-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Qu5OHaxSGyQIRTTYEZpXdlGeLunH3Rd7BzpTim37VIVNs0yKIEgpa2pxjiYuaE8J pNOPS6iKP+V5Hawd3SmoHg== 0000950146-99-001053.txt : 19990507 0000950146-99-001053.hdr.sgml : 19990507 ACCESSION NUMBER: 0000950146-99-001053 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19990506 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VARIABLE ANNUITY ACCT C OF AETNA LIFE INSURANCE & ANNUITY CO CENTRAL INDEX KEY: 0000103007 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: CT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 497 SEC ACT: SEC FILE NUMBER: 033-75980 FILM NUMBER: 99611698 BUSINESS ADDRESS: STREET 1: 151 FARMINGTON AVE CITY: HARTFORD STATE: CT ZIP: 06156 BUSINESS PHONE: 2032734808 MAIL ADDRESS: STREET 1: C/O AETNA LIFE & CASUALTY STREET 2: 151 FARMINGTON AVE CITY: HARTFORD STATE: CT ZIP: 06156 FORMER COMPANY: FORMER CONFORMED NAME: VARIABLE ANNUITY ACCOUNT C OF AETNA VARIABLE ANNUITY LIFE IN DATE OF NAME CHANGE: 19791108 497 1 AETNA VARIABLE ANNUITY ACCOUNT C Prospectus - May 3, 1999 - -------------------------------------------------------------------------------- [Begin sidebar] The Funds Aetna Balanced VP, Inc. Aetna Income Shares d/b/a Aetna Bond VP Aetna Variable Fund d/b/a Aetna Growth and Income VP Aetna Variable Encore Fund d/b/a Aetna Money Market VP Portfolio Partners MFS Research Growth Portfolio [End sidebar] The Contracts. The contracts described in this prospectus are group installment variable annuity contracts issued by Aetna Life Insurance and Annuity Company (the Company). They are intended to be used as funding vehicles for certain types of retirement plans that may qualify for beneficial tax treatment under certain sections of the Internal Revenue Code of 1986, as amended (Tax Code). - -------------------------------------------------------------------------------- Why Reading this Prospectus is Important. Before you participate in the contract through a retirement plan, you should read this prospectus. It provides facts about the contract and its investment options. Plan sponsors (generally your employer) should read this prospectus to help determine if the contract is appropriate for their plan. Keep this document for future reference. Table of Contents . . . page 3 - -------------------------------------------------------------------------------- Contract Design. The contracts are designed to: > Help you save for retirement while receiving beneficial tax treatment > Offer a variety of investment options to help meet long-term financial goals > Provide a death benefit to a beneficiary in the event of death > Provide future income payments over a lifetime or for a specified period Investment Options. The contracts offer variable investment options and fixed investment options. When we establish your account the contract holder, or you if permitted by the plan, instructs us to direct account dollars in to any of the available options. Some investment options may be unavailable through certain contracts and plans, or in some states. Variable Investment Options. These options are called subaccounts. Each subaccount invests in one of the mutual funds (funds) listed on this page. Earnings on amounts invested in a subaccount will vary depending on the performance of its underlying fund. The subaccounts are within Variable Annuity Account C (the separate account), a separate account of the Company. You do not invest directly in or hold shares of the funds. The funds in which the subaccounts invest have various risks. For information about risks of investing in the funds see "Investment Options" in this prospectus and each fund prospectus. Retain the fund prospectuses for future reference. Fixed Interest Options > Guaranteed Accumulation Account > Fixed Account Except as specifically mentioned, this prospectus describes only the variable investment options. However, we describe the fixed interest options in the appendices to this prospectus. There is also a separate prospectus for the Guaranteed Accumulation Account. Getting Additional Information You may obtain the May 3, 1999, Statement of Additional Information (SAI) by indicating your request on your enrollment materials or calling the Company at 1-800-232-5422. You may also obtain an SAI for any of the funds by calling that number. This prospectus, the SAI and other information about the separate account are posted on the Securities and Exchange Commission (SEC) web site, http://www.sec.gov. The SAI table of contents is listed on page 34 of this prospectus. The SAI is incorporated into this prospectus by reference. Additional Disclosure Information Neither the SEC nor any state securities commission has approved or disapproved the contracts offered through this prospectus or passed on the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense. This prospectus is valid only when accompanied by current prospectuses of the funds and the Guaranteed Accumulation Account. We do not intend for this prospectus to be an offer to sell or a solicitation of an offer to buy these contracts in any state that does not permit their sale. We have not authorized anyone to provide you with information that is different from that contained in this prospectus. THIS PAGE INTENTIONALLY LEFT BLANK 2 TABLE OF CONTENTS - ------------------------------------------------------ Contract Overview ............................... 4 Who's Who The Contract and Your Retirement Plan Contract Rights Contract Facts Contract Phases: Accumulation Phase, Income Phase Questions: Contacting the Company (sidebar) Sending Requests in Good Order (sidebar) - ------------------------------------------------------
Fee Table ................................... 6 Condensed Financial Information ............. 9 Investment Options .......................... 9 Transfers ................................... 11 Contract Purchase and Participation ......... 12 Contract Ownership and Rights ............... 13 Right to Cancel ............................. 14 Fees ........................................ 15 Your Account Value .......................... 18 Withdrawals ................................. 20 Systematic Distribution Options ............. 21 Death Benefit ............................... 22 The Income Phase ............................ 23 Taxation .................................... 26 Other Topics ................................ 30
The Company -- Variable Annuity Account C -- Performance Reporting -- Voting Rights -- Contract Distribution -- Commission Payments -- Third Party Compensation Arrangements -- Contract Modification -- Legal Matters and Proceedings -- Payment Delay or Suspension -- Ownership Transfer; Assignment -- Year 2000 Readiness Contents of the Statement of Additional Information ......... 34 Appendix I -- Guaranteed Accumulation Account ............... 35 Appendix II -- Fixed Account ................................ 37 Appendix III -- Condensed Financial Information ............. 38
3 [Begin sidebar] Questions: Contacting the Company. To answer your questions, contact your local representative or write or call our Home Office: Aetna Retirement Services Annuity Services 151 Farmington Avenue Hartford, CT 06156-1277 1-800-232-5422 Sending Forms and Written Requests in Good Order. If you are writing to change your beneficiary, request a withdrawal, or for any other purpose, contact your local representative or the Company to learn what information is required in order for the request to be in "good order." We can only act upon written requests that are received in good order. [End sidebar] Contract Overview - -------------------------------------------------------------------------------- The following is a summary. Please read each section of this prospectus for additional information. - -------------------------------------------------------------------------------- Who's Who - -------------------------------------------------------------------------------- You (the participant): The individual participating in a retirement plan, where the plan uses the contract as a funding option. Plan Sponsor: The sponsor of your retirement plan. Generally, your employer. Contract Holder: The person or entity to whom we issue the contract. Generally, the plan sponsor or plan trustee. We (the Company): Aetna Life Insurance and Annuity Company. We issue the contract. - -------------------------------------------------------------------------------- The Contract and Your Retirement Plan - -------------------------------------------------------------------------------- Retirement plan (plan): A plan sponsor has established a retirement plan for you. This contract is offered as a funding option for that plan. We are not a party to the plan, so the terms and the conditions of the contract and the plan may differ. Plan Type. We refer to the retirement plan by type. For example, a "401 plan" qualifies for tax treatment under code section 401, and an HR10 plan meets the additional requirements to qualify as an HR10 plan. To learn which type of plan you have, contact your plan sponsor, your Aetna representative or the Company. - -------------------------------------------------------------------------------- Contract Rights - -------------------------------------------------------------------------------- The contract holder holds all rights under the contract, but may permit you to exercise those rights through the plan. For example: The contract may permit the contact holder to select investment options for your account dollars. The plan may permit you to exercise that right. For greater detail see "Contract Ownership and Rights." - -------------------------------------------------------------------------------- Contract Facts - -------------------------------------------------------------------------------- Free look/Right to Cancel: Contract holders may cancel the contract within 10 days after they receive the contract. See "Right To Cancel." Death Benefit: A beneficiary may receive a benefit in the event of your death prior to the income phase. Death benefits during the income phase depend on the payment option selected. See "Death Benefit" and "The Income Phase." Withdrawals: During the accumulation phase the contract holder may withdraw all or a part of the plan or individual account value. Amounts withdrawn may be subject to an early withdrawal charge, other deductions, tax withholding and taxation. See "Withdrawals" and "Taxation." Systematic Distribution Options: The contract holder on your behalf may elect for you to receive regular payments from your account, while retaining the account in the accumulation phase. See "Systematic Distribution Options." Fees: Certain fees are deducted from your account value. See "Fee Table" and "Fees." Taxation: The Tax Code has certain rules that apply to amounts accumulated and distributed under the contract. Tax penalties may apply if rules are not followed. See "Taxation." 4 - -------------------------------------------------------------------------------- Contract Phases - -------------------------------------------------------------------------------- I. The Accumulation Phase (accumulating retirement benefits) STEP 1: The contract holder provides Aetna Life Insurance and Annuity Company with a completed application. Under some contracts, the contract holder directs us to set up individual accounts for participants. Under other contracts, we maintain only one plan account under the contract. STEP 2: The contract holder, or you if permitted by your plan, directs us to invest account dollars in any of the following: a) Fixed Interest Options b) Variable Investment Options. (The variable investment options are the subaccounts of Variable Annuity Account C. Each one invests in a specific mutual fund.) STEP 2(b), continued: The subaccount(s) selected purchases shares of its assigned fund. II. The Income Phase The contract offers several payment options (see "The Income Phase.") In general, you may: > Receive payments over a lifetime or for a specified period > Receive payments monthly, quarterly, semi-annually or annually > Select an option that provides a death benefit to beneficiaries > Select fixed payments or payments that vary based on the performance of the variable investment options you select. [graphic] Payments to the Account Step 1 (down arrow) Aetna Life Insurance and Annuity Company (a) (down arrow) Step 2 (b) (down arrow) Variable Annuity Fixed Separate Account B Interest Options Variable Investment Options The Subaccounts A B Etc. (down arrow) Step 2(b) (down arrow) Mutual Mutual Fund A Fund B [end graphic] 5 [Begin sidebar] In This Section: > Transaction Fees > Fees Deducted from the Subaccounts > Fund Fees > Examples of Fee Deductions See the "Fees" section for > How, When and Why Fees are Deducted > Premium and Other Taxes See "The Income Phase" for: > Fees During the Income Phase [End sidebar] Fee Table - -------------------------------------------------------------------------------- The tables and examples in this section show the fees your account may incur while accumulating dollars under the contract (the accumulation phase). See "The Income Phase" for fees that may apply after you begin receiving payments under the contract. The fees shown below do not include premium taxes that may be applicable. Transaction Fees Early Withdrawal Charge. As a percentage of the amount withdrawn. Early Withdrawal Charge Schedule
- ---------------------------------------------------------- Completed Contract Years Early Withdrawal Charge - ------------------------------- ------------------------ Fewer than 5 5% 5 or more but fewer than 7 4% 7 or more but fewer than 9 3% 9 or more but fewer than 10 2% More than 10 0% - ----------------------------------------------------------
Annual Maintenance Fee ............... $30.00(1) Allocation And Transfer Fees ......... $ 0.00(2)
Fees Deducted from the Subaccounts (Daily deductions equal to the given percentage HR 10 Corporate 401 on an annual basis) Contracts Contracts --------- --------- Mortality and Expense Risk Charge ............. 1.25% 1.19% Administrative Expense Charge ................. 0.00%(3) 0.00%(3) ---- ---- Total Separate Account Expenses ............... 1.25% 1.19% ==== ====
