Prospectus - May 3, 1999
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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
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).
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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
subaccount 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 34 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.
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TABLE OF CONTENTS
<TABLE>
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<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)
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</TABLE>
<TABLE>
<S> <C>
Fee Table ................................... 6
Condensed Financial Information ............. 9
Investment Options .......................... 9
Transfers ................................... 11
Contract Purchase and Participation ......... 12
Contract Ownership and Rights ............... 13
Right to Cancel ............................. 14
Fees ........................................ 15
Your Account Value .......................... 18
Withdrawals ................................. 20
Systematic Distribution Options ............. 21
Death Benefit ............................... 22
The Income Phase ............................ 23
Taxation .................................... 26
Other Topics ................................ 30
</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 -- Ownership Transfer;
Assignment -- Year 2000 Readiness
<TABLE>
<S> <C>
Contents of the Statement of Additional Information ......... 34
Appendix I -- Guaranteed Accumulation Account ............... 35
Appendix II -- Fixed Account ................................ 37
Appendix III -- Condensed Financial Information ............. 38
</TABLE>
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[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 contract 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 type. For example, a "401 plan"
qualifies for tax treatment under code section 401, and an HR10 plan meets the
additional requirements to qualify as an HR10 plan. To learn which type of plan
you have, contact your plan sponsor, your Aetna representative or the Company.
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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."
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Contract Facts
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Free look/Right to Cancel: Contract holders may cancel the contract within 10
days after they receive 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 may withdraw all
or a part of the plan or individual account value. Amounts withdrawn may be
subject to an early withdrawal charge, other deductions, tax withholding and
taxation. See "Withdrawals" and "Taxation."
Systematic Distribution Options: The contract holder on your behalf may elect
for you to receive regular payments from your account, while retaining the
account in the accumulation phase. See "Systematic Distribution Options."
Fees: Certain fees are deducted from your account value. See "Fee Table" and
"Fees."
Taxation: The Tax Code has certain rules that apply to amounts accumulated and
distributed under the contract. Tax penalties may apply if rules are not
followed. See "Taxation."
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Contract Phases
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I. The Accumulation Phase (accumulating retirement benefits)
STEP 1: The contract holder provides Aetna Life Insurance and Annuity Company
with a completed application. Under some contracts, the contract holder directs
us to set up individual accounts for participants. Under other contracts, we
maintain only one plan account under the contract.
STEP 2: The contract holder, or you if permitted by your plan, directs us to
invest account dollars in any of the following: a) Fixed Interest Options b)
Variable Investment Options. (The variable investment options are the
subaccounts of Variable Annuity Account C. Each one invests in a specific mutual
fund.)
STEP 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.
[graphic]
Payments to
the Account
Step 1 (down arrow)
Aetna Life Insurance and Annuity Company
(a) (down arrow) Step 2 (b) (down arrow)
Variable Annuity
Fixed Separate Account B
Interest
Options Variable Investment Options
The Subaccounts
A B Etc.
(down arrow) Step 2(b) (down arrow)
Mutual Mutual
Fund A Fund B
[end graphic]
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[Begin sidebar]
In This Section:
> Transaction Fees
> Fees Deducted from the Subaccounts
> Fund Fees
> Examples of Fee Deductions
See the "Fees" section for
> 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
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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
Early Withdrawal Charge. As a percentage of the amount withdrawn.
Early Withdrawal Charge Schedule
<TABLE>
<CAPTION>
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Completed Contract Years Early Withdrawal Charge
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<S> <C>
Fewer than 5 5%
5 or more but fewer than 7 4%
7 or more but fewer than 9 3%
9 or more but fewer than 10 2%
More than 10 0%
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</TABLE>
<TABLE>
<S> <C>
Annual Maintenance Fee ............... $30.00(1)
Allocation And Transfer Fees ......... $ 0.00(2)
</TABLE>
Fees Deducted from the Subaccounts
<TABLE>
<S> <C> <C>
(Daily deductions equal to the given percentage HR 10 Corporate 401
on an annual basis) Contracts Contracts
--------- ---------
Mortality and Expense Risk Charge ............. 1.25% 1.19%
Administrative Expense Charge ................. 0.00%(3) 0.00%(3)
---- ----
Total Separate Account Expenses ............... 1.25% 1.19%
==== ====
</TABLE>
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(1)This fee is deducted from each individual or plan account. It may be reduced
or waived for certain plans. (See "Fees -- Maintenance Fee.")
