-----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, DIrMf8IpoRCfqBWMpJ/V7nJjyY0uWMn739eIZ5/KNntsU/tZV5L9z9L8tlaDtg+S sBXDx3posxlidEnDaGfutQ== 0000950146-97-000277.txt : 19970303 0000950146-97-000277.hdr.sgml : 19970303 ACCESSION NUMBER: 0000950146-97-000277 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19970228 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: VARIABLE ANNUITY ACCT C OF AETNA LIFE INSURANCE & ANNUITY CO CENTRAL INDEX KEY: 0000103007 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: CT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1933 Act SEC FILE NUMBER: 033-75974 FILM NUMBER: 97548501 BUSINESS ADDRESS: STREET 1: 151 FARMINGTON AVE CITY: HARTFORD STATE: CT ZIP: 06156 BUSINESS PHONE: 2032734808 MAIL ADDRESS: STREET 1: C/O AETNA LIFE & CASUALTY STREET 2: 151 FARMINGTON AVE CITY: HARTFORD STATE: CT ZIP: 06156 FORMER COMPANY: FORMER CONFORMED NAME: VARIABLE ANNUITY ACCOUNT C OF AETNA VARIABLE ANNUITY LIFE IN DATE OF NAME CHANGE: 19791108 485APOS 1 VARIABLE ANNUITY ACCOUNT C As filed with the Securities and Exchange Registration No. 33-75974 Commission on February 28, 1997 Registration No. 811-2513 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-4 Post-Effective Amendment No. 6 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 Aetna Life Insurance and Annuity Company 151 Farmington Avenue, RC4A, Hartford, Connecticut 06156 Depositor's Telephone Number, including Area Code: (860) 273-7834 Susan E. Bryant, Counsel Aetna Life Insurance and Annuity Company 151 Farmington Avenue, RC4A, Hartford, Connecticut 06156 (Name and Address of Agent for Service) It is proposed that this filing will become effective: [ ] 60 days after filing pursuant to paragraph (a)(2) of Rule 485 [X] on May 1, 1997 pursuant to paragraph (a)(1) 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 expects to file a Rule 24f-2 Notice for the fiscal year ended December 31, 1996 on or before February 28, 1997. 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............................... 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; The Contract - Distribution 7 General Description of Variable Annuity Contracts...................... General Description of Variable Annuity Contracts; Miscellaneous 8 Annuity Period......................... Annuity Period 9 Death Benefit.......................... Death Benefit 10 Purchases and Contract Value........... The Contract 11 Redemptions............................ Withdrawals; Right to Cancel 12 Taxes.................................. Tax Status 13 Legal Proceedings...................... Miscellaneous - Legal Proceedings 14 Table of Contents of the Statement of Additional Information.............. Statement of Additional Information - Table of Contents 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 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. Variable Annuity Account C Prospectus Dated: May 1, 1997 Group Variable Retirement Annuity Contracts For Tax-Deferred Annuity Plans (Section 403(b)), Qualified 401 Plans, and HR 10 Plans The contracts offered in connection with this Prospectus are group installment and single purchase payment variable annuity contracts (the "Contracts") issued by Aetna Life Insurance and Annuity Company (the "Company"). The Contract is designed to fund plans ("Plans") which provide for retirement income and which may allow contributions entitled to tax-deferred treatment under certain sections of the Internal Revenue Code of 1986, as amended (the "Code"). The Contract allows values to accumulate under a credited interest option or variable options through Variable Annuity Account C (the "Separate Account") or in a combination of credited interest and variable options. It also provides for the payment of annuity benefits on a fixed or variable basis, or a combination thereof. The variable funding options currently available through the Separate Account under the Contract described in this Prospectus are as follows: (bullet) Aetna Variable Fund (bullet) Aetna Income Shares (bullet) Aetna Variable Encore Fund (bullet) Aetna Investment Advisers Fund, Inc. (bullet) American Century VP Capital Appreciation (formerly TCI Growth) The credited interest options available for the accumulation of values are the Guaranteed Accumulation Account and the Fixed Account. The Guaranteed Accumulation Account and the Fixed Account are offered only in those states in which they are approved. Except as specifically mentioned, this Prospectus describes only the variable options of the Contract. Information concerning the credited interest options is found in Appendix I and Appendix II, respectively. This Prospectus sets forth concisely the information about the Separate Account that a prospective investor should know before investing. Additional information about the Separate Account is contained in a Statement of Additional Information ("SAI") dated May 1, 1997, which has been filed with the Securities and Exchange Commission and is incorporated herein by reference. The Table of Contents for the SAI is printed in this Prospectus. An SAI may be obtained without charge by indicating the request on the enrollment form or by calling 1-800-232-5422. THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES OF AETNA VARIABLE FUND, AETNA INCOME SHARES, AETNA VARIABLE ENCORE FUND, AETNA INVESTMENT ADVISERS FUND, INC., AMERICAN CENTURY VP CAPITAL APPRECIATION 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. NO PERSON IS AUTHORIZED BY THE COMPANY TO GIVE INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION WITH THE OFFERS CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. TABLE OF CONTENTS Page DEFINITIONS............................................................... 4 PROSPECTUS SUMMARY........................................................ 6 FEE TABLE................................................................. 7 CONDENSED FINANCIAL INFORMATION........................................... 10 THE COMPANY............................................................... 12 VARIABLE ANNUITY ACCOUNT C................................................ 12 THE FUNDS................................................................. 12 Fund Investment Advisers.............................................. 13 Mixed and Shared Funding.............................................. 13 Fund Additions, Limitations and Substitutions......................... 13 Voting Rights......................................................... 14 THE CONTRACT Contract Purchase..................................................... 14 Net Purchase Payments................................................. 15 Accumulation Units.................................................... 15 Net Investment Factor................................................. 16 Distribution.......................................................... 16 RIGHT TO CANCEL........................................................... 16 CHARGES AND DEDUCTIONS Mortality and Expense Risk Charges.................................... 17 Fund Expenses......................................................... 17 Allocation and Transfer Fees.......................................... 17 Insurance Rider....................................................... 17 Sales and Administrative Expense Charge............................... 18 Termination Fee....................................................... 18 Premium Tax........................................................... 18 GENERAL DESCRIPTION OF VARIABLE ANNUITY CONTRACTS Rights Under the Contract............................................. 19 Modification of the Contract.......................................... 19 Contract Owner Inquiries.............................................. 19 Telephone Transfers................................................... 20 Transfer of Ownership; Assignment..................................... 20 WITHDRAWALS............................................................... 20 REINVESTMENT PRIVILEGE.................................................... 21 ADDITIONAL WITHDRAWAL OPTIONS General............................................................... 21 Estate Conservation Option............................................ 22 Systematic Withdrawal Option.......................................... 22 ANNUITY PERIOD Annuity Period Elections.............................................. 23 403(B) Plans.......................................................... 24 401 and HR 10 Plans................................................... 24 Annuity Options....................................................... 24 2 DEATH BENEFIT............................................................. 25 Accumulation Period................................................... 25 403(b) Plans.......................................................... 26 401 and HR 10 Plans................................................... 26 Annuity Period........................................................ 26 403(b) Plans.......................................................... 27 401 and HR 10 Plans................................................... 27 TAX STATUS Federal Tax Status of the Company..................................... 27 Use of the Contract................................................... 27 Tax Status of Amounts Distributed Under the Contract.................. 27 MISCELLANEOUS Performance Reporting................................................................. 29 Legal Proceedings..................................................... 29 Legal Matters......................................................... 29 STATEMENT OF ADDITIONAL INFORMATION--TABLE OF CONTENTS.................... 30 APPENDIX I-GUARANTEED ACCUMULATION ACCOUNT................................ 31 APPENDIX II-FIXED ACCOUNT................................................. 32 3 DEFINITIONS As used in this Prospectus, the following terms have the meanings shown: Account Value: The dollar value of amounts held in an Account as of any Valuation Period, including the value of the Accumulation Units in the Funds, the amounts held in GAA, and any amounts invested in the Fixed Account, plus interest earned on those amounts, less any maintenance fees due, but excluding amounts used for Annuity Options. 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 the Separate Account assets attributable to each Fund used as a variable funding option. Aggregate Purchase Payment(s): The sum of all Purchase Payment(s) made under a Contract. Annuitant: A natural person on whose life an Annuity payment is based. Annuity: A series of payments for life, for a definite period, or combination of the two. Annuity Period: The period during which Annuity payments are made. Annuity Unit: A unit of measure used to calculate the amount of each variable annuity payment. Code: Internal Revenue Code of 1986, as amended. Company: Aetna Life Insurance and Annuity Company, sometimes referred to as "we" or "us." Contract: The group installment and single Purchase Payment contracts offered by this Prospectus. Contract Owner: The entity to which the Contract is issued. The Contract Owner is usually the employer sponsoring a non-trusteed Plan or the trustee of a trusteed Plan. Contract Year: The period of 12 months measured from the Contract's effective date or from any anniversary of such effective date. Distributor(s): The registered broker-dealer(s) which have entered into selling agreements with the Company to offer and sell the Contracts. The Company may also serve as a Distributor. Effective Date: The date on which the Company accepts and approves the Contract application. ERISA: Employee Retirement Income Security Act of 1974, as amended. Funds: An open-end registered management investment company whose shares are purchased by the Separate Account to fund the benefits provided by the Contract. GAA: Guaranteed Accumulation Account, one of the credited interest options available in most jurisdictions for deposits under the Contract. Home Office: The Company's principal executive offices located at 151 Farmington Avenue, Hartford, Connecticut 06156. Individual Account: A record established for each Participant to identify Account Values accumulated on the Participant's behalf during the Accumulation Period. Individual or Plan Account Year: The period of 12 months measured from the date an Individual or Plan Account is established or from any anniversary of such date. Market Value Adjustment: An amount deducted or added to amounts withdrawn early from the Guaranteed Accumulation Account to reflect changes in the market value of the investment since the date of deposit. See 4 Appendix I and the prospectus for the Guaranteed Accumulation Account for a discussion of how the market value adjustment is actually calculated. Net Purchase Payments(s): The Purchase Payment(s) less all applicable deductions. Participant: An eligible person participating in a Plan. Plan(s): Qualified tax-deferred retirement plans (a) adopted by public school systems and certain tax-exempt organizations (Section 501(c)(3) organizations) for their employees under Section 403(b) of the Code, (b) established by employees for their employees under Section 401, and (c) established by self-employed individuals. 401 Plans may be trusteed or non-trusteed. Plan Account: The record established for a Contract Owner of the Net Purchase Payment(s) accumulated under a Contract where Individual Accounts are not maintained. Purchase Payment(s): The gross payment(s) made to the Company under a Contract. SEC: Securities and Exchange Commission. Separate Account: Variable Annuity Account C, an account whose assets are segregated from other assets of the Company and which holds shares of the Funds acquired for the Contracts. The Company holds title to the assets held in the Separate Account. Underwriter: The registered broker-dealer which contracts with other registered broker-dealers on behalf of the Separate Account to offer and sell the Contracts. Valuation Period: The period of time from when the Company determines the Accumulation Unit Value and Annuity Unit Value of a variable investment option until the next time it determines such unit value. Currently, the calculation occurs after 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. Valuation Reserve: A reserve established pursuant to the insurance laws of Connecticut to measure voting rights during the Annuity Period and the value of a commutation right available under the "Payments for a Specified Period" nonlifetime Annuity option when elected on a variable basis under the Contract. Variable Annuity Contract: An Annuity Contract providing for the accumulation of values and for Annuity payments which vary in dollar amount with investment results. 5 PROSPECTUS SUMMARY The Contract The Contract offered is designed to provide retirement benefits to Participants under Plans (a) adopted by public school systems and certain tax-exempt organizations (Section 501(c)(3) organizations) for their employees under Section 403(b) ("403(b)"), (b) established by employers for their employees under Section 401 ("401"), and (c) established by self-employed individuals ("HR 10"). 401 Plans may be trusteed or non-trusteed. Registration Variable Annuity Account C is a separate account established by the Company and is registered as a unit investment trust under the Investment Company Act of 1940. Assets of the Separate Account attributable to the Contract are invested in shares of one or more of the Funds. (See "The Company," "Variable Annuity Account C" and "The Funds.") Purchase The Contract may be purchased by completing the proper application form and submitting it to the Company with the initial Purchase Payment. "The Contract - Contract Purchase" outlines the complete process of purchasing a Variable Annuity Contract. Sales and Administrative Expenses During the Accumulation Period, deductions are made from each installment Purchase Payment made on behalf of a Participant for sales and administrative expenses. For 403(b) Plans, the deduction is 6%; for HR 10 Plans, the deduction is 1.75%; and for 401 Plans, the deduction is 5%. For 403(b) Plans, the total deduction amounts to 6.4% of the Net Purchase Payment. The maximum total deduction, expressed as a percentage of the Net Purchase Payment, is 1.8% for an installment Purchase Payment HR 10 Plan. For 401 Plans, the total deduction amounts to 5.3% of the Net Purchase Payment. Termination fees may also be assessed upon withdrawal to reimburse the Company for administrative expenses in handling withdrawals. (See "Charges and Deductions--Sales and Administrative Expense Charge" and "Termination Fee.") Withdrawals; Tax Status The Contract Owner may withdraw all or a portion of the Contract or an Individual Account value during the Accumulation Period by properly completing and submitting to the Company a disbursement form provided by the Company. Certain charges and deductions may be assessed upon withdrawal. (See "Charges and Deductions.") The Code restricts full and partial withdrawals under 403(b) plans in certain circumstances. These restrictions may be found under "Withdrawals." A 10% federal penalty tax may also be imposed on a distribution paid to a Participant. (See "Tax Status--Tax Status of Amounts Distributed Under the Contract.") Other Charges Certain other charges are associated with this Contract such as the mortality and expense risk charges, fund expenses, allocation and transfer fees, insurance rider premiums, and premium tax. (See "Charges and Deductions" for a complete explanation of these charges.) Free Look Provision The Contract Owner may cancel the Contract no later than ten days after receiving it (or as otherwise allowed by state law) by returning it along with a written notice of cancellation to the Company. Unless state law requires otherwise, the amount you will receive on cancellation under this provision will reflect the investment performance of the Purchase Payments deposited in the Separate Account while invested. In certain cases, this may be less than the amount of your Purchase Payments. (See "Right to Cancel.") 6 FEE TABLE (Based on year ended December 31, 1996) The purpose of the Fee Table is to assist Contract Holders in understanding the various costs and expenses that will be borne, directly or indirectly, under the Contract. The information listed reflects the charges due under the Contract as well as the fees and expenses deducted from the Funds. Additional information regarding the charges and deductions assessed under the Contract can be found under "Charges and Deductions" in this Prospectus. Charges and expenses shown do not take into account premium taxes that may be applicable. Contract Holder Transaction Expenses - ------------------------------------ Sales and Administrative Expense Charge (as a percentage of Purchase Payments) 403(b) Plans 6.00% 401 Plans 5.00% HR 10 Plans 1.75% Termination Fee (as a percentage of amount withdrawn) 403(b) Plans 2% (first 5 Contract Years) HR 10 Plans 2% (first 5 Contract Years) 401 Plans Completed Contract Years Deduction -------------- --------- 1 5% 2 4% 3 3% 4 2% 5 1% 5 or more 0% Allocation and Transfer Fees(1) $0.00 Separate Account Annual Expenses (Daily deductions, equal to the percentage shown on an annual basis, made from amounts allocated to the variable options) 403(b) 401 HR 10 ----- ---- ----- Mortality and Expense Risk Fees 1.25% 1.19% 1.25% ----- ---- ----- Total Separate Account Annual Expenses 1.25% 1.19% 1.25% ===== ==== ===== (1) The Company currently allows an unlimited number of transfers or allocation changes without charge. However, the Company reserves the right to impose a transfer fee of $10.00 for each transfer or allocation charge in excess of 12 during each Contract Year. (See "Transfers and Allocation Changes.") 7 ANNUAL EXPENSES OF THE FUNDS (Except as noted, the following figures are a percentage of average net assets and, except where otherwise indicated, are based on figures for the year ended December 31, 1996) Investment Advisory Other Total Fees(1) Expenses(2) Fund (after expense (after expense Annual reimbursement) reimbursement) Expenses -------------- --------------- -------- Aetna Variable Fund(3) 0.50% 0.06% 0.56% Aetna Income Shares(3) 0.40% 0.08% 0.48% Aetna Variable Encore Fund(3) 0.25% 0.10% 0.35% Aetna Investment Advisers Fund, Inc.(3) 0.50% 0.08% 0.58% American Century VP Capital Appreciation(4) 1.00% 0.00% 1.00% (1) Certain of the unaffiliated Fund managers reimburse the Company for administrative costs incurred in connection with administering the Fund as a variable funding option under the Contract. These reimbursements are paid out of the managers' investment advisory fees and are not charged to investors. (2) A mutual fund's "Other Expenses" include operating costs of the Fund. The expenses are factored into the Fund's net asset value and are not deducted from the Contract Holder's or Participant's Account Value. (3) The Company provides administrative services to the Fund and assumes the Fund's ordinary recurring direct costs under an Administrative Services Agreement. The "Other Expenses" shown reflect the fee payable under that Agreement. (4) The Portfolio's investment adviser pays all expenses of the Portfolio except brokerage commissions, taxes, interest, fees and expenses of the non-interested 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. 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. Assuming a 5% annual return on assets, you would have paid the following expenses on a $1,000 investment: 403(b) Plans
If you make a complete withdrawal of If you do not make a complete your contract at the end applicable withdrawal of your contract or if you time period: annuitize: 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years ------ ------- ------- -------- ------ ------- ------- -------- Aetna Variable Fund $ $ $ $ $ $ $ $ Aetna Income Shares $ $ $ $ $ $ $ $ Aetna Variable Encore Fund $ $ $ $ $ $ $ $ Aetna Investment Advisers Fund, Inc. $ $ $ $ $ $ $ $ American Century VP Capital Appreciation $ $ $ $ $ $ $ $
8 401 Plans
If you make a complete withdrawal of If you do not make a complete your contract at the end of the withdrawal of your contract or if you applicable time period: annuitize: 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years ------ ------- ------- -------- ------ ------- ------- -------- Aetna Variable Fund $ $ $ $ $ $ $ $ Aetna Income Shares $ $ $ $ $ $ $ $ Aetna Variable Encore Fund $ $ $ $ $ $ $ $ Aetna Investment Advisers Fund, Inc. $ $ $ $ $ $ $ $ American Century VP Capital Appreciation $ $ $ $ $ $ $ $
HR 10 Plans
If you make a complete withdrawal of If you do not make a complete your contract at the end of the withdrawal of your contract or if you applicable time period: annuitize: 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years ------ ------- ------- -------- ------ ------- ------- -------- Aetna Variable Fund $ $ $ $ $ $ $ $ Aetna Income Shares $ $ $ $ $ $ $ $ Aetna Variable Encore Fund $ $ $ $ $ $ $ $ Aetna Investment Advisers Fund, Inc. $ $ $ $ $ $ $ $ American Century VP Capital Appreciation $ $ $ $ $ $ $ $
9 CONDENSED FINANCIAL INFORMATION This financial Information is provided for use by 403(b) and HR 10 Plans (Selected data for accumulation units outstanding throughout each period) The condensed financial information presented below for each of the years in the ten-year period ended December 31, 1996 (as applicable), is derived from the financial statements of the Separate Account, which financial statements have been audited by KPMG Peat Marwick LLP, Independent Auditors. The financial statements as of and for the year ended December 31, 1996 and the Independent Auditors' report thereon, are included in the Statement of Additional Information.
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- AETNA VARIABLE FUND Value at beginning of period $105.558 $107.925 $102.383 $97.165 $77.845 $76.311 $59.871 $52.885 $50.760 Value at end of period $137.869 $105.558 $107.925 $102.383 $97.165 $77.845 $76.311 $59.871 $52.885 Increase(decrease) in value of accumulation unit(1) 30.61% (2.19)% 5.41% 5.37% 24.82% 2.01% 27.46% 13.21% 4.19% Number of accumulation units outstanding a end of period 6,364,000 13,966,072 21,148,863 24,201,565 20,948,226 18,362,906 17,142,820 16,455,396 16,497,406 AETNA INCOME SHARES Value at beginning of period $40.173 $42.283 $39.038 $36.789 $31.192 $28.943 $25.574 $24.061 $23.308 Value at end of period $46.913 $40.173 $42.283 $39.038 $36.789 $31.192 $28.943 $25.574 $24.061 Increase(decrease) in value of accumulation unit(1) 16.78% (4.99)% 8.31% 6.11% 17.94% 7.77% 13.17% 6.29% 3.23% Number of accumulation units outstanding at end of period 2,377,622 5,108,720 8,210,666 8,507,292 7,844,412 6,984,793 6,202,834 5,955,293 5,372,271 AETNA VARIABLE ENCORE FUND Value at beginning of period $36.271 $35.282 $34.619 $33.812 $32.138 $30.012 $27.783 $26.171 $24.812 Value at end of period $37.988 $36.271 $35.282 $34.619 $33.812 $32.138 $30.012 $27.783 $26.171 Increase(decrease) in value of accumulation 4.73% 2.80% 1.92% 2.39% 5.21% 7.08% 8.02% 6.16% 5.48% unit(1) Number of accumulation units outstanding at end of period 1,836,260 3,679,802 5,086,515 7,534,662 8,430,082 10,220,110 8,286,033 8,154,644 7,326,151 AETNA INVESTMENT ADVISERS FUND, INC. Value at beginning of period $14.270 $14.519 $13.379 $12.736 $10.896 $10.437 $10.000(2) Value at end of period $17.9544 $14.288 $14.519 $13.379 $12.736 $10.896 $10.437 Increase(decrease) in value of accumulation unit(1) 25.82% (1.59)% 8.52% 5.05% 16.89% 4.40% 4.37% Number of accumulation units outstanding at end of period 9,193,181 21,990,186 30,784,750 34,802,433 22,898,099 17,078,985 9,535,986 AMERICAN CENTURY VP CAPITAL APPRECIATION (Formerly TCI Growth) Value at beginning of period $10.213 $10.463 $10.000(3) Value at end of period $13.224 $10.213 $10.463 Increase(decrease) in value of accumulation unit(1) 29.47% (2.39)% 4.63% Number of accumulation units outstanding at end of period 4,184,701 12,096,731 12,272,152
(1) The above figures are calculated by subtracting the beginning Accumulation Unit value from the ending Accumulation Unit value during a calendar year, and dividing the result by the beginning Accumulation Unit value. These figures do not reflect the deductions from Purchase Payments for sales load. Inclusion of these charges would reduce the investment results shown. (2) The initial Accumulation Unit value was established at $10.000 on June 23, 1989, the date on which the Fund commenced operations. (3) The initial Accumulation Unit value was established at $10.000 on February 1, 1993, the date on which the Portfolio became available under the Contract. 10 CONDENSED FINANCIAL INFORMATION This financial Information is provided for use by 401 Plans (Selected data for accumulation units outstanding throughout each period) The condensed financial information presented below for each of the years in the ten-year period ended December 31, 1996 (as applicable), is derived from the financial statements of the Separate Account, which financial statements have been audited by KPMG Peat Marwick LLP, Independent Auditors. The financial statements as of and for the year ended December 31, 1996 and the Independent Auditors' report thereon, are included in the Statement of Additional Information.
