-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, URzbMf+WTSWxwMDFgLbuilb7v5JZjk522xnRfqGYSa2zLy/imbGbJ00YZkFb68Yc 3oO0z4p/p4x+rRa/u2cZug== 0000950146-99-001082.txt : 19990511 0000950146-99-001082.hdr.sgml : 19990511 ACCESSION NUMBER: 0000950146-99-001082 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19990510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VARIABLE ANNUITY ACCT C OF AETNA LIFE INSURANCE & ANNUITY CO CENTRAL INDEX KEY: 0000103007 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: CT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 497 SEC ACT: SEC FILE NUMBER: 033-75988 FILM NUMBER: 99616058 BUSINESS ADDRESS: STREET 1: 151 FARMINGTON AVE CITY: HARTFORD STATE: CT ZIP: 06156 BUSINESS PHONE: 2032734808 MAIL ADDRESS: STREET 1: C/O AETNA LIFE & CASUALTY STREET 2: 151 FARMINGTON AVE CITY: HARTFORD STATE: CT ZIP: 06156 FORMER COMPANY: FORMER CONFORMED NAME: VARIABLE ANNUITY ACCOUNT C OF AETNA VARIABLE ANNUITY LIFE IN DATE OF NAME CHANGE: 19791108 497 1 PROSPECTUS Prospectus - May 3, 1999 - -------------------------------------------------------------------------------- [sidebar] The Funds Aetna Ascent VP Aetna Balanced VP, Inc. Aetna Income Shares d/b/a Aetna Bond VP Aetna Crossroads VP Aetna Growth VP Aetna Variable Fund d/b/a Aetna Growth and Income VP Aetna High Yield VP Aetna Index Plus Large Cap VP Aetna Index Plus Mid Cap VP Aetna Index Plus Small Cap VP Aetna International VP Aetna Legacy VP Aetna Variable Encore Fund d/b/a Aetna Money Market VP Aetna Real Estate Securities VP Aetna Small Company VP Aetna Value Opportunity VP AIM V.I. Capital Appreciation Fund AIM V.I. Growth Fund AIM V.I. Growth and Income Fund AIM V.I. Value Fund Calvert Social Balanced Portfolio Fidelity Variable Insurance Products Fund (VIP) Equity-Income Portfolio Fidelity Variable Insurance Products Fund (VIP) Growth Portfolio Fidelity Variable Insurance Products Fund (VIP) Overseas Portfolio Fidelity Variable Insurance Products Fund II (VIP II) Contrafund Portfolio Janus Aspen Aggressive Growth Portfolio Janus Aspen Balanced Portfolio Janus Aspen Flexible Income Portfolio Janus Aspen Growth Portfolio Janus Aspen Worldwide Growth Portfolio Oppenheimer Global Securities Fund/VA Oppenheimer Strategic Bond Fund/VA Portfolio Partners MFS Emerging Equities Portfolio Portfolio Partners MFS Research Growth Portfolio Portfolio Partners MFS Value Equity Portfolio Portfolio Partners Scudder International Growth Portfolio Portfolio Partners T. Rowe Price Growth Equity Portfolio [end sidebar] The Contracts. The contracts described in this prospectus are individual deferred fixed or variable annuity contracts issued by Aetna Life Insurance and Annuity Company (the Company, we, us, our). They are intended to qualify 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. Read this prospectus carefully. If you purchase the contract, retain this prospectus for future reference. Table of Contents . . . page 3 Contract Design. The contracts described in this prospectus are designed to: >Help you save for retirement while receiving beneficial tax treatment >Offer a variety of investment options to help meet long-term financial goals >Provide a benefit to a beneficiary in the event of death >Provide future income payments for life or for a specified period Getting Additional Information. You may obtain the May 3, 1999 Statement of Additional Information (SAI) about the separate account by indicating your request on your application or calling the Company at 1-800-531-4547. 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 are posted on the Securities and Exchange Commission (SEC) web site, http://www.sec.gov and may also be obtained, free of charge, by contacting the SEC Public Reference Room at 202-942-8090. The SAI table of contents is listed on page 36 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 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. The contracts are not deposits with, obligations of, or guaranteed or endorsed by any bank, nor are they insured by the FDIC. The contracts are subject to investment risk, including possible loss of the principal amount invested. 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. Some investment options may be unavailable through certain contracts or in some states. 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 Prospectus - May 3, 1999 (continued) - -------------------------------------------------------------------------------- subaccount will vary depending on the performance of its underlying fund. You do not invest directly in or hold shares of the funds. The funds in which the subaccounts invest have various risks. For information about risks of investing in the funds see "Investment Options" in this prospectus and each fund prospectus. Read this prospectus in conjunction with the fund prospectuses and retain the prospectuses for future reference. 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. We describe the fixed interest options in Appendices I, II and III of this prospectus. There is also a separate Guaranteed Accumulation Account prospectus. 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: Accumulation Phase, Income Phase Fee Table ................................................... 6 Condensed Financial Information ............................. 12 Investment Options .......................................... 12 Transfers ................................................... 13 Purchase .................................................... 14 Right to Cancel ............................................. 16 Fees ........................................................ 16 Your Account Value .......................................... 20 Withdrawals ................................................. 22 Systematic Distribution Options ............................. 23 Death Benefit ............................................... 24 The Income Phase ............................................ 25 Taxation .................................................... 28 Other Topics ................................................ 32 The Company -- Variable Annuity Account C -- Performance Reporting -- Voting Rights -- Contract Distribution -- Contract Modification -- Legal Matters and Proceedings -- Involuntary Terminations -- Payment Delay or Suspension -- Year 2000 Readiness Contents of the Statement of Additional Information ......... 36 Appendix I -- Guaranteed Interest Account ................... 37 Appendix II -- Fixed Account ................................ 38 Appendix III -- Guaranteed Accumulation Account ............. 39 Appendix IV -- Description of Underlying Funds .............. 41 Appendix V -- Condensed Financial Information ............... 61
3 [sidebar] Questions: Contacting the Company. Contact your Company representative or write or call our Home Office at: Aetna Retirement Services Individual Annuity Services 151 Farmington Avenue Hartford, CT 06156-1258 1-800-531-4547 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 your Company representative or our Home Office to learn what information is required in order for the request to be in "good order." We can only act upon written requests that are received in good order. [end sidebar] Contract Overview - -------------------------------------------------------------------------------- The following is 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 issued by Aetna Life Insurance and Annuity Company (the Company, we, us, our). They are intended to be retirement savings vehicles that receive beneficial tax treatment and 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 of the first and last 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 of the first and last page of your contract, begins with the letters IP-CDA-IB. Contract Facts Free Look/Right to Cancel: You may cancel the contract within ten days of receipt. See "Right to Cancel." Death Benefit: Your beneficiary may receive a benefit in the event of your death prior to the income phase. Benefits during the income phase depend upon the 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. Amounts withdrawn may be subject to an early withdrawal charge, other deductions, tax withholding and taxation. See "Withdrawals" and "Taxation." 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: The Tax Code has certain rules that apply to amounts accumulated and distributed under the contracts. Tax penalties may apply if rules are not followed. See "Taxation." 4 Contract Phases I. The Accumulation Phase (accumulating retirement benefits) [chart] -------------- Payments to Your Account -------------- Step 1 [down arrow] ------------------------------------------ Aetna Life Insurance and Annuity Company ------------------------------------------ a) [down arrow] Step 2 b) [down arrow] --------------- ----------------------------- Variable Annuity Fixed Account C Interest Options Variable Investment Options --------------- ----------------------------- The Subaccounts ----------------------------- A B Etc. ----------------------------- [down arrow] Step 3 [down arrow] ----------------- Mutual Mutual Fund A Fund B ----------------- [end chart] STEP 1: You provide us with your completed application and initial payment. We establish an account for you. STEP 2: You direct us to invest payments in one or more of the following: (a) Fixed Interest Options (b) Variable Investment Options (The variable investment 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. The contract offers several payment options (see "The Income Phase"). In general, you may: >Receive payments for a specified period of time or for life >Receive payments monthly, quarterly, semi-annually or annually >Select an option that provides a death benefit to beneficiaries >Select fixed payments or variable payments that vary based on the performance of the variable investment options you select 5 [sidebar] In this Section: >Maximum Transaction Fees >Maximum Fees Deducted from the Subaccounts >Fees Deducted by the Funds >Hypothetical Examples of Account Fees Incurred Over Time See "Fees" for: >How, When and Why Fees are Deducted >Reduction, Waiver and/or Elimination of Certain Fees >Premium and Other Taxes See "Income Phase" for: >Fees During the Income Phase [end sidebar] Fee Table - -------------------------------------------------------------------------------- The tables and examples in this section show the fees your account may incur while accumulating dollars under the contract (the accumulation phase). See "The Income Phase" for fees that may apply after you begin receiving payments under the contract. The fees shown below do not reflect any premium tax that may apply. Maximum Transaction Fees Early Withdrawal Charge. This charge is 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 the Subaccounts (Daily deductions equal to the given percentage on an annual basis) Mortality and Expense Risk Charge......................................1.25%(4) Administrative Expense Charge..........................................0.00%(5) ----- Total Separate Account Expenses........................................1.25% ===== 6 (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." 7 Fees Deducted by the Funds Using this Information. The following table shows the investment advisory fees and other expenses charged annually by each fund. Fund fees are one factor that impacts the value of a fund share. To learn about additional factors, refer to the fund prospectus. How Fees are Deducted. Fund fees are not deducted from account values. Instead, they are deducted from the value of fund shares on a daily basis, which in turn affects the value of each subaccount on a daily basis. 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, 1998. Fund Expense Table
Total Fund Net Fund Annual Annual Expenses Expenses Investment Without Total After Advisory Other Waivers or Waivers and Waivers or Fund Name Fees(1) Expenses Reductions Reductions Reductions - -------------------------------------------------------- ------------ ---------- ------------ ------------- ----------- Aetna Ascent VP(2)(3) 0.60% 0.15% 0.75% 0.00% 0.75% Aetna Balanced VP, Inc.(3) 0.50% 0.09% 0.59% -- 0.59% Aetna Bond VP(3) 0.40% 0.10% 0.50% -- 0.50% Aetna Crossroads VP(2)(3) 0.60% 0.15% 0.75% 0.00% 0.75% Aetna Growth VP(2)(3) 0.60% 0.15% 0.75% 0.00% 0.75% Aetna Growth and Income VP(3) 0.50% 0.08% 0.58% -- 0.58% Aetna High Yield VP(2)(3) 0.65% 0.40% 1.05% 0.25% 0.80% Aetna Index Plus Large Cap VP(2)(3) 0.35% 0.10% 0.45% 0.00% 0.45% Aetna Index Plus Mid Cap VP(2)(3) 0.40% 0.51% 0.91% 0.31% 0.60% Aetna Index Plus Small Cap VP(2)(3) 0.40% 0.61% 1.01% 0.41% 0.60% Aetna International VP(2)(3) 0.85% 1.22% 2.07% 0.92% 1.15% Aetna Legacy VP(2)(3) 0.60% 0.16% 0.76% 0.00% 0.76% Aetna Money Market VP(3) 0.25% 0.09% 0.34% -- 0.34% Aetna Real Estate Securities VP(2)(3) 0.75% 0.73% 1.48% 0.53% 0.95% Aetna Small Company VP(2)(3) 0.75% 0.14% 0.89% 0.00% 0.89% Aetna Value Opportunity VP(2)(3) 0.60% 0.14% 0.74% 0.00% 0.74% AIM V.I. Capital Appreciation Fund(4) 0.62% 0.05% 0.67% -- 0.67% AIM V.I. Growth Fund(4) 0.64% 0.08% 0.72% -- 0.72% AIM V.I. Growth and Income Fund(4) 0.61% 0.04% 0.65% -- 0.65% AIM V.I. Value Fund(4) 0.61% 0.05% 0.66% -- 0.66% Calvert Social Balanced Portfolio(5) 0.70% 0.18% 0.88% 0.02% 0.86% Fidelity VIP Equity-Income Portfolio(6) 0.49% 0.09% 0.58% 0.01% 0.57% Fidelity VIP Growth Portfolio(6) 0.59% 0.09% 0.68% 0.02% 0.66% Fidelity VIP Overseas Portfolio(6) 0.74% 0.17% 0.91% 0.02% 0.89% Fidelity VIP II Contrafund Portfolio(6) 0.59% 0.11% 0.70% 0.04% 0.66% Janus Aspen Aggressive Growth Portfolio(7) 0.72% 0.03% 0.75% 0.00% 0.75% Janus Aspen Balanced Portfolio(7) 0.72% 0.02% 0.74% 0.00% 0.74% Janus Aspen Flexible Income Portfolio(7) 0.65% 0.08% 0.73% 0.00% 0.73% Janus Aspen Growth Portfolio(7) 0.72% 0.03% 0.75% 0.07% 0.68% Janus Aspen Worldwide Growth Portfolio(7) 0.67% 0.07% 0.74% 0.02% 0.72% Oppenheimer Global Securities Fund/VA(4) 0.68% 0.06% 0.74% -- 0.74% Oppenheimer Strategic Bond Fund/VA(4) 0.74% 0.06% 0.80% -- 0.80% Portfolio Partners MFS Emerging Equities Portfolio(8) 0.68% 0.13% 0.81% 0.00% 0.83% Portfolio Partners MFS Research Growth Portfolio(8) 0.70% 0.15% 0.85% -- 0.85% Portfolio Partners MFS Value Equity Portfolio(8) 0.65% 0.25% 0.90% -- 0.90% Portfolio Partners Scudder International Growth Portfolio(8) 0.80% 0.20% 1.00% -- 1.00% Portfolio Partners T. Rowe Price Growth Equity Portfolio(8) 0.60% 0.15% 0.75% -- 0.75%
8 Footnotes to the "Fund Expense Table" (1) Certain of the fund advisers reimburse the company for administrative costs incurred in connection with administering the funds as variable funding options under the contract. These reimbursements are generally paid out of the management fees and are not charged to investors. For the AIM Funds, the reimbursements may be paid out of fund assets in an amount up to 0.25% annually. Any such reimbursements paid from the AIM Funds' assets are included in the "Other Expenses" column. (2) The investment adviser is contractually obligated through December 31, 1999 to waive all or a portion of its investment advisory fee and/or its administrative services fee and/or to reimburse a portion of other expenses in order to ensure that the portfolio's Total Fund Annual Expenses do not exceed the percentage reflected under Net Fund Annual Expenses After Waivers or Reductions. (3) Prior to May 1, 1998, the portfolio's investment adviser provided administrative services to the portfolio and assumed the portfolio's ordinary recurring direct costs under an administrative services agreement. After that date, the portfolio's investment adviser provided administrative services but no longer assumed all of the portfolio's ordinary recurring direct costs under an administrative services agreement. The administrative fee is 0.075% on the first $5 billion in assets and 0.050% on all assets over $5 billion. The "Other Expenses" shown are not based on actual figures for the year ended December 31, 1998, but reflect the fee payable under the new administrative services agreement and estimates the portfolio's ordinary recurring direct costs. (4) Fee waiver/expense reimbursement obligations do not apply to these portfolios. (5) The figures above are based on expenses for fiscal year 1998, and have been restated to reflect the elimination of a performance adjustment. The restatement includes the addition of 0.01% to the portfolio management fee. Other Expenses reflect an indirect fee of 0.02% relating to an expense offset arrangement with the portfolio's custodian. Amounts shown under Total Waivers and Reductions reflect a voluntary reduction of fees paid indirectly. (6) A portion of the brokerage commissions that certain funds pay was used to reduce fund expenses. In addition, certain funds, or the investment adviser on behalf of certain funds, have entered into arrangements with their custodian whereby credits realized as a result of uninvested cash balances were used to reduce custodian expenses. These credits are included under Total Waivers and Reductions. (7) All expenses are stated both with and without contractual waivers and fee reductions by Janus Capital. Fee reductions for the Aggressive Growth, Balanced, Growth and Worldwide Growth Portfolios reduce the management fee to the level of the corresponding Janus retail fund. Other waivers, if applicable, are first applied against the management fee and then against Other Expenses. Janus Capital has agreed to continue the other waivers and fee reductions until at least the next annual renewal of the advisory agreement. (8) The investment adviser has agreed to reimburse the portfolios for expenses and/or waive its fees, so that, through at least April 30, 2000, the aggregate of each portfolio's expenses will not exceed the combined investment advisory fees and other expenses shown under the Net Fund Annual Expenses After Waivers or Reductions column above. For the Portfolio Partners MFS Emerging Equities Portfolio, the Total Fund Annual Expenses Without Waivers or Reductions for 1998 were less than the percentage reflected under the Net Fund Annual Expenses After Waivers or Reductions column. Nevertheless, the investment adviser will waive fees and/or reimburse expenses if that portfolio's Total Fund Annual Expenses Without Waivers or Reductions for 1999 exceed the percentage reflected under the Net Fund Annual Expenses After Waivers or Reductions column. 9 Hypothetical Examples Account Fees Incurred Over Time. The following hypothetical examples show the fees and expenses paid over time if you invest $1,000 in the account, assuming 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, and the maximum annual maintenance fee of $25 (converted to a percentage of assets equal to 0.090%). The total annual fund expenses used are those shown in the column "Total Annual Expenses without Waivers or Reductions" in the Fund Expense Table. > These examples are purely hypothetical > They should not be considered a representation of past or future fees or expected returns > Actual expenses and/or returns may be more or less than those shown in these examples
EXAMPLE A --------------------------------------- If you withdraw your entire account value at the end of the periods shown, you would pay the following expenses, including any charge assessed under early withdrawal charge schedule A: 1 Year 3 Years 5 Years 10 Years -------- --------- --------- ---------- Aetna Ascent VP $21 $ 65 $112 $242 Aetna Balanced VP, Inc. $20 $ 61 $104 $225 Aetna Bond VP $19 $ 58 $100 $216 Aetna Crossroads VP $21 $ 65 $112 $242 Aetna Growth VP $21 $ 65 $112 $242 Aetna Growth and Income VP $20 $ 60 $104 $224 Aetna High Yield VP $24 $ 75 $128 $273 Aetna Index Plus Large Cap VP $18 $ 56 $ 97 $211 Aetna Index Plus Mid Cap VP $23 $ 70 $120 $258 Aetna Index Plus Small Cap VP $24 $ 73 $126 $269 Aetna International VP $34 $105 $177 $369 Aetna Legacy VP $21 $ 66 $113 $243 Aetna Money Market VP $17 $ 53 $ 91 $199 Aetna Real Estate Securities VP $29 $ 87 $149 $315 Aetna Small Company VP $23 $ 70 $119 $256 Aetna Value Opportunity VP $21 $ 65 $112 $241 AIM V.I. Capital Appreciation Fund $20 $ 63 $108 $234 AIM V.I. Growth Fund $21 $ 65 $111 $239 AIM V.I. Growth and Income Fund $20 $ 62 $107 $232 AIM V.I. Value Fund $20 $ 63 $108 $233 Calvert Social Balanced Portfolio $23 $ 69 $119 $255 Fidelity VIP Equity-Income Portfolio $20 $ 60 $104 $224 Fidelity VIP Growth Portfolio $21 $ 63 $109 $235 Fidelity VIP Overseas Portfolio $23 $ 70 $120 $258 Fidelity VIP II Contrafund Portfolio $21 $ 64 $110 $237 Janus Aspen Aggressive Growth Portfolio $21 $ 65 $112 $242 Janus Aspen Balanced Portfolio $21 $ 65 $112 $241 Janus Aspen Flexible Income Portfolio $21 $ 65 $111 $240 Janus Aspen Growth Portfolio $21 $ 65 $112 $242 Janus Aspen Worldwide Growth Portfolio $21 $ 65 $112 $241 Oppenheimer Global Securities Fund/VA $21 $ 65 $112 $241 Oppenheimer Strategic Bond Fund/VA $22 $ 67 $115 $247 Portfolio Partners MFS Emerging Equities Portfolio $22 $ 67 $115 $248 Portfolio Partners MFS Research Growth Portfolio $22 $ 69 $117 $252 Portfolio Partners MFS Value Equity Portfolio $23 $ 70 $120 $257 Portfolio Partners Scudder International Growth Portfolio $24 $ 73 $125 $268 Portfolio Partners T. Rowe Price Growth Equity Portfolio $21 $ 65 $112 $242 EXAMPLE B -------------------------------------- If you withdraw your entire account value at the end of the periods shown, you would pay the following expenses, including any charge assessed under early withdrawal charge schedule B: 1 Year 3 Years 5 Years 10 Years -------- --------- --------- --------- Aetna Ascent VP $73 $120 $159 $242 Aetna Balanced VP, Inc. $71 $115 $151 $225 Aetna Bond VP $70 $113 $146 $216 Aetna Crossroads VP $73 $120 $159 $242 Aetna Growth VP $73 $120 $159 $242 Aetna Growth and Income VP $71 $115 $150 $224 Aetna High Yield VP $76 $129 $173 $273 Aetna Index Plus Large Cap VP $70 $111 $144 $211 Aetna Index Plus Mid Cap VP $74 $125 $166 $258 Aetna Index Plus Small Cap VP $75 $127 $171 $269 Aetna International VP $85 $157 $221 $369 Aetna Legacy VP $73 $120 $159 $243 Aetna Money Market VP $69 $108 $138 $199 Aetna Real Estate Securities VP $80 $141 $193 $315 Aetna Small Company VP $74 $124 $165 $256 Aetna Value Opportunity VP $73 $120 $158 $241 AIM V.I. Capital Appreciation Fund $72 $118 $155 $234 AIM V.I. Growth Fund $72 $119 $157 $239 AIM V.I. Growth and Income Fund $72 $117 $154 $232 AIM V.I. Value Fund $72 $117 $154 $233 Calvert Social Balanced Portfolio $74 $124 $165 $255 Fidelity VIP Equity-Income Portfolio $71 $115 $150 $224 Fidelity VIP Growth Portfolio $72 $118 $155 $235 Fidelity VIP Overseas Portfolio $74 $125 $166 $258 Fidelity VIP II Contrafund Portfolio $72 $119 $156 $237 Janus Aspen Aggressive Growth Portfolio $73 $120 $159 $242 Janus Aspen Balanced Portfolio $73 $120 $158 $241 Janus Aspen Flexible Income Portfolio $72 $119 $158 $240 Janus Aspen Growth Portfolio $73 $120 $159 $242 Janus Aspen Worldwide Growth Portfolio $73 $120 $158 $241 Oppenheimer Global Securities Fund/VA $73 $120 $158 $241 Oppenheimer Strategic Bond Fund/VA $73 $121 $161 $247 Portfolio Partners MFS Emerging Equities Portfolio $73 $122 $161 $248 Portfolio Partners MFS Research Growth Portfolio $74 $123 $163 $252 Portfolio Partners MFS Value Equity Portfolio $74 $124 $166 $257 Portfolio Partners Scudder International Growth Portfolio $75 $127 $171 $268 Portfolio Partners T. Rowe Price Growth Equity Portfolio $73 $120 $159 $242
10 Hypothetical Examples (continued) > These examples are purely hypothetical > They should not be considered a representation of past or future fees or expected returns > Actual expenses and/or returns may be more or less than those shown in these examples
EXAMPLE C --------------------------------------- If you withdraw your entire account value at the end of the periods shown, you would pay the following expenses, including any charge assessed under early withdrawal charge schedule C: 1 Year 3 Years 5 Years 10 Years -------- --------- --------- ---------- Aetna Ascent VP $83 $109 $135 $242 Aetna Balanced VP, Inc. $81 $104 $127 $225 Aetna Bond VP $81 $102 $123 $216 Aetna Crossroads VP $83 $109 $135 $242 Aetna Growth VP $83 $109 $135 $242 Aetna Growth and Income VP $81 $104 $127 $224 Aetna High Yield VP $86 $118 $150 $273 Aetna Index Plus Large Cap VP $80 $100 $120 $211 Aetna Index Plus Mid Cap VP $84 $114 $143 $258 Aetna Index Plus Small Cap VP $85 $117 $148 $269 Aetna International VP $95 $147 $199 $369 Aetna Legacy VP $83 $109 $136 $243 Aetna Money Market VP $79 $ 97 $115 $199 Aetna Real Estate Securities VP $90 $130 $171 $315 Aetna Small Company VP $84 $113 $142 $256 Aetna Value Opportunity VP $83 $109 $135 $241 AIM V.I. Capital Appreciation Fund $82 $107 $131 $234 AIM V.I. Growth Fund $83 $108 $134 $239 AIM V.I. Growth and Income Fund $82 $106 $130 $232 AIM V.I. Value Fund $82 $106 $131 $233 Calvert Social Balanced Portfolio $84 $113 $142 $255 Fidelity VIP Equity-Income Portfolio $81 $104 $127 $224 Fidelity VIP Growth Portfolio $82 $107 $132 $235 Fidelity VIP Overseas Portfolio $84 $114 $143 $258 Fidelity VIP II Contrafund Portfolio $82 $108 $133 $237 Janus Aspen Aggressive Growth Portfolio $83 $109 $135 $242 Janus Aspen Balanced Portfolio $83 $109 $135 $241 Janus Aspen Flexible Income Portfolio $83 $108 $134 $240 Janus Aspen Growth Portfolio $83 $109 $135 $242 Janus Aspen Worldwide Growth Portfolio $83 $109 $135 $241 Oppenheimer Global Securities Fund/VA $83 $109 $135 $241 Oppenheimer Strategic Bond Fund/VA $83 $111 $138 $247 Portfolio Partners MFS Emerging Equities Portfolio $84 $111 $138 $248 Portfolio Partners MFS Research Growth Portfolio $84 $112 $140 $252 Portfolio Partners MFS Value Equity Portfolio $84 $113 $143 $257 Portfolio Partners Scudder International Growth Portfolio $85 $116 $148 $268 Portfolio Partners T. Rowe Price Growth Equity Portfolio $83 $109 $135 $242 EXAMPLE D ------------------------------------- If you leave your entire account value invested or if you select an income phase payment option at the end of the periods shown, you would pay the following expenses, (no early withdrawal charge is reflected):* 1 Year 3 Years 5 Years 10 Years -------- --------- --------- --------- Aetna Ascent VP $21 $ 65 $112 $242 Aetna Balanced VP, Inc. $20 $ 61 $104 $225 Aetna Bond VP $19 $ 58 $100 $216 Aetna Crossroads VP $21 $ 65 $112 $242 Aetna Growth VP $21 $ 65 $112 $242 Aetna Growth and Income VP $20 $ 60 $104 $224 Aetna High Yield VP $24 $ 75 $128 $273 Aetna Index Plus Large Cap VP $18 $ 56 $ 97 $211 Aetna Index Plus Mid Cap VP $23 $ 70 $120 $258 Aetna Index Plus Small Cap VP $24 $ 73 $126 $269 Aetna International VP $34 $105 $177 $369 Aetna Legacy VP $21 $ 66 $113 $243 Aetna Money Market VP $17 $ 53 $ 91 $199 Aetna Real Estate Securities VP $29 $ 87 $149 $315 Aetna Small Company VP $23 $ 70 $119 $256 Aetna Value Opportunity VP $21 $ 65 $112 $241 AIM V.I. Capital Appreciation Fund $20 $ 63 $108 $234 AIM V.I. Growth Fund $21 $ 65 $111 $239 AIM V.I. Growth and Income Fund $20 $ 62 $107 $232 AIM V.I. Value Fund $20 $ 63 $108 $233 Calvert Social Balanced Portfolio $23 $ 69 $119 $255 Fidelity VIP Equity-Income Portfolio $20 $ 60 $104 $224 Fidelity VIP Growth Portfolio $21 $ 63 $109 $235 Fidelity VIP Overseas Portfolio $23 $ 70 $120 $258 Fidelity VIP II Contrafund Portfolio $21 $ 64 $110 $237 Janus Aspen Aggressive Growth Portfolio $21 $ 65 $112 $242 Janus Aspen Balanced Portfolio $21 $ 65 $112 $241 Janus Aspen Flexible Income Portfolio $21 $ 65 $111 $240 Janus Aspen Growth Portfolio $21 $ 65 $112 $242 Janus Aspen Worldwide Growth Portfolio $21 $ 65 $112 $241 Oppenheimer Global Securities Fund/VA $21 $ 65 $112 $241 Oppenheimer Strategic Bond Fund/VA $22 $ 67 $115 $247 Portfolio Partners MFS Emerging Equities Portfolio $22 $ 67 $115 $248 Portfolio Partners MFS Research Growth Portfolio $22 $ 69 $117 $252 Portfolio Partners MFS Value Equity Portfolio $23 $ 70 $120 $257 Portfolio Partners Scudder International Growth Portfolio $24 $ 73 $125 $268 Portfolio Partners T. Rowe Price Growth Equity Portfolio $21 $ 65 $112 $242
- ----------------- * Example D will not apply during the income phase if you selected a nonlifetime payment option with variable payments and you request a lump sum withdrawal within five years after you begin receiving payments (or within three years for 1992 contracts). In these circumstances, you would pay an early withdrawal charge, so either example A, B or C would apply. 11 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 available under the contracts. The numbers show the value of a unit in 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 contracts offer 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. 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. Earnings on amounts invested in a subaccount will vary depending on the performance and fees of its underlying fund. You do not invest directly in or hold shares in the funds. >Fund Descriptions. We provide brief descriptions of the funds in Appendix IV. 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 phone number listed in "Contract Overview" or by contacting the SEC's web site or 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 o Choose options appropriate for you. Your Company representative can help you evaluate which funds or fixed interest options may be appropriate for your financial goals. o 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 a value that rises and falls more rapidly and to a greater degree than other funds. For example, funds investing in foreign or international securities are subject to additional risks not associated with domestic investments, and their performance may vary accordingly. Also, funds using derivatives in their investment strategy may be subject to additional risks. o Be informed. Read this prospectus, the fund prospectuses, fixed interest option appendices and the Guaranteed Accumulation Account prospectus. Limits on Option Availability. Some funds and fixed interest options may be unavailable under certain contracts or in some states. We may add, withdraw or substitute funds, subject to the conditions in the contract and regulatory requirements. 12 Limits on Number of 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 payments 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, that 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 - -------------------------------------------------------------------------------- Transfers Among Investment Options. During the accumulation phase, you may transfer amounts among the available subaccounts. Transfers from fixed interest options are restricted as outlined in Appendices I, II and III. Requests may be made in writing or, where applicable, by telephone or electronically. 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." Charges for Transfers. We currently do not charge for transfers among investment options. We do, however, reserve the right to charge a fee of $10.00 if more than 12 transfers are made in any calendar year. Value of Transferred Dollars. The value of amounts transferred in or out of the funds will be based on the subaccount unit values next determined after we receive your request in good order at our Home Office. Telephone Transfers: Security Measures. To prevent fraudulent use of telephone transactions, we have established security procedures. These include recording calls on our toll-free telephone lines and requiring use of a personal 13 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 transactions. We are not liable for losses resulting from telephone instructions we believe to be genuine. If a loss occurs when we rely on such instructions, you will bear the loss. 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 transfer request to a subaccount if the subaccount's investment in the corresponding fund is not accepted by the fund for any reason. 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. The Dollar Cost Averaging Program. The 1994 contract, which we currently sell, permits participation in our dollar cost averaging program. There is no additional charge for this service and transfers under this program do not count as transfers when determining the number of free transfers that may be made each calendar year. Dollar cost averaging is a system for investing that buys fixed dollar amounts of an investment at regular intervals, regardless of price. Our program transfers, at regular intervals, a fixed dollar amount to one or more subaccounts that you select. 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. For additional information about this program, contact your Company representative or our Home Office at the number listed in "Contract Overview." Purchase - -------------------------------------------------------------------------------- Contracts Available for Purchase. The contracts available for purchase are intended to qualify under the Tax Code as one of the following: >Traditional Individual Retirement Annuity (IRA) under Tax Code section 408(b) >Roth IRA under Tax Code section 408A 14 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 on your adjusted gross income. How to Purchase. Complete the application and submit it to the Company directly or through your Company representative. Acceptance or Rejection. 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 payments for five business days pending acceptance. Payments may be held for longer periods only with your consent, pending acceptance of the application. If the application is rejected, the application and any payments will be returned to you. Methods of Payment. Payments are accepted in one or more of the following methods: >Annual contributions. The initial 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 payments are allowed, provided that each installment 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: o A traditional IRA under Tax Code section 408(b) o A Roth IRA under Tax Code section 408(a) o An individual retirement account under Tax Code section 408(a) o A tax-deferred annuity under Tax Code section 403(b) o A qualified pension or profit sharing plan under Tax Code section 401(a) or 401(k) 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. Rollovers and direct transfers are permitted from a 401, 403(a) or a 403(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 the Company or one of our affiliates. Allocation of Payments. We will allocate your 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. See "Investment Options." 15 [sidebar] Types of Fees There are four types of fees or deductions which may affect your account: >Transaction Fees o Early Withdrawal Charge o Annual Maintenance Fee o Transfer Charge >Fees Deducted from the Subaccounts o Mortality and Expense Risk Charge o Administrative Expense Charge >Fees Deducted by the Funds o Investment Advisory Fees o Other Expenses >Premium and Other Taxes [end sidebar] Right to Cancel - -------------------------------------------------------------------------------- When and How to Cancel. You may cancel the contract no later than ten days after receiving it (or as otherwise allowed by state law) by returning it to the Company along with a written notice of cancellation. Refunds. We will produce a refund not later than seven days after we receive the contract and the written notice at our Home Office. Your refund will equal your purchase payment. Fees - -------------------------------------------------------------------------------- The following repeats and adds to information provided under "Fee Table." 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. 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 8.5% of your total payments to the contract. Purpose. This charge reimburses us for some of the sales and administrative expenses associated with the contract. Our remaining sales and administrative expenses will be covered by our general assets which are attributable in part to the mortality and expense risk charge described below. 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 MAP or ADAPTOR contracts (other than MAP contracts under Variable Annuity Account C) including amounts rolled over into a Roth IRA in connection with a conduit traditional IRA, and Aetna Life Insurance Company contracts and Company general account contracts issued in connection with Tax Code sections 401 and 403 qualified 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 16 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 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 and 403 qualified 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 payments during the income phase >Paid because of your death >Withdrawn under a systematic distribution option (See "Systematic Distribution Options") >Paid when your account value is $2,500 or less and no withdrawal has been taken from the account within the prior 12 months >Withdrawn in an amount of ten percent 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 ten percent amount will be calculated using your account value 17 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 our administrative expenses related to establishing and maintaining the contract. 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. 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 >The amount of expected 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 (except as noted below) We currently do not impose a charge for transfers among investment options. We reserve the right, however, to charge $10 for each transfer in excess of 12 that occurs in any calendar year. Purpose. This fee reimburses us for administrative expenses associated with transferring your dollars among investment options. Fees Deducted from the Subaccounts Mortality and Expense Risk Charge Maximum Amount. 1.25% annually of your account value invested in the subaccounts. When/How. This fee is deducted daily from the subaccounts. Purpose. This fee 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 payments based on annuity rates specified in the contract >The expense risk is the risk that the actual expenses we incur under the contracts will exceed the maximum costs that we can charge 18 If the amount we deduct for this fee is not enough to cover our mortality costs and expenses under the contracts, 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 fee. Reduction. For 1994 contracts, which we currently sell, we will reduce this fee 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 (3) The value of the contract is $250,000 or more on any anniversary of the date the initial purchase payment was applied Administrative Expense Charge Amount. $0.00 (except as noted below) We currently do not impose this fee. 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 fee daily from the subaccounts. This fee may be assessed during the accumulation phase and/or the income phase. If we are imposing this fee when you enter the income phase, the fee will apply to you during the entire income phase. Purpose. This fee compensates us for administrative expenses that exceed the revenues from the maintenance fee described above. The fee is set at a level so as not to exceed the average expected cost of administering the contracts. We do not expect to make a profit from this fee. Fees Deducted by the Funds Maximum Amount. Each fund determines its own investment advisory fee and other expenses. For a list of fund fees see "Fee Table -- Fees Deducted by the Funds." The fees are described in more detail in each fund prospectus. When/How. Fund fees are not deducted from your account. Instead, fund investment advisory fees and other expenses are reflected in the daily value of fund shares, which in turn will affect the daily value of the subaccounts. Purpose. These amounts help to pay the fund's investment adviser and operating expenses. Premium and Other Taxes Amount. Several states and municipalities charge a premium tax on annuities. These taxes currently range from 0% to 4%, depending on the jurisdiction. When/How. We reserve the right to deduct premium taxes from your account value or from your payments to the contract at any time, but not before there is a tax liability under state law. Our current practice is to deduct premium taxes at the time of a full withdrawal or the commencement of income phase payments. We will not deduct any municipal premium tax of 1% or less, but we reserve the right to reflect this added expense in our annuity purchase rates for residents of such municipalities. In addition, we reserve the right to assess a charge for any federal taxes due against the separate account, See "Taxation." 19 Your Account Value - -------------------------------------------------------------------------------- During the accumulation phase, your account value at any given time equals: >Account dollars directed to the fixed interest options, including interest earnings to date >Less any deductions from the fixed interest options (e.g. withdrawals, fees) >Plus the current dollar value of amounts invested in the subaccounts Subaccount Accumulation Units. When a fund is selected 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 value of accumulation units 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 business day after the close of the New York Stock Exchange. 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 >A daily deduction for the mortality and expense risk charge and the administrative expense charge (if any). See "Fees." The net investment rate may be either positive or negative. 20 Hypothetical Illustration. As an hypothetical illustration, assume that an investor contributes $5,000 to his account and directs us to invest $3,000 in Fund A and $2,000 in Fund B. After receiving the contribution and following the next close of business of the New York Stock Exchange, the applicable AUV's are $10 for Subaccount A and $25 for Subaccount B. The investor's account is credited with 300 accumulation units of Subaccount A, and 80 accumulation units of Subaccount B. [chart] --------------------- $5,000 contribution --------------------- Step 1 [down arrow] ------------------------------------------ Aetna Life Insurance and Annuity Company ------------------------------------------ Step 2 [down arrow] ------------------------------------------ Variable Annuity Account C ------------------------------------------ Subaccount A Subaccount B Etc. 300 80 accumulation accumulation units units ------------------------------------------ [down arrow] Step 3 [down arrow] ------------- ------------ Fund A Fund B ------------- ------------ [end chart] STEP 1: An Investor contributes $5000 STEP 2: A. He directs us to invest $3,000 in Fund A. His dollars purchase 300 accumulation units of Subaccount A ($3,000 divided by the current $10 AUV). B. He directs us to invest $2,000 in Fund B. His dollars purchase 80 accumulation units of Subaccount B ($2,000 divided by the current $25 AUV). STEP 3: The separate account then purchases shares of the applicable funds at the current market value. The 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. Payments to Your Account. If all or a portion of initial payments are directed to the subaccounts, they will purchase subaccount accumulation units at the AUV next computed after our acceptance of your application as described in "Purchase." Subsequent payments or transfers directed to the subaccounts will purchase subaccount accumulation units at the AUV next computed following our receipt of your payment or transfer request in good order. The value of subaccounts may vary day to day. 21 [sidebar] 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") >Maintenance Fee (see "Fees--Maintenance Fee") >Market Value Adjustment (see Appendix III) >Tax Penalty (see "Taxation") >Tax Withholding (see "Taxation") To determine which may apply, refer to the appropriate sections of this prospectus, contact your Company representative or call us at the number listed in "Contract Overview." [end sidebar] Withdrawals - -------------------------------------------------------------------------------- You may withdraw all or a portion of your account value at any time during the accumulation phase. Steps for Making a Withdrawal 1. Select the withdrawal amount. >Full Withdrawal: You will receive, reduced by any required withholding tax, your account value allocated to the subaccounts, the Guaranteed Interest Account, 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. >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 for amounts withdrawn from the subaccounts, the Guaranteed Interest Account, the Fixed Account, and the Guaranteed Accumulation Account and any positive or negative market value adjustment for amounts withdrawn from the Guaranteed Accumulation Account. 2. Select investment options. If you do not specify this, we will withdraw dollars proportionally from each of your investment options. 3. Properly complete a disbursement form and submit it to our Home Office. Calculation of Your Withdrawal. We determine your account value every normal business day after the close of the New York Stock Exchange. We pay withdrawal amounts based on your account value as of the next valuation after receiving 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. Some contracts allow one-time use of a reinvestment privilege. 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 reinvested amounts within 60 days of the withdrawal. We will credit the 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 maintenance fees and early withdrawal charges imposed at the time of withdrawal. We will deduct from the amounts reinvested any 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. 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. 22 [SIDEBAR] Features of a Systematic Distribution Option (SDO) An SDO 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 SIDEBAR] Systematic Distribution Options - -------------------------------------------------------------------------------- The following Systematic Distribution Options (SDOs) 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 under the contract. >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 at age 70-1/2 and pay you that amount once a year. ECO is not available under Roth IRA contracts. >Other SDOs. We may add additional SDOs from time to time. You may obtain additional information relating to any of the SDOs from your Company representative or by calling us at the number listed in "Contract Overview." 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 Company representative or call us at the number listed in "Contract Overview." Availability of Systematic Distribution Options. If allowed by law, we reserve the right to discontinue the availability of one or all of the SDOs for new elections at any time, and/or to change the terms of future elections. Terminating a Systematic Distribution Option. You may revoke an SDO at any time by submitting a written request to our Home Office. If you revoke an SDO, you may not elect it again or elect any other SDO unless allowed under the Tax Code. Charges and Taxation. When you elect an SDO, your account value remains in the accumulation phase and subject to the fees described in "Fees" and "Fee Table." Taking a withdrawal under an SDO may have tax consequences. If you are concerned about tax implications consult a tax advisor before electing an option. 23 [sidebar] This section provides information about the accumulation phase. For death benefit information applicable to the income phase, see "The Income Phase." [end sidebar] 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? If you would like certain individuals to receive death benefit proceeds from the contract you must designate them as your beneficiaries. You may do this on your application for the contract or by providing a written request in good order to our Home Office. If you die and no beneficiary exists, the death benefit will be paid in a lump sum to your estate. Benefit Payment Options. 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") >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 >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 payment in accordance with any of the available income phase payment options (See "The Income Phase") The Value of the Death Benefit. 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. 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. Guaranteed Accumulation Account. For amounts held in the Guaranteed Accumulation Account (GAA), 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 GAA prospectus. 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. 24 [sidebar] We may have used the following terms in prior prospectuses: Annuity Phase--Income Phase Annuity Option--Payment Option Annuity Payment--Income Phase Payment Annuitization--Initiating Income Phase Payments [end sidebar] 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: >Start date >Payment option (see the payment options table in this section) >Payment frequency (i.e., monthly, quarterly, semi-annually or annually) >Choice of fixed or variable payments >Selection of subaccounts and an assumed net investment rate (only if variable payments are elected) The account will continue in the accumulation phase until you properly initiate payments. Once a payment option is selected, it may not be changed. What Affects Payment Amounts? Some of the factors that may affect payment amounts include your age, your gender, your account value, the payment option selected, number of guaranteed payments (if any) selected, and whether you select fixed or variable payments. Fixed Payments. Amounts funding fixed payments will be held in the Company's general account. Fixed payment amounts do not vary over time. Variable Payments. Amounts funding your income phase payments will be held in the subaccount(s) you select, or a combination of subaccounts and the general account. Payment amounts will vary depending upon the investment performance of the subaccounts. For variable payments, you must also select an assumed net investment rate. Assumed Net Investment Rate. For variable payments, an assumed net investment rate of either 5% or 3.5% must be selected. If you select a 5% rate, 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 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, request a copy of the Statement of Additional Information by calling the Company at the number listed in "Contract Overview." Selecting Subaccounts. The subaccounts currently available during the income phase are: The Aetna Growth and Income VP, the Aetna Bond VP and the Aetna Balanced VP, 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 payment option you select must result in one of the following: >A first payment of at least $50 >Total yearly payments of at least $250 25 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 >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. Length of Payments. When payments start, the age of the annuitant (defined below) plus the number of years for which payments are guaranteed, must not exceed 95. Certain tax rules may also limit length of payments, see "Taxation." Fees During the Income Phase. We make a daily deduction for mortality and expense risks from amounts held in the subaccounts. If you choose variable payments and a nonlifetime payment option, we still make this deduction from the subaccounts you select, even though we no longer assume any mortality risk for you. 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 benefit that may be available to a beneficiary is outlined in the 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. 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 on the next valuation date following our receipt of proof of death acceptable to us and payment request in good order. Such value will reflect any payments made after date of death. Calculation of Lump Sum Payments. If a lump sum payment is available to a beneficiary or to you in the options listed in the table below, 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). Taxation. To avoid certain tax penalties, you or your beneficiary must meet the distribution rules imposed by the Tax Code. See "Taxation." 26 Payment Options The following table lists the payment options and accompanying death benefits available during the income phase. We may offer additional payment options under the contract from time to time. Once income phase payments begin, you may not change the payment option selected. Terms to Understand: Annuitant: The person(s) on whose life expectancy the income phase payments are calculated. Beneficiary: The person(s) entitled to receive death benefits payable 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 Life Income made should the annuitant die 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 dies before we have made all the Guaranteed guaranteed payments, we will pay the beneficiary a lump sum (unless otherwise requested) equal Payments 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 should both annuitants die before the second payment's due date. Continuing Payments: When you select this option you choose for either: (a) 100%, 662/3% or 50% of the payment to continue to the surviving annuitant after the first Life Income-- death; or Two Lives (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. Life Income-- Continuing Payments: 100% of the payment to continue to the surviving annuitant after the first Two Lives-- death. Guaranteed Death Benefit--Payment to the Beneficiary: If both annuitants die before the guaranteed Payments payments have all been paid, we will pay the beneficiary a lump sum (unless otherwise requested) 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 requested at any time (see below). Nonlifetime-- Death Benefit--Payment to the Beneficiary: If the annuitant dies before we make all the Guaranteed guaranteed payments, we will pay the beneficiary a lump sum (unless otherwise requested) equal Payments to the present value of the remaining guaranteed payments, and we will not impose any early withdrawal charge. - ------------------------------------------------------------------------------------------------------------------------------ Lump Sum Payment: 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 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.") - ------------------------------------------------------------------------------------------------------------------------------
