-----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, OrEVLM3NXJYUIt1QmoYyrHpn6AT/xW0w4N7LSSxilsT36boXoc5lSyTQxOQCJhA3 Tt8lHxjL7VyN6TRGdoi2Xw== 0000912057-96-006383.txt : 19960416 0000912057-96-006383.hdr.sgml : 19960416 ACCESSION NUMBER: 0000912057-96-006383 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 20 FILED AS OF DATE: 19960412 SROS: NONE 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: 485APOS SEC ACT: 1933 Act SEC FILE NUMBER: 033-75986 FILM NUMBER: 96546682 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-02513 FILM NUMBER: 96546683 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 485APOS 1 485APOS As filed with the Securities and Exchange Registration No. 33-75986* Commission on April 12, 1996 Registration No. 811-2513 - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-4 Post-Effective Amendment No. 5 To REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 and Amendment To REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 --------------------------------------------------------------- Variable Annuity Account C of Aetna Life Insurance and Annuity Company (EXACT NAME OF REGISTRANT) Aetna Life Insurance and Annuity Company (NAME OF DEPOSITOR) 151 Farmington Avenue, RE4C, Hartford, Connecticut 06156 (ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) Depositor's Telephone Number, including Area Code: (860) 273-7834 Susan E. Bryant, Counsel Aetna Life Insurance and Annuity Company 151 Farmington Avenue, RE4C, Hartford, Connecticut 06156 (NAME AND ADDRESS OF AGENT FOR SERVICE) - -------------------------------------------------------------------------------- It is proposed that this filing will become effective: X on May 1, 1996 pursuant to paragraph (a)(3) of Rule 485 --- (Request for acceleration has been made.) Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant has registered an indefinite number of securities under the Securities Act of 1933. Registrant expects to file a Rule 24f-2 Notice for the fiscal year ended December 31, 1995 on or before February 29, 1996. *Pursuant to Rule 429(a) under the Securities Act of 1933, Registrant has included a combined prospectus under this Registration Statement which includes all the information which would currently be required in prospectuses relating to the securities covered by the following earlier Registration Statements: 33-75970; 33-75954; and 33-75956. VARIABLE ANNUITY ACCOUNT C CROSS REFERENCE SHEET
FORM N-4 ITEM NO. PART A (PROSPECTUS) LOCATION - -------- ------------------- -------- 1 Cover Page. . . . . . . . . . . . . . . . . Cover Page 2 Definitions . . . . . . . . . . . . . . . . Definitions 3 Synopsis or Highlights. . . . . . . . . . . Prospectus Summary; Fee Table 4 Condensed Financial Information . . . . . . Condensed Financial Information 5 General Description of Registrant, Depositor, and Portfolio Companies. . . . . The Company; Variable Annuity Account C; The Funds 6 Deductions and Expenses . . . . . . . . . . Charges and Deductions; Distribution 7 General Description of Variable Annuity Contracts . . . . . . . . . . . . . Purchase; Miscellaneous 8 Annuity Period. . . . . . . . . . . . . . . Annuity Period 9 Death Benefit . . . . . . . . . . . . . . . Death Benefit During Accumulation Period; Death Benefit Payable During the Annuity Period 10 Purchases and Contract Value. . . . . . . . Purchase; Contract Valuation 11 Redemptions . . . . . . . . . . . . . . . . Right to Cancel; Withdrawals 12 Taxes . . . . . . . . . . . . . . . . . . . Tax Status 13 Legal Proceedings . . . . . . . . . . . . . Miscellaneous - Legal Matters and Proceedings 14 Table of Contents of the Statement of Additional Information. . . . . . . . . . . Contents of the Statement of Additional Information FORM N-4 ITEM NO. PART B (STATEMENT OF ADDITIONAL INFORMATION) LOCATION - -------- -------------------------------------------- -------- 15 Cover Page. . . . . . . . . . . . . . . . . Cover page 16 Table of Contents . . . . . . . . . . . . . Table of Contents 17 General Information and History . . . . . . General Information and History 18 Services. . . . . . . . . . . . . . . . . . General Information and History; Independent Auditors 19 Purchase of Securities Being Offered. . . . Offering and Purchase of Contracts 20 Underwriters. . . . . . . . . . . . . . . . Offering and Purchase of Contracts 21 Calculation of Performance Data . . . . . . Performance Data; Average Annual Total Return Quotations 22 Annuity Payments. . . . . . . . . . . . . . Annuity Payments 23 Financial Statements. . . . . . . . . . . . Financial Statements
PART C (OTHER INFORMATION) -------------------------- Information required to be included in Part C is set forth under the appropriate item, so numbered, in Part C to this Registration Statement. PROSPECTUS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This Prospectus describes group deferred variable annuity contracts ("Contracts") issued by Aetna Life Insurance and Annuity Company (the "Company"). The Contracts are available for nonprofit healthcare organizations and certain tax-exempt nonhealthcare (Section 501(c)(3)) organizations for their employees under Section 403(b) of the Internal Revenue Code of 1986 as amended (the "Code") and for employees of certain tax-exempt organizations and their for-profit subsidiaries in connection with qualified defined contribution plans under Sections 401(a)/401(k) of the Code. (See "Purchase.") The Contracts provide that contributions may be allocated to one or more of the Credited Interest Options or to one or more of the Subaccounts of Variable Annuity Account C, a separate account of the Company. The Subaccounts invest directly in shares of the following Funds: - Aetna Variable Fund - Fidelity VIP Overseas Portfolio - Aetna Income Shares - Franklin Government Securities - Aetna Variable Encore Fund Trust - Aetna Investment Advisers Fund, - Janus Aspen Aggressive Growth Inc. Portfolio - Aetna Ascent Variable Portfolio - Janus Aspen Balanced Portfolio - Aetna Crossroads Variable Portfolio - Janus Aspen Flexible Income - Aetna Legacy Variable Portfolio Portfolio - Alger American Growth Portfolio - Janus Aspen Growth Portfolio - Alger American Small Cap Portfolio - Janus Aspen Short-Term Bond - Calvert Responsibly Invested Portfolio Balanced Portfolio - Janus Aspen Worldwide Growth - Fidelity VIP II Contrafund Portfolio Portfolio - Lexington Natural Resources Trust - Fidelity VIP Equity-Income - Neuberger & Berman Growth Portfolio Portfolio - Scudder International Portfolio - Fidelity VIP Growth Portfolio Class A Shares - TCI Growth (a Twentieth Century fund) The Credited Interest Options currently available under the Contract are the Guaranteed Accumulation Account, the Fixed Account and the Fixed Plus Account. Except as specifically mentioned, this Prospectus describes only investments through the Separate Account. A brief description of each of the Credited Interest Options is contained in Appendices to this Prospectus. Additional information concerning the Guaranteed Accumulation Account is also contained in a separate prospectus. The availability of the Funds and the Credited Interest Options is subject to applicable regulatory authorization. Not all Funds or Credited Interest Options may be available in all jurisdictions, under all Contracts or under all Plans. Please check with your employer to determine option availability. (See "Investment Options.") This Prospectus provides investors with the information that they should know about the Separate Account before investing in the Contract through the Separate Account. Additional information about the Separate Account is contained in a Statement of Additional Information ("SAI") which is available at no charge. The SAI has been filed with the Securities and Exchange Commission and is incorporated herein by reference. The Table of Contents for the SAI is printed on page 18 of this Prospectus. An SAI may be obtained by indicating the request on the enrollment form or on the prospectus receipt contained in this Prospectus, or by calling the number listed under the "Inquiries" section of the Prospectus Summary. THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES OF THE FUNDS AND THE GUARANTEED ACCUMULATION ACCOUNT. ALL PROSPECTUSES SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION ARE DATED MAY 1, 1996. TABLE OF CONTENTS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- DEFINITIONS........................................................... DEFINITIONS - 1 PROSPECTUS SUMMARY.................................................... SUMMARY - 1 FEE TABLE............................................................. FEE TABLE - 1 CONDENSED FINANCIAL INFORMATION....................................... AUV HISTORY - 1 THE COMPANY........................................................... 1 VARIABLE ANNUITY ACCOUNT C............................................ 1 INVESTMENT OPTIONS.................................................... 1 The Funds......................................................... 1 Credited Interest Options......................................... 4 PURCHASE.............................................................. 4 Contract Availability............................................. 4 Purchasing Interests in the Contract.............................. 4 Purchase Payments................................................. 4 Rights Under the Contract......................................... 5 Transfer Credits.................................................. 5 Right to Cancel................................................... 5 CHARGES AND DEDUCTIONS................................................ 5 Daily Deductions from the Separate Account........................ 5 Mortality and Expense Risk Charge............................ 5 Administrative Expense Charge................................ 6 Maintenance Fee................................................... 6 Deferred Sales Charge............................................. 6 Deferred Sales Charge Schedule for GAA for Certain New York Contracts........................................................ 8 Fund Expenses..................................................... 8 Premium and Other Taxes........................................... 8 CONTRACT VALUATION.................................................... 8 Account Value..................................................... 8 Accumulation Units................................................ 8 Net Investment Factors............................................ 9 TRANSFERS............................................................. 9 Dollar Cost Averaging Program..................................... 9 WITHDRAWALS........................................................... 9 Reinvestment Privilege............................................ 10 CONTRACT LOANS........................................................ 10 ADDITIONAL WITHDRAWAL OPTIONS......................................... 11 DEATH BENEFIT DURING ACCUMULATION PERIOD.............................. 11 ANNUITY PERIOD........................................................ 12 Annuity Period Elections.......................................... 12 Annuity Options................................................... 12 Annuity Payments.................................................. 13 Charges Deducted During the Annuity Period........................ 13 Death Benefit Payable During the Annuity Period................... 13
TAX STATUS............................................................ 14 Introduction...................................................... 14 Taxation of the Company........................................... 14 Contracts Used with Certain Retirement Plans...................... 14 MISCELLANEOUS......................................................... 17 Distribution...................................................... 17 Delay or Suspension of Payments................................... 17 Performance Reporting............................................. 17 Voting Rights..................................................... 17 Modification of the Contract...................................... 18 Legal Matters and Proceedings..................................... 18 CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION................... 18 APPENDIX I--GUARANTEED ACCUMULATION ACCOUNT........................... 19 APPENDIX II--THE FIXED ACCOUNT........................................ 20 APPENDIX III--THE FIXED PLUS ACCOUNT.................................. 21 APPENDIX IV--EMPLOYEE APPOINTMENT OF EMPLOYER AS AGENT UNDER AN ANNUITY CONTRACT.................................................... 23
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. THE COMPANY DOES NOT AUTHORIZE ANY PERSON TO GIVE INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFERING CONTAINED IN THIS PROSPECTUS EXCEPT AS OTHERWISE CONTAINED HEREIN. DEFINITIONS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The following terms are defined as they are used in this Prospectus: ACCOUNT: A record which identifies contract values accumulated on behalf of each Participant during the Accumulation Period. One or more Employee Accounts and Employer Accounts may be established for each Participant. ACCOUNT VALUE: The total dollar value of amounts held in an Account as of each Valuation Date during the Accumulation Period. ACCOUNT YEAR: A period of twelve months measured from the date on which an Account is established (the effective date) or from an anniversary of such effective date. ACCUMULATION PERIOD: The period during which Purchase Payment(s) credited to an Account are invested to fund future annuity payments. ACCUMULATION UNIT: A measure of the value of each Subaccount before annuity payments begin. ANNUITANT: The person on whose life or life expectancy the annuity payments are based. ANNUITY: A series of payments for life, a definite period or a combination of the two. ANNUITY DATE: The date on which annuity payments begin. ANNUITY PERIOD: The period during which annuity payments are made. ANNUITY UNIT: A measure of the value of each Subaccount selected during the Annuity Period. CODE: Internal Revenue Code of 1986, as amended. COMPANY (WE, US): Aetna Life Insurance and Annuity Company. CONTRACT: The group deferred variable annuity contracts offered by this Prospectus. CONTRACT BENEFICIARY(IES): Under the Contract, the Contract Holder is the Contract Beneficiary. The Participant designates a beneficiary with the employer, pursuant to terms of the Plan. (See definition of "Plan Beneficiary" below.) CONTRACT HOLDER: The person or entity to whom the Contract is issued. The Contract Holder is usually the employer. CREDITED INTEREST OPTIONS: The fixed interest options under the Contract. The Credited Interest Options currently consist of the Guaranteed Accumulation Account, the Fixed Account and the Fixed Plus Account, each of which is described in an Appendix to this Prospectus. Amounts allocated to the Credited Interest Options are included in the Account Value. EMPLOYEE ACCOUNT: An Account that is credited with payments derived from employee salary reduction contributions and remitted to the Company by the employer on behalf of each Participant. EMPLOYER ACCOUNT: An account that is credited with net Purchase Payments made by the Contract Holder. FUND(S): An open-end registered management investment company whose shares are purchased by the Separate Account to fund the benefits provided by the Contract. HOME OFFICE: The Company's principal executive offices located at 151 Farmington Avenue, Hartford, Connecticut 06156. PARTICIPANT (YOU): A person participating in a Plan maintained by an eligible organization. PLAN BENEFICIARY: The person entitled to receive benefits under the Plan in the event of the Participant's death. - -------------------------------------------------------------------------------- DEFINITIONS - 1 PLAN(S): Tax-deferred retirement plans under Section 403(b) of the Code for employees of nonprofit healthcare organizations and other Section 501(c)(3) nonhealthcare organizations. Certain for-profit subsidiaries of tax-exempt organizations may be offered a separate Contract in connection with qualified defined contribution plans under Section 401(a)/401(k) of the Code. PURCHASE PAYMENT(S): The gross payment(s) made to the Company under a Contract. PURCHASE PAYMENT PERIODS: For "Installment Purchase Payment Accounts," the period of time for completion of the agreed upon annual number and amount of Purchase Payments. For example, if it is determined that the Purchase Payment Period will consist of 12 payments per year and only 11 payments are made, the Purchase Payment Period is not completed until the twelfth Purchase Payment is made. SEPARATE ACCOUNT: Variable Annuity Account C, a separate account established by the Company for the purpose of funding variable annuity contracts issued by the Company. SUBACCOUNT(S): The portion of the assets of the Separate Account that is allocated to a particular Fund. Each Subaccount invests in the shares of only one corresponding Fund. VALUATION DATE: The date and time at which the value of the Subaccount is calculated. Currently, this calculation occurs at the close of business of the New York Stock Exchange on any normal business day, Monday through Friday, that the New York Stock Exchange is open. - -------------------------------------------------------------------------------- DEFINITIONS - 2 PROSPECTUS SUMMARY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CONTRACTS OFFERED The Contracts described in this Prospectus are group deferred variable annuity contracts issued by Aetna Life Insurance and Annuity Company (the "Company"). The purpose of the Contract is to accumulate values and to provide benefits upon retirement. The Contracts are available for nonprofit healthcare organizations and certain tax-exempt nonhealthcare (Section 501(c)(3)) organizations for their employees under Section 403(b) of the Code, and for employees of certain for-profit subsidiaries of tax-exempt organizations in connection with qualified defined contribution plans under Section 401(a)/401(k) of the Code. Under these Plans, the Contract Holder (employer) makes contributions on behalf of a Participant (employee) and the Participant makes contributions via salary reduction. CONTRACT PURCHASE The Contract may be purchased by eligible organizations on behalf of a group made up of their employees. Eligible employees may participate in the Contract by completing the enrollment form and submitting it to the Company. Purchase Payments can be applied to the Contract either through a lump-sum transfer from a pre-existing plan or through periodic salary reductions or employer contributions. (See "Purchase.") FREE LOOK PERIOD Contract Holders have the right to cancel their purchase within 10 days after receiving the Contract (or longer if required by state law) by returning it to the Company along with a written notice of cancellation. Unless state law requires otherwise, the amount received upon cancellation will reflect the investment performance of the Subaccounts into which Purchase Payments were deposited. In some cases this may be more or less than the amount of Purchase Payments. (See "Purchase--Right to Cancel.") INVESTMENT OPTIONS The Company has established Variable Annuity Account C, a registered unit investment trust, for the purpose of funding the variable portion of the Contracts. The Separate Account is divided into Subaccounts which invest directly in shares of the Funds described herein. The Contract allows investment in any or all of the Subaccounts, as well as in the Credited Interest Options described below. For a complete list of the Funds available under the Contracts, and a description of the investment objectives of each of the Funds and their investment advisers, see "Investment Options-- The Funds" in this Prospectus, as well as the prospectuses for each of the Funds. The Contract also provides for investment in Credited Interest Options which allow you to earn fixed rates of interest. The fixed options available under the Contract are the Guaranteed Accumulation Account ("GAA"), the Fixed Account, and the Fixed Plus Account. (See the Appendices to this Prospectus.) CHARGES AND DEDUCTIONS Certain charges are associated with these Contracts. These charges include daily deductions from the Separate Account (the mortality and expense risk charges and an administrative charge), as well as any annual maintenance fee and premium and other taxes. The Funds also incur certain fees and expenses which are deducted directly from the Funds. A deferred sales charge may apply upon a full or partial withdrawal of the Account Value. (See the Fee Table and "Charges and Deductions.") TRANSFERS Prior to the Annuity Date, and subject to certain limitations, Account Values may be transferred among the Subaccounts and the Credited Interest Options without charge. Transfers can be requested in writing or by telephone in accordance with the Company's transfer procedures. (See Appendices for a full description of the restrictions applicable to transfers from the Credited Interest Options.) (See "Transfers.") WITHDRAWALS The Contract Holder may redeem all or a part of the Account Value prior to the Annuity Date by properly completing a disbursement form and sending it to the Company. Limitations apply to withdrawals from the Fixed Plus Account. Certain charges may be assessed upon withdrawal. The withdrawal may also be subject to income tax and a federal tax penalty. The Code restricts full and partial withdrawals in some circumstances. (See "Withdrawals.") - -------------------------------------------------------------------------------- SUMMARY - 1 The Contract also offers certain Additional Withdrawal Options during the Accumulation Period to persons meeting certain criteria. Additional Withdrawal Options are not available in all states and may not be suitable in every situation. (See "Additional Withdrawal Options.") LOANS A Contract Holder under a Section 403(b) Plan may request a loan on your behalf at any time during the Accumulation Period. Such loan will be taken from the Employee Account and/or the Employer Account, as permitted by the Contract Holder. Loans are not available from Contracts issued under Section 401(a)/401(k) Plans. (See "Contract Loans.") DEATH BENEFIT The Contract provides that a death benefit is payable to the Contract Beneficiary upon the death of the Participant before the Annuity Date. The Contract Holder may direct that we make such payment to the Plan Beneficiary. The amount of the death benefit will be equal to the Account Value. Until the election of a method of payment, the Account Value will remain invested under the Contract. The Contract Holder, on behalf of a Plan Beneficiary, may elect to receive the proceeds in a lump sum or under any of the payment options available under the Contract. However, the Code requires that distributions begin within a certain time period. (See "Death Benefit During Accumulation Period.") After Annuity Payments have commenced, a death benefit may be payable, depending upon the terms of the Contract and the Annuity Option selected. (See "Death Benefit Payable During the Annuity Period.") THE ANNUITY PERIOD On the Annuity Date, the Contract Holder, on your behalf, may elect the commencement of Annuity Payments. Annuity Payments can be made on either a fixed, variable or combination fixed and variable basis. If a variable payout is selected, the payments will vary with the investment performance of the Subaccount(s) selected. The Company reserves the right to limit the number of Subaccounts that may be available during the Annuity Period. (See "Annuity Period.") TAXES Contributions and earnings are not generally taxed until you or your beneficiary(ies) actually receive a distribution from the Contract. A 10% federal tax penalty and a 20% withholding for income tax may be imposed on certain withdrawals. (See "Tax Status.") INQUIRIES Questions, inquiries or requests for additional information can be directed to your agent or local representative, or you may contact the Company as follows: - Write to: Aetna Life Insurance and Annuity Company 151 Farmington Avenue Hartford, Connecticut 06156-1277 Attention: Customer Service (For AetnaPlus Contracts) - Call Customer Service: 1-800-525-4225 (for automated transfers or changes in the allocation of Account Values, call: 1-800-262-3862) (For Multiple Option Contracts) - Call Customer Service: 1-800-677-4636 (for automated transfers or changes in the allocation of Account Values, call: 1-800-262-3862)
- -------------------------------------------------------------------------------- SUMMARY - 2 FEE TABLE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This Fee Table describes the various charges and expenses associated with the Contract during the Accumulation Period. For amounts deducted during the Annuity Period, see "Charges Deducted During the Annuity Period." No sales charge is paid upon purchase of the Contract. Some expenses may vary as explained under "Charges and Deductions." The charges and expenses shown below do not include premium taxes that may be applicable. For more information regarding fees and expenses paid out of the assets of a particular Fund, see the Fund's prospectus. DIRECT CHARGES. These charges are deducted directly from the Account Value. They include: DEFERRED SALES CHARGE. The deferred sales charge is deducted as a percentage of the amount withdrawn. The total amount deducted for the deferred sales charge will not exceed 8.5% of the total Purchase Payments applied to the Account. The amount of the deferred sales charge is calculated as follows:
INSTALLMENT PURCHASE PAYMENT ACCOUNTS: SINGLE PURCHASE PAYMENT ACCOUNTS: PURCHASE PAYMENT DEFERRED SALES ACCOUNT YEARS DEFERRED SALES PERIODS COMPLETED CHARGE DEDUCTION COMPLETED CHARGE DEDUCTION - ------------------------------ ---------------- ------------------------------ ---------------- Less than 5 5% Less than 5 5% 5 or more but less than 7 4% 5 or more but less than 6 4% 7 or more but less than 9 3% 6 or more but less than 7 3% 9 or more but less than 10 2% 7 or more but less than 8 2% More than 10 0% 8 or more but less than 9 1% 9 or more 0%
ANNUAL CONTRACT MAINTENANCE FEE Installment Purchase Payment Account...................... $ 15.00 Single Purchase Payment Account........................... $ 0.00 The maintenance fee will generally be deducted annually from each Account during the Accumulation Period. The amount shown is the MAXIMUM maintenance fee that can be deducted under each Account.
INDIRECT CHARGES. Each Subaccount pays these expenses out of its assets. The charges are reflected in the Subaccount's daily Accumulation Unit Value and are not charged directly to an Account. They include: MORTALITY AND EXPENSE RISK CHARGE.......................................................... 1.25% ADMINISTRATIVE EXPENSE CHARGE. We currently do not impose an Administrative Expense Charge..................................................................................... 0.00% ----- However, we reserve the right to deduct a daily charge of not more than 0.25% per year from the Subaccounts. TOTAL SEPARATE ACCOUNT CHARGES........................................................... 1.25% --------- ---------
- -------------------------------------------------------------------------------- FEE TABLE - 1 ANNUAL EXPENSES OF THE FUNDS The following table illustrates the advisory fees and other expenses applicable to the Funds. Except as noted, the following figures are a percentage of average net assets and, except where otherwise indicated, are based on figures for the year ended December 31, 1995. A Fund's "Other Expenses" include operating costs of the Fund. The expenses shown below are reflected in the Fund's net asset value and are not deducted from the Account Value under the Contract.
INVESTMENT ADVISORY FEES(1) OTHER EXPENSES TOTAL FUND (AFTER EXPENSE (AFTER EXPENSE ANNUAL REIMBURSEMENT) REIMBURSEMENT) EXPENSES -------------- -------------- ----------- Aetna Variable Fund(2) 0.25% 0.06% 0.31% Aetna Income Shares(2) 0.25% 0.08% 0.33% Aetna Variable Encore Fund(2) 0.25% 0.10% 0.35% Aetna Investment Advisers Fund, Inc.(2) 0.25% 0.08% 0.33% Aetna Ascent Variable Portfolio(2) 0.50% 0.15% 0.65% Aetna Crossroads Variable Portfolio(2) 0.50% 0.15% 0.65% Aetna Legacy Variable Portfolio(2) 0.50% 0.15% 0.65% Alger American Growth Portfolio 0.75% 0.10% 0.85% Alger American Small Cap Portfolio 0.85% 0.07% 0.92% Calvert Responsibly Invested Balanced Portfolio(3) 0.70% 0.13% 0.83% Fidelity VIP II Contrafund Portfolio(4) 0.61% 0.11% 0.72% Fidelity VIP Equity-Income Portfolio 0.51% 0.10% 0.61% Fidelity VIP Growth Portfolio 0.61% 0.09% 0.70% Fidelity VIP Overseas Portfolio 0.76% 0.15% 0.91% Franklin Government Securities Trust(5) 0.63% 0.13% 0.76% Janus Aspen Aggressive Growth Portfolio(6) 0.75% 0.11% 0.86% Janus Aspen Balanced Portfolio(6) 0.82% 0.55% 1.37% Janus Aspen Flexible Income Portfolio 0.65% 0.42% 1.07% Janus Aspen Growth Portfolio(6) 0.65% 0.13% 0.78% Janus Aspen Short-Term Bond Portfolio(6) 0.00% 0.70% 0.70% Janus Aspen Worldwide Growth Portfolio(6) 0.68% 0.22% 0.90% Lexington Natural Resources Trust 1.00% 0.47% 1.47% Neuberger & Berman Growth Portfolio(7) 0.84% 0.10% 0.94% Scudder International Portfolio Class A Shares 0.88% 0.20% 1.08% TCI Growth(8) 1.00% 0.00% 1.00%
- -------------------------- (1) Certain of the unaffiliated 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 investment advisory fees and are not charged to investors. (2) As of May 1, 1996, the Company will provide administrative services to the Fund and will assume the Fund's ordinary recurring direct costs under an Administrative Services Agreement. The "Other Expenses" shown are not based on figures for the year ended December 31, 1995, but reflect the fee payable under this Agreement. (3)The Management and Advisory Fees are subject to a performance adjustment, after July 1, 1996, which could cause the fee to be as high as 0.85% or as low as 0.55%, depending on performance. "Other Expenses" reflect an indirect fee of 0.02%. Net fund operating expenses after reductions for fees paid indirectly would be 0.81%. (4) A portion of the brokerage commissions the Fund paid was used to reduce its expenses. Without this reduction, total operating expenses would have been 0.73% for the Contrafund Portfolio. (5)An expense reimbursement arrangement was in effect until February 1, 1996; however, it is no longer in effect. The advisory fee and total annual expenses shown above reflect the actual expenses of the Fund before reimbursement, as if such arrangement had not been in effect during 1995. (6)The information for each Portfolio is net of fee waivers or reductions from Janus Capital. Fee reductions for the Aggressive Growth, Balanced, Growth, and Worldwide Growth Portfolios reduce the management fee to the level of the corresponding Janus retail fund. Other waivers, if applicable, are first applied against the management fee and then against other expenses. Without such waivers or reductions, the Management Fee, Other Expenses and Total Fund Annual Expenses would have been 0.82%, 0.11%, and 0.93% for - -------------------------------------------------------------------------------- FEE TABLE - 2 Aggressive Growth Portfolio; 1.00%, 0.55%, 1.55% for Balanced Portfolio; 0.85%, 0.13% and 0.98% for Growth Portfolio; 0.65%, 0.72% and 1.37% for Short-Term Bond Portfolio; and 0.87%, 0.22% and 1.09% for Worldwide Growth Portfolio; respectively. Janus Capital may modify or terminate the waivers or reductions at any time upon 90 days' notice to the Portfolio's Board of Trustees. (7)Neuberger and Berman Advisers Management Trust (the "Trust") is divided into portfolios ("Portfolios"), each of which invests all of its net investment assets in a corresponding series ("Series") of Advisers Management Trust. Expenses in the table reflect expenses of the Portfolio and include the Portfolio's pro rata portion of the operating expenses of the Portfolio's corresponding Series. The Portfolio pays Neuberger & Berman Management Inc. ("NBMI") an administration fee based on the Portfolio's net asset value. The corresponding Series of the Portfolio pays NBMI a management fee based on the Series' average daily net assets. Accordingly, this table combines management fees at the Series level and administration fees at the Portfolio level in a unified fee rate. (See "Expenses" in the Trust's prospectus.) (8) The Portfolio's investment adviser pays all expenses of the Portfolio except brokerage commissions, taxes, interest, fees, expenses of the non-interested person directors (including counsel fees) and extraordinary expenses. These expenses have historically represented a very small percentage (less than 0.01%) of total net assets in a fiscal year. - -------------------------------------------------------------------------------- FEE TABLE - 3 HYPOTHETICAL ILLUSTRATION (EXAMPLE) THIS EXAMPLE IS PURELY HYPOTHETICAL. IT SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR EXPECTED RETURN. ACTUAL EXPENSES AND/OR RETURN MAY BE MORE OR LESS THAN THOSE SHOWN BELOW. The following Examples illustrate the expenses that would have been paid assuming a $1,000 investment in the Contract and a 5% return on assets. For the purposes of these Examples, the maximum maintenance fee of $15.00 that can be deducted under the Contract has been converted to a percentage of assets equal to 0.107%.
EXAMPLE A EXAMPLE B ------------------------------------- ------------------------------------- IF YOU WITHDRAW YOUR ENTIRE ACCOUNT IF YOU DO NOT WITHDRAW YOUR ACCOUNT VALUE AT THE END OF THE PERIODS VALUE, OR IF YOU ANNUITIZE AT THE END SHOWN, YOU WOULD PAY THE FOLLOWING OF THE PERIODS SHOWN, YOU WOULD PAY EXPENSES, INCLUDING ANY APPLICABLE THE FOLLOWING EXPENSES (NO DEFERRED DEFERRED SALES CHARGE: SALES CHARGE IS REFLECTED):* 1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- ------ ------- ------- -------- Aetna Variable Fund $69 $108 $149 $197 $17 $ 53 $ 91 $197 Aetna Income Shares $69 $108 $150 $199 $17 $ 53 $ 92 $199 Aetna Variable Encore Fund $69 $109 $151 $202 $17 $ 54 $ 93 $202 Aetna Investment Advisers Fund, Inc. $69 $108 $150 $199 $17 $ 53 $ 92 $199 Aetna Ascent Variable Portfolio $71 $117 $166 $233 $20 $ 63 $108 $233 Aetna Crossroads Variable Portfolio $71 $117 $166 $233 $20 $ 63 $108 $233 Aetna Legacy Variable Portfolio $71 $117 $166 $233 $120 $ 63 $108 $233 Alger American Growth Portfolio $74 $123 $176 $254 $22 $ 69 $118 $254 Alger American Small Cap Portfolio $74 $125 $179 $261 $23 $ 71 $122 $261 Calvert Responsibly Invested Balanced Portfolio $74 $123 $175 $252 $22 $ 68 $117 $252 Fidelity VIP II Contrafund Portfolio $73 $120 $169 $241 $21 $ 65 $112 $241 Fidelity VIP Equity-Income Portfolio $71 $116 $164 $229 $20 $ 62 $106 $229 Fidelity VIP Growth Portfolio $72 $119 $168 $239 $21 $ 64 $111 $239 Fidelity VIP Overseas Portfolio $74 $125 $179 $260 $23 $ 71 $121 $260 Franklin Government Securities Trust $73 $121 $171 $245 $21 $ 66 $114 $245 Janus Aspen Aggressive Growth Portfolio $74 $124 $176 $255 $22 $ 69 $119 $255 Janus Aspen Balanced Portfolio $79 $138 $200 $306 $28 $ 85 $144 $306 Janus Aspen Flexible Income Portfolio $76 $130 $186 $276 $25 $ 76 $129 $276 Janus Aspen Growth Portfolio $73 $121 $172 $247 $22 $ 67 $115 $247 Janus Aspen Short-Term Bond Portfolio $72 $119 $168 $239 $21 $ 64 $111 $239 Janus Aspen Worldwide Growth Portfolio $74 $125 $178 $259 $23 $ 71 $121 $259 Lexington Natural Resources Trust $80 $141 $205 $315 $29 $ 88 $149 $315 Neuberger & Berman Growth Portfolio $75 $126 $180 $263 $23 $ 72 $123 $263 Scudder International Portfolio Class A Shares $76 $130 $187 $277 $25 $ 76 $130 $277 TCI Growth $75 $128 $183 $269 $24 $ 74 $126 $269
- ------------------------------ * This Example would not apply if a nonlifetime variable annuity option is selected, and a lump sum settlement is requested within three years after annuity payments start since the lump sum payment will be treated as a withdrawal during the Accumulation Period and will be subject to any deferred sales charge that would then apply. (Refer to Example A). - -------------------------------------------------------------------------------- FEE TABLE - 4 CONDENSED FINANCIAL INFORMATION AETNA PLUS CONTRACTS (SELECTED DATA FOR ACCUMULATION UNITS OUTSTANDING THROUGHOUT EACH PERIOD) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THE CONDENSED FINANCIAL INFORMATION PRESENTED BELOW FOR EACH OF THE YEARS IN THE TEN-YEAR PERIOD ENDED DECEMBER 31, 1995 (AS APPLICABLE), IS DERIVED FROM THE FINANCIAL STATEMENTS OF THE SEPARATE ACCOUNT, WHICH FINANCIAL STATEMENTS HAVE BEEN AUDITED BY KPMG PEAT MARWICK LLP, INDEPENDENT AUDITORS. THE FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE INDEPENDENT AUDITORS' REPORT THEREON, ARE INCLUDED IN THE STATEMENT OF ADDITIONAL INFORMATION.
1995 1994 1993 1992 1991 1990 -------------- ------------ ------------- ------------- ----------- ------------- AETNA VARIABLE FUND Value at beginning of period $10.778 $11.020 $10.454 $97.165 $77.845 $76.311 Value at end of period $14.077 $10.778 $11.020 $10.454(2) $97.165 $77.845 Increase (decrease) in value of accumulation unit(1) 30.61% (2.20)% 5.41% (2) 24.82% 2.01% Number of accumulation units outstanding at end of period 188,964,022 114,733,035 44,166,470 21,250 20,948,226 18,362,906 AETNA INCOME SHARES Value at beginning of period $10.360 $10.905 $10.068 $36.789 $31.192 $28.943 Value at end of period $12.098 $10.360 $10.905 $10.068(3) $36.789 $31.192 Increase (decrease) in value of accumulation unit(1) 16.78% (5.00)% 8.31% (3) 17.94% 7.77% Number of accumulation units outstanding at end of period 21,379,976 11,713,354 4,084,142 3,870 7,844,412 6,984,793 AETNA VARIABLE ENCORE FUND Value at beginning of period $10.528 $10.241 $10.048 $33.812 $32.138 $30.012 Value at end of period $11.026 $10.528 $10.241 $10.048(4) $33.812 $32.138 Increase (decrease) in value of accumulation unit(1) 4.73% 2.80% 1.92% (4) 5.21% 7.08% Number of accumulation units outstanding at end of period 12,999,680 7,673,528 2,766,044 825 8,430,082 10,220,110 AETNA INVESTMENT ADVISERS FUND, INC. Value at beginning of period $10.868 $11.057 $10.189 $12.736 $10.896 $10.437 Value at end of period $13.673 $10.868 $11.057 $10.189(6) $12.736 $10.896 Increase (decrease) in value of accumulation unit(1) 25.81% (1.71)% 8.52% (6) 16.89% 4.40% Number of accumulation units outstanding at end of period 38,152,395 23,139,604 11,368,365 11,508 22,898,099 17,078,985 AETNA ASCENT VARIABLE PORTFOLIO Value at beginning of period $10.000(7) Value at end of period $10.673 Increase (decrease) in value of accumulation unit(1) 6.73% Number of accumulation units outstanding at end of period 393,053 AETNA CROSSROADS VARIABLE PORTFOLIO Value at beginning of period $10.000(7) Value at end of period $10.612 Increase (decrease) in value of accumulation unit(1) 6.12% Number of accumulation units outstanding at end of period 294,673 AETNA LEGACY VARIABLE PORTFOLIO Value at beginning of period $10.000(7) Value at end of period $10.580 Increase (decrease) in value of accumulation unit(1) 5.80% Number of accumulation units outstanding at end of period 143,637 -------------- -------------- 1989 1988 1987 1986 ----------- ------------- ------------- ------------- AETNA VARIABLE FUND Value at beginning of period $59.871 $52.885 $50.760 $43.205 Value at end of period $76.311 $59.871 $52.885 $50.760 Increase (decrease) in value of accumulation unit(1) 27.46% 13.21% 4.19% 17.49% Number of accumulation units outstanding at end of period 17,142,820 16,455,396 16,497,406 16,578,251 AETNA INCOME SHARES Value at beginning of period $25.574 $24.061 $23.308 $20.703 Value at end of period $28.943 $25.574 $24.061 $23.308 Increase (decrease) in value of accumulation unit(1) 13.17% 6.29% 3.23% 12.58% Number of accumulation units outstanding at end of period 6,202,834 5,955,293 5,372,271 6,188,470 AETNA VARIABLE ENCORE FUND Value at beginning of period $27.783 $26.171 $24.812 $23.504 Value at end of period $30.012 $27.783 $26.171 $24.812 Increase (decrease) in value of accumulation unit(1) 8.02% 6.16% 5.48% 5.57% Number of accumulation units outstanding at end of period 8,286,033 8,154,644 7,326,151 6,692,947 AETNA INVESTMENT ADVISERS FUND, INC. Value at beginning of period $10.000(5) Value at end of period $10.437 Increase (decrease) in value of accumulation unit(1) 4.37% Number of accumulation units outstanding at end of period 9,535,986 AETNA ASCENT VARIABLE PORTFOLIO Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period AETNA CROSSROADS VARIABLE PORTFOLIO Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period AETNA LEGACY VARIABLE PORTFOLIO Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period
- -------------------------------------------------------------------------------- AUV HISTORY - 5 CONDENSED FINANCIAL INFORMATION (CONTINUED) - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
1995 1994 1993 1992 -------------- ------------ ------------- ------------- ALGER AMERICAN GROWTH PORTFOLIO Value at beginning of period $10.000(7) Value at end of period $10.157 Increase (decrease) in value of accumulation unit(1) 1.57% Number of accumulation units outstanding at end of period 2,832,440 ALGER AMERICAN SMALL CAP PORTFOLIO Value at beginning of period $ 9.437 $ 9.959 $10.000(8) Value at end of period $13.450 $ 9.437 $ 9.959 Increase (decrease) in value of accumulation unit(1) 42.52% (5.24)% (0.41)% Number of accumulation units outstanding at end of period 15,036,765 6,339,407 781,836 CALVERT RESPONSIBLY INVESTED BALANCED PORTFOLIO* Value at beginning of period $10.554 $11.036 $10.278 $10.000(9) Value at end of period $13.527 $10.554 $11.036 $10.278 Increase (decrease) in value of accumulation unit(1) 28.17% (4.37)% 7.37% 2.78% Number of accumulation units outstanding at end of period 966,098 521,141 144,168 2,556 FIDELITY VIP II CONTRAFUND PORTFOLIO Value at beginning of period $10.000(7) Value at end of period $10.397 Increase (decrease) in value of accumulation unit(1) 3.97% Number of accumulation units outstanding at end of period 2,116,732 FIDELITY VIP EQUITY-INCOME PORTFOLIO Value at beginning of period $10.000(7) Value at end of period $11.092 Increase (decrease) in value of accumulation unit(1) 10.92% Number of accumulation units outstanding at end of period 1,660,304 FIDELITY VIP GROWTH PORTFOLIO Value at beginning of period $10.000(7) Value at end of period $10.066 Increase (decrease) in value of accumulation unit(1) 0.66% Number of accumulation units outstanding at end of period 1,833,794 FIDELITY VIP OVERSEAS PORTFOLIO Value at beginning of period $10.000(7) Value at end of period $ 9.961 Increase (decrease) in value of accumulation unit(1) (0.39)% Number of accumulation units outstanding at end of period 196,090 FRANKLIN GOVERNMENT SECURITIES TRUST Value at beginning of period $10.119 $10.642 $10.008 $10.000(9) Value at end of period $11.762 $10.119 $10.642 $10.008 Increase (decrease) in value of accumulation unit(1) 16.24% (4.91)% 6.33% 0.08% Number of accumulation units outstanding at end of period 717,760 325,365 167,137 5,559 -------------- -------------- ALGER AMERICAN GROWTH PORTFOLIO Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period ALGER AMERICAN SMALL CAP PORTFOLIO Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period CALVERT RESPONSIBLY INVESTED BALANCED PORTFOLIO* Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period FIDELITY VIP II CONTRAFUND PORTFOLI Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period FIDELITY VIP EQUITY-INCOME PORTFOLI Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period FIDELITY VIP GROWTH PORTFOLIO Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period FIDELITY VIP OVERSEAS PORTFOLIO Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period FRANKLIN GOVERNMENT SECURITIES TRUST Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period
- -------------------------------------------------------------------------------- AUV HISTORY - 6 CONDENSED FINANCIAL INFORMATION (CONTINUED) - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
1995 1994 1993 1992 -------------- ------------ ------------- ------------- JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO Value at beginning of period $10.581 $10.000(10) Value at end of period $13.322 $10.581 Increase (decrease) in value of accumulation unit(1) 25.91% 5.81% Number of accumulation units outstanding at end of period 4,887,060 753,862 JANUS ASPEN BALANCED PORTFOLIO Value at beginning of period $10.000(7) Value at end of period $10.850 Increase (decrease) in value of accumulation unit(1) 8.50% Number of accumulation units outstanding at end of period 93,304 JANUS ASPEN FLEXIBLE INCOME PORTFOLIO Value at beginning of period $ 9.873 $10.000(10) Value at end of period $12.077 $ 9.873 Increase (decrease) in value of accumulation unit(1) 22.33% (1.27)% Number of accumulation units outstanding at end of period 315,361 28,543 JANUS ASPEN GROWTH PORTFOLIO Value at beginning of period $10.000(7) Value at end of period $10.870 Increase (decrease) in value of accumulation unit(1) 8.70% Number of accumulation units outstanding at end of period 259,196 JANUS ASPEN SHORT-TERM BOND PORTFOLIO Value at beginning of period $10.000(7) Value at end of period $10.323 Increase (decrease) in value of accumulation unit(1) 3.23% Number of accumulation units outstanding at end of period 32,696 JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO Value at beginning of period $10.000(7) Value at end of period $10.877 Increase (decrease) in value of accumulation unit(1) 8.77% Number of accumulation units outstanding at end of period 1,036,040 LEXINGTON NATURAL RESOURCES TRUST Value at beginning of period $10.154 $10.877 $ 9.832 $10.000(9) Value at end of period $11.720 $10.154 $10.877 $ 9.832 Increase (decrease) in value of accumulation unit(1) 15.42% (6.65)% 10.63% (1.68)% Number of accumulation units outstanding at end of period 711,892 703,676 135,614 561 NEUBERGER & BERMAN GROWTH PORTFOLIO Value at beginning of period $11.026 $11.747 $10.864 $10.000(9) Value at end of period $14.345 $11.026 $11.747 $10.864 Increase (decrease) in value of accumulation unit(1) 30.10% (6.14)% 8.13% 8.64% Number of accumulation units outstanding at end of period 3,331,218 1,865,104 546,559 10,645 SCUDDER INTERNATIONAL PORTFOLIO CLASS A SHARES Value at beginning of period $12.687 $12.957 $ 9.578 $10.000(9) Value at end of period $13.923 $12.687 $12.957 $ 9.578 Increase (decrease) in value of accumulation unit(1) 9.74% (2.08)% 35.28% (4.22)% Number of accumulation units outstanding at end of period 7,323,208 6,558,946 1,020,233 5,232 -------------- -------------- JANUS ASPEN AGGRESSIVE GROWTH PORTF Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period JANUS ASPEN BALANCED PORTFOLIO Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period JANUS ASPEN FLEXIBLE INCOME PORTFOL Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period JANUS ASPEN GROWTH PORTFOLIO Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period JANUS ASPEN SHORT-TERM BOND PORTFOL Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period JANUS ASPEN WORLDWIDE GROWTH PORTFO Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period LEXINGTON NATURAL RESOURCES TRUST Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period NEUBERGER & BERMAN GROWTH PORTFOLIO Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period SCUDDER INTERNATIONAL PORTFOLIO CLA Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period
- -------------------------------------------------------------------------------- AUV HISTORY - 7 CONDENSED FINANCIAL INFORMATION (CONTINUED) - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
1995 1994 1993 1992 -------------- ------------ ------------- ------------- TCI GROWTH Value at beginning of period $11.781 $12.069 $10.692 $10.000(9) Value at end of period $15.253 $11.781 $12.069 $10.692 Increase (decrease) in value of accumulation unit(1) 29.47% (2.39)% 12.88% 6.92% Number of accumulation units outstanding at end of period 21,986,645 12,853,828 3,667,821 2,254 TCI GROWTH Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period
(1) The above figures are calculated by subtracting the beginning Accumulation Unit value from the ending Accumulation Unit value during a calendar year, and dividing the result by the beginning Accumulation Unit value. These figures do not reflect the deferred sales charges or the fixed dollar annual maintenance fee, if any. Inclusion of these charges would reduce the investment results shown. (2) The Accumulation Unit value was converted to $10.000 on August 21, 1992 upon the commencement of a new administrative system. Immediately prior to that date, the Accumulation Unit value of the Fund was $97.817. On the date of conversion, additional units were issued so that account values were not changed as a result of the conversion. The percentage change in the Accumulation Unit value from the beginning of the year to the date of conversion was 0.67%; the percentage change in the Accumulation Unit value from the date of conversion to the end of the year was 4.54%. (3) The Accumulation Unit value was converted to $10.000 on August 21, 1992 upon the commencement of a new administrative system. Immediately prior to that date, the Accumulation Unit value of the Fund was $38.521. On the date of conversion, additional units were issued so that account values were not changed as a result of the conversion. The percentage change in the Accumulation Unit value from the beginning of the year to the date of conversion was 4.70%; the percentage change in the Accumulation Unit value from the date of conversion to the end of the year was 0.68%. (4) The Accumulation Unit value was converted to $10.000 on August 21, 1992 upon the commencement of a new administrative system. Immediately prior to that date, the Accumulation Unit value of the Fund was $34.397. On the date of conversion, additional units were issued so that account values were not changed as a result of the conversion. The percentage change in the Accumulation Unit value from the beginning of the year to the date of conversion was 1.73%; the percentage change in the Accumulation Unit value from the date of conversion to the end of the year was 0.48%. (5) The initial Accumulation Unit value was established at $10.000 on June 23, 1989, the date on which the Fund commenced operations. (6) The Accumulation Unit value was converted to $10.000 on August 21, 1992 upon the commencement of a new administrative system. Immediately prior to that date, the Accumulation Unit value of the Fund was $13.118. On the date of conversion, additional units were issued so that account values were not changed as a result of the conversion. The percentage change in the Accumulation Unit value from the beginning of the year to the date of conversion was 2.99%; the percentage change in the Accumulation Unit value from the date of conversion to the end of the year was 1.89%. (7) Reflects less than a full year of performance activity. The initial Accumulation Unit value was established at $10.000 during August 1995, when the Fund became available under the Contract. (8) The initial Accumulation Unit value was established at $10.000 on September 17, 1993, the date on which the Portfolio became available under the Contract. (9) The initial Accumulation Unit value was established at $10.000 on August 21, 1992, the date on which the Fund/Portfolio became available under the Contract. (10) The initial Accumulation Unit value was established at $10.000 during October 1994, when the funds were first allocated to this option. * Formerly Calvert Socially Responsible Series. - -------------------------------------------------------------------------------- AUV HISTORY - 8 CONDENSED FINANCIAL INFORMATION MULTIPLE OPTION CONTRACTS (SELECTED DATA FOR ACCUMULATION UNITS OUTSTANDING THROUGHOUT EACH PERIOD) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THE CONDENSED FINANCIAL INFORMATION PRESENTED BELOW FOR EACH OF THE YEARS IN THE TEN-YEAR PERIOD ENDED DECEMBER 31, 1995 (AS APPLICABLE), IS DERIVED FROM THE FINANCIAL STATEMENTS OF THE SEPARATE ACCOUNT, WHICH FINANCIAL STATEMENTS HAVE BEEN AUDITED BY KPMG PEAT MARWICK LLP, INDEPENDENT AUDITORS. THE FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE INDEPENDENT AUDITORS' REPORT THEREON, ARE INCLUDED IN THE STATEMENT OF ADDITIONAL INFORMATION.
1995 1994 1993 1992 1991 1990 ------------- ------------- ------------- ----------- ----------- ----------- AETNA VARIABLE FUND Value at beginning of period $105.558 $107.925 $102.383 $ 97.165 $77.845 $76.311 Value at end of period $137.869 $105.558 $107.925 $102.383 $97.165 $77.845 Increase (decrease) in value of accumulation unit(1) 30.61% (2.19)% 5.41% 5.37% 24.82% 2.01% Number of accumulation units outstanding at end of period 6,364,000 13,966,072 21,148,863 24,201,565 20,948,226 18,362,906 AETNA INCOME SHARES Value at beginning of period $40.173 $42.283 $39.038 $36.789 $31.192 $28.943 Value at end of period $46.913 $40.173 $42.283 $39.038 $36.789 $31.192 Increase (decrease) in value of accumulation unit(1) 16.78% (4.99)% 8.31% 6.11% 17.94% 7.77% Number of accumulation units outstanding at end of period 2,377,622 5,108,720 8,210,666 8,507,292 7,844,412 6,984,793 AETNA VARIABLE ENCORE FUND Value at beginning of period $36.271 $35.282 $34.619 $33.812 $32.138 $30.012 Value at end of period $37.988 $36.271 $35.282 $34.619 $33.812 $32.138 Increase (decrease) in value of accumulation unit(1) 4.73% 2.80% 1.92% 2.39% 5.21% 7.08% Number of accumulation units outstanding at end of period 1,836,260 3,679,802 5,086,515 7,534,662 8,430,082 10,220,110 AETNA INVESTMENT ADVISERS FUND, INC. Value at beginning of period $14.270 $14.519 $13.379 $12.736 $10.896 $10.437 Value at end of period $17.954 $14.270 $14.519 $13.379 $12.736 $10.896 Increase (decrease) in value of accumulation unit(1) 25.82% (1.71)% 8.52% 5.05% 16.89% 4.40% Number of accumulation units outstanding at end of period 9,193,181 21,990,186 30,784,750 34,802,433 22,898,099 17,078,985 AETNA ASCENT VARIABLE PORTFOLIO Value at beginning of period $10.000(10) Value at end of period $10.673 Increase (decrease) in value of accumulation unit(1) 6.73% Number of accumulation units outstanding at end of period 8 AETNA CROSSROADS VARIABLE PORTFOLIO Value at beginning of period $10.000(10) Value at end of period $10.612 Increase (decrease) in value of accumulation unit(1) 6.12% Number of accumulation units outstanding at end of period 0 AETNA LEGACY VARIABLE PORTFOLIO Value at beginning of period $10.000(10) Value at end of period $10.580 Increase (decrease) in value of accumulation unit(1) 5.80% Number of accumulation units outstanding at end of period 0 ------------- ------------- 1989 1988 1987 1986 ------------- ----------- ----------- ----------- AETNA VARIABLE FUND Value at beginning of period $59.871 $52.885 $50.760 $43.205 Value at end of period $76.311 $59.871 $52.885 $50.760 Increase (decrease) in value of accumulation unit(1) 27.46% 13.21% 4.19% 17.49% Number of accumulation units outstanding at end of period 17,142,820 16,455,396 16,497,406 16,578,251 AETNA INCOME SHARES Value at beginning of period $25.574 $24.061 $23.308 $20.703 Value at end of period $28.943 $25.574 $24.061 $23.308 Increase (decrease) in value of accumulation unit(1) 13.17% 6.29% 3.23% 12.58% Number of accumulation units outstanding at end of period 6,202,834 5,955,293 5,372,271 6,188,470 AETNA VARIABLE ENCORE FUND Value at beginning of period $27.783 $26.171 $24.812 $23.504 Value at end of period $30.012 $27.783 $26.171 $24.812 Increase (decrease) in value of accumulation unit(1) 8.02% 6.16% 5.48% 5.57% Number of accumulation units outstanding at end of period 8,286,033 8,154,644 7,326,151 6,692,947 AETNA INVESTMENT ADVISERS FUND, INC. Value at beginning of period $10.000(2) Value at end of period $10.437 Increase (decrease) in value of accumulation unit(1) 4.37% Number of accumulation units outstanding at end of period 9,535,986 AETNA ASCENT VARIABLE PORTFOLI Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period AETNA CROSSROADS VARIABLE PORTFOLIO Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period AETNA LEGACY VARIABLE PORTFOLI Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period
- -------------------------------------------------------------------------------- AUV HISTORY - 9 CONDENSED FINANCIAL INFORMATION (CONTINUED) - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 ------------- ------------- ------------- ----------- ----------- ----------- ALGER AMERICAN GROWTH PORTFOLIO Value at beginning of period $10.000(10) Value at end of period $11.715 Increase (decrease) in value of accumulation unit(1) 17.15% Number of accumulation units outstanding at end of period 530,263 ALGER AMERICAN SMALL CAP PORTFOLIO Value at beginning of period $ 9.513 $10.072 $10.000(3) Value at end of period $13.558 $ 9.513 $10.072 Increase (decrease) in value of accumulation unit(1) 42.52% (5.55)% 0.72% Number of accumulation units outstanding at end of period 1,714,187 665,518 51,327 CALVERT RESPONSIBLY INVESTED BALANCED PORTFOLIO* Value at beginning of period $13.990 $14.640 $13.726 $12.913 $11.233 $10.568 Value at end of period $17.951 $13.990 $14.640 $13.726 $12.913 $11.233 Increase (decrease) in value of accumulation unit(1) 28.31% (4.44)% 6.66% 6.30% 14.96% 6.29% Number of accumulation units outstanding at end of period 856,361 743,464 705,415 503,006 355,851 148,576 FIDELITY VIP II CONTRAFUND PORTFOLIO Value at beginning of period $10.000(11) Value at end of period $11.763 Increase (decrease) in value of accumulation unit(1) 17.63% Number of accumulation units outstanding at end of period 525,476 FIDELITY VIP EQUITY-INCOME PORTFOLIO Value at beginning of period $10.000(11) Value at end of period $11.617 Increase (decrease) in value of accumulation unit(1) 16.17% Number of accumulation units outstanding at end of period 628,582 FIDELITY VIP GROWTH PORTFOLIO Value at beginning of period $10.000(10) Value at end of period $10.198 Increase (decrease) in value of accumulation unit(1) 1.98% Number of accumulation units outstanding at end of period 762 FIDELITY VIP OVERSEAS PORTFOLIO Value at beginning of period $10.000(10) Value at end of period $10.197 Increase (decrease) in value of accumulation unit(1) 1.97% Number of accumulation units outstanding at end of period 1,302 FRANKLIN GOVERNMENT SECURITIES TRUST Value at beginning of period $14.190 $14.929 $14.050 $13.219 $11.545 $10.581 Value at end of period $16.495 $14.190 $14.929 $14.050 $13.219 $11.545 Increase (decrease) in value of accumulation unit(1) 16.24% (4.95)% 6.26% 6.29% 14.50% 9.11% Number of accumulation units outstanding at end of period 809,414 804,457 960,629 810,155 627,552 178,761 ------------- ------------- 1989 ------------- ALGER AMERICAN GROWTH PORTFOLI Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period ALGER AMERICAN SMALL CAP PORTFOLIO Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period CALVERT RESPONSIBLY INVESTED BALANCED PORTFOLIO* Value at beginning of period $10.000(4) Value at end of period $10.568 Increase (decrease) in value of accumulation unit(1) 5.68% Number of accumulation units outstanding at end of period 20,710 FIDELITY VIP II CONTRAFUND POR Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period FIDELITY VIP EQUITY-INCOME POR Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period FIDELITY VIP GROWTH PORTFOLIO Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period FIDELITY VIP OVERSEAS PORTFOLI Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period FRANKLIN GOVERNMENT SECURITIES Value at beginning of period $10.000(5) Value at end of period $10.581 Increase (decrease) in value of accumulation unit(1) 5.81% Number of accumulation units outstanding at end of period 25,258
- -------------------------------------------------------------------------------- AUV HISTORY - 10 CONDENSED FINANCIAL INFORMATION (CONTINUED) - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 ------------- ------------- ------------- ----------- ----------- ----------- JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO Value at beginning of period $12.169 $10.000(6) Value at end of period $15.323 $12.169 Increase (decrease) in value of accumulation unit(1) 25.91% 21.69% Number of accumulation units outstanding at end of period 1,280,953 393,553 JANUS ASPEN BALANCED PORTFOLIO Value at beginning of period $10.000(10) Value at end of period $10.853 Increase (decrease) in value of accumulation unit(1) 8.53% Number of accumulation units outstanding at end of period 161 JANUS ASPEN FLEXIBLE INCOME PORTFOLIO Value at beginning of period $ 9.911 $10.000(7) Value at end of period $12.124 $ 9.911 Increase (decrease) in value of accumulation unit(1) 22.33% (0.89)% Number of accumulation units outstanding at end of period 3,345 1,555 JANUS ASPEN GROWTH PORTFOLIO Value at beginning of period $10.000(10) Value at end of period $11.859 Increase (decrease) in value of accumulation unit(1) 18.59% Number of accumulation units outstanding at end of period 109,717 JANUS ASPEN SHORT-TERM BOND PORTFOLIO Value at beginning of period $10.000(10) Value at end of period $10.393 Increase (decrease) in value of accumulation unit(1) 3.93% Number of accumulation units outstanding at end of period 18,473 JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO Value at beginning of period $10.000(10) Value at end of period $12.158 Increase (decrease) in value of accumulation unit(1) 21.58% Number of accumulation units outstanding at end of period 314,653 LEXINGTON NATURAL RESOURCES TRUST Value at beginning of period $ 9.412 $10.071 $ 9.193 $9.018 $9.608 $11.441 Value at end of period $10.862 $ 9.412 $10.071 $9.193 $ 9.018 $ 9.608 Increase (decrease) in value of accumulation unit(1) 15.41% (6.54)% 9.55% 1.94% (6.14)% (16.02)% Number of accumulation units outstanding at end of period 530,562 533,016 341,771 198,338 144,139 75,052 NEUBERGER & BERMAN GROWTH PORTFOLIO Value at beginning of period $13.398 $14.278 $13.536 $12.511 $ 9.769 $10.772 Value at end of period $17.430 $13.398 $14.278 $13.536 $12.511 $ 9.769 Increase (decrease) in value of accumulation unit(1) 30.09% (6.16)% 5.48% 8.19% 28.07% (9.31)% Number of accumulation units outstanding at end of period 2,359,090 2,107,525 1,927,674 1,346,898 971,985 482,220 ------------- ------------- 1989 ------------- JANUS ASPEN AGGRESSIVE GROWTH Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period JANUS ASPEN BALANCED PORTFOLIO Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period JANUS ASPEN FLEXIBLE INCOME PO Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period JANUS ASPEN GROWTH PORTFOLIO Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period JANUS ASPEN SHORT-TERM BOND PO Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period JANUS ASPEN WORLDWIDE GROWTH P Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period LEXINGTON NATURAL RESOURCES TR Value at beginning of period $10.000(4) Value at end of period $11.441 Increase (decrease) in value of accumulation unit(1) 14.41% Number of accumulation units outstanding at end of period 11,481 NEUBERGER & BERMAN GROWTH PORT Value at beginning of period $10.000(4) Value at end of period $10.772 Increase (decrease) in value of accumulation unit(1) 7.72% Number of accumulation units outstanding at end of period 68,885
- -------------------------------------------------------------------------------- AUV HISTORY - 11 CONDENSED FINANCIAL INFORMATION (CONTINUED) - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 ------------- ------------- ------------- ----------- ----------- ----------- SCUDDER INTERNATIONAL PORTFOLIO CLASS A SHARES** Value at beginning of period $13.227 $13.508 $ 9.922 $10.239** $ 9.256 $10.306 Value at end of period $14.515 $13.227 $13.508 $ 9.922 $10.239 $ 9.256 Increase (decrease) in value of accumulation unit(1) 9.74% (2.08)% 36.14% (3.10)% 10.62% (10.19)% Number of accumulation units outstanding at end of period 3,823,292 4,240,412 2,371,037 1,161,007 779,667 317,829 TCI GROWTH Value at beginning of period $11.172 $11.443 $10.495 $10.000(9) Value at end of period $14.464 $11.172 $11.443 $10.495 Increase (decrease) in value of accumulation unit(1) 29.47% (2.37)% 9.03% 4.95% Number of accumulation units outstanding at end of period 1,784,552 1,608,362 1,016,894 232,832 1989 ------------- SCUDDER INTERNATIONAL PORTFOLI Value at beginning of period $10.000(8) Value at end of period $10.306 Increase (decrease) in value of accumulation unit(1) 3.06% Number of accumulation units outstanding at end of period 32,906 -------- -------- TCI GROWTH Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period
(1) The above figures are calculated by subtracting the beginning Accumulation Unit value from the ending Accumulation Unit value during a calendar year, and dividing the result by the beginning Accumulation Unit value. These figures do not reflect the deferred sales charges or the fixed dollar annual maintenance fee, if any. Inclusion of these charges would reduce the investment results shown. (2) The initial Accumulation Unit value was established at $10.000 on June 23, 1989, the date on which the Fund commenced operations. (3) The initial Accumulation Unit value was established at $10.000 on September 17, 1993, the date on which the Portfolio became available under the Contract. (4) The initial Accumulation Unit value was established at $10.000 on May 31, 1989, the date on which the Fund/Portfolio became available under the Contract. (5) The initial Accumulation Unit value was established at $10.000 on June 7, 1989, the date on which the Fund became available under the Contract. (6) The initial Accumulation Unit value was established at $10.000 during June 1994, when funds were first received in this option. (7) The initial Accumulation Unit value was established at $10.000 during November 1994, when funds were first received in this option. (8) The initial Accumulation Unit value was established at $10.000 on July 5, 1989, the date on which the Portfolio became available under the Contract. (9) The initial Accumulation Unit value was established at $10.000 on September 21, 1992, the date on which the Portfolio became available under the Contract. (10) The initial Accumulation Unit value was established at $10.000 during July 1995, when the Fund became available under the Contract. (11) The initial Accumulation Unit value was established at $10.000 during May 1995, when the Fund became available under the Contract. * Formerly Calvert Socially Responsible Series. ** Formerly T. Rowe Price International Equity Fund. On April 27, 1992, the Fund's assets were liquidated and merged into Scudder Variable Life Investment Fund -- Managed International Portfolio. The Accumulation Unit Value following the merger was $10.051. - -------------------------------------------------------------------------------- AUV HISTORY - 12 THE COMPANY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Aetna Life Insurance and Annuity Company (the "Company") is the issuer of the Contract, and as such, it is responsible for providing the insurance and annuity benefits under the Contract. The Company is a stock life insurance company organized under the insurance laws of the State of Connecticut in 1976. Through a merger, it succeeded to the business of Aetna Variable Annuity Life Insurance Company (formerly Participating Annuity Life Insurance Company, an Arkansas life insurance company organized in 1954). The Company is engaged in the business of issuing life insurance policies and variable annuity contracts in all states of the United States. The Company's principal executive offices are located at 151 Farmington Avenue, Hartford, Connecticut 06156. The Company is a wholly owned subsidiary of Aetna Retirement Holdings, Inc., which is in turn a wholly owned subsidiary of Aetna Retirement Services, Inc. and an indirect wholly owned subsidiary of Aetna Life and Casualty Company. VARIABLE ANNUITY ACCOUNT C - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The Company established Variable Annuity Account C (the "Separate Account") in 1976 as a segregated asset account for the purpose of funding its variable annuity contracts. The Separate Account is registered as a unit investment trust under the Investment Company Act of 1940 (the "1940 Act"), and meets the definition of "separate account" under federal securities laws. The Separate Account is divided into "Subaccounts" which do not invest directly in stocks, bonds or other investments. Instead, each Subaccount buys and sells shares of a corresponding Fund. Although the Company holds title to the assets in the Separate Account, such assets are not chargeable with liabilities arising out of any other business conducted by the Company. 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 general corporate obligations of the Company. INVESTMENT OPTIONS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THE FUNDS The Contract Holder, or the Participant, if allowed by the Contract Holder, may allocate Purchase Payments to one or more of the Subaccounts as designated on the enrollment form. In turn, the Subaccounts invest in the corresponding Funds at net asset value. The Contract Holder may decide to offer only a select number of Funds under its Plan, or it may decide to substitute shares of one Fund for shares of another Fund currently held by the Separate Account. The availability of Funds may be subject to regulatory authorization. In addition, the Company may add or withdraw Funds, as permitted by applicable law. Not all Funds may be available in all jurisdictions, under all Contracts, or in all Plans. The investment results of the Funds described below are likely to differ significantly and there is no assurance that any of the Funds will achieve their respective investment objectives. Except where otherwise noted, all of the Funds are diversified, as defined in the 1940 Act. - -AETNA VARIABLE FUND seeks to maximize total return through investments in a diversified portfolio of common stocks and securities convertible into common stock.(1) - -AETNA INCOME SHARES seeks to maximize total return, consistent with reasonable risk, through investments in a diversified portfolio consisting primarily of debt securities.(1) - -------------------------------------------------------------------------------- 1 - -AETNA VARIABLE ENCORE FUND 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) - -AETNA INVESTMENT ADVISERS FUND, INC. is a managed fund which seeks to maximize investment return consistent with reasonable safety of principal by investing in one or more of the following asset classes: stocks, bonds and cash equivalents based on the Company's judgment of which of those sectors or mix thereof offers the best investment prospects.(1) - -AETNA GENERATION PORTFOLIOS, INC.--AETNA ASCENT VARIABLE PORTFOLIO seeks to provide capital appreciation by allocating its investments among equities and fixed income securities. The Portfolio is managed for investors who generally have an investment horizon exceeding 15 years, and who have a high level of risk tolerance.(1) - -AETNA GENERATION PORTFOLIOS, INC.--AETNA CROSSROADS VARIABLE PORTFOLIO seeks to provide total return (i.e., income and capital appreciation, both realized and unrealized) by allocating its investments among equities and fixed income securities. The Portfolio is managed for investors who generally have an investment horizon exceeding 10 years and who have a moderate level of risk tolerance.(1) - -AETNA GENERATION PORTFOLIOS, INC.--AETNA LEGACY VARIABLE PORTFOLIO seeks to provide total return consistent with preservation of capital by allocating its investments among equities and fixed income securities. The Portfolio is managed for investors who generally have an investment horizon exceeding five years and who have a low level of risk tolerance.(1) - -ALGER AMERICAN FUND--ALGER AMERICAN GROWTH PORTFOLIO seeks long-term capital appreciation by investing in a diversified, actively managed portfolio of equity securities. The Portfolio primarily invests in equity securities of companies which have a market capitalization of $1 billion or greater.(2) - -ALGER AMERICAN FUND--ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO seeks long-term capital appreciation. Except during temporary defensive periods, the Portfolio invests at least 65% of its total assets in equity securities of companies that, at the time of purchase of the securities, have total market capitalization within the range of companies included in the Russell 2000 Growth Index, updated quarterly. The Russell 2000 Growth Index is designed to track the performance of small capitalization companies. At March 31, 1996, the range of market capitalization of these companies was $20 million to $3.0 billion.(2) - -CALVERT RESPONSIBLY INVESTED BALANCED PORTFOLIO is a NONDIVERSIFIED portfolio that seeks growth of capital through investment in enterprises that make a significant contribution to society through their products and services and through the way they do business.(3) - -FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCTS FUND II--CONTRAFUND PORTFOLIO seeks maximum total return over the long term by investing mainly in equity securities of companies that are undervalued or out-of-favor.(4) - -FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCTS FUND--EQUITY-INCOME PORTFOLIO seeks reasonable income by investing primarily in income-producing equity securities. In selecting investments, the Fund also considers the potential for capital appreciation.(4) - -FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCTS FUND--GROWTH PORTFOLIO seeks capital appreciation by investing mainly in common stocks, although its investments are not restricted to any one type of security.(4) - -FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCTS FUND--OVERSEAS PORTFOLIO seeks long-term growth by investing mainly in foreign securities (at least 65% of the Fund's total assets in securities of issuers from at least three countries outside of North America).(4) - -FRANKLIN GOVERNMENT SECURITIES TRUST seeks income through investments in obligations of the U.S. Government or its agencies or instrumentalities, primarily GNMA obligations.(5) - -JANUS ASPEN SERIES--AGGRESSIVE GROWTH PORTFOLIO is a NONDIVERSIFIED portfolio that seeks long-term growth of capital in a manner consistent with the preservation of capital. The Portfolio pursues its investment objective by normally investing at least 50% of its equity assets in securities issued by medium-sized companies. Medium-sized companies are those whose market capitalizations fall within the range of companies in the S & P Midcap 400 Index, which as of December 29, 1995 included - -------------------------------------------------------------------------------- 2 companies with capitalizations between approximately $118 million and $7.5 billion, but which is expected to change on a regular basis.(6) - -JANUS ASPEN SERIES--BALANCED PORTFOLIO seeks long-term capital growth, consistent with preservation of capital and balanced by current income. The Portfolio pursues its investment objective by investing 40%-60% of its assets in equity securities selected primarily for their growth potential and 40%-60% of its assets in fixed-income securities selected primarily for their income potential.(6) - -JANUS ASPEN SERIES--FLEXIBLE INCOME PORTFOLIO seeks to obtain maximum total return, consistent with preservation of capital. Total return is expected to result from a combination of current income and capital appreciation. The Portfolio invests in all types of income producing securities and may have substantial holdings of debt securities rated below investment grade (e.g., junk bonds). High yield, high risk securities involve certain risks. See the Fund's prospectus for a discussion of these risks.(6) - -JANUS ASPEN SERIES--GROWTH PORTFOLIO seeks long-term growth of capital in a manner consistent with the preservation of capital. The Portfolio pursues its investment objective by investing in common stocks of companies of any size.(6) - -JANUS ASPEN SERIES--SHORT-TERM BOND PORTFOLIO seeks as high a level of current income as is consistent with preservation of capital. The Portfolio pursues its investment objective by investing primarily in short-and intermediate-term fixed income securities.(6) - -JANUS ASPEN SERIES--WORLDWIDE GROWTH PORTFOLIO seeks long-term growth of capital in a manner consistent with preservation of capital. The Portfolio pursues its investment objective primarily through investments in common stocks of foreign and domestic issuers.(6) - -LEXINGTON NATURAL RESOURCES TRUST is a NONDIVERSIFIED portfolio that seeks long-term growth of capital through investment primarily in common stocks of companies which own or develop natural resources and other basic commodities or supply goods and services to such companies.(7) - -NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST-- GROWTH PORTFOLIO seeks capital appreciation without regard to income. The Portfolio pursues its investment objective by investing in common stocks, often of companies that may be temporarily out of favor in the market.(8) - -SCUDDER VARIABLE LIFE INVESTMENT FUND-- INTERNATIONAL PORTFOLIO CLASS A SHARES seeks long-term growth of capital primarily through diversified holdings of marketable foreign equity investments.(9) - -TCI PORTFOLIOS, INC.--TCI GROWTH (a Twentieth Century fund) seeks capital growth. The Fund seeks to achieve its objective by investing in common stocks (including securities convertible into common stocks) and other securities that meet certain fundamental and technical standards of selection and, in the opinion of the Fund's investment manager, have better than average potential for appreciation.(10) Investment Advisers for each of the Funds: (1) Aetna Life Insurance and Annuity Company (2) Fred Alger Management, Inc. (3) Calvert Asset Management Company, Inc. (4) Fidelity Management & Research Company (5) Franklin Advisers, Inc. (6) Janus Capital Corporation (7) Lexington Management Corporation (adviser); Market Systems Research Advisors, Inc. (subadviser) (8) Neuberger & Berman Management Incorporated (9) Scudder, Stevens & Clark, Inc. (10) Investors Research Corporation RISKS ASSOCIATED WITH INVESTMENT IN THE FUNDS. Some of the Funds may use instruments known as derivatives as part of their investment strategies. The use of certain derivatives may involve high risk of volatility to a Fund, and the use of leverage in connection with such derivatives can also increase risk of losses. Some of the Funds may also invest in foreign or international securities which involve greater risks than U.S. investments. More comprehensive information, including a discussion of potential risks, is found in the respective Fund prospectuses which accompany this Prospectus. You should read the Fund prospectuses and consider carefully, and on a continuing basis, which Fund or combination of Funds is best suited to your long-term investment objectives. CONFLICTS OF INTEREST (MIXED AND SHARED FUNDING). Shares of the Funds are sold to each of the Subaccounts for funding the variable annuity contracts issued by the Company. Shares of the Funds may also be sold to other insurance companies for the same purpose. This is referred to as "shared funding." Shares of the Funds may - -------------------------------------------------------------------------------- 3 also be used for funding variable life insurance contracts issued by the Company or by third parties. This is referred to as "mixed funding." Because the Funds available under the Contract are sold to fund variable annuity contracts and variable life insurance policies issued by us or by other companies, certain conflicts of interest could arise. If a conflict of interest were to occur, one of the separate accounts might withdraw its investment in a Fund, which might force that Fund to sell portfolio securities at disadvantageous prices, causing its per share value to decrease. Each Fund's Board of Directors or Trustees has agreed to monitor events in order to identify any material irreconcilable conflicts which might arise and to determine what action, if any, should be taken to address such conflict. CREDITED INTEREST OPTIONS Purchase Payments may be allocated to one or more of the Credited Interest Options available under the Contract as described below. The Contract Holder may elect not to offer all Credited Interest Options under its Plan. - - The Guaranteed Accumulation Account (GAA) is a credited interest option through which we guarantee stipulated rates of interest for stated periods of time. Amounts must remain in the GAA for the full guaranteed term to receive the quoted interest rates, or a market value adjustment (which may be positive or negative) will be applied. (See Appendix I.) - - The Fixed Account is a part of the Company's general account. The Fixed Account guarantees a minimum interest rate, as specified in the Contract. The Company may credit higher interest rates from time to time. Transfers from the Fixed Account are limited. (See Appendix II.) - - The Fixed Plus Account is also a part of the Company's general account and guarantees a minimum interest rate, as specified in the Contract. The Company may credit higher interest rates in its discretion. Withdrawals and transfers from the Fixed Plus Account are limited. (See Appendix III.) PURCHASE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CONTRACT AVAILABILITY The Contracts are designed to fund Plans adopted by (1) nonprofit healthcare organizations and certain tax-exempt nonhealthcare (Section 501(c)(3)) organizations for their employees under Section 403(b) of the Code, and (2) certain tax-exempt organizations or their for-profit subsidiaries in connection with qualified defined contribution plans under Section 401(a)/401(k) of the Code. The Contract Holder must notify the Company whether Title I of the Employee Retirement Income Security Act of 1974 ("ERISA"), as amended by subsequent law, including the Retirement Equity Act of 1984, applies to the Plan. PURCHASING INTERESTS IN THE CONTRACT Eligible organizations may acquire the Contract by submitting an application to the Company. Once we approve the application, a group Contract is issued to the employer or association as the group Contract Holder. Participants may purchase interests in a group Contract by submitting an enrollment form to the Company. The Company must accept or reject the application or enrollment form within two business days of receipt. If the enrollment materials are incomplete, the Company may hold any forms and accompanying Purchase Payments for five days. Purchase Payments may be held for longer periods pending acceptance of the forms only with the consent of the Participant, or under limited circumstances, with the consent of the Contract Holder. If we agree to hold Purchase Payments for longer than five business days based on the consent of the Contract Holder, the Purchase Payments will be deposited in the Aetna Variable Encore Fund Subaccount until the forms are completed. PURCHASE PAYMENTS The Contract provides for the establishment of two types of Accounts on behalf of each Participant. Employer Accounts will be credited with Purchase Payments made by the employer (Contract Holder). Employee Accounts will be credited with Purchase Payments derived from employee salary reduction contributions. If such payments are continuing, periodic payments made by you or the employer, the Employee or Employer Accounts will be designated as "Installment Purchase Payment Accounts." If such payments are lump sum transfers of amounts accumulated under a pre-existing plan that meet - -------------------------------------------------------------------------------- 4 the Company's minimums and other requirements at the time of purchase, such payments will be placed in either Employer Accounts or Employee Accounts as instructed by the Contract Holder, and such Accounts will be designated as "Single Purchase Payment Accounts." The Code imposes a maximum limit on annual Purchase Payments which may be excluded from a Participant's gross income. (See "Tax Status.") ALLOCATION OF PURCHASE PAYMENTS. Purchase Payments will initially be allocated to the Subaccounts or Credited Interest Options as specified by the Contract Holder or the Participant, if allowed by the Contract Holder, on the enrollment form. Changes in such allocation may be made in writing or by telephone transfer. Allocations must be in whole percentages, and there may be limitations on the number of investment options that can be selected during the Accumulation Period. (See "Transfers.") RIGHTS UNDER THE CONTRACT The Contract Holder has all rights, title and interest in the amounts held under the Contract or in the Account; the Contract Holder makes all elections under the Contract. Participants have no rights to direct the Company as to payments under the Contract unless countersigned by the Contract Holder. Benefits payable to Participants are governed exclusively by the Plan. The Company is not a party to the Plan. Participants have a nonforfeitable right to the value of their Employee Account pursuant to Code Section 403(b) and the terms of the Plan as interpreted by the Contract Holder. Participants have a nonforfeitable right to the value of the Employer Account pursuant to the terms of, and to the extent of the Participant's vested percentage under, the Plan as interpreted by the Contract Holder. The Contract Holder and each Participant have agreed in writing to the terms and conditions of the Contract, to have the Contract Holder make all choices under the Contract, and to be bound by the Contract Holder's directions to the Company. (See Appendix IV.) In addition to the responsibilities mentioned elsewhere in this Prospectus, the Contract Holder must: - - maintain all Participant vesting percentages and records; - - certify that all distributions are made in accordance with the terms of the Plan; and - - ensure that the Plan meets certain nondiscrimination requirements imposed by the Code. TRANSFER CREDITS The Company may provide a transfer credit on "transferred assets," subject to certain conditions and state approvals. Transferred assets are the value of contributions made on your behalf under this Plan or a prior plan before such amounts are applied to this Contract. The transfer credit will equal a percentage of the transferred assets applied to the Contract that remain in the Contract after a specified period of time. Once a transfer credit is applied to your Contract, all provisions of the Contract apply. This benefit is provided on a non-discriminatory basis. If a transfer credit is due under the Contract, you will be provided with additional information specific to the Contract. RIGHT TO CANCEL The Contract Holder may cancel participation under the Contract without penalty by returning it to the Company with a written notice of cancellation. In most states, Contract Holders have ten days to exercise this right; some states allow a longer free-look period. When we receive the request for cancellation, we will return the Account Value, unless the laws of the state in which the Contract was issued require that we return the initial Purchase Payment (if greater than the Account Value). In states that do not require a return of Purchase Payments, the purchaser bears the entire investment risk for amounts allocated among the Subaccounts during the free look period. Account Values will be determined as of the Valuation Date on which we receive the request for cancellation at our Home Office. CHARGES AND DEDUCTIONS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- DAILY DEDUCTIONS FROM THE SEPARATE ACCOUNT MORTALITY AND EXPENSE RISK CHARGE. The Company makes a daily deduction from each of the Subaccounts for the mortality and expense risk charge. The Charge is equal, on an annual basis, to 1.25% of the daily net assets of the Subaccounts and compensates the - -------------------------------------------------------------------------------- 5 Company for the assumption of the mortality and expense risks under the Contract. The mortality risks are those assumed for our promise to make lifetime payments according to annuity rates specified in the Contract. The expense risk is the risk that the actual expenses for costs incurred under the Contract will exceed the maximum costs that can be charged under the Contract. If the amount deducted for mortality and expense risks is not sufficient to cover the mortality costs and expense shortfalls, the loss is borne by the Company. If the deduction is more than sufficient, the excess may be used to recover distribution expenses relating to the Contracts and as a source of profit to the Company. The Company expects to make a profit from the mortality and expense risk charge. ADMINISTRATIVE EXPENSE CHARGE. The Company reserves the right to make a deduction from each of the Subaccounts for an administrative charge. The administrative expense charge compensates the Company for administrative expenses that exceed revenues from the maintenance fee described below. The charge is set at a level which does not exceed the average expected cost of the administrative services to be provided while the Contract is in force. The Company does not expect to make a profit from this charge. Under the Contract, the amount of the administrative expense charge may be of an amount equal, on an annual basis, to a maximum of 0.25% of the daily net assets of the Subaccounts. There is currently no administrative expense charge during the Accumulation Period or Annuity Period. Once an Annuity Option is elected, the charge will be established and will be effective during the entire Annuity Period. MAINTENANCE FEE During the Accumulation Period, the Company will deduct an annual maintenance fee from the Account Value of each Participant who has an Installment Purchase Payment Account. No maintenance fee will be deducted from any Account designated as a Single Purchase Payment Account. The maintenance fee is to reimburse the Company for some of its administrative expenses relating to the establishment of the Accounts. The maximum maintenance fee that can be deducted for each Participant is $15. However, the maintenance fee may be reduced or eliminated depending upon certain criteria described below. At the election of the employer, the maintenance fee may be deducted from the Participant's Employee Account, Employer Account, or a portion from each Account. The Company may send a bill to the employer at or prior to such deduction. The maintenance fee will be deducted on a pro rata basis from each Subaccount and Credited Interest Option in which you have an interest. If the Account Value is withdrawn, the full maintenance fee will be deducted at the time of withdrawal. REDUCTION OR ELIMINATION OF THE MAINTENANCE FEE. The annual maintenance fee may be reduced or eliminated under various conditions as agreed to by us and by the Contract Holder in writing. Any reduction or elimination of the annual maintenance fee will reflect differences in administrative costs and services after taking into consideration factors such as the following: - - the size, characteristics, and nature of the group to which a Contract is issued; - - the level of our anticipated expenses in administering the Contract, such as billing for Purchase Payments, producing periodic reports, providing for the direct payment of Contract charges rather than having them deducted from Contract values, and any other factors pertaining to the level and expense of administrative services which will be provided under the Contract. Any reduction or elimination of maintenance fees will not be unfairly discriminatory against any person. We will make any reduction in annual maintenance fees according to our own rules in effect at the time an application for a Contract is approved. We reserve the right to change these rules from time to time. DEFERRED SALES CHARGE Withdrawals of all or a portion of the Account Value may be subject to a deferred sales charge. The deferred sales charge is a percentage of the amounts withdrawn from the Subaccounts, the Fixed Account and the Guaranteed Accumulation Account. No deferred sales charge is deducted from amounts withdrawn from the Fixed Plus Account. For Installment Purchase Payment Accounts, the deferred sales charge is based on the number of completed Purchase Payment Periods. For Single Purchase Payment Accounts, it is based on the number of Contract Years that have elapsed since the Contract - -------------------------------------------------------------------------------- 6 effective date. The amount of the deferred sales charge is determined in accordance with the schedule set forth in the following tables:
INSTALLMENT PURCHASE PAYMENT ACCOUNTS: DEFERRED SALES PURCHASE PAYMENT CHARGE PERIODS COMPLETED DEDUCTION - ---------------------------------------- --------------- Less than 5 5% 5 or more but less than 7 4% 7 or more but less than 9 3% 9 or more but less than 10 2% More than 10 0% SINGLE PURCHASE PAYMENT ACCOUNTS: DEFERRED SALES ACCOUNT YEARS CHARGE COMPLETED DEDUCTION - ---------------------------------------- --------------- Less than 5 5% 5 or more but less than 6 4% 6 or more but less than 7 3% 7 or more but less than 8 2% 8 or more but less than 9 1% 9 or more 0%
Generally, if you transfer the total account value under another similar annuity contract issued by the Company to an Account under this Contract, the effective date of the new Account will be the same effective date as your former contract for the purpose of calculating the applicable deferred sales charge under this Contract. A deferred sales charge will not be deducted from any portion of the Account Value if the withdrawal is: - - due to the Participant's separation from service with the Employer (the employer must submit documentation satisfactory to the Company confirming that the Participant is no longer providing services to the employer); - - applied to provide Annuity benefits; - - taken on or after the tenth anniversary of the effective date of the Account; - - paid due to your death before Annuity payments begin; - - made due to the election of an Additional Withdrawal Option (see "Additional Withdrawal Options"); - - due to financial hardship as specified in the Code; - - paid where the Account Value of any one Account is $3,500 or less and no amount has been withdrawn, taken as a loan, or used to purchase Annuity benefits during the prior 12 months; or - - taken from an installment Purchase Payment Account by a Participant who is at least age 59 1/2 and who has completed nine or more Purchase Payment Periods. Where the Company is the exclusive variable annuity provider for a Plan, and the Plan also offers a 403(b)(7) custodial arrangement providing retail mutual funds with only one fund family where the Company or an affiliate is the recordkeeper, the deferred sales charge will also be waived if such withdrawal is due to a transfer to a 403(b)(7) option under the custodial arrangement described above. The deduction for the deferred sales charge will not exceed 8.5% of the total Purchase Payments actually made to the Account. The Company does not anticipate that the deferred sales charge will cover all sales and administrative expenses which it incurs in connection with the Contract. The difference will be covered by the general assets of the Company which are attributable, in part, to mortality and expense risk charges under the Contract described above. FREE WITHDRAWALS. For Participants between the ages of 59 1/2 and 70 1/2, up to 10% of the current Account Value may be withdrawn during each calendar year without imposition of a Deferred Sales Charge. The free withdrawal applies only to the first partial withdrawal in each calendar year. The 10% amount will be based on the Account Value calculated on the Valuation Date next following our receipt of the request for withdrawal. Any outstanding contract loans are excluded from the Account Value when calculating the 10% free withdrawal amount. This provision does not apply to a full withdrawal of the Account, or to any withdrawal due to a default on a contract loan (see "Contract Loans"). This provision may not be exercised if SWO is elected. (See "Additional Withdrawal Options.") In the instances cited above, no deferred sales charge is deducted. However, the amount withdrawn may be subject to the 10% federal penalty tax. REDUCTION OR ELIMINATION OF THE DEFERRED SALES CHARGE. For a particular Plan, we may reduce, waive or eliminate the deferred sales charge. Any reduction, waiver or elimination of such charges will reflect differences or expected differences in the amounts of unrecovered distribution costs or services of the types that the charge is intended to defray. When considering whether to reduce or eliminate such charges or to grant such a waiver, we will take into account factors which may include the following: - -------------------------------------------------------------------------------- 7 - - the number of participants under the Plan; - - the expected level of assets or cash flow under the Plan; - - the level of agent involvement in sales activities; - - the level of our sales-related expenses; - - the specific distribution provisions under the Plan; - - the Plan's purchase of one or more other variable annuity contracts from us and the features of those contracts; - - the level of employer involvement in determining eligibility for distributions under the Contract; and - - our assessment of financial risk to the Company relating to surrenders. Any reduction, waiver or elimination of deferred sales charges will not be unfairly discriminatory against any person. We may also negotiate provisions regarding the deferred sales charge with respect to Contracts issued to certain employer groups or associations which have negotiated on behalf of its employees. All variations in, or elimination of, provisions regarding the deferred sales charge resulting from such negotiations will be offered uniformly to all employees within the group. For specific information on fees applicable to your Account, please call the number listed under the "Inquiries" section. We will make any reduction in deferred sales charge according to our own rules in effect at the time an application for a Contract is approved. We reserve the right to change these rules from time to time. DEFERRED SALES CHARGE SCHEDULE FOR GAA FOR CERTAIN NEW YORK CONTRACTS The following deferred sales charge schedule applies for withdrawals from the Guaranteed Accumulation Account for group master Contracts, where available, which are issued after July 29, 1993 in the State of New York. This schedule is based on the number of completed Account Years, as follows:
DEFERRED SALES COMPLETED CHARGE ACCOUNT YEARS DEDUCTION - -------------------- --------------- Less than 3 5% 3 or more but less than 4 4% 4 or more but less than 5 3% 5 or more but less than 6 2% 6 or more but less than 7 1% 7 or more 0%
FUND EXPENSES Each Fund incurs certain expenses which are paid out of its net assets. These expenses include, among other things, the investment advisory or "management" fee. The expenses of the Funds are set forth in the Fee Table in this Prospectus and described more fully in the accompanying Fund prospectuses. PREMIUM AND OTHER TAXES Several states and municipalities impose a premium tax on Annuities. These taxes currently range from 0% to 4%. The Company reserves the right to deduct premium tax against Purchase Payments or Account Values at any time, but no earlier than when we have a tax liability under state law. The Company's current practice is to deduct for premium taxes at the time of complete withdrawal or annuitization. In addition to the premium tax, the Company reserves the right to assess a charge for any state or federal taxes due against the Contract or the Separate Account assets. (See "Tax Status.") CONTRACT VALUATION - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ACCOUNT VALUE Until the Annuity Date, the Account Value is the total dollar value of amounts held in the Account as of any Valuation Date. The Account Value at any given time is based on the value of the units held in each Subaccount, plus the value of amounts held in any of the Credited Interest Options. ACCUMULATION UNITS The value of your interests in a Subaccount is expressed as the number of "Accumulation Units" that you hold multiplied by an "Accumulation Unit Value" (or "AUV") for each unit. The AUV on any Valuation Date is determined by multiplying the value on the immediately - -------------------------------------------------------------------------------- 8 preceding Valuation Date by the net investment factor of that Subaccount for the period between the immediately preceding Valuation Date and the current Valuation Date. (See "Net Investment Factor" below.) The Accumulation Unit Value will be affected by the investment performance, expenses and charges of the applicable Fund and is reduced each day by a percentage that accounts for the daily assessment of mortality and expense risk charges and the administrative charge (if any). Initial Purchase Payments will be credited to your Account as described under "Purchasing Interests in the Contract." Each subsequent Purchase Payment (or amount transferred) will be credited to your Account at the AUV computed on the next Valuation Date following our receipt of your payment or transfer request. The value of an Accumulation Unit may increase or decrease. NET INVESTMENT FACTOR The net investment factor is used to measure the investment performance of a Subaccount from one Valuation Date to the next. The net investment factor for a Subaccount for any valuation period is equal to the sum of 1.000 plus the net investment rate. The net investment rate equals: (a) the net assets of the Fund held by the Subaccount on the current Valuation Date, minus (b) the net assets of the Fund held by the Subaccount on the preceding Valuation Date, plus or minus (c) taxes or provisions for taxes, if any, attributable to the operation of the Subaccount; (d) divided by the total value of the Subaccount's Accumulation and Annuity Units preceding the Valuation Date; (e) minus a daily charge at the annual effective rate of 1.25% for mortality and expense risks and up to 0.25% as an administrative expense charge (currently 0%). The net investment rate may be either positive or negative. TRANSFERS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- At any time prior to the Annuity Date, the Contract Holder (or you, if authorized by the Contract Holder) can transfer amounts held under your Contract from one Subaccount to another. Transfers between the Credited Interest Options and the Subaccounts are subject to certain restrictions. (See Appendices I, II and III.) A request for transfer can be made either in writing or by telephone. The telephone transfer privilege is available automatically; no special election is necessary. All transfers must be in accordance with the terms of the Contract and your employer's Plan, as applicable. The Company currently allows unlimited transfers of accumulated amounts to available investment options without charge. The minimum transfer amount may not be less than $500. However, the total number of investment options that you may select during the Accumulation Period may be limited, as set forth on your enrollment form. Any transfer will be based on the Accumulation Unit Value next determined after the Company receives a valid transfer request at its Home Office. Transfers are currently not available during the Annuity Period; however, they may be available under some Annuity Options beginning later in 1996. (See "Annuity Period -- Annuity Options.") DOLLAR COST AVERAGING PROGRAM The Contract Holder (or you, if authorized) may establish automated transfers of Account Values on a monthly or quarterly basis through the Company's Dollar Cost Averaging Program, if available under your Plan. Dollar Cost Averaging is a system for investing a fixed amount of money at regular intervals over a period of time. Dollar Cost Averaging does not ensure a profit nor guarantee against loss in a declining market. You should consider your financial ability to continue purchases through periods of low price levels. Please refer to the "Inquiries" section of the prospectus summary which describes how you can obtain further information. WITHDRAWALS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The Contract Holder, on your behalf, may withdraw all or a portion of the Account Value at any time during the Accumulation Period, subject to the withdrawal restrictions under Section 403(b) Contracts described below, and to the limitations on withdrawals from the Fixed Plus Account. To request a withdrawal, the Contract Holder, on your behalf, must properly complete a disbursement form and send it to our Home Office. If you - -------------------------------------------------------------------------------- 9 are married and are participating in a Plan subject to ERISA, the Contract Holder must provide written certification that the applicable Retirement Equity Act requirements have been met. Payments for withdrawal requests will be made in accordance with SEC requirements, but normally not later than seven calendar days following our receipt of a disbursement form. Withdrawals may be requested in one of the following forms: - -FULL WITHDRAWAL OF THE CONTRACT: The amount paid upon a full withdrawal will be the Account Value of all Accounts allocated to the Subaccounts, the Guaranteed Accumulation Account (plus or minus a market value adjustment) (see Appendix I), and the Fixed Account, minus any applicable deferred sales charge and maintenance fee due, plus the amount available for withdrawal from the Fixed Plus Account (see Appendix III). - -FULL WITHDRAWAL OF AN ACCOUNT: The amount paid for a full withdrawal will be the Account Value allocated to the Subaccounts, the Guaranteed Accumulation Account (plus or minus a market value adjustment) (see Appendix I), and the Fixed Account, minus any applicable deferred sales charge and maintenance fee due, plus the amount available for withdrawal from the Fixed Plus Account (see Appendix III). - -PARTIAL WITHDRAWALS (Percentage): The amount paid will be the percentage of the Account Value requested minus any applicable deferred sales charge; however, amounts available for withdrawal from the Fixed Plus Account are limited (see Appendix III). - -PARTIAL WITHDRAWAL (Specified Dollar Amount): The amount paid will be the dollar amount requested. However, the amount withdrawn from the Account will equal the amount requested plus any applicable deferred sales charge. The amount available for withdrawal from the Fixed Plus Account is limited (see Appendix III). For any partial withdrawal, amounts will be withdrawn proportionately from each Subaccount or Credited Interest Option in which the Account is invested, unless requested otherwise in writing by the Contract Holder. All amounts paid will be based on Account Values as of the next Valuation Date after we receive a request for withdrawal at our Home Office, or on such later date as the disbursement form may specify. A 20% federal income tax may be withheld from amounts paid directly to you. (See "Tax Status -- Contracts Used with Certain Retirement Plans.") WITHDRAWAL RESTRICTIONS FROM 403(B) PLANS. Under Section 403(b) Contracts, a withdrawal of salary reduction contributions and earnings on such contributions is generally prohibited prior to the Participant's death, disability, attainment of age 59 1/2, separation from service or financial hardship. (See "Tax Status.") REINVESTMENT PRIVILEGE The Contract Holder may elect to reinvest all or a portion of the proceeds received from a full withdrawal of an Account within 30 days after such withdrawal has been made. Accumulation Units will be credited to the Account for the amount reinvested, as well as any maintenance fee and any deferred sales charge imposed at the time of withdrawal. Any maintenance fee which falls due after the withdrawal and before the reinvestment will be deducted from the amounts reinvested. Reinvested amounts will be reallocated to the applicable investment options in the same proportion as they were allocated at the time of withdrawal. Accumulation Units will be credited to the Account based on the Accumulation Unit Value next computed following our receipt of the request along with the amount to be reinvested. The reinvestment privilege may be used only once. See Appendix I for a discussion of amounts withdrawn from GAA and then reinvested. If you are contemplating reinvestment, you should seek competent advice regarding the tax consequences associated with such a transaction. CONTRACT LOANS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- During the Accumulation Period, a Contract Holder of a 403(b) Plan may request (on your behalf) a loan from the your Employee Account. The Contract Holder may also authorize contract loans from the value of the Employer Account (check with the Contract Holder to see if this is available). Loans can only be taken from those Account Values held in the Subaccounts or from those Credited Interest Options that allow loans. (See Appendices I, II and III.) A loan may be obtained by reviewing and reading the terms of the loan agreement, properly completing a loan request form and submitting it to the Company's Home Office. Loans are not available from Contracts issued to 401(a)/401(k) Plans. - -------------------------------------------------------------------------------- 10 ADDITIONAL WITHDRAWAL OPTIONS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The Company offers certain withdrawal options under the Contract that are not considered annuity options ("Additional Withdrawal Options"). To exercise these options, the Account Value must meet the minimum dollar amounts and age criteria applicable to that option. The Additional Withdrawal Options currently available under the Contract include the following: - -SWO--SYSTEMATIC WITHDRAWAL OPTION. SWO is a series of partial withdrawals from your Account based on a payment method you select. It is designed for those who want a periodic income while retaining investment flexibility for amounts accumulated under a Contract. (This option may not be elected if you have an outstanding contract loan.) - -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 Code requires each year. Under ECO, the Company calculates the minimum distribution amount required by law at age 70 1/2 or retirement, if later, for governmental or church plans, and pays you that amount once a year. (See "Tax Status.") Other Additional Withdrawal Options may be added from time to time. Additional information relating to any of the Additional Withdrawal Options may be obtained from your local representative or from the Company at its Home Office. For Contracts issued in the state of New York, no market value adjustment will be imposed on withdrawals from GAA for SWO or ECO. If one of the Additional Withdrawal Options is selected, your Account will retain all of the rights and flexibility permitted under the Contract during the Accumulation Period. Your Account Value will continue to be subject to the charges and deductions described in this Prospectus. Once elected, an Additional Withdrawal Option may be revoked by the Contract Holder any time by submitting a written request to our Home Office. Once an option is revoked, it may not be elected again, nor may any other Additional Withdrawal Options be elected unless permitted by the Code. The Company reserves the right to discontinue the availability of one or all of these Additional Withdrawal Options at any time, and/or to change the terms of future elections. DEATH BENEFIT DURING ACCUMULATION PERIOD - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The Contract provides that a death benefit is payable to the Contract Beneficiary(ies) upon the death of the Participant before the Annuity Date. The amount of the death benefit will be equal to the Account Value. Death benefit proceeds may be paid to the Plan Beneficiary (as directed in writing by the Contract Holder): - - in a lump sum; - - in accordance with any of the Annuity Options available under the Contract; or - - under any Additional Withdrawal Options available under the Contract (if the Plan Beneficiary is your spouse). The Contract Holder, on behalf of the Plan Beneficiary, may instead elect one of the following two options; however, the Code limits how long the death benefit proceeds may be left in these options (see below): - - to leave the Account Value invested in the Contract; or - - to leave the Account Value on deposit in the Company's general account, and to receive monthly, quarterly, semi-annual or annual interest payments at the interest rate then being credited on such deposits. The balance on deposit can be withdrawn at any time or applied to an Annuity Option. When paying the Plan Beneficiary, we will determine the Account Value on the Valuation Date following the date on which we receive proof of death acceptable to the Company. Interest, if any, will be paid from the date of death at a rate no less than required by law. We will mail - -------------------------------------------------------------------------------- 11 payment to the Contract Holder, or to the Plan Beneficiary, if requested by the Contract Holder, within seven days after we receive proof of death. The Code requires that distribution of death proceeds begin within a certain period of time. Generally, if your Plan Beneficiary is not your spouse either annuity payments must begin by December 31 of the year following the year of your death, or the entire value of your benefits must be distributed by December 31 of the fifth year following the year of your death. If your Plan Beneficiary is your spouse, he or she is not required to begin distributions until the year in which you would have attained age 70 1/2. In no event may payments extend beyond the life expectancy of the Plan Beneficiary or any period certain greater than the Plan Beneficiary's life expectancy. If no elections are made, no distributions will be made. Failure to commence distributions within the above 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 "Tax Status.") ANNUITY PERIOD - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ANNUITY PERIOD ELECTIONS The Code generally requires that minimum annual distributions of the Account Value must begin by April 1st of the calendar year following the calendar year in which a Participant attains age 70 1/2 (or retires, if later, for governmental and church plans). In addition, distributions must be in a form and amount sufficient to satisfy the Code requirements. These requirements may be satisfied by the election of certain Annuity Options or Additional Withdrawal Options. (See "Tax Status.") At least 30 days prior to the Annuity Date, the Contract Holder, on your behalf, must notify us in writing of the following: - - the date on which you would like to start receiving Annuity payments; - - the Annuity option under which you want your payments to be calculated and paid; - - whether the payments are to be made monthly, quarterly, semi-annually or annually; and the investment option(s) used to provide Annuity payments (i.e., a fixed annuity using the general account or a variable annuity using any of the Subaccounts available at the time of annuitization). As of the date of this Prospectus, Aetna Variable Fund, Aetna Income Shares and Aetna Investment Advisers Fund, Inc. are the only Subaccounts available; however, additional Subaccounts may be available under some Annuity Options in the future. (See "Annuity Options.") Annuity Payments will not begin until you have selected an Annuity Option. Until a date and option are elected, the Account will continue in the Accumulation Period. Once Annuity payments begin, the Annuity Option may not be changed, nor may transfers currently be made among the investment option(s) selected. (See "Annuity Options" below for more information about transfers during the Annuity Period.) ANNUITY OPTIONS The Contract Holder, on behalf of the Participant, may choose one of the following Annuity Options: LIFETIME ANNUITY OPTIONS: - -OPTION 1--Life Annuity--An annuity with payments ending on the Annuitant's death. - -OPTION 2--Life Annuity with Guaranteed Payments--A life annuity with payments guaranteed for 5, 10, 15 or 20 years, or such other periods as the Company may offer at the time of annuitization. - -OPTION 3--Life Income based Upon the Lives of Two Payees--An annuity will be paid during the lives of the Annuitant and a second Annuitant, with 100%, 66 2/3% or 50% of the payment to continue after the first death, or 100% of the payment to continue at the death of the second Annuitant and 50% of the payment to continue at the death of the Annuitant. - -OPTION 4--Life Income based Upon the Lives of Two Payees--An annuity with payments for a minimum of 120 months, with 100% of the payment to continue after the first death. If Option 1 or 3 is elected, it is possible that only one Annuity Payment will be made if the Annuitant under Option 1, or the surviving Annuitant under Option 3, should die prior to the due date of the second Annuity Payment. Once lifetime Annuity payments begin, the Annuitant cannot elect to receive a lump-sum settlement. - -------------------------------------------------------------------------------- 12 NONLIFETIME ANNUITY OPTIONS: - -OPTION 1--Payments for a Specified Period--payments will continue for a specified period of time, as provided for under your Contract. Under the nonlifetime option, the type of annuity (fixed or variable) and the number of years that may be selected are determined by the investment options used prior to annuitization. For amounts held in the Fixed Plus Account (if available under the Contract), the annuity must be paid on a fixed basis and payments may be made for 5-30 years. For amounts held in the Subaccounts, the Guaranteed Accumulation Account or the Fixed Account, an annuity may be selected on a fixed or variable basis and payments may be made for 3-30 years. If this option is elected on a variable basis, the Annuitant may request at any time during the payment period that the present value of all or any portion of the remaining variable payments be paid in one sum. However, any lump-sum elected before three years of payments have been completed will be treated as a withdrawal during the Accumulation Period and any applicable deferred sales charge will be assessed. (See "Charges and Deductions-- Deferred Sales Charge.") The nonlifetime option is not available on a variable basis under a Contract which provides for immediate Annuity benefits. We may also offer additional Annuity Options under your Contract from time to time. The Company expects to offer additional Annuity Options and enhanced versions of the Annuity Options listed above at some time during 1996. These additional Annuity Options and enhanced versions of the existing options will have additional Subaccounts available and will allow transfers between Subaccounts during the Annuity Period. (Additional Subaccounts and transfer capability are expected during the second half of 1996.) Such additional or enhanced options will be made available by an endorsement to the Contract, which will include the guaranteed annuity payout rates and other terms applicable to such options. (Depending on which guaranteed payout rates apply to the existing options, the guaranteed payout rates for the new and enhanced options will be the same or lower.) Please refer to the Contract, or call the number listed in the "Inquiries" section of the Prospectus Summary, to determine which options are available and the terms of such options. It is not expected that these additional or enhanced options will be made available to those who have already commenced receiving Annuity Payments. ANNUITY PAYMENTS DATE PAYOUTS START. Annuity payments may not extend beyond (a) the life of the Annuitant, (b) the joint lives of the Annuitant and Plan Beneficiary, (c) a period certain greater than the Annuitant's life expectancy, or (d) a period certain greater than the joint life expectancies of the Annuitant and Plan Beneficiary. AMOUNT OF EACH ANNUITY PAYMENT. The amount of each payment depends on your Account Value, how it is allocated between fixed and variable payouts, and the Annuity option chosen. No election may be made that would result in the first Annuity payment of less than $20, or total yearly Annuity payments of less than $100. If your combined Employer and Employee Account Value on the Annuity Date is insufficient to elect an option for the minimum amount specified, a lump-sum payment must be elected. If Annuity payments are to be made on a variable basis, the first and subsequent payments will vary depending on the assumed net investment rate selected (3 1/2% or 5% per annum). Selection of a 5% rate causes a higher first payment, but Annuity payments will increase thereafter only to the extent that the net investment rate exceeds 5% on an annualized basis. Annuity payments would decline if the rate were below 5%. Use of the 3 1/2% assumed rate causes a lower first payment, but subsequent payments would increase more rapidly or decline more slowly as changes occur in the net investment rate. (See the Statement of Additional Information for further information on the impact of selecting a particular assumed net investment rate.) CHARGES DEDUCTED DURING THE ANNUITY PERIOD We make a daily deduction for mortality and expense risks from any amounts held on a variable basis. Therefore, electing the nonlifetime option on a variable basis will result in a deduction being made even though we assume no mortality risk. We may also deduct a daily administrative charge from amounts held under the variable options. (See "Charges and Deductions.") DEATH BENEFIT PAYABLE DURING THE ANNUITY PERIOD If an Annuitant dies after Annuity Payments have begun, any death benefit payable will depend on the terms of the Contract and the Annuity Option selected. If Option 1 or Option 3 was elected, Annuity payments will cease on the death of the Annuitant under Option 1 or the death of the surviving Annuitant under Option 3. - -------------------------------------------------------------------------------- 13 If Lifetime Option 2 or Option 4 was elected and the death of the Annuitant under Option 2, or the surviving Annuitant under Option 4, occurs prior to the end of the guaranteed minimum payment period, we will pay to the Plan Beneficiary in a lump sum, unless otherwise requested, the present value of the guaranteed annuity payments remaining. If the nonlifetime option was elected, and the Annuitant dies before all payments are made, the value of any remaining payments may be paid in a lump-sum to the Plan Beneficiary (unless otherwise requested), and no deferred sales charge will be imposed. If the Annuitant dies after Annuity payments have begun and if there is a death benefit payable under the Annuity option elected, the remaining value must be distributed to the Plan Beneficiary at least as rapidly as under the original method of distribution. Any lump-sum payment paid under the applicable lifetime or nonlifetime Annuity options will be made within seven calendar days after proof of death acceptable to us, and a request for payment are received at our Home Office. The value of any death benefit proceeds will be determined as of the next Valuation Date after we receive acceptable proof of death and a request for payment. Under Options 2 and 4, such value will be reduced by any payments made after the date of death. TAX STATUS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INTRODUCTION The following provides a general discussion and is not intended as tax advice. This discussion reflects the Company's understanding of current federal income tax law. Such laws may change in the future, and it is possible that any change could be retroactive (i.e., effective prior to the date of the change). The Company makes no guarantee regarding the tax treatment of any Contract or transaction involving a Contract. The ultimate effect of federal income taxes on the amounts held under a Contract, on Annuity payments, and on the economic benefit to the Contract Holder, Participant or Plan Beneficiary may depend upon the tax status of the individual concerned. Any person concerned about these tax implications should consult a competent tax adviser before initiating any transaction. TAXATION OF THE COMPANY The Company is taxed as a life insurance company under the Code. Since the Separate Account is not an entity separate from the Company, it will not be taxed separately as a "regulated investment company" under the Code. Investment income and realized capital gains are automatically applied to increase reserves under the Contracts. Under existing federal income tax law, the Company believes that the Separate Account's investment income and realized net capital gains will not be taxed to the extent that such income and gains are applied to increase the reserves under the Contracts. Accordingly, the Company does not anticipate that it will incur any federal income tax liability attributable to the Separate Account and, therefore, the Company does not intend to make provisions for any such taxes. However, if changes in the federal tax laws or interpretation thereof result in the Company being taxed on income or gains attributable to the Separate Account, then the Company may impose a charge against the Separate Account (with respect to some or all Contracts) in order to set aside provisions to pay such taxes. CONTRACTS USED WITH CERTAIN RETIREMENT PLANS IN GENERAL. The Contract is designed for use with Section 403(b) plans, and Section 401(a) and Section 401(k) plans. The tax rules applicable to retirement plans vary according to the type of plan and the terms and conditions of the plan. The Company makes no attempt to provide more than general information about use of the Contracts with the various types of retirement plans. Participants as well as Plan Beneficiaries are cautioned that the rights of any person to any benefits under the Contracts may be subject to the terms and conditions of the plans themselves, in addition to the terms and conditions of the Contracts issued in connection with such plans. Some retirement plans are subject to limitations on distribution and other requirements that are not incorporated in the Contracts. Purchasers are responsible for determining that contributions, distributions and other transactions with respect to the Contracts satisfy applicable laws, and should consult their legal counsel and tax adviser regarding the suitability of the Contract. - -------------------------------------------------------------------------------- 14 MINIMUM DISTRIBUTION REQUIREMENTS. The Code has required distribution rules for Section 403(b), 401(a) and 401(k) Plans. Under 403(b) Plans, distributions of amounts held as of December 31, 1986 must generally begin by the end of the calendar year in which you attain age 75 (or retire, if later, for governmental or church plans). However, special rules require that some or all of that balance be distributed earlier if any distributions are taken in excess of the minimum required amount. Distributions under 401(a) and 401(k) Plans, and distributions attributable to contributions under Section 403(b) Plans on or after January 1, 1987 (including any earnings on the entire Account Value after that date), must generally begin by April 1 of the calendar year following the calendar year in which you attain age 70 1/2 or retire, whichever occurs later. In general, annuity payments must be distributed over your life or the joint lives of you and your Plan Beneficiary, or over a period not greater than your life expectancy or the joint life expectancies of you and your Plan Beneficiary. If you die after the required minimum distribution has commenced, distributions to your Plan Beneficiary must be made at least as rapidly as under the method of distribution in effect at the time of your death. However, if the minimum required distribution is calculated each year based on your single life expectancy or the joint life expectancies of you and your beneficiary, the regulations for Code Section 401(a)(9) provide specific rules for calculating the minimum required distributions at your death. For example, if you have elected ECO with the calculation based on your single life expectancy, and the life expectancy is recalculated each year, your recalculated life expectancy becomes zero in the calendar year following your death and the entire remaining interest must be distributed to your beneficiary by December 31 of the year following your death. However, a spousal beneficiary has certain rollover rights which can only be exercised in the year of your death. The rules are complex and you should consult your tax adviser before electing the method of calculation to satisfy the minimum distribution requirements. If you die before the required minimum distribution has commenced, your entire interest must be distributed by December 31 of the calendar year containing the fifth anniversary of the date of your death. Alternatively, payments may be made over the life of the beneficiary or over a period not extending beyond the life expectancy of the beneficiary provided the distribution begins by December 31 of the calendar year following the calendar year of your death, or December 31 of the calendar year in which you would have attained age 70 1/2. 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. TAXATION OF DISTRIBUTIONS. All distributions will be taxed as they are received unless you made a rollover contribution of the distribution to another plan of the same type or to an individual retirement annuity/account ("IRA") in accordance with the Code, or unless you have made after-tax contributions to the plan, which are not taxed upon distribution. The Code has specific rules that apply, depending on the type of distribution received, if after-tax contributions were made. In general, payments received by your Plan Beneficiaries after your death are taxed in the same manner as if you had received those payments, except that a limited death benefit exclusion may apply. Pension and annuity distributions generally are subject to withholding for the recipient's federal income tax liability at rates that vary according to the type of distribution and the recipient's tax status. Recipients may be provided the opportunity to elect not to have tax withheld from distributions; however, certain distributions from annuities are subject to mandatory federal income tax withholding. We will report to the IRS the taxable portion of all distributions. The Code imposes a 10% penalty tax on the taxable portion of any distribution unless made when (a) you have attained age 59 1/2, (b) you have become 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 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 plan beneficiary, provided you 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 Code. The Code may impose other penalty taxes in other circumstances. - -------------------------------------------------------------------------------- 15 SECTION 403(B) PLANS. Under Code Section 403(b), contributions made by nonprofit healthcare organizations and other Section 501(c)(3) tax exempt organizations to purchase annuity contracts for their employees are generally excludable from the gross income of the employee. In order to be excludable from taxable income, total annual contributions made by you and your employer cannot exceed either of two limits set by the Code. The first limit, under Section 415, is generally the lesser of 25% of your includable compensation or $30,000. The second limit, which is the exclusion allowance under Section 403(b), is usually calculated according to a formula that takes into account your length of employment and any pretax contributions to certain other retirement plans. These two limits apply to your contributions as well as to any contributions made by your employer on your behalf. There is an additional limit that specifically limits your salary reduction contributions to generally no more than $9,500 annually (subject to indexing); your own limit may be higher or lower, depending on certain conditions. In addition Purchase Payments will be excluded from a Participant's gross income only if the Plan meets certain nondiscrimination requirements. Section 403(b)(11) restricts the distribution under Section 403(b) contracts of: (1) salary reduction contributions made after December 31, 1988; (2) earnings on those contributions; and (3) earnings during such period on amounts held as of December 31, 1988. Distribution of those amounts may only occur upon death of the employee, attainment of age 59 1/2, separation from service, disability, or financial hardship. In addition, income attributable to salary reduction contributions may not be distributed in the case of hardship. If, pursuant to Revenue Ruling 90-24, the Company agrees to accept, under any of the Contracts covered by this Prospectus, amounts transferred from a Code Section 403(b)(7) custodial account, such amounts will be subject to the withdrawal restrictions set forth in Code Section 403(b)(7)(A)(ii). Generally, no amounts accumulated under the Contract will be taxable prior to the time of actual distribution. However, the IRS has stated in published rulings that a variable contract owner, including participants under Section 403(b) Plans, will be considered the owner of separate account assets if the contract owner possesses incidents of investment control over the assets. In these circumstances, income and gains from the separate account assets would be currently includable in the variable contract owner's gross income. The Treasury announced that guidance would be issued in the future regarding the extent to which owners could direct their investments among Subaccounts without being treated as owners of the underlying assets of the Separate Account. It is possible that the Treasury's position, when announced, may adversely affect the tax treatment of existing contracts. The Company therefore reserves the right to modify the Contract as necessary to attempt to prevent the owner from being considered the federal tax owner of the assets of the Separate Account. SECTION 401(A) AND 401(K) PLANS. Section 401(a) and 401(k) permits certain employers to establish various types of retirement plans for employees, and permits 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. Adverse tax consequences to the Plan, to the Participant or to both may result if this Contract is assigned or transferred to any individual except to a Participant as a means to provide benefit payments. The Code imposes a maximum limit on annual Purchase Payments that may be excluded from a Participant's gross income. Such limit must be calculated under the Plan by the employer in accordance with Section 415 of the Code. This limit is generally the lesser of 25% of your compensation or $30,000. 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 $9,500 annually (subject to indexing). Your own limits may be higher or lower, depending on certain conditions. In addition, Purchase Payments will be excluded from a Participant's gross income only if the Plan meets certain nondiscrimination requirements. - -------------------------------------------------------------------------------- 16 MISCELLANEOUS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 Securities and Exchange Commission and is a member of the National Association of Securities Dealers, Inc. (NASD). As Underwriter, the Company will contract with one or more registered broker-dealers ("Distributors"), including at least one affiliate of the Company, to offer and sell the Contracts. All persons offering and selling the Contracts must be registered representatives of the Distributors and must also be licensed as insurance agents to sell variable annuity contracts. These registered representatives may also provide services to Participants in connection with establishing their Accounts under the Contract. PAYMENT OF COMMISSIONS. Persons offering and selling the Contracts may receive commissions in connection with the sale of the Contracts. The maximum percentage amount that the Company will ever pay as commission with respect to any given Purchase Payment is with respect to those made during the first year of Purchase Payments under an Account. The percentage amount will range from 1% to 6% of those Purchase Payments. The Company may also pay renewal commissions and asset-based service fees on Purchase Payments made after the first year. The average of all payments made by the Company is estimated to equal approximately 3% of the total Purchase Payments made over the life of an average Contract. The Company may also reimburse the Distributor for certain expenses. The name of the Distributor and the registered representative responsible for your Account are set forth in your enrollment materials. Commissions and sales related expenses are paid by the Company and are not deducted from Purchase Payments. (See "Charges and Deductions--Deferred Sales Charge.") THIRD PARTY COMPENSATION ARRANGEMENTS. Occasionally, we may pay commissions and fees to Distributors which are affiliated or associated with the Contract Holder or the Participants. We may also enter into agreements with some entities associated with the Contract Holder or Participants in which we would agree to pay the entity for certain services in connection with administering the Contracts. In both these circumstances there may be an understanding that the Distributor or entity would endorse the Company as a provider of the Contract. You will be notified if you are purchasing a Contract that is subject to these arrangements. DELAY OR SUSPENSION OF PAYMENTS The Company reserves the right to suspend or postpone the date of payment for any benefit or values (a) on any Valuation Date on which the New York Stock Exchange ("Exchange") is closed (other than customary weekend and holiday closings) or when trading on the Exchange is restricted; (b) when an emergency exists, as determined by the SEC, so that disposal of securities held in the Subaccounts is not reasonably practicable or is not reasonably practicable for the value of the Subaccount's assets; or (c) during such other periods as 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. PERFORMANCE REPORTING From time to time, the Company may advertise different types of historical performance for the Subaccounts of the Separate Account. The Company may advertise the "standardized average annual total returns" of the Subaccounts, calculated in a manner prescribed by the SEC, as well as the "non-standardized returns." "Standardized average annual total returns" are computed according to a formula in which a hypothetical investment of $1,000 is applied to the Subaccount and then related to the ending redeemable values over the most recent one, five and ten-year periods (or since inception, if less than ten years). Standardized returns will reflect the reduction of all recurring charges during each period (e.g., mortality and expense risk charges, annual maintenance fees, administrative expense charge (if any) and any applicable deferred sales charge). "Non-standardized returns" will be calculated in a similar manner, except that non-standardized figures will not reflect the deduction of any applicable deferred sales charge (which would decrease the level of performance shown if reflected in these calculations). The non-standardized figures may also include monthly, quarterly, year-to-date and three-year periods. The Company may also advertise certain ratings, rankings or other information related to the Company, the Subaccounts or the Funds. Further details regarding performance reporting and advertising are described in the Statement of Additional Information. VOTING RIGHTS In accordance with the Company's view of present applicable law, it will vote the shares of each of the Funds - -------------------------------------------------------------------------------- 17 held by the Separate Account at regular and special meetings of Fund shareholders in accordance with instructions received from persons having a voting interest in the Separate Account. Participants and Annuitants have a fully vested (100%) interest in the value of the Employee Account and also have a nonforfeitable (vested) right to the value of the Employer Account pursuant to the terms of, and to the extent of their vested percentage under the Plan. Therefore, such Participants and Annuitants may instruct the Contract Holder how to direct the Company to cast the votes for the portion of the Account Value or valuation reserve attributable to their Accounts. The Company will vote shares for which it has not received instructions in the same proportion as it votes shares for which it has received instructions. Each person having a voting interest in the Separate Account will receive periodic reports relating to the Fund(s) 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 written communication at least 14 days before such meeting. The number of votes to which each person may give direction will be determined as of the record date set by the Fund. The number of votes each Contract Holder, Participant or beneficiary, as applicable, may cast during the Accumulation Period is equal to the portion of the Account Value to that Fund, divided by the net asset value of one share of that Fund. During the Annuity Period, the number of votes is equal to the valuation reserve applicable to the portion of the Contract attributable to that Fund, divided by the net asset value of one share of that Fund. In determining the number of votes, fractional votes will be recognized. MODIFICATION OF THE CONTRACT The Company may change the Contract as required by federal or state law. In addition, the Company may, upon 30 days written notice to the Contract Holder, make other changes to the Contract that would apply only to individuals who become Participants under that Contract after the effective date of such changes. If the Contract Holder does not agree to a change, no new Participants will be covered under the Contract. Certain changes will require the approval of appropriate state or federal regulatory authorities. LEGAL MATTERS AND PROCEEDINGS The Company knows of no material legal proceedings pending to which the Separate Account or the Company is a party or which would materially affect the Separate Account. The validity of the securities offered by this Prospectus has been passed upon by Susan E. Bryant, Esq., Counsel to the Company. 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 Annuity Payments Sales Material and Advertising Independent Auditors Financial Statements of the Separate Account Financial Statements of the Company
