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Home My WebLink About5.475 Original Contract " 457 Deferred Compensation BUILD FOR RETIREMENT. MANAGE FOR LIFE.sM Variable Annuity Account C Variable Annuity Contracts for: . Public Employer Deferred Compensation Plans (Section 457) PROS 75982.9815/98) JEtna Retirement Services. PROSPECTUS The Contracts offered in connection with this Prospectus are group deferred varIable annuity contracts ("Contracts") Issued by Aetna Life Insurance and Annuity Company (the "Company"). The Contracts are available through partiCipation in deferred compensatIOn plans ("Plans") adopted by state and local governments for their employees or Independent contractors, or both, under SectIOn 457 of the Internal Revenue Code of 1986, as amended, and under qualified defined contrIbutIOn plans under Section 401 (a) of the Code. Only group contracts are currently offered for sale; however, "Contracts" shall also refer to employer- owned indiVidual Contracts issued In connection with Plans In the past. The Contracts prOVide that contributions may be allocated to one or more of the Credited Interest Options or to one or more of the Subaccounts of Variable Annuity Account C, a separate account of the Company. The Subaccounts Invest directly In shares of the folloWIng Funds' . Aetna Ascent VP (formerly Aetna Ascent VarIable Portfolio) . Aetna Balanced VP, Inc. (formerly Aetna Investment AdVisers Fund, Inc.) . Aetna Income Shares d/b/a Aetna Bond VP . Aetna Crossroads VP (formerly Aetna Crossroads VarIable Portfolio) . Aetna Growth VP (formerly Aetna Variable Growth Portfolio) . Aetna Variable Fund d/b/a Aetna Growth and Income VP . Aetna High Yield VP . Aetna Index Plus Large Cap VP (formerly Aetna Variable Index Plus Portfolio) . Aetna Index Plus Mid Cap VP . Aetna Index Plus Small Cap VP . Aetna International VP . Aetna Legacy VP (formerly Aetna Legacy Variable Portfolio) . Aetna Variable Encore Fund d/b/a Aetna Money Market VP . Aetna Real Estate Securities VP . Aetna Small Company VP (formerly Aetna Variable Small Company Portfolio) . Aetna Value Opportunity VP (formerly Aetna VarIable Capital Appreciation Portfolio) * This Fund is only available for investment by Participants who established an Account under the Contract before May 1, 1998. As soon as all such Participants have redirected their allocations to other Investment options, the Fund will be closed to all new Investment (except reInvested diVidends and capital gains earned on amounts already invested in the Fund through the Separate Account and loan repayments automatically deposited into the Fund pursuant to the Company's loan repayment procedures). The Credited Interest Options currently available under the Contract are the Guaranteed Accumulation Account, the Fixed Account and the Fixed Plus Account. Except as specifically mentIOned, thiS Prospectus describes only investments through the Separate Account. A brief deSCrIptIOn of each of the Credited Interest OptIOns is contaIned in Appendices to this Prospectus. Additional information concernIng the Guaranteed Accumulation Account is contained In a separate prospectus. The availability of the Funds and the Credited Interest Options IS subject to applicable regulatory authorIzation Not all Funds or Credited Interest Options may be available in all jurisdictions, under all Contracts, or in all Plans Please check With your employer to determine optIOn availability. (See "Investment Options.") This Prospectus prOVides Investors with the InformatIOn that they should know about the Separate Account before Investing In the Contract. Additional information about the Separate Account IS contained In a Statement of Additional Information ("SAI") which is available at no charge. The SAI has been filed with the Securities and Exchange CommissIOn and IS Incorporated herein by reference. The Table of Contents for the SAI is printed on page 19 of this Prospectus. An SAI may be obtaIned by indicating the request on the enrollment form or on the prospectus receipt contaIned in thiS Prospectus, or by calling the number listed under the "InquirIes" section of the Prospectus Summary. You may also obtain an SAI for any Funds by callIng that phone number. THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES OF THE FUNDS AND GUARANTEED ACCUMUlATION ACCOUNT. ALL PROSPECTUSES SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE. THIS PROSPECTUS, THE STATEMENT OF ADDITIONAL INFORMATION AND OTHER INFORMATION ABOUT THE SEPARATE ACCOUNT REQUIRED TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (SEe) CAN BE FOUND IN THE SEC'S WEB SITE AT http://www.sec.gov. THE SECURITIES OFFERED BY THIS PROSPECTUS 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. . Calvert Social Balanced Portfolio (formerly Calvert Responsibly Invested Portfolio) . Fidelity VIP Equity-Income Portfolio . Fidelity VIP Growth Portfolio . Fidelity VIP Overseas Portfolio . Fidelity VIP II Contrafund Portfolio . Janus Aspen Aggressive Growth Portfolio . Janus Aspen Balanced Portfolio . Janus Aspen Flexible Income Portfolio . Janus Aspen Growth Portfolio . Janus Aspen Worldwide Growth Portfolio . Lexington Natural Resources Trust* . Oppenheimer Global Securities Fund . Oppenheimer Strategic Bond Fund . Portfolio Partners MFS Emerging Equities Portfolio . Portfolio Partners MFS Research Growth Portfolio . Portfolio Partners MFS Value Equity Portfolio . Portfolio Partners Scudder International Growth Portfolio . Portfolio Partners T. Rowe Price Growth Equity Portfolio THIS PROSPECTUS AND THE STATEMENT OF ADDmONAL INFORMATION ARE DATED MAy 1,1998 TABLE OF CONTENTS DEFINITIONS............................................................................................. DEFINITIONS--l PROSPECTUS SUMMARY. ... .. . ... .. ... ... ... ..... ......................... . ...... ........ . ... ... .. . ... . SUMMARY-l , FEE TABLE....................................................... ..:....................................... FEE TABLE-l CONDENSED FINANCIAL INFORMATION ........................................................................... '. 1 THE COMPANY. .. . .. . . ... . ... .. . ., . ... ... ... ....................... ...... .. ... .. . ... .. ..... . ... . . .... ... .. .. . ... .. .... . .. 1 VARIABLE ANNUITY ACCOUNT C ..................................................................................... 1 INVESTMENT OPTIONS ......................................................................................:.......... 1 The Funds ............................................................................................................ 1 Credited Interest Options ............................................................................................ 4 PURCHASE ................................................................................................................ 5 Contract Availability .............................................................'..................................... 5 Contract Purchase .................................................................................................... 5 Purchase Payments ......................................................................................... .,......... 5 Right to Cancel........... ',' .'..............:.......................................................................... 6 Transfer CredIts ...................................................................................................... 6 CHARGES AND DEDUCTIONS... ... ... ..... .......................... ........ ... ... ... ... . .. . . ......... . .... .... ....... 6 Daily Deductions from the Separate Account ...................................................................... 6 Maintenance Fee . '..........:......................................................................................... 7 Deferred Sales Charge ............................................................................................... 7 Fund Expenses ....................................................................................................... 8 Premium and Other Taxes .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 CONTRACT VALUATION ................................................................................................ 9 Account Value ........................................................................................................ 9 Accumulation Value .................................................................................................. 9 Net Investment Factor ............................................................................................... 9 TRANSFERS ............................................................................................................... 9 Telephone Transfers ................................................................................................. 9 Dollar Cost AveragIng Program ..................................................................................... 10 WITHDRAWALS........................................................................................................... 10 SYSTEMATIC DISTRIBUTION OPTIONS............................................................................... 10 DEATH BENEFIT DURING ACCUMULATION PERIOD .............................................................. 11 ANNUITY PERIOD ....................................................................................................... 12 Annuity Period Elections. ... . .. ....... .................. ......... .... ..... .. .. . .. . ... ... . ... . . ... .. ... . .. .. .... . . . . .. 12 . " Annuity Options...................................................................................................... .12 AnnUIty Payments ...............................................:.................................................... 13 Charges Deduc,ted During the Annuity Period ..................................................................... 13 Death Benefit Payable During the Annuity Period ................................................................. 13 TAX STATUS .................:...................................................:........................................ 14 Introduction .......................................................................................................... 14 Taxation of the Company ............................................................................................ 14 Contracts Used with Certain Retirement Plans ...............:..................................................... 14 Section 457 Plans..................................................................................................... 15 Section 401 (a) Plans ................................................................................................. 15 MISCELLANEOUS..................................,..................................................................... 16 Voting Rights ....................:.................................................................................... 16 Modification of the Contract ........................................................................................ 17 Distribution ........................................................................................................... 17 Performance Reporting.. .. .. ... .. ... .. . .. ... .. .........:... ..... ...... .. . .. . .. . .. .. .. . .... . ... . ... .. . .. ... . . .... ... . 17 Transfer of Ownership; Assignment .................................................................................. 18 Delay or Suspension of Payments ................................................................................... 18 Legal Matters ~nd Proceedings........................................................... .,.........................., 18 Year 2000 ............................................................................................................. 18 CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION ............................................. 19 APPENDIX I-GUARANTEED ACCUMULATION ACCOUNT ........................................................ 20 APPENDIX II-FIXED ACCOUNT ...................................................................................... 21 APPENDIX III-FIXED PLUS ACCOUNT .............................................................................. 22 APPENDIX IV-CONDENSED FINANCIAL INFORMATION .......................................................... 24 NO PERSON IS AUTHORIZED ~Y 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. DEFINITIONS As used in this Prospectus, the following terms have the meanings shown: Account: A record established for each Participant, as directed by the Contract Holder, to identify contract values during the Accumulation Period. Account Value: The total dollar value of amounts held in an Account as of any Valuation Date during the Accumulation Period. Account Year: A period of twelve months measured from the date on which an Account is established (the effective date) or from an anniversary of such effective date. Accumulation Period: The period during which Purchase Payment(s) credited to an Account are invested to fund future annuity payments. Accumulation Unit: A measure of the value of each Subaccount before annuity payments begin. Annuitant: The person on whose life or life expectancy the annuity payments are based. Annuity: A series of payments for life, for a definite period or a combination of the two. Annuity Period: The period during which annuity payments are made. Annuity Unit: A measure of the value of each Subaccount selected dUrIng the Annuity Period. Code: The Internal Revenue Code of 1986, as amended. Company (We, Us): Aetna Life Insurance and Annuity Company. Contracts: The group and indiVIdual deferred, variable annuity contracts described in this Prospectus. Contract Beneficiary: The Contract Holder is the Contract Beneficiary. Contract Holder: The entity which owns the Contract and to which the Contract IS issued. Credited Interest Options: The fixed interest options under the Contract. The Credited Interest Options currently consist of the Guaranteed Accumulation Account, the Fixed Account and the Fixed Plus Account, each of which is described in an Appendix to this Prospectus. Amounts allocated to the Credited Interest Options are included m the Account Value. Fund(s): An open-end management investment company whose shares are purchased by the Separate Account to fund the benefits provided by the Contracts. Home Office: The Company's prInCIpal executive offices located at 151 Farmington Avenue, Hartford, Connecticut 06156. Participant (You): A person participating in a Plan mamtained by an eligible organization. The terms of the Plan govern particIpant benefits. Plan Beneficiary: The person entitled to receIve benefits under the Plan in the event of the Participant's death. Plans: Section 457 Plans or Section 401 Plans. Purchase Payment(s): The gross payment(s) made to the Company under a Contract. Purchase Payment Periods: For "Installment Purchase Payment Accounts" the period of time for completion of the agreed upon annual number and amount of Purchase Payments. For example, if it is determined that the Purchase Payment PerIod will consist of 12 payments per year and only 11 payments are made, the Purchase Payment Period is.not completed until the twelfth Purchase Payment is made. DEFINITIONS - 1 Section 457 Plan: Deferred compensation plans adopted by state and local governments for their employees or inde- pendent contractors (or both) under Section 457 of the Code. Section 401 Plan: Defined contribution plans adopted by state and local governments under Section 401 of the Code. Separate Account: Variable Annuity Account C, a separate account established by the Company for the purpose of funding variable annuity contracts issued by the Company. Subaccount(s): The portion of the assets of the Separate Account that is allocated to a particular Fund. Each Subac- count invests in the shares of only one corresponding Fund. Valuation Date: The date and tIme at which the Accumulation Unit Value and Annuity Unit Value of a Subaccount is calculated. Currently, this calculation occurs after the close of business of the New York Stock Exchange on any nor- mal business day, Monday through Friday, that the New York Stock Exchange is open. DEFINITIONS - 2 PROSPECTUS SUMMARY CONTRACTS OFFERED The Contracts offered in connection with ,this Prospectus are group deferred variable annuity contracts issued by Aetna Life Insurance and Annuity Company (the "Company"). The purpose of the Contract is to accumulate values and to provide benefits upon retirement. The Contracts are available in connection with deferred compensation plans of state and local governments for their employees or independent contractors, or both, under Section 457 of the Code, and for qualified defined contribution plans under Section 401 (a) of the Code (collectively referred to as "Plans") . CONTRACT PuRCHASE The Contract may be purchased by eligible organizations on behalf of a group made up of their employees. An Account is established for eligible employees by completing the enrollment form (and any other required forms) and submitting them to the Company. Purchase Payments can be applied to the Contract either through a lump-sum transfer from a pre-existing plan, through periodic salary reductions or through periodic employer contributions. (See "Purchase.") FREE LOOK PERIOD Contract Holders have the right to cancel their Contract within 10 days after receiving it (or as otherwise allowed by state law) by returning it to us along with a written notice of cancellation. Unless state law requires otherwise, the amount received upon cancellation under this provision will reflect the investment performance of the Purchase Payments deposited in the Separate Account while invested. In certam cases, this may be less than the amount of the Purchase Payments. (See "Purchase Right to CanceL") INVESTMENT OPTIONS The Company has established Variable AnnUIty Account C, a registered unit investment trust, for the purpose of funding the variable portion of the Contracts. The Separate Account is divided into subaccounts which invest directly in shares of the Funds described herein. The Contract allows investment in any or all of the Subaccounts, as well as in the Credited Interest Options described below. The total number of investment options that may be selected at any one time is limited. For a complete list of the Funds avaIlable under the Contracts, a description of the investment objectives of each of the Funds and their investment advisers, and a description of the limitations on the number of investment options, see "Investment Options-The Funds" in this Prospectus, as well as the prospectuses for each of the Funds. The Contract also provides for investment m Credited Interest Options, which earn fixed rates of interest. The fixed options available under the Contract are the Guaranteed Accumulation Account ("GAA"), the Fixed Account, and the Fixed Plus Account. (See the Appendices to this Prospectus.) CHARGES AND DEDUCTIONS Certain charges are associated with these Contracts. These charges include daily deductions from the Separate ~ Account (the mortality and expense risk charge and an admimstrative charge), any annual maintenance fee and premium and other taxes. The Funds also incur certain fees and expenses which are deducted directly from the Funds. A deferred sales charge may apply upon a full or partial withdrawal of the Account Value. (See the Fee Table and "Charges and Deductions.") TRANSFERS Prior to the Annuity Date, and subject to certain limitations, Account Values may be transferred among the Subaccounts and the Credited Interest Options without charge. Transfers can be requested in writing or by telephone in accordance with the Company's transfer procedures. (See the Appendices for a full description of the restrictions applicable to transfers made from the Credited Interest Options.) (See "Transfers.") SUMMARY - 1 WITHDRAWALS The Contract Holder may withdraw all or a part of the Account VaJ.ue prior to the Annuity Date by properly completing a disbursement form and sending it to the Company. Limitations apply to withdrawals from the Fixed Plus Account. Certain charges may be assessed upon withdrawal. The withdrawals may also be subject to income tax. (See "Withdrawals.") The Contract also offers certain Systematic Distribution Options during the Accumulation Period to persons meeting certain criteria. Systematic Distribution Options are not available in all states and may not be suitable in every situation. (See "Systematic Distribution Options.") DEATH BENEFIT The Contract provides that a death benefit is payable to ,the Contract Beneficiary upon the death of the Participant before the Annuity Date. The Contract Holder may direct that we make such payment to the Plan Beneficiary. The amount of the death benefit will be equal to the Account Value. Until the election of a method of payment, the Account Value will remain invested under the Contract. The Contract Holder, on behalf of a Plan Beneficiary, may elect to receive the proceeds in a lump sum or under any of the payment options available under the Contract. However, the Code requires that distributions begin within a certain time period. (See "Death Benefit During Accumulation Period.") After Annuity Payments have commenced, a death benefit may be payable to the Contract Beneficiary depending upon the terms of the Contract and the Annuity Option selected. (See "Annuity Period Death Benefit Payable During the' Annuity Period.") THE ANNUITY PERIOD On the Annuity Date, the Contract Holder, on your behalf, may elect to begin receiving Annuity Payments on either a fixed, variable or combination of fixed and variable basis. If a variable payout is selected, the payments will vary with the investment performance of the Subaccount(s) selected. The Company reserves the right to limit the number of Subaccounts that may be available during the Annuity Period. (See "Annuity Period.") TAXES For Section 457 Plans, contributions and earnings are not generally taxed until paid or made available under the employer's Plan. Withholding for income tax may be imposed on certain withdrawals. For Section 401 Plans, contributions and earnings are generally taxed when they are distributed, and a 10% federal penalty tax and a 20% withholding for income tax may be imposed on certain withdrawals. (See 'Tax Status.") INQUIRIES Questions, inquiries or requests for additional information can be directed to your agent or local representative, or you may contact the Company as follows: · Write to: Aetna Life Insurance and Annuity Company 151 Farmington Avenue Hartford, Connecticut 06156-1277 AttentIOn: Customer Service SUMMARY - 2 For AetnaPlus Contracts . Call Customer Service: For Multiple Option Contracts (which applies to Contracts issued to the following Plans): ' San Bernardino County Macomb County . Call Customer Service 1-800-525-4225 (for automated transfers or changes in the allocation of Account Values, call 1-800-262-3862) 1-800-462-4458 (for automated transfers or changes in the allocation of Account Values, call 1-800-262-3862) SUMMARY - 3 FEE TABLE This Fee Table describes the various charges and expenses associated with the Contract during the Accumulation Period. For amounts deducted during the Annmty Period, ~ee "Annuity Period-Charges Deducted During the Annuity Period." No sales charge is paid when the Contract is purchased. Some expenses may vary as explained under "Charges and Deductions." The charges and expenses shown below do not include premium taxes that may be applicable. For more information regarding expenses paid out of assets of a particular Fund, see the Fund's prospectus. CONTRACT HOLDER TRANSACTION EXPENSES Deferred Sales Charge. (as a percentage of the amount withdrawn):* INSTALLMENT PURCHASE PAYMENT ACCOUNTS SINGLE PURCHASE PAYMENTS ACCOUNTS Purchase Payment Periods Completed Less than 5 5 or more but less than 7 7 or more but less than 9 9 or more but less than 10 more than 10 Deduction 5% 4% 3% 2% 0% Account Years Completed Less than 5 5 or more but less than 6 6 or more but less than 7 7 or more but less than 8 8 or more but less than 9 9 or more Deduction 5% 4% 3% 2% 1% 0% Annual Contract Maintenance Fee Single Purchase Payment Accounts ............................................................................ $20.00** $ 0.00 Installment Purchase Payment Accounts * The total amount deducted for the deferred sales charge will not exceed 8.5% of the total Purchase Payments applied to the Account. ** The maintenance fee WIll generally be deducted annually from each Installment Purchase Payment Account dunng the Accumulation Penod. The amount of the maintenance fee may be reduced or elImmated. See "Charges and Deductions Maintenance Fee." The amount shown is the maximum mamtenance fee that can be deducted under the Contract. SEPARATE ACCOUNT ANNUAL EXPENSES (Daily deductions, equal to the percentage shown on an annual basis, made from amounts allocated to the variable options under each Contract.) For all Contracts except those for which an Administrative Expense Charge is imposed (see "Charges and Deductions"). Separate Account Annual Expenses are: Mortality and Expense Risk Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Administrative Expense Charge ............................................................................... Total Separate Account Charges ............................................................................ 1.25% 0.00% 1.25% For Contracts for which an Administrative Expense Charge is imposed (see "Charges and Deductions"), Separate Account Annual Expenses are: Mortality and Expense Risk Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Administrative Expense Charge ....................................:.......................................... Total Separate Account Charges ............................................................................ 1.25% 0.25% 1.50% FEE TABLE - 1 ANNuAL ExPENSES OF THE FuNDS The following table illustrates the advisory fees and other expenses applicable to the Funds. Except as noted, the following figures are a percentage of average net assets and, except where otherwise indicated, are based ot} figures for the year ended December 31, 1997. A Fund's "Other Expenses" include operating costs of the Fund. These expenses are reflected in the Fund's net asset value and are not deducted from the Account Value under the Contract. ' Aetna Ascent vp(2) (3) Aetna Balanced Vp, Ine. (3) Aetna Bond vp(3) Aetna Crossroads vp(2) (3) Aetna Growth vp(2) (3) Aetna Growth and Income vp(3) Aetna High Yield vp(2) (3) Aetna Index Plus Large Cap yP(2) (3) Aetna Index Plus Mid Cap vp(2) (3) Aetna Index Plus Small CaE vp(2)(3) Aetna InternatIOnal vp(2) ( ) Aetna Legacy vp(2) (3) Aetna Money Market vp(3) Aetna Real Estate Securities vp(2) (3) Aetna Small Company vp(2) (3) Aetna Value Opportunity vp(2) (3) Calvert Social Balanced Portfolio(4) Fidelity VIP Equity-Income Portfolio(5) Fidelity VIP Growth Portfolio(5) Fidelity VIP Overseas Portfoho(5) Fidelity VIP II Contrafund PortfolIO(5) Janus Aspen Aggressive Growth Portfolio(6) Janus Aspen Balanced Portfolio(6) Janus Aspen Flexible Income Portfolio Janus Aspen Growth Portfoho(6) Janus Aspen Worldwide Growth Portfolio(6) Lexington Natural Resources Trust Oppenheimer Global Securities Fund Oppenheimer Strategic Bond Fund Portfolio Partners MFS Emerging EqUities Portfoho(7)(8) Portfolio Partners MFS Research Growth Portfoho(7)(8) Portfolio Partners MFS Value Equity Portfolio(7) Portfolio Partners Scudder InternatIOnal Growth PortfolIo(7) Portfolio Partners T. Rowe Price Growth Equity Portfolio(7) Investment Advisory Fees(l) (after expense reimbursement) 0.57% 0.50% 0.40% 0.55% 0.16% 0.50% 0.47% 0,32% 0.27% 0.27% 0.77% 0.49% 0.25% 0.62% 0,35% 0,20% 0.69% 0.50% 060% 0,75% 0,60% 0.73% 0.76% 0.65% 0.65% . 0.66% 1.00% 070% 0,75% 0.68% 0.70% 0:65% 0.80% 0,60% Other Expenses (after expense reimbursement) 0,23% 0,10% 0.10% 025% 0.64% 0,09% 0,33% 0.23% 0.33% 0.33% 0.38% 0,31% 0,10% 0,33% 060% 0.60% 0.12% 0,08% 0.09% 0.17% 0.11% 0.03% 0.07% 010% 005% 008% 0.25% 0.06% 0.08% 0.13% 0.15% 0.25% 0,20% 015% Total Fund Annual Expenses 0,80% 0.60% 0.50% 0.80% 0.80% 0.59% 0,80% 0.55% 0.60% 0.60% 1.15% 0.80% 0.35% 0.95% 0.95% 0.80% 0,81% 0.58% 0,69% 0.92% 0.71% 0,76% 0.83% 0.75% 0.70% 0.74% 1.25% 0.76% 0.83% 0.81% 0.85% 0.90% 1.00% 0.75% (l)Certam of the Fund adVisers reimburse the Company for admllllstratIve costs Illcurred III connectIOn with administenng the Funds as variable funding options under the Contract. These reimbursements are paid out of the mvestment advisory fees and are not charged to mvestors. (2)Effective May 1, 19~8, the Portfohos' adviser has agreed to waive a portion of its fee or to reimburse certain expenses so that aggregate expenses do not exceed the total expenses shown above. These fee waiver/expense reimbursement arrangements will increase total return and may be modified or terminated at any time, Without these fee waiver/expense reimbursement arrangements Management Fees and Total Expenses for the Portfoho would be higher. Management Fees and Total Expenses would be as follows: 0.60% and 0.83% for Ascent Vp; 0.60% and 0.85% for Crossroads Vp; 0.60% and 1.24% for Growth Vp; 0.65% and 0.98% for High Yield Vp; 0,35% and 0.58% for Index Plus Large Cap Vp; 0.40% and 0.73% for Index Plus Mid Cap Vp; 0.40% and 0,73% for Index Plus Small Cap Vp, 0.85% and 1.23% for International Vp; 0.60% and 0.91 % for Legacy Vp; 0.75% and 1.08% for Real Estate Securities Vp; 0 75% and 1.35% for Small Company Vp; and 0 60% and 1 20% for Value Opportunity Vp, respectively. FEE TABLE'- 2 (3)Prior to May 1, 1998, the investment adviser proVIded admmistrative services to the Fund and assumed the Fund's ordmary recurring direct costs under an Administrative SerVIces Agreement. Effective May 1, 1998, the investment adviser will continue to provide administrative serVIces to the Fund but WIll no longer assume 'all of the Fund's ordinary recurring direct costs under the Admmistrative Services Agreement. The Administrative Fee is 0.075% on the first $5 billion in assets and 0.050% on all assets over $5 bilhon. The "Other Expenses" shown are not based on actual figures for the year ended December 31, 1997, but reflect the fee payable under the new Administrative SerVIces Agreement and estimates of the Fund's ordinary recurring direct costs. High Yield VP, Index Plus Mid Cap VP, Index Plus Small Cap VP, International VP and Real Estate Secunties VP commenced operations in December 1997, therefore, estimates are based on expenses incurred for similar funds. Actual expenses mcurred m<:fy be more or less than the amounts shown above. ' (4)The figures above are based of!. expenses for the fiscal year 1997, and have been restated to reflect an mcrease in transfer agency expenses of 0.01 % for the Portfolio expected to be mcurred in 1998. "Management Fees" includes a performance adjustment, which dependmg on performance, could cause the fee to be as high as 0.85% or as low as 0.55%. "Other Expenses" reflect an indirect fee of 0.03% (relating to an expense offset arrangement with the Portfolio's custodian). Net fund operating expenses after reductions for fees paid mdirectly (again, restated) would be 0.78%. (5) A portion of the brokerage commissions that certain funds pay was used to reduce fund expenses. In addition, certam funds have ent~red into arrangements with their custodian whereby credits reahzed, as a result of uninvested cash balances were used to reduce custodian expenses. Including these reductions, the total operating expenses would have been 0.57% for Equity- Income Portfolio; 0.67% for Growth Portfoho, 0.90% for Overseas Portfolio, and 0.68% for Contrafund Portfolio. (6)Management fees for AggressiVe Growth, Balanced, Growth and Worldwide Growth Portfolios reflect a reduced fee schedule effective July 1, 1997. The management fees shown above are based on the new rate applied to net assets as of December 31, 1997. Other expenses are based on gross expenses of the Shares before expense offset arrangements for the fiscal year ended December 31,1997. The information for each Portfoho is net of fee waivers or reductions from Janus Capital. Fee reductions for the Aggressive Growth, Balanced, Growth and Worldwide Growth Portfohos reduce the management fee to the level of the corresponding Janus retail fund. Other waivers, if applicable, are first applied against the management fee and then against other expenses. Without such waivers or reductions, the Management Fee, Other Expenses and Total Operating Expenses for the Shares would have been 0.74%, 0.04%, and 0.78% for Aggressive Growth Portfolio; 0.77%, 0.06%, and 0.83% for Balanced Portfolio; 0.74%, 0.04%, and 0.78% for Growth Portfoho; and 0.72%, 0.09%, and 0.81 % for Worldwide Growth Portfolio, respectively: Janus Capital may modifY or terminate the waivers or reductions at any time upon at least 90 days' notice to the Trustees. (7)Each Portfolio's aggregate expenses are contractually hmited to the advisory and administrative fees disclosed above. The investment adVIser will not seek an increase in its adVIsory or admmistrative fee at any time prior to May 1, 1999. (8)The advisory fee is 0.70% of the first $500 million in assets and 0.65% on the excess. FEE TABLE - 3 HYPOTHETICAL ILLUSTRATION (ExAMPLE) THIS EXAMPLE IS PURELY HYPOTHETICAL. IT SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR EXPECTED RETURN. ACTUAL EXPENSES AND/OR RETURN MAYBE MORE OR LESS THAN THOSE SHOWN BELOW. WITHOUT ADMINISTRATIVE ExPENSE CHARGE: The following Examples illustrate the expenses that would have been paid assuming a $1,000 investment in the Contract and a 5% return on assets. This example assumes that no Administrative Expense Charge is imposed. For the purposes of these Examples, the maximum maintenance fee of $20.00 that can be deducted under the Contract has been converted to a percentage of assets equal to 0.017%. EXAMPLE A EXAMPLE B If you withdraw your entire Account If you do not withdraw your Account Value at the end of the periods shown, Value, or if you annuitize at the end of you would pay the following expenses, the periods shown, you would pay the including any applicable deferred following expenses (no deferred sales sales charge: charge is reflected):* 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years Aetna Ascent VP $72 $119 $169 $240 $21 $65 $111 $240 Aetna Balanced VP, Ine. $71 $114 $159 $219 $19 $59 $101 $219 Aetna Bond VP $70 $111 $154 $208 $18 $56 $ 96 $208 Aetna Crossroads VP $72 $119 $169 $240 $21 $65 $111 $240 Aetna Growth VP $72 $119 $169 $240 $21 $65 $111 $240 Aetna Growth and Income VP $70 $113 $159 $218 $19 $58 $100 $218 Aetna High Yield VP $72 $119 $169 $240 $21 $65 $111 $240 Aetna Index Plus Large Cap VP $70 $112 $157 $213 $18 $57 $ 98 $213 Aetna Index Plus Mid Cap VP $71 $114 $159 $219 $19 $59 $101 $219 Aetna Index Plus Small Cap VP $71 $114 $159 $219 $19 $59 $101 $219 Aetna International VP $76 $129 $186 $275 $24 $75 $129 $275 Aetna Legacy VP $72 $119 $169 $240 $21 $65 $111 $240 Aetna Money Market VP $68 $106 $147 $192 $16 $51 $ 88 $192 Aetna Real Estate Securities VP $74 $124 $176 $255 $22 $69 $119 $255 Aetna Small Company VP $74 $124 $176 $255 $22 $69 $119 $255 Aetna Value OpportunIty VP $72 $119 $169 $240 $21 $65 $111 $240 Calvert SOCIal Balanced Portfolio $73 $120 $169 $241 $21 $65 $112 $241 Fidelity VIP EqUity-Income Portfolio $70 $113 $158 $217 $19 $58 $100 $217 Fidelity VIP Growth Portfolio $71 $116 $164 $228 $20 $61 $106 $228 Fidelity VIP Overseas Portfolio $74 $123 $175 $252 $22 $68 $117 $252 Fidelity VIP II Contrafund Portfolio $72 $117 $165 $230 $20 $62 $107 $230 Janus Aspen AggreSSive Growth Portfolio $72 $118 $167 $236 $21 $64 $109 $236 Janus Aspen Balanced Portfolio $73 $120 $170 $243 $21 $66 $113 $243 Janus Aspen FleXible Income Portfolio $72 $118 $167 $234 $20 $63 $109 $234 Janus Aspen Growth Portfolio $71 $116 $164 $229 $20 $62 $106 $229 Janus Aspen WorldWide Growth Portfolio $72 $119 $168 $233 $20 $63 $108 $233 Lexmgton Natural Resources Trust $77 $132 $190 $285 $25 $78 $134 '$285 Oppenheimer Global Securities Fund $72 $118 $167 $236 $21 $64 $109 $236 Oppenheimer StrategIC Bond Fund $73 $120 $170 $243 $21 $66 $113 $243 Portfolio Partners MFS Emergmg EquitIes Portfolio $73 $120 $169 $241 $21 $65 $112 $241 Portfolio Partners MFS Research Growth Portfolio $73 $121 $171 $245 $21 $66 $114 $245 Portfolio Partners MFS Value EqUity Portfolio $73 $122 $174 $250 $22 $68 $116 $250 Portfolio Partners Scudder International Growth Portfolio $74 $125 $179 $260 $23 $71 $121 $260 Portfolio Partners T. Rowe Price Growth Equity Portfolio $72 $118 $167 $234 $20 $63 $109 $234 * ThiS Example would not apply If a nonlife time variable annUity option IS selected, and a lump-sum settlement IS requested Wlthm three years after annuity payments start smce the lump-sum payment Will be treated as a withdrawal during the Accumulation Penod and will be subject to any deferred sales charge that would then apply. (Refer to Example A.) FEE TABLE - 4 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. WITH ADMINISTRATIVE ExPENSE CHARGE: The following Examples illustrate the expenses that would have been paid assuming a $1,000 investment m the Contract and a 5% return on assets. This example assumes that an Administrative Expense Charge of 0.25% annually IS imposed. For the purposes of these Examples, the maximum maintenance fee of $20.00 that can be deducted under the Contract has been converted to a percentage of assets equal to 0.017%. EXAMPLE A EXAMPLE B If you withdraw your entire Account If you do not withdraw your Account Value at the end of the periods shown, Value, or if you annuitize at the end of YOl;1 would pay the following expenses, the periods shown, you would pay the including any applicable deferred following expenses (no deferred sales sales charge: charge is reflected):* 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years Aetna Ascent VP $75 $126 $181 $265 $23 $72 $124 $265 Aetna Balanced VP, Ine. $73 $121 $171 $245 $21 $66 $114 $245 Aetna Bond VP $72 $118 $167 $234 $20 $63 $109 $234 Aetna Crossroads VP $75 $126 $181 $265 $23 $72 $124 $265 Aetna Growth VP $75 $126 $181 $265 $23 $72 $124 $265 Aetna Growth and Income VP $73 $120 $171 $244 $21 $66 $113 $244 Aetna High Yield VP $75 $126 $181 $265 $23 $72 $124 $265 Aetna Index Plus Large Cap VP $72 $119 $169 $240 $21 $65 $111 $240 Aetna Index Plus Mid Cap VP $73 $121 $171 $245 $21 $66 $114 $245 Aetna Index Plus Small Cap VP $73 $121 $171 $245 $21 $66 $114 $245 Aetna International VP $78 $136 $197 $300 $27 $83 $141 $300 Aetna Legacy VP $75 $126 $181 $265 $23 $72 $124 $265 Aetna Money Market VP $71 $114 $159 $219 $19 $59 $101 $219 Aetna Real Estate SecuntIes VP $76 $131 $188 $280 $25 $77 $131 $280 Aetna Small Company VP $76 $131 $188 $280 $25 $77 $131 $280 Aetna Value OpportUlllty VP $75 $126 $181 $265 $23 $72 $124 $265 Calvert Social Balanced Portfoho $75 $127 $181 $266 $24 $73 $124 $266 Fidelity VIP Equity-Income Portfolio $73 $120 $170 $243 $21 $66 $113 $243 Fldehty VIP Growth Portfolio $74 .$123 $176 $254 $22 $69 $118 $254 Fidelity VIP Overseas Portfoho $76 $130 $187 $277 $25 $76 $130 $277 Fldehty VIP II Contrafund Portfolio $74 $124 $177 $256 $23 $70 $119 $256 Janus Aspen AggreSSive Growth Portfolio $74 $125 $179 $261 $23 $71 $122 $261 Janus Aspen Balanced Portfolio $75 $127 $182 $268 $24 $73 $125 $268 Janus Aspen FleXible Income Portfoho $74 $125 $179 $260 $23 $71 $121 $260 Janus Aspen Growth Portfolio $74 $124 $176 $255 $22 $69 $119 $255 Janus Aspen WorldWIde Growth Portfoho $74 $125 $178 $259 $23 $71 $121 $259 Lexmgton Natural Resources Trust $79 $139 $202 $310 $28 $86 $146 $310 Oppenheimer Global Securities Fund $74 $125 $179 $261 $23 $71 $122 $261 Oppenheimer Strategic Bond Fund $75 $127 $182 $268 $24 $73 $125 $268 Portfolio Partners MFS Emerging Equities Portfolio $75 $127 $181 $266 $24 $73 $124 $266 Portfoho Partners MFS Research Growth Portfoho $75 $128 $183 $270 $24 $74 $126 $270 Portfolio Partners MFS Value Equity Portfolio $76 $129 $186 $275 $24 $75 $129 $275 Portfolio Partners Scudder International Growth Portfolio $77 $132 $190 $285 $25 $78 $134 $285 Portfolio Partners T. Rowe Price Growth EqUIty Portfoho $74 $125 $179 $260 $23 $71 $121 $260 * This Example would not apply If a nonhfetIme variable annUIty optIOn IS selected, and a lump-sum settlement IS requested Wlthm three years after annUIty payments start since the lump-sum payment will be treated as a withdrawal dunng the Accumulation Penod and WIll be subject to any deferred sales charge that would then apply. (Refer to Example A.) FEE TABLE - 5 CONDENSED FINANCIAL INFORMATION Condensed Financial Information for the Separate Account is shown in Appendix IV. 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 The Company established Variable Annuity Account C (the "Separate Account") in 1976 as a segregated asset account for the purpose of funding its variable annuity contracts. The Separate Account is registered as a unit investment trust under the Investment Company Act of 1940 (the "1940 Act") and meets the definition of "separate account" under federal securities laws. The Separate Account is divided into "Subaccounts" which do not invest directly in stocks, bonds or other investments. Instead, each Subaccount buys and sells shares of a corresponding Fund. Although the Company holds title to the assets of the Separate Account, such assets are not chargeable with liabilities arising out of any other business conducted by the Company. Income, gains or losses of the Separate Account are credited to or charged against the assets of the Separate Account without regard to other income, gains or losses of the Company. All obligations arising under the Contracts are obligations of the Company. INVESTMENT OPTIONS THE FuNDS The Contract Holder (or you, if allowed by the Contract Holder) may allocate Purchase Payments to one or more of the Subaccounts as designated on the enrollment form. In turn, the Subaccounts invest in the corresponding Funds at net asset value. The total number of investment options you may select at any one time is limited to 18. Each Subaccount selected, the Fixed Account, Fixed Plus Account and each classification of the Guaranteed Accumulation Account counts as one option. The Contract Holder may decide to offer only a select number of Funds as funding options under its Plan, or may decide to change which Funds it offers. In addition, the Company may add, withdraw or substitute Funds, subject to the conditions in the Contract and to compliance with regulatory requirements. The availability of the Funds may also be subject to applicable regulatory authorization. Not all Funds may be available in all jurisdictions, under all Contracts or in all Plans. The investment results of the Funds described below are likely to differ significantly and there is no assurance that any of the Funds will achieve their respective investment objectives. Except where otherwise noted, all of the Funds are diversified, as defined in the 1940 Act · Aetna Balanced VP, Inc. (formerly Aetna Investment Advisers Fund, Inc.) seeks to maximize investment return, consistent with reasonable safety of principal 1 by investing in a dIversified portfolio in one or more of the following asset classes: stocks, bonds and cash equivalents, based on the investment adviser's judgment of which of those sectors or mix thereof offers the best investment prospects. (1) . Aetna Income Shares d/b/a Aetna Bond VP seeks to maximize total return, consistent with reasonable risk, through investments in a diversified portfolio consisting primarily of debt securities. (1) . Aetna Variable Fund d/b/a Aetna Growth and Income VP seeks to maximize total return through investments in a diversified portfolio of common stocks and securities convertible into common stock. \1) . Aetna Variable Encore Fund d/b/a Aetna Money Market VP seeks to provide high current return, consistent with preservation of capital and liquidity, through investment in high-quality money market instruments. An investment in the Fund is neither insured nor guaranteed by the U.S. Government. (1) . Aetna Generation Portfolios, Inc.-Aetna Ascent VP (formerly Aetna Ascent Variable Portfolio) seeks to provide capital appreciation. The Portfolio is designed for investors who have an investment horizon exceeding 15 years and who have a high level of risk tolerance. (1) . Aetna Generation Portfolios, Inc.- Aetna Crossroads VP (formerly Aetna Crossroads Variable Portfolio) seeks to provide total return (Le., income and capital appreciation, both realized and unrealized). The Portfolio is designed for investors who have an investment horizon exceeding 10 years and who have a moderate level of risk tolerance. (1) . Aetna Generation Portfolios, Inc.- Aetna Legacy VP (formerly Aetna Legacy Variable Portfolio) seeks to provide total return consistent with preservation of capital. The Portfolio is designed for'investors who have an investment horizon exceeding five years and who have a low level of risk tolerance. (1) . ,Ae~a Variable Portfolios, Inc.-Aetna Growth VP (formerly Aetna Variable Growth PO,rtfolio) seeks growth of capital through' investment in a diversified portfolio of common stocks and securities convertible into common stocks believed to offer growth potential. (1) . Aetna Variable Portfolios, Inc.-Aetna High Yield VP seeks high current income and growth of capital primarily through investment in a diversified portfolio of fixed income securities rated lower than BBB- by Standard and Poor's Corporation or lower than Baa3 by Moody's Investors Service, Inc. . Aetna Variable Portfolios, Inc.-Aetna Index Plus Large Cap VP (formerly Aetna Variable Index Plus Portfolio) seeks to outperform the total return performance of publicly traded common stocks represented by the S&P 500 Composite Stock Price Index. (1) . Aetna Variable Portfolios, Inc.-Aetna Index Plus Mid Cap VP seeks to outperform the total return performance of publicly traded common stocks represented in the S&P 400. (I) . Aetna Variable Portfolios, Inc.-Aetna Index Plus Small Cap VP seeks to outperfon;n the total return performance of publicly traded common stocks represented by the S&P Small Cap 600 Index, a stock market index composed of 600 common stocks selected by Standard and Poor's Corporation. (I) . Aetna Variable Portfolios, Inc.-Aetna International VP seeks long-term capital growth primarily through investment in a diversified portfolio of common stocks principally traded in countries outside of the United States. Aetna International VP Will not target any given level of current income. (I) . Aetna Variable Portfolios, Inc.-Aetna Real Estate Securities VP seeks maximum total return primarily through investment in a diversified portfolio of equity securities issued by real estate companies, the majority of which are real estate investment trusts (REITs). (1) . Aetna Variable Portfolios, Inc.-Aetna Small Company VP (formerly Aetna Variable Small Company Portfolio) seeks growth of capital prImarily through investment in a diversified portfolio of common stocks and securities convertible into common stocks of companies with smaller market capitalizationsY) . Aetna Variable Portfolios, Inc.