As filed with the Securities and Exchange Registration No. 33-75974
Commission on April 15, 1999 Registration No. 811-2513
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
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POST-EFFECTIVE AMENDMENT NO. 10 TO
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
and Amendment to
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
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Variable Annuity Account C of Aetna Life Insurance and Annuity Company
Aetna Life Insurance and Annuity Company
151 Farmington Avenue, RE4A, Hartford, Connecticut 06156
Depositor's Telephone Number, including Area Code: (860) 273-4686
Julie E. Rockmore, Counsel
Aetna Life Insurance and Annuity Company
151 Farmington Avenue, RE4A, Hartford, Connecticut 06156
(Name and Address of Agent for Service)
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It is proposed that this filing will become effective:
-------- Immediately upon filing pursuant to paragraph (b) of Rule 485
X on May 3, 1999 pursuant to paragraph (b) of Rule 485
--------
<PAGE>
<TABLE>
<CAPTION>
FORM N-4
ITEM NO. PART A (PROSPECTUS) LOCATION - PROSPECTUS
<S> <C> <C>
1 Cover Page........................................... Cover Page
2 Definitions.......................................... Not Applicable
3 Synopsis............................................. Contract Overview; Fee Table
4 Condensed Financial Information...................... Condensed Financial Information; Appendix III -
Condensed Financial Information
5 General Description of Registrant, Depositor, and
Portfolio Companies.................................. Other Topics - The Company; Variable Annuity
Account C; Investment Options
6 Deductions and Expenses.............................. Fees
7 General Description of Variable Annuity Contracts.... Contract Overview; Other Topics
8 Annuity Period....................................... The Income Phase
9 Death Benefit........................................ Death Benefit
10 Purchases and Contract Value......................... Contract Purchase and Participation; Your
Account Value
11 Redemptions.......................................... Right to Cancel
12 Taxes................................................ Taxation
13 Legal Proceedings.................................... Other Topics - Legal Matters and Proceedings
14 Table of Contents of the Statement of Additional
Information.......................................... Contents of the Statement of Additional
Information
</TABLE>
<PAGE>
VARIABLE ANNUITY ACCOUNT C
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-4
ITEM NO. PART B (STATEMENT OF ADDITIONAL INFORMATION) LOCATION - STATEMENT OF
ADDITIONAL INFORMATION
<S> <C> <C>
15 Cover Page........................................... Cover page
16 Table of Contents.................................... Table of Contents
17 General Information and History...................... General Information and History
18 Services............................................. General Information and History;
Independent Auditors
19 Purchase of Securities Being Offered................. Offering and Purchase of Contracts
20 Underwriters......................................... Offering and Purchase of Contracts
21 Calculation of Performance Data...................... Performance Data; Average Annual Total
Return Quotations
22 Annuity Payments..................................... Income Payments
23 Financial Statements................................. Financial Statements of the Separate
Account; Financial Statements
</TABLE>
Part C (Other Information)
--------------------------
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C to this Registration Statement.
<PAGE>
Prospectus - May 3, 1999
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[Begin sidebar]
The Funds
Aetna Balanced VP, Inc.
Aetna Income Shares d/b/a Aetna Bond
VP
Aetna Variable Fund d/b/a Aetna
Growth and Income VP
Aetna Variable Encore Fund d/b/a Aetna
Money Market VP
Portfolio Partners MFS Research
Growth Portfolio
[End sidebar]
The Contracts. The contracts described in this prospectus are group installment
and single purchase payment variable annuity contracts issued by Aetna Life
Insurance and Annuity Company (the Company). They are intended to be used as
funding vehicles for certain types of retirement plans that may qualify for
beneficial tax treatment under certain sections of the Internal Revenue Code of
1986, as amended (Tax Code).
- --------------------------------------------------------------------------------
Why Reading this Prospectus Is Important. Before you participate in the contract
through a retirement plan, you should read this prospectus. It provides facts
about the contract and its investment options. Plan sponsors (generally your
employer) should read this prospectus to help determine if the contract is
appropriate for their plan. Keep this document for future reference.
Table of Contents . . . page 3
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Contract Design. The contracts 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 death benefit to a beneficiary in the event of death
> Provide future income payments over a lifetime or for a specified period
Investment Options. The contracts offer variable investment options and fixed
investment options. When we establish your account the contract holder, or you
if permitted by the plan, instructs us to direct account dollars in to any of
the available options. Some investment options may be unavailable through
certain contracts and plans, or in some states.
Variable Investment Options. These options are called subaccounts. Each
subaccounts invests in one of the mutual funds (funds) listed on this page.
Earnings on amounts invested in a subaccount will vary depending on the
performance of its underlying fund. The subaccounts are within Variable Annuity
Account C (the separate account), a separate account of the Company. 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. Retain the fund prospectuses for future
reference.
Fixed Interest Options
> Guaranteed Accumulation Account
> Fixed Account
Except as specifically mentioned, this prospectus describes only the variable
investment options. However, we describe the fixed interest options in the
appendices to this prospectus. There is also a separate prospectus for the
Guaranteed Accumulation Account.
Getting Additional Information. You may obtain the May 3, 1999, Statement of
Additional Information (SAI) by indicating your request on your enrollment
materials or calling the Company at 1-800-232-5422. 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. The SAI table of
contents is listed on page 38 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 contracts 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 current prospectuses of the funds and the Guaranteed
Accumulation Account. We do not intend for this prospectus to be an offer to
sell or a solicitation of an offer to buy these contracts 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.
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
- ------------------------------------------------------
<S> <C>
Contract Overview ............................... 4
Who's Who
The Contract and Your Retirement Plan
Contract Rights
Contract Facts
Contract Phases: Accumulation Phase, Income Phase
Questions: Contacting the Company (sidebar)
Sending Requests in Good Order (sidebar)
- ------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Fee Table ................................... 6
Condensed Financial Information ............. 9
Investment Options .......................... 9
Transfers ................................... 12
Contract Purchase and Participation ......... 13
Contract Ownership and Rights ............... 14
Right to Cancel ............................. 14
Fees ........................................ 15
Your Account Value .......................... 18
Withdrawals ................................. 20
Systematic Distribution Options ............. 22
Death Benefit ............................... 23
The Income Phase ............................ 25
Taxation .................................... 28
Other Topics ................................ 34
</TABLE>
The Company -- Variable Annuity Account C -- Performance Reporting -- Voting
Rights -- Contract Distribution -- Commission Payments -- Third Party
Compensation Arrangements -- Contract Modification -- Legal Matters and
Proceedings -- Payment Delay or Suspension -- Transfer of Ownership; Assignment
- -- Year 2000 Readiness
<TABLE>
<S> <C>
Contents of the Statement of Additional Information ......... 38
Appendix I -- Guaranteed Accumulation Account ............... 39
Appendix II -- Fixed Account ................................ 41
Appendix III -- Condensed Financial Information ............. 42
</TABLE>
3
<PAGE>
[Begin sidebar]
Questions: Contacting the Company. To answer your questions, contact your local
representative or write or call our Home Office:
Aetna Retirement Services
Annuity Services
151 Farmington Avenue
Hartford, CT 06156-1277
1-800-232-5422
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 local representative or the Company 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
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The following is a summary. Please read each section of this prospectus for
additional information.
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Who's Who
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You (the participant): The individual participating in a retirement plan, where
the plan uses the contracts as a funding option.
Plan Sponsor: The sponsor of your retirement plan. Generally, your employer.
Contract Holder: The person or entity to whom we issue the contract. Generally,
the plan sponsor or plan trustee.
We (the Company): Aetna Life Insurance and Annuity Company. We issue the
contract.
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The Contract and Your Retirement Plan
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Retirement plan (plan): A plan sponsor has established a retirement plan for
you. This contract is offered as a funding option for that plan. We are not a
party to the plan, so the terms and the conditions of the contract and the plan
may differ.
Plan Type. We refer to the retirement plan by the Tax Code section under which
it qualifies. For example, a "403(b) plan" is a plan that qualifies for tax
treatment under code section 403(b) To learn which code section applies to your
plan, contact your plan sponsor, your Aetna representative or the Company.
- --------------------------------------------------------------------------------
Contract Rights
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The contract holder holds all rights under the contract, but may permit you to
exercise those rights through the plan.
For example: The contract may permit the contact holder to select investment
options for your account dollars. The plan may permit you to exercise that
right. For greater detail see "Contract Ownership and Rights."
- --------------------------------------------------------------------------------
Contract Facts
- --------------------------------------------------------------------------------
Free look/Right to Cancel: The contract holder or you, if permitted, may cancel
the contract within 10 days after receiving the contract or evidence of
participation in the contract. See "Right To Cancel."
Death Benefit: A beneficiary may receive a benefit in the event of your death
prior to the income phase. Death benefits during the income phase depend on the
payment option selected. See "Death Benefit" and "The Income Phase."
Withdrawals: During the accumulation phase the contract holder or you, if
permitted, may withdraw all or a part of your account value. Amounts withdrawn
may be subject to and early withdrawal charge, other deductions, tax withholding
and taxation. See "Withdrawals" and "Taxation."
Systematic Distribution Options: The contract holder or you, if permitted, may
elect for you to receive regular payments from your account, while retaining the
account in the accumulation phase. See "Systematic Distribution Options."
4
<PAGE>
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 contract. Tax penalties may apply if rules are not
followed. See "Taxation."
- --------------------------------------------------------------------------------
Contract Phases
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[Type Representation of Graphic]
------------
Payments to
Your Account
------------
Step 1
----------------------------------------
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 2 b) (down arrow)
--------------------
Mutual Mutual
Fund A Fund B
-------------------
I. The Accumulation Phase. (accumulating retirement benefits)
STEP 1: You or the contract holder provide Aetna Life Insurance and Annuity
Company with your completed enrollment materials. The contract holder directs us
to set up an account for you.
STEP 2: The contract holder, or you if permitted by your plan, direct us to
invest your account dollars in any of the:
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 2(b), continued: The subaccount(s) selected purchases shares of its
assigned fund.
II. The Income Phase. The contract offers several payment options (see "The
Income Phase.") In general, you may:
> Receive payments over a lifetime or for a specified period
> Receive payments monthly, quarterly, semi-annually or annually
> Select an option that provides a death benefit to beneficiaries
> Select fixed payments or payments that vary based on the performance of the
variable investment options you select.
5
<PAGE>
[Begin sidebar]
In This Section:
> Transaction Fees
> Fees Deducted from the Subaccounts
> Fund Fees
> Examples of Fee Deductions
See the "Fees" section for:
> Early Withdrawal Charge Schedules
> How, When and Why Fees are Deducted
> Premium and Other Taxes
See "The 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 include premium taxes that may be
applicable.
Transaction Fees
<TABLE>
<CAPTION>
Plan Type:
403(b) 401 HR10
<S> <C> <C> <C>
Sales and Administrative Expense Charge ........................... 6.00% 5.00% 1.75%
(as a percentage of contributions to your account)
Maximum Early Withdrawal Charge ................................... 2%(1) 5%(2) 2%(1)
(as a percentage of amount withdrawn)
Allocation And Transfer Fees(3) ................................... $0.00 $0.00 $0.00
Fees Deducted from the Subaccounts
(Daily deductions equal to the given percentage on an annual basis)
Mortality and Expense Risk Fee .................................... 1.25% 1.19% 1.25%
----- ----- -----
Total Separate Account Annual Expenses ............................ 1.25% 1.19% 1.25%
===== ===== =====
</TABLE>
(1)Only applies if fewer than five contract years have been completed
(2)Diminishes to zero over six years; see schedule in "Fees" section
(3)The Company currently allows an unlimited number of transfers or allocation
changes without charge. However, the Company reserves the right to impose a
transfer fee of $10.00 for each transfer or allocation change in excess of 12
during each contract year. (See "Fees -- Allocation and Transfer Fee.")
6
<PAGE>
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,
fees are deducted from the value of the fund shares on a daily basis, which in
turn will affect 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
<TABLE>
<CAPTION>
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
--------- ------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Aetna Balanced VP, Inc.(2) 0.50% 0.09% 0.59% -- 0.59%
Aetna Bond VP(2) 0.40% 0.10% 0.50% -- 0.50%
Aetna Growth and Income VP(2) 0.50% 0.08% 0.58% -- 0.58%
Aetna Money Market VP(2) 0.25% 0.09% 0.34% -- 0.34%
Portfolio Partners MFS Research Growth Portfolio(3) 0.70% 0.15% 0.85% -- 0.85%
</TABLE>
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 paid out of
the management fees and are not charged to investors.
(2) 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.
(3) The investment adviser has agreed to reimburse the portfolio for expenses
and/or waive its fees, so that, through at least April 30, 2000, the
aggregate of the 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.
7
<PAGE>
Hypothetical Examples
Account Fees Incurred Over Time. The following hypothetical examples show the
fees paid over time if $1,000 is invested in a subaccount, assuming a 5% annual
return on the investment. For the purpose of these examples, we deducted the
applicable sales and administrative expense charge and a mortality and expense
risk charge of 1.25% on an annual basis 403(b) and HR 10 plans, and 1.19% on an
annual basis for 401 plans. The total annual fund expenses used are those shown
in the column "Total Annual Expenses Without Waivers or Reductions" in the Fund
Expense Table.
403(b) PLANS
- --------------------------------------------
> These examples are purely hypothetical
> They should not be considered a
representation of past or future fees or
expected returns
> Actual fees and/or returns may be more or
less than those shown in these examples.