- -------------------------------------------------------------------------------- 18 APPENDIX I GUARANTEED ACCUMULATION ACCOUNT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THE GUARANTEED ACCUMULATION ACCOUNT ("GAA") IS A CREDITED INTEREST OPTION AVAILABLE DURING THE ACCUMULATION PERIOD UNDER THE CONTRACTS DISCUSSED IN THIS PROSPECTUS. AMOUNTS ALLOCATED TO LONG-TERM CLASSIFICATIONS OF GAA ARE HELD IN A NONINSULATED, NONUNITIZED SEPARATE ACCOUNT. AMOUNTS ALLOCATED TO SHORT-TERM CLASSIFICATIONS OF GAA ARE HELD IN THE COMPANY'S GENERAL ACCOUNT. THIS APPENDIX IS A SUMMARY OF GAA AND IS NOT INTENDED TO REPLACE THE GAA PROSPECTUS. YOU SHOULD READ THE ACCOMPANYING GAA PROSPECTUS CAREFULLY BEFORE INVESTING. GAA is a Credited Interest Option in which we guarantee stipulated rates of interest for stated periods of time on amounts directed to GAA. The interest rate stipulated is an annual effective yield; that is, it reflects a full year's interest. Interest is credited daily at a rate that will provide the guaranteed annual effective yield for one year. This option guarantees the minimum interest rate specified in the Contract. During a specified period of time, (the "deposit period"), amounts may be applied to any or all available Guaranteed Terms within the Short-Term and Long-Term classifications. Short-Term GAA has Guaranteed Terms from one to three years, and Long-Term GAA has Guaranteed Terms from more than three and up to ten years. Purchase Payments must remain in GAA for the full Guaranteed Term to receive the quoted interest rates. Withdrawals or transfers from a Guaranteed Term before the end of that Guaranteed Term may be subject to a market value adjustment ("MVA"). For Contracts issued in New York, no MVA applies upon the election of the Estate Conservation Option or the Systematic Withdrawal Option. An MVA reflects the change in the value of the investments due to changes in interest rates since the date of deposit. When interest rates increase after the date of deposit, the value of the investment decreases and the MVA is negative. Conversely, when interest rates decrease after the date of deposit, the value of the investment increases, and the MVA is positive. It is possible that a negative MVA could result in the Participant receiving an amount which is less than the amount paid into GAA. As a Guaranteed Term matures, assets accumulating under GAA may be (a) transferred to a new Guaranteed Term, (b) transferred to other available investment options, or (c) withdrawn. Amounts withdrawn may be subject to a deferred sales charge, federal tax penalties or mandatory income tax withholding and a maintenance fee. By notifying us at least 30 days prior to the Annuity Date, the Contract Holder may elect a variable annuity on your behalf and have amounts that have been accumulating under GAA transferred to one or more of the Subaccounts available during the Annuity Period. GAA cannot be used as an investment option during the Annuity Period. MORTALITY AND EXPENSE RISK CHARGES We make no deductions from the credited interest rate for mortality and expense risks; these risks are considered in determining the credited rate. TRANSFERS Transfers are permitted among Guaranteed Terms. However, amounts applied to GAA may not be transferred to another Guaranteed Term of GAA, or to any other Subaccount or Credited Interest Option available under the Contract, during the deposit period or the 90 days after the close of the deposit period. We will apply an MVA to transfers made before the end of a Guaranteed Term, unless such transfer is due to the maturity of the Guaranteed Term. CONTRACT LOANS Loans may not be made against amounts held in GAA, although such value is included in determining the Account Value against which a loan may be made. REINVESTMENT PRIVILEGE If amounts are withdrawn from GAA and reinvested, they will be applied to the current deposit period. Amounts are proportionately reinvested to the classifications in the same manner as they were allocated before the withdrawal. Any negative MVA amount applied to a withdrawal is not included in the reinvestment. - -------------------------------------------------------------------------------- 19 APPENDIX II FIXED ACCOUNT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THE FOLLOWING SUMMARIZES MATERIAL INFORMATION CONCERNING THE FIXED ACCOUNT. AMOUNTS ALLOCATED TO THE FIXED ACCOUNT ARE HELD IN THE COMPANY'S GENERAL ACCOUNT THAT SUPPORTS GENERAL INSURANCE AND ANNUITY OBLIGATIONS. 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 THE PROSPECTUS REGARDING THE FIXED ACCOUNT, MAY, HOWEVER, BE SUBJECT TO CERTAIN GENERALLY APPLICABLE PROVISIONS OF THE FEDERAL SECURITIES LAWS RELATING TO THE ACCURACY AND COMPLETENESS OF SUCH STATEMENTS. DISCLOSURE IN THIS APPENDIX REGARDING THE FIXED ACCOUNT HAS NOT BEEN REVIEWED BY THE SEC. The Fixed Account guarantees the minimum interest rate specified in the Contract. The Company may credit a higher interest rate from time to time. The current rate is subject to change at any time, but will never fall below the guaranteed minimum. The Company's 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 the Fixed Account, the Company assumes the risk of investment gain or loss by guaranteeing Account Values and promising a minimum interest rate and Annuity Payment. Under certain emergency conditions, we may defer payment of a Fixed Account withdrawal value (a) for a period of up to six months, or (b) as provided by federal law. In addition, if allowed by state law, the Company may pay any Fixed Account withdrawal value in equal payments, with interest, over a period not to exceed 60 months, when: (a) The Fixed Account withdrawal value for the Contract or for the total of the Accounts under the Contract exceeds $250,000 on the day prior to the withdrawal; and (b) the sum of the current Fixed Account withdrawal and the total of all Fixed Account withdrawals from the Contract or for the total of the Accounts under the Contract within the past 12 calendar months exceeds 20% of the amount in the Fixed Account on the day prior to the current withdrawal. Interest, as used above, will not be more than two percentage points below any rate determined prospectively by the Board of Directors for this class of Contract. In no event will the interest rate be less than the minimum stated in the Contract. Amounts applied to the Fixed Account will earn the interest rate in effect when actually applied to the Fixed Account. The Fixed Account will reflect a compound interest rate credited by us. The interest rate quoted is an annual effective yield. We make no deductions from the credited interest rate for mortality and expense risks; these risks are considered in determining the credited rate. If a withdrawal is made from the Fixed Account, a deferred sales charge may apply. (See "Charges and Deductions-- Deferred Sales Charge.") TRANSFERS AMONG INVESTMENT OPTIONS Transfers from the Fixed Account to any other available investment options(s) are allowed in each calendar year during the Accumulation Period. The amount which may be transferred may vary at our discretion; however, it will never be less than 10% of the amount held under the Fixed Account. By notifying us at our Home Office at least 30 days before Annuity payments begin, the Contract Holder, on your behalf, may elect to have amounts which have been accumulating under the Fixed Account transferred to one or more of the Subaccounts available during the Annuity Period to provide variable Annuity payments. CONTRACT LOANS Under 403(b) Plans, loans may be made from Account Values held in the Fixed Account. - -------------------------------------------------------------------------------- 20 APPENDIX III FIXED PLUS ACCOUNT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THE FOLLOWING SUMMARIZES MATERIAL INFORMATION CONCERNING THE FIXED PLUS ACCOUNT. AMOUNTS ALLOCATED TO THE FIXED PLUS ACCOUNT ARE HELD IN THE COMPANY'S GENERAL ACCOUNT THAT SUPPORTS GENERAL INSURANCE AND ANNUITY OBLIGATIONS. INTERESTS IN THE FIXED PLUS ACCOUNT HAVE NOT BEEN REGISTERED WITH THE SEC IN RELIANCE ON EXEMPTIONS UNDER THE SECURITIES ACT OF 1933, AS AMENDED. DISCLOSURE IN THE PROSPECTUS REGARDING THE FIXED PLUS ACCOUNT, MAY, HOWEVER, BE SUBJECT TO CERTAIN GENERALLY APPLICABLE PROVISIONS OF THE FEDERAL SECURITIES LAWS RELATING TO THE ACCURACY AND COMPLETENESS OF SUCH STATEMENTS. DISCLOSURE IN THIS APPENDIX REGARDING THE FIXED PLUS ACCOUNT HAS NOT BEEN REVIEWED BY THE SEC. The Fixed Plus Account guarantees the minimum Fixed Plus interest rate specified in the Contract. The Company may credit a higher interest rate from time to time. The current rate is subject to change at any time, but will never fall below the guaranteed minimum. The Company's 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 the Fixed Plus Account, the Company assumes the risk of investment gain or loss by guaranteeing Account Values and promising a minimum interest rate and Annuity Payment. This option is not available in the state of New York. The Fixed Plus Account will reflect a compound interest rate credited by us. The interest rate quoted is an annual effective yield. Amounts applied to the Fixed Plus Account will earn the Fixed Plus interest rate in effect when actually applied to the Fixed Plus Account. We make no deductions from the credited interest rate for mortality and expense risks; these risks are considered in determining the credited rate. Beginning on the tenth Account Year, we will credit amounts held in the Fixed Plus Account with an interest rate that is at least 0.25% higher than the then-declared interest rate for the Fixed Plus Accounts for Accounts that have not reached their tenth anniversary. The Company reserves the right to limit Purchase Payment(s) and/or transfers to the Fixed Plus Account. FIXED PLUS ACCOUNT WITHDRAWALS The amount eligible for partial withdrawal is 20% of the amount held in the Fixed Plus Account on the day our Home Office receives a written request, reduced by any Fixed Plus Account withdrawals, transfers, loans or annuitizations made in the prior 12 months. In calculating the 20% limit, we reserve the right to include payments made due to the election of any of the Additional Withdrawal Options. The 20% limit is waived if the partial withdrawal is due to annuitization or death. The waiver upon death will only be exercised once and must occur within six months after the Participant's date of death. Any such surrender or annuitization must also be made pro rata from all Subaccounts and Credited Interest Options available under the Contract. If a full withdrawal is requested, we will pay any amounts held in the Fixed Plus Account, with interest, in five annual payments equal to: 1. One-fifth of the Fixed Plus Account Value on the day the request is received, reduced by any Fixed Plus Account withdrawals, transfers, loans or annuitizations made during the prior 12 months; 2. One-fourth of the remaining Fixed Plus Account Value 12 months later; 3. One-third of the remaining Fixed Plus Account Value 12 months later; 4. One-half of the remaining Fixed Plus Account Value 12 months later; and 5. The balance of the Fixed Plus Account Value 12 months later. - -------------------------------------------------------------------------------- 21 Once we receive a request for a full withdrawal, no further withdrawals, loans or transfers will be permitted from the Fixed Plus Account. A full withdrawal from the Fixed Plus Account may be cancelled at any time before the end of the five-payment period. We will waive the Fixed Plus Account full withdrawal provision if a full withdrawal is made due to: (a) the Participant's death, before Annuity payments begin and request for payment is received within 6 months after the Participant's date of death; (b) the election of an Annuity option; (c) if the Fixed Plus Account value is $3,500 or less and no withdrawals, transfers, loan or annuitizations have been made from the Account within the prior 12 months. TRANSFERS AMONG INVESTMENT OPTIONS The amount eligible for transfer from the Fixed Plus Account is 20% of the amount held in the Fixed Plus Account on the day we receive a written request, reduced by any Fixed Plus Account withdrawals, transfers, loans or annuitizations made during the prior 12 months. In calculating the 20% limit, we reserve the right to include payments made due to the election of an Additional Withdrawal Option. The 20% limit on transfers will be waived when the value in the Fixed Plus Account is $1,000 or less. By notifying us at our Home Office at least 30 days before the Annuity Date, you may elect to have amounts which have been accumulating under the Fixed Plus Account transferred to one or more of the Subaccounts available during the Annuity Period to provide lifetime variable Annuity Payments. SWO The Systematic Withdrawal Option may not be elected if you have requested a Fixed Plus Account transfer or withdrawal within the prior 12 month period. CONTRACT LOANS If permitted under the Contract, loans may be made from Account Values held in the Fixed Plus Account. See the loan agreement for a description of the amount available and the consequences upon loan default if more than 20% of the Fixed Plus Account Value is used for a loan. - -------------------------------------------------------------------------------- 22 APPENDIX IV EMPLOYEE APPOINTMENT OF EMPLOYER AS AGENT UNDER AN ANNUITY CONTRACT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- My employer has adopted a Retirement Plan under Internal Revenue Code Section 403(b) ("Plan") and has purchased an Aetna Life Insurance and Annuity Company ("Company") group variable annuity contract ("Contract") as the funding vehicle. Contributions under this Plan will be made by me through salary reduction to an Employee Account, and by my employer to an Employer Account. By electing to participate in my employer's Plan, I voluntarily appoint my employer, who is the Contract Holder, as my agent for the purposes of all transactions under the Contract in accordance with the terms of the Plan. The Company is not a party to the Plan and does not interpret the Plan provisions. As a Participant in the Plan, I understand and agree to the following terms and conditions: - - I own the value of my Employee Account subject to the restrictions of Section 403(b) and the terms of the Plan. Subject to the terms of the vesting schedule in the Plan and the restrictions of Section 403(b), I have ownership in the value of my Employer Account. - - I understand that the Company will process transactions only with my employer's written direction to the Company. I agree to be bound by my employer's interpretation of the Plan provisions and its written direction to the Company. - - My employer may permit me to make investment selections under the Employee Account and/or the Employer Account directly with the Company under the terms of the Contract. Without my employer's written permission, I will be unable to make any investment selections under the Contract. - - On my behalf, my employer may request a loan in accordance with the terms of the Contract and the provisions of the Plan. The Company will make payment of the loan amount directly to me. I will be responsible for making repayments directly to the Company in a timely manner. - - In the event of my death, my employer is the named beneficiary under the terms of the Contract. I have the right to name a personal beneficiary as determined under the terms of the Plan and file that beneficiary election with my employer. It is my employer's responsibility to direct the Company to properly pay any death benefits. - -------------------------------------------------------------------------------- 23 FOR MASTER APPLICATIONS ONLY I HEREBY ACKNOWLEDGE RECEIPT OF AN ACCOUNT C "RETIREMENT PLUS -- GROUP DEFERRED VARIABLE ANNUITY" PROSPECTUS DATED MAY 1, 1996, AS WELL AS ALL CURRENT PROSPECTUSES PERTAINING TO THE VARIABLE INVESTMENT OPTIONS AVAILABLE UNDER THE CONTRACTS. - ---- PLEASE SEND AN ACCOUNT C STATEMENT OF ADDITIONAL INFORMATION (FORM NO. 75986(S)-2) DATED MAY 1, 1996. - -------------------------------------------------------------------------------- CONTRACT HOLDER'S SIGNATURE - -------------------------------------------------------------------------------- DATE 75986-2 (5/96) - -------------------------------------------------------------------------------- VARIABLE ANNUITY ACCOUNT C OF AETNA LIFE INSURANCE AND ANNUITY COMPANY STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1996 AetnaPlus Contracts and Multiple Option Contracts Group Variable Annuity Contracts Available under Section 403(b) and 401(a) RETIREMENT PLUS This Statement of Additional Information is not a prospectus and should be read in conjunction with the current prospectus for Variable Annuity Account C (the "Separate Account") dated May 1, 1996. A free prospectus is available upon request from the local Aetna Life Insurance and Annuity Company office or by writing to or calling: Aetna Life Insurance and Annuity Company Customer Service 151 Farmington Avenue Hartford, Connecticut 06156 1-800-525-4225 Read the prospectus before you invest. Terms used in this Statement of Additional Information shall have the same meaning as in the prospectus. TABLE OF CONTENTS Page General Information and History. . . . . . . . . . . . . . . . . . . . 2 Variable Annuity Account C . . . . . . . . . . . . . . . . . . . . . . 2 Offering and Purchase of Contracts . . . . . . . . . . . . . . . . . . 3 Performance Data . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Average Annual Total Return Quotations . . . . . . . . . . . . . . . 4 Annuity Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Sales Material and Advertising . . . . . . . . . . . . . . . . . . . . 12 Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . 12 Financial Statements of the Separate Account . . . . . . . . . . . . . S-1 Financial Statements of Aetna Life Insurance and Annuity Company . . . F-1 GENERAL INFORMATION AND HISTORY Aetna Life Insurance and Annuity Company (the "Company") is a stock life insurance company which was organized under the insurance laws of the State of Connecticut in 1976. Through a merger, it succeeded to the business of Aetna Variable Annuity Life Insurance Company (formerly Participating Annuity Life Insurance Company organized in 1954). As of December 31, 1995, the Company had assets of $27.1 billion (subject to $25.5 billion of customer and other liabilities, $1.6 billion of shareholder equity) which includes $11 billion in assets held in the Company's separate accounts. The Company had $22 billion in assets under management, including $8 billion in its mutual funds. As of December 31, 1994, it ranked among the top 2% of all U.S. life insurance companies by size. The Company is a wholly owned subsidiary of Aetna Retirement Holdings, Inc., which is in turn a wholly owned subsidiary of Aetna Retirement Services, Inc. and an indirect wholly owned subsidiary of Aetna Life and Casualty Company. The Company is engaged in the business of issuing life insurance policies and annuity contracts in all states of the United States. The Company's Home Office is located at 151 Farmington Avenue, Hartford, Connecticut 06156. In addition to serving as the principal underwriter and the depositor for the Separate Account, the Company is also a registered investment adviser under the Investment Advisers Act of 1940, and a registered broker-dealer under the Securities Exchange Act of 1934. The Company provides investment advice to several of the registered management investment companies offered as variable investment options under the Contracts funded by the Separate Account (see "Variable Annuity Account C" below). Other than the mortality and expense risk charges and administrative expense charge described in the prospectus, all expenses incurred in the operations of the Separate Account are borne by the Company. (See "Charges and Deductions" in the prospectus.) The Company receives reimbursement for certain administrative costs from some unaffiliated sponsors of the Funds used as funding options under the Contract. These fees generally range up to 0.25%. The assets of the Separate Account are held by the Company. The Separate Account has no custodian. However, the Funds in whose shares the assets of the Separate Account are invested each have custodians, as discussed in their respective prospectuses. VARIABLE ANNUITY ACCOUNT C Variable Annuity Account C (the "Separate Account") is a separate account established by the Company for the purpose of funding variable annuity contracts issued by the Company. The Separate Account is registered with the Securities and Exchange Commission as a unit investment trust under the Investment Company Act of 1940, as amended. The assets of the Separate Account will be invested exclusively in shares of the Funds described in the Prospectus. Purchase Payments made under the Contract may be allocated to one or more of the Subaccounts. The Company may make additions to or deletions from available investment options as permitted by law. The availability of the Funds is subject to applicable regulatory authorization. Not all Funds are available in all jurisdictions or under all Plans. The Funds currently available under the Contract are as follows: 2
Aetna Variable Fund Fidelity VIP Overseas Portfolio Aetna Income Shares Franklin Government Securities Trust Aetna Variable Encore Fund Janus Aspen Aggressive Growth Portfolio Aetna Investment Advisers Fund, Inc. Janus Aspen Balanced Portfolio Aetna Ascent Variable Portfolio Janus Aspen Flexible Income Portfolio Aetna Crossroads Variable Portfolio Janus Aspen Growth Portfolio Aetna Legacy Variable Portfolio Janus Aspen Short-Term Bond Portfolio Alger American Growth Portfolio Janus Aspen Worldwide Growth Portfolio Alger American Small Cap Portfolio Lexington Natural Resources Trust Calvert Responsibly Invested Balanced Portfolio Neuberger & Berman Growth Portfolio Fidelity VIP II Contrafund Portfolio Scudder International Portfolio Class A Shares Fidelity VIP Equity-Income Portfolio TCI Growth Fidelity VIP Growth Portfolio
Complete descriptions of each of the Funds, including their investment objectives, policies, risks and fees and expenses, are contained in the prospectuses and statements of additional information for each of the Funds. OFFERING AND PURCHASE OF CONTRACTS The Company is both the depositor and the principal underwriter for the securities sold by the prospectus. The Company offers the Contracts through life insurance agents licensed to sell variable annuities who are registered representatives of the Company or of other registered broker-dealers who have sales agreements with the Company. The offering of the Contracts is continuous. A description of the manner in which Contracts are purchased may be found in the prospectus under the sections titled "Purchase" and "Contract Valuation." PERFORMANCE DATA GENERAL From time to time, the Company may advertise different types of historical performance for the Subaccounts of the Separate Account available under the Contracts issued by the Company in connection with Plans described in the Prospectus. The Company may advertise the "standardized average annual total returns," calculated in a manner prescribed by the Securities and Exchange Commission (the "standardized return"), as well as the "non-standardized total returns," both of which are described below. The standardized and non-standardized total return figures are computed according to a formula in which a hypothetical initial Purchase Payment of $1,000 is applied to the various Subaccounts under the Contract, and then related to the ending redeemable values over one, five and ten year periods (or fractional periods thereof). The standardized figures reflect the deduction of all recurring charges during each period (e.g., mortality and expense risk charges, maintenance fees, administrative expense charges, and deferred sales charges). These charges will be deducted on a pro rata basis in the case of fractional periods. The maintenance fee is converted to a percentage of assets based on the average account size under the Contracts described in the Prospectus. The non-standardized figures will be calculated in a similar manner, except that they will not reflect the deduction of any applicable deferred sales charge (which would decrease the level of performance shown if 3 reflected in these calculations). The non-standardized figures may also include monthly, quarterly, year-to-date and three year periods. If a Fund was in existence prior to the date it became available under the Contract, standardized and non-standardized total returns may include periods prior to such date. These figures are calculated by adjusting the actual returns of the Fund to reflect the charges that would have been assessed under the Contract had that Fund been available under the Contract during that period. Investment results of the Subaccounts will fluctuate over time, and any presentation of the Subaccounts' total return quotations for any prior period should not be considered as a representation of how the Subaccounts will perform in any future period. Additionally, the Account Value upon redemption may be more or less than your original cost. AVERAGE ANNUAL TOTAL RETURN QUOTATIONS - STANDARDIZED AND NON-STANDARDIZED There are two sets of total return quotations shown below: one for AetnaPlus Contracts and one for Multiple Option Contracts (as identified on the cover of your Prospectus). The contract features and charges under these types of contracts are identical; however, they are administered on two different administrative systems. Due to differences in the way the two systems administered payments prior to mid-1994, performance for the Subaccounts under the two systems for those periods differs. Additionally, each set of tables shown below represents the variations in contract payment type and in the maintenance fees assessed under different plans. Table A reflects the average annual standardized and non-standardized total return quotation figures for the periods ended December 31, 1995 for the Subaccounts under Single Payment Accounts issued by the Company. Tables B and C reflect the average annual standardized and non-standardized total return quotation figures for the periods ended December 31, 1995 for the Subaccounts under Installment Payment Accounts with a $15 annual maintenance fee and a $7.50 annual maintenance fee, respectively. In both sets of tables, for those Subaccounts where results are not available for the full calendar period indicated, the percentage shown is an average annual return since inception (denoted with an *). AETNA PLUS CONTRACTS TABLE A
SINGLE PAYMENT ACCOUNT: FUND ($0 MAINTENANCE FEE) STANDARDIZED NON-STANDARDIZED INCEPTION DATE - ------------------------------ --------------------------- ------------------------------------- ----------- SUBACCOUNT 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years - ------------------------------ --------------------------- ------------------------------------- ----------- Aetna Variable Fund 24.08% 11.20% 12.30% 30.61% 10.43% 12.11% 12.30% 04/30/75 Aetna Income Shares 10.94% 7.62% 8.52% 16.78% 6.32% 8.51% 8.52% 06/01/78 Aetna Variable Encore Fund (0.50%) 2.56% 4.92% 4.74% 3.14% 3.40% 4.92% 09/01/75 Aetna Investment Advisers Fund, Inc. 19.37% 9.60% 8.88%* 25.65% 10.30% 10.50% 9.39%* 06/23/89 Aetna Ascent Variable Portfolio 4.33%* n/a n/a 9.82%* n/a n/a n/a 07/03/95
4
SINGLE PAYMENT ACCOUNT: FUND ($0 MAINTENANCE FEE) STANDARDIZED NON-STANDARDIZED INCEPTION DATE - ------------------------------ --------------------------- ------------------------------------- ----------- SUBACCOUNT 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years - ------------------------------ --------------------------- ------------------------------------- ----------- Aetna Crossroads Variable Portfolio 3.22%* n/a n/a 8.66%* n/a n/a n/a 07/03/95 Aetna Legacy Variable Portfolio 2.21%* n/a n/a 7.59%* n/a n/a n/a 07/03/95 Alger American Growth Portfolio 27.95% 19.24% 17.44%* 34.68% 17.73% 20.22% 17.96%* 01/08/89 Alger American Small Cap Portfolio 35.39% 17.95% 20.62%* 42.52% 14.33% 18.92% 20.96%* 09/21/88 Calvert Responsibly Invested Balanced Portfolio 21.76% 8.97% 8.72%* 28.17% 9.59% 9.86% 8.72%* 09/30/86 Fidelity VIP II Contrafund Portfolio 31.01%* n/a n/a 37.91%* n/a n/a n/a 01/03/95 Fidelity VIP Equity-Income Portfolio 26.75% 18.84% 11.99%* 33.43% 18.12% 19.82% 11.99%* 10/22/86 Fidelity VIP Growth Portfolio 27.01% 18.31% 13.55%* 33.69% 15.88% 19.28% 13.55%* 11/07/86 Fidelity VIP Overseas Portfolio 2.91% 5.91% 5.90%* 8.32% 13.86% 6.78% 6.02%* 02/13/87 Franklin Government Securities Trust 10.43% 6.50% 7.37%* 16.24% 5.53% 7.37% 7.87%* 05/30/89 Janus Aspen Aggressive Growth Portfolio 19.61% 23.24%* n/a 25.91% 26.02%* n/a n/a 9/13/93 Janus Aspen Balanced Portfolio 17.08% 10.02%* n/a 23.24% 12.50%* n/a n/a 09/13/93 Janus Aspen Flexible Income Portfolio 16.21% 5.92%* n/a 22.33% 8.31%* n/a n/a 09/13/93 Janus Aspen Growth Portfolio 22.14% 11.27%* n/a 28.56% 13.78%* n/a n/a 09/13/93 Janus Aspen Short-Term Bond Portfolio 2.77% 1.02%* n/a 8.18% 3.30%* n/a n/a 09/13/93 Janus Aspen Worldwide Growth Portfolio 19.40% 16.51%* n/a 25.69% 19.13%* n/a n/a 09/13/93 Lexington Natural Resources Trust 9.65% 16.66%* n/a 15.42% 6.03% 18.09%* n/a 05/31/89 Neuberger & Berman Growth Portfolio 23.59% 11.91% 11.04% 30.10% 9.71% 12.82% 11.04% 12/31/85 Scudder International Portfolio Class A Shares 4.25% 8.05% 7.85%* 9.74% 13.28% 8.93% 7.98%* 04/30/87 TCI Growth 23.00% 13.38% 11.81%* 29.47% 12.57% 14.31% 11.95%* 11/20/87
Please refer to the discussion preceding the Tables for an explanation of the charges included in the Standardized and Non-Standardized figures. These figures represent historical performance and should not be considered a projection of future performance. AETNA PLUS CONTRACTS TABLE B
INSTALLMENT PAYMENT ACCOUNT: FUND ($15 MAINTENANCE FEE) STANDARDIZED NON-STANDARDIZED INCEPTION DATE - ------------------------------ --------------------------- ------------------------------------- ----------- SUBACCOUNT 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years - ------------------------------ --------------------------- ------------------------------------- ----------- Aetna Variable Fund 23.97% 10.86% 12.20% 30.50% 10.32% 12.00% 12.20% 04/30/75 Aetna Income Shares 10.83% 7.29% 8.42% 16.67% 6.21% 8.40% 8.42% 06/01/78
5
INSTALLMENT PAYMENT ACCOUNT: FUND ($15 MAINTENANCE FEE) STANDARDIZED NON-STANDARDIZED INCEPTION DATE - ------------------------------ --------------------------- ------------------------------------- ----------- SUBACCOUNT 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years - ------------------------------ --------------------------- ------------------------------------- ----------- Aetna Variable Encore Fund (0.61%) 2.24% 4.81% 4.63% 3.04% 3.29% 4.81% 09/01/75 Aetna Investment Advisers Fund, Inc. 19.26% 9.27% 8.42%* 25.55% 10.19% 10.40% 9.28%* 06/23/89 Aetna Ascent Variable Portfolio 4.22%* n/a n/a 9.71%* n/a n/a n/a 07/03/95 Aetna Crossroads Variable Portfolio 3.12%* n/a n/a 8.55%* n/a n/a n/a 07/03/95 Aetna Legacy Variable Portfolio 2.11%* n/a n/a 7.49%* n/a n/a n/a 07/03/95 Alger American Growth Portfolio 27.84% 18.88% 16.99%* 34.58% 17.63% 20.11% 17.85%* 01/08/89 Alger American Small Cap Portfolio 35.29% 17.59% 20.00%* 42.41% 14.22% 18.81% 20.85%* 09/21/88 Calvert Responsibly Invested Balanced Portfolio 21.65% 8.63% 8.02%* 28.06% 9.48% 9.75% 8.62%* 09/30/86 Fidelity VIP II Contrafund Portfolio 30.91%* n/a n/a 37.80%* n/a n/a n/a 01/03/95 Fidelity VIP Equity-Income Portfolio 26.65% 18.49% 11.26%* 33.32% 18.01% 19.71% 11.88%* 10/22/86 Fidelity VIP Growth Portfolio 26.90% 17.95% 12.81%* 33.59% 15.78% 19.17% 13.44%* 11/07/86 Fidelity VIP Overseas Portfolio 2.80% 5.58% 5.30%* 8.22% 13.75% 6.67% 5.91%* 02/13/87 Franklin Government Securities Trust 10.32% 6.17% 6.93%* 16.14% 5.42% 7.26% 7.76%* 05/30/89 Janus Aspen Aggressive Growth Portfolio 19.50% 23.13%* n/a 25.80% 25.91%* n/a n/a 09/13/93 Janus Aspen Balanced Portfolio 16.97% 9.91%* n/a 23.14% 12.39%* n/a n/a 09/13/93 Janus Aspen Flexible Income Portfolio 16.10% 5.81%* n/a 22.22% 8.20%* n/a n/a 09/13/93 Janus Aspen Growth Portfolio 22.03% 11.16%* n/a 28.46% 13.67%* n/a n/a 09/13/93 Janus Aspen Short-Term Bond Portfolio 2.66% 0.91%* n/a 8.07% 3.19%* n/a n/a 09/13/93 Janus Aspen Worldwide Growth Portfolio 19.30% 16.40%* n/a 25.58% 19.03%* n/a n/a 09/13/93 Lexington Natural Resources Trust 9.54% 16.55%* n/a 15.31% 5.92% 17.98%* n/a 05/31/89 Neuberger & Berman Growth Portfolio 23.49% 11.56% 10.94% 29.99% 9.60% 12.72% 10.94% 12/31/85 Scudder International Portfolio Class A Shares 4.14% 7.72% 7.23%* 9.63% 13.17% 8.83% 7.87%* 04/30/87 TCI Growth 22.89% 13.03% 11.14%* 29.37% 12.46% 14.20% 11.85%* 11/20/87
Please refer to the discussion preceding the Tables for an explanation of the charges included in the Standardized and Non-Standardized figures. These figures represent historical performance and should not be considered a projection of future performance. 6 AETNA PLUS CONTRACTS TABLE C
INSTALLMENT PAYMENT ACCOUNT: FUND ($7.50 MAINTENANCE FEE) STANDARDIZED NON-STANDARDIZED INCEPTION DATE - ------------------------------ --------------------------- ------------------------------------- ----------- SUBACCOUNT 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years - ------------------------------ --------------------------- ------------------------------------- ----------- Aetna Variable Fund 24.03% 10.91% 12.25% 30.56% 10.37% 12.06% 12.25% 04/30/75 Aetna Income Shares 10.89% 7.34% 8.47% 16.72% 6.26% 8.45% 8.47% 06/01/78 Aetna Variable Encore Fund (0.56%) 2.29% 4.87% 4.68% 3.09% 3.35% 4.87% 09/01/75 Aetna Investment Advisers Fund, Inc. 19.32% 9.32% 8.48%* 25.60% 10.25% 10.45% 9.33%* 06/23/89 Aetna Ascent Variable Portfolio 4.28%* n/a n/a 9.77%* n/a n/a n/a 07/03/95 Aetna Crossroads Variable Portfolio 3.17%* n/a n/a 8.60%* n/a n/a n/a 07/03/95 Aetna Legacy Variable Portfolio 2.16%* n/a n/a 7.54%* n/a n/a n/a 07/03/95 Alger American Growth Portfolio 27.90% 18.94% 17.04%* 34.63% 17.68% 20.17% 17.90%* 01/08/89 Alger American Small Cap Portfolio 35.34% 17.65% 20.06%* 42.47% 14.28% 18.86% 20.91%* 09/21/88 Calvert Responsibly Invested Balanced Portfolio 21.71% 8.69% 8.07%* 28.12% 9.53% 9.81% 8.67%* 09/30/86 Fidelity VIP II Contrafund Portfolio 30.96%* n/a n/a 37.86%* n/a n/a n/a 01/03/95 Fidelity VIP Equity-Income Portfolio 26.70% 18.54% 11.31%* 33.37% 18.07% 19.77% 11.94%* 10/22/86 Fidelity VIP Growth Portfolio 26.96% 18.01% 12.86%* 33.64% 15.83% 19.23% 13.50%* 11/07/86 Fidelity VIP Overseas Portfolio 2.85% 5.64% 5.35%* 8.27% 13.81% 6.73% 5.96%* 02/13/87 Franklin Government Securities Trust 10.38% 6.22% 6.98%* 16.19% 5.48% 7.32% 7.82%* 05/30/89 Janus Aspen Aggressive Growth Portfolio 19.56% 23.18%* n/a 25.85% 25.96%* n/a n/a 09/13/93 Janus Aspen Balanced Portfolio 17.03% 9.96%* n/a 23.19% 12.45%* n/a n/a 09/13/93 Janus Aspen Flexible Income Portfolio 16.16% 5.86%* n/a 22.27% 8.25%* n/a n/a 09/13/93 Janus Aspen Growth Portfolio 22.08% 11.21%* n/a 28.51% 13.72%* n/a n/a 09/13/93 Janus Aspen Short-Term Bond Portfolio 2.72% 0.97%* n/a 8.12% 3.24%* n/a n/a 09/13/93 Janus Aspen Worldwide Growth Portfolio 19.35% 16.45%* n/a 25.64% 19.08%* n/a n/a 09/13/93 Lexington Natural Resources Trust 9.60% 16.61%* n/a 15.37% 5.98% 18.04%* n/a 05/31/89 Neuberger & Berman Growth Portfolio 23.54% 11.62% 10.99% 30.04% 9.66% 12.77% 10.99% 12/31/85 Scudder International Portfolio Class A Shares 4.20% 7.77% 7.29%* 9.68% 13.23% 8.88% 7.92%* 04/30/87 TCI Growth 22.95% 13.09% 11.19%* 29.42% 12.52% 14.25% 11.90%* 11/20/87
7 Please refer to the discussion preceding the Tables for an explanation of the charges included in the Standardized and Non-Standardized figures. These figures represent historical performance and should not be considered a projection of future performance. MULTIPLE OPTION CONTRACTS TABLE A
SINGLE PAYMENT ACCOUNT: FUND ($0 MAINTENANCE FEE) STANDARDIZED NON-STANDARDIZED INCEPTION DATE - ------------------------------ --------------------------- ------------------------------------- ----------- SUBACCOUNT 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years - ------------------------------ --------------------------- ------------------------------------- ----------- Aetna Variable Fund 24.08% 10.97% 12.30% 30.61% 10.43% 12.11% 12.30% 04/30/75 Aetna Income Shares 10.94% 7.40% 8.52% 16.78% 6.32% 8.51% 8.52% 06/01/78 Aetna Variable Encore Fund (0.50%) 2.35% 4.92% 4.74% 3.14% 3.40% 4.92% 09/01/75 Aetna Investment Advisers Fund, Inc. 19.37% 9.38% 8.53%* 25.65% 10.33% 10.50% 9.39%* 06/23/89 Aetna Ascent Variable Portfolio 4.33%* n/a n/a 9.82%* n/a n/a n/a 07/03/95 Aetna Crossroads Variable Portfolio 3.22%* n/a n/a 8.66%* n/a n/a n/a 07/03/95 Aetna Legacy Variable Portfolio 2.21%* n/a n/a 7.59%* n/a n/a n/a 07/03/95 Alger American Growth Portfolio 28.02% 19.01% 17.10%* 34.76% 17.76% 20.23% 17.97%* 01/08/89 Alger American Small Cap Portfolio 35.40% 17.89% 20.24%* 42.53% 14.64% 19.11% 21.09%* 09/21/88 Calvert Responsibly Invested Balanced Portfolio 21.90% 8.71% 8.11%* 28.31% 9.36% 9.83% 8.71%* 09/30/86 Fidelity VIP II Contrafund Portfolio 31.05%* n/a n/a 37.94%* n/a n/a n/a 01/03/95 Fidelity VIP Equity-Income Portfolio 26.87% 18.60% 11.37%* 33.55% 18.13% 19.82% 11.99%* 10/22/86 Fidelity VIP Growth Portfolio 27.02% 18.06% 12.92%* 33.70% 15.89% 19.28% 13.55%* 11/07/86 Fidelity VIP Overseas Portfolio 2.90% 5.69% 5.41%* 8.31% 13.86% 6.78% 6.02%* 02/13/87 Franklin Government Securities Trust 10.43% 6.30% 7.05%* 16.24% 5.49% 7.40% 7.89%* 05/30/89 Janus Aspen Aggressive Growth Portfolio 19.62% 23.24%* n/a 25.91% 26.02%* n/a n/a 09/13/93 Janus Aspen Balanced Portfolio 17.05% 10.01%* n/a 23.22% 12.49%* n/a n/a 09/13/93 Janus Aspen Flexible Income Portfolio 16.22% 5.92%* n/a 22.33% 8.31%* n/a n/a 09/13/93 Janus Aspen Growth Portfolio 21.78% 11.13%* n/a 28.19% 13.63%* n/a n/a 09/13/93 Janus Aspen Short-Term Bond Portfolio 2.49% 0.90%* n/a 7.89% 3.18%* n/a n/a 09/13/93 Janus Aspen Worldwide Growth Portfolio 19.54% 16.56%* n/a 25.83% 19.19%* n/a n/a 09/13/93 Lexington Natural Resources Trust 9.64% 3.76%* n/a 15.41% 5.72% 5.03%* n/a 05/31/89 Neuberger & Berman Growth Portfolio 23.59% 11.36% 10.77% 30.09% 8.80% 12.28% 10.77% 12/31/85 Scudder International Portfolio Class A Shares 4.25% 7.92% 7.39%* 9.74% 13.52% 9.03% 8.03%* 04/30/87
8
SINGLE PAYMENT ACCOUNT: FUND ($0 MAINTENANCE FEE) STANDARDIZED NON-STANDARDIZED INCEPTION DATE - ------------------------------ --------------------------- ------------------------------------- ----------- SUBACCOUNT 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years - ------------------------------ --------------------------- ------------------------------------- ----------- TCI Growth 22.99% 12.33% 10.75%* 29.47% 11.28% 13.49% 11.46%* 11/20/87
Please refer to the discussion preceding the Tables for an explanation of the charges included in the Standardized and Non-Standardized figures. These figures represent historical performance and should not be considered a projection of future performance. MULTIPLE OPTION CONTRACTS TABLE B
INSTALLMENT PAYMENT ACCOUNT: FUND ($15 ANNUAL MAINTENANCE FEE) STANDARDIZED NON-STANDARDIZED INCEPTION DATE - ------------------------------ --------------------------- ------------------------------------- ----------- SUBACCOUNT 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years - ------------------------------ --------------------------- ------------------------------------- ----------- Aetna Variable Fund 23.97% 10.86% 12.20% 30.50% 10.32% 12.00% 12.20% 04/30/75 Aetna Income Shares 10.83% 7.29% 8.42% 16.67% 6.21% 8.40% 8.42% 06/01/78 Aetna Variable Encore Fund (0.61%) 2.24% 4.81% 4.63% 3.04% 3.29% 4.81% 09/01/75 Aetna Investment Advisers Fund, Inc. 19.26% 9.27% 8.42%* 25.55% 10.19% 10.40% 9.28%* 06/23/89 Aetna Ascent Variable Portfolio 4.22%* n/a n/a 9.71%* n/a n/a n/a 07/03/95 Aetna Crossroads Variable Portfolio 3.12%* n/a n/a 8.55%* n/a n/a n/a 07/03/95 Aetna Legacy Variable Portfolio 2.11%* n/a n/a 7.49%* n/a n/a n/a 07/03/95 Alger American Growth Portfolio 27.91% 18.90% 17.00%* 34.65% 17.65% 20.13% 17.86%* 01/08/89 Alger American Small Cap Portfolio 35.29% 17.78% 20.13%* 42.42% 14.53% 19.00% 20.99%* 09/21/88 Calvert Responsibly Invested Balanced Portfolio 21.79% 8.60% 8.00%* 28.20% 9.25% 9.72% 8.60%* 09/30/86 Fidelity VIP II Contrafund Portfolio 30.94%* n/a n/a 37.84%* n/a n/a n/a 01/03/95 Fidelity VIP Equity-Income Portfolio 26.76% 18.49% 11.26%* 33.44% 18.02% 19.72% 11.89%* 10/22/86 Fidelity VIP Growth Portfolio 26.91% 17.96% 12.81%* 33.59% 15.78% 19.17% 13.44%* 11/07/86 Fidelity VIP Overseas Portfolio 2.79% 5.58% 5.30%* 8.21% 13.75% 6.67% 5.91%* 02/13/87 Franklin Government Securities Trust 10.32% 6.19% 6.95%* 16.14% 5.39% 7.29% 7.78%* 05/30/89 Janus Aspen Aggressive Growth Portfolio 19.51% 23.13%* n/a 25.81% 25.92%* n/a n/a 09/13/93 Janus Aspen Balanced Portfolio 16.95% 9.90%* n/a 23.14% 12.39%* n/a n/a 09/13/93 Janus Aspen Flexible Income Portfolio 16.11% 5.81%* n/a 22.22% 8.20%* n/a n/a 09/13/93 Janus Aspen Growth Portfolio 21.68% 11.02%* n/a 28.09% 13.53%* n/a n/a 09/13/93 Janus Aspen Short-Term Bond Portfolio 2.39% 0.79%* n/a 7.78% 3.07%* n/a n/a 09/13/93
9
INSTALLMENT PAYMENT ACCOUNT: FUND ($15 ANNUAL MAINTENANCE FEE) STANDARDIZED NON-STANDARDIZED INCEPTION DATE - ------------------------------ --------------------------- ------------------------------------- ----------- SUBACCOUNT 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years - ------------------------------ --------------------------- ------------------------------------- ----------- Janus Aspen Worldwide Growth Portfolio 19.43% 16.46%* n/a 25.72% 19.09%* n/a n/a 09/13/93 Lexington Natural Resources Trust 9.53% 3.65%* n/a 15.30% 5.61% 4.92%* n/a 05/31/89 Neuberger & Berman Growth Portfolio 23.48% 11.02% 10.67% 29.99% 8.69% 12.17% 10.67% 12/31/85 Scudder International Portfolio Class A Shares 4.14% 7.81% 7.29%* 9.63% 13.41% 8.93% 7.92%* 04/30/87 TCI Growth 22.89% 12.22% 10.65%* 29.36% 11.18% 13.38% 11.35%* 11/20/87
Please refer to the discussion preceding the Tables for an explanation of the charges included in the Standardized and Non-Standardized figures. These figures represent historical performance and should not be considered a projection of future performance. MULTIPLE OPTION CONTRACTS TABLE C
INSTALLMENT PAYMENT ACCOUNT: FUND ($7.50 ANNUAL MAINTENANCE FEE) STANDARDIZED NON-STANDARDIZED INCEPTION DATE - ------------------------------ --------------------------- ------------------------------------- ----------- SUBACCOUNT 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years - ------------------------------ --------------------------- ------------------------------------- ----------- Aetna Variable Fund 24.03% 10.91% 12.25% 30.56% 10.38% 12.06% 12.25% 04/30/75 Aetna Income Shares 10.89% 7.34% 8.47% 16.72% 6.26% 8.45% 8.48% 06/01/78 Aetna Variable Encore Fund (0.56%) 2.29% 4.87% 4.68% 3.09% 3.35% 8.47% 09/01/75 Aetna Investment Advisers Fund, Inc. 19.32% 9.32% 8.48%* 25.60% 10.25% 10.45% 9.33%* 06/23/89 Aetna Ascent Variable Portfolio 4.28%* n/a n/a 9.77%* n/a n/a n/a 07/03/95 Aetna Crossroads Variable Portfolio 3.17%* n/a n/a 8.60%* n/a n/a n/a 07/03/95 Aetna Legacy Variable Portfolio 2.16%* n/a n/a 7.54%* n/a n/a n/a 07/03/95 Alger American Growth Portfolio 27.97% 18.95% 17.05%* 34.70% 17.70% 20.18% 17.91%* 01/08/89 Alger American Small Cap Portfolio 35.35% 17.84% 20.19%* 42.47% 14.58% 19.05% 21.04%* 09/21/88 Calvert Responsibly Invested Balanced Portfolio 21.84% 8.66% 8.06%* 28.26% 9.31% 9.78% 8.65%* 09/30/86 Fidelity VIP II Contrafund Portfolio 30.99%* n/a n/a 37.89%* n/a n/a n/a 01/03/95 Fidelity VIP Equity-Income Portfolio 26.82% 18.55% 11.32%* 33.50% 18.08% 19.77% 11.94%* 10/22/86 Fidelity VIP Growth Portfolio 26.96% 18.01% 12.86%* 33.65% 15.83% 19.23% 13.50%* 11/07/86 Fidelity VIP Overseas Portfolio 2.85% 5.63% 5.35%* 8.26% 13.81% 6.72% 5.96%* 02/13/87 Franklin Government Securities Trust 10.38% 6.25% 7.00%* 16.19% 5.44% 7.34% 7.84%* 05/30/89 Janus Aspen Aggressive Growth Portfolio 19.57% 23.19%* n/a 25.86% 25.97%* n/a n/a 09/13/93
10
INSTALLMENT PAYMENT ACCOUNT: FUND ($7.50 ANNUAL MAINTENANCE FEE) STANDARDIZED NON-STANDARDIZED INCEPTION DATE - ------------------------------ --------------------------- ------------------------------------- ----------- SUBACCOUNT 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years - ------------------------------ --------------------------- ------------------------------------- ----------- Janus Aspen Balanced Portfolio 17.00% 9.95%* n/a 23.16% 12.44%* n/a n/a 09/13/93 Janus Aspen Flexible Income Portfolio 16.16% 5.87%* n/a 22.28% 8.26%* n/a n/a 09/13/93 Janus Aspen Growth Portfolio 21.73% 11.07%* n/a 28.14% 13.58%* n/a n/a 09/13/93 Janus Aspen Short-Term Bond Portfolio 2.44% 0.85%* n/a 7.84% 3.12%* n/a n/a 09/13/93 Janus Aspen Worldwide Growth Portfolio 19.49% 16.51%* n/a 25.78% 19.14%* n/a n/a 09/13/93 Lexington Natural Resources Trust 9.59% 3.71%* n/a 15.36% 5.67% 4.98%* n/a 05/31/89 Neuberger & Berman Growth Portfolio 23.54% 11.08% 10.72% 30.04% 8.74% 12.22% 10.72% 12/31/85 Scudder International Portfolio Class A Shares 4.20% 7.87% 7.34%* 9.68% 13.47% 8.98% 7.98%* 04/30/87 TCI Growth 22.94% 12.27% 10.70%* 29.41% 11.23% 13.43% 11.40%* 11/20/87
Please refer to the discussion preceding the Tables for an explanation of the charges included in the Standardized and Non-Standardized figures. These figures represent historical performance and should not be considered a projection of future performance. ANNUITY PAYMENTS When Annuity payments are to begin, the value of the Account is determined using Accumulation Unit values as of the tenth Valuation Date before the first Annuity payment is due. Such value (less any applicable premium tax) is applied to provide an Annuity in accordance with the Annuity and investment options elected. The Annuity option tables found in the Contract show, for each form of Annuity, the amount of the first Annuity payment for each $1,000 of value applied. Thereafter, variable Annuity payments fluctuate as the Annuity Unit value(s) fluctuates with the investment experience of the selected investment option(s). The first payment and subsequent payments also vary depending on the assumed net investment rate selected (3.5% or 5% per annum). Selection of a 5% rate causes a higher first payment, but Annuity payments will increase thereafter only to the extent that the net investment rate increases by more than 5% on an annual basis. Annuity payments would decline if the rate failed to increase by 5%. Use of the 3.5% assumed rate causes a lower first payment, but subsequent payments would increase more rapidly or decline more slowly as changes occur in the net investment rate. When the Annuity Period begins, the Annuitant is credited with a fixed number of Annuity Units (which does not change thereafter) in each of the designated investment options. This number is calculated by dividing (a) by (b) where (a) is the amount of the first Annuity payment based on a particular investment option, and (b) is the then current Annuity Unit value for that investment option. As noted, Annuity Unit values fluctuate from one Valuation Date to the next; such fluctuations reflect changes in the net investment factor for the appropriate Subaccount(s) (with a ten Valuation Date lag which gives the Company time to process Annuity payments) and a mathematical adjustment which offsets the assumed net investment rate of 3.5% or 5% per annum. 11 The operation of all these factors can be illustrated by the following hypothetical example. These procedures will be performed separately for the investment options selected during the Annuity Period. EXAMPLE: Assume that, at the date Annuity payments are to begin, there are 3,000 Accumulation Units credited under a particular Account and that the value of an Accumulation Unit for the tenth Valuation Date prior to retirement was $13.650000. This produces a total value of $40,950. Assume also that no premium tax is payable and that the Annuity table in the Contract provides, for the option elected, a first monthly variable Annuity payment of $6.68 per $1000 of value applied; the Annuitant's first monthly payment would thus be 40.950 multiplied by $6.68, or $273.55. Assume then that the value of an Annuity Unit for the Valuation Date on which the first payment was due was $13.400000. When this value is divided into the first monthly payment, the number of Annuity Units is determined to be 20.414. The value of this number of Annuity Units will be paid in each subsequent month. If the net investment factor with respect to the appropriate Subaccount is 1.0015000 as of the tenth Valuation Date preceding the due date of the second monthly payment, multiplying this factor by .9999058* (to neutralize the assumed net investment rate of 3.5% per annum built into the number of Annuity Units determined above) produces a result of 1.0014057. This is then multiplied by the Annuity Unit value for the prior Valuation Date (assume such value to be $13.504376) to produce an Annuity Unit value of $13.523359 for the Valuation Date on which the second payment is due. The second monthly payment is then determined by multiplying the number of Annuity Units by the current Annuity Unit value, or 20.414 times $13.523359, which produces a payment of $276.07. *If an assumed net investment rate of 5% is elected, the appropriate factor to neutralize such assumed rate would be .9998663. SALES MATERIAL AND ADVERTISING The Company may include hypothetical illustrations in its sales literature that explain the mathematical principles of dollar cost averaging, compounded interest, tax deferred accumulation, and the mechanics of variable annuity contracts. The Company may also discuss the difference between variable annuity contracts and other types of savings or investment products, including, but not limited to, personal savings accounts and certificates of deposit. We may distribute sales literature that compares the percentage change in Accumulation Unit values for any of the Subaccounts to established market indices such as the Standard & Poor's 500 Stock Index and the Dow Jones Industrial Average or to the percentage change in values of other management investment companies that have investment objectives similar to the Subaccount being compared. We may publish in advertisements and reports, the ratings and other information assigned to us by one or more independent rating organizations such as A.M. Best Company, Duff & Phelps, Standard & Poor's Corporation and Moody's Investors Services, Inc. The purpose of the ratings is to reflect our financial strength and/or claims-paying ability. We may also quote ranking services such as Morningstar's Variable Annuity/Life Performance Report and Lipper's Variable Insurance Products Performance Analysis Service 12 (VIPPAS), which rank variable annuity or life Subaccounts or their underlying funds by performance and/or investment objective. From time to time, we will quote articles from newspapers and magazines or other publications or reports, including, but not limited to The Wall Street Journal, Money magazine, USA Today and The VARDS Report. The Company may provide in advertising, sales literature, periodic publications or other materials information on various topics of interest to current and prospective Contract Holders or Participants. These topics may include the relationship between sectors of the economy and the economy as a whole and its effect on various securities markets, investment strategies and techniques (such as value investing, market timing, dollar cost averaging, asset allocation, constant ratio transfer and account rebalancing), the advantages and disadvantages of investing in tax-deferred and taxable investments, customer profiles and hypothetical purchase and investment scenarios, financial management and tax and retirement planning, and investment alternatives to certificates of deposit and other financial instruments, including comparison between the Contracts and the characteristics of and market for such financial instruments. INDEPENDENT AUDITORS KPMG Peat Marwick LLP, CityPlace II, Hartford, Connecticut 06103-4103, are the independent auditors for the Separate Account and for the Company. The services provided to the Separate Account include primarily the examination of the Separate Account's financial statements and the review of filings made with the SEC. 13 FINANCIAL STATEMENTS VARIABLE ANNUITY ACCOUNT C INDEX
Independent Auditors' Report . . . . . . . . . . . . . S-2 Statement of Assets and Liabilities. . . . . . . . . . S-3 Statement of Operations. . . . . . . . . . . . . . . . S-8 Statements of Changes in Net Assets. . . . . . . . . . S-9 Notes to Financial Statements. . . . . . . . . . . . . S-10 Consolidated Financial Information . . . . . . . . . . S-12 S-1
INDEPENDENT AUDITORS' REPORT The Board of Directors of Aetna Life Insurance and Annuity Company and Contract Owners of Variable Annuity Account C: We have audited the accompanying statement of assets and liabilities of Aetna Life Insurance and Annuity Company Variable Annuity Account C (the "Account") as of December 31, 1995, and the related statement of operations for the year then ended, statements of changes in net assets for each of the years in the two-year period then ended and condensed financial information for the year ended December 31, 1995. These financial statements and condensed financial information are the responsibility of the Account's management. Our responsibility is to express an opinion on these financial statements and condensed financial information based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and condensed financial information are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1995, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and condensed financial information referred to above present fairly, in all material respects, the financial position of the Aetna Life Insurance and Annuity Company Variable Annuity Account C as of December 31, 1995, the results of its operations for the year then ended, changes in its net assets for each of the years in the two-year period then ended and condensed financial information for the year ended December 31, 1995 in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Hartford, Connecticut February 16, 1996 S-2 VARIABLE ANNUITY ACCOUNT C STATEMENT OF ASSETS AND LIABILITIES - December 31, 1995
ASSETS: Investments, at net asset value: (Note 1) Aetna Variable Fund; 135,944,293 shares at $29.06 per share (cost $3,682,373,523).................... $3,949,941,096 Aetna Income Shares; 29,688,857 shares at $13.00 per share (cost $382,776,733)....................... 386,007,595 Aetna Variable Encore Fund; 17,318,377 shares at $13.30 per share (cost $221,087,268) ............... 230,291,686 Aetna Investment Advisers Fund, Inc.; 49,855,715 shares at $14.50 per share (cost $600,395,092) ............................................................................... 723,017,695 Aetna GET Fund, Series B; 5,897,397 shares at $12.40 per share (cost $59,712,454).................... 73,136,258 Aetna Ascent Variable Portfolio; 454,714 shares at $10.80 per share (cost $4,803,331)................ 4,908,736 Aetna Crossroads Variable Portfolio; 341,591 shares at $10.74 per share (cost $3,599,790)............ 3,668,757 Aetna Legacy Variable Portfolio; 180,468 shares at $10.64 per share (cost $1,883,466)................ 1,919,680 Alger American Funds: Alger American Growth Portfolio; 1,234,082 shares at $31.16 per share (cost $38,739,937)....................................................................................... 38,454,000 Alger American Small Capitalization Portfolio; 6,121,453 shares at $39.41 per share (cost $203,207,523)................................................................................ 241,246,447 Calvert Responsibly Invested Balanced Portfolio; 16,846,014 shares at $1.70 per share (cost $26,512,853)................................................................................ 28,688,761 Fidelity Investments Variable Insurance Products Funds: Equity-Income Portfolio; 1,973,219 shares at $19.27 per share (cost $35,264,252)................... 38,023,939 Growth Portfolio; 949,237 shares at $29.20 per share (cost $27,212,340)............................ 27,717,728 Overseas Portfolio; 218,122 shares at $17.05 per share (cost $3,555,791)........................... 3,718,987 Fidelity Investments Variable Insurance Products Funds II - Asset Manager Portfolio; 910,080 shares at $15.79 per share (cost $12,839,173)..................... 14,370,158 Contrafund Portfolio; 2,202,984 shares at $13.78 per share (cost $30,071,951) ..................... 30,357,117 Index 500 Portfolio; 45,055 shares at $75.71 per share (cost $3,187,279) .......................... 3,411,144 Franklin Government Securities Trust; 1,651,095 shares at $13.35 per share (cost $21,210,874) .............................................................................. 22,042,115 Janus Aspen Series - Aggressive Growth Portfolio; 5,116,845 shares at $17.08 per share (cost $74,304,318)............... 87,395,716 Balanced Portfolio; 115,516 shares at $13.03 per share (cost $1,444,640)........................... 1,505,170 Flexible Income Portfolio; 347,266 shares at $11.11 per share (cost $3,690,542).................... 3,858,123 Growth Portfolio; 376,690 shares at $13.45 per share (cost $4,920,509)............................. 5,066,487 Short-Term Bond Portfolio; 54,258 shares at $10.03 per share (cost $544,564)....................... 544,210 Worldwide Growth Portfolio; 1,048,130 shares at $15.31 per share (cost $15,260,366)................ 16,046,863 Lexington Emerging Markets Fund, Inc.; 329,323 shares at $9.38 per share (cost $3,135,164) .......... 3,089,046 Lexington Natural Resources Trust; 1,257,565 shares at $11.30 per share (cost $12,932,744) .......... 14,210,484 Neuberger & Berman Advisers Management Trust - Growth Portfolio; 3,460,773 shares at $25.86 per share (cost $77,838,858)............................................................ 89,495,579 Scudder Variable Life Investment Fund - International Portfolio; 13,936,090 shares at $11.82 per share (cost $151,941,144).................................. ........................ 164,724,583 TCI Portfolios, Inc. - TCI Growth; 35,261,982 shares at $12.06 per share (cost $333,587,996) ........ 425,259,499 NET ASSETS ............................................................................................ 6,632,117,659 -------------- --------------
S-3 Net assets represented by:
Accumulation Unit Units Value Reserves for annuity contracts in accumulation and payment period: AETNA VARIABLE FUND: Qualified I ..................................................... 549,055.7 $180.879 $99,312,649 Qualified III ................................................... 6,364,000.3 137.869 877,395,210 Qualified IV .................................................... 269.0 83.646 22,498 Qualified V ..................................................... 121,691.2 14.113 1,717,411 Qualified VI .................................................... 188,964,022.4 14.077 2,660,123,261 Qualified VII ................................................... 9,779,134.6 13.247 129,544,460 Qualified VIII .................................................. 20,835.7 13.074 272,413 Qualified IX .................................................... 21,417.9 12.935 277,043 Qualified X (1.15)............................................... 273,578.4 14.108 3,859,670 Qualified X (1.25)............................................... 2,370,233.5 14.077 33,366,740 Reserves for annuity contracts in payment period (Note 1)........ 144,049,741 AETNA INCOME SHARES: Qualified I ..................................................... 72,902.0 47.405 3,455,895 Qualified III ................................................... 2,377,621.8 46.913 111,541,104 Qualified V ..................................................... 20,427.2 12.283 250,918 Qualified VI .................................................... 21,379,975.5 12.098 258,665,226 Qualified VII ................................................... 185,030.5 11.176 2,067,926 Qualified VIII .................................................. 1,090.6 11.143 12,153 Qualified IX .................................................... 3,580.8 11.203 40,116 Qualified X (1.15)............................................... 50,261.1 12.125 609,409 Qualified X (1.25)............................................... 354,993.3 12.098 4,294,879 Reserves for annuity contracts in payment period (Note 1) ....... 5,069,969 AETNA VARIABLE ENCORE FUND: Qualified I ..................................................... 150,480.4 38.485 5,791,253 Qualified III ................................................... 1,836,260.4 37.988 69,756,054 Qualified V ..................................................... 19,202.4 11.003 211,293 Qualified VI .................................................... 12,999,680.2 11.026 143,337,034 Qualified VII ................................................... 324,091.0 10.936 3,544,190 Qualified VIII .................................................. 656.2 10.620 6,969 Qualified IX .................................................... 3,050.3 10.857 33,118 Qualified X (1.15)............................................... 145,629.4 11.051 1,609,306 Qualified X (1.25)............................................... 544,382.5 11.026 6,002,469 AETNA INVESTMENT ADVISERS FUND, INC.: Qualified I ..................................................... 393,612.5 18.024 7,094,461 Qualified III ................................................... 9,193,181.4 17.954 165,052,015 Qualified V ..................................................... 19,038.2 13.693 260,683 Qualified VI .................................................... 38,152,394.6 13.673 521,663,491 Qualified VII ................................................... 335,791.4 13.135 4,410,596 Qualified VIII .................................................. 1,055.3 12.695 13,397 Qualified IX .................................................... 3,961.7 12.613 49,969 Qualified X (1.15)............................................... 138,270.8 13.703 1,894,705 Qualified X (1.25)............................................... 940,932.7 13.673 12,865,516 Reserves for annuity contracts in payment period (Note 1) ....... 9,712,862 AETNA GET FUND, SERIES B: Qualified III .................................................. 63,245.0 12.850 812,688 S-4 Accumulation Unit Units Value Qualified VI..................................................... 5,279,157.0 12.850 67,836,249 Qualified X (1.25)............................................... 349,212.6 12.850 4,487,321 AETNA ASCENT VARIABLE PORTFOLIO: Qualified III.................................................... 8.4 10.673 90 Qualified V...................................................... 202.1 10.666 2,156 Qualified VI..................................................... 393,052.6 10.673 4,195,040 Qualified VIII................................................... 7.7 10.673 82 Qualified X (1.15)............................................... 15,054.8 10.982 165,326 Qualified X (1.25)............................................... 49,748.1 10.976 546,042 AETNA CROSSROADS VARIABLE PORTFOLIO: Qualified V...................................................... 243.2 10.605 2,579 Qualified VI..................................................... 294,673.3 10.612 3,126,954 Qualified VIII................................................... 43.8 10.611 464 Qualified X (1.15)............................................... 2,393.5 10.868 26,012 Qualified X (1.25)............................................... 47,204.4 10.862 512,748 AETNA LEGACY VARIABLE PORTFOLIO: Qualified VI..................................................... 143,636.5 10.580 1,519,662 Qualified X (1.15)............................................... 17,106.0 10.631 181,853 Qualified X (1.25)............................................... 20,531.2 10.626 218,165 ALGER AMERICAN FUNDS: ALGER AMERICAN GROWTH PORTFOLIO: Qualified III ................................................... 530,262.6 11.715 6,211,911 Qualified V...................................................... 7,965.7 10.365 82,564 Qualified VI..................................................... 2,832,439.7 10.157 28,770,111 Qualified VIII................................................... 38.3 10.371 397 Qualified X (1.15)............................................... 12,858.7 11.385 146,392 Qualified X (1.25)............................................... 284,978.1 11.379 3,242,625 ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO: Qualified III ................................................... 1,714,187.0 13.558 23,241,019 Qualified V ..................................................... 31,527.5 13.463 424,453 Qualified VI .................................................... 15,036,764.7 13.450 202,245,073 Qualified VIII .................................................. 3,845.1 14.093 54,189 Qualified X (1.15)............................................... 54,683.5 13.481 737,179 Qualified X (1.25)............................................... 1,081,374.8 13.450 14,544,534 CALVERT RESPONSIBLY INVESTED BALANCED PORTFOLIO: Qualified III ................................................... 856,360.5 17.951 15,372,772 Qualified V ..................................................... 14,656.3 13.870 203,278 Qualified VI .................................................... 966,097.9 13.527 13,068,322 Qualified VIII .................................................. 3,611.6 12.291 44,389 FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUNDS: EQUITY-INCOME PORTFOLIO: Qualified III ................................................... 628,581.6 11.617 7,301,978 Qualified V ..................................................... 1,107.9 11.047 12,239 Qualified VI .................................................... 1,660,304.1 11.092 18,415,763 Qualified VIII .................................................. 638.7 11.054 7,060 Qualified X (1.15)............................................... 118,679.1 13.902 1,649,878 Qualified X (1.25)............................................... 766,359.8 13.880 10,637,021 GROWTH PORTFOLIO: Qualified III ................................................... 762.1 10.198 7,772 Qualified V ..................................................... 2,540.5 10.183 25,871 Qualified VI .................................................... 1,833,793.9 10.066 18,458,844 S-5 Accumulation Unit Units Value Qualified VIII .................................................. 158.7 10.190 1,617 Qualified X (1.15)............................................... 45,764.6 14.023 641,737 Qualified X (1.25)............................................... 612,991.7 14.000 8,581,887 OVERSEAS PORTFOLIO: Qualified III ................................................... 1,301.8 10.197 13,274 Qualified V ..................................................... 190.8 9.954 1,899 Qualified VI .................................................... 196,089.8 9.961 1,953,206 Qualified X (1.15)............................................... 4,284.4 10.278 44,037 Qualified X (1.25)............................................... 166,303.2 10.262 1,706,571 FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUNDS II: ASSET MANAGER PORTFOLIO: Qualified III.................................................... 1,316,915.5 10.912 14,370,158 CONTRAFUND PORTFOLIO: Qualified III ................................................... 525,476.0 11.763 6,181,326 Qualified V ..................................................... 6,415.4 10.461 67,111 Qualified VI .................................................... 2,116,732.0 10.397 22,007,519 Qualified VIII .................................................. 173.7 10.467 1,818 Qualified X (1.15)............................................... 5,452.8 10.689 63,737 Qualified X (1.25)............................................... 174,259.3 10.681 2,035,606 INDEX 500 PORTFOLIO: Qualified III ................................................... 290,546.8 11.740 3,411,144 FRANKLIN GOVERNMENT SECURITIES TRUST: Qualified III ................................................... 809,413.7 16.495 13,351,329 Qualified V ..................................................... 16,226.2 11.946 193,844 Qualified VI .................................................... 717,760.0 11.762 8,442,415 Qualified VIII .................................................. 4,916.9 11.090 54,527 JANUS ASPEN SERIES: AGGRESSIVE GROWTH PORTFOLIO: Qualified III ................................................... 1,280,952.5 15.323 19,627,517 Qualified V.. ................................................... 15,482.4 13.296 205,852 Qualified VI. ................................................... 4,887,059.8 13.322 65,105,449 Qualified VIII .................................................. 1,021.7 13.321 13,610 Qualified X (1.15)............................................... 22,049.9 12.869 283,760 Qualified X (1.25)............................................... 167,919.9 12.861 2,159,528 BALANCED PORTFOLIO: Qualified III ................................................... 161.4 10.853 1,751 Qualified V ..................................................... 160.2 10.843 1,737 Qualified VI .................................................... 93,303.8 10.850 1,012,385 Qualified X (1.15)............................................... 9,382.9 11.265 105,697 Qualified X (1.25)............................................... 34,071.6 11.259 383,600 FLEXIBLE INCOME PORTFOLIO: Qualified III ................................................... 3,344.5 12.124 40,550 Qualified V ..................................................... 745.1 12.054 8,981 Qualified VI .................................................... 315,361.3 12.077 3,808,592 GROWTH PORTFOLIO: Qualified III ................................................... 109,716.5 11.859 1,301,115 Qualified V. .................................................... 166.2 10.872 1,807 Qualified VI. ................................................... 259,195.5 10.870 2,817,612 Qualified X (1.15)............................................... 3,238.4 11.633 37,671 Qualified X (1.25)............................................... 78,126.0 11.626 908,282 S-6 Accumulation Unit Units Value SHORT-TERM BOND PORTFOLIO: Qualified III ................................................... 18,472.9 10.393 191,983 Qualified V ..................................................... 23.8 10.316 245 Qualified VI .................................................... 32,695.8 10.323 337,528 Qualified X (1.25)............................................... 1,405.3 10.285 14,454 WORLDWIDE GROWTH PORTFOLIO: Qualified III ................................................... 314,652.7 12.158 3,825,607 Qualified V ..................................................... 11,127.9 10.952 121,875 Qualified VI .................................................... 1,036,039.6 10.877 11,268,519 Qualified VIII .................................................. 13.7 10.846 149 Qualified X (1.15)............................................... 2,616.9 12.223 31,987 Qualified X (1.25)............................................... 65,384.2 12.216 798,726 LEXINGTON EMERGING MARKETS FUND: Qualified III ................................................... 371,155.8 8.323 3,089,046 LEXINGTON NATURAL RESOURCES TRUST: Qualified III ................................................... 530,562.2 10.862 5,763,092 Qualified V ..................................................... 8,347.9 12.095 100,969 Qualified VI .................................................... 711,891.9 11.720 8,346,423 NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST: GROWTH PORTFOLIO: Qualified III ................................................... 2,359,089.9 17.430 41,119,982 Qualified V ..................................................... 35,940.7 14.359 516,068 Qualified VI .................................................... 3,331,217.5 14.345 47,786,169 Qualified VIII .................................................. 5,947.6 12.334 73,360 SCUDDER VARIABLE LIFE INVESTMENT FUND: INTERNATIONAL PORTFOLIO: Qualified III ................................................... 3,823,292.2 14.515 55,495,694 Qualified V ..................................................... 38,067.4 13.799 525,305 Qualified VI .................................................... 7,323,208.0 13.923 101,958,550 Qualified VIII .................................................. 12,189.3 11.733 143,011 Qualified X (1.15)............................................... 41,921.0 13.952 584,886 Qualified X (1.25)............................................... 432,183.0 13.923 6,017,137 TCI PORTFOLIOS, INC.: TCI GROWTH: Qualified III *.................................................. 1,784,551.6 14.464 25,811,741 Qualified III .................................................. 4,184,701.2 13.224 55,336,455 Qualified V ..................................................... 24,825.6 15.176 376,753 Qualified VI .................................................... 21,986,645.3 15.253 335,360,124 Qualified VII ................................................... 63,035.5 12.840 809,380 Qualified VIII .................................................. 8,144.3 12.868 104,799 Qualified IX .................................................... 1,241.8 12.581 15,623 Qualified X (1.15)............................................... 13,306.7 15.285 203,397 Qualified X (1.25)............................................... 474,744.3 15.253 7,241,227 $6,632,117,659 -------------- --------------
*Applies only to participants of the Opportunity Plus program and Multiple Options Contracts. See Notes to Financial Statements. S-7 VARIABLE ANNUITY ACCOUNT C STATEMENT OF OPERATIONS - Year Ended December 31, 1995
INVESTMENT INCOME: Dividends: (Notes 1 and 3) Aetna Variable Fund............................................................ $648,150,765 Aetna Income Shares............................................................ 23,872,308 Aetna Variable Encore Fund .................................................... 172,751 Aetna Investment Advisers Fund, Inc............................................ 47,274,300 Aetna GET Fund, Series B ...................................................... 1,878,972 Aetna Ascent Variable Portfolio ............................................... 110,626 Aetna Crossroads Variable Portfolio ........................................... 61,834 Aetna Legacy Variable Portfolio ............................................... 33,640 Calvert Responsibly Invested Balanced Portfolio .............................. 2,556,825 Fidelity Investments Variable Insurance Products Fund - Equity Income Portfolio 423,626 Fidelity Investments Variable Insurance Products Fund - Growth Portfolio ...... 10,256 Fidelity Investments Variable Insurance Products Fund - Overseas Portfolio .... 5,145 Fidelity Investments Variable Insurance Products Fund II - Asset Manager Portfolio 259,914 Fidelity Investments Variable Insurance Products Fund II - Contrafund Portfolio 379,043 Franklin Government Securities Trust .......................................... 1,061,449 Janus Aspen Series - Aggressive Growth Portfolio............................... 982,586 Janus Aspen Series - Balanced Portfolio........................................ 11,553 Janus Aspen Series - Flexible Income Portfolio................................. 151,761 Janus Aspen Series - Growth Portfolio.......................................... 91,472 Janus Aspen Series - Short-Term Bond Portfolio................................. 11,707 Janus Aspen Series - Worldwide Growth Portfolio................................ 50,858 Lexington Emerging Markets Fund................................................ 29,990 Lexington Natural Resources Trust.............................................. 59,767 Neuberger & Berman Advisers Management Trust - Growth Portfolio ............... 1,779,523 Scudder Variable Life Investment Fund - International Portfolio............... 670,720 TCI Portfolios, Inc. - TCI Growth.............................................. 339,221 -------------- Total investment income ..................................................... 730,430,612 Valuation period deductions (Note 2)............................................. (71,090,542) -------------- Net investment income............................................................ 659,340,070 -------------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS: Net realized gain on sales of investments: (Notes 1 and 4) Proceeds from sales ........................................................... $570,154,582 Cost of investments sold ...................................................... 409,480,615 ------------ Net realized gain ........................................................... 160,673,967 Net unrealized gain on investments: Beginning of year ............................................................. 73,479,233 End of year ................................................................... 594,083,184 ------------ Net unrealized gain ......................................................... 520,603,951 -------------- Net realized and unrealized gain on investments ................................. 681,277,918 -------------- Net increase in net assets resulting from operations ............................ $1,340,617,988 -------------- --------------
See Notes to Financial Statements. S-8 VARIABLE ANNUITY ACCOUNT C STATEMENTS OF CHANGES IN NET ASSETS
Year Ended December 31, 1995 1994 ---- ---- FROM OPERATIONS: Net investment income .......................................... $ 659,340,070 $ 476,196,420 Net realized and unrealized gain (loss) on investments .......... 681,277,918 (581,812,453) Net increase (decrease) in net assets resulting from operations 1,340,617,988 (105,616,033) FROM UNIT TRANSACTIONS: Variable annuity contract purchase payments ..................... 771,594,245 711,565,372 Sales and administrative charges deducted by the Company ........ (98,694) (137,737) Net variable annuity contract purchase payments ............... 771,495,551 711,427,635 Transfers from the Company for mortality guarantee adjustments .. 3,678,430 1,880,350 Transfers to the Company's fixed account options ................ (44,377,350) (56,920,532) Transfers to other variable annuity accounts ........... 0 (23,284,415) Redemptions by contract holders ................................. (287,945,984) (269,542,942) Annuity payments ................................................ (14,807,537) (11,189,149) Other ........................................................... 1,144,770 1,452,959 Net increase in net assets from unit transactions ............. 429,187,880 353,823,906 Change in net assets ............................................ 1,769,805,868 248,207,873 NET ASSETS: Beginning of year ............................................... 4,862,311,791 4,614,103,918 End of year...................................................... $6,632,117,659 $4,862,311,791 -------------- -------------- -------------- --------------
See Notes to Financial Statements. S-9 VARIABLE ANNUITY ACCOUNT C NOTES TO FINANCIAL STATEMENTS - December 31, 1995 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Variable Annuity Account C ("Account") is registered under the Investment Company Act of 1940 as a unit investment trust. The Account is sold exclusively for use with annuity contracts that are qualified under the Internal Revenue Code of 1986, as amended. The accompanying financial statements of the Account have been prepared in accordance with generally accepted accounting principles. a. VALUATION OF INVESTMENTS Investments in the following Funds are stated at the closing net asset value per share as determined by each Fund on December 31, 1995: Aetna Variable Fund Aetna Income Shares Aetna Variable Encore Fund Aetna Investment Advisers Fund, Inc. Aetna GET Fund, Series B Aetna Ascent Variable Portfolio Aetna Crossroads Variable Portfolio Aetna Legacy Variable Portfolio Alger American Fund: - Alger American Growth Portfolio - Alger American Small Capitalization Portfolio Calvert Responsibly Invested Balanced Portfolio Fidelity Investments Variable Insurance Products Fund: - Equity-Income Portfolio - Growth Portfolio - Overseas Portfolio Fidelity Investments Variable Insurance Products Fund II: - Asset Manager Portfolio - Contrafund Portfolio - Index 500 Portfolio Franklin Government Securities Trust Janus Aspen Series: - Aggressive Growth Portfolio - Balanced Portfolio - Flexible Income Portfolio - Growth Portfolio - Short-Term Bond Portfolio - Worldwide Growth Portfolio Lexington Emerging Markets Fund Lexington Natural Resources Trust Neuberger & Berman Advisers Management Trust: - Growth Portfolio Scudder Variable Life Investment Fund: - International Portfolio TCI Portfolios, Inc.: - TCI Growth b. OTHER Investment transactions are accounted for on a trade date basis and dividend income is recorded on the ex-dividend date. The cost of investments sold is determined by specific identification. c. FEDERAL INCOME TAXES The operations of Variable Annuity Account C form a part of, and are taxed with, the total operations of Aetna Life Insurance and Annuity Company ("Company") which is taxed as a life insurance company under the Internal Revenue Code of 1986, as amended. d. ANNUITY RESERVES Annuity reserves are computed for currently payable contracts according to the Progressive Annuity, Individual Annuity Mortality, and Group Annuity Mortality tables using various assumed interest rates not to exceed seven percent. Mortality experience is monitored by the Company. S-10 VARIABLE ANNUITY ACCOUNT C NOTES TO FINANCIAL STATEMENTS - December 31, 1995 (continued) Charges to annuity reserves for mortality and expense risk experience are reimbursed to the Company if the reserves required are less than originally estimated. If additional reserves are required, the Company reimburses the Account. 2. VALUATION PERIOD DEDUCTIONS Deductions by the Account for mortality and expense risk charges are made in accordance with the terms of the contracts and are paid to the Company. 3. DIVIDEND INCOME On an annual basis the Funds distribute substantially all of their taxable income and realized capital gains to their shareholders. Distributions to the Account are automatically reinvested in shares of the Funds. The Account's proportionate share of each Fund's undistributed net investment income and accumulated net realized gain on investments is included in net unrealized gain in the Statement of Operations. 4. PURCHASES AND SALES OF INVESTMENTS The cost of purchases and proceeds from sales of investments other than short-term investments for the year ended December 31, 1995 aggregated $1,658,682,532 and $570,154,582, respectively. 5. ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported therein. Although actual results could differ from these estimates, any such differences are expected to be immaterial to the net assets of the Account. S-11 VARIABLE ANNUITY ACCOUNT C CONDENSED FINANCIAL INFORMATION CHANGE IN VALUE OF ACCUMULATION UNIT - JANUARY 1, 1995 TO DECEMBER 31, 1995
- ------------------------------------------------------------------------------------------------------------------------- Increase Value at Value at in Value of Beginning End of Accumulation of Year Year Unit - ------------------------------------------------------------------------------------------------------------------------- AETNA VARIABLE FUND: Qualified I ............................................................. $138.406 $180.879 30.69% Qualified III ........................................................... 105.558 137.869 30.61% Qualified IV ............................................................ 63.884 83.646 30.93% Qualified V ............................................................. 10.823 14.113 30.40% Qualified VI ............................................................ 10.778 14.077 30.61% Qualified VII ........................................................... 10.136 13.247 30.69% Qualified VIII .......................................................... 10.011 13.074 30.60% Qualified IX ............................................................ 9.879 12.935 30.93% Qualified X (1.15) ...................................................... 10.791 14.108 30.74% Qualified X (1.25) ...................................................... 10.778 14.077 30.61% - ------------------------------------------------------------------------------------------------------------------------- AETNA INCOME SHARES: Qualified I ............................................................. $ 40.570 $ 47.405 16.85% Qualified III ........................................................... 40.173 46.913 16.78% Qualified V ............................................................. 10.536 12.283 16.59% Qualified VI ............................................................ 10.360 12.098 16.78% Qualified VII ........................................................... 9.565 11.176 16.85% Qualified VIII .......................................................... 9.543 11.143 16.77% Qualified IX ............................................................ 9.570 11.203 17.07% Qualified X (1.15) ...................................................... 10.373 12.125 16.89% Qualified X (1.25) ...................................................... 10.360 12.098 16.78% - ------------------------------------------------------------------------------------------------------------------------- AETNA VARIABLE ENCORE FUND: Qualified I ............................................................. $ 36.723 $ 38.485 4.80% Qualified III ........................................................... 36.271 37.988 4.73% Qualified V ............................................................. 10.523 11.003 4.57% Qualified VI ............................................................ 10.528 11.026 4.73% Qualified VII ........................................................... 10.435 10.936 4.80% Qualified VIII .......................................................... 10.141 10.620 4.73% Qualified IX ............................................................ 10.341 10.857 5.00% Qualified X (1.15) ...................................................... 10.541 11.051 4.84% Qualified X (1.25) ...................................................... 10.528 11.026 4.73% - ------------------------------------------------------------------------------------------------------------------------- AETNA INVESTMENT ADVISERS FUND, INC.: Qualified I ............................................................. $ 14.317 $ 18.024 25.89% Qualified III ........................................................... 14.270 17.954 25.82% Qualified V ............................................................. 10.900 13.693 25.62% Qualified VI ............................................................ 10.868 13.673 25.81% Qualified VII ........................................................... 10.434 13.135 25.89% Qualified VIII .......................................................... 10.091 12.695 25.81% Qualified IX ............................................................ 10.000 12.613 26.13% Qualified X (1.15) ...................................................... 10.880 13.703 25.95% Qualified X (1.25) ...................................................... 10.868 13.673 25.81% - -------------------------------------------------------------------------------------------------------------------------
S-12 VARIABLE ANNUITY ACCOUNT C CONDENSED FINANCIAL INFORMATION CHANGE IN VALUE OF ACCUMULATION UNIT - JANUARY 1, 1995 TO DECEMBER 31, 1995 (continued)
- ------------------------------------------------------------------------------------------------------------------------- Increase Value at Value at in Value of Beginning End of Accumulation of Year Year Unit - ------------------------------------------------------------------------------------------------------------------------- AETNA GET FUND, SERIES B: Qualified III ........................................................... $ 10.160 $ 12.850 26.48% Qualified VI ............................................................ 10.160 12.850 26.48% Qualified X (1.25) ...................................................... 10.160 12.850 26.48% - ------------------------------------------------------------------------------------------------------------------------- AETNA ASCENT VARIABLE PORTFOLIO: Qualified III ........................................................... $ 10.000 $ 10.673 6.73% (4) Qualified V ............................................................. 10.000 10.666 6.66% (5) Qualified VI ............................................................ 10.000 10.673 6.73% (5) Qualified VIII .......................................................... 10.000 10.673 6.73% (5) Qualified X (1.15) ...................................................... 10.000 10.982 9.82% (3) Qualified X (1.25) ...................................................... 10.000 10.976 9.76% (3) - ------------------------------------------------------------------------------------------------------------------------- AETNA CROSSROADS VARIABLE PORTFOLIO: Qualified V ............................................................. $ 10.000 $ 10.605 6.05% (5) Qualified VI ............................................................ 10.000 10.612 6.12% (5) Qualified VIII .......................................................... 10.000 10.611 6.11% (5) Qualified X (1.15) ...................................................... 10.000 10.868 8.68% (3) Qualified X (1.25) ...................................................... 10.000 10.862 8.62% (3) - ------------------------------------------------------------------------------------------------------------------------- AETNA LEGACY VARIABLE PORTFOLIO: Qualified VI ............................................................ $ 10.000 $ 10.580 5.80% (5) Qualified X (1.15) ...................................................... 10.000 10.631 6.31% (4) Qualified X (1.25) ...................................................... 10.000 10.626 6.26% (4) - ------------------------------------------------------------------------------------------------------------------------- ALGER AMERICAN FUNDS: ALGER AMERICAN GROWTH PORTFOLIO: Qualified III ........................................................... $ 10.000 $ 11.715 17.15% (4) Qualified V ............................................................. 10.000 10.365 3.65% (5) Qualified VI ............................................................ 10.000 10.157 1.57% (5) Qualified VIII .......................................................... 10.000 10.371 3.71% (5) Qualified X (1.15) ...................................................... 10.000 11.385 13.85% (3) Qualified X (1.25) ...................................................... 10.000 11.379 13.79% (3) - ------------------------------------------------------------------------------------------------------------------------- ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO: Qualified III ........................................................... $ 9.513 $ 13.558 42.52% Qualified V ............................................................. 9.461 13.463 42.29% Qualified VI ............................................................ 9.437 13.450 42.52% Qualified VIII .......................................................... 9.889 14.093 42.51% Qualified X (1.15) ...................................................... 9.450 13.481 42.66% Qualified X (1.25) ...................................................... 9.437 13.450 42.52% - ------------------------------------------------------------------------------------------------------------------------- CALVERT RESPONSIBLY INVESTED BALANCED PORTFOLIO: Qualified III ........................................................... $ 13.990 $ 17.951 28.31% Qualified V ............................................................. 10.839 13.870 27.96% Qualified VI ............................................................ 10.554 13.527 28.17% Qualified VIII .......................................................... 9.590 12.291 28.16% - -------------------------------------------------------------------------------------------------------------------------
S-13 VARIABLE ANNUITY ACCOUNT C CONDENSED FINANCIAL INFORMATION CHANGE IN VALUE OF ACCUMULATION UNIT - JANUARY 1, 1995 TO DECEMBER 31, 1995 (continued)
- ------------------------------------------------------------------------------------------------------------------------- Increase (Decrease) Value at Value at in Value of Beginning End of Accumulation of Year Year Unit - ------------------------------------------------------------------------------------------------------------------------- FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUNDS: EQUITY - INCOME PORTFOLIO: Qualified III ........................................................... $ 10.000 $ 11.617 16.17% (2) Qualified V ............................................................. 10.000 11.047 10.47% (5) Qualified VI ............................................................ 10.000 11.092 10.92% (5) Qualified VIII .......................................................... 10.000 11.054 10.54% (5) Qualified X (1.15) ...................................................... 10.409 13.902 33.55% Qualified X (1.25) ...................................................... 10.403 13.880 33.42% - ------------------------------------------------------------------------------------------------------------------------- GROWTH PORTFOLIO: Qualified III ........................................................... $ 10.000 $ 10.198 1.98% (4) Qualified V ............................................................. 10.000 10.183 1.83% (5) Qualified VI ............................................................ 10.000 10.066 0.66% (5) Qualified VIII .......................................................... 10.000 10.190 1.90% (5) Qualified X (1.15) ...................................................... 10.479 14.023 33.82% Qualified X (1.25) ...................................................... 10.472 14.000 33.69% - ------------------------------------------------------------------------------------------------------------------------- OVERSEAS PORTFOLIO: Qualified III ........................................................... $ 10.000 $ 10.197 1.97% (4) Qualified V ............................................................. 10.000 9.954 (0.46%) (5) Qualified VI ............................................................ 10.000 9.961 (0.39%) (5) Qualified X (1.15) ...................................................... 9.480 10.278 8.43% Qualified X (1.25) ...................................................... 9.474 10.262 8.32% - ------------------------------------------------------------------------------------------------------------------------- FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUNDS II: ASSET MANAGER PORTFOLIO: Qualified III ........................................................... $ 9.447 $ 10.912 15.51% - ------------------------------------------------------------------------------------------------------------------------- CONTRAFUND PORTFOLIO: Qualified III ........................................................... $ 10.000 $ 11.763 17.63% (2) Qualified V ............................................................. 10.000 10.461 4.61% (5) Qualified VI ............................................................ 10.000 10.397 3.97% (5) Qualified VIII .......................................................... 10.000 10.467 4.67% (5) Qualified X (1.15) ...................................................... 10.000 10.689 6.89% (2) Qualified X (1.25) ...................................................... 10.000 10.681 6.81% (2) - ------------------------------------------------------------------------------------------------------------------------- INDEX 500 PORTFOLIO: Qualified III ........................................................... $ 10.000 $ 11.740 17.40% (2) - ------------------------------------------------------------------------------------------------------------------------- FRANKLIN GOVERNMENT SECURITIES TRUST: Qualified III ........................................................... $ 14.190 $ 16.495 16.24% Qualified V ............................................................. 10.294 11.946 16.06% Qualified VI ............................................................ 10.119 11.762 16.24% Qualified VIII .......................................................... 9.541 11.090 16.23% - ------------------------------------------------------------------------------------------------------------------------- JANUS ASPEN SERIES: AGGRESSIVE GROWTH PORTFOLIO: Qualified III ........................................................... $ 12.169 $ 15.323 25.91% Qualified V ............................................................. 10.577 13.296 25.71% - -------------------------------------------------------------------------------------------------------------------------
S-14 VARIABLE ANNUITY ACCOUNT C CONDENSED FINANCIAL INFORMATION CHANGE IN VALUE OF ACCUMULATION UNIT - JANUARY 1, 1995 TO DECEMBER 31, 1995 (continued)
- ------------------------------------------------------------------------------------------------------------------------- Increase (Decrease) Value at Value at in Value of Beginning End of Accumulation of Year Year Unit - ------------------------------------------------------------------------------------------------------------------------- JANUS ASPEN SERIES: AGGRESSIVE GROWTH PORTFOLIO (continued): Qualified VI ............................................................ $ 10.581 $ 13.322 25.91% Qualified VIII .......................................................... 10.581 13.321 25.90% Qualified X (1.15) ...................................................... 10.000 12.869 28.69% (2) Qualified X (1.25) ...................................................... 10.000 12.861 28.61% (2) - ------------------------------------------------------------------------------------------------------------------------- BALANCED PORTFOLIO: Qualified III ........................................................... $ 10.000 $ 10.853 8.53% (4) Qualified V ............................................................. 10.000 10.843 8.43% (5) Qualified VI ............................................................ 10.000 10.850 8.50% (5) Qualified X (1.15) ...................................................... 10.000 11.265 12.65% (3) Qualified X (1.25) ...................................................... 10.000 11.259 12.59% (3) - ------------------------------------------------------------------------------------------------------------------------- FLEXIBLE INCOME PORTFOLIO: Qualified III ........................................................... $ 9.911 $ 12.124 22.33% Qualified V ............................................................. 10.000 12.054 20.54% (1) Qualified VI ............................................................ 9.873 12.077 22.33% - ------------------------------------------------------------------------------------------------------------------------- GROWTH PORTFOLIO: Qualified III ........................................................... $ 10.000 $ 11.859 18.59% (4) Qualified V ............................................................. 10.000 10.872 8.72% (5) Qualified VI ............................................................ 10.000 10.870 8.70% (5) Qualified X (1.15) ...................................................... 10.000 11.633 16.33% (3) Qualified X (1.25) ...................................................... 10.000 11.626 16.26% (3) - ------------------------------------------------------------------------------------------------------------------------- SHORT TERM BOND PORTFOLIO: Qualified III ........................................................... $ 10.000 $ 10.393 3.93% (4) Qualified V ............................................................. 10.000 10.316 3.16% (5) Qualified VI ............................................................ 10.000 10.323 3.23% (5) Qualified X (1.25) ...................................................... 10.000 10.285 2.85% (4) - ------------------------------------------------------------------------------------------------------------------------- WORLDWIDE GROWTH PORTFOLIO: Qualified III ........................................................... $ 10.000 $ 12.158 21.58% (4) Qualified V ............................................................. 10.000 10.952 9.52% (4) Qualified VI ............................................................ 10.000 10.877 8.77% (5) Qualified VIII .......................................................... 10.000 10.846 8.46% (5) Qualified X (1.15) ...................................................... 10.000 12.223 22.23% (2) Qualified X (1.25) ...................................................... 10.000 12.216 22.16% (2) - ------------------------------------------------------------------------------------------------------------------------- LEXINGTON EMERGING MARKETS FUND: Qualified III ........................................................... $ 8.772 $ 8.323 (5.12%) - ------------------------------------------------------------------------------------------------------------------------- LEXINGTON NATURAL RESOURCES TRUST: Qualified III ........................................................... $ 9.412 $ 10.862 15.41% Qualified V ............................................................. 10.496 12.095 15.24% Qualified VI ............................................................ 10.154 11.720 15.42% - -------------------------------------------------------------------------------------------------------------------------
S-15 VARIABLE ANNUITY ACCOUNT C CONDENSED FINANCIAL INFORMATION CHANGE IN VALUE OF ACCUMULATION UNIT - JANUARY 1, 1995 TO DECEMBER 31, 1995 (continued)
- -------------------------------------------------------------------------------------------------------------------------- Increase Value at Value at in Value of Beginning End of Accumulation of Year Year Unit - -------------------------------------------------------------------------------------------------------------------------- NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST - GROWTH PORTFOLIO: Qualified III ........................................................... $ 13.398 $ 17.430 30.09% Qualified V ............................................................. 11.055 14.359 29.89% Qualified VI ............................................................ 11.026 14.345 30.10% Qualified VIII .......................................................... 9.482 12.334 30.09% - -------------------------------------------------------------------------------------------------------------------------- SCUDDER VARIABLE LIFE INVESTMENT FUND - INTERNATIONAL PORTFOLIO: Qualified III ........................................................... $ 13.227 $ 14.515 9.74% Qualified V ............................................................. 12.595 13.799 9.56% Qualified VI ............................................................ 12.687 13.923 9.74% Qualified VIII .......................................................... 10.692 11.733 9.73% Qualified X (1.15) ...................................................... 12.701 13.952 9.85% Qualified X (1.25) ...................................................... 12.687 13.923 9.74% - -------------------------------------------------------------------------------------------------------------------------- TCI PORTFOLIOS, INC.: TCI GROWTH: Qualified III* .......................................................... $ 11.172 $ 14.464 29.47% Qualified III ........................................................... 10.213 13.224 29.47% Qualified V ............................................................. 11.740 15.176 29.27% Qualified VI ............................................................ 11.781 15.253 29.47% Qualified VII ........................................................... 9.911 12.840 29.55% Qualified VIII .......................................................... 9.939 12.868 29.46% Qualified IX ............................................................ 9.693 12.581 29.80% Qualified X (1.15) ...................................................... 11.794 15.285 29.60% Qualified X (1.25) ...................................................... 11.781 15.253 29.47% - --------------------------------------------------------------------------------------------------------------------------
*Applies only to participants of the Opportunity Plus program and Multiple Options Contracts. QUALIFIED I Individual contracts issued prior to May 1, 1975 in connection with "Qualified Corporate Retirement Plans" established pursuant to Section 401 of the Internal Revenue Code ("Code"); "Tax-Deferred Annuity Plans" established by the public school systems and tax-exempt organizations pursuant to Section 403(b) of the Code, and certain Individual Retirement Annuity Plans established by or on behalf of individuals pursuant to section 408(b) of the Code; Individual contracts issued prior to November 1, 1975 in connection with "H.R. 10 Plans" established by persons entitled to the benefits of the Self-Employed Individuals Tax Retirement Act of 1962, as amended; allocated group contracts issued prior to May 1, 1975 in connection with Qualified Corporate Retirement Plans; and group contracts issued prior to October 1, 1978 in connection with Tax-Deferred Annuity Plans. QUALIFIED III Individual contracts issued in connection with Tax-Deferred Annuity Plans and Individual Retirement Annuity Plans since May 1, 1975, H.R. 10 Plans since November 1, 1975; group contracts issued since October 1, 1978 in connection with Tax-Deferred Annuity S-16 VARIABLE ANNUITY ACCOUNT C CONDENSED FINANCIAL INFORMATION CHANGE IN VALUE OF ACCUMULATION UNIT - JANUARY 1, 1995 TO DECEMBER 31, 1995 (continued) - -------------------------------------------------------------------------------- QUALIFIED III (continued): Plans and group contracts issued since May 1, 1979 in connection with "Deferred Compensation Plans" adopted by state and local governments and H.R. 10 Plans. QUALIFIED IV Certain large group contracts (Jumbo) issued in connection with Tax-Deferred Annuity Plans and Deferred Compensation Plans issued since January 1, 1979. QUALIFIED V Group AetnaPlus contracts issued since August 28, 1992 in connection with "Optional Retirement Plans" established pursuant to Section 403(b) or 401(a) of the Internal Revenue Code. QUALIFIED VI Group AetnaPlus contracts issued in connection with Tax-Deferred Annuity Plans and Retirement Plus Plans since August 28, 1992. QUALIFIED VII Certain existing contracts that were converted to ACES, the new administrative system (Previously valued under Qualified I). QUALIFIED VIII "Group Aetna Plus" contracts issued in connection with Tax-Deferred Annuity Plans and "Deferred Compensation Plans" adopted by state and local governments since June 30, 1993. QUALIFIED IX Certain large group contracts (Jumbo) that were converted to ACES, the new administrative system (previously valued under Qualified VI). QUALIFIED X Individual Retirement Annuity and Simplified Employee Pension Plans issued or converted to ACES, the new administrative system. 1 - Reflects less than a full year of performance activity. The initial Accumulation Unit Value was established at $10.000 during March 1995 when the fund became available under the contract or the applicable daily asset charge was first utilized. 2 - Reflects less than a full year of performance activity. The initial Accumulation Unit Value was established at $10.000 during May 1995 when the fund became available under the contract or the applicable daily asset charge was first utilized. 3 - Reflects less than a full year of performance activity. The initial Accumulation Unit Value was established at $10.000 during June 1995 when the fund became available under the contract or the applicable daily asset charge was first utilized. 4 - Reflects less than a full year of performance activity. The initial Accumulation Unit Value was established at $10.000 during July 1995 when the fund became available under the contract or the applicable daily asset charge was first utilized. 5 - Reflects less than a full year of performance activity. The initial Accumulation Unit Value was established at $10.000 during August 1995 when the fund became available under the contract or the applicable daily asset charge was first utilized. S-17 CONSOLIDATED FINANCIAL STATEMENTS AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES Index
PAGE --- Independent Auditors' Report..................................... F-2 Consolidated Financial Statements: Consolidated Statements of Income for the Years Ended December 31, 1995, 1994 and 1993.............................. F-3 Consolidated Balance Sheets as of December 31, 1995 and 1994... F-4 Consolidated Statements of Changes in Shareholder's Equity for the Years Ended December 31, 1995, 1994 and 1993.............................. F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993.............................. F-6 Notes to Consolidated Financial Statements....................... F-7
F-1 INDEPENDENT AUDITORS' REPORT The Shareholder and Board of Directors Aetna Life Insurance and Annuity Company: We have audited the accompanying consolidated balance sheets of Aetna Life Insurance and Annuity Company and Subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, changes in shareholder's equity and cash flows for each of the years in the three-year period ended December 31, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Aetna Life Insurance and Annuity Company and Subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, in 1993 the Company changed its methods of accounting for certain investments in debt and equity securities. KPMG Peat Marwick LLP Hartford, Connecticut February 6, 1996 F-2 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Consolidated Statements of Income (millions)
YEARS ENDED DECEMBER 31, ---------------------------- 1995 1994 1993 -------- -------- -------- Revenue: Premiums............................................. $ 130.8 $ 124.2 $ 82.1 Charges assessed against policyholders............... 318.9 279.0 251.5 Net investment income................................ 1,004.3 917.2 911.9 Net realized capital gains........................... 41.3 1.5 9.5 Other income......................................... 42.0 10.3 9.5 -------- -------- -------- Total revenue...................................... 1,537.3 1,332.2 1,264.5 -------- -------- -------- Benefits and expenses: Current and future benefits.......................... 915.3 854.1 818.4 Operating expenses................................... 318.7 235.2 207.2 Amortization of deferred policy acquisition costs.... 43.3 26.4 19.8 -------- -------- -------- Total benefits and expenses........................ 1,277.3 1,115.7 1,045.4 -------- -------- -------- Income before federal income taxes..................... 260.0 216.5 219.1 Federal income taxes................................. 84.1 71.2 76.2 -------- -------- -------- Net income............................................. $ 175.9 $ 145.3 $ 142.9 -------- -------- -------- -------- -------- --------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-3 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Consolidated Balance Sheets (millions)
DECEMBER 31, -------------------- 1995 1994 --------- --------- ASSETS - ------------------------------------------------------- Investments: Debt securities, available for sale: (amortized cost: $11,923.7 and $10,577.8)........... $12,720.8 $10,191.4 Equity securities, available for sale: Non-redeemable preferred stock (cost: $51.3 and $43.3)............................................ 57.6 47.2 Investment in affiliated mutual funds (cost: $173.4 and $187.1)....................................... 191.8 181.9 Common stock (cost: $6.9 at December 31, 1995)..... 8.2 -- Short-term investments............................... 15.1 98.0 Mortgage loans....................................... 21.2 9.9 Policy loans......................................... 338.6 248.7 Limited partnership.................................. -- 24.4 --------- --------- Total investments................................ 13,353.3 10,801.5 Cash and cash equivalents.............................. 568.8 623.3 Accrued investment income.............................. 175.5 142.2 Premiums due and other receivables..................... 37.3 75.8 Deferred policy acquisition costs...................... 1,341.3 1,164.3 Reinsurance loan to affiliate.......................... 655.5 690.3 Other assets........................................... 26.2 15.9 Separate Accounts assets............................... 10,987.0 7,420.8 --------- --------- Total assets..................................... $27,144.9 $20,934.1 --------- --------- --------- --------- LIABILITIES AND SHAREHOLDER'S EQUITY - ------------------------------------------------------- Liabilities: Future policy benefits............................... $ 3,594.6 $ 2,912.7 Unpaid claims and claim expenses..................... 27.2 23.8 Policyholders' funds left with the Company........... 10,500.1 8,949.3 --------- --------- Total insurance reserve liabilities.............. 14,121.9 11,885.8 Other liabilities.................................... 259.2 302.1 Federal income taxes: Current............................................ 24.2 3.4 Deferred........................................... 169.6 233.5 Separate Accounts liabilities........................ 10,987.0 7,420.8 --------- --------- Total liabilities................................ 25,561.9 19,845.6 --------- --------- --------- --------- Shareholder's equity: Common stock, par value $50 (100,000 shares authorized; 55,000 shares issued and outstanding)............... 2.8 2.8 Paid-in capital...................................... 407.6 407.6 Net unrealized capital gains (losses)................ 132.5 (189.0) Retained earnings.................................... 1,040.1 867.1 --------- --------- Total shareholder's equity....................... 1,583.0 1,088.5 --------- --------- Total liabilities and shareholder's equity..... $27,144.9 $20,934.1 --------- --------- --------- ---------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-4 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Consolidated Statements of Changes in Shareholder's Equity (millions)
YEARS ENDED DECEMBER 31, -------------------------------- 1995 1994 1993 --------- --------- --------- Shareholder's equity, beginning of year................ $ 1,088.5 $ 1,246.7 $ 990.1 Net change in unrealized capital gains (losses)........ 321.5 (303.5) 113.7 Net income............................................. 175.9 145.3 142.9 Common stock dividends declared........................ (2.9) -- -- --------- --------- --------- Shareholder's equity, end of year...................... $ 1,583.0 $ 1,088.5 $ 1,246.7 --------- --------- --------- --------- --------- ---------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-5 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Consolidated Statements of Cash Flows (millions)
YEARS ENDED DECEMBER 31, ------------------------------------ 1995 1994 1993 ---------- ---------- ---------- Cash Flows from Operating Activities: Net income........................................... $ 175.9 $ 145.3 $ 142.9 Adjustments to reconcile net income to net cash provided by operating activities: Increase in accrued investment income.............. (33.3) (17.5) (11.1) Decrease (increase) in premiums due and other receivables....................................... 25.4 1.3 (5.6) Increase in policy loans........................... (89.9) (46.0) (36.4) Increase in deferred policy acquisition costs...... (177.0) (105.9) (60.5) Decrease in reinsurance loan to affiliate.......... 34.8 27.8 31.8 Net increase in universal life account balances.... 393.4 164.7 126.4 Increase in other insurance reserve liabilities.... 79.0 75.1 86.1 Net increase in other liabilities and other assets............................................ 15.0 53.9 7.0 Decrease in federal income taxes................... (6.5) (11.7) (3.7) Net accretion of discount on bonds................. (66.4) (77.9) (88.1) Net realized capital gains......................... (41.3) (1.5) (9.5) Other, net......................................... -- (1.0) 0.2 ---------- ---------- ---------- Net cash provided by operating activities........ 309.1 206.6 179.5 ---------- ---------- ---------- Cash Flows from Investing Activities: Proceeds from sales of: Debt securities available for sale................. 4,207.2 3,593.8 473.9 Equity securities.................................. 180.8 93.1 89.6 Mortgage loans..................................... 10.7 -- -- Limited partnership................................ 26.6 -- -- Investment maturities and collections of: Debt securities available for sale................. 583.9 1,289.2 2,133.3 Short-term investments............................. 106.1 30.4 19.7 Cost of investment purchases in: Debt securities.................................... (6,034.0) (5,621.4) (3,669.2) Equity securities.................................. (170.9) (162.5) (157.5) Short-term investments............................. (24.7) (106.1) (41.3) Mortgage loans..................................... (21.3) -- -- Limited partnership................................ -- (25.0) -- ---------- ---------- ---------- Net cash used for investing activities........... (1,135.6) (908.5) (1,151.5) ---------- ---------- ---------- Cash Flows from Financing Activities: Deposits and interest credited for investment contracts........................................... 1,884.5 1,737.8 2,117.8 Withdrawals of investment contracts.................. (1,109.6) (948.7) (1,000.3) Dividends paid to shareholder........................ (2.9) -- -- ---------- ---------- ---------- Net cash provided by financing activities........ 772.0 789.1 1,117.5 ---------- ---------- ---------- Net (decrease) increase in cash and cash equivalents... (54.5) 87.2 145.5 Cash and cash equivalents, beginning of year........... 623.3 536.1 390.6 ---------- ---------- ---------- Cash and cash equivalents, end of year................. $ 568.8 $ 623.3 $ 536.1 ---------- ---------- ---------- ---------- ---------- ---------- Supplemental cash flow information: Income taxes paid, net............................... $ 90.2 $ 82.6 $ 79.9 ---------- ---------- ---------- ---------- ---------- ----------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-6 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements December 31, 1995, 1994, and 1993 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Aetna Life Insurance and Annuity Company and its wholly owned subsidiaries (collectively, the "Company") is a provider of financial services and life insurance products in the United States. The Company has two business segments, financial services and life insurance. The financial services products include individual and group annuity contracts which offer a variety of funding and distribution options for personal and employer-sponsored retirement plans that qualify under Internal Revenue Code Sections 401, 403, 408 and 457, and individual and group non-qualified annuity contracts. These contracts may be immediate or deferred and are offered primarily to individuals, pension plans, small businesses and employer-sponsored groups in the health care, government, education (collectively "not-for-profit" organizations) and corporate markets. Financial services also include pension plan administrative services. The life insurance products include universal life, variable universal life, interest sensitive whole life and term insurance. These products are offered primarily to individuals, small businesses, employer sponsored groups and executives of Fortune 2000 companies. BASIS OF PRESENTATION The consolidated financial statements include Aetna Life Insurance and Annuity Company and its wholly owned subsidiaries, Aetna Insurance Company of America and Aetna Private Capital, Inc. Aetna Life Insurance and Annuity Company is a wholly owned subsidiary of Aetna Retirement Services, Inc. ("ARSI"). ARSI is a wholly owned subsidiary of Aetna Life and Casualty Company ("Aetna"). Two subsidiaries, Systematized Benefits Administrators, Inc. ("SBA"), and Aetna Investment Services, Inc. ("AISI"), which were previously reported in the consolidated financial statements were distributed in the form of dividends to ARSI in December of 1995. The impact to the Company's financial statements of distributing these dividends was immaterial. The consolidated financial statements have been prepared in conformity with generally accepted accounting principles. Intercompany transactions have been eliminated. Certain reclassifications have been made to 1994 and 1993 financial information to conform to the 1995 presentation. ACCOUNTING CHANGES Accounting for Certain Investments in Debt and Equity Securities On December 31, 1993, the Company adopted Financial Accounting Standard ("FAS") No. 115, Accounting for Certain Investments in Debt and Equity Securities, which requires the classification of debt securities into three categories: "held to maturity", which are carried at amortized cost; "available for sale", which are carried at fair value with changes in fair value recognized as a component of shareholder's equity; and "trading", which are carried at fair value with immediate recognition in income of changes in fair value. Initial adoption of this standard resulted in a net increase of $106.8 million, net of taxes of $57.5 million, to net unrealized gains in shareholder's equity. These amounts exclude gains and losses allocable to experience-rated (including universal life) contractholders. Adoption of FAS No. 115 did not have a material effect on deferred policy acquisition costs. F-7 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (continued) December 31, 1995, 1994, and 1993 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from reported results using those estimates. CASH AND CASH EQUIVALENT Cash and cash equivalents include cash on hand, money market instruments and other debt issues with a maturity of ninety days or less when purchased. INVESTMENTS Debt Securities At December 31, 1995 and 1994, all of the Company's debt securities are classified as available for sale and carried at fair value. These securities are written down (as realized losses) for other than temporary decline in value. Unrealized gains and losses related to these securities, after deducting amounts allocable to experience-rated contractholders and related taxes, are reflected in shareholder's equity. Fair values for debt securities are based on quoted market prices or dealer quotations. Where quoted market prices or dealer quotations are not available, fair values are measured utilizing quoted market prices for similar securities or by using discounted cash flow methods. Cost for mortgage-backed securities is adjusted for unamortized premiums and discounts, which are amortized using the interest method over the estimated remaining term of the securities, adjusted for anticipated prepayments. Purchases and sales of debt securities are recorded on the trade date. Equity Securities Equity securities are classified as available for sale and carried at fair value based on quoted market prices or dealer quotations. Equity securities are written down (as realized losses) for other than temporary declines in value. Unrealized gains and losses related to such securities are reflected in shareholder's equity. Purchases and sales are recorded on the trade date. The investment in affiliated mutual funds represents an investment in the Aetna Series Fund, Inc., a retail mutual fund which has been seeded by the Company, and is carried at fair value. Mortgage Loans and Policy Loans Mortgage loans and policy loans are carried at unpaid principal balances net of valuation reserves, which approximates fair value, and are generally secured. Purchases and sales of mortgage loans are recorded on the closing date. F-8 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (continued) December 31, 1995, 1994, and 1993 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Limited Partnership The Company's limited partnership investment was carried at the amount invested plus the Company's share of undistributed operating results and unrealized gains (losses), which approximates fair value. The Company disposed of the limited partnership during 1995. Short-Term Investments Short-term investments, consisting primarily of money market instruments and other debt issues purchased with an original maturity of over ninety days and less than one year, are considered available for sale and are carried at fair value, which approximates amortized cost. DEFERRED POLICY ACQUISITION COSTS Certain costs of acquiring insurance business have been deferred. These costs, all of which vary with and are primarily related to the production of new business, consist principally of commissions, certain expenses of underwriting and issuing contracts and certain agency expenses. For fixed ordinary life contracts, such costs are amortized over expected premium-paying periods. For universal life and certain annuity contracts, such costs are amortized in proportion to estimated gross profits and adjusted to reflect actual gross profits. These costs are amortized over twenty years for annuity pension contracts, and over the contract period for universal life contracts. Deferred policy acquisition costs are written off to the extent that it is determined that future policy premiums and investment income or gross profits would not be adequate to cover related losses and expenses. INSURANCE RESERVE LIABILITIES The Company's liabilities include reserves related to fixed ordinary life, fixed universal life and fixed annuity contracts. Reserves for future policy benefits for fixed ordinary life contracts are computed on the basis of assumed investment yield, assumed mortality, withdrawals and expenses, including a margin for adverse deviation, which generally vary by plan, year of issue and policy duration. Reserve interest rates range from 2.25% to 10.00%. Assumed investment yield is based on the Company's experience. Mortality and withdrawal rate assumptions are based on relevant Aetna experience and are periodically reviewed against both industry standards and experience. Reserves for fixed universal life (included in Future Policy Benefits) and fixed deferred annuity contracts (included in Policyholders' Funds Left With the Company) are equal to the fund value. The fund value is equal to cumulative deposits less charges plus credited interest thereon, without reduction for possible future penalties assessed on premature withdrawal. For guaranteed interest options, the interest credited ranged from 4.00% to 6.38% in 1995 and 4.00% to 5.85% in 1994. For all other fixed options, the interest credited ranged from 5.00% to 7.00% in 1995 and 5.00% to 7.50% in 1994. Reserves for fixed annuity contracts in the annuity period and for future amounts due under settlement options are computed actuarially using the 1971 Individual Annuity Mortality Table, the 1983 Individual Annuity Mortality Table, the F-9 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (continued) December 31, 1995, 1994, and 1993 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 1983 Group Annuity Mortality Table and, in some cases, mortality improvement according to scales G and H, at assumed interest rates ranging from 3.5% to 9.5%. Reserves relating to contracts with life contingencies are included in Future Policy Benefits. For other contracts, the reserves are reflected in Policyholders' Funds Left With the Company. Unpaid claims for all lines of insurance include benefits for reported losses and estimates of benefits for losses incurred but not reported. PREMIUMS, CHARGES ASSESSED AGAINST POLICYHOLDERS, BENEFITS AND EXPENSES Premiums are recorded as revenue when due for fixed ordinary life contracts. Charges assessed against policyholders' funds for cost of insurance, surrender charges, actuarial margin and other fees are recorded as revenue for universal life and certain annuity contracts. Policy benefits and expenses are recorded in relation to the associated premiums or gross profit so as to result in recognition of profits over the expected lives of the contracts. SEPARATE ACCOUNTS Assets held under variable universal life, variable life and variable annuity contracts are segregated in Separate Accounts and are invested, as designated by the contractholder or participant under a contract, in shares of Aetna Variable Fund, Aetna Income Shares, Aetna Variable Encore Fund, Aetna Investment Advisers Fund, Inc., Aetna GET Fund, or The Aetna Series Fund Inc., which are managed by the Company or other selected mutual funds not managed by the Company. Separate Accounts assets and liabilities are carried at fair value except for those relating to a guaranteed interest option which is offered through a Separate Account. The assets of the Separate Account supporting the guaranteed interest option are carried at an amortized cost of $322.2 million for 1995 (fair value $343.9 million) and $149.7 million for 1994 (fair value $146.3 million), since the Company bears the investment risk where the contract is held to maturity. Reserves relating to the guaranteed interest option are maintained at fund value and reflect interest credited at rates ranging from 4.5% to 8.38% in both 1995 and 1994. Separate Accounts assets and liabilities are shown as separate captions in the Consolidated Balance Sheets. Deposits, investment income and net realized and unrealized capital gains (losses) of the Separate Accounts are not reflected in the Consolidated Statements of Income (with the exception of realized capital gains (losses) on the sale of assets supporting the guaranteed interest option). The Consolidated Statements of Cash Flows do not reflect investment activity of the Separate Accounts. FEDERAL INCOME TAXES The Company is included in the consolidated federal income tax return of Aetna. The Company is taxed at regular corporate rates after adjusting income reported for financial statement purposes for certain items. Deferred income tax benefits result from changes during the year in cumulative temporary differences between the tax basis and book basis of assets and liabilities. F-10 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (continued) December 31, 1995, 1994, and 1993 2. INVESTMENTS Investments in debt securities available for sale as of December 31, 1995 were as follows:
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE --------- ---------- ---------- --------- (MILLIONS) U.S. Treasury securities and obligations of U.S. government agencies and corporations... $ 539.5 $ 47.5 $ -- $ 587.0 Obligations of states and political subdivisions................................ 41.4 12.4 -- 53.8 U.S. Corporate securities: Financial.................................. 2,764.4 110.3 2.1 2,872.6 Utilities.................................. 454.4 27.8 1.0 481.2 Other...................................... 2,177.7 159.5 1.2 2,336.0 --------- ---------- ----- --------- Total U.S. Corporate securities............ 5,396.5 297.6 4.3 5,689.8 Foreign securities: Government................................. 316.4 26.1 2.0 340.5 Financial.................................. 534.2 45.4 3.5 576.1 Utilities.................................. 236.3 32.9 -- 269.2 Other...................................... 215.7 15.1 -- 230.8 --------- ---------- ----- --------- Total Foreign securities................... 1,302.6 119.5 5.5 1,416.6 Residential mortgage-backed securities: Residential pass-throughs.................. 556.7 99.2 1.8 654.1 Residential CMOs........................... 2,383.9 167.6 2.2 2,549.3 --------- ---------- ----- --------- Total Residential mortgage-backed securities................................ 2,940.6 266.8 4.0 3,203.4 Commercial/Multifamily mortgage-backed securities.................................. 741.9 32.3 0.2 774.0 --------- ---------- ----- --------- Total Mortgage-backed securities........... 3,682.5 299.1 4.2 3,977.4 Other asset-backed securities................ 961.2 35.5 0.5 996.2 --------- ---------- ----- --------- Total debt securities available for sale..... $11,923.7 $811.6 $14.5 $12,720.8 --------- ---------- ----- --------- --------- ---------- ----- ---------
F-11 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (continued) December 31, 1995, 1994, and 1993 2. INVESTMENTS (CONTINUED) Investments in debt securities available for sale as of December 31, 1994 were as follows:
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE --------- ---------- ---------- --------- (MILLIONS) U.S. Treasury securities and obligations of U.S. government agencies and corporations... $ 1,396.1 $ 2.0 $ 84.2 $ 1,313.9 Obligations of states and political subdivisions................................ 37.9 1.2 -- 39.1 U.S. Corporate securities: Financial.................................. 2,216.9 3.8 109.4 2,111.3 Utilities.................................. 100.1 -- 7.9 92.2 Other...................................... 1,344.3 6.0 67.9 1,282.4 --------- ---------- ---------- --------- Total U.S. Corporate securities............ 3,661.3 9.8 185.2 3,485.9 Foreign securities: Government................................. 434.4 1.2 33.9 401.7 Financial.................................. 368.2 1.1 23.0 346.3 Utilities.................................. 204.4 2.5 9.5 197.4 Other...................................... 46.3 0.8 1.5 45.6 --------- ---------- ---------- --------- Total Foreign securities................... 1,053.3 5.6 67.9 991.0 Residential mortgage-backed securities: Residential pass-throughs.................. 627.1 81.5 5.0 703.6 Residential CMOs........................... 2,671.0 32.9 139.4 2,564.5 --------- ---------- ---------- --------- Total Residential mortgage-backed securities.................................. 3,298.1 114.4 144.4 3,268.1 Commercial/Multifamily mortgage-backed securities.................................. 435.0 0.2 21.3 413.9 --------- ---------- ---------- --------- Total Mortgage-backed securities............. 3,733.1 114.6 165.7 3,682.0 Other asset-backed securities................ 696.1 0.2 16.8 679.5 --------- ---------- ---------- --------- Total debt securities available for sale..... $10,577.8 $133.4 $519.8 $10,191.4 --------- ---------- ---------- --------- --------- ---------- ---------- ---------
At December 31, 1995 and 1994, net unrealized appreciation (depreciation) of $797.1 million and $(386.4) million, respectively, on available for sale debt securities included $619.1 million and $(308.6) million, respectively, related to experience-rated contractholders, which were not included in shareholder's equity. F-12 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (continued) December 31, 1995, 1994, and 1993 2. INVESTMENTS (CONTINUED) The amortized cost and fair value of debt securities for the year ended December 31, 1995 are shown below by contractual maturity. Actual maturities may differ from contractual maturities because securities may be restructured, called, or prepaid.
