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T-MARK
GROUP AND INDIVIDUAL MODIFIED GUARANTEED ANNUITY CONTRACTS
ISSUED BY
THE TRAVELERS INSURANCE COMPANY
PROSPECTUS
MAY 1, 1997
ONE TOWER SQUARE, HARTFORD, CONNECTICUT 06183 * TELEPHONE: (860) 277-0111
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T-MARK
MODIFIED GUARANTEED ANNUITY CONTRACTS
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This Prospectus describes group and individual modified guaranteed annuity
contracts and certificates offered by The Travelers Insurance Company (the
"Company"). These contracts and certificates are used in connection with (1)
plans qualified under Section 401(a), 401(k) or 403(a) of the Internal Revenue
Code (the "Code") (pension and profit-sharing plans); (2) annuity purchase plans
adopted pursuant to Section 403(b) by public school systems and certain
organizations tax-exempt under Section 501(c)(3) of the Code; (3) individual
retirement annuities (IRAs) established by persons eligible under Section 408 of
the Code; (4) contracts purchased by the United States Government, any state
government or political subdivision thereof, or any agency or instrumentality
(within the meaning of Section 414(d) of the Code), for use in satisfying its
obligation to provide a benefit under a governmental plan; and (5) deferred
compensation plans under Section 457 of the Code. In addition, this Prospectus
describes annuity contracts and Certificates offered for various non
tax-benefited purposes to the general public (subject to state approval).
Participation in a Group Contract will be separately accounted for by the
issuance of a Certificate evidencing the Participant's interest under a Group
Contract issued to an employer or a group trust.
A minimum purchase payment of at least $5,000 must accompany the application for
a Contract or a Statement of Participant. No additional payment of less than
$5,000 is permitted under a Certificate. (See "Application and Purchase
Payment," page 1.)
The Company intends generally to invest funds received under the Contracts in
fixed income securities, including public bonds, privately placed bonds, and
mortgages, some of which fixed income securities may be zero coupon securities.
(See "Investments by the Company," page 8.)
These securities may be subject to a substantial market value adjustment if not
held to the Maturity Date of a Deposit which could result in the receipt of less
than your original Purchase Payment. In addition, these securities may be
subject to a surrender charge if a surrender is made before a deposit has been
held for at least five years. (See "Market Value Adjustment," page 4, and
"Surrender Charge," page 3.)
Upon a subsequent Guarantee Period, the Guaranteed Interest Rate will be
declared by the Company based on various factors. It may be higher or lower than
the previous Guaranteed Interest Rate. (See "Guarantee Periods," page 1 and
"Establishment of Guaranteed Interest Rates," page 3.)
Except for Contracts and Certificates issued to residents of the state of New
York, there is no minimum guaranteed renewal interest rate.
THIS PROSPECTUS IS ACCOMPANIED BY A COPY OF THE COMPANY'S LATEST ANNUAL REPORT
ON FORM 10-K WHICH CONTAINS ADDITIONAL INFORMATION ABOUT THE COMPANY.
MUTUAL FUNDS, ANNUITIES AND INSURANCE PRODUCTS ARE NOT DEPOSITS OR OBLIGATIONS
OF, OR GUARANTEED BY ANY BANK, NOR ARE THEY INSURED OR OTHERWISE PROTECTED BY
THE FDIC, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY; THEY ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL INVESTMENT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1997
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"), and in accordance therewith files
reports and other information with the Securities and Exchange Commission (the
"Commission"). Such reports and other information can be inspected and copied at
the public reference facilities maintained by the Commission at: Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549; Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661; and Seven World Trade
Center, New York, New York 10048. Copies of such material can also be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
The Company has filed with the Commission a Registration Statement under the
Securities Act of 1933, as amended (the "Act") with respect to the securities
offered hereby. For further information with respect to the Company and these
securities, reference is made to the Registration Statement and exhibits
thereto. Statements contained in this Prospectus as to the contents of any
Contract or other document are not necessarily complete, and in each instance,
reference is made to the copy of such Contract or document filed as an exhibit
to the Company's Registration Statement, each such statement being qualified in
all respects by such reference. The Company does not plan to furnish subsequent
annual reports containing financial information to the owners of contracts or
certificates described in this Prospectus.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's latest Annual Report on Form 10-K has been filed with the
Commission pursuant to Section 15(d) of the Exchange Act. The 10-K is
incorporated by reference into this Prospectus and must accompany this
Prospectus. The Form 10-K contains additional information about the Company,
including certified financial statements for the Company's latest fiscal year.
It was filed on March 26, 1997 via Edgar; File No. 33-33691.
The Company will provide without charge to each person to whom this Prospectus
is delivered, on the written or oral request of any such person, a copy of any
or all of the documents incorporated by reference in the Registration Statement
of which this Prospectus forms a part other than exhibits to such documents
unless such exhibits are specifically incorporated by reference into such
documents. Requests should be directed to The Travelers Insurance Company,
Annuity Services, One Tower Square, Hartford, Connecticut 06183-5030, telephone
860-422-3985.
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TABLE OF CONTENTS
GLOSSARY OF SPECIAL TERMS.............................................................. iv
PROSPECTUS SUMMARY..................................................................... vi
THE INSURANCE COMPANY.................................................................. 1
DESCRIPTION OF THE CONTRACTS AND CERTIFICATES.......................................... 1
General........................................................................... 1
Application and Purchase Payment.................................................. 1
Right to Cancel................................................................... 1
ACCUMULATION PERIOD.................................................................... 1
Guarantee Periods................................................................. 1
Establishment of Guaranteed Interest Rates........................................ 3
SURRENDERS............................................................................. 3
General........................................................................... 3
Surrender Charge.................................................................. 3
Market Value Adjustment........................................................... 4
Waiver of Surrender Charge........................................................ 5
Reduction or Elimination of Surrender Charges..................................... 6
Premium Taxes..................................................................... 6
Death Benefit..................................................................... 6
Payment on Surrender.............................................................. 6
ANNUITY PERIOD......................................................................... 6
Electing the Annuity Commencement Date and Form of Annuity........................ 6
Change of Annuity Commencement Date or Annuity Option............................. 7
Annuity Options................................................................... 7
Annuity Payments.................................................................. 7
Death of Annuitant After Annuity Commencement Date................................ 8
INVESTMENTS BY THE COMPANY............................................................. 8
AMENDMENT.............................................................................. 8
ASSIGNMENT............................................................................. 8
DISTRIBUTION........................................................................... 8
FEDERAL TAX CONSIDERATIONS............................................................. 9
General........................................................................... 9
Section 403(b) Plans and Arrangements............................................. 9
Qualified Pension and Profit-Sharing Plans........................................ 9
Individual Retirement Annuities................................................... 10
Section 457 Plans................................................................. 10
Nonqualified Annuities............................................................ 10
The Employee Retirement Income Security Act of 1974............................... 11
Federal Income Tax Withholding.................................................... 12
Tax Advice........................................................................ 13
LEGAL OPINION.......................................................................... 13
EXPERTS................................................................................ 13
APPENDIX A............................................................................. 14
APPENDIX B............................................................................. 16
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GLOSSARY OF SPECIAL TERMS
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In this Prospectus "We," "Us," "Our," and the "Company" refer to The Travelers
Insurance Company, and "You," "Yours," and "Participant" refer to a person who
has been issued a Certificate. "You," "Your" and "Owner" refer to a person who
has been issued an Individual Contract.
