0.55) 11.686 8.692 (25.62%) 91,405.5 794,497 Qualified XII (0.60) 12.821 8.676 (32.33%) (2) 354,089.9 3,072,084 Qualified XII (0.65) 11.655 8.660 (25.70%) 110,098.4 953,452 Qualified XII (0.70) 11.640 8.645 (25.73%) 189,892.0 1,641,616 Qualified XII (0.75) 11.625 8.629 (25.77%) 646,310.7 5,577,015 Qualified XII (0.80) 12.527 9.294 (25.81%) 2,738,168.1 25,448,534
S-35 VARIABLE ANNUITY ACCOUNT C CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2001 (continued):
--------------------------------------------------------------------------------------------------------------------------------- Value Per Unit Units -------- Outstanding Net Assets Beginning End of Total Expense Investment at End at End of Year Year Return Ratio Income Ratio of Year of Year --------------------------------------------------------------------------------------------------------------------------------- PPI MFS EMERGING EQUITIES PORTFOLIO -- I CLASS: (continued): Qualified XII (0.85) $ 13.523 $ 10.028 (25.84%) 914,949.3 $ 9,175,112 Qualified XII (0.90) 12.097 8.966 (25.88%) 17,146.8 153,738 Qualified XII (0.95) 13.460 9.971 (25.92%) 610,352.3 6,085,823 Qualified XII (1.00) 13.429 9.943 (25.96%) 2,960,169.7 29,432,967 Qualified XII (1.05) 13.398 9.915 (26.00%) 204,337.0 2,026,001 Qualified XII (1.10) 13.367 9.887 (26.03%) 68,030.8 672,621 Qualified XII (1.15) 13.336 9.859 (26.07%) 83,543.1 823,651 Qualified XII (1.20) 13.305 9.832 (26.10%) 80,837.3 794,792 Qualified XII (1.25) 13.274 9.804 (26.14%) 39,073.1 383,073 Qualified XII (1.30) 13.244 9.776 (26.19%) 2,994.1 29,270 Qualified XII (1.35) 13.213 9.749 (26.22%) 295.8 2,884 Qualified XII (1.40) 13.182 9.721 (26.26%) 20,142.2 195,802 Qualified XII (1.50) 13.121 9.666 (26.33%) 7,301.2 70,573 Qualified XV 20.277 15.021 (25.92%) 79,162.8 1,189,105 Qualified XVI 19.847 14.621 (26.33%) 137,851.4 2,015,525 Qualified XVII 20.033 14.795 (26.15%) 12,607.5 186,528 Qualified XVIII 20.033 14.795 (26.15%) 22,241.0 329,056 Qualified XXI 20.326 15.080 (25.81%) 102,235.1 1,541,706 Qualified XXII 20.360 15.118 (25.75%) 217,215.0 3,283,857 Qualified XXIV 13.438 9.963 (25.86%) 201,762.3 2,010,158 Qualified XXV 20.057 14.888 (25.77%) 88,671.0 1,320,134 Qualified XXVI 20.048 14.859 (25.88%) 16,554.1 245,978 Qualified XXVII 20.220 14.963 (26.00%) 2,375,970.8 35,551,651 Qualified XXVIII 20.194 14.914 (26.15%) 441,170.2 6,579,613 Annuity contracts in payment period 110,648 --------------------------------------------------------------------------------------------------------------------------------- PPI MFS RESEARCH GROWTH PORTFOLIO -- I CLASS: 0.00% to 1.75% 20.46% Qualified I 12.713 9.939 (21.82%) 603.1 5,994 Qualified III 16.788 13.116 (21.87%) 75,613.4 991,746 Qualified V 19.113 14.909 (22.00%) 11,605.5 173,026 Qualified VI 19.365 15.129 (21.87%) 5,680,341.1 85,937,880 Qualified VII 16.350 12.782 (21.82%) 118,387.3 1,513,226 Qualified VIII 16.330 12.757 (21.88%) 13,920.7 177,587 Qualified IX 16.173 12.668 (21.67%) 2,854.7 36,163 Qualified X (1.15) 19.503 15.252 (21.80%) 10,200.2 155,574 Qualified X (1.25) 19.365 15.129 (21.87%) 744,283.5 11,260,265 Qualified XI 19.724 15.504 (21.40%) 327,780.4 5,081,908 Qualified XII (0.05) 17.104 15.441 (9.72%) (6) 36,071.4 556,979 Qualified XII (0.35) 12.452 9.817 (21.16%) 407,660.1 4,001,999 Qualified XII (0.40) 12.506 9.855 (21.20%) 6,844.9 67,456 Qualified XII (0.45) 12.420 9.782 (21.24%) 108,893.4 1,065,195 Qualified XII (0.55) 12.387 9.746 (21.32%) 46,783.0 455,947 Qualified XII (0.60) 12.638 9.729 (23.02%) (2) 123,118.3 1,197,818 Qualified XII (0.65) 12.355 9.711 (21.40%) 100,081.8 971,894 Qualified XII (0.70) 12.339 9.694 (21.44%) 89,231.8 865,013 Qualified XII (0.75) 12.323 9.676 (21.48%) 179,677.2 1,738,557 Qualified XII (0.80) 13.621 10.690 (21.52%) 562,829.4 6,016,646 Qualified XII (0.85) 12.418 9.741 (21.56%) 665,570.5 6,483,322 Qualified XII (0.90) 13.236 10.378 (21.59%) 7,345.7 76,234 Qualified XII (0.95) 12.361 9.686 (21.64%) 352,288.1 3,412,263 Qualified XII (1.00) 12.332 9.659 (21.68%) 1,231,653.4 11,896,540 Qualified XII (1.05) 12.304 9.632 (21.72%) 53,074.1 511,210 Qualified XII (1.10) 12.275 9.605 (21.75%) 42,534.1 408,540 Qualified XII (1.15) 12.247 9.578 (21.79%) 58,402.4 559,378 Qualified XII (1.20) 12.218 9.551 (21.83%) 39,153.4 373,954 Qualified XII (1.25) 12.190 9.524 (21.87%) 8,680.2 82,670 Qualified XII (1.30) 12.162 9.497 (21.91%) 642.1 6,098 Qualified XII (1.35) 12.133 9.470 (21.95%) 248.0 2,349 Qualified XII (1.40) 12.105 9.443 (21.99%) 6,501.7 61,396 Qualified XII (1.50) 12.049 9.390 (22.07%) 1,483.0 13,925 Qualified XV 19.601 15.360 (21.64%) 61,574.8 945,789 Qualified XVI 19.185 14.951 (22.07%) 120,475.1 1,801,223
S-36 VARIABLE ANNUITY ACCOUNT C CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2001 (continued):
--------------------------------------------------------------------------------------------------------------------------------- Value Per Unit Units -------- Outstanding Net Assets Beginning End of Total Expense Investment at End at End of Year Year Return Ratio Income Ratio of Year of Year --------------------------------------------------------------------------------------------------------------------------------- PPI MFS RESEARCH GROWTH PORTFOLIO -- I CLASS: (continued): Qualified XVII $ 19.365 $ 15.129 (21.87%) 99,038.1 $ 1,498,347 Qualified XVIII 19.365 15.129 (21.87%) 31,674.0 479,196 Qualified XIX 12.713 9.939 (21.82%) 8,062.0 80,128 Qualified XX 16.788 13.116 (21.87%) 9,964.0 130,688 Qualified XXI 19.648 15.420 (21.52%) 39,548.4 609,837 Qualified XXII 19.681 15.459 (21.45%) 105,949.1 1,637,867 Qualified XXIV 12.340 9.678 (21.57%) 135,543.6 1,311,791 Qualified XXV 19.388 15.224 (21.48%) 34,516.4 525,478 Qualified XXVI 19.380 15.194 (21.60%) 19,140.6 290,823 Qualified XXVII 18.387 14.393 (21.72%) 955,109.7 13,746,894 Qualified XXVIII 18.363 14.347 (21.87%) 145,206.8 2,083,282 Qualified XXIX 16.788 13.116 (21.87%) 3,274.9 42,953 Qualified XXX 16.785 13.081 (22.07%) 70,259.5 919,065 --------------------------------------------------------------------------------------------------------------------------------- PPI SCUDDER INTERNATIONAL GROWTH PORTFOLIO -- I CLASS: 0.00% to 1.75% 23.69% Qualified III 25.876 18.672 (27.84%) 33,686.6 628,997 Qualified V 24.404 17.581 (27.96%) 3,982.3 70,012 Qualified VI 24.820 17.910 (27.84%) 2,680,990.8 48,016,546 Qualified VIII 20.907 15.085 (27.85%) 21,702.2 327,377 Qualified X (1.15) 24.997 18.055 (27.77%) 32,985.2 595,547 Qualified X (1.25) 24.820 17.910 (27.84%) 357,693.1 6,406,284 Qualified XI 25.281 18.353 (27.40%) 225,578.3 4,140,038 Qualified XII (0.05) 20.571 18.279 (11.14%) (6) 38,078.2 696,031 Qualified XII (0.35) 12.401 9.030 (27.18%) 398,476.2 3,598,240 Qualified XII (0.40) 17.187 12.508 (27.22%) 2,307.0 28,856 Qualified XII (0.45) 12.369 8.997 (27.26%) 62,048.2 558,248 Qualified XII (0.55) 12.337 8.965 (27.33%) 51,349.1 460,345 Qualified XII (0.60) 11.980 8.949 (25.30%) (2) 119,265.8 1,067,310 Qualified XII (0.65) 12.305 8.933 (27.40%) 25,877.1 231,160 Qualified XII (0.70) 12.289 8.916 (27.45%) 77,879.2 694,371 Qualified XII (0.75) 12.273 8.900 (27.48%) 207,064.7 1,842,876 Qualified XII (0.80) 13.840 10.032 (27.51%) 724,610.2 7,269,290 Qualified XII (0.85) 17.066 12.364 (27.55%) 455,677.0 5,633,991 Qualified XII (0.90) 13.797 9.991 (27.59%) 7,079.7 70,733 Qualified XII (0.95) 16.987 12.294 (27.63%) 244,684.4 3,008,150 Qualified XII (1.00) 16.948 12.260 (27.66%) 997,076.6 12,224,159 Qualified XII (1.05) 16.908 12.225 (27.70%) 60,064.8 734,292 Qualified XII (1.10) 16.869 12.191 (27.73%) 25,606.8 312,172 Qualified XII (1.15) 16.830 12.156 (27.77%) 21,211.1 257,842 Qualified XII (1.20) 16.791 12.122 (27.81%) 13,727.7 166,407 Qualified XII (1.25) 16.752 12.088 (27.84%) 7,772.3 93,952 Qualified XII (1.30) 16.714 12.054 (27.88%) 502.7 6,059 Qualified XII (1.35) 15.807 12.020 (23.96%) (2) 224.4 2,697 Qualified XII (1.40) 16.636 11.986 (27.95%) 4,500.9 53,948 Qualified XII (1.50) 16.559 11.919 (28.02%) 2,879.8 34,324 Qualified XV 25.123 18.183 (27.62%) 34,445.4 626,320 Qualified XVI 24.590 17.699 (28.02%) 45,751.9 809,763 Qualified XVII 24.820 17.910 (27.84%) 1,569.2 28,104 Qualified XVIII 24.820 17.910 (27.84%) 7,244.1 129,742 Qualified XXI 25.184 18.254 (27.52%) 30,202.5 551,317 Qualified XXII 25.225 18.299 (27.46%) 48,206.7 882,134 Qualified XXIV 16.959 12.284 (27.57%) 37,911.7 465,707 Qualified XXV 24.850 18.021 (27.48%) 16,421.0 295,922 Qualified XXVI 24.839 17.987 (27.59%) 1,652.3 29,720 Qualified XXVII 25.910 18.733 (27.70%) 2,129,254.4 39,887,323 Qualified XXVIII 25.876 18.672 (27.84%) 140,556.3 2,624,467 Annuity contracts in payment period 5,107 --------------------------------------------------------------------------------------------------------------------------------- PPI T. ROWE PRICE GROWTH EQUITY PORTFOLIO -- I CLASS: 0.00% to 1.75% 15.67% Qualified III 24.962 22.131 (11.34%) 383.0 8,476 Qualified V 21.910 19.394 (11.48%) 2,094.9 40,628 Qualified VI 21.643 19.189 (11.34%) 5,148,256.9 98,789,901 Qualified VIII 22.091 19.585 (11.34%) 4,592.7 89,949
S-37 VARIABLE ANNUITY ACCOUNT C CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2001 (continued):
--------------------------------------------------------------------------------------------------------------------------------- Value Per Unit Units -------- Outstanding Net Assets Beginning End of Total Expense Investment at End at End of Year Year Return Ratio Income Ratio of Year of Year --------------------------------------------------------------------------------------------------------------------------------- PPI T. ROWE PRICE GROWTH EQUITY PORTFOLIO -- I CLASS: (continued): Qualified X (1.15) $ 24.380 $ 21.637 (11.25%) 24,854.0 $ 537,767 Qualified X (1.25) 24.245 21.496 (11.34%) 612,057.3 13,156,783 Qualified XI 22.045 19.664 (10.80%) 367,199.3 7,220,607 Qualified XII (0.05) 20.313 19.585 (3.58%) (6) 25,698.1 503,298 Qualified XII (0.35) 13.434 12.019 (10.53%) 277,718.3 3,337,896 Qualified XII (0.40) 20.457 18.293 (10.58%) 1,730.1 31,648 Qualified XII (0.45) 13.399 11.976 (10.62%) 184,736.4 2,212,403 Qualified XII (0.55) 13.364 11.933 (10.71%) 29,886.2 356,632 Qualified XII (0.60) 13.566 11.911 (12.20%) (2) 151,125.9 1,800,061 Qualified XII (0.65) 13.329 11.890 (10.80%) 16,816.2 199,945 Qualified XII (0.70) 13.312 11.868 (10.85%) 130,866.4 1,553,123 Qualified XII (0.75) 13.295 11.847 (10.89%) 337,910.0 4,003,220 Qualified XII (0.80) 14.625 13.026 (10.93%) 927,451.0 12,080,977 Qualified XII (0.85) 20.313 18.082 (10.98%) 204,547.8 3,698,633 Qualified XII (0.90) 14.163 12.601 (11.03%) 13,888.0 175,003 Qualified XII (0.95) 20.219 17.980 (11.07%) 353,929.3 6,363,648 Qualified XII (1.00) 20.172 17.930 (11.11%) 853,647.9 15,305,907 Qualified XII (1.05) 20.125 17.879 (11.16%) 103,378.6 1,848,306 Qualified XII (1.10) 20.079 17.829 (11.21%) 44,138.0 786,936 Qualified XII (1.15) 20.032 17.779 (11.25%) 25,440.0 452,298 Qualified XII (1.20) 19.986 17.729 (11.29%) 24,564.1 435,497 Qualified XII (1.25) 19.939 17.679 (11.33%) 7,849.1 138,765 Qualified XII (1.30) 19.893 17.629 (11.38%) 559.4 9,862 Qualified XII (1.35) 19.847 17.579 (11.43%) 346.9 6,099 Qualified XII (1.40) 19.801 17.530 (11.47%) 11,446.7 200,660 Qualified XII (1.50) 19.710 17.431 (11.56%) 516.5 9,003 Qualified XV 21.907 19.482 (11.07%) 23,775.0 463,185 Qualified XVI 21.443 18.964 (11.56%) 91,526.9 1,735,717 Qualified XVII 21.643 19.189 (11.34%) 17,503.3 335,871 Qualified XVIII 24.245 21.496 (11.34%) 19,133.3 411,290 Qualified XXI 21.960 19.559 (10.93%) 39,246.9 767,631 Qualified XXII 21.997 19.607 (10.87%) 55,315.8 1,084,577 Qualified XXIV 20.185 17.965 (11.00%) 95,737.6 1,719,926 Qualified XXV 21.669 19.309 (10.89%) 54,993.7 1,061,873 Qualified XXVI 21.660 19.272 (11.02%) 26,493.6 510,584 Qualified XXVII 24.994 22.204 (11.16%) 1,470,698.1 32,655,380 Qualified XXVIII 24.962 22.132 (11.34%) 340,010.3 7,525,108 Annuity contracts in payment period 127,791 --------------------------------------------------------------------------------------------------------------------------------- WACHOVIA SPECIAL VALUES FUND: 0.00% to 1.75% 11.57% Qualified XII (0.95) 10.967 12.556 14.49% (1) 15,173.0 190,512 Qualified XXVII 11.026 12.433 12.76% (2) 300,428.3 3,735,225 --------------------------------------------------------------------------------------------------------------------------------- TOTAL $11,141,346,898 =================================================================================================================================
QUALIFIED I Individual contracts issued prior to May 1, 1975 in connection with Qualified Corporate Retirement Plans established pursuant to Section 401 of the Internal Revenue Code (Code); Tax-Deferred Annuity Plans established by the public school systems and tax-exempt organizations pursuant to Section 403(b) of the Code, and certain Individual Retirement Annuity Plans established by or on behalf of individuals pursuant to section 408(b) of the Code; Individual contracts issued prior to November 1, 1975 in connection with H.R. 10 Plans established by persons entitled to the benefits of the Self-Employed Individuals Tax Retirement Act of 1962, as amended; allocated group contracts issued prior to May 1, 1975 in connection with Qualified Corporate Retirement Plans; and group contracts issued prior to October 1, 1978 in connection with Tax-Deferred Annuity Plans. QUALIFIED III Individual contracts issued in connection with Tax-Deferred Annuity Plans and Individual Retirement Annuity Plans since May 1, 1975, H.R. 10 Plans since November 1, 1975; group contracts issued since October 1, 1978 in connection with Tax-Deferred Annuity Plans and group contracts issued since May 1, 1979 in connection with Deferred Compensation Plans adopted by state and local governments and H.R. 10 Plans.
S-38 VARIABLE ANNUITY ACCOUNT C CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2001 (continued): QUALIFIED V Certain group AetnaPlus contracts issued since August 28, 1992 in connection with Optional Retirement Plans established pursuant to Section 403(b) or 401(a) of the Internal Revenue Code. QUALIFIED VI Certain group AetnaPlus contracts issued in connection with Tax-Deferred Annuity Plans, Retirement Plus Plans and Deferred Compensation Plans since August 28, 1992. QUALIFIED VII Certain existing contracts that were converted to ACES, an administrative system (previously valued under Qualified I). QUALIFIED VIII Group AetnaPlus contracts issued in connection with Tax-Deferred Annuity Plans and Deferred Compensation Plans adopted by state and local governments since June 30, 1993. QUALIFIED IX Certain large group contracts (Jumbo) that were converted to ACES, an administrative system (previously valued under Qualified VI). QUALIFIED X Individual Retirement Annuity and Simplified Employee Pension Plans issued or converted to ACES, an administrative system. QUALIFIED XI Certain large group contracts issued in connection with Deferred Compensation Plans adopted by state and local governments since January 1996. QUALIFIED XII Group Retirement Plus and Voluntary TDA contracts issued since 1996 in connection with plans established pursuant to Section 403(b) or 401(a) of the Internal Revenue Code, shown separately by applicable daily charge; and contracts issued since October 1, 1996 in connection with Optional Retirement Plans established pursuant to Section 403(b) or 403(a) of the Internal Revenue Code. QUALIFIED XIII Certain existing contracts issued in connection with Deferred Compensation Plans issued through product exchange on May 25, 1996 (previously valued under Qualified VI). QUALIFIED XIV Certain existing contracts issued in connection with Deferred Compensation Plans issued through product exchange on November 1, 1996 (previously valued under Qualified III). QUALIFIED XV Certain existing contracts issued in connection with Deferred Compensation Plans issued through product exchange on December 16, 1996 (previously valued under Qualified VI), and new contracts issued after that date in connection with certain Deferred Compensation Plans. QUALIFIED XVI Group AetnaPlus contracts assessing an administrative expense charge effective April 7, 1997 issued in connection with Tax-Deferred Annuity Plans, Retirement Plus Plans and Deferred Compensation Plans. QUALIFIED XVII Group AetnaPlus contracts containing contractual limits on fees issued in connection with Tax-Deferred Annuity Plans and Deferred Compensation Plans, which resulted in reduced daily charges for certain funding options effective May 29, 1997. QUALIFIED XVIII Individual Retirement Annuity and Simplified Employee Pension Plan contracts containing contractual limits on fees, which resulted in reduced daily charges for certain funding options effective May 29, 1997. QUALIFIED XIX Group Corporate 401 contracts containing contractual limits on fees, which resulted in reduced daily charges for certain funding options effective May 29, 1997. QUALIFIED XX Group HR 10 contracts containing contractual limits on fees, which resulted in reduced daily charges for certain funding options effective May 29, 1997. QUALIFIED XXI Certain existing contracts issued in connection with Deferred Compensation Plans having contract modifications effective May 20, 1999. QUALIFIED XXII Certain existing contracts issued in connection with Deferred Compensation Plans having contract modifications effective May 20, 1999. QUALIFIED XXIV Group contract issued in connection with Optional Retirement Plans having contract modifications effective July 2000 to lower mortality and expense fee. QUALIFIED XXV Group contract issued in connection with Aetna Government Custom Choice plans having contract modifications effective October 2000 to lower mortality and expense fee. QUALIFIED XXVI Group contract issued in connection with Aetna Government Custom Choice plans having contract modifications effective October 2000 to lower mortality and expense fee. QUALIFIED XXVII Group contract issued in connection with Tax Deferred Annuity Plans having contract modifications effective February 2000 to lower mortality and expense fee. QUALIFIED XXVIII Group contract issued in connection with Optional Retirement Plans having contract modifications effective February 2000 to lower mortality and expense fee. QUALIFIED XXIX Individual contracts issued in connection with Tax-Deferred Annuity Plans and Individual Retirement Annuity Plans since May 1, 1975, H.R. 10 Plans since November 1, 1975; group contracts issued since October 1, 1978 in connection with Tax-Deferred Annuity Plans and group contracts issued since May 1, 1979 in connection with Deferred Compensation Plans adopted by state and local governments and H.R. 10 Plans.
S-39 VARIABLE ANNUITY ACCOUNT C CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2001 (continued): QUALIFIED XXX Individual contracts issued in connection with Tax-Deferred Annuity Plans and Individual Retirement Annuity Plans since May 1, 1975, H.R. 10 Plans since November 1, 1975; group contracts issued since October 1, 1978 in connection with Tax-Deferred Annuity Plans and group contracts issued since May 1, 1979 in connection with Deferred Compensation Plans adopted by state and local governments and H.R. 10 Plans.
NOTES TO CONDENSED FINANCIAL INFORMATION: (1) - Reflects less than a full year of performance activity. Funds were first received in this option during January 2001. (2) - Reflects less than a full year of performance activity. Funds were first received in this option during February 2001. (3) - Reflects less than a full year of performance activity. Funds were first received in this option during March 2001. (4) - Reflects less than a full year of performance activity. Funds were first received in this option during April 2001. (5) - Reflects less than a full year of performance activity. Funds were first received in this option during May 2001. (6) - Reflects less than a full year of performance activity. Funds were first received in this option during June 2001. (7) - Reflects less than a full year of performance activity. Funds were first received in this option during July 2001. (8) - Reflects less than a full year of performance activity. Funds were first received in this option during August 2001. (9) - Reflects less than a full year of performance activity. Funds were first received in this option during September 2001. (10) - Reflects less than a full year of performance activity. Funds were first received in this option during October 2001. (11) - Reflects less than a full year of performance activity. Funds were first received in this option during November 2001. (12) - Reflects less than a full year of performance activity. Funds were first received in this option during December 2001.