- --------------------------------------------
<TABLE>
<CAPTION>
EXAMPLE A
---------
If you withdraw your entire account
value at the end of the periods shown,
you would pay the following fees,
including any applicable early
withdrawal charge assessed:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Aetna Balanced VP, Inc. $97 $135 $154 $263
Aetna Bond VP $96 $132 $149 $254
Aetna Growth and Income VP $97 $135 $153 $262
Aetna Money Market VP $95 $128 $141 $238
Portfolio Partners MFS Research Growth Portfolio $99 $142 $166 $289
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE B
---------
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 fees (no early
withdrawal is reflected)
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Aetna Balanced VP, Inc. $78 $114 $154 $263
Aetna Bond VP $77 $112 $149 $254
Aetna Growth and Income VP $77 $114 $153 $262
Aetna Money Market VP $75 $107 $141 $238
Portfolio Partners MFS Research Growth Portfolio $80 $122 $166 $289
</TABLE>
401 PLANS
<TABLE>
<CAPTION>
EXAMPLE A
---------
If you withdraw your entire account
value at the end of the periods shown,
you would pay the following fees,
including any applicable early
withdrawal charge assessed:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Aetna Balanced VP, Inc. $116 $135 $153 $249
Aetna Bond VP $115 $132 $148 $240
Aetna Growth and Income VP $116 $134 $152 $248
Aetna Money Market VP $114 $127 $141 $223
Portfolio Partners MFS Research Growth Portfolio $119 $142 $165 $275
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE B
---------
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 fees (no early
withdrawal charge is reflected)
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Aetna Balanced VP, Inc. $67 $103 $142 $249
Aetna Bond VP $66 $101 $137 $240
Aetna Growth and Income VP $67 $103 $141 $248
Aetna Money Market VP $65 $ 96 $129 $223
Portfolio Partners MFS Research Growth Portfolio $70 $111 $154 $275
</TABLE>
HR 10 PLANS
<TABLE>
<CAPTION>
EXAMPLE A
---------
If you withdraw your entire account
value at the end of the periods shown,
you would pay the following fees,
including any applicable early
withdrawal charge assessed:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Aetna Balanced VP, Inc. $56 $ 96 $115 $230
Aetna Bond VP $55 $ 93 $111 $220
Aetna Growth and Income VP $56 $ 96 $115 $229
Aetna Money Market VP $54 $ 89 $103 $203
Portfolio Partners MFS Research Growth Portfolio $59 $104 $128 $256
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE B
---------
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 fees (no early
withdrawal charge is reflected)
1 Year 3 Years 5 Years 10 Years
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Aetna Balanced VP, Inc. $36 $74 $115 $230
Aetna Bond VP $35 $72 $111 $220
Aetna Growth and Income VP $36 $74 $115 $229
Aetna Money Market VP $33 $67 $103 $203
Portfolio Partners MFS Research Growth Portfolio $38 $82 $128 $256
</TABLE>
8
<PAGE>
Condensed Financial Information
- --------------------------------------------------------------------------------
Understanding Condensed Financial Information. In Appendix III, we provide
condensed financial information about the Variable Annuity Account C (the
separate account) subaccounts available under the contracts. The tables show the
value of the subaccounts over the past 10 years. For the subaccounts that were
not available 10 years ago, we give a history from the date of first
availability.
Investment Options
- --------------------------------------------------------------------------------
The contract offers variable investment options and fixed interest options. When
we establish your account, the contract holder, or you if permitted by the plan,
instructs 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 of the separate account.
Fixed Interest Options. For descriptions of the fixed interest options, see
Appendix I and II and the Guaranteed Accumulation Account prospectus.
- --------------------------------------------------------------------------------
Selecting Investment Options
o Choose options appropriate for you. Your Aetna representative can help
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 Funds 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 the prospectus, the fund prospectuses, fixed interest
option appendices, and the Guaranteed Accumulation Account prospectus. Fund
prospectuses may be obtained, free of charge, by calling the Company at the
telephone number listed in "Contract Overview -- Questions: Contacting the
Company," by contacting the SEC's website, or by contacting the SEC Public
Reference Room.
- --------------------------------------------------------------------------------
9
<PAGE>
Fund Descriptions. The investment results of the mutual funds (funds) are likely
to differ significantly and there is no assurance that any of the funds will
achieve their respective investment objectives. Shares of the funds will rise
and fall in value and you could lose money by investing in the funds. Shares of
the funds are not bank deposits and are not guaranteed, endorsed or insured by
any financial institution, the Federal Deposit Insurance Corporation or any
other government agency. Unless noted, all funds are diversified, as defined
under the Investment Company Act of 1940.
> Fund Aetna Balanced VP, Inc. 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.(1)
> Aetna Income Shares d/b/a Aetna Bond VP seeks to maximize total return,
consistent with reasonable risk, through investments in a diversified
portfolio consisting primarily of debt securities. It is anticipated that
capital appreciation and investment income will both be major factors in
achieving total return.(1)
> Aetna Variable Fund d/b/a Aetna Growth and Income VP seeks to maximize total
return through investments in a diversified portfolio of common stocks and
securities convertible into common stock. It is anticipated that capital
appreciation and investment income will both be major factors in achieving
total return.(1)
> Aetna Variable Encore Fund d/b/a Aetna Money Market VP seeks to provide high
current return, consistent with preservation of capital and liquidity, through
investment in high-quality money market instruments. An investment in the fund
is neither insured nor guaranteed by the U.S. Government.(1)
> Portfolio Partners, Inc.--MFS Research Growth Portfolio seeks long-term growth
of capital and future income.(8)
Investment Advisers for each of the funds:
(1) Aeltus Investment Management, Inc. (adviser)
(2) Aetna Life Insurance and Annuity Company (adviser);
Massachusetts Financial Services Company (subadviser)
10
<PAGE>
Limits on Option Availability. Some funds and fixed interest options may not be
available through certain contracts and plan, or in some states. We may add,
withdraw or substitute funds, subject to the conditions in the contract and
regulatory requirements.
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, is 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 conflict which might arise and to
determine what action, if any, should be taken to address such conflicts.
11
<PAGE>
Transfers
- --------------------------------------------------------------------------------
Transfers Among Investment Options. During the accumulation phase, the contract
holder, or you if permitted by the plan, may transfer amounts of $500 or more
among the investment options. Subject to the contract holder's approval,
requests be made in writing, by telephone or, where applicable, electronically.
Transfers from fixed interest options may be restricted as outlined in
Appendices I and II. You may not make transfers once you enter the income phase.
Charges for Transfers. We currently do not charge for transfers or allocation
changes. We do however, reserve the right to charge a fee of $10.00 for each
transfer and/or more allocation change in excess of 12 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 the use of a personal
identification number (PIN) to execute transactions. You are responsible for
keeping your PIN and account information confidential. If we fail to follow
reasonable procedures, we may be liable for any losses due to unauthorized or
fraudulent telephone transactions. We are not be 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 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 or participants. Such restrictions could include: (1) not
accepting transfer instructions from an agent acting on behalf of more than one
contract holder or participant; and (2) not accepting preauthorized transfer
forms from market timers or other entities acting on behalf of more than one
contract holder or participant 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 or
participants.
12
<PAGE>
Contract Purchase and Participation
- --------------------------------------------------------------------------------
Contracts Available for Purchase. The contracts are designed for retirement that
qualify under certain provisions of the Internal Revenue Code of 1986, as
amended (Tax Code). The contracts are available for:
(1) Plans that qualify under section 403(b) of the Tax Code (403(b) plans)
(2) Plans established by corporations that qualify under sections 401(a) and
401(k) or 403(a) of the Tax Code (401 plans)
(3) Plans established by self-employed individuals under section 401(a), 401(k)
or 403(a) of the Tax Code (HR 10 plans)
Purchasing the Contract.
(1) The contract holder submits the required forms and application to the
Company.
(2) We approve the forms and issue a contract to the contract holder.
Participating in the Contract. If the contract provides for the establishment of
individual accounts for employees under the plan:
(1) We provide you with enrollment materials for completion and return to us.
(2) If your enrollment materials are complete and in good order, we establish
an account for you.
Acceptance or Rejection of Applications or Enrollment Forms. We must accept or
reject an application or your enrollment materials within two business days of
receipt. If the forms are incomplete, we may hold any forms and accompanying
payments for five business days, unless you consent to our holding them longer.
Under limited circumstances, we may also agree, for a particular plan, to hold
payments for longer periods with the permission of the contract holder. If we
agree to this, we will deposit the payments in the Aetna Money Market VP
subaccount until the forms are completed (or for a maximum of 105 days). If we
reject the application or enrollment form, we will return the forms and any
payments.
Types of Contracts. The following types of contracts are available:
> Continuous payments over time into an installment purchase payment contract
> Lump sum transfer from a previous plan into a single purchase payment
contract, in accordance with our procedures in effect at the time of purchase.
For HR 10 plans and 401 plans, payments must be large enough to fulfill the
terms of the plan. In addition, for HR 10 plans, payments must aggregate $4,000
annually.
Allocation of Payments. The contract holder or you, if the contract holder
permits, directs us to allocate initial contributions to the investment options
available under the plan. Generally you will specify this information on your
enrollment materials. After your enrollment, changes to allocations for future
payments or transfer of existing balances among investment options may be
requested in writing and, where available, by telephone or electronically.
Allocations must be in whole percentages.
Tax Code Restrictions. The Tax Code places some limitations on contributions to
your account. (See "Taxation.")
13
<PAGE>
Contract Ownership and Rights
- --------------------------------------------------------------------------------
Who owns the Contract? The contract holder. This is the person or entity to whom
we issue the contract. The contract holder is usually your employer, unless the
plan has a trustee, in which case the trustee is usually the contract holder.
Who Owns Money Accumulated under the Contract? If the contract holder directs
that we establish an account for you, you have the right to the value of your
account to the extent provided by the plan.
What Rights Do I Have under The Contract? The contract holder, usually your
employer, holds all rights under the contract. The contract holder's plan, which
you participate in, may permit you to exercise some of those rights.
Right to Cancel
- --------------------------------------------------------------------------------
The contract holder, or you if permitted, may cancel the contract or your
participation in the contract by returning the document and a written notice of
cancellation to the Company within ten days of receiving it (or as otherwise
allowed by state law).
Refunds. We will produce a refund not later than seven days after we receive the
required documents and the written notice in good order at our Home Office. The
refund will equal amounts contributed to the account plus any earnings or less
any losses attributable to those contributions allocated to the variable
investment options, unless otherwise required by law.
14
<PAGE>
[Begin sidebar]
Types of Fees
There are three types of fees your account may incur:
> Transaction Fees
o Sales and Administrative Expense Charge
o Early Withdrawal Charge
o Allocation and Transfer Fee
o Insurance Rider Charge
> Fees Deducted from Investments in the Subaccounts
o Mortality and Expense Risk Charge
> Fund Deducted by the Funds
o Investment Advisory Fees
o Other Expenses
Terms to Understand in the Schedules
Contract Year--The period of 12 months, measured from the contract's effective
date or from any anniversary of such effective date, for which all required
payments have been received.
[End sidebar]
Fees
- --------------------------------------------------------------------------------
The following repeats and adds to information provided in the "Fee Table"
section. Please review both this section and the Fee Table for information on
fees.
Transaction Fees
Sales and Administrative Expense Charge
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
As a percentage of each payment As a percentage of a net
to the contract: purchase payment:
- ------------------------------------------------------------------------------
<S> <C> <C>
403(b) plans 6.00% 6.40%
401 plans 5.00% 5.30%
HR 10 plans 1.75% 1.80%
- ------------------------------------------------------------------------------
</TABLE>
When/How. This fee is deducted from payments to a contract, after any deductions
are made for premium taxes and/or insurance rider premiums.
Purpose. This fee helps reimburse us for sales and administrative expenses
associated with the sale and maintenance of the contract.
Early Withdrawal Charge
Withdrawal of all or a portion of your account value may be subject to a charge.
Amount: The charge is a percentage of the amount withdrawn from the contract.
Under a 403(b) or 401 plan, there is no early withdrawal charge for termination
of an individual account. Under an HR10 plan, there is no early withdrawal
charge for termination of an individual account due to your death.
For HR10 and 403(b) contracts, an early withdrawal charge of 2% of the amount
withdrawn will be assessed if the contract is terminated before five contract
years have been completed (see sidebar), or before the tenth anniversary of the
contract, whichever occurs first.
For 401 contracts the early withdrawal charge is a percentage of the amount
withdrawn according to the table below:
<TABLE>
<S> <C>
- -----------------------------------------------------------
401 Contracts
- -----------------------------------------------------------
Completed Contract Years Early Withdrawal Charge
------------------------ -----------------------
Less than 1 5%
1 or more but fewer than 2 5%
2 or more but fewer than 3 4%
3 or more but fewer than 4 3%
4 or more but fewer than 5 2%
5 or more but fewer than 6 1%
6 or more 0%
- -----------------------------------------------------------
</TABLE>
Purpose: This is a deferred sales charge. The 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 charges
described in this section.
15
<PAGE>
Allocation and Transfer Fee
Amount: $0.00
We currently do not impose a fee for allocation changes or transfers among
investment options. We reserve the right, however, to charge $10 for each
allocation change or transfer in excess of 12 that occurs between two
consecutive account anniversaries.
Purpose: This fee reimburses us for administrative expenses associated with
transferring or reallocating your dollars among investment options.
Insurance Rider Charge
(403(b) plans only)
Amount. 1% of each payment to the contract.
When/How. This fee is deducted from contributions to the contract made on behalf
of any participant for whom the rider is elected.
Purpose. This is an option that may be elected by the contract holder or you, if
permitted by the plan, to purchase a minimum death benefit guarantee. This
guarantee provides that if you die before income payments commence, the death
benefit will equal purchase payments (less any withdrawals) made on your behalf,
regardless of the value of your account at the time of death.
Contracts issued to 401 plans contain the same guarantee, but the premium for
the rider is included in the contract's sales and administrative expense charge.
Fees Deducted from Investments in the Subaccounts
Mortality and Expense Risk Charge
Amount: For 401 plans, 1.19% annually of the account value invested in the
subaccounts, and for 403(b) and HR10 plans, 1.25% annually of the account value
invested in the subaccounts.
When/How: This fee is deducted daily from the subaccounts. We do not deduct this
from any fixed interest option.
Purpose: This fee compensates us for the mortality and expense risks we assume
under the contracts.
> The mortality risks are those associated with the our promise to make lifetime
payments based on annuity rates specified in the contracts and our funding of
the death benefit and other payments we make to owners or beneficiaries of the
accounts
> The expense risk is that actual expenses we incur under the contract will
exceed the maximum costs that we can charge.
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.
16
<PAGE>
Fund Expenses
Maximum Amount. Each fund determines its own advisory fee and expenses. For a
list of fund fees see "Fee Table." The fees are described in more detail in
each fund prospectus.
