GUARANTEED ACCUMULATION ACCOUNT
Supplement dated May 3, 1999
to the Prospectus dated May 3, 1999
This supplement updates and amends the information contained in the prospectus
dated May 3, 1999. You should read this supplement along with the prospectus
and keep it for future reference.
The following is added to the section entitled "Summary--Fees and Other
Deductions":
> Transfer Fees. Under some contracts, during the accumulation phase,
transfer fees of up to $10 per transfer may be deducted from amounts held
in or transferred from the Guaranteed Accumulation 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 Accumulation Account. See "Contract Charges"; see also the
"Fees" section of the contract prospectus
> Front End Sales Charges. Under some contracts, we may deduct front end
sales charges of up to 6%. See "Contract Charges"; see also the "Fees"
section of the contract prospectus
The section entitled "Summary--Maturity Value Transfer Provision" is restated
as follows:
Maturity Value Transfer Provision. If we automatically transfer the matured
investment into the current deposit period, the contract holder or you, if
applicable, may, for a limited time, transfer or withdraw all or a portion
of the matured investment that was transferred without an MVA. As described
in "Fees and Other Deductions" above, other fees, including an early
withdrawal charge and a maintenance fee, may be assessed on amounts
withdrawn. See "Maturity Value Transfer Provision."
Form No. X.GAA-99 May 3, 1999
<PAGE>
Guaranteed Accumulation Account - May 3, 1999
- --------------------------------------------------------------------------------
Introduction
The Guaranteed Accumulation Account (GAA) 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 GAA and save it for future reference.
General Description
GAA offers investors the 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 GAA. Each guaranteed term offers a guaranteed interest rate for investments
that remain in GAA 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
GAA 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 GAA
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 11.)
This prospectus will explain:
> Guaranteed interest rates and guaranteed terms
> Contributions to GAA
> Types of investments available, and how they are classified
> 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 GAA
> Taking investments out of GAA
> How to reinvest or withdraw at maturity
Additional Disclosure Information
Neither the Securities and Exchange Commission, 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)-GAA-Fund or (800)-422-3863
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary ..................................................................... 3
Description of the Guaranteed Accumulation Account .......................... 6
General, Contributions to GAA, Deposit Period, Guaranteed Terms,
Guaranteed Classifications, Guaranteed Interest Rates,
Maturity Value Transfer Provision
Transfers ................................................................... 9
Transfers from GAA, Transfers Between Guaranteed Term Classifications
Withdrawals ................................................................. 10
Deferral of Payments, Reinvestment Privilege
Market Value Adjustment ..................................................... 11
Deposit Period Yield, Current Yield, MVA Formula
Contract Charges ............................................................ 13
Other Topics ................................................................ 13
Income Phase -- Contract Loans -- 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
</TABLE>
2
<PAGE>
Summary
- --------------------------------------------------------------------------------
GAA 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 GAA.
In General. Amounts that you invest in GAA will earn a guaranteed interest rate
if left in GAA for a specified period of time (the guaranteed term). You must
invest amounts in GAA 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 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 offered.
Some variable annuity contracts that offer GAA distinguish between short- and
long-term classifications of GAA. Under those contracts, we make the following
distinction:
> Short-term classification--three years or less
> Long-term classification--between 3 and 10 years
Guaranteed 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 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 can in no way guarantee any aspect of future
offerings.
Fees and Other Deductions. We do not make deductions from amounts in GAA to
cover mortality and expense risks. Rather, we consider these risks when
determining the credited rate. The following other types of charges may be
deducted from amounts held in, withdrawn or transferred from GAA:
> Market Value Adjustment. 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
3
<PAGE>
amounts withdrawn prior to you having attained age 59-1/2. 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 GAA. See "Contract
Charges"; see also the "Fees" section of the contract prospectus
Market Value Adjustment (MVA). If you withdraw or transfer all or part of 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 depending on interest rate activity at the time of withdrawal or
transfer.
Withdrawals from GAA due to election of a lifetime income option or due to the
death of the participant (if withdrawn within the first six months following
death) will be subject to an aggregate market value adjustment (the sum of all
MVAs due to withdrawal) only if the aggregate market value adjustment is
positive. Withdrawals from GAA due to the election of a nonlifetime income
option may be subject to an aggregate MVA, whether positive or negative.
