-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RSDX40zfuGK/nx30e0rIYjVOYOBHHe2V6MaVG/pIIcQxDhNtkKvlhzGd1FzvcHgq H4tjzY5zimObIwQqe3+rRw== 0000930413-04-004296.txt : 20040902 0000930413-04-004296.hdr.sgml : 20040902 20040902144759 ACCESSION NUMBER: 0000930413-04-004296 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20040902 DATE AS OF CHANGE: 20040902 EFFECTIVENESS DATE: 20040902 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TLAC SEPARATE ACCOUNT TWELVE FOR VARIABLE ANNUITIES CENTRAL INDEX KEY: 0001209918 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 333-101814 FILM NUMBER: 041013567 MAIL ADDRESS: STREET 1: ONE TOWER SQUARE CITY: HARTFORD STATE: CT ZIP: 06183 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TIC SEPARATE ACCOUNT ELEVEN FOR VARIABLE ANNUITIES CENTRAL INDEX KEY: 0001209404 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 333-101778 FILM NUMBER: 041013566 MAIL ADDRESS: STREET 1: ONE TOWER SQUARE CITY: HARTFORD STATE: CT ZIP: 06183 497 1 c33621_497.txt PIONEER ANNUISTAR PLUS ANNUITY PROSPECTUS: TIC SEPARATE ACCOUNT ELEVEN FOR VARIABLE ANNUITIES TLAC SEPARATE ACCOUNT TWELVE FOR VARIABLE ANNUITIES This prospectus describes PIONEER ANNUISTAR PLUS ANNUITY, a flexible premium deferred variable annuity contract (the "Contract") issued by The Travelers Insurance Company or The Travelers Life and Annuity Company. The Travelers Life and Annuity Company does not solicit or issue insurance products in the state of New York. Refer to the first page of your Contract for the name of your issuing company. The Contract is available in connection with certain retirement plans that qualify for special federal income tax treatment ("Qualified Contracts") as well as those that do not qualify for such treatment ("Non-qualified Contracts"). We may issue it as an individual contract or as a group contract. When we issue a group contract, you will receive a certificate summarizing the Contract's provisions. For convenience, we refer to contracts and certificates as "Contracts." You can choose to have your premium ("Purchase Payments") and any associated Purchase Payment Credits accumulate on a variable and/or, subject to availability, fixed basis in one of our funding options. Your Contract Value before the Maturity Date and the amount of monthly income afterwards will vary daily to reflect the investment experience of the Variable Funding Options you select. You bear the investment risk of investing in the Variable Funding Options. The Variable Funding Options are: Money Market Portfolio PIONEER VARIABLE CONTRACTS TRUST (CONTINUED) AIM VARIABLE INSURANCE FUNDS, INC. Pioneer Equity Income VCT Portfolio -- Class II Shares AIM V.I. Capital Appreciation Fund -- Series II Pioneer Europe VCT Portfolio -- Class II Shares AIM V.I. Mid Cap Core Equity -- Series II Pioneer Fund VCT Portfolio -- Class II Shares FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST Pioneer High Yield VCT Portfolio -- Class II Shares Franklin Rising Dividends Securities Fund -- Class 2 Shares Pioneer International Value VCT Portfolio -- Class II Share Franklin Small Cap Fund -- Class 2 Shares Pioneer Mid Cap Value VCT Portfolio -- Class II Shares Templeton Foreign Securities Fund -- Class 2 Shares Pioneer Oak Ridge Large Cap Growth VCT GREENWICH STREET SERIES FUND Portfolio -- Class II Shares Salomon Brothers Variable Aggressive Growth Pioneer Papp America-Pacific Rim VCT Portfolio -- Fund -- Class II Shares(1) Class II Shares OPPENHEIMER VARIABLE ACCOUNT FUNDS Pioneer Papp Small & Mid Cap Growth VCT Oppenheimer Capital Appreciation Fund/VA -- Service Shares Portfolio -- Class II Shares Oppenheimer Global Securities Fund/VA -- Service Shares Pioneer Real Estate Shares VCT Portfolio -- Class II Shares PIONEER VARIABLE CONTRACTS TRUST Pioneer Small Cap Value VCT Portfolio -- Class II Shares Pioneer America Income VCT Portfolio -- Class II Shares Pioneer Small Company VCT Portfolio -- Class II Shares Pioneer Balanced VCT Portfolio -- Class II Shares Pioneer Strategic Income VCT Portfolio -- Class II Shares Pioneer Emerging Markets VCT Portfolio -- Class II Shares Pioneer Value VCT Portfolio -- Class II Shares SALOMON BROTHERS VARIABLE SERIES FUNDS INC. Total Return Fund -- Class II
- ---------- (1) Formerly Salomon Brothers Variable Emerging Growth Fund -- Class II Shares We also offer variable annuity contracts that do not have Purchase Payment Credits, and therefore may have lower fees. Over time, the value of the Purchase Payment Credits could be more than offset by higher charges. You should carefully consider whether or not this Contract is the most appropriate investment for you. The Contract, certain contract features and/or some of the funding options may not be available in all states. This prospectus provides the information that you should know before investing in the Contract. Please keep this prospectus for future reference. You can receive additional information about your Contract by requesting a copy of the Statement of Additional Information ("SAI") dated May 3, 2004. We filed the SAI with the Securities and Exchange Commission ("SEC"), and it is incorporated by reference into this prospectus. To request a copy, write to Travelers Life & Annuity at One Cityplace, 3CP, Hartford, Connecticut 06103-3415, call 1-866-291-2474 or access the SEC's website (http://www.sec.gov). See Appendix E for the SAI's table of contents. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. VARIABLE ANNUITY CONTRACTS ARE NOT DEPOSITS OF ANY BANK, AND ARE NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. PROSPECTUS DATED MAY 3, 2004 (SUPPLEMENTED SEPTEMBER 6, 2004) TABLE OF CONTENTS
Glossary .................................................. 3 The Annuity Period ........................................ 40 Summary ................................................... 5 Maturity Date .......................................... 40 Fee Table ................................................. 9 Allocation of Annuity .................................. 40 Condensed Financial Information ........................... 14 Variable Annuity ....................................... 40 The Annuity Contract ...................................... 14 Fixed Annuity .......................................... 41 Contract Owner Inquiries ............................... 15 Payment Options ........................................... 41 Purchase Payments ...................................... 15 Election of Options .................................... 41 Purchase Payment Credits ............................... 15 Annuity Options ........................................ 42 Accumulation Units ..................................... 16 Variable Liquidity Benefit ............................. 42 The Variable Funding Options ........................... 16 Miscellaneous Contract Provisions ......................... 42 The Fixed Account ......................................... 19 Right to Return ........................................ 42 Charges and Deductions .................................... 19 Termination ............................................ 43 General ................................................ 19 Required Reports ....................................... 43 Withdrawal Charge ...................................... 20 Suspension of Payments ................................. 43 Free Withdrawal Allowance .............................. 21 The Separate Accounts ..................................... 43 Transfer Charge ........................................ 21 Performance Information ................................ 44 Administrative Charges ................................. 21 Federal Tax Considerations ................................ 44 Mortality and Expense Risk Charge ...................... 21 General Taxation of Annuities .......................... 44 Variable Benefit Charge ................................ 21 Types of Contracts: Qualified and Non-qualified ........ 45 Variable Liquidity Benefit Charge ...................... 21 Qualified Annuity Contracts ............................ 45 Enhanced Stepped-Up Provision Charge ................... 22 Taxation of Qualified Annuity Contracts .............. 45 Guaranteed Minimum Withdrawal Benefit Charge ........... 22 Mandatory Distributions for Qualified Plans .......... 45 Guaranteed Minimum Accumulation Benefit Charge ......... 22 Non-qualified Annuity Contracts ........................ 45 Variable Funding Option Expenses ....................... 22 Diversification Requirements for Premium Tax ............................................ 22 Variable Annuities ................................. 46 Changes in Taxes Based upon Premium or Value ........... 22 Ownership of the Investments ......................... 46 Transfers ................................................. 23 Taxation of Death Benefit Proceeds ................... 46 Dollar Cost Averaging .................................. 24 Other Tax Considerations ............................... 47 Access to Your Money ...................................... 24 Treatment of Charges for Optional Death Benefits ..... 47 Systematic Withdrawals ................................. 25 Penalty Tax for Premature Distribution ............... 47 Ownership Provisions ...................................... 25 Puerto Rico Tax Considerations ....................... 47 Types of Ownership ..................................... 25 Non-Resident Aliens .................................. 47 Contract Owner ....................................... 25 Other Information ......................................... 47 Beneficiary .......................................... 25 The Insurance Companies ................................ 47 Annuitant ............................................ 26 Financial Statements ................................... 48 Death Benefit ............................................. 26 Distribution of Variable Annuity Contracts ............. 48 Death Proceeds before the Maturity Date ................ 26 Conformity with State and Federal Laws ................. 49 Enhanced Stepped-Up Provision .......................... 29 Voting Rights .......................................... 49 Payment of Proceeds .................................... 29 Restrictions on Financial Transactions ................. 49 Spousal Contract Continuance ........................... 31 Legal Proceedings and Opinions ......................... 50 Beneficiary Contract Continuance ....................... 31 Appendix A: Condensed Financial Information for Death Proceeds after the Maturity Date ................. 32 Travelers Insurance Company: Separate Account Eleven ... A-1 Living Benefits .......................................... 32 Appendix B: Condensed Financial Information for Guaranteed Minimum Withdrawal Benefit .................. 32 Travelers Life and Annuity Company: Separate Guaranteed Minimum Accumulation Benefit ................ 34 Account Twelve ....................................... B-1 Appendix C: The Fixed Account ............................. C-1 Appendix D: Nursing Home Waiver ........................... D-1 Appendix E: Contents of the Statement of Additional Information .............................. E-1
2 GLOSSARY ACCUMULATION UNIT -- an accounting unit of measure used to calculate the value of this Contract before Annuity Payments begin. ANNUITANT -- the person on whose life the Maturity Date and Annuity Payments depend. ANNUITY PAYMENTS -- a series of periodic payments (a) for life; (b) for life with a minimum number of payments; (c) for the joint lifetime of the Annuitant and another person, and thereafter during the lifetime of the survivor; or (d) for a fixed period. ANNUITY UNIT -- an accounting unit of measure used to calculate the amount of Annuity Payments. CASH SURRENDER VALUE -- the Contract Value less any withdrawal charge and premium tax not previously deducted. CODE -- the Internal Revenue Code of 1986, as amended, and all related laws and regulations that are in effect during the term of this Contract. CONTINGENT ANNUITANT -- the individual who becomes the Annuitant when the Annuitant who is not the owner dies prior to the Maturity Date. CONTRACT DATE -- the date on which the Contract is issued. CONTRACT OWNER (you) -- the person named in the Contract (on the specifications page) as the owner of the Contract. CONTRACT VALUE -- Purchase Payments, plus any associated Purchase Payment Credits, plus or minus any investment experience on the amounts allocated to the variable funds or interest on amounts allocated to the Fixed Account, adjusted by any applicable charges and withdrawals. CONTRACT YEARS -- twelve month periods beginning with the Contract Date. DEATH REPORT DATE -- the day on which we have received 1) Due Proof of Death and 2) written payment instructions or election of spousal or beneficiary contract continuation. DUE PROOF OF DEATH -- (i) a copy of a certified death certificate; (ii) a copy of a certified decree of a court of competent jurisdiction as to the finding of death; (iii) a written statement by a medical doctor who attended the deceased; or (iv) any other proof satisfactory to us. FIXED ACCOUNT -- an account that consists of all of the assets under this Contract other than those in the Separate Account. HOME OFFICE -- the Home Office of The Travelers Insurance Company or The Travelers Life and Annuity Company or any other office that we may designate for the purpose of administering this Contract. MATURITY DATE -- the date on which the Annuity Payments are to begin. PAYMENT OPTION -- an annuity or income option elected under your Contract. PURCHASE PAYMENT -- any premium paid by you to initiate or supplement this Contract. PURCHASE PAYMENT CREDIT -- an amount credited to your Contract Value that equals a percentage of each Purchase Payment made. QUALIFIED CONTRACT -- a contract used in a retirement plan or program that is intended to qualify under Sections 401, 403 or 408 of the Code. SEPARATE ACCOUNT -- a segregated account registered with the Securities and Exchange Commission ("SEC"), the assets of which are invested solely in the Underlying Funds. The assets of the Separate Account are held exclusively for the benefit of Contract Owners. SUBACCOUNT -- that portion of the assets of a Separate Account that is allocated to a particular Underlying Fund. 3 UNDERLYING FUND -- a portfolio of an open-end management investment company that is registered with the SEC in which the Subaccounts invest. VALUATION DATE -- a date on which a Subaccount is valued. VALUATION PERIOD -- the period between successive valuations. VARIABLE FUNDING OPTION -- a Subaccount of the Separate Account that invests in an Underlying Fund. WE, US, OUR -- The Travelers Insurance Company or The Travelers Life and Annuity Company. WRITTEN REQUEST -- written information sent to us in a form and content satisfactory to us and received at our Home Office. YOU, YOUR -- the Contract Owner. 4 SUMMARY: PIONEER ANNUISTAR PLUS ANNUITY THIS SUMMARY DETAILS SOME OF THE MORE IMPORTANT POINTS THAT YOU SHOULD KNOW AND CONSIDER BEFORE PURCHASING THE CONTRACT. PLEASE READ THE ENTIRE PROSPECTUS CAREFULLY. WHAT COMPANY WILL ISSUE MY CONTRACT? Your issuing company is either The Travelers Insurance Company or The Travelers Life and Annuity Company, ("the Company," "We" or "Us"). The Travelers Life and Annuity Company does not solicit or issue insurance products in the state of New York. Refer to your Contract for the name of your issuing company. Each company sponsors its own segregated account ("Separate Account"). The Travelers Insurance Company sponsors the TIC Separate Account Eleven for Variable Annuities ("Separate Account Eleven"); The Travelers Life and Annuity Company sponsors the TLAC Separate Account Twelve for Variable Annuities ("Separate Account Twelve"). When we refer to the Separate Account, we are referring to either Separate Account Eleven or Separate Account Twelve, depending upon your issuing Company. You may only purchase a contract in states where the Contract has been approved for sale. The Contract may not currently be available for sale in all states. CAN YOU GIVE ME A GENERAL DESCRIPTION OF THE CONTRACT? We designed the Contract for retirement savings or other long-term investment purposes. The Contract provides a death benefit as well as guaranteed payout options. You direct your payment(s) to one or more of the Variable Funding Options and/or to the Fixed Account that is part of our general account (the "Fixed Account"). We guarantee money directed to the Fixed Account as to principal and interest. The Variable Funding Options fluctuate with the investment performance of the Underlying Funds and are not guaranteed. You can also lose money in the Variable Funding Options. The Contract, like all deferred variable annuity contracts, has two phases: the accumulation phase and the payout phase (annuity period). During the accumulation phase generally, under a Qualified Contract, your pre-tax contributions accumulate on a tax-deferred basis and are taxed as income when you make a withdrawal, presumably when you are in a lower tax bracket. During the accumulation phase, under a Non-qualified Contract, earnings on your after-tax contributions accumulate on a tax-deferred basis and are taxed as income when you make a withdrawal. The payout phase occurs when you begin receiving payments from your Contract. The amount of money you accumulate in your Contract determines the amount of income (Annuity Payments) you receive during the payout phase. During the payout phase, you may choose one of a number of annuity options. You may receive income payments from the Variable Funding Options and/or the Fixed Account. If you elect variable income payments, the dollar amount of your payments may increase or decrease. Once you choose one of the annuity options and begin to receive payments, it cannot be changed. WHO CAN PURCHASE THIS CONTRACT? The Contract is currently available for use in connection with (1) individual non-qualified purchases; (2) rollovers from Individual Retirement Annuities (IRAs); (3) rollovers from other qualified retirement plans and (4) beneficiary-directed transfers of death proceeds from another contract. Qualified Contracts include contracts qualifying under Section 401(a), 403(b) or 408(b) of the Internal Revenue Code of 1986, as amended. Purchase of this Contract through a tax qualified retirement plan ("Plan") does not provide any additional tax deferral benefits beyond those provided by the Plan. Accordingly, if you are purchasing this Contract through a Plan, you should consider purchasing this Contract for its death benefit, annuity option benefits, and other non-tax-related benefits. You may purchase the Contract with an initial payment of at least $5,000. You may make additional payments of at least $500 at any time during the accumulation phase. No additional payments are allowed if this Contract is purchased with a beneficiary-directed transfer of death proceeds. The ages of the owner and Annuitant determine which death benefits and certain optional features are available to you. See The Annuity Contract section for more information. CAN I EXCHANGE MY CURRENT ANNUITY CONTRACT FOR THIS CONTRACT? The Code generally permits you to exchange one annuity contract for another in a "tax-free exchange." Therefore, you can transfer the proceeds from another annuity contract to purchase this Contract. Before making an exchange to acquire this Contract, you should carefully compare this Contract to your current contract. You may have to pay a surrender charge under your 5 current contract to exchange it for this Contract, and this Contract has its own surrender charges that would apply to you. The other fees and charges under this Contract may be higher or lower and the benefits may be different than those of your current contract. In addition, you may have to pay federal income or penalty taxes on the exchange if it does not qualify for tax-free treatment. You should not exchange another contract for this Contract unless you determine, after evaluating all the facts, the exchange is in your best interests. Remember that the person selling you the Contract generally will earn a commission on the sale. IS THERE A RIGHT TO RETURN PERIOD? If you cancel the Contract within ten days after you receive it, you will receive a full refund of your Contract Value plus any contract charges and premium taxes you paid (but not fees and charges assessed by the Underlying Funds) minus any Purchase Payment Credits. Where state law requires a different right to return period, or the return of Purchase Payments, the Company will comply. You bear the investment risk on the Purchase Payment allocated to a Variable Funding Option during the right to return period; therefore, the Contract Value we return may be greater or less than your Purchase Payment. If you purchased your Contract as an Individual Retirement Annuity, and you return it within the first seven days after delivery, or longer if your state law permits, we will refund your full Purchase Payment minus any Purchase Payment Credits. During the remainder of the right to return period, we will refund your Contract Value (including charges we assessed) minus any Purchase Payment Credits. We will determine your Contract Value at the close of business on the day we receive a Written Request for a refund. During the right to return period, you will not bear any contract fees associated with the Purchase Payment Credits. If you exercise your right to return, you will be in at least the same position as if you had exercised the right to return in a variable annuity contract with no Purchase Payment Credit. You would, however, receive any gains, and we would bear any losses attributable to the Purchase Payment Credits. CAN YOU GIVE A GENERAL DESCRIPTION OF THE VARIABLE FUNDING OPTIONS AND HOW THEY OPERATE? The Variable Funding Options represent Subaccounts of the Separate Account. At your direction, the Separate Account, through its Subaccounts, uses your Purchase Payments to purchase shares of one or more of the Underlying Funds that holds securities consistent with its own investment policy. Depending on market conditions, you may make or lose money in any of these Variable Funding Options. You can transfer among the Variable Funding Options as frequently as you wish without any current tax implications. Currently there is no charge for transfers, nor a limit to the number of transfers allowed. We may, in the future, charge a fee for any transfer request, or limit the number of transfers allowed. At a minimum, we would always allow one transfer every six months. We reserve the right to restrict transfers that we determine will disadvantage other Contract Owners. You may transfer between the Fixed Account and the Variable Funding Options twice a year (during the 30 days after the six-month Contract Date anniversary), provided the amount is not greater than 15% of the Fixed Account value on that date. We also reserve the right to restrict transfers into the Fixed Account if the credited interest rate is equal to the minimum guaranteed interest rate specified under the Contract. WHAT EXPENSES WILL BE ASSESSED UNDER THE CONTRACT? The Contract has insurance features and investment features, and there are costs related to each. We deduct an administrative expense charge and a mortality and expense risk ("M&E") charge daily from amounts you allocate to the Separate Account. We deduct the administrative expense charge at an annual rate of 0.15% and deduct the M&E at an annual rate of 1.40% for the Standard Death Benefit, 1.55% for the Step-Up Death Benefit, and 1.75% for the Roll-Up Death Benefit. For Contracts with a value of less than $100,000, we also deduct an annual contract administrative charge of $40. Each Underlying Fund also charges for management costs and other expenses. We will apply a withdrawal charge to withdrawals from the Contract, and will calculate it as a percentage of the Purchase Payments and any associated Purchase Payment Credits withdrawn. The maximum percentage is 8%, decreasing to 0% in years ten and later. If you select the Enhanced Stepped-Up Provision ("E.S.P."), an additional 0.20% annually will be deducted from amounts in the Variable Funding Options. THIS PROVISION IS NOT AVAILABLE TO A CUSTOMER WHEN EITHER THE ANNUITANT OR OWNER IS AGE 76 OR OLDER ON THE RIDER EFFECTIVE DATE. Upon annuitization, if the Variable Liquidity Benefit is selected, there is a maximum charge of 8% of the amounts withdrawn. Please refer to Payment Options for a description of this benefit. 