See Notes to Financial Statements S-40 (This Page Left Blank Intentionally) S-41 VARIABLE ANNUITY ACCOUNT C NOTES TO FINANCIAL STATEMENTS - December 31, 2001 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 amended, 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 accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect amounts reported therein. Actual results could differ from these estimates. 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, 2001: Aetna Ascent VP Franklin Value Securities Fund Aetna Balanced VP, Inc. Janus Aspen Series: Aetna Bond VP - Aggressive Growth Portfolio -- I Shares Aetna Crossroads VP - Balanced Portfolio -- I Shares Aetna GET Fund, Series D - Capital Appreciation Portfolio -- S Shares Aetna GET Fund, Series E - Flexible Income Portfolio -- I Shares Aetna GET Fund, Series G - Growth Portfolio -- I Shares Aetna GET Fund, Series H - Worldwide Growth Portfolio -- I Shares Aetna GET Fund, Series I Janus Twenty Fund Aetna GET Fund, Series J Lord Abbett Funds: Aetna GET Fund, Series K - Growth and Income Portfolio Aetna GET Fund, Series L - Mid-Cap Value Portfolio Aetna GET Fund, Series Q MFS-Registered Trademark- Total Return Series Aetna Growth and Income VP Oppenheimer Funds: Aetna Growth VP - Developing Markets Fund Aetna Index Plus Bond VP - Global Securities Fund Aetna Index Plus Large Cap VP - Strategic Bond Fund Aetna Index Plus Mid Cap VP Pax World Balanced Fund Aetna Index Plus Small Cap VP Pilgrim Funds: Aetna International VP - Emerging Markets Fund Aetna Legacy VP - Natural Resources Trust Fund Aetna Money Market VP Pilgrim Variable Funds: Aetna Small Company VP - Growth Opportunities Portfolio -- Class R Aetna Technology VP - International Value Portfolio -- Class R Aetna Value Opportunity VP - Mid Cap Opportunities Portfolio -- Class R AIM V.I. Funds: - Small Cap Opportunities Portfolio -- Class R - Capital Appreciation Fund Pioneer Funds: - Growth and Income Fund - Equity-Income VCT Portfolio - Growth Fund - Fund VCT Portfolio - Value Fund - Mid-Cap Value VCT Portfolio Calvert Social Balanced Portfolio Portfolio Partners, Inc. (PPI): Chapman DEM-Registered Trademark- Equity - PPI MFS Capital Opportunities Portfolio -- I Class Fund - PPI MFS Emerging Equities Portfolio -- I Class Fidelity-Registered Trademark- - PPI MFS Research Growth Portfolio -- I Class Investments Variable Insurance Products - PPI Scudder International Growth Portfolio -- I Class Funds: - PPI T. Rowe Price Growth Equity Portfolio -- I Class - Asset Manager Portfolio -- Initial Wachovia Special Values Fund Class - Contrafund-Registered Trademark- Portfolio -- Initial Class - Equity-Income Portfolio -- Initial Class - Growth Portfolio -- Initial Class - High Income Portfolio -- Initial Class - Index 500 Portfolio -- Initial Class - Overseas Portfolio -- Initial Class
S-42 VARIABLE ANNUITY ACCOUNT C NOTES TO FINANCIAL STATEMENTS - December 31, 2001 (continued): 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 Statement of Operations. 4. PURCHASES AND SALES OF INVESTMENTS The cost of purchases and proceeds from sales of investments other than short-term investments for the year ended December 31, 2001 aggregated $3,490,603,072 and $3,331,253,418, respectively. S-43 VARIABLE ANNUITY ACCOUNT C NOTES TO FINANCIAL STATEMENTS - December 31, 2001 (continued): 5. SUPPLEMENTAL INFORMATION TO STATEMENT OF OPERATIONS Valuation Proceeds Cost of YEAR ENDED DECEMBER 31, Period from Investments 2001 Dividends Deductions Sales Sold AETNA ASCENT VP Annuity contracts in accumulation $ 1,154,661 $ (769,240) $ 5,676,614 $ (5,975,402) AETNA BALANCED VP, INC. Annuity contracts in accumulation 47,111,549 (9,056,666) 80,301,514 (93,997,468) AETNA BOND VP Annuity contracts in accumulation 22,752,368 (3,985,993) 37,890,365 (36,793,783) AETNA CROSSROADS VP Annuity contracts in accumulation 1,515,768 (650,061) 5,614,028 (5,931,680) AETNA GET FUND, SERIES C Annuity contracts in accumulation 7,610,032 (1,474,157) 117,167,336 (175,468,125) AETNA GET FUND, SERIES D Annuity contracts in accumulation 4,506,601 (4,104,666) 52,874,052 (54,864,923) AETNA GET FUND, SERIES E Annuity contracts in accumulation 984,703 (1,700,635) 16,111,808 (16,498,393) AETNA GET FUND, SERIES G Annuity contracts in accumulation 141,127 (507,028) 5,072,065 (5,182,909) AETNA GET FUND, SERIES H Annuity contracts in accumulation 128,690 (377,071) 3,720,840 (3,761,606) AETNA GET FUND, SERIES I Annuity contracts in accumulation 3,175 (22,583) 125,829 (128,896) AETNA GET FUND, SERIES J Annuity contracts in accumulation 687 (6,931) 82,583 (85,549) AETNA GET FUND, SERIES K Annuity contracts in accumulation 103 (36,706) 561,715 (571,874) AETNA GET FUND, SERIES L Annuity contracts in accumulation 30,395 (15,545) 269,903 (266,083) AETNA GET FUND, SERIES Q Annuity contracts in accumulation 0 (1,014) 62,851 (62,850) AETNA GROWTH AND INCOME VP Annuity contracts in accumulation 24,442,703 (43,449,288) 532,074,722 (829,138,963) AETNA GROWTH VP Annuity contracts in accumulation 16,483,152 (1,441,453) 15,612,423 (18,190,464) AETNA INDEX PLUS LARGE CAP VP Annuity contracts in accumulation 19,293,823 (4,941,421) 48,269,850 (47,998,296) AETNA INDEX PLUS MID CAP VP Annuity contracts in accumulation 4,216,905 (723,055) 25,007,221 (26,008,332) AETNA INDEX PLUS SMALL CAP VP Annuity contracts in accumulation 1,024,779 (219,751) 21,110,252 (21,316,974) AETNA INTERNATIONAL VP Annuity contracts in accumulation 13,095 (127,850) 24,243,846 (32,503,633) ---------------------------------------------------------------------------------------
S-44 Net Net Net Unrealized Net Increase Realized Gain (Loss) Change in (Decrease) Gain (Loss) -------------------------------- Unrealized in Net Assets YEAR ENDED DECEMBER 31, on Beginning of End Gain (Loss) Resulting from 2001 Investments Year of Year on Investments Operations AETNA ASCENT VP Annuity contracts in accumulation $ (298,788) $ 589,182 $ (9,153,647) $ (9,742,829) $ (9,656,196) AETNA BALANCED VP, INC. Annuity contracts in accumulation (13,695,954) (102,036,752) (173,352,168) (71,315,416) (46,956,487) AETNA BOND VP Annuity contracts in accumulation 1,096,582 (6,411,730) (1,496,207) 4,915,523 24,778,480 AETNA CROSSROADS VP Annuity contracts in accumulation (317,652) 116,983 (5,471,604) (5,588,587) (5,040,532) AETNA GET FUND, SERIES C Annuity contracts in accumulation (58,300,789) (30,255,816) 0 30,255,816 (21,909,098) AETNA GET FUND, SERIES D Annuity contracts in accumulation (1,990,871) (12,783,390) (9,214,739) 3,568,651 1,979,715 AETNA GET FUND, SERIES E Annuity contracts in accumulation (386,585) (2,883,267) (2,584,686) 298,581 (803,936) AETNA GET FUND, SERIES G Annuity contracts in accumulation (110,844) (1,034,596) (576,516) 458,080 (18,665) AETNA GET FUND, SERIES H Annuity contracts in accumulation (40,766) (267,248) (203,305) 63,943 (225,204) AETNA GET FUND, SERIES I Annuity contracts in accumulation (3,067) (32,894) (19,201) 13,693 (8,782) AETNA GET FUND, SERIES J Annuity contracts in accumulation (2,966) (16,577) (9,859) 6,718 (2,492) AETNA GET FUND, SERIES K Annuity contracts in accumulation (10,159) (8,299) (26,609) (18,310) (65,072) AETNA GET FUND, SERIES L Annuity contracts in accumulation 3,820 16 (27,338) (27,354) (8,684) AETNA GET FUND, SERIES Q Annuity contracts in accumulation 1 0 1,625 1,625 612 AETNA GROWTH AND INCOME VP Annuity contracts in accumulation (297,064,241) (1,455,124,346) (2,026,760,871) (571,636,525) (887,707,351) AETNA GROWTH VP Annuity contracts in accumulation (2,578,041) (1,523,352) (61,932,623) (60,409,271) (47,945,613) AETNA INDEX PLUS LARGE CAP VP Annuity contracts in accumulation 271,554 (35,413,466) (124,078,438) (88,664,972) (74,041,016) AETNA INDEX PLUS MID CAP VP Annuity contracts in accumulation (1,001,111) 1,324,838 (2,060,078) (3,384,916) (892,177) AETNA INDEX PLUS SMALL CAP VP Annuity contracts in accumulation (206,722) 769,578 589,425 (180,153) 418,153 AETNA INTERNATIONAL VP Annuity contracts in accumulation (8,259,787) (4,665,266) 474,807 5,140,073 (3,234,469) ------------------------------------------------------------------------------------------------------------
S-45 VARIABLE ANNUITY ACCOUNT C NOTES TO FINANCIAL STATEMENTS - December 31, 2001 (continued): 5. SUPPLEMENTAL INFORMATION TO STATEMENT OF OPERATIONS (continued): Valuation Proceeds Cost of YEAR ENDED DECEMBER 31, Period from Investments 2001 Dividends Deductions Sales Sold AETNA LEGACY VP Annuity contracts in accumulation $ 1,659,281 $ (417,437) $ 6,481,676 $ (6,705,501) AETNA MONEY MARKET VP Annuity contracts in accumulation 18,993,467 (3,706,495) 947,455,413 (950,955,698) AETNA SMALL COMPANY VP Annuity contracts in accumulation 4,189,523 (1,171,113) 66,296,076 (78,181,059) AETNA TECHNOLOGY VP Annuity contracts in accumulation 0 (292,747) 10,278,841 (21,230,242) AETNA VALUE OPPORTUNITY VP Annuity contracts in accumulation 4,231,683 (966,919) 10,972,471 (10,013,023) AIM V.I. FUNDS: CAPITAL APPRECIATION FUND Annuity contracts in accumulation 1,510,401 (207,717) 2,964,662 (4,491,112) GROWTH AND INCOME FUND Annuity contracts in accumulation 21,709 (505,757) 5,048,798 (6,777,588) GROWTH FUND Annuity contracts in accumulation 37,127 (176,215) 3,261,877 (5,201,434) VALUE FUND Annuity contracts in accumulation 474,714 (217,440) 3,532,672 (4,335,282) AMERICAN CENTURY INCOME & GROWTH FUND Annuity contracts in accumulation 4,278 (4,130) 239,461 (258,015) CALVERT SOCIAL BALANCED PORTFOLIO Annuity contracts in accumulation 3,284,609 (642,466) 5,199,701 (4,694,786) CHAPMAN DEM-REGISTERED TRADEMARK- EQUITY FUND Annuity contracts in accumulation 0 (641) 746,638 (770,870) FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUNDS: ASSET MANAGER PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation 1,291,798 (236,486) 3,080,303 (3,279,143) CONTRAFUND-REGISTERED TRADEMARK- PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation 13,696,673 (4,101,768) 23,332,252 (17,195,993) EQUITY-INCOME PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation 12,802,442 (2,405,885) 11,539,661 (10,661,772) GROWTH PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation 29,459,889 (4,333,499) 20,864,722 (18,110,038) HIGH INCOME PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation 317,043 (30,572) 3,922,491 (5,101,482) INDEX 500 PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation 1,128,054 (1,045,323) 23,760,455 (22,733,988) OVERSEAS PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation 2,177,228 (178,800) 19,615,521 (27,730,870) ---------------------------------------------------------------------------------------
S-46 Net Net Net Unrealized Net Increase Realized Gain (Loss) Change in (Decrease) Gain (Loss) -------------------------------- Unrealized in Net Assets YEAR ENDED DECEMBER 31, on Beginning of End Gain (Loss) Resulting from 2001 Investments Year of Year on Investments Operations AETNA LEGACY VP Annuity contracts in accumulation $ (223,825) $ 718,785 $ (1,659,859) $ (2,378,644) $ (1,360,625) AETNA MONEY MARKET VP Annuity contracts in accumulation (3,500,285) 3,641,073 1,818,258 (1,822,815) 9,963,872 AETNA SMALL COMPANY VP Annuity contracts in accumulation (11,884,983) (9,322,798) 3,622,270 12,945,068 4,078,495 AETNA TECHNOLOGY VP Annuity contracts in accumulation (10,951,401) (12,476,702) (9,202,258) 3,274,444 (7,969,704) AETNA VALUE OPPORTUNITY VP Annuity contracts in accumulation 959,448 872,156 (13,800,643) (14,672,799) (10,448,587) AIM V.I. FUNDS: CAPITAL APPRECIATION FUND Annuity contracts in accumulation (1,526,450) (5,078,366) (10,330,874) (5,252,508) (5,476,274) GROWTH AND INCOME FUND Annuity contracts in accumulation (1,728,790) (8,823,291) (19,609,851) (10,786,560) (12,999,398) GROWTH FUND Annuity contracts in accumulation (1,939,557) (5,935,047) (11,085,471) (5,150,424) (7,229,069) VALUE FUND Annuity contracts in accumulation (802,610) (3,374,932) (5,851,651) (2,476,719) (3,022,055) AMERICAN CENTURY INCOME & GROWTH FUND Annuity contracts in accumulation (18,554) 0 (14,022) (14,022) (32,428) CALVERT SOCIAL BALANCED PORTFOLIO Annuity contracts in accumulation 504,915 570,470 (7,632,046) (8,202,516) (5,055,458) CHAPMAN DEM-REGISTERED TRADEMARK- EQUITY FUND Annuity contracts in accumulation (24,232) 0 7,716 7,716 (17,157) FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUNDS: ASSET MANAGER PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation (198,840) (618,980) (2,697,923) (2,078,943) (1,222,471) CONTRAFUND-REGISTERED TRADEMARK- PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation 6,136,259 57,161,025 (14,760,445) (71,921,470) (56,190,306) EQUITY-INCOME PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation 877,889 18,912,394 (5,754,033) (24,666,427) (13,391,981) GROWTH PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation 2,754,684 22,218,848 (91,486,929) (113,705,777) (85,824,703) HIGH INCOME PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation (1,178,991) (540,697) (49,847) 490,850 (401,670) INDEX 500 PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation 1,026,467 (491,226) (15,642,580) (15,151,354) (14,042,156) OVERSEAS PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation (8,115,349) (2,501,290) (335,489) 2,165,801 (3,951,120) ------------------------------------------------------------------------------------------------------------
S-47 VARIABLE ANNUITY ACCOUNT C NOTES TO FINANCIAL STATEMENTS - December 31, 2001 (continued): 5. SUPPLEMENTAL INFORMATION TO STATEMENT OF OPERATIONS (continued): Valuation Proceeds Cost of YEAR ENDED DECEMBER 31, Period from Investments 2001 Dividends Deductions Sales Sold FRANKLIN VALUE SECURITIES FUND Annuity contracts in accumulation $ 0 $ (208) $ 907 $ (726) JANUS ASPEN SERIES: AGGRESSIVE GROWTH PORTFOLIO -- I SHARES Annuity contracts in accumulation 0 (7,331,111) 98,308,301 (69,555,876) BALANCED PORTFOLIO -- I SHARES Annuity contracts in accumulation 8,609,431 (3,386,310) 9,851,626 (6,669,129) CAPITAL APPRECIATION PORTFOLIO -- S SHARES Annuity contracts in accumulation 3,314 (1,770) 258,365 (290,082) FLEXIBLE INCOME PORTFOLIO -- I SHARES Annuity contracts in accumulation 2,862,143 (489,235) 11,463,661 (11,783,258) GROWTH PORTFOLIO -- I SHARES Annuity contracts in accumulation 911,665 (3,736,721) 38,805,761 (28,454,911) WORLDWIDE GROWTH PORTFOLIO -- I SHARES Annuity contracts in accumulation 4,180,411 (9,496,428) 125,535,379 (82,794,791) JANUS TWENTY FUND Annuity contracts in accumulation 4,266 (4,062) 79,762 (110,958) LORD ABBETT FUNDS: GROWTH AND INCOME PORTFOLIO Annuity contracts in accumulation 29,669 (1,767) 167 (149) MID-CAP VALUE PORTFOLIO Annuity contracts in accumulation 836 (642) 22,801 (22,777) MFS-REGISTERED TRADEMARK- TOTAL RETURN SERIES Annuity contracts in accumulation 492,327 (136,985) 1,112,766 (1,046,316) OPPENHEIMER FUNDS: DEVELOPING MARKETS FUND Annuity contracts in accumulation 3,231 (1,005) 3,136,389 (3,129,395) GLOBAL SECURITIES FUND Annuity contracts in accumulation 7,036,577 (675,646) 18,545,517 (25,244,629) STRATEGIC BOND FUND Annuity contracts in accumulation 496,895 (92,383) 4,368,717 (4,549,775) PAX WORLD BALANCED FUND Annuity contracts in accumulation 47,463 (15,201) 581,039 (609,665) ---------------------------------------------------------------------------------------
S-48 Net Net Net Unrealized Net Increase Realized Gain (Loss) Change in (Decrease) Gain (Loss) -------------------------------- Unrealized in Net Assets YEAR ENDED DECEMBER 31, on Beginning of End Gain (Loss) Resulting from 2001 Investments Year of Year on Investments Operations FRANKLIN VALUE SECURITIES FUND Annuity contracts in accumulation $ 181 $ 0 $ 12,921 $ 12,921 $ 12,894 JANUS ASPEN SERIES: AGGRESSIVE GROWTH PORTFOLIO -- I SHARES Annuity contracts in accumulation 28,752,425 (127,682,633) (532,120,359) (404,437,726) (383,016,412) BALANCED PORTFOLIO -- I SHARES Annuity contracts in accumulation 3,182,497 10,698,793 (15,946,540) (26,645,333) (18,239,715) CAPITAL APPRECIATION PORTFOLIO -- S SHARES Annuity contracts in accumulation (31,717) 0 (15,659) (15,659) (45,832) FLEXIBLE INCOME PORTFOLIO -- I SHARES Annuity contracts in accumulation (319,597) (805,827) (94,268) 711,559 2,764,870 GROWTH PORTFOLIO -- I SHARES Annuity contracts in accumulation 10,350,850 (6,192,556) (120,776,782) (114,584,226) (107,058,432) WORLDWIDE GROWTH PORTFOLIO -- I SHARES Annuity contracts in accumulation 42,740,588 162,036,410 (125,672,926) (287,709,336) (250,284,765) JANUS TWENTY FUND Annuity contracts in accumulation (31,196) (36) (145,497) (145,461) (176,453) LORD ABBETT FUNDS: GROWTH AND INCOME PORTFOLIO Annuity contracts in accumulation 18 0 24,456 24,456 52,376 MID-CAP VALUE PORTFOLIO Annuity contracts in accumulation 24 0 7,040 7,040 7,258 MFS-REGISTERED TRADEMARK- TOTAL RETURN SERIES Annuity contracts in accumulation 66,450 229,562 (51,210) (280,772) 141,020 OPPENHEIMER FUNDS: DEVELOPING MARKETS FUND Annuity contracts in accumulation 6,994 0 3,903 3,903 13,123 GLOBAL SECURITIES FUND Annuity contracts in accumulation (6,699,112) (2,527,749) (9,245,253) (6,717,504) (7,055,685) STRATEGIC BOND FUND Annuity contracts in accumulation (181,058) (86,964) (75,056) 11,908 235,362 PAX WORLD BALANCED FUND Annuity contracts in accumulation (28,626) 0 (109,382) (109,382) (105,746) ------------------------------------------------------------------------------------------------------------
S-49 VARIABLE ANNUITY ACCOUNT C NOTES TO FINANCIAL STATEMENTS - December 31, 2001 (continued): 5. SUPPLEMENTAL INFORMATION TO STATEMENT OF OPERATIONS (continued): Valuation Proceeds Cost of YEAR ENDED DECEMBER 31, Period from Investments 2001 Dividends Deductions Sales Sold PILGRIM FUNDS: EMERGING MARKETS FUND (1) Annuity contracts in accumulation $ 1,238,222 $ (58,442) $ 20,603,841 $ (23,091,245) NATURAL RESOURCES TRUST FUND (2) Annuity contracts in accumulation 0 (165,895) 8,563,951 (8,183,441) PILGRIM VARIABLE FUNDS: GROWTH OPPORTUNITIES PORTFOLIO -- CLASS R Annuity contracts in accumulation 0 1 0 0 INTERNATIONAL VALUE PORTFOLIO -- CLASS R Annuity contracts in accumulation 18,424 (1,131) 74 (78) MID CAP OPPORTUNITIES PORTFOLIO -- CLASS R Annuity contracts in accumulation 0 (96) 9,757 (9,944) SMALL CAP OPPORTUNITIES PORTFOLIO -- CLASS R Annuity contracts in accumulation 1 (67) 733 (766) PIONEER FUNDS: EQUITY-INCOME VCT PORTFOLIO Annuity contracts in accumulation 222 (77) 48 (50) FUND VCT PORTFOLIO Annuity contracts in accumulation 0 1 0 0 MID-CAP VALUE VCT PORTFOLIO Annuity contracts in accumulation 0 (212) 21,459 (22,196) PORTFOLIO PARTNERS, INC. (PPI): PPI MFS CAPITAL OPPORTUNITIES PORTFOLIO -- I CLASS Annuity contracts in accumulation 47,269,790 (2,680,054) 25,865,721 (24,246,572) PPI MFS EMERGING EQUITIES PORTFOLIO -- I CLASS Annuity contracts in accumulation 22,645,296 (3,648,234) 33,552,038 (32,445,501) PPI MFS RESEARCH GROWTH PORTFOLIO -- I CLASS Annuity contracts in accumulation 41,622,453 (2,157,189) 20,710,153 (21,107,275) PPI SCUDDER INTERNATIONAL GROWTH PORTFOLIO -- I CLASS Annuity contracts in accumulation 43,250,742 (1,891,611) 732,508,626 (832,130,919) PPI T. ROWE PRICE GROWTH EQUITY PORTFOLIO -- I CLASS Annuity contracts in accumulation 36,705,570 (2,427,861) 15,920,750 (13,560,301) WACHOVIA SPECIAL VALUES FUND Annuity contracts in accumulation 227,192 (13,769) 981,601 (956,808) TOTAL VARIABLE ANNUITY ACCOUNT C $464,350,375 $(132,666,634) $3,331,253,418 $(3,763,191,632)
(1) - Effective May 1, 2001, Lexington Emerging Market Fund's name changed to Pilgrim Emerging Market Fund. (2) - Effective May 1, 2000, Lexington Natural Resources Trust's name changed to Pilgrim Natural Resources Trust Fund. S-50 Net Net Net Unrealized Net Increase Realized Gain (Loss) Change in (Decrease) Gain (Loss) -------------------------------- Unrealized in Net Assets YEAR ENDED DECEMBER 31, on Beginning of End Gain (Loss) Resulting from 2001 Investments Year of Year on Investments Operations PILGRIM FUNDS: EMERGING MARKETS FUND (1) Annuity contracts in accumulation $ (2,487,404) $ (436,042) $ 257,333 $ 693,375 $ (614,249) NATURAL RESOURCES TRUST FUND (2) Annuity contracts in accumulation 380,510 2,402,322 (872,438) (3,274,760) (3,060,145) PILGRIM VARIABLE FUNDS: GROWTH OPPORTUNITIES PORTFOLIO -- CLASS R Annuity contracts in accumulation 0 0 0 0 1 INTERNATIONAL VALUE PORTFOLIO -- CLASS R Annuity contracts in accumulation (4) 0 16,501 16,501 33,790 MID CAP OPPORTUNITIES PORTFOLIO -- CLASS R Annuity contracts in accumulation (187) 0 (112) (112) (395) SMALL CAP OPPORTUNITIES PORTFOLIO -- CLASS R Annuity contracts in accumulation (33) 0 2,843 2,843 2,744 PIONEER FUNDS: EQUITY-INCOME VCT PORTFOLIO Annuity contracts in accumulation (2) 0 820 820 963 FUND VCT PORTFOLIO Annuity contracts in accumulation 0 0 1 1 2 MID-CAP VALUE VCT PORTFOLIO Annuity contracts in accumulation (737) 0 4,644 4,644 3,695 PORTFOLIO PARTNERS, INC. (PPI): PPI MFS CAPITAL OPPORTUNITIES PORTFOLIO -- I CLASS Annuity contracts in accumulation 1,619,149 23,536,746 (100,298,392) (123,835,138) (77,626,253) PPI MFS EMERGING EQUITIES PORTFOLIO -- I CLASS Annuity contracts in accumulation 1,106,537 62,642,562 (67,932,730) (130,575,292) (110,471,693) PPI MFS RESEARCH GROWTH PORTFOLIO -- I CLASS Annuity contracts in accumulation (397,122) 42,588,288 (47,081,640) (89,669,928) (50,601,786) PPI SCUDDER INTERNATIONAL GROWTH PORTFOLIO -- I CLASS Annuity contracts in accumulation (99,622,293) (186,763) 1,305,315 1,492,078 (56,771,084) PPI T. ROWE PRICE GROWTH EQUITY PORTFOLIO -- I CLASS Annuity contracts in accumulation 2,360,449 46,977,151 (17,697,875) (64,675,026) (28,036,868) WACHOVIA SPECIAL VALUES FUND Annuity contracts in accumulation 24,793 0 (12,633) (12,633) 225,583 TOTAL VARIABLE ANNUITY ACCOUNT C $(431,938,214) $(1,381,531,716) $(3,656,880,684) $(2,275,348,968) $(2,375,603,441)