(2)The Company currently allows an unlimited number of transfers or allocation
charges without charge. However, the Company reserves the right to impose a
transfer fee of $10.00 for each transfer or allocation charge in excess of
12 during each calendar year. (See "Fees -- Allocation and Transfer
Charge.")
(3)We currently do not impose this fee, however, under some contracts we
reserve the right to make a daily deduction of up to 0.25% of the account
value, on an annual basis.
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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.
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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 purposes of these examples, we deducted the
maximum allowed under the contract for the following fees: mortality and expense
risk charge of 1.25% and 1.19% on an annual basis for HR 10 Contracts and
Corporate 401 Contracts respectively, and a maintenance fee of $30.00 (converted
to a percentage of assets equal to 0.033%). The total annual fund expenses used
are those shown in the column "Total Annual Expenses Without Waivers or
Reductions" in the Fund Expense Table.
HR 10 CONTRACTS
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> 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
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<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. $71 $114 $148 $219
Aetna Bond VP $70 $111 $143 $210
Aetna Growth and Income VP $70 $113 $147 $218
Aetna Money Market VP $68 $106 $136 $193
Portfolio Partners MFS Research Growth Portfolio $73 $121 $161 $247
<CAPTION>
EXAMBLE 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. $19 $59 $101 $219
Aetna Bond VP $18 $56 $ 97 $210
Aetna Growth and Income VP $19 $59 $101 $218
Aetna Money Market VP $17 $51 $ 88 $193
Portfolio Partners MFS Research Growth Portfolio $22 $67 $115 $247
</TABLE>
CORPORATE 401 CONTRACTS
<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. $70 $112 $145 $213
Aetna Bond VP $69 $109 $140 $203
Aetna Growth and Income VP $70 $112 $144 $212
Aetna Money Market VP $68 $105 $133 $186
Portfolio Partners MFS Research Growth Portfolio $72 $119 $158 $240
<CAPTION>
EXAMBLE 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. $18 $57 $ 98 $213
Aetna Bond VP $18 $54 $ 93 $203
Aetna Growth and Income VP $18 $57 $ 98 $212
Aetna Money Market VP $16 $49 $ 85 $186
Portfolio Partners MFS Research Growth Portfolio $21 $65 $112 $240
</TABLE>
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* Example B will not apply if during the income phase a nonlifetime payment
option is elected with variable payments and a lump sum payment is requested
within three years after payments start. In that case, the lump sum payment is
treated as a withdrawal during the accumulation phase and may be subject to an
early withdrawal charge. (Refer to Example A.)
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Condensed Financial Information
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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
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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 fund.
Fixed Interest Options. For descriptions of the fixed interest options, see
Appendix I and II and the Guaranteed Accumulation Account prospectus.
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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.
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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.
> 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)
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> 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.(2)
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)
Limits on Option Availability. Some funds and fixed interest options may not be
available through certain contracts and plans, 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.
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<PAGE>
ERISA Status. The Employee Retirement Income Security Act of 1974 (ERISA)
imposes a "prudent man" rule regarding the selection and monitoring of
investments for these types of retirement plans. Those responsible for selecting
and monitoring the investments (fiduciaries or plan trustees) can be held liable
for plan investment losses if they fail to provide for prudent investment of
plan assets. However, Section 404(c) of ERISA limits fiduciary liability in
plans that allow participants to select their own investments, provided the
available investments meet certain criteria. The five funds available under the
contract provide plan fiduciaries some protection under Section 404(c).
The five subaccounts available under the contract qualify as "core funds" under
ERISA Section 404(c). The underlying funds are broadly diversified, have
different risk/return characteristics, are supported by pre- and post-enrollment
disclosure material, are valued and accessible daily, and are look-through
investment vehicles. The Fixed and Guaranteed Accumulation Accounts are not
Section 404(c) core funds, but are intended as additional investment options.
Thus, the contract provides a well-rounded portfolio, the potential for 404(c)
protection and eliminates the need for an external investment manager.
