Guaranteed Accumulation Account - May 1, 2000
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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 do not withdraw until the end of a guaranteed term. Investments taken out
of GAA prior to the end of a guaranteed term may be subject to a market value
adjustment which may result in an investment gain or loss. See "Market Value
Adjustment", page 12.
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; and
> 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. We have not authorized anyone to
provide you with information that is different than that contained in this
prospectus.
Our Home Office:
Aetna Life Insurance and Annuity Company
151 Farmington Avenue
Hartford, Connecticut 06156
(800)-262-3862
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TABLE OF CONTENTS
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Summary ...................................................................... 3
Description of the Guaranteed Accumulation Account .......................... 6
General, Contributions to GAA, Deposit Period, Guaranteed Terms,
Guaranteed Term 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 (MVA) ............................................... 12
Calculation of the MVA, Deposit Period Yield, Current Yield, MVA Formula
Contract Charges ............................................................ 13
Other Topics ................................................................ 14
Income Phase -- Contract Loans -- Investments -- Distribution of Contracts --
Taxation -- Experts -- Legal Matters and Proceedings -- 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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Questions: Contacting the Company. To answer your questions, contact your sales
representative or write or call our Home Office:
Aetna Life Insurance and Annuity Company
151 Farmington Avenue
Hartford, CT 06156
1-800-262-3862
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Summary
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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. A 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. We reserve the right to limit the number
of guaranteed terms or the availability of certain guaranteed terms.
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 three and ten years.
Guaranteed Interest Rates. We guarantee different interest rates, depending
upon 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 (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."
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> 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 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.
> 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 GAA. 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 GAA.
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.
Market Value Adjustment (MVA). If you withdraw or transfer all or part of your
account value from GAA before the guaranteed term is complete, 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.
MVAs applied to withdrawals or transfers from GAA will be calculated as an
"aggregate MVA," which is the sum of all MVAs applicable due to the withdrawal
(see sidebar on page 12 for an example of the calculation of the aggregate
MVA). The following withdrawals will be subject to an aggregate MVA only if it
is positive:
> Withdrawals due to the election of a lifetime income option; and
> Withdrawals due to the death of the participant (if paid within the first six
months following death).
All other withdrawals will be subject to an aggregate MVA, regardless of
whether it is positive or negative, including:
> Withdrawals due to the election of a nonlifetime income option;
> Payments due to the death of the participant, if paid more than six months
following death; and
> Full or partial withdrawals during the accumulation phase (except for
withdrawals at the end of a guaranteed term or pursuant to the maturity value
transfer provision, see Maturity of a Guaranteed Term and Maturity Value
Transfer Provision).
See "Description of the Guaranteed Accumulation Account" and "Market Value
Adjustment."
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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; or
> Withdraw the matured amount.
Amounts withdrawn may be subject to an early withdrawal charge, maintenance
fee, tax withholding and, if you are under age 59-1/2, tax penalties. (See
"Contract Charges"; see also the "Fees" and "Taxation" sections of the contract
prospectus.) When a guaranteed term ends, if we have not received instructions,
we will automatically reinvest 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.
If you do not provide instructions concerning the maturing amount on or before
the end of a guaranteed term, and this amount is automatically reinvested as
noted above, the maturity value transfer provision will apply.
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."
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; and
> 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 established
by the Company under Connecticut law. To the extent provided for
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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.")
Description of the Guaranteed
Accumulation Account
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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.
MVAs applied to withdrawals or transfers from GAA will be calculated as an
"aggregate MVA," which is the sum of all MVAs applicable due to the withdrawal
(see sidebar on page 12 for an example of the calculation of the aggregate
MVA). The following withdrawals will be subject to an aggregate MVA only if it
is positive:
> Withdrawals due to the election of a lifetime income option; and
> Withdrawals due to the death of the participant (if paid within the first six
months following death).
All other withdrawals will be subject to an aggregate MVA, regardless of
whether it is positive or negative, including:
> Withdrawals due to the election of a nonlifetime income option;
> Payments due to the death of the participant, if paid more than six months
following death; and
> Full or partial withdrawals during the accumulation phase (except for
withdrawals at the end of a guaranteed term or pursuant to the maturity value
transfer provision, see Maturity of a Guaranteed Term and Maturity Value
Transfer Provision).
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.
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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 purchase 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 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. See
"Maturity Value Transfer Provision."
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 guaranteed 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 three years or less.
Long-term--All guaranteed terms of between three and ten 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 guaranteed interest rate is credited
from the date of deposit to the last day of the guaranteed term.
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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 five-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.
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.
When a guaranteed term matures, the amounts in any maturing guaranteed term may
be:
> Transferred to one or more new guaranteed terms available under the current
deposit period; or
> Transferred to other available investment options; or
> Withdrawn from the contract.
We do not apply an MVA to amounts transferred or surrendered 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
you are under age 59-1/2, tax penalties. 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; or
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> 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 terms.
