Prospectus - May 3, 1999
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[Begin sidebar]
The Funds
Aetna Balanced VP, Inc.
Aetna Income Shares d/b/a Aetna Bond
VP
Aetna Variable Fund d/b/a Aetna
Growth and Income VP
Aetna Variable Encore Fund d/b/a Aetna
Money Market VP
Portfolio Partners MFS Research
Growth Portfolio
[End sidebar]
The Contracts. The contracts described in this prospectus are group installment
and single purchase payment variable annuity contracts issued by Aetna Life
Insurance and Annuity Company (the Company). They are intended to be used as
funding vehicles for certain types of retirement plans that may qualify for
beneficial tax treatment under certain sections of the Internal Revenue Code of
1986, as amended (Tax Code).
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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
subaccounts invests in one of the mutual funds (funds) listed on this page.
Earnings on amounts invested in a subaccount will vary depending on the
performance of its underlying fund. The subaccounts are within Variable Annuity
Account C (the separate account), a separate account of the Company. You do not
invest directly in or hold shares of the funds.
The funds in which the subaccounts invest have various risks. For information
about risks of investing in the funds see "Investment Options" in this
prospectus and each fund prospectus. Retain the fund prospectuses for future
reference.
Fixed Interest Options
> Guaranteed Accumulation Account
> Fixed Account
Except as specifically mentioned, this prospectus describes only the variable
investment options. However, we describe the fixed interest options in the
appendices to this prospectus. There is also a separate prospectus for the
Guaranteed Accumulation Account.
Getting Additional Information. You may obtain the May 3, 1999, Statement of
Additional Information (SAI) by indicating your request on your enrollment
materials or calling the Company at 1-800-232-5422. You may also obtain an SAI
for any of the funds by calling that number. This prospectus, the SAI and other
information about the separate account are posted on the Securities and Exchange
Commission (SEC) web site, http://www.sec.gov. The SAI table of
contents is listed on page 38 of this prospectus. The SAI is incorporated into
this prospectus by reference.
Additional Disclosure Information. Neither the SEC nor any state securities
commission has approved or disapproved the contracts offered through this
prospectus or passed on the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense. This prospectus is valid
only when accompanied by current prospectuses of the funds and the Guaranteed
Accumulation Account. We do not intend for this prospectus to be an offer to
sell or a solicitation of an offer to buy these contracts in any state that does
not permit their sale. We have not authorized anyone to provide you with
information that is different from that contained in this prospectus.
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2
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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 ................................... 12
Contract Purchase and Participation ......... 13
Contract Ownership and Rights ............... 14
Right to Cancel ............................. 14
Fees ........................................ 15
Your Account Value .......................... 18
Withdrawals ................................. 20
Systematic Distribution Options ............. 22
Death Benefit ............................... 23
The Income Phase ............................ 25
Taxation .................................... 28
Other Topics ................................ 34
</TABLE>
The Company -- Variable Annuity Account C -- Performance Reporting -- Voting
Rights -- Contract Distribution -- Commission Payments -- Third Party
Compensation Arrangements -- Contract Modification -- Legal Matters and
Proceedings -- Payment Delay or Suspension -- Transfer of Ownership; Assignment
- -- Year 2000 Readiness
<TABLE>
<S> <C>
Contents of the Statement of Additional Information ......... 38
Appendix I -- Guaranteed Accumulation Account ............... 39
Appendix II -- Fixed Account ................................ 41
Appendix III -- Condensed Financial Information ............. 42
</TABLE>
3
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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 contracts as a funding option.
Plan Sponsor: The sponsor of your retirement plan. Generally, your employer.
Contract Holder: The person or entity to whom we issue the contract. Generally,
the plan sponsor or plan trustee.
We (the Company): Aetna Life Insurance and Annuity Company. We issue the
contract.
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The Contract and Your Retirement Plan
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Retirement plan (plan): A plan sponsor has established a retirement plan for
you. This contract is offered as a funding option for that plan. We are not a
party to the plan, so the terms and the conditions of the contract and the plan
may differ.
Plan Type. We refer to the retirement plan by the Tax Code section under which
it qualifies. For example, a "403(b) plan" is a plan that qualifies for tax
treatment under code section 403(b) To learn which code section applies to your
plan, contact your plan sponsor, your Aetna representative or the Company.
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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: The contract holder or you, if permitted, may cancel
the contract within 10 days after receiving the contract or evidence of
participation in the contract. See "Right To Cancel."
Death Benefit: A beneficiary may receive a benefit in the event of your death
prior to the income phase. Death benefits during the income phase depend on the
payment option selected. See "Death Benefit" and "The Income Phase."
Withdrawals: During the accumulation phase the contract holder or you, if
permitted, may withdraw all or a part of your account value. Amounts withdrawn
may be subject to and early withdrawal charge, other deductions, tax withholding
and taxation. See "Withdrawals" and "Taxation."
Systematic Distribution Options: The contract holder or you, if permitted, may
elect for you to receive regular payments from your account, while retaining the
account in the accumulation phase. See "Systematic Distribution Options."
4
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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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[Type Representation of Graphic]
------------
Payments to
Your Account
------------
Step 1
----------------------------------------
Aetna Life Insurance and Annuity Company
----------------------------------------
a) (down arrow) Step 2 b) (down arrow)
--------- ----------------------------
Variable Annuity
Fixed Account C
Interest
Options Variable Investment Options
--------- ----------------------------
The Subaccounts
----------------------------
A B Etc.
----------------------------
(down arrow) Step 2 b) (down arrow)
--------------------
Mutual Mutual
Fund A Fund B
-------------------
I. The Accumulation Phase. (accumulating retirement benefits)
STEP 1: You or the contract holder provide Aetna Life Insurance and Annuity
Company with your completed enrollment materials. The contract holder directs us
to set up an account for you.
STEP 2: The contract holder, or you if permitted by your plan, direct us to
invest your account dollars in any of the:
a) Fixed Interest Options
b) Variable Investment Options. (The variable investment options are the
subaccounts of Variable Annuity Account C. Each one invests in a specific
mutual fund.)
STEP 2(b), continued: The subaccount(s) selected purchases shares of its
assigned fund.
II. The Income Phase. The contract offers several payment options (see "The
Income Phase.") In general, you may:
> Receive payments over a lifetime or for a specified period
> Receive payments monthly, quarterly, semi-annually or annually
> Select an option that provides a death benefit to beneficiaries
> Select fixed payments or payments that vary based on the performance of the
variable investment options you select.
5
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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:
> Early Withdrawal Charge Schedules
> How, When and Why Fees are Deducted
> Premium and Other Taxes
See "The Income Phase" for:
> Fees During the Income Phase
[End sidebar]
Fee Table
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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
<TABLE>
<CAPTION>
Plan Type:
403(b) 401 HR10
<S> <C> <C> <C>
Sales and Administrative Expense Charge ........................... 6.00% 5.00% 1.75%
(as a percentage of contributions to your account)
Maximum Early Withdrawal Charge ................................... 2%(1) 5%(2) 2%(1)
(as a percentage of amount withdrawn)
Allocation And Transfer Fees(3) ................................... $0.00 $0.00 $0.00
Fees Deducted from the Subaccounts
(Daily deductions equal to the given percentage on an annual basis)
Mortality and Expense Risk Fee .................................... 1.25% 1.19% 1.25%
----- ----- -----
Total Separate Account Annual Expenses ............................ 1.25% 1.19% 1.25%
===== ===== =====
</TABLE>
(1)Only applies if fewer than five contract years have been completed
(2)Diminishes to zero over six years; see schedule in "Fees" section
(3)The Company currently allows an unlimited number of transfers or allocation
changes without charge. However, the Company reserves the right to impose a
transfer fee of $10.00 for each transfer or allocation change in excess of 12
during each contract year. (See "Fees -- Allocation and Transfer Fee.")
6
<PAGE>
Fees Deducted by the Funds
Using this Information. The following table shows the investment advisory fees
and other expenses charged annually by each fund. Fund fees are one factor that
impacts the value of a fund share. To learn about additional factors, refer to
the fund prospectus.
How Fees are Deducted. Fund fees are not deducted from account values. Instead,
fees are deducted from the value of the fund shares on a daily basis, which in
turn will affect the value of each subaccount on a daily basis. Except as noted
below, the following figures are a percentage of the average net assets of each
fund, and are based on figures for the year ended December 31, 1998.
Fund Expense Table
<TABLE>
<CAPTION>
Total Fund Net Fund
Annual Annual
Expenses Expenses
Investment Without Total After
Advisory Other Waivers or Waivers and Waivers or
Fund Name Fees(1) Expenses Reductions Reductions Reductions
--------- ------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Aetna Balanced VP, Inc.(2) 0.50% 0.09% 0.59% -- 0.59%
Aetna Bond VP(2) 0.40% 0.10% 0.50% -- 0.50%
Aetna Growth and Income VP(2) 0.50% 0.08% 0.58% -- 0.58%
Aetna Money Market VP(2) 0.25% 0.09% 0.34% -- 0.34%
Portfolio Partners MFS Research Growth Portfolio(3) 0.70% 0.15% 0.85% -- 0.85%
</TABLE>
Footnotes to the "Fund Expense Table"
(1) Certain of the fund advisers reimburse the company for administrative
costs incurred in connection with administering the funds as variable
funding options under the contract. These reimbursements are paid out of
the management fees and are not charged to investors.
(2) Prior to May 1, 1998, the portfolio's investment adviser provided
administrative services to the portfolio and assumed the portfolio's
ordinary recurring direct costs under an administrative services
agreement. After that date, the portfolio's investment adviser provided
administrative services but no longer assumed all of the portfolio's
ordinary recurring direct costs under an administrative services
agreement. The administrative fee is 0.075% on the first $5 billion in
assets and 0.050% on all assets over $5 billion. The "Other Expenses"
shown are not based on actual figures for the year ended December 31,
1998, but reflect the fee payable under the new administrative services
agreement and estimates the portfolio's ordinary recurring direct costs.
