-----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, MQTrVR5WVWKp0WlheLeN/87+/sa/unOJCqIKOnfuTKDShYLPrpVRxA1iIbNPrdog 1Q2WaH6JXglIFGD22XhjhQ== 0000912057-96-006418.txt : 19960416 0000912057-96-006418.hdr.sgml : 19960416 ACCESSION NUMBER: 0000912057-96-006418 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19960415 EFFECTIVENESS DATE: 19960415 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: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 033-91846 FILM NUMBER: 96546924 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-02513 FILM NUMBER: 96546925 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 485BPOS 1 485BPOS As filed with the Securities and Exchange Registration No. 33-91846* COMMISSION ON APRIL 15, 1996 REGISTRATION NO. 811-2513 - ---------------------------- ------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-4 POST-EFFECTIVE AMENDMENT NO. 3 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 (CHECK APPROPRIATE SPACE): immediately upon filing pursuant to paragraph (b) of Rule 485 --- X on May 1, 1996 pursuant to paragraph (b) of Rule 485 --- 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 filed a Rule 24f-2 Notice for the fiscal year ended December 31, 1995 on 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 a prospectus relating to the securities covered by the following earlier Registration Statement: 33-75976. 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 designed to fund plans that provide retirement income for employees of state or municipal institutions of higher education. The Contracts are available through participation in retirement programs which receive favorable tax deferred treatment under Federal income tax law. (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 Trust - - Aetna Variable Encore Fund - Janus Aspen Aggressive Growth - - Aetna Investment Advisers Fund, 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 Balanced Portfolio Portfolio - Janus Aspen Worldwide Growth - - Fidelity VIP II Contrafund Portfolio Portfolio - - Fidelity VIP Equity-Income Portfolio - Lexington Natural Resources Trust - - Fidelity VIP Growth Portfolio - Neuberger & Berman Growth Portfolio - Scudder International Portfolio Class A Shares - TCI Growth (a Twentieth Century fund) The Credited Interest Options currently available under the Contract are the Guaranteed Accumulation 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 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. 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 15 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 Rights Under the Contract.................................... 4 Right to Cancel.............................................. 4 CHARGES AND DEDUCTIONS........................................... 5 Daily Deductions from the Separate Account................... 5 Mortality and Expense Risk Charge............................ 5 Asset-Based Sales Charge..................................... 5 Administrative Expense Charge................................ 5 Fund Expenses................................................ 5 Premium and Other Taxes...................................... 5 CONTRACT VALUATION............................................... 6 Account Value................................................ 6 Accumulation Units........................................... 6 Net Investment Factor........................................ 6 TRANSFERS........................................................ 6 Dollar Cost Averaging Program................................ 6 WITHDRAWALS...................................................... 7 Reinvestment Privilege....................................... 7 CONTRACT LOANS................................................... 7 ADDITIONAL WITHDRAWAL OPTIONS.................................... 8 DEATH BENEFIT DURING ACCUMULATION PERIOD......................... 8 ANNUITY PERIOD................................................... 9 Annuity Period Elections..................................... 9 Annuity Options.............................................. 9 Duration of Annuity Payments................................. 10 Charges Deducted During the Annuity Period................... 11 Death Benefit Payable During the Annuity Period.............. 11 TAX STATUS....................................................... 11 Introduction................................................. 11 Taxation of the Company...................................... 11 Contracts Used with Certain Retirement Plans................. 11
MISCELLANEOUS.................................................... 14 Distribution................................................. 14 Delay or Suspension of Payments.............................. 14 Performance Reporting........................................ 14 Voting Rights................................................ 15 Changes in Beneficiary Designations.......................... 15 Modification of the Contract................................. 15 Legal Matters and Proceedings................................ 15 CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION.............. 15 APPENDIX I--GUARANTEED ACCUMULATION ACCOUNT...................... 16 APPENDIX II--FIXED PLUS ACCOUNT.................................. 17
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. BENEFICIARY(IES): The person(s) entitled to receive any death benefit upon the death of the Participant. 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 HOLDER: The 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 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 or salary deduction contributions (as provided for by the Plan) 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. SECTION 403(B) CONTRACT: A contract that accepts Purchase Payments made pursuant to Code Section 403(b) and transferred funds attributable to Code Section 403(b). SECTION 401(A) CONTRACT: A Contract that accepts Purchase Payments made pursuant to Code Section 401(a) and transferred funds attributable to Section 401(a) contributions. Section 401(a) Contracts issued to some Plans may also accept Purchase Payments made pursuant to Code Section 414(h) and transferred funds attributable to Section 414(h). 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. - -------------------------------------------------------------------------------- DEFINITIONS - 1 LOAN ACCOUNT: An account established for record keeping purposes and credited with the amount of any loan. PARTICIPANT (YOU): A person participating in a Plan maintained by an eligible organization. PLAN(S): Tax-deferred retirement plans adopted by public higher education systems for their employees under Section 401(a) or Section 403(b) of the Code. PURCHASE PAYMENT(S): The gross payment(s) submitted to the Company under a Contract. 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 state or municipal institutions of higher education to fund (1) tax-deferred annuity programs under Section 403(b) of the Code, and/or qualified defined contribution plans under Section 401(a) of the Code. Section 401 Contracts issued to some Plans may also accept payments and transferred funds made pursuant to Section 414(h) of the Code. CONTRACT PURCHASE The Contract may be purchased by state or municipal institutions of higher education on behalf of a group made up of their employees. One or more Contracts are issued to the Contract Holder once we receive a completed master application form(s). Eligible employees may participate in the Contract by completing the enrollment form (and any other required forms) and submitting them to the Company. Purchase Payments can be applied to the Contract either through a lump-sum transfer from a pre-existing plan, through periodic salary reduction or salary deduction (as provided for by the Plan) or through employer contributions. For each Contract, one or more Employee Accounts will be established for contributions made by an employee, and an Employer Account may be established for contributions made by the employer on the employee's behalf. (See "Purchase.") FREE LOOK PERIOD You or the Contract Holder may cancel participation in the Contract within 10 days after you receive the Contract or other document evidencing your interest in 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 that will be 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") 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, an asset-based sales charge and an administrative charge), as well as premium and other taxes. The Funds also incur certain fees and expenses which are deducted directly from the Funds. (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 the Appendices for a full description of the restrictions applicable to transfers made from the Credited Interest Options.) (See "Transfers.") - -------------------------------------------------------------------------------- SUMMARY - 1 WITHDRAWALS All or a part of the Account Value may be withdrawn prior to the Annuity Date, subject to Plan provisions, by properly completing a disbursement form and sending it to the Company. Limitations apply to withdrawals from the Fixed Plus Account. A distribution can be made from the Employer Account and certain Employee Accounts (as provided by the Plan) only if the Contract Holder certifies in writing that you are eligible, both as to timing and form of distribution. The withdrawal will generally be subject to income tax and may be subject to a federal tax penalty. The Code restricts full and partial withdrawals in some circumstances. (See "Withdrawals.") 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 If allowed by the Plan, Participants may request a loan from their Account Value during the Accumulation Period. (See "Contract Loans.") DEATH BENEFIT A death benefit is payable if the Participant dies before the Annuity Date. Death benefit proceeds will be paid to the Beneficiary. Until the election of a method of payment, the Account Value will remain invested under the Contract. The 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 the Accumulation Period.") After Annuity Payments have commenced, a death benefit may be payable to the Beneficiary 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, you may elect to begin receiving Annuity Payments. For the Employer Account and certain Employee Accounts, the Contract Holder must provide written certification that the distribution is in accordance with the terms of the Plan. (See "Rights Under the Contract.") Annuity Payments can be made on either a fixed, variable or combination fixed and variable basis. If you choose a variable payout, 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 - Call Customer Service: 1-800-525-4225 (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." The charges and expenses shown below do not include premium taxes that may be applicable. For more information regarding the expenses paid out of the assets of a particular Fund, see the Fund's prospectus. CHARGES AGAINST THE SEPARATE ACCOUNT. 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% ASSET-BASED SALES CHARGE. We will monitor the deductions applicable to each Account.......................................................... 0.15% for the total sales charges to ensure they will never exceed 8.5% of the total Purchase Payments actually made to the Account. The sales charges apply during the Accumulation Period only. ADMINISTRATIVE EXPENSE CHARGE. We currently do not impose an Administrative Expense................................................ 0.00% Charge. 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...................................... 1.40% --------- ---------
ANNUAL EXPENSES OF THE FUNDS The following table illustrates the advisory fees and other expenses applicable to the Funds. A Fund's "Other Expenses" include operating costs of the Fund. These expenses are reflected in the Fund's net asset value and are not deducted from the Account Value under the Contract. (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.)
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%
- -------------------------------------------------------------------------------- FEE TABLE - 1
INVESTMENT ADVISORY FEES(1) OTHER EXPENSES TOTAL FUND (AFTER EXPENSE (AFTER EXPENSE ANNUAL REIMBURSEMENT) REIMBURSEMENT) EXPENSES -------------- -------------- ----------- 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 reduction 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 Portfolio Operating Expenses would have been 0.82%, 0.11%, and 0.93% for 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 - 2 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. Whether or not you withdraw or if you annuitize your Account, assuming a 5% annual return on assets, you would have paid the following expenses on a $1,000 investment at the end of the applicable time period:
3 1 YEAR YEARS 5 YEARS 10 YEARS ------ ------ ------- -------- Aetna Variable Fund $17 $54 $ 93 $202 Aetna Income Shares $18 $54 $ 94 $204 Aetna Variable Encore Fund $18 $55 $ 95 $206 Aetna Investment Advisers Fund, Inc. $18 $54 $ 94 $204 Aetna Ascent Variable Portfolio $21 $64 $110 $238 Aetna Crossroads Variable Portfolio $21 $64 $110 $238 Aetna Legacy Variable Portfolio $21 $64 $110 $238 Alger American Growth Portfolio $23 $70 $120 $258 Alger American Small Cap Portfolio $24 $72 $124 $266 Calvert Responsibly Invested Balanced Portfolio $23 $70 $119 $256 Fidelity VIP II Contrafund Portfolio $22 $66 $114 $245 Fidelity VIP Equity-Income Portfolio $20 $63 $108 $234 Fidelity VIP Growth Portfolio $21 $66 $113 $243 Fidelity VIP Overseas Portfolio $23 $72 $124 $265 Franklin Government Securities Trust $22 $68 $116 $249 Janus Aspen Aggressive Growth Portfolio $23 $71 $121 $260 Janus Aspen Balanced Portfolio $28 $86 $146 $310 Janus Aspen Flexible Income Portfolio $25 $77 $132 $281 Janus Aspen Growth Portfolio $22 $68 $117 $251 Janus Aspen Short-Term Bond Portfolio $21 $66 $113 $243 Janus Aspen Worldwide Growth Portfolio $23 $72 $123 $264 Lexington Natural Resources Trust $29 $89 $151 $320 Neuberger & Berman Growth Portfolio $24 $73 $125 $268 Scudder International Portfolio Class A Shares $25 $77 $132 $282 TCI Growth $24 $75 $128 $274
- -------------------------------------------------------------------------------- FEE TABLE - 3 CONDENSED FINANCIAL INFORMATION (SELECTED DATA FOR ACCUMULATION UNITS OUTSTANDING THROUGHOUT EACH PERIOD) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THE CONDENSED FINANCIAL INFORMATION PRESENTED BELOW FOR EACH OF THE YEARS IN THE FOUR-YEAR PERIOD ENDED DECEMBER 31, 1995, 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 --------- --------- --------- --------- AETNA VARIABLE FUND Value at beginning of period $10.823 $11.083 $10.531 $10.000(2) Value at end of period $14.113 $10.823 $11.083 $10.531 Increase (decrease) in value of accumulation unit(1) 30.40% (2.35)% 5.24% 5.31% Number of accumulation units outstanding at end of period 121,691 77,511 37,807 3,948 AETNA INCOME SHARES Value at beginning of period $10.536 $11.107 $10.271 $10.000(2) Value at end of period $12.283 $10.536 $11.107 $10.271 Increase (decrease) in value of accumulation unit(1) 16.59% (5.14)% 8.14% 2.71% Number of accumulation units outstanding at end of period 20,427 14,482 4,936 416 AETNA VARIABLE ENCORE FUND Value at beginning of period $10.523 $10.252 $10.076 $10.000(2) Value at end of period $11.003 $10.523 $10.252 $10.076 Increase (decrease) in value of accumulation unit(1) 4.57% 2.64% 1.75% 0.76% Number of accumulation units outstanding at end of period 19,202 12,934 3,066 547 AETNA INVESTMENT ADVISERS FUND, INC. Value at beginning of period $10.900 $11.109 $10.253 $10.000(2) Value at end of period $13.693 $10.900 $11.109 $10.253 Increase (decrease) in value of accumulation unit(1) 25.62% (1.88)% 8.35% 2.53% Number of accumulation units outstanding at end of period 19,038 11,773 6,540 221 AETNA ASCENT VARIABLE PORTFOLIO Value at beginning of period $10.000(6) Value at end of period $10.666 Increase (decrease) in value of accumulation unit(1) 6.66% Number of accumulation units outstanding at end of period 202 AETNA CROSSROADS VARIABLE PORTFOLIO Value at beginning of period $10.000(6) Value at end of period $10.605 Increase (decrease) in value of accumulation unit(1) 6.05% Number of accumulation units outstanding at end of period 243 AETNA LEGACY VARIABLE PORTFOLIO Value at beginning of period $10.000(6) Value at end of period $10.573 Increase (decrease) in value of accumulation unit(1) 5.73% Number of accumulation units outstanding at end of period 0 ALGER AMERICAN GROWTH PORTFOLIO Value at beginning of period $10.000(6) Value at end of period $10.365 Increase (decrease) in value of accumulation unit(1) 3.65% Number of accumulation units outstanding at end of period 7,966
- -------------------------------------------------------------------------------- AUV HISTORY - 1 CONDENSED FINANCIAL INFORMATION (CONTINUED) - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
1995 1994 1993 1992 --------- --------- --------- --------- ALGER AMERICAN SMALL CAP PORTFOLIO Value at beginning of period $ 9.461 $10.000 $10.000(3) Value at end of period $13.463 $ 9.461 $10.000 Increase (decrease) in value of accumulation unit(1) 42.29% (5.39)% 0.00% Number of accumulation units outstanding at end of period 31,528 4,575 2 CALVERT RESPONSIBLY INVESTED BALANCED PORTFOLIO Value at beginning of period $10.839 $11.352 $10.589 $10.000(2) Value at end of period $13.870 $10.839 $11.352 $10.589 Increase (decrease) in value of accumulation unit(1) 27.96% (4.52)% 7.21% 5.89% Number of accumulation units outstanding at end of period 14,656 8,469 2,383 125 FIDELITY VIP II CONTRAFUND PORTFOLIO Value at beginning of period $10.000(6) Value at end of period $10.461 Increase (decrease) in value of accumulation unit(1) 4.61% Number of accumulation units outstanding at end of period 6,415 FIDELITY VIP EQUITY-INCOME PORTFOLIO Value at beginning of period $10.000(6) Value at end of period $11.047 Increase (decrease) in value of accumulation unit(1) 10.47% Number of accumulation units outstanding at end of period 1,108 FIDELITY VIP GROWTH PORTFOLIO Value at beginning of period $10.000(6) Value at end of period $10.183 Increase (decrease) in value of accumulation unit(1) 1.83% Number of accumulation units outstanding at end of period 2,541 FIDELITY VIP OVERSEAS PORTFOLIO Value at beginning of period $10.000(6) Value at end of period $ 9.954 Increase (decrease) in value of accumulation unit(1) (0.46)% Number of accumulation units outstanding at end of period 191 FRANKLIN GOVERNMENT SECURITIES TRUST Value at beginning of period $10.294 $10.843 $10.214 $10.000(2) Value at end of period $11.946 $10.294 $10.843 $10.214 Increase (decrease) in value of accumulation unit(1) 16.06% (5.06)% 6.16% 2.14% Number of accumulation units outstanding at end of period 16,226 10,738 4,409 470 JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO Value at beginning of period $10.577 $10.000(4) Value at end of period $13.296 $10.577 Increase (decrease) in value of accumulation unit(1) 25.71% 5.77% Number of accumulation units outstanding at end of period 15,482 820 JANUS ASPEN BALANCED PORTFOLIO Value at beginning of period $10.000(6) Value at end of period $10.843 Increase (decrease) in value of accumulation unit(1) 8.43% Number of accumulation units outstanding at end of period 160 JANUS ASPEN FLEXIBLE INCOME PORTFOLIO Value at beginning of period $10,000(7) $10.000 Value at end of period $12.054 $10.000 Increase (decrease) in value of accumulation unit(1) 20.54% 0.00% Number of accumulation units outstanding at end of period 745 0
- -------------------------------------------------------------------------------- AUV HISTORY - 2 CONDENSED FINANCIAL INFORMATION (CONTINUED) - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
1995 1994 1993 1992 --------- --------- --------- --------- JANUS ASPEN GROWTH PORTFOLIO Value at beginning of period $10.000(6) Value at end of period $10.872 Increase (decrease) in value of accumulation unit(1) 8.72% Number of accumulation units outstanding at end of period 166 JANUS ASPEN SHORT-TERM BOND PORTFOLIO Value at beginning of period $10.000(6) Value at end of period $10.316 Increase (decrease) in value of accumulation unit(1) 3.16% Number of accumulation units outstanding at end of period 24 JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO Value at beginning of period $10.000(8) Value at end of period $10.952 Increase (decrease) in value of accumulation unit(1) 9.52% Number of accumulation units outstanding at end of period 11,128 LEXINGTON NATURAL RESOURCES TRUST Value at beginning of period $10.496 $11.261 $10.196 $10.000(2) Value at end of period $12.095 $10.496 $11.261 $10.196 Increase (decrease) in value of accumulation unit(1) 15.24% (6.79)% 10.45% 1.96% Number of accumulation units outstanding at end of period 8,348 7,350 2,438 165 NEUBERGER & BERMAN GROWTH PORTFOLIO Value at beginning of period $11.055 $11.796 $10.927 $10.000(2) Value at end of period $14.359 $11.055 $11.796 $10.927 Increase (decrease) in value of accumulation unit(1) 29.89% (6.28)% 7.95% 9.27% Number of accumulation units outstanding at end of period 35,941 21,935 7,403 477 SCUDDER INTERNATIONAL PORTFOLIO CLASS A SHARES Value at beginning of period $12.595 $12.883 $ 9.539 $10.000(2) Value at end of period $13.799 $12.595 $12.883 $ 9.539 Increase (decrease) in value of accumulation unit(1) 9.56% (2.24)% 35.06% (4.81)% Number of accumulation units outstanding at end of period 38,067 22,036 4,560 281 TCI GROWTH Value at beginning of period $11.740 $12.046 $10.000(5) Value at end of period $15.176 $11.740 $12.046 Increase (decrease) in value of accumulation unit(1) 29.27% (2.54)% 20.46% Number of accumulation units outstanding at end of period 24,826 15,078 4,104
(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. (2) The initial Accumulation Unit value was established at $10.000 on July 20, 1992. (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 during October 1994, when funds were first received in this option. (5) The initial Accumulation Unit value was established at $10.000 on February 1, 1993. (6) 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. (7) Reflects less than a full year of performance activity. Funds were first available in this option during March 1995. (8) 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. - -------------------------------------------------------------------------------- AUV HISTORY - 3 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 the 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 of 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 our other income, gains or losses. All obligations arising under the Contracts are our general corporate obligations. INVESTMENT OPTIONS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THE FUNDS Purchase Payments may be allocated 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, or under all Contracts, or under 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) - -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) - -------------------------------------------------------------------------------- 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 such 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 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% - -------------------------------------------------------------------------------- 2 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).(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 also be used for funding variable life insurance contracts issued or sponsored 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 - -------------------------------------------------------------------------------- 3 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 Plus Account is 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 II.) PURCHASE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CONTRACT AVAILABILITY The Contracts are designed to fund Plans adopted by state or municipal institutions of higher education for their employees. The Plans may be (1) tax-deferred annuity programs under Section 403(b) of the Code, and/or (2) qualified defined contribution plans under Section 401(a) and 414(h) of the Code. Eligible participants in the Plan seeking to invest and accumulate money for retirement can purchase individual interests in group Contracts. The group Contract is generally owned by the employer, and individual accounts are established for each Participant. For each Contract, one or more Employee Accounts will be established for contributions derived from employee salary reduction, and an Employer Account may be established for contributions made by the employer on the employee's behalf. PURCHASING INTERESTS IN THE CONTRACT Eligible organizations may acquire both types (403(b) and 401(a)) of group Contracts for its Plans(s) by submitting the appropriate master application form(s) to the Company. Once we approve the application, a group Contract is generally issued to the employer 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 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 only with the consent of the Participant, or under limited circumstances, with the consent of the Contract Holder pending acceptance of the form. If we agree to hold Purchase Payments for longer than the 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 will initially be allocated to the Subaccounts or Credited Interest Options as specified by the Participant 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.") The Code imposes a maximum limit on annual Purchase Payments which may be excluded from a Participant's gross income. (See "Tax Status.") RIGHTS UNDER THE CONTRACT You have a nonforfeitable right to the value of your Employee Account. You have a nonforfeitable right to the value of your Employer Account to the extent of your vested percentage under the Plan as interpreted by the Contract Holder. You may select the investment options for your Employer Account and your Employee Account. You may elect an Annuity option for your Account Value; however, for your Employer and certain Employee Accounts (as provided in the Plan), the Contract Holder must certify that you are eligible for a distribution and that the form of Annuity is permitted under the terms of the Plan. RIGHT TO CANCEL The Contract or participation under the Contract may be canceled without penalty by returning it (or other document evidencing your interest) to the Company with a written notice of intent to cancel. In most states, you have ten days to exercise this right; some states allow you a - -------------------------------------------------------------------------------- 4 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 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. ASSET-BASED SALES CHARGE. There are no deductions from Purchase Payments for sales commissions or related expenses. Sales commissions and expenses are advanced by the Company and recovered out of an asset-based sales charge that is deducted from the Account in an amount that equals 0.15% on an annual basis. The deduction is made from amounts held in the Subaccounts during the Accumulation Period only. We will monitor each Account to ensure that the total sales charges will never exceed 8.5% of the total Purchase Payments actually made to the Account. If the asset-based sales charges are insufficient to recover sales commissions, such commissions would be recovered out of the Company's profits from investment activities, including the mortality and expense risk charges under the Contract. For sales commissions paid in connection with the sale of the Contracts, see "Distribution." ADMINISTRATIVE EXPENSE CHARGE. The Company reserves the right to make a deduction from each of the Subaccounts for an administrative expense 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. 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, 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.") - -------------------------------------------------------------------------------- 5 CONTRACT VALUATION - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ACCOUNT VALUE Until the Annuity Date, the Account Value is the total dollar value of amounts held in your 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 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, the asset-based sales charge and the administrative expense 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 1.0000 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 on the preceding Valuation Date; (e) minus a daily charge at the annual effective rate of 1.25% for mortality and expense risks, 0.15% for asset-based sales charges (during the Accumulation Period only), and up to 0.25% as an administrative expense charge (currently 0%). The gross investment rate may be either positive or negative. TRANSFERS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- At any time prior to the Annuity Date, you can transfer amounts held under your Account from one Subaccount to another. Transfers between the Credited Interest Options and the Subaccounts are subject to certain restrictions. (See Appendices I and II.) 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 Plan, as applicable. The Company currently allows unlimited transfers of accumulated amounts to available investment options without charge. 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. The minimum transfer amount is $500. 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 You may establish automated transfers of Account Values on a monthly or quarterly basis through the Company's Dollar Cost Averaging Program. Dollar Cost Averaging is a system for investing a fixed amount of - -------------------------------------------------------------------------------- 6 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 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- All or a portion of the Account Value may be withdrawn at any time during the Accumulation Period, subject to the withdrawal restrictions under Section 403(b) Contracts described below, and subject to limitations on withdrawals from the Fixed Plus Account. The Contract may require that the Contract Holder certify in writing that you are eligible both as to the timing and form of distribution. To request a withdrawal, you must properly complete a disbursement form and send it to our Home Office. 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 AN ACCOUNT: The amount paid for a full withdrawal will be the Account Value allocated to the Subaccounts and the Guaranteed Accumulation Account (plus or minus a market value adjustment) (see Appendix I), plus the amount available for withdrawal from the Fixed Plus Account (see Appendix II). - -PARTIAL WITHDRAWALS (Percentage or Specified Dollar Amount): The amount paid will be the percentage of the Account Value or the dollar amount requested; however, the amount available for withdrawal from the Fixed Plus Account is limited (see Appendix II). For any partial withdrawal, amounts will be withdrawn proportionately from each Subaccount or Credited Interest Option in which the Account is invested, unless you request otherwise in writing. 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 your death, disability, attainment of age 59 1/2, separation from service or financial hardship. (See "Tax Status.") REINVESTMENT PRIVILEGE You may elect to reinvest all or a portion of the proceeds received from a full withdrawal of your Account within 30 days after such withdrawal has been made. Accumulation Units will be credited to the Account for the amount 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 your Account based on the Accumulation Unit Value next computed following our receipt of your 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 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- If allowed by the Plan, Participants may request a loan from their Account Value during the Accumulation Period. Loans can only be made from those Account Values held in the Subaccounts or from those Credited Interest Options that allow loans. (See Appendices I and II.) A loan may be obtained by reviewing and reading the terms of your loan agreement, properly completing a loan request form and submitting it to the Company's Home Office. - -------------------------------------------------------------------------------- 7 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, your Account Value must meet the minimum dollar amounts and age criteria applicable to that option. In addition, for Employer and certain Employee Accounts, the Contract Holder must provide written certification that the distribution is in accordance with the terms of the Plan. 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 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. If you select one of the Additional Withdrawal Options, you 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 you elect an Additional Withdrawal Option, you may revoke it 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 Option 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 Beneficiary(ies) upon the death of the Participant before the Annuity Date. If a lump-sum distribution or an Annuity Option is elected within six months of the Participant's death, a guaranteed death benefit is provided. For each Account, the death benefit is guaranteed to be the greater of: (a) the Account Value, plus any positive aggregate Market Value Adjustment (MVA) that applies to amounts allocated to the Guaranteed Accumulation Account (GAA), on the day the death notice and request for payment are received in good order at our Home Office; or (b) the sum of the net Purchase Payments made to each Account, minus the total of all withdrawals or annuitizations made from the Account and any amount allocated to the Loan Account. If a full or partial withdrawal is made within six months after your death, the Beneficiary will receive the Account Value, plus any positive MVA that would apply to any portion of the Account allocated to GAA. If a lump-sum distribution is elected six months or more after your death, the Beneficiary will receive the Account Value, plus or minus any MVA that would apply to any portion of the Account allocated to GAA. The value of the Account is determined as of the Valuation Date on which proof of death acceptable to us and a request for payment are received at our Home Office. Death benefit proceeds may be paid to the Beneficiary: - - in a lump sum; or - - in accordance with any of the Annuity Options available under the Contract. - -------------------------------------------------------------------------------- 8 The 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 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 payment to the Beneficiary within seven days after we receive proof of death and request for payment. The Code requires that distribution of death proceeds begin within a certain period of time. Generally, either 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 Beneficiary is your spouse, he or she is not required to begin distributions until the year you would have attained age 70 1/2. In no event may payments extend beyond the life of the Beneficiary or any specified period greater than the 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 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, you 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 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" below.) For the Employer and certain Employee Accounts, the Contract Holder must provide written certification that the distribution is in accordance with the terms of the Plan. (See "Rights Under the Contract.") Annuity Payments will not begin until you have selected an Annuity Date and an Annuity Option. Until a date and option are elected the Account will continue in the Accumulation Period. If your Plan is subject to ERISA, you must also submit the appropriate joint and survivor annuity waiver and spousal consent form(s) to us. 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 You may choose one of the following Annuity Options: - -------------------------------------------------------------------------------- 9 LIFETIME ANNUITY OPTIONS: - -OPTION 1--Life Annuity--An annuity with payments ending on the Participant's death. - -OPTION 2--Life Annuity with Guaranteed Payments-- An 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 Lives of Two Annuitants--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 Participant cannot elect to receive a lump-sum settlement. 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 some Contracts, for amounts held in the Fixed Plus Account, the annuity must be paid on a fixed basis. (See Appendix II-- "Transfers Among Investment Options" to determine if this applies to your Contract.) If a nonlifetime 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 a portion of the remaining variable payments be paid in one sum. 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. DURATION OF ANNUITY PAYMENTS Annuity payments may not extend beyond (a) the life of the Participant, (b) the joint lives of the Participant and Beneficiary, (c) a specified period greater than the Participant's life expectancy, or (d) a period certain greater than the joint life expectancies of the Participant and Beneficiary. AMOUNT OF EACH ANNUITY PAYMENT. The amount of each payment depends on how you allocate your Account Value between fixed and variable payouts. 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 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 discussion on the impact of selecting an assumed net investment rate.) - -------------------------------------------------------------------------------- 10 CHARGES DEDUCTED DURING THE ANNUITY PERIOD We make a daily deduction for mortality and expense risks and 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 a Participant 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 Participant under Option 1 or the death of the surviving Annuitant under Option 3. If Lifetime Option 2 or Option 4 was elected and the death of the Participant 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 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 Beneficiary (unless otherwise requested). If the Participant 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 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 acceptable proof of death, 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 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 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. 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) 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 - -------------------------------------------------------------------------------- 11 the various types of retirement plans. Participants as well as 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 relating to the Contracts satisfy applicable laws, and should consult their legal counsel and tax adviser regarding the suitability of the Contract. MINIMUM DISTRIBUTION REQUIREMENTS. The Code has required distribution rules for Section 403(b) and 401(a) 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) 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. For governmental or church plans, distributions must begin by April 1 of the calendar year following the year 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 beneficiary, or over a period not greater than your life expectancy or the joint life expectancies of you and your beneficiary. If you die after the required minimum distribution has commenced, distributions to your 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 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 - -------------------------------------------------------------------------------- 12 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. SECTION 403(B) PLANS. Under Section 403(b), contributions made by public school systems and 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. 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 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) PLANS. Section 401(a) 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. In addition, Purchase Payments will be excluded from a Participant's gross income only if the 401(a) Plan meets certain nondiscrimination requirements. - -------------------------------------------------------------------------------- 13 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 4% of those Purchase Payments. The Company may also pay renewal commissions on Purchase Payments made after the first year and asset-based service fees. 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.") 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, asset-based sales charge and any administrative expense charge). The non-standardized figures are computed in the same manner but 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. - -------------------------------------------------------------------------------- 14 VOTING RIGHTS In accordance with the Company's view of present applicable law, it will vote the shares of each of the Funds 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 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 or 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. CHANGES IN BENEFICIARY DESIGNATIONS The designated Beneficiary may be changed at any time prior to the Annuity Date, subject to limitations contained in the Code and other applicable laws. Such change will not become effective until written notice of the change is received by the Company. 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 Contracts 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
- -------------------------------------------------------------------------------- 15 APPENDIX I GUARANTEED ACCUMULATION ACCOUNT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THE GUARANTEED ACCUMULATION ACCOUNT ("GAA") IS A CREDITED INTEREST OPTION AVAILABLE DURING THE ACCUMULATION PERIOD UNDER THE CONTRACTS DESCRIBED 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 three 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"). 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 federal tax penalties or mandatory income tax withholding. By notifying us at least 30 days prior to the Annuity Date, you may elect a variable annuity 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 for GAA and are reinvested, they will be applied to the current deposit period. Amounts are proportionately reinvested 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. - -------------------------------------------------------------------------------- 16 APPENDIX II (A) 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. 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 Account for Accounts that have not reached their tenth anniversary. Under certain emergency conditions, we may defer payment of a Fixed Account withdrawal value (a) for a period of up to 6 months; or (b) as provided by federal law. 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 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 - -------------------------------------------------------------------------------- 17 5. The balance of the Fixed Plus Account Value 12 months later. 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 within 6 months after the Participant's date of death before Annuity payments begin and request for payment is received; (b) the election of an Annuity option; or (c) if the Fixed Plus Account value is $3,500 or less and no withdrawals, transfers, loans or annuitizations have been made from the Account within the prior 12 months; or (d) the Participant's separation from service with the employer (if the separation from service is certified by the employer and the withdrawal request is received within 60 days of the date of termination), subject to a 3% charge based on the entire Fixed Plus Account value. If the Participant who separates from service chooses to have the five annual payments of the Fixed Plus Account withdrawal as described above, then no charge will be assessed. 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 one of the Additional Withdrawal Options. 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. For amounts which have been accumulating under the Fixed Plus Account, a nonlifetime annuity option may only be elected on a fixed basis. 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 Plan, 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. - -------------------------------------------------------------------------------- 18 APPENDIX II(B) 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 that amounts allocated to this option will earn the minimum interest rate specified in the Contract. We may credit a higher interest rate from time to time. 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 this option, we assume the risk of investment gain or loss by guaranteeing Net Purchase Payment values and promising a minimum interest rate and Annuity payment. Under certain emergency conditions, we may defer payment of a Fixed Plus Account withdrawal value (a) for a period of up to 6 months or (b) as provided by federal law. During any calendar year, any withdrawals requested from an Account's Fixed Plus Account value may not exceed 20% of the Account's Fixed Plus Account Value as of the date the withdrawal request is received in good order at our Home Office. The withdrawal value will be reduced by any Fixed Plus Account withdrawal(s), transfer(s) or annuitizations previously made during the calendar year. 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 6 months after the Participant's date of death. In the event of an complete Account withdrawal, we will pay any Fixed Plus Account withdrawal value from the Account with interest, in five annual payments of: 1. One-fifth of the Fixed Plus Account withdrawal value minus any Fixed Plus Account withdrawal(s), transfer(s) or annuitizations made during the calendar year; 2. One-fourth of the remaining Fixed Plus Account withdrawal value 12 months later; 3. One third of the remaining Fixed Plus Account withdrawal value 12 months later; 4. One-half of the remaining Fixed Plus Account withdrawal value 12 months later; and 5. The balance of the Fixed Plus Account withdrawal value as the fifth and final payment 12 months later. Once we receive notification of an Account termination, no further withdrawal(s) or transfer(s) will be permitted from the Fixed Plus Account. We will waive the Fixed Plus Account full surrender provision if a full withdrawal is made due to: (a) the Participant's death within 6 months after the Participant's date of death before Annuity payments begin and request for payment is received; (b) the election of an Annuity option; (c) if the Fixed Plus Account value is $3,500 or less (and no withdrawals, transfers or annuitizations have been made from the Account during the calendar year), the entire Fixed Plus Account value will be paid in one sum. Amounts applied to the Fixed Plus Account will earn the interest rate in effect when actually applied to the Fixed Plus Account. - -------------------------------------------------------------------------------- 19 MORTALITY AND EXPENSE RISK CHARGES The Fixed Plus 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. TRANSFERS AMONG INVESTMENT OPTIONS Transfers from the Fixed Plus Account to any other available investment option(s) are allowed once in each calendar year during the Accumulation Period. The amount that may be transferred will be up to 20% of the amount held in the Fixed Plus Account. We will waive the 20% transfer limit 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 annuity payments begin, the Contract Holder, on your behalf, 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 variable annuity payments under any of the lifetime or nonlifetime Annuity Options. - -------------------------------------------------------------------------------- 20 FOR MASTER APPLICATIONS ONLY I HEREBY ACKNOWLEDGE RECEIPT OF AN ACCOUNT C GROUP DEFERRED VARIABLE ANNUITY PROSPECTUS DATED MAY 1, 1996 FOR OPTIONAL RETIREMENT PROGRAMS, 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. 91846(S)-2) DATED MAY 1, 1996. - -------------------------------------------------------------------------------- CONTRACT HOLDER'S SIGNATURE - -------------------------------------------------------------------------------- DATE 91846-2 (5/96) - -------------------------------------------------------------------------------- VARIABLE ANNUITY ACCOUNT C OF AETNA LIFE INSURANCE AND ANNUITY COMPANY STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1996 Group Variable Annuity Contracts for Optional Retirement Programs and Retirement Programs for Higher Education 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. Unless otherwise indicated, 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 . . . . . . . . . . . . . . . . . . . . . . 5 Sales Material and Advertising . . . . . . . . . . . . . . . 6 Independent Auditors . . . . . . . . . . . . . . . . . . . . 7 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, asset-based sales charge and administrative expense charge, if any, 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 each of the Subaccounts 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, under all Contracts, 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, is 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 "non-standardized returns", calculated in an identical manner but including additional periods. The 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, asset-based sales charges, and administrative expense charges). These charges will be deducted on a pro rata basis in the case of fractional periods. The non-standardized figures use the same formula, but may be computed to include monthly, quarterly, year-to-date and three-year periods. 3 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, your Account Value upon redemption may be more or less than your original cost. AVERAGE ANNUAL TOTAL RETURN QUOTATIONS - STANDARDIZED AND NON-STANDARDIZED The table below reflects the average annual standardized and non-standardized total return quotation figures for the period ended December 31, 1995 for each of the Subaccounts available under the Contract. 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 *).