(1) - Effective May 1, 2001, Lexington Emerging Market Fund's name changed to Pilgrim Emerging Market Fund. (2) - Effective May 1, 2000, Lexington Natural Resources Trust's name changed to Pilgrim Natural Resources Trust Fund. S-51 VARIABLE ANNUITY ACCOUNT C NOTES TO FINANCIAL STATEMENTS - December 31, 2001 (continued): 6. SUPPLEMENTAL INFORMATION TO STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 2001 Net Net Change in Net Realized Unrealized Increase (Decrease) Net Assets Net Gain (Loss) Gain (Loss) in Net Assets ---------- Investment on on from Unit Beginning End Income (Loss) Investments Investments Transactions of Year of Year AETNA ASCENT VP Annuity contracts in accumulation $ 385,421 $ (298,788) $ (9,742,829) $ (390,814) $ 77,057,293 $ 67,010,283 AETNA BALANCED VP, INC. Annuity contracts in accumulation 38,054,883 (13,695,954) (71,315,416) (60,435,593) 842,266,266 739,144,233 Annuity contracts in payment period 33,169,278 28,899,231 AETNA BOND VP Annuity contracts in accumulation 18,766,375 1,096,582 4,915,523 82,899,136 296,126,266 403,727,419 Annuity contracts in payment period 5,792,395 5,868,858 AETNA CROSSROADS VP Annuity contracts in accumulation 865,707 (317,652) (5,588,587) (451,200) 62,461,577 56,976,436 Annuity contracts in payment period 68,046 61,455 AETNA GET FUND, SERIES C Annuity contracts in accumulation 6,135,875 (58,300,789) 30,255,816 (114,286,208) 136,195,306 0 AETNA GET FUND, SERIES D Annuity contracts in accumulation 401,935 (1,990,871) 3,568,651 (44,764,380) 331,078,585 288,293,920 AETNA GET FUND, SERIES E Annuity contracts in accumulation (715,932) (386,585) 298,581 (12,673,983) 131,674,642 118,196,723 AETNA GET FUND, SERIES G Annuity contracts in accumulation (365,901) (110,844) 458,080 (4,238,830) 38,003,615 33,746,120 AETNA GET FUND, SERIES H Annuity contracts in accumulation (248,381) (40,766) 63,943 (3,142,654) 29,175,653 25,807,795 AETNA GET FUND, SERIES I Annuity contracts in accumulation (19,408) (3,067) 13,693 (103,246) 1,364,320 1,252,292 AETNA GET FUND, SERIES J Annuity contracts in accumulation (6,244) (2,966) 6,718 (73,709) 456,726 380,525 AETNA GET FUND, SERIES K Annuity contracts in accumulation (36,603) (10,159) (18,310) (522,901) 2,862,754 2,274,781 AETNA GET FUND, SERIES L Annuity contracts in accumulation 14,850 3,820 (27,354) 1,297,385 15,987 1,304,688 AETNA GET FUND, SERIES Q Annuity contracts in accumulation (1,014) 1 1,625 3,640,996 0 3,641,608 AETNA GROWTH AND INCOME VP Annuity contracts in accumulation (19,006,585) (297,064,241) (571,636,525) (452,343,167) 4,428,082,443 3,170,240,934 Annuity contracts in payment period 311,465,868 229,256,859 AETNA GROWTH VP Annuity contracts in accumulation 15,041,699 (2,578,041) (60,409,271) (2,449,367) 171,026,842 120,456,683 Annuity contracts in payment period 132,657 307,836
S-52 VARIABLE ANNUITY ACCOUNT C NOTES TO FINANCIAL STATEMENTS - December 31, 2001 (continued): 6. SUPPLEMENTAL INFORMATION TO STATEMENT OF CHANGES IN NET ASSETS (continued):
YEAR ENDED DECEMBER 31, 2001 Net Net Change in Net Realized Unrealized Increase (Decrease) Net Assets Net Gain (Loss) Gain (Loss) in Net Assets ---------- Investment on on from Unit Beginning End Income (Loss) Investments Investments Transactions of Year of Year AETNA INDEX PLUS LARGE CAP VP Annuity contracts in accumulation $ 14,352,402 $ 271,554 $ (88,664,972) $ 44,708,922 $ 487,054,341 $ 457,492,812 Annuity contracts in payment period 1,883,772 2,113,207 AETNA INDEX PLUS MID CAP VP Annuity contracts in accumulation 3,493,850 (1,001,111) (3,384,916) 33,987,861 55,395,398 88,491,082 AETNA INDEX PLUS SMALL CAP VP Annuity contracts in accumulation 805,028 (206,722) (180,153) 15,599,090 12,842,621 28,859,864 AETNA INTERNATIONAL VP Annuity contracts in accumulation (114,755) (8,259,787) 5,140,073 1,263,249 12,949,161 10,977,941 AETNA LEGACY VP Annuity contracts in accumulation 1,241,844 (223,825) (2,378,644) (667,463) 38,925,638 36,927,158 Annuity contracts in payment period 198,397 168,789 AETNA MONEY MARKET VP Annuity contracts in accumulation 15,286,972 (3,500,285) (1,822,815) 41,891,036 322,624,048 374,418,757 Annuity contracts in payment period 89,722 149,921 AETNA SMALL COMPANY VP Annuity contracts in accumulation 3,018,410 (11,884,983) 12,945,068 25,409,328 104,675,715 134,140,868 Annuity contracts in payment period 36,683 59,353 AETNA TECHNOLOGY VP Annuity contracts in accumulation (292,747) (10,951,401) 3,274,444 14,868,712 24,855,104 31,754,112 AETNA VALUE OPPORTUNITY VP Annuity contracts in accumulation 3,264,764 959,448 (14,672,799) 66,042,632 63,066,047 118,660,092 AIM V.I. FUNDS: CAPITAL APPRECIATION FUND Annuity contracts in accumulation 1,302,684 (1,526,450) (5,252,508) 2,528,530 21,974,303 19,026,559 GROWTH AND INCOME FUND Annuity contracts in accumulation (484,048) (1,728,790) (10,786,560) 8,297,132 48,981,132 44,278,866 GROWTH FUND Annuity contracts in accumulation (139,088) (1,939,557) (5,150,424) 3,356,314 19,441,222 15,568,467 VALUE FUND Annuity contracts in accumulation 257,274 (802,610) (2,476,719) 6,869,339 18,487,184 22,334,468 AMERICAN CENTURY INCOME & GROWTH FUND Annuity contracts in accumulation 148 (18,554) (14,022) 661,379 0 628,951 CALVERT SOCIAL BALANCED PORTFOLIO Annuity contracts in accumulation 2,642,143 504,915 (8,202,516) 133,413 63,262,465 58,340,420 CHAPMAN DEM-REGISTERED TRADEMARK- EQUITY FUND Annuity contracts in accumulation (641) (24,232) 7,716 109,430 0 92,273
S-53 VARIABLE ANNUITY ACCOUNT C NOTES TO FINANCIAL STATEMENTS - December 31, 2001 (continued): 6. SUPPLEMENTAL INFORMATION TO STATEMENT OF CHANGES IN NET ASSETS (continued):
YEAR ENDED DECEMBER 31, 2001 Net Net Change in Net Realized Unrealized Increase (Decrease) Net Assets Net Gain (Loss) Gain (Loss) in Net Assets ---------- Investment on on from Unit Beginning End Income (Loss) Investments Investments Transactions of Year of Year FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUNDS: ASSET MANAGER PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation $ 286,471 $ (1,178,991) $ 490,850 $ (1,739,120) $ 23,730,253 $ 21,589,463 CONTRAFUND-REGISTERED TRADEMARK- PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation 82,731 1,026,467 (15,151,354) (31,572,214) 420,901,510 375,287,140 EQUITY-INCOME PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation 1,055,312 (198,840) (2,078,943) 42,633,922 195,902,776 237,314,227 GROWTH PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation 9,594,905 6,136,259 (71,921,470) (4,330,388) 448,871,801 388,351,107 HIGH INCOME PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation 10,396,557 877,889 (24,666,427) 13,636,484 2,449,768 2,645,583 Annuity contracts in payment period 0 48,688 INDEX 500 PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation 1,998,428 (8,115,349) 2,165,801 (4,602,017) 104,649,875 96,096,738 OVERSEAS PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation 25,126,390 2,754,684 (113,705,777) 82,399,033 18,191,519 14,765,849 FRANKLIN VALUE SECURITIES FUND Annuity contracts in accumulation (208) 181 12,921 116,831 0 129,725 JANUS ASPEN SERIES: AGGRESSIVE GROWTH PORTFOLIO -- I SHARES Annuity contracts in accumulation (7,331,111) 28,752,425 (404,437,726) 2,233,168 950,193,244 569,410,000 BALANCED PORTFOLIO -- I SHARES Annuity contracts in accumulation 5,223,121 3,182,497 (26,645,333) 60,635,832 296,053,943 338,450,060 CAPITAL APPRECIATION PORTFOLIO -- S SHARES Annuity contracts in accumulation 1,544 (31,717) (15,659) 576,154 0 530,322 FLEXIBLE INCOME PORTFOLIO -- I SHARES Annuity contracts in accumulation 2,372,908 (319,597) 711,559 17,081,029 36,898,000 56,743,899 GROWTH PORTFOLIO -- I SHARES Annuity contracts in accumulation (2,825,056) 10,350,850 (114,584,226) (8,011) 411,767,617 304,891,580 Annuity contracts in payment period 917,937 727,531 WORLDWIDE GROWTH PORTFOLIO -- I SHARES Annuity contracts in accumulation (5,316,017) 42,740,588 (287,709,336) (49,778,681) 1,082,624,571 782,779,890 Annuity contracts in payment period 1,095,143 876,378 JANUS TWENTY FUND Annuity contracts in payment period 204 (31,196) (145,461) 672,633 545 496,725 LORD ABBETT FUNDS: GROWTH AND INCOME PORTFOLIO Annuity contracts in accumulation 27,902 18 24,456 1,173,677 0 1,226,053 MID-CAP VALUE PORTFOLIO Annuity contracts in accumulation 194 24 7,040 257,780 0 265,038
S-54 VARIABLE ANNUITY ACCOUNT C NOTES TO FINANCIAL STATEMENTS - December 31, 2001 (continued): 6. SUPPLEMENTAL INFORMATION TO STATEMENT OF CHANGES IN NET ASSETS (continued):
YEAR ENDED DECEMBER 31, 2001 Net Net Change in Net Realized Unrealized Increase (Decrease) Net Assets Net Gain (Loss) Gain (Loss) in Net Assets ---------- Investment on on from Unit Beginning End Income (Loss) Investments Investments Transactions of Year of Year MFS-REGISTERED TRADEMARK- TOTAL RETURN SERIES Annuity contracts in accumulation $ 355,342 $ 66,450 $ (280,772) $ 16,227,259 $ 4,859,718 $ 21,227,997 OPPENHEIMER FUNDS: DEVELOPING MARKETS FUND Annuity contracts in accumulation 2,226 6,994 3,903 209,770 0 222,893 GLOBAL SECURITIES FUND Annuity contracts in accumulation 6,360,931 (6,699,112) (6,717,504) 43,783,614 50,258,541 86,986,470 STRATEGIC BOND FUND Annuity contracts in accumulation 404,512 (181,058) 11,908 3,571,548 5,987,840 9,799,961 Annuity contracts in payment period 21,845 16,634 PAX WORLD BALANCED FUND Annuity contracts in accumulation 32,262 (28,626) (109,382) 2,414,920 0 2,309,174 PILGRIM FUNDS: EMERGING MARKETS FUND (1) Annuity contracts in accumulation 1,179,780 (2,487,404) 693,375 (233,951) 6,367,049 5,518,849 NATURAL RESOURCES TRUST FUND (2) Annuity contracts in accumulation (165,895) 380,510 (3,274,760) (885,020) 16,696,149 12,750,984 PILGRIM VARIABLE FUNDS: GROWTH OPPORTUNITIES PORTFOLIO -- CLASS R Annuity contracts in accumulation 1 0 0 9,526 0 9,527 INTERNATIONAL VALUE PORTFOLIO -- CLASS R Annuity contracts in accumulation 17,293 (4) 16,501 1,495,264 0 1,529,054 MID CAP OPPORTUNITIES PORTFOLIO -- CLASS R Annuity contracts in accumulation (96) (187) (112) 29,916 0 29,521 SMALL CAP OPPORTUNITIES PORTFOLIO -- CLASS R Annuity contracts in accumulation (66) (33) 2,843 56,525 0 59,269 PIONEER FUNDS: EQUITY-INCOME VCT PORTFOLIO Annuity contracts in accumulation 145 (2) 820 87,442 0 88,405 FUND VCT PORTFOLIO Annuity contracts in accumulation 1 0 1 8,943 0 8,945 MID-CAP VALUE VCT PORTFOLIO Annuity contracts in accumulation (212) (737) 4,644 77,197 0 80,892 PORTFOLIO PARTNERS, INC. (PPI): PPI MFS CAPITAL OPPORTUNITIES PORTFOLIO -- I CLASS Annuity contracts in accumulation 44,589,736 1,619,149 (123,835,138) 2,133,043 291,099,078 215,627,607 Annuity contracts in payment period 400,248 378,509 PPI MFS EMERGING EQUITIES PORTFOLIO -- I CLASS Annuity contracts in accumulation 18,997,062 1,106,537 (130,575,292) (9,479,180) 425,020,833 305,126,330 Annuity contracts in payment period 167,018 110,648
S-55 VARIABLE ANNUITY ACCOUNT C NOTES TO FINANCIAL STATEMENTS - December 31, 2001 (continued): 6. SUPPLEMENTAL INFORMATION TO STATEMENT OF CHANGES IN NET ASSETS (continued):
YEAR ENDED DECEMBER 31, 2001 Net Net Change in Net Realized Unrealized Increase (Decrease) Net Assets Net Gain (Loss) Gain (Loss) in Net Assets ---------- Investment on on from Unit Beginning End Income (Loss) Investments Investments Transactions of Year of Year PPI MFS RESEARCH GROWTH PORTFOLIO -- I CLASS Annuity contracts in accumulation $ 39,465,264 $ (397,122) $ (89,669,928) $ (11,665,527) $ 234,529,426 $ 172,262,113 PPI SCUDDER INTERNATIONAL GROWTH PORTFOLIO -- I CLASS Annuity contracts in accumulation 41,359,131 (99,622,293) 1,492,078 (17,206,284) 219,533,810 145,560,773 Annuity contracts in payment period 9,438 5,107 PPI T. ROWE PRICE GROWTH EQUITY PORTFOLIO -- I CLASS Annuity contracts in accumulation 34,277,709 2,360,449 (64,675,026) 6,924,273 244,707,197 223,625,073 Annuity contracts in payment period 158,262 127,791 WACHOVIA SPECIAL VALUES FUND Annuity contracts in accumulation 213,423 24,793 (12,633) 3,700,154 0 3,925,737 TOTAL VARIABLE ANNUITY ACCOUNT C $331,683,741 $(431,938,214) $(2,275,348,968) $ (172,334,087) $13,689,284,426 $11,141,346,898
(1) - Effective May 1, 2001, Lexington Emerging Market Fund's name changed to Pilgrim Emerging Market Fund. (2) - Effective May 1, 2000, Lexington Natural Resources Trust's name changed to Pilgrim Natural Resources Trust. S-56 VARIABLE ANNUITY ACCOUNT C NOTES TO FINANCIAL STATEMENTS - December 31, 2001 (continued): 6. SUPPLEMENTAL INFORMATION TO STATEMENT OF CHANGES IN NET ASSETS (continued):
YEAR ENDED DECEMBER 31, 2000 Net Net Change in Net Realized Unrealized Increase (Decrease) Net Assets Net Gain (Loss) Gain (Loss) in Net Assets ---------- Investment on on from Unit Beginning End Income (Loss) Investments Investments Transactions of Year of Year AETNA ASCENT VP Annuity contracts in accumulation $ 36,550 $ 2,023,951 $ (3,440,951) $ (3,443,191) $ 81,880,934 $ 77,057,293 AETNA BALANCED VP, INC. Annuity contracts in accumulation 112,901,501 19,727,105 (147,081,096) (103,452,150) 958,810,376 842,266,266 Annuity contracts in payment period 34,529,808 33,169,278 AETNA BOND VP Annuity contracts in accumulation 13,216,666 (2,959,272) 13,343,145 (39,454,311) 312,007,882 296,126,266 Annuity contracts in payment period 5,764,551 5,792,395 AETNA CROSSROADS VP Annuity contracts in accumulation 441,285 97,305 (1,013,800) (4,468,657) 67,400,270 62,461,577 Annuity contracts in payment period 73,220 68,046 AETNA GET FUND, SERIES C Annuity contracts in accumulation 30,449,060 3,720,138 (49,493,522) (18,887,555) 170,407,185 136,195,306 AETNA GET FUND, SERIES D Annuity contracts in accumulation 14,440,368 3,089,297 (38,474,173) (119,418,211) 471,441,304 331,078,585 AETNA GET FUND, SERIES E Annuity contracts in accumulation 3,827,276 1,026,846 (13,265,067) (17,735,793) 157,821,380 131,674,642 AETNA GET FUND, SERIES G Annuity contracts in accumulation 379,657 71,399 (2,340,015) (5,775,781) 45,668,355 38,003,615 AETNA GET FUND, SERIES H Annuity contracts in accumulation 196,795 162,638 (269,484) 27,303,119 1,782,585 29,175,653 AETNA GET FUND, SERIES I Annuity contracts in accumulation 1,454 2,133 (32,894) 1,393,627 0 1,364,320 AETNA GET FUND, SERIES J Annuity contracts in accumulation 615 (45) (16,577) 472,733 0 456,726 AETNA GET FUND, SERIES K Annuity contracts in accumulation (979) 197 (8,299) 2,871,835 0 2,862,754 AETNA GET FUND, SERIES L Annuity contracts in accumulation (1) 0 16 15,972 0 15,987 AETNA GROWTH AND INCOME VP Annuity contracts in accumulation 536,765,360 (28,305,954) (1,173,968,207) (721,658,072) 5,753,192,035 4,428,082,443 Annuity contracts in payment period 373,523,149 311,465,868 AETNA GROWTH VP Annuity contracts in accumulation 1,093,671 3,731,651 (32,927,743) 53,759,126 145,431,206 171,026,842 Annuity contracts in payment period 71,588 132,657 AETNA HIGH YIELD VP Annuity contracts in accumulation (12,839) (193,642) 112,582 (2,083,594) 2,177,493 0 AETNA INDEX PLUS BOND VP Annuity contracts in accumulation (6,435) (14,618) 64,241 (1,042,892) 999,704 0
S-57 VARIABLE ANNUITY ACCOUNT C NOTES TO FINANCIAL STATEMENTS - December 31, 2001 (continued): 6. SUPPLEMENTAL INFORMATION TO STATEMENT OF CHANGES IN NET ASSETS (continued):
YEAR ENDED DECEMBER 31, 2000 Net Net Change in Net Realized Unrealized Increase (Decrease) Net Assets Net Gain (Loss) Gain (Loss) in Net Assets ---------- Investment on on from Unit Beginning End Income (Loss) Investments Investments Transactions of Year of Year AETNA INDEX PLUS LARGE CAP VP Annuity contracts in accumulation $ 53,741,102 $ 21,047,809 $ (129,501,789) $ 68,658,775 $ 473,757,587 $ 487,054,341 Annuity contracts in payment period 1,234,629 1,883,772 AETNA INDEX PLUS MID CAP VP Annuity contracts in accumulation (27,987) 1,154,995 1,177,084 43,880,546 9,210,760 55,395,398 AETNA INDEX PLUS SMALL CAP VP Annuity contracts in accumulation (110,447) 829,971 97,541 3,748,048 8,277,508 12,842,621 AETNA INTERNATIONAL VP Annuity contracts in accumulation 2,173,465 192,117 (5,937,734) 8,806,604 7,714,709 12,949,161 AETNA LEGACY VP Annuity contracts in accumulation 334,677 292,708 802,261 (5,203,105) 42,650,270 38,925,638 Annuity contracts in payment period 247,224 198,397 AETNA MONEY MARKET VP Annuity contracts in accumulation 10,773,853 5,251,674 (413,714) (18,346,548) 325,367,721 322,624,048 Annuity contracts in payment period 80,784 89,722 AETNA REAL ESTATE SECURITIES VP Annuity contracts in accumulation (13,914) 383,451 72,859 (2,426,021) 1,983,625 0 AETNA SMALL COMPANY VP Annuity contracts in accumulation 4,688,047 16,494,744 (22,423,480) 43,023,013 62,919,038 104,675,715 Annuity contracts in payment period 11,036 36,683 AETNA TECHNOLOGY VP Annuity contracts in accumulation (123,166) (659,018) (12,476,702) 38,113,990 0 24,855,104 AETNA VALUE OPPORTUNITY VP Annuity contracts in accumulation 5,239,593 2,663,927 (4,901,655) 25,424,473 34,639,709 63,066,047 AIM V.I. FUNDS: CAPITAL APPRECIATION FUND Annuity contracts in accumulation 466,170 257,799 (5,245,120) 24,665,165 1,830,289 21,974,303 GROWTH AND INCOME FUND Annuity contracts in accumulation 1,144,879 389,979 (10,043,307) 47,737,578 9,752,003 48,981,132 GROWTH FUND Annuity contracts in accumulation 476,725 139,092 (6,432,977) 20,557,669 4,700,713 19,441,222 VALUE FUND Annuity contracts in accumulation 660,349 140,169 (4,209,966) 13,358,563 8,538,069 18,487,184 CALVERT SOCIAL BALANCED PORTFOLIO Annuity contracts in accumulation 2,267,247 2,854,362 (7,230,865) (2,720,584) 68,092,305 63,262,465 FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUNDS: ASSET MANAGER PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation 2,601,494 701,785 (4,594,430) (2,709,341) 27,730,745 23,730,253 CONTRAFUND-REGISTERED TRADEMARK- PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation 54,595,412 20,839,462 (110,406,630) (19,480,139) 475,353,405 420,901,510
S-58 VARIABLE ANNUITY ACCOUNT C NOTES TO FINANCIAL STATEMENTS - December 31, 2001 (continued): 6. SUPPLEMENTAL INFORMATION TO STATEMENT OF CHANGES IN NET ASSETS (continued):
YEAR ENDED DECEMBER 31, 2000 Net Net Change in Net Realized Unrealized Increase (Decrease) Net Assets Net Gain (Loss) Gain (Loss) in Net Assets ---------- Investment on on from Unit Beginning End Income (Loss) Investments Investments Transactions of Year of Year EQUITY-INCOME PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation $ 13,851,094 $ 8,757,904 $ (11,069,516) $ (29,578,468) $ 213,941,762 $ 195,902,776 GROWTH PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation 44,257,732 7,564,259 (113,706,819) 70,421,374 440,335,255 448,871,801 HIGH INCOME PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation 114,589 (207,629) (583,683) 1,252,502 1,873,989 2,449,768 INDEX 500 PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation 400,034 23,361,718 (35,626,722) (6,058,333) 122,573,178 104,649,875 OVERSEAS PORTFOLIO -- INITIAL CLASS Annuity contracts in accumulation 2,009,833 1,209,084 (7,577,795) 516,832 22,033,565 18,191,519 JANUS ASPEN SERIES: AGGRESSIVE GROWTH PORTFOLIO -- I SHARES Annuity contracts in accumulation 133,808,454 99,811,011 (717,624,386) 340,768,328 1,093,429,837 950,193,244 BALANCED PORTFOLIO -- I SHARES Annuity contracts in accumulation 28,232,215 4,925,773 (43,133,769) 70,619,050 235,410,674 296,053,943 FLEXIBLE INCOME PORTFOLIO -- I SHARES Annuity contracts in accumulation 1,568,435 (708,999) 876,966 2,253,321 32,908,277 36,898,000 GROWTH PORTFOLIO -- I SHARES Annuity contracts in accumulation 32,241,669 15,128,609 (126,023,034) 127,925,797 362,723,120 411,767,617 Annuity contracts in payment period 689,393 917,937 WORLDWIDE GROWTH PORTFOLIO -- I SHARES Annuity contracts in accumulation 91,464,664 61,024,670 (375,020,881) 169,190,829 1,136,307,574 1,082,624,571 Annuity contracts in payment period 752,858 1,095,143 JANUS TWENTY FUND Annuity contracts in payment period (1) (489) (36) 1,071 0 545 LEXINGTON FUNDS: EMERGING MARKETS FUND Annuity contracts in accumulation (138,792) (1,374,436) (3,710,968) 5,130 11,586,115 6,367,049 NATURAL RESOURCES TRUST FUND Annuity contracts in accumulation (115,114) (2,002,246) 4,524,862 (2,219,822) 16,508,469 16,696,149 MFS-REGISTERED TRADEMARK- TOTAL RETURN SERIES Annuity contracts in accumulation 26,933 20,170 230,740 3,897,679 684,196 4,859,718 OPPENHEIMER FUNDS: GLOBAL SECURITIES FUND Annuity contracts in accumulation 1,974,588 971,295 (3,945,771) 45,386,552 5,871,877 50,258,541 STRATEGIC BOND FUND Annuity contracts in accumulation 266,497 (125,516) (84,378) 2,461,306 3,464,259 5,987,840 Annuity contracts in payment period 27,517 21,845
S-59 VARIABLE ANNUITY ACCOUNT C NOTES TO FINANCIAL STATEMENTS - December 31, 2001 (continued): 6. SUPPLEMENTAL INFORMATION TO STATEMENT OF CHANGES IN NET ASSETS (continued):
YEAR ENDED DECEMBER 31, 2000 Net Net Change in Net Realized Unrealized Increase (Decrease) Net Assets Net Gain (Loss) Gain (Loss) in Net Assets ---------- Investment on on from Unit Beginning End Income (Loss) Investments Investments Transactions of Year of Year PORTFOLIO PARTNERS, INC. (PPI): PPI MFS CAPITAL OPPORTUNITIES PORTFOLIO -- I CLASS (1) Annuity contracts in accumulation $ 38,147,438 $ 5,749,841 $ (69,598,329) $ 90,392,695 $ 226,770,707 $ 291,099,078 Annuity contracts in payment period 36,974 400,248 PPI MFS EMERGING EQUITIES PORTFOLIO -- I CLASS Annuity contracts in accumulation (37,932) 23,737,586 (203,087,500) 6,822,966 597,714,231 425,020,833 Annuity contracts in payment period 38,500 167,018 PPI MFS RESEARCH GROWTH PORTFOLIO -- I CLASS Annuity contracts in accumulation 16,081,131 9,461,691 (39,062,464) (7,714,809) 255,763,877 234,529,426 PPI SCUDDER INTERNATIONAL GROWTH PORTFOLIO -- I CLASS Annuity contracts in accumulation 21,842,299 (15,668,306) (60,686,735) (17,427,634) 291,483,624 219,533,810 Annuity contracts in payment period 0 9,438 PPI T. ROWE PRICE GROWTH EQUITY PORTFOLIO -- I CLASS Annuity contracts in accumulation 18,361,154 7,768,474 (29,637,102) 5,277,763 243,032,240 244,707,197 Annuity contracts in payment period 62,930 158,262 TOTAL VARIABLE ANNUITY ACCOUNT C $1,296,974,423 $324,558,619 $(3,605,027,788) $ 209,679,020 $15,463,100,152 $13,689,284,426
(1) - Effective May 1, 2000, PPI MFS Value Equity Portfolio's name changed to PPI MFS Capital Opportunities Portfolio. S-60 REPORT OF INDEPENDENT AUDITORS To the Contractowners of Aetna Life Insurance and Annuity Company Variable Annuity Account C and the Board of Directors and Shareholder of Aetna Life Insurance and Annuity Company: We have audited the accompanying statement of assets and liabilities of the sixty-eight funds of Aetna Life Insurance and Annuity Company Variable Annuity Account C (the "Account"), referred to in Note 1, as of December 31, 2001, and the related statement of operations, changes in net assets and condensed financial information for the year then ended. 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 audit. The statement of changes in net assets for the year ended December 31, 2000, was audited by other auditors whose report dated February 2, 2001, expressed an unqualified opinion on those statements. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides 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 the sixty-eight funds of Aetna Life Insurance and Annuity Company Variable Annuity Account C, referred to in Note 1, as of December 31, 2001, and the results of their operations, changes in their net assets and condensed financial information for the year then ended, in conformity with accounting principles generally accepted in the United States. [ERNST & YOUNG LLP SIGNATURE] Hartford, Connecticut February 8, 2002 S-61 ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (FORMERLY KNOWN AS AETNA LIFE INSURANCE AND ANNUITY COMPANY, A WHOLLY-OWNED SUBSIDIARY OF AETNA RETIREMENT HOLDINGS, INC.) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page ---- Report of Independent Auditors.................... F-2 Consolidated Financial Statements: Consolidated Statements of Income for the Year-ended December 31, 2001, One Month Ended December 31, 2000, the Eleven Months Ended November 30, 2000 and for the Year-ended December 31, 1999............... F-4 Consolidated Balance Sheets as of December 31, 2001 and 2000................. F-5 Consolidated Statements of Changes in Shareholder's Equity for the Year-ended December 31, 2001, One Month Ended December 31, 2000, the Eleven Months Ended November 30, 2000 and for the Year-ended December 31, 1999.......................... F-6 Consolidated Statements of Cash Flows for the Year-ended December 31, 2001, One Month Ended December 31, 2000, the Eleven Months Ended November 30, 2000 and for the Year-ended December 31, 1999............... F-7 Notes to Consolidated Financial Statements.... F-8