When/How. Fund fees are not deducted from your account. Fund advisory fees and
expenses are reflected in the daily value of the fund shares, which will in turn
affect the daily value of each subaccount.
Purpose: These amounts help to pay the funds' investment advisor and operating
expenses.
Premium and Other Taxes
Maximum Amount. Some states and municipalities charge a premium tax on
annuities. These taxes currently range from 0% to 4% depending on jurisdiction.
When/How. We reserve the right to deduct premium taxes from your account value
or from payments to your account 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 such an expense in our annuity rates.
In addition, the Company reserves the right to assess a charge for any federal
taxes due against the separate account. (See "Taxation.")
17
<PAGE>
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 vary daily in relation to the underlying fund's investment
performance. The value also reflects deductions for fund fees and expenses, and
the mortality and expense risk charge. 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 units at the preceding valuation;
> Less a daily deduction for the mortality and expense risk charge. See "Fees."
The net investment rate may be either positive or negative.
18
<PAGE>
Hypothetical Illustration. As an hypothetical illustration, assume that after
deduction of any applicable premium tax, insurance rider premium and sales and
administrative expense charge, an investor has $5,000 remaining to allocate as
his net contribution. He directs us to invest $3,000 to Fund A and $2,000 to
Fund B. After receiving the net 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.
[Type Representation of Graphic]
-------------------
$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
-------------------
Step 1: An Investor has a net contribution of $5,000
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 4: The separate account then purchases shares of the applicable funds at
the current market value (NAV).
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 the applicable application or enrollment
forms. Subsequent payments or transfers directed to the subaccounts that we
receive by the close of business of the New York Stock Exchange (Exchange) will
purchase subaccount accumulation units at the AUV computed after the close of
the Exchange on that day. The value of subaccounts may vary day to day.
19
<PAGE>
[Begin sidebar]
Taxes, Fees and Deductions
Amounts withdrawn may be subject to one or more of the following:
> Early Withdrawal Charge
> Market Value Adjustment (see Appendix I)
> Tax Penalty (see "Taxation")
> Tax Withholding (see "Taxation")
To determine which may apply, refer to the appropriate sections of this
prospectus, contact your Aetna representative, or call the Company at the number
listed in "Contract Overview--Questions: Contacting the Company."
[End sidebar]
Withdrawals
- --------------------------------------------------------------------------------
Making a Withdrawal. Subject to Tax Code withdrawal restrictions applicable to
403(b) plans, the contract holder or you, if permitted, may withdraw all or a
portion of your account value at any time during the accumulation phase.
Steps for Making A Withdrawal. The contract holder or you, if permitted by the
plan must:
> Select the Withdrawal Amount
(1) Full Withdrawal: You will receive, reduced by any required withholding tax,
your account value allocated to the subaccounts, the Guaranteed Accumulation
Account (plus or minus any market value adjustment) and to the Fixed
Account, minus any applicable early withdrawal charge.
(2) Partial Withdrawal (Percentage or Specified Dollar Amount): You will
receive, reduced by any required withholding tax, the amount you specify,
subject to the value available in your account. However, the amount actually
withdrawn from your account will be adjusted by any applicable early
withdrawal charge, and any positive or negative market value adjustment for
amounts withdrawn from the Guaranteed Accumulation Account.
> Select Investment Options. If this is not specified, we will withdraw dollars
proportionally from each investment options in which you have an account
value.
> Properly complete a disbursement form and submit it to our Home Office.
Calculation of Your Withdrawal. Your plan determines if your account value is
calculated by us or by your plan administrator. If we calculate it, we do so
every normal business day after the close of the New York Stock Exchange. All
withdrawal amounts paid will be based on your account value as of either
(1) the next valuation after receiving a request for withdrawal at our Home
Office; or
(2) 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 payment will be sent not later than seven
calendar days following our receipt of your disbursement form in good order.
Reinvestment Privilege. The 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 the proceeds. 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 early withdrawal charges imposed
at the time of withdrawal. We will reinvest in the same investment options and
proportions in place at the time of withdrawal. Special rules apply to
reinvestments of amounts withdrawn from the Guaranteed Accumulation Account (see
Appendix I). Seek competent advice regarding the tax consequences associated
with reinvestment.
20
<PAGE>
Withdrawal Restriction for 403(b) Plans. Section 403(b)(11) of the Tax Code
generally prohibits withdrawal prior to your death, disability, attainment of
age 59-1/2, separation from service or financial hardship, of the following:
(1) Salary reduction contributions made after December 31, 1988; and
(2) Earnings on those contributions and earnings on amounts held before 1989
and credited after December 31, 1988.
21
<PAGE>
[Begin sidebar]
Features of a Systematic Distribution Option (SDO)
An SDO allows the contract holder, or you if permitted, to receive regular
payments from your account, without moving into the income phase. By maintaining
your account in the accumulation phase, certain rights and flexibility are
retained and accumulation phase fees continue to apply.
[End sidebar]
Systematic Distribution Options
- --------------------------------------------------------------------------------
Availability of Systematic Distribution Options (SDOs). To exercise one of these
options the account must meet any minimum dollar amount and you must meet any
age criteria applicable to that option. Check with the contract holder or the
Company to determine which Systematic Distribution Options are available under
your plan.
The SDO's currently available under the contract include the following:
> SWO--Systematic Withdrawal Option. SWO is a series of automatic partial
withdrawals from your account based on the payment method selected. It is
designed for those who 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.
> Other Systematic Distribution Options. We may add additional SDOs from time to
time. You may obtain additional information relating to any of the SDOs from
your local representative or from the Home Office.
Availability of Systematic Distribution Options. The Company may discontinue the
availability of one or all of the SDOs at any time, and/or change the terms of
future elections.
Terminating a Systematic Distribution Option. Once an SDO is elected, the
contract holder, or you if permitted by the plan, may revoke it at any time by
submitting a written request to our Home Office. Any revocation will apply only
to the amount yet to be paid. Once an option is revoked for an account, it may
not be elected again, nor may any other SDO be elected.
Charges and Taxation. When the contract holder or you, if permitted by the plan,
elects an SDO for your account, your account value remains in the accumulation
phase and subject to the charges and deductions described in the "Fees" section.
Taking a withdrawal under an SDO may have tax consequences. If you are concerned
about tax implications, consult a tax advisor before one of these options is
elected.
22
<PAGE>
[Begin sidebar]
During the Income Phase
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
- --------------------------------------------------------------------------------
The contract provides a death benefit in the event of your death, which is
payable to the contract holder (usually your employer). The contract holder may
direct that we make any payments to the beneficiary you name under the plan
(plan beneficiary).
During the Accumulation Phase
Payment Process
> Following your death, the contract holder (on behalf of your plan beneficiary)
must provide the Company with proof of death acceptable to us and a payment
request in good order
> The payment request should include selection of a benefit payment option
> Within seven days after we receive proof of death acceptable to us and payment
request in good order at our Home Office, we will mail payment, unless
otherwise requested
Until a payment option is selected, account dollars will remain invested as at
the time of your death, and no distribution will be made.
If you die during the accumulation phase of your account, the following payment
options are available to your plan beneficiary, if allowed by your contract
holder and the Tax Code:
> Lump sum payment
> Payment in accordance with any of the available income phase payment options
(see "The Income Phase--Payment Options")
> If the plan beneficiary is your spouse, payment in accordance with an
available SDO (See "Systematic Distribution Options")
The following options are also available; however, the Tax Code limits how long
the death benefit proceeds may be left in these options:
> Leaving your account value invested in the contract; or
> Under some contracts, leaving your account value on deposit in the Company's
general account, and receiving monthly, quarterly, semi-annual or annual
interest payments at the interest rate then being credited on such deposits.
The beneficiary may 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--Payment Options.")
The Value of the Death Benefit. The death benefit will be based on your account
value as calculated on the next valuation following the date on which we receive
proof of death in good order. Under some plans, the minimum benefit is
guaranteed not to fall below the total of all payments to the account, adjusted
for any partial withdrawals. Interest, if any, will be paid from the date of
death at a rate no less than required by law. 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
I and the GAA prospectus.
23
<PAGE>
Tax Code Requirements. 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
<PAGE>
[Begin 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 receive payments from your accumulated account
value.
Initiating Payments. At least 30 days prior to the date you want to start
receiving payments, the contract holder or you, if permitted by your plan, 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 an assumed net investment rate (only if variable payments are
elected)
> Under some plans, certification from your employer and/or submission of the
appropriate forms is also required.
The account will continue in the accumulation phase until the contract holder or
you, as applicable, properly initiate payments. Once a payment option is
selected, it may not be changed; however, certain options allow you to withdraw
a lump sum.
What Affects Payment Amounts? Some of the factors that may affect payment
amounts include: your age, your account value, the payment option selected,
number of guaranteed payments (if any) selected, and whether variable or fixed
payments are selected.
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 payments will be held in the
subaccount(s) selected or a combination of subaccounts and the general account.
The contracts may restrict the subaccounts available during the income phase,
and you may not make transfers once you enter the income phase. For variable
payments, an assumed net investment rate must be selected.
Assumed Net Investment rate. For variable payments, an assumed net investment
rate most be selected. If you select a 5% rate, your first payment will be
higher, but subsequent payments will increase only if the investment performance
of the subaccounts 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 on 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. (See "Contract
Overview--Questions.")
25
<PAGE>
Minimum Payment Amounts. The payment option selected must result in one or
both 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, the
contract holder, on your behalf, must elect a lump sum payment.
Charges Deducted. We make a daily deduction for mortality and expense risks from
amounts held in the subaccounts. Therefore, if you choose variable payments and
a nonlifetime payment option, we still make this deduction from the subaccounts
selected, even though we no longer assume any mortality risk for you. (See
"Fees.")
Death Benefit During the Income Phase. The death benefits that may be available
to a beneficiary are outlined in the payment option table below. If a lump sum
payment is due as a death benefit, we will make payment within seven calendar
days after we receive proof of death acceptable to us and the payment request in
good order at our Home Office.
Taxation. To avoid certain tax penalties, you and any beneficiary must meet the
distribution rules imposed by the Tax Code. (See "Taxation.")
26
<PAGE>
Payment Options
The following tables list the payment options and accompanying death benefits
which may be available under the contracts. Some contracts restrict the options
and the terms available. Check with your contract holder for details. We may
offer additional payment options under the contract from time to time.
Terms used in the Tables:
Annuitant: The person(s) on whose life expectancy the income phase payments are
calculated.
Beneficiary: The person designated to receive the death benefit payable under
the contract.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Lifetime Payment Options
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
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 a choice of
Life Income-- 5-20 years or as otherwise specified in the contract.
Guaranteed Death Benefit--Payment to the Beneficiary: If the annuitant dies before we have made all the
Payments guaranteed payments, we will pay the beneficiary a lump sum (unless otherwise requested) equal
to the present value of the remaining guaranteed payments.
- ---------------------------------------------------------------------------------------------------------------------------------
Length of Payments: For as long as either annuitant lives. It is possible that only one payment will
be made should both annuitants die before the second payment's due date.
Continuing Payments:
Life Income-- (a) This option allows a choice of 100%, 66-2/3% or 50% of the payment to continue to the
Two Lives surviving annuitant after the first death; or
(b) 100% of the payment to continue to the annuitant on the second annuitant's death, and 50%
of the payment to continue to the second annuitant on the annuitant's death.
Death Benefit--None: Payments end after the deaths of both annuitants.
- ---------------------------------------------------------------------------------------------------------------------------------
Length of Payments: For as long as either annuitant lives, with payments guaranteed for a
minimum of 120 months, or as otherwise specified in the contract.
Life Income-- Continuing Payments: 100% of the payment will 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.
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Nonlifetime Payment Options
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Length of Payments: Payments generally may be fixed or variable and may be made for 1-30 years.
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.
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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.
Calculation of Lump-sum Payments. If a lump-sum payment is available to a
beneficiary or to you in the options above, the rate we use to calculate the
present value of any 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.)
Lump sum payments will be sent within seven calendar days after we receive the
request for payment in good order at our Home Office.
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[Begin sidebar]
In This Section
> Introduction
> Your Retirement Plan
> Withdrawal and Other Distributions
o Taxation of Distributions
o Taxation of Death Benefit Proceeds
o 10% Penalty Tax
o Withholding
> Minimum Distribution Requirements
o Start Date
o 50% Excise Tax
o Minimum Distribution of Death Benefit Proceeds
> Rules Specific to Certain Plans
o Code Section 403(b) Plans
o Code Section 401(a), 401(k) and 403(a) Plans
> Taxation of the Company When consulting a tax adviser be certain that he or
she has expertise in the Tax Code sections applicable to your tax concerns.
[End sidebar]
Taxation
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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 adviser. For more comprehensive information contact the
Internal Revenue Service.
- --------------------------------------------------------------------------------
Your Retirement Plan
The tax rules applicable to retirement plans vary according to plan type, and
terms and conditions of the plan. To understand what tax rules apply, you need
to know the code section under which your plan qualifies. Contact your plan
sponsor, local representative or the Company to learn which code section applies
to your plan.
Plan Types. The contract is designed for use with retirement plans that either
(i) qualify under code section 403(b) or (ii) qualify under code section 401(a),
401(k) or 403(a) and are established by self-employed individuals (HR 10 Plans)
or by corporations.
The Contract and Retirement Plans.
Contract holders and contract participants are responsible for determining that
contributions, distributions and other transactions satisfy applicable laws.
Legal counsel and a tax adviser should be consulted regarding the suitability of
the contract.
Because the plan is not part of the contract, we are not bound by any plan's
terms or conditions.
Withdrawals and Other Distributions
Certain tax rules apply to distributions from the contract. A distribution is
any amount taken from the contract including withdrawals, income payments,
rollovers and death benefit proceeds.
We report the taxable portion of all distributions to the IRS.
Taxation of Distributions
401(a), 401(k), 403(a) or 403(b) Plans. All distributions from these plans are
taxed as received unless:
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> The distribution is rolled over to another plan of the same type or to a
traditional individual retirement annuity/account (IRA) in accordance with the
Tax Code, or
> You made after-tax contributions to the plan. In this case, depending on the
type of distribution, a portion may be excluded from gross income according to
rules detailed in the Tax Code.