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- AETNA VARIABLE FUND Value at beginning of $138.406 $141.424 $134.081 $127.171 $101.824 $99.758 $78.220 $69.051 $66.237 period Value at end of period $180.879 $138.406 $141.424 $134.080 $127.171 $101.824 $99.758 $78.220 $69.051 Increase(decrease) in value of accumulation 30.69% (2.13)% 5.48% 5.43% 24.89% 2.07% 27.54% 13.28% 4.25% unit(1) Number of accumulation units outstanding at end of period 549,056 1,258,166 1,616,018 1,829,160 1,956,479 2,169,721 2,496,795 3,030,548 3,740,739 AETNA INCOME SHARES Value at beginning of $40.570 $42.675 $39.376 $37.086 $31.424 $29.142 $25.734 $24.197 $23.426 period Value at end of period $47.405 $40.570 $42.675 $39.376 $37.086 $31.424 $29.142 $25.734 $24.197 Increase(decrease) in value of accumulation 16.85% (4.93)% 8.38% 6.17% 18.02% 7.83% 13.24% 6.35% 9.29% unit(1) Number of accumulation units outstanding at end of period 72,902 181,535 241,551 263,105 283,119 251,861 248,678 284,650 251,513 AETNA VARIABLE ENCORE FUND Value at beginning of $36.723 $35.701 $35.009 $34.172 $32.460 $30.295 $28.028 $26.387 $25.001 period Value at end of period $38.485 $36.723 $35.701 $35.009 $34.172 $32.460 $30.295 $28.028 $26.387 Increase(decrease) in value of accumulation 4.80% 2.88% 1.98% 2.45% 5.27% 7.15% 8.09% 6.22% 5.54% unit(1) Number of accumulation units outstanding at end of period 150,480 241,159 312,350 471,585 470,248 624,613 542,581 637,833 627,039 AETNA INVESTMENT ADVISERS FUND, INC. Value at beginning of $14.336 $14.558 $13.407 $12.755 $10.906 $10.440 $10.000(2) period Value at end of period $18.024 $14.336 $14.558 $13.407 $12.755 $10.906 $10.440 Increase(decrease) in value of accumulation 25.73% (1.52)% 8.59% 5.11% 16.86% 4.46% 4.40% unit(1) Number of accumulation units outstanding at end of period 393,613 756,261 1,142,268 1,129,453 725,598 619,748 470,302 AMERICAN CENTURY VP CAPITAL APPRECIATION (Formerly TCI Growth) Value at beginning of $10.213 $10.469 $10.000(3) period Value at end of period $13.224 $10.213 $10.463 Increase(decrease) in value of accumulation 29.47% (2.39)% 4.63% unit(1) Number of accumulation units outstanding at end of period 4,184,701 12,096,731 12,272,152
(1) The above figures are calculated by subtracting the beginning Accumulation Unit value from the ending Accumulation Unit value during a calendar year, and dividing the result by the beginning Accumulation Unit value. These figures do not reflect the deductions from Purchase Payments for sales load. Inclusion of these charges would reduce the investment results shown. (2) The initial Accumulation Unit value was established at $10.000 on June 23, 1989, the date on which the Fund commenced operations. (3) The initial Accumulation Unit value was established at $10.000 on February 1, 1993, the date on which the Portfolio became available under the Contract. 11 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 Inc. VARIABLE ANNUITY ACCOUNT C Variable Annuity Account C is a separate account established by the Company in 1976 pursuant to the insurance laws of the State of Connecticut. The Separate Account was formed for the purpose of segregating assets attributable to the variable portions of Contracts from other assets of the Company. The Separate Account is registered as a unit investment trust under the Investment Company Act of 1940, and meets the definition of "separate account" under the federal securities laws. 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 the Company may conduct. Income, gains or losses of the Separate Account are credited to or charged against all assets of the Separate Account without regard to other income, gains or losses of the Company. All obligations arising under the Contracts are general corporate obligations of the Company. THE FUNDS The Contract Holder will designate some or all of the Funds described below as variable funding options under the Contract. The Contract Holder, or the Participant, if allowed by the Contract Holder may select one or more of the Funds for investment of the Purchase Payments made on their behalf. All of the Funds are diversified as defined in the Investment Company Act of 1940. (bullet) Aetna Variable Fund seeks to maximize total return through investments in a diversified portfolio of common stocks and securities convertible into common stock. (bullet) Aetna Income Shares seeks to maximize total return, consistent with reasonable risk, through investments in a diversified portfolio consisting primarily of debt securities. (bullet) 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. (bullet) Aetna Investment Advisers Fund, Inc. is a managed mutual 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. (bullet) American Century VP Capital Appreciation (formerly TCI Growth) seeks capital growth 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 American Century management, have better than average potential for appreciation. American Century tries to stay fully invested in such securities, regardless of the movement of prices generally. The Portfolio 12 may invest in foreign securities. Foreign investing involves risks that differ from those involved in domestic investing. See the Fund's prospectus for a discussion of these risks. There is no assurance that the Funds will achieve their investment objectives. Contract Holders bear the full investment risk of investment in the Funds selected. Some of the above Funds may use instruments known as derivatives as part of their investment strategies as described in their respective prospectuses. The use of certain derivatives such as inverse floaters and principal only debt instruments may involve higher risk of volatility to a Fund. The use of leverage in connection with derivatives can also increase risk of losses. See the prospectus for the Funds for a discussion of the risks associated with an investment in those Funds. More comprehensive information, including a discussion of potential risks, is found in the current prospectus for each Fund which is distributed with and must accompany this Prospectus. Contract Holders and Participants should read the accompanying prospectuses carefully before investing. Additional prospectuses and Statements of Additional Information for this Prospectus and each of the Funds can be obtained from the Company's Home Office at the address and telephone number listed on the cover of this Prospectus. Fund Investment Advisers Fund Investment Adviser ---- ------------------ Aetna Variable Fund Aetna Life Insurance and Annuity Company (ALIAC)* Aetna Income Shares ALIAC* Aetna Variable Encore Fund ALIAC* Aetna Investment Advisers Fund, Inc. ALIAC* American Century VP Capital Appreciation American Century Investment (formerly TCI Growth) Management, Inc. *Aeltus Investment Management, Inc., subadviser Mixed and Shared Funding Shares of the Funds are sold to the Company for funding variable annuities. The Funds may be sold to other 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 policies through variable life separate accounts sponsored by us or by third parties. This is referred to as "mixed funding." It is conceivable that, in the future, it may be disadvantageous for variable annuity separate accounts and variable life separate accounts to invest in these Funds simultaneously, since the interests of the contract holders or policy owners may differ. Each Fund's Board of Trustees or Directors has agreed to monitor events in order to identify any material irreconcilable conflicts that may possibly arise and to determine what action, if any, should be taken in response thereto. If such a conflict were to occur, one of the separate accounts might withdraw its investment in a Fund. This might force that Fund to sell portfolio securities at disadvantageous prices. Fund Additions, Limitations and Substitutions We may, from time to time, add additional Funds as eligible variable funding options under the Contracts. In such event, the Contract Holder or you, if permitted by the Contract Holder, be permitted to select from these other Funds, subject to any conditions that may be imposed in connection with those options. In addition, the Company may substitute funds if approved by a majority vote of all persons having an interest through the Separate Account in the affected Fund. 13 The Company's current policy is to allow only Aetna Variable Fund, Aetna Income Shares and Aetna Investment Advisers Fund, Inc. to be used as variable investment options during the Annuity Period. (See "Annuity Period Elections.") The Contract Holder may decide to offer only a select number of Funds under its Plan. Voting Rights Each Contract Owner may direct the Company in the voting of shares at meetings of shareholders of the appropriate Fund(s). The number of votes to which each Contract Owner may give direction will be determined as of the record date. The number of votes each Contract Owner is entitled to direct with respect to a particular Fund during the Accumulation Period is equal to the portion of the current value of the Contract attributable 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 the Fund. In determining the number of votes, fractional votes will be recognized. Where the value of the Contract or Valuation Reserve relates to more than one Fund, the calculation of votes will be performed separately for each Fund. Unless otherwise provided by the Plan, Participants and Annuitants of 403(b) Plans have a fully vested (100%) interest in the benefits provided under the Contract. Therefore, such Participants and Annuitants may instruct the Contract Owner how to direct the Company to cast the votes for the portion of the Contract value or Valuation Reserve attributable to their Individual Accounts. Votes attributable to those Participants and Annuitants who do not instruct the Contract Owner will be cast by the Company in the same proportion as votes for which instructions have been received by the Contract Owner. Votes attributable to Contract Owners who do not direct the Company will be cast by the Company in the same proportion as the votes for which directions have been received by the Company. Contract Owners, or Participants and Annuitants entitled to instruct the casting of votes, will receive a notice of each meeting of shareholders, together with any proxy solicitation materials, and a statement of the number of votes attributable to their participation under the Contract and stating the right to instruct the Contract Owner how such votes shall be cast. THE CONTRACT Contract Purchase An organization eligible to establish retirement annuity contracts under Sections 403(b), 401 and HR 10 of the Code may acquire one or both group Contracts for its Plan by filling out the appropriate master application forms and returning them to the Company or to a Distributor for delivery to the Company. Once we approve the application, a group Contract (or Contracts) is issued to the organization as Contract Holder. The Contract Holder exercises all rights under the Contracts. (See "Rights Under the Contract.") A Single Purchase Payment Contract will be issued for lump-sum transfers of amounts accumulated under a preexisting Plan. An installment Purchase Payment Contract will be issued for continuing, periodic payments. Employees of the Contract Holder may fill out an enrollment form or forms and return them to the Company or to a Distributor for delivery to the Company for review, acceptance or rejection. The Company must accept or reject an application within two business days of its receipt. If the application is incomplete, the Company may hold it and any accompanying Purchase Payment for five days. Purchase Payments may be held for longer periods only with the consent of the Contract Holder or Participant pending acceptance of the application. If the application is accepted, a Contract will be issued to the Contract Holder or the Purchase Payment will be accepted. Any Purchase Payment accompanying the application or 14 received prior to acceptance of the application, will be invested as of the date of acceptance. If the application is rejected, the application and any Purchase Payments will be returned to the Contract Holder. A single master group Contract is issued to cover all present and future Participants. Contracts may be issued in either allocated or unallocated form. An allocated Contract provides for the establishment of individual Accounts, but all Purchase Payments are applied to a single Plan Account. Purchase Payments under an HR 10 Plan will be those required to fulfill the terms of the Plan but annual Aggregate Purchase Payments must be at least $4,000. Purchase Payments under a 401 Plan will be those required to fulfill the terms of the Plan. The Code imposes a maximum limit on annual Purchase Payments which may be excluded from a Participant's gross income. For 403(b) Plan Participants, such limit must be calculated in accordance with Sections 403(b), 415 and 402(g) of the Code. In addition, Purchase Payments will be excluded from a Participant's gross income only if the 403(b) Plan meets certain Code non-discrimination requirements. For HR 10 Plans, the Purchase Payments made on behalf of a Participant in a defined contribution Plan are determined by the Plan contribution formula. Generally, Code Section 415 imposes an annual limit of the lesser of $30,000 or 25% of includible compensation for each Participant. Purchase Payments for a defined benefit Plan are determined on an actuarial basis to provide Plan benefits for all Participants. These Purchase Payments are held in a single Plan Account. Under Code Section 415, a Plan can provide annual benefits of the lesser of $125,000 (for 1997) or 100% of includible compensation for each Participant. Net Purchase Payments Each Purchase Payment is forwarded to the Company through a Distributor. After the deductions from a Purchase Payment are made, the Net Purchase Payment, to the extent it is to be accumulated on a variable basis, is placed in the Separate Account and credited to the Contract. The Contract Owner or, if permitted by a Plan, the Participant may elect to have the Net Purchase Payment(s) accumulate (a) on a variable basis by allocation to one of more of the available Funds; (b) on a fixed basis under one or more of the available credited interest options; or (c) in a combination of any of the available investment options. The Net Purchase Payment(s) must be allocated to the respective options in increments of whole percentage amounts. The Contract Owner or, if permitted by a Plan, the Participant may elect to change the allocation of future Net Purchase Payments to any investment option described above. Accumulation Units Each Net Purchase Payment allocated to one or more of the available Funds is credited to the Contract in the form of Accumulation Units. The number of Accumulation Units credited is determined by dividing the applicable portion of the Net Purchase Payment by that Contract's Accumulation Unit value of the appropriate Fund. The Accumulation Unit value used is computed for the Valuation Period in which the Purchase Payment and a completed application are received at the Home Office and accepted by the Company. Accumulation Units will be credited within two business days of receipt of the initial application unless the application has not been accepted. In that event, Purchase Payments will be credited at the Accumulation Unit value next determined after acceptance of the application. Subsequent Purchase Payments (if any) received by the Company by the close of business of the New York Stock Exchange will be credited at the Accumulation Unit value next determined following receipt of the payment. Shares in the Funds are purchased by the Separate Account at the net asset value next determined by the Fund following receipt of Net Purchase Payments by the Separate Account. The value of Accumulation Units attributable to the Funds will be affected by the investment performance, expenses and charges of those Funds. Generally, if the net asset value of the Fund increases, so does the Accumulation Unit value; however, performance of the Separate Account is reduced by charges and deductions under the Contract. Accumulation Units are valued separately for each Fund. Therefore, a Contact Owner or, if permitted by a Plan, a Participant who has elected to have the Net Purchase Payment(s) invested in a combination of Funds will have Accumulation Units credited from more than one source. The value of the Contract or Individual Account is determined by adding the value of any Accumulation Units attributable to the Fund(s) to the value of any amount attributable to a credited interest option. 15 Net Investment Factor The value of an Accumulation Unit for any Valuation Period is calculated by multiplying the Accumulation Unit value for the immediately preceding Valuation Period by the net investment factor of the appropriate investment option for the current period. The net investment factor is calculated separately for each Fund in which assets of the Separate Account are invested. The net investment rate equals (a) the net assets of the Fund held by the Separate Account at the end of Valuation Period, minus (b) the net assets of the Fund held by the Separate Account at the beginning of a Valuation Period, plus or minus (c) taxes or provision for taxes, if any, attributable to the operation of the Separate Account, divided by (d) the value of the Fund's Accumulation and Annuity Units held by the Separate Account at the beginning of the Valuation Period, minus (e) the applicable daily charge for the Annuity mortality and expense risks. The net investment rate may be more or less than zero. The net investment rate is then added to 1.0000000 to arrive at the net investment factor. Distribution The Company will serve as 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 service to Participants in connection with establishing their Accounts under the Contract. Persons offering and selling the Contracts may receive commissions in connection with the sale of the Contracts. The maximum percentage amount that the Company ever paid as commission with respect to any given Purchase Payment is with respect to those made during the first year of Purchase Payments under a Contract. That percentage amount will range from 2% to 6% of those Purchase Payments. The Company may also pay renewal commissions on Purchase Payments made after the first year and asset-based service fees. In limited circumstances we also pay certain of these professionals profit-sharing and compensation, overrides or reimbursement for expenses. The average of all payments made by the Company is estimated to equal approximately 3% of the total Purchase Payments made over the estimated life of an average Contract. In addition, some sales personnel may receive various types of non-cash compensation as special sales incentives, including trips and educational and/or business seminars. Supervisory and other management personnel of the Company may receive compensation that will vary based on the relative profitability to the Company of the funding options you select. Funding options that invest in Funds advised by the Company or its affiliates are generally more profitable to the Company. 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 on your enrollment form. RIGHT TO CANCEL A Participant may cancel his or her participation under the Contract by returning the certificate no later than ten days after receiving it (or as otherwise allowed by state law) along with a written notice of cancellation to the Company. The Company will produce a refund not later than seven days after it receives the certificate and the written notice at its Home Office. Unless the applicable state law requires a refund of Purchase Payment(s), the Company will refund the Purchase Payment(s) plus any increase or minus any decrease in the value attributable to any Purchase Payments allocated to the variable option(s). 16 CHARGES AND DEDUCTIONS Mortality and Expense Risk Charges During the Accumulation and Annuity Periods, the Company makes a daily deduction from the variable portion of Contract values for mortality and expense risks. The mortality risk charge is to compensate the Company for the risk it assumes when it promises to continue making payments for the lives of individual Annuitants according to Annuity rates specified in the Contact at issue. The expense risk charge is to compensate us for the risk that actual expenses for costs incurred under the Contract will exceed the maximum costs that can be charged under the Contract. Under 401 Contracts, the daily deduction is equivalent to 1.19% per year. For 403(b) and HR 10 Plans, the daily deduction is equivalent to 1.25%. For the year ended December 31, 1996, the Company received $_______ for mortality and expense risks from Contracts funded through the Separate Account. Fund Expenses Most expenses incurred in the operations of the Funds are borne by that Fund. Each Fund has an investment adviser and pays an investment advisory fee, which is deducted daily from each Fund's net assets. Fund advisers may reimburse the Funds they advise for some or all of these expenses. For further details on each Fund's expenses, you and the Contract Holder should read the accompanying prospectus for each Fund and refer to the Fee Table in this Prospectus. Allocation and Transfer Fees The Company currently permits an unlimited number of allocation changes during each calendar year, without charge. The Company reserves the right to charge a fee of not more than $10, deducted from the Individual or Plan Account value, for each allocation change that exceeds 12 in a calendar year. The Company also currently permits an unlimited number of free transfers per calendar year of accumulated values in the Individual or Plan Account. Transfers of not less than $500 may be made among the available Funds or from any of the Funds to a credited interest option. The Company reserves the right to charge a fee of not more than $10, deducted from the Individual or Plan Account value, for each transfer that exceeds 12 in a calendar year. Any transfer will be based on the Accumulation Unit value next determined after a proper request is received by the Company at its Home Office. Insurance Rider For 403(b) Plans, a minimum death benefit guarantee may be purchased in connection with an Individual Account at the option of the Contract Owner or, if permitted by a plan, the Participant. This guarantee provides that if the Participant dies before Annuity payments commence, the death benefit will never be less than an amount equal to the Purchase Payments (less any partial redemptions) made on behalf of the Participant, regardless of the value of the Participant's Individual Account at the time of death. The premium for this rider is 1% of each Purchase Payment made on behalf of a Participant for whom the rider is elected. Contracts issued to 401 Plans include the preretirement minimum death benefit guarantee. This guarantee provides that should the Participant die before Annuity payments commence, the Company will pay the beneficiary the greater of (a) the value of the Participant's Individual Account, or (b) 100% of the Purchase Payments (less any partial redemptions) made on behalf of the Participant. The premium for this rider is included in the Contract sales and administrative expense charge. 17 Sales and Administrative Expense Charge During the Accumulation Period, deductions are made from each installment Purchase Payment made on behalf of a Participant for sales and administrative expenses. This deduction is made from the balance of each Purchase Payment after premium taxes and insurance rider premiums are deducted. For 403(b) Plans, a percentage deduction of 6% will be deducted from the balance of each installment Purchase Payment made on behalf of a Participant after the deductions for premium tax and insurance rider premium, if applicable, are made. Exclusive of any premium tax or premium for the insurance rider, the total deduction amounts to 6.4% of the Net Purchase Payment. After premium taxes, if applicable, are deducted, a sales and administrative expense charge of 5% is deducted from the balance of each installment Purchase Payment made on behalf of a Participant in a 401 Plan, and 1.75% from the balance of each installment Purchase Payment under an HR 10 Plan. Exclusive of any premium tax, the total deduction amounts to 5.3% of the Net Purchase Payment under a 401 Plan and 1.8% of the Net Purchase Payment under an HR 10 Plan. Termination Fee A termination fee may be deducted to reimburse the Company for administrative expenses in handling Contract withdrawals. Under a 403(b) and 401 Plan, there is no fee for termination of an Individual Account. Under an HR 10 Plan, there is no fee for termination of an Individual Account due to the death of the Participant. If an installment Purchase Payment Contract is terminated before five years' Aggregate Purchase Payments have been made or before the tenth anniversary of the Contract, a termination fee of 2% of the 403(b) or HR 10 Plan Contract value will be deducted. For 401 Plans, the termination fee is a graded amount based on the number of Contact years for which Aggregate Purchase Payments have been received. The following table reflects this termination fee under 401 Plan Contracts. Completed Contract Years Deduction -------------- --------- 1 5% 2 4% 3 3% 4 2% 5 1% More than 5 0% Premium Tax 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 Contract Values at any time but no earlier than when we have a tax liability under state law. The Company's current practice is to deduct for premium taxes at the time of complete withdrawal or annuitization. In addition to the premium tax, the Company reserves the right to assess a charge for any state or federal taxes due against the Contract or the Separate Account assets. (See "Tax Status.") Any municipal premium tax assessed at a rate in excess of 1% will be deducted from the Purchase Payment(s) or from the amount applied to an Annuity Option based upon our determination of when such tax is due. We will absorb any municipal premium tax that is assessed at 1% or less. We reserve the right, however, to reflect this added expense in our annuity purchase rates for residents of such municipalities. GENERAL DESCRIPTION OF VARIABLE ANNUITY CONTRACTS Rights under the Contract All rights under the Contract rest with the Contract Owner, which is usually the employer. In the case of a trusteed Plan, the Plan trustee will be the Contract Owner. Benefits available to Participants are governed exclusively by the provisions of the Plan. Some of the options and elections under the Contract may not be available to Participants under the provisions of the Plan. Generally, for 403(b) Plans, elections may be made by Participants; for 401 and HR Plans, elections must be made by the Contract Owner. Modification of the Contract The Company may modify the Contract when it deems an amendment appropriate, subject to the limitations described below, by giving written notice to the Contract Owner 30 days before the effective date of the change. The following Contract provisions may be considered material by the Company and cannot be changed without the approval of appropriate state or federal regulatory authorities: (a) transfers among investment options; (b) notification to the Contract Owner; (c) conditions governing payments of withdrawal values; (d) terms of Annuity options; and (e) death benefit payments. In addition the Company may not modify the Contract during the first year it is in force, except with the approval of the Contact Owner. For 401 Plans, the effective date of a modification will be the next Contract anniversary. However, changes to items (a) through (f) listed below will apply only to new Participants enrolled under a Contract after the effective date of the modification: (a) the Annuity Options; (b) increasing the mortality and expense risk charges; (c) increasing the deduction from Purchase Payment(s) for sales and administrative expenses; (d) increasing the termination fee (if applicable); (e) the preretirement minimum death benefit (if applicable); and (f) the maximum allocation and transfer fees. If the Contract Owner has not accepted the proposed change at the time of the effective date, no new Participants may be enrolled under the Contract. However, additional Purchase Payments may continue to be made on behalf of Participants already enrolled under the Contract. No modification may affect any Annuity commencing prior to the effective date of such modification unless deemed necessary for the Plan or Contract to comply with the requirements of the Code or other laws and regulations affecting the Plan or Contract. Contract Owner Inquiries A Contract Owner may direct inquiries to a local representative of the Distributor or may write directly to the Company at its Home Office. 