F-1 REPORT OF INDEPENDENT AUDITORS The Board of Directors ING Life Insurance and Annuity Company We have audited the accompanying consolidated balance sheet of ING Life Insurance and Annuity Company and Subsidiaries (formerly Aetna Life Insurance and Annuity Company and Subsidiaries and hereafter referred to as the Company) as of December 31, 2001, and the related consolidated statements of income, changes in shareholder's equity, and cash flows for the then year ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of ING Life Insurance and Annuity Company and Subsidiaries at December 31, 2001, and the consolidated results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States. As discussed in Note 1, the Company adopted Financial Accounting Standards (FAS) No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, and FAS No. 140, ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES. /s/ Ernst & Young LLP Hartford, Connecticut January 31, 2002 F-2 REPORT OF INDEPENDENT AUDITORS The Shareholder and Board of Directors ING Life Insurance and Annuity Company: We have audited the accompanying consolidated balance sheet of ING Life Insurance and Annuity Company and Subsidiaries, formerly known as Aetna Life Insurance and Annuity Company and Subsidiaries, as of December 31, 2000, and the related consolidated statements of income, changes in shareholder's equity and cash flows for the period from December 1, 2000 to December 31, 2000 ("Successor Company"), and for the period from January 1, 2000 to November 30, 2000 and the year ended December 31, 1999 ("Preacquisition Company"). These consolidated financial statements are the responsibility of the Companies' management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the Successor Company's consolidated financial statements referred to above present fairly, in all material respects, the financial position of Aetna Life Insurance and Annuity Company and Subsidiaries at December 31, 2000, and the results of their operations and their cash flows for the period from December 1, 2000 to December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. Further, in our opinion, the Preacquisition Company's consolidated financial statements referred to above present fairly, in all material respects, the results of their operations and their cash flows for the period from January 1, 2000 to November 30, 2000, and the year ended December 31, 1999, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 1 to the consolidated financial statements, effective November 30, 2000, ING America Insurance Holdings Inc. acquired all of the outstanding stock of Aetna Inc., Aetna Life Insurance and Annuity Company's indirect parent and sole shareholder in a business combination accounted for as a purchase. As a result of the acquisition, the consolidated financial information for the periods after the acquisition is presented on a different cost basis than that for the periods before the acquisition and, therefore, is not comparable. /s/ KPMG LLP Hartford, Connecticut March 27, 2001 F-3 ITEM 1. FINANCIAL STATEMENTS ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (Formerly known as Aetna Life Insurance and Annuity Company, a wholly-owned subsidiary of Aetna Retirement Holdings, Inc.) CONSOLIDATED STATEMENTS OF INCOME (millions)
Preacquisition ---------------------------- One month Eleven months Year-ended ended ended Year-ended December 31, December 31, November 30, December 31, 2001 2000 2000 1999 ------------- ------------- ------------- ------------- Revenue: Premiums $ 114.2 $ 16.5 $ 137.7 $ 107.5 Charges assessed against policyholders 381.3 36.4 424.6 388.3 Net investment income 888.4 78.6 833.8 886.3 Net realized capital (losses) gains (21.0) 1.8 (37.2) (21.5) Other income 172.1 13.4 148.7 129.7 -------- ------ -------- -------- Total revenue 1,535.0 146.7 1,507.6 1,490.3 Benefits and expenses: Current and future benefits 729.6 68.9 726.7 746.2 Operating expenses: Salaries and related benefits 181.0 29.9 187.5 153.0 Restructing charge 29.2 -- -- -- Other 234.0 19.2 227.1 213.7 Amortization of deferred policy acquisition costs and value of business acquired 112.0 10.2 116.7 104.9 Amortization of goodwill 61.9 -- -- -- -------- ------ -------- -------- Total benefits and expenses 1,347.7 128.2 1,258.0 1,217.8 Income from continuing operations before income taxes 187.3 18.5 249.6 272.5 Income taxes 87.4 5.9 78.1 90.6 -------- ------ -------- -------- Income from continuing operations 99.9 12.6 171.5 181.9 Discontinued operations, net of tax: Income from operations -- -- 5.7 5.7 -------- ------ -------- -------- Net income $ 99.9 $ 12.6 $ 177.2 $ 187.6 ======== ====== ======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-4 ITEM 1. FINANCIAL STATEMENTS (continued) ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (Formerly known as Aetna Life Insurance and Annuity Company, a wholly-owned subsidiary of Aetna Retirement Holdings, Inc.) CONSOLIDATED BALANCE SHEETS (millions, except share data)
December 31, December 31, 2001 2000 --------------- --------------- ASSETS Investments: Debt securities available for sale, at fair value (amortized cost: $13,249.2 and $11,120.0) $13,539.9 $11,244.7 Equity securities, at fair value: Nonredeemable preferred stock (cost: $27.0 and $109.0) 24.6 100.7 Investment in affiliated mutual funds (cost: $22.9 and $9.6) 25.0 12.7 Common stock (cost: $2.3 and $2.2) 0.7 3.5 Short-term investments 31.7 109.4 Mortgage loans 241.3 4.6 Policy loans 329.0 339.3 Other investments 18.2 13.4 Securities pledged to creditors (amortized cost: $466.9 and $126.8) 467.2 129.0 --------- --------- Total investments 14,677.6 11,957.3 Cash and cash equivalents 82.0 796.3 Short-term investments under securities loan agreement 488.8 131.8 Accrued investment income 160.9 147.2 Premiums due and other receivables 21.5 82.9 Reciprocal loan with affiliate 191.1 -- Reinsurance recoverable 2,990.7 3,005.8 Current income taxes -- 40.6 Deferred policy acquisition costs 121.3 12.3 Value of business acquired 1,601.8 1,780.9 Goodwill 2,412.1 2,297.4 Other assets 194.3 154.7 Separate Accounts assets 32,663.1 36,745.8 --------- --------- Total assets $55,605.2 $57,153.0 ========= ========= LIABILITIES AND SHAREHOLDER'S EQUITY Liabilities: Future policy benefits $ 3,996.8 $ 3,977.7 Unpaid claims and claim expenses 28.8 29.6 Policyholders' funds left with the Company 12,135.8 11,125.6 --------- --------- Total insurance reserve liabilities 16,161.4 15,132.9 Payables under securities loan agreement 488.8 131.8 Current income taxes 59.2 -- Deferred income taxes 153.7 248.0 Other liabilities 1,624.7 549.9 Separate Accounts liabilities 32,663.1 36,745.8 --------- --------- Total liabilities 51,150.9 52,808.4 --------- --------- 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 4,292.4 4,303.8 Accumulated other comprehensive gain 46.6 25.4 Retained earnings 112.5 12.6 --------- --------- Total shareholder's equity 4,454.3 4,344.6 --------- --------- Total liabilities and shareholder's equity $55,605.2 $57,153.0 ========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-5 ITEM 1. FINANCIAL STATEMENTS (continued) ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (Formerly known as Aetna Life Insurance and Annuity Company, a wholly-owned subsidiary of Aetna Retirement Holdings, Inc.) CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY (millions)
Preacquisition ---------------------------- One month Eleven month Year-ended ended ended Year-ended December 31, December 31, November 30, December 31, 2001 2000 2000 1999 ------------- ------------- ------------- ------------- Shareholder's equity, beginning of period $4,344.6 $4,313.4 $1,385.7 $1,394.5 Comprehensive income: Net income 99.9 12.6 177.2 187.6 Other comprehensive income (loss), net of tax: Unrealized gains (losses) on securities ($32.5, $28.7, $79.4 and ($230.2) pretax) (1) 21.2 18.6 51.6 (149.6) -------- -------- -------- -------- Total comprehensive income 121.1 31.2 228.8 38.0 -------- -------- -------- -------- Capital contributions: Cash -- -- 73.5 -- Assets -- -- 56.0 -- -------- -------- -------- -------- Total capital contributions -- -- 129.5 -- -------- -------- -------- -------- Return of capital (11.3) -- -- -- Other changes (0.1) -- 0.8 2.9 Common stock dividends -- -- (10.1) (49.7) Adjustment for purchase accounting -- -- 2,578.7 -- -------- -------- -------- -------- Shareholder's equity, end of period $4,454.3 $4,344.6 $4,313.4 $1,385.7 ======== ======== ======== ========
(1) Net of reclassification adjustments. SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-6 ITEM 1. FINANCIAL STATEMENTS (continued) ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (Formerly known as Aetna Life Insurance and Annuity Company, a wholly-owned subsidiary of Aetna Retirement Holdings, Inc.) CONSOLIDATED STATEMENTS OF CASH FLOWS (millions)
Preacquisition ------------------------------ One month Eleven months Year-ended ended ended Year-ended December 31, December 31, November 30, December 31, 2001 2000 2000 1999 --------------- --------------- ------------- --------------- Cash Flows from Operating Activities: Net income $ 99.9 $ 12.6 $ 177.2 $ 187.6 Adjustments to reconcile net income to net cash (used for) provided by operating activities: Net accretion of discount on investments (1.2) (2.7) (32.6) (26.5) Amortization of deferred gain on sale -- -- (5.7) (5.7) Net realized capital losses (gains) 21.0 (1.8) 37.2 21.5 Changes in assets and liabilities: (Increase) decrease in accrued investment income (13.7) 6.6 (3.1) 0.9 (Increase) decrease in premiums due and other receivables (95.6) 31.1 (23.7) 23.3 Decrease (increase) in policy loans 10.3 0.1 (25.4) (21.8) Increase in deferred policy acquisition costs (121.3) (12.2) (136.6) (153.3) Decrease in value of business acquired 13.9 -- -- -- Goodwill amortization 61.8 -- -- -- Net increase (decrease) in universal life account balances 17.6 (3.8) 23.8 55.7 (Decrease) increase in other insurance reserve liabilities (136.3) (5.3) 85.6 (28.6) (Decrease) increase in other liabilities and other assets (67.9) 103.9 (75.2) (42.5) Increase (decrease) in income taxes 89.5 (14.3) 23.1 (259.8) --------- ------- --------- --------- Net cash (used for) provided by operating activities (122.0) 114.2 44.6 (249.2) --------- ------- --------- --------- Cash Flows from Investing Activities: Proceeds from sales of: Debt securities available for sale 14,216.7 233.0 10,083.2 5,890.1 Equity securities 4.4 1.5 118.4 111.2 Mortgage loans 5.2 0.1 2.1 6.1 Investment maturities and collections of: Debt securities available for sale 1,121.8 53.7 573.1 1,216.5 Short-term investments 7,087.3 0.4 59.9 80.6 Cost of investment purchases in: Debt securities available for sale (16,489.8) (230.7) (10,505.5) (7,099.7) Equity securities (50.0) (27.8) (17.6) (13.0) Mortgages debt securities (242.0) -- -- -- Short-term investments (6,991.1) (10.0) (113.1) (106.0) (Increase) decrease in property and equipment 7.4 1.9 5.4 (5.7) Other, net (4.7) 0.3 (4.0) 3.7 --------- ------- --------- --------- Net cash (used for) provided by investing activities (1,334.8) 22.4 201.9 83.8 --------- ------- --------- --------- Cash Flows from Financing Activities: Deposits and interest credited for investment contracts 1,941.5 164.2 1,529.7 2,040.2 Withdrawals of investment contracts (1,082.7) (156.3) (1,832.6) (1,680.8) Capital contribution from HOLDCO -- -- 73.5 -- Return of capital (11.3) -- -- -- Dividends paid to Shareholder -- -- (10.1) (255.7) Other, net (105.0) (73.6) 22.0 126.7 --------- ------- --------- --------- Net cash provided by (used for) financing activities 742.5 (65.7) (217.5) 230.4 --------- ------- --------- --------- Net (decrease) increase in cash and cash equivalents (714.3) 70.9 29.0 65.0 Effect of exchange rate changes on cash and cash equivalents -- -- 2.0 -- Cash and cash equivalents, beginning of period 796.3 725.4 694.4 629.4 --------- ------- --------- --------- Cash and cash equivalents, end of period $ 82.0 $ 796.3 $ 725.4 $ 694.4 ========= ======= ========= ========= Supplemental cash flow information: Income taxes (received) paid, net $ (12.3) $ 20.3 $ 39.9 $ 316.9 ========= ======= ========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ING Life Insurance and Annuity Company ("ILIAC"), formerly known as Aetna Life Insurance and Annuity Company ("ALIAC") and its wholly owned subsidiaries (collectively, the "Company") are providers of financial products and services and investment management services in the United States. The Company has three business segments: Worksite Products, Individual Products and Investment Management Services. On October 1, 1998, the Company sold its individual life insurance business to Lincoln National Corporation ("Lincoln") and accordingly, it is now classified as Discontinued Operations (refer to Note 3). On December 13, 2000, ING America Insurance Holdings, Inc. ("ING AIH"), an indirect wholly owned subsidiary of ING, acquired Aetna Inc., comprised of the Aetna Financial Services business, of which the Company is a part, and the Aetna International business, for approximately $7.7 billion. The purchase price was comprised of approximately $5.0 billion in cash and the assumption of $2.7 billion of outstanding debt and other net liabilities. In connection with the acquisition, Aetna Inc. was renamed Lion Connecticut Holdings Inc. ("Lion"). At the time of the sale, Lion entered into certain transition services agreements with a former related party, Aetna U.S. Healthcare, which was renamed Aetna Inc. ("former Aetna"). For accounting purposes, the acquisition was recorded as of November 30, 2000 using the purchase method. The effects of this transaction, including the recognition of goodwill, were pushed down and reflected on the financial statements of certain ARSI (a subsidiary of Lion) subsidiaries, including the Company. The Balance Sheet changes related to accounting for this purchase were entirely non-cash in nature and accordingly have been excluded from the pre-acquisition Consolidated Statement of Cash Flow for the eleven months ended November 30, 2000. The purchase price was allocated to assets and liabilities based on their respective fair values. This revaluation resulted in a net increase to assets, excluding the effects of goodwill, of $592.0 million and a net increase to liabilities of $310.6 million. Additionally, the Company established goodwill of $2.3 billion. Goodwill was being amortized over a period of 40 years. The allocation of the purchase price to assets and liabilities has been subjected to further refinement throughout 2001 as additional information has become available to more precisely estimate the fair values of the Company's respective assets and liabilities at the purchase date. The refinements to the Company's purchase price allocations are as follows: The Company completed a full review relative to the assumptions and profit streams utilized in the development of value of business acquired ("VOBA") and determined that certain refinements were necessary. Such refinements resulted in a reduction of VOBA; The Company completed the review of the fixed assets that existed at or prior to the acquisition and determined that an additional write down was necessary; The Company completed the review of severance actions related to individuals who were employed before or at the acquisition date and determined that an additional severance accrual was necessary; F-8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) The Company completed its valuation of certain benefit plan liabilities and, as a result, reduced those benefit plan liabilities; The Company adjusted its reserve for policyholders' funds left with the company in order to conform its accounting policies with those of ING; The Company, after giving further consideration to certain exposures in the general market place, determined that a reduction of its investment portfolio carrying value was warranted; The Company determined that the establishment of a liability for certain noncancellable operating leases that existed prior to or at the acquisition date but are no longer providing a benefit to the Company's operations, was warranted; and The Company determined that the contractual lease payment of one of its operating leases was more than the current market rate, and established a corresponding unfavorable lease liability. The net impact of the refinements in purchase price allocations, as described above, resulted in a net decrease to assets, excluding the effects of goodwill, of $236.4 million, a net decrease to liabilities of $59.8 million and a net increase to the Company's goodwill of $176.6 million. Unaudited proforma consolidated income from continuing operations and net income of the Company for the period from January 1, 2000 to November 30, 2000 and for the year-ended December 31, 1999, assuming that the acquisition of the Company occurred at the beginning of each period, would have been approximately $118.1 million and $123.5 million, respectively. The pro forma adjustments, which do not affect revenues, reflect primarily goodwill amortization, amortization of the favorable lease asset and the elimination of amortization of the deferred gain on sale associated with the life business. The Worksite Products segment includes annuity contracts that offer a variety of funding and payout options for employer-sponsored retirement plans qualified under Internal Revenue Code Sections 401, 403, 408, and 457, nonqualified annuity contracts, and mutual funds. Annuity contracts may be deferred or immediate ("payout annuities"). These products also include programs offered to qualified plans and nonqualified deferred compensation plans that package administrative and recordkeeping services along with a menu of investment options, including mutual funds (both ILIAC and nonaffiliated mutual funds), variable and fixed investment options. Worksite products also include investment advisory services and pension plan administrative services. The Individual Products segment includes both deferred and immediate annuity contracts, which may be qualified or nonqualified, that are sold to individuals. These contracts also offer a choice of fixed or variable investment options, including both ILIAC and nonaffiliated mutual funds. Investment Management Services provides: investment advisory services to affiliated and unaffiliated institutional and retail clients on a fee-for-service basis; underwriting services to the ING Series Fund, Inc. (formerly known as the Aetna Series Fund, Inc.), and the ING Variable F-9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Portfolios, Inc. (formerly known as the Aetna Variable Portfolios, Inc.); distribution services for other company products; and trustee, administrative, and other fiduciary services to retirement plans requiring or otherwise utilizing a trustee or custodian. Discontinued Operations include universal life, variable universal life, traditional whole life and term insurance. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include ILIAC and its wholly-owned subsidiaries, ING Insurance Company of America ("IICA"), Aetna Investment Adviser Holding Company, Inc. ("IA Holdco") and Aetna Investment Services, LLC ("AIS"). ILIAC is a wholly-owned subsidiary of Aetna Retirement Holdings, Inc. ("HOLDCO"), which is a wholly- owned subsidiary of Aetna Retirement Services, Inc. ("ARSI"). ARSI is ultimately owned by ING Groep N.V. (ING). HOLDCO contributed AIS to the Company on June 30, 2000 and contributed IA Holdco to the Company on July 1, 1999 (refer to Note 2). The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The contributions of AIS and IA Holdco to the Company were accounted for in a manner similar to that of a pooling-of-interests and, accordingly, the Company's historical consolidated financial statements have been restated to include the accounts and results of operations of both companies. Certain reclassifications have been made to 2000 and 1999 financial information to conform to the 2001 presentation. NEW ACCOUNTING STANDARD ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES In June 1998, the Financial Accounting Standards Board ("FASB") issued Financial Accounting Standard ("FAS") No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended and interpreted by FAS No. 137, Accounting for Derivative Instruments and Hedging Activites -- Deferral of the Effective Date of FASB Statement No. 133, FAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities -- an Amendment of FASB No. 133, and certain FAS No. 133 implementation issues. This standard, as amended, requires companies to record all derivatives on the balance sheet as either assets or liabilities and measure those instruments at fair value. The manner in which companies are to record gains or losses resulting from changes in the fair values of those derivatives depends on the use of the derivative and whether it qualifies for hedge accounting. FAS 133 was effective for the Company's financial statements beginning January 1, 2001. Adoption of FAS No. 133 did not have a material effect on the Company's financial position or results of operations given the Company's limited derivative and embedded derivative holdings. (Refer to Note 5). F-10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) The Company utilizes options, interest rate floors and warrants in order to manage interest rate and price risk (collectively, market risk). These financial exposures are monitored and managed by the Company as an integral part of the its overall risk management program. (Refer to Note 5). Derivatives are recognized on the balance sheet at their fair value. The Company chose not to designate its derivative instruments as part of hedge transactions. Therefore, changes in the fair value of the Company's derivative instruments are recorded immediately in the consolidated statements of income as part of realized capital gains and losses. Warrants are carried at fair value and are recorded as either derivative instruments or FAS No. 115 available for sale securities. Warrants that are considered derivatives are carried at fair value if they are readily convertible to cash. The values of these warrants can fluctuate given that the companies which underlie the warrants are non-public companies. At December 31, 2001, the estimated value of these warrants was immaterial. These warrants will be revalued each quarter and the change in the value of the warrants will be included in the consolidated statements of income. The Company, at times, may own warrants on common stock which are not readily convertible to cash as they contain certain conditions which preclude their convertibility and therefore, will not be included in assets or liabilities as derivatives. If conditions are satisfied and the underlying stocks become marketable, the warrants would be reclassified as derivatives and recorded at fair value as an adjustment through current period results of operations. The Company occasionally purchases a financial instrument that contains a derivative that is "embedded" in the instrument. In addition, the Company's insurance products are reviewed to determine whether they contain an embedded derivative. The Company assesses whether the economic characteristics of the embedded derivative are clearly and closely related to the economic characteristics of the remaining component of the financial instrument or insurance product (i.e., the host contract) and whether a separate instrument with the same terms as the embedded instrument would meet the definition of a derivative instrument. When it is determined that the embedded derivative possesses economic characteristics that are clearly and closely related to the economic characteristics of the host contract and that a separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative is separated from the host contract and carried at fair value. However, in cases where the host contract is measured at fair value, with changes in fair value reported in current period earnings or the Company is unable to reliably identify and measure the embedded derivative for separation from its host contracts, the entire contract is carried on the balance sheet at fair value and is not designated as a hedging instrument (refer to Note 5). FUTURE ACCOUNTING STANDARD ACCOUNTING FOR GOODWILL AND INTANGIBLE ASSETS In July 2001, the FASB issued FAS No. 142, Accounting for Goodwill and Intangible Assets. Under the new standard, goodwill and intangible assets deemed to have indefinite lives will no F-11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) longer be amortized but will be subject to annual impairment tests in accordance with the new standard. Other intangible assets will continue to be amortized over their useful lives. The Company will apply the new rules on the accounting for goodwill and other intangible assets beginning in the first quarter of 2002. Application of the nonamortization provisions of the new standard is expected to result in an increase in net income; however, the Company is still assessing the impact of the new standard. During 2002, the Company will perform the required impairment tests of goodwill as of January 1, 2002 and has not yet determined what the effect of these tests will be on the earnings and financial position of the Company. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from reported results using those estimates. CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash on hand, money market instruments and other debt issues with a maturity of 90 days or less when purchased. INVESTMENTS All of the Company's fixed maturity and equity securities are currently designated as available-for-sale. Available-for-sale securities are reported at fair value. Securities determined to have a decline in value that is other than temporary are written down to estimated fair value which becomes the securities' new cost basis by a charge to realized losses in the accompanying consolidated statements of operations. Premiums and discounts are amortized/ accrued utilizing the scientific interest method which results in a constant yield over the securities' expected lives. Amortization/accrual of premiums and discounts on mortgage-related securities incorporates a prepayment assumption to estimate the securities expected lives. Included in available-for-sale securities are investments that support experience-rated products. Experience-rated products are products where the customer, not the Company, assumes investment (including realized capital gains and losses on the sale of invested assets) and other risks, subject to, among other things, principal and interest guarantees. Realized gains and losses on the sale of, as well as unrealized capital gains and losses on, investments supporting these products are reflected in policyholders' funds left with the Company. Realized capital gains and losses on all other investments are reflected on all other investments are reflected in the Company's results of operations. Unrealized capital gains and losses on all other investments are reflected in shareholder's equity, net of related income taxes. F-12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Purchases and sales of debt and equity securities (excluding private placements) are recorded on the trade date. Purchases and sales of private placements and mortgage loans are recorded on the closing date. Fair values for fixed maturity securities are obtained from independent pricing services or broker/ dealer quotations. Fair values for privately placed bonds are determined using a matrix-based model. The matrix-based model considers the level of risk-free interest rates, current corporate spreads, the credit quality of the issuer and cash flow characteristics of the security. The fair values for equity securities are based on quoted market prices. For equity securities not actively traded, estimated fair values are based upon values of issues of comparable yield and quality or conversion value where applicable. 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 the loaned domestic securities. 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. In September 2000, the FASB issued FAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. In accordance with this new standard, general account securities on loan are reflected on the Consolidated Balance Sheet as "Securities pledged to creditors", which includes the following:
Gross Gross December 31, 2001 Amortized Unrealized Unrealized Fair (Millions) Cost Gains Losses Value ------------------------------------------------------------------------------------------ Total securities pledged to creditors $466.9 $1.1 $0.8 $467.2 ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ Gross Gross December 31, 2000 Amortized Unrealized Unrealized Fair (Millions) Cost Gains Losses Value ------------------------------------------------------------------------------------------ Debt securities $124.5 $5.3 $3.1 $126.7 Short-term investments 2.3 -- -- 2.3 ------------------------------------------------------------------------------------------ Total securities pledged to creditors $126.8 $5.3 $3.1 $129.0 ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------
Total securities pledged to creditors at December 31, 2001 consisted entirely of debt securities. Dollar rolls and reverse repurchase agreement transactions are accounted for as collateral borrowings, where the amount borrowed is equal to the sales price of the underlying securities. These transactions are reported in "Other Liabilities." F-13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) The investment in affiliated mutual funds represents an investment in funds managed by Aeltus Investment Management, Inc. ("Aeltus"), an indirect wholly owned subsidiary of HOLDCO. Funds managed by ILIAC and subadvised by outside investment advisers, and funds managed by ING Pilgrim Investments, LLC, and is carried at fair value. Mortgage loans on real estate are reported at amortized cost less a valuation allowance. If the value of any mortgage loan is determined to be impaired (i.e., when it is probable the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement), the carrying value of the mortgage loan is reduced to the present value of expected cash flows from the loan, discounted at the loan's effective interest rate, or to the loan's observable market price, or the fair value of the underlying collateral. The carrying value of the impaired loans is reduced by establishing a valuation allowance which is adjusted at each reporting date for significant changes in the calculated value of the loan. Changes in this valuation allowance are charged or credited to income. Policy loans are carried at unpaid principal balances, net of impairment reserves. Short-term investments, consisting primarily of money market instruments and other debt issues purchased with an original maturity of 91 days to one year, are considered available for sale and are carried at fair value, which approximates amortized cost. The Company's use of derivatives is limited to hedging purposes. The Company enters into interest rate and currency contracts, including swaps, caps, and floors to reduce and manage risks associated with changes in value, yield, price, cash flow or exchange rates of assets or liabilities held or intended to be held. Changes in the fair value of open derivative contracts are recorded in net realized capital gains and losses (Refer to Note 5). On occasion, the Company sells call options written on underlying securities which are carried at fair value. Changes in fair value of these options are recorded in net realized capital gains or losses. GOODWILL Goodwill, which represents the excess of cost over the fair value of net assets acquired, was amortized on a straight-line basis over 40 years. Refer to "Future Accounting Standard" within Note 1 for related information regarding the accounting for goodwill. DEFERRED POLICY ACQUISITION COSTS Certain costs of acquiring certain 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 certain annuity and pension 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 30 years for annuity and pension contracts). F-14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Periodically, modifications may be made to deferred annuity contract features, such as shortening the surrender charge period, waiving the surrender charge, or changing the mortality and expense fees. Unamortized deferred policy acquisition costs associated with these modified contracts are not written off, but rather, continue to be associated with the original block of business to which these costs were previously recorded. Such costs are amortized based on revised estimates of expected gross profits based upon the contract after the modification. 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 expenses. VALUE OF BUSINESS ACQUIRED VOBA is an asset and represents the present value of estimated net cash flows embedded in the Company's contracts acquired by ING. VOBA is amortized in proportion to estimated gross profits and adjusted to reflect actual gross profits over the contracts (up to 30 years for annuity contracts and pension contracts). VOBA is written off to the extent that it is determined that gross profits are not adequate to recover the asset. Activity for the year-ended December 31, 2001 within VOBA was as follows:
(Millions) -------------------------------------------------------- Balance at December 31, 2000 $ 1,780.9 Adjustment of allocation of purchase price (165.3) Additions 90.0 Interest accrued at 7% 110.0 Amortization (213.8) -------------------------------------------------------- Balance at December 31,2001 $ 1,601.8 -------------------------------------------------------- --------------------------------------------------------
The estimated amount of VOBA to be amortized, net of interest, over the next five years is $81.1 million, $95.5 million, $103.3 million, $96.6 million and $89.5 million for the years 2002, 2003, 2004, 2005 and 2006, respectively. Actual amortization incurred during these years may vary as assumptions are modified to incorporate actual results. 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 products are equal to cumulative deposits less withdrawals and charges plus credited interest thereon. Reserves for traditional life insurance contracts represent the present value of future benefits to be paid to or on behalf of policyholders and related expenses less the present value of future net premiums. Reserves for immediate annuities with life contingent payout 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 F-15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) range from 2.0% to 9.5% for all years presented. Investment yield is based on the Company's experience. Mortality and withdrawal rate assumptions are based on relevant Company experience and are periodically reviewed against both industry standards and experience. Because the sale of the domestic individual life insurance business was substantially in the form of an indemnity reinsurance agreement, the Company reported an addition to its reinsurance recoverable approximating the Company's total individual life reserves at the sale date. 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 2.0% to 14.0% for all years presented) net of adjustments for investment experience that the Company is entitled to reflect in future credited interest. These reserves also include unrealized gains/losses related to FAS No. 115 for experience-rated contracts. 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. REVENUE RECOGNITION For 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. 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 Separate Accounts assets and liabilities generally represent funds maintained to meet specific investment objectives of contractholders who bear the investment risk, subject, in some cases, to minimum guaranteed rates. Investment income and investment gains and losses generally accrue directly to such contractholders. The assets of each account are legally segregated and are not subject to claims that arise out of any other business of the Company. Separate Accounts assets supporting variable options under universal life and annuity contracts are invested, as designated by the contractholder or participant under a contract (who bears the investment risk subject, in limited cases, to minimum guaranteed rates) in shares of mutual funds F-16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) which are managed by the Company, or other selected mutual funds not managed by the Company. Separate Accounts assets are carried at fair value. At December 31, 2001 and 2000, unrealized gains of $10.8 million and of $9.5 million, respectively, after taxes, on assets supporting a guaranteed interest option are reflected in shareholder's equity. Separate Accounts liabilities are carried at fair value, except for those relating to the guaranteed interest option. Reserves relating to the guaranteed interest option are maintained at fund value and reflect interest credited at rates ranging from 3.0% to 14.0% in 2001 and 3.8% to 14.0% in 2000. 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 Financial Statements (with the exception of realized and unrealized capital gains and losses on the assets supporting the guaranteed interest option). The Consolidated Statements of Cash Flows do not reflect investment activity of the Separate Accounts. 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 recoverable balances deemed probable of recovery are reflected as assets on the Company's Consolidated Balance Sheets. Of the reinsurance recoverable on the Consolidated Balance Sheets, $3.0 billion at both December 31, 2001 and 2000 is related to the reinsurance recoverable from Lincoln arising from the sale of the Company's domestic life insurance business (refer to Note 3). INCOME TAXES The Company files a consolidated federal income tax return with its subsidiary IICA. 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-17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 2. RECENT DEVELOPMENTS CONTRIBUTIONS OF AIS AND IA HOLDCO FROM HOLDCO On June 30, 2000, HOLDCO contributed AIS to the Company. AIS is registered with the Securities and Exchange Commission as a broker/dealer and is a member of the National Association of Securities Dealers, Inc. It is also registered with the appropriate state securities authorities as a broker/dealer and is a Registered Investment Advisor. The principal operation of AIS is acting as underwriter for ILIAC's manufactured products, as well as the sale of fixed and variable annuities and mutual funds through its registered representatives. On July 1, 1999, HOLDCO contributed IA Holdco to the Company. The primary operating subsidiary of IA Holdco is Aeltus which has two wholly-owned operating subsidiaries: Aeltus Capital, Inc. ("ACI"), a broker dealer, and Aeltus Trust Company ("ATC"), a limited purpose banking entity. Aeltus is a registered investment advisor under the Investment Advisers Act of 1940 and provides investment advisory services to institutional and retail clients on a fee-for-service basis. In addition, Aeltus, through its ACI subsidiary, serves as underwriter to the ING Series Fund, Inc. (formerly known as the Aetna Series Fund, Inc.), and the ING Variable Portfolios, Inc. (formerly known as the Aetna Variable Portfolios, Inc.),and provides distribution services for other Company products. Aeltus' ATC subsidiary provides trustee, administrative, and other fiduciary services to retirement plans requiring or otherwise utilizing a trustee or custodian (refer to Note 16). 3. DISCONTINUED OPERATIONS--INDIVIDUAL LIFE INSURANCE On October 1, 1998, the Company sold its domestic individual life insurance business to Lincoln for $1 billion in cash. The transaction was generally in the form of an indemnity reinsurance arrangement, under which Lincoln contractually assumed from the Company certain policyholder liabilities and obligations, although the Company remains directly obligated to policyholders. Assets related to and supporting the life policies were transferred to Lincoln and the Company recorded a reinsurance recoverable from Lincoln. The transaction resulted in an after-tax gain on the sale of approximately $117 million, of which $57.7 million was deferred and was being recognized over approximately 15 years. The remaining portion of the gain was recognized immediately in net income and was largely attributed to access to the agency sales force and brokerage distribution channel. Approximately $5.7 million (after tax) of amortization related to the deferred gain was recognized in both 2000 and 1999. During the fourth quarter of 1999, the Company refined certain accrual and tax estimates which had been established in connection with the recording of the deferred gain. As a result, the deferred gain was increased by $12.9 million (after tax) to $65.4 million at December 31, 1999. In conjunction with the accounting for the 2000 acquisition of the Aetna Financial Services business, of which the Company is a part, the deferred gain, which was previously part of other liabilities, was written off (Refer to Note 1). The operating results of the domestic individual life insurance business are presented as Discontinued Operations. Premiums ceded and reinsurance recoveries made for domestic individual life insurance in 2001 totaled $334.9 million and $363.7 million, in 2000 totaled F-18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 3. DISCONTINUED OPERATIONS--INDIVIDUAL LIFE INSURANCE (continued) $419.1 million and $416.1 million, and in 1999 totaled $476.5 million and $513.4 million, respectively. 4. INVESTMENTS Debt securities available for sale as of December 31 were as follows:
Gross Gross Amortized Unrealized Unrealized Fair 2001 (Millions) Cost Gains Losses Value ------------------------------------------------------------------------------ U.S. government and government agencies and authorities $ 391.0 $ 11.0 $ 4.2 $ 397.8 States, municipalities and political subdivisions 173.7 7.7 -- 181.4 U.S. corporate securities: Public utilities 268.5 6.5 7.9 267.1 Other corporate securities 6,138.8 203.0 62.6 6,279.2 ------------------------------------------------------------------------------ Total U.S. corporate securities 6,407.3 209.5 70.5 6,546.3 ------------------------------------------------------------------------------ Foreign securities: Government 153.2 5.2 0.9 157.5 ------------------------------------------------------------------------------ Total foreign securities 153.2 5.2 0.9 157.5 ------------------------------------------------------------------------------ Mortgage-backed securities 4,513.3 90.1 15.9 4,587.5 Other asset-backed securities 2,077.6 67.1 8.1 2,136.6 ------------------------------------------------------------------------------ Total debt securities, including debt securities pledged to creditors 13,716.1 390.6 99.6 14,007.1 Less: Debt securities pledged to creditors 466.9 1.1 0.8 467.2 ------------------------------------------------------------------------------ Debt securities $13,249.2 $389.5 $98.8 $13,539.9 ------------------------------------------------------------------------------ ------------------------------------------------------------------------------
F-19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 4. INVESTMENTS (continued)
Gross Gross Amortized Unrealized Unrealized Fair 2000 (Millions) Cost Gains Losses Value ----------------------------------------------------------------------------- U.S. government and government agencies and authorities $ 920.8 $ 34.3 $ 2.1 $ 953.0 States, municipalities and political subdivisions 0.3 -- -- 0.3 U.S. corporate securities: Public utilities 282.2 13.8 6.2 289.8 Other corporate securities 4,643.5 86.1 128.3 4,601.3 ----------------------------------------------------------------------------- Total U.S. corporate securities 4,925.7 99.9 134.5 4,891.1 ----------------------------------------------------------------------------- Foreign securities: Government, including political subdivisions 384.7 23.9 4.3 404.3 Utilities 122.9 18.6 -- 141.5 Other 31.2 -- 9.3 21.9 ----------------------------------------------------------------------------- Total foreign securities 538.8 42.5 13.6 567.7 ----------------------------------------------------------------------------- Mortgage-backed securities 4,105.2 125.8 35.4 4,195.6 Other asset-backed securities 753.7 13.4 3.4 763.7 ----------------------------------------------------------------------------- Total debt securities, including debt securities pledged to creditors 11,244.5 315.9 189.0 11,371.4 Less: Debt securities pledged to creditors 124.5 5.3 3.1 126.7 ----------------------------------------------------------------------------- Debt securities $11,120.0 $310.6 $185.9 $11,244.7 ----------------------------------------------------------------------------- -----------------------------------------------------------------------------
At December 31, 2001 and 2000, net unrealized appreciation of $291.0 million and $126.9 million, respectively, on available-for-sale debt securities including debt securities pledged to creditors included $233.0 million and $92.9 million, respectively, related to experience-rated contracts, which were not reflected in shareholder's equity but in policyholders' funds left with the Company. F-20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 4. INVESTMENTS (continued) The amortized cost and fair value of total debt securities for the year-ended December 31, 2001 are shown below by contractual maturity. Actual maturities may differ from contractual maturities because securities may be restructured, called, or prepaid.