6 If you select the Guaranteed Minimum Withdrawal Benefit ("GMWB"), a maximum of 1.00% annually will be deducted from amounts in the Variable Funding Options. The current charge is 0.40%. If you select the Guaranteed Minimum Accumulation Benefit ("GMAB"), a charge equal to 0.50% annually will be deducted from amounts in the Variable Funding Options. HOW WILL MY PURCHASE PAYMENTS AND WITHDRAWALS BE TAXED? Generally, the payments you make to a Qualified Contract during the accumulation phase are made with before-tax dollars. Generally, you will be taxed on your Purchase Payments, Purchase Payment Credits and on any earnings when you make a withdrawal or begin receiving Annuity Payments. Under a Non-qualified Contract, payments to the Contract are made with after-tax dollars, and any credits and earnings will generally accumulate tax-deferred. You will be taxed on these earnings when they are withdrawn from the Contract. If you are younger than 591/2 when you take money out, you may be charged a 10% federal penalty tax on the amount withdrawn. For owners of Qualified Contracts, if you reach a certain age, you may be required by federal tax laws to begin receiving payments from your annuity or risk paying a penalty tax. In those cases, we can calculate and pay you the minimum required distribution amounts. HOW MAY I ACCESS MY MONEY? You can take withdrawals any time during the accumulation phase. Withdrawal charges may apply, as well as income taxes, and/or a penalty tax on amounts withdrawn. WHAT IS THE DEATH BENEFIT UNDER THE CONTRACT? You may choose to purchase the Standard, Step-Up or Roll-Up Death Benefit. The death benefit applies upon the first death of the Contract Owner, joint owner, or Annuitant. Assuming you are the Annuitant, the death benefit is as follows: If you die before the Contract is in the payout phase, the person you have chosen as your beneficiary will receive a death benefit. We calculate the death benefit value at the close of the business day on which our Home Office receives (1) Due Proof of Death and (2) written payment instructions or the election of spousal or beneficiary contract continuance. Please refer to the Death Benefit section in the prospectus for more details. WHERE MAY I FIND OUT MORE ABOUT ACCUMULATION UNIT VALUES? The Condensed Financial Information in Appendix A or Appendix B to this prospectus provides more information about Accumulation Unit values. ARE THERE ANY ADDITIONAL FEATURES? This Contract has other features you may be interested in. These include: o PURCHASE PAYMENT CREDITS. For Contracts issued between May 1, 2003 and September 30, 2004, if the Contract Owner or the Annuitant is age 80 or less at the time the payment is made, you will receive a Purchase Payment Credit equal to 6.0% of the Purchase Payment. For Contracts issued prior to May 1, 2003, if the Contract Owner or the Annuitant is age 80 or less at the time the payment is made, you will receive a Purchase Payment Credit equal to 4.5% of the Purchase Payment. The expenses for a contract with Purchase Payment Credits are higher than a similar contract without Purchase Payment Credits, and the additional expenses attributable to the credits may more than offset the amount of the Purchase Payment Credit. o DOLLAR COST AVERAGING. This is a program that allows you to invest a fixed amount of money in Variable Funding Options each month, theoretically giving you a lower average cost per unit over time than a single one-time purchase. Dollar Cost Averaging requires regular investments regardless of fluctuating price levels, and does not guarantee profits or prevent losses in a declining market. Potential investors should consider their financial ability to continue purchases through periods of low price levels. o SYSTEMATIC WITHDRAWAL OPTION. Before the Maturity Date, you can arrange to have money sent to you at set intervals throughout the year. Of course, any applicable income and penalty taxes will apply on amounts withdrawn. Withdrawals in excess of the annual free withdrawal allowance may be subject to a withdrawal charge. o AUTOMATIC REBALANCING. You may elect to have the Company periodically reallocate the values in your Contract to match the rebalancing allocation selected. o MANAGED DISTRIBUTION PROGRAM. This program allows us to automatically calculate and distribute to you, in November of the applicable tax year, an amount that will satisfy the Internal Revenue Service's minimum distribution requirements imposed on certain contracts once the owner reaches age 701/2 or retires. These minimum distributions occur during the accumulation phase. 7 o ENHANCED STEPPED-UP PROVISION ("E.S.P."). For an additional charge, the total death benefit payable may be increased based on the earnings in your Contract. o SPOUSAL CONTRACT CONTINUANCE (SUBJECT TO AVAILABILITY). If your spouse is named as an owner and/or beneficiary, and you die prior to the Maturity Date, your spouse may elect to continue the Contract as owner rather than have the death benefit paid to the beneficiary. This feature applies to a spousal joint Contract Owner and/or beneficiary only. o BENEFICIARY CONTRACT CONTINUANCE (NOT PERMITTED FOR NON-NATURAL BENEFICIARIES). If you die before the Maturity Date, and if the value of any beneficiary's portion of the death benefit is between $20,000 and $1,000,000 as of the date of your death, that beneficiary(ies) may elect to continue his/her portion of the Contract rather than have the death benefit paid to the beneficiary. o GUARANTEED MINIMUM WITHDRAWAL BENEFIT ("PRINCIPAL GUARANTEE"). For an additional charge, we will guarantee the periodic return of your Purchase Payments. Under this benefit, we will pay you a maximum of 5% or 10% of your Purchase Payments, depending on when you elect to begin receiving the payments, every year until your Purchase Payments have been returned in full. We reserve the right not to include additional Purchase Payments in the calculation of the amount that we guarantee to return. o GUARANTEED MINIMUM ACCUMULATION BENEFIT ("GMAB"). For an additional charge, we will guarantee that your Contract Value will not be less than a minimum amount at the end of a specified number of years. The guaranteed amount is based on your Purchase Payments, including additional Purchase Payments you make within 12 months of electing the rider. Additional Purchase Payments made more than 12 months after you elect the rider will not increase the guaranteed amount. If your Contract Value is less than the minimum guaranteed amount on the Rider Maturity Date, we will apply additional amounts to increase your Contract Value so that it is equal to the guaranteed amount. 8 FEE TABLE - -------------------------------------------------------------------------------- The following tables describe the fees and expenses that you will pay when buying, owning, and surrendering the Contract. The first table describes the fees and expenses that you will pay at the time that you buy the Contract, surrender the Contract, or transfer Contract Value between Variable Funding Options. Expenses shown do not include premium taxes, which may be applicable. CONTRACT OWNER TRANSACTION EXPENSES WITHDRAWAL CHARGE.........................................8%(1) (as a percentage of the Purchase Payments and any associated Purchase Payment Credits withdrawn) TRANSFER CHARGE........................................ $10(2) (assessed on transfers that exceed 12 per year) VARIABLE LIQUIDITY BENEFIT CHARGE.........................8%(3) (As a percentage of the present value of the remaining Annuity Payments that are surrendered. The interest rate used to calculate this present value is 1% higher than the Assumed (Daily) Net Investment Factor used to calculate the Annuity Payments.) The next table describes the fees and expenses that you will pay periodically during the time that you own the Contract, not including Underlying Fund fees and expenses. CONTRACT ADMINISTRATIVE CHARGES ANNUAL CONTRACT ADMINISTRATIVE CHARGE.....................$40(4) - ---------- (1) The withdrawal charge declines to zero after the Purchase Payment has been in the Contract for nine years. The charge is as follows: YEARS SINCE PURCHASE WITHDRAWAL PAYMENT MADE CHARGE ------------------------------------------- -------------------- GREATER THAN OR EQUAL TO BUT LESS THAN 0 years 3 years 8% 3 years 4 years 7% 4 years 5 years 6% 5 years 6 years 5% 6 years 7 years 4% 7 years 8 years 3% 8 years 9 years 2% 9 years+ 0% (2) We do not currently assess the transfer charge. (3) This withdrawal charge only applies when you surrender the Contract after beginning to receive Annuity Payments. The Variable Liquidity Benefit Charge declines to zero after nine years. The charge is as follows: YEARS SINCE INITIAL WITHDRAWAL PURCHASE PAYMENT CHARGE ------------------------------------------- -------------------- GREATER THAN OR EQUAL TO BUT LESS THAN 0 years 3 years 8% 3 years 4 years 7% 4 years 5 years 6% 5 years 6 years 5% 6 years 7 years 4% 7 years 8 years 3% 8 years 9 years 2% 9 years+ 0% (4) We do not assess this charge if Contract Value is $100,000 or more on the fourth Friday of each August. 9 ANNUAL SEPARATE ACCOUNT CHARGES (AS A PERCENTAGE OF THE AVERAGE DAILY NET ASSETS OF THE SEPARATE ACCOUNT) We will assess a minimum mortality and expense risk charge ("M&E") of 1.40% and a maximum administrative expense charge of 0.15% on all contracts. In addition, there is a 0.20% charge for E.S.P., a 0.50% charge for GMAB, and a maximum charge of 1.00% for GMWB, each an optional feature. Below is a summary of all charges that may apply, depending on the death benefit and optional features you select:
STANDARD DEATH STEP-UP DEATH ROLL-UP DEATH BENEFIT BENEFIT BENEFIT --------------------- --------------------- ---------------------- Mortality and Expense Risk Charge....................... 1.40% 1.55% 1.75% Administrative Expense Charge........................... 0.15% 0.15% 0.15% TOTAL ANNUAL SEPARATE ACCOUNT CHARGES WITH NO OPTIONAL FEATURES SELECTED.............................. 1.55% 1.70% 1.90% Optional E.S.P. Charge.................................. 0.20% 0.20% 0.20% TOTAL ANNUAL SEPARATE ACCOUNT CHARGES WITH E.S.P. ONLY SELECTED........................................... 1.75% 1.90% 2.10% Optional GMAB Charge.................................... 0.50% 0.50% 0.50% TOTAL ANNUAL SEPARATE ACCOUNT CHARGES WITH GMAB ONLY SELECTED................................................ 2.05% 2.20% 2.40% TOTAL ANNUAL SEPARATE ACCOUNT CHARGES WITH E.S.P. AND GMAB SELECTED(5)........................................ 2.25% 2.40% 2.60% Maximum Optional GMWB Charge............................ 1.00%(6) 1.00%(6) 1.00%(6) TOTAL ANNUAL SEPARATE ACCOUNT CHARGES WITH GMWB ONLY SELECTED................................................ 2.55% 2.70% 2.90% TOTAL ANNUAL SEPARATE ACCOUNT CHARGES WITH E.S.P. AND GMWB SELECTED........................................... 2.75% 2.90% 3.10%
- ---------- (5) GMAB and GMWB cannot both be elected. (6) The current charge for GMWB is 0.40%. UNDERLYING FUND EXPENSES AS OF DECEMBER 31, 2003 (UNLESS OTHERWISE INDICATED): The first table below shows the range (minimum and maximum) of the total annual operating expenses charged by all of the Underlying Funds, before any voluntary or contractual fee waivers and/or expense reimbursements. The second table shows each Underlying Fund's management fee, distribution and/or service fees (12b-1) if applicable, and other expenses. The Underlying Funds provided this information and we have not independently verified it. More detail concerning each Underlying Fund's fees and expenses is contained in the prospectus for each Underlying Fund. Current prospectuses for the Underlying Funds can be obtained by calling 1-800-842-9406. MINIMUM AND MAXIMUM TOTAL ANNUAL UNDERLYING FUND OPERATING EXPENSES MINIMUM MAXIMUM ----------- ----------- TOTAL ANNUAL FUND OPERATING EXPENSES 0.42% 10.93% (expenses that are deducted from Underlying Fund assets, including management fees, distribution and/or service fees (12b-1) fees, and other expenses.) 10 UNDERLYING FUND FEES AND EXPENSES (AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
DISTRIBUTION AND/OR CONTRACTUAL FEE NET TOTAL SERVICE TOTAL ANNUAL WAIVER ANNUAL MANAGEMENT (12B-1) OTHER OPERATING AND/OR EXPENSE OPERATING UNDERLYING FUND: FEE FEES EXPENSES EXPENSES REIMBURSEMENT EXPENSES - ----------------- ------------------------------------------------------------------------------------------ Money Market Portfolio................... 0.32% -- 0.10% 0.42% -- 0.42%(1) AIM VARIABLE INSURANCE FUNDS, INC. AIM V.I. Capital Appreciation Fund -- Series II* .... 0.61% 0.25% 0.24% 1.10% -- 1.10% AIM V.I. Mid Cap Core Equity -- Series II* ............... 0.73% 0.25% 0.34% 1.32% -- 1.32%(2) FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST Franklin Rising Dividends Securities Fund -- Class 2 Shares* .................... 0.74% 0.25% 0.03% 1.02% 0.01% 1.01%(3) Franklin Small Cap Fund -- Class 2 Shares* ................. 0.51% 0.25% 0.29% 1.05% 0.04% 1.01%(4) Templeton Foreign Securities Fund -- Class 2 Shares* .................... 0.69% 0.25% 0.22% 1.16% 0.04% 1.12%(5) GREENWICH STREET SERIES FUND Salomon Brothers Variable Aggressive Growth Fund -- Class II Shares* ................... 0.95% 0.25% 0.44% 1.64% -- 1.64% OPPENHEIMER VARIABLE ACCOUNT FUNDS Oppenheimer Capital Appreciation Fund/VA -- Service Shares* .................... 0.65% 0.25% 0.04% 0.94% -- 0.94% Oppenheimer Global Securities Fund/VA -- Service Shares* .................... 0.63% 0.25% 0.05% 0.93% -- 0.93% PIONEER VARIABLE CONTRACTS TRUST Pioneer America Income VCT Portfolio -- Class II Shares* ................... 0.55% 0.25% 0.21% 1.01% -- 1.01% Pioneer Balanced VCT Portfolio -- Class II Shares* ................... 0.65% 0.25% 0.21% 1.11% -- 1.11% Pioneer Emerging Markets VCT Portfolio -- Class II Shares* ................... 1.15% 0.25% 1.25% 2.65% 0.66% 1.99%(6) Pioneer Equity Income VCT Portfolio -- Class II Shares* ................... 0.65% 0.25% 0.12% 1.02% -- 1.02% Pioneer Europe VCT Portfolio -- Class II Shares* ................... 1.00% 0.25% 1.50% 2.75% 0.96% 1.79%(6) Pioneer Fund VCT Portfolio -- Class II Shares* ................... 0.65% 0.25% 0.10% 1.00% -- 1.00% Pioneer Growth Shares VCT Portfolio -- Class II Shares* ................... 0.70% 0.25% 0.49% 1.44% -- 1.44% Pioneer High Yield VCT Portfolio -- Class II Shares* ................... 0.65% 0.25% 0.19% 1.09% -- 1.09% Pioneer International Value VCT Portfolio -- Class II Shares* ................... 1.00% 0.25% 0.77% 2.02% -- 2.02%(7) Pioneer Mid Cap Value VCT Portfolio -- Class II Shares* ................... 0.65% 0.25% 0.10% 1.00% -- 1.00%
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DISTRIBUTION AND/OR CONTRACTUAL FEE NET TOTAL SERVICE TOTAL ANNUAL WAIVER ANNUAL MANAGEMENT (12B-1) OTHER OPERATING AND/OR EXPENSE OPERATING UNDERLYING FUND: FEE FEES EXPENSES EXPENSES REIMBURSEMENT EXPENSES - ----------------- ------------------------------------------------------------------------------------------ PIONEER VARIABLE CONTRACTS TRUST (CONTINUED) Pioneer Oak Ridge Large Cap Growth VCT Portfolio -- Class II Shares* ................... 0.75% 0.25% 4.77% 5.77% 4.82% 0.95%(8) Pioneer Papp America-Pacific Rim VCT Portfolio* -- Class II Shares* ..... 0.75% 0.25% 4.77% 5.77% 4.82% 0.95%(8) Pioneer Papp Small & Mid Cap Growth VCT Portfolio -- Class II Shares* ................... 0.75% 0.25% 5.23% 6.23% 5.23% 1.00%(9) Pioneer Real Estate Shares VCT Portfolio -- Class II Shares* ................... 0.80% 0.25% 0.23% 1.28% -- 1.28% Pioneer Small Cap Value VCT Portfolio -- Class II Shares* ................... 0.75% 0.25% 1.65% 2.65% 1.07% 1.58%(6) Pioneer Small Company VCT Portfolio -- Class II Shares* ................... 0.75% 0.25% 1.67% 2.67% 1.15% 1.52%(6) Pioneer Strategic Income VCT Portfolio -- Class II Shares* ................... 0.65% 0.25% 0.59% 1.49% -- 1.49%(6) Pioneer Value VCT Portfolio -- Class II Shares* ................... 0.75% 0.25% 9.93% 10.93% 9.43% 1.50%(10) SALOMON BROTHERS VARIABLE SERIES FUNDS INC. Total Return Fund -- Class II* .......................... 0.80% 0.25% 0.20% 1.25% -- 1.25%
- ---------- * The 12b-1 fees deducted from these classes cover certain distribution, shareholder support and administrative services provided by intermediaries (the insurance company, broker dealer or other service provider). NOTES (1) Fund has a voluntary waiver of 0.40%. Other Expense include a 0.06% administrative services fee the Fund pays to The Travelers Insurance Company. (2) The Fund's advisor has contractually agreed to waive advisory fees or reimburse expenses of Series I and Series II shares to the extent necessary to limit Total Annual Fund Operating Expenses (excluding Rule 12b-1 Plan fees, if any, interest, taxes, dividend expense on short sales, extraordinary items and increases in expenses due to expense offset arrangements, if any) to 1.30%. Further the Fund's distributor has agreed to reimburse Rule 12b-1 Distribution Plan fees to the extent necessary to limit Series II Total Annual Fund Operating Expenses to 1.45%. (3) The Fund administration fee is paid indirectly through the management fee. While the maximum amount payable under the Fund's Class 2 rule 12b-1 plan is 0.35% per year of the Fund's Class 2 average annual net assets, the Fund's Board of Trustees (Board) has set the current rate at 0.25% per year. The manager has agreed in advance to reduce its fee to reflect reduced services resulting from the Fund's investment in a Franklin Templeton money fund. This reduction is required by the Board and an order of the Securities and Exchange Commission. (4) While the maximum amount payable under the Fund's Class 2 rule 12b-1 plan is 0.35% per year of the Fund's Class 2 average annual net assets, the Fund's Board of Trustees (Board) has set the current rate at 0.25% per year. The manager has agreed in advance to reduce its fee to reflect reduced services resulting from the Fund's investment in a Franklin Templeton money fund. This reduction is required by the Board and an order of the Securities and Exchange Commission. (5) The manager has agreed in advance to reduce its fee to reflect reduced services resulting from the Fund's investment in a Franklin Templeton money fund. This reduction is required by the Fund's Board of Trustees (Board) and an order of the Securities and Exchange Commission (SEC). (6) The expenses in the table above reflect the contractual expense limitation in effect through May 1, 2005 under which Pioneer has agreed not to impose all or a portion of its management fee and, if necessary, to limit other ordinary operating expenses to the extent required to reduce Class I expenses to 1.75% (Pioneer Emerging Markets Portfolio), 1.50% (Pioneer Europe VCT Portfolio), and 1.25% (Pioneer Small Cap Value VCT Portfolio, Pioneer Small Company VCT Portfolio, and Pioneer Strategic Income VCT Portfolio) of the average daily net assets attributable to Class I shares; the portion of portfolio expenses attributable to Class II shares will be reduced only to the extent such expenses are reduced for Class I shares. (7) Estimated for the portfolio's current fiscal year. (8) Other Expenses are based on estimated amounts for the current fiscal year. The expenses in the table above reflect the contractual expense limitation in effect through March 12, 2005 under which Pioneer has agreed not to impose all or a portion of its management fee and, if necessary, to limit other ordinary operating expenses to the extent required to reduce Class II expenses to 0.95% of the average daily net assets attributable to Class II shares. Pioneer may subsequently recover reimbursed expenses (within three years of being incurred) from the portfolio if the expense ratio of the Class II shares is less than the expense limitation of the 12 Class II shares. There can be no assurance that Pioneer will extend the expense limitation beyond March 12, 2005. See the statement of additional information for details regarding the expense limitation agreement. (9) Other Expenses are based on estimated amounts for the current fiscal year. The expenses in the table above reflect the contractual expense limitation in effect through March 12, 2005 under which Pioneer has agreed not to impose all or a portion of its management fee and, if necessary, to limit other ordinary operating expenses to the extent required to reduce Class II expenses to 1.00% of the average daily net assets attributable to Class II shares. Pioneer may subsequently recover reimbursed expenses (within three years of being incurred) from the portfolio if the expense ratio of the Class II shares is less than the expense limitation of the Class II shares. There can be no assurance that Pioneer will extend the expense limitation beyond March 12, 2005. See the statement of additional information for details regarding the expense limitation agreement. (10) The expenses in the table above reflect the contractual expense limitation in effect through May 1, 2005 under which Pioneer has agreed not to impose all or a portion of its management fee and, if necessary, to limit other ordinary operating expenses to the extent required to reduce Class II expenses to 1.50% of the average daily net assets attributable to Class I shares. EXAMPLES These examples are intended to help you compare the cost of investing in the Contract with the cost of investing in other variable annuity contracts. These costs include Contract Owner transaction expenses, contract fees, separate account annual expenses, and Underlying Fund total annual operating expenses. These examples do not represent past or future expenses. Your actual expenses may be more or less than those shown. These examples assume that you invest $10,000 in the Contract for the time periods indicated and that your investment has a 5% return each year. The examples reflect the annual contract administrative charge, factoring in that the charge is waived for contracts over a certain value. Additionally, the examples are based on the minimum and maximum Underlying Fund total annual operating expenses shown above, and do not reflect any Underlying Fund fee waivers and/or expense reimbursements. The examples assume you have allocated all of your Contract Value to either the Underlying Fund with the maximum total annual operating expenses or the Underlying Fund with the minimum total annual operating expenses. In each example, your actual expenses will be less than those shown if you do not elect all of the available optional benefits. The GMAB and the GMWB cannot both be elected. EXAMPLE 1 -- This example assumes that you have elected the most expensive death benefit option, the E.S.P. optional death benefit and the Guaranteed Minimum Withdrawal Benefit (assuming the maximum charge applies).