- ------------------------- (1)This fee is deducted from each individual or plan account. It may be reduced or waived for certain plans. (See "Fees -- Maintenance Fee.") (2)The Company currently allows an unlimited number of transfers or allocation charges without charge. However, the Company reserves the right to impose a transfer fee of $10.00 for each transfer or allocation charge in excess of 12 during each calendar year. (See "Fees -- Allocation and Transfer Charge.") (3)We currently do not impose this fee, however, under some contracts we reserve the right to make a daily deduction of up to 0.25% of the account value, on an annual basis. 6 Fees Deducted by the Funds Using this Information. The following table shows the investment advisory fees and other expenses charged annually by each fund. Fund fees are one factor that impacts the value of a fund share. To learn about additional factors, refer to the fund prospectus. How Fees are Deducted. Fund fees are not deducted from account values. Instead, fees are deducted from the value of the fund shares on a daily basis, which in turn will affect the value of each subaccount on a daily basis. Except as noted below, the following figures are a percentage of the average net assets of each fund, and are based on figures for the year ended December 31, 1998. Fund Expense Table
Total Fund Net Fund Annual Annual Expenses Expenses Investment Without Total After Advisory Other Waivers or Waivers and Waivers or Fund Name Fees(1) Expenses Reductions Reductions Reductions --------- ------- -------- ---------- ---------- ---------- Aetna Balanced VP, Inc.(2) 0.50% 0.09% 0.59% -- 0.59% Aetna Bond VP(2) 0.40% 0.10% 0.50% -- 0.50% Aetna Growth and Income VP(2) 0.50% 0.08% 0.58% -- 0.58% Aetna Money Market VP(2) 0.25% 0.09% 0.34% -- 0.34% Portfolio Partners MFS Research Growth Portfolio(3) 0.70% 0.15% 0.85% -- 0.85%
Footnotes to the "Fund Expense Table" (1) Certain of the fund advisers reimburse the company for administrative costs incurred in connection with administering the funds as variable funding options under the contract. These reimbursements are paid out of the management fees and are not charged to investors. (2) Prior to May 1, 1998, the portfolio's investment adviser provided administrative services to the portfolio and assumed the portfolio's ordinary recurring direct costs under an administrative services agreement. After that date, the portfolio's investment adviser provided administrative services but no longer assumed all of the portfolio's ordinary recurring direct costs under an administrative services agreement. The administrative fee is 0.075% on the first $5 billion in assets and 0.050% on all assets over $5 billion. The "Other Expenses" shown are not based on actual figures for the year ended December 31, 1998, but reflect the fee payable under the new administrative services agreement and estimates the portfolio's ordinary recurring direct costs. (3) The investment adviser has agreed to reimburse the portfolio for expenses and/or waive its fees, so that, through at least April 30, 2000, the aggregate of the portfolio's expenses will not exceed the combined investment advisory fees and other expenses shown under the "Net Fund Annual Expenses After Waivers or Reductions" column above. 7 Hypothetical Examples Account Fees Incurred Over Time. The following hypothetical examples show the fees paid over time if $1,000 is invested in a subaccount, assuming a 5% annual return on the investment. For the purposes of these examples, we deducted the maximum allowed under the contract for the following fees: mortality and expense risk charge of 1.25% and 1.19% on an annual basis for HR 10 Contracts and Corporate 401 Contracts respectively, and a maintenance fee of $30.00 (converted to a percentage of assets equal to 0.033%). The total annual fund expenses used are those shown in the column "Total Annual Expenses Without Waivers or Reductions" in the Fund Expense Table. HR 10 CONTRACTS - -------------------------------------------- > These examples are purely hypothetical > They should not be considered a representation of past or future fees or expected returns > Actual fees and/or returns may be more or less than those shown in these examples - --------------------------------------------
EXAMPLE A --------- If you withdraw your entire account value at the end of the periods shown, you would pay the following fees, including any applicable early withdrawal charge assessed: 1 Year 3 Years 5 Years 10 Years ------ ------- ------- -------- Aetna Balanced VP, Inc. $71 $114 $148 $219 Aetna Bond VP $70 $111 $143 $210 Aetna Growth and Income VP $70 $113 $147 $218 Aetna Money Market VP $68 $106 $136 $193 Portfolio Partners MFS Research Growth Portfolio $73 $121 $161 $247 EXAMBLE B --------- If you leave your entire account value invested or if you select an income phase payment option at the end of the periods shown, you would pay the following fees (no early withdrawal is reflected):* 1 Year 3 Years 5 Years 10 Years ------ ------- ------- -------- Aetna Balanced VP, Inc. $19 $59 $101 $219 Aetna Bond VP $18 $56 $ 97 $210 Aetna Growth and Income VP $19 $59 $101 $218 Aetna Money Market VP $17 $51 $ 88 $193 Portfolio Partners MFS Research Growth Portfolio $22 $67 $115 $247
CORPORATE 401 CONTRACTS
EXAMPLE A --------- If you withdraw your entire account value at the end of the periods shown, you would pay the following fees, including any applicable early withdrawal charge assessed: 1 Year 3 Years 5 Years 10 Years ------ ------- ------- -------- Aetna Balanced VP, Inc. $70 $112 $145 $213 Aetna Bond VP $69 $109 $140 $203 Aetna Growth and Income VP $70 $112 $144 $212 Aetna Money Market VP $68 $105 $133 $186 Portfolio Partners MFS Research Growth Portfolio $72 $119 $158 $240 EXAMBLE B --------- If you leave your entire account value invested or if you select an income phase payment option at the end of the periods shown, you would pay the following fees (no early withdrawal is reflected):* 1 Year 3 Years 5 Years 10 Years ------ ------- ------- -------- Aetna Balanced VP, Inc. $18 $57 $ 98 $213 Aetna Bond VP $18 $54 $ 93 $203 Aetna Growth and Income VP $18 $57 $ 98 $212 Aetna Money Market VP $16 $49 $ 85 $186 Portfolio Partners MFS Research Growth Portfolio $21 $65 $112 $240
- ----------------- * Example B will not apply if during the income phase a nonlifetime payment option is elected with variable payments and a lump sum payment is requested within three years after payments start. In that case, the lump sum payment is treated as a withdrawal during the accumulation phase and may be subject to an early withdrawal charge. (Refer to Example A.) 8 Condensed Financial Information - -------------------------------------------------------------------------------- Understanding Condensed Financial Information. In Appendix III, we provide condensed financial information about the Variable Annuity Account C (the separate account) subaccounts available under the contracts. The tables show the value of the subaccounts over the past 10 years. For the subaccounts that were not available 10 years ago, we give a history from the date of first availability. Investment Options - -------------------------------------------------------------------------------- The contract offers variable investment options and fixed interest options. When we establish your account, the contract holder, or you if permitted by the plan, instructs us to direct account dollars to any of the available options. Variable Investment Options. These options are called subaccounts. The subaccounts are within Variable Annuity Account C (the separate account), a separate account of the Company. Earnings on amounts invested in a subaccount will vary depending on the performance and fees of its underlying fund. You do not invest directly in or hold shares of the fund. Fixed Interest Options. For descriptions of the fixed interest options, see Appendix I and II and the Guaranteed Accumulation Account prospectus. - -------------------------------------------------------------------------------- Selecting Investment Options o Choose options appropriate for you. Your Aetna representative can help evaluate which funds or fixed interest options may be appropriate for your financial goals. o Understand the risks associated with the options you choose. Some funds are considered riskier than others. Funds with additional risks are expected to have a value that rises and falls more rapidly and to a greater degree than other funds. For example, funds investing in foreign or international securities are subject to additional risks not associated with domestic investments, and their performance may vary accordingly. Also, funds using derivatives in their investment strategy may be subject to additional risks. o Be informed. Read the prospectus, the fund prospectuses, fixed interest option appendices, and the Guaranteed Accumulation Account prospectus. - -------------------------------------------------------------------------------- Fund Descriptions. The investment results of the mutual funds (funds) are likely to differ significantly and there is no assurance that any of the funds will achieve their respective investment objectives. Shares of the funds will rise and fall in value and you could lose money by investing in the funds. Shares of the funds are not bank deposits and are not guaranteed, endorsed or insured by any financial institution, the Federal Deposit Insurance Corporation or any other government agency. Unless noted, all funds are diversified, as defined under the Investment Company Act of 1940. > Aetna Balanced VP, Inc. seeks to maximize investment return, consistent with reasonable safety of principal by investing in a diversified portfolio of one or more of the following asset classes: stocks, bonds, and cash equivalents, based on the investment adviser's judgment of which of those sectors or mix thereof offers the best investment prospects.(1) 9 > Aetna Income Shares d/b/a Aetna Bond VP seeks to maximize total return, consistent with reasonable risk, through investments in a diversified portfolio consisting primarily of debt securities. It is anticipated that capital appreciation and investment income will both be major factors in achieving total return.(1) > Aetna Variable Fund d/b/a Aetna Growth and Income VP seeks to maximize total return through investments in a diversified portfolio of common stocks and securities convertible into common stock. It is anticipated that capital appreciation and investment income will both be major factors in achieving total return.(1) > Aetna Variable Encore Fund d/b/a Aetna Money Market VP seeks to provide high current return, consistent with preservation of capital and liquidity, through investment in high-quality money market instruments. An investment in the fund is neither insured nor guaranteed by the U.S. Government.(1) > Portfolio Partners, Inc.--MFS Research Growth Portfolio seeks long-term growth of capital and future income.(2) Investment Advisers for each of the funds: (1) Aeltus Investment Management, Inc. (adviser) (2) Aetna Life Insurance and Annuity Company (adviser); Massachusetts Financial Services Company (subadviser) Limits on Option Availability. Some funds and fixed interest options may not be available through certain contracts and plans, or in some states. We may add, withdraw or substitute funds, subject to the conditions in the contract and regulatory requirements. Limits Imposed by the Underlying Fund. Orders for the purchase of fund shares may be subject to acceptance by the fund. We reserve the right to reject, without prior notice, any allocation of payments to a subaccount if the subaccount's investment in the corresponding fund is not accepted by the fund for any reason. Additional Risks of Investing in the Funds. (Mixed and Shared Funding) "Shared funding" occurs when shares of a fund, which the subaccounts buy for variable annuity contracts, are also bought by other insurance companies for their variable annuity contracts. "Mixed funding" occurs when shares of a fund, which the subaccounts buy for variable annuity contracts, is bought for variable life insurance contracts issued by us or other insurance companies. > Shared--bought by more than one company > Mixed--bought for annuities and life insurance It is possible that a conflict of interest may arise due to mixed and/or shared funding, that could adversely impact the value of a fund. For example, if a conflict of interest occurred and one of the subaccounts withdrew its investment in a fund, the fund may be forced to sell its securities at disadvantageous prices, causing its share value to decrease. Each fund's board of directors or trustees will monitor events to identify any conflict which might arise and to determine what action, if any, should be taken to address such conflicts. 