STANDARDIZED NON-STANDARDIZED FUND INCEPTION DATE SUBACCOUNT 1 YEAR 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS Aetna Variable Fund 30.40% 11.83% 12.07% 30.40% 10.25% 11.83% 12.07% 04/30/75 Aetna Income Shares 16.59% 8.32% 8.35% 16.59% 6.15% 8.32% 8.35% 06/01/78 Aetna Variable Encore Fund 4.57% 3.24% 4.75% 4.57% 2.98% 3.24% 4.75% 09/01/75 Aetna Investment Advisers Fund, Inc. 25.45% 10.29% 9.18%* 25.45% 10.12% 10.29% 9.18%* 06/23/89 Aetna Ascent Variable Portfolio 9.73%* n/a n/a 9.73%* n/a n/a n/a 07/03/95 Aetna Crossroads Variable Portfolio 8.57%* n/a n/a 8.57%* n/a n/a n/a 07/03/95 Aetna Legacy Variable Portfolio 7.61%* n/a n/a 7.61%* n/a n/a n/a 07/03/95 Alger American Growth Portfolio 34.51% 20.03% 17.77%* 34.51% 17.56% 20.03% 17.77%* 01/08/89 Alger American Small Cap Portfolio 42.29% 19.14% 21.06%* 42.29% 14.82% 19.14% 21.06%* 09/21/88 Calvert Responsibly Invested Balanced Portfolio 27.96% 9.66% 8.53%* 27.96% 9.41% 9.66% 8.53%* 09/30/86 Fidelity VIP II Contrafund Portfolio 37.82%* n/a n/a 37.82%* n/a n/a n/a 01/03/95 Fidelity VIP Equity-Income Portfolio 33.21% 19.63% 11.81%* 33.21% 17.93% 19.63% 11.81%* 10/22/86 Fidelity VIP Growth Portfolio 33.48% 19.09% 13.06%* 33.48% 15.70% 19.09% 13.06%* 11/07/86 Fidelity VIP Overseas Portfolio 8.15% 6.61% 5.85%* 8.15% 13.68% 6.61% 5.85%* 02/13/87 Franklin Government Securities Trust 16.06% 7.23% 7.72%* 16.06% 5.36% 7.23% 7.72%* 05/30/89 Janus Aspen Aggressive Growth Portfolio 25.71% 25.82%* n/a 25.71% 25.82%* n/a n/a 9/13/93
4
STANDARDIZED NON-STANDARDIZED FUND INCEPTION DATE SUBACCOUNT 1 YEAR 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS Janus Aspen Balanced Portfolio 23.05% 12.32%* n/a 23.05% 12.32%* n/a n/a 09/13/93 Janus Aspen Flexible Income Portfolio 22.13% 8.13%* n/a 22.13% 8.13%* n/a n/a 09/13/93 Janus Aspen Growth Portfolio 28.36% 13.59%* n/a 28.36% 13.59%* n/a n/a 09/13/93 Janus Aspen Short-Term Bond Portfolio 8.01% 3.13%* n/a 8.01% 3.13%* n/a n/a 09/13/93 Janus Aspen Worldwide Growth Portfolio 25.70% 19.03%* n/a 25.70% 19.03%* n/a n/a 09/13/93 Lexington Natural Resources Trust 15.24% 5.20%* n/a 15.24% 5.86% 5.20%* n/a 10/14/91 Neuberger & Berman Growth Portfolio 29.89% 12.23% 10.49% 29.89% 9.53% 12.23% 10.49% 12/31/85 Scudder International Portfolio Class A Shares 9.56% 8.52% 7.66%* 9.56% 13.10% 8.52% 7.66%* 04/30/87 TCI Growth 29.27% 14.12% 11.77%* 29.27% 12.44% 14.12% 11.77%* 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. 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. 5 EXAMPLE: Assume that, at the date Annuity payments are to begin, there are 3,000 Accumulation Units credited under a particular Contract or 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 in 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 in 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 (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 6 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. 7 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 Condensed 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 STATEMENT OF ADDITIONAL INFORMATION VARIABLE ANNUITY ACCOUNT C VARIABLE ANNUITY CONTRACTS ISSUED BY AETNA LIFE INSURANCE AND ANNUITY COMPANY FORM NO. 91846(S)-2 ALIAC ED. MAY 1996 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(1) (2) Not applicable (3.1) Form of Broker-Dealer Agreement(1) (3.2) Alternative Form of Wholesale Agreement and Related Selling Agreement(1) (4.1) Form of Variable Annuity Contract (4.2) Form of Variable Annuity Contract and Certificate (G-CDA-95(TORP) and GTCC-95(TORP)) (4.3) Form of Variable Annuity Contract (G-CDA-IB(AORP)) (4.4) Form of Variable Annuity Contract and Certificate (G-CDA-95(ORP) and GTCC-95(ORP)) (5) Form of Variable Annuity Contract Application (300-MOP-IB)(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(1) (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(1) (8.3) Fund Participation Agreement between Aetna Life Insurance and Annuity Company and Fidelity Distributors Corporation (Variable Insurance Products Fund) dated February 1, 1994 amended March 1, 1996(1) (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(1) (8.5) Fund Participation Agreement between Aetna Life Insurance and Annuity Company and Franklin Advisers, Inc. dated January 31, 1989(1) (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(1) (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(1) (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(1) (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(1) (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 27, 1992 and June 1, 1994(1) (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(1) (27) Financial Data Schedule 1. Incorporated by reference to Post-Effective Amendment No. 5 to Registration Statement on Form N-4 (File No. 33-75986), as filed electronically on April 12, 1996. 2. Incorporated by reference to Registration Statement on Form N-4 (File No. 33-91846), as filed on May 1, 1995. 3. Incorporated by reference to Post-Effective Amendment No. 58 to Registration Statement on Form N-4 (File No. 2-52449), as filed electronically 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. 1 to Registration Statement on Form N-4 (File No. 33-91846), as filed on August 16, 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 Vice President Creed R. Terry Director 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 Incorporated herein by reference to Item 26 of Post-Effective Amendment No. 5 to Registration Statement on Form N-4 (File No. 33-75986) filed on April 12, 1996. 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 Variable Annuity 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, certifies that it meets the requirements of Securities Act Rule 485(b) for effectiveness of this Post-Effective Amendment No. 3 to its Registration Statement on Form N-4 (File No. 33-91846) and has duly caused this Post-Effective Amendment No. 3 to its Registration Statement on Form N-4 (File No. 33-91846) 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. 3 to the Registration Statement on Form N-4 (File No. 33-91846) 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 ) - --------------------- Officer ) Timothy A. Holt ) ) Eugene M. Trovato* Vice President and Treasurer, Corporate Controller ) April - --------------------- ) 12, 1996 Eugene M. Trovato ) ) Christopher J. Burns* Director ) - --------------------- ) Christopher J. Burns ) 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 Form of Broker-Dealer Agreement * 99-B.4.1 Form of Variable Annuity Contract (G-CDA-IB(ATORP)) 99-B.4.2 Form of Variable Annuity Contract and Certificate (G-CDA-95(TORP)) and (GTCC-95(TORP)) 99-B.4.3 Form of Variable Annuity Contract (G-CDA-1B (AORP)) 99-B.4.4 Form of Variable Annuity Contract and Certificate (G-CDA-95(ORP) and GTCC-95(ORP)) 99-B.5 Form of Variable Annuity Contract Application (300- * MOP-IB) 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 Responsibly 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 Franklin Advisers, Inc. dated January 31, 1989 *Incorporated by reference Exhibit No. Exhibit Page - ----------- ------- ---- 99-B.8.4 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.8.5 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 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 27, 1992 and June 1, 1994 99-B.9 Opinion of Counsel * 99-B.10.1 Consent of Independent Auditors *Incorporated by reference Exhibit No. Exhibit Page - ----------- ------- ---- 99-B.10.2 Consent of Counsel ____ 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-4.1 2 EXHIBIT 4.1 [LOGO] AETNA LIFE INSURANCE AND ANNUITY COMPANY HOME OFFICE: 151 Farmington Avenue Hartford, Connecticut 06156 (800) 525-4225 Aetna Life Insurance and Annuity Company, herein called Aetna, agrees to pay the benefits stated in this Contract. SPECIFICATIONS - -------------------------------------------------------------------------------- Plan OPTIONAL RETIREMENT PROGRAM (ORP) - -------------------------------------------------------------------------------- Type of Plan ORP subject to IRC Section 403(b) - -------------------------------------------------------------------------------- Contract Holder STATE UNIVERSITY SYSTEM - -------------------------------------------------------------------------------- Contract No. SPECIMEN - -------------------------------------------------------------------------------- Effective Date JANUARY 4, 1993 - -------------------------------------------------------------------------------- This Contract is Delivered in YOUR STATE and is Subject to the Laws of that Jurisdiction THE VARIABLE FEATURES OF THE GROUP 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/ Thomas L. West /s/ George N. Gingold Thomas L. West George N. Gingold Senior Vice President, Annuity Secretary Group Variable, Fixed, or Combination Annuity Contract Nonparticipating 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 MARKET 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. FORM NO. G-CDA-IB (ATORP) SPECIFICATIONS - -------------------------------------------------------------------------------- GUARANTEED There is a guaranteed interest rate for Purchase Payments(s) INTEREST RATE held in the Fixed Account. (See 3.05) and the GA Account. (See 3.04(d)). - -------------------------------------------------------------------------------- DEDUCTIONS FROM There will be deductions for mortality and expense risks and THE SEPARATE administrative fees. (See 3.08 and 4.06.) ACCOUNT - -------------------------------------------------------------------------------- DEDUCTION FROM Purchase Payment(s) are subject to a deduction for premium PURCHASE taxes, if any. (See 3.01.) PAYMENT(S) 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 Annuitant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 1.02 Annuity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 1.03 Fixed Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 1.04 Fixed Annuity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 1.05 Fund(s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 1.06 General Account . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 1.07 Guaranteed Accumulation Account (GA Account). . . . . . . . . . . . . .5 1.08 Matured Term Value. . . . . . . . . . . . . . . . . . . . . . . . . . .5 1.09 Maturity Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 1.10 Nonunitized Separate Account. . . . . . . . . . . . . . . . . . . . . .5 1.11 Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 1.12 Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 1.13 Purchase Payment(s) . . . . . . . . . . . . . . . . . . . . . . . . . .5 1.14 Separate Account. . . . . . . . . . . . . . . . . . . . . . . . . . . .5 1.15 Valuation Period (Period) . . . . . . . . . . . . . . . . . . . . . . .6 1.16 Variable Annuity. . . . . . . . . . . . . . . . . . . . . . . . . . . .6 II. GENERAL PROVISIONS - -------------------------------------------------------------------------------- 2.01 Change of Contract. . . . . . . . . . . . . . . . . . . . . . . . . . .6 2.02 Change of Fund(s) . . . . . . . . . . . . . . . . . . . . . . . . . . .6 2.03 Nonparticipating Contract . . . . . . . . . . . . . . . . . . . . . . .7 2.04 Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 2.05 State Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 2.06 Control of Contract . . . . . . . . . . . . . . . . . . . . . . . . . .7 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 . . . . . . . . . . . . . . . . . . . . . . . .8 3 III. PURCHASE PAYMENT, CURRENT VALUE, AND SURRENDER PROVISIONS - -------------------------------------------------------------------------- PAGE 3.01 Net Purchase Payment(s) . . . . . . . . . . . . . . . . . . . . . . . .8 3.02 Individual Account(s) . . . . . . . . . . . . . . . . . . . . . . . . .8 3.03 Limitation on Contributions . . . . . . . . . . . . . . . . . . . . . .9 3.04 Guaranteed Accumulation Account (GA Account). . . . . . . . . . . . . .9 3.05 Guaranteed Interest Rate -- Fixed Account . . . . . . . . . . . . . . 13 3.06 Experience Credits. . . . . . . . . . . . . . . . . . . . . . . . . . 13 3.07 Fund Record Units -- Separate Account . . . . . . . . . . . . . . . . 13 3.08 Net Return Factor(s) -- Separate Account. . . . . . . . . . . . . . . 14 3.09 Fund Record Unit Value -- Separate Account. . . . . . . . . . . . . . 14 3.10 Current Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 3.11 Transfer of Current Value from the Funds or GA Account. . . . . . . . 15 3.12 Transfer of Current Value from the Fixed Account. . . . . . . . . . . 15 3.13 Notice to the Contract Holder . . . . . . . . . . . . . . . . . . . . 15 3.14 Distribution Options. . . . . . . . . . . . . . . . . . . . . . . . . 16 3.15 Sum Payable at Death (Before Annuity Payments Start). . . . . . . . . 19 3.16 Surrender Value . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 3.17 Surrender Restrictions. . . . . . . . . . . . . . . . . . . . . . . . 20 3.18 Timing of Distributions . . . . . . . . . . . . . . . . . . . . . . . 21 3.19 Payment of Surrender Value. . . . . . . . . . . . . . . . . . . . . . 21 3.20 Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 IV. ANNUITY PROVISIONS - -------------------------------------------------------------------------------- 4.01 Choices to be Made. . . . . . . . . . . . . . . . . . . . . . . . . . 22 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 . . . . . . . . . . . . 24 4.06 Annuity Net Return Factor(s) -- Separate Account. . . . . . . . . . . 25 4.07 Annuity Options . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 4 I. GENERAL DEFINITIONS - -------------------------------------------------------------------------------- 1.01 ANNUITANT: A person on whose life an Annuity has been effected under this Contract. 1.02 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). 1.03 FIXED ACCOUNT: An accumulation option with a guaranteed minimum interest rate. Aetna may credit a higher rate which is not guaranteed. 1.04 FIXED ANNUITY: An Annuity with payments which do not vary in amount. 1.05 FUND(S): The open-end registered management investment companies (mutual funds) made available by Aetna under this Contract. 1.06 GENERAL ACCOUNT: The Account holding the assets of Aetna, other than those assets held in the Separate Account or the Nonunitized Separate Account. 1.07 GUARANTEED ACCUMULATION An accumulation option which guarantees ACCOUNT (GA ACCOUNT): a stipulated rate of interest for a specified period of time. 1.08 MATURED TERM VALUE: The amount payable on a GA Account Term's Maturity Date. 1.09 MATURITY DATE: The last day of a GA Account Term. 1.10 NONUNITIZED SEPARATE An Account set up by Aetna under Title ACCOUNT: 38a, Section 38a-433, 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. 1.11 PARTICIPANT: A person who participates in the Plan named on the cover of this Contract. 1.12 PLAN: The Plan named on the Contract cover page. The Plan is not a part of the Contract. Aetna is not bound by the terms of the Plan. 1.13 PURCHASE PAYMENT(S): Payments made to Aetna. 1.14 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 are 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. 5 1.15 VALUATION PERIOD (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, or such other day that one or more of the Funds determines its net asset value. 1.16 VARIABLE ANNUITY: An Annuity with payments that vary with the net investment results of a Separate Account. 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 the 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 (2) 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). 6 2.02 CHANGE OF FUND(S) Changes must be: (CONT'D): (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 The Contract Holder, Participants or CONTRACT: 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 3.19. 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 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. 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 Plan, however, may allow Participants to select the investment option(s) 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. (a) Nontransferable and Nonassignable: This Contract and any Individual Accounts are nontransferable and nonassignable, except to Aetna pursuant of a "qualified domestic relations order" as set forth under the Internal Revenue Code of 1986 (Code), as it may be amended from time to time. (b) Distributions: With respect to any distribution made from an Employee or Employer Account, the Contract Holder must certify in writing 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 the Code Section 403(b) and the terms of the Plan as interpreted by the Contract Holder (see 1.12). 7 2.06 CONTROL OF CONTRACT (d) Participant Rights/Employer (CONT'D): 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. 2.07 DESIGNATION OF Each Participant shall name the BENEFICIARY: beneficiary of the Employer and Employee Account. Aetna will pay any portion of the Individual Account(s) Current Value to the beneficiary as directed by the Contract Holder. 2.08 MISSTATEMENTS AND If Aetna finds the age of any payee to ADJUSTMENTS: 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. 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. 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(S): This Contract is issued to the Contract Holder. However, Participant's Individual Accounts are explained below: 8 3.02 INDIVIDUAL ACCOUNT(S) Aetna may maintain two Individual (CONT'D): 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 The Purchase Payment(s) made to a CONTRIBUTIONS: 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 The GA Account guarantees stipulated ACCOUNT (GA ACCOUNT): rates of interest for stated periods of time (see (a), (b), (c) and (d) 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 the 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. (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. 9 3.04 GUARANTEED ACCUMULATION During a Deposit Period, Aetna may ACCOUNT (GA ACCOUNT) make available one or more Terms (CONT'D): within a Classification. The Contract Holder or, if allowed by the Plan, the Participant 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 3%. 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 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. Amounts may be transferred at any time subject to Contract specifications (see 3.11 or 3.12 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. 10 3.04 GUARANTEED ACCUMULATION During the Deposit Period and the ACCOUNT (GA ACCOUNT) 90 days following the close of (CONT'D): 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 -- 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 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, the Contract Holder or Participant, as applicable, will be mailed a confirmation statement. This statement will state the Term and Guaranteed Rate(s) 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 or Participant, as applicable, 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 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. 11 3.04 GUARANTEED ACCUMULATION (g) Market Value Adjustment (MVA) -- ACCOUNT (GA ACCOUNT) There will be an MVA for a (CONT'D): 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. The market value adjusted amount will be equal to the amount withdrawn multiplied by the following ratio: x (1 + i) TO THE POWER OF --- 365 ------------------------------- x (1 + j) TO THE POWER OF --- 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 of the Participant's date of death under the Sum Payable at Death provision will be the greater of: 12 3.04 GUARANTEED ACCUMULATION - The aggregate MVA amount which is ACCOUNT (GA ACCOUNT) the sum of all market value (CONT'D): 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 the MVA 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. (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 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 On any Purchase Payment(s) made to the RATE -- FIXED ACCOUNT: Fixed Account, Aetna will add interest daily at any annual rate no less than 3%. 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 FUND RECORD UNITS -- The portion of the Net Purchase SEPARATE ACCOUNT: Payment(s) applied to the Separate Account will determine the number of each Fund's Record Units. This number is equal to the Net Purchase Payment 13 3.07 FUND RECORD UNITS -- applied to the Fund divided by the Fund SEPARATE ACCOUNT Record Unit Value (see 3.09) for the (CONT'D): Valuation Period in which the Purchase Payment is received in good order. 3.08 NET RETURN FACTOR(S) -- The Net Return Factors are used to SEPARATE ACCOUNT: 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 at the start of the Valuation Period; minus (e) A daily actuarial charge at an annual effective rate of 1.40% for Annuity mortality and expense risks and asset based sales charge and profit and a daily administrative charge which will not exceed 0.25% on an annual effective 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. 3.09 FUND RECORD UNIT VALUE -- Each Fund's Record Unit Value is SEPARATE ACCOUNT: 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. 3.10 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); (d) Any amount due to Experience Credits. Current Value does not include amounts used to elect an Annuity. 14 3.11 TRANSFER OF CURRENT VALUE Before an Annuity Option is elected, all FROM THE FUNDS OR GA or any portion of the Current Value may ACCOUNT: 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) or the Fixed Account 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. 3.12 TRANSFER OF CURRENT VALUE Before an Annuity Option is elected, up FROM THE FIXED ACCOUNT: to 20% of the Current Value held in the Fixed Account may be transferred to any Fund(s) or the GA Account's current Deposit Period(s). Such transfer will be: (a) Without charge; and (b) Allowed once per calendar year. The Current Value of the Fixed Account, as used above, is the value when the request is received at the Home Office of Aetna. 3.13 NOTICE TO THE CONTRACT Aetna will notify the Contract Holder or HOLDER: Participant, as applicable, 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; and (c) The Fund(s) Record Unit Value(s). Such number or values will be as of a date no more than 60 days before the date of the notice. 15 3.14 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) and the Participant has retired, payments made in or after the year age 70 1/2 was attained (or retirement, if later) but before the year age 75 is attained will only be calculated on amounts contributed after December 31, 1986, plus all earnings 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. (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, 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, payments will be calculated based on the survivor's life expectancy. The 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, 16 3.14 DISTRIBUTION OPTIONS and such spouse must be named (CONT'D): as the 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. The Contract Holder must also certify in writing 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 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 under the Code and distribute this amount if it is larger than the amount elected by the Contract Holder. 17 3.14 DISTRIBUTION OPTIONS The life expectancy (CONT'D): 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(s) Current Value 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, 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 to be calculated in the same manner described above, unless the Contract Holder on behalf of the Participant's 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. 18 3.14 DISTRIBUTION OPTIONS (3) Date of Distribution: The (CONT'D): Contract Holder shall specify the initial 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. (4) Election and Revocation: SWO may be elected by the Contract Holder by submitting a completed and signed election form to Aetna's Home Office. The Contract Holder must certify in writing 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. (5) 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. 3.15 SUM PAYABLE AT DEATH Aetna will pay any portion of the (BEFORE ANNUITY PAYMENTS Individual Account(s) Current START): Value to the beneficiary 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. For each Individual Account, the death benefit is guaranteed to be the greater of: (a) The Current Value of the Individual Account plus aggregate positive MVA, as applicable, on the date the notice of death and the request for payment are received in good order at Aetna's Home Office; or (b) The total of Net Purchase Payment(s) made to each Individual Account minus the total of all partial surrenders or annuitizations made from each Account. This guaranteed death benefit is available only to beneficiaries who request either a lump sum payment or an Annuity Option within the first six months after the date of the Participant's death. If the payee of the death proceeds is the Participant's surviving spouse (as the Participant's designated beneficiary), 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 beneficiary is not the surviving spouse, all of the 19 3.15 SUM PAYABLE AT DEATH Current Value must either be applied to (BEFORE ANNUITY PAYMENTS an Annuity Option within one year of the START) (CONT'D): Participant's death or be paid to the payee within 5 years of the Participant's death (see Part IV). In no event may any payments to the 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. 3.16 SURRENDER VALUE: The amount payable by Aetna upon the surrender of any portion on an Individual Account will be the value of the Individual Account at the end of the Valuation Period in which the surrender request is received at Aetna's Home Office. Partial surrenders of an Individual Account's Fixed Account value may not exceed 20% of the Fixed Account Value during any calendar year. Any portion of a full surrender of an Individual Account which is in the Fixed Account will be paid in five annual installments in accordance with Section 3.19. 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. Aetna may defer payment of the surrender value until appropriate Contract Holder direction is received. 3.17 SURRENDER RESTRICTIONS: Limitations apply to full and partial surrenders of any Restricted Amount under 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, if any; 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). 20 3.17 SURRENDER RESTRICTIONS However, the amount available for (CONT'D): 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. 3.18 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 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 beneficiary). If the Contract Holder does not request commencement 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 adverse tax consequences that may result. 3.19 PAYMENT OF SURRENDER Under certain emergency conditions, VALUE: Aetna may defer payments: (a) For a period of up to 6 months (unless not allowed by state law); and (b) As provided by federal law. Any surrenders requested from an Individual Account's Fixed Account value may not exceed 20% of the Individual Account's Fixed Account Current Value as of the date the withdrawal request is received in good order at Aetna's Home Office during any calendar year. The surrender value will be reduced by any Fixed Account surrender(s), transfer(s) or annuitizations previously made during the calendar year. 21 3.19 PAYMENT OF SURRENDER In the event of Individual Account VALUE (CONT'D): termination, Aetna will pay any Fixed Account surrender value from the Individual Account with interest, in five annual payments of: - One-fifth of the Fixed Account surrender value minus any Fixed Account surrender(s), transfer(s) or annuitizations made during the calendar year; - One-fourth of the Fixed Account surrender value; - One-third of the Fixed Account surrender value; - One-half of the Fixed Account surrender value; and - The remaining balance of the Fixed Account surrender value as the fifth and final payment. Once Aetna receives notification of an Individual Account termination, no further surrender(s) or transfer(s) will be permitted from the Fixed Account. 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 3%. 3.20 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 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 amount 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. Reinstatement is permitted only once. 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. 22 4.01 CHOICES TO BE MADE Generally, the first Annuity payment (CONT'D): 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 retires, whichever occurs later, or such later date as may be allowed under federal law or regulations (see 3.18). For distributions taken in a lump sum, see Surrender Value (3.16 and 3.19). For any election of an Annuity Option, the Contract Holder must provide certification that the 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 3.0%. 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 In no event may any payments to the ANNUITANT: Annuitant under any Annuity Option extend beyond: (a) The life of the Annuitant; (b) The lives of the Annuitant and the 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 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 beneficiary as directed in writing by the Contract Holder; or upon election by the Annuitant's beneficiary, any remaining payments will continue to the beneficiary. If no beneficiary exists, the present value of any remaining guaranteed payments will be paid in one lump sum to the Contract Holder. 23 4.03 DEATH OF ANNUITANT However, if a beneficiary dies while under Option 1 or while (CONT'D): receiving Annuity payments, the present value of any remaining payments will be paid in one lump sum to the estate of the beneficiary. The interest rate used to determine the first payment will be used to calculate the present value. 4.04. FUND(S) ANNUITY UNITS -- The number of Fund(s) Annuity Units is SEPARATE ACCOUNT: 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 For any Valuation Period, a Fund(s) VALUE -- SEPARATE ACCOUNT: Annuity Unit Value is equal to: (a) The Value for the previous Period; multiplied by (b) The Annuity Net Return Factor(s) 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 a 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. 24 4.06 ANNUITY NET RETURN The Annuity Net Return Factor(s) are FACTOR(S) -- SEPARATE used to compute all Separate Account ACCOUNT: Annuity and payments for any Fund. The Annuity Net Return Factor(s) for each Fund is equal to 1.0000000 plus the Net Return Rate. The Net Return Rate is equal to: (1) The value of the shares of the Fund held by the Separate Account at the end of a Valuation Period; minus (2) The value of the shares of the Fund held by the Separate Account at the start of the Valuation Period; plus or minus (3) Taxes (or reserves for taxes) on the Separate Account (if any); divided by (4) The total value of the Fund(s) Record Units and Fund(s) Annuity Units of the Separate Account at the start of the Valuation Period; minus (5) 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. 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. 4.07 ANNUITY OPTIONS: Option 1 -- Payment of Interest on Sum Left with Aetna -- This Option may be used only by the 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 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. If the beneficiary is the Participant's surviving spouse, payment may be deferred to a date not later than when the Participant would have attained age 70 1/2. If the beneficiary is not a spouse, the Contract Holder must tell Aetna to pay the full sum within 5 years after the Participant's death. 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. 25 4.07 ANNUITY OPTIONS Option 3 -- Life Income -- An Annuity (CONT'D): 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; (d) Payments for a minimum of 120 months with 100% of the payment to continue to the survivor; or (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. 26 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 3.0% - -------------------------------------------------------------------------------- GAURANTEED MONTHLY QUARTERLY SEMI-ANNUAL ANNUAL YEARS RATE PAYMENT PAYMENT PAYMENT PAYMENT - -------------------------------------------------------------------------------- 3 3.00% $28.99 $86.76 $172.88 $343.23 4 3.00% 22.06 66.02 131.56 261.19 5 3.00% 17.91 53.59 106.78 211.99 6 3.00% 15.14 45.30 90.27 179.22 7 3.00% 13.16 39.39 78.49 155.83 8 3.00% 11.68 34.96 69.66 138.31 9 3.00% 10.53 31.52 62.81 124.69 10 3.00% 9.61 28.77 57.33 113.82 11 3.00% 8.86 26.52 52.85 104.93 12 3.00% 8.24 24.65 49.13 97.54 13 3.00% 7.71 23.08 45.98 91.29 14 3.00% 7.26 21.73 43.29 85.95 15 3.00% 6.87 20.56 40.96 81.33 16 3.00% 6.53 19.54 38.93 77.29 17 3.00% 6.23 18.64 37.14 73.74 18 3.00% 5.96 17.84 35.56 70.59 19 3.00% 5.73 17.13 34.14 67.78 20 3.00% 5.51 16.50 32.87 65.26 21 3.00% 5.32 15.92 31.72 62.98 22 3.00% 5.15 15.40 30.68 60.92 23 3.00% 4.99 14.92 29.74 59.04 24 3.00% 4.84 14.49 28.88 57.33 25 3.00% 4.71 14.09 28.08 55.76 26 3.00% 4.59 13.73 27.36 54.31 27 3.00% 4.47 13.39 26.68 52.97 28 3.00% 4.37 13.08 26.06 51.74 29 3.00% 4.27 12.79 25.49 50.60 30 3.00% 4.18 12.52 24.95 49.53 - -------------------------------------------------------------------------------- 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 Fixed Annuity with Guaranteed Interest Rate of 3.0% PAYMENTS GUARANTEED FOR A STATED PERIOD OF MONTHS - -------------------------------------------------------------------------------- AGE OF ANNUITANT NONE 60 120 180 240 - -------------------------------------------------------------------------------- 50 $4.05 $4.05 $4.03 $3.99 $3.93 51 4.12 4.11 4.09 4.05 3.99 52 4.19 4.19 4.16 4.11 4.04 53 4.27 4.26 4.23 4.18 4.10 54 4.35 4.34 4.31 4.25 4.16 55 4.44 4.42 4.39 4.32 4.22 56 4.53 4.51 4.47 4.40 4.29 57 4.62 4.61 4.56 4.48 4.35 58 4.72 4.71 4.65 4.56 4.42 59 4.83 4.81 4.75 4.64 4.49 60 4.95 4.93 4.86 4.73 4.55 61 5.07 5.05 4.97 4.83 4.62 62 5.20 5.17 5.08 4.92 4.69 63 5.34 5.31 5.20 5.02 4.76 64 5.49 5.45 5.33 5.12 4.83 65 5.65 5.61 5.47 5.22 4.89 66 5.82 5.77 5.61 5.33 4.96 67 6.01 5.94 5.75 5.44 5.02 68 6.20 6.13 5.91 5.54 5.08 69 6.41 6.33 6.07 5.65 5.14 70 6.64 6.54 6.23 5.76 5.19 71 6.88 6.76 6.41 5.86 5.24 72 7.14 7.00 6.59 5.97 5.28 73 7.43 7.26 6.77 6.06 5.32 74 7.73 7.53 6.96 6.16 5.35 75 8.06 7.82 7.14 6.25 5.38 - -------------------------------------------------------------------------------- Rates are based on mortality from 1983 Table a. The rates do not differ by sex. 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 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 3.0% - -------------------------------------------------------------------------------- AGES OF - --------------------- SECOND ANNUITANT ANNUITANT OPTION 4a OPTION 4b OPTION 4c OPTION 4d OPTION 4e - -------------------------------------------------------------------------------- 55 50 $3.69 $4.05 $4.27 $3.69 $4.03 55 55 3.88 4.25 4.47 3.87 4.14 55 60 4.06 4.47 4.71 4.06 4.20 60 55 3.99 4.44 4.71 3.98 4.42 60 60 4.24 4.71 4.99 4.23 4.57 60 65 4.49 5.01 5.32 4.48 4.64 65 60 4.38 4.97 5.32 4.38 4.93 65 65 4.72 5.33 5.70 4.71 5.14 65 70 5.07 5.75 6.17 5.05 5.26 70 65 4.93 5.68 6.15 4.91 5.66 70 70 5.40 6.21 6.70 5.36 5.96 70 75 5.89 6.82 7.40 5.81 6.12 75 70 5.69 6.68 7.32 5.62 6.67 75 75 6.37 7.45 8.15 6.23 7.12 75 80 7.07 8.34 9.16 6.78 7.36 - -------------------------------------------------------------------------------- Rates are based on mortality from 1983 Table a. The rates do not differ by sex. 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. 29 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 Variable Annuity with Assumed Net Return Rate of 3.5% - -------------------------------------------------------------------------------- GUARANTEED MONTHLY QUARTERLY SEMI-ANNUAL ANNUAL YEARS RATE PAYMENT PAYMENT PAYMENT PAYMENT - -------------------------------------------------------------------------------- 3 3.50% $29.19 $87.33 $173.91 $344.86 4 3.50% 22.27 66.61 132.65 263.04 5 3.50% 18.12 54.19 107.92 213.99 6 3.50% 15.35 45.92 91.44 181.32 7 3.50% 13.38 40.01 79.69 158.01 8 3.50% 11.90 35.59 70.88 140.56 9 3.50% 10.75 32.16 64.05 127.00 10 3.50% 9.83 29.42 58.59 116.18 11 3.50% 9.09 27.18 54.13 107.34 12 3.50% 8.46 25.32 50.42 99.98 13 3.50% 7.94 23.75 47.29 93.78 14 3.50% 7.49 22.40 44.62 88.47 15 3.50% 7.10 21.24 42.31 83.89 16 3.50% 6.76 20.23 40.29 79.89 17 3.50% 6.47 19.34 38.51 76.37 18 3.50% 6.20 18.55 36.94 73.25 19 3.50% 5.97 17.85 35.54 70.47 20 3.50% 5.75 17.22 34.28 67.98 21 3.50% 5.56 16.65 33.15 65.74 22 3.50% 5.39 16.13 32.13 63.70 23 3.50% 5.24 15.66 31.19 61.85 24 3.50% 5.09 15.24 30.34 60.17 25 3.50% 4.96 14.85 29.56 58.62 26 3.50% 4.84 14.49 28.85 57.20 27 3.50% 4.73 14.15 28.19 55.90 28 3.50% 4.63 13.85 27.58 54.69 29 3.50% 4.53 13.57 27.02 53.57 30 3.50% 4.45 13.30 26.49 52.53 - -------------------------------------------------------------------------------- 30 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 Variable Annuity with Assumed Net Return Rate of 5.0% - -------------------------------------------------------------------------------- GUARANTEED MONTHLY QUARTERLY SEMI-ANNUAL ANNUAL YEARS RATE PAYMENT PAYMENT PAYMENT PAYMENT - -------------------------------------------------------------------------------- 3 5.00% $29.80 $89.04 $176.99 $349.72 4 5.00% 22.89 68.38 135.93 268.58 5 5.00% 18.74 56.00 111.33 219.98 6 5.00% 15.99 47.77 94.96 187.64 7 5.00% 14.02 41.90 83.30 164.59 8 5.00% 12.56 37.52 74.58 147.35 9 5.00% 11.42 34.11 67.81 133.99 10 5.00% 10.51 31.40 62.42 123.34 11 5.00% 9.77 29.19 58.03 114.66 12 5.00% 9.16 27.36 54.38 107.45 13 5.00% 8.64 25.81 51.31 101.39 14 5.00% 8.20 24.50 48.69 96.21 15 5.00% 7.82 23.36 46.44 91.75 16 5.00% 7.49 22.37 44.47 87.88 17 5.00% 7.20 21.51 42.75 84.48 18 5.00% 6.94 20.74 41.23 81.47 19 5.00% 6.71 20.06 39.88 78.80 20 5.00% 6.51 19.46 38.68 76.42 21 5.00% 6.33 18.91 37.59 74.28 22 5.00% 6.17 18.42 36.62 72.35 23 5.00% 6.02 17.98 35.73 70.61 24 5.00% 5.88 17.57 34.93 69.02 25 5.00% 5.76 17.20 34.20 67.57 26 5.00% 5.65 16.87 33.53 66.25 27 5.00% 5.54 16.56 32.92 65.04 28 5.00% 5.45 16.28 32.35 63.93 29 5.00% 5.36 16.01 31.83 62.90 30 5.00% 5.28 15.77 31.35 61.95 - -------------------------------------------------------------------------------- 31 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 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 are based on mortality from 1983 Table a. The rates do not differ by sex. 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. 32 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 are based on mortality from 1983 Table a. The rates do not differ by sex. 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. 33 OPTION 4 LIFE INCOME FOR TWO PAYEES 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 3.5% - -------------------------------------------------------------------------------- AGES OF - --------------------- SECOND ANNUITANT ANNUITANT OPTION 4a OPTION 4b OPTION 4c OPTION 4d OPTION 4e - -------------------------------------------------------------------------------- 55 50 $3.97 $4.35 $4.56 $3.97 $4.31 55 55 4.16 4.54 4.76 4.15 4.42 55 60 4.27 4.73 5.00 4.26 4.48 60 55 4.27 4.73 5.00 4.26 4.70 60 60 4.51 4.99 5.27 4.50 4.84 60 65 4.66 5.25 5.61 4.65 4.93 65 60 4.66 5.25 5.61 4.65 5.22 65 65 4.99 5.61 5.99 4.98 5.42 65 70 5.19 5.97 6.44 5.17 5.54 70 65 5.19 5.97 6.44 5.17 5.93 70 70 5.67 6.49 6.99 5.62 6.23 70 75 5.95 6.96 7.61 5.87 6.40 75 70 5.95 6.96 7.61 5.87 6.95 75 75 6.64 7.73 8.43 6.48 7.40 75 80 7.04 8.39 9.29 6.79 7.64 - -------------------------------------------------------------------------------- Rates are based on mortality from 1983 Table a. The rates do not differ by sex. 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. 34 OPTION 4 LIFE INCOME FOR TWO PAYEES 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% - -------------------------------------------------------------------------------- AGES OF - --------------------- SECOND ANNUITANT ANNUITANT OPTION 4a OPTION 4b OPTION 4c OPTION 4d OPTION 4e - -------------------------------------------------------------------------------- 55 50 $4.88 $5.26 $5.48 $4.88 $5.23 55 55 5.04 5.44 5.66 5.04 5.32 55 60 5.15 5.63 5.91 5.14 5.38 60 55 5.15 5.63 5.91 5.14 5.59 60 60 5.37 5.87 6.16 5.37 5.72 60 65 5.52 6.14 6.51 5.51 5.80 65 60 5.52 6.14 6.51 5.51 6.10 65 65 5.83 6.49 6.87 5.82 6.29 65 70 6.04 6.84 7.34 6.00 6.41 70 65 6.04 6.84 7.34 6.00 6.81 70 70 6.49 7.35 7.87 6.44 7.08 70 75 6.77 7.84 8.51 6.68 7.25 75 70 6.77 7.84 8.51 6.68 7.81 75 75 7.45 8.60 9.33 7.27 8.25 75 80 7.86 9.28 10.20 7.57 8.49 - -------------------------------------------------------------------------------- Rates are based on mortality from 1983 Table a. The rates do not differ by sex. 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. 35 - -------------------------------------------------------------------------------- [AETNA LOGO] AETNA LIFE INSURANCE AND ANNUITY COMPANY HOME OFFICE: 151 Farmington Avenue Hartford, Connecticut 06156 (800) 525-4225 Group Variable, Fixed or Combination Contract Nonparticipating - -------------------------------------------------------------------------------- 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 MARKET 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. AETNA LIFE INSURANCE AND ANNUITY COMPANY ENDORSEMENT The Contract and the Certificate are hereby endorsed as follows: Under Section 3.14 entitled DISTRIBUTION OPTIONS, delete the first sentence under subparagraph (b) (1) (a) and replace with the following: Specified Amount: 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. Under Section 3.14 entitled DISTRIBUTION OPTIONS, delete the first sentence under subparagraph (b) (1) (b) and replace with the following: Specified Period: Payments which are made over a period of time which must be at least 5 years, unless otherwise required by the Code minimum distribution rules. Under Section 3.14 entitled DISTRIBUTION OPTIONS, add the following as subparagraph (b) (1) (c): Specified Percentage: Payments of a designated percentage which cannot be greater than 20% of the amount being designated for SWO. The 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. Endorsed and made a part of the Contract and the Certificate on the date approved by the State Insurance Department. /s/ Dan Kearney --------------- 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 ot 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 dicretion, Aetna may allow additional amoutns 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 Allaction 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 cancelled 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 Vet 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 fo 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 groth and income fund. The remianing 50% fof the Current Value will be transferred to Aetna Income Shares, a bond fund. The Transfers will be made durung 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 Allcation Period for that series begins. GUARANTEE: Aetna guarantees that on a series' of 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 ammeded 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 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 EVP-IC EX-4.2 3 EXHIBIT 4.2 ------------------------------------------------------------ [LOGO] AETNA LIFE INSURANCE AND ANNUITY COMPANY HOME OFFICE: 151 Farmington Avenue Hartford, Connecticut 06156 (800) 525-4225 You may call the toll-free number shown above to get answers to your questions or help to resolve a complaint. Aetna Life Insurance and Annuity Company, herein called Aetna, agrees to pay the benefits stated in the Contract. - -------------------------------------------------------------------------------- CERTIFICATE OF To the Certificate Holder: GROUP ANNUITY COVERAGE Aetna certifies that coverage is in force for you under the stated Group Annuity Contract and Certificate numbers. All data shown here is taken from Aetna records and is based upon information furnished by you. This Certificate is a summary of the Group Annuity Contract provisions. It replaces any and all prior certificates, riders, or amendments issued to you under the stated Contract and Certificate numbers. This Certificate is for information only and is not a part of the Contract. THE VARIABLE FEATURES OF THE GROUP CONTRACT ARE DESCRIBED IN PARTS III AND V. - -------------------------------------------------------------------------------- RIGHT TO You may cancel this Certificate within 10 days of receiving CANCEL it by returning this Certificate 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 Certificate 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. /s/ Dan Kearney /s/ Patrice Maloney-Knauff President Secretary - -------------------------------------------------------------------------------- Contract Holder Group Annuity Contract No. ORP TDA NJ VF0305 - -------------------------------------------------------------------------------- Your Name Certificate No. AROUND TURN 2659841150305ER - -------------------------------------------------------------------------------- Type of Plan OPTIONAL RETIREMENT PRODUCT - -------------------------------------------------------------------------------- The underlying group combination annuity contract NEW JERSEY is delivered in and is subject to the laws of that jurisdiction. ALL PAYMENTS AND VALUES PROVIDED BY THE GROUP ANNUITY CONTRACT, WHEN BASED ON INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT. THIS CERTIFICATE CONTAINS A MARKET VALUE ADJUSTMENT FORMULA. APPLICATION OF A MARKET 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. FORM NO. GTCC-95 (TORP) SPECIFICATIONS - -------------------------------------------------------------------------------- GUARANTEED There are guaranteed interest rates for amounts held in the INTEREST RATE Fixed Plus Account and the GA Account. (See Certificate Schedule I). - -------------------------------------------------------------------------------- DEDUCTIONS FROM There will be deductions for mortality and expense risks and THE SEPARATE asset based sales charge and administrative fees. (See 3.05 ACCOUNT and 5.06). - -------------------------------------------------------------------------------- DEDUCTION FROM Contribution(s) are subject to a deduction for CONTRIBUTION(S) premium taxes, if any. (See 3.02.) 2 CONTRACT SCHEDULE I ACCUMULATION PERIOD SEPARATE ACCOUNT - -------------------------------------------------------------------------------- SEPARATE ACCOUNT: Variable Annuity Account C CHARGES TO SEPARATE A daily charge is deducted from any portion of ACCOUNT: the Current Value allocated to the Separate Account. The daily charge is at an annual effective rate of 1.40% for Annuity mortality and expense risks, asset based sales charge and profit and a daily administrative charge which will not exceed 0.25% on an annual basis. FIXED PLUS ACCOUNT - -------------------------------------------------------------------------------- MINIMUM GUARANTEED 3% (effective annual rate of return). INTEREST RATE: Beginning on the tenth anniversary of the effective date of an Individual Account, Aetna will credit amounts with an interest rate that is 0.25% higher than the then-declared interest rate for Individual Accounts before the tenth anniversary. PARTIAL WITHDRAWAL: The 20% limit applicable to partial withdrawal from the Fixed Plus Account will be waived when the withdrawal is: (a) due to the Participant's death, (within six (6) months of the Participant's date of death), before Annuity payments begin. This partial withdrawal may only be exercised once; or (b) used to purchase Annuity benefits. GUARANTEED ACCUMULATION ACCOUNT (GA ACCOUNT) - -------------------------------------------------------------------------------- MINIMUM GUARANTEED 3% (effective annual rate of return). INTEREST RATE: i CONTRACT SCHEDULE I ACCUMULATION PERIOD (CONT'D) SEPARATE ACCOUNT, FIXED PLUS ACCOUNT AND GA ACCOUNT - -------------------------------------------------------------------------------- TRANSFERS: An unlimited number of Transfers may be made during the Accumulation Period. Aetna allows 12 free Transfers in any calendar year. Thereafter, Aetna reserves the right to charge $10 for each subsequent Transfer. SYSTEMATIC WITHDRAWAL The Specified Payment may not be greater than 20% of OPTION (SWO): the Individual Account's Current Value at the time of election. The Specified Period may not be less than five years. The Specified Percentage may not be greater than 20%. See Section 1. - DEFINITIONS for explanations. ii CONTRACT SCHEDULE II ANNUITY PERIOD SEPARATE ACCOUNT - -------------------------------------------------------------------------------- CHARGES TO SEPARATE A daily charge at an annual effective rate of 1.25% for ACCOUNT: Annuity mortality and expense risks. The administrative charge is established upon election of an Annuity option. This charge will not exceed 0.25%. VARIABLE ANNUITY ASSUMED If a Variable Annuity is chosen, an assumed annual net ANNUAL NET RETURN RATE: return rate of 5.0% may be elected. If 5.0% is not elected, Aetna will use an assumed annual net return rate of 3.5%. The assumed annual net return rate factor for 3.5% per year is 0.9999058. The assumed annual net return rate factor for 5.0% per year is 0.9998663. If the portion of a Variable Annuity payment for any Fund is not to decrease, the Annuity return factor under the Separate Account for that Fund must be: (a) 4.75% on an annual basis plus an annual return of up to 0.25% 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 (b) 6.25% on an annual basis plus an annual return of up to 0.25% to offset the administrative charge set at the time Annuity payments commence, if an assumed annual net return rate of 5% is chosen. ANNUITY OPTION: Under the option "Payments for a Stated Period of Time": For amounts invested in the GA Account or one or more of the Fund(s), the number of years must be at least five (5) and not more than thirty (30) and the Annuity may be a Fixed or Variable Annuity. For amounts invested in the Fixed Plus Account, the number of years must be at least five (5) and not more than thirty (30) and the Annuity must be a Fixed Annuity. FIXED ANNUITY - -------------------------------------------------------------------------------- MINIMUM GUARANTEED 3% (effective annual rate of return). INTEREST RATE See Section 1. - DEFINITIONS for explanations. iii TABLE OF CONTENTS I. DEFINITIONS - -------------------------------------------------------------------------- PAGE 1.01 Accumulation Period. . . . . . . . . . . . . . . . . . . . . . . . . 6 1.02 Adjusted Current Value . . . . . . . . . . . . . . . . . . . . . . . 6 1.03 Annuitant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.04 Annuity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.05 Beneficiary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.06 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.07 Contract Holder. . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.08 Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.09 Current Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.10 Deposit Period . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.11 Fixed Plus Account . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.12 Fixed Plus Account Guaranteed Interest Rate. . . . . . . . . . . . . 7 1.13 Fixed Annuity. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.14 Fund(s). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.15 General Account. . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.16 Guaranteed Accumulation Account (GA Account) . . . . . . . . . . . . 7 1.17 GA Account Guaranteed Interest Rate. . . . . . . . . . . . . . . . . 7 1.18 Guaranteed Term. . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.19 Individual Account . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.20 Loan Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.21 Market Value Adjustment (MVA). . . . . . . . . . . . . . . . . . . . 8 1.22 Matured Term Value . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.23 Matured Term Value Transfer. . . . . . . . . . . . . . . . . . . . . 8 1.24 Maturity Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.25 Net Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.26 Nonunitized Separate Account . . . . . . . . . . . . . . . . . . . . 8 1.27 Participant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.28 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1.29 Reinvestment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1.30 Separate Account . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3 PAGE 1.31 Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1.32 Valuation Period . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1.33 Variable Annuity . . . . . . . . . . . . . . . . . . . . . . . . . . 9 II. GENERAL PROVISIONS - -------------------------------------------------------------------------------- 2.01 Change of Contract . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.02 Change of Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.03 Nonparticipating Contract. . . . . . . . . . . . . . . . . . . . . . 11 2.04 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.05 State Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.06 Control of Contract. . . . . . . . . . . . . . . . . . . . . . . . . 11 2.07 Misstatements and Adjustments. . . . . . . . . . . . . . . . . . . . 12 2.08 Incontestability . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2.09 Grace Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2.10 Individual Certificates. . . . . . . . . . . . . . . . . . . . . . . 12 III. CONTRIBUTIONS, CURRENT VALUE, and WITHDRAWAL PROVISIONS - -------------------------------------------------------------------------------- 3.01 Limitations on Contributions . . . . . . . . . . . . . . . . . . . . 12 3.02 Net Contribution(s). . . . . . . . . . . . . . . . . . . . . . . . . 13 3.03 Experience Credits . . . . . . . . . . . . . . . . . . . . . . . . . 13 3.04 Fund Record Units. . . . . . . . . . . . . . . . . . . . . . . . . . 13 3.05 Fund Record Unit Value . . . . . . . . . . . . . . . . . . . . . . . 13 3.06 Fund Net Return Factors. . . . . . . . . . . . . . . . . . . . . . . 13 3.07 Market Value Adjustment. . . . . . . . . . . . . . . . . . . . . . . 14 3.08 Transfer(s). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 3.09 Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 3.10 Notice to the Participant. . . . . . . . . . . . . . . . . . . . . . 19 3.11 Withdrawal Restrictions. . . . . . . . . . . . . . . . . . . . . . . 19 3.12 Manner and Timing of Distributions . . . . . . . . . . . . . . . . . 20 3.13 Withdrawal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 3.14 Partial Withdrawal from the Fixed Plus Account . . . . . . . . . . . 21 4 PAGE 3.15 Payment of Fixed Plus Account Full Withdrawal. . . . . . . . . . . . 21 3.16 Alternative Payment of Fixed Plus Account Full Withdrawal. . . . . . 21 3.17 Payment of Minimum Current Value . . . . . . . . . . . . . . . . . . 22 3.18 Amount Payable at Death (Before Annuity Payments Start). . . . . . . 22 3.19 Reinstatement. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 IV. NON-ANNUITY DISTRIBUTION OPTIONS - -------------------------------------------------------------------------------- 4.01 Distribution Options . . . . . . . . . . . . . . . . . . . . . . . . 23 4.02 Estate Conservation Option . . . . . . . . . . . . . . . . . . . . . 23 4.03 Systematic Withdrawal Option . . . . . . . . . . . . . . . . . . . . 25 IV. ANNUITY PROVISIONS - -------------------------------------------------------------------------------- 5.01 Choices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 5.02 Terms of Annuity Options . . . . . . . . . . . . . . . . . . . . . . 28 5.03 Death Provision. . . . . . . . . . . . . . . . . . . . . . . . . . . 28 5.04 Fund Annuity Units . . . . . . . . . . . . . . . . . . . . . . . . . 28 5.05 Fund Annuity Unit Value. . . . . . . . . . . . . . . . . . . . . . . 29 5.06 Fund Annuity Net Return Factor . . . . . . . . . . . . . . . . . . . 29 5.07 Annuity Options. . . . . . . . . . . . . . . . . . . . . . . . . . . 30 5 I. DEFINITIONS - -------------------------------------------------------------------------------- 1.01 ACCUMULATION PERIOD: The period during which Net Contribution(s) are applied to an Individual Account. 1.02 ADJUSTED CURRENT The Current Value (See 1.09) of an Individual VALUE: Account (See 1.19) plus or minus any applicable aggregate GA Account Market Value Adjustment, if applicable (See 3.07). 1.03 ANNUITANT: If an Annuity provides lifetime benefits, the person whose life expectancy determines the amount and/or duration of Annuity benefit payments. 1.04 ANNUITY: Payment of an income under the Annuity Provisions of Section V: (a) For the life of one or two persons; (b) For a stated period; or (c) For some combination of (a) and (b). 1.05 BENEFICIARY: Each Participant shall name the beneficiary of the Employer and Employee Account. Aetna will pay any portion of the Individual Account(s) Current Value to the beneficiary in accordance with the provisions of Section 3.18. 1.06 CODE: The Internal Revenue Code of 1986, as amended. 1.07 CONTRACT HOLDER: The entity, named on the cover of this Contract, to which the Contract is issued. 1.08 CONTRIBUTION: A payment received at Aetna's Home Office and allocated to the Contract. 1.09 CURRENT VALUE: For an Individual Account (See 1.19), the Current Value is the total of: (a) The amount, if any, in the Fixed Plus Account, with interest earned to date; (b) The amount, if any, in the GA Account, with interest earned to date; and (c) The value of all Fund record units (See 3.05), if any, as of the most recent Valuation Period. 1.10 DEPOSIT PERIOD: A calendar month, a calendar quarter, or any other period of time specified by Aetna during which Net Contribution(s), Transfers and Reinvestments are accepted into the GA Account for one or more Guaranteed Terms. 1.11 FIXED PLUS ACCOUNT: An accumulation option with a guaranteed minimum interest rate. Aetna may credit a higher rate which is not guaranteed. The portion that may be withdrawn or transferred in a 12 month period is restricted (See 3.08, 3.14 and 3.15). 6 1.12 FIXED PLUS ACCOUNT Aetna will add interest daily at an annual GUARANTEED INTEREST rate no less than that shown on Contract RATE: Schedule I on any Net Contribution(s) to the Fixed Plus Account. Aetna may add interest daily at a higher rate determined by its Board of Directors. 1.13 FIXED ANNUITY: An Annuity with payments that do not vary in amount. 1.14 FUND(S): The open-end registered management investment companies (mutual funds) in which the Separate Account invests. 1.15 GENERAL ACCOUNT: The account holding the assets of Aetna, other than those assets held in Aetna's Separate Account(s) and Nonunitized Separate Account(s). 1.16 GUARANTEED ACCUMULATION An accumulation option where Aetna guarantees ACCOUNT (GA ACCOUNT): stipulated rate(s) of interest for a specified period of time. All assets of Aetna, including amounts in the Nonunitized Separate Account, are available to meet the guarantees for the GA Account. 1.17 GA ACCOUNT GUARANTEED Aetna will declare the interest rate(s) INTEREST RATE: applicable to a specific Guaranteed Term at the start of the Deposit Period for that Guaranteed Term. The rate(s) are guaranteed by Aetna for that Deposit Period and the ensuing Guaranteed Term. The Guaranteed Interest Rates are annual effective yields. That is, interest is credited daily at a rate that will produce the Guaranteed Interest Rate over the period of a year. No Guaranteed Interest Rate will ever be less than the Minimum Guaranteed Interest Rate shown on Contract Schedule I. For Guaranteed Terms of one year or less, one Guaranteed Interest Rate is credited for the full Guaranteed Term. For longer Guaranteed Terms, an initial Guaranteed Interest Rate is credited from the date of deposit to the end of a specified period within the Guaranteed Term. There may be different Guaranteed Interest Rate(s) declared for subsequent specified time intervals throughout the Guaranteed Term. 1.18 GUARANTEED TERM: The period of time for which GA Account Guaranteed Interest Rates are guaranteed on Net Contributions, Transfers and Reinvestments made into a current Deposit Period for the GA Account. Such period begins on the day following the close of the Deposit Period and ends on the designated Maturity Date. Guaranteed Terms are offered at Aetna's discretion for various lengths of time ranging up to and including ten years and are classified as follows: SHORT-TERM. Three (3) or fewer years. Amounts allocated to a short-term Term are held in the General Account. LONG-TERM. More than three (3) years, but not more than ten (10). Amounts allocated to a long-term Term are held in the Nonunitized Separate Account. During a Deposit Period, Aetna may make available any number of Guaranteed Terms. The Participant may allocate Net Contributions and Transfers into any or all of the available Guaranteed Terms. 7 1.19 INDIVIDUAL ACCOUNT: This Contract is issued to the Contract Holder. However, Aetna will maintain at least two Individual Accounts for each Participant. These are: (a) An Employer Account: This Individual Account will be credited with employer Net Contribution(s) and transferred amounts of 403(b) funds, attributable to employer contributions; and (b) An Employee Account: This Individual Account will be credited with employee Net Contribution(s) and transferred amounts of 403(b) funds, attributable to employee contributions. 1.20 LOAN ACCOUNT: An account established for record keeping purposes and credited with the amount on any loan. 1.21 MARKET VALUE ADJUSTMENT An adjustment to the amount withdrawn or (MVA): Transferred from an GA Account Guaranteed Term prior to the end of that Guaranteed Term. The adjustment reflects the change in the value of the investment due to changes in interest rates since the date of deposit and is computed using the formula given in 3.07. The adjustment is expressed as a percentage of each dollar being withdrawn. 1.22 MATURED TERM VALUE: The amount payable on a GA Account Guaranteed Term's Maturity Date. 1.23 MATURED TERM VALUE During the calendar month following a GA TRANSFER: Account Maturity Date, the Participant may notify Aetna's Home Office in writing to Transfer or withdraw all or part of the Matured Term Value, plus interest at the new Guaranteed Rate accrued thereon, from the GA Account without an MVA. This provision only applies to the first such written request received from the Participant during this period for any Matured Term Value. 1.24 MATURITY DATE: The last day of a GA Account Guaranteed Term. 1.25 NET CONTRIBUTION: A Contribution less any applicable premium taxes. 1.26 NONUNITIZED SEPARATE An account established by Aetna under Section ACCOUNT: 38a-433 of the Connecticut General Statutes that holds assets for GA Account Terms (See 1.18) greater than three years. The Contract Holder or Participant does not participate in the investment gain or loss from the assets held in the Nonunitized Separate Account. Such gain or loss is borne entirely by Aetna. Assets in this account may be charged with liabilities arising out of any other Aetna business. 1.27 PARTICIPANT: A person who participates in the Plan named on the cover of the Contract. 8 1.28 PLAN: The Plan intended to qualify under Section 403(b) of the Code and named on the cover of the Contract. The Plan is not a part of the Contract and Aetna is not bound by its terms. 1.29 REINVESTMENT: Aetna will mail a notice to the Participant at least 18 calendar days before a Guaranteed Term's Maturity Date. This notice will contain the Terms available during the current Deposit Periods with their Guaranteed Interest Rate(s) and projected Matured Term Value. If no specific direction is given by the Participant prior to the Maturity Date, each Matured Term Value will be reinvested in the current Deposit Period for a Guaranteed Term of the same duration. If a Guaranteed Term of the same duration is unavailable, each Matured Term Value will automatically be reinvested in the current Deposit Period for the next shortest Guaranteed Term available in the same classification. If no shorter Guaranteed Term is available, the next longer Guaranteed Term will be used. Aetna will mail a confirmation statement to the Participant, the next business day after the Maturity Date. This notice will state the Guaranteed Term and Guaranteed Interest Rate(s) which will apply to the reinvested Matured Term Value. 1.30 SEPARATE ACCOUNT: An account, established by Aetna under Section 38a-433 of the Connecticut General Statutes, that buys and holds shares of the Fund(s) available under this Contract. Income, gains or losses, realized or unrealized are credited or charged to the Separate Account without regard to other income, gains or losses of Aetna. Aetna owns the assets held in the Separate Account and is not a trustee of such amounts. Amounts in the Separate Account are not generally guaranteed and are held at market value. The assets of the Separate Account, to the extent of reserves and other contract liabilities of the Account, cannot be charged with other Aetna liabilities. 1.31 TRANSFER: The movement of invested amounts among the available Fund(s); the Fixed Plus Account and the GA Account during the Accumulation Period. 1.32 VALUATION PERIOD: The period as of 4:15 p.m. Eastern time on each day the New York Stock Exchange is open for business to 4:15 p.m. Eastern time of the next such business day, or such other day that one or more of the Fund(s) determines its net asset value. 1.33 VARIABLE ANNUITY: An Annuity with payments that vary with the net investment results of the Funds available during the Annuity period. II. GENERAL PROVISIONS - ------------------------------------------------------------------------------- 2.01 CHANGE OF CONTRACT: (a) Only an authorized Aetna officer can change the provisions of the Contract and the change must be in writing. (b) Aetna cannot change the amount or terms of Annuity benefit payments after payment has commenced. 9 2.01 CHANGE OF CONTRACT (c) Aetna may change the following provisions (CONT'D): without Contract Holder consent. (1) Any provision that must be changed to comply with state or federal law (2) Calculation of the Market Value Adjustment (3) Estate Conservation Option (4) Systematic Withdrawal Option (5) Allocation of Contributions or Transfers to the Fixed Plus Account (6) New Annuity Options Aetna will notify the Contract Holder, in writing, at least thirty (30) days before the effective date of the change. Such a change will apply to all current and future Individual Accounts. (d) Aetna may change the Tables for determining the amount of Annuity benefit payments without Contract Holder consent. Such a change will not become effective earlier than twelve months after (1) the effective date of the Contract, or (2) the effective date of a previous change. Aetna will notify the Contract Holder, in writing, at least thirty (30) days before the effective date of the change. The change will apply to all current and future Individual Accounts. (e) The Contract Holder must agree to any change in provisions concerning the following: (1) A reduction in the GA Account Minimum Guaranteed Interest Rate (2) A reduction in the Fixed Plus Account Minimum Guaranteed Interest Rate (3) Fund Accumulation Period Net Return Factor (4) Current Value (5) Annuity Unit Value (6) Existing Annuity Options (7) Fixed Annuity Minimum Guaranteed Interest Rates Aetna will notify the Contract Holder, in writing, at least thirty (30) days before the effective date of the proposed change. Such a change will apply to future Individual Accounts. If the Contract Holder does not agree to a proposed change, Aetna reserves the right to: (1) discontinue establishing new Individual Accounts; and (2) discontinue accepting Contributions to existing Individual Accounts. 2.02 CHANGE OF FUND: Aetna, or the Separate Account, may: (a) Change the Fund(s) in which the Separate Account invests; and/or (b) Replace the shares of any Fund(s) held in the Separate Account with shares of any other Fund(s). 10 2.02 CHANGE OF FUND Changes must be: (CONT'D): (a) Approved by a majority vote in the Separate Account with respect to the Fund(s) whose shares are to be replaced; (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 such change. 2.03 NONPARTICIPATING The Contract Holder, Participants, or CONTRACT: Beneficiaries will not have a right to share in the earnings of Aetna. 2.04 PAYMENTS: (a) Aetna will make distributions as directed by the Contract Holder. Aetna will determine the amount of payments based on the Individual Account's Current Value as of the date on which a request is received in good order at Aetna's Home Office. Payments will be made within seven (7) calendar days of receipt of a written request in good order at Aetna's Home Office. (b) Aetna may defer payments: (1) for a period of up to six (6) months (unless not allowed by state law); and (2) as allowed by federal law. 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 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. 2.06 CONTROL OF CONTRACT: The Contract is designed to fund a governmental plan which provides for retirement income that is not subject to Title I of the Employee Retirement Income Security Act of 1974 (ERISA), as amended by subsequent law including REA. The Participant may select the investment option(s) for the Employer Account and the Employee Account. Choices made under the 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. No distributions will be made from the Employer Account or the Employee Account without the Contract Holder's written direction to Aetna. (a) Nontransferable and Nonassignable: The Contract and any Individual Accounts are nontransferable and nonassignable, except to Aetna in the event of a loan, or pursuant to a "qualified domestic relations order" as set forth under the Internal Revenue Code of 1986, as it may be amended from time to time. 11 2.06 CONTROL OF CONTRACT (b) Distributions: A Participant may apply (CONT'D): for a distribution from his or her Employee Account or Employer Account. However, the Contract Holder must certify in writing 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 the terms of the Plan as interpreted by the Contract Holder. (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. 2.07 MISSTATEMENTS AND If Aetna finds the age of any payee to be ADJUSTMENTS: misstated, the correct facts will be used to adjust payments. 2.08 INCONTESTABILITY: Aetna cannot cancel this Contract because of any error of fact on the application. 2.09 GRACE PERIOD: This Contract will remain in effect even if Contributions are not continued except as provided in 3.17. 2.10 INDIVIDUAL CERTIFICATES: Aetna shall issue certificates to Participants as required by the state in which the 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. III. CONTRIBUTIONS, CURRENT VALUE, AND WITHDRAWAL PROVISIONS - ------------------------------------------------------------------------------- 3.01 LIMITATIONS ON The Contribution(s) made to the Employee and CONTRIBUTIONS: Employer Account 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 Contribution(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. 12 3.02 NET CONTRIBUTION(S): The Net Contribution equals the actual Contribution less any applicable premium tax. Generally, Aetna will deduct the premium tax when Annuity benefits are purchased (See Section V). If Aetna determines that under applicable state law, it must pay a premium tax when the Contribution is received, or at any other time, it will deduct the tax at that time. The Net Contribution(s) may be allocated among the following investment options: (a) The Fixed Plus Account; and (b) The current Deposit Period(s) for Guaranteed Terms under the GA Account; and (c) The Fund(s) in which the Separate Account invests. Aetna must be told the percentage of all Net Contributions to allocate to one or more of the investment options. Aetna reserves the right to require a minimum Contribution amount per Individual Account. 3.03 EXPERIENCE CREDITS: Aetna may apply experience credits under this Contract. Any such credits will be computed as decided by Aetna. 3.04 FUND RECORD UNITS: The portion of the Net Contribution(s) applied to each Fund under the Separate Account will determine the number of Fund record units credited to the Individual Account for that Fund. This number is equal to the Net Contribution applied to the Fund divided by the Fund record unit value (see 3.05) for the Valuation Period in which the Contribution is received in good order. 3.05 FUND RECORD A Fund record unit value is computed by UNIT VALUE: multiplying the net return Factor (See 3.06) for the current Valuation Period by the Fund record unit value for the previous Period. The dollar value of a Fund record unit, Separate Account assets, and Variable Annuity payments may go up or down due to investment gain or loss. 3.06 FUND NET The net return factor(s) are used to compute RETURN FACTORS: all Separate Account record units 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 at the start of the Valuation Period; minus 13 3.06 FUND NET (e) A Separate Account charge at an annual RETURN FACTORS effective rate as shown on Contract (CONT'D): Schedule I for Annuity mortality and expense risks, asset based sales charge and profit and a daily administrative charge which will not exceed the amount shown on Contract Schedule I 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. 3.07 MARKET VALUE (a) An MVA will be applied to any withdrawal ADJUSTMENT: from the GA Account Term before the Maturity Date due to: (1) A Transfer; (2) A full or partial withdrawal; 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 in (b). (b) Market value adjusted amounts will be equal to the amount withdrawn multiplied by the following ratio X --- 365 (1 + i) ------------------------- X --- 365 (1 + j) Where: i is the Deposit Period Yield j is the Current Yield x is the number of days remaining, (computed from Wednesday of the week of withdrawal) in the Term. (c) The Deposit Period Yield will be determined as follows: (1) 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 Term. (2) 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. 14 3.07 MARKET VALUE (3) The Current Yield is the average of ADJUSTMENT the yields on the last business day (CONT'D): of the week preceding withdrawal on the same U.S. Treasury Notes included in the Deposit Period Yield. (4) In the event that no U.S. Treasury Notes which mature in the last three months of the Term exist, Aetna reserves the right to use the U.S. Treasury Notes that mature in a following quarter. (d) Full and partial withdrawals as well as Transfers made within six (6) months after the Participant's date of death under the Amount Payable at Death provision (See 3.18) will be the greater of: (1) The aggregate MVA amount which is the sum of all market value adjusted amounts calculated due to a withdrawal of amounts (for withdrawal or Transfer) from Terms prior to the end of those Terms. The aggregate MVA may be either positive or negative; or (2) The applicable portion of the Current Value in the GA Account. (e) After the six month period, the withdrawal or Transfer will be the aggregate MVA amount (i.e., including all MVAs). (f) 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. 3.08 TRANSFER(S): Before an Annuity option is elected, all or any portion of the Adjusted Current Value of the Individual Account (subject to the limitations described below) may be transferred from any Fund, the Fixed Plus Account or the GA Account: (a) To any Fund; or (b) To the Fixed Plus Account; or (c) To any Guaranteed Term of the GA Account with a different classification available in the Current Deposit Period. Transfer requests can be submitted as a percentage or as a dollar amount. Aetna may establish a minimum transfer amount. Within a Guaranteed Term classification, the amount transferred will be withdrawn from the oldest Deposit Period, then from the next oldest, and so on until the amount requested is satisfied. Amounts applied to Guaranteed Terms of the GA Account may not be transferred to the Funds, the Fixed Plus Account or to another Guaranteed Term during the Deposit Period or 90 days after the close of the Deposit Period except for Matured Term Value(s) during the calendar month following the Term's Maturity Date. 15 3.08 TRANSFER(S) (CONT'D): Transfers from Guaranteed Terms of the GA Account are subject to the MVA provisions of 3.07. During each rolling twelve (12) month period, up to 20% of the Fixed Plus Account value may be transferred to one or more of the Fund(s), and/or the GA Account's then- current Deposit Period. The 20% limit is reduced by any partial withdrawals, Transfers or amounts taken as a loan or used to purchase an Annuity during the twelve (12) month period. Aetna reserves the right to include amounts paid under 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. The Participant may make an unlimited number of Transfers during the Accumulation Period. The number of free Transfers allowed by Aetna is shown on Contract Schedule I. Additional Transfers may be subject to a Transfer fee as shown on Contract Schedule I. Transfers from the GA Account of a Matured Term Value on or within one calendar month of a Term's Maturity Date do not count against the annual Transfer limit. 3.09 LOANS: During the Accumulation Period, the Participant may request a loan from his or her Individual Account by submitting a loan request form. The loan effective date is the date Aetna receives a loan request form in good order at its Home Office. A loan will not be allowed within 12 months of the effective date of any prior loan. The Employee and Employer Accounts Current Value must be at least $2,000 and the minimum loan amount is $1,000. A loan that meets provisions set forth in Code Section 72(p) is not considered a taxable distribution. (a) The amount available for a loan is calculated based on the Current Value of the Employer and Employee Accounts. The loan amount is limited to the lesser of: (1) 50% of the Employee and Employer Accounts vested Current Value on the date the loan is made; or (2) $50,000 reduced by the amount of the highest outstanding loan balance during the preceding 12 month period that ends the day before the current loan is made. Loans may only be made from the Employee Account and the vested portion of the Employer Account. 16 3.09 LOANS (b) When the loan is made, only amounts in (CONT'D): the Funds and Fixed Plus Account may be withdrawn and transferred to the Loan Account. The amounts will be withdrawn in the same proportion as the Employee Account and the Employer Account's vested Current Value are divided between the Fixed Plus Account and/or Funds on the loan's effective date. If the amount of the loan requested would require the proportionate amount transferred from the Fixed Plus Account to exceed the amount that would be allowed under the 20% limit described in Section 3.08, the Participant may transfer an additional amount from the Fixed Plus Account. The additional amount will be limited and will never exceed 50% of the Fixed Plus Account value on the effective date of the loan, minus any previous partial withdrawal or Transfer during the 12- month period the loan becomes effective. Aetna reserves the right to change the maximum percentage a Participant can transfer from the Fixed Plus Account for the purpose of taking a loan. If the amount needed to make the loan exceeds the Fixed Plus Account Transfer limit, the additional amount will be withdrawn proportionately from the Funds. (c) Aetna will record the percentage by which any amount withdrawn from the Fixed Plus Account exceeds the 20% Transfer limit covered in Section 3.08. The percentage will equal the amount transferred from the Fixed Plus Account that exceeds the 20% withdrawal limit divided by the total amount of the loan. In the event of a loan payment default, this percentage will be used to calculate the penalty that would be applied as described in (h) below. (d) The loan interest rate will be 5%. (e) Interest on the Loan Account balance will be calculated daily at a rate to yield an effective annual rate of 3%. Interest will be credited quarterly based on the loan's effective date and credited to the Funds and/or Fixed Plus Account in the same proportion in which the loan amount was withdrawn. (f) Principal and interest on loans is amortized in quarterly payments over a one to five year term. The Participant chooses the number of years. An exception applies to loans taken for the acquisition of the Participant's principal residence. Loans for this purpose can be amortized quarterly over a one to 20 year term, as elected by the Participant. The Participant must certify in writing that a loan is for the purchase of a principal residence. The term of the loan, elected by the Participant, must result in full repayment no later than December 31 of the calendar year prior to the calendar year in which the Participant reaches age 70 1/2. 17 3.09 LOANS The entire Loan Account balance may be (CONT'D): paid in full at any time. Aetna will bill the Participant for any loan interest accrued to the date the payment is received. Aetna will consider the loan paid when the interest amount is received. (g) A bill in the amount of the quarterly payment due will be mailed to the Participant in advance of the due date. The first due date is three months from the loan's effective date and quarterly thereafter. A loan payment will be in default if it is not received by Aetna at its Home Office by the due date. The principal portion of each loan payment will be credited to the Participant's Fixed Plus Account and/or the Funds in the same proportion in which the loan amount was withdrawn. The Loan Account will then be reduced by the principal portion of the payment. (h) If a payment is in default, a partial withdrawal in an amount equal to the payment due will be deducted from the Individual Account at the close of business on the due date. Payments that are less than the amount due will be returned and if the full payment is not received by the due date, the payment will be in default. The required amount will be withdrawn from the Fixed Plus Account and/or the Funds in the same proportion in which the loan amount was withdrawn. This amount will be applied as a loan payment as set forth in (g) above. Aetna will report to the IRS the amount withdrawn to pay the default. In addition, if the amount withdrawn from the Fixed Plus Account to make the loan exceeded the 20% annual withdrawal limitation described in Section 3.14, a 5% charge will be assessed on the same percentage of the defaulted payment. For example, if 60% of the amount withdrawn was in excess of the limit, then 60% of the amount withdrawn for the defaulted payment will be subject to the additional 5% charge. (i) If a Participant makes a payment that is more than the billed amount, the excess will be credited to the Fixed Plus Account and/or the Funds in the same proportion in which the loan amount was withdrawn. The Loan Account will be reduced by the additional amount. On the following loan anniversary date, future payments will be recalculated to reflect the additional principal payment so that the outstanding balance is amortized in equal quarterly payments over the remaining loan term. (j) Upon the election of an Annuity option or at the Participant's death, any Loan Account will be cancelled. This will result in a taxable distribution of an amount equal to the Loan Account balance. Interest earned but not yet credited will be credited to, and loan interest accrued but not paid will be deducted from, the Current Value in the same proportion in which the loan amount was withdrawn. 18 3.09 LOANS (k) If there is an outstanding Loan Account (CONT'D): balance when a Participant makes a full withdrawal of the Current Value of his or her Individual Account (1) interest earned but not credited will be credited to, and (2) uncollected accrued loan interest will be deducted from the Current Value. The Loan Account will be cancelled resulting in a taxable distribution of an amount equal to the Loan Account balance. 3.10 NOTICE TO THE Each year, Aetna will notify the PARTICIPANT: Participant of: (a) The value of any amounts held in: (i) The Fixed Plus Account, (ii) The GA Account, (iii)The Fund(s) for the Separate Account; (b) The number of any Fund(s) record units; (c) The Fund(s) record unit value(s); (d) The amount available for withdrawal; and (e) The Loan Account value. This information will be as of a date no more than sixty (60) days before the date of the notice. 3.11 WITHDRAWAL RESTRICTIONS: Limitations apply to full and partial withdrawals of any Restricted Amount from this Contract, as required by Code Section 403(b)(11). The Restricted Amount is the sum of: (a) Net Contributions attributable to Participant salary reduction contributions made on and after January 1, 1989 if any; 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 withdrawal 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 Contributions attributable to Participant salary reduction contributions made on and after January 1, 1989. 19 3.11 WITHDRAWAL RESTRICTIONS The Contract Holder must certify that one of (CONT'D): these conditions has been met before a withdrawal 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. 3.12 MANNER AND TIMING (a) A distribution to a Participant may be OF DISTRIBUTIONS: made in a lump sum, as one of the Distribution Options described in Section IV, or as one of the Annuity options in Section V. The Participant may elect the form of distribution subject to certification in writing by the Contract Holder that the Participant is eligible both as to the timing and form of distribution. (b) The distribution of benefits from the Employee and Employer Account must begin by April 1 of the calendar year following the calendar year in which the Participant attains age 70 1/2 or retires, whichever occurs later. (c) If the Participant does not request commencement of benefits from the Employee and Employer Account as described above, Aetna will not be responsible for compliance with the Code Section 401(a)(9) minimum distribution requirements or for any adverse tax or other consequences that may result. 3.13 WITHDRAWAL: (a) The Participant may withdraw any portion or all of an Individual Account Adjusted Current Value and transfer such amount to another investment provider under the Plan. The withdrawal and transfer request must be submitted in writing to Aetna. (b) Except as described in Section 3.14, unless the Participant specifies otherwise, partial withdrawals are satisfied by withdrawing amounts on a pro rata basis from each of the investment options in which the Individual Account is invested. (c) When amounts are withdrawn from the GA Account, amounts in Short-Term and Long- Term Classifications are treated as separate investment options and amounts are taken on a pro rata basis. Within a Classification, amounts will be withdrawn starting with the Term still in effect with the oldest Deposit Period. (d) Any amount withdrawn from the Fixed Plus Account will be subject to the limitations in 3.14, 3.15 and 3.16. 20 3.14 PARTIAL WITHDRAWAL The amount eligible for partial withdrawal is FROM THE FIXED PLUS 20% of the Current Value of the amount held ACCOUNT: in the Fixed Plus Account on the day Aetna's Home Office receives a written request, reduced by any previous Transfer, partial withdrawal or amounts taken as a loan or used to purchase Annuity benefits during the prior 12 months. Aetna reserves the right to include amounts paid under ECO and SWO for purposes of applying this 20% limit. However, SWO is unavailable if a Fixed Plus Account Transfer or withdrawal is requested within the current 12 month period. The 20% limit applicable to partial withdrawals from the Fixed Plus Account will be waived under certain conditions and will apply when the partial withdrawal is made on a pro rata basis from all options used under the Participant's Individual Account. (See Contract Schedule I). 3.15 PAYMENT OF FIXED When Aetna receives a full withdrawal PLUS ACCOUNT FULL request, no additional partial withdrawals or WITHDRAWAL: Transfers from the Fixed Plus Account are permitted during the payout period. If a full withdrawal is requested, Aetna will pay any Current Value from the Fixed Plus Account in five payments as follows: (a) 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 that was transferred, withdrawn or used for a loan or to purchase Annuity benefits during the prior 12 months; (b) One-fourth of the remaining Current Value 12 months later; (c) One-third of the remaining Current Value 12 months later; (d) One-half of the remaining Current Value 12 months later; and (e) The balance of the Current Value 12 months later. The Fixed Plus Account full withdrawal payment provision will be waived when a withdrawal is: (a) Due to the Participant's death before Annuity benefit payments begin; (b) Used to purchase Annuity benefits; or (c) When the amount in the Fixed Plus Account is $3,500 or less and no amount has been withdrawn, transferred, taken as a loan or used to purchase Annuity benefits during the previous 12 months. Any full withdrawal from the Fixed Plus Account may be cancelled at any time before the end of the payment period. 3.16 ALTERNATIVE PAYMENT As an alternative to 3.15, the Participant OF FIXED PLUS ACCOUNT may elect a lump sum payment. The lump-sum FULL WITHDRAWAL: payment will be the Individual Account's Current Value invested in the Fixed Plus Account less a 3% charge provided: (i) the withdrawal is due to the Participant's separation from service with the employer; 21 3.16 ALTERNATIVE PAYMENT (ii) the withdrawal request is received at OF FIXED PLUS ACCOUNT Aetna's Home Office within 60 days of FULL WITHDRAWAL the date the Participant separates (CONT'D): from service with the employer; and (iii) the Contract Holder certifies that the Participant has separated from service and is eligible to receive a lump sum distribution. 3.17 PAYMENT OF MINIMUM If the Individual Accounts Current Value is CURRENT VALUE: less than $3,500, and no Contributions have been received for three (3) years, Aetna may close the Account and pay the Current Value to the Contract Holder in one lump sum. 3.18 AMOUNT PAYABLE AT Aetna will pay any portion of the Individual DEATH (BEFORE ANNUITY Account(s) Current Value, to the Beneficiary PAYMENTS START): when: (a) The Participant dies before Annuity payments start; and (b) The certified copy of the death certificate is received by Aetna. A guaranteed death benefit is available if the Beneficiary requests either a lump-sum payment or an Annuity option within the first 6 months after the Participant's death. For each Individual Account, the death benefit is guaranteed to be the greater of: (a) The Current Value of the Individual Account plus aggregate positive MVA, as applicable, on the date the notice of death and the request for payment are received in good order at Aetna's Home Office; or (b) The total of Net Contribution(s) made to the Individual Account minus the total of all partial withdrawals, annuitizations made from the Individual Account and any amount allocated from the Individual Account to the Loan Account. If the payee of the death proceeds is the Participant's surviving spouse, 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 Beneficiary is not the surviving spouse, all of the Current Value must either be applied to an Annuity Option within one (1) year of the Participant's death or be paid to the payee within five (5) years of the Participant's death (see Part V). In no event may any payments to the 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. Amounts in the GA Account will be payable as described in Section 3.07(d). 22 3.19 REINSTATEMENT: All or a portion of the proceeds of a full withdrawal of an Individual Account may be reinvested within 30 days after the surrender if allowed by law. Any Market Value Adjustment deducted from GA Account withdrawals will not be included in the reinstatement. Amounts will be reinstated among the Fixed Plus Account, GA Account, and the Fund(s) in the same proportion as they were at the time of withdrawal. Any amount 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 Individual Account(s) closed because the Current Value was less than $3,500 may not be reinstated (see 3.17). Reinstatement is permitted only once per Individual Account. IV. NON-ANNUITY DISTRIBUTION OPTIONS - -------------------------------------------------------------------------------- 4.01 DISTRIBUTION OPTIONS: The Participant or a surviving spouse may elect one of the two following distribution options. A surviving spouse is eligible to elect one of these options provided the spouse is the designated Beneficiary under the Plan and the Participant had died before electing an Annuity option and before the date for required minimum distributions. 4.02 ESTATE CONSERVATION (a) With the Estate Conservation Option (ECO) OPTION: a portion of the Individual Account Current Value is automatically surrendered and distributed each year. Each payment will be withdrawn from the Individual Account in the same proportion as assets are held in the Funds, the GA Account, and the Fixed Plus Account on the date the payment is made. (b) Payments under ECO will comply with the incidental death benefit test set forth in Code Section 401(a)(9). (c) Distribution Amount: Each year that ECO is in effect, Aetna will calculate and distribute an amount equal to the minimum distribution required under the Code. The annual distribution will be determined by dividing the Individual Account Current Value as of December 31 of the year prior to the payment year, by a single or joint life expectancy factor. If joint life expectancy is elected, the Beneficiary under ECO must be the same as the beneficiary of any death benefits under the Plan. (d) Life Expectancy Factor: For the Participant, the life expectancy factor is either single life or joint life expectancy as elected by the Participant, based on tables in IRS regulations. For a spouse Beneficiary, only a single life expectancy is available. Life expectancy factors will be recalculated each year, unless prohibited by the Code or regulations. 23 4.02 ESTATE CONSERVATION If joint life expectancy is elected and OPTION (CONT'D): the Participant or spouse dies, payments will be based on the survivor's life expectancy. If the Beneficiary is not the spouse and the Beneficiary dies first, the joint life expectancy continues to be used to determine payments. If a single life expectancy is elected, at the death of the Participant (or the spouse who is the designated Beneficiary electing ECO after the Participant's death), the entire value must be distributed no later than the December 31 of the year following the year of the Participant's (or spouse's) death. If a joint life expectancy is elected, and both the Participant and spouse have died, any remaining Current Value must be distributed no later than the December 31 of the year following the year of the second death. If a joint life expectancy is elected and both the Participant and non-spouse Beneficiary have died, any remaining Current Value will be distributed to a successor Beneficiary or, if none has been named, then to the estate of the last to die. (e) 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. (f) Distribution Date: The Participant shall specify an annual distribution date. The earliest date is the first day of the calendar year in which he or she attains age 70 1/2, or retirement if later. For a spouse Beneficiary electing ECO after the Participant's death, the earliest date is the date of the Participant's death. The first distribution date may be the 15th of any month, or such other date Aetna may designate or allow. Subsequent distributions will be made on the anniversary of that date. (g) Election and Revocation: The Participant may elect ECO by submitting a completed and signed election form to Aetna's Home Office. The Contract Holder must certify that the Participant is eligible both as to the timing and form of distribution. Once ECO is elected, the Participant may revoke it 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 Individual Account. 24 4.03 SYSTEMATIC WITHDRAWAL (a) With the Systematic Withdrawal Option OPTION: (SWO) a portion of the individual Account Current Value is automatically distributed each year. A SWO payment will be calculated on the Individual Account's Current Value. Each payment will be withdrawn from the Individual Account in the same proportion as assets are held in the Funds, the GA Account, and the Fixed Plus Account on the date the payment is made. (b) Payments under SWO will comply with the incidental death benefit test set forth in Code Section 401(a)(9). (c) Distribution Amounts: The Participant may elect one of the three payment methods described below. These calculations may be changed as necessary to comply with the Code minimum distribution rules. If joint life expectancy is elected, the Beneficiary under SWO must be the same as the beneficiary of any death benefits under the Plan. (1) Specified Payment: Payments of a designated annual dollar amount. The annual amount may not be greater than the percentage of the Current Value at time of election as shown on Contract Schedule I. This amount will remain constant unless a higher amount is required under Code minimum distribution rules. Each year that the Specified Payment is in effect, Aetna will calculate the minimum required distribution by dividing the Individual Account Current Value as of December 31 of the year prior to the payment year by a life expectancy factor, and distribute this amount if it is larger than the Specified Payment. (2) Specified Period: Payments are made over a period of time. The number of years selected may not be less than the number of years shown on Contract Schedule I, unless otherwise required by Code minimum distribution rules. The maximum specified period will be limited by the life expectancy factor. The amount paid each year is calculated by dividing the Individual Account Current Value as of December 31 of the prior year by the number of payment years remaining. (3) Specified Percentage: The specified percentage chosen cannot be greater than the percentage shown on Contract Schedule I. The 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. 25 4.03 SYSTEMATIC WITHDRAWAL (d) Life Expectancy Factor: The life OPTION (CONT'D): expectancy factor for the initial distribution year is either single life or joint life expectancy as elected by the Participant, based on tables in IRS regulations. For a spouse Beneficiary, only a single life expectancy is available. With each subsequent year, the life expectancy factor will be the life expectancy factor for the initial distribution year, reduced by one. If the joint life expectancy is elected and the Participant or the Beneficiary dies on or after the required beginning date for minimum distributions to the Participant, the joint life expectancy factor will continue to be reduced by one for each distribution year. Payments will continue unless the Contract Holder elects an alternate payment mode on behalf of the survivor. Any payment mode elected on behalf of the Beneficiary must provide payments to be made at least as rapidly as those made prior to the Participant's death. If the Participant dies before the required beginning date for minimum distributions, SWO payments will cease and the Beneficiary may claim the death benefit in accordance with the terms of the Contract. If the Beneficiary is not the Participant's spouse, the entire death benefit must be either applied to an Annuity option within one (1) year of the Participant's death, or be paid within five (5) years of the Participant's death. If the Beneficiary is the Participant's spouse, the distribution is not required to begin earlier than when the Participant would have attained age 70 1/2. If joint life expectancy is elected and the Beneficiary dies before the required beginning date for minimum distributions to the Participant, payments to the Participant will continue to be based on joint life expectancy reduced by one for each distribution year. (e) 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 SWO payment, Aetna will distribute the entire balance of the Individual Account. (f) Distribution Date: The Participant or spouse Beneficiary shall specify the distribution date. The earliest date is the first day of the calendar year in which the Participant attains age 59 1/2 or age 55, if separated from service with the employer at or after age 55. SWO payments will be made monthly, quarterly, semi-annually or annually on the 15th of any month, or such other date Aetna may designate or allow. If payments are made more frequently than annually, the annual amount payable each year is divided by the number of payments due per year. At its discretion Aetna may require a minimum initial payment amount. 26 4.03 SYSTEMATIC WITHDRAWAL (g) Election and Revocation: The Participant OPTION (CONT'D): may elect SWO by submitting a completed and signed election form to Aetna's Home Office. Once SWO is elected, the Participant may revoke it by submitting a written request to Aetna's Home Office. Any revocation will apply only to amounts not yet paid. Generally, SWO may be elected only once, however, if SWO is elected on and then revoked before the date distributions were required to begin under Code Section 401(a)(9), SWO may be elected on behalf of a spouse Beneficiary after the death of the Participant. V. ANNUITY PROVISIONS - -------------------------------------------------------------------------------- 5.01 CHOICES: (a) The Participant may elect an Annuity option by telling Aetna to pay all or any portion of the Individual Account(s) Current Value (minus any applicable premium tax if not previously deducted) as a premium for an Annuity under option 2, 3, or 4 (see 5.07). A completed and signed election form must be submitted to the Home Office. The form must include Contract Holder certification that the Participant is eligible for a distribution under the terms of the Plan and that the Annuity option chosen is permitted under the terms of the Plan. Any election of an Annuity option must comply with the minimum distribution requirements of Code Section 401(a)(9), including the incidental death benefit rule, and the regulations thereunder. This restriction does not apply if option 4 is chosen and the second Annuitant is the spouse of the Participant. (b) Generally, the first Annuity payment must be made by April 1 of the calendar year following the year in which the Participant turns age 70 1/2 or retires, if later. (c) When an Annuity option is chosen the Participant must designate whether the Annuity will be Fixed or Variable and whether the underlying investment will be: (1) The General Account; (2) One or more of the available Fund(s); or (3) A combination of (1) and (2). If a Fixed Annuity is chosen, the Annuity purchase rate for the option chosen reflects at least the Minimum Guaranteed Interest Rate (See Contract Schedule II), but may reflect a higher interest rate. If a Variable Annuity is chosen, the initial Annuity payment for the option chosen reflects the assumed annual return rate elected (See Contract Schedule II). (d) Payments will be made on a monthly basis unless the Participant requests otherwise. (e) Once elected, an Annuity option may not be revoked, except for option 2 when elected on a variable basis. 27 5.02 TERMS OF ANNUITY (a) No choice of any Annuity option may be OPTIONS: made if the first payment would be less than $20 or if the total payments in a year would be less than $100. (b) If a Fixed Annuity under option 2, 3 or 4 is elected and a larger Annuity payment would result from applying the Adjusted Current Value to a current Aetna single premium immediate Annuity, Aetna will make the larger payment. (c) For purposes of calculating the guaranteed first payment of a Variable Annuity or the payments for a Fixed Annuity, the Annuitant's and second Annuitant's adjusted age will be used. The Annuitant's and second Annuitant's adjusted age is his or her age as of the birthday closest to the Annuity commencement date reduced by one year for Annuity commencement dates occurring during the period of time from July 1, 1992 through December 31, 1999. The Annuitant's and second Annuitant's age will be reduced by two years for Annuity commencement dates occurring during the period of time from January 1, 2000 through December 31, 2009. The Annuitant's and second Annuitant's age will be reduced by one additional year for Annuity commencement dates occurring in each succeeding decade. The Annuity rates for options 3 and 4 are based on mortality from 1983 Table a. (d) Assumed Annual Net Return Rate is the interest rate used to determine the amount of the first Annuity payment under a Variable Annuity. The Separate Account must earn this rate plus enough to cover the mortality and expense risks charges (which may include profit) and administrative charges if future Variable Annuity Payments are to remain level. 5.03 DEATH PROVISION: When an Annuitant dies under options 2 or 3, the present value of any remaining guaranteed payments will be paid in one sum to the Beneficiary or, upon the election of the Beneficiary, any remaining payments will continue to the Beneficiary. If a 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 Beneficiary's estate. The rate used to determine the present value for a lump sum payment will be the rate used to determine the first Annuity payment. 5.04 FUND ANNUITY The number of Fund(s) annuity units is based UNITS: 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. 28 5.04 FUND ANNUITY Such amount, or portion, of the variable UNITS (CONT'D): payment will be divided by the appropriate Fund(s) annuity unit value (see 5.05) 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. 5.05 FUND ANNUITY For any Valuation Period, a Fund(s) annuity UNIT VALUE: unit value is equal to: (a) The value for the previous Period; multiplied by (b) The Annuity net return factor(s) (See 5.06) for the Period; multiplied by (c) A factor to reflect the assumed annual net return rate. (See Contract Schedule II). The dollar value of a Fund annuity unit values and Annuity payments may go up or down due to investment gain or loss. Payments shall not be changed due to changes in the mortality or expense results or administrative charges. 5.06 FUND ANNUITY NET The Annuity net return factor(s) are used to RETURN FACTOR: compute all Separate Account Annuity payments for any Fund. The Annuity net return factor(s) 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(s) record units and Fund(s) annuity units of the Separate Account at the start of the Valuation Period; minus (e) A daily charge for Annuity mortality and expense risks, which may include profit, (at the annual rate as shown on Contract Schedule II) and a daily administrative charge. 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. 29 5.07 ANNUITY OPTIONS: Option 1 -- Payments of Interest on Sum Left with Aetna -- This option may be used only by the 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 5.01). The 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. If the Beneficiary is the Participant's surviving spouse, 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 Beneficiary is not a spouse, the entire sum must either be applied to an Annuity option within one year of the Participant's death or be paid within five years of the Participant's death. Option 2 -- Payments for a Stated Period of Time -- An Annuity will be paid for the number of years chosen (See Contract Schedule II). If payments for this option are made under a Variable Annuity, the present value of any remaining payments may be withdrawn at any time. Option 3 -- Life Income -- An Annuity will be paid for the life of the Annuitant. Aetna may also guarantee payments for 60, 120, 180, or 240 months if so directed by the Participant. Option 4 -- Life Income based upon the lives of two Annuitants -- An Annuity will be paid during the lives of the Annuitant and a second Annuitant. Payments will continue until both Annuitants have died. When this option is chosen, a choice of the following must be made: (a) 100% of the payment to continue after the first death; (b) 66 2/3% of the payment to continue after the first death; (c) 50% of the payment to continue after the first death; (d) Payments for a minimum of 120 months, with 50% of the payment to continue after the first death; or (e) 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. 30 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 3.0%