IF CONTRACT IS SURRENDERED AT THE IF CONTRACT IS NOT SURRENDERED OR END OF PERIOD SHOWN ANNUITIZED AT THE END OF PERIOD SHOWN --------------------------------------- ---------------------------------------- FUNDING OPTION 1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS - ---------------- -------- --------- --------- --------- -------- ---------- --------- --------- Underlying Fund with Minimum Total Annual Operating Expenses.............. 1158 1891 2444 3825 358 1091 1844 3825 Underlying Fund with Maximum Total Annual Operating Expenses.............. 2143 4475 6203 9086 1343 3675 5603 9086
EXAMPLE 2 -- This example assumes that you have elected the most expensive death benefit option, the E.S.P. optional death benefit and the Guaranteed Minimum Withdrawal Benefit (assuming the current charge applies).
IF CONTRACT IS SURRENDERED AT THE IF CONTRACT IS NOT SURRENDERED OR END OF PERIOD SHOWN ANNUITIZED AT THE END OF PERIOD SHOWN --------------------------------------- ---------------------------------------- FUNDING OPTION 1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS - ---------------- -------- --------- --------- --------- -------- ---------- --------- --------- Underlying Fund with Minimum Total Annual Operating Expenses.............. 1099 1715 2156 3278 299 915 1556 3278 Underlying Fund with Maximum Total Annual Operating Expenses.............. 2090 4351 6045 8944 1290 3551 5445 8944
EXAMPLE 3 -- This example assumes that you have elected the most expensive death benefit option, the E.S.P. optional death benefit and the Guaranteed Minimum Accumulation Benefit.
IF CONTRACT IS SURRENDERED AT THE IF CONTRACT IS NOT SURRENDERED OR END OF PERIOD SHOWN ANNUITIZED AT THE END OF PERIOD SHOWN --------------------------------------- ---------------------------------------- FUNDING OPTION 1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS - ---------------- -------- --------- --------- --------- -------- ---------- --------- --------- Underlying Fund with Minimum Total Annual Operating Expenses.............. 1109 1744 2205 3372 309 944 1605 3372 Underlying Fund with Maximum Total Annual Operating Expenses.............. 2099 4372 6072 8968 1299 3572 5472 8968
13 CONDENSED FINANCIAL INFORMATION - -------------------------------------------------------------------------------- See Appendices A and B. THE ANNUITY CONTRACT - -------------------------------------------------------------------------------- Pioneer Annuistar Plus Annuity is a contract between the Contract Owner ("you") and the Company. This is the prospectus -- it is not the Contract. The prospectus highlights many contract provisions to focus your attention on the Contract's essential features. Your rights and obligations under the Contract will be determined by the language of the Contract itself. When you receive your Contract, we suggest you read it promptly and carefully. There may be differences in your Contract from the descriptions in this prospectus because of the requirements of the state where we issued your Contract. We will include any such differences in your Contract. The Company offers several different annuities that your investment professional may be authorized to offer to you. Each annuity offers different features and benefits that may be appropriate for you. In particular, the annuities differ based on variations in the standard and optional death benefit protection provided for your beneficiaries, the availability of optional living benefits, the ability to access your Contract Value if necessary and the charges that you will be subject to if you make a withdrawal or surrender the annuity. The separate account charges and other charges may be different between each annuity we offer. Optional death benefits and living benefits are subject to a separate charge for the additional protections they offer to you and your beneficiaries. Furthermore, annuities that offer greater flexibility to access your Contract Value generally are subject to higher separate account charges than annuities that deduct charges if you make a withdrawal or surrender. We encourage you to evaluate the fees, expenses, benefits and features of this annuity against those of other investment products, including other annuity products offered by us and other insurance companies. Before purchasing this or any other investment product you should consider whether the product you purchase is consistent with your risk tolerance, investment objectives, investment time horizon, financial and tax situation, liquidity needs and how you intend to use the annuity. You make Purchase Payments to us and we credit them to your Contract. We promise to pay you an income, in the form of Annuity Payments, beginning on a future date that you choose, the Maturity Date. The Purchase Payments accumulate tax deferred in the funding options of your choice. We offer multiple Variable Funding Options. We may also offer a Fixed Account option. Where permitted by law, we reserve the right to restrict Purchase Payments into the Fixed Account whenever the credited interest rate on the Fixed Account is equal to the minimum guaranteed interest rate specified under the Contract. The Contract Owner assumes the risk of gain or loss according to the performance of the Variable Funding Options. The Contract Value is the amount of Purchase Payments and any associated Purchase Payment Credits, plus or minus any investment experience on the amounts you allocate to the Separate Account ("Separate Account Contract Value") or interest on the amounts you allocate to the Fixed Account ("Fixed Account Contract Value"). The Contract Value also reflects all withdrawals made and charges deducted. There is generally no guarantee that at the Maturity Date the Contract Value will equal or exceed the total Purchase Payments made under the Contract. The date the Contract and its benefits become effective is referred to as the Contract Date. Each 12-month period following the Contract Date is called a Contract Year. Certain changes and elections must be made in writing to the Company. Where the term "Written Request" is used, it means that you must send written information to our Home Office in a form and content satisfactory to us. The ages of the owner and Annuitant determine which death benefits and certain optional features are available to you. MAXIMUM AGE BASED ON THE OLDER OF THE OWNER AND DEATH BENEFIT/OPTIONAL FEATURE ANNUITANT ON THE CONTRACT DATE --------------------------------------- ----------------------------------- Standard Death Benefit 80 Annual Step-Up Death Benefit 79 Roll Up Death Benefit 75 Enhanced Stepped-Up Provision (E.S.P) 75 14 Since optional death benefits carry higher charges, you should consider the ages of the owner and Annuitant when electing these benefits, as the additional value provided by the benefit may be significantly reduced or eliminated depending on the ages of the owner and Annuitant at the time of election. Purchase of this Contract through a tax qualified retirement plan or IRA does not provide any additional tax deferral benefits beyond those provided by the plan or the IRA. Accordingly, if you are purchasing this Contract through a plan or IRA, you should consider purchasing this Contract for its death benefit, annuity option benefits, and other non-tax-related benefits. You should consult with your financial adviser to determine if this Contract is appropriate for you. CONTRACT OWNER INQUIRIES Any questions you have about your Contract should be directed to our Home Office at 1-866-703-0527. PURCHASE PAYMENTS Your initial Purchase Payment is due and payable before the Contract becomes effective. The initial Purchase Payment must be at least $5,000. You may make additional payments of at least $500 at any time. No additional payments are allowed if this Contract is purchased with a beneficiary-directed transfer of death benefit proceeds. Under certain circumstances, we may waive the minimum Purchase Payment requirement. Initial Purchase Payments plus the total of any subsequent Purchase Payments may total more than $1,000,000 only with our prior consent. We may restrict Purchase Payments into the Fixed Account whenever the current credited interest rate for the Fixed Account is equal to the minimum guaranteed rate specified in your Contract. We will apply the initial Purchase Payment less any applicable premium tax (net Purchase Payment) within two business days after we receive it in good order at our Home Office. We will credit subsequent Purchase Payments to a Contract on the same business day we receive it, if it is received in good order by our Home Office by 4:00 p.m. Eastern time. A business day is any day that the New York Stock Exchange is open for regular trading (except when trading is restricted due to an emergency as defined by the Securities and Exchange Commission). PURCHASE PAYMENT CREDITS For Contracts issued between May 1, 2003 and September 30, 2004, for each Purchase Payment you make, we will add a credit to your Contract Value whenever the greater age of the Contract Owner or Annuitant is 80 or less at the time the Purchase Payment is received. This credit will equal 6.0% of the Purchase Payment. For Contracts issued prior to May 1, 2003, for each Purchase Payment you make, we will add a credit to your Contract Value whenever the greater age of the Contract Owner or Annuitant is 80 or less at the time the Purchase Payment is received. This credit will equal 4.5% of the Purchase Payment. We will apply the Purchase Payment Credit to the funding options in the same ratio as the applicable Purchase Payment. We will deduct the Purchase Payment Credit from any refunds made if: (a) you return your Contract during the right to return; (b) you (or the Annuitant, with no Contingent Annuitant surviving) die during the first 12 months after the Contract Date; or (c) you surrender or terminate your Contract within 12 months after the Contract Date. NOTE: We have applied to the SEC for permission to deduct the credit from refunds made under (b) or (c) for Purchase Payment Credits applied after the first Contract Year. Until the permission is granted, we will not deduct Purchase Payment Credits applied after the first Contract Year in such circumstances. The application for exemptive relief (File No. 812-13042) was filed on July 29, 2003. If you return your Contract during the right to return period under (a), the amount we return to you will include any investment gains on the credit during the right to return period. However, if you have investment losses on the credit during the right to return period, we will recover the original amount of the credit. When we 15 determine the amount of Purchase Payment Credits to deduct from any refund amount or death benefit under (b) or (c), we will not include a credit's investment gains or losses. You should know that over time, particularly in a positive market, the costs associated with the Purchase Payment Credits may exceed the sum of the Purchase Payment Credits and related earnings. You should consider this possibility before purchasing the Contract. Purchase Payment Credits may not be included in your Remaining Benefit Base under GMWB. Please refer to the description of GMWB for more information. Purchase Payment Credits are not included in your Base Calculation Amount under the GMAB. Please refer to the description of GMAB for more information. ACCUMULATION UNITS The period between the Contract Date and the Maturity Date is the accumulation period. During the accumulation period, an Accumulation Unit is used to calculate the value of a Contract. Each funding option has a corresponding Accumulation Unit value. The Accumulation Units are valued each business day and their values may increase or decrease from day to day. The number of Accumulation Units we will credit to your Contract once we receive a Purchase Payment is determined by dividing the amount directed to each funding option by the value of its Accumulation Unit. We calculate the value of an Accumulation Unit for each funding option each day the New York Stock Exchange is open. The values are calculated as of 4:00 p.m. Eastern time. After the value is calculated, we credit your Contract. During the annuity period (i.e., after the Maturity Date), you are credited with Annuity Units. THE VARIABLE FUNDING OPTIONS You choose the Variable Funding Options to which you allocate your Purchase Payments. These Variable Funding Options are Subaccounts of the Separate Account. The Subaccounts invest in the Underlying Funds. You are not investing directly in the Underlying Fund. Each Underlying Fund is a portfolio of an open-end management investment company that is registered with the SEC under the Investment Company Act of 1940. These Underlying Funds are not publicly traded and are offered only through variable annuity and variable life insurance products. They are not the same retail mutual funds as those offered outside of a variable annuity or variable life insurance product, although the investment practices and fund names may be similar, and the portfolio managers may be identical. Accordingly, the performance of the retail mutual fund is likely to be different from that of the Underlying Fund, and Contract Owners should not compare the two. The Underlying Funds offered though this product are selected by the Company based on several criteria, including asset class coverage, the strength of the manager's reputation and tenure, brand recognition, performance, and the capability and qualification of each sponsoring investment firm. Another factor the Company considers during the initial selection process is whether the Underlying Fund or an affiliate of the Underlying Fund will compensate the Company for providing administrative, marketing, and support services that would otherwise be provided by the Fund, the Fund's investment advisor, or its distributor. Finally, when the Company develops a variable annuity product in cooperation with a fund family or distributor (e.g. a "private label" product), the Company will generally include Underlying Funds based on recommendations made by the fund family or distributor, whose selection criteria may differ from the Company's selection criteria. Each Underlying Fund is reviewed periodically after having been selected. Upon review, the Company may remove an Underlying Fund or restrict allocation of additional Purchase Payments to an Underlying Fund if the Company determines the Underlying Fund no longer meets one or more of the criteria and/or if the Underlying Fund has not attracted significant contract owner assets. In addition, if any of the Underlying Funds become unavailable for allocating Purchase Payments, or if we believe that further investment in an Underlying Fund is inappropriate for the purposes of the Contract, we may substitute another funding option. However, we will not make any substitutions without notifying you and obtaining any state and SEC approval, if necessary. From time to time we may make new funding options available. You will find detailed information about the Underlying Funds and their inherent risks in the current prospectuses for the Underlying Funds. Since each option has varying degrees of risk, please read the prospectuses carefully. There is no assurance that any of the Underlying Funds will meet its investment objectives. Contact your registered representative or call 1-800-842-9406 to request copies of the prospectuses. 16 ADMINISTRATIVE, MARKETING AND SUPPORT SERVICE FEES. As described above, the Company and TDLLC have arrangements with the investment adviser, subadviser, distributor, and/or affiliated companies of most of the Underlying Funds under which the Company and TDLLC receive payments in connection with our provision of administrative, marketing or other support services to the Funds. Proceeds of these payments may be used for any corporate purpose, including payment of expenses that the Company and TDLLC incur in promoting, issuing, distributing and administering the contracts. The Company and its affiliates may profit from these fees. The payments are generally based on a percentage of the average assets of each Underlying Fund allocated to the Variable Funding Options under the Contract or other contracts offered by the Company. The amount of the fee that an Underlying Fund and its affiliates pay the Company and/or the Company's affiliates is negotiated and varies with each Underlying Fund. Aggregate fees relating to the different Underlying Funds may be as much as 0.60% of the average net assets of an Underlying Fund attributable to the relevant contracts. A portion of these payments may come from revenue derived from the Distribution and/or Service Fees (12b-1 fees) that are paid by an Underlying Fund out its assets as part of its Total Annual Operating Expenses. The current Underlying Funds are listed below, along with their investment advisers and any subadviser:
UNDERLYING INVESTMENT INVESTMENT FUND OBJECTIVE ADVISER/SUBADVISER - --------------------------------------- ----------------------------------------- ------------------------------------ Money Market Portfolio Seeks high current return with Travelers Asset Management preservation of capital and liquidity. International Company LLC ("TAMIC") The Fund normally invests in high-quality short-term money market instruments. AIM VARIABLE INSURANCE FUNDS, INC. AIM V.I. Capital Appreciation Fund Seeks growth of capital. The Fund A I M Advisers, Inc. -- Series II normally invests in common stocks of companies that may benefit from new or innovative products, services or processes and those that have above-average long-term earnings growth. AIM V.I. Mid Cap Core Equity -- Seeks long-term growth of capital. The A I M Advisers, Inc. Series II Fund normally invests in equity securities, including convertible securities, of mid-cap companies. FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST Franklin Rising Dividends Seeks long-term capital appreciation. Franklin Advisory Services, LLC Securities Fund -- Class 2 Shares Preservation of capital is an important secondary consideration. The Fund normally invests in investments of companies that have paid rising dividends. Franklin Small Cap Fund -- Seeks long-term capital growth. The Franklin Advisers, Inc. Class 2 Shares Fund normally invests in small capitalization companies. Templeton Foreign Securities Fund Seeks long-term capital growth. The Templeton Investment Counsel, LLC -- Class 2 Shares Fund normally invests in investments, primarily equity securities, of issuers located outside of the U.S., including those in emerging markets. GREENWICH STREET SERIES FUND Salomon Brothers Variable Seeks capital appreciation. The Fund Salomon Brothers Asset Management Aggressive Growth Fund -- normally invests in common stocks of ("SBAM") Class II Shares companies that the manager believes are experiencing or will experience growth in earnings and/or cash flow that exceeds the average rate of earnings growth of the companies that comprise the S&P 500. The Fund may invest in the securities of large, well-known companies, but a significant portion of Fund assets may also be invested in small to medium sized companies. OPPENHEIMER VARIABLE ACCOUNT FUNDS Oppenheimer Capital Appreciation Seeks capital appreciation. The Fund OppenheimerFunds, Inc. Fund/VA -- Service Shares normally invests in the common stocks of growth companies that may be new companies or well-established companies.