AMORTIZED FAIR COST VALUE --------- --------- (MILLIONS) Due to mature: One year or less..................................... $ 348.8 $ 351.1 After one year through five years.................... 2,100.2 2,159.5 After five years through ten years................... 2,516.0 2,663.4 After ten years...................................... 2,315.0 2,573.2 Mortgage-backed securities........................... 3,682.5 3,977.4 Other asset-backed securities........................ 961.2 996.2 --------- --------- Total................................................ $11,923.7 $12,720.8 --------- --------- --------- ---------
The Company engages in securities lending whereby certain securities from its portfolio are loaned to other institutions for short periods of time. Cash collateral, which is in excess of the market value of the loaned securities, is deposited by the borrower with a lending agent, and retained and invested by the lending agent to generate additional income for the Company. The market value of the loaned securities is monitored on a daily basis with additional collateral obtained or refunded as the market value fluctuates. At December 31, 1995, the Company had loaned securities (which are reflected as invested assets on the Consolidated Balance Sheets) with a market value of approximately $264.5 million. At December 31, 1995 and 1994, debt securities carried at $7.4 million and $7.0 million, respectively, were on deposit as required by regulatory authorities. The valuation reserve for mortgage loans was $3.1 million at December 31, 1994. There was no valuation reserve for mortgage loans at December 31, 1995. The carrying value of non-income producing investments was $0.1 million and $0.2 million at December 31, 1995 and 1994, respectively. F-13 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (continued) December 31, 1995, 1994, and 1993 2. INVESTMENTS (CONTINUED) Investments in a single issuer, other than obligations of the U.S. government, with a carrying value in excess of 10% of the Company's shareholder's equity at December 31, 1995 are as follows:
AMORTIZED DEBT SECURITIES COST FAIR VALUE ---------- ---------- (MILLIONS) General Electric Corporation........................... $ 314.9 $ 329.3 General Motors Corporation............................. 273.9 284.5 Associates Corporation of North America................ 230.2 239.1 Society National Bank.................................. 203.5 222.3 Ciesco, L.P............................................ 194.9 194.9 Countrywide Funding.................................... 171.2 172.7 Baxter International................................... 168.9 168.9 Time Warner............................................ 158.6 166.1 Ford Motor Company..................................... 156.7 162.6
The portfolio of debt securities at December 31, 1995 and 1994 included $662.5 million and $318.3 million, respectively, (5% and 3%, respectively, of the debt securities) of investments that are considered "below investment grade". "Below investment grade" securities are defined to be securities that carry a rating below BBB-/Baa3, by Standard & Poors/ Moody's Investor Services, respectively. The increase in below investment grade securities is the result of a change in investment strategy, which has reduced the Company's holdings in residential mortgage-back securities and increased the Company's holdings in corporate securities. Residential mortgage-back securities are subject to higher prepayment risk and lower credit risk, while corporate securities earning a comparable yield are subject to higher credit risk and lower prepayment risk. We expect the percentage of below investment grade securities will increase in 1996, but we expect that the overall average quality of the portfolio of debt securities will remain at AA-. Of these below investment grade assets, $14.5 million and $31.8 million, at December 31, 1995 and 1994, respectively, were investments that were purchased at investment grade, but whose ratings have since been downgraded. Included in residential mortgage-back securities are collateralized mortgage obligations ("CMOs") with carrying values of $2.5 billion and $2.6 billion at December 31, 1995 and 1994, respectively. The principal risks inherent in holding CMOs are prepayment and extension risks related to dramatic decreases and increases in interest rates whereby the CMOs would be subject to repayments of principal earlier or later than originally anticipated. At December 31, 1995 and 1994, approximately 79% and 85%, respectively, of the Company's CMO holdings consisted of sequential and planned amortization class debt securities which are subject to less prepayment and extension risk than other CMO instruments. At December 31, 1995 and 1994, approximately 81% and 82%, respectively, of the Company's CMO holdings were collateralized by residential mortgage loans, on which the timely payment of principal and interest was backed by specified government agencies (e.g., GNMA, FNMA, FHLMC). If due to declining interest rates, principal was to be repaid earlier than originally anticipated, the Company could be affected by a decrease in investment income due to the reinvestment of these funds at a lower interest rate. Such prepayments may result in a duration mismatch between assets and liabilities which could be corrected as cash from prepayments could be reinvested at an appropriate duration to adjust the mismatch. F-14 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (continued) December 31, 1995, 1994, and 1993 2. INVESTMENTS (CONTINUED) Conversely, if due to increasing interest rates, principal was to be repaid slower than originally anticipated, the Company could be affected by a decrease in cash flow which reduces the ability to reinvest expected principal repayments at higher interest rates. Such slower payments may result in a duration mismatch between assets and liabilities which could be corrected as available cash flow could be reinvested at an appropriate duration to adjust the mismatch. At December 31, 1995 and 1994, approximately 3% and 4%, respectively, of the Company's CMO holdings consisted of interest-only strips ("IOs") or principal-only strips ("POs"). IOs receive payments of interest and POs receive payments of principal on the underlying pool of mortgages. The risk inherent in holding POs is extension risk related to dramatic increases in interest rates whereby the future payments due on POs could be repaid much slower than originally anticipated. The extension risks inherent in holding POs was mitigated somewhat by offsetting positions in IOs. During dramatic increases in interest rates, IOs would generate more future payments than originally anticipated. The risk inherent in holding IOs is prepayment risk related to dramatic decreases in interest rates whereby future IO cash flows could be much less than originally anticipated and in some cases could be less than the original cost of the IO. The risks inherent in IOs are mitigated somewhat by holding offsetting positions in POs. During dramatic decreases in interest rates POs would generate future cash flows much quicker than originally anticipated. Investments in available for sale equity securities were as follows:
GROSS GROSS UNREALIZED UNREALIZED COST GAINS LOSSES FAIR VALUE ------ ---------- ---------- ---------- (MILLIONS) 1995 Equity Securities................ $231.6 $ 27.2 $ 1.2 $ 257.6 ------ ----- --- ---------- 1994 Equity Securities................ $230.5 $ 6.5 $ 7.9 $ 229.1 ------ ----- --- ----------
3. CAPITAL GAINS AND LOSSES ON INVESTMENT OPERATIONS Realized capital gains or losses are the difference between proceeds received from investments sold or prepaid, and amortized cost. Net realized capital gains as reflected in the Consolidated Statements of Income are after deductions for net realized capital gains (losses) allocated to experience-rated contracts of $61.1 million, $(29.1) million and $(54.8) million for the years ended December 31, 1995, 1994, and 1993, respectively. Net realized capital gains (losses) allocated to experience-rated contracts are deferred and subsequently reflected in credited rates on an amortized basis. Net unamortized gains (losses), reflected as a component of Policyholders' Funds Left With the Company, were $7.3 million and $(50.7) million at the end of December 31, 1995 and 1994, respectively. Changes to the mortgage loan valuation reserve and writedowns on debt securities are included in net realized capital gains (losses) and amounted to $3.1 million, $1.1 million and $(98.5) million, of which $2.2 million, $0.8 million and $(91.5) million were allocable to experience-rated contractholders, for the years ended December 31, 1995, 1994 and 1993, respectively. The 1993 losses were primarily related to writedowns of interest-only mortgage-backed securities to their fair value. F-15 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (continued) December 31, 1995, 1994, and 1993 3. CAPITAL GAINS AND LOSSES ON INVESTMENT OPERATIONS (CONTINUED) Net realized capital gains (losses) on investments, net of amounts allocated to experience-rated contracts, were as follows:
1995 1994 1993 ----- ----- ------ (MILLIONS) Debt securities........................................ $32.8 $ 1.0 $ 9.6 Equity securities...................................... 8.3 0.2 0.1 Mortgage loans......................................... 0.2 0.3 (0.2) ----- ----- ------ Pretax realized capital gains.......................... $41.3 $ 1.5 $ 9.5 ----- ----- ------ After-tax realized capital gains....................... $25.8 $ 1.0 $ 6.2 ----- ----- ------
Gross gains of $44.6 million, $26.6 million and $33.3 million and gross losses of $11.8 million, $25.6 million and $23.7 million were realized from the sales of investments in debt securities in 1995, 1994 and 1993, respectively. Changes in unrealized capital gains (losses), excluding changes in unrealized capital gains (losses) related to experience-rated contracts, for the years ended December 31, were as follows:
1995 1994 1993 ------ -------- ------ (MILLIONS) Debt securities........................................ $255.9 $ (242.1) $164.3 Equity securities...................................... 27.3 (13.3) 10.6 Limited partnership.................................... 1.8 (1.8) -- ------ -------- ------ 285.0 (257.2) 174.9 Deferred federal income taxes (See Note 6)............. (36.5) 46.3 61.2 ------ -------- ------ Net change in unrealized capital gains (losses)........ $321.5 $ (303.5) $113.7 ------ -------- ------ ------ -------- ------
Net unrealized capital gains (losses) allocable to experience-rated contracts of $515.0 million and $104.1 million at December 31, 1995 and $(260.9) million and $(47.7) million at December 31, 1994 are reflected on the Consolidated Balance Sheet in Policyholders' Funds Left With the Company and Future Policy Benefits, respectively, and are not included in shareholder's equity. F-16 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (continued) December 31, 1995, 1994, and 1993 3. CAPITAL GAINS AND LOSSES ON INVESTMENT OPERATIONS (CONTINUED) Shareholder's equity included the following unrealized capital gains (losses), which are net of amounts allocable to experience-rated contractholders, at December 31:
1995 1994 1993 ------ ------- ------- (MILLIONS) Debt securities Gross unrealized capital gains....................... $179.3 $ 27.4 $ 164.3 Gross unrealized capital losses...................... (1.3) (105.2) -- ------ ------- ------- 178.0 (77.8) 164.3 Equity securities Gross unrealized capital gains....................... 27.2 6.5 12.0 Gross unrealized capital losses...................... (1.2) (7.9) (0.1) ------ ------- ------- 26.0 (1.4) 11.9 Limited Partnership Gross unrealized capital gains....................... -- -- -- Gross unrealized capital losses...................... -- (1.8) -- ------ ------- ------- Deferred federal income taxes (See Note 6)............. 71.5 108.0 61.7 ------ ------- ------- Net unrealized capital gains (losses).................. $132.5 $(189.0) $ 114.5 ------ ------- ------- ------ ------- -------
4. NET INVESTMENT INCOME Sources of net investment income were as follows:
1995 1994 1993 -------- ------ ------ (MILLIONS) Debt securities........................................ $ 891.5 $823.9 $828.0 Preferred stock........................................ 4.2 3.9 2.3 Investment in affiliated mutual funds.................. 14.9 5.2 2.9 Mortgage loans......................................... 1.4 1.4 1.5 Policy loans........................................... 13.7 11.5 10.8 Reinsurance loan to affiliate.......................... 46.5 51.5 53.3 Cash equivalents....................................... 38.9 29.5 16.8 Other.................................................. 8.4 6.7 7.7 -------- ------ ------ Gross investment income................................ 1,019.5 933.6 923.3 Less investment expenses............................... (15.2) (16.4) (11.4) -------- ------ ------ Net investment income.................................. $1,004.3 $917.2 $911.9 -------- ------ ------ -------- ------ ------
Net investment income includes amounts allocable to experience-rated contractholders of $744.2 million, $677.1 million and $661.3 million for the years ended December 31, 1995, 1994 and 1993, respectively. Interest credited to contractholders is included in Current and Future Benefits. F-17 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (continued) December 31, 1995, 1994, and 1993 5. DIVIDEND RESTRICTIONS AND SHAREHOLDER'S EQUITY The Company distributed $2.9 million in the form of dividends of two of its subsidiaries, SBA and AISI, to Aetna Retirement Services, Inc. in 1995. The amount of dividends that may be paid to the shareholder in 1996 without prior approval by the Insurance Commissioner of the State of Connecticut is $70.0 million. The Insurance Department of the State of Connecticut (the "Department") recognizes as net income and shareholder's equity those amounts determined in conformity with statutory accounting practices prescribed or permitted by the Department, which differ in certain respects from generally accepted accounting principles. Statutory net income was $70.0 million, $64.9 million and $77.6 million for the years ended December 31, 1995, 1994 and 1993, respectively. Statutory shareholder's equity was $670.7 million and $615.0 million as of December 31, 1995 and 1994, respectively. At December 31, 1995 and December 31, 1994, the Company does not utilize any statutory accounting practices which are not prescribed by insurance regulators that, individually or in the aggregate, materially affect statutory shareholder's equity. 6. FEDERAL INCOME TAXES The Company is included in the consolidated federal income tax return of Aetna. Aetna allocates to each member an amount approximating the tax it would have incurred were it not a member of the consolidated group, and credits the member for the use of its tax saving attributes in the consolidated return. In August 1993, the Omnibus Budget Reconciliation Act of 1993 (OBRA) was enacted which resulted in an increase in the federal corporate tax rate from 34% to 35% retroactive to January 1, 1993. The enactment of OBRA resulted in an increase in the deferred tax liability of $3.4 million at date of enactment, which is included in the 1993 deferred tax expense. Components of income tax expense (benefits) were as follows:
1995 1994 1993 ----- ----- ------- (MILLIONS) Current taxes (benefits): Income from operations............................... $82.9 $78.7 $ 87.1 Net realized capital gains........................... 28.5 (33.2) 18.1 ----- ----- ------- 111.4 45.5 105.2 ----- ----- ------- Deferred taxes (benefits): Income from operations............................... (14.4) (8.0) (14.2) Net realized capital gains........................... (12.9) 33.7 (14.8) ----- ----- ------- (27.3) 25.7 (29.0) ----- ----- ------- Total................................................ $84.1 $71.2 $ 76.2 ----- ----- ------- ----- ----- -------
F-18 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (continued) December 31, 1995, 1994, and 1993 6. FEDERAL INCOME TAXES (CONTINUED) Income tax expense was different from the amount computed by applying the federal income tax rate to income before federal income taxes for the following reasons:
1995 1994 1993 ------ ------ ------ (MILLIONS) Income before federal income taxes..................... $260.0 $216.5 $219.1 Tax rate............................................... 35% 35% 35% ------ ------ ------ Application of the tax rate............................ 91.0 75.8 76.7 ------ ------ ------ Tax effect of: Excludable dividends................................. (9.3) (8.6) (8.7) Tax reserve adjustments.............................. 3.9 2.9 4.7 Reinsurance transaction.............................. (0.5) 1.9 (0.2) Tax rate change on deferred liabilities.............. -- -- 3.7 Other, net........................................... (1.0) (0.8) -- ------ ------ ------ Income tax expense................................... $ 84.1 $ 71.2 $ 76.2 ------ ------ ------ ------ ------ ------
The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities at December 31 are presented below:
1995 1994 ------ ------ (MILLIONS) Deferred tax assets: Insurance reserves................................... $290.4 $211.5 Net unrealized capital losses........................ -- 136.3 Unrealized gains allocable to experience-rated contracts........................................... 216.7 -- Investment losses not currently deductible........... 7.3 15.5 Postretirement benefits other than pensions.......... 7.7 8.4 Other................................................ 32.0 28.3 ------ ------ Total gross assets..................................... 554.1 400.0 Less valuation allowance............................... -- 136.3 ------ ------ Deferred tax assets, net of valuation.................. 554.1 263.7 Deferred tax liabilities: Deferred policy acquisition costs.................... 433.0 385.2 Unrealized losses allocable to experience-rated contracts........................................... -- 108.0 Market discount...................................... 4.4 3.6 Net unrealized capital gains......................... 288.2 -- Other................................................ (1.9) 0.4 ------ ------ Total gross liabilities................................ 723.7 497.2 ------ ------ Net deferred tax liability............................. $169.6 $233.5 ------ ------ ------ ------
F-19 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (continued) December 31, 1995, 1994, and 1993 6. FEDERAL INCOME TAXES (CONTINUED) Net unrealized capital gains and losses are presented in shareholder's equity net of deferred taxes. At December 31, 1994, $81.0 million of net unrealized capital losses were reflected in shareholder's equity without deferred tax benefits. As of December 31, 1995, no valuation allowance was required for unrealized capital gains and losses. The reversal of the valuation allowance had no impact on net income in 1995. The "Policyholders' Surplus Account," which arose under prior tax law, is generally that portion of a life insurance company's statutory income that has not been subject to taxation. As of December 31, 1983, no further additions could be made to the Policyholders' Surplus Account for tax return purposes under the Deficit Reduction Act of 1984. The balance in such account was approximately $17.2 million at December 31, 1995. This amount would be taxed only under certain conditions. No income taxes have been provided on this amount since management believes the conditions under which such taxes would become payable are remote. The Internal Revenue Service ("Service") has completed examinations of the consolidated federal income tax returns of Aetna through 1986. Discussions are being held with the Service with respect to proposed adjustments. However, management believes there are adequate defenses against, or sufficient reserves to provide for, such challenges. The Service has commenced its examinations for the years 1987 through 1990. 7. BENEFIT PLANS Employee Pension Plans--The Company, in conjunction with Aetna, has non-contributory defined benefit pension plans covering substantially all employees. The plans provide pension benefits based on years of service and average annual compensation (measured over sixty consecutive months of highest earnings in a 120 month period). Contributions are determined using the Projected Unit Credit Method and, for qualified plans subject to ERISA requirements, are limited to the amounts that are currently deductible for tax reporting purposes. The accumulated benefit obligation and plan assets are recorded by Aetna. The accumulated plan assets exceed accumulated plan benefits. There has been no funding to the plan for the years 1993 through 1995, and therefore, no expense has been recorded by the Company. Agent Pension Plans--The Company, in conjunction with Aetna, has a non-qualified pension plan covering certain agents. The plan provides pension benefits based on annual commission earnings. The accumulated plan assets exceed accumulated plan benefits. There has been no funding to the plan for the years 1993 through 1995, and therefore, no expense has been recorded by the Company. Employee Postretirement Benefits--In addition to providing pension benefits, Aetna also provides certain postretirement health care and life insurance benefits, subject to certain caps, for retired employees. Medical and dental benefits are offered to all full-time employees retiring at age 50 with at least 15 years of service or at age 65 with at least 10 years of service. Retirees are required to contribute to the plans based on their years of service with Aetna. The cost to the Company associated with the Aetna postretirement plans for 1995, 1994 and 1993 were $1.4 million, $1.0 million and $0.8 million, respectively. Agent Postretirement Benefits--The Company, in conjunction with Aetna, also provides certain postemployment health care and life insurance benefits for certain agents. F-20 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (continued) December 31, 1995, 1994, and 1993 7. BENEFIT PLANS (CONTINUED) The cost to the Company associated to the agents' postretirement plans for 1995, 1994 and 1993 were $0.8 million, $0.7 million and $0.6 million, respectively. Incentive Savings Plan--Substantially all employees are eligible to participate in a savings plan under which designated contributions, which may be invested in common stock of Aetna or certain other investments, are matched, up to 5% of compensation, by Aetna. Pretax charges to operations for the incentive savings plan were $4.9 million, $3.3 million and $3.1 million in 1995, 1994 and 1993, respectively. Stock Plans--Aetna has a stock incentive plan that provides for stock options and deferred contingent common stock or cash awards to certain key employees. Aetna also has a stock option plan under which executive and middle management employees of Aetna may be granted options to purchase common stock of Aetna at the market price on the date of grant or, in connection with certain business combinations, may be granted options to purchase common stock on different terms. The cost to the Company associated with the Aetna stock plans for 1995, 1994 and 1993, was $6.3 million, $1.7 million and $0.4 million, respectively. 8. RELATED PARTY TRANSACTIONS The Company is compensated by the Separate Accounts for bearing mortality and expense risks pertaining to variable life and annuity contracts. Under the insurance contracts, the Separate Accounts pay the Company a daily fee which, on an annual basis, ranges, depending on the product, from .25% to 1.80% of their average daily net assets. The Company also receives fees from the variable life and annuity mutual funds and The Aetna Series Fund for serving as investment adviser. Under the advisory agreements, the Funds pay the Company a daily fee which, on an annual basis, ranges, depending on the fund, from .25% to 1.00% of their average daily net assets. The advisory agreements also call for the variable funds to pay their own administrative expenses and for The Aetna Series Fund to pay certain administrative expenses. The Company also receives fees (expressed as a percentage of the average daily net assets) from The Aetna Series Fund for providing administration, shareholder services and promoting sales. The amount of compensation and fees received from the Separate Accounts and Funds, included in Charges Assessed Against Policyholders, amounted to $128.1 million, $104.6 million and $93.6 million in 1995, 1994 and 1993, respectively. The Company may waive advisory fees at its discretion. The Company may, from time to time, make reimbursements to a Fund for some or all of its operating expenses. Reimbursement arrangements may be terminated at any time without notice. Since 1981, all domestic individual non-participating life insurance of Aetna and its subsidiaries has been issued by the Company. Effective December 31, 1988, the Company entered into a reinsurance agreement with Aetna Life Insurance Company ("Aetna Life") in which substantially all of the non-participating individual life and annuity business written by Aetna Life prior to 1981 was assumed by the Company. A $108.0 million commission, paid by the Company to Aetna Life in 1988, was capitalized as deferred policy acquisition costs. The Company maintained insurance reserves of $655.5 million and $690.3 million as of December 31, 1995 and 1994, respectively, relating to the business assumed. In consideration for the assumption of this business, a loan was established relating to the assets held by Aetna Life which support the insurance reserves. The loan is being reduced in accordance with the decrease in the reserves. The fair value of this loan was $663.5 million and $630.3 million as of December 31, 1995 and 1994, respectively, and is based upon the fair value of the underlying assets. Premiums of $28.0 million, $32.8 million and $33.3 million and current and future benefits of $43.0 million, $43.8 million and $55.4 million were assumed in 1995, 1994 and 1993, respectively. F-21 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (continued) December 31, 1995, 1994, and 1993 8. RELATED PARTY TRANSACTIONS (CONTINUED) Investment income of $46.5 million, $51.5 million and $53.3 million was generated from the reinsurance loan to affiliate in 1995, 1994 and 1993, respectively. Net income of approximately $18.4 million, $25.1 million and $13.6 million resulted from this agreement in 1995, 1994 and 1993, respectively. On December 16, 1988, the Company assumed $25.0 million of premium revenue from Aetna Life for the purchase and administration of a life contingent single premium variable payout annuity contract. In addition, the Company also is responsible for administering fixed annuity payments that are made to annuitants receiving variable payments. Reserves of $28.0 million and $24.2 million were maintained for this contract as of December 31, 1995 and 1994, respectively. Effective February 1, 1992, the Company increased its retention limit per individual life to $2.0 million and entered into a reinsurance agreement with Aetna Life to reinsure amounts in excess of this limit, up to a maximum of $8.0 million on any new individual life business, on a yearly renewable term basis. Premium amounts related to this agreement were $3.2 million, $1.3 million and $0.6 million for 1995, 1994 and 1993, respectively. The Company received no capital contributions in 1995, 1994 or 1993. The Company distributed $2.9 million in the form of dividends of two of its subsidiaries, SBA and AISI, to Aetna Retirement Services, Inc. in 1995. Premiums due and other receivables include $5.7 million and $27.6 million due from affiliates in 1995 and 1994, respectively. Other liabilities include $12.4 million and $27.9 million due to affiliates for 1995 and 1994, respectively. Substantially all of the administrative and support functions of the Company are provided by Aetna and its affiliates. The financial statements reflect allocated charges for these services based upon measures appropriate for the type and nature of service provided. 9. REINSURANCE The Company utilizes indemnity reinsurance agreements to reduce its exposure to large losses in all aspects of its insurance business. Such reinsurance permits recovery of a portion of losses from reinsurers, although it does not discharge the primary liability of the Company as direct insurer of the risks reinsured. The Company evaluates the financial strength of potential reinsurers and continually monitors the financial condition of reinsurers. Only those reinsurance recoverables deemed probable of recovery are reflected as assets on the Company's Consolidated Balance Sheets. F-22 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (continued) December 31, 1995, 1994, and 1993 9. REINSURANCE (CONTINUED) The following table includes premium amounts ceded/assumed to/from affiliated companies as discussed in Note 8 above.
CEDED TO ASSUMED DIRECT OTHER FROM OTHER AMOUNT COMPANIES COMPANIES --------- ------------- ------------- (MILLIONS) 1995 Premiums: Life Insurance.................................................................. $ 28.8 $ 8.6 $ 28.0 Accident and Health Insurance................................................... 7.5 7.5 -- Annuities....................................................................... 82.1 -- 0.5 --------- ----- ----- Total earned premiums........................................................... $ 118.4 $ 16.1 $ 28.5 --------- ----- ----- --------- ----- ----- 1994 Premiums: Life Insurance.................................................................. $ 27.3 $ 6.0 $ 32.8 Accident and Health Insurance................................................... 9.3 9.3 -- Annuities....................................................................... 69.9 -- 0.2 --------- ----- ----- Total earned premiums........................................................... $ 106.5 $ 15.3 $ 33.0 --------- ----- ----- --------- ----- ----- 1993 Premiums: Life Insurance.................................................................. $ 22.4 $ 5.6 $ 33.3 Accident and Health Insurance................................................... 12.9 12.9 -- Annuities....................................................................... 31.3 -- 0.7 --------- ----- ----- Total earned premiums........................................................... $ 66.6 $ 18.5 $ 34.0 --------- ----- ----- --------- ----- ----- NET AMOUNT --------- 1995 Premiums: Life Insurance.................................................................. $ 48.2 Accident and Health Insurance................................................... -- Annuities....................................................................... 82.6 --------- Total earned premiums........................................................... $ 130.8 --------- --------- 1994 Premiums: Life Insurance.................................................................. $ 54.1 Accident and Health Insurance................................................... -- Annuities....................................................................... 70.1 --------- Total earned premiums........................................................... $ 124.2 --------- --------- 1993 Premiums: Life Insurance.................................................................. $ 50.1 Accident and Health Insurance................................................... -- Annuities....................................................................... 32.0 --------- Total earned premiums........................................................... $ 82.1 --------- ---------
F-23 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (continued) December 31, 1995, 1994, and 1993 10. FINANCIAL INSTRUMENTS ESTIMATED FAIR VALUE The carrying values and estimated fair values of the Company's financial instruments at December 31, 1995 and 1994 were as follows:
1995 1994 -------------------- -------------------- CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE --------- --------- --------- --------- (MILLIONS) Assets: Cash and cash equivalents................................. $ 568.8 $ 568.8 $ 623.3 $ 623.3 Short-term investments.................................... 15.1 15.1 98.0 98.0 Debt securities........................................... 12,720.8 12,720.8 10,191.4 10,191.4 Equity securities......................................... 257.6 257.6 229.1 229.1 Limited partnership....................................... -- -- 24.4 24.4 Mortgage loans............................................ 21.2 21.9 9.9 9.9 Liabilities: Investment contract liabilities: With a fixed maturity................................... 989.1 1,001.2 826.7 833.5 Without a fixed maturity................................ 9,511.0 9,298.4 8,122.6 7,918.2
Fair value estimates are made at a specific point in time, based on available market information and judgments about the financial instrument, such as estimates of timing and amount of expected future cash flows. Such estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument, nor do they consider the tax impact of the realization of unrealized gains or losses. In many cases, the fair value estimates cannot be substantiated by comparison to independent markets, nor can the disclosed value be realized in immediate settlement of the instrument. In evaluating the Company's management of interest rate and liquidity risk, the fair values of all assets and liabilities should be taken into consideration, not only those above. The following valuation methods and assumptions were used by the Company in estimating the fair value of the above financial instruments: SHORT-TERM INSTRUMENTS: Fair values are based on quoted market prices or dealer quotations. Where quoted market prices are not available, the carrying amounts reported in the Consolidated Balance Sheets approximates fair value. Short-term instruments have a maturity date of one year or less and include cash and cash equivalents, and short-term investments. DEBT AND EQUITY SECURITIES: Fair values are based on quoted market prices or dealer quotations. Where quoted market prices or dealer quotations are not available, fair value is estimated by using quoted market prices for similar securities or discounted cash flow methods. F-24 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (continued) December 31, 1995, 1994, and 1993 10. FINANCIAL INSTRUMENTS (CONTINUED) MORTGAGE LOANS: Fair value is estimated by discounting expected mortgage loan cash flows at market rates which reflect the rates at which similar loans would be made to similar borrowers. The rates reflect management's assessment of the credit quality and the remaining duration of the loans. The fair value estimate of mortgage loans of lower quality, including problem and restructured loans, is based on the estimated fair value of the underlying collateral. INVESTMENT CONTRACT LIABILITIES (INCLUDED IN POLICYHOLDERS' FUNDS LEFT WITH THE COMPANY): WITH A FIXED MATURITY: Fair value is estimated by discounting cash flows at interest rates currently being offered by, or available to, the Company for similar contracts. WITHOUT A FIXED MATURITY: Fair value is estimated as the amount payable to the contractholder upon demand. However, the Company has the right under such contracts to delay payment of withdrawals which may ultimately result in paying an amount different than that determined to be payable on demand. OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS (INCLUDING DERIVATIVE FINANCIAL INSTRUMENTS) During 1995, the Company received $0.4 million for writing call options on underlying securities. As of December 31, 1995 there were no option contracts outstanding. At December 31, 1995, the Company had a forward swap agreement with a notional amount of $100.0 million and a fair value of $0.1 million. The Company did not have transactions in derivative instruments in 1994. The Company also holds investments in certain debt and equity securities with derivative characteristics (i.e., including the fact that their market value is at least partially determined by, among other things, levels of or changes in interest rates, prepayment rates, equity markets or credit ratings/spreads). The amortized cost and fair value of these securities, included in the $13.4 billion investment portfolio, as of December 31, 1995 was as follows:
AMORTIZED FAIR (MILLIONS) COST VALUE ----------- ----------- Collateralized mortgage obligations..................................................................... $ 2,383.9 $ 2,549.3 Principal-only strips (included above).................................................................. 38.7 50.0 Interest-only strips (included above)................................................................... 10.7 20.7 Structured Notes (1).................................................................................... 95.0 100.3
(1) Represents non-leveraged instruments whose fair values and credit risk are based on underlying securities, including fixed income securities and interest rate swap agreements. 11. COMMITMENTS AND CONTINGENT LIABILITIES COMMITMENTS Through the normal course of investment operations, the Company commits to either purchase or sell securities or money market instruments at a specified future date and at a specified price or yield. The inability of counterparties to honor these commitments may result in either higher or lower replacement cost. Also, there is likely to be a change in F-25 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (continued) December 31, 1995, 1994, and 1993 11. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED) the value of the securities underlying the commitments. At December 31, 1995, the Company had commitments to purchase investments of $31.4 million. The fair value of the investments at December 31, 1995 approximated $31.5 million. There were no outstanding forward commitments at December 31, 1994. LITIGATION There were no material legal proceedings pending against the Company as of December 31, 1995 or December 31, 1994 which were beyond the ordinary course of business. The Company is involved in lawsuits arising, for the most part, in the ordinary course of its business operations as an insurer. 12. SEGMENT INFORMATION The Company's operations are reported through two major business segments: Life Insurance and Financial Services. Summarized financial information for the Company's principal operations was as follows:
(MILLIONS) 1995 1994 1993 ----------- ----------- ----------- Revenue: Financial services..................................................................... $ 1,129.4 $ 946.1 $ 892.8 Life insurance......................................................................... 407.9 386.1 371.7 ----------- ----------- ----------- Total revenue.......................................................................... $ 1,537.3 $ 1,332.2 $ 1,264.5 ----------- ----------- ----------- Income before federal income taxes: Financial services..................................................................... $ 158.0 $ 119.7 $ 121.1 Life insurance......................................................................... 102.0 96.8 98.0 ----------- ----------- ----------- Total income before federal income taxes............................................... $ 260.0 $ 216.5 $ 219.1 ----------- ----------- ----------- Net income: Financial services..................................................................... $ 113.8 $ 85.5 $ 86.8 Life insurance......................................................................... 62.1 59.8 56.1 ----------- ----------- ----------- Net income............................................................................... $ 175.9 $ 145.3 $ 142.9 ----------- ----------- ----------- Assets under management, at fair value: Financial services..................................................................... $ 23,224.3 $ 17,785.2 $ 16,600.5 Life insurance......................................................................... 2,698.1 2,171.7 2,175.5 ----------- ----------- ----------- Total assets under management.......................................................... $ 25,922.4 $ 19,956.9 $ 18,776.0 ----------- ----------- ----------- ----------- ----------- -----------
F-26 VARIABLE ANNUITY ACCOUNT C PART C - OTHER INFORMATION ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements: (1) Included in Part A: Condensed Financial Information (2) Included in Part B: Financial Statements of Variable Annuity Account C: - Independent Auditors' Report - Statement of Assets and Liabilities as of December 31, 1995 - Statement of Operations for the year ended December 31, 1995 - Statements of Changes in Net Assets for the years ended December 31, 1995 and 1994 - Notes to Financial Statements Financial Statements of the Depositor: - Independent Auditors' Report - Consolidated Statements of Income for the years ended December 31, 1995, 1994 and 1993 - Consolidated Balance Sheets as of December 31, 1995 and 1994 - Consolidated Statements of Changes in Shareholder's Equity for the years ended December 31, 1995, 1994 and 1993 - Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993 - Notes to Consolidated Financial Statements (b) Exhibits (1) Resolution of the Board of Directors of Aetna Life Insurance and Annuity Company establishing Variable Annuity Account C (2) Not applicable (3.1) Form of Broker-Dealer Agreement (3.2) Alternative Form of Wholesaling Agreement and related Selling Agreement (4.1) Form of Variable Annuity Contract (G-CDA-IA(RP)) (4.2) Form of Variable Annuity Contract (G-CDA-IA(RPM/XC)) (4.3) Form of Variable Annuity Contract (G-CDA-HF)(1) (5) Form of Variable Annuity Contract Application (300-GTD-IA)(2) (6) Certification of Incorporation and By-Laws of Depositor(3) (7) Not applicable (8.1) Fund Participation Agreement (Amended and Restated) between Aetna Life Insurance and Annuity Company, Alger American Fund and Fred Alger Management, Inc. dated March 31, 1995 (8.2) Fund Participation Agreement between Aetna Life Insurance and Annuity Company and Calvert Asset Management Company (Calvert Responsibly Invested Balanced Portfolio formerly Calvert Socially Responsible Series) dated March 13, 1989 and amended December 27, 1993 (8.3) Fund Participation Agreement between Aetna Life Insurance and Annuity Company and Fidelity Distributors Corporation (Variable Insurance Products Fund) dated February 1, 1994 and amended March 1, 1996 (8.4) Fund Participation Agreement between Aetna Life Insurance and Annuity Company and Fidelity Distributors Corporation (Variable Insurance Products Fund II) dated February 1, 1994 and amended March 1, 1996 (8.5) Fund Participation Agreement between Aetna Life Insurance and Annuity Company and Franklin Advisers, Inc. dated January 31, 1989 (8.6) Fund Participation Agreement between Aetna Life Insurance and Annuity Company and Janus Aspen Series dated April 19, 1994 and amended March 1, 1996 (8.7) Fund Participation Agreement between Aetna Life Insurance and Annuity Company and Lexington Management Corporation regarding Natural Resources Trust dated December 1, 1988 and amended February 11, 1991 (8.8) Fund Participation Agreement between Aetna Life Insurance and Annuity Company and Advisers Management Trust (now Neuberger & Berman Advisers Management Trust) dated April 14, 1989 and as assigned and modified on May 1, 1995 (8.9) Fund Participation Agreement between Aetna Life Insurance and Annuity Company and Scudder Variable Life Investment Fund dated April 27, 1992 and amended February 19, 1993 and August 13, 1993 (8.10) Fund Participation Agreement between Aetna Life Insurance and Annuity Company, Investors Research Corporation and TCI Portfolios, Inc. dated July 29, 1992 and amended December 22, 1992 and June 1, 1994 (9) Opinion of Counsel(4) (10.1) Consent of Independent Auditors (10.2) Consent of Counsel (11) Not applicable (12) Not applicable (13) Computation of Performance Data(5) (14) Not applicable (15.1) Powers of Attorney (6) (15.2) Authorization for Signatures (27) Financial Data Schedule 1. Incorporated by reference to Post-Effective Amendment No. 3 to Registration Statement on Form N-4 (File No. 33-75964), as filed on February 24, 1995. 2. Incorporated by reference to Post-Effective Amendment No. 60 to Registration Statement on Form N-4 (File No. 2-52449), as filed on February 24, 1995. 3. Incorporated by reference to Post-Effective Amendment No. 58 to Registration Statement on Form N-4 (File No. 2-52449), as filed on February 28, 1994. 4. Incorporated by reference to Registrant's 24f-2 Notice for fiscal year ended December 31, 1995, as filed electronically on February 29, 1996. 5. Incorporated by reference to Post-Effective Amendment No. 4 to Registration Statement on Form N-4 (File No. 33-75964), as filed on April 28, 1995. 6. Incorporated by reference to Post-Effective Amendment No. 3 to Registration Statement on Form N-4 (File No. 33-75974), as filed electronically on April 9, 1996. ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
Name and Principal Business Address* Positions and Offices with Depositor - ------------------ ------------------------------------ Daniel P. Kearney Director and President Timothy A. Holt Director, Senior Vice President and Chief Financial Officer Christopher J. Burns Director and Senior Vice President Laura R. Estes Director and Senior Vice President Gail P. Johnson Director and Vice President John Y. Kim Director and Senior Vice President Shaun P. Mathews Director and Vice President Glen Salow Director and Vice President Creed R. Terry Director and Vice President Eugene M. Trovato Vice President and Treasurer, Corporate Controller Zoe Baird Senior Vice President and General Counsel Diane Horn Vice President and Chief Compliance Officer Susan E. Schechter Corporate Secretary and Counsel
* The principal business address of all directors and officers listed is 151 Farmington Avenue, Hartford, Connecticut 06156. ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR REGISTRANT Attached hereto is a diagram of all persons directly or indirectly under common control with the Registrant. The diagram indicates the percentage of voting securities (rights) owned and, in parenthesis after the company 's name, the state or other sovereign power under the laws of which the company is organized. As of April 10, 1996 Page 1 AETNA LIFE AND CASUALTY COMPANY (1) (Connecticut) | | |-----------------------|-----------------|---------------------|----------------------| | | | | | 100% 100% | 100% 100% | | | | | AETNA THE | AETNA AETNA LIFE STANDARD | RETIREMENT CANADA INSURANCE FIRE | SERVICES, INC. HOLDINGS COMPANY INSURANCE | LIMITED COMPANY | | (1) (Connecticut) (a) (1) (Connecticut) (a) | (1) (Connecticut) (a) (1) (Canada) (a) | | | | | See See | See See Supplement Supplement | Supplement Supplement #2 #3 | #4 #5 | | |----------------------------------------|-------------------------------------------| 100% | 100% | | | AETNA | AETNA INTERNATIONAL, | INTERNATIONAL INC. | (N.Z.) | LIMITED | (1) (Connecticut) (a) | (1)(New Zealand)(a) | | | | | | See | See Supplement | Supplement #6 | #7 | SEE (1) Corporation (a) Fully Consolidated PAGE (2) Partnership (b) One Line Consolidation 2 (3) Joint Venture (c) Not Consolidated (4) Lloyds Association (5) Trust (6) Limited Liability Company Percentages are rounded to the nearest whole percent and are based on ownership of voting rights.
As of April 10, 1996 Page 2 AETNA LIFE AND CASUALTY COMPANY (1) (Connecticut) | |-----------------------|----------------------|-------------------|------------------|-----------------------| | | | | | | 100% 100% 100% | 100% 100% | | | | | | AETNA LIFE ACS ACS | LUETTGENS AE INSURANCE FINANCIAL PORTFOLIO | LIMITED HOUSING COMPANY SERVICES, SERVICES, | CORP. OF ILLINOIS INC. INC. | | | (1) (Illinois) (a) (1) (Connecticut) (a) (1) (Delaware) (a) | (1) (Connecticut) (a) (1) (Connecticut) (a) | | | | |-----------------------| |------------------|------------------------------------------| | | | | | 100% 99%* 100% | 100% | | | | | AETNA GATEWAY STRUCTURED | AETNA LIFE & GATEWAY ONE BENEFITS, | CASUALTY OF L.L.C. INC. | INTERNATIONAL ILLINOIS -1%- | FINANCE N.V. INC. | (1) (Netherlands (1) (Delaware) (a) (6) (Delaware) (b) (1) (Connecticut) (a) | Antilles) (a) | |--------------------| | | | | | 100% | 95%** 100% | | | | STRUCTURED | AETNA AETNA BENEFITS | CAPITAL (NETHERLANDS) OF FLORIDA, | L.L.C. HOLDINGS INC. | B.V. SEE (1) (Florida) (b) PAGE (6) (Delaware) (a) (1)(Netherlands) (b) 3 (1) Corporation (a) Fully Consolidated (2) Partnership (b) One Line Consolidation Percentages are rounded to the nearest whole percent and are based on (3) Joint Venture (c) Not Consolidated ownership of voting rights. (4) Lloyds Association (5) Trust * Aetna Gateway of Illinois Inc. owns 1% of this Limited Liability (6) Limited Liability Company Company. ** Aetna Capital Holdings, Inc. (see Supplement 6a) owns 5% of this Limited Liability Company.
As of April 10, 1996 Page 3 AETNA LIFE AND CASUALTY COMPANY (1) (Connecticut) |-----------------------|---------------------|---------------|-----------|------------------|--------------------| | | | | | | | 100% 100% 100% * | 100% 100% 100% | | | | | | | SPAN DATA 5TH AETNA | AE FOUR AE TEN, AE FIFTEEN, PROCESSING GENERATION, FOUNDATION, | INCORPORATED INCORPORATED INCORPORATED CENTER, INC. INC. | INC. | | (1)(Connecticut)(a) (1) (Massachusetts) (a) (1)(Connecticut)(c) | (1)(Connecticut)(a) (1)(Connecticut)(a) (1)(Connecticut)(a) | | |--------------------------------------|-----------------------------| | | | 99% *** | 100% | | ARCELIA SEE AETNA LIMITED PAGE REALTY 4 INVESTMENTS I, INC. (1)(Hong Kong)(a) (1)(Connecticut)(a) | | 84%** AETNA PROPERTIES I LIMITED PARTNERSHIP (2)(Connecticut)(c) (1) Corporation (a) Fully Consolidated * Nonstock Corporation (2) Partnership (b) One Line Consolidation ** Aetna Realty Investments I, Inc. is a 1% general (3) Joint Venture (c) Not Consolidated partner and a 83% limited partner. (4) Lloyds Association *** Aetna International Inc. owns 1% of Percentages are rounded to the (5) Trust this company. nearest whole percent and are (6) Limited Liability Company based on ownership of voting rights.
As of April 10, 1996 AETNA Page 4 LIFE AND CASUALTY COMPANY (1) (Connecticut) | ----------------------------------------------------------------- | | | 100% 20% 100% | | | AETNA CONSULTORES AETNA INVESTMENT DE RE-INSURANCE MANAGEMENT PENSIONES COMPANY (F.E.) HOLDINGS S.R.L. (U.K.) LTD. LIMITED (1) (United (1) (Hong Kong) (a) (1) (SPAIN) (b) Kingdom) (a) | | --------------------------------------------------------------------------------------- | | | | | 100% 100% 100% 100% 14% | | | | | PLJ AETNA AETNA AETNA KWANG HUA HOLDINGS INVESTMENT FUND INVESTMENT SECURITIES LIMITED MANAGEMENT MANAGERS MANAGEMENT INVESTMENT (F.E.)LIMITED (F.E.) LIMITED (F.E.) NOMINEES & TRUST Co. LIMITED LTD. (1) (Hong Kong) (a) (1) (Hong Kong) (a) (1) (Hong Kong) (a) (1) (Hong Kong) (a) (1) (Taiwan) (b) (1) Corporation (a) Fully Consolidated (2) Partnership (b) One Line Consolidation (3) Joint Venture (c) Not Consolidated (4) Lloyds Association Percentages are rounded to the nearest whole percent (5) Trust and are based on ownership of voting rights. (6) Limited Liability Company
As of April 10, 1996 Supplement #2 AETNA LIFE INSURANCE COMPANY (1)(Connecticut)(a) | --------------------------------------------------------------------------| | | | | 100% 100% 100% | | | | | AETNA ALIC AETNA | REAL ESTATE ENERGY, CASUALTY | PROPERTIES, CO. COMPANY | INC. | (1)(Connecticut)(a) (1)(Texas)(a) (1)(Connecticut)(a) | | | -------------------------------------------------------------------------------------------------| | | | | | 100% 100% 70% 13% *** | | | | | | AETNA HUMAN BAYSHORE AETNA | LIFE AFFAIRS HEIGHTS INSTITUTIONAL | ASSIGNMENT INTERNATIONAL, ASSOCIATES INVESTORS I | COMPANY INCORPORATED LIMITED | PARTNERSHIP | (1)(Connecticut)(a) (1)(Utah)(a) (2)(Florida)(b) (2)(Connecticut)(b) | | -------------------------------------------------------------------------------------------------| | | | | | 100% 100% 62% 75% * | | | | | | HUMAN HUMAN AETNA F-L | AFFAIRS AFFAIRS HAMILTON PROPERTIES | OF ALASKA, INTERNATIONAL PARTNERSHIP | INC. OF CALIFORNIA | | (1) (Alaska) (a) (1) (California) (a) (2) (Illinois) (b) (2)(Connecticut(b) | | See Supplement #2a
* The Aetna Casualty and Surety Company is a 25% general partner. ** 89% general partner and 1% limited partner. Percentages are rounded to the nearest whole percent *** Aetna Real Estate Properties, Inc. is a 1% general partner. and are based on ownership of voting rights.
As of June 30, 1995 Supplement #2 AETNA LIFE INSURANCE COMPANY (1)(Connecticut)(a) | |-------------------------------------------------------------- | | | | 100% 100% | | | | AETNA AE | LIFE & FOURTEEN, | CASUALTY INC. | (BERMUDA) | LTD. | (1)(Bermuda)(a) (1)(Connecticut)(a) | | |------------------------------------------------------------------- | | | | | 70% 80% 50% | | | | | SHADOW SHADOW RIDGE CAPITOL DISTRICT | OAKS AT OAK PARK ENERGY CENTER | CONDOMINIUM COGENERATION | ASSOCIATES ASSOCIATES | | (2)(California)(b) (2)(California)(b) (2)(Connecticut)(b) | |------------------------------------------------------------------- | | | 100% 100% 90%** | | | AELTUS AHP 455 INVESTMENT HOLDINGS, . MARKET MANAGEMENT, INC. STREET INC. (1)(Connecticut)(a) (1)(Connecticut)(a) (2)(California)(b) | | | | | | See See Supplement Supplement #2e #2f * The Aetna Casualty and Surety Company is a 25% general partner. ** 89% general partner and 1% limited partner. Percentages are rounded to the nearest whole percent *** Aetna Real Estate Properties, Inc. is a 1% general partner. and are based on ownership of voting rights.
As of April 10, 1996 AETNA Supplement #2a LIFE INSURANCE COMPANY (1)(Connecticut)(a) | | ----------------------------------------------------------------------------------------------------------------- | | | | | | | 50% * 50% * 49% ** 49% ** | 49% ** 50%* | | | | | | | FRIDAY KOLL KOLL KOLL | KOLL KOLL ASSOCIATES CENTER CENTER CENTER | CENTER CENTER NEWPORT A NEWPORT NEWPORT | NEWPORT NEWPORT NUMBER 1 NUMBER 2 | NUMBER 7 NUMBER 8 | (2)(California)(b) (2)(California)(b) (2)(California)(b) (2)(California)(b) | (2)(California)(b) (2)(California)(b) | -----------------------------------------------------------------------------|----------------------------------- | | | | | | | 50% * 50% * 50% * 60% | 60% *** 99%**** | | | | | | | KOLL KOLL KOLL KOLL | KOLL WATERLOO CENTER CENTER CENTER CENTER | CENTER ASSOCIATES NEWPORT NEWPORT NEWPORT NEWPORT | NEWPORT LIMITED NUMBER 9 NUMBER 10 NUMBER 11 NUMBER 14 | NUMBER 15 PARTNERSHIP | (2) (North (2)(California)(b) (2)(California)(b) (2)(California)(b) (2)(California)(b) | (2)(California)(b) Carolina)(b) | -----------------------------------------------------------------------------|----------------------------------- | | | | | | | 99% 60% 50% 60% | 68% 99% | | | | | | | HAYWARD GABLES GABLES COUNTRY CLUB | BIRTCHER HARBOR INDUSTRIAL AT AT HEIGHTS AT | AETNA- BUSINESS PARK FARMINGTON BRIGHTON WOBURN | LAGUNA PARK ASSOCIATES ASSOCIATES ASSOCIATES ASSOCIATES | HILLS | (2)(Connecticut)(b) (2)(Connecticut)(b) (2)(New York)(b) (2)(Massachusetts)(b) | (2)(California)(b) (2)(California)(b) | | See Supplement #2b * Aetna Life Insurance Company is a 49% general partner and a 1% limited partner. ** Aetna Life Insurance Company is a 49% limited partner and A.E. Properties is a 1% general partner. *** Aetna Life Insurance Company is a 59% general partner and a 1% limited partner. Percentages are rounded to the nearest whole **** Aetna Life Insurance Company is a 99% general partner and Trumbull percent and are based on ownership of voting Three, Inc. is a 1% limited partner. rights.
As of April 10, 1996 AETNA Supplement #2b LIFE INSURANCE COMPANY (1)(Connecticut)(a) | -------------------------------------------------------------------------------------------------------------------- | | | | | | | | 99%* 100% 99%* 99%* | 80% 80% 75% | | | | | | | | ENSENADA TREVOSE OAKS OAKS | KBC-RED KBC- C.R.I. DE LAS HOSPITALITY, AT AT | HILL EASTSIDE HOTEL COLINAS I INC. VALLEY VALLEY | LIMITED LIMITED ASSOCIATES, ASSOCIATES RANCH I RANCH II | PARTNERSHIP PARTNERSHIP L.P. | (2)(Texas)(b) (1)(Connecticut)(b) (2)(Texas)(b) (2)(Texas)(b) | (2)(California)(b) (2)(Arizona)(b) (2)(Iowa)(b) | | ------------------------------------------------------------------------------------------------------------------- | | | | | | | | 100% 100% 100% 100% | 84%**** 99%*** 60% | | | | | | | | TRUMBULL TRUMBULL TRUMBULL TRUMBULL | CENTURY SOUTHFIELD LINCOLN ONE, TWO, THREE, FOUR, | CITY PARTNERS RANCHO INC. INC. INC. INC. | NORTH CUCAMONGA | L.L.C. ASSOCIATES | (1)(Connecticut)(a) (1)(Connecticut)(a) (1)(Connecticut)(a) (1)(Connecticut)(a)|(6)(Delaware)(b) (2)(Maryland)(b) (2)(California)(b) | |------------------------- | | | 99%** | | See VILLAGE Supplement GREEN OF #2c MADISON HEIGHTS (2)(Michigan)(b) * Aetna Life Insurance Company is a 99% general partner and Trumbull One, Inc. is a 1% limited partner. ** Aetna Life Insurance Company is a 99% general partner and Trumbull Three, Inc. is a 1% limited partner. *** Aetna Life Insurance Company is a 99% general partner and Trumbull Four, Inc. is a 1% limited partner. **** Aetna Life Insurance Company of Illinois owns 16% of this limited liability company. Percentages are rounded to the nearest whole percent and are based on ownership of voting rights.
As of April 10, 1996 Supplement #2c AETNA LIFE INSURANCE COMPANY (1)(Connecticut)(a) | ------------------------------------------------------|--------------------------------------------------------- | | | | | | | 65% 50% 60% | 75% 99%* 50% | | | | | | | CENTRUM TRI-CITY SOUTHWEST | B&H CHAMPIONS CHRIS-TOWN ASSOCIATES MALL FINANCIAL | VENTURES IV RICHLAND VILLAGE ASSOCIATES CENTER | LIMITED NORTHCOURTE ASSOCIATES ASSOCIATES | PARTNERSHIP PARTNERSHIP | (2)(California)(b) (2)(Arizona)(b) (2)(Arizona)(b) | (2)(Connecticut)(b) (2)(Texas)(a) (2)(Arizona)(b) | -----------------|---------------------------------------------------------- | | | | | 60% | 50% 99% 50% | | WOODSIDE | SPECTRUM FORGE CAMBRIDGESIDE TERRACE | FASHION PARK GALLERIA PARTNERS | CENTER ASSOCIATES | | (2)(California)(b) | (2)(Arizona)(b) (2)(Massachusetts)(b) (2)(Massachusetts)(b) | | See Supplement #2d * Aetna Life Insurance Company is a 99% general partner and Trumbull One, Inc., is a 1% limited partner. Percentages are rounded to the nearest whole percent and are based on ownership of voting rights.
As of April 10, 1996 Supplement #2d AETNA LIFE INSURANCE COMPANY (1)(Connecticut)(a) | --------------------------------------------------------------|--------------------------------------------------- | | | | | | | | 99%*** 30% 99% 99%*** | 99%*** 85% * 25% | | | | | | | | GOLF ADBI MARRIOTT TCR | FAIRWAY 1501 THACE COURSE PARTNERSHIP INNER VENTANJA | PARTNERS FOURTH AVE. ASSOCIATES VIEW HARBOR LIMITED | LIMITED PARTNERSHIP HOTEL PARTNERSHIP | PARTNERSHIP | (2)(Maryland)(b) (2)(Florida)(b) (2)(Maryland)(a) (2)(Texas)(b) | (2)(Maryland)(b) (2)(Washington)(b) (2)(Michigan)(b) | --------------------------------------------------------------|-------------------------------------------------- | | | | | | | | 99% *** 99% ** 80% 99% ** | 99%**** 100% 99%**** | | | | | | | | LINCOLN EASTMEADOW ARB-DTC EASTMEADOW | AZALEA SOUTHEAST MENLO LOS PADRES DISTRIBUTION LTD. DISTRIBUTION | MALL, SECOND ONE, CENTER PARTNERSHIP CENTER PHASE | L.L.C. AVENUE, L.L.C. LIMITED II LIMITED | INC. PARTNERSHIP PARTNERSHIP | (2)(California)(b) (2)(Georgia)(b) (2)(Colorado)(b) (2)(Georgia)(b) | (6)(Delaware)(b) (1)(Delaware)(a) (6)(Delaware)(b) * Aetna Life Insurance Company is a 84% general partner and a 1% limited partner. ** Aetna Life Insurance Company is a 98% general partner and a 1% limited partner. *** Aetna Life Insurance Company is a 99% general partner and Trumbull Two, Inc., is a 1% limited partner. Percentages are rounded to the nearest whole **** Southeast Second Avenue, Inc. owns 1% of these limited liability companies. percent and are based on ownership of voting rights.
As of April 10, 1996 Supplement #2e AELTUS INVESTMENT MANAGEMENT INC. (1)(Connecticut)(a) | -------------------------------------------------------------------------------------- | | | | 100% 100% 35% 100% | | | | AETNA AELTUS SMITH AETNA INVESTMENT CAPITAL, WHILEY REALTY MANAGEMENT INC. & INVESTORS, (BERMUDA) COMPANY INC. HOLDINGS LIMITED (1) (Bermuda) (a) (1) (Connecticut) (a) (1) (Delaware) (b) (1)(Delaware)(a) | -------------------------------------------------------------------------------------------------------------- | | | | | | 100% 100% 100% 100% 100% 35% | | | | | | AETNA AETNA AELTUS AETNA AETNA CHINA INVESTMENT INVESTMENT INVESTMENT INVESTMENT FINANCIAL DYNAMIC MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT SERVICES INVESTMENT (B.V.I.) NOMINEES (HONG KONG) INTERNATIONAL (S'PORE) LIMITED MANAGEMENT LIMITED LIMITED (FE) LIMITED PTE LTD. (HONG KONG) LIMITED (1) (British Virgin Islands)(a) (1)(Bermuda)(a) (1)(Hong Kong)(a) (1)(Singapore)(a) (1)(Australia)(a) (1)(Hong Kong)(b) | 100% | AETNA FUNDS MANAGEMENT (AUSTRALIA) LIMITED (1)(Australia)(a) Percentages are rounded to the nearest whole percent and are based on ownership of voting rights.
As of April 10, 1996 Supplement #2f AHP HOLDINGS, INC. (1)(Connecticut)(a) ---------------------------------------------------------|------------------------------------------------------ | | | | | | | 100% 100% 100% | 100% 100% 100% | | | | | | | AETNA AETNA AETNA | INFORMED AETNA AETNA HEALTH DENTAL HEALTH | HEALTH, HEALTH HEALTH PLANS OF CARE OF PLANS OF | INC. PLANS OF PLANS OF OHIO, INC. CALIFORNIA, FLORIDA, | TENNESSEE, INC. GEORGIA, INC. INC. | INC. (1)(Ohio)(a) (1)(California)(a) (1)(Florida)(a) | (1)(Delaware)(a) (1)(Tennessee)(a) (1)(Georgia)(a) | ---------------------------------------------------------|------------------------------------------------------ | | | | | | | 100% 81% 100% | 100% 100% 100% | | | | | | | AETNA PARTNERS AETNA | HEALTHWAYS AETNA AETNA HEALTH HEALTH PLAN DENTAL | SYSTEMS, HEALTH PLANS HEALTH PLANS MANAGEMENT, OF CARE OF | INC. OF THE OF THE INC. PENNSLYVANIA, NEW JERSEY, | MID-ATLANTIC, CAROLINAS, INC. INC. | INC. INC. (1)(Delaware)(a) (1)(Pennsylvania)(a) (1)(Delaware)(a) | (1)(Delaware)(a) (1)(Virginia)(a) (1)(North Carolina)(a) | | | | | |--------------------- | | | | | | | See | | | | Supplement 100% 100% | See #2h | Supplement AETNA PHYSICIANS | #2i HEALTH PLANS HEALTH | OF WESTERN PLAN | PENNSYLVANIA, PREFERRED, INC. | INC. | (1)(Pennsylvania)(a) (1)(Pennsylvania)(a) | | See Supplement #2g Percentages are rounded to the nearest whole percent and are based on ownership of voting rights.
As of April 10, 1996 Supplement #2g AHP HOLDINGS, INC. (1) (Connecticut) (a) | ------------------------------------------------------------------------------------------------------------- | | | | | | 55% 100% 100% | 100% 100% | | | | | | PHPSNE AETNA AETNA | AETNA AETNA PARENT HEALTH DENTAL CARE | HEALTH DENTAL CARE CORPORATION PLANS OF OF TEXAS, | PLANS OF OF ARIZONA, INC. | ILLINOIS, KENTUCKY, INC. | INC. INC. | (1) (Delaware) (a) (1) (Arizona) (a) (1) (Texas) | (a)(1)(Illinois) (a) (1)(Kentucky)(a) | | | | 100% | | | AETNA | HEALTH PLANS ----------------------------------------------------------------------------------- OF SOUTHERN 100% 100% | 100% 100% NEW ENGLAND, | | | | | INC. AETNA HEALTH AETNA | AETNA AETNA (1) (Connecticut) (a) PLANS OF CENTRAL HEALTH | HEALTH PROFESSIONAL AND EASTERN PLANS OF | PLANS OF MANAGEMENT PENNSYLVANIA, INC. TEXAS, INC. | LOUISIANA, CORPORATION | INC. (1) (Pennsylvania) (a) (1) (Texas) (a) | (1) (Louisiana) (a) (1) (Connecticut) (a) | | | | ------------------------------------ | 100% 55% 100% 100% | | | | FREEDOM MED AHP WMC CHOICE, SOUTHWEST, SAN DIEGO TRANSITION INC. INC. HOLDINGS, CORPORATION | INC. | (1) (Pennsylvania) (a) (1) (Texas) (a) (1) (California) (a) (1) (Illinois) (a) See Supplement Percentages are rounded to the nearest whole #2j percent and are based on ownership of voting rights.
As of April 10, 1996 Supplement #2h AETNA HEALTH MANAGEMENT, INC. (1) (Delaware) (a) | | 100% | | PARTNERS ACQUISITION COMPANY, INC. (1)(Delaware) (a) | | ----------------------------------------- | | | | 100% 100% | | | | AETNA AETNA GOVERNMENT HEALTH HEALTH PLANS, PLANS OF INC. CALIFORNIA, INC. (1) (California) (a) (1) (California) (a)
Percentages are rounded to the nearest whole percent and are based on ownership of voting rights. As of April 10, 1996 Supplement #2j HEALTHWAYS SYSTEMS. INC. (1) (Delaware) (a) | | ---------------------------------------- | | | | 100% 100% | | AETNA AETNA HEALTH HEALTH PLANS OF PLANS OF NEW YORK NEW JERSEY, INC. INC. (1)(New York)(a) (1)(New Jersey)(a)
Percentages are rounded to the nearest whole percent and are based on ownership of voting rights. As of April 10, 1996 Supplement #2j MED SOUTHWEST, INC. (1) (Texas) (a) | | ---------------------------------------- | | | | 100% 100% | | SOUTHWEST AETNA PHYSICIANS HEALTH PLANS LIFE INSURANCE OF COMPANY NORTH TEXAS, INC. (1) (Texas) (a) (1) (Texas) (a)
Percentages are rounded to the nearest whole percent and are based on ownership of voting rights.
As of April 10, 1996 THE Supplement #3 STANDARD FIRE INSURANCE COMPANY (1)(Connecticut)(a) | ---------------------------------------------------|------------------------------------------------- | | | | | | 44% 25%* | | AETNA THE ASIA AETNA TRUST INTERNATIONAL UMBRELLA FUND (5) (Hong Kong) (b) (1) (Luxembourg) (b) * Percentage controlled by Aetna Life and Casualty Company includes ownership by the following: Aetna Life and Casualty Company 1%,The Aetna Casualty and Surety Company's Global Account 6%, Aetna Investment Management (B.V.I.) Nominees Ltd. 7%, Aetna Life Insurance Company of Percentages are rounded to the Canada 1%, Aetna Re-Insurance Company (U.K.) Ltd 2%, Aetna Fund Managers (F.E.) Limited nearest whole percent and are based 1% and ALICA Taiwan 1%. on ownership of voting rights.
As of April 10, 1996 Supplement #4 AETNA RETIREMENT SERVICES, INC. (1) (Connecticut) (a) | | | | AETNA RETIREMENT HOLDINGS, INC. (1) (Connecticut) (a) | | ---------------------------------------------------------------------------------------------------------- | | | | 100% 100% 100% 100% | | | | SYSTEMATIZED AETNA LIFE AETNA AETNA BENEFITS INSURANCE INVESTMENT FINANCIAL ADMINISTRATORS, AND ANNUITY SERVICES, SERVICES, INC. COMPANY INC. INC. (1) (Connecticut) (a) (1) (Connecticut) (a) (1) (Connecticut) (a) (1) (Connecticut) (a) | | See Supplement #4a
Percentages are rounded to the nearest whole percent and are based on ownership of voting rights.
As of April 10, 1996 Supplement #4a AETNA LIFE INSURANCE AND ANNUITY COMPANY (1)(Connecticut)(a) | ----------------------------------------------------------------------------------------- | | | | | 100% 100% | 99% 100% | | | | | AETNA AETNA | AETNA AETNA INSURANCE PRIVATE | INCOME VARIABLE COMPANY CAPITAL | SHARES ENCORE OF AMERICA INC. | FUND | (1)(Connecticut)(a) (1)(Connecticut)(a) | (5)(Massachusetts)(b) (5)(Massachusetts)(b) | -------------------------------------------------------------------------------------------- | | | | | 100% 97%* 100% 100% 6%** | | | | | AETNA AETNA AETNA AETNA AETNA GET FUND VARIABLE GENERATION INVESTMENT SERIES SERIES B FUND PORTFOLIOS, ADVISERS FUND, INC. FUND, INC. INC. (5)(Massachusetts)(b) (5)(Massachusetts)(b) (1)(Maryland)(b) (1)(Maryland)(b) (1)(Maryland)(b) * Aetna Life Insurance Company owns 3% of the total outstanding stock of Aetna Variable Fund. ** Aetna Life Insurance Company owns 1%. Percentages are rounded to the nearest whole percent and are based on ownership of voting rights
As of April 10, 1996 Supplement #5 AETNA CANADA HOLDINGS LIMITED (1) (Canada) (a) | ----------------------------------------|------------------------------------------------------------ | | | | | | 100% 100% 92%* 70%** 100% 100% | | | | | | AETNA AETNA LIFE EQUINOX 2733854 AETNA AETNA TRUST INSURANCE FINANCIAL CANADA CAPITAL ACCEPTANCE COMPANY COMPANY --8%-- GROUP --30%-- LTD. MANAGEMENT CORPORATION OF CANADA INC. LIMITED LIMITED (1) (B.C.) (a) (1) (Canada) (a) (1) (Canada) (a) (1) (Canada) (a) (1) (Ontario) (a) (1) (Ontario) (a) | --------------------|---------------------------------------- | | | | 25% 100% 100% 100% | | | | ECLIPSE AETNA LANDEX MOUNT-BATTEN CLAIMS BENEFITS PROPERTIES PROPERTIES SERVICES, MANAGEMENT LTD. LIMITED INC. INC. (1) (Ontario) (b) (1) (Canada(a) (1) (B.C.) (a) (1) (Ontario) (a) | | | | | | 20% 45% | | PVS CHURCHILL PREFERRED OFFICE VISION PARK SERVICES LIMITED INC. (1) (Canada) (b) (1) (Canada) (b) * Aetna Life Insurance Company of Canada owns 8% of this corporation. ** Equinox Financial Group, Inc. owns 30% of this corporation. Percentages are rounded to the nearest whole percent and are based on ownership of voting rights.
As of April 10, 1996 AETNA Supplement #6 INTERNATIONAL, INC. | (1)(Connecticut)(a) | ------------------------------------------------------------------------ | | | | | 100% 100% 50% 100% | | | | | | AETNA AETNA EAST ASIA AE | INTERNATIONAL INTERNATIONAL AETNA INSURANCE | HOLDINGS FUND INSURANCE (CAYMAN) | (HONG KONG) I MANAGEMENT COMPANY LTD. | LIMITED INC. (BERMUDA) LTD. | (1)(Hong Kong)(a) (1)(Connecticut) (a)(1)(Bermuda) (b)(1)(Cayman)(a) | | | | | | ------------------- | | | | 35% ** 100% 100% | | | | | BLUE CROSS EAST ASIA AETNA See (ASIA PACIFIC) AETNA INTERNACIONAL Supplement INSURANCE SERVICES DE MEXICO #6a LTD. COMPANY S.A. DE C.V. LIMITED (1)(Hong Kong)(b) (1)(Hong Kong)(b) (1)(Mexico)(a) | | | | See See Supplement Supplement #6b #6c
AETNA INTERNATIONAL, INC. | (1)(Connecticut)(A) | - ------------------------------------------------------------- | | | 80% 100% 100% | | | ALICA AETNA AETNA HOLDINGS LIFE INTERNATIONAL INC. INSURANCE HOLDINGS COMPANY OF (HONG KONG) II AMERICA LIMITED (1)(Connecticut)(a) (1)(Connecticut)(a) (1)(Hong Kong)(a) | | | | | | | | | 75% * 50% 82% | | | AETNA PT DANAMON- DAYA S.A. AETNA LIFE AETNA INSURANCE (MALAYSIA) COMPANY SDN. BHD. (1)(Chile)(a) (1)(Indonesia)(a) (1)(Malaysia)(a) | | | | See 100% Supplement #6d AETNA UNIVERSAL INSURANCE SDN. BHD. (1)(Malaysia)(a) * Aetna Life and Casualty Company owns 25% of this corporation. Percentages are rounded to the nearest whole percent ** East Asia Aetna Insurance Company (Bermuda) Ltd. owns 30% of and are based on ownership of voting rights. Blue Cross (Asia Pacific) Insurance Ltd.
As of April 10, 1996 Supplement #6a AETNA INTERNATIONAL, INC. | | (1)(Connecticut)(a) --------------------------------------------------------------------------------------------------------------- | | | | | | 100% 100% 100% 100% 97%* 100% | | | | | | AETNA AETNA AETNA AE FIVE AETNA AETNA INVESTMENT INVESTMENT CAPITAL INCORPORATED SECURITIES CAPITAL MANAGEMENT MANAGEMENT HOLDINGS, INVESTMENT MANAGEMENT (TAIWAN) (AUSTRALIA) INC. MANAGEMENT INTERNATIONAL LIMITED LIMITED (TAIWAN) LTD. LTD. (1) (Taiwan) (a) (1) (Australia) (a) (1) (Connecticut) (a) (1) (Connecticut) (b) (1) (Taiwan) (a) (1) (United Kingdom (a) 3% owned by various wholly-owned Aetna subsidiaries as nominee for Percentages are rounded to the nearest whole percent Aetna International, Inc. and are based on ownership of voting rights.
As of April 10, 1996 Supplement #6b BLUE CROSS (ASIA PACIFIC) INSURANCE LTD. (1) (Hong Kong) (b) | --------------------------------------------------- | | | 100% 100% 100% | | | TRAVELGUARD TOURSAFE TRAVELSAFE LIMITED LIMITED LIMITED (1) (Hong Kong) (b) (1) (Hong Kong) (b) (1) (Hong Kong) (b)
Percentages are rounded to the nearest whole percent and are based on ownership of voting rights.
As of April 10, 1996 Supplement #6c AETNA INTERNACIONAL DE MEXICO S.A. DE C.V. (1)(Mexico)(a) | 15%* | VALORES MONTERREY AETNA, S.A. DE C.V. (1)(Mexico)(b) | ------------------------------------------------------------------------------------------------------------------- | | | | | 100% 100% 100% 100% 95% | | | | | MEXIMED, FIANZAS SEGUROS GRUPO VAMSA, ASESORES EN S.A. DE C.V. MONTERREY MONTERREY S.A. DE C.V. PROMOCION AETNA, AETNA, SEGUNOMINA S.A. S.A. S.A. DE C.V. (1)(Mexico)(a) (1)(Mexico)(a) (1)(Mexico)(a) (1)(Mexico)(a) (1)(Mexico)(a) *Aetna International, Inc. and AE Five, Inc. each own 15% of this corporation. Percentages are rounded to the nearest whole percent and are based on ownership of voting rights.
As of April 10, 1996 Supplement #6d AETNA S.A. (1) (Chile (a) | | ------------------------------------------------------------------------------------------------------------- | | | | | | | | 73%**** 75%** 75%** | 75%** 50%* | 75%** | | | | | | | | AETNA AETNA AETNA | AETNA AETNA | AETNA CHILE ADMINISTRADORA CREDITO | PENSIONES PENSIONES | CHILE SEGUROS DE FONDOS DE HIPOTECARIO | S.A. PERU | SEGUROS GENERALES INVERSION S.A. | S.A. | DE VIDA S.A. S.A. | | S.A. (1) (Chile) (a) (1) (Chile) (a) (1) (Chile) (a) | (1) (Chile) (a) (1) (Peru) (a) | (1) (Chile) (a) | | | | | | | | | | ---------------------------------------------------- ----------- | | | | | | 60% 85%***** 68%*** 52% 30% 100% | | | | | | AETNA AETNA AETNA ADMINISTRADORA ADMINISTRADORA AETNA VIDA INTERNATIONAL SALUD DE FONDOS DE FONDOS INVERSIONES S.A. PERU S.A. DE PENSIONES DE PENSIONES LIMITADA S.A. SANTA MARIA INTEGRA S.A. S.A. (1) (Argentina) (a) (1) (Peru) (a) (1) (Chile) (a) (1) (Chile) (a) (1) (Peru) (a) (1) (Chile) (a) | | 34% 100% | | COMPANIA SANTA MARIA DE SEGUROS INTERNACIONAL CONDOR S.A. S.A. (1) (Peru) (a) (1) (Chile) (a) * Santa Maria Internacional S.A owns 50% of this company. ** Aetna Inversions Limitada owns 25% of these companies. *** Aetna Inversions Limitada owns 23% of this company. **** Aetna Inversions Limitada owns 24% of this company. Percentages are rounded to the nearest whole percent and ***** Aetna Chile Seguros DeVida S.A. and Aetna Chile are based on ownership of voting rights. Seguros Generales S.A. have combined ownership of 15%.
As of April 10, 1996 Supplement #7 AETNA INTERNATIONAL (N.Z.) LIMITED (1) (New Zealand) (a) | | 50% | | AETNA HEALTH (N.Z.) LIMITED (1) (New Zealand) (a) | --------------------------------------------------- | | | | | | 100% 100% 100% | | | | | | AETNA LIFE FIRST MANAGED INSURANCE MEDICAL CARE NEW (N.Z.) CORPORATION ZEALAND LIMITED LIMITED LIMITED (1) (New Zealand) (a) (1) (New Zealand) (a) (1) (New Zealand) (a) Percentages are rounded to the nearest whole percent and are based on ownership of voting rights.