The Company is not a designated fiduciary or investment manager for any pension
plan. Our responsibility is to execute investment instructions received from the
trustee and/or employees as required under state and federal law. The employer
and plan trustee have overall fiduciary responsibility for your plan. Plan
trustees are responsible for taking affirmative actions in order to retain
Section 404(c) protection, and should review applicable Department of Labor
regulations (20 C.F.R. [sec]2550.404c-1)
Transfers
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Transfers Among Investment Options. During the accumulation phase the contract
holder, or you if permitted by the plan, may transfer among the investment
options. Subject to the contract holder's approval, requests may 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 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
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<PAGE>
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.
Contract Purchase and Participation
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Contracts Available for Purchase. The contracts are designed for plans sponsored
by an employer eligible to establish an HR 10 plan for its employees, and for
other plans designed to qualify for treatment under Section 401 of the Internal
Revenue Code of 1986, as amended (the Tax Code).
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.
You then complete an enrollment form and submit it 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
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<PAGE>
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
forms and any payments.
Types of Contracts. Generally, a single master group contract is issued to cover
present and future participants. The following types of contracts are available:
> Allocated, where individual accounts are established and individual purchase
payments are directed to each corresponding account.
> Unallocated, where no individual accounts are established. All purchase
payments go to a single plan account.
The corporate 401 contracts covered by this prospectus were available only for
conversions through the Company's rewrite program. Those eligible for these
contracts were contract holders of Individual Pension Trust contracts issued
prior to May 1, 1975 who elected to stop payments to their existing contract and
direct future payments to the new contracts. These contracts are no longer
available for new sales.
If state law does not permit a group contract, individual contracts will be
issued for each participant.
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.
Payments must be large enough to fulfill the terms of the plan. For HR 10 plans,
payments must be at least $25 per participant and total payments for the plan
must be at least $6,000 annually (or average $2,000 per participant if there are
fewer than three participants in the plan).
Tax Code Restrictions. The Tax Code places some limitations on contributions to
your account. (See "Taxation.")
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.
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.
13
<PAGE>
Right to Cancel
- --------------------------------------------------------------------------------
When and How to Cancel. The contract holder may cancel the contract within ten
days of receiving it (or as otherwise allowed by state law) by returning it to
the Company along with a written notice of cancellation.
Refunds to Contract Holders. We will produce a refund to the contract holder not
later than seven days after we receive the contract and the written notice of
cancellation at our Home Office. The refund will equal the dollars contributed
to the contract 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 Early Withdrawal Charge
o Maintenance Fee
o Allocation and Transfer
Fees
> Fees Deducted from the Subaccounts
o Mortality and Expense
Risk Charge
o Administrative Expense
Charge
> Fees Deducted by the Funds
o Investment Advisory Fees
o Other Expenses
Terms to understand in the Schedules
Contract Year--For HR 10 contracts issued before June 1, 1992 and for all
corporate 401 contracts, the period of 12 months measured from the contract's
effective date or from any anniversary of such effective date. For HR 10
contracts issued on and after June 1, 1992, the period of 12 months measured
from the date the first purchase payment is applied to the contract or from any
anniversary of such date, subject to state approval.
[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
Early Withdrawal Charge
Withdrawal of all or a portion of the individual or plan account value may be
subject to a charge.
Amount: The charge is a percentage of the amount withdrawn from the contract as
shown in the Early Withdrawal Charge Schedule below.
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.
Early Withdrawal Charge Schedule
<TABLE>
<CAPTION>
- --------------------------------------------------------
Completed Contract Years Deferred Sales Charge
- ------------------------------- ----------------------
<S> <C>
Fewer than 5 5%
5 or more but fewer than 7 4%
7 or more but fewer than 9 3%
9 or more but fewer than 10 2%
10 or more 0%
- --------------------------------------------------------
</TABLE>
Waiver. The early withdrawal charge is waived for portions of a withdrawal when
the withdrawal is:
> Used to provide income phase payments;
> Paid due to your death before income phase payments begin;
> Taken after the completion of ten contract years;
> Taken because of the election of a systematic distribution option (See
"Systematic Distribution Options");
> Used as a rollover to purchase another of the Company's pension or IRA
contracts;
> Paid when the individual account value is below $2,500 and no other
withdrawals have been made from that individual account within the past 12
months. We will add together all individual account values held on your behalf
to determine eligibility for this exemption. This provision is not available
where we do not maintain individual accounts or where all individual accounts
are withdrawn under the contract.