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UNDERLYING INVESTMENT INVESTMENT FUND OBJECTIVE ADVISER/SUBADVISER - --------------------------------------- ----------------------------------------- ------------------------------------ OPPENHEIMER VARIABLE ACCOUNT FUNDS (CONTINUED) Oppenheimer Global Securities Seeks long-term capital appreciation. OppenheimerFunds, Inc. Fund/VA -- Service Shares The Fund normally invests in common stocks of foreign issuers, "growth-type" companies, cyclical industries and special situations that are considered to have appreciation possibilities. PIONEER VARIABLE CONTRACTS TRUST Pioneer America Income VCT Seeks as high a level of current income Pioneer Investment Management, Inc. Portfolio -- Class II Shares as is consistent with preservation of capital. The Fund normally invests exclusively in U.S. Government securities and repurchase agreements and "when issued" commitments with respect to these securities. Pioneer Balanced VCT Portfolio -- Seeks capital growth and current Pioneer Investment Management, Inc. Class II Shares income. The Fund normally invests in a Subadviser: Prudential Investment diversified portfolio of equity Management, Inc. securities and bonds and it is actively managed based on quantitative analysis and techniques. Pioneer Emerging Markets VCT Seeks long-term growth of capital. The Pioneer Investment Management, Inc. Portfolio -- Class II Shares Fund normally invests in the securities of emerging market corporate and government issuers, with an emphasis on equities. Pioneer Equity Income VCT Seeks current income and long-term Pioneer Investment Management, Inc. Portfolio -- Class II Shares growth of capital. The Fund normally invests in income producing equity securities of U.S. issuers. Pioneer Europe VCT Portfolio -- Seeks long-term growth of capital. The Pioneer Investment Management, Inc. Class II Shares Fund normally invests in equity securities of European issuers. Pioneer Fund VCT Portfolio -- Seeks reasonable income and capital Pioneer Investment Management, Inc. Class II Shares growth. The Fund normally invests in equity securities believed to be selling at reasonable prices or discounts to their underlying values. Pioneer Growth Shares VCT Seeks appreciation of capital. The Fund Pioneer Investment Management, Inc. Portfolio -- Class II Shares normally invests in equity securities believed to have above average potential for earnings and revenue growth. Pioneer High Yield VCT Portfolio -- Seeks to maximize total return through Pioneer Investment Management, Inc. Class II Shares a combination of income and capital appreciation. The Fund normally invests in below investment grade debt securities and preferred stocks. Pioneer International Value VCT Seeks long-term capital growth. The Pioneer Investment Management, Inc. Portfolio -- Class II Shares Fund normally invests in equity securities of non-U.S. issuers located in both developed and emerging markets. Pioneer Mid Cap Value VCT Seeks capital appreciation. The Fund Pioneer Investment Management, Inc. Portfolio -- Class II Shares normally invests in the equity securities of mid-size companies. Pioneer Oak Ridge Large Cap Growth Seeks capital appreciation. The Fund Pioneer Investment Management, Inc. VCT Portfolio -- Class II Shares normally invests in equity securities Subadviser: Oak Ridge Investments, of large capitalization U.S. companies LLC and seeks to invest in issuers with above average potential for earnings growth. Pioneer Papp America-Pacific Rim Seeks long-term capital growth. The Pioneer Investment Management, Inc. VCT Portfolio -- Class II Shares Fund normally invests in equity Subadviser: L. Roy Papp & securities of issuers that have Associates, LLP substantial sales to, or receive significant income from, countries within the Pacific Rim, and seeks to invest in issuers with above average potential for earnings growth.
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UNDERLYING INVESTMENT INVESTMENT FUND OBJECTIVE ADVISER/SUBADVISER - --------------------------------------- ----------------------------------------- ------------------------------------ PIONEER VARIABLE CONTRACTS TRUST (CONTINUED) Pioneer Papp Small & Mid Cap Seeks long-term capital growth. The Pioneer Investment Management, Inc. Growth VCT Portfolio -- Class II Fund normally invests in equity Subadviser: L. Roy Papp & Shares securities of small and Associates, LLP mid-capitalization issuers and seeks to invest in issuers with above average potential for earnings growth. Pioneer Real Estate Shares VCT Seeks long-term growth of capital. Pioneer Investment Management, Inc. Portfolio -- Class II Shares Secondarily seeks income. The Fund normally invests in equity securities of real estate investment trusts and other real estate industry issuers. Pioneer Small Cap Value VCT Seeks capital growth. The Fund normally Pioneer Investment Management, Inc. Portfolio -- Class II Shares invests in equity securities of small companies believed to be selling at substantial discounts to their underlying values. Pioneer Small Company VCT Seeks capital growth. The Fund normally Pioneer Investment Management, Inc. Portfolio -- Class II Shares invests in equity securities of small companies. Pioneer Strategic Income VCT Seeks a high level of current income. Pioneer Investment Management, Inc. Portfolio -- Class II Shares The Fund normally invests in debt securities from a broad range of issuers and segments of the debt securities market. Pioneer Value VCT Portfolio -- Seeks reasonable income and capital Pioneer Investment Management, Inc. Class II Shares growth. The Fund normally invests in a broad list of carefully selected, reasonably priced equity securites of U.S. issuers. SALOMON BROTHERS VARIABLE SERIES FUNDS INC. Total Return Fund -- Class II Seeks above average income (compared to SBAM a portfolio invested entirely in equity securities). Secondarily seeks growth of capital and income. The Fund normally invests in a broad range of equity and fixed-income securities of U.S. and foreign issuers.
FIXED ACCOUNT - -------------------------------------------------------------------------------- We may offer our Fixed Account as a funding option. Please refer to your Contract and Appendix C for more information. CHARGES AND DEDUCTIONS - -------------------------------------------------------------------------------- GENERAL We deduct the charges described below. The charges are for the service and benefits we provide, costs and expenses we incur, and risks we assume under the Contracts. Services and benefits we provide include: o the ability for you to make withdrawals and surrenders under the Contracts o the death benefit paid on the death of the Contract Owner, Annuitant, or first of the joint owners o the available funding options and related programs (including dollar cost averaging, portfolio rebalancing, and systematic withdrawal programs) o administration of the annuity options available under the Contracts and o the distribution of various reports to Contract Owners Costs and expenses we incur include: 19 o losses associated with various overhead and other expenses associated with providing the services and benefits provided by the Contracts o sales and marketing expenses including commission payments to your sales agent and o other costs of doing business Risks we assume include: o that Annuitants may live longer than estimated when the annuity factors under the Contracts were established o that the amount of the death benefit will be greater than the Contract Value and o that the costs of providing the services and benefits under the Contracts will exceed the charges deducted We may also deduct a charge for taxes. Unless otherwise specified, charges are deducted proportionately from all funding options in which you are invested. We may reduce or eliminate the withdrawal charge, the administrative charges and/or the mortality and expense risk charge under the Contract when certain sales or administration of the Contract result in savings or reduced expenses and/or risks. For certain trusts, we may change the order in which Purchase Payments and earnings are withdrawn in order to determine the withdrawal charge. We will not reduce or eliminate the withdrawal charge or the administrative charge where such reduction or elimination would be unfairly discriminatory to any person. The amount of a charge may not necessarily correspond to the costs associated with providing the services or benefits indicated by the designated charge. For example, the withdrawal charge we collect may not fully cover all of the sales and distribution expenses we actually incur. We may also profit on one or more of the charges. We may use any such profits for any corporate purpose, including the payment of sales expenses. WITHDRAWAL CHARGE We do not deduct a sales charge from Purchase Payments when they are made to the Contract. However, a withdrawal charge will apply if Purchase Payments and any associated Purchase Payment Credits are withdrawn before they have been in the Contract for nine years. We will assess the charge as a percentage of the Purchase Payment and any associated Purchase Payment Credits withdrawn as follows: YEARS SINCE PURCHASE WITHDRAWAL PAYMENT MADE CHARGE ------------------------------------------- ---------------------- GREATER THAN OR EQUAL TO BUT LESS THAN 0 years 3 years 8% 3 years 4 years 7% 4 years 5 years 6% 5 years 6 years 5% 6 years 7 years 4% 7 years 8 years 3% 8 years 9 years 2% 9 years+ 0% For purposes of the withdrawal charge calculation, withdrawals are deemed to be taken first from: (a) any Purchase Payment and any associated Purchase Payment Credits to which no withdrawal charge applies, then (b) any remaining free withdrawal allowance (as described below) (after being reduced by (a)), then (c) any remaining Purchase Payment and any associated Purchase Payment Credits to which a withdrawal charge applies (on a first-in, first-out basis), then 20 (d) any Contract earnings Unless you instruct us otherwise, we will deduct the withdrawal charge from the amount requested. We will not deduct a withdrawal charge if Purchase Payments and associated credits are distributed: o due to the death of the Contract Owner or the Annuitant (with no Contingent Annuitant surviving) or o under the Managed Distribution Program or o under the Nursing Home Confinement provision (as described in Appendix B) FREE WITHDRAWAL ALLOWANCE Beginning in the second Contract Year, you may withdraw up to 10% of the Contract Value annually. We calculate the available withdrawal amount as of the end of the previous Contract Year. If you have Purchase Payments, and any associated Purchase Payment Credits, that are no longer subject to a withdrawal charge, the maximum you may withdraw without a withdrawal charge is the greater of (a) the free withdrawal allowance or (b) the total amount of Purchase Payments, and any associated Purchase Payment Credits, no longer subject to a withdrawal charge. Any free withdrawal taken will reduce Purchase Payments, and any associated Purchase Payment Credits no longer subject to a withdrawal charge. The free withdrawal provision applies to all withdrawals except those transferred directly to annuity contracts issued by other financial institutions. The free withdrawal allowance is not cumulative from year to year. TRANSFER CHARGE We reserve the right to assess a transfer charge of up to $10.00 on transfers exceeding 12 per year. We will notify you in writing at your last known address at least 31 days before we impose any such transfer charge. ADMINISTRATIVE CHARGES There are two administrative charges: the $40 annual contract administrative charge and the administrative expense charge. We will deduct the annual contract administrative charge on the fourth Friday of each August. This charge compensates us for expenses incurred in establishing and maintaining the Contract. We will prorate this charge if you surrender your Contract, or if we terminate your Contract. We will not deduct a contract administrative charge from the Fixed Account or: (1) from the distribution of death proceeds; (2) after an annuity payout has begun; or (3) if the Contract Value on the date of assessment equals or is greater than $100,000. We deduct the administrative expense charge (sometimes called "Subaccount administrative charge") on each business day from amounts allocated to the Variable Funding Options to compensate the Company for certain related administrative and operating expenses. The charge equals, on an annual basis, a maximum of 0.15 % of the daily net asset value allocated to each of the Variable Funding Options, and is reflected in our Accumulation and Annuity Unit value calculations. MORTALITY AND EXPENSE RISK CHARGE Each business day, we deduct a mortality and expense risk ("M&E") charge from amounts we hold in the Variable Funding Options. We reflect the deduction in our calculation of Accumulation and Annuity Unit values. The charges stated are the maximum for this product. We reserve the right to lower this charge at any time. If you choose the Standard Death Benefit, the M&E charge equals 1.40% annually. If you choose the Annual Step-Up Death Benefit, the M&E charge is 1.55% annually. If you choose the Roll-Up Death Benefit, the M&E charge is 1.75% annually. This charge compensates the Company for risks assumed, benefits provided and expenses incurred, including the payment of commissions to your sales agent. VARIABLE LIQUIDITY BENEFIT CHARGE If the Variable Liquidity Benefit is selected, there is a maximum charge of 8% of the amounts withdrawn. This charge is not assessed during the accumulation phase. 21 We will assess the charge as a percentage of the total benefit received as follows: YEARS SINCE INITIAL WITHDRAWAL PURCHASE PAYMENT CHARGE ------------------------------------------- ---------------------- GREATER THAN OR EQUAL TO BUT LESS THAN 0 years 3 years 8% 3 years 4 years 7% 4 years 5 years 6% 5 years 6 years 5% 6 years 7 years 4% 7 years 8 years 3% 8 years 9 years 2% 9 years+ 0% Please refer to Payment Options for a description of this benefit. ENHANCED STEPPED-UP PROVISION CHARGE If the E.S.P. option is selected, a charge is deducted each business day from amounts held in the Variable Funding Options. The charge equals, on an annual basis, a maximum of 0.20% of the amounts held in each funding option. The E.S.P. option is available if the owner and Annuitant are both age 75 or younger on the Contract Date. GUARANTEED MINIMUM WITHDRAWAL BENEFIT CHARGE If the GMWB option is selected, a charge is deducted each business day from amounts held in the Variable Funding Options. The charge equals, on an annual basis, a maximum of 1.00% of the amounts held in each Variable Funding Option. The current charge is 0.40%. Your current charge will not change unless you reset your benefits, at which time we may modify the charge. GUARANTEED MINIMUM ACCUMULATION BENEFIT CHARGE If the GMAB option is selected, a charge is deducted each business day from amounts held in the Variable Funding Options. The charge equals, on an annual basis, a maximum of 0.50% of the amounts held in each funding option. VARIABLE FUNDING OPTION EXPENSES We summarized the charges and expenses of the Underlying Funds in the fee table. Please review the prospectus for each Underlying Fund for a more complete description of that fund and its expenses. Underlying Fund expenses are not fixed or guaranteed and are subject to change by the Fund. PREMIUM TAX Certain state and local governments charge premium taxes ranging from 0% to 5%, depending upon jurisdiction. We are responsible for paying these taxes and will determine the method used to recover premium tax expenses incurred. We will deduct any applicable premium taxes from your Contract Value either upon death, surrender, annuitization, or at the time you make Purchase Payments to the Contract, but no earlier than when we have a tax liability under state law. CHANGES IN TAXES BASED UPON PREMIUM OR VALUE If there is any change in a law assessing taxes against the Company based upon premiums, contract gains or value of the Contract, we reserve the right to charge you proportionately for this tax. 22 TRANSFERS - -------------------------------------------------------------------------------- Subject to the limitations described below, you may transfer all or part of your Contract Value between Variable Funding Options at any time up to 30 days before the Maturity Date. After the Maturity Date, you may make transfers only if allowed by your Contract or with our consent. Transfer requests received at our Home Office that are in good order before the close of the New York Stock Exchange (NYSE) will be processed according to the value(s) next computed following the close of business. Transfer requests received on a non-business day or after the close of the NYSE will be processed based on the value(s) next computed on the next business day. Where permitted by state law, we reserve the right to restrict transfers from the Variable Funding Options to the Fixed Account whenever the credited interest rate on the Fixed Account is equal to the minimum guaranteed interest rate specified under the Contract. Currently, there are no charges for transfers; however, we reserve the right to charge a fee for any transfer request, which exceeds twelve per year. Since each Underlying Fund may have different overall expenses, a transfer of Contract Values from one Variable Funding Option to another could result in your investment becoming subject to higher or lower expenses. Also, when making transfers, you should consider the inherent risks associated with the Variable Funding Options to which your Contract Value is allocated. MARKET TIMING/EXCESSIVE TRADING THE CONTRACT IS INTENDED FOR USE AS A LONG-TERM INVESTMENT VEHICLE AND IS NOT DESIGNED TO SERVE AS A VEHICLE FOR EXCESSIVE TRADING OR MARKET TIMING IN AN ATTEMPT TO TAKE ADVANTAGE OF SHORT-TERM FLUCTUATIONS IN THE STOCK MARKET. If, in our sole discretion, we determine you are engaging in excessive trading activity, trading activity that we believe is indicative of market timing, or any similar trading activity which will potentially hurt the rights or interests of other Contract Owners, we will exercise our contractual right to restrict your number of transfers to one every six months. We will notify you in writing if we choose to exercise our contractual right to restrict your transfers. In determining whether we believe you are engaged in excessive trading or market timing activity, we will consider, among other things, the following factors: o the dollar amount you request to transfer; o the number of transfers you made within the previous three months; o whether your transfers follow a pattern designed to take advantage of short term market fluctuations; and o whether your transfers are part of a group of transfers made by a third party on behalf of several individual Contract Owners. Transfers made under a Dollar Cost Averaging Program, a rebalancing program, or, if applicable, any asset allocation program described in this prospectus are not treated as a transfer when we evaluate trading patterns for market timing or excessive trading. We also reserve the right to restrict the right to request transfers by any market timing firm or any other third party who has been authorized to initiate transfers on behalf of multiple Contract Owners. We may, among other things: o reject the transfer instructions of any agent acting under a power of attorney on behalf of more than one owner, or o reject the transfer or exchange instructions of individual owners who have executed pre-authorized transfer forms which are submitted by market timing firms or other third parties on behalf of more than one owner. We will notify you in writing before we restrict your right to request transfers through such market timing firm or other third party. The policy of the Company is to seek to apply its anti-market timing and excessive trading procedures uniformly. 23 FUTURE MODIFICATIONS. We will continue to monitor the transfer activity occurring among the Variable Funding Options, and may modify these transfer restrictions at any time if we deem it necessary to protect the interest of all Contract Owners. These modifications may include curtailing or eliminating, without notice, the ability to use the Internet, facsimile or telephone in making transfers. DOLLAR COST AVERAGING Dollar cost averaging or the pre-authorized transfer program (the "DCA Program") allows you to transfer a set dollar amount to other funding options on a monthly or quarterly basis during the accumulation phase of the Contract. Using this method, you will purchase more Accumulation Units in a funding option if the value per unit is low and will purchase fewer Accumulation Units if the value per unit is high. Therefore, you may achieve a lower-than-average cost per unit in the long run if you have the financial ability to continue the program over a long enough period of time. Dollar cost averaging does not assure a profit or protect against a loss. You may elect the DCA Program through Written Request or other method acceptable to us. You must have a minimum total Contract Value of $5,000 to enroll in the DCA Program. The minimum amount that may be transferred through this program is $400. You may establish pre-authorized transfers of Contract Values from the Fixed Account, subject to certain restrictions. Under the DCA Program, automated transfers from the Fixed Account may not deplete your Fixed Account Value in less than twelve months from your enrollment in the DCA Program. In addition to the DCA Program, within the Fixed Account, we may credit increased interest rates to Contract Owners under an administrative Special DCA Program established at our discretion, depending on availability and state law. Under this program, the Contract Owner may pre-authorize level transfers to any of the funding options under a 6 Month, 12 Month or 24 Month program. The programs may have different credited interest rates. We must transfer all Purchase Payments and accrued interest on a level basis to the selected funding options in the applicable time period. Under each program, the interest will accrue only on the remaining amounts in the Special DCA Program. For example, under the 12 Month program, the interest rate can accrue up to 12 months on the remaining amounts in the Special DCA Program and we must transfer all Purchase Payments and accrued interest in this program on a level basis to the selected funding options in 12 months. The pre-authorized transfers will begin after the initial program Purchase Payment and complete enrollment instructions are received by the Company. If we do not receive complete program enrollment instructions within 15 days of receipt of the initial program Purchase Payment, the entire balance in the program will be transferred into the Money Market Variable Funding Option. You may start or stop participation in the DCA Program at any time, but you must give the Company at least 30 days' notice to change any automated transfer instructions that are currently in place. If you stop the Special DCA Program and elect to remain in the Fixed Account, we will credit your Contract Value for the remainder of 6 or 12 months with the interest rate for non-program funds. You may only have one DCA Program or Special DCA Program in place at one time. All provisions and terms of the Contract apply to the DCA and Special DCA Programs, including provisions relating to the transfer of money between funding options. Transfers made under any DCA Program will not be counted for purposes of restrictions we may impose on the number of transfers permitted under the Contract. We reserve the right to suspend or modify transfer privileges at any time and to assess a processing fee for this service. If the Fixed Account is not available as a funding option, you may still participate in the DCA Program. ACCESS TO YOUR MONEY - -------------------------------------------------------------------------------- Any time before the Maturity Date, you may redeem all or any portion of the Cash Surrender Value, that is, the Contract Value less any withdrawal charge and any premium tax not previously deducted. Unless you submit a Written Request specifying the fixed or Variable Funding Option(s) from which we are to withdraw amounts, we will make the withdrawal on a pro rata basis. We will determine the Cash Surrender Value as of the close of business after we receive your surrender request at our Home Office. The Cash Surrender Value may be more or less than the Purchase Payments you made. You may not make withdrawals during the annuity period. 