(3) The investment adviser has agreed to reimburse the portfolio for expenses
and/or waive its fees, so that, through at least April 30, 2000, the
aggregate of the portfolio's expenses will not exceed the combined
investment advisory fees and other expenses shown under the "Net Fund
Annual Expenses After Waivers or Reductions" column above.
7
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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 purpose of these examples, we deducted the
applicable sales and administrative expense charge and a mortality and expense
risk charge of 1.25% on an annual basis 403(b) and HR 10 plans, and 1.19% on an
annual basis for 401 plans. The total annual fund expenses used are those shown
in the column "Total Annual Expenses Without Waivers or Reductions" in the Fund
Expense Table.
403(b) PLANS
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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. $97 $135 $154 $263
Aetna Bond VP $96 $132 $149 $254
Aetna Growth and Income VP $97 $135 $153 $262
Aetna Money Market VP $95 $128 $141 $238
Portfolio Partners MFS Research Growth Portfolio $99 $142 $166 $289
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE B
---------
If you leave your entire account value
invested or if you select an
income phase payment option at the
end of the periods shown, you would
pay the following fees (no early
withdrawal is reflected)
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Aetna Balanced VP, Inc. $78 $114 $154 $263
Aetna Bond VP $77 $112 $149 $254
Aetna Growth and Income VP $77 $114 $153 $262
Aetna Money Market VP $75 $107 $141 $238
Portfolio Partners MFS Research Growth Portfolio $80 $122 $166 $289
</TABLE>
401 PLANS
<TABLE>
<CAPTION>
EXAMPLE A
---------
If you withdraw your entire account
value at the end of the periods shown,
you would pay the following fees,
including any applicable early
withdrawal charge assessed:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Aetna Balanced VP, Inc. $116 $135 $153 $249
Aetna Bond VP $115 $132 $148 $240
Aetna Growth and Income VP $116 $134 $152 $248
Aetna Money Market VP $114 $127 $141 $223
Portfolio Partners MFS Research Growth Portfolio $119 $142 $165 $275
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE B
---------
If you leave your entire account
value invested or if you select an
income phase payment option at the
end of the periods shown, you would
pay the following fees (no early
withdrawal charge is reflected)
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Aetna Balanced VP, Inc. $67 $103 $142 $249
Aetna Bond VP $66 $101 $137 $240
Aetna Growth and Income VP $67 $103 $141 $248
Aetna Money Market VP $65 $ 96 $129 $223
Portfolio Partners MFS Research Growth Portfolio $70 $111 $154 $275
</TABLE>
HR 10 PLANS
<TABLE>
<CAPTION>
EXAMPLE A
---------
If you withdraw your entire account
value at the end of the periods shown,
you would pay the following fees,
including any applicable early
withdrawal charge assessed:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Aetna Balanced VP, Inc. $56 $ 96 $115 $230
Aetna Bond VP $55 $ 93 $111 $220
Aetna Growth and Income VP $56 $ 96 $115 $229
Aetna Money Market VP $54 $ 89 $103 $203
Portfolio Partners MFS Research Growth Portfolio $59 $104 $128 $256
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE B
---------
If you leave your entire account value
invested or if you select an
income phase payment option at the
end of the periods shown, you would
pay the following fees (no early
withdrawal charge is reflected)
1 Year 3 Years 5 Years 10 Years
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Aetna Balanced VP, Inc. $36 $74 $115 $230
Aetna Bond VP $35 $72 $111 $220
Aetna Growth and Income VP $36 $74 $115 $229
Aetna Money Market VP $33 $67 $103 $203
Portfolio Partners MFS Research Growth Portfolio $38 $82 $128 $256
</TABLE>
8
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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. Fund
prospectuses may be obtained, free of charge, by calling the Company at the
telephone number listed in "Contract Overview -- Questions: Contacting the
Company," by contacting the SEC's website, or by contacting the SEC Public
Reference Room.
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9
<PAGE>
Fund Descriptions. The investment results of the mutual funds (funds) are likely
to differ significantly and there is no assurance that any of the funds will
achieve their respective investment objectives. Shares of the funds will rise
and fall in value and you could lose money by investing in the funds. Shares of
the funds are not bank deposits and are not guaranteed, endorsed or insured by
any financial institution, the Federal Deposit Insurance Corporation or any
other government agency. Unless noted, all funds are diversified, as defined
under the Investment Company Act of 1940.
> Aetna Balanced VP, Inc. seeks to maximize investment return, consistent with
reasonable safety of principal by investing in a diversified portfolio of one
or more of the following asset classes: stocks, bonds, and cash equivalents,
based on the investment adviser's judgment of which of those sectors or mix
thereof offers the best investment prospects.(1)
> Aetna Income Shares d/b/a Aetna Bond VP seeks to maximize total return,
consistent with reasonable risk, through investments in a diversified
portfolio consisting primarily of debt securities. It is anticipated that
capital appreciation and investment income will both be major factors in
achieving total return.(1)
> Aetna Variable Fund d/b/a Aetna Growth and Income VP seeks to maximize total
return through investments in a diversified portfolio of common stocks and
securities convertible into common stock. It is anticipated that capital
appreciation and investment income will both be major factors in achieving
total return.(1)
> Aetna Variable Encore Fund d/b/a Aetna Money Market VP seeks to provide high
current return, consistent with preservation of capital and liquidity, through
investment in high-quality money market instruments. An investment in the fund
is neither insured nor guaranteed by the U.S. Government.(1)
> Portfolio Partners, Inc.--MFS Research Growth Portfolio seeks long-term growth
of capital and future income.(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)
10
<PAGE>
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.
11
<PAGE>
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 amounts of $500 or more
among the investment options. Subject to the contract holder's approval,
requests be made in writing, by telephone or, where applicable, electronically.
Transfers from fixed interest options may be restricted as outlined in
Appendices I and II. You may not make transfers once you enter the income phase.
Charges for Transfers. We currently do not charge for transfers or allocation
changes. We do however, reserve the right to charge a fee of $10.00 for each
transfer and/or more allocation change in excess of 12 made in any calendar
year.
Value of Transferred Dollars. The value of amounts transferred in or out of the
funds will be based on the subaccount unit values next determined after we
receive your request in good order at our Home Office.
Telephone Transfers: Security Measures. To prevent fraudulent use of telephone
transactions, we have established security procedures. These include recording
calls on our toll-free telephone lines and requiring the use of a personal
identification number (PIN) to execute transactions. You are responsible for
keeping your PIN and account information confidential. If we fail to follow
reasonable procedures, we may be liable for any losses due to unauthorized or
fraudulent telephone transactions. We are not be liable for losses resulting
from telephone instructions we believe to be genuine. If a loss occurs when we
rely on such instructions, you will bear the loss.
Limits on Frequent Transfers. The contracts are not designed to serve as
vehicles for frequent trading in response to short-term fluctuations in the
market. Such frequent trading can disrupt management of a fund and raise its
expenses. This in turn can have an adverse effect on fund performance.
Accordingly, organizations or individuals that use market-timing investment
strategies and make frequent transfers should not purchase the contracts.
We reserve the right to restrict, in our sole discretion and without prior
notice, transfers initiated by a market-timing organization or individual or
other party authorized to give transfer instructions on behalf of multiple
contract holders or participants. Such restrictions could include: (1) not
accepting transfer instructions from an agent acting on behalf of more than one
contract holder or participant; and (2) not accepting preauthorized transfer
forms from market timers or other entities acting on behalf of more than one
contract holder or participant at a time.
We further reserve the right to impose, without prior notice, restrictions on
any transfers that we determine, in our sole discretion, will disadvantage or
potentially hurt the rights or interests of other contract holders or
participants.
12
<PAGE>
Contract Purchase and Participation
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Contracts Available for Purchase. The contracts are designed for retirement
plans that qualify under certain provisions of the Internal Revenue Code of
1986, as amended (Tax Code). The contracts are available for:
(1) Plans that qualify under section 403(b) of the Tax Code (403(b) plans)
(2) Plans established by corporations that qualify under sections 401(a) and
401(k) or 403(a) of the Tax Code (401 plans)
(3) Plans established by self-employed individuals under section 401(a), 401(k)
or 403(a) of the Tax Code (HR 10 plans)
Purchasing the Contract.
(1) The contract holder submits the required forms and application to the
Company.
(2) We approve the forms and issue a contract to the contract holder.
Participating in the Contract. If the contract provides for the establishment of
individual accounts for employees under the plan:
(1) We provide you with enrollment materials for completion and return to us.
(2) If your enrollment materials are complete and in good order, we establish
an account for you.
Acceptance or Rejection of Applications or Enrollment Forms. We must accept or
reject an application or your enrollment materials within two business days of
receipt. If the forms are incomplete, we may hold any forms and accompanying
payments for five business days, unless you consent to our holding them longer.
Under limited circumstances, we may also agree, for a particular plan, to hold
payments for longer periods with the permission of the contract holder. If we
agree to this, we will deposit the payments in the Aetna Money Market VP
subaccount until the forms are completed (or for a maximum of 105 days). If we
reject the application or enrollment form, we will return the forms and any
payments.
Types of Contracts. The following types of contracts are available:
> Continuous payments over time into an installment purchase payment contract
> Lump sum transfer from a previous plan into a single purchase payment
contract, in accordance with our procedures in effect at the time of purchase.
For HR 10 plans and 401 plans, payments must be large enough to fulfill the
terms of the plan. In addition, for HR 10 plans, payments must aggregate $4,000
annually.
Allocation of Payments. The contract holder or you, if the contract holder
permits, directs us to allocate initial contributions to the investment options
available under the plan. Generally you will specify this information on your
enrollment materials. After your enrollment, changes to allocations for future
payments or transfer of existing balances among investment options may be
requested in writing and, where available, by telephone or electronically.