- Aetna Value Opportunity VP (formerly Aetna Variable Capital Appreciation Portfolio) seeks growth of capital primarily through investment in a diversified portfolio of common stocks and securities convertible into common stockY) 2 · Calvert Social Balanced Portfolio (formerly as Calvert Responsibly Invested Portfolio) is a nondzverszjied portfolio that seeks to achieve a total return above the rate of inflation through an actively managed, nondzverszjied portfolio of common and preferred stocks, bonds and money market instruments which offer income and capital growth opportunity and which satisfy the social criteria established for the Portfolio. (2) · Fidelity Investments Variable Insurance Products Fund-Equity-Income Portfolio seeks reasonable income by investing primarily in income-producing equity securities. In selecting investments, the Fund also considers the potential for capital appreciation. (3) · Fidelity Investments Variable Insurance Products Fund~ Growth Portfolio seeks capital appreciation by investing mainly in common stocks, although its investments are not restricted to anyone type of security. (3) · Fidelity Investments Variable Insurance Products Fund-Overseas Portfolio seeks long-term growth by investing In foreign securities (at least 65% of the Fund's total assets in securities of foreign issuers). Foreign investments involve greater risks than U.S. investments, including political and economic risks and the risk of currency fluctuation. (3) · Fidelity Investments Variable Insurance Products Fund II-Contrafund Portfolio seeks maximum total return over the long term by investing mainly in securities of companies whose value the investment adviser believes is not full recognized by the publIc. (3) · Janus Aspen Series-Aggressive Growth Portfolio is a nondzverszfied portfolio that seeks long-term growth of capItal in a manner consistent with the preservatIOn of capital. The Portfolio pursues Its investment objective by normally investing at least 50% of its equity assets in securitIes issued by medmm-sized companies. Medmm- sized companies are those whose market capitalizations fall within the range of companies in the S&P Midcap 400 Index, which as of December 31, 1997 included companies with capitalizations between approximately $213 million and $13.7 billion, but which is expected to change on a regular basis. (4) · Janus Aspen Series-Balanced Portfolio seeks long-ter~ capital growth consistent with the preservation of capital and balanced by current income. The PortfoliQ pursues its investment objective by, under normal circumstances, investing 40%-60% of Its assets in equity securities selected primarily for their growth potential and 40%- 60% of its assets in fixed-income securities selected primarily for their income potential. (4) · Janus Aspen Series-Flexible Income Portfolio seeks to obtain maximum total return, consistent with preservation of capital. The Portfolio pursues its investment objectives primarily through investments in income-producing securities. Total return is expected to result from a combination of current income and capital appreciation. The PortfolIo invests in all types of income producing securities and may have substantial holdings of debt securities rated below investment grade (e.g. junk bonds). (4) · Janus Aspen Series-Growth Portfolio seeks long-term growth of capital consistent with the preservatIOn of capital. The Portfolio pursues its investment objective by investing primarily in common stocks of issuers of any size. This Portfolio generally invests in larger, more established Issuers. (4) · Janus Aspen Series-Worldwide Growth Portfolio seeks long-term growth of capital in a manner consistent with the preservation of capital, primarily through investments in common stocks of foreign and domestic issuers. (4) · Lexington Natural Resources Trust is a nondiversified portfolio that seeks long-term growth of capital through investment primarily in common stocks of companies which own or develop natural resources and other bas~c commodities, or supply goods and services to such companies. This Fund is only available for investment by Participants who established an Account under the Contract before May 1, 1998. As soon as all such Participants have redIrected their allocations to other inves1J!1ent optIons, the Fund will be closed to all new investment (except reInvested diVIdends and capital gains earned on amounts already invested in the Fund through the Separate Account and loan repayments automatically deposited into the Fund pursuant to the Company's loan repayment procedures).(5) · Oppenheimer Global Securities Fund seeks long-term capital appreciation by investing a substantial portion of its assets in securities of foreign issuers, "growth-type" companies, cyclical industries and special situations which are considered to have appreciation possibilities but which may be conSIdered to be speculative. (6) · Oppenheimer Strategic Bond Fund seeks a high level of current Income principally derived from interest on 3 debt securities and seeks to enhance such income by writing covered call options on debt securities. The Fund intends to lllvest prinCIpally in (i) foreign government and corporate debt securities, (ii) securities of the U.S. Government and its agencies and instrumentalities ("U.S. Government securities"), and (iii) lower-rated high yield domestIc debt securities, commonly known as '~unk bonds," which are subject to a greater risk of loss of principal and nonpayment of interest than higher-rated securities. These securities may be considered to be speculative. Current income is not an objective. (6) . Portfolio Partners, Inc.-MFS Emerging Equities Portfolio seeks to provide long-term of captial Dividend and interest income from portfolio securities, if any, IS incidental to the Portfolio's investment objective. (7a) . Portfolio Partners, mc.-MFS Research Growth Portfolio seeks long-term growth of capital and future income. (7a) . Portfolio Partners, Inc.-MFS Value Equity Portfolio seeks capital appreciation. Dividend income, if any, is a consIderation incidental to the PortfolIo's objective of capital appreciation. (7a) . Portfolio Partners, Inc.-Scudder International Growth Portfolio seeks long-term growth of capItal primarily through a diversified portfolio of marketable foreign equity securities. (7b) . Portfolio Partners, mc.- T. Rowe Price Growth Equity Portfolio seeks long-term growth of capital and, secondarily, to increase dIvidend income by investing primarily in common stocks of well established growth companies. (7c) Investment Advisers for each of the Funds: (1) Aeltus Investment Management, Inc (2) Calvert Asset Management Company, Inc. (3) Fidelity Management & Research Company (4) Janus Capital CorporatIOn (5) Lexmgton Management Corporation (adviser); Market Systems Research AdVisors, Inc. (6) OppenhelmerFunds, Inc. (7) Aetna Life Insurance and Annuity Company (adViser) ; (a) Massachusetts FmanClal SerVices Company (su badVlser) (b) Scudder Kemper Investments, Ine. (subadVlser) (c) T. Rowe Price AsSOCIates, Ine. (subadviser) Risks Associated with mvestment in the Funds. Some of the Funds may use instruments known as derivatives as part of their investment strategies. The use of certain derivatives may involve hIgh risk of volatility to a Fund, and the use of leverage in connection with such derivatives can also increase risk of losses. Some of the Funds may also invest in foreIgn or internatIonal securitIes which involve greater risks than U.S. investments. More comprehenSIve information, including a discussion of potential risks, is found in the respective Fund prospectuses which accompany this Prospectus. You should read the Fund prospectuses and consider carefully, and on a continuing basis, which Fund or combination of Funds is best suited to your long-term investment objectives. Conflicts of Interest (Mixed and Shared Funding). Shares of the Funds are sold to each of the Subaccounts for funding the variable annuity contracts issued by the Company. Shares of the Funds may also be sold to other insurance companies for the same purpose. ThIS IS referred to as "shared funding." Shares of the Funds may also be used for fundlllg varIable lIfe insurance contracts issued by the Company or by third parties. This is referred to as "mixed funding." Because the Funds aVailable under the Contract are sold to fund variable annuity contracts and variable life insurance policies issued by us or by other companies, certain conflICts of interest could arise. If a conflict of interest were to occur, one of the separate accounts might withdraw its investment in a Fund, which mIght force that Fund to sell portfolio securities at disadvantageous prices, causing its per share value to decrease. Each Fund's Board of Directors or Trustees has agreed to monitor events in order to IdentifY any material irreconcilable conflicts which might arise and to determllle what action, if any, should be taken to address such conflict. CREDITED INTEREST OPTIONS Purchase Payments may be allocated to one or more of the Credited Interest Options available under the Contract as described below. (The Contract Holder may elect not to offer all Credited Interest Opnons under its Plan.) * . The Guaranteed Accumulation Account (GAA) IS a credIted lllterest option through whIch we guarantee stipulated rates of interest for stated periods of time. Amounts must remain in the GAA for the full guaranteed term to received the quoted interest rates, or a market value adjustment (which may be positive or negative) will be applied. (See Appendix I.) · The FIxed Account is a part of the Company's general account. The Fixed Account guarantees a minimum 4 interest rate, as specified in the Contract. The Company may credit higher interest rates from tIme to time. Transfers from the Fixed Account are limited. (See Appendix II.) . The Fixed Plus Account is also a part of the Company's general account and guarantees a minimum interest rate, as specified m the Contract. The Company may credit higher mterest rates in its discretion. Withdrawals and transfers from the Fixed Plus Account are limited. (See Appendix III.) * GAA is no longer available under the Contract issued to the Erie County Public Employee Deferred Compensation Plan. If Participants currently have funds in GAA, as a Guaranteed Term matures, unless the Participant instructs us otherwise, amounts will automatically be transferred to the Fixed Account. PURCHASE CONTRACT AVAILABIliTY The Contracts are designed for Plans establIshed by orgamzations for their deferred compensation plans under Section 457 of the Code, and for qualified defined contribution plans under Section 401 (a) of the Code. The Contract is generally owned by the employer, and an Account is established for each Participant, as directed by the Contract Holder, to identify contract values during the Accumulation Period. A PartIcipant's record under the Contract is known as his or her "Account." Prior to the August 20, 1996 enactInent of the Small Business Job Protection Act of 1996 (the "Small Business Act"), all amounts of compensation deferred under Section 457 Plans, all property and rights purchased with such amounts, and all income attributable to such amounts, property or rights remained solely the property and rights of the employer (without being restricted to the proviSIOn of benefits under the Plan), subject only to the claIms of the employer's general creditors. Under the Small Business Act, Section 457 Plans are required to hold all assets and income in trust (or a custodial account or annuity contract) for the exclusive benefit of participants and their beneficiaries. Plans that were in existence on August 20, 1996 are allowed untIl January 1, 1999 to meet this requirement. Until such tIme as a Section 457 Plan meets the Small Business Act's trust requirement the Contract will be part of the employer's general assets, subject to the claims of its general credItors, and benefits available to you will be backed only by the general assets of the employer. Some of the options and elections available under the Contract may not be available to you under the provisions of your Plan. Contact your employer for information regarding your Plan. CONTRACT PURCHASE Eligible organizations may acquire a Contract by submitting an applIcation to the Company. Once we approve the application, a group Contract IS issued to the employer as the Contract Holder. The Company will establish an Account for a Participant upon receipt of an enrollment form. The Company must accept or reject an application or enrollment form within two business days of receipt. If a form is incomplete, the Company may hold any forms and accompanying Purchase Payments for five days. Purchase Payments may be held for longer periods pendmg acceptance of the forms only with the consent of the Participant, or under certain circumstances described below, with the consent of the group Contract Holder. Under limited circumstances the Company may agree, with respect to a particular Plan, to hold Purchase Payments longer than the five business days, based on the consent of the group Contract Holder, in which case the Purchase Payments will be deposited in the Aetna, Money Market VP Subaccount until the forms are completed. PURCHASE PAYMENTS Generally, two types of Purchase Payments may be made under the Contract, and depending upon which type of payment is made, different Accounts may be established for each payment type. Continuing, periodic payments will be placed m "Installment Purchase Payment Accounts." Installment Purchase Payments must be at least $50 per month ($600 annually) per Participant. No payment may be less than $25. Lump- sum transfers of amounts accumulated under a pre- existing plan may be placed in "Single Purchase Payment Accounts" m accordance with the Company's procedures and minimums in effect at the time of purchase. The Code imposes a maxImum limit on 5 annual Purchase Payments which may be excluded from a Participant's gross income. (See "Tax Status.") Allocation of Purchase Payments. Purchase Payments will initially be allocated to the Subaccounts or Credited Interest Options as specified by the Contract Holder (or you, if authorized by the Contract Holder) on the enrollment form. Changes in such allocation may be made in writing or by telephone transfer. Allocations must be in whole percentages, and there may be limitations on the number of investment options that can be selected during the Accumulation Period. (See "Investment Options-The Funds.") RIGHT TO CANCEL The Contract Holder may cancel participation under the Contract without penalty by returning it to the Company with a written notice of cancellation. In most states, Contract Holders have ten days to exercise this right; some states allow a longer free-look period. When we receive the request for cancellation, we will return the Account Value, unless the laws of the state in which the Contract was issued require that we return the initial Purchase Payment (if greater than the Account Value). In states that do not require a return of Purchase Payments, the purchaser bears the entire investment risk for amounts allocated among the Subaccounts during the free look period. Account Values will be determmed as of the Valuation Date on which we receive the request for cancellation at our Home Office. TRANSFER CREDITS The Company may provide a transfer credit on "transferred assets," subject to certain conditions and state approvals. Transferred assets are the value of contributions made on your behalf under this Plan or a prior plan before such amounts are applied to this Contract. The transfer credit will equal a percentage of the transferred assets applied to the Contract that remain in the Contract after a specified period of time. Once a transfer credit is applied to the Contract, all provisions of the Contract apply. This benefit is provided on a nondiscriminatory basis. If a transfer credit is due under the Contract, you will be provided with additional information specific to the Contract. CHARGES AND DEDUCTIONS DAILY DEDUCTIONS FROM THE SEPARATE ACCOUNT Mortality and Expense Risk Charge. The Company makes a daily deduction from each of the Subaccounts for the mortality and expense risk charge. The charge is equal, on an annual basis, to 1.25% of the daily net assets of the Subaccounts and compensates the Company for the assumption of mortality and expense risks under the Contract. The mortality risks are those assumed for our promise to make lifetime payments according to annuity rates specified in the Contract. The expense risk is the risk that the actual expenses for costs incurred under the Contract will exceed the maximum costs that can be charged under the Contract. If the amount deducted for mortality and expense risks is not sufficient to cover the mortality costs and expense shortfalls, the loss is borne by the Company. If the deduction is more than sufficient, the excess may be used to recover distribution expense relating to the Contracts and as a source of profit for the Company. The Company expects to make a profit from the mortality and expense risk charge. Administrative Expense Charge. The Company reserves the right to make a deduction from each of the Subaccounts for an administrative expense charge. The administrative expense charge compensates the Company for administrative expenses that exceed revenues from the maintenance fee described below. The charge is set at a level which does not exceed the average expected cost of the administrative services to be provided while the Contract is in force. The Company does not expect to make a profit from this charge. Effective April 4, 1997, the administrative expense charge during the Accumulation Period equals, on an annual basis, 0.25% of the daily net assets allocated to the Subaccounts for Contracts effective pnor to October 31, 1996 where the number of Participants with assets in the Contract is less than 30 as of November 30, 1996 and the Contract Holder has chosen not to elect one of the Company's electronic standards for cash collection and application of participant contribution data. There is currently no administrative expense charge assessed during the AccumulatiOn Period for any other Contracts. In addition, the administrative expense charge will not be imposed for Participants who enrolled in a group 6 Contract prior to November 5, 1984, for any Participants in individual Contracts issued prior to November 5, 1984, or for Contracts issued to public school systems. Then: is currently no administrative expense charge during the Annuity Period. Once an Annuity Option is elected, the charge will be established and will be effective durmg the entire Annuity Period. ' MAINTENANCE FEE During the Accumulation Period, the Company will deduct an annual maintenance fee from each Installment Purchase Payment Account on its anniversary date. The maintenance fee is to reimburse the Company for some of its administrative expenses relating to the establishment and maintenance of the Accounts. The maximum maintenance fee that can be deducted under the Contract is $20. However, the maintenance fee may be reduced or eliminated depending upon certain criteria described below. The maintenance fee will be deduc,ted on a pro rata basis from each Subaccount and Credited Interest Option in which the Account is invested. If the Account Value is withdrawn, the full maintenance fee will be deducted at the time of withdrawal. Reduction or Elimination of the Maintenance Fee. The annual maintenance fee may be reduced or eliminated under varIOUS conditions as agreed to by us and the Contract Holder in writing. Any reduction or elimination of the annual maintenance fee will reflect differences in administrative costs and services after taking into consideration factors such as the followmg: . the size, characteristics, and nature of the group to which a Contract is issued; . the level of our anticipated expenses in administering the Contract, such as bIlling for Purchase Payments, producing periodic reports, proVIdmg for the direct payment of Contract charges rather than having them deducted from Account Values, and any other factors pertaining to the level and expense of administrative services which will be provided under the Contract. Any reduction or elimination of maintenance fees will not be unfairly discrImmatory against any person. We will make any reduction in annual maintenance fees according to our own rules in effect at the time an application for a Contract is approved. We reserve the right to change these rules from time to time. DEFERRED SALES CHARGE Withdrawals of all or a portion of the Account Value may be subject to a deferred sales charge. The deferred sales charge IS a percentage of the amount withdrawn from the Subaccounts, the Fixed Account or the Guaranteed AccumulatIOn Account. No deferred sales charge is deducted from amounts withdrawn from the Fixed Plus Account. For Installment Purchase Payment Accounts, the deferred sales charge is based on the number of completed Purchase Payment Periods. For Single Purchase Payment Accounts, it is based on the number of Account Years that have elapsed since the Account's effective date. The amount of the deferred sales charge is determined in accordance with the schedule set forth in the following tables: INSTALLMENT PURCHASE PAYMENT ACCOUNTS Purchase Payment Periods Completed Less than 5 5 or more but less than 7 7 or more but less than 9 9 or more but less than 10 More than 10 Deferred Sales Char~e Deduction 5% 4% 3% 2% 0% SINGLE PURCHASE PAYMENT ACCOUNTS Account Years Completed Less than 5 5 or more but less than 6 6 or more but less than 7 7 or more but less than 8 8 or more but less than 9 9 or more Deferred Sales Char~e Deduction 5% 4% 3% 2% 1% 0% If you transfer the total account value under another deferred compensation annuity contract Issued by the Company to an Account under this Contract, the effective date of the new Account will be the same effective date as the former contract for purposes of calculating the applicable deferred sales charge under this Contract. A deferred sales charge WIll not be deducted from any portion of the Account Value which is: . applied to provide Annuity benefits; . withdrawn on or .after the tenth anniversary of the effective date of the Account; 7 . withdrawn due to a hardship resulting from an unforeseeable emergency or hardship, as applicable, as specified in the Code; . paid due to your death before Annuity payments begin; . withdrawn due to the election of a Systematic Distribution Option (see "SystematIC DistrIbution Options") ; . paid where the Account Value is $3,500 or less and no amount has been withdrawn or used to purchase Annuity benefits during the prIor 12 months; . withdrawn due to the Participant's separation from service with the employer (the Contract Holder must submit documentation satisfactory to the Company confirming that the PartIcipant is no longer providing services to the employer); or . withdrawn from an Installment Purchase Payment Account by a Participant who is at least age 59V2 and who has completed nine Purchase Payment Periods. The deduction for the deferred sales charge will not exceed 8.5% of the total Purchase Payments actually made to the Account. The Company does not anticipate that the deferred sales charge will cover all sales and administrative expenses WhICh it mcurs in connection with the Contract; the difference will be covered by the general assets of the Company whIch are attributable, in part, to the mortality and expense risk charge described above. ' Reduction or Elimination of the Deferred Sales Charge. For a particular Plan, we may reduce, waive or eliminate the deferred sales charge. Any reduction, waiver or elimination of such charges will reflect dIfferences or expected differences in the amounts of unrecovered dIstrIbutIon costs or services of the types that the charge is intended to defray. When considering whether to reduce or eliminate such charges or to grant such a waiver, we wIll take into account factors which may include the following: . the number of participants under the Plan; · the expected level of assets or cash flow under the Plan; . the level of agent involvement in sales activities; · the level of our sales-related expenses; . the specific distribution provisions under the Plan; . the Plan's purchase of one or more other variable annuity contracts from us and the features of those contracts; . the level of employer involvement in determining eligibility for distributions under the Contract; and . our assessment of financial rIsk to the Company relating to surrenders. Any reduction, waiver or elimination of deferred sales charges WIll not be unfaIrly discriminatory against any person. We may also negotiate provisions regarding the deferred sales charge with respect to Contracts issued to certain employer groups or associations which have negotiated on behalf of its employees. All variations in, or elImination of, provisIOns regardmg the deferred sales charge resulting from such negotiations will be offered uniformly to all employees within the group. For specific information on fees applicable to your Account, please call the number listed under the "Inquiries" section of the Prospectus Summary. We will make any reduction in deferred sales charge according to our own rules in effect at the time an application for a Contract is approved. We reserve the right to change these rules from time to time. FuND ExPENSES Each Fund incurs certain expenses which are paid out of its net assets. These expenses include, among other things, the investment advisory or "management" fee. The expenses of the Funds are illustrated in the Fee Table in this Prospectus and described more fully m the accompanying Fund prospectuses. PREMIUM AND OTHER TAXES Several states and municipalities impose a premium tax on AnnUItIes. These taxes currently range from 0% to 4%. The Company reserves the right to deduct premium tax against Purchase Payments or Account Values at any time, but no earlier than when we have a tax liability under state law. The Company's current practice is to deduct for premIUm taxes at the time of complete WIthdrawal or annuitization. In addition to the premium tax, the Company reserves the right to assess a charge for any state or federal taxes due against the Contract or the Separate Account assets. 