27 [sidebar] In This Section > Introduction > The Contract > Taxation of Withdrawals and Other Distributions > 10% Penalty Tax > Withholding for Federal Income Tax Liability > Minimum Distribution Requirements > Assignment or Transfer of Contracts > Taxation of Gains Prior to Distribution > Taxation of the Company When consulting a tax advisor, be certain that he or she has expertise in the Tax Code sections applicable to your tax concerns. [end sidebar] Taxation - -------------------------------------------------------------------------------- (The term "payment" in this section refers to income phase payments.) 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 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 >We do not make any guarantee about the tax treatment of the contract or 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 advisor. The Contract The contract is designed for use with retirement plans 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 Individual Retirement Annuity (traditional IRA) on a pre-tax (deductible) basis. Employers may establish Simplified Employee Pension (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. You are responsible for determining that contributions, distributions and other transactions satisfy applicable laws. Legal counsel and a tax advisor 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. Taxation of Withdrawals and Other Distributions Certain tax rules apply to distributions from the contract. A distribution is any amount taken from the contract including withdrawals, payments, rollovers, exchanges and death benefit proceeds. We report the taxable portion of all distributions to the IRS. 408(b) Individual Retirement Annuity (Traditional IRA). All distributions from a traditional IRA are taxed as received unless: >The distribution is rolled over to another traditional IRA or, if the IRA contains only amounts previously rolled over from a 401(a), 401(k), or 403(b) plan, to another plan of the same type; or 28 >You made after-tax contributions to the plan. In this case, the distribution will be taxed according to rules detailed in the Tax Code. 408A Roth IRA. 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 permanently and totally disabled, or for a qualified first-time home purchase. If a distribution is not qualified, the accumulated earnings are taxable. A partial distribution will first be treated as a return of contributions which is not taxable. 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. The 10% penalty tax applies to the taxable portion of a distribution unless one or more of the following have occurred: >You have attained age 59-1/2 >You have become totally and permanently disabled (as defined by 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 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 first-time home purchase >The amount withdrawn is for 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 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 beneficiary may elect not to have tax withheld from distributions. If you or your 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. 29 Minimum Distribution Requirements To avoid certain tax penalties, you and any 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 >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 beneficiary >Over a period not greater than your life expectancy or the joint life expectancies of you and your beneficiary 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. The rules differ, dependent upon: >Whether your minimum required distribution was calculated each year based on your single life expectancy or the joint life expectancies of you and your beneficiary, and >Whether life expectancy was recalculated. The rules are complex and any beneficiary should consult with a tax advisor before electing the method of calculation to satisfy the minimum distribution requirements. 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, 1999, your entire balance must be distributed to the beneficiary by December 31, 2004. However, if the distribution begins by December 31 of the calendar year following the calendar year of your death, then payments may be made in either of the following time-frames: >Over the life of the beneficiary >Over a period not extending beyond the life expectancy of the beneficiary 30 Start Dates for Spousal Beneficiaries. If the beneficiary is your spouse, the distribution must begin on or before the later of the following: >December 31 of the calendar year following the calendar year of your death >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 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 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. Taxation of Gains Prior to Distribution Generally no amounts accumulated under a 408(b) or 408A contract will be taxable prior to the time of actual distribution. However, the 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. 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 to the extent that such income and gains are applied to increase reserves under the contracts. 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 31 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 Aetna Life Insurance and Annuity Company (the Company, we, us, our) issues the contracts described in this 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 Aetna Inc. 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). 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) in 1976 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. These 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. Performance Reporting We may advertise different types of historical performance for the subaccounts including: >Standardized average annual total returns >Non-standardized average annual total 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, request a Statement of Additional Information at the number listed in "Contract Overview." Standardized Average Annual Total Returns. We calculate standardized average annual total returns according to a formula prescribed by the SEC. 32 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. We include all recurring charges during each period (e.g., 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. 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 separate account. 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. 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 Distribution We will serve as the principal underwriter for the securities sold by this prospectus. We are registered as a broker-dealer with the Securities and Exchange Commission and we are a member of the National Association of Securities Dealers, Inc. (NASD). As underwriter, we will contract with one or more registered broker-dealers, including at least one affiliate of the Company, to offer and sell the contracts. We call these entities "distributors." We and one or more of our affiliates may also sell the contracts directly. All persons offering and selling the contracts must be registered representatives of the distributors and must also be licensed as insurance agents to sell variable annuity contracts. These registered representatives may also provide services to contract holders in connection with their contract. 33 Commission Payments. Persons offering and selling the contracts may receive commissions in connection with the sale of the contracts. The maximum percentage amount that the Company will ever pay as commission with respect to any given purchase payment is with respect to those made during the first year of purchase payments under a contract. The percentage amount will range from 2% to 4% of those purchase payments. The Company may also pay renewal commissions on purchase payments made after the first year and service fees. The average of all payments made by the Company is estimated to equal approximately 3% of the total purchase payments made over the life of an average contract. In addition, some sales personnel may receive various types of non-cash compensation as special sales incentives, including trips and educational and/or business seminars. However, any such compensation will be paid in accordance with NASD rules. In addition, we may provide additional compensation to the Company's supervisory and other management personnel if the overall amount of investments in funds advised by the Company or its affiliates increases over time. We may also reimburse the distributor for certain expenses. The name of the distributor and the registered representative responsible for your contract are set forth in your application. Commissions and sales related expenses are paid by the Company and are not deducted from purchase payments. 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. Legal Matters and Proceedings We know of no material legal proceedings pending to which the separate account or the Company is a party or which would materially affect the separate account. The validity of the securities offered by this prospectus has been passed upon by Counsel to the Company. 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 (GIA), if applicable, will not receive a reduced rate of interest. Amounts withdrawn from GIA will receive a guaranteed effective annual yield to the date of contract termination as if the amounts had remained in GIA until the end of a guaranteed term, see Appendix I. Amounts withdrawn from the Guaranteed Accumulation Account (GAA) 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 GAA. This provision does not apply if you have initiated income phase payments. 34 Payment Delay or Suspension We reserve the right to suspend or postpone the date of payment for any benefit or values (a) on any valuation date on which the New York Stock Exchange (Exchange) is closed (other than customary weekend and holiday closings) or when trading on the Exchange is restricted; (b) when an emergency exists, as determined by the Securities and Exchange Commission (SEC), so that disposal of securities held in the subaccounts is not reasonably practicable or it is not reasonably practicable for the Company fairly to determine the value of the subaccount's assets; or (c) during such other periods as the SEC may by order permit for the protection of investors. The conditions under which restricted trading or an emergency exists shall be determined by the rules and regulations of the SEC. Year 2000 Readiness As a healthcare and financial services enterprise, Aetna Inc. (referred to collectively with its affiliates and subsidiaries as Aetna), is dependent on computer systems and applications to conduct its business. Aetna has developed and is currently executing a comprehensive risk-based plan designed to make its mission-critical information technology (IT) systems and embedded systems Year 2000 ready. The plan for IT systems covers five stages including (i) assessment, (ii) remediation, (iii) testing, (iv) implementation and (v) Year 2000 approval. At year end 1997, Aetna, including the Company, had substantially completed the assessment stage. The remediation of mission- critical IT systems was completed year end 1998. Testing of all mission-critical IT systems is underway with Year 2000 approval targeted for completion by mid-1999. The costs of these efforts will not affect the separate account. The Company, its affiliates and the mutual funds that serve as investment options for the separate account also have relationships with investment advisers, broker-dealers, transfer agents, custodians or other securities industry participants or other service providers that are not affiliated with Aetna. Aetna, including the Company, has initiated communication with its critical external relationships to determine the extent to which Aetna may be vulnerable to such parties' failure to resolve their own Year 2000 issues. Aetna and the Company have assessed and are prioritizing responses in an attempt to mitigate risks with respect to the failure of these parties to be Year 2000 ready. There can be no assurance that failure of third parties to complete adequate preparations in a timely manner, and any resulting systems interruptions or other consequences, would not have an adverse effect, directly or indirectly, on the separate account, including, without limitation, its operation or the valuation of its assets and units. 35 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 Contract Performance Data Income Phase Payments Sales Material and Advertising Independent Auditors Financial Statements of the Separate Account Financial Statements of Aetna Life Insurance and Annuity Company and Subsidiary Request an SAI by calling the Company at the number listed in "Contract Overview." 36 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 either the Company's general account or 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. 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 the Company's General Account. Amounts allocated to short-term classifications of GIA prior to September 1, 1998 were deposited into the Company's general account supporting insurance and annuity obligations. These amounts will remain invested in the general account until the end of their guaranteed terms. On or after September 1, 1998, the only new amounts allocated to the Company's general account are amounts allocated or rolled over to short-term classifications of GIA under contracts that had not yet received the necessary state approval to deposit those amounts in the Company's separate account. The assets of the Company's general account are chargeable with liabilities arising out of any other business of the Company. Allocations to a Nonunitized Separate Account of the Company. Amounts allocated to long-term classifications of GIA, and except as noted above, amounts allocated to or rolled over to short-term classifications of GIA on or after September 1, 1998, 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 our Home Office 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 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. 37 Appendix II Fixed Account (availability subject to regulatory approval) - -------------------------------------------------------------------------------- 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. Additional information about this option may be found in the contract. General Disclosure. 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. 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. Our determination of interest rates reflects the investment income earned on invested assets and the amortization of any capital gains and/or losses realized on the sale of invested assets. Under this option, we assume the risk of investment gain or loss by guaranteeing 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) (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 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 (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 our Home Office at least 30 days before income 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. 38 Appendix III Guaranteed Accumulation Account (offered in New York only) - -------------------------------------------------------------------------------- The Guaranteed Accumulation Account (GAA) 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 GAA. Review the GAA prospectus before investing in this option. Overview. Amounts that you invest in GAA will earn a guaranteed interest rate if amounts are left in GAA 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 GAA, you will want to contact your Company representative or our Home Office to learn: >The interest rate we will apply to the amounts that you invest in GAA. We change this rate periodically, so be certain that you know what rate we guarantee on the day your account dollars are invested into GAA. >The period of time your account dollars need to remain in GAA in order to earn that rate. You are required to leave your account dollars in GAA 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 on when account dollars are invested in GAA. 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. Fees and Other Deductions. If all or a portion of your account value in GAA is withdrawn, you may incur the following: >Market Value Adjustment (MVA)--as described in this appendix and in the GAA prospectus >Tax Penalties and/or Tax Withholding--see "Taxation" >Early Withdrawal Charge--see "Fees" >Maintenance Fee--see "Fees" We do not make deductions from amounts in GAA 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 GAA 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 GAA. >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. Guaranteed Terms. The guaranteed term is the period of time account dollars must be left in GAA in order to earn the guaranteed interest rate. We offer different guaranteed terms at different times. Check with your Company representative or our Home Office to learn what terms are being offered. continued > 39 In general we offer the following guaranteed terms: >Short Term--three years or fewer >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 >Withdraw dollars Deductions may apply to withdrawals. See "Fees and Other Deductions" in this appendix. Transfers. Generally, account dollars invested in GAA may be transferred among guaranteed terms offered through GAA, 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 GAA 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. Income Phase. GAA 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 GAA account dollars to any of the subaccounts available during the income phase. Reinvestment Privilege. If amounts are withdrawn from GAA and then reinvested in GAA, 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. 40 Appendix IV Description of Underlying Funds - -------------------------------------------------------------------------------- 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. Aetna Balanced VP, Inc. 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 investment adviser's judgment of which of those sectors or mix thereof offers the best investment prospects. Policies Under normal market conditions, allocates assets among the following asset classes: 1) equities such as common and preferred stocks; and 2) debt such as bonds, mortgage-related and other asset-backed securities, and U.S. Government securities. Typically maintains approximately 60% of total assets in equities and 40% of total assets in debt (including money market instruments), although those percentages may vary from time to time. Risks Principal risks are those generally attributable to stock and bond investing. The success of the fund's strategy depends on the investment adviser's skill in allocating fund assets between equities and debt and in choosing investments within those categories. 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. 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. Investment Adviser: Aeltus Investment Management, Inc. Aetna Income Shares d/b/a Aetna Bond VP Investment Objective Seeks to maximize total return, consistent with reasonable risk, through investments in a diversified portfolio consisting primarily of debt securities. It is anticipated that capital appreciation and investment income will both be major factors in achieving total return. Policies Under normal market conditions, invests at least 65% of total 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 and instrumentalities. High-grade securities are rated at least A by Standard & Poor's Corporation (S&P) or Moody's Investors Service, Inc. (Moody's), or if unrated, considered by the investment adviser to be of comparable quality. May also invest up to 15% of total assets in high-yield bonds, and up to 25% of total assets in foreign debt securities. 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 41 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. 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 have 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. These risks are usually higher for securities of companies in emerging markets. Securities of foreign companies may be denominated in foreign currency. Exchange rate fluctuations may reduce or eliminate gains or create losses. Investment Adviser: Aeltus Investment Management, Inc. Aetna Variable Fund d/b/a Aetna Growth and Income VP 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. Policies Under normal market conditions, invests at least 65% of total assets in common stocks that the investment adviser believes have significant potential for capital or income growth. Tends to emphasize stocks of larger companies. Also invests assets across other asset classes (including stocks of small and medium-sized companies, international stock, real estate securities and fixed income securities). 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 fund's strategy also depends significantly on the investment adviser's skill in allocating assets and in choosing investments within each asset class. Growth-oriented stocks typically sell at relatively high valuations as compared to other types of stocks. If a growth stock does not exhibit the level of growth expected, its price may drop sharply. Historically, growth-oriented stocks have been more volatile than value-oriented stocks. Although the investment adviser emphasizes large cap stocks, the fund is more diversified across asset classes than most other funds with a similar investment objective. Therefore, it may not perform as well as those funds when large cap stocks are in favor. Investment Adviser: Aeltus Investment Management, Inc. Aetna Variable Encore Fund d/b/a Aetna Money Market VP Investment Objective Seeks to provide high current return, consistent with preservation of capital and liquidity, through investment in high-quality money market instruments. Policies Invests only 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. They also may include corporate debt securities, finance company commercial paper, asset-backed 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 the investment adviser to be of comparable quality. Maintains a dollar-weighted average portfolio maturity of 90 days or less. Risks It is possible to lose money by investing in the fund. There is no guarantee the fund will achieve its investment objective. Shares of the fund are not bank deposits and are not guaranteed, endorsed or insured by any financial institution, the FDIC or any other government agency. 42 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 fund's shares. Investment Adviser: Aeltus Investment Management, Inc. Aetna Generation Portfolios, Inc.--Aetna Ascent VP Investment Objective Seeks to provide capital appreciation. Policies Designed 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, and money market instruments. The investment adviser has instituted both a benchmark percentage allocation and a fund level range allocation for each asset class. Asset allocation may vary from the benchmark allocation (within the permissible range) based on the investment adviser's ongoing evaluation of the expected returns and risks of each asset class relative to other classes. May invest up to 15% of total assets in high-yield bonds. The benchmark portfolio is 80% equities and 20% fixed income under neutral market conditions. Risks The success of the fund's strategy depends significantly on the investment adviser's 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. Risks associated with real estate securities include periodic declines in the value of real estate, generally, or in the rents and other income generated by real estate. For bonds, generally, when interest rates rise, bond prices fall. 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 have 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. These risks are usually higher for securities of companies in emerging markets. Securities of foreign companies may be denominated in foreign currency. Exchange rate fluctuations may reduce or eliminate gains or create losses. Investment Adviser: Aeltus Investment Management, Inc. Aetna Generation Portfolios, Inc.--Aetna Crossroads VP Investment Objective Seeks to provide total return (i.e., income and capital appreciation, both realized and unrealized). Policies Designed 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, and money market instruments. The investment adviser has instituted both a benchmark percentage allocation and a fund level range allocation for each asset class. Asset allocation may vary from the benchmark allocation (within the permissible range) based on the investment adviser's ongoing evaluation of the expected returns and risks of each asset class relative to other classes. May invest up to 15% of total assets in high-yield bonds. The benchmark portfolio is 60% equities and 40% fixed income under neutral market conditions. 43 Risks The success of the fund's strategy depends significantly on the investment adviser's 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. Risks associated with real estate securities include periodic declines in the value of real estate, generally, or in the rents and other income generated by real estate. For bonds, generally, when interest rates rise, bond prices fall. 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 have 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. These risks are usually higher for securities of companies in emerging markets. Securities of foreign companies may be denominated in foreign currency. Exchange rate fluctuations may reduce or eliminate gains or create losses. Investment Adviser: Aeltus Investment Management, Inc. Aetna Generation Portfolios, Inc.--Aetna Legacy VP Investment Objective Seeks to provide total return consistent with preservation of capital. Policies Designed 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, and money market instruments. The investment adviser has instituted both a benchmark percentage allocation and a fund level range allocation for each asset class. Asset allocation may vary from the benchmark allocation (within the permissible range) based on the investment adviser's ongoing evaluation of the expected returns and risks of each asset class relative to other classes. May invest up to 15% of total assets in high-yield bonds. The benchmark portfolio is 40% equities and 60% fixed income under neutral market conditions. Risks The success of the fund's strategy depends significantly on the investment adviser's 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. Risks associated with real estate securities include periodic declines in the value of real estate, generally, or in the rents and other income generated by real estate. For bonds, generally, when interest rates rise, bond prices fall. 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 have 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. These risks are usually higher for securities of companies in emerging markets. Securities of foreign companies may be denominated in foreign currency. Exchange rate fluctuations may reduce or eliminate gains or create losses. Investment Adviser: Aeltus Investment Management, Inc. 44 Aetna Variable Portfolios, Inc.--Aetna Growth VP Investment Objective Seeks growth of capital through investment in a diversified portfolio of common stocks and securities convertible into common stocks believed to offer growth potential. Policies Under normal market conditions, invests at least 65% of total assets in common stocks. Tends to emphasize stocks of larger companies, although may invest in companies of any size. Focuses on companies that the investment adviser believes have strong, sustainable and improving earnings growth, and established market positions in a particular industry. 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: Aeltus Investment Management, Inc. Aetna Variable Portfolios, Inc.--Aetna High Yield VP Investment Objective Seeks high current income and growth of capital primarily through investment in a diversified portfolio of fixed-income securities rated lower than BBB- by Standard and Poor's Corporation or lower than Baa3 by Moody's Investors Service, Inc. Policies Under normal market conditions, invests at least 65% of total assets in high-yield, high-risk bonds (high-yield bonds). High-yield bonds are bonds rated below investment grade in terms of quality, and may include bonds of companies in default or bankruptcy. The investment adviser looks to meet the investment objective and reduce volatility by constructing a diversified portfolio consisting of securities with varying maturities and credit ratings. The investment adviser, however, attempts to look beyond credit ratings to select investments that it believes offer opportunities for high income, growth and credit improvement. Risks For all bonds, there is a risk that an issuer will default. This risk is even greater with high-yield bonds. Moreover, high-yield bonds, as a group, often decline in value when the market anticipates or experiences a large number of issuers defaulting or declaring bankruptcy. Performance may be affected by weak equity markets, when issuers of high-yield bonds generally find it difficult to reduce debt by replacing debt with equity. Generally, when interest rates rise, bond prices fall, which may cause the value of securities to fall as well. Investment Adviser: Aeltus Investment Management, Inc. Aetna Variable Portfolios, Inc.--Aetna Index Plus Large Cap VP 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. Policies Invests at least 80% of net assets in stocks included in the S&P 500 (other than Aetna Inc. common stock). The investment adviser attempts to achieve the objective by overweighting those stocks in the S&P 500 that the investment adviser believes will outperform the index, and underweighting (or avoiding altogether) those stocks 45 that the investment adviser believes will underperform the index. In determining stock weightings, the portfolio manager uses quantitative computer models to evaluate various criteria, such as the financial strength of each company and its potential for strong, sustained earnings growth. Although the fund will not hold all the stocks in the S&P 500, the investment adviser expects that there will be a close correlation between the performance of the fund and that of the S&P 500 in both rising and falling markets. 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 fund's strategy depends significantly on the investment adviser's skill in determining which securities to overweight, underweight or avoid altogether. Investment Adviser: Aeltus Investment Management, Inc. Aetna Variable Portfolios, Inc.--Aetna Index Plus Mid Cap VP 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. Policies 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 in the U.S. selected by S&P. The investment adviser attempts to achieve the objective by overweighting those stocks in the S&P 400 that the investment adviser believes will outperform the index, and underweighting (or avoiding altogether) those stocks that the investment adviser believes will underperform the index. Although the fund will not hold all the stocks in the S&P 400, the investment adviser expects that there will be a close correlation between the performance of the fund and that of the S&P 400 in both rising and falling markets. 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 fund's strategy depends significantly on the investment adviser's skill in determining which securities to overweight, underweight or avoid altogether. Investment Adviser: Aeltus Investment Management, Inc. Aetna Variable Portfolios, Inc.--Aetna Index Plus Small Cap VP 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. Policies 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 in the U.S. selected by S&P. The investment adviser attempts to achieve the objective by overweighting those stocks in the S&P 600 that the investment adviser believes will outperform the index, and underweighting (or avoiding altogether) those stocks that the investment adviser believes will underperform the index. Although the fund will not hold all the stocks in the S&P 600, the investment adviser expects that there will be a close correlation between the performance of the fund and that of the S&P 600 in both rising and falling markets. 46 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. 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. Frequency and volume of trading in small cap stocks may be substantially less than stocks of larger companies which may result in wider price fluctuations. When selling a large quantity of a particular stock, the fund may have to sell holdings 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. The success of the fund's strategy depends significantly on the investment adviser's skill in determining which securities to overweight, underweight or avoid altogether. Investment Adviser: Aeltus Investment Management, Inc. Aetna Variable Portfolios, Inc.--Aetna International VP 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 fund will not target any given level of current income. Policies Under normal market conditions, invests at least 65% of total assets in securities principally traded in three or more countries outside of North America. These securities may include common stocks as well as securities convertible into common stocks. Invests primarily in established foreign securities markets, although may invest in emerging markets as well. Employs currency hedging strategies to protect from adverse effects on the U.S. dollar. 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. Stocks of foreign companies present additional risks for U.S. investors, including the following: 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. A hedging strategy adds to the fund's expenses and may not perform as expected. Investment Adviser: Aeltus Investment Management, Inc. Aetna Variable Portfolios, Inc.--Aetna Real Estate Securities VP Investment Objective Seeks maximum total return primarily through investment in a diversified portfolio of equity securities issued by real estate companies, the majority of which are real estate investment trusts (REITs). Policies Under normal market conditions, invests at least 65% of total assets in stocks, convertible securities and preferred stocks of companies principally engaged in the real estate industry. These companies may invest in, among other things, shopping malls, healthcare facilities, office parks and apartment communities, or may provide real estate management and development services. Risks Concentrating in stocks of real estate-related companies presents certain risks that are more closely associated with investing in real estate directly than with investing in the stock market generally. Those risks include: periodic declines in the value of real estate, generally, or in the rents and other income generated by real estate; periodic 47 over-building, which creates gluts in the market, as well as changes in laws (such as zoning laws) that impair the property rights of real estate owners; adverse developments in the real estate industry, which may have a greater impact on this fund than a fund that is more broadly diversified. Performance also may be adversely affected by sudden and unpredictable drops in the value of the market as a whole and periods of lackluster or negative stock market performance. Although the fund is subject to the risks generally attributable to stock investing, because the fund has concentrated its assets in one industry it may be subject to more abrupt swings in value than would a fund that does not concentrate its assets in one industry. Investment Adviser: Aeltus Investment Management, Inc. Aetna Variable Portfolios, Inc.--Aetna Small Company VP 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. Policies Under normal market conditions, invests at least 65% of total assets in common stocks of small-capitalization companies, defined as: the 2,000 smallest of the 3,000 largest U.S. companies (as measured by market capitalization); all companies not included above that are included in the Standard & Poor's SmallCap 600 Index or the Russell 2000 Index; and companies with market capitalizations lower than any companies included in the first two categories. For purposes of the 65% policy, the largest company in this group in which the fund intends to invest currently has a market capitalization of approximately $1.5 billion. 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. 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 these stocks is substantially less than is typical of stocks of larger companies. As a result, the stocks of smaller companies may be subject to wider price fluctuations or may be less liquid. When selling a large quantity of a particular stock, the fund 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. Investment Adviser: Aeltus Investment Management, Inc. Aetna Variable Portfolios, Inc.--Aetna Value Opportunity VP Investment Objective Seeks growth of capital primarily through investment in a diversified portfolio of common stocks and securities convertible into common stocks. Policies Under normal market conditions, invests at least 65% of total assets in common stocks. The subadviser tends to invest in larger companies it believes are trading below their real value, although it may invest in companies of any size. The subadviser believes that the investment objective can best be achieved by investing in companies whose stock price has been excessively discounted due to perceived problems. The subadviser 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. The subadviser looks to sell a security when company business fundamentals deviate from expectations or when stop-loss levels are triggered. 48 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. 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 are more sensitive to changing economic conditions, such as changes in interest rates, corporate earnings and industrial production. Investment Adviser: Aeltus Investment Management, Inc. Subadviser: Bradley, Foster & Sargent, Inc. AIM V.I. Capital Appreciation Fund Investment Objective Seeks growth of capital through investment in common stocks, with emphasis on medium- and small-sized growth companies. Policies The portfolio managers focus on companies they 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. The portfolio managers consider whether to sell a particular security when any of those factors materially changes. The fund may also invest up to 20% of its total assets in foreign securities. In anticipation of or in response to adverse market conditions or for cash management purposes, the fund may hold all or a portion of its assets in cash, money market instruments, bonds or other debt securities. As a result, the fund may not achieve its investment objective. Risks The 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. Investment Adviser: A I M Advisors, Inc. AIM V.I. Growth Fund Investment Objective Seeks growth of capital primarily by investing in seasoned and better capitalized companies considered to have strong earnings momentum. Policies The portfolio managers focus on companies that have experienced above-average growth in earnings and have excellent prospects for future growth. The portfolio managers consider whether to sell a particular security when any of those factors materially changes. The fund may also invest up to 20% of its total assets in foreign securities. In anticipation of or in response to adverse market conditions or for cash management purposes, the fund may hold all or a portion of its assets in cash, money market instruments, bonds or other debt securities. As a result, the fund may not achieve its investment objective. Risks The 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. Investment Adviser: A I M Advisors, Inc. 49 AIM V.I. Growth and Income Fund Investment Objective Seeks growth of capital with a secondary objective of current income. Policies The fund seeks to meet these objectives by investing at least 65% of its net assets in income-producing securities, including dividend-paying common stocks and convertible securities. The portfolio managers purchase securities of established companies that have long-term above-average growth in earnings and dividends, and growth companies that they believe have the potential for above-average growth in earnings and dividends. The portfolio managers consider whether to sell a particular security when they believe the security no longer has that potential or the capacity to generate income. The fund may also invest up to 20% of its total assets in foreign securities. The fund may engage in active and frequent trading of portfolio securities to achieve its investment objectives. If the fund does trade in this way, it may incur increased transaction costs and brokerage commissions, both of which can lower the actual return on your investment. In anticipation of or in response to adverse market conditions or for cash management purposes, the fund may hold all or a portion of its assets in cash, money market instruments, bonds or other debt securities. As a result, the fund may not achieve its investment objective. Risks The 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. The 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. Investment Adviser: A I M Advisors, Inc. AIM V.I. Value Fund Investment Objective Seeks to achieve long-term growth of capital by investing primarily in equity securities judged by the fund's investment advisor to be undervalued relative to the investment advisor's appraisal of the current or projected earnings of the companies issuing the securities, or relative to current market values of assets owned by the companies issuing the securities or relative to the equity market generally. Income is a secondary objective. Policies The fund also may invest in preferred stocks and debt instruments that have prospects for growth of capital. The fund may also invest up to 25% of its total assets in foreign securities. The 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. The portfolio managers consider whether to sell a particular security when they believe the company no longer fits into any of the above categories. In anticipation of or in response to adverse market conditions or for cash management purposes, the fund may hold all or a portion of its assets in cash, money market instruments, bonds or other debt securities. As a result, the fund may not achieve its investment objective. 50 Risks The 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. 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 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. Policies The Portfolio may purchase both common and preferred stocks. Although there is no predetermined percentage of assets allocated to stocks, bonds, or money market instruments, the Portfolio will invest at least 25% of its assets in senior fixed income securities. The Portfolio normally invests in investment-grade bonds rated in one of the four highest rating categories by Standard & Poor's Corporation or by Moody's Investors Service, Inc. or, if not rated, that are determined by the Portfolio's investment adviser to be of comparable quality. The Portfolio may invest up to 10% of its assets in foreign securities. Risks Since the Portfolio is nondiversified, the value of the shares may be more susceptible to any single economic, political, or regulatory event than the shares of a diversified portfolio. Fixed income investments are subject to interest rate risk. There are also risks involved in investing in foreign securities. These include currency risks, less publicly available information about foreign companies, different audit and financial reporting standards, and less government supervision and regulation. Investment Adviser: Calvert Asset Management Company, Inc. Fidelity Variable Insurance Products Fund--Equity-Income Portfolio Investment Objective Seeks reasonable income. Also considers the potential for capital appreciation. Seeks a yield which exceeds the composite yield on the securities comprising the S&P 500. Policies Normally invests at least 65% of total assets in income-producing equity securities. May also invest in other types of equity securities and debt securities, including lower-quality debt securities. May invest in securities of both foreign and domestic issuers. Emphasis on above-average income-producing equity securities tends to lead to investments in large cap "value" stocks. In making investment decisions, the investment adviser relies on fundamental analysis of each issuer and its potential for success in light of its current financial condition, its industry position, and economic and market conditions. May use various techniques, such as buying and selling futures contracts, to increase or decrease exposure to changing security prices, or other factors that affect security values. Risks The value of equity securities fluctuates in response to issuer, political, market and economic developments. In the short term, equity prices can fluctuate dramatically in response to these developments. Debt securities have varying levels of sensitivity to changes in interest rates. In general, the price of a debt security can fall when interest rates rise. Securities with longer maturities and mortgage securities can be more sensitive to interest rate 51 changes. Foreign investments, especially those in emerging markets, can be more volatile and potentially less liquid than U.S. investments due to increased risks of adverse issuer, political, regulatory, market or economic developments. 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. Lower-quality debt securities involve greater risk of default or price changes due to changes in the credit quality of the issuer. "Value" stocks can react differently to issuer, political, market and economic developments than the market as a whole and other types of stocks. "Value" stocks may not ever realize their full value. Investment Adviser: Fidelity Management & Research Company Fidelity Variable Insurance Products Fund--Growth Portfolio Investment Objective Seeks capital appreciation. Policies Normally invests primarily in common stocks of companies the investment adviser believes have above-average growth potential. Companies with high growth potential tend to be companies with higher than average price/ earning (P/E) ratios and are often called "growth" stocks. May invest in securities of both foreign and domestic issuers. In making investment decisions, the investment adviser relies on fundamental analysis of each issuer and its potential for success in light of its current financial condition, its industry position, and economic and market conditions. May use various techniques, such as buying and selling futures contracts, to increase or decrease exposure to changing security prices, or other factors that affect security values. Risks The value of equity securities fluctuates in response to issuer, political, market and economic developments. In the short term, equity prices can fluctuate dramatically in response to these developments. Foreign investments, especially those in emerging markets, can be more volatile and potentially less liquid than U.S. investments due to increased risks of adverse issuer, political, regulatory, market or economic developments. "Growth" stocks tend to be sensitive to changes in their earnings and more volatile than other types of stocks. Investment Adviser: Fidelity Management & Research Company Fidelity Variable Insurance Products Fund--Overseas Portfolio Investment Objective Seeks long-term growth of capital. Policies Normally invests at least 65% of total assets in foreign securities, primarily in common stocks. Investments are allocated across countries and regions, with consideration given to the size of the market in each country and region relative to the size of the international market as a whole. In making investment decisions, the investment adviser relies on fundamental analysis of each issuer and its potential for success in light of its current financial condition, its industry position, and economic and market conditions. May use various techniques, such as buying and selling futures contracts, to increase or decrease exposure to changing security prices or other factors that affect security values. Risks The value of equity securities fluctuates in response to issuer, political, market and economic developments. In the short term, equity prices can fluctuate dramatically in response to these developments. Debt securities have varying levels of sensitivity to changes in interest rates. In general, the price of a debt security can fall when interest rates rise. Securities with longer maturities and mortgage securities can be more sensitive to interest rate changes. Foreign investments, especially those in emerging markets, can be more volatile and potentially less liquid than U.S. investments due to increased risks of adverse issuer, political, regulatory, market or economic developments. Investment Adviser: Fidelity Management & Research Company 52 Fidelity Variable Insurance Products Fund II--Contrafund Portfolio Investment Objective Seeks long-term capital appreciation. Policies Normally invests primarily in common stocks of companies whose value the investment adviser believes is not fully recognized by the public. May invest in securities of both foreign and domestic issuers. May tend to buy "growth" stocks or "value" stocks, or a combination of both types. In making investment decisions, the investment adviser relies on fundamental analysis of each issuer and its potential for success in light of its current financial condition, its industry position, and economic and market conditions. May use various techniques, such as buying and selling futures contracts, to increase or decrease exposure to changing security prices, interest rates or other factors that affect security values. Risks The value of equity securities fluctuates in response to issuer, political, market and economic developments. In the short term, equity prices can fluctuate dramatically in response to these developments. Debt securities have varying levels of sensitivity to changes in interest rates. In general, the price of a debt security can fall when interest rates rise. Securities with longer maturities and mortgage securities can be more sensitive to interest rate changes. Foreign investments, especially those in emerging markets, can be more volatile and potentially less liquid than U.S. investments due to increased risks of adverse issuer, political, regulatory, market or economic developments. "Growth" stocks tend to be sensitive to changes in their earnings and more volatile than other types of stocks. "Value" stocks can react differently to issuer, political, market and economic developments than the market as a whole and other types of stocks. "Value" stocks may not ever realize their full value. Investment Adviser: Fidelity Management & Research Company Janus Aspen Series--Aggressive Growth Portfolio Investment Objective Seeks long-term growth of capital. Policies A nondiversified portfolio that invests primarily in common stocks selected for their growth potential and normally invests at least 50 percent of its equity assets in medium-sized companies. Medium-sized companies are those whose market capitalizations at the time of investment fall 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, 1998, they ranged from approximately $142 million to $73 billion. May at times hold substantial positions in cash or similar investments. 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 has the ability to take larger positions in a smaller number of issuers. Because the appreciation or depreciation of a single stock may have a greater impact on the net asset value of a nondiversified portfolio, its share price can be expected to fluctuate more than a 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 securities 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 securities are generally more dependent on the ability of the issuer to meet interest and principal payments (i.e., credit risk). They are more vulnerable to real or perceived economic changes, political changes or other adverse developments specific to the issuer. Investment Adviser: Janus Capital Corporation 53 Janus Aspen Series--Balanced Portfolio Investment Objective Seeks long-term capital growth, consistent with preservation of capital and balanced by current income. Policies Normally invests 40-60 percent of its assets in securities selected primarily for their growth potential and 40-60 percent of its assets in securities selected primarily for their income potential. Will normally invest at least 25 percent of its assets in fixed-income securities. Assets may shift between the growth and income components of the Portfolio based on the portfolio manager's analysis of relevant market, financial and economic conditions. May at times hold substantial positions in cash or similar investments. 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 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 securities 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 securities are generally more susceptible to credit risk. They are more vulnerable to real or perceived economic changes, political changes or other adverse developments specific to the issuer. Investment Adviser: Janus Capital Corporation Janus Aspen Series--Flexible Income Portfolio Investment Objective Seeks to obtain maximum total return, consistent with the preservation of capital. Policies 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 percent of its assets in income-producing securities. May own an unlimited amount of high-yield/high-risk securities ("junk bonds") which may be a big part of the portfolio. May at times hold substantial positions in cash or similar investments. 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, non-investment grade debt securities (high-yield/high-risk securities 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 securities are generally more dependent on the ability of the issuer to meet interest and principal payments (i.e., credit risk). They are more vulnerable to real or perceived economic changes, political changes or other adverse developments specific to the issuer. Investment Adviser: Janus Capital Corporation 54 Janus Aspen Series--Growth Portfolio Investment Objective Seeks long-term growth of capital in a manner consistent with the preservation of capital. Policies Generally invests primarily in common stocks of larger, more established companies selected for their growth potential, although it can invest in companies of any size. May at times hold substantial positions in cash or similar investments. 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 securities 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 securities are generally more dependent on the ability of the issuer to meet interest and principal payments (i.e., credit risk). They are more vulnerable to real or perceived economic changes, political changes or other adverse developments specific to the issuer. Investment Adviser: Janus Capital Corporation Janus Aspen Series--Worldwide Growth Portfolio Investment Objective Seeks long-term growth of capital in a manner consistent with the preservation of capital. Policies Invests primarily in common stocks of companies of any size 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. May hold substantial positions in cash or similar investments. 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 securities 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 securities are generally more dependent on the ability of the issuer to meet interest and principal payments (i.e., credit risk). They are more vulnerable to real or perceived economic changes, political changes or other adverse developments specific to the issuer. Investment Adviser: Janus Capital Corporation 55 Oppenheimer Global Securities Fund/VA Investment Objective Seeks long-term capital appreciation by investing a substantial portion of its assets in securities of foreign issuers, "growth-type" companies, cyclical industries, and special situations which are considered to have appreciation possibilities. Policies Invests mainly in equity securities, such as common stocks, preferred stocks and convertible securities of issuers in the U.S. and foreign countries. The fund can invest in any country, including countries with developed or emerging markets, but currently emphasizes investments in developed markets. As a fundamental policy, the fund will normally invest in at least four countries (including the United States). In selecting securities for the fund, the fund's portfolio manager looks primarily for foreign 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 fund's diversification strategies, both with respect to different issuers, different themes and different countries, is intended to help reduce volatility of the fund's share price while seeking growth. Risks Stock prices will fluctuate. Foreign securities markets may be less liquid and more volatile than the markets in the U.S. Risks of foreign securities may include foreign withholding taxation, changes in currency, less publicly available information, and differences between domestic and foreign legal, auditing brokerage and economic standards. The fund can use derivatives to seek increased returns or to try to hedge investment risks. If the issuer of the derivative does not pay the amount due, the fund can lose money on the investment. Using derivatives can cause the fund to lose money on its investment and/or increase the volatility of its share prices. Investment Adviser: OppenheimerFunds, Inc. Oppenheimer Strategic Bond Fund/VA Investment Objective Seeks a high level of current income principally derived from interest on debt securities and seeks to enhance such income by writing covered call options on debt securities. Policies Invests mainly in debt securities of issuers in three market sectors: foreign governments and companies, U.S. government securities and lower-rated high-yield securities of U.S. companies. Under normal market conditions, the fund invests in each of those three market sectors. However, the fund is not obligated to do so, and the amount of its assets in each of the three sectors will vary over time. The fund can invest up to 100% of its assets in any one sector at any time, if the manager believes that in doing so the fund can achieve its objective without undue risk. The fund's foreign investments can include debt securities of issuers in developed markets as well as emerging markets, which have special risks. The fund can also use hedging instruments and certain derivative investments to try to enhance income or try to manage investment risks. Risks The fund's investments in debt securities are subject to changes in their value from a number of factors. They include changes in general bond market movements in the U.S. and abroad, or the change in value of particular bonds because of an event affecting the issuer. The fund can focus significant amounts of its investments in foreign debt securities. Therefore, it will be subject to the risks that economic, political or other events can have on the values of securities of issuers in particular foreign countries. These risks are heightened in the case of emerging market debt securities. Changes in interest rates can also affect securities prices. Investment Adviser: OppenheimerFunds, Inc. 56 Portfolio Partners MFS Emerging Equities Portfolio Investment Objective Seeks long-term growth of capital. Policies Invests, under normal market conditions, at least 80% of total assets in common stocks and related securities, such as preferred stock, convertible securities and depositary receipts of emerging growth companies. Emerging growth companies are companies believed to be either early in their life cycle but which have the potential to become major enterprises, or major enterprises whose rates of earnings growth are expected to accelerate. Investments may include securities traded in the over-the-counter markets. May also invest in foreign 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. Risks Investment in the portfolio is subject to the following 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: Investment in foreign securities involves risks related to political, social and economic developments abroad. These risks result from differences between the regulations to which U.S. and foreign issuers and markets are subject. >Currency Risk: The portfolio's exposure to foreign currencies may cause the value of the portfolio to decline if the U.S. dollar strengthens against these currencies or if foreign governments intervene in the currency markets. Investment Adviser: Aetna Life Insurance and Annuity Company; Subadviser: Massachusetts Financial Services Company Portfolio Partners MFS Research Growth Portfolio Investment Objective Seeks long-term growth of capital and future income. Policies Invests primarily (at least 65% of total assets) in common stocks and related securities, such as preferred stock, convertible securities and depositary receipts. Focuses on companies believed to have favorable prospects for long-term growth, attractive valuations based on current and expected earnings or cash flow, 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. May invest in foreign 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. Risks Investment in the portfolio is subject to the following risks: 57 >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. In addition, securities of growth companies may be more volatile because such companies usually invest a high portion of their earnings in their businesses and may lack the dividends of value companies, which can cushion the security prices in a declining market. >Over-the-Counter Risk: Equity securities that are traded over-the-counter may be more volatile than exchange-listed stocks, and the portfolio may experience difficulty in purchasing or selling these securities at a fair price. >Foreign Markets 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. >Currency Risk: The portfolio's exposure to foreign currencies may cause the value of the portfolio to decline if the U.S. dollar strengthens against these currencies or if foreign governments intervene in the currency markets. Investment Adviser: Aetna Life Insurance and Annuity Company; Subadviser: Massachusetts Financial Services Company Portfolio Partners MFS Value Equity Portfolio Investment Objectives Seeks capital appreciation. Policies Invests primarily (at least 65% of total assets) in common stocks and related securities, such as preferred stock, convertible securities and depositary receipts. Focuses on companies believed to have favorable growth prospects and attractive valuations based on current and expected earnings or cash flow. Investments may include securities traded in the over-the-counter markets. 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. Also may invest in debt securities issued by both U.S. and foreign companies, including non-investment grade debt securities. Risks Investment in the portfolio is subject to the following 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. In addition, securities of growth companies may be more volatile because such companies usually invest a high portion of their earnings in their businesses and may lack the dividends of value companies, which can cushion the security prices in a declining market. >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: The portfolio's 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. >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. >Currency Risk: The portfolio's 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. 58 >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 debt securities held by the portfolio will decline. >Credit Risk: The portfolio's investment in non-investment grade debt securities involves credit risk because issuers of non-investment grade securities are more likely to have difficulty making timely payments of interest or principal. Investment Adviser: Aetna Life Insurance and Annuity Company; Subadviser: Massachusetts Financial Services Company Portfolio Partners Scudder International Growth Portfolio Investment Objective Seeks long-term growth of capital. Policies Invests primarily (at least 65% of total assets) in the equity securities of foreign companies believed to have high growth potential. Normally invests in securities of at least three different countries other than the U.S. Focuses on issuers located primarily in Europe, Latin America, and the emerging markets of the Pacific Basin and Japan, but also may invest in select issues from elsewhere outside the U.S. Will invest in securities in both developed and developing markets. Seeks to invest in those companies believed to be 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 strategies to take advantage of local, regional or global markets. Also may invest in debt securities issued by both U.S. and foreign companies, including non-investment grade debt securities. Risks Investment in the portfolio is subject to the following 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. In addition, securities of growth companies may be more volatile because such companies usually invest a high portion of their earnings in their businesses and may lack the dividends of value companies, which can cushion the security prices in a declining market. >Foreign Markets Risk: The portfolio's 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. >Currency Risk: The portfolio's 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. >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 debt securities held by the portfolio will decline. >Credit Risk: The portfolio's investment in non-investment grade debt securities involves credit risk because issuers of non-investment grade securities are more likely to have difficulty making timely payments of interest or principal. Investment Adviser: Aetna Life Insurance and Annuity Company; Subadviser: Scudder Kemper Investments, Inc. 59 Portfolio Partners T. Rowe Price Growth Equity Portfolio Investment Objective Seeks long-term capital growth, and, secondarily, increasing dividend income. Policies Invests primarily (at least 65% of total assets) in the common stocks of a diversified group of growth companies. The subadviser seeks companies with a lucrative niche in the economy that it believes will give them the ability to sustain earnings momentum even during times of slow economic growth. The subadviser believes 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 invest in foreign 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. Risks Investment in the portfolio is subject to the following 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. In addition, securities of growth companies may be more volatile because such companies usually invest a high portion of their earnings in their businesses and may lack the dividends of value companies, which can cushion the security prices in a declining market. >Foreign Markets Risk: The portfolio's 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. >Currency Risk: The portfolio's 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. Investment Adviser: Aetna Life Insurance and Annuity Company; Subadviser: T. Rowe Price Associates, Inc. 60 Appendix V Condensed Financial Information - -------------------------------------------------------------------------------- (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 each of the periods in the five-year period ended December 31, 1998 (as applicable), is derived from the financial statements of the separate account, which have been audited by KPMG LLP, independent auditors. The financial statements and the independent auditors' report thereon for the year ended December 31, 1998 are included in the Statement of Additional Information.
