ALIAC Guaranteed Account - August 9, 1999
This prospectus of the ALIAC Guaranteed Account dated August 9, 1999
replaces the prospectus of the ALIAC Guaranteed Account dated May 3, 1999.
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Introduction
The ALIAC Guaranteed Account (the Guaranteed Account) is a fixed interest
option available during the accumulation phase of certain variable annuity
contracts issued by Aetna Life Insurance and Annuity Company (the Company, we,
us). Read this prospectus carefully before investing in the Guaranteed Account
and save it for future reference.
General Description
The Guaranteed Account offers investors an opportunity to earn specified
guaranteed rates of interest for specified periods of time, called guaranteed
terms. We generally offer several guaranteed terms at any one time for those
considering investing in the Guaranteed Account. Each guaranteed term offers a
guaranteed interest rate for investments that remain in the Guaranteed Account
for the duration of the specific guaranteed term. The guaranteed term
establishes both the length of time for which we agree to credit a guaranteed
interest rate and how long your investment must remain in the Guaranteed
Account in order to receive the guaranteed interest rate.
We guarantee both principal and interest if, and only if, your investment
remains invested for the full guaranteed term. Charges related to the contract,
such as a maintenance fee or early withdrawal charge, may still apply even if
you withdraw at the end of the guaranteed term. Investments taken out of the
Guaranteed Account prior to the end of the guaranteed term may be subject to a
market value adjustment which may result in an investment gain or loss. (See
"Market Value Adjustment", page 10.)
This prospectus will explain:
>Guaranteed interest rates and guaranteed terms
>Contributions to the Guaranteed Account
>Types of investments available
>How rates are offered
>How there can be an investment risk, and how we calculate gain or loss
>Contract charges that can affect your account value in the Guaranteed Account
>Taking investments out of the Guaranteed Account
>How to reinvest or withdraw at maturity
Additional Disclosure Information
Neither the Securities and Exchange Commission (SEC) nor any state securities
commission has approved or disapproved of these securities or passed on the
accuracy or adequacy of this prospectus. Any representation to the contrary is
a criminal offense. We do not intend for this prospectus to be an offer to sell
or a solicitation of an offer to buy these securities in any state or
jurisdiction that does not permit their sale.
Our Home Office:
Aetna Life Insurance and Annuity Company
151 Farmington Avenue
Hartford, Connecticut 06156
(800)-531-4547
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TABLE OF CONTENTS
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Page
Summary ..................................................................... 3
Description of the Guaranteed Account ....................................... 7
In General, Contributions to the Guaranteed Account, Deposit Period,
Guaranteed Terms, Guaranteed Interest Rates,
Maturity Value Transfer Provision
Transfers ................................................................... 10
Withdrawals ................................................................. 10
Deferral of Payments, Reinvestment Privilege
Market Value Adjustment (MVA) ............................................... 11
Calculation of the MVA, Deposit Period Yield, Current Yield, MVA Formula
Contract Charges ............................................................ 13
Other Topics ................................................................ 13
Income Phase -- Investments -- Distribution of Contracts -- Taxation --
Year 2000 Readiness -- Experts -- Legal Matters -- Further Information --
Incorporation of Certain Documents by Reference -- Inquiries
Appendix I -- Examples of Market Value Adjustment Calculations. ............. 18
Appendix II -- Examples of Market Value Adjustment Yields ................... 20
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Summary
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The Guaranteed Account is a fixed interest option that may be available during
the accumulation phase of your variable annuity contract. The following is a
summary of certain facts about the Guaranteed Account.
In General. Amounts that you invest in the Guaranteed Account will earn a
guaranteed interest rate if left in the Guaranteed Account for a specified
period of time (the guaranteed term). You must invest amounts in the Guaranteed
Account for the full guaranteed term in order to receive the quoted guaranteed
interest rate. If you withdraw or transfer those amounts before the end of the
guaranteed term, we may apply a "market value adjustment", which may be
positive or negative.
Deposit Periods. A deposit period is the time during which we offer a specific
guaranteed interest rate if you deposit dollars for a specific guaranteed term.
For a particular guaranteed interest rate and guaranteed term to apply to your
account dollars, you must invest them during the deposit period in which that
rate and term are offered.
Guaranteed Terms. The guaranteed term is the period of time account dollars
must be left in the Guaranteed Account in order to earn the guaranteed interest
rate specified for that guaranteed term. We offer different guaranteed terms at
different times. We may also offer more than one guaranteed term of the same
duration with different guaranteed interest rates. Check with your
representative or the Company to learn the details about the guaranteed term(s)
currently offered. We reserve the right to limit the number of guaranteed terms
or the availability of certain guaranteed terms.
Guaranteed Interest Rates. We guarantee different interest rates, depending
upon when account dollars are invested in the Guaranteed Account. For
guaranteed terms one year or longer, we may offer different rates for specified
time periods within a guaranteed term. The interest rate we guarantee is an
annual effective yield; that means that the rate reflects a full year's
interest. We credit interest at a rate that will provide the guaranteed annual
effective yield over one year. The guaranteed interest rate(s) are guaranteed
for that deposit period and for the length of the guaranteed term.