As of April 10, 1996 AETNA Supplement #2b LIFE INSURANCE COMPANY | (1)(Connecticut)(a) | --------------------------------------------------------------------------------------------------------------------- | | | | | | | | 99%* 100% 99%* 99%* | 80% 80% 75% | | | | | | | | ENSENADA TREVOSE OAKS OAKS | KBC-RED KBC- C.R.I. DE LAS HOSPITALITY, AT AT | HILL EASTSIDE HOTEL COLINAS I INC. VALLEY VALLEY | LIMITED LIMITED ASSOCIATES, ASSOCIATES RANCH I RANCH II | PARTNERSHIP PARTNERSHIP L.P. | (2)(Texas)(b) (1)(Connecticut)(b) (2)(Texas)(b) (2)(Texas)(b) | (2)(California)(b) (2)(Arizona)(b) (2)(Iowa)(b) | | | | --------------------------------------------------------------------------------------------------------------------- | | | | | | | | 100% 100% 100% 100% | 100% 99%*** 60% | | | | | | | | TRUMBULL TRUMBULL TRUMBULL TRUMBULL | SOUTHEAST SOUTHFIELD LINCOLN ONE, TWO, THREE, FOUR, | SECOND PARTNERS RANCHO INC. INC. INC. INC. | AVENUE, CUCAMONGA | INC. ASSOCIATES | (1)(Connecticut)(a) (1)(Connecticut)(a) (1)(Connecticut)(a) (1)(Connecticut)(a)|(1)(Delaware)(a) (2)(Maryland)(b) (2)(California)(b) | | |------------------------ | | | 99%** | | See VILLAGE Supplement GREEN OF #2c MADISON HEIGHTS (2)(Michigan)(b) * Aetna Life Insurance Company is a 99% general partner and Trumbull One, Inc. is a 1% limited partner. ** Aetna Life Insurance Company is a 99% general partner and Trumbull Three, Inc. is a 1% limited partner. *** Aetna Life Insurance Company is a 99% general partner and Trumbull Four, Inc. is a 1% limited partner. Percentages are rounded to the nearest whole percent and are based on ownership of voting rights. Page 32
ITEM 27. NUMBER OF CONTRACT OWNERS As of February 29,1996, there were 527,607 individuals holding interests in variable annuity contracts funded through Variable Annuity Account C. ITEM 28. INDEMNIFICATION Reference is hereby made to Section 33-320a of the Connecticut General Statutes ("C.G.S.") regarding indemnification of directors and officers of Connecticut corporations. The statute provides in general that Connecticut corporations shall indemnify their officers, directors, employees, agents, and certain other defined individuals against judgments, fines, penalties, amounts paid in settlement and reasonable expenses actually incurred in connection with proceedings against the corporation. The corporation's obligation to provide such indemnification does not apply unless (1) the individual is successful on the merits in the defense of any such proceeding; or (2) a determination is made (by a majority of the board of directors not a party to the proceeding by written consent; by independent legal counsel selected by a majority of the directors not involved in the proceeding; or by a majority of the shareholders not involved in the proceeding) that the individual acted in good faith and in the best interests of the corporation; or (3) the court, upon application by the individual, determines in view of all the circumstances that such person is reasonably entitled to be indemnified. C.G.S. Section 33-320a provides an exclusive remedy: a Connecticut corporation cannot indemnify a director or officer to an extent either greater or less than that authorized by the statute, e.g., pursuant to its certificate of incorporation, bylaws, or any separate contractual arrangement. However, the statute does specifically authorize a corporation to procure indemnification insurance to provide greater indemnification rights. The premiums for such insurance may be shared with the insured individuals on an agreed basis. Consistent with the statute, Aetna Life and Casualty Company has procured insurance from Lloyd's of London and several major United States excess insurers for its directors and officers and the directors and officers of its subsidiaries, including the Depositor, which supplements the indemnification rights provided by C.G.S. Section 33-320a to the extent such coverage does not violate public policy. ITEM 29. PRINCIPAL UNDERWRITER (a) In addition to serving as the principal underwriter for the Registrant, Aetna Life Insurance and Annuity Company (ALIAC) also acts as the principal underwriter for Variable Life Account B and Variable Annuity Accounts B and G (separate accounts of ALIAC registered as unit investment trusts), and Variable Annuity Account I (a separate account of Aetna Insurance Company of America registered as a unit investment trust). Additionally, ALIAC is the investment adviser for Aetna Variable Fund, Aetna Income Shares, Aetna Variable Encore Fund, Aetna Investment Advisers Fund, Inc., Aetna GET Fund, Aetna Series Fund, Inc. and Aetna Generation Portfolios, Inc. ALIAC is also the depositor of Variable Life Account B and Variable Annuity Accounts B and G. (b) See Item 25 regarding the Depositor. (c) Compensation as of December 31, 1995:
(1) (2) (3) (4) (5) Name of Net Underwriting Compensation on Principal Discounts and Redemption or Brokerage Underwriter Commissions Annuitization Commissions Compensation* - ----------- ---------------- --------------- ----------- ------------- Aetna Life $1,830,629 $74,341,006 Insurance and Annuity Company
* Compensation shown in column 5 includes deductions for mortality and expense risk guarantees and contract charges assessed to cover costs incurred in the sales and administration of the contracts issued under Account C. ITEM 30. LOCATION OF ACCOUNTS AND RECORDS All records concerning contract owners of Variable Annuity Account C are located at the home office of the Depositor as follows: Aetna Life Insurance and Annuity Company 151 Farmington Avenue Hartford, Connecticut 06156 ITEM 31. MANAGEMENT SERVICES Not applicable ITEM 32. UNDERTAKINGS Registrant hereby undertakes: (a) to file a post-effective amendment to this registration statement on Form N-4 as frequently as is necessary to ensure that the audited financial statements in the registration statement are never more than sixteen months old for as long as payments under the variable annuity contracts may be accepted; (b) to include as part of any application to purchase a contract offered by a prospectus which is part of this registration statement on Form N-4, a space that an applicant can check to request a Statement of Additional Information; and (c) to deliver any Statement of Additional Information and any financial statements required to be made available under this Form N-4 promptly upon written or oral request. (d) The Company hereby represents that it is relying upon and complies with the provisions of Paragraphs (1) through (4) of the SEC Staff's No-Action Letter dated November 22, 1988 with respect to language concerning withdrawal restrictions applicable to plans established pursuant to Section 403(b) of the Internal Revenue Code. See American Counsel of Life Insurance; SEC No-Action Letter, [1989 Transfer Binder] Fed. SEC. L. Rep. (CCH) PARA 78,904 at 78,523 (November 22, 1988). (e) Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. SIGNATURES As required by the Securities Act of 1933, as amended, and the Investment Company Act of 1940, the Registrant, Variable Annuity Account C of Aetna Life Insurance and Annuity Company, has duly caused this Post-Effective Amendment No. 5 to its Registration Statement on Form N-4 (File No. 33-75986) to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Hartford, State of Connecticut, on the 12th day of April, 1996. VARIABLE ANNUITY ACCOUNT C OF AETNA LIFE INSURANCE AND ANNUITY COMPANY (REGISTRANT) By: AETNA LIFE INSURANCE AND ANNUITY COMPANY (DEPOSITOR) By: Daniel P. Kearney* ---------------------------------------- Daniel P. Kearney President As required by the Securities Act of 1933, as amended, this Post-Effective Amendment No. 5 to the Registration Statement on Form N-4 (File No. 33-75986) has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- Daniel P. Kearney* Director and President ) - ----------------------- (principal executive officer) ) Daniel P. Kearney ) ) Timothy A. Holt* Director, Senior Vice President and Chief Financial ) April - ----------------------- Officer ) 12, 1996 Timothy A. Holt ) ) Eugene M. Trovato* Vice President and Treasurer, Corporate Controller ) - ----------------------- ) Eugene M. Trovato ) ) Christopher J. Burns* Director ) - ----------------------- ) Christopher J. Burns ) )
SIGNATURE TITLE DATE --------- ----- ---- Laura R. Estes* Director ) - ---------------------- ) Laura R. Estes ) ) Gail P. Johnson* Director ) - ---------------------- ) Gail P. Johnson ) ) John Y. Kim* Director ) - ---------------------- ) John Y. Kim ) ) Shaun P. Mathews* Director ) - ---------------------- ) Shaun P. Mathews ) ) Glen Salow* ) - ---------------------- Director ) Glen Salow ) ) Creed R. Terry* Director ) - ---------------------- ) Creed R. Terry ) By: /s/ Julie E. Rockmore ---------------------------------- Julie E. Rockmore *Attorney-in-Fact
VARIABLE ANNUITY ACCOUNT C EXHIBIT INDEX
EXHIBIT NO. EXHIBIT PAGE - ----------- ------- ---- 99-B.1 Resolution of the Board of Directors of Aetna Life Insurance and Annuity Company establishing Variable Annuity Account C ____ 99-B.3.1 Form of Broker-Dealer Agreement ____ 99-B.3.2 Alternative Form of Wholesaling Agreement and related Selling Agreement ____ 99-B.4.1 Form of Variable Annuity Contract (G-CDA-IA(RP)) ____ 99-B.4.2 Form of Variable Annuity Contract (G-CDA-IA(RPM/XC)) ____ 99-B.4.3 Form of Variable Annuity Contract (G-CDA-HF) * 99-B.5 Form of Variable Annuity Contract Application (300-GTD-IA) * 99-B.6 Certification of Incorporation and By-Laws of Depositor * 99-B.8.1 Fund Participation Agreement (Amended and Restated)between Aetna Life Insurance and Annuity Company, Alger American Fund and Fred Alger Management, Inc. dated March 31, 1995 ____ 99-B.8.2 Fund Participation Agreement between Aetna Life Insurance and Annuity Company and Calvert Asset Management Company (Calvert Responsibily Invested Balanced Portfolio formerly Calvert Socially Responsible Series) dated March 13, 1989 and amended December 27, 1993 ____ 99-B.8.3 Fund Participation Agreement between Aetna Life Insurance and Annuity Company and Fidelity Distributors Corporation (Variable Insurance Products Fund) dated February 1, 1994 and amended March 1, 1996 ____ 99-B.8.4 Fund Participation Agreement between Aetna Life Insurance and Annuity Company and Fidelity Distributors Corporation (Variable Insurance Products Fund II) dated February 1, 1994 and amended March 1, 1996 ____
*Incorporated by reference
EXHIBIT NO. EXHIBIT PAGE - ----------- ------- ---- 99-B.8.5 Fund Participation Agreement between Aetna Life Insurance and Annuity Company and Franklin Advisers, Inc. dated January 31, 1989 ____ 99-B.8.6 Fund Participation Agreement between Aetna Life Insurance and Annuity Company and Janus Aspen Series dated April 19, 1994 and amended March 1, 1996 99-B.8.7 Fund Participation Agreement between Aetna Life Insurance and Annuity Company and Lexington Management Corporation regarding Natural Resources Trust dated December 1, 1988 and amended February 11, 1991 ____ 99-B.8.8 Fund Participation Agreement between Aetna Life Insurance and Annuity Company and Advisers Management Trust (now Neuberger & Berman Advisers Management Trust) dated April 14, 1989 and as assigned and modified on May 1, 1995 ____ 99-B.8.9 Fund Participation Agreement between Aetna Life Insurance and Annuity Company and Scudder Variable Life Investment Fund dated April 27, 1992 and amended February 19, 1993 and August 13, 1993 ____ 99-B.8.10 Fund Participation Agreement between Aetna Life Insurance and Annuity Company, Investors Research Corporation and TCI Portfolios, Inc. dated July 29, 1992 and amended December 22, 1992 and June 1, 1994 ____ 99-B.9 Opinion of Counsel * 99-B.10.1 Consent of Independent Auditors ____ 99-B.10.2 Consent of Counsel ____
VARIABLE ANNUITY ACCOUNT C EXHIBIT INDEX
EXHIBIT NO. EXHIBIT PAGE - ----------- ------- ---- 99-B.13 Computation of Performance Data * 99-B.15.1 Powers of Attorney * 99-B.15.2 Authorization for Signatures 27 Financial Data Schedule ____
*Incorporated by reference EX-1 2 EXHIBIT 1 [AETNA LOGO] [AETNA LETTERHEAD] AETNA LIFE INSURANCE AND ANNUITY COMPANY I, Susan E. Schechter, hereby certify that I am the duly elected and acting Corporate Secretary of Aetna Life Insurance and Annuity Company (the "Company"), a company organized and existing under the laws of the State of Connecticut, and that the following Votes were duly adopted by the Board of Directors of the Corporation on November 15, 1993 and June 17, 1992, respectively, and that such votes remain in full force and effect: VOTED: That the Company is hereby authorized to exercise the powers granted by the terms of Sections 38a-459 and 38a-433a of the Connecticut General Statutes (or any successor provision to either of those sections). and, further VOTED: That the head of each Strategic Business Unit (SBU) of this Company, or his or her delegate, is hereby authorized, acting on this Company's behalf, to cause the establishment of one or more separate accounts under Connecticut insurance law for the purpose of funding contracts primarily marketed by that SBU, and to make any filings under applicable law and to take any other action which may be deemed necessary or appropriate to the operations of any such separate account. Dated at Hartford, Connecticut on March 19, 1996. /s/ Susan E. Schechter ---------------------------------- Susan E. Schechter Corporate Secretary EX-3.1 3 EXHIBIT 3.1 BROKER-DEALER AGREEMENT This AGREEMENT is effective as of this __________ day of _______, 19___, by and between Aetna Life Insurance and Annuity Company ("Company"), Hartford, Connecticut 06156, incorporated under the laws of the State of Connecticut, and _________________ ("Broker-Dealer"), incorporated under the laws of the State of ________________. BACKGROUND (1) The company, acting through its designated business unit, issues, markets and services certain individual and group annuity contracts to fund retirement arrangements that conform to Sections 401 and 408 of the Internal Revenue Code, as amended ("contracts"); and (2) The Company is authorized to sell the Contracts in all appropriate jurisdictions, having received all the necessary state and federal regulatory approvals; and (3) The Company wishes to authorize the Broker-Dealer to sell the Contracts in accordance with the terms and conditions of this Agreement; and (4) The Broker-Dealer wishes to sell the Contracts in accordance with the terms and conditions of this Agreement; and (5) The Company and Broker-Dealer are registered with the Securities and Exchange Commission as broker-dealers under the Securities Exchange Act of 1934, as amended; are members in good standing of the National Association of Securities Dealers, Inc. ("NASD"), and are in compliance with appropriate state insurance and securities licensing requirements. AGREEMENT The Company and Broker-Dealer, in consideration of the covenants and mutual promises contained in this Agreement and other good and valuable consideration, the receipt and legal sufficiency of which are acknowledged, agree to the following terms: 1. APPOINTMENT AND AUTHORIZATION (a) The Broker-Dealer is an independent contractor and not an employee, partner, joint venturer, or associate of the Company. No provision I this Agreement shall be construed to change the Broker-Dealer's independent contractor status. (b) The Company authorizes the Broker-Dealer to sell, and the Broker- Dealer agrees to sell, the Contracts only through persons who are registered representatives of the Broker-Dealer in accordance with NASD requirements, licensed under the appropriate state insurance laws, and appointed by the Company to offer the Contracts ("Representatives"). (c) The Broker-Dealer shall comply with all the rules of the Company and applicable federal, state, and NASD requirements covering the sales of the Contracts. (d) The Broker-Dealer may obligate the Company only to the extent authorized under this Agreement or as permitted in writing by an authorized officer of the Company. Specifically, and not by way of limitation, the Broker-Dealer is not allowed to make, alter, or discharge Contracts or waive forfeitures, quote extra rates, extend the time of payment of any deposit, extend credit, guarantee or estimate any rate of return, except through the use of authorized projections of the Company. (e) The Broker-Dealer is not authorized to receive any money on the Company's behalf with the exception of the initial deposit to a Contract, which must be delivered immediately to the Company, as directed. (f) The Company reserves the right, without notice to the Broker-Dealer, to suspend, withdraw, modify the offering of any Contract, including annuity purchase and interest rates, change the conditions of a Contract's offering, including its underwriting rules, with respect to anyone, or to introduce new Contracts. The Broker-Dealer is not authorized to offer a Contract for sale until notified by the Company that the requirements of the appropriate state and federal authorities regarding the proposed offer and sale of the Contract have been met. 2 (g) The Broker-Dealer has no exclusive territory, and has no exclusive rights with regard to any transaction covered under this Agreement. The Company reserves the right to appoint other broker-dealers to distribute its products or distribute them itself. 2. LICENSES The Broker-Dealer shall sell Contracts only through those Representative who are approved in writing by an authorized officer of the Company. The Broker-Dealer is responsible for securing and keeping in effect the appropriate licenses and registrations required of its Representatives under this Agreement and for not allowing any person to sell any Contract if that person either is subject to an NASD or state regulatory bar or suspension order, or has been a defendant in any litigation related to sales activities that has been adversely decided or settled against such person. 3. ADMINISTRATIVE PROCEDURES (a) The Broker-Dealer shall complete its review for suitability of all Contract applications and related Company forms received from its Representatives and forward all relevant documents and any initial Contract deposit to the Company's designated office within twenty-four (24) hours of receipt. Otherwise, any initial Contract deposit shall be returned to the prospective customer within twenty-four (24) hours of receipt. (b) The Company has the right to accept or refuse to accept any Contract application or enrollment form obtained by the Broker-Dealer. Upon the Company's acceptance of a Contract application or enrollment form submitted by the Broker-Dealer, the Company shall mail the appropriate Contract or certificate to the Broker-Dealer, which shall make prompt delivery to the customer. Notwithstanding this obligation of the Broker-Dealer, the Company reserves the right to transmit such Contract or certificate directly to the customer. 3 4. COMPENSATION (a) The Broker-Dealer shall be compensated solely in accordance with Schedule of Commission, attached as Exhibit A, for all sales performed in connection with this Agreement. The Company may amend this Schedule at any time. An amendment shall be incorporated in Exhibit A and shall apply to Contracts issued after the amendment's effective date. Notice of an amendment or a new Schedule shall be give in accordance with Section 11. (b) Commissions payable in connection with the following deposit's, regardless of any other provision of this Agreement, shall be at the rates allowed under the Company's pertinent Schedule of Commissions that is current at the time the deposit is made: (i) Deposits on reinstatement of surrendered Contracts; (ii) Deposits to Contracts that, in the Company's judgment, are to take the place of Contracts previously issued by the Company on the same life or lives, and (iii) Deposits on special plans or arrangements not shown in the Company's rate books, or on cases carrying special rate quotes. (c) The Company shall mail commission checks and related statements to the designated Company office for distribution to the Broker-Dealer in accordance with its directions. 5. ADVANCES AND INDEBTEDNESS The Company reserves the right to deduct any amount it determines is owed by the Broke-Dealer to the Company, its affiliates, associates, parent, or subsidiaries from any compensation due the Broker-Dealer from the Company. This right covers, but is not limited to: (a) Advances to the Broker-Dealer; (b) Compensation previously paid to the Broker-Dealer for deposits received by the Company and later returned or credited to the appropriate customer for any reason; (c) Any overpayment of compensation to the Broker-Dealer, and (d) Any amount due the Company under Section 6(c). 4 If the offset of compensation due the Broker-Dealer does not eliminate the amount owed by the Broker-Dealer, the balance due the Company shall be a debt of the Broker-Dealer, on which interest shall be charge at eight percent (8%) per annum. The Company shall have all rights of a creditor to collect amounts owed it by the Broker-Dealer. 6. BROKER-DEALER SUPERVISORY RESPONSIBILITIES (a) The Broker-Dealer has complete responsibility and liability under this Agreement for the supervision of its Representatives, agents, and other employees in all their activities subject to this Agreement. The Broker-Dealer shall hold the Company harmless against, and shall indemnify the Company for all claims, expenses, losses, damages, liabilities, or causes of action resulting from any negligent, fraudulent, intentional or unintentional acts, omissions, or errors of the Broker-Dealer in violation of, or refusal or failure to comply with, the terms, of this Agreement, or any applicable federal, state, or NASD requirement. (b) The Company and Broker-Dealer agree to cooperate fully in any investigation or proceeding, the subject of which is the Broker- Dealer, to the extent that such investigation or proceeding concerns any contract offered under this Agreement. Without limiting the foregoing: (i) The Company shall promptly notify the Broker-Dealer of receipt of any customer complaint or notice of any investigation or proceeding dealing with the Broker-Dealer and any Contract offered under this Agreement. (ii) The Broker-Dealer shall promptly notify the Company of receipt of any customer complaint or notice of any investigation or proceeding dealing with any Contract offered under this Agreement. The Broker-Dealer shall also promptly notify the Company of any NASD, federal, or state investigation or proceeding , or related litigation that has been initiated against it. 5 (c) The Company reserves the right to make a financial settlement with a particular customer in response to such customer's allegation of an error, omission, or wrongdoing by the Broker-Dealer. The Broker- Dealer shall be notified of any financial settlement made by the Company under this Section 6 (c). Once notified, the Broker-Dealer shall reimburse the Company for the amount of the settlement. To the extent that the Broker-Dealer does not so reimburse the Company, the balance shall be recovered under Section 5 as a debt of the Broker- Dealer. 7. TRAINING The Company will conduct training programs to describe the Contracts and related Company processes to Broker-Dealer personnel at times and places mutually agreed upon. The Broker-Dealer shall use its best efforts to support these programs, including arranging the distribution of manuals and training materials to its personnel, and to require the attendance of the appropriate Broker-Dealer personnel before they are permitted to sell any Contract. The Broker-Dealer shall pay all expenses incurred in connection with the attendance of Broker-Dealer personnel at these programs as well as the cost of any meeting room and related expenses incurred as a result of the Company's conducting these programs. 8. ADVERTISING (a) The Broker-Dealer shall only use advertising materials, prospectuses, circulars, letters, pamphlets, schedules, stationery, broadcasting, or any other sales materials describing the Company or the Contracts that have first been approved in writing by any authorized officer of the Company and, if required, filed with the NASD. The Broker-Dealer shall not permit the use of these materials by unauthorized persons. (b) The Company will supply the Broker-Dealer with reasonable quantities of pertinent current prospectuses, disclosure booklets, and other relevant sales materials it prepares for use by the Broker-Dealer. All Broker-Dealer marketing plans and methods for selling Contracts are subject to review by the Company on a periodic basis, but not less frequently than annually. 6 9. OWNERSHIP OF CONTRACT-RELATED MATERIALS (a) All records, customer files and related paperwork, any literature, authorization cards, sales aids, manuals, and supplies of every kind and nature furnished by the Company or obtained by the Broker-Dealer and relating to the Contracts are the exclusive property of the Company. The Broker-Dealer shall safely keep and preserve such Company property and shall replace, at its expense, any part that is lost, damaged, destroyed, or defaced while in its possession or control. (b) The Broker-Dealer shall keep confidential any information that is covered by this Agreement, and shall only disclose such information as either allowed in writing by an authorized officer of the Company or expressly mandated by any applicable federal or state requirement, or court order. (c) The Broker-Dealer shall return the property described in this Agreement to the Company free from Broker-Dealer claims or asserted retention rights upon the termination of this Agreement. The Company reserves the right to withhold any compensation under this Agreement due the Broker-Dealer until such property is returned. 10. REVOCATION OF PRIOR AGREEMENTS (a) This Agreement and any subsequent written amendments constitute the entire agreement between the Company and Broker-Dealer in connection with the sale of the contracts described in this Agreement. This Agreement terminates and supersedes all previous contracts, agreements, or arrangements made between the parties in connection with the sale of such Contracts. (b) This Agreement does not, however, revoke any contracts, agreements, or arrangements under which commissions and service fees are due or will become due or will become due the Broker-Dealer on insurance or annuity contracts issued by the Company prior to this Agreement's effective date. Notwithstanding this exception to Section 10 (a), no Company claim of any kind, whether for money or otherwise, against the Broker-Dealer, or any obligation or vested right of the Broker-Dealer under any prior contract, agreement, or arrangement with the Company is waived. 7 11. NOTICE All notices, requests, demands, and other communication that must be provided under this Agreement shall be in writing, and shall be deemed to have been given on the date of mailing if sent by first class mail, postage prepaid. All notices to the Company shall be sent to: Aetna Life Insurance and Annuity Company 151 Farmington Avenue Hartford, Connecticut 06156 Attn.: ---------------------------------- All notices to the Broker-Dealer shall be sent to: Name: --------------------------- Address: --------------------------- --------------------------- Attn.: --------------------------- 12. SEVERABILITY AND MODIFICATIONS (a) The provisions of this Agreement are severable, and if any provision of this Agreement or any modification, addendum, or supplement to it is found to be invalid, such provision shall not affect any other provision of the Agreement that can be given effect without the invalid provision. (b) The Company reserves the right to amend this Agreement at any time. An amendment shall be effective thirty (30) days from the date notice is given the Broker-Dealer in accordance with Section 11. (c) No amendment made by the Broker-Dealer shall be effective unless it is in writing, assented to, and signed by an authorized officer of the Company. 8 13. WAIVER Failure of either party to require performance of any provision of this Agreement shall not constitute a waiver of that party's right to enforce such provision at a later time. Waiver of any breach of any provision shall not constitute a waiver of any succeeding breach. 14. ASSIGNABILITY This Agreement may not be assigned unless an authorized officer of the nonassigning party agrees to the proposed assignment in writing prior to its effective date. 15. TERMINATION (a) This Agreement shall terminate immediately if: (i) The Broker-Dealer is dissolved, liquidated, or otherwise ceases business operations, (ii) The Broker-Dealer fails to comply with any of its obligations under this Agreement in the Company's sole judgment, (iii) The Broker-Dealer's license or appointment to represent the Company is terminated, (iv) The Broker-Dealer's NASD registration or its NASD membership is terminated, (v) The Broker-Dealer refuses to accept an amendment made in accordance with Section 12 (b), or (iv) At the end of any calendar year, beginning with _____________, 19__, the Broker-Dealer fails to maintain a minimum production level of $__________ of annualized paid deposits through the sale of Contracts under this Agreement during such year. (b) The Company and Broker-Dealer shall have the right, upon thirty (30) days' written notice delivered pursuant to Section 11, to terminate this Agreement for any reason. (c) Notwithstanding the termination of this Agreement, the Company and Broker-Dealer acknowledge that each of them shall be liable for their respective obligations undertaken prior to the this Agreement's termination date. 9 16. CONSTRUCTION OF AGREEMENT This Agreement will be construed in accordance with the laws of the State of Connecticut. any action or suit arising out of this Agreement shall be instituted in the courts of the State of Connecticut, and the parties consent to service, jurisdiction, and venue of such courts for all purposes. 17. HEADINGS The headings in this Agreement are for reference purposes only, and shall not be deemed part of this Agreement or affect its meaning or interpretation. 18. COUNTERPARTS This Agreement may be executed in two or more counterparts, each of which taken together shall constitute one and the same instrument. IN WITNESS WHEREOF, the Company and Broker-Dealer, by their duly authorized officers, have caused this Agreement to be executed. Signed at Hartford, Connecticut this _____ day of ________,19__________ Aetna Life Insurance and Annuity Company By: --------------------------------- Title: --------------------------------- Signed at _____________________ this _________ day of _________,19 ---------------------------------------- Broker-Dealer By: --------------------------------- Title: --------------------------------- 10 EX-3.2 4 EXHIBIT 3.2 WHOLESALING AGREEMENT BETWEEN AETNA LIFE INSURANCE AND ANNUITY COMPANY and --------------------------- TABLE OF CONTENTS PAGE SECTION 1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 BROKER-DEALER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.2 SELLING AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.3 SELLING BROKER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 SECTION 2. DUTIES OF THE PARTIES. . . . . . . . . . . . . . . . . . . . . . 2 2.1 APPOINTMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.2 GENERAL DESCRIPTION OF DUTIES. . . . . . . . . . . . . . . . . . . . . 2 2.3 DUTIES OF ALIAC. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 SECTION 3. SELLING BROKERS. . . . . . . . . . . . . . . . . . . . . . . . . 3 3.1 DUE DILIGENCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3.2 SELLING AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3.3 RELATIONS WITH SELLING BROKERS . . . . . . . . . . . . . . . . . . . . 4 3.4 ADVERTISING MATERIALS. . . . . . . . . . . . . . . . . . . . . . . . . 4 3.5 LICENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 SECTION 4. COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . 4 4.1 COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 4.2 EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 SECTION 5. LIMITATION OF WHOLESALER'S AUTHORITY . . . . . . . . . . . . . . 5 5.1 SALE OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . 5 5.2 LIMITS ON AUTHORITY. . . . . . . . . . . . . . . . . . . . . . . . . . 5 SECTION 6. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . 5 6.1 REPRESENTATION AND WARRANTIES OF ALIAC . . . . . . . . . . . . . . . . 5 6.2 REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . 6 SECTION 7. CUSTOMER CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . 7 7.1 CONFIDENTIALITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 SECTION 8. EFFECTIVE DATE AND TERMINATION . . . . . . . . . . . . . . . . . 7 8.1 EFFECTIVE DATE AND TERMINATION . . . . . . . . . . . . . . . . . . . . 7 8.2 TERMINATION FOR CAUSE BY ALIAC . . . . . . . . . . . . . . . . . . . . 7 8.3 TERMINATION WITHOUT CAUSE. . . . . . . . . . . . . . . . . . . . . . . 9 8.4 CONSEQUENCES OF TERMINATION. . . . . . . . . . . . . . . . . . . . . . 9 8.5 RETURN OF MATERIALS. . . . . . . . . . . . . . . . . . . . . . . . . . 9 SECTION 9. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . 10 9.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 9.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 9.3 NOTICE OF ACTION . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 SECTION 10. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 10.1 ADMINISTRATIVE INQUIRIES/CUSTOMER COMPLAINTS . . . . . . . . . . . . . 11 10.2 INDEPENDENT CONTRACTOR STATUS. . . . . . . . . . . . . . . . . . . . . 11 10.3 WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 10.4 ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 10.5 AMENDMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 10.6 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 10.7 CONTROLLING LAW AND VENUE. . . . . . . . . . . . . . . . . . . . . . . 13 10.8 DISPUTE RESOLUTION . . . . . . . . . . . . . . . . . . . . . . . . . . 13 10.9 SERVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 10.10 HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 10.11 FORCE MAJEURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 10.12 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 10.13 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 WHOLESALING AGREEMENT This Agreement ("Agreement") is made and entered into, by and between AETNA LIFE INSURANCE AND ANNUITY COMPANY ("ALIAC"), a corporation organized and existing under the laws of the State of Connecticut, with its principal place of business at 151 Farmington Avenue, Hartford, Connecticut 06156, and ____________________ ("__________"), a broker-dealer organized and existing under the laws of ____________, with its principal place of business at _____________________________________. WHEREAS, ALIAC is the issuer and underwriter of securities ("Securities") which are group and individual variable annuity contracts ("ALIAC Contracts") as more fully described on Schedule A, attached hereto; and WHEREAS, ALIAC desires to offer and sell the Securities to the public through broker-dealers registered with the Securities and Exchange Commission ("SEC") and any applicable states (including the District of Columbia, Puerto Rico and Guam), and who are members of good standing of the National Association of Securities Dealers, Inc. ("NASD"); and WHEREAS, ____________ wishes to assemble a group of selling brokers to offer and sell the Securities for ALIAC; NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, the parties do hereby agree as follows: SECTION 1. DEFINITIONS When used in this Agreement, unless the context requires otherwise, the following terms shall have the meanings indicated: 1.1 BROKER-DEALER: "Broker-Dealer" shall mean an entity registered as a broker-dealer with the Securities and Exchange Commission, applicable states and is a member firm of the National Association of Securities Dealers, Inc. 1.2 SELLING AGREEMENT: "Selling Agreement" shall mean the agreement between ALIAC and a Selling Broker with respect to the offer and sale of the Securities listed on Schedule A. 1.3 SELLING BROKER: "Selling Broker" shall mean a Broker-Dealer who enters into a Selling Agreement with ALIAC. SECTION 2. DUTIES OF THE PARTIES 2.1 APPOINTMENT: ALIAC hereby designates and ___________ hereby agrees, to serve as a non-exclusive wholesaler for ALIAC for the purpose of soliciting Broker-Dealers to become Selling Brokers of the Securities. Such designation by ALIAC and agreement by _________________ shall not operate as any limitation or restriction on ALIAC from entering agreements with other wholesalers with respect to the Securities. 2.2 GENERAL DESCRIPTION OF DUTIES: _____________ shall review the qualifications of, and shall then propose to ALIAC, the Broker-Dealers to be used for sale of the Securities. ____________ shall use only the most recent effective prospectus, as amended, concerning the Securities when soliciting interest from prospective Selling Brokers. ____________ shall perform the due diligence on the Broker-Dealer as required in Section 3. Upon determining that the Broker-Dealer meets ALIAC's standards, as ALIAC may determine from time to time, ____________ shall provide the Selling Agreement executed by the Broker-Dealer and its due diligence report to ALIAC. 2 2.3 DUTIES OF ALIAC: ALIAC shall review the due diligence report on a Broker- Dealer submitted by ___________. Upon completion of its review, ALIAC shall either accept the Broker-Dealer as a Selling Broker by executing the Selling Agreement, or notify ____________ in writing of its reason for rejecting the Broker-Dealer. ALIAC shall have no obligation to ____________, or any Broker- Dealer proposed by ____________, to enter a selling Agreement. SECTION 3. SELLING BROKERS 3.1 DUE DILIGENCE: ____________ shall provide ALIAC with a due diligence report on each proposed Selling Broker which shall include, but is not limited to: a. a current FOCUS report as filed with the NASD; b. a current copy of Form BD, as amended and filed with the NASD; c. a current Central Registration Depository ("CRD") report, indicating all jurisdictions in which the Broker-Dealer is registered and all reported disciplinary actions; d. a current CRD report for those registered representatives of the Broker-Dealer who have "yes" answers to item 22 of Form U-4; e. a description of the Broker-Dealer's supervisory and compliance system, including the name of its personnel responsible for compliance, and copies of compliance and procedures manuals; f. such other information as ALIAC may request as to a specific Broker- Dealer or otherwise generally require from time to time; and g. corporate authorization of the Broker-Dealer to enter the Selling Agreement. 3.2 SELLING AGREEMENT: Upon acceptance of the Broker-Dealer, ALIAC shall enter into a Selling Agreement. ALIAC, in its sole discretion, may decline to enter into a Selling Agreement with any Broker-Dealer proposed by ____________. ALIAC shall be 3 free to terminate any Selling Agreement in accordance with the terms of such Selling Agreement without recourse by, or liability to, ____________. 3.3 RELATIONS WITH SELLING BROKERS: ____________ shall provide reasonable assistance to ALIAC in resolving any problems, differences and disputes arising from the relationship among ALIAC, ____________, and a Selling Broker. ____________ shall not establish any procedures or settle any disputes on behalf of ALIAC without first obtaining ALIAC's written approval. In the event of any actual or perceived conflict between the interests of ALIAC and ____________, ____________ shall notify ALIAC immediately and either (a) obtain ALIAC's written consent to continue to resolve the dispute irrespective of the conflict or (b) employ, at ____________'s expense, a third party with no affiliation with ____________ to resolve the dispute. ALIAC shall first be notified of and have the right to reject the third party selected by ____________. 3.4 ADVERTISING MATERIALS: ____________________shall use only those advertising materials and sales litereature, including prospectuses, which have been first approved by ALIAC and, if required, filed with and approved by the NASD and any state. 3.5 LICENSES: ____________ agrees that its agents, employees, or representatives who will be contacting Broker-Dealers for the purpose of soliciting the execution of Selling Agreements will be licensed, registered and appointed as required under all applicable federal and state laws and regulations and the rules of the NASD. SECTION 4. COMPENSATION 4.1 COMPENSATION: Subject to all terms and conditions of this Agreement, ALIAC shall pay to ____________ commissions and other compensation, as provided for in Schedule B, which is attached hereto and made a part of this Agreement. 4 4.2 EXPENSES: ____________ shall be responsible for any and all expenses it incurs in carrying out the terms of this Agreement. SECTION 5. LIMITATION OF WHOLESALER'S AUTHORITY 5.1 SALE OF SECURITIES: Nothing contained in this Agreement shall be construed as granting authority to ____________ or any of its agents, representatives or employees to solicit, offer or sell the Securities to prospective customers. 5.2 LIMITS ON AUTHORITY: ____________ shall have not authority on behalf of ALIAC to directly or indirectly through any person to: a. alter the Securities or their terms; b. waive or modify any terms, conditions or limitations of the Securities, underwriting rules, nor is it authorized to grant permits, special rates, interest rates or make endorsements; c. incur any indebtedness or liability on behalf of ALIAC, or expend or contract for the expenditure of funds of ALIAC; d. adjust or settle any claim or commit ALIAC with respect thereto, or bind ALIAC or any of its affiliates in any way; or e. make any statements concerning the Securities not contained in the prospectus describing the Securities or as otherwise may be authorized by ALIAC in writing. SECTION 6. REPRESENTATIONS AND WARRANTIES 6.1 REPRESENTATION AND WARRANTIES OF ALIAC: ALIAC represents and warrants to ____________ as follows: a. It is licensed as an insurance company in all 50 states of the United States and the District of Columbia. 5 b. It is registered as a Broker-Dealer with SEC and is a member in good standing of the NASD. c. The ALIAC Contracts have been submitted for approval or have been approved for sale by the insurance departments of all states. d. The Securities have been filed and/or registered, or are exempt from registration, with the SEC and applicable state jurisdictions. e. It is a corporation organized, existing and in good standing under the laws of the State of Connecticut. f. I has full power and authority to enter into this Agreement and to carry out its duties and obligations hereunder. 6.2 REPRESENTATIONS AND WARRANTIES: ____________ represents and warrants to ALIAC as follows; a. It is registered as a Broker-Dealer with the SEC, is a member in good standing of the NASD, and is registered to sell securities in all states and in any other jurisdiction where it is required to be registered in order to carry out its obligations hereunder and will continue to be so registered and will continue to be a member in good standing of the NASD during the term of this Agreement. b. It is a corporation organized, existing and in good standing under the laws of the State of ____________ and is qualified to do business as a corporation in those jurisdictions where it is doing business. c. It has full power and authority to enter into this Agreement and to carry out its duties and obligations hereunder. d. All functions, duties, obligations and responsibilities of _____________ under this Agreement which require NASD or state securities registration or state insurance licenses shall be performed by a duly registered and/or licensed person. 6 SECTION 7. CUSTOMER CONFIDENTIALITY 7.1 CONFIDENTIALITY: ____________ agrees that the names and addresses and all other information regarding all customers and prospective customers of ALIAC and all ALIAC proprietary information which may come to the attention of ____________ or any company or person affiliated with ____________ as a result of this agreement are confidential. Such information shall not be used or provided to others, without the prior written consent of ALIAC, by _____________________ or any company or person affiliated with ____________ for any purpose whatsoever, except if such disclosure is required by federal or state regulatory authorities or the NASD. This Section 7 shall survive termination of this Agreement. SECTION 8. EFFECTIVE DATE AND TERMINATION 8.1 EFFECTIVE DATE AND TERMINATION: This Agreement shall be effective on the day executed by ALIAC as indicated in the acknowledgment following and signature hereto. This Agreement shall remain in full force and effect until it is terminated pursuant to Section 8.2 or 8.3. 8.2 TERMINATION FOR CAUSE BY ALIAC: ALIAC may terminate this Agreement at any time for cause by giving written notice to ____________. ALIAC's failure to terminate this Agreement upon the occurrence of any event set forth below shall not constitute a waiver of its right to terminate this Agreement at a later date on account of such occurrence. For purposes of this Section , "cause" shall include, but not be limited to: a. Revocation, suspension, refusal to renew, or limitation on any Broker-Dealer registration of ____________; 7 b. Imposition of any fine, penalty, suspension or other sanction against ____________ or any of its principals by any federal, state or foreign securities or insurance regulatory authority or the NASD; c. Failure by ____________ to perform its responsibilities under the Agreement; d. Breach of any of the representations and warranties set forth in Section 6 of this Agreement; f. Breach by ____________ of any material term of this Agreement and the failure to cure such breach within 30 days of the earlier of discovery or notification by ALIAC; however, if such breach constitutes activity that if made known to regulatory authorities could result in a regulatory sanction described in 8.2(a) or (b), ALIAC may terminate this Agreement irrespective of any cure by ____________; g. Any criminal act by ____________ or any of its principals which, in ALIAC's opinion, materially affects ____________'s ability to perform any of its duties under the Agreement; h. Filing of a petition in bankruptcy by ____________, the reorganization under bankruptcy or insolvency laws of ____________, or the execution by ____________ or on its behalf of an agreement providing for payment of the debts of ____________; the dissolution, sale, change of ownership, or any substantial reorganization of ____________ which, in ALIAC's opinion, affects ____________'s ability to perform any of its duties under the Agreement; i. Failure by ____________ to cooperate or participate in responding to or defending against any inquiry, action, complaint, charge or other proceeding instituted against ALIAC or ____________, to the extent requested by ALIAC; j. The making by ____________, or any of its principals, officers, directors, agents, representatives or employees, knowingly or intentionally, of any false or misleading statements about ALIAC or the Securities; 8 k. Fraud by ____________, or any of its principals, officers, directors, agents, representatives or employees or the creation of liability for ALIAC due to the negligence, misfeasance or malfeasance by ____________; l. Any change in any federal or state laws or regulations which materially affects the Securities; or m. A change in federal income tax laws which materially affects the Securities. 8.3 TERMINATION WITHOUT CAUSE: This Agreement may be terminated without cause by either party by giving 30 days advance written notice to the other party of such party's intent to terminate this Agreement. The termination shall be effective upon the expiration of the 30 days notice. 8.4 CONSEQUENCES OF TERMINATION: a. If this Agreement is terminated for cause under Section 8.2, ALIAC shall be entitled to recover from ____________ all damages it has sustained as a result of the termination, and the acts constituting the cause of termination by ____________. In no event shall ALIAC be obligated to pay liquidated damages to ____________ for termination with or without cause. b._______________________________________________________________________. ________________________________________________________________________________ ______________________________________. c. Termination of the Agreement shall not affect ALIAC's right to continue to offer and sell the Securities through Selling Brokers recruited by ____________. 8.5 RETURN OF MATERIALS: Upon termination of this Agreement, ________________ shall promptly return all ALIAC records, supplies and materials to ALIAC and shall cease all activities on behalf of ALIAC. ALIAC shall cease using any materials which describe ____________ as a wholesaler or marketer of the Securities. 9 SECTION 9. INDEMNIFICATION 9.1 ALIAC shall indemnify ____________ against any liability or loss incurred by ____________ arising out of or in connection with allegations or claims that any Prospectus or sales material supplied by ALIAC to ____________ was materially false or misleading under federal or state securities law or common law standards of fraud or misrepresentation or arising out of intentional wrongdoing or gross negligence on the part of ALIAC. 9.2 ____________ shall indemnify ALIAC against any liability or loss incurred by ALIAC arising out of or in connection with: (i) any violation by ____________, its agents or representatives of federal or state securities laws or regulations, the rules of the NASD or common law standards of fraud or misrepresentations; (ii) any violation by ____________, its agents or representatives of any of the terms of this Agreement; (iii) any intentional wrongdoing or gross negligence on the party of ____________, its agents or representatives in the course of any activities or conduct performed in relation to this Agreement; or (iv) any action where ____________, its officers, directors, agents, representatives or employees improperly, illegally or in breach of this Agreement held out to the public that it or they were operating pursuant to this Agreement or the authority of ALIAC. Any finding by a court, regulatory body or arbitration panel that ____________, its officers, directors, agents, representatives or employees engaged in any of the conduct described in this Section 9.2 shall be conclusive evidence that ALIAC is entitled to indemnification as set forth in this Section 9. Failure of such a court, regulatory body or panel to make such a finding shall not preclude ALIAC from alleging and putting forth proof on the issue. 9.3 NOTICE OF ACTION: Promptly after receipt by an indemnified party of notice of the commencement of any action, such indemnified party shall, if a claim with respect to it is to be made against the indemnifying party, notify the indemnifying party in writing of the commencement of such action; but the failure to notify the indemnifying party shall not 10 relieve the indemnifying party from any liability which it may otherwise have to the indemnified party except and to the extent the indemnifying party is prejudiced thereby. In case any such action shall be brought against any indemnified party, and it shall notify the indemnifying party of the commencement of such action, the indemnifying party shall be entitled to participate in and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense of such action, with counsel satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnified party). After notice from the indemnifying party to such indemnified party of its election to assume the defense of such action, the indemnifying party shall not be liable to such indemnified party for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense other than reasonable costs of investigation. SECTION 10. GENERAL 10.1 ADMINISTRATIVE INQUIRIES/CUSTOMER COMPLAINTS: Each party will immediately notify the other of any regulatory or administrative investigation or inquiry, claim or judicial proceeding which may concern the Securities or the services rendered by that party under this Agreement. Each party will immediately notify the other of any written complaint or grievance concerning the marketing or servicing of the Securities. Within five (5) business days after receipt by either party of notice of any investigation, proceeding or complaint as specified above, the party who receives the notice will notify the other party by forwarding a copy of all documents received in connection with the matter and will communicate to the other party all additional information necessary to furnish the other party with a complete understanding of same. ____________ shall cooperate fully and assist ALIAC in the investigation of and response to all such matters. 10.2 INDEPENDENT CONTRACTOR STATUS: In the performance of all of their responsibilities under this Agreement, the relationship of the parties is that of independent contractors and none other. Nothing contained herein shall be construed as establishing an employment, 11 joint venture, partnership or agency relationship between ALIAC and ____________ or between ALIAC and the Selling Brokers. 10.3 WAIVER: Failure of either party to require performance of any provision of this Agreement shall not constitute waiver of that party's right to enforce such provision at a later time. Waiver of any breach of any provision shall not constitute a waiver of any succeeding breach. 10.4 ASSIGNMENT: Neither this Agreement nor any benefits to accrue hereunder shall be assigned or transferred by either party, in whole or in part, without the prior written consent of the other party. 10.5 AMENDMENT: This Agreement contains the entire agreement of the parties and may be amended only if agreed to in writing and signed by an authorized officer of each party. 10.6 NOTICES: Any notice given in connection with this Agreement shall be in writing. Notice shall be deemed to be provided on the date of service if served on the party to whom notice is to be given or on the date of mailing if it is sent registered or certified mail, postage prepaid, to the address set forth below, or to any other address as such party may designate in writing: Notice to ____________: Notice to ALIAC: Aetna Life Insurance Annuity Company Annuity Operations, RW1F 151 Farmington Avenue Hartford, CT 06156 12 10.7 CONTROLLING LAW AND VENUE: This Agreement and all questions relating to its validity, interpretation, performance and enforcement shall be governed by and construed in accordance with the laws of the State of Connecticut. Performance under this Agreement may be enforced only in the courts located within the State of Connecticut and the parties agree that such courts shall have venue and exclusive subject matter and all personal jurisdiction. 10.8 DISPUTE RESOLUTION: If any dispute arises out of this Agreement or its termination, ALIAC and ____________ will use their best efforts to resolve the dispute informally, including, if desired by both parties, referring the dispute to a mutually acceptable mediator. In the event that informal resolution is not achieved, the dispute will be settled by arbitration in Hartford, Connecticut in accordance with the Code of Arbitration Procedure of the NASD, or such other arbitral forum agreed to by the parties. 10.9 SERVERABILITY: If any portion or all of any Section or Sections, or any application thereof, shall become invalid, illegal or unenforceable for any reason, the remainder of this Agreement and any other application of such provision shall not be affected thereby. 10.10 HEADINGS: The headings and titles of paragraphs contained in this Agreement are for convenience only and have no effect upon the construction or interpretation of any part of this Agreement. 10.11 FORCE MAJEURE: No party to this action shall be responsible to the other for delays or errors in its performance or other breach under this Agreement occurring solely by reason of circumstances beyond its control, including acts of civil or military authority, national emergencies, fire, major mechanical breakdown, labor disputes, flood or catastrophe, acts of God, insurrection, war, riots, delays of suppliers, or failure of transportation, communication or power supply. 13 10.12 COUNTERPARTS: This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of such shall constitute one and the same instrument. 10.13 ENTIRE AGREEMENT: This Agreement constitutes the entire agreement of the parties and supersedes all prior and contemporaneous agreements, understandings, negotiations and discussions, whether oral or written, of the parties, and there are no warranties, representations and/or agreements between the parties in conjunction with the subject matter hereof except as set forth in this Agreement. IN WITNESS WHEREOF, the parties to this Agreement have caused it to be executed. AETNA LIFE INSURANCE AND ANNUITY COMPANY By: ------------------------ Title: ------------------------ Date: ------------------------ 14 STATE OF CONNECTICUT ) ) ) ss. Hartford ) COUNTY OF HARTFORD ) On this ____________ the ____________ day of ______________ 1994, before me, ____________ ____________, the undersigned officer, personally appeared ____________, who acknowledged himself/herself to be the ____________ of Aetna Life Insurance and Annuity Company, a corporation, and that he/she, as such ____________, being authorized so to do, executed the foregoing instrument for the purposes therein contained, by signing the name of the corporation by himself/herself as ____________. IN WITNESS WHEREOF, I have hereunto set my hand ----------------------------------- By: ------------------------ Title: ------------------------ Date: ------------------------ 15 STATE OF ) ) ) ss. ) COUNTY OF ) On this ____________ day of ______________, 1994, before me, __________________, the undersigned officer, personally appeared ____________________________, who acknowledged himself/herself to be the _____________________ of _______________ ___________________, and that he/she, as such _________________________, being authorized so to do, executed the foregoing instrument for the purposes therein contained, by signing the name of the corporation by himself/herself as _______________________. 16 EXHIBIT TO WHOLESALING AGREEMENT SELECTED BROKER AGREEMENT SELECTED BROKER AGREEMENT TABLE OF CONTENTS ----------------- 1. Definitions....................................................... 1 2. Agreements of The Company......................................... 2 3. Agreements of Broker.............................................. 3 A. Registration and Licenses.................................... 3 B. Sales Practices and Supervision.............................. 3 C. Handling of Customer Payments................................ 4 D. Independent Contractor....................................... 4 E. Training..................................................... 4 F. Use of Sales and Training Materials.......................... 4 G. Compliance with Laws and Regulations......................... 4 H. Maintaining Records.......................................... 6 I. Proprietary Information...................................... 6 J. Marketing Changes............................................ 7 4. Compensation...................................................... 7 A. Payment Schedule............................................. 7 B. No Withholding of Payments................................... 8 C. Deductions by the Company.................................... 8 D. Payment Upon Termination..................................... 8 5. Complaints and Investigations..................................... 8 A. Cooperation.................................................. 8 B. Settlement by the Company.................................... 9 6. Term of Agreement; Entire Agreement............................... 9 7. Indemnification................................................... 10 A. By the Company............................................... 10 B. By the Broker................................................ 10 C. Notice of Action............................................. 11 8. Assignability..................................................... 11 9. Governing Law..................................................... 11 - 2 - 10. Revocation of Prior Agreements................................... 12 11. Severability..................................................... 12 12. Amendments....................................................... 12 13 Waiver........................................................... 13 14. Termination...................................................... 13 15. Notice........................................................... 14 16. Headings ........................................................ 14 17. Counterparts..................................................... 14 - 3 - SELECTED BROKER AGREEMENT ------------------------- This AGREEMENT ("Agreement") is effective as of this ______ day of ___________________, 1994, by and between Aetna Life Insurance and Annuity Company ("Company"), Hartford, Connecticut 06156, incorporated under the laws of the State of Connecticut, and ___________________________________ ("Broker"), incorporated under the laws of the State of _____________________. WITNESSETH: In consideration of the mutual promises contained herein, the parties hereto agree as follows: 1. DEFINITIONS A. PRODUCTS -- Variable life insurance contracts and/or variable annuity contracts and/or investment company shares described in Schedule A attached hereto and issued and distributed by the Company. From time to time Schedule A may be updated or amended by the Company and without approval by the Broker. Such updates or amendments will be effective upon written notification to the Broker that a new or amended Schedule A has been issued. B. ACCOUNTS -- Separate accounts established and maintained by the Company pursuant to applicable laws to fund the benefits under the Products. C. REGISTRATION STATEMENT -- The registration statements and amendments thereto relating to the Products and the Accounts, including financial statements and all exhibits as filed with the SEC. D. PROSPECTUS -- The prospectuses included within the Registration Statements referred to herein and used with respect to the solicitation, offer and sale of the Products. - 4 - E. 1993 ACT -- The Securities Act of 1933, as amended. F. 1934 ACT -- The Securities Exchange Act of 1934, as amended. G. 1940 ACT -- The Investment Company Act of 1940, as amended. H. SEC -- The United States Securities and Exchange Commission. 2. AGREEMENTS OF THE COMPANY A. The Company, hereby authorizes Broker during the term of this Agreement to solicit, offer and sell Products to suitable customers, provided that there is an effective Registration Statement relating to such Products and provided further that Broker has been notified by the Company that the Products are qualified for sale under all applicable securities and insurance laws of the state or jurisdiction in which the solicitations, offers or sales will be made. B. The Company, during the term of this Agreement, will notify Broker of the issuance by the SEC or any state or jurisdiction of any stop order with respect to the Registration Statement or any amendments thereto or the initiation of any proceedings for that purpose or for any other purpose relating to the registration and/or offering of the Products and of any other action or circumstance that may prevent the lawful sale of any Product in any state or jurisdiction. C. During the term of this Agreement, the Company shall advise Broker of any amendment to any Registration Statement and/or any amendment, sticker or supplement to any Prospectus. 3. AGREEMENTS OF BROKER A. REGISTRATION AND LICENSES - 5 - Broker represents that it is a registered broker-dealer under the 1934 Act and a member in good standing of the National Association of Securities Dealers, Inc. ("NASD"). Broker represents that it is or will become registered, as required, in those states and jurisdictions where its agents or representatives will solicit, offer and sell the Products. Broker represents that each agent or representative who solicits, offers and sells the Products will be a duly registered representative of Broker. Broker represents that each registered representative will hold all registrations and licenses required by the NASD and any state or jurisdiction. B. SALES PRACTICES AND SUPERVISION Broker agrees to use its best efforts to lawfully solicit, offer and sell the Products and further agrees to the following: (1) The Broker shall only use advertising material and sales literature, including prospectuses, which have been first approved by the Company and, if required, filed with the NASD and any state or jurisdiction. The Broker agrees to discard immediately any out dated sales and advertising material and prospectuses. (2) The Broker shall establish and implement compliance and supervisory procedures for the supervision of the sales practices and conduct of its agents and representatives. The Broker shall submit to the Company, as reasonably requested, periodic reports concerning the compliance by the Broker and its agents and representatives with its procedures and applicable laws and regulations. (3) The Broker agrees that its registered representatives and agents will not make recommendations to a customer to purchase a Product in the absence of reasonable grounds to believe that the Product is suitable for the customer. While not limited to the following, a determination of suitability shall be based on information obtained from the customer by the registered representative after reasonable inquiry concerning the customer's - 6 - investment objectives, other investment holdings, financial and tax status and needs. C. HANDLING OF CUSTOMER PAYMENTS All payments for Products collected by registered representatives or agents of Broker shall be held at all times in a fiduciary capacity and shall be remitted promptly in full together with such applications, forms and other required documentation to the Company. Payments from customers shall only be in the form of checks, money orders or other instruments and shall be drawn to the order of the Company. Broker acknowledges that the Company retains the ultimate right to control the sale of the Products and that the Company shall have the unconditional right to reject, in whole or part, any application or subscription for a Product. In the event the Company rejects an application or subscription, the Company will return immediately all payments directly to the purchaser and Broker will be notified of such action. Upon the Company's acceptance of a Product application or subscription submitted by the Broker, the Company shall mail the appropriate annuity or life insurance contract or shareholder certificate (if requested by the customer) to the Broker, which shall make prompt delivery to the customer. Notwithstanding this obligation of the Broker, the Company reserves the right to transmit such contract or certificate directly to the purchaser. The Company shall mail any confirmation of the sale of investment company shares to the purchaser in accordance with applicable requirements. In the event that any purchaser of a Product elects to return such Product pursuant to either Rule 6e-2(b)(13)(viii) or Rule 6e-3(T)(b)(13)(viii) of the 1940 Act, the purchaser will receive a refund in accordance with the provisions of the applicable Rule. D. INDEPENDENT CONTRACTOR The Broker agrees it is and shall act as an independent contractor. Nothing in this Agreement shall make Broker, or any one of its employees, agents or representatives, an employee of the Company. Neither the Broker, nor its agents, representatives and employees shall hold themselves out to be employees, agents or representatives of the Company in any dealings with the public. - 7 - E. TRAINING The Company will conduct training programs to describe the Products and Company procedures to Broker personnel at times and places mutually agreed upon. The Broker shall use its best efforts to participate in these programs and to require the attendance of its agents and representatives before they are permitted to sell any Product. The Broker shall pay all expenses incurred in connection with the attendance of Broker personnel at these programs as well as the cost of any meeting room and related expenses. F. USE OF SALES AND TRAINING MATERIALS Broker agrees that any material it develops, approves or uses for sales, training, explanatory or other purposes in connection with the Products, including generic advertising and/or training materials, will not be used without the prior written consent of the Company. G. COMPLIANCE WITH LAWS AND REGULATIONS The solicitation, offer and sale of the Products by Broker and its agents and representatives shall be undertaken only in accordance with applicable laws and regulations. No agent or representative of Broker shall solicit, offer or sell the Products until duly licensed and appointed by the Company as a life insurance and variable contract agent of the Company in the appropriate state or jurisdiction. Broker shall ensure that such agents or representatives fulfill any training requirements necessary to be licensed. Broker understands and acknowledges that neither Broker nor its agents or representatives is authorized by the Company to give any information or make any representation in connection with the solicitation, offer or sale of the Products other than those contained in the Prospectus or sales or advertising material authorized in writing by the Company. H. MAINTAINING RECORDS Broker shall have the responsibility for maintaining the records of its agents and representatives licensed, registered and otherwise qualified to sell the Products. Broker shall maintain such records as required by applicable laws and regulations. The books, accounts and records - 8 - maintained by Broker under the terms of this Agreement that relate to the sale of the Products, the Company, the Accounts, and/or Broker shall be maintained so as to clearly and accurately disclose the nature and details of the transactions. I. PROPRIETARY INFORMATION All records, customer files, customer names, addresses, telephone numbers and related paperwork, literature, authorization cards, sales aids, manuals and supplies of every kind and nature furnished by the Company or obtained by the Broker and relating to the Products are the exclusive property of the Company. The Broker shall safely keep and preserve such Company property and shall replace, at its expense, any such property that is lost, damaged, destroyed, or defaced while in its possession or control. The Broker shall keep confidential any information that is covered by this Agreement, and shall only disclose such information if authorized in writing by the Company or expressly required by the laws or regulations of any jurisdiction or the NASD or court order. The Broker shall return any property described in this Agreement to the Company free from the Broker's claims or asserted retention rights upon the termination of this Agreement. The Company reserves the right to withhold any compensation due the Broker under this Agreement until such property is returned. J. MARKETING CHANGES With respect to the Products covered by this Agreement, as amended from time to time, Broker shall notify the Company of any material change or intention to materially change its marketing operations. Such notice shall be given in the manner specified in Section 10 of this Agreement. All Broker marketing plans and methods for offering Products are subject to periodic review by the Company, but not less frequently than annually. 4. COMPENSATION A. PAYMENT SCHEDULE The Company agrees to pay commissions to Broker as compensation for the sale of each Product lawfully sold by an agent or representative of - 9 - Broker. The amount of commission shall be in accordance with the Compensation Schedule attached hereto as Schedule B. The Compensation Schedule may be amended by the Company at any time without approval of the Broker. No compensation is payable unless the Broker and the representative and agent are in compliance with all applicable insurance and securities laws, rules and regulations at the time of the solicitation, offer and sale of a Product and thereafter. Notwithstanding any provision in the Compensation Schedule concerning charge backs, if any variable contract is tendered for redemption within seven business days after acceptance of the contract application, no compensation shall be paid. B. NO WITHHOLDING OF PAYMENTS Neither Broker nor any of its agents or representatives shall have any right to withhold or deduct any part of any payment received from a customer. C. DEDUCTIONS BY THE COMPANY The Company reserves the right to deduct any amount it determines is owed by the Broker to the Company or its affiliates, from any compensation due the Broker from the Company. This right shall apply but is not limited to the following: (i) advances to the Broker; (ii) compensation paid to the Broker for payments by a customer received by the Company and later returned or credited to such customer for any reason; and (iii) any overpayment of compensation to the Broker. Any balance due the Company after such deduction shall be a debt of the Broker and will accrue interest at eight percent (8%) per annum. The Company shall have all rights of a creditor to collect amounts owed it by the Broker. D. PAYMENT UPON TERMINATION Upon the termination of this Agreement, the Company will pay commissions to the Broker on: (i) payments for Products which the Company receives within sixty (60) days of the termination date on Products sold by the Broker on or before the termination date; and (ii) any - 10 - renewal commissions which would otherwise be due on business placed with the Company prior to the termination date of this Agreement unless payment or receipt of renewal commissions would violate any laws, rules or regulations of any jurisdiction or the NASD. 5. COMPLAINTS AND INVESTIGATIONS A. COOPERATION The Company and Broker agree to cooperate fully in any investigation or proceeding, the subject of which is the Broker, to the extent that such investigation or proceeding concerns any matters related to this Agreement. Without limiting the foregoing: (1) The Company shall promptly notify the Broker of receipt of any customer complaint or notice of any inquiry, investigation or proceeding concerning any matter related to this Agreement. (2) The Broker shall promptly notify the Company of receipt of any customer complaint or notice of any inquiry, investigation or proceeding concerning any matter related to this Agreement. The Broker shall promptly notify the Company of any NASD, federal or state inquiry, investigation or proceeding, or related litigation that has been initiated against the Broker. B. SETTLEMENT BY THE COMPANY The Company reserves the right to settle any claim or complaint made by a customer concerning any conduct, act or omission by the Broker or its agents or representatives. The Broker shall reimburse the Company for the amount of any such settlement. Any settlement payments made by the Company shall be reimbursed by the Broker and will be a debt of the Broker as described in Section 4.C. 6. TERM OF AGREEMENT; ENTIRE AGREEMENT A. This Agreement shall continue in force for one year from its effective date and thereafter shall automatically be renewed every year for a further one - 11 - year period, except that either party may unilaterally terminate this Agreement upon thirty (30) days written notice to the other party of its intention to do so. B. Upon termination of this Agreement, all authorizations, rights and obligations shall cease except: (i) the provisions set forth in Section 5; (ii) the provisions set forth in Section 7; and (iii) the provisions set forth in Section 4.C. and 4.D. 7. INDEMNIFICATION A. BY THE COMPANY. The Company shall indemnify the Broker against any liability or loss incurred by the Broker arising out of or in connection with allegations or claims that any Prospectus or sales material supplied by the Company to the Broker was materially false or misleading under federal or state securities law or common law standards of fraud or misrepresentation or arising out of intentional wrongdoing or gross negligence on the part of the Company. B. BY THE BROKER. The Broker shall indemnify the Company against any liability or loss incurred by the Company arising out of or in connection with: (i) any violation by the Broker, its agents or representatives of federal or state securities laws or regulations, the rules of the NASD or common law standards of fraud or misrepresentation; (ii) any violation by the Broker, its agents or representatives of any of the terms of this Agreement; (iii) any intentional wrongdoing or gross negligence on the part of the Broker, its agents or representatives in the course of any activities or conduct performed in relation to this Agreement; or (iv) any action where the Broker, its agents or representatives improperly, illegally or in breach of this Agreement held out to the public or to a customer that the Broker, agent or representative was operating pursuant to this Agreement or the authority of the Company. Any finding by a court, regulatory body or arbitration panel that the Broker, its agents or representatives engaged in any of the conduct described in this subsection B. shall be conclusive evidence that the Company is entitled to indemnification as set forth in this Section 7. Failure of such a court, - 12 - regulatory body or panel to make such a finding shall not preclude the Company from alleging and putting forth proof on the issue. C. NOTICE OF ACTION. After receipt by an indemnified party of notice of the commencement of any action with respect to which a claim will be made against an indemnifying party, such indemnified party shall notify the indemnifying party promptly in writing of the commencement of the action. The failure to so notify the indemnifying party shall not relieve the indemnifying party from any liability which it may otherwise have to any indemnified party except and to the extent the indemnifying party is prejudiced thereby. In any such action where the indemnified party has given the notice described in this Section 15, the indemnifying party shall be entitled to participate in and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume defense of the action with counsel satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party). After notice to such indemnified party that the indemnifying party has elected to assume defense of the action, the indemnifying party shall not be liable to such indemnified party for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense other than reasonable costs of investigation. 8. ASSIGNABILITY This Agreement shall not be assigned by either party without the written consent of the other. 9. GOVERNING LAW This Agreement shall be governed by and construed in accordance with the laws of the State of Connecticut. 10. REVOCATION OF PRIOR AGREEMENTS - 13 - A. This Agreement and any subsequent written amendments constitute the entire agreement between the Company and Broker. This Agreement terminates and supersedes all previous contracts, agreements or arrangements made between the parties in connection with the Products described in this Agreement. B This Agreement does not, however, revoke any contracts, agreements or arrangements under which commissions and service fees are due or will become due the Broker for Company annuity or insurance contracts issued prior to this Agreement's effective date. Notwithstanding this exception to Section 10.A., the Company does not waive any claim of any kind, whether for money or otherwise, against the Broker or any obligation of the Broker under any prior contract, agreement or arrangement with the Company. 11. SEVERABILITY A. The provisions of this Agreement are severable, and if any provision of this Agreement or any amendment to it is found to be invalid, such provision shall not affect any other provision of the Agreement that can be given effect without the invalid provision. 12. AMENDMENTS A. The Company reserves the right to amend this Agreement at any time. An amendment shall be effective thirty (30) days from the date notice is given the Broker in accordance with Section 15. B. No amendment made by the Broker shall be effective unless it is agreed to in writing by the Company. 13. WAIVER - 14 - Failure of either party to require performance of any provision of this Agreement shall not constitute a waiver of that party's right to enforce such provision at a later time. Waiver of any breach of any provision shall not constitute a waiver of any succeeding breach. 14. TERMINATION A. This Agreement shall terminate: (1) If the Broker is dissolved, liquidated, or otherwise ceases business operations; (2) If the Broker fails, in the Company's sole judgment, to comply with any of its obligations under this Agreement; (3) If the Broker's annuity or insurance license or appointment to represent the Company is terminated; (4) If the Broker's SEC or NASD registration or membership is suspended, terminated or otherwise limited so as to render the Broker, in the Company's opinion, unable to perform its obligations pursuant to this Agreement. (5) If the Broker refuses to accept an amendment made in accordance with Section 12; or (6) At the end of any calendar year, beginning with _________________, 19___, during which the Broker fails to maintain a minimum production level of $_________________ of annualized paid deposits through the sale of annuity or life insurance contracts under this Agreement. B. The termination date of this Agreement for any of these reasons shall be the date of occurrence. - 15 - C. The Company and Broker shall have the right to terminate this Agreement for any reason. Termination in accordance with this provision shall be effective thirty (30) days from the date notice is given in accordance with Section 15. 15. NOTICE Any notice required by the terms of this Agreement or any exhibit hereto, shall be valid if in writing and hand delivered, or sent by United States mail postage prepaid, overnight delivery service or facsimile transmission to the other party at the address provided below such party's signature hereto. 16. HEADINGS The headings in this Agreement are for reference purposes only and shall not be deemed part of this Agreement or affect its meaning or interpretation. 17. COUNTERPARTS This Agreement may be executed in any number of counterparts, all of which, taken together, shall constitute one agreement, and any party hereto may execute this Agreement by signing any such counterpart. - 16 - IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. AETNA LIFE INSURANCE AND ANNUITY COMPANY By: ____________________________________ [title] Address: 151 Farmington Avenue _________________________________ Hartford, CT 06156 _________________________________ [BROKER] By: ____________________________________ Address:_________________________________ _________________________________ EX-4.1 5 EXHIBIT 4.1 [AETNA - LOGO] AETNA LIFE INSURANCE AND ANNUITY COMPANY HOME OFFICE: 151 FARMINGTON AVE. HARTFORD, CONNECTICUT 06156 1-800-525-4225 Aetna Life Insurance and Annuity Company, herein called Aetna, agrees to pay the benefits stated in this Contract. [FIGURE BOX] THE VARIABLE FEATURES OF THIS CONTRACT ARE DESCRIBED IN PARTS III AND IV. RIGHT TO CANCEL The Contract Holder may cancel this Contract within 10 days of receiving it by returning this Contract along with a written notice to Aetna at the above address or to the agent from whom it was purchased. Within 7 days after it receives the notice of cancellation and this Contract at its Home Office, Aetna will return the entire consideration paid plus any increase or minus any decrease in the current value of any funds allocated to the Separate Account. This page, the following pages, and the application make up the entire Contract. Signed at the Home Office on the Effective Date. /s/ Lucille M. Nickerson /s/ Dan Kearney SECRETARY PRESIDENT ALL PAYMENTS AND VALUES PROVIDED BY THE GROUP CONTRACT, WHEN BASED ON INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT. THIS CONTRACT CONTAINS A MARKET VALUE ADJUSTMENT FORMULA. APPLICATION OF A MAR- KET VALUE ADJUSTMENT MAY RESULT IN EITHER AN INCREASE OR DECREASE IN THE CURRENT VALUE. THE MARKET VALUE ADJUSTMENT FORMULA DOES NOT APPLY TO A GUARANTEED TERM AT THE TIME OF ITS MATURITY. G-CDA-IA (RP) CAT. 2000616700 SPECIFICATIONS PLAN CONTRACT HOLDER GROUP CONTRACT NO. EFFECTIVE DATE THIS CONTRACT IS DELIVERED IN AND IS SUBJECT TO THE LAWS OF THAT JURISDICTION Guaranteed Interest Rate - There are guaranteed interest rates for amounts held in the Fixed Account. (See 3.05) and the GA Account (See 3.04(c)). Surrender Fee - There will be a charge deducted for early surrender. (See Part V.) Deductions from the Separate Account - There will be deductions for mortality and expense risks and administrative fees. (See 3.09.) Deduction from Purchase Payment(s) - Purchase Payment(s) are subject to a deduction for applicable premium taxes. (See 3.01.) This Contract is a legal contract and constitutes the entire legal relationship between Aetna and the Contract Holder. READ THIS CONTRACT CAREFULLY. This Contract sets forth, in detail, all of the rights and obligations of both you and Aetna. IT IS, THEREFORE, IMPORTANT THAT YOU READ THIS CONTRACT CAREFULLY. 2 TABLE OF CONTENTS I. GENERAL DEFINITIONS PAGE 1.01 Annuity . . . . . . . . . . . . . . . . . . . . . . . . .5 1.02 Fixed Annuity . . . . . . . . . . . . . . . . . . . . . .5 1.03 Variable Annuity. . . . . . . . . . . . . . . . . . . . .5 1.04 Plan. . . . . . . . . . . . . . . . . . . . . . . . . . .5 1.05 Annuitant . . . . . . . . . . . . . . . . . . . . . . . .5 1.06 Participant . . . . . . . . . . . . . . . . . . . . . . .5 1.07 Purchase Payment(s) . . . . . . . . . . . . . . . . . . .5 1.08 General Account . . . . . . . . . . . . . . . . . . . . .5 1.09 Separate Account. . . . . . . . . . . . . . . . . . . . .5 1.10 Fixed Account . . . . . . . . . . . . . . . . . . . . . .5 1.11 Fund(s) . . . . . . . . . . . . . . . . . . . . . . . . .5 1.12 Guaranteed Accumulation Account (GA Account). . . . . . .5 1.13 Nonunitized Separate Account. . . . . . . . . . . . . . .5 1.14 Maturity Date . . . . . . . . . . . . . . . . . . . . . .5 1.15 Matured Term Value. . . . . . . . . . . . . . . . . . . .5 1.16 Valuation Period. . . . . . . . . . . . . . . . . . . . .5 II. GENERAL PROVISIONS 2.01 Change of Contract. . . . . . . . . . . . . . . . . . . .6 2.02 Change of Fund(s) . . . . . . . . . . . . . . . . . . . .6 2.03 Nonparticipating Contract . . . . . . . . . . . . . . . .6 2.04 Payments. . . . . . . . . . . . . . . . . . . . . . . . .6 2.05 State Laws. . . . . . . . . . . . . . . . . . . . . . . .6 2.06 Control of Contract . . . . . . . . . . . . . . . . . . .7 2.07 Designation of Beneficiary. . . . . . . . . . . . . . . .7 2.08 Misstatements and Adjustments . . . . . . . . . . . . . .7 2.09 Incontestability. . . . . . . . . . . . . . . . . . . . .7 2.10 Grace Period. . . . . . . . . . . . . . . . . . . . . . .7 2.11 Individual Certificates . . . . . . . . . . . . . . . . .8 III. PURCHASE PAYMENT, CURRENT VALUE, AND SURRENDER PROVISIONS 3.01 Net Purchase Payment(s) . . . . . . . . . . . . . . . . .9 3.02 Individual Accounts . . . . . . . . . . . . . . . . . . .9 3.03 Limitation on Contributions . . . . . . . . . . . . . . .9 3.04 Guaranteed Accumulation Account . . . . . . . . . . . . .9 3.05 Guaranteed Interest Rate - Fixed Account. . . . . . . . 13 3.06 Experience Credits. . . . . . . . . . . . . . . . . . . 13 3.07 Maintenance Fee . . . . . . . . . . . . . . . . . . . . 13 3.08 Fund Record Units - Separate Account. . . . . . . . . . 13 3.09 Net Return Factor(s) - Separate Account . . . . . . . . 13 3.10 Fund Record Unit Value - Separate Account . . . . . . . 13 3.11 Current Value . . . . . . . . . . . . . . . . . . . . . 13 3.12 Transfer of Current Value from the Funds to GA Account. 14 3.13 Transfer of Current Value from the Fixed Account. . . . 14 3 3.14 Loan Value. . . . . . . . . . . . . . . . . . . . . . . 14 3.15 Notice to the Contract Holder . . . . . . . . . . . . . 16 3.16 Distribution Options. . . . . . . . . . . . . . . . . . 16 3.17 Sum Payable at Death (Before Annuity Payments Start). . 19 3.18 Surrender Value . . . . . . . . . . . . . . . . . . . . 19 3.19 Surrender Restrictions. . . . . . . . . . . . . . . . . 19 3.20 Timing of Distributions . . . . . . . . . . . . . . . . 20 3.21 Payment of Surrender Value. . . . . . . . . . . . . . . 20 3.22 Reinstatement . . . . . . . . . . . . . . . . . . . . . 21 IV. ANNUITY PROVISIONS 4.01 Choices to be Made. . . . . . . . . . . . . . . . . . . 22 4.02 Annuity Payments to Annuitant:. . . . . . . . . . . . . 22 4.03 Death of Annuitant. . . . . . . . . . . . . . . . . . . 22 4.04 Fund(s) Annuity Units - Separate Account. . . . . . . . 23 4.05 Fund(s) Annuity Unit Value - Separate Account . . . . . 23 4.06 Annuity Options . . . . . . . . . . . . . . . . . . . . 23 V. FEE SCHEDULE 5.01 Maintenance Fee . . . . . . . . . . . . . . . . . . . . 33 5.02 Surrender Fee . . . . . . . . . . . . . . . . . . . . . 33 4 I. GENERAL DEFINITIONS 1.01. ANNUITY: Payment of an income: (a) For the life of one or two persons; (b) For a stated period; or (c) For some combination of (a) and (b). 1.02. FIXED ANNUITY: An Annuity with payments which do not vary in amount. 1.03. VARIABLE ANNUITY: An Annuity with payments which vary with the net investment results of a Separate Account. 1.04. PLAN: The Plan named on the Specifications page. The Plan is not a part of the Contract. Aetna is not bound by the terms of the Plan. 1.05. ANNUITANT: A person on whose life an Annuity has been effected under this Contract. 1.06. PARTICIPANT: A person who participates in the Plan named on the Specifications page of this Contract. 1.07. PURCHASE PAYMENT(S): Payments made to Aetna. 1.08. GENERAL ACCOUNT: The Account holding the assets of Aetna, other than those assets held in Separate Accounts or the Nonunitized Separate Account. 1.09. A SEPARATE ACCOUNT: An account which buys and holds shares of the Fund(s). Income, gains or losses, realized or unrealized are credited or charged to this account without regard to other income, gains or losses of Aetna. Aetna owns the assets held in a Separate Account and is not a trustee as to such amounts. These accounts generally are not guaranteed and is held at market value. The assets of such accounts, to the extent of reserves and other contract liabilities of the account, shall not be charged with other Aetna liabilities. 1.10. FIXED ACCOUNT: An accumulation option with a guaranteed minimum interest rate. Aetna may credit a higher rate which is not guaranteed. 1.11. FUND(S): The open-end registered management investment companies (mutual funds) made available by Aetna under this Contract. 1.12. GUARANTEED ACCUMULATION ACCOUNT: An accumulation option which guarantees a stipulated rate of interest for a specified period of time. 1.13. NONUNITIZED SEPARATE ACCOUNT: An Account set up by Aetna under Title 38, Section 38-154a, of the Connecticut General Statutes which is used to hold assets for GA Account Terms greater than three years. The Contract Holder does not participate in the investment gain or loss from the assets held in this Account. 1.14. MATURITY DATE: The last day of a GA Account Term. 1.15. MATURED TERM VALUE: The amount payable on a GA Account Term's Maturity Date. 1.16. VALUATION PERIOD: The period as time from the end of one business day on the New York Stock Exchange to the end of the next business day. 5 II. GENERAL PROVISIONS 2.01. CHANGE OF CONTRACT: Except as provided below, only an authorized officer of Aetna may change the terms of the Contract by notifying the Contract Holder, in writing, at least 30 days before the effective date of the change. Any change will not affect the amount or terms of any Annuity which begins before the change. Aetna may make a change that affects the GA Account Market Value Adjustment (see 3.04(g)) with at least 30 days advance written notice to the Contract Holder. Any such change shall become effective for any present or future Participant. Any change that affects the following provisions of this Contract will not apply to existing Individual Accounts. (a) Net Purchase Payment(s) (b) Guaranteed GA Account Interest Rate (c) Guaranteed Interest Rate - Fixed Account (d) Net Return Factor(s) - Separate Account (e) Current Value (f) Surrender Value (g) Fund(s) Annuity Unit Value - Separate Account. Any change that affects the Annuity Options and the tables for the Options cannot be made: (1) Until at least 12 months after the Effective Date of this Contract; and (b) Until at least 12 months after the effective date of any such prior change. New Participants covered under this Contract on or after the effective date of any change will be subject to the change. If the Contract Holder does not agree to any change under this provision, no new Participants will be covered under this Contract. Aetna will continue to accept Purchase Payments for the Participants covered under this Contract before the change. This Contract may also be changed as required by federal or state law. 2.02. CHANGE OF FUND(S): Aetna, or the Separate Account may: (a) Change the Fund(s) which may be invested in by the Separate Account; and (b) Replace the shares of any Fund(s) held in the Separate Account with shares of any other Fund(s). Changes must be: (a) Approved by a majority vote of persons having an interest in the Separate Account and the Fund(s); (b) Deemed necessary by Aetna under the Investment Company Act of 1940; or (c) Deemed necessary by Aetna to accomplish the purpose of the Separate Account. Aetna will notify the Contract Holder of any change. 2.03. NONPARTICIPATING CONTRACT: The Contract Holder, Participants, or beneficiaries will not have a right to share in the earnings of Aetna. 2.04. PAYMENTS: Aetna will make Annuity pay-ments as and when due. Aetna will make other payments within 7 days of receipt at its Home Office of a written claim for payment which is in good order, except as provided in 3.18. 2.05. STATE LAWS: This Contract complies with the laws of the state in which it is delivered. Any cash, death or Annuity payments are equal to or greater than the minimum re-quired by such laws. Annuity tables for legal reserve valuation shall be as required by state law. Such tables may be different from Annuity tables used to determine Annuity payments. 6 2.06. CONTROL OF CONTRACT: The Contract Holder may make any choices allowed by this Contract for the Employer Account and the Employee Account. Choices made under this Contract must be in writing or in a form satisfactory to Aetna. Until receipt of such choices in its Home Office, Aetna may rely on any previous choices made. The Contract Holder may, however, by written direction to Aetna, allow Participants to select the investment options of the Employer Account and/or the Employee Account. No distributions will be made from the Employer Account or the Employee Account without the Contract Holder's written direction to Aetna. The Contract Holder may direct Aetna to make an in-service transfer pursuant to IRS Revenue Ruling 90-24. Checks for in-service transfers will be made payable only to the acquiring investment provider. Participants have no rights to direct Aetna as to payments under the Contract unless countersigned by the Contract Holder. (a) Nontransferable and Nonassignable: This Contract and any Individual Accounts are nontransferable and non-assignable, except to Aetna in the event of a loan or pursuant to a "qualified domestic relations order" as set forth under the Retirement Equity Act of 1984 (REA). In the event a loan is requested, the Current Value of the Employee Account necessary to cover the loan amount plus interest must be assigned to Aetna. (b) ERISA/REA Requirements: The Contract Holder shall notify Aetna in writing of the applicability of Title I of the Employee Retirement Income Security Act of 1974 (ERISA), as amended by subsequent law including REA, to the Plan. Aetna shall rely on the Contract Holder's determination and representation of applicability. With respect to any distribution made from an Employee or Employer Account from a Contract subject to ERISA, the Contract Holder must certify in writing that all the appropriate REA requirements have been met and that the distribution is in accordance with the terms of the Plan. (c) Participant Rights/Employee Account: The Participant has a nonforfeitable right to the value of his or her Employee Account pursuant to Code Section 403(b) and the terms of the Plan as interpreted by the Contract Holder (see 1.06). (d) Participant Rights/Employer Account: The Participant has a nonforfeitable right to the value of his or her Employer Account pursuant to the terms of, and to the extent of his or her vested percentage under, the Plan as interpreted by the Contract Holder. It is the Contract Holder's responsibility to maintain records of the Participant's vesting percentages. Aetna will not maintain nor keep such records. The Contract Holder and each Participant hereunder have agreed in writing to the above terms and conditions, to have the Contract Holder make all choices under the Contract, and to be bound by the Contract Holder's direction(s) to Aetna. 2.07. DESIGNATION OF BENEFICIARY: The Contract Holder is the beneficiary of the Employer and Employee Account. Aetna will pay any portion of the Individual Account(s) Current Value to the Plan beneficiary as directed by the Contract Holder. 2.08. MISSTATEMENTS AND ADJUSTMENTS: If Aetna finds the age of any payee to be misstated, the correct facts will be used to adjust payments. 2.09. INCONTESTABILITY: Aetna cannot cancel this Contract because of any error of fact on the application. 2.10. GRACE PERIOD: This Contract will remain in effect even if Purchase Payments are not continued. 7 2.11. INDIVIDUAL CERTIFICATES: Aetna shall issue certificates to the Contract Holder or Participants as required by the state in which this Contract is delivered. The certificate will summarize certain provisions of the Contract. Certificates are for information only and are not a part of the Contract. 8 III. PURCHASE PAYMENT, CURRENT VALUE, AND SURRENDER PROVISIONS 3.01. NET PURCHASE PAYMENT(S): The actual Purchase Payment less any premium tax. Generally, Aetna will deduct the premium tax when Annuity benefits are purchased (see Part IV). If Aetna determines that a premium tax is due when Purchase Payments are received or at any other time, it will deduct the tax at that time. The Net Purchase Payment(s) will be credited among: (a) The Fixed Account; and (b) The Guaranteed Accumulation Account; and (c) The Fund(s) in which the Separate Account invests. Aetna must be told the percentage of the Net Purchase Payment(s) to be applied to each investment above. During any calendar year, the Contract Holder or, if allowed by the Plan, the Participant may tell Aetna to change the investment mix twelve times. Should Aetna allow additional changes, each may be subject to a fee of up to $10. 3.02. INDIVIDUAL ACCOUNTS: This Contract is issued to the Contract Holder. However, Individual Accounts for Plan Participants are explained below. Aetna will maintain two Individual Accounts for each Participant. These will be: (a) Employer Account: This Individual Account will be credited with employer Net Purchase Payment(s); and (b) Employee Account: This Individual Account will be credited with employee Net Purchase Payment(s), specifically employee salary reduction contributions. In addition to any Purchase Payment(s) stated to be made to this Contract, a lump-sum Purchase Payment(s), of not less than a minimum amount stated by Aetna, may be made on behalf of one or more Participants. Aetna may maintain an Individual Account for each lump sum payment. Such Individual Account(s) will be designated as an Employer Account(s) or an Employee Account(s) as instructed by the Contract Holder. 3.03. LIMITATION ON CONTRIBUTIONS: The Purchase Payment(s) made to a Participant's Individual Account(s) in any year cannot exceed the lesser of the amount determined under the exclusion allowance of Code Section 403(b)(2) or the annual additions limitation of Code Section 415(c)(1). In addition, in no event may the Purchase Payment(s) attributable to elective deferrals as defined in Code Section 402(g) exceed $9,500 (or, such larger amount as adjusted by the Secretary of the Treasury) during any calendar year, unless the alternate limitation of Code Section 402(g)(8) applies. 3.04. GUARANTEED ACCUMULATION ACCOUNT (GA ACCOUNT): The GA Account guarantees stipulated rates of interest for stated periods of time (see (a) and (c) below). Amounts withdrawn before the end of a Guaranteed Term may be subject to a Market Value Adjustment (MVA) (see (g) below). (a) Deposit Period - A calendar month, a calendar quarter, or any other period of time specified by Aetna during which Net Purchase Payment(s) and transfers are accepted into the GA Account for one or more Guaranteed Terms. (b) Guaranteed Term (Term) - The period of time for which interest rates are guaranteed on Net Purchase Payment(s) and on transfers made into a Deposit Period of the GA Account. Terms are offered at Aetna's discretion for various lengths of time ranging up to and including ten years. 9 (c) Guaranteed Term Classifications - The grouping of Terms according to their time to maturity. The following are the Classifications: (1) Short-Term: Terms of up to and including 3 years; or (2) Long-Term: Terms of greater than 3 years and up to and including 10 years. During a Deposit Period, Aetna may make available one or more Terms within a Classification. The Contract Holder has the option to allocate Net Purchase Payment(s) and transfers into any or all of the available Deposit Period Terms. If no specific direction is given, Net Purchase Payment(s) and transfers will go into available Terms on a pro rata basis within the Classification(s) previously chosen by the Contract Holder. At least one Term in the Short-Term Classification will be available each Deposit Period. (d) Guaranteed GA Account Interest Rates (Guaranteed Rates) - Aetna will declare all interest rate(s) applicable to a specific Term at the start of the Deposit Period for that Term. These rate(s) are guaranteed by Aetna for that Deposit Period and the ensuing Term and are not based on the actual investment experience of the underlying assets in the GA Account. The Guaranteed Rates are annual effective yields. The interest is credited daily at a rate that will produce the guaranteed annual effective yield over the period of a year. No annual rate will ever be less than 4%. For Terms of one year or less, one Guaranteed Interest Rate is set and announced for that full Term. For other Terms, there may be two or more rates. The rate(s) will be set and announced prior to the Deposit Period for that Term and will not be subject to change. (e) Withdrawals from GA Account - Full or partial surrenders may be requested at any time from the GA Account. However, amounts withdrawn prior to the Maturity Date of a Term to satisfy a surrender request may be subject to an MVA (see (g) below). Full and partial surrenders are satisfied by withdrawing amounts from each of the investment options in which the Individual Account is invested (the Fund(s), the Fixed Account, the GA Account Short- Term Classification and the GA Account Long-Term Classification) on a pro rata basis. However, the Contract Holder may specify a par- ticular order in which investment options will be liquidated in order to satisfy a partial surrender request. For purposes of withdrawals, Terms within the GA Account Short-Term and Long-Term Classifications are considered as two separate investment options. Amounts will be removed within a GA Account Classification starting with the Term still in effect with the oldest Deposit Period. Any withdrawal which is a surrender will be subject to the Maintenance Fee and Surrender Fee as appropriate. Amounts may be transferred at any time subject to Contract specifications (see 3.11, 3.12 or 3.13 below). Amounts transferred prior to the Maturity Date of a Term are subject to an MVA (see (g) below). Fund(s) will be removed within the elected Classification starting with the Term still in effect with the oldest Deposit Period. During the Deposit Period and the 90 days following the close of the Deposit Period, any amounts applied to the GA 10 Account during that Deposit Period may not be withdrawn unless due to: (1) A full or partial surrender; (2) A payment of a premium for an Annuity Option; or (3) The Sum Payable at Death provision. (f) Maturity Date/Reinvestment - For all GA Account Term(s) existing as of the effective date of this endorsement in addition to GA Account Term(s) announced subsequent to that date, the Contract Holder or Participant, as applicable, will be mailed a notice at least 18 calendar days before a Term's Maturity Date. This notice will contain the current Deposit Period's Guaran-teed Rate(s), Term(s) and a projected Matured Term Value. The Matured Term Value may be surrendered or transferred on the Term's Maturity Date without an MVA. If no specific direction is given by the Con-tract Holder or Participant, as applicable, prior to the Maturity Date, each Matured Term Value will be reinvested in a Term of the same duration. In the event that a Term of the same duration is unavailable, each Matured Term Value will automatically be reinvested in the next shortest Term available in the same Classification during the then current Deposit Period. If however, only one Term is available within the Classification, then the Matured Term Value will automatically be reinvested in that Term. Within two business days after the Maturity Date, the Contract Holder or Participant, as applicable, will be mailed a confirmation statement. This statement will state the Terms and Guaranteed Rates which will apply to the reinvested Matured Term Value. During the calendar month following the Term's Maturity Date, one exception is allowed to the 90 day transfer restriction and MVA under (e) and (g). This exception is applicable to each Matured Term Value plus any interest accrued thereon, provided no part of the Matured Term Value was transferred on the Maturity Date. During this calendar month period, the Contract Holder may notify Aetna's Home Office to transfer or surrender all or part of the Matured Term Value plus any interest accrued thereon from the GA Account without an MVA. This provision only applies to the first such request received from the Contract Holder during this period for any Matured Term Value. The Matured Term Value plus any interest accrued thereon may be transferred upon such request without an MVA: (1) To any other Terms of the GA Account available in the current Deposit Period; or (2) To any other allowable Fund(s). If no such notification is given, the Matured Term Value will remain subject to the terms and conditions of the new Term. All surrender and transfer requests will be processed as of the date they are received in good order at Aetna's Home Office. (g) Market Value Adjustment (MVA) - There will be an MVA for a withdrawal from the GA Account before the end of a Term when the withdrawal is due to: (1) A transfer; (2) A full or partial surrender; or (3) A payment of a premium for Annuity Option 2. The amount of the withdrawal will be adjusted to a market value amount as described below. 11 The market value adjusted amount will be equal to the amount withdrawn multiplied by the following ratio: x --- (1 + i) 365 ----------- x --- (1 + j) 365 ----------- Where: i is the Deposit Yield j is the Current Yield x is the number of days remaining, (computed from Wednesday of the week of withdrawal) in the Guaranteed Term. The Deposit Period Yield will be determined as follows: - At the close of the last business day of each week of the Deposit Period, a yield will be computed as the average of the yields on that day of U.S. Treasury Notes which mature in the last three months of the Guaranteed Term. - The Deposit Period Yield is the average of those yields for the Deposit Period. If withdrawal is made prior to the close of the Deposit Period, it is the average of those yields on each week preceding withdrawal. The Current Yield is the average of the yields on the last business day of the week preceding withdrawal on the same U.S. Treasury Notes included in the Deposit Period Yield. In the event that no U.S. Treasury Notes which mature in the last three months of the Guaranteed Term exist, Aetna reserves the right to use the U.S. Treasury Notes that mature in a following quarter. Full and partial surrenders as well as transfers made within six months on the date of death of the Participant under the Sum Payable at Death provision will be the greater of: - The aggregate MVA amount which is the sum of all market value adjusted amounts calculated due to a withdrawal of amounts (for surrender or transfer) from Terms prior to the end of those Terms. The aggregate MVA may be either positive or negative; or - The applicable portion of the Current Value in the GA Account. After the six month period, the surrender or transfer will be the aggregate MVA amount (i.e., including all MVAs). The greater of the aggregate MVA amount or the applicable portion of the Current Value in the GA Account is applied to amounts withdrawn from the GA Account for payment of a premium under Annuity Options 3 or 4. Aetna may make any change to Section 3.02 or 3.03 with 30 days advance written notice to the Contract Holder. Any such change shall become effective for Purchase Payment(s), transfers or rein- vestments made to any new Term by any present or future Participant. (h) Deposits to the GA Account - All amounts in the GA Account under the Short-Term Classification are made to the General Account. All amounts in the GA Account under the Long-Term Classifications are made to a Nonunitized Separate Account. There are no discrete units for this Non-unitized Separate Account. The Contract Holder or Participant, as applicable, does not participate in the gain or loss from the assets held in the Non-unitized Separate Account. Such gain or loss is borne entirely by Aetna. These assets may be chargeable with liabilities arising out of any other business of Aetna. 12 For terms under both the Short-Term and Long-Term Classifications, Aetna guarantees stipulated interest rates to be credited to the GA Account. All assets of Aetna including amounts made to the GA Account are available to meet the guarantees under the GA Account. 3.05. GUARANTEED INTEREST RATE - FIXED ACCOUNT: On any Purchase Payment(s) made to the Fixed Account, Aetna will add interest daily at any annual rate no less than 4%. Aetna may add interest daily at any higher rate determined by its Board of Directors. 3.06. EXPERIENCE CREDITS: Aetna may apply Experience Credits under this Contract. Any such Credits will be computed as decided by Aetna. 3.07. MAINTENANCE FEE: The Maintenance Fee (see 5.01) will be deducted from the Current Value of the Employee and Employer Account on each anniversary of the Individual Account effective date and upon surrender of the entire Individual Account unless other-wise directed by the Contract Holder. 3.08. FUND(S) RECORD UNITS - SEPARATE ACCOUNT: The portion of the Net Purchase Payment(s) applied to the Separate Account will determine the number of Fund's Record Units. This number is equal to a Net Pur-chase Payment applied to the Fund divided by the Fund Record Unit Value (see 3.10) for the Valuation Period in which the Pur-chase Payment is received in good order. 3.09. NET RETURN FACTOR(S) - SEPARATE ACCOUNT: The Net Return Factors are used to compute all Separate Account Values and payments for any Fund. The Net Return Factor for each Fund is equal to 1.0000000 plus the Net Return Rate. The Net Return Rate is equal to: (a) The value of the shares of the Fund held by the Separate Account at the end of a Valuation Period; minus (b) The value of the shares of the Fund held by the Separate Account at the start of the Valuation Period; plus or minus (c) Taxes (or reserves for taxes) on the Separate Account (if any); divided by (d) The total value of the Fund Record Units and Fund Annuity Units of the Separate Account (see 3.10 and 4.06) at the start of the Valuation Period; minus (e) A daily actuarial charge at an annual rate of 1.25% for Annuity mortality and expense risks and profit and a daily administrative charge which will not exceed 0.25% on an annual basis. The administrative charge may be changed annually except for amounts which have been used to purchase an Annuity. A Net Return Rate may be more or less than 0. The value of a share of the Fund is equal to the net assets of the Fund divided by the number of shares outstanding. 3.10. FUND RECORD UNIT VALUE - SEPARATE ACCOUNT: Each Fund's Record Unit Value is computed by multiplying the Net Return Factor for the current Valuation Period by the Fund's Record Unit Value for the previous Period. The dollar value of a Fund's Record Unit, Separate Account assets, and Variable Annuity payments may go up or down due to investment gain or loss. 3.11. CURRENT VALUE: The Current Value is equal to: (a) Any amounts in the Fixed Account, including Fixed Account interest added by Aetna; plus (b) Any amounts in the GA Account, including GA Account interest added by Aetna; plus (c) The sum of any Separate Account Record Unit Value(s); plus 13 (d) Any amount due to Experience Credits; less (e) Any Maintenance Fee(s) due. Current Value does not include amounts used to purchase an Annuity. 3.12. TRANSFER OF CURRENT VALUE FROM THE FUNDS OR GA ACCOUNT: Before an Annuity Option is elected, all or any portion of the Current Value may be transferred from any Fund or the GA Account to: (a) Any other Fund; (b) The Fixed Account; or (c) The GA Account's current Deposit Period. Amounts in a specific GA Account Term cannot be transferred to the Deposit Period of another Term within the same Classification except at the Term's Maturity. Amounts applied to Classifications of the GA Account may not be transferred to the Fund(s) during the Deposit Period or for 90 days after the close of the Deposit Period. Transfers from the GA Account are subject to the Withdrawal and Market Value Ad-justment provisions. (See 3.04(e) and (g).) For each Individual Account, twelve trans-fers of Current Value (excluding transfers from the GA Account at the end of a Guaranteed Term) can be made during a calendar year period. Should Aetna allow additional transfers, each may be subject to a fee of up to $10. 3.13. TRANSFER OF CURRENT VALUE FROM THE FIXED ACCOUNT: Before an Annuity Option is elected, 10% of the Current Value held in the Fixed Account may be transferred to any Fund(s). Such transfer will be: (a) Without charge; and (b) Allowed once per calendar year. Aetna may, on a temporary basis, allow any larger percent to be transferred. The Current Value of the Fixed Account, as used above, is the value when the request is received at the Home Office of Aetna. 3.14. LOAN VALUE: During the accumulation period, the Contract Holder may request a loan on behalf of a Participant from the Employee Account by submitting a loan request form to Aetna's Home Office. If there is more than one Employee Account, a separate loan request form is required for each Employee Account. If a Contract is subject to ERISA, the Contract Holder must provide written certification to Aetna that the REA requirements have been satisfied before the loan will be made. A loan for any Participant will not be allowed within 12 months from the date of any prior loan for that Participant. The Loan Effective Date will be the date the Home Office receives the loan request form and, if required, certification of REA compliance, in good order. All loans are subject to the following conditions: (a) The minimum Employee Account Cur-rent Value must be $2,000. The loan amount must be at least $1,000. The loan amount may not exceed the lesser of: (1) 50% of the Employee Account Cur-rent Value reduced by any out- standing loan balance(s) on the date on which the loan is made; or (2) $50,000 reduced by the highest outstanding balance(s) of loans, during the preceding 12 months ending on the day before the current loan is made. (b) The values in the Fund(s), Fixed Account and GA Account are included in determining the Employee Account Current Value for purposes of paragraph (a). However, only amounts held in the Fund(s) and Fixed Account are available for making the actual loan from the Employee Account. If a Con- 14 tract Holder intends to request a loan in excess of the Current Value of the Fund(s) and the Fixed Account in the Employee Account, the excess amount must first be transferred from the GA Account to any other Fund(s) or to the Fixed Account. Amounts transferred from the GA Account will be subject to the GA Account withdrawal and Market Value Adjustment (MVA) provisions (see 3.04(e) and (g)). Aetna reserves the right to restrict or limit the amount that may be loaned from any investment option at any time. When a loan is made, the number of accumulation units equal to the loan amount will be withdrawn from the Employee Account. The amount of the loan to be made will be withdrawn on a pro rata basis from the Fixed Account and from each of the Fund(s). Accumulation units withdrawn from the Employee Account to provide a loan do not participate in the investment experience of the investment options from which they were withdrawn. (c) On the first business day of each calendar month, Aetna will determine a Loan Interest Rate. This rate will be equal to Moody's Corporate Bond Yield Average-Monthly Average Corporates as published by Moody's Investors Service, Inc. for the calendar month be-ginning two months before the date on which the new Loan Interest Rate is effective. The Loan Interest Rate for the calendar month in which the loan is effective will apply for one year from the Loan Effective Date. Annually on the anniversary of the Loan Effective Date, the rate will be adjusted to equal the Loan Interest Rate determined for the month in which the loan anniversary occurs. (d) Principal and interest on loans must be amortized in quarterly installments over a 5-year term. If the Loan Interest Rate is adjusted, future repayments will be adjusted so that the outstanding loan balance is amortized in equal quarterly installments over the remaining term. A quarterly processing fee equal to .74% of the outstanding loan balance will be deducted from each repayment and re-tained by Aetna. The remainder of each repayment will be credited to the Employee Account. Repayment amounts credited to the Employee Account will be allocated among the same investment options and in the same proportions as amounts were withdrawn to make the loan. (e) A bill in the amount of the quarterly repayment due will be mailed to the Participant in advance of the repayment due date. The repayment due date will be the first business day of the third calendar month following the 7th calendar day after the loan effective date. The repayment will be in default if it is not received by Aetna at its Home Office before the end of the month in which the due date falls. (f) If a repayment is in default, an amount equal to the repayment amount and any applicable Surrender Fee will be deducted from the Employee Account as a deemed partial surrender. The date of the surrender will be the first business day following the last day of the month in which the repayment was due. The surrendered amount will automatically be applied to make the repayment that is in default and will thereafter be subject to (d). (g) If a repayment is received in excess of a billed amount, the excess will be applied towards the Employee Account principal portion of the outstanding loan. Repayments received which are less than the billed amount will be returned to the Participant; therefore, the repayment will be in default and (f) will apply. (h) Prepayment of the entire loan will be allowed. At the time of prepayment, 15 Aetna will bill the Participant for any accrued Loan Interest, which will be applied in accordance with (d). Aetna will consider the loan paid when this amount is received. (i) If the Employee Account is surrendered while there is an outstanding loan balance, accrued Loan Interest and any applicable Surrender Fee will be deducted from the Employee Account Current Value. (j) Upon the election of an Annuity Option or the Participant's death, the loan will be canceled resulting in a distribution of the outstanding loan balance. Accrued Loan Interest will be deducted from the Employee Account Current Value and this interest will then be treated as a quarterly repayment under (d). 3.15. NOTICE TO THE CONTRACT HOLDER: Aetna will notify the Contract Holder each year of: (a) The value of any amounts held in: (1) The Fixed Account; (2) The GA Account; (3) The Fund(s) for the Separate Account; (b) The number of any Fund(s) Record Units; (c) The Fund(s) Record Unit Value(s); and (d) The Surrender Values of these amounts. Such number or values will be as of a date no more than 60 days before the date of the notice. 3.16. DISTRIBUTION OPTIONS: The following distribution options may be elected by the Contract Holder on behalf of the Participant. (a) Estate Conservation Option (ECO): A distribution option under which a portion of the Individual Account(s) Current Value will automatically be surrendered and distributed each year. (1) An ECO payment will be determined in the following manner: a. Payments will commence no earlier than the year in which the Participant attains age 70 1/2, and will be calculated on the full Current Value of the Individual Account(s), except as provided in "b". b. If Aetna maintains separate records of the value of the account as of December 31, 1986, (see below), payments made on or after the year in which the Participant attains age 70 1/2 and before the year in which the Participant attains age 75 will only be calculated on amounts contributed after December 31, 1986, plus all interest credited on all amounts after that date. The method under this rule is elected by the Contract Holder and will no longer be effective if the Contract Holder submits a withdrawal request in addition to a scheduled ECO pay- ment from the Individual Account(s), at which time ECO payments will then be determined under "a". Aetna will maintain separate records if the Contract Holder has not requested any withdrawals from the Participant's Individual Account(s) since December 31, 1986. If a Participant attained age 70 1/2 prior to 1988 or is a Participant in a governmental or church plan, the Participant must be retired in order to qualify under "b". (2) Amount of Distribution: Each year that ECO is in effect, Aetna will calculate and distribute an amount equal to the minimum required distribution under the Code. The annual distribution will be determined by dividing the Individual Account(s) Current Value, including 16 any current loan(s) outstanding, as of December 31 of the year prior to the year for which the payment is to be made, by a life expectancy factor. As elected by the Contract Holder, the factor is either the single life or joint life expectancy based on tables in Section 401(a)(9) of the Code or related regulations. If joint life expectancy is elected and the Participant or spouse dies, pay- ments will be calculated based on the survivor's life expectancy. These calculations may be changed as necessary to comply with the Code minimum distribution rules. The joint life expectancy factor can only be elected based on the joint life expectancy of the Participant and his or her spouse, and such spouse must be named as the Plan beneficiary of any death benefits under the Contract while ECO is in effect. (3) Minimum Current Value: At its discretion, Aetna may require a minimum initial Current Value for election of this option. If after election of this option the Current Value is insufficient to make a scheduled ECO payment, Aetna will distribute the entire balance of the Individual Account(s). (4) Date of Distribution: The Contract Holder shall specify the initial distribution date. The earliest date is the first day of the calendar year in which the Participant attains age 70 1/2. Subsequent distributions will be made annually on the 15th of the month the initial payment was made or such other date Aetna may designate or allow. (5) Elections and Revocation: ECO may be elected by the Contract Holder, on behalf of the Participant, by submitting a completed and signed election form to Aetna's Home Office. If the Contract Holder has notified Aetna that the Plan is subject to Title I of the Employee Retirement Income Security Act of 1974 as amended, the Contract Holder must also certify in writing that all the appropriate REA requirements have been met and that the distribution is in accordance with the terms of the Plan. Once elected, this option may be revoked by the Contract Holder by submitting a written request to Aetna at its Home Office. Any revocation will apply only to amounts not yet paid. ECO may be elected only once per participant. (6) Reservation of Rights: Aetna reserves the right to change the terms of ECO for future elections and discontinue the availability of this option after proper notification. Aetna also reserves the right to allow payments to be made more frequently than annually. (b) Systematic Withdrawal Option (SWO): A distribution option under which a portion of the Individual Account(s) Current Value attributable to a particular Participant will automatically be surrendered and distributed each year. (1) Amount of Distribution: The Contract Holder may elect one of the two payment methods described below. (a) Specified Amount: Payments of a designated dollar amount which must be no greater than 10% of the initial Current Value and shall remain con-stant unless a higher amount is required under Code mini-mum distribution rules. Each year that the Specified Amount is in effect, Aetna will calculate 17 the minimum required distribution under the Code and distribute this amount if it is larger than the amount elected by the Contract Holder. The life expectancy factor for this purpose will be the Participant's life expectancy at the time of the election of this option, and with each subsequent calendar year the factor will be reduced by one. The minimum required distribution will be determined by dividing the Individual Account Current Value, including any current loan(s) outstanding, as of December 31 of the year prior to the year for which the pay-ment is to be made, by a life expectancy factor. At its discretion, Aetna may require a minimum initial payment amount; or (b) Specified Period: Payments which are made over a period of time which must be at least 10 years, unless otherwise required by Code minimum distribution rules. The maximum specified period will be limited by the Code minimum distribution rules. The annual amount paid each year is calculated by dividing the Individual Account(s) Current Value as of December 31 of the prior year, including any outstanding loan(s), by the number of payment years remaining. The life expectancy factor is either the single life or joint life expectancy, as elected by the Contract Holder, based on tables in Section 401(a)(9) of the Code or related regulations. If the joint life expectancy is elected, upon the death of either the Participant or the spouse, the minimum required dis- tribution for the Specified Amount payment method will continue to be calculated in the same manner as described in (b)(1). Payments upon the Participant's death will continue in the manner described above, unless the Contract Holder on behalf of the spouse elects an alternate payment mode. Any mode elected must provide payments to be made at least as rapidly as those made prior to the Participant's death. These calculations may be changed as necessary to comply with the Code minimum distribution rules. The joint life expectancy factor can only be elected based on the joint life expectancy of the Participant and his or her spouse, and such spouse must be named as the Plan beneficiary of any death benefits under the Contract while SWO is in effect. (2) Minimum Initial Current Value: At its discretion, Aetna may require a minimum initial Current Value for election of this option. If after election of this option the Current Value is insufficient to make a scheduled SWO payment, Aetna will distribute the entire balance of the Individual Account(s). (3) Date of Distribution: The Contract Holder shall specify the initial distribution date. The earliest date is the first day of the calendar year in which the Participant attains age 70 1/2. SWO payments will be made annually. Subsequent distributions will be made annually on the 15th of the month the initial payment was made or such other date Aetna may designate or allow. (5) Election and Revocation: SWO may be elected by the Contract Holder by submitting a completed 18 and signed election form to Aetna's Home Office. If the Contract Holder has notified Aetna that the TDA Plan is subject to Title I of the Employee Retirement Income Security Act of 1974 as amended, the Contract Holder must also certify in writing that all the appropriate REA requirements have been met and that the distribution is in accordance with the terms of the Plan. Once elected, this option may be revoked by the Contract Holder by submitting a written request to Aetna at its Home Office. Any revocation will apply only to amounts not yet paid. SWO may be elected only once. (6) Reservation of Rights: Aetna reserves the right to change the terms of SWO for future elections and discontinue the availability of this option after proper notification. Aetna also reserves the right to allow payments to be made more frequently than annually. 3.17. SUM PAYABLE AT DEATH (BEFORE ANNUITY PAYMENTS START): The Employee Account Current Value payable under the terms of this section will be reduced by the amount of the accrued interest on any outstanding loan. Aetna will pay any portion of the Indi-vidual Account(s) Current Value to the indi-vidual and in the manner directed in writing by the Contract Holder when: (a) The Participant dies before Annuity payments start; and (b) The notice of death is received in good order by Aetna. The sum payable will be the Current Value on the date when the notice is received in good order. The Contract Holder may choose to apply any sum under an Annuity Option (see Annuity Provisions), subject to any other terms and conditions of this Contract, or to have the Current Value paid in a lump sum. If the payee of the death proceeds is the Participant's surviving spouse (as the Participant's designated beneficiary under the Plan), the first Annuity payment or the lump sum payment may be deferred to a date not later than when the Participant would have attained age 70 1/2 or such later date as may be allowed under federal law or regulations. If the payee is not the surviving spouse, all of the Current Value must either be applied to an Annuity Option within one year of the Participant's death or be paid to the payee within 5 years of the Participant's death (see Part IV). 3.18. SURRENDER VALUE: After deduction of the Maintenance Fee (if any), the amount payable by Aetna upon the surrender of any portion of an Individual Account shall be reduced by a Surrender Fee. The Surrender Fee will be in accordance with the Surrender Fee table in 5.02. The Fee on a total surrender of an Individual Account will not exceed 8.5% of the actual Purchase Payments made to that Account. For a partial or full surrender from any Individual Account, Aetna must receive written direction from the Contract Holder on a form acceptable to Aetna. If the Contract is subject to ERISA, this direction must include certification that all of the REA requirements have been satisfied. Aetna may defer payment of the surrender value until appropriate Contract Holder certification is received. 3.19. SURRENDER RESTRICTIONS: Limitations apply to full and partial surrenders of the Restricted Amount from this Contract, as required by Code Section 403(b)(11). The Restricted Amount is the sum of: (a) Net Purchase Payments attributable to Participant salary reduction contributions made on and after January 1, 1989; plus (b) The net increase, if any, in the Current Value of the Employee Account after December 31, 1988 attributable to 19 investment gains and losses and credited interest. The Restricted Amount may be fully or partially surrendered only if one or more of the following conditions are met: (a) The Participant has reached age 59 1/2; (b) The Participant has separated from service; (c) The Participant has died; (d) The Participant has become disabled, within the meaning of Code Section 72(m)(7); or (e) The withdrawal is otherwise allowed by federal law, regulations or rulings. A full or partial surrender is also allowed if the Participant incurs a "hardship" as that term is defined in the Code or regulations under Code Section 403(b). However, the amount available for hardship is limited to the lesser of the amount necessary to satisfy the need, or the Net Purchase Payments attributable to Participant salary reduction contributions made on and after January 1, 1989. The Contract Holder must certify that one of these conditions has been met before a surrender request will be considered to be in good order. The Contract Holder must notify Aetna in writing when a lump sum payment is to be made or Annuity payments are to commence. If, pursuant to Revenue Ruling 90-24, amounts are transferred to this Contract from a Code Section 403(b)(7) custodial account, the December 31, 1988 value from such transferred amount may be distributed upon the Contract Holder's request. The Contract Holder must certify that one of the conditions mentioned above has been met or that the Participant has incurred a hardship. The remaining transferred value from the Employee Account will be considered a Restricted Amount subject to the Surrender Restrictions of this subsection. 3.20. TIMING OF DISTRIBUTIONS: The distribution of benefits accrued after December 31, 1986, must be made in a lump sum or must begin not later than the April 1 of the calendar year following the calendar year in which the Participant attains age 70 1/2. However, for a Participant who attained age 70 1/2 before January 1, 1988, the distribution of such benefits must be made or must begin not later than the April 1 of the calendar year following the calendar year in which the Participant retires. The above does not apply if the Contract Holder is a governmental entity or a church. For Participants of such an employer, the distribution of benefits accrued after December 31, 1986, must be made or must begin not later than the April 1 of the Calendar year following the calendar year in which the Participant attains age 70 1/2 or retires, whichever occurs later. The required distribution described in either of the above rules must be made over the life of the Participant (or the joint lives of the Participant and the beneficiary) or over a period not exceeding the life expectancy of the Participant (or the joint life expectancies of the Participant and the Plan beneficiary). If the Contract Holder does not request com-mencement of benefits as described above, Aetna will not be responsible for compliance with the Code Section 401(a)(9) minimum distribution requirements and for any ad- verse tax consequences that may result. 3.21. PAYMENT OF SURRENDER VALUE: Under certain emergency conditions, Aetna may defer payment; (a) For a period of up to 6 months (unless not allowed by state law); and (b) As provided by federal law. Aetna may pay any Fixed Account Surrender Value with interest in equal payments over a period not to exceed 60 months when the amount held in the Fixed 20 Account under this Contract exceeds $250,000. This will apply only if the sum of the amounts surrendered within the past 12 months exceeds 20% of such Fixed Account amount. Interest, as used above, will not be more than two percentage points below any rate determined prospectively by the Board of Directors for this class of Contract. In no event will the interest rate be less than 4%. 3.22. REINSTATEMENT: All or a portion of the proceeds of a full surrender of this Contract may be reinvested within 30 days after the surrender if allowed by law. Any Main-tenance Fee and Surrender Fee charged at the time of surrender on the amount being reinvested will be included in the reinstatement. Any Market Value Adjustment deducted from GA Account surrenders will not be included in the re-instatement. Amounts will be reinstated among the Fixed Account, GA Account, and the Fund(s) in the same proportion as they were at the time of surrender. Any amounts reinstated to the GA Account will be credited to the current Deposit Period. The number of Record Units reinstated will be based on the Record Unit Value(s) next computed after receipt at Aetna's Home Office of the reinstatement request and the amount to be reinvested. Any Maintenance Fee which falls due after the surrender and before the reinstatement will be deducted from the amount reinstated. Reinstatement is permitted only once. 21 IV. ANNUITY PROVISIONS 4.01. CHOICES TO BE MADE: The Contract Holder may elect an Annuity Option on behalf of a Participant by telling Aetna to pay all or any portion of the Current Value (minus any premium tax) as a premium for an Annuity under Option 2, 3, or 4 (see 4.07). The present value of the expected payments to the Annuitant when payments start shall be determined in accordance with the tables under Code Section 401(a)(9) regulations in order to comply with the incidental death benefit test. This restriction does not apply if Option 4(e) is chosen and the second Annuitant is the spouse of the Annuitant. Generally, the first Annuity payment must be made no later than the April 1 of the calendar year following the year in which the Participant turns age 70 1/2 or such later date as may be allowed under federal law or regulations (see 3.20). For distributions taken in a lump sum, see Surrender Value (3.17). For any election of an Annuity Option, the Contract Holder must provide certification that the REA requirements, as applicable, and Code Section 403(b)(11) withdrawal restrictions have been satisfied. When an Annuity Option is chosen, Aetna must also be told if payments are to be made other than monthly and to pay: (a) A Fixed Annuity using the General Account; (b) A Variable Annuity using any of the Fund(s) made available by Aetna for Annuity purposes; or (c) A combination of (a) and (b). If a Fixed Annuity is chosen, Aetna will add interest daily at an annual rate no less than 3.5%. Aetna may add interest daily at any higher rate. If a Variable Annuity is chosen, an Assumed Annual Net Return Rate of 5% may be chosen. If not chosen, Aetna will use an Assumed Annual Net Return Rate of 3.5%. With the exception of Option 2 on a variable basis, once elected, an Annuity Option may not be revoked. 4.02. ANNUITY PAYMENTS TO ANNUITANT: In no event may any payments to the Annuitant under any Annuity Option extend beyond: (a) The life of the Annuitant; (b) The lives of the Annuitant and the Plan beneficiary; (c) A period certain greater than the Annuitant's life expectancy according to regulations under Code Section 401(a)(9), determined as of the date payments are to commence; or (d) A period certain greater than the life expectancies of the Annuitant and the Plan beneficiary according to regulations under Code Section 401(a)(9) determined as of the date payments are to begin. 4.03. DEATH OF ANNUITANT: When an Annuitant dies under Options 2, and 3, the present value of any remaining guaranteed payments will be paid in one sum to the Plan beneficiary as directed in writing by the Contract Holder, or upon election by the Annuitant's Plan beneficiary, any remaining payments will continue to the Plan beneficiary. If no Plan beneficiary exists, the present value of any remaining guaranteed payments will be paid in one lump sum to the Contract Holder. In no event may any payments to the Plan beneficiary under an Annuity Option extend beyond: 22 (a) The life of the payee determined as of the date payments are to commence; or (b) Any certain period greater than the payee's life expectancy as determined by regulations under Code Section 401(a)(9) as of the date payments are to begin. However, if a Plan beneficiary dies while under Option 1 or while receiving Annuity payments, the present value of any remaining payments will be paid in one lump sum to the estate of the Plan beneficiary. The interest rate used to determine the first payment will be used to calculate the present value. 4.04. FUND(S) ANNUITY UNITS - SEPARATE ACCOUNT: The number of Fund(s) Annuity Units is based on the amount of the first Variable Annuity payment which is equal to: (a) The portion of the Current Value (minus any premium tax) applied to pay a Variable Annuity; divided by (b) 1,000; multiplied by (c) The payment rate for the Option chosen. Such amount, or portion, of the Variable Payment will be divided by the appropriate Fund(s) Annuity Unit Value (see 4.05) on the tenth Valuation Period before the due date of the first payment to determine the number of each Fund Annuity Units. The number of each Fund Annuity Units remains fixed. Each future payment is equal to the sum of the products of each Fund Annuity Unit Value multiplied by the appropriate number of Units. The Fund Annuity Unit Value on the tenth Valuation Period prior to the due date of the payment is used. 4.05. FUND(S) ANNUITY UNIT VALUE - SEPARATE ACCOUNT: For any Valuation Period, a Fund(s) Annuity Unit Value is equal to: (a) The Value for the previous Period; multiplied by (b) The Net Return Factor(s) (see 3.08) for the Period; multiplied by (c) A factor to reflect the Assumed Annual Net Return Rate. The factor for 3.5% per year is .9999058; for 5% per year it is .9998663. The dollar value of the Fund(s) Annuity Unit Values and payments may go up or down due to investment gain or loss. If Variable Annuity payments are not to decrease, Aetna must earn a gross return on the assets of the Separate Account of: - 4.75% on an annual basis plus an annual return of up to 0.25% needed to offset the administrative charge set at the time Annuity payments commence if an Assumed Annual Net Return Rate of 3.5% is chosen; or, - 6.25% on an annual basis plus an annual return of up to 0.25% needed to offset the administrative charge set at the time Annuity payments commence if an Assumed Annual Net Return Rate of 5% is chosen. Payments shall not be changed due to changes in the mortality or expense results or administrative charges. 4.06. ANNUITY OPTIONS: Option 1 - Payments of Interest on Sum Left with Aetna - This Option may be used only by the Plan beneficiary when the Participant dies before Aetna has started paying an Annuity. A portion or all of the sum paid upon death may be held under this Option and will be held in the General Account of Aetna at interest (see 4.01). The Contract Holder, on behalf of the Plan beneficiary, may later tell Aetna to: (a) Pay a portion or all of the sum held by Aetna; or 23 (b) Apply a portion, or all, of the sum held by Aetna to any Annuity Option below. If the Plan beneficiary is the Participant's surviving spouse, the lump- sum payment may be deferred to a date not later than when the Participant would have attained age 70 1/2. If the Plan beneficiary is not a spouse, the Contract Holder must tell Aetna to pay the full sum within 5 years after the death of the Participant. Option 2 - Payments for a Stated Period of Time - An Annuity will be paid for the num-ber of years chosen. The number of years must be at least 3 and not more than 30. If payments for this Option are made under a Variable Annuity, the present value of any remaining payments may be withdrawn at any time. If a withdrawal is requested within 3 years after the start of payments, it will be treated as a surrender (see 3.17). Option 3 - Life Income - An Annuity will be paid for the life of the Annuitant. If also chosen, Aetna will guarantee payments for 60, 120, 180, or 240 months. Option 4 - Life Income for Two Payees - An Annuity will be paid during the lives of the Annuitant and a second Annuitant. At the death of either, payments will continue to the survivor. When this Option is chosen, a choice must be made of: (a) 100% of the payment to continue to the survivor; (b) 66 2/3% of the payment to continue to the survivor; (c) 50% of the payment to continue to the survivor; or (d) Payments for a minimum of 120 months, with 100% of the payment to continue to the survivor. (e) 100% of the payment to continue to the survivor if the survivor is the Annuitant and 50% of the payment to continue to the survivor if the survivor is the second Annuitant. Other Options - Aetna may make other options available as allowed by the laws of the state in which this Contract is delivered. 24 OPTION 2 PAYMENTS FOR A STATED PERIOD OF TIME AMOUNT OF FIRST MONTHLY PAYMENT FOR EACH $1,000 AFTER DEDUCTION OF ANY CHARGE FOR PREMIUM TAXES Rates for a Fixed Annuity with Guaranteed Interest Rate of 3.5% and Rates for a Variable Annuity with Assumed Net Return Rate of 3.5%