- -------------------------------------------------------------------------------- GUARANTEED MONTHLY QUARTERLY SEMI-ANNUAL ANNUAL YEARS RATE PAYMENT PAYMENT PAYMENT PAYMENT - -------------------------------------------------------------------------------- 3 3.00% $28.99 $86.76 $172.88 $343.23 4 3.00% 22.06 66.02 131.56 261.19 5 3.00% 17.91 53.59 106.78 211.99 6 3.00% 15.14 45.30 90.27 179.22 7 3.00% 13.16 39.39 78.49 155.83 8 3.00% 11.68 34.96 69.66 138.31 9 3.00% 10.53 31.52 62.81 124.69 10 3.00% 9.61 28.77 57.33 113.82 11 3.00% 8.86 26.52 52.85 104.93 12 3.00% 8.24 24.65 49.13 97.54 13 3.00% 7.71 23.08 45.98 91.29 14 3.00% 7.26 21.73 43.29 85.95 15 3.00% 6.87 20.56 40.96 81.33 16 3.00% 6.53 19.54 38.93 77.29 17 3.00% 6.23 18.64 37.14 73.74 18 3.00% 5.96 17.84 35.56 70.59 19 3.00% 5.73 17.13 34.14 67.78 20 3.00% 5.51 16.50 32.87 65.26 21 3.00% 5.32 15.92 31.72 62.98 22 3.00% 5.15 15.40 30.68 60.92 23 3.00% 4.99 14.92 29.74 59.04 24 3.00% 4.84 14.49 28.88 57.33 25 3.00% 4.71 14.09 28.08 55.76 26 3.00% 4.59 13.73 27.36 54.31 27 3.00% 4.47 13.39 26.68 52.97 28 3.00% 4.37 13.08 26.06 51.74 29 3.00% 4.27 12.79 25.49 50.60 30 3.00% 4.18 12.52 24.95 49.53
31 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 Variable Annuity with Assumed Net Return Rate of 3.5%
- -------------------------------------------------------------------------------- MONTHLY QUARTERLY SEMI-ANNUAL ANNUAL YEARS PAYMENT PAYMENT PAYMENT PAYMENT - -------------------------------------------------------------------------------- 3 $29.19 $87.33 $173.91 $344.86 4 22.27 66.61 132.65 263.04 5 18.12 54.19 107.92 213.99 6 15.35 45.92 91.44 181.32 7 13.38 40.01 79.69 158.01 8 11.90 35.59 70.88 140.56 9 10.75 32.16 64.05 127.00 10 9.83 29.42 58.59 116.18 11 9.09 27.18 54.13 107.34 12 8.46 25.32 50.42 99.98 13 7.94 23.75 47.29 93.78 14 7.49 22.40 44.62 88.47 15 7.10 21.24 42.31 83.89 16 6.76 20.23 40.29 79.89 17 6.47 19.34 38.51 76.37 18 6.20 18.55 36.94 73.25 19 5.97 17.85 35.54 70.47 20 5.75 17.22 34.28 67.98 21 5.56 16.65 33.15 65.74 22 5.39 16.13 32.13 63.70 23 5.24 15.66 31.19 61.85 24 5.09 15.24 30.34 60.17 25 4.96 14.85 29.56 58.62 26 4.84 14.49 28.85 57.20 27 4.73 14.15 28.19 55.90 28 4.63 13.85 27.58 54.69 29 4.53 13.57 27.02 53.57 30 4.45 13.30 26.49 52.53 - --------------------------------------------------------------------------------
32 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 Variable Annuity with Assumed Net Return Rate of 5.0%
- -------------------------------------------------------------------------------- MONTHLY QUARTERLY SEMI-ANNUAL ANNUAL YEARS PAYMENT PAYMENT PAYMENT PAYMENT - -------------------------------------------------------------------------------- 3 $29.80 $89.04 $176.99 $349.72 4 22.89 68.38 135.93 268.58 5 18.74 56.00 111.33 219.98 6 15.99 47.77 94.96 187.64 7 14.02 41.90 83.30 164.59 8 12.56 37.52 74.58 147.35 9 11.42 34.11 67.81 133.99 10 10.51 31.40 62.42 123.34 11 9.77 29.19 58.03 114.66 12 9.16 27.36 54.38 107.45 13 8.64 25.81 51.31 101.39 14 8.20 24.50 48.69 96.21 15 7.82 23.36 46.44 91.75 16 7.49 22.37 44.47 87.88 17 7.20 21.51 42.75 84.48 18 6.94 20.74 41.23 81.47 19 6.71 20.06 39.88 78.80 20 6.51 19.46 38.68 76.42 21 6.33 18.91 37.59 74.28 22 6.17 18.42 36.62 72.35 23 6.02 17.98 35.73 70.61 24 5.88 17.57 34.93 69.02 25 5.76 17.20 34.20 67.57 26 5.65 16.87 33.53 66.25 27 5.54 16.56 32.92 65.04 28 5.45 16.28 32.35 63.93 29 5.36 16.01 31.83 62.90 30 5.28 15.77 31.35 61.95 - --------------------------------------------------------------------------------
33 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 3.0% PAYMENTS GUARANTEED FOR A STATED PERIOD OF MONTHS
- -------------------------------------------------------------------------------- ADJUSTED AGE OF ANNUITANT NONE 60 120 180 240 - -------------------------------------------------------------------------------- 50 $4.05 $4.05 $4.03 $3.99 $3.93 51 4.12 4.11 4.09 4.05 3.99 52 4.19 4.19 4.16 4.11 4.04 53 4.27 4.26 4.23 4.18 4.10 54 4.35 4.34 4.31 4.25 4.16 55 4.44 4.42 4.39 4.32 4.22 56 4.53 4.51 4.47 4.40 4.29 57 4.62 4.61 4.56 4.48 4.35 58 4.72 4.71 4.65 4.56 4.42 59 4.83 4.81 4.75 4.64 4.49 60 4.95 4.93 4.86 4.73 4.55 61 5.07 5.05 4.97 4.83 4.62 62 5.20 5.17 5.08 4.92 4.69 63 5.34 5.31 5.20 5.02 4.76 64 5.49 5.45 5.33 5.12 4.83 65 5.65 5.61 5.47 5.22 4.89 66 5.82 5.77 5.61 5.33 4.96 67 6.01 5.94 5.75 5.44 5.02 68 6.20 6.13 5.91 5.54 5.08 69 6.41 6.33 6.07 5.65 5.14 70 6.64 6.54 6.23 5.76 5.19 71 6.88 6.76 6.41 5.86 5.24 72 7.14 7.00 6.59 5.97 5.28 73 7.43 7.26 6.77 6.06 5.32 74 7.73 7.53 6.96 6.16 5.35 75 8.06 7.82 7.14 6.25 5.38
Rates are based on mortality from 1983 Table a. The rates do not differ by sex. 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. 34 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 3.5% PAYMENTS GUARANTEED FOR A STATED PERIOD OF MONTHS
- -------------------------------------------------------------------------------- ADJUSTED 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 are based on mortality from 1983 Table a. The rates do not differ by sex. 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. 35 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
- -------------------------------------------------------------------------------- ADJUSTED 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 are based on mortality from 1983 Table a. The rates do not differ by sex. 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. 36 OPTION 4 LIFE INCOME FOR TWO PAYEES 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 3.0%
- ------------------------------------------------------------------------------------------------------ ADJUSTED AGES - ----------------------- SECOND ANNUITANT ANNUITANT OPTION 4a OPTION 4b OPTION 4c OPTION 4d OPTION 4e - ------------------------------------------------------------------------------------------------------ 55 50 $3.69 $4.05 $4.27 $3.69 $4.03 55 55 3.88 4.25 4.47 3.87 4.14 55 60 4.06 4.47 4.71 4.06 4.20 60 55 3.99 4.44 4.71 3.98 4.42 60 60 4.24 4.71 4.99 4.23 4.57 60 65 4.49 5.01 5.32 4.48 4.64 65 60 4.38 4.97 5.32 4.38 4.93 65 65 4.72 5.33 5.70 4.71 5.14 65 70 5.07 5.75 6.17 5.05 5.26 70 65 4.93 5.68 6.15 4.91 5.66 70 70 5.40 6.21 6.70 5.36 5.96 70 75 5.89 6.82 7.40 5.81 6.12 75 70 5.69 6.68 7.32 5.62 6.67 75 75 6.37 7.45 8.15 6.23 7.12 75 80 7.07 8.34 9.16 6.78 7.36 - ------------------------------------------------------------------------------------------------------
Rates are based on mortality from 1983 Table a. The rates do not differ by sex. 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. 37 OPTION 4 LIFE INCOME FOR TWO PAYEES 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 3.5%
- ----------------------------------------------------------------------------------------------------- ADJUSTED AGES - --------------------------- SECOND ANNUITANT ANNUITANT OPTION 4a OPTION 4b OPTION 4c OPTION 4d OPTION 4e - ----------------------------------------------------------------------------------------------------- 55 50 $3.97 $4.35 $4.56 $3.97 $4.31 55 55 4.16 4.54 4.76 4.15 4.42 55 60 4.27 4.73 5.00 4.26 4.48 60 55 4.27 4.73 5.00 4.26 4.70 60 60 4.51 4.99 5.27 4.50 4.84 60 65 4.66 5.25 5.61 4.65 4.93 65 60 4.66 5.25 5.61 4.65 5.22 65 65 4.99 5.61 5.99 4.98 5.42 65 70 5.19 5.97 6.44 5.17 5.54 70 65 5.19 5.97 6.44 5.17 5.93 70 70 5.67 6.49 6.99 5.62 6.23 70 75 5.95 6.96 7.61 5.87 6.40 75 70 5.95 6.96 7.61 5.87 6.95 75 75 6.64 7.73 8.43 6.48 7.40 75 80 7.04 8.39 9.29 6.79 7.64 - -----------------------------------------------------------------------------------------------------
Rates are based on mortality from 1983 Table a. The rates do not differ by sex. 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. 38 OPTION 4 LIFE INCOME FOR TWO PAYEES 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%
- ----------------------------------------------------------------------------------------------------- ADJUSTED AGES - --------------------------- SECOND ANNUITANT ANNUITANT OPTION 4a OPTION 4b OPTION 4c OPTION 4d OPTION 4e - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- 55 50 $4.88 $5.26 $5.48 $4.88 $5.23 55 55 5.04 5.44 5.66 5.04 5.32 55 60 5.15 5.63 5.91 5.14 5.38 60 55 5.15 5.63 5.91 5.14 5.59 60 60 5.37 5.87 6.16 5.37 5.72 60 65 5.52 6.14 6.51 5.51 5.80 65 60 5.52 6.14 6.51 5.51 6.10 65 65 5.83 6.49 6.87 5.82 6.29 65 70 6.04 6.84 7.34 6.00 6.41 70 65 6.04 6.84 7.34 6.00 6.81 70 70 6.49 7.35 7.87 6.44 7.08 70 75 6.77 7.84 8.51 6.68 7.25 75 70 6.77 7.84 8.51 6.68 7.81 75 75 7.45 8.60 9.33 7.27 8.25 75 80 7.86 9.28 10.20 7.57 8.49 - -----------------------------------------------------------------------------------------------------
Rates are based on mortality from 1983 Table a. The rates do not differ by sex. 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. 39 ------------------------------------------------------- AETNA LIFE INSURANCE AND ANNUITY COMPANY HOME OFFICE: 151 Farmington Avenue [Logo] Hartford, Connecticut 06156 (800) 525-4225 Aetna Life Insurance and Annuity Company, herein called Aetna, agrees to pay the benefits stated in this Contract. SPECIFICATIONS - -------------------------------------------------------------------------------- Plan - -------------------------------------------------------------------------------- Type of Plan - -------------------------------------------------------------------------------- Contract Holder - -------------------------------------------------------------------------------- Contract No. - -------------------------------------------------------------------------------- Effective Date - -------------------------------------------------------------------------------- This Contract is Delivered in and is Subject to the Laws of that Jurisdiction THE VARIABLE FEATURES OF THE GROUP CONTRACT ARE DESCRIBED IN PARTS III AND V. 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/Dan Kearney /s/Patrice Maloney-Knauff President Secretary Group Combination Annuity Contract Nonparticipating 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 MARKET 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. FORM NO. G-CDA-95 (TORP) SPECIFICATIONS - -------------------------------------------------------------------------------- GUARANTEED There is a guaranteed interest rate for Contribution(s) INTEREST RATE held in the Fixed Plus Account and the GA Account. (See Contract Schedule I.) - -------------------------------------------------------------------------------- DEDUCTIONS FROM There will be deductions for mortality and expense THE SEPARATE risks and asset based sales charge and administrative ACCOUNT fees. (See 3.06 and 5.06.) - -------------------------------------------------------------------------------- DEDUCTION FROM Contribution(s) are subject to a deduction for premium CONTRIBUTION(S) taxes, if any. (See 3.02.) 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 CONTRACT SCHEDULE I ACCUMULATION PERIOD SEPARATE ACCOUNT - -------------------------------------------------------------------------------- SEPARATE ACCOUNT: Variable Annuity Account C CHARGES TO SEPARATE A daily charge is deducted from any portion of the ACCOUNT: Current Value allocated to the Separate Account. The daily charge is at an annual effective rate of 1.40% for Annuity mortality and expense risks, asset based sales charge and profit and a daily administrative charge which will not exceed 0.25% on an annual basis. FIXED PLUS ACCOUNT - -------------------------------------------------------------------------------- MINIMUM GUARANTEED 3% (effective annual rate of return). INTEREST RATE: Beginning on the tenth anniversary of the effective date of an Individual Account, Aetna will credit amounts with an interest rate that is 0.25% higher than the then-declared interest rate for Individual Accounts before the tenth anniversary. PARTIAL WITHDRAWAL: The 20% limit applicable to partial withdrawal from the Fixed Plus Account will be waived when the withdrawal is: (a) due to the Participant's death, (within six (6) months of the Participant's date of death), before Annuity payments begin. This partial withdrawal may only be exercised once; or (b) used to purchase Annuity benefits. GUARANTEED ACCUMULATION ACCOUNT (GA ACCOUNT) - -------------------------------------------------------------------------------- MINIMUM GUARANTEED 3% (effective annual rate of return). INTEREST RATE: i CONTRACT SCHEDULE I ACCUMULATION PERIOD (CONT'D) SEPARATE ACCOUNT, FIXED PLUS ACCOUNT AND GA ACCOUNT - -------------------------------------------------------------------------------- TRANSFERS: An unlimited number of Transfers may be made during the Accumulation Period. Aetna allows 12 free Transfers in any calendar year. Thereafter, Aetna reserves the right to charge $10 for each subsequent Transfer. SYSTEMATIC WITHDRAWAL The Specified Payment may not be greater than 20% of OPTION (SWO): the Individual Account's Current Value at the time of election. The Specified Period may not be less than five years. The Specified Percentage may not be greater than 20%. See Section 1. - DEFINITIONS for explanations. ii CONTRACT SCHEDULE II ANNUITY PERIOD SEPARATE ACCOUNT - -------------------------------------------------------------------------------- CHARGES TO SEPARATE A daily charge at an annual effective rate of 1.25% for ACCOUNT: Annuity mortality and expense risks. The administrative charge is established upon election of an Annuity option. This charge will not exceed 0.25%. VARIABLE ANNUITY ASSUMED If a Variable Annuity is chosen, an assumed annual net ANNUAL NET RETURN RATE: return rate of 5.0% may be elected. If 5.0% is not elected, Aetna will use an assumed annual net return rate of 3.5%. The assumed annual net return rate factor for 3.5% per year is 0.9999058. The assumed annual net return rate factor for 5.0% per year is 0.9998663. If the portion of a Variable Annuity payment for any Fund is not to decrease, the Annuity return factor under the Separate Account for that Fund must be: (a) 4.75% on an annual basis plus an annual return of up to 0.25% 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 (b) 6.25% on an annual basis plus an annual return of up to 0.25% to offset the administrative charge set at the time Annuity payments commence, if an assumed annual net return rate of 5% is chosen. ANNUITY OPTION: Under the option "Payments for a Stated Period of Time": For amounts invested in the GA Account or one or more of the Fund(s), the number of years must be at least five (5) and not more than thirty (30) and the Annuity may be a Fixed or Variable Annuity. For amounts invested in the Fixed Plus Account, the number of years must be at least five (5) and not more than thirty (30) and the Annuity must be a Fixed Annuity. FIXED ANNUITY - -------------------------------------------------------------------------------- MINIMUM GUARANTEED 3% (effective annual rate of return). INTEREST RATE: See Section 1. - DEFINITIONS for explanations. iii TABLE OF CONTENTS I. DEFINITIONS - -------------------------------------------------------------------------------- PAGE 1.01 Accumulation Period . . . . . . . . . . . . . . . . . . . . . . . . . .6 1.02 Adjusted Current Value. . . . . . . . . . . . . . . . . . . . . . . . .6 1.03 Annuitant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 1.04 Annuity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 1.05 Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 1.06 Code. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 1.07 Contract Holder . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 1.08 Contribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 1.09 Current Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 1.10 Deposit Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 1.11 Fixed Plus Account. . . . . . . . . . . . . . . . . . . . . . . . . . .6 1.12 Fixed Plus Account Guaranteed Interest Rate . . . . . . . . . . . . . .7 1.13 Fixed Annuity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 1.14 Fund(s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 1.15 General Account . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 1.16 Guaranteed Accumulation Account (GA Account). . . . . . . . . . . . . .7 1.17 GA Account Guaranteed Interest Rate . . . . . . . . . . . . . . . . . .7 1.18 Guaranteed Term . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 1.19 Individual Account. . . . . . . . . . . . . . . . . . . . . . . . . . .8 1.20 Loan Account. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 1.21 Market Value Adjustment (MVA) . . . . . . . . . . . . . . . . . . . . .8 1.22 Matured Term Value. . . . . . . . . . . . . . . . . . . . . . . . . . .8 1.23 Matured Term Value Transfer . . . . . . . . . . . . . . . . . . . . . .8 1.24 Maturity Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 1.25 Net Contribution. . . . . . . . . . . . . . . . . . . . . . . . . . . .8 1.26 Nonunitized Separate Account. . . . . . . . . . . . . . . . . . . . . .8 1.27 Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 1.28 Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 1.29 Reinvestment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 1.30 Separate Account. . . . . . . . . . . . . . . . . . . . . . . . . . . .9 1.31 Transfer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 3 PAGE 1.32 Valuation Period. . . . . . . . . . . . . . . . . . . . . . . . . . . .9 1.33 Variable Annuity. . . . . . . . . . . . . . . . . . . . . . . . . . . .9 II. GENERAL PROVISIONS - -------------------------------------------------------------------------------- 2.01 Change of Contract. . . . . . . . . . . . . . . . . . . . . . . . . . .9 2.02 Change of Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.03 Nonparticipating Contract . . . . . . . . . . . . . . . . . . . . . . 11 2.04 Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.05 State Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.06 Control of Contract . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.07 Misstatements and Adjustments . . . . . . . . . . . . . . . . . . . . 12 2.08 Incontestability. . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2.09 Grace Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2.10 Individual Certificates . . . . . . . . . . . . . . . . . . . . . . . 12 III. CONTRIBUTIONS, CURRENT VALUE, AND WITHDRAWAL PROVISIONS - -------------------------------------------------------------------------------- 3.01 Limitations on Contributions. . . . . . . . . . . . . . . . . . . . . 12 3.02 Net Contribution(s) . . . . . . . . . . . . . . . . . . . . . . . . . 13 3.03 Experience Credits. . . . . . . . . . . . . . . . . . . . . . . . . . 13 3.04 Fund Record Units . . . . . . . . . . . . . . . . . . . . . . . . . . 13 3.05 Fund Record Unit Value. . . . . . . . . . . . . . . . . . . . . . . . 13 3.06 Fund Net Return Factors . . . . . . . . . . . . . . . . . . . . . . . 13 3.07 Market Value Adjustment . . . . . . . . . . . . . . . . . . . . . . . 14 3.08 Transfer(s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 3.09 Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 3.10 Notice to the Participant . . . . . . . . . . . . . . . . . . . . . . 19 3.11 Withdrawal Restrictions . . . . . . . . . . . . . . . . . . . . . . . 19 3.12 Manner and Timing of Distributions. . . . . . . . . . . . . . . . . . 20 3.13 Withdrawal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 3.14 Partial Withdrawal from the Fixed Plus Account. . . . . . . . . . . . 21 3.15 Payment of Fixed Plus Account Full Withdrawal . . . . . . . . . . . . 21 3.16 Alternative Payment of Fixed Plus Account Full Withdrawal . . . . . . 21 3.17 Payment of Minimum Current Value. . . . . . . . . . . . . . . . . . . 22 3.18 Amount Payable at Death (Before Annuity Payments Start) . . . . . . . 22 3.19 Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 4 IV. NON-ANNUITY DISTRIBUTION OPTIONS - -------------------------------------------------------------------------------- PAGE 4.01 Distribution Options. . . . . . . . . . . . . . . . . . . . . . . . . 23 4.02 Estate Conservation Option. . . . . . . . . . . . . . . . . . . . . . 23 4.03 Systematic Withdrawal Option. . . . . . . . . . . . . . . . . . . . . 25 IV. ANNUITY PROVISIONS - -------------------------------------------------------------------------------- 5.01 Choices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 5.02 Terms of Annuity Options. . . . . . . . . . . . . . . . . . . . . . . 28 5.03 Death Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 5.04 Fund Annuity Units. . . . . . . . . . . . . . . . . . . . . . . . . . 28 5.05 Fund Annuity Unit Value . . . . . . . . . . . . . . . . . . . . . . . 29 5.06 Fund Annuity Net Return Factor. . . . . . . . . . . . . . . . . . . . 29 5.07 Annuity Options . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 5 I. DEFINITIONS - -------------------------------------------------------------------------------- 1.01 ACCUMULATION PERIOD: The period during which Net Contribution(s) are applied to an Individual Account. 1.02 ADJUSTED CURRENT VALUE: The Current Value (See 1.09) of an Individual Account (See 1.19) plus or minus any applicable aggregate GA Account Market Value Adjustment, if applicable. (See 3.07). 1.03 ANNUITANT: If an Annuity provides lifetime benefits, the person whose life expectancy determines the amount and/or duration of Annuity benefit payments. 1.04 ANNUITY: Payment of an income under the Annuity Provisions of Section V: (a) For the life of one or two persons; (b) For a stated period; or (c) For some combination of (a) and (b). 1.05 BENEFICIARY: Each Participant shall name the beneficiary of the Employer and Employee Account. Aetna will pay any portion of the Individual Account(s) Current Value to the beneficiary in accordance with the provisions of Section 3.18. 1.06 CODE: The Internal Revenue Code of 1986, as amended. 1.07 CONTRACT HOLDER: The entity, named on the cover of this Contract, to which the Contract is issued. 1.08 CONTRIBUTION: A payment received at Aetna's Home Office and allocated to this Contract. 1.09 CURRENT VALUE: For an Individual Account (See 1.19), the Current Value is the total of: (a) The amount, if any, in the Fixed Plus Account, with interest earned to date; (b) The amount, if any, in the GA Account, with interest earned to date; and (c) The value of all Fund record units (See 3.05), if any, as of the most recent Valuation Period. 1.10 DEPOSIT PERIOD: A calendar month, a calendar quarter, or any other period of time specified by Aetna during which Net Contribution(s), Transfers and Reinvestments are accepted into the GA Account for one or more Guaranteed Terms. 1.11 FIXED PLUS ACCOUNT: An accumulation option with a guaranteed minimum interest rate. Aetna may credit a higher rate which is not guaranteed. The portion that may be withdrawn or transferred in a 12 month period is restricted (See 3.08, 3.14 and 3.15). 6 1.12 FIXED PLUS ACCOUNT Aetna will add interest daily at an annual GUARANTEED INTEREST rate no less than that shown on Contract RATE: Schedule I on any Net Contribution(s) to the Fixed Plus Account. Aetna may add interest daily at a higher rate determined by its Board of Directors. 1.13 FIXED ANNUITY: An Annuity with payments that do not vary in amount. 1.14 FUND(S): The open-end registered management investment companies (mutual funds) in which the Separate Account invests. 1.15 GENERAL ACCOUNT: The account holding the assets of Aetna, other than those assets held in Aetna's Separate Account(s) and Nonunitized Separate Account(s). 1.16 GUARANTEED ACCUMULATION An accumulation option where Aetna guarantees ACCOUNT (GA ACCOUNT): stipulated rate(s) of interest for a specified period of time. All assets of Aetna, including amounts in the Nonunitized Separate Account, are available to meet the guarantees for the GA Account. 1.17 GA ACCOUNT GUARANTEED Aetna will declare the interest rate(s) INTEREST RATE: applicable to a specific Guaranteed Term at the start of the Deposit Period for that Guaranteed Term. The rate(s) are guaranteed by Aetna for that Deposit Period and the ensuing Guaranteed Term. The Guaranteed Interest Rates are annual effective yields. That is, interest is credited daily at a rate that will produce the Guaranteed Interest Rate over the period of a year. No Guaranteed Interest Rate will ever be less than the Minimum Guaranteed Interest Rate shown on Contract Schedule I. For Guaranteed Terms of one year or less, one Guaranteed Interest Rate is credited for the full Guaranteed Term. For longer Guaranteed Terms, an initial Guaranteed Interest Rate is credited from the date of deposit to the end of a specified period within the Guaranteed Term. There may be different Guaranteed Interest Rate(s) declared for subsequent specified time intervals throughout the Guaranteed Term. 1.18 GUARANTEED TERM: The period of time for which GA Account Guaranteed Interest Rates are guaranteed on Net Contributions, Transfers and Reinvestments made into a current Deposit Period for the GA Account. Such period begins on the day following the close of the Deposit Period and ends on the designated Maturity Date. Guaranteed Terms are offered at Aetna's discretion for various lengths of time ranging up to and including ten years and are classified as follows: SHORT-TERM. Three (3) or fewer years. Amounts allocated to a short-term Term are held in the General Account. LONG-TERM. More than three (3) years, but not more than ten (10). Amounts allocated to a long-term Term are held in the Nonunitized Separate Account. During a Deposit Period, Aetna may make available any number of Guaranteed Terms. The Participant may allocate Net Contributions and Transfers into any or all of the available Guaranteed Terms. 7 1.19 INDIVIDUAL ACCOUNT: This Contract is issued to the Contract Holder. However, Aetna will maintain at least two Individual Accounts for each Participant. These are: (a) An Employer Account: This Individual Account will be credited with employer Net Contribution(s) and transferred amounts of 403(b) funds, attributable to employer contributions; and (b) An Employee Account: This Individual Account will be credited with employee Net Contribution(s) and transferred amounts of 403(b) funds, attributable to employee contributions. 1.20 LOAN ACCOUNT: An account established for record keeping purposes and credited with the amount on any loan. 1.21 MARKET VALUE ADJUSTMENT An adjustment to the amount withdrawn or (MVA): Transferred from an GA Account Guaranteed Term prior to the end of that Guaranteed Term. The adjustment reflects the change in the value of the investment due to changes in interest rates since the date of deposit and is computed using the formula given in 3.07. The adjustment is expressed as a percentage of each dollar being withdrawn. 1.22 MATURED TERM VALUE: The amount payable on a GA Account Guaranteed Term's Maturity Date. 1.23 MATURED TERM VALUE During the calendar month following a GA TRANSFER: Account Maturity Date, the Participant may notify Aetna's Home Office in writing to Transfer or withdraw all or part of the Matured Term Value, plus interest at the new Guaranteed Rate accrued thereon, from the GA Account without an MVA. This provision only applies to the first such written request received from the Participant during this period for any Matured Term Value. 1.24 MATURITY DATE: The last day of a GA Account Guaranteed Term. 1.25 NET CONTRIBUTION: A Contribution less any applicable premium taxes. 1.26 NONUNITIZED SEPARATE An account established by Aetna under Section ACCOUNT: 38a-433 of the Connecticut General Statutes that holds assets for GA Account Terms (See 1.18) greater than three years. The Contract Holder or Participant does not participate in the investment gain or loss from the assets held in the Nonunitized Separate Account. Such gain or loss is borne entirely by Aetna. Assets in this account may be charged with liabilities arising out of any other Aetna business. 1.27 PARTICIPANT: A person who participates in the Plan named on the cover of this Contract. 1.28 PLAN: The Plan intended to qualify under Section 403(b) of the Code and named on the cover of this Contract. The Plan is not a part of the Contract and Aetna is not bound by its terms. 8 1.29 REINVESTMENT: Aetna will mail a notice to the Participant at least 18 calendar days before a Guaranteed Term's Maturity Date. This notice will contain the Terms available during the current Deposit Periods with their Guaranteed Interest Rate(s) and projected Matured Term Value. If no specific direction is given by the Participant prior to the Maturity Date, each Matured Term Value will be reinvested in the current Deposit Period for a Guaranteed Term of the same duration. If a Guaranteed Term of the same duration is unavailable, each Matured Term Value will automatically be reinvested in the current Deposit Period for the next shortest Guaranteed Term available in the same classification. If no shorter Guaranteed Term is available, the next longer Guaranteed Term will be used. Aetna will mail a confirmation statement to the Participant, the next business day after the Maturity Date. This notice will state the Guaranteed Term and Guaranteed Interest Rate(s) which will apply to the reinvested Matured Term Value. 1.30 SEPARATE ACCOUNT: An account, established by Aetna under Section 38a-433 of the Connecticut General Statutes, that buys and holds shares of the Fund(s) available under this Contract. Income, gains or losses, realized or unrealized are credited or charged to the Separate Account without regard to other income, gains or losses of Aetna. Aetna owns the assets held in the Separate Account and is not a trustee of such amounts. Amounts in the Separate Account are not generally guaranteed and are held at market value. The assets of the Separate Account, to the extent of reserves and other contract liabilities of the Account, cannot be charged with other Aetna liabilities. 1.31 TRANSFER: The movement of invested amounts among the available Fund(s); the Fixed Plus Account and the GA Account during the Accumulation Period. 1.32 VALUATION PERIOD: The period as of 4:15 p.m. Eastern time on each day the New York Stock Exchange is open for business to 4:15 p.m. Eastern time of the next such business day, or such other day that one or more of the Fund(s) determines its net asset value. 1.33 VARIABLE ANNUITY: An Annuity with payments that vary with the net investment results of the Funds available during the Annuity period. II. GENERAL PROVISIONS - -------------------------------------------------------------------------------- 2.01 CHANGE OF CONTRACT: (a) Only an authorized Aetna officer can change the provisions of this Contract and the change must be in writing. (b) Aetna cannot change the amount or terms of Annuity benefit payments after payment has commenced. (c) Aetna may change the following provisions without Contract Holder consent. (1) Any provision that must be changed to comply with state or federal law (2) Calculation of the Market Value Adjustment 9 2.01 CHANGE OF CONTRACT: (3) Estate Conservation Option (CONT'D): (4) Systematic Withdrawal Option (5) Allocation of Contributions or Transfers to the Fixed Plus Account (6) New Annuity Options Aetna will notify the Contract Holder, in writing, at least thirty (30) days before the effective date of the change. Such a change will apply to all current and future Individual Accounts. (d) Aetna may change the Tables for determining the amount of Annuity benefit payments without Contract Holder consent. Such a change will not become effective earlier than twelve months after (1) the effective date of the Contract, or (2) the effective date of a previous change. Aetna will notify the Contract Holder, in writing, at least thirty (30) days before the effective date of the change. The change will apply to all current and future Individual Accounts. (e) The Contract Holder must agree to any change in provisions concerning the following: (1) A reduction in the GA Account Minimum Guaranteed Interest Rate (2) A reduction in the Fixed Plus Account Minimum Guaranteed Interest Rate (3) Fund Accumulation Period Net Return Factor (4) Current Value (5) Annuity Unit Value (6) Existing Annuity Options (7) Fixed Annuity Minimum Guaranteed Interest Rates Aetna will notify the Contract Holder, in writing, at least thirty (30) days before the effective date of the proposed change. Such a change will apply to future Individual Accounts. If the Contract Holder does not agree to a proposed change, Aetna reserves the right to: (1) discontinue establishing new Individual Accounts; and (2) discontinue accepting Contributions to existing Individual Accounts. 2.02 CHANGE OF FUND: Aetna, or the Separate Account, may: (a) Change the Fund(s) in which the Separate Account invests; and/or (b) Replace the shares of any Fund(s) held in the Separate Account with shares of any other Fund(s). 10 2.02 CHANGE OF FUND Changes must be: (CONT'D): (a) Approved by a majority vote in the Separate Account with respect to the Fund(s) whose shares are to be replaced; (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 such change. 2.03 NONPARTICIPATING The Contract Holder, Participants, or CONTRACT: Beneficiaries will not have a right to share in the earnings of Aetna. 2.04 PAYMENTS: (a) Aetna will make distributions as directed by the Contract Holder. Aetna will determine the amount of payments based on the Individual Account's Current Value as of the date on which a request is received in good order at Aetna's Home Office. Payments will be made within seven (7) calendar days of receipt of a written request in good order at Aetna's Home Office. (b) Aetna may defer payments: (1) for a period of up to six (6) months (unless not allowed by state law); and (2) as allowed by federal law. 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 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. 2.06 CONTROL OF CONTRACT: This Contract is designed to fund a governmental plan which provides for retirement income that is not subject to Title I of the Employee Retirement Income Security Act of 1974 (ERISA), as amended by subsequent law including REA. The Participant may select the investment option(s) 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. No distributions will be made from the Employer Account or the Employee Account without the Contract Holder's written direction to Aetna. (a) Nontransferable and Nonassignable: This Contract and any Individual Accounts are nontransferable and nonassignable, except to Aetna in the event of a loan, or pursuant to a "qualified domestic relations order" as set forth under the Internal Revenue Code of 1986, as it may be amended from time to time. 11 2.06 CONTROL OF CONTRACT (b) Distributions: A Participant may apply (CONT'D): for a distribution from his or her Employee Account or Employer Account. However, the Contract Holder must certify in writing 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 the terms of the Plan as interpreted by the Contract Holder. (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. 2.07 MISSTATEMENTS AND If Aetna finds the age of any payee to be ADJUSTMENTS: misstated, the correct facts will be used to adjust payments. 2.08 INCONTESTABILITY: Aetna cannot cancel this Contract because of any error of fact on the application. 2.09 GRACE PERIOD: This Contract will remain in effect even if Contributions are not continued except as provided in 3.17. 2.10 INDIVIDUAL CERTIFICATES: Aetna shall issue certificates to 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. III. CONTRIBUTIONS, CURRENT VALUE, AND WITHDRAWAL PROVISIONS - -------------------------------------------------------------------------------- 3.01 LIMITATION ON The Contribution(s) made to the Employee and CONTRIBUTIONS: Employer Account 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 Contribution(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. 12 3.02 NET CONTRIBUTION(S): The Net Contribution equals the actual Contribution less any applicable premium tax. Generally, Aetna will deduct the premium tax when Annuity benefits are purchased (See Section V). If Aetna determines that under applicable state law, it must pay a premium tax when the Contribution is received, or at any other time, it will deduct the tax at that time. The Net Contribution(s) may be allocated among the following investment options: (a) The Fixed Plus Account; and (b) The current Deposit Period(s) for Guaranteed Terms under the GA Account; and (c) The Fund(s) in which the Separate Account invests. Aetna must be told the percentage of all Net Contributions to allocate to one or more of the investment options. Aetna reserves the right to require a minimum Contribution amount per Individual Account. 3.03 EXPERIENCE CREDITS: Aetna may apply experience credits under this Contract. Any such credits will be computed as decided by Aetna. 3.04 FUND RECORD UNITS: The portion of the Net Contribution(s) applied to each Fund under the Separate Account will determine the number of Fund record units credited to the Individual Account for that Fund. This number is equal to the Net Contribution applied to the Fund divided by the Fund record unit value (see 3.05) for the Valuation Period in which the Contribution is received in good order. 3.05 FUND RECORD A Fund record unit value is computed by UNIT VALUE: multiplying the net return Factor (See 3.06) for the current Valuation Period by the Fund record unit value for the previous Period. The dollar value of a Fund record unit, Separate Account assets, and Variable Annuity payments may go up or down due to investment gain or loss. 3.06 FUND NET The net return factor(s) are used to compute RETURN FACTORS: all Separate Account record units 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 at the start of the Valuation Period; minus 13 3.06 FUND NET (e) A Separate Account charge at an annual RETURN FACTORS effective rate as hown on Contract (CONT'D): Schedule I for Annuity mortality and expense risks, asset based sales charge and profit and a daily administrative charge which will not exceed the amount shown on Contract Schedule I 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. 3.07 MARKET VALUE (a) An MVA will be applied to any withdrawal ADJUSTMENT: from the GA Account Term before the Maturity Date due to: (1) A Transfer; (2) A full or partial withdrawal; 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 in (b). (b) Market value adjusted amounts will be equal to the amount withdrawn multiplied by the following ratio: x (1 + i) to the power of --- 365 ---------------------------- x (1 + j) to the power of --- 365 Where: i is the Deposit Period Yield j is the Current Yield x is the number of days remaining, (computed from Wednesday of the week of withdrawal) in the Term. (c) The Deposit Period Yield will be determined as follows: (1) 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 Term. (2) 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. 14 3.07 MARKET VALUE (3) The Current Yield is the average ADJUSTMENT (CONT'D): 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. (4) In the event that no U.S. Treasury Notes which mature in the last three months of the Term exist, Aetna reserves the right to use the U.S. Treasury Notes that mature in a following quarter. (d) Full and partial withdrawals as well as Transfers made within six (6) months after the Participant's date of death under the Amount Payable at Death provision (See 3.18) will be the greater of: (1) The aggregate MVA amount which is the sum of all market value adjusted amounts calculated due to a withdrawal of amounts (for withdrawal or Transfer) from Terms prior to the end of those Terms. The aggregate MVA may be either positive or negative; or (2) The applicable portion of the Current Value in the GA Account. (e) After the six month period, the withdrawal or Transfer will be the aggregate MVA amount (i.e., including all MVAs). (f) 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. 3.08 TRANSFER(S): Before an Annuity option is elected, all or any portion of the Adjusted Current Value of the Individual Account (subject to the limitations described below) may be transferred from any Fund, the Fixed Plus Account or the GA Account: (a) To any Fund; or (b) To the Fixed Plus Account; or (c) To any Guaranteed Term of the GA Account with a different classification available in the Current Deposit Period. Transfer requests can be submitted as a percentage or as a dollar amount. Aetna may establish a minimum Transfer amount. Within a Guaranteed Term classification, the amount transferred will be withdrawn from the oldest Deposit Period, then from the next oldest, and so on until the amount requested is satisfied. Amounts applied to Guaranteed Terms of the GA Account may not be transferred to the Funds, the Fixed Plus Account or to another Guaranteed Term during the Deposit Period or 90 days after the close of the Deposit Period except for Matured Term Value(s) during the calendar month following the Term's Maturity Date. 15 3.08 TRANSFER(S) (CONT'D): Transfers from Guaranteed Terms of the GA Account are subject to the MVA provisions of 3.07. During each rolling twelve (12) month period, up to 20% of the Fixed Plus Account value may be transferred to one or more of the Fund(s), and/or the GA Account's then-current Deposit Period. The 20% limit is reduced by any partial withdrawals, Transfers or amounts taken as a loan or used to purchase an Annuity during the twelve (12) month period. Aetna reserves the right to include amounts paid under 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. The Participant may make an unlimited number of Transfers during the Accumulation Period. The number of free Transfers allowed by Aetna is shown on Contract Schedule I. Additional Transfers may be subject to a Transfer fee as shown on Contract Schedule I. Transfers from the GA Account of a Matured Term Value on or within one calendar month of a Term's Maturity Date do not count against the annual Transfer limit. 3.09 LOANS: During the Accumulation Period, the Participant may request a loan from his or her Individual Account by submitting a loan request form. The loan effective date is the date Aetna receives a loan request form in good order at its Home Office. A loan will not be allowed within 12 months of the effective date of any prior loan. The Employee and Employer Accounts Current Value must be at least $2,000 and the minimum loan amount is $1,000. A loan that meets provisions set forth in Code Section 72(p) is not considered a taxable distribution. (a) The amount available for a loan is calculated based on the Current Value of the Employer and Employee Accounts. The loan amount is limited to the lesser of: (1) 50% of the Employee and Employer Accounts vested Current Value on the date the loan is made; or (2) $50,000 reduced by the amount of the highest outstanding loan balance during the preceding 12 month period that ends the day before the current loan is made. Loans may only be made from the Employee Account and the vested portion of the Employer Account. 16 3.09 LOANS (b) When the loan is made, only amounts in (CONT'D): the Funds and Fixed Plus Account may be withdrawn and transferred to the Loan Account. The amounts will be withdrawn in the same proportion as the Employee Account and the Employer Account's vested Current Value are divided between the Fixed Plus Account and/or Funds on the loan's effective date. If the amount of the loan requested would require the proportionate amount transferred from the Fixed Plus Account to exceed the amount that would be allowed under the 20% limit described in Section 3.08, the Participant may transfer an additional amount from the Fixed Plus Account. The additional amount will be limited and will never exceed 50% of the Fixed Plus Account value on the effective date of the loan, minus any previous partial withdrawal or Transfer during the 12- month period the loan becomes effective. Aetna reserves the right to change the maximum percentage a Participant can transfer from the Fixed Plus Account for the purpose of taking a loan. If the amount needed to make the loan exceeds the Fixed Plus Account Transfer limit, the additional amount will be withdrawn proportionately from the Funds. (c) Aetna will record the percentage by which any amount withdrawn from the Fixed Plus Account exceeds the 20% Transfer limit covered in Section 3.08. The percentage will equal the amount transferred from the Fixed Plus Account that exceeds the 20% withdrawal limit divided by the total amount of the loan. In the event of a loan payment default, this percentage will be used to calculate the penalty that would be applied as described in (h) below. (d) The loan interest rate will be 5%. (e) Interest on the Loan Account balance will be calculated daily at a rate to yield an effective annual rate of 3%. Interest will be credited quarterly based on the loan's effective date and credited to the Funds and/or Fixed Plus Account in the same proportion in which the loan amount was withdrawn. (f) Principal and interest on loans is amortized in quarterly payments over a one to five year term. The Participant chooses the number of years. An exception applies to loans taken for the acquisition of the Participant's principal residence. Loans for this purpose can be amortized quarterly over a one to 20 year term, as elected by the Participant. The Participant must certify in writing that a loan is for the purchase of a principal residence. The term of the loan, elected by the Participant, must result in full repayment no later than December 31 of the calendar year prior to the calendar year in which the Participant reaches age 70 1/2. 17 3.09 LOANS The entire Loan Account balance may be (CONT'D): paid in full at any time. Aetna will bill the Participant for any loan interest accrued to the date the payment is received. Aetna will consider the loan paid when the interest amount is received. (g) A bill in the amount of the quarterly payment due will be mailed to the Participant in advance of the due date. The first due date is three months from the loan's effective date and quarterly thereafter. A loan payment will be in default if it is not received by Aetna at its Home Office by the due date. The principal portion of each loan payment will be credited to the Participant's Fixed Plus Account and/or the Funds in the same proportion in which the loan amount was withdrawn. The Loan Account will then be reduced by the principal portion of the payment. (h) If a payment is in default, a partial withdrawal in an amount equal to the payment due will be deducted from the Individual Account at the close of business on the due date. Payments that are less than the amount due will be returned and if the full payment is not received by the due date, the payment will be in default. The required amount will be withdrawn from the Fixed Plus Account and/or the Funds in the same proportion in which the loan amount was withdrawn. This amount will be applied as a loan payment as set forth in (g) above. Aetna will report to the IRS the amount withdrawn to pay the default. In addition, if the amount withdrawn from the Fixed Plus Account to make the loan exceeded the 20% annual withdrawal limitation described in Section 3.14, a 5% charge will be assessed on the same percentage of the defaulted payment. For example, if 60% of the amount withdrawn was in excess of the limit, then 60% of the amount withdrawn for the defaulted payment will be subject to the additional 5% charge. (i) If a Participant makes a payment that is more than the billed amount, the excess will be credited to the Fixed Plus Account and/or the Funds in the same proportion in which the loan amount was withdrawn. The Loan Account will be reduced by the additional amount. On the following loan anniversary date, future payments will be recalculated to reflect the additional principal payment so that the outstanding balance is amortized in equal quarterly payments over the remaining loan term. (j) Upon the election of an Annuity option or at the Participant's death, any Loan Account will be cancelled. This will result in a taxable distribution of an amount equal to the Loan Account balance. Interest earned but not yet credited will be credited to, and loan interest accrued but not paid will be deducted from, the Current Value in the same proportion in which the loan amount was withdrawn. 18 3.09 LOANS (k) If there is an outstanding Loan Account (CONT'D): balance when a Participant makes a full withdrawal of the Current Value of his or her Individual Account (1) interest earned but not credited will be credited to, and (2) uncollected accrued loan interest will be deducted from the Current Value. The Loan Account will be cancelled resulting in a taxable distribution of an amount equal to the Loan Account balance. 3.10 NOTICE TO THE Each year, Aetna will notify the Participant PARTICIPANT: of: (a) The value of any amounts held in: (i) The Fixed Plus Account, (ii) The GA Account, (iii) The Fund(s) for the Separate Account; (b) The number of any fund(s) record units; (c) The fund(s) record unit value(s); (d) The amount available for withdrawal; and (e) The Loan Account value. This information will be as of a date no more than sixty (60) days before the date of the notice. 3.11 WITHDRAWAL RESTRICTIONS: Limitations apply to full and partial withdrawals of any Restricted Amount from this Contract, as required by Code Section 403(b)(11). The Restricted Amount is the sum of: (a) Net Contributions attributable to Participant salary reduction contributions made on and after January 1, 1989 if any; 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 withdrawal 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 Contributions attributable to Participant salary reduction contributions made on and after January 1, 1989. 19 3.11 WITHDRAWAL RESTRICTIONS The Contract Holder must certify that one of (CONT'D): these conditions has been met before a withdrawal 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. 3.12 MANNER AND TIMING (a) A distribution to a Participant may be OF DISTRIBUTIONS: made in a lump sum, as one of the Distribution Options described in Section IV, or as one of the Annuity options in Section V. The Participant may elect the form of distribution subject to certification in writing by the Contract Holder that the Participant is eligible both as to the timing and form of distribution. (b) The distribution of benefits from the Employee and Employer Accounts must begin by April 1 of the calendar year following the calendar year in which the Participant attains age 70 1/2 or retires, whichever occurs later. (c) If the Participant does not request commencement of benefits from the Employee and Employer Accounts as described above, Aetna will not be responsible for compliance with the Code Section 401(a)(9) minimum distribution requirements or for any adverse tax or other consequences that may result. 3.13 WITHDRAWAL: (a) The Participant may withdraw any portion or all of an Individual Account Adjusted Current Value and transfer such amount to another investment provider under the Plan. The withdrawal and transfer request must be submitted in writing to Aetna. (b) Except as described in Section 3.14, unless the Participant specifies otherwise, partial withdrawals are satisfied by withdrawing amounts on a pro rata basis from each of the investment options in which the Individual Account is invested. (c) When amounts are withdrawn from the GA Account, amounts in Short-Term and Long- Term Classifications are treated as separate investment options and amounts are taken on a pro rata basis. Within a Classification, amounts will be withdrawn starting with the Term still in effect with the oldest Deposit Period. (d) Any amount withdrawn from the Fixed Plus Account will be subject to the limitations in 3.14, 3.15 and 3.16. 