The guaranteed interest rates we offer will always meet or exceed the minimum
interest rates agreed to in the contract. Apart from meeting the contractual
minimum interest rates, we cannot guarantee any aspect of future offerings.
Fees and Other Deductions. We do not make deductions from amounts in the
Guaranteed Account to cover mortality and expense risks. We consider these
risks when determining the credited rate. The following other types of charges
may be deducted from amounts held in, withdrawn or transferred from the
Guaranteed Account:
>Market Value Adjustment (MVA). An MVA may be applied to amounts transferred or
withdrawn prior to the end of a guaranteed term, which reflects changes in
interest rates since the deposit period. The MVA may be positive or negative,
and therefore may increase or decrease the amount withdrawn to satisfy a
transfer or withdrawal request. See "Market Value Adjustment"
>Tax Penalties and/or Tax withholding. Amounts withdrawn may be subject to
withholding for federal income taxes, as well as a 10% penalty tax for
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amounts withdrawn prior to you having attained age 591/2. See "Taxation";
see also the "Taxation" section of the contract prospectus
>Early Withdrawal Charge. An early withdrawal charge, which is a deferred sales
charge, may apply to amounts withdrawn from the contract, in order to
reimburse us for some of the sales and administrative expenses associated with
the contract. See "Contract Charges"; see also the "Fees" section of the
contract prospectus
>Maintenance Fee. A maintenance fee of up to $30 may be deducted, on an annual
basis, pro rata from all funding options including the Guaranteed Account. See
"Contract Charges", see also the "Fees" section of the contract prospectus
>Transfer Fees. During the accumulation phase, transfer fees of up to $10 per
transfer may be deducted from amounts held in or transferred from the
Guaranteed Account. See "Contract Charges"; see also the "Fees" section of the
contract prospectus
>Premium Taxes. We may deduct premium taxes of up to 4% from amounts in the
Guaranteed Account. See "Contract Charges"; see also the "Fees" section of the
contract prospectus
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Contract holder (You/Your): The contract
holder of an individually owned contract
or the certificate holder of a group
contract.
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Market Value Adjustment (MVA). If you withdraw or transfer your account value
from the Guaranteed Account before the guaranteed term is completed, an MVA may
apply. The MVA reflects the change in the value of the investment due to
changes in interest rates since the date of deposit. The MVA may be positive or
negative depending upon interest rate activity at the time of withdrawal or
transfer.
Withdrawals from the Guaranteed Account due to the election of a lifetime
income option or when a guaranteed death benefit is payable (if withdrawn
within the first six months following death) will be subject to an aggregate
MVA (the sum of all MVAs due to withdrawal) only if the aggregate MVA is
positive. Withdrawals from the Guaranteed Account due to the election of a
nonlifetime income option will be subject to an aggregate MVA, whether positive
or negative.
An MVA will not apply to:
>Amounts transferred at the end of a guaranteed term
>Amounts transferred under the maturity value transfer provision
>Transfers due to participation in the dollar cost averaging program -- see
"Market Value Adjustment" for certain restrictions
>Amounts distributed under a systematic distribution option (SDO) -- see
"Systematic Distribution Options" in the contract prospectus
>Withdrawals for minimum distributions required by the Internal Revenue Code of
1986, as amended (Tax Code), and for which the early withdrawal charge is
waived
Maturity of a Guaranteed Term. On or before the end of a guaranteed term, you
may instruct us to
>Transfer the matured amount to one or more new guaranteed terms available
under the current deposit period
>Transfer the matured amount to other available investment options
>Withdraw the matured amount
Amounts withdrawn may be subject to an early withdrawal charge, a maintenance
fee, taxation and, if you are under age 591/2, tax penalties. (See "Contract
Charges" and the contract prospectus.)
When a guaranteed term ends, if we have not received instructions from you, we
will automatically transfer the maturing investment into a new guaranteed term
of similar length. (See "Maturity of a Guaranteed Term" and "Maturity Value
Transfer Provision".) If the same guaranteed term is no longer available, the
next shortest guaranteed term available in the current deposit period will be
used. If no shorter guaranteed term is available, and this amount is
automatically reinvested as noted above, the next longest guaranteed term will
be used.
If you do not provide instructions concerning the maturing amount on or before
the end of a guaranteed term, the maturity value transfer provision applies.
Maturity Value Transfer Provision. This provision allows transfers or
withdrawals of amounts automatically reinvested at the end of a guaranteed term
without an MVA, if the transfer or withdrawal occurs during the calendar month
immediately following a guaranteed term maturity date. As described in "Fees
and Other Deductions" above, other fees, including an early withdrawal
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charge and a maintenance fee, may be assessed on amounts withdrawn. See
"Maturity Value Transfer Provision."
Transfer of Account Dollars. Generally, account dollars invested in the
Guaranteed Account may be transferred among guaranteed terms offered through
the Guaranteed Account, and/or to other investment options offered through the
contract. However:
>Transfers may not be made during the deposit period in which your account
dollars are invested in the Guaranteed Account or for 90 days after the close
of that deposit period
>We may apply an MVA to transfers made before the end of a guaranteed term
Investments. Guaranteed interest rates credited during any guaranteed term do
not necessarily relate to investment performance. Deposits received into the
Guaranteed Account will generally be invested in federal, state and municipal
obligations, corporate bonds, preferred stocks, real estate mortgages, real
estate, certain other fixed income investments, and cash or cash equivalents.