YEARS YEARS YEARS OF PAY- AMOUNT OF OF PAY- AMOUNT OF OF PAY- AMOUNT OF MENTS PAYMENTS MENTS PAYMENTS MENTS PAYMENTS ----- -------- ----- -------- ----- -------- 3 $29.19 13 $7.94 22 $5.39 4 22.27 14 7.49 23 5.24 5 18.12 15 7.10 24 5.09 6 15.35 16 6.76 25 4.96 7 13.38 17 6.47 26 4.84 8 11.90 18 6.20 27 4.73 9 10.75 19 5.97 28 4.63 10 9.83 20 5.75 29 4.53 11 9.09 21 5.56 30 4.45 12 8.46 Rates for a Variable Annuity with Assumed Net Return Rate of 5% YEARS YEARS YEARS OF PAY- AMOUNT OF OF PAY- AMOUNT OF OF PAY- AMOUNT OF MENTS PAYMENTS MENTS PAYMENTS MENTS PAYMENTS ----- -------- ----- -------- ----- -------- 3 $29.80 13 $8.64 22 $6.17 4 22.89 14 8.20 23 6.02 5 18.74 15 7.82 24 5.88 6 15.99 16 7.49 25 5.76 7 14.02 17 7.20 26 5.65 8 12.56 18 6.94 27 5.54 9 11.42 19 6.71 28 5.45 10 10.51 20 6.51 29 5.36 11 9.77 21 6.33 30 5.28 12 9.16
25 OPTION 3 LIFE INCOME AMOUNT OF FIRST MONTHLY PAYMENT FOR EACH $1,000 AFTER DEDUCTION OF ANY CHARGE FOR PREMIUM TAXES Rates for a Fixed Annuity with Guaranteed Interest Rate of 3.5% and Rates for a Variable Annuity with Assumed Net Return Rate of 3.5% PAYMENTS GUARANTEED FOR A STATED PERIOD OF MONTHS -------------------------------------------------
AGE OF ANNUITANT NONE 60 120 180 240 - --------- ---- -- --- --- --- 50 $4.34 $4.34 $4.31 $4.27 $4.22 51 4.41 4.40 4.38 4.33 4.27 52 4.48 4.47 4.45 4.40 4.32 53 4.56 4.55 4.52 4.46 4.38 54 4.64 4.63 4.59 4.53 4.44 55 4.72 4.71 4.67 4.60 4.50 56 4.81 4.80 4.75 4.67 4.56 57 4.91 4.89 4.84 4.75 4.62 58 5.01 4.99 4.93 4.83 4.69 59 5.12 5.10 5.03 4.92 4.75 60 5.23 5.21 5.13 5.00 4.82 61 5.36 5.33 5.24 5.09 4.88 62 5.49 5.45 5.35 5.19 4.95 63 5.63 5.59 5.47 5.28 5.02 64 5.78 5.73 5.60 5.38 5.08 65 5.94 5.89 5.73 5.48 5.15 66 6.11 6.05 5.87 5.58 5.21 67 6.29 6.22 6.02 5.69 5.27 68 6.49 6.41 6.17 5.79 5.33 69 6.70 6.60 6.33 5.90 5.38 70 6.92 6.81 6.49 6.00 5.43 71 7.17 7.04 6.66 6.10 5.48 72 7.43 7.27 6.84 6.20 5.52 73 7.71 7.53 7.02 6.30 5.55 74 8.02 7.80 7.20 6.39 5.59 75 8.35 8.08 7.38 6.48 5.62
Rates for ages not shown will be provided on request and will be computed on a basis consistent with the rates in the above tables. 26 OPTION 3 LIFE INCOME AMOUNT OF FIRST MONTHLY PAYMENT FOR EACH $1,000 AFTER DEDUCTION OF ANY CHARGE FOR PREMIUM TAXES Rates for a Variable Annuity with Assumed Net Return Rate of 5.0% PAYMENTS GUARANTEED FOR A STATED PERIOD OF MONTHS -------------------------------------------------
AGE OF ANNUITANT NONE 60 120 180 240 - --------- ---- -- --- --- --- 50 $5.26 $5.25 $5.22 $5.17 $5.11 51 5.33 5.32 5.28 5.23 5.15 52 5.40 5.38 5.34 5.29 5.20 53 5.47 5.45 5.41 5.35 5.26 54 5.54 5.53 5.48 5.41 5.31 55 5.63 5.61 5.56 5.47 5.36 56 5.71 5.69 5.63 5.54 5.42 57 5.80 5.78 5.72 5.61 5.47 58 5.90 5.88 5.81 5.69 5.53 59 6.01 5.98 5.90 5.77 5.59 60 6.12 6.09 6.00 5.85 5.65 61 6.24 6.21 6.10 5.93 5.71 62 6.37 6.33 6.21 6.02 5.77 63 6.51 6.46 6.33 6.11 5.83 64 6.66 6.60 6.45 6.20 5.89 65 6.82 6.75 6.57 6.30 5.95 66 6.99 6.91 6.71 6.39 6.01 67 7.17 7.08 6.85 6.49 6.06 68 7.36 7.27 6.99 6.59 6.12 69 7.57 7.46 7.15 6.69 6.17 70 7.80 7.67 7.30 6.78 6.21 71 8.05 7.89 7.47 6.88 6.25 72 8.31 8.13 7.64 6.97 6.29 73 8.59 8.38 7.81 7.06 6.33 74 8.90 8.64 7.99 7.15 6.36 75 9.23 8.93 8.16 7.23 6.38
Rates for ages not shown will be provided on request and will be computed on a basis consistent with the rates in the above tables. 27 OPTION 4 LIFE INCOME FOR TWO PAYEES JOINT AND LAST SURVIVOR ANNUITY 100% TO THE SURVIVOR NO MINIMUM PERIOD AMOUNT OF FIRST MONTHLY PAYMENT FOR EACH $1,000 AFTER DEDUCTION OF ANY CHARGE FOR PREMIUM TAXES Rates for a Fixed Annuity with Guaranteed Interest Rate of 3.5% and Rates for a Variable Annuity with Assumed Net Return Rate of 3.5% AGE OF SECOND ANNUITANT -----------------------
AGE OF ANNUITANT 45 50 55 60 65 70 75 80 85 - --------- -- -- -- -- -- -- -- -- -- 45 $3.69 $3.75 $3.81 $3.84 $3.87 $3.90 $3.91 $3.92 $3.92 50 3.75 3.89 3.97 4.04 4.09 4.13 4.15 4.17 4.18 55 3.81 3.97 4.16 4.27 4.35 4.42 4.47 4.50 4.51 60 3.84 4.04 4.27 4.51 4.66 4.78 4.86 4.92 4.95 65 3.87 4.09 4.35 4.66 4.99 5.19 5.35 5.46 5.53 70 3.90 4.13 4.42 4.78 5.19 5.67 5.95 6.17 6.31 75 3.91 4.15 4.47 4.86 5.35 5.95 6.64 7.04 7.34 80 3.92 4.17 4.50 4.92 5.46 6.17 7.04 8.04 8.63 85 3.92 4.18 4.51 4.95 5.53 6.31 7.34 8.63 10.05 Rates for a Variable Annuity with Assumed Net Return Rate of 5% AGE OF SECOND ANNUITANT ----------------------- AGE OF ANNUITANT 45 50 55 60 65 70 75 80 85 - --------- -- -- -- -- -- -- -- -- -- 45 $4.63 $4.68 $4.73 $4.77 $4.80 $4.82 $4.84 $4.85 $4.86 50 4.68 4.80 4.88 4.95 5.00 5.04 5.06 5.08 5.10 55 4.73 4.88 5.04 5.15 5.24 5.30 5.35 5.39 5.41 60 4.77 4.95 5.15 5.37 5.52 5.63 5.72 5.79 5.83 65 4.80 5.00 5.24 5.52 5.83 6.04 6.20 6.31 6.39 70 4.82 5.04 5.30 5.63 6.04 6.49 6.77 6.99 7.15 75 4.84 5.06 5.35 5.72 6.20 6.77 7.45 7.86 8.16 80 4.85 5.08 5.39 5.79 6.31 6.99 7.86 8.84 9.43 85 4.86 5.10 5.41 5.83 6.39 7.15 8.16 9.43 10.86
28 OPTION 4 LIFE INCOME FOR TWO PAYEES JOINT AND LAST SURVIVOR ANNUITY 66 2/3% TO THE SURVIVOR NO MINIMUM PERIOD AMOUNT OF FIRST MONTHLY PAYMENT FOR EACH $1,000 AFTER DEDUCTION OF ANY CHARGE FOR PREMIUM TAXES Rates for a Fixed Annuity with Guaranteed Interest Rate of 3.5% and Rates for a Variable Annuity with Assumed Net Return Rate of 3.5% AGE OF SECOND ANNUITANT -----------------------
AGE OF ANNUITANT 45 50 55 60 65 70 75 80 85 - --------- -- -- -- -- -- -- -- -- -- 45 $3.94 $4.05 $4.18 $4.32 $4.48 $4.66 $4.84 $5.02 $5.19 50 4.05 4.20 4.35 4.51 4.69 4.89 5.09 5.30 5.49 55 4.18 4.35 4.54 4.73 4.95 5.18 5.42 5.65 5.87 60 4.32 4.51 4.73 4.99 5.25 5.53 5.82 6.11 6.37 65 4.48 4.69 4.95 5.25 5.61 5.97 6.33 6.69 7.02 70 4.66 4.89 5.18 5.53 5.97 6.49 6.96 7.43 7.88 75 4.84 5.09 5.42 5.82 6.33 6.96 7.73 8.39 9.02 80 5.02 5.30 5.65 6.11 6.69 7.43 8.39 9.54 10.46 85 5.19 5.49 5.87 6.37 7.02 7.88 9.02 10.46 12.15 Rates for a Variable Annuity with Assumed Net Return Rate of 5% AGE OF SECOND ANNUITANT ----------------------- AGE OF ANNUITANT 45 50 55 60 65 70 75 80 85 - --------- -- -- -- -- -- -- -- -- -- 45 $4.87 $4.99 $5.12 $5.27 $5.44 $5.64 $5.86 $6.09 $6.30 50 4.99 5.12 5.26 5.43 5.63 5.85 6.09 6.33 6.57 55 5.12 5.26 5.44 5.63 5.85 6.11 6.38 6.65 6.92 60 5.27 5.43 5.63 5.87 6.14 6.44 6.75 7.07 7.38 65 5.44 5.63 5.85 6.14 6.49 6.84 7.23 7.62 8.00 70 5.64 5.85 6.11 6.44 6.84 7.35 7.84 8.34 8.83 75 5.86 6.09 6.38 6.75 7.23 7.84 8.60 9.28 9.93 80 6.09 6.33 6.65 7.07 7.62 8.34 9.28 10.42 11.35 85 6.30 6.57 6.92 7.38 8.00 8.83 9.93 11.35 13.04
29 OPTION 4 LIFE INCOME FOR TWO PAYEES JOINT AND LAST SURVIVOR ANNUITY 50% TO THE SURVIVOR NO MINIMUM PERIOD AMOUNT OF FIRST MONTHLY PAYMENT FOR EACH $1,000 AFTER DEDUCTION OF ANY CHARGE FOR PREMIUM TAXES Rates for a Fixed Annuity with Guaranteed Interest Rate of 3.5% and Rates for a Variable Annuity with Assumed Net Return Rate of 3.5% AGE OF SECOND ANNUITANT -----------------------
AGE OF ANNUITANT 45 50 55 60 65 70 75 80 85 - --------- -- -- -- -- -- -- -- -- -- 45 $4.07 $4.22 $4.40 $4.61 $4.87 $5.17 $5.49 $5.84 $6.18 50 4.22 4.37 4.56 4.79 5.06 5.39 5.75 6.13 6.51 55 4.40 4.56 4.76 5.00 5.31 5.66 6.06 6.49 6.91 60 4.61 4.79 5.00 5.27 5.61 6.01 6.46 6.95 7.43 65 4.87 5.06 5.31 5.61 5.99 6.44 6.96 7.54 8.11 70 5.17 5.39 5.66 6.01 6.44 6.99 7.61 8.29 9.00 75 5.49 5.75 6.06 6.46 6.96 7.61 8.43 9.29 10.17 80 5.84 6.13 6.49 6.95 7.54 8.29 9.29 10.54 11.71 85 6.18 6.51 6.91 7.43 8.11 9.00 10.17 11.71 13.57 Rates for a Variable Annuity with Assumed Net Return Rate of 5% AGE OF SECOND ANNUITANT ----------------------- AGE OF ANNUITANT 45 50 55 60 65 70 75 80 85 - --------- -- -- -- -- -- -- -- -- -- 45 $5.01 $5.15 $5.33 $5.56 $5.83 $6.17 $6.55 $6.98 $7.40 50 5.15 5.29 5.48 5.71 6.01 6.36 6.78 7.23 7.68 55 5.33 5.48 5.66 5.91 6.23 6.61 7.05 7.54 8.05 60 5.56 5.71 5.91 6.16 6.51 6.93 7.42 7.96 8.53 65 5.83 6.01 6.23 6.51 6.87 7.34 7.89 8.51 9.16 70 6.17 6.36 6.61 6.93 7.34 7.87 8.51 9.23 10.00 75 6.55 6.78 7.05 7.42 7.89 8.51 9.33 10.20 11.14 80 6.98 7.23 7.54 7.96 8.51 9.23 10.20 11.44 12.64 85 7.40 7.68 8.05 8.53 9.16 10.00 11.14 12.64 14.51
30 OPTION 4 LIFE INCOME FOR TWO PAYEES JOINT AND LAST SURVIVOR ANNUITY 100% TO THE SURVIVOR 120 MONTHS MINIMUM PERIOD AMOUNT OF FIRST MONTHLY PAYMENT FOR EACH $1,000 AFTER DEDUCTION OF ANY CHARGE FOR PREMIUM TAXES Rates for a Fixed Annuity with Guaranteed Interest Rate of 3.5% and Rates for a Variable Annuity with Assumed Net Return Rate of 3.5% AGE OF SECOND ANNUITANT -----------------------
AGE OF ANNUITANT 45 50 55 60 65 70 75 80 85 - --------- -- -- -- -- -- -- -- -- -- 45 $3.69 $3.75 $3.80 $3.84 $3.87 $3.89 $3.91 $3.91 $3.92 50 3.75 3.89 3.97 4.04 4.09 4.13 4.15 4.16 4.17 55 3.80 3.97 4.15 4.26 4.35 4.41 4.46 4.48 4.49 60 3.84 4.04 4.26 4.50 4.65 4.76 4.84 4.89 4.91 65 3.87 4.09 4.35 4.65 4.98 5.17 5.31 5.41 5.46 70 3.89 4.13 4.41 4.76 5.17 5.62 5.87 6.05 6.15 75 3.91 4.15 4.46 4.84 5.31 5.87 6.48 6.79 6.98 80 3.91 4.16 4.48 4.89 5.41 6.05 6.79 7.50 7.83 85 3.92 4.17 4.49 4.91 5.46 6.15 6.98 7.83 8.50 Rates for a Variable Annuity with Assumed Net Return Rate of 5% AGE OF SECOND ANNUITANT ----------------------- AGE OF ANNUITANT 45 50 55 60 65 70 75 80 85 - --------- -- -- -- -- -- -- -- -- -- 45 $4.63 $4.68 $4.73 $4.77 $4.80 $4.82 $4.84 $4.85 $4.85 50 4.68 4.80 4.88 4.94 4.99 5.03 5.06 5.07 5.08 55 4.73 4.88 5.04 5.14 5.23 5.29 5.34 5.37 5.38 60 4.77 4.94 5.14 5.37 5.51 5.62 5.70 5.75 5.78 65 4.80 4.99 5.23 5.51 5.82 6.00 6.15 6.24 6.30 70 4.82 5.03 5.29 5.62 6.00 6.44 6.68 6.86 6.96 75 4.84 5.06 5.34 5.70 6.15 6.68 7.27 7.57 7.76 80 4.85 5.07 5.37 5.75 6.24 6.86 7.57 8.26 8.58 85 4.85 5.08 5.38 5.78 6.30 6.96 7.76 8.58 9.23
31 OPTION 4 LIFE INCOME FOR TWO PAYEES JOINT AND 1/2 CONTINGENT LIFE INCOME ANNUITY NO MINIMUM PERIOD AMOUNT OF FIRST MONTHLY PAYMENT FOR EACH $1,000 AFTER DEDUCTION OF ANY CHARGE FOR PREMIUM TAXES Rates for a Fixed Annuity with Guaranteed Interest Rate of 3.5% and Rates for a Variable Annuity with Assumed Net Return Rate of 3.5% AGE OF SECOND ANNUITANT -----------------------
AGE OF ANNUITANT 45 50 55 60 65 70 75 80 85 - --------- -- -- -- -- -- -- -- -- -- 45 $3.86 $3.89 $3.93 $3.94 $3.96 $3.97 $3.98 $3.98 $3.98 50 4.02 4.10 4.15 4.18 4.21 4.23 4.24 4.25 4.26 55 4.22 4.31 4.42 4.48 4.53 4.57 4.59 4.61 4.61 60 4.43 4.56 4.70 4.84 4.93 4.99 5.04 5.07 5.09 65 4.69 4.84 5.02 5.22 5.42 5.54 5.63 5.69 5.73 70 4.99 5.17 5.39 5.65 5.93 6.23 6.40 6.52 6.60 75 5.33 5.54 5.82 6.14 6.52 6.96 7.40 7.64 7.81 80 5.70 5.96 6.29 6.69 7.17 7.75 8.41 9.08 9.45 85 6.07 6.38 6.75 7.24 7.84 8.59 9.49 10.51 11.50 Rates for a Variable Annuity with Assumed Net Return Rate of 5% AGE OF SECOND ANNUITANT ----------------------- AGE OF ANNUITANT 45 50 55 60 65 70 75 80 85 - --------- -- -- -- -- -- -- -- -- -- 45 $4.80 $4.83 $4.86 $4.88 $4.89 $4.90 $4.91 $4.92 $4.92 50 4.95 5.02 5.06 5.10 5.13 5.15 5.16 5.17 5.18 55 5.14 5.23 5.32 5.38 5.43 5.46 5.49 5.51 5.52 60 5.36 5.47 5.59 5.72 5.80 5.86 5.91 5.95 5.97 65 5.63 5.77 5.93 6.10 6.29 6.41 6.50 6.56 6.60 70 5.96 6.12 6.31 6.54 6.81 7.08 7.25 7.37 7.46 75 6.35 6.54 6.77 7.06 7.42 7.81 8.25 8.49 8.66 80 6.79 7.01 7.30 7.66 8.11 8.65 9.28 9.93 10.29 85 7.26 7.53 7.86 8.29 8.85 9.55 10.41 11.39 12.37
These Annuity rates are based on mortality from 1983 Table a. 32 V. FEE SCHEDULE TAX DEFERRED ANNUITY PLAN RETIREMENT PLUS 5.01. MAINTENANCE FEE: The Maintenance Fee will be $15 per Individual Account. However, for a Separate Individual Account maintained pursuant to a lump- sum payment, the Maintenance Fee will be $0. 5.02. SURRENDER FEE: For each surrender from an Individual Account, the Surrender Fee will vary according to the number of Purchase Payment Cycles completed for the Individual Account being surrendered. The number and amount of Purchase Payments to be made in a year is chosen by the Participant. A Purchase Payment Cycle is completed when this number and amount of Purchase Payments have been made. The number of Purchase Payment Cycles completed may not be greater than the number of whole years since the Individual Account was established. For each surrender, the Fee will be as follows: NUMBER OF PURCHASE PAYMENT CYCLES COMPLETED SURRENDER FEE Less than 5 5% 5 or more but less than 7 4% 7 or more but less than 9 3% 9 or 10 2% More than 10 0% For each surrender from an Individual Account maintained pursuant to a lump-sum payment, the Surrender Fee will vary according to the period of time between the Effective Date of the Individual Account and the date of surrender as follows: IF PERIOD OF TIME IS SURRENDER FEE Less than 5 years 5% From 5 to 6 years 4% From 6 to 7 years 3% From 7 to 8 years 2% From 8 to 9 years 1% 9 or more years 0% No Surrender Fee is deducted from any portion of the Individual Account which is paid: (a) At the death of a Participant before Annuity payments start; (b) As a premium for an Annuity for a Participant under this Contract; (c) After a Participant has reached age 59 1/2 and 9 or more Purchase Payment Cycles have been completed for the Individual Account being surrendered; (d) On and after the tenth anniversary of the Effective Date of the Individual Account; (e) When the Individual Account Current Value is $2,500 or less and no surrenders have been taken from the Individual Account within the prior 12 months. If there is no more than one Individual Account under the Contract for a Participant, then this provision will only apply when the total in all of the Participant's Individual Accounts is $2,500 or less; 33 (f) In an amount equal to or less than 10% of the current Individual Account Current Value, as part of the first partial surrender request in a calendar year to a Participant who is at least age 59 1/2 and less than age 70 1/2. The Individual Account Current Value is calculated as of the date the partial surrender request is received in good order at Aetna's Home Office. Any outstanding loans from the Participant's Individual Account are excluded when calculating its Individual Account Current Value. This provision does not apply to partial surrenders due to loan defaults made from Individual Account Current Values and does not apply to full surrender requests; (g) To relieve a Participant's "financial hardship," as may be allowed for annuity contracts under Section 403(b) of the Internal Revenue Code or other appropriate Internal Revenue service sources; or (h) On account of a Participant's separation from service. The Contract Holder must submit documentation satisfactory to Aetna to confirm that the Participant is no longer providing services to the employer. 34 V. FEE SCHEDULE TAX DEFERRED ANNUITY PLAN RETIREMENT PLUS 5.01. MAINTENANCE FEE: The Maintenance Fee will be $12.50 per Individual Account. However, for a Separate Individual Account maintained pursuant to a lump-sum payment, the Maintenance Fee will be $0. 5.02. SURRENDER FEE: For each surrender from an Individual Account, the Surrender Fee will vary according to the number of Purchase Payment Cycles completed for the Individual Account being surrendered. The number and amount of Purchase Payments to be made in a year is chosen by the Participant. A Purchase Payment Cycle is completed when this number and amount of Purchase Payments have been made. The number of Purchase Payment Cycles completed may not be greater than the number of whole years since the Individual Account was established. For each surrender, the Fee will be as follows: NUMBER OF PURCHASE PAYMENT CYCLES COMPLETED SURRENDER FEE Less than 5 5% 5 or more but less than 7 4% 7 or more but less than 9 3% 9 or 10 2% More than 10 0% For each surrender from an Individual Account maintained pursuant to a lump-sum payment, the Surrender Fee will vary according to the period of time between the Effective Date of the Individual Account and the date of surrender as follows: IF PERIOD OF TIME IS SURRENDER FEE Less than 5 years 5% From 5 to 6 years 4% From 6 to 7 years 3% From 7 to 8 years 2% From 8 to 9 years 1% 9 or more years 0% No Surrender Fee is deducted from any portion of the Individual Account which is paid: (a) At the death of a Participant before Annuity payments start; (b) As a premium for an Annuity for a Participant under this Contract; (c) After a Participant has reached age 59 1/2 and 9 or more Purchase Payment Cycles have been completed for the Individual Account being surrendered; (d) On and after the tenth anniversary of the Effective Date of the Individual Account; (e) When the Individual Account Current Value is $2,500 or less and no surrenders have been taken from the Individual Account within the prior 12 months. If there is no more than one Individual Account under the Contract for a Participant, then this provision will only apply when the total in all of the Participant's Individual Accounts is $2,500 or less; 33 (f) In an amount equal to or less than 10% of the current Individual Account Current Value, as part of the first partial surrender request in a calendar year to a Participant who is at least age 59 1/2 and less than age 70 1/2. The Individual Account Current Value is calculated as of the date the partial surrender request is received in good order at Aetna's Home Office. Any outstanding loans from the Participant's Individual Account are excluded when calculating its Individual Account Current Value. This provision does not apply to partial surrenders due to loan defaults made from Individual Account Current Values and does not apply to full surrender requests; (g) To relieve a Participant's "financial hardship," as may be allowed for annuity contracts under Section 403(b) of the Internal Revenue Code or other appropriate Internal Revenue service sources; or (h) On account of a Participant's separation from service. The Contract Holder must submit documentation satisfactory to Aetna to confirm that the Participant is no longer providing services to the employer. 34 V. FEE SCHEDULE TAX DEFERRED ANNUITY PLAN RETIREMENT PLUS 5.01. MAINTENANCE FEE: The Maintenance Fee will be $10 per Individual Account. However, for a Separate Individual Account maintained pursuant to a lump- sum payment, the Maintenance Fee will be $0. 5.02. SURRENDER FEE: For each surrender from an Individual Account, the Surrender Fee will vary according to the number of Purchase Payment Cycles completed for the Individual Account being surrendered. The number and amount of Purchase Payments to be made in a year is chosen by the Participant. A Purchase Payment Cycle is completed when this number and amount of Purchase Payments have been made. The number of Purchase Payment Cycles completed may not be greater than the number of whole years since the Individual Account was established. For each surrender, the Fee will be as follows: NUMBER OF PURCHASE PAYMENT CYCLES COMPLETED SURRENDER FEE Less than 5 5% 5 or more but less than 7 4% 7 or more but less than 9 3% 9 or 10 2% More than 10 0% For each surrender from an Individual Account maintained pursuant to a lump-sum payment, the Surrender Fee will vary according to the period of time between the Effective Date of the Individual Account and the date of surrender as follows: IF PERIOD OF TIME IS SURRENDER FEE Less than 5 years 5% From 5 to 6 years 4% From 6 to 7 years 3% From 7 to 8 years 2% From 8 to 9 years 1% 9 or more years 0% No Surrender Fee is deducted from any portion of the Individual Account which is paid: (a) At the death of a Participant before Annuity payments start; (b) As a premium for an Annuity for a Participant under this Contract; (c) After a Participant has reached age 59 1/2 and 9 or more Purchase Payment Cycles have been completed for the Individual Account being surrendered; (d) On and after the tenth anniversary of the Effective Date of the Individual Account; (e) When the Individual Account Current Value is $2,500 or less and no surrenders have been taken from the Individual Account within the prior 12 months. If there is no more than one Individual Account under the Contract for a Participant, then this provision will only apply when the total in all of the Participant's Individual Accounts is $2,500 or less; 33 (f) In an amount equal to or less than 10% of the current Individual Account Current Value, as part of the first partial surrender request in a calendar year to a Participant who is at least age 59 1/2 and less than age 70 1/2. The Individual Account Current Value is calculated as of the date the partial surrender request is received in good order at Aetna's Home Office. Any outstanding loans from the Participant's Individual Account are excluded when calculating its Individual Account Current Value. This provision does not apply to partial surrenders due to loan defaults made from Individual Account Current Values and does not apply to full surrender requests; (g) To relieve a Participant's "financial hardship," as may be allowed for annuity contracts under Section 403(b) of the Internal Revenue Code or other appropriate Internal Revenue service sources; or (h) On account of a Participant's separation from service. The Contract Holder must submit documentation satisfactory to Aetna to confirm that the Participant is no longer providing services to the employer. 34 V. FEE SCHEDULE TAX DEFERRED ANNUITY PLAN RETIREMENT PLUS 5.01. MAINTENANCE FEE: The Maintenance Fee will be $7.50 per Individual Account. However, for a Separate Individual Account maintained pursuant to a lump-sum payment, the Maintenance Fee will be $0. 5.02. SURRENDER FEE: For each surrender from an Individual Account, the Surrender Fee will vary according to the number of Purchase Payment Cycles completed for the Individual Account being surrendered. The number and amount of Purchase Payments to be made in a year is chosen by the Participant. A Purchase Payment Cycle is completed when this number and amount of Purchase Payments have been made. The number of Purchase Payment Cycles completed may not be greater than the number of whole years since the Individual Account was established. For each surrender, the Fee will be as follows: NUMBER OF PURCHASE PAYMENT CYCLES COMPLETED SURRENDER FEE Less than 5 5% 5 or more but less than 7 4% 7 or more but less than 9 3% 9 or 10 2% More than 10 0% For each surrender from an Individual Account maintained pursuant to a lump-sum payment, the Surrender Fee will vary according to the period of time between the Effective Date of the Individual Account and the date of surrender as follows: IF PERIOD OF TIME IS SURRENDER FEE Less than 5 years 5% From 5 to 6 years 4% From 6 to 7 years 3% From 7 to 8 years 2% From 8 to 9 years 1% 9 or more years 0% No Surrender Fee is deducted from any portion of the Individual Account which is paid: (a) At the death of a Participant before Annuity payments start; (b) As a premium for an Annuity for a Participant under this Contract; (c) After a Participant has reached age 59 1/2 and 9 or more Purchase Payment Cycles have been completed for the Individual Account being surrendered; (d) On and after the tenth anniversary of the Effective Date of the Individual Account; (e) When the Individual Account Current Value is $2,500 or less and no surrenders have been taken from the Individual Account within the prior 12 months. If there is no more than one Individual Account under the Contract for a Participant, then this provision will only apply when the total in all of the Participant's Individual Accounts is $2,500 or less; 33 (f) In an amount equal to or less than 10% of the current Individual Account Current Value, as part of the first partial surrender request in a calendar year to a Participant who is at least age 59 1/2 and less than age 70 1/2. The Individual Account Current Value is calculated as of the date the partial surrender request is received in good order at Aetna's Home Office. Any outstanding loans from the Participant's Individual Account are excluded when calculating its Individual Account Current Value. This provision does not apply to partial surrenders due to loan defaults made from Individual Account Current Values and does not apply to full surrender requests; (g) To relieve a Participant's "financial hardship," as may be allowed for annuity contracts under Section 403(b) of the Internal Revenue Code or other appropriate Internal Revenue service sources; or (h) On account of a Participant's separation from service. The Contract Holder must submit documentation satisfactory to Aetna to confirm that the Participant is no longer providing services to the employer. 34 V. FEE SCHEDULE TAX DEFERRED ANNUITY PLAN RETIREMENT PLUS 5.01. MAINTENANCE FEE: The Maintenance Fee will be $5 per Individual Account. However, for a Separate Individual Account maintained pursuant to a lump- sum payment, the Maintenance Fee will be $0. 5.02. SURRENDER FEE: For each surrender from an Individual Account, the Surrender Fee will vary according to the number of Purchase Payment Cycles completed for the Individual Account being surrendered. The number and amount of Purchase Payments to be made in a year is chosen by the Participant. A Purchase Payment Cycle is completed when this number and amount of Purchase Payments have been made. The number of Purchase Payment Cycles completed may not be greater than the number of whole years since the Individual Account was established. For each surrender, the Fee will be as follows: NUMBER OF PURCHASE PAYMENT CYCLES COMPLETED SURRENDER FEE Less than 5 5% 5 or more but less than 7 4% 7 or more but less than 9 3% 9 or 10 2% More than 10 0% For each surrender from an Individual Account maintained pursuant to a lump-sum payment, the Surrender Fee will vary according to the period of time between the Effective Date of the Individual Account and the date of surrender as follows: IF PERIOD OF TIME IS SURRENDER FEE Less than 5 years 5% From 5 to 6 years 4% From 6 to 7 years 3% From 7 to 8 years 2% From 8 to 9 years 1% 9 or more years 0% No Surrender Fee is deducted from any portion of the Individual Account which is paid: (a) At the death of a Participant before Annuity payments start; (b) As a premium for an Annuity for a Participant under this Contract; (c) After a Participant has reached age 59 1/2 and 9 or more Purchase Payment Cycles have been completed for the Individual Account being surrendered; (d) On and after the tenth anniversary of the Effective Date of the Individual Account; (e) When the Individual Account Current Value is $2,500 or less and no surrenders have been taken from the Individual Account within the prior 12 months. If there is no more than one Individual Account under the Contract for a Participant, then this provision will only apply when the total in all of the Participant's Individual Accounts is $2,500 or less; 33 (f) In an amount equal to or less than 10% of the current Individual Account Current Value, as part of the first partial surrender request in a calendar year to a Participant who is at least age 59 1/2 and less than age 70 1/2. The Individual Account Current Value is calculated as of the date the partial surrender request is received in good order at Aetna's Home Office. Any outstanding loans from the Participant's Individual Account are excluded when calculating its Individual Account Current Value. This provision does not apply to partial surrenders due to loan defaults made from Individual Account Current Values and does not apply to full surrender requests; (g) To relieve a Participant's "financial hardship," as may be allowed for annuity contracts under Section 403(b) of the Internal Revenue Code or other appropriate Internal Revenue service sources; or (h) On account of a Participant's separation from service. The Contract Holder must submit documentation satisfactory to Aetna to confirm that the Participant is no longer providing services to the employer. 34 V. FEE SCHEDULE TAX DEFERRED ANNUITY PLAN RETIREMENT PLUS 5.01. MAINTENANCE FEE: The Maintenance Fee will be $2.50 per Individual Account. However, for a Separate Individual Account maintained pursuant to a lump-sum payment, the Maintenance Fee will be $0. 5.02. SURRENDER FEE: For each surrender from an Individual Account, the Surrender Fee will vary according to the number of Purchase Payment Cycles completed for the Individual Account being surrendered. The number and amount of Purchase Payments to be made in a year is chosen by the Participant. A Purchase Payment Cycle is completed when this number and amount of Purchase Payments have been made. The number of Purchase Payment Cycles completed may not be greater than the number of whole years since the Individual Account was established. For each surrender, the Fee will be as follows: NUMBER OF PURCHASE PAYMENT CYCLES COMPLETED SURRENDER FEE Less than 5 5% 5 or more but less than 7 4% 7 or more but less than 9 3% 9 or 10 2% More than 10 0% For each surrender from an Individual Account maintained pursuant to a lump-sum payment, the Surrender Fee will vary according to the period of time between the Effective Date of the Individual Account and the date of surrender as follows: IF PERIOD OF TIME IS SURRENDER FEE Less than 5 years 5% From 5 to 6 years 4% From 6 to 7 years 3% From 7 to 8 years 2% From 8 to 9 years 1% 9 or more years 0% No Surrender Fee is deducted from any portion of the Individual Account which is paid: (a) At the death of a Participant before Annuity payments start; (b) As a premium for an Annuity for a Participant under this Contract; (c) After a Participant has reached age 59 1/2 and 9 or more Purchase Payment Cycles have been completed for the Individual Account being surrendered; (d) On and after the tenth anniversary of the Effective Date of the Individual Account; (e) When the Individual Account Current Value is $2,500 or less and no surrenders have been taken from the Individual Account within the prior 12 months. If there is no more than one Individual Account under the Contract for a Participant, then this provision will only apply when the total in all of the Participant's Individual Accounts is $2,500 or less; 33 (f) In an amount equal to or less than 10% of the current Individual Account Current Value, as part of the first partial surrender request in a calendar year to a Participant who is at least age 59 1/2 and less than age 70 1/2. The Individual Account Current Value is calculated as of the date the partial surrender request is received in good order at Aetna's Home Office. Any outstanding loans from the Participant's Individual Account are excluded when calculating its Individual Account Current Value. This provision does not apply to partial surrenders due to loan defaults made from Individual Account Current Values and does not apply to full surrender requests; (g) To relieve a Participant's "financial hardship," as may be allowed for annuity contracts under Section 403(b) of the Internal Revenue Code or other appropriate Internal Revenue service sources; or (h) On account of a Participant's separation from service. The Contract Holder must submit documentation satisfactory to Aetna to confirm that the Participant is no longer providing services to the employer. 34 [AETNA - LOGO] AETNA LIFE INSURANCE AND ANNUITY COMPANY HOME OFFICE: 151 FARMINGTON AVE. HARTFORD, CONNECTICUT 06156 (203) 273-2131 GROUP VARIABLE, FIXED, OR COMBINATION CONTRACT NONPARTICIPATING ALL PAYMENTS AND VALUES PROVIDED BY THE GROUP CONTRACT, WHEN BASED ON INVESTMENT EXPERIENCE OF SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT. THIS CONTRACT CONTAINS A MARKET VALUE ADJUSTMENT FORMULA. APPLICATION OF A MAR- KET VALUE ADJUSTMENT MAY RESULT IN EITHER AN INCREASE OR DECREASE IN THE CURRENT VALUE. THE MARKET VALUE ADJUSTMENT FORMULA DOES NOT APPLY TO A GUARANTEED TERM AT THE TIME OF ITS MATURITY. G-CDA-IA (RP) AETNA LIFE INSURANCE AND ANNUITY COMPANY ENDORSEMENT The Contract and the Certificate, (as applicable), is hereby endorsed. The term VALUATION PERIOD under General Definitions is amended to read ad follows: The period of time for which a Fund determines its net asset value, usually from 4:15 p.m. Eastern time each day the New York Stock Exchange is open until 4:15 p.m. the next such day, or such other day that one or more of the Funds determines its net asset value. Endorsed and made a part of the Contact and the Certificate, (as applicable). /s/ Gary Benanav PRESIDENT AETNA LIFE INSURANCE AND ANNUITY COMPANY AETNA LIFE INSURANCE AND ANNUITY COMPANY ENDORSEMENT This contract is hereby endorsed as follows: GENERAL DEFINITIONS is ammended to include the following defined terms: AETNA GET FUND (GET FUND): An open-end registered management investment company organized as a series fund. Each series of GET Fund constitutes a separate Fund under this Contract. ALLOCATION PERIOD: The period of time, usually from one to three months, during which amounts may be allocated to a series of GET Fund, whether by Transfer or by Net Purchase Payment(s). Each series of GET Fund will have a specific Allocation Period. At its discretion, Aetna may allow additional amounts to be allocated to a series of GET Fund during the Guarantee Period. The Guarantee established at the close of the Allocation Period will apply to these amounts. At its discretion, Aetna may specify a minimum amount per Transfer and per Net Purchase Payment amount for each series prior to the beginning of the Alloction Period for that series. Aetna will specify a minimum amount of assets that a series of the GET Fund must contain at the close of the Allocation Period; and reserves the right to terminate a series if it does not meet this minimum standard. If Aetna elects to terminate the GET Fund and not to start the Guarantee Period, Aetna will mail each Contract Holder with amount(s) in the series a notice that the series is being canceled. The cancellation notice will be mailed no later than 15 calendar days after the Allocation Period ends. The Contract Holder will have 45 calendar days from the end of the Allocation Period to Transfer the Current Value of the canceled series of GET Fund to another accumulation option(s). If no Transfer is made prior to the end of the 45 calendar day period, the Current Value in the cancelled series of GET Fund will be transferred to Aetna Variable Encore Fund, a money market fund during the next Valuation Period. Aetna will also specify the maximum amount of assets that will be accepted into a series of the GET Fund; and reserves the right to not allow additional allocation to a series if it exceeds this maximum standard. If Aetna elects not to allow additional allocation to the series of GET Fund, Aetna will stop accepting Net Purchase Payments and Transfers into the series 10 calendar days after such election. The Allocation Period will continue until the date the Guarantee Period begins. GET FUND MATURITY DATE: The date at which the Guaranteed Period for a series will end and the GET Fund Record Units for that series will be liquidated. Another accumulation option must then be elected. If no such election is made by the GET Fund Maturity Date, the portion of the Current Value based on that GET Fund series will be transferred to the Allocation Period for another series of GET Fund. If no GET Fund Series is available, 50% of the Current Value from that Get Fund series will be transferred to Aetna Varaiable Fund, a growth and income fund. The remaining 50% of the Current Value will be transferred to Aetna Income Shares, a bond fund. The Transfers will be made during the next Valuation Period. Such Transfers will not be counted as one of the free Transfers. The GET Fund Maturity Date will be specified before the Allocation Period for that series begins. GUARANTEE: Aetna guarantees that on a series' GET Fund Maturity Date, the value of each GET Fund Record Unit then outstanding in that series will not be less than the value of the Record Unit on the last day of the Allocation Period. Aetna will transfer any amount necessary from its general account to the Separate Account in order to bring that Record Unit Value to the guaranteed level. The Guarantee does not apply to GET Fund Record Unit Values withdrawn or transferred before the GET Fund Maturity Date. GUARANTEED PERIOD: The length of time to which the Guarantee applies for a series, ending on the GET Fund Maturity Date. This period will be specified before the Allocation Period for a series begins. The Contract section entitled FUND(S) is amended to add the following sentence: Unless specifically indicated otherwise in this Contract, all references to Fund(s) in this Contract shall include each series of GET Fund. The Contract Section entitled NET RETURN FACTOR(S) - SEPARATE ACCOUNT is hereby endorsed to add the following as subsection (f): Minus a daily fee at an annual rate of 0.25% during the Guaranteed Period for Aetna's guarantee of the GET Fund Record Unit Values. This fee will be determined prior to the start of any series of GET Fund's Allocation Period. The Contract section entitled TRANSFER OF CURRENT VALUE FROM THE FUNDS is amended to include the following paragraph at the end of this provision: Withdrawals or Transfers from a GET Fund series before the Maturity Date will be at the then applicable GET Fund Record Unit Value, which may be more or less than the Record Unit Value guaranteed at the GET Fund Maturity Date. The Contract section entitled REINSTATEMENT is amended to include the following paragraph at the end of this provision: Amounts attributable to GET will be reinstated to the Allocation Period of a GET series, if available. If a GET series Allocation Period is unavailable, amounts will be reallocated among other Funds(s), the Fixed Account and the GA Account, (if applicable), on a prorata basis. The Contract section entitled CHOICES TO BE MADE is amended to include the following paragraph at the end of this provision: Contract values based on any GET Fund series must be transferred to another accumulation option prior to election of an Annuity Option. Endorsed and made a part of this Contract on the effective date of the Contract. /s/ Gary Benanav PRESIDENT AETNA LIFE INSURANCE AND ANNUITY COMPANY AETNA LIFE INSURANCE AND ANNUITY COMPANY ENDORSEMENT The Contract and the Certificate is hereby endorsed as follows. Add the following to Section I GENERAL DEFINITIONS: FIXED PLUS ACCOUNT: An accumulation option with a guaranteed minimum interest rate. Aetna may credit a higher rate which is not guaranteed. No Surrender Fee applies. However, the portion that may be surrendered or transferred in a 12 month period is restricted. Add the following sentence to Section 1.10 entitled FIXED ACCOUNT. A Surrender Fee may be applied on a full or partial surrender. Add the following to the third paragraph under Section 2.01 entitled CHANGE OF CONTRACT: (h) Guaranteed Interest Rate -- Fixed Plus Account (i) Maximum transfer fees Delete and replace the last two sentences of the fifth paragraph under Section 2.01 entitled CHANGE OF CONTRACT as follows: Aetna also reserves the right to discontinue accepting additional Purchase Payment(s) for Participants covered under this Contract prior to the change. Aetna reserves the right to change the provisions regarding the allocation of contributions or transfers to the Fixed Plus Account without Contract Holder consent. This Contract may also be changed as deemed necessary by Aetna to comply with federal or state law without Contract Holder consent. Add the following to the second paragraph of Section 3.01 entitled NET PURCHASE PAYMENT(S): (d) The Fixed Plus Account. Delete the fourth paragraph under Section 3.01 entitled NET PURCHASE PAYMENT(S) and replace it with the following statement. The Contract Holder or, if permitted by the Contract Holder, the Participant may change the allocation of future Net Purchase Payment(s) at any time, without charge. Add the following to the end of Section 3.01 entitled NET PURCHASE PAYMENT(S): 1 Transferred assets are the value of prior contributions into this Plan or to a similar plan. Transferred assets, less any premium tax, will be allocated to a Participant's Individual Account as of the date received in good order by Aetna at its Home Office. Where transferred assets are anticipated to be at least $500,000, within six months of the first Purchase Payment to the Contract, Aetna will apply a transfer credit equal to 2% of transferred assets deposited into the Contract. The transfer credit amount will be calculated as of the six month anniversary of the first Purchase Payment made to the Contract, based on the total amount of transferred assets deposited to and remaining in the Individual Account on that date. The transfer credit is due on the first business day of the calendar month after the six month anniversary. It will be applied to the Individual Account on or before the 11th business day of that month. The transfer credit amount will be allocated to the Fixed Plus Account. The amount will include the transfer credit plus any interest that would have accrued had the transfer credit been deposited on the first business day of the month. Delete and replace Section 3.05 entitled GUARANTEED INTEREST RATE -- FIXED ACCOUNT as follows: (a) GUARANTEED INTEREST RATE -- FIXED ACCOUNT: On any Purchase Payment(s) made to the Fixed Account, Aetna will add interest daily at an annual rate that is no less than 4%. Aetna may add interest daily at any higher rate determined by its Board of Directors. (b) GUARANTEED INTEREST RATE -- FIXED PLUS ACCOUNT: On any Net Purchase Payment(s) made to the Fixed Plus Account, Aetna will add interest daily at an annual rate that is no less than 3%. Aetna may add interest daily at a higher rate as determined by its Board of Directors. Beginning on the tenth anniversary of the Effective Date of an Individual Account, on and after February 1, 1994, Aetna will credit amounts held in the Fixed Plus Account with an interest rate that is .25% higher than the then-declared interest rate for the Fixed Plus Account for Individual Accounts before the tenth anniversary. Delete and replace subsection (a) under Section 3.11 entitled CURRENT VALUE as follows: (a) Any amounts in the Fixed Account, including Fixed Account interest added by Aetna; and/or any amount(s) in the Fixed Plus Account including Fixed Plus Account interest added by Aetna; plus Delete Section 3.12 entitled TRANSFER OF CURRENT VALUE FROM THE FUNDS OR GA ACCOUNT and replace as follows. 2 Before an Annuity Option is elected, all or any portion of the Current Value may be transferred from any Fund or the GA Account: (a) To any other allowable Fund; (b) To the Fixed Account; or (c) To the Fixed Plus Account; or (d) To Terms of the GA Account available in the current Deposit Period. Any transfer relating to the GA Account is subject to the transfer restrictions referenced in the fourth and fifth paragraph of Section 3.04(e). There is no limit on the number of transfers of Current Value from the Fund(s) or the GA Account. Aetna guarantees a minimum of 12 free transfers each year, but reserves the right to charge not more than $10 for additional transfers. Transfers from the Fund(s) are based on values determined as of the Valuation Period following receipt of a transfer request in good order at Aetna's Home Office. This provision does not include transfers from the GA Account at the Maturity Date. At any time before the Maturity Date, amounts in the GA Account may be subject to the Market Value Adjustment provision if they are transferred. Delete and replace Section 3.13 entitled TRANSFER OF CURRENT VALUE FROM THE FIXED ACCOUNT as follows: Each calendar year, 10% of the Current Value held in the Fixed Account may be transferred to any Fund(s) and/or to the GA Account's then-current Deposit Period. Such transfer will be without charge and will not be allowed under an Annuity Option. Transfers will be permitted to the Fixed Plus Account without regard to these limitations. At its discretion, Aetna may allow Contract Holders to transfer a larger percentage and/or take multiple transfers in a calendar year. If Aetna so allows, Aetna reserves the right to reinstate the transfer limitations without notice. During each rolling 12-month period, up to 20% of the Current Value held in the Fixed Plus Account may be transferred to one or more of the Fund(s), the Fixed Account, and/or to the GA Account's then-current Deposit Period. The 20% limit is reduced by any partial surrender(s), loan(s) or amount(s) used to purchase an Annuity during the 12 month period. Aetna reserves the right to include amounts paid under the ECO and SWO provisions for purposes of applying this 20% limit. This limit is waived when the balance in the Fixed Plus Account is $1,000 or less on the date the transfer request is received in good order at Aetna's Home Office. Current Value, as used above, is the value when the request is received in good order at Aetna's Home Office. Delete and replace Section 3.14 entitled LOAN VALUE with the following provision. 3 During the accumulation period, the Contract Holder may request a loan on behalf of a Participant with a vested Individual Account Current Value. All loans will be made in accordance with then-current provisions of the Internal Revenue Code. If permitted by the Contract Holder, loans may be taken from amounts attributable to employer contributions under the Contract. If the Contract is subject to ERISA, the Contract Holder must provide written certification to Aetna that the REA waiver and spousal consent requirements are satisfied before the loan will be made. Additional loan request(s) will not be accepted within 12 months of any prior loan. The minimum Individual Account Current Value is $2,000. The minimum loan amount is $1,000. The maximum loan amount is the lesser of: (a) 50% of the vested Individual Account Current Value, including the amount of any outstanding loans, reduced by the outstanding loan balance on the date the loan is made; or (b) $50,000 reduced by the highest outstanding loan balance for the preceding 12 months. When a loan is made, the number of Record Units equal to the loan amount will be withdrawn from the Current Value. The loan amount will be withdrawn on a pro rata basis from the Fixed Account, the Fixed Plus Account and from the Fund(s). Record Units do not participate in the investment experience of the related investment options from which they were withdrawn. The loan interest rate is equal to Moody's Corporate Bond Yield Average- Monthly Average Corporates as published by Moody's Investors Service, Inc. for the calendar month beginning two months before the date on which the rate becomes effective. This rate applies for one year. On the anniversary of the loan's effective date, the rate will be increased or decreased if it changes by .5% or more. The Individual Account is credited with the amount of interest being charged less 3%. Quarterly interest is allocated to the same investment options and in the same proportion as the loan amount that was withdrawn. Principal and interest is amortized quarterly over a one to five year term, or if the loan is taken for the acquisition of a Participant's primary residence, over a one to 20 year term. However, repayment periods of more than five years are available only for loan amounts of $2,000 or greater. Repayment of principal will be allocated to the same investment options and in the same proportion as the loan amount that was withdrawn. Any loan payment received that is less than the amount due will be returned to the Participant. Any loan payment not paid when due will be in default. A 5% default charge, if applicable, will be assessed on a portion of the defaulted payment. The portion 4 subject to this charge is determined by multiplying the defaulted payment by a percentage determined at the time the loan is taken. This percentage is calculated by dividing the amount withdrawn from the Fixed Plus Account which exceeds the 20% limit (reduced by any surrenders, transfers or amounts used to purchase an Annuity during the 12 months preceding the loan) by the total loan amount. An automatic partial surrender of an amount equal to the payment amount in default; plus the default charge, if applicable; plus any applicable Surrender Fee will be made. Such surrenders are reported to the Internal Revenue Service as taxable distributions for that year. When the Contract Holder on behalf of a Participant requests that the total Individual Account Current Value be used to purchase Annuity benefits, or when a death claim is processed, any outstanding loan(s) is canceled. Interest due, but not yet paid, is deducted. The amount of the canceled loan(s) is a taxable distribution for that year. If the Contract Holder on behalf of a Participant requests a full surrender before a loan is repaid, any outstanding loan is canceled. Interest due but not paid, any applicable default charge and any applicable Surrender Fee is deducted. The amount of the canceled loan is a taxable distribution for that year. As allowed by law, Aetna may cancel any outstanding loan(s) if the Individual Account Current Value is less than 25% of the total of all outstanding loan(s). Any applicable default charge and any applicable Surrender Fee is deducted. The amount of the canceled loan(s) is a taxable distribution for that year. Add the following to subsection (a) under Section 3.15 entitled NOTICE TO THE CONTRACT HOLDER. (4) The Fixed Plus Account; Delete and replace the second and third paragraph under subsection (a)(2) Estate Conservation Option (ECO) of Section 3.16 entitled DISTRIBUTION OPTIONS with the following statement. The life expectancy factor for this purpose is either the single life or joint life expectancy, as elected by the Contract Holder on behalf of the Participant, based on tables in Code Section 401(a)(9) or related regulations. The life expectancy factor shall be recalculated annually, to the extent permitted by the Code and regulations. The joint life expectancy factor will be based on the joint life expectancy of the Participant and his or her beneficiary, and such beneficiary must be named as the beneficiary of any death benefits under the Plan while ECO is in effect. Any change in the beneficiary designation under the Plan must be immediately communicated to Aetna so that subsequent distributions can be calculated as required by IRS regulations. 5 These calculations may be changed as necessary to comply with the Code minimum distribution rules. Any mode of payment elected upon the Participant's death must provide payments to be made at least as rapidly as those made prior to the Participant's death. Delete and replace the first paragraph under (b)(1) of Section 3.16 entitled DISTRIBUTION OPTIONS with the following statement. Amount of Distribution: The Contract Holder on behalf of the Participant may elect one of the three payment methods described below. Delete and replace the first sentence under (b)(1)(a) of Section 3.16 entitled DISTRIBUTION OPTIONS with the following sentence. Payments of a designated dollar amount which must be no greater than 20% of the initial Current Value and shall remain constant unless a higher amount is required under Code minimum distribution rules. Delete and replace the third sentence under (b)(1)(a) of Section 3.16 entitled DISTRIBUTION OPTIONS with the following statement. The life expectancy factor for this purpose is either the single life or joint life expectancy, as elected by the Contract Holder on behalf of the Participant at the time of the election of this option, and with each subsequent calendar year the factor will be reduced by one. The life expectancy factors are based on tables in Section 401(a)(9) of the Code or related regulations. These calculations may be changed as necessary to comply with the Code minimum distribution rules. If the Participant dies after the Section 401(a)(9) minimum distribution rules apply, any mode of payments elected must provide payments to be made at least as rapidly as those made prior to the Participant's death. Delete and replace the first sentence under (b)(1)(b) of Section 3.16 entitled DISTRIBUTION OPTIONS with the following statement. Payments which are made over a period of time which must be at least five years, unless otherwise required by Code minimum distribution rules. Add the following paragraph as (c) under (b)(1) of Section 3.16 entitled DISTRIBUTION OPTIONS. Specified Percentage. The specified percentage chosen cannot be greater than 20% of the Current Value. The Contract Holder on behalf of a Participant may change the specified percentage elected every six months. Each annual distribution is determined by multiplying the Individual Account Current Value by the percentage chosen. The value to be used in this calculation is the value on the December 31st prior to the 6 year for which the payment is being made. For payments made more often than annually, the annual payment result (calculated above) is divided by the number of payments due each year. Payments will be made each year until the year the Participant attains age 70 1/2. Delete the last paragraph under (b)(1) of Section 3.16 entitled DISTRIBUTION OPTIONS. Delete and replace the second sentence under (b)(3) of Section 3.16 entitled DISTRIBUTION OPTIONS with the following sentence. The earliest date is the date on which the Participant attains age 59 1/2 (or age 55 if the Participant has separated from service with the Contract Holder at or after age 55). Delete and replace Section 3.18 entitled SURRENDER VALUE with the following provision. (a) Surrender Value - Funds(s), Fixed Account, GA Account: After deduction of the Maintenance Fee (if any), the amount payable by Aetna upon the surrender of any portion of an Individual Account from the Fund(s), the Fixed Account and/or the GA Account shall be reduced by a Surrender Fee. The Surrender Fee will be in accordance with the Surrender Fee table in 5.02. The Fee on a total surrender of an Individual Account will not exceed 8.5% of the actual Purchase Payments made to that Account. (b) Surrender Value -- Fixed Plus Account: No Surrender Fee is deducted from any portion of the Current Value which is paid from the Fixed Plus Account. When Aetna receives a full surrender request, no additional partial surrenders, transfers or loans from the Fixed Plus Account are permitted during the payout period. If a full surrender is requested, Aetna will pay any Current Value, including accrued interest, from the Fixed Plus Account in five payments as follows: (i) One-fifth of the Current Value on the day the request is received in good order at Aetna's Home Office, reduced by any amount from the Fixed Plus Account transferred, surrendered, taken as a loan or used to purchase Annuity benefits during the prior 12 months; (ii) One-fourth of the remaining Current Value 12 months later; (iii) One-third of the remaining Current Value 12 months later; (iv) One-half of the remaining Current Value 12 months later; and (v) The balance of the Current Value 12 months later. The Fixed Plus Account full surrender payment provision will be waived when a surrender is: 7 (i) Due to the Participant's death before Annuity payments begin and request for payment is received within six months after the Participant's date of death; (ii) Used to purchase Annuity benefits; (iii) When the amount in the Fixed Plus Account is $3,500 or less and no amount has been surrendered, transferred, taken as a loan or used to purchase Annuity benefits during the prior 12 months. Any full surrender from the Fixed Plus Account may be canceled at any time before the end of the payment period. During each rolling 12-month period, up to 20% of the Current Value in the Fixed Plus Account may be withdrawn as a partial surrender. This 20% limit is reduced by any amount(s) transferred, taken as a loan or used to purchase an Annuity during the 12 month period. The 20% limit applicable to partial surrenders from the Fixed Plus Account will be waived when the partial surrender is due to one of the conditions set forth in (i) or (ii) of the full surrender payment provision above. The waiver will apply provided the partial surrender is taken pro-rata from the Fixed Plus Account, the GA Account, the Fixed Account and the Fund(s) . The partial surrender waiver due to death may only be exercised once. Any partial surrender request received after six months of a Participant's date of death will be subject to the terms and conditions of the Fixed Plus Account surrender payment provision. Aetna reserves the right to include amounts paid under the ECO and SWO provisions for purposes of applying the 20% limit. However, the SWO provision is not available if the Contract Holder on behalf of the Participant requested a Fixed Plus Account transfer or surrender within the current 12 month period. For a partial or full surrender from any Individual Account, Aetna must receive written direction from the Contract Holder on a form acceptable to Aetna. If the Contract is subject to ERISA, this direction must include certification that all of the REA waiver and spousal consent requirements have been satisfied. Aetna may defer payment of the surrender value until appropriate Contract Holder certification is received. Delete and replace Section 3.22 entitled REINSTATEMENT with the following provision. If allowed by law, the amount of all or a portion of the proceeds of a full surrender of this Contract may be reinvested within 30 days after the surrender. Any Maintenance or Surrender Fees deducted at the time of surrender on the amount being reinvested will be included in the reinstatement. Any Market Value Adjustment deducted from GA Account surrenders, however, will not be included in the reinstatement. Amounts will be reinstated among the Fund(s) for the Separate Account, the Fixed Account, the Fixed Plus Account, and/or the GA Account, as applicable, in the same proportion as they were at the time of the surrender. Any amounts reinstated to the GA Account will be credited to Terms available during the then-current Deposit Period. The number of Record Units reinstated will be based on the Record Unit Value(s) next computed 8 after receipt in good order at Aetna's Home Office of the reinstatement request and the amount to be reinvested. Any Maintenance Fee which falls due after the surrender and before the reinstatement will be deducted from the amount reinvested. Reinstatement is permitted only once. Delete and replace the fifth paragraph under Section 4.01 entitled CHOICES TO BE MADE with the following statement. The assumed interest rate for a Fixed Annuity and the interest rate under Annuity Option 1 will be no less than 3.5%. Aetna may add interest daily under Annuity Option 1 at any higher rate as determined by its Board of Directors. Delete and replace subsection Option 2 under Section 4.06 entitled ANNUITY OPTIONS as follows: Option 2 -- Payments for a Stated Period of Time -- An Annuity will be paid for a stated number of years. The number of years that may be chosen will be determined in part by the investment options in which the Individual Account Current Value was held prior to the election of the Annuity Option as follows: For any amount held in the GA Account, one or more of the Fund(s) or the Fixed Account, the number of years chosen must be at least three and not more than 30 and the Annuity may be a Fixed or Variable Annuity. For any amount held in the Fixed Plus Account, the number of years chosen must be at least five and not more than 30 and the Annuity must be a Fixed Annuity. Delete and replace the last paragraph under Section 5.02 entitled SURRENDER FEE as follows: No Surrender Fee is deducted from any portion of an Individual Account which is paid from the Fixed Account, the GA Account or the Fund(s): (a) Due to the Participant's death before Annuity payments begin; (b) Used to purchase Annuity benefits; (c) After a Participant has reached age 59 1/2 and 9 or more Purchase Payment Cycles have been completed for the Individual Account being surrendered, except in the case of lump-sum Purchase Payment(s), after 9 years; (d) On and after the tenth anniversary of the Effective Date of the Individual Account; (e) Due to the election of the Estate Conservation Option (ECO) or the Systematic Withdrawal Option (SWO); 9 (f) In an amount equal to or less than 10% of the Individual Account Current Value, as part of the first partial surrender request in a calendar year to a Participant who is at least age 59 1/2 and less than 70 1/2. The Individual Account Current Value is calculated as of the date the partial surrender request is received in good order at Aetna's Home Office. Any outstanding loans from the Individual Account are excluded when calculating the Individual Account Current Value. This provision does not apply to partial surrenders due to loan defaults made from the Individual Account and does not apply to full surrender requests. This provision may not be exercised if SWO is elected; (g) When the Individual Account Current Value is $3,500 or less and no amount has been surrendered, taken as a loan or used to purchase Annuity benefits during the prior 12 months; (h) To relieve a Participant's "financial hardship," as may be allowed for annuity contracts under Section 403(b) of the Internal Revenue Code or applicable Internal Revenue Service rules or regulations; or (i) On account of a Participant's separation from service. The Contract Holder must submit documentation satisfactory to Aetna to confirm that the Participant is no longer providing services to the employer. Endorsed and made a part of the Contract and the Certificate on the date this endorsement is approved by the State Insurance Department and accepted by the Contract Holder, or the effective date of the Contract and/or the Certificate, whichever is later. /s/ Dan Kearney [SPECIMEN - STAMP] PRESIDENT AETNA LIFE INSURANCE AND ANNUITY COMPANY 10 EFP94RP AETNA LIFE INSURANCE AND ANNUITY COMPANY ENDORSEMENT The Contract and the Certificate is hereby endorsed as follows. Add the following to Section I GENERAL DEFINITIONS: Fixed Plus Account: An accumulation option with a guaranteed minimum interest rate. Aetna may credit a higher rate which is not guaranteed. No Surrender Fee applies. However, the portion that may be surrendered in a 12 month period is restricted. Add the following sentence to Section 1.10 entitled FIXED ACCOUNT. A Surrender Fee may be applied on a full or partial surrender. Add the following to the third paragraph under Section 2.01 entitled CHANGE OF CONTRACT: (h) Guaranteed Interest Rate -- Fixed Plus Account (i) Maximum transfer fees Delete and replace the last two sentences of the fifth paragraph under Section 2.01 entitled CHANGE OF CONTRACT as follows: Aetna also reserves the right to discontinue accepting additional Purchase Payment(s) for Participants covered under this Contract prior to the change. This Contract may also be changed as deemed necessary by Aetna to comply with federal or state law without Contract Holder consent. Add the following to the second paragraph of Section 3.01 entitled NET PURCHASE PAYMENT(S): (d) The Fixed Plus Account. Delete the fourth paragraph under Section 3.01 entitled NET PURCHASE PAYMENT(S) and replace it with the following statement. Participants may change the allocation of future Net Purchase Payment(s) at any time, without charge. Delete and replace Section 3.05 entitled GUARANTEED INTEREST RATE -- FIXED ACCOUNT as follows: (a) GUARANTEED INTEREST RATE -- FIXED ACCOUNT: On any Purchase Payment(s) made to the Fixed Account, Aetna will add interest daily at an annual rate that is no less than 4%. Aetna may add interest daily at any higher rate determined by its Board of Directors. (b) GUARANTEED INTEREST RATE -- FIXED PLUS ACCOUNT: On any Net Purchase Payment(s) made to the Fixed Plus Account, Aetna will add interest daily at an annual rate that is no less than 3%. Aetna may add interest daily at a higher rate as determined by its Board of Directors. Beginning on the tenth anniversary of the effective date of an Individual Account, on and after February 1, 1994, Aetna will credit amounts held in the Fixed Plus Account with an interest rate that is .25% higher than the then- declared interest rate for the Fixed Plus Account for Individual Accounts before the tenth anniversary. Delete and replace subsection (a) under Section 3.11 entitled CURRENT VALUE as follows: (a) Any amounts in the Fixed Account, including Fixed Account interest added by Aetna; and/or amount(s) in the Fixed Plus Account including Fixed Plus Account interest added by Aetna; plus Delete Section 3.12 entitled TRANSFER OF CURRENT VALUE FROM THE FUNDS OR GA ACCOUNT and replace as follows. Before an Annuity Option is elected, all or any portion of the Current Value may be transferred from any Fund or the GA Account: (a) To any other allowable Fund; (b) To the Fixed Account; or (c) To the Fixed Plus Account; or (d) To Terms of the GA Account available in the current Deposit Period. Any transfer relating to the GA Account is subject to the transfer restrictions referenced in the fourth and fifth paragraph of Section 3.04(e). There is no limit on the number of transfers of Current Value from the Fund(s) or the GA Account. Aetna guarantees a minimum of 12 free transfers each year, but reserves the right to charge not more than $10 for additional transfers. Transfers from the Fund(s) are based on values determined as of the Valuation Period following receipt of a transfer request in good order at Aetna's Home Office. This provision does not include transfers from the GA Account at the Maturity Date. At any other time before the Maturity Date, amounts in the GA Account may be subject to the Surrender Fee and Market Value Adjustment provisions if they are transferred. Delete and replace Section 3.13 entitled TRANSFER OF CURRENT VALUE FROM THE FIXED ACCOUNT as follows: Each calendar year, 10% of the Current Value held in the Fixed Account may be transferred to any Fund(s) and/or to the GA Account's then-current Deposit Period. Such transfer will be without charge and will not be allowed under an Annuity Option. Aetna may, on a temporary basis, allow any larger percent to be transferred. During each rolling 12-month period, up to 20% of the Current Value held in the Fixed Plus Account may be transferred to one or more of the Fund(s), the Fixed Account, or to the GA Account's then-current Deposit Period. The 20% limit is reduced by any partial surrender(s), loan(s) or amount(s) used to purchase an Annuity during the 12 month period. Current Value, as used above, is the value when the request is received in good order at Aetna's Home Office. 2 Delete and replace Section 3.14 entitled LOAN VALUE with the following provision. During the accumulation period, the Contract Holder may request a loan on behalf of a Participant with a vested Individual Account Current Value. All loans will be made in accordance with then-current provisions of the Internal Revenue Code. If the Contract is subject to ERISA, the Contract Holder must provide written certification to Aetna that the REA requirements are satisfied before the loan will be made. Additional loan request(s) will not be accepted within 12 months of any prior loan. The minimum Individual Account Current Value is $2,000. The minimum loan amount is $1,000. The maximum loan amount is the lesser of: (a) 50% of the vested Individual Account Current Value, including the amount of any outstanding loans, reduced by the outstanding loan balance on the date the loan is made; or (b) $50,000 reduced by the highest outstanding loan balance for the preceding 12 months. When a loan is made, the number of accumulation units equal to the loan amount will be withdrawn from the Current Value. The loan amount will be withdrawn on a pro rata basis from the Fixed Account, the Fixed Plus Account and from the Fund(s). Accumulation units do not participate in the investment experience of the related investment options from which they were withdrawn. The loan interest rate is equal to Moody's Corporate Bond Yield Average- Monthly Average Corporates as published by Moody's Investors Service, Inc. for the calendar month beginning two months before the date on which the rate becomes effective. This rate applies for one year. On the anniversary of the loan's effective date, the rate will be increased or decreased if it changes by .5% or more. The Individual Account is credited with the amount of interest being charged less 3%. Quarterly interest is allocated to the same investment options and in the same proportion as the loan amount was withdrawn. Principal and interest is amortized quarterly over a one to five year term, or if the loan is taken for the acquisition of a Participant's primary residence, over a one to 20 year term. Repayment of principal will be allocated to the same investment options and in the same proportion as the loan amount was withdrawn. Any loan payment received that is less than the amount due will be returned to the Participant. Any loan payment not paid when due will be in default. A 5% default charge, if applicable, will be assessed on a portion of the defaulted payment. The portion subject to this charge is determined by multiplying the defaulted payment by a percentage determined at the time the loan is taken. This percentage is calculated by dividing the amount withdrawn from the Fixed Plus Account which exceeds the 20% limit (reduced by any surrenders, transfers or amounts used to purchase an Annuity during the 12 months preceding the loan) by the total loan amount. An automatic partial surrender of an amount equal to the payment amount in default; plus the default charge, if applicable; plus any applicable Surrender Fee will be made. Such surrenders are reported to the Internal Revenue Service as taxable distributions for that year. 3 When the Contract Holder on behalf of a Participant requests that the total Individual Account Current Value be used to purchase Annuity benefits, or when a death claim is processed, any outstanding loan(s) is canceled. Interest due, but not yet paid, is deducted. The amount of the canceled loan(s) is a taxable distribution for that year. If the Contract Holder on behalf of a Participant requests a full surrender before a loan is repaid, any outstanding loan is canceled. Interest due but not paid, any applicable default charge and any applicable Surrender Fee is deducted. The amount of the canceled loan is a taxable distribution for that year. As allowed by law, Aetna may cancel any outstanding loan(s) if the Individual Account Current Value is less than 25% of the total of all outstanding loan(s). Any applicable default charge and any applicable Surrender Fee is deducted. The amount of the canceled loan(s) is a taxable distribution for that year. Add the following to subsection (a) under Section 3.15 entitled NOTICE TO THE CONTRACT HOLDER. (4) The Fixed Plus Account; Delete and replace the second and third paragraph under subsection (a)(2) Estate Conservation Option (ECO) of Section 3.16 entitled DISTRIBUTION OPTIONS with the following statement. The life expectancy factor for this purpose is either the single life or joint life expectancy, as elected by the Contract Holder on behalf of the Participant at the time of the election of this option. The life expectancy factor shall be recalculated annually. The life expectancy factors are based on tables in Section 401(a)(9) of the Code or related regulations. These calculations may be changed as necessary to comply with the Code minimum distribution rules. Any mode of payment elected upon the Participant's death must provide payments to be made at least as rapidly as those made prior to the Participant's death. Delete and replace the first paragraph under (b)(1)(a) of Section 3.16 entitled DISTRIBUTION OPTIONS with the following sentence. Amount of Distribution: The Contract Holder on behalf of the Participant may elect one of the three payment methods described below. Delete and replace the first sentence under (b)(1)(a) of Section 3.16 entitled DISTRIBUTION OPTIONS with the following sentence. Payments of a designated dollar amount which must be no greater than 20% of the initial Current Value and shall remain constant unless a higher amoung is required under Code minimum distribution rules. Delete and replace the third sentence under (b)(1)(a) of Section 3.16 entitled DISTRIBUTION OPTIONS with the following sentence. The life expectancy factor for this purpose is either the single life or joint life expectancy, as elected by the Contract Holder on behalf of the Participant at the time of the election of this option, and with each subsequent calendar year the factor will be reduced by one. The life 4 expectancy factors are based on tables in Section 401(a)(9) of the Code or related regulations. These calculations may be changed as necessary to comply with the Code minimum distribution rules. If the Participant dies after the Section 401(a)(9) minimum distribution rules apply, any mode of payments elected must provide payments to be made at least as rapidly as those made prior to the Participant's death. Add the following paragraph as (c) under (b)(1) of Section 3.16 entitled Distribution Options. Specified Percentage. The specified percentage chosen cannot be greater than 10% of the Current Value. The Contract Holder on behalf of a Participant may change the specified percentage elected every six months. Each annual distribution is determined by multiplying the Individual Account Current Value by the percentage chosen. The value to be used in this calculation is the value on the December 31st prior to the year for which the payment is being made. For payments made more often than annually, the annual payment result (calculated above) is divided by the number of payments due each year. Payments will be made each year until the year the Participant attains age 70 1/2. Delete the last paragraph under (b)(1) of Section 3.16 entitled Distribution Options. Delete and replace the second sentence under (b)(3) of Section 3.16 entitled Distribution Options with the following sentence. The earliest date is the date on which the Participant attains age 59 1/2 (or age 55 if the Participant has separated from service with the Contract Holder at or after age 55). Delete and replace Section 3.18 entitled Surrender Value with the following provision. (a) Surrender Value - Funds(s), Fixed Account, GA Account: After deduction of the Maintenance Fee (if any), the amount payable by Aetna upon the surrender of any portion of an Individual Account from the Fund(s), the Fixed Account and/or the GA Account shall be reduced by a Surrender Fee. The Surrender Fee will be in accordance with the Surrender Fee table in 5.02. The Fee on a total surrender of an Individual Account will not exceed 8.5% of the actual Purchase Payments made to that Account. (b) Surrender Value -- Fixed Plus Account: No Surrender Fee is deducted from any portion of the Current Value which is paid from the Fixed Plus Account. When Aetna receives a full surrender request, no additional partial surrenders, transfers or loans from the Fixed Plus Account are permitted during the payout period. If a full surrender is requested, Aetna will pay any Current Value, including accrued interest, from the Fixed Plus Account in five payments as follows: (i) One-fifth of the Current Value on the day the request is received in good order at Aetna's Home Office, reduced by any amount from the Fixed Plus Account transferred, surrendered, taken as a loan or used to purchase Annuity benefits during the prior 12 months; (ii) One-fourth of the remaining Current Value 12 months later; (iii) One-third of the remaining Current Value 12 months later; 5 (iv) One Half of the remaining Current Valu 12 months later; and (v) The balance of the Current Value 12 months later. The Fixed Plus Account full surrender payment provision will be waived when a surrender is: (i) Due to the Participant's death before Annuity payments begin; (ii) Used to purchase Annuity benefits; (iii) When the amount in the Fixed Plus Account is $3,500 or less and no amount has been surrendered, transferred, taken as a loan or used to purchase Annuity benfits during the prior 12 months. Any full surrender from the Fixed Plus Account may be canceled at any time before the end of the payment period. During each rolling 12-month period, up to 20% of the Current Value in the Fixed Plus Account may be withdrawn as a partial surrender. This 20% limit is reduced by any amount(s) transferred, taken as a loan or used to purchase an Annuity during the 12 month period. For a partial or full surrender from any Individual Account, Aetna must receive written direction from the Contract Holder on a form acceptable to Aetna. If the Contract is subject to ERISA, this direction must include certification that all of the REA requirements have been satisfied. Aetna may defer payment of the surrender value until appropriate Contract Holder certification is received. Delete and replace Section 3.22 entitled Reinstatement with the following provision. If allowed by law, the amount of all or a portion of the proceeds of a full surrender of this Contract may be reinvested within 30 days after the surrender. Any Maintenance or Surrender Fees deducted at the time of surrender on the amount being reinvested will be included in the reinstatement. Any Market Value Adjustment deducted from GA Account surrenders, however, will not be included in the reinstatement. Amounts will be reinstated among the Fund(s) in the Spearate Account, the Fixed Account, the Fixed Plus Account, and/or the GA Account, as applicable, in the same proportion as they were at the time of the surrender. Any amounts reinstated to the GA Account will be credited to Terms available during the then-current Deposit Period. The number of Record Units reinstated will be based on the Record Unit Value(s) next computed after receipt in good order at Aetna's Home Office of the reinstatement request and the amount to be reinvested. Any Maintenance Fee which falls due after the surrender and before the reinstatement will be deducted from the amount reinvested. Reinstatement is permitted only once. Delete and replace the fifth paragraph under Section 4.01 entitled Choices to be Made with the following statement. 6 The assumed interest rate for a Fixed Annuity and the interest rate under Annuity Option 1 will be no less than 3.5%. Aetna may add interest daily under Annuity Option 1 at any higher rate as determined by its Board of Directors. Delete and replace subsection Option 2 under Section 4.06 entitled Annuity Options as follows: Option 2 -- Payments for a Stated Period of Time -- An Annuity will be paid for a stated number of years. The number of years that may be chosen will be determined in part by the investment options in which the Individual Account Current Value was held prior to the election of the Annuity Option as follows: For any amount held in the GA Account, one or more of the Fund(s) or the Fixed Account, the number of years chosen must be at least three and not more than 30 and the Annuity may be a Fixed or Variable Annuity. For any amount held in the Fixed Plus Account, the number of years chosen must be at least six and not more than 30 and the Annuity must be a Fixed Annuity. Delete and replace the last paragraph under Section 5.02 entitled Surrender Fee as follows: No Surrender Fee is deducted from any portion of an Individual Account which is paid from the Fixed Account, the GA Account or the Fund(s): (a) Due to the Participant's death before Annuity payments begin; (b) Used to purchase Annuity benefits; (c) After a Participant has reached age 59 1/2 and 9 or more Purchase Payment Cycles have been completed for the Individual Account being surrendered, except in the case of lumpsum Purchase Payment(s), after 9 years; (d) On and after the tenth anniversary of the Effective Date of the Individual Account; (e) Due to the election of the Estate Conservation Option (ECO) or the Systematic Withdrawal Option (SWO); (f) In an amount equal to or less than 10% of the Individual Account Current Value, as part of the first partial surrender request in a calendar year to a Participant who is at least age 59 1/2 and less than 70 1/2. The Individual Account Current Balue is calculated as of the date the partial surrender request is received in good order at Aetna's Home Office. Any outstanding loans from the Individual Account are excluded when calculating the Individual Account Current Value. This provision does not apply to partial surrenders due to loan defaults made from the Individual Account and does not apply to full surrender requests. This provision may not be exercised if SWO is elected; (g) When the Individual Account Current Value is $3,500 or less and no amount has been surrendered, transferred, taken as a loan or used to purchase Annuity benefits during the prior 12 months. If there is more than one Individual Account under the Contract for a Participant, then this provision will only apply when the total in all of the Participant's Individual Accounts is $3,500 or less; (h) To relieve a Participant's "financial hardship", as may be allowed for annuity contracts under Section 403(b) of the Internal Revenue Code or other appropriate Internal Revenue service sources; or 7 (i) On account of a Participant's separation from service. The Contract Holder must submit documentation satisfactory to Aetna to confirm that the Participant is no longer providing services to the employer. Endorsed and made a part of the Contract and the Certificate effective January 15, 1994. /s/ Gary Benanav PRESIDENT AETNA LIFE INSURANCE AND ANNUITY COMPANY EFP-1C(RP) 8 AETNA LIFE INSURANCE AND ANNUITY COMPANY ENDORSEMENT The Contract and the Certificate are hereby endorsed as follows. Add the following statement to the end of Section 3.01 entitled NET PURCHASE PAYMENT(S): Transferred Assets are the value of prior contributions into this Plan or to a similar plan. Trnasferred Assets, less any premium tax, will be allocated to a Participant's Individual Account as of the date received in good order by Aetna at its Home Office. Aetna will apply a transfer credit equal to 0.50% of Transferred Assets allocated to an Individual Account within six months of the first Purchase Payment to the Contract. The transfer credit is due on the first business day of the calendar month after the six month anniversary. It will be applied to the Individual Account on or before the 11th business day of that month. The transfer credit amount will be allocated to the Fixed or Fixed Plus Account, as applicable. The amount will include the transfer credit plus any interest that would have accrued had the transfer credit been deposited on the first business day of the month. Endorsed and made a part of the Contract on the effective date of the Contract. Endorsed and made a part of the Certificate on the effective date of the Certificate. /s/ Dan Kearney PRESIDENT AETNA LIFE INSURANCE AND ANNUITY COMPANY EX-4.2 6 EXHIBIT 4.2 AETNA LIFE INSURANCE AND ANNUITY COMPANY HOME OFFICE: 151 FARMINGTON AVE. HARTFORD, CONNECTICUT 06156 (203) 273-2131 Aetna Life Insurance and Annuity Company, herein called Aetna, agrees to pay the benefits stated in this Contract. THE VARIABLE FEATURES OF THIS CONTRACT ARE DESCRIBED IN PARTS III AND IV. RIGHT TO CANCEL The Contract Holder may cancel this Contract within 10 days of receiving it by returning this Contract along with a written notice to Aetna at the above address or to the agent from whom it was purchased. Within 7 days after it receives the notice of cancellation and this Contract at its Home Office, Aetna will return the entire consideration paid plus any increase or minus any decrease in the current value of any funds allocated to the Separate Account C. This page, the following pages, and the application make up the entire Contract. Signed at the Home Office on the Effective Date. /s/ George N. Gingold /s/ Edmund F. Kelly SECRETARY PRESIDENT GROUP VARIABLE, FIXED, OR COMBINATION ANNUITY CONTRACT NONPARTICIPATING ALL PAYMENTS AND VALUES PROVIDED BY THE GROUP CONTRACT, WHEN BASED ON INVESTMENT EXPERIENCE OF SEPARATE ACCOUNT C, ARE VARIABLE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT. THIS CONTRACT CONTAINS A MARKET VALUE ADJUSTMENT FORMULA. APPLICATION OF A MAR- KET VALUE ADJUSTMENT MAY RESULT IN EITHER AN INCREASE OR DECREASE IN THE CURRENT VALUE. THE MARKET VALUE ADJUSTMENT FORMULA DOES NOT APPLY TO A GUARANTEED TERM AT THE TIME OF ITS MATURITY. G-CDA-IA (RPM/XC) TABLE OF CONTENTS I. GENERAL DEFINITIONS PAGE 1.01 Annuity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.02 Fixed Annuity . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.03 Variable Annuity. . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.04 Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.05 Annuitant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.06 Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.07 Purchase Payment(s) . . . . . . . . . . . . . . . . . . . . . . . . 5 1.08 General Account . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.09 Separate Account. . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.10 Fixed Account . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.11 Fund(s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.12 Guaranteed Accumulation Account (GA Account). . . . . . . . . . . . 5 1.13 Nonunitized Separate Account. . . . . . . . . . . . . . . . . . . . 6 1.14 Maturity Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.15 Matured Term Value. . . . . . . . . . . . . . . . . . . . . . . . . 6 1.16 Valuation Period. . . . . . . . . . . . . . . . . . . . . . . . . . 6 II. GENERAL PROVISIONS 2.01 Change of Contract. . . . . . . . . . . . . . . . . . . . . . . . . 7 2.02 Change of Fund(s) . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.03 Nonparticipating Contract . . . . . . . . . . . . . . . . . . . . . 7 2.04 Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.05 State Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.06 Control of Contract . . . . . . . . . . . . . . . . . . . . . . . . 8 2.07 Designation of Beneficiary. . . . . . . . . . . . . . . . . . . . . 8 2.08 Misstatements and Adjustments . . . . . . . . . . . . . . . . . . . 8 2.09 Incontestability. . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.10 Grace Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.11 Individual Certificates . . . . . . . . . . . . . . . . . . . . . . 9 III. PURCHASE PAYMENT, CURRENT VALUE, AND SURRENDER PROVISIONS 3.01 Net Purchase Payment(s) . . . . . . . . . . . . . . . . . . . . . . 10 3.02 Individual Accounts . . . . . . . . . . . . . . . . . . . . . . . . 10 3.03 Limitation on Contributions . . . . . . . . . . . . . . . . . . . . 10 3.04 Guaranteed Accumulation Account . . . . . . . . . . . . . . . . . . 10 3.05 Guaranteed Interest Rate - Fixed Account. . . . . . . . . . . . . . 14 3.06 Experience Credits. . . . . . . . . . . . . . . . . . . . . . . . . 14 3.07 Maintenance Fee . . . . . . . . . . . . . . . . . . . . . . . . . . 14 3.08 Fund Record Units - Separate Accounts . . . . . . . . . . . . . . . 14 3.09 Net Return Factor(s) - Separate Accounts. . . . . . . . . . . . . . 14 3.10 Fund Record Unit Value - Separate Accounts. . . . . . . . . . . . . 14 3.11 Current Value . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 3.12 Transfer of Current Value from the Funds to GA Account. . . . . . . 15 3.13 Transfer of Current Value from the Fixed Account. . . . . . . . . . 15 3 3.14 Loan Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 3.15 Notice to the Contract Holders. . . . . . . . . . . . . . . . . . . 17 3.16 Distribution Options. . . . . . . . . . . . . . . . . . . . . . . . 17 3.17 Sum Payable at Death (Before Annuity Payments Start). . . . . . . . 20 3.18 Surrender Value . . . . . . . . . . . . . . . . . . . . . . . . . . 20 3.19 Surrender Restrictions. . . . . . . . . . . . . . . . . . . . . . . 21 3.20 Timing of Distributions . . . . . . . . . . . . . . . . . . . . . . 21 3.21 Payment of Surrender Value. . . . . . . . . . . . . . . . . . . . . 22 3.22 Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 IV. ANNUITY PROVISIONS 4.01 Choices to be Made. . . . . . . . . . . . . . . . . . . . . . . . . 23 4.02 Annuity Payments to Annuitant . . . . . . . . . . . . . . . . . . . 23 4.03 Death of Annuitant. . . . . . . . . . . . . . . . . . . . . . . . . 23 4.04 Fund(s) Annuity Units - Separate Account. . . . . . . . . . . . . . 24 4.05 Fund(s) Annuity Unit Value - Separate Account C . . . . . . . . . . 24 4.06 Annuity Options . . . . . . . . . . . . . . . . . . . . . . . . . . 24 V. FEE SCHEDULE 5.01 Maintenance Fee . . . . . . . . . . . . . . . . . . . . . . . . . . 34 5.02 Surrender Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 4 I. GENERAL DEFINITIONS 1.01. ANNUITY: Payment of an income: (a) For the life of one or two persons; (b) For a stated period; or (c) For some combination of (a) and (b). 1.02. FIXED ANNUITY: An Annuity with payments which do not vary in amount. 1.03. VARIABLE ANNUITY: An Annuity with payments which vary with the net investment results of Separate Account C. 1.04. PLAN: The Plan named on the Specifications page. The Plan is not a part of the Contract. Aetna is not bound by the terms of the Plan. 1.05. ANNUITANT: A person on whose life an Annuity has been effected under this Contract. 1.06. PARTICIPANT: A person who participates in the Plan named on the Specifications page of this Contract. 1.07. PURCHASE PAYMENT(S): Payments made to Aetna. 1.08. GENERAL ACCOUNT: The Account holding the assets of Aetna, other than those assets held in Separate Account or the Nonunitized Separate Account. 1.09. SEPARATE ACCOUNT C: Account C buys and holds shares of the Fund(s). Income, gains or losses, realized or unrealized are credited or charged to this account without regard to other income, gains or losses of Aetna. Aetna owns the assets held in Separate Account C and is not a trustee as to such amounts. This account generally is not guaranteed and is held at market value. The assets of this account, to the extent of reserves and other contract liabilities of Account C, shall not be charged with other Aetna liabilities. 1.10. FIXED ACCOUNT: An accumulation option with a guaranteed minimum interest rate. Aetna may credit a higher rate which is not guaranteed. 1.11. FUND(S): The open-end registered management investment companies (mutual funds) made available by Aetna under this Contract. These Fund(s) currently are: - Aetna Variable Fund, a conservative common stock fund; - Aetna Income Shares, a bond fund; - Aetna Variable Encore Fund, a money market fund; and - Aetna Investment Advisers Fund, Inc., a managed fund. - Franklin Government Securities Trust, a government bond fund; - Neuberger & Berman Advisers Management Trust, (Growth Portfolio), a growth fund; - Lexington Natural Resources Trust, a natural resources fund; - Calvert Socially Responsible Series, a socially responsible fund; or - T. Rowe Price International Equity Fund, an international common stock fund. Additional information regarding these Funds is available in each Fund prospectus. 1.12. GUARANTEED ACCUMULATION ACCOUNT: An accumulation option which guarantees a stipulated rate of interest for a specified period of time. 5 1.13. NONUNITIZED SEPARATE ACCOUNT: An Account set up by Aetna under Title 38, Section 38-154a, of the Connecticut General Statutes which is used to hold assets for GA Account Terms greater than three years. The Contract Holder does not participate in the investment gain or loss from the assets held in this Account. 1.14. MATURITY DATE: The last day of a GA Account Term. 1.15. MATURED TERM VALUE: The amount payable on a GA Account Term's Maturity Date. 1.16. VALUATION PERIOD: The period as of 4:00 p.m. Eastern time on each day the New York Stock Exchange is open for business to 4:00 p.m. Eastern time of the next such business day. 6 II. GENERAL PROVISIONS 2.01. CHANGE OF CONTRACT: Except as provided below, only an authorized officer of Aetna may change the terms of the Contract by notifying the Contract Holder, in writing, at least 30 days before the effective date of the change. Any change will not affect the amount or terms of any Annuity which begins before the change. Aetna may make a change that affects the GA Account Market Value Adjustment (see 3.04(g)) with at least 30 days advance written notice to the Contract Holder. Any such change shall become effective for any present or future Participant. Any change that affects the following provisions of this Contract will not apply to existing Individual Accounts. (a) Net Purchase Payment(s) (b) Guaranteed GA Account Interest Rate (c) Guaranteed Interest Rate - Fixed Account (d) Net Return Factor(s) - Separate Account C (e) Current Value (f) Surrender Value (g) Fund(s) Annuity Unit Value - Separate Account C Any change that affects the Annuity Options and the tables for the Options, cannot be made: (a) Until at least 12 months after the Effective Date of this Contract; and (b) Until at least 12 months after the effective date of any such prior change. New Participants covered under this Contract on or after the effective date of any change will be subject to the change. If the Contract Holder does not agree to any change under this provision, no new Participants will be covered under this Contract. Aetna will continue to accept Purchase Payments for the Participants covered under this Contract before the change. This Contract may also be changed as required by federal or state law. 2.02. CHANGE OF FUND(S): Aetna, or the Separate Account may: (a) Change the Fund(s) which may be invested in by Separate Account C; and (b) Replace the shares of any Fund(s) held in Separate Account C with shares of any other Fund(s). Changes must be: (a) Approved by a majority vote of persons having an interest in Separate Account C and the Fund(s); (b) Deemed necessary by Aetna under the Investment Company Act of 1940; or (c) Deemed necessary by Aetna to accomplish the purpose of Separate Account C. Aetna will notify the Contract Holder of any change. 2.03. NONPARTICIPATING CONTRACT: The Contract Holder, Participants, or beneficiaries will not have a right to share in the earnings of Aetna. 2.04. PAYMENTS: Aetna will make Annuity payments as and when due. Aetna will make other payments within 7 days of receipt at its Home Office of a written claim for payment which is in good order, except as provided in 3.18. 2.05. STATE LAWS: This Contract complies with the laws of the State of New York. Any cash, death or Annuity payments are equal to or greater than the minimum required by such laws. Annuity tables for legal reserve valuation shall be as required by state law. Such tables may be different from Annuity tables used to determine Annuity payments. 7 2.06. CONTROL OF CONTRACT: The Contract Holder may make any choices allowed by this Contract for the Employer Account and the Employee Account. Choices made under this Contract must be in writing or in a form satisfactory to Aetna. Until receipt of such choices in its Home Office, Aetna may rely on any previous choices made. The Contract Holder may, however, by written direction to Aetna, allow Participants to select the investment options of the Employer Account and/or the Employee Account. No distributions will be made from the Employer Account or the Employee Ac- count without the Contract Holder's written direction to Aetna. The Contract Holder may direct Aetna to make an in-service transfer pursuant to IRS Revenue Ruling 90-24. Checks for in-service transfers will be made payable only to the acquiring investment provider. Participants have no rights to direct Aetna as to payments under the Contract unless countersigned by the Contract Holder. (a) Nontransferable and Nonassignable: This Contract and any Individual Accounts are nontransferable and non-assignable, except to Aetna in the event of a loan or pursuant to a "qualified domestic relations order" as set forth under the Retirement Equity Act of 1984 (REA). In the event a loan is requested, the Current Value of the Employee Account necessary to cover the loan amount plus interest must be assigned to Aetna. (b) ERISA/REA Requirements: The Contract Holder shall notify Aetna in writing of the applicability of Title I of the Employee Retirement Income Security Act of 1974 (ERISA), as amended by subsequent law including REA, to the Plan. Aetna shall rely on the Contract Holder's determination and representation of applicability. With respect to any distribution made from an Employee or Employer Account from a Contract subject to ERISA, the Contract Holder must certify in writing that all the appropriate REA requirements have been met and that the distribution is in accordance with the terms of the Plan. (c) Participant Rights/Employee Account: The Participant has a nonforfeitable right to the value of his or her Employee Account pursuant to Code Section 403(b) and the terms of the Plan as interpreted by the Contract Holder (see 1.06). (d) Participant Rights/Employer Account: The Participant has a nonforfeitable right to the value of his or her Employer Account pursuant to the terms of, and to the extent of his or her vested percentage under, the Plan as interpreted by the Contract Holder. It is the Contract Holder's responsibility to maintain records of the Participant's vesting percentages. Aetna will not maintain nor keep such records. The Contract Holder and each Participant hereunder have agreed in writing to the above terms and conditions, to have the Contract Holder make all choices under the Contract, and to be bound by the Contract Holder's direction(s) to Aetna. 2.07. DESIGNATION OF BENEFICIARY: The Contract Holder is the beneficiary of the Employer and Employee Account. Aetna will pay any portion of the Individual Account(s) Current Value to the Plan beneficiary as directed by the Contract Holder. 2.08. MISSTATEMENTS AND ADJUSTMENTS: If Aetna finds the age of any payee to be misstated, the correct facts will be used to adjust payments. 2.09. INCONTESTABILITY: Aetna cannot cancel this Contract because of any error of fact on the application. 2.10. GRACE PERIOD: This Contract will remain in effect even if Purchase Payments are not continued. 8 2.11. INDIVIDUAL CERTIFICATES: Aetna shall issue certificates to the Contract Holder or Participants as required by the New York Insurance Laws. The certificate will summarize certain provisions of the Contract. Certificates are for information only and are not a part of the Contract. 9 III. PURCHASE PAYMENT, CURRENT VALUE, AND SURRENDER PROVISIONS 3.01. NET PURCHASE PAYMENT(S): The actual Purchase Payment less any premium tax. Generally, Aetna will deduct the premium tax when Annuity benefits are purchased (see Part IV). If Aetna determines that a premium tax is due when Purchase Payments are received or at any other time, it will deduct the tax at that time. The Net Purchase Payment(s) may be credited among: (a) The Fixed Account; and (b) The Guaranteed Accumulation Account; and (c) The Fund(s) in which the Separate Account invests. Aetna must be told the percentage of the Net Purchase Payment(s) to be applied to each investment above. During any calendar year, the Contract Holder or, if allowed by the Plan, the Participant may tell Aetna to change the investment mix twelve times. Should Aetna allow additional changes, each may be subject to a fee of up to $10. 3.02. INDIVIDUAL ACCOUNT: This Contract is issued to the Contract Holder. However, Individual Accounts for Plan Participants are explained below. Aetna will maintain two Individual Accounts for each Participant. These will be: (a) Employer Account: This Individual Account will be credited with employer Net Purchase Payment(s); and (b) Employee Account: This Individual Account will be credited with employee Net Purchase Payment(s), specifically employee salary reduction contributions. In addition to any Purchase Payment(s) stated to be made to this Contract, a lump-sum Purchase Payment(s), of not less than a minimum amount stated by Aetna, may be made on behalf of one or more Participants. Aetna may maintain an Individual Account for each lump sum payment. Such Individual Account(s) will be designated as an Employer Account(s) or an Employee Account(s) as instructed by the Contract Holder. 3.03. LIMITATION ON CONTRIBUTIONS: The Purchase Payment(s) made to a Partici- pant's Individual Account(s) in any year cannot exceed the lesser of the amount determined under the exclusion allowance of Code Section 403(b)(2) or the annual additions limitation of Code Section 415(c)(1). In addition, in no event may the Purchase Payment(s) attributable to elective deferrals as defined in Code Section 402(g) exceed $9,500 (or, such larger amount as adjusted by the Secretary of the Treasury) during any calendar year, unless the alternate limitation of Code Section 402(g)(8) applies. 3.04. GUARANTEED ACCUMULATION ACCOUNT (GA ACCOUNT): The GA Account guarantees stipulated rates of interest for stated periods of time (see (a) and (c) below). Amounts withdrawn before the end of a Guaranteed Term may be subject to a Market Value Adjustment (MVA) (see (g) below). (a) Deposit Period - A calendar month, a calendar quarter, or any other period of time specified by Aetna during which Net Purchase Payment(s) and transfers are accepted into the GA Account for one or more Guaranteed Terms. (b) Guaranteed Term (Term) - The period of time for which interest rates are guaranteed on Net Purchase Payment(s) and on transfers made into a Deposit Period of 10 the GA Account. Terms are offered at Aetna's discretion for various lengths of time ranging up to and including ten years. (c) Guaranteed Term Classifications - The grouping of Terms according to their time to maturity. The following are the Classifications: (1) Short-Term: Terms of up to and including 3 years; or (2) Long-Term: Terms of greater than 3 years and up to and including 10 years. During a Deposit Period, Aetna may make available one or more Terms within a Classification. The Contract Holder has the option to allocate Net Purchase Payment(s) and transfers into any or all of the available Deposit Period Terms. If no specific direction is given, Net Purchase Payment(s) and transfers will go into available Terms on a pro rata basis within the Classification(s) previously chosen by the Contract Holder. At least one Term in the Short-Term Classification will be available each Deposit Period. (d) Guaranteed GA Account Interest Rates (Guaranteed Rates) - Aetna will declare all interest rate(s) applicable to a specific Term at the start of the Deposit Period for that Term. These rate(s) are guaranteed by Aetna for that Deposit Period and the ensuing Term and are not based on the actual investment experience of the underlying assets in the GA Account. The Guaranteed Rates are annual effective yields. The interest is credited daily at a rate that will produce the guaranteed annual effective yield over the period of a year. No annual rate will ever be less than 4%. For Terms of one year or less, one Guaranteed Interest Rate is set and announced for that full Term. For other Terms, there may be two or more rates. All of these rate(s) may be set and announced for that full Term. For other Terms, there may be two or more rates. All of these rate(s) may be set and announced prior to the (*). (e) Withdrawals from GA Account - Full or partial surrenders may be requested at any time from the GA Account. However, amounts withdrawn prior to the Maturity Date of a Term to satisfy a surrender request may be subject to an MVA (see (g) below). Full and partial surrenders are satisfied by withdrawing amounts from each of the investment options in which the Individual Account is invested (the Fund(s), the Fixed Account, the GA Account Short-Term Classification and the GA Account Long-Term Classification) on a pro rata basis. However, the Contract Holder may specify a particular order in which investment options will be liquidated in order to satisfy a partial surrender request. For purposes of withdrawals, Terms within the GA Account Short-Term and Long-Term Classifications are considered as two separate investment options. Amounts will be removed within a GA Account Classification starting with the Term still in effect with the oldest Deposit Period. Any withdrawal which is a surrender will be subject to the Maintenance Fee and Surrender Fee as appropriate. Amounts may be transferred at any time subject to Contract specifications (see 3.11, 3.12 or 3.13 below). Amounts transferred prior to the Maturity Date of a Term are subject to an MVA (see (g) below). Fund(s) will be removed within the elected Classification starting with the Term still in effect with the oldest Deposit Period. 11 During the Deposit Period and the 90 days following the close of the Deposit Period, any amounts applied to the GA Account during that Deposit Period may not be withdrawn unless due to: (1) A full or partial surrender; (2) A payment of a premium for an Annuity Option; or (3) The Sum Payable at Death provision. (f) Maturity Date/Reinvestment - For all GA Account Term(s) existing as of the effective date of this endorsement in addition to GA Account Term(s) announced subsequent to that date, the Contract Holder or Participant, as applicable, will be mailed a notice at least 18 calendar days before a Term's Maturity Date. This notice will contain the current Deposit Period's Guaranteed Rate(s), Term(s) and a projected Matured Term Value. The Matured Term Value may be surrendered or transferred on the Term's Maturity Date without an MVA. If no specific direction is given by the Contract Holder or Participant, as applicable, prior to the Maturity Date, each Matured Term Value will be reinvested in a Term of the same duration. In the event that a Term of the same duration is unavailable, each Matured Term Value will automatically be reinvested in the next shortest Term available in the same Classification during the then current Deposit Period. If however, only one Term is available within the Classification, then the Matured Term Value will automatically be reinvested in that Term. Within two business days after the Maturity Date, the Contract Holder or Participant, as applicable, will be mailed a confirmation statement. This statement will state the Terms and Guaranteed Rates which will apply to the reinvested Matured Term Value. During the calendar month following the Term's Maturity Date, one exception is allowed to the 90 day transfer restriction and MVA under (e) and (g). This exception is applicable to each Matured Term Value plus any interest accrued thereon, provided no part of the Matured Term Value was transferred on the Maturity Date. During this calendar month period, the Contract Holder may notify Aetna's Home Office to transfer or surrender all or part of the Matured Term Value plus any interest accrued thereon from the GA Account without an MVA. This provision only applies to the first such request received from the Contract Holder during this period for any Matured Term Value. The Matured Term Value plus any interest accrued thereon may be transferred upon such request without an MVA: (1) To any other Terms of the GA Account available in the current Deposit Period; or (2) To any other allowable Fund(s). If no such notification is given, the Matured Term Value will remain subject to the terms and conditions of the new Term. All surrender and transfer requests will be processed as of the date they are received in good order at Aetna's Home Office. (g) Market Value Adjustment (MVA) - There will be an MVA for a withdrawal from the GA Account before the end of a Term when the withdrawal is due to: (1) A transfer; (2) A full or partial surrender; or (3) A payment of a premium for Annuity Option 2. The amount of the withdrawal will be adjusted to a market value amount as described below. 12 The market value adjusted amount will be equal to the amount withdrawn multiplied by the following ratio: x --- (1 + i) 365 ----------- x --- (1 + j) 365 Where: i is the Deposit Yield j is the Current Yield x is the number of days remaining, (computed from Wednesday of the week of withdrawal) in the Guaranteed Term. The Deposit Period Yield will be determined as follows: - At the close of the last business day of each week of the Deposit Period, a yield will be computed as the average of the yields on that day of U.S. Treasury Notes which mature in the last three months of the Guaranteed Term. - The Deposit Period Yield is the average of those yields for the Deposit Period. If withdrawal is made prior to the close of the Deposit Period, it is the average of those yields on each week preceding withdrawal. The Current Yield is the average of the yields on the last business day of the week preceding withdrawal on the same U.S. Treasury Notes included in the Deposit Period Yield. In the event that no U.S. Treasury Notes which mature in the last three months of the Guaranteed Term exist, Aetna reserves the right to use the U.S. Treasury Notes that mature in a following quarter. Full and partial surrenders as well as transfers made within six months on the date of death of the Participant under the Sum Payable at Death provision will be the greater of: - The aggregate MVA amount which is the sum of all market value adjusted amounts calculated due to a withdrawal of amounts (for surrender or transfer) from Terms prior to the end of those Terms. The aggregate MVA may be either positive or negative; or - The applicable portion of the Current Value in the GA Account. After the six month period, the surrender or transfer will be the aggregate MVA amount (i.e., including all MVAs). The greater of the aggregate MVA amount or the applicable portion of the Current Value in the GA Account is applied to amounts withdrawn from the GA Account for payment of a premium under Annuity Options 3 or 4. Aetna may make any change to Section 3.02 or 3.03 with 30 days advance written notice to the Contract Holder. Any such change shall become effective for Purchase Payment(s), transfers or reinvestments made to any new Term by any present or future Participant. A detailed description of the Market Value Adjustment has been filed with the New York Insurance Department Superintendent in compliance with Section 4223(a)(1)(C) of the New York Insurance Law. (h) Deposits to the GA Account - All amounts in the GA Account under the Short-Term Classification are made to the General Account. All amounts in the GA Account under the Long-Term Classifications are made to a Nonunitized Separate Account. There are no discrete units for this Nonunitized Separate Account. The Contract Holder or Participant, as applicable, does not participate in the gain or loss from the 13 assets held in the Nonunitized Separate Account. Such gain or loss is borne entirely by Aetna. These assets may be chargeable with liabilities arising out of any other business of Aetna. For terms under both the Short-Term and Long-Term Classifications, Aetna guarantees stipulated interest rates to be credited to the GA Account. All assets of Aetna including amounts made to the GA Account are available to meet the guarantees under the GA Account. 