ACCOUNT -- An Account is the Cash Value or Cash Surrender Value credited to a
Participant or to the Owner.
ACCUMULATED VALUE -- The value of the Deposit which is credited daily at the
Guaranteed Interest Rate.
ANNUITANT -- The person on whose life the Individual Contract has been issued.
ANNUITY COMMENCEMENT DATE -- The date designated in the Certificate or otherwise
by the Participant to receive benefits. Referred to in the Individual Contract
as the Maturity Date.
CASH SURRENDER VALUE -- The Cash Value of all the Deposits credited to that
Account, less the Surrender Charge and any applicable premium tax.
CASH VALUE -- The Maturity Value of a Deposit on the Maturity Date or the Market
Adjusted Value before the Maturity Date of that Deposit. The Cash Value of an
Account on any date is the sum of the Cash Value of all the Deposits credited to
the Account.
CERTIFICATE -- Evidence of a participating interest under a Group Contract. Any
reference in this Prospectus to Certificate includes the underlying Group
Contract.
CERTIFICATE DATE -- The effective date of participation under the Group Contract
as designated in the Certificate.
CERTIFICATE YEAR -- Annual periods computed from the Certificate Date.
COMPANY -- The Travelers Insurance Company.
COMPANY'S HOME OFFICE -- The principal executive offices of The Travelers
Insurance Company located at One Tower Square, Hartford, Connecticut 06183.
CONTRACT DATE -- The effective date of the Individual Contract as designated in
the Contract.
CONTRACT YEAR -- Annual periods computed from the Contract Date.
DEPOSIT -- The net premium payment or renewal amount applied to the credit of an
Account at a Guaranteed Interest Rate.
GROUP CONTRACT -- The group T-Mark modified guaranteed annuity contract as
described in this prospectus, for which the Contract Owner receives a Contract
and each Participant receives a Certificate.
GUARANTEE PERIOD -- The period between the initial Premium Payment or Renewal
Date and the Maturity Date during which a Guaranteed Interest Rate is credited.
GUARANTEED INTEREST RATE -- The annual effective interest rate which is the
applicable interest rate contained in a schedule of rates established by the
Company from time to time for various durations.
INDIVIDUAL ACCOUNT -- The Cash Value or Cash Surrender Value credited to a
Participant or beneficiary.
INDIVIDUAL CONTRACT -- The individual T-Mark modified guaranteed annuity
contract as described in this prospectus. The Contract is issued to the Contract
Owner.
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MARKET ADJUSTED VALUE -- The current value of the Deposit on a date before the
Maturity Date. This value is computed using the market value adjustment formula,
as described in this Prospectus.
MATURITY DATE OF A DEPOSIT -- The last day in a Guarantee Period.
MATURITY VALUE -- The guaranteed value of the Deposit which is the net premium
payment or renewal amount plus interest credited thereon during the Guarantee
Period. The Company will declare the annual effective rate of interest when the
net premium is applied, as described in this Prospectus.
OWNER -- The person or entity to whom the annuity contract is issued.
OWNER'S ACCOUNT -- The Cash Value credited to the Owner.
PARTICIPANT -- An eligible person who participates in the Plan and on whose life
a Certificate is issued.
PARTICIPANT'S INTEREST -- The Cash Value or Cash Surrender Value of the
Participant's Individual Account to which the Participant is entitled under the
Certificate. The Participant's Interest will be the value of that Participant's
Individual Accounts unless the owner (under the terms of the Plan, if any)
instructs us otherwise.
STATEMENT OF PARTICIPANT -- An application for participation under a Group
Contract.
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PROSPECTUS SUMMARY
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The Travelers Insurance Company ("the Company"), an indirect wholly owned
subsidiary of Travelers Group Inc., offers group and individual modified
guaranteed annuity (subject to state approvals) contracts (the "Contracts"). As
described in this Prospectus, the Contracts have a Guaranteed Interest Rate
which is credited to the Deposit in the Contract when the Deposit is held to its
Maturity Date. Surrenders prior to the Maturity Date of a Deposit are subject to
a Market Value Adjustment and a surrender charge (if applicable).
When a payment is made under the Contract or Certificate, the Owner or
Participant, as applicable selects a Guarantee Period from among those then
offered by the Company. During this Guarantee Period, the purchase payment earns
interest at the applicable Guaranteed Interest Rate as established by the
Company. Interest is credited on a daily basis and this compounding effect is
reflected in the Guaranteed Interest Rate. At the end of each Guarantee Period,
a subsequent Guarantee Period of seven days will begin, unless the individual
elects a different duration. The Participant or Owner, as applicable must elect
the length of a subsequent Guarantee Period during the 30 days before the end of
the previous Guarantee Period. Failure to make an election will result in an
automatic renewal of the Deposit for a period of seven days. As of the first day
of each subsequent Guarantee Period, the funds will earn interest at the then
applicable subsequent Guaranteed Interest Rate. (See "Guarantee Periods," page 1
and "Establishment of Guaranteed Interest Rates," page 3.)
Subject to certain restrictions, total and partial surrenders are permitted.
However, these surrenders may be subject to a surrender charge and/or a Market
Value Adjustment. No Market Value Adjustment will be applied to any surrender
effective as of the end of a Guarantee Period. No surrender charge will be
applied to any payment that has been held under the Contract or Certificate for
at least five years. For Deposits which have not been held under the Contract or
Certificate for at least five years, a graded surrender charge beginning at a
maximum of 7% will be assessed if you surrender. The surrender charge will apply
if a surrender occurs at the expiration date of the Guarantee Period for
Deposits in the contract less than five years. We will waive the surrender
charge in certain instances. (See "Waiver, Reduction or Elimination of Surrender
Charge," page 5.) For 403(b) plan participants, partial and full surrenders may
be subject to restrictions. (See "Section 403(b) Plans and Arrangements," page
9.)
We may defer payment of any surrender for a period of up to six months from the
date we receive notice of surrender or the period permitted by state law, if
less, but such a deferral of payment will not be for a period greater than five
business days except under extraordinary circumstances. We will pay annual
interest of at least 3.5% on any amounts deferred for more than thirty days
during such period if we choose to exercise this deferral right. (See
"Surrenders," page 3.)
A Market Value Adjustment will be applied only when the surrender occurs prior
to the Maturity Date of the Deposit. The Market Adjusted Value will reflect the
relationship, at the time of surrender, between the rate we are then crediting
on new Deposits with the same duration as the time remaining in the Guarantee
Period, and the Guaranteed Interest Rate applicable to that Deposit. Generally,
the primary factor affecting the amount of the Market Value Adjustment is the
level of interest rates on investments to be made by the Company at the time
that the current Guaranteed Interest Rates are established. The Market Adjusted
Value is sensitive, therefore, to changes in current interest rates. The Market
Value Adjustment may increase or decrease the value of your investment prior to
the Maturity Date. It is possible that the amount you receive upon surrender
would be less than your original Deposit if interest rates increase. Also, if
interest rates decrease, the amount you receive upon surrender may be more than
your original Deposit and accrued interest. (See "Surrenders," page 3.)
On the Annuity Commencement Date specified by the Participant of a Group
Contract or the Contract Owner, if an Individual Contract, the Company will pay
the designated individual a lump
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sum payment or start to pay a series of payments. A series of payments may be
elected under certain Annuity Options. (See "Annuity Options," page 7.)