Allocations must be in whole percentages.
Tax Code Restrictions. The Tax Code places some limitations on contributions to
your account. (See "Taxation.")
13
<PAGE>
Contract Ownership and Rights
- --------------------------------------------------------------------------------
Who owns the Contract? The contract holder. This is the person or entity to whom
we issue the contract. The contract holder is usually your employer, unless the
plan has a trustee, in which case the trustee is usually the contract holder.
Who Owns Money Accumulated under the Contract? If the contract holder directs
that we establish an account for you, you have the right to the value of your
account to the extent provided by the plan.
What Rights Do I Have under The Contract? The contract holder, usually your
employer, holds all rights under the contract. The contract holder's plan, which
you participate in, may permit you to exercise some of those rights.
Right to Cancel
- --------------------------------------------------------------------------------
The contract holder, or you if permitted, may cancel the contract or your
participation in the contract by returning the document and a written notice of
cancellation to the Company within ten days of receiving it (or as otherwise
allowed by state law).
Refunds. We will produce a refund not later than seven days after we receive the
required documents and the written notice in good order at our Home Office. The
refund will equal amounts contributed to the account plus any earnings or less
any losses attributable to those contributions allocated to the variable
investment options, unless otherwise required by law.
14
<PAGE>
[Begin sidebar]
Types of Fees
There are three types of fees your account may incur:
> Transaction Fees
o Sales and Administrative Expense Charge
o Early Withdrawal Charge
o Allocation and Transfer Fee
o Insurance Rider Charge
> Fees Deducted from Investments in the Subaccounts
o Mortality and Expense Risk Charge
> Fees Deducted by the Funds
o Investment Advisory Fees
o Other Expenses
Terms to Understand in the Schedules
Contract Year--The period of 12 months, measured from the contract's effective
date or from any anniversary of such effective date, for which all required
payments have been received.
[End sidebar]
Fees
- --------------------------------------------------------------------------------
The following repeats and adds to information provided in the "Fee Table"
section. Please review both this section and the Fee Table for information on
fees.
Transaction Fees
Sales and Administrative Expense Charge
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
As a percentage of each payment As a percentage of a net
to the contract: purchase payment:
- ------------------------------------------------------------------------------
<S> <C> <C>
403(b) plans 6.00% 6.40%
401 plans 5.00% 5.30%
HR 10 plans 1.75% 1.80%
- ------------------------------------------------------------------------------
</TABLE>
When/How. This fee is deducted from payments to a contract, after any deductions
are made for premium taxes and/or insurance rider premiums.
Purpose. This fee helps reimburse us for sales and administrative expenses
associated with the sale and maintenance of the contract.
Early Withdrawal Charge
Withdrawal of all or a portion of your account value may be subject to a charge.
Amount: The charge is a percentage of the amount withdrawn from the contract.
Under a 403(b) or 401 plan, there is no early withdrawal charge for termination
of an individual account. Under an HR10 plan, there is no early withdrawal
charge for termination of an individual account due to your death.
For HR10 and 403(b) contracts, an early withdrawal charge of 2% of the amount
withdrawn will be assessed if the contract is terminated before five contract
years have been completed (see sidebar), or before the tenth anniversary of the
contract, whichever occurs first.
For 401 contracts the early withdrawal charge is a percentage of the amount
withdrawn according to the table below:
<TABLE>
<S> <C>
- -----------------------------------------------------------
401 Contracts
- -----------------------------------------------------------
Completed Contract Years Early Withdrawal Charge
------------------------ -----------------------
Less than 1 5%
1 or more but fewer than 2 5%
2 or more but fewer than 3 4%
3 or more but fewer than 4 3%
4 or more but fewer than 5 2%
5 or more but fewer than 6 1%
6 or more 0%
- -----------------------------------------------------------
</TABLE>
Purpose: This is a deferred sales charge. The charge reimburses us for some of
the sales and administrative expenses associated with the contract. Our
remaining sales and administrative expenses will be covered by our general
assets which are attributable in part to the mortality and expense risk charges
described in this section.
15
<PAGE>
Allocation and Transfer Fee
Amount: $0.00
We currently do not impose a fee for allocation changes or transfers among
investment options. We reserve the right, however, to charge $10 for each
allocation change or transfer in excess of 12 that occurs between two
consecutive account anniversaries.
Purpose: This fee reimburses us for administrative expenses associated with
transferring or reallocating your dollars among investment options.
Insurance Rider Charge
(403(b) plans only)
Amount. 1% of each payment to the contract.
When/How. This fee is deducted from contributions to the contract made on behalf
of any participant for whom the rider is elected.
Purpose. This is an option that may be elected by the contract holder or you, if
permitted by the plan, to purchase a minimum death benefit guarantee. This
guarantee provides that if you die before income payments commence, the minimum
death benefit will equal purchase payments (less any withdrawals) made on your
behalf, regardless of the value of your account at the time of death.
Contracts issued to 401 plans contain the same guarantee, but the premium for
the rider is included in the contract's sales and administrative expense charge.
Fees Deducted from Investments in the Subaccounts
Mortality and Expense Risk Charge
Amount: For 401 plans, 1.19% annually of the account value invested in the
subaccounts, and for 403(b) and HR10 plans, 1.25% annually of the account value
invested in the subaccounts.
When/How: This fee is deducted daily from the subaccounts. We do not deduct this
from any fixed interest option.
Purpose: This fee compensates us for the mortality and expense risks we assume
under the contracts.
> The mortality risks are those associated with the our promise to make lifetime
payments based on annuity rates specified in the contracts and our funding of
the death benefit and other payments we make to owners or beneficiaries of the
accounts
> The expense risk is that actual expenses we incur under the contract will
exceed the maximum costs that we can charge.
If the amount we deduct for this fee is not enough to cover our mortality costs
and expenses under the contracts, we will bear the loss. We may use any excess
to recover distribution costs relating to the contract and as a source of
profit. We expect to make a profit from this fee.
16
<PAGE>
Fund Expenses
Maximum Amount. Each fund determines its own advisory fee and expenses. For a
list of fund fees see "Fee Table." The fees are described in more detail in
each fund prospectus.
When/How. Fund fees are not deducted from your account. Fund advisory fees and
expenses are reflected in the daily value of the fund shares, which will in turn
affect the daily value of each subaccount.
Purpose: These amounts help to pay the funds' investment advisor and operating
expenses.
Premium and Other Taxes
Maximum Amount. Some states and municipalities charge a premium tax on
annuities. These taxes currently range from 0% to 4% depending on jurisdiction.
When/How. We reserve the right to deduct premium taxes from your account value
or from payments to your account at any time, but not before there is a tax
liability under state law. Our current practice is to deduct premium taxes at
the time of a full withdrawal or the commencement of income phase payments. We
will not deduct any municipal premium tax of 1% or less, but we reserve the
right to reflect such an expense in our annuity rates.
In addition, the Company reserves the right to assess a charge for any federal
taxes due against the separate account. (See "Taxation.")
17
<PAGE>
Your Account Value
- --------------------------------------------------------------------------------
During the accumulation phase, your account value at any given time equals:
> Account dollars directed to the fixed interest options, including interest
earnings to date
> Less any deductions from the fixed interest options (e.g. withdrawals, fees)
> Plus the current dollar value of amounts invested in the subaccounts.
Subaccount Accumulation Units. When a fund is selected as an investment option,
your account dollars invest in "accumulation units" of the Variable Annuity
Account C subaccount corresponding to that fund. The subaccount invests directly
in the fund shares. The value of your interests in a subaccount is expressed as
the number of accumulation units you hold multiplied by an "Accumulation Unit
Value," as described below, for each unit.
Accumulation Unit Value (AUV). The value of each accumulation unit in a
subaccount is called the accumulation unit value or AUV. The value of
accumulation units vary daily in relation to the underlying fund's investment
performance. The value also reflects deductions for fund fees and expenses, and
the mortality and expense risk charge. We discuss these deductions in more
detail in "Fee Table" and "Fees."
Valuation. We determine the AUV every business day after the close of the New
York Stock Exchange. At that time, we calculate the current AUV by multiplying
the AUV last calculated by the "net investment factor" of the subaccount. The
net investment factor measures the investment performance of the subaccount from
one valuation to the next.
Current AUV = Prior AUV x Net Investment Factor
Net Investment Factor. The net investment factor for a subaccount between two
consecutive valuations, equals the sum of 1.0000 plus the net investment rate.
Net Investment Rate. The net investment rate is computed according to a formula
that is equivalent to the following:
> The net assets of the fund held by the subaccount as of the current valuation,
minus;
> The net assets of the fund held by the subaccount at the preceding valuation,
plus or minus;
> Taxes or provisions for taxes, if any, due to subaccount operations (with any
federal income tax liability offset by foreign tax credits to the extent
allowed);
> Divided by the total value of the subaccount units at the preceding valuation;
> Less a daily deduction for the mortality and expense risk charge. See "Fees."
The net investment rate may be either positive or negative.
18
<PAGE>
Hypothetical Illustration. As an hypothetical illustration, assume that after
deduction of any applicable premium tax, insurance rider premium and sales and
administrative expense charge, an investor has $5,000 remaining to allocate as
his net contribution. He directs us to invest $3,000 to Fund A and $2,000 to
Fund B. After receiving the net contribution and following the next close of
business of the New York Stock Exchange, the applicable AUV's are $10 for
Subaccount A, and $25 for Subaccount B. The investor's account is credited with
300 accumulation units of subaccount A and 80 accumulation units of Subaccount
B.
[Type Representation of Graphic]
-------------------
$5,000 Contribution
-------------------
Step 1 (down arrow)
----------------------------------------
Aetna Life Insurance and Annuity Company
----------------------------------------
Step 2 (down arrow)
----------------------------------------
Variable Annuity Account C
----------------------------------------
Subaccount A Subaccount B Etc.