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. The Tax Code imposes a 10% penalty tax on the taxable portion
of any distribution from a 401(a), 401(k), 403(a) or 403(b) plan, unless one or
more of the following have occurred:
> You have attained age 59-1/2,
> You have become permanently disabled,
> You have died,
> You have separated from service with the plan sponsor at or after age 55,
> The distribution amount is rolled over into another plan of the same type or
to an IRA in accordance with the terms of the Tax Code, or
> The distribution amount is made in substantially equal periodic payments (at
least annually) over your life or life expectancy or the joint lives or joint
life expectancies of you and your beneficiary. Also, you must have separated
from service with the plan sponsor.
In addition, the penalty tax does not apply for the amount of a distribution
equal to unreimbursed medical expenses incurred by you that qualify for
deduction as specified in the Tax Code. The Tax Code may impose other penalty
taxes in other circumstances.
Withholding for Federal Income Tax Liability. Any distributions under the
contracts are generally subject to withholding. Federal income tax liability
rates vary according to the type of distribution and the recipient's tax status.
401(a), 401(k), 403(a) or 403(b) Plans. Generally, under these plans you or a
beneficiary may elect not to have tax withheld from distributions. However,
certain distributions from these plans are subject to a mandatory 20% federal
income tax withholding.
Non-resident Aliens. If you or a beneficiary is a non-resident alien, then any
withholding is governed by code section 1441 based on the individual's
citizenship, the country of domicile and treaty status.
Minimum Distribution Requirements
To avoid certain tax penalties, you and any beneficiary must meet the minimum
distribution requirements imposed by the Tax Code. 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
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<PAGE>
Start Date. Generally, you must begin receiving distributions by April 1 of the
calendar year following the calendar year in which you attain age 70-1/2 or
retire, whichever occurs later, unless:
> You are a 5% owner, in which case such distributions must begin by April 1st
of the calendar year following the calendar year in which you attain age
70-1/2, or
> Under 403(b) plans, if you had amounts under the contract as of December 31,
1986. In this case, distribution of these amounts generally must begin by the
end of the calendar year in which you attain age 75 or retire, if later.
However, if you take any distributions in excess of the minimum required
amount, then special rules require that some or all of the December 31, 1986
balance be distributed earlier.
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, or
> 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. 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 adviser
before electing the method of calculation to satisfy the minimum distribution
requirements.
Should you die 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 one of the following time- frames:
> Over the life of the beneficiary
> Over a period not extending beyond the life expectancy of the beneficiary
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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.
Rules Specific to Certain Plans
Code Section 403(b) Plans.
Under code section 403(b), contributions made by public school systems or
nonprofit healthcare organizations and other Section 501(c)(3) tax exempt
organizations to purchase annuity contracts for their employees are generally
excludable from the gross income of the employee. Adverse tax consequences to
the plan and/or to you may result if your beneficial interest in the contract is
assigned or transferred to any person except to an alternate payee under a
qualified domestic relations order in accordance with code section 414(p) or to
the Company as collateral for a loan.
Exclusions from Gross Income. In order to be excludable from gross income, total
annual contributions made by you and your employer cannot exceed the lesser of
the following limits set by the Tax Code.
> The first limit, under code section 415, is generally the lesser of 25% of
your compensation or $30,000. Compensation means your compensation from the
employer sponsoring the plan and, for years beginning after December 31, 1997,
includes any elective deferrals under code section 402(g) and any amounts not
includible in gross income under code section 125 or 457.
> The second limit, which is the exclusion allowance under code section 403(b),
is usually calculated according to a formula that takes into account your
length of employment, any pretax contributions you and your employer have
already made under the plan, and any pretax contributions to certain other
retirement plans.
These two limits apply to your contributions as well as to any contributions
made by your employer on your behalf.
> An additional limit specifically limits your salary reduction contributions to
generally no more than $10,000 annually (subject to indexing). Your own limit
may be higher or lower, depending on certain conditions.
Payments to your account(s) will be excluded from your gross income only if the
plan meets certain nondiscrimination requirements.
Restrictions on Distributions. Code section 403(b)(11) restricts the
distribution under Section 403(b) contracts of:
> salary reduction contributions made after December 31, 1988;
> earnings on those contributions; and
> earnings during such period on amounts held as of December 31, 1988.
Distribution of those amounts may only occur upon your death, attainment of age
59-1/2, separation from service, disability, or financial hardship. Income
attributable to salary reduction contributions and credited on or after January
1, 1989 may not be distributed in the case of hardship.
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Transfers from 403(b)(7) Custodial Accounts. If, pursuant to Revenue Ruling
90-24, the Company agrees to accept, under any of the contracts, amounts
transferred from a code section 403(b)(7) custodial account, such amounts will
be subject to the withdrawal restrictions set forth in code section
403(b)(7)(A)(ii).
Taxation of Gains Prior to Distribution. Generally no amounts accumulated under
the contract will be taxable prior to the time of actual distribution.
However, the IRS has stated in published rulings that a variable contract owner,
including participants under code section 403(b) Plans, 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 owner from being considered the
federal tax owner of a pro rata share of the assets of the separate account.
Code Section 401(a), 401(k) and 403(a) Plans
Code sections 401(a), 401(k) and 403(a) permit certain employers to establish
various types of retirement plans for employees, and permit self-employed
individuals to establish various types of retirement plans for themselves and
for their employees. These retirement plans may permit the purchase of the
contracts to accumulate retirement savings under the plans.
Assignment or Transfer of Contracts. Adverse tax consequences to the plan and/or
to you may result if your beneficial interest in the contract is assigned or
transferred to persons other than: a plan participant as a means to provide
benefit payments; an alternate payee under a qualified domestic relations order
in accordance with code section 414(p); or to the Company as collateral for a
loan.
Exclusion From Gross Income. The Tax Code imposes a maximum limit on annual
payments to your account(s) that may be excluded from gross income. The employer
must calculate this limit under the plan in accordance with code section 415.
This limit is generally the lesser of 25% of your compensation or $30,000.
Compensation means your compensation from the employer sponsoring the plan and,
for years beginning after December 31, 1997, includes any elective deferrals
under code section 402(g) and any amounts not includible in gross income under
code sections 125 or 457. The limit applies to your contributions as well as any
contributions made by your employer on your behalf. There is an additional limit
that specifically limits your salary reduction contributions under a 401(k) plan
to generally no more than $10,000 annually (subject to indexing). Your own
limits may be higher or lower, depending on certain conditions. In addition,
payments to your account(s) will be excluded from your gross income only if the
plan meets certain nondiscrimination requirements.
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Restrictions on Distributions. Code section 401(k) restricts distribution from
your 401(k) employee account, and possibly all or a portion of your 401(k)
employer account if such amounts are included in determining compliance with
certain nondiscrimination requirements under the Tax Code.
Subject to the terms of the 401(k) plan, distribution of these restricted
amounts may only occur upon: retirement, death, attainment of age 59-1/2,
disability, separation from service, financial hardship, termination of the plan
in certain circumstances, or, generally, if your employer is a corporation and
disposes of substantially all of its assets or disposes of a subsidiary. In
addition, income attributable to salary reduction contributions and credited on
or after January 1, 1989, may not be distributed in the case of hardship.
Taxation of the Company
We are taxed as a life insurance company under the Tax Code. Variable Annuity
Separate 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 pay such
taxes. We may deduct this amount from the separate account, including from your
account value invested in the subaccounts.
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Other Topics
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The Company
Aetna Life Insurance and Annuity Company (the Company, we) 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 (the "40 Act"). 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--Questions: Contacting
the Company."
Standardized Average Annual Total Returns. We calculate standardized average
annual total returns according to a formula prescribed by the SEC. This shows
the percentage return applicable to $1,000 invested in the subaccount over the
most recent one, five and 10-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.
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We include all recurring charges during each period (e.g., sales and
administrative expense charges, mortality and expense risk charges, 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. 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. Under 401 plans and HR 10 plans, the
contract holder generally has all voting rights. Under 403(b) plans,
participants generally may instruct the contract holder how to vote shares
attributable to their account, unless the plan provides otherwise. 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) any person is entitled to
direct will be determined as of the record date set by any fund in which that
person invests through the subaccounts.
> During the accumulation phase the number of votes is equal to the portion of
the 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
The Company will serve as the principal underwriter for the securities sold by
this prospectus. The Company is registered as a broker-dealer with the SEC and
is a member of the National Association of Securities Dealers, Inc.
As principal underwriter, the Company will enter into arrangements with one or
more registered broker-dealers, including at least one affiliate of the Company,
to offer and sell the contracts described in this prospectus. We call these
entities "distributors."
We and one or more of our affiliates may also sell the contracts directly. All
individuals offering and selling the contracts must be registered
representatives of a broker-dealer and must be licensed as insurance agents to
sell variable annuity contracts.
Commission Payments. We may pay commissions to persons who offer and sell the
contracts. The maximum percentage amount we ever pay with respect
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to a given purchase payment is the first-year percentage which ranges from 2% to
6% of the first year of payments to an account. We may also pay renewal
commissions on payments made after the first year and asset-based service fees.
The average of all commissions and asset-based service fees paid is estimated to
equal approximately 3% of the total payments made over the life of an average
contract. Some sales personnel may receive various types of non-cash
compensation as special sales incentives, including trips and educational and/or
business seminars. However, any such compensation will be paid in accordance
with NASD rules. In addition, we may provide additional compensation to the
Company's supervisory or other management personnel if the overall amount of
investments in funds advised by the Company or its affiliates increases over
time.
We may reimburse the distributor for certain expenses. The name of the
distributor and the registered representative responsible for your account are
stated in your enrollment materials. Commissions and sales related expenses are
paid by us and are not deducted from payments to your account.
Third Party Compensation Arrangements.
Occasionally, we may:
> Pay commissions and fees to distributors affiliated or associated with the
contract holder, you and/or other contract participants.
> Enter into agreements with entities associated with the contract holder, you
and/or other participants. Through such agreements, we may pay the entities
for certain services in connection with administering the contract.
In both these circumstances there may be an understanding that the distributor
or entities would endorse us as a provider of the contract. You will be notified
if you are purchasing a contract that is subject to these arrangements.
Contract Modification
We may change the contract as required by federal or state law. In addition, we
may, upon 30 days' written notice to the contract holder, make other changes to
group contracts that would apply only to individuals who become participants
under that Contract after the effective date of such changes. If the group
contract holder does not agree to a change, we reserve the right to refuse to
establish new accounts under the contract. Certain changes will require the
approval of appropriate state or federal regulatory authorities.
Legal Matters and Proceedings
We are aware of no material legal proceedings pending which involve the separate
account or the Company as a party or which would materially affect the separate
account. The validity of the securities offered by this prospectus has been
passed upon by Counsel to the Company.
Payment Delay or Suspension
We reserve the right to suspend or postpone the date of any payment of benefits
or values under the following circumstances: (a) on any valuation date when the
New York Stock Exchange is closed (except customary weekend and holidays) when
trading on the Exchange is restricted; b) when an emergency exists as determined
by the SEC so that disposal of the securities held in the
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<PAGE>
subaccounts is not reasonably practicable or it is not reasonably practicable
fairly to determine the value of the subaccount's assets; (c) during any other
periods 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.
Transfer of Ownership; Assignment
An assignment of a contract will only be binding on us if it is made in writing
and sent to us at our Home Office. We will use reasonable procedures to confirm
that the assignment is authentic, including verification of signature. If we
fail to follow our own procedures, we will be liable for any losses to you
directly resulting from the failure. Otherwise, we are not responsible for the
validity of any assignment. The rights of the contract holder and the interest
of the annuitant and any beneficiary will be subject to the rights of any
assignee we have on our records.
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.
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Contents of the Statement of Additional Information
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The Statement of Additional Information contains more specific information on
the separate account and the contract, as well as the financial statements of
the separate account and the Company. A list of the contents of the SAI is set
forth below:
General Information and History
Variable Annuity Account C
Offering and Purchase of Contracts
Performance Data
General
Average Annual Total Return Quotations
Income Phase Payments
Sales Material and Advertising
Independent Auditors
Financial Statements of the Separate Account
Financial Statements of Aetna Life Insurance and Annuity Company
You may request an SAI by calling the Company at the number listed in "Contract
Overview -- Questions: Contacting the Company."
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Appendix I
Guaranteed Accumulation Account
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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 about GAA. Please read the GAA prospectus before
investing in this option.
In General. 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
representative or the Company to learn:
> The interest rate we will apply to the amounts that you invest in GAA. We
change this rate periodically, so be certain 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. For a
particular interest rate and guaranteed term apply to your account dollars, you
must invest them during the deposit period during 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"
We do not make deductions from amounts in the 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 the GAA in order to earn the guaranteed interest rate specified for
that guaranteed term. We offer different guaranteed terms at different times.
Check with your representative or the Company to learn the details about the
guaranteed term(s) currently being offered.
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
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At the end of a guaranteed term, your contract holder or you if permitted 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
section.
Transfer of Account Dollars. Generally, account dollars invested in GAA may be
transferred among guaranteed terms offered through the 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. Transfers of GAA values at
the end of a guaranteed term are not counted as one of the 12 free transfers
allowed for an account per contract year.
Income Phase. GAA can not be used as an investment option during the income
phase. However, the contract holder (or you, if permitted) may notify us at
least 30 days in advance to elect a variable payment option and to transfer your
GAA account dollars to any of the subaccounts available during the income phase.
Reinvesting Amounts Withdrawn from GAA. 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
<PAGE>
Appendix II
Fixed Account
- --------------------------------------------------------------------------------
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 about 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.
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--Early Withdrawal Charge.")
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.
Income Phase. By notifying our Home Office at least 30 days before income phase
payments begin, you may elect to have amounts transferred to one or more of the
subaccounts available during the income phase to provide variable payments.