All of our general assets are available to meet guarantees under the Guaranteed
Account.
Amounts allocated to the Guaranteed Account are held in a nonunitized separate
account established by the Company under Connecticut law. To the extent
provided for in the contract, assets of the separate account are not chargeable
with liabilities arising out of any other business that we conduct. See
"Investments."
Notification of Maturity. We will notify you at least 18 calendar days prior to
the maturity of a guaranteed term. We will include information relating to the
current deposit period's guaranteed interest rates and the available guaranteed
terms. You may obtain information concerning available deposit periods,
guaranteed interest rates, and guaranteed terms by telephone (1-800-531-4547).
(See "Description of the ALIAC Guaranteed Account--General" and "Maturity of a
Guaranteed Term.")
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Description of the Guaranteed Account
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General
The Guaranteed Account offers guaranteed interest rates for specific guaranteed
terms. For a particular guaranteed interest rate and guaranteed term to apply
to your account dollars, you must invest them during the deposit period in
which that rate and term are offered. For guaranteed terms of one year or
longer, we may offer different interest rates for specified time periods within
a guaranteed term. We also may offer more than one guaranteed term of the same
duration with different guaranteed interest rates.
An MVA may be applied to any values withdrawn or transferred from a guaranteed
term prior to the end of that guaranteed term, except for amounts transferred
under the maturity value transfer provision, amounts transferred under the
dollar cost averaging program, amounts withdrawn under an SDO, and amounts
withdrawn for minimum distributions required by the Tax Code. In the case of
amounts withdrawn from a guaranteed term when a guaranteed death benefit is
payable under the terms of the contract, we will apply an aggregate MVA (the
sum of all MVAs calculated due to this withdrawal) provided that it is positive
and provided that the withdrawal is requested within six months of death. This
does not apply at the death of a spousal beneficiary or joint contract holder
who continued the account in his or her own name after the first death, in
which case an aggregate MVA, whether positive or negative, will apply. If a
death benefit is paid more than six months from the date of death, the
aggregate MVA, whether positive or negative, will also be applied. In the case
of values withdrawn from guaranteed terms to provide income phase payments
under one of the lifetime income options, we will apply an aggregate MVA only
if it is positive. However, we will apply an aggregate MVA, whether positive or
negative, to amounts withdrawn to provide income phase payments under a
nonlifetime income option.
We maintain a toll-free telephone number for those wishing to obtain
information concerning available deposit periods, guaranteed interest rates,
and guaranteed terms. The telephone number is 1-800-531-4547. At least 18
calendar days before a guaranteed term matures we will notify you of the
upcoming deposit period dates and information on the current guaranteed
interest rates, guaranteed terms and projected matured guaranteed term values.
Contributions to the Guaranteed Account
You may invest in the guaranteed terms available in the current deposit period
by allocating new payments to the Guaranteed Account or by transferring a sum
from other funding options available under the contract or from other
guaranteed terms of the Guaranteed Account, subject to the transfer limitations
described in the contract. We may limit the number of guaranteed terms you may
select. Currently, if the dollar cost averaging program is in effect in a
guaranteed term and you wish to add an additional deposit to be dollar cost
averaged, all amounts to be dollar cost averaged will have to be combined and
the dollar cost averaging amount will be recalculated. This will affect the
duration of amounts in the guaranteed term.
Although we reserve the right to limit the total number of investment options
you may select during the accumulation phase, there is currently no limit. The
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number of investment options you may select at any one time, however, is
limited to 18. Each guaranteed term counts as one investment option. Although
we may require a minimum payment(s) to a contract, we do not require a minimum
investment for a guaranteed term. Refer to the contract prospectus. There is a
$500 minimum for transfers from other funding options.
Investments may not be transferred from a guaranteed term during the deposit
period in which the investment is applied or during the first 90 days after the
close of the deposit period. This restriction does not apply to amounts
transferred or withdrawn under the maturity value transfer provision, to
amounts transferred under the dollar cost averaging program or, in some
situations, withdrawn because you discontinued the dollar cost averaging
program, or to amounts distributed under a systematic distribution option. See
"Maturity Value Transfer Provision" and "Transfers."
Deposit Period
The deposit period is the period of time during which you may direct
investments to a particular guaranteed term(s) and receive a stipulated
guaranteed interest rate(s). Each deposit period may be a month, a calendar
quarter, or any other period of time we specify.
Guaranteed Terms
A guaranteed term is the time we specify during which we credit the guaranteed
interest rate. We offer guaranteed terms at our discretion for various periods
ranging up to and including ten years. We may limit the number of guaranteed
terms you may select and may require enrollment in the dollar cost averaging
program.
Guaranteed Interest Rates
Guaranteed interest rates are the rates that we guarantee will be credited on
amounts applied during a deposit period for a specific guaranteed term. We may
offer different guaranteed interest rates on guaranteed terms of the same
duration. Guaranteed interest rates are annual effective yields, reflecting a
full year's interest. We credit interest at a rate that will provide the
guaranteed annual effective yield over one year. Guaranteed interest rates are
credited according to the length of the guaranteed term as follows:
Guaranteed Terms of One Year or Less. The guaranteed interest rate is credited
from the date of deposit to the last day of the guaranteed term.