1998 1997 1996 1995 1994 ---------------- ----------------- ---------------- ---------------- ---------------- AETNA ASCENT VP Value at beginning of period $15.860 $13.395 $10.976 $10.000(1) Value at end of period $16.337 $15.860 $13.395 $10.976 Number of accumulation units outstanding at end of period 592,247 554,873 201,475 49,748 AETNA BALANCED VP, INC. Value at beginning of period $18.811 $15.551 $13.673 $10.868 $11.057(2) Value at end of period $21.723 $18.811 $15.551 $13.673 $10.868 Number of accumulation units outstanding at end of period 6,268,762 6,663,594 7,803,572 940,933 261,895 AETNA BOND VP Value at beginning of period $13.238 $12.377 $12.098 $10.360 $10.905(2) Value at end of period $14.137 $13.238 $12.377 $12.098 $10.360 Number of accumulation units outstanding at end of period 2,490,832 2,482,652 3,717,900 354,993 148,193 AETNA CROSSROADS VP Value at beginning of period $14.797 $12.744 $10.862 $10.000(1) Value at end of period $15.478 $14.797 $12.744 $10.862 Number of accumulation units outstanding at end of period 514,093 424,250 165,860 47,204 AETNA GROWTH VP Value at beginning of period $13.173 $11.137(3) Value at end of period $17.912 $13.173 Number of accumulation units outstanding at end of period 289,055 21,371 AETNA GROWTH AND INCOME VP Value at beginning of period $22.194 $17.302 $14.077 $10.778 $11.020(2) Value at end of period $25.094 $22.194 $17.302 $14.077 $10.778 Number of accumulation units outstanding at end of period 19,989,922 21,842,444 29,130,769 2,370,234 602,838 AETNA HIGH YIELD VP Value at beginning of period $9.968(4) Value at end of period $9.212 Number of accumulation units outstanding at end of period 7,394 AETNA INDEX PLUS LARGE CAP VP Value at beginning of period $14.444 $10.924 $10.000(5) Value at end of period $18.772 $14.444 $10.924 Number of accumulation units outstanding at end of period 616,724 159,461 13,142 AETNA INDEX PLUS MID CAP VP Value at beginning of period $9.925(6) Value at end of period $10.891 Number of accumulation units outstanding at end of period 35,031 AETNA INDEX PLUS SMALL CAP VP Value at beginning of period $9.918(6) Value at end of period $8.815 Number of accumulation units outstanding at end of period 40,793 AETNA INTERNATIONAL VP Value at beginning of period $10.182(6) Value at end of period $9.765 Number of accumulation units outstanding at end of period 25,090
61 Condensed Financial Information (continued) - --------------------------------------------------------------------------------
1998 1997 1996 1995 1994 ----------------- ---------------- ------------ ---------------- ---------------- AETNA LEGACY VP Value at beginning of period $13.550 $11.982 $10.626 $10.000(7) Value at end of period $14.310 $13.550 $11.982 $10.626 Number of accumulation units outstanding at end of period 507,368 382,217 188,303 20,531 AETNA MONEY MARKET VP Value at beginning of period $11.951 $11.473 $11.026 $10.528 $10.241(2) Value at end of period $12.447 $11.951 $11.473 $11.026 $10.528 Number of accumulation units outstanding at end of period 2,329,195 2,227,782 3,510,588 544,383 334,746 AETNA REAL ESTATE SECURITIES VP Value at beginning of period $9.904(4) Value at end of period $8.873 Number of accumulation units outstanding at end of period 12,789 AETNA SMALL COMPANY VP Value at beginning of period $13.654 $10.816(3) Value at end of period $13.633 $13.654 Number of accumulation units outstanding at end of period 208,454 71,911 AETNA VALUE OPPORTUNITY VP Value at beginning of period $13.261 $10.977(3) Value at end of period $16.030 $13.261 Number of accumulation units outstanding at end of period 112,739 33,295 CALVERT SOCIAL BALANCED PORTFOLIO Value at beginning of period $9.839(4) Value at end of period $10.500 Number of accumulation units outstanding at end of period 17,068 FIDELITY VIP EQUITY- INCOME PORTFOLIO Value at beginning of period $19.818 $15.664 $13.880 $10.403 $10.000(8) Value at end of period $21.848 $19.818 $15.664 $13.880 $10.403 Number of accumulation units outstanding at end of period 1,332,063 1,311,211 1,166,495 766,360 100,574 FIDELITY VIP GROWTH PORTFOLIO Value at beginning of period $19.339 $15.858 $14.000 $10.472 $10.000(8) Value at end of period $26.641 $19.339 $15.858 $14.000 $10.472 Number of accumulation units outstanding at end of period 1,278,104 1,110,079 994,616 612,992 121,070 FIDELITY VIP OVERSEAS PORTFOLIO Value at beginning of period $12.640 $11.473 $10.262 $9.474 $10.000(8) Value at end of period $14.074 $12.640 $11.473 $10.262 $9.474 Number of accumulation units outstanding at end of period 194,687 221,450 182,533 166,303 54,387 FIDELITY VIP II CONTRAFUND PORTFOLIO Value at beginning of period $17.156 $13.994 $11.681 $10.000(9) Value at end of period $22.023 $17.156 $13.994 $11.681 Number of accumulation units outstanding at end of period 834,976 811,557 500,034 174,259 JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO Value at beginning of period $15.254 $13.710 $12.861 $10.000(9) Value at end of period $20.226 $15.254 $13.710 $12.861 Number of accumulation units outstanding at end of period 565,275 493,462 495,557 167,920 JANUS ASPEN BALANCED PORTFOLIO Value at beginning of period $15.576 $12.917 $11.259 $10.000(1) Value at end of period $20.657 $15.576 $12.917 $11.259 Number of accumulation units outstanding at end of period 447,035 241,028 127,631 34,072 JANUS ASPEN FLEXIBLE INCOME PORTFOLIO Value at beginning of period $10.054(6) Value at end of period $10.419 Number of accumulation units outstanding at end of period 54,517
62 Condensed Financial Information (continued) - --------------------------------------------------------------------------------
1998 1997 1996 1995 1994 ------------------ ------------------- ---------- ---------------- ----- JANUS ASPEN GROWTH PORTFOLIO Value at beginning of period $16.485 $13.599 $11.626 $10.000(1) Value at end of period $22.086 $16.485 $13.599 $11.626 Number of accumulation units outstanding at end of period 465,446 376,501 250,918 78,126 JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO Value at beginning of period $18.779 $15.566 $12.216 $10.000(9) Value at end of period $23.910 $18.779 $15.566 $12.216 Number of accumulation units outstanding at end of period 1,360,741 1,206,175 526,646 65,384 OPPENHEIMER GLOBAL SECURITIES FUND/VA Value at beginning of period $9.865(6) Value at end of period $10.018 Number of accumulation units outstanding at end of period 11,129 OPPENHEIMER STRATEGIC BOND FUND/VA Value at beginning of period $9.988(6) Value at end of period $9.895 Number of accumulation units outstanding at end of period 13,885 PORTFOLIO PARTNERS MFS EMERGING EQUITIES PORTFOLIO Value at beginning of period $14.927 $15.114(10) Value at end of period $19.114 $14.927 Number of accumulation units outstanding at end of period 1,369,984 1,368,373 PORTFOLIO PARTNERS MFS RESEARCH GROWTH PORTFOLIO Value at beginning of period $13.795 $14.067(10) Value at end of period $16.758 $13.795 Number of accumulation units outstanding at end of period 1,054,685 1,200,982 PORTFOLIO PARTNERS MFS VALUE EQUITY PORTFOLIO Value at beginning of period $9.828(6) Value at end of period $10.495 Number of accumulation units outstanding at end of period 42,213 PORTFOLIO PARTNERS SCUDDER INTERNATIONAL GROWTH PORTFOLIO Value at beginning of period $16.986 $16.776(10) Value at end of period $19.978 $16.986 Number of accumulation units outstanding at end of period 467,484 516,231 PORTFOLIO PARTNERS T. ROWE PRICE GROWTH EQUITY PORTFOLIO Value at beginning of period $16.131 $15.809(10) Value at end of period $20.328 $16.131 Number of accumulation units outstanding at end of period 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. (1) Funds were first available in this option during June 1995. (2) Funds were first received in this option during April 1994. (3) Funds were first received in this option during May 1997. (4) Funds were first received in this option during June 1998. (5) 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. (6) Funds were first received in this option during May 1998. (7) Funds were first available in this option during July 1995. (8) Funds were first received in this option during May 1994. 63 Condensed Financial Information (continued) - -------------------------------------------------------------------------------- (9) Funds were first available in this option during May 1995. (10) Funds were first received in this option during November 1997. 64 Condensed Financial Information - -------------------------------------------------------------------------------- (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 each of the periods in the five-year period ended December 31, 1998 (as applicable), is derived from the financial statements of the separate account, which have been audited by KPMG LLP, independent auditors. The financial statements and the independent auditors' report thereon for the year ended December 31, 1998 are included in the Statement of Additional Information.
1998 1997 1996 1995 1994 ---------- ---------------- ---------- ---------------- ---------------- AETNA ASCENT VP Value at beginning of period $15.900 $13.415 $10.982 $10.000(1) Value at end of period $16.395 $15.900 $13.415 $10.982 Number of accumulation units outstanding at end of period 21,004 20,154 28,982 15,055 AETNA BALANCED VP, INC. Value at beginning of period $18.889 $15.600 $13.703 $10.880 $10.951(2) Value at end of period $21.836 $18.889 $15.600 $13.703 $10.880 Number of accumulation units outstanding at end of period 167,720 166,915 172,588 138,271 49,333 AETNA BOND VP Value at beginning of period $13.293 $12.416 $12.125 $10.373 $10.367(3) Value at end of period $14.211 $13.293 $12.416 $12.125 $10.373 Number of accumulation units outstanding at end of period 102,450 98,338 92,017 50,261 16,110 AETNA CROSSROADS VP Value at beginning of period $14.835 $12.763 $10.868 $10.000(1) Value at end of period $15.532 $14.835 $12.763 $10.868 Number of accumulation units outstanding at end of period 35,562 20,404 15,074 2,394 AETNA GROWTH VP Value at beginning of period $13.183 $14.472(4) Value at end of period $17.943 $13.183 Number of accumulation units outstanding at end of period 26,153 2,122 AETNA GROWTH AND INCOME VP Value at beginning of period $22.287 $17.357 $14.108 $10.791 $10.875(3) Value at end of period $25.225 $22.287 $17.357 $14.108 $10.791 Number of accumulation units outstanding at end of period 548,039 461,571 405,331 273,578 110,420 AETNA INDEX PLUS LARGE CAP VP Value at beginning of period $14.463 $11.406(5) Value at end of period $18.815 $14.463 Number of accumulation units outstanding at end of period 45,787 10,121 AETNA LEGACY VP Value at beginning of period $13.583 $12.000 $10.631 $10.000(6) Value at end of period $14.360 $13.583 $12.000 $10.631 Number of accumulation units outstanding at end of period 76,396 77,495 19,864 17,106 AETNA MONEY MARKET VP Value at beginning of period $12.002 $11.510 $11.051 $10.541 $10.484(2) Value at end of period $12.512 $12.002 $11.510 $11.051 $10.541 Number of accumulation units outstanding at end of period 190,680 137,699 173,308 145,629 9,736 AETNA SMALL COMPANY VP Value at beginning of period $13.664 $11.541(7) Value at end of period $13.657 $13.664 Number of accumulation units outstanding at end of period 20,254 13,843 AETNA VALUE OPPORTUNITY VP Value at beginning of period $13.271 $12.904(8) Value at end of period $16.057 $13.271 Number of accumulation units outstanding at end of period 0 1,510 FIDELITY VIP EQUITY- INCOME PORTFOLIO Value at beginning of period $19.890 $15.705 $13.902 $10.409 $10.000(9) Value at end of period $21.948 $19.890 $15.705 $13.902 $10.409 Number of accumulation units outstanding at end of period 114,565 162,627 194,798 118,679 43,852
65 Condensed Financial Information (continued) - --------------------------------------------------------------------------------
1998 1997 1996 1995 1994 ----------------- ------------------ ---------- ------------------ ---------------- FIDELITY VIP GROWTH PORTFOLIO Value at beginning of period $19.409 $15.900 $14.023 $10.479 $10.000(2) Value at end of period $26.764 $19.409 $15.900 $14.023 $10.479 Number of accumulation units outstanding at end of period 76,869 83,442 87,971 45,765 32,592 FIDELITY VIP OVERSEAS PORTFOLIO Value at beginning of period $12.686 $11.503 $10.278 $9.480 $10.000(2) Value at end of period $14.140 $12.686 $11.503 $10.278 $9.480 Number of accumulation units outstanding at end of period 15,876 23,721 35,293 4,284 5,098 FIDELITY VIP II CONTRAFUND PORTFOLIO Value at beginning of period $17.201 $14.016 $11.689 $10.000(10) Value at end of period $22.103 $17.201 $14.016 $11.689 Number of accumulation units outstanding at end of period 19,136 16,983 13,300 5,453 JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO Value at beginning of period $15.295 $13.733 $12.869 $10.000(10) Value at end of period $20.300 $15.295 $13.733 $12.869 Number of accumulation units outstanding at end of period 15,876 13,373 24,366 22,050 JANUS ASPEN BALANCED PORTFOLIO Value at beginning of period $15.616 $12.938 $11.265 $10.000(1) Value at end of period $20.731 $15.616 $12.938 $11.265 Number of accumulation units outstanding at end of period 22,911 24,214 15,488 9,383 JANUS ASPEN GROWTH PORTFOLIO Value at beginning of period $16.528 $13.621 $11.633 $10.000(1) Value at end of period $22.165 $16.528 $13.621 $11.633 Number of accumulation units outstanding at end of period 33,676 7,407 6,308 3,238 JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO Value at beginning of period $18.828 $15.592 $12.223 $10.000(10) Value at end of period $23.996 $18.828 $15.592 $12.223 Number of accumulation units outstanding at end of period 74,104 59,450 33,350 2,617 PORTFOLIO PARTNERS MFS EMERGING EQUITIES PORTFOLIO Value at beginning of period $14.991 $15.178(11) Value at end of period $19.216 $14.991 Number of accumulation units outstanding at end of period 72,542 97,555 PORTFOLIO PARTNERS MFS RESEARCH GROWTH PORTFOLIO Value at beginning of period $13.852 $14.124(11) Value at end of period $16.844 $13.852 Number of accumulation units outstanding at end of period 5,155 1,447 PORTFOLIO PARTNERS MFS VALUE EQUITY PORTFOLIO Value at beginning of period $9.473(12) Value at end of period $10.502 Number of accumulation units outstanding at end of period 12,126 PORTFOLIO PARTNERS SCUDDER INTERNATIONAL GROWTH PORTFOLIO Value at beginning of period $17.056 $16.844(11) Value at end of period $20.081 $17.056 Number of accumulation units outstanding at end of period 27,591 34,030
66 Condensed Financial Information (continued) - --------------------------------------------------------------------------------
1998 1997 1996 1995 1994 ---------- ------------------ ------ ------ ----- PORTFOLIO PARTNERS T. ROWE PRICE GROWTH EQUITY PORTFOLIO Value at beginning of period $16.172 $15.848(11) Value at end of period $20.400 $16.172 Number of accumulation units outstanding at end of period 47,436 44,362
- ----------------- (1) Funds were first available in this option during June 1995. (2) Funds were first received in this option during November 1994. (3) Funds were first received in this option during October 1994. (4) Funds were first received in this option during October 1997. (5) Funds were first received in this option during January 1997. (6) Funds were first available in this option during July 1995. (7) Funds were first received in this option during June 1997. (8) Funds were first received in this option during August 1997. (9) Funds were first received in this option during September 1994. (10) Funds were first available in this option during May 1995. (11) Funds were first received in this option during November 1997. (12) Funds were first received in this option during November 1998. 67 Condensed Financial Information - -------------------------------------------------------------------------------- (1992 CONTRACTS ISSUED PRIOR TO MARCH 1994)* (Selected data for accumulation units outstanding throughout each period) ================================================================================ The condensed financial information presented below for each of the years in the ten-year period ended December 31, 1998 (as applicable), is derived from the financial statements of the separate account, which have been audited by KPMG LLP, independent auditors. The financial statements and the independent auditors' report thereon for the year ended December 31, 1998 are included in the Statement of Additional Information.
1998 1997 1996 1995 1994 ----------------- ----------------- ------------- ------------- -------------- AETNA ASCENT VP Value at beginning of period $15.422 $13.291(1) Value at end of period $15.886 $15.422 Number of accumulation units outstanding at end of period 21,430 380 AETNA BALANCED VP, INC. Value at beginning of period $24.700 $20.419 $17.954 $14.270 $14.519 Value at end of period $28.524 $24.700 $20.419 $17.954 $14.270 Number of accumulation units outstanding at end of period 2,294,877 2,160,305 2,716,641 9,193,181 21,990,186 AETNA BOND VP Value at beginning of period $51.330 $47.992 $46.913 $40.173 $42.283 Value at end of period $54.819 $51.330 $47.992 $46.913 $40.173 Number of accumulation units outstanding at end of period 994,987 959,336 835,724 2,377,622 5,108,720 AETNA CROSSROADS VP Value at beginning of period $14.456 $12.577(1) Value at end of period $15.120 $14.456 Number of accumulation units outstanding at end of period 31,468 873 AETNA GROWTH VP Value at beginning of period $11.392(3) Value at end of period $13.597 Number of accumulation units outstanding at end of period 17 AETNA GROWTH AND INCOME VP Value at beginning of period $217.359 $169.448 $137.869 $105.558 $107.925 Value at end of period $245.765 $217.359 $169.448 $137.869 $105.558 Number of accumulation units outstanding at end of period 1,747,097 1,826,355 2,071,139 6,364,000 13,966,072 AETNA INDEX PLUS MID CAP VP Value at beginning of period $9.928(4) Value at end of period $11.338 Number of accumulation units outstanding at end of period 35,201 AETNA INDEX PLUS SMALL CAP VP Value at beginning of period $10.193(4) Value at end of period $9.157 Number of accumulation units outstanding at end of period 81,388 AETNA LEGACY VP Value at beginning of period $13.491 $12.296(5) Value at end of period $14.248 $13.491 Number of accumulation units outstanding at end of period 95,526 2,279 AETNA MONEY MARKET VP Value at beginning of period $41.174 $39.528 $37.988 $36.271 $35.282 Value at end of period $42.883 $41.174 $39.528 $37.988 $36.271 Number of accumulation units outstanding at end of period 564,537 455,502 597,656 1,836,260 3,679,802 AETNA VALUE OPPORTUNITY VP Value at beginning of period $11.472(4) Value at end of period $12.088 Number of accumulation units outstanding at end of period 33,957 CALVERT SOCIAL BALANCED PORTFOLIO Value at beginning of period $23.675 $19.965 $17.951 $13.990 $14.640 Value at end of period $27.186 $23.675 $19.965 $17.951 $13.990 Number of accumulation units outstanding at end of period 917,567 929,282 898,279 856,361 743,464 1993 1992 1991 1990 1989 -------------- -------------- -------------- -------------- ------------------- AETNA ASCENT VP Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period AETNA BALANCED VP, INC. Value at beginning of period $13.379 $12.736 $10.896 $10.437 $10.000(2) Value at end of period $14.519 $13.379 $12.736 $10.896 $10.437 Number of accumulation units outstanding at end of period 30,784,750 34,802,433 22,898,099 17,078,985 9,535,986 AETNA BOND VP Value at beginning of period $39.038 $36.789 $31.192 $28.943 $25.574 Value at end of period $42.283 $39.038 $36.789 $31.192 $28.943 Number of accumulation units outstanding at end of period 8,210,666 8,507,292 7,844,412 6,984,793 6,202,834 AETNA CROSSROADS VP Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period AETNA GROWTH VP Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period AETNA GROWTH AND INCOME VP Value at beginning of period $102.383 $97.165 $77.845 $76.311 $59.871 Value at end of period $107.925 $102.383 $97.165 $77.845 $76.311 Number of accumulation units outstanding at end of period 21,148,863 24,201,565 20,948,226 18,362,906 17,142,820 AETNA INDEX PLUS MID CAP VP Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period AETNA INDEX PLUS SMALL CAP VP Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period AETNA LEGACY VP Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period AETNA MONEY MARKET VP Value at beginning of period $34.619 $33.812 $32.138 $30.012 $27.783 Value at end of period $35.282 $34.619 $33.812 $32.138 $30.012 Number of accumulation units outstanding at end of period 5,086,515 7,534,662 8,430,082 10,220,110 8,286,033 AETNA VALUE OPPORTUNITY VP 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 $13.726 $12.913 $11.233 $10.568 $10.000(6) Value at end of period $14.640 $13.726 $12.913 $11.233 $10.568 Number of accumulation units outstanding at end of period 705,415 503,006 355,851 148,576 20,710
68 Condensed Financial Information (continued) - --------------------------------------------------------------------------------
1998 1997 1996 ------------------ ------------------- ------------- FIDELITY VIP EQUITY- INCOME PORTFOLIO Value at beginning of period $16.587 $13.110 $11.617 Value at end of period $18.285 $16.587 $13.110 Number of accumulation units outstanding at end of period 2,533,673 2,139,178 1,454,755 FIDELITY VIP GROWTH PORTFOLIO Value at beginning of period $14.087 $11.843(8) Value at end of period $19.406 $14.087 Number of accumulation units outstanding at end of period 72 29 FIDELITY VIP II CONTRAFUND PORTFOLIO Value at beginning of period $17.276 $14.092 $11.763 Value at end of period $22.177 $17.276 $14.092 Number of accumulation units outstanding at end of period 3,333,320 2,706,862 1,522,169 JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO Value at beginning of period $18.174 $16.334 $15.323 Value at end of period $24.098 $18.174 $16.334 Number of accumulation units outstanding at end of period 2,142,130 1,939,607 1,893,718 JANUS ASPEN BALANCED PORTFOLIO Value at beginning of period $15.016 $12.453 $10.853 Value at end of period $19.914 $15.016 $12.453 Number of accumulation units outstanding at end of period 3,698 7,873 231 JANUS ASPEN FLEXIBLE INCOME PORTFOLIO Value at beginning of period $14.430 $13.074 $12.124 Value at end of period $15.548 $14.430 $13.074 Number of accumulation units outstanding at end of period 8,967 5,211 3,761 JANUS ASPEN GROWTH PORTFOLIO Value at beginning of period $16.816 $13.872 $11.859 Value at end of period $22.529 $16.816 $13.872 Number of accumulation units outstanding at end of period 1,354,047 1,109,942 663,945 JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO Value at beginning of period $18.690 $15.493 $12.158 Value at end of period $23.797 $18.690 $15.493 Number of accumulation units outstanding at end of period 4,687,167 3,873,511 2,090,908 OPPENHEIMER GLOBAL SECURITIES FUND/VA Value at beginning of period $10.077(12) Value at end of period $10.303 Number of accumulation units outstanding at end of period 20,548 OPPENHEIMER STRATEGIC BOND FUND/VA Value at beginning of period $10.055(4) Value at end of period $9.935 Number of accumulation units outstanding at end of period 100,555 PORTFOLIO PARTNERS MFS EMERGING EQUITIES PORTFOLIO Value at beginning of period $15.046 $15.236(13) Value at end of period $19.268 $15.046 Number of accumulation units outstanding at end of period 3,101,880 2,707,904 PORTFOLIO PARTNERS MFS RESEARCH GROWTH PORTFOLIO Value at beginning of period $11.960 $12.195(13) Value at end of period $14.528 $11.960 Number of accumulation units outstanding at end of period 1,379,653 232,418 1995 1994 1993 1992 1991 1990 1989 ------------------ ------------------ ------ ------ ------ ------ ----- FIDELITY VIP EQUITY- INCOME PORTFOLIO Value at beginning of period $10.000(7) Value at end of period $11.617 Number of accumulation units outstanding at end of period 628,582 FIDELITY VIP GROWTH PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period FIDELITY VIP II CONTRAFUND PORTFOLIO Value at beginning of period $10.000(7) Value at end of period $11.763 Number of accumulation units outstanding at end of period 525,476 JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO Value at beginning of period $12.169 $10.000(9) Value at end of period $15.323 $12.169 Number of accumulation units outstanding at end of period 1,280,953 393,553 JANUS ASPEN BALANCED PORTFOLIO Value at beginning of period $10.000(10) Value at end of period $10.853 Number of accumulation units outstanding at end of period 161 JANUS ASPEN FLEXIBLE INCOME PORTFOLIO Value at beginning of period $9.911 $10.000(11) Value at end of period $12.124 $9.911 Number of accumulation units outstanding at end of period 3,345 1,555 JANUS ASPEN GROWTH PORTFOLIO Value at beginning of period $10.000(10) Value at end of period $11.859 Number of accumulation units outstanding at end of period 109,717 JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO Value at beginning of period $10.000(10) Value at end of period $12.158 Number of accumulation units outstanding at end of period 314,653 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 PORTFOLIO PARTNERS MFS EMERGING EQUITIES PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period PORTFOLIO PARTNERS MFS RESEARCH GROWTH PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period
69 Condensed Financial Information (continued) - --------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 ------------ ------------------- ------ ------ ------ ------ ------ ------ ------ ----- PORTFOLIO PARTNERS MFS VALUE EQUITY PORTFOLIO Value at beginning of period $23.440 $23.106(13) Value at end of period $29.339 $23.440 Number of accumulation units outstanding at end of period 2,244,308 2,018,219 PORTFOLIO PARTNERS SCUDDER INTERNATIONAL GROWTH PORTFOLIO Value at beginning of period $17.709 $17.490(13) Value at end of period $20.829 $17.709 Number of accumulation units outstanding at end of period 2,962,631 3,237,710 PORTFOLIO PARTNERS T. ROWE PRICE GROWTH EQUITY PORTFOLIO Value at beginning of period $16.608 $16.276(13) Value at end of period $20.929 $16.608 Number of accumulation units outstanding at end of period 1,564,888 1,317,058
- ----------------- * 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. (1) Funds were first received in this option during February 1997. (2) The initial accumulation unit value was established at $10.000 on June 23, 1989, the date on which the fund commenced operations. (3) Funds were first received in this option during September 1998. (4) Funds were first received in this option during May 1998. (5) Funds were first received in this option during May 1997. (6) The initial accumulation unit value was established at $10.000 on May 31, 1989, the date on which the fund became available under the contract. (7) The initial accumulation unit value was established at $10.000 during May 1995, when the fund became available under the contract. (8) Funds were first received in this option during January 1997. (9) The initial accumulation unit value was established at $10.000 during June 1994, when funds were first received in this option. (10) The initial accumulation unit value was established at $10.000 during July 1995, when the fund became available under the contract. (11) The initial accumulation unit value was established at $10.000 during November 1994,when funds were first received in this option. (12) Funds were first received in this option during June 1998. (13) Funds were first received in this option during November 1997. 70 Please attach to your application - -------------------------------------------------------------------------------- I hereby acknowledge receipt of an Account C Individual Variable Annuity Contract Prospectus dated May 3, 1999 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.75988-99) dated May 3, 1999. - -------------------------------------------------------------------------------- CONTRACT HOLDER'S SIGNATURE - -------------------------------------------------------------------------------- DATE PROS.75988-99 - -------------------------------------------------------------------------------- VARIABLE ANNUITY ACCOUNT C OF AETNA LIFE INSURANCE AND ANNUITY COMPANY - -------------------------------------------------------------------------------- Statement of Additional Information Dated May 3, 1999 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 3, 1999. A free prospectus is available upon request from the local Aetna Life Insurance and Annuity Company office or by writing to or calling: Aetna Retirement Services Individual Annuity Services 151 Farmington Avenue Hartford, Connecticut 06156-1277 1-800-531-4547 Read the prospectus before you invest. Terms used in this Statement of Additional Information shall have the same meaning as in the prospectus. TABLE OF CONTENTS
Page General Information and History........................................... 2 Variable Annuity Account C................................................ 2 Offering and Purchase of Contracts........................................ 3 Performance Data.......................................................... 3 General.............................................................. 3 Average Annual Total Return Quotations............................... 4 Income Phase Payments..................................................... 11 Sales Material and Advertising............................................ 12 Independent Auditors...................................................... 12 Financial Statements of the Separate Account.............................. S-1 Financial Statements of Aetna Life Insurance and Annuity Company and Subsidiary....................................................... F-1
GENERAL INFORMATION AND HISTORY Aetna Life Insurance and Annuity Company (the Company, we, us, our) is a stock life insurance company which was organized under the insurance laws of the State of Connecticut in 1976. Through a merger, it succeeded to the business of Aetna Variable Annuity Life Insurance Company (formerly Participating Annuity Life Insurance Company organized in 1954). As of December 31, 1998, the Company and its subsidiary life company had $43 billion invested through their products, including $29 billion in their separate accounts (of which the Company, or an affiliate oversees the management of $21 billion). The Company is ranked among the top 2% of all U.S. life insurance companies based on assets as of December 31, 1997. The Company is an indirect wholly owned subsidiary of Aetna Inc. The Company is engaged in the business of issuing life insurance policies and annuity contracts. Our Home Office is located at 151 Farmington Avenue, Hartford, Connecticut 06156. In addition to serving as the principal underwriter and the depositor for the separate account, the Company is a registered investment adviser under the Investment Advisers Act of 1940, and a registered broker-dealer under the Securities Exchange Act of 1934. 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 described in the prospectus, all expenses incurred in the operations of the separate account are borne by the Company. See "Fees" in the prospectus. The Company receives reimbursement for certain administrative costs from some advisers of the funds used as funding options under the contract. These fees generally range up to 0.425%. The Company holds the assets of the separate account. 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 as a unit investment trust under the Investment Company Act of 1940, as amended. 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: Aetna Ascent VP AIM V.I. Value Fund Aetna Balanced VP, Inc. Calvert Social Balanced Portfolio Aetna Income Shares d/b/a Fidelity Variable Insurance Products Fund (VIP) Equity-Income Portfolio Aetna Bond VP Fidelity Variable Insurance Products Fund (VIP) Growth Portfolio Aetna Crossroads VP Fidelity Variable Insurance Products Fund (VIP) Overseas Portfolio Aetna Growth VP Fidelity Variable Insurance Products Fund II (VIP II) Contrafund Portfolio Aetna Variable Fund d/b/a Janus Aspen Aggressive Growth Portfolio Aetna Growth and Income VP Janus Aspen Balanced Portfolio Aetna High Yield VP Janus Aspen Flexible Income Portfolio Aetna Index Plus Large Cap VP Janus Aspen Growth Portfolio Aetna Index Plus Mid Cap VP Janus Aspen Worldwide Growth Portfolio Aetna Index Plus Small Cap VP Oppenheimer Global Securities Fund/VA Aetna International VP Oppenheimer Strategic Bond Fund/VA Aetna Legacy VP Portfolio Partners MFS Emerging Equities Portfolio Aetna Variable Encore Fund d/b/a Portfolio Partners MFS Research Growth Portfolio Aetna Money Market VP Portfolio Partners MFS Value Equity Portfolio Aetna Real Estate Securities VP Portfolio Partners Scudder International Growth Portfolio Aetna Small Company VP Portfolio Partners T. Rowe Price Growth Equity Portfolio Aetna Value Opportunity VP AIM V.I. Capital Appreciation Fund AIM V.I. Growth Fund AIM V.I. Growth and Income Fund
Complete descriptions of each of the funds, including their investment objectives, policies, risks, 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 is both the depositor and the principal underwriter for the securities sold by the prospectus. We offer the contracts through life insurance agents licensed to sell variable annuities who are registered representatives of the Company or of other registered broker-dealers who have sales agreements with the Company. The offering of the contracts is continuous. A description of the manner in which contracts are purchased may be found in the prospectus under the sections titled "Purchase" and "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 contracts. We may advertise the "standardized average annual total returns," calculated in a manner prescribed by the Securities and Exchange Commission (the "standardized returns"), as well as the "non-standardized returns," both of which are described below. The standardized and non-standardized total return figures are computed according to a formula in which a hypothetical initial payment of $1,000 is applied under a deferred annuity contract to the various subaccounts available under the contract, and then related to the ending redeemable values over one, five and ten year periods (or fractional periods thereof). The redeemable value is then divided by the initial investment and this quotient is taken to the Nth root (N represents the number of years in the period) and 1 is subtracted from the result which is then expressed as a percentage, carried to at least the nearest hundredth of a percent. The standardized figures use the actual returns of the fund since the date contributions were first received in the fund under the separate account adjusted to reflect the deduction of the maximum recurring charges under the contracts during each period (e.g., 1.25% mortality and expense risk charges, $25 maintenance fees, and early withdrawal charge 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 contracts described in the prospectus. The total return figures shown below may be different from the actual historical total return under your contract because for periods prior to 1994 the subaccount's investment performance was based on the performance of the underlying fund plus any cash held by the subaccount. The non-standardized figures will be calculated in a similar manner, except that they will not reflect the deduction of any applicable early withdrawal charge, and in some advertisements will also exclude the effect of the annual maintenance fee. The deduction of the early 3 withdrawal charge and the annual maintenance fee would decrease the level of performance shown if reflected in the 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 all 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 contract value and/or 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, 1998 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 charge. For the subaccounts funded by the Portfolio Partners portfolios, two sets of performance returns are shown for each subaccount: one showing performance based solely on the performance of the Portfolio Partners portfolio from November 28, 1997, the date the portfolio commenced operations; and one quotation based on (a) performance through November 26, 1997 of the fund it replaced under many Company contracts and; (b) after November 26, 1997, based on the performance of the Portfolio Partners portfolio. For those subaccounts where results are not available for the full calendar period indicated, performance for such partial periods is shown in the column labeled "Since Inception." For standardized performance, the "Since Inception" column shows the average annual return since the date contributions were first received in the fund under the separate account. For non-standardized performance, the "Since Inception" column shows average annual total return since the fund's inception date. 4 Table I (corresponding with early withdrawal charge Schedule A)
- ------------------------------------------------------------------------------------------------------------------ Date Contributions STANDARDIZED First Received Under the Separate Account - ------------------------------------------------------------------------------------------------------------------ Since SUBACCOUNT 1 Year 5 Year 10 Year Inception* - ------------------------------------------------------------------------------------------------------------------ Aetna Ascent VP 2.92% 15.02% 07/05/1995 - ------------------------------------------------------------------------------------------------------------------ Aetna Balanced VP, Inc. 15.39% 14.37% 11.48% 04/03/1989 - ------------------------------------------------------------------------------------------------------------------ Aetna Bond VP(1) 6.71% 5.23% 7.83% - ------------------------------------------------------------------------------------------------------------------ Aetna Crossroads VP 4.51% 13.25% 07/05/1995 - ------------------------------------------------------------------------------------------------------------------ Aetna Growth VP 35.88% 35.28% 05/30/1997 - ------------------------------------------------------------------------------------------------------------------ Aetna Growth and Income VP(1) 12.98% 17.80% 14.92% - ------------------------------------------------------------------------------------------------------------------ Aetna High Yield VP (8.60%) 05/04/1998 - ------------------------------------------------------------------------------------------------------------------ Aetna Index Plus Large Cap VP 29.88% 31.00% 10/31/1996 - ------------------------------------------------------------------------------------------------------------------ Aetna Index Plus Mid Cap VP 6.58% 05/04/1998 - ------------------------------------------------------------------------------------------------------------------ Aetna Index Plus Small Cap VP (12.79%) 05/04/1998 - ------------------------------------------------------------------------------------------------------------------ Aetna International VP (5.15%) 05/04/1998 - ------------------------------------------------------------------------------------------------------------------ Aetna Legacy VP 5.52% 11.13% 07/05/1995 - ------------------------------------------------------------------------------------------------------------------ Aetna Money Market VP(1)(2) 4.06% 3.89% 4.35% - ------------------------------------------------------------------------------------------------------------------ Aetna Real Estate Securities VP (13.34%) 05/04/1998 - ------------------------------------------------------------------------------------------------------------------ Aetna Small Company VP (0.25%) 12.35% 05/30/1997 - ------------------------------------------------------------------------------------------------------------------ Aetna Value Opportunity VP 20.79% 26.81% 05/30/1997 - ------------------------------------------------------------------------------------------------------------------ Calvert Social Balanced Portfolio 5.92% 13.93% 10.60% 05/31/1989 - ------------------------------------------------------------------------------------------------------------------ Fidelity VIP Equity-Income Portfolio 10.15% 18.59% 05/31/1994 - ------------------------------------------------------------------------------------------------------------------ Fidelity VIP Growth Portfolio 37.67% 23.62% 05/31/1994 - ------------------------------------------------------------------------------------------------------------------ Fidelity VIP Overseas Portfolio 11.26% 8.20% 05/31/1994 - ------------------------------------------------------------------------------------------------------------------ Fidelity VIP II Contrafund Portfolio 28.28% 24.94% 05/31/1995 - ------------------------------------------------------------------------------------------------------------------ Janus Aspen Aggressive Growth Portfolio 32.50% 21.66% 06/30/1994 - ------------------------------------------------------------------------------------------------------------------ Janus Aspen Balanced Portfolio 32.53% 22.38% 06/30/1995 - ------------------------------------------------------------------------------------------------------------------ Janus Aspen Flexible Income Portfolio 7.66% 11.02% 10/31/1994 - ------------------------------------------------------------------------------------------------------------------ Janus Aspen Growth Portfolio 33.89% 24.45% 06/30/1995 - ------------------------------------------------------------------------------------------------------------------ Janus Aspen Worldwide Growth Portfolio 27.23% 27.16% 05/31/1995 - ------------------------------------------------------------------------------------------------------------------ Oppenheimer Global Securities Fund/VA (1.68%) 05/04/1998 - ------------------------------------------------------------------------------------------------------------------ Oppenheimer Strategic Bond Fund/VA (2.28%) 05/07/1998 - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ Portfolio Partners MFS Emerging Equities Portfolio 27.97% 23.94% 11/28/1997 - ------------------------------------------------------------------------------------------------------------------ Alger American Small Cap/Portfolio Partners MFS Emerging Equities(3) 27.97% 13.76% 13.49% 09/30/1993 - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ Portfolio Partners MFS Research Growth Portfolio 21.38% 17.32% 11/28/1997 - ------------------------------------------------------------------------------------------------------------------ American Century VP Capital Appreciation/Portfolio Partners MFS Research Growth(3) 21.38% 6.72% 8.28% 08/31/1992 - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ Portfolio Partners MFS Value Equity Portfolio 25.07% 24.40% 11/28/1997 - ------------------------------------------------------------------------------------------------------------------ Neuberger Berman AMT Growth/Portfolio Partners MFS Value Equity(3) 25.07% 15.40% 11.63% 05/31/1989 - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ Portfolio Partners Scudder International Growth Portfolio 17.53% 17.28% 11/28/1997 - ------------------------------------------------------------------------------------------------------------------ Scudder International Portfolio Class A/Portfolio Partners Scudder International Growth(3) 17.53% 8.96% 8.82% 07/31/1989 - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ Portfolio Partners T. Rowe Price Growth Equity Portfolio 25.93% 25.84% 11/28/1997 - ------------------------------------------------------------------------------------------------------------------ Alger American Growth/Portfolio Partners T. Rowe Price Growth Equity(3) 25.93% 22.86% 10/31/1994 - ------------------------------------------------------------------------------------------------------------------
Please refer to the discussion preceding the table for an explanation of the charges included and methodology used in the standardized and non-standardized figures. These figures represent historical performance and should not be considered a projection of future performance. * Reflects performance from the date contributions were first received in the fund under the separate account. (1) These funds have been available through the separate account for more than ten years. (2) The current yield for the subaccount for the 7-day period ended December 31, 1998 (on an annualized basis) was 3.77%. 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 Portfolio Partners portfolio after the close of business on November 26, 1997. The performance shown is based on the performance of the replaced fund until November 26, 1997, and the performance of the applicable Portfolio Partners portfolio after that date. The replaced fund may not have been available under all contracts. The "Date Contributions First Received Under the Separate Account" refers to the applicable date for the replaced fund. 5 Table I (part 2) (corresponding with early withdrawal charge Schedule A)