41
<PAGE>
Appendix III
Condensed Financial Information
- --------------------------------------------------------------------------------
TABLE I
FINANCIAL INFORMATION FOR 403(B) AND HR 10 PLANS
(Selected data for accumulation units outstanding throughout each period)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The condensed financial information presented below for each of the periods in
the ten-year period ended December 31, 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.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
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 $14.288
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 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 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
MFS RESEARCH GROWTH
PORTFOLIO
Value at beginning of period $11.960 $12.195(2)
Value at end of period $14.528 $11.960
Number of accumulation units
outstanding at end of period 1,379,653 232,418
<CAPTION>
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
AETNA BALANCED VP, INC.
Value at beginning of period $13.379 $12.736 $10.896 $10.437 $10.000(1)
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 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 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
MFS RESEARCH GROWTH
PORTFOLIO
Value at beginning of period
Value at end of period
Number of accumulation units
outstanding at end of period
</TABLE>
- -----------------
(1) The initial accumulation unit value was established at $10.000 on June 23,
1989, the date on which the fund commenced operations.
(2) Funds were first received in this option during November 1997.
42
<PAGE>
Condensed Financial Information
- --------------------------------------------------------------------------------
TABLE II
FINANCIAL INFORMATION FOR 403(B) AND HR 10 PLANS
(FOR CONTRACTS CONTAINING LIMITS ON FEES)
(Selected data for accumulation units outstanding throughout each period)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The condensed financial information presented below for each of the periods in
the two-year period ended December 31, 1998 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.
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
AETNA BALANCED VP, INC.
Value at beginning of period $24.735 $21.980(1)
Value at end of period $28.636 $24.735
Number of accumulation units outstanding at end of period 149,576 178,943
AETNA BOND VP
Value at beginning of period $51.374 $48.971(1)
Value at end of period $54.949 $51.374
Number of accumulation units outstanding at end of period 24,551 39,709
AETNA GROWTH AND INCOME VP
Value at beginning of period $217.668 $192.674(1)
Value at end of period $246.731 $217.668
Number of accumulation units outstanding at end of period 195,339 225,862
AETNA MONEY MARKET VP
Value at beginning of period $41.174 $40.220(1)
Value at end of period $42.883 $41.174
Number of accumulation units outstanding at end of period 120,539 98,560
PORTFOLIO PARTNERS MFS RESEARCH GROWTH PORTFOLIO
Value at beginning of period $11.960 $12.195(2)
Value at end of period $14.528 $11.960
Number of accumulation units outstanding at end of period 23,437 31,573
</TABLE>
- -----------------
(1) Funds were first received in this option during June 1997. (2) Funds were
first received in this option during November 1997.
43
<PAGE>
Condensed Financial Information
- --------------------------------------------------------------------------------
TABLE III
FINANCIAL INFORMATION FOR 401 PLANS
(Selected data for accumulation units outstanding throughout each period)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The condensed financial information presented below for each of the periods in
the ten-year period ended December 31, 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.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
AETNA BALANCED VP, INC.
Value at beginning of period $24.826 $20.511 $18.024 $14.336 $14.558
Value at end of period $28.687 $24.826 $20.511 $18.024 $14.336
Number of accumulation units
outstanding at end of period 73,629 84,065 280,547 393,613 756,261
AETNA BOND VP
Value at beginning of period $51.930 $48.524 $47.405 $40.570 $42.675
Value at end of period $55.494 $51.930 $48.524 $47.405 $40.570
Number of accumulation units
outstanding at end of period 26,694 20,288 43,327 72,902 181,535
AETNA GROWTH AND
INCOME VP
Value at beginning of period $285.511 $222.444 $180.879 $138.406 $141.424
Value at end of period $323.019 $285.511 $222.444 $180.879 $138.406
Number of accumulation units
outstanding at end of period 140,708 158,078 340,229 549,056 1,258,166
AETNA MONEY MARKET VP
Value at beginning of period $41.763 $40.069 $38.485 $36.723 $35.701
Value at end of period $43.523 $41.763 $40.069 $38.485 $36.723
Number of accumulation units
outstanding at end of period 31,408 34,420 93,727 150,480 241,159
PORTFOLIO PARTNERS
MFS RESEARCH GROWTH
PORTFOLIO
Value at beginning of period $9.041 $9.218(2)
Value at end of period $10.989 $9.041
Number of accumulation units
outstanding at end of period 603 603
<CAPTION>
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
AETNA BALANCED VP, INC.
Value at beginning of period $13.407 $12.755 $10.906 $10.440 $10.000(1)
Value at end of period $14.558 $13.407 $12.755 $10.906 $10.440
Number of accumulation units
outstanding at end of period 1,142,268 1,129,453 725,598 619,748 470,302
AETNA BOND VP
Value at beginning of period $39.376 $37.086 $31.424 $29.142 $25.734
Value at end of period $42.675 $39.376 $37.086 $31.424 $29.142
Number of accumulation units
outstanding at end of period 241,551 263,105 283,119 251,861 248,678
AETNA GROWTH AND
INCOME VP
Value at beginning of period $134.081 $127.171 $101.824 $99.758 $78.220
Value at end of period $141.424 $134.080 $127.171 $101.824 $99.758
Number of accumulation units
outstanding at end of period 1,616,018 1,829,160 1,956,479 2,169,721 2,496,795
AETNA MONEY MARKET VP
Value at beginning of period $35.009 $34.172 $32.460 $30.295 $28.028
Value at end of period $35.701 $35.009 $34.172 $32.460 $30.295
Number of accumulation units
outstanding at end of period 312,350 471,585 470,248 624,613 542,581
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
</TABLE>
- -----------------
(1) The initial accumulation unit value was established at $10.000 on June 23,
1989, the date on which the fund commenced operations.
(2) Funds were first received in this option during November 1997.
44
<PAGE>
Condensed Financial Information
- --------------------------------------------------------------------------------
TABLE IV
FINANCIAL FOR 401 PLANS
(FOR CONTRACTS CONTAINING LIMITS ON FEES)
(Selected data for accumulation units outstanding throughout each period)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The condensed financial information presented below for each of the periods in
the two-year period ended December 31, 1998 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.
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
AETNA BALANCED VP, INC.
Value at beginning of period $24.861 $22.085(1)
Value at end of period $28.800 $24.861
Number of accumulation units outstanding at end of period 122,358 157,309
AETNA BOND VP
Value at beginning of period $51.975 $49.527(1)
Value at end of period $55.625 $51.975
Number of accumulation units outstanding at end of period 18,271 23,539
AETNA GROWTH AND INCOME VP
Value at beginning of period $285.918 $253.000(1)
Value at end of period $324.288 $285.918
Number of accumulation units outstanding at end of period 98,422 118,511
AETNA MONEY MARKET VP
Value at beginning of period $41.763 $40.781(1)
Value at end of period $43.523 $41.763
Number of accumulation units outstanding at end of period 29,827 19,720
PORTFOLIO PARTNERS MFS RESEARCH GROWTH PORTFOLIO
Value at beginning of period $9.041 $9.218(2)
Value at end of period $10.989 $9.041
Number of accumulation units outstanding at end of period 30,747 40,144
</TABLE>
- -----------------
(1) Reflects less a full year of performance activity. Funds were first received
in this option during June 1997.
(2) Reflects less a full year of performance activity. Funds were first received
in this option during November 1997.
45
<PAGE>
- --------------------------------------------------------------------------------
VARIABLE ANNUITY ACCOUNT C
OF
AETNA LIFE INSURANCE AND ANNUITY COMPANY
- --------------------------------------------------------------------------------
Statement of Additional Information dated May 3, 1999
Group Variable Retirement Annuity Contracts for Tax-Deferred Annuity Plans
(Section 403(b)), Qualified 401 Plans, and HR 10 Plans
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the current prospectus dated May 3, 1999. The contracts
offered in connection with the prospectus are group deferred variable annuity
contracts funded through Variable Annuity Account C (the "separate account").
A free prospectus is available upon request from the local Aetna Life Insurance
and Annuity Company office or by writing to or calling:
Aetna Life Insurance and Annuity Company
Customer Service
151 Farmington Avenue
Hartford, Connecticut 06156
1-800-525-4225
Read the prospectus before you invest. Unless otherwise indicated, terms used in
this Statement of Additional Information shall have the same meaning as in the
prospectus.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
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................................................ 8
Sales Material and Advertising....................................... 9
Independent Auditors................................................. 9
Financial Statements of the Separate Account......................... S-1
Financial Statements of Aetna Life Insurance and Annuity Company..... F-1
</TABLE>
<PAGE>
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 based
on assets among the top 2% of all life insurance companies rated by A.M. Best
Company 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 described in the prospectus,
all expenses incurred in the operations of the separate account are borne by the
Company. (See "Fees" in the prospectus.) We receive 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 assets of the separate account are held by the Company. The separate account
has no custodian. However, the funds in whose shares the assets of the separate
account are invested each have custodians, as discussed in their respective
prospectuses.
From this point forward, the term "contract(s)" refers only to those offered
through the prospectus.
VARIABLE ANNUITY ACCOUNT C
Variable Annuity Account C is a separate account established by the Company for
the purpose of funding variable annuity contracts issued by the Company. The
separate account is registered with the Securities and Exchange Commission 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,
under all contracts, or under all plans.
2
<PAGE>
The funds currently available under the contract are as follows:
> Aetna Balanced VP, Inc.
> Aetna Income Shares d/b/a Aetna Bond VP
> Aetna Variable Fund d/b/a Aetna Growth and Income VP
> Aetna Variable Encore Fund d/b/a Aetna Money Market VP
> Portfolio Partners MFS Research Growth Portfolio
A complete description of each of the funds, including their investment
objectives, policies, risks and fees and expenses, is contained in the
prospectus and statement 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 under 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 "Contract Ownership and Rights" 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
total return"), as well as the "non-standardized total return," 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 to the various subaccounts under the contract, and then related to the
ending redeemable values over one, five and ten year periods (or fractional
periods thereof). The redeemable value is then divided by the initial investment
and this quotient is taken to the Nth root (N represents the number of years in
the period) and 1 is subtracted from the result which is then expressed as a
percentage, carried to at least the nearest hundredth of a percent. The
standardized figures use the actual returns of the fund since the date
contributions were first received in the fund under the separate account and
then adjust them to reflect the deduction of all recurring charges under the
contracts during each period (e.g., mortality and expense risk charges, sales
and administrative expense charges, and early withdrawal charges). These charges
will be deducted on a pro rata basis in the case of fractional periods. The
total return figures shown below may be different from the actual historical
total return under your contract because for periods prior to 1994, the
subaccount's investment performance reflected the investment performance of the
underlying fund plus any cash held by the subaccount.
The non-standardized total return figures will be calculated in a similar
manner, except that they will not reflect the deduction of any applicable sales
and administrative expense charge or early withdrawal charge. The deduction of
these charges would decrease the level of performance shown if reflected in
these calculations. The non-standardized figures may also include monthly,
quarterly, year-to-date and three year periods, and may include returns
calculated from the fund's inception date and/or the date contributions were
first received in the fund under the separate account. The non-standardized
returns shown in the tables below reflect the deduction of all charges under the
contract except the early withdrawal charge.
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
3
<PAGE>
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 contracts. Table A reflects the total return quotations
for contracts issued under 403(b) plans; Table B reflects the total return
quotations for contracts issued under 401 plans; and Table C reflects the total
return quotations for contracts issued under HR 10 plans. The standardized
returns for 403(b) contracts assume a mortality and expense risk charge of
1.25%, a sales and administrative expense charge of 6.00% and the early
withdrawal charge. The standardized returns for 401 contracts assume a mortality
and expense risk charge of 1.19%, a sales and administrative expense charge of
5.00% and the early withdrawal charge. The standardized returns for HR 10
contracts assume a mortality and expense risk charge of 1.25%, a sales and
administrative expense charge of 1.75% and the applicable early withdrawal
charge. The non-standardized returns assume the same charges but do not include
the sales and administrative expense charge or the early withdrawal charge.
For the subaccount funded by the Portfolio Partners portfolio, two sets of
performance returns are shown for the 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
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
<PAGE>
TABLE A
403(b) Plans
<TABLE>
<CAPTION>
-------------------------------------------------------------------
Date
Contributions
First
STANDARDIZED Received
Under
the
Separate
Account
- -------------------------------------------------------------------------------------------------------------------
SUBACCOUNT 1 Year 5 Years 10 Years Inception*
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Balanced VP, Inc. 6.38% 13.05% 10.87% 04/03/1989
- -------------------------------------------------------------------------------------------------------------------
Aetna Bond VP(1) (1.62%) 4.02% 7.25%
- -------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP(1) 4.16% 16.44% 14.30%
- -------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP(1)(2) (4.06%) 2.70% 3.79%
- -------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Research Growth 11.90% 8.90% 11/28/1997
Portfolio
- -------------------------------------------------------------------------------------------------------------------
American Century VP Capital
Appreciation/Portfolio Partners MFS Research 11.90% 5.50% 7.31% 08/31/1992
Growth(3)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------
Fund
NON-STANDARDIZED Inception
Date
- -----------------------------------------------------------------------------------------------------------------
SUBACCOUNT 1 Year 3 Years 5 Years 10 Years Inception**
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aetna Balanced VP, Inc. 15.48% 16.69% 14.46% 11.57% 04/03/1989
- -----------------------------------------------------------------------------------------------------------------
Aetna Bond VP(1) 6.80% 5.33% 5.32% 7.92%
- -----------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP(1) 13.07% 21.25% 17.89% 15.01%
- -----------------------------------------------------------------------------------------------------------------
Aetna Money Market VP(1)(2) 4.15% 4.12% 3.98% 4.44%
- -----------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Research Growth 21.47% 17.36% 11/28/1997
Portfolio
- -----------------------------------------------------------------------------------------------------------------
American Century VP Capital
Appreciation/Portfolio Partners MFS Research 21.47% 3.22% 6.81% 9.88%
Growth(3)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
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.
** Reflects performance from the fund's inception date.
(1) These funds have been in operation and 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 was 3.77%. Current yield more closely reflects
current earnings than does total return. The current yield reflects
the deduction of the mortality and expense risk charge only; it does
not reflect the deduction of 6% of purchase payments for the sales and
administrative expense charge or the 2% early withdrawal charge.
(3) The fund first listed was replaced with the 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 Portfolio Partners
Portfolio after that date. The replaced fund may not have been
available under all contracts. The replaced fund has been in operation
for more than ten years.