Maturity of a Guaranteed Term. On or before the end of a guaranteed term, the
contract holder or you, if applicable, 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
Deductions may apply to withdrawals. (See "Contract Charges," "Taxation" and
the contract prospectus.) When a guaranteed term ends, if we have not received
instructions, we will automatically transfer the maturing investment into a
guaranteed term available in the current deposit period. (See "Maturity of a
Guaranteed Term" and "Maturity Value Transfer Provision.") For contracts that
distinguish between short-term and long-term classifications, we will generally
transfer the maturing investment to the available deposit period for the
guaranteed term having the shortest maturity within the same classification.
For other contracts, we will generally transfer the maturing investment in the
following manner based upon availability:
> To a guaranteed term of the same duration, if available; or
> To a guaranteed term with the next shortest duration, if available; or
> To a guaranteed term with the next longest duration
Maturity Value Transfer Provision. If we automatically transfer the matured
investment into the current deposit period, the contract holder or you, if
applicable, may, for a limited time, transfer or withdraw all or a portion of
the matured investment that was transferred without an MVA. Other fees,
including an early withdrawal charge, which is a deferred sales charge, and a
maintenance fee (up to $30), may be assessed on any withdrawals. See "Maturity
Value Transfer Provision."
4
<PAGE>
Transfer of Account Dollars. Generally, account dollars invested in GAA may be
transferred among guaranteed terms offered through GAA, and/or to other
investment options offered through the contract. However:
> Transfers may not be made during the deposit period in which your account
dollars are invested in GAA or for 90 days after the close of that deposit
period
> We 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 GAA,
regardless of the length of the guaranteed term or, where applicable,
guaranteed term classification, 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 GAA.
Amounts allocated to GAA are held in a nonunitized separate account except for
amounts allocated to short-term classifications of GAA before September 1,
1998, which are held in the Company's general account. 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 five business days
prior to the maturity date (1-800-GAA-FUND or 1-800-422-3863). (See
"Description of the Guaranteed Accumulation Account--General" and "Maturity of
a Guaranteed Term.")
5
<PAGE>
Description of the Guaranteed
Accumulation Account
- --------------------------------------------------------------------------------
General
GAA 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 during which
that rate and term are offered. Each deposit period may offer more than one
guaranteed term. Guaranteed terms may be classified according to length of time
to maturity, and each deposit period may offer various guaranteed terms within
these classifications.
A market value adjustment 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. In the case of
amounts withdrawn from a guaranteed term due to the death of the participant,
we will apply an aggregate market value adjustment (the sum of all market value
adjustments calculated due to this withdrawal), provided that it is positive,
and provided that the withdrawal is requested within six months of death. After
the six-month period, an aggregate market value adjustment, whether positive or
negative, will 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 market value adjustment only if it is
positive. Withdrawals from GAA due to the election of a nonlifetime income
option may be subject to an aggregate MVA, whether positive or negative.
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-GAA-FUND (1-800-422-3863).
At least 18 calendar days before a guaranteed term matures, we will notify the
contract holder or you, if applicable, of the upcoming deposit period dates and
the current guaranteed interest rates, guaranteed terms and projected matured
guaranteed term values.
Contributions to GAA
The contract holder or you, if applicable, may invest in the guaranteed terms
available in the current deposit period by allocating new payments to GAA or by
transferring a sum from other funding options available under the contract or
from other guaranteed terms.
Though 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. We
reserve the right to establish a minimum amount 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 ninety days after
the close of the deposit period. This restriction does not apply to amounts
transferred or withdrawn under the maturity value transfer provision. See
"Maturity Value Transfer Provision."
6
<PAGE>
Deposit Period
The deposit period is the period of time during which the contract holder or
you, if applicable, 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 will offer at least one guaranteed term of three years or
less and one term of more than three years in any deposit period. We offer
guaranteed terms at our discretion for various periods ranging from one to ten
years.
Guaranteed Term Classifications
Some contracts distinguish between long-term and short-term guaranteed term
classifications. The following are the guaranteed term classifications:
Short-term--All guaranteed terms of 3 years or less
Long-term--All guaranteed terms of between 3 and 10 years
During each deposit period, we may offer more than one guaranteed term within
each guaranteed term classification. The contract holder or you, if applicable,
may allocate investments to guaranteed terms within one or both guaranteed term
classifications during a deposit period.
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.
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 rate is credited from the date of
deposit to the last day of the guaranteed term.
Guaranteed Terms of Greater than One Year: 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 5% for the first year, 4.75% for the next two years, and 4.5% for
the remaining two years.
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.
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 GAA (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.
7
<PAGE>
- ----------------------------------
Business Day--any day on which the
New York Stock Exchange is open.