20 3.14 PARTIAL WITHDRAWAL The amount eligible for partial withdrawal is FROM THE FIXED PLUS 20% of the Current Value of the amount held ACCOUNT: in the Fixed Plus Account on the day Aetna's Home Office receives a written request, reduced by any previous Transfer, partial withdrawal or amounts taken as a loan or used to purchase Annuity benefits during the prior 12 months. Aetna reserves the right to include amounts paid under ECO and SWO for purposes of applying this 20% limit. However, SWO is unavailable if a Fixed Plus Account Transfer or withdrawal is requested within the current 12 month period. The 20% limit applicable to partial withdrawals from the Fixed Plus Account will be waived under certain conditions and will apply when the partial withdrawal is made on a pro rata basis from all options used under the Participant's Individual Account. (See Contract Schedule I). 3.15 PAYMENT OF FIXED When Aetna receives a full withdrawal PLUS ACCOUNT FULL request, no additional partial withdrawals or WITHDRAWAL: Transfers from the Fixed Plus Account are permitted during the payout period. If a full withdrawal is requested, Aetna will pay any Current Value from the Fixed Plus Account in five payments as follows: (a) 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 that was transferred, withdrawn or used for a loan or to purchase Annuity benefits during the prior 12 months; (b) One-fourth of the remaining Current Value 12 months later; (c) One-third of the remaining Current Value 12 months later; (d) One-half of the remaining Current Value 12 months later; and (e) The balance of the Current Value 12 months later. The Fixed Plus Account full withdrawal payment provision will be waived when a withdrawal is: (a) Due to the Participant's death before Annuity benefit payments begin; (b) Used to purchase Annuity benefits; or (c) When the amount in the Fixed Plus Account is $3,500 or less and no amount has been withdrawn, transferred, taken as a loan or used to purchase Annuity benefits during the previous 12 months. Any full withdrawal from the Fixed Plus Account may be cancelled at any time before the end of the payment period. 3.16 ALTERNATIVE PAYMENT As an alternative to 3.15, the Participant OF FIXED PLUS ACCOUNT may elect a lump sum payment. The lump-sum FULL WITHDRAWAL: payment will be the Individual Account's Current Value invested in the Fixed Plus Account less a 3% charge provided: (i) the withdrawal is due to the Participant's separation from service with the employer; 21 3.16 ALTERNATIVE PAYMENT (ii) the withdrawal request is received at OF FIXED PLUS ACCOUNT Aetna's Home Office within 60 days of FULL WITHDRAWAL: the date the Participant separates from (CONT'D): service with the employer; and (iii) the Contract Holder certifies that the Participant has separated from service and is eligible to receive a lump sum distribution. 3.17 PAYMENT OF MINIMUM If the Individual Accounts Current Value is CURRENT VALUE: less than $3,500, and no Contributions have been received for three (3) years, Aetna may close the Account and pay the Current Value to the Contract Holder in one lump sum. 3.18 AMOUNT PAYABLE AT Aetna will pay any portion of the Individual DEATH (BEFORE ANNUITY Account(s) Current Value, to the Beneficiary PAYMENTS START): when: (a) The Participant dies before Annuity payments start; and (b) The certified copy of the death certificate is received by Aetna. A guaranteed death benefit is available if the Beneficiary requests either a lump-sum payment or an Annuity option within the first 6 months after the Participant's death. For each Individual Account, the death benefit is guaranteed to be the greater of: (a) The Current Value of the Individual Account plus aggregate positive MVA, as applicable, on the date the notice of death and the request for payment are received in good order at Aetna's Home Office; or (b) The total of Net Contribution(s) made to the Individual Account minus the total of all partial withdrawals, annuitizations made from the Individual Account and any amount allocated from the Individual Account to the Loan Account. If the payee of the death proceeds is the Participant's surviving spouse, 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 Beneficiary is not the surviving spouse, all of the Current Value must either be applied to an Annuity Option within one (1) year of the Participant's death or be paid to the payee within five (5) years of the Participant's death (see Part V). In no event may any payments to the 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. Amounts in the GA Account will be payable as described in Section 3.07(d). 22 3.19 REINSTATEMENT: All or a portion of the proceeds of a full withdrawal of an Individual Account may be reinvested within 30 days after the surrender if allowed by law. Any Market Value Adjustment deducted from GA Account withdrawals will not be included in the reinstatement. Amounts will be reinstated among the Fixed Plus Account, GA Account and the Fund(s) in the same proportion as they were at the time of withdrawal. Any amount 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 Individual Account(s) closed because of the Current Value was less than $3,500 may not be reinstated (see 3.17). Reinstatement is permitted only once per Individual Account. IV. NON-ANNUITY DISTRIBUTION OPTIONS - -------------------------------------------------------------------------------- 4.01 DISTRIBUTION OPTIONS: The Participant or a surviving spouse may elect one of the two following distribution options. A surviving spouse is eligible to elect one of these options provided the spouse is the designated Beneficiary under the Plan and the Participant had died before electing an Annuity option and before the date for required minimum distributions. 4.02 ESTATE CONSERVATION (a) With the Estate Conservation Option OPTION: (ECO) a portion of the Individual Account Current Value is automatically surrendered and distributed each year. Each payment will be withdrawn from the Individual Account in the same proportion as assets are held in the Funds, the GA Account, and the Fixed Plus Account on the date the payment is made. (b) Payments under ECO will comply with the incidental death benefit test set forth in Code Section 401(a)(9). (c) Distribution Amount: Each year that ECO is in effect, Aetna will calculate and distribute an amount equal to the minimum distribution required under the Code. The annual distribution will be determined by dividing the Individual Account Current Value as of December 31 of the year prior to the payment year, by a single or joint life expectancy factor. If joint life expectancy is elected, the Beneficiary under ECO must be the same as the beneficiary of any death benefits under the Plan. (d) Life Expectancy Factor: For the Participant, the life expectancy factor is either single life or joint life expectancy as elected by the Participant, based on tables in IRS regulations. For a spouse Beneficiary, only a single life expectancy is available. Life expectancy factors will be recalculated each year, unless prohibited by the Code or regulations. 23 4.02 ESTATE CONSERVATION If joint life expectancy is elected and OPTION (CONT'D): the Participant or spouse dies, payments will be based on the survivor's life expectancy. If the Beneficiary is not the spouse and the Beneficiary dies first, the joint life expectancy continues to be used to determine payments. If a single life expectancy is elected, at the death of the Participant (or the spouse who is the designated Beneficiary electing ECO after the Participant's death), the entire value must be distributed no later than the December 31 of the year following the year of the Participant's (or spouse's) death. If a joint life expectancy is elected, and both the Participant and spouse have died, any remaining Current Value must be distributed no later than the December 31 of the year following the year of the second death. If a joint life expectancy is elected and both the Participant and non-spouse Beneficiary have died, any remaining Current Value will be distributed to a successor Beneficiary or, if none has been named, then to the estate of the last to die. (e) 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. (f) Distribution Date: The Participant shall specify an annual distribution date. The earliest date is the first day of the calendar year in which he or she attains age 70 1/2, or retirement if later. For a spouse Beneficiary electing ECO after the Participant's death, the earliest date is the date of the Participant's death. The first distribution date may be the 15th of any month, or such other date Aetna may designate or allow. Subsequent distributions will be made on the anniversary of that date. (g) Election and Revocation: The Participant may elect ECO by submitting a completed and signed election form to Aetna's Home Office. The Contract Holder must certify that the Participant is eligible both as to the timing and form of distribution. Once ECO is elected, the Participant may revoke it 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 Individual Account. 24 4.03 SYSTEMATIC WITHDRAWAL (a) With the Systematic Withdrawal Option OPTION: (SWO) a portion of the Individual Account Current Value is automatically distributed each year. A SWO payment will be calculated on the Individual Account's Current Value. Each payment will be withdrawn from the Individual Account in the same proportion as assets are held in the Funds, the GA Account, and the Fixed Plus Account on the date the payment is made. (b) Payments under SWO will comply with the incidental death benefit test set forth in Code Section 401(a)(9). (c) Distribution Amounts: The Participant may elect one of the three payment methods described below. These calculations may be changed as necessary to comply with the Code minimum distribution rules. If joint life expectancy is elected, the Beneficiary under SWO must be the same as the beneficiary of any death benefits under the Plan. (1) Specified Payment: Payments of a designated annual dollar amount. The annual amount may not be greater than the percentage of the Current Value at time of election as shown on Contract Schedule I. This amount will remain constant unless a higher amount is required under Code minimum distribution rules. Each year that the Specified Payment is in effect, Aetna will calculate the minimum required distribution by dividing the Individual Account Current Value as of December 31 of the year prior to the payment year by a life expectancy factor, and distribute this amount if it is larger than the Specified Payment. (2) Specified Period: Payments are made over a period of time. The number of years selected may not be less than the number of years shown on Contract Schedule I, unless otherwise required by Code minimum distribution rules. The maximum specified period will be limited by the life expectancy factor. The amount paid each year is calculated by dividing the Individual Account Current Value as of December 31 of the prior year by the number of payment years remaining. (3) Specified Percentage: The specified percentage chosen cannot be greater than the percentage shown on Contract Schedule I. The 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. 25 4.03 SYSTEMATIC WITHDRAWAL (d) Life Expectancy Factor: The life OPTION (CONT'D): expectancy factor for the initial distribution year is either single life or joint life expectancy as elected by the Participant, based on tables in IRS regulations. For a spouse Beneficiary, only a single life expectancy is available. With each subsequent year, the life expectancy factor will be the life expectancy factor for the initial distribution year, reduced by one. If the joint life expectancy is elected and the Participant or the Beneficiary dies on or after the required beginning date for minimum distributions to the Participant, the joint life expectancy factor will continue to be reduced by one for each distribution year. Payments will continue unless the Contract Holder elects an alternate payment mode on behalf of the survivor. Any payment mode elected on behalf of the Beneficiary must provide payments to be made at least as rapidly as those made prior to the Participant's death. If the Participant dies before the required beginning date for minimum distributions, SWO payments will cease and the Beneficiary may claim the death benefit in accordance with the terms of this Contract. If the Beneficiary is not the Participant's spouse, the entire death benefit must be either applied to an Annuity option within one (1) year of the Participant's death, or be paid within five (5) years of the Participant's death. If the Beneficiary is the Participant's spouse, the distribution is not required to begin earlier than when the Participant would have attained age 70 1/2. If joint life expectancy is elected and the Beneficiary dies before the required beginning date for minimum distributions to the Participant, payments to the Participant will continue to be based on joint life expectancy reduced by one for each distribution year. (e) 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 SWO payment, Aetna will distribute the entire balance of the Individual Account. (f) Distribution Date: The Participant or spouse Beneficiary shall specify the distribution date. The earliest date is the first day of the calendar year in which the Participant attains age 59 1/2 or age 55, if separated from service with the employer at or after age 55. SWO payments will be made monthly, quarterly, semi-annually or annually on the 15th of any month, or such other date Aetna may designate or allow. If payments are made more frequently than annually, the annual amount payable each year is divided by the number of payments due per year. At its discretion Aetna may require a minimum initial payment amount. 26 4.03 SYSTEMATIC WITHDRAWAL (g) Election and Revocation: The OPTION (CONT'D): Participant may elect SWO by submitting a completed and signed election form to Aetna's Home Office. Once SWO is elected, the Participant may revoke it by submitting a written request to Aetna's Home Office. Any revocation will apply only to amounts not yet paid. Generally, SWO may be elected only once, however, if SWO is elected on and then revoked before the date distributions were required to begin under Code Section 401(a)(9), SWO may be elected on behalf of a spouse Beneficiary after the death of the Participant. V. ANNUITY PROVISIONS - -------------------------------------------------------------------------------- 5.01 CHOICES: (a) The Participant may elect an Annuity option by telling Aetna to pay all or any portion of the Individual Account(s) Current Value (minus any applicable premium tax if not previously deducted) as a premium for an Annuity under option 2, 3, or 4 (see 5.07). A completed and signed election form must be submitted to the Home Office. The form must include Contract Holder certification that the Participant is eligible for a distribution under the terms of the Plan and that the Annuity option chosen is permitted under the terms of the Plan. Any election of an Annuity option must comply with the minimum distribution requirements of Code Section 401(a)(9), including the incidental death benefit rule, and the regulations thereunder. This restriction does not apply if option 4 is chosen and the second Annuitant is the spouse of the Participant. (b) Generally, the first Annuity payment must be made by April 1 of the calendar year following the year in which the Participant turns age 70 1/2 or retires, if later. (c) When an Annuity option is chosen the Participant must designate whether the Annuity will be Fixed or Variable and whether the underlying investment will be: (1) The General Account; (2) One or more of the available Fund(s); or (3) A combination of (1) and (2). If a Fixed Annuity is chosen, the Annuity purchase rate for the option chosen reflects at least the Minimum Guaranteed Interest Rate (See Contract Schedule II), but may reflect a higher interest rate. If a Variable Annuity is chosen, the initial Annuity payment for the option chosen reflects the assumed annual return rate elected (See Contract Schedule II). (d) Payments will be made on a monthly basis unless the Participant requests otherwise. (e) Once elected, an Annuity option may not be revoked, except for option 2 when elected on a variable basis. 27 5.02 TERMS OF ANNUITY (a) No choice of any Annuity option may be OPTIONS: made if the first payment would be less than $20 or if the total payments in a year would be less than $100. (b) If a Fixed Annuity under option 2, 3 or 4 is elected and a larger Annuity payment would result from applying the Adjusted Current Value to a current Aetna single premium immediate Annuity, Aetna will make the larger payment. (c) For purposes of calculating the guaranteed first payment of a Variable Annuity or the payments for a Fixed Annuity, the Annuitant's and second Annuitant's adjusted age will be used. The Annuitant's and second Annuitant's adjusted age is his or her age as of the birthday closest to the Annuity commencement date reduced by one year for Annuity commencement dates occurring during the period of time from July 1, 1992 through December 31, 1999. The Annuitant's and second Annuitant's age will be reduced by two years for Annuity commencement dates occurring during the period of time from January 1, 2000 through December 31, 2009. The Annuitant's and second Annuitant's age will be reduced by one additional year for Annuity commencement dates occurring in each succeeding decade. The Annuity rates for options 3 and 4 are based on mortality from 1983 Table a. (d) Assumed Annual Net Return Rate is the interest rate used to determine the amount of the first Annuity payment under a Variable Annuity. The Separate Account must earn this rate plus enough to cover the mortality and expense risks charges (which may include profit) and administrative charges if future Variable Annuity Payments are to remain level. 5.03 DEATH PROVISION: When an Annuitant dies under options 2 or 3, the present value of any remaining guaranteed payments will be paid in one sum to the Beneficiary or, upon the election of the Beneficiary, any remaining payments will continue to the Beneficiary. If a 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 Beneficiary's estate. The rate used to determine the present value for a lump sum payment will be the rate used to determine the first Annuity payment. 5.04 FUND ANNUITY The number of Fund(s) annuity units is based UNITS: 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. 28 5.04 FUND ANNUITY Such amount, or portion, of the variable UNITS (CONT'D): payment will be divided by the appropriate Fund(s) annuity unit value (see 5.05) 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. 5.05 FUND ANNUITY For any Valuation Period, a Fund(s) annuity UNIT VALUE: unit value is equal to: (a) The value for the previous Period; multiplied by (b) The Annuity net return factor(s) (See 5.06) for the Period; multiplied by (c) A factor to reflect the assumed annual net return rate. (See Contract Schedule II). The dollar value of a Fund annuity unit values and Annuity payments may go up or down due to investment gain or loss. Payments shall not be changed due to changes in the mortality or expense results or administrative charges. 5.06 FUND ANNUITY NET The Annuity net return factor(s) are used to RETURN FACTOR: compute all Separate Account Annuity payments for any Fund. The Annuity net return factor(s) 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(s) record units and Fund(s) annuity units of the Separate Account at the start of the Valuation Period; minus (e) A daily charge for Annuity mortality and expense risks, which may include profit, (at the annual rate as shown on Contract Schedule II) and a daily administrative charge. 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. 29 5.07 ANNUITY OPTIONS: Option 1 -- Payments of Interest on Sum Left with Aetna -- This option may be used only by the 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 5.01). The 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. If the Beneficiary is the Participant's surviving spouse, 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 Beneficiary is not a spouse, the entire sum must either be applied to an Annuity option within one year of the Participant's death or be paid within five years of the Participant's death. Option 2 -- Payments for a Stated Period of Time -- An Annuity will be paid for the number of years chosen (See Contract Schedule II). If payments for this option are made under a Variable Annuity, the present value of any remaining payments may be withdrawn at any time. Option 3 -- Life Income -- An Annuity will be paid for the life of the Annuitant. Aetna may also guarantee payments for 60, 120, 180, or 240 months if so directed by the Participant. Option 4 -- Life Income based upon the lives of two Annuitants -- An Annuity will be paid during the lives of the Annuitant and a second Annuitant. Payments will continue until both Annuitants have died. When this option is chosen, a choice of the following must be made: (a) 100% of the payment to continue after the first death; (b) 66 2/3% of the payment to continue after the first death; (c) 50% of the payment to continue after the first death; (d) Payments for a minimum of 120 months, with 50% of the payment to continue after the first death; or (e) 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. 30 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 3.0% - -------------------------------------------------------------------------------- GUARANTEED MONTHLY QUARTERLY SEMI-ANNUAL ANNUAL YEARS RATE PAYMENT PAYMENT PAYMENT PAYMENT - -------------------------------------------------------------------------------- 3 3.00% $28.99 $86.76 $172.88 $343.23 4 3.00% 22.06 66.02 131.56 261.19 5 3.00% 17.91 53.59 106.78 211.99 6 3.00% 15.14 45.30 90.27 179.22 7 3.00% 13.16 39.39 78.49 155.83 8 3.00% 11.68 34.96 69.66 138.31 9 3.00% 10.53 31.52 62.81 124.69 10 3.00% 9.61 28.77 57.33 113.82 11 3.00% 8.86 26.52 52.85 104.93 12 3.00% 8.24 24.65 49.13 97.54 13 3.00% 7.71 23.08 45.98 91.29 14 3.00% 7.26 21.73 43.29 85.95 15 3.00% 6.87 20.56 40.96 81.33 16 3.00% 6.53 19.54 38.93 77.29 17 3.00% 6.23 18.64 37.14 73.74 18 3.00% 5.96 17.84 35.56 70.59 19 3.00% 5.73 17.13 34.14 67.78 20 3.00% 5.51 16.50 32.87 65.26 21 3.00% 5.32 15.92 31.72 62.98 22 3.00% 5.15 15.40 30.68 60.92 23 3.00% 4.99 14.92 29.74 59.04 24 3.00% 4.84 14.49 28.88 57.33 25 3.00% 4.71 14.09 28.08 55.76 26 3.00% 4.59 13.73 27.36 54.31 27 3.00% 4.47 13.39 26.68 52.97 28 3.00% 4.37 13.08 26.06 51.74 29 3.00% 4.27 12.79 25.49 50.60 30 3.00% 4.18 12.52 24.95 49.53 - -------------------------------------------------------------------------------- 31 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 Variable Annuity with Assumed Net Return Rate of 3.5% - -------------------------------------------------------------------------------- MONTHLY QUARTERLY SEMI-ANNUAL ANNUAL YEARS PAYMENT PAYMENT PAYMENT PAYMENT - -------------------------------------------------------------------------------- 3 $29.19 $87.33 $173.91 $344.86 4 22.27 66.61 132.65 263.04 5 18.12 54.19 107.92 213.99 6 15.35 45.92 91.44 181.32 7 13.38 40.01 79.69 158.01 8 11.90 35.59 70.88 140.56 9 10.75 32.16 64.05 127.00 10 9.83 29.42 58.59 116.18 11 9.09 27.18 54.13 107.34 12 8.46 25.32 50.42 99.98 13 7.94 23.75 47.29 93.78 14 7.49 22.40 44.62 88.47 15 7.10 21.24 42.31 83.89 16 6.76 20.23 40.29 79.89 17 6.47 19.34 38.51 76.37 18 6.20 18.55 36.94 73.25 19 5.97 17.85 35.54 70.47 20 5.75 17.22 34.28 67.98 21 5.56 16.65 33.15 65.74 22 5.39 16.13 32.13 63.70 23 5.24 15.66 31.19 61.85 24 5.09 15.24 30.34 60.17 25 4.96 14.85 29.56 58.62 26 4.84 14.49 28.85 57.20 27 4.73 14.15 28.19 55.90 28 4.63 13.85 27.58 54.69 29 4.53 13.57 27.02 53.57 30 4.45 13.30 26.49 52.53 - -------------------------------------------------------------------------------- 32 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 Variable Annuity with Assumed Net Return Rate of 5.0% - -------------------------------------------------------------------------------- MONTHLY QUARTERLY SEMI-ANNUAL ANNUAL YEARS PAYMENT PAYMENT PAYMENT PAYMENT - -------------------------------------------------------------------------------- 3 $29.80 $89.04 $176.99 $349.72 4 22.89 68.38 135.93 268.58 5 18.74 56.00 111.33 219.98 6 15.99 47.77 94.96 187.64 7 14.02 41.90 83.30 164.59 8 12.56 37.52 74.58 147.35 9 11.42 34.11 67.81 133.99 10 10.51 31.40 62.42 123.34 11 9.77 29.19 58.03 114.66 12 9.16 27.36 54.38 107.45 13 8.64 25.81 51.31 101.39 14 8.20 24.50 48.69 96.21 15 7.82 23.36 46.44 91.75 16 7.49 22.37 44.47 87.88 17 7.20 21.51 42.75 84.48 18 6.94 20.74 41.23 81.47 19 6.71 20.06 39.88 78.80 20 6.51 19.46 38.68 76.42 21 6.33 18.91 37.59 74.28 22 6.17 18.42 36.62 72.35 23 6.02 17.98 35.73 70.61 24 5.88 17.57 34.93 69.02 25 5.76 17.20 34.20 67.57 26 5.65 16.87 33.53 66.25 27 5.54 16.56 32.92 65.04 28 5.45 16.28 32.35 63.93 29 5.36 16.01 31.83 62.90 30 5.28 15.77 31.35 61.95 - -------------------------------------------------------------------------------- 33 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 3.0% PAYMENTS GUARANTEED FOR A STATED PERIOD OF MONTHS - -------------------------------------------------------------------------------- ADJUSTED AGE OF NONE 60 120 180 240 ANNUITANT - -------------------------------------------------------------------------------- 50 $4.05 $4.05 $4.03 $3.99 $3.93 51 4.12 4.11 4.09 4.05 3.99 52 4.19 4.19 4.16 4.11 4.04 53 4.27 4.26 4.23 4.18 4.10 54 4.35 4.34 4.31 4.25 4.16 55 4.44 4.42 4.39 4.32 4.22 56 4.53 4.51 4.47 4.40 4.29 57 4.62 4.61 4.56 4.48 4.35 58 4.72 4.71 4.65 4.56 4.42 59 4.83 4.81 4.75 4.64 4.49 60 4.95 4.93 4.86 4.73 4.55 61 5.07 5.05 4.97 4.83 4.62 62 5.20 5.17 5.08 4.92 4.69 63 5.34 5.31 5.20 5.02 4.76 64 5.49 5.45 5.33 5.12 4.83 65 5.65 5.61 5.47 5.22 4.89 66 5.82 5.77 5.61 5.33 4.96 67 6.01 5.94 5.75 5.44 5.02 68 6.20 6.13 5.91 5.54 5.08 69 6.41 6.33 6.07 5.65 5.14 70 6.64 6.54 6.23 5.76 5.19 71 6.88 6.76 6.41 5.86 5.24 72 7.14 7.00 6.59 5.97 5.28 73 7.43 7.26 6.77 6.06 5.32 74 7.73 7.53 6.96 6.16 5.35 75 8.06 7.82 7.14 6.25 5.38 - -------------------------------------------------------------------------------- Rates are based on mortality from 1983 Table a. The rates do not differ by sex. 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. 34 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 3.5% PAYMENTS GUARANTEED FOR A STATED PERIOD OF MONTHS - -------------------------------------------------------------------------------- ADJUSTED AGE OF NONE 60 120 180 240 ANNUITANT - -------------------------------------------------------------------------------- 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 are based on mortality from 1983 Table a. The rates do not differ by sex. 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. 35 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 - -------------------------------------------------------------------------------- ADJUSTED AGE OF NONE 60 120 180 240 ANNUITANT - -------------------------------------------------------------------------------- 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 are based on mortality from 1983 Table a. The rates do not differ by sex. 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. 36 OPTION 4 LIFE INCOME FOR TWO PAYEES 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 3.0% - -------------------------------------------------------------------------------- ADJUSTED AGES - --------------------- SECOND ANNUITANT ANNUITANT OPTION 4a OPTION 4b OPTION 4c OPTION 4d OPTION 4e - -------------------------------------------------------------------------------- 55 50 $3.69 $4.05 $4.27 $3.69 $4.03 55 55 3.88 4.25 4.47 3.87 4.14 55 60 4.06 4.47 4.71 4.06 4.20 60 55 3.99 4.44 4.71 3.98 4.42 60 60 4.24 4.71 4.99 4.23 4.57 60 65 4.49 5.01 5.32 4.48 4.64 65 60 4.38 4.97 5.32 4.38 4.93 65 65 4.72 5.33 5.70 4.71 5.14 65 70 5.07 5.75 6.17 5.05 5.26 70 65 4.93 5.68 6.15 4.91 5.66 70 70 5.40 6.21 6.70 5.36 5.96 70 75 5.89 6.82 7.40 5.81 6.12 75 70 5.69 6.68 7.32 5.62 6.67 75 75 6.37 7.45 8.15 6.23 7.12 75 80 7.07 8.34 9.16 6.78 7.36 - -------------------------------------------------------------------------------- Rates are based on mortality from 1983 Table a. The rates do not differ by sex. 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. 37 OPTION 4 LIFE INCOME FOR TWO PAYEES 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 3.5% - -------------------------------------------------------------------------------- ADJUSTED AGES - --------------------- SECOND ANNUITANT ANNUITANT OPTION 4a OPTION 4b OPTION 4c OPTION 4d OPTION 4e - -------------------------------------------------------------------------------- 55 50 $3.97 $4.35 $4.56 $3.97 $4.31 55 55 4.16 4.54 4.76 4.15 4.42 55 60 4.27 4.73 5.00 4.26 4.48 60 55 4.27 4.73 5.00 4.26 4.70 60 60 4.51 4.99 5.27 4.50 4.84 60 65 4.66 5.25 5.61 4.65 4.93 65 60 4.66 5.25 5.61 4.65 5.22 65 65 4.99 5.61 5.99 4.98 5.42 65 70 5.19 5.97 6.44 5.17 5.54 70 65 5.19 5.97 6.44 5.17 5.93 70 70 5.67 6.49 6.99 5.62 6.23 70 75 5.95 6.96 7.61 5.87 6.40 75 70 5.95 6.96 7.61 5.87 6.95 75 75 6.64 7.73 8.43 6.48 7.40 75 80 7.04 8.39 9.29 6.79 7.64 - -------------------------------------------------------------------------------- Rates are based on mortality from 1983 Table a. The rates do not differ by sex. 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. 38 OPTION 4 LIFE INCOME FOR TWO PAYEES 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% - -------------------------------------------------------------------------------- ADJUSTED AGES - --------------------- SECOND ANNUITANT ANNUITANT OPTION 4a OPTION 4b OPTION 4c OPTION 4d OPTION 4e - -------------------------------------------------------------------------------- 55 50 $4.88 $5.26 $5.48 $4.88 $5.23 55 55 5.04 5.44 5.66 5.04 5.32 55 60 5.15 5.63 5.91 5.14 5.38 60 55 5.15 5.63 5.91 5.14 5.59 60 60 5.37 5.87 6.16 5.37 5.72 60 65 5.52 6.14 6.51 5.51 5.80 65 60 5.52 6.14 6.51 5.51 6.10 65 65 5.83 6.49 6.87 5.82 6.29 65 70 6.04 6.84 7.34 6.00 6.41 70 65 6.04 6.84 7.34 6.00 6.81 70 70 6.49 7.35 7.87 6.44 7.08 70 75 6.77 7.84 8.51 6.68 7.25 75 70 6.77 7.84 8.51 6.68 7.81 75 75 7.45 8.60 9.33 7.27 8.25 75 80 7.86 9.28 10.20 7.57 8.49 - -------------------------------------------------------------------------------- Rates are based on mortality from 1983 Table a. The rates do not differ by sex. 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. 39 [Logo] AETNA LIFE INSURANCE AND ANNUITY COMPANY HOME OFFICE: 151 Farmington Avenue Hartford, Connecticut 06156 (800) 525-4225 Group Combination Annuity Contract Nonparticipating ALL PAYMENTS AND VALUES PROVIDED BY THE GROUP ANNUITY 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 MARKET 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. EX-4.3 4 EXHIBIT 4.3 ------------------------------------------------------------ [LOGO] AETNA LIFE INSURANCE AND ANNUITY COMPANY HOME OFFICE: 151 Farmington Avenue Hartford, Connecticut 06156 (800) 525-4225 Aetna Life Insurance and Annuity Company, herein called Aetna, agrees to pay the benefits stated in this Contract. SPECIFICATIONS - -------------------------------------------------------------------------------- Plan - -------------------------------------------------------------------------------- Type of Plan - -------------------------------------------------------------------------------- Contract Holder - -------------------------------------------------------------------------------- Contract No. - -------------------------------------------------------------------------------- Effective Date - -------------------------------------------------------------------------------- This Contract is Delivered in and is Subject to the Laws of that Jurisdiction THE VARIABLE FEATURES OF THE GROUP 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/ Dan Kearney /S/ Lucille M. Nickerson President Secretary Group Variable, Fixed, or Combination Annuity Contract Nonparticipating 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 MARKET 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. FORM NO. G-CDA-IB (AORP) SPECIFICATIONS - -------------------------------------------------------------------------------- GUARANTEED There is a guaranteed interest rate for Purchse Payment(s) INTEREST RATE held in the Fixed Account (See 3.04) and the GA Account (See 3.03(d)) - -------------------------------------------------------------------------------- DEDUCTIONS FROM There will be deductions for mortality and expense risks and THE SEPARATE administrative fees. (See 3.07 and 4.06.) ACCOUNT - -------------------------------------------------------------------------------- DEDUCTIONS FROM Purchase Payment(s) are subject to a deduction for premium PURCHASE taxes, if any. (See 3.01.) PAYMENT(S) 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 Annuitant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.02 Annuity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.03 Fixed Account. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.04 Fixed Annuity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.05 Fund(s). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.06 General Account. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.07 Guaranteed Accumulation Account (GA Account) . . . . . . . . . . . . . 5 1.08 Matured Term Value . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.09 Maturity Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.10 Nonunitized Separate Account . . . . . . . . . . . . . . . . . . . . . 5 1.11 Participant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.12 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.13 Purchase Payment(s). . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.14 Separate Account . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.15 Valuation Period (Period). . . . . . . . . . . . . . . . . . . . . . . 6 1.16 Variable Annuity . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 II. GENERAL PR0VISIONS - --------------------------------------------------------------------------- 2.01 Change of Contract . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.02 Change of Fund(s). . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.03 Nonparticipating Contract. . . . . . . . . . . . . . . . . . . . . . . 7 2.04 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.05 State Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.06 Control of Contract. . . . . . . . . . . . . . . . . . . . . . . . . . 7 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. . . . . . . . . . . . . . . . . . . . . . . . 8 3 III. PURCHASE PAYMENT, CURRENT VALUE, AND SURRENDER PROVISIONS - -------------------------------------------------------------------------------- 3.01 Net Purchase Payment(s). . . . . . . . . . . . . . . . . . . . . . . . 8 3.02 Individual Account(s). . . . . . . . . . . . . . . . . . . . . . . . . 8 3.03 Guaranteed Accumulation Account (GA Account) . . . . . . . . . . . . . 9 3.04 Guaranteed Interest Rate -- Fixed Account. . . . . . . . . . . . . . . 13 3.05 Experience Credits . . . . . . . . . . . . . . . . . . . . . . . . . . 13 3.06 Fund Record Units -- Separate Account. . . . . . . . . . . . . . . . . 13 3.07 Net Return Factor(s) -- Separate Account . . . . . . . . . . . . . . . 13 3.08 Fund Record Unit Value -- Separate Account . . . . . . . . . . . . . . 14 3.09 Current Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 3.10 Transfer of Current Value from the Funds or GA Account . . . . . . . . 14 3.11 Transfer of Current Value from the Fixed Account . . . . . . . . . . . 15 3.12 Notice to the Contract Holder. . . . . . . . . . . . . . . . . . . . . 15 3.13 Distribution Options . . . . . . . . . . . . . . . . . . . . . . . . . 15 3.14 Sum Payable at Death (Before Annuity Payments Start) . . . . . . . . . 18 3.15 Surrender Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 3.16 Timing of Distributions. . . . . . . . . . . . . . . . . . . . . . . . 20 3.17 Payment of Surrender Value . . . . . . . . . . . . . . . . . . . . . . 20 3.18 Reinstatement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 IV. ANNUITY PROVISIONS - --------------------------------------------------------------------------- PAGE 4.01 Choices to be Made . . . . . . . . . . . . . . . . . . . . . . . . . . 21 4.02 Annuity Payments to Annuitant. . . . . . . . . . . . . . . . . . . . . 22 4.03 Death of Annuitant . . . . . . . . . . . . . . . . . . . . . . . . . . 22 4.04 Fund(s) Annuity Units -- Separate Account. . . . . . . . . . . . . . . 22 4.05 Fund(s) Annuity Unit Value -- Separate Account . . . . . . . . . . . . 22 4.06 Annuity Net Return Factor(s) -- Separate Account . . . . . . . . . . . 23 4.07 Annuity Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 4 I. GENERAL DEFINITIONS - ------------------------------------------------------------------------------- 1.01 ANNUITANT: A person on whose life an Annuity has been effected under this Contract. 1.02 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). 1.03 FIXED ACCOUNT: An accumulation option with a guaranteed minimum interest rate. Aetna may credit a higher rate which is not guaranteed. 1.04 FIXED ANNUITY: An annuity with payments that do not vary in amount. 1.05 FUND(S): The open-end registered management investment companies (mutual funds) made available by Aetna under this Contract. 1.06 GENERAL ACCOUNT: The Account holding the assets of Aetna, other than those assets held in the Separate Account or the Nonunitized Separate Account. 1.07 GUARANTEED ACCUMULATION An accumulation option which guarantees ACCOUNT (GA ACCOUNT): A stipulated rate of interest for a specified period of time. 1.08 MATURED TERM VALUE: The amount payable on a GA Account Term's Maturity Date. 1.09 MATURITY DATE: The last day of a GA Account Term. 1.10 NONUNITIZED SEPARATE An Account set up by Aetna under Title 38a, ACCOUNT Section 38a-433, 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. 1.11 PARTICIPANT: A person who participates in the Plan named on the cover of this Contract. 1.12 PLAN: The Plan named on the Contract cover. The Plan is not a part of the Contract. Aetna is not bound by the terms of the Plan. 1.13 PURCHASE PAYMENT(S): Payments made to Aetna. 1.14 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 are 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. 5 1.15 VALUATION PERIOD (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, or such other day that one or more of the Funds determines its net asset value. 1.16 VARIABLE ANNUITY: An Annuity with payments that vary with the net investment results of a Separate Account. II. GENERAL PROVISIONS - -------------------------------------------------------------------------------- 2.01 CHANGE OF CONTRACT: Except as provided below, only an authorized officer of Aetna may change the terms of this Contract by notifying the Contract Holder, in writing at least 30 days before the effective date of any 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 3.03 (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 Payments (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 (2) 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). 6 2.02 CHANGE OF FUND(S) Changes must be: (Cont'd): (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 The Contract Holder, Participants or CONTRACT: 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. 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 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. 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 Plan, however, may allow Participants to select the investment option(s) 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. (a) Nontransferable and Nonassignable: This Contract and any Individual Accounts are nontransferable and nonassignable, except to Aetna pursuant of a "qualified domestic relations order" as set forth under the Internal Revenue Code. (b) Distributions: With respect to any distribution made from an Employee or Employer Account, the Contract Holder must certify in writing 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 the terms of the Plan as interpreted by the Contract Holder (see 1.12). (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. 7 2.06 CONTROL OF CONTRACT It is the Contract Holder's responsibility to (Cont'd) maintain records of the Participant's vesting percentages. Aetna will not maintain nor keep such records. 2.07 DESIGNATION OF Each Participant shall name the beneficiary of BENEFICIARY the Employer and Employee Account. Aetna will pay any portion of the Individual Account(s) Current Value to the beneficiary as directed by the Contract Holder. 2.08 MISSTATEMENTS AND If Aetna finds the age of any payee to be ADJUSTMENTS 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. 2.11 INDIVIDUAL CERTIFICATES: Aetna shall issue certificates to the Certificate 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. III. PURCHASE PAYMENT, CURRENT VALUE, AND SURRENDER PROVISIONS - -------------------------------------------------------------------------------- 3.01 NET PURCHASE PAYMENT: 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 Payments 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(S): This Contract is issued to the Contract Holder. However, Participant's Individual Accounts are explained below: Aetna may 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 8 3.02 INDIVIDUAL ACCOUNT(S): (b) Employee Account: This Individual Account (Con't) 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 GUARANTEED ACCUMULATION The GA Account guarantees stipulated rates of ACCOUNT (GA ACCOUNT): interest for stated periods of time (see (a), (b), (c) and (d) 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 the 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. (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 or, if allowed by the Plan, the Participant 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 9 3.03 GUARANTEED ACCUMULATION credited daily at a rate that will produce the ACCOUNT (GA ACCOUNT): guaranteed annual effective yield over the (CONT'D) period of a year. No annual rate will ever be less than 3%. 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 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. Amounts may be transferred at any time subject to Contract specifications (see 3.10 or 3.11 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 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 -- 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 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 10 3.03 GUARANTEED ACCUMULATION Value will be reinvested in a Term of the same ACCOUNT (GA ACCOUNT) duration. In the event that a Term of the same (CONT'D): 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, the Contract Holder or Participant, as applicable, will be mailed a confirmation statement. This statement will state the Term and Guaranteed Rate(s) 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 or Participant, as applicable, 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 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 3.03 GUARANTEED ACCUMULATION The market value adjusted amount will be equal ACCOUNT (GA ACCOUNT) to the amount withdrawn multiplied by the (CONT'D): following ratio: x --- 365 (1 + i) ---------------------- x --- 365 (1 + j) Where: i is the Deposit Period 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 the following quarter. - 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. 12 3.03 GUARANTEED ACCUMULATION After the six month period, the surrender or ACCOUNT (GA ACCOUNT) transfer will be the aggregate MVA amount (CONT'D): (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 the MVA 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. (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 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. 3.04 GUARANTEED INTEREST On any Purchase Payment(s) made to the Fixed RATE -- FIXED ACCOUNT: Account, Aetna will add interest daily at any annual rate no less than 3%. Aetna may add interest daily at any higher rate determined by its Board of Directors. 3.05 EXPERIENCE CREDITS: Aetna may apply Experience Credits under this Contract. Any such Credits will be computed as decided by Aetna. 3.06 FUND RECORD UNITS -- The portion of the Net Purchase Payment(s) SEPARATE ACCOUNT: applied to the Separate Account will determine the number of each Fund's Record Units. This number is equal to the Net Purchase Payment applied to the Fund divided by the Fund Record Unit Value (see 3.08) for the Valuation Period in which the Purchase Payment is received in good order. 3.07 NET RETURN FACTOR(S) -- The Net Return Factor(s) are used to compute SEPARATE ACCOUNT: all Separate Account record units for any Fund. The Net Return Factor(s) for each Fund is equal to 1.0000000 plus the Net Return Rate. 13 3.07 NET RETURN FACTOR(S) -- The net return rate is equal to: SEPARATE ACCOUNT (CONT'D): (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 at the start of the Valuation Period; minus (e) A daily actuarial charge at an annual rate effective rate of 1.40% for Annuity mortality and expense risks and asset based sales charge and profit and a daily administrative charge which will not exceed 0.25% on an annual effective 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. 3.08 FUND RECORD UNIT VALUE -- Each Fund's Record Unit value is computed by SEPARATE ACCOUNT: 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. 3.09 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 (d) Any amount due to Experience Credits. Current Value does not include amounts used to elect an Annuity. 3.10 TRANSFER OF CURRENT VALUE Before an Annuity Option is elected, all or any FROM THE FUNDS OR GA Current Value may be transferred from any Fund ACCOUNT: or the GA Account to: (a) Any other Fund; (b) The Fixed Account; or (c) The GA Account's current Deposit Period. 14 3.10 TRANSFER OF CURRENT VALUE Amounts in a specific GA Account Term cannot be FROM THE FUNDS OR GA transferred to the Deposit Period of another ACCOUNT (CONT'D): 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) or the Fixed Account 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 3.03 (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. 3.11 TRANSFER OF CURRENT VALUE Before an Annuity Option is elected, up to 20% FROM THE FIXED ACCOUNT: of the Current Value held in the Fixed Account may be transferred to any Fund(s) or the GA Account's current Deposit Period(s). Such transfer will be: (a) Without charge; and (b) Allowed once per calendar year. The Current Value of the Fixed Account, as used above, is the value when the request is received in good order at the Home Office of Aetna. 3.12 NOTICE TO THE CONTRACT Aetna will notify the Contract Holder or HOLDER: Participant, as applicable, 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; and (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. 3.13 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: 15 3.13 DISTRIBUTION OPTIONS: Payments will commence no earlier than the (CONT'D) year in which Participant attains age 70 1/2 and will be calculated on the full Current Value of the Individual Account(s). (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 Internal Revenue Code of 1986, (Code), as it may be amended from time to time. The annual distribution will be determined by dividing the Individual Account(s) Current Value, 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, payments will be calculated based on the survivor's life expectancy. The 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 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. The Contract Holder must also certify in writing 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. 16 3.13 DISTRIBUTION OPTIONS (6) Reservation of Rights: Aetna reserves (CONT'D): 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 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 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 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, 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). 17 3.13 DISTRIBUTION OPTIONS Payments upon the Participant's (CONT'D): death will continue to be calculated in the same 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 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. (3) Date of Distribution: The Certificate 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. (4) Election and Revocation: SWO may be elected by the Contract Holder by submitting a completed and signed election form to Aetna's Home Office. The Contract Holder must certify in writing 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. (5) 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. 3.14 SUM PAYABLE AT DEATH Aetna will pay any portion of the Individual (BEFORE ANNUITY PAYMENTS Account(s) Current Value to the beneficiary and START): in the manner directed in writing by the Contract Holder when: (a) The Participant dies before Annuity payments start; and 18 3.14 SUM PAYABLE AT DEATH (b) The notice of death is received in good (BEFORE ANNUITY PAYMENTS order by Aetna. START)(CONT'D): For each Individual Account, the death benefit is guaranteed to be the greater of: (a) The Current Value of the Individual Account plus aggregate positive MVA, as applicable, on the date the notice of death and the request for payment are received in good order at Aetna's Home Office; or (b) The total of Net Purchase Payment(s) made to each Individual Account minus the total of all partial surrenders or annuitizations made from each Account. This guaranteed death benefit is available only to beneficiaries who request either a lump sum payment or an Annuity Option within the first six months after the date of the Participant's death. If the payee of the death proceeds is the Participant's surviving spouse (as the Participant's designated beneficiary), 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 beneficiary 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). In no event may any payments to the 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. 3.15 SURRENDER VALUE: The amount payable by Aetna upon the surrender of any portion on an Individual Account will be the value of the Individual Account at the end of the Valuation Period in which the surrender request is received at its Home Office. Partial surrenders of an Individual Account's Fixed Account value may not exceed 20% of the Fixed Account Value during any calendar year. Any portion of a full surrender of an Individual Account which is in the Fixed Account will be paid in five annual installments in accordance with Section 3.17. 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. Aetna may defer payment of the surrender value until appropriate Contract Holder direction is received. 19 3.16 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 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 beneficiary). If the Contract Holder does not request commencement 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 adverse tax consequences that may result. 3.17 PAYMENT OF SURRENDER Under certain emergency conditions, Aetna may defer payments: (a) For a period of up to 6 months (unless not allowed by state law); and (b) As provided by federal law. Any surrenders requested from an Individual Account's Fixed Account value may not exceed 20% of the Individual Account's Fixed Account Current Value as of the date the withdrawal request is received in good order at Aetna's Home Office during any calendar year. The surrender value will be reduced by any Fixed Account surrender(s), transfer(s) or annuitizations previously made during the calendar year. In the even of Individual Account termination, Aetna will pay any Fixed Account surrender value from the Individual Account with interest, in five annual payments of: - One-fifth of the Fixed Account surrender value minus any Fixed Account surrender(s), transfer(s) or annuitizations made during the calendar year; - One-fourth of the Fixed Account surrender value; - One-third of the Fixed Account surrender value; and - One-half of the Fixed Account surrender value; and - The remaining balance of the fixed Account surrender value as the fifth and final payment. Once Aetna receives notification of an Individual Account termination, no further surrender(s) or transfer(s) will be permitted from the Fixed Account. 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 3%. 20 3.18 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 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 amount 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. Reinstatement is permitted only once. 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 retires, whichever occurs later, or such later date as may be allowed under federal law or regulations (see 3.16). For distributions taken in a lump sum, see Surrender Value (3.15 and 3.17). 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 3.0%. 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. 21 4.02 ANNUITY PAYMENTS TO In no event may any payments to the Annuitant ANNUITANT: under any Annuity Option extend beyond: (a) The life of the Annuitant; (b) The lives of the Annuitant and the 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 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 once sum to the beneficiary as directed in writing by the Contract Holder; or upon election by the Annuitant's beneficiary, any remaining payments will continue to the beneficiary. If no beneficiary exists, the present value of any remaining guaranteed payments will be paid in one lump sum to the Contract Holder. However, if a 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 beneficiary. The interest rate used to determine the first payment will be used to calculate the present value. 4.04. FUND(S) ANNUITY UNITS -- The number of Fund(s) Annuity Units is based on SEPARATE ACCOUNT: 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 For any Valuation Period, a Fund(s) Annuity VALUE -- SEPARATE Unit Value is equal to: ACCOUNT: (a) The Value for the previous Period; multiplied by (b) The Annuity Net Return Factor(s) for the Period; multiplied by (c) A factor to reflect the Assumed Annual Net Return Rate. 22 4.05 FUND(S) ANNUITY UNIT The factor for 3.5% per year is .9999058; for VALUE -- SEPARATE ACCOUNT 5% per year it is: .9998663. (CONT'D): The dollar value of a 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 NET RETURN The Annuity Net Return Factor(s) are used to FACTOR(S) -- SEPARATE compute all Separate Account Annuity and ACCOUNT: payments for any Fund. The Annuity Net Return Factor(s) for each Fund is equal to 1.0000000 plus the Net Return Rate. The Net Return Rate is equal to: (1) The value of the shares of the Fund held by the Separate Account at the end of a Valuation Period; minus (2) The value of the shares of the Fund held by the Separate Account at the start of the Valuation Period; plus or minus (3) Taxes (or reserves for taxes) on the Separate Account (if any); divided by (4) The total value of the Fund(s) Record Units and Fund(s) Annuity Units of the Separate Account at the start of the Valuation Period; minus (5) 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. 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. 4.07 ANNUITY OPTIONS: Option 1 -- Payment of Interest on Sum Left with Aetna -- This Option may be used only by the 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 beneficiary, may later tell Aetna to: 23 4.07 ANNUITY OPTIONS (a) Pay a portion or all of the sum held by (CONT'D): Aetna; or (b) Apply a portion or all of the sum held by Aetna to any Annuity Option below. If the beneficiary is the Participant's surviving spouse, payment may be deferred to a date not later than when the Participant would have attained age 70 1/2. If the beneficiary is not a spouse, the Contract Holder must tell Aetna to pay the full sum within 5 years after the Participant's death. 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. 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 3.0%