300 80
accumulation accumulation
units units
----------------------------------------
(down arrow) Step 3 (down arrow)
-------------------
Fund A Fund B
-------------------
Step 1: An Investor has a net contribution of $5,000
Step 2:
A. He directs us to invest $3,000 in Fund A. His dollars purchase 300
accumulation units of Subaccount A ($3,000 divided by the current $10 AUV).
B. He directs us to invest $2,000 in Fund B. His dollars purchase 80
accumulation units of Subaccount B ($2,000 divided by the current $25 AUV).
Step 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.
19
<PAGE>
[Begin sidebar]
Taxes, Fees and Deductions
Amounts withdrawn may be subject to one or more of the following:
> Early Withdrawal Charge
> Market Value Adjustment (see Appendix I)
> Tax Penalty (see "Taxation")
> Tax Withholding (see "Taxation")
To determine which may apply, refer to the appropriate sections of this
prospectus, contact your Aetna representative, or call the Company at the number
listed in "Contract Overview--Questions: Contacting the Company."
[End sidebar]
Withdrawals
- --------------------------------------------------------------------------------
Making a Withdrawal. Subject to Tax Code withdrawal restrictions applicable to
403(b) plans, the contract holder or you, if permitted, may withdraw all or a
portion of your account value at any time during the accumulation phase.
Steps for Making A Withdrawal. The contract holder or you, if permitted by the
plan must:
> Select the Withdrawal Amount
(1) Full Withdrawal: You will receive, reduced by any required withholding tax,
your account value allocated to the subaccounts, the Guaranteed Accumulation
Account (plus or minus any market value adjustment) and to the Fixed
Account, minus any applicable early withdrawal charge.
(2) Partial Withdrawal (Percentage or Specified Dollar Amount): You will
receive, reduced by any required withholding tax, the amount you specify,
subject to the value available in your account. However, the amount actually
withdrawn from your account will be adjusted by any applicable early
withdrawal charge, and any positive or negative market value adjustment for
amounts withdrawn from the Guaranteed Accumulation Account.
> Select Investment Options. If this is not specified, we will withdraw dollars
proportionally from each investment options in which you have an account
value.
> Properly complete a disbursement form and submit it to our Home Office.
Calculation of Your Withdrawal. Your plan determines if your account value is
calculated by us or by your plan administrator. If we calculate it, we do so
every normal business day after the close of the New York Stock Exchange. All
withdrawal amounts paid will be based on your account value as of either
(1) the next valuation after receiving a request for withdrawal at our Home
Office; or
(2) on such later date as you specify on the disbursement form.
Delivery of Payment. Payments for withdrawal requests will be made in accordance
with SEC requirements. Normally, your payment will be sent not later than seven
calendar days following our receipt of your disbursement form in good order.
Reinvestment Privilege. The contracts allow one-time use of a reinvestment
privilege. Within 30 days after a full withdrawal, if allowed by law and the
contract, you may elect to reinvest all or a portion of the proceeds. We must
receive reinvested amounts within 60 days of the withdrawal. We will credit the
account for the amount reinvested based on the subaccount values next computed
following our receipt of your request and the amount to be reinvested. We will
credit the amount reinvested proportionally for early withdrawal charges imposed
at the time of withdrawal. We will reinvest in the same investment options and
proportions in place at the time of withdrawal. Special rules apply to
reinvestments of amounts withdrawn from the Guaranteed Accumulation Account (see
Appendix I). Seek competent advice regarding the tax consequences associated
with reinvestment.
20
<PAGE>
Withdrawal Restriction for 403(b) Plans. Section 403(b)(11) of the Tax Code
generally prohibits withdrawal prior to your death, disability, attainment of
age 59-1/2, separation from service or financial hardship, of the following:
(1) Salary reduction contributions made after December 31, 1988; and
(2) Earnings on those contributions and earnings on amounts held before 1989
and credited after December 31, 1988.
21
<PAGE>
[Begin sidebar]
Features of a Systematic Distribution Option (SDO)
An SDO allows the contract holder, or you if permitted, to receive regular
payments from your account, without moving into the income phase. By maintaining
your account in the accumulation phase, certain rights and flexibility are
retained and accumulation phase fees continue to apply.
[End sidebar]
Systematic Distribution Options
- --------------------------------------------------------------------------------
Availability of Systematic Distribution Options (SDOs). To exercise one of these
options the account must meet any minimum dollar amount and you must meet any
age criteria applicable to that option. Check with the contract holder or the
Company to determine which Systematic Distribution Options are available under
your plan.
The SDO's currently available under the contract include the following:
> SWO--Systematic Withdrawal Option. SWO is a series of automatic partial
withdrawals from your account based on the payment method selected. It is
designed for those who would like a periodic income while retaining investment
flexibility for amounts accumulated under the contract.
> ECO--Estate Conservation Option. ECO offers the same investment flexibility as
SWO, but is designed for those who want to receive only the minimum
distribution that the Tax Code requires each year.
Under ECO, we calculate the minimum distribution amount required by law at
age 70-1/2, and pay you that amount once a year.
> Other Systematic Distribution Options. We may add additional SDOs from time to
time. You may obtain additional information relating to any of the SDOs from
your local representative or from the Home Office.
Availability of Systematic Distribution Options. The Company may discontinue the
availability of one or all of the SDOs at any time, and/or change the terms of
future elections.
Terminating a Systematic Distribution Option. Once an SDO is elected, the
contract holder, or you if permitted by the plan, may revoke it at any time by
submitting a written request to our Home Office. Any revocation will apply only
to the amount yet to be paid. Once an option is revoked for an account, it may
not be elected again, nor may any other SDO be elected.
Charges and Taxation. When the contract holder or you, if permitted by the plan,
elects an SDO for your account, your account value remains in the accumulation
phase and subject to the charges and deductions described in the "Fees" section.
Taking a withdrawal under an SDO may have tax consequences. If you are concerned
about tax implications, consult a tax advisor before one of these options is
elected.
22
<PAGE>
[Begin sidebar]
During the Income Phase
This section provides information about the accumulation phase. For death
benefit information applicable to the income phase see "The Income Phase."
[End sidebar]
Death Benefit
- --------------------------------------------------------------------------------
The contract provides a death benefit in the event of your death, which is
payable to the contract holder (usually your employer). The contract holder may
direct that we make any payments to the beneficiary you name under the plan
(plan beneficiary).
During the Accumulation Phase
Payment Process
> Following your death, the contract holder (on behalf of your plan beneficiary)
must provide the Company with proof of death acceptable to us and a payment
request in good order
> The payment request should include selection of a benefit payment option
> Within seven days after we receive proof of death acceptable to us and payment
request in good order at our Home Office, we will mail payment, unless
otherwise requested
Until a payment option is selected, account dollars will remain invested as at
the time of your death, and no distribution will be made.
If you die during the accumulation phase of your account, the following payment
options are available to your plan beneficiary, if allowed by your contract
holder and the Tax Code:
> Lump sum payment
> Payment in accordance with any of the available income phase payment options
(see "The Income Phase--Payment Options")
> If the plan beneficiary is your spouse, payment in accordance with an
available SDO (See "Systematic Distribution Options")
The following options are also available; however, the Tax Code limits how long
the death benefit proceeds may be left in these options:
> Leaving your account value invested in the contract; or
> Under some contracts, leaving your account value on deposit in the Company's
general account, and receiving monthly, quarterly, semi-annual or annual
interest payments at the interest rate then being credited on such deposits.
The beneficiary may withdraw the balance on deposit at any time or request to
receive payment in accordance with any of the available income phase payment
options (See "The Income Phase--Payment Options.")
The Value of the Death Benefit. The death benefit will be based on your account
value as calculated on the next valuation following the date on which we receive
proof of death in good order. Under some plans, the minimum benefit is
guaranteed not to fall below the total of all payments to the account, adjusted
for any partial withdrawals. Interest, if any, will be paid from the date of
death at a rate no less than required by law. For amounts held in the Guaranteed
Accumulation Account (GAA), any positive aggregate market value adjustment (The
sum of all market value adjustments calculated due to a withdrawal) will be
included in your account value. If a negative aggregate market value adjustment
applies, it would be deducted only if the death benefit is withdrawn more than
six months after your death. We describe the market value adjustment in Appendix
I and the GAA prospectus.
23
<PAGE>
Tax Code Requirements. The Tax Code requires distribution of death benefit
proceeds within a certain period of time. Failure to begin receiving death
benefit payments within those time periods can result in tax penalties.
Regardless of the method of payment, death benefit proceeds will generally be
taxed to the beneficiary in the same manner as if you had received those
payments. See "Taxation" for additional information.
24
<PAGE>
[Begin sidebar]
We may have used the following terms in prior prospectuses:
Annuity Phase--Income Phase
Annuity Option--Payment Option
Annuity Payment--Income Phase Payment
Annuitization--Initiating Income Phase Payments
[End sidebar]
The Income Phase
- --------------------------------------------------------------------------------
During the income phase you receive payments from your accumulated account
value.
Initiating Payments. At least 30 days prior to the date you want to start
receiving payments, the contract holder or you, if permitted by your plan, must
notify us in writing of the following:
> Start date
> Payment option (see the payment options table in this section)
> Payment frequency (i.e., monthly, quarterly, semi-annually or annually)
> Choice of fixed or variable payments
> Selection of an assumed net investment rate (only if variable payments are
elected)
> Under some plans, certification from your employer and/or submission of the
appropriate forms is also required.
The account will continue in the accumulation phase until the contract holder or
you, as applicable, properly initiate payments. Once a payment option is
selected, it may not be changed; however, certain options allow you to withdraw
a lump sum.
What Affects Payment Amounts? Some of the factors that may affect payment
amounts include: your age, your account value, the payment option selected,
number of guaranteed payments (if any) selected, and whether variable or fixed
payments are selected.