10 ERISA Status. The Employee Retirement Income Security Act of 1974 (ERISA) imposes a "prudent man" rule regarding the selection and monitoring of investments for these types of retirement plans. Those responsible for selecting and monitoring the investments (fiduciaries or plan trustees) can be held liable for plan investment losses if they fail to provide for prudent investment of plan assets. However, Section 404(c) of ERISA limits fiduciary liability in plans that allow participants to select their own investments, provided the available investments meet certain criteria. The five funds available under the contract provide plan fiduciaries some protection under Section 404(c). The five subaccounts available under the contract qualify as "core funds" under ERISA Section 404(c). The underlying funds are broadly diversified, have different risk/return characteristics, are supported by pre- and post-enrollment disclosure material, are valued and accessible daily, and are look-through investment vehicles. The Fixed and Guaranteed Accumulation Accounts are not Section 404(c) core funds, but are intended as additional investment options. Thus, the contract provides a well-rounded portfolio, the potential for 404(c) protection and eliminates the need for an external investment manager. The Company is not a designated fiduciary or investment manager for any pension plan. Our responsibility is to execute investment instructions received from the trustee and/or employees as required under state and federal law. The employer and plan trustee have overall fiduciary responsibility for your plan. Plan trustees are responsible for taking affirmative actions in order to retain Section 404(c) protection, and should review applicable Department of Labor regulations (20 C.F.R. [sec]2550.404c-1) Transfers - -------------------------------------------------------------------------------- Transfers Among Investment Options. During the accumulation phase the contract holder, or you if permitted by the plan, may transfer among the investment options. Subject to the contract holder's approval, requests may be made in writing, by telephone or, where applicable, electronically. Transfers from fixed interest options may be restricted as outlined in Appendices I and II. You may not make transfers once you enter the income phase. Charges for Transfers. We currently do not charge for transfers or allocation changes. We do however, reserve the right to charge a fee of $10.00 for each transfer and/or more allocation change in excess of 12 made in any calendar year. Value of Transferred Dollars. The value of amounts transferred in or out of the funds will be based on the subaccount values next determined after we receive your request in good order at our Home Office. Telephone Transfers: Security Measures. To prevent fraudulent use of telephone transactions, we have established security procedures. These include recording calls on our toll-free telephone lines and requiring the use of a personal identification number (PIN) to execute transactions. You are responsible for keeping your PIN and account information confidential. If we 11 fail to follow reasonable procedures, we may be liable for any losses due to unauthorized or fraudulent telephone transactions. We are not be liable for losses resulting from telephone instructions we believe to be genuine. If a loss occurs when we rely on such instructions, you will bear the loss. Limits on Frequent Transfers. The contracts are not designed to serve as vehicles for frequent trading in response to short-term fluctuations in the market. Such frequent trading can disrupt management of a fund and raise its expenses. This in turn can have an adverse effect on fund performance. Accordingly, organizations or individuals that use market-timing investment strategies and make frequent transfers should not purchase the contracts. We reserve the right to restrict, in our sole discretion and without prior notice, transfers initiated by a market-timing organization or individual or other party authorized to give transfer instructions on behalf of multiple contract holders or participants. Such restrictions could include: (1) not accepting transfer instructions from an agent acting on behalf of more than one contract holder or participant; and (2) not accepting preauthorized transfer forms from market timers or other entities acting on behalf of more than one contract holder or participant at a time. We further reserve the right to impose, without prior notice, restrictions on any transfers that we determine, in our sole discretion, will disadvantage or potentially hurt the rights or interests of other contract holders or participants. Contract Purchase and Participation - -------------------------------------------------------------------------------- Contracts Available for Purchase. The contracts are designed for plans sponsored by an employer eligible to establish an HR 10 plan for its employees, and for other plans designed to qualify for treatment under Section 401 of the Internal Revenue Code of 1986, as amended (the Tax Code). Purchasing the Contract. (1) The contract holder submits the required forms and application to the Company. (2) We approve the forms and issue a contract to the contract holder. Participating in the Contract. If the contract provides for the establishment of individual accounts for employees under the plan: (1) We provide you with enrollment materials for completion and return to us. You then complete an enrollment form and submit it to us. (2) If your enrollment materials are complete and in good order, we establish an account for you. Acceptance or Rejection of Applications or Enrollment Forms. We must accept or reject an application or your enrollment materials within two business days of receipt. If the forms are incomplete, we may hold any forms and accompanying payments for five business days, unless you consent to our holding them longer. Under limited circumstances, we may also agree, for a particular plan, to hold payments for longer periods with the permission of the contract holder. If we agree to this, we will deposit the payments in the 12 Aetna Money Market VP subaccount until the forms are completed (or for a maximum of 105 days). If we reject the application or enrollment form, we will return forms and any payments. Types of Contracts. Generally, a single master group contract is issued to cover present and future participants. The following types of contracts are available: > Allocated, where individual accounts are established and individual purchase payments are directed to each corresponding account. > Unallocated, where no individual accounts are established. All purchase payments go to a single plan account. The corporate 401 contracts covered by this prospectus were available only for conversions through the Company's rewrite program. Those eligible for these contracts were contract holders of Individual Pension Trust contracts issued prior to May 1, 1975 who elected to stop payments to their existing contract and direct future payments to the new contracts. These contracts are no longer available for new sales. If state law does not permit a group contract, individual contracts will be issued for each participant. Allocation of Payments. The contract holder or you, if the contract holder permits, directs us to allocate initial contributions to the investment options available under the plan. Generally you will specify this information on your enrollment materials. After your enrollment, changes to allocations for future payments or transfer of existing balances among investment options may be requested in writing and, where available, by telephone or electronically. Allocations must be in whole percentages. Payments must be large enough to fulfill the terms of the plan. For HR 10 plans, payments must be at least $25 per participant and total payments for the plan must be at least $6,000 annually (or average $2,000 per participant if there are fewer than three participants in the plan). Tax Code Restrictions. The Tax Code places some limitations on contributions to your account. (See "Taxation.") Contract Ownership and Rights - -------------------------------------------------------------------------------- Who owns the Contract? The contract holder. This is the person or entity to whom we issue the contract. The contract holder is usually your employer, unless the plan has a trustee, in which case the trustee is usually the contract holder. What Rights Do I Have under the Contract? The contract holder, usually your employer, holds all rights under the contract. The contract holder's plan, which you participate in, may permit you to exercise some of those rights. 13 Right to Cancel - -------------------------------------------------------------------------------- When and How to Cancel. The contract holder may cancel the contract within ten days of receiving it (or as otherwise allowed by state law) by returning it to the Company along with a written notice of cancellation. Refunds to Contract Holders. We will produce a refund to the contract holder not later than seven days after we receive the contract and the written notice of cancellation at our Home Office. The refund will equal the dollars contributed to the contract plus any earnings or less any losses attributable to those contributions allocated to the variable investment options, unless otherwise required by law. 14 [Begin sidebar] Types of Fees There are three types of fees your account may incur: > Transaction Fees o Early Withdrawal Charge o Maintenance Fee o Allocation and Transfer Fees > Fees Deducted from the Subaccounts o Mortality and Expense Risk Charge o Administrative Expense Charge > Fees Deducted by the Funds o Investment Advisory Fees o Other Expenses Terms to understand in the Schedules Contract Year--For HR 10 contracts issued before June 1, 1992 and for all corporate 401 contracts, the period of 12 months measured from the contract's effective date or from any anniversary of such effective date. For HR 10 contracts issued on and after June 1, 1992, the period of 12 months measured from the date the first purchase payment is applied to the contract or from any anniversary of such date, subject to state approval. [End sidebar] Fees - -------------------------------------------------------------------------------- The following repeats and adds to information provided in the "Fee Table" section. Please review both this section and the Fee Table for information on fees. Transaction Fees Early Withdrawal Charge Withdrawal of all or a portion of the individual or plan account value may be subject to a charge. Amount: The charge is a percentage of the amount withdrawn from the contract as shown in the Early Withdrawal Charge Schedule below. Purpose: This is a deferred sales charge. The charge reimburses us for some of the sales and administrative expenses associated with the contract. Our remaining sales and administrative expenses will be covered by our general assets which are attributable in part to the mortality and expense risk charges described in this section. Early Withdrawal Charge Schedule
- -------------------------------------------------------- Completed Contract Years Deferred Sales Charge - ------------------------------- ---------------------- Fewer than 5 5% 5 or more but fewer than 7 4% 7 or more but fewer than 9 3% 9 or more but fewer than 10 2% 10 or more 0% - --------------------------------------------------------
Waiver. The early withdrawal charge is waived for portions of a withdrawal when the withdrawal is: > Used to provide income phase payments; > Paid due to your death before income phase payments begin; > Taken after the completion of ten contract years; > Taken because of the election of a systematic distribution option (See "Systematic Distribution Options"); > Used as a rollover to purchase another of the Company's pension or IRA contracts; > Paid when the individual account value is below $2,500 and no other withdrawals have been made from that individual account within the past 12 months. We will add together all individual account values held on your behalf to determine eligibility for this exemption. This provision is not available where we do not maintain individual accounts or where all individual accounts are withdrawn under the contract. 15 Maintenance Fee Maximum Amount. $30.00 for each individual account. For a plan account, the maintenance fee is $30 for each participant for whom payments are made, up to a maximum of $240 for the plan account. When/How. During the accumulation phase we deduct this fee from each individual or plan account. We deduct it on your account anniversary and, if permitted by state law, at the time of full withdrawal. Purpose. This fee reimburses us for our administrative expenses relating to the establishment and maintenance of the account. Optional Payment Method. The contract holder may elect to pay the annual maintenance fee directly to the Company for all participants in the plan. In this case the maintenance fee will not be deducted from the account value. Reduction/Waiver. For both HR 10 contracts and corporate 401 contracts, the contract holder may become eligible for a maintenance fee reduction. For HR 10 contracts issued on or after June 1, 1992, if at installation the contract has 25 or more active participants and the contract holder meets and adheres to the terms of an agreement to remit automated payments and enrollments, the maintenance fee will be reduced by $10. For HR 10 contracts issued prior to June 1, 1992 that met these conditions at installation, or for any contracts that meet these conditions subsequent to the installation, the maintenance fee will be reduced by $5. For corporate 401 contracts, the maintenance fee will be reduced by $5 if the contract has 25 or more active participants and the contract holder meets and adheres to the terms of an agreement to remit automated payments. For all contracts, the maintenance fee is waived when: > A participant has account values totaling less than $100; or > A participant enrolls within 90 days of the maintenance fee deduction, or > An individual account or plan account is terminated less than 90 days after the last deduction Allocation and Transfer Fee Amount: $0.00 We currently do not impose a fee for allocation changes or transfers among investment options. We reserve the right, however, to charge $10 for each allocation change or transfer in excess of 12 that in a calendar year. Purpose: This fee reimburses us for administrative expenses associated with transferring or reallocating your dollars among investment options. Fees Deducted from Investments in the Subaccounts Mortality and Expense Risk Charge Amount: For HR 10 plans, 1.25% annually; and for corporate 401 plans, 1.19% annually of the account value invested in the subaccounts. When/How: This fee is deducted daily from the subaccounts. We do not deduct this from any fixed interest option. 