8 CONTRACT VALUATION ACCOUNT VALUE Until the Annuity Date, the Account Value is the total dollar value of amounts held m the Account as of any Valuation Date. The Account Value at any given time is based on the value of the units held in each Subaccount, plus the value of amounts held in any of the Credited Interest Options. ACCUMUIATION UNITS The value of your interests in a Subaccount is expressed as the number of "Accumulation Units" that you hold multiphed by an "Accumulation Unit Value" (or "AUV") for each umt The AUV on any Valuation Date is determined by multiplying the value on the immedIately preceding ValuatIon Date by the net investment factor of that Subaccount for the period between the immedIately preceding Valuation Date and the current Valuation Date. (See "Net Investment Factor" below.) The Accumulation Unit Value will be affected by the investment performance, expenses and charges of the apphcable Fund and IS reduced each day by a percentage that accounts for the daily assessment of mortality and expense risk charges and the administrative charge (if any). Initial Purchase Payments will be credited to your Contract at the AUV next computed following our acceptance of the application or enrollment form, as described under "Purchase-Contract Purchase." Each subsequent Purchase Payment (or amount transferred) received by the Company by the close of business of the New York Stock Exchange wIll be credited to your Account at the AUV next computed following our receipt of your payment or transfer request. The value of an Accumulation Unit may mcrease or decrease. NET INVESTMENT FACTOR The net investment factor is used to measure the investment performance of a Subaccount from one Valuation Date to the next. The net investment factor for a Subaccount for any valuation penod is equal to the sum of 1.0000 plus the net investment rate. The net mvestment rate equals: (a) the net assets of the Fund held by the Subaccount on the current Valuation Date, minus (b) the net assets of the Fund held by the Subaccount on the precedmg ValuatIOn Date, plus or mmus (c) taxes or provisions for taxes, if any, attributable to the operation of the Subaccount; (d) divided by the total value of the Subaccount's Accumulation and AnnUIty Units on the preceding ValuatIOn Date; (e) minus a daily charge at the annual effective rate of 1.25% for mortality and expense risks and up to 0.25% as an administratIve expense charge. The net investment rate may be either positive or negative. TRANSFERS At any time prior to the Annuity Date, the Contract Holder, or you (if permitted by the Contract Holder), can transfer amounts held under the Contract from one Subaccount to another. Transfers between the Credited Interest Options and the Subaccounts are subject to certain restrictions. (See Appendices I, II and III.) A request for transfer can be made eIther m writing or by telephone. (See "Telephone Transfers" below.) All transfers must be in accordance with the terms of the Contract and your Plan, as applicable. The Company currently allows unlimited transfers of accumulated amounts to available mvestment options without charge. The transfer amount may not be less than $500. The total number of investment optIOns in which you may invest at anyone time is limited. (See "Investment Options-The Funds.") Any transfer will be based on the AccumulatIOn Unit Value next determined after the Company receives a valid transfer request at its Home Office. Transfers are not available dunng the Annuity Penod. TELEPHONE TRANSFERS Subject to the Contract Holder's approval, you have the right to make transfers among Funds by telephone. We have enacted procedures to prevent abuses of Account transactions by telephone, including requiring the use of a personal identification number (PIN) to 9 execute transactions. You are responsible for safeguarding your PIN, and for keeping Account information confidential. Although-the Company's failure to follow reasonable procedures may result in the Company's liabIlity for any losses due to unauthorized or fraudulent telephone transfers, the Company wIll not be liable for following mstructions communicated by telephone which it reasonably believes to be genume. Any losses incurred pursuant to actions taken by the Company in reliance on telephone instructions reasonably believed to be genume shall be borne by you. To ensure authenticity, we record all calls on the 800 hne. Note: all Account information and transactions permitted are subject to the terms of the Plan(s). DOLLAR COST AVERAGING PROGRAM You may establish automated transfers of Account Values on a monthly or quarterly basis through the Company's Dollar Cost Averaging Program, if available under your Plan. There is no additional charge for this Program. Dollar Cost Averagmg is a system for mvesting a fixed amount of money at regular intervals over a period of time. Dollar Cost Averaging does not ensure a profit nor guarantee against loss in a declining market. You should consider your financial ability to continue purchases through periods of low price levels. For additional information, please refer to the "Inquiries" Section of the Prospectus Summary, which descnbes how you can obtain further information. Effective May 1, 1998, dollar cost averaging is not permitted into the Lexington Natural Resources Trust Subaccount. WITHDRAWALS Subject to the limitations on withdrawals from the Fixed Plus Account, the Contract Holder may withdraw all or a portiOn of the Account Value at any time during the AccumulatiOn Period. To request a withdrawal, the Contract Holder, on your behalf, must properly complete a disbursement form and send it to our Home Office. Payments for withdrawal requests will be made in accordance with SEC requirements, but normally not later than seven calendar days following our receipt of a disbursement form. Under a Section 457 Plan, pay-out elections may not be changed once payments have commenced. Withdrawals may be requested m one of the following forms: . Full Withdrawal of the Contract or an Account: -The amount paid upon a full withdrawal will be the Account Value(s) allocated to the Subaccounts, the Guaranteed Accumulation Account (plus or minus a market value adjustment) (see Appendix I), and the Fixed Account, minus any applicable deferred sales charge and maintenance fee due, plus the amount available for withdrawal from the Fixed Plus Account (see Appendix III). . Partial Withdrawals (Percentage): The amount paid will be the percentage of the Account Value(s) requested minus any applicable deferred sales charge; however, amounts available for WIthdrawal from the Fixed Plus Account is limited (see Appendix III). . Partial Withdrawal (Specified Dollar Amount): The amount paid will be the dollar amount requested. However, the amount withdrawn from the Account will equal the amount requested plus any applicable deferred sales charge. The amount available for withdrawal from the Fixed Plus Account is limited (see Appendix III). For any partial withdrawal, amounts will be withdrawn proportionately from each Subaccount or Credited Interest Opuon m which the Account is invested, unless otherwise requested in writing. All amounts paid will be based on Account Values as of the next Valuation Date after we receive a request for withdrawal at our Home Office, or on such later date as the disbursement form may specify. SYSTEMATIC DISTRIBUTION OPTIONS The Company offers certain WIthdrawal options under the Contract that are not conSidered annuity options ("Systematic Distribution Options"). To exercise these options, the Account Value must meet the 10 minimum dollar amounts and age criteria applicable to that option. The Systematic DistributIon Options currently available under the Contract include the followmg: · SWO-Systematic Withdrawal Option. SWO is a series of partial withdrawals from the Account based on a payment method you select. It IS designed for those who want a periodic income whIle retaining investment flexibility for amounts accumulated under a Contract. · ECO-Estate Conservation Option. ECO offers the same investment flexibility as SWO but is designed for those who want to receIve only the minimum distribution that the Code requires each year. Under ECO, the Company calculates the minimum distribution amount required by law at age 701;2 or retirement, if later, and pays you that amount once a year. (See "Tax Status.") Other Systematic DistributIon Options may be added from time to time. Additional information relating to any of the Systematic Distribution Options may be obtained from your local representative or from the Company at its Home Office. If you select one of the SystematIc Distribution Options, your Account will retain all of the rights and flexibIlity permitted under the Contract during the Accumulation Period. The Account Value will continue to be subject to the charges and deductions described in this Prospectus. Taking a withdrawal under one of these Systematic Distribution Options may have tax consequences. Any person concerned about tax implications should consult a competent tax advisor prior to electing an option. Once elected, a Systematic Distribution Option may be revoked by the Contract Holder at any time by submitting a written request to our Home Office. Any revocation will apply only to the amount not yet paid. Once an option is revoked, it may not be elected again, nor may any other Systematic Distribution Options be elected. To determine whether the Systematic DistrIbution Options are available under your Plan, and to assess the terms and conditions that may apply, you should check with your employer. The Company reserves the right to discontinue the availability of one or all of these Systematic Distribution Options at any time, and/or to change the terms of future elections. DEATH BENEFIT DURING ACCUMULATION PERIOD The Contract provides that a death benefit is payable to the Contract Beneficiary upon the death of the Participant before the Annuity Date. The Contract Holder may direct that we make such payment to the Plan Beneficiary. The amount of the death benefit will be equal to the Account Value. Death benefit proceeds may be paid to the Contract Beneficiary. . in a lump sum; · in accordance WIth any of the Annuity Options available under the Contract; or · under any Systematic DIstribution Options available under the Contract (if the Plan BenefiCIary is your spouse) . The Contract Holder, on behalf of a Plan Beneficiary may instead elect one of the following two options; however, the Code limits how long the death benefit proceeds may be left in these options (see below) : · to leave the Account Value invested in the Contract; or · to leave the Account Value on deposit in the Company's general account, and to receive monthly, quarterly, semi-annual or annual interest payments at the interest rate then being credited on such deposits. The balance on deposit can be withdrawn at any time or applIed to an AnnUIty Option. When paying the Contract Beneficiary, we WIll determine the Account Value on the Valuation Date following the date on which we receive proof of death acceptable to the Company. Interest, if any, will be paid from the date of death at a rate no less than required by law. We will mail payment to the Contract Holder, or to the Plan Beneficiary, if requested by the Contract Holder, within seven days after we receive proof of death. The Code reqUIres that distributIOn of death proceeds begin within a certain period of time. Generally, if your Plan Beneficiary is not your spouse, either payments must begin by December 31 of the year following the year of your death, or the entire value of your benefits must be distrIbuted by December 31 of the fifth year following the year of your death. If your Plan 11 Beneficiary IS your spouse, he or she is not required to begin distributions untIl the year you would have attained age 70l/2. In no event may payments extend beyond the life of the Plan Beneficiary or any period greater than the Plan Beneficiary's life expectancy (not to exceed 15 years for a non-spousal 457 Plan BenefiCIary) . If no elections are made, no distributions will be made. Failure to commence distributions WIthin the above time periods can result in tax penalties. Regardless of the method of payment, death benefit proceeds will generally be taxed to the Plan Beneficiary in the same manner as if you had received those payments. (See "Tax Status.") Also, for 457 Plans, any distribution payable over a period of more than one year must be made m substantially non-increasing amounts. ANNUITY PERIOD ANNUITY PERIOD ELECTIONS For the types of Contracts described m this prospectus the Code requires that mmimum annual distributions of the Account Value must begin by April 1st of the calendar year following the calendar year in which a Participant attains age 70l/2 or retires, if later. In addition, distributions must be in a form and amount sufficient to satisfy the Code requirements. These requirements may be satIsfied by the election of certain Annuity Options or Systematic Distribution Options. (See "Tax Status.") At least 30 days prior to the Annuity Date, the Contract Holder must notify us in writing of the following: . the date on which you would like to start receiving annuity payments; . the Annuity Option under which you want your payments to be calculated and paid; . whether the payments are to be made monthly, quarterly, semi-annually or annually; and . the mvestment option(s) used to prOVIde annuity payments (i.e., a fixed annuity using the general account or any of the Subaccounts available at the time of annuitization). As of the date of this Prospectus, Aetna Growth and Income VP, Aetna Bond VP and Aetna Balanced VP, Inc. are the only Subaccounts available. Annuity payments will not begin until an AnnUIty Option has been selected. Until a date and option are elected, the Account wIll continue in the Accumulation Period. Once annuity payments begin, the Annuity Option may not be changed, nor may transfers be made among the investment options(s) selected. Under Contracts issued to the Ene County Public Employee Deferred Compensation Plan, the Lifetime Annuity Options listed below may not be elected and the "Payment for a Specified Period" nonlife time option, If selected, must be elected for a period of at least three years and not more than the lesser of fifteen years or the hfe expectancy of the Participant. ANNUITY OPTIONS The Contract Holder may choose one of the following Annuity Options: Lifetime Annuity options: Option I-Life Annuity-An annuity with payments ending on the Annuitant's death. Option 2-Life Annuity with Guaranteed Payments-An annuity with payments guaranteed for 5, 10, 15 or 20 years, or such other periods as the Company may make available at the time of annuitization. Option 3-:Life Income based Upon the Lives of Two Payees-An annuity will be paid during the lives of the Annuitant and a second Annuitant, with 100%, 66%% or 50% of the payment to continue after the first death, or 100% of the payment to contInue at the death of the second Annuitant and 50% of the payment to continue at the death of the Annuitant. Option 4-Life Income based Upon the Lives of Two Payees-An annuity with payments for a minimum of 120 months, with 100% of the payment to continue after the first death. If Option 1 or 3 is elected, it is pOSSIble that only one Annuity Payment will be made if the Annuitant under Option 1, or the surviving Annuitant under Option 3, should die prior to the due date of the second Annuity Payment. Once lifetime Annuity payments 12 begin, the Annuitant cannot elect to receive another form of benefit. Nunlifetime Annuity options: Option I-Payments for a Specified Period-payments will continue for a specified period of time, as provided for under your Contract. Under the nonlife time option, the number of years that may be selected are determined by the investment options used prior to annuitization. For amounts held in the Fixed Plus Account, the annuity may be paid on a fixed or variable basis and payments may be made for 5-30 years. For amounts held in the Subaccounts, the Guaranteed Accumulation Account or the Fixed Account, an annuity may be selected on a fixed or variable basis and payments may be made for 3-30 years. If a nonlife time optIOn is elected on a variable basis, the Annuitant may request at any time during the payment period that the present value of all or any portion of the remaining variable payments be paid in one sum. However, any lump-sum elected before three years of payments have been completed will be treated as a withdrawal during the Accumulation Period and any applicable deferred sales charge will be assessed. (See "Charges and Deductions-Deferred Sale~ Charge.") We may also offer additional Annuity Options under the Contract from time to time. ANNUITY PAYMENTS Date Payouts Start. When payments start, the age of the Annuitant plus the number of years for which payments are guaranteed must not exceed 95. AnnUIty payments may not extend beyond (a) the life of the Annuitant, (b) the joint lives of the Annuitant and beneficiary, (c) a period certam greater than the Annuitant's life expectancy, or (d) a period certain greater than the joint life expectancies of ~he AnnUItant and beneficiary. Amount of Each Annuity Payment. The amount of each payment depends on the Account Value, how it is allocated between fixed and variable payouts and the annuity option chosen. No election may be made that would result in the first Annuity payment of less than $20, or total yearly AnnUIty Payments of less than $100. If the Account Value on the Annuity Date is insufficient to elect an option for the minimum amount specified, a lump-sum payment must be elected. If Annuity Payments are to be made on a variable basis, the first and subsequent payments will vary depending on the assumed net investment rate selected (31/2% or 5% per annum). Selection of a 5% rate causes a higher first payment, but Annuity Payments will increase thereafter only to the extent that the net investment rate exceeds 5% on an annualized basis. Annuity Payments would decline if the rate were below 5%. Use of the 31/2% assumed rate causes a lower first payment, but subsequent payments would increase more rapidly or decline more slowly as changes occur in the net investment rate. (See the Statement of Additional Information for further discussion on the impact of selecting an assumed net investment rate.) CHARGES DEDUCTED DURING THE ANNUITY PERIOD We make a daily deduction for mortality and expense risks from any amounts held on a variable basis. Therefore, electing the nonlifetime option on a variable basis will result in a deduction being made even though we assume no mortality risk. We may also deduct a daily administrative charge from amounts held under the variable options. (See "Charges and Deductions.") DEATH BENEFIT PAYABLE DURING THE ANNUITY PERIOD If a Participant dies after Annuity Payments have begun, any death benefit payable will depend on the terms of the Contract and the Annuity Option selected. If Option 1 or Option 3 was elected, Annuity Payments will cease on the death of the Annuitant under Option 1 or the death of the surviving Annuitant under Option 3. If Lifetime Option 2 or Option 4 was elected and the death of the Annuitant under Option 2, or the surviving Annuitant under Option 4, occurs. prior to the end of the guaranteed minimum payment period, we will pay to the Contract Beneficiary in a lump sum, unless otherwise requested, the present value of the guaranteed annuity payments remaining. If the nonlife time option was elected, and the Annuitant dies before all payments are made, the value of any remaining payments may be paid in a lump-sum to the Contract Beneficiary (unless otherwise requested), and no deferred sales charge will be imposed. If the Participant dies after Annuity payments have begun and if there is a death benefit payable under the Annuity optIOn elected, the remaining value must be 13 distributed to the Plan Beneficiary at least as rapidly as under the original method of distribution and, for 457 Plans, in substantially nonincreasing amounts. Any lump-sum payment paid under the applicable lifetime or nonlifetime AnnUIty opuons will be made WIthin seven calendar days after proof of death acceptable to us, and a request for payment are received at our Home Office. The value of any death benefit proceeds WIll be determined as of the next Valuation Date after we receive acceptable proof of death and a request for payment. Under Options 2 and 4, such value will be reduced by any payments made after the date of death. TAX STATUS INTRODUCTION The following provides a general discussion and is not intended as tax advice. This discussion reflects the Company's understanding of current federal income tax law. Such laws may change in the future, and it IS possible that any change could be retroactive (i.e., effective prior to the date of the change). The Company makes no guarantee regarding the tax treatment of any Contract or transaction involving a Contract. The ultimate effect of federal income taxes on the amounts held under a Contract, on Annuity Payments, and on the economic benefit to the Contract Holder, ParticIpant or beneficiary may depend upon the tax status of the individual concerned. Moreover, no attempt has been made to consIder any applIcable state or other tax laws. Any person concerned about these tax implications should consult a competent tax advisor before initiating any transaction. TAXATION OF THE COMPANY The Company is taxed as a life insurance company under the Code. Since the Separate Account is not an entity separate from the Company, it will not be taxed separately as a "regulated investment company" under the Code. Investment income and realized capital gains are automatically applied to increase reserves under the Contracts. Under existing federal income tax law, the Company belIeves that the Separate Account's investment mcome and realized net capital gains will not be taxed to the extent that such income and gains are applied to increase the reserves under the Contracts. The Company does not anticipate that it will incur any federal income tax liability attributable to the Separate Account and, therefore, the Company does not intend to make provisions for any such taxes. However, if changes in the federal tax laws or interpretations thereof result in the Company bemg taxed on income or gains attributable to the Separate Account, then the Company may impose a charge against the Separate Account (with respect to some or all Contracts) in order to set aside provisions to pay such taxes. CONTRACTS USED WITH CERTAIN RETIREMENT PLANs In General: The Contract is designed for use with Section 457 plans and Section 401 Plans. The tax rules applicable to retirement plans vary according to the terms and conditions of the plan. The Company makes no attempt to provide more than general information about use of the Contracts with the various types of retirement plans. Participants as well as benefiCIaries are cautioned that the rIghts of any person to any benefits under the Contracts may be subject to the terms and conditions of the plans themselves, in addition to the terms and conditions of the Contract issued in connection with such plans. Some retirement plans are subject to distribution and other requirements that are not incorporated in the provisions of the Contracts. Purchasers are responsible for determining that contributions, distributions and other transactions with respect to the Contracts satisfy applicable laws and should consult their legal counsel and tax advisor regarding the suitability of the Contract. Minimum Distribution Requirements: The Code has required distribution rules for Section 457 and 401 (a) Plans. Distributions under