19 Telephone Transfers The Participant automatically has the right to make transfers among Funds by telephone. The Company has enacted procedures to prevent abuses of Individual Account transactions via the 800 number. The procedures include requiring the use of a personal identification number (PIN) to execute transactions. The Participant is responsible for safeguarding his or her PIN, and for keeping account information confidential. If the Company fails to follow its procedures, it would be liable for any losses to the Participant's Individual Account resulting from the failure. To ensure authenticity, the Company records all calls on the 800 line. Note: all Individual Account information and transactions permitted are subject to the terms of the Plan(s). Transfer of Ownership; Assignment Unless contrary to applicable law, assignment of the Contract or Individual or Plan Account is prohibited. WITHDRAWALS The Participant of a 403(b) Plan, subject to the restrictions below, or the Contract Owner of a 401 or HR 10 Plan may withdraw all or a portion of the Individual or Plan Account value during the Accumulation Period by properly completing and submitting to the Company's Home Office a disbursement form provided by the Company. (If permitted by a Plan, Participants may request to withdraw all or a portion of their Individual Account.) Effective January 1, 1989, the Code imposes restrictions on full or partial withdrawals from 403(b) Individual Accounts attributable to Purchase Payments made on or after January 1, 1989, under a salary reduction agreement, and to any earnings on the entire 403(b) Individual Account credited on and after January 1, 1989. Withdrawals of these amounts are allowed only if the Participant (a) has died; (b) has become disabled, as defined in the Code; (c) has attained age 59 1/2; or (d) has separated from service. Withdrawals are also allowed if the Participant can show "hardship," as defined by the Internal Revenue Service ("IRS"), but the withdrawal is limited to the lesser of Purchase Payments made on or after January 1, 1989, or the amount necessary to relieve the hardship. Even if a withdrawal is permitted under these provisions, a 10% federal tax penalty may be assessed on the withdrawn amount if it does not otherwise meet the exceptions to the penalty tax provisions (see "Tax Status of Amounts Distributed Under the Contract"). (A 20% income tax may be withheld from amounts paid directly to a Participant. See "Tax Status of Amounts Distributed Under the Contracts.") Under the Code, a Participant may request a full or partial withdrawal of an amount equal to the Individual Account value as of December 31, 1988 (the "grandfathered" amount), subject to the terms of the 403(b) Plan. Although the Code withdrawal restrictions do not apply to this amount, a 10% federal penalty tax may be assessed on the withdrawn amount if it does not otherwise meet the exceptions to the penalty tax provisions (see "Tax Status of Amounts Distributed Under the Contract"). (A 20% income tax may be withheld from amounts paid directly to a Participant. See "Tax Status of Amounts Distributed Under the Contracts.") The Company believes that the Code withdrawal restrictions do not apply to tax-free transfers pursuant to Revenue Ruling 90-24. The Company further believes that the withdrawal restrictions will not apply to any "grandfathered" amount which is transferred pursuant to Revenue Ruling 90-24 into another 403(b) Contract. Revenue Ruling 90-24 provides that a direct transfer from one 403(b) investment to another 403(b) investment is not a distribution and is not taxable if after the transfer, the transferred funds continue to be subject to the same or more stringent distribution requirements. The amount paid, in the case of a full withdrawal of the Contract, will be the value of the Plan Account or all Individual Accounts, less the applicable termination fee. The amount paid for any partial withdrawal, where a percentage of the value of a Plan or Individual Account is requested, will be the percentage requested less any applicable termination fee. For any partial withdrawal where a specific dollar amount is requested, the amount 20 paid will be the amount requested; sufficient Accumulation Units will be cancelled to cover both the specific withdrawal amount requested and any applicable termination fee. The value of the Accumulation Units cancelled for a withdrawal will be determined as of the end of the Valuation Period in which a disbursement form properly completed by the Contract Owner or, if permitted, by a Plan, the Participant is received at the Company's Home Office or on such later date as the disbursement form may specify. Disbursement forms are available from the Company and its local representatives. For any partial withdrawal, unless requested otherwise by the Contract Owner or Participant, the value of the Accumulation Units cancelled will be withdrawn from the respective investment options in the same proportions as their respective values to the total value of the Plan or Individual Account. Payments for withdrawal requests will be made in accordance with SEC requirements, but not normally later than seven calendar days after a properly completed disbursement form is received at the Company's Home Office or within seven calendar days of the date the disbursement form may specify. Payments may be delayed for: (a) any period in which the New York Stock Exchange ("Exchange") is closed (other than customary weekend and holiday closings) or in which trading on the Exchange is restricted; (b) any period in which an emergency exists where disposal of securities held by the Funds is not reasonably practicable or it is not reasonably practicable for the value of the assets of the Funds to be fairly determined; or (c) such other periods as the SEC may by order permit for the protection of Contract Owners and Participants. The conditions under which restricted trading or an emergency exists shall be determined by the rules and regulations of the SEC. REINVESTMENT PRIVILEGE The Contract Owner or, if permitted by a Plan, a Participant may elect to reinvest all or a portion of the proceeds received from the full withdrawal of a Plan or Individual Account within 30 days after such withdrawal. Accumulation Units will be credited to the Plan or Individual Account for the amount reinvested, as well as for any applicable termination fee imposed at the time of withdrawal. Such reinvested amounts will be reallocated to the applicable investment options in the same proportion as they were allocated at the time of the withdrawal. The number of Accumulation Units credited will be based upon the Accumulation Unit value(s) next computed following receipt at the Company's Home Office of the reinvestment request along with the amount to be reinvested. The reinvestment privilege may be used only once. A Contract Owner or Participant contemplating reinvestment should seek competent advice regarding the tax consequences associated with such a transaction. ADDITIONAL WITHDRAWAL OPTIONS General The Company has certain distribution options available which are not considered Annuity options. These options are the Estate Conservation Option ("ECO") and the Systematic Withdrawal Option ("SWO"). These options are available to Participants with Account Values of at least $25,000 at the time of election and area available at certain ages as described below. Under SWO, the Participant receives a series of partial withdrawals from the account based on the payment method selected. It is designed for those who want a periodic income while retaining investment flexibility for amounts accumulating under the Contract. 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 and pays you that amount once a year. Since ECO and SWO are not Annuity options, the Individual or Plan Account remains in the Accumulation Period, retains all the rights and flexibility described in this prospectus, and is subject to all other Contract charges. The value of the Accumulation Units cancelled will be withdrawn from the respective investment 21 options in the same proportions as their respective values have to the total value of the Individual or Participant's portion of the Plan Account. The Company reserves the right to discontinue the availability of these options and to change the terms for future elections. Once elected, these options may be revoked by the 401 or HR 10 Plan Contract Owner or Participant of a 403(b) Plan at any time, but only by submitting a written request to the Company's Home Office. Any revocation will apply only to the amounts not yet paid. Once ECO or SWO is revoked, it may not be elected again. SWO is different from ECO in the following ways: (1) SWO payments are made for a fixed dollar amount or fixed time period, whereas ECO payments vary in dollar amount and can continue indefinitely during the Contract Holder's or Participant's lifetime and (2) generally, SWO payments will be higher than expected ECO payments. Participants should carefully assess their future income needs when considering the election of these distribution options. Participants should determine the availability of ECO and SWO under their Plan (by checking with the Contract Owner), and verify the terms and conditions that may apply. Participants should also consult their tax advisor prior to requesting the election of these options due to the potential for adverse tax consequences. In the event of the Participant's death, payments may be continued if allowed by the Plan. Estate Conservation Option The Company will calculate and distribute an annual amount using the method contained in the Code's minimum distribution regulations. The annual distribution is determined by dividing the value of the Individual or Participant's portion of the Plan Account, by a life expectancy factor. The factor will be based on either the Participant's life expectancy or the joint life expectancies of the Participant and the Participant's designated beneficiary, as directed by the Contract Owner, and based on tables in IRS regulations. If ECO is based only on the Participant's life expectancy, the full value of the Individual or Participant's portion of the Plan Account must be distributed in the year following the Participant's death as required by current IRS regulations. Factors will be calculated for each year's distribution. The value of the Individual or Participant's portion of the Plan Account to be used in this calculation is the value on the December 31st prior to the year for which payment is being made. This calculation will be changed, if necessary, to conform to changes in the Code or applicable regulations. The first distribution may not be made before the calendar year in which the Participant attains age 70 1/2, or retires, if later. If the Company maintains a separate record of a 403(b) Participant's Individual Account value as of December 31, 1986, this amount is not required to be distributed until the Participant attains age 75, or retires, if later. In this instance, minimum distributions made to a retired Participant in or after the year the Participant attains age 70 1/2 but before the Participant attains age 75, will be calculated only on amounts contributed after December 31, 1986, and any earnings credited after that date. If the Participant has received any distribution from his or her Account, other than distributions required under Code minimum distribution requirements, the excess amount taken will reduce the December 31, 1986 account balance. At the time of ECO election, the total aggregate value of all Individual Accounts or portions of Plan Accounts to which ECO is applied must be $25,000 or more. Systematic Withdrawal Option The Company will distribute a portion of the Contract, as directed by the Contract Owner annually. The Company reserves the right to provide payments more frequently. For 403(b) Participants, payments are also available monthly, quarterly, or semi-annually. No election may be made that would result in a payment of less than $500. For 403(b) Participants, the minimum payment amount is $250. At the time of SWO election, the total aggregate value of all Individual Accounts or portions of Plan Accounts to which SWO is applied must be $25,000 or more. 22 The annual minimum SWO distribution, or maximum SWO time period, will be determined, as directed by the Contract Holder, by a life expectancy factor from tables designated by the IRS. The factor will be based on either the Participant's life expectancy or the joint life expectancies of the Participant and Participant's spouse. Factors will be reduced by 1 (one) for each distribution year. For 403(b) Participants, payment may not begin until the Participant attains age 59 1/2 (or age 55 if the Participant has separated from service with the Contract Holder). For 401 or HR 10 Plans, payments may not begin until the calendar year in which the Contract Owner attains age 70 1/2 or retires, whichever is later. One of following distribution methods may be elected: (a) Specified Payment--Payments of a designated dollar amount. The annual dollar amount chosen cannot be greater than 10% of the cash value applied to SWO. The specified payment minimum distribution is determined by dividing the value of the Individual Account by the life expectancy factor. The value of the Individual Account to be used in this calculation is the value on the December 31st prior to the year for which the payment is being made. The specified payment amount will remain constant unless a higher amount is required under Code distribution requirements. If the dollar amount chosen is less than the Code's minimum distribution, the Company will calculate and pay the minimum distribution amount. (b) Specified Period--payments for a designated time period. The specified period must be at least 10 years but no greater than the Participant's life expectancy factor. Each annual distribution is determined by dividing the Individual Account or total portions of the Plan Accounts value by the number of years remaining in the elected period. 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. (c) Specified Percentage (403(b) Participants only)--payments of a designated percentage. The specified percentage chosen cannot be greater than 10% of the amount applied to SWO. The Participant may change the specified percentage elected every six months. Each annual distribution is determined by multiplying the Contract 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 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 or retires, whichever is later. ANNUITY PERIOD Annuity Period Elections The Participant of a 403(b) Plan or the Contract Owner of a 401 or HR 10 Plan must notify the Company in writing of the Annuity start date and Annuity Option elected. Until a date and option are elected, the Individual or Plan Account will continue in the Accumulation Period. The Contract Owner or, if permitted by a Plan, the Participant may give written notice to the Company at least 30 days prior to the start of Annuity payments electing or changing (a) the date on which Annuity payments are to begin; (b) the Annuity option; (c) whether the payments are to be made monthly, quarterly, semiannually or annually; and (d) the investment option(s) used to provide Annuity payments (i.e., a fixed annuity using the general account, Aetna Variable Fund, Aetna Income Shares, Aetna Investment Advisers Fund, Inc., or any combination thereof). Aetna Variable Encore Fund and American Century VP Capital Appreciation cannot be used as investment options during the Annuity Period. Once Annuity Payments begin, the Annuity Option may not be changed, nor may transfers be made among funding options. 23 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 (3 1/2% per annum, unless a 5% annual rate is elected). 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 by more than 5% on an annualized basis. Annuity payments would decline if the rate failed to increase by 5%. Use of the 3 1/2% assumed rate causes a lower first payment but subsequent payment would increase more rapidly or decline more slowly as changes occur in the net investment rate. No election may be made that would result in a first Annuity payment of less than $20 or total yearly Annuity payments of less than $100. If the value of the Individual or Plan Account is insufficient to elect an option for the minimum amount specified, a lump-sum payment must be elected. When payments start, the age of the Annuitant plus the number of years for which payments are guaranteed must not exceed 95. In determining the amount of benefit payments, the minimum distribution incidental death benefit rule described in IRS regulations* must be satisfied. This distribution rule does not apply to 401, HR 10, and certain 403(b) Plans if any of the Annuity Options under (b) below are elected with the spouse as the sole beneficiary. (See "Annuity Options.") Annuity payments may not extend beyond (a) the life of the Annuitant, (b) the joint lives of the Annuitant and beneficiary, (c) a period certain greater than the Annuitant's life expectancy, or (d) a period certain greater than the joint life expectancies of the Annuitant and beneficiary. The Participant will be subject to a 50% federal penalty tax on the amount of distribution required each year which is not distributed under the Code's minimum distribution rules. * This rule assures that any death benefits payable under the Plan are incidental to the primary purpose of the Plan which is to provide retirement benefits or deferred compensation to the Participant. The amount to be distributed under this rule is determined based on the Participant's age and tables contained in the IRS regulations. 403(b) Plans Distributions of the Individual Account values as of December 31, 1986, must generally begin by age 75 or retirement, whichever is later. Distributions of the Individual Account value attributable to contributions made on and after January 1, 1987, and any earnings on the entire Individual Account after that date 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 is later. This distribution date may be further deferred if allowed under federal law or regulations. 401 and HR 10 Plans The retirement date and the Annuity options available to Participants are normally established by the terms of the Plan, subject to applicable provisions of the Code. Except for 5% owners, distributions for all 401 and HR10 Plan Participants must begin no later than April 1 of the calendar year following the calendar year in which the Participant attains age 70 1/2 or retires, if later. For all 5% owners, such distributions must begin by April 1 of the calendar year following the calendar year in which you attain age 70 1/2. These distribution dates may be further deferred if allowed under federal law or regulations. Annuity Options Lifetime: (a) Life Annuity--an Annuity with payments guaranteed to the date of the Annuitant's death. This option may be elected with payments guaranteed for 5, 10, 15 or 20 years, or such other periods as we 24 may offer at the time of annuitization. Because it provides a specified minimum number of Annuity payments, the election of a guaranteed payment period results in somewhat lower payments. (b) Life Income Based Upon the Lives of Two Payees--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 must be made of: (i) 100% of the payment to continue after the first death; (ii) 662/3% of the payment to continue after the first death; (iii) 50% of the payment to continue after the first death; (iv) Payments for a minimum of 120 months, with 100% of the payment to continue after the first death; or (v) 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. Because (iv) provides a specified minimum number of Annuity payments, the election of the guaranteed payment period results in somewhat lower payments. If a lifetime option is elected without a guaranteed minimum payment period, it is possible that only one Annuity payment will be made if the Annuitant under (a), or the surviving Annuitant under (b) (i), (ii), (iii) or (v) should die prior to the due date of the second Annuity payment. Payments under any lifetime Annuity option will be determined without regard to the sex of the Annuitant(s). Such Annuity payments will be based solely on the age of the Annuitant(s). Once lifetime annuity payments begin, neither the Contract Holder nor the annuitant can elect to receive a lump-sum settlement. Nonlifetime: Payments for a Specified Period--an Annuity with payments to be made for one to thirty years, as selected. If this option is elected on a variable basis, the Contract Owner or the 403(b) Annuitant may request at any time during the payment period that the present value of all or any portion of the remaining variable payments be paid in one sum. This option is not available on a variable basis under a Contract which provides for immediate Annuity benefits. The Company makes a daily deduction for mortality and expense risks from any Contract values held on a variable basis (See "Mortality and Expense Risk Charges.") Therefore, electing the nonlifetime option on a variable basis will result in a deduction being made even though the Company assumes no mortality risk. The Company may make available to Contact Owners and other payees optional methods of payment in addition to the Annuity options described. DEATH BENEFIT Accumulation Period A portion or all of any death proceeds may be (a) paid to the beneficiary in a lump sum; (b) applied under any of the Annuity Options; (c) subject to applicable provisions of the Code, left in the variable investment options; (d) subject to applicable provisions of the Code, left on deposit in the Company's general account with the beneficiary electing to receive monthly, quarterly, semiannual or annual interest payments at the interest rate then currently being credited on such deposits. (The balance on deposit can be withdrawn at any time or applied under any "Annuity Option.") Any lump-sum payment paid during the Accumulation Period will normally be 25 made within seven calendar days after proof of death acceptable to the Company and a request for payment are received at the Company's Home Office. Until the election of method of payment, amounts will remain invested as they were before the death, and the beneficiary will assume all rights under the Contract; however, the Code requires that distributions begin within a certain time period, as described below. If no elections are made concerning distribution, no distributions will be made. Failure to commence distribution within the above time periods can result in tax penalties. 403(b) Plans If the beneficiary is the surviving spouse, the beneficiary has until the Participant would have attained age 70 1/2 to begin Annuity payments, to receive a lump-sum distribution, or to begin receiving distributions under ECO or SWO. If the beneficiary is not the surviving spouse, either Annuity payments must begin within one year of the Participant's death, or the entire value must be distributed within five years of the Participant's death. In no event may payments to any beneficiary extend beyond the life of the beneficiary or any period certain greater than the beneficiary's life expectancy. 401 and HR 10 Plans If the Participant's beneficiary under the Plan is the surviving spouse, the Code allows a Plan to give the Participant's beneficiary until the Participant would have attained age 70 1/2 to begin Annuity payments or to receive a lump-sum distribution. If the Participant's beneficiary under the Plan is not the surviving spouse, the Plan must provide that either Annuity payments begin within one year of the Participant's year of death, or the entire value must be distributed within five years of the Participant's year of death. In no event may payments to any Participant's beneficiary extend beyond the life of the Participant's beneficiary or any period certain greater than the Participant's beneficiary's life expectancy. If a lump-sum distribution is elected, the beneficiary will receive the value of the Contract determined as of the Valuation Period in which proof of death acceptable to us and a request for payment are received at the Home Office. If an Annuity Option is elected, the value applied to the Annuity Options is determined in the same manner as a lump-sum distribution; the amount of payout will depend on the annuity option elected and the investment option(s) used to provide such payments. (See "Annuity Period.") If amounts are left in the variable investment options, the account value will continue to be affected by the investment performance of the investment option(s) selected. If amounts are left on deposit in the general account, the principal amount is guaranteed but interest payments may vary. In general, regardless of the method of payment, payments received by your beneficiaries after your death are taxed in the same manner as if you had received those payments. (See "Tax Status.") Annuity Period Should an Annuitant die after Annuity payments have begun, any death benefit payable will depend upon the terms of the Contract and the Annuity option selected. If lifetime option (a) or (b) was elected without a guaranteed minimum payment period under the Contract, Annuity payments will cease upon the death of the Annuitant under a Life Annuity or the death of the surviving Annuitant under options (b)(i),(ii), (iii), or (v). Under the Contract, if lifetime option (a) or (b) was elected with a guaranteed minimum payment period and the death of the Annuitant under option (a) or the death of the surviving Annuitant under options (b)(iv) occurs prior to the end of that period, the Company will pay to the designated beneficiary in lump sum, unless 26 otherwise requested, the present value of the guaranteed Annuity payments remaining. Such value will be determined as of the Valuation Date on which proof of death acceptable to the Company and a request for payment are received at its Home Office. The value will be reduced by any payments made after the date of death. If the nonlifetime option was elected under the Contract 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. Such value will be determined as of the valuation date on which proof of death acceptable to the Company and a request for payment are received at the Home Office. 403(b) Plans If the Annuitant dies after Annuity payments have commenced and if there is a death benefit payable under the Annuity option elected, the remaining values must be distributed to the beneficiary at least as rapidly as under the original method of distribution. 401 and HR 10 Plans Under the Code, if the Annuitant under a Plan dies after Annuity payments have commenced and if there is a death benefit payable under the Annuity option elected, the remaining values must be distributed to the Participant's beneficiary under the Plan at least as rapidly as under the original method of distribution. TAX STATUS Federal Tax Status of the Company The Company is taxed as a life insurance company in accordance with the Code. For federal income tax purposes, the operations of the Separate Account form a part of the Company's total operations and are not taxed independently, although operations of the Separate Account are treated separately for accounting and financial statement purposes. Under the current provisions of the Code, the investment income and realized capital gains of the Separate Account (i.e., income and capital gains distributed to the Separate Account by the Funds) will not be taxable to the Company to the extent such amounts are credited to the Contracts. Based on this, no charge is being made currently to the Separate Account for federal income taxes. However, the Company reserves the right to make a deduction for federal income taxes attributable to the Contracts should such taxes be imposed in the future. Use of the Contract The Contract is intended to provide retirement benefits to Participants under: (1) Plans adopted by public school systems and certain tax-exempt organizations (Section 501(c)(3) organizations) for their employees under Section 403(b), and (2) HR 10 Plans established by self-employed individuals, and (3) Corporate 401 Plans established by employers to provide retirement benefits to their employees. Some of the options and elections under the Contract may not be available to Participants under the provisions of the Plan. Tax Status of Amounts Distributed Under the Contract The following description of the federal income tax status of amounts distributed under the Contracts is not exhaustive and is not intended to cover all situations. Contract Owners and Participants should seek advice from their tax advisers as to the application of federal (and where applicable, state and local) tax laws to amounts received by them and by their beneficiaries under the Contracts. 27 The Code imposes a 10% penalty tax on the taxable portion of any distribution unless made when (a) the Participant has attained age 59 1/2, (b) the Participant has become disabled, (c) the Participant has died, (d) the Participant has attained age 55 and has separated from service with the Plan sponsor, (e) the distribution amount is rolled over into an Individual Retirement Account ("IRA") in accordance with terms of the Code, or alternatively, for 403(b) Plans, into either a 403(b) Plan or an IRA in accordance with terms of the Code, or (f) the distribution amount is annuitized over the life or life expectancy of the Participant or the joint lives or life expectancies of the Participant and beneficiary, provided the Participant has separated from service with the Plan sponsor. In addition, the penalty tax is abated for the amount of a distribution equal to unreimbursed medical expenses incurred by the Participant that qualify for deduction as specified in the Code. Whether the Participant elects a lump sum or Annuity payments, if a Participant has made after-tax contributions to the Plan, the Participant will have a cost basis (equal to such contributions) which can be recovered tax-free from distributions from the Plan. A 20% federal income tax may be withheld from any distributions paid directly to a Participant, under a 403(b) Plan (see below); any state income taxes due will also be withheld unless the Company is notified otherwise. The Company will report to the IRS the taxable portion of all distributions whether or not income taxes are withheld. a. Accumulation Period The Purchase Payments and investment results of the Separate Account credited to the value of the Contract are not taxable to Participants until distributed. Special provisions of the Code may afford more favorable tax treatment for lump-sum distributions under 401 and HR 10 Plans. Certain payees (a Participant, surviving spouse, and former spouse, if entitled to benefits under certain divorce orders) entitled to a distribution under this Contract on or after January 1, 1993, may elect a direct rollover of an eligible rollover distribution. A direct rollover is the payment by the Company to another eligible retirement plan. The election of a direct rollover must be made in accordance with the Company's procedures. An eligible rollover distribution is a distribution of all or any portion of an amount payable except for any distribution: (1) that is one of a series of equal payments (made at least once a year) for the life/life expectancy of the payee or payee and beneficiary, or for a period of ten years or more; (2) that is a required minimum distribution under Code Section 401(a)(9); and (3) any distribution or portion thereof that is not taxable. For a Participant in a 403(b) plan, an eligible retirement plan is another 403(b) plan or an individual retirement annuity/account. For a surviving spouse, an eligible retirement plan is an individual retirement annuity/account. If a direct rollover of an eligible rollover distribution is made, the Company must report the amount of the distribution to the IRS and the Participant, but is not required to withhold any federal or state income tax. If an eligible rollover distribution is paid to the payee (as defined above), the Company must withhold 20% federal income tax and any required state income tax. For taxable amounts that are not eligible rollover distributions, if payable to the Participant, he or she has the right to choose not to have federal income tax withheld. If a Participant receives a payment prior to reaching age 59 1/2, and does not roll the payment over, in addition to the tax withholding, a 10% penalty tax on the taxable portion of the payment may apply (unless the payment is subject to an exception listed above). b. Annuity Period Annuity payments will generally be fully taxable to Participants as ordinary income when received. 28 MISCELLANEOUS Performance Reporting From time to time, the Company may advertise different types of historical performance for the variable funding options under the Separate Account. The Company may advertise the "standardized average annual total returns," 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 variable funding option 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, sales and administrative expense charges and the termination fee). "Non-standardized returns" will be calculated in a similar manner, except that non-standardized figures will not reflect the deduction of any applicable termination fee (which would decrease the level of performance shown if reflected in these calculations). The non-standardized figures may also include monthly, quarterly, year-to-date and three-year periods. The Company may also advertise certain ratings, rankings or other information related to the Company, the Separate Account or the Funds. Further details regarding performance reporting and advertising are described in the Statement of Additional Information. Legal Proceedings The Company knows of no material legal proceedings pending to which the Separate Account is a party or which would materially affect the Separate Account. Legal Matters The validity of the securities offered by this Prospectus has been passed upon by Counsel to the Company. 