5
<PAGE>
TABLE B
401 Plans
<TABLE>
<CAPTION>
-------------------------------------------------------------------
Date
Contributions
First
STANDARDIZED Received
Under
the
Separate
Account
- -------------------------------------------------------------------------------------------------------------------
SUBACCOUNT 1 Year 5 Years 10 Years Inception*
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Balanced VP, Inc. 4.29% 13.13% 11.05% 04/03/1989
- -------------------------------------------------------------------------------------------------------------------
Aetna Bond VP(1) (3.56%) 4.10% 7.43%
- -------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP(1) 2.11% 16.53% 14.49%
- -------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP(1)(2) (5.95%) 2.77% 3.97%
- -------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Research Growth 9.69% 6.93% 11/28/1997
Portfolio
- -------------------------------------------------------------------------------------------------------------------
American Century VP Capital
Appreciation/Portfolio Partners MFS Research 9.69% 5.57% 7.56% 08/31/1992
Growth(3)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------
Fund
NON-STANDARDIZED Inception
Date
- -----------------------------------------------------------------------------------------------------------------
SUBACCOUNT 1 Year 3 Years 5 Years 10 Years Inception**
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aetna Balanced VP, Inc. 15.55% 16.76% 14.53% 11.64% 04/03/1989
- -----------------------------------------------------------------------------------------------------------------
Aetna Bond VP(1) 6.86% 5.39% 5.38% 7.98%
- -----------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP(1) 13.14% 21.32% 17.96% 15.08%
- -----------------------------------------------------------------------------------------------------------------
Aetna Money Market VP(1)(2) 4.21% 4.18% 4.04% 4.50%
- -----------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Research Growth 21.55% 17.43% 11/28/1997
Portfolio
- -----------------------------------------------------------------------------------------------------------------
American Century VP Capital
Appreciation/Portfolio Partners MFS Research 21.55% 3.29% 6.87% 9.94%
Growth(3)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
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.
** Reflects performance from the fund's inception date.
(1) These funds have been in operation and available under the
separate account for more than ten years.
(2) The current yield for the subaccount for the 7-day period ended
December 31, 1998 was 3.83%. Current yield more closely reflects
current earnings than does total return. The current yield reflects
the deduction of the mortality and expense risk charge only; it does
not reflect the deduction of 5% of purchase payments for the sales and
administrative expense charge or the 5% maximum early withdrawal charge.
(3) The fund first listed was replaced with the 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 Portfolio Partners
Portfolio after that date. The replaced fund may not have been
available under all contracts. The replaced fund has been in operation
for more than ten years.
6
<PAGE>
TABLE C
HR 10 Plans
<TABLE>
<CAPTION>
-------------------------------------------------------------------
Date
Contributions
First
STANDARDIZED Received
Under
the
Separate
Account
- -------------------------------------------------------------------------------------------------------------------
SUBACCOUNT 1 Year 5 Years 10 Years Inception*
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
Aetna Balanced VP, Inc. 11.19% 14.06% 11.37% 04/03/1989
- -------------------------------------------------------------------------------------------------------------------
Aetna Bond VP(1) 2.83% 4.95% 7.73%
- -------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP(1) 8.86% 17.48% 14.81%
- -------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP(1)(2) 0.28% 3.61% 4.25%
- -------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Research Growth 16.95% 13.40% 11/28/1997
Portfolio
- -------------------------------------------------------------------------------------------------------------------
American Century VP Capital
Appreciation/Portfolio Partners MFS Research 16.95% 6.43% 8.07% 08/31/1992
Growth(3)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------
Fund
NON-STANDARDIZED Inception
Date
- -----------------------------------------------------------------------------------------------------------------
SUBACCOUNT 1 Year 3 Years 5 Years 10 Years Inception**
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aetna Balanced VP, Inc. 15.48% 16.69% 14.46% 11.57% 04/03/1989
- -----------------------------------------------------------------------------------------------------------------
Aetna Bond VP(1) 6.80% 5.33% 5.32% 7.92%
- -----------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP(1) 13.07% 21.25% 17.89% 15.01%
- -----------------------------------------------------------------------------------------------------------------
Aetna Money Market VP(1)(2) 4.15% 4.12% 3.98% 4.44%
- -----------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Research Growth 21.47% 17.36% 11/28/1997
Portfolio
- -----------------------------------------------------------------------------------------------------------------
American Century VP Capital
Appreciation/Portfolio Partners MFS Research 21.47% 3.22% 6.81% 9.88%
Growth(3)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
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.
** Reflects performance from the fund's inception date.
(1) These funds have been in operation and available under the
separate account for more than ten years.
(2) The current yield for the subaccount for the 7-day period ended
December 31, 1998 was 3.83%. Current yield more closely reflects
current earnings than does total return. The current yield reflects
the deduction of the mortality and expense risk charge only; it does
not reflect the deduction of 1.75% of purchase payments for the sales
and administrative expense charge or the 2% early withdrawal charge.
(3) The fund first listed was replaced with the 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 Portfolio Partners
Portfolio after that date. The replaced fund may not have been
available under all contracts. The replaced fund has been in operation
for more than ten years.
7
<PAGE>
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% 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 begin, there are 3,000 accumulation
units credited under a particular contract or account and that the value of an
accumulation unit for the tenth valuation 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.
8
<PAGE>
The second monthly payment is then determined by multiplying the number of
Annuity Units by the current Annuity Unit value, or 20.414 times $13.523359,
which produces a payment of $276.07.
*If an assumed net investment rate of 5% is elected, the appropriate factor to
neutralize such assumed rate would be .9998663.
SALES MATERIAL AND ADVERTISING
We may include hypothetical illustrations in our sales literature that explain
the mathematical principles of dollar cost averaging, compounded interest, tax
deferred accumulation, and the mechanics of variable annuity contracts. We may
also discuss the difference between variable annuity contracts and other types
of savings or investment products such as personal savings accounts and
certificates of deposit.
We may distribute sales literature that compares the percentage change in
accumulation unit values for any of the subaccounts to established market
indices such as the Standard & Poor's 500 Stock Index and the Dow Jones
Industrial Average or to the percentage change in values of other management
investment companies that have investment objectives similar to the subaccount
being compared.
We may publish in advertisements and reports, the ratings and other information
assigned to us by one or more independent rating organizations such as A.M. Best
Company, Duff & Phelps, Standard & Poor's Corporation and Moody's Investors
Service, Inc. The purpose of the ratings is to reflect our financial strength
and/or claims-paying ability. We may also quote ranking services such as
Morningstar's Variable Annuity/Life Performance Report and Lipper's Variable
Insurance Products Performance Analysis Service (VIPPAS), which rank variable
annuity or life subaccounts or their underlying funds by performance and/or
investment objective. We may categorize the underlying funds in terms of the
asset classes they represent and use such categories in marketing materials for
the contracts. We may illustrate in advertisements the performance of the
underlying funds, if accompanied by performance which also shows the performance
of such funds reduced by applicable charges under the separate account. We may
also show in advertisements the portfolio holdings of the underlying funds,
updated at various intervals. From time to time, we will quote articles from
newspapers and magazines or other publications or reports such as The Wall
Street Journal, Money magazine, USA Today and The VARDS Report.
We may provide in advertising, sales literature, periodic publications or other
materials information on various topics of interest to current and prospective
contract holders or participants. These topics may include the relationship
between sectors of the economy and the economy as a whole and its effect on
various securities markets, investment strategies and techniques (such as value
investing, market timing, dollar cost averaging, asset allocation, constant
ratio transfer and account rebalancing), the advantages and disadvantages of
investing in tax-deferred and taxable investments, customer profiles and
hypothetical purchase and investment scenarios, financial management and tax and
retirement planning, and investment alternatives to certificates of deposit and
other financial instruments, including comparison between the contracts and the
characteristics of and market for such financial instruments.
INDEPENDENT AUDITORS
KPMG LLP, CityPlace II, Hartford, Connecticut 06103-4103, are the independent
auditors for the separate account and for the Company. The services provided to
the separate account include primarily the examination of the separate account's
financial statements and review of filings made with the SEC.
9
<PAGE>
FINANCIAL STATEMENTS
VARIABLE ANNUITY ACCOUNT C
Index
<TABLE>
<S> <C>
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
</TABLE>
S-1
<PAGE>
Variable Annuity Account C
Statement of Assets and Liabilities - December 31, 1998
<TABLE>
<CAPTION>
ASSETS:
Investments, at net asset value: (Note 1)
Net
Shares Cost Assets
------ ---- ------
<S> <C> <C> <C>
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
=============== ===============
</TABLE>
S-2
<PAGE>
Variable Annuity Account C
Statement of Assets and Liabilities - December 31, 1998 (continued):
<TABLE>
<S> <C>
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
</TABLE>
S-3
<PAGE>
Variable Annuity Account C
Statement of Assets and Liabilities - December 31, 1998 (continued):
<TABLE>
<S> <C>
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
</TABLE>
S-4
<PAGE>
Variable Annuity Account C
Statement of Assets and Liabilities - December 31, 1998 (continued):
<TABLE>
<S> <C>
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
===============
</TABLE>
See Notes to Financial Statements
S-5
<PAGE>
Variable Annuity Account C
Statements of Operations and Changes in Net Assets
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997
------------------- -------------------
<S> <C> <C>
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
================ ===============
</TABLE>
See Notes to Financial Statements
S-6
<PAGE>
Variable Annuity Account C
Condensed Financial Information - Year Ended December 31, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
S-7
<PAGE>
Variable Annuity Account C
Condensed Financial Information - Year Ended December 31, 1998 (continued):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
S-8
<PAGE>
Variable Annuity Account C
Condensed Financial Information - Year Ended December 31, 1998 (continued):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-9
<PAGE>
Variable Annuity Account C
Condensed Financial Information - Year Ended December 31, 1998 (continued):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
S-10
<PAGE>
Variable Annuity Account C
Condensed Financial Information - Year Ended December 31, 1998 (continued):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
S-11
<PAGE>
Variable Annuity Account C
Condensed Financial Information - Year Ended December 31, 1998 (continued):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
S-12
<PAGE>
Variable Annuity Account C
Condensed Financial Information - Year Ended December 31, 1998 (continued):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
S-13
<PAGE>
Variable Annuity Account C
Condensed Financial Information - Year Ended December 31, 1998 (continued):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
S-14
<PAGE>
Variable Annuity Account C
Condensed Financial Information - Year Ended December 31, 1998 (continued):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
S-15
<PAGE>
Variable Annuity Account C
Condensed Financial Information - Year Ended December 31, 1998 (continued):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
S-16
<PAGE>
Variable Annuity Account C
Condensed Financial Information - Year Ended December 31, 1998 (continued):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
S-17
<PAGE>
Variable Annuity Account C
Condensed Financial Information - Year Ended December 31, 1998 (continued):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
S-18
<PAGE>
Variable Annuity Account C
Condensed Financial Information - Year Ended December 31, 1998 (continued):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
S-19
<PAGE>
Variable Annuity Account C
Condensed Financial Information - Year Ended December 31, 1998 (continued):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
S-20
<PAGE>
Variable Annuity Account C
Condensed Financial Information - Year Ended December 31, 1998 (continued):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-21
<PAGE>
Variable Annuity Account C
Condensed Financial Information - Year Ended December 31, 1998 (continued):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
S-22
<PAGE>
Variable Annuity Account C
Condensed Financial Information - Year Ended December 31, 1998 (continued):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
S-23
<PAGE>
Variable Annuity Account C
Condensed Financial Information - Year Ended December 31, 1998 (continued):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
S-24
<PAGE>
Variable Annuity Account C
Condensed Financial Information - Year Ended December 31, 1998 (continued):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
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.
</TABLE>
S-25
<PAGE>
Variable Annuity Account C
Condensed Financial Information - Year Ended December 31, 1998 (continued):
<TABLE>
<S> <C>
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.