The Contracts and Certificates provide for a guaranteed death benefit in the
event of the Participant's or Owner's death prior to the Annuity Commencement
Date. (See "Death Benefit," page 6.)
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THE INSURANCE COMPANY
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The Travelers Insurance Company (the "Company") is an indirect wholly owned
subsidiary of Travelers Group Inc. The Company is a stock insurance company
chartered in 1864 in the state of Connecticut and has been continuously engaged
in the insurance business since that time. The Company is licensed to conduct
life insurance business in all states of the United States, the District of
Columbia, Puerto Rico, Guam, the U.S. and British Virgin Islands and the
Bahamas. The Company's principal executive office is located at One Tower
Square, Hartford, Connecticut 06183, telephone number (860) 277-0111.
DESCRIPTION OF THE CONTRACTS AND CERTIFICATES
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GENERAL
The Group and Individual Contracts described in this Prospectus are available
for use in connection with nonqualified purchases (subject to state approval).
The Company also offers the contracts in the following qualified programs: (1)
Section 401(a), 401(k) and 403(a) plans; (2) Section 403(b) plans; (3) IRAs; (4)
governmental plans as described in Section 414(d); and (5) deferred compensation
plans described in Section 457. All Section references are to the Internal
Revenue Code (the "Code"), unless otherwise noted.
As described in this Prospectus, the contracts have a Guaranteed Interest Rate
which is credited to a Deposit in the contract when the Deposit is held to its
Maturity Date. Surrenders prior to the Deposit's Maturity Date are subject to a
Market Value Adjustment and a surrender charge (if applicable).
These contracts may not be available in all states.
APPLICATION AND PURCHASE PAYMENT
To apply, an individual must complete a Statement of Participant for a
Certificate, or an application for a Contract. A minimum purchase payment of
$5,000 is required. Additional purchase payments of at least $5,000 may be made.
Payments under a Certificate or an individual Contract may not exceed $1,000,000
in any one year without our prior approval.
In the event that your application is not properly completed, we will attempt to
contact you by telephone. We will return an improperly completed application,
along with the corresponding purchase payment, ten days after we receive it if
the application has not been properly completed by that time.
The Maturity Value is guaranteed by our general assets. A payment is credited to
an Account which the Company establishes on the date we receive a properly
completed application or Statement of Participant along with the purchase
payment. The Company then issues a Certificate or individual Contract, as
applicable and confirms the purchase payment in writing. Additional payments are
credited and confirmed in the same manner. Interest is earned the next day.
RIGHT TO CANCEL
State law may afford a right to cancel a Certificate or Contract for a certain
period of time after its receipt and may allow a refund of the entire purchase
payment. For revocation to be effective, a written notice of cancellation must
be mailed or delivered to the Company's Home Office.
ACCUMULATION PERIOD
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GUARANTEE PERIODS
The Participant or Owner (as applicable) selects the duration of the Guarantee
Period from among those durations we offer. As of the date of this Prospectus,
we offer Guarantee Periods with
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durations ranging from seven days to ten years; however, the Guarantee Periods
we offer in the future could be different. The duration selected will determine
the Guaranteed Interest Rate, and the Deposit (less surrenders made and less
applicable premium taxes, if any) will earn interest at this Guaranteed Interest
Rate during the entire Guarantee Period. All interest earned will be credited
daily; this compounding effect is reflected in the Guaranteed Interest Rate.
The following is an illustration of how we will credit interest during the
Guarantee Period. For the purpose of this example, we have made the assumptions
as indicated.
EXAMPLE OF GUARANTEED INTEREST RATE ACCUMULATION
Beginning Account Value: $50,000
Guarantee Period: 5 Years
Guaranteed Interest Rate: 5% Annual Effective Rate
INTEREST
CREDITED
TO THE ACCOUNT
DURING THE CUMULATIVE INTEREST ACCUMULATED
YEAR GUARANTEE PERIOD CREDITED TO THE ACCOUNT VALUE
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6 months $ 1,234.75 $ 1,234.75 $ 51,234.75
1 2,500.00 2,500.00 52,500.00
2 2,625.00 5,125.00 55,125.00
3 2,756.25 7,881.25 57,881.25
4 2,894.06 10,775.31 60,775.31
5 3,038.77 13,814.08 63,814.08
Guaranteed Value of the Deposit at the end of five years is: $50,000.00 +
$13,814.08 = $63,814.08
NOTE: EXAMPLE ASSUMES NO SURRENDERS OF ANY AMOUNT DURING THE ENTIRE FIVE-YEAR
PERIOD. A MARKET VALUE ADJUSTMENT APPLIES AND A SURRENDER CHARGE MAY APPLY TO
ANY INTERIM SURRENDER. (SEE "SURRENDERS," PAGE 3.) THE HYPOTHETICAL INTEREST
RATES ARE ILLUSTRATIVE ONLY AND ARE NOT INTENDED TO PREDICT FUTURE INTEREST
RATES TO BE DECLARED UNDER THE CERTIFICATE. ACTUAL INTEREST RATES DECLARED FOR
ANY GIVEN TIME MAY BE MORE OR LESS THAN THOSE SHOWN.
At the end of any Guarantee Period, a subsequent Guarantee Period will begin. We
will notify you in writing about a subsequent Guarantee Period before Maturity.
This written notification will not specify the interest rate for renewal
Deposits. You or the Participant (as provided in the Plan, if any) must elect,
during the 30-day period before the end of the previous Guarantee Period, a
Guarantee Period of any duration from among those we offer at that time. The
election may be made by notifying us in writing or by calling 1-800-TRANSFR
(outside Connecticut) or 1-800-233-3591 (in Connecticut). If no election is
made, we will automatically renew the Deposit for a period of seven days. In no
event may subsequent Guarantee Periods extend beyond the Annuity Commencement
Date then in effect. For example, if the Participant or Annuitant, under an
individual Contract is age 62 at the expiration of a Guarantee Period and his or
her Annuity Commencement Date is age 65, a three-year Guarantee Period is the
maximum Guarantee Period that may be selected. The Deposit will then earn
interest at a Guaranteed Interest Rate which we have declared for such duration.
Interest rates may fluctuate daily.
At the beginning of any subsequent Guarantee Period for a Deposit, the value of
the Deposit will be the Maturity Value of that Deposit at the end of the
Guarantee Period just ending. This amount (less surrenders made since the
beginning of the subsequent Guarantee Period) will earn interest in the
subsequent Guarantee Period at the then applicable Guaranteed Interest Rate,
which may be higher or lower than the previous Guaranteed Interest Rate.
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At your written request, we will notify you of the subsequent Guaranteed
Interest Rate. You may also call us at 860-422-3985 to inquire about subsequent
Guaranteed Interest Rates.
ESTABLISHMENT OF GUARANTEED INTEREST RATES
The Guaranteed Interest Rate for a chosen Guarantee Period will be known at the
time a Deposit is received or renewed, and we will send a confirmation which
will show the amount and the applicable Guaranteed Interest Rate. There is no
minimum Guaranteed Interest Rate for renewal Deposits. (Certificates and
Contracts issued to residents of the state of New York provide for a minimum
renewal interest rate of 3% per annum.) The rate on renewal Deposits will be
equal to or greater than the rate credited on new Deposits at that time.
Prior to the Annuity Commencement Date, we currently send a quarterly statement
showing a summary of the Account within 30 days after the end of each calendar
quarter. We reserve the right to send statements less frequently but not less
than once in each calendar year.