29 CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION The following items are the contents of the Statement of Additional Information: 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.......................................................... 6 Sales Material and Advertising............................................ 7 Independent Auditors...................................................... 7 Financial Statements of the Separate Account.............................. S-1 Financial Statements for Aetna Life Insurance and Annuity Company......... F-1 30 APPENDIX I GUARANTEED ACCUMULATION ACCOUNT The Guaranteed Accumulation Account ("GAA") is a credited interest option available during the Accumulation Period under the Contracts. Contract Holders should read the accompanying GAA prospectus carefully before investing. This Appendix is a summary of GAA and is not intended to replace the GAA 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. GAA is a credited interest option in which the Company guarantees 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 over the period of one year. This option guarantees the minimum interest rate specified in the Contract. During a specified period of time, amounts may be applied to any or all of available Guaranteed Terms within the Short-Term and Long-Term Classifications. The Short-Term Classification consists of all Guaranteed Terms of 3 years or less and the Long-Term Classification consists of all Guaranteed Terms of 10 years or less, but greater than 3 years. Withdrawals or transfers from a Guaranteed Term prior to 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 investment 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 Contract Holder or, if applicable, the Participant receiving an amount which is less than the amount paid into GAA. Mortality and Expense Risk Charges The Company makes no deductions from the credited interest rate for mortality and expense risks; these risks are considered in determining the credited rate. Transfers Amounts applied to a Guaranteed Term during a deposit period may not be transferred to any other funding option or to another Guaranteed Term during that deposit period or for 90 days after the close of that deposit period. Transfers are permitted from Guaranteed Terms of one Classification to available Guaranteed Terms of another Classification. The Company will apply an MVA to GAA transfers made before the end of a Guaranteed Term. Transfers of GAA values at a maturity are not counted as one of the 12 free transfers of accumulated values in the Individual or Plan Account. By giving notice to the Company at its Home Office at least 30 days before Annuity payments begin, the Contract Holder or, if permitted by the plan, the Participant may elect to have amounts which have been accumulating under GAA transferred to Aetna Variable Fund, Aetna Income Shares, Aetna Investment Advisers Fund, Inc., or any combination thereof, to provide variable Annuity payments. GAA cannot be used as an investment option during the Annuity Period. Reinvestment Privilege Any amounts reinvested in GAA will be applied to the current deposit period. Amounts are proportionately reinvested to the Classifications in the same manner as they were allocated prior to withdrawal. Any negative MVA amount applied to a withdrawal is not included in the reinvestment. 31 APPENDIX II FIXED ACCOUNT The Fixed Account is an investment option available during the Accumulation Period under the Contracts. The following summarizes material information concerning the fixed account that is offered as an option under the Contract. Additional information may be found in your Contract. Amounts allocated to the Fixed Account are held in the Company's general account that supports insurance and Annuity obligations. Interests in the Fixed Account have not been registered with the SEC in reliance on exemptions under the Securities Act of 1933, as amended. Disclosure in this prospectus regarding the Fixed Account, however, may be subject to certain generally applicable provisions of the federal securities laws relating to the accuracy and completeness of the statements. Disclosure in this Appendix regarding the Fixed Account has not been reviewed by the SEC. Fixed Account This option guarantees that amounts allocated to this option will earn the minimum interest rates specified in the Contract. The Company 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, the Company assumes the risk of investment gain or loss by guaranteeing Net Purchase Payment values and promising a minimum interest rate and Annuity payment. Amounts applied to the Fixed Account will earn the interest rate in effect when actually applied to the Fixed Account. Mortality and Expense Risk Charges The Fixed Account will reflect a compound interest rate credited by the Company. The interest rate quoted is an annual effective yield. The Company makes 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 Account to any other available investment option are allowed in each calendar year during the Accumulation Period. The amount which may be transferred may vary at the Company's discretion; however, it will never be less than 10% of the amount held under the Fixed Account. By giving notice to the Company at its Home Office at least 30 days before Annuity payments begin, the Contract Owner or, if permitted by the Plan, the Participant may elect to have amounts which have been accumulating under the Fixed Account transferred to Aetna Variable Fund, Aetna Income Shares, Aetna Investment Advisers Fund, Inc. ,or any combination thereof, to provide variable Annuity payments. 32 VARIABLE ANNUITY ACCOUNT C PROSPECTUS DATED MAY 1, 1997 Group 403(b), 401, and HR 10 Plans Aetna Life Insurance and Annuity Company Customer Service 151 Farmington Avenue Hartford, Connecticut 06156-1268 Telephone: 1-800-232-5422 Form No. PROS.75974-97 May 1997 - ------------------------------------------------------------------------------ VARIABLE ANNUITY ACCOUNT C - ------------------------------------------------------------------------------ OF AETNA LIFE INSURANCE AND ANNUITY COMPANY Statement of Additional Information dated May 1, 1997 Group Variable Retirement Annuity Contracts for Tax-Deferred Annuity Plans (Section 403(b)), Qualified 401 Plans, and HR 10 Plans 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, 1997. 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 1-800-531-4547 Read the prospectus before you invest. Terms used in this Statement of Additional Information shall have the same meaning as in the prospectus. TABLE OF CONTENTS Page General Information and History........................................... 2 Variable Annuity Account C................................................ 2 Offering and Purchase of Contracts........................................ 3 Performance Data.......................................................... 3 General.............................................................. 3 Average Annual Total Return Quotations............................... 4 Annuity Payments.......................................................... 6 Sales Material and Advertising............................................ 7 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, 1996, the Company had assets of $___ billion (subject to $____ billion of customer and other liabilities, $___ billion of shareholder equity) which includes $___ billion in assets held in the Company's separate accounts. The Company had $__ billion in assets under management, including $__ billion in its mutual funds. As of ____________________, it ranked among the top __% 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 Inc. The Company is engaged in the business of issuing life insurance policies and annuity contracts in all states of the United States. The Company's Home Office is located at 151 Farmington Avenue, Hartford, Connecticut 06156. In addition to serving as the principal underwriter and the depositor for the Separate Account, the Company is also a registered investment adviser under the Investment Advisers Act of 1940, and a registered broker-dealer under the Securities Exchange Act of 1934. The Company provides investment advice to several of the registered management investment companies offered as variable investment options under the Contracts funded by the Separate Account (see "Variable Annuity Account C" below). Other than the mortality and expense risk charges and administrative expense charge described in the prospectus, all expenses incurred in the operations of the Separate Account are borne by the Company. See "Charges and Deductions" in the prospectus. The Company receives reimbursement for certain administrative costs from some unaffiliated sponsors of the Funds used as funding options under the Contract. These fees generally range up to 0.25%. The assets of Separate Account are held by the Company. The Separate Account has no custodian. However, the Funds in whose shares the assets of the Separate Account are invested each have custodians, as discussed in their respective prospectuses. VARIABLE ANNUITY ACCOUNT C Variable Annuity Account C (the "Separate Account") is a separate account established by the Company for the purpose of funding variable annuity contracts issued by the Company. The Separate Account is registered with the Securities and Exchange Commission as a unit investment trust under the Investment Company Act of 1940, as amended. The assets of the Separate Account will be invested exclusively in shares of the mutual funds described in the prospectus. Purchase Payments made under the Contract may be allocated to one or more of the Funds. The Company may make additions to, deletions from or substitutions of available investment options as permitted by law and subject to the conditions in the Contract. The availability of the Funds is subject to applicable regulatory authorization. Not all Funds are available in all jurisdictions or under all Contracts. 2 The Funds currently available under the Contract are as follows: Aetna Variable Fund Aetna Income Shares Aetna Variable Encore Fund Aetna Investment Advisers Fund, Inc. American Century VP Capital Appreciation (formerly TCI Growth) 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 section titled "The Contract." PERFORMANCE DATA GENERAL From time to time, the Company may advertise different types of historical performance for the variable investment options 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," both of which are described below. The standardized and non-standardized total return figures are computed according to a formula in which a hypothetical initial Purchase Payment of $1,000 is applied to the various variable investment options under the Contract, and then related to the ending redeemable values over one, five and ten year periods (or fractional periods thereof). The redeemable value is then divided by the initial investment and this quotient is taken to the Nth root (N represents the number of years in the period) and 1 is subtracted from the result which is then expressed as a percentage, carried to at least the nearest hundredth of a percent. The standardized figures reflect the deduction of all recurring charges during each period (e.g., mortality and expense risk charges, sales and administrative expense charges, and the termination fee). These charges will be deducted on a pro rata basis in the case of fractional periods. The non-standardized figures will be calculated in a similar manner, except that they will not reflect the deduction of any applicable termination fee (which would decrease the level of performance shown if reflected in these calculations). The non-standardized figures may also include monthly, quarterly, year-to-date and three-year periods. 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. 3 Investment results will fluctuate over time, and any presentation of the total return quotations for any prior period should not be considered as a representation of how the variable investment options will perform in any future period. Additionally, the Individual Account Value upon redemption may be more or less than your original cost. AVERAGE ANNUAL TOTAL RETURN QUOTATIONS - Standardized and Non-Standardized The tables shown below reflect the average annual standardized and non-standardized total return quotation figures for the periods ended December 31, 1996 for the variable investment options available under the Contracts. Table A reflects the total return quotations for Contracts issued under 403(b) Plans; Table B reflects the total return quotations for Contracts issued under 401 Plans; and Table C reflects the total return quotations for Contracts issued under HR 10 Plans. The standardized returns for 403(b) Contracts assume a mortality and expense risk charge of 1.25%, a sales and administrative expense charge of 6.00% and the applicable termination fee. The standardized returns for 401 Contracts assume a mortality and expense risk charge of 1.19%, a sales and administrative expense charge of 5.00% and the applicable termination fee. The standardized returns for HR 10 Contracts assume a mortality and expense risk charge of 1.25%, a sales and administrative expense charge of 1.75% and the applicable termination fee. The non-standardized returns assume the same charges but do not include the termination fee. For those variable investment options where results are not available for the full calendar period indicated, the percentage shown is an average annual return since inception (denoted with an asterisk). 4 TABLE A 403(b) Plans
----------------------------------------------------------------------------------------- Fund STANDARDIZED NON-STANDARDIZED Inception Date --------------------------------------------------------------------------------------------------------------------------------- INVESTMENT OPTION 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years --------------------------------------------------------------------------------------------------------------------------------- Aetna Variable Fund 04/30/75 --------------------------------------------------------------------------------------------------------------------------------- Aetna Income Shares 06/01/78 --------------------------------------------------------------------------------------------------------------------------------- Aetna Variable Encore Fund 09/01/75 --------------------------------------------------------------------------------------------------------------------------------- Aetna Investment Advisers Fund, Inc. 06/23/89 --------------------------------------------------------------------------------------------------------------------------------- American Century VP Capital Appreciation 11/20/87 ---------------------------------------------------------------------------------------------------------------------------------
TABLE B 401 Plans
----------------------------------------------------------------------------------------- Fund STANDARDIZED NON-STANDARDIZED Inception Date --------------------------------------------------------------------------------------------------------------------------------- INVESTMENT OPTION 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years --------------------------------------------------------------------------------------------------------------------------------- Aetna Variable Fund 04/30/75 --------------------------------------------------------------------------------------------------------------------------------- Aetna Income Shares 06/01/78 --------------------------------------------------------------------------------------------------------------------------------- Aetna Variable Encore Fund 09/01/75 --------------------------------------------------------------------------------------------------------------------------------- Aetna Investment Advisers Fund, Inc. 06/23/89 --------------------------------------------------------------------------------------------------------------------------------- American Century VP Capital Appreciation 11/20/87 ---------------------------------------------------------------------------------------------------------------------------------
TABLE C HR 10 Plans
----------------------------------------------------------------------------------------- Fund STANDARDIZED NON-STANDARDIZED Inception Date --------------------------------------------------------------------------------------------------------------------------------- INVESTMENT OPTION 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years --------------------------------------------------------------------------------------------------------------------------------- Aetna Variable Fund 04/30/75 --------------------------------------------------------------------------------------------------------------------------------- Aetna Income Shares 06/01/78 --------------------------------------------------------------------------------------------------------------------------------- Aetna Variable Encore Fund 09/01/75 --------------------------------------------------------------------------------------------------------------------------------- Aetna Investment Advisers Fund, Inc. 06/23/89 --------------------------------------------------------------------------------------------------------------------------------- American Century VP Capital Appreciation 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. 5 ANNUITY PAYMENTS When Annuity payments are to begin, the value of the Contract or Individual Account is determined using Accumulation Unit values as of the tenth Valuation Period 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 Period to the next; such fluctuations reflect changes in the net investment factor for the appropriate Fund(s) (with a ten Valuation Period 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. EXAMPLE: Assume that, at the date Annuity payments are to commence, there are 3,000 Accumulation Units credited under a particular Contract or Individual Account and that the value of an Accumulation Unit for the tenth Valuation Period 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 Period 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 Fund is 1.0015000 as of the tenth Valuation Period 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 Period (assume such value to be $13.504376) to produce an Annuity Unit value of $13.523359 for the Valuation Period in which the second payment is due. 6 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 variable investment options 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 variable investment options 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. We may illustrate in advertisements the performance of the underlying funds, if accompanied by performance which also shows the performance of such funds reduced by applicable charges under the Separate Account. We may also show in advertisements the portfolio holdings of the underlying funds, updated at various intervals. From time to time, we will quote articles from newspapers and magazines or other publications or reports, including, but not limited to The Wall Street Journal, Money magazine, USA Today and The VARDS Report. The Company may provide in advertising, sales literature, periodic publications or other materials information on various topics of interest to current and prospective Contract Holders or Participants. These topics may include the relationship between sectors of the economy and the economy as a whole and its effect on various securities markets, investment strategies and techniques (such as value investing, market timing, dollar cost averaging, asset allocation, constant ratio transfer and account rebalancing), the advantages and disadvantages of investing in tax-deferred and taxable investments, customer profiles and hypothetical purchase and investment scenarios, financial management and tax and retirement planning, and investment alternatives to certificates of deposit and other financial instruments, including comparison between the Contracts and the characteristics of and market for such financial instruments. INDEPENDENT AUDITORS KPMG Peat Marwick LLP, CityPlace II, Hartford, Connecticut 06103-4103, are the independent auditors for the Separate Account and for the Company. The services provided to the Separate Account include primarily the examination of the Separate Account's financial statements and the review of filings made with the SEC. 7 FINANCIAL STATEMENTS VARIABLE ANNUITY ACCOUNT C Index Independent Auditors' Report.............................................. S- Statement of Assets and Liabilities....................................... S- Statement of Operations................................................... S- Statements of Changes in Net Assets....................................... S- Notes to Financial Statements ............................................ S- Condensed Financial Information........................................... S- FINANCIAL STATEMENTS OF VARIABLE ANNUITY ACCOUNT C AND AETNA LIFE INSURANCE AND ANNUITY COMPANY TO BE FILED BY AMENDMENT S-1 STATEMENT OF ADDITIONAL INFORMATION VARIABLE ANNUITY ACCOUNT C VARIABLE ANNUITY CONTRACTS issued by AETNA LIFE INSURANCE AND ANNUITY COMPANY Hartford, Connecticut Form No. SAI.75974 ALIAC Ed. MAY 1997 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, 1996 - Statement of Operations for the year ended December 31, 1996 - Statements of Changes in Net Assets for the years ended December 31, 1996 and 1995 - Notes to Financial Statements Financial Statements of the Depositor: - Independent Auditors' Report - Consolidated Balance Sheets as of December 31, 1996 and 1995 - Consolidated Statements of Income for the years ended December 31, 1996, 1995 and 1994 - Consolidated Statements of Changes in Shareholder's Equity for the years ended December 31, 1996, 1995 and 1994 - Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 - 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(2) (3.2) Alternative Form of Wholesaling Agreement and Related Selling Agreement(2) (4.1) Form of Variable Annuity Contract (HR10-DUA-GIA) (4.2) Form of Variable Annuity Contract (GA-UPA-GO) (5) Not applicable (6.1) Certificate of Incorporation and By-Laws of Aetna Life Insurance and Annuity Company(3) (6.2) Amendment of Certificate of Incorporation of Aetna Life Insurance and Annuity Company(4) (7) Not applicable (8) Fund Participation Agreement between Aetna Life Insurance and Annuity Company, Investors Research Corporation and TCI Portfolios, Inc. dated July 29, 1992 and amended December 22, 1992 and June 1, 1994(2) (9) Opinion of Counsel* (10.1) Consent of Independent Auditors* (10.2) Consent of Counsel* (11) Not applicable (12) Not applicable (13) Schedule for Computation of Performance Data* (14) Not applicable (15.1) Powers of Attorney(4) (15.2) Authorization for Signatures(2) (27) Financial Data Schedule* *To be filed by amendment 1. Incorporated by reference to Post-Effective Amendment No. 6 to Registration Statement on Form N-4 (File No. 33-75986), as filed electronically on April 22, 1996. 2. Incorporated by reference to Post-Effective Amendment No. 5 to Registration Statement on Form N-4 (File No. 33-75986) filed electronically on April 12, 1996. 3. Incorporated by reference to Post-Effective Amendment No. 1 to Registration Statement on Form S-1 (File No. 33-60477), as filed electronically on April 15, 1996. 4. Incorporated by reference to Post-Effective Amendment No. 12 to Registration Statement on Form N-4 (File No. 33-75964), as filed electronically on February 11, 1997. Item 25. Directors and Officers of the Depositor - ------------------------------------------------ Name and Principal Business Address* Positions and Offices with Depositor - ------------------ ------------------------------------ Daniel P. Kearney Director and President Timothy A. Holt Director, Senior Vice President and Chief Financial Officer Christopher J. Burns Director and Senior Vice President Laura R. Estes Director and Senior Vice President Gail P. Johnson Director and Vice President John Y. Kim Director and Senior Vice President Shaun P. Mathews Director and Vice President Glen Salow Director and Vice President Creed R. Terry Director and Vice President Deborah Koltenuk Vice President and Treasurer, Corporate Controller Frederick D. Kelsven Vice President and Chief Compliance Officer Kirk P. Wickman Vice President, General Counsel and Secretary * 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. 12 to the Registration Statement on Form N-4 (File No. 33-75964), as filed electronically on February 11, 1997. Item 27. Number of Contract Owners - ---------------------------------- As of December 31,1996, there were 600,951 individuals holding interests in variable annuity contracts funded through Variable Annuity Account C. Item 28. Indemnification - ------------------------ Reference is hereby made to Section 33-771(f) of the Connecticut General Statutes ("C.G.S.") regarding indemnification of directors and Section 33-776(4) regarding indemnification of officers, employees and agents of Connecticut corporations. These statutes provide in general that Connecticut corporations incorporated prior to January 1, 1997 shall indemnify their officers, directors, employees and agents against "liability" (defined as the obligation to pay a judgment, settlement, penalty, fine, excise tax in the case of an employee benefit plan or reasonable expenses incurred with respect to a proceeding). In the case of a proceeding by or in the right of the corporation, indemnification is limited to reasonable expenses incurred in connection with the proceeding against the corporation to which the individual was named a party. The corporation's obligation to provide such indemnification does not apply unless (1) the individual has met the standard of conduct set forth in Section 33-771; and (2) a determination is made (by majority vote of a quorum of the board of directors who were not parties to the proceeding, or if a quorum cannot be obtained, by a committee of the board selected as described in Section 33-775(b)(2); by special legal counsel selected by the board of directors or members thereof as described in Section 33-775(b)(3); by shareholders) that the individual met the standard set forth in Section 33-771; 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. Also, unless limited by its Certificate of Incorporation, a corporation must indemnify an individual who was wholly successful on the merits or otherwise against reasonable expenses incurred by him in connection with a proceeding to which he was a party because of his relationship as director, officer, employee or agent of the corporation. The statute does specifically authorize a corporation to procure indemnification insurance on behalf of an individual who is or was a director, officer, employer or agent of the corporation. Consistent with the statute, Aetna Inc. 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. Item 29. Principal Underwriter - ------------------------------ (a) In addition to serving as the principal underwriter and depositor for the Registrant, Aetna Life Insurance and Annuity Company (ALIAC) also acts as the principal underwriter and investment adviser for Aetna Variable Encore Fund, Aetna Variable Fund, Aetna Series Fund, Inc., Aetna Generation Portfolios, Inc., Aetna Income Shares, Aetna Investment Advisers Fund, Inc., Aetna GET Fund, and Aetna Variable Portfolios, Inc. (all registered management investment companies under the 1940 Act). Additionally, ALIAC acts as the principal underwriter and depositor for Variable Life Account B and Variable Annuity Accounts B and G (separate accounts of ALIAC registered as unit investment trusts under the 1940 Act). ALIAC is also the principal underwriter for Variable Annuity Account I (a separate account of Aetna Insurance Company of America registered as a unit investment trust under the 1940 Act). (b) See Item 25 regarding the Depositor. (c) Compensation as of December 31, 1996:
(1) (2) (3) (4) (5) Net Underwriting Compensation on Name of Discounts and Redemption or Brokerage Principal Underwriter Commissions Annuitization Commissions Compensation* - --------------------- ---------------- --------------- ----------- ------------- Aetna Life Insurance $1,325,661 $96,924,599 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 accounts, books and other documents required to be maintained by Section 31(a) of the 1940 Act and the Rules under it relating to the securities described in and issued under this Registration Statement 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) P. 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. (f) Aetna Life Insurance and Annuity Company represents that the fees and charges deducted under the contracts covered by this registration statement, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by the insurance company. SIGNATURES As required by the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant, Variable Annuity Account C of Aetna Life Insurance and Annuity Company, has duly caused this Post-Effective Amendment No. 6 to its Registration Statement on Form N-4 (File No. 33-75974) to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Hartford, State of Connecticut, on the 28th day of February, 1997. 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, this Post-Effective Amendment No. 6 to the Registration Statement on Form N-4 (File No. 33-75974) 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 ) February - --------------------------- President and Chief 28, 1997 Timothy A. Holt Financial Officer ) ) 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 ) ) Deborah Koltenuk* Vice President and Treasurer, Corporate - ---------------------------- Controller ) Deborah Koltenuk ) By: /s/Julie E. Rockmore ----------------------------------- *Julie E. Rockmore Attorney-in-Fact VARIABLE ANNUITY ACCOUNT C EXHIBIT INDEX Exhibit No. Exhibit Page - ----------- ------- ---- 99-B.1 Resolution of the Board of Directors of Aetna Life Insurance and Annuity Company establishing Variable Annuity Account C * 99-B.3.1 Form of Broker-Dealer Agreement * 99-B.3.2 Alternative Form of Wholesaling Agreement and Related Selling Agreement * 99-B.4.1 Form of Variable Annuity Contract (HR10-DUA-GIA) -------- 99-B.4.2 Form of Variable Annuity Contract (GA-UPA-GO) -------- 99-B.6.1 Certificate of Incorporation and By-Laws of Depositor * 99-B.6.2 Amendment of Certificate of Incorporation of Depositor * 99-B.8 Fund Participation Agreement between Aetna Life Insurance and Annuity Company, Investors Research Corporation and TCI Portfolios, Inc. dated July 29, 1992 and amended December 22, 1992 and June 1, 1994 * 99-B.9 Opinion of Counsel ** 99-B.10.1 Consent of Independent Auditors ** 99-B.10.2 Consent of Counsel ** 99-B.13 Schedule for 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 **To be filed by amendment EX-99.B.4.1 2 FORM OF VARIABLE ANNUITY CONTRACT (HR10-DUA-GIA) EXHIBIT 4.1 Aetna Life Insurance and Annuity Company Home Office: 151 FARMINGTON AVE. HARTFORD, CONNECTICUT 06156 (203) 273-0123 Herein called Aetna. Agrees to pay benefits as provided in this contract due any participant in the Plan named below. This contract is issued to the Contract Owner in return for an application and the payment of stipulated payments as provided herein. The provisions in the following pages form a part of this contract as fully as if recited in their entirety over the signatures below. DETAILS OF VARIABLE PROVISIONS MAY BE FOUND IN THE VALUATION PROVISIONS AND RETIREMENT ANNUITY PROVISIONS OF THIS CONTRACT. Aetna has caused this contract to be signed at its Home Office on the Execution Date. /s/ Stephen B. Middlebrook /s/ William O. Bailey Secretary President GROUP DEPOSIT ADMINISTRATION CONTRACT ACTIVE LIFE FUND IN SEPARATE ACCOUNT AND GENERAL ACCOUNT ALL PAYMENTS AND VALUES PROVIDED BY THE CONTRACT, WHEN BASED ON INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT. COVER SHEET This Contract is a legal contract between the Contract Owner and Aetna. READ THIS CONTRACT CAREFULLY. The cover sheet is only a brief outline of some of the important features of the contract. The cover sheet is not the insurance contract. Only the actual contract provisions will control. The contract itself sets forth, in detail, the right and obligations of both the Contract Owner and Aetna. IT IS THEREFORE IMPORTANT THAT YOU READ THE CONTRACT CAREFULLY. TABLE OF CONTENTS ARTICLE I DEFINITION OF CERTAIN TERMS ARTICLE II STIPULATED PAYMENTS, VALUATION, AND DISCONTINUANCE STIPULATED PAYMENTS 2.01 Stipulated Payments................................................ 5 2.02 Application of Stipulated Payments................................. 5 2.03 Active Life Fund................................................... 5 2.04 Allocated Contract - Participant's Individual Accounts............. 6 2.05 Unallocated Contract............................................... 6 2.06 Transfer between Accounts.......................................... 7 2.07 Transfers between Participants' Individual Accounts................ 7 VALUATION 2.08 Net Investment Rate and Net Investment Factor...................... 8 2.09 Accumulation Unit Value............................................ 8 2.10 Annuity Unit Value................................................. 8 DISCONTINUANCE OF STIPULATED PAYMENTS 2.11 Suspension......................................................... 9 2.12 Change to a Paid-Up Contract....................................... 9 2.13 Transfer of Active Life Fund....................................... 9 ARTICLE III GENERAL PROVISIONS 3.01 Change of Contract by Aetna....................................... 10 3.02 Change of Contract by Mutual Agreement - Retroactive Changes...... 10 3.03 Contract.......................................................... 11 3.04 Individual Certificates........................................... 11 3.05 Conversion to Individual Contract................................. 11 3.06 Sum Payable at Death.............................................. 11 3.07 Designation of Beneficiary........................................ 11 3.08 Facility of Payment............................................... 12 3.09 Evidence of Survival.............................................. 12 3.10 Misstatements and Adjustments..................................... 12 3.11 Assignment........................................................ 12 3.12 Basis of Reserves................................................. 12 3.13 Termination of Contract........................................... 13 3.14 Data to be furnished Aetna........................................ 13 3.15 Relation of this Contract to the Separate Account................. 13 3.16 Grace Period...................................................... 14 3.17 Reinstatement from Paid-up Status................................. 14 ARTICLE IV RETIREMENT ANNUITY PROVISIONS 4.01 Notice to Effect a Retirement Annuity............................. 14 4.02 Optional Annuity Forms, Election of Option........................ 14 4.03 Allocation of Annuity, Variable and Fixed Annuities............... 15 4.04 Frequency of Payments............................................. 16 4.05 Description of Tables............................................. 16 Article I DEFINITION OF CERTAIN TERMS 1. PLAN - the document, including any amendments, referenced to on the Specifications page. This is referred to for reference purposes only and in the event of a conflict between the provisions of the Plan and this Contract, for the purposes of this Contract, the provisions of this Contract shall prevail. 2. PLAN YEAR - the period of time specified in the Plan, usually 12 months, commencing with the Plan effective date or any anniversary thereof. 3. CONTRACT YEAR - the period of 12 months measured from the Contract Effective Date or any Anniversary of the Contract Effective Date. 4. PARTICIPANT - a person who participates in the Plan. 5. NEW PARTICIPANT - a person who has not been a Participant in the Plan for the preceding Plan Year. 6. ANNUITANT - a Participant on whose life a Retirement Annuity has been effected. 7. RETIREMENT ANNUITY - a series of payments provided under this Contract with respect to a Participant. 8. ANNUITY COMMENCEMENT DATE - the date on which Retirement Annuity payments commence with respect to a Participant under the terms of the Plan. 9. SEPARATE ACCOUNT - those assets of Aetna in the Separate Account established by Aetna pursuant to the Connecticut Insurance Law for this class of contracts which provide variable benefits and which are represented by shares of Aetna Variable Fund, Inc., Aetna Variable Encore Fund, Inc., and Aetna Income Shares, Inc.1 10. FUND - Aetna Variable Fund, Inc., an open-end diversified investment company registered under the Investment Company Act of 1940.1 11. ENCORE FUND - Aetna Variable Encore Fund, Inc., an open-end diversified investment company registered under the Investment Company Act of 1940.1 12. INCOME SHARES - Aetna Income Shares, Inc., an open-end diversified investment company registered under the Investment Company Act of 1940.1 13. GENERAL ACCOUNT - all assets of Aetna other than those in separate accounts. 14. VALUATION DATE - each business day of the New York Stock Exchange. 15. VALUATION PERIOD - the period of time from the end of one Valuation Date to the end of the next. Aetna will determine the Accumulation Unit Values and Annuity Unit Values pursuant to applicable regulatory provisions as of the end of each such Valuation Period. - -------------------- (1) Aetna may from time to time increase or decrease the number of mutual fund options available to Contract Owners. In the event that occurs, the provisions of this Contract shall be read in such a way as to be consistent with such expansion or reduction. In no event will any fund share substitutions be made without approval by the majority vote of all persons having an interest, through the Separate Account, in the affected mutual fund. 4 Article II STIPULATED PAYMENTS, VALUATION, AND DISCONTINUANCE STIPULATED PAYMENTS 2.01 - Stipulated Payments Aetna shall receive only such stipulated payments from the Contract Owner as are made in accordance with the requirements of the Plan. In no event shall the total annual stipulated payments exceed any limit imposed by applicable sections of the Internal Revenue Code (e.g., ss.ss. 219, 401(j), 408, 415, etc.). Stipulated Payments for this Contract may be paid annually, semi-annually, quarterly, monthly, or more frequently than monthly with the consent of Aetna. A change in method of payment may be made only once in any Contract Year and must be requested in writing to the Home Office of Aetna. Such stipulated payments will be applied by Aetna to provide accumulation units in accordance with Section 2.02. 2.02 - Application of Stipulated Payments Total annual stipulated payments made shall be only those required by the terms of the Plan. The total contributions received for a Contract Year as determined by Aetna, based on information supplied by the Contract Owner, shall be subject to the following deductions: 1. A percentage sufficient to pay premium taxes, if any, if Aetna determines any such tax may be due and payable by reason of the receipt of such contributions. If, in the opinion of Aetna, any such premium taxes are due and payable at a Participant's Annuity Commencement Date when benefits are purchased and such premium taxes have not previously been deducted, a deduction will be made at such time. If Aetna determines that any premium taxes are due and payable at any other time, such premium taxes may be deducted at any time from the Active Life Fund or from Contributions. 2. 6.75% of the first $30,000.00 of annual stipulated payments. 3.75% of the next $15,000.00 of annual stipulated payments. 1.75% of annual stipulated payment over $45,000.00. The stipulated payments after deductions specified above (hereafter referred to as net stipulated payments) shall be applied as of the last day of the Valuation Period in which the payment is received by Aetna at its Home Office, to provide accumulation units on the basis of the then current value of such units. Such application will be made separately for net stipulated payments allocated to (a) the General Account, (b) the Separate Account invested in Fund Shares, (c) the Separate Account invested in Encore Fund Shares, and (d) the Separate Account invested in Income Shares in accordance with the instructions of the Contract Owner. The number of accumulation units provided in each investment medium by any such application shall be determined by dividing the net stipulated payments for the applicable investment medium by the dollar value of one accumulation unit in that investment medium. The number of accumulation units so determined will not be affected by any subsequent changes in the dollar value of accumulation units. 2.03 - Active Life Fund The Active Life Fund under this Contract shall at any time consist of the sum of all accumulation units purchased by stipulated payments made to this Contract and not yet allocated to effect annuities or surrendered to provide specific benefits. At least once in each Contract Year, Aetna shall inform the 5 Contract Owner of the dollar value of an accumulation unit, and the number of such units in the Active Life Fund. 2.04 - Allocated Contract - Participant's Individual Accounts The provisions of this Section shall apply if the Plan is a defined contribution plan (as defined in section 414(i) of the Internal Revenue Code). On the basis of information supplied by the Contract Owner Aetna will maintain individual records of accumulation units credited to Participants under the Plan in Individual Accounts. Benefits will be purchased or provided only in such amounts and under such conditions as called for by the Plan. Participants' rights to such Individual Account shall be limited to those provided by the Plan and by this Contract. The Participant's Individual Account will be, at all times, 100% vested. Upon termination of employment, termination of the Contract, or death, each Participant (or beneficiary in the event of death), shall have one of the following options with respect to the Participant's Individual Account: (a) To leave the accumulated value of the Participant's Individual Account in the Contract, in which case the number of accumulation units in such Account will remain fixed unless increased in accordance with the Contract, but the value thereof will vary as described in the Contract, or (b) To receive the accumulated value of the Participant's Individual Account payable in the manner provided by the Plan, either as a lump sum or in accordance with the Settlement Options of Article IV. Option (a) above will be effective unless and until option (b) is elected, provided, however, that death shall cause option (b) to become effective. In the event option (b) above is elected or becomes effective, the accumulated value will be on the basis of the accumulation unit value determined within seven days of the date on which written application for the benefit is received by Aetna. When a Participant or beneficiary becomes entitled to a benefit in accordance with the Plan the Contract Owner will notify Aetna as to the manner of payment of any benefit and the disposition to be made of such Individual Account. 2.05 - Unallocated Contract The provisions of this Section shall apply if the Plan is a defined benefit plan (as defined in section 401(j) of the Internal Revenue Code). Any portion of net stipulated payments consisting of Participant contributions shall be allocated to a Participant's Contribution Individual Account in behalf of the contributing Participant. If on any anniversary of any Contract Year the value of the accumulation units in the Active Life Fund is below an amount equal to Participant Contributions, if any, accumulated with interest as provided by the Plan, and not yet applied to provide benefits, a stipulated payment is immediately due. The amount of the stipulated payment shall be such that the net stipulated payment will be sufficient to liquidate 110% of the deficiency. If such deficiency is not liquidated within 31 days after Aetna has notified the Contract Owner, the Contract will become Paid-Up as provided in Section 2.11. 6 Upon termination of employment, termination of the Contract, or death, subject to the adequacy of the Active Life Fund, each Participant (or beneficiary in the event of death), who has not retired and who has not already received benefits shall have one of the following options with respect to Participant contributions, plus interest thereon as provided by the Plan, and with respect to any nonforfeitable Employer provided benefits in accordance with the Plan: (a) To receive, at retirement, a monthly income. or (b) To receive the value of the Participant's contributions accumulated with interest as provided by the Plan, plus any nonforfeitable Employer provided benefits in accordance with the Plan, payable in the manner provided by the Plan, either as a lump sum or in accordance with the Settlement Options of Article IV. Option (a) above will be effective unless and until option (b) is elected, provided however, that death shall cause option (b) to become effective. When a Participant or beneficiary becomes entitled to a benefit in accordance with the Plan the Contract Owner will notify Aetna as to the manner of payment of any benefit. 2.06 - Transfer between Accounts The Contract Owner may elect during the accumulation period to transfer accumulation units credited to the contract in the Separate Account. Any units held in the Separate Account invested in Fund shares may be transferred to be invested in Encore fund shares or Income Shares within the Separate Account, or may be transferred to the General Account. Any units held in the Separate Account invested in Encore Fund shares may be transferred to be invested in Fund shares or Income Shares within the Separate Account or may be transferred to the General Account. Any units held in the Separate Account invested in Income Shares may be transferred to be invested in Fund shares or Encore Fund shares within the Separate Account or may be transferred to the General Account. At the commencement of annuity payments, any accumulation units held in the Separate Account invested in Encore Fund shares will be transferred to Fund shares held in the Separate Account, unless requested to be transferred to the General Account or Income Shares. Accumulation units credited to the contract in the General Account may be transferred from the General Account only in accord with the Allocation of Annuity provision of Section 4.03. Transfers may be elected only after a three (3) calendar month period subsequent to the Date of Execution or to a prior transfer. The value of accumulation units to be transferred must be at least $500. If the transferred amount would result in the balance remaining of less than $500. Aetna shall have the right to transfer such remaining balance. All such transfers will be made without any expense deductions being made at the time of transfer. All such transfers will be effective on the last day of the Valuation Period in which written request for transfer is received by Aetna. Accumulation units provided by the election of Option (a) Section 2.04 can be transferred only with the consent of the Participant. 2.07 - Transfers between Participants' Individual Accounts If Section 2.04 is applicable and if the Plan provides that forfeitures are to be reallocated and applied to increase Participants' benefits, Aetna shall apply the then value of forfeited Individual Accounts as specified by the Contract Owner to provide accumulation units for Participants' Individual Accounts for Participants entitled thereto under the terms of the plan without any expense deductions being made. This shall be done once each year on the Contract anniversary, or at such other time mutually agreeable between the Contract Owner and Aetna. 7 VALUATION 2.08 - Net Investment Rate and Net Investment Factor (a) The net investment (interest) rate for the Active Life Fund held in the General Account is a guaranteed rate as below, compounded annually: Contract Years 1-10 Thereafter Guaranteed Rate 4% 3.5% In addition, by action of its Board of Directors, Aetna may increase the net investment (interest) rate at such time and for such period as the Directors may determine. (b) The Net Investment Rate(s) for each of the funds held in the Separate Account for any Valuation Period is equal to the gross investment rate of each such fund for the period less a deduction for each day of the Valuation Period (at an effective annual rate of 1.25%) plus or minus an adjustment for any taxes, or a reserve for such taxes, attributable to the operations of the Separate Account. Such gross investment rate is equal to (i) the investment income and capital gains and losses, both realized and unrealized, of each fund minus an investment advisory fee accrued by each fund for each day of the Valuation Period, divided by (ii) the amount of net assets of each fund at the beginning of the Valuation Period. Such gross investment rate may be either positive or negative. The deduction from the gross investment rate and the deduction for the investment advisory fee may not exceed in the aggregate an effective annual rate of 1.5% (c) The net investment factor for each of the funds in the Separate Account is the sum of 1.0000000 and the net investment rate for that fund. 2.09 - Accumulation Unit Value The value of the General Account accumulation unit at any time will be determined by Aetna according to its established method of computing net earnings in the General Account for this class of contracts. Aetna guarantees that the value of the portion of this Contract in the General Account will not be less, at any time, than such value based on General Account accumulation unit values calculated in accordance with the guaranteed interest rates shown in Section 2.08(a). The value of the accumulation units for the Fund, Encore Fund, and Income Shares within the Separate Account can be determined by multiplying the value of such units at the end of the immediately preceding Valuation Period by the appropriate net investment factor for the current Valuation Period. 2.10 - Annuity Unit Value The value of the General Account annuity unit is fixed at $10.00. The value of the Separate Account annuity unit in either Fund shares or Income Shares is determined by multiplying the value of the appropriate Separate Account annuity unit for the preceding period by (a) .9999058 (if the Contract Owner had selected an assumed net investment rate of 3.5% per annum) or .9998663 (if the Contract Owner had selected an assumed net investment rate of 5% per annum) for each day of the Valuation Period and (b) the net investment factor of the Separate Account for the tenth Valuation Period immediately preceding the period for which the value is being calculated. 8 DISCONTINUANCE OF STIPULATED PAYMENTS 2.11 - Suspension This Contract shall be suspended automatically on any anniversary of the Effective Date if: (a) The Contract Owner gives prior written notice to Aetna to transfer all of the Active Life Fund in accordance with Section 2.13. (b) The Contract Owner fails to assent to any modification of this Contract initiated by Aetna as provided in Section 3.01 which modification would have been effective on such anniversary. (c) Payment of the deficiency as provided in Section 2.05 is not made within 31 days after Aetna has notified the Contract Owner. Effective with suspension, no further stipulated payments will be payable to or accepted by Aetna under this Contract, and the Contract will become paid-up unless election is made prior to the date of suspension for transfer in accordance with Section 2.13. 2.12 - Change to a Paid-Up Contract If this Contract becomes paid-up as provided in Section 2.11, or if the Contract Owner gives written notice to Aetna in advance of any anniversary of the Effective Date to change to a paid-up Contract, subsequent to such anniversary no further stipulated payments will be accepted by Aetna and no new Participants will become eligible to receive benefits under this Contract. On the date on which this Contract becomes paid-up, if Aetna has received written notification by the Contract Owner that the Plan is being continued, all benefits earned under the terms of the Plan on that date will be treated by Aetna in accordance with the provisions of the Plan. If such written notification has not been received by Aetna on the date on which this Contract becomes paid-up, or if on or after such date the Plan is terminated, each Participant in the Plan will receive a 100% vested interest in all benefits earned under the terms of the Plan to the extent of the adequacy of the Active Life Fund. 2.13 - Transfer of Active Life Fund If before this Contract is suspended under Section 2.11, the Contract Owner files a written certification with Aetna stating that; (a) all benefits under the Plan other than those being provided in connection with previously effected Retirement Annuities are to be provided through another funding agency, and that (b) the Plan will, in the opinion of the Contract Owner, continue to retain its qualified status under Section 401 of the Internal Revenue Code then, Aetna will be entitled to rely conclusively upon such certification and will pay to the specified funding agency or to the Contract Owner the value of all or part, in the event of a partial transfer, of the number of accumulation units in the Active Life Fund, as of the date of such payment. The amount to be transferred will exclude the value of that portion of the Active Life Fund consisting of Participant's Contribution Individual Accounts. If the number of Contract Years for which periodic contributions were received is less than five, the value of the payment will be reduced by 2%. 9 The date of the payment will be the date specified by the Contract Owner, provided that Aetna reserves the right to change the date of payment to a date not later than 30 days after Aetna's receipt of the Contract Owner's request. If the value of the General Account accumulation units to be paid exceeds $1,000,000, Aetna reserves the right to pay the excess over $1,000,000 in monthly installments over a period not to exceed 12 months; each such installment shall be the value of a number of General Account accumulation units determined by dividing (i) the total number of such units subject to periodic transfer by (ii) the number of installments. The dollar amount paid each month will be determined in accordance with the terms of the Contract. That portion of the Active Life Fund consisting of Participant's Contribution Individual Accounts may be transferred, provided each Participant having such an Account consents in writing to the transfer. In the event any Participant does not consent to such transfer, the Participant's Contribution Individual Account shall be treated in accordance with Section 2.04. Aetna reserves the right to defer payment of any transfer payment in accord with the deferment provisions of applicable federal and state statutes. Article III GENERAL PROVISIONS SECTION 3.01 - Change of Contract by Aetna On the first day of the second Contract Year and any date thereafter, Aetna, upon written notice given 30 days in advance to the Contract Owner may change any of the terms of this Contract. Such change will not become effective until approved by the Insurance Department of the jurisdiction in which the Contract is delivered, and further provided that (a) any such change will not affect in any way the amount or terms of any Retirement Annuity effected prior to the effective date of such change and (b) any such change that shall affect Sections 2.02 - Application of Stipulated Payments, 2.08 - Net Investment Rate and Net Investment Factor, 2.09 - Accumulation Unit Value, 2.10 - Annuity Unit Value, and 4.05 - Annuity Tables, shall only affect such Sections as they apply to accumulation units provided by stipulated payments made or to be made on behalf of Participants who enter the Plan on or after the effective date of such change. SECTION 3.02 - Change of Contract by Mutual Agreement - Retroactive Changes A. By agreement in writing, the Contract Owner and Aetna may change, from time to time, any or all of the terms of this Contract provided that any such change will not in any way affect the amount or terms of any Retirement Annuity already effected prior to the effective date of such change. B. Notwithstanding any of the terms of this Contract, the Contract Owner and Aetna, by an agreement in writing on any date agreed upon by the Contract Owner and Aetna may change, from time to time, any terms of this Contract if it is deemed necessary or appropriate to do so in order to enable the Plan or Contract to comply with the requirements of the Internal Revenue Code, the provisions of the Employee Retirement Income Security Act of 1974 subsequent amendments thereto and regulations promulgated thereunder, which change may be made retroactive to the Effective Date or any date thereafter. C. Consent of any Participant or beneficiary shall not be required to make any change in this Contract. 10 SECTION 3.03 - Contract This Contract and the application of the Contract Owner, a copy of which is attached hereto and made a part hereof, will constitute the entire Contract. Only the President, a Vice President, the Secretary or an Assistant Secretary has the power on behalf of Aetna to make or modify this Contract. SECTION 3.04 - Individual Certificates Where required by law, Aetna shall issue a certificate to the Contract Owner for delivery to each Participant making contributions and to each Annuitant. Each such certificate shall set forth the benefits to which such Participant or Annuitant is entitled under this Contract. Certificates described in this section shall not constitute a part of this Contract. SECTION 3.05 - Conversion to Individual Contract Upon termination of participation in the Plan, the Participant who is entitled to a benefit in accordance with the terms of the Plan may elect, if the Plan so permits or the Contract Owner so requests, to convert to an individual annuity contract. The individual annuity contract will be of the form then currently issued for this class of Annuitant, at a duration equivalent to the lesser of the number of full years (a) such Participant has been in the Plan or (b) this Contract has been in force. If the method set forth in the individual annuity contract for determining the value of an accumulation unit is the same method set forth in the Valuation Provisions of Article III, a number of accumulation units designated by the Contract Owner may be transferred from the Contract to the individual annuity contract. Any accumulation units not so transferred will remain in force under this Contract. SECTION 3.06 - Sum Payable at Death Upon receipt of proof of the death of a Participant prior to the Annuity Commencement Date, Aetna agrees to pay certain Contract values to the beneficiary. If this is an Allocated Contract pursuant to Section 2.04, the payment at death will be the sum of the Participant's Individual Account. If this is an Unallocated Contract pursuant to Section 2.05, the payment at death will be his vested accrued benefit being held under this Contract. Any payment by reason of death may be taken in a lump sum or under any settlement options available in individual annuities then being issued by Aetna. SECTION 3.07 - Designation of Beneficiary Subject to the terms of the Plan the Contract Owner or each Participant shall have the sole right to designate the beneficiary to which any death benefit hereunder will be payable and, from time to time, without the consent of such beneficiary, change the beneficiary designated by sending written notice of such change to Aetna. After such notice is received the change will take effect as of the date the Participant signed such written notice, whether or not the Participant is living on the date such notice is received by Aetna, but without prejudice to Aetna on account of any payment made by it before such notice. If at the death of a Participant there is more than one beneficiary designated and in such designation the Participant has failed to specify their respective interests, the beneficiaries will share equally. If any designated beneficiary predeceases the Participant, the rights and interests of such beneficiary will thereupon terminate. In the event the designated beneficiary predeceases the Participant or if no beneficiary has been named, the amount of any death benefit will be paid to the executors or administrators of the Participant's estate except 11 that Aetna may in such case, at its option, pay such amount to the wife or the husband, if living; if not living, in equal shares to the then living children of the Participant; if none, to either parent of the Participant, or to both equally, if both are living; if neither parent is living, in equal shares to the then living brothers and sisters of such Participant. SECTION 3.08 - Facility of Payment If any payee under this Contract is a minor or, in the opinion of Aetna, physically or mentally incapable of giving valid receipt and discharge for any payment due under this Contract, then Aetna may, at its option, make payment thereof in installments of not more than $50 per month to the person or persons who, in its opinion, are caring for and supporting such payee until claim is made by a duly appointed guardian or other legal representative of such payee. Payment to such person or persons will constitute a complete discharge of the liability of Aetna to the extent of such payments and it will assume no responsibility for the proper application of the money paid. SECTION 3.09 - Evidence of Survival Aetna will have the right to require of any person entitled to a payment under this Contract, satisfactory evidence that such person is living on the date which such payment is due. SECTION 3.10 - Misstatements and Adjustments If the age, sex, or any relevant fact relating to any person is found to be misstated, the amounts of the payments under a Retirement Annuity shall be adjusted based on the correct information. Unless another adjustment satisfactory to the Contract Owner and Aetna is made the correct payments shall be calculated based upon the date such Retirement Annuity was effected. The dollar amount of any underpayment made by Aetna shall be added to the next payment due, and the dollar amount of any overpayment made by Aetna shall be deducted from the next payment or payments due until recovered by Aetna. If further payments due are insufficient to recover any overpayments, any remainder of such overpayments shall be charged against the value of any forfeitures becoming available thereafter. Any adjustment made in accordance with this Section shall be binding upon any person affected thereby. Any reductions in the amount of payments under Retirement Annuity required by any governmental regulations shall be calculated using the interest and mortality basis which was used in the calculation of the first payment, unless another basis is mutually agreed upon by Aetna and the Contract Owner. SECTION 3.11 - Assignment Except as may be contrary to law, no payments under this Contract of benefits arising under the Plan are assignable or subject to any claims of any creditor. SECTION 3.12 - Basis of Reserves The reserve held under this Contract as of any date will be at least equal to 100% of the dollar value as of such date of the accumulation units held in the Active Life Fund, plus the reserve for such Retirement Annuities as have been effected under this Contract computed in accordance with applicable valuation statutes. 