16 Purpose: This fee compensates us for the mortality and expense risks we assume under the contracts. > The mortality risks are those associated with the our promise to make lifetime payments based on annuity rates specified in the contracts and our funding of the death benefit and other payments we make to owners or beneficiaries of the accounts > The expense risk is that actual expenses we incur under the contract will exceed the maximum costs that we can charge. If the amount we deduct for this fee is not enough to cover our mortality costs and expenses under the contracts, we will bear the loss. We may use any excess to recover distribution costs relating to the contract and as a source of profit. We expect to make a profit from this fee. Administrative Expense Charge Amount: $0.00 We currently do not impose this fee; however, under some contracts, we reserve the right to deduct up to 0.25% of the account value on an annual basis. Fund Expenses Maximum Amount. Each fund determines its own advisory fees and expenses. For a list of fund fees see "Fee Table." The fees are described in more detail in each fund prospectus. When/How. Fund fees are not deducted from your account. Fund advisory fees and expenses are reflected in the daily value of the fund shares, which will in turn affect the daily value of each subaccount. Purpose: These amounts help to pay the funds' investment advisor and operating expenses. Premium and Other Taxes Maximum Amount. Some states and municipalities charge a premium tax on annuities. These taxes currently range from 0% to 4% depending on jurisdiction. When/How. We reserve the right to deduct premium taxes from your account value or from payments to your account at any time, but not before there is a tax liability under state law. Our current practice is to deduct premium taxes at the time of a full withdrawal or the commencement of income phase payments. We will not deduct any municipal premium tax of 1% or less, but we reserve the right to reflect such an expense in our annuity rates. In addition, the Company reserves the right to assess a charge for any federal taxes due against the separate account. (See "Taxation.") 17 Your Account Value - -------------------------------------------------------------------------------- During the accumulation phase, your account value at any given time equals: > Account dollars directed to the fixed interest options, including interest earnings to date > Less any deductions from the fixed interest options (e.g. withdrawals, fees) > Plus the current dollar value of amounts invested in the subaccounts. Subaccount Accumulation Units. When a fund is selected as an investment option, your account dollars invest in "accumulation units" of the Variable Annuity Account C subaccount corresponding to that fund. The subaccount invests directly in the fund shares. The value of your interests in a subaccount is expressed as the number of accumulation units you hold multiplied by an "Accumulation Unit Value," as described below, for each unit. Accumulation Unit Value (AUV) The value of each accumulation unit in a subaccount is called the accumulation unit value or AUV. The value of accumulation units vary daily in relation to the underlying fund's investment performance. The value also reflects deductions for fund fees and expenses, and the mortality and expense risk charge. We discuss these deductions in more detail in "Fee Table" and "Fees." Valuation. We determine the AUV every business day after the close of the New York Stock Exchange. At that time, we calculate the current AUV by multiplying the AUV last calculated by the "net investment factor" of the subaccount. The net investment factor measures the investment performance of the subaccount from one valuation to the next. Current AUV = Prior AUV x Net Investment Factor Net Investment Factor The net investment factor for a subaccount between two consecutive valuations, equals the sum of 1.0000 plus the net investment rate. Net Investment Rate. The net investment rate is computed according to a formula that is equivalent to the following: > The net assets of the fund held by the subaccount as of the current valuation, minus; > The net assets of the fund held by the subaccount at the preceding valuation, plus or minus; > Taxes or provisions for taxes, if any, due to subaccount operations (with any federal income tax liability offset by foreign tax credits to the extent allowed); > Divided by the total value of the subaccount units at the preceding valuation; > Less a daily deduction for the mortality and expense risk charge and the administrative expense charge (if any). See "Fees." The net investment rate may be either positive or negative. 18 Hypothetical Illustration. As a hypothetical illustration, assume that an investor contributes $5,000 to his account and directs us to invest $3,000 of payments in Fund A and $2,000 of payments in Fund B. After receiving the contribution and following the next close of business of the New York Stock Exchange, the applicable AUV's are $10 for Subaccount A, and $25 for Subaccount B. The investor's account is credited with 300 accumulation units of subaccount A and 80 accumulation units of Subaccount B. Step 1: An Investor contributes $5000 Step 2: A. He directs us to invest $3,000 in Fund A. His dollars purchase 300 accumulation units of Subaccount A ($3,000 divided by the current $10 AUV). B. He directs us to invest $2,000 in Fund B. His dollars purchase 80 accumulation units of Subaccount B ($2,000 divided by the current $25 AUV). Step 3: The separate account then purchases shares of the applicable funds at the current market value. The fund's subsequent investment performance, expenses and charges, and the daily charges deducted from the subaccount, will cause the AUV to move up or down on a daily basis. Payments to Your Account. If all or a portion of initial payments are directed to the subaccounts, they will purchase subaccount accumulation units at the AUV next computed after our acceptance of the applicable application or enrollment forms. Subsequent payments or transfers directed to the subaccounts that we receive by the close of business of the New York Stock Exchange (Exchange) will purchase subaccount accumulation units at the AUV computed after the close of the Exchange on that day. The value of subaccounts may vary day to day. [graphic] $5,000 contribution Step 1 (down arrow) Aetna Life Insurance and Annuity Company Step 2 (down arrow) Variable Annuity Account C Subaccount A Subaccount B Etc. 300 80 accumulation accumulation units units (down arrow) Step 3 (down arrow) Fund A Fund B [end graphic] 19 [Begin sidebar] Taxes, Fees and Deductions Amounts withdrawn may be subject to one or more of the following: > Early Withdrawal Charge > Market Value Adjustment (see Appendix I) > Tax Penalty (see "Taxation") > Tax Withholding (see "Taxation") To determine which may apply, refer to the appropriate sections of this prospectus, contact your Aetna representative, or call the Company at the number listed in "Contract Overview-- Questions: Contacting the Company." [End sidebar] Withdrawals - -------------------------------------------------------------------------------- Making a Withdrawal. The contract holder may withdraw all or a portion of the individual or plan account value at any time during the accumulation phase. Steps for Making A Withdrawal The contract holder must: > Select the Withdrawal Amount (1) Full Withdrawal: The contract holder will receive, reduced by any required withholding tax, the account value allocated to the subaccounts, the Guaranteed Accumulation Account (plus or minus any market value adjustment) and to the Fixed Account, minus any applicable early withdrawal charge. (2) Partial Withdrawal (Percentage or Specified Dollar Amount): The contract holder will receive, reduced by any required withholding tax, the amount specified, subject to the value available in the account. However, the amount actually withdrawn from the account will be adjusted by any applicable early withdrawal charge, and any positive or negative market value adjustment for amounts withdrawn from the Guaranteed Accumulation Account. > Select Investment Options. If this is not specified, we will withdraw dollars proportionally from the investment options in which you have an account value. > Properly complete a disbursement form and submit it to our Home Office. Calculation of Your Withdrawal. We determine the account value every normal business day after the close of the New York Stock Exchange. All withdrawal amounts paid will be based on account value as of either (1) The next valuation after receiving a request for withdrawal at our Home Office; or (2) On such later date as specified on the disbursement form. Delivery of Payment. Payments for withdrawal requests will be made in accordance with SEC requirements. Normally, payment will be sent not later than seven calendar days following our receipt of the disbursement form in good order. Reinvestment Privilege. The contracts allow one-time use of a reinvestment privilege. Within 30 days after a full withdrawal, if allowed by law and the contract, the contract holder may elect to reinvest all or a portion of the proceeds. We must receive reinvested amounts within 60 days of the withdrawal. We will credit the account for the amount reinvested based on the subaccount values next computed following our receipt of the request and the amount to be reinvested. We will credit the amount reinvested for maintenance fees and proportionally for early withdrawal charges imposed at the time of withdrawal. We will deduct from the amounts reinvested any maintenance fee which fell due after the withdrawal and before the reinvestment. We will reinvest in the same investment options and proportions in place at the time of withdrawal. Special rules apply to reinvestments of amounts withdrawn from the Guaranteed Accumulation Account (see Appendix I). Seek competent advice regarding the tax consequences associated with reinvestment. 20 [Begin sidebar] Features of a Systematic Distribution Option (SDO) An SDO allows the contract holder to elect for you to receive regular payments from your account, without moving into the income phase. By maintaining your account in the accumulation phase, certain rights and flexibility are retained and accumulation phase fees continued to apply. [End sidebar] Systematic Distribution Options - -------------------------------------------------------------------------------- Availability of Systematic Distribution Options (SDOs). To exercise one of these options the account must meet any minimum dollar amount and you must meet any age criteria applicable to that option. Check with the contract holder to determine which Systematic Distribution Options are available under your Plan. The SDO's currently available under the contract include the following: > SWO--Systematic Withdrawal Option. SWO is a series of automatic partial withdrawals from your account based on the payment method selected. It is designed for those who would like a periodic income while retaining investment flexibility for amounts accumulated under the contract. > ECO--Estate Conservation Option. ECO offers the same investment flexibility as SWO, but is designed for those who want to receive only the minimum distribution that the Tax Code requires each year. Under ECO, we calculate the minimum distribution amount required by law at age 70-1/2, and pay that amount once a year. > Other Systematic Distribution Options. We may add additional SDOs from time to time. You may obtain additional information relating to any of the SDOs from your local representative or from our Home Office. Availability of Systematic Distribution Options. The Company may discontinue the availability of one or all of the SDOs at any time, and/or change the terms of future elections. Terminating a Systematic Distribution Option. Once an SDO is elected, the contract holder may revoke it at any time by submitting a written request to our Home Office. Any revocation will apply only to the amount yet to be paid. Once an option is revoked for an account, it may not be elected again, nor may any other SDO be elected. Charges and Taxation. When the contract holder elects an SDO for your account, your account value remains in the accumulation phase and subject to the charges and deductions described in the "Fees" section. Taking a withdrawal under an SDO may have tax consequences. If you are concerned about tax implications, consult a tax adviser before an SDO is elected. 21 [Begin sidebar] During the Income Phase This section provides information about the accumulation phase. For death benefit information applicable to the income phase see "The Income Phase." [End sidebar] Death Benefit - -------------------------------------------------------------------------------- The contract provides a death benefit in the event of your death, which is payable to the contract holder (usually the plan trustee). The contract holder may direct that we make any payments to the beneficiary you name under the plan (plan beneficiary). During the Accumulation Phase Payment Process (1) Following your death, the contract holder (on behalf of your plan beneficiary) must provide the Company with proof of death acceptable to us and a payment request in good order (2) The payment request should include selection of a benefit payment option (3) Within seven days after we receive proof of death acceptable to us and payment request in good order at our Home Office, we will mail payment, unless otherwise requested Until a payment option is selected, account dollars will remain invested as at the time of your death, and no distribution will be made. If you die during the accumulation phase of your account, the following payment options are available to your plan beneficiary, if allowed by your contract holder and the Tax Code: > Lump sum payment > Payment in accordance with any of the available income phase payment options (see "The Income Phase--Payment Options") > If the plan beneficiary is your spouse, payment in accordance with an available SDO (See "Systematic Distribution Options") The following options are also available; however, the Tax Code limits how long the death benefit proceeds may be left in these options: > Leaving your account value invested in the contract; or > Under some contracts, leaving your account value on deposit in the Company's general account, and receiving monthly, quarterly, semi-annual or annual interest payments at the interest rate then being credited on such deposits. The beneficiary may withdraw the balance on deposit at any time or request to receive payment in accordance with any of the available income phase payment options (See "The Income Phase--Payment Options.") The Value of the Death Benefit. The death benefit will be based on your account value as calculated on the next valuation following the date on which we receive proof of death in good order. Interest, if any, will be paid from the date of death at a rate no less than required by law. For amounts held in the Guaranteed Accumulation Account (GAA), any positive aggregate market value adjustment (the sum of all market value adjustments calculated due to a withdrawal) will be included in your account value. If a negative market value adjustment applies, it would be deducted only if the death benefit is withdrawn more than six months after your death. We describe the market value adjustment in Appendix I and the GAA prospectus. Tax Code Requirements. The Tax Code requires distribution of death benefit proceeds within a certain period of time. Failure to begin receiving death benefit payments within those time periods can result in tax penalties. Regardless of the method of payment, death benefit proceeds will generally be taxed to the beneficiary in the same manner as if you had received those payments. See "Taxation" for additional information. 