Section 457 and 401 (a) Plans must generally begin by April 1 of the calendar year following the calendar year in which you attain age 701;2 or retIre, whIchever occurs later. In general, annuity payments must be distributed over your life or the joint lives of you and your Plan Beneficiary, or over a period not greater than your life expectancy or the joint life expectancies of you and your beneficiary. Also, any distribution under a Section 457 Plan payable over a period of more than one year must be made in substantially non-increasing amounts. If you die after the required minimum distribution has commenced, distributions to your Plan Beneficiary must be made at least as rapidly as under the me~hod 14 of distribution in effect at the time of your death. However, if the minimum required distnbution is calculated each year based on your single life expectancy or the joint life expectancies of you and your Plan Beneficiary, the regulations for Code Section 401 (a) (9) provide specific rules for calculatmg the minimum required distributions at your death. For example, if you have elected ECO With the calculation based on your single life expectancy, and the life expectancy is recalculated each year, your recalculated life expectancy becomes zero in the calendar year following your death and the entire remainmg interest must be distributed to your beneficiary by December 31 of the year following your death. However, under SectIon 401 Plans, a spousal benefiCiary has certain rollover rights which can only be exercised in the year of your death. The rules are complex and you should consult your tax adVIsor before electing the method of calculation to satisfy the minimum distI-ibution requirements. If you die before the reqUIred minimum distribution has commenced, your entire interest must be distnbuted by December 31 of the calendar year containing the fifth anniversary of the date of your death. Alternatively, payments may be made over the life of the Plan Beneficiary or over a period not extending beyond the life expectancy of the Plan Beneficiary (for Section 457 Plans, not to exceed 15 years for a non- spousal beneficiary), provided the distribution begins by December 31 of the calendar year following the calendar year of your death. If the Beneficiary is your spouse, dIstribution must begin by the later of December 31 of the calendar year following the calendar year of your death or December 31 of the calendar year in which you would have attained age 70lh. If you fail to receive the minimum required distribution for any tax year, a 50% excise tax is imposed on the required amount that was not distributed. SECTION 457 PLANS SectIon 457 provides for certain deferred compensation plans. These plans may be offered with respect to service for state governments, local governments, political subdivisions, agencies, instrumentalities and certain affiliates of such entIties, and tax exempt organizations. These plans are subject to various restrictIons on contrIbutions and distributIOns. The plans may permit participants to speCify the form of investment for their deferred compensatIOn account. Prior to the August 20, 1996 enactment of the Small Business Job Protection Act of 1996 (the "Small Business Act"), all compensation f deferred under the plans, all property and rights purchased with such amounts, and all income attributable to such amounts, property or rights remained solely the property and nghts of the employer (without being restricted to the provision of benefits) subject only to the claims of the employer's general creditors. For that reason, depending on the .terms of the particular plan, the employer may have been entitled to draw on deferred amounts for purposes unrelated to Its SectIon 457 plan obligations. Under the Small Busmess Act, Section 457 Plans maintained by State or local governments, their political subdIvisions, agenCies, mstrumentalities and certain affiliates will be required to hold all assets and income of the Plan in trust for the exclusive benefit of plan participants and their beneficiaries. For purposes of meeting the new requirement, custodial accounts and annuity contracts are treated as trusts. State and local government plans that were in existence on August 20, 1996 are allowed a transition period that ends January 1, 1999 to comply with the new requirement. In general, all amounts received under a Section 457 plan are taxable and reportable to the IRS as taxable income. This includes payments for death benefits, periodic and nonperiodic distributIOns. Also, all amounts, except death benefit proceeds, are subject to federal income tax withholding as wages. If we make payments directly to a PartiCIpant on behalf of the employer as Contract Holder, we will withhold federal taxes (and state taxes, if applicable) . The Code Imposes a maximum limit on annual Purchase Payments WhICh may be excluded from your gross income. For Section 457 Plan Participants, such limit is generally the lesser of $8,000, as adjusted to reflect changes in the cost of living, or 331f3% of your includible compensation (25% of gross compensation). SECTION 401(A) PLANs Section 401 (a) permits certain employers to establish various types of retIrement plans for employees, and permIts self-employed individuals to establish various types of retirement plans for themselves and for their employees. These retirement plans may permit the purchase of the Contracts to accumulate 15 retirement savings under the plans. Adverse tax consequences to the plan, to the Participant or to both may result if this Contract is assigned or transferred to an individual except to a Participant as a means to provide benefit payments. The Code imposes a maximum limit on annual Purchase Payments that may be excluded from a Participant's gross income. Such limit must be calculated under the Plan by the employer in accordance with Section 415 of the Code. This limit is generally the lesser of 25% of your compensation or $30,000. Compensation means your compensation from the employer sponsoring the Plan and, for years beginning after December 31, 1997, includes any amounts not includible in gross income under Code Section 125 or 457. In addition, Purchase Payments will be excluded from a Participant's gross income only if the Section 401 (a) Plan meets the applicable nondiscrimination requirements. All distributions will be taxed as they are distributed unless you made a rollover contribution of the distribution to another plan of the same type or to an individual retirement annuity/account ("IRA") in accordance with the Code, or unless you have made after-tax contributions to the plan, whIch are not taxed upon distribution. The Code has specific rules that apply, depending on the type of distribution received, if after-tax contributions were made. In general, payments received by your beneficiaries after your death are taxed in the same manner as if you had received those payments, except that a limited death benefit exclusion may apply to payments made for deaths occuring on or before August 20, 1996. Pension and annuity distributIOns generally are subject to Withholding for the reCIpIent's federal income tax liability at rates that vary according to the type of distribution and the recipient's tax status. Recipients may be provided the opportunity to elect not to have tax withheld from distributions; however, certain distributions from annuities are subject to mandatory 20% federal income tax withholding. If the PartiCIpant or Beneficiary is a non-resident alien any withholding will be governed by Code Section 1441 based on the individual's citizenshIp, the country of domicile and treaty status. We will report to the IRS the taxable portion of all distributions. The Code imposes a 10% penalty tax on the taxable portion of any dIstribution unless made when (a) you have attamed age 59112, (b) you have become disabled, (c) you have dIed, (d) you have separated from serVIce with the plan sponsor at or after age 55, (e) the distribution amount is rolled over into another plan of the same type in accordance with the terms of the Code, or (f) the distribution amount is made in substantially equal periodic payments (at least annually) over your life or life expectancy or the joint hves or joint life expectancies of you and your Plan Beneficiary, provided you have separated from service with the plan sponsor. In addition, the penalty tax does not apply for the amount of a distribution equal to unreimbursed medical expenses incurred by you that qualify for deduction as specified in the Code. The Code may impose other penalty taxes in other circumstances. MISCELLANEOUS VOTING RIGHTS Each Contract Holder may direct us in the voting of shares at meetings of shareholders of the appropriate Fund(s). The number of votes to which each Contract Holder may give direction will be determined as of the record date. The number of votes each Contract Holder 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 that 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. Each Contract Holder will receive a notice of each meeting of shareholders of that Fund, together with any proxy solicitation materials, and a statement of the number of votes attributable to the Contract. Votes attributable to Contract Holders who do not direct us 16 will be cast by us in the same proportion as the votes for which we have received directions. MODIFICATION OF THE CONTRACT The Company may change the Contract as reqUIred by federal or state law. In addition, the Company may, upon 30 days written notice to the Contract Holder, make other changes to the Contracts that would apply only to individuals who become Participants under that Contract after the effective date of such changes. If the Contract Holder does not agree to a change, no new Participants will be covered under the Contract. Certain changes will require the approval of appropriate state or federal regulatory authorities. 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, Ine. (NASD). As Underwriter, the Company will contract with one or more registered broker-dealers ("Distributors"), including at least one affiliate of the Company, to offer and sell the Contracts. All persons offering and selling the Contracts must be registered representatives of the Distributors and must also be licensed as insurance agents to ,sell variable annuity contracts. These registered representatives may also provide serVIces to Participants in connection with establishing their Accounts under the Contract. Persons offering and selling the Contracts may receive commissions in connection with the sale of the Contracts. The maximum percentage amount that the Company will ever pay as commission with respect to any given Purchase Payment is with respect to those made during the first year of Purchase Payments under an Account. That percentage amount will range from 1 % to 6% of those Purchase Payments. The Company may also pay renewal commissions on Purchase Payments made after the first year and, under group contracts, asset-based service fees. The average of all payments made by the Company is estimated to equal approximately 3% of the total Purchase Payments made over the life of an average Contract. 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 actual expenses. The name of the Distributor and the registered representative responsible for your Account are set forth on your enrollment form. Commissions and sales related expenses are paid by the Company and are not deducted from Purchase Payments. (See "Charges and Deductions-Deferred Sales Charge.") Occasionally, we may pay commissIOns and fees to Distributors which are affiliated or associated with the Contract Holder or the Participants. We may also enter into agreements with some entities associated with the Contract Holder or Participants in which we would agree to pay the entity for certam services in connection with administering the Contracts. In both these circumstances there may be an understanding that the Distributor or entity would endorse the Company as a provider of the Contract. You will be notified if you are pur~hasing a Contract that is subject to these arrangements. PERFORMANCE REPORTING From time to time, the Company may advertise different types of historical performance for the Subaccounts of the Separate Account. The Company may advertise the "standardized average annual total returns" of the Subaccounts, calculated in a manner prescribed by the SEC, as well as the "non-standardized returns." "Standardized average annual total returns" are computed according to a for~ula in which a hypothetical investment of $1,000 is applied to the Subaccount and then related to the ending redeemable values over the most recent one, five and ten-year periods (or since contributions were first received in the Fund under the Separate Account, if less than the full penod). Standardized returns will reflect the reduction of all recurring charges during each period (e.g., mortality and expense risk charges, annual maintenance fees, administrative expense charge (if any) and any applicable deferred sales charge). "Non-standardized returns" will be calculated in a similar manner, except that non-standardized figures will not reflect the deductIOn of any applicable deferred sales charge (which would decrease the level of performance shown if reflected in these calculations). The non-standardized figures may also include monthly, quarterly, year-to-date 17 and three-year periods, and may also be calculated from the Fund's inception date. The Company may also advertise certain ratings, rankings or other information related to the Company, the Subaccounts or the Funds. Further details regarding performance reporting and advertising are described in the SA!. TRANSFER OF OWNERSIllP; AsSIGNMENT Unless contrary to applicable law, assignment of the Contract or Account is prohibited. DELAY OR SUSPENSION OF PAYMENTS The Company reserves the right to suspend or postpone the date of payment for any benefit or values (a) on any Valuation Date on which the New York Stock Exchange ("Exchange") is closed (other than customary weekend and holiday closings) or when trading on the Exchange is restricted; (b) when an emergency exists, as determined by the SEC, so that disposal of securities held in the Subaccounts is not reasonably practicable or it is not reasonably practicable for the Company fairly to determine the value of the Subaccount's assets; or (c) during such other periods as the SEC may by order permit for the protection of investors. The conditions under which restricted trading or an emergency exists shall be determined by the rules and regulations of the SEC. LEGAL MATIERS AND PROCEEDINGS The Company knows of no material legal proceedings pending to which the Separate Account or the Company is a party or which would materially affect the Separate Account. The validity of the securities offered by this Prospectus has been passed upon by Counsel to the Company. YEAR 2000 As a healthcare and financial services enterprise, Aetna Inc. (referred to collectively with its affiliates and subsidiaries as Aetna), IS dependent on computer systems and applications to conduct ItS business. Aetna has developed and is currently executing a comprehensive risk-based plan designed to make its computer systems, applications and facilities Year 2000 ready. The plan covers four stages including (i) inventory, (ii) assessment, (iii) remediation and (iv) testing and certification. At year end 1997, Aetna, including the Company, had substantially completed the inventory and assessment stages. The Remediation process is currently underway and targeted for completion by December 31, 1998. Testing and certification of these systems and applications are targeted for completion by mid-1999. The costs of these efforts will not affect the Separate Account. The Company, its affiliates and the mutual funds that serve as investment options for the Separate Account also have relationships with investment advisers, broker dealers, transfer agents, custodians or other securities industry participants or other service providers that are not affiliated With Aetna. Aetna, including the Company, is initiating communication with its critical external relationships to determine the extent to which Aetna may be vulnerable to such parties' failure to resolve their own Year 2000 issues. Where practicable Aetna and the Company will assess and attempt to mitigate theIr risks with respect to the failure of these parties' to be Year 2000 ready. There can be no assurance that failure of third parties to complete adequate preparations in a timely manner, and any resulting systems interruptions or other consequences, would not have an adverse effect, directly or indirectly, on the Separate Account, including, without limitation, its operation or the valuation of its assets and units. 18 CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION The Statement of AdditIOnal. Information contains more specific information on the Separate Account and the Contract, as well as the financial statements of the Separate Account and the Company. A list of the contents of the SA! is set forth below: General Information and History Variable AnnUIty Account C Offenng and Purchase of Contracts Performance Data General Average Annual Total Return Quotations Annuity Payments Sales Material and Advertising Independent Auditors Financial Statements of the Separate Account Financial Statements of the Company "' 19 APPENDIX I GUARANTEED ACCUMULATION ACCOUNT This Appendix is a summary of GAA and is not intended to replace the GAA prospectus. You should read the accompanying GAA prospectus carefully before investing. The Guaranteed Accumulation Account ("GAA") is a credited interest option available during the Accumulation Period. Amounts all?cated to GAA are held by the Company as described in the GAA prospectus. GAA is a credited interest option in which we guarantee stipulated rates of interest for stated periods of time on amounts directed to GAA. The interest rate stipulated is an annual effective yield; that is, it reflects a full year's interest. Interest is credited daily at a rate that will provide the guaranteed annual effective yield over the period of one year. This option guarantees the minimum interest rate specified in the Contract. During a specified period of time (the "deposit period"), amounts may be applied to any or all available Guaranteed Terms within the Short-Term and Long-Term Classifications. Short-Term GAA has Guaranteed Terms from one to three years, and Long-Term GAA has Guaranteed Terms from three to ten years. Purchase Payments must remain in GAA for the full Guaranteed Term to receive the quoted interest rates. Withdrawals or transfers from a Guaranteed Term before the end of that Guaranteed Term may be subject to a market value adjustment ("MVA"). An MVA reflects the change in the value of the 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 you receiving an amount that is less than the amount paid into GAA. As a Guaranteed Term matures, assets accumulating under GAA may be (a) transferred to a new Guaranteed Term, (b) transferred to the other available investment options, or (c) withdrawn. Amounts withdrawn may be subject to a deferred sales charge and/or federal tax liability, and a maintenance fee. By notifying us at our Home Office at least 30 days prior to the Annuity Date, you may elect a variable annuity and have amounts that have been accumulating under GAA transferred to one or more of the Subaccounts aVaIlable during the Annuity Period. GAA cannot be used as an investment option dunng the Annuity Period. MORTAI.JTY AND ExPENSE RISK CHARGES We make no deductions from the credited interest rate for mortality and expense risks; these risks are considered in determining the credited rate. TRANSFERS We will apply an MVA to GAA transfers made before the end of a Guaranteed Term. Transfers of GAA values due to a maturity are not subject to an MVA. 20 APPENDIX II FIXED ACCOUNT The following summarizes materIal mformation concerning the Fixed Account. Amounts allocated to the Fixed Account are held in the Company's general account that supports general insurance and annuity obligations. Interests in the Fixed Account have not been registered with the SEC in rehance on exemptions under the Securities Act of 1933, as amended. Disclosure in the Prospectus regarding the Fixed Account, may, however, be subject to certain generally applicable provisions of the federal securities laws relating to the accuracy and completeness of such statements. Disclosure in this Appendix regarding the Fixed Account has not been reviewed by the SEC. The Fixed Account guarantees the minimum interest rate specified in the Contract. The Company may credit a higher interest rate from time to time. The current rate is subject to change at any time, but wili never fall below the guaranteed minimum. The Company's determination of interest rates reflects the investment income earned on invested assets and the amortization of any capital gains and/or losses realized on the sale of invested assets. Under the Fixed Account, the Company assumes the risk of investment gain or loss by guaranteeing Account Values and promising a minimum interest rate and Annuity Payment. Under certain emergency conditions, we may defer payment of a Fixed Account withdrawal value (a) for a period of up to six months, or (b) as prOVIded by federal law. Amounts applied to the Fixed Account WIll earn the interest rate in effect when actually apphed to the Fixed Account. The Fixed Account will reflect a compound interest rate credited by us. The interest rate quoted is an annual effective yield. We make no deductions from the credited interest rate for mortality and expense risks; these risks are considered in determining the credited rate. If a withdrawal is made from the Fixed Account, a deferred sales charge may apply. (See "Charges and Deductions-Deferred Sales Charge.") 1RANSFERS AMONG INVESTMENT OPTIONS Transfers from the Fixed Account to any other available investment option(s) are allowed in each calendar year during the Accumulation Period. The amount which may be transferred may vary at our discretion; however, it will never be less than 10% of the amount held under the Fixed Account. Transfers to the Fixed Plus Account (if available under the Contract) will be permitted without regard to this limitation. By notifying us at our Home Office at least 30 days before Annuity payments begin, you may elect to have amounts which have been accumulating under the Fixed Account transferred to one or more of the Subaccounts available during the Annuity Period to provide variable Annuity Payments. 