- ------------------------------------------------------------------------------------------------------------------- Fund NON- STANDARDIZED Inception Date - ------------------------------------------------------------------------------------------------------------------- Since SUBACCOUNT 1 Year 3 Years 5 Years 10 Years Inception** - ------------------------------------------------------------------------------------------------------------------- Aetna Ascent VP 2.92% 14.09% 15.02% 07/05/1995 - ------------------------------------------------------------------------------------------------------------------- Aetna Balanced VP, Inc. 15.39% 16.60% 14.37% 11.48% 04/03/1989 - ------------------------------------------------------------------------------------------------------------------- Aetna Bond VP(1) 6.71% 5.24% 5.23% 7.83% - ------------------------------------------------------------------------------------------------------------------- Aetna Crossroads VP 4.51% 12.44% 13.25% 07/05/1995 - ------------------------------------------------------------------------------------------------------------------- Aetna Growth VP 35.88% 33.53% 12/13/1996 - ------------------------------------------------------------------------------------------------------------------- Aetna Growth and Income VP(1) 12.98% 21.16% 17.80% 14.92% - ------------------------------------------------------------------------------------------------------------------- Aetna High Yield VP (1.60%) (0.19%) 12/10/1997 - ------------------------------------------------------------------------------------------------------------------- Aetna Index Plus Large Cap VP 29.88% 31.58% 09/16/1996 - ------------------------------------------------------------------------------------------------------------------- Aetna Index Plus Mid Cap VP 22.67% 25.68% 12/16/1997 - ------------------------------------------------------------------------------------------------------------------- Aetna Index Plus Small Cap VP (2.67%) 1.43% 12/19/1997 - ------------------------------------------------------------------------------------------------------------------- Aetna International VP 17.35% 19.95% 12/22/1997 - ------------------------------------------------------------------------------------------------------------------- Aetna Legacy VP 5.52% 10.34% 11.13% 07/05/1995 - ------------------------------------------------------------------------------------------------------------------- Aetna Money Market VP(1)(2) 4.06% 4.03% 3.89% 4.35% - ------------------------------------------------------------------------------------------------------------------- Aetna Real Estate Securities VP (14.02%) (10.52%) 12/15/1997 - ------------------------------------------------------------------------------------------------------------------- Aetna Small Company VP (0.25%) 15.61% 12/27/1996 - ------------------------------------------------------------------------------------------------------------------- Aetna Value Opportunity VP 20.79% 29.40% 12/13/1996 - ------------------------------------------------------------------------------------------------------------------- AIM V.I. Capital Appreciation Fund 17.74% 15.24% 15.70% 17.22% 05/05/1993 - ------------------------------------------------------------------------------------------------------------------- AIM V.I. Growth Fund 32.39% 24.55% 19.86% 19.30% 05/05/1993 - ------------------------------------------------------------------------------------------------------------------- AIM V.I. Growth and Income Fund 26.03% 22.79% 20.90% 05/02/1994 - ------------------------------------------------------------------------------------------------------------------- AIM V.I. Value Fund 30.69% 21.89% 20.12% 20.31% 05/05/1993 - ------------------------------------------------------------------------------------------------------------------- Calvert Social Balanced Portfolio(1) 5.92% 14.30% 13.93% 11.07% - ------------------------------------------------------------------------------------------------------------------- Fidelity VIP Equity-Income Portfolio(1) 10.15% 16.24% 17.21% 14.11% - ------------------------------------------------------------------------------------------------------------------- Fidelity VIP Growth Portfolio(1) 37.67% 23.83% 20.14% 17.85% - ------------------------------------------------------------------------------------------------------------------- Fidelity VIP Overseas Portfolio(1) 11.26% 10.99% 8.25% 8.63% - ------------------------------------------------------------------------------------------------------------------- Fidelity VIP II Contrafund Portfolio 28.28% 23.42% 26.96% 01/03/1995 - ------------------------------------------------------------------------------------------------------------------- Janus Aspen Aggressive Growth Portfolio 32.50% 16.20% 17.78% 20.32% 09/13/1993 - ------------------------------------------------------------------------------------------------------------------- Janus Aspen Balanced Portfolio 32.53% 22.33% 17.54% 17.93% 09/13/1993 - ------------------------------------------------------------------------------------------------------------------- Janus Aspen Flexible Income Portfolio 7.66% 8.55% 8.86% 8.40% 09/13/1993 - ------------------------------------------------------------------------------------------------------------------- Janus Aspen Growth Portfolio 33.89% 23.76% 19.82% 19.29% 09/13/1993 - ------------------------------------------------------------------------------------------------------------------- Janus Aspen Worldwide Growth Portfolio 27.23% 25.00% 19.72% 22.40% 09/13/1993 - ------------------------------------------------------------------------------------------------------------------- Oppenheimer Global Securities Fund/VA 12.60% 16.50% 8.21% 11.00% 11/12/1990 - ------------------------------------------------------------------------------------------------------------------- Oppenheimer Strategic Bond Fund/VA 1.53% 6.39% 5.41% 5.37% 05/03/1993 - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- Portfolio Partners MFS Emerging Equities Portfolio 27.97% 23.87% 11/28/1997 - ------------------------------------------------------------------------------------------------------------------- Alger American Small Cap/Portfolio Partners MFS Emerging Equities(3) 27.97% 12.34% 13.76% 19.42% - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- Portfolio Partners MFS Research Growth Portfolio 21.38% 17.27% 11/28/1997 - ------------------------------------------------------------------------------------------------------------------- American Century VP Capital Appreciation/Portfolio Partners MFS Research Growth(3) 21.38% 3.13% 6.72% 9.79% - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- Portfolio Partners MFS Value Equity Portfolio 25.07% 24.16% 11/28/1997 - ------------------------------------------------------------------------------------------------------------------- Neuberger Berman AMT Growth/Portfolio Partners MFS Value Equity(3) 25.07% 18.86% 15.40% 13.20% - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- Portfolio Partners Scudder International Growth Portfolio 17.53% 17.24% 11/28/1997 - ------------------------------------------------------------------------------------------------------------------- Scudder International Portfolio Class A/Portfolio Partners Scudder International Growth(3) 17.53% 12.70% 8.96% 10.54% - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- Portfolio Partners T. Rowe Price Growth Equity Portfolio 25.93% 25.77% 11/28/1997 - ------------------------------------------------------------------------------------------------------------------- Alger American Growth/Portfolio Partners T. Rowe Price Growth Equity(3) 25.93% 21.25% 19.16% 18.89% 01/09/1989 - -------------------------------------------------------------------------------------------------------------------
Please refer to the discussion preceding the tables for an explanation of the charges included and methodology used in the standardized and non-standardized figures. These figures represent historical performance and should not be considered a projection of future performance. ** Reflects performance from the fund's inception date. (1) These funds have been in operation for more than ten years. (2) The current yield for the subaccount for the 7-day period ended December 31, 1998 (on an annualized basis) was 3.77%. 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 Portfolio PartnersS portfolio after the close of business on November 26, 1997. The performance shown is based on the performance of the replaced fund until November 26, 1997, and the performance of the applicable Portfolio Partners portfolio after that date. The replaced fund may not have been available under all contracts. The "Fund Inception Date" refers to the applicable date for the replaced fund. If no date is shown, the replaced fund has been in operation for more than ten years. 6 Table II (corresponding with early withdrawal charge Schedule B)
- -------------------------------------------------------------------------------------------------------------- Date Contributions STANDARDIZED First Received Under the Separate Account - -------------------------------------------------------------------------------------------------------------- Since SUBACCOUNT 1 Year 5 Year 10 Year Inception* - -------------------------------------------------------------------------------------------------------------- Aetna Ascent VP (2.23%) 13.34% 07/05/1995 - -------------------------------------------------------------------------------------------------------------- Aetna Balanced VP, Inc. 9.62% 13.44% 11.48% 04/03/1989 - -------------------------------------------------------------------------------------------------------------- Aetna Bond VP(1) 1.37% 4.37% 7.83% - -------------------------------------------------------------------------------------------------------------- Aetna Crossroads VP (0.72%) 11.59% 07/05/1995 - -------------------------------------------------------------------------------------------------------------- Aetna Growth VP 29.08% 30.98% 05/30/1997 - -------------------------------------------------------------------------------------------------------------- Aetna Growth and Income VP(1) 7.33% 16.84% 14.92% - -------------------------------------------------------------------------------------------------------------- Aetna High Yield VP (12.30%) 05/04/1998 - -------------------------------------------------------------------------------------------------------------- Aetna Index Plus Large Cap VP 23.38% 27.93% 10/31/1996 - -------------------------------------------------------------------------------------------------------------- Aetna Index Plus Mid Cap VP 2.27% 05/04/1998 - -------------------------------------------------------------------------------------------------------------- Aetna Index Plus Small Cap VP (16.31%) 05/04/1998 - -------------------------------------------------------------------------------------------------------------- Aetna International VP (8.98%) 05/04/1998 - -------------------------------------------------------------------------------------------------------------- Aetna Legacy VP 0.24% 9.51% 07/05/1995 - -------------------------------------------------------------------------------------------------------------- Aetna Money Market VP(1)(2) (1.15%) 3.04% 4.35% - -------------------------------------------------------------------------------------------------------------- Aetna Real Estate Securities VP (16.85%) 05/04/1998 - -------------------------------------------------------------------------------------------------------------- Aetna Small Company VP (5.24%) 8.78% 05/30/1997 - -------------------------------------------------------------------------------------------------------------- Aetna Value Opportunity VP 14.74% 22.78% 05/30/1997 - -------------------------------------------------------------------------------------------------------------- Calvert Social Balanced Portfolio 0.62% 13.01% 10.60% 05/31/1989 - -------------------------------------------------------------------------------------------------------------- Fidelity VIP Equity-Income Portfolio 4.64% 17.27% 05/31/1994 - -------------------------------------------------------------------------------------------------------------- Fidelity VIP Growth Portfolio 30.78% 22.24% 05/31/1994 - -------------------------------------------------------------------------------------------------------------- Fidelity VIP Overseas Portfolio 5.69% 6.99% 05/31/1994 - -------------------------------------------------------------------------------------------------------------- Fidelity VIP II Contrafund Portfolio 21.86% 23.16% 05/31/1995 - -------------------------------------------------------------------------------------------------------------- Janus Aspen Aggressive Growth Portfolio 25.87% 20.28% 06/30/1994 - -------------------------------------------------------------------------------------------------------------- Janus Aspen Balanced Portfolio 25.90% 20.60% 06/30/1995 - -------------------------------------------------------------------------------------------------------------- Janus Aspen Flexible Income Portfolio 2.27% 9.66% 10/31/1994 - -------------------------------------------------------------------------------------------------------------- Janus Aspen Growth Portfolio 27.19% 22.64% 06/30/1995 - -------------------------------------------------------------------------------------------------------------- Janus Aspen Worldwide Growth Portfolio 20.87% 25.35% 05/31/1995 - -------------------------------------------------------------------------------------------------------------- Oppenheimer Global Securities Fund/VA (5.66%) 05/04/1998 - -------------------------------------------------------------------------------------------------------------- Oppenheimer Strategic Bond Fund/VA (6.23%) 05/07/1998 - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- Portfolio Partners MFS Emerging Equities Portfolio 21.56% 18.24% 11/28/1997 - -------------------------------------------------------------------------------------------------------------- Alger American Small Cap/Portfolio Partners MFS Emerging Equities(3) 21.56% 12.84% 12.61% 09/30/1993 - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- Portfolio Partners MFS Research Growth Portfolio 15.31% 11.93% 11/28/1997 - -------------------------------------------------------------------------------------------------------------- American Century VP Capital Appreciation/Portfolio Partners MFS Research Growth(3) 15.31% 5.85% 7.76% 08/31/1992 - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- Portfolio Partners MFS Value Equity Portfolio 18.82% 18.67% 11/28/1997 - -------------------------------------------------------------------------------------------------------------- Neuberger Berman AMT Growth/Portfolio Partners MFS Value Equity(3) 18.82% 14.46% 11.63% 05/31/1989 - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- Portfolio Partners Scudder International Growth Portfolio 11.65% 11.89% 11/28/1997 - -------------------------------------------------------------------------------------------------------------- Scudder International Portfolio Class A/Portfolio Partners Scudder International Growth(3) 11.65% 8.07% 8.82% 07/31/1989 - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- Portfolio Partners T. Rowe Price Growth Equity Portfolio 19.63% 20.06% 11/28/1997 - -------------------------------------------------------------------------------------------------------------- Alger American Growth/Portfolio Partners T. Rowe Price Growth Equity(3) 19.63% 21.36% 10/31/1994 - --------------------------------------------------------------------------------------------------------------
Please refer to the discussion preceding the tables for an explanation of the charges included and methodology used in the standardized and non-standardized figures. These figures represent historical performance and should not be considered a projection of future performance. * Reflects performance from the date contributions were first received in the fund under the separate account. (1) These funds have been available through the separate account for more than ten years. (2) The current yield for the subaccount for the 7-day period ended December 31, 1998 (on an annualized basis) was 3.77%. 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 Portfolio Partners portfolio after the close of business on November 26, 1997. The performance shown is based on the performance of the replaced fund until November 26, 1997, and the performance of the applicable Portfolio Partners portfolio after that date. The replaced fund may not have been available under all contracts. The "Date Contributions First Received Under the Separate Account" refers to the applicable date for the replaced fund. 7 Table II (part 2) (corresponding with early withdrawal charge Schedule B)
- ----------------------------------------------------------------------------------------------------------------------- Fund NON-STANDARDIZED Inception Date - ----------------------------------------------------------------------------------------------------------------------- Since SUBACCOUNT 1 Year 3 Years 5 Years 10 Years Inception** - ----------------------------------------------------------------------------------------------------------------------- Aetna Ascent VP 2.92% 14.09% 15.02% 07/05/1995 - ----------------------------------------------------------------------------------------------------------------------- Aetna Balanced VP, Inc. 15.39% 16.60% 14.37% 11.48% 04/03/1989 - ----------------------------------------------------------------------------------------------------------------------- Aetna Bond VP(1) 6.71% 5.24% 5.23% 7.83% - ----------------------------------------------------------------------------------------------------------------------- Aetna Crossroads VP 4.51% 12.44% 13.25% 07/05/1995 - ----------------------------------------------------------------------------------------------------------------------- Aetna Growth VP 35.88% 33.53% 12/13/1996 - ----------------------------------------------------------------------------------------------------------------------- Aetna Growth and Income VP(1) 12.98% 21.16% 17.80% 14.92% - ----------------------------------------------------------------------------------------------------------------------- Aetna High Yield VP (1.60%) (0.19%) 12/10/1997 - ----------------------------------------------------------------------------------------------------------------------- Aetna Index Plus Large Cap VP 29.88% 31.58% 09/16/1996 - ----------------------------------------------------------------------------------------------------------------------- Aetna Index Plus Mid Cap VP 22.67% 25.68% 12/16/1997 - ----------------------------------------------------------------------------------------------------------------------- Aetna Index Plus Small Cap VP (2.67%) 1.43% 12/19/1997 - ----------------------------------------------------------------------------------------------------------------------- Aetna International VP 17.35% 19.95% 12/22/1997 - ----------------------------------------------------------------------------------------------------------------------- Aetna Legacy VP 5.52% 10.34% 11.13% 07/05/1995 - ----------------------------------------------------------------------------------------------------------------------- Aetna Money Market VP(1)(2) 4.06% 4.03% 3.89% 4.35% - ----------------------------------------------------------------------------------------------------------------------- Aetna Real Estate Securities VP (14.02%) (10.52%) 12/15/1997 - ----------------------------------------------------------------------------------------------------------------------- Aetna Small Company VP (0.25%) 15.61% 12/27/1996 - ----------------------------------------------------------------------------------------------------------------------- Aetna Value Opportunity VP 20.79% 29.40% 12/13/1996 - ----------------------------------------------------------------------------------------------------------------------- AIM V.I. Capital Appreciation Fund 17.74% 15.24% 15.70% 17.22% 05/05/1993 - ----------------------------------------------------------------------------------------------------------------------- AIM V.I. Growth and Income Fund 26.03% 22.79% 20.90% 05/02/1994 - ----------------------------------------------------------------------------------------------------------------------- AIM V.I. Growth Fund 32.39% 24.55% 19.86% 19.30% 05/05/1993 - ----------------------------------------------------------------------------------------------------------------------- AIM V.I. Value Fund 30.69% 21.89% 20.12% 20.31% 05/05/1993 - ----------------------------------------------------------------------------------------------------------------------- Calvert Social Balanced Portfolio(1) 5.92% 14.30% 13.93% 11.07% - ----------------------------------------------------------------------------------------------------------------------- Fidelity VIP Equity-Income Portfolio(1) 10.15% 16.24% 17.21% 14.11% - ----------------------------------------------------------------------------------------------------------------------- Fidelity VIP Growth Portfolio(1) 37.67% 23.83% 20.14% 17.85% - ----------------------------------------------------------------------------------------------------------------------- Fidelity VIP Overseas Portfolio(1) 11.26% 10.99% 8.25% 8.63% - ----------------------------------------------------------------------------------------------------------------------- Fidelity VIP II Contrafund Portfolio 28.28% 23.42% 26.96% 01/03/1995 - ----------------------------------------------------------------------------------------------------------------------- Janus Aspen Aggressive Growth Portfolio 32.50% 16.20% 17.78% 20.32% 09/13/1993 - ----------------------------------------------------------------------------------------------------------------------- Janus Aspen Balanced Portfolio 32.53% 22.33% 17.54% 17.93% 09/13/1993 - ----------------------------------------------------------------------------------------------------------------------- Janus Aspen Flexible Income Portfolio 7.66% 8.55% 8.86% 8.40% 09/13/1993 - ----------------------------------------------------------------------------------------------------------------------- Janus Aspen Growth Portfolio 33.89% 23.76% 19.82% 19.29% 09/13/1993 - ----------------------------------------------------------------------------------------------------------------------- Janus Aspen Worldwide Growth Portfolio 27.23% 25.00% 19.72% 22.40% 09/13/1993 - ----------------------------------------------------------------------------------------------------------------------- Oppenheimer Global Securities Fund/VA 12.60% 16.50% 8.21% 11.00% 11/12/1990 - ----------------------------------------------------------------------------------------------------------------------- Oppenheimer Strategic Bond Fund/VA 1.53% 6.39% 5.41% 5.37% 05/03/1993 - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- Portfolio Partners MFS Emerging Equities Portfolio 27.97% 23.87% 11/28/1997 - ----------------------------------------------------------------------------------------------------------------------- Alger American Small Cap/Portfolio Partners MFS Emerging Equities(3) 27.97% 12.34% 13.76% 19.42% - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- Portfolio Partners MFS Research Growth Portfolio 21.38% 17.27% 11/28/1997 - ----------------------------------------------------------------------------------------------------------------------- American Century VP Capital Appreciation/Portfolio Partners MFS Research Growth(3) 21.38% 3.13% 6.72% 9.79% - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- Portfolio Partners MFS Value Equity Portfolio 25.07% 24.16% 11/28/1997 - ----------------------------------------------------------------------------------------------------------------------- Neuberger Berman AMT Growth/Portfolio Partners MFS Value Equity(3) 25.07% 18.86% 15.40% 13.20% - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- Portfolio Partners Scudder International Growth Portfolio 17.53% 17.24% 11/28/1997 - ----------------------------------------------------------------------------------------------------------------------- Scudder International Portfolio Class A/Portfolio Partners Scudder International Growth(3) 17.53% 12.70% 8.96% 10.54% - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- Portfolio Partners T. Rowe Price Growth Equity Portfolio 25.93% 25.77% 11/28/1997 - ----------------------------------------------------------------------------------------------------------------------- Alger American Growth/Portfolio Partners T. Rowe Price Growth Equity(3) 25.93% 21.25% 19.16% 18.89% 01/09/1989 - -----------------------------------------------------------------------------------------------------------------------
Please refer to the discussion preceding the tables for an explanation of the charges included and methodology used in the standardized and non-standardized figures. These figures represent historical performance and should not be considered a projection of future performance. ** Reflects performance from the fund's inception date. (1) These funds have been in operation for more than ten years. (2) The current yield for the subaccount for the 7-day period ended December 31, 1998 (on an annualized basis) was 3.77%. 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 Portfolio Partners portfolio after the close of business on November 26, 1997. The performance shown is based on the performance of the replaced fund until November 26, 1997, and the performance of the applicable Portfolio Partners portfolio after that date. The replaced fund may not have been available under all contracts. The "Fund Inception Date" refers to the applicable date for the replaced fund. If no date is shown, the replaced fund has been in operation for more than ten years. 8 Table III (corresponding with early withdrawal charge Schedule C)
- -------------------------------------------------------------------------------------------------------------------- Date Contributions STANDARDIZED First Received Under the Separate Account - -------------------------------------------------------------------------------------------------------------------- Since SUBACCOUNT 1 Year 5 Year 10 Year Inception* - -------------------------------------------------------------------------------------------------------------------- Aetna Ascent VP (3.26%) 13.68% 07/05/1995 - -------------------------------------------------------------------------------------------------------------------- Aetna Balanced VP, Inc. 8.46% 13.91% 11.48% 04/03/1989 - -------------------------------------------------------------------------------------------------------------------- Aetna Bond VP(1) 0.30% 4.81% 7.83% - -------------------------------------------------------------------------------------------------------------------- Aetna Crossroads VP (1.77%) 11.93% 07/05/1995 - -------------------------------------------------------------------------------------------------------------------- Aetna Growth VP 27.72% 30.11% 05/30/1997 - -------------------------------------------------------------------------------------------------------------------- Aetna Growth and Income VP(1) 6.20% 17.33% 14.92% - -------------------------------------------------------------------------------------------------------------------- Aetna High Yield VP (13.22%) 05/04/1998 - -------------------------------------------------------------------------------------------------------------------- Aetna Index Plus Large Cap VP 22.08% 27.93% 10/31/1996 - -------------------------------------------------------------------------------------------------------------------- Aetna Index Plus Mid Cap VP 1.20% 05/04/1998 - -------------------------------------------------------------------------------------------------------------------- Aetna Index Plus Small Cap VP (17.20%) 05/04/1998 - -------------------------------------------------------------------------------------------------------------------- Aetna International VP (9.94%) 05/04/1998 - -------------------------------------------------------------------------------------------------------------------- Aetna Legacy VP (0.82%) 9.84% 07/05/1995 - -------------------------------------------------------------------------------------------------------------------- Aetna Money Market VP(1)(2) (2.19%) 3.47% 4.35% - -------------------------------------------------------------------------------------------------------------------- Aetna Real Estate Securities VP (17.72%) 05/04/1998 - -------------------------------------------------------------------------------------------------------------------- Aetna Small Company VP (6.24%) 8.05% 05/30/1997 - -------------------------------------------------------------------------------------------------------------------- Aetna Value Opportunity VP 13.53% 21.97% 05/30/1997 - -------------------------------------------------------------------------------------------------------------------- Calvert Social Balanced Portfolio 7.85% 12.60% 10.87% 05/31/1989 - -------------------------------------------------------------------------------------------------------------------- Fidelity VIP Equity-Income Portfolio 3.54% 17.81% 05/31/1994 - -------------------------------------------------------------------------------------------------------------------- Fidelity VIP Growth Portfolio 29.40% 22.80% 05/31/1994 - -------------------------------------------------------------------------------------------------------------------- Fidelity VIP Overseas Portfolio 4.58% 7.48% 05/31/1994 - -------------------------------------------------------------------------------------------------------------------- Fidelity VIP II Contrafund Portfolio 20.57% 23.52% 05/31/1995 - -------------------------------------------------------------------------------------------------------------------- Janus Aspen Aggressive Growth Portfolio 24.55% 20.84% 06/30/1994 - -------------------------------------------------------------------------------------------------------------------- Janus Aspen Balanced Portfolio 24.57% 20.96% 06/30/1995 - -------------------------------------------------------------------------------------------------------------------- Janus Aspen Flexible Income Portfolio 1.20% 10.21% 10/31/1994 - -------------------------------------------------------------------------------------------------------------------- Janus Aspen Growth Portfolio 25.85% 23.01% 06/30/1995 - -------------------------------------------------------------------------------------------------------------------- Janus Aspen Worldwide Growth Portfolio 19.59% 25.71% 05/31/1995 - -------------------------------------------------------------------------------------------------------------------- Oppenheimer Global Securities Fund/VA (6.65%) 05/04/1998 - -------------------------------------------------------------------------------------------------------------------- Oppenheimer Strategic Bond Fund/VA (7.22%) 05/07/1998 - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- Portfolio Partners MFS Emerging Equities Portfolio 20.28% 17.10% 11/28/1997 - -------------------------------------------------------------------------------------------------------------------- Alger American Small Cap/Portfolio Partners MFS Emerging Equities(3) 20.28% 13.30% 13.05% 09/30/1993 - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- Portfolio Partners MFS Research Growth Portfolio 14.09% 10.84% 11/28/1997 - -------------------------------------------------------------------------------------------------------------------- American Century VP Capital Appreciation/Portfolio Partners MFS Research Growth(3) 14.09% 6.29% 8.11% 08/31/1992 - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- Portfolio Partners MFS Value Equity Portfolio 17.56% 17.53% 11/28/1997 - -------------------------------------------------------------------------------------------------------------------- Neuberger Berman AMT Growth/Portfolio Partners MFS Value Equity(3) 17.56% 14.93% 11.63% 05/31/1989 - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- Portfolio Partners Scudder International Growth Portfolio 10.47% 10.81% 11/28/1997 - -------------------------------------------------------------------------------------------------------------------- Scudder International Portfolio Class A/Portfolio Partners Scudder International Growth(3) 10.47% 8.52% 8.82% 07/31/1989 - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- Portfolio Partners T. Rowe Price Growth Equity Portfolio 18.37% 18.90% 11/28/1997 - -------------------------------------------------------------------------------------------------------------------- Alger American Growth/Portfolio Partners T. Rowe Price Growth Equity(3) 18.37% 21.97% 10/31/1994 - --------------------------------------------------------------------------------------------------------------------
Please refer to the discussion preceding the tables for an explanation of the charges included and methodology used in the standardized and non-standardized figures. These figures represent historical performance and should not be considered a projection of future performance. * Reflects performance from the date contributions were first received in the fund under the separate account. (1) These funds have been available through the separate account for more than ten years. (2) The current yield for the subaccount for the 7-day period ended December 31, 1998 (on an annualized basis) was 3.77%. 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 Portfolio Partners portfolio after the close of business on November 26, 1997. The performance shown is based on the performance of the replaced fund until November 26, 1997, and the performance of the applicable Portfolio Partners portfolio after that date. The replaced fund may not have been available under all contracts. The "Date Contributions First Received Under the Separate Account" refers to the applicable date for the replaced fund. 9 Table III (part 2) (corresponding with early withdrawal charge Schedule C)
- ----------------------------------------------------------------------------------------------------------------------- Fund NON-STANDARDIZED Inception Date - ----------------------------------------------------------------------------------------------------------------------- Since SUBACCOUNT 1 Year 3 Years 5 Years 10 Years Inception** - ----------------------------------------------------------------------------------------------------------------------- Aetna Ascent VP 2.92% 14.09% 15.02% 07/05/1995 - ----------------------------------------------------------------------------------------------------------------------- Aetna Balanced VP, Inc. 15.39% 16.60% 14.37% 11.48% 04/03/1989 - ----------------------------------------------------------------------------------------------------------------------- Aetna Bond VP(1) 6.71% 5.24% 5.23% 7.83% - ----------------------------------------------------------------------------------------------------------------------- Aetna Crossroads VP 4.51% 12.44% 13.25% 07/05/1995 - ----------------------------------------------------------------------------------------------------------------------- Aetna Growth VP 35.88% 33.53% 12/13/1996 - ----------------------------------------------------------------------------------------------------------------------- Aetna Growth and Income VP(1) 12.98% 21.16% 17.80% 14.92% - ----------------------------------------------------------------------------------------------------------------------- Aetna High Yield VP (1.60%) (0.19%) 12/10/1997 - ----------------------------------------------------------------------------------------------------------------------- Aetna Index Plus Large Cap VP 29.88% 31.58% 09/16/1996 - ----------------------------------------------------------------------------------------------------------------------- Aetna Index Plus Mid Cap VP 22.67% 25.68% 12/16/1997 - ----------------------------------------------------------------------------------------------------------------------- Aetna Index Plus Small Cap VP (2.67%) 1.43% 12/19/1997 - ----------------------------------------------------------------------------------------------------------------------- Aetna International VP 17.35% 19.95% 12/22/1997 - ----------------------------------------------------------------------------------------------------------------------- Aetna Legacy VP 5.52% 10.34% 11.13% 07/05/1995 - ----------------------------------------------------------------------------------------------------------------------- Aetna Money Market VP(1)(2) 4.06% 4.03% 3.89% 4.35% - ----------------------------------------------------------------------------------------------------------------------- Aetna Real Estate Securities VP (14.02%) (10.52%) 12/15/1997 - ----------------------------------------------------------------------------------------------------------------------- Aetna Small Company VP (0.25%) 15.61% 12/27/1996 - ----------------------------------------------------------------------------------------------------------------------- Aetna Value Opportunity VP 20.79% 29.40% 12/13/1996 - ----------------------------------------------------------------------------------------------------------------------- AIM V.I. Capital Appreciation Fund 17.74% 15.24% 15.70% 17.22% 05/05/1993 - ----------------------------------------------------------------------------------------------------------------------- AIM V.I. Growth Fund 32.39% 24.55% 19.86% 19.30% 05/05/1993 - ----------------------------------------------------------------------------------------------------------------------- AIM V.I. Growth and Income Fund 26.03% 22.79% 20.90% 05/02/1994 - ----------------------------------------------------------------------------------------------------------------------- AIM V.I. Value Fund 30.69% 21.89% 20.12% 20.31% 05/05/1993 - ----------------------------------------------------------------------------------------------------------------------- Calvert Social Balanced Portfolio(1) 14.74% 14.75% 13.06% 11.39% - ----------------------------------------------------------------------------------------------------------------------- Fidelity VIP Equity-Income Portfolio(1) 10.15% 16.24% 17.21% 14.11% - ----------------------------------------------------------------------------------------------------------------------- Fidelity VIP Growth Portfolio(1) 37.67% 23.83% 20.14% 17.85% - ----------------------------------------------------------------------------------------------------------------------- Fidelity VIP Overseas Portfolio(1) 11.26% 10.99% 8.25% 8.63% - ----------------------------------------------------------------------------------------------------------------------- Fidelity VIP II Contrafund Portfolio 28.28% 23.42% 26.96% 01/03/1995 - ----------------------------------------------------------------------------------------------------------------------- Janus Aspen Aggressive Growth Portfolio 32.50% 16.20% 17.78% 20.32% 09/13/1993 - ----------------------------------------------------------------------------------------------------------------------- Janus Aspen Balanced Portfolio 32.53% 22.33% 17.54% 17.93% 09/13/1993 - ----------------------------------------------------------------------------------------------------------------------- Janus Aspen Flexible Income Portfolio 7.66% 8.55% 8.86% 8.40% 09/13/1993 - ----------------------------------------------------------------------------------------------------------------------- Janus Aspen Growth Portfolio 33.89% 23.76% 19.82% 19.29% 09/13/1993 - ----------------------------------------------------------------------------------------------------------------------- Janus Aspen Worldwide Growth Portfolio 27.23% 25.00% 19.72% 22.40% 09/13/1993 - ----------------------------------------------------------------------------------------------------------------------- Oppenheimer Global Securities Fund/VA 12.60% 16.50% 8.21% 11.00% 11/12/1990 - ----------------------------------------------------------------------------------------------------------------------- Oppenheimer Strategic Bond Fund/VA 1.53% 6.39% 5.41% 5.37% 05/03/1993 - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- Portfolio Partners MFS Emerging Equities Portfolio 27.97% 23.87% 11/28/1997 - ----------------------------------------------------------------------------------------------------------------------- Alger American Small Cap/Portfolio Partners MFS Emerging Equities(3) 27.97% 12.34% 13.76% 19.42% - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- Portfolio Partners MFS Research Growth Portfolio 21.38% 17.27% 11/28/1997 - ----------------------------------------------------------------------------------------------------------------------- American Century VP Capital Appreciation/Portfolio Partners MFS Research Growth(3) 21.38% 3.13% 6.72% 9.79% - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- Portfolio Partners MFS Value Equity Portfolio 25.07% 24.16% 11/28/1997 - ----------------------------------------------------------------------------------------------------------------------- Neuberger Berman AMT Growth/Portfolio Partners MFS Value Equity(3) 25.07% 18.86% 15.40% 13.20% - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- Portfolio Partners Scudder International Growth Portfolio 17.53% 17.24% 11/28/1997 - ----------------------------------------------------------------------------------------------------------------------- Scudder International Portfolio Class A/Portfolio Partners Scudder International Growth(3) 17.53% 12.70% 8.96% 10.54% - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- Portfolio Partners T. Rowe Price Growth Equity Portfolio 25.93% 25.77% 11/28/1997 - ----------------------------------------------------------------------------------------------------------------------- Alger American Growth/Portfolio Partners T. Rowe Price Growth Equity(3) 25.93% 21.25% 19.16% 18.89% 01/09/1989 - -----------------------------------------------------------------------------------------------------------------------
Please refer to the discussion preceding the tables for an explanation of the charges included and methodology used in the standardized and non-standardized figures. These figures represent historical performance and should not be considered a projection of future performance. ** Reflects performance from the fund's inception date. (1) These funds have been in operation for more than ten years. (2) The current yield for the subaccount for the 7-day period ended December 31, 1998 (on an annualized basis) was 3.77%. 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 Portfolio Partners portfolio after the close of business on November 26, 1997. The performance shown is based on the performance of the replaced fund until November 26, 1997, and the performance of the applicable Portfolio Partners portfolio after that date. The replaced fund may not have been available under all contracts. The "Fund Inception Date" refers to the applicable date for the replaced fund. If no date is shown, the replaced fund has been in operation for more than ten years. 10 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 payment is due. Such value (less any applicable premium tax) is applied to provide payments to you in accordance with the payment option and investment options elected. The annuity option tables found in the contract show, for each option, the amount of the first payment for each $1,000 of value applied. Thereafter, variable payments fluctuate as the annuity unit value(s) fluctuates with the investment experience of the selected investment option(s). The first payment and subsequent payments also vary depending on the assumed net investment rate selected (3.5% or 5% per annum). Selection of a 5% rate causes a higher first payment, but payments will increase thereafter only to the extent that the net investment rate increases by more than 5%, after deduction of fees, on an annual basis. Payments would decline if the rate failed to increase by 5%. Use of the 3.5% assumed rate causes a lower first payment, but subsequent payments would increase more rapidly or decline more slowly as changes occur in the net investment rate. When the 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 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 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 payments are to commence, 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 is payable and that the annuity table in the contract provides, for the payment option elected, a first monthly variable payment of $6.68 per $1000 of value applied; the annuitant's first monthly payment would thus be 40.950 multiplied by $6.68, or $273.55. Assume then that the value of an annuity unit upon the valuation on which the first payment was due was $13.400000. When this value is divided into the first monthly payment, the number of annuity units is determined to be 20.414. The value of this number of annuity units will be paid in each subsequent month. If the net investment factor with respect to the appropriate subaccount is 1.0015000 as of the tenth valuation preceding the due date of the second monthly payment, multiplying this factor by .9999058* (to neutralize the assumed net investment rate of 3.5% per annum built into the number of annuity units determined above) produces a result of 1.0014057. This is then multiplied by the annuity unit value for the prior valuation (assume such value to be $13.504376) to produce an annuity unit value of $13.523359 for the valuation occurring when the second payment is due. The second monthly payment is then determined by multiplying the number of annuity units by the current annuity unit value, or 20.414 times $13.523359, which produces a payment of $276.07. *If an assumed net investment rate of 5% is elected, the appropriate factor to neutralize such assumed rate would be .9998663. 11 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 Services, Inc. The purpose of the ratings is to reflect our financial strength and/or claims-paying ability. We may also quote ranking services such as Morningstar's Variable Annuity/Life Performance Report and Lipper's Variable Insurance Products Performance Analysis Service (VIPPAS), which rank variable annuity or life subaccounts or their underlying funds by performance and/or investment objective. We may 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 contracts and the characteristics of and market for such financial instruments. INDEPENDENT AUDITORS KPMG LLP, CityPlace II, Hartford, Connecticut 06103-4103, is the independent auditor for the separate account and for the Company. The services provided to the separate account include primarily the examination of the separate account's financial statements and the review of filings made with the SEC. 12 FINANCIAL STATEMENTS VARIABLE ANNUITY ACCOUNT C Index Statement of Assets and Liabilities ................................... S-2 Statements of Operations and Changes in Net Assets .................... S-6 Condensed Financial Information ....................................... S-7 Notes to Financial Statements ......................................... S-27 Independent Auditors' Report .......................................... S-41