</TABLE>
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
<PAGE>
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:
<TABLE>
<S> <C>
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
</TABLE>
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
<PAGE>
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
<PAGE>
Variable Annuity Account C
Notes to Financial Statements - December 31, 1998 (continued):
5. Supplemental Information to Statements of Operations and Changes in Net
Assets
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1998
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-29
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 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
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
S-30
<PAGE>
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):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1998
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-31
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
($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
- ---------------------------------------------------------------------------------------------------------
</TABLE>
S-32
<PAGE>
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):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1998
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
---------------- ------------------ ---------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
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
===================================================================================================================================
</TABLE>
(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
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Net Unrealized Net
Gain (Loss) Net Increase (Decrease) Net Assets
- -------------------------------- Change in In Net Assets -------------------------------------
Beginning End Unrealized from Unit Beginning End
of Year of Year Gain (Loss) Transactions of Year of Year
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$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
===============================================================================================================
</TABLE>
S-34
<PAGE>
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):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1997
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-35
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$327,744,944 $438,575,885 $110,830,941 $75,435,966
$4,694,078,344 $6,078,549,136
212,746,872 292,045,818
- ------------------------------------------------------------------------------------------------------------------
(9,314,233) (1,128,028) 8,186,205 (4,710,418)
354,233,289 372,629,553
5,616,023 6,218,756
- ------------------------------------------------------------------------------------------------------------------
(750,036) 5,712,842 6,462,878 (14,909,883)
245,304,466 240,346,197
- ------------------------------------------------------------------------------------------------------------------
97,219,569 141,499,248 44,279,679 2,724,400
800,532,626 968,354,403
14,762,802 21,193,276
- ------------------------------------------------------------------------------------------------------------------
17,286,695 22,946,346 5,659,651 (6,139,082)
65,062,153 79,552,932
- ------------------------------------------------------------------------------------------------------------------
2,983,885 46,742,374 43,758,489 (8,490,216)
199,058,163 236,822,693
- ------------------------------------------------------------------------------------------------------------------
1,716,824 5,507,794 3,790,970 42,582,396
21,660,591 72,115,304
- ------------------------------------------------------------------------------------------------------------------
838,329 2,614,303 1,775,974 30,197,010
14,758,921 49,739,310
- ------------------------------------------------------------------------------------------------------------------
112,482 588,337 475,855 21,455,983
9,067,002 32,749,254
0 53,658
- ------------------------------------------------------------------------------------------------------------------
0 (274,002) (274,002) 1,994,092
0 2,039,640
- ------------------------------------------------------------------------------------------------------------------
0 (237,223) (237,223) 1,079,447
0 1,098,483
- ------------------------------------------------------------------------------------------------------------------
80,325 6,964,574 6,884,249 62,694,836
10,653,437 83,098,319
0 76,758
- ------------------------------------------------------------------------------------------------------------------
0 (166,700) (166,700) 4,809,638
0 4,956,212
- ------------------------------------------------------------------------------------------------------------------
6,730,808 0 (6,730,808) (132,576,331)
104,872,172 0
- ------------------------------------------------------------------------------------------------------------------
39,364,541 0 (39,364,541) (352,729,122)
323,871,170 0
0 0
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
S-36
<PAGE>
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):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1997
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-37
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$8,139,519 $0 ($8,139,519) ($339,404,560)
$346,244,393 $0
- -----------------------------------------------------------------------------------------------------------
2,963,927 7,196,636 4,232,709 6,589,199
39,989,335 54,444,411
- -----------------------------------------------------------------------------------------------------------
10,675,870 33,998,298 23,322,428 50,561,862
106,469,428 190,735,350
- -----------------------------------------------------------------------------------------------------------
5,256,264 22,394,599 17,138,335 28,222,857
80,442,047 128,257,345
- -----------------------------------------------------------------------------------------------------------
649,630 225,478 (424,152) 4,069,619
8,449,388 13,449,206
- -----------------------------------------------------------------------------------------------------------
2,502,591 3,922,056 1,419,465 2,575,422
17,103,129 23,199,341
- -----------------------------------------------------------------------------------------------------------
15,161,493 50,217,979 35,056,486 100,377,564
118,886,521 256,548,805
- -----------------------------------------------------------------------------------------------------------
2,304,865 11,512,547 9,207,682 26,383,649
21,230,903 57,721,771
- -----------------------------------------------------------------------------------------------------------
405,959 0 (405,959) (24,948,755)
23,356,943 0
- -----------------------------------------------------------------------------------------------------------
17,668,916 36,485,267 18,816,351 16,995,758
172,876,567 210,600,444
- -----------------------------------------------------------------------------------------------------------
751,567 4,804,494 4,052,927 17,251,901
15,281,267 37,451,981
- -----------------------------------------------------------------------------------------------------------
140,666 381,113 240,447 5,252,958
8,417,464 14,756,039
- -----------------------------------------------------------------------------------------------------------
2,192,571 11,683,190 9,490,619 28,161,560
40,800,809 79,992,417
0 35,986
- -----------------------------------------------------------------------------------------------------------
(6,468) 0 6,468 (1,788,353)
1,690,606 0
- -----------------------------------------------------------------------------------------------------------
16,710,390 62,504,868 45,794,478 203,261,915
172,398,274 429,093,163
0 116,838
- -----------------------------------------------------------------------------------------------------------
</TABLE>
S-38
<PAGE>
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):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1997
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
===================================================================================================================================
</TABLE>
(1) Effective November 28, 1997, this funds assets were transferred to the PPI
T. Rowe Price Growth Equity Portfolio.
(2) Effective November 28, 1997, this funds assets were transferred to the PPI
MFS Research Growth Portfolio.
(3) Effective November 28, 1997, this funds assets were transferred to Aetna
Income Shares.
(4) Effective November 28, 1997, this funds assets were transferred to the
Aetna Variable Encore Fund.
(5) Effective November 28, 1997, this funds assets were transferred to the PPI
MFS Value Equity Portfolio.
(6) Effective November 28, 1997, this funds assets were transferred to the PPI
Scudder International Growth Portfolio.
(7) Effective November 28, 1997, this funds assets were transferred to the PPI
MFS Emerging Equities Portfolio.
S-39
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Net Unrealized Net
Gain (Loss) Net Increase (Decrease) Net Assets
- ---------------------------------- Change in In Net Assets ------------------------------------
Beginning End Unrealized from Unit Beginning End
of Year of Year Gain (Loss) Transactions of Year of Year
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 102,991 ($ 968,279) ($ 1,071,270) $ 1,874,530
$ 4,845,481 $ 5,788,593
- -------------------------------------------------------------------------------------------------------------------
3,997,171 1,786,893 (2,210,278) 17,376,715
23,844,347 42,965,725
- -------------------------------------------------------------------------------------------------------------------
9,459,521 0 (9,459,521) (116,641,588)
95,081,684 0
- -------------------------------------------------------------------------------------------------------------------
0 (3,901,193) (3,901,193) 357,381,047
0 352,966,999
0 23,166
- -------------------------------------------------------------------------------------------------------------------
0 (4,166,217) (4,166,217) 231,490,472
0 227,029,997
- -------------------------------------------------------------------------------------------------------------------
0 1,637,084 1,637,084 114,784,015
0 116,286,704
- -------------------------------------------------------------------------------------------------------------------
0 3,033,630 3,033,630 199,692,238
0 202,699,815
- -------------------------------------------------------------------------------------------------------------------
0 3,371,568 3,371,568 166,269,175
0 169,450,553
- -------------------------------------------------------------------------------------------------------------------
29,299,509 0 (29,299,509) (204,019,879)
191,515,746 0
- -------------------------------------------------------------------------------------------------------------------
$612,391,085 $915,465,761 $303,074,676 $ 615,188,037 $8,565,202,363 $11,155,254,351
===================================================================================================================
</TABLE>
S-40
<PAGE>
Independent Auditors' Report
The Board of Directors of Aetna Life Insurance and Annuity Company and
Contract Owners of Variable Annuity Account C:
We have audited the accompanying statement of assets and liabilities of Aetna
Life Insurance and Annuity Company Variable Annuity Account C (the "Account")
as of December 31, 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.
KPMG LLP
Hartford, Connecticut
February 26, 1999
S-41
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
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
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
The Shareholder and Board of Directors
Aetna Life Insurance and Annuity Company:
We have audited the accompanying consolidated balance sheets of Aetna Life
Insurance and Annuity Company and Subsidiary as of December 31, 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
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Income
(millions)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
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
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Balance Sheets
(millions, except share data)
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
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
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Changes in Shareholder's Equity
(millions)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
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
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Cash Flows
(millions)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
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
========= ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
Notes to Consolidated Financial Statements (continued)
3. Investments
Debt securities available for sale as of December 31, 1998 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
1998 (Millions) Cost Gains Losses Value
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
==============================================================================================================
</TABLE>
F-14
<PAGE>
Notes to Consolidated Financial Statements (continued)
3. Investments (continued)
Debt securities available for sale as of December 31, 1997 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
1997 (Millions) Cost Gains Losses Value
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. government and government agencies
and authorities $ 1,219.7 $ 74.0 $ 0.1 $ 1,293.6
States, municipalities and political subdivisions 0.3 -- -- 0.3
U.S. corporate securities:
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
==============================================================================================================
</TABLE>
F-15
<PAGE>
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.
<TABLE>
<CAPTION>
Amortized Fair
(Millions) Cost Value
---------------------------------------------------------------
<S> <C> <C>
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
===============================================================
</TABLE>
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:
<TABLE>
<CAPTION>
1998 1997
----------------------- -----------------------
Fair Amortized Fair Amortized
(Millions) Value Cost Value Cost
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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%
=======================================================================================================
</TABLE>
(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
<PAGE>
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:
<TABLE>
<CAPTION>
(Millions) 1998 1997
-------------------------------------------------------
<S> <C> <C>
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
=======================================================
</TABLE>
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:
<TABLE>
<CAPTION>
1998 1997
--------------------- -----------------------
Carrying Fair Carrying Fair
(Millions) Value Value Value Value
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
- -----------------------------------------------------------------------------------------
</TABLE>
Fair value estimates are made at a specific point in time, based on available
market information and judgments about the financial instrument, such as
estimates of timing and amount of future cash flows. Such estimates do not
reflect any premium or discount that could result from offering for sale at
one time the Company's entire holdings of a particular financial instrument,
nor do they consider the tax impact of the realization of unrealized gains or
losses. In many cases, the fair value estimates cannot be substantiated by
comparison to independent markets, nor can the disclosed value be realized in
immediate settlement of the instrument. In evaluating the Company's
management of interest rate, price and liquidity risks, the fair values of
all assets and liabilities should be taken into consideration, not only those
presented above.
F-17
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
Amortized Fair
(Millions) Cost Value
-----------------------------------------------------------------------------
<S> <C> <C>
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
-----------------------------------------------------------------------------
</TABLE>
(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:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------------------------------------------------------
<S> <C> <C> <C>
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
=============================================================================
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
(Millions) 1998 1997 1996
----------------------------------------------------------------------------
<S> <C> <C> <C>
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
============================================================================
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
(Millions) 1998 1997 1996
----------------------------------------------------------------------------
<S> <C> <C> <C>
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
----------------------------------------------------------------------------
</TABLE>
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:
<TABLE>
<CAPTION>
(Millions) 1998 1997 1996
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
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)
===================================================================================
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
(Millions) 1998 1997 1996
----------------------------------------------------------------------------------
<S> <C> <C> <C>
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
==================================================================================
</TABLE>
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:
<TABLE>
<CAPTION>
(Millions) 1998 1997 1996
----------------------------------------------------------------------------------
<S> <C> <C> <C>
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)
===================================================================================
</TABLE>
(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
<PAGE>
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:
<TABLE>
<CAPTION>
(Millions) 1998 1997 1996
-------------------------------------------------------------------------------
<S> <C> <C> <C>
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
==============================================================================
</TABLE>
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:
<TABLE>
<CAPTION>
(Millions) 1998 1997 1996
------------------------------------------------------------------------------
<S> <C> <C> <C>
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
==============================================================================
</TABLE>
F-23
<PAGE>
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:
<TABLE>
<CAPTION>
(Millions) 1998 1997
------------------------------------------------------------------------
<S> <C> <C>
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
========================================================================
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
Notes to Consolidated Financial Statements (continued)
11. Reinsurance (continued)
The following table includes premium amounts ceded/assumed to/from
affiliated companies as discussed in Note 10 above.
<TABLE>
<CAPTION>
Ceded to Assumed
Direct Other from Other Net
(Millions) Amount Companies Companies Amount
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
====================================================================================
</TABLE>
F-29
<PAGE>
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:
<TABLE>
<CAPTION>
(4) (4)
Financial Discontinued
1998 (Millions) Services Operations Other Total
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
----------------------------------------------------------------------------------------------------
</TABLE>
(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
<PAGE>
Notes to Consolidated Financial Statements (continued)
12. Segment Information (Continued)
<TABLE>
<CAPTION>
(3) (3)
Financial Discontinued
1997 (Millions) Services Operations Other Total
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
----------------------------------------------------------------------------------------------
</TABLE>
(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
<PAGE>
Notes to Consolidated Financial Statements (continued)
12. Segment Information (Continued)
<TABLE>
<CAPTION>
(3) (3)
Financial Discontinued
1996 (Millions) Services Operations Other Total
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
=====================================================================================================
</TABLE>
(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
<PAGE>
VARIABLE ANNUITY ACCOUNT C
PART C - OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
(1) Included in Part A:
Condensed Financial Information
(2) Included in Part B:
Financial Statements of Variable Annuity Account C:
- Statement of Assets and Liabilities as of December 31, 1998
- Statements of Operations and Changes in Net Assets for the
years ended December 31, 1998 and 1997
- Condensed Financial Information for the year ended
December 31, 1998
- Notes to Financial Statements
- Independent Auditors' Report
Financial Statements of the Depositor:
- Independent Auditors' Report
- Consolidated Statements of Income for the years ended
December 31, 1998, 1997 and 1996
- Consolidated Balance Sheets as of December 31, 1998 and
1997
- Consolidated Statements of Changes in Shareholder's Equity
for the years ended December 31, 1998, 1997 and 1996
- Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996
- Notes to Consolidated Financial Statements
(b) Exhibits
(1) Resolution of the Board of Directors of Aetna Life Insurance and
Annuity Company establishing Variable Annuity Account C(1)
(2) Not applicable
(3.1) Broker-Dealer Agreement(2)
(3.2) Alternative Form of Wholesaling Agreement and Related Selling
Agreement(3)
(4.1) Variable Annuity Contract (HR10-DUA-GIA)(4)
(4.2) Variable Annuity Contract (GA-UPA-GO)(4)
(4.3) Endorsement (EG401-GIE-98) to Contracts HR10-DUA-GIA and
GA-UPA-GO
(5) Not applicable
(6.1) Certificate of Incorporation and By-Laws of Aetna Life Insurance
and Annuity Company(5)
(6.2) Amendment of Certificate of Incorporation of Aetna Life
Insurance and Annuity Company(6)
(7) Not applicable
(8.1) Fund Participation Agreement by and among Aetna Life Insurance
and Annuity Company and Aetna Variable Fund, Aetna Variable
Encore Fund, Aetna Income Shares, Aetna Balanced VP, Inc., Aetna
GET Fund on behalf of each of its series,
<PAGE>
Aetna Generation Portfolios, Inc. on behalf of each of its
series, Aetna Variable Portfolios, Inc. on behalf of each of its
series, and Aeltus Investment Management, Inc. dated as of May
1, 1998(2)
(8.2) Amendment dated November 9, 1998 to Fund Participation Agreement
by and among Aetna Life Insurance and Annuity Company and Aetna
Variable Fund, Aetna Variable Encore Fund, Aetna Income Shares,
Aetna Balanced VP, Inc., Aetna GET Fund on behalf of each of its
series, Aetna Generation Portfolios, Inc. on behalf of each of
its series, Aetna Variable Portfolios, Inc. on behalf of each of
its series, and Aeltus Investment Management, Inc. dated as of
May 1, 1998(7)
(8.3) Service Agreement between Aeltus Investment Management, Inc. and
Aetna Life Insurance and Annuity Company in connection with the
sale of shares of Aetna Variable Fund, Aetna Variable Encore
Fund, Aetna Income Shares, Aetna Balanced VP, Inc., Aetna GET
Fund on behalf of each of its series, Aetna Generation
Portfolios, Inc. on behalf of each of its series, and Aetna
Variable Portfolios, Inc. on behalf of each of its series dated
as of May 1, 1998(2)
(8.4) Amendment dated November 4, 1998 to Service Agreement between
Aeltus Investment Management, Inc. and Aetna Life Insurance and
Annuity Company in connection with the sale of shares of Aetna
Variable Fund, Aetna Variable Encore Fund, Aetna Income Shares,
Aetna Balanced VP, Inc., Aetna GET Fund on behalf of each of its
series, Aetna Generation Portfolios, Inc. on behalf of each of
its series and Aetna Variable Portfolios, Inc. on behalf of each
of its series dated as of May 1, 1998(7)
(9) Opinion and Consent of Counsel
(10) Consent of Independent Auditors
(11) Not applicable
(12) Not applicable
(13) Schedule for Computation of Performance Data(8)
(14) Not applicable
(15.1) Powers of Attorney(9)
(15.2) Authorization for Signatures(3)
1. Incorporated by reference to Post-Effective Amendment No. 6 to Registration
Statement on Form N-4 (File No. 33-75986), as filed on April 22, 1996.