24 For amounts allocated to the Variable Funding Options, we may defer payment of any Cash Surrender Value for a period of up to five business days after the Written Request is received. For amounts allocated to the Fixed Account, we may defer payment of any Cash Surrender Value for a period up to six months. In either case, it is our intent to pay as soon as possible. We cannot process requests for withdrawals that are not in good order. We will contact you if there is a deficiency causing a delay and will advise what is needed to act upon the withdrawal request. SYSTEMATIC WITHDRAWALS Before the Maturity Date, you may choose to withdraw a specified dollar amount (at least $100) on a monthly, quarterly, semiannual or annual basis. We will deduct any applicable premium taxes and withdrawal charge. To elect systematic withdrawals, you must have a Contract Value of at least $15,000 and you must make the election on the form we provide. We will surrender Accumulation Units pro rata from all funding options in which you have an interest, unless you instruct us otherwise. You may begin or discontinue systematic withdrawals at any time by notifying us in writing, but you must give at least 30 days' notice to change any systematic withdrawal instructions that are currently in place. We reserve the right to discontinue offering systematic withdrawals upon 30 days' written notice to Contract Owners (where allowed by state law). Each systematic withdrawal is subject to federal income taxes on the taxable portion. In addition, a 10% federal penalty tax may be assessed on systematic withdrawals if the Contract Owner is under age 591/2. You should consult with your tax adviser regarding the tax consequences of systematic withdrawals. MANAGED DISTRIBUTION PROGRAM. Under the systematic withdrawal option, you may choose to participate in the Managed Distribution Program. At no cost to you, you may instruct us to calculate and make minimum distributions that may be required by the IRS upon reaching age 701/2. (See Federal Tax Considerations.) These payments will not be subject to the withdrawal charge and will be in lieu of the free withdrawal allowance. No Dollar Cost Averaging will be permitted if you are participating in the Managed Distribution Program. OWNERSHIP PROVISIONS - -------------------------------------------------------------------------------- TYPES OF OWNERSHIP CONTRACT OWNER The Contract belongs to the Contract Owner named in the Contract (on the Contract Specifications page), or to any other person to whom you subsequently assign the Contract. You may only make an assignment of ownership or a collateral assignment for Non-qualified Contracts. You have sole power during the Annuitant's lifetime to exercise any rights and to receive all benefits given in the Contract provided you have not named an irrevocable beneficiary and provided you have not assigned the Contract. You receive all payments while the Annuitant is alive unless you direct them to an alternate recipient. An alternate recipient does not become the Contract Owner. If this Contract is purchased by a beneficiary of another contract who directly transferred the death proceeds due under that contract, he/she will be granted the same rights the owner has under the Contract except that he/she cannot transfer ownership or make additional Purchase Payments. JOINT OWNER. For Non-qualified Contracts only, you may name joint owners (e.g., spouses) in a Written Request before the Contract is in effect. Joint owners may independently exercise transfers allowed under the Contract. All other rights of ownership must be exercised by both owners. Joint owners own equal shares of any benefits accruing or payments made to them. BENEFICIARY You name the beneficiary in a Written Request. The beneficiary has the right to receive any death benefit proceeds remaining under the Contract upon the death of the Annuitant or the Contract Owner. If more than one beneficiary survives the Annuitant or Contract Owner, they will share equally in benefits unless you recorded 25 different shares with the Company by Written Request before the death of the Annuitant or Contract Owner. In the case of a non-spousal beneficiary or a spousal beneficiary who has not chosen to assume the Contract, we will not transfer or otherwise remove the death benefit proceeds from either the Variable Funding Options or the Fixed Account, as most recently elected by the Contract Owner, until the Death Report Date. Unless you have named an irrevocable beneficiary you have the right to change any beneficiary by Written Request during the lifetime of the Annuitant and while the Contract continues. ANNUITANT The Annuitant is designated in the Contract (on the Contract Specifications page), and is the individual on whose life the Maturity Date and the amount of the monthly Annuity Payments depend. You may not change the Annuitant after your Contract is in effect. CONTINGENT ANNUITANT. You may name one individual as a Contingent Annuitant. A Contingent Annuitant may not be changed, deleted or added to the Contract after the Contract Date. If the Annuitant who is not the owner dies prior to the Maturity Date, and the Contingent Annuitant is still living: o the death benefit will not be payable upon the Annuitant's death o the Contingent Annuitant becomes the Annuitant o all other rights and benefits will continue in effect When a Contingent Annuitant becomes the Annuitant, the Maturity Date remains the same as previously in effect. If the Annuitant is also the owner, a death benefit is paid to the beneficiary regardless of whether or not there is a Contingent Annuitant. DEATH BENEFIT - -------------------------------------------------------------------------------- Before the Maturity Date, generally, a death benefit is payable when either the Annuitant or a Contract Owner dies. At purchase, you elect the Standard Death Benefit, the Step-Up Benefit (also referred to as the "Annual Step-Up") or the Roll-Up Benefit. We calculate the death benefit at the close of the business day on which our Home Office receives (1) Due Proof of Death and (2) written payment instructions or election of spousal contract continuance or beneficiary contract continuance ("Death Report Date"). Three different types of death benefits are available under the Contract prior to the Maturity Date: o Standard Death Benefit o Annual Step-Up Death Benefit o Roll-Up Death Benefit The Annual Step-Up and Roll-Up Death Benefits may not be available in all jurisdictions. There are age restrictions on certain death benefits (see The Annuity Contract section). Note: If the owner dies before the Annuitant, the death benefit is recalculated, replacing all references to "Annuitant" with "owner." DEATH PROCEEDS BEFORE THE MATURITY DATE STANDARD DEATH BENEFIT: We will pay the beneficiary an amount equal to the greater of (1) or (2) below, each reduced by any applicable premium tax not previously deducted: (1) your Contract Value on the Death Report Date, or (2) your Adjusted Purchase Payment, described below* 26 ANNUAL STEP-UP DEATH BENEFIT We will pay the beneficiary an amount equal to the greatest of (1), (2) or (3) below, each reduced by any applicable premium tax not previously deducted: (1) your Contract Value on the Death Report Date, (2) your Adjusted Purchase Payment described below* or (3) the Step-Up Value, if any, as described below ROLL-UP DEATH BENEFIT - -------------------------------------------------------------------------------- If the Annuitant dies before age 80, the death benefit will be the greatest of: o the Contract Value on the Death Report Date o your adjusted Purchase Payment, described below* o the Step-Up Value, if any, described below or o the Roll-Up Death Benefit Value, described below; or - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- If the Annuitant dies on or after age 80, the death benefit will be the greatest of: o the Contract Value on the Death Report Date o your adjusted Purchase Payment, described below*; o the Step-Up Value, if any, as described below or o the Roll-Up Death Benefit Value, described below, on the Annuitant's 80th birthday, plus any additional Purchase Payments and minus any partial surrender reductions (as described below) that occur after the Annuitant's 80th birthday - -------------------------------------------------------------------------------- * If you have elected the GMWB Rider (Principal Guarantee) your adjusted Purchase Payment will NOT be calculated as described below but will be equal to your aggregate Purchase Payments minus your aggregate withdrawals from the date the rider is added to your Contract. ADJUSTED PURCHASE PAYMENT. The initial Adjusted Purchase Payment is equal to the initial Purchase Payment. Whenever an additional Purchase Payment is made, the Adjusted Purchase Payment is increased by the amount of the Purchase Payment. Whenever a partial surrender is taken, the Adjusted Purchase Payment is reduced by a Partial Surrender Reduction, described below. Purchase Payment Credits are not considered Purchase Payments for the purposes of this calculation. STEP-UP VALUE The Step-Up Value will initially equal the Contract Value on the first Contract Date anniversary less any Purchase Payment Credits applied within the last 12 months. On each subsequent Contract Date anniversary that occurs before the Annuitant's 80th birthday and before the Annuitant's death, if the Contract Value less any Purchase Payment Credits applied within 12 months is greater than the Step-Up Value, the Step-Up Value will be increased to equal the Contract Value less any Purchase Payment Credits applied within the last 12 months. If the Step-Up Value is greater than the Contract Value less any Purchase Payment Credits applied within the last 12 months, the Step-Up Value will remain unchanged. Whenever a Purchase Payment is made, the Step-Up Value will be increased by the amount of that Purchase Payment. Whenever a withdrawal is taken, the Step-Up Value will be reduced by a Partial Surrender Reduction as described below. The only changes made to the Step-Up Value on or after the Annuitant's 80th birthday will be those related to additional Purchase Payments or withdrawals as described below. 27 ROLL-UP DEATH BENEFIT VALUE On the Contract Date, the Roll-Up Death Benefit Value is equal to the Purchase Payment. Purchase Payment Credits are not considered Purchase Payments. On each Contract Date anniversary, the Roll-Up Death Benefit Value will be recalculated to equal a) plus b) minus c), increased by 5%, where: (a) is the Roll-Up Death Benefit Value as of the previous Contract Date anniversary (b) is any Purchase Payment made during the previous Contract Year (c) is any Partial Surrender Reduction (as described below) during the previous Contract Year. On dates other than the Contract Date anniversary, the Roll-Up Death Benefit Value will equal a) plus b) minus c) where: (a) is the Roll-Up Death Benefit Value as of the previous Contract Date anniversary (b) is any Purchase Payment made since the previous Contract Date anniversary (c) is any Partial Surrender Reduction (as described below) since the previous Contract Date anniversary The maximum Roll-Up Death Benefit equals 200% of the difference between all Purchase Payments and all partial surrender reductions** (as described below). ** Your Roll-Up Death Benefit will be subjected to the partial surrender reduction below even if you have elected the GMWB Rider (Principal Guarantee). PARTIAL SURRENDER REDUCTIONS. ADJUSTED PURCHASE PAYMENT: The Partial Surrender Reduction equals (1) the adjusted Purchase Payment in effect immediately before the reduction for withdrawal, multiplied by (2) the amount of the withdrawal, divided by (3) the Contract Value before the surrender less any Purchase Payment Credits applied within 12 months of the surrender. For example, assume your current Contract Value is $55,000. If your current adjusted Purchase Payment is $50,000, and you decide to make a withdrawal of $10,000, we would reduce the adjusted Purchase Payment as follows: 50,000 x (10,000/55,000) = 9,090 Your new adjusted Purchase Payment would be 50,000 - 9,090, or $40,910. The following example shows what would happen in a declining market. Assume your current Contract Value is $30,000. If your current Adjusted Purchase Payment is $50,000, and you decide to make a withdrawal of $10,000, we would reduce the adjusted Purchase Payment as follows: 50,000 x (10,000/30,000) = 16,666 Your new adjusted Purchase Payment would be 50,000 - 16,666, or $33,334. STEP-UP AND ROLL-UP VALUE: The Partial Surrender Reduction equals (1) the death benefit value (Step-Up or Roll-Up Value) in effect immediately before the reduction for withdrawal, multiplied by (2) the amount of the withdrawal, divided by (3) the Contract Value before the surrender less any Purchase Payment Credits applied within 12 months of the surrender. For example, assume your current Contract Value is $55,000. If your current Step-Up Value is $50,000, and you decide to make a withdrawal of $10,000, we would reduce the Step-Up Value as follows: 50,000 x (10,000/55,000) = 9,090 Your new Step-Up Value would be 50,000 - 9,090, or $40,910. 28 The following example shows what would happen in a declining market. Assume your current Contract Value is $30,000. If your current Step-Up Value is $50,000, and you decide to make a withdrawal of $10,000, we would reduce the Step-Up Value as follows: 50,000 x (10,000/30,000) = 16,666 Your new Step-Up Value would be 50,000 - 16,666, or $33,334. ENHANCED STEPPED-UP PROVISION ("E.S.P.") THIS PROVISION IS NOT AVAILABLE TO A CUSTOMER WHEN EITHER THE ANNUITANT OR OWNER IS AGE 76 OR OLDER ON THE RIDER EFFECTIVE DATE. The rider effective date is the date the rider is attached to and made a part of the Contract. If you have selected the E.S.P., the total death benefit as of the Death Report Date will equal the death benefit described above plus the greater of zero or the following amount: IF THE ANNUITANT IS YOUNGER THAN AGE 70 ON THE RIDER EFFECTIVE DATE, 40% OF THE LESSER OF: (1) 200% of the modified Purchase Payments excluding Purchase Payments that are both received after the first rider effective date anniversary and within 12 months of the Death Report Date, or (2) your Contract Value minus the modified Purchase Payments, calculated as of the Death Report Date; or IF THE ANNUITANT IS BETWEEN THE AGES OF 70 AND 75 ON THE RIDER EFFECTIVE DATE, 25% OF THE LESSER OF: (1) 200% of the modified Purchase Payments excluding Purchase Payments that are received both after the first rider effective date anniversary and within 12 months of the Death Report Date, or (2) your Contract Value minus the modified Purchase Payments, calculated as of the Death Report Date. THE INITIAL MODIFIED PURCHASE PAYMENT is equal to the Contract Value as of the rider effective date. Whenever a Purchase Payment is made after the rider effective date, the modified Purchase Payment(s) are increased by the amount of the Purchase Payment. Whenever a partial surrender is taken after the rider effective date, the modified Purchase Payment(s) are reduced by a partial surrender reduction as described below. THE PARTIAL SURRENDER REDUCTION IS EQUAL TO: (1) the modified Purchase Payment(s) in effect immediately prior to the reduction for the partial surrender, multiplied by (2) the amount of the partial surrender divided by (3) the Contract Value immediately prior to the partial surrender. For example, assume your current modified Purchase Payment is $50,000 and that your current Contract Value is $55,000. You decide to make a withdrawal of $10,000. We would reduce the modified Purchase Payment as follows: 50,000 x (10,000/55,000) = 9,090 You new modified Purchase Payment would be $50,000 - $9,090 = $40,910. The following example shows what would happen in a declining market. Assume your current Contract Value is $30,000. If your current modified Purchase Payment is $50,000 and you decide to make a withdrawal of $10,000, we would reduce the modified Purchase Payment as follows: 50,000 x (10,000/30,000) = 16,666 Your new modified Purchase Payment would be $50,000 - $16,666 = $33,334. PAYMENT OF PROCEEDS We describe the process of paying death benefit proceeds before the Maturity Date in the charts below. The charts do not encompass every situation and are merely intended as a general guide. More detailed information is provided in your Contract. Generally, the person(s) receiving the benefit may request that the proceeds be paid in a lump sum, or be applied to one of the settlement options available under the Contract. 29 NON-QUALIFIED CONTRACTS
- ------------------------------------------------------------------- -------------------------------------------------------------- MANDATORY BEFORE THE MATURITY DATE, THE COMPANY WILL PAYOUT RULES UPON THE DEATH OF THE PAY THE PROCEEDS TO: UNLESS. . . APPLY* - ------------------------------------------------------------------- -------------------------------------------------------------- OWNER (WHO IS NOT THE ANNUITANT) The beneficiary (ies), Unless, the beneficiary elects to Yes (WITH NO JOINT OWNER) or if none, to the continue the Contract rather than Contract Owner's estate. receive the distribution. - ------------------------------------------------------------------- -------------------------------------------------------------- OWNER (WHO IS THE ANNUITANT) The beneficiary (ies), Unless, the beneficiary elects to Yes (WITH NO JOINT OWNER) or if none, to the continue the Contract rather than Contract Owner's estate. receive the distribution. - ------------------------------------------------------------------- -------------------------------------------------------------- NON-SPOUSAL JOINT OWNER (WHO IS The surviving joint Yes NOT THE ANNUITANT) owner. - ------------------------------------------------------------------- -------------------------------------------------------------- NON-SPOUSAL JOINT OWNER (WHO IS The beneficiary (ies), Unless the beneficiary elects to Yes THE ANNUITANT) or if none, to the continue the Contract rather than surviving joint owner. receive the distribution. - ------------------------------------------------------------------- -------------------------------------------------------------- SPOUSAL JOINT OWNER (WHO IS NOT The surviving joint Unless the spouse elects to continue Yes THE ANNUITANT) owner. the Contract. - ------------------------------------------------------------------- -------------------------------------------------------------- SPOUSAL JOINT OWNER (WHO IS THE The beneficiary (ies), Unless the spousal beneficiary Yes ANNUITANT) or if none, to the elects to continue the Contract. surviving joint owner. A spouse who is not the beneficiary may decline to receive the proceeds and instruct the company to pay the beneficiary who may elect to continue the Contract. - ------------------------------------------------------------------- -------------------------------------------------------------- ANNUITANT (WHO IS NOT THE The beneficiary (ies), Unless the beneficiary elects to Yes CONTRACT OWNER) or if none, to the continue the Contract rather than Contract Owner receive the distribution. Or unless, there is a Contingent Annuitant. Then, the Contingent Annuitant becomes the Annuitant and the Contract continues in effect (generally using the original Maturity Date). The proceeds will then be paid upon the death of the Contingent Annuitant or owner. - ------------------------------------------------------------------- -------------------------------------------------------------- ANNUITANT (WHO IS THE CONTRACT See death of "owner who Yes OWNER) is the Annuitant" above. - ------------------------------------------------------------------- -------------------------------------------------------------- ANNUITANT (WHERE OWNER IS A The beneficiary (ies) Yes (Death of NONNATURAL ENTITY/TRUST) (or if none, to the Annuitant is owner. treated as death of the owner in these circumstances.) - ------------------------------------------------------------------- -------------------------------------------------------------- CONTINGENT ANNUITANT (ASSUMING No death proceeds are N/A ANNUITANT IS STILL ALIVE) payable; Contract continues. - ------------------------------------------------------------------- -------------------------------------------------------------- BENEFICIARY No death proceeds are N/A payable; Contract continues. - ------------------------------------------------------------------- -------------------------------------------------------------- CONTINGENT BENEFICIARY No death proceeds are N/A payable; Contract continues. - ------------------------------------------------------------------- --------------------------------------------------------------
30 QUALIFIED CONTRACTS
- ------------------------------------------------------------------- -------------------------------------------------------------- MANDATORY BEFORE THE MATURITY DATE, THE COMPANY WILL PAYOUT RULES UPON THE DEATH OF THE PAY THE PROCEEDS TO: UNLESS. . . APPLY* - ------------------------------------------------------------------- -------------------------------------------------------------- OWNER / ANNUITANT The beneficiary (ies), Unless the beneficiary elects to Yes or if none, to the continue the Contract rather than Contract Owner's estate. receive a distribution. - ---------------------------------------------------------------------------------------------------------------------------------- BENEFICIARY No death proceeds are N/A payable; Contract continues. - ---------------------------------------------------------------------------------------------------------------------------------- CONTINGENT BENEFICIARY No death proceeds are N/A payable; Contract continues. - ----------------------------------------------------------------------------------------------------------------------------------