S-1 Variable Annuity Account C Statement of Assets and Liabilities - December 31, 1998
ASSETS: Investments, at net asset value: (Note 1) Net Shares Cost Assets ------ ---- ------ Aetna Ascent VP: 6,134,112 $ 84,102,680 $ 86,000,256 Aetna Balanced VP: 64,322,517 924,156,866 1,011,793,195 Aetna Bond VP: 29,408,694 379,592,879 384,077,541 Aetna Crossroads VP: 5,563,073 73,501,226 74,100,133 Aetna Get Fund, Series B: 4,080,903 52,990,050 59,581,177 Aetna Get Fund, Series C: 13,705,460 145,612,096 198,180,953 Aetna Get Fund, Series D: 26,960,783 270,904,139 270,980,130 Aetna Growth and Income VP: 193,821,381 6,185,564,837 6,175,149,210 Aetna Growth VP: 4,793,106 57,756,294 64,850,726 Aetna High Yield VP: 137,652 1,348,506 1,244,378 Aetna Index Plus Bond VP: 139,903 1,485,972 1,425,611 Aetna Index Plus Large Cap VP: 13,588,180 200,817,845 239,016,092 Aetna Index Plus Mid Cap VP: 337,416 3,695,668 4,116,477 Aetna Index Plus Small Cap VP: 502,348 4,557,249 4,953,155 Aetna International VP: 173,945 1,962,427 2,016,027 Aetna Legacy VP: 4,311,341 53,451,493 53,331,289 Aetna Money Market VP: 19,342,066 253,530,714 258,939,971 Aetna Real Estate Securities VP: 183,009 1,671,798 1,561,066 Aetna Small Company VP: 3,751,125 48,380,625 47,976,886 Aetna Value Opportunity VP: 1,997,581 25,293,161 28,785,139 Calvert Social Balanced Portfolio: 29,902,390 54,315,545 63,901,407 Fidelity Investments Variable Insurance Products Fund: Equity-Income Portfolio: 8,898,556 188,619,345 226,201,287 Growth Portfolio: 5,135,023 170,211,305 230,408,503 High Income Portfolio: 139,771 1,602,694 1,611,556 Overseas Portfolio: 738,883 14,561,214 14,814,602 Fidelity Investments Variable Insurance Products Fund II: Asset Manager Portfolio: 1,470,246 22,725,399 26,699,659 Contrafund Portfolio: 14,733,278 253,946,769 360,081,326 Index 500 Portfolio: 660,901 66,696,529 93,352,318 Janus Aspen Series: Aggressive Growth Portfolio: 10,591,848 192,335,439 292,229,082 Balanced Portfolio: 4,216,755 74,736,185 94,876,992 Flexible Income Portfolio: 2,694,962 32,325,750 32,501,248 Growth Portfolio: 5,647,105 98,534,718 132,932,852 Worldwide Growth Portfolio: 21,182,596 478,559,912 616,201,712 Lexington Emerging Markets Fund: 722,126 5,748,692 4,094,455 Lexington Natural Resources Trust Fund: 1,789,785 25,967,652 19,741,327 MFS Funds: Total Return Series: 21,290 364,758 385,767 Oppenheimer Funds: Global Securities Fund: 44,228 885,530 976,121 Strategic Bond Fund: 440,840 2,233,363 2,257,099 Portfolio Partners, Inc. (PPI): PPI MFS Emerging Equities Portfolio: 7,831,597 346,198,947 434,183,761 PPI MFS Research Growth Portfolio: 20,275,336 201,414,681 242,087,516 PPI MFS Value Equity Portfolio: 3,985,534 120,187,249 150,852,476 PPI Scudder International Growth Portfolio: 12,050,466 183,514,369 201,965,809 PPI T. Rowe Price Growth Equity Portfolio: 3,903,977 170,360,011 215,928,990 --------------- --------------- NET ASSETS $11,476,422,581 $12,426,365,277 =============== ===============
S-2 Variable Annuity Account C Statement of Assets and Liabilities - December 31, 1998 (continued): Net Assets represented by: Reserves for annuity contracts in accumulation and payment period: (Notes 1 and 5) Aetna Ascent VP: Annuity contracts in accumulation ............................................ $ 86,000,256 Aetna Balanced VP: Annuity contracts in accumulation ............................................ 982,574,403 Annuity contracts in payment period .......................................... 29,218,792 Aetna Bond VP: Annuity contracts in accumulation ............................................ 377,693,504 Annuity contracts in payment period .......................................... 6,384,037 Aetna Crossroads VP: Annuity contracts in accumulation ............................................ 74,028,644 Annuity contracts in payment period .......................................... 71,489 Aetna Get Fund, Series B: Annuity contracts in accumulation ............................................ 59,581,177 Aetna Get Fund, Series C: Annuity contracts in accumulation ............................................ 198,180,953 Aetna Get Fund, Series D: Annuity contracts in accumulation ............................................ 270,980,130 Aetna Growth and Income VP: Annuity contracts in accumulation ............................................ 5,846,282,205 Annuity contracts in payment period .......................................... 328,867,005 Aetna Growth VP: Annuity contracts in accumulation ............................................ 64,734,239 Annuity contracts in payment period .......................................... 116,487 Aetna High Yield VP: Annuity contracts in accumulation ............................................ 1,244,378 Aetna Index Plus Bond VP: Annuity contracts in accumulation ............................................ 1,425,611 Aetna Index Plus Large Cap VP: Annuity contracts in accumulation ............................................ 238,578,749 Annuity contracts in payment period .......................................... 437,343 Aetna Index Plus Mid Cap VP: Annuity contracts in accumulation ............................................ 4,116,477 Aetna Index Plus Small Cap VP: Annuity contracts in accumulation ............................................ 4,953,155 Aetna International VP: Annuity contracts in accumulation ............................................ 2,016,027 Aetna Legacy VP: Annuity contracts in accumulation ............................................ 53,070,226 Annuity contracts in payment period .......................................... 261,063 Aetna Money Market VP: Annuity contracts in accumulation ............................................ 258,856,854 Annuity contracts in payment period .......................................... 83,117 Aetna Real Estate Securities VP: Annuity contracts in accumulation ............................................ 1,561,066 Aetna Small Company VP: Annuity contracts in accumulation ............................................ 47,966,985 Annuity contracts in payment period .......................................... 9,901
S-3 Variable Annuity Account C Statement of Assets and Liabilities - December 31, 1998 (continued): Aetna Value Opportunity VP: Annuity contracts in accumulation ................... $ 28,785,139 Calvert Social Balanced Portfolio: Annuity contracts in accumulation ................... 63,901,407 Fidelity Investments Variable Insurance Products Fund: Equity-Income Portfolio: Annuity contracts in accumulation ................... 226,201,287 Growth Portfolio: Annuity contracts in accumulation ................... 230,408,503 High Income Portfolio: Annuity contracts in accumulation ................... 1,611,556 Overseas Portfolio: Annuity contracts in accumulation ................... 14,814,602 Fidelity Investments Variable Insurance Products Fund II: Asset Manager Portfolio: Annuity contracts in accumulation ................... 26,699,659 Contrafund Portfolio: Annuity contracts in accumulation ................... 360,081,326 Index 500 Portfolio: Annuity contracts in accumulation ................... 93,352,318 Janus Aspen Series: Aggressive Growth Portfolio: Annuity contracts in accumulation ................... 292,229,082 Balanced Portfolio: Annuity contracts in accumulation ................... 94,876,992 Flexible Income Portfolio: Annuity contracts in accumulation ................... 32,501,248 Growth Portfolio: Annuity contracts in accumulation ................... 132,697,360 Annuity contracts in payment period ................. 235,492 Worldwide Growth Portfolio: Annuity contracts in accumulation ................... 615,835,740 Annuity contracts in payment period ................. 365,972 Lexington Emerging Markets Fund: Annuity contracts in accumulation ................... 4,094,455 Lexington Natural Resources Trust Fund: Annuity contracts in accumulation ................... 19,741,327 MFS Funds: Total Return Series: Annuity contracts in accumulation ................... 385,767 Oppenheimer Funds: Global Securities Fund: Annuity contracts in accumulation ................... 976,121 Strategic Bond Fund: Annuity contracts in accumulation ................... 2,253,578 Annuity contracts in payment period ................. 3,521
S-4 Variable Annuity Account C Statement of Assets and Liabilities - December 31, 1998 (continued): Portfolio Partners, Inc. (PPI): PPI MFS Emerging Equities Portfolio: Annuity contracts in accumulation ...... $ 434,156,330 Annuity contracts in payment period .... 27,431 PPI MFS Research Growth Portfolio: Annuity contracts in accumulation ...... 242,087,516 PPI MFS Value Equity Portfolio: Annuity contracts in accumulation ...... 150,852,476 PPI Scudder International Growth Portfolio: Annuity contracts in accumulation ...... 201,965,809 PPI T. Rowe Price Growth Equity Portfolio: Annuity contracts in accumulation ...... 215,872,943 Annuity contracts in payment period .... 56,047 --------------- $12,426,365,277 ===============
See Notes to Financial Statements S-5 Variable Annuity Account C Statements of Operations and Changes in Net Assets
Year ended December 31, 1998 1997 ------------------- ------------------- INVESTMENT INCOME: Income: (Notes 1, 3 and 5) Dividends .............................................................. $ 1,447,620,640 $ 1,552,106,208 Expenses: (Notes 2 and 5) Valuation period deductions ............................................ (138,558,611) (120,867,375) ---------------- --------------- Net investment income ................................................... 1,309,062,029 1,431,238,833 ---------------- --------------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS: Net realized gain on sales of investments: (Notes 1, 4 and 5) Proceeds from sales .................................................... 2,443,668,181 2,013,561,413 Cost of investments sold ............................................... 2,067,610,422 1,773,010,971 ---------------- --------------- Net realized gain ..................................................... 376,057,759 240,550,442 Net unrealized gain on investments: (Note 5) Beginning of year ...................................................... 915,465,761 612,391,085 End of year ............................................................ 949,942,696 915,465,761 ---------------- --------------- Net change in unrealized gain ......................................... 34,476,935 303,074,676 ---------------- --------------- Net realized and unrealized gain on investments ......................... 410,534,694 543,625,118 ---------------- --------------- Net increase in net assets resulting from operations .................... 1,719,596,723 1,974,863,951 ---------------- --------------- FROM UNIT TRANSACTIONS: Variable annuity contract purchase payments ............................. 1,136,921,898 1,039,113,157 Transfer from the Company for mortality guarantee adjustments ........... 849,771 2,085,609 Transfers from the Company's fixed account options ...................... 112,197,035 166,510,610 Transfer to the Company's other variable annuity accounts ............... (66,773,776) (88,238,000) Redemptions by contract holders ......................................... (1,591,935,338) (474,257,152) Annuity payments ........................................................ (41,589,989) (31,253,253) Other ................................................................... 1,844,602 1,227,066 ---------------- --------------- Net increase (decrease) in net assets from unit transactions (Note 5) .. (448,485,797) 615,188,037 ---------------- --------------- Change in net assets .................................................... 1,271,110,926 2,590,051,988 NET ASSETS: Beginning of year ....................................................... 11,155,254,351 8,565,202,363 ---------------- --------------- End of year ............................................................. $ 12,426,365,277 $11,155,254,351 ================ ===============
See Notes to Financial Statements S-6 Variable Annuity Account C Condensed Financial Information - Year Ended December 31, 1998
- ------------------------------------------------------------------------------------------------------------------ Value Per Unit Increase (Decrease) Units -------------------------- in Value of Outstanding Reserves Beginning End of Accumulation at End at End of Year Year Unit of Year of Year - ------------------------------------------------------------------------------------------------------------------ Aetna Ascent VP: Qualified I $ 13.836 $ 14.260 3.06% 347.4 $ 4,953 Qualified III 15.422 15.886 3.01% 21,430.4 340,447 Qualified V 15.363 15.800 2.84% 1,408.7 22,258 Qualified VI 15.422 15.886 3.01% 3,508,677.1 55,739,609 Qualified VIII 15.419 15.882 3.00% 803.0 12,754 Qualified X (1.15) 15.900 16.395 3.11% 21,004.4 344,364 Qualified X (1.25) 15.860 16.337 3.01% 592,246.9 9,675,801 Qualified XI 15.514 16.028 3.31% 80,753.8 1,294,336 Qualified XII (0.40) 13.239 14.086 6.40% (11) 86,320.6 1,215,931 Qualified XII (0.45) 9.146 9.519 4.08% (12) 778.8 7,414 Qualified XII (0.50) 10.475 9.848 (5.99%) (5) 2,670.4 26,297 Qualified XII (0.75) 9.913 9.502 (4.15%) (6) 43,141.8 409,924 Qualified XII (0.80) 10.604 10.101 (4.74%) (5) 255,775.2 2,583,503 Qualified XII (0.85) 13.699 14.113 3.02% (1) 70,990.9 1,001,901 Qualified XII (0.90) 9.227 9.953 7.87% (10) 211.7 2,107 Qualified XII (0.95) 13.624 14.076 3.32% 75,369.1 1,060,884 Qualified XII (1.00) 13.613 14.057 3.26% 520,438.2 7,315,952 Qualified XII (1.05) 13.602 14.039 3.21% 55,886.3 784,572 Qualified XII (1.10) 13.590 14.020 3.16% 9,573.2 134,219 Qualified XII (1.15) 13.579 14.002 3.12% 26,910.5 376,793 Qualified XII (1.20) 13.587 13.983 2.91% (1) 90,247.0 1,261,945 Qualified XII (1.25) 13.557 13.965 3.01% 1,249.2 17,444 Qualified XII (1.30) 13.546 13.946 2.95% 1,424.3 19,864 Qualified XII (1.40) 14.731 13.910 (5.57%) (5) 136.0 1,891 Qualified XII (1.50) 13.502 13.873 2.75% 14,280.4 198,111 Qualified XIII 15.497 16.011 3.32% 29,149.3 466,701 Qualified XV 15.471 15.984 3.32% 38,675.0 618,187 Qualified XVI 15.394 15.818 2.75% 38,619.9 610,875 Qualified XVII 15.453 15.974 3.37% 9,887.5 157,940 Qualified XVIII 15.892 16.427 3.37% 17,853.0 293,279 - ------------------------------------------------------------------------------------------------------------------ Aetna Balanced VP: Qualified I 24.826 28.687 15.55% 73,629.4 2,112,224 Qualified III 24.700 28.524 15.48% 2,294,876.9 65,458,720 Qualified V 18.777 21.650 15.30% 2,680.4 58,031 Qualified VI 18.811 21.723 15.48% 25,990,902.2 564,602,474 Qualified VII 18.092 20.906 15.55% 266,036.8 5,561,697 Qualified VIII 17.463 20.165 15.47% 3,910.4 78,852 Qualified IX 17.464 20.269 16.06% 3,983.4 80,739 Qualified X (1.15) 18.889 21.836 15.60% 167,719.9 3,662,292 Qualified X (1.25) 18.811 21.723 15.48% 6,268,762.3 136,176,831 Qualified XI 18.922 21.917 15.83% 768,509.7 16,843,580 Qualified XII (0.40) 14.244 15.331 7.63% (11) 653,272.0 10,015,389 Qualified XII (0.50) 10.369 11.077 6.83% (4) 310,845.7 3,443,125 Qualified XII (0.75) 10.002 10.648 6.46% (6) 183,346.5 1,952,257 Qualified XII (0.80) 10.646 11.358 6.69% (5) 3,962,527.0 45,007,206 Qualified XII (0.85) 13.327 15.360 15.25% (1) 1,379,122.4 21,183,810 Qualified XII (0.90) 10.451 11.157 6.76% (4) 1,648.2 18,389 Qualified XII (0.95) 13.226 15.320 15.83% 468,467.7 7,176,841 Qualified XII (1.00) 13.215 15.300 15.78% 2,019,116.4 30,891,695 Qualified XII (1.05) 13.204 15.279 15.71% 61,615.2 941,444 Qualified XII (1.10) 13.194 15.259 15.65% 10,484.1 159,980 Qualified XII (1.15) 13.183 15.239 15.60% 275,680.7 4,201,140 Qualified XII (1.20) 13.676 15.219 11.28% (2) 33,673.0 512,471 Qualified XII (1.25) 13.161 15.199 15.49% 1,535.4 23,337 Qualified XII (1.30) 13.150 15.179 15.43% 7.8 118 Qualified XII (1.40) 14.278 15.139 6.03% (5) 532.9 8,068
S-7 Variable Annuity Account C Condensed Financial Information - Year Ended December 31, 1998 (continued):
- ------------------------------------------------------------------------------------------------------------------------------- Value Per Unit Increase (Decrease) Units ------------------------ in Value of Outstanding Reserves Beginning End of Accumulation at End at End of Year Year Unit of Year of Year - ------------------------------------------------------------------------------------------------------------------------------- Aetna Balanced VP (continued): Qualified XII (1.50) $ 13.107 $ 15.099 15.20% 9,090.9 $ 137,262 Qualified XIII 18.901 21.893 15.83% 266,635.9 5,837,554 Qualified XV 18.870 21.857 15.83% 771,905.7 16,871,521 Qualified XVI 18.776 21.629 15.19% 385,861.9 8,345,934 Qualified XVII 18.837 21.808 15.77% 429,954.4 9,376,647 Qualified XVIII 18.837 21.808 15.77% 643,218.8 14,027,618 Qualified XIX 24.861 28.800 15.84% 122,357.8 3,523,901 Qualified XX 24.735 28.636 15.77% 149,576.3 4,283,256 Annuity contracts in payment period 29,218,792 - ------------------------------------------------------------------------------------------------------------------------------- Aetna Bond VP: Qualified I 51.930 55.494 6.86% 26,694.1 1,481,367 Qualified III 51.330 54.819 6.80% 994,987.1 54,544,521 Qualified V 13.397 14.285 6.63% 8,614.2 123,053 Qualified VI 13.238 14.137 6.79% 15,101,998.1 213,504,437 Qualified VII 12.243 13.083 6.86% 189,500.4 2,479,295 Qualified VIII 12.190 13.018 6.79% 5,300.1 68,997 Qualified IX 12.330 13.221 7.23% 4,239.4 56,049 Qualified X (1.15) 13.293 14.211 6.91% 102,449.7 1,455,907 Qualified X (1.25) 13.238 14.137 6.79% 2,490,831.9 35,214,126 Qualified XI 13.316 14.264 7.12% 389,465.9 5,555,291 Qualified XII (0.40) 11.893 12.079 1.56% (11) 190,084.0 2,295,979 Qualified XII (0.50) 10.118 10.662 5.38% (4) 88,895.1 947,790 Qualified XII (0.75) 10.058 10.502 4.41% (6) 51,915.9 545,210 Qualified XII (0.80) 10.157 10.650 4.85% (5) 771,660.4 8,217,815 Qualified XII (0.85) 11.381 12.102 6.34% (1) 654,764.8 7,923,819 Qualified XII (0.90) 10.070 10.654 5.80% (3) 383.2 4,082 Qualified XII (0.95) 11.268 12.070 7.12% 187,652.9 2,264,942 Qualified XII (1.00) 11.258 12.054 7.07% 802,875.7 9,677,807 Qualified XII (1.05) 11.249 12.038 7.01% 50,220.3 604,552 Qualified XII (1.10) 11.240 12.022 6.96% 2,532.3 30,443 Qualified XII (1.15) 11.231 12.006 6.90% 106,178.7 1,274,807 Qualified XII (1.20) 11.283 11.990 6.27% (2) 23,608.3 283,072 Qualified XII (1.25) 11.217 11.975 6.76% (1) 1,197.4 14,338 Qualified XII (1.30) 11.203 11.959 6.75% 59,442.7 710,861 Qualified XII (1.40) 11.423 11.927 4.41% (5) 189.1 2,255 Qualified XII (1.50) 11.166 11.896 6.54% 27,679.9 329,273 Qualified XIII 13.301 14.248 7.12% 200,649.9 2,858,924 Qualified XV 13.279 14.225 7.12% 289,650.5 4,120,181 Qualified XVI 13.213 14.076 6.53% 199,388.3 2,806,677 Qualified XVII 13.249 14.171 6.96% 421,225.2 5,969,111 Qualified XVIII 13.249 14.171 6.96% 703,076.6 9,963,181 Qualified XIX 51.975 55.625 7.02% 18,270.8 1,016,314 Qualified XX 51.374 54.949 6.96% 24,550.7 1,349,028 Annuity contracts in payment period 6,384,037 - ------------------------------------------------------------------------------------------------------------------------------- Aetna Crossroads VP: Qualified III 14.456 15.120 4.59% 31,468.2 475,808 Qualified V 14.400 15.038 4.43% 266.3 4,005 Qualified VI 14.456 15.120 4.59% 2,863,811.8 43,301,656 Qualified VIII 14.453 15.116 4.59% 1,655.9 25,031 Qualified X (1.15) 14.835 15.532 4.70% 35,562.4 552,349 Qualified X (1.25) 14.797 15.478 4.60% 514,093.4 7,956,893 Qualified XI 14.541 15.255 4.91% 78,787.6 1,201,936 Qualified XII (0.40) 12.991 13.628 4.90% (11) 51,877.8 706,979 Qualified XII (0.45) 9.531 9.800 2.82% (12) 731.1 7,165 Qualified XII (0.50) 10.298 10.086 (2.06%) (4) 1,126.5 11,362 Qualified XII (0.75) 9.936 9.782 (1.55%) (6) 62,143.7 607,879
S-8 Variable Annuity Account C Condensed Financial Information - Year Ended December 31, 1998 (continued):
- ------------------------------------------------------------------------------------------------------------------------------ Value Per Unit Increase (Decrease) Units ------------------------ in Value of Outstanding Reserves Beginning End of Accumulation at End at End of Year Year Unit of Year of Year - ------------------------------------------------------------------------------------------------------------------------------ Aetna Crossroads VP (continued): Qualified XII (0.80) $ 10.524 $ 10.312 (2.01%) (5) 213,969.6 $ 2,206,459 Qualified XII (0.85) 13.063 13.654 4.52% (1) 102,916.2 1,405,196 Qualified XII (0.95) 12.980 13.618 4.92% 105,585.7 1,437,839 Qualified XII (1.00) 12.970 13.600 4.86% 168,963.5 2,297,868 Qualified XII (1.05) 12.959 13.582 4.81% 38,256.6 519,594 Qualified XII (1.10) 12.949 13.564 4.75% 14,611.0 198,182 Qualified XII (1.15) 12.938 13.546 4.70% 24,882.2 337,055 Qualified XII (1.20) 12.915 13.528 4.75% (1) 499,874.0 6,762,356 Qualified XII (1.25) 12.917 13.510 4.59% 8,074.9 109,094 Qualified XII (1.30) 12.906 13.492 4.54% 520.6 7,025 Qualified XII (1.40) 13.846 13.457 (2.81%) (5) 500.9 6,741 Qualified XII (1.50) 12.864 13.421 4.33% 22,767.6 305,573 Qualified XIII 14.526 15.239 4.91% 30,057.3 458,037 Qualified XV 14.501 15.214 4.92% 100,733.6 1,532,512 Qualified XVI 14.430 15.055 4.33% 32,996.7 496,765 Qualified XVII 14.485 15.204 4.96% 50,296.8 764,691 Qualified XVIII 14.827 15.563 4.96% 21,371.1 332,594 Annuity contracts in payment period 71,489 - ------------------------------------------------------------------------------------------------------------------------------ Aetna Get Fund, Series B: Qualified III 20.718 24.374 17.65% 2,484.4 60,555 Qualified VI 20.718 24.374 17.65% 985,962.2 24,031,914 Qualified X (1.25) 20.718 24.374 17.65% 256,573.6 6,253,743 Qualified XI 20.840 24.592 18.00% 239,997.9 5,901,967 Qualified XII (0.75) 10.505 10.948 4.22% (4) 5,251.3 57,493 Qualified XII (1.00) 9.974 10.323 3.50% (6) 2,321.4 23,963 Qualified XII (1.05) 11.069 11.514 4.02% (6) 277,120.5 3,190,757 Qualified XII (1.15) 12.852 15.216 18.39% (1) 35,803.1 544,787 Qualified XII (1.20) 12.870 15.186 18.00% 13,718.5 208,336 Qualified XII (1.25) 13.203 15.172 14.91% (10) 865,901.2 13,137,159 Qualified XII (1.30) 12.825 15.157 18.18% (1) 68,080.8 1,031,891 Qualified XII (1.40) 12.845 15.127 17.77% 1,060.3 16,040 Qualified XII (1.45) 14.415 15.112 4.84% (6) 1,372.5 20,741 Qualified XIII 20.818 24.565 18.00% 93,996.0 2,309,015 Qualified XV 20.783 24.524 18.00% 86,349.0 2,117,644 Qualified XVI 20.680 24.269 17.35% 1,049.7 25,475 Qualified XVII 20.718 24.374 17.65% 26,655.2 649,697 - ------------------------------------------------------------------------------------------------------------------------------ Aetna Get Fund, Series C: Qualified III 12.636 15.904 25.86% 737,715.1 11,732,640 Qualified VI 12.636 15.904 25.86% 7,446,679.1 118,432,185 Qualified XI 12.685 16.014 26.24% 761,714.6 12,197,745 Qualified XII (0.65) 14.392 16.025 11.35% (11) 42,433.1 680,005 Qualified XII (0.75) 10.520 11.696 11.18% (4) 14,905.0 174,326 Qualified XII (1.00) 10.012 10.999 9.86% (6) 10,347.4 113,809 Qualified XII (1.05) 11.056 12.202 10.37% (5) 1,503,095.6 18,340,765 Qualified XII (1.15) 12.877 16.050 24.64% (1) 118,746.7 1,905,910 Qualified XII (1.20) 12.685 16.014 26.24% 75,185.0 1,203,977 Qualified XII (1.25) 12.677 15.995 26.17% 1,498,695.3 23,971,956 Qualified XII (1.30) 12.841 15.977 24.42% (1) 20,116.4 321,400 Qualified XII (1.35) 14.400 15.959 10.83% (5) 2,128.7 33,971 Qualified XII (1.40) 12.653 15.940 25.98% 4,413.8 70,358 Qualified XII (1.45) 14.270 15.922 11.58% (6) 3,012.0 47,957 Qualified XII (1.75) 12.596 15.813 25.54% 495.7 7,839 Qualified XIII 12.685 16.014 26.24% 240,222.9 3,846,819 Qualified XV 12.676 16.002 26.24% 149,252.7 2,388,342 Qualified XVI 12.613 15.835 25.55% 38,452.8 608,917 Qualified XVII 12.636 15.904 25.86% 132,169.9 2,102,032 - ------------------------------------------------------------------------------------------------------------------------------
S-9 Variable Annuity Account C Condensed Financial Information - Year Ended December 31, 1998 (continued):
- ----------------------------------------------------------------------------------------------------------------- Value Per Unit Increase (Decrease) Units ------------------------ in Value of Outstanding Reserves Beginning End of Accumulation at End at End of Year Year Unit of Year of Year - ----------------------------------------------------------------------------------------------------------------- Aetna Get Fund, Series D: Qualified III $ 9.997 $ 10.062 0.65% (10) 1,665,880.7 $ 16,761,305 Qualified V 10.020 10.058 0.38% (11) 7,666.4 77,106 Qualified VI 9.997 10.062 0.65% (10) 11,162,070.9 112,307,489 Qualified IX 10.039 10.065 0.26% (12) 2,996.2 30,157 Qualified X (1.15) 10.009 10.062 0.53% (11) 107,240.1 1,078,999 Qualified X (1.25) 9.997 10.062 0.65% (10) 1,726,930.2 17,375,556 Qualified XI 9.998 10.068 0.70% (10) 1,733,084.5 17,449,528 Qualified XII (0.65) 10.020 10.076 0.56% (11) 37,674.2 379,602 Qualified XII (0.75) 10.065 10.079 0.14% (12) 5,093.2 51,334 Qualified XII (0.85) 9.998 10.071 0.73% (10) 143,089.7 1,441,027 Qualified XII (1.00) 9.998 10.073 0.75% (10) 17,547.2 176,755 Qualified XII (1.05) 9.998 10.072 0.74% (10) 3,535,548.4 35,609,867 Qualified XII (1.20) 9.996 10.068 0.72% (10) 94,345.5 949,916 Qualified XII (1.25) 10.000 10.067 0.67% (10) 5,027,992.4 50,618,444 Qualified XII (1.30) 9.998 10.066 0.68% (10) 217,493.5 2,189,324 Qualified XII (1.40) 9.997 10.064 0.67% (10) 18,631.2 187,501 Qualified XII (1.55) 10.002 10.060 0.58% (10) 32,997.9 331,971 Qualified XII (1.75) 10.019 10.056 0.37% (11) 7,346.0 73,870 Qualified XIII 9.998 10.068 0.70% (10) 423,655.2 4,265,565 Qualified XV 9.997 10.068 0.71% (10) 433,459.3 4,364,276 Qualified XVI 9.995 10.056 0.61% (10) 91,815.2 923,270 Qualified XVII 9.995 10.062 0.67% (10) 113,411.8 1,141,096 Qualified XVIII 9.997 10.062 0.65% (10) 317,662.6 3,196,172 - ----------------------------------------------------------------------------------------------------------------- Aetna Growth and Income VP: Qualified I 285.511 323.019 13.14% 140,708.4 45,451,460 Qualified III 217.359 245.765 13.07% 1,747,097.1 429,375,391 Qualified V 22.179 25.037 12.89% 13,723.7 343,603 Qualified VI 22.194 25.094 13.07% 134,233,827.6 3,368,523,807 Qualified VII 20.910 23.657 13.14% 8,868,088.4 209,791,507 Qualified VIII 20.609 23.301 13.06% 46,913.0 1,093,115 Qualified IX 20.525 23.323 13.63% 18,215.5 424,846 Qualified X (1.15) 22.287 25.225 13.18% 548,039.2 13,824,162 Qualified X (1.25) 22.194 25.094 13.07% 19,989,922.4 501,636,068 Qualified XI 22.325 25.319 13.41% 5,019,610.7 127,089,481 Qualified XII (0.40) 15.108 16.747 10.85% (11) 2,888,621.7 48,375,779 Qualified XII (0.45) 9.561 10.152 6.18% (12) 1,118.7 11,357 Qualified XII (0.50) 10.580 10.665 0.80% (4) 719,561.3 7,673,863 Qualified XII (0.75) 9.935 10.133 1.99% (6) 773,713.1 7,840,042 Qualified XII (0.80) 10.925 11.108 1.68% (5) 15,809,881.3 175,619,924 Qualified XII (0.85) 14.694 16.779 14.19% (1) 5,795,666.6 97,245,182 Qualified XII (0.90) 10.562 10.804 2.29% (3) 8,242.8 89,055 Qualified XII (0.95) 14.756 16.735 13.41% 2,224,466.5 37,225,732 Qualified XII (1.00) 14.744 16.713 13.35% 9,871,040.8 164,971,221 Qualified XII (1.05) 14.732 16.691 13.30% 326,490.2 5,449,309 Qualified XII (1.10) 14.720 16.669 13.24% 33,835.9 563,996 Qualified XII (1.15) 14.708 16.647 13.18% 581,225.8 9,675,416 Qualified XII (1.20) 14.696 16.625 13.13% 224,760.7 3,736,553 Qualified XII (1.25) 14.684 16.603 13.07% 35,132.5 583,294 Qualified XII (1.30) 14.672 16.581 13.01% 2,879.7 47,748 Qualified XII (1.40) 16.562 16.537 (0.15%) (4) 934.1 15,447 Qualified XII (1.50) 14.624 16.493 12.78% 47,949.7 790,856 Qualified XIII 22.301 25.291 13.41% 2,491,029.4 63,000,811 Qualified XV 22.264 25.249 13.41% 4,070,904.3 102,786,499 Qualified XVI 22.153 24.986 12.79% 1,587,350.5 39,661,776 Qualified XVII 22.226 25.193 13.35% 5,670,690.8 142,862,116 Qualified XVIII 22.226 25.193 13.35% 6,366,412.9 160,389,491
S-10 Variable Annuity Account C Condensed Financial Information - Year Ended December 31, 1998 (continued):
- ---------------------------------------------------------------------------------------------------------------------- Value Increase Per Unit (Decrease) Units ------------------------- in Value of Outstanding Reserves Beginning End of Accumulation at End at End of Year Year Unit of Year of Year - ---------------------------------------------------------------------------------------------------------------------- Aetna Growth and Income VP (continued): Qualified XIX $ 285.918 $ 324.288 13.42% 98,421.8 $ 31,917,036 Qualified XX 217.668 246.731 13.35% 195,339.4 48,196,262 Annuity contracts in payment period 328,867,005 - ---------------------------------------------------------------------------------------------------------------------- Aetna Growth VP: Qualified III 11.392 13.597 19.36% (9) 17.1 232 Qualified V 15.281 17.862 16.89% (4) 196.7 3,513 Qualified VI 13.173 17.912 35.98% 2,395,679.9 42,910,679 Qualified VIII 14.183 17.909 26.27% (2) 933.5 16,717 Qualified X (1.15) 13.183 17.943 36.11% 26,152.5 469,247 Qualified X (1.25) 13.173 17.912 35.98% 289,055.2 5,177,468 Qualified XI 13.202 18.005 36.38% 115,676.6 2,082,742 Qualified XII (0.40) 15.200 18.018 18.54% (11) 21,805.3 392,890 Qualified XII (0.45) 10.444 11.470 9.82% (12) 291.1 3,339 Qualified XII (0.50) 10.479 12.397 18.30% (4) 19,997.4 247,910 Qualified XII (0.75) 9.925 11.449 15.36% (6) 18,200.0 208,378 Qualified XII (0.80) 11.326 13.030 15.05% (5) 303,987.0 3,961,021 Qualified XII (0.85) 13.357 18.036 35.03% (1) 24,239.7 437,189 Qualified XII (0.90) 10.958 12.681 15.72% (4) 628.2 7,966 Qualified XII (0.95) 13.202 18.005 36.38% 25,777.5 464,120 Qualified XII (1.00) 12.674 17.989 41.94% (1) 194,080.7 3,491,376 Qualified XII (1.05) 13.192 17.974 36.25% 23,218.5 417,323 Qualified XII (1.10) 13.188 17.958 36.17% 1,760.5 31,615 Qualified XII (1.15) 13.183 17.943 36.11% 14,989.3 268,948 Qualified XII (1.20) 14.173 17.927 26.49% (2) 7,333.1 131,461 Qualified XII (1.25) 12.876 17.912 39.11% (1) 5,418.5 97,054 Qualified XII (1.40) 15.724 17.865 13.62% (5) 210.5 3,760 Qualified XII (1.50) 13.027 17.834 36.90% (1) 3,470.4 61,893 Qualified XIII 13.202 18.005 36.38% 81,692.7 1,470,865 Qualified XV 13.202 18.005 36.38% 59,373.8 1,069,017 Qualified XVI 13.149 17.834 35.63% 36,839.4 657,009 Qualified XVII 13.173 17.912 35.98% 25,257.0 452,395 Qualified XVIII 15.603 18.010 15.43% (5) 11,000.2 198,112 Annuity contracts in payment period 116,487 - ---------------------------------------------------------------------------------------------------------------------- Aetna High Yield VP: Qualified VI 9.969 9.212 (7.59%) (5) 91,056.3 838,818 Qualified X (1.25) 9.968 9.212 (7.58%) (6) 7,393.7 68,111 Qualified XI 9.216 9.231 0.16% (11) 1,841.9 17,003 Qualified XII (0.40) 9.125 9.238 1.24% (11) 1,146.3 10,589 Qualified XII (0.50) 9.961 9.260 (7.04%) (5) 834.1 7,723 Qualified XII (0.75) 10.145 9.284 (8.49%) (7) 0.3 3 Qualified XII (0.80) 9.939 9.241 (7.02%) (6) 15,410.5 142,405 Qualified XII (0.85) 9.899 9.238 (6.68%) (8) 643.7 5,946 Qualified XII (0.95) 10.078 9.231 (8.40%) (7) 798.8 7,374 Qualified XII (1.00) 9.149 9.228 0.86% (9) 9,210.9 84,998 Qualified XII (1.05) 9.995 9.225 (7.70%) (6) 110.4 1,019 Qualified XII (1.10) 9.096 9.222 1.39% (9) 10.2 94 Qualified XII (1.15) 9.959 9.218 (7.44%) (6) 1,725.0 15,902 Qualified XII (1.20) 9.935 9.215 (7.25%) (6) 131.8 1,215 Qualified XIII 8.889 9.231 3.85% (10) 16.5 153 Qualified XV 10.044 9.231 (8.09%) (7) 1,308.2 12,076 Qualified XVI 9.616 9.196 (4.37%) (8) 64.5 593 Qualified XVII 9.135 9.212 0.84% (12) 2,225.0 20,497 Qualified XVIII 10.003 9.212 (7.91%) (6) 1,070.3 9,859 - ---------------------------------------------------------------------------------------------------------------------- Aetna Index Plus Bond VP: Qualified III 10.128 10.578 4.44% (5) 134,777.2 1,425,611 - ----------------------------------------------------------------------------------------------------------------------
S-11 Variable Annuity Account C Condensed Financial Information - Year Ended December 31, 1998 (continued):
- ------------------------------------------------------------------------------------------------------------------------ Value Per Unit Increase (Decrease) Units ------------------------ in Value of Outstanding Reserves Beginning End of Accumulation at End at End of Year Year Unit of Year of Year - ------------------------------------------------------------------------------------------------------------------------ Aetna Index Plus Large Cap VP: Qualified V $ 14.414 $ 18.704 29.76% 3,164.5 $ 59,187 Qualified VI 14.444 18.772 29.96% 7,100,482.5 133,292,287 Qualified VIII 14.443 18.769 29.95% 843.6 15,833 Qualified X (1.15) 14.463 18.815 30.09% 45,787.2 861,504 Qualified X (1.25) 14.444 18.772 29.96% 616,723.6 11,577,311 Qualified XI 14.500 18.902 30.36% 386,035.6 7,296,824 Qualified XII (0.40) 16.874 18.916 12.10% (11) 87,237.6 1,650,175 Qualified XII (0.45) 10.639 11.307 6.28% (12) 859.2 9,715 Qualified XII (0.50) 10.708 12.019 12.24% (4) 13,477.2 161,986 Qualified XII (0.75) 10.015 11.286 12.69% (6) 48,831.3 551,106 Qualified XII (0.80) 11.117 12.587 13.22% (5) 1,974,900.4 24,858,384 Qualified XII (0.85) 14.692 18.945 28.95% (1) 459,427.5 8,704,042 Qualified XII (0.90) 10.648 12.206 14.63% (3) 2,383.9 29,098 Qualified XII (0.95) 14.500 18.902 30.36% 108,387.2 2,048,730 Qualified XII (1.00) 14.491 18.880 30.29% 648,540.4 12,244,624 Qualified XII (1.05) 14.481 18.859 30.23% 51,170.0 964,995 Qualified XII (1.10) 14.472 18.837 30.16% 10,487.9 197,560 Qualified XII (1.15) 14.463 18.815 30.09% 26,209.5 493,143 Qualified XII (1.20) 14.453 18.794 30.04% 28,911.2 543,351 Qualified XII (1.25) 14.444 18.772 29.96% 593.5 11,141 Qualified XII (1.30) 14.435 18.751 29.90% 12,423.1 232,941 Qualified XII (1.40) 16.556 18.708 13.00% (5) 172.5 3,228 Qualified XII (1.50) 14.397 18.665 29.65% 16,814.2 313,835 Qualified XIII 14.500 18.902 30.36% 145,736.2 2,754,698 Qualified XIV 14.444 18.772 29.96% 1,302,824.7 24,456,998 Qualified XV 14.489 18.888 30.36% 136,251.8 2,573,507 Qualified XVI 14.418 18.691 29.64% 68,840.7 1,286,721 Qualified XVII 14.452 18.802 30.10% 48,458.7 911,108 Qualified XVIII 16.559 18.876 13.99% (5) 25,149.7 474,717 Annuity contracts in payment period 437,343 - ------------------------------------------------------------------------------------------------------------------------ Aetna Index Plus Mid Cap VP: Qualified III 9.928 11.338 14.20% (5) 35,201.0 399,109 Qualified VI 10.107 10.891 7.76% (5) 146,921.2 1,600,074 Qualified X (1.25) 9.925 10.891 9.73% (5) 35,030.5 381,506 Qualified XI 7.633 10.913 42.97% (10) 5,165.7 56,375 Qualified XII (0.40) 9.480 10.921 15.20% (11) 1,186.8 12,961 Qualified XII (0.50) 10.050 10.947 8.93% (5) 2,661.9 29,140 Qualified XII (0.75) 9.822 11.183 13.86% (6) 1,622.7 18,147 Qualified XII (0.80) 9.576 10.925 14.09% (6) 80,312.2 877,375 Qualified XII (0.85) 9.028 10.921 20.97% (8) 5,681.1 62,042 Qualified XII (0.95) 10.108 10.913 7.96% (5) 564.1 6,156 Qualified XII (1.00) 7.996 10.909 36.43% (9) 24,015.5 261,997 Qualified XII (1.05) 9.624 10.906 13.32% (7) 167.7 1,829 Qualified XII (1.10) 9.772 10.902 11.56% (12) 2.6 28 Qualified XII (1.15) 9.105 10.898 19.69% (8) 95.5 1,040 Qualified XII (1.20) 9.662 10.894 12.75% (6) 451.6 4,920 Qualified XII (1.30) 9.805 10.887 11.04% (11) 40.6 442 Qualified XII (1.50) 9.216 10.872 17.97% (8) 44.9 488 Qualified XIII 9.927 10.913 9.93% (5) 9,117.4 99,501 Qualified XV 9.962 10.913 9.55% (5) 26,111.0 284,957 Qualified XVI 9.946 10.872 9.31% (7) 202.8 2,204 Qualified XVIII 9.017 10.891 20.78% (8) 1,486.1 16,186 - ------------------------------------------------------------------------------------------------------------------------ Aetna Index Plus Small Cap VP: Qualified III 10.193 9.157 (10.16%) (5) 81,388.0 745,282 Qualified V 6.661 8.806 32.20% (10) 7.3 64 Qualified VI 9.996 8.815 (11.81%) (5) 253,183.9 2,231,889
S-12 Variable Annuity Account C Condensed Financial Information - Year Ended December 31, 1998 (continued):
- -------------------------------------------------------------------------------------------------------------------------- Value Per Unit Increase (Decrease) Units ----------------------- in Value of Outstanding Reserves Beginning End of Accumulation at End at End of Year Year Unit of Year of Year - -------------------------------------------------------------------------------------------------------------------------- Aetna Index Plus Small Cap VP (continued): Qualified X (1.25) $ 9.918 $ 8.815 (11.12%) (5) 40,793.4 $ 359,606 Qualified XI 6.425 8.834 37.49% (10) 6,054.3 53,481 Qualified XII (0.40) 8.071 8.840 9.53% (11) 3,928.4 34,727 Qualified XII (0.50) 9.328 8.861 (5.01%) (6) 17.2 153 Qualified XII (0.75) 9.642 9.201 (4.57%) (6) 1,480.7 13,624 Qualified XII (0.80) 9.269 8.843 (4.60%) (6) 90,819.3 803,093 Qualified XII (0.85) 8.464 8.840 4.44% (8) 6,564.0 58,024 Qualified XII (0.90) 9.582 8.837 (7.77%) (7) 62.0 548 Qualified XII (0.95) 9.366 8.834 (5.68%) (6) 2,625.2 23,190 Qualified XII (1.00) 9.580 8.831 (7.82%) (7) 27,046.5 238,835 Qualified XII (1.05) 9.530 8.827 (7.38%) (7) 329.5 2,909 Qualified XII (1.15) 9.569 8.821 (7.82%) (7) 1,234.1 10,887 Qualified XII (1.20) 9.244 8.818 (4.61%) (6) 989.0 8,721 Qualified XII (1.30) 8.198 8.812 7.49% (11) 48.7 429 Qualified XII (1.50) 7.150 8.800 23.08% (8) 77.6 683 Qualified XIII 9.997 8.834 (11.63%) (5) 12,799.8 113,068 Qualified XV 9.876 8.834 (10.55%) (5) 26,256.7 231,941 Qualified XVI 9.775 8.800 (9.97%) (5) 597.9 5,261 Qualified XVII 6.682 8.815 31.92% (10) 748.3 6,597 Qualified XVIII 8.454 8.815 4.27% (8) 1,150.8 10,143 - -------------------------------------------------------------------------------------------------------------------------- Aetna International VP: Qualified VI 10.182 9.765 (4.10%) (5) 97,659.7 953,611 Qualified X (1.25) 10.182 9.765 (4.10%) (5) 25,090.2 244,996 Qualified XI 8.779 9.785 11.46% (10) 583.1 5,705 Qualified XII (0.45) 9.231 9.567 3.64% (12) 61.4 587 Qualified XII (0.50) 8.967 9.815 9.46% (11) 561.5 5,512 Qualified XII (0.75) 9.600 9.550 (0.52%) (8) 7.1 68 Qualified XII (0.80) 10.043 9.795 (2.47%) (6) 45,800.6 448,617 Qualified XII (0.85) 9.580 9.792 2.21% (8) 8,719.1 85,374 Qualified XII (0.95) 10.103 9.785 (3.15%) (5) 1,246.5 12,197 Qualified XII (1.00) 10.061 9.781 (2.78%) (5) 14,897.8 145,723 Qualified XII (1.05) 8.935 9.778 9.43% (8) 182.1 1,781 Qualified XII (1.15) 9.763 9.771 0.08% (8) 166.5 1,627 Qualified XII (1.20) 9.973 9.768 (2.06%) (6) 122.9 1,201 Qualified XIII 10.183 9.785 (3.91%) (5) 7,766.6 75,995 Qualified XV 9.974 9.785 (1.89%) (8) 168.2 1,646 Qualified XVI 9.737 9.748 0.11% (6) 1,095.3 10,677 Qualified XVIII 10.021 9.765 (2.55%) (6) 2,121.1 20,710 - -------------------------------------------------------------------------------------------------------------------------- Aetna Legacy VP: Qualified III 13.491 14.248 5.61% 95,526.3 1,361,074 Qualified V 13.439 14.171 5.45% 536.8 7,607 Qualified VI 13.491 14.248 5.61% 1,971,280.9 28,087,126 Qualified X (1.15) 13.583 14.360 5.72% 76,396.2 1,097,045 Qualified X (1.25) 13.550 14.310 5.61% 507,368.3 7,260,552 Qualified XI 13.571 14.375 5.92% 63,385.3 911,193 Qualified XII (0.40) 12.598 13.111 4.07% (11) 19,291.3 252,937 Qualified XII (0.50) 10.115 10.293 1.76% (6) 165.1 1,699 Qualified XII (0.75) 9.977 10.054 0.77% (6) 21,150.2 212,634 Qualified XII (0.80) 10.359 10.423 0.62% (5) 418,989.2 4,367,015 Qualified XII (0.85) 12.497 13.136 5.11% (1) 61,042.9 801,884 Qualified XII (0.90) 10.390 10.351 (0.38%) (5) 37.0 383 Qualified XII (0.95) 12.369 13.102 5.93% 55,493.5 727,061 Qualified XII (1.00) 12.358 13.084 5.87% 190,406.2 2,491,362 Qualified XII (1.05) 12.348 13.067 5.82% 62,452.8 816,080 Qualified XII (1.10) 12.338 13.050 5.77% 3,369.4 43,971 Qualified XII (1.15) 12.328 13.033 5.72% 23,052.4 300,435
S-13 Variable Annuity Account C Condensed Financial Information - Year Ended December 31, 1998 (continued):
- ------------------------------------------------------------------------------------------------------------------------------- Value Per Unit Increase (Decrease) Units ------------------------ in Value of Outstanding Reserves Beginning End of Accumulation at End at End of Year Year Unit of Year of Year - ------------------------------------------------------------------------------------------------------------------------------- Aetna Legacy VP (continued): Qualified XII (1.20) $ 12.606 $ 13.015 3.24% (2) 61,972.6 $ 806,604 Qualified XII (1.25) 12.308 12.998 5.61% 5,866.3 76,253 Qualified XII (1.30) 12.298 12.981 5.55% 30,754.8 399,233 Qualified XII (1.50) 12.257 12.913 5.35% 14,096.9 182,030 Qualified XIII 13.557 14.361 5.93% 17,755.5 254,980 Qualified XV 13.534 14.336 5.93% 80,906.6 1,159,876 Qualified XVI 13.467 14.187 5.35% 32,088.1 455,223 Qualified XVII 13.518 14.327 5.98% 10,683.7 153,062 Qualified XVIII 13.577 14.389 5.98% 58,579.8 842,907 Annuity contracts in payment period 261,063 - ------------------------------------------------------------------------------------------------------------------------------- Aetna Money Market VP: Qualified I 41.763 43.523 4.21% 31,408.3 1,366,973 Qualified III 41.174 42.883 4.15% 564,537.2 24,209,040 Qualified V 11.888 12.362 3.99% 16,631.9 205,599 Qualified VI 11.951 12.447 4.15% 10,102,496.1 125,745,345 Qualified VII 11.867 12.367 4.21% 349,707.5 4,324,917 Qualified VIII 11.509 11.986 4.14% 3,278.4 39,294 Qualified IX 11.827 12.349 4.41% 1,816.8 22,435 Qualified X (1.15) 12.002 12.512 4.25% 190,680.2 2,385,820 Qualified X (1.25) 11.951 12.447 4.15% 2,329,194.7 28,991,388 Qualified XI 12.022 12.558 4.46% 230,562.1 2,895,449 Qualified XII (0.40) 11.148 11.225 0.69% (11) 107,235.3 1,203,719 Qualified XII (0.50) 10.050 10.399 3.47% (4) 34,355.4 357,246 Qualified XII (0.75) 10.022 10.283 2.60% (6) 26,809.9 275,699 Qualified XII (0.80) 10.136 10.414 2.74% (5) 1,574,453.7 16,396,164 Qualified XII (0.85) 10.799 11.246 4.14% (1) 396,668.8 4,461,110 Qualified XII (0.90) 10.297 10.381 0.82% (10) 1,235.3 12,824 Qualified XII (0.95) 10.738 11.217 4.46% 127,185.5 1,426,606 Qualified XII (1.00) 10.729 11.202 4.41% 1,039,908.8 11,649,013 Qualified XII (1.05) 10.720 11.187 4.36% 43,460.6 486,200 Qualified XII (1.10) 10.711 11.172 4.30% 6,783.6 75,790 Qualified XII (1.15) 10.702 11.158 4.26% 76,593.5 854,604 Qualified XII (1.20) 10.761 11.143 3.55% (2) 15,146.8 168,779 Qualified XII (1.25) 10.746 11.128 3.55% (2) 6,648.9 73,991 Qualified XII (1.30) 10.676 11.114 4.10% 13,000.2 144,478 Qualified XII (1.40) 10.821 11.084 2.43% (5) 160.5 1,779 Qualified XII (1.50) 10.641 11.055 3.89% 13,218.2 146,126 Qualified XIII 12.009 12.545 4.46% 132,737.2 1,665,127 Qualified XV 11.989 12.524 4.46% 300,194.8 3,759,548 Qualified XVI 11.929 12.393 3.89% 123,429.0 1,529,681 Qualified XVII 11.951 12.447 4.15% 553,914.9 6,894,555 Qualified XVIII 11.951 12.447 4.15% 853,247.4 10,620,334 Qualified XIX 41.763 43.523 4.21% 29,827.3 1,298,164 Qualified XX 41.174 42.883 4.15% 120,538.6 5,169,057 Annuity contracts in payment period 83,117 - ------------------------------------------------------------------------------------------------------------------------------- Aetna Real Estate Securities VP: Qualified VI 10.126 8.873 (12.37%) (5) 90,949.1 806,970 Qualified VIII 10.031 8.872 (11.55%) (7) 182.8 1,622 Qualified X (1.25) 9.904 8.873 (10.41%) (6) 12,789.0 113,474 Qualified XI 8.634 8.891 2.98% (10) 672.8 5,982 Qualified XII (0.40) 8.679 8.898 2.52% (11) 1,098.6 9,775 Qualified XII (0.50) 9.655 8.919 (7.62%) (6) 649.4 5,792 Qualified XII (0.75) 9.792 8.944 (8.66%) (6) 8.6 77 Qualified XII (0.80) 10.041 8.900 (11.36%) (7) 27,224.5 242,309 Qualified XII (0.85) 10.041 8.897 (11.39%) (7) 397.9 3,540 Qualified XII (0.95) 10.053 8.891 (11.56%) (5) 15,245.1 135,547