- ----------------------------------
Maturity of a Guaranteed Term. At least 18 calendar days prior to the maturity
of a guaranteed term, we will notify the contract holder or you, if applicable,
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. The contract
holder or you, if applicable, may transfer amounts in any maturing guaranteed
term to new guaranteed term(s), if available under the contract.
The contract holder or you, if applicable, may also transfer amounts in any
maturing guaranteed term to any of the allowable investment options available
under the contract. We do not apply a market value adjustment to amounts
transferred or surrendered from a guaranteed term on the date the guaranteed
term matures; however, we may assess an early withdrawal charge or maintenance
fee, if applicable. If we have not received direction from the contract holder
or you, if applicable, by the maturity date of a guaranteed term, we will
automatically transfer the matured value to one of the following:
> For contracts distinguishing between short- and long-term classifications, we
will generally transfer the amount maturing to the available deposit period
for the guaranteed term having the shortest maturity within the same
classification, though it may be different than the maturing term
> For contracts that do not distinguish between short- and long-term
classifications, we will generally transfer the maturing amount as follows:
o To a guaranteed term of the same duration, if available; or
o To a guaranteed term with the next shortest duration, if available; or
o To a guaranteed term with the next longest duration
The contract holder or you, if applicable, will receive a confirmation
statement, plus information on the new guaranteed interest rate(s) and
guaranteed term.
Maturity Value Transfer Provision
If we automatically reinvest the proceeds from a matured guaranteed term, the
contract holder or you, if applicable, may transfer or withdraw from GAA the
amount that was reinvested without a market value adjustment. An early
withdrawal charge or 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 transfer
or withdrawal request received from the contract holder or you, if applicable,
with respect to a particular matured guaranteed term value, regardless of the
amount involved in the transaction.
8
<PAGE>
Transfers
- --------------------------------------------------------------------------------
We allow the contract holder or you, if applicable, to transfer all or a
portion of your account value to GAA or to other investment options under the
contract. We do not permit transfers from any guaranteed term to any other
guaranteed term or investment option during the deposit period for that
guaranteed term nor during the first 90 days following the close of that
deposit period, except for amounts transferred under the maturity value
transfer provision.
We do not apply a market value adjustment to the value transferred upon
maturity of a guaranteed term nor for values transferred under the maturity
value transfer provision. We do not count either of these types of transfers as
one of the 12 free transfers allowed per calendar year by those contracts
allowing only 12 free transfers.
When the contract holder or you, if applicable, request the transfer of a
specific dollar amount, we account for any applicable market value adjustment
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.
Transfers From GAA
For contracts that do not distinguish between short- and long-term
classifications, the contract holder or you, if applicable, may choose the
guaranteed term from which funds will be first withdrawn. If there is more than
one guaranteed term of the same duration, we will withdraw funds starting from
the oldest guaranteed term that has not reached maturity.
If we do not receive directions, we will withdraw funds pro rata from each
guaranteed term in which you are invested. If there is more than one guaranteed
term of the same duration, we will withdraw funds starting from the oldest
guaranteed term that has not reached maturity.
For contracts that distinguish between short- and long-term classifications,
the contract holder or you, if applicable, may choose the guaranteed term
classification from which funds will be first withdrawn. We will withdraw funds
starting from the oldest guaranteed term that has not reached maturity within
the classification chosen.
If we do not receive directions, we will withdraw funds pro rata from the
guaranteed term classifications, starting with the oldest guaranteed term that
has not reached maturity, and any other investment options.
We will apply a market value adjustment to the amount requested for transfer.
(See "Market Value Adjustment.")
Transfers Between Guaranteed Term Classifications
(For contracts that distinguish between short-term and long-term
classifications only)
The contract holder or you, if applicable, may transfer amounts from short-term
guaranteed terms to available long-term guaranteed terms of the current deposit
period, or from long-term guaranteed terms to available short-term guaranteed
terms of the current deposit period.
9
<PAGE>
For example, funds may be transferred from a 3-year guaranteed term (any time
after 90 days from the close of the deposit period applicable to that 3-year
guaranteed term) to the open deposit period of a 7-year guaranteed term.
Funds will be first transferred from the oldest deposit period for which the
guaranteed term has not reached maturity and we will assess a market value
adjustment on the transferred amount. These transfers are counted toward the 12
free transfers allowed per calender year by those contracts allowing only 12
free transfers.
We do not permit the transfer of value from one guaranteed term prior to its
maturity to another guaranteed term within the same classification. For example
we do not permit transfers from one-year to three-year, one-year to one-year,
five-year to seven-year, or ten-year to seven-year guaranteed terms.