21 APPENDIX III FIXED PLUS ACCOUNT The following swnmarizes material information concerning the Fixed Plus Account. Amounts allocated to the Fixed Plus Account are held in the Company's general account that supports insurance and annuity obligations. Interests in the Fixed Plus Account have not been registered with the SEC in reliance on exemptions under the Securities Act of 1933, as amended. Disclosure in this Prospectus regarding the Fixed Plus Account may, however, be subject to certain generally applicable provisions of the federal securities laws relating to the accuracy and completeness of the statements. Disclosure in this Appendix regarding the Fixed Plus Account has not been reviewed by the SEC. , FIxED PLUS ACCOUNT The Fixed Plus Account guarantees that amounts allocated to this option will earn the minimum Fixed Plus interest rate specified in the Contract. We may credit a higher interest rate from tIme to time. Our determination of interest rates reflects the investment income earned on invested assets and the amortization of any capital gains and/or losses realized on the sale of invested assets. Under thIS option, we assume the risk of investment gain or loss by guaranteeing Net Purchase Payment values and promising a minimum interest rate and Annuity payment. The Fixed Plus Account will reflect a compound interest rate credited by us. The interest rate quoted is an annual effective yield. Amounts applIed to the Fixed Plus Account will earn the Fixed Plus interest rate III effect when actually applied to the Fixed Plus Account. We make no deductions from the credited interest rate for mortality and expense risks; these rIsks are considered in determining the credited rate. Beginning on the tenth Account Year, we will credit amounts held in the Fixed Plus Account with an interest rate that is at least 0.25% higher than the then-declared interest rate for the Fixed Plus Accounts for Accounts that have not reached their tenth anniversary. We reserve the right to limit Net Purchase Payment(s) and/or transfers to the Fixed Plus Account. FIxED PLUS ACCOUNT WITHDRAWALS The amount eligible for partial withdrawal is 20% of the amount held in the Fixed Plus Account on the day we receive a written request in our Home Office, reduced by any Fixed Plus Account withdrawals, transfers or annuitizations made in the prior 12 months. In calculating the 20% limit, we reserve the rIght to include payments made due to the election of any Systematic Distribution Option. The 20% limit is waived if the partial withdrawal is due to annuitization, death, unforeseeable emergency (when the conditions specified under (d) below are met), or separation from service (when the conditions specified under (e) below are met). For this waiver to apply, any such partial withdrawal must also be made pro rata from all funding options used under the Account. If a full withdrawal is requested, we will pay any amounts held in the Fixed Plus Account in five annual payments that will be equal to: 1. One-fifth of the FIxed Plus Account value on the day the request is received, reduced by any Fixed Plus Account withdrawals, transfers or annuitizations made in the prior 12 months; 2. One-fourth of the remaining Fixed Plus Account value twelve months later; 3. One-third of the remaining Fixed Plus Account value twelve months later;t 4. One-half of the remaining Fixed Plus Account value twelve months later; and 5. The balance of the Fixed Plus Account value twelve months later. 22 Once we receive a request for a full withdrawal from an Account, no further withdrawals or transfers will be permitted from the Fixed Plus Account. A full withdrawal from the Fixed Plus Account may be cancelled at any time before the end of the five-payment period. We will waive the Fixed Plus Account full withdrawal provision, If the withdrawal is made: (a) due to your death, before AnnUIty payments begm and request for payment is received within 6 months after the Participant's date of death; (b) due to the election of an Annuity option; (c) when the Fixed Plus Account value is $3,500 or less (and no WIthdrawals, transfers or annuitizations have been made from the Account within the prior 12 months); (d) due to hardship from an unforeseeable emergency, as defined by the Code, if the following conditions are met: (1) the hardship IS certified by the employer; (2) the amount is paid directly to you; and (3) the amount paId for all withdrawals due to hardship during the previous 12-month period does not exceed 10% of the average value of all Accounts during that same period or, (e) due to your separation from service with the employer provided that: (1) the employer certifies that you have separated from service; (2) the amount withdrawn is paid directly to you; and (3) the amount paid for all partial and full withdrawals due to separation from service durmg the previous 12-month period does not exceed 20% of the average value of all Accounts under the Contract during that same period. TRANSFERS AMONG INVESTMENT OPTIONS The amount eligible for transfer from the FIxed Plus Account is 20% of the amount held in the Fixed Plus Account on the day we receive a written request in our Home Office, reduced by any Fixed Plus Account withdrawals, transfers or annUItizations made m the prior 12 months. In calculating the 20% limit, we reserve the right to include payments made due to the election of any of the SystematIC Distribution OptIOns. We will waIve the 20% transfer limit when the value in the Fixed Plus Account is $1,000 or less. . By notifying us at our Home Office at least 30 days before Annuity payments begin, the Contract Holder may elect to have amounts which have been accumulatmg under the Fixed Plus Account transferred to one or more of the Subaccounts available during the AnnUIty Period, to proVIde variable Annuity payments. SWO The Systematic Withdrawal Option may not be elected if you have requested a Fixed Plus Account transfer or withdrawal within the prior 12-month period. 23 APPENDIX IV CONDENSED FINANCIAL INFORMATION AETNA PLUS CONTRACTS TABLE I FOR CONTRACTS WITH TOTAL SEPARATE ACCOUNT CHARGES OF 1.25% (Selected data for accumulation units outstanding throughout each period) Applies to all Contracts with total separate account charges of 1.25% except those issued to San Bernardino County and Macomb County. For information on those Contracts, see "Condensed Financial Information-Multiple Option Contracts" The condensed financial information presented below for each of the periods in the ten-year period ended December 31, 1997 (as applicable), is derived from the financial statements of the Separate Account, which have been audited by KPMG Peat Marwick LLP, independent auditors. The financial statements and the independent auditors' report thereon for the year ended December 31, 1997 are included in the Statement of Additional Information. 1997 1996 1995 1994 1993 1992 1991 _ 1990 1989 1988 AETNA ASCENT VP Value at begmmng of penod $13 025 $10673 $10 000(2) Value at end of penod $15 422 $13 025 $10673 Increase (decrease) m value of accumulauon umt(l) 1840% 2204% 673% Number of accumulauon units outstandmg at end of period 3,543,367 1,314,997 393,053 AElNA BAlANCED VP, INC. $10 000(4) Value at beginning of period $1551 $13 673 $10.868 $11 057 $10189 $12736 $10896 $10 437 Value at end of penod $18811 $15551 $13 673 $10868 $11057 $10 189(3) $12 736 $10 896 $10437 Increase (decrease) m value of (3) accumulation unit(1) 20 96% 1373% 2581% (171)% 852% 1689% 440% 437% Number of accumulation umts outstandmg at end of penod 34,194,804 36,147,028 38,152,395 23,139,604 11,368,365 11 ,508 22,898,099 17,078,985 9,535,986 AETNA BOND VP Value at beginnmg of penod $12 377 $12098 $10360 $10905 $10068 $36789 $31192 $28 943 $25574 $24061 Value at end of penod $13 238 $12377 $12098 $10 360 $10905 $10 068(5) $36 789 $31192 $28 943 $25574 Increase (decrease) m value of (5) accumulation umt(l) 696% 230% 1678% (500)% 831% 1794% 777% 1317% 629% Number of accumulauon umts outstandmg at end of penod 18,047,780 20,036,622 21,379,976 11,713,354 4,084,142 3,870 7,844,412 6,984,793 6,202,834 5,955,293 AETNA CROSSROADS VP Value at begInmng of period $12 450 $10612 $10 000(2) Value at end of penod $14456 $12450 $10612 Increase (decrease) in value of accumulauon umt(l) 1611% 1732% 612% Number of accumulauon umts outstanding at end of penod 2,469,082 918,336 294,673 AElNA GROwm vp Value at beginmng of penod $11 635 Value at end of penod $13173 Increase (decrease) in value of 1322%(6) accumulaUon umt(l) Number of accumulauon umts outstanding at end of penod 41,928 AElNA GROwm AND INCOME vp Value at begInmng of penod $17302 $14077 $10 778 $11 020 $10454 $97.165 $77 845 $76 311 $59 871 $52 885 Value at end of penod $22 194 $17302 $14 077 $10 778 $11020 $10454(7) $97165 $77845 $76 311 $59.871 Increase (decrease) m value of (7) accumulauon umt(1) 28 28% 2291% 3061% (220)% 541% 24 82% 201% 27 46% 1321% Number of accumulauon units outstandmg at end of penod 177,627,474 185,328,132188,964,022 114,733,035 44,166,470 21,250 20,948,226 18,362,906 17,142,820 16,455,396 AElNA INDEX PLUS lARGE CAP vp Value at begInmng of penod $10924 $10000(8) Value at end of period $14444 $10924 Increase (decrease) m value of accumulauon umt(l) 32 23% 924% Number of accumulauon umts outstandmg at end of period 4,796,644 879,588 24 CONDENSED FINANCIAL1NFORMATION (continued) AETNA LEGACY VP Value at begtnmng of penod Value at end of penod Increase (decrease) in value of ' accumulatIon unit(l) Number of accumulatIon umts outstand,ng at end of penod AETNA MONEY MARKET VP Value at beginmng of penod Value at end of period Increase (decrease) m value of accumulatIon unit(!) Number of accumulauon umts outstandmg at end o~ penod 1?, 191,085, 13,898,826 AETNA SMALL COMPANY VP Value at begtnnmg of penod Value at end of penod Increase (decrease) m value of accumulation umt(!) Number of accumulation umts outstandmg at end of penod 253,548 AETNA VALUE OPPORTUNITY VP Value at begtnmng of period $12 913 Value at end of penod $13 261 Increase (decrease) m value of accumulation umt(!) Number of accumulatIon umts outstandmg at end of penod 100,928 CALVERT SOCIAL BAlANCED PORTFOLIO Value at begtnmng of penod $15 044 " $13 527 Value at end of penod' $17 840 $15 044 Increase (decrease) m value of accumulation umt(l) Number of accumulation umts '. outstandm~ at end of period 1,499,989 1,313,324 FIDELI1Y VIP EQUITY-INCOME PORTFOLIO Value at begtnmng of penod I . $12518 $11 092 Value at end of period $15837 $12518 Increase (decrease) m value of accumulation unit(!) Number of accumulatIon umts outstandmg at end of penod 7,111,490 5,007,706 FIDELI1Y VIP GROWTH PORTFOLIO Value at begtnmng of penod $11 402 Value at end of penod $13 904 Increase (decrease) m value of accumulation umt(!) Number of accumulation umts outstandmg at end of penod 6,586,698 5,171,098 FIDELI1Y VIP OVERSEAS PORTFOLIO Value at begtnnmg of penod $11137 Value at end of penod $12 269 Increase (decrease) in value of accumulauon umt(!) Number of accumulation umts outstandmg at end of period 718,565 487,709 FIDELI1Y VIP II CONTRAFUND PORTFOLIO Value at begtnmng of penod $12 455 $10 397 . Value at end of penod $15270 $12455 Increase (decrease) m value of accumulatIon unlt(!) Number of accumulation umts outstandmg at end ofpenod 11,399,666 6,812,870 2,116,732 1997 $11 930 $13 491 1308% ~,?24,842 $11 473 $11951 ' 416% $12 299 $13654 1102%(10) 269%(11) 1859% 26 52% 21 95% 10.17% 22 60% 1996 $10580 $11 930 1276% 513,590 $11026 $11473 $10 066 $11 402 $9 961 $11137 1995 1994 $10 000(2) $1 0 580 580% 143,637 $10.528 $10241 $11.026 $10 528 473% 280% ) 2,999,680 7,673,528 405% 1122% $10554 $11 036 $13527 .' $10554 2817% (437)% 966,098 521,141 $10 000(2) $11092 1092% 1,660,304 $1 0 000(2) $10066 066% 1,833,794 $1 0 000(2) $9 961 (039)% 196,090 $10 000(2) $1 0 397 397% 1993 1992 1991 1990 1989 1988 1286% 1327% 1180% ' 1979% " $10048 $33812 $32.138 $30012 - $27783 $26171 $10241 $10048(9) $33812 $32138 $30012 $27783 192% (9) 521% 7 080/~' 802% 616% 2,766,044 825 8,430,082 10,2~0,110.. 8,286,033 8,154,644 $10.278 $10000(12) $11036 $10278 .7 37% 2 78% 144,168 2,556 25 CONDENSED FINANCIAL INFORMATION (continued) 1997 1996 JANUS ASPEN AGGRESSIVE GROWTH PORTFOliO Value at begInnIng of penod $14 202 $13 322 Value at end of period $15801 $14202 Increase (decrease) In value of accumulatIon unit(!) Number of accumulatIon units outstandIng at end of penod 9,271,525 8,835,470 4,887,060 753,862 JANUS ASPEN BAlANCED PORTFOliO Value at begInnIng of period $12 449 Value at end of period $15012 Increase (decrease) In value of accumulatIon unite!) Number of accumulatIon umts outstanding at end of penod 1,911,789 996,510 JANUS ASPEN FLEXIBLE INCOME PORTFOliO Value at begInnIng of penod $13 022 $12 077 Value at end of period $14.373 $13022 Increase (decrease) in value of accumulatIon unIte!) Number of accumulatIon units outstandIng at end of penod 934,053 JANUS ASPEN GROWTH PORTFOliO Value at begInmng of penod $12716 Value at end ofpenod $15414 Increase (decrease) In value of accumulatIon unit(l) Number of accumulatIon umts outstanding at end of penod 3,100,436 2,018,527 JANUS ASPEN WORLDWIDE GROWTH PORTFOliO Value at begInnIng of period $13860 $10877 $10000(2) Value at end of penod $16 720 $13 860 $10877 Increase (decrease) In value of accumulatIon unite!) Number of accumulatIon umts outstanding at end of penod 17,194,687 8,715,825 1,036,040 LEXINGTON NATURAL RESOURCES TRUST Value at begmmng of period $14 686 $11 720 Value at end of penod $15541 $14686 Increase (decrease) In value of accumulatIon unit(l) Number of accumulatIon umts outstandIng at end of penod 1,786,409 966,482 711,892 703,676 . PORTFOliO PARTNERS MFS EMERGING EQUITIES PORTFOliO Value at beginning of penod $15 114 Value at end of penod $14 927 Increase (decrease) In value of accumulatIon umt(!) Number of accumulatIon units outstandIng at end of penod 16,549,322 PORTFOliO PARTNERS MFS RESEARCH PORTFOliO Value at begmnIng ofpenod $14067 Value at end of penod $13 795 Increase (decrease) In value of accumulatIon unit(l) Number of accumulatIon units outstandIng at end of period 11,539,850 PORTFOliO PARTNERS MFS VALUE EQUl'lY PORTFOliO Value at begInnIng of penod $19 016 Value at end of period $19291 Increase (decrease) In value of accumulation umt(!) 145%(14) Number of accumulatIon umts outstandIng at end of penod 11.26% $10850 $12 449 2058% 1473% 1037% 783% 619,287 $10870 $12716 2122% 1698% 2064% 27 43% 582% 25 31 % (1 24)%(14) (193)%(14) 2,879,845 1995 $10581 $13322 660% 2591% 1994 $10 000(13) $10 581 581% 850% $10000(13) $9 873 (127)% 28,543 870% < ) 877% $10877 $10154 (665)% 1993 ' $9832 $10877 10.63% 135,614 1992 1991 1990 1989 1988 $10 000(2) $10 850 93,304 $9 873 $12077 22 33% 315,361 $10 000(2) $10870 259,196 $10154 $11720 1542% 26 $10 000(12) $9 832 (1.68)% 561 . CONDENSED FINANCIAL INFORMATION (continued) 1997 1996 1995 1994 1993 - - PORTFOLIO PARTNER,) SCUDDER INTERNATIONAL GROWfH PORTFOLIO Value at begtnmng of period $16 776 Value at end of penod $16 986 Increase (decrease) In value of accumulatton umt(l) 1 25%(14) Number of accumulatton umts outstanding at end of penod 6,242,299 PORTFOLIO PARTNERS T. ROWE PRICE GROWfH EQUflY PORTFOLIO Value at begtnnIng ofpenod $14112 Value at end of penod $14 400 Increase (decrease) In value of accumulatton umt(l) 204%(14) Number of accumulatton Units outstanding at end of penod 8,296,964 1992 1991 1990 1989 1988 (I") (I) The above figures are calculated by subtractmg the begmnmg AccumulatIOn Umt value from the endmg AccumulatIOn Umt value, and dlVldmg the result by the begmnmg AccumulatIOn Umt value These figures do not reflect the deferred sales charges or the fixed dollar (2) annual mamtenance fee, If any InclUSIOn of these charges would reduce the mvestment results shown Reflects less than a full year of performance actlVlty. The mJt1al AccumulatIOn Umt value was established at $10 000 dunng August 1995, when the Fund became available under the Contract (3) The AccumulatIOn Umt value was converted to $10000 on August 21, 1992 upon the commencement of a new admmlstrative system Immediately pnor to that date, the AccumulatIOn Umt value of the Fund was $13.118 On the date of converSIOn, additIOnal umts were Issued so that account values were not changed as a result of the conversIOn. The percentage change m the Accumulatton Umt value from the begmnmg of the year to the date of conversIOn was 2 99%, the percentage change m the AccumulatIOn Umt value from the date of conversIOn to the end of the year was 1 89% (4) Reflects less than a full year of performance actlVlty. The mlttal Accumulatton Umt value was estabhshed at $10.000 on June 23, 1989, the date on which the Fund commenced operattons , (0) The AccumulatIOn Umt value was converted to $10 000 on August 21, 1992 upon the commencement of a new admmlstratlve system. Immediately pnor to that date, the Accumulation Unit value of the Fund was $38 521 On the date of converSIOn, addlttonal Units were Issued so that account values were not changed as a result of the conversIOn. The percentage change m the AccumulatIOn Umt value from the begmnmg of the year to the date of conversIOn was 470%, the percentage change m the Accumulation Umt value from the date of conversIOn to the end of the year was 068%. (6) Reflects less than a full year of performance actlVlty Funds were first received in thiS optIOn dunng June 1997 (7) The Accumulatton Umt value was converted to $10000 on August 21, 1992 upon the commencement of a new admmlstratlve system. Immediately pnor to that date, the Accumulation Umt value of the Fund was $97 817. On the date of conversion, additional umts were Issued so that account values were not changed as a result of the conversIOn The percentage change m the AccumulatIOn Umt value from the beginmng of the year to the date of conversIOn was 067%; the percentage change in the Accumulation Umt value from the date of conversIOn to the end of the year was 4.54% (8) Reflects less than a full year of performance actlVlty. The mJt1al Accumulation Unit value was estabhshed at $10 000 dunng August 1996, when the Portfoho became available under the Contract (0) The Accumulation Umt value was converted to $10000 on August 21, 1992 upon the commencement of a new admmlstratlVe system. Immediately pnor to that date, the Accumu,latlon Umt value of the Fund was $34397. On the date of conversion, additional units were Issued so that account values were not changed as a result of the conversion. The percentage change m the Accumulation Umt value from the begmnmg of the year to the date of conversIOn was 1 73%, the percentage change m the AccumulatIOn Umt value from the date of conversIOn to the end of the year was 0.48% Reflects less than a full year of performance actiVity. Funds were first received m thiS optIOn dunng July 1997 Reflects less than a full year of performance actiVity Funds were first received m thiS optIOn dunng August 1997 Reflects less than a full year of performance actlVlty The mltlal Accumulation Umt value was established at $10.000 on August 21, 1992, the date on which the Fund/Portfolio became available under the Contract Reflects less than a full year of performance actiVity The mltlal AccumulatIOn Umt value was estabhshed at $10000 dunng October 1994, when the funds were first received m thiS optIOn Reflects less than a full year of performance actlVlty Funds were first received m thiS option durmg November 1997. (10) (II) (12) (14) 27 CONDENSED FINANCIAL INFORMATION AETNA PLUS CONTRACTS TABLE II FOR CONTRACTS WITH TOTAL SEPARATE ACCOUNT CHARGES OF 1.50% INCLUDING A 0.25% ADMINISTRATIVE EXPENSE CHARGE BEGINNING APRIL 7, 1997 (Selected data for accumulation units outstanding throughout each period) The condensed financial information presented below for the period ended December 31, 1997 is derived from the financial statements of the Separate Account, which have been audited by KPMG Peat Marwick LLP, independent auditors. The financial statements and the independent auditors' report thereon for the year ended December 31, 1997 are included in the Statement of Additional Information. 1997 AETNA ASCENT VP Value at begmnmg of penod Value at end of penod Increase (decrease) m value ofaccumulatlon untt(l) Number of accumulatlon umts outstandmg at end of penod AETNA BAIANCED VP, INe. Value at begmnmg of penod Value at end of penod Increase (decrease) m value of accumulatlon umt(l) Number of accumulatlon umts outstandmg at end of penod AETNA BOND VP Value at begmnmg of penod Value at end of penod Increase (decrease) m value ofaccumulatlon umt(l) Number of accumulatlon umts outstandmg at end of penod AETNA CROSSROADS VP Value at begmnmg of penod Value at end of penod Increase (decrease) m value ofaccumulatlon untt(l) Number of accumulatlon umts outstandmg at end of penod AETNA GROWTH VP Value at begmnmg of penod Value at end of penod Increase (decrease) m value of accumulation untt(l) Number of accumulatlon umts outstandmg at end of penod AETNA GROWTH AND INCOME VP Value at begInmng of penod Value at end of penod Increase (decrease) m value of accumulatlon umt( 1) Number of accumulatlon umts outstandmg at end of penod AETNA INDEX PLUS lARGE CAP VP Value at begmnmg of penod Value at end of penod Increase (decrease) m value ofaccumulatlon umt(l) . Number of accumulatlon umts outstandmg at end of penod AETNA LEGACY VP Value at begmnmg of penod Value at end of penod Increase (decrease) m value of accumulatlon umt(l) Number of accumulatlon umts outstandmg at end of penod AETNA MONEY MARKET VP Value at begmnmg of penod Value at end of penod Increase (decrease) m value of accumulatlon umt(l) Number of accumulatlon umu, ouu,tandmg at end of penod AETNA SMALL COMPANY VP Value at begmnmg of penod Value at end of penod Increase (decrease) m value ofaccumulatlon untt(l) Number of accumulatlon umts outstandmg at end of penod $13020 $15 394 1824%(2) 29,840 $15 674 $18 776 1979%(2) 478,177 $12 302 $13213 741 %(2) 215,650 $12449 $14 430 1591%(2) 26,483 $12739l$13149 322%(3) 3,326 $17861 $22 153 2403%(2) 1,699,982 $11 345 $14418 2709%(2) 27,945 $11873 $13467 1342%(2) 14,817 $11 592 $11 929 291 %(2) 176,703 $13629 $13629 000%(3) 82 28 CONDENSED FINANCIAL INFORMATION (continued) 1997 AElNA VALUE OPPORTUNTIY VP Value at begmnmg of penod Value at end of penod Increase (decrease) m value of accumulatIon'unit(l) Number of accumulatIon umts outstandmg at end of penod CALVERT SOCIAL BALANCED PORTFOliO Value at begmnmg of penod Value at end of penod Increase (decrease) m value of accumulation unit(l) Number of accumulatIon umts outstandmg at end of penod FIDElITY VIP EQUTIY-INCOME PORTFOliO Value at begmnmg of penod Value at end of penod Increase (decrease) m value of accumulatIon umt(I) Number of accumulatIon umts outstandmg at end of penod FIDElITY VIP GROWTH PORTFOliO Value at beginnmg of penod Value at end of penod Increase (decrease) m value of accumulatIon umt(I) Number of accumulatIon umts outstandmg at end of penod FIDElITY VIP OVERSEAS PORTFOliO Value at beginnmg of penod Value at end of penod Increase (decrease) m value of accumulatIon unIt(I) Number of accumulatIon umts outstandmg at end of penod FIDElITY VIP II CONTRAFUND PORTFOliO Value at begmnmg of penod Value at end of penod Increase (decrease) m value of accumulatIon unit( I) Number of accumulatIon umts outstandmg at end of penod JANUS ASPEN AGGRESSIVE GROWTH PORTFOliO Value at begInmng of penod Value at end of penod Increase (decrease) m value of accumulatIon umt(1) Number of accumulatIon umts outstandmg at end of penod JANUS ASPEN BALANCED PORTFOliO Value at beginnmg of penod Value at end of penod Increase (decrease) in value of accumulatIon umt(1) Number of accumulatIon units outstandmg at end of penod JANUS ASPEN FLEXIBLE INCOME PORTFOliO Value at begInmng of penod Value at end of penod Increase (decrease) m value of accumulatIon umt(l) Number of accumulatIon umts outstandmg at end of period JANUS ASPEN GROWTH PORTFOliO Value at begInmng of penod Value at end of penod Increase (decrease) m value of accumulatIon umt(I) Number of accumulatIon umts outstandmg at end of period JANUS ASPEN WORLDWIDE GROWTH PORTFOliO Value at begInmng of penod Value at end of penod Increase (decrease) m value of accumulatIon unlt(l) Number of accumulatIon units outstandmg at end of penod LEXINGTON NATURAL RESOURCES TRUST Value at begInnmg of penod Value at end of penod Increase (decrease) m value of accumulatIon umt<l) Number of accumulatIon umts outstandmg at end of penod $13 237 $13237 000%(3) 84 $14934 $17 808 1924%(2) 20,521 $12 711 $15808 2437%(2) 117,588 $11373 $13879 2203%(2) 104,982 $11 253 $12247 883%(2) 8,098 $12388 $15 242 23 04(2) 146,381 $12594 $15773 2524%(2) 85,304 $12 760 $14984 1743%(2) 19,967 $13025 $14347 1015%(2) 8,189 $12 975 $15 386 1858%(2) 53,182 $14 439 $16 689 1559%(2) 168,191 $13 756 $15512 1277%(2) 26,426 29 CONDENSED FINANCIAL INFORMATION (continued) 1997 PORTFOUO PARTNERS MFS EMERGING EQUITIFS PORTFOUO Value at begtnning of period Value at end of penod Increase (decrease) in value of accumulanon umt(I) Number of accumulanon umts outstandmg at end of period PORTFOUO PARTNERS MFS RFSEARCH PORTFOUO Value at begtnmng of penod Value at end of penod Increase (decrease) m value of accumulatIOn unlt(l) Number of accumulation umts outstandmg at end of penod PORTFOUO PARTNERS MFS VALUE EQUITY PORTFOUO Value at begtnnmg of period $18 985 Value at end of period . $19 256 Increase (decrease) in value of accumulanon unit(I) 1 42%(4) Number of accumulanon umts outstanding at end of period 25,830 PORTFOUO PARTNERS SCUDDER INTERNATIONAL GROWTH PORTFOUO Value at begtnnmg of penod $16749 Value at end of period $16955 Increase (decrease) m value of accumulal10n unlt(I) 123%(4) Number of accumulal10n umts outstandmg at end of penod 48,385 PORTFOUO PARTNERS T. ROWE PRICE GROWTH EQUITY PORTFOUO Value at beginning of period $14090 Value at end of penod $14 374 Increase (decrease) m value of accumulanon umt(1) 202%(4) Number of accumulation umts outstanding at end of penod 79,799 $15090 $14 899 (1 26)%(4) 131,565 $14044 . $13 770 (1 95)%(4) 149,523 (1) The above figures are calculated by subtracnng the begmmng Accumulation Umt value from the endmg Accumulation Umt value, and dividmg the result by the begmning Accumulation Umt value. These figures do not reflect the deferred sales charges or the fixed dollar annual maintenance fee, if any Inclusion of these charges would reduce the mvesunent results shown. (2) Reflects less than a full year of performance actiVity. Funds were first receIved in thIS option during June 1997. (3) Reflects less than a full year of performance activity Funds were first received m thIS option dunng December 1997. (4) Reflects less than a full year of performance actiVity. Funds were first received m this option dunng November 1997. 