Guaranteed Terms of Greater than One Year. Except for those contracts or
certificates issued in the State of New York, several different guaranteed
interest rates may be applicable during a guaranteed term of more than one
year. The initial guaranteed interest rate is credited from the date of deposit
to the end of a specified period within the guaranteed term. We may credit
several different guaranteed interest rates for subsequent specific periods of
time within the guaranteed term. For example, for a 5-year guaranteed term we
may guarantee 7% for the first year, 6.75% for the next two years, and 6.5% for
the remaining two years. We reserve the right, however, to apply one guaranteed
interest rate for an entire guaranteed term.
We will not guarantee or credit a guaranteed interest rate below the minimum
rate specified in the contract, nor will we credit interest at a rate above the
guaranteed interest rate we announce prior to the start of a deposit period.
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Business Day--Any day on which the New
York Stock Exchange is open.
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Our guaranteed interest rates are influenced by, but do not necessarily
correspond to, interest rates available on fixed income investments we may buy
using deposits directed to the Guaranteed Account (see "Investments"). We
consider other factors when determining guaranteed interest rates including
regulatory and tax requirements, sales commissions and administrative expenses
borne by the Company, general economic trends, and competitive factors. We make
the final determination regarding guaranteed interest rates. We cannot predict
the level of future guaranteed interest rates.
Maturity of a Guaranteed Term. At least 18 calendar days prior to the maturity
of a guaranteed term, we will notify you of the upcoming deposit period, the
projected value of the amount maturing at the end of the guaranteed term, and
the guaranteed interest rate(s) and guaranteed term(s) available for the
current deposit period.
When a guaranteed term matures, the amounts in any maturing guaranteed term may
be:
>Transferred to a new guaranteed term(s), if available under the contract
>Transferred to any of the allowable investment options available under the
contract
>Withdrawn from the contract
We do not apply an MVA to amounts transferred or withdrawn from a guaranteed
term on the date the guaranteed term matures. Amounts withdrawn, however, may
be subject to an early withdrawal charge, a maintenance fee, taxation and, if
the contract holder is under age 591/2, tax penalties.
If we have not received direction from you by the maturity date of a guaranteed
term, we will automatically transfer the matured term value to a new guaranteed
term of similar length. If the same guaranteed term is no longer available, the
next shortest guaranteed term available in the current deposit period will be
used. If no shorter guaranteed term is available, the next longest guaranteed
term will be used.
Under the Guaranteed Account, each guaranteed term is counted as one funding
option. If a guaranteed term matures, and is renewed for the same term, it will
not count as an additional investment option for purposes of any limitation on
the number of investment options.
You will receive a confirmation statement, plus information on the new
guaranteed rate(s) and guaranteed term.
Maturity Value Transfer Provision
If we automatically reinvest the proceeds from a matured guaranteed term, you
may transfer or withdraw from the Guaranteed Account the amount that was
reinvested without an MVA. An early withdrawal charge and maintenance fee may
apply to withdrawals. If the full amount reinvested is transferred or
withdrawn, we will include interest credited to the date of the transfer or
withdrawal. This provision is only available until the last business day of the
month following the maturity date of the prior guaranteed term. This provision
only applies to the first request received from the contract holder with
respect to a particular matured guaranteed term value, regardless of the amount
involved in the transaction.
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Transfers
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We allow you to transfer all or a portion of your account value to the
Guaranteed Account or to other investment options under the contract. We do not
allow transfers from any guaranteed term to any other guaranteed term or
investment option during the deposit period for that guaranteed term or for 90
days following the close of that deposit period. The 90-day wait does not apply
to:
>Amounts transferred on the maturity date or under the maturity value transfer
provision
>Amounts transferred from the Guaranteed Account before the maturity date due
to the election of an income phase payment option
>Amounts distributed under an SDO
>Amounts transferred from an available guaranteed term in connection with the
dollar cost averaging program
Transfers after the 90-day period are permitted from guaranteed term(s) to
other guaranteed term(s) available during a deposit period or to other
available investment options. We will apply an MVA to transfers made before the
end of a guaranteed term. Transfers within one calendar month of a term's
maturity date are not counted as one of the 12 free transfers of accumulated
values in the account.
When the contract holder requests the transfer of a specific dollar amount, we
account for any applicable MVA in determining the amount to be withdrawn from a
guaranteed term(s) to fulfill the request. Therefore, the amount we actually
withdraw from the guaranteed term(s) may be more or less than the requested
dollar amount. (See "Appendix I" for an example.) For more information on
transfers, see the contract prospectus.
Withdrawals
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The contract allows for full or partial withdrawals from the Guaranteed Account
at
Guaranteed Term Group--A
any time during the accumulation phase. To make a full or partial withdrawal, a
grouping of deposits or
request form (available from us) must be properly completed and submitted to
investments having the same
our Home Office (or other designated office as provided in the contract).
guaranteed term.
Full or partial withdrawals are made pro rata from a guaranteed term group.