22 [Begin sidebar] We may have used the following terms in prior prospectuses: Annuity Phase--Income Phase Annuity Option--Payment Option Annuity Payment--Income Phase Payment Annuitization--Initiating Income Phase Payments [End sidebar] The Income Phase - -------------------------------------------------------------------------------- During the income phase the contract holder elects to receive payments from the accumulated account value. Initiating Payments. At least 30 days prior to the desired date to start receiving payments, the contract holder must notify us in writing of the following: > Start date > Payment option (see the payment options table in this section) > Payment frequency (i.e., monthly, quarterly, semi-annually or annually) > Choice of fixed or variable payments > Selection of an assumed net investment rate (only if variable payments are elected) The account will continue in the accumulation phase until the contract holder properly initiates payments. Once a payment option is selected, it may not be changed; however, certain options allow the withdrawal of a lump sum. What Affects Payment Amounts? Some of the factors that may affect payment amounts include: your age, your account value, the payment option selected, number of guaranteed payments (if any) selected, and whether variable or fixed payments are selected. Fixed Payments. Amounts funding fixed payments will be held in the Company's general account. Fixed payment amounts do not vary over time. Variable Payments. Amounts funding income payments will be held in the subaccount(s) selected or a combination of subaccounts and the general account. The only subaccounts currently permitted during the income phase are the Aetna Balanced Fund, Inc., Aetna Bond Fund, and Aetna Growth and Income Fund. Transfers are not permitted once the income phase begins. For variable payments, an assumed net investment rate must be selected. Assumed Net Investment rate. For variable payments, an assumed net investment rate must be selected. If a 5% rate is selected, the first payment will be higher, but subsequent payments will increase only if the investment performance of the subaccounts selected, is greater than 5% annually, after deduction of fees. Payment amounts will decline if the investment performance is less than 5%, after deduction of fees. If a 3-1/2% rate is selected, the first payment will be lower and subsequent payments will increase more rapidly or decline more slowly depending on the investment performance of the subaccounts selected. For more information about selecting an assumed net investment rate, request a copy of the Statement of Additional Information by calling the Company. (See "Contract Overview--Questions.") 23 Minimum Payment Amounts. The payment option selected must result in one or both of the following: > A first payment of at least $20 > Total yearly payments of at least $100 If your account value is too low to meet these minimum payment amounts, the contract holder must elect a lump sum payment. Charges Deducted. We make a daily deduction for mortality and expense risks from amounts held in the subaccounts. Therefore if variable payments and a nonlifetime payment option are chosen, we still make this deduction from the subaccounts selected, even though we no longer assume any mortality risk. We may also deduct a daily administrative charge from amounts held in the subaccounts. (See "Fees.") Death Benefit During the Income Phase. The death benefits that may be available to a beneficiary are outlined in the payment option table below. If a lump sum payment is due as a death benefit, we will make payment within seven calendar days after we receive proof of death acceptable to us and the payment request in good order at our Home Office. Taxation. To avoid certain tax penalties, you and any beneficiary must meet the distribution rules imposed by the Tax Code. (See "Taxation.") 24 Payment Options The following tables list the payment options and accompanying death benefits which may be available under the contracts. Some contracts restrict the options and the terms available. Check with your contract holder for details. We may offer additional payment options under the contract from time to time. Terms used in the Tables: Annuitant: The person(s) on whose life expectancy the income phase payments are calculated. Beneficiary: The person designated to receive the death benefit payable under the contract.
- ------------------------------------------------------------------------------------------------------------------ Lifetime Payment Options - ------------------------------------------------------------------------------------------------------------------ Length of Payments: For as long as the annuitant lives. It is possible that only one payment Life Income will be made should the annuitant die prior to the second payment's due date. Death Benefit--None: All payments end upon the annuitant's death. - ------------------------------------------------------------------------------------------------------------------ Length of Payments: For as long as the annuitant lives, with payments guaranteed for a Life Income-- choice of 5 to 20 years or otherwise as specified in the contract. Guaranteed Death Benefit--Payment to the Beneficiary: If the annuitant dies before we have made all Payments the guaranteed payments, we will pay the beneficiary a lump sum (unless otherwise requested) equal to the present value of the remaining guaranteed payments. - ------------------------------------------------------------------------------------------------------------------ Length of Payments: For as long as either annuitant lives. It is possible that only one payment will be made should both annuitants die before the second payment's due date. Continuing Payments: Life Income-- (a) This option allows a choice of 100%, 66-2/3% or 50% of the payment to continue to the Two Lives surviving annuitant after the first death; or (b) 100% of the payment to continue to the annuitant on the second annuitant's death, and 50% of the payment to continue to the second annuitant on the annuitant's death. Death Benefit--None: Payments end after the deaths of both annuitants. - ------------------------------------------------------------------------------------------------------------------ Length of Payments: For as long as either annuitant lives, with payments guaranteed for a minimum of 120 months, or as otherwise specified in the contract. Life Income-- Continuing Payments: 100% of the payment will continue to the surviving annuitant after the Two Lives-- first death. Guaranteed Death Benefit--Payment to the Beneficiary: If both annuitants die before the guaranteed Payments payments have all been paid, we will pay the beneficiary a lump sum (unless otherwise requested) equal to the present value of the remaining guaranteed payments. - ------------------------------------------------------------------------------------------------------------------ Nonlifetime Payment Options - ------------------------------------------------------------------------------------------------------------------ Length of Payments: Payments generally may be fixed or variable and may be made for 3-30 years. In certain cases a lump sum payment may be requested at any time (see below). Nonlifetime-- Death Benefit--Payment to the Beneficiary: If the annuitant dies before we make all the Guaranteed guaranteed payments, we will pay the beneficiary a lump sum (unless otherwise requested) Payments equal to the present value of the remaining guaranteed payments, and we will not impose any early withdrawal charge. - ------------------------------------------------------------------------------------------------------------------
Lump Sum Payment: If the Nonlifetime--Guaranteed Payments option is elected with variable payments, the contract holder may request at any time that all or a portion of the present value of the remaining payments be paid in one sum. A lump sum elected before three years of payments have been completed will be treated as a withdrawal during the accumulation phase and we will charge any applicable early withdrawal charge. (See "Fees-- Early Withdrawal Charge.") Lump sum payments will be sent within seven calendar days after we receive the request for payment in good order at our Home Office. - -------------------------------------------------------------------------------- 25 [Begin sidebar] In This Section > Introduction > Plan Types > Withdrawals and other Distributions o Taxation of Distributions o 10% Penalty Tax o Withholding > Minimum Distribution Requirements o 50% Excise Tax > Rules Specific to Certain Plans o Code Section 401(a), 401(k) and 403(a) Plans > Taxation of the Company When consulting a tax adviser, be certain that he or she has expertise in the Tax Code sections applicable to your tax concerns. [End sidebar] Taxation - -------------------------------------------------------------------------------- Introduction This section discusses our understanding of current federal income tax laws affecting the contract. You should keep the following in mind when reading it: > Your tax position (or the tax position of the beneficiary, as applicable) determines federal taxation of amounts held or paid out under the contract. > Tax laws change. It is possible that a change in the future could affect contracts issued in the past. > This section addresses federal income tax rules and does not discuss federal estate and gift tax implications, state and local taxes or any other tax provisions. > We do not make any guarantee about the tax treatment of the contract or transactions involving the contract. - -------------------------------------------------------------------------------- We do not intend this information to be tax advice. For advice about the effect of federal income taxes or any other taxes on amounts held or paid out under the contract, consult a tax adviser. For more comprehensive information contact the Internal Revenue Service. - -------------------------------------------------------------------------------- Plan Types. There are two contracts described in this Prospectus. Both contracts are used for retirement plans that qualify under Code Section 401(a), 401(k) or 403(a). One contract is designed for use with qualified retirement plans established by self-employed individuals (H.R. 10 Plans). The other contract is designed for use with qualified retirement plans established by corporations. The Contract and Retirement Plans. Contract holders and contract participants are responsible for determining that contributions, distributions and other transactions satisfy applicable laws. Legal counsel and a tax adviser should be consulted regarding the suitability of the contract. Because the plan is not part of the contract, we are not bound by any plan's terms or conditions. Withdrawals and Other Distributions Certain tax rules apply to distributions from the contract. A distribution is any amount taken from the contract including withdrawals, income payments, rollovers and death benefit proceeds. We report the taxable portion of all distributions to the IRS. Taxation of Distributions 401(a), 401(k) or 403(a) Plans. All distributions from these plans are taxed as received unless: The distribution is rolled over to another plan of the same type or to a traditional individual retirement annuity/account (IRA) in accordance with the Tax Code, or You made after-tax contributions to the plan. In this case, depending on the type of distribution, a portion may be excluded from gross income according to rules detailed in the Tax Code. 26 Taxation of Death Benefit Proceeds. In general, payments received by your beneficiaries after your death are taxed in the same manner as if you had received those payments. 10% Penalty Tax. The Tax Code imposes a 10% penalty tax on the taxable portion of any distribution from a 401(a), 401(k) or 403(a), unless one or more of the following have occurred: (a) You have attained age 59-1/2, (b) You have become permanently disabled, (c) You have died, (d) You have separated from service with the plan sponsor at or after age 55, (e) The distribution amount is rolled over into another plan of the same type or to an IRA in accordance with the terms of the Tax Code, or (f) The distribution amount is made in substantially equal periodic payments (at least annually) over your life or life expectancy or the joint lives or joint life expectancies of you and your beneficiary. Also, you must have separated from service with the plan sponsor. In addition, the penalty tax does not apply for the amount of a distribution equal to unreimbursed medical expenses incurred by you that qualify for deduction as specified in the Tax Code. The Tax Code may impose other penalty taxes in other circumstances. Withholding for Federal Income Tax Liability. Any distributions under the contracts are generally subject to withholding. Federal income tax liability rates vary according to the type of distribution and the recipient's tax status. 