30 CONDENSED FINANCIAL INFORMATION AETNA PLUS CONTRACTS TABLE ill FOR CONTRACTS CONTAINING LIMITS ON FEES (Selected data for accwnulation units outstanding throughout each period) The condensed financial information presented below for the period ended December 31, 1997 is derived from the financial statements of the Separate Account, which have been audited by KPMG Peat Marwick LLP, independent auditors. The financial statements and the independent auditors' report thereon for the year ended December 31, 1997 are included in the Statement of Additional Information. 1997 AElNA ASCENT VP Value at begmnmg of penod Value at end of penod Increase (decrease) m value of accumulatlon umt(l) Number of accumulation umts outstandmg at end of penod AElNA BALANCED VP, INC. Value at begmnmg of penod Value at end of period Increase (decrease) m value of accumulatlon unit(l) Number of accumulatlon units outstandmg at end of penod AElNA BOND VP Value at begmnmg of penod Value at end of penod Increase (decrease) m value of accumulation umt(l) Number of accumulatlon units outstandmg at end of penod AElNA CROSSROADS VP Value at begmnmg of penod Value at end of penod Increase (decrease) in value of accumulatlon umt(l) Number of accumulatlon umts outstandmg at end of penod AElNA GROwrn VP Value at begmnmg of penod Value at end of penod Increase (decrease) m value of accumulation umt(l) Number of accumulatlon umts outstandmg at end of penod AElNA GROwrn AND INCOME VP Value at begmnmg of penod Value at end of penod Increase (decrease) m value of accumulatlon umt(l) Number of accumulation umts outstandmg at end of penod AElNA INDEX PLUS lARGE CAP VP Value at begmnmg of penod Value at end of penod Increase (decrease) m value of accumulatlon umt(l) Number of accumulatlon units outstandmg at end of penod AElNA LEGACY VP Value at beginning of period Value at end of penod Increase (decrease) in value of accumulation umt(l) Number of accumulation units outstanding at end of penod AElNA MONEY MARKET VP Value at beginmng of penod Value at end of penod Increase (decrease) m value of accumulatlon unit(l) Number of accumulatlon umts outstanding at end of penod AElNA SMALL COMPANY VP Value at beginnmg of penod Value at end of penod Increase (decrease) m value of accumulatlon umt(l) Number of accumulatlon umts outstandmg at end of penod $13971 $15453 1061 %(2) 10,257 $16739 $18837 1253%(2) 454,232 $12 629 $13249 491 %(2) 453,723 $13199 $14485 974%(2) 50,297 $12 615 $13173 442%(3) 1,565 $19673 $22 226 1297%(2) 6,093,102 $12748 $14 452 1337%(2) 13,748 $12496 $13518 818%(2) 16,060 $11 674 $11951 237%(2) 591,901 $13 092 $13654 429%(3) 1 ,779 31 CONDENSED FINANCIAL INFORMATION (continued) CALVERT SOCIAL BAlANCED PORTFOliO Value at begmnmg of penod Value at end of penod Increase (decrease) m value of accumulation umt(1) Number of accumulation umts outstandmg at end of penod FIDEIITY VIP EQUITY-INCOME PORTFOliO Value at begmmng of period Value at end of penod Increase (decrease) m value of accumulation umt(l) Number of accumulation umts outstandmg at end of penod FIDELITY VIP GROWTH PORTFOliO Value at begmnmg of penod Value at end of penod Increase (decrease) in value of accumulation umt(1) Number of accumulation umts outstandmg at end of period FIDELITY VIP OVERSEAS PORTFOliO Value at begmnmg of penod Value at end of penod Increase (decrease) m value of accumulation umt(l) Number of accumulation umts outstandmg at end of penod FIDEIITY VIP IT CONTRAFUND PORTFOliO Value at begmnmg of penod Value at end of penod Increase (decrease) m value of accumulation unJt( I) Number of accumulation umts outstandmg at end of period JANUS ASPEN AGGRESSIVE GROWTH PORTFOliO Value at beginnmg of penod Value at end of penod Increase (decrease) m value of accumulatJon umt(1) Number of accumulation umts outstandmg at end of penod JANUS ASPEN BAlANCED PORTFOliO Value at begmnmg of penod Value at end of penod Increase (decrease) m value of accumulation umt(l) Number of accumulation umts outstandmg at end of penod JANUS ASPEN FLEXIBLE INCOME PORTFOliO Value at begmmng of penod Value at end of period Increase (decrease) m value of accumulation umt(l) Number of accumulation umts outstandmg at end of penod JANUS ASPEN GROWTH PORTFOliO Value at begmnmg of penod Value at end of penod Increase (decrease) m value of accumulatIOn unJt(1) Number of accumulation umts outstanding at end of penod JANUS ASPEN WORLDWIDE GROWTH PORTFOliO Value at beginning of penod Value at end of penod Increase (decrease) m value of accumulation umt(l) Number of accumulation umts outstandmg at end of period LEXINGTON NATURAL RESOURCES TRUST Value at begmnmg of penod Value at end of penod Increase (decrease) m value of accumulation umt(l) Number of accumulation umts outstandmg at end of period PORTFOliO PARTNERS MFS EMERGING EQUITIES PORTFOliO Value at begmnmg of penod Value at end of penod Increase (decrease) m value of accumulation umt(l) Number of accumulauon umts outstandmg at end of period 1997 $16178 $17 840 1027%(2) 3,576 $14065 $15837 1260%(2) 49,884 $12498 $13904 1126%(2) 31,477 $12518 $12269 (199)%(2) 1,206 $13443 $15270 1359%(2) 29,365 $14156 $15 801 1162%(2) 26,177 $13573 $15012 1060%(2) 8,663 $13448 $14373 688%(2) 323 $13985 $15.414 1022%(2) 6,389 $15 828 $16 720 564%(2) 63,534 $15221 $15541 210%(2) 8,053 $15114 $14927 (1 24)%(4) 56,819 32 CONDENSED FINANCIAL INFORMATION (continued) 1997 PORTFOLIO PARTNERS MFS RESEARCH PORTFOLIO Value at beginning of penod Value at end of penod Increase (decrease) m value of accumulation unit(1) Number of accumulation units outstandmg at end of penod PORTFOLIO PARTNERS MFS VALUE EQUITY PORTFOLIO Value at beginning of penod $19 016 Value at end of penod $19 291 Increase (decrease) m value of accumulatIon umt(l) 145%(4) Number of accumulatIon units outstanding at end of period 7,188 PORTFOLIO PARTNERS SCUDDER INTERNATIONAL GROwrH PORTFOLIO Value at begInmng of period $16776 Value at end of period $16986 Increase (decrease) in value of accumulatIon umt(1) 1 25%(4) Number of accumulation umts outstandmg at end of penod 6,970 PORTFOLIO PARTNERS T. ROWE PRICE GROwrH EQUITY PORTFOLIO Value at beginnmg of penod $14 112 Value at end of period $14400 Increase (decrease) in value of accumulation unit(l) 204%(4) Number of accumulation units outstanding at end of penod 24,650 '$14067 $13795 (1 93)%(4) 55,233 (I) The above figures are calculated by subtractIng the begInmng AccumulatIon Umt value from the endmg AccumulatIon Umt value, and dividing the result by the begmning Accumulation Unit value. These figures do not reflect the deferred sales charges or the fixed dollar annual mamtenance fee, if any. InclusIOn of these charges would reduce the mvestment results shown. (2) Reflects less than a full year of performance actlVlty Funds were first receIved m thIs optIon during April 1997 (') Reflects less than a full year of performance aCtIVIty. Funds were first received m thIS optIon during December 1997 (4) Reflects less than a full year of performance aCtIVIty Funds were first receIved m thIS option during November 1997. 33 CONDENSED FINANCIAL INFORMATION MULTIPLE OPTION CONTRACTS (Selected data for accumulation units outstanding throughout each period) Applies to Contracts issued to San Bernardino County and Macomb County. For all other contracts, see "Condensed Financial Information-Aetna Plus Contracts." The condensed financial information presented below for each of the periods in the teJ?-year period ended December 31, 1997 (as applicable), is derived from the financial statements of the Separate Account, which have been audited by KPMG Peat Marwick LLP, independent auditors. The financial statements and the independent auditors' report thereon for the year ended December 31, 1997 are included in the Statement of Additional Infor~ation. 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 AETNA ASCENT VP Value at begmmng of penod $13 291 Value at end of penod $15 422 Increase (decrease) m value of 1604%(2) accumulatIOn unlt(1) Number of accumulation umts outstandmg at end of penod 380 AETNA BAlANCED VP, INC. $13379 $12 736 $1 0 896 $10 437 $10 000(3) Value at beginning of penod $20419 $17 954 $14270 $14519 Value at end of penod $24 700 $20419 $17 954 $14270 $14 519 $13 379 $12 736 $10 896 $10437 Increase (decrease) m value of accumulation umt(l) 20 96% 1373% 25 82% (171)% 852% 505% 1689% , 440% 437% Number of accumulation umts outstandmg at end of penod 2,160,305 2,716,641 9,193,181 21,990,186 30,784,750 34,802,433 22,898,099 17,078,985 9,535,986 AETNA BOND VP Value at beginning of penod $47.992 $46913 $40 173 $42 283 $39 038 $36 789 $31192 $28 943 $25574 $24061 Value at end of penod $51 330 $47 992 $46 913 $40 173 $42 283 $39 038 $36 789 $31192 $28 943 $25574 Increase (decrease) m value of accumulation umt(l) 696% 230% 1678% (499)% 831% 611% 1794%' 777% 1317% 629% Number of accumulation umts outstandmg at end of penod 959,336 835,724 2,377,622 5,108,720 8,210,666 8,507,292 7,844,412' 6,984,793 6,202,834 5,955,293 AETNA CROSSROADS VP Value at beginmng of penod $12577 Value at end of penod $14 456 Increase (decrease) m value of 1494%(2) accumulation umt(l) Number of accumulation units outstandmg at end of penod 873 AETNA GROWfH AND INCOME VP $77 845 Value at begInmng of penod $169 448 $137 869 $105558 $107925 $102383 $97165 $76 311 $59 871 $52 885 Value at end of penod $217 359 $169448 $137 869 $1 05 558 $107 925 $102 383 $97165 $77 845 $76 311 $59871 Increase (decrease) m value of accumulation umt(!) 28 27% 2291% 3061% (219)% 541% 537% 2482% 201% 27 46% 13.21 % Number of accumulation units outstanding at end of period 1,826,355 2,071,139 6,364,000 13,966,072 21,148,863 24,201 ,565 20,948,226 18,362,906 17,142,820 16,455,396 AETNA LEGACY VP Value at begInmng of penod $12 296 Value at end of penod $13491 Increase (decrease) m value of 972%(4) accumulation unit(!) Number of accumulation umts outstandmg at end of penod 2,279 AETNA MONEY MARKET VP Value at begInmng of penod $39 528 $37 988 $36 271 $35 282 $34619 $33812 $32 138 $30 012 $27 783 $26171 Value at end of penod $41174 $39 528 $37 988 $36 271 $35 282 $34619 $33812 $32 138 $30012 $27 783 Increase (decrease) m value of accumulation umt<!) 416% 405% 473% 280% 192% 239% 521% 708% 802% 616% Number of accumulation umts outstandmg at end of penod 455,502 597,656 1,836,260 3,679,802 5,086,515 7,534,662 8,430,082 10,220,110 8,286,033 8,154,644 34 CONDENSED FINANCIAL INFORMATION (continued) 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 CALVERT SOCIAL BAlANCED PORTFOUO Value at begInning of penod $19965 $17 951 $13 990 $14640 $13726 $12 913 $11233 $1 0 568 $10 000(5) Value at end of penod $23 675 $19965 $17951 $13990 $14640 $13 726 $12913 $11 233 $10568 Increase (decrease) m value of (444)% accumulation unit(1) 1859% 1122% 2831% 666% 630% 1496% 629% 568% Number of accumulation umts outstandmg at end of penod 929,282 898,279 856,361 743,464 705,415 503,006 355,851 148,576 20,710 FlDELI'IY VIP EQUITY-INCOME PORTFOUO $10 000(6) Value at begInmng of penod $13 110 $11 617 Value at end of period $16 587 $13 110 $11,617 Increase (decrease) m value of accumulation umt(l) 26 52% 1286% 1617% Number of accumulation umts outstandmg at end of penod 2,139,178 1,454,755 628,582 FlDELI'IY VIP GROWTH PORTFOUO Value at begInning of period $11843 Value at end of penod $14087 Increase (decrease) in value of 18.95%(7) accumulation unit(l) Number of accumulation units outstandmg at end of period 29 FlDELI'IY VIP OVERSEAS PORTFOUO Value at beginmng of penod $11 400 $10 197 $10 000(8) Value at end of period $12 560 $11400 $10 197 Increase (decrease) in value of accumulation umt(l) 1018% 1180% 197% Number of accumulation units outstandmg at end of penod 0 0 1,302 FlDELI'IY VIP II CONTRAFUND PORTFOUO Value at beginnmg of period $14092 $11763 $10 000(6) Value at end of period $17276 $14092 $11 763 Increase (decrease) m value of accumulation umt(l) 22 59% 1979% 1763% Number of accumulation umts outstanding at end of period 2,706,862 1,522,169 525,476 JANUS ASPEN AGGRESSIVE GROWTH PORTFOUO $12169 $10 000(9) Value at begInmng of penod $16 334 $15 323 Value at end ofpenod $18174 $16334 $15323 $12169 Increase (decrease) m value of accumulation unit(1) 1126% 660% 2591% 2169% Number of accumulatIOn units outstandmg at end of penod 1,939,607 1,893,718 1,280,953 393,553 JANUS ASPEN BAlANCED PORTFOUO $10853 $10 000(8) Value at begInning of penod $12453 Value at end of penod $15016 $12453 $10853 Increase (decrease) m value of accumulation unJt(1) 20 58% 1473% 853% Number of accumulation umts outstandmg at end of penod 7,873 231 161 JANUS ASPEN FLEXIBLE INCOME PORTFOUO $9911 $10000(10) Value at begInning of penod $13074 $12124 Value at end of penod $14 430 $13 074 $12124 $9911 Increase (decrease) m value of accumulation unit(1) 1037% 783% 22 33% (089)% Number of accumulation umts outstandmg at end of penod 5,211 3,761 3,345 1,555 JANUS ASPEN GROWTH PORTFOUO $11859 $10 000(8) Value at begInnmg of period $13872 Value at end of penod $16 816 $13872 $11 859 Increase (decrease) m value of accumulation unit(l) 21 22% 1698% 1859% Number of accumulation units outstanding at end of period 1,109,942 663,945 109,717 35 CONDENSED FINANCIAL INFORMATION (continued) JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO Value at begmmng of penod $15493 $12158 $10000(8) Value at end of penod $18 690 $15 493 $12 158 Increase (decrease) m value of accumulatIon umt(l) Number of accumulatIon umts outstandmg at end of penod 3,873,511 2,090,908 LEXINGTON NATURAL RESOURCES TRUST Value at begmnmg of penod $13611 $10862 Value at end of penod $14 403 $13 611 Increase (decrease) m value of accumulatIon umt(l) Number of accumulatIOn umts outstandmg at end of penod 650,486 587,248 530,562 533,016 PORTFOLIO PARTNERS MFS EMERGING EQUITIES PORTFOLIO Value at begmnmg of penod $15236 Value at end of penod $15046 Increase (decrease) m value of accumulatIon umt(l) Number of accumulatIon umts outstandmg at end of penod 2,707,904 PORTFOLIO PARTNERS MFS RESEARCH GROWTH PORTFOLIO Value at begmnmg of penod $12 195 Value at end of penod $11 960 Increase (decrease) m value of accumulatIon umt(l) Number of accumulation units outstandmg at end of penod 232,418 PORTFOLIO PARTNERS MFS VALUE EQUI1Y PORTFOLIO Value at begmnmg of penod $23106 Value at end of penod $23 440 Increase (decrease) m value of accumulatIon umt(l) 145%(11) Number of accumulatIon umts outstandmg at end of penod 2,018,219 PORTFOLIO PARTNERS SCUDDER INTERNATIONAL GROWTH PORTFOLIO Value at begmnmg of penod $17 490 Value at end of penod $17 709 Increase (decrease) m value of accumulatIon umt(l) Number of accumulatIon umts outstandmg at end of penod 3,237,710 PORTFOLIO PARTNERS T. ROWE PRICE GROWTH EQUI1Y PORTFOLIO Value at begtnnmg of penod $16276 Value at end of penod $16608 Increase (decrease) m value of accumulatIon unlt( I) Number of accumulatIon umts outstandmg at end of penod 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 2064% 27 43% 21 58% 314,653 $9412 $10862 $10 000(5) $11441 $10 071 $9412 $9193 $10071 $9018 $9193 $9 608 $9018 (614)% 144,139 $11441 $9 608 (1602)% 75,052 582% (654)% 2531% 1541% 955% 194% 1441% 11,481 341,771 198,338 (124)%(11) (193)%(11) 125%(11) 204%(11) 1,317,058 (I) The above figures are calculated by subtractmg the begtnnmg AccumulatIOn Umt value from the endmg AccumulatIOn Umt value, and dlVldmg the result by the begmnmg AccumulatIon Umt value These figures do not reflect the deferred sales charges or the fixed dollar (2) annual mamtenance fee, If any InclUSIOn of these charges would reduce the mvestment results shown Reflects less than a full year of performance actIVIty. Funds were first receIved m thIS optIon dunng February 1997 (") The mltlal AccumulatIOn Umt value was establIshed at $10 000 on June 23, 1989, the date on whIch the Fund commenced operatIOns (4) Reflects less than a full year of performance aCtIVIty Funds were first receIved m thIS optIOn dunng February 1997 (5) The mltIal AccumulatIOn Umt value was establIshed at $10.000 on May 31, 1989, the date on whIch the Fund/PortfolIo became avaIlable under the Contract The mltIal AccumulatIOn Umt value was establIshed at $10 000 dunng May 1995, when the Fund became avaIlable under the Contract Reflects less than a full year of performance aCtIVIty. Funds were first receIved m thIS optIOn dunng January 1997 The imtial AccumulatIon was establIshed at $10 000 dunng July 1995, when the Fund became available under the Contract The ImtIal AccumulatIon was establIshed at $10 000 dunng June 1994, when funds were first receIved m thIS optIon. The mltIal AccumulatIon was establIshed at $10.000 dunng November 1994, when funds were first receIved in thIS optIOn Reflects less than a full year of performance aCtIVIty. Funds were first receIved m thIS optIOn during November 1997 (0) (7) (H) (9) (10) ( II) 36 THIS PAGE INTENTIONALLY LEFf BLANK Insurance products offered by: Aetna Life Insurance and Annuity Company Securities offered through: Aetna Investment Services, Inc. 151 Farmington Avenue Hartford, CT 06156 1-800-525-4225 Visit our home page on the Internet http://www.aetna.com JEtna Retirement Services' ., I (j Printed on recycled paper PROS 75982-98 (5/98) I i' 5. <{75 RESOLUTION NO. 16-98 'I , A RESOLUTION of the City Council of the City of Port Angeles, Washington, relating to a Deferred Compensation plan under IRS regulations 401(a) and 457. WHEREAS, the City has employees rendering valuable services; and WHEREAS, the establishment of a deferred compensation plan benefits employees by providing funds for retirement and funds for their beneficiaries in the event of death; and WHEREAS, as the Internal Revenue Service provides regulations to establish deferred compensation plans for public employees under Sections 457 and 401(a); NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Port Angeles I i that the City of Port Angeles hereby establishes a deferred compensation plan (the Plan) in the i form of the Aetna Life Insurance and Annuity and Company pursuant to the specific provisions of the Variable Annuity Contract and the City's Deferred Compensation Plan Document (copy attached hereto), which Plan shall be maintained for the exclusive benefit of eligible employees and their beneficiaries; and BE IT FURTHER RESOLVED that the City hereby executes the Aetna Variable Annuity Contract establishing a 457 and a 401(a) Deferred Compensation Plan; and BE IT FURTHER RESOLVED that the City hereby agrees to serve as trustee under the Plan Document; and BE IT FURTHER RESOLVED that the City's Human Resources Manager shall be the coordinator of the Plan; shall receive necessary reports, notices, etc., from Aetna Deferred Insurance Company; and '- 08/89 DEFERRED COMPENSATfON PLAN DOCUMENT ARTICLe l.INTROOUCTION The Employer hereby establ;shes the Employer s Def; rred CompensstJon Pran. hereinafter referred to as the .Plan." The Plan consists of t~e provisIOns set fonl'lln this document. . The primaty pt.:rpose of this Plan IS to provide retirement Income and other deferred benefits to the Employees of the EmPloyer in accordance With the provisions ot SectIOn 457 of tl1e Internal Revenue Code of 19S6, as amended (the .Code"). This Plan shall be an agreement solely between the Employer and participating Employees. ARTICLE II. DEFINITIONS Sect/on 2.01 Account: The bookkeeoing aCCOunt maintained for each Partreipant retje~ting the cu- mulative amount of the Participant's Dlaferred Com. pensatlon, Includmg any income. gains, losses, or increases or deCfea~ in market value attributable to the Emptoyer's investment of the PartiCipant's Deferr&d Compensatior-. and further ref1ectir:g any distributlons \0 the Participant or the Participant's 8erleficiary er:d any fees or expenses charged against sucn PartiCipant's Deferred Compensation. Section 2.02 Administrator: The person or persons narT1ed to carry out certain nondiscretionary ad- mInistrative iunctians under the Plan, as hereinafter descnbad. The Employer may remove any person as Administrator upon 60 diiyS' advance notice In writing to such person, In which case the Employer shall name another person or persons 10 act as Adrrjnistrator. The Administrator may resign upon 60 days' advance notice in writing to the Employer, ir'l which case the Employer shall name another parson or persons to act as Administrator. SectIon 2,03 BeneficIary: The person or persons deSig- nated by the PartiCIpant in hiS JOinder Agreement who Shell receive any beneNs payable hereunder in the event of the Participant's death. In t~e event that the Participant names two or mOle Beneficiaries, each Beneficiary shall be enl'tled to equal shares of the benefits payable at the Participant's deat"\, un- les$ otherwise provided in the Participant's Joinder Agreement. If no beneficiary is designated in the Joinder Agreement, If the Designated Beneficiary predeeeases the Participant, or If the designated Beneflelary does not survive the PartiCIpant for a penod of f!fteen (15) days. then the estate of the Participant shall be the Beneficiary. Sec:tlon 2.04 Deterred Compensation: The amount of Normal Compensation otherwise payable to the PartiCipant whIch the Participant and the Employer mutually agree to defer nereunder. any amount credited to a Participant's Account by reason of a transfer under section 6.03, or any other amount wh fen the Em ployer L'lgree.s 10 ere ditto a PartICipant's Account, SlIctlon 2,05 EmpIOV..: An}' md:vidual who provides servlOOS for the Employer. whether as an employee of the Employer or as en independent contractor, and who has been d=slgnated by the Emproyer as eligible to partiCipate in the Plan. Section 2.06 Ineludible Compensation: ~e amount of an Employee's compensation from the Employer for a taxable year that is attnbutable to services per- formed for the Employer and that is includible in U1e Employee's gross income for the taxable year for f~erat income lax purposes; such term does not include any amount elCcludabl9 from gross Income under this Plan or any otMr plan descnbed in Section 457(b) of the Code or any other amount excludable from gross Income fer feoeral income tax purposes. Includible Compensation snail be deter- mIned without regard to any community property laws. Section 2.07 JoInder Agreement: An agreement en- tered into between an Employee and the Employer. including any amendments or modifications thereof, Such agreement shall fix the amount of Deferred Compensation, specify a preference among the iMestmentalternatlVes designated by the Employer, designate the Employee's 8~netlclary or BenefiCia- ries, and incorporate the terrr.s. conoltlons. and provisions of tre Plan by reference. Section 2.08 Normal Compensation: The amount of compensation which would be payable to a Partici- pant by the Employer for a taxable year if no Joinder Agreement were in effect to defer compensation under this Plan. Section 2.09 Normal Retirement Age: Age 70.1/2. un- less the Participant has electec an alternate Normal Retirement Age by wntten InstrUment delivered to the Aarnlnistrator orlor to Separation from Service. A Partlclpa~t's Norrr.al Retirement Age determines the pe:10C during which a Participant may utili~e the catch-up limitation of Section 5.02 hereunder. Once a Partlc,pant has to any extent utilized the catch-up limitation of Section 5.02. hiS/her Normal Retire- ment age may not be changeo. A Particlpant'$ a!terr>ate Normal Retirement Age may not oe ear/ler Ihan the eatlteSl date thai tho Participant will become eligible to retire and receive unreduced retirement b;nefits l;ooerthe Employer', bas;c retlrement plan covering the Participant and may not be later tnan the date the Participant Will attain age 70-1/2. It a Participant contlnUElS employ- ment after attaining age 70-1/2, not navlng previa ously electecl an alternate Ncrmal Retiremenl Age. the