From each guaranteed term group, we will first withdraw funds from the oldest
deposit period, then from the next oldest, and so on.
We may apply an MVA to withdrawals made prior to the end of a guaranteed term,
except for withdrawals made under the maturity value transfer provision. (See
"Market Value Adjustment.") We may deduct an early withdrawal charge and
maintenance fee. The early withdrawal charge is a deferred sales charge which
may be deducted upon withdrawal to reimburse us for some of the sales and
administrative expenses associated with the contract. A maintenance fee, up to
$30, may be deducted pro rata from each of the funding options, including the
Guaranteed Account. Refer to the contract prospectus for a description of these
charges. When a request for a partial withdrawal of a specific dollar amount is
made, we will include the MVA in determining the amount to be withdrawn from
the guaranteed term(s) to fulfill the request. Therefore, the amount we
actually take from the guaranteed term(s) may be more or less than the dollar
amount requested. (See "Appendix I" for an example.)
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Deferral of Payments
Under certain emergency conditions, we may defer payment of a Guaranteed
Account withdrawal for up to six months. Refer to the contract prospectus for
more details.
Reinvestment Privilege
You may elect to reinvest all or a portion of a full withdrawal during the 30
days following such a withdrawal. We must receive amounts for reinvestment
within 60 days of the withdrawal.
We will apply reinvested amounts to the current deposit period. This means the
guaranteed annual interest rate and guaranteed terms available on the date of
reinvestment will apply. Amounts are reinvested in the same proportion as prior
to the full withdrawal. Any negative MVA we applied to a withdrawal will not be
refunded. Refer to the contract prospectus for further details.
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Aggregate MVA--The total of all MVAs
applied due to a transfer or withdrawal.
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Market Value Adjustment (MVA)
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We apply an MVA to amounts transferred or withdrawn from the Guaranteed Account
prior to the end of a guaranteed term. To accommodate early withdrawals or
transfers, we may need to liquidate certain assets or use cash that could
otherwise be invested at current interest rates. When we sell assets
prematurely we could realize a profit or loss depending upon market conditions.
The MVA reflects changes in interest rates since the deposit period. When
interest rates increase after the deposit period, the value of the investment
decreases and the MVA amount may be negative. Conversely, when interest rates
decrease after the deposit period, the value of the investment increases and
the MVA amount may be positive. Therefore, the application of an MVA may
increase or decrease the amount withdrawn from a guaranteed term to satisfy a
withdrawal or transfer request.
We may apply an aggregate MVA to transfers made in order to fund a lifetime or
nonlifetime income payment option; however, we will not apply a negative
aggregate MVA to amounts transferred to fund lifetime income payment options.
We will also not apply a negative aggregate MVA to amounts withdrawn from
guaranteed terms due to your death, if withdrawn during the six months
following your death (other than at the death of a spousal beneficiary or joint
contract holder who continued the contract in his or her name after the first
death). After this six-month period, or upon the death of a spousal beneficiary
or joint contract holder who continued the contract in his or her name after
the first death, a positive or negative aggregate MVA may apply.
An MVA will not apply to:
>Amounts transferred at the end of a guaranteed term
>Transactions made under the maturity value transfer provision
>Transfers due to participation in the dollar cost averaging program*
>Amounts distributed under an SDO -- see "Systematic Distribution Options" in
the contract prospectus
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>Withdrawals for minimum distributions required by the Tax Code and for which
the early withdrawal charge is waived
* If you discontinue the dollar cost averaging program and transfer the amounts
in it, subject to the Company's terms and conditions governing guaranteed
terms, to another guaranteed term, an MVA will apply.
Calculation of the MVA
The amount of the MVA depends upon the relationship between:
>The deposit period yield of U.S. Treasury Notes that will mature in the last
quarter of the guaranteed term
>The current yield of such U. S. Treasury Notes at the time of withdrawal
If the current yield is less than the deposit period yield, the MVA will
decrease the amount withdrawn from a guaranteed term to satisfy a transfer or
withdrawal request (the MVA will be positive). If the current yield is greater
than the deposit period yield, the MVA will increase the amount withdrawn from
a guaranteed term (the MVA will be negative or detrimental to the investor).
Deposit Period Yield
We determine the deposit period yield used in the MVA calculation by
considering interest rates prevailing during the deposit period of the
guaranteed term from which the transfer or withdrawal will be made. First, we
identify the Treasury Notes that mature in the last three months of the
guaranteed term. Then, we determine their yield-to-maturity percentages for the
last business day of each week in the deposit period. We then average the
resulting percentages to determine the deposit period yield.
Treasury Note information may be found each business day in publications such
as the Wall Street Journal, which publishes the yield-to-maturity percentages
for all Treasury Notes as of the preceding business day.
Current Yield
We use the same Treasury Notes identified for the deposit period yield to
determine the current yield -- Treasury Notes that mature in the last three
months of the guaranteed term. However, we use the yield-to-maturity
percentages for the last business day of the week preceding the withdrawal and
average those percentages to get the current yield.
MVA Formula
The mathematical formula used to determine the MVA is:
x
_ _ ---
| (1+i) |365
| ----- |
| (1+j) |
|_ _|
where i is the deposit period yield; j is the current yield; and x is the number
of days remaining (computed from Wednesday of the week of withdrawal) in the
guaranteed term. (For examples of how we calculate MVA, refer to Appendix I.)