2. Incorporated by reference to Registration Statement on Form N-4 (File No.
333-56297), as filed on June 8, 1998.
3. Incorporated by reference to Post-Effective Amendment No. 5 to Registration
Statement on Form N-4 (File No. 33-75986), as filed on April 12, 1996.
4. Incorporated by reference to Post-Effective Amendment No. 6 to Registration
Statement on Form N-4 (File No. 33-75974), as filed on February 28, 1997.
5. Incorporated by reference to Post-Effective Amendment No. 1 to Registration
Statement on Form S-1 (File No. 33-60477), as filed on April 15, 1996.
6. Incorporated by reference to Post-Effective Amendment No. 12 to
Registration Statement on Form N-4 (File No. 33-75964), as filed on
February 11, 1997.
<PAGE>
7. Incorporated by reference to Post-Effective Amendment No. 2 to Registration
Statement on Form N-4 (File No. 333-56297), as filed on December 14, 1998.
8. Incorporated by reference to Post-Effective Amendment No. 9 to Registration
Statement on Form N-4 (File No. 33-75974), as filed on April 20, 1998.
9. Incorporated by reference to Post-Effective Amendment No. 5 to Registration
Statement on Form N-4 (File No. 333-56297), as filed on February 25, 1999.
<PAGE>
Item 25. Directors and Officers of the Depositor
<TABLE>
<S> <C>>
Name and Principal
Business Address* Positions and Offices with Depositor
Thomas J. McInerney Director and President
Shaun P. Mathews Director and Senior Vice President
Catherine H. Smith Director, Chief Financial Officer and Senior Vice
President
Deborah Koltenuk Vice President, Treasurer and Corporate Controller
Therese M. Squillacote Vice President and Chief Compliance Officer
Kirk P. Wickman Senior Vice President, General Counsel and
Corporate Secretary
</TABLE>
* The principal business address of all directors and officers listed is 151
Farmington Avenue, Hartford, Connecticut 06156.
Item 26. Persons Controlled by or Under Common Control with the Depositor or
Registrant
Incorporated herein by reference to Item 24 of Post-Effective Amendment No.
14 to Registration Statement on Form N-1A (File No. 33-12723), as filed on March
10, 1999.
Item 27. Number of Contract Owners
As of February 28, 1999, there were 603,783 individuals holding interests
in variable annuity contracts funded through Variable Annuity Account C.
Item 28. Indemnification
Section 21 of Public Act No. 97-246 of the Connecticut General Assembly (the
"Act") provides that a corporation may provide indemnification of or advance
expenses to a director, officer, employee or agent only as permitted by Sections
33-770 to 33-778, inclusive, of the Connecticut General Statutes, as amended by
Sections 12 to 20, inclusive, of this Act. Reference is hereby made to Section
33-771(e) of the Connecticut General Statutes ("CGS") regarding indemnification
of directors and Section 33-776(d) of CGS regarding indemnification of officers,
employees and agents of Connecticut corporations. These statutes provide in
general that Connecticut corporations incorporated prior to January 1, 1997
shall, except to the extent that their certificate of incorporation expressly
provides otherwise, indemnify their directors, officers, employees and agents
against "liability" (defined as the obligation to pay a judgment, settlement,
penalty, fine, including an excise tax assessed with respect to an employee
benefit plan, or
<PAGE>
reasonable expenses incurred with respect to a proceeding) when (1) a
determination is made pursuant to Section 33-775 that the party seeking
indemnification has met the standard of conduct set forth in Section 33-771 or
(2) a court has determined that indemnification is appropriate pursuant to
Section 33-774. Under Section 33-775, the determination of and the authorization
for indemnification are made (a) by the disinterested directors, as defined in
Section 33-770(3); (b) by special counsel; (c) by the shareholders; or (d) in
the case of indemnification of an officer, agent or employee of the corporation,
by the general counsel of the corporation or such other officer(s) as the board
of directors may specify. Also, Section 33-772 provides that a corporation shall
indemnify an individual who was wholly successful on the merits or otherwise
against reasonable expenses incurred by him in connection with a proceeding to
which he was a party because he was a director of the corporation. In the case
of a proceeding by or in the right of the corporation or with respect to conduct
for which the director, officer, agent or employee was adjudged liable on the
basis that he received a financial benefit to which he was not entitled,
indemnification is limited to reasonable expenses incurred in connection with
the proceeding against the corporation to which the individual was named a
party.
The statute does specifically authorize a corporation to procure indemnification
insurance on behalf of an individual who was a director, officer, employer or
agent of the corporation. Consistent with the statute, Aetna Inc. has procured
insurance from Lloyd's of London and several major United States excess insurers
for its directors and officers and the directors and officers of its
subsidiaries, including the Depositor.
Item 29. Principal Underwriter
(a) In addition to serving as the principal underwriter and depositor for
the Registrant, Aetna Life Insurance and Annuity Company (Aetna) also
acts as the principal underwriter, only, for Aetna Variable Encore
Fund, Aetna Variable Fund, Aetna Generation Portfolios, Inc., Aetna
Income Shares, Aetna Balanced VP, Inc. (formerly Aetna Investment
Advisers Fund, Inc.), Aetna GET Fund, and Aetna Variable Portfolios,
Inc. and as the principal underwriter and investment adviser for
Portfolio Partners, Inc. (all management investment companies
registered under the Investment Company Act of 1940 (1940 Act)).
Additionally, Aetna acts as the principal underwriter and depositor for
Variable Life Account B of Aetna, Variable Annuity Account B of Aetna
and Variable Annuity Account G of Aetna (separate accounts of Aetna
registered as unit investment trusts under the 1940 Act). Aetna is also
the principal underwriter for Variable Annuity Account I of Aetna
Insurance Company of America (AICA) (a separate account of AICA
registered as a unit investment trust under the 1940 Act).
(b) See Item 25 regarding the Depositor.
<PAGE>
(c) Compensation as of December 31, 1998:
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Name of Net Underwriting Compensation on
Principal Discounts and Redemption or Brokerage
Underwriter Commissions Annuitization Commissions Compensation*
<S> <C> <C>
Aetna Life Insurance $6,483,000 $142,398,000
and Annuity Company
</TABLE>
* Compensation shown in column 5 includes deductions for mortality and
expense risk guarantees and contract charges assessed to cover costs
incurred in the sales and administration of the contracts issued under
Variable Annuity Account C.
Item 30. Location of Accounts and Records
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the rules under it relating to the securities
described in and issued under this Registration Statement are located at the
home office of the Depositor as follows:
Aetna Life Insurance and Annuity Company
151 Farmington Avenue
Hartford, Connecticut 06156
Item 31. Management Services
Not applicable
Item 32. Undertakings
Registrant hereby undertakes:
(a) to file a post-effective amendment to this registration statement on
Form N-4 as frequently as is necessary to ensure that the audited
financial statements in the registration statement are never more than
sixteen months old for as long as payments under the variable annuity
contracts may be accepted;
(b) to include as part of any application to purchase a contract offered by
a prospectus which is part of this registration statement on Form N-4,
a space that an applicant can check to request a Statement of
Additional Information; and
(c) to deliver any Statement of Additional Information and any financial
statements required to be made available under this Form N-4 promptly
upon written or oral request.
<PAGE>
(d) The Company hereby represents that it is relying upon and will comply
with the provisions of Paragraphs (1) through (4) of the SEC Staff's
No-Action Letter dated November 28, 1988 with respect to language
concerning withdrawal restrictions applicable to plans established
pursuant to Section 403(b) of the Internal Revenue Code. See American
Counsel of Life Insurance; SEC No-Action Letter, [1988 WL 235221, *13
(S.E.C.)].
(e) Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid
by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
(f) Aetna Life Insurance and Annuity Company represents that the fees and
charges deducted under the contracts covered by this registration
statement, in the aggregate, are reasonable in relation to the services
rendered, the expenses expected to be incurred, and the risks assumed
by the insurance company.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant, Variable Annuity Account C of Aetna Life Insurance and
Annuity Company, certifies that it meets the requirements of Securities Act Rule
485(b) for effectiveness of this Post-Effective Amendment to its Registration
Statement on Form N-4 (File No. 33-75974 ) and has duly caused this
Post-Effective Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Hartford, State of Connecticut, on the
15th day of April, 1999.
VARIABLE ANNUITY ACCOUNT C OF AETNA
LIFE INSURANCE AND ANNUITY
COMPANY
(Registrant)
By: AETNA LIFE INSURANCE AND ANNUITY
COMPANY
(Depositor)
By: Thomas J. McInerney*
--------------------------------------------
Thomas J. McInerney
President
As required by the Securities Act of 1933, this Post-Effective Amendment
No. 10 to the Registration Statement on Form N-4 (File No. 33-75974 ) has been
signed by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
Thomas J. McInerney* Director and President )
- ----------------------- (principal executive officer) )
Thomas J. McInerney )
)
Shaun P. Mathews* Director ) April
- ----------------------- )
Shaun P. Mathews ) 15, 1999
)
Catherine H. Smith* Director and Chief Financial Officer )
- ----------------------- )
Catherine H. Smith )
)
Deborah Koltenuk* Vice President, Treasurer and Corporate Controller)
- ----------------------- )
Deborah Koltenuk )
</TABLE>
By: /s/ Julie E. Rockmore
------------------------------------------------------------
Julie E. Rockmore
*Attorney-in-Fact
<PAGE>
VARIABLE ANNUITY ACCOUNT C
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Exhibit
- ----------- -------
<S> <C> <C>
99-B.4.3 Endorsement (EG401-GIE-98) to Contracts HR10-DUA-GIA and
GA-UPA-GO
----------------
99-B.9 Opinion and Consent of Counsel
----------------
99-B.10 Consent of Independent Auditors
----------------
</TABLE>
EX-99.B.4.3
Aetna Life Insurance and Annuity Company
ENDORSEMENT
The Contract is hereby endorsed by adding the following provision:
Notwithstanding the Change of Contract provision of this Contract, Aetna
will at all times add interest daily at an effective annual rate of no less
than 3% to all amounts held in the Fixed Account (referred to in some
Contracts as the "General Account"). Aetna may add interest daily at any
higher rate. This paragraph does not in any way reduce any other minimum
interest guarantee set forth in this Contract.
Aetna will make available to the Contract Holder the rate currently being
credited to amounts held in the Fixed Account.
Endorsed and made part of the Contract effective on the later of the date of
receipt of any required state approval or the Effective Date of the Contract.
/s/ Thomas J. McInerney
President
Aetna Life Insurance and Annuity Company
EX-99.B.9
151 Farmington Avenue
Hartford, CT 06156
[AETNA LOGO] Julie E. Rockmore
[AETNA LETTERHEAD] Counsel
Law Division, RE4A
April 15, 1999 Investments & Financial Services
(860) 273-4686
Fax: (860) 273-8340
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: Aetna Life Insurance and Annuity Company and its Variable Annuity Account
C; Post-Effective Amendment No. 10 to Registration Statement on Form N-4
Prospectus Title: Group Variable Annuity Contracts for Tax-Deferred
Annuity Plans (Section 403(b)), Qualified 401 Plans, and HR 10 Plans
File Nos.: 33-75974 and 811-2513
Dear Sir or Madam:
The undersigned serves as counsel to Aetna Life Insurance and Annuity Company, a
Connecticut life insurance company (the "Company"). It is my understanding that
the Company, as depositor, has registered an indefinite amount of securities
(the "Securities") under the Securities Act of 1933 (the "Securities Act") as
provided in Rule 24f-2 under the Investment Company Act of 1940 (the "Investment
Company Act").
In connection with this opinion, I or those for whom I have supervisory
responsibility, have reviewed the N-4 Registration Statement as amended to the
date hereof and this Post-Effective Amendment No. 10. I have also examined
originals or copies, certified or otherwise identified to my satisfaction, of
such documents, trust records and other instruments I have deemed necessary or
appropriate for the purpose of rendering this opinion. For purposes of such
examination, I have assumed the genuineness of all signatures on original
documents and the conformity to the original of all copies.
I am admitted to practice law in Connecticut, and do not purport to be an expert
on the laws of any other state. My opinion herein as to any other law is based
upon a limited inquiry thereof which I have deemed appropriate under the
circumstances.
<PAGE>
Based upon the foregoing, and, assuming the Securities are sold in accordance
with the provisions of the prospectus, I am of the opinion that the Securities
being registered will be legally issued and will represent binding obligations
of the Company.
I consent to the filing of this opinion as an exhibit to the Registration
Statement.
Sincerely,
/s/ Julie E. Rockmore
Julie E. Rockmore
Consent of Independent Auditors
The Board of Directors of Aetna Life Insurance and Annuity Company and
Contractholders of Variable Annuity Account C:
We consent to the use of our reports dated February 3, 1999 and February 26,
1999 included in this Post-Effective Amendment No. 10 to Registration Statement
(File No. 33-75974) on Form N-4 and to the references to our firm under the
headings "Condensed Financial Information" in the prospectus and "Independent
Auditors" in the statement of additional information.
/s/ KPMG LLP
KPMG LLP
Hartford, Connecticut
April 15, 1999