S-14 Variable Annuity Account C Condensed Financial Information - Year Ended December 31, 1998 (continued):
- --------------------------------------------------------------------------------------------------------------------------------- Value Per Unit Increase (Decrease) Units ----------------------- in Value of Outstanding Reserves Beginning End of Accumulation at End at End of Year Year Unit of Year of Year - --------------------------------------------------------------------------------------------------------------------------------- Aetna Real Estate Securities VP (continued): Qualified XII (1.00) $ 9.214 $ 8.888 (3.54%) (9) 6,500.0 $ 57,773 Qualified XII (1.05) 9.899 8.885 (10.24%) (6) 131.2 1,166 Qualified XII (1.10) 9.159 8.882 (3.02%) (9) 15.5 138 Qualified XII (1.15) 10.034 8.879 (11.51%) (7) 2,845.4 25,264 Qualified XII (1.20) 9.633 8.876 (7.86%) (6) 371.7 3,299 Qualified XIII 10.127 8.891 (12.20%) (5) 11,639.0 103,484 Qualified XV 10.024 8.891 (11.30%) (5) 1,414.9 12,580 Qualified XVI 8.524 8.857 3.91% (9) 1,342.4 11,890 Qualified XVIII 9.907 8.873 (10.44%) (6) 2,297.4 20,384 - --------------------------------------------------------------------------------------------------------------------------------- Aetna Small Company VP: Qualified V 13.186 13.595 3.10% (1) 11.6 158 Qualified VI 13.654 13.633 (0.15%) 1,696,713.8 23,131,181 Qualified VIII 13.346 13.631 2.14% (1) 105.6 1,440 Qualified X (1.15) 13.664 13.657 (0.05%) 20,254.4 276,606 Qualified X (1.25) 13.654 13.633 (0.15%) 208,453.6 2,841,833 Qualified XI 13.684 13.704 0.15% 61,244.3 839,286 Qualified XII (0.40) 12.820 13.714 6.97% (11) 15,613.9 214,129 Qualified XII (0.45) 8.583 9.176 6.91% (12) 317.8 2,916 Qualified XII (0.50) 10.719 9.312 (13.13%) (4) 7,540.9 70,221 Qualified XII (0.75) 9.812 9.159 (6.66%) (6) 13,042.9 119,462 Qualified XII (0.80) 10.578 9.764 (7.70%) (5) 1,165,744.5 11,382,850 Qualified XII (0.85) 13.558 13.728 1.25% (1) 25,298.1 347,283 Qualified XII (0.90) 10.939 9.513 (13.04%) (4) 2,603.8 24,770 Qualified XII (0.95) 13.684 13.704 0.15% 44,944.2 615,911 Qualified XII (1.00) 14.234 13.692 (3.81%) (2) 404,068.0 5,532,521 Qualified XII (1.05) 13.674 13.680 0.04% 5,235.3 71,620 Qualified XII (1.10) 13.669 13.668 (0.01%) 6,323.0 86,425 Qualified XII (1.15) 13.664 13.657 (0.05%) 9,141.2 124,838 Qualified XII (1.20) 14.380 13.645 (5.11%) (2) 24,930.3 340,167 Qualified XII (1.25) 13.203 13.633 3.26% (1) 7,547.6 102,896 Qualified XII (1.40) 11.872 13.598 14.54% (9) 71.7 975 Qualified XII (1.50) 13.629 13.574 (0.40%) 3,580.5 48,602 Qualified XIII 13.684 13.704 0.15% 52,935.6 725,425 Qualified XV 13.684 13.704 0.15% 49,514.4 678,541 Qualified XVI 13.629 13.574 (0.40%) 21,070.1 286,008 Qualified XVII 13.654 13.633 (0.15%) 4,296.5 58,574 Qualified XVIII 15.646 13.708 (12.39%) (5) 3,089.3 42,347 Annuity contracts in payment period 9,901 - --------------------------------------------------------------------------------------------------------------------------------- Aetna Value Opportunity VP: Qualified III 11.472 12.088 5.37% (5) 33,957.0 410,457 Qualified V 14.922 15.985 7.12% (4) 116.2 1,857 Qualified VI 13.261 16.030 20.88% 1,079,290.5 17,300,643 Qualified VIII 14.070 16.028 13.92% (2) 170.3 2,730 Qualified X (1.25) 13.261 16.030 20.88% 112,738.5 1,807,157 Qualified XI 13.290 16.113 21.24% 54,627.0 880,205 Qualified XII (0.40) 13.986 16.125 15.29% (11) 11,799.4 190,264 Qualified XII (0.50) 10.508 11.369 8.19% (4) 992.7 11,286 Qualified XII (0.75) 9.921 10.620 7.05% (6) 14,488.0 153,864 Qualified XII (0.80) 10.972 11.692 6.56% (5) 350,825.7 4,101,946 Qualified XII (0.85) 13.404 16.141 20.42% (1) 15,014.4 242,346 Qualified XII (0.90) 10.515 11.462 9.01% (3) 3,526.4 40,419 Qualified XII (0.95) 13.290 16.113 21.24% 29,112.3 469,087 Qualified XII (1.00) 12.765 16.099 26.12% (1) 98,683.4 1,588,714 Qualified XII (1.05) 13.281 16.085 21.11% 3,647.9 58,677 Qualified XII (1.10) 13.276 16.071 21.05% 1,219.4 19,598
S-15 Variable Annuity Account C Condensed Financial Information - Year Ended December 31, 1998 (continued):
- ---------------------------------------------------------------------------------------------------------------------- Value Per Unit Increase (Decrease) Units ------------------------ in Value of Outstanding Reserves Beginning End of Accumulation at End at End of Year Year Unit of Year of Year - ---------------------------------------------------------------------------------------------------------------------- Aetna Value Opportunity VP (continued): Qualified XII (1.15) $ 13.271 $ 16.057 20.99% 4,025.1 $ 64,633 Qualified XII (1.20) 14.033 16.044 14.33% (2) 12,115.1 194,368 Qualified XII (1.25) 12.844 16.030 24.81% (1) 1,234.3 19,786 Qualified XII (1.30) 15.827 16.016 1.19% (12) 87.7 1,405 Qualified XII (1.40) 15.181 15.988 5.32% (5) 39.1 625 Qualified XII (1.50) 13.237 15.960 20.57% 2,432.4 38,822 Qualified XIII 13.290 16.113 21.24% 19,971.3 321,798 Qualified XV 13.290 16.113 21.24% 32,611.7 525,472 Qualified XVI 13.237 15.960 20.57% 15,870.2 253,296 Qualified XVII 12.899 16.030 24.27% (1) 5,260.5 84,325 Qualified XVIII 16.118 16.118 0.00% (12) 84.5 1,359 - ---------------------------------------------------------------------------------------------------------------------- Calvert Social Balanced Portfolio: Qualified III 23.675 27.186 14.83% 917,567.2 24,944,800 Qualified V 18.234 20.904 14.64% 1,516.9 31,708 Qualified VI 17.840 20.485 14.83% 1,306,652.4 26,767,345 Qualified VIII 16.207 18.609 14.82% 6,057.5 112,723 Qualified X (1.25) 9.839 10.500 6.72% (6) 17,067.7 179,203 Qualified XI 17.946 20.668 15.17% 71,154.2 1,470,649 Qualified XII (0.40) 13.635 14.976 9.83% (11) 38,218.1 572,357 Qualified XII (0.45) 10.217 10.714 4.86% (12) 552.8 5,922 Qualified XII (0.50) 10.377 10.966 5.68% (4) 50,868.4 557,814 Qualified XII (0.75) 10.081 10.694 6.08% (6) 9,542.9 102,055 Qualified XII (0.80) 10.492 11.254 7.26% (5) 91,332.8 1,027,864 Qualified XII (0.85) 13.124 15.005 14.33% (1) 132,604.9 1,989,689 Qualified XII (0.95) 12.994 14.965 15.17% 95,020.1 1,421,979 Qualified XII (1.00) 12.983 14.945 15.11% 108,344.1 1,619,237 Qualified XII (1.05) 12.972 14.926 15.06% 25,821.6 385,403 Qualified XII (1.10) 13.068 14.906 14.06% (1) 1,048.3 15,626 Qualified XII (1.15) 12.951 14.886 14.94% 48,552.7 722,766 Qualified XII (1.20) 13.354 14.867 11.33% (2) 2,926.4 43,505 Qualified XII (1.25) 12.930 14.847 14.83% 50.5 750 Qualified XII (1.30) 12.919 14.827 14.77% 13.0 192 Qualified XII (1.50) 12.877 14.749 14.54% 1,708.5 25,199 Qualified XIII 17.926 20.646 15.17% 21,808.2 450,252 Qualified XV 17.896 20.612 15.18% 37,944.0 782,091 Qualified XVI 17.808 20.397 14.54% 24,487.0 499,461 Qualified XVII 17.840 20.485 14.83% 3,612.3 74,000 Qualified XVIII 10.094 10.500 4.02% (7) 9,411.8 98,817 - ---------------------------------------------------------------------------------------------------------------------- Fidelity Investments Variable Insurance Products Fund: Equity-Income Portfolio: Qualified III 16.587 18.285 10.24% 2,533,673.2 46,328,715 Qualified V 15.723 17.305 10.06% 488.1 8,446 Qualified VI 15.837 17.459 10.24% 6,281,076.6 109,662,239 Qualified VIII 15.781 17.395 10.23% 4,737.8 82,416 Qualified X (1.15) 19.890 21.948 10.35% 114,565.1 2,514,522 Qualified X (1.25) 19.818 21.848 10.24% 1,332,062.6 29,102,669 Qualified XI 15.931 17.615 10.57% 239,213.5 4,213,775 Qualified XII (0.40) 14.267 15.192 6.48% (11) 54,319.8 825,201 Qualified XII (0.45) 9.516 9.968 4.75% (12) 519.2 5,176 Qualified XII (0.50) 10.522 10.363 (1.51%) (4) 6,791.1 70,376 Qualified XII (0.75) 9.914 9.950 0.36% (6) 67,227.1 668,920 Qualified XII (0.80) 10.873 10.850 (0.21%) (5) 846,659.8 9,186,377 Qualified XII (0.85) 13.708 15.220 11.03% (1) 306,098.9 4,658,977 Qualified XII (0.90) 9.265 10.671 15.18% (9) 20.0 213 Qualified XII (0.95) 13.729 15.180 10.57% 147,150.0 2,233,784 Qualified XII (1.00) 13.718 15.160 10.51% 409,327.3 6,205,534
S-16 Variable Annuity Account C Condensed Financial Information - Year Ended December 31, 1998 (continued):
- ----------------------------------------------------------------------------------------------------------------- Value Per Unit Increase (Decrease) Units ------------------------ in Value of Outstanding Reserves Beginning End of Accumulation at End at End of Year Year Unit of Year of Year - ----------------------------------------------------------------------------------------------------------------- Equity-Income Portfolio (continued): Qualified XII (1.05) $ 13.706 $ 15.140 10.46% 81,061.5 $ 1,227,296 Qualified XII (1.10) 13.695 15.120 10.41% 4,490.0 67,891 Qualified XII (1.15) 13.684 15.100 10.35% 62,313.0 940,950 Qualified XII (1.20) 14.168 15.080 6.44% (2) 13,583.5 204,846 Qualified XII (1.25) 13.661 15.061 10.25% 8,740.6 131,639 Qualified XII (1.30) 13.650 15.041 10.19% 3,611.9 54,325 Qualified XII (1.40) 15.124 15.001 (0.81%) (5) 2,077.2 31,160 Qualified XII (1.50) 13.606 14.961 9.96% 9,413.6 140,841 Qualified XIII 15.914 17.596 10.57% 74,067.2 1,303,285 Qualified XV 15.887 17.567 10.57% 68,970.1 1,211,581 Qualified XVI 15.808 17.384 9.97% 222,658.2 3,870,640 Qualified XVII 15.837 17.459 10.24% 44,812.1 782,380 Qualified XVIII 19.818 21.848 10.24% 21,380.3 467,113 - ----------------------------------------------------------------------------------------------------------------- Growth Portfolio: Qualified I 13.142 18.115 37.84% 448.8 8,131 Qualified III 14.087 19.406 37.76% 71.9 1,395 Qualified V 14.021 19.285 37.54% 1,160.1 22,372 Qualified VI 13.904 19.155 37.77% 7,144,437.7 136,848,861 Qualified VIII 14.073 19.385 37.75% 5,391.9 104,524 Qualified X (1.15) 19.409 26.764 37.89% 76,868.5 2,057,310 Qualified X (1.25) 19.339 26.641 37.76% 1,278,104.0 34,049,762 Qualified XI 13.987 19.326 38.17% 292,984.6 5,662,140 Qualified XII (0.40) 15.510 17.525 12.99% (11) 128,517.6 2,252,224 Qualified XII (0.50) 10.651 12.779 19.98% (4) 18,614.4 237,873 Qualified XII (0.75) 9.956 12.150 22.04% (6) 63,727.2 774,299 Qualified XII (0.80) 10.887 13.307 22.23% (5) 981,477.1 13,060,689 Qualified XII (0.85) 12.857 17.558 36.56% (1) 399,819.9 7,020,059 Qualified XII (0.90) 10.757 12.978 20.65% (4) 1,343.2 17,433 Qualified XII (0.95) 12.674 17.512 38.17% 165,194.2 2,892,838 Qualified XII (1.00) 12.663 17.489 38.11% 581,798.3 10,174,875 Qualified XII (1.05) 12.653 17.466 38.04% 65,095.3 1,136,925 Qualified XII (1.10) 12.643 17.443 37.97% 13,477.5 235,081 Qualified XII (1.15) 12.632 17.420 37.90% 70,232.0 1,223,407 Qualified XII (1.20) 13.438 17.397 29.46% (2) 58,305.3 1,014,312 Qualified XII (1.25) 12.612 17.374 37.76% 9,906.3 172,109 Qualified XII (1.30) 12.601 17.351 37.70% 2,635.9 45,735 Qualified XII (1.40) 14.386 17.305 20.29% (5) 4,116.0 71,227 Qualified XII (1.50) 12.560 17.259 37.41% 12,955.9 223,609 Qualified XIII 13.972 19.305 38.17% 100,561.3 1,941,310 Qualified XV 13.948 19.273 38.18% 176,188.4 3,395,613 Qualified XVI 13.879 19.072 37.42% 228,968.9 4,366,889 Qualified XVII 13.904 19.155 37.77% 41,575.2 796,355 Qualified XVIII 19.339 26.641 37.76% 22,564.9 601,146 - ----------------------------------------------------------------------------------------------------------------- High Income Portfolio: Qualified III 9.995 9.023 (9.72%) (5) 178,600.9 1,611,556 - ----------------------------------------------------------------------------------------------------------------- Overseas Portfolio: Qualified V 12.222 13.587 11.17% 33.6 457 Qualified VI 12.269 13.662 11.35% 651,566.3 8,901,467 Qualified VIII 12.267 13.658 11.34% 243.9 3,331 Qualified X (1.15) 12.686 14.140 11.46% 15,875.5 224,473 Qualified X (1.25) 12.640 14.074 11.34% 194,687.2 2,740,125 Qualified XI 12.342 13.784 11.68% 26,108.2 359,869 Qualified XII (0.40) 12.178 13.170 8.15% (11) 10,817.1 142,461 Qualified XII (0.50) 10.774 10.183 (5.49%) (4) 251.0 2,556 Qualified XII (0.75) 9.912 9.427 (4.89%) (6) 4,502.1 42,443 Qualified XII (0.80) 11.184 10.530 (5.85%) (5) 47,503.2 500,227
S-17 Variable Annuity Account C Condensed Financial Information - Year Ended December 31, 1998 (continued):
- ---------------------------------------------------------------------------------------------------------------- Value Per Unit Increase (Decrease) Units ------------------------ in Value of Outstanding Reserves Beginning End of Accumulation at End at End of Year Year Unit of Year of Year - ---------------------------------------------------------------------------------------------------------------- Overseas Portfolio (continued): Qualified XII (0.85) $ 12.182 $ 13.195 8.32% (1) 13,936.7 $ 183,897 Qualified XII (0.95) 11.783 13.160 11.69% 9,216.6 121,293 Qualified XII (1.00) 11.774 13.143 11.63% 44,182.9 580,693 Qualified XII (1.05) 11.764 13.126 11.58% 9,112.9 119,612 Qualified XII (1.10) 11.754 13.108 11.52% 1,859.7 24,378 Qualified XII (1.15) 11.745 13.091 11.46% 9,778.0 128,004 Qualified XII (1.20) 12.430 13.074 5.18% (2) 5,796.8 75,785 Qualified XII (1.25) 11.726 13.056 11.34% 687.9 8,982 Qualified XII (1.30) 11.716 13.039 11.29% 408.4 5,325 Qualified XII (1.40) 13.828 13.005 (5.95%) (5) 112.7 1,466 Qualified XII (1.50) 11.678 12.971 11.07% 467.9 6,069 Qualified XIII 12.328 13.769 11.69% 14,164.7 195,030 Qualified XV 12.308 13.746 11.68% 17,178.0 236,126 Qualified XVI 12.247 13.603 11.07% 11,522.9 156,741 Qualified XVII 12.269 13.662 11.35% 1,816.0 24,809 Qualified XVIII 12.640 14.074 11.34% 2,059.3 28,983 - ---------------------------------------------------------------------------------------------------------------- Fidelity Investments Variable Insurance Products Fund II: Asset Manager Portfolio: Qualified III 14.715 16.719 13.62% 1,596,943.4 26,699,659 - ---------------------------------------------------------------------------------------------------------------- Contrafund Portfolio: Qualified III 17.276 22.177 28.37% 3,333,319.6 73,922,966 Qualified V 15.315 19.627 28.16% 1,261.0 24,749 Qualified VI 15.270 19.601 28.36% 9,575,607.6 187,691,926 Qualified VIII 15.371 19.729 28.35% 3,321.4 65,530 Qualified X (1.15) 17.201 22.103 28.50% 19,136.2 422,961 Qualified X (1.25) 17.156 22.023 28.37% 834,976.3 18,388,472 Qualified XI 15.360 19.776 28.75% 209,707.3 4,147,194 Qualified XII (0.40) 15.219 17.813 17.04% (11) 197,022.1 3,509,529 Qualified XII (0.45) 10.553 11.475 8.74% (12) 1,753.8 20,125 Qualified XII (0.50) 10.673 11.985 12.29% (4) 8,618.1 103,285 Qualified XII (0.75) 9.912 11.454 15.56% (6) 78,074.5 894,250 Qualified XII (0.80) 10.937 12.589 15.10% (5) 2,102,804.7 26,471,967 Qualified XII (0.85) 13.824 17.847 29.10% (1) 217,720.3 3,885,627 Qualified XII (0.90) 10.737 12.293 14.49% (3) 1,037.9 12,758 Qualified XII (0.95) 13.825 17.800 28.75% 254,733.6 4,534,200 Qualified XII (1.00) 13.814 17.776 28.68% 1,138,179.9 20,232,652 Qualified XII (1.05) 13.802 17.753 28.63% 90,949.6 1,614,615 Qualified XII (1.10) 13.791 17.729 28.55% 5,767.6 102,257 Qualified XII (1.15) 13.780 17.706 28.49% 85,590.6 1,515,471 Qualified XII (1.20) 13.768 17.683 28.44% 29,528.3 522,139 Qualified XII (1.25) 13.757 17.659 28.36% 11,736.6 207,260 Qualified XII (1.30) 13.746 17.636 28.30% 10,680.8 188,366 Qualified XII (1.40) 15.738 17.590 11.77% (4) 1,990.2 35,007 Qualified XII (1.50) 13.701 17.543 28.04% 11,751.1 206,153 Qualified XIII 15.343 19.755 28.76% 176,552.7 3,487,733 Qualified XV 15.318 19.722 28.75% 187,525.3 3,698,342 Qualified XVI 15.242 19.516 28.04% 157,444.1 3,072,751 Qualified XVII 15.270 19.601 28.36% 31,455.3 616,556 Qualified XVIII 17.156 22.023 28.37% 22,090.1 486,485 - ---------------------------------------------------------------------------------------------------------------- Index 500 Portfolio: Qualified III 18.662 23.650 26.73% 3,947,186.8 93,352,318 - ---------------------------------------------------------------------------------------------------------------- Janus Aspen Series: Aggressive Growth Portfolio: Qualified III 18.174 24.098 32.60% 2,142,129.7 51,620,505 Qualified V 15.720 20.810 32.38% 2,389.5 49,726 Qualified VI 15.801 20.951 32.59% 7,536,062.4 157,891,352
S-18 Variable Annuity Account C Condensed Financial Information - Year Ended December 31, 1998 (continued):
- ---------------------------------------------------------------------------------------------------------------------- Value Per Unit Increase (Decrease) Units ------------------------ in Value of Outstanding Reserves Beginning End of Accumulation at End at End of Year Year Unit of Year of Year - ---------------------------------------------------------------------------------------------------------------------- Aggressive Growth Portfolio (continued): Qualified VIII $ 15.798 $ 20.945 32.58% 5,606.5 $ 117,425 Qualified X (1.15) 15.295 20.300 32.72% 15,875.8 322,277 Qualified X (1.25) 15.254 20.226 32.59% 565,274.8 11,433,071 Qualified XI 15.895 21.139 32.99% 283,820.6 5,999,598 Qualified XII (0.40) 11.663 14.125 21.11% (11) 198,263.9 2,800,434 Qualified XII (0.50) 10.570 12.541 18.65% (4) 134,432.0 1,685,956 Qualified XII (0.75) 9.887 12.109 22.47% (6) 117,102.9 1,418,013 Qualified XII (0.80) 10.647 13.056 22.63% (5) 1,605,725.7 20,964,683 Qualified XII (0.85) 10.427 14.152 35.72% (1) 320,159.2 4,530,814 Qualified XII (0.90) 10.787 12.830 18.94% (4) 353.1 4,531 Qualified XII (0.95) 10.613 14.114 32.99% 375,663.3 5,302,265 Qualified XII (1.00) 10.604 14.096 32.93% 997,760.1 14,064,209 Qualified XII (1.05) 10.596 14.077 32.85% 114,249.2 1,608,306 Qualified XII (1.10) 10.587 14.059 32.79% 3,031.6 42,621 Qualified XII (1.15) 10.578 14.040 32.73% 103,123.2 1,447,854 Qualified XII (1.20) 10.956 14.022 27.98% (2) 43,050.2 603,629 Qualified XII (1.25) 10.561 14.003 32.59% 4,812.4 67,388 Qualified XII (1.30) 10.552 13.985 32.53% 3,585.6 50,142 Qualified XII (1.40) 11.943 13.948 16.79% (4) 1,441.3 20,102 Qualified XII (1.50) 10.518 13.911 32.26% 13,650.3 189,886 Qualified XIII 15.878 21.116 32.99% 120,002.0 2,533,930 Qualified XV 15.851 21.081 32.99% 212,741.1 4,484,705 Qualified XVI 15.773 20.861 32.26% 100,074.7 2,087,661 Qualified XVII 15.801 20.951 32.59% 32,181.5 674,250 Qualified XVIII 15.254 20.226 32.59% 10,568.2 213,749 - ---------------------------------------------------------------------------------------------------------------------- Balanced Portfolio: Qualified III 15.016 19.914 32.62% 3,698.2 73,645 Qualified V 14.954 19.800 32.41% 426.9 8,452 Qualified VI 15.012 19.908 32.61% 3,192,160.0 63,550,099 Qualified VIII 15.009 19.903 32.61% 3,145.3 62,600 Qualified X (1.15) 15.616 20.731 32.75% 22,910.9 474,964 Qualified X (1.25) 15.576 20.657 32.62% 447,035.2 9,234,497 Qualified XI 15.100 20.086 33.02% 105,755.4 2,124,205 Qualified XII (0.40) 15.614 17.878 14.50% (11) 39,424.1 704,830 Qualified XII (0.45) 10.945 11.816 7.96% (12) 612.1 7,232 Qualified XII (0.50) 10.615 12.415 16.96% (4) 30,062.0 373,209 Qualified XII (0.75) 9.856 11.794 19.66% (6) 26,591.6 313,619 Qualified XII (0.80) 10.741 12.741 18.62% (5) 425,124.8 5,416,639 Qualified XII (0.85) 13.744 17.912 30.33% (1) 47,668.3 853,846 Qualified XII (0.90) 10.570 12.490 18.16% (4) 478.6 5,977 Qualified XII (0.95) 13.431 17.865 33.01% 81,982.5 1,464,616 Qualified XII (1.00) 13.420 17.841 32.94% 184,550.3 3,292,638 Qualified XII (1.05) 13.409 17.818 32.88% 37,433.9 666,991 Qualified XII (1.10) 13.398 17.794 32.81% 4,709.2 83,797 Qualified XII (1.15) 13.387 17.771 32.75% 36,442.2 647,610 Qualified XII (1.20) 14.246 17.747 24.58% (2) 21,104.5 374,551 Qualified XII (1.25) 13.370 17.724 32.57% (1) 797.9 14,141 Qualified XII (1.30) 13.354 17.701 32.55% 668.1 11,826 Qualified XII (1.40) 15.102 17.654 16.90% (5) 564.4 9,964 Qualified XII (1.50) 13.310 17.607 32.28% 20,319.3 357,771 Qualified XIII 15.084 20.064 33.02% 45,434.7 911,610 Qualified XV 15.059 20.031 33.02% 89,095.1 1,784,651 Qualified XVI 14.984 19.822 32.29% 53,979.8 1,070,002 Qualified XVII 15.012 19.908 32.61% 23,034.8 458,581 Qualified XVIII 15.576 20.657 32.62% 25,387.3 524,429 - ----------------------------------------------------------------------------------------------------------------------
S-19 Variable Annuity Account C Condensed Financial Information - Year Ended December 31, 1998 (continued):
- -------------------------------------------------------------------------------------------------------------------- Value Per Unit Increase (Decrease) Units ------------------------ in Value of Outstanding Reserves Beginning End of Accumulation at End at End of Year Year Unit of Year of Year - -------------------------------------------------------------------------------------------------------------------- Flexible Income Portfolio: Qualified III $ 14.430 $ 15.548 7.75% 8,966.5 $ 139,412 Qualified V 14.299 15.383 7.58% 24.7 380 Qualified VI 14.373 15.487 7.75% 1,213,451.1 18,792,980 Qualified VIII 14.370 15.482 7.74% 283.5 4,389 Qualified X (1.25) 10.054 10.419 3.63% (5) 54,517.2 568,008 Qualified XI 14.458 15.626 8.08% 57,101.4 892,246 Qualified XII (0.40) 12.743 13.053 2.43% (11) 21,373.8 278,992 Qualified XII (0.45) 10.457 10.446 (0.11%) (12) 82.2 859 Qualified XII (0.50) 10.186 10.640 4.46% (4) 13,363.7 142,197 Qualified XII (0.75) 10.062 10.427 3.63% (6) 6,947.4 72,440 Qualified XII (0.80) 10.210 10.643 4.24% (5) 367,677.1 3,913,004 Qualified XII (0.85) 12.306 13.078 6.27% (1) 25,566.1 334,351 Qualified XII (0.90) 10.232 10.638 3.97% (4) 392.7 4,178 Qualified XII (0.95) 12.069 13.043 8.07% 36,739.5 479,207 Qualified XII (1.00) 12.059 13.026 8.02% 414,150.6 5,394,811 Qualified XII (1.05) 12.049 13.009 7.97% 13,507.0 175,712 Qualified XII (1.10) 12.039 12.992 7.92% 2,779.8 36,115 Qualified XII (1.15) 12.029 12.975 7.86% 8,868.9 115,071 Qualified XII (1.20) 12.212 12.958 6.11% (2) 13,990.2 181,278 Qualified XII (1.25) 12.112 12.940 6.84% (1) 126.4 1,636 Qualified XII (1.30) 12.225 12.923 5.71% (3) 8,960.0 115,794 Qualified XII (1.40) 12.375 12.889 4.15% (5) 30.2 389 Qualified XII (1.50) 11.960 12.855 7.48% 247.6 3,183 Qualified XIII 14.442 15.609 8.08% 10,857.1 169,464 Qualified XV 14.418 15.583 8.08% 20,316.8 316,591 Qualified XVI 14.347 15.420 7.48% 14,524.0 223,965 Qualified XVII 14.373 15.487 7.75% 9,336.5 144,596 - -------------------------------------------------------------------------------------------------------------------- Growth Portfolio: Qualified III 16.816 22.529 33.97% 1,354,047.1 30,505,388 Qualified V 15.368 20.556 33.76% 1,053.4 21,653 Qualified VI 15.414 20.651 33.98% 2,995,268.0 61,855,860 Qualified VIII 15.424 20.663 33.97% 1,852.6 38,279 Qualified X (1.15) 16.528 22.165 34.11% 33,675.9 746,443 Qualified X (1.25) 16.485 22.086 33.98% 465,445.6 10,279,993 Qualified XI 15.505 20.836 34.38% 128,843.5 2,684,540 Qualified XII (0.40) 14.790 17.807 20.40% (11) 73,901.1 1,315,941 Qualified XII (0.50) 10.286 12.391 20.46% (4) 7,784.6 96,459 Qualified XII (0.75) 9.810 11.666 18.92% (6) 41,103.5 479,534 Qualified XII (0.80) 10.918 12.836 17.57% (5) 434,912.8 5,582,684 Qualified XII (0.85) 13.512 17.841 32.04% (1) 446,603.2 7,967,771 Qualified XII (0.90) 10.569 12.464 17.93% (6) 127.7 1,591 Qualified XII (0.95) 13.242 17.794 34.38% 53,447.5 951,030 Qualified XII (1.00) 13.231 17.770 34.31% 220,151.3 3,912,152 Qualified XII (1.05) 13.220 17.747 34.24% 45,804.1 812,878 Qualified XII (1.10) 13.209 17.723 34.17% 2,555.4 45,291 Qualified XII (1.15) 13.198 17.700 34.11% 39,188.1 693,632 Qualified XII (1.20) 14.218 17.677 24.33% (2) 19,753.5 349,177 Qualified XII (1.25) 13.177 17.653 33.97% 5,365.3 94,715 Qualified XII (1.30) 13.166 17.630 33.91% 911.2 16,065 Qualified XII (1.40) 15.123 17.584 16.27% (5) 2,368.3 41,643 Qualified XII (1.50) 13.123 17.537 33.64% 8,841.6 155,057 Qualified XIII 15.489 20.813 34.37% 47,156.5 981,469 Qualified XV 15.463 20.778 34.37% 61,354.9 1,274,858 Qualified XVI 15.386 20.562 33.64% 56,524.9 1,162,269 Qualified XVII 15.414 20.651 33.98% 7,087.9 146,374 Qualified XVIII 16.485 22.086 33.98% 21,941.8 484,614 Annuity contracts in payment period 235,492 - --------------------------------------------------------------------------------------------------------------------
S-20 Variable Annuity Account C Condensed Financial Information - Year Ended December 31, 1998 (continued):
- --------------------------------------------------------------------------------------------------------------------------- Value Per Unit Increase (Decrease) Units ------------------------ in Value of Outstanding Reserves Beginning End of Accumulation at End at End of Year Year Unit of Year of Year - --------------------------------------------------------------------------------------------------------------------------- Worldwide Growth Portfolio: Qualified III $ 18.690 $ 23.797 27.32% 4,687,166.8 $111,538,596 Qualified V 16.782 21.334 27.12% 2,948.4 62,899 Qualified VI 16.720 21.288 27.32% 14,519,619.8 309,094,974 Qualified VIII 16.670 21.223 27.31% 6,944.9 147,391 Qualified X (1.15) 18.828 23.996 27.45% 74,103.7 1,778,187 Qualified X (1.25) 18.779 23.910 27.32% 1,360,741.2 32,534,708 Qualified XI 16.819 21.478 27.70% 655,880.5 14,087,149 Qualified XII (0.40) 15.344 17.582 14.59% (11) 383,490.2 6,742,350 Qualified XII (0.45) 9.630 10.235 6.28% (12) 1,185.6 12,135 Qualified XII (0.50) 10.980 11.485 4.60% (4) 37,288.1 428,241 Qualified XII (0.75) 9.953 10.217 2.65% (6) 167,605.9 1,712,362 Qualified XII (0.80) 11.798 12.009 1.79% (5) 4,480,347.5 53,804,310 Qualified XII (0.85) 14.300 17.615 23.18% (1) 710,850.5 12,521,719 Qualified XII (0.90) 10.606 11.745 10.74% (3) 5,139.9 60,366 Qualified XII (0.95) 13.757 17.569 27.71% 427,855.0 7,516,824 Qualified XII (1.00) 13.746 17.545 27.64% 2,151,201.8 37,743,896 Qualified XII (1.05) 13.735 17.522 27.57% 202,767.8 3,552,963 Qualified XII (1.10) 13.724 17.499 27.51% 14,917.9 261,052 Qualified XII (1.15) 13.712 17.476 27.45% 130,325.6 2,277,589 Qualified XII (1.20) 13.701 17.453 27.38% 46,823.7 817,219 Qualified XII (1.25) 13.690 17.430 27.32% 10,441.4 181,995 Qualified XII (1.30) 13.679 17.407 27.25% 6,473.0 112,676 Qualified XII (1.40) 16.231 17.361 6.96% (4) 648.5 11,260 Qualified XII (1.50) 13.634 17.315 27.00% 23,084.7 399,722 Qualified XIII 16.800 21.455 27.71% 236,904.3 5,082,747 Qualified XV 16.773 21.419 27.70% 301,775.4 6,463,796 Qualified XVI 16.689 21.196 27.01% 182,950.6 3,877,864 Qualified XVII 16.720 21.288 27.32% 67,482.4 1,436,571 Qualified XVIII 18.779 23.910 27.32% 65,838.9 1,574,179 Annuity contracts in payment period 365,972 - --------------------------------------------------------------------------------------------------------------------------- Lexington Emerging Markets Fund: Qualified III 7.715 5.470 (29.10%) 745,855.7 4,094,455 - --------------------------------------------------------------------------------------------------------------------------- Lexington Natural Resources Trust Fund: Qualified III 14.403 11.433 (20.62%) 534,962.3 6,116,289 Qualified V 15.987 12.670 (20.75%) 2,110.3 26,737 Qualified VI 15.541 12.336 (20.62%) 755,983.9 9,325,791 Qualified VIII 13.472 10.693 (20.63%) 652.7 6,979 Qualified XI 15.633 12.446 (20.39%) 37,897.4 471,683 Qualified XII (0.40) 9.754 9.626 ( 1.31%) (11) 12,236.5 117,791 Qualified XII (0.75) 9.791 7.696 (21.40%) (6) 13,174.5 101,395 Qualified XII (0.80) 10.922 8.415 (22.95%) (5) 140,250.4 1,180,144 Qualified XII (0.85) 11.047 9.645 (12.69%) (1) 14,189.8 136,854 Qualified XII (0.95) 12.082 9.619 (20.39%) 51,076.6 491,310 Qualified XII (1.00) 12.072 9.606 (20.43%) 75,695.4 727,160 Qualified XII (1.05) 12.062 9.594 (20.46%) 2,960.6 28,403 Qualified XII (1.10) 8.980 9.581 6.69% (8) 31.3 300 Qualified XII (1.15) 12.042 9.568 (20.54%) 12,058.7 115,382 Qualified XII (1.20) 11.980 9.556 (20.23%) (6) 2,826.2 27,006 Qualified XII (1.25) 12.022 9.543 (20.62%) 52.7 503 Qualified XII (1.50) 11.973 9.480 (20.82%) 317.5 3,010 Qualified XIII 15.616 12.433 (20.38%) 16,413.6 204,067 Qualified XV 15.590 12.412 (20.38%) 38,283.4 475,178 Qualified XVI 15.512 12.283 (20.82%) 14,341.8 176,155 Qualified XVII 15.541 12.336 (20.62%) 745.1 9,190 - ---------------------------------------------------------------------------------------------------------------------------
S-21 Variable Annuity Account C Condensed Financial Information - Year Ended December 31, 1998 (continued):
- ------------------------------------------------------------------------------------------------------------------- Value Per Unit Increase (Decrease) Units ------------------------ in Value of Outstanding Reserves Beginning End of Accumulation at End at End of Year Year Unit of Year of Year - ------------------------------------------------------------------------------------------------------------------- MFS Funds: Total Return Series: Qualified III $ 10.182 $ 10.531 3.43% (5) 36,633.2 $ 385,767 - ------------------------------------------------------------------------------------------------------------------- Oppenheimer Funds: Global Securities Fund: Qualified III 10.077 10.303 2.24% (6) 20,547.5 211,700 Qualified VI 10.079 10.018 (0.61%) (5) 39,441.2 395,141 Qualified X (1.25) 9.865 10.018 1.55% (5) 11,129.0 111,496 Qualified XI 8.907 10.039 12.71% (10) 773.7 7,768 Qualified XII (0.40) 9.004 10.047 11.58% (11) 1,563.9 15,712 Qualified XII (0.50) 10.131 10.070 (0.60%) (7) 179.7 1,810 Qualified XII (0.75) 9.713 10.027 3.23% (6) 535.3 5,367 Qualified XII (0.80) 10.001 10.050 0.49% (7) 2,686.4 26,997 Qualified XII (0.85) 9.275 10.046 8.31% (8) 7,592.4 76,275 Qualified XII (0.95) 10.182 10.039 (1.40%) (7) 144.4 1,450 Qualified XII (1.00) 9.484 10.036 5.82% (8) 5,395.1 54,144 Qualified XII (1.05) 9.801 10.032 2.36% (6) 180.2 1,808 Qualified XII (1.10) 10.160 10.029 (1.29%) (7) 26.8 269 Qualified XII (1.15) 9.974 10.025 0.51% (7) 294.7 2,954 Qualified XII (1.30) 9.965 10.015 0.50% (12) 139.3 1,395 Qualified XII (1.40) 10.041 10.008 (0.33%) (7) 13.5 135 Qualified XIII 10.080 10.039 (0.41%) (5) 3,153.1 31,654 Qualified XV 10.042 10.039 (0.03%) (5) 381.8 3,833 Qualified XVI 9.728 10.001 2.81% (6) 152.2 1,522 Qualified XVII 8.115 10.018 23.45% (10) 2,464.5 24,691 - ------------------------------------------------------------------------------------------------------------------- Strategic Bond Fund: Qualified III 10.055 9.935 (1.19%) (5) 100,555.4 999,000 Qualified VI 10.015 9.895 (1.20%) (5) 71,074.2 703,260 Qualified X (1.25) 9.988 9.895 (0.93%) (5) 13,884.9 137,388 Qualified XI 9.660 9.915 2.64% (10) 176.2 1,747 Qualified XII (0.40) 9.695 9.923 2.35% (11) 1,512.8 15,011 Qualified XII (0.45) 9.975 9.953 (0.22%) (12) 574.6 5,719 Qualified XII (0.50) 9.995 9.946 (0.49%) (5) 14.2 142 Qualified XII (0.75) 10.029 9.935 (0.94%) (7) 924.6 9,186 Qualified XII (0.80) 10.025 9.926 (0.99%) (6) 18,785.5 186,456 Qualified XII (0.85) 9.935 9.922 (0.13%) (8) 2,776.3 27,546 Qualified XII (0.95) 10.037 9.915 (1.22%) (7) 614.0 6,088 Qualified XII (1.00) 9.991 9.912 (0.79%) (5) 7,329.1 72,645 Qualified XII (1.05) 9.582 9.908 3.40% (10) 4.8 47 Qualified XII (1.10) 9.720 9.905 1.90% (9) 22.4 222 Qualified XII (1.15) 10.052 9.902 (1.49%) (7) 688.9 6,821 Qualified XII (1.20) 9.905 9.898 (0.07%) (12) 56.6 561 Qualified XII (1.50) 9.973 9.878 (0.95%) (5) 2.5 25 Qualified XIII 10.056 9.915 (1.40%) (7) 1,158.4 11,486 Qualified XV 9.992 9.915 (0.77%) (5) 5,937.8 58,874 Qualified XVI 9.666 9.878 2.19% (11) 11.1 110 Qualified XVIII 10.023 9.895 (1.28%) (6) 1,136.4 11,244 Annuity contracts in payment period 3,521 - ------------------------------------------------------------------------------------------------------------------- Portfolio Partners, Inc. (PPI): PPI MFS Emerging Equities Portfolio: Qualified III 15.046 19.268 28.06% 3,101,879.7 59,766,560 Qualified V 14.893 19.041 27.85% 4,324.5 82,342 Qualified VI 14.927 19.114 28.05% 11,377,408.3 217,471,707 Qualified VIII 15.638 20.023 28.04% 12,327.2 246,830 Qualified X (1.15) 14.991 19.216 28.18% 72,541.9 1,393,949 Qualified X (1.25) 14.927 19.114 28.05% 1,369,984.2 26,186,352 Qualified XI 15.015 19.285 28.44% 595,462.3 11,483,622
S-22 Variable Annuity Account C Condensed Financial Information - Year Ended December 31, 1998 (continued):
- ----------------------------------------------------------------------------------------------------------------------------------- Value Per Unit Increase (Decrease) Units ------------------------ in Value of Outstanding Reserves Beginning End of Accumulation at End at End of Year Year Unit of Year of Year - ----------------------------------------------------------------------------------------------------------------------------------- PPI MFS Emerging Equities Portfolio (continued): Qualified XII (0.40) $ 10.705 $ 12.776 19.35% (11) 339,956.1 $ 4,343,297 Qualified XII (0.45) 10.094 11.002 9.00% (12) 371.1 4,083 Qualified XII (0.50) 9.990 10.841 8.52% (4) 178,397.7 1,933,950 Qualified XII (0.75) 9.828 10.982 11.74% (6) 139,546.5 1,532,495 Qualified XII (0.80) 10.687 11.846 10.84% (5) 3,491,453.8 41,360,324 Qualified XII (0.85) 10.399 12.800 23.09% (1) 706,142.1 9,038,965 Qualified XII (0.90) 10.233 11.462 12.01% (6) 236.2 2,707 Qualified XII (0.95) 9.940 12.767 28.44% 626,638.0 8,000,073 Qualified XII (1.00) 9.932 12.750 28.37% 2,223,124.5 28,344,393 Qualified XII (1.05) 9.923 12.733 28.32% 102,952.0 1,310,884 Qualified XII (1.10) 9.915 12.716 28.25% 6,017.4 76,519 Qualified XII (1.15) 9.907 12.699 28.18% 196,772.2 2,498,884 Qualified XII (1.20) 11.093 12.683 14.33% (2) 88,260.5 1,119,370 Qualified XII (1.25) 9.891 12.666 28.06% 21,617.0 273,798 Qualified XII (1.30) 9.883 12.649 27.99% 5,461.9 69,088 Qualified XII (1.40) 11.707 12.616 7.76% (5) 928.1 11,708 Qualified XII (1.50) 9.850 12.582 27.74% 5,349.1 67,305 Qualified XIII 14.999 19.264 28.44% 289,624.8 5,579,409 Qualified XV 14.974 19.232 28.44% 398,717.2 7,668,212 Qualified XVI 14.899 19.032 27.74% 135,640.9 2,581,496 Qualified XVII 14.927 19.114 28.05% 40,139.8 767,246 Qualified XVIII 14.927 19.114 28.05% 49,217.5 940,762 Annuity contracts in payment period 27,431 - ----------------------------------------------------------------------------------------------------------------------------------- PPI MFS Research Growth Portfolio: Qualified I 9.041 10.989 21.55% 603.1 6,627 Qualified III 11.960 14.528 21.47% 1,379,652.6 21,623,158 Qualified V 13.682 16.593 21.28% 8,235.9 136,659 Qualified VI 13.795 16.758 21.48% 8,758,122.7 146,764,601 Qualified VII 11.627 14.132 21.54% 50,979.3 720,451 Qualified VIII 11.636 14.134 21.47% 12,597.3 178,046 Qualified IX 11.436 13.926 21.77% 1,089.6 15,174 Qualified X (1.15) 13.852 16.844 21.60% 5,155.0 86,830 Qualified X (1.25) 13.795 16.758 21.48% 1,054,685.1 17,673,929 Qualified XI 13.877 16.907 21.83% 378,797.5 6,404,485 Qualified XII (0.40) 9.362 10.641 13.66% (11) 331,957.8 3,532,250 Qualified XII (0.45) 9.862 10.577 7.25% (12) 473.4 5,007 Qualified XII (0.50) 10.490 11.127 6.07% (4) 79,769.0 887,585 Qualified XII (0.75) 9.917 10.558 6.46% (6) 46,474.6 490,680 Qualified XII (0.80) 11.019 11.682 6.02% (5) 750,388.3 8,766,147 Qualified XII (0.85) 8.861 10.661 20.31% (1) 616,204.9 6,569,356 Qualified XII (0.90) 10.954 11.375 3.84% (4) 827.6 9,414 Qualified XII (0.95) 8.727 10.633 21.84% 237,867.2 2,529,201 Qualified XII (1.00) 8.720 10.619 21.78% 741,692.5 7,875,882 Qualified XII (1.05) 8.713 10.605 21.71% 40,973.9 434,517 Qualified XII (1.10) 10.008 10.591 5.83% (5) 121.2 1,283 Qualified XII (1.15) 8.698 10.577 21.60% 135,558.5 1,433,769 Qualified XII (1.20) 9.310 10.563 13.46% (2) 49,879.0 526,859 Qualified XII (1.25) 8.597 10.549 22.71% (1) 3,244.0 34,220 Qualified XII (1.30) 8.677 10.535 21.41% 5,146.2 54,215 Qualified XII (1.40) 9.977 10.507 5.31% (5) 219.8 2,309 Qualified XII (1.50) 8.649 10.479 21.16% 1,814.1 19,011 Qualified XIII 13.862 16.889 21.84% 158,866.2 2,683,093 Qualified XV 13.839 16.861 21.84% 431,603.1 7,277,219 Qualified XVI 13.770 16.685 21.17% 146,727.9 2,448,181
S-23 Variable Annuity Account C Condensed Financial Information - Year Ended December 31, 1998 (continued):
- --------------------------------------------------------------------------------------------------------------------------- Value Per Unit Increase (Decrease) Units ------------------------ in Value of Outstanding Reserves Beginning End of Accumulation at End at End of Year Year Unit of Year of Year - --------------------------------------------------------------------------------------------------------------------------- PPI MFS Research Growth Portfolio (continued): Qualified XVII $ 13.795 $ 16.758 21.48% 56,680.1 $ 949,819 Qualified XVIII 13.795 16.758 21.48% 75,738.1 1,269,184 Qualified XIX 9.041 10.989 21.55% 30,746.7 337,866 Qualified XX 11.960 14.528 21.47% 23,436.6 340,489 - --------------------------------------------------------------------------------------------------------------------------- PPI MFS Value Equity Portfolio: Qualified III 23.440 29.339 25.17% 2,244,308.4 65,845,563 Qualified V 19.248 24.053 24.96% 6,631.6 159,509 Qualified VI 19.291 24.145 25.16% 2,186,996.3 52,805,949 Qualified VIII 16.585 20.756 25.15% 11,497.4 238,643 Qualified X (1.15) 9.473 10.502 10.86% (11) 12,126.4 127,350 Qualified X (1.25) 9.828 10.495 6.79% (5) 42,212.8 443,007 Qualified XI 19.405 24.361 25.54% 182,556.6 4,447,294 Qualified XII (0.40) 14.188 15.676 10.49% (11) 36,644.4 574,430 Qualified XII (0.45) 9.984 10.673 6.90% (12) 191.7 2,046 Qualified XII (0.50) 10.726 11.320 5.54% (4) 71,604.9 810,587 Qualified XII (0.75) 9.963 10.653 6.93% (6) 49,316.4 525,368 Qualified XII (0.80) 11.274 12.055 6.93% (5) 376,470.9 4,538,245 Qualified XII (0.85) 12.661 15.706 24.05% (1) 382,755.1 6,011,447 Qualified XII (0.90) 11.183 11.654 4.21% (4) 957.3 11,156 Qualified XII (0.95) 12.478 15.664 25.53% 103,316.6 1,618,377 Qualified XII (1.00) 12.467 15.644 25.48% 291,491.9 4,559,986 Qualified XII (1.05) 12.457 15.623 25.42% 25,784.2 402,826 Qualified XII (1.10) 14.846 15.602 5.09% (4) 1,487.6 23,210 Qualified XII (1.15) 12.437 15.582 25.29% 75,919.6 1,182,959 Qualified XII (1.20) 13.387 15.561 16.24% (2) 19,782.0 307,830 Qualified XII (1.25) 12.394 15.541 25.39% (1) 1,059.7 16,468 Qualified XII (1.30) 12.406 15.520 25.10% 1,073.5 16,661 Qualified XII (1.40) 14.631 15.479 5.80% (5) 45.6 706 Qualified XII (1.50) 12.365 15.438 24.85% 1,255.5 19,383 Qualified XIII 19.384 24.335 25.54% 48,710.8 1,185,364 Qualified XV 19.352 24.294 25.54% 171,101.9 4,156,785 Qualified XVI 19.256 24.041 24.85% 28,002.3 673,209 Qualified XVII 19.291 24.145 25.16% 5,459.7 131,826 Qualified XVIII 10.055 10.495 4.38% (5) 1,552.3 16,292 - --------------------------------------------------------------------------------------------------------------------------- PPI Scudder International Growth Portfolio: Qualified III 17.709 20.829 17.62% 2,962,630.7 61,707,422 Qualified V 16.782 19.707 17.43% 3,201.7 63,094 Qualified VI 16.986 19.978 17.61% 4,030,904.1 80,530,902 Qualified VIII 14.312 16.832 17.61% 21,064.0 354,542 Qualified X (1.15) 17.056 20.081 17.74% 27,591.3 554,056 Qualified X (1.25) 16.986 19.978 17.61% 467,483.6 9,339,562 Qualified XI 17.087 20.157 17.97% 273,684.1 5,516,618 Qualified XII (0.40) 12.570 13.602 8.21% (11) 168,912.2 2,297,502 Qualified XII (0.50) 10.711 10.797 0.80% (4) 113,510.7 1,225,536 Qualified XII (0.75) 10.009 9.781 (2.28%) (6) 34,687.8 339,267 Qualified XII (0.80) 11.338 11.041 (2.62%) (5) 850,743.3 9,392,885 Qualified XII (0.85) 11.868 13.628 14.83% (1) 434,053.9 5,915,156 Qualified XII (0.90) 10.020 11.029 10.07% (10) 9.8 108 Qualified XII (0.95) 11.522 13.592 17.97% 234,075.3 3,181,491 Qualified XII (1.00) 11.512 13.574 17.91% 715,388.6 9,710,570 Qualified XII (1.05) 11.503 13.556 17.85% 29,581.3 401,001 Qualified XII (1.10) 11.633 13.538 16.38% (1) 3,300.1 44,677 Qualified XII (1.15) 11.484 13.520 17.73% 88,163.2 1,191,979 Qualified XII (1.20) 12.274 13.502 10.00% (2) 13,604.4 183,691 Qualified XII (1.25) 11.465 13.485 17.62% 2,493.0 33,617 Qualified XII (1.30) 11.456 13.467 17.55% 312.5 4,208
S-24 Variable Annuity Account C Condensed Financial Information - Year Ended December 31, 1998 (continued):
- --------------------------------------------------------------------------------------------------------------------------- Value Per Unit Increase (Decrease) Units ------------------------ in Value of Outstanding Reserves Beginning End of Accumulation at End at End of Year Year Unit of Year of Year - --------------------------------------------------------------------------------------------------------------------------- PPI Scudder International Growth Portfolio (continued): Qualified XII (1.40) $ 13.542 $ 13.431 (0.82%) (5) 125.4 $ 1,685 Qualified XII (1.50) 11.418 13.396 17.32% 3,207.5 42,967 Qualified XIII 17.068 20.135 17.97% 81,257.4 1,636,113 Qualified XV 17.040 20.102 17.97% 353,311.2 7,102,088 Qualified XVI 16.955 19.892 17.32% 45,319.7 901,506 Qualified XVII 16.986 19.978 17.61% 3,854.9 77,015 Qualified XVIII 16.986 19.978 17.61% 10,839.2 216,551 - --------------------------------------------------------------------------------------------------------------------------- PPI T. Rowe Price Growth Equity Portfolio: Qualified III 16.608 20.929 26.02% 1,564,888.2 32,751,256 Qualified V 14.647 18.429 25.82% 1,068.6 19,693 Qualified VI 14.400 18.146 26.01% 6,541,818.7 118,710,603 Qualified VIII 14.701 18.525 26.01% 3,988.5 73,886 Qualified X (1.15) 16.172 20.400 26.14% 47,435.8 967,704 Qualified X (1.25) 16.131 20.328 26.02% 717,871.6 14,592,925 Qualified XI 14.485 18.309 26.40% 277,044.4 5,072,289 Qualified XII (0.40) 15.042 16.863 12.11% (11) 169,615.2 2,860,277 Qualified XII (0.45) 10.302 11.057 7.33% (12) 817.4 9,038 Qualified XII (0.50) 10.256 11.551 12.63% (4) 4,868.6 56,236 Qualified XII (0.75) 9.961 11.036 10.79% (6) 42,864.5 473,063 Qualified XII (0.80) 10.967 12.153 10.81% (5) 1,058,534.2 12,864,165 Qualified XII (0.85) 13.562 16.895 24.58% (1) 129,123.4 2,181,602 Qualified XII (0.90) 10.840 11.792 8.78% (4) 168.7 1,989 Qualified XII (0.95) 13.332 16.851 26.40% 197,937.5 3,335,428 Qualified XII (1.00) 13.321 16.829 26.33% 767,052.8 12,908,505 Qualified XII (1.05) 13.310 16.806 26.27% 51,411.7 864,048 Qualified XII (1.10) 14.258 16.784 17.72% (2) 2,769.4 46,482 Qualified XII (1.15) 13.288 16.762 26.14% 60,127.4 1,007,864 Qualified XII (1.20) 14.232 16.740 17.62% (2) 45,970.5 769,546 Qualified XII (1.25) 13.156 16.718 27.08% (1) 1,238.6 20,707 Qualified XII (1.30) 13.256 16.696 25.95% 2,748.4 45,888 Qualified XII (1.40) 15.190 16.652 9.62% (5) 1,524.7 25,389 Qualified XII (1.50) 13.212 16.608 25.70% 5,824.3 96,729 Qualified XIII 14.470 18.289 26.39% 84,841.6 1,551,639 Qualified XV 14.445 18.258 26.40% 109,122.7 1,992,390 Qualified XVI 14.374 18.068 25.70% 91,619.6 1,655,394 Qualified XVII 14.400 18.146 26.01% 29,383.6 533,207 Qualified XVIII 16.131 20.328 26.02% 18,939.4 385,001 Annuity contracts in payment period 56,047 - ---------------------------------------------------------------------------------------------------------------------------
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. Qualified V 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 Group AetnaPlus contracts issued in connection with Tax-Deferred Annuity Plans and Retirement Plus Plans since August 28, 1992.
S-25 Variable Annuity Account C Condensed Financial Information - Year Ended December 31, 1998 (continued): 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 Deferred Compensation Plan contracts shown separately by applicable daily charge. Qualified XIII Certain existing contracts issued in connection with Tax-Deferred Annuity Plans and Retirement Plus Plans issued through product exchange (previously valued under Qualified VI). Qualified XIV Certain existing contracts issued in connection with Tax-Deferred Annuity Plans that were converted to ACES, an administrative system (previously valued under Qualified III). Qualified XV Certain existing contracts issued in connection with Tax-Deferred Annuity Plans (previously valued under Qualified VI). Qualified XVI Group AetnaPlus contracts issued in connection with Deferred Compensation Plans having contract modifications effective April 7, 1997. Qualified XVII Group AetnaPlus contracts issued in connection with Deferred Compensation Plans having contract modifications effective May 29, 1997. Qualified XVIII Group AetnaPlus contracts issued in connection with Deferred Compensation Plans having contract modifications effective May 29, 1997. Qualified XIX Group AetnaPlus contracts issued in connection with Deferred Compensation Plans having contract modifications effective May 29, 1997. Qualified XX Group AetnaPlus contracts issued in connection with Deferred Compensation Plans having contract modifications effective May 29, 1997.