3.05. GUARANTEED INTEREST RATE - FIXED AC-COUNT: On any Purchase Payment(s) made to the Fixed Account, Aetna will add interest daily at any annual rate no less than 4%. Aetna may add interest daily at any higher rate determined by its Board of Directors. 3.06. EXPERIENCE CREDITS: Aetna may apply Experience Credits under this Contract. Any such Credits will be computed as decided by Aetna. 3.07. MAINTENANCE FEE: The Maintenance Fee (see 5.01) will be deducted from the Current Value of the Employee and Employer Account on each anniversary of the Individual Account effective date and upon surrender of the entire Individual Account unless otherwise directed by the Contract Holder. 3.08. FUND(S) RECORD UNITS - SEPARATE ACCOUNT C: The portion of the Net Purchase Payment(s) applied to Separate Account C will determine the number of Fund's Record Units. This number is equal to a Net Purchase Payment applied to the Fund divided by the Fund Record Unit Value (see 3.10) for the Valuation Period in which the Purchase Payment is received in good order. 3.09. NET RETURN FACTOR(S) - SEPARATE ACCOUNT C: The Net Return Factors are used to compute all Separate Account C Values and payments for any Fund. The Net Return Factor for each Fund is equal to 1.0000000 plus the Net Return Rate. The Net Return Rate is equal to: (a) The value of the shares of the Fund held by Separate Account C at the end of a Valuation Period; minus (b) The value of the shares of the Fund held by Separate Account C at the start of the Valuation Period; plus or minus (c) Taxes (or reserves for taxes) on Separate Account C (if any); divided by (d) The total value of the Fund Record Units and Fund Annuity Units of Separate Account C (see 3.10 and 4.06) at the start of the Valuation Period; minus (e) A daily actuarial charge at an annual rate of 1.25% for Annuity mortality and expense risks and profit and a daily administrative charge which will not exceed 0.25% on an annual basis. The administrative charge may be changed annually except for amounts which have been used to purchase an Annuity. A Net Return Rate may be more or less than 0. The value of a share of the Fund is equal to the net assets of the Fund divided by the number of shares outstanding. 3.10. FUND RECORD UNIT VALUE - SEPARATE ACCOUNT: A Fund's Record Unit Value is computed by multiplying the Net Return Factor for the current Valuation Period by the Fund's Record Unit Value for the previous Period. The dollar value of a Fund's Record Unit, Separate Account C assets, and Variable Annuity payments may go up or down due to investment gain or loss. 3.11. CURRENT VALUE: The Current Value is equal to: (a) Any amounts in the Fixed Account, including Fixed Account interest added by Aetna; plus 14 (b) Any amounts in the GA Account, including GA Account interest added by Aetna; plus (c) The sum of any Separate Account C Record Unit Value(s); plus (d) Any amount due to Experience Credits; less (e) Any Maintenance Fee(s) due. Current Value does not include amounts used to purchase an Annuity. 3.12. TRANSFER OF CURRENT VALUE FROM THE FUNDS OR GA ACCOUNT: Before an Annuity Option is elected, all or any portion of the Current Value may be transferred from any Fund or the GA Account to: (a) Any other Fund; (b) The Fixed Account; or (c) The GA Account's current Deposit Period. Amounts in a specific GA Account Term cannot be transferred to the Deposit Period of another Term within the same Classification except at the Term's Maturity. Amounts applied to Classifications of the GA Account may not be transferred to the Fund(s) during the Deposit Period or for 90 days after the close of the Deposit Period. Transfers from the GA Account are subject to the Withdrawal and Market Value Adjustment provisions. (See 3.04(e) and (g).) For each Individual Account, twelve transfers of Current Value (excluding transfers from the GA Account at the end of a Guaranteed Term) can be made during a calendar year period. Should Aetna allow additional transfers, each may be subject to a fee of up to $10. 3.13. TRANSFER OF CURRENT VALUE FROM THE FIXED ACCOUNT: Before an Annuity Option is elected, 10% of the Current Value held in the Fixed Account may be transferred to any Fund(s). Such transfer will be: (a) Without charge; and (b) Allowed once per calendar year. Aetna may, on a temporary basis, allow any larger percent to be transferred. The Current Value of the Fixed Account, as used above, is the value when the request is received at the Home Office of Aetna. 3.14. LOAN VALUE: During the accumulation period, the Contract Holder may request a loan on behalf of a Participant from the Employee Account by submitting a loan request form to Aetna's Home Office. If there is more than one Employee Account, a separate loan request form is required for each Employee Account. If a Contract is subject to ERISA, the Contract Holder must provide written certification to Aetna that the REA requirements have been satisfied before the loan will be made. A loan for any Participant will not be allowed within 12 months from the date of any prior loan for that Participant. The Loan Effective Date will be the date the Home Office receives the loan request form and, if required, certification of REA compliance, in good order. All loans are subject to the following conditions: (a) The minimum Employee Account Current Value must be $2,000. The loan amount must be at least $1,000. The loan amount may not exceed the lesser of: (1) 50% of the Employee Account Current Value reduced by any outstanding loan balance(s) on the date on which the loan is made; or (2) $50,000 reduced by the highest outstanding balance(s) of loans, during the preceding 12 months ending on the day before the current loan is made. (b) The values in the Fund(s), Fixed Account and GA Account are included in determining the Employee Account Current Value for purposes of paragraph (a). However, only amounts held in the Fund(s) and Fixed Account are available for making the 15 actual loan from the Employee Account. If a Contract Holder intends to request a loan in excess of the Current Value of the Fund(s) and the Fixed Account in the Employee Account, the excess amount must first be transferred from the GA Account to any other Fund(s) or to the Fixed Account. Amounts transferred from the GA Account will be subject to the GA Account withdrawal and Market Value Adjustment (MVA) provisions (see 3.04(e) and (g)). Aetna reserves the right to restrict or limit the amount that may be loaned from any investment option at any time. When a loan is made, the number of accumulation units equal to the loan amount will be withdrawn from the Employee Account. The amount of the loan to be made will be withdrawn on a pro rata basis from the Fixed Account and from each of the Fund(s). Accumulation units withdrawn from the Employee Account to provide a loan do not participate in the investment experience of the investment options from which they were withdrawn. (c) On the first business day of each calendar month, Aetna will determine a Loan Interest Rate. This rate will be equal to Moody's Corporate Bond Yield Average-Monthly Average Corporates as published by Moody's Investors Service, Inc. for the calendar month beginning two months before the date on which the new Loan Interest Rate is effective. The Loan Interest Rate for the calendar month in which the loan is effective will apply for one year from the Loan Effective Date. Annually on the anniversary of the Loan Effective Date, the rate will be adjusted to equal the Loan Interest Rate determined for the month in which the loan anniversary occurs. (d) Principal and interest on loans must be amortized in quarterly installments over a 5-year term. If the Loan Interest Rate is adjusted, future repayments will be adjusted so that the outstanding loan balance is amortized in equal quarterly installments over the remaining term. A quarterly processing fee equal to .74% of the outstanding loan balance will be deducted from each repayment and re- tained by Aetna. The remainder of each repayment will be credited to the Employee Account. Repayment amounts credited to the Employee Account will be allocated among the same investment options and in the same proportions as amounts were withdrawn to make the loan. (e) A bill in the amount of the quarterly repayment due will be mailed to the Participant in advance of the repayment due date. The repayment due date will be the first business day of the third calendar month following the 7th calendar day after the loan effective date. The repayment will be in default if it is not received by Aetna at its Home Office before the end of the month in which the due date falls. (f) If a repayment is in default, an amount equal to the repayment amount and any applicable Surrender Fee will be deducted from the Employee Account as a deemed partial surrender. The date of the surrender will be the first business day following the last day of the month in which the repayment was due. The surrendered amount will automatically be applied to make the repayment that is in default and will thereafter be subject to (d). (g) If a repayment is received in excess of a billed amount, the excess will be applied towards the Employee Account principal portion of the outstanding loan. Repayments received which are less than the billed amount will be returned to the Participant; therefore, the repayment will be in default and (f) will apply. (h) Prepayment of the entire loan balance will be allowed. At the time of prepayment, Aetna will bill the Participant for any accrued Loan Interest, which will be 16 applied in accordance with (d). Aetna will consider the loan paid when this amount is received. (i) If the Employee Account is surrendered while there is an outstanding loan balance, accrued Loan Interest and any applicable Surrender Fee will be deducted from the Employee Account Current Value. (j) Upon the election of an Annuity Option or the Participant's death, the loan will be canceled resulting in a distribution of the outstanding loan balance. Accrued Loan Interest will be deducted from the Employee Account Current Value and this interest will then be treated as a quarterly repayment under (d). 3.15. NOTICE TO THE CONTRACT HOLDER: Aetna will notify the Contract Holder each year of: (a) The value of any amounts held in: (1) The Fixed Account; (2) The GA Account; (3) The Fund(s) for Separate Account C; (b) The number of any Fund(s) Record Units; (c) The Fund(s) Record Unit Value(s); and (d) The Surrender Values of these amounts. Such number or values will be as of a date no more than 60 days before the date of the notice. 3.16. DISTRIBUTION OPTIONS: The following distribution options may be elected by the Contract Holder on behalf of the Participant. (a) Estate Conservation Option (ECO): A distribution option under which a portion of the Individual Account(s) Current Value will automatically be surrendered and distributed each year. (1) An ECO payment will be determined in the following manner: a. Payments will commence no earlier than the year in which the Participant attains age 70 1/2, and will be calculated on the full Current Value of the Individual Account(s), except as provided in "b". b. If Aetna maintains separate records of the value of the account as of December 31, 1986, (see below), payments made on or after the year in which the Participant attains age 70 1/2 and before the year in which the Participant attains age 75 will only be calculated on amounts contributed after December 31, 1986, plus all interest credited on all amounts after that date. The method under this rule is elected by the Contract Holder and will no longer be effective if the Contract Holder submits a withdrawal request in addition to a scheduled ECO payment from the Individual Account(s), at which time ECO payments will then be determined under "a". Aetna will maintain separate records if the Contract Holder has not requested any withdrawals from the Participant's Individual Account(s) since December 31, 1986. If a Participant attained age 70 1/2 prior to 1988 or is a Participant in a governmental or church plan, the Participant must be retired in order to qualify under "b". (2) Amount of Distribution: Each year that ECO is in effect, Aetna will calculate and distribute an amount equal to the minimum required distribution under the Code. The annual distribution will be determined by 17 dividing the Individual Account(s) Current Value, including any current loan(s) outstanding, as of December 31 of the year prior to the year for which the payment is to be made, by a life expectancy factor. As elected by the Contract Holder, the factor is either the single life or joint life expectancy based on tables in Section 401(a)(9) of the Code or related regulations. If joint life expectancy is elected and the Participant or spouse dies, pay- ments will be calculated based on the survivor's life expectancy. These calculations may be changed as necessary to comply with the Code minimum distribution rules. The joint life expectancy factor can only be elected based on the joint life expectancy of the Participant and his or her spouse, and such spouse must be named as the Plan beneficiary of any death benefits under the Contract while ECO is in effect. (3) Minimum Current Value: At its discretion, Aetna may require a minimum initial Current Value for election of this option. If after election of this option the Current Value is insufficient to make a scheduled ECO payment, Aetna will distribute the entire balance of the Individual Account(s). (4) Date of Distribution: The Contract Holder shall specify the initial distribution date. The earliest date is the first day of the calendar year in which the Participant attains age 70 1/2. Subsequent distributions will be made annually on the 15th of the month the initial payment was made or such other date Aetna may designate or allow. (5) Elections and Revocation: ECO may be elected by the Contract Holder, on behalf of the Participant, by submitting a completed and signed election form to Aetna's Home Office. If the Contract Holder has notified Aetna that the Plan is subject to Title I of the Employee Retirement Income Security Act of 1974 as amended, the Contract Holder must also certify in writing that all the appropriate REA requirements have been met and that the distribution is in accordance with the terms of the Plan. Once elected, this option may be revoked by the Contract Holder by submitting a written request to Aetna at its Home Office. Any revocation will apply only to amounts not yet paid. ECO may be elected only once per participant. (6) Reservation of Rights: Aetna reserves the right to change the terms of ECO for future elections and discontinue the availability of this option after proper notification. Aetna also reserves the right to allow payments to be made more frequently than annually. (b) Systematic Withdrawal Option (SWO): A distribution option under which a portion of the Individual Account(s) Current Value attributable to a particular Participant will automatically be sur- rendered and distributed each year. (1) Amount of Distribution: The Contract Holder may elect one of the two payment methods described below. (a) Specified Amount: Payments of a designated dollar amount which must be no greater than 10% of the initial Current Value and shall remain constant unless a higher amount is required under Code minimum distribution rules. Each year that the Specified Amount is in effect, Aetna will calculate the minimum required distribution 18 under the Code and distribute this amount if it is larger than the amount elected by the Contract Holder. The life expectancy factor for this purpose will be the Participant's life expectancy at the time of the election of this option, and with each subsequent calendar year the factor will be reduced by one. The minimum required distribution will be determined by dividing the Individual Account Current Value, including any current loan(s) outstanding, as of December 31 of the year prior to the year for which the payment is to be made, by a life expectancy factor. At its discretion, Aetna may require a minimum initial payment amount; or (b) Specified Period: Payments which are made over a period of time which must be at least 10 years, unless otherwise required by Code minimum distribution rules. The maximum specified period will be limited by the Code minimum distribution rules. The annual amount paid each year is calculated by dividing the Individual Account(s) Current Value as of December 31 of the prior year, including any outstanding loan(s), by the number of payment years remaining. The life expectancy factor is either the single life or joint life expectancy, as elected by the Contract Holder, based on tables in Section 401(a)(9) of the Code or related regulations. If the joint life expectancy is elected, upon the death of either the Participant or the spouse, the minimum required distribution for the Specified Amount payment method will continue to be calculated in the same manner as described in (b)(1). Payments upon the Participant's death will continue in the manner described above, unless the Contract Holder on behalf of the spouse elects an alternate payment mode. Any mode elected must provide payments to be made at least as rapidly as those made prior to the Participant's death. These calculations may be changed as necessary to comply with the Code minimum distribution rules. The joint life expectancy factor can only be elected based on the joint life expectancy of the Participant and his or her spouse, and such spouse must be named as the Plan beneficiary of any death benefits under the Contract while SWO is in effect. (2) Minimum Initial Current Value: At its discretion, Aetna may require a minimum initial Current Value for election of this option. If after election of this option the Current Value is insufficient to make a scheduled SWO payment, Aetna will distribute the entire balance of the Individual Account(s). (3) Date of Distribution: The Contract Holder shall specify the initial distribution date. The earliest date is the first day of the calendar year in which the Participant attains age 70 1/2. SWO payments will be made annually. Subsequent distributions will be made annually on the 15th of the month the initial payment was made or such other date Aetna may designate or allow. (5) Elections and Revocation: SWO may be elected by the Contract Holder by submitting a completed and signed election form to Aetna's Home Office. If the Contract Holder has notified Aetna that the TDA Plan is subject to Title I of the Employee Retirement Income Security Act of 1974 as amended, the Contract Holder must 19 also certify in writing that all the appropriate REA requirements have been met and that the distribution is in accordance with the terms of the Plan. Once elected, this option may be revoked by the Contract Holder by submitting a written request to Aetna at its Home Office. Any revocation will apply only to amounts not yet paid. SWO may be elected only once. (6) Reservation of Rights: Aetna reserves the right to change the terms of SWO for future elections and discontinue the availability of this option after proper notification. Aetna also reserves the right to allow payments to be made more frequently than annually. 3.17. SUM PAYABLE AT DEATH (BEFORE ANNUITY PAYMENTS START): The Employee Account Current Value payable under the terms of this section will be reduced by the amount of the accrued interest on any outstanding loan. Aetna will pay any portion of the Individual Account(s) Current Value to the individual and in the manner directed in writing by the Contract Holder when: (a) The Participant dies before Annuity payments start; and (b) The notice of death is received in good order by Aetna. The sum payable will be the Current Value on the date when the notice is received in good order. The Contract Holder may choose to apply any sum under an Annuity Option (see Annuity Provisions), subject to any other terms and conditions of this Contract, or to have the Current Value paid in a lump sum. If the payee of the death proceeds is the Participant's surviving spouse (as the Participant's designated beneficiary under the Plan), the first Annuity payment or the lump sum payment may be deferred to a date not later than when the Participant would have attained age 70 1/2 or such later date as may be allowed under federal law or regulations. If the payee is not the surviving spouse, all of the Current Value must either be applied to an Annuity Option within one year of the Participant's death or be paid to the payee within 5 years of the Participant's death (see Part IV). 3.18. SURRENDER VALUE: After deduction of the Maintenance Fee (if any), the amount payable by Aetna upon the surrender of any portion of an Individual Account shall be reduced by a Surrender Fee. The Surrender Fee will be in accordance with the Surrender Fee table in 5.02. To comply with Section 4223 of New York insurance Laws, the surrender charge will never be greater than (a) plus (b) below: (a) 10% of amounts surrendered from options other than the GA Account; plus (b) 10%, reduced (but not below zero) by one percent for each year the Contract has been inforce, of amounts surrendered from the GA Account. Aetna reserves the right to compute the surrender charge for amounts transferred into the GA Account within 90 days prior to surrender as if such amounts had not been transferred. The Fee on a total surrender of an Individual Account will not exceed 8.5% of the actual Purchase Payments made to that Account. For a partial or full surrender from any Individual Account, Aetna must receive written direction from the Contract Holder on a form acceptable to Aetna. If the Contract is subject to ERISA, this direction must include certification that all of the REA requirements have been satisfied. Aetna may defer payment of the surrender value until appropriate Contract Holder certification is received. 20 3.19. SURRENDER RESTRICTIONS: Limitations apply to full and partial surrenders of the Restricted Amount from this Contract, as required by Code Section 403(b)(11). The Restricted Amount is the sum of: (a) Net Purchase Payments attributable to Participant salary reduction contributions made on and after January 1, 1989; plus (b) The net increase, if any, in the Current Value of the Employee Account after December 31, 1988 attributable to investment gains and losses and credited interest. The Restricted Amount may be fully or partially surrendered only if one or more of the following conditions are met: (a) The Participant has reached age 59 1/2; (b) The Participant has separated from service; (c) The Participant has died; (d) The Participant has become disabled, within the meaning of Code Section 72(m)(7); or (e) The withdrawal is otherwise allowed by federal law, regulations or rulings. A full or partial surrender is also allowed if the Participant incurs a "hardship" as that term is defined in the Code or regulations under Code Section 403(b). However, the amount available for hardship is limited to the lesser of the amount necessary to satisfy the need, or the Net Purchase Payments attributable to Participant salary reduction contributions made on and after January 1, 1989. The Contract Holder must certify that one of these conditions has been met before a surrender request will be considered to be in good order. The Contract Holder must notify Aetna in writing when a lump sum payment is to be made or Annuity payments are to commence. If, pursuant to Revenue Ruling 90-24, amounts are transferred to this Contract from a Code Section 403(b)(7) custodial account, the December 31, 1988 value from such transferred amount may be distributed upon the Contract Holder's request. The Contract Holder must certify that one of the conditions mentioned above has been met or that the Participant has incurred a hardship. The remaining transferred value from the Employee Account will be considered a Restricted Amount subject to the Surrender Restrictions of this subsection. 3.20. TIMING OF DISTRIBUTIONS: The distribution of benefits accrued after December 31, 1986, must be made in a lump sum or must begin not later than the April 1 of the calendar year following the calendar year in which the Participant attains age 70 1/2. However, for a Participant who attained age 70 1/2 before January 1, 1988, the distribution of such benefits must be made or must begin not later than the April 1 of the calendar year following the calendar year in which the Participant retires. The above does not apply if the Contract Holder is a governmental entity or a church. For Participants of such an employer, the distribution of benefits accrued after December 31, 1986, must be made or must begin not later than the April 1 of the calendar year following the calendar year in which the Participant attains age 70 1/2 or retires, whichever occurs later. The required distribution described in either of the above rules must be made over the life of the Participant (or the joint lives of the Participant and the Plan beneficiary) or over a period not exceeding the life expectancy of the Participant (or the joint life expectancies of the Participant and the Plan beneficiary). If the Contract Holder does not request commencement of benefits as described above, Aetna will not be responsible for compliance 21 with the Code Section 401(a)(9) minimum distribution requirements and for any adverse tax consequences that may result. 3.21. PAYMENT OF SURRENDER VALUE: Under certain emergency conditions, Aetna may defer payment: (a) For a period of up to 6 months (unless not allowed by state law); and (b) As provided by federal law. Aetna may pay any Fixed Account Surrender Value with interest in equal payments over a period not to exceed 60 months when the amount held in the Fixed Account under this Contract exceeds $250,000. This will apply only if the sum of the amounts surrendered within the past 12 months exceeds 20% of such Fixed Account amount. Interest, as used above, will not be more than two percentage points below any rate determined prospectively by the Board of Directors for this class of Contract. In no event will the interest rate be less than 4%. 3.22. REINSTATEMENT: All or a portion of the proceeds of a full surrender of this Contract may be reinvested within 30 days after the surrender if allowed by law. Any Maintenance Fee and Surrender Fee charged at the time of surrender on the amount being reinvested will be included in the reinstatement. Any Market Value Adjustment deducted from GA Account surrenders will not be included in the reinstatement. Amounts will be reinstated among the Fixed Account, GA Account, and the Fund(s) in the same proportion as they were at the time of surrender. Any amounts reinstated to the GA Account will be credited to the current Deposit Period. The number of Record Units reinstated will be based on the Record Unit Value(s) next computed after receipt at Aetna's Home Office of the reinstatement request and the amount to be reinvested. Any Maintenance Fee which falls due after the surrender and before the reinstatement will be deducted from the amount reinstated. Reinstatement is permitted only once. 22 IV. ANNUITY PROVISIONS 4.01. CHOICES TO BE MADE: The Contract Holder may elect an Annuity Option on behalf of a Participant by telling Aetna to pay all or any portion of the Current Value (minus any premium tax) as a premium for an Annuity under Option 2, 3, or 4 (see 4.07). The present value of the expected payments to the Annuitant when payments start shall be determined in accordance with the tables under Code Section 401(a)(9) regulations in order to comply with the incidental death benefit test. This restriction does not apply if Option 4(e) is chosen and the second Annuitant is the spouse of the Annuitant. Generally, the first Annuity payment must be made no later than the April 1 of the calendar year following the year in which the Participant turns age 70 1/2 or such later date as may be allowed under federal law or regulations (see 3.20). For distributions taken in a lump sum, see Surrender Value (3.17). For an election of an Annuity Option, the Contract Holder must provide certification that the REA requirements, as applicable, and Code Section 403(b)(11) withdrawal restrictions have been satisfied. When an Annuity Option is chosen, Aetna must also be told if payments are to be made other than monthly and to pay: (a) A Fixed Annuity using the General Account; (b) A Variable Annuity using any of the Fund(s) made available by Aetna for Annuity purposes; or (c) A combination of (a) and (b). If a Fixed Annuity is chosen, Aetna will add interest daily at an annual rate no less than 3.5%. Aetna may add interest daily at any higher rate. If a Variable Annuity is chosen, an Assumed Annual Net Return Rate of 5% may be chosen. If not chosen, Aetna will use an Assumed Annual Net Return Rate of 3.5%. With the exception of Option 2 on a variable basis, once elected, an Annuity Option may not be revoked. 4.02. ANNUITY PAYMENTS TO ANNUITANT: In no event may any payments to the Annuitant under any Annuity Option extend beyond: (a) The life of the Annuitant; (b) The lives of the Annuitant and the Plan beneficiary; (c) A period certain greater than the Annuitant's life expectancy according to regulations under Code Section 401(a)(9), determined as of the date payments are to commence; or (d) A period certain greater than the life expectancies of the Annuitant and the Plan beneficiary according to regulations under Code Section 401(a)(9) determined as of the date payments are to begin. 4.03. DEATH OF ANNUITANT: When an Annuitant dies under Options 2, and 3, the present value of any remaining guaranteed payments will be paid in one sum to the Plan beneficiary as directed in writing by the Contract Holder, or upon election by the Annuitant's Plan beneficiary, any remaining payments will continue to the Plan beneficiary. If no Plan beneficiary exists, the present value of any remaining guaranteed payments will be paid in one lump sum to the Contract Holder. 23 In no event may any payments to the Plan beneficiary under an Annuity Option extend beyond: (a) The life of the payee determined as of the date payments are to commence; or (b) Any certain period greater than the payee's life expectancy as determined by regulations under Code Section 401(a)(9) as of the date payments are to begin. However, if a Plan beneficiary dies while under Option 1 or while receiving Annuity payments, the present value of any remaining payments will be paid in one lump sum to the estate of the Plan beneficiary. The interest rate used to determine the first payment will be used to calculate the present value. 4.04. FUND(S) ANNUITY UNITS - SEPARATE ACCOUNT C: The number of Fund(s) Annuity Units is based on the amount of the first Variable Annuity payment which is equal to: (a) The portion of the Current Value (minus any premium tax) applied to pay a Variable Annuity; divided by (b) 1,000; multiplied by (c) The payment rate for the Option chosen. Such amount, or portion, of the Variable Payment will be divided by the appropriate Fund(s) Annuity Unit Value (see 4.05) on the tenth Valuation Period before the due date of the first payment to determine the number of each Fund Annuity Units. The number of each Fund Annuity Units remains fixed. Each future payment is equal to the sum of the products of each Fund Annuity Unit Value multiplied by the appropriate number of Units. The Fund Annuity Unit Value on the tenth Valuation Period prior to the due date of the payment is used. 4.05. FUND(S) ANNUITY UNIT VALUE - SEPARATE ACCOUNT C: For any Valuation Period, a Fund(s) Annuity Unit Value is equal to: (a) The Value for the previous Period; multiplied by (b) The Net Return Factor(s) (see 3.08) for the Period; multiplied by (c) A factor to reflect the Assumed Annual Net Return Rate. The factor for 3.5% per year is .9999058; for 5% per year it is .9998663. The dollar value of the Fund(s) Annuity Unit Values and payments may go up or down due to investment gain or loss. If Variable Annuity payments are not to decrease, Aetna must earn a gross return on the assets of the Separate Account C of: - 4.75% on an annual basis plus an annual return of up to 0.25% needed to offset the administrative charge set at the time Annuity payments commence if an Assumed Annual Net Return Rate of 3.5% is chosen; or, - 6.25% on an annual basis plus an annual return of up to 0.25% needed to offset the administrative charge set at the time Annuity payments commence if an Assumed Annual Net Return Rate of 5% is chosen. Payments shall not be changed due to changes in the mortality or expense results or administrative charges. 4.06. ANNUITY OPTIONS: Option 1 - Payments of Interest on Sum Left with Aetna - This Option may be used only by the Plan beneficiary when the Participant dies before Aetna has started paying an Annuity. A portion or all of the sum paid upon death may be held under this Option and will be held in the General Account of Aetna at interest (see 4.01). The Contract Holder, on behalf of the Plan beneficiary, may later tell Aetna to: (a) Pay a portion or all of the sum held by Aetna; or (b) Apply a portion or all of the sum held by Aetna to any Annuity Option below. 24 If the Plan beneficiary is the Participant's surviving spouse, the lump- sum payment may be deferred to a date not later than when the Participant would have attained age 70 1/2. If the Plan beneficiary is not a spouse, the Contract Holder must tell Aetna to pay the full sum within 5 years after the death of the Participant. Option 2 - Payments for a Stated Period of Time - An Annuity will be paid for the number of years chosen. The number of years must be at least 3 and not more than 30. If payments for this Option are made under a Variable Annuity, the present value of any remaining payments may be withdrawn at any time. If a withdrawal is requested within 3 years after the start of payments, it will be treated as a surrender (see 3.17). Option 3 - Life Income - An Annuity will be paid for the life of the Annuitant. If also chosen, Aetna will guarantee payments for 60, 120, 180, or 240 months. Option 4 - Life Income for Two Payees - An Annuity will be paid during the lives of the Annuitant and a second Annuitant. At the death of either, payments will continue to the survivor. When this Option is chosen, a choice must be made of: (a) 100% of the payment to continue to the survivor; (b) 66 2/3% of the payment to continue to the survivor; (c) 50% of the payment to continue to the survivor; or (d) Payments for a minimum of 120 months, with 100% of the payment to continue to the survivor. (e) 100% of the payment to continue to the survivor if the survivor is the Annuitant and 50% of the payment to continue to the survivor if the survivor is the second Annuitant. Other Options - Aetna may make other options available as allowed by the laws of the state in which this Contract is delivered. 25 OPTION 2 PAYMENTS FOR A STATED PERIOD OF TIME AMOUNT OF FIRST MONTHLY PAYMENT FOR EACH $1,000 AFTER DEDUCTION OF ANY CHARGE FOR PREMIUM TAXES Rates for a Fixed Annuity with Guaranteed Interest Rate of 3.5% and Rates for a Variable Annuity with Assumed Net Return Rate of 3.5%
YEARS OF AMOUNT OF YEARS OF AMOUNT OF YEARS OF AMOUNT OF PAYMENTS PAYMENTS PAYMENTS PAYMENTS PAYMENTS PAYMENTS - -------- -------- -------- -------- -------- -------- 3 $29.19 13 $7.94 22 $5.39 4 22.27 14 7.49 23 5.24 5 18.12 15 7.10 24 5.09 6 15.35 16 6.76 25 4.96 7 13.38 17 6.47 26 4.84 8 11.90 18 6.20 27 4.73 9 10.75 19 5.97 28 4.63 10 9.83 20 5.75 29 4.53 11 9.09 21 5.56 30 4.45 12 8.46 Rates for a Variable Annuity with Assumed Net Return Rate of 5% YEARS OF AMOUNT OF YEARS OF AMOUNT OF YEARS OF AMOUNT OF PAYMENTS PAYMENTS PAYMENTS PAYMENTS PAYMENTS PAYMENTS - -------- -------- -------- -------- -------- -------- 3 $29.80 13 $8.64 22 $6.17 4 22.89 14 8.20 23 6.02 5 18.74 15 7.82 24 5.88 6 15.99 16 7.49 25 5.76 7 14.02 17 7.20 26 5.65 8 12.56 18 6.94 27 5.54 9 11.42 19 6.71 28 5.45 10 10.51 20 6.51 29 5.36 11 9.77 21 6.33 30 5.28 12 9.16
26 OPTION 3 LIFE INCOME AMOUNT OF FIRST MONTHLY PAYMENT FOR EACH $1,000 AFTER DEDUCTION OF ANY CHARGE FOR PREMIUM TAXES Rates for a Fixed Annuity with Guaranteed Interest Rate of 3.5% and Rates for a Variable Annuity with Assumed Net Return Rate of 3.5% PAYMENTS GUARANTEED FOR A STATED PERIOD OF MONTHS -------------------------------------------------
AGE OF ANNUITANT NONE 60 120 180 240 - --------- ---- -- --- --- --- 50 $4.34 $4.34 $4.31 $4.27 $4.22 51 4.41 4.40 4.38 4.33 4.27 52 4.48 4.47 4.45 4.40 4.32 53 4.56 4.55 4.52 4.46 4.38 54 4.64 4.63 4.59 4.53 4.44 55 4.72 4.71 4.67 4.60 4.50 56 4.81 4.80 4.75 4.67 4.56 57 4.91 4.89 4.84 4.75 4.62 58 5.01 4.99 4.93 4.83 4.69 59 5.12 5.10 5.03 4.92 4.75 60 5.23 5.21 5.13 5.00 4.82 61 5.36 5.33 5.24 5.09 4.88 62 5.49 5.45 5.35 5.19 4.95 63 5.63 5.59 5.47 5.28 5.02 64 5.78 5.73 5.60 5.38 5.08 65 5.94 5.89 5.73 5.48 5.15 66 6.11 6.05 5.87 5.58 5.21 67 6.29 6.22 6.02 5.69 5.27 68 6.49 6.41 6.17 5.79 5.33 69 6.70 6.60 6.33 5.90 5.38 70 6.92 6.81 6.49 6.00 5.43 71 7.17 7.04 6.66 6.10 5.48 72 7.43 7.27 6.84 6.20 5.52 73 7.71 7.53 7.02 6.30 5.55 74 8.02 7.80 7.20 6.39 5.59 75 8.35 8.08 7.38 6.48 5.62
Rates for ages not shown will be provided on request and will be computed on a basis consistent with the rates in the above tables. 27 OPTION 3 LIFE INCOME AMOUNT OF FIRST MONTHLY PAYMENT FOR EACH $1,000 AFTER DEDUCTION OF ANY CHARGE FOR PREMIUM TAXES Rates for a Variable Annuity with Assumed Net Return Rate of 5.0% PAYMENTS GUARANTEED FOR A STATED PERIOD OF MONTHS -------------------------------------------------
AGE OF ANNUITANT NONE 60 120 180 240 - --------- ---- -- --- --- --- 50 $5.26 $5.25 $5.22 $5.17 $5.11 51 5.33 5.32 5.28 5.23 5.15 52 5.40 5.38 5.34 5.29 5.20 53 5.47 5.45 5.41 5.35 5.26 54 5.54 5.53 5.48 5.41 5.31 55 5.63 5.61 5.56 5.47 5.36 56 5.71 5.69 5.63 5.54 5.42 57 5.80 5.78 5.72 5.61 5.47 58 5.90 5.88 5.81 5.69 5.53 59 6.01 5.98 5.90 5.77 5.59 60 6.12 6.09 6.00 5.85 5.65 61 6.24 6.21 6.10 5.93 5.71 62 6.37 6.33 6.21 6.02 5.77 63 6.51 6.46 6.33 6.11 5.83 64 6.66 6.60 6.45 6.20 5.89 65 6.82 6.75 6.57 6.30 5.95 66 6.99 6.91 6.71 6.39 6.01 67 7.17 7.08 6.85 6.49 6.06 68 7.36 7.27 6.99 6.59 6.12 69 7.57 7.46 7.15 6.69 6.17 70 7.80 7.67 7.30 6.78 6.21 71 8.05 7.89 7.47 6.88 6.25 72 8.31 8.13 7.64 6.97 6.29 73 8.59 8.38 7.81 7.06 6.33 74 8.90 8.64 7.99 7.15 6.36 75 9.23 8.93 8.16 7.23 6.38
Rates for ages not shown will be provided on request and will be computed on a basis consistent with the rates in the above tables. 28 OPTION 4 LIFE INCOME FOR TWO PAYEES JOINT AND LAST SURVIVOR ANNUITY 100% TO THE SURVIVOR NO MINIMUM PERIOD AMOUNT OF FIRST MONTHLY PAYMENT FOR EACH $1,000 AFTER DEDUCTION OF ANY CHARGE FOR PREMIUM TAXES Rates for a Fixed Annuity with Guaranteed Interest Rate of 3.5% and Rates for a Variable Annuity with Assumed Net Return Rate of 3.5% AGE OF SECOND ANNUITANT -----------------------
AGE OF ANNUITANT 45 50 55 60 65 70 75 80 85 - --------- -- -- -- -- -- -- -- -- -- 45 $3.69 $3.75 $3.81 $3.84 $3.87 $3.90 $3.91 $3.92 $3.92 50 3.75 3.89 3.97 4.04 4.09 4.13 4.15 4.17 4.18 55 3.81 3.97 4.16 4.27 4.35 4.42 4.47 4.50 4.51 60 3.84 4.04 4.27 4.51 4.66 4.78 4.86 4.92 4.95 65 3.87 4.09 4.35 4.66 4.99 5.19 5.35 5.46 5.53 70 3.90 4.13 4.42 4.78 5.19 5.67 5.95 6.17 6.31 75 3.91 4.15 4.47 4.86 5.35 5.95 6.64 7.04 7.34 80 3.92 4.17 4.50 4.92 5.46 6.17 7.04 8.04 8.63 85 3.92 4.18 4.51 4.95 5.53 6.31 7.34 8.63 10.05 Rates for a Variable Annuity with Assumed Net Return Rate of 5% AGE OF SECOND ANNUITANT ----------------------- AGE OF ANNUITANT 45 50 55 60 65 70 75 80 85 - --------- -- -- -- -- -- -- -- -- -- 45 $4.63 $4.68 $4.73 $4.77 $4.80 $4.82 $4.84 $4.85 $4.86 50 4.68 4.80 4.88 4.95 5.00 5.04 5.06 5.08 5.10 55 4.73 4.88 5.04 5.15 5.24 5.30 5.35 5.39 5.41 60 4.77 4.95 5.15 5.37 5.52 5.63 5.72 5.79 5.83 65 4.80 5.00 5.24 5.52 5.83 6.04 6.20 6.31 6.39 70 4.82 5.04 5.30 5.63 6.04 6.49 6.77 6.99 7.15 75 4.84 5.06 5.35 5.72 6.20 6.77 7.45 7.86 8.16 80 4.85 5.08 5.39 5.79 6.31 6.99 7.86 8.84 9.43 85 4.86 5.10 5.41 5.83 6.39 7.15 8.16 9.43 10.86
29 OPTION 4 LIFE INCOME FOR TWO PAYEES JOINT AND LAST SURVIVOR ANNUITY 66 2/3% TO THE SURVIVOR NO MINIMUM PERIOD AMOUNT OF FIRST MONTHLY PAYMENT FOR EACH $1,000 AFTER DEDUCTION OF ANY CHARGE FOR PREMIUM TAXES Rates for a Fixed Annuity with Guaranteed Interest Rate of 3.5% and Rates for a Variable Annuity with Assumed Net Return Rate of 3.5% AGE OF SECOND ANNUITANT -----------------------
AGE OF ANNUITANT 45 50 55 60 65 70 75 80 85 - --------- -- -- -- -- -- -- -- -- -- 45 $3.94 $4.05 $4.18 $4.32 $4.48 $4.66 $4.84 $5.02 $5.19 50 4.05 4.20 4.35 4.51 4.69 4.89 5.09 5.30 5.49 55 4.18 4.35 4.54 4.73 4.95 5.18 5.42 5.65 5.87 60 4.32 4.51 4.73 4.99 5.25 5.53 5.82 6.11 6.37 65 4.48 4.69 4.95 5.25 5.61 5.97 6.33 6.69 7.02 70 4.66 4.89 5.18 5.53 5.97 6.49 6.96 7.43 7.88 75 4.84 5.09 5.42 5.82 6.33 6.96 7.73 8.39 9.02 80 5.02 5.30 5.65 6.11 6.69 7.43 8.39 9.54 10.46 85 5.19 5.49 5.87 6.37 7.02 7.88 9.02 10.46 12.15 Rates for a Variable Annuity with Assumed Net Return Rate of 5% AGE OF SECOND ANNUITANT ----------------------- AGE OF ANNUITANT 45 50 55 60 65 70 75 80 85 - --------- -- -- -- -- -- -- -- -- -- 45 $4.87 $4.99 $5.12 $5.27 $5.44 $5.64 $5.86 $6.09 $6.30 50 4.99 5.12 5.26 5.43 5.63 5.85 6.09 6.33 6.57 55 5.12 5.26 5.44 5.63 5.85 6.11 6.38 6.65 6.92 60 5.27 5.43 5.63 5.87 6.14 6.44 6.75 7.07 7.38 65 5.44 5.63 5.85 6.14 6.49 6.84 7.23 7.62 8.00 70 5.64 5.85 6.11 6.44 6.84 7.35 7.84 8.34 8.83 75 5.86 6.09 6.38 6.75 7.23 7.84 8.60 9.28 9.93 80 6.09 6.33 6.65 7.07 7.62 8.34 9.28 10.42 11.35 85 6.30 6.57 6.92 7.38 8.00 8.83 9.93 11.35 13.04
30 OPTION 4 LIFE INCOME FOR TWO PAYEES JOINT AND LAST SURVIVOR ANNUITY 50% TO THE SURVIVOR NO MINIMUM PERIOD AMOUNT OF FIRST MONTHLY PAYMENT FOR EACH $1,000 AFTER DEDUCTION OF ANY CHARGE FOR PREMIUM TAXES Rates for a Fixed Annuity with Guaranteed Interest Rate of 3.5% and Rates for a Variable Annuity with Assumed Net Return Rate of 3.5% AGE OF SECOND ANNUITANT -----------------------
AGE OF ANNUITANT 45 50 55 60 65 70 75 80 85 - --------- -- -- -- -- -- -- -- -- -- 45 $4.07 $4.22 $4.40 $4.61 $4.87 $5.17 $5.49 $5.84 $6.18 50 4.22 4.37 4.56 4.79 5.06 5.39 5.75 6.13 6.51 55 4.40 4.56 4.76 5.00 5.31 5.66 6.06 6.49 6.91 60 4.61 4.79 5.00 5.27 5.61 6.01 6.46 6.95 7.43 65 4.87 5.06 5.31 5.61 5.99 6.44 6.96 7.54 8.11 70 5.17 5.39 5.66 6.01 6.44 6.99 7.61 8.29 9.00 75 5.49 5.75 6.06 6.46 6.96 7.61 8.43 9.29 10.17 80 5.84 6.13 6.49 6.95 7.54 8.29 9.29 10.54 11.71 85 6.18 6.51 6.91 7.43 8.11 9.00 10.17 11.71 13.57 Rates for a Variable Annuity with Assumed Net Return Rate of 5% AGE OF SECOND ANNUITANT ----------------------- AGE OF ANNUITANT 45 50 55 60 65 70 75 80 85 - --------- -- -- -- -- -- -- -- -- -- 45 $5.01 $5.15 $5.33 $5.56 $5.83 $6.17 $6.55 $6.98 $7.40 50 5.15 5.29 5.48 5.71 6.01 6.36 6.78 7.23 7.68 55 5.33 5.48 5.66 5.91 6.23 6.61 7.05 7.54 8.05 60 5.56 5.71 5.91 6.16 6.51 6.93 7.42 7.96 8.53 65 5.83 6.01 6.23 6.51 6.87 7.34 7.89 8.51 9.16 70 6.17 6.36 6.61 6.93 7.34 7.87 8.51 9.23 10.00 75 6.55 6.78 7.05 7.42 7.89 8.51 9.33 10.20 11.14 80 6.98 7.23 7.54 7.96 8.51 9.23 10.20 11.44 12.64 85 7.40 7.68 8.05 8.53 9.16 10.00 11.14 12.64 14.51
31 OPTION 4 LIFE INCOME FOR TWO PAYEES JOINT AND LAST SURVIVOR ANNUITY 100% TO THE SURVIVOR 120 MONTHS MINIMUM PERIOD AMOUNT OF FIRST MONTHLY PAYMENT FOR EACH $1,000 AFTER DEDUCTION OF ANY CHARGE FOR PREMIUM TAXES Rates for a Fixed Annuity with Guaranteed Interest Rate of 3.5% and Rates for a Variable Annuity with Assumed Net Return Rate of 3.5% AGE OF SECOND ANNUITANT -----------------------
AGE OF ANNUITANT 45 50 55 60 65 70 75 80 85 - --------- -- -- -- -- -- -- -- -- -- 45 $3.69 $3.75 $3.80 $3.84 $3.87 $3.89 $3.91 $3.91 $3.92 50 3.75 3.89 3.97 4.04 4.09 4.13 4.15 4.16 4.17 55 3.80 3.97 4.15 4.26 4.35 4.41 4.46 4.48 4.49 60 3.84 4.04 4.26 4.50 4.65 4.76 4.84 4.89 4.91 65 3.87 4.09 4.35 4.65 4.98 5.17 5.31 5.41 5.46 70 3.89 4.13 4.41 4.76 5.17 5.62 5.87 6.05 6.15 75 3.91 4.15 4.46 4.84 5.31 5.87 6.48 6.79 6.98 80 3.91 4.16 4.48 4.89 5.41 6.05 6.79 7.50 7.83 85 3.92 4.17 4.49 4.91 5.46 6.15 6.98 7.83 8.50 Rates for a Variable Annuity with Assumed Net Return Rate of 5% AGE OF SECOND ANNUITANT ----------------------- AGE OF ANNUITANT 45 50 55 60 65 70 75 80 85 - --------- -- -- -- -- -- -- -- -- -- 45 $4.63 $4.68 $4.73 $4.77 $4.80 $4.82 $4.84 $4.85 $4.85 50 4.68 4.80 4.88 4.94 4.99 5.03 5.06 5.07 5.08 55 4.73 4.88 5.04 5.14 5.23 5.29 5.34 5.37 5.38 60 4.77 4.94 5.14 5.37 5.51 5.62 5.70 5.75 5.78 65 4.80 4.99 5.23 5.51 5.82 6.00 6.15 6.24 6.30 70 4.82 5.03 5.29 5.62 6.00 6.44 6.68 6.86 6.96 75 4.84 5.06 5.34 5.70 6.15 6.68 7.27 7.57 7.76 80 4.85 5.07 5.37 5.75 6.24 6.86 7.57 8.26 8.58 85 4.85 5.08 5.38 5.78 6.30 6.96 7.76 8.58 9.23
32 OPTION 4 LIFE INCOME FOR TWO PAYEES JOINT AND 1/2 CONTINGENT LIFE INCOME ANNUITY NO MINIMUM PERIOD AMOUNT OF FIRST MONTHLY PAYMENT FOR EACH $1,000 AFTER DEDUCTION OF ANY CHARGE FOR PREMIUM TAXES Rates for a Fixed Annuity with Guaranteed Interest Rate of 3.5% and Rates for a Variable Annuity with Assumed Net Return Rate of 3.5% AGE OF SECOND ANNUITANT -----------------------
AGE OF ANNUITANT 45 50 55 60 65 70 75 80 85 - --------- -- -- -- -- -- -- -- -- -- 45 $3.86 $3.89 $3.93 $3.94 $3.96 $3.97 $3.98 $3.98 $3.98 50 4.02 4.10 4.15 4.18 4.21 4.23 4.24 4.25 4.26 55 4.22 4.31 4.42 4.48 4.53 4.57 4.59 4.61 4.61 60 4.43 4.56 4.70 4.84 4.93 4.99 5.04 5.07 5.09 65 4.69 4.84 5.02 5.22 5.42 5.54 5.63 5.69 5.73 70 4.99 5.17 5.39 5.65 5.93 6.23 6.40 6.52 6.60 75 5.33 5.54 5.82 6.14 6.52 6.96 7.40 7.64 7.81 80 5.70 5.96 6.29 6.69 7.17 7.75 8.41 9.08 9.45 85 6.07 6.38 6.75 7.24 7.84 8.59 9.49 10.51 11.50 Rates for a Variable Annuity with Assumed Net Return Rate of 5% AGE OF SECOND ANNUITANT ----------------------- AGE OF ANNUITANT 45 50 55 60 65 70 75 80 85 - --------- -- -- -- -- -- -- -- -- -- 45 $4.80 $4.83 $4.86 $4.88 $4.89 $4.90 $4.91 $4.92 $4.92 50 4.95 5.02 5.06 5.10 5.13 5.15 5.16 5.17 5.18 55 5.14 5.23 5.32 5.38 5.43 5.46 5.49 5.51 5.52 60 5.36 5.47 5.59 5.72 5.80 5.86 5.91 5.95 5.97 65 5.63 5.77 5.93 6.10 6.29 6.41 6.50 6.56 6.60 70 5.96 6.12 6.31 6.54 6.81 7.08 7.25 7.37 7.46 75 6.35 6.54 6.77 7.06 7.42 7.81 8.25 8.49 8.66 80 6.79 7.01 7.30 7.66 8.11 8.65 9.28 9.93 10.29 85 7.26 7.53 7.86 8.29 8.85 9.55 10.41 11.39 12.37
These Annuity rates are based on mortality from 1983 Table a. 33 GTRP-IA (XC) V. FEE SCHEDULE TAX DEFERRED ANNUITY PLAN RETIREMENT PLUS 5.01. MAINTENANCE FEE: The Maintenance Fee will be $15 per Individual Account. However, for a Separate Individual Account maintained pursuant to a lump- sum payment, the Maintenance Fee will be $0. 5.02. SURRENDER FEE: For each surrender from an Individual Account, the Surrender Fee will vary according to the number of Purchase Payment Cycles completed for the Individual Account being surrendered. The number and amount of Purchase Payments to be made in a year is chosen by the Participant. A Purchase Payment Cycle is completed when this number and amount of Purchase Payments have been made. The number of Purchase Payment Cycles completed may not be greater than the number of whole years since the Individual Account was established. For each surrender, the Fee will be as follows: NUMBER OF PURCHASE PAYMENT CYCLES COMPLETED SURRENDER FEE Less than 5 5% 5 or more but less than 7 4% 7 or more but less than 9 3% 9 or 10 2% More than 10 0% For each surrender from an Individual Account maintained pursuant to a lump-sum payment, the Surrender Fee will vary according to the period of time between the Effective Date of the Individual Account and the date of surrender as follows: IF PERIOD OF TIME IS SURRENDER FEE Less than 5 years 5% From 5 to 6 years 4% From 6 to 7 years 3% From 7 to 8 years 2% From 8 to 9 years 1% 9 or more years 0% No Surrender Fee is deducted from any portion of the Individual Account which is paid: (a) At the death of a Participant before Annuity payments start; (b) As a premium for an Annuity for a Participant under this Contract; (c) After a Participant has reached age 59 1/2 and 9 or more Purchase Payment Cycles have been completed for the Individual Account being surrendered; (d) On and after the tenth anniversary of the Effective Date of the Individual Account; (e) When the Individual Account Current Value is $2,500 or less and no surrenders have been taken from the Individual Account within the prior 12 months. If there is no more than one Individual Account under the Contract for a Participant, then this provision will only apply when the total in all of the Participant's Individual Accounts is $2,500 or less; 34 (f) In an amount equal to or less than 10% of the current Individual Account Current Value, as part of the first partial surrender request in a calendar year to a Participant who is at least age 59 1/2 and less than age 70 1/2. The Individual Account Current Value is calculated as of the date the partial surrender request is received in good order at Aetna's Home Office. Any outstanding loans from the Participant's Individual Account are excluded when calculating its Individual Account Current Value. This provision does not apply to partial surrenders due to loan defaults made from Individual Account Current Values and does not apply to full surrender requests; (g) To relieve a Participant's "financial hardship," as may be allowed for annuity contracts under Section 403(b) of the Internal Revenue Code or other appropriate Internal Revenue service sources; or (h) On account of a Participant's separation from service. The Contract Holder must submit documentation satisfactory to Aetna to confirm that the Participant is no longer providing services to the employer. 35 V. FEE SCHEDULE TAX DEFERRED ANNUITY PLAN RETIREMENT PLUS 5.01. MAINTENANCE FEE: The Maintenance Fee will be $12.50 per Individual Account. However, for a Separate Individual Account maintained pursuant to a lump-sum payment, the Maintenance Fee will be $0. 5.02. SURRENDER FEE: For each surrender from an Individual Account, the Surrender Fee will vary according to the number of Purchase Payment Cycles completed for the Individual Account being surrendered. The number and amount of Purchase Payments to be made in a year is chosen by the Participant. A Purchase Payment Cycle is completed when this number and amount of Purchase Payments have been made. The number of Purchase Payment Cycles completed may not be greater than the number of whole years since the Individual Account was established. For each surrender, the Fee will be as follows: NUMBER OF PURCHASE PAYMENT CYCLES COMPLETED SURRENDER FEE Less than 5 5% 5 or more but less than 7 4% 7 or more but less than 9 3% 9 or 10 2% More than 10 0% For each surrender from an Individual Account maintained pursuant to a lump-sum payment, the Surrender Fee will vary according to the period of time between the Effective Date of the Individual Account and the date of surrender as follows: IF PERIOD OF TIME IS SURRENDER FEE Less than 5 years 5% From 5 to 6 years 4% From 6 to 7 years 3% From 7 to 8 years 2% From 8 to 9 years 1% 9 or more years 0% No Surrender Fee is deducted from any portion of the Individual Account which is paid: (a) At the death of a Participant before Annuity payments start; (b) As a premium for an Annuity for a Participant under this Contract; (c) After a Participant has reached age 59 1/2 and 9 or more Purchase Payment Cycles have been completed for the Individual Account being surrendered; (d) On and after the tenth anniversary of the Effective Date of the Individual Account; (e) When the Individual Account Current Value is $2,500 or less and no surrenders have been taken from the Individual Account within the prior 12 months. If there is no more than one Individual Account under the Contract for a Participant, then this provision will only apply when the total in all of the Participant's Individual Accounts is $2,500 or less; 34 (f) In an amount equal to or less than 10% of the current Individual Account Current Value, as part of the first partial surrender request in a calendar year to a Participant who is at least age 59 1/2 and less than age 70 1/2. The Individual Account Current Value is calculated as of the date the partial surrender request is received in good order at Aetna's Home Office. Any outstanding loans from the Participant's Individual Account are excluded when calculating its Individual Account Current Value. This provision does not apply to partial surrenders due to loan defaults made from Individual Account Current Values and does not apply to full surrender requests; (g) To relieve a Participant's "financial hardship," as may be allowed for annuity contracts under Section 403(b) of the Internal Revenue Code or other appropriate Internal Revenue service sources; or (h) On account of a Participant's separation from service. The Contract Holder must submit documentation satisfactory to Aetna to confirm that the Participant is no longer providing services to the employer. 35 V. FEE SCHEDULE TAX DEFERRED ANNUITY PLAN RETIREMENT PLUS 5.01. MAINTENANCE FEE: The Maintenance Fee will be $10 per Individual Account. However, for a Separate Individual Account maintained pursuant to a lump- sum payment, the Maintenance Fee will be $0. 5.02. SURRENDER FEE: For each surrender from an Individual Account, the Surrender Fee will vary according to the number of Purchase Payment Cycles completed for the Individual Account being surrendered. The number and amount of Purchase Payments to be made in a year is chosen by the Participant. A Purchase Payment Cycle is completed when this number and amount of Purchase Payments have been made. The number of Purchase Payment Cycles completed may not be greater than the number of whole years since the Individual Account was established. For each surrender, the Fee will be as follows: NUMBER OF PURCHASE PAYMENT CYCLES COMPLETED SURRENDER FEE Less than 5 5% 5 or more but less than 7 4% 7 or more but less than 9 3% 9 or 10 2% More than 10 0% For each surrender from an Individual Account maintained pursuant to a lump-sum payment, the Surrender Fee will vary according to the period of time between the Effective Date of the Individual Account and the date of surrender as follows: IF PERIOD OF TIME IS SURRENDER FEE Less than 5 years 5% From 5 to 6 years 4% From 6 to 7 years 3% From 7 to 8 years 2% From 8 to 9 years 1% 9 or more years 0% No Surrender Fee is deducted from any portion of the Individual Account which is paid: (a) At the death of a Participant before Annuity payments start; (b) As a premium for an Annuity for a Participant under this Contract; (c) After a Participant has reached age 59 1/2 and 9 or more Purchase Payment Cycles have been completed for the Individual Account being surrendered; (d) On and after the tenth anniversary of the Effective Date of the Individual Account; (e) When the Individual Account Current Value is $2,500 or less and no surrenders have been taken from the Individual Account within the prior 12 months. If there is no more than one Individual Account under the Contract for a Participant, then this provision will only apply when the total in all of the Participant's Individual Accounts is $2,500 or less; 34 (f) In an amount equal to or less than 10% of the current Individual Account Current Value, as part of the first partial surrender request in a calendar year to a Participant who is at least age 59 1/2 and less than age 70 1/2. The Individual Account Current Value is calculated as of the date the partial surrender request is received in good order at Aetna's Home Office. Any outstanding loans from the Participant's Individual Account are excluded when calculating its Individual Account Current Value. This provision does not apply to partial surrenders due to loan defaults made from Individual Account Current Values and does not apply to full surrender requests; (g) To relieve a Participant's "financial hardship," as may be allowed for annuity contracts under Section 403(b) of the Internal Revenue Code or other appropriate Internal Revenue service sources; or (h) On account of a Participant's separation from service. The Contract Holder must submit documentation satisfactory to Aetna to confirm that the Participant is no longer providing services to the employer. 35 V. FEE SCHEDULE TAX DEFERRED ANNUITY PLAN RETIREMENT PLUS 5.01. MAINTENANCE FEE: The Maintenance Fee will be $7.50 per Individual Account. However, for a Separate Individual Account maintained pursuant to a lump-sum payment, the Maintenance Fee will be $0. 5.02. SURRENDER FEE: For each surrender from an Individual Account, the Surrender Fee will vary according to the number of Purchase Payment Cycles completed for the Individual Account being surrendered. The number and amount of Purchase Payments to be made in a year is chosen by the Participant. A Purchase Payment Cycle is completed when this number and amount of Purchase Payments have been made. The number of Purchase Payment Cycles completed may not be greater than the number of whole years since the Individual Account was established. For each surrender, the Fee will be as follows: NUMBER OF PURCHASE PAYMENT CYCLES COMPLETED SURRENDER FEE Less than 5 5% 5 or more but less than 7 4% 7 or more but less than 9 3% 9 or 10 2% More than 10 0% For each surrender from an Individual Account maintained pursuant to a lump-sum payment, the Surrender Fee will vary according to the period of time between the Effective Date of the Individual Account and the date of surrender as follows: IF PERIOD OF TIME IS SURRENDER FEE Less than 5 years 5% From 5 to 6 years 4% From 6 to 7 years 3% From 7 to 8 years 2% From 8 to 9 years 1% 9 or more years 0% No Surrender Fee is deducted from any portion of the Individual Account which is paid: (a) At the death of a Participant before Annuity payments start; (b) As a premium for an Annuity for a Participant under this Contract; (c) After a Participant has reached age 59 1/2 and 9 or more Purchase Payment Cycles have been completed for the Individual Account being surrendered; (d) On and after the tenth anniversary of the Effective Date of the Individual Account; (e) When the Individual Account Current Value is $2,500 or less and no surrenders have been taken from the Individual Account within the prior 12 months. If there is no more than one Individual Account under the Contract for a Participant, then this provision will only apply when the total in all of the Participant's Individual Accounts is $2,500 or less; 34 (f) In an amount equal to or less than 10% of the current Individual Account Current Value, as part of the first partial surrender request in a calendar year to a Participant who is at least age 59 1/2 and less than age 70 1/2. The Individual Account Current Value is calculated as of the date the partial surrender request is received in good order at Aetna's Home Office. Any outstanding loans from the Participant's Individual Account are excluded when calculating its Individual Account Current Value. This provision does not apply to partial surrenders due to loan defaults made from Individual Account Current Values and does not apply to full surrender requests; (g) To relieve a Participant's "financial hardship," as may be allowed for annuity contracts under Section 403(b) of the Internal Revenue Code or other appropriate Internal Revenue service sources; or (h) On account of a Participant's separation from service. The Contract Holder must submit documentation satisfactory to Aetna to confirm that the Participant is no longer providing services to the employer. 35 V. FEE SCHEDULE TAX DEFERRED ANNUITY PLAN RETIREMENT PLUS 5.01. Maintenance Fee: The Maintenance Fee will be $5 per Individual Account. However, for a Separate Individual Account maintained pursuant to a lump-sum payment, the Maintenance Fee will be $0. 5.02. Surrender Fee: For each surrender from an Individual Account, the Surrender Fee will vary according to the number of Purchase Payment Cycles completed for the Individual Account being surrendered. The number and amount of Purchase Payments to be made in a year is chosen by the Participant. A Purchase Payment Cycle is completed when this number and amount of Purchase Payments have been made. The number of Purchase Payment Cycles completed may not be greater than the number of whole years since the Individual Account was established. For each surrender, the Fee will be as follows: Number of Purchase Payment Cycles Completed Surrender Fee Less than 5 5% 5 or more but less than 7 4% 7 or more but less than 9 3% 9 or 10 2% More than 10 0% For each surrender from an Individual Account maintained pursuant to a lump-sum payment, the Surrender Fee will vary according to the period of time between the Effective Date of the Individual Account and the date of surrender as follows: If Period of Time is Surrender Fee Less than 5 years 5% From 5 to 6 years 4% From 6 to 7 years 3% From 7 to 8 years 2% From 8 to 9 years 1% 9 or more years 0% No Surrender Fee is deducted from any portion of the Individual Account which is paid: (a) At the death of a Participant before Annuity payments start; (b) As a premium for an Annuity for a Participant under this Contract; (c) After a Participant has reached age 59 1/2 and 9 or more Purchase Payment Cycles have been completed for the Individual Account being surrendered; (d) On and after the tenth anniversary of the Effective Date of the Individual Account; (e) When the Individual Account Current Value is $2,500 or less and no surrenders have been taken from the Individual Account within the prior 12 months. If there is no more than one Individual Account under the Contract for a Participant, then this provision will only apply when the total in all of the Participant's Individual Accounts is $2,500 or less; 34 (f) In an amount equal to or less than 10% of the current Individual Account Current Value, as part of the first partial surrender request in a calendar year to a Participant who is at least age 59 1/2 and less than age 70 1/2. The Individual Account Current Value is calculated as of the date the partial surrender request is received in good order at Aetna's Home Office. Any outstanding loans from the Participant's Individual Account are excluded when calculating its Individual Account Current Value. This provision does not apply to partial surrenders due to loan defaults made from Individual Account Current Values and does not apply to full surrender requests; (g) To relieve a Participant's "financial hardship," as may be allowed for annuity contracts under Section 403(b) of the Internal Revenue Code or other appropriate Internal Revenue service sources; or (h) On account of a Participant's separation from service. The Contract Holder must submit documentation satisfactory to Aetna to confirm that the Participant is no longer providing services to the employer. 35 V. FEE SCHEDULE TAX DEFERRED ANNUITY PLAN RETIREMENT PLUS 5.01. Maintenance Fee: The Maintenance Fee will be $2.50 per Individual Account. However, for a Separate Individual Account maintained pursuant to a lump-sum payment, the Maintenance Fee will be $0. 5.02. Surrender Fee: For each surrender from an Individual Account, the Surrender Fee will vary according to the number of Purchase Payment Cycles completed for the Individual Account being surrendered. The number and amount of Purchase Payments to be made in a year is chosen by the Participant. A Purchase Payment Cycle is completed when this number and amount of Purchase Payments have been made. The number of Purchase Payment Cycles completed may not be greater than the number of whole years since the Individual Account was established. For each surrender, the Fee will be as follows: Number of Purchase Payment Cycles Completed Surrender Fee Less than 5 5% 5 or more but less than 7 4% 7 or more but less than 9 3% 9 or 10 2% More than 10 0% For each surrender from an Individual Account maintained pursuant to a lump-sum payment, the Surrender Fee will vary according to the period of time between the Effective Date of the Individual Account and the date of surrender as follows: If Period of Time is Surrender Fee Less than 5 years 5% From 5 to 6 years 4% From 6 to 7 years 3% From 7 to 8 years 2% From 8 to 9 years 1% 9 or more years 0% No Surrender Fee is deducted from any portion of the Individual Account which is paid: (a) At the death of a Participant before Annuity payments start; (b) As a premium for an Annuity for a Participant under this Contract; (c) After a Participant has reached age 59 1/2 and 9 or more Purchase Payment Cycles have been completed for the Individual Account being surrendered; (d) On and after the tenth anniversary of the Effective Date of the Individual Account; (e) When the Individual Account Current Value is $2,500 or less and no surrenders have been taken from the Individual Account within the prior 12 months. If there is no more than one Individual Account under the Contract for a Participant, then this provision will only apply when the total in all of the Participant's Individual Accounts is $2,500 or less; 34 (f) In an amount equal to or less than 10% of the current Individual Account Current Value, as part of the first partial surrender request in a calendar year to a Participant who is at least age 59 1/2 and less than age 70 1/2. The Individual Account Current Value is calculated as of the date the partial surrender request is received in good order at Aetna's Home Office. Any outstanding loans from the Participant's Individual Account are excluded when calculating its Individual Account Current Value. This provision does not apply to partial surrenders due to loan defaults made from Individual Account Current Values and does not apply to full surrender requests; (g) To relieve a Participant's "financial hardship," as may be allowed for annuity contracts under Section 403(b) of the Internal Revenue Code or other appropriate Internal Revenue service sources; or (h) On account of a Participant's separation from service. The Contract Holder must submit documentation satisfactory to Aetna to confirm that the Participant is no longer providing services to the employer. EX-8.1 7 EXHIBIT 8.1 AMENDED AND RESTATED FUND PARTICIPATION AGREEMENT Aetna Life Insurance and Annuity Company (the "Company") and Alger American Fund ("Alger") and its investment adviser, Fred Alger Management, Inc. ("Alger Management") hereby agree to an arrangement whereby all the Portfolios of Alger American Fund, including but not limited to Alger American Small Capitalization Portfolio, Alger American Growth Portfolio, Alger American Balanced Portfolio, Alger American Income & Growth Portfolio, Alger American MidCap Growth Portfolio and Alger American Leveraged AllCap Portfolio (the "Fund") shall be made available to serve as underlying investment media for Variable Annuity or Variable Life Contracts ("Contracts") to be issued by the Company. This Agreement amends and restates the prior Fund Participation Agreement between the parties dated as of September 1, 1993. 1. ESTABLISHMENT OF ACCOUNTS; AVAILABILITY OF FUNDS. (a) The Company represents that it has established Variable Annuity accounts B, C, D and Variable Life Account B and may establish such other accounts as may be set forth in Schedule A attached hereto and as may be amended from time to time (the "Accounts"), each of which is a separate account under Connecticut Insurance law, and has registered or will register each of the Accounts (except for such Accounts for which no such registration is required) as a unit investment trust under the Investment Company Act of 1940 (the "1940 Act"), to serve as an investment vehicle for the Contracts. Each Contract provides for the allocation of net amounts received by the Company to an Account for investment in the shares of one of more specified open-end investment ("Funds") available through that Account as underlying investment media. Selection of a particular Fund and changes therein from time to time are made by the participant or Contract owner, as applicable under a particular Contract. (b) Alger and Alger Management represent and warrant that the investments of the Fund will at all times be adequately diversified within the meaning of Section 817(h) of the Internal Revenue Service Code of 1986, as amended (the "Code"), and the Regulations thereunder, and that at all times while this agreement is in effect, all beneficial interests will be owned by one or more insurance companies or by any other party permitted under Section 1.817-5(f)(3) of the Regulations promulgated under the Code. 2. MARKETING AND PROMOTION. The Company agrees to make every reasonable effort to market its Contracts, whether directly or through its affiliates. It will use its best efforts to cause equal emphasis and promotion to be given to shares of the Fund relative to other Funds available through the Accounts. In marketing and administering its Contracts, the Company and its affiliates will comply with all applicable State and Federal laws. 3. PRICING INFORMATION; ORDERS; SETTLEMENT. (a) Alger will make shares available to be purchased by the Company, and will accept redemption orders from the Company, on behalf of each Account at the net asset value applicable to each order. Fund shares shall be purchased and redeemed in such quantity and at such time determined by the Company to be necessary to meet the requirements of those Contracts for which the Funds serve as underlying investment media. (b) Alger will provide to the Company closing net asset value, dividend and capital gain information at the close of trading each day that the New York Stock Exchange (the "Exchange") is open (each such day, a "business day"), and in no event later than 7:00 p.m. Eastern time on such business day. Alger shall be liable to the Company for the costs incurred in making a Contract owner's or a participant's account whole if such costs are a result of Alger's failure to provide timely or correct net asset values. The Company will send via facsimile transmission to Alger or its specified agent orders to purchase and/or redeem Fund shares by 10:00 a.m. Eastern Time the following business day. Payment for net purchases will be wired by the Company to a custodial account designated by Alger to coincide with the order for shares of the Fund. (c) Alger hereby appoints the Company as its agent for the limited purpose of accepting purchase and redemption orders for Fund shares relating to the Contracts from Contract owners or participants. Orders from Contract owners or participants received from any distributor of the Contracts (including Aetna Investment Services, Inc., an affiliate of the Company) by the Company, acting as agent for Alger, prior to the close of the Exchange on any given business day will be executed by Alger at the net asset value determined as of the close of the Exchange on such business day. Any orders received by the Company acting as agent on such day but after the close of the Exchange will be executed by Alger at the net asset value determined as of the close of the Exchange on the next business day following the day of receipt of such order. (d) Payments for net redemptions of shares of the Funds will be wired by Alger from the Alger custodial account to an account designated by the Company. (e) Each party has the right to rely on information or confirmations provided by the other party (or by any affiliate of the other party), and shall not be liable in the event that an error is a result of any misinformation supplied by the other party. If a mistake is caused in supplying such information or confirmations, which results in a reconciliation with incorrect information, the amount required to make a Contract owner's or a Participant's account whole shall be borne by the party providing the incorrect information. 2 4. EXPENSES. (a) Except as otherwise provided in this Agreement, all expenses incident to the performance by Alger under this Agreement shall be paid by Alger, including the cost of registration of Alger shares with the Securities and Exchange Commission (the "SEC") and in states where required. (b) Alger shall distribute to the Company its proxy material, periodic fund reports to shareholders and other material that are required by law to be sent to Contract owners. In addition, Alger shall provide the Company with a sufficient quantity of its prospectuses to be used in connection with the offerings and transactions contemplated by this Agreement. Subject to subsection (c) below, the cost of preparing and printing such materials shall be paid by Alger, and the cost of distributing such material shall be paid by the Company. (c) In lieu of Alger's providing printed copies of prospectuses and periodic fund reports to shareholders, the Company shall have the right to request that Alger provide a copy of such materials in an electronic format, which the Company may use to have such materials printed together with similar materials of other Account funding media that the Company or any distributor will distribute to existing or prospective Contract owners or participants. In that event Alger shall reimburse the Company for the same proportion of the total printing expense for such materials as the number of pages in each such printed document provided by Alger bears to the total number of pages in such printed document. 5. REPRESENTATIONS. The Company agrees that it and its agents shall not, without the written consent of Alger, make representations concerning Alger or its shares except those contained in the then current prospectuses and in current printed sales literature of Alger. 6. ADMINISTRATION OF ACCOUNTS. (a) Administrative services to Contract owners and participants shall be the responsibility of the Company and shall not be the responsibility of Alger or Alger Management. Alger Management recognizes the Company as the sole shareholder of Alger shares issued under this Agreement, and that substantial savings will be derived in administrative expenses, such as significant reductions in postage expense and shareholder communications, by virtue of having a sole shareholder for each of the Accounts rather than multiple shareholders. In consideration of the savings resulting from such arrangement, and to compensate the Company for its costs, Alger Management agrees to pay to the Company an amount equal to 20 basis points (0.20%) per annum of the average aggregate amount invested by the Company in the Fund under this Agreement. 3 (b) The parties agree that Alger Management's payments to the Company are for administrative services only and do not constitute payment in any manner for investment advisory services or for costs of distribution. (c) For the purposes of computing the administrative fee reimbursement contemplated by this Section 6, the average aggregate amount invested by the Company over a one month period shall be computed by totaling the Company's aggregate investment (share net asset value multiplied by total number of shares held by the Company) on each business day during the month and dividing by the total number of business days during each month. (d) Alger will calculate the reimbursement of administrative expenses at the end of each calendar quarter and will make such reimbursement to the Company within 30 days thereafter. The reimbursement check will be accompanied by a statement showing the calculation of the monthly amounts payable by Alger Management and such other supporting data as may be reasonably requested by the Company. 7. TERMINATION. This agreement shall terminate as to the sale and issuance of new Contracts: (a) at the option of either the Company or Alger, upon three months advance written notice to the other; (b) at the option of the Company, upon one week advance written notice to Alger, if Alger shares are not available for any reason to meet the requirement of Contracts as determined by the Company. Reasonable advance notice of election to terminate shall be furnished by Company; (c) at the option of either the Company or Alger, immediately upon institution of formal proceedings against the broker-dealer or broker-dealers marketing the Contracts, the Account, the Company, Alger or Alger Management by the National Association of Securities Dealers, Inc. (the "NASD"), the SEC or any other regulatory body; (d) upon the requisite vote of Contract owners or participants having an interest in the Fund, to substitute for the Fund's shares the shares of another investment company in accordance with the terms of the applicable Contracts. The Company will give 60 days written notice to Alger of any proposed vote to replace the Funds' shares; (e) upon assignment of this Agreement, unless made with the written consent of all other parties hereto; (f) if Fund shares are not registered, issued or sold in conformance with Federal law or such law precludes the use of Fund shares as an underlying investment medium for Contracts issued or to be issued by the Company. Prompt notice shall be given by either party should such situation occur. 4 8. CONTINUATION OF AGREEMENT. Termination as the result of any cause listed in Section 7 shall not affect Alger's obligation to furnish its shares to Contracts then in force for which its shares serve or may serve as the underlying medium unless such further sale of Fund shares is proscribed by law or the SEC or other regulatory body. 9. ADVERTISING MATERIALS; FILED DOCUMENTS. (a) Advertising and sales literature with respect to the Fund prepared by the Company or its agents for use in marketing its Contracts will be submitted to Alger for review before such material is submitted to any regulatory body for review. (b) Alger will provide to the Company at least one complete copy of all registration statements, prospectuses, statements of additional information, annual and semi-annual reports, proxy statements and all amendments or supplements to any of the above that relate to the Fund promptly after the filing of such document with the SEC or other regulatory authorities. The Company will provide to Alger at least one complete copy of all registration statements, prospectuses, statements of additional information, annual and semi-annual reports, proxy statements, and all amendments or supplements to any of the above that relate to the Account promptly after the filing of such document with the SEC or other regulatory authority. 10. PROXY VOTING. (a) The Company shall provide pass-through voting privileges on Fund shares held by registered separate accounts to all Contract owners and participants to the extent the SEC continues to interpret the 1940 Act as requiring such privileges. The Company shall provide pass-through voting privileges on Fund shares held by unregistered separate accounts to all Contract owners. (b) The Company will distribute to Contract owners and participants, as appropriate, all proxy material furnished by Alger and will vote Fund shares in accordance with instructions received from such Contract owners and participants. If and to the extent required by law, the Company, with respect to each group Contract and in each Account, shall vote Fund shares for which no instructions have been received in the same proportion as shares for which such instructions have been received. The Company and its agents shall not oppose or interfere with the solicitation of proxies for Fund shares held for such Contract owners and participants. 11. INDEMNIFICATION. (a) The Company agrees to indemnify and hold harmless Alger and each of its directors, officers, employees, agents and each person, if any, who controls the Fund or its investment adviser within the meaning of the Securities Act of 1933 (the "1933 Act") against any losses, claims, damages or liabilities to which the Fund or any such director, officer, employee, agent, or controlling person may become subject, under 5 the 1933 Act or otherwise, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, prospectus or sales literature of the Company, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or arise out of or as a result of conduct, statements or representations (other than statements or representations contained in the prospectuses or sales literature of the Fund) of the Company or its agents, with respect to the sale and distribution of Contracts for which Fund shares are the underlying investment. The Company will reimburse any legal or other expenses reasonably incurred by the Fund or any such director, officer, employee, agent, investment adviser, or controlling person in connection with investigating or defending any such loss, claim, damage, liability or action; PROVIDED, HOWEVER, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or omission or alleged omission made in such Registration Statement or prospectus in conformity with written materials furnished to the Company by the Fund specifically for use therein. This indemnity agreement will be in addition to any liability which Company may otherwise have. (b) Alger and Alger Management agrees to indemnify and hold harmless the Company and its directors, officers, employees, agents and each person, if any, who controls the Company within the meaning of the 1933 Act against any losses, claims, damages or liabilities to which the Company or any such director, officer, employee, agent or controlling person may become subject, under the 1933 Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, prospectuses or sales literature of the Fund or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or material fact required to be stated therein or necessary to make the statements therein not misleading. Alger will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, employee, agent, or controlling person in connection with investigating or defending any such loss, claim, damage, liability or action; PROVIDED, HOWEVER, that Alger will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon Registration Statement or prospectuses which are in conformity with written materials furnished to Alger by the Company specifically for use therein. This indemnity agreement will be in addition to any liability which Alger or Alger Management may otherwise have. (c) Promptly after receipt by an indemnified party hereunder of notice of the commencement of action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party hereunder, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than under this Section 11. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the 6 indemnifying party will be entitled to participate therein and, to the extent that it may wish to, assume the defense thereof, with ounsel satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section 11 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. 12. POTENTIAL CONFLICTS. (a) The Company has received a copy of an application for exemptive relief, as amended, filed by Alger on December 30, 1988 with the SEC and the order issued by the SEC in response thereto (the "Shared Funding Exemptive Order"). The Company has reviewed the conditions to the requested relief set forth in such application for exemptive relief. As set forth in such application, the Board of Directors of Fund (the "Board") will monitor the Fund for the existence of any material irreconcilable conflict between the interests of the contractholders of all separate accounts ("Participating Companies") investing in the Fund. An irreconcilable material conflict may arise for a variety of reasons, including: (i) an action by any state insurance regulatory authority; (ii) a change in applicable federal or state insurance, tax, or securities laws or regulations, or a public ruling, private letter ruling, no-action or interpretative letter, or any similar actions by insurance, tax or securities regulatory authorities; (iii) an administrative or judicial decision in any relevant proceeding; (iv) the manner in which the investments of any portfolio are being managed; (v) a difference in voting instructions given by variable annuity contractholders and variable life insurance contractholders; or (vi) a decision by an insurer to disregard the voting instructions of contractholders. The Board shall promptly inform the Company if it determines that an irreconcilable material conflict exists and the implications thereof. (b) The Company will report any potential or existing conflicts of which it is aware to the Board. The Company will assist the Board in carrying out its responsibilities under the Shared Funding Exemptive Order by providing the Board with all information reasonably necessary for the Board to consider any issues raised. This includes, but is not limited to, an obligation by the Company to inform the Board whenever contractholder voting instructions are disregarded. (c) If a majority of the Board, or a majority of its disinterested Board members, determines that a material irreconcilable conflict exists with regard to contractholder investments in a Fund, the Board shall give prompt notice to all Participating Companies. If the Board determines that the Company is responsible for causing or creating said conflict, the Company shall at its sole cost and expense, and to the extent reasonably practicable (as determined by a majority of the disinterested Board members), take such action as is necessary to remedy or eliminate the irreconcilable material conflict. Such necessary action may include but shall not be limited to: 7 (i) withdrawing the assets allocable to the Account from the Fund and reinvesting such assets in a different investment medium or submitting the question of whether such segregation should be implemented to a vote of all affected contractholders and as appropriate, segregating the assets of any appropriate group (i.e., annuity contract owners, life insurance contract owners, or variable contract owners of one or more Participating Companies) that votes in favor of such segregation, or offering to the affected contractholders the option of making such a change; and/or (ii) establishing a new registered management investment company or managed separate account. (d) If a material irreconcilable conflict arises as a result of a decision by the Company to disregard its contractholder voting instructions and said decision represents a minority position or would preclude a majority vote by all of its contractholders having an interest in the Fund, the Company at its sole cost, may be required, at the Board's election, to withdraw an Account's investment in the Fund and terminate this Agreement; provided, however, that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the disinterested members of the Board. (e) For the purpose of this Section 12, a majority of the disinterested Board members shall determine whether or not any proposed action adequately remedies any irreconcilable material conflict, but in no event will Alger be required to establish a new funding medium for any Contract. The Company shall not be required by this Section 12 to establish a new funding medium for any Contract if an offer to do so has been declined by vote of a majority of the Contract owners or participants materially adversely affected by the irreconcilable material conflict. 13. MISCELLANEOUS. (a) AMENDMENT AND WAIVER. Neither this Agreement, nor any provision hereof, may be amended, waived, discharged or terminated orally, but only by an instrument in writing signed by all parties hereto. (b) NOTICES. All notices and other communications hereunder shall be given or made in writing and shall be delivered personally, or sent by telex, telecopier or registered or certified mail, postage prepaid, return receipt requested, to the party or parties to whom they are directed at the following addresses, or at such other addresses as may be designated by notice from such party to all other parties. To the Company: Aetna Life Insurance and Annuity Company 151 Farmington Avenue Hartford, Connecticut 06156 Attention: Julie E. Rockmore, Counsel 8 To Alger American Fund or Fred Alger Management, Inc.: Alger American Fund 75 Maiden Lane New York, NY 10038 Attention: Gregory S. Duch Any notice, demand or other communication given in a manner prescribed in this subsection (b) shall be deemed to have been delivered on receipt. (c) SUCCESSORS AND ASSIGNS. This agreement shall be binding upon and inure to the benefit of the parties hereto and their respective permitted successors and assigns. (d) COUNTERPARTS. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any party hereto may execute this Agreement by signing any such counterpart. (e) SEVERABILITY. In case any one or more of the provisions contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. (f) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and understanding between the parties hereto and supersedes all prior agreement and understandings relating to the subject matter hereof. (g) GOVERNING LAW. This Agreement shall be governed and interpreted in accordance with the laws of the State of Connecticut. 14. LIMITATION ON LIABILITY OF TRUSTEES, ETC. This agreement has been executed on behalf of the Fund by the undersigned officer of the Fund in his capacity as an officer of the Fund. The obligations of this Agreement shall be binding upon the assets and property of the Fund only and shall not be binding upon any trustee, officer or shareholder of the fund individually. 15. PREVIOUS AGREEMENTS. (a) This Agreement amends and restates the Fund Participation Agreement dated as of September 1, 1993 between the Company, Alger and Alger Management; and (b) This Agreement hereby terminates the Service Agreement dated as of September 1, 1993 between the Company, Alger and Alger Shareholder Services, Inc. 9 IN WITNESS WHEREOF, the undersigned have executed this Agreement by their duly authorized officers effective as of the 31st day of March, 1995. AETNA LIFE INSURANCE AND ANNUITY COMPANY By: /S/ SHAUN P. MATHEWS ---------------------- Name: Shaun P. Mathews Title: Sr. Vice President ALGER AMERICAN FUND By: /S/ GREGORY S. DUCH ------------------- Name: Gregory S. Duch Title: FRED ALGER MANAGEMENT, INC. By: /S/ GREGORY S. DUCH ------------------- Name: Gregory S. Duch Title: Alger Shareholder Services, Inc. hereby executes this Agreement with respect to paragraph 15(b)of this Agreement only. ALGER SHAREHOLDER SERVICES, INC. By: /S/ GREGORY S. DUCH ------------------- Name: Gregory S. Duch Title: 10 EX-8.2 8 EXHIBIT 8.2 A G R E E M E N T THIS AGREEMENT made by CALVERT ASSET MANAGEMENT COMPANY, INC. ("CALVERT"), with principal offices at 4550 Montgomery Avenue, Bethesda, Maryland, and AETNA LIFE INSURANCE AND ANNUITY COMPANY ("AETNA"), a life insurance company organized under the laws of the State of Connecticut, relating to the CALVERT Socially Responsible SERIES ("SERIES") of the Acacia Capital Corporation ("FUND"), a Maryland corporation, is as follows: WHEREAS, FUND is registered with the Securities and Exchange Commission ("SEC") under the Investment Company Act of 1940 ("1940 Act") as an open-end management investment company and its securities are registered under the Securities Act of 1933 ("1933 Act"); WHEREAS, FUND is to be used solely as a funding vehicle for variable life and variable annuity insurance contracts offered by life insurance companies through separate accounts of such life insurance companies; and WHEREAS, AETNA has established Aetna Life Insurance and Annuity Company Variable Annuity Account C, a separate account, and other separate accounts to offer variable annuity and variable life contracts and is desirous of having FUND serve as one of the funding vehicles for one or more such variable contracts; NOW, THEREFORE, and in consideration of the mutual covenants herein contained, it is agreed by and between CALVERT and AETNA as follows: 1. CALVERT shall take all steps necessary to maintain the registration of FUND with the SEC and any states where such registration may be required. Such registrations shall include a separate prospectus for the SERIES which does not reference the other seven series of the FUND. CALVERT shall provide the necessary officers and directors of FUND. CALVERT shall pay all costs and expenses of organization and registration, but may be reimbursed by FUND for such expenses as permitted under applicable securities laws. 2. (a) CALVERT shall act as investment adviser to FUND for an annual fee, as specified in the FUND's investment advisory agreement. Currently the maximum is 0.70% of the first $500 million of the average daily net assets of the SERIES. (b) During the years of 1989 and 1990 AETNA will pay the cost of printing prospectuses and sales material it uses to promote the sale of SERIES. Beginning January 1, 1991, CALVERT shall pay the cost of: typesetting and printing SERIES prospectuses distributed by AETNA to prospective purchasers, the portion of any sales material used by AETNA to promote the sale of SERIES, and a pro rata portion of any generic sales material distributed for the purpose of enrolling participants in Internal Revenue Code (IRC) 403(b) and 457 plans sold by AETNA in which SERIES is offered in conjunction with other investment options. AETNA will provide CALVERT an opportunity to review and comment on such material prior to distribution. AETNA will reimburse CALVERT for any such printing costs it may pay during any calendar year which are in excess of 0.15% of SERIES net assets owned by AETNA separate accounts on December 31, of that year. AETNA will pay any reimbursement due CALVERT within thirty (30) days' of the end of each calendar year. If during a year it becomes apparent that such printing costs will exceed the amount payable by CALVERT for the year, AETNA will pay the amount in excess of what could reasonable by expected to be payable by CALVERT. (c) AETNA agrees that all SERIES shares purchased under this agreement will be made by AETNA variable annuity separate accounts. Calvert agrees it will not allow FUND or SERIES shares to be purchased by any entity other than by insurance company variable annuity or variable life separate accounts. (d) CALVERT will promptly provide AETNA with copies of the minutes of all proceedings of the Board of Directors of FUND, or any committee thereof, together with all agreements relating to SERIES presented at such meetings. CALVERT may delete confidential information concerning Acacia Mutual Life Insurance Company, CALVERT, or any other company. CALVERT shall not unreasonably withhold information needed by AETNA to evaluate and carry out its responsibilities to its customers. (e) CALVERT will promptly provide AETNA with copies of all filings made with the SEC pertaining to SERIES. (f) AETNA will promptly provide CALVERT with copies of all filings made with the SEC pertaining to separate accounts for which the SERIES serves as a funding vehicle. 3. SERIES will make its shares available at net asset value to the separate account(s) designated by AETNA. 4. CALVERT will provide AETNA written notice within ten business days after signing any agreement to make the SERIES available to Third Party Administrators or other insurance companies to be sold to participants in IRC 403(b) or 457 plans. 5. AETNA will provide CALVERT written notice within ten business days of signing agreements to offer mutual funds, not managed by AETNA affiliated investment advisers, as investment options under variable annuity contracts sold to IRC 403(b) or IRC 457 plans. 6. Orders for shares of SERIES shall be placed with the FUND pursuant to procedures which are then in effect and which may be modified from time to time. FUND will provide AETNA with documentation of all procedures in effect when the offer and sale of SERIES shares is to commence and will inform AETNA of any modifications to such procedures. 7. CALVERT will diversify SERIES' investments in accordance with the provisions of Section 817(h) of the IRC as amended, and the regulations thereunder as they apply to variable contracts. 8. (a) AETNA shall cause the contracts funded by SERIES shares to be registered with the SEC under the 1933 Act and the separate account(s) to be registered with the SEC as unit investment trust(s) under the 1940 Act to the extent required by these laws, and shall file such documents and take such other action as needed in order to comply with all requirements of the applicable insurance laws in connection with the use of SERIES shares as funding vehicles. AETNA will bear all of the costs associated with these functions. (b AETNA will bear the costs of, and will be responsible for, developing policy, application, confirmations and administrative forms and filing such of these forms as is necessary to comply with the requirements of all insurance laws and regulations in each state in which the contracts are offered. (c) AETNA will be responsible for and bear the expense of all separate and participant account administration including all contract holder and participant service and communications except for prospectuses and sales material as described in 2.(b) and legally required items paid for by registered investment companies such as FUND or SERIES proxies, annual and semiannual reports. AETNA will make a good faith effort to prevent waste and to keep the cost of items paid for by Calvert, FUND or SERIES low. (d) AETNA will reimburse the FUND for a pro rata share of the cost of obtaining a separate audit opinion for SERIES distinct from the FUND's or other seven series. AETNA's share of this expense will be in direct proportion to the percentage of SERIES assets held in AETNA separate accounts. 9. (a) CALVERT will comply with all applicable state and federal laws in all its efforts to encourage the sale of SERIES by AETNA and its representatives. (b) AETNA will, under this Agreement, offer IRC 403(b) Tax Deferred Annuities contracts that include SERIES shares as an investment option to public school systems and universities located in the state of New York that have employees represented by the New York State United Teachers (NYSUT) or its affiliates. AETNA may, under this agreement, elect to offer SERIES shares to other IRC 403(b) or 457 variable annuity customers or prospects. (c) In marketing its contracts, AETNA will comply with all applicable state and federal laws. AETNA and its agents shall make no representations or warranties concerning the FUND or SERIES except those contained in the then current prospectuses of the FUND or SERIES or in sales material approved by both AETNA and CALVERT. (d) Any materials used by AETNA which describe SERIES, its shares, or CALVERT shall be submitted to CALVERT for approval prior to use. AETNA shall file, to the extent required by law, any such materials with the National Association of Securities Dealers, Inc. (e) AETNA will provide participants with full and fair disclosure concerning the various investment options offered under the variable contract. AETNA agrees to pay its agents and employees the same compensation for participant investments made in SERIES as it does for money placed in any of the other investment options, including AETNA managed options. (f) CALVERT will not initiate any contact in regard to SERIES or FUND with AETNA contract holders. In the event AETNA participants or contract owners contact CALVERT for information about SERIES, CALVERT may provide general information only and will refer the customer to AETNA for specific account or contract information. 10. Aetna shall report to the FUND's Board of Directors any known potential or existing conflicts among the interests of the contract holders of the separate accounts investing in the FUND, and provide any information possessed by AETNA concerning the conflict to the board for their consideration. 11. (a) AETNA shall be solely responsible for its actions in connection with its use of SERIES and its shares and shall indemnify and hold harmless FUND, CALVERT and their officers, and directors from any liability, including reasonable attorneys' fees, for AETNA'S negligent or wrongful acts or failures to act with respect to its use of FUND or SERIES shares. (b) CALVERT shall be solely responsible for its actions in connection with its management of FUND and shall indemnify and hold harmless AETNA, its officers and directors from any liability, including reasonable attorneys' fees, for CALVERT'S negligent or wrongful acts or failures to act with respect to its management of FUND. 12. (a) If, after a presentation on the issue by AETNA, the Board of Directors of FUND, or a majority of its disinterested Directors, determines that a material irreconcilable conflict exists, making it not in the best interest of FUND to continue to sell shares to AETNA, AETNA shall, at its own expense, take whatever steps are necessary to remedy or eliminate the conflict, which steps may include, but are not limited to: (1) withdrawing the assets allocable to the separate account(s) of AETNA from SERIES and reinvesting such assets in a different investment medium managed by CALVERT, or submitting to a vote of all affected contract holders the questions of whether (I) withdrawal of assets from SERIES or (ii) segregation of assets should be implemented and, as appropriate, withdrawing or segregating the assets of any particular group that votes in favor of such withdrawal or segregation, or offering to the affected contract holders the option of making such a change; (2) establishing a new registered open-end management investment company or separate account managed by CALVERT. (3) AETNA may take any action consistent with the Separate Account prospectus. (b) For purposes hereof, the Board of Directors, including a majority of the disinterested Directors, shall determine after further discussion with AETNA whether or not any proposed action adequately remedies any material irreconcilable conflict. In no event will either CALVERT OR AETNA be required to establish a new funding medium for any variable contracts. (c) CALVERT will promptly make known to AETNA the Board of Directors' consideration or determination of the existence of a material irreconcilable conflict and its implications. 13. AETNA will not oppose, or encourage its agents or clients to oppose, the voting recommendations from CALVERT or the Board of Directors and will facilitate the solicitation of proxies from AETNA contract holders or participants with investments in SERIES. AETNA agrees to provide pass-through voting privileges to all AETNA contract holders and participants who have SERIES proxy voting rights and to insure that each of its separate accounts participating in SERIES calculates voting privileges in a manner consistent with instructions received from FUND. CALVERT will provide AETNA and all other insurance companies uniform instructions to insure all companies calculate voting privileges in a manner consistent with then current federal and state regulations. CALVERT or the FUND will reimburse AETNA for any reasonable expenses it may incur supporting the proxy distribution process including the cost of printing, mailing, tabulating and reporting proxy voting results. 14. This Agreement shall terminate automatically in the event of its assignment. 15. This Agreement may be terminated at any time upon sixty (60) days' written notice to the other party hereto, without the payment of any penalty. Such termination shall not affect or modify the obligations of the parties set forth herein with respect to any events occurring prior to such termination. CALVERT will not be required, under section 2(b) of this agreement, to pay for invoices which are received by CALVERT after the effective date of termination or for sales or promotional material printed after notice of termination is given by either CALVERT or AETNA. 16. This Agreement shall be subject to the provisions of the 1940 Act and the rules and regulations thereunder, including any exemptive relief therefrom and the orders of the SEC setting forth such relief. 17. This Agreement is the complete and exclusive statement of the agreement between the parties as to the subject matter hereof which supersedes all proposals or agreements, oral or written, and all other communications between the parties related to the subject matter of this Agreement. 18. This Agreement can only be modified by a written agreement duly signed by the persons authorized to sign agreements on behalf of the respective party. 19. Any controversy relating to this Agreement shall be determined by arbitration in Philadelphia, Pennsylvania in accordance with the Commercial Arbitration rules of the American Arbitration Association using arbitrators who will follow substantive rules of law. The dispute shall be determined by an arbitrator acceptable to both parties who shall be selected within seven (7) days of filing of notices of intention to arbitrate. Otherwise, the dispute shall be determined by a panel of three arbitrators selected as follows: Within seven (7) days of filing notice of intention to arbitrate, each party will appoint one arbitrator. These two arbitrators will then name a third arbitrator, who shall be an attorney admitted before the bar of any state of the United States, to preside over the panel. If either party fails to appoint an arbitrator, or if the two arbitrators do not name a third arbitrator within seven (7) days, either party may request the American Arbitration Association to appoint the necessary arbitrator(s) pursuant to Rule 13 of the Commercial Arbitration Rules. Each party will pay its own cost and expenses. All testimony shall be transcribed. The award of the panel shall be accompanied by findings of fact and a statement of reasons for the decision. All parties agree to be bound by the results of this arbitration; judgment upon the award so rendered may be entered and enforced in any court of competent jurisdiction. To the extent reasonably practicable, both parties agree to continue performing their respective obligations under this Agreement while the dispute is being resolved. All matters relating to such arbitration shall be maintained in confidence. 20. This Agreement shall be governed by and interpreted in accordance with the laws of the State of Connecticut. 21. All notices which are required to be given or submitted pursuant to this Agreement shall be in writing and shall be sent by registered or certified mail, return receipt requested, to the addresses set forth below: George N. Gingold RE4C Stephen W. Topp, Esquire Corporate Secretary Secretary Aetna Life Insurance and Annuity Company Calvert Asset Management Company 151 Farmington Avenue 4550 Montgomery Avenue Hartford, CT 06156 Suite 1000 N Bethesda, MD 20814 This Agreement can be signed in one or more duplicate originals. Executed this 13th day of March, 1989. CALVERT ASSET MANAGEMENT COMPANY, INC. ATTEST: /s/ BY /s/ -------------------------- ----------------------- Vice President AETNA LIFE INSURANCE AND ANNUITY COMPANY ATTEST: /s/ BY /s/ Thomas West -------------------------- ----------------------- FIRST AMENDMENT TO AGREEMENT This First Amendment, executed as of the 27th day of December, 1993 is by and between Aetna Life Insurance and Annuity Company ("AETNA") and Calvert Asset Management Company ("CALVERT"). WHEREAS, AETNA and CALVERT are parties to an Agreement dated March 13, 1989; and WHEREAS, Aetna and CALVERT now desire to modify the Agreement. NOW, THEREFORE, in consideration of the premises and the mutual convenants and promises expressed herein, the parties agree as follows: 1. Shares of Calvert Socially Responsible Series of Acacia Capital Corporation shall be made available to serve as underlying investment media within Variable Annuity Contracts offered by AETNA in Internal Revenue Code (IRC) Section 403(b), 457, and 401(a) plans. 2. All references in the Agreement to INTERNAL REVENUE CODE (IRC) 403(b) AND/OR 457 PLANS shall be deemed to also include IRC 401(a) plans. IN WITNESS WHEREOF, the parties hereto have executed this First Amendment as of the date first above written. AETNA LIFE INSURANCE AND ANNUITY COMPANY By: /S/ THOMAS L. WEST, JR. ------------------------- Name: Thomas L. West, Jr. Title: Senior Vice President CALVERT ASSET MANAGEMENT COMPANY By: /S/ WILLIAM T. TARTIKOFF ------------------------- Name: William T. Tartikoff Title: Chief General Counsel EX-8.3 9 EXHIBIT 8.3 PARTICIPATION AGREEMENT AMONG VARIABLE INSURANCE PRODUCTS FUND FIDELITY DISTRIBUTORS CORPORATION AND AETNA LIFE INSURANCE AND ANNUITY COMPANY THIS AGREEMENT, made and entered into as of the 1st day of February, 1994 by and among AETNA LIFE INSURANCE AND ANNUITY COMPANY, (hereinafter the "Company"), a Connecticut corporation, on its own behalf and on behalf of each segregated asset account of the Company set forth on Schedule A hereto as may be amended from time to time (each such account hereinafter referred to as the "Account"), and the VARIABLE INSURANCE PRODUCTS FUND, an unincorporated business trust organized under the laws of the Commonwealth of Massachusetts (hereinafter the "Fund") and FIDELITY DISTRIBUTORS CORPORATION (hereinafter the "Underwriter"), a Massachusetts corporation. WHEREAS, the fund engages in business as an open-end management investment company and is available to act as the investment vehicle for separate accounts established for variable life insurance policies and variable annuity contracts (collectively, the "Variable Insurance Products") to be offered by insurance companies which have entered into participation agreements with the Fund and the Underwriter (hereinafter "Participating Insurance Companies"); and WHEREAS, the beneficial interest in the Fund is divided into several series of shares, each designated a "Portfolio" and representing the interest in a particular managed portfolio of securities and other assets; and WHEREAS, the Fund has obtained an order from the Securities and Exchange Commission, dated October 15, 1985 (File No. 812-6102), granting Participating Insurance Companies and variable annuity and variable life insurance separate accounts exemptions from the provisions of sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended, (hereinafter the "1940 Act") and Rules 6e-2(b) (15) and 6e-3(T) (b) (15) thereunder, to the extent necessary to permit shares of the Fund to be sold to and held by variable annuity and variable life insurance separate accounts of both affiliated and unaffiliated life insurance companies (hereinafter the "Shared Funding Exemptive Order"); and WHEREAS, the Fund is registered as an open-end management investment company under the 1940 Act and its shares are registered under the Securities Act of 1933, as amended (hereinafter the "1933 Act"); and WHEREAS, Fidelity Management & Research Company (the "Adviser") is duly registered as an investment adviser under the federal Investment Advisers Act of 1940 and any applicable state securities law; and WHEREAS, the Company has registered or will register certain variable life insurance, funding agreements, and variable annuity contracts under the 1933 Act; and WHEREAS, each Account is duly organized, validly existing segregated asset account, established by resolution of the Board of Directors of the Company, on the date shown for such Account on Schedule A hereto, to set aside and invest assets attributable to the aforesaid variable annuity contracts; and WHEREAS, the Company has registered or will register each Account as a unit investment trust under the 1940 Act; and WHEREAS, the Underwriter is registered as a broker dealer with the Securities and Exchange Commission ("SEC") under the Securities Exchange Act of 1934, as amended, (hereinafter the "1934 Act"), and is a member in good standing of the National Association of Securities Dealers, Inc. (hereinafter "NASD"); and WHEREAS, to the extent permitted by applicable insurance laws and regulations, the Company intends to purchase shares in the Portfolios on behalf of each Account to fund certain of the aforesaid variable life and variable annuity contracts and the Underwriter is authorized to sell such shares to unit investment trusts such as each Account at net asset value; NOW, THEREFORE, in consideration of their mutual promises, the Company, the Fund and the Underwriter agree as follows: ARTICLE I. SALE OF FUND SHARES 1.1 The Underwriter agrees to sell to the Company those shares of the Fund which each Account orders, executing such orders on a daily basis at the net asset value next computed after receipt by the Fund or its designee of the order for the shares of the Fund. For purposes of this Section 1.1, the Company shall be the designee of the Fund for receipt of such orders from each Account and receipt by such designee shall constitute receipt by the Fund; provided that the Fund receives notice of such order by 9:00 a.m. Boston time on the next following Business Day. "Business Day" shall mean any on which the New York Stock Exchange is open for trading and on which the Fund calculates its net asset value pursuant to the rules of the Securities and Exchange Commission. 1.2 The Fund agrees to make its shares available indefinitely for purchase at the applicable net asset value per share by the Company and its Accounts on those days on which the Fund calculates its net asset value pursuant to rules of the Securities and Exchange Commission and the Fund shall use reasonable efforts to calculate such net asset value on each day which the -2- New York Stock Exchange is open for trading. Notwithstanding the foregoing, the Board of Trustees of the Fund (hereinafter the "Board") may refuse to sell shares of any Portfolio to any person, or suspend or terminate the offering of shares of any Portfolio if such action is required by law or by regulatory authorities having jurisdiction or is, in the sole discretion of the Board acting in good faith and in light of their fiduciary duties under federal and any applicable state laws, necessary in the best interests of the shareholders of such Portfolio. 1.3 The Fund and the Underwriter agree that shares of the Fund will be sold only to Participating Insurance Companies and their separate accounts. No shares of any Portfolio will be sold to the general public. 1.4 The Fund and the Underwriter will not sell Fund shares to any insurance company or separate account unless an agreement containing provisions substantially the same as Articles I, III, V, VII and Section 2.5 of Article II of this Agreement is in effect to govern such sales. 1.5 The Fund agrees to redeem for cash, on the Company's request, any full or fractional shares of the Fund held by the Company, executing such requests on a daily basis at the net asset value next computed after receipt by the Fund or its designee of the request for redemption. For purposes of this Section 1.5, the Company shall be the designee of the Fund for receipt of requests for redemption from each Account and receipt by such designee shall constitute receipt by the Fund; provided that the Fund receives notice of such request for redemption on the next following Business Day. 1.6 The Company agrees to purchase and redeem the shares of each Portfolio offered by the then current prospectus of the Fund and in accordance with the provisions of such prospectus. The Company agrees that all net amounts available under the variable annuity contracts with the form number(s) which are listed on Schedule A attached hereto and incorporated herein by this reference, as such Schedule A may be amended from time to time hereafter by mutual written agreement of all the parties hereto, (the "Contracts") shall be invested in the Fund, in such other Funds advised by the Adviser as may be mutually agreed to in writing by the parties hereto, or in the Company's general account, provided that such amounts may also be invested in an investment company other than the Fund if (a) such other investment company, or series thereof, has investment objectives or policies that are substantially different from the investment objectives and policies of all the Portfolios of the Fund; or (b) the Company gives the Fund and the Underwriter 45 days written notice of its intention to make such other investment company available as a funding vehicle for the Contracts; or (c) such other investment company was available as a funding vehicle for the Contracts prior to the date of this Agreement and the Company so informs the Fund and Underwriter prior to their signing this Agreement (a list of such funds appearing on Schedule C to this Agreement); or (d) the Fund or Underwriter consents to the use of such other investment company. 1.7 The Company shall pay for Fund shares on the next Business Day after an order to purchase Fund shares is made in accordance with the provisions of Section 1.1 hereof. Payment shall be in federal funds transmitted by wire. For purpose of Section 2.10 and 2.11, upon receipt -3- by the Fund of the federal funds so wired, such funds shall cease to be the responsibility of the Company and shall become the responsibility of the Fund. 1.8 Issuance and transfer of the Fund's shares will be by book entry only. Stock certificates will not be issued to the Company or any Account. Shares ordered from the Fund will be recorded in an appropriate title for each Account or the appropriate subaccount of each Account. 1.9 The Fund shall furnish same day notice (by wire or telephone, followed by written confirmation) to the Company of any income, dividends or capital gain distributions payable on the Fund's shares. The Company hereby elects to receive all such income dividends and capital gain distributions as are payable on the Portfolio shares in additional shares of that Portfolio. The Company reserves the right to revoke this election and to receive all such income dividends and capital gain distributions in cash. The Fund shall notify the Company of the number of shares so issued as payment of such dividends and distributions. 1.10 The Fund shall make the net asset value per share for each Portfolio available to the Company on a daily basis as soon as reasonably practical after the net asset value per share is calculated and shall use its best efforts to make such net asset value per share available by 7 p.m. Boston time. ARTICLE II. REPRESENTATIONS AND WARRANTIES 2.1 The Company represents and warrants that the Contracts are or will be registered under the 1933 Act or are exempt from registration thereunder; that the Contracts will be issued and sold in compliance in all material respects with all applicable Federal and State laws and that the sale of the Contracts shall comply in all material respects with state insurance suitability requirements. The Company further represents and warrants that it is an insurance company duly organized and in good standing under applicable law and that it has legally and validly established each Account prior to any issuance or sale thereof as a segregated asset account under Section 38a-433 of the Connecticut Insurance Code and has registered or, prior to any issuance or sale of the Contracts, will register each Account as a unit investment trust in accordance with the provisions of the 1940 Act to serve as a segregated investment account for the Contracts. 2.2 The Fund represents and warrants that Fund shares sold pursuant to this Agreement shall be registered under the 1933 Act, duly authorized for issuance and sold in compliance with the laws of the State of Connecticut and all applicable federal and state securities laws and that the Fund is and shall remain registered under the 1940 Act. The Fund shall amend the Registration Statement for its shares under the 1933 Act and the 1940 Act from time to time as required in order to effect the continuous offering of its shares. The Fund shall register and qualify the shares for sale in accordance with the laws of the various states only if and to the extent deemed advisable by the Fund or the Underwriter. -4- 2.3 The Fund represents that it is currently qualified as a Regulated Investment Company under Subchapter M of the Internal Revenue Code of 1986, as amended, (the "Code") and that it will make every effort to maintain such qualification (under Subchapter M or any successor or similar provision) and that it will notify the Company immediately upon having a reasonable basis for believing that it has ceased to so qualify or that it might not so qualify in the future. 2.4 The Company represents that the Contracts are currently treated as endowment or annuity insurance contracts, under applicable provisions of the Code and that it will make every effort to maintain such treatment and that it will notify the Fund and the Underwriter immediately upon having a reasonable basis for believing that the Contracts have ceased to be so treated or that they might not be so treated in the future. 2.5 The Fund currently does not intend to make any payments to finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise, although it may make such payments in the future. The Fund has adopted a "no fee" or "defensive" Rule 12b-1 Plan under which it makes no payments for distribution expenses. To the extent that it decides to finance distribution expenses pursuant to Rule 12b-1, the Fund undertakes to have a board of trustees, a majority of whom are not interested persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance distribution expenses. 2.6 The Fund makes no representation as to whether any aspect of its operations (including, but not limited to, fees and expenses and investment policies) complies with the insurance laws or regulations of the various states except that the Fund represents that the Fund's investment policies, fees and expenses are and shall at all times remain in compliance with the laws of the State of Connecticut and the Fund and the Underwriter represent that their respective operations are and shall at all times remain in material compliance with the laws of the State of Connecticut to the extent required to perform this Agreement. 2.7 The Underwriter represents and warrants that it is a member in good standing of the NASD and is registered as a broker-dealer with the SEC. The Underwriter further represents that it will sell and distribute the Fund shares in accordance with the laws of the State of Connecticut and all applicable state and federal securities laws, including without limitation the 1933 Act, the 1934 Act, and the 1940 Act. 2.8 The Fund represents that it is lawfully organized and validly existing under the laws of the Commonwealth of Massachusetts and that it does and will comply in all material respects with the 1940 Act. 2.9 The Underwriter represents and warrants that the Adviser is and shall remain duly registered in all material respects under all applicable federal and state securities laws and that the Adviser shall perform its obligations for the Fund in compliance in all material respects with the laws of the State of Connecticut and any applicable state and federal securities laws. -5- 2.10 The Fund and Underwriter represent and warrant that all of their directors, officers, employees, investment advisers, and other individuals/entities dealing with the money and/or securities of the Fund are and shall continue to be at all times covered by a blanket fidelity bond or similar coverage for the benefit of the Fund in an amount not less than the minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or related provisions as may be promulgated from time to time. The aforesaid Bond shall include coverage for larceny and embezzlement and shall be issued by a reputable bonding company. 2.11 The Company represents and warrants that all of its directors, officers, employees, investment advisers, and other individual/entities dealing with the money and/or securities of the Fund are covered by a blanket fidelity bond or similar coverage for the benefit of the Fund, in an amount not less $2 million. The aforesaid includes coverage for larceny and embezzlement is issued by a reputable bonding company. The Company agrees to make all reasonable efforts to see that this bond or another bond containing these provisions is always in effect, and agrees to notify the Fund and the Underwriter in the event that such coverage no longer applies. ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS: VOTING 3.1 The Underwriter shall provide the Company (at the Company's expense) with as many copies of the Fund's current prospectus as the Company may reasonably request. If requested by the Company in lieu thereof, the Fund shall provide such documentation (including a final copy of the new prospectus as set in type at the Fund's expense) and other assistance as is reasonably necessary in order for the Company once each year (or more frequently if the prospectus for the Fund is amended) to have the prospectus for the Contracts and the Fund's prospectus printed together in one document (such printing to be at the Company's expense). 3.2 The Fund's prospectus shall state that the Statement of Additional Information for the Fund is available from the Underwriter (or in the Fund's discretion, the Prospectus shall state that such Statement is available from the Fund), and the Underwriter (or the Fund), at its expense, shall print and provide such Statement free of charge to the Company and to any owner of a Contract or prospective owner who requests such Statement. 3.3 The Fund, at its expense, shall provide the Company with copies of its proxy material, reports to shareholders, and other communications to shareholders in such quantity as the Company shall reasonably require for distributing to Contract owners. 3.4 If and to the extent required by law the Company shall: (i) solicit voting instructions from Contract owners; (ii) vote the Fund shares in accordance with instructions received from Contract owners; and -6- (iii) vote Fund shares for which no instructions have been received in the same proportion as Fund shares of such portfolio for which instructions have been received, so long as and to the extent that the Securities and Exchange Commission continues to interpret the 1940 Act to require pass-through voting privileges for variable contract owners. The Company reserves the right to vote Fund shares held in any segregated asset amount in its own right, to the extent permitted by law. Participating Insurance Companies shall be responsible for assuring that each of their separate accounts participating in the Fund calculates voting privileges in a manner consistent with the standards set forth on Schedule B attached hereto and incorporated herein by this reference, which standards will also be provided to the other Participating Insurance Companies. 