PartICIpant's a'temate Normal Retirement Age shall not be later than the mandatory retirermlnt age, It any, ElStab!ISl1ed by the Employer. (lr the age at which the Participant actually separates from ser- vice ;t the Employer has no mandatory retirement age. If ~he Participant will nOI become eligible to receive benefits under a baSIC rellrement plan maintained by the Employer, the PartICipant's alter- nate Normal Retirement Age may not t:e ear1iertnan age 55 ana may not be laler than age 70-112, Section 2.1 0 Participant: A n'l Employeewho has joined the Plan oursuant to the reouirements of Article IV. .. Section 2.11 Plan Vear: Tt-:e calendar year. Seotton 2.12 Retirement: The fl(st date upon which ootn of the icllowing shall have occurred Wltn respect to a participant: Separatlo.'l from Service and attain- ment ot age 65. Se<:t1on 2.13 Separation from Service: Severance cf tl'lo Participant's employment With the Employer which constitutes a .se oaratlon from $ ervice' withi:"l the rreanlngof SectIOn 402(e)(4)(A}(iri) ofthe Code. In general, a PartJclpant shall be deemed to have Severed his employment with the Employer Tor pur- poses of lf1is Plan when, in accordance wIth the establIshed practices ot the Employer, the emiJloy- men I relallonship is consldereo to have actually terminated. In the case of a Participant who IS CiI1 independent contractor of the Employer. Separation from Service shall be deemed to nave OCCurred when the Participant's contract U~lder which ser. vices are performed has compl(;ltely expired and termInated, there is no foreseeable posSIbility thai the Employer will renew the contract or enter Into a new contract forthe Participant's sel'Vices, and it is not anticipated that the PartJcioant v.11I become an Employee of the Employer. ARTICLE III. ADMINISTRATION Section 3.01 Dutles of Employer: The Employer shall have the 8uthorityto make all discretionary decisions affecting the rights or benefits of Participants which may be required in the administration of this Plan. Section 3.02 Duties of Administrator: The AdmlnlS' trator, as agent for the Employer, shall perfcrm nondiscretIonary 8(tminlstrative functions In eon- "ection With th; Plan, including th~ maintenance of Participants' Accounts, the prOVision of periodic reports of the status of each Account. and the disbursement of benefits on behalf of the Employer In accordance With the provisions of this Plan. ARTICLE IV. PARTICIPATION IN THE PLAN Section 4.01 Initial Participation: An Employee may become a PartiCipant by enlering Into a Jornder Agreement prior to the oeglnnlng of the calenaar month In which the JOinder Agreement IS to tecome effective to defer compensation not yet earned. Section 4.02 Amendment of Joinder Agreement: A Participant may amend an executed JOinder Agreement to chang& tMe amount of compensation (lot yel earned which is to be deferred (inciuding the reduction of such future deferrals to laro) or to change tlfS Il1vestment preference (5ubject to such restrictions as may result from the nature or terms of any investment made oy the Employer). Sucn amendment shall become effective as of the begin- ning of the calendar month cemmencing after the date the amendment is exeCl.lted- A Particioant may at any time amend hiS Joinder Agreement to change the deSignated 8eneflclary, and such amendment shall become effective in-mediately. ARTIC1.E V. 1.IMITATIONS ON DEFERRALS SectIon 5.01 Norma' LimItation: Except as provided in section 5.02. the maximum amount of Deferred Compensation tor any Participant for any taxable year shall not Clxee~ the 16sser of $7,500.00 or 33- 1/3 "ercent of the PartiCipant's Includible Compen- sation for the taxable year. This limitation will ordi- narily be eqUIValent to the lesser of $7,500.00 or 25 percent of the PartiCIpant's Normal Compensation. Section 5.02 Catch-Up limitation: For each ot the last three (3) taxable years of a PartiCIpant ending be- lor. ,hus attainment of Normal Retirement Age, tne maximum amount of Deferred Compensa!lon snail be the lesser of: (1) 515.000 or (2) the Sum of (I) the Normal L!mitatlc(1 for the taxable year. and (ii) the Normal LimItation for each prior taxable year of the PartIcipant commencing after' 978 le$$ the amount of the PartICipant's Deferred Cornpensatlon for such prior taxable years. A J;:rlor !axable y~ar shall t::e taken Into account unc'er the preceding sentence only ,t (:) the Part:c:pal"\t was eligible to participate In the Plan for such year (or In any other eligible deferred compensation plan established under Secllon 457 of the Code whiCh IS properly taken Into accou~t pursvant to re gul at Ions under section 457). and (II} compensation (If any) deferred under the Plan (or such other plan) was sublectto the deferral limitations set forth l:'l Section S 01. Section 5.03 Other Plans: The amount excludable from a Parttcipant's gross income under thIS Plan Or any other eligible defarreo comoensatiOI\ plan under section 4~7 01 the Code shall not exceed $7,500.00 (or Such greater a 'T1ount allowed under Section 5 02 of the Plan). less any amount exoluded trom gross income unoer secflon 403(b), 402(a)(8), or 402 (h)(l)(B) of tt'.e Cooe, or any amount with respect to whIch a oeduCtion is allowable by reason ot a contribution to an organization described in sectIOn 501 (c)(18) of the Coae. ARTICLE VI. INVESTMENTS AND ACCOUNT VALUES Section 6.01 Investment of Deferred Compensation: All investments of PartICipant's Deferred Compen- sation maoe oy the Employer, including aU property and nghts purchaSed with Such amOunts and all Income attributable thereto. shall be the sole prop- erty of the Employer and shall not be held In trust for PartiCipants or as collateral security tortha fulfIllment of the Employer'S obligations under the Plan. Such property shall be subject to the claims of general crsdllors of the Emoloyer. ar,d no Participant or 8ertelie iary snail have eny vested intere$t or secured or p'eferreo position with respect to such propeny or have any claIm against the Employer except as a general creditor. Sec;tion 6.02 Crediting of Accounts: The PartiCipant's Account shall reflect the amount and value ot the Investments cr other property obtained by the Em- ployer through the in..estment or the Participant's Deferred Compensallcn. It is anticipated that the Employer's Investments With respect to a Partici- pant .....ilI conform to the ,nvestment preference speCified In the Par.le,pant's JOlnaer Agreement, but nothIng herein shall be Conslru~ lC require the Employer 10 make any particular investment of a Partlcipa~t's Deferred Compensation. Each Partcl- pant$hall receiv~perlOdic reports. nolless frequenlly thC'n annually, sraOwlng the thEn-current value of his Aooount. Sect/on 6.03 Transfers: la) Incoming Transfers: A transfer may be accepted from an eligible deferred compensation plan maintained by another employer and credited to a PartiCIpant's Account under U-.e Plan It (i) the PartiCipant nas separated from service wllh that employer and become an Employee ot 1M Employer. and (il) the other employer's p~an pro- Vides that such transfer will be made. The Employer may reQuire suc/'l docvmentation from the prede- cessor plan as it deems necessary to erreCluate t~ transfer. to confirm thai $\.:ch plsn IS an eligible deferred compensation plan within the meatt,ng Of Sect: on 457 of the COde, and to assuretil~ t transfers are provided lor under such plan. The Employer may refuse to accept a trsnsfer.n the form of assets olhe' than cash, unl6$S the Employer an,j the Ad."T1lTl:strator agree to hold such olner llssets unoer the Pren. Any such transferred amount snaJl not be treated as a deferral subject to the Ilmitat:ons of ArtiCle V, except that. for purposes of applying the limitations of Sections 5.01 and 5.02. an amount deferred dUring any taxable year under the plan from which the transfer is accepted shall be treated as if it has been oelerred undet th:s Plan during sucn taxable year and compensation paid by the trar-sferor employer shali bo treated as if it had been paid by the Employer. (b) Outgoing Trar:sfers: An amount may be trans- farred to an engib16 deterred compensatIon plan mall1talned by another employer, and charged 10 a PartiCipant's Account under this Plan. if (I} the Par- tlcipant nas separated Irom seNice With the Em- ployer and become an emplovee of the other em- plover. (i!) the ether employers plan provides that Such transfer WIll be accepted. and (Hi) the PartiCI- pant and the emp:oyers have Signed such agree- ments as are necessary to assure that thlil Empklyer's liabiht1' to pay benefits to the Participant has been discharged ana assumed by the other employer. The Employer may require such documenla:ion from the other plan as it deems necessary to effec- tuate the transfer. to confirm that such plan is an eligible deferred compensation plan Within the meaning of section 457 of the Code, and to assure that transfers are provided for under S!.Ich plan. Such transt~rs shall be made only under stich circumstances as are permitted under section 457 of the Code and the regulations the~eunder. Section 6.04 Employer Liability: In no event s/'lallths Employer'S lIability to pay benefits to a Participant under Article VI exceed the value or the amounts credHed to the PartiCIpant's ACCQl.lnt; the Employer snail not be liable for losses arising from aeprecia. l'on or shnnkage In the value of any Investments aCQuired under ~his Plan. ARTICLE VII. BENEFITS Section 7.01 Retirement Benefits and Election on Separation from Service: Except as ott1erwlse prcvioed in thiS Article VII. the distribution of a Panlclpam's Account shall commence as of April 1 of the calendsr year after the Plan Year of the PartiCipant'S Retirement, and the distribution of such Retirement benefrts shall be made In accordance With one of the payment options desonbed in Sec- tion 7.02. Notwithstanding the foregOing, the Pert:ci- pant may Irrevocably elect WIthin 60 days following Separation from Service 10 have the distribution cf benefils commence on a fixed or determinable date other than that descnbed tn the pre;filding se'ltence which is at/east 60 days after the date suCh election is delivered in Wrt!I:'H;J to the E""pfoyer and for....arded to the Administrator, but not raler than Apm 1 of the year follOWing the year of the Participant's Retire- ment or attainment 01 age 70-1/2. whlchev6f1s later Seetlon 7.02 Payment Options; As proVided In Sectio'l5 7.01, 7.04, and 7.05. a PartlcJoant or BenefiCiaI)' may elect to have the value of the PartiCIpant's Aecount dlstnblrted in accordance with one of the followUlg payment options, prOVided that such op- t:on IS CCTiSlster,t with the hfrlltallons set torth In Section 7 03: (a) E qual monthly, ~ uarterly, semi-annual or annUal payments in an amount chosel1 by the PartiCipant. contlr.utng unlll hiS Account ,$ exhausted; (b) One ,ump-sum payme'lt: fc) ApprOXimately equal monthly, quarterly, ~eml- annual or annual payme~!s calcula~ed to continue lor a penod certain chosen by the PartiCIpant. (d) Annual Payments equal 10 tt-e minimum disttlbutions reqUired under Section 401 (a)( 9) of the Code over the !'fe expectancy of the Participant or over the life expeclanciGs or the Pan:cipant and hlslher BenefiCiary. (9) paymrmts equal to payments rr.ade by the ISsuer Of 1!1 retirement annuity pOlicy acouired by the Employer. (I) Any other payment option electeel bV the Particioa"t and agreed to by 'he E:mployer and Administrator, provided that such opt/on must provide tor substantiallynonlflcreasing payments for any perloct after fhe lalest benefit commencement oele under Section 7.0t. A PartlGi~anl's Or 6eneflcia'Ys election of a paY'Tlent option must be made 8t least 30 days before the payment of ber.eMs Is to commence. If a PartiCIpant or BeneFICIary tails to make a timely electic'l of a payment option. benefItS shall be p3Jd month",. under optior. fe) above tor a penod of five years. Section 7.03 Umltatlon on Options: Nc payment option may be selected by a Partlcloam or Beneficiary ur:der Sections 7.02,7.04. or 7.05 unless it satisfies the requirements ot Secllons 40 1 (a)(9) and 457(d)(2) of the Code, inCIVdl:1g that payments commencing before the death of tl",e Pertcipant shall satISfy the .r1cldent~: death oenetits l'6qUlfement unaer Section 457(d}(2)~B)(I)(I). Unless otherwIse elected by the Partlclcant. a,l determinatIons under SectIon 401 (a)(9) shall be made Without recalculation of life expectancies. Section 7.04 Post-retirement Death Benefits: (a) Should the Participant die after nelshe lias begun to receIve benefits under a payment option. the remain:ng payments, If any, under the payment option shall be payable to the PartiCIpant's Beneficiary commenc. ing Within the 3D-day period comme~clng With the 618t aay after the P~r1icjpant's deatn, ur.les$ the Beneficiary elects payment under a different pay- ment option that is available under Section 7.02 within60days of the PartlClpallt'S death. AnYd!fferent paymen: cption electea by a Beneficiary under this section must provide for payments at a rate that is at least as rapid as under ~e payment opllon that was app!lC&bfe to the PartiCipant. In no event shall the Employeror Administrator oe liable to the Benelioiary for the amount ot any payment mad e In the name 01 the Palticipant before the Administrater receryes proof of death of the Participant. (0) If thG deSignated Beneficiary does not continue to live fort"e remslnlng period of payments under the payment option. then the commuted value ot any remaining payments I..r'lderthe payment option shall bQ paid In a lump sum to the estate or the Benefi- clary.ln U1" cv~mt thaI the Participant's estate is the Beneficiary, the commute<! value of any remaining payments under the payment option shalt be paid to the estate in a lump sum. Section 7.05 Pre-retirement Death Benefits: (a) Should the Participant die before he/she has begun to receive the benefits provided by Section 701, the valvo of the Participant's Account shall be payable 10 tt1e Beneficiary commencing wlth:n the 3D-day period commencing on the 91 st oay after the Participant's death, unless the Beneficiary Irrevocably elects a different fixed or determInable benefit Corr.- mencement date within 90 days of the PartiCipant's death. Such benefit commencement date shall be not latertlian thelaterof (i) Oecember31 of the year following the year of the Participant's death, or (Ii) if the Beneficiary is 100 Participant's spouse, December 31 of the year In which the Participant would have attained &\ge 70-112. (b) Unless a Beneficiary elects a different payment optlOl'l prior to the benefit commencement date, o@atn benefits under thiS Section shall be paid in approximately equal annual Installments over five years. or over such shorter penod as may be Mces. saIy to assure that the amount of any annual Install- ment IS not less than S3.500. A Beneficiary shall be treated as If he/she were a Participant for purposes of determirling the payment OpUOM available under Section 7.02. provided. however. thai the payment option chosen by the Beneficiary must provide for payments to the Beneficiary over a p9riod no longer than the hfe expectancy of the Beneficiary, and provided that $ueh period may not exceed fifteen (15) years if the Beneficiary Is not tne Participant'$ spouse. (c) In the event that the Beneficiary aleS before the paymer.! of dealh benef:ts has commenced or been completed. the remaining value of the Participant's Account shall be paid to the estate of the Beneficiary In a lump sum. In the event that the Participant's estate is the BenefiCiary, payrnent shall he made to the estate in a lufr'p sum. Section 7.06 UnforeeeeClble Emergencies: (a) In the event an unforeseeable emergency occurs. a Par- ticipant may apply to the Employer to receive that part of the value of his Account that IS reasonably needed to satlsfy the emergency need. If SUCh an appllcaUon 1$ approved by the Employer, the ParticI- pant shall be paid only $UCh amount as the Employer deems necessary to meet the emergency need. but payment shall not be made to the extent that the finanCial hardship may be relieved through cessa- tion of deferral unCler the Plan, InSlIranCe or other reimbursement. or liquidatIon at otner assets to the extent such liquidation wou Id not itself Cl!use severe financial hardship. (b) An unforeseeable emergency shall be deemed to Involve only circumstances of severe financial harcshlp to the Participant resulting from a sudden unexpected illness. accident. or disability of the Participant or of a dependent (as OefineCl in Section 152(a) of the Code) of the Participant, 1055 of the Participant's property due to casl.Jalty. or other $imi. lar and extraordinary unforeseeabre Circumstances arising as a result of eve nts beyond the control of the ParticIpant. The need to send a P articipanl'$ child to college or to purchase 8 new home shall not be consh:lered unforeseeable emergencies. The deter- mina!lor" as to whether s~lch an unlorese~abie EimQrgs"'lCY eXists sha.11 be based on the ment. of coach IndIVIdual case. Section 1 07 TransitIonal Rule lor Pre.1989 Benefit Elections: In me evenUl'1aI. pnorlO January 1 1989, a Pa!ticlpant or BenefiCiary has commenced re- ceiving benefits under a payment option or has irrevocc.bly elected a payment optron or benefit commencement date. then that payment option or election shau remain 1"1 effect nOt'o'llthstanrj;"g any otner prol/:slor: of thIS Plan. ARTICL.E VIll. NON-ASSIGNABILITY Section 8.01 In General: Except as provided in Section 6.02, .,0 Partici~ant or Benefioary $hall have any right to commute. sell, assign, pledge. transfer or othelW1se conveyor encumber the nght to receive any payments hereunder, whtel'l payments and rights are exoressly declared to be r:on-as9Ignable and n()l'1.transfera::)le_ SectIon 8.02 Domestic Relations Orders: (a) Allow- ance of Transfers: To the eXlent reoulled ur.der a fmal judgment. decree. or Order (Including approval of a prooerty settlement agreement) made pursuant to a stale domestic relations law. arr{ ponlon of a Participant's Account may be paid or set aside for payment to a spouse, former spouse, or child of the Part:cipant. Where necessary to carry oullhe terms of such an order, a separate Account shafl be established with respect to the spouse, former spouse, Ol' child who shall be entitled to make investment eelectlons with reseGet thereto In the same man~er as the Panlclpant: any amount so set aside for a spouse. former spouse. or child shall be paid out in a lump sum at the earliest date that benefits may be paid to the PartiCipant. unliss the order directs a different time or form of payment. Nothing in th:s Section shall be construed to autho- nze any amoum to be distributee tinder the Plan at a time cr In a form that is nol permittee under Sedion 457 of the Cooa. Any payment made to a person other than lhe Participant pursuant to this Section shall be reduced by reqUired income tax WIthhold- Ing: t/19 fact that payment 15 made to a oerson other than me Participant may not prevent such payment from oelng includible In the gross Income of the PartiCipant lor WithhOlding and income tax reporting purposes. (b\ Rele3se from liability 10 participant: The Emoloyer's liability to pay benefits to a PartICIpant shall be reduced to the extent that amounts have been paid or set aside for payment to a spouse. forme r spouse. or child pursuant to paragraph (a) of :hls SeeMn. No such transfer Shall be eHect\Jated unless the Employer or Admrn:strator has been provideCl with satIsfactory eVIdence that the Em- ployer and the AdmInistrator are released from any funher claim by the Participant With respect to such amounts. The Participant shall be deemed to have released the Employer and the Administrator from any ClaIm with respect to SUCh amounts. In any case in wl'ich (i) the Employer or Administrator has been served with legal proc::ess or otherwlsliI joined in a proceeding relating to such transfer, (ii) the PartiCI- pant has been notified of the pendency of such proceeding In the manner prescnbed oy tM law of the Jurisdiction in which the proceeding 1$ cendlng for E,eMce of process in such actIOn or by mail from the Employer or Administrator 10 the "articipant's .",., . . .t last kr,own mailing address, and (1111 the ParticI- pant falia to obtaIn an crder 01 the court Ifi ~he proceeoing rel:eving the Errploy~r or AdminIstra- tor from the obl,gation to comply w,th the Judg- ment. decree, or order. (e) ParllClpatlon in Legal Proceedings: The Em- plcyef and Administrator shall not be cOhgated to defend against or set aSide ar.y judgment, decree, or order described In paragraph (a) or any legal order relatIng to the garnishment of a Participant's benefits, unless the full expense of sLlch legal action IS borne by the ~artlclpanl. In the evert that me ParlJcipant's action (onnactlonl flonetheless cause! the EMployer or Adminlstratorto lncursucn expense, the amount of the expense may oe charged against the Participant's Acccunt and thereby reduce the Employer's Obligation to pay oenefrt$ to the Partici- pant. In the course Of any proceeding relating to divorce, separation. or child support, the Employer and Administrator shall be aLJthorized to disclose Information relating to the Participant's Account to thQ Participant's spouse, former spouse. or child (Including the legal representatives of the spouse. former spouse, or child). or to a court, ARTICLE IX. RELATIONSHIP TO OTHER PLANS ANO EMPLOYMENT AGREEMENTS This olan selVes in addition to any other retirement. pension, or oenertt plan or syslem presentlY in existence or hereinafter established for the benefit of the Employer'S employees, and participation ~eleunder shall nol altect beneftts receivable under any s!.!ch plan or system. Nothing contained in thiS Plan shall be deemed to constitute an employment contract Of agreement between any Partici- pant ana the Employer or to gIve any Part'Clpanlthe right to be retained in Ihe employ ot the Employer, Nor sl,all anything herein oe construed to modify thE! terms or any employment contract or agreement between a Participant and tl'".9 Employer. ARTICLE X, AMENDMENT OR TERMINATION OF PLAN Th& Employer may at a:iy lirr.e amend this Plan provided that It transmits Sl.ICh amendment In wrrtinglO the Adm ''11stra. tor at least 30 days pnor to the effective date of the amend- ment. The consent 01 the Admmistrator sha,1 not be required In order Tor Such amendme:it to become erfectIVe, b\Jt the Administrator shaH be under no obligation to conilnue acting as Administrator hereLJndsr if it drsapproves of such amend. ment The employer may at any t.me terminate thiS pian. The AdminIstrator may at ar.y time propose an amend. ""Qnt to the Plan by 2rllnstrument In Writing transmitted 10 the Employer at least 30 cays betare the effeclJve date of the amendment. Such amendment shall become effective un. 'ess, WIthin such 30-day perIOd, the Employer notifies the AdminIstrator in writing that it disapproves such amenomem, in which case such amendm~mt st1all I"ot beccme effectIve. In the event of such disapproval. the Administrator shall be under f)Q obligation to continue acting as Administrator hereunder. If thiS Plan document ~stitutes an amendment and restatement of the Plan as previOlJsly adopted by the Employer. the amendments contained herein shall become elfect!ve on January', 1989. and tr.e terms ot the preceding Plan document shall remain In effect through December 31, '988. Except as may be requlrea to maIntain the status of Ihe Plan as an eligible deferred compensation plan lIndor Section 457 of the Code or to comply with other a;Jpllcable laws. no amendment or termination of the Plan shall divest any Participant of any nghls Wltn respect to compensation de- ferred before the dBte of the amendment cr termInation. ARTICLE XI. APPt.ICABLE LAW This Plan snail be construed unoer the laws of the state where Ihe Employer ;s located and is estaollshed ~Ith the inlentlhat It meet the recUlrements of an 'elIgible deterred compensation plan" under Section 457 of the Code, as amended. The prOVISions of thitl Plan shall ba interpreted wnareverpossll\le In conformIty with the requirem~nts oft!'1at section. ARTICLE XII. Any notice to a carty of lhis plan ::locument s'1all be given at the fast address prOVIded in writing from one ~srty to another pany. Any notice sucn maited shall be determined to haV9 been received by such party.