Notes to Condensed Financial Information (1) - Reflects less than a full year of performance activity. Funds were first received in this option during January 1998. (2) - Reflects less than a full year of performance activity. Funds were first received in this option during February 1998. (3) - Reflects less than a full year of performance activity. Funds were first received in this option during March 1998. (4) - Reflects less than a full year of performance activity. Funds were first received in this option during April 1998. (5) - Reflects less than a full year of performance activity. Funds were first received in this option during May 1998. (6) - Reflects less than a full year of performance activity. Funds were first received in this option during June 1998. (7) - Reflects less than a full year of performance activity. Funds were first received in this option during July 1998. (8) - Reflects less than a full year of performance activity. Funds were first received in this option during August 1998. (9) - Reflects less than a full year of performance activity. Funds were first received in this option during September 1998. (10) - Reflects less than a full year of performance activity. Funds were first received in this option during October 1998. (11) - Reflects less than a full year of performance activity. Funds were first received in this option during November 1998. (12) - Reflects less than a full year of performance activity. Funds were first received in this option during December 1998. See Notes to Financial Statements S-26 Variable Annuity Account C Notes to Financial Statements - December 31, 1998 1. Summary of Significant Accounting Policies Variable Annuity Account C (the "Account") is a separate account established by Aetna Life Insurance and Annuity Company (the "Company") and is registered under the Investment Company Act of 1940 as a unit investment trust. The Account is sold exclusively for use with variable annuity contracts that are qualified under the Internal Revenue Code of 1986, as amended. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported therein. Although actual results could differ from these estimates, any such differences are expected to be immaterial to the net assets of the Account. a. Valuation of Investments Investments in the following Funds are stated at the closing net asset value per share as determined by each Fund on December 31, 1998: Aetna Ascent VP Fidelity Investments Variable Insurance Products Aetna Balanced VP Fund II: Aetna Bond VP o Asset Manager Portfolio Aetna Crossroads VP o Contrafund Portfolio Aetna GET Fund, Series B o Index 500 Portfolio Aetna GET Fund, Series C Janus Aspen Series: Aetna GET Fund, Series D o Aggressive Growth Portfolio Aetna Growth and Income VP o Balanced Portfolio Aetna Growth VP o Flexible Income Portfolio Aetna High Yield VP o Growth Portfolio Aetna Index Plus Bond VP o Worldwide Growth Portfolio Aetna Index Plus Large Cap VP Lexington Emerging Markets Fund Aetna Index Plus Mid Cap VP Lexington Natural Resources Trust Fund Aetna Index Plus Small Cap VP MFS Funds: Aetna International VP o Total Return Series Aetna Legacy VP Oppenheimer Funds: Aetna Money Market VP o Global Securities Fund Aetna Real Estate Securities VP o Strategic Bond Fund Aetna Small Company VP Portfolio Partners, Inc. (PPI): Aetna Value Opportunity VP o PPI MFS Emerging Equities Portfolio Calvert Social Balanced Portfolio o PPI MFS Research Growth Portfolio Fidelity Investments Variable Insurance Products Fund: o PPI MFS Value Equity Portfolio o Equity-Income Portfolio o PPI Scudder International Growth Portfolio o Growth Portfolio o PPI T. Rowe Price Growth Equity Portfolio o High Income Portfolio o Overseas Portfolio
b. Other Investment transactions are accounted for on a trade date basis and dividend income is recorded on the ex-dividend date. The cost of investments sold is determined by specific identification. c. Federal Income Taxes The operations of the Account form a part of, and are taxed with, the total operations of the Company which is taxed as a life insurance company under the Internal Revenue Code of 1986, as amended. d. Annuity Reserves Annuity reserves held in the Account are computed for currently payable contracts according to the Progressive Annuity, a49, 1971 Individual Annuity Mortality, 1971 Group Annuity Mortality, 83a, and 1983 Group Annuity Mortality tables using various assumed interest rates not to exceed seven percent. Mortality experience is monitored by the Company. Charges to annuity reserves for mortality experience are reimbursed to the Company if the reserves required are less than originally estimated. If additional reserves are required, the Company reimburses the Account. 2. Valuation Period Deductions Deductions by the Account for mortality and expense risk charges are made in accordance with the terms of the contracts and are paid to the Company. S-27 Variable Annuity Account C Notes to Financial Statements - December 31, 1998 (continued): 3. Dividend Income On an annual basis, the Funds distribute substantially all of their taxable income and realized capital gains to their shareholders. Distributions to the Account are automatically reinvested in shares of the Funds. The Account's proportionate share of each Fund's undistributed net investment income (distributions in excess of net investment income) and accumulated net realized gain (loss) on investments is included in net unrealized gain (loss) in the Statements of Operations and Changes in Net Assets. 4. Purchases and Sales of Investments The cost of purchases and proceeds from sales of investments other than short-term investments for the years ended December 31, 1998 and 1997 aggregated $3,304,244,413 and $2,443,668,181; $4,059,988,283 and $2,013,561,413, respectively. S-28 Variable Annuity Account C Notes to Financial Statements - December 31, 1998 (continued): 5. Supplemental Information to Statements of Operations and Changes in Net Assets
- ------------------------------------------------------------------------------------------------------------------------- Year Ended December 31, 1998 Valuation Proceeds Cost of Net Period from Investments Realized Dividends Deductions Sales Sold Gain (Loss) - ------------------------------------------------------------------------------------------------------------------------- Aetna Ascent VP: (1) $ 4,099,373 ($ 970,989) $ 11,412,260 $ 8,849,863 $ 2,562,397 Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------------------------- Aetna Balanced VP: (2) 164,981,369 (11,769,413) 170,317,767 127,614,543 42,703,224 Annuity contracts in accumulation Annuity contracts in payment period - ------------------------------------------------------------------------------------------------------------------------- Aetna Bond VP: (3) 22,962,206 (4,524,317) 60,705,518 60,183,593 521,925 Annuity contracts in accumulation Annuity contracts in payment period - ------------------------------------------------------------------------------------------------------------------------- Aetna Crossroads VP: (4) 2,857,543 (807,577) 14,346,330 11,896,097 2,450,233 Annuity contracts in accumulation Annuity contracts in payment period - ------------------------------------------------------------------------------------------------------------------------- Aetna Get Fund, Series B: 17,006,590 (1,044,377) 35,975,652 24,014,822 11,960,830 Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------------------------- Aetna Get Fund, Series C: 25,369,439 (3,371,574) 95,082,475 71,161,693 23,920,782 Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------------------------- Aetna Get Fund, Series D: 1,154,248 (337,762) 0 0 0 Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------------------------- Aetna Growth and Income VP: (5) 1,089,290,192 (73,720,169) 1,128,903,988 938,855,493 190,048,495 Annuity contracts in accumulation Annuity contracts in payment period - ------------------------------------------------------------------------------------------------------------------------- Aetna Growth VP: (6) 124,674 (348,321) 5,016,498 4,785,323 231,175 Annuity contracts in accumulation Annuity contracts in payment period - ------------------------------------------------------------------------------------------------------------------------- Aetna High Yield VP: (7) 121,758 (5,391) 1,502,593 1,551,979 (49,386) Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------------------------- Aetna Index Plus Bond VP: 75,564 (3,850) 559,445 551,414 8,031 Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------------------------- Aetna Index Plus Large Cap VP: (8) 10,603,464 (1,786,058) 13,329,755 11,362,468 1,967,287 Annuity contracts in accumulation Annuity contracts in payment period - ------------------------------------------------------------------------------------------------------------------------- Aetna Index Plus Mid Cap VP: (9) 198,320 (11,890) 1,297,593 1,306,891 (9,298) Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------------------------- Aetna Index Plus Small Cap VP: (10) 195,090 (14,898) 1,781,711 2,020,397 (238,686) Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------------------------- Aetna International VP: (11) 101,318 (9,462) 1,561,383 1,739,124 (177,741) Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------------------------- Aetna Legacy VP: (12) 2,324,968 (578,374) 11,247,035 10,271,411 975,624 Annuity contracts in accumulation Annuity contracts in payment period - ------------------------------------------------------------------------------------------------------------------------- Aetna Money Market VP: (13) 12,126,669 (3,036,771) 277,970,761 276,464,964 1,505,797 Annuity contracts in accumulation Annuity contracts in payment period - ------------------------------------------------------------------------------------------------------------------------- Aetna Real Estate Securities VP: (14) 77,295 (6,563) 418,128 466,072 (47,944) Annuity contracts in accumulation - -------------------------------------------------------------------------------------------------------------------------
S-29
- ----------------------------------------------------------------------------------------------------------------- Net Net Unrealized Gain (Loss) Net Increase (Decrease) Net Assets - ---------------------------------- Change in In Net Assets -------------------------------------- Beginning End Unrealized from Unit Beginning End of Year of Year Gain (Loss) Transactions of Year of Year - ----------------------------------------------------------------------------------------------------------------- $ 5,507,794 $ 1,897,575 ($ 3,610,219) $ 11,804,390 $ 72,115,304 $ 86,000,256 - ----------------------------------------------------------------------------------------------------------------- 141,499,248 87,636,330 (53,862,918) (119,806,746) 968,354,403 982,574,403 21,193,276 29,218,792 - ----------------------------------------------------------------------------------------------------------------- (1,128,028) 4,484,663 5,612,691 (19,343,273) 372,629,553 377,693,504 6,218,756 6,384,037 - ----------------------------------------------------------------------------------------------------------------- 2,614,303 598,907 (2,015,396) 21,876,020 49,739,310 74,028,644 0 71,489 - ----------------------------------------------------------------------------------------------------------------- 22,946,346 6,591,127 (16,355,219) (31,539,579) 79,552,932 59,581,177 - ----------------------------------------------------------------------------------------------------------------- 46,742,374 52,568,856 5,826,482 (90,386,869) 236,822,693 198,180,953 - ----------------------------------------------------------------------------------------------------------------- 0 75,991 75,991 270,087,653 0 270,980,130 - ----------------------------------------------------------------------------------------------------------------- 438,575,885 (10,415,627) (448,991,512) (952,072,750) 6,078,549,136 5,846,282,205 292,045,818 328,867,005 - ----------------------------------------------------------------------------------------------------------------- (237,223) 7,094,432 7,331,655 56,413,060 1,098,483 64,734,239 0 116,487 - ----------------------------------------------------------------------------------------------------------------- 0 (104,129) (104,129) 1,281,526 0 1,244,378 - ----------------------------------------------------------------------------------------------------------------- 0 (60,361) (60,361) 1,406,227 0 1,425,611 - ----------------------------------------------------------------------------------------------------------------- 6,964,574 38,198,247 31,233,673 113,822,649 83,098,319 238,578,749 76,758 437,343 - ----------------------------------------------------------------------------------------------------------------- 0 420,810 420,810 3,518,535 0 4,116,477 - ----------------------------------------------------------------------------------------------------------------- 0 395,906 395,906 4,615,743 0 4,953,155 - ----------------------------------------------------------------------------------------------------------------- 0 53,600 53,600 2,048,312 0 2,016,027 - ----------------------------------------------------------------------------------------------------------------- 588,337 (120,205) (708,542) 18,514,701 32,749,254 53,070,226 53,658 261,063 - ----------------------------------------------------------------------------------------------------------------- 5,712,842 5,409,256 (303,586) 8,301,664 240,346,197 258,856,854 0 83,117 - ----------------------------------------------------------------------------------------------------------------- 0 (110,732) (110,732) 1,649,010 0 1,561,066 - -----------------------------------------------------------------------------------------------------------------
S-30 Variable Annuity Account C Notes to Financial Statements - December 31, 1998 (continued): 5. Supplemental Information to Statements of Operations and Changes in Net Assets (continued):
- ----------------------------------------------------------------------------------------------------------------------------- Year Ended December 31, 1998 Valuation Proceeds Cost of Net Period from Investments Realized Dividends Deductions Sales Sold Gain (Loss) - ----------------------------------------------------------------------------------------------------------------------------- Aetna Small Company VP: (15) $ 408,671 ($ 374,596) $12,808,646 $13,441,212 ($ 632,566) Annuity contracts in accumulation Annuity contracts in payment period - ----------------------------------------------------------------------------------------------------------------------------- Aetna Value Opportunity VP: (16) 321,076 (248,765) 5,237,037 5,066,190 170,847 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------------- Calvert Social Balanced Portfolio: 4,618,537 (706,037) 6,463,168 4,551,117 1,912,051 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------------- Fidelity Investments Variable Insurance Products Fund: Equity-Income Portfolio: 12,563,282 (2,635,293) 26,794,870 20,300,865 6,494,005 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------------- Growth Portfolio: 18,444,780 (2,023,269) 12,322,259 10,024,949 2,297,310 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------------- High Income Portfolio: 0 (5,690) 112,691 124,297 (11,606) Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------------- Overseas Portfolio: 1,074,038 (179,663) 7,836,104 7,260,256 575,848 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------------- Fidelity Investments Variable Insurance Products Fund II: Asset Manager Portfolio: 2,980,690 (315,932) 2,910,017 2,416,750 493,267 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------------- Contrafund Portfolio: 15,297,373 (3,578,430) 26,959,224 18,010,395 8,948,829 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------------- Index 500 Portfolio: 2,402,321 (956,584) 3,863,355 2,441,761 1,421,594 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------------- Janus Aspen Series: Aggressive Growth Portfolio: 0 (2,715,064) 29,546,424 20,073,556 9,472,868 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------------- Balanced Portfolio: 2,769,822 (716,695) 5,961,535 4,458,066 1,503,469 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------------- Flexible Income Portfolio: 1,688,473 (284,556) 6,263,674 5,778,906 484,768 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------------- Growth Portfolio: 6,243,312 (1,192,652) 10,856,472 7,922,879 2,933,593 Annuity contracts in accumulation Annuity contracts in payment period - ----------------------------------------------------------------------------------------------------------------------------- Worldwide Growth Portfolio: 20,289,794 (6,298,518) 89,412,749 61,701,159 27,711,590 Annuity contracts in accumulation Annuity contracts in payment period - ----------------------------------------------------------------------------------------------------------------------------- Lexington Emerging Markets Fund: 401,401 (60,257) 3,629,654 4,888,912 (1,259,258) Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------------- Lexington Natural Resources Trust Fund: 1,725,445 (338,985) 20,532,500 19,980,740 551,760 Annuity contracts in accumulation - -----------------------------------------------------------------------------------------------------------------------------
S-31
- --------------------------------------------------------------------------------------------------------- Net Net Unrealized Gain (Loss) Net Increase (Decrease) Net Assets - -------------------------------- Change in In Net Assets ------------------------------ Beginning End Unrealized from Unit Beginning End of Year of Year Gain (Loss) Transactions of Year of Year - --------------------------------------------------------------------------------------------------------- ($166,700) ($403,739) ($237,039) $43,856,203 $4,956,212 $47,966,985 0 9,901 - --------------------------------------------------------------------------------------------------------- (274,002) 3,491,978 3,765,980 22,736,361 2,039,640 28,785,139 - --------------------------------------------------------------------------------------------------------- 7,196,636 9,585,862 2,389,226 1,243,219 54,444,411 63,901,407 - --------------------------------------------------------------------------------------------------------- 33,998,298 37,581,942 3,583,644 15,460,299 190,735,350 226,201,287 - --------------------------------------------------------------------------------------------------------- 22,394,599 60,197,198 37,802,599 45,629,738 128,257,345 230,408,503 - --------------------------------------------------------------------------------------------------------- 0 8,863 8,863 1,619,989 0 1,611,556 - --------------------------------------------------------------------------------------------------------- 225,478 253,388 27,910 (132,737) 13,449,206 14,814,602 - --------------------------------------------------------------------------------------------------------- 3,922,056 3,974,260 52,204 290,089 23,199,341 26,699,659 - --------------------------------------------------------------------------------------------------------- 50,217,979 106,134,557 55,916,578 26,948,171 256,548,805 360,081,326 - --------------------------------------------------------------------------------------------------------- 11,512,547 26,655,788 15,143,241 17,619,975 57,721,771 93,352,318 - --------------------------------------------------------------------------------------------------------- 36,485,267 99,893,644 63,408,377 11,462,457 210,600,444 292,229,082 - --------------------------------------------------------------------------------------------------------- 4,804,494 20,140,807 15,336,313 38,532,102 37,451,981 94,876,992 - --------------------------------------------------------------------------------------------------------- 381,113 175,498 (205,615) 16,062,139 14,756,039 32,501,248 - --------------------------------------------------------------------------------------------------------- 11,683,190 34,398,134 22,714,944 22,205,253 79,992,417 132,697,360 35,986 235,492 - --------------------------------------------------------------------------------------------------------- 62,504,868 137,641,800 75,136,932 70,151,913 429,093,163 615,835,740 116,838 365,972 - --------------------------------------------------------------------------------------------------------- (968,279) (1,654,236) (685,957) (90,067) 5,788,593 4,094,455 - --------------------------------------------------------------------------------------------------------- 1,786,893 (6,226,325) (8,013,218) (17,149,400) 42,965,725 19,741,327 - ---------------------------------------------------------------------------------------------------------
S-32 Variable Annuity Account C Notes to Financial Statements - December 31, 1998 (continued): 5. Supplemental Information to Statements of Operations and Changes in Net Assets (continued):
- ----------------------------------------------------------------------------------------------------------------------------------- Year Ended December 31, 1998 Valuation Proceeds Cost of Net Period from Investments Realized Dividends Deductions Sales Sold Gain (Loss) ---------------- ------------------ ---------------- ----------------- -------------- MFS Fund: Total Return Series: $0 ($980) $12,895 $13,063 ($168) Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------------------- Oppenheimer Funds: Global Securities Fund: 0 (3,966) 1,212,566 1,238,363 (25,797) Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------------------- Strategic Bond Fund: 0 (10,626) 961,012 980,672 (19,660) Annuity contracts in accumulation Annuity contracts in payment period - ----------------------------------------------------------------------------------------------------------------------------------- Portfolio Partners, Inc. (PPI): PPI MFS Emerging Equities Portfolio: 1,085,565 (4,502,863) 75,859,428 69,641,869 6,217,559 Annuity contracts in accumulation Annuity contracts in payment period - ----------------------------------------------------------------------------------------------------------------------------------- PPI MFS Research Growth Portfolio: 52,603 (2,749,051) 46,349,744 43,146,611 3,203,133 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------------------- PPI MFS Value Equity Portfolio: 176,769 (1,585,851) 15,602,083 13,837,807 1,764,276 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------------------- PPI Scudder International Growth Portfolio: 366,652 (2,452,299) 173,282,604 152,346,231 20,936,373 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------------------- PPI T. Rowe Price Growth Equity Portfolio: 1,039,956 (2,274,233) 27,448,578 24,867,649 2,580,929 Annuity contracts in accumulation Annuity contracts in payment period - ----------------------------------------------------------------------------------------------------------------------------------- Total Variable Annuity Account C $1,447,620,640 ($138,558,611) $2,443,668,181 $2,067,610,422 $376,057,759 ===================================================================================================================================
(1) Effective May 1, 1998, Aetna Ascent Variable Portfolio's name changed to Aetna Ascent VP. (2) Effective May 1, 1998, Aetna Investment Advisors Fund's name changed to Aetna Balanced VP. (3) Effective May 1, 1998, Aetna Income Shares' name changed to Aetna Bond Fund VP. (4) Effective May 1, 1998, Aetna Crossroads Variable Portfolio's name changed to Aetna Crossroads VP. (5) Effective May 1, 1998, Aetna Variable Fund's name changed to Aetna Growth and Income VP. (6) Effective May 1, 1998, Aetna Variable Growth Portfolio's name changed to Aetna Growth VP. (7) Effective May 1, 1998, Aetna High Yield Portfolio's name changed to Aetna High Yield VP. (8) Effective May 1, 1998, Aetna Variable Index Plus Portfolio's name changed to Aetna Index Plus Large Cap VP. (9) Effective May 1, 1998, Aetna Index Plus Mid Cap Portfolio's name changed to Aetna Index Plus Mid Cap VP. (10) Effective May 1, 1998, Aetna Index Plus Small Cap Portfolio's name changed to Aetna Index Plus Small Cap VP. (11) Effective May 1, 1998, Aetna International Portfolio's name changed to Aetna International VP. (12) Effective May 1, 1998, Aetna Legacy Variable Portfolio's name changed to Aetna Legacy VP. (13) Effective May 1, 1998, Aetna Variable Encore Fund's name changed to Aetna Money Market VP. (14) Effective May 1, 1998, Aetna Real Estate Securities Portfolio's name changed to Aetna Real Estate Securities VP. (15) Effective May 1, 1998, Aetna Variable Small Company Portfolio's name changed to Aetna Small Company VP. (16) Effective May 1, 1998, Aetna Variable Capital Appreciation Portfolio's name changed to Aetna Value Opportunity VP. S-33
- --------------------------------------------------------------------------------------------------------------- Net Unrealized Net Gain (Loss) Net Increase (Decrease) Net Assets - -------------------------------- Change in In Net Assets ------------------------------------- Beginning End Unrealized from Unit Beginning End of Year of Year Gain (Loss) Transactions of Year of Year - --------------------------------------------------------------------------------------------------------------- $0 $21,009 $21,009 $365,906 $0 $385,767 - --------------------------------------------------------------------------------------------------------------- 0 90,591 90,591 915,293 0 976,121 - --------------------------------------------------------------------------------------------------------------- 0 23,736 23,736 2,263,649 0 2,253,578 - --------------------------------------------------------------------------------------------------------------- 0 3,521 - --------------------------------------------------------------------------------------------------------------- (3,901,193) 87,984,814 91,886,007 (13,492,672) 352,966,999 434,156,330 - --------------------------------------------------------------------------------------------------------------- 23,166 27,431 (4,166,217) 40,672,835 44,839,052 (30,288,218) 227,029,997 242,087,516 - --------------------------------------------------------------------------------------------------------------- 1,637,084 30,665,227 29,028,143 5,182,435 116,286,704 150,852,476 - --------------------------------------------------------------------------------------------------------------- 3,033,630 18,451,441 15,417,811 (35,002,543) 202,699,815 201,965,809 - --------------------------------------------------------------------------------------------------------------- 3,371,568 45,568,978 42,197,410 2,934,376 169,450,553 215,872,943 0 56,047 - --------------------------------------------------------------------------------------------------------------- $915,465,761 $949,942,696 $34,476,935 ($ 448,485,797) $11,155,254,351 $12,426,365,277 ===============================================================================================================
S-34 Variable Annuity Account C Notes to Financial Statements - December 31, 1998 (continued): 5. Supplemental Information to Statements of Operations and Changes in Net Assets (continued):
- ----------------------------------------------------------------------------------------------------------------------------- Year Ended December 31, 1997 Valuation Proceeds Cost of Net Period from Investments Realized Dividends Deductions Sales Sold Gain (Loss) - ----------------------------------------------------------------------------------------------------------------------------- Aetna Variable Fund: $1,291,034,822 ($ 68,500,273) $205,088,291 $150,120,010 $ 54,968,281 Annuity contracts in accumulation Annuity contracts in payment period - ----------------------------------------------------------------------------------------------------------------------------- Aetna Income Shares: 22,258,737 (4,263,839) 46,789,033 49,260,722 (2,471,689) Annuity contracts in accumulation Annuity contracts in payment period - ----------------------------------------------------------------------------------------------------------------------------- Aetna Variable Encore Fund: 9,635,587 (2,938,575) 206,958,669 210,166,945 (3,208,276) Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------------- Aetna Investment Advisers Fund, Inc.: 128,304,517 (10,844,018) 37,558,168 27,770,494 9,787,674 Annuity contracts in accumulation Annuity contracts in payment period - ----------------------------------------------------------------------------------------------------------------------------- Aetna GET Fund, Series B: 13,341,021 (1,078,816) 7,648,728 4,940,723 2,708,005 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------------- Aetna GET Fund, Series C: 3,678,012 (3,257,441) 13,972,003 11,896,317 2,075,686 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------------- Aetna Ascent Variable Portfolio: 4,541,482 (578,657) 498,613 380,091 118,522 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------------- Aetna Crossroads Variable Portfolio: 3,316,159 (392,434) 409,248 325,568 83,680 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------------- Aetna Legacy Variable Portfolio: 1,788,369 (229,584) 2,265,127 2,019,840 245,287 Annuity contracts in accumulation Annuity contracts in payment period - ----------------------------------------------------------------------------------------------------------------------------- Aetna Variable Portfolios Inc: Aetna Variable Capital Appreciation Portfolio: 312,433 (2,197) 123,165 113,851 9,314 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------------- Aetna Variable Growth Portfolio: 249,335 (1,093) 80,207 72,190 8,017 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------------- Aetna Variable Index Plus Portfolio: 3,327,658 (542,532) 29,980,862 29,823,433 157,429 Annuity contracts in accumulation Annuity contracts in payment period - ----------------------------------------------------------------------------------------------------------------------------- Aetna Variable Small Company Portfolio: 269,004 (5,868) 478,457 428,319 50,138 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------------- Alger American Funds: Growth Portfolio: (1) 1,199,482 (1,526,918) 169,481,196 134,718,793 34,762,403 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------------- Small Capitalization Portfolio: (7) 11,721,861 (3,575,543) 403,516,606 343,440,431 60,076,175 Annuity contracts in accumulation Annuity contracts in payment period - -----------------------------------------------------------------------------------------------------------------------------
S-35
- ------------------------------------------------------------------------------------------------------------------ Net Net Unrealized Gain (Loss) Net Increase (Decrease) Net Assets - ----------------------------------- Change in In Net Assets ----------------------------------- Beginning End Unrealized from Unit Beginning End of Year of Year Gain (Loss) Transactions of Year of Year - ------------------------------------------------------------------------------------------------------------------ $327,744,944 $438,575,885 $110,830,941 $75,435,966 $4,694,078,344 $6,078,549,136 212,746,872 292,045,818 - ------------------------------------------------------------------------------------------------------------------ (9,314,233) (1,128,028) 8,186,205 (4,710,418) 354,233,289 372,629,553 5,616,023 6,218,756 - ------------------------------------------------------------------------------------------------------------------ (750,036) 5,712,842 6,462,878 (14,909,883) 245,304,466 240,346,197 - ------------------------------------------------------------------------------------------------------------------ 97,219,569 141,499,248 44,279,679 2,724,400 800,532,626 968,354,403 14,762,802 21,193,276 - ------------------------------------------------------------------------------------------------------------------ 17,286,695 22,946,346 5,659,651 (6,139,082) 65,062,153 79,552,932 - ------------------------------------------------------------------------------------------------------------------ 2,983,885 46,742,374 43,758,489 (8,490,216) 199,058,163 236,822,693 - ------------------------------------------------------------------------------------------------------------------ 1,716,824 5,507,794 3,790,970 42,582,396 21,660,591 72,115,304 - ------------------------------------------------------------------------------------------------------------------ 838,329 2,614,303 1,775,974 30,197,010 14,758,921 49,739,310 - ------------------------------------------------------------------------------------------------------------------ 112,482 588,337 475,855 21,455,983 9,067,002 32,749,254 0 53,658 - ------------------------------------------------------------------------------------------------------------------ 0 (274,002) (274,002) 1,994,092 0 2,039,640 - ------------------------------------------------------------------------------------------------------------------ 0 (237,223) (237,223) 1,079,447 0 1,098,483 - ------------------------------------------------------------------------------------------------------------------ 80,325 6,964,574 6,884,249 62,694,836 10,653,437 83,098,319 0 76,758 - ------------------------------------------------------------------------------------------------------------------ 0 (166,700) (166,700) 4,809,638 0 4,956,212 - ------------------------------------------------------------------------------------------------------------------ 6,730,808 0 (6,730,808) (132,576,331) 104,872,172 0 - ------------------------------------------------------------------------------------------------------------------ 39,364,541 0 (39,364,541) (352,729,122) 323,871,170 0 0 0 - ------------------------------------------------------------------------------------------------------------------
S-36 Variable Annuity Account C Notes to Financial Statements - December 31, 1998 (continued): 5. Supplemental Information to Statements of Operations and Changes in Net Assets (continued):
- ------------------------------------------------------------------------------------------------------------------------ Year Ended December 31, 1997 Valuation Proceeds Cost of Net Period from Investments Realized Dividends Deductions Sales Sold Gain (Loss) - ------------------------------------------------------------------------------------------------------------------------ American Century Investments - Capital Appreciation Fund: (2) $ 5,882,464 ($ 2,974,651) $347,378,690 $348,986,817 ($ 1,608,127) Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------------------------ Calvert Social Balanced Portfolio: 3,787,208 (578,804) 1,767,421 1,342,657 424,764 Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------------------------ Fidelity Investments Variable Insurance Products Fund: Equity-Income Portfolio: 11,536,379 (1,844,101) 2,876,456 2,187,102 689,354 Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------------------------ Growth Portfolio: 3,033,640 (1,277,878) 1,967,157 1,268,813 698,344 Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------------------------ Overseas Portfolio: 762,691 (144,474) 6,265,740 5,529,606 736,134 Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------------------------ Fidelity Investments Variable Insurance Products Fund II: Asset Manager Portfolio: 2,134,313 (253,981) 1,353,806 1,132,813 220,993 Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------------------------ Contrafund Portfolio: 4,376,096 (2,382,593) 989,526 754,795 234,731 Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------------------------ Index 500 Portfolio: 890,215 (515,853) 2,042,782 1,517,607 525,175 Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------------------------ Franklin Government Securities Trust: (3) 1,578,341 (279,189) 35,001,358 34,302,739 698,619 Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------------------------ Janus Aspen Series: Aggressive Growth Portfolio: 0 (2,188,842) 16,697,333 12,596,723 4,100,610 Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------------------------ Balanced Portfolio: 940,676 (329,511) 1,236,230 981,509 254,721 Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------------------------ Flexible Income Portfolio: 757,640 (131,213) 4,035,296 3,816,553 218,743 Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------------------------ Growth Portfolio: 1,871,919 (768,752) 1,933,431 1,461,183 472,248 Annuity contracts in accumulation Annuity contracts in payment period - ------------------------------------------------------------------------------------------------------------------------ Short-Term Bond Portfolio: (4) 64,108 (25,465) 5,452,797 5,400,161 52,636 Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------------------------ Worldwide Growth Portfolio: 5,510,563 (4,109,527) 16,620,763 10,266,465 6,354,298 Annuity contracts in accumulation Annuity contracts in payment period - ------------------------------------------------------------------------------------------------------------------------
S-37
- ----------------------------------------------------------------------------------------------------------- Net Net Unrealized Gain (Loss) Net Increase (Decrease) Net Assets - ------------------------------- Change in In Net Assets ------------------------------- Beginning End Unrealized from Unit Beginning End of Year of Year Gain (Loss) Transactions of Year of Year - ----------------------------------------------------------------------------------------------------------- $8,139,519 $0 ($8,139,519) ($339,404,560) $346,244,393 $0 - ----------------------------------------------------------------------------------------------------------- 2,963,927 7,196,636 4,232,709 6,589,199 39,989,335 54,444,411 - ----------------------------------------------------------------------------------------------------------- 10,675,870 33,998,298 23,322,428 50,561,862 106,469,428 190,735,350 - ----------------------------------------------------------------------------------------------------------- 5,256,264 22,394,599 17,138,335 28,222,857 80,442,047 128,257,345 - ----------------------------------------------------------------------------------------------------------- 649,630 225,478 (424,152) 4,069,619 8,449,388 13,449,206 - ----------------------------------------------------------------------------------------------------------- 2,502,591 3,922,056 1,419,465 2,575,422 17,103,129 23,199,341 - ----------------------------------------------------------------------------------------------------------- 15,161,493 50,217,979 35,056,486 100,377,564 118,886,521 256,548,805 - ----------------------------------------------------------------------------------------------------------- 2,304,865 11,512,547 9,207,682 26,383,649 21,230,903 57,721,771 - ----------------------------------------------------------------------------------------------------------- 405,959 0 (405,959) (24,948,755) 23,356,943 0 - ----------------------------------------------------------------------------------------------------------- 17,668,916 36,485,267 18,816,351 16,995,758 172,876,567 210,600,444 - ----------------------------------------------------------------------------------------------------------- 751,567 4,804,494 4,052,927 17,251,901 15,281,267 37,451,981 - ----------------------------------------------------------------------------------------------------------- 140,666 381,113 240,447 5,252,958 8,417,464 14,756,039 - ----------------------------------------------------------------------------------------------------------- 2,192,571 11,683,190 9,490,619 28,161,560 40,800,809 79,992,417 0 35,986 - ----------------------------------------------------------------------------------------------------------- (6,468) 0 6,468 (1,788,353) 1,690,606 0 - ----------------------------------------------------------------------------------------------------------- 16,710,390 62,504,868 45,794,478 203,261,915 172,398,274 429,093,163 0 116,838 - -----------------------------------------------------------------------------------------------------------
S-38 Variable Annuity Account C Notes to Financial Statements - December 31, 1998 (continued): 5. Supplemental Information to Statements of Operations and Changes in Net Assets (continued):
- ----------------------------------------------------------------------------------------------------------------------------------- Year Ended December 31, 1997 Valuation Proceeds Cost of Net Period from Investments Realized Dividends Deductions Sales Sold Gain (Loss) - ----------------------------------------------------------------------------------------------------------------------------------- Lexington Emerging Markets Fund: $4,375 ($79,412) $1,639,618 $1,424,729 $214,889 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------------------- Lexington Natural Resources Trust Fund: 1,239,038 (531,930) 14,866,827 11,618,994 3,247,833 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------------------- Neuberger and Berman Advisers Management Trust - Growth Portfolio: (5) 8,158,940 (1,195,227) 128,039,479 103,983,767 24,055,712 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------------------- Portfolio Partners, Inc.: PPI MFS Emerging Equities Portfolio: 0 (406,682) 3,797,005 3,880,012 (83,007) Annuity contracts in accumulation Annuity contracts in payment period - ----------------------------------------------------------------------------------------------------------------------------------- PPI MFS Research Growth Portfolio: 0 (262,081) 1,453,829 1,486,006 (32,177) Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------------------- PPI MFS Value Equity Portfolio: 0 (133,426) 928,145 929,114 (969) Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------------------- PPI MFS Scudder International Growth Portfolio: 0 (235,626) 13,091,485 12,881,912 209,573 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------------------- PPI MFS T. Rowe Price Growth Equity Portfolio: 0 (193,734) 891,088 887,544 3,544 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------------------- Scudder Variable Life Investment Fund - International Portfolio: (6) 4,599,123 (2,286,635) 278,386,778 238,895,623 39,491,155 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------------------- Total Variable Annuity Account C $1,552,106,208 ($120,867,375) $2,013,561,413 $1,773,010,971 $240,550,442 ===================================================================================================================================
(1) Effective November 28, 1997, this funds assets were transferred to the PPI T. Rowe Price Growth Equity Portfolio. (2) Effective November 28, 1997, this funds assets were transferred to the PPI MFS Research Growth Portfolio. (3) Effective November 28, 1997, this funds assets were transferred to Aetna Income Shares. (4) Effective November 28, 1997, this funds assets were transferred to the Aetna Variable Encore Fund. (5) Effective November 28, 1997, this funds assets were transferred to the PPI MFS Value Equity Portfolio. (6) Effective November 28, 1997, this funds assets were transferred to the PPI Scudder International Growth Portfolio. (7) Effective November 28, 1997, this funds assets were transferred to the PPI MFS Emerging Equities Portfolio. S-39
- ------------------------------------------------------------------------------------------------------------------- Net Unrealized Net Gain (Loss) Net Increase (Decrease) Net Assets - ---------------------------------- Change in In Net Assets ------------------------------------ Beginning End Unrealized from Unit Beginning End of Year of Year Gain (Loss) Transactions of Year of Year - ------------------------------------------------------------------------------------------------------------------- $ 102,991 ($ 968,279) ($ 1,071,270) $ 1,874,530 $ 4,845,481 $ 5,788,593 - ------------------------------------------------------------------------------------------------------------------- 3,997,171 1,786,893 (2,210,278) 17,376,715 23,844,347 42,965,725 - ------------------------------------------------------------------------------------------------------------------- 9,459,521 0 (9,459,521) (116,641,588) 95,081,684 0 - ------------------------------------------------------------------------------------------------------------------- 0 (3,901,193) (3,901,193) 357,381,047 0 352,966,999 0 23,166 - ------------------------------------------------------------------------------------------------------------------- 0 (4,166,217) (4,166,217) 231,490,472 0 227,029,997 - ------------------------------------------------------------------------------------------------------------------- 0 1,637,084 1,637,084 114,784,015 0 116,286,704 - ------------------------------------------------------------------------------------------------------------------- 0 3,033,630 3,033,630 199,692,238 0 202,699,815 - ------------------------------------------------------------------------------------------------------------------- 0 3,371,568 3,371,568 166,269,175 0 169,450,553 - ------------------------------------------------------------------------------------------------------------------- 29,299,509 0 (29,299,509) (204,019,879) 191,515,746 0 - ------------------------------------------------------------------------------------------------------------------- $612,391,085 $915,465,761 $303,074,676 $ 615,188,037 $8,565,202,363 $11,155,254,351 ===================================================================================================================
S-40 Independent Auditors' Report The Board of Directors of Aetna Life Insurance and Annuity Company and Contract Owners of Variable Annuity Account C: We have audited the accompanying statement of assets and liabilities of Aetna Life Insurance and Annuity Company Variable Annuity Account C (the "Account") as of December 31, 1998, and the related statements of operations and changes in net assets for each of the years in the two-year period then ended and condensed financial information for the year ended December 31, 1998. These financial statements and condensed financial information are the responsibility of the Account's management. Our responsibility is to express an opinion on these financial statements and condensed financial information based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and condensed financial information are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and condensed financial information. Our procedures included confirmation of securities owned as of December 31, 1998, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and condensed financial information referred to above present fairly, in all material respects, the financial position of Aetna Life Insurance and Annuity Company Variable Annuity Account C as of December 31, 1998, the results of its operations and changes in its net assets for each of the years in the two-year period then ended and condensed financial information for the year ended December 31, 1998, in conformity with generally accepted accounting principles. /s/ KPMG LLP Hartford, Connecticut February 26, 1999 S-41 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY Index to Consolidated Financial Statements
Page ---- Independent Auditors' Report F-2 Consolidated Financial Statements: Consolidated Statements of Income for the Years Ended December 31, 1998, 1997 and 1996 F-3 Consolidated Balance Sheets as of December 31, 1998 and 1997 F-4 Consolidated Statements of Changes in Shareholder's Equity For the Years Ended December 31, 1998, 1997 and 1996 F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996 F-6 Notes to Consolidated Financial Statements F-7
F-1 Independent Auditors' Report The Shareholder and Board of Directors Aetna Life Insurance and Annuity Company: We have audited the accompanying consolidated balance sheets of Aetna Life Insurance and Annuity Company and Subsidiary as of December 31, 1998 and 1997, and the related consolidated statements of income, changes in shareholder's equity and cash flows for each of the years in the three-year period ended December 31, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the aforementioned consolidated financial statements present fairly, in all material respects, the financial position of Aetna Life Insurance and Annuity Company and Subsidiary at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1998, in conformity with generally accepted accounting principles. /s/ KPMG LLP Hartford, Connecticut February 3, 1999 F-2 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.) Consolidated Statements of Income (millions)
Years Ended December 31, ------------------------------------ 1998 1997 1996 ---------- ---------- ---------- Revenue: Premiums $ 79.4 $ 69.1 $ 84.9 Charges assessed against policyholders 324.3 262.0 197.0 Net investment income 877.6 878.8 852.6 Net realized capital gains 10.4 29.7 17.0 Other income 29.6 38.3 43.6 ---------- ---------- ---------- Total revenue 1,321.3 1,277.9 1,195.1 ---------- ---------- ---------- Benefits and expenses: Current and future benefits 714.4 720.4 728.3 Operating expenses 313.2 286.5 275.8 Amortization of deferred policy acquisition costs 106.7 82.8 28.0 Severance and facilities charges -- -- 47.1 ---------- ---------- ---------- Total benefits and expenses 1,134.3 1,089.7 1,079.2 ---------- ---------- ---------- Income from continuing operations before income taxes 187.0 188.2 115.9 Income taxes 47.4 50.7 30.7 ---------- ---------- ---------- Income from continuing operations 139.6 137.5 85.2 Discontinued Operations, net of tax Income from operations 61.8 67.8 55.9 Gain on sale 59.0 -- -- ---------- ---------- ---------- Net income $ 260.4 $ 205.3 $ 141.1 ========== ========== ==========
See Notes to Consolidated Financial Statements F-3 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.) Consolidated Balance Sheets (millions, except share data)
December 31, December 31, 1998 1997 ------------ ------------ Assets Investments: Debt securities available for sale, at fair value, (amortized cost: $11,570.3 and $12,912.2) $12,067.2 $13,463.8 Equity securities, at fair value, Nonredeemable preferred stock (cost: $202.6 and $131.7) 203.3 147.6 Investment in affiliated mutual funds (cost: $96.8 and$78.1) 100.1 83.0 Common stock (cost: $1.0 and $0.2) 2.0 .6 Short-term investments 47.9 95.6 Mortgage loans 12.7 12.8 Policy loans 292.2 469.6 ------------ ------------ Total investments 12,725.4 14,273.0 Cash and cash equivalents 608.4 565.4 Short-term investments under securities loan agreement 277.3 -- Accrued investment income 151.6 163.0 Premiums due and other receivables 46.7 51.9 Reinsurance recoverable 2,959.8 11.8 Deferred policy acquisition costs 864.0 1,654.6 Reinsurance loan to affiliate -- 397.2 Deferred tax asset 120.6 -- Other assets 66.6 46.8 Separate accounts assets 29,458.4 22,982.7 ------------ ------------ Total assets $47,278.8 $40,146.4 ============ ============ Liabilities and Shareholder's Equity Liabilities: Future policy benefits $ 3,815.9 $ 3,763.7 Unpaid claims and claim expenses 18.8 38.0 Policyholders' funds left with the Company 11,305.6 11,143.5 ------------ ------------ Total insurance reserve liabilities 15,140.3 14,945.2 Payables under securities loan agreement 277.3 -- Other liabilities 793.2 312.8 Income taxes: Current 279.8 12.4 Deferred -- 72.0 Separate accounts liabilities 29,430.2 22,970.0 ------------ ------------ Total liabilities 45,920.8 38,312.4 ------------ ------------ 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 427.3 418.0 Accumulated other comprehensive income 104.8 92.9 Retained earnings 823.1 1,320.3 ------------ ------------ Total shareholder's equity 1,358.0 1,834.0 ------------ ------------ Total liabilities and shareholder's equity $47,278.8 $40,146.4 ============ ============
See Notes to Consolidated Financial Statements F-4 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.) Consolidated Statements of Changes in Shareholder's Equity (millions)
Years Ended December 31, -------------------------------------- 1998 1997 1996 ---------- ---------- ---------- Shareholder's equity, beginning of year $1,834.0 $1,609.5 $1,583.0 Comprehensive income Net income 260.4 205.3 141.1 Other comprehensive income (loss), net of tax: Unrealized gains (losses) on securities ($18.2 million, $49.9 million and $(110.6) million, pretax, respectively) 11.9 32.4 (72.0) ---------- ---------- ---------- Total comprehensive income 272.3 237.7 69.1 ---------- ---------- ---------- Capital contributions 9.3 -- 10.4 Other changes 1.4 4.1 (49.5) Common stock dividends (759.0) (17.3) (3.5) ---------- ---------- ---------- Shareholder's equity, end of year $1,358.0 $1,834.0 $1,609.5 ========== ========== ==========
See Notes to Consolidated Financial Statements F-5 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.) Consolidated Statements of Cash Flows (millions)
Years Ended December 31, --------------------------------------- 1998 1997 1996 --------- --------- --------- Cash Flows from Operating Activities: Net income $ 260.4 $ 205.3 $ 141.1 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Net accretion of discount on investments (29.5) (66.4) (68.0) Gain on sale of discontinued operations (88.3) -- -- --------- --------- --------- Cash flows provided by operating activities and net realized capital gains before changes in assets and liabilities 142.6 138.9 73.1 Net realized capital gains (11.1) (36.0) (19.7) --------- --------- --------- Cash flows provided by operating activities before changes in assets and liabilities 131.5 102.9 53.4 Changes in assets and liabilities: Decrease (increase) in accrued investment income 11.4 (4.0) 16.5 (Increase) decrease in premiums due and other receivables (16.3) (33.3) 1.6 Decrease (increase) in policy loans 177.4 (70.3) (60.7) Increase in deferred policy acquisition costs (117.3) (139.3) (174.0) Decrease in reinsurance loan to affiliate 397.2 231.1 27.2 Net increase in universal life account balances 122.9 157.1 146.6 Decrease in other insurance reserve liabilities (41.8) (120.3) (114.9) Net (decrease) increase in other liabilities and other assets (50.8) (41.7) 3.1 Increase (decrease) in income taxes 100.4 (31.4) (26.7) Other, net -- -- 1.1 --------- --------- --------- Net cash provided by (used for) operating activities 714.6 50.8 (126.8) --------- --------- --------- Cash Flows from Investing Activities: Proceeds from sales of: Debt securities available for sale 6,790.2 5,311.3 5,182.2 Equity securities 150.1 103.1 190.5 Mortgage loans 0.3 0.2 8.7 Life business 966.5 -- -- Investment maturities and collections of: Debt securities available for sale 1,290.3 1,212.7 885.2 Short-term investments 129.9 89.3 35.0 Cost of investment purchases in: Debt securities available for sale (6,701.4) (6,732.8) (6,534.3) Equity securities (125.7) (113.3) (118.1) Other investments (2,725.9) -- -- Short-term investments (81.9) (149.9) (54.7) Other, net -- -- (17.6) --------- --------- --------- Net cash used for investing activities (307.6) (279.4) (423.1) --------- --------- --------- Cash Flows from Financing Activities: Deposits and interest credited for investment contracts 1,571.1 1,621.2 1,579.5 Withdrawals of investment contracts (1,393.1) (1,256.3) (1,146.2) Capital contribution to Separate Account -- (25.0) -- Return of capital from Separate Account 1.7 12.3 -- Capital contribution from HOLDCO 9.3 -- 10.4 Dividends paid to shareholder (553.0) (17.3) (3.5) --------- --------- --------- Net cash (used for) provided by financing activities (364.0) 334.9 440.2 --------- --------- --------- Net increase (decrease) in cash and cash equivalents 43.0 106.3 (109.7) Cash and cash equivalents, beginning of year 565.4 459.1 568.8 --------- --------- --------- Cash and cash equivalents, end of year $ 608.4 $ 565.4 $ 459.1 ========= ========= ========= Supplemental cash flow information: Income taxes paid, net $ 48.4 $ 119.6 $ 85.5 ========= ========== ==========