We make an adjustment in the formula of the MVA to reflect the period of time
remaining in the guaranteed term from the Wednesday of the week of a
withdrawal.
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Contract Charges
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Certain charges may be deducted directly or indirectly from the funding options
available under the contract, including the Guaranteed Account.
The contract may have a maintenance fee of up to $30 that we will deduct, on an
annual basis, pro rata from all funding options including the Guaranteed
Account. We may also deduct a maintenance fee upon full withdrawal of a
contract.
The contract may have an early withdrawal charge that we will deduct, if
applicable, upon a full or partial withdrawal from the contract. If the
withdrawal occurs prior to the maturity of a guaranteed term, both the early
withdrawal charge and an MVA may be assessed.
We do not deduct mortality and expense risk charges and other asset-based
charges that may apply to variable funding options from the Guaranteed Account.
These charges are only applicable to the variable funding options.
We may deduct premium taxes of up to 4% from amounts in the Guaranteed Account.
During the accumulation phase, transfer fees of up to $10 per transfer may be
deducted from amounts held in or transferred from the Guaranteed Account.
Refer to the contract prospectus for details on contract deductions.
Other Topics
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Income Phase
The Guaranteed Account may not be used as a funding option during the income
phase. Amounts invested in guaranteed terms must be transferred to one or more
of the options available to fund income payments before income payments can
begin.
An aggregate MVA, as previously described, may be applied to amounts
transferred to fund income payments before the end of a guaranteed term.
Amounts used to fund lifetime income payments will receive either a positive
aggregate MVA or none at all; however, amounts transferred to fund a
nonlifetime income payment option can receive either a positive or negative
aggregate MVA.
Refer to the contract prospectus for a discussion of the income phase.
Investments
Amounts applied to the Guaranteed Account will be deposited to a nonunitized
separate account established under Connecticut law. A nonunitized separate
account is a separate account in which the contract holder does not participate
in the performance of the assets through unit values or any other interest.
Contract holders allocating funds to the nonunitized separate account do not
receive a unit value of ownership of assets accounted for in this separate
account. The risk of investment gain or loss is borne entirely by the Company.
All Company obligations due to allocations to the nonunitized separate account
are contractual guarantees of the Company
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and are accounted for in the separate account. All of the general assets of the
Company are available to meet our contractual guarantees. To the extent
provided for in the applicable contract, the assets of the nonunitized separate
account are not chargeable with liabilities resulting from any other business
of the Company. Income, gains and losses of the separate account are credited
to or charged against the separate account without regard to other income,
gains or losses of the Company.
Types of Investments. We intend to invest primarily in investment-grade fixed
income securities including:
>Securities issued by the United States Government
>Issues of United States Government agencies or instrumentalities--these issues
may or may not be guaranteed by the United States Government
>Debt securities which have an investment grade, at the time of purchase,
within the four highest grades assigned by Moody's Investors Services, Inc.
(Aaa, Aa, A or Baa), Standard & Poor's Corporation (AAA, AA, A or BBB) or any
other nationally recognized rating service
>Other debt instruments, including those issued or guaranteed by banks or bank
holding companies, and of corporations, which although not rated by Moody's,
Standard & Poor's, or other nationally recognized rating services, are deemed
by the Company's management to have an investment quality comparable to
securities which may be purchased as stated above
>Commercial paper, cash or cash equivalents, and other short-term investments
having a maturity of less than one year which are considered by the Company's
management to have investment quality comparable to securities which may be
purchased as stated above
We may invest in futures and options. We purchase financial futures, related
options and options on securities solely for non-speculative hedging purposes.
Should securities prices be expected to decline, we may sell a futures contract
or purchase a put option on futures or securities to protect the value of
securities held in or to be sold for the general account or the nonunitized
separate account. Similarly, if securities prices are expected to rise, we may
purchase a futures contract or a call option against anticipated positive cash
flow or may purchase options on securities.
We are not obligated to invest the assets attributable to the contract
according to any particular strategy, except as required by Connecticut and
other state insurance laws. The guaranteed interest rates established by the
Company may not necessarily relate to the performance of the nonunitized
separate account.
Distribution of Contracts
We serve as principal underwriter for the securities sold through this
prospectus. We are registered as a broker-dealer with the SEC and are a member
of the National Association of Securities Dealers, Inc.
We may offer customers of certain broker-dealers special guaranteed rates in
connection with the Guaranteed Account offered through the contracts and may
negotiate different commissions for these broker-dealers. For additional
information, see the contract prospectus.
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<PAGE>
Taxation
You should seek advice from your tax adviser as to the application of federal
(and where applicable, state and local) tax laws to amounts paid to or
distributed under the contract. Refer to the contract prospectus for a
discussion of tax considerations.
Taxation of the Company. We are taxed as a life insurance company under Part I
of Subchapter L of the Internal Revenue Code of 1986, as amended. We own all
assets supporting the contract obligations of the Guaranteed Account. Any
income earned on such assets is considered income to the Company. We do not
intend to make any provision or impose a charge under the contract with respect
to any tax liability of the Company.