The Company has no specific formula for determining the rate of interest that it
will declare as Guaranteed Interest Rates in the future. The Guaranteed Interest
Rates will be declared from time to time as market conditions dictate. (See
"Investments by the Company," page 8.) In addition, the Company may also
consider various other factors in determining Guaranteed Interest Rates for a
given period, including regulatory and tax requirements, sales commissions and
administrative expenses we bear, general economic trends, and competitive
factors. THE COMPANY'S MANAGEMENT WILL MAKE THE FINAL DETERMINATION AS TO THE
GUARANTEED INTEREST RATES TO BE DECLARED. WE CANNOT PREDICT NOR CAN WE GUARANTEE
FUTURE GUARANTEED INTEREST RATES.
SURRENDERS
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GENERAL
Subject to certain tax law and retirement plan restrictions (see "Federal Tax
Considerations," page 9), full and partial surrenders may be made at any time.
For participants in Section 403(b) tax deferred annuity plans, a cash surrender
may not be made from certain salary reduction amounts prior to age 59 1/2,
separation from service, death, disability or hardship. (See "Section 403(b)
Plans and Arrangements," page 9.)
In the case of all surrenders, the Cash Value will be reduced by the amount
surrendered on the surrender date and that amount will be payable to the
Participant or the Owner, as applicable. When a surrender is made, the Deposit
and the Maturity Value of that Deposit will be reduced in the same proportion as
the ratio of the gross amount surrendered to the Cash Value. Upon request the
Company will inform you of the amount payable under a full or partial surrender.
Any full or partial surrender may be subject to tax. (See "Federal Tax
Considerations," page 9.)
SURRENDER CHARGE
No deduction for a sales charge is made from the purchase payment when received.
However, a surrender charge may be assessed on surrenders made before the
Deposit has been held for five years. The surrender charge is computed as a
percentage of the amount surrendered, which includes the Deposit and the
earnings credited thereon subject to a Market Value Adjustment and increases in
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dollar amount as the value of the deposit increases. The following chart
indicates the percentage charge applied:
YEARS SINCE DEPOSIT CHARGE AS PERCENTAGE
WAS MADE OF GROSS SURRENDER VALUE
- ------------------------------------------------------
1 7%
2 6%
3 5%
4 4%
5 3%
Thereafter 0%
No surrender charge will be made for surrenders of a Deposit which has been held
for at least five years.
The surrender charges listed above will apply to full or partial surrenders,
irrespective of the length of the Guarantee Period selected. For example, assume
a Guarantee Period of four years. Further assume an election not to renew the
Deposit for a second Guarantee Period, but to redeem it on its Maturity Date. In
this hypothetical case, any surrenders made during the fourth year, even on the
Maturity Date, will be subject to a 4% Surrender Charge.
MARKET VALUE ADJUSTMENT
The amount payable on a partial or full surrender may be adjusted up or down by
the application of the Market Value Adjustment formula. The Market Adjusted
Value of a Deposit is the current value of the Deposit on a date before its
Maturity Date. This value is generally computed using Formula A below, except
that contracts issued in the state of New York shall use Formula B in computing
the Market Adjusted Value. Both formulas are as follows:
FORMULA A
1 ()
Market Adjusted Value = (Maturity Value) X -------------- t/365
F 1 + iC + .005 G
FORMULA B (To be used only in connection with contracts issued in the State of
New York.)
1 ()
Market Adjusted Value = (Maturity Value) X --------------- t/365
F 1 + iC + .0025 G
(where "iC" is the current Guaranteed Interest Rate for a Guarantee Period of
"t" days and "t" is the number of days remaining in the Guarantee Period.)
The current Guaranteed Interest Rate is declared periodically by the Company and
is the rate (straight line interpolation between whole years) which the Company
is then paying on premiums paid under this class of contracts if applied to the
same maturity date of the Deposit to which the formula is being applied.
A Market Value Adjustment will only be applied when the surrender occurs prior
to the Maturity Date of the Deposit. The Market Adjusted Value will reflect the
relationship, at the time of surrender, between the rate the Company is then
crediting on new Deposits with the same duration as the time remaining on the
Guarantee Period, and the Guaranteed Interest Rate applicable to the Deposit.
Generally, the primary factor affecting the amount of the Market Value
Adjustment is the level of interest rates on investments to be made by the
Company at the time that the current Guaranteed Interest Rates are established.
The Market Adjusted Value is sensitive, therefore, to changes in current
interest rates. So, the level of the Market Value Adjustment is dependent upon
the current interest rate at the time of surrender. The Market Value Adjustment
may increase or decrease the value of this investment prior to the Maturity
Date. It is possible that the amount you receive upon surrender would be less
than your original purchase payment if
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interest rates increase. Also, if interest rates decrease, the amount you
receive on surrender may be more than your original purchase payment and accrued
interest.
For example, assume the purchase of a Certificate or Contract and the selection
of a Guarantee Period of ten years and a Guaranteed Interest Rate for that
duration of 9% per year. Further assume at the end of seven years a partial
surrender is made. (A partial surrender does not affect the current Guaranteed
Interest Rate as applied to all remaining deposits.) If the market rate we are
then crediting for new Deposits of three years is 7%, then the Market Adjusted
Value will be greater than the Deposit accumulated at the Guaranteed Interest
Rate (disregarding premium taxes, if any). On the other hand, if the current
rate we are crediting on new Deposits of three years is, for example, 11%, the
Market Adjusted Value will be less than the Deposit accumulated at the
Guaranteed Interest Rate. (For an illustration showing an upward and downward
adjustment, see Appendix A.)
WAIVER OF SURRENDER CHARGE
The surrender charge will be waived if:
-- an annuity payout is begun;
-- an Income Option (as set forth in Appendix B) of at least three years'
duration is begun after the first Certificate Year or Contract Year, as
applicable;
-- the Participant of a Group Contract, or Annuitant of an Individual
Contract becomes disabled (as defined by the Internal Revenue Service)
subsequent to purchase of the Certificate or Contract;
-- the Participant of a Group Contract, or Annuitant of an Individual
Contract dies;
-- the Participant of a Group Contract, or Annuitant of an Individual
Contract under a tax deferred annuity plan (403(b) plan) retires after
age 55, provided the Certificate or Contract has been in effect five
years or more;
-- the Participant of a Group Contract, or Annuitant of an Individual
Contract under an IRA plan reaches age 70 1/2, provided the Certificate
or Contract, as applicable, has been in effect five years or more;
-- the Participant of a Group Contract, or Annuitant of an Individual
Contract under a qualified pension or profit-sharing plan, including a
401(k) plan, retires at or after age 59 1/2, provided the Certificate or
Contract, as applicable has been in effect five years or more; or if
refunds are made to satisfy the anti-discrimination test; (for
Participants or Annuitants under contracts issued before May 1, 1992,
the surrender charge will also be waived if he or she retires at normal
retirement age (as defined by the plan), provided the Certificate or
Contract has been in effect one year or more); or
-- the Participant of a Group Contract, or Annuitant of an Individual
Contract under a Section 457 deferred compensation plan retires and the
Certificate or Contract has been in effect five years or more, or if a
financial hardship or disability withdrawal has been allowed by the plan
administrator under applicable IRS rules.