- ---------- * Certain payout rules of the Internal Revenue Code (IRC) are triggered upon the death of any owner. Non-spousal beneficiaries (as well as spousal beneficiaries who choose not to assume the Contract) must begin taking distributions based on the beneficiary's life expectancy within one year of death or take a complete distribution of contract proceeds within 5 years of death. For Qualified Contracts, if mandatory distributions have begun at the death of the Annuitant, the 5 year payout option is not available. SPOUSAL CONTRACT CONTINUANCE (SUBJECT TO AVAILABILITY -- DOES NOT APPLY IF A NON-SPOUSE IS A JOINT OWNER) Within one year of your death, if your spouse is named as an owner and/or beneficiary, and you die before the Maturity Date, your spouse may elect to continue the Contract as owner rather than have the death benefit paid to the beneficiary. If you were the Annuitant and your spouse elects to continue the Contract, your spouse will be named the Annuitant as of the Death Report Date. If your spouse elects to continue the Contract as Contract Owner, the death benefit will be calculated as of the Death Report Date. If the Contract Value is less than the calculated death benefit, the Contract Value will be increased to equal the death benefit. This amount is referred to as the adjusted Contract Value. Any difference between the Contract Value and the adjusted Contract Value will be allocated to the funding options in the same proportion as the allocations of the Contract prior to the Death Report Date. Any premium paid before the Death Report Date is no longer subject to a withdrawal charge if your spouse elects to continue the Contract. Purchase payments and any associated credits made to the Contract after the Death Report Date will be subject to the withdrawal charge. All other contract fees and charges applicable to the original Contract will also apply to the continued Contract. All other benefits and features of your Contract will be based on your spouse's age on the Death Report Date as if your spouse had purchased the Contract with the adjusted Contract Value on the Death Report Date. This spousal contract continuance is available only once for each Contract. BENEFICIARY CONTRACT CONTINUANCE (NOT PERMITTED FOR NON-NATURAL BENEFICIARIES) If you die before the Maturity Date, and if the value of any beneficiary's portion of the death benefit is between $20,000 and $1,000,000 as of the Death Report Date, (more than $1,000,000 is subject to Home Office approval), your beneficiary(ies) may elect to continue his/her portion of the Contract subject to applicable Internal Revenue Code distribution requirements, rather than receive the death benefit in a lump sum. If the beneficiary chooses to continue the Contract, the beneficiary can extend the payout phase of the Contract enabling the beneficiary to "stretch" the death benefit distributions out over his life expectancy as permitted by the Internal Revenue Code. If your beneficiary elects to continue the Contract, the death benefit will be calculated as of the Death Report Date. The initial Contract Value of the continued Contract (the "adjusted Contract Value") will equal the greater of the Contract Value or the death benefit calculated on the Death Report Date and will be allocated to the funding options in the same proportion as prior to the Death Report Date. If the adjusted Contract Value is allocated to the Variable Funding Options, the beneficiary bears the investment risk. 31 The beneficiary who continues the Contract will be granted the same rights as the owner under the original Contract, except the beneficiary cannot: o transfer ownership o take a loan o make additional Purchase Payments The beneficiary may also name his/her own beneficiary ("succeeding beneficiary") and has the right to take withdrawals at any time after the Death Report Date without a withdrawal charge. The E.S.P. option is not available to a beneficiary continuing the Contract under this provision. All other fees and charges applicable to the original Contract will also apply to the continued Contract; the E.S.P. charge no longer applies. All benefits and features of the continued Contract will be based on the beneficiary's age on the Death Report Date as if the beneficiary had purchased the Contract with the adjusted Contract Value on the Death Report Date. PLANNED DEATH BENEFIT You may request that rather than receive a lump-sum death benefit, the beneficiary(ies) receive all or a portion of the death benefit proceeds either: o as a variable or fixed annuity for life or a period that does not exceed the beneficiary's life expectancy, or o under the terms of the Beneficiary Continuance provision described above. If the Beneficiary Continuance provision is selected as a planned death benefit, no surrenders will be allowed other than payments meant to satisfy minimum distribution amounts or systematic withdrawal amounts, if greater. You must make the planned death benefit request as well as any revocation of this request in writing. Upon your death, your beneficiary(ies) cannot revoke or modify this request. If the death benefit at the time we receive Due Proof of Death is less than $2,000, we will only pay a lump sum to the beneficiary. If periodic payments due under the planned death benefit election are less than $100, we reserve the right to make Annuity Payments at less frequent intervals, resulting in a payment of at least $100 per year. If no beneficiary is alive when death benefits become payable, we will pay the death benefit as provided in your Contract. DEATH PROCEEDS AFTER THE MATURITY DATE If any Contract Owner or the Annuitant dies on or after the Maturity Date, the Company will pay the beneficiary a death benefit consisting of any benefit remaining under the annuity or income option then in effect. LIVING BENEFITS - -------------------------------------------------------------------------------- GUARANTEED MINIMUM WITHDRAWAL BENEFIT ("GMWB" OR "PRINCIPAL GUARANTEE") We offer a Guaranteed Minimum Withdrawal Benefit rider ("GMWB Rider") for an additional charge. The GMWB Rider guarantees a return of your Purchase Payments regardless of market conditions if you do not withdraw more than a certain amount per year. Once you elect this benefit, you cannot cancel it. You must elect the benefit at time of purchase. GMWB will automatically terminate upon annuitization or if you assign your Contract to a different Contract Owner. NOTE: You may not elect the GMWB Rider if you have also elected the GMAB Rider offered under the Contract. Your initial Purchase Payment is used to determine your initial remaining benefit base, ("RBB"), or the maximum amount of money that is guaranteed to be returned to you subject to the conditions below. Your initial RBB does not include Purchase Payment Credits. The maximum amount you may withdraw on an annual basis without an adverse effect on your guarantee is your annual withdrawal benefit ("AWB"). If you make your first withdrawal within three full years after you purchased GMWB, your AWB will equal 5% of your RBB immediately prior to your first withdrawal. If you begin making withdrawals more than three complete years after you purchased GMWB, your AWB will equal 10% of your RBB immediately prior to your first withdrawal. Your AWB may be taken on any payment schedule you request, e.g. monthly. You may take 32 withdrawals in any dollar amount up to your AWB without affecting your guarantee. If you choose to receive only a part of or none of your AWB in any given year, your RBB and AWB will not increase. You can continue to receive your AWB until the RBB is depleted. If you take a partial withdrawal, and your AWB is greater than the free withdrawal allowance, withdrawal charges are waived only on amounts up to your AWB. Your RBB and AWB will not change unless you make subsequent Purchase Payments or take withdrawals from your Contract, as described below. If you make subsequent payments, we will recalculate your RBB and your AWB. Your new RBB equals your RBB immediately prior to the subsequent payment plus the subsequent payment. We reserve the right not to include subsequent Purchase Payments in the calculation of the RBB. When your RBB is adjusted because you have made a subsequent Purchase Payment, your AWB is recalculated to equal the AWB immediately prior to the subsequent payment, plus either 5% or 10% of the subsequent payment, depending on when you have taken your first withdrawal. Aggregate Purchase Payments over $1 million are subject to our consent, including our consent to the maximum RBB applied to your GMWB. We may impose a maximum RBB in the future for Contract Owners who elect GMWB, but the maximum RBB will never be less than the cumulative Purchase Payments to which we have previously consented. We reserve the right to restrict the maximum RBB on subsequent Purchase Payments and/or resets if such subsequent Purchase Payments and/or resets would cause the RBB to be greater than the maximum RBB. Purchase Payments under $1 million are not subject to a limitation on the maximum RBB. State variations may apply. WITHDRAWALS: If the total of all withdrawals since the most recent Contract Date anniversary, including the current withdrawal, is equal to or less than your AWB immediately prior to the current withdrawal, we will recalculate your RBB to equal the RBB immediately prior to the withdrawal, less the amount of the current withdrawal. If the total amount of all withdrawals since the most recent Contract Date anniversary, including the current withdrawal, exceed the AWB, we will recalculate both your RBB and AWB by applying a partial surrender reduction. The partial surrender reduction is equal to 1) the RBB or AWB in effect immediately prior to the current withdrawal, multiplied by 2) the amount of the current withdrawal divided by 3) the Contract Value immediately prior to the current withdrawal minus any Purchase Payment Credits applied within 12 months of the withdrawal. For example, assume your initial Purchase Payment is $100,000, and a withdrawal of $10,000 is taken in Contract Year two:
- ---------------------------------------------------------------------------------------------------------------------------------- ASSUMES 15% GAIN ON INVESTMENT ASSUMES 15% LOSS ON INVESTMENT - ---------------------------------------------------------------------------------------------------------------------------------- CONTRACT CONTRACT VALUE RBB AWB (5%) VALUE RBB - ---------------------------------------------------------------------------------------------------------------------------------- VALUES AS OF - ---------------------------------------------------------------------------------------------------------------------------------- CONTRACT DATE $106,000 $100,000 $5,000 $106,000 $100,000 $5,000 - ---------------------------------------------------------------------------------------------------------------------------------- IMMEDIATELY PRIOR TO WITHDRAWAL, CONTRACT YEAR TWO $121,900 $100,000 $5,000 $90,100 $100,000 $5,000 - ---------------------------------------------------------------------------------------------------------------------------------- IMMEDIATELY AFTER $91,797 $4,590 $88,901 WITHDRAWAL, CONTRACT YEAR [100,000 - (100,000 [5,000 - (5,000 [100,000 - (100,000 [5,000 - (5,000 TWO $111,900 x 10,000/121,900)] x 10,000/121,900)] $80,100 x 10,000/90,100)] x 10,000/90,100)] - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- CHANGE IN VALUE DUE TO WITHDRAWAL (PARTIAL SURRENDER REDUCTION) $10,000 $8,203 $410 $10,000 $11,099 $555 - ----------------------------------------------------------------------------------------------------------------------------------
Any time on or after the 5th Contract Date anniversary, you may choose to reset your RBB to equal your current Contract Value minus any Purchase Payment Credits received 12 months prior to the reset date. Depending on your Contract Value and the current fee for GMWB, it may not be beneficial to reset your RBB. 33 Generally, it may be beneficial to reset your RBB if your Contract Value exceeds your RBB. However, the current charge in effect at the time of the reset will apply which may be higher than the current charge. Further, if you reset your RBB, your new AWB may be higher or lower than your current AWB. Your second and all subsequent resets must occur at least 5 years from the most recent reset. If your first withdrawal from the Contract is prior to your third Contract Date anniversary, your AWB will equal 5% of your RBB after any reset. Similarly, if you began taking withdrawals after your third Contract Year, your AWB will equal 10% of your RBB after any reset. In addition, the length of time over which you can expect to receive your RBB will be reset. Once you become eligible to reset your RBB, we reserve the right to allow resets only on a contract anniversary. If your Contract Value reaches zero, and you have purchased this benefit, the following will occur: o The AWB will continue to be paid to you until the RBB is depleted, not more frequently than monthly. Upon your death, your beneficiary will receive these payments. No other death benefit or E.S.P. benefit, if any, will be paid. o The total annual payment amount will equal the AWB and will never exceed your RBB, and o We will no longer accept subsequent Purchase Payments into the Contract. If a spouse or beneficiary continues this Contract upon your death, and you had elected GMWB, all terms and conditions of this benefit would apply to the new owner. Please refer to the Death Benefit section for information on how GMWB may impact your death benefit. GUARANTEED MINIMUM ACCUMULATION BENEFIT ("GMAB") THE GUARANTEED MINIMUM ACCUMULATION BENEFIT RIDER DESCRIBED BELOW IS BEING OFFERED AS OF AUGUST 30, 2004 IN THOSE JURISDICTIONS WHERE WE HAVE RECEIVED REGULATORY APPROVAL. CERTAIN TERMS AND CONDITIONS MAY DIFFER BETWEEN JURISDICTIONS ONCE APPROVED. We offer a Guaranteed Minimum Accumulation Benefit rider ("GMAB Rider") for an additional charge. The GMAB Rider guarantees that your Contract Value will not be less than a minimum amount at the end of a specified number of years. If your Contract Value is less than the minimum guaranteed amount on the Rider Maturity Date, we will apply additional amounts to increase your Contract Value so that it is equal to the guaranteed amount. If you elect the GMAB Rider, we require that you allocate your Contract Value according to certain limitations and restrictions, and agree to periodic rebalancing of your Contract Value. Currently, the GMAB Rider may only be elected at the time that you purchase your Contract. We may make the GMAB Rider available to Contracts after their effective date at a later date subject to certain additional terms and restrictions. You may not elect the GMAB Rider if you have also elected the GMWB Rider offered under the Contract. BENEFIT DESCRIPTION & KEY TERMS If you elect the GMAB Rider, we guarantee that if your Contract Value is less than your Benefit Base (defined below) on the Rider Maturity Date (defined below), we will apply additional amounts to your Contract to increase your Contract Value so that it is equal to the Benefit Base. Any additional amounts that we apply to your Contract to increase the Contract Value to equal the Benefit Base will be allocated to the money market Subaccount on the Rider Maturity Date. Any such additional amounts will be treated as earnings under your Contract, and will not be subject to a withdrawal charge once they are applied to your Contract. If your Contract Value is equal to or greater than the Benefit Base on the Rider Maturity Date, the GMAB Rider will terminate and no additional amounts will be applied to your Contract. BENEFIT BASE: The Benefit Base is equal to the Base Calculation Amount on the Rider Maturity Date and represents the minimum Contract Value that we guarantee on such date. We do not guarantee the Benefit Base on any day other than the Rider Maturity Date. The Benefit Base will not be available for withdrawal nor will it be used to calculate any benefits under the Contract prior to the Rider Maturity Date. The Benefit Base can never be less than zero. 34 BASE CALCULATION AMOUNT: We calculate the Base Calculation Amount to determine the Benefit Base. On the Rider Effective Date, the Base Calculation Amount is equal to your initial Purchase Payment. The Base Calculation Amount will not include any credits we applied to your Purchase Payment. Aggregate Purchase Payments over $1 million are subject to our consent, including our consent to limit the Base Calculation Amount applicable to your GMAB Rider. We may impose a maximum Base Calculation Amount (and thereby, a maximum Benefit Base) in the future for Contract Owners who elect the GMAB Rider, but the maximum Base Calculation Amount will never be less than the Base Calculation Amount to which we have previously consented. We reserve the right to restrict increases in your maximum Base Calculation Amount based on subsequent Purchase Payments if such Purchase Payments would cause you Base Calculation Amount to be greater than our maximum Base Calculation Amount. We will not limit or impose a maximum Base Calculation Amount if your aggregate Purchase Payments are under $1 million. If you purchase more than one contract issued by the Company in the same calendar year and elect the GMAB Rider on each contract, the $1,000,000 Benefit Base maximum may be applied to the aggregate Benefit Base for all contracts. State variations may apply. The Base Calculation Amount will not be used to calculate any benefits under the Contract, other than the GMAB Rider Liquidity Option described below. The Base Calculation Amount can never be less than zero. The Base Calculation Amount may change between the Rider Effective Date and Rider Maturity Date if you make additional Purchase Payments or request withdrawals from your Contract. o If you make an additional Purchase Payment(s) within 12 months after the Rider Effective Date, we will increase the Base Calculation Amount by the amount of the Purchase Payment. The Base Calculation Amount will not include any credits we applied to any additional Purchase Payments you make. If you make an additional Purchase Payment(s) more than 12 months after the Rider Effective Date, we will not increase the Base Calculation Amount; however your Contract Value will increase, reflecting the amount of the Purchase Payment. You should consider this prior to making an additional Purchase Payment more than 12 months after the Rider Effective Date. o If you request a partial withdrawal, we will decrease the Base Calculation Amount in effect as of the date of the request by the actual dollar amount of the withdrawal or the Partial Withdrawal Reduction amount, whichever is greater. The Partial Withdrawal Reduction amount is equal to the Base Calculation Amount in effect immediately prior to the reduction for the partial withdrawal multiplied by the actual amount of the partial withdrawal divided by the Contract Value immediately prior to the partial withdrawal, minus Purchase Payment Credits received within 12 months prior to the partial withdrawal, if any. When determining the impact of a partial withdrawal on the Base Calculation Amount, the actual amount of the partial withdrawal will include any contingent deferred sales charges and taxes that were deducted at the time of the partial withdrawal. RIDER MATURITY DATE: The Rider Maturity Date is the anniversary of the Rider Effective Date that corresponds to the number of years you elect as the Rider Period (described below). RIDER PERIOD: The Rider Period is the number of years you select between the Rider Effective Date and the Rider Maturity Date. Currently, we only offer a Rider Period of ten (10) years. We may offer Rider Periods of lesser or greater duration available in the future, subject to additional terms, conditions and limitations. EXAMPLES OF BENEFIT BASE/BASE CALCULATION AMOUNT Below are examples of how we determine the Benefit Base and Base Calculation Amount, as well as examples showing the impact of subsequent Purchase Payments and partial withdrawals. For purposes of each example below, assume that you elect the GMAB Rider on the effective date of your Contract and that your initial Purchase Payment is $100,000. The example below illustrates the impact of the guarantee provided under the GMAB Rider assuming that your Contract Value increases or decreases during the Rider Period. 35
EXAMPLES OF GMAB RIDER ON THE RIDER MATURITY DATE ========================================================================================================== INCREASING CONTRACT VALUE DECLINING CONTRACT VALUE ---------------------------------------------------------------------------------------------------------- BASE BASE CALCULATION CALCULATION CONTRACT VALUE AMOUNT BENEFIT BASE CONTRACT VALUE AMOUNT BENEFIT BASE =====================---------------------------------------------------------------------------------------------------------- VALUE AS OF GMAB RIDER EFFECTIVE DATE $106,000 $100,000 Not Applicable $106,000 $100,000 Not Applicable - ------------------------------------------------------------------------------------------------------------------------------- VALUE AS OF RIDER MATURITY DATE $121,900 $100,000 $100,000 $90,100 $100,000 $100,000 - ------------------------------------------------------------------------------------------------------------------------------- AMOUNT APPLIED TO CONTRACT VALUE DUE TO GMAB RIDER $0(1) $9,900(2) ===============================================================================================================================
- ---------- (1) If your Contract Value on the GMAB Rider Maturity Date is equal to or greater than the Benefit Base, we will not apply any additional amounts to your Contract Value. Your GMAB Rider will terminate and we will no longer deduct the annual charge for the rider. (2) If your Contract Value on the GMAB Rider Maturity Date is less than the Benefit Base, we will apply additional amounts to your Contract Value so that it is equal to the Benefit Base. The additional amount will be added to the money market subaccount. The example below illustrates the impact of making an additional $10,000 Purchase Payment while the GMAB Rider is in effect, specifically the different manner in which we will treat Purchase Payments for purpose of determining the Base Calculation Amount based on when the Purchase Payment is made.