12 SECTION 3.13 - Termination of Contract This Contract will terminate at the close of the first day upon which the performance and fulfillments by Aetna of all its duties and obligations arising hereunder have been completed. SECTION 3.14 - Data to be furnished Aetna The Contract Owner shall furnish all information which Aetna may reasonably require for the administration of this Contract. If the Contract Owner cannot furnish any required item of information, Aetna may request any person concerned to furnish such information. Aetna shall not be liable for the fulfillment of any obligations in any way dependent on such information until it receives such information. Information furnished to Aetna may be corrected for demonstrated errors therein unless Aetna has already acted to its prejudice by relying on such information. Any records prepared by Aetna from information furnished to Aetna as described above shall constitute prima facie evidence as to the accuracy of the information recorded thereon. Aetna will accept as proof of death any one of the following criteria: (a) a copy of a certified death certificate; (b) a copy of a certified decree of a court of competent jurisdiction as to the finding of death; (c) a written statement from a medical doctor who attended the deceased at or near the time of death; or (d) any other proof satisfactory to Aetna. Aetna will accept as evidence of age: (a) a copy of a certified birth certificate; (b) a copy of a certified baptismal certificate; (c) certified copies of two statements of birth, such as passports or insurance contracts of other companies; or (d) any other proof satisfactory to Aetna. 3.15 - Relation of this Contract to the Separate Account Aetna shall have exclusive and absolute ownership and control of the assets of both its General Account and its Separate Accounts. Neither the Contract Owner nor Participants shall have individual or equitable ownership of investments or other assets of either of said Accounts, and the records and accounts kept by Aetna in connection with this Contract shall not be deemed to constitute recognition of ownership by the Contract Owner or Participants of any portion of said Accounts. All funds attributable to this Contract and becoming part of any Account shall be invested or reinvested by Aetna in such class or classes of investments, and in such extent as Aetna at its sole discretion may determine. The method of determination by Aetna of the value of an accumulation unit will be binding upon the Contract Owner and any Participant. 13 3.16 - Grace Periode Period If any stipulated payment after the first called for in accordance with the terms of the Plan is unpaid after the date it must be paid in accordance with the provisions of the Employee Retirement Income Security Act of 1974, in the absence of a request for surrender for value in accordance with the terms of this Contract, this Contract will not terminate but will assume the status of a paid-up Contract in accordance with Sections 2.11 and 2.12. 3.17 - Reinstatement from Paid-up Status If this Contract has assumed the status of a paid-up Contract in accordance with Sections 2.11 and 2.12 it may be reinstated with the consent of Aetna, provided that the Plan still retains its qualified status and the Contract has not been surrendered for value. Article IV RETIREMENT ANNUITY PROVISIONS 4.01 - Notice to Effect a Retirement Annuity When a Participant is eligible for a Retirement Annuity in accordance with the Plan, the Contract Owner shall notify Aetna to effect an annuity for such Participant. On the Participant's Annuity Commencement Date Aetna shall allocate such accumulation units as are necessary to provide benefits as specified by the plan and apply them, after deduction for any premium taxes due (and not deducted pursuant to Section 2.02 when contributions were first received), to provide a Retirement Annuity on the applicable Optional Annuity Form. In the absence of an election of an Optional Annuity Form in accordance with Section 4.02, the Retirement Annuity will be in accordance with Option 5 with payments reducing to 50% of the original amount, or if the Participant does not have a spouse, in accordance with Option 4 with a fixed period of 120 monthly payments. If some of the Plan assets are not funded by this Contract, the Discontinuance provisions of Article II have not been in effect, the Plan is a qualified plan under Section 401 of the Internal Revenue Code, and all Contributions were made on behalf of the Participant in accordance with Article II; then Aetna will accept a Contribution from such Plan assets, subject to Aetna's then published limits as to amount, to effect additional annuity units on behalf of the Participant. Such additional Contribution will be reduced by any applicable premium taxes payable and by a further deduction as determined by Aetna under its then current rules, such additional deduction not to exceed 5% of the amount remaining after reduction by any applicable premium taxes. The Contract Owner will direct what portions of the additional contribution will be applied to effect a fixed dollar annuity and a variable annuity. Such additional contribution must be received by Aetna at least 30 days prior to the Participant's Annuity Commencement Date. 4.02 - Optional Annuity Forms, Election of Option OPTION 1 - Payment of interest on funds left with Aetna - The amount due may be left on deposit with Aetna in its General Account and a sum will be paid annually, semi-annually, quarterly or monthly, as selected, which shall be equal to the net investment rate for the period multiplied by the amount remaining on deposit. Election of this option shall constitute election of fixed income. This option is available only to beneficiaries. 14 OPTION 2 - Payments of a Fixed Dollar Amount - The amount due may be paid in equal annual, semi-annual, quarterly or monthly installments of a designated dollar amount (not less than $60.00 per annum per $1,000 of the original amount due) until the remaining balance is less than the amount of one installment. To determine the remaining balance in either account at the end of any Valuation Period such balance at the end of the previous period is decreased by the amount of any installment paid during the period and the result multiplied by the net investment factor for the period. If the remaining balance at any time is less than the amount of one installment, such balance will be paid and will be the final payment under the option. OPTION 3 - Payments for a Fixed Period - An amount payable in annual, semi-annual, quarterly or monthly installments for the number of years selected which may be from 1 to 30 years. OPTION 4 -Life Income- Payments for a fixed period, if any, and life thereafter as elected. No payments will become due after death, except during any remaining fixed period. OPTION 5 - Joint and Last Survivor Annuity - Payment for the joint lifetime of two payees with the option of electing (a) payments at 100%, (b) payments reducing to 66 2/3%, or (c) payments reducing to 50% of the original amount when either payee dies. No payments will become due after the surviving payee's death. The amount of the first payment under Options 3, 4 and 5 will be determined in accordance with Section 4.05. No payments will be made under any of these options prior to receipt by Aetna of satisfactory evidence of the date of birth of the Annuitant and any joint Annuitant. If any beneficiary dies while receiving payments, the present values of the current dollar amount on the date of death of any remaining guaranteed number of payments, or any then remaining balance of proceeds under Options 1, 2 or 3, will be paid in one sum to the estate of the beneficiary. Calculations for such present value of guaranteed payments remaining will assume a net investment rate of 3.5% per annum for General Account options and 3.5% per annum or 5% per annum for all Separate Account options, whichever was elected by the Contract Owner for the calculation of the first payment. Election of Option - If provided by the Plan, in lieu of the Normal Annuity Form specified in Section 4.01 the Participant may elect any one of the Optional Annuity Forms except Option 1, but such election may be made only in writing and must be received at the Home Office of Aetna at least 30 days prior to the Annuity Commencement Date. SECTION 4.03 - Allocation of Annuity, Variable and Fixed Annuities Unless provided otherwise by the Plan, accumulation units shall be allocated to provide a variable annuity, a fixed annuity, or a combination of both, as elected by the Participant provided such election is made in writing and received at the Home Office of Aetna at least 30 days prior to the Annuity Commencement Date. In the absence of such an election or Plan provision to the contrary, when a Retirement Annuity is effected for a Participant, if Section 2.05 is applicable, it will be a variable annuity; if Section 2.04 is applicable, General Account accumulation units in the Participant's Individual Account will be used to provide a fixed dollar annuity and Separate Account accumulation units will be used to provide a variable annuity. When a Retirement Annuity is effected for a Participant in accordance with Section 4.01 to the extent possible the fixed dollar annuity portion (annuity units in the General Account) will be provided by application of the appropriate number of General Account accumulation units and the variable annuity 15 portion (annuity units in the Separate Account) will be provided by application of the appropriate number of Separate Account accumulation units. A. Variable Annuity - A variable annuity is an annuity with payments varying in amount in accordance with the net investment results of the Separate Account reserves invested in Fund shares or Income Shares as described in the Valuation provisions of Article II. After the first monthly payment for a variable annuity has been determined in accordance with the provisions of the Contract, a number of Separate Account annuity units is determined by dividing the first monthly payment by the appropriate Separate Account annuity unit value on the Annuity Commencement Date. Once variable annuity payments have begun, the number of annuity units remains fixed. The dollar amount of the second and subsequent variable annuity payments is not predetermined and may change from month to month. The actual amount of each variable annuity payment after the first is determined by multiplying the number of Separate Account annuity units by the appropriate (Fund shares or Income Shares) Separate Account annuity unit value as described in the Valuation provisions of Article II for the Valuation Period in which the payment is due. Aetna guarantees that the dollar amount of variable annuity payments shall not be affected by variation in the actual mortality or expense experience of Aetna. B. Fixed Dollar Annuity - A fixed dollar annuity is an annuity with payments which remain fixed as to dollar amount throughout the payment period. As in the case of the variable annuity, a number of annuity units is determined when payments commence. Since the General Account annuity unit value is always $10.00, payments after the first will always be the same as the first monthly payment. SECTION 4.04 - Frequency of Payments Annuity payments under this Contract will be made monthly, except that, if such payments would amount to less than $20 each, Aetna reserves the right to make payments at less frequent intervals, but not less frequently than annually; provided, however, that if on the Annuity Commencement Date the annual rate of payment to any payee is less than $100, Aetna may make such other settlement as may be equitable to the payee. TABLES SECTION 4.05 - Description of Tables The Tables contained herein show the amount of the first monthly payment under Options 3, 4 and 5 that can be provided by a number of accumulation units having a value of $1,000 after deduction of any premium taxes payable. The dollar value of the accumulation units applied will be calculated on the basis of the accumulation unit value as of the last day of the tenth Valuation Period preceding the Annuity Commencement Date and such value will be reduced by any premium taxes payable before application to effect a Retirement Annuity. The amount of each monthly payment will depend upon the sex and age of the person with respect to whom the Retirement Annuity is effected at the Annuity Commencement Date. Age, as used above, shall mean age nearest birthday at the Annuity Commencement Date. 16 The tables are based on The Annuity Table for 1949 for males, set back one year for males and six years for females, and a net investment rate of 3.5% per annum for the General Account and Separate Account (FV columns of rates) and 5% per annum for the Separate Account (V columns of rates). The Owner may elect prior to the Annuity Commencement Date that variable annuity payments be based on an assumed net investment rate of 3.5% per annum or 5% per annum. In the absence of such election, the net investment rate of 3.5% per annum will be used. 17 AMOUNT OF FIRST MONTHLYPAYMENT FOR EACH $1,000 AFTER DEDUCTION OF ANY PREMIUM TAXES OPTION THREE PAYMENTS FOR A FIXED PERIOD
Years Amount of Payments Years Amount of Payments Years Amount of Payments of Pay- of Pay- of Pay- ments FV V ments FV V ments FV V ------- ------ ------ ------- ----- ----- ------- ----- ----- 1 $84.65 $85.21 11 $9.09 $9.77 21 $5.56 $6.33 2 43.05 43.64 12 8.46 9.16 22 5.39 6.17 3 29.19 29.80 13 7.94 8.64 23 5.24 6.02 4 22.27 22.89 14 7.49 8.20 24 5.09 5.88 5 18.12 18.74 15 7.10 7.82 25 4.96 5.76 6 15.35 15.99 16 6.76 7.49 26 4.84 5.65 7 13.38 14.02 17 6.47 7.20 27 4.73 5.54 8 11.90 12.56 18 6.20 6.94 28 4.63 5.45 9 10.75 11.42 19 5.97 6.71 29 4.53 5.36 10 9.83 10.51 20 5.75 6.51 30 4.45 5.28
OPTION FOUR LIFE INCOME WITH
Payments Guaranteed for a Fixed Period of Months ----------------------------------------------------------------------------------------- Age of Payee None 120 180 240 Male Female FV V FV V FV V FV V ---- ------ ----- ----- ----- ----- ----- ----- ----- ----- 50 55 $4.98 $5.89 $4.89 $5.78 $4.77 $5.65 $4.62 $5.48 51 56 5.08 5.99 4.98 5.86 4.85 5.71 4.68 5.53 52 57 5.18 6.09 5.07 5.95 4.93 5.79 4.74 5.59 53 58 5.30 6.20 5.17 6.04 5.01 5.86 4.80 5.64 54 59 5.41 6.32 5.27 6.14 5.09 5.94 4.86 5.70 55 60 5.54 6.44 5.37 6.24 5.17 6.02 4.92 5.75 56 61 5.67 6.57 5.48 6.34 5.26 6.10 4.98 5.80 57 62 5.80 6.71 5.59 6.45 5.35 6.18 5.04 5.86 58 63 5.95 6.85 5.71 6.56 5.44 6.26 5.10 5.91 59 64 6.10 7.00 5.83 6.68 5.53 6.35 5.16 5.97 60 65 6.27 7.16 5.96 6.80 5.62 6.43 5.22 6.02 61 66 6.44 7.34 6.09 6.93 5.72 6.52 5.27 6.07 62 67 6.63 7.52 6.23 7.06 5.81 6.61 5.33 6.12 63 68 6.82 7.72 6.38 7.20 5.91 6.70 5.38 6.17 64 69 7.04 7.93 6.53 7.35 6.00 6.79 5.43 6.21 65 70 7.26 8.16 6.68 7.50 6.10 6.88 5.47 6.25 66 71 7.50 8.40 6.84 7.65 6.19 6.97 5.52 6.29 67 72 7.76 8.66 7.01 7.81 6.28 7.05 5.55 6.33 68 73 8.04 8.94 7.18 7.97 6.37 7.14 5.59 6.36 69 74 8.34 9.24 7.35 8.13 6.46 7.22 5.62 6.39 70 75 8.67 9.56 7.52 8.30 6.54 7.29 5.65 6.41 71 76 9.01 9.91 7.70 8.47 6.62 7.36 5.67 6.43 72 77 9.39 10.29 7.88 8.64 6.69 7.43 5.69 6.45 73 78 9.79 10.69 8.05 8.80 6.76 7.49 5.71 6.47 74 79 10.22 11.13 8.22 8.97 6.81 7.55 5.72 6.48 75 80 10.69 11.60 8.39 9.13 6.87 7.60 5.73 6.49
The FV columns above assume a net investment rate of 3.5% per annum. The V columns above assume a net investment rate of 5% per annum. Rates for ages not shown will be provided on request. 18 AMOUNT OF FIRST MONTHLY PAYMENT FOR EACH $1,000 AFTER DEDUCTION OF ANY PREMIUM TAXES OPTION FIVE JOINT AND LAST SURVIVOR ANNUITY 100% TO THE SURVIVOR NO FIXED PERIOD
Age of Payee -------------------------------------------------------------------------------------------------------------- Age of Secondary Male 45 Male 50 Male 55 Male 60 Male 65 Male 70 Male 75 Payee Female 50 Female 55 Female 60 Female 65 Female 70 Female 75 Female 80 Male Female FV V FV V FV V FV V FV V FV V FV V - ---- ------ ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- 50 55 $4.10 $5.00 $4.27 $5.16 $4.43 $5.31 $4.57 $5.44 $4.69 $5.57 $4.79 $5.67 $4.86 $5.75 55 60 4.21 5.11 4.43 5.31 4.65 5.51 4.86 5.71 5.04 5.90 5.20 6.06 5.32 6.19 60 65 4.30 5.20 4.57 5.44 4.86 5.71 5.15 5.99 5.43 6.26 5.68 6.52 5.88 6.73 65 70 4.38 5.28 4.69 5.57 5.04 5.90 5.43 6.26 5.83 6.65 6.21 7.04 6.56 7.38 70 75 4.44 5.34 4.79 5.67 5.20 6.06 5.68 6.52 6.21 7.04 6.78 7.59 7.33 8.14 75 80 4.48 5.38 4.86 5.75 5.32 6.19 5.88 6.73 6.56 7.38 7.33 8.14 8.16 8.96 80 85 -- -- 4.91 5.81 5.41 6.29 6.03 6.90 6.82 7.66 7.80 8.62 8.95 9.76
JOINT AND LAST SURVIVOR ANNUITY 50% TO THE SURVIVOR NO FIXED PERIOD
Age of Payee -------------------------------------------------------------------------------------------------------------- Age of Secondary Male 45 Male 50 Male 55 Male 60 Male 65 Male 70 Male 75 Payee Female 50 Female 55 Female 60 Female 65 Female 70 Female 75 Female 80 Male Female FV V FV V FV V FV V FV V FV V FV V - ---- ------ ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- 50 55 $4.75 $5.67 $4.98 $5.89 $5.24 $6.15 $5.55 $6.47 $5.91 $6.84 $6.32 $7.29 $6.79 $7.81 55 60 4.99 5.91 5.24 6.15 5.54 6.44 5.88 6.78 6.28 7.20 6.76 7.70 7.30 8.28 60 65 5.26 6.20 5.55 6.47 5.88 6.78 6.27 7.16 6.73 7.63 7.27 8.19 7.90 8.86 65 70 5.59 6.54 5.91 6.84 6.28 7.20 6.73 7.63 7.26 8.16 7.90 8.80 8.65 9.58 70 75 5.96 6.95 6.32 7.29 6.76 7.70 7.27 8.19 7.90 8.80 8.67 9.56 9.57 10.48 75 80 6.37 7.42 6.79 7.81 7.30 8.28 7.90 8.86 8.65 9.58 9.57 10.48 10.69 11.60 80 85 -- -- 7.30 8.39 7.88 8.94 8.59 9.61 9.49 10.46 10.61 11.56 12.00 12.92
The FV columns above assume a net investment rate of 3.5% per annum. The V columns above assume a net investment rate of 5% per annum. Rates for ages not shown will be provided on request. 19 Aetna Life Insurance and Annuity Company Home Office: 151 FARMINGTON AVE. HARTFORD, CONNECTICUT 06156 (203) 273-0123 GROUP DEPOSIT ADMINISTRATION CONTRACT ACTIVE LIFE FUND IN SEPARATE ACCOUNT AND GENERAL ACCOUNT ALL PAYMENTS AND VALUES PROVIDED BY THE CONTRACT, WHEN BASED ON INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT. Aetna Life Insurance and Annuity Company ENDORSEMENT The Contract is hereby endorsed as follows: The following Section under GENERAL PROVISIONS is amended as follows: The following paragraph is added to the end of Control of Contract and Individual Accounts or Data to be furnished Aetna, as applicable: Any payment(s) made under this Contract to other than the Contract Owner must be in compliance with the provisions of the Retirement Equity Act of 1984 (REA). At the time payment is requested or an Annuity Option is elected by the Contract Owner, Aetna will require the Contract Owner to certify the payment option is elected in compliance with REA. In the absence of such certification, payment will be made to the Contract Owner. For Designation of Beneficiary the current provision is deleted and replaced with the following: The beneficiary shall be the Contract Owner. The following condition is added to the RETIREMENT ANNUITY PROVISIONS or the ANNUITY PROVISIONS of the Contract as follows: The Contract Owner may tell Aetna, on behalf of a Participant, to pay all or any portion of the Participant's value in the Contract (minus any premium tax) as a premium for an Annuity Option. Required Distribution to Participant: Distribution to the Participant must begin in the form of periodic payments no later than the April 1 following the calendar year in which the Participant attains age 70 1/2, or such later age as may be allowed under federal law or regulations. In lieu of an Annuity election, the Contract Owner may direct Aetna to make a lump sum payment. In no event may any Annuity Option extend beyond: a) The life of the Annuitant; b) The lives of the Annuitant and the Annuitant's beneficiary under the Plan; c) Any certain period greater than the Annuitant's life expectancy as determined according to regulations under Code Section 401(a)(9); or d) Any certain period greater than the life expectancy of the Annuitant and the Annuitant's beneficiary under the Plan, as determined according to regulations under Code Section 401(a)(9). In no event may payments to the Participant's beneficiary under the Plan under an Annuity Option extend beyond: a) The life of the Participant's beneficiary determined as of the date payments are to commence; or b) Any certain period greater than the Participant's beneficiary's life expectancy as determined by regulations under Code Section 401(a)(9). RETIREMENT ANNUITY PROVISIONS or ANNUITY PROVISIONS: Add to the Joint and Last Survivor Annuity or Life Income for Two Payees Option a new subsection as follows: 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. 1 LIFE INCOME FOR TWO PAYEES JOINT AND 1/2 CONTINGENT LIFE INCOME ANNUITY NO MINIMUM PERIOD AMOUNT OF FIRST MONTHLY PAYMENT FOR EACH $1,000 AFTER DEDUCTION OF ANY CHARGE FOR PREMIUM TAXES Rates for a Fixed Annuity with Guaranteed Interest Rate of 3.5% and Rates for a Variable Annuity with Assumed Net Return Rate of 3.5% Age of Second Annuitant
Age of Annuitant 45 50 55 60 65 70 75 80 85 - ----------- ----- ----- ----- ----- ----- ----- ----- ----- ----- 45 $3.86 $3.89 $3.93 $3.94 $3.96 $3.97 $3.98 $3.98 $3.98 50 4.02 4.10 4.15 4.18 4.21 4.23 4.24 4.25 4.26 55 4.22 4.31 4.42 4.48 4.53 5.57 4.59 4.61 4.61 60 4.43 4.56 4.70 4.84 4.93 4.99 5.04 5.07 5.09 65 4.69 4.84 5.02 5.22 5.42 5.54 5.63 5.69 5.73 70 4.99 5.17 5.39 5.65 5.93 6.23 6.40 6.52 6.60 75 5.33 5.54 5.82 6.14 6.52 6.95 7.40 7.64 7.81 80 5.70 5.96 6.29 6.69 7.17 7.75 8.41 9.08 9.45 85 6.07 6.38 6.75 7.24 7.84 8.59 9.49 10.51 11.50
Rates for a Variable Annuity with Assumed Net Return Rate of 5% Age of Second Annuitant
Age of Annuitant 45 50 55 60 65 70 75 80 85 - ----------- ----- ----- ----- ----- ----- ----- ----- ----- ----- 45 $4.80 $4.83 $4.86 $4.88 $4.89 $4.90 $4.91 $4.92 $4.92 50 4.95 5.02 5.06 5.10 5.13 5.15 5.16 5.17 5.18 55 5.14 5.23 5.32 5.38 5.43 5.46 5.49 5.51 5.52 60 5.36 5.47 5.59 5.72 5.80 5.86 5.91 5.95 5.97 65 5.63 5.77 5.93 6.10 6.29 6.41 6.50 6.56 6.60 70 5.96 6.12 6.31 6.54 6.81 7.08 7.25 7.37 7.46 75 6.35 6.54 6.77 7.06 7.42 7.81 8.25 8.49 8.66 80 6.79 7.01 7.30 7.66 8.11 8.65 9.28 9.93 10.29 85 7.26 7.53 7.86 8.29 8.85 9.55 10.41 11.39 12.37
These Annuity rates are based on mortality from 1983 Table a. Endorsed and made a part of the Contract on the effective date of the Contract. /s/ Dan Kearney President Aetna Life Insurance and Annuity Company 2 Aetna Life Insurance and Annuity Company ENDORSEMENT This contract is hereby endorsed to add the Section ANNUITY PAYMENT GUARANTEE to the SETTLEMENT PROVISIONS to read as follows: "ANNUITY The Annuity Payment Guarantee may be elected at the time election PAYMENT of the first, second, or fourth option is made. Such election may GUARANTEE only be made if election is made for a variable annuity based on an assumed annual net investment rate of 3.5%. If said Annuity Payment Guarantee is elected, the first monthly payment for the variable annuity will be calculated in accord with the contract provisions but the payee will only receive a first payment of 87% of the calculated first monthly payment. Aetna further guarantees that any future payment due after the first monthly payment will be the greater of (a) or (b) where (a) is 87% of the first monthly payment calculated in accord with the contract provisions, and (b) is the payment due after the first calculated in accord with contract provisions but calculated on the basis of the first payment being only 87% of the first monthly payment." Endorsed and made a part of this contract on the later of January 1, 1980 or the Date of Issue of this contract. /s/ William O. Bailey President Aetna Life Insurance and Annuity Company ENDORSEMENT This Contract is endorsed to provide the following: On the tenth anniversary of the effective date of this Contract any termination or surrender fee which may apply shall be 0%. Endorsed and made a part of this Contract on July 1, 1985. /s/ William O. Bailey President Aetna Life Insurance and Annuity Company ENDORSEMENT This Contract is hereby endorsed to include the following new provisions: During any calendar year, Aetna may be told to change the investment mix twelve times. Should Aetna allow additional changes, each may be subject to a fee of up to $10. 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. Endorsed and made a part of this Contract effective May 1, 1989. /s/ John J. Martin President Aetna Life Insurance and Annuity Company Aetna Life Insurance and Annuity Company ENDORSEMENT This Contract is hereby endorsed to delete the previous Guaranteed Accumulation Account (GA Account) Endorsement and replace it with the following: Add to the GENERAL DEFINITIONS Section of the Contract the following paragraphs: Maturity Date: The last day of a GA Account Term. Matured Term Value: The amount payable on a GA Account Term's Maturity Date. Nonunitized Separate Account: An account set up by Aetna under Tile 38, Sec. 38-154a, of the Connecticut General Statutes, which is used to hold assets for GA Account Terms greater than three years. The Owner or Participant, as applicable, does not participate in the investment gain or loss from the assets held in the GA Account. The Guaranteed Accumulation Account (GA Account) is amended and restated as follows: The GA Account guarantees stipulated rates of interest for stated periods of time (see (1) and (3) below). Amounts withdrawn before the end of a Guaranteed Term may be subject to a Market Value Adjustment (MVA) (see (7) below). (1) 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. (2) Guaranteed Term (Term) - The period of time for which interest rates are guaranteed on Net Purchase Payment(s) and on transfers made into a Deposit Period of the GA Account. Terms are offered at Aetna's discretion for various lengths of time ranging up to and including ten years. (3) Guaranteed Term Classifications - The grouping of Terms according to their time to maturity. The following are the Classifications: (a) Short Term: Terms of up to and including 3 years; or (b) 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 Owner has the option to allocate Net Purchase Payment(s) and 1 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 Owner. At least one Term in the Short Term Classification will be available each Deposit Period. (4) Guaranteed GA Account Interest Rates (Guaranteed Rates) - Aetna will declare all interest rate(s) applicable to a specific Term at the start of the Deposit Period for that Term. These rate(s) are guaranteed by Aetna for that Deposit Period and the ensuing Term and are not based on the actual investment experience of the underlying assets in the GA Account. The Guaranteed Rates are annual effective yields. The interest is credited daily at a rate that will produce the guaranteed annual effective yield over the period of a year. No annual rate will ever be less than 4%. For Terms of one year or less, one Guaranteed Interest Rate is set and announced for that full Term. For other Terms, there may be two or more rates. The rate(s) will be set and announced prior to the Deposit Period for that Term and will not be subject to change. (5) 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 (7) below). Full and partial surrenders are satisfied by withdrawing amounts from each of 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 Owner or Participant, as applicable, 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. Any withdrawal which is a surrender will be subject to the Maintenance Fee and Surrender Fee as appropriate. Also, 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 (9) below). Amounts transferred prior to the Maturity Date of a Term are subject to an MVA (see (7) 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: 2 (a) A full or partial surrender; (b) A payment of a premium for an Annuity Option; or (c) The Sum Payable at Death provision. (6) Maturity Date/Reinvestment - For all GA Account Term(s) existing as of the effective date of this endorsement in addition to GA Account Term(s) announced subsequent to that date, the Owner or Participant, as applicable, will be mailed a notice at least 18 calendar days before a Term's Maturity Date. This notice will contain the current Deposit Period's Guaranteed Rate(s), Term(s) and a projected Matured Term Value. The Matured Term Value may be surrendered or transferred on the Term's Maturity Date without an MVA. If no specific direction is given by the Owner or Participant, as applicable, prior to the Maturity Date, each Matured Term Value will be reinvested in a Term of the same duration. In the event that a Term of the same duration is unavailable, each Matured Term Value will automatically be reinvested in the next shortest Term available in the same Classification during the then current Deposit Period. If however, only one Term is available within the Classification, then the Matured Term Value will automatically be reinvested in that Term. Within two business days after the Maturity Date, the Owner or Participant, as applicable, will be mailed a confirmation statement. This statement will state the Terms and Guaranteed Rates which will apply to the reinvested Matured Term Value. During the calendar month following the Term's Maturity Date, one exception is allowed to the 90 day transfer restriction and MVA under (5) and (7). 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 Owner 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 Owner or Participant, as applicable, during this period for any Matured Term Value. The Matured Term Value plus any interest accrued thereon may be transferred upon such request without an MVA: (a) To any other Terms of the GA Account available in the current Deposit Period; or (b) To any other allowable Fund(s). 3 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. If this Contract is issued under a Tax Deferred Annuity Plan (see Specifications page) the above notice will be sent to the Participant(s). (7) 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: (a) A transfer; (b) A full or partial surrender; or (c) 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 ----- 365 (1+i) ------------ x ----- 365 (1+j) 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: (bullet) 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. (bullet) 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. 4 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 date of death of the Participant under the Sum Payable at Death provision will be the greater of: (bullet) 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 (bullet) 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 this provision with 30 days advance written notice to the Owner or Participant, as applicable. Any such change shall become effective for Purchase Payment(s), transfers or reinvestments made to any new Term by any present or future Participant. (8) 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 Owner 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. 