In addition, for individuals under a 403(b) annuity, a pension or profit-sharing
plan, or a Section 457 deferred compensation plan, there is a 10% free
withdrawal allowance for partial surrenders prior to the Annuity Commencement
Date. An individual under an IRA plan who is over age 59 1/2 has a 20% free
withdrawal allowance. This means that, each Certificate or Contract Year after
the first such year, for the first partial surrender made in that year, 10% (20%
for IRA plans) of his or her Cash Value may be withdrawn without a surrender
charge. All Cash Values withdrawn will reflect any applicable Market Value
Adjustment. Full surrenders are not eligible for the free withdrawal allowance.
Failure to use all or part of the free withdrawal allowance in any Certificate
or Contract Year forfeits the balance of the allowance for that year. For 403(b)
plan participants,
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partial and full surrenders may be subject to restrictions. (See "Section 403(b)
Plans and Arrangements," page 9.)
REDUCTION OR ELIMINATION OF SURRENDER CHARGES
The amount of the surrender charge and the duration for which it may be assessed
may be reduced or eliminated when sales of the Certificates or Contracts are
made to persons in certain purchase arrangements in such a manner that results
in savings or reductions of sales expenses. The entitlement to such a reduction
in the surrender charge will be based on the size and type of group to which
sales are to be made (the sales expenses for a larger group are generally less
than for a smaller group), and any prior or existing relationship with the
Company (sales expenses are likely to be less when there is a prior or existing
relationship because of the likelihood of utilizing existing sales mechanisms).
There may be other circumstances, of which the Company is not presently aware,
which could result in reduced sales expenses. In no event will reductions or
elimination of the surrender charge and its duration be permitted where such
reductions or elimination will be unfairly discriminatory to any person.
PREMIUM TAXES
Certain state and local governments impose premium taxes. These taxes currently
range from 0.0% to 5.0%, depending upon jurisdiction. The Company, in its sole
discretion and in compliance with any applicable state law, will determine the
method used to recover premium tax expenses incurred. The Company will deduct
any applicable premium taxes from the Cash Value either upon death, surrender,
annuitization, or at the time purchase payments are made to the Contract, but no
earlier than when the Company has a tax liability under state law.
DEATH BENEFIT
If a Participant under a group Contract, or an Annuitant under an individual
Contract dies before his or her Annuity Commencement Date, the Death Benefit
payable to the Beneficiary will equal (a) the greater of the Cash Value or the
Accumulated Value of the Contract or of that Participant's Interest under a
group Contract, if death occurs before age 65; or (b) the Cash Value of the
Contract or the Participant's Interest under a group Contract, if death occurs
on or after age 65 less any applicable premium tax.
PAYMENT ON SURRENDER
We may defer payment of any partial or full surrender for a period not exceeding
six months from the date we receive your notice of surrender or the period
permitted by state insurance law, if less. Only under extraordinary
circumstances will we defer a surrender payment more than five business days,
and if we defer payment for more than 30 days, we will pay annual interest of at
least 3.5% on the amount deferred. While all circumstances under which we could
defer payment upon surrender may not be foreseeable at this time, such
circumstances could include, for example, our inability to liquidate assets due
to a general financial crisis. If we intend to withhold payment for more than
thirty days, we will notify you in writing.
ANNUITY PERIOD
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ELECTING THE ANNUITY COMMENCEMENT DATE AND FORM OF ANNUITY
For each individual Contract, the Annuity Commencement Date for the Contract
must be indicated on the Application. For each Certificate, an Annuity
Commencement Date must be indicated on the Statement of Participant. The value
of an Account (less applicable premium taxes, if any) may be applied on the
Annuity Commencement Date under any of the Annuity Options described below. In
the absence of an election, the value of the Account (the Cash Value, for an
individual Contract), will be applied on the Annuity Commencement Date under
Option 2 to provide a life
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annuity with 120 monthly payments certain or, if the contract is issued to fund
a qualified pension and profit-sharing plan or a Section 403(b) plan subject to
ERISA, the applicable amount will be applied under Option 4 to provide a joint
and last survivor life annuity.
CHANGE OF ANNUITY COMMENCEMENT DATE OR ANNUITY OPTION
The Annuity Commencement Date and the Annuity Option may be changed, but any
such change must be made in writing and received by us at least 30 days prior to
the scheduled Annuity Commencement Date.
ANNUITY OPTIONS
Any one of the following Annuity Options may be elected subject to certain tax
law qualification limitations on distributions:
OPTION 1 -- LIFE ANNUITY: It would be possible under this Option for an
Annuitant to receive only one payment if he/she died before the due date of the
second annuity payment, two if he/she died before the third payment and so on.
OPTION 2 -- LIFE ANNUITY WITH 120, 180 OR 240 MONTHLY PAYMENTS ASSURED: An
annuity providing monthly income based on the life of the Annuitant for a fixed
period of 120 months, 180 months or 240 months (as selected). If the Annuitant
dies before the monthly payments are completed, the Company will continue to
make payments for the remainder of the period.
OPTION 3 -- CASH REFUND LIFE ANNUITY: An annuity payable monthly during the
lifetime of the Annuitant on whose life payments are based provided that, at the
death of the Annuitant, the beneficiary will receive an additional payment equal
to the excess, if any, of (a) minus (b) where (a) is the amount applied under
this option and (b) is the sum of all Annuity Payments previously made.
OPTION 4 -- JOINT AND LAST SURVIVOR LIFE ANNUITY: An annuity payable monthly
during the joint lifetime of the Annuitant and a secondary payee on whose lives
payments are based, and thereafter during the remaining lifetime of the
survivor, ceasing with the last payment prior to the death of the survivor. It
would be possible under this Option for the Annuitant or secondary payee to
receive only one payment in the event of death before the due date for the
second payment and so on.
OPTION 5 -- OTHER ANNUITY OPTIONS: An annuity payable as is mutually agreed on
by the Company and the Annuitant or Owner, as provided in the Plan, if any.
The Tables contained in the Certificate provide for guaranteed dollar amounts of
monthly payments for each $1,000 applied under the first five Annuity Options.
For Options 1, 2, 3 and 4, the amount of each payment will depend on the age
(and sex, if applicable) of the payees.
The Tables for Options 1, 2, 3 and 4 are based on the Progressive Annuity Table
(assuming births in the year 1900) and a net investment rate of 3.5% a year. The
Company may, at its discretion, if mortality appears more favorable and interest
rates justify, apply other tables which will result in higher monthly payments
for each $1,000 applied under one or more of the five Annuity Options. Income
Options (Payments of a Fixed Amount, Payments for a Fixed Period and Amounts
Held at Interest) are also available where permitted by tax laws.
See Appendix B for information on Income Options available as an alternative to
the Annuity Options.
ANNUITY PAYMENTS
The first payment under any Annuity Option will be made on the first day of the
month following the Annuity Commencement Date. Subsequent payments will be made
on the first day of each month in accordance with the manner of payment
selected.
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If at any time payments under an Annuity Option are less than $50 per payment,
we may change the frequency of payment to such intervals as will result in
annuity payments of at least $50.
Once annuity payments have commenced, no surrender of the annuity benefit can be
made for the purpose of receiving a lump-sum settlement in lieu of payments.
DEATH OF ANNUITANT AFTER ANNUITY COMMENCEMENT DATE
In the event of the death of the Annuitant after the Annuity Commencement Date,
the present values on the date of death of any remaining guaranteed payments
will be paid in one sum to the beneficiary designated unless other provisions
have been made. Calculations of present values will be based on the interest
rate that we use to determine the amount of each payment.