EXAMPLES OF ADDITIONAL PURCHASE PAYMENTS -- IMPACT ON BASE CALCULATION AMOUNT ========================================================================================================== ADDITIONAL PURCHASE PAYMENT WITHIN 12 MONTHS ADDITIONAL PURCHASE PAYMENT AFTER 12 MONTHS ---------------------------------------------------------------------------------------------------------- BASE BASE PURCHASE CALCULATION PURCHASE CALCULATION CONTRACT VALUE PAYMENT AMOUNT CONTRACT VALUE PAYMENT AMOUNT =====================---------------------------------------------------------------------------------------------------------- VALUE AS OF GMAB RIDER EFFECTIVE DATE $106,000 $100,000 $100,000 $106,000 $100,000 $100,000 - ------------------------------------------------------------------------------------------------------------------------------- VALUE BEFORE ADDITIONAL PURCHASE PAYMENT $120,000 Not Applicable $100,000 $120,000 Not Applicable $100,000 - ------------------------------------------------------------------------------------------------------------------------------- VALUE AFTER ADDITIONAL PURCHASE PAYMENT $130,600 $10,000 $110,000 $130,600 $10,000 $100,000 ===============================================================================================================================
The example below illustrates the impact of making a $10,000 partial withdrawal at least 12 months after the Rider Effective Date while the GMAB Rider is in effect, specifically the difference in the manner in which a partial withdrawal affects your Base Calculation Amount in an increasing market versus a decreasing market. The example assumes that the partial withdrawal does not qualify under the GMAB Rider Liquidity Option described below.
EXAMPLES OF PARTIAL WITHDRAWALS -- IMPACT ON BASE CALCULATION AMOUNT ================================================================================================== ASSUMING INCREASING CONTRACT VALUE -------------------------------------------------------------------------------------------------- CONTRACT BASE CALCULATION PARTIAL WITHDRAWAL PARTIAL SURRENDER REDUCTION TO BASE VALUE AMOUNT AMOUNT REDUCTION CALCULATION AMOUNT ============================--------------------------------------------------------------------------------------------------- VALUE AS OF GMAB RIDER EFFECTIVE DATE $106,000 $100,000 Not Applicable Not Applicable Not Applicable - ------------------------------------------------------------------------------------------------------------------------------- VALUE IMMEDIATELY PRIOR TO PARTIAL WITHDRAWAL $121,900 $100,000 Not Applicable Not Applicable Not Applicable - ------------------------------------------------------------------------------------------------------------------------------- VALUE IMMEDIATELY [100,000 x FOLLOWING PARTIAL 10,000/121,900] WITHDRAWAL $111,900 $90,000 $10,000 $8,203 $10,000 ===============================================================================================================================
36
================================================================================================== ASSUMING DECLINING CONTRACT VALUE -------------------------------------------------------------------------------------------------- CONTRACT BASE CALCULATION PARTIAL WITHDRAWAL PARTIAL SURRENDER REDUCTION TO BASE VALUE AMOUNT AMOUNT REDUCTION CALCULATION AMOUNT =============================-------------------------------------------------------------------------------------------------- VALUE AS OF GMAB RIDER EFFECTIVE DATE $106,000 $100,000 Not Applicable Not Applicable Not Applicable - ------------------------------------------------------------------------------------------------------------------------------- VALUE IMMEDIATELY PRIOR TO $90,100 $100,000 Not Applicable Not Applicable Not Applicable PARTIAL WITHDRAWAL $90,100 $100,000 Not Applicable Not Applicable Not Applicable - ------------------------------------------------------------------------------------------------------------------------------- VALUE IMMEDIATELY [100,000 x FOLLOWING PARTIAL 10,000/90,100] WITHDRAWAL $80,100 $88,901 $10,000 $11,099 $11,099 ===============================================================================================================================
INVESTMENT LIMITATIONS/RESTRICTIONS/REBALANCING If you elect the GMAB Rider, your Contract will be subject to additional limitations and restrictions on your right to allocate Contract Value among the Subaccounts, your right to request transfers between Subaccounts and your right to allocate Purchase Payments to Subaccounts. We classify each Subaccount as Class A or Class B based on our assessment of the relative risk and volatility of the Underlying Fund in which the Subaccount invests. Subaccounts that we classify as "Class A" will generally invest in Underlying Funds that invest primarily in equity securities, or securities that we believe will approximate the relative volatility and relative risk of equity securities. Subaccounts that we classify as "Class B" will generally invest in Underlying Funds that invest primarily in debt securities or cash. A Subaccount that invests in an Underlying Fund that invests in a combination of equity securities and debt securities will be classified as either Class A or Class B. We have sole discretion to determine whether a Subaccount is classified as Class A or Class B. We reserve the right to change the classification of a Subaccount from Class A to Class B or from Class B to Class A. Any change in Subaccount classification will apply to Contract Owners who elect the GMAB Rider after the effective date of the change in classification, as well as existing Contract Owner who have the GMAB Rider in force as of the effective date of the change in classification. You will be required to establish a personal allocation profile at the time that you elect the GMAB Rider specifying the Subaccounts and the allocation percentages for each Subaccount in which you intend to allocate your initial Purchase Payment and any credits that we apply to your initial Purchase Payment. Your personal allocation profile will remain in effect for any additional Purchase Payments you make until you elect to change it. Your personal allocation profile may include any combination of Class A and Class B Subaccounts so long as the overall allocation does not violate the limitations and restrictions described below. You may only allocate up to 80% of your initial Purchase Payment and any credits that we apply to your initial Purchase Payment to Subaccounts that we classify as Class A. You must allocate 20% or more of your initial Purchase Payment and any credits that we apply to your initial Purchase Payment to Subaccounts that we classify as Class B. Any time that you request a transfer of Contract Value between Subaccounts or make an additional Purchase Payment, you must comply with the following limitations or restrictions: o You may allocate your Contract Value in one or more of the Class A Subaccounts that you choose; however, you may only allocate up to 80% of your Contract Value to Subaccounts that we classify as Class A. o You may allocate your Contract Value in one or more of the Class B Subaccounts that you choose; however, you must allocate 20% or more of your Contract Value to Subaccounts that we classify as Class B. o If you make an additional Purchase Payment, you can only allocate up to 80% of Purchase Payment to Subaccounts that we classify as Class A. o If you make an additional Purchase Payment, you must allocate 20% or more of the Purchase Payments to Subaccounts that we classify as Class B. 37 Any request to transfer Contract Value or allocate subsequent Purchase Payments that would violate these limitations and restrictions will be rejected. You will be required to submit a new request that complies with the applicable limitation or restriction. We will not be responsible for any financial impact caused by delays in processing your transaction if your request is rejected because it does not comply with an applicable limitation or restriction. REBALANCING: On a quarterly basis, we will rebalance your Contract Value according to the current personal allocation profile that you chose for Class A and Class B Subaccounts. Unless you instruct us otherwise, we will rebalance your Contract Value in each Class A and Class B Subaccount, respectively, according to the relative proportions indicated in your personal allocation profile. Below is a list of the Subaccounts that are currently offered under the Contract with the applicable classification. CLASS A SUBACCOUNTS/UNDERLYING FUNDS CLASS B SUBACCOUNTS/ UNDERLYING FUNDS AIM VARIABLE INSURANCE FUNDS, INC. PIONEER VARIABLE CONTRACTS TRUST (CONT) Money Market Portfolio AIM V.I. Capital Appreciation Fund -- Series II Pioneer High Yield VCT Portfolio -- PIONEER VARIABLE CONTRACTS TRUST AIM V.I. Mid Cap Core Equity -- Series II Class II Shares Pioneer America Income VCT FRANKLIN TEMPLETON VARIABLE INSURANCE Pioneer International Value VCT Portfolio -- Class II Shares PRODUCTS TRUST Portfolio -- Class II Shares Pioneer Strategic Income VCT Franklin Rising Dividends Securities Pioneer Mid Cap Value VCT Portfolio -- Portfolio -- Class II Shares Fund -- Class 2 Shares Class II Shares Franklin Small Cap Fund -- Class 2 Shares Pioneer Oak Ridge Large Cap Growth VCT Templeton Foreign Securities Fund -- Portfolio -- Class II Shares Class 2 Shares Pioneer Papp America-Pacific Rim VCT GREENWICH STREET SERIES FUND Portfolio -- Class II Shares Salomon Brothers Variable Aggressive Pioneer Papp Small & Mid Cap Growth VCT Growth Fund -- Class II Shares Portfolio -- Class II Shares OPPENHEIMER VARIABLE ACCOUNT FUNDS Pioneer Real Estate Shares VCT Oppenheimer Capital Appreciation Portfolio -- Class II Shares Fund/VA -- Service Shares Pioneer Small Cap Value VCT Portfolio -- Oppenheimer Global Securities Class II Shares Fund/VA -- Service Shares Pioneer Small Company VCT Portfolio -- PIONEER VARIABLE CONTRACTS TRUST Class II Shares Pioneer Balanced VCT Portfolio -- Pioneer Value VCT Portfolio -- Class II Shares Class II Shares SALOMON BROTHERS VARIABLE SERIES FUNDS INC. Pioneer Emerging Markets VCT Portfolio -- Total Return Fund -- Class II Class II Shares Pioneer Equity Income VCT Portfolio -- Class II Shares Pioneer Europe VCT Portfolio -- Class II Shares Pioneer Fund VCT Portfolio -- Class II Shares Pioneer Growth Shares VCT Portfolio -- Class II Shares
GMAB RIDER LIQUIDITY OPTION During the 90-day period prior to the 5th anniversary of the Rider Effective Date, you may request a partial withdrawal of up to 15% of the Base Calculation Amount immediately prior to the request. Under this option, we will reduce the Base Calculation Amount by the dollar amount of the withdrawal so long as the withdrawal does not exceed the amount available for withdrawal under this provision. If you request a partial withdrawal greater than 15% of the Base Calculation Amount, we will reduce the Base Calculation Amount by the dollar amount of the withdrawal for amounts withdrawn up to the 15% limit and, for the excess amount, we will reduce the Base Calculation Amount as described above under the sub-section "Base Calculation Amount." Any partial withdrawal you make under this provision will be made free of contingent deferred sales charges that would otherwise apply under the terms of your Contract. Additionally, any withdrawals taken under this feature will reduce your Free Withdrawal Allowance under the Contract. 38 This feature can only be exercised once before the Rider Maturity Date and must occur during the 90-day period prior to the 5th anniversary of the Rider Effective Date. We reserve the right to require you to exercise your rights under this provision on the anniversary of your Rider Effective Date. You must notify us in a form acceptable to us that you are exercising your rights under this GMAB Rider Liquidity Option. CANCELLATION OF THE GMAB RIDER You may elect to cancel the GMAB Rider at any time after the 5th anniversary of the GMAB Rider Effective Date. Upon cancellation, we will no longer deduct the annual charge for the GMAB Rider. Upon cancellation of the GMAB Rider, all rights and benefits under the GMAB Rider will cease. Upon cancellation, we will no longer apply any of the investment limitations and restrictions described above. GMAB RIDER EXCHANGE OPTION -- If, during the 90-day period following the 5th anniversary of the Rider Effective Date, your Contract Value is greater than the Base Calculation Amount, you may elect to cancel the GMAB Rider and simultaneously elect either a new GMAB Rider or a GMWB Rider. You will be required to meet any eligibility requirements that apply to each rider at the time you make the election. EXCHANGE FOR NEW GMAB RIDER: If you elect to cancel the GMAB Rider and elect the GMAB Rider that we make available under this Rider Exchange Option, the Rider Effective Date for your new GMAB Rider will be the date we receive your request in good order. Your new GMAB Rider will be subject to a new Rider Maturity Date. The Benefit Base of your prior GMAB Rider will not apply to the new GMAB Rider. Your Contract Value as of the date you elect to exchange your GMAB Rider will be used to determine your initial Base Calculation Amount for the new rider. The new GMAB Rider will be subject to a new charge that may be higher or lower than the charge you paid for your original GMAB Rider. The GMAB Rider that we make available under this Rider Exchange Option will always feature a ten year Rider Period and may include other Rider Period durations. EXCHANGE FOR GMWB RIDER: If you elect to cancel the GMAB Rider and elect the GMWB Rider that we make available under this Rider Exchange Option, the Rider Effective Date for your GMWB Rider will be the date we receive your request. The GMWB Rider that we make available under this Rider Exchange Option will feature a 10% minimum annual withdrawal amount. The GMWB Rider will be subject to the charge then in effect for a GMWB Rider that is offered under this Rider Exchange Option. TERMINATION The GMAB Rider will terminate on the earliest to occur of: (1) the Rider Maturity Date; (2) the date you elect to begin receiving Annuity Payments under the Contract; (3) the date you fully surrender your Contract; (4) the date you elect to cancel the GMAB Rider (including assignments); (5) the date we receive Due Proof of Death if the surviving spouse or beneficiary does not elect to continue the Contract (if allowed); or (6) the date the GMAB Rider is cancelled and replaced with a new GMAB Rider or GMWB Rider under the Rider Exchange Option. The annual charge for the GMAB Rider will no longer be deducted and all guarantees will cease when the rider is terminated. Further, any investment limitations and restrictions will no longer apply after the GMAB Rider is terminated. If the GMAB Rider is terminated before the Rider Maturity Date, the Benefit Base will not be paid. CHARGE FOR GMAB If you elect the GMAB Rider, we will deduct an additional charge on a daily basis that is equal to an annual charge of 0.50% from your Contract Value invested in the Subaccounts. The charge will be applied and will not change from the Rider Effective Date until the Rider Maturity Date unless the rider is cancelled or terminates prior to such date. If you elect to terminate the GMAB Rider prior to the Rider Maturity Date, the charge will no longer be deducted. If you elect to exchange this GMAB Rider and elect a new GMAB Rider under the Rider Exchange Option (described above), the current charge in effect for the GMAB rider will be applied, which may be higher or lower than the charge you paid for this rider. 39 ADDITIONAL CONSIDERATIONS o Your Contract cannot have any outstanding loans if you elect the GMAB Rider. Further, you may not request a loan from your Contract if you have previously elected the GMAB Rider. o If you die while the GMAB Rider is in effect, and your surviving spouse or Beneficiary elects to continue the Contract under the spousal contract continuance or beneficiary contract continuance provision, then the GMAB Rider will remain in effect and will continue until the Rider Maturity Date. o Any DCA Program that is in effect while the GMAB Rider is in effect must meet the investment limitations and restrictions of the GMAB Rider, as described above. In addition, you may not request a DCA Program that makes transfers from Class B Subaccounts to Class A Subaccounts. o If you are expecting to request withdrawals from your Contract, including withdrawals intended to satisfy required minimum distribution requirements, the impact of such withdrawals on the guarantees provided under the GMAB Rider will make the rider less valuable. THE ANNUITY PERIOD - -------------------------------------------------------------------------------- MATURITY DATE Under the Contract, you can receive regular income payments ("Annuity Payments"). You can choose the month and the year in which those payments begin ("Maturity Date"). You can also choose among income payouts (annuity options) or elect a lump sum distribution. While the Annuitant is alive, you can change your selection any time up to the Maturity Date. Annuity Payments will begin on the Maturity Date stated in the Contract unless (1) you fully surrendered the Contract; (2) we paid the proceeds to the beneficiary before that date; or (3) you elected another date. Annuity Payments are a series of periodic payments (a) for life; (b) for life with a minimum number of payments; (c) for the joint lifetime of the Annuitant and another person, and thereafter during the lifetime of the survivor, or (d) for a fixed period. We may require proof that the Annuitant is alive before we make Annuity Payments. Not all options may be available in all states. You may choose to annuitize at any time after the first Contract Date anniversary. Unless you elect otherwise, the Maturity Date will be the Annuitant's 90th birthday for Non-qualified Contracts and the Annuitant's 70th birthday of Qualified Contracts or ten years after the effective date of the Contract, if later. At least 30 days before the original Maturity Date, you may elect to extend the Maturity Date to any time prior to the Annuitant's 90th birthday or to a later date with our consent. You may use certain annuity options taken at the Maturity Date to meet the minimum required distribution requirements of federal tax law, or you may use a program of withdrawals instead. These mandatory distribution requirements take effect generally upon the death of the Contract Owner, or with certain Qualified Contracts upon either the later of the Contract Owner's attainment of age 70 1/2 or year of retirement; or the death of the Contract Owner. You should seek independent tax advice regarding the election of minimum required distributions. ALLOCATION OF ANNUITY You may elect to receive your Annuity Payments in the form of a variable annuity, a fixed annuity, or a combination of both. If, at the time Annuity Payments begin, you have not made an election, we will apply your Cash Surrender Value to provide an annuity funded by the same funding options as you have selected during the accumulation period. At least 30 days before the Maturity Date, you may transfer the Contract Value among the funding options in order to change the basis on which we will determine Annuity Payments. (See "Transfers.") VARIABLE ANNUITY You may choose an annuity payout that fluctuates depending on the investment experience of the Variable Funding Options. We determine the number of Annuity Units credited to the Contract by dividing the first monthly Annuity Payment attributable to each Variable Funding Option by the corresponding Accumulation Unit value as of 14 days before the date Annuity Payments begin. We use an Annuity Unit to measure the dollar 40 value of an Annuity Payment. The number of Annuity Units (but not their value) remains fixed during the annuity period. DETERMINATION OF FIRST ANNUITY PAYMENT. Your Contract contains the tables we use to determine your first monthly Annuity Payment. If you elect a variable annuity, the amount we apply to it will be the Cash Surrender Value as of 14 days before the date Annuity Payments begin, less any applicable premium taxes not previously deducted. The amount of your first monthly payment depends on the annuity option you elected and the Annuitant's adjusted age. Your Contract contains the formula for determining the adjusted age. We determine the total first monthly Annuity Payment by multiplying the benefit per $1,000 of value shown in the contract tables by the number of thousands of dollars of Contract Value you apply to that annuity option. The contract tables factor in an assumed daily net investment factor. We call this your net investment rate. For example, a net investment rate of 3% corresponds to an annual interest rate of 3%. This means that if the annualized investment performance, after expenses, of your Variable Funding Options is less than 3%, then the dollar amount of your variable Annuity Payments will decrease. However, if the annualized investment performance, after expenses, of your Variable Funding Options is greater than 3%, then the dollar amount of your variable Annuity Payments will increase. DETERMINATION OF SECOND AND SUBSEQUENT ANNUITY PAYMENTS. The dollar amount of all subsequent Annuity Payments changes from month to month based on the investment experience, as described above, of the applicable funding options. The total amount of each Annuity Payment will equal the sum of the basic payments in each funding option. We determine the actual amounts of these payments by multiplying the number of Annuity Units we credited to each funding option by the corresponding Annuity Unit value as of the date 14 days before the date the payment is due. FIXED ANNUITY You may choose a fixed annuity that provides payments that do not vary during the annuity period. We will calculate the dollar amount of the first fixed Annuity Payment as described under "Variable Annuity," except that the amount we apply to begin the annuity will be your Cash Surrender Value as of the date Annuity Payments begin. Payout rates will not be lower than that shown in the Contract. If it would produce a larger payment, the first fixed Annuity Payment will be determined using the Life Annuity Tables in effect on the Maturity Date. PAYMENT OPTIONS - -------------------------------------------------------------------------------- ELECTION OF OPTIONS While the Annuitant is alive, you can change your annuity option selection any time up to the Maturity Date. Once Annuity Payments have begun, no further elections are allowed. During the Annuitant's lifetime, if you do not elect otherwise before the Maturity Date, we will pay you (or another designated payee) the first of a series of monthly Annuity Payments based on the life of the Annuitant, in accordance with Annuity Option 2 (Life Annuity with 120 monthly payments assured). For certain Qualified Contracts, Annuity Option 4 (Joint and Last Survivor Life Annuity -- Annuity Reduced on Death of Primary Payee) will be the automatic option as described in the Contract. The minimum amount that can be placed under an annuity option will be $2,000 unless we agree to a lesser amount. If any monthly periodic payment due is less than $100, the Company reserves the right to make payments at less frequent intervals, or to pay the Contract Value in a lump-sum. On the Maturity Date, we will pay the amount due under the Contract in accordance with the payment option that you select. You may choose to receive a single lump-sum payment. You must elect an option in writing, in a form satisfactory to the Company. Any election made during the lifetime of the Annuitant must be made by the Contract Owner. 