15
<PAGE>
Maintenance Fee
Maximum Amount. $30.00 for each individual account. For a plan account, the
maintenance fee is $30 for each participant for whom payments are made, up to a
maximum of $240 for the plan account.
When/How. During the accumulation phase we deduct this fee from each individual
or plan account. We deduct it on your account anniversary and, if permitted by
state law, at the time of full withdrawal.
Purpose. This fee reimburses us for our administrative expenses relating to the
establishment and maintenance of the account.
Optional Payment Method. The contract holder may elect to pay the annual
maintenance fee directly to the Company for all participants in the plan. In
this case the maintenance fee will not be deducted from the account value.
Reduction/Waiver. For both HR 10 contracts and corporate 401 contracts, the
contract holder may become eligible for a maintenance fee reduction.
For HR 10 contracts issued on or after June 1, 1992, if at installation the
contract has 25 or more active participants and the contract holder meets and
adheres to the terms of an agreement to remit automated payments and
enrollments, the maintenance fee will be reduced by $10. For HR 10 contracts
issued prior to June 1, 1992 that met these conditions at installation, or for
any contracts that meet these conditions subsequent to the installation, the
maintenance fee will be reduced by $5.
For corporate 401 contracts, the maintenance fee will be reduced by $5 if the
contract has 25 or more active participants and the contract holder meets and
adheres to the terms of an agreement to remit automated payments.
For all contracts, the maintenance fee is waived when:
> A participant has account values totaling less than $100; or
> A participant enrolls within 90 days of the maintenance fee deduction, or
> An individual account or plan account is terminated less than 90 days after
the last deduction
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 in a calendar year.
Purpose: This fee reimburses us for administrative expenses associated with
transferring or reallocating your dollars among investment options.
Fees Deducted from Investments in the Subaccounts
Mortality and Expense Risk Charge
Amount: For HR 10 plans, 1.25% annually; and for corporate 401 plans, 1.19%
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.
16
<PAGE>
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.
Administrative Expense Charge
Amount: $0.00 We currently do not impose this fee; however, under some
contracts, we reserve the right to deduct up to 0.25% of the account value on an
annual basis.
Fund Expenses
Maximum Amount. Each fund determines its own advisory fees 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 and the
administrative expense charge (if any). See "Fees."
The net investment rate may be either positive or negative.
18
<PAGE>
Hypothetical Illustration. As a hypothetical illustration, assume that an
investor contributes $5,000 to his account and directs us to invest $3,000 of
payments in Fund A and $2,000 of payments in Fund B. After receiving the
contribution and following the next close of business of the New York Stock
Exchange, the applicable AUV's are $10 for Subaccount A, and $25 for Subaccount
B. The investor's account is credited with 300 accumulation units of subaccount
A and 80 accumulation units of Subaccount B.
Step 1: An Investor contributes $5000
Step 2:
A. He directs us to invest $3,000 in Fund A. His dollars purchase 300
accumulation units of Subaccount A ($3,000 divided by the current $10 AUV).
B. He directs us to invest $2,000 in Fund B. His dollars purchase 80
accumulation units of Subaccount B ($2,000 divided by the current $25 AUV).
Step 3: The separate account then purchases shares of the applicable funds at
the current market value.
The fund's subsequent investment performance, expenses and charges, and the
daily charges deducted from the subaccount, will cause the AUV to move up or
down on a daily basis.
Payments to Your Account. If all or a portion of initial payments are directed
to the subaccounts, they will purchase subaccount accumulation units at the AUV
next computed after our acceptance of 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.
[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
[end graphic]
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. The contract holder may withdraw all or a portion of the
individual or plan account value at any time during the accumulation phase.
Steps for Making A Withdrawal The contract holder must:
> Select the Withdrawal Amount
(1) Full Withdrawal: The contract holder will receive, reduced by any required
withholding tax, the 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): The contract
holder will receive, reduced by any required withholding tax, the amount
specified, subject to the value available in the account. However, the
amount actually withdrawn from the 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 the 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. We determine the account value every normal
business day after the close of the New York Stock Exchange. All withdrawal
amounts paid will be based on 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 specified on the disbursement form.