Fixed Payments. Amounts funding fixed payments will be held in the Company's
general account. Fixed payment amounts do not vary over time.
Variable Payments. Amounts funding your income payments will be held in the
subaccount(s) selected or a combination of subaccounts and the general account.
The contracts may restrict the subaccounts available during the income phase,
and you may not make transfers once you enter the income phase. For variable
payments, an assumed net investment rate must be selected.
Assumed Net Investment rate. For variable payments, an assumed net investment
rate most be selected. If you select a 5% rate, your first payment will be
higher, but subsequent payments will increase only if the investment performance
of the subaccounts selected, is greater than 5% annually, after deduction of
fees. Payment amounts will decline if the investment performance is less than
5%, after deduction of fees.
If you select a 3-1/2% rate, your first payment will be lower and subsequent
payments will increase more rapidly or decline more slowly depending on the
investment performance of the subaccounts selected. For more information about
selecting an assumed net investment rate, request a copy of the Statement of
Additional Information by calling the Company. (See "Contract
Overview--Questions: Contacting the Company.")
25
<PAGE>
Minimum Payment Amounts. The payment option selected must result in one or
both of the following:
> A first payment of at least $20
> Total yearly payments of at least $100
If your account value is too low to meet these minimum payment amounts, the
contract holder, on your behalf, must elect a lump sum payment.
Charges Deducted. We make a daily deduction for mortality and expense risks from
amounts held in the subaccounts. Therefore, if you choose variable payments and
a nonlifetime payment option, we still make this deduction from the subaccounts
selected, even though we no longer assume any mortality risk for you. (See
"Fees.")
Death Benefit During the Income Phase. The death benefits that may be available
to a beneficiary are outlined in the payment option table below. If a lump sum
payment is due as a death benefit, we will make payment within seven calendar
days after we receive proof of death acceptable to us and the payment request in
good order at our Home Office.
Taxation. To avoid certain tax penalties, you and any beneficiary must meet the
distribution rules imposed by the Tax Code. (See "Taxation.")
26
<PAGE>
Payment Options
The following tables list the payment options and accompanying death benefits
which may be available under the contracts. Some contracts restrict the options
and the terms available. Check with your contract holder for details. We may
offer additional payment options under the contract from time to time.
Terms used in the Tables:
Annuitant: The person(s) on whose life expectancy the income phase payments are
calculated.
Beneficiary: The person designated to receive the death benefit payable under
the contract.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Lifetime Payment Options
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Length of Payments: For as long as the annuitant lives. It is possible that only one payment will be
Life Income made should the annuitant die prior to the second payment's due date.
Death Benefit--None: All payments end upon the annuitant's death.
- ---------------------------------------------------------------------------------------------------------------------------------
Length of Payments: For as long as the annuitant lives, with payments guaranteed for a choice of
Life Income-- 5-20 years or as otherwise specified in the contract.
Guaranteed Death Benefit--Payment to the Beneficiary: If the annuitant dies before we have made all the
Payments guaranteed payments, we will pay the beneficiary a lump sum (unless otherwise requested) equal
to the present value of the remaining guaranteed payments.
- ---------------------------------------------------------------------------------------------------------------------------------
Length of Payments: For as long as either annuitant lives. It is possible that only one payment will
be made should both annuitants die before the second payment's due date.
Continuing Payments:
Life Income-- (a) This option allows a choice of 100%, 66-2/3% or 50% of the payment to continue to the
Two Lives surviving annuitant after the first death; or
(b) 100% of the payment to continue to the annuitant on the second annuitant's death, and 50%
of the payment to continue to the second annuitant on the annuitant's death.
Death Benefit--None: Payments end after the deaths of both annuitants.
- ---------------------------------------------------------------------------------------------------------------------------------
Length of Payments: For as long as either annuitant lives, with payments guaranteed for a
minimum of 120 months, or as otherwise specified in the contract.
Life Income-- Continuing Payments: 100% of the payment will continue to the surviving annuitant after the first
Two Lives-- death.
Guaranteed Death Benefit--Payment to the Beneficiary: If both annuitants die before the guaranteed
Payments payments have all been paid, we will pay the beneficiary a lump sum (unless otherwise requested)
equal to the present value of the remaining guaranteed payments.
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Nonlifetime Payment Options
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Length of Payments: Payments generally may be fixed or variable and may be made for 1-30 years.
In certain cases a lump sum payment may be requested at any time (see below).
Nonlifetime-- Death Benefit--Payment to the Beneficiary: If the annuitant dies before we make all the
Guaranteed guaranteed payments, we will pay the beneficiary a lump sum (unless otherwise requested) equal
Payments to the present value of the remaining guaranteed payments, and we will not impose any early
withdrawal charge.
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Lump Sum Payment: If the Nonlifetime--Guaranteed Payments option is elected with
variable payments, you may request at any time that all or a portion of the
present value of the remaining payments be paid in one sum.
Calculation of Lump-sum Payments. If a lump-sum payment is available to a
beneficiary or to you in the options above, the rate we use to calculate the
present value of any remaining guaranteed payments is the same rate we use to
calculate the income payments (i.e., the actual fixed rate used for the fixed
payments, or the 3-1/2% or 5% assumed net investment rate for variable
payments.)
Lump sum payments will be sent within seven calendar days after we receive the
request for payment in good order at our Home Office.
- --------------------------------------------------------------------------------
27
<PAGE>
[Begin sidebar]
In This Section
> Introduction
> Your Retirement Plan
> Withdrawal and Other Distributions
o Taxation of Distributions
o Taxation of Death Benefit Proceeds
o 10% Penalty Tax
o Withholding
> Minimum Distribution Requirements
o Start Date
o 50% Excise Tax
o Minimum Distribution of Death Benefit Proceeds
> Rules Specific to Certain Plans
o Code Section 403(b) Plans
o Code Section 401(a), 401(k) and 403(a) Plans
> Taxation of the Company
When consulting a tax adviser be certain that he or she has expertise in the
Tax Code sections applicable to your tax concerns.
[End sidebar]
Taxation
- --------------------------------------------------------------------------------
Introduction
This section discusses our understanding of current federal income tax laws
affecting the contract. You should keep the following in mind when reading it:
> Your tax position (or the tax position of the beneficiary, as applicable)
determines federal taxation of amounts held or paid out under the contract.
> Tax laws change. It is possible that a change in the future could affect
contracts issued in the past.
> This section addresses federal income tax rules and does not discuss federal
estate and gift tax implications, state and local taxes or any other tax
provisions.
> We do not make any guarantee about the tax treatment of the contract or
transactions involving the contract.
- --------------------------------------------------------------------------------
We do not intend this information to be tax advice. For advice about the effect
of federal income taxes or any other taxes on amounts held or paid out under the
contract, consult a tax adviser. For more comprehensive information contact the
Internal Revenue Service.
- --------------------------------------------------------------------------------
Your Retirement Plan
The tax rules applicable to retirement plans vary according to plan type, and
terms and conditions of the plan. To understand what tax rules apply, you need
to know the code section under which your plan qualifies. Contact your plan
sponsor, local representative or the Company to learn which code section applies
to your plan.
Plan Types. The contract is designed for use with retirement plans that either
(i) qualify under code section 403(b) or (ii) qualify under code section 401(a),
401(k) or 403(a) and are established by self-employed individuals (HR 10 Plans)
or by corporations.
The Contract and Retirement Plans. Contract holders and contract participants
are responsible for determining that contributions, distributions and other
transactions satisfy applicable laws. Legal counsel and a tax adviser should be
consulted regarding the suitability of the contract.
Because the plan is not part of the contract, we are not bound by any plan's
terms or conditions.
Withdrawals and Other Distributions
Certain tax rules apply to distributions from the contract. A distribution is
any amount taken from the contract including withdrawals, income payments,
rollovers and death benefit proceeds.
We report the taxable portion of all distributions to the IRS.
Taxation of Distributions
401(a), 401(k), 403(a) or 403(b) Plans. All distributions from these plans are
taxed as received unless:
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> The distribution is rolled over to another plan of the same type or to a
traditional individual retirement annuity/account (IRA) in accordance with the
Tax Code, or
> You made after-tax contributions to the plan. In this case, depending on the
type of distribution, a portion may be excluded from gross income according to
rules detailed in the Tax Code.
Taxation of Death Benefit Proceeds. In general, payments received by your
beneficiaries after your death are taxed in the same manner as if you had
received those payments.
10% Penalty Tax. The Tax Code imposes a 10% penalty tax on the taxable portion
of any distribution from a 401(a), 401(k), 403(a) or 403(b) plan, unless one or
more of the following have occurred:
> You have attained age 59-1/2,
> You have become permanently disabled,
> You have died,
> You have separated from service with the plan sponsor at or after age 55,
> The distribution amount is rolled over into another plan of the same type or
to an IRA in accordance with the terms of the Tax Code, or
> The distribution amount is made in substantially equal periodic payments (at
least annually) over your life or life expectancy or the joint lives or joint
life expectancies of you and your beneficiary. Also, you must have separated
from service with the plan sponsor.
In addition, the penalty tax does not apply for the amount of a distribution
equal to unreimbursed medical expenses incurred by you that qualify for
deduction as specified in the Tax Code. The Tax Code may impose other penalty
taxes in other circumstances.
Withholding for Federal Income Tax Liability. Any distributions under the
contracts are generally subject to withholding. Federal income tax liability
rates vary according to the type of distribution and the recipient's tax status.
401(a), 401(k), 403(a) or 403(b) Plans. Generally, under these plans you or a
beneficiary may elect not to have tax withheld from distributions. However,
certain distributions from these plans are subject to a mandatory 20% federal
income tax withholding.
Non-resident Aliens. If you or a beneficiary is a non-resident alien, then any
withholding is governed by code section 1441 based on the individual's
citizenship, the country of domicile and treaty status.