Amortized Fair (Millions) Cost Value -------------------------------------------------------------- Due to mature: One year or less $ 160.0 $ 162.1 After one year through five years 2,333.1 2,387.5 After five years through ten years 2,374.7 2,398.8 After ten years 2,257.4 2,334.6 Mortgage-backed securities 4,513.3 4,587.5 Other asset-backed securities 2,077.6 2,136.6 Less: Debt securities pledged to creditors 466.9 467.2 -------------------------------------------------------------- Debt securities $13,249.2 $13,539.9 -------------------------------------------------------------- --------------------------------------------------------------
At December 31, 2001 and 2000, debt securities with carrying values of $9.0 million and $8.6 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, 2001. Included in the Company's total debt securities were residential collateralized mortgage obligations ("CMOs") supporting the following:
2001 2000 ------------------- ------------------- Amortized Fair Amortized Fair (Millions) Cost Value Cost Value ------------------------------------------------------------------------ Total residential CMOs (1) $1,830.5 $1,891.7 $1,606.6 $1,660.7 ------------------------------------------------------------------------ ------------------------------------------------------------------------ Percentage of total: Supporting experience rated products 84.2% 80.6% Supporting remaining products 15.8% 19.4% ------------------------------------------------------------------------ 100.0% 100.0% ------------------------------------------------------------------------ ------------------------------------------------------------------------
(1) At December 31, 2001 and 2000, approximately 80% and 84%, respectively, of the Company's residential CMO holdings were backed by government agencies such as GNMA, FNMA, and FHLMC. There are various categories of CMOs which are subject to different degrees of risk from changes in interest rates and, for CMOs that are not agency-backed, 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, 2001 and 2000, approximately 3% and 2%, respectively, of the Company's CMO holdings were invested in types of CMOs F-21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 4. INVESTMENTS (continued) which are subject to more prepayment and extension risk than traditional CMOs (such as interest-only or principal-only strips). Investments in equity securities as of December 31 were as follows:
(Millions) 2001 2000 ------------------------------------------------------- Amortized Cost $52.2 $120.8 Gross unrealized gains 4.5 6.0 Gross unrealized losses 6.4 9.9 ------------------------------------------------------- Fair value $50.3 $116.9 ------------------------------------------------------- -------------------------------------------------------
Beginning in April 2001, the Company entered into dollar roll and reverse repurchase agreement transactions to increase its return on investments and improve liquidity. These transactions involve a sale of securities by the Company and an agreement to repurchase substantially the same securities as those sold, typically within one month. The dollar rolls and reverse repurchase agreements are accounted for as short-term collateralized financings and are reported within "Other Liabilities" on the Consolidated Balance Sheets. The repurchase obligation totaled $1.0 billion at December 31, 2001. Such borrowings averaged approximately $882.1 million from April through December 2001 and were collateralized by investment securities with fair values approximately equal to loan value. The primary risk associated with short-term collateralized borrowings is that the counterparty will be unable to perform under the terms of the contract. The Company's exposure is limited to the excess of the net replacement cost of the securities over the value of the short-term investments, an amount that was not material at December 31, 2001. The Company believes the counterparties to the dollar roll and reverse repurchase agreements are financially responsible and that the counterparty risk is immaterial. 5. FINANCIAL INSTRUMENTS ESTIMATED FAIR VALUE The carrying values and estimated fair values of certain of the Company's financial instruments at December 31, 2001 and 2000 were as follows:
2001 2000 -------------------- ------------------- Carrying Fair Carrying Fair (Millions) Value Value Value Value ------------------------------------------------------------------------- Assets: Mortgage loans $ 241.3 $ 247.7 $ 4.6 $ 4.5 Liabilities: Investment contract liabilities: With a fixed maturity 1,021.7 846.5 1,041.0 982.3 Without a fixed maturity 11,114.1 10,624.3 10,084.6 9,549.9 -------------------------------------------------------------------------
F-22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 5. FINANCIAL INSTRUMENTS (continued) Fair value estimates are made at a specific point in time, based on available market information and judgments about various financial instruments, such as estimates of timing and amounts 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 instruments. 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. The following valuation methods and assumptions were used by the Company in estimating the fair value of the above financial instruments: MORTGAGE LOANS: The fair values for commercial mortgages are estimated using a discounted cash flow approach. Commercial loans in good standing are discounted using interest rates determined by U.S. Treasury yields on each December 31 and spreads required on new loans with similar characteristics. The amortizing features of all loans are incorporated into the valuation. Where data on option features was available, option values were determined using a binomial valuation method and were incorporated into the mortgage valuation. 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. DERIVATIVE FINANCIAL INSTRUMENTS INTEREST RATE FLOORS Interest rate floors are used to manage the interest rate risk in the Company's bond portfolio. Interest rate floors are purchased contracts that provide the Company with an annuity in a declining interest rate environment. The Company had no open interest rate floors at December 31, 2001 or 2000. FOREIGN EXCHANGE SWAPS Foreign exchange swaps are used to reduce the risk of a change in the value, yield or cash flow with respect to invested assets. Foreign exchange swaps represent contracts that require the exchange of foreign currency cash flows for US dollar cash flows at regular interim periods, typically quarterly or semi-annually. The notional amount, carrying value and estimated fair value F-23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 5. FINANCIAL INSTRUMENTS (continued) of the Company's open foreign exchange rate swaps as of December 31, 2001 were $25.0 million, $0.7 and $0.7 million, respectively. WARRANTS Included in common stocks are warrants which are instruments giving the Company the right, but not the obligation to buy a security at a given price during a specified period. The carrying values and estimated fair values of the Company's warrants to purchase equity securities at December 31, 2001 and 2000 were both $0.3 million. OPTIONS The Company earned $1.1 million of investment income for writing call options on underlying securities for the year-ended December 31, 2000. For the year-ended December 31, 2001 the Company earned no investment income for writing call options on underlying securities. At December 31, 2001 and 2000, there were no option contracts outstanding. EMBEDDED DERIVATIVES The Company also had investments in certain debt instruments that contain embedded derivatives, 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 estimated fair value of the embedded derivatives within such securities as of December 31, 2001 was ($15.5) million. F-24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 6. NET INVESTMENT INCOME Sources of net investment income were as follows:
Preacquisition ------------------------------ One month Eleven months Year-ended ended ended Year-ended December 31, December 31, November 30, December 31, (Millions) 2001 2000 2000 1999 ------------------------------------------------------------------------------------------------ Debt securities $887.2 $70.3 $768.9 $823.3 Nonredeemable preferred stock 1.5 1.8 9.5 17.1 Investment in affiliated mutual funds 7.2 0.5 2.1 2.4 Mortgage loans 5.9 0.1 0.5 1.1 Policy loans 8.9 0.7 7.9 7.7 Cash equivalents 18.2 4.4 50.3 39.0 Other 15.9 2.6 13.1 15.3 ------------------------------------------------------------------------------------------------ Gross investment income 944.8 80.4 852.3 905.9 Less: investment expenses (56.4) (1.8) (18.5) (19.6) ------------------------------------------------------------------------------------------------ Net investment income $888.4 $78.6 $833.8 $886.3 ------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------
Net investment income includes amounts allocable to experience-rated contractholders of $704.2 million for the year-ended December 31, 2001 and $55.9 million and $622.2 million for the one month and eleven month periods ended December 31, 2000 and November 30, 2000, respectively, and $659.6 million for the year-ended December 31, 1999. Interest credited to contractholders is included in current and future benefits. 7. DIVIDEND RESTRICTIONS AND SHAREHOLDER'S EQUITY The Company paid $10.1 million and $255.7 million in cash dividends to HOLDCO in 2000 and 1999, respectively. Of the $255.7 million paid in 1999, $206.0 million was accrued for in 1998. For the year-ended December 31, 2001, the Company did not pay any cash dividends to HOLDCO. The Company did not receive any capital contributions in 2001 and 1999. In 2000, the Company received capital contributions of $73.5 million in cash and $56.0 million in assets from HOLDCO. In conjunction with the sale of Aetna, Inc. to ING AIH, the Company was restricted from paying any dividends to the its parent in 2001 without prior approval by the Insurance Commissioner of the State of Connecticut. This restriction continues for a two year period from the date of the sale. The Insurance Department of the State of Connecticut (the "Department") recognizes as net income and capital and surplus those amounts determined in conformity with statutory F-25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 7. DIVIDEND RESTRICTIONS AND SHAREHOLDER'S EQUITY (continued) accounting practices prescribed or permitted by the Department, which differ in certain respects from generally accepted accounting principles. Statutory net (loss) income was $(92.3) million, $100.6 million and $133.9 million for the years-ended December 31, 2001, 2000, and 1999, respectively. Statutory capital and surplus was $826.2 million and $931.1 million as of December 31, 2001 and 2000, respectively. As of December 31, 2001, 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. For 2001, the Company was required to implement statutory accounting changes ("Codification") ratified by the National Association of Insurance Commissioners and state insurance departments. The cumulative effect of Codification to the Company's statutory surplus as of December 31, 2001 was a decrease of $12.5 million. 8. 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 (losses) gains on investments were as follows:
Preacquisition ------------------------------ One month Eleven months Year-ended ended ended Year-ended December 31, December 31, November 30, December 31, (Millions) 2001 2000 2000 1999 ------------------------------------------------------------------------------------------------ Debt securities $(20.6) $1.2 $(36.3) $(23.6) Equity securities (0.4) 0.6 (0.9) 2.1 ------------------------------------------------------------------------------------------------ Pretax realized capital (losses) gains $(21.0) $1.8 $(37.2) $(21.5) ------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------ After-tax realized capital (losses) gains $(13.7) $1.3 $(24.3) $(14.0) ------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------
Net realized capital gains (losses) of $117.0 million, $(16.8) million and $(36.7) million for 2001, 2000, and 1999, 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 allocable to experienced-rated contractholders were $172.7 million and $45.1 million at December 31, 2001 and 2000, respectively. F-26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 8. CAPITAL GAINS AND LOSSES ON INVESTMENT OPERATIONS (continued) Proceeds from the sale of total debt securities and the related gross gains and losses were as follows:
Preacquisition ------------------------------ One month Eleven months Year-ended ended ended Year-ended December 31, December 31, November 30, December 31, (Millions) 2001 2000 2000 1999 ------------------------------------------------------------------------------------------------ Proceeds on sales $14,216.7 $233.0 $10,083.2 $5,890.1 Gross gains 57.0 1.2 2.5 10.5 Gross losses 77.6 -- 38.8 34.1 ------------------------------------------------------------------------------------------------
Changes in shareholder's equity related to changes in accumulated other comprehensive income (unrealized capital gains and losses on securities including securities pledged to creditors and excluding those related to experience-rated contractholders) were as follows:
(Millions) 2001 2000 1999 ----------------------------------------------------------- Debt securities $24.0 $ 92.1 $(199.2) Equity securities 2.0 (5.5) (3.4) Other 6.5 21.5 (27.6) ----------------------------------------------------------- Subtotal 32.5 108.1 (230.2) Increase (decrease) in deferred income taxes (Refer to Note 10) 11.3 37.9 (80.6) ----------------------------------------------------------- Net changes in accumulated other comprehensive income (loss) $21.2 $ 70.2 $(149.6) ----------------------------------------------------------- -----------------------------------------------------------
Net unrealized capital gains allocable to experience-rated contracts of $233.0 million and $92.9 million at December 31, 2001 and 2000, respectively, are reflected on the Consolidated Balance Sheets in Policyholders' funds left with the Company and are not included in shareholder's equity. Shareholder's equity included the following accumulated other comprehensive income (loss), which is net of amounts allocable to experience-rated contractholders, at December 31:
(Millions) 2001 2000 1999 --------------------------------------------------------- Net unrealized capital gains (losses): Debt securities $58.0 $34.0 $(58.1) Equity securities (1.9) (3.9) 1.6 Other 15.6 9.1 (12.4) --------------------------------------------------------- 71.7 39.2 (68.9) Deferred income taxes (Refer to Note 10) 25.1 13.8 (24.1) --------------------------------------------------------- Net accumulated other comprehensive income (loss) $46.6 $25.4 $(44.8) --------------------------------------------------------- ---------------------------------------------------------
F-27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 8. CAPITAL GAINS AND LOSSES ON INVESTMENT OPERATIONS (continued) Changes in accumulated other comprehensive income related to changes in unrealized gains (losses) on securities, including securities pledged to creditors (excluding those related to experience-rated contractholders) were as follows:
(Millions) 2001 2000 1999 ----------------------------------------------------------- Unrealized holding gains (losses) arising during the year (1) $ 8.3 $70.0 $(146.3) Less: reclassification adjustment for (losses) gains and other items included in net income (2) (12.9) (0.1) 3.3 ----------------------------------------------------------- Net unrealized gains (losses) on securities $ 21.2 $70.1 $(149.6) ----------------------------------------------------------- -----------------------------------------------------------
(1) Pretax unrealized holding gains (losses) arising during the year were $12.7 million, $108.0 million and $(225.2) million for 2001, 2000, and 1999, respectively. (2) Pretax reclassification adjustments for (losses) gains and other items included in net income were $(19.8) million, $(0.1) million and $5.0 million for 2001, 2000, and 1999, respectively. 9. SEVERANCE AND FACILITIES CHARGES In December 2001, ING announced its intentions to further integrate and streamline the U.S.-based operations of ING Americas, of which the Company is a part, in order to build a more customer-focused organization. In connection with these actions, the Company recorded a charge of $29.2 million pretax. The severance portion of this charge ($28.4 million pretax) is based on a plan to eliminate 580 positions (primarily operations, information technology and other administrative/staff support personnel). Severance actions are expected to be substantially complete by March 31, 2003. The facilities portion ($.8 million pretax) of the charge represents the amount to be incurred by the Company to terminate a contractual obligation. In December 2000, the Company, in accounting for its acquisition by ING, established a severance liability related to actions taken or expected to be taken with respect to the integration of the Company's and ING's businesses. Subsequent to the date of the acquisition, the Company completed a full review of severance actions related to individuals who were employed before or at the acquisition date and determined that certain refinements in the allocation of the purchase price to the severance liability were necessary. Activity for the year-ended December 31, 2001 within this severance liability and positions eliminated related to such actions were as follows:
(Millions) Severance Liability Positions ------------------------------------------------------------------------ Balance at December 31, 2000 $10.7 175 Actions taken (8.4) (101) Allocation of purchase price: Additions 5.2 58 Attrition (3.3) (101) Refinements 1.0 -- ------------------------------------------------------------------------ Balance at December 31, 2001 $ 5.2 31 ------------------------------------------------------------------------ ------------------------------------------------------------------------
F-28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 9. SEVERANCE AND FACILITIES CHARGES (continued) Severance actions related to the liability established in December 2000 are expected to be substantially complete by March 31, 2002. 10. INCOME TAXES The Company files a consolidated federal income tax return with IICA. The Company has a tax allocation agreement with IICA whereby the Company charges its subsidiary for taxes it would have incurred were it not a member of the consolidated group and credits the member for losses at the statutory tax rate. Income taxes from continuing operations consist of the following:
Preacquisition ------------------------------ One month Eleven months Year-ended ended ended Year-ended December 31, December 31, November 30, December 31, (Millions) 2001 2000 2000 1999 ------------------------------------------------------------------------------------------------ Current taxes (benefits): Federal $ 3.2 $ 9.4 $ 5.3 $ 64.3 State 2.2 0.2 2.6 2.5 Net realized capital gains (losses) 16.1 0.3 (11.5) (20.1) ------------------------------------------------------------------------------------------------ Total current taxes (benefits) 21.5 9.9 (3.6) 46.7 ------------------------------------------------------------------------------------------------ Deferred taxes (benefits): Federal 89.3 (4.3) 83.2 31.3 Net realized capital (losses) gains (23.4) 0.3 (1.5) 12.6 ------------------------------------------------------------------------------------------------ Total deferred taxes (benefits) 65.9 (4.0) 81.7 43.9 ------------------------------------------------------------------------------------------------ Total $ 87.4 $ 5.9 $ 78.1 $ 90.6 ------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------
F-29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 10. INCOME TAXES (continued) Income taxes were different from the amount computed by applying the federal income tax rate to income from continuing operations before income taxes for the following reasons:
Preacquisition ------------------------------ One month Eleven months Year-ended ended ended Year-ended December 31, December 31, November 30, December 31, (Millions) 2001 2000 2000 1999 ------------------------------------------------------------------------------------------------ Income from continuing operations before income taxes $187.3 $18.5 $249.6 $272.5 Tax rate 35% 35% 35% 35% ------------------------------------------------------------------------------------------------ Application of the tax rate 65.6 6.4 87.4 95.4 Tax effect of: State income tax, net of federal benefit 1.4 0.1 1.7 1.6 Excludable dividends (1.8) (0.9) (12.6) (6.1) Goodwill amortization 21.6 -- -- -- Other, net 0.6 0.3 1.6 (0.3) ------------------------------------------------------------------------------------------------ Income taxes $ 87.4 $ 5.9 $ 78.1 $ 90.6 ------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------
F-30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 10. 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:
(Millions) 2001 2000 ---------------------------------------------------------- Deferred tax assets: Deferred policy acquisition costs $ 11.7 $ 44.8 Insurance reserves 286.9 306.3 Unrealized gains allocable to experience rated contracts 81.5 32.5 Investment losses 36.7 9.0 Postretirement benefits other than pensions 6.1 5.8 Deferred compensation 72.2 65.6 Other 29.1 21.1 ---------------------------------------------------------- Total gross assets 524.2 485.1 ---------------------------------------------------------- Deferred tax liabilities: Value of business acquired 558.5 623.3 Market discount 4.6 4.9 Net unrealized capital gains 106.6 46.3 Depreciation 5.1 4.4 Sale of individual life insurance business -- 15.1 Excludable dividends -- 5.0 Other 3.1 34.1 ---------------------------------------------------------- Total gross liabilities 677.9 733.1 ---------------------------------------------------------- Net deferred tax liability $(153.7) $(248.0) ---------------------------------------------------------- ----------------------------------------------------------
Net unrealized capital gains and losses are presented in shareholder's equity net of deferred taxes. As of December 31, 2001 and 2000, no valuation allowance was 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, 2001. This amount would be taxed only under certain conditions. No income taxes have been provided on this amount since management believes under current tax law the conditions under which such taxes would become payable are remote. The Internal Revenue Service (the "Service") has completed examinations of the federal income tax returns of the Company through 1997. 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 1998 through 2000. F-31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 11. BENEFIT PLANS Prior to December 31, 2001, ILIAC, in conjunction with ING, had a qualified defined benefit pension plan covering substantially all employees ("Transition Pension Plan"). The Transition Pension Plan provided pension benefits based on a cash balance formula, which credited employees annually with an amount equal to a percentage of eligible pay based on age and years of service as well as an interest credit based on individual account balances. Contributions were determined using the Projected Unit Credit Method and were limited to the amounts that are tax-deductible. The accumulated benefit obligation and plan assets were recorded by ILIAC. As of the measurement date (i.e., January 1, 2001), fair value of plan assets exceeded projected benefit obligations. As of December 31, 2001, the Transition Pension Plan merged into the ING Americas Retirement Plan ("ING Pension Plan"), which is sponsored by ING North America Insurance Corporation ("ING North America"), an affiliate of ILIAC. The ING Pension Plan covers substantially all U.S. employees. Accordingly, the Company transferred $17.4 million of net assets ($11.3 million after tax) related to the movement of the Transition Pension Plan to ING North America. The Company reported this transfer of net assets as a $11.3 million reduction in paid in capital. The new plan's benefits are based on years of service and the employee's average annual compensation during the last five years of employment. Contributions are determined using the Projected Unit Credit Method and are limited to the amounts that are tax-deductible. Prior to December 31, 2001, ILIAC, in conjunction with ING, had a non-qualified defined benefit pension plan covering certain eligible employees. The plan provided pension benefits based on a cash balance formula, which credited employees annually with an amount equal to a percentage of eligible pay based on age and years of service as well as an interest credit based on individual account balances. As of December 31, 2001, ILIAC, in conjunction with ING, established a non-qualified defined benefit pension plan providing benefits to certain eligible employees based on years of service and the employee's average annual compensation during the last five years of employment. Contributions are determined using the Projected Unit Credit Method. The unfunded accumulated benefit obligation is recorded by ILIAC. In addition to providing pension benefits, ILIAC, in conjunction with ING, provides certain health care and life insurance benefits for retired employees. Retirees are generally required to contribute to the plans based on their years of service with the Company. The costs to the Company associated with the former Aetna postretirement plans for 2001, 2000, and 1999 were $0.6 million, $1.2 million and $2.1 million, respectively. ILIAC, in conjunction with ING, also 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. January 1, 2001), the unfunded projected benefit obligation is recorded by the Company. The costs to the Company associated with the agents non-qualified pension plan for 2001, 2000, and 1999 were $6.6 million, $3.5 million and $3.3 million, respectively. The Company, in conjunction with ING, also provides certain postretirement health care and life insurance benefits for certain agents. The costs to the Company associated with the agents' F-32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 11. BENEFIT PLANS (continued) postretirement plans for 2001, 2000, and 1999 were $0.5 million, $1.4 million and $2.1 million, respectively. ILIAC, in conjunction with ING, also has a Savings Plan. Substantially all employees are eligible to participate in the savings plan under which designated contributions, which may be invested in a variety of financial instruments, are matched up to 5% of compensation by ING. Pretax charges to operations for the former Aetna incentive savings plan were $11.0 million, $9.0 million and $7.7 million in 2001, 2000, and 1999, respectively. ILIAC, in conjunction with former Aetna, had a stock incentive plan that provided for stock options, deferred contingent common stock or equivalent cash awards or restricted stock to employees. Certain executive, middle management and non-management employees were granted options to purchase common stock of former Aetna at or above the market price on the date of grant. Options generally became 100% vested three years after the grant was made, with one-third of the options vesting each year. The former Aetna did 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 were, from time to time, granted incentive units which were rights to receive common stock or an equivalent value in cash. The sale of the Company to ING AIH by former Aetna caused all outstanding stock options to vest immediately. The costs to the Company associated with the former Aetna stock plans for 2001, 2000, and 1999, were $1.8 million, $2.7 million and $0.4 million, respectively. Effective January 1, 1998, Aeltus established an additional deferred incentive compensation plan, designed to attract, retain and incent key members of Aeltus. The plan had a five year vesting period. Payments under the plan were conditioned upon continued employment and were based upon an imputed share price of Aeltus at the end of the vesting period. The plan value was determined annually and the cost of the plan was expensed ratably over the vesting period. A change in control at Aeltus, as defined in the plan, would cause immediate full vesting of all outstanding shares. The purchase of Aetna Inc. by ING in 2000 met this definition. As a result, all outstanding shares became fully vested based on Aeltus's imputed value at the date of the sale and were subsequently paid out in early 2001. The appropriate annual share of the cost of the plan, including the additional cost in 2000 associated with this full vesting, has been reflected in salaries and related benefits in the Consolidated Statements of Income for each of the years-ended December 31, 1999 and 2000, respectively. In 2001, a new deferred compensation plan was developed with attributes similar to those in the previous plans. The costs reflected in the Consolidated Financial Statements associated with Aeltus' new deferred incentive compensation plan for 2001 was $4.1 million. The costs for its former deferred incentive compensation plan for 2000 and 1999 were, $42.2 million and $4.7 million, respectively. F-33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 12. RELATED PARTY TRANSACTIONS INVESTMENT ADVISORY AND OTHER FEES ILIAC and Aeltus serve as investment advisors and administrators to the Company's mutual funds and variable funds (collectively, the Funds). Company mutual funds pay Aeltus or ILIAC, as investment advisor or administrator, a daily fee which, on an annual basis, ranged, depending on the fund, from 0.33% to 1.15% of their average daily net assets. All of the funds managed by ILIAC and certain of the funds managed by Aeltus are subadvised by investment advisors, in which case, Aeltus or ILIAC pays a subadvisory fee to the investment advisors. The Company is also compensated by the Separate Accounts (variable funds) for bearing mortality and expense risks pertaining to variable life and annuity contracts. Under the insurance and annuity contracts, the Separate Accounts pay the Company a daily fee, which, on an annual basis is, depending on the product, up to 3.40% of their average daily net assets. The amount of compensation and fees received from the Company mutual funds and Separate Accounts, included in charges assessed against policyholders and other income, amounted to $421.7 million, $506.3 million and $424.2 million in 2001, 2000, and 1999, respectively. RECIPROCAL LOAN AGREEMENT ILIAC maintains a reciprocal loan agreement with ING AIH, a Delaware corporation and affiliate, to facilitate the handling of unusual and/or unanticipated short-term cash requirements. Under this agreement, which became effective in June 2001 and expires in April, 2011, ILIAC and ING AIH can borrow up to 3% of ILIAC's statutory admitted assets as of the preceding December 31 from one another. Interest on any ILIAC borrowings is charged at the rate of ING AIH's cost of funds for the interest period plus 0.15%. Interest on any ING AIH borrowings is charged at a rate based on the prevailing interest rate of U.S. commercial paper available for purchase with a similar duration. Under this agreement, ILIAC incurred interest expense of $0.1 million and earned interest income of $3.3 million for the year-ended December 31, 2001. At December 31, 2001, ILIAC had $191.1 million of receivables and no outstanding borrowings from ING AIH under this agreement. CAPITAL TRANSACTIONS In 2000, the Company received capital contributions in the form of cash and assets of $73.5 million, and $56.0 million, respectively from HOLDCO. The Company received no capital contributions in 1999 or 2001. Refer to Note 7 for dividends paid to HOLDCO. Refer to Note 11 for a discussion related to a return of capital to ING AIH. OTHER Premiums due and other receivables include $1.0 million and $4.7 million due from affiliates in 2001 and 2000, respectively. Other liabilities include $0.6 million and $4.1 million due to affiliates for 2001 and 2000, respectively. F-34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 12. RELATED PARTY TRANSACTIONS (continued) Former Aetna transferred to the Company $0.4 million and $0.8 million for the years 2000 and 1999, respectively, based on former Aetna's decision not to settle state tax liabilities as permitted under the tax sharing arrangement, which is reported in other changes in retained earnings. There was no transfer of funds from former Aetna to the Company to settle state tax liabilities for the year 2001. Certain administrative and support functions of the Company are provided by former Aetna and its affiliates for a specified transition period. At the end of the transition period, these functions will be provided by ING affiliates. The financial statements reflect allocated charges for these services based upon measures appropriate for the type and nature of the service provided. 13. REINSURANCE On October 1, 1998, the Company sold its domestic individual life insurance business to Lincoln for $1 billion in cash. The transaction is generally in the form of an indemnity reinsurance arrangement, under which Lincoln contractually assumed from the Company certain policyholder liabilities and obligations, although the Company remains directly obligated to policyholders (Refer to Note 3). Effective January 1, 1998, 90% of the mortality risk on substantially all individual universal life product business written from June 1, 1991 through October 31, 1997 was reinsured externally. Beginning November 1, 1997, 90% of new business written on these products was reinsured externally. Effective October 1, 1998 this agreement was assigned from the third party reinsurer to Lincoln. Effective December 31, 1988, the Company entered into a modified coinsurance reinsurance agreement ("MODCO") with Aetna Life Insurance Company ("Aetna Life"), (formerly an affiliate of the Company), in which substantially all of the nonparticipating individual life and annuity business written by Aetna Life prior to 1981 was assumed by the Company. Effective January 1, 1997, this agreement was amended to transition (based on underlying investment rollover in Aetna Life) from a modified coinsurance arrangement to a coinsurance agreement. As a result of this change, reserves were ceded to the Company from Aetna Life as investment rollover occurred. Effective October 1, 1998, this agreement was fully transitioned to a coinsurance arrangement and this business along with the Company's direct individual life insurance business, with the exception of certain supplemental contracts with reserves of $70.5 million and $74.9 million as of December 31, 2001 and 2000, respectively, was sold to Lincoln (refer to Note 3). On December 16, 1988, the Company assumed $25.0 million of premium revenue from Aetna Life, (formerly an affiliate of the Company) for the purchase and administration of a life contingent single premium variable payout annuity contract. In addition, the Company is also responsible for administering fixed annuity payments that are made to annuitants receiving variable payments. Reserves of $24.1 million and $29.2 million were maintained for this contract as of December 31, 2001 and 2000, respectively. F-35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 13. REINSURANCE (continued) The following table includes premium amounts ceded/assumed.