INVESTMENTS BY THE COMPANY
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Assets of the Company must be invested in accordance with requirements
established by applicable state laws regarding the nature and quality of
investments that may be made by life insurance companies and the percentage of
their assets that may be committed to any particular type of investment. In
general, these laws permit investments, within specified limits and subject to
certain qualifications, in federal, state, and municipal obligations, corporate
bonds, preferred and common stocks, real estate mortgages, real estate and
certain other investments. Purchase Payments made to the Contracts are invested
in Separate Account MGA, a non-unitized separate account and are not chargeable
with liabilities arising out of any other business which the Company may
conduct. Owners do not share in the investment performance of assets allocated
to Separate Account MGA. The obligations under the Contract are independent of
the investment performance of Separate Account MGA and are the obligations of
the Company.
In establishing Guaranteed Interest Rates, the Company will consider the yields
on fixed income securities that are part of the Company's current investment
strategy for the Contracts and Certificates at the time that the Guaranteed
Interest Rates are established. (See "Establishment of Guaranteed Interest
Rates," page 3.) The current investment strategy for the Contracts is to invest
in fixed income securities, including public bonds, privately placed bonds, and
mortgages, some of which fixed income securities may be zero coupon securities.
While the foregoing generally describes our investment strategy, we are not
obligated to follow any particular strategy except as may be required by federal
law and Connecticut and other state insurance laws.
AMENDMENT
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We reserve the right to amend the Contracts and Certificates to meet the
requirements of applicable federal or state laws or regulations. We will notify
you in writing of any such amendments.
ASSIGNMENT
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Rights evidenced by a Contract or a Certificate may be assigned as permitted by
applicable law, unless endorsed to the contrary. An assignment will not be
binding on us until we receive notice in writing. We assume no responsibility
for the validity or effect of any assignment. You should consult your tax
advisor regarding the tax consequences of an assignment. Ownership of Contracts
issued in connection with Section 401(a), 401(k), 403(a), 403(b), 408, 414(d) or
457 plans may not generally be assigned.
DISTRIBUTION
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Tower Square Securities, Inc. (Tower Square) is the principal underwriter of the
Contracts and Certificates. Tower Square is registered with the Securities and
Exchange Commission under the Securities Exchange Act of 1934 as a
broker-dealer, and is a member of the National Association of Securities
Dealers, Inc. Tower Square is an indirect wholly owned subsidiary of Travelers
Insurance Company. It is anticipated that an affiliated broker dealer will
become the principal underwriter in 1997.
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Tower Square may enter into Distribution Agreements with certain broker-dealers
registered under the Securities Exchange Act of 1934. Under the Distribution
Agreements such broker-dealers may offer Contracts and Certificates to persons
who have established an account with the broker-dealer. In addition, the Company
may offer Contracts and Certificates to members of certain other eligible
groups. The Company will pay a maximum commission of 4.5%. In the future, the
Company may pay a commission on an election of a subsequent Guarantee Period by
a Participant or an Owner.
In addition, the Company may offer Contracts and Certificates to members of
certain other eligible groups through trusts or otherwise.
FEDERAL TAX CONSIDERATIONS
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GENERAL
The Company is taxed as a life insurance company under Subchapter L of the
Internal Revenue Code (the "Code"). Generally, amounts credited to a Contract
are not taxable until received by the Owner, Participant or beneficiary, either
in the form of Annuity Payments or other distributions. Tax consequences and
limits are described further below for each annuity program. For the following
discussion, the term "participant" generally refers to the individual under a
Certificate and the owner of an individual Contract.
SECTION 403(B) PLANS AND ARRANGEMENTS
Purchase Payments for tax-deferred annuity contracts may be made by an employer
for employees under annuity plans adopted by public educational organizations
and certain organizations which are tax exempt under Section 501(c)(3) of the
Code. Within statutory limits, these payments are not currently includable in
the gross income of the participants. Increases in the value of the Contract
attributable to these purchase payments are similarly not subject to current
taxation. The income in the Contract is taxable as ordinary income whenever
distributed.
An additional tax of 10% will apply to any taxable distribution received by the
Participant before the age of 59 1/2, except when due to death, disability, or
as part of a series of payments for life or life expectancy, or made after the
age of 55 with separation from service. There are other statutory exceptions.
Amounts attributable to salary reductions and income thereon may not be
withdrawn prior to attaining the age of 59 1/2, separation from service, death,
total and permanent disability, or in the case of hardship as defined by federal
tax law and regulations. Hardship withdrawals are available only to the extent
of the salary reduction contributions and not from the income attributable to
such contributions. These restrictions do not apply to assets held generally as
of December 31, 1988.
Distribution must begin by the later of April 1st of the calendar year following
the calendar year in which the Participant attains the age of 70 1/2 or April
1st of the calendar year in which the Participant retires. Certain other
mandatory distribution rules apply at the death of the participant.
Eligible rollover distributions, including most partial or full redemptions or
"term-for-years" distributions of less than 10 years, are eligible for direct
rollover to another 403(b) contract or to an Individual Retirement Arrangement
(IRA) without federal income tax withholding.
QUALIFIED PENSION AND PROFIT-SHARING PLANS
Under a qualified pension or profit-sharing trust described in Section 401(a) of
the Code and exempt from tax under Section 501(a) of the Code, purchase payments
made by an employer are not currently taxable to the Participant and increases
in the value of a Contract are not subject to taxation until received by a
Participant or beneficiary.
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Distributions in the form of Annuity or Income Payments are taxable to the
Participant or beneficiary as ordinary income in the year of receipt. Any
distribution that is considered the Participant's "investment in the Contract"
is treated as a return of capital and is not taxable. Certain lump-sum
distributions described in Section 402 of the Code may be eligible for special
ten-year forward averaging treatment for individuals born before January 1,
1936. All individuals may be eligible for favorable five-year forward averaging
of lump-sum distributions. Certain eligible rollover distributions including
most partial and full surrenders or term-for-years distributions of less than 10
years are eligible for direct rollover to an eligible retirement plan or to an
IRA without federal income tax withholding.
Distributions must begin by the later of April 1st of the calendar year
following the calendar year in which you attain age 65 or April 1st of the
calendar year in which you retire, except that if you are a 5% owner as defined
in Code Section 416(i)(1)(B), distributions must begin by April 1st of the
calendar year following the calendar year in which you attain age 70 1/2.
Certain other mandatory distribution rules apply on the death of the
participant.
An additional tax of 10% will apply to any taxable distribution received by the
Participant before the age of 59 1/2, except by reason of death, disability or
as part of a series of payments for life or life expectancy, or at early
retirement at or after the age of 55. There are other statutory exceptions.
INDIVIDUAL RETIREMENT ANNUITIES
To the extent of earned income for the year and not exceeding $2,000 per
individual, an individual may make deductible contributions to an individual
retirement annuity (IRA). There are certain limits on the deductible amount
based on the adjusted gross income of the individual and spouse and based on
their participation in a retirement plan. If an individual is married and the
spouse is not employed, the individual may establish IRAs for the individual and
spouse. Purchase payments may then be made annually into IRAs for both spouses
in the maximum amount of 100% of earned income up to a combined limit of $4,000.