5 (9) Before an Annuity Option is elected, all or any portion of the Current Value may be transferred from any Fund or GA Account: (a) To any other allowable Fund; (b) To the Fixed Account; or (c) To Terms of the GA Account available in the 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 (see (6)). Amounts applied to Classifications of the GA Account may not be transferred to the Fund(s) or to the Fixed Account during the Deposit Period or for 90 days after the close of the Deposit Period. Transfers from Terms of the GA Account are subject to the Withdrawal and MVA provisions (see (5) and (7)). Twelve transfers of Current Value can be made during a calendar year period. The Transfer of any portion of the GA Account value at the Maturity Date of a Term is not counted for this purpose. Aetna may allow additional transfers, but each may be subject to a fee of up to $10. Endorsed and made a part of this Contract on May 1, 1991 or the effective date of the Contract whichever is later. /s/ John J. Martin President Aetna Life Insurance and Annuity Company Aetna Life Insurance and Annuity Company ENDORSEMENT This Contract is hereby endorsed as follows: The definition of Separate Account under the Definition of Certain Terms or General Definitions section of the contract is hereby amended to read as follows: 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. Endorsed and made a part of the Contract. /s/ Edmund F. Kelly President Aetna Life Insurance and Annuity Aetna Life Insurance and Annuity Company ENDORSEMENT The Contract is hereby endorsed. The term Valuation Period under Definitions is amended to read as 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 Contract. /s/ G. G. Benanav President Aetna Life Insurance and Annuity Company EX-99.B.4.2 3 FORM OF VARIABLE ANNUITY CONTRACT (GA-UPA-GO) Aetna Variable Annuity Life Insurance Company Home Office: LITTLE ROCK, ARKANSAS Executive Office: HARTFORD, CONNECTICUT 06115 Herein called Aetna Agrees to pay benefits as provided herein with respect to any person entitled thereto as a participant in the Plan named below. This contract is issued to the Contract Owner in consideration of the application therefor and of the payment by the Contract Owner of contributions as provided herein. Provisions contained in subsequent pages hereof form a part of this contract as fully as if recited in their entirety over the signatures hereto affixed. IN WITNESS WHEREOF, Aetna has caused this contract to be executed at its Executive Office on the Execution Date. /s/ Larry D. Gilbertson /s/ Donald M. Johnson Secretary President GROUP RETIREMENT ANNUITY CONTRACT ACTIVE LIFE FUND IN SEPARATE ACCOUNT AND GENERAL ACCOUNT INDIVIDUAL ALLOCATIONS ALL PAYMENTS AND VALUES PROVIDED BY THE CONTRACT, WHEN BASED ON INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT. One of the Aetna Life & Casualty Companies SPECIFICATIONS (HEREIN CALLED THE PLAN) THIS CONTRACT IS ISSUED TO (HEREIN CALLED THE CONTRACT OWNER) GROUP ANNUITY CONTRACT NO. CONTRACT EFFECTIVE DATE EXECUTION DATE THIS CONTRACT IS DELIVERED IN AND IS SUBJECT TO THE LAWS OF THAT JURISDICTION Item 1 Normal Annuity Form, Section 2.01 - Option Item 2 Investment Rate, Section 2.05: Table I - Table II - Item 3 Margin deduction for each day of a Valuation Period, Section 3.05 - Item 4 Investment Rate Factor, Section 3.07 - Item 5 Interest Rate, Section 4.12 Variable Annuities - Fixed Annuities - TABLE OF CONTENTS Section Page ARTICLE I Definition of Certain Terms ARTICLE II Retirement Annuity Provisions.................................... 5 2.01 Notice to Effect an Annuity...................................... 5 2.02 Optional Annuity Forms, Election of Option....................... 5 2.03 Allocation of Annuity............................................ 6 A. Variable Annuity........................................... 6 B. Fixed Dollar Annuity....................................... 7 2.04 Frequency of Payments............................................ 7 2.05 Description of Tables............................................ 7 Table I.......................................................... 9 Table II......................................................... 11 ARTICLE III Contributions, Valuation, and Discontinuance Contributions 3.01 Contributions.................................................... 13 3.02 Application of Contributions..................................... 13 3.03 Participant's Individual Account................................. 13 3.04 Active Life Fund................................................. 14 Valuation 3.05 Net Investment Rate and Net Investment Factor.................... 14 3.06 Accumulation Unit Value.......................................... 14 3.07 Annuity Unit Value............................................... 14 3.08 Experience Rating................................................ 15 Discontinuance of Contributions 3.09 Suspension....................................................... 15 3.10 Change to a Paid-Up Contract..................................... 15 3.11 Transfer of Active Life Fund..................................... 16 ARTICLE IV General Provisions 4.01 Change of Contract by Aetna...................................... 17 4.02 Change of Contract by Mutual Agreement - Retroactive Changes..... 17 4.03 Contract......................................................... 18 4.04 Individual Certificates.......................................... 18 3 4.05 Conversion to Individual Contract................................ 18 4.06 Death Benefit.................................................... 18 4.07 Designation of Beneficiary....................................... 19 4.08 Facility of Payment.............................................. 19 4.09 Evidence of Survival............................................. 19 4.10 Misstatements and Adjustments.................................... 19 4.11 Assignments...................................................... 20 4.12 Basis of Reserves................................................ 20 4.13 Termination of Contract.......................................... 20 4.14 Data to be furnished to Aetna.................................... 20 4.15 Relation of this Contract to the Separate Account................ 21 4 Article I DEFINITION OF CERTAIN TERMS 1. CONTRACT YEAR - the period of 12 months commencing with either the Effective Date or any anniversary thereof. 2. PARTICIPANT - a person who participates in the Plan. 3. ANNUITANT - a participant on whose life a Retirement Annuity has been effected. 4. RETIREMENT ANNUITY - a series of payments provided under this Contract with respect to a Participant. 5. ANNUITY COMMENCEMENT DATE - the date on which Retirement Annuity payments commence with respect to a Participant under the terms of the Plan. 6. SEPARATE ACCOUNT - those assets of Aetna in the separate account established by Aetna pursuant to the Arkansas Insurance Code, for this class of contracts which provide variable benefits. 7. GENERAL ACCOUNT - all assets of Aetna other than those in separate accounts. 8. VALUATION DATE - each date as of which the Accumulation Unit Value or Annuity Unit Value is determined pursuant to applicable regulatory provisions or company procedures. 9. VALUATION PERIOD - the period from one Valuation Date to the next. Article II RETIREMENT ANNUITY PROVISIONS SECTION 2.01 - Notice to Effect an Annuity When a Participant is eligible for a Retirement Annuity in accordance with the Plan, the Contract Owner shall notify Aetna to effect an annuity for such Participant. On the Participant's Annuity Commencement Date Aetna shall apply such portion of the value of the Participant's Individual Account as designated by the Contract Owner to provide a Retirement Annuity on the applicable Optional Annuity Form. In the absence of an election of an Optional Annuity Form in accordance with Section 2.02, the Retirement Annuity will be on the Normal Annuity Form as set forth in Item 1 of the Specifications. SECTION 2.02 - Optional Annuity Forms, Election of Option OPTION A - Life Annuity - An annuity payable monthly during the lifetime of an Annuitant, ceasing with the last payment due prior to the Annuitant's death. OPTION B - Life Annuity with 60, 120 or 180 Monthly Payments Guaranteed - an annuity payable monthly during the lifetime of an Annuitant, with a guarantee that if, at the death of the Annuitant, payments have been made for less than 60, 120 or 180 months as 5 selected, payments will be continued thereafter to the Annuitant's beneficiary during the remainder of said period. If a beneficiary dies while receiving annuity payments, the then present value of the current dollar amount of the remaining guaranteed number of annuity payments commuted on the basis of the investment rate or rates on which the accumulation units were applied to provide a Retirement Annuity, shall be paid in a lump sum to the estate of the beneficiary. OPTION C - Unit Refund Life Annuity - An annuity payable monthly during the lifetime of an Annuitant, ceasing with the last payment due prior to the death of the Annuitant, provided that, at the death of the Annuitant, the beneficiary will receive an additional payment of the then dollar value of the number of annuity units equal to the excess, if any, of (a) over (b) where (a) is the total amount applied under the option divided by the annuity unit value at the Annuity Commencement Date and (b) is the number of annuity units represented by each payment multiplied by the number of payments made. OPTION D - Joint and Last Survivor Annuity - An annuity payable monthly during the lifetime of an Annuitant and thereafter during any remaining lifetime of a designated second person. The amount of the first payment under any of these options will be determined in accordance with Section 2.05. No payments will be made under any of these options prior to receipt by Aetna of satisfactory evidence of the date of birth of the Annuitant and any joint Annuitant. Election of Option - If provided by the Plan, in lieu of the Normal Annuity Form Specified in Section 2.01 the Participant may elect any one of the Optional Annuity Forms, but such election may be made only on a form acceptable to Aetna and filed at its Home Office at least 30 days prior to the Annuity Commencement Date. SECTION 2.03 - Allocation of Annuity, Variable and Fixed Annuities Unless provided otherwise by the Plan, the Participant's Individual Account may be applied to provide a variable annuity, a fixed annuity, or a combination of both, as elected by the Participant provided such election is made on a form acceptable to Aetna and filed at its Home Office at least 30 days prior to the Annuity Commencement Date. In the absence of such an election, when a Retirement Annuity is effected for a Participant, General Account accumulation units in the Participant's Individual Account will be used to provide a fixed dollar annuity and Separate Account accumulation units will be used to provide a variable annuity. A. Variable Annuity - A variable annuity is an annuity with payments varying in amount in accordance with the net investment results of the Separate Account as described in the Valuation provisions of Article III. After the first monthly payment for a variable annuity has been determined in accordance with the 6 provisions of the Contract, a number of Separate Account annuity units is determined by dividing the first monthly payment by the Separate Account annuity unit value on the Annuity Commencement Date. Once variable annuity payments have begun, the number of annuity units remains fixed. The dollar amount of the second and subsequent variable annuity payments is not predetermined and may change from month to month. The actual amount of each variable annuity payments is not predetermined and may change from month to month. The actual amount of each variable annuity payment after the first is determined by multiplying the number of Separate Account annuity units by the Separate Account annuity unit value as described in the Valuation provisions of Article III for the Valuation Period in which the payment is due. Aetna guarantees that the dollar amount of variable annuity payments shall not be affected by variation in the actual mortality experience of payees from the mortality assumption, including any age adjustments, as used in determining the first monthly payment. B. Fixed Dollar Annuity - A fixed dollar annuity is an annuity with payments which remain fixed as to dollar amount throughout the payment period. As in the case of the variable annuity, a number of annuity units is determined when payments commence. Since the General Account annuity unit value is always $10.00, payments after the first will never be less than the first monthly payment. Aetna may, from time to time, by action of its Board of Directors, increase the number of General Account annuity units to the extent that such units are applicable to a guaranteed period of benefits, and the value of such additional units will be payable only during the guaranteed period. SECTION 2.04 - Frequency of Payments Annuity payments under this Contract will be made monthly, except that, if such payments would amount to less than $25 each, Aetna reserves the right to make payments at less frequent intervals; provided, however, that if at any time the annual rate of payment to any payee is less than $100, Aetna may make such other settlement as may be equitable to the payee. TABLES SECTION 2.05 - Description of Tables The Tables contained herein show the dollar value of accumulation units required to effect a variable annuity and a fixed annuity with a first monthly payment of $1.00 under each of the Optional Annuity Forms. The dollar value of the accumulation units applied will be calculated on the basis of the accumulation unit value as of the last day of the tenth 7 Valuation Period preceding the Annuity Commencement Date. The amount of each monthly payment will depend upon the sex and adjusted age of the person with respect to whom the Retirement Annuity is effected at the Annuity Commencement Date. Adjusted age is determined as follows:
Calendar Year of Birth Before 1901 1901-1915 1916 - 1935 1936 - 1955 1956 - 1975 Adjusted Age is Actual Age plus 1 minus 1 minus 2 minus 3
Actual age, as used above, shall mean age nearest birthday at the Annuity Commencement Date. The amounts shown in Tables I and II are based on the Progressive Annuity Table, assuming year of birth 1900, and the investment rate set forth in Item 2 of the Specifications. If it would produce greater benefits, Aetna agrees that the first monthly payment to the Annuitant will be determined on the same mortality and interest basis used in determining rates for immediate annuities then being issued for this class of Annuitant. 8 Table I - VARIABLE ANNUITIES DOLLAR VALUE REQUIRED TO PURCHASE AN ANNUITY WITH A FIRST MONTHLY PAYMENT OF $1.00 If so provided in the preceding paragraph of this Section 2.05, the following amounts must be increased by the premium taxes payable at the time benefits are purchased. Options A, B and C - Single Life Annuities
Monthly Payments Guaranteed ------------------------------------------------------------- Adjusted Age Male Female None 60 120 180 Unit Refund - -------------------------- ------- ------- ------- ------- ----------- 50 54 $210.85 $211.36 $213.06 $216.23 $220.90 51 55 206.73 207.30 209.18 212.68 217.38 52 56 202.54 203.17 205.26 209.12 213.91 53 57 198.27 198.97 201.28 205.55 210.30 54 58 193.93 194.70 197.26 201.96 206.62 55 59 189.51 190.37 193.20 198.39 202.99 56 60 185.03 185.98 189.11 194.82 199.23 57 61 180.48 181.54 185.00 191.28 195.40 58 62 175.87 177.04 180.87 187.77 191.64 59 63 171.21 172.50 176.73 184.31 187.75 60 64 166.49 167.93 172.59 180.91 183.78 61 65 161.73 163.32 168.47 177.58 179.90 62 66 156.93 158.69 164.37 174.34 175.90 63 67 152.09 154.05 160.30 171.19 171.81 64 68 147.23 149.40 156.28 168.16 167.86 65 69 142.35 144.75 152.31 165.25 163.76 66 70 137.46 140.11 148.42 162.48 159.58 67 71 132.57 135.50 144.62 159.86 155.59 68 72 127.67 130.91 140.92 157.40 151.42 69 73 122.79 126.37 137.32 155.12 147.16 70 74 117.93 121.89 133.86 153.01 143.19 71 75 113.11 117.47 130.54 151.09 138.97 72 76 108.32 113.13 127.37 149.36 134.66 73 77 103.57 108.88 124.37 147.82 130.74 74 78 98.89 104.73 121.55 146.46 126.52 75 79 94.27 100.69 118.92 145.29 122.18
9 Option D - Joint and Survivor Life Annuity
Adjusted Age of Second Annuitant Adjusted Age of Annuitant ------------------------------------------------------------------------------------------ M-51 M-56 M-58 M-61 M-63 M-66 M-71 Male Female F-55 F-60 F-62 F-65 F-67 F-70 F-75 - ---- ------ ---- ---- ---- ---- ---- ---- ---- 50 54 $237.79 $229.86 $227.15 $223.59 $221.57 $218.92 $215.73 55 59 229.05 218.34 214.55 209.38 206.35 202.42 197.39 57 61 225.97 214.14 209.85 204.01 200.50 195.93 190.01 60 64 221.91 208.43 203.38 196.39 192.18 186.50 179.02 62 66 219.55 204.99 199.50 191.72 186.96 180.56 171.88 65 69 216.52 200.49 194.31 185.42 179.85 172.21 161.64 70 74 212.71 194.65 187.42 176.84 170.06 160.43 146.43
The dollar value required for any combination of ages not shown will be quoted upon request. 10 Table II - FIXED ANNUITIES DOLLAR VALUE REQUIRED TO PURCHASE AN ANNUITY WITH A FIRST MONTHLY PAYMENT OF $1.00 If so provided in the preceding paragraph of this Section 2.05, the following amounts must be increased by the premium taxes payable at the time benefits are purchased. Options A, B and C - Single Life Annuities
Adjusted Age Monthly Payments Guaranteed Male Female None 60 120 180 Unit Refund ---- ------ ---- -- --- --- ----------- 50 54 $210.85 $211.36 $213.06 $216.23 $220.90 51 55 206.73 207.30 209.18 212.68 217.38 52 56 202.54 203.17 205.26 209.12 213.91 53 57 198.27 198.97 201.28 205.55 210.30 54 58 193.93 194.70 197.26 201.96 206.62 55 59 189.51 190.37 193.20 198.39 202.99 56 60 185.03 185.98 189.11 194.82 199.23 57 61 180.48 181.54 185.00 191.28 195.40 58 62 175.87 177.04 180.87 187.77 191.64 59 63 171.21 172.50 176.73 184.31 187.75 60 64 166.49 167.93 172.59 180.91 183.78 61 65 161.73 163.32 168.47 177.58 179.90 62 66 156.93 158.69 164.37 174.34 175.90 63 67 152.09 154.05 160.30 171.19 171.81 64 68 147.23 149.40 156.28 168.16 167.86 65 69 142.35 144.75 152.31 165.25 163.76 66 70 137.46 140.11 148.42 162.48 159.58 67 71 132.57 135.50 144.62 159.86 155.59 68 72 127.67 130.91 140.92 157.40 151.42 69 73 122.79 126.37 137.32 155.12 147.16 70 74 117.93 121.89 133.86 153.01 143.19 71 75 113.11 117.47 130.54 151.09 138.97 72 76 108.32 113.13 127.37 149.36 134.66 73 77 103.57 108.88 124.37 147.82 130.74 74 78 98.89 104.73 121.55 146.46 126.52 75 79 94.27 100.69 118.92 145.29 122.18
11 Option D - Joint and Survivor Life Annuity
Adjusted Age of Second Annuitant Adjusted Age of Annuitant -------------------------------------------------------------------------------------- M-51 M-56 M-58 M-61 M-63 M-66 M-71 Male Female F-55 F-60 F-62 F-65 F-67 F-70 F-75 ---- ------ ---- ---- ---- ---- ---- ---- ---- 50 54 $237.79 $229.86 $227.15 $223.59 $221.57 $218.92 $215.73 55 59 229.05 218.34 214.55 209.38 206.35 202.42 197.39 57 61 225.97 214.14 209.85 204.01 200.50 195.93 190.01 60 64 221.91 208.43 203.38 196.39 192.18 186.50 179.02 62 66 219.55 204.99 199.50 191.72 186.96 180.56 171.88 65 69 216.52 200.49 194.31 185.42 179.85 172.21 161.64 70 74 212.71 194.65 187.42 176.84 170.06 160.43 146.43
The dollar value required for any combination of ages not shown will be quoted upon request. 12 Article III CONTRIBUTIONS, VALUATION, AND DISCONTINUANCE CONTRIBUTIONS SECTION 3.01 - Contributions Aetna shall receive such contributions from the Contract Owner as are made in accordance with the requirements of the Plan. Such contributions will be applied by Aetna to provide accumulation units in accordance with Section 3.02. SECTION 3.02 - Application of Contributions The net contribution shall be equal to the total contribution less 8% and the percentages for premium taxes payable at the time contributions are made. The net contribution shall be applied as of the last day of the Valuation Period in which the contribution is received by Aetna, to provide accumulation units on the basis of the then current value of such units, such application being made separately for net contributions allocated to the General Account and the Separate Account in accordance with the instructions of the Contract Owner. The number of accumulation units provided in each Account and credited to a Participant's Individual Account, by any such application shall be determined by dividing the net contribution for that Account applicable to that Participant by the dollar value of one accumulation unit in that Account. The number of accumulation units so determined will not be affected by any subsequent changes in the dollar value of accumulation units. SECTION 3.03 - Participant's Individual Account A Participant's Individual Account under this Contract shall, at any time, consist of a number of accumulation units equal to the number provided by the application of the net contributions described in Section 3.02 in accordance with the Plan, plus any additional units credited in accordance with Section 3.08. Benefits will be purchased or provided only in such amounts and under such conditions as called for by the Plan. No Participant shall have any specific rights to such Individual Account. The amount payable to, or applied to provide benefits for, a Participant or beneficiary, shall be limited to the value of the Participant's Individual Account. When a Participant or beneficiary becomes entitled to a benefit in accordance with the Plan the Contract Owner will notify Aetna as to the manner of payment of any benefit and the disposition to be made of such Individual Account. 13 SECTION 3.04 - Active Life Fund The Active Life Fund under this Contract shall, at any time consist of the sum of all Participant's Individual Accounts. At least once in each Contract Year after the first, Aetna shall inform the Contract Owner of the then dollar value of an accumulation unit, and the number of such units in each Individual Account. VALUATION SECTION 3.05 - Net Investment Rate and Net Investment Factor (a) The net investment rate for the General Account is a guaranteed rate as below, compounded annually: Contract Years 10 Thereafter Guaranteed Rate 4% 3 1/2% In addition, by action of its Board of Directors, Aetna may increase the net investment rate at such time and for such period as the Directors may determine. (b) The net investment rate for any Valuation Period for the Separate Account is equal to the gross investment rate for that Account for the Valuation Period less a margin deduction for each day of the Valuation Period as set forth in Item 3 of the Specifications. Such gross investment rate is equal to (i) the investment income and capital gains and losses, both realized and unrealized, on the assets of the Separate Account, divided by (ii) the amount of such assets at the beginning of the Valuation Period. Such gross investment rate may be either positive or negative. (c) The net investment factor for each Account is the sum of 1.0000000 and the net investment rate for the Account. SECTION 3.06 - Accumulation Unit Value The value of an accumulation unit on May 3, 1996 was fixed at $10.00. The value of an accumulation unit in each Account on the last day of any Valuation Period thereafter is determined by multiplying such value on the last day of the immediately preceding Valuation Period by the net investment factor for that Account for the current Valuation Period. SECTION 3.07 - Annuity Unit Value The value of a General Account annuity unit is fixed at $10.00. The value of a Separate Account annuity unit for the Valuation Period ending May 17, 1966 was fixed at $10.00. For any period thereafter the value of a Separate Account annuity unit is determined by 14 multiplying the value of the Separate Account annuity unit for the preceding Valuation Period by the product of (a) 1.0000000 decreased by the product of the investment rate factor set forth in Item 4 of the Specifications and the number of days in the Valuation Period and (b) the net investment factor of the Separate Account for the tenth Valuation Period preceding the period for which the value is being calculated. SECTION 3.08 - Experience Rating Aetna may apply an experience credit to this Contract at the end of any Contract Year. Any such credit shall be applied in such manner as may be specified by the Contract Owner and agreed to be Aetna. DISCONTINUANCE OF CONTRIBUTIONS SECTION 3.09 - Suspension This Contract shall be suspended automatically on any anniversary of the Effective Date if: (a) The Contract Owner gives prior written notice to Aetna to transfer the Active Life Fund in accordance with Section 3.11. (b) If the Contract Owner fails to assent to any modification of this Contract initiated by Aetna as provided in Section 4.01, which modification would have been effective on such anniversary. (c) Aetna has given written notice 90 days in advance of such anniversary to the Contract Owner of suspension because the total number of active Participants at any time is less than 25. The Contract may also be suspended, or terminated as to new Participants, upon written notice by the Contract Owner given Aetna at its Home Office 90 days in advance of the effective date of such suspension. Effective with such suspension, no new Participants may enter the Plan but further contributions will be accepted by Aetna under the Contract as they are applicable to Participants in the Plan prior to such suspension, subject to (c) above. However, if the Contract Owner elects to transfer the Active Life Fund in accordance with Section 3.11, no further contributions of any kind shall be accepted by Aetna. SECTION 3.10 - Change to a Paid-Up Contract If the Contract Owner gives written notice to Aetna in advance of any anniversary of the Effective Date to change to a paid-up Contract, subsequent to such anniversary, no further contributions will be accepted by Aetna and no new Participants will become eligible to receive benefits under this Contract. On the date on which this Contract becomes paid-up, 15 if Aetna has received written notification by the Contract Owner that the Plan is being continued, all benefits earned under the terms of the Plan on that date will be treated by Aetna in accordance with the provisions of the Plan. If such written notification has not been received by Aetna on the date on which this Contract becomes paid-up, or if on or after such date the Plan is terminated, each Participant in the Plan will received a 100% vested interest in all benefits earned under the terms of the Plan to the extent of the adequacy of the Active Life Fund. SECTION 3.11 - Transfer of Active Life Fund If before this Contract is suspended under Section 3.09, the Contract Owner files a written certification with Aetna stating (a) in the case of a Plan qualified under Section 401 of the Internal Revenue Code that (i) all benefits under the Plan other than those being provided in connection with previously effected Retirement Annuities are to be provided through another funding agency, and that (ii) the Plan will, in the opinion of the Contract Owner, continue to retain its qualified status under Section 401 of the Internal Revenue Code or (b) in the case of a non-qualified Plan of deferred compensation that (i) the Contract Owner desires to liquidate this Contract and receive the value thereof then Aetna, being entitled to rely conclusively upon such certification will pay to the specified funding agency (in the event (a) above is applicable) or to the Contract Owner (in the event (b) above is applicable) the value of the number of accumulation units in the Active Life Fund as of the date of such transfer, provided, however that such value will be reduced by the excess of any sales and administrative costs applicable to the Contract over amounts previously deducted as provided in Section 3.02, such reduction not to exceed a percentage of the value of the Active Life Fund as determined by entering the following table with the number of Contract Years for which contributions were received: Number of Contract Years 1 2 3 4 5 6 or more Percentage 5% 4% 3% 2% 1% 0% 16 The date of the transfer will be the date specified by the Contract Owner, provided that Aetna reserves the right to change the date of transfer to a date not later than 30 days after Aetna's receipt of the Contract Owner's request. If the value of the accumulative units to be transferred exceeds $1,000,000, Aetna reserves the right to transfer the excess over $1,000,000 in monthly installments over a period not to exceed 12 months; each such installment shall be the value of a number of General Account and Separate Account accumulation units determined by dividing (i) the total number of such units subject to periodic transfer by (ii) the number of installments. The dollar amount transferred each month will be determined in accordance with the terms of the Contract. Article IV GENERAL PROVISIONS SECTION 4.01 - Change of Contract by Aetna On the first anniversary of the Effective Date and the first day of any Contract Year thereafter, Aetna, upon written notice given 90 days in advance to the Contract Owner, may from time to time, change any of the terms of this Contract, provided that (a) any such change will not affect in any way the amount or terms of any Retirement Annuity effected prior to the effective date of such change and (b) any such change shall not affect Sections 2.05 Annuity Tables, 3.02 Application of Contributions, 3.05 Net Investment Rate and Net Investment Factor, 3.06 Accumulation Unit Value, 3.07 Annuity Unit Value, and 3.08 Experience Rating as they apply to accumulation units provided by contributions made on behalf of Participants who were in the Plan prior to the effective date of such change to the extent that such contributions in any year are not in excess of twice the first annual contribution made on behalf of such Participant. SECTION 4.02 - Change of Contract by Mutual Agreement - Retroactive Changes A. By agreement in writing, the Contract Owner and Aetna may change, from time to time, any or all of the terms of this Contract provided that any such change will not in any way affect the amount or terms of any Retirement Annuity already effected prior to the effective date of such change. B. Notwithstanding any of the terms of this Contract, the Contract Owner and Aetna, by an agreement in writing on any date agreed upon by the Contract Owner and Aetna may change, from time to time, any terms of this Contract if it is deemed necessary or appropriate to do so in order to enable the Plan or Contract to comply with the requirements of Section 401 of the Internal Revenue Code which change may be made retroactive to the Effective Date or any date thereafter. C. Consent of any Participant or beneficiary shall not be requisite to any change in this Contract. 