Delivery of Payment. Payments for withdrawal requests will be made in accordance
with SEC requirements. Normally, payment will be sent not later than seven
calendar days following our receipt of the 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, the contract holder 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 the request and the amount to be
reinvested. We will credit the amount reinvested for maintenance fees and
proportionally for early withdrawal charges imposed at the time of withdrawal.
We will deduct from the amounts reinvested any maintenance fee which fell due
after the withdrawal and before the reinvestment. We will reinvest in the same
investment options and proportions in place at the time of withdrawal. Special
rules 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>
[Begin sidebar]
Features of a Systematic Distribution Option (SDO)
An SDO allows the contract holder to elect for you 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 continued 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 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 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 our 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 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 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 adviser before an SDO is elected.
21
<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 the plan trustee). 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
(1) 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
(2) The payment request should include selection of a benefit payment option
(3) 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. 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 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.
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.
22
<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 the contract holder elects to receive payments from the
accumulated account value.
Initiating Payments. At least 30 days prior to the desired date to start
receiving payments, the contract holder 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)
The account will continue in the accumulation phase until the contract holder
properly initiates payments. Once a payment option is selected, it may not be
changed; however, certain options allow the withdrawal of 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 income payments will be held in the
subaccount(s) selected or a combination of subaccounts and the general account.
The only subaccounts currently permitted during the income phase are the Aetna
Balanced Fund, Inc., Aetna Bond Fund, and Aetna Growth and Income Fund.
Transfers are not permitted once the income phase begins. For variable payments,
an assumed net investment rate must be selected.
Assumed Net Investment rate. For variable payments, an assumed net investment
rate must be selected. If a 5% rate is selected, the 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 a 3-1/2% rate is selected, the 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.")
23
<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 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 variable payments and a
nonlifetime payment option are chosen, we still make this deduction from the
subaccounts selected, even though we no longer assume any mortality risk. We may
also deduct a daily administrative charge from amounts held in the subaccounts.
(See "Fees.")
Death Benefit During the Income Phase. The death benefits that may be available
to a beneficiary are outlined in the 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.")
24
<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
Life Income will be 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
Life Income-- choice of 5 to 20 years or otherwise as specified in the contract.
Guaranteed Death Benefit--Payment to the Beneficiary: If the annuitant dies before we have made all
Payments the 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
Two Lives-- first 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 3-30
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)
Payments equal 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, the contract holder may request at any time that all or a
portion of the present value of the remaining payments be paid in one sum. A
lump sum elected before three years of payments have been completed will be
treated as a withdrawal during the accumulation phase and we will charge any
applicable early withdrawal charge. (See "Fees-- Early Withdrawal Charge.") Lump
sum payments will be sent within seven calendar days after we receive the
request for payment in good order at our Home Office.
- --------------------------------------------------------------------------------
25
<PAGE>
[Begin sidebar]
In This Section
> Introduction
> Plan Types
> Withdrawals and other Distributions
o Taxation of Distributions
o 10% Penalty Tax
o Withholding
> Minimum Distribution Requirements
o 50% Excise Tax
> Rules Specific to Certain 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
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
Plan Types. There are two contracts described in this Prospectus. Both contracts
are used for retirement plans that qualify under Code Section 401(a), 401(k) or
403(a). One contract is designed for use with qualified retirement plans
established by self-employed individuals (H.R. 10 Plans). The other contract is
designed for use with qualified retirement plans established 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) or 403(a) Plans. All distributions from these plans are taxed as
received unless:
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.
26
<PAGE>
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) or 403(a), unless one or more of the
following have occurred:
(a) You have attained age 59-1/2,
(b) You have become permanently disabled,
(c) You have died,
(d) You have separated from service with the plan sponsor at or after age 55,
(e) The distribution amount is rolled over into another plan of the same type
or to an IRA in accordance with the terms of the Tax Code, or
(f) The distribution amount is made in substantially equal periodic payments
(at least annually) over your life or life expectancy or the joint lives
or joint life expectancies of you and your beneficiary. 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) or 403(a) 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
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.