Partial or full distributions made prior to the age of 59 1/2, except in the
case of death, disability or distribution for life or life expectancy, will
incur a penalty tax of 10% plus ordinary income tax treatment of the taxable
amount received. Distributions after the age of 59 1/2 are treated as ordinary
income. Amounts contributed after 1986 on a non-deductible basis are not
includable in income when distributed. Distributions must commence by April 1st
of the calendar year after the close of the calendar year in which the
individual attains the age of 70 1/2. Certain other mandatory distribution rules
apply on the death of the individual. The individual must maintain personal and
tax return records of any non-deductible contributions and distributions.
Section 408(k) of the Code provides for the purchase of a Simplified Employee
Pension (SEP) plan. A SEP is funded through an IRA with an annual employer
contribution limit of 15% of compensation up to $30,000 for each Participant.
SECTION 457 PLANS
Section 457 of the Code allows employees and independent contractors of state
and local governments and tax-exempt organizations to defer a portion of their
salaries or compensation to retirement years without paying current income tax
on either the deferrals or the earnings on the deferrals.
The Owner of Contracts issued under Section 457 plans is the employer or a
contractor of the Participant and amounts may not be made available to
participants (or beneficiaries) until separation from service, retirement or
death or an unforeseeable emergency as determined by Treasury Regulations. The
proceeds of annuity contracts purchased by Section 457 plans are subject to the
claims of general creditors of the employer or contractor.
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Distributions must begin generally by April 1st of the calendar year following
the calendar year in which the participant attains the age of 70 1/2. Certain
other mandatory distribution rules apply upon the death of the participant.
All distributions from plans that meet the requirements of Section 457 of the
Code are taxable as ordinary income in the year paid or made available to the
Participant or beneficiary.
NONQUALIFIED ANNUITIES
Individuals may purchase tax-deferred annuities without tax law funding limits.
The purchase payments receive no tax benefit, deduction or deferral, but taxes
on the increases in the value of the Contract are generally deferred until
distribution. If a nonqualified annuity is owned by other than an individual,
however, (e.g., by a corporation), the increases in value attributable to
purchase payments made after February 28, 1986 are includable in income
annually. Furthermore, for contracts issued after April 22, 1987, all deferred
increases in value will be includable in the income of an Owner when that Owner
transfers the Contract without adequate consideration.
The federal tax law requires nonqualified annuity contracts issued on or after
January 19, 1985 to meet minimum mandatory distribution requirements upon the
death of the Owner. Failure to meet these requirements will cause the succeeding
Owner or beneficiary to lose the tax benefits associated with annuity contracts,
i.e., primarily the tax deferral prior to distribution. The distribution
required depends upon whether an Annuity Option is elected or whether the
succeeding Owner is the surviving spouse. Contracts will be administered by the
Company in accordance with these rules.
If two or more nonqualified annuity contracts are purchased from the same
insurer within the same calendar year, distributions from any of them will be
taxed based upon the amount of income in all of the same calendar year series of
annuities. This will generally have the effect of causing taxes to be paid
sooner on the deferred gain in the contracts.
Those receiving partial distributions made before annuitization of a Contract
will generally be taxed on an income-first basis to the extent of income in the
Contract. Certain pre-August 14, 1982 deposits into a nonqualified annuity
contract that have been placed in the Contract by means of a tax-deferred
exchange under Section 1035 of the Code may be withdrawn first without income
tax liability. This information on deposits must be provided to the Company by
the other insurance company at the time of the exchange. There is income in the
Contract generally to the extent the Cash Value exceeds the investment in the
Contract. The investment in the Contract is equal to the amount of premiums paid
less any amount received previously which was excludable from gross income. Any
direct or indirect borrowing against the value of the Contract or pledging of
the Contract as security for a loan will be treated as a cash withdrawal under
the tax law.
With certain exceptions, the law will impose an additional tax if an Owner makes
a withdrawal of any amount under the Contract which is allocable to an
investment made after August 13, 1982. The amount of the additional tax will be
10% of the amount includable in income by the Owner because of the withdrawal.
The additional tax will not be imposed if the amount is received on or after the
Owner reaches the age of 59 1/2, or if the amount is one of a series of
substantially equal periodic payments made for life or life expectancy of the
taxpayer. The additional tax will not be imposed if the withdrawal or partial
surrender follows the death or disability of the Owner.
THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974
Under the Employee Retirement Income Security Act of 1974 ("ERISA"), as amended,
certain special provisions may apply to the Contract if the Owner of a Section
403(b) plan Contract or certain other tax-benefited contracts requests that the
Contract be issued to conform to ERISA or if the Company has notice that the
Contract was issued pursuant to a plan subject to ERISA.
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ERISA requires that certain Annuity Options, withdrawals or other payments and
any application for a loan secured by the Contract may not be made until the
Participant has filed a Qualified Election with the plan administrator. Under
certain plans, ERISA also requires that a designation of a beneficiary other
than the participant's spouse be deemed invalid unless the participant has filed
a Qualified Election.
A Qualified Election must include either the written consent of the
Participant's spouse, notarized or witnessed by an authorized plan
representative, or the participant's certification that there is no spouse or
that the spouse cannot be located.
The Company intends to administer all contracts to which ERISA applies in a
manner consistent with the direction of the plan administrator regarding the
provisions of the plan, in accordance with applicable law. Because these
requirements differ according to the plan, a person contemplating the purchase
of an annuity Contract should consider the provisions of the plan.
FEDERAL INCOME TAX WITHHOLDING
The portion of a distribution which is taxable income to the recipient will be
subject to federal income tax withholding, generally pursuant to Section 3405 of
the Code. The application of this provision is summarized below.
1. ELIGIBLE ROLLOVER DISTRIBUTION FROM SECTION 403(B) PLANS OR ARRANGEMENTS
OR FROM QUALIFIED PENSION AND PROFIT-SHARING PLANS
There is an unwaivable 20% tax withholding for plan distributions that
are eligible for rollover to an IRA or to another retirement plan but
that are not directly rolled over. A distribution made directly to a
Participant or beneficiary may avoid this result if:
(a) a periodic settlement distribution is elected based upon a life or
life expectancy calculation, or
(b) a complete term-for-years settlement distribution is elected for a
period of ten years or more, payable at least annually, or
(c) a minimum required distribution as defined under the tax law is taken
after the attainment of the age of 70 1/2 or as otherwise required by
law.
A distribution including a rollover that is not a direct rollover will
require the 20% withholding, and a 10% additional tax penalty may apply
to any amount not added back in the rollover. The 20% withholding may be
recovered when the participant or beneficiary files a personal income tax
return for the year if a rollover was completed within 60 days of receipt
of the funds, except to the extent that the participant or spousal
beneficiary is otherwise underwithheld or short on estimated taxes for
that year.
2. OTHER NON-PERIODIC DISTRIBUTIONS (FULL OR PARTIAL REDEMPTIONS)
To the extent not described as requiring 20% withholding in 1 above, the
portion of a non-periodic distribution which constitutes taxable income
will be subject to federal income tax withholding, to the extent such
aggregate distributions exceed $200 for the year, unless the recipient
elects not to have taxes withheld. If an election out is not provided,
10% of the taxable distribution will be withheld as federal income tax.
Election forms will be provided at the time distributions are requested.
This form of withholding applies to all annuity programs.