- ------------------------------------------------------------------------------------------------------- GUARANTEED MONTHLY QUARTERLY SEMI-ANNUAL ANNUAL YEARS RATE PAYMENT PAYMENT PAYMENT PAYMENT - ------------------------------------------------------------------------------------------------------- 3 3.00% $28.99 $86.76 $172.88 $343.23 4 3.00% 22.06 66.02 131.56 261.19 5 3.00% 17.91 53.59 106.78 211.99 6 3.00% 15.14 45.30 90.27 179.22 7 3.00% 13.16 39.39 78.49 155.83 8 3.00% 11.68 34.96 69.66 138.31 9 3.00% 10.53 31.52 62.81 124.69 10 3.00% 9.61 28.77 57.33 113.82 11 3.00% 8.86 26.52 52.85 104.93 12 3.00% 8.24 24.65 49.13 97.54 13 3.00% 7.71 23.08 45.98 91.29 14 3.00% 7.26 21.73 43.29 85.95 15 3.00% 6.87 20.56 40.96 81.33 16 3.00% 6.53 19.54 38.93 77.29 17 3.00% 6.23 18.64 37.14 73.74 18 3.00% 5.96 17.84 35.56 70.59 19 3.00% 5.73 17.13 34.14 67.78 20 3.00% 5.51 16.50 32.87 65.26 21 3.00% 5.32 15.92 31.72 62.98 22 3.00% 5.15 15.40 30.68 60.92 23 3.00% 4.99 14.92 29.74 59.04 24 3.00% 4.84 14.49 28.88 57.33 25 3.00% 4.71 14.09 28.08 55.76 26 3.00% 4.59 13.73 27.36 54.31 27 3.00% 4.47 13.39 26.68 52.97 28 3.00% 4.37 13.08 26.06 51.74 29 3.00% 4.27 12.79 25.49 50.60 30 3.00% 4.18 12.52 24.95 49.53 - -------------------------------------------------------------------------------------------------------
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 3.0% PAYMENTS GUARANTEED FOR A STATED PERIOD OF MONTHS
- ------------------------------------------------------------------------------------------------------- AGE OF ANNUITANT NONE 60 120 180 240 - ------------------------------------------------------------------------------------------------------- 50 $4.05 $4.05 $4.03 $3.99 $3.93 51 4.12 4.11 4.09 4.05 3.99 52 4.19 4.19 4.16 4.11 4.04 53 4.27 4.26 4.23 4.18 4.10 54 4.35 4.34 4.31 4.25 4.16 55 4.44 4.42 4.39 4.32 4.22 56 4.53 4.51 4.47 4.40 4.29 57 4.62 4.61 4.56 4.48 4.35 58 4.72 4.71 4.65 4.56 4.42 59 4.83 4.81 4.75 4.64 4.49 60 4.95 4.93 4.86 4.73 4.55 61 5.07 5.05 4.97 4.83 4.62 62 5.20 5.17 5.08 4.92 4.69 63 5.34 5.31 5.20 5.02 4.76 64 5.49 5.45 5.33 5.12 4.83 65 5.65 5.61 5.47 5.22 4.89 66 5.82 5.77 5.61 5.33 4.96 67 6.01 5.94 5.75 5.44 5.02 68 6.20 6.13 5.91 5.54 5.08 69 6.41 6.33 6.07 5.65 5.14 70 6.64 6.54 6.23 5.76 5.19 71 6.88 6.76 6.41 5.86 5.24 72 7.14 7.00 6.59 5.97 5.28 73 7.43 7.26 6.77 6.06 5.32 74 7.73 7.53 6.96 6.16 5.35 75 8.06 7.82 7.14 6.25 5.38 - -------------------------------------------------------------------------------------------------------
Rates are based on mortality from 1983 Table a. The rates do not differ by sex. 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 4 LIFE INCOME FOR TWO PAYEES 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 3.0%
- ---------------------------------------------------------------------------------------------------------------------------- AGES OF - ---------------------------- SECOND ANNUITANT ANNUITANT OPTION 4a OPTION 4b OPTION 4c OPTION 4d OPTION 4e - ---------------------------------------------------------------------------------------------------------------------------- 55 50 $3.69 $4.05 $4.27 $3.69 $4.03 55 55 3.88 4.25 4.47 3.87 4.14 55 60 4.06 4.47 4.71 4.06 4.20 60 55 3.99 4.44 4.71 3.98 4.42 60 60 4.24 4.71 4.99 4.23 4.57 60 65 4.49 5.01 5.32 4.48 4.64 65 60 4.38 4.97 5.32 4.38 4.93 65 65 4.72 5.33 5.70 4.71 5.14 65 70 5.07 5.75 6.17 5.05 5.26 70 65 4.93 5.68 6.15 4.91 5.66 70 70 5.40 6.21 6.70 5.36 5.96 70 75 5.89 6.82 7.40 5.81 6.12 75 70 5.69 6.68 7.32 5.62 6.67 75 75 6.37 7.45 8.15 6.23 7.12 75 80 7.07 8.34 9.16 6.78 7.36 - ----------------------------------------------------------------------------------------------------------------------------
Rates are based on mortality from 1983 Table a. The rates do not differ by sex. 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 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 Variable Annuity with Assumed Net Return Rate of 3.5%
- ------------------------------------------------------------------------------------------------------ GUARANTEED MONTHLY QUARTERLY SEMI-ANNUAL ANNUAL YEARS RATE PAYMENT PAYMENT PAYMENT PAYMENT - ------------------------------------------------------------------------------------------------------ 3 3.50% $29.19 $87.33 $173.91 $344.86 4 3.50% 22.27 66.61 132.65 263.04 5 3.50% 18.12 54.19 107.92 213.99 6 3.50% 15.35 45.92 91.44 181.32 7 3.50% 13.38 40.01 79.69 158.01 8 3.50% 11.90 35.59 70.88 140.56 9 3.50% 10.75 32.16 64.05 127.00 10 3.50% 9.83 29.42 58.59 116.18 11 3.50% 9.09 27.18 54.13 107.34 12 3.50% 8.46 25.32 50.42 99.98 13 3.50% 7.94 23.75 47.29 93.78 14 3.50% 7.49 22.40 44.62 88.47 15 3.50% 7.10 21.24 42.31 83.89 16 3.50% 6.76 20.23 40.29 79.89 17 3.50% 6.47 19.34 38.51 76.37 18 3.50% 6.20 18.55 36.94 73.25 19 3.50% 5.97 17.85 35.54 70.47 20 3.50% 5.75 17.22 34.28 67.98 21 3.50% 5.56 16.65 33.15 65.74 22 3.50% 5.39 16.13 32.13 63.70 23 3.50% 5.24 15.66 31.19 61.85 24 3.50% 5.09 15.24 30.34 60.17 25 3.50% 4.96 14.85 29.56 58.62 26 3.50% 4.84 14.49 28.85 57.20 27 3.50% 4.73 14.15 28.19 55.90 28 3.50% 4.63 13.85 27.58 54.69 29 3.50% 4.53 13.57 27.02 53.57 30 3.50% 4.45 13.30 26.49 52.53 - ------------------------------------------------------------------------------------------------------
28 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 Variable Annuity with Assumed Net Return Rate of 5.0%
- ------------------------------------------------------------------------------------------------------ GUARANTEED MONTHLY QUARTERLY SEMI-ANNUAL ANNUAL YEARS RATE PAYMENT PAYMENT PAYMENT PAYMENT - ------------------------------------------------------------------------------------------------------ 3 5.00% $29.80 $89.04 $176.99 $349.72 4 5.00% 22.89 68.38 135.93 268.58 5 5.00% 18.74 56.00 111.33 219.98 6 5.00% 15.99 47.77 94.96 187.64 7 5.00% 14.02 41.90 83.30 164.59 8 5.00% 12.56 37.52 74.58 147.35 9 5.00% 11.42 34.11 67.81 133.99 10 5.00% 10.51 31.40 62.42 123.34 11 5.00% 9.77 29.19 58.03 114.66 12 5.00% 9.16 27.36 54.38 107.45 13 5.00% 8.64 25.81 51.31 101.39 14 5.00% 8.20 24.50 48.69 96.21 15 5.00% 7.82 23.36 46.44 91.75 16 5.00% 7.49 22.37 44.47 87.88 17 5.00% 7.20 21.51 42.75 84.48 18 5.00% 6.94 20.74 41.23 81.47 19 5.00% 6.71 20.06 39.88 78.80 20 5.00% 6.51 19.46 38.68 76.42 21 5.00% 6.33 18.91 37.59 74.28 22 5.00% 6.17 18.42 36.62 72.35 23 5.00% 6.02 17.98 35.73 70.61 24 5.00% 5.88 17.57 34.93 69.02 25 5.00% 5.76 17.20 34.20 67.57 26 5.00% 5.65 16.87 33.53 66.25 27 5.00% 5.54 16.56 32.92 65.04 28 5.00% 5.45 16.28 32.35 63.93 29 5.00% 5.36 16.01 31.83 62.90 30 5.00% 5.28 15.77 31.35 61.95 - ------------------------------------------------------------------------------------------------------
29 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 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 are based on mortality from 1983 Table a. The rates do not differ by sex. 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. 30 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 6.93 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 are based on mortality from 1983 Table a. The rates do not differ by sex. 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. 31 OPTION 4 LIFE INCOME FOR TWO PAYEES 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 3.5%
- ---------------------------------------------------------------------------------------------------------------------------- AGES OF - ---------------------------- SECOND ANNUITANT ANNUITANT OPTION 4a OPTION 4b OPTION 4c OPTION 4d OPTION 4e - ---------------------------------------------------------------------------------------------------------------------------- 55 50 $3.97 $4.35 $4.56 $3.97 $4.31 55 55 4.16 4.54 4.76 4.15 4.42 55 60 4.27 4.73 5.00 4.26 4.48 60 55 4.27 4.73 5.00 4.26 4.70 60 60 4.51 4.99 5.27 4.50 4.84 60 65 4.66 5.25 5.61 4.65 4.93 65 60 4.66 5.25 5.61 4.65 5.22 65 65 4.99 5.61 5.99 4.98 5.42 65 70 5.19 5.97 6.44 5.17 5.54 70 65 5.19 5.97 6.44 5.17 5.93 70 70 5.67 6.49 6.99 5.62 6.23 70 75 5.95 6.96 7.61 5.87 6.40 75 70 5.95 6.96 7.61 5.87 6.95 75 75 6.64 7.73 8.43 6.48 7.40 75 80 7.04 8.39 9.29 6.79 7.64 - ----------------------------------------------------------------------------------------------------------------------------
Rates are based on mortality from 1983 Table a. The rates do not differ by sex. 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. 32 OPTION 4 LIFE INCOME FOR TWO PAYEES 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%
- ---------------------------------------------------------------------------------------------------------------------------- AGES OF - ---------------------------- SECOND ANNUITANT ANNUITANT OPTION 4a OPTION 4b OPTION 4c OPTION 4d OPTION 4e - ---------------------------------------------------------------------------------------------------------------------------- 55 50 $4.88 $5.26 $5.48 $4.88 $5.23 55 55 5.04 5.44 5.66 5.04 5.32 55 60 5.15 5.63 5.91 5.14 5.38 60 55 5.15 5.63 5.91 5.14 5.59 60 60 5.37 5.87 6.16 5.37 5.72 60 65 5.52 6.14 6.51 5.51 5.80 65 60 5.52 6.14 6.51 5.51 6.10 65 65 5.83 6.49 6.87 5.82 6.29 65 70 6.04 6.84 7.34 6.00 6.41 70 65 6.04 6.84 7.34 6.00 6.81 70 70 6.49 7.35 7.87 6.44 7.08 70 75 6.77 7.84 8.51 6.68 7.25 75 70 6.77 7.84 8.51 6.68 7.81 75 75 7.45 8.60 9.33 7.27 8.25 75 80 7.86 9.28 10.20 7.57 8.49 - ----------------------------------------------------------------------------------------------------------------------------
Rates are based on mortality from 1983 Table a. The rates do not differ by sex. 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. 33 AETNA LIFE INSURANCE AND ANNUITY COMPANY ENDORSEMENT The Contract and the Certificate are hereby endorsed as follows: Under Section 3.14 entitled DISTRIBUTION OPTIONS, delete the first sentence under subparagraph (b) (1) (a) and replace with the following: Specified Amount: 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. Under Section 3.14 entitled DISTRIBUTION OPTIONS, delete the first sentence under subparagraph (b)(1)(b) and replace with the following: Specified Period: Payments which are made over a period of time which must be at least 5 years, unless otherwise required by the Code minimum distribution rules. Under Section 3.14 entitled DISTRIBUTION OPTIONS, add the following as subparagraph (b) (1) (c): Specified Percentage: Payments of a designated percentage which cannot be greater than 20% of the amount being designated for SWO. The 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. Endorsed and made a part of the Contract and the Certificate on the date approved by the State Insurance Department. /s/ Dan Kearney --------------- President Aetna Life Insurance and Annuity Company EAORP-95 (SWO) 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 ot 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 dicretion, Aetna may allow additional amoutns 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 Allaction 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 cancelled 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 Vet 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 fo 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 groth and income fund. The remianing 50% fof 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 Allcation Period for that series begins. GUARANTEE: Aetna guarantees that on a series' of 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 ammeded 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 EGETICR 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 EVP-IC [LOGO] - ------------------------------------------------------------------------------- AETNA LIFE INSURANCE AND ANNUITY COMPANY HOME OFFICE: 151 Farmington Avenue Hartford, Connecticut 06158 (800) 525-4225 - ------------------------------------------------------------------------------- Group Variable, Fixed, or Combination Annuity Contract Nonparticipating 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 MARKET 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. EX-4.4 5 EXHIBIT 4.4 [LOGO] - -------------------------------------------------------------------------------- AETNA LIFE INSURANCE AND ANNUITY COMPANY HOME OFFICE: 151 Farmington Avenue Hartford, Connecticut 06156 (800) 525-4225 Aetna Life Insurance and Annuity Company, herein called Aetna, agrees to pay the benefits stated in this Contract. SPECIFICATIONS - -------------------------------------------------------------------------------- Plan - -------------------------------------------------------------------------------- Type of Plan - -------------------------------------------------------------------------------- Contract Holder - -------------------------------------------------------------------------------- Contract No. - -------------------------------------------------------------------------------- Effective Date - -------------------------------------------------------------------------------- This Contract is Delivered in and is Subject to the Laws of that Jurisdiction THE VARIABLE FEATURES OF THE GROUP CONTRACT ARE DESCRIBED IN PARTS III AND V. 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/ Dan Kearney /s/ Patrice Maloney-Knauff President Secretary Group Combination Annuity Contract Nonparticipating ALL PAYMENTS AND VALUES PROVIDED BY THE GROUP ANNUITY 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 MARKET 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. FORM NO. G-CDA-95 (ORP) SPECIFICATIONS - -------------------------------------------------------------------------------- GUARANTEED There is a guaranteed interest rate for Contribution(s) held INTEREST RATE in the Fixed Plus Account and the GA Account. (See Contract Schedule I.) - -------------------------------------------------------------------------------- DEDUCTIONS FROM There will be deductions for mortality and expense risks and THE SEPARATE asset based sales charge and administrative fees. (See 3.05 ACCOUNT and 5.06.) - -------------------------------------------------------------------------------- DEDUCTION FROM Contribution(s) are subject to a deduction for premium CONTRIBUTION(S) taxes, if any. (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 CONTRACT SCHEDULE I ACCUMULATION PERIOD SEPARATE ACCOUNT - -------------------------------------------------------------------------------- SEPARATE ACCOUNT: Variable Annuity Account C CHARGES TO SEPARATE A daily charge is deducted from any portion of the ACCOUNT: Current Value allocated to the Separate Account. The daily charge is at an annual effective rate of 1.40% for Annuity mortality and expense risks, asset based sales charge and profit and a daily administrative charge which will not exceed 0.25% on an annual basis. FIXED PLUS ACCOUNT - -------------------------------------------------------------------------------- MINIMUM GUARANTEED 3% (effective annual rate of return). INTEREST RATE: Beginning on the tenth anniversary of the effective date of an Individual Account, Aetna will credit amounts with an interest rate that is 0.25% higher than the then-declared interest rate for Individual Accounts before the tenth anniversary. PARTIAL WITHDRAWAL: The 20% limit applicable to partial withdrawal from the Fixed Plus Account will be waived when the withdrawal is: (a) due to the Participant's death, (within six (6) months of the Participant's date of death), before Annuity payments begin. This partial withdrawal may only be exercised once; or (b) used to purchase Annuity benefits. GUARANTEED ACCUMULATION ACCOUNT (GA ACCOUNT) - -------------------------------------------------------------------------------- MINIMUM GUARANTEED 3% (effective annual rate of return). INTEREST RATE: i CONTRACT SCHEDULE I ACCUMULATION PERIOD (CONT'D) SEPARATE ACCOUNT, FIXED PLUS ACCOUNT AND GA ACCOUNT - -------------------------------------------------------------------------------- TRANSFERS: An unlimited number of Transfers may be made during the Accumulation Period. Aetna allows 12 free Transfers in any calendar year. Thereafter, Aetna reserves the right to charge $10 for each subsequent Transfer. SYSTEMATIC WITHDRAWAL The Specified Payment may not be greater than 20% of OPTION (SWO): the Individual Account's Current Value at the time of election. The Specified Period may not be less than five years. The Specified Percentage may not be greater than 20%. See Section 1. - DEFINITIONS for explanations. ii CONTRACT SCHEDULE II ANNUITY PERIOD SEPARATE ACCOUNT - -------------------------------------------------------------------------------- CHARGES TO SEPARATE A daily charge at an annual effective rate of 1.25% for ACCOUNT: Annuity mortality and expense risks. The administrative charge is established upon election of an Annuity option. This charge will not exceed 0.25%. VARIABLE ANNUITY ASSUMED If a Variable Annuity is chosen, an assumed annual net ANNUAL NET RETURN RATE: return rate of 5.0% may be elected. If 5.0% is not elected, Aetna will use an assumed annual net return rate of 3.5%. The assumed annual net return rate factor for 3.5% per year is 0.9999058. The assumed annual net return rate factor for 5.0% per year is 0.9998663. If the portion of a Variable Annuity payment for any Fund is not to decrease, the Annuity return factor under the Separate Account for that Fund must be: (a) 4.75% on an annual basis plus an annual return of up to 0.25% 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 (b) 6.25% on an annual basis plus an annual return of up to 0.25% to offset the administrative charge set at the time Annuity payments commence, if an assumed annual net return rate of 5% is chosen. ANNUITY OPTION: Under the option "Payments for a Stated Period of Time": For amounts invested in the GA Account or one or more of the Fund(s), the number of years must be at least five (5) and not more than thirty (30) and the Annuity may be a Fixed or Variable Annuity. For amounts invested in the Fixed Plus Account, the number of years must be at least five (5) and not more than thirty (30) and the Annuity must be a Fixed Annuity. FIXED ANNUITY - -------------------------------------------------------------------------------- MINIMUM GUARANTEED 3% (effective annual rate of return). INTEREST RATE: See Section 1. - DEFINITIONS for explanations. iii TABLE OF CONTENTS I. DEFINITIONS - -------------------------------------------------------------------------------- PAGE 1.01 Accumulation Period . . . . . . . . . . . . . . . . . . . . . . . . . . .6 1.02 Adjusted Current Value. . . . . . . . . . . . . . . . . . . . . . . . . .6 1.03 Annuitant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 1.04 Annuity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 1.05 Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 1.06 Code. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 1.07 Contract Holder . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 1.08 Contribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 1.09 Current Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 1.10 Deposit Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 1.11 Fixed Plus Account. . . . . . . . . . . . . . . . . . . . . . . . . . . .6 1.12 Fixed Plus Account Guaranteed Interest Rate . . . . . . . . . . . . . . .7 1.13 Fixed Annuity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 1.14 Fund(s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 1.15 General Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 1.16 Guaranteed Accumulation Account (GA Account). . . . . . . . . . . . . . .7 1.17 GA Account Guaranteed Interest Rate . . . . . . . . . . . . . . . . . . .7 1.18 Guaranteed Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 1.19 Individual Account. . . . . . . . . . . . . . . . . . . . . . . . . . . .8 1.20 Loan Account. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 1.21 Market Value Adjustment (MVA) . . . . . . . . . . . . . . . . . . . . . .8 1.22 Matured Term Value. . . . . . . . . . . . . . . . . . . . . . . . . . . .8 1.23 Matured Term Value Transfer . . . . . . . . . . . . . . . . . . . . . . .8 1.24 Maturity Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 1.25 Net Contribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 1.26 Nonunitized Separate Account. . . . . . . . . . . . . . . . . . . . . . .8 1.27 Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 1.28 Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 1.29 Reinvestment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 1.30 Separate Account. . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 3 PAGE 1.31 Transfer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 1.32 Valuation Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 1.33 Variable Annuity. . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 II. GENERAL PROVISIONS - -------------------------------------------------------------------------------- 2.01 Change of Contract. . . . . . . . . . . . . . . . . . . . . . . . . . . .9 2.02 Change of Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.03 Nonparticipating Contract . . . . . . . . . . . . . . . . . . . . . . . 11 2.04 Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.05 State Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.06 Control of Contract . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.07 Misstatements and Adjustments . . . . . . . . . . . . . . . . . . . . . 12 2.08 Incontestability. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2.09 Grace Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2.10 Individual Certificates . . . . . . . . . . . . . . . . . . . . . . . . 12 III. CONTRIBUTIONS, CURRENT VALUE, AND WITHDRAWAL PROVISIONS - -------------------------------------------------------------------------------- 3.01 Net Contribution(s) . . . . . . . . . . . . . . . . . . . . . . . . . . 12 3.02 Experience Credits. . . . . . . . . . . . . . . . . . . . . . . . . . . 12 3.03 Fund Record Units . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 3.04 Fund Record Unit Value. . . . . . . . . . . . . . . . . . . . . . . . . 13 3.05 Fund Net Return Factors . . . . . . . . . . . . . . . . . . . . . . . . 13 3.06 Market Value Adjustment . . . . . . . . . . . . . . . . . . . . . . . . 13 3.07 Transfer(s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 3.08 Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 3.09 Notice to the Participant . . . . . . . . . . . . . . . . . . . . . . . 18 3.10 Manner and Timing of Distributions. . . . . . . . . . . . . . . . . . . 19 3.11 Withdrawal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 3.12 Partial Withdrawal from the Fixed Plus Account. . . . . . . . . . . . . 20 3.13 Payment of Fixed Plus Account Full Withdrawal . . . . . . . . . . . . . 20 3.14 Alternative Payment of Fixed Plus Account Full Withdrawal . . . . . . . 20 4 PAGE 3.15 Payment of Minimum Current Value. . . . . . . . . . . . . . . . . . . . 21 3.16 Amount Payable at Death (Before Annuity Payments Start) . . . . . . . . 21 3.17 Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 IV. NON-ANNUITY DISTRIBUTION OPTIONS - -------------------------------------------------------------------------------- 4.01 Distribution Options. . . . . . . . . . . . . . . . . . . . . . . . . . 22 4.02 Estate Conservation Option. . . . . . . . . . . . . . . . . . . . . . . 22 4.03 Systematic Withdrawal Option. . . . . . . . . . . . . . . . . . . . . . 23 V. ANNUITY PROVISIONS - -------------------------------------------------------------------------------- 5.01 Choices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 5.02 Terms of Annuity Options. . . . . . . . . . . . . . . . . . . . . . . . 26 5.03 Death Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 5.04 Fund Annuity Units. . . . . . . . . . . . . . . . . . . . . . . . . . . 27 5.05 Fund Annuity Unit Value . . . . . . . . . . . . . . . . . . . . . . . . 28 5.06 Fund Annuity Net Return Factor. . . . . . . . . . . . . . . . . . . . . 28 5.07 Annuity Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 5 I. DEFINITIONS - -------------------------------------------------------------------------------- 1.01 ACCUMULATION PERIOD: The period during which Net Contribution(s) are applied to an Individual Account. 1.02 ADJUSTED CURRENT The Current Value (See 1.09) of an Individual VALUE Account (See 1.19) plus or minus any applicable aggregate GA Account Market Value Adjustment, if applicable (See 3.06). 1.03 ANNUITANT: If an Annuity provides lifetime benefits, the person whose life expectancy determines the amount and/or duration of Annuity benefit payments. 1.04 ANNUITY: Payment of an income under the Annuity Provisions of Section V: (a) For the life of one or two persons; (b) For a stated period; or (c) For some combination of (a) and (b). 1.05 BENEFICIARY: Each Participant shall name the beneficiary of the Employer and Employee Account. Aetna will pay any portion of the Individual Account(s) Current Value to the beneficiary in accordance with the provisions of Section 3.16. 1.06 CODE: The Internal Revenue Code of 1986, as amended. 1.07 CONTRACT HOLDER: The entity, named on the cover of this Contract, to which the Contract is issued. 1.08 CONTRIBUTION: A payment received at Aetna's Home Office and allocated to this Contract. 1.09 CURRENT VALUE: For an Individual Account (See 1.19), the Current Value is the total of: (a) The amount, if any, in the Fixed Plus Account, with interest earned to date; (b) The amount, if any, in the GA Account, with interest earned to date; and (c) The value of all Fund record units (See 3.04), if any, as of the most recent Valuation Period. 1.10 DEPOSIT PERIOD: A calendar month, a calendar quarter, or any other period of time specified by Aetna during which Net Contribution(s), Transfers and Reinvestments are accepted into the GA Account for one or more Guaranteed Terms. 1.11 FIXED PLUS ACCOUNT: An accumulation option with a guaranteed minimum interest rate. Aetna may credit a higher rate which is not guaranteed. The portion that may be withdrawn or transferred in a 12 month period is restricted (See 3.07, 3.12 and 3.13). 6 1.12 FIXED PLUS ACCOUNT Aetna will add interest daily at an annual rate no GUARANTEED INTEREST less than that shown on Contract Schedule I on any RATE: Net Contribution(s) to the Fixed Plus Account. Aetna may add interest daily at a higher rate determined by its Board of Directors. 1.13 FIXED ANNUITY: An Annuity with payments that do not vary in amount. 1.14 FUND(S): The open-end registered management investment companies (mutual funds) in which the Separate Account invests. 1.15 GENERAL ACCOUNT: The account holding the assets of Aetna, other than those assets held in Aetna's Separate Account(s) and Nonunitized Separate Account(s). 1.16 GUARANTEED ACCUMULATION An accumulation option where Aetna guarantees ACCOUNT (GA ACCOUNT): stipulated rate(s) of interest for a specified period of time. All assets of Aetna, including amounts in the Nonunitized Separate Account, are available to meet the guarantees for the GA Account. 1.17 GA ACCOUNT GUARANTEED Aetna will declare the interest rate(s) applicable INTEREST RATE: to a specific Guaranteed Term at the start of the Deposit Period for that Guaranteed Term. The rate(s) are guaranteed by Aetna for that Deposit Period and the ensuing Guaranteed Term. The Guaranteed Interest Rates are annual effective yields. That is, interest is credited daily at a rate that will produce the Guaranteed Interest Rate over the period of a year. No Guaranteed Interest Rate will ever be less than the Minimum Guaranteed Interest Rate shown on Contract Schedule I. For Guaranteed Terms of one year or less, one Guaranteed Interest Rate is credited for the full Guaranteed Term. For longer Guaranteed Terms, an initial Guaranteed Interest Rate is credited from the date of deposit to the end of a specified period within the Guaranteed Term. There may be different Guaranteed Interest Rate(s) declared for subsequent specified time intervals throughout the Guaranteed Term. 1.18 GUARANTEED TERM: The period of time for which GA Account Guaranteed Interest Rates are guaranteed on Net Contributions, Transfers and Reinvestments made into a current Deposit Period for the GA Account. Such period begins on the day following the close of the Deposit Period and ends on the designated Maturity Date. Guaranteed Terms are offered at Aetna's discretion for various lengths of time ranging up to and including ten years and are classified as follows: SHORT-TERM. Three (3) or fewer years. Amounts allocated to a short-term Term are held in the General Account. LONG-TERM. More than three (3) years, but not more than ten (10). Amounts allocated to a long-term Term are held in the Nonunitized Separate Account. During a Deposit Period, Aetna may make available any number of Guaranteed Terms. The Participant may allocate Net Contributions and Transfers into any or all of the available Guaranteed Terms. 7 1.19 INDIVIDUAL ACCOUNT: This Contract is issued to the Contract Holder. However, Aetna will maintain two Individual Accounts for each Participant. These are: (a) An Employer Account: This Individual Account will be credited with employer Net Contribution(s) and transferred amounts of 401(a) funds, attributable to employer contributions; and (b) An Employee Account: This Individual Account will be credited with employee Net Contribution(s), specifically amounts subject to Code Section 414(h) and transferred amounts of 401(a) funds, attributable to 414(h) contributions. 1.20 LOAN ACCOUNT: An account established for record keeping purposes and credited with the amount on any loan. 1.21 MARKET VALUE ADJUSTMENT An adjustment to the amount withdrawn or (MVA): Transferred from a GA Account Guaranteed Term prior to the end of that Guaranteed Term. The adjustment reflects the change in the value of the investment due to changes in interest rates since the date of deposit and is computed using the formula given in 3.06. The adjustment is expressed as a percentage of each dollar being withdrawn. 1.22 MATURED TERM VALUE: The amount payable on a GA Account Guaranteed Term's Maturity Date. 1.23 MATURED TERM VALUE During the calendar month following a GA Account TRANSFER: Maturity Date, the Participant may notify Aetna's Home Office in writing to Transfer or withdraw all or part of the Matured Term Value, plus interest at the new Guaranteed Rate accrued thereon, from the GA Account without an MVA. This provision only applies to the first such written request received from the Participant during this period for any Matured Term Value. 1.24 MATURITY DATE: The last day of a GA Account Guaranteed Term. 1.25 NET CONTRIBUTION: A Contribution less any applicable premium taxes. 1.26 NONUNITIZED SEPARATE An account established by Aetna under Section ACCOUNT: 38a-433 of the Connecticut General Statutes that holds assets for GA Account Terms (See 1.18) greater than three years. The Contract Holder or Participant does not participate in the investment gain or loss from the assets held in the Nonunitized Separate Account. Such gain or loss is borne entirely by Aetna. Assets in this account may be charged with liabilities arising out of any other Aetna business. 1.27 PARTICIPANT: A person who participates in the Plan named on the cover of this Contract. 1.28 PLAN: The Plan intended to qualify under Section 401(a) of the Code and named on the cover of this Contract. The Plan is not a part of the Contract and Aetna is not bound by its terms. 8 1.29 REINVESTMENT: Aetna will mail a notice to the Participant at least 18 calendar days before a Guaranteed Term's Maturity Date. This notice will contain the Terms available during the current Deposit Periods with their Guaranteed Interest Rate(s) and projected Matured Term Value. If no specific direction is given by the Participant prior to the Maturity Date, each Matured Term Value will be reinvested in the current Deposit Period for a Guaranteed Term of the same duration. If a Guaranteed Term of the same duration is unavailable, each Matured Term Value will automatically be reinvested in the current Deposit Period for the next shortest Guaranteed Term available in the same classification. If no shorter Guaranteed Term is available, the next longer Guaranteed Term will be used. Aetna will mail a confirmation statement to the Participant, the next business day after the Maturity Date. This notice will state the Guaranteed Term and Guaranteed Interest Rate(s) which will apply to the reinvested Matured Term Value. 1.30 SEPARATE ACCOUNT: An account, established by Aetna under Section 38a-433 of the Connecticut General Statutes, that buys and holds shares of the Fund(s) available under this Contract. Income, gains or losses, realized or unrealized are credited or charged to the Separate Account without regard to other income, gains or losses of Aetna. Aetna owns the assets held in the Separate Account and is not a trustee of such amounts. Amounts in the Separate Account are not generally guaranteed and are held at market value. The assets of the Separate Account, to the extent of reserves and other contract liabilities of the Account, cannot be charged with other Aetna liabilities. 1.31 TRANSFER: The movement of invested amounts among the available Fund(s); the Fixed Plus Account and the GA Account during the Accumulation Period. 1.32 VALUATION PERIOD: The period as of 4:15 p.m. Eastern time on each day the New York Stock Exchange is open for business to 4:15 p.m. Eastern time of the next such business day, or such other day that one or more of the Fund(s) determines its net asset value. 1.33 VARIABLE ANNUITY: An Annuity with payments that vary with the net investment results of the Funds available during the Annuity period. II. GENERAL PROVISIONS - -------------------------------------------------------------------------------- 2.01 CHANGE OF CONTRACT: (a) Only an authorized Aetna officer can change the provisions of this Contract and the change must be in writing. (b) Aetna cannot change the amount or terms of Annuity benefit payments after payment has commenced. (c) Aetna may change the following provisions without Contract Holder consent. (1) Any provision that must be changed to comply with state or federal law 9 2.01 CHANGE OF CONTRACT (2) Calculation of the Market Value (CONT'D): Adjustment (3) Estate Conservation Option (4) Systematic Withdrawal Option (5) Allocation of Contributions or Transfers to the Fixed Plus Account (6) New Annuity Options Aetna will notify the Contract Holder, in writing, at least thirty (30) days before the effective date of the change. Such a change will apply to all current and future Individual Accounts. (d) Aetna may change the Tables for determining the amount of Annuity benefit payments without Contract Holder consent. Such a change will not become effective earlier than twelve months after (1) the effective date of the Contract, or (2) the effective date of a previous change. Aetna will notify the Contract Holder, in writing, at least thirty (30) days before the effective date of the change. The change will apply to all current and future Individual Accounts. (e) The Contract Holder must agree to any change in provisions concerning the following: (1) A reduction in the GA Account Minimum Guaranteed Interest Rate (2) A reduction in the Fixed Plus Account Minimum Guaranteed Interest Rate (3) Fund Accumulation Period Net Return Factor (4) Current Value (5) Annuity Unit Value (6) Existing Annuity Options (7) Fixed Annuity Minimum Guaranteed Interest Rates Aetna will notify the Contract Holder, in writing, at least thirty (30) days before the effective date of the proposed change. Such a change will apply to future Individual Accounts. If the Contract Holder does not agree to a proposed change, Aetna reserves the right to: (1) discontinue establishing new Individual Accounts; and (2) discontinue accepting Contributions to existing Individual Accounts. 2.02 CHANGE OF FUND: Aetna, or the Separate Account may: (a) Change the Fund(s) in which the Separate Account invests; and/or (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 in the Separate Account with respect to the Fund(s) whose shares are to be replaced; 10 2.02 CHANGE OF FUND (b) Deemed necessary by Aetna under the (CONT'D): 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 such change. 2.03 NONPARTICIPATING The Contract Holder, Participants, or CONTRACT: Beneficiaries will not have a right to share in the earnings of Aetna. 2.04 PAYMENTS: (a) Aetna will make distributions as directed by the Contract Holder. Aetna will determine the amount of payments based on the Individual Account's Current Value as of the date on which a request is received in good order at Aetna's Home Office. Payments will be made within seven (7) calendar days of receipt of a written request in good order at Aetna's Home Office. (b) Aetna may defer payments: (1) for a period of up to six (6) months (unless not allowed by state law); and (2) as allowed by federal law. 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 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. 2.06 CONTROL OF CONTRACT: This Contract is designed to fund a governmental plan which provides for retirement income that is not subject to Title I of the Employee Retirement Income Security Act of 1974 (ERISA), as amended by subsequent law including REA. The Participant may select the investment option(s) 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. No distributions will be made from the Employer Account or the Employee Account without the Contract Holder's written direction to Aetna. (a) Nontransferable and Nonassignable: This Contract and any Individual Accounts are nontransferable and nonassignable, except to Aetna in the event of a loan, or pursuant to a "qualified domestic relations order" as set forth under the Internal Revenue Code of 1986, as it may be amended from time to time. (b) Distributions: A Participant may apply for a distribution from his or her Employee or Employer Account. However, the Contract Holder must certify in writing that the distribution is in accordance with the terms of the Plan. 11 2.06 CONTROL OF CONTRACT (c) Participant Rights/Employee Account: The (CONT'D): Participant has a nonforfeitable right to the value of his or her Employee Account pursuant to the terms of the Plan as interpreted by the Contract Holder. (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. 2.07 MISSTATEMENTS AND If Aetna finds the age of any payee to be ADJUSTMENTS misstated, the correct facts will be used to adjust payments. 2.08 INCONTESTABILITY: Aetna cannot cancel this Contract because of any error of fact on the application. 2.09 GRACE PERIOD: This Contract will remain in effect even if Contributions are not continued except as provided in 3.15. 2.10 INDIVIDUAL CERTIFICATES: Aetna shall issue certificates to 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. III. CONTRIBUTIONS, CURRENT VALUE, AND WITHDRAWAL PROVISIONS - -------------------------------------------------------------------------------- 3.01 NET CONTRIBUTION(S): The Net Contribution equals the actual Contribution less any applicable premium tax. Generally, Aetna will deduct the premium tax when Annuity benefits are purchased (See Section V). If Aetna determines that under applicable state law, it must pay a premium tax when the Contribution is received, or at any other time, it will deduct the tax at that time. The Net Contribution(s) may be allocated among the following investment options: (a) The Fixed Plus Account; and (b) The current Deposit Period(s) for Guaranteed Terms under the GA Account; and (c) The Fund(s) in which the Separate Account invests. Aetna must be told the percentage of all Net Contributions to allocate to one or more of the investment options. Aetna reserves the right to require a minimum Contribution amount per Individual Account. 3.02 EXPERIENCE CREDITS: Aetna may apply experience credits under this Contract. Any such credits will be computed as decided by Aetna. 12 3.03 FUND RECORD UNITS: The portion of the Net Contribution(s) applied to each Fund under the Separate Account will determine the number of Fund record units credited to the Individual Account for that Fund. This number is equal to the Net Contribution applied to the Fund divided by the Fund record unit value (see 3.04) for the Valuation Period in which the Contribution is received in good order. 3.04 FUND RECORD A Fund record unit value is computed by UNIT VALUE: multiplying the net return Factor (See 3.05) for the current Valuation Period by the Fund record unit value for the previous Period. The dollar value of a Fund record unit, Separate Account assets, and Variable Annuity payments may go up or down due to investment gain or loss. 3.05 FUND NET The net return factor(s) are used to compute all RETURN FACTORS: Separate Account record units 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 at the start of the Valuation Period; minus (e) A Separate Account charge at an annual effective rate as shown on Contract Schedule I for Annuity mortality and expense risks, asset based sales charge and profit and a daily administrative charge which will not exceed the amount shown on Contract Schedule I 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. 3.06 MARKET VALUE (a) An MVA will be applied to any withdrawal from ADJUSTMENT: the GA Account Term before the Maturity Date due to: (1) A Transfer; (2) A full or partial withdrawal; 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 in (b). 13 3.06 MARKET VALUE (b) Market value adjusted amounts will be equal ADJUSTMENT to the amount withdrawn multiplied by the (CONT'D): following ratio: x (1 + i)to the power of --- ------------------ 365 x (1 + j)to the power of --- 365 Where: i is the Deposit Period Yield j is the Current Yield x is the number of days remaining, (computed from Wednesday of the week of withdrawal) in the Term. (c) The Deposit Period Yield will be determined as follows: (1) 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 Term. (2) 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. (3) 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. (4) In the event that no U.S. Treasury Notes which mature in the last three months of the Term exist, Aetna reserves the right to use the U.S. Treasury Notes that mature in a following quarter. (d) Full and partial withdrawals as well as Transfers made within six (6) months after the Participant's date of death under the Amount Payable at Death provision (See 3.16) will be the greater of: (1) The aggregate MVA amount which is the sum of all market value adjusted amounts calculated due to a withdrawal of amounts (for withdrawal or Transfer) from Terms prior to the end of those Terms. The aggregate MVA may be either positive or negative; or (2) The applicable portion of the Current Value in the GA Account. 14 3.06 MARKET VALUE (e) After the six month period, the withdrawal or ADJUSTMENT Transfer will be the aggregate MVA amount (CONT'D): (i.e., including all MVAs). (f) 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. 3.07 TRANSFER(S): Before an Annuity option is elected, all or any portion of the Adjusted Current Value of the Individual Account (subject to the limitations described below) may be transferred from any Fund, the Fixed Plus Account or the GA Account: (a) To any Fund; or (b) To the Fixed Plus Account; or (c) To any Guaranteed Term of the GA Account with a different classification available in the Current Deposit Period. Transfer requests can be submitted as a percentage or as a dollar amount. Aetna may establish a minimum Transfer amount. Within a Guaranteed Term classification, the amount transferred will be withdrawn from the oldest Deposit Period, then from the next oldest, and so on until the amount requested is satisfied. Amounts applied to Guaranteed Terms of the GA Account may not be transferred to the Funds, the Fixed Plus Account or to another Guaranteed Term during the Deposit Period or 90 days after the close of the Deposit Period except for Matured Term Value(s) during the calendar month following the Term's Maturity Date. Transfers from Guaranteed Terms of the GA Account are subject to the MVA provisions of 3.06. During each rolling twelve (12) month period, up to 20% of the Fixed Plus Account value may be transferred to one or more of the Fund(s), and/or the GA Account's then-current Deposit Period. The 20% limit is reduced by any partial withdrawals, Transfers or amounts taken as a loan or used to purchase an Annuity during the twelve (12) month period. Aetna reserves the right to include amounts paid under 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. The Participant may make an unlimited number of Transfers during the Accumulation Period. The number of free Transfers allowed by Aetna is shown on Contract Schedule I. Additional Transfers may be subject to a Transfer fee as shown on Contract Schedule I. Transfers from the GA Account of a Matured Term Value on or within one calendar month of a Term's Maturity Date do not count against the annual Transfer limit. 15 3.08 LOANS: During the Accumulation Period, the Participant may request a loan from his or her Individual Account by submitting a loan request form. The loan effective date is the date Aetna receives a loan request form in good order at its Home Office. A loan will not be allowed within 12 months of the effective date of any prior loan. The Employee and Employer Accounts Current Value must be at least $2,000 and the minimum loan amount is $1,000. A loan that meets provisions set forth in Code Section 72(p) is not considered a taxable distribution. (a) The amount available for a loan is calculated based on the Current Value of the Employer and Employee Accounts. The loan amount is limited to the lesser of: (1) 50% of the Employee and Employer Accounts vested Current Value on the date the loan is made; or (2) $50,000 reduced by the amount of the highest outstanding loan balance during the preceding 12 month period that ends the day before the current loan is made. Loans may only be made from the Employee Account and the vested portion of the Employer Account. (b) When the loan is made, only amounts in the Funds and Fixed Plus Account may be withdrawn and transferred to the Loan Account. The amounts will be withdrawn in the same proportion as the Employee and the Employer Account's vested Current Value are divided between the Fixed Plus Account and/or Funds on the loan's effective date. If the amount of the loan requested would require the proportionate amount transferred from the Fixed Plus Account to exceed the amount that would be allowed under the 20% limit described in Section 3.07, the Participant may transfer an additional amount from the Fixed Plus Account. The additional amount will be limited and will never exceed 50% of the Fixed Plus Account value on the effective date of the loan, minus any previous partial withdrawal or Transfer during the 12-month period the loan becomes effective. Aetna reserves the right to change the maximum percentage a Participant can transfer from the Fixed Plus Account for the purpose of taking a loan. If the amount needed to make the loan exceeds the Fixed Plus Account Transfer limit, the additional amount will be withdrawn proportionately from the Funds. 16 3.08 LOANS (c) Aetna will record the percentage by which any (CONT'D): amount withdrawn from the Fixed Plus Account exceeds the 20% Transfer limit covered in Section 3.07. The percentage will equal the amount transferred from the Fixed Plus Account that exceeds the 20% withdrawal limit divided by the total amount of the loan. In the event of a loan payment default, this percentage will be used to calculate the penalty that would be applied as described in (h) below. (d) The loan interest rate will be 5%. (e) Interest on the Loan Account balance will be calculated daily at a rate to yield an effective annual rate of 3%. Interest will be credited quarterly based on the loan's effective date and credited to the Funds and/or Fixed Plus Account in the same proportion in which the loan amount was withdrawn. (f) Principal and interest on loans is amortized in quarterly payments over a one to five year term. The Participant chooses the number of years. An exception applies to loans taken for the acquisition of the Participant's principal residence. Loans for this purpose can be amortized quarterly over a one to 20 year term, as elected by the Participant. The Participant must certify in writing that a loan is for the purchase of a principal residence. The term of the loan, elected by the Participant, must result in full repayment no later than December 31 of the calendar year prior to the calendar year in which the Participant reaches age 70 1/2. The entire Loan Account balance may be paid in full at any time. Aetna will bill the Participant for any loan interest accrued to the date the payment is received. Aetna will consider the loan paid when the interest amount is received. (g) A bill in the amount of the quarterly payment due will be mailed to the Participant in advance of the due date. The first due date is three months from the loan's effective date and quarterly thereafter. A loan payment will be in default if it is not received by Aetna at its Home Office by the due date. The principal portion of each loan payment will be credited to the Participant's Fixed Plus Account and/or the Funds in the same proportion in which the loan amount was withdrawn. The Loan Account will then be reduced by the principal portion of the payment. (h) If a payment is in default, a partial withdrawal in an amount equal to the payment due will be deducted from the Individual Account at the close of business on the due date. Payments that are less than the amount due will be returned and if the full payment is not received by the due date, the payment will be in default. 17 3.08 LOANS The required amount will be withdrawn from (CONT'D): the Fixed Plus Account and/or the Funds in the same proportion in which the loan amount was withdrawn. This amount will be applied as a loan payment as set forth in (g) above. Aetna will report to the IRS the amount withdrawn to pay the default. In addition, if the amount withdrawn from the Fixed Plus Account to make the loan exceeded the 20% annual withdrawal limitation described in Section 3.12, a 5% charge will be assessed on the same percentage of the defaulted payment. For example, if 60% of the amount withdrawn was in excess of the limit, then 60% of the amount withdrawn for the defaulted payment will be subject to the additional 5% charge. (i) If a Participant makes a payment that is more than the billed amount, the excess will be credited to the Fixed Plus Account and/or the Funds in the same proportion in which the loan amount was withdrawn. The Loan Account will be reduced by the additional amount. On the following loan anniversary date, future payments will be recalculated to reflect the additional principal payment so that the outstanding balance is amortized in equal quarterly payments over the remaining loan term. (j) Upon the election of an Annuity option or at the Participant's death, any Loan Account will be cancelled. This will result in a taxable distribution of an amount equal to the Loan Account balance. Interest earned but not yet credited will be credited to, and loan interest accrued but not paid will be deducted from, the Current Value in the same proportion in which the loan amount was withdrawn. (k) If there is an outstanding Loan Account balance when a Participant makes a full withdrawal of the Current Value of his or her Individual Account (1) interest earned but not credited will be credited to, and (2) uncollected accrued loan interest will be deducted from the Current Value. The Loan Account will be cancelled resulting in a taxable distribution of an amount equal to the Loan Account balance. 