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
27
<PAGE>
> 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
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 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
28
<PAGE>
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.
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
- --------------------------------------------------------------------------------
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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<PAGE>
We include all recurring charges during each period (e.g., mortality and expense
risk charges, annual maintenance fees, administrative expense charges (if any)
and any applicable early withdrawal charges).
Non-Standardized Average Annual Total Returns. We calculate non-standardized
average annual total returns in a similar manner as that stated above, except we
do not include the deduction of any applicable early withdrawal charge. Some
non-standardized returns may also exclude the effect of a maintenance fee. If we
reflected these charges in the calculation, they would decrease the level of
performance reflected by the calculation. Non-standardized returns may also
include performance from the fund's inception date, if that date is earlier than
the one we use for standardized returns.
Voting Rights
Each of the subaccounts holds shares in a fund and each is entitled to vote at
regular and special meetings of that fund. Under our current view of applicable
law, we will vote the shares for each subaccount as instructed by persons having
a voting interest in the separate account. Under the contracts described in this
prospectus, the contract holder, not the plan participants, has all voting
rights. 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) the contract holder is entitled
to direct will be determined as of the record date set by any fund the contract
holder invests in 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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<PAGE>
to a given purchase payment is the first-year percentage which equals
approximately 2% of the first year of payments to an account. We may also pay
renewal commissions on payments made after the first year and, under group
contracts, asset-based service fees. The average of all commissions and asset-
based service fees paid is estimated to equal approximately 2% 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 and 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 (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
subaccounts is not reasonably practicable or it is not reasonably
32
<PAGE>
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
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
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"
> Maintenance Fee--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.
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In general we offer the following guaranteed terms:
> Short-term--three years or less
> Long-term--ten years or less, but more than three years
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.
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.
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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.
Withdrawals. Under certain emergency conditions, we may defer payment of any
withdrawal for period of up to 6 months or as provided by federal law.
Additionally, if allowed by state law, we may pay withdrawals in equal payments
with interest, over a period not to exceed 60 months when the Fixed Account
withdrawal, when added to the total of all Fixed Account withdrawals from the
contract within the past 12 calendar months, exceeds $250,000 for HR 10
contracts, or $500,000 for corporate 401 contracts.
During the payment period, the interest rate credited to amounts held in the
Fixed Account will be determined in the manner set forth in the contract. In no
event will the interest rate be less than the minimum stated in the contract.
Charges. We do not make deductions from amounts in the Fixed Account to cover
mortality and expense risks. We consider these risks when determining the
credited rate. If the contract holder makes a withdrawal from amounts in the
Fixed Account, an early withdrawal charge may apply. (See "Fees-Early Withdrawal
Charge.")
Transfers. During the accumulation phase, the contract holder or you, if
permitted, 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.
By notifying our Home Office at least 30 days before income phase payments
begin, the contract holder or you, if permitted, may elect to have amounts
transferred to one or more of the subaccounts available during the income phase
to provide variable payments.
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Appendix III
Condensed Financial Information
- --------------------------------------------------------------------------------
CORPORATE 401 CONTRACTS
TABLE I
(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.
38
<PAGE>
Condensed Financial Information
- --------------------------------------------------------------------------------
CORPORATE 401 CONTRACTS
TABLE II
(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 (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
---- ----
<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 $253.00(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) Funds were first received in this option during June 1997.
(2) Funds were first received in this option during November 1997.
39
<PAGE>
Condensed Financial Information
- --------------------------------------------------------------------------------
HR 10 CONTRACTS
TABLE III
(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 $14.270
Number of accumulation units
outstanding at end of period 2,294,877 2,160,305 2,716,641 9,193,181 21,990,186
AETNA BOND VP
Value at beginning of period $51.330 $47.992 $46.913 $40.173 $42.283
Value at end of period $54.819 $51.330 $47.992 $46.913 $40.173
Number of accumulation units
outstanding at end of period 994,987 959,336 835,724 2,377,622 5,108,720
AETNA 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
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 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
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.
40
<PAGE>
Condensed Financial Information
- --------------------------------------------------------------------------------
HR 10 CONTRACTS
TABLE IV
(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 (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
---- ----
<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.
41