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 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 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.
Transfers
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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 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,
except for amounts transferred under the maturity value transfer provision.
We do not apply an MVA 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 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.
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.
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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 an MVA to transfers made before the end of a guaranteed term.
(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.
For example, funds may be transferred from a three-year guaranteed term (any
time after 90 days from the close of the deposit period applicable to that
three-year guaranteed term) to the open deposit period of a seven-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 an MVA on the
transferred amount. These transfers are counted toward the 12 free transfers
allowed per calendar 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
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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.
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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 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 a
maintenance fee depending upon 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 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 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.)
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. This means that
the guaranteed annual interest rate and guaranteed terms available on the date
of reinvestment will apply. 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.
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Aggregate MVA is the total of all MVAs applied due to a transfer or withdrawal.
Calculation of the Aggregate MVA--In order to satisfy a transfer or withdrawal,
amounts may be withdrawn from more than one guaranteed term, with more than one
guaranteed interest rate. In order to determine the MVA applicable to such a
transfer or withdrawal, the MVAs applicable to each guaranteed term will be
added together, in order to determine the "aggregate MVA."
Example: $1,000 withdrawal, two guaranteed terms, MVA1 = $10, MVA2 = $-30 $10 +
$-30 = $-20. Aggregate MVA =$-20.
Example: $1,000 withdrawal, two guaranteed terms, MVA1 = $30, MVA2 = $-10 $30 +
$-10 = $20. Aggregate MVA =$20.
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Market Value Adjustment (MVA)
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We apply an 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 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 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.
MVAs applied to withdrawals or transfers from GAA will be calculated as an
"aggregate MVA," which is the sum of all MVAs applicable due to the withdrawal
(see sidebar on this page for an example of the calculation of the aggregate
MVA). The following withdrawals will be subject to an aggregate MVA only if it
is positive:
> Withdrawals due to the election of a lifetime income option; and
> Withdrawals due to the death of the participant (if paid within the first six
months following death).
All other withdrawals will be subject to an aggregate MVA, regardless of
whether it is positive or negative, including:
> Withdrawals due to the election of a nonlifetime income option;
> Payments due to the death of the participant, if paid more than six months
following death; and
> Full or partial withdrawals during the accumulation phase (except for
withdrawals at the end of a guaranteed term or pursuant to the maturity value
transfer provision, see Maturity of a Guaranteed Term and Maturity Value
Transfer Provision).
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
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.
Under some contracts, election of a Systematic Distribution Option, as
described in the contract prospectus, will not result in an MVA being applied
to amounts withdrawn from GAA.
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; and
> 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
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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 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.
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.
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<PAGE>
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%.
Under certain contracts, we reserve the right to charge $10 for each transfer
of accumulated value between available investment options over 12.
Refer to the contract prospectus for further 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 only receive an aggregate
MVA to the extent it is positive; however amounts transferred to fund a
nonlifetime income payment option may receive either a positive or negative
aggregate MVA.
Refer to the contract prospectus for a further 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 amounts invested in GAA 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.
Investments
Amounts applied to GAA 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,
14
<PAGE>
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, are deemed
by the Company's management to have an investment quality comparable to
securities which may be purchased as stated above; or
> 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 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 principal 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 further discussion of tax considerations.
15
<PAGE>
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.
Experts
We have incorporated by reference into Post Effective Amendment No. 8 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, 1999 and
1998 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, 1999; and
> 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, 1999. 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 and Proceedings
The validity of the securities offered by this prospectus has been passed upon
by Counsel to the Company.
In recent years, several life insurance and annuity companies have been named as
defendants in lawsuits, including class action lawsuits, relating to life
insurance and annuity pricing and sales practices. A purported class action
complaint was filed in the Circuit Court of Lauderdale County, Alabama on March
28, 2000 by Loretta Shaner against the Company (the "Shaner Complaint"). The
Shaner Complaint seeks unspecified compensatory damages from the Company and
unnamed affiliates of the Company. The Shaner Complaint claims that the
Company's sale of deferred annuity products for use as investments in
tax-deferred contributory retirement plans (e.g., IRAs) is improper. This
litigation is in the preliminary stages. The Company intends to defend the
action vigorously.
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
Securities and Exchange Commission (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 www.aetna.com.
A copy of the Company's annual report on Form 10-K for the year ended December
31, 1999 accompanies this prospectus. We refer to Form 10-K for a description
of the Company and its business, including financial statements.
16
<PAGE>
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 files
electronically with the SEC on the SEC's web site at 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 written
or oral 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
800-262-3862
Inquiries
You may contact us directly by writing to or calling us at the address or phone
number shown above.
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 or other fees
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) ---
MVA = {------} 365
(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 one. 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) ---
MVA = {------} 365
(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 one. 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) ---
MVA = {------} 365
(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 one. 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) ---
MVA = {------} 365
(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 one. 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.
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<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>