3.09 NOTICE TO THE Each year, Aetna will notify the Participant of: PARTICIPANT: (a) The value of any amounts held in: (i) The Fixed Plus Account, (ii) The GA Account, (iii) The Fund(s) for the Separate Account; (b) The number of any Fund(s) record units; (c) The Fund(s) record unit value(s); (d) The amount available for withdrawal; and (e) The Loan Account value. This information will be as of a date no more than sixty (60) days before the date of the notice. 18 3.10 MANNER AND TIMING (a) A distribution to a Participant may be made OF DISTRIBUTIONS: in a lump sum, as one of the Distribution Options described in Section IV, or as one of the Annuity options in Section V. The Participant may elect the form of distribution subject to certification in writing by the Contract Holder that the Participant is eligible both as to the timing and form of distribution. (b) The distribution of benefits must begin by April 1 of the calendar year following the calendar year in which the Participant attains age 70 1/2 or retires, whichever occurs later. (c) If the Participant does not request commencement of benefits as described above, Aetna will not be responsible for compliance with the Code Section 401(a)(9) minimum distribution requirements or for any adverse tax or other consequences that may result. 3.11 WITHDRAWAL: (a) The Participant may withdraw any portion or all of an Individual Account Adjusted Current Value and transfer such amount to another investment provider under the Plan. The withdrawal and transfer request must be submitted in writing to Aetna. (b) Except as described in Section 3.12, unless the Participant specifies otherwise, partial withdrawals are satisfied by withdrawing amounts on a pro rata basis from each of the investment options in which the Individual Account is invested. (c) When amounts are withdrawn from the GA Account, amounts in Short-Term and Long-Term Classifications are treated as separate investment options and amounts are taken on a pro rata basis. Within a Classification, amounts will be withdrawn starting with the Term still in effect with the oldest Deposit Period. (d) Any amount withdrawn from the Fixed Plus Account will be subject to the limitations in 3.12, 3.13 and 3.14. 19 3.12 PARTIAL WITHDRAWAL The amount eligible for partial withdrawal is 20% FROM THE FIXED PLUS of the Current Value of the amount held in the ACCOUNT: Fixed Plus Account on the day Aetna's Home Office receives a written request, reduced by any previous Transfer, partial withdrawal or amounts taken as a loan or used to purchase Annuity benefits during the prior 12 months. Aetna reserves the right to include amounts paid under ECO and SWO for purposes of applying this 20% limit. However, SWO is unavailable if a Fixed Plus Account Transfer or withdrawal is requested within the current 12 month period. The 20% limit applicable to partial withdrawals from the Fixed Plus Account will be waived under certain conditions and will apply when the partial withdrawal is made on a pro rata basis from all options used under the Participant's Individual Account. (See Contract Schedule I). 3.13 PAYMENT OF FIXED When Aetna receives a full withdrawal request, no PLUS ACCOUNT FULL additional partial withdrawals or Transfers from WITHDRAWAL: the Fixed Plus Account are permitted during the payout period. If a full withdrawal is requested, Aetna will pay any Current Value from the Fixed Plus Account in five payments as follows: (a) 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 that was transferred, withdrawn or used for a loan or to purchase Annuity benefits during the prior 12 months; (b) One-fourth of the remaining Current Value 12 months later; (c) One-third of the remaining Current Value 12 months later; (d) One-half of the remaining Current Value 12 months later; and (e) The balance of the Current Value 12 months later. The Fixed Plus Account full withdrawal payment provision will be waived when a withdrawal is: (a) Due to the Participant's death before Annuity benefit payments begin; (b) Used to purchase Annuity benefits; or (c) When the amount in the Fixed Plus Account is $3,500 or less and no amount has been withdrawn, transferred, taken as a loan or used to purchase Annuity benefits during the previous 12 months. Any full withdrawal from the Fixed Plus Account may be cancelled at any time before the end of the payment period. 3.14 ALTERNATIVE PAYMENT As an alternative to 3.13, and as permitted under OF FIXED PLUS ACCOUNT the terms of the Plan, the Participant may elect a FULL WITHDRAWAL: lump sum payment. The lump-sum payment will be the Individual Account's Current Value invested in the Fixed Plus Account less a 3% charge provided: (i) the withdrawal is due to the Participant's separation from service with the employer; 20 3.14 ALTERNATIVE PAYMENT (ii) the withdrawal request is received at OF FIXED PLUS ACCOUNT Aetna's Home Office within 60 days of the FULL WITHDRAWAL date the Participant separates from service (CONT'D): with the employer; and (iii) the Contract Holder certifies that the Participant has separated from service and is eligible to receive a lump sum distribution. 3.15 PAYMENT OF MINIMUM If the Individual Accounts Current Value is less CURRENT VALUE: than $3,500, and no Contributions have been received for three (3) years, Aetna may close the Account and pay the Current Value to the Contract Holder in one lump sum. 3.16 AMOUNT PAYABLE AT Aetna will pay any portion of the Individual DEATH (BEFORE ANNUITY Account(s) Current Value, to the Beneficiary when: PAYMENTS START): (a) The Participant dies before Annuity payments start; and (b) The certified copy of the death certificate is received by Aetna. A guaranteed death benefit is available if the Beneficiary requests either a lump-sum payment or an Annuity option within the first 6 months after the Participant's death. For each Individual Account, the death benefit is guaranteed to be the greater of: (a) The Current Value of the Individual Account plus aggregate positive MVA, as applicable, on the date the notice of death and the request for payment are received in good order at Aetna's Home Office; or (b) The total of Net Contribution(s) made to the Individual Account minus the total of all partial withdrawals, annuitizations made from the Individual Account and any amount allocated from the Individual Account to the Loan Account. If the payee of the death proceeds is the Participant's surviving spouse, 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 Beneficiary is not the surviving spouse, all of the Current Value must either be applied to an Annuity option within one (1) year of the Participant's death or be paid to the payee within five (5) years of the Participant's death (see Part V). In no event may any payments to the 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. Amounts in the GA Account will be payable as described in Section 3.06(d). 21 3.17 REINSTATEMENT: All or a portion of the proceeds of a full withdrawal of an Individual Account may be reinvested within 30 days after the surrender if allowed by law. Any Market Value Adjustment deducted from GA Account withdrawals will not be included in the reinstatement. Amounts will be reinstated among the Fixed Plus Account, GA Account, and the Fund(s) in the same proportion as they were at the time of withdrawal. Any amount 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 Individual Account(s) closed because the Current Value was less than $3,500 may not be reinstated (see 3.15). Reinstatement is permitted only once per Individual Account. IV. NON-ANNUITY DISTRIBUTION OPTIONS - -------------------------------------------------------------------------------- 4.01 DISTRIBUTION OPTIONS: The Participant or a surviving spouse may elect one of the two following distribution options. A surviving spouse is eligible to elect one of these options provided the spouse is the designated Beneficiary under the Plan and the Participant had died before electing an Annuity option and before the date for required minimum distributions. 4.02 ESTATE CONSERVATION (a) With the Estate Conservation Option (ECO) a OPTION: portion of the Individual Account Current Value is automatically surrendered and distributed each year. Each payment will be withdrawn from the Individual Account in the same proportion as assets are held in the Funds, the GA Account, and the Fixed Plus Account on the date the payment is made. (b) Payments under ECO will comply with the incidental death benefit test set forth in Code Section 401(a)(9). (c) Distribution Amount: Each year that ECO is in effect, Aetna will calculate and distribute an amount equal to the minimum distribution required under the Code. The annual distribution will be determined by dividing the Individual Account Current Value as of December 31 of the year prior to the payment year, by a single or joint life expectancy factor. If joint life expectancy is elected, the Beneficiary under ECO must be the same as the beneficiary of any death benefits under the Plan. (d) Life Expectancy Factor: For the Participant, the life expectancy factor is either single life or joint life expectancy as elected by the Participant, based on tables in IRS regulations. For a spouse Beneficiary, only a single life expectancy is available. Life expectancy factors will be recalculated each year, unless prohibited by the Code or regulations. 22 4.02 ESTATE CONSERVATION If joint life expectancy is elected and the OPTION (CONT'D): Participant or spouse dies, payments will be based on the survivor's life expectancy. If the Beneficiary is not the spouse and the Beneficiary dies first, the joint life expectancy continues to be used to determine payments. If a single life expectancy is elected, at the death of the Participant (or the spouse who is the designated Beneficiary electing ECO after the Participant's death), the entire value must be distributed no later than the December 31 of the year following the year of the Participant's (or spouse's) death. If a joint life expectancy is elected, and both the Participant and spouse have died, any remaining Current Value must be distributed no later than the December 31 of the year following the year of the second death. If a joint life expectancy is elected and both the Participant and non-spouse Beneficiary have died, any remaining Current Value will be distributed to a successor Beneficiary or, if none has been named, then to the estate of the last to die. (e) 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. (f) Distribution Date: The Participant shall specify an annual distribution date. The earliest date is the first day of the calendar year in which he or she attains age 70 1/2, or retirement if later. For a spouse Beneficiary electing ECO after the Participant's death, the earliest date is the date of the Participant's death. The first distribution date may be the 15th of any month, or such other date Aetna may designate or allow. Subsequent distributions will be made on the anniversary of that date. (g) Election and Revocation: The Participant may elect ECO by submitting a completed and signed election form to Aetna's Home Office. The Contract Holder must certify that the Participant is eligible both as to the timing and form of distribution. Once ECO is elected, the Participant may revoke it 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 Individual Account. 4.03 SYSTEMATIC WITHDRAWAL (a) With the Systematic Withdrawal Option (SWO) a OPTION: portion of the Individual Account Current Value is automatically distributed each year. A SWO payment will be calculated on the Individual Account's Current Value. Each payment will be withdrawn from the Individual Account in the same proportion as assets are held in the Funds, the GA Account, and the Fixed Plus Account on the date the payment is made. 23 4.03 SYSTEMATIC WITHDRAWAL (b) Payments under SWO will comply with the OPTION (CONT'D): incidental death benefit test set forth in Code Section 401(a)(9). (c) Distribution Amounts: The Participant may elect one of the three payment methods described below. These calculations may be changed as necessary to comply with the Code minimum distribution rules. If joint life expectancy is elected, the Beneficiary under SWO must be the same as the beneficiary of any death benefits under the Plan. (1) Specified Payment: Payments of a designated annual dollar amount. The annual amount may not be greater than the percentage of the Current Value at time of election as shown on Contract Schedule I. This amount will remain constant unless a higher amount is required under Code minimum distribution rules. Each year that the Specified Payment is in effect, Aetna will calculate the minimum required distribution by dividing the Individual Account Current Value as of December 31 of the year prior to the payment year by a life expectancy factor, and distribute this amount if it is larger than the Specified Payment. (2) Specified Period: Payments are made over a period of time. The number of years selected may not be less than the number of years shown on Contract Schedule I, unless otherwise required by Code minimum distribution rules. The maximum specified period will be limited by the life expectancy factor. The amount paid each year is calculated by dividing the Individual Account Current Value as of December 31 of the prior year by the number of payment years remaining. (3) Specified Percentage: The specified percentage chosen cannot be greater than the percentage shown on Contract Schedule I. The 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. (d) Life Expectancy Factor: The life expectancy factor for the initial distribution year is either single life or joint life expectancy as elected by the Participant, based on tables in IRS regulations. For a spouse Beneficiary, only a single life expectancy is available. With each subsequent year, the life expectancy factor will be the life expectancy factor for the initial distribution year, reduced by one. 24 4.03 SYSTEMATIC WITHDRAWAL If the joint life expectancy is elected and OPTION (CONT'D): the Participant or the Beneficiary dies on or after the required beginning date for minimum distributions to the Participant, the joint life expectancy factor will continue to be reduced by one for each distribution year. Payments will continue unless the Contract Holder elects an alternate payment mode on behalf of the survivor. Any payment mode elected on behalf of the Beneficiary must provide payments to be made at least as rapidly as those made prior to the Participant's death. If the Participant dies before the required beginning date for minimum distributions, SWO payments will cease and the Beneficiary may claim the death benefit in accordance with the terms of this Contract. If the Beneficiary is not the Participant's spouse, the entire death benefit must be either applied to an Annuity option within one (1) year of the Participant's death, or be paid within five (5) years of the Participant's death. If the Beneficiary is the Participant's spouse, the distribution is not required to begin earlier than when the Participant would have attained age 70 1/2. If joint life expectancy is elected and the Beneficiary dies before the required beginning date for minimum distributions to the Participant, payments to the Participant will continue to be based on joint life expectancy reduced by one for each distribution year. (e) 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 SWO payment, Aetna will distribute the entire balance of the Individual Account. (f) Distribution Date: The Participant or spouse Beneficiary shall specify the distribution date. The earliest date is the first day of the calendar year in which the Participant attains age 59 1/2 or age 55, if separated from service with the employer at or after age 55. SWO payments will be made monthly, quarterly, semi-annually or annually on the 15th of any month, or such other date Aetna may designate or allow. If payments are made more frequently than annually, the annual amount payable each year is divided by the number of payments due per year. At its discretion Aetna may require a minimum initial payment amount. (g) Election and Revocation: The Participant may elect SWO by submitting a completed and signed election form to Aetna's Home Office. Once SWO is elected, the Participant may revoke it by submitting a written request to Aetna's Home Office. Any revocation will apply only to amounts not yet paid. Generally, SWO may be elected only once, however, if SWO is elected and then revoked before the date distributions were required to begin under Code Section 401(a)(9), SWO may be elected on behalf of a spouse Beneficiary after the death of the Participant. 25 V. ANNUITY PROVISIONS - -------------------------------------------------------------------------------- 5.01 CHOICES: (a) The Participant may elect an Annuity option by telling Aetna to pay all or any portion of the Individual Account(s) Current Value (minus any applicable premium tax if not previously deducted) as a premium for an Annuity under option 2, 3, or 4 (see 5.07). A completed and signed election form must be submitted to the Home Office. The form must include Contract Holder certification that the Participant is eligible for a distribution under the terms of the Plan and that the Annuity option chosen is permitted under the terms of the Plan. Any election of an Annuity option must comply with the minimum distribution requirements of Code Section 401(a)(9), including the incidental death benefit rule, and the regulations thereunder. This restriction does not apply if option 4 is chosen and the second Annuitant is the spouse of the Participant. (b) Generally, the first Annuity payment must be made by April 1 of the calendar year following the year in which the Participant turns age 70 1/2 or retires, if later. (c) When an Annuity option is chosen the Participant must designate whether the Annuity will be Fixed or Variable and whether the underlying investment will be: (1) The General Account; (2) One or more of the available Fund(s); or (3) A combination of (1) and (2). If a Fixed Annuity is chosen, the Annuity purchase rate for the option chosen reflects at least the Minimum Guaranteed Interest Rate (See Contract Schedule II), but may reflect a higher interest rate. If a Variable Annuity is chosen, the initial Annuity payment for the option chosen reflects the assumed annual return rate elected (See Contract Schedule II). (d) Payments will be made on a monthly basis unless the Participant requests otherwise. (e) Once elected, an Annuity option may not be revoked, except for option 2 when elected on a variable basis. 5.02 TERMS OF ANNUITY (a) No choice of any Annuity option may be made OPTIONS: if the first payment would be less than $20 or if the total payments in a year would be less than $100. (b) If a Fixed Annuity under option 2, 3 or 4 is elected and a larger Annuity payment would result from applying the Adjusted Current Value to a current Aetna single premium immediate Annuity, Aetna will make the larger payment. 26 5.02 TERMS OF ANNUITY (c) For purposes of calculating the guaranteed OPTIONS (CONT'D): first payment of a Variable Annuity or the payments for a Fixed Annuity, the Annuitant's and second Annuitant's adjusted age will be used. The Annuitant's and second Annuitant's adjusted age is his or her age as of the birthday closest to the Annuity commencement date reduced by one year for Annuity commencement dates occurring during the period of time from July 1, 1992 through December 31, 1999. The Annuitant's and second Annuitant's age will be reduced by two years for Annuity commencement dates occurring during the period of time from January 1, 2000 through December 31, 2009. The Annuitant's and second Annuitant's age will be reduced by one additional year for Annuity commencement dates occurring in each succeeding decade. The Annuity rates for options 3 and 4 are based on mortality from 1983 Table a. (d) Assumed Annual Net Return Rate is the interest rate used to determine the amount of the first Annuity payment under a Variable Annuity. The Separate Account must earn this rate plus enough to cover the mortality and expense risks charges (which may include profit) and administrative charges if future Variable Annuity Payments are to remain level. 5.03 DEATH PROVISION: When an Annuitant dies under options 2 or 3, the present value of any remaining guaranteed payments will be paid in one sum to the Beneficiary or, upon the election of the Beneficiary, any remaining payments will continue to the Beneficiary. If a 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 Beneficiary's estate. The rate used to determine the present value for a lump sum payment will be the rate used to determine the first Annuity payment. 5.04 FUND ANNUITY The number of Fund(s) annuity units is based on UNITS 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 5.05) 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. 27 5.05 FUND ANNUITY For any Valuation Period, a Fund(s) annuity unit UNIT VALUE: value is equal to: (a) The value for the previous Period; multiplied by (b) The Annuity net return factor(s) (See 5.06) for the Period; multiplied by (c) A factor to reflect the assumed annual net return rate. (See Contract Schedule II). The dollar value of a Fund annuity unit values and Annuity payments may go up or down due to investment gain or loss. Payments shall not be changed due to changes in the mortality or expense results or administrative charges. 5.06 FUND ANNUITY NET The Annuity net return factor(s) are used to RETURN FACTOR: compute all Separate Account Annuity payments for any Fund. The Annuity net return factor(s) 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(s) record units and Fund(s) annuity units of the Separate Account at the start of the Valuation Period; minus (e) A daily charge for Annuity mortality and expense risks, which may include profit, (at the annual rate as shown on Contract Schedule II) and a daily administrative charge. 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. 5.07 ANNUITY OPTIONS: Option 1 -- Payments of Interest on Sum Left with Aetna -- This option may be used only by the 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 5.01). The 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. 28 5.07 ANNUITY OPTIONS If the Beneficiary is the Participant's surviving (CONT'D): spouse, payment may be deferred to a date not later than when the Participant would have attained age 70 1/2. If the Beneficiary is not a spouse, the entire sum must either be applied to an Annuity option within one year of the Participant's death or be paid within five years of the Participant's death. Option 2 -- Payments for a Stated Period of Time - - An Annuity will be paid for the number of years chosen (See Contract Schedule II). If payments for this option are made under a Variable Annuity, the present value of any remaining payments may be withdrawn at any time. Option 3 -- Life Income -- An Annuity will be paid for the life of the Annuitant. Aetna may also guarantee payments for 60, 120, 180, or 240 months if so directed by the Participant. Option 4 -- Life Income based upon the lives of two Annuitants -- An Annuity will be paid during the lives of the Annuitant and a second Annuitant. Payments will continue until both Annuitants have died. When this option is chosen, a choice of the following must be made: (a) 100% of the payment to continue after the first death; (b) 66 2/3% of the payment to continue after the first death; (c) 50% of the payment to continue after the first death; (d) Payments for a minimum of 120 months, with 50% of the payment to continue after the first death; or (e) 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. 29 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 3.0%
- ---------------------------------------------------------------- GUARANTEED MONTHLY QUARTERLY SEMI-ANNUAL ANNUAL YEARS RATE PAYMENT PAYMENT PAYMENT PAYMENT - ---------------------------------------------------------------- 3 3.00% $28.99 $86.76 $172.88 $343.23 4 3.00% 22.06 66.02 131.56 261.19 5 3.00% 17.91 53.59 106.78 211.99 6 3.00% 15.14 45.30 90.27 179.22 7 3.00% 13.16 39.39 78.49 155.83 8 3.00% 11.68 34.96 69.66 138.31 9 3.00% 10.53 31.52 62.81 124.69 10 3.00% 9.61 28.77 57.33 113.82 11 3.00% 8.86 26.52 52.85 104.93 12 3.00% 8.24 24.65 49.13 97.54 13 3.00% 7.71 23.08 45.98 91.29 14 3.00% 7.26 21.73 43.29 85.95 15 3.00% 6.87 20.56 40.96 81.33 16 3.00% 6.53 19.54 38.93 77.29 17 3.00% 6.23 18.64 37.14 73.74 18 3.00% 5.96 17.84 35.56 70.59 19 3.00% 5.73 17.13 34.14 67.78 20 3.00% 5.51 16.50 32.87 65.26 21 3.00% 5.32 15.92 31.72 62.98 22 3.00% 5.15 15.40 30.68 60.92 23 3.00% 4.99 14.92 29.74 59.04 24 3.00% 4.84 14.49 28.88 57.33 25 3.00% 4.71 14.09 28.08 55.76 26 3.00% 4.59 13.73 27.36 54.31 27 3.00% 4.47 13.39 26.68 52.97 28 3.00% 4.37 13.08 26.06 51.74 29 3.00% 4.27 12.79 25.49 50.60 30 3.00% 4.18 12.52 24.95 49.53 - ----------------------------------------------------------------
30 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 Variable Annuity with Assumed Net Return Rate of 3.5%
- ---------------------------------------------------- MONTHLY QUARTERLY SEMI-ANNUAL ANNUAL YEARS PAYMENT PAYMENT PAYMENT PAYMENT - ---------------------------------------------------- 3 $29.19 $87.33 $173.91 $344.86 4 22.27 66.61 132.65 263.04 5 18.12 54.19 107.92 213.99 6 15.35 45.92 91.44 181.32 7 13.38 40.01 79.69 158.01 8 11.90 35.59 70.88 140.56 9 10.75 32.16 64.05 127.00 10 9.83 29.42 58.59 116.18 11 9.09 27.18 54.13 107.34 12 8.46 25.32 50.42 99.98 13 7.94 23.75 47.29 93.78 14 7.49 22.40 44.62 88.47 15 7.10 21.24 42.31 83.89 16 6.76 20.23 40.29 79.89 17 6.47 19.34 38.51 76.37 18 6.20 18.55 36.94 73.25 19 5.97 17.85 35.54 70.47 20 5.75 17.22 34.28 67.98 21 5.56 16.65 33.15 65.74 22 5.39 16.13 32.13 63.70 23 5.24 15.66 31.19 61.85 24 5.09 15.24 30.34 60.17 25 4.96 14.85 29.56 58.62 26 4.84 14.49 28.85 57.20 27 4.73 14.15 28.19 55.90 28 4.63 13.85 27.58 54.69 29 4.53 13.57 27.02 53.57 30 4.45 13.30 26.49 52.53 - ----------------------------------------------------
31 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 Variable Annuity with Assumed Net Return Rate of 5.0%
- -------------------------------------------------------------------------------- MONTHLY QUARTERLY SEMI-ANNUAL ANNUAL YEARS PAYMENT PAYMENT PAYMENT PAYMENT - -------------------------------------------------------------------------------- 3 $29.80 $89.04 $176.99 $349.72 4 22.89 68.38 135.93 268.58 5 18.74 56.00 111.33 219.98 6 15.99 47.77 94.96 187.64 7 14.02 41.90 83.30 164.59 8 12.56 37.52 74.58 147.35 9 11.42 34.11 67.81 133.99 10 10.51 31.40 62.42 123.34 11 9.77 29.19 58.03 114.66 12 9.16 27.36 54.38 107.45 13 8.64 25.81 51.31 101.39 14 8.20 24.50 48.69 96.21 15 7.82 23.36 46.44 91.75 16 7.49 22.37 44.47 87.88 17 7.20 21.51 42.75 84.48 18 6.94 20.74 41.23 81.47 19 6.71 20.06 39.88 78.80 20 6.51 19.46 38.68 76.42 21 6.33 18.91 37.59 74.28 22 6.17 18.42 36.62 72.35 23 6.02 17.98 35.73 70.61 24 5.88 17.57 34.93 69.02 25 5.76 17.20 34.20 67.57 26 5.65 16.87 33.53 66.25 27 5.54 16.56 32.92 65.04 28 5.45 16.28 32.35 63.93 29 5.36 16.01 31.83 62.90 30 5.28 15.77 31.35 61.95 - --------------------------------------------------------------------------------
32 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 3.0% PAYMENTS GUARANTEED FOR A STATED PERIOD OF MONTHS
- --------------------------------------------------------------------- ADJUSTED AGE OF NONE 60 120 180 240 ANNUITANT - --------------------------------------------------------------------- 50 $4.05 $4.05 $4.03 $3.99 $3.93 51 4.12 4.11 4.09 4.05 3.99 52 4.19 4.19 4.16 4.11 4.04 53 4.27 4.26 4.23 4.18 4.10 54 4.35 4.34 4.31 4.25 4.16 55 4.44 4.42 4.39 4.32 4.22 56 4.53 4.51 4.47 4.40 4.29 57 4.62 4.61 4.56 4.48 4.35 58 4.72 4.71 4.65 4.56 4.42 59 4.83 4.81 4.75 4.64 4.49 60 4.95 4.93 4.86 4.73 4.55 61 5.07 5.05 4.97 4.83 4.62 62 5.20 5.17 5.08 4.92 4.69 63 5.34 5.31 5.20 5.02 4.76 64 5.49 5.45 5.33 5.12 4.83 65 5.65 5.61 5.47 5.22 4.89 66 5.82 5.77 5.61 5.33 4.96 67 6.01 5.94 5.75 5.44 5.02 68 6.20 6.13 5.91 5.54 5.08 69 6.41 6.33 6.07 5.65 5.14 70 6.64 6.54 6.23 5.76 5.19 71 6.88 6.76 6.41 5.86 5.24 72 7.14 7.00 6.59 5.97 5.28 73 7.43 7.26 6.77 6.06 5.32 74 7.73 7.53 6.96 6.16 5.35 75 8.06 7.82 7.14 6.25 5.38 - ---------------------------------------------------------------------
Rates are based on mortality from 1983 Table a. The rates do not differ by sex. 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. 33 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 3.5% PAYMENTS GUARANTEED FOR A STATED PERIOD OF MONTHS
- --------------------------------------------------------------------- ADJUSTED AGE OF NONE 60 120 180 240 ANNUITANT - --------------------------------------------------------------------- 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 are based on mortality from 1983 Table a. The rates do not differ by sex. 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. 34 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
- --------------------------------------------------------------------- ADJUSTED AGE OF NONE 60 120 180 240 ANNUITANT - --------------------------------------------------------------------- 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 are based on mortality from 1983 Table a. The rates do not differ by sex. 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. 35 OPTION 4 LIFE INCOME FOR TWO PAYEES 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 3.0%
- ------------------------------------------------------------------------------------ ADJUSTED AGES - --------------------- SECOND ANNUITANT ANNUITANT OPTION 4a OPTION 4b OPTION 4c OPTION 4d OPTION 4e - ------------------------------------------------------------------------------------- 55 50 $3.69 $4.05 $4.27 $3.69 $4.03 55 55 3.88 4.25 4.47 3.87 4.14 55 60 4.06 4.47 4.71 4.06 4.20 60 55 3.99 4.44 4.71 3.98 4.42 60 60 4.24 4.71 4.99 4.23 4.57 60 65 4.49 5.01 5.32 4.48 4.64 65 60 4.38 4.97 5.32 4.38 4.93 65 65 4.72 5.33 5.70 4.71 5.14 65 70 5.07 5.75 6.17 5.05 5.26 70 65 4.93 5.68 6.15 4.91 5.66 70 70 5.40 6.21 6.70 5.36 5.96 70 75 5.89 6.82 7.40 5.81 6.12 75 70 5.69 6.68 7.32 5.62 6.67 75 75 6.37 7.45 8.15 6.23 7.12 75 80 7.07 8.34 9.16 6.78 7.36 - -------------------------------------------------------------------------------------
Rates are based on mortality from 1983 Table a. The rates do not differ by sex. 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. 36 OPTION 4 LIFE INCOME FOR TWO PAYEES 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%
- ------------------------------------------------------------------------------------ ADJUSTED AGES - --------------------- SECOND ANNUITANT ANNUITANT OPTION 4a OPTION 4b OPTION 4c OPTION 4d OPTION 4e - ------------------------------------------------------------------------------------- 55 50 $3.97 $4.35 $4.56 $3.97 $4.31 55 55 4.16 4.54 4.76 4.15 4.42 55 60 4.27 4.73 5.00 4.26 4.48 60 55 4.27 4.73 5.00 4.26 4.70 60 60 4.51 4.99 5.27 4.50 4.84 60 65 4.66 5.25 5.61 4.65 4.93 65 60 4.66 5.25 5.61 4.65 5.22 65 65 4.99 5.61 5.99 4.98 5.42 65 70 5.19 5.97 6.44 5.17 5.54 70 65 5.19 5.97 6.44 5.17 5.93 70 70 5.67 6.49 6.99 5.62 6.23 70 75 5.95 6.96 7.61 5.87 6.40 75 70 5.95 6.96 7.61 5.87 6.95 75 75 6.64 7.73 8.43 6.48 7.40 75 80 7.04 8.39 9.29 6.79 7.64 - -------------------------------------------------------------------------------------
Rates are based on mortality from 1983 Table a. The rates do not differ by sex. 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. 37 OPTION 4 LIFE INCOME FOR TWO PAYEES 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 5.0%
- ------------------------------------------------------------------------------------ ADJUSTED AGES - --------------------- SECOND ANNUITANT ANNUITANT OPTION 4a OPTION 4b OPTION 4c OPTION 4d OPTION 4e - ------------------------------------------------------------------------------------- 55 50 $4.88 $5.26 $5.48 $4.88 $5.23 55 55 5.04 5.44 5.66 5.04 5.32 55 60 5.15 5.63 5.91 5.14 5.38 60 55 5.15 5.63 5.91 5.14 5.59 60 60 5.37 5.87 6.16 5.37 5.72 60 65 5.52 6.14 6.51 5.51 5.80 65 60 5.52 6.14 6.51 5.51 6.10 65 65 5.83 6.49 6.87 5.82 6.29 65 70 6.04 6.84 7.34 6.00 6.41 70 65 6.04 6.84 7.34 6.00 6.81 70 70 6.49 7.35 7.87 6.44 7.08 70 75 6.77 7.84 8.51 6.68 7.25 75 70 6.77 7.84 8.51 6.68 7.81 75 75 7.45 8.60 9.33 7.27 8.25 75 80 7.86 9.28 10.20 7.57 8.49 - -------------------------------------------------------------------------------------
Rates are based on mortality from 1983 Table a. The rates do not differ by sex. 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. 38 AETNA LIFE INSURANCE AND ANNUITY COMPANY HOME OFFICE: 151 Farmington Avenue Hartford, Connecticut 06156 (800) 525-4225 Group Combination Annuity Contract Nonparticipating ALL PAYMENTS AND VALUES PROVIDED BY THE GROUP ANNUITY 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 MARKET 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. ------------------------------------------------------------ [LOGO] AETNA LIFE INSURANCE AND ANNUITY COMPANY HOME OFFICE: 151 Farmington Avenue Hartford, Connecticut 06156 (800) 525-4225 You may call the toll-free number shown above to get answers to your questions or help to resolve a complaint. Aetna Life Insurance and Annuity Company, herein called Aetna, agrees to pay the benefits stated in the Contract. - -------------------------------------------------------------------------------- CERTIFICATE OF To the Certificate Holder: GROUP ANNUITY COVERAGE Aetna certifies that coverage is in force for you under the stated Group Annuity Contract and Certificate numbers. All data shown here is taken from Aetna records and is based upon information furnished by you. This Certificate is a summary of the Group Annuity Contract provisions. It replaces any and all prior certificates, riders, or amendments issued to you under the stated Contract and Certificate numbers. This Certificate is for information only and is not a part of the Contract. THE VARIABLE FEATURES OF THE GROUP CONTRACT ARE DESCRIBED IN PARTS III AND V. - -------------------------------------------------------------------------------- RIGHT TO You may cancel this Certificate within 10 days of receiving CANCEL it by returning this Certificate 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 Certificate 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. /s/ Dan Kearney /s/ Lucille M. Nickerson President Secretary - ------------------------------------------------------------------------------ Contract Holder Group Annuity Contract No. ORP PENSION NJ VF0705 - ------------------------------------------------------------------------------- Your Name Certificate No. MORTIMER SNERD 9810351100705ER - ------------------------------------------------------------------------------- Type of Plan OPTIONAL RETIREMENT PRODUCT - ------------------------------------------------------------------------------- The underlying group combination annuity contract is delivered in NEW JERSEY and is subject to the laws of that jurisdiction. ALL PAYMENTS AND VALUES PROVIDED BY THE GROUP ANNUITY CONTRACT, WHEN BASED ON INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT. THIS CERTIFICATE CONTAINS A MARKET VALUE ADJUSTMENT FORMULA. APPLICATION OF A MARKET 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 OFITS MATURITY. FORM NO. GTCC-95 (ORP) SPECIFICATIONS - -------------------------------------------------------------------------------- GUARANTEED There are guaranteed interest rates for amounts held in INTEREST RATE the Fixed Plus Account and the GA Account. (See Certificate Schedule I). - ------------------------------------------------------------------------------- DEDUCTIONS FROM There will be deductions for mortality and expense THE SEPARATE risks and asset based sales charge and administrative ACCOUNT fees. (See 3.05 and 5.08) - ------------------------------------------------------------------------------- DEDUCTION FROM Contribution(s) are subject to a deduction for premium CONTRIBUTION(S) taxes, if any. (See 3.01.) 2 CONTRACT SCHEDULE I ACCUMULATION PERIOD SEPARATE ACCOUNT - ------------------------------------------------------------------------------- SEPARATE ACCOUNT: Variable Annuity Account C CHARGES TO SEPARATE A daily charge is deducted from any portion of the ACCOUNT: Current Value allocated to the Separate Account. The daily charge is at an annual effective rate of 1.40% for Annuity mortality and expense risks, asset based sales charge and profit and a daily administrative charge which will not exceed 0.25% on an annual basis. FIXED PLUS ACCOUNT - ------------------------------------------------------------------------------- MINIMUM GUARANTEED 3% (effective annual rate of return). INTEREST RATE: Beginning on the tenth anniversary of the effective date of an Individual Account, Aetna will credit amounts with an interest rate that is 0.25% higher than the then-declared interest rate for Individual Accounts before the tenth anniversary. PARTIAL WITHDRAWAL: The 20% limit applicable to partial withdrawal from the Fixed Plus Account will be waived when the withdrawal is: (a) due to the Participant's death, (within six (6) months of the Participant's date of death), before Annuity payments begin. This partial withdrawal may only be exercised once; or (b) used to purchase Annuity benefits. GUARANTEED ACCUMULATION (GA ACCOUNT) - -------------------------------------------------------------------------------- MINIMUM GUARANTEED 3% (effective annual rate of return). INTEREST RATE: i CONTRACT SCHEDULE I ACCUMULATION PERIOD (CONT'D) SEPARATE ACCOUNT, FIXED PLUS ACCOUNT AND GA ACCOUNT - ------------------------------------------------------------------------------ TRANSFERS: An unlimited number of Transfers may be made during the Accumulation Period. Aetna allows 12 free Transfers in any calendar year. Thereafter, Aetna reserves the right to charge $10 for each subsequent Transfer. SYSTEMATIC WITHDRAWAL The Specified Payment may not be greater than 20% OPTION (SWO): of the Individual Account's Current Value at the time of election. The Specified Period may not be less than five years. The Specified Percentage may not be greater than 20%. See Section 1. - DEFINITIONS for explanations. ii CONTRACT SCHEDULE II ANNUITY PERIOD SEPARATE ACCOUNT - ------------------------------------------------------------------------------- CHARGES TO SEPARATE A daily charge at an annual effective rate of ACCOUNT: 1.25% for Annuity mortality and expense risks. The administrative charge is established upon election of an Annuity option. This charge will not exceed 0.25%. VARIABLE ANNUITY ASSUMED If a Variable Annuity is chosen, an assumed annual ANNUAL NET RETURN RATE: net return rate of 5.0% may be elected. If 5.0% is not elected, Aetna will use an assumed annual net return rate of 3.5%. The assumed annual net return rate factor for 3.5% per year is 0.9999058. The assumed annual net return rate factor for 5.0% per year is 0.9998663. If the portion of a Variable Annuity payment for any Fund is not to decrease, the Annuity return factor under the Separate Account for that Fund must be: (a) 4.75% on an annual basis plus an annual return of up to 0.25% 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 (b) 6.25% on an annual basis plus an annual return of up to 0.25% to offset the administrative charge set at the time Annuity payments commence, if an assumed annual net return rate of 5% is chosen. ANNUITY OPTION: Under the option "Payments for a Stated Period of Time": For amounts invested in the GA Account or one or more of the Fund(s), the number of years must be at least five (5) and not more than thirty (30) and the Annuity may be a Fixed or Variable Annuity. For amounts invested in the Fixed Plus Account, the number of years must be at least five (5) and not more than thirty (30) and the Annuity must be a Fixed Annuity. FIXED ANNUITY - ------------------------------------------------------------------------------- MINIMUM GUARANTEED 3% (effective annual rate of return). INTEREST RATE: See Section 1. - DEFINITIONS for explanations. iii TABLE OF CONTENT I. DEFINITIONS - -------------------------------------------------------------------------- PAGE 1.01 Accumulation Period . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.02 Adjusted Current Value. . . . . . . . . . . . . . . . . . . . . . . . 6 1.03 Annuitant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.04 Annuity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.05 Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.06 Code. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.07 Contract Holder . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.08 Contribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.09 Current Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.10 Deposit Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.11 Fixed Plus Account. . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.12 Fixed Plus Account Guaranteed Interest Rate . . . . . . . . . . . . . 7 1.13 Fixed Annuity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.14 Fund(s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.15 General Account . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.16 Guaranteed Accumulation Account (GA Account). . . . . . . . . . . . . 7 1.17 GA Account Guaranteed Interest Rate . . . . . . . . . . . . . . . . . 7 1.18 Guaranteed Term . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.19 Individual Account. . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.20 Loan Account. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.21 Market Value Adjustment (MVA) . . . . . . . . . . . . . . . . . . . . 8 1.22 Matured Term Value. . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.23 Matured Term Value Transfer . . . . . . . . . . . . . . . . . . . . . 8 1.24 Maturity Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.25 Net Contribution. . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.26 Nonunitized Separate Account. . . . . . . . . . . . . . . . . . . . . 8 1.27 Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.28 Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.29 Reinvestment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1.30 Separate Account. . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3 PAGE 1.31 Transfer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 1.32 Valuation Period. . . . . . . . . . . . . . . . . . . . . . . . . . . .9 1.33 Variable Annuity. . . . . . . . . . . . . . . . . . . . . . . . . . . .9 II. GENERAL PROVISIONS - ------------------------------------------------------------------------------- 2.01 Change of Contract. . . . . . . . . . . . . . . . . . . . . . . . . . .9 2.02 Change of Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.03 Nonparticipating Contract . . . . . . . . . . . . . . . . . . . . . . 11 2.04 Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.05 State Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.06 Control of Contract . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.07 Misstatements and Adjustments . . . . . . . . . . . . . . . . . . . . 12 2.08 Incontestability. . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2.09 Grace Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2.10 Individual Certificates . . . . . . . . . . . . . . . . . . . . . . . 12 III. CONTRIBUTIONS, CURRENT VALUE, AND WIITHDRAWAL PROVISIONS - ------------------------------------------------------------------------------- 3.01 Net Contribution(s) . . . . . . . . . . . . . . . . . . . . . . . . . 12 3.02 Experience Credits. . . . . . . . . . . . . . . . . . . . . . . . . . 12 3.03 Fund Record Units . . . . . . . . . . . . . . . . . . . . . . . . . . 13 3.04 Fund Record Unit Value. . . . . . . . . . . . . . . . . . . . . . . . 13 3.05 Fund Net Return Factors . . . . . . . . . . . . . . . . . . . . . . . 13 3.06 Market Value Adjustment . . . . . . . . . . . . . . . . . . . . . . . 13 3.07 Transfer(s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 3.08 Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 3.09 Notice to the Participant . . . . . . . . . . . . . . . . . . . . . . 18 3.10 Manner and Timing of Distributions. . . . . . . . . . . . . . . . . . 19 3.11 Withdrawal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 3.12 Partial Withdrawal from the Fixed Plus Account. . . . . . . . . . . . 20 3.13 Payment of Fixed Plus Account Full Withdrawal . . . . . . . . . . . . 20 3.14 Alternative Payment of Fixed Plus Account Full Withdrawal . . . . . . 20 4 PAGE 3.15 Payment of Minimum Current Value. . . . . . . . . . . . . . . . . . . 21 3.16 Amount Payable at Death (Before Annuity Payments Start) . . . . . . . 21 3.17 Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 IV. NON-ANNUITY DISTRIBUTION OPTIONS - ------------------------------------------------------------------------------- 4.01 Distribution Options. . . . . . . . . . . . . . . . . . . . . . . . .22 4.02 Estate Conservation Option. . . . . . . . . . . . . . . . . . . . . .22 4.03 Systematic Withdrawal Option. . . . . . . . . . . . . . . . . . . . .23 V. ANNUITY PROVISIONS - ------------------------------------------------------------------------------- 5.01 Choices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26 5.02 Terms of Annuity Options. . . . . . . . . . . . . . . . . . . . . . .26 5.03 Death Provision . . . . . . . . . . . . . . . . . . . . . . . . . . .27 5.04 Fund Annuity Units. . . . . . . . . . . . . . . . . . . . . . . . . .27 5.05 Fund Annuity Unit Value . . . . . . . . . . . . . . . . . . . . . . .28 5.06 Fund Annuity Net Return Factor. . . . . . . . . . . . . . . . . . . .28 5.07 Annuity Options . . . . . . . . . . . . . . . . . . . . . . . . . . .28 5 I. DEFINITIONS - ------------------------------------------------------------------------------- 1.01 ACCUMULATION PERIOD: The period during which Net Contribution(s) are applied to an Individual Account. 1.02 ADJUSTED CURRENT The Current Value (See 1.09) of an Individual Account (See 1.19) plus or minus any applicable aggregate GA Account Market Value Adjustment, if applicable (See 3.06). 1.03 ANNUITANT: If an Annuity provides lifetime benefits, the person whose life expectancy determines the amount and/or duration of Annuity benefit payments. 1.04 ANNUITY: Payment of an income under the Annuity Provisions of Section V: (a) For the life of one or two persons; (b) For a stated period; or (c) For some combination of (a) and (b). 1.05 BENEFICIARY: Each Participant shall name the beneficiary of the Employer and Employee Account. Aetna will pay any portion of the Individual Account(s) Current Value to the beneficiary in accordance with the provisions of Section 3.16. 1.06 CODE: The Internal Revenue Code of 1986, as amended. 1.07 CONTRACT HOLDER: The entity, named on the cover of the Contract, to which the Contract is issued. 1.08 CONTRIBUTION: A payment received at Aetna's Home Office and allocated to the Contract. 1.09 CURRENT VALUE: For an Individual Account (See 1.19), the Current Value is the total of: (a) The amount, if any, in the Fixed Plus Account, with interest earned to date; (b) The amount, if any, in the GA Account, with interest earned to date; and (c) The value of all Fund record units (See 3.04), if any, as of the most recent Valuation Period. 1.10 DEPOSIT PERIOD: A calendar month, a calendar quarter, or any other period of time specified by Aetna during which Net Contribution(s), Transfers and Reinvestments are accepted into the GA Account for one or more Guaranteed Terms. 1.11 FIXED PLUS ACCOUNT: An accumulation option with a guaranteed minimum interest rate. Aetna may credit a higher rate which is not guaranteed. The portion that may be withdrawn or transferred in a 12 month period is restricted (See 3.07, 3.12 and 3.13). 6 1.12 FIXED PLUS ACCOUNT Aetna will add interest daily at an annual rate no GUARANTEED INTEREST less than that shown on Contract Schedule I on any RATE: Net Contribution(s) to the Fixed Plus Account. Aetna may add interest daily at a higher rate determined by its Board of Directors. 1.13 FIXED ANNUITY: An Annuity with payments that do not vary in amount. 1.14 FUND(S): The open-end registered management investment companies (mutual funds) in which the Separate Account invests. 1.15 GENERAL ACCOUNT: The account holding the assets of Aetna, other than those assets held in Aetna's Separate Account(s) and Nonunitized Separate Account(s). 1.16 GUARANTEED ACCUMULATION An accumulation option where Aetna guarantees ACCOUNT (GA ACCOUNT): stipulated rate(s) of interest for a specified period of time. All assets of Aetna, including amounts in the Nonunitized Separate Account, are available to meet the guarantees for the GA Account. 1.17 GA ACCOUNT GUARANTEED Aetna will declare the interest rate(s) applicable INTEREST RATE: to a specific Guaranteed Term at the start of the Deposit Period for that Guaranteed Term. The rate(s) are guaranteed by Aetna for that Deposit Period and the ensuing Guaranteed Term. The Guaranteed Interest Rates are annual effective yields. That is, interest is credited daily at a rate that will produce the Guaranteed Interest Rate over the period of a year. No Guaranteed Interest Rate will ever be less than the Minimum Guaranteed Interest Rate shown on Contract Schedule I. For Guaranteed Terms of one year or less, one Guaranteed Interest Rate is credited for the full Guaranteed Term. For longer Guaranteed Terms, an initial Guaranteed Interest Rate is credited from the date of deposit to the end of a specified period within the Guaranteed Term. There may be different Guaranteed Interest Rate(s) declared for subsequent specified time intervals throughout the Guaranteed Term. 1.18 GUARANTEED TERM: The period of time for which GA Account Guaranteed Interest Rates are guaranteed on Net Contributions, Transfers and Reinvestments made into a current Deposit Period for the GA Account. Such period begins on the day following the close of the Deposit Period and ends on the designated Maturity Date. Guaranteed Terms are offered at Aetna's discretion for various lengths of time ranging up to and including ten years and are classified as follows: SHORT-TERM. Three (3) or fewer years. Amounts allocated to a short-term Term are held in the General Account. LONG-TERM. More than three (3) years, but not more than ten (10). Amounts allocated to a long- term Term are held in the Nonunitized Separate Account. During a Deposit Period, Aetna may make available any number of Guaranteed Terms. The Participant may allocate Net Contributions and Transfers into any or all of the available Guaranteed Terms. 7 1.19 INDIVIDUAL ACCOUNT: This Contract is issued to the Contract Holder. However, Aetna will maintain two Individual Accounts for each Participant. These are: (a) An Employer Account: This Individual Account will be credited with employer Net Contribution(s) and transferred amounts of 401(a) funds, attributable to employer contributions; and (b) An Employee Account: This Individual Account will be credited with employee Net Contribution(s), specifically amounts subject to Code Section 414(h) and transferred amounts of 401(a) funds, attributable to 414(h) contributions. 1.20 LOAN ACCOUNT: An account established for record keeping purposes and credited with the amount on any loan. 1.21 MARKET VALUE ADJUSTMENT An adjustment to the amount withdrawn or (MVA): Transferred from a GA Account Guaranteed Term prior to the end of that Guaranteed Term. The adjustment reflects the change in the value of the investment due to changes in interest rates since the date of deposit and is computed using the formula given in 3.06. The adjustment is expressed as a percentage of each dollar being withdrawn. 1.22 MATURED TERM VALUE: The amount payable on a GA Account Guaranteed Term's Maturity Date. 1.23 MATURED TERM VALUE During the calendar month following a GA Account TRANSFER: Maturity Date, the Participant may notify Aetna's Home Office in writing to Transfer or withdraw all or part of the Matured Term Value, plus interest at the new Guaranteed Rate accrued thereon, from the GA Account without an MVA. This provision only applies to the first such written request received from the Participant during this period for any Matured Term Value. 1.24 MATURITY DATE: The last day of a GA Account Guaranteed Term. 1.25 NET CONTRIBUTION: A Contribution less any applicable premium taxes. 1.26 NONUNITIZED SEPARATE An account established by Aetna under Section ACCOUNT: 38a-433 of the Connecticut General Statutes that holds assets for GA Account Terms (See 1.18) greater than three years. The Contract Holder or Participant does not participate in the investment gain or loss from the assets held in the Nonunitized Separate Account. Such gain or loss is borne entirely by Aetna. Assets in this account may be charged with liabilities arising out of any other Aetna business. 1.27 PARTICIPANT: A person who participates in the Plan named on the cover of the Contract. 1.28 PLAN: The Plan intended to qualify under Section 401(a) of the Code and named on the cover of the Contract. The Plan is not a part of the Contract and Aetna is not bound by its terms. 