See Notes to Consolidated Financial Statements F-6 Notes to Consolidated Financial Statements 1. Summary of Significant Accounting Policies Aetna Life Insurance and Annuity Company and its wholly owned subsidiary (collectively, the "Company") are providers of financial services in the United States. Prior to the sale of the domestic individual life insurance business on October 1, 1998, the Company had two business segments: financial services and individual life insurance. On October 1, 1998, the Company sold its domestic individual life insurance operations to Lincoln National Corporation ("Lincoln") and accordingly they are now classified as Discontinued Operations. (Refer to note 2) Financial services products include annuity contracts that offer a variety of funding and payout options for individual and employer-sponsored retirement plans qualified under Internal Revenue Code Sections 401, 403, 408 and 457, and non-qualified annuity contracts. These contracts may be deferred or immediate ("payout annuities"). Financial services also include investment advisory services and pension plan administrative services. Discontinued Operations include universal life, variable universal life, traditional whole life and term insurance. Basis of Presentation --------------------- The consolidated financial statements include Aetna Life Insurance and Annuity Company and its wholly owned subsidiary, Aetna Insurance Company of America. Aetna Life Insurance and Annuity Company is a wholly owned subsidiary of Aetna Retirement Holdings, Inc. ("HOLDCO"). HOLDCO is a wholly owned subsidiary of Aetna Retirement Services, Inc. ("ARS"), whose ultimate parent is Aetna Inc. ("Aetna"). The consolidated financial statements have been prepared in accordance with generally accepted accounting principles. Certain reclassifications have been made to 1997 and 1996 financial information to conform to the 1998 presentation. New Accounting Standards ------------------------ Disclosures about Segments of an Enterprise and Related Information As of December 31, 1998, the Company adopted Financial Accounting Standard ("FAS") No. 131, Disclosures about Segments of an Enterprise and Related Information. This statement establishes standards for the reporting of information relating to operating segments. This statement supersedes FAS No. 14, Financial Reporting for Segments of a Business Enterprise, which requires reporting segment information by industry and geographic area (industry approach). Under FAS No. 131, operating segments are defined as components of a company for which separate financial information is available and is used by management to allocate resources and assess performance (management approach). The adoption of this statement did not change the composition or the results of operations of any of the operating segments of the Company, which are consistent with the management approach. F-7 Notes to Consolidated Financial Statements (continued) 1. Summary of Significant Accounting Policies (continued) Accounting for the Costs of Computer Software Developed and Obtained for Internal Use On January 1, 1998, the Company adopted Statement of Position ("SOP") 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, issued by the American Institute of Certified Public Accountants ("AICPA"). This statement requires that certain costs incurred in developing internal use computer software (in process at, and subsequent to the adoption date) be capitalized, and provides guidance for determining whether computer software is considered to be for internal use. The Company amortizes these costs over a period of 3 to 5 years. Previously, the Company expensed the cost of internal-use computer software as incurred. The adoption of this statement resulted in a net after-tax increase to the results of operations of $6.5 million for the year ended December 31, 1998. Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities In June 1996, the Financial Accounting Standards Board ("FASB") issued FAS No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, that provides accounting and reporting standards for transfers of financial assets and extinguishments of liabilities. FAS No. 125 was effective for 1997 financial statements; however, certain provisions relating to accounting for repurchase agreements and securities lending were not effective until January 1, 1998. The adoption of those provisions effective in 1998 did not have a material effect on the Company's financial position or results of operations. Future Application of Accounting Standards ------------------------------------------ Deposit Accounting: Accounting for Insurance and Reinsurance Contracts That Do Not Transfer Insurance Risk In October 1998, the AICPA issued SOP 98-7, Deposit Accounting: Accounting for Insurance and Reinsurance Contracts That Do Not Transfer Insurance Risk, which provides guidance on how to account for all insurance and reinsurance contracts that do not transfer insurance risk, except for long-duration life and health insurance contracts. This statement is effective for the Company's financial statements beginning January 1, 2000, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this statement and the potential effect on its financial position and results of operations. Accounting for Derivative Instruments and Hedging Activities In June 1998, the FASB issued FAS No. 133, Accounting for Derivative Instruments and Hedging Activities. This standard 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 values of those derivatives depends on the use of the derivative and whether it qualifies for hedge accounting. This standard is effective for the Company's financial statements beginning January 1, 2000, with early adoption permitted. The Company is currently evaluating the impact of adoption of this statement and the potential effect on its financial position and results of operations. F-8 Notes to Consolidated Financial Statements (continued) 1. Summary of Significant Accounting Policies (continued) Accounting by Insurance and Other Enterprises for Insurance-Related Assessments In December 1997, the AICPA issued SOP 97-3, Accounting by Insurance and Other Enterprises for Insurance-Related Assessments, which provides guidance for determining when an insurance or other enterprise should recognize a liability for guaranty-fund and other insurance-related assessments and guidance for measuring the liability. This statement is effective for 1999 financial statements with early adoption permitted. The Company does not expect adoption of this statement to have a material effect on its financial position or results of operations. Use of Estimates ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from reported results using those estimates. Cash and Cash Equivalents ------------------------- Cash and cash equivalents include cash on hand, money market instruments and other debt issues with a maturity of 90 days or less when purchased. Investments ----------- Debt and equity securities are classified as available for sale and carried at fair value. These securities are written down (as realized capital losses) for other than temporary declines in value. Unrealized capital gains and losses related to available-for-sale investments, other than amounts allocable to experience-rated contractholders, are reflected in shareholder's equity, net of related taxes. Fair values for debt and equity securities are based on quoted market prices or dealer quotations. Where quoted market prices or dealer quotations are not available, fair values are measured utilizing quoted market prices for similar securities or by using discounted cash flow methods. Cost for mortgage-backed securities is adjusted for unamortized premiums and discounts, which are amortized using the interest method over the estimated remaining term of the securities, adjusted for anticipated prepayments. The Company does not accrue interest on problem debt securities when management believes the collection of interest is unlikely. The Company engages in securities lending whereby certain securities from its portfolio are loaned to other institutions for short periods of time. Initial collateral, primarily cash, is required at a rate of 102% of the market value of a loaned domestic security and 105% of the market value of a loaned foreign security. The collateral is deposited by the borrower with a lending agent, and retained and invested by the lending agent according to the Company's guidelines to generate additional income. The market value of the loaned securities is monitored on a daily basis with additional collateral obtained or refunded as the market value of the loaned securities fluctuates. F-9 Notes to Consolidated Financial Statements (continued) 1. Summary of Significant Accounting Policies (continued) At December 31, 1998 and 1997, the Company loaned securities (which are reflected as invested assets) with a fair value of approximately $277.3 million and $385.1 million, respectively. Purchases and sales of debt and equity securities are recorded on the trade date. The investment in affiliated mutual funds represents an investment in Aetna managed mutual funds which have been seeded by the Company, and is carried at fair value. Mortgage loans and policy loans are carried at unpaid principal balances, net of impairment reserves. Sales of mortgage loans are recorded on the closing date. Short-term investments, consisting primarily of money market instruments and other debt issues purchased with 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 utilizes futures contracts for other than trading purposes in order to hedge interest rate risk (i.e. market risk, refer to Note 4.) Futures contracts are carried at fair value and require daily cash settlement. Changes in the fair value of futures contracts allocable to experience rated contracts are deducted from capital gains and losses with an offsetting amount reported in future policy benefits. Changes in the fair value of futures contracts allocable to non-experienced-rated contracts that qualify as hedges are deferred and recognized as an adjustment to the hedged asset or liability. Deferred gains or losses on such futures contracts are amortized over the life of the acquired asset or liability as a yield adjustment or through net realized capital gains or losses upon disposal of an asset. Changes in the fair value of futures contracts that do not qualify as hedges are recorded in net realized capital gains or losses. Hedge designation requires specific asset or liability identification, a probability at inception of high correlation with the position underlying the hedge, and that high correlation be maintained throughout the hedge period. If a hedging instrument ceases to be highly correlated with the position underlying the hedge, hedge accounting ceases at that date and excess gains or losses on the hedging instrument are reflected in net realized capital gains or losses. Included in common stock are warrants which represent the right to purchase specific securities. Upon exercise, the cost of the warrants is added to the basis of the securities purchased. Deferred Policy Acquisition Costs --------------------------------- Certain costs of acquiring insurance business are deferred. These costs, all of which vary with and are primarily related to the production of new and renewal business, consist principally of commissions, certain expenses of underwriting and issuing contracts, and certain agency expenses. For fixed ordinary life contracts (prior to the sale of the domestic individual life insurance business to Lincoln on October 1, 1998, refer to Note 2), such costs are amortized over expected premium-paying periods (up to 20 years). For universal life (prior to the sale of the domestic individual life insurance business to Lincoln on October 1, 1998, refer to Note 2), and certain annuity contracts, F-10 Notes to Consolidated Financial Statements (continued) 1. Summary of Significant Accounting Policies (continued) 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 50 years for universal life and up to 20 years for certain annuity contracts). Deferred policy acquisition costs are written off to the extent that it is determined that future policy premiums and investment income or gross profits are not adequate to cover related losses and expenses. Insurance Reserve Liabilities ----------------------------- Future policy benefits include reserves for universal life, immediate annuities with life contingent payouts and traditional life insurance contracts. Prior to the sale of the domestic individual life insurance business on October 1, 1998, (refer to note 2), reserves for universal life products were equal to cumulative deposits less withdrawals and charges plus credited interest thereon, plus (less) net realized capital gains (losses) (which were reflected through credited interest rates). These reserves also included unrealized capital gains (losses) related to FAS No. 115. As a result of the sale and transfer of assets supporting the business, reserves for universal life products will no longer include net realized capital gains (losses) and unrealized gains (losses) related to FAS No. 115 for the years ended December 31, 1998 and beyond. Reserves for immediate annuities with life contingent payouts and traditional life insurance contracts are for immediate annuities with life contingent-payouts and traditional life insurance contracts are computed on the basis of assumed investment yield, mortality, and expenses, including a margin for adverse deviations. Such assumptions generally vary by plan, year of issue and policy duration. Reserve interest rates range from 1.50% to 11.25% for all years presented. Investment yield is based on the Company's experience. Mortality and withdrawal rate assumptions are based on relevant Aetna experience and are periodically reviewed against both industry standards and experience. 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 3.00% to 8.10% 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. Reserves on contracts subject to experience rating reflect the rights of contractholders, plan participants and the Company. Unpaid claims for all lines of insurance include benefits for reported losses and estimates of benefits for losses incurred but not reported. F-11 Notes to Consolidated Financial Statements (continued) 1. Summary of Significant Accounting Policies (continued) Premiums, Charges Assessed Against Policyholders, Benefits and Expenses ----------------------------------------------------------------------- For universal life (prior to the sale of the domestic individual life insurance business to Lincoln on October 1, 1998, refer to Note 2) and certain annuity contracts, charges assessed against policyholders' funds for the cost of insurance, surrender charges, actuarial margin and other fees are recorded as revenue in charges assessed against policyholders. Other amounts received for these contracts are reflected as deposits and are not recorded as revenue. Life insurance premiums, other than premiums for universal life (prior to the sale of the domestic individual life insurance business to Lincoln on October 1, 1998, refer to Note 2) and certain annuity contracts, are recorded as premium revenue when due. Related policy benefits are recorded in relation to the associated premiums or gross profit so that profits are recognized over the expected lives of the contracts. When annuity payments with life contingencies begin under contracts that were initially investment contracts, the accumulated balance in the account is treated as a single premium for the purchase of an annuity and reflected as an offsetting amount in both premiums and current and future benefits in the Consolidated Statements of Income. Separate Accounts ----------------- Assets held under variable universal life and variable annuity contracts are segregated in Separate Accounts and are invested, as designated by the contractholder or participant under a contract (who bears the investment risk subject, in some cases, to minimum guaranteed rates) in shares of mutual funds which are managed by an affiliate of the Company, or other selected mutual funds not managed by the Company. As of December 31, 1998, Separate Accounts assets are carried at fair value. At December 31, 1998, unrealized gains of $10.0 million, after taxes, on assets supporting a guaranteed interest option are reflected in shareholder's equity. At December 31, 1997, Separate Account assets supporting the guaranteed interest option were carried at an amortized cost of $658.6 million (fair value $668.7 million). 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 3.00% to 8.10% in 1998 and 4.10% to 8.10% in 1997. 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. F-12 Notes to Consolidated Financial Statements (continued) 1. Summary of Significant Accounting Policies (continued) Reinsurance ----------- The Company utilizes indemnity reinsurance agreements to reduce its exposure to large losses in all aspects of its insurance business. Such reinsurance permits recovery of a portion of losses from reinsurers, although it does not discharge the primary liability of the Company as direct insurer of the risks reinsured. The Company evaluates the financial strength of potential reinsurers and continually monitors the financial condition of reinsurers. Only those reinsurance recoverables deemed probable of recovery are reflected as assets on the Company's Consolidated Balance Sheets. The majority of the reinsurance recoverable on the Consolidated Balance Sheets at December 31, 1998 is related to the reinsurance recoverable from Lincoln arising from the sale of the domestic life insurance business. (Refer to Note 2) Income Taxes ------------ The Company is included in the consolidated federal income tax return of Aetna. The Company is taxed at regular corporate rates after adjusting income reported for financial statement purposes for certain items. Deferred income tax expenses/benefits result from changes during the year in cumulative temporary differences between the tax basis and book basis of assets and liabilities. 2. 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. Insurance reserves ceded as of December 31, 1998 were $2.9 billion. Deferred policy acquisition costs related to the life policies of $907.9 million were written off against the gain on the sale. Certain invested assets related to and supporting the life policies were sold to consummate the life sale, 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 $58 million will be deferred and amortized over approximately 15 years (as profits in the book of business sold emerge). The remaining portion of the gain was recognized immediately in net income and was largely attributed to the sale of the domestic life insurance business for access to the agency sales force and brokerage distribution channel. The unamortized portion of the gain is presented in other liabilities on the Consolidated Balance Sheets. The operating results of the domestic individual life insurance business are presented as Discontinued Operations. All prior year income statement data has been restated to reflect the presentation as Discontinued Operations. Revenues for the individual life segment were $652.2 million, $620.4 million and $445.7 million for 1998, 1997 and 1996, respectively. Premiums ceded and reinsurance recoveries made in 1998 totaled $153.4 million and $57.7 million, respectively. F-13 Notes to Consolidated Financial Statements (continued) 3. Investments Debt securities available for sale as of December 31, 1998 were as follows:
Gross Gross Amortized Unrealized Unrealized Fair 1998 (Millions) Cost Gains Losses Value -------------------------------------------------------------------------------------------------------------- U.S. government and government agencies and authorities $ 718.9 $ 60.4 $ 0.2 $ 779.1 States, municipalities and political subdivisions 0.3 -- -- 0.3 U.S. corporate securities: Utilities 615.2 29.8 4.1 640.9 Financial 2,259.2 94.6 5.6 2,348.2 Transportation/capital goods 580.8 33.0 1.1 612.7 Health care/consumer products 1,328.2 69.8 4.8 1,393.2 Natural resources 254.5 6.9 2.3 259.1 Other corporate securities 261.7 5.8 7.4 260.1 -------------------------------------------------------------------------------------------------------------- Total U.S. corporate securities 5,299.6 239.9 25.3 5,514.2 -------------------------------------------------------------------------------------------------------------- Foreign securities: Government, including political subdivisions 507.6 30.4 32.9 505.1 Utilities 147.0 32.4 -- 179.4 Other 511.2 14.9 1.8 524.3 -------------------------------------------------------------------------------------------------------------- Total foreign securities 1,165.8 77.7 34.7 1,208.8 -------------------------------------------------------------------------------------------------------------- Residential mortgage-backed securities: Pass-throughs 671.9 38.4 2.9 707.4 Collateralized mortgage obligations 1,879.6 119.7 10.4 1,988.9 -------------------------------------------------------------------------------------------------------------- Total residential mortgage-backed securities 2,551.5 158.1 13.3 2,696.3 -------------------------------------------------------------------------------------------------------------- Commercial/Multifamily mortgage-backed securities 1,114.9 30.9 9.8 1,136.0 Other asset-backed securities 719.3 13.8 0.6 732.5 -------------------------------------------------------------------------------------------------------------- Total debt securities $11,570.3 $580.8 $83.9 $12,067.2 ==============================================================================================================
F-14 Notes to Consolidated Financial Statements (continued) 3. Investments (continued) Debt securities available for sale as of December 31, 1997 were as follows:
Gross Gross Amortized Unrealized Unrealized Fair 1997 (Millions) Cost Gains Losses Value -------------------------------------------------------------------------------------------------------------- U.S. government and government agencies and authorities $ 1,219.7 $ 74.0 $ 0.1 $ 1,293.6 States, municipalities and political subdivisions 0.3 -- -- 0.3 U.S. corporate securities: Utilities 521.3 23.5 0.9 543.9 Financial 2,370.7 84.6 1.3 2,454.0 Transportation & capital goods 528.2 33.2 0.1 561.3 Healthcare & consumer products 728.5 27.0 2.6 752.9 Natural resources 143.5 5.5 -- 149.0 Other corporate securities 545.2 27.2 0.1 572.3 -------------------------------------------------------------------------------------------------------------- Total U.S. corporate securities 4,837.4 201.0 5.0 5,033.4 -------------------------------------------------------------------------------------------------------------- Foreign securities: Government, including political subdivisions 612.5 36.7 23.6 625.6 Utilities 177.5 28.7 -- 206.2 Other 857.9 27.7 42.8 842.8 -------------------------------------------------------------------------------------------------------------- Total foreign securities 1,647.9 93.1 66.4 1,674.6 -------------------------------------------------------------------------------------------------------------- Residential mortgage-backed securities: Pass-throughs 784.4 71.3 2.0 853.7 Collateralized mortgage obligations 2,280.5 137.4 2.0 2,415.9 -------------------------------------------------------------------------------------------------------------- Total residential mortgage-backed securities 3,064.9 208.7 4.0 3,269.6 -------------------------------------------------------------------------------------------------------------- Commercial/Multifamily mortgage-backed securities 1,127.8 34.0 0.4 1,161.4 Other asset-backed securities 1,014.2 17.1 0.4 1,030.9 -------------------------------------------------------------------------------------------------------------- Total debt securities $12,912.2 $627.9 $76.3 $13,463.8 ==============================================================================================================
F-15 Notes to Consolidated Financial Statements (continued) 3. Investments (continued) At December 31, 1998 and 1997, net unrealized appreciation of $496.9 million and $551.6 million, respectively, on available-for-sale debt securities included $355.8 million and $429.3 million, respectively, related to experience-rated contracts, which were not reflected in shareholder's equity but in insurance reserves. The amortized cost and fair value of debt securities for the year ended December 31, 1998 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 $ 553.5 $ 554.6 After one year through five years 2,619.7 2,692.4 After five years through ten years 1,754.0 1,801.7 After ten years 2,257.4 2,453.7 Mortgage-backed securities 3,666.4 3,832.3 Other asset-backed securities 719.3 732.5 --------------------------------------------------------------- Total $11,570.3 $12,067.2 ===============================================================
At December 31, 1998 and 1997, debt securities carried at $8.8 million and $8.2 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, 1998. Included in the Company's debt securities were residential collateralized mortgage obligations ("CMOs") supporting the following:
1998 1997 ----------------------- ----------------------- Fair Amortized Fair Amortized (Millions) Value Cost Value Cost - ------------------------------------------------------------------------------------------------------- Total residential CMOs (1) $ 1,988.9 $1,879.6 $ 2,415.9 $2,280.5 ======================================================================================================= Percentage of total: Supporting experience rated products 81.7% 81.6% Supporting remaining products 18.3% 18.4% - ------------------------------------------------------------------------------------------------------- 100.0% 100.0% =======================================================================================================
(1) At December 31, 1998 and 1997, approximately 66% and 73%, respectively, of the Company's residential CMO holdings were backed by government agencies such as GNMA, FNMA, FHLMC. F-16 Notes to Consolidated Financial Statements (continued) 3. Investments (continued) There are various categories of CMOs which are subject to different degrees of risk from changes in interest rates and, for nonagency-backed CMOs, defaults. The principal risks inherent in holding CMOs are prepayment and extension risks related to dramatic decreases and increases in interest rates resulting in the repayment of principal from the underlying mortgages either earlier or later than originally anticipated. At December 31, 1998 and 1997, approximately 2% and 4%, respectively, of the Company's CMO holdings were invested in types of CMOs which are subject to more prepayment and extension risk than traditional CMOs (such as interest- or principal-only strips). Investments in equity securities available for sale as of December 31 were as follows:
(Millions) 1998 1997 ------------------------------------------------------- Amortized Cost $300.4 $210.0 Gross unrealized gains 13.1 21.3 Gross unrealized losses 8.1 .1 ------------------------------------------------------- Fair Value $305.4 $231.2 =======================================================
4. Financial Instruments Estimated Fair Value -------------------- The carrying values and estimated fair values of certain of the Company's financial instruments at December 31, 1998 and 1997 were as follows:
1998 1997 --------------------- ----------------------- Carrying Fair Carrying Fair (Millions) Value Value Value Value - ---------------------------------------------------------------------------------------- Assets: Mortgage loans $ 12.7 $ 12.3 $ 12.8 $ 12.4 Liabilities: Investment contract liabilities: With a fixed maturity $ 1,063.9 $ 984.3 $ 1,030.3 $1,005.4 Without a fixed maturity 10,241.7 9,686.2 10,113.2 9,587.5 - -----------------------------------------------------------------------------------------
Fair value estimates are made at a specific point in time, based on available market information and judgments about the financial instrument, such as estimates of timing and amount of future cash flows. Such estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument, nor do they consider the tax impact of the realization of unrealized gains or losses. In many cases, the fair value estimates cannot be substantiated by comparison to independent markets, nor can the disclosed value be realized in immediate settlement of the instrument. In evaluating the Company's management of interest rate, price and liquidity risks, the fair values of all assets and liabilities should be taken into consideration, not only those presented above. F-17 Notes to Consolidated Financial Statements (continued) 4. Financial Instruments (continued) The following valuation methods and assumptions were used by the Company in estimating the fair value of the above financial instruments: Mortgage loans: Fair values are estimated by discounting expected mortgage loan cash flows at market rates which reflect the rates at which similar loans would be made to similar borrowers. The rates reflect management's assessment of the credit quality and the remaining duration of the loans. Investment contract liabilities (included in Policyholders' funds left with the Company): With a fixed maturity: Fair value is estimated by discounting cash flows at interest rates currently being offered by, or available to, the Company for similar contracts. Without a fixed maturity: Fair value is estimated as the amount payable to the contractholder upon demand. However, the Company has the right under such contracts to delay payment of withdrawals which may ultimately result in paying an amount different than that determined to be payable on demand. Off-Balance-Sheet and Other Financial Instruments ------------------------------------------------- Futures Contracts: Futures contracts are used to manage interest rate risk in the Company's bond portfolio. Futures contracts represent commitments to either purchase or sell securities at a specified future date and at a specified price or yield. Futures contracts trade on organized exchanges and, therefore, have minimal credit risk. Cash settlements are made daily based on changes in the prices of the underlying assets. The notional amounts, carrying values and estimated fair values of the Company's open treasury futures as of December 31, 1998 were $250.9 million, $.1 million, and $.1 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 as of December 31, 1998 were $1.5 million, respectively. The carrying values and estimated fair values as of December 31, 1997 were $.6 million, respectively. F-18 Notes to Consolidated Financial Statements (continued) 4. Financial Instruments (continued) Debt Instruments with Derivative Characteristics: The Company also had investments in certain debt instruments with derivative characteristics, including those whose market value is at least partially determined by, among other things, levels of or changes in domestic and/or foreign interest rates (short- or long-term), exchange rates, prepayment rates, equity markets or credit ratings/spreads. The amortized cost and fair value of these securities, included in the debt securities portfolio, as of December 31, 1998 was as follows:
Amortized Fair (Millions) Cost Value ----------------------------------------------------------------------------- Residential collateralized mortgage obligations $1,879.6 $1,988.9 Principal-only strips (included above) 20.2 24.0 Interest-only strips (included above) 17.3 18.0 Other structured securities with derivative characteristics (1) 87.3 80.6 -----------------------------------------------------------------------------
(1) Represents non-leveraged instruments whose fair values and credit risk are based on underlying securities, including fixed income securities and interest rate swap agreements. 5. Net Investment Income Sources of net investment income were as follows:
1998 1997 1996 ---------------------------------------------------------------------------- Debt securities $ 798.8 $ 814.6 $ 805.3 Nonredeemable preferred stock 18.4 12.9 5.8 Investment in affiliated mutual funds 6.6 3.8 10.8 Mortgage loans 0.6 0.3 0.6 Policy loans 7.2 5.7 6.4 Reinsurance loan to affiliate 2.3 5.5 9.3 Cash equivalents 44.6 38.8 27.1 Other 16.7 9.5 1.8 ----------------------------------------------------------------------------- Gross investment income 895.2 891.1 867.1 Less: investment expenses (17.6) (12.3) (14.5) ----------------------------------------------------------------------------- Net investment income $ 877.6 $ 878.8 $ 852.6 =============================================================================
Net investment income includes amounts allocable to experience rated contractholders of $655.6 million, $673.8 million and $649.5 million for the years ended December 31, 1998, 1997 and 1996, respectively. Interest credited to contractholders is included in current and future benefits. F-19 Notes to Consolidated Financial Statements (continued) 6. Dividend Restrictions and Shareholder's Equity The Company paid $553.0 million and $17.3 million in cash dividends to HOLDCO in 1998 and 1997, respectively. Additionally, at December 31, 1998, the Company accrued $206.0 million in dividends. Of the $759.0 million dividends paid and accrued in 1998, $756.0 million (all of which was approved by the Insurance Commissioner of the State of Connecticut) was attributable to proceeds from the sale of the domestic individual life insurance business. In January 1999, the accrued dividends of $206.0 million were paid by the Company to HOLDCO. Further dividends to be paid by the Company to HOLDCO during 1999 will need to be approved by the Insurance Department of the State of Connecticut (the "Department") prior to payment. The Department recognizes as net income and shareholder's capital and surplus those amounts determined in conformity with statutory accounting practices prescribed or permitted by the Department, which differ in certain respects from generally accepted accounting principles. Statutory net income was $148.1 million, $80.5 million and $57.8 million for the years ended December 31, 1998, 1997 and 1996, respectively. Statutory capital and surplus was $773.0 million and $778.7 million as of December 31, 1998 and 1997, respectively. As of December 31, 1998, 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. 7. Capital Gains and Losses on Investment Operations Realized capital gains or losses are the difference between the carrying value and sale proceeds of specific investments sold. Net realized capital gains on investments were as follows:
(Millions) 1998 1997 1996 ---------------------------------------------------------------------------- Debt securities $ 7.4 $21.1 $ 9.5 Equity securities 3.0 8.6 7.5 ---------------------------------------------------------------------------- Pretax realized capital gains $10.4 $29.7 $17.0 ============================================================================ After-tax realized capital gains $ 7.3 $19.2 $11.1 ============================================================================
Net realized capital gains of $15.0 million, $83.7 million and $52.5 million for 1998, 1997 and 1996, respectively, allocable to experience rated contracts, were deducted from net realized capital gains and an offsetting amount was reflected in Policyholders' funds left with the Company. Net unamortized gains were $118.6 million and $120.1 million at December 31, 1998 and 1997, respectively. F-20 Notes to Consolidated Financial Statements (continued) 7. Capital Gains and Losses on Investment Operations (continued) Proceeds from the sale of available-for-sale debt securities and the related gross gains and losses were as follows:
(Millions) 1998 1997 1996 ---------------------------------------------------------------------------- Proceeds on sales $6,790.2 $5,311.3 $5,182.2 Gross gains 98.8 23.8 22.1 Gross losses 91.4 2.7 12.6 ----------------------------------------------------------------------------
Changes in shareholder's equity related to changes in accumulated other comprehensive income (unrealized capital gains and losses on securities, excluding those related to experience-rated contractholders) were as follows:
(Millions) 1998 1997 1996 ----------------------------------------------------------------------------------- Debt securities $ 18.9 $44.3 $(100.1) Equity securities (16.1) 5.6 (10.5) Other 15.4 -- -- ----------------------------------------------------------------------------------- Subtotal 18.2 49.9 (110.6) Increase (decrease) in deferred income taxes (Refer to note 8) 6.3 17.5 (38.6) ----------------------------------------------------------------------------------- Net changes in accumulated other comprehensive income $ 11.9 $32.4 $ (72.0) ===================================================================================
Net unrealized capital gains allocable to experience-rated contracts of $355.8 million at December 31, 1998 are reflected on the Consolidated Balance Sheets in Policyholders' funds left with the Company and are not included in shareholder's equity. At December 31, 1997, net unrealized capital gains of $356.7 million and $72.6 million at December 31, 1997 are reflected on the Consolidated Balance Sheets in policyholders' funds left with the Company and future policy benefits, respectively, and are not included in shareholder's equity. F-21 Notes to Consolidated Financial Statements (continued) 7. Capital Gains and Losses on Investment Operations (continued) Shareholder's equity included the following accumulated other comprehensive income, which are net of amounts allocable to experience-rated contractholders, at December 31:
(Millions) 1998 1997 1996 ---------------------------------------------------------------------------------- Debt securities: Gross unrealized capital gains $157.3 $140.6 $101.7 Gross unrealized capital losses (16.2) (18.4) (23.8) ---------------------------------------------------------------------------------- 141.1 122.2 77.9 ---------------------------------------------------------------------------------- Equity securities: Gross unrealized capital gains 13.1 21.2 16.3 Gross unrealized capital losses (8.1) (0.1) (0.8) ---------------------------------------------------------------------------------- 5.0 21.1 15.5 ---------------------------------------------------------------------------------- Other: Gross unrealized capital gains 17.1 -- -- Gross unrealized capital losses (1.7) -- -- ---------------------------------------------------------------------------------- 15.4 -- -- ---------------------------------------------------------------------------------- Deferred income taxes (Refer to note 8) 56.7 50.4 32.9 ---------------------------------------------------------------------------------- Net accumulated other comprehensive income $104.8 $ 92.9 $ 60.5 ==================================================================================
Changes in accumulated other comprehensive income related to changes in unrealized gains (losses) on securities (excluding those related to experience-rated contractholders) were as follows:
(Millions) 1998 1997 1996 ---------------------------------------------------------------------------------- Unrealized holding gains (losses) arising during the year (1) $38.3 $98.8 $(14.8) Less: reclassification adjustment for gains and other items included in net income (2) 26.4 66.4 57.2 ----------------------------------------------------------------------------------- Net unrealized gains (losses) on securities $11.9 $32.4 $(72.0) ===================================================================================
(1) Pretax unrealized holding gains (losses) arising during the year were $58.8 million, $152.3 million and ($22.9) million for 1998, 1997 and 1996, respectively. (2) Pretax reclassification adjustments for gains and other items included in net income were $40.6 million, $102.4 million and $87.7 million for 1998, 1997 and 1996, respectively. F-22 Notes to Consolidated Financial Statements (continued) 8. Income Taxes The Company is included in the consolidated federal income tax return, the combined returns of Connecticut and New York, and the Illinois unitary state income tax returns of Aetna. Aetna allocates to each member an amount approximating the tax it would have incurred were it not a member of the consolidated group, and credits the member for the use of its tax saving attributes in the consolidated federal income tax return. Income taxes from continuing operations consist of the following:
(Millions) 1998 1997 1996 ------------------------------------------------------------------------------- Current taxes (benefits): Federal $ 246.4 $ 28.7 $ 30.0 State 1.3 2.0 2.3 Net realized capital gains 16.8 39.1 24.4 ------------------------------------------------------------------------------ 264.5 69.8 56.7 ------------------------------------------------------------------------------ Deferred taxes (benefits): Federal (203.2) 9.4 (7.6) Net realized capital (losses) (13.9) (28.5) (18.4) ------------------------------------------------------------------------------ (217.1) (19.1) (26.0) ------------------------------------------------------------------------------ Total $ 47.4 $ 50.7 $ 30.7 ==============================================================================
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:
(Millions) 1998 1997 1996 ------------------------------------------------------------------------------ Income from continuing operations before income taxes $187.0 $188.2 $115.9 Tax rate 35% 35% 35% ------------------------------------------------------------------------------ Application of the tax rate 65.5 65.9 40.6 Tax effect of: State income tax, net of federal benefit 0.9 1.3 1.5 Excludable dividends (17.1) (15.6) (10.8) Other, net (1.9) (0.9) (0.6) ------------------------------------------------------------------------------ Income taxes $ 47.4 $ 50.7 $ 30.7 ==============================================================================
F-23 Notes to Consolidated Financial Statements (continued) 8. Income Taxes (Continued) The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities at December 31 are presented below:
(Millions) 1998 1997 ------------------------------------------------------------------------ Deferred tax assets: Insurance reserves $ 324.1 $415.8 Unrealized gains allocable to experience rated contracts 124.5 150.1 Investment (gains) losses (0.3) 6.6 Postretirement benefits other than pensions 26.0 26.3 Deferred compensation 38.6 31.2 Restructuring charge 2.9 9.5 Depreciation 1.7 3.9 Sale of individual life 48.9 - Other 16.0 8.8 ------------------------------------------------------------------------ Total gross assets 582.4 652.2 ------------------------------------------------------------------------ Deferred tax liabilities: Deferred policy acquisition costs 272.7 515.6 Market discount 4.5 5.1 Net unrealized capital gains 181.2 200.5 Pension 3.9 3.6 Other (0.5) (0.6) ------------------------------------------------------------------------ Total gross liabilities 461.8 724.2 ------------------------------------------------------------------------ Net deferred tax (asset) liability $(120.6) $ 72.0 ========================================================================
Net unrealized capital gains and losses are presented in shareholder's equity net of deferred taxes. As of December 31, 1998 and 1997, no valuation allowances were required for unrealized capital gains and losses. Management believes that it is more likely than not that the Company will realize the benefit of the net deferred tax asset. The Company expects sufficient taxable income in the future to realize the net deferred tax asset because of the Company's long-term history of having taxable income, which is projected to continue. 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, 1998. This amount would be taxed only under certain conditions. F-24 Notes to Consolidated Financial Statements (continued) 8. Income Taxes (Continued) 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 consolidated federal income tax returns of Aetna through 1990. Discussions are being held with the Service with respect to proposed adjustments. Management believes there are adequate defenses against, or sufficient reserves to provide for, any such adjustments. The Service has commenced its examinations for the years 1991 through 1994. 9. Benefit Plans Aetna has noncontributory defined benefit pension plans covering substantially all employees. Aetna's accrued pension cost has been allocated to its subsidiaries, including the Company, under an allocation based on eligible salaries. Data on a separate company basis regarding the proportionate share of the projected benefit obligation and plan assets is not available. The accumulated benefit obligation and plan assets are recorded by Aetna. As of the measurement date (i.e., September 30), the accumulated plan assets exceeded accumulated plan benefits. Allocated pretax charges to operations for the pension plan (based on the Company's total salary cost as a percentage of Aetna's total salary cost) were $0.8 million, $2.7 million and $4.3 million for the years ended December 31, 1998, 1997 and 1996, respectively. In addition to providing pension benefits, Aetna currently provides certain health care and life insurance benefits for retired employees. A comprehensive medical and dental plan is offered to all full-time employees retiring at age 50 with 15 years of service or at age 65 with 10 years of service. There is a cap on the portion of the cost paid by the Company relating to medical and dental benefits. Retirees are generally required to contribute to the plans based on their years of service with Aetna. The costs to the Company associated with the Aetna postretirement plans for 1998, 1997 and 1996 were $0.9 million, $2.7 million and $1.8 million, respectively. As of December 31, 1996, Aetna transferred to the Company approximately $77.7 million of accrued liabilities, primarily related to the pension and postretirement benefit plans described above, that had been previously recorded by Aetna. The after-tax amount of this transfer (approximately $50.5 million) is reported as a reduction in retained earnings. The Company, in conjunction with Aetna, has a non-qualified pension plan covering certain agents. The plan provides pension benefits based on annual commission earnings. As of the measurement date (i.e., September 30), the accumulated plan assets exceeded accumulated plan benefits. The Company, in conjunction with Aetna, also provides certain postretirement health care and life insurance benefits for certain agents. The costs to the Company associated with the agents' postretirement plans for 1998, 1997 and 1996 were $1.4 million, $0.6 million and $0.7 million, respectively. Effective January 1, 1999, the Company, in conjunction with Aetna, changed the formula for providing pension benefits from the existing final average pay formula to a cash balance formula, F-25 Notes to Consolidated Financial Statements (continued) 9. Benefit Plans (continued) which will credit 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. The formula also provides for a transition period until December 1, 2006, which allows certain employees to receive vested benefits at the higher of the final average pay or cash balance formula. The changing of this formula will not have a material effect on the Company's results of operations, liquidity or financial condition. Incentive Savings Plan--Substantially all employees are eligible to participate in a savings plan under which designated contributions, which may be invested in common stock of Aetna or certain other investments, are matched, up to 5% of compensation, by Aetna. Pretax charges to operations for the incentive savings plan were $4.7 million, $4.4 million and $5.4 million in 1998, 1997 and 1996, respectively. Stock Plans--Aetna has a stock incentive plan that provides for stock options, deferred contingent common stock or equivalent cash awards or restricted stock to certain key employees. Executive and middle management employees may be granted options to purchase common stock of Aetna at or above the market price on the date of grant. Options generally become 100% vested three years after the grant is made, with one-third of the options vesting each year. Aetna does not recognize compensation expense for stock options granted at or above the market price on the date of grant under its stock incentive plans. In addition, executives may be granted incentive units which are rights to receive common stock or an equivalent value in cash. The incentive units may vest within a range from 0% to 175% at the end of a four year period based on the attainment of performance goals. The costs to the Company associated with the Aetna stock plans for 1998, 1997 and 1996, were $4.1 million, $2.9 million and $8.1 million, respectively. As of December 31, 1996, Aetna transferred to the Company approximately $1.1 million of deferred tax benefits related to stock options. This amount is reported as an increase in retained earnings. In 1998, other changes in shareholder's equity include an additional increase of $0.7 million reflecting revisions to the allocation of the deferred tax benefit. 10. Related Party Transactions Investment Advisory and Other Fees ---------------------------------- In February 1998 and May 1998, Aeltus Investment Management Inc. ("Aeltus"), an affiliate of the Company, assumed investment advisory services for Aetna managed mutual funds and variable funds (collectively, the Funds), respectively. In connection with that assumption of duties, Aeltus entered into participation agreements with the Company. Participation fees paid to the Company, from Aeltus, included in charges assessed against policyholders amounted to $26.9 million for 1998. Prior to assuming investment advisory services, Aeltus served as subadvisor to the Funds. Since August 1996, Aeltus has served as advisor for most of the Company's General Account assets. Fees paid by the Company to Aeltus, included in both charges assessed against policyholders and net investment income, on an annual basis, range from 0.06% to 0.55% of the average daily net assets under management. For the years ended December 31, 1998, 1997 and 1996, the Company paid $21.7 million, $45.5 million and $16.0 million, respectively, in such fees. Prior to February 1998 and May 1998, the Company served as investment advisor to the Funds. Under the advisory agreements, the funds paid the Company a daily fee which, on an annual basis, ranged, F-26 Notes to Consolidated Financial Statements (continued) 10. Related Party Transactions (continued) depending on the fund, from 0.25% to 0.85% of their average daily net assets. 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 2.15% of their average daily net assets. The amount of compensation and fees received from the Funds and Separate Accounts, included in charges assessed against policyholders, amounted to $287.0 million, $271.2 million and $186.6 million in 1998, 1997 and 1996, respectively. Reinsurance Transactions ------------------------ Since 1981, all domestic individual non-participating life insurance of Aetna and its subsidiaries has been issued by the Company. Effective December 31, 1988, the Company entered into a reinsurance agreement with Aetna Life Insurance Company ("Aetna Life") in which substantially all of the non-participating individual life and annuity business written by Aetna Life prior to 1981 was assumed by the Company. A $6.1 million and a $108.0 million commission, paid by the Company to Aetna Life in 1996 and 1988, respectively, was capitalized as deferred policy acquisition costs. In consideration for the assumption of this business, a loan was established relating to the assets held by Aetna Life which support the insurance reserves. Effective January 1, 1997, this agreement was amended to transition (based on underlying investment rollover in Aetna Life) from a modified coinsurance to a coinsurance arrangement. As a result of this change, reserves were ceded to the Company from Aetna Life as investment rollover occurred and the loan previously established was reduced. The Company maintained insurance reserves of $574.5 million ($397.2 million relating to the modified coinsurance agreement and $177.3 million relating to the coinsurance agreement) as of December 31, 1997 relating to the business assumed. The fair value of the loan relating to assets held by Aetna Life was $412.3 million as of December 31, 1997 and was based upon the fair value of the underlying assets. Effective October 1, 1998, this agreement was fully transitioned to a coinsurance arrangement and this business along with the Company's direct domestic individual non-participating life insurance business was sold to Lincoln. (Refer to note 2). The operating results of the domestic individual life business are presented as Discontinued Operations. Premiums of $336.3 million, $176.7 million and $25.3 million and current and future benefits of $341.1 million, $183.9 million and $39.5 million, were assumed in 1998, 1997 and 1996, respectively. Investment income of $17.0 million, $37.5 million and $44.1 million was generated from the reinsurance loan to affiliate for the years ended December 31, 1998, 1997 and 1996, respectively. Prior to the sale of the domestic individual life insurance business to Lincoln on October 1, 1998, the Company's retention limit per individual life was $2.0 million and amounts in excess of this limit, up to a maximum of $8.0 million on any new individual life business was reinsured with Aetna Life on a yearly renewable term basis. Premium amounts related to this agreement were $2.0 million, $5.9 million and $5.2 million for 1998, 1997 and 1996, respectively. This agreement was terminated effective October 1, 1998. Effective October 1, 1997, the Company entered into a reinsurance agreement with Aetna Life to assume amounts in excess of $0.2 million for certain of its participating life insurance, on a yearly F-27 Notes to Consolidated Financial Statements (continued) 10. Related Party Transactions (continued) renewable term basis. Premium amounts related to this agreement were $4.4 million and $0.7 million in 1998 and 1997, respectively. The business assumed under this agreement was retroceded to Lincoln effective October 1, 1998. On December 16, 1988, the Company assumed $25.0 million of premium revenue from Aetna Life for the purchase and administration of a life contingent single premium variable payout annuity contract. In addition, the Company is also responsible for administering fixed annuity payments that are made to annuitants receiving variable payments. Reserves of $87.8 million and $32.5 million were maintained for this contract as of December 31, 1998 and 1997, respectively. Capital Transactions -------------------- The Company received a capital contribution of $9.3 million and $10.4 million in cash from HOLDCO in 1998 and 1996, respectively. The Company received no capital contributions in 1997. The Company paid $553.0 million, $17.3 million and 3.5 million in cash dividends to HOLDCO in 1998, 1997 and 1996, respectively. Additionally, in 1998, the Company accrued $206.0 million in dividends. (Refer to Note 6) Other ----- Premiums due and other receivables include $1.6 million and $37.0 million due from affiliates in 1998 and 1997, respectively. Other liabilities include $2.2 million and $1.2 million due to affiliates for 1998 and 1997, respectively. As of December 31, 1998, Aetna transferred to the Company $0.7 million based on its decision not to settle state tax liabilities for the years 1998 and 1997. The amount transferred as of December 31, 1997 was $2.5 million. This amount has been reported as an other change in retained earnings. Substantially all of the administrative and support functions of the Company are provided by Aetna and its affiliates. The financial statements reflect allocated charges for these services based upon measures appropriate for the type and nature of service provided. 11. Reinsurance 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 2) 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. F-28 Notes to Consolidated Financial Statements (continued) 11. Reinsurance (continued) The following table includes premium amounts ceded/assumed to/from affiliated companies as discussed in Note 10 above.
Ceded to Assumed Direct Other from Other Net (Millions) Amount Companies Companies Amount ------------------------------------------------------------------------------------ 1998 ---- Premiums: Discontinued Operations $166.8 $165.4 $340.6 $342.0 Accident and Health Insurance 16.3 16.3 -- -- Annuities 80.8 2.9 1.5 79.4 ------------------------------------------------------------------------------------ Total earned premiums $263.9 $184.6 $342.1 $421.4 ==================================================================================== 1997 ---- Premiums: Discontinued Operations $ 35.7 $ 15.1 $177.4 $198.0 Accident and Health Insurance 5.6 5.6 -- -- Annuities 67.9 -- 1.2 69.1 ------------------------------------------------------------------------------------ Total earned premiums $109.2 $ 20.7 $178.6 $267.1 ==================================================================================== 1996 ---- Premiums: Discontinued Operations $ 34.6 $ 11.2 $ 25.3 $ 48.7 Accident and Health Insurance 6.3 6.3 -- -- Annuities 84.3 -- 0.6 84.9 ------------------------------------------------------------------------------------ Total earned premiums $125.2 $ 17.5 $ 25.9 $133.6 ====================================================================================
F-29 Notes to Consolidated Financial Statements (continued) 12. Segment Information Prior to October 1, 1998, the Company's operations were reported through two major business segments: Financial Services and Individual Life Insurance (now Discontinued Operations). Summarized financial information for the Company's principal operations was as follows:
(4) (4) Financial Discontinued 1998 (Millions) Services Operations Other Total ---------------------------------------------------------------------------------------------------- Revenue from external customers $ 433.3 -- -- $ 433.3 Net investment income 877.6 -- -- 877.6 ---------------------------------------------------------------------------------------------------- Total revenue excluding realized capital gains $ 1,310.9 -- -- $ 1,310.9 ==================================================================================================== Amortization of deferred policy acquisition costs $ 106.7 -- -- $ 106.7 ---------------------------------------------------------------------------------------------------- Income taxes $ 57.7 $ (10.3) $ 47.4 ---------------------------------------------------------------------------------------------------- Operating earnings (1) $ 151.5 -- -- $ 151.5 Unusual items (2) -- -- $ (19.2) (19.2) Realized capital gains, net of tax 7.3 -- -- 7.3 ---------------------------------------------------------------------------------------------------- Income from continuing operations $ 158.8 -- $ (19.2) $ 139.6 Discontinued operations, net of tax: Income from operations -- $ 61.8 -- 61.8 Gain on sale -- 59.0 -- 59.0 ---------------------------------------------------------------------------------------------------- Net income $ 158.8 $ 120.8 $ (19.2) $ 260.4 ==================================================================================================== Segment assets $43,458.6 $3,820.2 -- $47,278.8 ---------------------------------------------------------------------------------------------------- Expenditures for long-lived assets (3) -- -- $ 5.3 $ 5.3 ----------------------------------------------------------------------------------------------------
(1) Operating earnings are comprised of net income excluding net realized capital gains and any unusual items. (2) Unusual items excluded from operating earnings include an after-tax severance benefit of $1.6 million and after-tax Year 2000 costs of $20.8 million. (3) Expenditures of long-lived assets represents additions to property and equipment not allocable to business segments. (4) Financial Services products include annuity contracts and Discontinued Operations include life insurance products. (Refer to Note 1) F-30 Notes to Consolidated Financial Statements (continued) 12. Segment Information (Continued)
(3) (3) Financial Discontinued 1997 (Millions) Services Operations Other Total ---------------------------------------------------------------------------------------------- Revenue from external customers $ 369.4 -- -- $ 369.4 Net investment income 878.8 -- -- 878.8 ---------------------------------------------------------------------------------------------- Total revenue excluding realized capital gains $ 1,248.2 -- -- $ 1,248.2 ============================================================================================== Amortization of deferred policy acquisition costs $ 82.8 -- -- $ 82.8 ---------------------------------------------------------------------------------------------- Income taxes $ 50.7 -- -- $ 50.7 ---------------------------------------------------------------------------------------------- Operating earnings (1) $ 118.3 -- -- $ 118.3 Realized capital gains, net of tax 19.2 -- -- 19.2 ---------------------------------------------------------------------------------------------- Income from continuing operations $ 137.5 -- -- $ 137.5 Discontinued Operations, net of tax: Income from operations -- $ 67.8 -- 67.8 ---------------------------------------------------------------------------------------------- Net Income $ 137.5 $ 67.8 -- $ 205.3 ============================================================================================== Segment assets $36,638.8 $3,507.6 -- $40,146.4 ---------------------------------------------------------------------------------------------- Expenditures for long-lived assets (2) -- -- $9.6 $ 9.6 ----------------------------------------------------------------------------------------------
(1) Operating earnings are comprised of net income excluding net realized capital gains and any unusual items. (2) Expenditures for long-lived assets represents additions to property and equipment not allocable to business segments. (3) Financial Services products include annuity contracts and Discontinued Operations include life insurance products. (Refer to Note 1) F-31 Notes to Consolidated Financial Statements (continued) 12. Segment Information (Continued)
(3) (3) Financial Discontinued 1996 (Millions) Services Operations Other Total ----------------------------------------------------------------------------------------------------- Revenue from external customers $ 325.5 -- -- $ 325.5 Net investment income 852.6 -- -- 852.6 ----------------------------------------------------------------------------------------------------- Total revenue excluding realized capital gains $1,178.1 -- -- $1,178.1 ===================================================================================================== Amortization of deferred policy acquisition costs $ 28.0 -- -- $ 28.0 ----------------------------------------------------------------------------------------------------- Income taxes $ 35.6 -- $ (4.9) $ 30.7 ----------------------------------------------------------------------------------------------------- Operating earnings (losses) (1) $ 83.2 -- -- $ 83.2 Unusual items (2) -- -- (9.1) (9.1) Realized capital gains, net of tax: 11.1 -- -- 11.1 ----------------------------------------------------------------------------------------------------- Income from continuing operations $ 94.3 $ (9.1) $ 85.2 Discontinued operations, net of tax Income from operations -- $55.9 -- 55.9 ----------------------------------------------------------------------------------------------------- Net income (loss) $ 94.3 $55.9 $ (9.1) $ 141.1 =====================================================================================================
(1) Operating earnings are comprised of net income excluding net realized capital gains and any unusual items. (2) Unusual items excluded from operating earnings represent $9.1 million after-tax corporate facilities and severance charges not directly allocable to the business segments. (3) Financial Services products include annuity contracts and Discontinued Operations include life insurance products. (Refer to Note 1) 13. Commitments and Contingent Liabilities Commitments ----------- Through the normal course of investment operations, the Company commits to either purchase or sell securities or money market instruments at a specified future date and at a specified price or yield. The inability of counterparties to honor these commitments may result in either higher or lower replacement cost. Also, there is likely to be a change in the value of the securities underlying the commitments. At December 31, 1998 and 1997, the Company had commitments to purchase investments of $68.7 million and $38.7 million, respectively. The fair value of the investments at December 31, 1998 and 1997 approximated $68.9 million and $39.0 million, respectively. Litigation ---------- The Company is involved in numerous lawsuits arising, for the most part, in the ordinary course of its business operations. While the ultimate outcome of litigation against the Company cannot be determined at this time, after consideration of the defenses available to the Company and any related reserves established, it is not expected to result in liability for amounts material to the financial condition of the Company, although it may adversely affect results of operations in future periods. F-32 Form No. SAI.75988-99 ALIAC Ed. May 1999 -----END PRIVACY-ENHANCED MESSAGE-----