401(a), 401(k) or 403(a) Plans. Generally, under these plans you or a beneficiary may elect not to have tax withheld from distributions. However, certain distributions from these plans are subject to a mandatory 20% federal income tax withholding. Non-resident Aliens. If you or a beneficiary is a non-resident alien, then any withholding is governed by code section 1441 based on the individual's citizenship, the country of domicile and treaty status. Minimum Distribution Requirements To avoid certain tax penalties, you and any beneficiary must meet the minimum distribution requirements imposed by the Tax Code. These rules may dictate one or more of the following: > Start date for distributions > The time period in which all amounts in your account(s) must be distributed > Distribution amounts Start Date. Generally, you must begin receiving distributions by April 1 of the calendar year following the calendar year in which you attain age 70-1/2 or retire, whichever occurs later, unless you are a 5% owner, in which case such distributions must begin by April 1st of the calendar year following the calendar year in which you attain age 70-1/2. Time Period. We must pay out distributions from the contract over one of the following time periods: > Over your life or the joint lives of you and your beneficiary, or 27 > Over a period not greater than your life expectancy or the joint life expectancies of you and your beneficiary 50% Excise Tax. If you fail to receive the minimum required distribution for any tax year, a 50% excise tax is imposed on the required amount that was not distributed. Minimum Distribution of Death Benefit Proceeds. Different distribution requirements apply if your death occurs: > After you begin receiving minimum distributions under the contract, or > Before you begin receiving such distributions If your death occurs after you begin receiving minimum distributions under the contract, distributions must be made at least as rapidly as under the method in effect at the time of your death. Code section 401(a)(9) provides specific rules for calculating the minimum required distributions at your death. The rules differ, dependent upon: > Whether your minimum required distribution was calculated each year based on your single life expectancy or the joint life expectancies of you and your beneficiary, and > Whether life expectancy was recalculated The rules are complex and any beneficiary should consult with a tax adviser before electing the method of calculation to satisfy the minimum distribution requirements. Should you die before you begin receiving minimum distributions under the contract, your entire balance must be distributed by December 31 of the calendar year containing the fifth anniversary of the date of your death. For example, if you die on September 1, 1999, your entire balance must be distributed to the beneficiary by December 31, 2004. However, if the distribution begins by December 31 of the calendar year following the calendar year of your death, then payments may be made in one of the following time-frames: > Over the life of the beneficiary > Over a period not extending beyond the life expectancy of the beneficiary Start Dates for Spousal Beneficiaries. If the beneficiary is your spouse, the distribution must begin on or before the later of the following: > December 31 of the calendar year following the calendar year of your death > December 31 of the calendar year in which you would have attained age 70-1/2. Rules Specific to Certain Plans Code Section 401(a), 401(k) and 403(a) Plans Code sections 401(a), 401(k) and 403(a) permit certain employers to establish various types of retirement plans for employees, and permit self-employed individuals to establish various types of retirement plans for themselves and for their employees. These retirement plans may permit the purchase of the contracts to accumulate retirement savings under the plans. Assignment or Transfer of Contracts. Adverse tax consequences to the plan and/or to you may result if your beneficial interest in the contract is assigned or transferred to persons other than: a plan participant as a means to provide benefit payments; an alternate payee under a qualified domestic relations order 28 in accordance with code section 414(p); or to the Company as collateral for a loan. Exclusion From Gross Income. The Tax Code imposes a maximum limit on annual payments to your account(s) that may be excluded from gross income. The employer must calculate this limit under the plan in accordance with code section 415. This limit is generally the lesser of 25% of your compensation or $30,000. Compensation means your compensation from the employer sponsoring the plan and, for years beginning after December 31, 1997, includes any elective deferrals under code section 402(g) and any amounts not includible in gross income under code sections 125 or 457. The limit applies to your contributions as well as any contributions made by your employer on your behalf. There is an additional limit that specifically limits your salary reduction contributions under a 401(k) plan to generally no more than $10,000 annually (subject to indexing). Your own limits may be higher or lower, depending on certain conditions. In addition, payments to your account(s) will be excluded from your gross income only if the plan meets certain nondiscrimination requirements. Restrictions on Distributions. Code section 401(k) restricts distribution from your 401(k) employee account, and possibly all or a portion of your 401(k) employer account if such amounts are included in determining compliance with certain nondiscrimination requirements under the Tax Code. Subject to the terms of the 401(k) plan, distribution of these restricted amounts may only occur upon: retirement, death, attainment of age 59-1/2, disability, separation from service, financial hardship, termination of the plan in certain circumstances, or, generally, if your employer is a corporation and disposes of substantially all of its assets or disposes of a subsidiary. In addition, income attributable to salary reduction contributions and credited on or after January 1, 1989, may not be distributed in the case of hardship. Taxation of the Company We are taxed as a life insurance company under the Tax Code. Variable Annuity Separate Account C is not a separate entity from us. Therefore, it is not taxed separately as a "regulated investment company," but is taxed as part of the Company. We automatically apply investment income and capital gains attributable to the separate account to increase reserves under the contracts. Because of this, under existing federal tax law we believe that any such income and gains will not be taxed to the extent that such income and gains are applied to increase reserves under the contracts. In addition, any foreign tax credits attributable to the separate account will be first used to reduce any income taxes imposed on the separate account before being used by the Company. In summary, we do not expect that we will incur any federal income tax liability attributable to the separate account and we do not intend to make any provision for such taxes. However, changes in federal tax laws and/or their interpretation may result in our being taxed on income or gains attributable to the separate account. In this case, we may impose a charge against the separate account (with respect to some or all of the contracts) to set aside provisions to pay such taxes. We may deduct this amount from the separate account, including from your account value invested in the subaccounts. 29 Other Topics - -------------------------------------------------------------------------------- The Company Aetna Life Insurance and Annuity Company (the Company, we) issues the contracts described in this prospectus and is responsible for providing each contract's insurance and annuity benefits. We are a stock life insurance company organized under the insurance laws of the State of Connecticut in 1976 and an indirect wholly owned subsidiary of Aetna Inc. Through a merger, our operations include the business of Aetna Variable Annuity Life Insurance Company (formerly known as Participating Annuity Life Insurance Company, an Arkansas life insurance company organized in 1954). We are engaged in the business of issuing life insurance and annuities. Our principal executive offices are located at: 151 Farmington Avenue Hartford Connecticut 06156 Variable Annuity Account C We established Variable Annuity Account C (the separate account) in 1976 as a segregated asset account to fund our variable annuity contracts. The separate account is registered as a unit investment trust under the Investment Company Act of 1940 (the "40 Act"). It also meets the definition of "separate account" under the federal securities laws. The separate account is divided into "subaccounts." These subaccounts invest directly in shares of a pre-assigned fund. Although we hold title to the assets of the separate account, such assets are not chargeable with the liabilities of any other business that we conduct. Income, gains or losses of the separate account are credited to or charged against the assets of the separate account without regard to other income, gains or losses of the Company. All obligations arising under the contracts are obligations of the Company. Performance Reporting We may advertise different types of historical performance for the subaccounts including: > standardized average annual total returns > non-standardized average annual total returns We may also advertise certain ratings, rankings or other information related to the Company, the subaccounts or the funds. For further details regarding performance reporting and advertising request a Statement of Additional Information at the number listed in "Contract Overview--Questions: Contacting the Company." Standardized Average Annual Total Returns. We calculate standardized average annual total returns according to a formula prescribed by the SEC. This shows the percentage return applicable to $1,000 invested in the subaccount over the most recent one, five and 10-year periods. If the investment option was not available for the full period, we give a history from the date money was first received in that option under the separate account. 30 We include all recurring charges during each period (e.g., mortality and expense risk charges, annual maintenance fees, administrative expense charges (if any) and any applicable early withdrawal charges). Non-Standardized Average Annual Total Returns. We calculate non-standardized average annual total returns in a similar manner as that stated above, except we do not include the deduction of any applicable early withdrawal charge. Some non-standardized returns may also exclude the effect of a maintenance fee. If we reflected these charges in the calculation, they would decrease the level of performance reflected by the calculation. Non-standardized returns may also include performance from the fund's inception date, if that date is earlier than the one we use for standardized returns. Voting Rights Each of the subaccounts holds shares in a fund and each is entitled to vote at regular and special meetings of that fund. Under our current view of applicable law, we will vote the shares for each subaccount as instructed by persons having a voting interest in the separate account. Under the contracts described in this prospectus, the contract holder, not the plan participants, has all voting rights. We will vote shares for which instructions have not been received in the same proportion as those for which we received instructions. Each person who has a voting interest in the separate account will receive periodic reports relating to the funds in which he or she has an interest, as well as any proxy materials and a form on which to give voting instructions. Voting instructions will be solicited by a written communication at least 14 days before the meeting. The number of votes (including fractional votes) the contract holder is entitled to direct will be determined as of the record date set by any fund the contract holder invests in through the subaccounts. > During the accumulation phase the number of votes is equal to the portion of the account value invested in the fund, divided by the net asset value of one share of that fund. > During the income phase, the number of votes is equal to the portion of reserves set aside for the contract's share of the fund, divided by the net asset value of one share of that fund. Contract Distribution The Company will serve as the principal underwriter for the securities sold by this prospectus. The Company is registered as a broker-dealer with the SEC and is a member of the National Association of Securities Dealers, Inc. As principal underwriter, the Company will enter into arrangements with one or more registered broker-dealers, including at least one affiliate of the Company, to offer and sell the contracts described in this prospectus. We call these entities "distributors." We and one or more of our affiliates may also sell the contracts directly. All individuals offering and selling the contracts must be registered representatives of a broker-dealer and must be licensed as insurance agents to sell variable annuity contracts. Commission Payments. We may pay commissions to persons who offer and sell the contracts. The maximum percentage amount we ever pay with respect 31 to a given purchase payment is the first-year percentage which equals approximately 2% of the first year of payments to an account. We may also pay renewal commissions on payments made after the first year and, under group contracts, asset-based service fees. The average of all commissions and asset- based service fees paid is estimated to equal approximately 2% of the total payments made over the life of an average contract. Some sales personnel may receive various types of non-cash compensation as special sales incentives, including trips and educational and/or business seminars. However, any such compensation will be paid in accordance with NASD rules. In addition, we may provide additional compensation to the Company's supervisory and other management personnel if the overall amount of investments in funds advised by the Company or its affiliates increases over time. We may reimburse the distributor for certain expenses. The name of the distributor and the registered representative responsible for your account are stated in your enrollment materials. Commissions and sales related expenses are paid by us and are not deducted from payments to your account. Third Party Compensation Arrangements. Occasionally, we may: > Pay commissions and fees to distributors affiliated or associated with the contract holder, you and/or other contract participants. > Enter into agreements with entities associated with the contract holder, you and/or other participants. Through such agreements, we may