3.5 The Fund will comply with all provisions of the 1940 Act requiring voting by shareholders, and in particular the Fund will either provide for annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund is not one of the trusts described in Section 16(c) of that Act) as well as with Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in accordance with the Securities and Exchange Commission's interpretation of the requirements of Section 16(a) with respect to periodic elections of trustees and with whatever rules the Commission may promulgate with respect thereto. ARTICLE IV. SALES MATERIAL AND INFORMATION 4.1 The Company shall furnish, or shall cause to be furnished, to the Fund or its designee, each piece of sales literature or other promotional material in which the Fund or its investment adviser or the Underwriter is named, at least fifteen Business Days prior to its use. No such material shall be used if the Fund or its designee reasonably objects to such use within fifteen Business Days after receipt of such material. 4.2 The Company shall not give any information or make any representations or statements on behalf of the Fund or concerning the Fund in connection with the sale of the Contracts other than the information or representations contained in the registration statement or prospectus for the Fund shares, as such registration statement and prospectus may be amended or supplemented from time to time, or in reports or proxy statements for the Fund, or in sales literature or other promotional material approved by the Fund or its designee or by the Underwriter, except with the permission of the Fund or the Underwriter or the designee of either. 4.3 The Fund, Underwriter, or its designee shall furnish, or shall cause to be furnished, to the Company or its designee, each piece of sales literature or other promotional material in which the Company and/or its separate account(s), is named at least fifteen Business Days prior to its use. No such material shall be used if the Company or its designee reasonably objects to such use within fifteen Business Days after receipt of such material. -7- 4.4 The Fund and the Underwriter shall not give any information or make any representations on behalf of the Company or concerning the Company, each Account, or the Contracts other than the information or representations contained in a registration statement or prospectus for the Contracts, as such registration statement and prospectus may be amended or supplemented from time to time, or in published reports for each Account which are in the public domain or approved by the Company for distribution to Contract owners, or in sales literature or other promotional material approved by the Company or its designee, except with the permission of the Company. 4.5 The Fund will provide to the Company at least one complete copy of all registration statements, prospectuses, Statements of Additional Information, reports, proxy statements, sales literature and other promotional materials, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to the Fund or its shares, contemporaneously with the filing of such document with the Securities and Exchange Commission or other regulatory authorities. 4.6 The Company will provide to the Fund at least one complete copy of all registration statements, prospectuses, Statements of Additional Information, reports, solicitations for voting instructions, sales literature and other promotional materials, applications for exemptions, requests for no action letters, and all amendments to any of the above, that relate to the Contracts or each Account, contemporaneously with the filing of such document with the SEC or other regulatory authorities. 4.7 For purposes of this Article IV, the phrase "sales literature or other promotional material" includes, but is not limited to, advertisements (such as material published, or designed for use in, a newspaper, magazine, or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures, or other public media), sales literature (i.e., any written communication distributed or made generally available to customers or the public, including brochures, circulars, research reports, market letters, form letters, seminar texts, reprints or excerpts of any other advertisement, sales literature, or published article), educational or training materials or other communications distributed or made generally available to some or all agents or employees, and registration statements, prospectuses, Statements of Additional Information, shareholder reports, and proxy materials. ARTICLE V. FEES AND EXPENSES 5.1 The Fund and Underwriter shall pay no fee or other compensation to the Company under this agreement, except that if the Fund or any Portfolio adopts and implements a plan pursuant to Rule 12b-1 to finance distribution expenses, then the Underwriter may make payments to the Company or to the underwriter for the Contracts if and in amounts agreed to by the Underwriter in writing and such payments will be made out of existing fees otherwise payable to the Underwriter, past profits of the Underwriter or other resources available to the Underwriter. No such payments shall be made directly by the Fund. Currently, no such payments are contemplated. -8- 5.2 All expenses incident to performance by the Fund under this Agreement shall be paid by the Fund. The Fund shall see to it that all its shares are registered and authorized for issuance in accordance with applicable federal law and, if and to the extent deemed advisable by the Fund, in accordance with applicable state laws prior to their sale. The Fund shall bear the expenses for the cost of registration and qualification of the Fund's shares, preparation and filing of the Fund's prospectus and registration statement, proxy materials and reports, setting the prospectus in type, setting in type and printing the proxy materials and reports to shareholders (including the costs of printing a prospectus that constitutes an annual report), the preparation of all statements and notices required by any federal or state law, all taxes on the issuance or transfer of the Fund's shares. 5.3 The Company shall bear the expenses of printing and distributing the Fund's prospectus to owners of Contracts issued by the Company and of distributing the Fund's proxy materials and reports to such Contract owners. ARTICLE VI. DIVERSIFICATION 6.1 The Fund will at all times invest money from the Contracts in such a manner as to ensure that the Contracts will be treated as variable contracts under the Code and the regulations issued thereunder. Without limiting the scope of the foregoing, the Fund will at all times comply with Section 817(h) of the Code and Treasury Regulation 1.817-5, relating to the diversification requirements for variable annuity, endowment, or life insurance contracts and any amendments or other modifications to such Section or Regulations. In the event of a breach of this Article VI by the Fund, it will take all reasonable steps (a) to notify Company of such breach and (b) to adequately diversify the Fund so as to achieve compliance with the grace period afforded by Regulation 817-5. ARTICLE VII. POTENTIAL CONFLICTS 7.1 The Board will monitor the Fund for the existence of any material irreconcilable conflict between the interests of the contract owners of all separate accounts investing in the Fund. An irreconcilable material conflict may arise for a variety of reasons, including: (a) an action by any state insurance regulatory authority; (b) a change in applicable federal or state insurance, tax, or securities laws or regulations, or a public ruling, private letter ruling, no-action or interpretative letter, or any similar action by insurance, tax, or securities regulatory authorities; (c) an administrative or judicial decision in any relevant proceeding; (d) the manner in which the investments of any Portfolio are being managed; (e) a difference in voting instructions given by variable annuity contract and variable life insurance contract owners; or (f) a decision by an insurer to disregard the voting instructions of contract owners. The Board shall promptly inform the Company if it determines that an irreconcilable material conflict exists and the implications thereof. -9- 7.2 The Company will report any potential or existing conflicts of which it is aware to the Board. The Company will assist the Board in carrying out its responsibilities under the Shared Funding Exemptive Order, by providing the Board with all information reasonably necessary for the Board to consider any issues raised. This includes, but is not limited to, an obligation by the Company to inform the Board whenever contract owner voting instructions are disregarded. 7.3 If it is determined by a majority of the Board, or a majority of its disinterested trustees, that a material irreconcilable conflict exists, the Company and other Participating Insurance Companies shall, at their expense and to the extent reasonably practicable (as determined by a majority of the disinterested trustees), take whatever steps are necessary to remedy or eliminate the irreconcilable material conflict, up to and including: (1) withdrawing the assets allocable to some or all of the separate accounts from the Fund or any Portfolio and reinvesting such assets in a different investment medium, including (but not limited to) another Portfolio of the Fund, or submitting the question whether such segregation should be implemented to a vote of all affected Contract owners and, as appropriate, segregating the assets of any appropriate group (i.e., annuity contract owners, life insurance contract owners, or variable contract owners of one or more Participating Insurance Companies) that vote in favor of such segregation, or offering to the affected contract owners the option of making such a change; and (2) establishing a new registered management investment company or managed separate account. 7.4 If a material irreconcilable conflict arises because of a decision by the Company to disregard contract owner voting instructions and that decision represents a minority position or would preclude a majority vote, the Company may be required, at the Fund's election, to withdraw the affected Account's investment in the Fund and terminate this Agreement with respect to such Account; provided, however, that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the disinterested members of the Board. Any such withdrawal and termination must take place within six (6) months after the Fund gives written notice that this provision is being implemented, and until the end of that six month period the Underwriter and Fund shall continue to accept and implement orders by the Company for the purchase (and redemption) of shares of the Fund. 7.5 If a material irreconcilable conflict arises because a particular state insurance regulator's decision applicable to the Company conflicts with the majority of other state regulators, then the Company will withdraw the affected Account's investment in the Fund and terminate this Agreement with respect to such Account within six months after the Board informs the Company in writing that it has determined that such decision has created an irreconcilable material conflict; provided, however, that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the disinterested members of the Board. Until the end of the foregoing six month period, the Underwriter and Fund shall continue to accept and implement orders by the Company for the purchase (and redemption) of shares of the Fund. 7.6 For purposes of Sections 7.3 through 7.6 of this Agreement, a majority of the disinterested members of the Board shall determine whether any proposed action adequately -10- remedies any irreconcilable material conflict, but in no event will the Fund be required to establish a new funding medium for the Contracts. The Company shall not be required by Section 7.3 to establish a new funding medium for the Contracts if an offer to do so has been declined by vote of a majority of Contract owners materially adversely affected by the irreconcilable material conflict. In the event that the Board determines that any proposed action does not adequately remedy any irreconcilable material conflict, then the Company will withdraw the Account's investment in the Fund and terminate this Agreement within six (6) months after the Board informs the Company in writing of the foregoing determination, provided, however, that such withdrawal and termination shall be limited to the extent required by any such material irreconcilable conflict as determined by a majority of the disinterested members of the Board. 7.7 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or Rule 63-3 is adopted, to provide exemptive relief from any provision of the Act or the rules promulgated thereunder with respect to mixed or shared funding (as defined in the Shared Funding Exemptive Order) on terms and conditions materially different from those contained in the Shared Funding Exemptive Order, then (a) the Fund and/or the Participating Insurance Companies, as appropriate, shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue in effect only to the extent that terms and conditions substantially identical to such Sections are contained in such Rule(s) as so amended or adopted. ARTICLE VIII. INDEMNIFICATION 8.1 INDEMNIFICATION BY THE COMPANY 8.1(a) The Company agrees to indemnify and hold harmless the Fund and each trustee of the Board and officers and each person, if any, who controls the Fund within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 8.1) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Company) or litigation (including legal and other expenses), to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements are related to the sale or acquisition of the Fund's shares or the Contracts and; (i) arise out of or are used based upon an untrue statements or alleged untrue statements of any material fact contained in the Registration Statement or prospectus for the Contracts or contained in the Contracts or sales literature for the Contracts (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or -11- such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Company by or on behalf of the Fund for use in the Registration Statement or prospectus for the Contracts or in the Contracts or sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Fund shares; or (ii) arise out of or as a result of statements or representations (other than statements or representations contained in the Registration Statement, prospectus or sales literature of the Fund not supplied by the Company, or persons under its control) or wrongful conduct of the Company or persons under its control, with respect to the sale or distribution of the Contracts or Fund Shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement, prospectus, or sales literature of the Fund or any amendment thereof or supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such a statement or omission was made in reliance upon information furnished to the Fund by or on behalf of the Company; or (iv) arise as a result of any failure by the Company to provide the services and furnish the materials under the terms of this Agreement; or (v) arise out of or result from any material breach of any representation and/or warranty made by the Company in this Agreement or arise out of or result from any other material breach of this Agreement by the Company, as limited by and in accordance with the provisions of Sections 8.1(b) and 8.1(c) hereof. 8.1(b) The Company shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation incurred or assessed against an Indemnified Party as such may arise from such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations or duties under this Agreement or to the Fund, whichever is applicable. 8.1(c) The Company shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Company in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Company of any such claim shall not relieve the Company from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought -12- against the Indemnified Parties, the Company shall be entitled to participate, at its own expense, in the defense of such action. The Company also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Company to such party of the Company's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Company will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 8.1(d) The Indemnified Parties will promptly notify the Company of the commencement of any litigation or proceedings against them in connection with the issuance or sale of the Fund Shares or the Contracts or the operation of the Fund. 8.2 INDEMNIFICATION BY THE UNDERWRITER 8.2(a) The Underwriter agrees to indemnify and hold harmless the Company and each of its directors and officers and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act (collectively, the " Indemnified Parties" for purposes of this Section 8.2) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Underwriter) or litigation (including legal and other expenses) to which the Indemnified Parties may become subject under any statute, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements are related to the sale or acquisition of the Fund's shares or the Contracts and; (i) arise out of or are used based upon an untrue statements or alleged untrue statements of any material fact contained in the Registration Statement or prospectus or sales literature of the Fund (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Underwriter or Fund by or on behalf of the Company for use in the Registration Statement or prospectus for the Fund or in sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Fund shares; or (ii) arise out of or as a result of statements or representations (other than statements or representations contained in the Registration Statement, prospectus or sales literature for the Contracts not supplied by the Underwriter or persons under its control) or wrongful conduct of the Fund, Adviser or Underwriter or persons under their control, with respect to the sale or distribution of the Contracts or Fund Shares; or -13- (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement, prospectus, or sales literature covering the Contracts, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement or statements therein not misleading, if such statement or omission was made in reliance upon information furnished to the Company by or on behalf of the Fund; or (iv) arise as a result of any failure by the Fund to provide the services and furnish the materials under the terms of this Agreement (including a failure, whether unintentional or in good faith or otherwise, to comply with the diversification requirements specified in Article VI of this Agreement); or (v) arise out of or result from any material breach of any representation and/or warranty made by the Underwriter in this Agreement or arise out of or result from any other material breach of this Agreement by the Underwriter; as limited by and in accordance with the provisions of Sections 8.2(b) and 8.2(c) hereof. 8.2(b) The Underwriter shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement or to each Company or the Account, whichever is applicable. 8.2(c) The Underwriter shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Underwriter in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Underwriter of any such claim shall not relieve the Underwriter from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, the Underwriter will be entitled to participate, at its own expense, in the defense thereof. The Underwriter also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Underwriter to such party of the Underwriter's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Underwriter will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. -14- 8.2(d) The Company agrees promptly to notify the Underwriter of the commencement of any litigation or proceedings against it or any of its officers or directors in connection with the issuance or sale of the Contracts or the operation of each Account. 8.3 INDEMNIFICATION BY THE FUND 8.3(a) The Fund agrees to indemnify and hold harmless the Company, and each of its directors and officers and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act (collectively, the " Indemnified Parties" for purposes of this Section 8.3) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Fund) or litigation (including legal and other expenses) to which the Indemnified Parties may become subject under any statute, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements result from the gross negligence, bad faith or willful misconduct of the Board or any member thereof, are related to the operations of the Fund and; (i) arise as a result of any failure by the Fund to provide the services and furnish the materials under the terms of this Agreement (including a failure to comply with the diversification requirements specified in Article VI of this Agreement); or (ii) arise out of or result from any material breach of any representation and/or warranty made by the Fund in this Agreement or arise out of or result from any other material breach of this Agreement by the Fund; as limited by and in accordance with the provisions of Sections 8.3(b) and 8.3(c) hereof. 8.3(b) The Fund shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation incurred or assessed against an Indemnified Party as such may arise from such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement or to the Company, the Fund, the Underwriter or each Account, whichever applicable. 8.3(c) The Fund shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Fund in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Fund of any such claim shall not relieve the Fund from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, the Fund will be entitled to participate, at its own expense, in the defense thereof. The Fund also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Fund to such party of the Fund's election -15- to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Fund will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 8.3(d) The Company and the Underwriter agree promptly to notify the Fund of the commencement of any litigation or proceedings against it or any of its respective officers or directors in connection with this Agreement, the issuance or sale of the Contracts, with respect to the operation of either Account, or the sale or acquisition of shares of the Fund. ARTICLE IX. APPLICABLE LAW 9.1 This Agreement shall be construed and the provisions hereof interpreted under and in accordance with the laws of the Commonwealth of Massachusetts. 9.2 This Agreement shall be subject to the provisions of the 1933, 1934 and 1940 acts, and the rules and regulations and rulings thereunder, including such exemptions from those statutes, rules and regulations as the Securities and Exchange Commission may grant (including, but not limited to, the Shared Funding Exemptive Order) and the terms hereof shall be interpreted and construed in accordance therewith. ARTICLE X. TERMINATION 10.1 This Agreement shall continue in full force and effect until the first to occur of: (a) termination by any party for any reason by sixty (60) days advance written notice delivered to the other parties; or (b) termination by the Company by written notice to the Fund and the Underwriter with respect to any Portfolio based upon the Company's determination that shares of such Portfolio are not reasonably available to meet the requirements of the Contracts; or (c) termination by the Company by written notice to the Fund and the Underwriter with respect to any Portfolio in the event any of the Portfolio's shares are not registered, issued or sold in accordance with applicable state and/or federal law or such law precludes the use of such shares as the underlying investment media of the Contracts issued or to be issued by the Company; or (d) termination by the Company by written notice to the Fund and the Underwriter with respect to any Portfolio in the event that such Portfolio ceases to qualify as a Regulated Investment Company under Subchapter M of the Code or under any -16- successor or similar provision, or if the Company reasonably believes that the Fund may fail to so qualify; or (e) termination by the Company by written notice to the Fund and the Underwriter with respect to any Portfolio in the event that such Portfolio fails to meet the diversification requirements specified in Article VI hereof; or (f) termination by either the Fund or the Underwriter by written notice to the Company, if either one or both of the Fund or the Underwriter respectively, shall determine, in their sole judgment exercised in good faith, that the Company and/or its affiliated companies has suffered a material adverse change in its business, operations, financial condition or prospects since the date of this Agreement or is the subject of material adverse publicity; or (g) termination by the Company by written notice to the Fund and the Underwriter, if the Company shall determine, in its sole judgment exercised in good faith, that either the Fund or the Underwriter has suffered a material adverse change in its business, operations, financial condition or prospects since the date of this Agreement or is the subject of material adverse publicity; or (h) termination by the Fund or the Underwriter by written notice to the Company, if the Company gives the Fund and the Underwriter the written notice specified in Section 1.6(b) hereof and at the time such notice was given there was no notice of termination outstanding under any other provision of this Agreement; provided, however, any termination under this Section 10.1(h) shall be effective forty-five (45) days after the notice specified in Section 1.6(b) was given. 10.2 EFFECT OF TERMINATION. Notwithstanding any termination of this Agreement, the Fund and the Underwriter shall at the option of the Company, continue to make available additional shares of the Fund pursuant to the terms and conditions of this Agreement, for all Contracts in effect on the effective date of termination of this Agreement (hereinafter referred to as "Existing Contracts"). Specifically, without limitation, the owners of the Existing Contracts shall be permitted to reallocate investments in the Fund, redeem investments in the Fund and/or invest in the Fund upon the making of additional purchase payments under the Existing Contracts. The parties agree that this Section 10.2 shall not apply to any terminations under Article VII and the effect of such Article VII terminations shall be governed by Article VII of this Agreement. 10.3 The Company shall not redeem Fund shares attributable to the Contracts (as opposed to Fund shares attributable to the Company's assets held in the Account) except (i) as necessary to implement Contract Owner initiated or approved transactions, or (ii) as required by state and/or federal laws or regulations or judicial or other legal precedent of general application (hereinafter referred to as a "Legally Required Redemption"). Upon request, the Company will promptly furnish to the Fund and the Underwriter the option of counsel for the Company (which counsel shall be reasonably satisfactory to the Fund and the Underwriter) to the effect that any redemption pursuant to clause (ii) above is a Legally Required Redemption. Furthermore, except -17- in cases where permitted under the terms of the Contracts, the Company shall not prevent Contract Owners from allocating payments to a Portfolio that was otherwise available under the Contracts without first giving the Fund or the Underwriter 90 days notice of its intention to do so ARTICLE XI. NOTICES Any notice shall be sufficiently given when sent by registered or certified mail to the other party at the address of such party set forth below or at such other address as such party may from time to time specify in writing to the other party. If to the Fund: 82 Devonshire Street Boston, MA 02109 Attention: Treasurer If to the Company: Aetna Life Insurance and Annuity Company 151 Farmington Avenue Conveyor RTA1 Hartford, CT 06156 Attention: Drew Lawton If to the Underwriter: 82 Devonshire Street Boston, MA 02109 Attention: Treasurer ARTICLE XII. MISCELLANEOUS 12.1 All persons dealing with the Fund must look solely to the property of the Fund for the enforcement of any claims against the Fund as neither the Board, officers, agents or shareholders assume any personal liability for obligations entered into on behalf of the Fund. 12.1 Subject to the requirements of legal process and regulatory authority, each party hereto shall treat as confidential the names and addresses of the owners of the Contracts and all information reasonably identified as confidential in writing by any other party hereto and, except as permitted by this Agreement, shall not disclose, disseminate or utilize such names and addresses and other confidential information until such time as it may come into the public domain without the express written consent of the affected party. 12.3 The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. -18- 12.4 This Agreement may be executed simultaneously in two or more counterparts, each of which taken together shall constitute one and the same instrument. 12.5 If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Agreement shall not be affected thereby. 12.6 Each party hereto shall cooperate with each other party and all appropriate governmental authorities (including without limitations the SEC, the NASD and state insurance regulators)j and shall permit such authorities reasonable access to its books and records in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. Notwithstanding the generality of the foregoing, each party hereto further agrees to furnish the California Insurance Commissioner with any information or reports in connection with services provided under this Agreement which such Commissioner may request in order to ascertain whether the insurance operations of the Company are being conducted in a manner consistent with the California Insurance Regulations and any other applicable law or regulations. 12.7 The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations, at law or in equity, which the parties hereto are entitled to under state and federal laws. 12.8 This Agreement or any of the rights and obligations hereunder may not be assigned by any party without the prior written consent of all parties hereto; provided, however, that the Underwriter may assign this Agreement or any rights or obligations hereunder to any affiliate of or company under common control with the Underwriter, if such assignee is duly licensed and registered to perform the obligations of the Underwriter under this Agreement. 12.9 The Company shall furnish, or shall cause to be furnished, to the Fund or its designee copies of the following reports: (a) the Company's annual statement prepared under statutory accounting principles) and annual report (prepared under generally accepted accounting principles ("GAAP")), as soon as practical and in any event within 90 days after the end of each fiscal year; (b) the Company's quarterly statements (statutory and GAAP), as soon as practical and in any event within 45 days after the end of each quarterly period; (c) any financial statement, proxy statement, notice or report of the Company sent to stockholders and/or policyholders, as soon as practical after the delivery thereof to stockholders; -19- (d) any registration statement (without exhibits) and financial reports of the Company filed with the Securities and Exchange Commission or any state insurance regulator, as soon as practical after the filing thereof; (e) any other report submitted to the Company by independent accountants in connection with any annual, interim or special audit made by them of the books of the Company, as soon as practical after the receipt thereof. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed in its name and on its duly authorized representative and its seal to be hereunder affixed hereto as of the date specified below. -20- AETNA LIFE INSURANCE AND ANNUITY COMPANY By its authorized officer, By: /s/ Shaun P. Mathews -------------------- Title: Senior Vice President Date 2/18/96 VARIABLE INSURANCE PRODUCTS FUND By its authorized officer, By: /s/ J. Gary Burkhead -------------------- Title: Senior Vice President Date: 3/2/94 FIDELITY DISTRIBUTORS CORPORATION By its authorized officer, By: /s/ Kurt A. Lange ----------------- Title President Date: 2/28/94 -21- SCHEDULE A SEPARATE ACCOUNTS AND ASSOCIATED CONTRACTS Name of Separate Account and Contracts Funded Date Established by Board of Directors by Separate Account - -------------------------------------- ------------------- Separate Account C IRA-CDA-IC G-TDA-HH(XC/M) G-TDA-HH(XC/S) Separate Account D F.6F-PVA-TR GFA-PVA-IC GF-PVA-IC -22- SCHEDULE B PROXY VOTING PROCEDURE The following is a list of procedures and corresponding responsibilities for the handling of proxies relating to the Fund by the Underwriter, the Fund and the Company. The defined terms herein shall have the meanings assigned in the Participation Agreement except that the term "Company" shall also include the department or third party assigned by the Insurance Company to perform the steps delineated below. 1. The number of proxy proposals is given to the Company by the Underwriter as early as possible before the date set by the Fund for the shareholder meeting to facilitate the establishment of tabulation procedures. At this time the Underwriter will inform the Company of the Record, Mailing and Meeting dates. This will be done verbally approximately two months before meeting. 2. Promptly after the Record Date, the Company will perform a "tape run", or other activity, which will generate the names, addresses and number of units which are attributed to each contractowner/policyholder (the "Customer") as of the Record Date. Allowance should be made for account adjustments made after this date that could affect the status of the Customers' accounts as of the Record Date. Note: The number of proxy statements is determined by the activities described in Step #2. The Company will use its best efforts to call in the number of Customers to Fidelity, as soon as possible, but no later than two weeks after the Record Date. 3. The Fund's Annual Report must be sent to each Customer by the Company either before or together with the Customers' receipt of a proxy statement. Underwriter will provide at least one copy of the last Annual Report to the Company. 4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is provided to the Company by the Fund. The Company, at its expense, shall produce and personalize the Voting Instruction Cards. The Legal Department of the Underwriter or its affiliate ("Fidelity Legal") must approve the Card before it is printed. Allow approximately 2-4 business days for printing information on the Cards. Information commonly found on the Cards includes: a. name (legal name as found on account registration) b. address c. Fund or account number d. coding to state number of units e. individual Card number for use in tracking and verification of votes (already on Cards as printed by the Fund) -23- (This and related steps may occur later in the chronological process due to possible uncertainties relating to the proposals.) 5. During this time, Fidelity Legal will develop, produce, and the Fund will pay for the Notice of Proxy and the Proxy Statement (one document). Printed and folder notices and statements will be sent to Company for insertion into envelopes (envelopes and return envelopes are provided and paid for by the Insurance Company). Contents of envelope sent to Customers by Company will include: a. Voting Instruction Card(s) b. One proxy notice and statement (one document) c. return envelope (postage pre-paid by Company) addressed to the Company or its tabulation agent d. "urge buckslip" - optional, but recommended. (This is a small, single sheet of paper that requests Customers to vote as quickly as possible and that their vote is important. One copy will be supplied by the Fund.) e. cover letter - optional, supplied by Company and reviewed and approved in advance by Fidelity Legal. 6. The above contents should be received by the Company approximately 3-5 business days before mail date. Individual in charge at Company reviews and approves the contents of the mailing package to ensure correctness and completeness. Copy of this approval sent to Fidelity Legal. 7. Package mailed by the Company. * The Fund MUST allow at least a 15-day solicitation time to the Company as the shareowner. (A 5-week period is recommended.) Solicitation time is calculated as calendar days from (but NOT including) the meeting, counting backwards. 8. Collection and tabulation of Cards begins. Tabulation usually takes place in another department or another vendor depending on process used. An often used procedure is to sort Cards on arrival by proposal into vote categories of all yes, no, or mixed replies, and to begin data entry. Note: Postmarks are not generally needed. A need for postmark information would be due to an insurance company's internal procedure and has not been required by Fidelity in the past. 9. Signature on Card checked against legal name on account registration which was printed on the Card. Note: For Example, if the account registration is under "Bertram C. Jones, Trustee," then that is the exact legal name to be printed on the Card and is the signature needed on the Card. -24- 10. If Cards are mutilated, or for any reason are illegible or are not signed properly, they are sent back to Customer with an explanatory letter, a new Card and return envelope. The mutilated or illegible Card is disregarded and considered to be NOT RECEIVED for the purposes of vote tabulation. Any Cards that have "kicked out" (e.g. mutilated, illegible) of the procedure are "hand verified," i.e., examined as to why they did not complete the system. Any questions on those Cards are usually remedied individually. 11. There are various control procedures used to ensure proper tabulation of votes and accuracy of that tabulation. The most prevalent is to sort the Cards as they first arrive into categories depending upon their vote; an estimate of how the vote is progressing may then be calculated. If the initial estimates and the actual vote do not coincide, then an internal audit of that vote should occur. This may entail a recount. 12. The actual tabulation of votes is done in units which is then converted to shares. (It is very important that the Fund receives the tabulations stated in terms of a percentage and the number of SHARES.) Fidelity Legal must review and approve tabulation format. 13. Final tabulation in shares is verbally given by the Company to Fidelity Legal on the morning of the meeting not later than 10:00 a.m. Boston time. Fidelity Legal may request an earlier deadline if required to calculate the vote in time for the meeting. 14. A certification of Mailing and Authorization to Vote Shares will be required from the Company as well as an original copy of the final vote. Fidelity Legal will provide a standard form for each Certification. 15. The Company will be required to box and archive the Cards received from the Customers. In the event that any vote is challenged or if otherwise necessary for legal, regulatory, or accounting purposes, Fidelity Legal will be permitted reasonable access to such Cards. 16. All approvals and "signing-off" may be done orally, but must always be followed up in writing. -25- SCHEDULE C Sponsors of other investment companies currently available under variable annuities or variable life insurance issued by the Company: Twentieth Century Investors Neuberger & Berman Calvert Scudder Franklin Lexington Alger -26- FIFTH AMENDMENT TO PARTICIPATION AGREEMENT THIS FIFTH AMENDMENT TO THE FUND PARTICIPATION AGREEMENT (the "Fifth Amendment") is made and entered into as of the 1st day of March, 1996, by and among AETNA LIFE INSURANCE AND ANNUITY COMPANY (the "Company") a Connecticut corporation, on its own behalf and on behalf of each segregated asset account of the Company (each an "Account") set forth on Schedule A of the Original Agreement (defined below), and the VARIABLE INSURANCE PRODUCTS FUND, an unincorporated business trust organized under the laws of the Commonwealth of Massachusetts (the "Fund") and FIDELITY DISTRIBUTORS CORPORATION (the "Underwriter"), a Massachusetts corporation. WITNESSETH WHEREAS, the Company, the Fund and the Underwriter are parties to a Participation Agreement, dated February 1, 1994, as supplemented by First Amendment to Participation Agreement dated as of February 1, 1995, Amendment No. 2 to Participation Agreement dated as of December 15, 1994, Third Amendment to Participation Agreement dated as of May 1, 1995 and Fourth Amendment to Participation Agreement dated as of January 1, 1996 (the "Original Agreement"); and WHEREAS, the Company, the Fund and the Underwriter now desire to modify the Original Agreement to add additional Contracts funded by Variable Annuity Account C. NOW THEREFORE, in consideration of the premises and the mutual covenants and promises expressed herein, the parties agree as follows: 1. Schedule A of the Original Agreement is hereby deleted and replaced with Schedule A attached hereto, effective as of March 1, 1996; 2. the Original Agreement, as supplemented by this Fifth Amendment, is ratified and confirmed; and 3. this Fifth Amendment may be executed in two or more counterparts, which together shall constitute one instrument. -27- IN WITNESS WHEREOF, the parties have executed this Fifth Amendment as of the date first above written. AETNA LIFE INSURANCE AND ANNUITY COMPANY By: ________________________ Name: Laura R. Estes Title: Senior Vice President VARIABLE INSURANCE PRODUCTS FUND By: ________________________ Name: Title: FIDELITY DISTRIBUTORS CORPORATION By: ________________________ Name: Title: -28- SCHEDULE A NAME OF SEPARATE ACCOUNT POLICY FORM NUMBERS OF CONTRACTS ISSUED THROUGH SEPARATE ACCOUNT Variable Annuity Account B I-CDA-IC(IR/NY) I-CDA-IC(NQ/NY) I-CDA-IC(IR/MP) I-CDA-IC(NQ/MP) G-CDA-IB(IR) G-CDA-IC(IR) G-CDA-IC(NQ) GMCC-IC(NQ) G-CDA-HF I-CDA-IA I-CDA-HI(NQ) G-CDA-ID(DC) G-CDA-GP1(4/94) I-CDA-GP1(4/94) Variable Life Account B 70180-93US 70182-93US 70181-94US 38899 38899-90 38899-93 70225-95 Variable Annuity Account C G-CDA-IB(XC/SM) G-CDA-IA(RPM/XC) G-CDA-IB(AORP) G-CDA-IB(ATORP) G-401-IB(X/M) G-CDA-HF GTCC-HF G-CDA-IA(RP) G-TDA-HH(XC/M) G-TDA-HH(XC/S) GLID-CDA-HO IRA-CDA-IC IP-CDA-IB(WI) IP-CDA-IB(MN) IP-CDA-IB(WA) G-CDA-ID(DC) GIP-CDA-HB I-CDA-HD IA-CDA-IA G-CDA-IB(IR) A001RP95 A007RC95 A020RV95 A027RV95 Separate Account D GF-PVA-IC(NY) GF-PVA-IC(CA) GF-PVA-IC(NJ) GFA-PVA-IC F.6F-PVA-TR Any state variation of the above-referenced contracts are considered included on this Schedule A. Date of Amendment: March 1, 1996 30 EX-8.4 10 EXHIBIT 8.4 PARTICIPATION AGREEMENT AMONG VARIABLE INSURANCE PRODUCTS FUND II, FIDELITY DISTRIBUTORS CORPORATION AND AETNA LIFE INSURANCE AND ANNUITY COMPANY THIS AGREEMENT, made and entered into as of the 1st day of February, 1994 by and among AETNA LIFE INSURANCE AND ANNUITY COMPANY, (hereinafter the "Company"), a Connecticut corporation, on its own behalf and on behalf of each segregated asset account of the Company set forth on Schedule A hereto as may be amended from time to time (each such account hereinafter referred to as the "Account"), and the VARIABLE INSURANCE PRODUCTS FUND II, an unincoporated business trust organized under the laws of the Commonwealth of Massachusetts (hereinafter the "Fund") and FIDELITY DISTRIBUTORS CORPORATION (hereinafter the "Underwriter"), a Massachusetts corporation. WHEREAS, the Fund engages in business as an open-end management investment company and is available to act as the investment vehicle for separate accounts established for variable life insurance policies and variable annuity contracts (collectively, the "Variable Insurance Products") to be offered by insurance companies which have entered into participation agreements with the Fund and the Underwriter (hereinafter "Participating Insurance Companies"); and WHEREAS, the beneficial interest in the Fund is dividend into several series of shares, each designated a "Portfolio" and representing the interest in a particular managed portfolio of securities and other assets; and WHEREAS, the Fund has obtained an order from the Securities and Exchange Commission, dated September 17, 1986 (File No. 812-6422), granting Participating Insurance Companies and variable annuity and variable life insurance separate accounts exemptions from the provisions of sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended, (hereinafter the "1940 Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the Fund to be sold to and held by variable annuity and variable life insurance separate accounts of both affiliated and unaffiliated life insurance companies (hereinafter the "Shared Funding Exemptive Order"); and WHEREAS, the Fund is registered as an open-end management investment company under the 1940 Act and its shares are registered under the Securities Act of 1933, as amended (hereinafter the "1933 Act"); and FIDELITY VIP I 5TH AMDT. 03/06/96 8:31 PM WHEREAS, Fidelity Management & Research Company (the "Adviser") is duly registered as an investment adviser under the federal Investment Advisers Act of 1940 and any applicable state securities law; and WHEREAS, the Company has registered or will register certain variable life insurance, funding agreements and variable annuity contracts under the 1933 Act; and WHEREAS, each Account is a duly organized, validly existing segregated asset account, established by resolution of the Board of Directors of the Company, on the date shown for such Account on Schedule A hereto, to set aside and invest assets attributable to the aforesaid variable annuity contracts; and WHEREAS, the Company has registered or will register each Account as a unit investment trust under the 1940 Act; and WHEREAS, the Underwriter is registered as a broker dealer with the Securities and Exchange Commission ("SEC") under the Securities Exchange Act of 1934, as amended, (hereinafter the "1934 Act"), and is a member in good standing of the National Association of Securities Dealers, Inc. (hereinafter "NASD"); and WHEREAS, to the extent permitted by applicable insurance laws and regulations, the Company intends to purchase shares in the Portfolios on behalf of each Account to fund certain of the aforesaid variable life and variable annuity contracts and the Underwriter is authorized to sell such shares to unit investment trusts such as each Account as net asset value; NOW, THEREFORE, in consideration of their mutual promises, the Company, the Fund and the Underwriter agree as follows: ARTICLE I. SALE OF FUND SHARES 1.1. The Underwriter agrees to sell to the Company those shares of the Fund which each Account orders, executing such orders on a daily basis at the net asset value next computed after receipt by the Fund or its designee of the order for the shares of the Fund. For purposes of this Section 1.1, the Company shall be the designee of the Fund for receipt of such orders from each Account and receipt by such designee shall constitute receipt by the Fund; provided that the Fund receives notice of such order by 9:00 a.m. Boston time on the next following Business Day. "Business Day" shall mean any day on which the New York Stock Exchange is open for trading and on which the Fund calculates its net asset value pursuant to the rules of the Securities and Exchange Commission. 1.2. The Fund agrees to make its shares available indefinitely for purchase at the applicable net asset value per share by the Company and its Accounts on those days on which the Fund calculates its net asset value pursuant to rules of the Securities and Exchange Commission and the Fund shall use reasonable efforts to calculate such net asset value on each day which the -2- New York Stock Exchange is open for trading. Notwithstanding the foregoing, the Board of Trustees of the Fund (hereinafter the "Board") may refuse to sell shares of any Portfolio to any person, or suspend or terminate the offering of shares of any Portfolio if such action is required by law or by regulatory authorities having jurisdiction or is, in the sole discretion of the Board acting in good faith and in light of their fiduciary duties under federal and any applicable state laws, necessary in the best interests of the shareholders of such Portfolio. 1.3. The Fund and the Underwriter agree that shares of the Fund will be sold only to Participating Insurance Companies and their separate accounts. No shares of any Portfolio will be sold to the general public. 1.4. The Fund and the Underwriter will not sell Fund shares to any insurance company or separate account unless an agreement containing provisions substantially the same as Articles I, III, V, VII and Section 2.5 of Article II of this Agreement is in effect to govern such sales. 1.5. The Fund agrees to redeem for cash, on the Company's request, any full or fractional shares of the Fund held by the Company, executing such requests on a daily basis at the net asset value next computed after receipt by the Fund or its designee of the request for redemption. For purposes of this Section 1.5, the Company shall be the designee of the Fund for receipt of requests for redemption from each Account and receipt by such designee shall constitute receipt by the Fund; provided that the Fund receives notice of such request for redemption on the next following Business Day. 1.6. The Company agrees to purchase and redeem the shares of each Portfolio offered by the then current prospectus of the Fund and in accordance with the provisions of such prospectus. The Company agrees that all net amounts available under the variable annuity contracts with the form number(s) which are listed on Schedule A attached hereto and incorporated herein by this reference, as such Schedule A may be amended from time to time hereafter by mutual written agreement of all the parties hereto, (the "Contracts") shall be invested in the Fund, in such other Funds advised by the Adviser as may be mutually agreed to in writing by the parties hereto, or in the Company's general account, provided that such amounts may also be invested in an investment company other than the Fund if (a) such other investment company, or series thereof, has investment objectives or policies that are substantially different from the investment objectives and policies of all the Portfolios of the fund; or (b) the Company give the Fund the Underwriter 45 days written notice of its intention to make such other investment company available as a funding vehicle for the Contacts; or (c) such other investment company was available as a funding vehicle for the Contracts prior to the date of this Agreement and the Company so informs the Fund and Underwriter prior to their signing this Agreement (a list of such funds appearing on Schedule C to this Agreement); or (d) the Fund or Underwriter consents to the use of such other investment company. 1.7. The Company shall pay for Fund shares on the next Business Day after an order to purchase Fund shares is made in accordance with the provisions of Section 1.1 hereof. Payment shall be in federal funds transmitted by wire. For purpose of Section 2.10 and 2.11, upon receipt -3- by the Fund of the federal funds so wired, such funds shall cease to be the responsibility of the Company and shall become the responsibility of the Fund. 1.8. Issuance and transfer of the Fund's shares will be by book entry only. Stock certificates will not be issued to the Company or any Account. Shares ordered from the Fund will be recorded in an appropriate title for each Account or the appropriate subaccount of each Account. 1.9. The Fund shall furnish same day notice (by wire or telephone, followed by written confirmation) to the Company of any income, dividends or capital gains distributions payable on the Fund's shares. The Company hereby elects to receive all such income dividends and capital gain distributions as are payable on the Portfolio shares in additional shares of that Portfolio. The Company reserves the right to revoke this election and to receive all such income dividends and capital gain distribution in cash. The Fund shall notify the Company of the number of shares so issued as payment of such dividends and distributions. 1.10. The Fund shall make the net asset value per share for each Portfolio available to the Company on a daily basis as soon as reasonably practical after the net asset value per share is calculated and shall use its best efforts to make such net asset value per share available by 7 p.m. Boston time. ARTICLE II. REPRESENTATIONS AND WARRANTIES 2.1. The Company represents and warrants that the Contracts are or will be registered under the 1933 Act or are exempt from registration thereunder; that the Contracts will be issued and sold in compliance in all material respects with all applicable Federal and State laws and that the sale of the Contracts shall comply in all material respects with state insurance suitability requirements. The Company further represents and warrants that it is an insurance company duly organized and in good standing under applicable law and that it has legally and validly established each Account prior to any issuance or sale thereof as a segregated asset account under Section 38a-433 of the Connecticut Insurance Code and has registered or, prior to any issuance or sale of the Contracts, will register each Account as a unit investment trust in accordance with the provisions of the 1940 Act to serve as a segregated investment account for the Contracts. 2.2. The Fund represents and warrants that Fund shares sold pursuant to this Agreement shall be registered under the 1933 Act, duly authorized for issuance and sole in compliance with the laws of the State of Connecticut and all applicable federal and state securities laws and that the Fund is and shall remain registered under the 1940 Act. The Fund shall amend the Registration Statement for its share under the 1933 Act and the 1940 Act from time to time as required in order to effect the continuous offering of its shares. The Fund shall register and qualify the shares for sale in accordance with the laws of the various states only if and to the extent deemed advisable by the Fund or the Underwriter. -4- 2.3. The Fund represents that it is currently qualified as a Regulated Investment Company under Subchapter M of the Internal Revenue Code of 1986, as amended, (the "Code") and that it will make every effort to maintain such qualification (under Subchapter M or any successor or similar provision) and that it will notify the Company immediately upon having a reasonable basis for believing that it has ceased to so qualify or that it might not so qualify in the future. 2.4. The Company represents that the Contracts are currently treated as endowment or annuity insurance contracts, under applicable provisions of the Code and that it will make every effort to maintain such treatment and that it will notify the Fund and the Underwriter immediately upon having a reasonable basis for believing that the Contracts have ceased to be so treated or that they might not be so treated in the future. 2.5. The Fund currently does not intend to make any payments to finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise, although it may make such payments in the future. The fund as adopted a "no fee" or "defensive" Rule 12b-1 Plan under which it makes no payments for distribution expenses. To the extent that it decides to finance distribution expenses pursuant to Rule 12b-1, the fund undertakes to have a board of trustees, a majority of whom are no interested persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance distribution expenses. 2.6. The Fund makes no representation as to whether any aspect of its operations (including, but not limited to, fees and expenses and investment policies) complies with the insurance laws or regulations of the various states except that the Fund represents that the Fund's investment policies, fees and expenses are and shall at all times remain in compliance with the laws of the State of Connecticut and the Fund and the Underwriter represent that their respective operations are and shall at all times remain in material compliance with the laws of the State of Connecticut to the extent required to perform this Agreement. 2.7. The Underwriter represents and warrants that it is a member in good standing of the NASD and is registered as a broker-dealer with the SEC. The Underwriter further represents that it will sell and distribute the Fund shares in accordance with the laws of the State of Connecticut and all applicable state and federal securities laws, including without limitation the 1933 Act, the 1934 Act, and the 1940 Act. 2.8. The Fund represents that it is lawfully organized and validly existing under the laws of the Commonwealth of Massachusetts and that it does and will comply in all material respects with the 1940 Act. 2.9. The Underwriter represents and warrants that the Adviser is and shall remain duly registered in all material respects under all applicable federal and state securities laws and that the Adviser shall perform its obligations for the Fund in compliance in all material respects with the laws of the State of Connecticut and any applicable state and federal securities laws. -5- 2.10. The Fund and Underwriter represent and warrant that all of their directors, officers, employees, investment advisers, and other individuals/entities dealing with the money and/or securities of the Fund are and shall continue to be at all times covered by a blanket fidelity bond or similar coverage for the benefit of the Fund in an amount not less than the minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or related provisions as may be promulgated from time to time. The aforesaid Bond shall include coverage for larceny and embezzlement and shall be issued by a reputable bonding company. 2.11. The Company represents and warrants that all of its directors, officers, employees, investment advisers, and other individuals/entities dealing with the money and/or securities of the Fund are covered by a blanket fidelity bond or similar coverage for the benefit of the Fund, in an amount not less than $2 million. The foresaid includes coverage for larceny and embezzlement is issued by a reputable bonding company. The Company agrees to make all reasonable efforts to see that this bond or another bond containing these provisions is always in effect, and agrees to notify the Fund and the Underwriter in the event that such coverage no longer applies. ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING 3.1. The Underwriter shall provide the Company (at the Company's expense) with as many copies of the Fund's current prospectus as the Company may reasonably request. If requested by the Company in lieu thereof, the Fund shall provide such documentation (including a final copy of the new prospectus as set in type at the Fund's expense) and other assistance as is reasonably necessary in order for the Company once each year (or more frequently if the prospectus for the Fund is amended) to have the prospectus for the Contracts and the Fund's prospectus printed together in one document (such printing to be at the Company's expense). 3.2. The Fund's prospectus shall state that the Statement of Additional Information for the Fund is available from the Underwriter (or in the Fund's discretion, the Prospectus shall state that such Statement is available from the Fund), and the Underwriter (or the Fund), at its expense, shall print and provide such Statement free of charge to the Company and to any owner of a Contract or prospectus owner who requests such Statement. 3.3. The Fund, at its expense, shall provide the Company with copies of its proxy material, reports to shareholders, and other communications to shareholders in such quantity as the Company shall reasonably require for distributing to Contract owners. 3.4. If an to the extent required by law the Company shall: (i) solicit voting instructions from Contract owners; (ii) vote the Fund shares in accordance with instructions received from Contract owners; and -6- (iii) vote Fund shares for which no instructions have been received in the same proportion as Fund shares of such portfolio for which instructions have been received, so long as and to the extent that the Securities and Exchange Commission continues to interpret the 1940 Act to require pass-through voting privileges for variable contract owners. The Company reserves the right to vote Fund shares held in any segregated asset account in its own right, to the extent permitted by law. Participating Insurance Companies shall be responsible for assuring that each of their separate account participating in the Fund calculates voting privileges in a manner consistent with the standards set forth on Schedule B attached hereto and incorporated herein by this reference, which standards will also be provided to the other Participating Insurance Companies. 3.5. The Fund will comply with all provision of the 1940 Act requiring voting by shareholders, and in particular the Fund will either provide for annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund is not one of the trusts described in Section 16(c) of that Act) as well as with Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in accordance with the Securities and Exchange Commission's interpretation of the requirements of Section 16(a) with respect to periodic elections of trustees and with whatever rules the Commission may promulgate with respect thereto. ARTICLE IV. SALES MATERIAL AND INFORMATION 4.1. The Company shall furnish, or shall cause to be furnished, to the Fund or its designee, each piece of sales literature or other promotional material in which the Fund or its investment adviser or the Underwriter is named, at least fifteen Business Days prior to its use. No such material shall be used if the Fund or its designee reasonably objects to such use within fifteen Business Days after receipt of such material. 4.2. The Company shall not give any information or make any representations or statements on behalf of the Fund or concerning the Fund in connection with the sale of the Contracts other than the information or representations contained in the registration statement or prospectus for the Fund shares, as such registration statement and prospectus may be amended or supplemented form time to time, or in reports or proxy statements for the Fund, or in sales literature or other promotional material approved by the Fund or its designee or by the Underwriter, except with the permission of the Fund or the Underwriter or the designee of either. 4.3. The Fund, Underwriter, or its designee shall furnish, or shall cause to be furnished, to the Company or its designee, each piece of sales literature or other promotional material in which the Company and/or its separate account(s), is named at least fifteen Business Days prior to its use. No such material shall be used if the Company or its designee reasonably objects to such use within fifteen Business Days after receipt of such material. -7- 4.4. The Fund and the Underwriter shall not give any information or make any representations on behalf of the Company or concerning the Company, each Account, or the Contracts other than the information or representations contained in a registration statement or prospectus for the Contracts, as such registration statement and prospectus may be amended or supplemented from time to time, or in published reports for each Account which are in the public domain or approved by the Company for distribution to Contract owners, or in sales literature or other promotional material approved by the Company or its designee, except with the permission of the Company. 4.5. The Fund will provide to the Company at least one complete copy of all registration statements, prospectuses, Statements of Additional Information, reports, proxy statements, sales literature and other promotional materials, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to the Fund or its shares, contemporaneously with the filing of such document with the Securities and Exchange Commission or other regulatory authorities. 4.6. The Company will provide to the Fund at least one complete copy of all registration statements, prospectuses, Statements of Additional Information, reports, solicitations for voting instructions, sales literature and other promotional materials, applications for exemptions, requests for no action letters, and all amendments to any of the above, that relate to the Contracts or each Account, contemporaneously with the filing of such document with the SEC or other regulatory authorities. 4.7. For purposes of this Article IV, the phrase "sales literature or other promotional material" includes, but is not limited to, advertisements (such as material published, or designed for use in, a newspaper, magazine, or other periodical, radio, television, telephone or tape recording., videotape display, signs or billboards, motion pictures, or other public media), sales literature (i.e., any written communication distributed or made generally available to customers or the public, including brochures, circulars, research reports, market letters, form letters, seminar texts, reprints or excerpts of any other advertisement, sales literature, or published article), educational or training materials or other communications distributed or made generally available to some or all agents or employees, and registration statements, prospectuses, Statements of Additional Information, shareholder reports, and proxy materials. ARTICLE V. FEES AND EXPENSES 5.1. The Fund and Underwriter shall pay no fee or other compensation to the Company under this agreement, except that if the Fund or any Portfolio adopts and implements a plan pursuant to Rule 12b-1 to finance distribution expenses, then the Underwriter may make payments to the Company or to the underwriter for the Contracts if and in amounts agreed to by the Underwriter in writing and such payments will be made out of existing fees otherwise payable to the Underwriter, past profits of the underwriter or other resources available to the Underwriter. No such payments shall be made directly by the Fund. Currently, no such payments are contemplated. -8- 5.2. All expenses incident to performance by the Fund under this Agreement shall be paid by the Fund. The Fund shall see to it that all its shares are registered and authorized for issuance in accordance with applicable federal law and, if and to the extent deemed advisable by the Fund, in accordance with applicable state laws prior to their sales. The Fund shall bear the expenses for the cost of registration and qualification of the Fund's shares, preparation and filing of the Fund's prospectus and registration statement, proxy materials and reports, setting the prospectus in type, setting in type and printing the proxy materials and reports to shareholders (including the costs of printing a prospectus that constitutes an annual reports), the preparation of all statements and notices required by any federal or state law, all taxes on the issuance or transfer of the Fund's shares. 5.3. The Company shall bear the expenses of printing and distributing the Fund's prospectus to owners of Contracts issued by the Company and of distributing the Fund's proxy materials and reports to such Contract owners. ARTICLE VI. DIVERSIFICATION 6.1. The Fund will at all times invest money from the Contracts in such a matter as to ensure that the Contracts will be treated as variable contracts under the Code and the regulations issued thereunder. Without limiting the scope of the foregoing, the Fund will at all times comply with Section 817(h) of the Code and Treasury Regulation 1.817-5, relating to the diversification requirements for variable annuity, endowment, or life insurance contracts and any amendments or other modifications to such Section or Regulations. In the event of a breach of this Article VI by the Fund, it will take all reasonable steps (a) to notify Company of such breach and (b) to adequately diversify the Fund so as to achieve compliance with the grace period afforded by Regulation 817-5. ARTICLE VII. POTENTIAL CONFLICTS 7.1. The Board will monitor the Fund for the existence of any material irreconcilable conflict between the interests of the contract owners of all separate accounts investing in the Fund. An irreconcilable material conflict may arise for a variety of reasons, including: (a) an action by any state insurance regulatory authority; (b) a change in applicable federal or state insurance, tax, or securities laws or regulations, or a public ruling, private letter ruling, no-action or interpretative letter, or any similar action by insurance, tax, or securities regulatory authorities; (c) an administrative or judicial decision in any relevant proceeding; (d) the manner in which the investments of any Portfolio are being managed; (e) a difference in voting instructions given by variable annuity contract and variable life insurance contract owners; or (f) a decision by an insurer to disregard the voting instructions of contract owners. The Board shall promptly inform the Company if it determines that an irreconcilable material conflict exists and the implications thereof. -9- 7.2. The Company will report any potential or existing conflicts of which it is aware to the Board. The Company will assist the Board in carrying out its responsibilities under the Shared Funding Exemptive Order, by providing the Board with all information reasonably necessary for the Board to consider any issues raised. This includes, but is not limited to, an obligation by the Company to inform the Board whenever contract owner voting instructions are disregarded. 7.3. If its is determined by a majority of the Board, or a majority of its disinterested trustees, that a material irreconcilable conflict exists, the Company and other Participating Insurance Companies shall, at their expense and to the extent reasonably practicable (as determined by a majority of the disinterested trustees), take whatever steps are necessary to remedy or eliminate the irreconcilable material conflict, up to and including: (1), withdrawing the assets allocable to some or all of the separate accounts from the Fund or any Portfolio and reinvesting such assets in a different investment medium, including (but not limited to) another Portfolio of the Fund, or submitting the question whether such segregation should be implemented to a vote of all affected Contract owners and, as appropriate, segregating the assets of any appropriate group (i.e., annuity contract owners, life insurance contract owners, or variable contract owners of one or more Participating Insurance Companies) that votes in favor of such segregation, or offering to the affected contract owners the option of making such a change; and (2), establishing a new registered management investment company or managed separate account. 7.4. If a material irreconcilable conflict arises because of a decision by the Company to disregard contract owner voting instructions and that decision represents a minority position or would preclude a majority vote, the Company may be required, at the Fund's election, to withdraw the affected Account's investment in the Fund and terminate this Agreement with respect to such Account; provided, however that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the disinterested members of the Board. Any such withdrawal and termination must take place within six (6) months after the Fund give written notice that this provision is being implemented, and until the end of that six month period the Underwriter and Fund shall continue to accept and implement orders by the Company for the purchase (and redemption) of shares of the Fund. 7.5. If a material irreconcilable conflict arises because a particular state insurance regulator's decision applicable to the Company conflicts with the majority of other state regulators, then the Company will withdraw the affected Account's investment in the Fund and terminate this Agreement with respect to such Account within six months after the Board informs the Company in writing that it has determined that such decision has created an irreconcilable material conflict: provided, however, that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the disinterested members of the Board. Until the end of the foregoing six month period, the Underwriter and Fund shall continue to accept and implement orders by the Company for the purchase (and redemption) of shares for the Fund. 7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a majority of the disinterested members of the Board shall determine whether any proposed action adequately -10- remedies any irreconcilable material conflict, but in no event will the Fund be required to establish a new funding medium for the Contracts. The Company shall not be required by Section 7.3 to establish a new funding medium for the Contract if an offer to do so has been declined by vote of a majority of Contract owners materially adversely affected by the irreconcilable material conflict. In the event that the Board determines that any proposed action does not adequately remedy any irreconcilable material conflict, then the Company will withdraw the Account's investment in the fund and terminate this Agreement within six (6) months after the Board informs the Company in writing of the foregoing determination, provided, however, that such withdrawal and termination shall be limited to the extent required by any such material irreconcilable conflict as determined by a majority of the disinterested members of the Board. 7.7. If an to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or rule 6e-3 is adopted, to provide exemptive relief from any provision of the Act or the rules promulgated thereunder with respect to mixed or shared funding (as defined in the Shared Funding Exemptive Order) on terms and conditions materially different from those contained in the Shared Funding Exemptive Order, then (a) the Fund and/or the Participating Insurance Companies, as appropriate, shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4 and 7.5 of this Agreement shall continue in effect only to the extent that terms and conditions substantially identical to such Sections are contained in such Rule(s) as so amended or adopted. ARTICLE VIII. INDEMNIFICATION 8.1. INDEMNIFICATIOn BY THE COMPANY 8.1(a). The Company agrees to indemnify and hold harmless the Fund and each trustee of the Board and officers and each person, if any, who controls the Fund within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 8.1) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Company) or litigation (including legal and other expense), to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements are related to the sale or acquisition of the Fund's shares or the Contracts and: (i) arise out of or are based upon any untrue statements or alleged untrue statements of any material fact contained in the Registration Statement or prospectus for the Contracts or contained in the Contracts or sales literature for the Contracts (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or -11- omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Company by or on behalf of the Fund for use in the Registration Statement or prospectus for the Contracts or in the Contracts or sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Fund shares; or (ii) arise out of or as a result of statements or representations (other than statements or representations contained in the Registration Statement, prospectus or sales literature of the fund not supplied by the Company, or persons under its control) or wrongful conduct of the Company or persons under its control, with respect to the sale or distribution of the Contracts or Fund Shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement, prospectus, or sales literature of the Fund or any amendment thereof or supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such a statement or omission was made in reliance upon information furnished to the Fund by or on behalf of the Company; or (iv) arise as a result of any failure by the Company to provide the services and furnish the materials under the terms of this Agreement; or (v) arise out of or result from any material breach of any representation and/or warranty made by the Company in this Agreement or arise out of or result from any other material breach of this Agreement by the Company, as limited by and in accordance with the provisions of Section 8.1(b) and 8.1(c) hereof. 8.1(b). The Company shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation incurred or assessed against an Indemnified Party as such may arise from such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations or duties under this Agreement or to the Fund, whichever is applicable. 8.1(c). The Company shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Company in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Company of any such claim shall not relieve the Company from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought -12- against the Indemnified Parties, the Company shall be entitled to participate, at its own expense, in the defense of such action. The Company also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Company to such party of the Company's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Company will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 8.1(d). The Indemnified Parties will promptly notify the Company of the commencement of any litigation or proceedings against them in connection with the issuance or sale of the Fund Shares or the Contracts or the operation of the Fund. 8.2. INDEMNIFICATION BY THE UNDERWRITER 8.2(a). The Underwriter agrees to indemnify and hold harmless the Company and each of its directors and officers and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 8.2) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Underwriter) or litigation (including legal and other expenses) to which the Indemnified Parties may become subject under any statue, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements are related to the sale or acquisition of the Fund's shares or the Contracts and: (i) arise out of or are based upon untrue statement or alleged untrue statement of any material fact contained in the Registration Statement or prospectus or sales literature of the Fund (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Underwriter or Fund by or on behalf of the Company for use in the Registration Statement or prospectus for the Fund or in sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Fund shares; or (ii) arise out of or as a result of statements or representations (other than statements ore representations contained in the Registration Statement, prospectus or sales literature for the Contracts not supplied by the Underwriter or persons under its control) or wrongful conduct of the Fund. Adviser or Underwriter or persons under their control, with respect to the sale or distribution of the Contracts or Fund shares; or -13- (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement, prospectus, or sales literature covering the Contracts, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement or statements therein not misleading, if such statement or omission was made in reliance upon information furnished to the Company by or on behalf of the Fund; or (iv) arise as a result of any failure by the Fund to provide the services and furnish the materials under the terms of this Agreement (including a failure, whether unintentional or in good faith or otherwise, to comply with the diversification requirements specified in Article VI of this Agreement); or (v) arise out of or result from any material breach of any representation and/or warranty made by the Underwriter in this Agreement or arise out of or result from any other material breach of this Agreement by the Underwriter; as limited by and in accordance with the provisions of Sections 8.2(b) and 8.2(c) hereof. 8.2(b). The Underwriter shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement or to each Company or the Account, whichever is applicable. 8.2(c). The Underwriter shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Underwriter in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Underwriter of any such claim shall not relieve the Underwriter from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, the Underwriter will be entitled to participate, at its own expense, in the defense thereof. The Underwriter also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Underwriter to such party of the Underwriter's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Underwriter will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. -14- 8.2(d). The Company agrees promptly to notify the Underwriter of the commencement of any litigation or proceedings against it or any of its officers or directors in connection with the issuance or sale of the Contracts or the operation of each Account. 8.3. INDEMNIFICATION BY THE FUND 8.3(a). The Fund agrees to indemnify and hold harmless the Company, and each of its directors and officers and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 8.3) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Fund) or litigation (including legal and other expenses) to which the Indemnified Parties may become subject under any statue, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements results from the gross negligence, bad faith or willful misconduct of the Board or any member thereof, are related to the operations of the Fund and: (i) arise as a result of any failure by the Fund to provide the services and furnish the materials under the terms of this Agreement (including a failure to comply with the diversification requirements specified in Article VI of this Agreement); or (ii) arise out of or result from any material breach of any representation and/or warranty made by the Fund in this Agreement or arise out of or result from any other material breach of this Agreement by the Fund; as limited by and in accordance with the provisions of Sections 8.3(b) and 8.3(c) hereof. 8.3(b). The Fund shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation incurred or assessed against an Indemnified Party as such may arise from such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement or to the Company, the Fund, the Underwriter or each Account, whichever is applicable. 8.3(c). The Fund shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Fund in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Fund of any such claim shall not relieve the Fund from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, the Fund will be entitled to participate, at its own expense, in the defense thereof. The Fund also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Fund to such party of the Fund's election -15- to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Fund will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 8.3(d). The Company and the Underwriter agree promptly to notify the Fund of the commencement of any litigation or proceedings against it or any of its respective officer or directors in connection with this Agreement, the issuance or sale of the Contracts, with respect to the operation of either Account, or the sale or acquisition of shares of the Fund. ARTICLE IX. APPLICABLE LAW 9.1. This Agreement shall be construed and the provisions hereof interpreted under and in accordance with the laws of the Commonwealth of Massachusetts. 9.2. This Agreement shall be subject to the provisions of the 1933, 1934 and 1940 acts, and the rules and regulations and rulings thereunder, including such exemptions from those statutes, rules and regulations as the Securities and Exchange Commission may grant (including, but not limited to, the Shared Funding Exemptive Order) and the terms hereof shall be interpreted and construed in accordance therewith. ARTICLE X. TERMINATION 10.1. This Agreement shall continue in full force and effect until the first to occur of: (a) termination by any party for any reason by sixty (60) days advance written notice delivered to the other parties; or (b) termination by the Company by written notice to the Fund and the Underwriter with respect to any Portfolio based upon the Company's determination that shares of such Portfolio are not reasonably available to meet the requirements of the Contracts; or (c) termination by the Company by written notice to the Fund and the Underwriter with respect to any Portfolio in the event any of the Portfolio's shares are not registered, issued or sold in accordance with applicable state and/or federal law or such law precludes the use of such shares as the underlying investment media of the Contracts issued or to be issued by the Company; or (d) termination by the Company by written notice to the Fund and the Underwriter with respect to any Portfolio in the event that such Portfolio ceases to qualify as a Regulated Investment Company under Subchapter M -16- of the Code or under any successor or similar provision, or if the Company reasonably believes that the Fund may fail to so qualify; or (e) termination by the Company by written notice to the Fund and the Underwriter with respect to any Portfolio in the event that such Portfolio fails to meet the diversification requirements specified in Article VI hereof; or (f) termination by either the Fund or the Underwriter by written notice to the Company, if either one or both of the Fund or the Underwriter respectively, shall determine, in their sole judgment exercised in good faith, that the Company and/or its affiliated companies has suffered a material adverse charge in its business, operations, financial condition or prospects since the date of this Agreement or is the subject of material adverse publicity; or (g) termination by the Company by written notice to the Fund and the Underwriter, if the Company shall determine, in its sole judgment exercised in good faith, that either the Fund or the Underwriter has suffered a material adverse change in its business, operations, financial condition or prospects since the date of this Agreement or is the subject of material adverse publicity; or (h) termination by the Fund or the Underwriter by written notice to the Company, if the Company gives the Fund and the Underwriter the written notice specified in Section 1.6(b) hereof and at the time such notice was given there was no notice of termination outstanding under any other provision of this Agreement; provided, however any termination under this Section 10.1(h) shall be effective forty-five (45) days after the notice specified in Section 1.6(b) was given. 10.2. EFFECT OF TERMINATION. Notwithstanding any termination of this Agreement, the Fund and the Underwriter shall at the option of the Company, continue to make available additional shares of the Fund pursuant to the terms and conditions of this Agreement, for all Contracts in effect on the effective date of termination of this Agreement (hereinafter referred to as "Existing Contract"). Specifically, without limitation, the owners of the Existing Contracts shall be permitted to reallocate investments in the Fund, redeem investments in the Fund and/or invest in the Fund upon the making of additional purchase payments under the Existing Contracts. The parties agree that this Section 10.2 shall not apply to any terminations under Article VII and the effect of such Article VII terminations shall be governed by Article VII of this Agreement. 10.3 The Company shall not redeem Fund shares attributable to the Contracts (as opposed to Fund shares attributable to the Company's assets held in the Account) except (i) as necessary to implement Contract Owner initiated or approved transactions, or (ii) as required by state and/or federal laws or regulations or judicial or other legal precedent of general application (hereinafter referred to as a "Legally Required Redemption"). Upon request, the Company will promptly furnish to the Fund and the Underwriter the opinion of counsel for the Company (which -17- counsel shall be reasonably satisfactory to the Fund and the Underwriter) to the effect that any redemption pursuant to clause (ii) above is a Legally Required Redemption. Furthermore, except in cases where permitted under the terms of the Contracts, the Company shall not prevent Contract Owners from allocating payments to a Portfolio that was otherwise available under the Contracts without first giving the Fund or the Underwriter 90 days notice of its intention to do so. ARTICLE XI. NOTICES Any notice shall be sufficiently given when sent by registered or certified mail to the other party at the address of such party set forth below or at such other address as such party may from time to time specify in writing to the other party. If to the Fund: 82 Devonshire Street Boston, Massachusetts 02109 Attention: Treasurer If to the Company: Aetna Life Insurance and Annuity Company 151 Farmington Avenue Conveyor RTAI Hartford, CT 06156 Attention: Drew Lawton If to the Underwriter: 82 Devonshire Street Boston, Massachusetts 02109 Attention: Treasurer ARTICLE XII. MISCELLANEOUS 12.1. All persons dealing with the Fund must look solely to the property of the Fund for the enforcement of any claims against the Fund as neither the Board, officers, agents or shareholders assume any personal liability for obligations entered into on behalf of the Fund. 12.2. Subject to the requirements of legal process and regulatory authority, each party hereto shall treat as confidential the names and addresses of the owners of the Contracts and all information reasonably identified as confidential in writing by any other party hereto and except as permitted by this Agreement, shall not disclose, disseminate or utilize such names and addresses and other confidential information until such time as it may come into the public domain without the express written consent of the affected party. -18- 12.3. The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. 12.4. This Agreement may be executed simultaneously in two or more counterparts, each of which taken together shall constitute one and the same instrument. 12.5. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Agreement shall not be affected thereby. 12.6. Each party hereto shall cooperate with each other party and all appropriate governmental authorities (including without limitation the SEC, the NASD and state insurance regulators) and shall permit such authorities reasonable access to its books and records in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. Notwithstanding the generality of the foregoing, each party hereto further agrees to furnish the California Insurance Commissioner with any information or reports in connection with services provided under this Agreement which such Commissioner may request in order to ascertain whether the insurance operations of the Company are being conducted in a manner consistent with the California Insurance Regulations and any other applicable law or regulations. 12.7. The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations, at law or in equity, which the parties hereto are entitled to under state and federal laws. 12.8. This Agreement or any of the rights and obligations hereunder may not be assigned by any party without the prior written consent of all parties hereto; provided, however, that the Underwriter may assign this Agreement or any rights or obligations hereunder to any affiliate of or company under common control with the Underwriter, if such assignee is duly licensed and registered to perform the obligations of the Underwriter under this Agreement. 12.9. The Company shall furnish, or shall cause to be furnished, to the fund or its designee copies of the following reports: (a) the Company's annual statement (prepared under statutory accounting principles) and annual report (prepared under generally accepted accounting principles ("GAAP")), as soon as practical and in any event within 90 days after the end of each fiscal year; (b) the Company's quarterly statements (statutory and GAAP), as soon as practical and in any event within 45 days after the end of each quarterly period; -19- (c) any financial statement, proxy statement, notice of report of the Company sent to stockholders and/or policyholders, as soon as practical after the delivery thereof to stockholders; (d) any registration statement (without exhibits) and financial reports of the Company filed with the Securities and Exchange Commission or any state insurance regulator, as soon as practical after the filing thereof; (e) any other report submitted to the Company by independent accountants in connection with any annual, interim or special audit made by them of the books of the Company, as soon as practical after the receipt thereof. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed in its name and on its behalf by its duly authorized representative and its seal to be hereunder affixed hereto as of the date specified below. -20- AETNA LIFE INSURANCE AND ANNUITY COMPANY By its authorized officer, By: /s/ Shaun P. Mathews -------------------- Title: Senior Vice President Date: 2/18/94 VARIABLE INSURANCE PRODUCTS FUND II By its authorized officer, By: /s/ J. Gary Burkhead -------------------- Title: Senior Vice President Date: 3/2/294 FIDELITY DISTRIBUTORS CORPORATION By its authorized officer, By: /s/ Kurt A. Lange ----------------- Title: President Date: 2/28/94 -21- SCHEDULE A SEPARATE ACCOUNTS AND ASSOCIATE CONTRACTS
Name of Separate Account and Contracts Funded Date Established by Board of Directors By Separate Account - -------------------------------------- ------------------- Separate Account C IRA-CDA-IC G-TDA-HH(XC/M) G-TDA-HH(XC/S) Separate Account D F.6F-PVA-TR GFA-PVA-IC GF-PVA-IC
-22- SCHEDULE B PROXY VOTING PROCEDURE The following is a list of procedures and corresponding responsibilities for the handling of proxies relating to the Fund by the Underwriter, the Fund and the Company. The defined terms herein shall have the meanings assigned in the Participation Agreement except that the term "Company" shall also include the department or third party assigned by the Insurance Company to perform the steps delineated below. 1. The number of proxy proposals is given to the Company by the Underwriter as early as possible before the date set by the Fund for the shareholder meeting to facilitate the establishment of tabulation procedures. At this time the Underwriter will inform the Company of the Record, Mailing and Meeting dates. This will be done verbally approximately two months before meeting. 2. Promptly after the Record Date, the Company will perform a "tape run", or other activity, which will generate the names, addresses and number of units which are attributed to each contractowner/policyholder (the "Customer") as of the Record Date. Allowance should be made for account adjustments made after this date that could affect the status of the Customers' accounts as the Record Date. Note: The number of proxy statements is determined by the activities described in Step #2. The Company will use its best efforts to call in the number of Customers to Fidelity, as soon as possible, but no later than two weeks after the Record Date. 3. The Fund's Annual Report must be sent to each Customer by the Company either before or together with the Customer's receipt of a proxy statement. Underwriter will provide at least one copy of the last Annual Report to the Company. 4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is provided to the Company by the Fund. The Company, at its expense, shall produce and personalize the Voting Instruction Cards. The Legal Department of the Underwriter or its affiliate ("Fidelity Legal") must approve the Card before it is printed. Allow approximately 2-4 business days for printing information on the Cards. Information commonly found on the Cards includes: a. name (legal name as found on account registration) b. address c. Fund or account number d. coding to state number of units e. individual Card number for use in tracking and verification of votes (already on Cards as printed by the Fund) (This and related steps may occur later in the chronological process due to possible uncertainties relating to the proposals.) -23- 5. During this time, Fidelity Legal will develop, produce, and the Fund will pay for the Notice of Proxy and the Proxy Statement (one document). Printed and folded notices and statements will be sent to Company for insertion into envelopes (envelopes and return envelopes are provided and paid for by the Insurance Company). Contents of envelope sent to Customers by Company will include: a. Voting Instruction Card(s) b. One proxy notice and statement (one document) c. return envelope (postage pre-paid by Company) addressed to the Company or its tabulation agent d. "urge buckslip" - optional, but recommended. (This is a small, single sheet of paper that requests Customers to vote as quickly as possible and that their vote is important. One copy will be supplied by the Fund.) e. cover letter - optional, supplied by Company and reviewed and approved in advance by Fidelity Legal. 6. The above contents should be received by the Company approximately 3-5 business days before mail date. Individual in charge at Company reviews and approves the contents of the mailing package to ensure correctness and completeness. Copy of this approval sent to Fidelity Legal. 7. Package mailed by the Company. * The Fund MUST allow at least a 15-day solicitation time to the Company as the shareowner. (A 5-week period is recommended.) Solicitation time is calculated as calendar days from (but NOT including) the meeting, counting backwards. 8. Collection and tabulation of Cards begins. Tabulation usually takes place in another department or another vendor depending on process used. An often used procedure is to sort Cards on arrival by proposal into vote categories of all yes, no, or mixed replies, and to begin data entry. Note: Postmarks are not generally needed. A need for postmark information would be due to an insurance company's internal procedure and has not been required by Fidelity in the past. 9. Signatures on Card checked against legal name on account registration which was printed on the Card. Note: For Example, If the account registration is under "Bertram C. Jones, Trustee," then that is the exact legal name to be printed on the Card and is the signature needed on the Card. 10. If Cards are mutilated, or for any reason are illegible or are not signed property, they are sent back to Customer with an explanatory letter, a new Card and return envelope. The mutilated or illegible Card is disregarded and considered to be NOT RECEIVED for purposes of vote tabulation. Any Cards that have "kicked out" (e.g., mutilated, illegible) of the procedure are -24- "hand verified," i.e., examined as to why they did not complete the system. Any questions on those Cards are usually remedied individually. 11. There are various control procedures used to ensure proper tabulation of votes and accuracy of that tabulation. The most prevalent is to sort the Cards as they first arrive into categories depending upon their vote; an estimate of how the vote is progressing may then be calculated. If the initial estimates and the actual vote do not coincide, then an internal audit of that vote should occur. This may entail a recount. 12. The actual tabulation of votes is done in units which is then converted to shares. (It is very important that the Fund receives the tabulation stated in terms of a percentage and the number of SHARES.) Fidelity Legal must review and approve tabulation format. 13. Final tabulation in shares is verbally given by the Company to Fidelity Legal on the morning of the meeting not later than 10:00 a.m. Boston time. Fidelity Legal may request an earlier deadline if required to calculate the vote in time for the meeting. 14. A Certification of Mailing and Authorization to Vote Shares will be required from the Company as well as an original copy of the final vote. Fidelity Legal will provide a standard form of each Certification. 15. The Company will be required to box and archive the Cards received from the Customers. In the event that any vote is challenged or if otherwise necessary for legal, regulatory, or accounting purposes, Fidelity Legal will be permitted reasonable access to such Cards. 16. All approvals and "signing-off" may be done orally, but must always be followed up in writing. -25- FIFTH AMENDMENT TO PARTICIPATION AGREEMENT THIS FIFTH AMENDMENT TO THE FUND PARTICIPATION AGREEMENT (the "Fifth Amendment") is made and entered into as of the 1st day of March, 1996, by and among AETNA LIFE INSURANCE AND ANNUITY COMPANY (the "Company") a Connecticut corporation, on its own behalf and on behalf of each segregated asset account of the Company (each an "Account") set forth on Schedule A of the Original Agreement (defined below), and the VARIABLE INSURANCE PRODUCTS FUND II, an unincorporated business trust organized under the laws of the Commonwealth of Massachusetts (the "Fund") and FIDELITY DISTRIBUTORS CORPORATION (the "Underwriter"), a Massachusetts corporation. WITNESSETH WHEREAS, the Company, the Fund and the Underwriter are parties to a Participation Agreement, dated February 1, 1994, as supplemented by First Amendment to Participation Agreement dated as of February 1, 1995, Amendment No. 2 to Participation Agreement dated as of December 15, 1994, Third Amendment to Participation Agreement dated as of May 1, 1995 and Fourth Amendment to Participation Agreement dated as of January 1, 1996 (the "Original Agreement"); and WHEREAS, the Company, the Fund and the Underwriter now desire to modify the Original Agreement to add additional Contracts funded by Variable Annuity Account C. NOW THEREFORE, in consideration of the premises and the mutual covenants and promises expressed herein, the parties agree as follows: 1. Schedule A of the Original Agreement is hereby deleted and replaced with Schedule A attached hereto, effective as of March 1, 1996; 2. the Original Agreement, as supplemented by this Fifth Amendment, is ratified and confirmed; and 3. this Fifth Amendment may be executed in two or more counterparts, which together shall constitute one instrument. -26- IN WITNESS WHEREOF, the parties have executed this Fifth Amendment as of the date first above written. AETNA LIFE INSURANCE AND ANNUITY COMPANY By: ------------------------ Name: Laura Estes Title: Senior Vice President VARIABLE INSURANCE PRODUCTS FUND II By: --------------------- Name: J. Gary Burkhead Title: Senior Vice President FIDELITY DISTRIBUTORS CORPORATION By: ----------------- Name: Kurt A. Lange Title: President -27- SCHEDULE A - --------------------------------------------------------------------------------
POLICY FORM NUMBERS OF CONTRACTS ISSUED NAME OF SEPARATE ACCOUNT THROUGH SEPARATE ACCOUNT - ---------------------------------------------------------------------- Variable Annuity Account B I-CDA-IC(IR/NY) I-CDA-IC(NQ/NY) I-CDA-IC(IR/MP) I-CDA-IC(NQ/MP) G-CDA-IB(IR) G-CDA-IC(IR) G-CDA-IC(NQ) GMCC-IC(NQ) G-CDA-HF I-CDA-IA I-CDA-HI(NQ) G-CDA-ID(DC) G-CDA-GP1(4/94) I-CDA-GP1(4/94) - ---------------------------------------------------------------------- Variable Life Account B 70180-93US 70182-93US 70181-94US 38899 8899-90 38899-93 70225-95 - ---------------------------------------------------------------------- Variable Annuity Account C G-CDA-IB(XC/SM) G-CDA-IA(RPM/XC) G-CDA-IB(AORP) G-CDA-IB(ATORP) G-401-IB(X/M) G-CDA-HF GTCC-HF G-CDA-IA(RP) G-TDA-HH(XC/M) G-TDA-HH(XC/S) GLID-CDA-HO IRA-CDA-IC IP-CDA-IB(WI) IP-CDA-IB(MN) IP-CDA-IB(WA) G-CDA-ID(DC) GIP-CDA-HB I-CDA-HD IA-CDA-IA G-CDA-IB(IR) A001RP95 A007RC95 A020RV95 A027RV95 - ---------------------------------------------------------------------- Separate Account D GF-PVA-IC(NY) GF-PVA-IC(CA) GF-PVA-IC(NJ) GFA-PVA-IC F.6F-PVA-TR - --------------------------------------------------------------------------------
Any state variation of the above-referenced contracts are considered included on this Schedule A. Date of Amendment: March 1, 1996 EX-8.5 11 EXHIBIT 8.5 AGREEMENT THIS AGREEMENT made by and between FRANKLIN ADVISERS, INC. ("FAI"), a California corporation, and AETNA LIFE INSURANCE AND ANNUITY COMPANY ("AETNA"), a life insurance company organized under the laws of the State of Connecticut, regarding FRANKLIN GOVERNMENT SECURITIES TRUST ("TRUST"), a Massachusetts business trust, is as follows: WHEREAS, TRUST is to be registered with the Securities and Exchange Commission ("SEC") under the Investment Company Act of 1940 ("1940 Act") as an open-end management investment company and its securities are to be registered under the Securities Act of 1933 ("1933 Act"); WHEREAS, TRUST is to be used solely as a funding vehicle for variable annuity insurance contracts offered by life insurance companies through separate accounts of such life insurance companies; and WHEREAS, AETNA has established Aetna Life Insurance and Annuity Company Variable Annuity Account C, a separate account, and other separate accounts to offer variable annuity contracts, and is desirous of having TRUST serve as one of the funding vehicles for one or more such separate accounts; NOW, THEREFORE, and in consideration of the mutual covenants herein contained, it is hereby agreed by and between FAI and AETNA as follows: 1. FAI shall organize TRUST with investment objectives, policies, and restrictions substantially identical to those of Franklin U.S. Government Securities Series, another open-end management investment company managed by FAI, except as such objectives and policies may have to be modified to comply with applicable insurance laws. FAI shall provide the necessary officers and trustees of TRUST and shall take all steps necessary to register TRUST and its securities with the Securities and Exchange Commission and in any states where such registration may be required. FAI shall pay all costs and expenses of such organization and registration, and may be reimbursed by TRUST for such expenses as permitted under applicable securities laws. 2. (a) FAI shall act as investment adviser to TRUST for an annual fee, payable monthly, of 0.625% of the average daily net assets of TRUST reduced on assets of $100 million or more in accordance with the TRUST prospectus. FAI shall pay to AETNA from this fee an annual amount, payable monthly, equal to .15% of the average daily net assets of TRUST for certain administrative services to be provided by AETNA. FAI shall not waive any portion of its fee without the written consent of AETNA, and shall use its best efforts to keep its investment management contract with TRUST in effect as required by the 1940 Act. Page 1 (b) FAI will promptly provide AETNA with copies of the minutes of all proceedings of the Board of Trustees of TRUST, or any committee thereof, together with all agreements presented at such meetings. (c) FAI will promptly provide AETNA with copies of all filings made with the SEC pertaining to TRUST. (d) AETNA will promptly provide FAI with copies of all filings made with the SEC pertaining to separate accounts for which the TRUST serves as a funding vehicle. 3. TRUST will make its shares available at net asset value to the separate account(s) designated by AETNA. 4. TRUST will not make its shares available to any other company without the written consent of AETNA. However, future exclusivity of TRUST will be subject to the attainment of certain asset growth targets to be agreed upon by FAI and AETNA. 5. During the calendar years of 1989 and 1990. Aetna will not in the Internal Revenue Code Section 457 or Section 403(b) markets, offer to sell the shares of any other registered open-end management company which invests primarily in United States government GNMA Securities and has substantially similar investment objectives as the TRUST. 6. Orders for shares of the TRUST shall be placed with the TRUST pursuant to procedures which are then in effect and which may be modified from time to time. TRUST will provide AETNA with documentation of all procedures in effect when the offer and sale of TRUST shares is to commence and will inform AETNA of any modifications to such procedures. 7. FAI will diversify TRUST's investments in accordance with the provisions of Section 817(h) of the Internal Revenue Code and the regulations thereunder. 8. AETNA shall cause the contracts funded by TRUST shares to be registered with the SEC under the 1933 Act and the separate account(s) to be registered with the SEC as unit investment trust(s) under the 1940 Act to the extent required by these laws, and shall file such documents and take such other action as needed in order to comply with all requirements of the applicable insurance laws in connection with the use of TRUST shares as funding vehicles. 9. Any materials used by AETNA which describe TRUST, its shares, or FAI shall be submitted to FAI for approval prior to use. Aetna shall file, to the extent required by law, any such materials with the National Association of Securities Dealers, Inc. 10. (a) AETNA shall be solely responsible for its actions in connection with its use of TRUST and its shares and shall indemnify and hold harmless TRUST, and FAI their Page 2 officers, directors, and trustees from any liability, including reasonable attorney's fees, arising from AETNA's use of TRUST or its shares. (b) FAI shall be solely responsible for its actions in connection with its management of TRUST and shall indemnify and hold harmless AETNA, its officers and directors from any liability, including reasonable attorney's fees, for its negligent or wrongful acts or failures to act with respect to its management of TRUST. 11. AETNA understands that FAI acts and will act in the future as investment adviser to other investment companies. However, during 1989, FAI will not, except as provided in contracts in effect prior to December 1, 1988, act as an investment advisor to other government or GNMA-type investment companies that may be sold in the Internal Revenue Code Section 457 or Section 403(b) markets. 12. (a) If, after a presentation on the issue by AETNA, the Board of Trustees of TRUST, or a majority of its disinterested Trustees, determines that a material irreconcilable conflict exists, making it not in the best interest of TRUST to continue to sell shares to AETNA, AETNA shall, at its own expense, take whatever steps are necessary to remedy or eliminate the irreconcilable material conflict, which steps may include, but are not limited to: (1) withdrawing the assets allocable to the separate account(s) of AETNA from TRUST and reinvesting such assets in a different investment medium managed by FAI, or submitting to a vote of all affected contract owners the questions of whether (i) withdrawal of assets from TRUST or (ii) segregation of assets should be implemented and, as appropriate, withdrawing or segregating the assets of any particular group that votes in favor of such withdrawal or segregation, or offering to the affected contract owners the option of making such a change; (2) establishing a new registered open-end management investment company or managed separate account managed by FAI. (b) For purposes hereof, the Board of Trustees, including a majority of the disinterested Trustees, shall determine after further discussion with AETNA whether or not any proposed action adequately remedies any material irreconcilable conflict. In no event will FAI be required to establish a new funding medium for any variable contracts. AETNA shall not be required by the terms hereof to establish a new funding medium for any variable contracts if an offer to do so has been declined by vote of a majority of affected contract owners. (c) FAI will promptly make known to AETNA the Board of Trustees' consideration or determination of the existence of a material irreconcilable conflict and its implications. Page 3 13. AETNA shall provide pass-through voting privileges to all variable contract owners to the extent required by the SEC. AETNA shall be responsible for assuring that each of its separate accounts participating in TRUST calculates voting privileges in a manner consistent with Securities and Exchange Commission regulations. AETNA will vote shares for which it has not received voting instructions, as well as shares attributable to it, in the same proportion as it votes shares for which it has received instructions. 14. FAI and AETNA shall each bear their own expenses in connection with this transaction; however, if AETNA decides not to make TRUST available as an investment for its separate accounts, or if the assets of TRUST attributable to AETNA's separate accounts shall not exceed $2 million within one year after the first sale of TRUST to AETNA's separate accounts, or $10 million within two years, or $30 million within three years, it shall reimburse FAI for all of its out-of-pocket expenses incurred in connection with organizing and registering TRUST, including advances on such expenses to TRUST, up to a maximum of $25,000. If AETNA terminates this agreement, and within two (2) years of that termination it or any AETNA subsidiary or affiliate becomes the investment adviser to TRUST or its successor, AETNA will pay a fee to FAI equal to one year's management fee on the assets in the trust at the time of discontinuance. 15. (a) FAI or an affiliate shall provide TRUST with initial capital of $100,000. Recovery of this capital will be amortized over a period of five years. If, during this period, AETNA shall decide not to continue using TRUST as a funding vehicle for the separate account, AETNA shall reimburse FAI for the amount of unamortized initial capital. (b) FAI shall pay all costs and expenses of such organization and registration, and may be reimbursed by TRUST for such expenses to the extent permitted under applicable securities laws. The TRUST will reimburse FAI for such expenses to the extent permitted, beginning once the assets of the TRUST exceed $20 million or the TRUST has completed one year of operation, whichever is sooner. Such expenses will be amortized by the TRUST over a five year period, unless a shorter amortization period is required by generally accepted accounting principles. 16. This Agreement shall terminate automatically in the event of its assignment. 17. This Agreement may be terminated at any time upon sixty (60) days' written notice to the other party hereto, without the payment of any penalty except as provided in paragraph 14 hereof. Such termination shall not affect or modify the obligations of the parties set forth herein with respect to any events occurring prior to such termination. Page 4 18. This Agreement shall be subject to the provisions of the 1940 Act and the rules and regulations thereunder, including any exemptive relief therefrom and the orders of the Securities and Exchange Commission setting forth such relief. Executed this 31st day of January, 1989 FRANKLIN ADVISERS, INC. ATTEST: /s/ Maria Eichar BY /s/ C. R. Johnson --------------------- ------------------------ AETNA LIFE INSURANCE AND ANNUITY COMPANY ATTEST: /s/ Barbara Kidney BY: /s/ Richard C. Murphy --------------------- ------------------------ Page 5 EX-8.6 12 EXHIBIT 8.6 JANUS ASPEN SERIES FUND PARTICIPATION AGREEMENT THIS AGREEMENT is made this 19th day of April, 1995, between JANUS ASPEN SERIES, an open-end management investment company organized as a Delaware business trust (the "Trust"), and AETNA LIFE INSURANCE AND ANNUITY COMPANY , a life insurance company organized under the laws of the State of Connecticut (the "Company"), on its own behalf and on behalf of each segregated asset account of the Company set forth on Schedule A, as may be amended from time to time (the "Accounts"). W I T N E S S E T H: WHEREAS, the Trust has filed a registration statement with the Securities and Exchange Commission to register itself as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"), and to register the offer and sale of its shares under the Securities Act of 1933, as amended (the "1933 Act"); and WHEREAS, the Trust desires to act as an investment vehicle for separate accounts established for variable life insurance policies and variable annuity contracts to be offered by insurance companies that have entered into participation agreements with the Trust (the "Participating Insurance Companies"); and WHEREAS, the beneficial interest in the Trust is divided into several series of shares, each series representing an interest in a particular managed portfolio of securities and other assets (the "Portfolios"); and WHEREAS, the Trust has received an order from the Securities and Exchange Commission granting Participating Insurance Companies and their separate accounts exemptions from the provisions of Section 9(a), 13(a), 15(a) and 15(b) of the 1940 Act, and rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the Trust to be sold to and held by variable annuity and variable life insurance separate accounts of both affiliated and unaffiliated life insurance companies and certain qualified pension and retirement plans (the "Shared Trust Exemptive Order"); and WHEREAS, the Company has registered or will register certain variable life insurance policies and/or variable annuity contracts under the 1933 Act (the "Contract"); and WHEREAS, the Company has registered or will register each Account as a unit investment trust under the 1940 Act; and WHEREAS, the Company desires to utilize shares of one or more Portfolios as an investment vehicle of the Accounts; NOW THEREFORE, in consideration of their mutual promises, the parties agree as follows: ARTICLE I. SALE OF TRUST SHARES 1.1. The Trust shall make shares of its Portfolios available to the Accounts at the net asset value next computed after receipt of such purchase order by the Trust, as established in accordance with the provisions of the then current prospectus of the Trust. The Company will transmit orders from time to time to the Trust for the purchase of shares of the Portfolios as directed by Contract owners. The Trustees of the Trust (the "Trustees") may refuse to sell shares of any Portfolio to any person, or suspend or terminate the offering of shares of any Portfolio if such action is required by law or by regulatory authorities having jurisdiction or is, in the sole discretion of the Trustees acting in good faith and in light of their fiduciary duties under federal and any applicable state laws, necessary in the best interest of the shareholders of such Portfolio. 1.2. The Company shall submit payment for shares of the Portfolios no later than 12:00 noon New York time on the next Business Day after the Trust receives the order pursuant to Section 1.1. Payments shall be made in federal funds transmitted by wire to the Trust. Upon receipt by the Trust of the federal funds so wired, such funds shall cease to be the responsibility of the Company and shall become the responsibility of the Trust for this purpose. "Business Day" shall mean any day on which the New York Stock Exchange is open for trading and on which the Trust calculates its net asset value pursuant to the rules of the Securities and Exchange Commission. 1.3. The Trust will redeem any full or fractional shares of any Portfolio when requested by the Company on behalf of an Account at the net asset value next computed after receipt by the Trust (or its agent) of the request for redemption, as established in accordance with the provisions of the then current prospectus of the Trust. The Trust shall make payment for such shares in the manner established from time to time by the Trust, but in no event shall payment be delayed for greater period than is permitted by the 1940 Act. 1.4. Issuance and transfer of the Trust's shares will be by book entry only. Stock certifications will not be issued to the Company or the Account. Shares ordered from the Trust will be recorded in the appropriate title for each Account or the appropriate subaccount of each Account. 1.5. The Trust shall furnish prompt notice to the Company of any income dividends or capital gain distributions payable on the Trust's shares. The Company hereby elects to receive all such income dividends and capital gain distributions as are payable on 2 a Portfolio's shares in additional shares of that Portfolio. The Trust shall notify the Company of the number of shares so issued as payment of such dividends and distributions. 1.6. The Trust shall calculate its net asset value on each Business Day, as defined in Section 1.2. The Trust shall make the net asset value per share for each Portfolio available to the Company on a daily basis as soon as reasonably practical after the net asset value per share is calculated and shall use its best efforts to make such net asset value per share available by 6 p.m. New York time. 1.7. The Trust agrees that its shares will be sold only to Participating Insurance Companies and their separate accounts and to certain qualified pension and retirement plans to the extent permitted by the Shared Trust Exemptive Order. No shares of any Portfolio will be sold directly to the general public. The Company agrees that Trust shares will be used only for the purposes of funding the Contracts and Accounts listed in Schedule A, as amended from time to time. 1.8. The Trust agrees that all Participating Insurance Companies shall have the obligations and responsibilities regarding pass-through voting and conflicts of interest corresponding to those contained in Section 2.8 and Article IV of this Agreement. ARTICLE II. OBLIGATIONS OF THE PARTIES 2.1. The Trust shall prepare and be responsible for filing with the Securities and Exchange Commission and any state regulators requiring such filing all shareholder reports, notices, proxy materials (or similar materials such as voting instruction solicitation materials), prospectuses and statements of additional information of the Trust. The Trust shall bear the costs of registration and qualification of its shares, preparation and filing of the documents listed in this Section 2.1. and all taxes to which an issuer is subject on the issuance and transfer of its shares. 2.2. At the option of the Company, the Trust shall either (a) provide the Company (at the Company's expense) with as many copies of the Trust's current prospectus, annual report, semi-annual report and other shareholder communications, including any amendments or supplements to any of the foregoing, as the Company shall reasonably request; or (b) provide the Company with a camera ready copy of such documents in a form suitable for printing. The Trust shall provide the Company with a copy if its statement of additional information in a form suitable for duplication by the Company. The Trust (at its expense) shall provide the Company with copies of any Trust- sponsored proxy materials in such quantity as the Company shall reasonably require for distribution to Contract owners. 3 2.3. The Company shall bear the costs of printing and distributing the Trust's prospectus, statement of additional information, shareholder reports and other shareholder communications to owners of and applicants for policies for which the Trust is serving or is to serve as an investment vehicle. The Company shall bear the costs of distributing proxy materials (or similar materials such as voting solicitation instructions) to Contract owners. The Company assumes sole responsibility for ensuring that such materials are delivered to Contract owners in accordance with applicable federal and state securities laws. 2.4. The Company agrees and acknowledges that the Trust's adviser, Janus Capital Corporation ("Janus Capital"), is the sole owner of the name and mark "Janus" and that all use of any designation comprised in whole or part of Janus (a "Janus Mark") under this Agreement shall inure to the benefit of Janus Capital. Except as provided in Section 2.5, the Company shall not use any Janus Mark on its own behalf or on behalf of the Accounts or Contracts in any registration statement, advertisement, sales literature or other materials relating to the Accounts or Contracts without the prior written consent of Janus Capital. Upon termination of this Agreement for any reason, the Company shall cease all use of any Janus Mark(s) as soon as reasonably practicable. 2.5. The Company shall furnish, or cause to be furnished, to the Trust or its designee, a copy of each Contract prospectus or statement of additional information in which the Trust or its investment adviser is named prior to the filing of such document with the Securities and Exchange Commission. The Company shall furnish, or shall cause to be furnished, to the Trust or its designee, each piece of sales literature or other promotional material in which the Trust or its investment adviser is named, at least fifteen Business Days prior to its use. No such material shall be used if the Trust or its designee reasonably objects to such use within fifteen Business Days after receipt of such material. 2.6 The Company shall not give any information or make any representations or statements on behalf of the Trust or concerning the Trust or its investment adviser in connection with the sale of the Contracts other than information or representations contained in and accurately derived from the registration statement or prospectus for the Trust shares (as such registration statement and prospectus may be amended or supplemented from time to time), reports of the Trust, Trust-sponsored proxy statements, or in sales literature or other promotional material approved by the Trust or its designee, except as required by legal process or regulatory authorities or with the written permission of the Trust or its designee. 2.7. The Trust shall not give any information or make any representations or statements on behalf of the Company or concerning the Company, the Accounts or the Contracts other than information or representations contained in and accurately derived from the registration statement or prospectus for the Contracts (as such registration statement and prospectus may be amended or supplemented from time to time), or in materials approved by the Company for distribution including sales literature or other 4 promotional materials, except as required by legal process or regulatory authorities or with the written permission of the Company. 2.8. So long as, and to the extent that the Securities and Exchange Commission interprets the 1940 Act to require pass-through voting privileges for variable policyowners, the Company will provide pass-through voting privileges to owners of policies whose cash values are invested, through the Accounts, in shares of the Trust. The Trust shall require all Participating Insurance Companies to calculate voting privileges in the same manner and the Company shall be responsible for assuring that the Accounts calculate voting privileges in the manner established by the Trust. With respect to each Account, the Company will vote shares of the Trust held by the Account and for which no timely voting instructions from policyowners are received as well as shares it owns that are held by that Account, in the same proportion as those shares for which voting instructions are received. The Company and its agents will in no way recommend or oppose or interfere with the solicitation of proxies for Trust shares held by Contract owners without the prior written consent of the Trust, which consent may be withheld in the Trust's sole discretion. ARTICLE III. REPRESENTATIONS AND WARRANTIES 3.1. The Company represents and warrants that it is an insurance company duly organized and in good standing under the laws of the State of Connecticut and that it has legally and validly established each Account as a segregated asset account under such law on the date set forth in Schedule A. 3.2. The Company represents and warrants that it has registered or, prior to any issuance or sale of the Contracts, will register each Account as a unit investment trust in accordance with the provisions of the 1940 Act to serve as a segregated investment account for the Contracts. 3.3. The Company represents and warrants that the Contracts will be registered under the 1933 Act prior to any issuance or sale of the Contracts; the Contracts will be issued and sold in compliance in all material respects with all applicable federal and state laws; and the sale of the Contracts shall comply in all material respects with state insurance suitability requirements. 3.4. The Trust represents and warrants that it is duly organized and validly existing under the laws of the State of Delaware. 3.5. The Trust represents and warrants that the Trust shares offered and sold pursuant to this Agreement will be registered under the 1933 Act and the Trust shall be registered under the 1940 Act prior to any issuance or sale of such shares. The Trust shall amend its registration statement under the 1933 Act and the 1940 Act from time to time as required in order to effect the continuous offering of its shares. The Trust shall register 5 and qualify its shares for sale in accordance with the laws of the various states only if and to the extent deemed advisable by the Trust. 3.6 The Trust represents and warrants that the investments of each Portfolio will comply with the diversification requirements set forth in Section 817(h) of the Internal Revenue Code of 1986, as amended, and the rules and regulations thereunder. ARTICLE IV. POTENTIAL CONFLICTS 4.1. The parties acknowledge that the Trust's shares may be made available for investment to other Participating Insurance Companies. In such event, the Trustees will monitor the Trust for the existence of any material irreconcilable conflict between the interests of the contract owners of all participating Insurance Companies. An irreconcilable material conflict may arise for a variety of reasons, including: (a) an action by any state insurance regulatory authority; (b) a change in applicable federal or state insurance, tax, or securities laws or regulations, or a public ruling, private letter ruling, no-action or interpretative letter, or any similar action by insurance, tax, or securities regulatory authorities; (c) an administrative or judicial decision in any relevant proceeding; (d) the manner in which the investments of any Portfolio are being managed; (e) a difference in voting instructions given by variable annuity contract and variable life insurance contract owners; or (f) a decision by an insurer to disregard the voting instructions of contract owners. The Trustees shall promptly inform the Company if they determine that an irreconcilable material conflict exists and the implications thereof. 4.2. The Company agrees to promptly report any potential or existing conflicts of which it is aware to the Trustees. The Company will assist the Trustees in carrying out their responsibilities under the Shared Trustee Exemptive Order by providing the Trustees with all information reasonably necessary for the Trustees to consider any issues raised including, but not limited to, information as to a decision by the Company to disregard Contract owner voting instructions. 4.3. If it is determined by a majority of the Trustees, or a majority of its disinterested Trustees, that a material irreconcilable conflict exists that affects the interests of Contract owners, the Company shall, in cooperation with other Participating Insurance Companies whose contract owners are also affected, at its expense and to the extent reasonably practicable (as determined by the Trustees) take whatever steps are necessary to remedy or eliminate the irreconcilable material conflict, which steps could include: (a) withdrawing the assets allocable to some or all of the Accounts from the Trust or any Portfolio and reinvesting such assets in a different investment medium, including (but not limited to) another Portfolio of the Trust, or submitting the question of whether or not such segregation should be implemented to a vote of all affected Contract owners and, as appropriate, segregating the assets of any appropriate group (I.E., annuity contract owners, life insurance contract owners, or variable contract owners of one or more Participating 6 Insurance Companies) that votes in favor of such segregation, or offering to the affected contract owners the option of making such a change; and (b) establishing a new registered management investment company or managed separate account. 4.4. If a material irreconcilable conflict arises because of a decision by the Company to disregard Contract owner voting instructions and that decision represents a minority position or would preclude a majority vote, the Company may be required, at the Trust's election, to withdraw the affected Account's investment in the Trust and terminate this Agreement with respect to such Account; provided, however, that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the disinterested Trustees. Any such withdrawal and termination must take place within six (6) months after the Trust gives written notice that this provision is being implemented. Until the end of such six (6) month period, the Trust shall continue to accept and implement orders by the Company for the purchase and redemption of shares of the Trust. 4.5. If a material irreconcilable conflict arises because a particular state insurance regulator's decision applicable to the Company conflicts with the majority of other state regulators, then the Company will withdraw the affected Account's investment in the Trust and terminate this Agreement with respect to such Account within six (6) months after the Trustees inform the Company in writing that it has determined that such decision has created an irreconcilable material conflict; provided, however, that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the disinterested Trustees. Until the end of such six (6) month period, the Trust shall continue to accept and implement orders by the Company for the purchase and redemption of shares of the Trust. 4.6. For purposes of Section 4.3 and 4.6 of this Agreement, a majority of the disinterested Trustees shall determine whether any proposed action adequately remedies any irreconcilable material conflict, but in no event will the Company be required to establish a new funding medium for the Contracts if an offer to do so has been declined by vote of a majority of Contract owners materially adversely affected by the irreconcilable material conflict. In the event that the Trustees determine that any proposed action does not adequately remedy any irreconcilable material conflict, then the Company will withdraw the Account's investment in the Trust and terminate this Agreement within six (6) months after the Trustees inform the Company in writing of the foregoing determination; provided, however, that such withdrawal and termination shall be limited to the extent required by any such material irreconcilable conflict as determined by a majority of the disinterested Trustees. 4.7. The Company shall at least annually submit to the Trustees such reports, materials or data as the Trustees may reasonably request so that the Trustees may fully carry out the duties imposed upon them by the Shared Trust Exemptive Order, and said reports, materials and data shall be submitted more frequently if deemed appropriate by the Trustees. 7 4.8. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940 Act or the rules promulgated thereunder with respect to mixed or shared funding (as defined in the Shared Trust Exemptive Order) on terms and conditions materially different from those contained in the Shared Trust Exemptive Order, then the Trust and/or the Participating Insurance Companies, as appropriate, shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable. ARTICLE V. INDEMNIFICATION 5.1. INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and hold harmless the Trust and each of its Trustees, officers, employees and agents and each person, if any, who controls the Trust within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Article V) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Company) or expenses (including the reasonable costs of investigating or defending any alleged loss, claim, damage, liability or expense and reasonable legal counsel fees incurred in connection therewith) (collectively, "Losses"), to which the Indemnified Parties may become subject under any statute or regulation, or at common law or otherwise, insofar as such Losses: (a) arise out of or are based upon any untrue statements or alleged untrue statements of any material fact contained in a registration statement or prospectus for the Contracts or in the Contracts themselves or in sales literature generated or approved by the Company on behalf of the Contracts or Accounts (or any amendment or supplement to any of the foregoing) (collectively, "Company Documents" for the purposes of this Article V), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this indemnity shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and was accurately derived from written information furnished to the Company by or on behalf of the Trust for use in Company Documents or otherwise for use in connection with the sale of the Contracts or Trust shares; or (b) arise out of or result from statements or representations (other than statements or representations contained in and accurately derived from Trust Documents as defined in Section 5.2(a)) or wrongful conduct of the Company or persons under its control, with respect to the sale or acquisition of the Contracts or Trust shares; or 8 (c) arise out of or result from any untrue statement or alleged untrue statement of a material fact contained in Trust Documents as defined in Section 5.2(a) or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such statement or omission was made in reliance upon and accurately derived from written information furnished to the Trust by or on behalf of the Company; or (d) arise out of or result from any failure by the Company to provide the services or furnish the materials required under the terms of this Agreement; or (e) arise out of or result from any material breach of any representation and/or warranty made by the Company in this Agreement or arise out of or result from any other material breach of this Agreement by the Company. 5.2. INDEMNIFICATION BY THE TRUST. The Trust agrees to indemnify and hold harmless the Company and each of its directors, officers, employees and agents and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Article V) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Trust) or expenses (including the reasonable costs of investigating or defending any alleged loss, claim, damage, liability or expense and reasonable legal counsel fees incurred in connection therewith) (collectively, "Losses"), to which the Indemnified Parties may become subject under any statute or regulation, or at common law or otherwise, insofar as such Losses: (a) arise out of or are based upon any untrue statements or alleged untrue statements of any material fact contained in a registration statement or prospectus for the Trust (or any amendment or thereto) (collectively, "Trust Documents" for the purposes of this Article V), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this indemnity shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and was accurately derived from written information furnished to the Trust by or on behalf of the Company for use in Trust Documents or otherwise for use in connection with the sale of the Contracts or Trust shares; or (b) arise out of or result from statements or representations (other than statements or representations contained in and accurately derived from Company Documents) or wrongful conduct of the Trust or persons under its control, with respect to the sale or acquisition of the Contracts or Trust shares; or 9 (c) arise out of or result from any untrue statement or alleged untrue statement of a material fact contained in Company Documents or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such statement or omission was made in reliance upon and accurately derived from written information furnished to the Company by or on behalf of the Trust; or (d) arise out of or result from any failure by the Trust to provide the services or furnish the materials required under the terms of this Agreement; or (e) arise out of or result from any material breach of any representation and/or warranty made by the Trust in this Agreement or arise out of or result from any other material breach of this Agreement by the Trust. 5.3. Neither the Company nor the Trust shall be liable under the indemnification provisions of Sections 5.1 or 5.2, as applicable, with respect to any Losses incurred or assessed against an Indemnified party that arise from such Indemnified party's willful misfeasance, bad faith or negligence in the performance of such Indemnified party's duties or by reasons of such Indemnified Party's reckless disregard of obligations or duties under this Agreement. 5.4. Neither the Company nor the Trust shall be liable under the indemnification provisions of Sections 5.1 or 5.2, as applicable, with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the other party in writing within a reasonable time after the summons, or other first written notification, giving information of the nature of the claim shall have been served upon or otherwise received by such Indemnified Party (or after such Indemnified party shall have received notice of service upon or other notification to any designated agent), but failure to notify the party against whom indemnification is sought of any such claim shall not relieve that party from any liability which it may have to the Indemnified party in the absence of Sections 5.1 and 5.2. 5.5. In case any such action is brought against the Indemnified Parties, the indemnifying party shall be entitled to participate, at its own expense, in the defense of such action. The indemnifying party also shall be entitled to assume the defense thereof, with counsel reasonably satisfactory to the party named in the action. After notice from the indemnifying party to the Indemnified Party of an election to assume such defense, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the indemnifying party will not be liable to the Indemnified party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 10 ARTICLE VI. TERMINATION 6.1. This Agreement may be terminated by either party for any reason by ninety (90) days advance written notice delivered to the other party. 6.2. Notwithstanding any termination of this Agreement, the Trust shall, at the option of the Company, continue to make available additional shares of the Trust (or any Portfolio) pursuant to the terms and conditions of this Agreement for all Contracts in effect on the effective date of termination of this Agreement, provided that the Company continues to pay the costs set forth in Section 2.3 6.3. The provisions of Article V shall survive the termination of this Agreement, and the provisions of Article IV and Section 2.8 shall survive the termination of this Agreement as long as shares of the Trust are held on behalf of Contract owners in accordance with Section 6.2. ARTICLE VII. NOTICES Any notice shall be sufficiently given when sent by registered or certified mail to the other party at the address of such party set forth below or at such other address as such party may from time to time specify in writing to the other party. If to the Trust: 100 Fillmore Street, Suite 300 Denver, Colorado 80206 Attention: David C. Tucker, Esq. If to the Company: 151 Farmington Avenue Hartford, Connecticut 06156 Attention: Barrett N. Sidel, RE4C ARTICLE VIII. MISCELLANEOUS 8.1. The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. 8.2. This Agreement may be executed simultaneously in two or more counterparts, each of which taken together shall constitute one and the same instrument. 11 8.3. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Agreement shall not be affected thereby. 8.4. This Agreement shall be construed and the provisions hereof interpreted under and in accordance with the laws of State of Colorado 8.5. The parties to this Agreement acknowledge and agree that all liabilities of the Trust arising, directly or indirectly, under this Agreement, of any and every nature whatsoever, shall be satisfied solely out of the assets of the Trust and that no Trustee, officer, agent or holder of shares of beneficial interest of the Trust shall be personally liable for any such liabilities. 8.6. Each party shall cooperate with each other party and all appropriate governmental authorities (including without limitation the SEC, the NASD and state insurance regulators) and shall permit such authorities reasonable access to its books and records in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. 8.7. The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations, at law or in equity, which the parties hereto are entitled to under state and federal laws. 8.8. The parties to this Agreement acknowledge and agree that this Agreement shall not be exclusive in any respect. 8.9. Neither this Agreement nor any rights or obligations hereunder may be assigned by either party without the prior written approval of the other party. 8.10. No provisions of this Agreement may be amended or modified in any manner except by a written agreement properly authorized and executed by both parties. 12 IN WITNESS WHEREOF, the parties have caused their duly authorized officers to execute this Participation Agreement as of the date and year first above written. AETNA LIFE INSURANCE AND ANNUITY COMPANY By: /s/ Scott A. Striegel ----------------------- Name: Scott A. Striegel Title: Senior Vice President JANUS ASPEN SERIES By: /s/ Jack R. Thompson ----------------------- Name: Jack R. Thompson Title: Senior Vice President 13 SCHEDULE A SEPARATE ACCOUNTS AND ASSOCIATED CONTRACTS Name of Separate Account and Date Established by Board of Directors - -------------------------------------- Separate Account Variable Annuity Account B was organized as a separate account of the Company on June 25, 1974 pursuant to authorization given by vote of the Company's Board of Directors on May 10, 1974. Contracts Funded by Separate Account Variable Annuity Account B