Ceded to Assumed Direct Other from Other Net (Millions) Amount Companies Companies Amount ----------------------------------------------------------------------- 2001 ------------------------------ Premiums: Discontinued Operations $301.2 $315.0 $13.8 -- Accident and Health Insurance 4.5 4.5 -- -- Annuities 112.3 (1.3) 0.6 $114.2 ----------------------------------------------------------------------- Total earned premiums $418.0 $318.2 $14.4 $114.2 ----------------------------------------------------------------------- ----------------------------------------------------------------------- 2000 ------------------------------ Premiums: Discontinued Operations $366.6 $382.4 $15.8 -- Accident and Health Insurance 15.2 15.2 -- -- Annuities 160.4 7.1 0.9 $154.2 ----------------------------------------------------------------------- Total earned premiums $542.2 $404.7 $16.7 $154.2 ----------------------------------------------------------------------- ----------------------------------------------------------------------- 1999 ------------------------------ Premiums: Discontinued Operations $460.1 $478.0 $17.9 -- Accident and Health Insurance 33.4 33.4 -- -- Annuities 111.5 4.9 0.9 $107.5 ----------------------------------------------------------------------- Total earned premiums $605.0 $516.3 $18.8 $107.5 ----------------------------------------------------------------------- -----------------------------------------------------------------------
The Company had $35.9 billion, $38.9 billion and $43.4 billion of life insurance in force at December 31, 2001, 2000 and 1999, respectively. Substantially all life insurance in force at December 31, 2001, 2000 and 1999 was ceded to Lincoln. F-36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 14. SEGMENT INFORMATION Summarized financial information for the Company's principal operations was as follows:
Investment Year-ended December 31, Worksite Individual Management 2001 (Millions) Products (1) Products (1) Services (1) Other (1) Total ----------------------------------------------------------------------------------------- Revenues from external customers $ 432.1 $ 151.1 $119.6 $ (35.2) $ 667.6 Net investment income 788.9 99.0 1.7 (1.2) 888.4 ----------------------------------------------------------------------------------------- Total revenue excluding net realized capital gains (losses) $ 1,221.0 $ 250.1 $121.3 $ (36.4) $ 1,556.0 ----------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------- Amortization of deferred policy acquisition costs and value of business acquired $ 59.7 $ 41.4 -- $ 10.9 $ 112.0 ----------------------------------------------------------------------------------------- Income taxes (benefits) $ 70.1 $ 16.6 $ 15.7 $ (15.0) $ 87.4 ----------------------------------------------------------------------------------------- Operating earnings (2) $ 150.4 $ 24.3 $ 27.4 $ (88.5) $ 113.6 Net realized capital gains (losses), net of tax (20.2) 6.4 0.1 -- (13.7) ----------------------------------------------------------------------------------------- Income (loss) from continuing operations 130.2 30.7 27.5 (88.5) 99.9 ----------------------------------------------------------------------------------------- Net income (loss) $ 130.2 $ 30.7 $ 27.5 $ (88.5) $ 99.9 ----------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------- Segment assets (3) $41,695.7 $8,432.0 $ 82.1 $2,983.3 $53,193.1 ----------------------------------------------------------------------------------------- Expenditures for long-lived assets (4) -- -- -- $ 6.3 $ 6.3 ----------------------------------------------------------------------------------------- Balance of long-lived assets -- -- -- $ 33.1 $ 33.1 -----------------------------------------------------------------------------------------
(1) Worksite Products include deferred annuity contracts that fund defined contribution and deferred compensation plans; immediate annuity contracts; mutual funds; distribution services for annuities and mutual funds; programs offered to defined contribution plans and deferred compensation plans that package administrative and recordkeeping services along with a menu of investment options; wrapper agreements containing certain benefit response guarantees that are entered into with retirement plans, whose assets are not invested with the Company; investment advisory services and pension plan administrative services. Individual Products include deferred and immediate annuity contracts, both qualified and nonqualified, that are sold to individuals and provide variable or fixed investment options or a combination of both. Investment Management Services include: investment advisory services to affiliated and unaffiliated institutional and retail clients; underwriting; distribution for Company mutual funds and a former affiliate's separate accounts; and trustee, administrative and other services to retirement plans (Refer to Notes 1 and 2). Other includes consolidating adjustments, amortization of goodwill, ING corporate expense, restructuring charges, and taxes not allocated back to the segments. (2) Operating earnings is comprised of net income (loss) excluding net realized capital gains and losses. While operating earnings is the measure of profit or loss used by the Company's management when assessing performance or making operating decisions, it does not replace operating income or net income as a measure of profitability. (3) Segment assets exclude goodwill. (4) Expenditures of long-lived assets represent additions to property and equipment not allocable to business. F-37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 14. SEGMENT INFORMATION (continued)
Investment Year-ended December 31, Worksite Individual Management Discontinued 2000 (Millions) Products (1) Products (1) Services (1) Operations (1) Other (1) Total ------------------------------------------------------------------------------------------------------------- Revenues from external customers $ 576.7 $ 115.4 $138.2 -- $(53.0) $ 777.3 Net investment income 793.6 112.2 2.8 -- 3.8 912.4 ------------------------------------------------------------------------------------------------------------- Total revenue excluding net realized capital gains (losses) $ 1,370.3 $ 227.6 $141.0 -- $(49.2) $ 1,689.7 ------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------- Amortization of deferred policy acquisition costs and value of business acquired $ 68.3 $ 47.3 $ -- -- $ 11.3 $ 126.9 ------------------------------------------------------------------------------------------------------------- Income taxes (benefits) $ 74.6 $ 16.6 $ 9.0 -- $(16.2) $ 84.0 ------------------------------------------------------------------------------------------------------------- Operating earnings (2) $ 159.4 $ 33.0 $ 9.7 -- $ 5.0 $ 207.1 Net realized capital (losses) gains, net of tax (20.8) (2.3) 0.1 -- -- (23.0) ------------------------------------------------------------------------------------------------------------- Income from continuing operations 138.6 30.7 9.8 -- 5.0 184.1 Discontinued operations, net of tax: Amortization of deferred gain on sale (3) -- -- -- $ 5.7 -- 5.7 ------------------------------------------------------------------------------------------------------------- Net income $ 138.6 $ 30.7 $ 9.8 $ 5.7 $ 5.0 $ 189.8 ------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------- Segment assets (4) $42,955.7 $8,864.6 $ 44.1 $2,991.2 -- $54,855.6 ------------------------------------------------------------------------------------------------------------- Expenditures for long- lived assets (5) -- -- -- -- $ 3.4 $ 3.4 ------------------------------------------------------------------------------------------------------------- Balance of long-lived assets -- -- -- -- $ 54.3 $ 54.3 -------------------------------------------------------------------------------------------------------------
(1) Worksite Products include deferred annuity contracts that fund defined contribution and deferred compensation plans; immediate annuity contracts; mutual funds; distribution services for annuities and mutual funds; programs offered to defined contribution plans and deferred compensation plans that package administrative and recordkeeping services along with a menu of investment options; wrapper agreements containing certain benefit response guarantees that are entered into with retirement plans, whose assets are not invested with the Company; investment advisory services and pension plan administrative services. Individual Products include deferred and immediate annuity contracts, both qualified and nonqualified, that are sold to individuals and provide variable or fixed investment options or a combination of both. Investment Management Services include the following services: investment advisory to affiliated and unaffiliated institutional and retail clients, underwriting, distribution for Company's mutual funds and affiliate's separate accounts; and trustee, administrative and other services to retirement plans (Refer to Notes 1 and 2). Discontinued operations include life insurance products (Refer to Note 3). Other includes consolidating adjustments, Year 2000 costs and taxes not allocated back to the segment. (2) Operating earnings is comprised of net income (loss) excluding net realized capital gains and losses. While operating earnings is the measure of profit or loss used by the Company's management when assessing performance or making operating decisions, it does not replace operating income or net income as a measure of profitability. (3) Taxes on the amortization of deferred gain on sale were $3.3 million. (4) Segment assets exclude goodwill. (5) Expenditures of long-lived assets represent additions to property and equipment not allocable to business segments. F-38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 14. SEGMENT INFORMATION (continued)
Investment Year-ended December 31, Worksite Individual Management Discontinued 1999 (Millions) Products (1) Products (1) Services (1) Operations (1) Other (1) Total ------------------------------------------------------------------------------------------------------------- Revenues from external customers $ 469.8 $ 81.3 $118.3 -- $(43.9) $ 625.5 Net investment income 784.6 96.9 1.5 -- 3.3 886.3 ------------------------------------------------------------------------------------------------------------- Total revenue excluding net realized capital gains $ 1,254.5 $ 178.1 $119.8 -- $(40.6) $ 1,511.8 ------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------- Amortization of deferred policy acquisition costs and value of business acquired $ 63.0 $ 30.4 -- -- $ 11.5 $ 104.9 ------------------------------------------------------------------------------------------------------------- Income taxes (benefits) $ 82.0 $ 11.2 $ 16.5 -- $(19.1) $ 90.6 ------------------------------------------------------------------------------------------------------------- Operating earnings (2) $ 164.9 $ 22.2 28.1 -- $ (1.8) $ 213.4 Other Item (3) -- -- -- -- (17.5) (17.5) Net realized capital gains, net of tax (12.7) (1.3) -- -- -- (14.0) ------------------------------------------------------------------------------------------------------------- Income (loss) from continuing operations 152.2 20.9 28.1 -- (25.0) 181.9 Discontinued operations, net of tax: Amortization of deferred gain on sale (4) -- -- -- $ 5.7 -- 5.7 ------------------------------------------------------------------------------------------------------------- Net income (loss) $ 152.2 $ 20.9 $ 28.1 $ 5.7 $(25.0) $ 187.6 ------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------- Segment assets $44,484.9 $8,877.2 $ 36.6 $2,989.0 -- $56,387.7 ------------------------------------------------------------------------------------------------------------- Expenditures for long- lived assets (5) -- -- -- -- $ 3.9 $ 3.9 ------------------------------------------------------------------------------------------------------------- Balance of long-lived assets -- -- -- -- $ 12.2 $ 12.2 -------------------------------------------------------------------------------------------------------------
(1) Worksite Products include deferred annuity contracts that fund defined contribution and deferred compensation plans; immediate annuity contracts; mutual funds; distribution services for annuities and mutual funds; programs offered to defined contribution plans and deferred compensation plans that package administrative and recordkeeping services along with a menu of investment options; wrapper agreements containing certain benefit response guarantees that are entered into with retirement plans, whose assets are not invested with the Company; investment advisory services and pension plan administrative services. Individual Products include deferred and immediate annuity contracts, both qualified and nonqualified, that are sold to individuals and provide variable or fixed investment options or a combination of both. Investment Management Services include the following services: investment advisory to affiliated and unaffiliated institutional and retail clients, underwriting, distribution for Company's mutual funds and affiliate's separate accounts; and trustee, administrative and other services to retirement plans (Refer to Notes 1 and 2). Discontinued operations include life insurance products (Refer to Note 3). Other includes consolidating adjustments, Year 2000 costs, and taxes not allocated back to the segment. (2) Operating earnings is comprised of net income (loss) excluding net realized capital gains and losses and Year 2000 costs. While operating earnings is the measure of profit or loss used by the Company's management when assessing performance or making operating decisions, it does not replace operating income or net income as a measure of profitability. (3) Represents after-tax Year 2000 costs. (4) Taxes on the amortization of deferred gain on sale were $3.2 million. (5) Expenditures of long-lived assets represent additions to property and equipment not allocable to business segments. F-39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 15. COMMITMENTS AND CONTINGENT LIABILITIES LEASES In conjunction with the acquisition by ING, the Company entered into or assumed from a former affiliate operating leases for office space. For the year-ended December 31, 2001, rent expense for these leases was $17.6 million. The future net minimum payments under noncancelable leases for 2002 through 2006 are estimated to be $24.8 million, $20.6 million, $17.6 million, $16.2 million and $14.4 million, respectively, and $15.6 million, thereafter. 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, 2001, the Company had off-balance sheet commitments to purchase investments of $4.8 million with an estimated fair value of $4.8 million. At December 31, 2000 and 1999, there were no off-balance sheet commitments. LITIGATION In recent years, life insurance companies have been named as defendants in class action lawsuits relating to life insurance sales practices. The Company is currently a defendant in one such lawsuit. A purported class action complaint was filed in the United States District Court for the Middle District of Florida on June 30, 2000, by Helen Reese, Richard Reese, Villere Bergeron and Allan Eckert against ALIAC (the "Reese Complaint"). The Reese Complaint seeks compensatory and punitive damages and injunctive relief from ALIAC. The Reese Complaint claims that ALIAC engaged in unlawful sales practices in marketing life insurance policies. ALIAC has moved to dismiss the Reese Complaint for failure to state a claim upon which relief can be granted. Certain discovery is underway. The Company intends to defend the action vigorously. The Company is also involved in other lawsuits arising, for the most part, in the ordinary course of its business operations. While the outcome of these other lawsuits cannot be determined at this time, after consideration of the defenses available to the Company, applicable insurance coverage and any related reserves established, these other lawsuits are 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. 16. SUBSEQUENT EVENT Effective February 28, 2002, the Company distributed 100% of the stock of IA Holdco to HOLDCO. The transaction was accounted for as a dividend. Refer to Note 2 for further information about IA Holdco. F-40 QUARTERLY DATA (UNAUDITED)
2001 (Millions) First Second Third Fourth -------------------------------------------------------------- Total revenue $395.5 $411.9 $387.2 $340.4 -------------------------------------------------------------- Income (loss) from continuing operations before income taxes $ 64.3 $95.0 $ 68.9 $(40.9) Income taxes (benefit) 28.2 39.1 27.1 (7.0) -------------------------------------------------------------- Income (loss) from continuing operations $ 36.1 $55.9 $ 41.8 $(33.9) -------------------------------------------------------------- Net income (loss) $ 36.1 $55.9 $ 41.8 $(33.9) -------------------------------------------------------------- -------------------------------------------------------------- 2000 (Millions) First Second Third Fourth (1) ------------------------------------------------------------------ Total revenue $408.3 $409.3 $426.4 $410.3 ------------------------------------------------------------------ Income from continuing operations before income taxes $ 76.5 $85.0 $ 77.4 $ 29.2 Income taxes 25.1 28.1 22.7 8.1 ------------------------------------------------------------------ Income from continuing operations $ 51.4 $56.9 $ 54.7 $ 21.1 Income from discontinued operations 1.6 1.6 1.5 1.0 ------------------------------------------------------------------ Net income $ 53.0 $58.5 $ 56.2 $ 22.1 ------------------------------------------------------------------ ------------------------------------------------------------------
(1) Fourth quarter data reflects an aggregation of the pre-acquisition period of the two months ended November 30, 2000 and the post acquisition period of one month ended December 31, 2000. F-41 FORM NO. S.A.I. 75988-02 ILIAC ED. MAY 2002 VARIABLE ANNUITY ACCOUNT C PART C - OTHER INFORMATION ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements: (1) Included in Part A: Condensed Financial Information (2) Included in Part B: Financial Statements of Variable Annuity Account C: - Statement of Assets and Liabilities as of December 31, 2001 - Statement of Operations for the year ended December 31, 2001 - Statements of Changes in Net Assets for the years ended December 31, 2001 and 2000 - Condensed Financial Information for the year ended December 31, 2001 - Notes to Financial Statements - Report of Independent Auditors Financial Statements of ING Life Insurance and Annuity Company: - Report of Independent Auditors - Consolidated Statements of Income for the Year Ended December 31, 2001, One Month Ended December 31, 2000, the Eleven Months Ended November 30, 2000 and for the Year Ended December 31, 1999 - Consolidated Balance Sheets as of December 31, 2001 and 2000 - Consolidated Statements of Changes in Shareholder's Equity for the Year Ended December 31, 2001, One Month Ended December 31, 2000, the Eleven Months Ended November 30, 2000 and for the Year Ended December 31, 1999 - Consolidated Statements of Cash Flows for the Year Ended December 31, 2001, One Month Ended December 31, 2000, the Eleven Month Ended November 30, 2000 and for the Year Ended December 31, 1999 - Notes to Consolidated Financial Statements (b) Exhibits (1) Resolution establishing Variable Annuity Account C(1) (2) Not applicable (3.1) Broker-Dealer Agreement(2) (3.2) Alternative Form of Wholesaling Agreement and Related Selling Agreement(3) (3.3) Broker-Dealer Agreement dated June 7, 2000 between Aetna Life Insurance and Annuity Company and Aetna Investment Services, Inc. (AISI) and Letter of Assignment to AISI(4) (3.4) Underwriting Agreement dated November 17, 2000 between Aetna Life Insurance and Annuity Company and Aetna Investment Services, LLC(4) (4.1) Variable Annuity Contracts (IRA-CDA-IC) and (IP-CDA-IB)(5) (4.2) Endorsements (EIRA-SDOIC-97) and (EIRA-SDOIC-97(NY)) to Variable Annuity Contract IRA-CDA-IC(6) (4.3) Endorsement (EIP-SDOIB-97) to Variable Annuity Contract IP-CDA-IB(6) (4.4) Endorsement (EPIRA-GI-98) to Contract IRA-CDA-IC(7) (4.5) Endorsement (EIGET-IC(R)) to Contracts IRA-CDA-IC and IP-CDA-IB(8) (4.6) Endorsement (EGET-99) to Contracts IRA-CDA-IC and IP-CDA-IB(9) (4.7) Endorsements ENMCHG (05/02) and ENMCHGI (05/02) for name change(10) (4.8) Contract Schedule (IROPIRA-99) to Contract IRA-CDA-IC(11) (4.9) Endorsement EEGTRRA-PENIRA(01) to Contracts IRA-CDA-IC and IP-CDA-IB (4.10) Contract Schedule (IROIRA-99) to Contract IRA-CDA-IC(11) (4.11) Contract Schedule (IMSIRA-99) to Contract IRA-CDA-IC(11) (5.1) Variable Annuity Contract Application (304.00.1A)(12) (5.2) Variable Annuity Contract Application (703.00.1A)(13) (5.3) Variable Annuity Contract Application (75988-97)(14) (6.1) Restated Certificate of Incorporation (amended and restated as of January 1, 2002) of ING Life Insurance and Annuity Company (formerly Aetna Life Insurance and Annuity Company)(15) (6.2) By-Laws restated as of January 1, 2002 of ING Life Insurance and Annuity Company (formerly Aetna Life Insurance and Annuity Company)(15) (7) Not applicable (8.1) Fund Participation Agreement dated June 30, 1998 by and among AIM Variable Insurance Funds, Inc., A I M Distributors, Inc. and Aetna Life Insurance and Annuity Company(16) (8.2) Amendment No. 1 dated October 1, 2000 to Participation Agreement dated June 30, 1998 by and among AIM Variable Insurance Funds (formerly AIM Variable Insurance Funds, Inc.), A I M Distributors, Inc. and Aetna Life Insurance and Annuity Company(17) (8.3) First Amendment dated November 17, 2000 to Participation Agreement dated June 30, 1998 by and among AIM Variable Insurance Funds (formerly AIM Variable Insurance Funds, Inc.), A I M Distributors, Inc. and Aetna Life Insurance and Annuity Company(17) (8.4) Service Agreement effective June 30, 1998 between Aetna Life Insurance and Annuity Company and AIM Advisors, Inc.(16) (8.5) First Amendment effective June 30, 1998 dated October 1, 2000 to the Service Agreement between Aetna Life Insurance and Annuity Company and AIM Advisors, Inc.(4) (8.6) Fund Participation Agreement dated as of May 1, 1998 by and among Aetna Life Insurance and Annuity Company and Aetna Variable Fund, Aetna Variable Encore Fund, Aetna Income Shares, Aetna Balanced VP, Inc., Aetna GET Fund on behalf of each of its series, Aetna Generation Portfolios, Inc. on behalf of each of its series, Aetna Variable Portfolios, Inc. on behalf of each of its series and Aeltus Investment Management, Inc.(2) (8.7) Amendment dated November 9, 1998 to Fund Participation Agreement dated as of May 1, 1998 by and among Aetna Life Insurance and Annuity Company and Aetna Variable Fund, Aetna Variable Encore Fund, Aetna Income Shares, Aetna Balanced VP, Inc., Aetna GET Fund on behalf of each of its series, Aetna Generation Portfolios, Inc. on behalf of each of its series, Aetna Variable Portfolios, Inc. on behalf of each of its series and Aeltus Investment Management, Inc.(18) (8.8) Second Amendment dated December 31, 1999 to Fund Participation Agreement dated as of May 1, 1998 and amended on November 9, 1998 by and among Aetna Life Insurance and Annuity Company and Aetna Variable Fund, Aetna Variable Encore Fund, Aetna Income Shares, Aetna Balanced VP, Inc., Aetna GET Fund on behalf of each of its series, Aetna Generation Portfolios, Inc. on behalf of each of its series, Aetna Variable Portfolios, Inc. on behalf of each of its series and Aeltus Investment Management, Inc.(19) (8.9) Third Amendment dated February 11, 2000 to Fund Participation Agreement dated as of May 1, 1998 and amended on November 9, 1998 and December 31, 1999 by and among Aetna Life Insurance and Annuity Company and Aetna Variable Fund, Aetna Variable Encore Fund, Aetna Income Shares, Aetna Balanced VP, Inc., Aetna GET Fund on behalf of each of its series, Aetna Generation Portfolios, Inc. on behalf of each of its series, Aetna Variable Portfolios, Inc. on behalf of each of its series and Aeltus Investment Management, Inc.(20) (8.10) Fourth Amendment dated May 1, 2000 to Fund Participation Agreement dated as of May 1, 1998 and amended on November 9, 1998, December 31, 1999 and February 11, 2000 by and among Aetna Life Insurance and Annuity Company and Aetna Variable Fund, Aetna Variable Encore Fund, Aetna Income Shares, Aetna Balanced VP, Inc., Aetna GET Fund on behalf of each of its series, Aetna Generation Portfolios, Inc. on behalf of each of its series, Aetna Variable Portfolios, Inc. on behalf of each of its series and Aeltus Investment Management, Inc.(20) (8.11) Fifth Amendment dated February 27, 2001 to Fund Participation Agreement dated as of May 1, 1998 and amended on November 9, 1998, December 31, 1999, February 11, 2000 and May 1, 2000 by and among Aetna Life Insurance and Annuity Company and Aetna Variable Fund, Aetna Variable Encore Fund, Aetna Income Shares, Aetna Balanced VP, Inc., Aetna GET Fund on behalf of each of its series, Aetna Generation Portfolios, Inc. on behalf of each of its series, Aetna Generation Portfolios, Inc. on behalf of each of its series, Aetna Variable Portfolios, Inc. on behalf of each of its series and Aeltus Investment Management, Inc.