Withdrawals
- --------------------------------------------------------------------------------
The contract allows for full or partial withdrawals from GAA at any time during
the accumulation phase. To make a full or partial withdrawal, a request form
(available from us) must be properly completed and submitted to our Home Office
(or other designated office as provided in the contract).
Partial withdrawals are made pro rata from funding options unless the contract
holder or you, if applicable, request otherwise. For contracts that do not
distinguish between short- and long-term classifications, each guaranteed term
is considered a separate funding option for the purpose of a partial
withdrawal. The contract holder or you, if applicable, may choose the
guaranteed term from which funds will be withdrawn. If there is more than one
guaranteed term of the same duration, we will withdraw funds starting from the
oldest guaranteed term that has not reached maturity. If no guaranteed term is
elected, we will withdraw funds pro rata from each guaranteed term in which you
are invested. If there is more than one guaranteed term of the same duration,
we will withdraw funds starting from the oldest guaranteed term that has not
reached maturity.
For contracts distinguishing between short- and long-term classifications, each
guaranteed term classification is considered a separate funding option for the
purpose of a partial withdrawal. The contract holder or you, if applicable, may
elect to take a partial withdrawal from either guaranteed term classification.
We will first withdraw funds from the oldest guaranteed term that has not
reached maturity within the chosen classification. If no guaranteed term
classification is elected, we will withdraw funds pro rata from each
classification (starting with the oldest guaranteed term which has not reached
maturity) and other funding options.
We may apply a market value adjustment 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/or a maintenance fee depending on the terms of the
contract. 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
10
<PAGE>
GAA. Refer to the contract prospectus for a description of these fees. When a
request for a partial withdrawal of a specific dollar amount is made, we will
include the market value adjustment 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.)
Deferral of Payments
Under certain emergency conditions, we may defer payment of a GAA withdrawal
for up to six months. Refer to the contract prospectus for more details.
Reinvestment Privilege
The contract holder or you, if applicable, 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. Amounts are
reinvested in the guaranteed term classifications, where applicable, 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.
- ----------------------------------------
Aggregate MVA is the total of all MVAs
applied due to a transfer or withdrawal.
- ----------------------------------------
Market Value Adjustment
- --------------------------------------------------------------------------------
We apply a market value adjustment (MVA) to amounts transferred or withdrawn
from GAA 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 on 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 market value adjustment amount may be negative. Conversely,
when interest rates decrease after the deposit period, the value of the
investment increases and the market value adjustment 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 both a
lifetime or nonlifetime income payment option; however, we will not apply a
negative aggregate MVA to amounts transferred to fund lifetime income 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. After this six-month period, a positive or negative
aggregate MVA may apply.
Should two or more consecutive guaranteed terms have the same guaranteed
interest rate and mature on the same date, we will calculate an MVA applicable
11
<PAGE>
to each. We will apply the MVA that is more favorable to you to any withdrawal
or transfer from either guaranteed term prior to their maturity.
Calculation of the MVA
The amount of the MVA depends on 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).
Under some contracts, election of a Systematic Distribution Option, as
described in the contract prospectus, will not result in an MVA for amounts
withdrawn from GAA.
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 item. 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.
12
<PAGE>
Contract Charges
- --------------------------------------------------------------------------------
Certain charges may be deducted directly or indirectly from the funding options
available under the contract, including GAA.
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 GAA. 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 GAA. These charges are
only applicable to the variable funding options.
We may deduct premium taxes of up to 4% from amounts in GAA, and, under some
contracts, front end sales charges of up to 6%.
We reserve the right to charge $10 for each transfer over 12, for contracts
that restrict the number of free transfers of accumulated investment value
between available investment options to 12.
Refer to the contract prospectus for details on contract deductions.
Other Topics
- --------------------------------------------------------------------------------
Income Phase
GAA 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 a positive or negative aggregate MVA.
Refer to the contract prospectus for a discussion of the income phase.
Contract Loans
(403(b) and some 401(a) Plans Only)
The contract holder or you, if applicable, may not take a loan from amounts
held in GAA, but we include GAA amounts when calculating the account value
which determines the amount available for a loan. Amounts held in GAA must be
transferred to a funding option available for loans in order to be received as
a loan. (Refer to the contract prospectus for more information on contract
loans.) We will apply an MVA to amounts transferred from guaranteed terms due
to a loan request.
13
<PAGE>
Investments
General Account. Amounts invested in guaranteed terms of three years or less
prior to September 1, 1998 were deposited into the Company's general account
supporting insurance and annuity obligations and will remain invested in the
general account until the end of their guaranteed terms. On or after September
1, 1998 the only new amounts allocated to the Company's general account are
amounts allocated or rolled over to short-term classifications of GAA under
contracts that had not yet received the necessary state approval to deposit
those amounts in the Company's separate account.