Taxation of Payments and Distributions. For information concerning the tax
treatment of payments to and distributions from the contract, please refer to
the contract prospectus.
Year 2000 Readiness
The Company is dependent upon computer systems and applications to conduct its
business. The Company 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. Under this plan, remediation
and testing, including Year 2000 approval testing, of the Company's IT systems
were completed as of June 30, 1999.
The Company expects to incur internal staffing costs, as well as consulting and
other expenses related to infrastructure and facilities enhancements necessary
to prepare its systems for the Year 2000. On an after tax basis, total Company
Year 2000 project costs were $21 million (after tax) in 1998 and are currently
estimated to be at least $16 million (after tax) in 1999. Year 2000 costs were
not material in 1997.
The Company deals with affiliated and unaffiliated third parties in connection
with the investments made by the Company with the amounts allocated to the
Guaranteed Account. Aetna Inc. and the Company have initiated communication
with their critical external relationships to determine the extent to which the
Aetna organization may be vulnerable to such parties' failure to resolve their
own Year 2000 issues. The Aetna organization, including 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. The failure of
third parties to complete adequate preparations in a timely manner could have
an adverse effect on the operation of the Guaranteed Account, or the
establishment of future guaranteed interest rates.
Experts
We have incorporated by reference into the Registration Statement of which this
prospectus is a part and/or into this prospectus:
>A copy of the Company's latest Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1999
>The consolidated balance sheets of the Company as of December 31, 1998 and
1997 and the related consolidated statements of income, changes in
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<PAGE>
shareholder's equity and cash flows and all related schedules for each of
the years in the three-year period ended December 31, 1998. These
statements are included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1998. We have relied upon the reports of KPMG LLP,
independent certified public accountants, and upon their authority as
experts in accounting and auditing.
>The reports of KPMG LLP
Legal Matters
The validity of the securities offered by this prospectus has been passed upon
by counsel to the Company.
Further Information
This prospectus does not contain all of the information contained in the
registration statement of which this prospectus is a part. Portions of the
registration statement have been omitted from this prospectus as allowed by the
SEC. You may obtain the omitted information from the offices of the SEC, as
described below.
We are required by the Securities Exchange Act of 1934 to file periodic reports
and other information with the SEC. You may inspect or copy information
concerning the Company at the Public Reference Room of the SEC at:
Securities and Exchange Commission
450 Fifth Street NW
Washington, DC 20549
You may also obtain copies of these materials at prescribed rates from the
Public Reference Room of the above office. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
You may also find more information about the Company at http://
www.aetna.com.
A copy of the Company's Annual Report on Form 10-K for the year ended December
31, 1998 and a copy of the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 1999 accompany this prospectus. We refer to Form
10-K and Form 10-Q for a description of the Company and its business, including
financial statements. We intend to send contract holders annual account
statements and other such legally required reports. We do not anticipate such
reports will include periodic financial statements or information concerning
the Company.
You can find this prospectus and other information the Company must file with
the SEC on the SEC's web site at http://www.sec.gov.
Incorporation of Certain Documents by Reference
We have incorporated by reference the Company's latest Annual Report on Form
10-K and Quarterly Report on Form 10-Q, as filed with the SEC and in accordance
with the Securities and Exchange Act of 1934. The Annual Report and Quarterly
Report must accompany this prospectus. Form 10-K and Form 10-Q contain
additional information about the Company including certified financial
statements for the latest fiscal year.
The registration statement for this prospectus incorporates some documents by
reference. We will provide a free copy of any such documents upon the request
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<PAGE>
of anyone who has received this prospectus. We will not include exhibits to
those documents unless they are specifically incorporated by reference into the
document. Direct requests to:
Aetna Life Insurance and Annuity Company
151 Farmington Avenue
Hartford, CT 06156
1-800-531-4547
Inquiries
You may contact us directly by writing to us at the address shown above or by
calling 1-800-531-4547.
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<PAGE>
Appendix I
Examples of Market Value Adjustment Calculations
- --------------------------------------------------------------------------------
The following are examples of market value adjustment (MVA) calculations using
several hypothetical deposit period yields and current yields. These examples
do not include the effect of any early withdrawal charge that may be assessed
under the contract upon withdrawal.
EXAMPLE I
Assumptions:
i, the deposit period yield, is 8%
j, the current yield, is 10%
x, the number of days remaining (computed from Wednesday of the week of
withdrawal) in the guaranteed term, is 927.
x
_ _ ---
| (1+i) |365
MVA = | ----- |
| (1+j) |
|_ _|
927
_ _ ---
| (1.08) |365
= | ------ |
| (1.10) |
|_ _|
= .9545
In this example, the deposit period yield of 8% is less than the current yield
of 10%; therefore, the MVA is less than 1. The amount withdrawn from the
guaranteed term is multiplied by this MVA.
If a withdrawal or transfer of a specific dollar amount is requested, the
amount withdrawn from a guaranteed term will be increased to compensate for the
negative MVA amount. For example, a withdrawal request to receive a check for
$2,000 would result in a $2,095.34 withdrawal from the guaranteed term.