Minimum Distribution Requirements
To avoid certain tax penalties, you and any beneficiary must meet the minimum
distribution requirements imposed by the Tax Code. These rules may dictate one
or more of the following:
> Start date for distributions
> The time period in which all amounts in your account(s) must be distributed
> Distribution amounts
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Start Date. Generally, you must begin receiving distributions by April 1 of the
calendar year following the calendar year in which you attain age 70-1/2 or
retire, whichever occurs later, unless:
> You are a 5% owner, in which case such distributions must begin by April 1st
of the calendar year following the calendar year in which you attain age
70-1/2, or
> Under 403(b) plans, if you had amounts under the contract as of December 31,
1986. In this case, distribution of these amounts generally must begin by the
end of the calendar year in which you attain age 75 or retire, if later.
However, if you take any distributions in excess of the minimum required
amount, then special rules require that some or all of the December 31, 1986
balance be distributed earlier.
Time Period. We must pay out distributions from the contract over one of the
following time periods:
> Over your life or the joint lives of you and your beneficiary, or
> Over a period not greater than your life expectancy or the joint life
expectancies of you and your beneficiary
50% Excise Tax. If you fail to receive the minimum required distribution for any
tax year, a 50% excise tax is imposed on the required amount that was not
distributed.
Minimum Distribution of Death Benefit Proceeds. Different distribution
requirements apply if your death occurs:
> After you begin receiving minimum distributions under the contract, or
> Before you begin receiving such distributions
If your death occurs after you begin receiving minimum distributions under the
contract, distributions must be made at least as rapidly as under the method in
effect at the time of your death. Code section 401(a)(9) provides specific rules
for calculating the minimum required distributions at your death. The rules
differ, dependent upon:
> Whether your minimum required distribution was calculated each year based on
your single life expectancy or the joint life expectancies of you and your
beneficiary, and
> Whether life expectancy was recalculated
The rules are complex and any beneficiary should consult with a tax adviser
before electing the method of calculation to satisfy the minimum distribution
requirements.
Should you die before you begin receiving minimum distributions under the
contract, your entire balance must be distributed by December 31 of the calendar
year containing the fifth anniversary of the date of your death. For example, if
you die on September 1, 1999, your entire balance must be distributed to the
beneficiary by December 31, 2004. However, if the distribution begins by
December 31 of the calendar year following the calendar year of your death, then
payments may be made in one of the following time- frames:
> Over the life of the beneficiary
> Over a period not extending beyond the life expectancy of the beneficiary
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Start Dates for Spousal Beneficiaries. If the beneficiary is your spouse, the
distribution must begin on or before the later of the following:
> December 31 of the calendar year following the calendar year of your death
> December 31 of the calendar year in which you would have attained age 70-1/2.
Rules Specific to Certain Plans
Code Section 403(b) Plans.
Under code section 403(b), contributions made by public school systems or
nonprofit healthcare organizations and other Section 501(c)(3) tax exempt
organizations to purchase annuity contracts for their employees are generally
excludable from the gross income of the employee. Adverse tax consequences to
the plan and/or to you may result if your beneficial interest in the contract is
assigned or transferred to any person except to an alternate payee under a
qualified domestic relations order in accordance with code section 414(p) or to
the Company as collateral for a loan.
Exclusions from Gross Income. In order to be excludable from gross income, total
annual contributions made by you and your employer cannot exceed the lesser of
the following limits set by the Tax Code.
> The first limit, under code section 415, is generally the lesser of 25% of
your compensation or $30,000. Compensation means your compensation from the
employer sponsoring the plan and, for years beginning after December 31, 1997,
includes any elective deferrals under code section 402(g) and any amounts not
includible in gross income under code section 125 or 457.
> The second limit, which is the exclusion allowance under code section 403(b),
is usually calculated according to a formula that takes into account your
length of employment, any pretax contributions you and your employer have
already made under the plan, and any pretax contributions to certain other
retirement plans.
These two limits apply to your contributions as well as to any contributions
made by your employer on your behalf.
> An additional limit specifically limits your salary reduction contributions to
generally no more than $10,000 annually (subject to indexing). Your own limit
may be higher or lower, depending on certain conditions.
Payments to your account(s) will be excluded from your gross income only if the
plan meets certain nondiscrimination requirements.
Restrictions on Distributions. Code section 403(b)(11) restricts the
distribution under Section 403(b) contracts of:
> salary reduction contributions made after December 31, 1988;
> earnings on those contributions; and
> earnings during such period on amounts held as of December 31, 1988.
Distribution of those amounts may only occur upon your death, attainment of age
59-1/2, separation from service, disability, or financial hardship. Income
attributable to salary reduction contributions and credited on or after January
1, 1989 may not be distributed in the case of hardship.
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Transfers from 403(b)(7) Custodial Accounts. If, pursuant to Revenue Ruling
90-24, the Company agrees to accept, under any of the contracts, amounts
transferred from a code section 403(b)(7) custodial account, such amounts will
be subject to the withdrawal restrictions set forth in code section
403(b)(7)(A)(ii).
Taxation of Gains Prior to Distribution. Generally no amounts accumulated under
the contract will be taxable prior to the time of actual distribution.
However, the IRS has stated in published rulings that a variable contract owner,
including participants under code section 403(b) Plans, will be considered the
owner of separate account assets if the contract owner possesses incidents of
investment control over the assets. In these circumstances, income and gains
from the separate account assets would be currently includible in the variable
contract owner's gross income.
The Treasury announced that it will issue guidance regarding the extent to which
owners could direct their investments among subaccounts without being treated as
owners of the underlying assets of the separate account. It is possible that the
Treasury's position, when announced, may adversely affect the tax treatment of
existing contracts. The Company therefore reserves the right to modify the
contract as necessary to attempt to prevent the owner from being considered the
federal tax owner of a pro rata share of the assets of the separate account.
Code Section 401(a), 401(k) and 403(a) Plans
Code sections 401(a), 401(k) and 403(a) permit certain employers to establish
various types of retirement plans for employees, and permit self-employed
individuals to establish various types of retirement plans for themselves and
for their employees. These retirement plans may permit the purchase of the
contracts to accumulate retirement savings under the plans.
Assignment or Transfer of Contracts. Adverse tax consequences to the plan and/or
to you may result if your beneficial interest in the contract is assigned or
transferred to persons other than: a plan participant as a means to provide
benefit payments; an alternate payee under a qualified domestic relations order
in accordance with code section 414(p); or to the Company as collateral for a
loan.
Exclusion From Gross Income. The Tax Code imposes a maximum limit on annual
payments to your account(s) that may be excluded from gross income. The employer
must calculate this limit under the plan in accordance with code section 415.
This limit is generally the lesser of 25% of your compensation or $30,000.
Compensation means your compensation from the employer sponsoring the plan and,
for years beginning after December 31, 1997, includes any elective deferrals
under code section 402(g) and any amounts not includible in gross income under
code sections 125 or 457. The limit applies to your contributions as well as any
contributions made by your employer on your behalf. There is an additional limit
that specifically limits your salary reduction contributions under a 401(k) plan
to generally no more than $10,000 annually (subject to indexing). Your own
limits may be higher or lower, depending on certain conditions. In addition,
payments to your account(s) will be excluded from your gross income only if the
plan meets certain nondiscrimination requirements.
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Restrictions on Distributions. Code section 401(k) restricts distribution from
your 401(k) employee account, and possibly all or a portion of your 401(k)
employer account if such amounts are included in determining compliance with
certain nondiscrimination requirements under the Tax Code.
Subject to the terms of the 401(k) plan, distribution of these restricted
amounts may only occur upon: retirement, death, attainment of age 59-1/2,
disability, separation from service, financial hardship, termination of the plan
in certain circumstances, or, generally, if your employer is a corporation and
disposes of substantially all of its assets or disposes of a subsidiary. In
addition, income attributable to salary reduction contributions and credited on
or after January 1, 1989, may not be distributed in the case of hardship.
Taxation of the Company
We are taxed as a life insurance company under the Tax Code. Variable Annuity
Separate Account C is not a separate entity from us. Therefore, it is not taxed
separately as a "regulated investment company," but is taxed as part of the
Company.
We automatically apply investment income and capital gains attributable to the
separate account to increase reserves under the contracts. Because of this,
under existing federal tax law we believe that any such income and gains will
not be taxed to the extent that such income and gains are applied to increase
reserves under the contracts. In addition, any foreign tax credits attributable
to the separate account will be first used to reduce any income taxes imposed on
the separate account before being used by the Company.
In summary, we do not expect that we will incur any federal income tax liability
attributable to the separate account and we do not intend to make any provision
for such taxes. However, changes in federal tax laws and/or their interpretation
may result in our being taxed on income or gains attributable to the separate
account. In this case, we may impose a charge against the separate account (with
respect to some or all of the contracts) to set aside provisions to pay such
taxes. We may deduct this amount from the separate account, including from your
account value invested in the subaccounts.
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Other Topics
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The Company
Aetna Life Insurance and Annuity Company (the Company, we) issues the contracts
described in this prospectus and is responsible for providing each contract's
insurance and annuity benefits.
We are a stock life insurance company organized under the insurance laws of the
State of Connecticut in 1976 and an indirect wholly owned subsidiary of Aetna
Inc. Through a merger, our operations include the business of Aetna Variable
Annuity Life Insurance Company (formerly known as Participating Annuity Life
Insurance Company, an Arkansas life insurance company organized in 1954).
We are engaged in the business of issuing life insurance and annuities. Our
principal executive offices are located at:
151 Farmington Avenue
Hartford Connecticut 06156
Variable Annuity Account C
We established Variable Annuity Account C (the separate account) in 1976 as a
segregated asset account to fund our variable annuity contracts. The separate
account is registered as a unit investment trust under the Investment Company
Act of 1940 (the "40 Act"). It also meets the definition of "separate account"
under the federal securities laws.
The separate account is divided into "subaccounts." These subaccounts invest
directly in shares of a pre-assigned fund.