We invest general account assets of the Company in accordance with applicable
state laws, which govern the nature of investments made by life insurance
companies and the percentage of assets that may be committed to any particular
type of investment. These laws generally permit investments in federal, state
and municipal obligations; corporate bonds; preferred stocks; real estate
mortgages; real estate and certain other fixed income investments.
All of the general assets of the Company, including amounts deposited to GAA,
are available to meet the guarantees under GAA. The assets of the Company's
general account are chargeable with liabilities arising out of any other
business of the Company.
Separate Account. All guaranteed terms greater than three years, and except as
noted above, guaranteed terms of less than three years allocated or rolled over
on or after September 1, 1998 will be deposited in a nonunitized separate
account established under Connecticut law.
A nonunitized separate account is a separate account in which neither the
contract holder nor you participate in the performance of the assets through
unit values or any other interest. Contract holders and participants 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 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 U.S. 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,
14
<PAGE>
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 contracts
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 underwriter for the securities sold through this prospectus. We are
registered as a broker-dealer with the Securities and Exchange Commission (SEC)
and are a member of the National Association of Securities Dealers, Inc. As
underwriter, we will contract with one or more registered broker-dealers to
offer and sell the contracts. We and our affiliate(s) may also sell the
contracts directly. All registered representatives for the broker-dealers
selling these securities will also be licensed as insurance agents to sell
variable annuity contracts. For additional information, see the contract
prospectus.
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 contracts. Refer to the applicable contract prospectus
for a discussion of tax considerations connected with the contracts.
Taxation of the Company. We are taxed as a life insurance company under Part I
of Subchapter L of the Internal Revenue Code. The Company owns all assets
supporting the contract obligations of GAA. 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 contracts 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 contracts, please refer to
the applicable contract prospectus.
Year 2000 Readiness
The Company is dependent on 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)
15
<PAGE>
testing, (iv) implementation and (v) Year 2000 approval. At year-end 1997, the
Company had substantially completed the assessment stage. The remediation of
mission-critical IT systems was completed year-end 1998. 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. Total Year 2000 costs for these systems were $21 million
(after tax) in 1998 and are currently estimated to be $16 million (after tax)
in 1999 and are expected to be funded through operating cash flows.
The Company deals with affiliated and unaffiliated third parties in connection
with the investments made by the Company with the amounts allocated to GAA.
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 GAA, or the establishment of future guaranteed rates.
Experts
We have incorporated by reference into Post Effective Amendment No. 5 to the
Registration Statement of which this prospectus is a part and/or into this
prospectus:
> The consolidated balance sheets of the Company as of December 31, 1998 and
1997 and the related consolidated statement of income, changes in
shareholder's equity and cash flows and all related schedules for each of the
years in the three-year period ended December 31, 1998
> The reports of KPMG LLP
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.
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
16
<PAGE>
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 accompanies this prospectus. We refer to Form 10-K 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, as filed with the SEC and in accordance with the Securities and Exchange
Act of 1934. The Annual Report must accompany this prospectus. Form 10-K
contains additional information about the Company including certified financial
statements for the latest fiscal year. We were not required to file any other
reports pursuant to Sections 13(a) or 15(d) of the Securities and Exchange Act
since the end of the fiscal year covered by that Form 10-K.
The registration statement for this prospectus incorporates some documents by
reference. We will provide a free copy of any such documents upon the request
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
800-GAA-FUND
800-422-3863
Inquiries
You may contact us directly by writing to us at the address shown above or by
calling (800)-GAA-FUND or (800)-422-3863.
17
<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 request 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 request 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.
18
<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
_ _ ---
| (1.08) | 365
= | ------ |
| (1.10) |
- -
= 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 request of a specific dollar amount is requested,
the amount withdrawn from a guaranteed term will be decreased to reflect 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 request of a specific dollar amount is requested,
the amount withdrawn from a guaranteed term will be decreased to reflect 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.
19
<PAGE>
Appendix II
Examples of Market Value Adjustment Yields
- --------------------------------------------------------------------------------
The following hypothetical examples show the market value adjustment based on a
given current yield at various times remaining in the guaranteed term. Table A
illustrates the application of the market value adjustment based on a deposit
period yield of 10%; Table B illustrates the application of the market value
adjustment based on a deposit period yield of 5%. The market value adjustment
will have either a positive or negative influence on the amount withdrawn from
or remaining in a guaranteed term. Also, the amount of the market value
adjustment 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