8 1.29 REINVESTMENT: Aetna will mail a notice to the Participant at least 18 calendar days before a Guaranteed Term's Maturity Date. This notice will contain the Terms available during the current Deposit Periods with their Guaranteed Interest Rate(s) and projected Matured Term Value. If no specific direction is given by the Participant prior to the Maturity Date, each Matured Term Value will be reinvested in the current Deposit Period for a Guaranteed Term of the same duration. If a Guaranteed Term of the same duration is unavailable, each Matured Term Value will automatically be reinvested in the current Deposit Period for the next shortest Guaranteed Term available in the same classification. If no shorter Guaranteed Term is available, the next longer Guaranteed Term will be used. Aetna will mail a confirmation statement to the Participant, the next business day after the Maturity Date. This notice will state the Guaranteed Term and Guaranteed Interest Rate(s) which will apply to the reinvested Matured Term Value. 1.30 SEPARATE ACCOUNT: An account, established by Aetna under Section 38a-433 of the Connecticut General Statutes, that buys and holds shares of the Fund(s) available under the Contract. Income, gains or losses, realized or unrealized are credited or charged to the Separate Account without regard to other income, gains or losses of Aetna. Aetna owns the assets held in the Separate Account and is not a trustee of such amounts. Amounts in the Separate Account are not generally guaranteed and are held at market value. The assets of the Separate Account, to the extent of reserves and other contract liabilities of the Account, cannot be charged with other Aetna liabilities. 1.31 TRANSFER: The movement of invested amounts among the available Fund(s); the Fixed Plus Account and the GA Account during the Accumulation Period. 1.32 VALUATION PERIOD: The period as of 4:15 p.m. Eastern time on each day the New York Stock Exchange is open for business to 4:15 p.m. Eastern time of the next such business day, or such other day that one or more of the Fund(s) determines its net asset value. 1.33 VARIABLE ANNUITY: An Annuity with payments that vary with the net investment results of the Funds available during the Annuity period. II. GENERAL PROVISIONS - ------------------------------------------------------------------------------- 2.01 CHANGE OF CONTRACT: (a) Only an authorized Aetna officer can change the provisions of the Contract and the change must be in writing. (b) Aetna cannot change the amount or terms of Annuity benefit payments after payment has commenced. (c) Aetna may change the following provisions without Contract Holder consent. (1) Any provision that must be changed to comply with state or federal law 9 2.01 CHANGE OF CONTRACT (2) Calculation of the Market Value (CONT'D): Adjustment (3) Estate Conservation Option (4) Systematic Withdrawal Option (5) Allocation of Contributions or Transfers to the Fixed Plus Account (6) New Annuity Options Aetna will notify the Contract Holder, in writing, at least thirty (30) days before the effective date of the change. Such a change will apply to all current and future Individual Accounts. (d) Aetna may change the Tables for determining the amount of Annuity benefit payments without Contract Holder consent. Such a change will not become effective earlier than twelve months after (1) the effective date of the Contract, or (2) the effective date of a previous change. Aetna will notify the Contract Holder, in writing, at least thirty (30) days before the effective date of the change. The change will apply to all current and future Individual Accounts. (e) The Contract Holder must agree to any change in provisions concerning the following: (1) A reduction in the GA Account Minimum Guaranteed Interest Rate (2) A reduction in the Fixed Plus Account Minimum Guaranteed Interest Rate (3) Fund Accumulation Period Net Return Factor (4) Current Value (5) Annuity Unit Value (6) Existing Annuity Options (7) Fixed Annuity Minimum Guaranteed Interest Rates Aetna will notify the Contract Holder, in writing, at least thirty (30) days before the effective date of the proposed change. Such a change will apply to future Individual Accounts. If the Contract Holder does not agree to a proposed change, Aetna reserves the right to: (1) discontinue establishing new Individual Accounts; and (2) discontinue accepting Contributions to existing Individual Accounts. 2.02 CHANGE OF FUND: Aetna, or the Separate Account, may: (a) Change the Fund(s) in which the Separate Account invests; and/or (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 in the Separate Account with respect to the Fund(s) whose shares are to be replaced; 10 2.02 CHANGE OF FUND (b) Deemed necessary by Aetna under the (CONT'D): Investment Company of 1940; or (c) Deemed necessary by Aetna to accomplish the purpose of the Separate Account. Aetna will notify the Contract Holder of any such change. 2.03 NONPARTICIPATING The Contract Holder, Participants, or CONTRACT: Beneficiaries will not have a right to share in the earnings of Aetna. 2.04 PAYMENTS: (a) Aetna will make distributions as directed by the Contract Holder. Aetna will determine the amount of payments based on the Individual Account's Current Value as of the date on which a request is received in good order at Aetna's Home Office. Payments will be made within seven (7) calendar days of receipt of a written request in good order at Aetna's Home Office. (b) Aetna may defer payments: (1) for a period of up to six (6) months (unless not allowed by state law); and (2) as allowed by federal law. 2.05 STATE LAWS: The 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 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. 2.06 CONTROL OF CONTRACT: The Contract is designed to fund a governmental plan which provides for retirement income that is not subject to Title I of the Employee Retirement Income Security Act of 1974 (ERISA), as amended by subsequent law including REA. The Participant may select the investment option(s) for the Employer Account and the Employee Account. Choices made under the 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. No distributions will be made from the Employer Account or the Employee Account without the Contract Holder's written direction to Aetna. (a) Nontransferable and Nonassignable: The Contract and any Individual Accounts are nontransferable and nonassignable, except to Aetna in the event of a loan, or pursuant to a "qualified domestic relations order" as set forth under the Internal Revenue Code of 1986, as it may be amended from time to time. (b) Distributions: A Participant may apply for a distribution from his or her Employee or Employer Account. However, the Contract Holder must certify in writing that the distribution is in accordance with the terms of the Plan. 11 2.06 CONTROL OF CONTRACT (c) Participant Rights/Employee Account: The (CONT'D) Participant has a nonforfeitable right to the value of his or her Employee Account pursuant to the terms of the Plan as interpreted by the Contract Holder. (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. 2.07 MISSTATEMENTS AND If Aetna finds the age of any payee to be ADJUSTMENTS: misstated, the correct facts will be used to adjust payments. 2.08 INCONTESTABILITY: Aetna cannot cancel the Contract because of any error of fact on the application. 2.09 GRACE PERIOD: This Contract will remain in effect even if Contributions are not continued except as provided in 3.15. 2.10 INDIVIDUAL CERTIFICATES: Aetna shall issue certificates to Participants as required by the state in which the 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. III. CONTRIBUTIONS, CURRENT VALUE, AND WITHDRAWAL PROVISIONS - ------------------------------------------------------------------------------- 3.01 NET CONTRIBUTION(S): The Net Contribution equals the actual Contribution less any applicable premium tax. Generally, Aetna will deduct the premium tax when Annuity benefits are purchased (See Section V). If Aetna determines that under applicable state law, it must pay a premium tax when the Contribution is received, or at any other time, it will deduct the tax at that time. The Net Contribution(s) may be allocated among the following investment options: (a) The Fixed Plus Account; and (b) The current Deposit Period(s) for Guaranteed Terms under the GA Account; and (c) The Fund(s) in which the Separate Account invests. Aetna must be told the percentage of all Net Contributions to allocate to one or more of the investment options. Aetna reserves the right to require a minimum Contribution amount per Individual Account. 3.02 EXPERIENCE CREDITS: Aetna may apply experience credits under this Contract. Any such credits will be computed as decided by Aetna. 12 3.03 FUND RECORD UNITS: The portion of the Net Contribution(s) applied to each Fund under the Separate Account will determine the number of Fund record units credited to the Individual Account for that Fund. This number is equal to the Net Contribution applied to the Fund divided by the Fund record unit value (See 3.04) for the Valuation Period in which the Contribution is received in good order. 3.04 FUND RECORD A Fund record unit value is computed by UNIT VALUE: multiplying the net return Factor (See 3.05) for the current Valuation Period by the Fund record unit value for the previous Period. The dollar value of a Fund record unit, Separate Account assets, and Variable Annuity payments may go up or down due to investment gain or loss. 3.05 FUND NET The net return factor(s) are used to compute all RETURN FACTORS: Separate Account record units 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 at the start of the Valuation Period; minus (e) A Separate Account charge at an annual effective rate as shown on Contract Schedule I for Annuity mortality and expense risks, asset based sales charge and profit and a daily administrative charge which will not exceed the amount shown on Contract Schedule I 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. 3.06 MARKET VALUE (a) An MVA will be applied to any withdrawal from ADJUSTMENT: a GA Account Term before the Maturity Date due to: (1) A Transfer; (2) A full or partial withdrawal; 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 in (b). 13 3.06 MARKET VALUE (b) Market value adjusted amounts will be equal ADJUSTMENT to the amount withdrawn multiplied by the (CONT'D): following ratio: x (1 + i) TO THE POWER OF --- 365 ---------------------------------------- x (1 + j) TO THE POWER OF --- 365 Where: i is the Deposit Period Yield j is the Current Yield x is the number of days remaining, (computed from Wednesday of the week of withdrawal) in the Term. (c) The Deposit Period Yield will be determined as follows: (1) 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 Term. (2) 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. (3) 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. (4) In the event that no U.S. Treasury Notes which mature in the last three months of the Term exist, Aetna reserves the right to use the U.S. Treasury Notes that mature in a following quarter. (d) Full and partial withdrawals as well as Transfers made within six (6) months after the Participant's date of death under the Amount Payable at Death provision (See 3.16) will be the greater of: (1) The aggregate MVA amount which is the sum of all market value adjusted amounts calculated due to a withdrawal of amounts (for withdrawal or Transfer) from Terms prior to the end of those Terms. The aggregate MVA may be either positive or negative; or (2) The applicable portion of the Current Value in the GA Account. 14 3.06 MARKET VALUE (e) After the six month period, the withdrawal or ADJUSTMENT Transfer will be the aggregate MVA amount (CONT'D): (i.e.,including all MVAs). (f) 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. 3.07 TRANSFERS: Before an Annuity option is elected, all or any portion of the Adjusted Current Value of the Individual Account (subject to the limitations described below) may be transferred from any Fund, the Fixed Plus Account or the GA Account: (a) To any Fund; or (b) To the Fixed Plus Account; or (c) To any Guaranteed Term of the GA Account with a different classification available in the Current Deposit Period. Transfer requests can be submitted as a percentage or as a dollar amount. Aetna may establish a minimum Transfer amount. Within a Guaranteed Term classification, the amount transferred will be withdrawn from the oldest Deposit Period, then from the next oldest, and so on until the amount requested is satisfied. Amounts applied to Guaranteed Terms of the GA Account may not be transferred to the Funds, the Fixed Plus Account or to another Guaranteed Term during the Deposit Period or 90 days after the close of the Deposit Period except for Matured Term Value(s) during the calendar month following the Term's Maturity Date. Transfers from Guaranteed Terms of the GA Account are subject to the MVA provisions of 3.06. During each rolling twelve (12) month period, up to 20% of the Fixed Plus Account value may be transferred to one or more of the Fund(s), and/or the GA Account's then-current Deposit Period. The 20% limit is reduced by any partial withdrawals, Transfers or amounts taken as a loan or used to purchase an Annuity during the twelve (12) month period. Aetna reserves the right to include amounts paid under 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. The Participant may make an unlimited number of Transfers during the Accumulation Period. The number of free Transfers allowed by Aetna is shown on Contract Schedule I. Additional Transfers may be subject to a Transfer fee as shown on Contract Schedule I. Transfers from the GA Account of a Matured Term Value on or within one calendar month of a Term's Maturity Date do not count against the annual Transfer limit. 15 3.08 LOANS: During the Accumulation Period, the Participant may request a loan from his or her Individual Account by submitting a loan request form. The loan effective date is the date Aetna receives a loan request form in good order at its Home Office. A loan will not be allowed within 12 months of the effective date of any prior loan. The Employee and Employer Accounts Current Value must be at least $2,000 and the minimum loan amount is $1,000. A loan that meets provisions set forth in Code Section 72(p) is not considered a taxable distribution. (a) The amount available for a loan is calculated based on the Current Value of the Employer and Employee Accounts. The loan amount is limited to the lesser of: (1) 50% of the Employee and Employer Accounts vested Current Value on the date the loan is made; or (2) $50,000 reduced by the amount of the highest outstanding loan balance during the preceding 12 month period that ends the day before the current loan is made. Loans may only be made from the Employee Account and the vested portion of the Employer Account. (b) When the loan is made, only amounts in the Funds and Fixed Plus Account may be withdrawn and transferred to the Loan Account. The amounts will be withdrawn in the same proportion as the Employee Account and the Employer Account's vested Current Value are divided between the Fixed Plus Account and/or Funds on the loan's effective date. If the amount of the loan requested would require the proportionate amount transferred from the Fixed Plus Account to exceed the amount that would be allowed under the 20% limit described in Section 3.07, the Participant may transfer an additional amount from the Fixed Plus Account. The additional amount will be limited and will never exceed 50% of the Fixed Plus Account value on the effective date of the loan, minus any previous partial withdrawal or Transfer during the 12-month period the loan becomes effective. Aetna reserves the right to change the maximum percentage a Participant can transfer from the Fixed Plus Account for the purpose of taking a loan. If the amount needed to make the loan exceeds the Fixed Plus Account Transfer limit, the additional amount will be withdrawn proportionately from the Funds. 16 3.08 LOANS (c) Aetna will record the percentage by (CONT'D): which any amount withdrawn from the Fixed Plus Account exceeds the 20% Transfer limit covered in Section 3.07. The percentage will equal the amount transferred from the Fixed Plus Account that exceeds the 20% withdrawal limit divided by the total amount of the loan. In the event of a loan payment default, this percentage will be used to calculate the penalty that would be applied as described in (h) below. (d) The loan interest rate will be 5%. (e) Interest on the Loan Account balance will be calculated daily at a rate to yield an effective annual rate of 3%. Interest will be credited quarterly based on the loan's effective date and credited to the Funds and/or Fixed Plus Account in the same proportion in which the loan amount was withdrawn. (f) Principal and interest on loans is amortized in quarterly payments over a one to five year term. The Participant chooses the number of years. An exception applies to loans taken for the acquisition of the Participant's principal residence. Loans for this purpose can be amortized quarterly over a one to 20 year term, as elected by the Participant. The Participant must certify in writing that a loan is for the purchase of a principal residence. The term of the loan, elected by the Participant, must result in full repayment no later than December 31 of the calendar year prior to the calendar year in which the Participant reaches age 70 1/2. The entire Loan Account balance may be paid in full at any time. Aetna will bill the Participant for any loan interest accrued to the date the payment is received. Aetna will consider the loan paid when the interest amount is received. (g) A bill in the amount of the quarterly payment due will be mailed to the Participant in advance of the due date. The first due date is three months from the loan's effective date and quarterly thereafter. A loan payment will be in default if it is not received by Aetna at its Home Office by the due date. The principal portion of each loan payment will be credited to the Participant's Fixed Plus Account and/or the Funds in the same proportion in which the loan amount was withdrawn. The Loan Account will then be reduced by the principal portion of the payment. (h) If a payment is in default, a partial withdrawal in an amount equal to the payment due will be deducted from the Individual Account at the close of business on the due date. Payments that are less than the amount due will be returned and if the full payment is not received by the due date, the payment will be in default. 17 3.08 LOANS The required amount will be withdrawn from (Cont'd): the Fixed Plus Account and/or the Funds in the same proportion in which the loan amount was withdrawn. This amount will be applied as a loan payment as set forth in (g) above. Aetna will report to the IRS the amount withdrawn to pay the default. In addition, if the amount withdrawn from the Fixed Plus Account to make the loan exceeded the 20% annual withdrawal limitation described in Section 3.12, a 5% charge will be assessed on the same percentage of the defaulted payment. For example, if 60% of the amount withdrawn was in excess of the limit, then 60% of the amount withdrawn for the defaulted payment will be subject to the additional 5% charge. (i) If a Participant makes a payment that is more than the billed amount, the excess will be credited to the Fixed Plus Account and/or the Funds in the same proportion in which the loan amount was withdrawn. The Loan Account will be reduced by the additional amount. On the following loan anniversary date, future payments will be recalculated to reflect the additional principal payment so that the outstanding balance is amortized in equal quarterly payments over the remaining loan term. (j) Upon the election of an Annuity option or at the Participant's death, any Loan Account will be cancelled. This will result in a taxable distribution of an amount equal to the Loan Account balance. Interest earned but not yet credited will be credited to, and loan interest accrued but not paid will be deducted from, the Current Value in the same proportion in which the loan amount was withdrawn. (k) If there is an outstanding Loan Account balance when a Participant makes a full withdrawal of the Current Value of his or her Individual Account (1) interest earned but not credited will be credited to, and (2) uncollected accrued loan interest will be deducted from the Current Value. The Loan Account will be cancelled resulting in a taxable distribution of an amount equal to the Loan Account balance. 3.09 NOTICE TO THE Each year, Aetna will notify the Participant PARTICIPANT: of: (a) The value of any amounts held in: (i) The Fixed Plus Account, (ii) The GA Account, (iii) The Fund(s) for the Separate Account; (b) The number of any Fund(s) record units; (c) The Fund(s) record unit value(s); (d) The amount available for withdrawal; and (e) The Loan Account value. This information will be as of a date no more than sixty (60) days before the date of the notice. 18 3.10 MANNER AND TIMING (a) A distribution to a Participant may be made OF DISTRIBUTIONS: in a lump sum, as one of the Distribution Options described in Section IV, or as one of the Annuity options in Section V. The Participant may elect the form of distribution subject to certification in writing by the Contract Holder that the Participant is eligible both as to the timing and form of distribution. (b) The distribution of benefits must begin by April 1 of the calendar year following the calendar year in which the Participant attains age 70 1/2 or retires, whichever occurs later. (c) If the Participant does not request commencement of benefits as described above, Aetna will not be responsible for compliance with the Code Section 401(a)(9) minimum distribution requirements or for any adverse tax or other consequences that may result. 3.11 WITHDRAWAL: (a) The Participant may withdraw any portion or all of an Individual Account Adjusted Current Value and transfer such amount to another investment provider under the Plan. The withdrawal and transfer request must be submitted in writing to Aetna. (b) Except as described in Section 3.12, unless the Participant specifies otherwise, partial withdrawals are satisfied by withdrawing amounts on a pro rata basis from each of the investment options in which the Individual Account is invested. (c) When amounts are withdrawn from the GA Account, amounts in Short-Term and Long-Term Classifications are treated as separate investment options and amounts are taken on a pro rata basis. Within a Classification, amounts will be withdrawn starting with the Term still in effect with the oldest Deposit Period. (d) Any amount withdrawn from the Fixed Plus Account will be subject to the limitations in 3.12, 3.13 and 3.14. 19 3.12 PARTIAL WITHDRAWAL The amount eligible for partial withdrawal is FROM THE FIXED PLUS 20% of the Current Value of the amount ACCOUNT: held in the Fixed Plus Account on the day Aetna's Home Office receives a written request, reduced by any previous Transfer, partial withdrawal or amounts taken as a loan or used to purchase Annuity benefits during the prior 12 months. Aetna reserves the right to include amounts paid under ECO and SWO for purposes of applying this 20% limit. However, SWO is unavailable if a Fixed Plus Account Transfer or withdrawal is requested within the current 12 month period. The 20% limit applicable to partial withdrawals from the Fixed Plus Account will be waived under certain conditions and will apply when the partial withdrawal is made on a pro rata basis from all options used under the Participant's Individual Account. (See Contract Schedule I). 3.13 PAYMENT OF FIXED When Aetna receives a full withdrawal PLUS ACCOUNT FULL request, no additional partial WITHDRAWAL: withdrawals or Transfers from the Fixed Plus Account are permitted during the payout period. If a full withdrawal is requested, Aetna will pay any Current Value from the Fixed Plus Account in five payments as follows: (a) 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 that was transferred, withdrawn or used for a loan or to purchase Annuity benefits during the prior 12 months; (b) One-fourth of the remaining Current Value 12 monthslater; (c) One-third of the remaining Current Value 12 months later; (d) One-half of the remaining Current Value 12 months later; and (e) The balance of the Current Value 12 months later. The Fixed Plus Account full withdrawal payment provision will be waived when a withdrawal is: (a) Due to the Participant's death before Annuity benefit payments begin; (b) Used to purchase Annuity benefits; or (c) When the amount in the Fixed Plus Account is $3,500 or less and no amount has been withdrawn, transferred, taken as a loan or used to purchase Annuity benefits during the previous 12 months. Any full withdrawal from the Fixed Plus Account may be cancelled at any time before the end of the payment period. 3.14 ALTERNATIVE PAYMENT As an alternative to 3.13, and as OF FIXED PLUS ACCOUNT permitted under the terms of the Plan, the FULL WITHDRAWAL: Participant may elect a lump sum payment. The lump sum payment will be the Individual Account's Current Value invested in the Fixed Plus Account less a 3% charge provided: (i) the withdrawal is due to the Participant's separation from service with the employer; 20 3.14 ALTERNATIVE PAYMENT (ii) the withdrawal request is received FIXED PLUS OF ACCOUNT at Aetna's Home Office within 60 FULL WITHDRAWAL days of the date the Participant (CONT'D): separates from service with the employer; and (iii) the Contract Holder certifies that the Participant has separated from service and is eligible to receive a lump sum distribution. 3.15 PAYMENT OF MINIMUM If the Individual Accounts Current Value CURRENT VALUE: is less than $3,500, and no Contributions have been received for three (3) years, Aetna may close the Account and pay the Current Value to the Contract Holder in one lump sum. 3.16 AMOUNT PAYABLE AT Aetna will pay any portion of the DEATH (BEFORE ANNUITY Individual Account(s) Current Value, PAYMENTS START): to the Beneficiary when: (a) The Participant dies before Annuity payments start; and (b) The certified copy of the death certificate is received by Aetna. A guaranteed death benefit is available if the Beneficiary requests either a lump sum payment or an Annuity option within the first 6 months after the Participant's death. For each Individual Account, the death benefit is guaranteed to be the greater of: (a) The Current Value of the Individual Account plus aggregate positive MVA, as applicable, on the date the notice of death and the request for payment are received in good order at Aetna's Home Office; or (b) The total of Net Contribution(s) made to the Individual Account minus the total of all partial withdrawals, annuitizations made from the Individual Account and any amount allocated from the Individual Account to the Loan Account. If the payee of the death proceeds is the Participant's surviving spouse, 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 Beneficiary is not the surviving spouse, all of the Current Value must either be applied to an Annuity option within one (1) year of the Participant's death or be paid to the payee within five (5) years of the Participant's death (see Part V). In no event may any payments to the 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. Amounts in the GA Account will be payable as described in Section 3.06(d). 21 3.17 REINSTATEMENT: All or a portion of the proceeds of a full withdrawal of an Individual Account may be reinvested within 30 days after the surrender if allowed by law. Any Market Value Adjustment deducted from GA Account withdrawals will not be included in the reinstatement. Amounts will be reinstated among the Fixed Plus Account, GA Account, and the Fund(s) in the same proportion as they were at the time of withdrawal. Any amount 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 Individual Account(s) closed because the Current Value was less than $3,500 may not be reinstated (see 3.15). Reinstatement is permitted only once per Individual Account. IV. NON-ANNUITY DISTRIBUTION OPTIONS - -------------------------------------------------------------------------------- 4.01 DISTRIBUTION OPTIONS: The Participant or a surviving spouse may elect one of the two following distribution options. A surviving spouse is eligible to elect one of these options provided the spouse is the designated Beneficiary under the Plan and the Participant had died before electing an Annuity option and before the date for required minimum distributions. 4.02 ESTATE CONSERVATION (a) With the Estate Conservation Option OPTION: (ECO) a portion of the Individual Account Current Value is automatically surrendered and distributed each year. Each payment will be withdrawn from the Individual Account in the same proportion as assets are held in the Funds, the GA Account, and the Fixed Plus Account on the date the payment is made. (b) Payments under ECO will comply with the incidental death benefit test set forth in Code Section 401(a)(9). (c) Distribution Amount: Each year that ECO is in effect, Aetna will calculate and distribute an amount equal to the minimum distribution required under the Code. The annual distribution will be determined by dividing the Individual Account Current Value as of December 31 of the year prior to the payment year, by a single or joint life expectancy factor. If joint life expectancy is elected, the Beneficiary under ECO must be the same as the beneficiary of any death benefits under the Plan. (d) Life Expectancy Factor: For the Participant, the life expectancy factor is either single life or joint life expectancy as elected by the Participant, based on tables in IRS regulations. For a spouse Beneficiary, only a single life expectancy is available. Life expectancy factors will be recalculated each year, unless prohibited by the Code or regulations. 22 4.02 ESTATE CONSERVATION If joint life expectancy is elected OPTION (CONT'D): and the Participant or spouse dies, payments will be based on the survivor's life expectancy. If the Beneficiary is not the spouse and the Beneficiary dies first, the joint life expectancy continues to be used to determine payments. If a single life expectancy is elected, at the death of the Participant (or the spousewho is the designated Beneficiary electing ECO after the Participant's death), the entire value must be distributed no later than the December 31 of the year following the year of the Participant's (or spouse's) death. If a joint life expectancy is elected, and both the Participant and spouse have died, any remaining Current Value must be distributed no later than the December 31 of the year following the year of the second death. If a joint life expectancy is elected and both the Participant and non-spouse Beneficiary have died, any remaining Current Value will be distributed to a successor Beneficiary or, if none has been named, then to the estate of the last to die. (e) 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. (f) Distribution Date: The Participant shall specify an annual distribution date. The earliest date is the first day of the calendar year in which he or she attains age 70 1/2, or retirement if later. For a spouse Beneficiary electing ECO after the Participant's death, the earliest date is the date of the Participant's death. The first distribution date may be the 15th of any month, or such other date Aetna may designate or allow. Subsequent distributions will be made on the anniversary of that date. (g) Election and Revocation: The Participant may elect ECO by submitting a completed and signed election form to Aetna's Home Office. The Contract Holder must certify that the Participant is eligible both as to the timing and form of distribution. Once ECO is elected, the Participant may revoke it 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 Individual Account. 4.03 SYSTEMATIC WITHDRAWAL (a) With the Systematic Withdrawal OPTION: Option (SWO) a portion of the Individual Account Current Value is automatically distributed each year. A SWO payment will be calculated on the Individual Account's Current Value. Each payment will be withdrawn from the Individual Account in the same proportion as assets are held in the Funds, the GA Account, and the Fixed Plus Account on the date the payment is made. 23 4.03 SYSTEMATIC WITHDRAWAL (b) Payments under SWO will comply with OPTION (CONT'D): the incidental death benefit test set forth in Code Section 401(a)(9). (c) Distribution Amounts: The Participant may elect one of the three payment methods described below. These calculations may be changed as necessary to comply with the Code minimum distribution rules. If joint life expectancy is elected, the Beneficiary under SWO must be the same as the beneficiary of any death benefits under the Plan. (1) Specified Payment: Payments of a designated annual dollar amount. The annual amount may not be greater than the percentage of the Current Value at time of election as shown on Contract Schedule I. This amount will remain constant unless a higher amount is required under Code minimum distribution rules. Each year that the Specified Payment is in effect, Aetna will calculate the minimum required distribution by dividing the Individual Account Current Value as of December 31 of the year prior to the payment year by a life expectancy factor, and distribute this amount if it is larger than the Specified Payment. (2) Specified Period: Payments are made over a period of time. The number of years selected may not be less than the number of years shown on Contract Schedule I, unless otherwise required by Code minimum distribution rules. The maximum specified period will be limited by the life expectancy factor. The amount paid each year is calculated by dividing the Individual Account Current Value as of December 31 of the prior year by the number of payment years remaining. (3) Specified Percentage: The specified percentage chosen cannot be greater than the percentage shown on Contract Schedule I. The 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. (d) Life Expectancy Factor: The life expectancy factor for the initial distribution year is either single life or joint life expectancy as elected by the Participant, based on tables in IRS regulations. For a spouse Beneficiary, only a single life expectancy is available. With each subsequent year, the life expectancy factor will be the life expectancy factor for the initial distribution year, reduced by one. 24 4.03 SYSTEMATIC WITHDRAWAL If the joint life expectancy is elected OPTION (CONT'D): and the Participant or the Beneficiary dies on or after the required beginning date for minimum distributions to the Participant, the joint life expectancy factor will continue to be reduced by one for each distribution year. Payments will continue unless the Contract Holder elects an alternate payment mode on behalf of the survivor. Any payment mode elected on behalf of the Beneficiary must provide payments to be made at least as rapidly as those made prior to the Participant's death. If the Participant dies before the required beginning date for minimum distributions, SWO payments will cease and the Beneficiary may claim the death benefit in accordance with the terms of the Contract. If the Beneficiary is not the Participant's spouse, the entire death benefit must be either applied to an Annuity option within one (1) year of the Participant's death, or be paid within five (5) years of the Participant's death. If the Beneficiary is the Participant's spouse, the distribution is not required to begin earlier than when the Participant would have attained age 70 1/2. If joint life expectancy is elected and the Beneficiary dies before the required beginning date for minimum distributions to the Participant, payments to the Participant will continue to be based on joint life expectancy reduced by one for each distribution year. (e) 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 SWO payment, Aetna will distribute the entire balance of the Individual Account. (f) Distribution Date: The Participant or spouse Beneficiary shall specify the distribution date. The earliest date is the first day of the calendar year in which the Participant attains age 59 1/2 or age 55, if separated from service with the employer at or after age 55. SWO payments will be made monthly, quarterly, semi-annually or annually on the 15th of any month, or such other date Aetna may designate or allow. If payments are made more frequently than annually, the annual amount payable each year is divided by the number of payments due per year. At its discretion Aetna may require a minimum initial payment amount. (g) Election and Revocation: The Participant may elect SWO by submitting a completed and signed election form to Aetna's Home Office. Once SWO is elected, the Participant may revoke it by submitting a written request to Aetna's Home Office. Any revocation will apply only to amounts not yet paid. Generally, SWO may be elected only once, however, if SWO is elected and then revoked before the date distributions were required to begin under Code Section 401(a)(9), SWO may be elected on behalf of a spouse Beneficiary after the death of the Participant. 25 V. ANNUITY PROVISIONS - -------------------------------------------------------------------------------- 5.01 CHOICES: (a) The Participant may elect an Annuity option by telling Aetna to pay all or any portion of the Individual Account(s) Current Value (minus any applicable premium tax if not previously deducted) as a premium for an Annuity under option 2, 3, or 4 (see 5.07). A completed and signed election form must be submitted to the Home Office. The form must include Contract Holder certification that the Participant is eligible for a distribution under the terms of the Plan and that the Annuity option chosen is permitted under the terms of the Plan. Any election of an Annuity option must comply with the minimum distribution requirements of Code Section 401(a)(9), including the incidental death benefit rule, and the regulations thereunder. This restriction does not apply if option 4 is chosen and the second Annuitant is the spouse of the Participant. (b) Generally, the first Annuity payment must be made by April 1 of the calendar year following the year in which the Participant turns age 70 1/2 or retires, if later. (c) When an Annuity option is chosen the Participant must designate whether the Annuity will be Fixed or Variable and whether the underlying investment will be: (1) The General Account; (2) One or more of the available Fund(s); or (3) A combination of (1) and (2). If a Fixed Annuity is chosen, the Annuity purchase rate for the option chosen reflects at least the Minimum Guaranteed Interest Rate (See Contract Schedule II), but may reflect a higher interest rate. If a Variable Annuity is chosen, the initial Annuity payment for the option chosen reflects the assumed annual return rate elected (See Contract Schedule II). (d) Payments will be made on a monthly basis unless the Participant requests otherwise. (e) Once elected, an Annuity option may not be revoked, except for option 2 when elected on a variable basis. 5.02 TERMS OF ANNUITY (a) No choice of any Annuity option may OPTIONS: be made if the first payment would be less than $20 or if the total payments in a year would be less than $100. (b) If a Fixed Annuity under option 2, 3 or 4 is elected and a larger Annuity payment would result from applying the Adjusted Current Value to a current Aetna single premium immediate Annuity, Aetna will make the larger payment. 26 5.02 TERMS OF ANNUITY (c) For purposes of calculating the OPTIONS (CONT'D): guaranteed first payment of a Variable Annuity or the payments for a Fixed Annuity, the Annuitant's and second Annuitant's adjusted age will be used. The Annuitant's and second Annuitant's adjusted age is his or her age as of the birthday closest to the Annuity commencement date reduced by one year for Annuity commencement dates occurring during the period of time from July 1, 1992 through December 31, 1999. The Annuitant's and second Annuitant's age will be reduced by two years for Annuity commencement dates occurring during the period of time from January 1, 2000 through December 31, 2009. The Annuitant's and second Annuitant's age will be reduced by one additional year for Annuity commencement dates occurring in each succeeding decade. The Annuity rates for options 3 and 4 are based on mortality from 1983 Table a. (d) Assumed Annual Net Return Rate is the interest rate used to determine the amount of the first Annuity payment under a Variable Annuity. The Separate Account must earn this rate plus enough to cover the mortality and expense risks charges (which may include profit) and administrative charges if future Variable Annuity Payments are to remain level. 5.03 DEATH PROVISION: When an Annuitant dies under options 2 or 3, the present value of any remaining guaranteed payments will be paid in one sum to the Beneficiary or, upon the election of the Beneficiary, any remaining payments will continue to the Beneficiary. If a 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 Beneficiary's estate. The rate used to determine the present value for a lump sum payment will be the rate used to determine the first Annuity payment. 5.04 FUND ANNUITY The number of Fund(s) annuity units is based UNITS: 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 5.05) 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. 27 5.05 FUND ANNUITY For any Valuation Period, a Fund(s) annuity UNIT VALUE: unit value is equal to: (a) The value for the previous Period; multiplied by (b) The Annuity net return factor(s) (See 5.06) for the Period; multiplied by (c) A factor to reflect the assumed annual net return rate. (See Contract Schedule II). The dollar value of a Fund annuity unit values and Annuity payments may go up or down due to investment gain or loss. Payments shall not be changed due to changes in the mortality or expense results or administrative charges. 5.06 FUND ANNUITY NET The Annuity net return factor(s) are RETURN FACTOR: used to compute all Separate Account Annuity payments for any Fund. The Annuity net return factor(s) 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(s) record units and Fund(s) annuity units of the Separate Account at the start of the Valuation Period; minus (e) A daily charge for Annuity mortality and expense risks, which may include profit, (at the annual rate as shown on Contract Schedule II) and a daily administrative charge. 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. 5.07 ANNUITY OPTIONS: Option 1 -- Payments of Interest on Sum Left with Aetna -- This Option may be used only by the 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 5.01). The 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. 28 5.07 ANNUITY OPTIONS If the Beneficiary is the Participant's surviving (CONT'D): spouse, payment may be deferred to a date not later than when the Participant would have attained age 70 1/2. If the Beneficiary is not a spouse, the entire sum must either be applied to an Annuity option within one year of the Participant's death or be paid within five years of the Participant's death. Option 2 -- Payments for a Stated Period of Time -- An Annuity will be paid for the number of years chosen (See Contract Schedule II). If payments for this option are made under a Variable Annuity, the present value of any remaining payments may be withdrawn at any time. Option 3 -- Life Income -- An Annuity will be paid for the life of the Annuitant. Aetna may also guarantee payments for 60, 120, 180, or 240 months if so directed by the Participant. Option 4 -- Life Income based upon the lives of two Annuitants -- An Annuity will be paid during the lives of the Annuitant and a second Annuitant. Payments will continue until both Annuitants have died. When this option is chosen, a choice of the following must be made: (a) 100% of the payment to continue after the first death; (b) 66 2/3% of the payment to continue after the first death; (c) 50% of the payment to continue after the first death; (d) Payments for a minimum of 120 months, with 50% of the payment to continue after the first death; or (e) 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. 29 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 3.0% - -------------------------------------------------------------------------------- GUARANTEED MONTHLY QUARTERLY SEMI-ANNUAL ANNUAL YEARS RATE PAYMENT PAYMENT PAYMENT PAYMENT - -------------------------------------------------------------------------------- 3 3.00% $28.99 $86.76 $172.88 $343.23 4 3.00% 22.06 66.02 131.56 261.19 5 3.00% 17.91 53.59 106.78 211.99 6 3.00% 15.14 45.30 90.27 179.22 7 3.00% 13.16 39.39 78.49 155.83 8 3.00% 11.68 34.96 69.66 138.31 9 3.00% 10.53 31.52 62.81 124.69 10 3.00% 9.61 28.77 57.33 113.82 11 3.00% 8.86 26.52 52.85 104.93 12 3.00% 8.24 24.65 49.13 97.54 13 3.00% 7.71 23.08 45.98 91.29 14 3.00% 7.26 21.73 43.29 85.95 15 3.00% 6.87 20.56 40.96 81.33 16 3.00% 6.53 19.54 38.93 77.29 17 3.00% 6.23 18.64 37.14 73.74 18 3.00% 5.96 17.84 35.56 70.59 19 3.00% 5.73 17.13 34.14 67.78 20 3.00% 5.51 16.50 32.87 65.26 21 3.00% 5.32 15.92 31.72 62.98 22 3.00% 5.15 15.40 30.68 60.92 23 3.00% 4.99 14.92 29.74 59.04 24 3.00% 4.84 14.49 28.88 57.33 25 3.00% 4.71 14.09 28.08 55.76 26 3.00% 4.59 13.73 27.36 54.31 27 3.00% 4.47 13.39 26.68 52.97 28 3.00% 4.37 13.08 26.06 51.74 29 3.00% 4.27 12.79 25.49 50.60 30 3.00% 4.18 12.52 24.95 49.53 - -------------------------------------------------------------------------------- 30 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 Variable Annuity with Assumed Net Return Rate of 3.5% - -------------------------------------------------------------------------------- MONTHLY QUARTERLY SEMI-ANNUAL ANNUAL YEARS PAYMENT PAYMENT PAYMENT PAYMENT - -------------------------------------------------------------------------------- 3 $29.19 $87.33 $173.91 $344.86 4 22.27 66.61 132.65 263.04 5 18.12 54.19 107.92 213.99 6 15.35 45.92 91.44 181.32 7 13.38 40.01 79.69 158.01 8 11.90 35.59 70.88 140.56 9 10.75 32.16 64.05 127.00 10 9.83 29.42 58.59 116.18 11 9.09 27.18 54.13 107.34 12 8.46 25.32 50.42 99.98 13 7.94 23.75 47.29 93.78 14 7.49 22.40 44.62 88.47 15 7.10 21.24 42.31 83.89 16 6.76 20.23 40.29 79.89 17 6.47 19.34 38.51 76.37 18 6.20 18.55 36.94 73.25 19 5.97 17.85 35.54 70.47 20 5.75 17.22 34.28 67.98 21 5.56 16.65 33.15 65.74 22 5.39 16.13 32.13 63.70 23 5.24 15.66 31.19 61.85 24 5.09 15.24 30.34 60.17 25 4.96 14.85 29.56 58.62 26 4.84 14.49 28.85 57.20 27 4.73 14.15 28.19 55.90 28 4.63 13.85 27.58 54.69 29 4.53 13.57 27.02 53.57 30 4.45 13.30 26.49 52.53 - -------------------------------------------------------------------------------- 31 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 Variable Annuity with Assumed Net Return Rate of 5.0% - -------------------------------------------------------------------------------- MONTHLY QUARTERLY SEMI-ANNUAL ANNUAL YEARS PAYMENT PAYMENT PAYMENT PAYMENT - -------------------------------------------------------------------------------- 3 $29.80 $89.04 $176.99 $349.72 4 22.89 68.38 135.93 268.58 5 18.74 56.00 111.33 219.98 6 15.99 47.77 94.96 187.64 7 14.02 41.90 83.30 164.59 8 12.56 37.52 74.58 147.35 9 11.42 34.11 67.81 133.99 10 10.51 31.40 62.42 123.34 11 9.77 29.19 58.03 114.66 12 9.16 27.36 54.38 107.45 13 8.64 25.81 51.31 101.39 14 8.20 24.50 48.69 96.21 15 7.82 23.36 46.44 91.75 16 7.49 22.37 44.47 87.88 17 7.20 21.51 42.75 84.48 18 6.94 20.74 41.23 81.47 19 6.71 20.06 39.88 78.80 20 6.51 19.46 38.68 76.42 21 6.33 18.91 37.59 74.28 22 6.17 18.42 36.62 72.35 23 6.02 17.98 35.73 70.61 24 5.88 17.57 34.93 69.02 25 5.76 17.20 34.20 67.57 26 5.65 16.87 33.53 66.25 27 5.54 16.56 32.92 65.04 28 5.45 16.28 32.35 63.93 29 5.36 16.01 31.83 62.90 30 5.28 15.77 31.35 61.95 - -------------------------------------------------------------------------------- 32 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 3.0% PAYMENTS GUARANTEED FOR A STATED PERIOD OF MONTHS - -------------------------------------------------------------------------------- ADJUSTED AGE OF ANNUITANT NONE 60 120 180 240 - -------------------------------------------------------------------------------- 50 $4.05 $4.05 $4.03 $3.99 $3.93 51 4.12 4.11 4.09 4.05 3.99 52 4.19 4.19 4.16 4.11 4.04 53 4.27 4.26 4.23 4.18 4.10 54 4.35 4.34 4.31 4.25 4.16 55 4.44 4.42 4.39 4.32 4.22 56 4.53 4.51 4.47 4.40 4.29 57 4.62 4.61 4.56 4.48 4.35 58 4.72 4.71 4.65 4.56 4.42 59 4.83 4.81 4.75 4.64 4.49 60 4.95 4.93 4.86 4.73 4.55 61 5.07 5.05 4.97 4.83 4.62 62 5.20 5.17 5.08 4.92 4.69 63 5.34 5.31 5.20 5.02 4.76 64 5.49 5.45 5.33 5.12 4.83 65 5.65 5.61 5.47 5.22 4.89 66 5.82 5.77 5.61 5.33 4.96 67 6.01 5.94 5.75 5.44 5.02 68 6.20 6.13 5.91 5.54 5.08 69 6.41 6.33 6.07 5.65 5.14 70 6.64 6.54 6.23 5.76 5.19 71 6.88 6.76 6.41 5.86 5.24 72 7.14 7.00 6.59 5.97 5.28 73 7.43 7.26 6.77 6.06 5.32 74 7.73 7.53 6.96 6.16 5.35 75 8.06 7.82 7.14 6.25 5.38 - -------------------------------------------------------------------------------- Rates are based on mortality from 1983 Table a. The rates do not differ by sex. 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. 33 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 3.5% PAYMENTS GUARANTEED FOR A STATED PERIOD OF MONTHS - -------------------------------------------------------------------------------- ADJUSTED 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 are based on mortality from 1983 Table a. The rates do not differ by sex. 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. 34 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 - -------------------------------------------------------------------------------- ADJUSTED 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 are based on mortality from 1983 Table a. The rates do not differ by sex. 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. 35 OPTION 4 LIFE INCOME FOR TWO PAYEES 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 3.0% - -------------------------------------------------------------------------------- ADJUSTED AGES - ------------------------ SECOND ANNUITANT ANNUITANT OPTION 4a OPTION 4b OPTION 4c OPTION 4d OPTION 4e - -------------------------------------------------------------------------------- 55 50 $3.69 $4.05 $4.27 $3.69 $4.03 55 55 3.88 4.25 4.47 3.87 4.14 55 60 4.06 4.47 4.71 4.06 4.20 60 55 3.99 4.44 4.71 3.98 4.42 60 60 4.24 4.71 4.99 4.23 4.57 60 65 4.49 5.01 5.32 4.48 4.64 65 60 4.38 4.97 5.32 4.38 4.93 65 65 4.72 5.33 5.70 4.71 5.14 65 70 5.07 5.75 6.17 5.05 5.26 70 65 4.93 5.68 6.15 4.91 5.66 70 70 5.40 6.21 6.70 5.36 5.96 70 75 5.89 6.82 7.40 5.81 6.12 75 70 5.69 6.68 7.32 5.62 6.67 75 75 6.37 7.45 8.15 6.23 7.12 75 80 7.07 8.34 9.16 6.78 7.36 - -------------------------------------------------------------------------------- Rates are based on mortality from 1983 Table a. The rates do not differ by sex. 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. 36 OPTION 4 LIFE INCOME FOR TWO PAYEES 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 3.5% - -------------------------------------------------------------------------------- ADJUSTED AGES - ------------------------ SECOND ANNUITANT ANNUITANT OPTION 4a OPTION 4b OPTION 4c OPTION 4d OPTION 4e - -------------------------------------------------------------------------------- 55 50 $3.97 $4.35 $4.56 $3.97 $4.31 55 55 4.16 4.54 4.76 4.15 4.42 55 60 4.27 4.73 5.00 4.26 4.48 60 55 4.27 4.73 5.00 4.26 4.70 60 60 4.51 4.99 5.27 4.50 4.84 60 65 4.66 5.25 5.61 4.65 4.93 65 60 4.66 5.25 5.61 4.65 5.22 65 65 4.99 5.61 5.99 4.98 5.42 65 70 5.19 5.97 6.44 5.17 5.54 70 65 5.19 5.97 6.44 5.17 5.93 70 70 5.67 6.49 6.99 5.62 6.23 70 75 5.95 6.96 7.61 5.87 6.40 75 70 5.95 6.96 7.61 5.87 6.95 75 75 6.64 7.73 8.43 6.48 7.40 75 80 7.04 8.39 9.29 6.79 7.64 - -------------------------------------------------------------------------------- Rates are based on mortality from 1983 Table a. The rates do not differ by sex. 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. 37 OPTION 4 LIFE INCOME FOR TWO PAYEES 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% - -------------------------------------------------------------------------------- ADJUSTED AGES - ------------------------ SECOND ANNUITANT ANNUITANT OPTION 4a OPTION 4b OPTION 4c OPTION 4d OPTION 4e - -------------------------------------------------------------------------------- 55 50 $4.88 $5.26 $5.48 $4.88 $5.23 55 55 5.04 5.44 5.66 5.04 5.32 55 60 5.15 5.63 5.91 5.14 5.38 60 55 5.15 5.63 5.91 5.14 5.59 60 60 5.37 5.87 6.16 5.37 5.72 60 65 5.52 6.14 6.51 5.51 5.80 65 60 5.52 6.14 6.51 5.51 6.10 65 65 5.83 6.49 6.87 5.82 6.29 65 70 6.04 6.84 7.34 6.00 6.41 70 65 6.04 6.84 7.34 6.00 6.81 70 70 6.49 7.35 7.87 6.44 7.08 70 75 6.77 7.84 8.51 6.68 7.25 75 70 6.77 7.84 8.51 6.68 7.81 75 75 7.45 8.60 9.33 7.27 8.25 75 80 7.86 9.28 10.20 7.57 8.49 - -------------------------------------------------------------------------------- Rates are based on mortality from 1983 Table a. The rates do not differ by sex. 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. 38 EX-10.1 6 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 7 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. 3 to the Registration Statement on Form N-4 File Nos. 33-91846 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. 3 to the Registration Statement on Form N-4 (File No. 33-91846) and to my being named under the caption "Legal Matters" therein. Very truly yours, /s/ Susan E. Bryant Susan E. Bryant Counsel Aetna Life Insurance and Annuity Company EX-27 8 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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