17 SECTION 4.03 - Contract This Contract and the application of the Contract Owner, a copy of which is attached hereto and made a part hereof, will constitute the entire Contract. All statements made by the Contract Owner will be deemed representations and not warranties, and no statement will void any payment under this Contract or be used in defense of a claim unless it is contained in the application of the Contract Owner. Only the President, a Vice President, the Secretary or an Assistant Secretary has the power on behalf of Aetna to make or modify this Contract. SECTION 4.04 - Individual Certificates Aetna shall issue a certificate to the Contract Owner for delivery to each Participant. Each such certificate shall set forth in substance the benefits to which such Participant is entitled under this Contract. Certificates described in this section shall not constitute a part of this Contract. SECTION 4.05 - Conversion to Individual Contract Upon termination of participation in the Plan, the Participant who is entitled to a benefit in accordance with the terms of the Plan may elect, if the Plan so permits or the Contract Owner so requests, to convert to an individual annuity contract. The individual annuity contract will be of the form then currently issued for this class of Annuitant, at a duration equivalent to the lesser of the number of full years (a) such Participant has been in the Plan or (b) this Contract has been in force. If the method set forth in the individual annuity contract for determining the value of an accumulation unit is the same method as set forth in Valuation Provisions of Article III, a number of accumulation units designated by the Contract Owner may be transferred from the Contract to the individual annuity contract. Any accumulation units not so transferred will remain in force under this Contract. SECTION 4.06 - Death Benefit Upon receipt of proof satisfactory to the Company of the death of a Participant before the Annuity Commencement Date, the Company will determine, as of the date of receipt of such proof, the greater of (a) the accumulated value of the Participant's individual Account, or (b) the sum of all contributions made on behalf of the Participant. Payment of the greater of (a) or (b) will be made to the Beneficiary of the Participant within seven days of the date of determination. The death benefit may be taken in one lump sum or under any of the settlement options available in Aetna's individual annuities then being issued. SECTION 4.07 - Designation of Beneficiary Each Participant shall have the sole right to designate the beneficiary to which any death benefit hereunder will be payable and, from time to time, without the consent of such 18 beneficiary, change the beneficiary designated by filing written notice of such change with Aetna on a written form satisfactory to Aetna. After such notice is so filed the change will relate back to and take effect as of the date the Participant signed such written notice, whether or not the Participant is living on the date such notice is received by Aetna, but without prejudice to Aetna on account of any payment made by it before such notice. If at the death of a Participant there is more than one beneficiary designated and in such designation the Participant has failed to specify their respective interests, the beneficiaries will share equally. If any designated beneficiary predeceases the Participant, the rights and interests of such beneficiary will thereupon terminate. In the event the designated beneficiary predeceases the Participant or if no beneficiary has been named, the amount of any death benefit will be paid to the executors or administrators of the Participant's estate except that Aetna may in such case, at its option, pay such amount to the wife or the husband, if living; if not living, in equal shares to the then living children of the Participant; if none, to either parent of the Participant, or to both equally, if both are living; if neither parent is living, equal shares to the then living brothers and sisters of such Participant. SECTION 4.08 - Facility of Payment If any payee under this Contract is, in the opinion of Aetna, physically or mentally incapable of giving valid receipt and discharge for any payment due under this Contract, then Aetna may, at its option, make payment thereof in installments of not more than $50 per month to the person or persons who, in its opinion, are caring for and supporting such payee until claim is made by a duly appointed guardian or other legal representative of such payee. Payment to such person or persons will constitute a complete discharge of the liability of Aetna to the extent of such payments and it will assume no responsibility for the proper application of the money paid. SECTION 4.09 - Evidence of Survival Aetna will have the right to require of any person entitled to a payment under this Contract, satisfactory evidence that such person is living on the date on which such payment is due. SECTION 4.10 - Misstatements and Adjustments If the age, sex, or any relevant fact relating to any person is found to be misstated, the amounts of the payments under a Retirement Annuity shall be those which are provided by the value of the accumulation units allocated to effect such Retirement Annuity on the basis of the correct information, without changing the date such Retirement Annuity was effected unless another adjustment satisfactory to the Contract Owner and Aetna is made. Any adjustment made in accordance with this Section shall be conclusive upon any person affected thereby. The dollar amount of any underpayment made by Aetna shall be added to the next payment due, and the dollar amount of any overpayment made by Aetna shall 19 be deducted from the next payment or payments due until recovered by Aetna. If there are no further payments due, or if the total of such payments is less than the overpayments, any remainder of such overpayments shall be charged against the value of any forfeitures becoming available thereafter. SECTION 4.11 - Assignments Except insofar as may be contrary to any applicable laws, all payments under this Contract of benefits arising under the Plan are not assignable or subject to any claims of any creditor. No assignment of this Contract will be binding on Aetna unless and until such assignment is accepted by Aetna at its Home Office. SECTION 4.12 - Basis of Reserves The reserve held under this Contract as of any date will be at least equal to 100% of the dollar value as of such date of the accumulation units held in the Active Life Fund, plus the reserve for such Retirement Annuities as have been effected under this Contract. The dollar amount of the reserve held for the Active Life Fund shall be the dollar value, as of such date, of the accumulation units then constituting the Active Life Fund plus the reserve required for any guaranteed minimum death benefit. Reserves for annuities involving life contingencies shall be computed on the basis of the Progressive Annuity Table, assuming births in the year 1900 and interest per annum at the rate set forth in Item 5 of the Specifications, using the sex and adjusted age of the payee as determined under Section 2.05. SECTION 4.13 - Termination of Contract This Contract will terminated at the close of the first day upon which the performance and fulfillment by Aetna of all its duties and obligations arising hereunder have been completed. SECTION 4.14 - Data to be furnished to Aetna The Contract Owner shall furnish all information which Aetna may reasonably require for the administration of this Contract. If the Contract Owner cannot furnish any required item of information. Aetna may request the person concerned to furnish such information. Aetna shall not be liable for the fulfillment of any obligations in any way dependent on such information until it receives such information in form satisfactory to it. Information furnished to Aetna may be corrected for demonstrated errors therein unless Aetna has already acted to its prejudice by relying on such information. Any records 20 prepared by Aetna from information furnished to Aetna as described above shall constitute prima facie evidence as to the truth of the information recorded thereon. SECTION 4.15 - Relation of this Contract to the Separate Account Aetna shall have exclusive and absolute ownership and control of the assets of both its General Account and its Separate Account. Neither the Contract Owner nor any Participant shall have any individual or equitable ownership of any investments or other assets of either of said Accounts and the records and accounts kept by Aetna in connection with this Contract shall not be deemed to constitute any recognition of any ownership by the Contract Owner or any Participant of any portion of any said Accounts. All funds attributable to this Contract and becoming part of either Account shall be invested or reinvested by Aetna in such class or classes of investments, and in such extent as Aetna at its sole discretion may determine. The method of determination by Aetna of the value of an accumulation unit will be conclusive upon the Contract Owner and any Participant. 21 Aetna Life Insurance and Annuity Company ENDORSEMENT The Contract is hereby endorsed as follows: The following Section under GENERAL PROVISIONS is amended as follows: The following paragraph is added to the end of Control of Contract and Individual Accounts or Data to be furnished Aetna, as applicable: Any payment(s) made under this Contract to other than the Contract Owner must be in compliance with the provisions of the Retirement Equity Act of 1984 (REA). At the time payment is requested or an Annuity Option is elected by the Contract Owner, Aetna will require the Contract Owner to certify the payment option is elected in compliance with REA. In the absence of such certification, payment will be made to the Contract Owner. For Designation of Beneficiary the current provision is deleted and replaced with the following: The beneficiary shall be the Contract Owner. The following condition is added to the RETIREMENT ANNUITY PROVISIONS or the ANNUITY PROVISIONS of the Contract as follows: The Contract Owner may tell Aetna, on behalf of a Participant, to pay all or any portion of the Participant's value in the Contract (minus any premium tax) as a premium for an Annuity Option. Required Distribution to Participant: Distribution to the Participant must begin in the form of periodic payments no later than the April 1 following the calendar year in which the Participant attains age 70 1/2, or such later age as may be allowed under federal law or regulations. In lieu of an Annuity election, the Contract Owner may direct Aetna to make a lump sum payment. In no event may any Annuity Option extend beyond: a) The life of the Annuitant; b) The lives of the Annuitant and the Annuitant's beneficiary under the Plan; c) Any certain period greater than the Annuitant's life expectancy as determined according to regulations under Code Section 401(a)(9); or d) Any certain period greater than the life expectancy of the Annuitant and the Annuitant's beneficiary under the Plan, as determined according to regulations under Code Section 401(a)(9). In no event may payments to the Participant's beneficiary under the Plan under an Annuity Option extend beyond: 1 a) The life of the Participant's beneficiary determined as of the date payments are to commence; or b) Any certain period greater than the Participant's beneficiary's life expectancy as determined by regulations under Code Section 401(a)(9). RETIREMENT ANNUITY PROVISIONS or ANNUITY PROVISIONS: Add to the Joint and Last Survivor Annuity or Life Income for Two Payees Option a new subsection as follows: 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. 2 LIFE INCOME FOR TWO PAYEES JOINT AND 1/2 CONTINGENT LIFE INCOME ANNUITY NO MINIMUM PERIOD AMOUNT OF FIRST MONTHLY PAYMENT FOR EACH $1,000 AFTER DEDUCTION OF ANY CHARGE FOR PREMIUM TAXES Rates for a Fixed Annuity with Guaranteed Interest Rate of 3.5% and Rates for a Variable Annuity with Assumed Net Return Rate of 3.5% Age of Second Annuitant
Age of Annuitant 45 50 55 60 65 70 75 80 85 --------- -- -- -- -- -- -- -- -- -- 45 $3.86 $3.89 $3.93 $3.94 $3.96 $3.97 $3.98 $3.98 $3.98 50 4.02 4.10 4.15 4.18 4.21 4.23 4.24 4.25 4.26 55 4.22 4.31 4.42 4.48 4.53 5.57 4.59 4.61 4.61 60 4.43 4.56 4.70 4.84 4.93 4.99 5.04 5.07 5.09 65 4.69 4.84 5.02 5.22 5.42 5.54 5.63 5.69 5.73 70 4.99 5.17 5.39 5.65 5.93 6.23 6.40 6.52 6.60 75 5.33 5.54 5.82 6.14 6.52 6.95 7.40 7.64 7.81 80 5.70 5.96 6.29 6.69 7.17 7.75 8.41 9.08 9.45 85 6.07 6.38 6.75 7.24 7.84 8.59 9.49 10.51 11.50
Rates for a Variable Annuity with Assumed Net Return Rate of 5% Age of Second Annuitant
Age of Annuitant 45 50 55 60 65 70 75 80 85 --------- -- -- -- -- -- -- -- -- -- 45 $4.80 $4.83 $4.86 $4.88 $4.89 $4.90 $4.91 $4.92 $4.92 50 4.95 5.02 5.06 5.10 5.13 5.15 5.16 5.17 5.18 55 5.14 5.23 5.32 5.38 5.43 5.46 5.49 5.51 5.52 60 5.36 5.47 5.59 5.72 5.80 5.86 5.91 5.95 5.97 65 5.63 5.77 5.93 6.10 6.29 6.41 6.50 6.56 6.60 70 5.96 6.12 6.31 6.54 6.81 7.08 7.25 7.37 7.46 75 6.35 6.54 6.77 7.06 7.42 7.81 8.25 8.49 8.66 80 6.79 7.01 7.30 7.66 8.11 8.65 9.28 9.93 10.29 85 7.26 7.53 7.86 8.29 8.85 9.55 10.41 11.39 12.37
3 These Annuity rates are based on mortality from 1983 Table a. Endorsed and made a part of the Contract on the effective date of the Contract. /s/ Dan Kearney President Aetna Life Insurance and Annuity Company 4 AETNA VARIABLE ANNUITY LIFE INSURANCE COMPANY ENDORSEMENT ----------- In lieu of the language now appearing in the attached contract, Section 3.01 is hereby endorsed to read as follows: "Aetna shall receive such contributions from the Contract Owner as are made pursuant to the Plan. The total contribution will be subject to a percentage deduction in an amount necessary to cover state premium taxes, if any, payable by Aetna on such contribution. The total contribution will also be allocated to each Participant and subject to a further deduction of 1% of the allocated share for each Participant having a Guaranteed Death Benefit Rider. The amount resulting from these deductions will be the Basic Contribution. The Net Contribution shall be equal to the Basic Contribution minus 6% of such Basic Contribution. "Such Net Contribution will be applied to provide accumulation units for Participants in accord with Section 3.02 below and the instructions of the Contract Owner." In lieu of the language now appearing in the attached contract, Section 3.02 is hereby endorsed to read as follows: "The Net Contribution for each Participant shall be applied as of the last day of the Valuation Period in which the Contribution is received by Aetna to provide accumulation units on the basis of the then current value of such units, such application being made separately for Net Contributions allocated to (i) the General Account, (ii) the Separate Account and invested in Fund shares, and (iii) the Separate Account and invested in Encore Fund Shares, in accord with instructions of the Contract Owner. "The number of accumulation units provided in each funding medium, and credited to a Participant's Individual Account, by any such application shall be determined by dividing the Net Contribution for the applicable funding medium for each Participant by the dollar value of one accumulation unit in that funding medium. The number of accumulation units so determined will not be affected by any subsequent changes in the dollar value of accumulation units." In lieu of the language now appearing in the attached contract, Section 3.05(b) is hereby endorsed to read as follows: "The Net Investment Rate for any Valuation Period of the Separate Account is equal to the gross investment rate of the Fund(s) underlying that Account for the Period less a margin deduction for each day of the Valuation Period (at an effective annual rate of 1.25%) plus or minus an adjustment for any taxes or a reserve for any such taxes attributable to the operations of the Separate Account. Such gross investment rate is 1 equal to (i) the investment income and capital gains and losses, both realized and unrealized of the Fund(s), minus an investment advisory fee accrued by the Fund(s) for each day of the Valuation Period, divided by (ii) the amount of net assets of the Fund(s) at the beginning of the Valuation Period. Such gross investment rate may be either positive or negative. The margin deduction from the gross investment rate and the percentage deduction for the investment advisory fee may not exceed in the aggregate an effective annual rate of 1.5%." In lieu of the language now appearing in the attached contract, Section 3.11 is hereby endorsed to read as follows: "The Contract Owner may file a written request with Aetna electing to liquidate this Contract and receive its accumulated value, minus 2% of such accumulated value if such election is received during the first five contract years. Such accumulated value will be the value of the accumulation units in the Active Life Fund determined in accord with the Contract provisions as of the end of the Valuation Period in which the written request is received by Aetna." In lieu of the language now appearing in the attached contract, Section 4.06 is hereby endorsed to read as follows: "Upon receipt of proof of the death of a Participant prior to the Annuity Commencement Date, Aetna agrees to pay to the Beneficiary the accumulated value of the Participant's Individual Account determined as of the Valuation Period in which such proof is received, unless a larger amount shall be due under the provisions of a Guaranteed Death Benefit Rider. "The Contract Owner may designate on individual statements of Participant being submitted whether a Guaranteed Death Benefit Rider is desired for any individual Participant. If so designated, any death benefit payable with respect to such Participant will be in accord with the provisions of this Contract and such rider. Any death benefit payable may be taken in a lump sum or under any settlement options available in individual annuities then being issued by Aetna." Endorsed and made a part of this contract on the Contract Effective Date. /s/ W. O. Bailey President 2 AETNA VARIABLE ANNUITY LIFE INSURANCE COMPANY ENDORSEMENT The VALUATION PROVISIONS of this contract are hereby endorsed to add the following provisions: NET STIPU- After a three calendar month period subsequent to the Date of LATED Issue or to a prior change in allocation, the Owner may elect PAYMENT during the accumulation period to change the allocation ALLOCATIONS percentages for future Annuity Stipulated Payments to any allocation then allowed by Aetna. Any such allocation change will be allowed only if any allocated portion of the mode Annuity Stipulated Payment meets the then minimum amount required by Aetna. A request for such change must be made in writing in a form satisfactory to Aetna and will not take effect until received at the Executive Office of Aetna. TRANSFER The Owner may elect during the accumulation period that OF ACCUM- accumulation unitscredited to this contract in the Separate ULATION Account may be transferred to the General Account. Such transfer UNITS may be elected after a three calendar month period subsequent to the Date of Issue or to a prior transfer. The value of accumulation units requested to be transferred must be $500, or greater. If the requested amount to be transferred would result in a remaining value of accumulation units of less than $500. Aetna shall have the right to transfer the total number of accumulation units. Accumulation units in the General Account may not be transferred to the Separate Account. Any request for transfer must be in a form satisfactory to Aetna and will be effective on the last day of the Valuation Period in which the acceptable written request is received at the Executive Office of Aetna. All such transfers will be made without deduction of premium taxes and without application of the deduction from the Basic Stipulated Payment stated in the Valuation Provisions of this contract. The contract is hereby endorsed to allow the Owner prior to the commencement of Annuity payments, if the contract contains seven (7) annuity options rather than four (4) optional annuity forms, to elect that annuity proceeds be applied under any one of the first six (6) annuity options rather than any one of the first four (4) annuity options. The contract is hereby endorsed to void and remove from the contract any provision, if such a provision is presently applicable, relating to Aetna applying an experience credit to the contract. 1 The contract is hereby endorsed to allow the Owner prior to the commencement of annuity payments to select that the first monthly payment of a variable annuity be determined on the basis of 5% assumed investment rate rather than 3 1/2% assumed investment rate. All relevant provisions and subsequent actions under the contract shall operate on the basis of such selection of 5% assumed investment rate on a variable annuity in the same manner as would apply to 3 1/2% assumed investment rate. Endorsed and made a part of this contract on the later of April 28, 1975 or the Date of Issue of this contract. /s/ William O. Bailey President 2 AETNA VARIABLE ANNUITY LIFE INSURANCE COMPANY ENDORSEMENT This contract is hereby endorsed to revise or add, as appropriate, the second sentence to the Separate Account provision of the definitions provisions as follows: "Reserves for any variable benefits shall be maintained in the Separate Account and invested in shares of the Fund and Encore Fund." This contract is hereby endorsed to add the following provisions, if such provisions are not presently in this contract, to the definitions provisions of this contract: "Fund: Aetna Variable Fund, Inc., an open-end diversified investment company registered under the Investment Company Act of 1940." "Encore Fund: Aetna Variable Encore Fund, Inc., an open-end diversified investment company registered under the Investment Company Act of 1940." This contract is hereby endorsed so that the Allocation of Annuity Stipulated Payments section, if there be such a section in this contract, of the Specifications page shall be changed to read as follows: "Allocation percentages of the General Account and Separate Account-Fund Shares and Separate Account-Encore Fund Shares shall be as shown on the application or as subsequently changed, and such change shall be effective when it is received by the Company." This contract, if this be a deferred annuity contract, is hereby endorsed to revise or add, as appropriate, the Transfer of Accumulation Units provision of, or to, the Valuation Provisions of this contract, or as previously endorsed, to read as follows: "The Owner may elect during the accumulation period to transfer accumulation units credited to this contract in the Separate Account. Any units held in the Separate Account invested in Fund shares may be transferred to be invested in Encore Fund shares in the Separate Account or may be transferred to the General Account. Any units held in the Separate Account invested in Encore Fund shares may be transferred to be invested in Fund shares in the Separate Account or may be transferred to the General Account. At the commencement of annuity payments, any accumulation units held in the Separate Account invested in Encore Fund shares will be transferred to Fund shares held in the Separate Account, unless requested to be transferred to the General Account. Accumulations units credited to the contract in the General Account may be transferred from the General Account only in accord with the Allocation of Annuity provision of the Settlement Provisions. Any transfer may be elected after a three (3) calendar month period subsequent to the Date of Issue or to a prior transfer. The value of accumulation 1 units to be transferred must be $500, or greater. If the transferred amount would result in the balance remaining of less than $500, Aetna shall have the right to transfer such remaining balance. All such transfers will be made without any expense or premium tax deductions being made at the time of transfer. All such transfers will be effective on the last day of the Valuation Period in which written request for transfer is received at the Executive Office of Aetna." This contract is hereby endorsed to revise the second and third paragraphs of the Loan Values provision, if there be such a provision in this contract, of the Stipulated Payments and Non-Forfeiture Provisions of this contract to read as follows: "In the event the Owner obtains a loan pursuant to this provision, unless requested otherwise, such loan will be allocated to contract loan accounts maintained with respect to the General Account, the Fund and the Encore Fund in the same relation that the net termination value for each such funding medium has to the sum of the Net Termination Value at the end of the Valuation Period in which the loan is made and the amount of such loan. There will be allocated to each contract loan account such number of accumulation units as are equal to the value of that portion of the loan allocated to such account (or the due date of such unpaid loan interest). If at any time the indebtedness, including unpaid interest thereon, with respect to any funding medium exceeds the net termination value for such medium, the excess will be considered a loan with respect to the other funding media in the same relation that the net termination value for each such funding medium has to the sum of their net termination values." Endorsed and made a part of this contract on the later of September 1, 1975 or the Date of Issue of this Contract. /s/ Donald M. Johnson President 2 AETNA VARIABLE ANNUITY LIFE INSURANCE COMPANY ENDORSEMENT This contract is hereby endorsed as follows: All references on the face page of the contract to "Home Office - Little Rock, Arkansas" is hereby void. All references on the face page of the contract to "Executive Office - Hartford, Connecticut" is hereby changed to read "Home Office - Hartford, Connecticut". All references in the contract to actions taken, or items to be received, at the Executive Office shall hereby be changed to read at the Home Office. If there be any reference in the contract definition of Separate Account to "the laws of Arkansas", it shall be changed to read as "the laws of Connecticut". Endorsed and made a part of this contract on the later of January 1, 1977 or the Date of Issue of this contract. /s/ W. O. Bailey President Aetna Life Insurance and Annuity Company ENDORSEMENT This contract is hereby endorsed to add the Section ANNUITY PAYMENT GUARANTEE to the SETTLEMENT PROVISIONS to read as follows: "ANNUITY The Annuity Payment Guarantee may be elected at the time election PAYMENT of the first, second, or fourth option is made. Such election may GUARANTEE only be made if election is made for a variable annuity based on an assumed annual net investment rate of 3.5%. If said Annuity Payment Guarantee is elected, the first monthly payment for the variable annuity will be calculated in accord with the contract provisions but the payee will only receive a first payment of 87% of the calculated first monthly payment. Aetna further guarantees that any future payment due after the first monthly payment will be the greater of (a) or (b) where (a) is 87% of the first monthly payment calculated in accord with the contract provisions, and (b) is the payment due after the first calculated in accord with contract provisions but calculated on the basis of the first payment being only 87% of the first monthly payment." Endorsed and made a part of this contract on the later of January 1, 1980 or the Date of Issue of this contract. /s/ William O. Bailey President AETNA VARIABLE ANNUITY LIFE INSURANCE COMPANY ENDORSEMENT Article III, Section 3.02, "Application of Contributions" is hereby endorsed and revised to read as follows: "SECTION 3.02 - Application of Contributions The net contribution shall be equal to the total contribution less 7% and a percentage of the total contribution sufficient to cover premium taxes, if any, payable by Aetna because of the receipt of such contribution. The net contribution for each Participant shall be applied as of the last day of the Valuation Period in which the contribution is received by Aetna to provide accumulation units on the basis of the then current value of such units, such application being made separately for net contributions allocated to (i) the General Account, (ii) the Separate Account and invested in Fund shares, and (iii) the Separate Account and invested in Encore Fund shares, in accord with instructions of the Contract Owner. The number of accumulation units provided in each funding medium, and credited to a Participant' s Individual Account, by any such application shall be determined by dividing the net contribution for the applicable funding medium for each Participant by the dollar value of one accumulation unit in that funding medium. The number of accumulation units so determined will not be affected by any subsequent changes in the dollar value of accumulation units." Article III, Section 305(b) Is hereby endorsed and revised to read as follows: "The Net Investment Rate for any Valuation Period of the Separate Account is equal to the gross investment rate of the Fund(s) underlying that Account for the Period less a margin deduction for each day of the Valuation Period (at an effective annual rate of 1.25%) plus or minus an adjustment for any taxes or a reserve for any such taxes attributable to the operations of the Separate Account. Such gross investment rate is equal to (i) the investment income and capital gains and losses, both realized and unrealized of the Fund(s), minus an investment advisory fee accrued by the Fund(s) for each day of the Valuation Period, divided by (ii) the amount of net assets of the Fund(s) at the be of the Valuation Period. Such gross investment rate may be either positive or negative. The margin deduction from the gross investment rate and the percentage 1 deduction for the investment advisory fee may not exceed in the aggregate an effective annual rate of 1.5%." Endorsed and made a part of this contract on the later of January 1, 1979 or the Date of Issue of this contract. /s/ William O. Bailey President 2 Aetna Life Insurance and Annuity Company ENDORSEMENT This Contract is endorsed to provide the following: On the tenth anniversary of the effective date of this Contract any termination or surrender fee which may apply shall be 0%. Endorsed and made a part of this Contract on July 1, 1985. /s/ William O. Bailey President Aetna Life Insurance and Annuity Company ENDORSEMENT This Contract is hereby endorsed to include the following new provisions: During any calendar year, Aetna may be told to change the investment mix twelve times. Should Aetna allow additional changes, each may be subject to a fee of up to $10. 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. Endorsed and made a part of this Contract effective May 1, 1989. /s/ John J. Martin President Aetna Life Insurance and Annuity Company Aetna Life Insurance and Annuity Company ENDORSEMENT This Contract is hereby endorsed as follows: The definition of Separate Account under the Definition of Certain Terms or General Definitions section of the contract is hereby amended to read as follows: 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. Endorsed and made a part of the Contract. /s/ Edmund F. Kelly President Aetna Life Insurance and Annuity Aetna Life Insurance and Annuity Company ENDORSEMENT The Contract is hereby endorsed. The term Valuation Period under Definitions is amended to read as 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 Contract. /s/ G. G. Benanav President Aetna Life Insurance and Annuity Company -----END PRIVACY-ENHANCED MESSAGE-----