3. PERIODIC DISTRIBUTIONS (DISTRIBUTIONS PAYABLE OVER A PERIOD GREATER THAN
ONE YEAR)
The portion of a periodic distribution which constitutes taxable income
will be subject to federal income tax withholding under the wage
withholding tables as if the recipient were married claiming three
exemptions. A recipient may elect not to have income taxes withheld or
have income taxes withheld at a different rate by providing a completed
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election form. Election forms will be provided at the time distributions are
requested. This form of withholding applies to all annuity programs. As of
January 1, 1997, a recipient receiving periodic payments (e.g., monthly or
annual payments under an Annuity Option) which total $14,850 or less per year,
will generally be exempt from the withholding requirements.
Recipients who elect not to have withholding made are liable for payment of
federal income tax on the taxable portion of the distribution. All recipients
may also be subject to penalties under the estimated tax payment rules if
withholding and estimated tax payments are not sufficient.
Recipients who do not provide a social security number or other taxpayer
identification number will not be permitted to elect out of withholding.
Additionally, United States citizens residing outside of the country, or U.S.
legal residents temporarily residing outside the country, are not permitted to
elect out of withholding.
TAX ADVICE
Because of the complexity of the law and the fact that the tax results will vary
according to the factual status of the individual involved, tax advice may be
needed by a person contemplating purchase of an annuity contract and by an
Owner, Participant or beneficiary who may make elections under a contract. It
should be understood that the foregoing description of the federal income tax
consequences under these contracts is not exhaustive and that special rules are
provided with respect to situations not discussed here. It should be understood
that if a tax-benefited plan loses its exempt status, employees could lose some
of the tax benefits described. For further information, a qualified tax adviser
should be consulted.
LEGAL OPINION
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Legal matters in connection with federal laws and regulations affecting the
issue and sale of the Modified Guaranteed Annuity Contracts described in this
Prospectus and the organization of the Company, its authority to issue such
Contracts under Connecticut law, and the validity of the forms such Contracts
under Connecticut law have been passed on by the General Counsel of the Life and
Annuities Division of the Company.
EXPERTS
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The consolidated financial statements and schedules of the Travelers Insurance
Company and Subsidiaries as of December 31, 1996 and 1995, and for each of the
years in the three-year period ended December 31, 1996, have been incorporated
by reference herein and in the registration statement in reliance upon the
reports of KPMG Peat Marwick LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
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APPENDIX A
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ILLUSTRATION OF A MARKET VALUE ADJUSTMENT
Deposit: $50,000.00
Guarantee Period: 5 Years
Guaranteed Interest Rate: 5% Effective Annual Rate
The following examples illustrate how the Market Value Adjustment may affect the
values of your Contract. In these examples, the surrender occurs one year after
a Deposit of $50,000 was made to the Contract. The Maturity Value of this
Deposit would be $63,814.08 at the end of the five-year Guarantee Period.
However, after one year, when the surrenders occur in these examples, the value
of the Deposit and accumulated guaranteed interest would be $52,500.00.
The Market Value Adjustment will be based on the rate the Company is crediting
at the time of surrender on new Deposits of the same term-to-maturity as the
time remaining in your Guarantee Period. One year after the Deposit, you would
have four years remaining in the five-year Guarantee Period.
EXAMPLE OF A NEGATIVE MARKET VALUE ADJUSTMENT
A negative Market Value Adjustment results from a surrender that occurs when
interest rates have increased since the date of Deposit. Assume interest rates
have increased one year after the Deposit and the Company is crediting 7% for a
four-year Guarantee Period. If you surrender the full Deposit, the Market
Adjusted Value would be:
1 (4)
$47,784.02 = $63,814.08 X ---------------
F 1 + .07 + .005 G
The Market Value Adjustment is a reduction of $4,715.98 from the Deposit plus
accumulated interest:
$47,784.02 = $52,500.00 - $4,715.98
If instead of a full surrender, 50% of the Deposit were surrendered, the Market
Adjusted Value of the surrendered portion would be 50% of the full surrender:
1 (4)
$23,892.01 = $31,907.04 X ---------------
F 1 + .07 + .005 G
The Maturity Value after the partial surrender would be 50% of the Maturity
Value prior to surrender, or $31,907.04.
EXAMPLE OF A POSITIVE MARKET VALUE ADJUSTMENT
A positive Market Value Adjustment results from a surrender that occurs when
interest rates have decreased since the date of Deposit. Assume interest rates
have decreased one year later and the Company is then crediting 3.5% for a
four-year Guarantee Period.
If you surrender the full Deposit, the Market Adjusted Value would be:
1 (4)
$54,548.54 = $63,814.08 X ----------------
F 1 + .035 + .005 G
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The Market Value Adjustment is an increase of $2,048.54 over the Deposit plus
accumulated interest:
$54,548.54 = $52,500.00 + $2,048.54
If instead of a full surrender, 50% of the Deposit were surrendered, the Market
Adjusted Value of the surrendered portion would be 50% of the full surrender:
1 (4)
$27,274.27 = $31,907.04 X ----------------
F 1 + .035 + .005 G
The Maturity Value after the partial surrender would be 50% of the Maturity
Value prior to the surrender, or $31,907.04.
These examples only illustrate what may happen when interest rates increase or
decrease after a Deposit is made to the Contract. A particular Market Value
Adjustment may have a greater or lesser impact than that shown in these
examples, depending on how much interest rates have changed since the Deposit
and the amount of time remaining to Maturity. In addition, a surrender charge
may be assessed on surrenders made before the Deposit has been under the
Contract for five years.
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APPENDIX B
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INCOME OPTIONS
Instead of one of the Annuity Options described on page 7, and subject to the
conditions described under "Election of Options," all or part of the Cash
Surrender Value of the Contract may be paid under one or more of the following
Income Options, provided that they are consistent with federal tax law
qualification requirements. Payments under the Income Options may be elected on
a monthly, quarterly, semiannual or annual basis:
OPTION 1 -- PAYMENTS OF A FIXED AMOUNT. The Company will make equal payments of
the amount elected until the Contract Value applied under this option has been
exhausted. The first payment and all later payments will be paid from each
Sub-Account or the Fixed Account in proportion to the Cash Surrender Value
attributable to that Account. The final payment will include any amount
insufficient to make another full payment.
OPTION 2 -- PAYMENTS FOR A FIXED PERIOD. The Company will make payments for the
period selected. The amount of each payment will be equal to the remaining
Contract Value applied under this option divided by the number of remaining
payments.
OPTION 3 -- OTHER INCOME OPTIONS. The Company will make any other arrangements
for Income Payments as may be mutually agreed upon.
The amount applied to effect an Income Option will be the Contract Value as of
14 days before the date Income Payments commence, less any applicable premium
taxes not previously deducted and any applicable contingent deferred sales
charge. The Contract Value used to determine the amount of any Income Payment
will be determined on the same basis as the Contract Value during the
Accumulation Period, including the deduction for mortality and expense risks and
the Sub-Account Administrative Charge. Income Options differ from Annuity
Options in that the amount of the payments made under Income Options are
unrelated to the length of life of any person. Although the Company continues to
deduct the charge for mortality and expense risks, it assumes no mortality risks
for amounts applied under any Income Option. Moreover, payments are unrelated to
the actual life span of any person. Thus, the Annuitant may outlive the payment
period.
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MODIFIED GUARANTEED ANNUITY CONTRACTS
ISSUED BY
THE TRAVELERS INSURANCE COMPANY
L-11167 TIC Ed 5-97
Printed in U.S.A.