Although we hold title to the assets of the separate account, such assets are
not chargeable with the liabilities of any other business that we conduct.
Income, gains or losses of the separate account are credited to or charged
against the assets of the separate account without regard to other income, gains
or losses of the Company. All obligations arising under the contracts are
obligations of the Company.
Performance Reporting
We may advertise different types of historical performance for the subaccounts
including:
> standardized average annual total returns
> non-standardized average annual total returns
We may also advertise certain ratings, rankings or other information related to
the Company, the subaccounts or the funds. For further details regarding
performance reporting and advertising request a Statement of Additional
Information at the number listed in "Contract Overview--Questions: Contacting
the Company."
Standardized Average Annual Total Returns. We calculate standardized average
annual total returns according to a formula prescribed by the SEC. This shows
the percentage return applicable to $1,000 invested in the subaccount over the
most recent one, five and 10-year periods. If the investment option was not
available for the full period, we give a history from the date money was first
received in that option under the separate account.
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We include all recurring charges during each period (e.g., sales and
administrative expense charges, mortality and expense risk charges, and any
applicable early withdrawal charges).
Non-Standardized Average Annual Total Returns. We calculate non-standardized
average annual total returns in a similar manner as that stated above, except we
do not include the deduction of any applicable early withdrawal charge. If we
reflected these charges in the calculation, they would decrease the level of
performance reflected by the calculation. Non-standardized returns may also
include performance from the fund's inception date, if that date is earlier than
the one we use for standardized returns.
Voting Rights
Each of the subaccounts holds shares in a fund and each is entitled to vote at
regular and special meetings of that fund. Under our current view of applicable
law, we will vote the shares for each subaccount as instructed by persons having
a voting interest in the separate account. Under 401 plans and HR 10 plans, the
contract holder generally has all voting rights. Under 403(b) plans,
participants generally may instruct the contract holder how to vote shares
attributable to their account, unless the plan provides otherwise. We will vote
shares for which instructions have not been received in the same proportion as
those for which we received instructions. Each person who has a voting interest
in the separate account will receive periodic reports relating to the funds in
which he or she has an interest, as well as any proxy materials and a form on
which to give voting instructions. Voting instructions will be solicited by a
written communication at least 14 days before the meeting.
The number of votes (including fractional votes) any person is entitled to
direct will be determined as of the record date set by any fund in which that
person invests through the subaccounts.
> During the accumulation phase the number of votes is equal to the portion of
the account value invested in the fund, divided by the net asset value of one
share of that fund.
> During the income phase, the number of votes is equal to the portion of
reserves set aside for the contract's share of the fund, divided by the net
asset value of one share of that fund.
Contract Distribution
The Company will serve as the principal underwriter for the securities sold by
this prospectus. The Company is registered as a broker-dealer with the SEC and
is a member of the National Association of Securities Dealers, Inc.
As principal underwriter, the Company will enter into arrangements with one or
more registered broker-dealers, including at least one affiliate of the Company,
to offer and sell the contracts described in this prospectus. We call these
entities "distributors."
We and one or more of our affiliates may also sell the contracts directly. All
individuals offering and selling the contracts must be registered
representatives of a broker-dealer and must be licensed as insurance agents to
sell variable annuity contracts.
Commission Payments. We may pay commissions to persons who offer and sell the
contracts. The maximum percentage amount we ever pay with respect
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to a given purchase payment is the first-year percentage which ranges from 2% to
6% of the first year of payments to an account. We may also pay renewal
commissions on payments made after the first year and asset-based service fees.
The average of all commissions and asset-based service fees paid is estimated to
equal approximately 3% of the total payments made over the life of an average
contract. Some sales personnel may receive various types of non-cash
compensation as special sales incentives, including trips and educational and/or
business seminars. However, any such compensation will be paid in accordance
with NASD rules. In addition, we may provide additional compensation to the
Company's supervisory or other management personnel if the overall amount of
investments in funds advised by the Company or its affiliates increases over
time.
We may reimburse the distributor for certain expenses. The name of the
distributor and the registered representative responsible for your account are
stated in your enrollment materials. Commissions and sales related expenses are
paid by us and are not deducted from payments to your account.
Third Party Compensation Arrangements.
Occasionally, we may:
> Pay commissions and fees to distributors affiliated or associated with the
contract holder, you and/or other contract participants.
> Enter into agreements with entities associated with the contract holder, you
and/or other participants. Through such agreements, we may pay the entities
for certain services in connection with administering the contract.
In both these circumstances there may be an understanding that the distributor
or entities would endorse us as a provider of the contract. You will be notified
if you are purchasing a contract that is subject to these arrangements.
Contract Modification
We may change the contract as required by federal or state law. In addition, we
may, upon 30 days' written notice to the contract holder, make other changes to
group contracts that would apply only to individuals who become participants
under that Contract after the effective date of such changes. If the group
contract holder does not agree to a change, we reserve the right to refuse to
establish new accounts under the contract. Certain changes will require the
approval of appropriate state or federal regulatory authorities.
Legal Matters and Proceedings
We are aware of no material legal proceedings pending which involve the separate
account or the Company as a party or which would materially affect the separate
account. The validity of the securities offered by this prospectus has been
passed upon by Counsel to the Company.
Payment Delay or Suspension
We reserve the right to suspend or postpone the date of any payment of benefits
or values under the following circumstances: (a) on any valuation date when the
New York Stock Exchange is closed (except customary weekend and holidays) when
trading on the Exchange is restricted; (b) when an emergency exists as
determined by the SEC so that disposal of the securities held in the
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subaccounts is not reasonably practicable or it is not reasonably practicable
fairly to determine the value of the subaccount's assets; (c) during any other
periods the SEC may by order permit for the protection of investors. The
conditions under which restricted trading or an emergency exists shall be
determined by the rules and regulations of the SEC.
Transfer of Ownership; Assignment
An assignment of a contract will only be binding on us if it is made in writing
and sent to us at our Home Office. We will use reasonable procedures to confirm
that the assignment is authentic, including verification of signature. If we
fail to follow our own procedures, we will be liable for any losses to you
directly resulting from the failure. Otherwise, we are not responsible for the
validity of any assignment. The rights of the contract holder and the interest
of the annuitant and any beneficiary will be subject to the rights of any
assignee we have on our records.
Year 2000 Readiness
As a healthcare and financial services enterprise, Aetna Inc. (referred to
collectively with its affiliates and subsidiaries as "Aetna"), is dependent on
computer systems and applications to conduct its business. Aetna has developed
and is currently executing a comprehensive risk-based plan designed to make its
mission-critical information technology (IT) systems and embedded systems Year
2000 ready. The plan for IT systems covers five stages including (i) assessment,
(ii) remediation, (iii) testing, (iv) implementation and (v) Year 2000 approval.
At year end 1997, Aetna, including the Company, had substantially completed the
assessment stage. The remediation of mission- critical IT systems was completed
year end 1998. Testing of all mission-critical IT systems is underway with Year
2000 approval targeted for completion by mid-1999. The costs of these efforts
will not affect the separate account.
The Company, its affiliates and the mutual funds that serve as investment
options for the separate account also have relationships with investment
advisers, broker dealers, transfer agents, custodians or other securities
industry participants or other service providers that are not affiliated with
Aetna. Aetna, including the Company, has initiated communication with its
critical external relationships to determine the extent to which Aetna may be
vulnerable to such parties' failure to resolve their own Year 2000 issues. Aetna
and the Company have assessed and are prioritizing responses in an attempt to
mitigate risks with respect to the failure of these parties to be Year 2000
ready. There can be no assurance that failure of third parties to complete
adequate preparations in a timely manner, and any resulting systems
interruptions or other consequences, would not have an adverse effect, directly
or indirectly, on the separate account, including, without limitation, its
operation or the valuation of its assets and units.
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Contents of the Statement of Additional Information
- --------------------------------------------------------------------------------
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"
We do not make deductions from amounts in the GAA to cover mortality and expense
risks. Rather, we consider these risks when determining the credited rate.
Market Value Adjustment (MVA). If you withdraw or transfer your account value
from GAA before the guaranteed term is completed, an MVA may apply. The MVA
reflects the change in the value of the investment due to changes in interest
rates since the date of deposit. The MVA may be positive or negative.
> If interest rates at the time of withdrawal have increased since the date of
deposit, the value of the investment decreases and the MVA will be negative.
This could result in your receiving less than the amount you paid into GAA.
> If interest rates at the time of withdrawal have decreased since the date of
deposit, the value of the investment increases and the MVA will be positive.
Guaranteed Terms. The guaranteed term is the period of time account dollars must
be left in the GAA in order to earn the guaranteed interest rate specified for
that guaranteed term. We offer different guaranteed terms at different times.
Check with your representative or the Company to learn the details about the
guaranteed term(s) currently being offered.
In general we offer the following guaranteed terms:
> Short-term-- three years or less
> Long-term - ten years or less, but more than three years
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At the end of a guaranteed term, your contract holder or you if permitted may:
> Transfer dollars to a new guaranteed term
> Transfer dollars to other available investment options
> Withdraw dollars
Deductions may apply to withdrawals. See "Fees and Other Deductions" in this
section.
Transfer of Account Dollars. Generally, account dollars invested in GAA may be
transferred among guaranteed terms offered through the GAA, and/or to other
investment options offered through the contract. However, transfers may not be
made during the deposit period in which your account dollars are invested in GAA
or for 90 days after the close of that deposit period. We will apply an MVA to
transfers made before the end of a guaranteed term. Transfers of GAA values at
the end of a guaranteed term are not counted as one of the 12 free transfers
allowed for an account per contract year.
Income Phase. GAA can not be used as an investment option during the income
phase. However, the contract holder (or you, if permitted) may notify us at
least 30 days in advance to elect a variable payment option and to transfer your
GAA account dollars to any of the subaccounts available during the income phase.