CDA-66A PT-CDA-66 I-CDA-HI(NQ/TX)* CDA-66 PT-CDA-66A I-CDA-HI(NQ/WA)* GA-UP-66 PTI-CDA-GA I-CDA-IO(MN)* GDA-66-(SP) PTS-CDA-GA I-CDA-IA GDA-UA-67 INI-CDA-GA I-CDA-IC(NQ/MP) GDA-PCA-67 INS-CDA-GA PT-CDA-66A(NY) GA-TF-67 PTI-CDA-GB PTI-CDA-GA(NY) GA-TF-GO PTI-CDA-GI PTS-CDA-GA(NY) GA-UPA-GO ISSE-CDA-HO INI-CDA-GA(NY) GA-UPC-GO ISE-CDA-HO INS-CDA-GA(NY) GQNQS-AUA-GH INSBP-CDA-GE IA-CDA-IA(MN)* GQNQI-AUA-GH IQNQI-CDA-GH IA-CDA-IA(PA)* GQNQJS-AUA-GH IQNQS-CDA-GH IA-CDA-IA(PR)* GQNQJC-AUA-GI IQNQI-CDA-GI I-CDA-HD GQNQJI-AUA-GI IQNQS-CDA-GI I-CDA-HD(TX/S)* GQNQS-AUA-GI DCAS-CDA-GE I-CDA-HD(A)* GQNQJS-AUA-GI DRPAI-CDA-GE PTI-CDA-GB(NY) GQNQI-AUA-GI I-CDA-HD INSBP-CDA-GE(NY) GQNQJI-AUA-GH I-CDA-HD(A)(1) DCAS-CDA-GE(NY) GQNQJC-AUA-GH I-CDA-HD(SC)* DRPAI-CDA-GE(NY) GLID-CDA-HO I-CDA-HD(TX/E)* I-CDA-HD(XC) GID-CDA-HO I-CDA-HD(TX/M)* I-CDA-IC(IR/MP) GSD-CDA-HO I-CDA-HD(TX/P)* G-CDA-HD(XC) GLIDE-CDA-HO I-CDA-HD(TX/S)* GTCC-HD(XC) G-CDA-HD I-CDA-HI(NQ) GA-TF-GO(NY) G-CDA-HD(NS) I-CDA-HI(NQ/CT)* GA-UPA-GO(NY) G-CDA-HF I-CDA-HI(NQ/MN)* GA-UPC-GO(NY) G-CDA-IA(OH) I-CDA-HI(NQ/NJ)* I-CDA-IC(NQ/MP) G-CDA-IB(IR) I-CDA-HI(NQ/PA)* G-CDA-IC(IR) I-CDA-HI(NQ/SC)*
(1) Contract for use in MN and MO * State Specific forms A-1 SEPARATE ACCOUNTS AND ASSOCIATED CONTRACTS Name of Separate Account and Date Established by Board of Directors - -------------------------------------- Separate Account Variable Annuity Account C was organized as a separate account of the Company on June 25, 1974 pursuant to authorization given by vote of the Company's Board of Directors on May 10, 1974. Contracts Funded by Separate Account Variable Annuity Account C
CDA-66A HR10-DUA-GIA DRPAI-CDA-GE PTI-CDA-GA(NY) CDA-66 HR10S-DUA-GI IHRIRS-CDA-GH PTS-CDA-GA(NY) GA-UP-66 GIT-CDA-HO IHRIRI-CDA-GH INI-CDA-GA(NY) GDA-66-(SP) GLID-CDA-HO IQNQI-CDA-GH INS-CDA-GA(NY) GDA-UA-67 GLIT-CDA-HO IQNQS-CDA-GH PTI-CDA-GB(NY) GDA-PCA-67 GID-CDA-HO IHRIRI-CDA-GI INSBP-CDA-GE(NY) GA-TF-67 GST-CDA-HO IHRIRS-CDA-GI TRPAI-CDA-GE(NY) GA-TF-GO GSD-CDA-HO IQNQI-CDA-GI TPRAS-CDA-GE(NY) GA-UPA-GO GIH-CDA-HB IQNQS-CDA-GI DCAS-CDA-GE(NY) GA-UPC-GO G-CDA-HD PTI-CDA-GI DRPAI-CDA-GE(NY) GDA-PCA-GO G-CDA-HD(NS) IMT-CDA-HO G-CDA-HD(XC) GDA-OA-GO G-CDA-HF IST-CDA-HO GTCC-HD(XC) GDA-UA-GO G-CDA-IA(RP) ISP-CDA-HO G-CDA-HD(X) GDA-UPA-GO G-CDA-IB(ORP)(1) I-CDA-HD G-TDA-HH(XC/M) GA-TF-68 G-CDA-IB(TORP)(1) I-CDA-HD(A)(3) GTCC-HH(XC/M) GP-DUA-GF G-CDA-IB-(AORP) I-CDA-HD(SC)* G-TDA-HH(XC/S) GVF-PI-GF G-CDA-IB(ATORP) I-CDA-HD(TX/E)* GTCC-HH(XC/S) GP-DUA-GFA G-CDA-IC(A)(2) I-CDA-HD(TX/M)* G-CDA-IA(RPM/XC) GVF-PS-GF G-CDA-HG(401) I-CDA-HD(TX/P)* GTCC-IA(RPM/XC) GVF-PI-GG G-TDA-HG I-CDA-HD(TX/S)* G-CDA-IB(XC/SM) GVF-PS-GG G-CDA-IA(OH) I-CDA-IO(MN)* GC403-IB(XC/SM) GQNQS-AUA-GH PT-CDA-66 IA-CDA-IA I-CDA-HD(XC) GQNQI-AUA-GH PT-CDA-66A IA-CDA-IA(MN)* GA-TF-GO(NY) GQNQJS-AUA-GH PTI-CDA-GA IA-CDA-IA(PA)* GA-UPA-GO(NY) GQNQJI-AUA-GH PTS-CDA-GA IA-CDA-IA(PR)* GA-UPC-GO(NY) GQNQJC-AUA-GH INI-CDA-GA IP-CDA-IB GDA-PCA-GO(NY) GQNQJC-AUA-GI INS-CDA-GA IP-CDA-IB(WI)* GCD-OA-GO(NY) GQNQJI-AUA-GI PTI-CDA-GB IP-CDA-IB(MN)* GDA-UA-GO(NY) GQNQS-AUA-GI INSBP-CDA-GE I-CDA-HD G-TDA-HG(X) GQNQJS-AUA-GI TRPAI-CDA-GE I-CDA-HD(TX/S)* GQNQI-AUA-GI TPRAS-CDA-GE I-CDA-HD(A)* HR10-DUA-GI DCAS-CDA-GE PT-CDA-66A(NY)
(1) Contract for use in ME, OK, SC and TN only (2) Contract for use in CT, IL and MT (3) Contract for use in MN and MO (4) State specific forms A-2 SEPARATE ACCOUNTS AND ASSOCIATED CONTRACTS Name of Separate Account and Date Established by Board of Directors - -------------------------------------- Separate Account Variable Life Account B was organized as a separate account of the Company pursuant to authorization given by vote of the Company's Board of Directors on June 18, 1986. Contracts Funded by Separate Account Variable Life Account B 38899 38899-90 38899-93 70180-93US AMENDMENT NO. 3 DATED MARCH 1, 1996 TO FUND PARTICIPATION AGREEMENT DATED APRIL 19, 1994 WITNESSETH WHEREAS, the Janus Aspen Series (the "Trust") and Aetna Life Insurance and Annuity Company (the "Company") entered into a Fund Participation Agreement, dated April 19, 1994, as supplemented by Amendment No. 1 dated June 15, 1994 and Amendment No. 2 dated July 31, 1995 (the "Original Agreement"); and WHEREAS, the Company and the Trust now desire to modify the Original Agreement to add additional Contracts funded by Account C. NOW THEREFORE, in consideration of the premises and the mutual covenants and promises expressed herein, the parties agree as follows: 1. Schedule A of the Original Agreement is hereby deleted and replaced with Schedule A attached hereto, effective as of March 1, 1996; 2. the Original Agreement, as supplemented by this Amendment No. 3, is ratified and confirmed; and 3. this Amendment No. 3 may be executed in two or more counterparts, which together shall constitute one instrument. IN WITNESS WHEREOF, the parties have executed this Amendment No. 3 as of the date first above written. AETNA LIFE INSURANCE AND JANUS ASPEN SERIES ANNUITY COMPANY By: /s/ Laura R. Estes By: ------------------- -------------------- Name: Laura R. Estes Name: -------------------- Title: Senior Vice President Title: -------------------- (1) Contract for use in MN and MO * State specific forms A-1 SCHEDULE A SEPARATE ACCOUNTS AND ASSOCIATED CONTRACTS Name of Separate Account and Date Established by Board of Directors - -------------------------------------- Separate Account Variable Annuity Account B was organized as a separate account of the Company on June 25, 1974 pursuant to authorization given by vote of the Company's Board of Directors on May 10, 1974. Contracts Funded by Separate Account Variable Annuity Account B
CDA-66A PTI-CDA-GA I-CDA-IC(NQ/MP) CDA-66 PTS-CDA-GA PT-CDA-66A(NY) GA-UP-66 INI-CDA-GA PTI-CDA-GA(NY) GDA-66-(SP) INS-CDA-GA PTS-CDA-GA(NY) GDA-UA-67 PTI-CDA-GB INI-CDA-GA(NY) GDA-PCA-67 PTI-CDA-GI INS-CDA-GA(NY) GA-TF-67 ISSE-CDA-HO IA-CDA-IA(MN)* GA-TF-GO ISE-CDA-HO IA-CDA-IA(PA)* GA-UPA-GO INSBP-CDA-GE IA-CDA-IA(PR)* GA-UPC-GO IQNQI-CDA-GH I-CDA-HD GQNQS-AUA-GH IQNQS-CDA-GH I-CDA-HD(TX/S)* GQNQI-AUA-GH IQNQI-CDA-GI I-CDA-HD(A)* GQNQJS-AUA-GH IQNQS-CDA-GI PTI-CDA-GB(NY) GQNQJC-AUA-GI DCAS-CDA-GE INSBP-CDA-GE(NY) GQNQJI-AUA-GI DRPAI-CDA-GE DCAS-CDA-GE(NY) GQNQS-AUA-GI I-CDA-HD DRPAI-CDA-GE(NY) GQNQJS-AUA-GI I-CDA-HD(A)(1) I-CDA-HD(XC) GQNQI-AUA-GI I-CDA-HD(SC)* I-CDA-IC(IR/MP) GQNQJI-AUA-GH I-CDA-HD(TX/E)* G-CDA-HD(XC) GQNQJC-AUA-GH I-CDA-HD(TX/M)* GTCC-HD(XC) GLID-CDA-HO I-CDA-HD(TX/P)* GA-TF-GO(NY) GID-CDA-HO I-CDA-HD(TX/S)* GA-UPA-GO(NY) GSD-CDA-HO I-CDA-HI(NQ) GA-UPC-GO(NY) GLIDE-CDA-HO I-CDA-HI(NQ/CT)* I-CDA-IC(NQ/MP) G-CDA-HD I-CDA-HI(NQ/MN)* I-CDA-IC(IR/NY) G-CDA-HD(NS) I-CDA-HI(NQ/NJ)* I-CDA-IC(NQ/NY) G-CDA-HF I-CDA-HI(NQ/PA)* G-CDA-IC(NQ) G-CDA-IA(OH) I-CDA-HI(NQ/SC)* GMCC-IC(NQ) G-CDA-IB(IR) I-CDA-HI(NQ/TX)* I-CDA-IA G-CDA-IC(IR) I-CDA-HI(NQ/WA)* G-CDA-ID(DC) PT-CDA-66 I-CDA-IO(MN)* G-CDA-GP1(4/94) PT-CDA-66A I-CDA-IA I-CDA-GP1(4/94)
(1) Contract for use in MN and MO * State specific forms A-1 SEPARATE ACCOUNTS AND ASSOCIATED CONTRACTS Name of Separate Account and Date Established by Board of Directors - -------------------------------------- Separate Account Variable Annuity Account C was organized as a separate account of the Company on June 25, 1974 pursuant to authorization given by vote of the Company's Board of Directors on May 10, 1974. Contracts Funded by Separate Account Variable Annuity Account C
CDA-66A GIT-CDA-HO IQNQS-CDA-GH TRPAI-CDA-GE(NY) CDA-66 GLID-CDA-HO IHRIRI-CDA-GI TPRAS-CDA-GE(NY) GA-UP-66 GLIT-CDA-HO IHRIRS-CDA-GI DCAS-CDA-GE(NY) GDA-66-(SP) GID-CDA-HO IQNQI-CDA-GI DRPAI-CDA-GE(NY) GDA-UA-67 GST-CDA-HO IQNQS-CDA-GI G-CDA-HD(XC) GDA-PCA-67 GSD-CDA-HO PTI-CDA-GI GTCC-HD(XC) GA-TF-67 GIH-CDA-HB IMT-CDA-HO G-CDA-HD(X) GA-TF-GO G-CDA-HD IST-CDA-HO G-TDA-HH(XC/M) GA-UPA-GO G-CDA-HD(NS) ISP-CDA-HOG TCC-HH(XC/M) GA-UPC-GO G-CDA-HF I-CDA-HD G-TDA-HH(XC/S) GDA-PCA-GO G-CDA-IA(RP) I-CDA-HD(A)3 GTCC-HH(XC/S) GDA-OA-GO G-CDA-IB(ORP)(1) I-CDA-HD(SC)* G-CDA-IA(RPM/XC) GDA-UA-GO G-CDA-IB(TORP)(1) I-CDA-HD(TX/E)* GTCC-IA(RPM/XC) GDA-UPA-GO G-CDA-IB-(AORP) I-CDA-HD(TX/M)* G-CDA-IB(XC/SM) GA-TF-68 G-CDA-IB(ATORP) I-CDA-HD(TX/P)* GC403-IB(XC/SM) GP-DUA-GF G-CDA-IC(A)(2) I-CDA-HD(TX/S)* I-CDA-HD(XC) GVF-PI-GF G-CDA-HG(401) I-CDA-IO(MN)* GA-TF-GO(NY) GP-DUA-GFA G-TDA-HG IA-CDA-IA GA-UPA-GO(NY) GVF-PS-GF G-CDA-IA(OH) IA-CDA-IA(MN)* GA-UPC-GO(NY) GVF-PI-GG PT-CDA-66 IA-CDA-IA(PA)* GDA-PCA-GO(NY) GVF-PS-GG PT-CDA-66A IA-CDA-IA(PR)* GCD-OA-GO(NY) GQNQS-AUA-GH PTI-CDA-GA IP-CDA-IB GDA-UA-GO(NY) GQNQI-AUA-GH PTS-CDA-GA IP-CDA-IB(WI)* G-TDA-HG(X) GQNQJS-AUA-GH INI-CDA-GA IP-CDA-IB(MN)* G-401-IB (X/M) GQNQJI-AUA-GH INS-CDA-GA I-CDA-HD G-CDA-IA(RPM/XC) GQNQJC-AUA-GH PTI-CDA-GB I-CDA-HD(TX/S)* G-401-IB(X/M) GQNQJC-AUA-GI INSBP-CDA-GE I-CDA-HD(A)* GTCC-HF GQNQJI-AUA-GI TRPAI-CDA-GE PT-CDA-66A(NY) G-CDA-IA(RP) GQNQS-AUA-GI TPRAS-CDA-GE PTI-CDA-GA(NY) IRA-CDA-IC GQNQJS-AUA-GI DCAS-CDA-GE PTS-CDA-GA(NY) IP-CDA-IB(WA) GQNQI-AUA-GI DRPAI-CDA-GE INI-CDA-GA(NY) G-CDA-ID(DC) HR10-DUA-GI IHRIRS-CDA-GH INS-CDA-GA(NY) GIP-CDA-HB HR10-DUA-GIA IHRIRI-CDA-GH PTI-CDA-GB(NY) IA-CDA-IA HR10S-DUA-GI IQNQI-CDA-GH INSBP-CDA-GE(NY) G-CDA-IB(IR) A001RP95 A007RC95 A020RV95 A027RV95
(1) Contract for use in ME, OK, SC and TN only (2) Contract for use in CT, IL and MT (3) Contract for use in MN and MO (4) State specific forms A-2 SEPARATE ACCOUNTS AND ASSOCIATED CONTRACTS Name of Separate Account and Date Established by Board of Directors - -------------------------------------- Separate Account Variable Life Account B was organized as a separate account of the Company pursuant to authorization given by vote of the Company's Board of Directors on June 18, 1986. Contracts Funded by Separate Account Variable Life Account B 38899 38899-90 38899-93 70180-93US 70182-93US 70181-94US 70225-95 A-3 EX-8.7 13 EXHIBIT 8.7 AGREEMENT THIS AGREEMENT made by and between LEXINGTON MANAGEMENT CORPORATION ("LMC"), a Delaware corporation, and AETNA LIFE INSURANCE AND ANNUITY COMPANY ("AETNA"), a life insurance company organized under the laws of the State of Connecticut, regarding LEXINGTON GOLD TRUST ("TRUST"), a to-be-organized Massachusetts business trust, is as follows: WHEREAS, TRUST is to be registered with the Securities and Exchange Commission ("SEC") under the Investment Company Act of 1940 ("1940 Act") as an open-end management investment company and its securities are to be registered under the Securities Act of 1933 ("1933 Act"); WHEREAS, TRUST is to be used solely as a funding vehicle for variable annuity and variable life insurance contracts offered by life insurance companies through separate accounts of such life insurance companies; and WHEREAS, AETNA has established Aetna Life Insurance and Annuity Company Variable Annuity Account C, a separate account, and other separate accounts to offer variable annuity and variable life contracts, and is desirous of having TRUST serve as one of the funding vehicles for one or more such variable contracts; NOW, THEREFORE, and in consideration of the mutual covenants herein contained, it is hereby agreed by and between LMC and AETNA as follows: 1. LMC shall organize TRUST with investment objectives, policies, and restrictions substantially identical to those of Lexington Goldfund, Inc., another open-end management investment company managed by LMC, except as such objectives and policies may have to be modified to comply with applicable insurance laws, and except that TRUST shall not do business with, or invest in the securities of, any enterprise directly, or indirectly through one or more affiliates engaged in any aspect of the mining, purchase, sale or processing of precious minerals within the Republic of South Africa or doing business with any such enterprise. LMC shall provide the necessary officers and trustees of TRUST and shall take all steps necessary to register TRUST and its securities with the Securities and Exchange Commission and in any states where such registration may be required. 2. LMC shall act as investment adviser to TRUST for an annual fee, payable monthly, of 1% of the average daily net assets of TRUST. LMC shall pay to AETNA from this fee an annual amount, payable monthly, equal to .15% of the average daily net assets of TRUST for certain administrative services to be provided by AETNA. LMC shall not waive any portion of its fee without the written consent of AETNA, and shall use its best efforts to keep its investment advisory contract with TRUST in effect as required by the 1940 Act. LMC will promptly provide AETNA with copies of the minutes of all proceedings of the Board of Trustees of TRUST, or any committee thereof, together with all agreements presented at such meetings. LMC will promptly provide AETNA with copies of all filings made with the SEC pertaining to TRUST. AETNA will promptly provide LMC with copies of all filings made with the SEC pertaining to separate accounts for which the TRUST serves as a funding vehicle. 3. TRUST will make its shares available at net asset value to the separate account(s) designated by AETNA. 4. TRUST will not make its shares available to any other life insurance company without the written consent of AETNA. However, future exclusivity of TRUST will be subject to the attainment of certain asset growth targets to be agreed upon by LMC and AETNA. 5. Orders for such shares shall be placed with the TRUST's custodian pursuant to procedures which are then in effect and which may be modified from time to time. TRUST will provide AETNA with documentation of all procedures in effect when the offer and sale of TRUST shares0 0i1s to commence and will inform AETNA of any modifications to such procedures. 6. LMC will diversify TRUST's investments in accordance with the provisions of Section 817(h) of the Internal Revenue Code and the regulations thereunder. 7. AETNA shall cause the contracts funded by TRUST shares to be registered with the SEC under the 1933 Act and the separate account(s) to be registered with the SEC as unit investment trust(s) under the 1940 Act to the extent required by these laws, and shall file such documents and take such other action as needed in order to comply with all requirements of the applicable insurance laws in connection with the use of TRUST shares as funding vehicles. 8. Any materials used by AETNA which describe TRUST, its shares, or LMC shall be submitted to LMC for approval prior to use. AETNA shall file any such sales material with the National Association of Securities Dealers, Inc. 9. (a) AETNA shall be solely responsible for its actions in connection with its use of TRUST and its shares and shall indemnify and hold harmless TRUST, and LMC their officers, directors, and trustees from any liability, including reasonable attorneys' fees, arising from AETNA's use of TRUST or its shares. (b) LMC shall be solely responsible for its actions in connection with its management of TRUST and shall indemnify and hold harmless AETNA, its officers and 2 directors from any liability, including reasonable attorneys' fees, for its negligent or wrongful acts or failures to act with respect to its management of TRUST. 10. AETNA understands that LMC acts and will act in the future as investment adviser to other investment companies. However, during 1989, LMC will not, except as provided in contracts in effect prior to December 1, 1988, act as an investment advisor to other gold or precious metal type investment companies that may be sold in the Internal Revenue Code Section 457 or Section 403(b) markets. 11. If, after a presentation on the issue by AETNA, the Board of Trustees of TRUST, or a majority of its disinterested Trustees, determines that a material irreconcilable conflict exists, making it not in the best interest of TRUST to continue to sell shares to AETNA, AETNA shall, at its own expense, take whatever steps are necessary to remedy or eliminate the irreconcilable material conflict, which steps may include, but are not limited to: (a) withdrawing the assets allocable to the separate account(s) of AETNA from TRUST and reinvesting such assets in a different investment medium managed by LMC, or submitting to a vote of all affected contract owners the questions of whether (i) withdrawal of assets from TRUST or (ii) segregation of assets should be implemented and, as appropriate, withdrawing or segregating the assets of any particular group that votes in favor of such withdrawal or segregation, or offering to the affected contract owners the options of making such a change; (b) establishing a new registered open-end management investment company or managed separate account managed by LMC. For purposes hereof, the Board of Trustees, including a majority of the disinterested Trustees, shall determine after further discussion with AETNA whether or not any proposed action adequately remedies any material irreconcilable conflict. In no event will LMC be required to establish a new funding medium for any variable contracts. AETNA shall not be required by the terms hereof to establish a new funding medium for any variable contracts if an offer to do so has been declined by vote of a majority of affected contract owners. LMC will promptly make known to AETNA the Board of Trustees' consideration or determination of the existence of a materiel irreconcilable conflict and its implications. 12. AETNA shall provide pass-through voting privileges to all variable contract owners to the extent required by the SEC. AETNA shall be responsible for assuring that each of its separate accounts participating in TRUST calculates voting privileges in a manner consistent with other life companies, if any, using TRUST. AETNA will vote shares for which it has not received voting instructions, as well as shares attributable to it, in the same proportion as it votes shares for which it has received instructions. 3 13. LMC and AETNA shall each bear its own expenses in connection with this transaction; however, if AETNA decides not to make TRUST available as an investment for its separate accounts, or if the assets of TRUST attributable to AETNA's separate accounts shall not exceed $2 million within one year after the first sale of TRUST to AETNA's separate accounts, or $10 million within two years, or $30 million within three years, it shall reimburse LMC for all of its out-of-pocket expenses incurred in connection with organizing and registering TRUST, including advances on such expenses to TRUST, up to a maximum of $25,000. 14. (a) LMC shall provide TRUST with initial capital of $100,000. (b) LMC shall pay all costs and expenses of such organization and registration, and may be reimbursed by TRUST for such expenses to the extent permitted under applicable securities laws. The TRUST will reimburse LMC for such expenses to the extent permitted, beginning once the assets of the TRUST exceed $20 million or the TRUST has completed one year of operation, whichever is sooner. Such expenses will be amortized by the TRUST over a five year period, unless a shorter amortization period is required by generally accepted accounting principles. 15. This Agreement shall terminate automatically in the event of its assignment. 16. This Agreement may be terminated at any time upon sixty (60) days' written notice to the other party hereto, without the payment of any penalty. 17. This Agreement shall be subject to the provisions of the 1940 Act and the rules and regulations thereunder, including any exemptive relief therefrom and the orders of the Securities and Exchange Commission setting forth such relief. Executed this 1st day of December, 1988. LEXINGTON MANAGEMENT CORPORATION ATTEST: /s/ Lawrrence Kantor BY /s/ Robert De Michel ---------------------- ---------------------- Chairman AETNA LIFE INSURANCE AND ANNUITY COMPANY ATTEST: /s/ Jesse Zygiel BY /s/ Thomas West ---------------------- ---------------------- Senior Vice President 4 AMENDMENT TO AGREEMENT The Agreement dated December 1, 1988 between Lexington management Corporation and AETNA Life Insurance and Annuity Company regarding Lexington Gold Trust is hereby amended as follows: PARAGRAPH 2. 2. LMC shall act as investment adviser to TRUST for an annual fee, payable monthly, of 1% of the average daily net assets of TRUST. LMC shall use its best efforts to keep its investment advisory contract with TRUST in effect as required by the 1940 Act. LMC will promptly provide AETNA with copies of the minutes of all proceedings of the Board of Trustees of TRUST, or any committee thereof, together with all agreements presented at such meetings. LMC will promptly provide AETNA with copies of all filings made with the SEC pertaining to TRUST. AETNA will promptly provide LMC with copies of all filings made with the SEC pertaining to separate accounts for which the TRUST serves as a funding vehicle. Executed this 11TH day of FEBRUARY 1991. --------------------- ------------------ LEXINGTON MANAGEMENT CORPORATION ATTEST: /s/ Lisa Curcio BY /s/ Jonathan Katz ----------------------- --------------------------------- AETNA LIFE INSURANCE AND ANNUITY COMPANY ATTEST: /s/ Jessie Zygiel BY /s/ Thomas West ------------------------- --------------------------------- 5 EX-8.8 14 EXHIBIT 8.8 AGREEMENT THIS AGREEMENT is made by and between ADVISERS MANAGEMENT TRUST ("TRUST"), a Massachusetts business trust, and Aetna Life Insurance and Annuity Company (the "LIFE COMPANY"), a life insurance company organized under the laws of the State of Connecticut. WHEREAS, TRUST is registered with the Securities and Exchange Commission under the Investment Company Act of 1940 (" '40 Act") as an open-end diversified management investment company; and WHEREAS, TRUST is organized as a series fund, currently with four Portfolios: Liquid Asset Portfolio, Limited Maturity Bond Portfolio, Growth Portfolio, and Balanced Portfolio; and WHEREAS, TRUST was organized to act as the funding vehicle for certain variable contracts offered by life insurance companies through separate accounts of such life insurance companies; and WHEREAS, LIFE COMPANY has or will establish one or more separate accounts to offer variable annuity and variable life insurance contracts and is desirous of having TRUST as an underlying funding vehicle for such variable contracts. NOW, THEREFORE, it is hereby agreed by and between TRUST and LIFE COMPANY as follows: 1. TRUST will make available to the designated separate accounts of LIFE COMPANY shares of the Growth Portfolio for investment of purchase payments in variable contracts allocated to the designated separate accounts. 2. TRUST will make the shares available to such separate accounts at net asset value next computed after receipt of each order by the TRUST. 3. Orders shall be placed for such shares with the TRUST's custodian pursuant to procedures which are then in effect and which may be modified from time to time. TRUST will provide LIFE COMPANY with documentation of all procedures now in effect and will undertake to inform LIFE COMPANY of any modifications to such procedures. 4. TRUST will provide LIFE COMPANY camera ready copy of the current TRUST prospectus and any supplements thereto for printing by LIFE COMPANY. TRUST will provide LIFE COMPANY a copy of the statement of additional information suitable for duplication. TRUST will provide LIFE COMPANY camera ready copy of its proxy material suitable for printing. TRUST will provide LIFE COMPANY annual and semi-annual reports and any supplements thereto, in camera ready form. 5. Any materials utilized by LIFE COMPANY which describe TRUST, its shares, or its adviser shall be submitted to TRUST and its adviser and distributor, Neuberger & Berman Management Incorporated, for approval prior to use. 6. LIFE COMPANY shall be solely responsible for its actions in connection with its use of TRUST and its shares and shall indemnify and hold harmless TRUST, its officers and Trustees, and its adviser and distributor, Neuberger & Berman Management Incorporated and its officers and directors from any liability arising from LIFE COMPANY's use of TRUST or its shares. LIFE COMPANY shall exonerate TRUST, its officers and Trustees, and its adviser and distributor, Neuberger & Berman Management Incorporated and its officers and directors for any use by LIFE COMPANY of the TRUST or its shares. 7. LIFE COMPANY and its agents will not make any representations concerning the TRUST or TRUST shares except those contained in the then current prospectus of the TRUST and in current printed sales literature of the TRUST. 8. LIFE COMPANY agrees to inform the Board of Trustees of TRUST of the existence of or any known potential for any material irreconcilable conflict of interest between the interests of the contract owners of the separate accounts of LIFE COMPANY investing in the TRUST and/or any other separate account of any other insurance company investing in the Trust. Any material irreconcilable conflict may arise for a variety of reasons, including: (a) an action by any state insurance regulatory authority; (b) a change in applicable federal or state insurance, tax, or securities laws or regulations, or a public ruling, private letter ruling, or any similar action by insurance, tax or securities regulatory authorities; (c) an administrative or judicial decision in any relevant proceeding; (d) the manner in which the investments of any Portfolio are being managed; (e) a difference in voting instructions given by variable annuity contract owners and variable life insurance contract owners or by contract owners of different life insurance companies utilizing TRUST; or (f) a decision by LIFE COMPANY to disregard the voting instructions of contract owners. 2 LIFE COMPANY will be responsible for assisting the Board of Trustees of TRUST in carrying out its responsibilities by providing the Board with all information reasonably necessary for the Board to consider any issue raised including information as to a decision by LIFE COMPANY to disregard voting instructions of contract owners. It is agreed that if it is determined by a majority of the members of the Board of Trustees of TRUST or a majority of its disinterested Trustees that a material irreconcilable conflict exists affecting LIFE COMPANY, LIFE COMPANY shall, at its own expense, take whatever steps are necessary to remedy or eliminate the irreconcilable material conflict, which steps may include, but are not limited to, (a) withdrawing the assets allocable to some or all of the separate accounts from TRUST or any Portfolio and reinvesting such assets in a different investment medium, including another Portfolio of the TRUST or submitting the questions of whether such segregation should be implemented to a vote of all affected contract owners and, as appropriate, segregating the assets of any particular group (i.e. annuity contract owners, life insurance contract owners or qualified contract owners) that votes in favor of such segregation, or offering to the affected contract owners the option of making such a change; (b) establishing a new registered management investment company or managed separate account; (c) LIFE COMPANY taking any action consistent with its separate account prospectus. If a material irreconcilable conflict arises because of LIFE COMPANY's decision to disregard contract owner voting instructions and that decision represents a minority position or would preclude a majority vote, the LIFE COMPANY may be required, at the TRUST's election, to withdraw its separate account's investment in TRUST. No charge or penalty will be imposed against a separate account as a result of such a withdrawal. LIFE COMPANY agrees that any remedial action taken by it in resolving any material conflicts of interest will be carried out primarily with a view to the interests of contract owners. For purposes hereof, a majority of the disinterested members of the Board of Trustees of TRUST shall determine whether or not any proposed action adequately remedies any material irreconcilable conflict. In no event will TRUST be required to establish a new funding medium for any variable contracts. LIFE COMPANY shall not be required by the terms hereof to establish a new funding medium for any variable contracts if an offer to do so has been declined by vote of a majority of affected contract owners. TRUST will undertake to promptly make known to LIFE COMPANY the Board of Trustees' determination of the existence of a material irreconcilable conflict and its implications. 3 9. LIFE COMPANY shall provide pass-through voting privileges to all variable contract owners so long as the Securities and Exchange Commission continues to interpret the 140 Act to require such pass-through voting privileges for variable contract owners. LIFE COMPANY shall be responsible for assuring that each of its separate accounts participating in TRUST calculates voting privileges in a manner consistent with instructions received from TRUST regarding the practices of the other life companies utilizing TRUST. It is a condition of this Agreement that LIFE COMPANY will vote shares for which it has not received voting instructions as well as shares attributable to it in the same proportion as it votes shares for which it has received instructions. 10. This Agreement shall terminate automatically in the event of its assignment unless made with the written consent of LIFE COMPANY and TRUST. 11. This Agreement may be terminated at any time on 60 days' written notice to the other party hereto, without the payment of any penalty. 12. This Agreement shall be subject to the provisions of the 140 Act and the rules and regulations thereunder, including any exemptive relief therefrom and the orders of the Securities and Exchange Commission setting forth such relief. 13. It is understood by the parties that this Agreement is not to be deemed an exclusive arrangement. Executed this 14th day of April, 1989. ADVISERS MANAGEMENT TRUST ATTEST: /s/ By: /s/ Stanley Egener ---------------------- ------------------------- Stanley Egener, Chairman AETNA LIFE INSURANCE AND ANNUITY COMPANY ATTEST: /s/ By: /s/ Thomas L. West, Jr. ---------------------- ------------------------- Thomas L. West. Jr. Senior Vice President 4 ASSIGNMENT AND MODIFICATION AGREEMENT This Agreement is made by and between Neuberger & Berman Advisers Management Trust ("Trust"), a Massachusetts business trust, Neuberger & Berman Management Incorporated ("N&B Management"), a New York corporation, Neuberger & Berman Advisers Management Trust ("Successor Trust"), a Delaware business trust, Advisers Managers Trust ("Managers Trust") and Aetna Life Insurance and Annuity Company ("Life Company"), a life insurance company organized under the laws of the State of Connecticut. WHEREAS, the Life Company has previously entered into a Sales Agreement dated April 14, 1989 (the "Sales Agreement") with the Trust regarding the purchase of shares of the Trust by Life Company; and WHEREAS, as part of the reorganization into a "master-feeder" fund structure (the "Reorganization"), the Trust will be converted into the Successor Trust, a Delaware business trust; and WHEREAS, as part of the Reorganization, each Portfolio of the Trust will transfer all of its assets to the corresponding Portfolio of the Successor Trust ("Successor Portfolio") and each Successor Portfolio will invest all of its net investable assets in a corresponding series of Managers Trust; and WHEREAS, as part of the Reorganization, an Order under Section 6(c) of the Investment Company Act of 1940 ("40 Act") is expected to be issued by the Securities and Exchange Commission ("SEC") granting exemptions from Sections 9(a), 13(a), 15(a) and 15(b) of the '40 Act and Rules 6e-2(b)(15) and 6e- 3(T)(b)(15) thereunder; and WHEREAS, the Order is expected to require that certain conditions (the "Conditions") as set forth in the Notice (Investment Company Act Release No. 21003 (April 12, 1995)) be made a part of the Sales Agreement; and WHEREAS, the parties hereto desire to assign the Sales Agreement from the Trust to the Successor Trust, to modify the Sales Agreement to include the Conditions and to rename the Sales Agreement; and WHEREAS, N&B Management and Managers Trust will become parties to the Sales Agreement as modified hereby, due to and for purposes of their obligations under the Conditions. NOW THEREFORE, in consideration of their mutual promises, Trust, N&B Management, Successor Trust, Managers Trust and Life Company agree as follows: 1. The Sales Agreement is hereby assigned by the Trust to the Successor Trust. 5 2. Pursuant to such assignment, the Successor Trust hereby accepts all rights and benefits of the Trust under the Sales Agreement and agrees to perform all duties and obligations of the Trust under the Sales Agreement. Upon the effectiveness of this Assignment and Modification Agreement, the Trust will be released from all obligations and duties under the Sales Agreement. 3. The Sales Agreement is hereby modified to include the Conditions as follows: Sections 8 and 9 of the Sales Agreement are replaced by the following: 8. a) The Board of Trustees of each of the Successor Trust and Managers Trust (the "Boards") will monitor the Successor Trust and Managers Trust, respectively, (collectively the "Funds") for the existence of any material irreconcilable conflict between the interests of the contract owners of all insurance company separate accounts investing in the Funds. A material irreconcilable conflict may arise for a variety of reasons, including: (a) state insurance regulatory authority action; (b) a change in applicable federal or state insurance, tax, or securities laws or regulations, or a public ruling, private letter ruling, or any similar action by insurance, tax, or securities regulatory authorities; (c) an administrative or judicial decision in any relevant proceeding; (d) the manner in which the investments of the Funds are being managed; (e) a difference in voting instructions given by variable annuity and variable life insurance contract owners or by contract owners of different participating insurance companies; or (f) a decision by a participating insurance company to disregard voting instructions of contract owners. b) Life Company, other participating insurance companies, N&B Management (or any other manager or administrator of the Funds), and any qualified pension and retirement plan that executes a fund participation agreement upon becoming an owner of 10% or more of the assets of the Funds (collectively, "Participants") will report any potential or existing conflicts to the Boards. Participants will be responsible for assisting the appropriate Board in carrying out its responsibilities under these Conditions by providing the Board with all information reasonably necessary for it to consider any issues raised. This responsibility includes, but is not limited to, an obligation by each Participant to inform the Board whenever variable contract owner voting instructions are disregarded. These responsibilities will be carried out with a view only to the interests of the contract owners. c) If a majority of the Board of a Fund or a majority of its disinterested trustees or directors, determines that a material irreconcilable conflict exists, the relevant Participant, at its expense and to the extent reasonably practicable (as determined by a majority of disinterested trustees or directors), will take any steps necessary to remedy or eliminate the irreconcilable material conflict, including: (a) withdrawing the assets allocable to some or all of the separate accounts from the Funds or any series thereof and reinvesting those assets in a different investment medium, which may include another series of the Successor Trust or Managers Trust, or another 6 investment company or submitting the question as to whether such segregation should be implemented to a vote of all affected variable contract owners and, as appropriate, segregating the assets of any appropriate group (i.e., variable annuity or variable annuity contract owners of one or more Participants) that votes in favor of such segregation, or offering to the affected variable contract owners the option of making such a change; and (b) establishing a new registered management investment company or managed separate account. If a material irreconcilable conflict arises because of a Participant's decision to disregard contract owner voting instructions, and that decision represents a minority position or would preclude a majority vote, the Participant may be required, at the election of the relevant Fund, to withdraw its separate account's investment in such Fund, and no charge or penalty will be imposed as a result of such withdrawal. The responsibility to take remedial action in the event of a Board determination of an irreconcilable material conflict and to bear the cost of such remedial action shall be a contractual obligation of all Participants under their agreements governing their participation in the Funds. The responsibility to take such remedial action shall be carried out with a view only to the interests of the contract owners. For the purposes of Condition (c), a majority of the disinterested members of the applicable Board shall determine whether or not any proposed action adequately remedies any irreconcilable material conflict, but in no event will the relevant Fund or N&B Management (or any other investment adviser of the Funds) be required to establish a new funding medium for any variable contract. Further, no Participant shall be required by this condition (c) to establish a new funding medium for any variable contract if any offer to do so has been declined by a vote of a majority of contract owners materially affected by the irreconcilable material conflict. d) Any Board's determination of the existence of an irreconcilable material conflict and its implications shall be made known promptly and in writing to all Participants. 9. a) Participants will provide pass-through voting privileges to all contract owners so long as the SEC continues to interpret the '40 Act as requiring pass-through voting privileges for variable contract owners. This condition will apply to UIT-separate accounts investing in the Successor Trust and to managed separate accounts investing in Managers Trust to the extent a vote is required with respect to matters relating to Managers Trust. Accordingly, the Participants, where applicable, will vote shares of a Fund held in their separate accounts in a manner consistent with voting instructions timely received from variable contract owners. Participants will be responsible for assuring that each of their separate accounts that participates in the Funds calculates voting privileges in a manner consistent with other Participants. The obligation to calculate voting privileges in a manner consistent with all other separate accounts investing in the Funds will be a contractual obligation of all Participants under the agreements governing participation in the Funds. Each Participant will vote shares for 7 which it has not received timely voting instructions, as well as shares it owns, in the same proportion as its votes those shares for which it has received voting instructions. b) If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the '40 Act or the rules thereunder with respect to mixed and shared funding on terms and conditions materially different from any exemptions granted in the order requested, then the Successor Trust, Managers Trust and/or the Participants, as appropriate, shall take such steps as may be necessary to comply with Rule 6e-2 and Rule 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such Rules are applicable. c) No less than annually, the Participants shall submit to the Boards such reports, materials or data as such Boards may reasonably request so that the Boards may fully carry out the obligations imposed upon them by these Conditions. Such reports, materials, and data shall be submitted more frequently if deemed appropriate by the applicable Boards. 4. The Sales Agreement is hereby modified to include indemnification as follows: 22. (a) Except as limited by and in accordance with the provisions of Sections 22(b) and 22(c) hereof, N&B MANAGEMENT agrees to indemnify and hold harmless LIFE COMPANY and each of its directors and officers and each person, if any, who controls LIFE COMPANY within the meaning of Section 15 of the '33 Act (collectively, the "Indemnified Parties") against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of N&B MANAGEMENT, which consent shall not be unreasonably withheld) or litigation (including legal and other expenses) to which the Indemnified Parties may become subject under any statute, or regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements are related to the sale or acquisition of TRUST's shares or the variable contracts or exercise of rights with respect to such shares or contracts, and arise as a result of failure by Trust to comply with the diversification requirements of Section 817(h) of the Code. (b) N&B Management shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement or to LIFE COMPANY. (c) N&B MANAGEMENT shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified N&B MANAGEMENT in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such 8 Indemnified Party shall have received notice of such service on any designated agent), but failure to notify N&B MANAGEMENT of any such claim shall not relieve N&B MANAGEMENT from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, N&B MANAGEMENT shall be entitled to participate at its own expense in the defense thereof. N&B MANAGEMENT also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from N&B MANAGEMENT to such party of N&B MANAGEMENT's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and N&B MANAGEMENT will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 5. The Sales Agreement shall be renamed Fund Participation Agreement. 6. This Assignment and Modification Agreement shall be effective on May 1, 1995, the closing date of the conversion. In the event of a conflict between the terms of this Assignment and Modification Agreement and the terms of the Sales Agreement, the terms of this Assignment and Modification Agreement shall control. 7. All other terms and conditions of the Sales Agreement remain in full force and effect. Executed this 1st day of May, 1995. Neuberger & Berman Advisers Management Trust (a Massachusetts business trust) Attest: /s/ Claudia A. Brandon By: /s/ Stanley Egener - -------------------------------------------------------------------------------- Claudia A. Brandon Stanley Egener, Chairman Neuberger & Berman Advisers Management Trust (a Delaware business trust) Attest: /s/ Claudia A. Brandon By: /s/ Stanley Egener - -------------------------------------------------------------------------------- Claudia A. Brandon Stanley Egener, Chairman 9 Advisers Managers Trust Attest: /s/ Claudia A. Brandon By: /s/ Stanley Egener - -------------------------------------------------------------------------------- Claudia A. Brandon Stanley Egener, Chairman Neuberger & Berman Management Incorporated Attest: /s/ Ellen Metzger By: /s/Alan Dynner - -------------------------------------------------------------------------------- Ellen Metzger Alan Dynner Aetna Life Insurance and Annuity Company Attest: /s/ Patricia Reid Rup By: /s/ James C. Hamilton - -------------------------------------------------------------------------------- Patricia Reid Rup James C. Hamilton 10 EX-8.9 15 EXHIBIT 8.9 PARTICIPATION AGREEMENT PARTICIPATION AGREEMENT (the "Agreement") made by and between SCUDDER VARIABLE LIFE INVESTMENT FUND (the "Fund"), a Massachusetts business trust created under a Declaration of Trust dated March 15, 1985, as amended, with a principal place of business in Boston, Massachusetts and AETNA LIFE INSURANCE AND ANNUITY COMPANY, a Connecticut corporation (the "Company"), with a principal place of business in Hartford, Connecticut on behalf of the Variable Annuity Account C, (the "Account"), a separate account of the Company. WHEREAS, the Fund acts as the investment vehicle for the separate accounts established for variable life insurance policies and variable annuity contracts (collectively referred to herein as "Variable Insurance Products") to be offered by insurance companies which have entered into participation agreements substantially identical to this Agreement ("Participating Insurance Companies") and their affiliated insurance companies; and WHEREAS, the beneficial interest in the Fund is divided into several series of shares of beneficial interest ("Shares"), and additional series of Shares may be established, each designated a "Portfolio" and representing the interest in a particular managed portfolio of securities; and WHEREAS, it is in the best interest of Participating Insurance Companies to make capital contributions if required so that the annual expenses of each Portfolio of the Fund in which a Participating Insurance Company is a shareholder will not exceed a fixed percentage of the Portfolio's average annual net assets; and WHEREAS, the Parties desire to evidence their agreement as to certain other matters, NOW THEREFORE, in consideration of the foregoing and the mutual covenants and agreements hereinafter contained, the parties hereto agree as follows: 1. ADDITIONAL DEFINITIONS. For the purposes of this Agreement, the following definitions shall apply: (a) The "expenses of a Portfolio" for any fiscal year shall mean the expenses for such fiscal year as shown in the Statement of Operations (or similar report) certified by the Fund's independent public accountants; (b) A "Portfolio's average daily net assets" for each fiscal year shall mean the sum of the net asset values determined throughout the year for the purpose of determining net asset value per Share, divided by the number of such determinations during such year; (c) The Company's "Required Contribution" on behalf of the Account in respect of a Portfolio for any fiscal year shall mean an amount equal to the expenses of that Portfolio for such year minus the below-indicated percentage of that Portfolio's average daily net assets for the year: Managed International Portfolio..............................1.5% Each other Portfolio........................................0.75% multiplied by a fraction the denominator of which is the average daily net assets of that Portfolio and the numerator of which is the average daily net asset value of the Shares of that Portfolio owned by the Account (referred to herein as a "Participating Shareholder"). The Company's Required Contribution in respect of a Portfolio shall be pro-rated based on the number of business days on which this Agreement is in effect for periods of less than a fiscal year. (d) The "average daily net asset value of the Shares of the Portfolio" owned by the Account for any fiscal year of the Fund shall mean the greater of (i) $500,000 or (ii) the sum of the aggregate net values of the Shares so owned determined during the fiscal year, as of each determination of the net asset value per Share, divided by the total number of determinations of net asset value during such year. (e) "Shares" means shares of beneficial interest, without par value, of any Portfolio, now or hereafter created, of the Fund. 2. CAPITAL CONTRIBUTION. The Company on behalf of the Account shall, within sixty days after the end of each fiscal year of the Fund, make a capital contribution to the Fund in respect of each Portfolio equal to the Required Contribution for that Portfolio for such year; provided, however, that in the event that both clauses (i) and (ii) of paragraph (d) of Section 1 of this Agreement or similar agreements are applicable to different Participating Insurance Companies during the same fiscal year, there shall be a proportionate reduction of the Required Contribution of each Participating Insurance Company to which said clause (ii) is applicable so that the total of all required capital contributions to the Fund on behalf of any Portfolio is not greater than the excess of the expenses of that Portfolio for that fiscal year less the percentage of that Portfolio's total expenses set forth in paragraph (c) of Section 1 of this Agreement for such fiscal year. 2 3. DUTY OF FUND TO SELL. The Fund shall make its Shares available for purchase at the applicable net asset value per Share by Participating Insurance Companies and their affiliates and separate accounts on those days on which the Fund calculates its net asset value pursuant to rules of the Securities and Exchange Commission; provided, however, that the Trustees of the Fund may refuse to sell Shares of any Portfolio to any person, or suspend or terminate the offering of Shares of any Portfolio, if such action is required by law or by regulatory authorities having jurisdiction or is, in the sole discretion of the Trustees, necessary in the best interest of the shareholders of any Portfolio. 4. REQUIREMENT TO EXECUTE PARTICIPATION AGREEMENT; REQUESTS. Each Participating Insurance Company shall, prior to purchasing Shares in the Fund, execute and deliver a participation agreement in a form substantially identical to this Agreement. The Fund shall make available, upon written request from the Participating Insurance Company given in accordance with Paragraph 10, to each Participating Insurance Company which has executed an Agreement and which Agreement has not been terminated pursuant to Paragraph 8 (i) a list of all other Participating Insurance Companies, and (ii) a copy of the Agreement as executed by any other Participating Insurance Company. The Fund shall also make available upon request to each Participating Insurance Company which has executed an Agreement and which Agreement has not been terminated pursuant to Paragraph 8, the net asset value of any Portfolio of the Fund as of any date upon which the Fund calculates the net asset value of its Portfolios for the purpose of purchase and redemption of Shares. 5. INDEMNIFICATION. The Company agrees to indemnify and hold harmless the Fund and each of its Trustees and officers and each person, if any, who controls the Fund within the meaning of Section 15 of the Securities Act of 1933 (the "Act") against any and all losses, claims, damages, liabilities or litigation (including legal and other expenses), arising out of the acquisition of any Shares by any person, to which the Fund or such Trustees, officers or controlling person may become subject under the Act, under any other statute, at common law or otherwise, which (i) may be based upon any wrongful act by the Company, any of its employees or representatives, any affiliate of or any person acting on behalf of the Company or a principal underwriter of its insurance products, or (ii) may be based upon any untrue statement or alleged untrue statement of a material fact contained in a registration statement or prospectus covering Shares or any amendment thereof or supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if 3 such a statement or omission was made in reliance upon information furnished to the Fund by the Company, or (iii) may be based on any untrue statement or alleged untrue statement of a material fact contained in a registration statement or prospectus covering insurance products sold by the Company or any insurance company which is an affiliate thereof, or any amendments or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement or statements therein not misleading, unless such statement or omission was made in reliance upon information furnished to the Company or such affiliate by or on behalf of the Fund; provided, however, that in no case (i) is the Company's indemnity in favor of a Trustee or officer or any other person deemed to protect such Trustee or officer or other person against any liability to which any such person would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance of his duties or by reason of his reckless disregard of obligations and duties under this Agreement or (ii) is the Company to be liable under its indemnity agreement contained in this Paragraph 5 with respect to any claim made against the Fund or any person indemnified unless the Fund or such person, as the case may be, shall have notified the Company in writing pursuant to Paragraph 10 within a reasonable time after the summons or other first legal process giving information of the nature of the claims shall have served upon the Fund or upon such person (or after the Fund or such person shall have received notice of such service on any designated agent), but failure to notify the Company of any such claim shall not relieve the Company from any liability which it has to the Fund or any person against whom such action is brought otherwise than on account of its indemnity agreement contained in this Paragraph 5. The Company shall be entitled to participate, at its own expense, in the defense, or, if it so elects, to assume the defense of any suit brought to enforce any such liability, but, if it elects to assume the defense, such defense shall be conducted by counsel chosen by it and satisfactory to the Fund, to its officers and Trustees, or to any controlling person or persons, defendant or defendants in the suit. In the event that the Company elects to assume the defense of any such suit and retain such counsel, the Fund, such officers and Trustees or controlling person or persons, defendant or defendants in the suit, shall bear the fees and expenses of any additional counsel retained by them, but, in case the Company does not elect to assume the defense of any such suit, the Company will reimburse the Fund, such officers and Trustees or controlling person or persons, defendant or defendants in such suit, for the reasonable fees and expenses of any counsel retained by them. The Company agrees promptly to notify the Fund pursuant to Paragraph 10 of the commencement of any litigation or proceedings against it in connection with the issue and sale of any Shares. The Fund agrees to indemnify and hold harmless the Company and each of its directors and officers and each person, if any, who controls the Company within the meaning of Section 15 of the Act against any and all losses, claims, damages, liabilities or litigation (including legal and other expenses) to which it or such directors, officers or controlling person may become subject under the Act, under any other statute, at common law or otherwise, arising out of the acquisition of any Shares by any person which (i) may be based upon any wrongful act by the Fund, any of its employees or representatives or a principal underwriter of the Fund, or (ii) may be based upon any untrue statement or 4 alleged untrue statement of a material fact contained in a registration statement or prospectus covering Shares or any amendment thereof or supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading unless such statement or omission was made in reliance upon information furnished to the Fund by the Company or (iii) may be based on any untrue statement or alleged untrue statement of a material fact contained in a registration statement or prospectus covering insurance products sold by the Company, or any amendment or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement or statements therein not misleading, if such statement or omission was made in reliance upon information furnished to the Company by or on behalf of the Fund; provided, however, that in no case (i) is the Fund's indemnity in favor of a director or officer or any other person deemed to protect such director or officer or other person against any liability to which any such person would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance of his duties or by reason of his reckless disregard of obligations and duties under this Agreement or (ii) is the Fund to be liable under its indemnity agreement contained in this Paragraph 5 with respect to any claims made against the Company or any such director, officer or controlling person unless it or such director, officer or controlling person, as the case may be, shall have notified the Fund in writing pursuant to Paragraph 10 within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon it or upon such director, officer or controlling person (or after the Company or such director, officer or controlling person shall have received notice of such service on any designated agent), but failure to notify the Fund of any claim shall not relieve it from any liability which it may have to the person against whom such action is brought otherwise than on account of its indemnity agreement contained in this Paragraph. The Fund will be entitled to participate at its own expense in the defense, or, if it so elects, to assume the defense of any suit brought to enforce any sub liability, but if the Fund elects to assume the defense, such defense shall be conducted by counsel chosen by it and satisfactory to the Company, its directors, officers or controlling person or persons, defendant or defendants, in the suit. In the event the Fund elects to assume the defense of any such suit and retain such counsel, the Company, its directors, officers or controlling person or persons, defendant or defendants in the suit, shall bear the fees and expenses of any additional counsel retained by them, but, in case the Fund does not elect to assume the defense of any such suit, it will reimburse the Company or such directors, officers or controlling person or persons, defendant or defendants in the suit, for the reasonable fees and expenses of any counsel retained by them. The Fund agrees promptly to notify the Company pursuant to Paragraph 10 of the commencement of any litigation or proceedings against it or any of its officers or Trustees in connection with the issuance or sale of any Shares. 6. PROCEDURE FOR RESOLVING IRRECONCILABLE CONFLICTS. (a) The Trustees of the Fund will monitor the operations of the Fund for the existence of any material irreconcilable conflict among the interests of all 5 the contractholders and policyowners of Variable Insurance Products (the "Participants") of all separate accounts investing in the Fund. An irreconcilable material conflict may arise, among other things, from: (a) an action by any state insurance regulatory authority; (b) a change in applicable insurance laws or regulations; (c) a tax ruling or provision of the Internal Revenue Code or the regulations thereunder; (d) any other development relating to the tax treatment of insurers, contractholders or policyowners or beneficiaries of Variable Insurance Products; (e) the manner in which the investments of any Portfolio are being managed; (f) a difference in voting instructions given by variable annuity contractholders, on the one hand, and variable life insurance policyowners, on the other hand, or by the contractholders or policyowners of different participating insurance companies; or (g) a decision by an insurer to override the voting instructions of Participants. (b) The Company will be responsible for reporting any potential or existing conflicts to the Trustees of the Fund. The Company will be responsible for assisting the Trustees in carrying out their responsibilities under this Paragraph 6(b) and Paragraph 6(a), by providing the Trustees with all information reasonably necessary for the Trustees to consider the issues raised. The Fund will also request its investment adviser to report to the Trustees any such conflict which comes to the attention of the adviser. (c) If it is determined by a majority of the Trustees of the Fund, or a majority of its disinterested Trustees, that a material irreconcilable conflict exists involving the Company, the Company shall, at its expense, and to the extent reasonably practicable (as determined by a majority of the disinterested Trustees), take whatever steps are necessary to eliminate the irreconcilable material conflict, including withdrawing the assets allocable to some or all of the separate accounts from the Fund or any Portfolio and reinvesting such assets in a different investment medium, including another Portfolio of the Fund, offering to the affected Participants the option of making such a change or establishing a new funding medium including a registered investment Company. For purposes of this Paragraph 6(c), the Trustees, or the disinterested Trustees, shall determine whether or not any proposed action adequately remedies any irreconcilable material conflict. In the event of a determination of the existence of an irreconcilable material conflict, the Trustees shall cause the Fund to take such action, such as the establishment of one or more additional Portfolios, as they in their sole discretion determine to be in the interest of all shareholders and Participants in view of all applicable factors, such as cost, feasibility, tax, regulatory and other considerations. In no event will the Fund be 6 required by this Paragraph 6(c) to establish a new funding medium for any variable contract or policy. The Company shall not be required by this Paragraph 6(c) to establish a new funding medium for any variable contract or policy if an offer to do so has been declined by a vote of a majority of the Participants materially adversely affected by the material irreconcilable conflict. The Company will recommend to its Participants that they decline an offer to establish a new funding medium only if the Company believes it is in the best interest of the Participants. (d) The Trustees' determination of the existence of an irreconcilable material conflict and its implications promptly shall be communicated to all Participating Insurance Companies by written notice thereof delivered or mailed, first class postage prepaid. 7. VOTING PRIVILEGES. The Company shall be responsible for assuring that its separate account or accounts participating in the Fund shall use a calculation method of voting procedures substantially the same as the following: those Participants permitted to give instructions and the number of Shares for which instructions may be given will be determined as of the record date for the Fund shareholders' meeting, which shall not be more than 60 days before the date of the meeting. Whether or not voting instructions are actually given by a particular Participant, all Fund shares held in any separate account or sub-account thereof and attributable to policies will be voted for, against, or withheld from voting on any proposition in the same proportion as (i) the aggregate record date cash value held in such sub-account for policies giving instructions, respectively, to vote for, against, or withhold votes on such proposition, bears to (ii) the aggregate record date cash value held in the sub-account for all policies for which voting instructions are received. Participants continued in effect under lapse options will not be permitted to give voting instructions. Shares held in any other insurance company general or separate account or sub-account thereof will be voted in the proportion specified in the second preceding sentence for shares attributable to policies. 8. DURATION AND TERMINATION. This Agreement shall remain in force for the period ending five years from the date of its execution (such date and any anniversary of such date being hereinafter called a "Renegotiation Date"), and from year to year thereafter provided that neither the Company nor the Fund shall have given written notice to the other within thirty (30) days prior to a Renegotiation Date that it desires to renegotiation the amount of contribution to capital due hereunder ("Renegotiation Notice"). If a Renegotiation Notice is properly given as aforesaid and the Fund and the Company shall fail, within sixty (60) days after the Renegotiation Date, either to enter into an amendment to this Agreement or a written 7 acknowledgment that the Agreement shall continue in effect, this Agreement shall terminate as of the one hundred twentieth day after such Renegotiation Date. If this Agreement is so terminated, the Fund may, at any time thereafter, automatically redeem the Shares of any Portfolio held by a Participating Shareholder. This Agreement may be terminated at any time, at the option of either of the Company or the Fund, when neither the Company, any insurance company nor the separate account or accounts of such insurance company which is an affiliate thereof which is not a Participating Insurance Company own any Shares of the Fund or may be terminated by either party to the Agreement upon a determination by a majority of the Trustees of the Fund, or a majority of its disinterested Trustees, following certification thereof by a Participating Insurance Company given in accordance with Paragraph 10 that an irreconcilable conflict exists among the interests of (i) all contractholders and policyholders of Variable Insurance Products of all separate accounts or (ii) the interests of the Participating Insurance Companies investing in the Fund. Notwithstanding anything to the contrary in this Agreement or its termination as provided herein, the Company's obligation to make a capital contribution to the Fund in accordance with this Agreement at the time in effect shall continue (i) following a properly given Renegotiation Notice, in the absence of agreement otherwise, until termination of this Agreement, and (ii) (except termination due to the existence of an irreconcilable conflict), following termination of this Agreement, until the later of the fifth anniversary of the date of this Agreement or the date on which the Company, its separate account(s) or the separate account(s) of any affiliated insurance company owns no Shares. 9. COMPLIANCE. The Fund will comply with the provisions of Section 4240(a) of the New York Insurance Law. Each Portfolio of the Fund will comply with the provisions of Section 817(h) of the Internal Revenue Code of 1986, as amended (the "Code"), relating to diversification requirements for variable annuity, endowment and life insurance contracts. Specifically, each Portfolio will comply with either (i) the requirement of Section 817(h)(1) of the Code that its assets be adequately diversified, or (ii) the "Safe Harbor for Diversification" specified in Section 817(h)(2) of the Code, or (iii) the diversification requirement of Section 817(h)(1) of the Code by having all or part of its assets invested in U.S. Treasury securities which qualify for the "Special Rule for Investments in United States Obligations" specified in Section 817(h)(3) of the Code. The provisions of Paragraphs 6 and 7 of this Agreement shall be interpreted in a manner consistent with any Rule or order of the Securities and Exchange Commission under the Investment Company Act of 1940, as amended, applicable to the parties hereto. No Shares of any Portfolio of the Fund may be sold to the general public. 8 10. NOTICES. Any notice shall be sufficiently given when sent by registered or certified mail to the other party at the address of such party set forth below or at such other address as such party may from time to time specify in writing to the other party. If to the Fund: Scudder Variable Life Investment Fund 175 Federal Street Boston, Massachusetts 02110 (617) 482-3990 Attn: David B. Watts If to the Company: Aetna Life Insurance and Annuity Company 151 Farmington Avenue, RE4C Hartford, Connecticut 06156 Attn: George Gingold, Esq. and T. Joseph Thornton 11. MASSACHUSETTS LAW TO APPLY. This Agreement shall be construed and the provisions hereof interpreted under and in accordance with the laws of The Commonwealth of Massachusetts. 12. MISCELLANEOUS. The name "Scudder Variable Life Investment Fund" is the designation of the Trustees for the time being under a Declaration of Trust dated March 15, 1985, as amended, and all persons dealing with the Fund must look solely to the property of the Fund for the enforcement of any claims against the Fund as neither the Trustees, officers, agents or shareholders assume any personal liability for obligations entered into on behalf of the Fund. No Portfolio shall be liable for any obligations properly attributable to any other Portfolio. The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. This Agreement may be executed simultaneously in two or more counterparts, each of which taken together shall constitute one and the same instrument. 9 13. ENTIRE AGREEMENT. This Agreement incorporates the entire understanding and agreement among the parties hereto, and supersedes any and all prior understandings and agreements between the parties hereto with respect to the subject matter hereof. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed in its name and behalf by its duly authorized representative and its seal to be hereunder affixed hereto as of the 27th day of April, 1995. SEAL SCUDDER VARIABLE LIFE INVESTMENT FUND By: /S/ David S. Lee ------------------------------ Vice President SEAL AETNA INSURANCE COMPANY OF AMERICA By: /S/ Thomas L. West ------------------------------ Its: Senior Vice President 10 FIRST AMENDMENT TO FUND PARTICIPATION AGREEMENT This first amendment, executed as of the 19th day of February, 1993, is by and between Aetna Life Insurance and Annuity Company (the "Company") and Scudder Variable Life Investment Fund (the "Fund"). WHEREAS, the Company and the Fund are parties to a Fund Participation Agreement (the "Agreement") dated April 27, 1992; and WHEREAS, the Company and the Fund now desire to modify the Agreement. NOW, THEREFORE, in consideration of the premises and the mutual covenants and promises expressed herein, the parties agree as follows: 1. The parties agree that shares of the Scudder Variable Life Investment Fund - Managed International Portfolio shall be made available to serve as an underlying investment medium for Aetna Life Insurance and Annuity Company Variable Life Account B for variable life insurance contracts ("Variable Life Contracts") of the Company. 2. The opening paragraph of the Agreement is hereby amended as follows: PARTICIPATION AGREEMENT (the "Agreement") made by and between SCUDDER VARIABLE LIFE INVESTMENT FUND (the "Fund"), a Massachusetts business trust created under a Declaration of Trust dated March 15, 1985, as amended, with a principal place of business in Boston, Massachusetts and Aetna Life Insurance and Annuity Company, a Connecticut corporation (The "Company"), with a principal place of business in Hartford, Connecticut on behalf of the Company's Variable Life Account B and Variable Annuity Account C (the "Accounts"), separate accounts of the Company. 3. All references in the Agreement to the defined term "Accounts" shall be deemed to include Variable Life Account B and Variable Annuity Account C. 4. In the event that there is any conflict between the terms of this First Amendment and the Agreement, it is the intention of the parties hereto that the terms of this First Amendment shall control, and the Agreement shall be interpreted on that basis. To the extent that the provisions of the Agreement have not been amended by this First Amendment, the parties hereto hereby confirm and ratify the Agreement. 11 IN WITNESS WHEREOF, the parties have executed this First Amendment as of the date first above written. AETNA LIFE INSURANCE AND ANNUITY COMPANY By: /S/ -------------------------------- Name: Thomas L. West, Jr. Title: Senior Vice President SCUDDER LIFE INVESTMENT FUND By: /S/ ------------------------------- Name: David S. Lee Title: Vice President 12 SECOND AMENDMENT to the FUND PARTICIPATION AGREEMENT This Second Amendment, dated August 13, 1993 by and between Aetna Life Insurance and Annuity Company (the "Company") and Scudder Variable Life Investment Fund (the "Fund"), is as follows: WHEREAS, the Company and the Fund are parties to a Participation Agreement dated April 27, 1992, as amended by the First Amendment to Fund Participation Agreement dated February 19, 1993 (the "Agreement"). WHEREAS, the Company and the Fund now desire to modify the Agreement. NOW, THEREFORE, in consideration of the premises and the mutual convenants and promises expressed herein, the parties hereto agree as follows: 1. Shares of the Scudder Variable Life Investment Fund - International Portfolio shall be made available to serve as an underlying investment medium for any Separate account of Aetna Life Insurance and Annuity Company which funds variable annuity or variable life insurance contracts of the Company, upon written notice duly given to the Fund in accordance with the terms of Section 10 of the Agreement. 2. The opening paragraph of the Agreement is hereby amended as follows: PARTICIPATION AGREEMENT (the "Agreement") made by and between SCUDDER VARIABLE LIFE INVESTMENT FUND (the "Fund"), a Massachusetts business trust created under a Declaration of Trust dated March 15, 1985, as amended, with a principal place of business in Boston, Massachusetts and Aetna Life Insurance and Annuity Company, a Connecticut corporation (the "Company"), with a principal place of business in Hartford, Connecticut on behalf of the Company's Variable Life Account B and Variable Annuity Accounts B, C and D, and any other separate account of the Company, as designated by the Company from time to time, upon written notice to the Fund in accordance with Section 10 herein (the "Account"). 13 IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment as of the date first above written. AETNA LIFE INSURANCE AND ANNUITY COMPANY By: /S/ Thomas L. West, Jr. --------------------------------- Name: Thomas L. West, Jr. Title: Senior Vice President SCUDDER VARIABLE LIFE INVESTMENT FUND By: /S/ David B. Watts ---------------------------------- Name: David B. Watts Title: President 14 EX-8.10 16 EXHIBIT 8.10 FUND PARTICIPATION AGREEMENT Aetna Life Insurance and Annuity Company (the "Company") and TCI Portfolios, Inc. ("TCIP") and its investment adviser, Investors Research Corporation ("Investors Research") hereby agree to an arrangement whereby shares of TCI Growth and TCI Balanced (the "Funds") shall be made available to serve as underlying investment media for Group Variable Annuity Contracts ("Contracts") to be offered to the public by the Company, subject to the following provision: 1. ESTABLISHMENT OF ACCOUNTS; AVAILABILITY OF FUNDS. (a) The Company represents that it has established Variable Annuity Accounts B, C and D (the "Accounts"), each of which is a separate account under Connecticut Insurance Law and has registered each of the Accounts (except Account D, for which no such registration is required) as a unit investment trust under the Investment Company Act of 1940 (the "1940 Act"). Each Contract provides for the allocation of net amounts received by the Company to separate series of an Account for investment in the shares of one of more specified investment companies selected among those companies available through the Account to act as underlying investment media. Selection of a particular investment company is made by the participant or Contract owner, as applicable under a particular Contract, who may change such selection from time to time in accordance with the terms of the applicable Contract. (b) TCIP and Investors Research represent and warrant that the investments of each of the Funds will at all times be adequately diversified within the meaning of Section 817(h) of the Internal Revenue Service Code of 1986, as amended (the "Code"), and the regulations thereunder, and that at all times while this Agreement is in effect, all beneficial interests in each of the Funds will be owned by one or more insurance companies or by any other party permitted under Section 1.817-5(f)(3) of the Regulations promulgated under the Code. 2. MARKETING AND PROMOTION. The Company agrees to make every reasonable effort to market its Contracts. It will use its best efforts to give equal emphasis and promotion to shares of the Funds as is given to other underlying investments of the Account. In marketing and administering its Contracts, the Company will comply with all applicable state and Federal laws. 3. PRICING INFORMATION; ORDERS; SETTLEMENT. (a) TCIP will make shares available to be purchased by the Company on behalf of each Account at the net asset value applicable to each order. Fund shares shall be purchased and redeemed in such quantity and at such time determined by the Company to be necessary to meet the requirements of those Contracts for which the Funds serve as underlying investment media. (b) TCIP will provide to the Company closing net asset value, dividend and capital gain information at the close of trading each day that the New York Stock Exchange (the "Exchange") is open (each such day, a business day"). The Company will send via facsimile transmission to TCIP or its specified agent orders to purchase and/or redeem Fund shares by 10:00 a.m. Eastern Time the following business day. Payment for net purchases will be wired by the Company to a custodial account designated by TCIP to coincide with the order for shares of the Funds. (c) TCIP hereby appoints the Company as its agent for the limited purpose of accepting purchase and redemption orders for Fund shares from Contract owners or participants. Orders from Contract owners or participants received by the Company acting as agent for TCIP prior to the close of the Exchange on any given business day will be executed by TCIP at the net asset value determined as of the close of the Exchange on such business day. Any orders received by the Company acting as agent on such day but after the close of the Exchange will be executed by TCIP at the net asset value determined as of the close of the Exchange on the next business day following the day of receipt of such order. (d) Payments for net redemptions of shares of the Funds will be wired by TCIP from the TCIP custodial account to an account designated by the Company. 4. EXPENSES. (a) Except as otherwise provided in this Agreement, all expenses incident to the performance by TCIP under this Agreement shall be paid by Investors Research or TCIP, including the cost of registration of TCIP's shares with the Securities and Exchange Commission (the "SEC") and in states where required. (b) TCIP shall distribute to the Company its proxy material, periodic fund reports to shareholders and other material that are required by law to be sent to Contract owners. In addition, TCIP shall provide the Company with a sufficient quantity of its prospectuses to be used in connection with the offerings and transactions contemplated by this Agreement. Subject to subsection (c) below, the cost of preparing and printing such materials shall be paid by TCIP, and the cost of distributing such materials shall be paid by the Company; PROVIDED, HOWEVER, that at any time TCIP reasonably deems the usage of such materials to be excessive, it may request that the Company pay the cost of printing (including press time and paper) of any additional copies of such materials requested by the Company. (c) In lieu of TCIP providing printed copies of prospectuses and periodic fund reports to shareholders, the Company shall have the right to request that TCIP provide to the Company a copy of such materials in an electronic format, which the Company will use to have such materials printed together with similar materials of other Account funding media that the Company will distribute to Contract owners or participants. In that event, TCIP shall reimburse the Company for the same proportion of the total printing expense for such materials as the number pages in 2 in each such printed document provided by TCIP bears to the total number of pages in such printed document. 5. REPRESENTATIONS. The Company and its agents shall not, without the written consent of TCIP, make representations concerning TCIP or its shares except those contained in the then current prospectuses and in current printed sales literature of TCIP. 6. ADMINISTRATION OF ACCOUNTS. (a) Administrative services to Contract owners and participants shall be the responsibility of the Company and shall not be the responsibility of TCIP or Investors Research. TCIP and Investors Research recognize the Company as the sole shareholder of TCIP shares issued under this Agreement. TCIP and Investors Research further recognize that they will derive a substantial savings in administrative expense, such as significant reductions in postage expense and shareholder communications and recordkeeping, by virtue of having a sole shareholder for each of the Accounts rather than multiple shareholders. In consideration of the administrative savings resulting from such arrangement, and to compensate the Company for administrative service costs, Investors Research agrees to pay to the Company an amount equal to 15 basis points (0.15%) per annum of the average aggregate amount invested by the Company under this Agreement, commencing with the month in which the average aggregate market value of investments by the Company (on behalf of the Contract owners and participants) in the Funds exceeds $10 million. No payment obligation shall arise until the Company's average aggregate investment in the Funds reaches $10 million, and such payment obligation, once commenced, shall be suspended with respect to any month during which the Company's average aggregate investment in the Funds drop below $10 million. (b) The parties understand that Investors Research customarily pays, out of its management fee, another affiliated corporation for the type of administrative services to be provided by the Company to the Contract owners and participants. The parties agree that Investors Research's payments to the Company, like Investors Research's payments to its affiliated corporation, are for administrative services only and do not constitute payment in any manner for investment advisory services or for costs of distribution. (c) For the purposes of computing the administrative fee reimbursement contemplated by this Section 6, the average aggregate amount invested by the Company over a one month period shall be computed by totaling the Company's aggregate investment (share net asset value multiplied by total number of shares held by the Company) on each business day during the month and dividing the total number of business days during such month. 3 (d) Investors Research will calculate the reimbursement of administrative expense at the end of each calendar quarter and will make such reimbursement to the Company within 30 days thereafter. The reimbursement check will be accompanied by a statement showing the calculation of the monthly amounts payable by Investors Research and such other supporting data as may be reasonably requested by the Company. 7. TERMINATION. This agreement shall terminate as to the sale and issuance of new Contracts: (a) at the option of either the Company or TCIP upon six months' advance written notice to the other; (b) at the option of the Company if TCIP shares are not available for any reason to meet the requirement of Contracts as determined by the Company. Reasonable advance notice of election to terminate shall be furnished by Company; (c) at the option of either the Company or TCIP, upon institution of formal proceedings against the broker-dealer or broker-dealers marketing the Contracts, the Account, the Company, or TCIP by the National Association of Securities Dealers, Inc. (the "NASD"), the SEC or any other regulatory body; (d) upon termination of the Management Agreement between TCIP and Investors Research. Notice of such termination shall be promptly furnished to the Company. This subsection (d) shall not be deemed to apply if contemporaneously with such termination a new contract of substantially similar terms is entered into between TCIP and Investors Research; (e) upon requisite vote of Contract owners or participants having an interest in TCIP to substitute for TCIP's shares the shares of another investment company in accordance with the terms of Contracts for which TCIP's shares had been selected to serve as the underlying investment medium. The Company will give 60 days' written notice to TCIP of any proposed vote to replace the Funds' shares; (f) upon assignment of this Agreement unless made with the written consent of all other parties hereto; (g) if TCIP's shares are not registered, issued or sold in conformance with Federal law or such law precludes the use of Fund shares as an underlying investment medium of Contracts issued or to be issued by the Company. Prompt notice shall be given by either party should such situation occur. 8. CONTINUATION OF AGREEMENT. Termination as the result of any cause listed in Section 7 shall not affect TCIP's obligation to furnish its shares to Contracts then in force for which its shares serve or may 4 serve as the underlying medium unless such further sale of Fund shares is proscribed by law or the SEC or other regulatory body. 9. ADVERTISING MATERIALS; FIELD DOCUMENTS. (a) Advertising and literature with respect to TCIP prepared by the Company or its agents for use in marketing its Contracts will be submitted to TCIP for review before such material is submitted to the SEC or NASD for review. (b) TCIP will provide to the Company at least one complete copy of all registration statements, prospectuses, statements of additional information, annual and semi-annual reports, proxy statements and all amendments or supplements to any of the above that relate to the Funds promptly after the filing of such document with the SEC or other regulatory authorities. the Company will provide to TCIP at least one complete copy of all registration statement, prospectuses, statements of additional information, annual and semi-annual reports, proxy statements, and all amendments or supplements to any of the above that relate to the Account promptly after the filing of such document with the SEC or other regulatory authority. 10. PROXY VOTING (a) The Company shall provide pass-through voting privileges to all Contract owners and participants so long as the SEC continues to interpret the 1940 Act as requiring such privileges. It shall be the responsibility of the Company to assure that it and the separate accounts of the other Participating Companies (as defined in Section 12(a) below) participating in any Fund calculate voting privileges in a consistent manner. (b) The Company will distribute to Contract owners and participants, as appropriate, all proxy material furnished by TCIP and will vote shares in accordance with instructions received from such Contract owners and participants. The Company shall vote TCIP shares for which no instructions have been received in the same proportion as shares for which such instructions have been received. The Company and its agents shall not oppose or interfere with the solicitation of proxies for TCIP shares held for such Contract owners and participants. 11. INDEMNIFICATION (a) The Company agrees to indemnify and hold harmless TCIP and each of its directors, officers, employees, agents and each person, if any, who controls TCIP or its investment adviser within the meaning of the Securities Act of 1933 (the "1933 Act") against any losses, claims, damages or liabilities to which TCIP or any such director, officer, employee, agent, or controlling person may become subject, under the 1933 Act or otherwise, insofar as such losses, claims, damages, or liabilities (or actions in respect hereof) arise out of or based upon any untrue statement or alleged untrue statement of any material fact contained in the 5 Registration Statement, prospectus or sales literature of the Company or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or arise out of or as a result of conduct, statements or representations (other than statements or representations contained in the prospectuses or sales literature of TCIP) of the Company or its agents, with respect to the sale and distribution of Contracts for which TCI Growth or TCI Balanced shares are the underlying investment. The Company will reimburse any legal or other expenses reasonably incurred by TCIP or any such director, officer, employee, agent, investment adviser, or controlling person in connection with investigating or defending any such loss, claim, damage, liability or action; PROVIDED, HOWEVER, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or omission or alleged omission made in such Registration Statement or prospectus in conformity with written materials furnished to the Company by TCIP specifically for use therein. This indemnity agreement will be in addition to any liability which Company may otherwise have. (b) Investors Research agrees to indemnify and hold harmless the Company and each of its directors, officers, employees, agents and each person, if any, who controls the Company within the meaning of the 1933 Act against any losses, claims damages or liabilities to which the Company or such director, officer, employee, agent or controlling person may become subject, under the 1933 Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, prospectuses or sales literature of the Funds or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or material fact required to be stated therein or necessary to make the statements therein not misleading. Investors Research will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, employee, agent, or controlling person in connection with investigating or defending any such loss, claim, damage, liability or action; PROVIDED, HOWEVER, that Investors Research will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or omission or alleged omission made in such Registration Statement or prospectuses in conformity with written materials furnished to TCIP by the Company specifically for use therein. This indemnity agreement will be in addition to any liability which Investors Research may otherwise have. (c) Promptly after receipt by an indemnified party hereunder of notice of the commencement of action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party hereunder, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than under this Section 11. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement 6 thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish to, assume the defense thereof, with counsel satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section 11 for any legal or other expenses subsequentlyincurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. 12. POTENTIAL CONFLICTS. (a) The Company has received a copy of an application for exemptive relief, as amended, filed by TCIP on December 21, 1987, with the SEC and the order issued by the SEC in response thereto (the "Shared Funding Exemptive Order"). The Company has reviewed the conditions to the requested relief set forth in such application for exemptive relief. As set forth in such application, the Board of Directors of TCIP (the "Board") will monitor TCIP for the existence of any material irreconcilable conflict between the interests of the contractholders of all separate accounts ("Participating Companies") investing in TCIP. An irreconcilable material conflict may arise for a variety of reasons, including: (i) an action by any state insurance regulatory authority; (ii) a change in applicable federal or state insurance, tax, or securities laws or regulations, or a public ruling, private letter ruling, no-action or interpretative letter, or any similar actions by insurance, tax or securities regulatory authorities; (iii) an administrative or judicial decision in any relevant proceeding; (iv) the manner in which the investments of any portfolio are being managed; (v) a difference in voting instructions given by variable annuity contractholders and variable life insurance contractholders; or (vi) a decision by an insurer to disregard the voting instructions of contractholders. The Board shall promptly inform the Company if it determines that an irreconcilable material conflict exists and the implication thereof. (b) The Company will report any potential or existing conflicts of which it is aware to the Board. The Company will assist the Board in carrying out its responsibilities under the Shared Funding Exemptive Order by providing the Board with all information reasonably necessary for the Board to consider any issues raised. This includes, but is not limited to, an obligation by the Company to inform the Board whenever contractholder voting instructions are disregarded. (c) If a majority of the Board, or a majority of its disinterested Board members, determines that a material irreconcilable conflict exists with regard to contractholder investments in a Fund, the Board shall give prompt notice to all Participating Companies. If the Board determines that the Company is responsible for causing or creating said conflict, the Company shall at its sole cost and expense, and to the extent reasonably practicable (as determined by a majority of the disinterested Board members), take such action as is necessary to remedy or eliminate the irreconcilable material conflict. Such necessary action may include but shall not be limited to: 7 (i) withdrawing the assets allocable to the Account from the Fund and reinvesting such assets in a different investment medium or submitting the question of whether such segregation should be implemented to a vote of all affected contractholders and as appropriate, segregating the assets of any appropriate group (i.e, annuity contract owners, life insurance contract owners, or variable contract owners of one or more Participating Companies) that votes in favor of such segregation, or offering to the affected contractholders the option of making such a change; and/or (ii) establishing a new registered management investment company or managed separate account. (d) If a material irreconcilable conflict arises as a result of a decision by the Company to disregard its contractholder voting instructions and said decision represents a minority position or would preclude a majority vote by all of its contractholders having an interest in TCIP, the Company at its sole cost, may be required, at the Board's election, to withdraw an Account's investment in TCIP, and terminate this Agreement; provided, however, that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the disinterested members of the Board. (e) For the purpose of this Section 13, a majority of the disinterested Board members shall determine whether or not any proposed action adequately remedies any irreconcilable material conflict, but in no event will TCIP be required to establish a new funding medium for any Contract. The Company shall not be required by this Section 13 to establish a new funding medium for any Contract if an offer to do so has been declined by vote of a majority of the Contract owners or participants materially adversely affected by the irreconcilable material conflict. 13. MISCELLANEOUS. (a) AMENDMENT AND WAIVER. Neither this Agreement , nor any provision hereof, may be amended, waived, discharge or terminated orally, but only an instrument in writing signed by all parties hereto. (b) NOTICES. All notices and other communications hereunder shall be given or made in writing and shall be delivered personally, or sent by telex, telecopier or registered or certified mail, postage prepaid, return receipt requested, to the party or parties to whom they are directed at the following addresses, or at such other addresses as may be designated by notice from such party to all other parties. To the Company: Aetna Life Insurance and Annuity Company 151 Farmington Avenue Hartford, Connecticut 06156 Attention:# Timothy J. Thornton 8 To TCIP or Investors Research: TCIP Portfolios, Inc. 4500 Main Street Kansas City, Missouri 64111 Attention: Patrick A. Looby Any notice, demand or other communication given in a manner prescribed in this subsection (b) shall be deemed to have been delivered on receipt. (c) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective. permitted successors and assigns. (d) COUNTERPARTS. This agreement may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any party hereto may execute this Agreement by signing any such counterpart. (e) SEVERABILITY. In case any one or more of the provisions contained in this agreement should be invalid, illegal or unenforceable in any respect , the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. (f) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and understanding between the parties hereto and supersedes all prior agreement and understandings relating to the subject matter hereof. IN WITNESS WHEREOF, the undersigned have executed this Agreement by their duly authorized officers as of this 29th day of July, 1992. AETNA LIFE INSURANCE AND ANNUITY COMPANY By /S/ Thomas L. West ----------------------------------- Name: Thomas L. West Title: Senior Vice President INVESTORS RESEARCH CORPORATION By /S/ William M. Lyons ----------------------------------- Name: William M. Lyons Title: Senior Vice President TCI PORTFOLIOS, INC. By: /S/ Patrick A. Looby ----------------------------------- Name: Patrick A. Looby Title: Vice President 9 FIRST AMENDMENT TO FUND PARTICIPATION AGREEMENT This First Amendment, executed as of the 22nd day of December, 1992, is by and among Aetna Life Insurance and Annuity Company (the "Company"), TCI Portfolio, Inc. ("TCIP") and its investment adviser, Investors Research Corporation ("Investors Research"). W I T N E S S E T H WHEREAS, the Company, TCIP and Investors Research are parties to a Fund Participation Agreement (the "Agreement") dated July 29, 1992; and WHEREAS, the Company, TCIP and Investors Research now desire to modify the Agreement. NOW, THEREFORE, in consideration of the premises and the mutual covenants and promises expressed herein, the parties agree as follows: 1. The parties agree that shares of TCI Growth and TCI Balanced, two series of shares issued by TCIP, shall be made available to serve as underlying investment media within the Variable Life Account B for Variable Life Contracts ("Variable Life Contracts") offered by the Company. 2. Paragraph 1 of the Agreement is hereby amended to include the following subparagraph (c): (c) The Company represents that it has established Variable Life Account B as a separate account under Connecticut Insurance law, and has registered Variable Life Account B as a unit investment trust under the Investment Company Act of 1940 (the "1940 Act") to serve as an investment vehicle for the Variable Life Contracts. Each Variable Life Contract provides for the allocation of net amounts received by the Company to separate series of Variable Life Account B for investment in the shares of one or more specified investment companies selected from among those companies available through Variable Life Account B to act as underlying investment media. Selection of a particular investment company is made by the Variable Life Contract owner, who may change such selection from time to time in accordance with the terms of the applicable Variable Life Contract. 3. All references in the Agreement to the defined term "Contract" shall be deemed to include Variable Life Contracts. 4. All references in the Agreement to the defined term "Accounts" shall be deemed to include Variable Life Account B. 5. In the event that there is any conflict between the terms of this First Amendment and the Agreement, it is the intention of the parties hereto that the terms of this First Amendment 10 shall control, and the Agreement shall be interpreted on that basis. To the extent that the provisions of the Agreement have not been amended by this First Amendment, the parties hereto confirm and ratify the Agreement. IN WITNESS WHEREOF, the parties have executed this First Amendment as of the date first above written. AETNA LIFE INSURANCE AND ANNUITY COMPANY By: /S/ Thomas L. West, JR. ----------------------------------- Name: Thomas L. West, Jr. Title: Senior Vice President INVESTORS RESEARCH CORPORATION By: /S/ William M. Lyons ----------------------------------- Name: William M. Lyons Title: Senior Vice President TCI PORTFOLIOS, INC. By: /S/ Patrick A. Looby ------------------------------------ Name: Patrick A. Looby Title: Vice President 11 SECOND AMENDMENT TO FUND PARTICIPATION AGREEMENT THIS SECOND AMENDMENT TO FUND PARTICIPATION AGREEMENT (the "Second Amendment") is made and entered into as of the 1st day of June, 1994, by and among AETNA LIFE INSURANCE AND ANNUITY COMPANY (the "Company"), TCI PORTFOLIOS, INC. ("TCIP") and its investment adviser, INVESTORS RESEARCH CORPORATION ("Investors Research"). All capitalized items terms not otherwise defined herein shall have the meaning ascribed to them in the Original Agreement (defined below). W I T N E S S E T H WHEREAS, the Company, TCIP and Investors Research are parties to a Fund Participation Agreement, dated July 29, 1992 (the "Original Agreement"), as amended by the First Amendment to Fund Participation Agreement, dated as of December 22, 1992 (the "First Amendment"); and WHEREAS, the Company, TCIP and Investors Research now desire to modify the Original Agreement, as amended by the First Amendment, (I) to add TCI International Equity as a funding option for the Contracts, (ii) to expand the definition of "Contracts" to include individual annuity contracts to be offered by the Company, and (iii) to increase the administrative services fee reimbursement from 15 basis points to 20 basis points per annum of the average aggregate amount invested by the Company under the Agreement (as defined below). NOW, THEREFORE, in consideration of the premises and the mutual covenants and promises expressed herein, the parties agree as follows: 1. The first sentence of the Original Agreement is hereby amended by deleting the text thereof in its entirety and inserting in lieu therefor the following: "AETNA LIFE INSURANCE AND ANNUITY COMPANY (the "Company") and TCI PORTFOLIOS, INC. ("TCIP"), and its investment adviser, INVESTORS RESEARCH CORPORATION ("Investors Research") hereby agree to an arrangement whereby shares of TCI Growth, TCI Balanced and TCI International Equity (the "Funds") shall be made available to serve as underlying investment media for individual and group variable annuity contracts (the "Contracts") to be offered to the public by the Company, subject to the provisions set forth in this Agreement. 2. Paragraph 1 of the Original Agreement is hereby amended by deleting the first sentence thereof in its entirety and inserting in lieu therefor the following: "The Company represents and warrants that is has established separate accounts pursuant to Connecticut Insurance Law (the "Accounts") to serve as the underlying investment vehicles for the Contracts. The Company further represents and warrants that each of the Accounts is registered as a unit investment trust under the Investment Company Act 12 of 1940, as amended (the "1940 Act") or is exempt from the registration requirements of the 1940 Act." 3. Paragraph 6 of the Original Agreement is hereby amended by deleting the fourth sentence of subparagraph (a) thereof and inserting in lieu therefor the following: "In consideration of the administrative savings resulting from such arrangement, and to compensate the Company for administrative service costs, Investors Research agrees to pay to the Company an amount equal to 20 basis points (.20%) per annum of the average aggregate amount invested by the Company under this Agreement." The above increase in the administrative services fee reimbursement shall be effective as of March 1, 1994. 4. After the date hereof, all reference to the term "Agreement" shall be deemed to mean the Original Agreement, as amended by the First Amendment and the Second Amendment. 5. In the event that there is any conflict between the terms of this Second Amendment and the Original Agreement, as amended by the First Amendment, it is the intention of the parties hereto that the terms of this Second Amendment shall control, and the Original Agreement, as amended by the First Amendment, shall be interpreted on that basis. To the extent that the provisions of the Original Agreement, as amended by the First Amendment, have not been amended by this Second Amendment, the parties hereto hereby confirm and ratify the Original Agreement and the First Amendment. IN WITNESS WHEREOF, the parties have executed this Second Amendment as of the date first above written. AETNA LIFE INSURANCE AND ANNUITY COMPANY By: ------------------------------- Scott Striegel Senior Vice President INVESTORS RESEARCH CORPORATION By: -------------------------------- William M. Lyons Executive Vice President TCI PORTFOLIOS, INC. 13 By: --------------------------------- William M. Lyons Executive Vice President 14 EX-10.1 17 EXHIBIT 10.1 CONSENT OF INDEPENDENT AUDITORS The Board of Directors of Aetna Life Insurance and Annuity Company and Contract Owners of Aetna Variable Annuity Account C: We consent to the use of our reports dated February 6, 1996 and February 16, 1996 included herein and to the references to our Firm under the captions "Condensed Financial Information" in the Prospectus and "Independent Auditors" in the Statement of Additional Information. Our report dated February 6, 1996 refers to a change in 1993 in the Company's method of accounting for certain investments in debt and equity securities. KPMG Peat Marwick LLP Hartford, Connecticut April 12, 1996 EX-10.2 18 EXHIBIT 10.2 Exhibit 10.2 Susan E. Bryant Counsel Law & Regulatory Affairs, RE4C 151 Farmington Avenue Hartford, CT 06156 (860) 273-7834 Fax: (860) 273-8340 April 12, 1996 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Attention: Filing Desk Re: Variable Annuity Account C of Aetna Life Insurance and Annuity Company Post-Effective Amendment No. 5 to the Registration Statement on Form N-4 File Nos. 33-75986 and 811-2513 ------------------------------- Gentlemen: As Counsel of Aetna Life Insurance and Annuity Company (the "Company"), I hereby consent to the use of my opinion dated February 28, 1996 (incorporated herein by reference to the 24f-2 Notice for the fiscal year ended December 31, 1995 filed on behalf of Variable Annuity Account C of Aetna Life Insurance and Annuity Company on February 29, 1996) as an exhibit to this Post-Effective Amendment No. 5 to the Registration Statement on Form N-4 (File No. 33-75986) and to my being named under the caption "Legal Matters" therein. Very truly yours, /s/ Susan E. Bryant Susan E. Bryant EX-15.2 19 EXHIBIT 15.2 [AETNA LOGO] [AETNA LETTERHEAD] AETNA LIFE INSURANCE AND ANNUITY COMPANY I, Susan E. Schechter, Corporate Secretary of Aetna Life Insurance and Annuity Company (the "Company"), hereby certify that the following resolution was duly adopted by the Board of Directors of the Company by Unanimous Consent on June 22, 1995 and that such resolution remains in full force and effect as of this date. RESOLVED: That the following officers: President Senior Vice President Vice President General Counsel Corporate Secretary Treasurer Assistant Corporate Secretary (l) are hereby severally authorized to sign in the Company's name: (a) insurance contracts of every type and description which the Company is authorized to write; (b) agreements relating to the purchase, sale, or exchange of securities including any consents and modifications given or made under such agreements; (c) conveyances and leases of real estate or any interest therein including any modifications thereof; (d) assignments and releases of mortgages and other liens, claims or demands; (e) any other written instrument which they are authorized to approve in the normal course of Company business; and (f) any other written instrument when specifically authorized by the Board of Directors or the President; and are further severally authorized (i) to delegate all or any part of the foregoing authority to one or more officers, employees or agents of this Company, provided that each such delegation is in writing and a copy thereof is filed in the Office of the Corporate Secretary, or (ii) to designate any attorney at law representing this Company on a matter under their direction, to so sign this Company's name; (2) are hereby severally authorized to possess the Company's duplicate seals and to affix the same to items (a) through (f) above; Page 2 and are further severally authorized to designate any Company officer under their direction to possess and to so affix the Company's duplicate seals; and that the Senior Vice President, Investments is hereby authorized to designate any officer, employee or agent of this Company under his direction to sign the Company's name and to affix the Company's seal to any and all documents required in connection with any investment transaction in which the Company has an interest. FURTHER RESOLVED, that all actions heretofore taken by an officer, Director or employee of this Company in connection with any transaction authorized by this resolution and consistent with the intent and purposes of the foregoing resolution are hereby ratified, confirmed and approved in all respects. I further certify that Daniel P. Kearney is President, Zoe Baird, Christopher J. Burns, Laura R. Estes, and John Y. Kim are Senior Vice Presidents, Timothy A. Holt is Senior Vice President and Chief Financial Officer and Eugene M. Trovato is Vice President and Treasurer, Corporate Controller of the Company. Dated at Hartford, Connecticut, on March 19, 1996. /s/ Susan E. Schechter ---------------------------------------- Susan E. Schechter Corporate Secretary EX-27 20 FINANCIAL DATA SCHEDULE
6 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 6,038,034,475 6,632,117,659 0 0 0 6,632,117,659 0 0 0 6,632,117,659 0 0 0 0 0 0 0 0 0 6,632,117,659 730,430,612 0 0 (71,090,542) 659,340,070 160,673,967 520,603,951 1,340,617,988 0 0 0 0 0 0 0 1,769,805,868 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
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