pay the entities for certain services in connection with administering the contract. In both these circumstances there may be an understanding that the distributor or entities would endorse us as a provider of the contract. You will be notified if you are purchasing a contract that is subject to these arrangements. Contract Modification We may change the contract as required by federal or state law. In addition, we may, upon 30 days' written notice to the contract holder, make other changes to group contracts that would apply only to individuals who become participants under that Contract after the effective date of such changes. If the group contract holder does not agree to a change, we reserve the right to refuse to establish new accounts under the contract. Certain changes will require the approval of appropriate state or federal regulatory authorities. Legal Matters and Proceedings We are aware of no material legal proceedings pending which involve the separate account or the Company as a party or which would materially affect the separate account. The validity of the securities offered by this prospectus has been passed upon by Counsel to the Company. Payment Delay or Suspension We reserve the right to suspend or postpone the date of any payment of benefits or values under the following circumstances: (a) on any valuation date when the New York Stock Exchange (Exchange) is closed (except customary weekend and holidays) when trading on the Exchange is restricted; (b) when an emergency exists as determined by the SEC so that disposal of the securities held in the subaccounts is not reasonably practicable or it is not reasonably 32 practicable fairly to determine the value of the subaccount's assets; (c) during any other periods the SEC may by order permit for the protection of investors. The conditions under which restricted trading or an emergency exists shall be determined by the rules and regulations of the SEC. Transfer of Ownership; Assignment An assignment of a contract will only be binding on us if it is made in writing and sent to us at our Home Office. We will use reasonable procedures to confirm that the assignment is authentic, including verification of signature. If we fail to follow our own procedures, we will be liable for any losses to you directly resulting from the failure. Otherwise, we are not responsible for the validity of any assignment. The rights of the contract holder and the interest of the annuitant and any beneficiary will be subject to the rights of any assignee we have on our records. Year 2000 Readiness As a healthcare and financial services enterprise, Aetna Inc. (referred to collectively with its affiliates and subsidiaries as "Aetna"), is dependent on computer systems and applications to conduct its business. Aetna has developed and is currently executing a comprehensive risk-based plan designed to make its mission-critical information technology (IT) systems and embedded systems Year 2000 ready. The plan for IT systems covers five stages including (i) assessment, (ii) remediation, (iii) testing, (iv) implementation and (v) Year 2000 approval. At year end 1997, Aetna, including the Company, had substantially completed the assessment stage. The remediation of mission-critical IT systems was completed year end 1998. Testing of all mission-critical IT systems is underway with Year 2000 approval targeted for completion by mid-1999. The costs of these efforts will not affect the separate account. The Company, its affiliates and the mutual funds that serve as investment options for the separate account also have relationships with investment advisers, broker dealers, transfer agents, custodians or other securities industry participants or other service providers that are not affiliated with Aetna. Aetna, including the Company, has initiated communication with its critical external relationships to determine the extent to which Aetna may be vulnerable to such parties' failure to resolve their own Year 2000 issues. Aetna and the Company have assessed and are prioritizing responses in an attempt to mitigate risks with respect to the failure of these parties to be Year 2000 ready. There can be no assurance that failure of third parties to complete adequate preparations in a timely manner, and any resulting systems interruptions or other consequences, would not have an adverse effect, directly or indirectly, on the separate account, including, without limitation, its operation or the valuation of its assets and units. 33 Contents of the Statement of Additional Information - -------------------------------------------------------------------------------- The Statement of Additional Information contains more specific information on the separate account and the contract, as well as the financial statements of the separate account and the Company. A list of the contents of the SAI is set forth below: General Information and History Variable Annuity Account C Offering and Purchase of Contracts Performance Data General Average Annual Total Return Quotations Income Phase Payments Sales Material and Advertising Independent Auditors Financial Statements of the Separate Account Financial Statements of Aetna Life Insurance and Annuity Company You may request an SAI by calling the Company at the number listed in "Contract Overview -- Questions: Contacting the Company." 34 Appendix I Guaranteed Accumulation Account - -------------------------------------------------------------------------------- The Guaranteed Accumulation Account (GAA) is a fixed interest option that may be available during the accumulation phase under the contracts. This appendix is only a summary of certain facts about GAA. Please read the GAA prospectus before investing in this option. In General. Amounts that you invest in GAA will earn a guaranteed interest rate if amounts are left in GAA for the specified period of time. If you withdraw or transfer those amounts before the specified period of time has elapsed, we may apply a "market value adjustment," which may be positive or negative. When you decide to invest money in GAA, you will want to contact your representative or the Company to learn: > The interest rate we will apply to the amounts that you invest in GAA. We change this rate periodically, so be certain you know what rate we guarantee on the day your account dollars are invested into GAA. > The period of time your account dollars need to remain in GAA in order to earn that rate. You are required to leave your account dollars in GAA for a specified period of time (guaranteed term), in order to earn the guaranteed interest rate. Deposit Periods. A deposit period is the time during which we offer a specific interest rate if you deposit dollars for a certain guaranteed term. For a particular interest rate and guaranteed term apply to your account dollars, you must invest them during the deposit period during which that rate and term are offered. Interest Rates. We guarantee different interest rates, depending on when account dollars are invested in GAA. The interest rate we guarantee is an annual effective yield; that means that the rate reflects a full year's interest. We credit interest daily at a rate that will provide the guaranteed annual effective yield over one year. The guaranteed interest rate will never be less than the rate stated in the contract. Fees and Other Deductions. If all or a portion of your account value in GAA is withdrawn, you may incur the following: > Market Value Adjustment (MVA)--as described in this appendix and in the GAA prospectus; > Tax Penalties and/or Tax withholding--see "Taxation" > Early Withdrawal Charge--see "Fees" > Maintenance Fee--see "Fees" We do not make deductions from amounts in the GAA to cover mortality and expense risks. Rather, we consider these risks when determining the credited rate. Market Value Adjustment (MVA). If you withdraw or transfer your account value from GAA before the guaranteed term is completed, an MVA may apply. The MVA reflects the change in the value of the investment due to changes in interest rates since the date of deposit. The MVA may be positive or negative. > If interest rates at the time of withdrawal have increased since the date of deposit, the value of the investment decreases and the MVA will be negative. This could result in your receiving less than the amount you paid into GAA. > If interest rates at the time of withdrawal have decreased since the date of deposit, the value of the investment increases and the MVA will be positive. Guaranteed Terms. The guaranteed term is the period of time account dollars must be left in the GAA in order to earn the guaranteed interest rate specified for that guaranteed term. We offer different guaranteed terms at different times. Check with your representative or the Company to learn the details about the guaranteed term(s) currently being offered. 35 In general we offer the following guaranteed terms: > Short-term--three years or less > Long-term--ten years or less, but more than three years At the end of a guaranteed term, your contract holder or you if permitted may: > Transfer dollars to a new guaranteed term > Transfer dollars to other available investment options > Withdraw dollars Deductions may apply to withdrawals. See "Fees and Other Deductions" in this section. Transfer of Account Dollars. Generally, account dollars invested in GAA may be transferred among guaranteed terms offered through the GAA, and/or to other investment options offered through the contract. However, transfers may not be made during the deposit period in which your account dollars are invested in GAA or for 90 days after the close of that deposit period. We will apply an MVA to transfers made before the end of a guaranteed term. Income Phase. GAA can not be used as an investment option during the income phase. However, the contract holder (or you, if permitted) may notify us at least 30 days in advance to elect a variable payment option and to transfer your GAA account dollars to any of the subaccounts available during the income phase. 36 Appendix II Fixed Account - -------------------------------------------------------------------------------- The Fixed Account is an investment option available during the accumulation phase under the contracts. Amounts allocated to the Fixed Account are held in the Company's general account which supports insurance and annuity obligations. - -------------------------------------------------------------------------------- Additional information about this option may be found in the contract. - -------------------------------------------------------------------------------- General Disclosure. Interests in the Fixed Account have not been registered with the SEC in reliance on exemptions under the Securities Act of 1933, as amended. Disclosure in this prospectus about the Fixed Account may be subject to certain generally applicable provisions of the federal securities laws relating to the accuracy and completeness of the statements. Disclosure in this Appendix regarding the Fixed Account has not been reviewed by the SEC. Interest Rates. The Fixed Account guarantees that amounts allocated to this option will earn the minimum interest rate specified in the contract. We may credit a higher interest rate from time to time, but the rate we credit will never fall below the guaranteed minimum specified in the contract. Amounts applied to the Fixed Account will earn the interest rate in effect at the time money is applied. Amounts in the Fixed Account will reflect a compound interest rate as credited by us. The rate we quote is an annual effective yield. Our determination of interest rates reflects the investment income earned on invested assets and the amortization of any capital gains and/or losses realized on the sale of invested assets. Under this option, we assume the risk of investment gain or loss by guaranteeing the amounts you allocate to this option and promising a minimum interest rate and income phase payment. Withdrawals. Under certain emergency conditions, we may defer payment of any withdrawal for period of up to 6 months or as provided by federal law. Additionally, if allowed by state law, we may pay withdrawals in equal payments with interest, over a period not to exceed 60 months when the Fixed Account withdrawal, when added to the total of all Fixed Account withdrawals from the contract within the past 12 calendar months, exceeds $250,000 for HR 10 contracts, or $500,000 for corporate 401 contracts. During the payment period, the interest rate credited to amounts held in the Fixed Account will be determined in the manner set forth in the contract. In no event will the interest rate be less than the minimum stated in the contract. Charges. We do not make deductions from amounts in the Fixed Account to cover mortality and expense risks. We consider these risks when determining the credited rate. If the contract holder makes a withdrawal from amounts in the Fixed Account, an early withdrawal charge may apply. (See "Fees-Early Withdrawal Charge.") Transfers. During the accumulation phase, the contract holder or you, if permitted, may transfer account dollars from the Fixed Account to any other available investment option. We may vary the dollar amount that you are allowed to transfer, but it will never be less than 10% of your account value held in the Fixed Account. By notifying our Home Office at least 30 days before income phase payments begin, the contract holder or you, if permitted, may elect to have amounts transferred to one or more of the subaccounts available during the income phase to provide variable payments. 37 Appendix III Condensed Financial Information - -------------------------------------------------------------------------------- CORPORATE 401 CONTRACTS TABLE I (Selected data for accumulation units outstanding throughout each period) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The condensed financial information presented below for each of the periods in the ten-year period ended December 31, 1998 (as applicable), is derived from the financial statements of the separate account, which have been audited by KPMG LLP, independent auditors. The financial statements and the independent auditors' report thereon for the year ended December 31, 1998 are included in the Statement of Additional Information.