Assumptions:
i, the deposit period yield, is 5%
j, the current yield, is 6%
x, the number of days remaining (computed from Wednesday of the week of
withdrawal) in the guaranteed term, is 927.
x
_ _ ---
| (1+i) |365
MVA = | ----- |
| (1+j) |
|_ _|
927
_ _ ---
| (1.05) |365
= | ------ |
| (1.06) |
|_ _|
= .9762
In this example, the deposit period yield of 5% is less than the current yield
of 6%; therefore, the MVA is less than 1. The amount withdrawn from the
guaranteed term is multiplied by this MVA.
If a withdrawal or transfer of a specific dollar amount is requested, the
amount withdrawn from a guaranteed term will be increased to compensate for the
negative MVA amount. For example, a withdrawal request to receive a check for
$2,000 would result in a $2,048.76 withdrawal from the guaranteed term.
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<PAGE>
EXAMPLE II
Assumptions:
i, the deposit period yield, is 10%
j, the current yield, is 8%
x, the number of days remaining (computed from Wednesday of the week of
withdrawal) in the guaranteed term, is 927.
x
_ _ ---
| (1+i) |365
MVA = | ----- |
| (1+j) |
|_ _|
927
_ _ ---
| (1.10) |365
= | ------ |
| (1.08) |
|_ _|
= 1.0477
In this example, the deposit period yield of 10% is greater than the current
yield of 8%; therefore, the MVA is greater than 1. The amount withdrawn from
the guaranteed term is multiplied by this MVA.
If a withdrawal or transfer of a specific dollar amount is requested, the
amount withdrawn from a guaranteed term will be decreased to compensate for the
positive MVA amount. For example, a withdrawal request to receive a check for
$2,000 would result in a $1,908.94 withdrawal from the guaranteed term.
Assumptions:
i, the deposit period yield, is 5%
j, the current yield, is 4%
x, the number of days remaining (computed from Wednesday of the week of
withdrawal) in the guaranteed term, is 927.
x
_ _ ---
| (1+i) |365
MVA = | ----- |
| (1+j) |
|_ _|
927
_ _ ---
| (1.05) |365
= | ------ |
| (1.04) |
|_ _|
= 1.0246
In this example, the deposit period yield of 5% is greater than the current
yield of 4%; therefore, the MVA is greater than 1. The amount withdrawn from
the guaranteed term is multiplied by this MVA.
If a withdrawal or transfer of a specific dollar amount is requested, the
amount withdrawn from a guaranteed term will be decreased to compensate for the
positive MVA amount. For example, a withdrawal request to receive a check for
$2,000 would result in a $1,951.98 withdrawal from the guaranteed term.
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<PAGE>
Appendix II
Examples of Market Value Adjustment Yields
- --------------------------------------------------------------------------------
The following hypothetical examples show the MVA based upon a given current
yield at various times remaining in the guaranteed term. Table A illustrates
the application of the MVA based upon a deposit period yield of 10%; Table B
illustrates the application of the MVA based upon a deposit period yield of 5%.
The MVA will have either a positive or negative influence on the amount
withdrawn from or remaining in a guaranteed term. Also, the amount of the MVA
generally decreases as the end of the guaranteed term approaches.
TABLE A: Deposit Period Yield of 10%
<TABLE>
<CAPTION>
Change in
Deposit
Current Period Time Remaining to
Yield Yield Maturity of Guaranteed Term
- --------- ---------- ----------------------------------------------------------------------------
8 Years 6 Years 4 Years 2 Years 1 Year 3 Months
----------- ----------- ----------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
15% +5% -29.9% -23.4% -16.3% -8.5% -4.3% -1.1%
13% +3% -19.4 -14.9 -10.2 -5.2 -2.7 -0.7
12% +2% -13.4 -10.2 -7.0 -3.5 -1.8 -0.4
11% +1% -7.0 -5.3 -3.6 -1.8 -0.9 -0.2
9% -1% 7.6 5.6 3.7 1.8 0.9 0.2
8% -2% 15.8 11.6 7.6 3.7 1.9 0.5
7% -3% 24.8 18.0 11.7 5.7 2.8 0.7
5% -5% 45.1 32.2 20.5 9.8 4.8 1.2
</TABLE>
TABLE B: Deposit Period Yield of 5%
<TABLE>
<CAPTION>
Change in
Deposit
Current Period Time Remaining to
Yield Yield Maturity of Guaranteed Term
- --------- ---------- ----------------------------------------------------------------------------
8 Years 6 Years 4 Years 2 Years 1 Year 3 Months
----------- ----------- ----------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
9% +4% -25.9% -20.1% -13.9% -7.2% -3.7% -0.9%
8% +3% -20.2 -15.6 -10.7 -5.5 -2.8 -0.7
7% +2% -14.0 -10.7 -7.3 -3.7 -1.9 -0.5
6% +1% -7.3 -5.5 -3.7 -1.9 -0.9 -0.2
4% -1% 8.0 5.9 3.9 1.9 1.0 0.2
3% -2% 16.6 12.2 8.0 3.9 1.9 0.5
2% -3% 26.1 19.0 12.3 6.0 2.9 0.7
1% -4% 36.4 26.2 16.8 8.1 4.0 1.0
</TABLE>
20