(17) (8.12) Service Agreement dated as of May 1, 1998 between Aeltus Investment Management, Inc. and Aetna Life Insurance and Annuity Company in connection with the sale of shares of Aetna Variable Fund, Aetna Variable Encore Fund, Aetna Income Shares, Aetna Balanced VP, Inc., Aetna GET Fund on behalf of each of its series, Aetna Generation Portfolios, Inc. on behalf of each of its series and Aetna Variable Portfolios, Inc. on behalf of each of its series(2) (8.13) Amendment dated November 4, 1998 to Service Agreement dated as of May 1, 1998 between Aeltus Investment Management, Inc. and Aetna Life Insurance and Annuity Company in connection with the sale of shares of Aetna Variable Fund, Aetna Variable Encore Fund, Aetna Income Shares, Aetna Balanced VP, Inc., Aetna GET Fund on behalf of each of its series, Aetna Generation Portfolios, Inc. on behalf of each of its series and Aetna Variable Portfolios, Inc. on behalf of each of its series(18) (8.14) Second Amendment dated February 11, 2000 to Service Agreement dated as of May 1, 1998 and amended on November 4, 1998 between Aeltus Investment Management, Inc. and Aetna Life Insurance and Annuity Company in connection with the sale of shares of Aetna Variable Fund, Aetna Variable Encore Fund, Aetna Income Shares, Aetna Balanced VP, Inc., Aetna GET Fund on behalf of each of its series, Aetna Generation Portfolios, Inc. on behalf of each of its series and Aetna Variable Portfolios, Inc. on behalf of each of its series(20) (8.15) Third Amendment dated May 1, 2000 to Service Agreement dated as of May 1, 1998 and amended on November 4, 1998 and February 11, 2000 between Aeltus Investment Management, Inc. and Aetna Life Insurance and Annuity Company in connection with the sale of shares of Aetna Variable Fund, Aetna Variable Encore Fund, Aetna Income Shares, Aetna Balanced VP, Inc., Aetna GET Fund on behalf of each of its series, Aetna Generation Portfolios, Inc. on behalf of each of its series and Aetna Variable Portfolios, Inc. on behalf of each of its series(20) (8.16) Fund Participation Agreement dated December 1, 1997 among Calvert Responsibly Invested Balanced Portfolio, Calvert Asset Management Company, Inc. and Aetna Life Insurance and Annuity Company(21) (8.17) Service Agreement dated December 1, 1997 between Calvert Asset Management Company, Inc. and Aetna Life Insurance and Annuity Company(21) (8.18) Fund Participation Agreement dated February 1, 1994 and amended on December 15, 1994, February 1, 1995, May 1, 1995, January 1, 1996 and March 1, 1996 between Aetna Life Insurance and Annuity Company, Variable Insurance Products Fund and Fidelity Distributors Corporation(22) (8.19) Fifth Amendment dated as of May 1, 1997 to the Fund Participation Agreement dated February 1, 1994 and amended on December 15, 1994, February 1, 1996, May 1, 1995, January 1, 1996 and March 1, 1996 between Aetna Life Insurance and Annuity Company, Variable Insurance Products Fund and Fidelity Distributors Corporation(23) (8.20) Sixth Amendment dated November 6, 1997 to the Fund Participation Agreement dated February 1, 1994 and amended on December 15, 1994, February 1, 1995, May 1, 1995, January 1, 1996, March 1, 1996 and May 1, 1997 between Aetna Life Insurance and Annuity Company, Variable Insurance Products Fund and Fidelity Distributors Corporation(24) (8.21) Seventh Amendment dated as of May 1, 1998 to the Fund Participation Agreement dated February 1, 1994 and amended on December 15, 1994, February 1, 1995, May 1, 1995, January 1, 1996, March 1, 1996, May 1, 1997 and November 6, 1997 between Aetna Life Insurance and Annuity Company, Variable Insurance Products Fund and Fidelity Distributors Corporation(2) (8.22) Eighth Amendment dated December 1, 1999 to Fund Participation Agreement dated February 1, 1994 and amended on December 15, 1994, February 1, 1995, May 1, 1995, January 1, 1996, March 1, 1996, May 1, 1997, November 6, 1997 and May 1, 1998 between Aetna Life Insurance and Annuity Company, Variable Insurance Products Fund and Fidelity Distributors Corporation(19) (8.23) Fund Participation Agreement dated February 1, 1994 and amended on December 15, 1994, February 1, 1995, May 1, 1995, January 1, 1996 and March 1, 1996 between Aetna Life Insurance and Annuity Company, Variable Insurance Products Fund II and Fidelity Distributors Corporation(22) (8.24) Fifth Amendment dated as of May 1, 1997 to the Fund Participation Agreement dated February 1, 1994 and amended on December 15, 1994, February 1, 1996, May 1, 1995, January 1, 1996 and March 1, 1996 between Aetna Life Insurance and Annuity Company, Variable Insurance Products Fund II and Fidelity Distributors Corporation(23) (8.25) Sixth Amendment dated as of January 20, 1998 to the Fund Participation Agreement dated February 1, 1994 and amended on December 15, 1994, February 1, 1995, May 1, 1995, January 1, 1996, March 1, 1996 and May 1, 1997 between Aetna Life Insurance and Annuity Company, Variable Insurance Products Fund II and Fidelity Distributors Corporation(25) (8.26) Seventh Amendment dated as of May 1, 1998 to the Fund Participation Agreement dated February 1, 1994 and amended on December 15, 1994, February 1, 1995, May 1, 1995, January 1, 1996, March 1, 1996, May 1, 1997 and January 20, 1998 between Aetna Life Insurance and Annuity Company, Variable Insurance Products Fund II and Fidelity Distributors Corporation(2) (8.27) Eighth Amendment dated December 1, 1999 to Fund Participation Agreement dated February 1, 1994 and amended on December 15, 1994, February 1, 1995, May 1, 1995, January 1, 1996, March 1, 1996, May 1, 1997, January 20, 1998 and May 1, 1998 between Aetna Life Insurance and Annuity Company, Variable Insurance Products Fund II and Fidelity Distributors Corporation(19) (8.28) Service Agreement dated as of November 1, 1995 between Aetna Life Insurance and Annuity Company and Fidelity Investments Institutional Operations Company(26) (8.29) Amendment dated January 1, 1997 to Service Agreement dated as of November 1, 1995 between Aetna Life Insurance and Annuity Company and Fidelity Investments Institutional Operations Company(23) (8.30) Service Contract dated May 2, 1997 between Fidelity Distributors Corporation and Aetna Life Insurance and Annuity Company(18) (8.31) Participation Agreement dated as of July 20, 2001 between Franklin Templeton Variable Insurance Products Trust, Franklin Templeton Distributors, Inc. and Aetna Life Insurance and Annuity Company(27) (8.32) Fund Participation Agreement dated December 8, 1997 among Janus Aspen Series and Aetna Life Insurance and Annuity Company and Janus Capital Corporation(28) (8.33) Amendment dated October 12, 1998 to Fund Participation Agreement dated December 8, 1997 among Janus Aspen Series and Aetna Life Insurance and Annuity Company and Janus Capital Corporation(18) (8.34) Second Amendment dated December 1, 1999 to Fund Participation Agreement dated December 8, 1997 and amended on October 12, 1998 among Janus Aspen Series and Aetna Life Insurance and Annuity Company and Janus Capital Corporation(19) (8.35) Amendment dated as of August 1, 2000 to Fund Participation Agreement dated December 8, 1997 and amended on October 12, 1998 and December 1, 1999 among Janus Aspen Series and Aetna Life Insurance and Annuity Company and Janus Capital Corporation(29) (8.36) Letter Agreement dated December 7, 2001 between Janus and Aetna Life Insurance and Annuity Company reflecting evidence of a new Fund Participation Agreement with the same terms as the current Fund Participation Agreement except with a new effective date of March 28, 2002(10) (8.37) Service Agreement dated December 8, 1997 between Janus Capital Corporation and Aetna Life Insurance and Annuity Company(28) (8.38) First Amendment dated as of August 1, 2000 to Service Agreement dated December 8, 1997 between Janus Capital Corporation and Aetna Life Insurance and Annuity Company(29) (8.39) Distribution and Shareholder Services Agreement - Service Shares of Janus Aspen Series (for Insurance Companies) dated August 1, 2000 between Janus Distributors, Inc. and Aetna Life Insurance and Annuity Company(29) (8.40) Letter Agreement dated October 19, 2001 between Janus and Aetna Life Insurance and Annuity Company reflecting evidence of a new Distribution and Shareholder Service Agreement with the same terms as the current Distribution and Shareholder Service Agreement except with a new effective date of March 28, 2002(10) (8.41) Fund Participation Agreement dated as of July 20, 2001 between Lord Abbett Series Fund, Inc. and Aetna Life Insurance and Annuity Company(27) (8.42) Service Agreement dated as of July 20, 2001 between Lord Abbett & Co. and Aetna Life Insurance and Annuity Company(27) (8.43) Fund Participation Agreement dated March 11, 1997 between Aetna Life Insurance and Annuity Company and Oppenheimer Variable Annuity Account Funds and Oppenheimer Funds, Inc.(30) (8.44) First Amendment dated December 1, 1999 to Fund Participation Agreement dated March 11, 1997 between Aetna Life Insurance and Annuity Company and Oppenheimer Variable Annuity Account Funds and Oppenheimer Funds, Inc.(19) (8.45) Service Agreement effective as of March 11, 1997 between Oppenheimer Funds, Inc. and Aetna Life Insurance and Annuity Company(30) (8.46) Fund Participation Agreement dated as of May 1, 2001 among Pilgrim Variable Products Trust, Aetna Life Insurance and Annuity Company and ING Pilgrim Securities, Inc.(31) (8.47) Fund Participation Agreement dated as of July 1, 2001 between Pioneer Variable Contracts Trust and Aetna Life Insurance and Annuity Company(27) (8.48) Participation Agreement dated as of November 28, 2001 among Portfolio Partners, Inc., Aetna Life Insurance and Annuity Company and Aetna Investment Services, LLC(10) (8.49) Amendment dated March 5, 2002 between Portfolio Partners, Inc. (to be renamed ING Partners, Inc. effective May 1, 2002), Aetna Life Insurance and Annuity Company (to be renamed ING Life Insurance and Annuity Company effective May 1, 2002) and Aetna Investment Services LLC (to be renamed ING Financial Advisers, LLC) to Participation Agreement dated November 28, 2001(10) (8.50) Shareholder Servicing Agreement (Service Class Shares) dated as of November 27, 2001 between Portfolio Partners, Inc. and Aetna Life Insurance and Annuity Company(10) (8.51) Amendment dated March 5, 2002 between Portfolio Partners, Inc. (to be renamed ING Partners, Inc. effective May 1, 2002) and Aetna Life Insurance and Annuity Company (to be renamed ING Life Insurance and Annuity Company effective May 1, 2002) to the Shareholder Servicing Agreement dated November 27, 2001(10) (9) Opinion and Consent of Counsel (10) Consents of Independent Auditors (11) Not applicable (12) Not applicable (13) Schedule for Computation of Performance Data(13) (14.1) Powers of Attorney(32) (14.2) Authorization for Signatures(3) 1. Incorporated by reference to Post-Effective Amendment No. 6 to Registration Statement on Form N-4 (File No. 33-75986), as filed on April 22, 1996. 2. Incorporated by reference to Registration Statement on Form N-4 (File No. 333-56297) as filed on June 8, 1998. 3. Incorporated by reference to Post-Effective Amendment No. 5 to Registration Statement on Form N-4 (File No. 33-75986), as filed on April 12, 1996. 4. Incorporated by reference to Pre-Effective Amendment No. 1 to Registration Statement on Form N-4 (File No. 333-49176), as filed on November 30, 2000. 5. Incorporated by reference to Post-Effective Amendment No. 4 to Registration Statement on Form N-4 (File No. 33-75988), as filed on April 15, 1996. 6. Incorporated by reference to Post-Effective Amendment No. 8 to Registration Statement on Form N-4 (File No. 33-75988), as filed on April 17, 1997. 7. Incorporated by reference to Post-Effective Amendment No. 12 to Registration Statement on Form N-4 (File No. 33-75988), as filed on September 15, 1998. 8. Incorporated by reference to Post-Effective Amendment No. 8 to Registration Statement on Form N-4 (File No. 33-75964), as filed on August 30, 1996. 9. Incorporated by reference to Post-Effective Amendment No. 13 to Registration Statement on Form N-4 (File No. 333-01107), as filed on April 7, 1999. 10. Incorporated by reference to Post-Effective Amendment No. 30 to Registration Statement on Form N-4 (File No. 33-75962), as filed on April 8, 2002. 11. Incorporated by reference to Post-Effective Amendment No. 16 to Registration Statement on Form N-4 (File No. 33-75988), as filed on August 24, 1999. 12. Incorporated by reference to Post-Effective Amendment No. 10 to Registration Statement Form N-4 (File No. 33-75988), as filed on October 30, 1997. 13. Incorporated by reference to Post-Effective Amendment No. 9 to Registration Statement on Form N-4 (File No. 33-75988), as filed on August 18, 1997. 14. Incorporated by reference to Post-Effective Amendment No. 11 to Registration Statement on Form N-4 (File No. 33-75988), as filed on April 20, 1998. 15. Incorporated by reference to ING Life Insurance and Annuity Company annual report on Form 10-K (File No. 33-23376), as filed on March 28, 2002. 16. Incorporated by reference to Pre-Effective Amendment No. 1 to Registration Statement on Form N-4 (File No. 333-56297), as filed on August 4, 1998. 17. Incorporated by reference to Post-Effective Amendment No. 24 to Registration Statement on Form N-4 (File No. 333-01107), as filed on April 13, 2001. 18. Incorporated by reference to Post-Effective Amendment No. 2 to Registration Statement on Form N-4 (File No. 333-56297), as filed on December 14, 1998. 19. Incorporated by reference to Post-Effective Amendment No. 19 to Registration Statement on Form N-4 (File No. 333-01107), as filed on February 16, 2000. 20. Incorporated by reference to Post-Effective Amendment No. 20 to Registration Statement on Form N-4 (File No. 333-01107), as filed on April 4, 2000. 21. Incorporated by reference to Post-Effective Amendment No. 8 to Registration Statement on Form N-4 (File No. 333-01107), as filed on February 19, 1998. 22. Incorporated by reference to Post-Effective Amendment No. 12 to Registration Statement on Form N-4 (File No. 33-75964), as filed on February 11, 1997. 23. Incorporated by reference to Post-Effective Amendment No. 30 to Registration Statement on Form N-4 (File No. 33-34370), as filed on September 29, 1997. 24. Incorporated by reference to Post-Effective Amendment No. 16 to Registration Statement on Form N-4 (File No. 33-75964), as filed on February 9, 1998. 25. Incorporated by reference to Post-Effective Amendment No. 7 to Registration Statement on Form S-6 (File No. 33-75248), as filed on February 24, 1998. 26. Incorporated by reference to Post-Effective Amendment No. 3 to Registration Statement on Form N-4 (File No. 33-88720), as filed on June 28, 1996. 27. Incorporated by reference to Post-Effective Amendment No. 27 to Registration Statement on Form N-4 (File No. 333-01107), as filed on October 26, 2001. 28. Incorporated by reference to Post-Effective Amendment No. 10 to Registration Statement on Form N-4 (File No. 33-75992), as filed on December 31, 1997. 29. Incorporated by reference to Post-Effective Amendment No. 22 to Registration Statement on Form N-4 (File No. 333-01107), as filed on August 14, 2000. 30. Incorporated by reference to Post-Effective Amendment No. 27 to Registration Statement on Form N-4 (File No. 33-34370), as filed on April 16, 1997. 31. Incorporated by reference to Post-Effective Amendment No. 25 to Registration Statement on Form N-4 (File No. 33-75996), as filed on July 10, 2001. 32. Incorporated by reference to Post-Effective Amendment No. 1 to Registration Statement on Form S-2 (File No. 333-60016), as filed on April 5, 2002. ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR* NAME AND PRINCIPAL BUSINESS ADDRESS POSITIONS AND OFFICES WITH DEPOSITOR ---------------- ------------------------------------ Thomas J. McInerney** Director and President Wayne R. Huneke*** Director and Chief Financial Officer Robert C. Salipante**** Director P. Randall Lowery*** Director Mark A. Tullis*** Director David Wheat*** Chief Accounting Officer Paula Cludray-Engelke**** Secretary Brian Murphy** Vice President and Chief Compliance Officer * These individuals may also be directors and/or officers of other affiliates of the Company. ** The principal business address of these directors and officers is 151 Farmington Avenue, Hartford, Connecticut 06156. *** The principal business address of these directors and officers is 5780 Powers Ferry Road, NW, Atlanta, Georgia 30327-4390. **** The principal business address of this Director and this Officer is 20 Washington Avenue South, Minneapolis, Minnesota 55401. ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR REGISTRANT Incorporated herein by reference to Exhibit 99-B.16 to Registration Statement on Form N-4 (File No. 333-85326), as filed on April 1, 2002 for ReliaStar Life Insurance Company of New York. ITEM 27. NUMBER OF CONTRACT OWNERS As of February 28, 2002, there were 623,253 individuals holding interests in variable annuity contracts funded through Variable Annuity Account C. ITEM 28. INDEMNIFICATION Section 33-779 of the Connecticut General Statutes ("CGS") provides that a corporation may provide indemnification of or advance expenses to a director, officer, employee or agent only as permitted by Sections 33-770 to 33-778, inclusive, of the CGS. Reference is hereby made to Section 33-771(e) of the CGS regarding indemnification of directors and Section 33-776(d) of CGS regarding indemnification of officers, employees and agents of Connecticut corporations. These statutes provide in general that Connecticut corporations incorporated prior to January 1, 1997 shall, except to the extent that their certificate of incorporation expressly provides otherwise, indemnify their directors, officers, employees and agents against "liability" (defined as the obligation to pay a judgment, settlement, penalty, fine, including an excise tax assessed with respect to an employee benefit plan, or reasonable expenses incurred with respect to a proceeding) when (1) a determination is made pursuant to Section 33-775 that the party seeking indemnification has met the standard of conduct set forth in Section 33-771 or (2) a court has determined that indemnification is appropriate pursuant to Section 33-774. Under Section 33-775, the determination of and the authorization for indemnification are made (a) by the disinterested directors, as defined in Section 33-770(3); (b) by special counsel; (c) by the shareholders; or (d) in the case of indemnification of an officer, agent or employee of the corporation, by the general counsel of the corporation or such other officer(s) as the board of directors may specify. Also, Section 33-772 provides that a corporation shall indemnify an individual who was wholly successful on the merits or otherwise against reasonable expenses incurred by him in connection with a proceeding to which he was a party because he was a director of the corporation. Pursuant to Section 33-771(d), in the case of a proceeding by or in the right of the corporation or with respect to conduct for which the director, officer, agent or employee was adjudged liable on the basis that he received a financial benefit to which he was not entitled, indemnification is limited to reasonable expenses incurred in connection with the proceeding against the corporation to which the individual was named a party. The statute does specifically authorize a corporation to procure indemnification insurance on behalf of an individual who was a director, officer, employee or agent of the corporation. Consistent with the statute, ING Groep N.V. has procured insurance from Lloyd's of London and several major United States and international excess insurers for its directors and officers and the directors and officers of its subsidiaries, including the Depositor. Section 20 of the ING Financial Advisers, LLC (IFA) (formerly Aetna Investment Services, LLC) Limited Liability Company Agreement provides that IFA will indemnify certain persons against any loss, damage, claim or expenses (including legal fees) incurred by such person if he is made a party or is threatened to be made a party to a suit or proceeding because he was a member, officer, director, employee or agent of IFA, as long as he acted in good faith on behalf of IFA and in a manner reasonably believed to be within the scope of his authority. An additional condition requires that no person shall be entitled to indemnity if his loss, damage, claim or expense was incurred by reason of his gross negligence or willful misconduct. This indemnity provision is authorized by and is consistent with Title 8, Section 145 of the General Corporation Law of the State of Delaware. ITEM 29. PRINCIPAL UNDERWRITER (a) In addition to serving as the principal underwriter for the Registrant, ING Financial Advisers, LLC (IFA) (formerly Aetna Investment Services, LLC) also acts as the principal underwriter for ING Partners, Inc. (formerly Portfolio Partners, Inc.) (a management investment company registered under the Investment Company Act of 1940 (1940 Act)). Additionally, IFA acts as the principal underwriter for Variable Life Account B of ING Life Insurance and Annuity Company (ILIAC), Variable Life Account C of ILIAC, Variable Annuity Account B of ILIAC and Variable Annuity Account G of ILIAC (separate accounts of ILIAC registered as unit investment trusts under the 1940 Act). IFA is also the principal underwriter for Variable Annuity Account I of ING Insurance Company of America (IICA) (a separate account of IICA registered as a unit investment trust under the 1940 Act). (b) The following are the directors and officers of the Principal Underwriter:
NAME AND PRINCIPAL POSITIONS AND OFFICES WITH BUSINESS ADDRESS PRINCIPAL UNDERWRITER ---------------- --------------------- Marie Augsberger* Director and President Robert L. Francis** Director and Senior Vice President Allan Baker* Chairman of the Board and Senior Vice President Willard I. Hill, Jr.* Senior Vice President Therese Squillacote* Vice President and Chief Compliance Officer Paula Cludray-Engelke*** Secretary Jeffrey R. Berry* Chief Legal Officer Reginald Bowen* Vice President Christina Lareau* Vice President Terran Titus* Vice President William T. Abramowicz Vice President 2525 Cabot Dr., Ste. 300 Lisle, IL 60532 Douglas J. Ambrose** Vice President Louis E. Bachetti Vice President 581 Main Street, 4th Fl. Woodbridge, NJ 07095 Ronald R. Barhorst Vice President 7676 Hazard Ctr. Dr. San Diego, CA 92108 Robert H. Barley*** Vice President Steven M. Bresler Vice President 6430 South Fiddler's Green Cir., Ste. 210 Englewood, CO 80111 David Brounley*** Vice President Brian D. Comer* Vice President John B. Finigan, Jr. Vice President 1601 Trapelo Rd. Waltham, MA 02451 Brian K. Haendiges* Vice President Brian P. Harrington Vice President 12701 Fair Lakes Cir., Ste. 470 Fairfax, VA 22033 Bernard P. Heffernon**** Vice President William S. Jasien**** Vice President Jess D. Kravitz** Vice President George D. Lessner, Jr. Vice President 1755 N. Collins Blvd., Ste. 350 Richardson, TX 75080 Susan J. Lewis Vice President 16530 Ventura Blvd., Ste. 600 Encino, CA 91436 James F. Lille Vice President 159 Wolf Rd., 1st Fl. Albany, NY 12205 David J. Linney Vice President 2900 N. Loop W., Ste. 180 Houston, TX 77092 Richard T. Mason Vice President 440 S. Warren St., Ste. 702 Syracuse, NY 13202 W. Michael Montgomery Vice President 5100 W. Lemon St., Ste. 213 Tampa, FL 33609 Pamela Mulvey* Vice President Scott T. Neeb** Vice President Patrick F. O'Christie Vice President The Pavilions, 1700 Lyons Rd., Ste. D Dayton, OH 45458 Ethel Pippin* Vice President Paulette Playce Vice President Two City Place Dr., Ste. 300 St. Louis, MO 63141 Marcellous J. Reed Vice President 2677 N. Main St., Ste. 500 Santa Ana, CA 92705 Charles A. Sklader Vice President 7720 N. 16th St., Ste. 150 Phoenix, AZ 85020 Frank W. Snodgrass Vice President 150 4th Ave., N., Ste. 410 Nashville, TN 37219 S. Bradford Vaughan, Jr. Vice President 601 Union St., Ste. 810 Seattle, WA 98101 David A. Kelsey* Assistant Vice President Allissa Archer Obler*** Assistant Secretary Loralee Ann Renelt*** Assistant Secretary Rebecca A. Schoff*** Assistant Secretary Glenn Allan Black****** Tax Officer Joseph J. Elmy* Tax Officer G. Michael Fell****** Tax Officer
* The principal business address of these directors and officers is 151 Farmington Avenue, Hartford, Connecticut 06156 ** The principal business address of these directors and officers is 6140 Stonehedge Mall Rd., Ste. 375, Pleasanton, California 94588 *** The principal business address of these officers is 20 Washington Avenue South, Minneapolis, Minnesota 55401 **** The principal business address of these officers is 100 Corporate Pl., 3rd Fl., Rocky Hill, Connecticut 06067 ***** The principal business address of these officers is 10740 Nall Ave, Ste. 120, Overland Park, Kansas 66211 ****** The principal business address of these officers is 5780 Powers Ferry Road, N.W., Atlanta, Georgia 30327 (c) Compensation from January 1, 2001 to December 31, 2001:
(1) (2) (3) (4) (5) Name of Net Underwriting Compensation Principal Discounts and on Redemption Brokerage Underwriter Commissions or Annuitization Commissions Compensation* ----------- ----------- ---------------- ----------- ------------- ING Financial $717,753.80 Advisers, LLC
* Reflects compensation paid to ING Financial Advisers, LLC attributable to regulatory and operating expenses associated with the distribution of all products issued by Variable Annuity Account C of ING Life Insurance and Annuity Company during 2001. ITEM 30. LOCATION OF ACCOUNTS AND RECORDS All accounts, books and other documents required to be maintained by Section 31(a) of the 1940 Act and the rules under it relating to the securities described in and issued under this Registration Statement are located at the home office of the Depositor as follows: ING Life Insurance and Annuity Company 151 Farmington Avenue Hartford, Connecticut 06156 ITEM 31. MANAGEMENT SERVICES Not applicable ITEM 32. UNDERTAKINGS Registrant hereby undertakes: (a) to file a post-effective amendment to this registration statement on Form N-4 as frequently as is necessary to ensure that the audited financial statements in the registration statement are never more than sixteen months old for as long as payments under the variable annuity contracts may be accepted; (b) to include as part of any application to purchase a contract offered by a prospectus which is part of this registration statement on Form N-4, a space that an applicant can check to request a Statement of Additional Information; and (c) to deliver any Statement of Additional Information and any financial statements required to be made available under this Form N-4 promptly upon written or oral request. Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. ING Life Insurance and Annuity Company represents that the fees and charges deducted under the contracts covered by this registration statement, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by the insurance company. SIGNATURES As required by the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant, Variable Annuity Account C of ING Life Insurance and Annuity Company, certifies that it meets the requirements of Securities Act Rule 485(b) for effectiveness of this Post-Effective Amendment to its Registration Statement on Form N-4 (File No. 33-75988) and has caused this Post-Effective Amendment to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Hartford, State of Connecticut, on the 15th day of April, 2002. VARIABLE ANNUITY ACCOUNT C OF ING LIFE INSURANCE AND ANNUITY COMPANY (REGISTRANT) By: ING LIFE INSURANCE AND ANNUITY COMPANY (DEPOSITOR) By: Thomas J. McInerney* -------------------------------------- Thomas J. McInerney President As required by the Securities Act of 1933, this Post-Effective Amendment No. 26 to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated. SIGNATURE TITLE DATE --------- ----- ---- Thomas J. McInerney* Director and President ) ------------------------ (principal executive officer) ) Thomas J. McInerney ) ) Wayne R. Huneke* Director and Chief Financial Officer ) April ----------------------- ) 15, 2002 Wayne R. Huneke ) ) Randy Lowery* Director ) ----------------------- ) P. Randall Lowery ) ) Robert C. Salipante* Director ) ----------------------- ) Robert C. Salipante ) ) Mark A. Tullis* Director ) ----------------------- ) Mark A. Tullis ) David Wheat* Chief Accounting Officer ) ----------------------- ) David Wheat ) By: /s/Michael A. Pignatella ---------------------------------------------- Michael A. Pignatella *Attorney-in-Fact VARIABLE ANNUITY ACCOUNT C EXHIBIT INDEX EXHIBIT NO. EXHIBIT ----------- ------- 99-B.4.9 Endorsement EEGTRRA-PENIRA(01) TO Contracts IRA-CDA-IC and IP-CDA-IB ----------------- 99-B.9 Opinion and Consent of Counsel ----------------- 99-B.10 Consents of Independent Auditors -----------------