Reinvesting Amounts Withdrawn from GAA. If amounts are withdrawn from GAA and
then reinvested in GAA, we will apply the reinvested amount to the current
deposit period. This means that the guaranteed annual interest rate, and
guaranteed terms available on the date of reinvestment, will apply. Amounts will
be reinvested proportionately in the same way as they were allocated before
withdrawal.
Your account value will not be credited for any negative MVA that was deducted
at the time of withdrawal.
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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.
Charges. We do not make deductions from amounts in the Fixed Account to cover
mortality and expense risks. We consider these risks when determining the
credited rate. If you make a withdrawal from amounts in the Fixed Account, an
early withdrawal charge may apply. (See "Fees--Early Withdrawal Charge.")
Transfers. During the accumulation phase, you may transfer account dollars from
the Fixed Account to any other available investment option. We may vary the
dollar amount that you are allowed to transfer, but it will never be less than
10% of your account value held in the Fixed Account.
Income Phase. By notifying our Home Office at least 30 days before income phase
payments begin, you may elect to have amounts transferred to one or more of the
subaccounts available during the income phase to provide variable payments.
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Appendix III
Condensed Financial Information
- --------------------------------------------------------------------------------
TABLE I
FINANCIAL INFORMATION FOR 403(B) AND HR 10 PLANS
(Selected data for accumulation units outstanding throughout each period)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The condensed financial information presented below for each of the periods in
the ten-year period ended December 31, 1998 (as applicable), is derived from the
financial statements of the separate account, which have been audited by KPMG
LLP, independent auditors. The financial statements and the independent
auditors' report thereon for the year ended December 31, 1998 are included in
the Statement of Additional Information.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
AETNA BALANCED VP, INC.
Value at beginning of period $24.700 $20.419 $17.954 $14.270 $14.519
Value at end of period $28.524 $24.700 $20.419 $17.954 $14.288
Number of accumulation units
outstanding at end of period 2,294,877 2,160,305 2,716,641 9,193,181 21,990,186
AETNA BOND VP
Value at beginning of period $51.330 $47.992 $46.913 $40.173 $42.283
Value at end of period $54.819 $51.330 $47.992 $46.913 $40.173
Number of accumulation units
outstanding at end of period 994,987 959,336 835,724 2,377,622 5,108,720
AETNA GROWTH AND
INCOME VP
Value at beginning of period $217.359 $169.448 $137.869 $105.558 $107.925
Value at end of period $245.765 $217.359 $169.448 $137.869 $105.558
Number of accumulation units
outstanding at end of period 1,747,097 1,826,355 2,071,139 6,364,000 13,966,072
AETNA MONEY MARKET VP
Value at beginning of period $41.174 $39.528 $37.988 $36.271 $35.282
Value at end of period $42.883 $41.174 $39.528 $37.988 $36.271
Number of accumulation units
outstanding at end of period 564,537 455,502 597,656 1,836,260 3,679,802
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.
42
<PAGE>
Condensed Financial Information
- --------------------------------------------------------------------------------
TABLE II
FINANCIAL INFORMATION FOR 403(B) AND HR 10 PLANS
(FOR CONTRACTS CONTAINING LIMITS ON FEES)
(Selected data for accumulation units outstanding throughout each period)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The condensed financial information presented below for each of the periods in
the two-year period ended December 31, 1998 is derived from the financial
statements of the separate account, which have been audited by KPMG LLP,
independent auditors. The financial statements and the independent auditors'
report thereon for the year ended December 31, 1998 are included in the
Statement of Additional Information.
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
AETNA BALANCED VP, INC.
Value at beginning of period $24.735 $21.980(1)
Value at end of period $28.636 $24.735
Number of accumulation units outstanding at end of period 149,576 178,943
AETNA BOND VP
Value at beginning of period $51.374 $48.971(1)
Value at end of period $54.949 $51.374
Number of accumulation units outstanding at end of period 24,551 39,709
AETNA GROWTH AND INCOME VP
Value at beginning of period $217.668 $192.674(1)
Value at end of period $246.731 $217.668
Number of accumulation units outstanding at end of period 195,339 225,862
AETNA MONEY MARKET VP
Value at beginning of period $41.174 $40.220(1)
Value at end of period $42.883 $41.174
Number of accumulation units outstanding at end of period 120,539 98,560
PORTFOLIO PARTNERS MFS RESEARCH GROWTH PORTFOLIO
Value at beginning of period $11.960 $12.195(2)
Value at end of period $14.528 $11.960
Number of accumulation units outstanding at end of period 23,437 31,573
</TABLE>
- -----------------
(1) Funds were first received in this option during June 1997. (2) Funds were
first received in this option during November 1997.
43
<PAGE>
Condensed Financial Information
- --------------------------------------------------------------------------------
TABLE III
FINANCIAL INFORMATION FOR 401 PLANS
(Selected data for accumulation units outstanding throughout each period)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The condensed financial information presented below for each of the periods in
the ten-year period ended December 31, 1998 (as applicable), is derived from the
financial statements of the separate account, which have been audited by KPMG
LLP, independent auditors. The financial statements and the independent
auditors' report thereon for the year ended December 31, 1998 are included in
the Statement of Additional Information.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
AETNA BALANCED VP, INC.
Value at beginning of period $24.826 $20.511 $18.024 $14.336 $14.558
Value at end of period $28.687 $24.826 $20.511 $18.024 $14.336
Number of accumulation units
outstanding at end of period 73,629 84,065 280,547 393,613 756,261
AETNA BOND VP
Value at beginning of period $51.930 $48.524 $47.405 $40.570 $42.675
Value at end of period $55.494 $51.930 $48.524 $47.405 $40.570
Number of accumulation units
outstanding at end of period 26,694 20,288 43,327 72,902 181,535
AETNA GROWTH AND
INCOME VP
Value at beginning of period $285.511 $222.444 $180.879 $138.406 $141.424
Value at end of period $323.019 $285.511 $222.444 $180.879 $138.406
Number of accumulation units
outstanding at end of period 140,708 158,078 340,229 549,056 1,258,166
AETNA MONEY MARKET VP
Value at beginning of period $41.763 $40.069 $38.485 $36.723 $35.701
Value at end of period $43.523 $41.763 $40.069 $38.485 $36.723
Number of accumulation units
outstanding at end of period 31,408 34,420 93,727 150,480 241,159
PORTFOLIO PARTNERS
MFS RESEARCH GROWTH
PORTFOLIO
Value at beginning of period $9.041 $9.218(2)
Value at end of period $10.989 $9.041
Number of accumulation units
outstanding at end of period 603 603
<CAPTION>
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
AETNA BALANCED VP, INC.
Value at beginning of period $13.407 $12.755 $10.906 $10.440 $10.000(1)
Value at end of period $14.558 $13.407 $12.755 $10.906 $10.440
Number of accumulation units
outstanding at end of period 1,142,268 1,129,453 725,598 619,748 470,302
AETNA BOND VP
Value at beginning of period $39.376 $37.086 $31.424 $29.142 $25.734
Value at end of period $42.675 $39.376 $37.086 $31.424 $29.142
Number of accumulation units
outstanding at end of period 241,551 263,105 283,119 251,861 248,678
AETNA GROWTH AND
INCOME VP
Value at beginning of period $134.081 $127.171 $101.824 $99.758 $78.220
Value at end of period $141.424 $134.080 $127.171 $101.824 $99.758
Number of accumulation units
outstanding at end of period 1,616,018 1,829,160 1,956,479 2,169,721 2,496,795
AETNA MONEY MARKET VP
Value at beginning of period $35.009 $34.172 $32.460 $30.295 $28.028
Value at end of period $35.701 $35.009 $34.172 $32.460 $30.295
Number of accumulation units
outstanding at end of period 312,350 471,585 470,248 624,613 542,581
PORTFOLIO PARTNERS
MFS RESEARCH GROWTH
PORTFOLIO
Value at beginning of period
Value at end of period
Number of accumulation units
outstanding at end of period
</TABLE>
- -----------------
(1) The initial accumulation unit value was established at $10.000 on June 23,
1989, the date on which the fund commenced operations.
(2) Funds were first received in this option during November 1997.
44
<PAGE>
Condensed Financial Information
- --------------------------------------------------------------------------------
TABLE IV
FINANCIAL INFORMATION FOR 401 PLANS
(FOR CONTRACTS CONTAINING LIMITS ON FEES)
(Selected data for accumulation units outstanding throughout each period)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The condensed financial information presented below for each of the periods in
the two-year period ended December 31, 1998 is derived from the financial
statements of the separate account, which have been audited by KPMG LLP,
independent auditors. The financial statements and the independent auditors'
report thereon for the year ended December 31, 1998 are included in the
Statement of Additional Information.
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
AETNA BALANCED VP, INC.
Value at beginning of period $24.861 $22.085(1)
Value at end of period $28.800 $24.861
Number of accumulation units outstanding at end of period 122,358 157,309
AETNA BOND VP
Value at beginning of period $51.975 $49.527(1)
Value at end of period $55.625 $51.975
Number of accumulation units outstanding at end of period 18,271 23,539
AETNA GROWTH AND INCOME VP
Value at beginning of period $285.918 $253.000(1)
Value at end of period $324.288 $285.918
Number of accumulation units outstanding at end of period 98,422 118,511
AETNA MONEY MARKET VP
Value at beginning of period $41.763 $40.781(1)
Value at end of period $43.523 $41.763
Number of accumulation units outstanding at end of period 29,827 19,720
PORTFOLIO PARTNERS MFS RESEARCH GROWTH PORTFOLIO
Value at beginning of period $9.041 $9.218(2)
Value at end of period $10.989 $9.041
Number of accumulation units outstanding at end of period 30,747 40,144
</TABLE>
- -----------------
(1) Reflects less a full year of performance activity. Funds were first received
in this option during June 1997.
(2) Reflects less a full year of performance activity. Funds were first received
in this option during November 1997.
45