1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- AETNA BALANCED VP, INC Value at beginning of period $24.826 $20.511 $18.024 $14.336 $14.558 Value at end of period $28.687 $24.826 $20.511 $18.024 $14.336 Number of accumulation units outstanding at end of period 73,629 84,065 280,547 393,613 756,261 AETNA BOND VP Value at beginning of period $51.930 $48.524 $47.405 $40.570 $42.675 Value at end of period $55.494 $51.930 $48.524 $47.405 $40.570 Number of accumulation units outstanding at end of period 26,694 20,288 43,327 72,902 181,535 AETNA GROWTH AND INCOME VP Value at beginning of period $285.511 $222.444 $180.879 $138.406 $141.424 Value at end of period $323.019 $285.511 $222.444 $180.879 $138.406 Number of accumulation units outstanding at end of period 140,708 158,078 340,229 549,056 1,258,166 AETNA MONEY MARKET VP Value at beginning of period $41.763 $40.069 $38.485 $36.723 $35.701 Value at end of period $43.523 $41.763 $40.069 $38.485 $36.723 Number of accumulation units outstanding at end of period 31,408 34,420 93,727 150,480 241,159 PORTFOLIO PARTNERS MFS RESEARCH GROWTH PORTFOLIO Value at beginning of period $9.041 $9.218(2) Value at end of period $10.989 $9.041 Number of accumulation units outstanding at end of period 603 603 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- AETNA BALANCED VP, INC Value at beginning of period $13.407 $12.755 $10.906 $10.440 $10.000(1) Value at end of period $14.558 $13.407 $12.755 $10.906 $10.440 Number of accumulation units outstanding at end of period 1,142,268 1,129,453 725,598 619,748 470,302 AETNA BOND VP Value at beginning of period $39.376 $37.086 $31.424 $29.142 $25.734 Value at end of period $42.675 $39.376 $37.086 $31.424 $29.142 Number of accumulation units outstanding at end of period 241,551 263,105 283,119 251,861 248,678 AETNA GROWTH AND INCOME VP Value at beginning of period $134.081 $127.171 $101.824 $99.758 $78.220 Value at end of period $141.424 $134.080 $127.171 $101.824 $99.758 Number of accumulation units outstanding at end of period 1,616,018 1,829,160 1,956,479 2,169,721 2,496,795 AETNA MONEY MARKET VP Value at beginning of period $35.009 $34.172 $32.460 $30.295 $28.028 Value at end of period $35.701 $35.009 $34.172 $32.460 $30.295 Number of accumulation units outstanding at end of period 312,350 471,585 470,248 624,613 542,581 PORTFOLIO PARTNERS MFS RESEARCH GROWTH PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period
- ----------------- (1) The initial accumulation unit value was established at $10.000 on June 23, 1989, the date on which the fund commenced operations. (2) Funds were first received in this option during November 1997. 38 Condensed Financial Information - -------------------------------------------------------------------------------- CORPORATE 401 CONTRACTS TABLE II (For contracts containing limits on fees) (Selected data for accumulation units outstanding throughout each period) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The condensed financial information presented below for each of the periods in the two-year period ended December 31, 1998 (as applicable), is derived from the financial statements of the separate account, which have been audited by KPMG LLP, independent auditors. The financial statements and the independent auditors' report thereon for the year ended December 31, 1998 are included in the Statement of Additional Information.
1998 1997 ---- ---- AETNA BALANCED VP, INC Value at beginning of period $24.861 $22.085(1) Value at end of period $28.800 $24.861 Number of accumulation units outstanding at end of period 122,358 157,309 AETNA BOND VP Value at beginning of period $51.975 $49.527(1) Value at end of period $55.625 $51.975 Number of accumulation units outstanding at end of period 18.271 23,539 AETNA GROWTH AND INCOME VP Value at beginning of period $285.918 $253.00(1) Value at end of period $324.288 $285.918 Number of accumulation units outstanding at end of period 98.422 118,511 AETNA MONEY MARKET VP Value at beginning of period $41.763 $40.781(1) Value at end of period $43.523 $41.763 Number of accumulation units outstanding at end of period 29,827 19,720 PORTFOLIO PARTNERS MFS RESEARCH GROWTH PORTFOLIO Value at beginning of period $9.041 $9.218(2) Value at end of period $10.989 $9.041 Number of accumulation units outstanding at end of period 30.747 40,144
- ----------------- (1) Funds were first received in this option during June 1997. (2) Funds were first received in this option during November 1997. 39 Condensed Financial Information - -------------------------------------------------------------------------------- HR 10 CONTRACTS TABLE III (Selected data for accumulation units outstanding throughout each period) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The condensed financial information presented below for each of the periods in the ten-year period ended December 31, 1998 (as applicable), is derived from the financial statements of the separate account, which have been audited by KPMG LLP, independent auditors. The financial statements and the independent auditors' report thereon for the year ended December 31, 1998 are included in the Statement of Additional Information.
1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- AETNA BALANCED VP, INC Value at beginning of period $24.700 $20.419 $17.954 $14.270 $14.519 Value at end of period $28.524 $24.700 $20.419 $17.954 $14.270 Number of accumulation units outstanding at end of period 2,294,877 2,160,305 2,716,641 9,193,181 21,990,186 AETNA BOND VP Value at beginning of period $51.330 $47.992 $46.913 $40.173 $42.283 Value at end of period $54.819 $51.330 $47.992 $46.913 $40.173 Number of accumulation units outstanding at end of period 994,987 959,336 835,724 2,377,622 5,108,720 AETNA GROWTH AND INCOME VP Value at beginning of period $217.359 $169.448 $137.869 $105.558 $107.925 Value at end of period $245.765 $217.359 $169.448 $137.869 $105.558 Number of accumulation units outstanding at end of period 1,747,097 1,826,355 2,071,139 6,364,000 13,966,072 AETNA MONEY MARKET VP Value at beginning of period $41.174 $39.528 $37.988 $36.271 $35.282 Value at end of period $42.883 $41.174 $39.528 $37.988 $36.271 Number of accumulation units outstanding at end of period 564,537 455,502 597,656 1,836,260 3,679,802 PORTFOLIO PARTNERS MFS RESEARCH GROWTH PORTFOLIO Value at beginning of period $11.960 $12.195(2) Value at end of period $14.528 $11.960 Number of accumulation units outstanding at end of period 1,379,653 232,418 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- AETNA BALANCED VP, INC Value at beginning of period $13.379 $12.736 $10.896 $10.437 $10.000(1) Value at end of period $14.519 $13.379 $12.736 $10.896 $10.437 Number of accumulation units outstanding at end of period 30,784,750 34,802,433 22,898,099 17,078,985 9,535,986 AETNA BOND VP Value at beginning of period $39.038 $36.789 $31.192 $28.943 $25.574 Value at end of period $42.283 $39.038 $36.789 $31.192 $28.943 Number of accumulation units outstanding at end of period 8,210,666 8,507,292 7,844,412 6,984,793 6,202,834 AETNA GROWTH AND INCOME VP Value at beginning of period $102.383 $97.165 $77.845 $76.311 $59.871 Value at end of period $107.925 $102.383 $97.165 $77.845 $76.311 Number of accumulation units outstanding at end of period 21,148,863 24,201,565 20,948,226 18,362,906 17,142,820 AETNA MONEY MARKET VP Value at beginning of period $34.619 $33.812 $32.138 $30.012 $27.783 Value at end of period $35.282 $34.619 $33.812 $32.138 $30.012 Number of accumulation units outstanding at end of period 5,086,515 7,534,662 8,430,082 10,220,110 8,286,033 PORTFOLIO PARTNERS MFS RESEARCH GROWTH PORTFOLIO Value at beginning of period Value at end of period Number of accumulation units outstanding at end of period
- ----------------- (1) The initial accumulation unit value was established at $10.000 on June 23, 1989, the date on which the fund commenced operations. (2) Funds were first received in this option during November 1997. 40 Condensed Financial Information - -------------------------------------------------------------------------------- HR 10 CONTRACTS TABLE IV (For contracts containing limits on fees) (Selected data for accumulation units outstanding throughout each period) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The condensed financial information presented below for each of the periods in the two-year period ended December 31, 1998 (as applicable), is derived from the financial statements of the separate account, which have been audited by KPMG LLP, independent auditors. The financial statements and the independent auditors' report thereon for the year ended December 31, 1998 are included in the Statement of Additional Information.
1998 1997 ---- ---- AETNA BALANCED VP, INC Value at beginning of period $24.735 $21.980(1) Value at end of period $28.636 $24.735 Number of accumulation units outstanding at end of period 149,576 178,943 AETNA BOND VP Value at beginning of period $51.374 $48.971(1) Value at end of period $54.949 $51.374 Number of accumulation units outstanding at end of period 24,551 39,709 AETNA GROWTH AND INCOME VP Value at beginning of period $217.668 $192.674(1) Value at end of period $246.731 $217.668 Number of accumulation units outstanding at end of period 195,339 225,862 AETNA MONEY MARKET VP Value at beginning of period $41.174 $40.220(1) Value at end of period $42.883 $41.174 Number of accumulation units outstanding at end of period 120,539 98,560 PORTFOLIO PARTNERS MFS RESEARCH GROWTH PORTFOLIO Value at beginning of period $11.960 $12.195(2) Value at end of period $14.528 $11.960 Number of accumulation units outstanding at end of period 23,437 31,573
- ----------------- (1) Funds were first received in this option during June 1997. (2) Funds were first received in this option during November 1997. 41 -----END PRIVACY-ENHANCED MESSAGE-----