41 ANNUITY OPTIONS Subject to the conditions described in "Election of Options" above, we may pay all or any part of the Cash Surrender Value under one or more of the following annuity options. Payments under the annuity options are generally made on a monthly basis. We may offer additional options. Option 1 -- Life Annuity -- No Refund. The Company will make Annuity Payments during the lifetime of the Annuitant ending with the last payment before death. This option offers the maximum periodic payment, since there is no assurance of a minimum number of payments or provision for a death benefit for beneficiaries. Option 2 -- Life Annuity with 120, 180 or 240 Monthly Payments Assured. The Company will make monthly Annuity Payments during the lifetime of the Annuitant, with the agreement that if, at the death of that person, payments have been made for less than 120, 180 or 240 months, as elected, we will continue making payments to the beneficiary during the remainder of the period. Option 3 -- Joint and Last Survivor Life Annuity -- No Refund. The Company will make regular Annuity Payments during the lifetime of the Annuitant and a second person. When either person dies, we will continue making payments to the survivor. No further payments will be made following the death of the survivor. Option 4 -- Joint and Last Survivor Life Annuity -- Annuity Reduced on Death of Primary Payee. The Company will make Annuity Payments during the lifetimes of the Annuitant and a second person. You will designate one as primary payee, and the other will be designated as secondary payee. On the death of the secondary payee, the Company will continue to make monthly Annuity Payments to the primary payee in the same amount that would have been payable during the joint lifetime of the two persons. On the death of the primary payee, the Company will continue to make Annuity Payments to the secondary payee in an amount equal to 50% of the payments, which would have been made during the lifetime of the primary payee. No further payments will be made once both payees have died. Option 5 -- Payments for a Fixed Period without Life Contingency. We will make periodic payments for the period selected. VARIABLE LIQUIDITY BENEFIT This benefit is only offered with the "Payments for a Fixed Period without Life Contingency" variable annuity option. At any time after annuitization and before death, the Contract Owner may surrender and receive a payment equal to (A) minus (B), where (A) equals the present value of remaining certain payments, and (B) equals a withdrawal charge not to exceed the maximum withdrawal charge rate shown on the specifications page of the Contract multiplied by (A). The interest rate used to calculate the present value is a rate 1% higher than the Assumed (Daily) Net Investment Factor used to calculate the Annuity Payments. The remaining period certain payments are assumed to be level payments equal to the most recent period certain payment prior to the request for this liquidity benefit. MISCELLANEOUS CONTRACT PROVISIONS - -------------------------------------------------------------------------------- RIGHT TO RETURN You may return the Contract for a full refund of the Contract Value plus any contract charges and premium taxes you paid (but not any fees and charges the Underlying Fund assessed) minus any Purchase Payment Credits within ten days after you receive it (the "right to return period"). You bear the investment risk of investing in the Variable Funding Options during the right to return period; therefore, the Contract Value we return may be greater or less than your Purchase Payment. If you purchase the Contract as an Individual Retirement Annuity, and return it within the first seven days after delivery, or longer if your state law permits, we will refund your Purchase Payment minus any Purchase Payment Credits in full; during the remainder of the right to return period, we will refund the Contract Value (including charges) minus any Purchase Payment Credits. 42 During the right to return period, you will not bear any contract fees associated with the Purchase Payment Credits. If you exercise your right to return, you will be in the same position as if you had exercised the right to return in a variable annuity contract with no Purchase Payment Credit. You would, however, receive any gains, and we would bear any losses attributable to the Purchase Payment Credits. We will determine the Contract Value following the close of the business day on which we receive your Contract and a Written Request for a refund. Where state law requires a different period, or the return of Purchase Payments or other variations of this provision, we will comply. Refer to your Contract for any state-specific information. TERMINATION You do not need to make any Purchase Payments after the first to keep the Contract in effect. However, we reserve the right to terminate the Contract on any business day if your Contract Value as of that date is less than $2,000 and you have not made Purchase Payments for at least two years, unless otherwise specified by state law. Termination will not occur until 31 days after we have mailed notice of termination to your last known address and to any assignee of record. If we terminate the Contract, we will pay you the Cash Surrender Value (less any Purchase Payment Credits applied within 12 months of termination) less any applicable taxes. REQUIRED REPORTS As often as required by law, but at least once in each Contract Year before the due date of the first Annuity Payment, we will furnish a report showing the number of Accumulation Units credited to the Contract and the corresponding Accumulation Unit value(s) as of the report date for each funding option to which the Contract Owner has allocated amounts during the applicable period. The Company will keep all records required under federal and state laws. SUSPENSION OF PAYMENTS The Company reserves the right to suspend or postpone the date of any payment or determination of values on any business day (1) when the New York Stock Exchange ("the Exchange") is closed; (2) when trading on the Exchange is restricted; (3) when an emergency exists, as determined by the SEC, so that the sale of securities held in the Separate Account may not reasonably occur, or so that the Company may not reasonably determine the value the Separate Account's net assets; or (4) during any other period when the SEC, by order, so permits for the protection of security holders. At any time, payments from the Fixed Account may be delayed up to 6 months. THE SEPARATE ACCOUNTS - -------------------------------------------------------------------------------- The Travelers Insurance Company and The Travelers Life and Annuity Company each sponsor Separate Accounts: Separate Account Eleven and Separate Account Twelve, respectively. Both Separate Account Eleven and Separate Account Twelve were established on November 14, 2002 and are registered with the SEC as unit investment trusts (Separate Account) under the Investment Company Act of 1940, as amended. We will invest Separate Account assets attributable to the Contracts exclusively in the shares of the Variable Funding Options. We hold the assets of Separate Account Eleven and Separate Account Twelve for the exclusive and separate benefit of the owners of each Separate Account, according to the laws of Connecticut. Income, gains and losses, whether or not realized, from assets allocated to the Separate Account are, in accordance with the Contracts, credited to or charged against the Separate Account without regard to other income, gains and losses of the Company. The assets held by the Separate Account are not chargeable with liabilities arising out of any other business that we may conduct. Obligations under the Contract are obligations of the Company. All investment income and other distributions of the funding options are payable to the Separate Account. We reinvest all such income and/or distributions in shares of the respective funding option at net asset value. Shares of the funding options are currently sold only to life insurance company Separate Accounts to fund variable annuity and variable life insurance contracts. Certain variable annuity Separate Accounts and variable life insurance Separate Accounts may invest in the funding options simultaneously (called "mixed" and "shared" funding). It is conceivable that in the future it may 43 be disadvantageous to do so. Although the Company and the Variable Funding Options do not currently foresee any such disadvantages either to variable annuity Contract Owners or variable life policy owners, each Underlying Fund's Board of Directors intends to monitor events in order to identify any material conflicts between them and to determine what action, if any, should be taken. If a Board of Directors was to conclude that separate funds should be established for variable life and variable annuity Separate Accounts, the variable annuity Contract Owners would not bear any of the related expenses, but variable annuity Contract Owners and variable life insurance policy owners would no longer have the economies of scale resulting from a larger combined fund. PERFORMANCE INFORMATION In advertisements for the Contract, we may include performance figures to show you how a Variable Funding Option has performed in the past. These figures are rates of return or yield quotations shown as a percent. These figures show past performance of a Variable Funding Option and are not an indication of how a Variable Funding Option will perform in the future. Our advertisements may show performance figures assuming that you do not elect any optional features such as the E.S.P, GMAB. or GMWB. However, if you elect any of these optional features, they involve additional charges that will serve to decrease the performance of your Variable Funding Options. You may wish to speak with your registered representative to obtain performance information specific to the optional features you may wish to select. Performance figures for each Variable Funding Option are based in part on the performance of a corresponding Underlying Fund. In some cases, the Underlying Fund may have existed before the technical inception of the corresponding Variable Funding Option. In those cases, we can create "hypothetical historical performance" of a Variable Funding Option. These figures show the performance that the Variable Funding Option would have achieved had it been available during the entire history of the Underlying Fund. FEDERAL TAX CONSIDERATIONS - -------------------------------------------------------------------------------- The following general discussion of the federal income tax consequences related to your investment in this Contract is not intended to cover all situations, and is not meant to provide tax or legal advice. Because of the complexity of the law and the fact that the tax results will vary depending on many factors, you should consult your tax and/or legal adviser regarding the tax implications of purchasing this Contract based upon your individual situation. For further tax information, an additional discussion of certain tax matters is contained in the SAI. GENERAL TAXATION OF ANNUITIES Congress has recognized the value of saving for retirement by providing certain tax benefits, in the form of tax deferral, for premiums paid under an annuity and permitting tax-free transfers between the various investment options offered under the Contract. The Internal Revenue Code ("Code") governs how earnings on your investment in the Contract are ultimately taxed, depending upon the type of contract, qualified or non-qualified, and the manner in which the money is distributed, as briefly described below. In analyzing the benefits of tax deferral it is important to note that the Jobs and Growth Tax Relief Reconciliation Act of 2003 amended Code Section 1 to reduce the marginal tax rates on long-term capital gains and dividends to 5% and 15%. The reduced rates apply during 2003 through 2008, and thereafter will increase to prior levels. Earnings under annuity contracts continue to be taxed as ordinary income (top rate of 35%). TAX-FREE EXCHANGES: Code Section 1035 provides that, if certain conditions are met, no gain or loss is recognized when an annuity contract is received in exchange for a life, endowment, or annuity contract. Since different annuity contracts have different expenses, fees and benefits, a tax-free exchange could result in your investment becoming subject to higher or lower fees and/or expenses. 44 TYPES OF CONTRACTS: QUALIFIED AND NON-QUALIFIED QUALIFIED ANNUITY CONTRACTS If you purchase your Contract with proceeds of an eligible rollover distribution from any qualified employee pension plan or individual retirement annuity (IRA), your Contract is referred to as a Qualified Contract. Some examples of Qualified Contracts are: IRAs, tax-sheltered annuities established by public school systems or certain tax-exempt organizations under Code Section 403(b), corporate sponsored pension and profit-sharing plans (including 401(k) plans), Keogh Plans (for self-employed individuals), and certain other qualified deferred compensation plans. Another type of Qualified Contract is a Roth IRA, under which after-tax contributions accumulate until maturity, when amounts (including earnings) may be withdrawn tax-free. The rights and benefits under a Qualified Contract may be limited by the terms of the retirement plan, regardless of the terms and conditions of the Contract. Plan participants making contributions to Qualified Contracts will be subject to minimum distribution rules as provided by the Code and described below. TAXATION OF QUALIFIED ANNUITY CONTRACTS Under a qualified annuity, since amounts paid into the Contract have generally not yet been taxed, the full amount of such distributions, including the amount attributable to Purchase Payments, whether paid in the form of lump-sum withdrawals or Annuity Payments, are generally taxed at the ordinary income tax rate unless the distribution is transferred to an eligible rollover account or contract. The Contract is available as a vehicle for IRA rollovers and for other Qualified Contracts. There are special rules which govern the taxation of Qualified Contracts, including withdrawal restrictions, requirements for mandatory distributions, and contribution limits. We have provided a more complete discussion in the SAI. MANDATORY DISTRIBUTIONS FOR QUALIFIED PLANS Federal tax law requires that minimum annual distributions begin by April 1st of the calendar year following the calendar year in which an IRA owner attains age 701/2. Participants in qualified plans and 403(b) annuities may defer minimum distributions until the later of April 1st of the calendar year following the calendar year in which they attain age 701/2 or the year of retirement. If you own more than one individual retirement annuity and/or account, you may satisfy the minimum distribution rules on an aggregate basis (i.e. determine the total amount of required distributions from all IRAs and take the required amount from any one or more IRAs). A similar aggregate approach is available to meet your 403(b) minimum distribution requirements if you have multiple 403(b) annuities. MINIMUM DISTRIBUTIONS FOR BENEFICIARIES UPON THE CONTRACT OWNER'S DEATH: Upon the death of the Contract Owner and/or Annuitant of a Qualified Contract, the funds remaining in the Contract must be completely withdrawn within 5 years from the date of death (including in a single lump sum) or minimum distributions may be taken over the life expectancy of the beneficiary provided such distributions are payable at least annually and begin within one year from the date of death. Special rules apply where the beneficiary is the surviving spouse, which allow the spouse to assume the Contract and defer the minimum distribution requirements. NOTE TO PARTICIPANTS IN QUALIFIED PLANS INCLUDING 401, 403(B), 457 AS WELL AS IRA OWNERS: While annual plan contribution limits may be increased from time to time by Congress and the IRS for federal income tax purposes, these limits must be adopted by each state for the higher limits to be effective at a state income tax level. In other words, the permissible contribution limit for income tax purposes may be different at the federal level from your state's income tax laws. Therefore, in certain states, a portion of the contributions may not be excludible or deductible from state income taxes. Please consult your employer or tax adviser regarding this issue. NON-QUALIFIED ANNUITY CONTRACTS If you purchase the Contract on an individual basis with after-tax dollars and not under one of the programs described above, your Contract is referred to as non-qualified. As the owner of a non-qualified annuity, you do not receive any tax benefit (deduction or deferral of income) on Purchase Payments, but you will not be taxed on increases in the value of your Contract until a distribution occurs -- either as a withdrawal (distribution made prior to the Maturity Date), or as Annuity Payments. When a withdrawal is made, you are taxed on the amount of the withdrawal that is considered earnings under federal tax 45 laws. Similarly, when you receive an Annuity Payment, part of each payment is considered a return of your Purchase Payments and will not be taxed. The remaining portion of the Annuity Payment (i.e., any earnings) will be considered ordinary income for federal income tax purposes. If a non-qualified annuity is owned by other than an individual, however, (e.g., by a corporation), increases in the value of the Contract attributable to Purchase Payments made after February 28, 1986 are includable in income annually and taxed at ordinary income tax rates. Furthermore, for contracts issued after April 22, 1987, if you transfer the Contract to another person or entity without adequate consideration, all deferred increases in value will be includable in your income at the time of the transfer. If you make a partial withdrawal, this money will generally be taxed as first coming from earnings, (income in the Contract), and then from your Purchase Payments. These withdrawn earnings are includable in your taxable income. (See Penalty Tax for Premature Distributions below.) There is income in the Contract to the extent the Contract Value exceeds your investment in the Contract. The investment in the Contract equals the total Purchase Payments you paid less any amount received previously which was excludible 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 distribution under the tax law, and will have tax consequences in the year taken. Federal tax law requires that non-qualified annuity contracts meet minimum mandatory distribution requirements upon the death of the Contract Owner, including the death of either of the joint owners. If these requirements are not met, the Contract will not be treated as an annuity contract for federal income tax purposes and earnings under the Contract will be taxable currently, not when distributed. The distribution required depends, among other things, upon whether an annuity option is elected or whether the succeeding Contract Owner is the surviving spouse. We will administer contracts in accordance with these rules and we will notify you when you should begin receiving payments. There is a more complete discussion of these rules in the SAI. DIVERSIFICATION REQUIREMENTS FOR VARIABLE ANNUITIES The Code requires that any non-qualified variable annuity contracts based on a Separate Account must meet specific diversification standards. Non-qualified variable annuity contracts shall not be treated as an annuity for federal income tax purposes if investments made in the account are not adequately diversified. Final tax regulations define how Separate Accounts must be diversified. The Company monitors the diversification of investments constantly and believes that its accounts are adequately diversified. The consequence of any failure to diversify is essentially the loss to the Contract Owner of tax-deferred treatment, requiring the current inclusion of a proportionate share of the income and gains from the Separate Account assets in the income of each Contract Owner. The Company intends to administer all contracts subject to this provision of law in a manner that will maintain adequate diversification. OWNERSHIP OF THE INVESTMENTS In certain circumstances, owners of variable annuity contracts have been considered to be the owners of the assets of the underlying Separate Account for Federal income tax purposes due to their ability to exercise investment control over those assets. When this is the case, the Contract Owners have been currently taxed on income and gains attributable to the variable account assets. There is little guidance in this area, and some features of the Contract, such as the number of funds available and the flexibility of the Contract Owner to allocate premium payments and transfer amounts among the funding options, have not been addressed in public rulings. While we believe that the Contract does not give the Contract Owner investment control over Separate Account assets, we reserve the right to modify the Contract as necessary to prevent a Contract Owner from being treated as the owner of the Separate Account assets supporting the Contract. TAXATION OF DEATH BENEFIT PROCEEDS Amounts may be distributed from a Non-qualified Contract because of the death of an owner or Annuitant. Generally, such amounts are includable in the income of the recipient as follows: (i) if distributed in a lump sum, they are taxed in the same manner as a full surrender of the Contract; or (ii) if distributed under a payment option, they are taxed in the same way as Annuity Payments. 46 OTHER TAX CONSIDERATIONS TREATMENT OF CHARGES FOR OPTIONAL BENEFITS The Contract may provide one or more optional enhanced death benefits or other minimum guaranteed benefit that in some cases may exceed the greater of purchase price or the Contract Value. It is possible that the Internal Revenue Service may take the position that the charges for the optional enhanced benefit(s) are deemed to be taxable distributions to you. Although we do not believe that a charge under such optional enhanced benefit should be treated as a taxable withdrawal, you should consult with your tax adviser before selecting any rider or endorsement to the Contract. PENALTY TAX FOR PREMATURE DISTRIBUTIONS For both Qualified and Non-qualified Contracts, taxable distributions taken before the Contract Owner has reached the age of 591/2 will be subject to a 10% additional tax penalty unless the distribution is taken in a series of periodic distributions, for life or life expectancy, or unless the distribution follows the death or disability of the Contract Owner. Other exceptions may be available in certain qualified plans. The 10% additional tax is in addition to any penalties that may apply under your Contract and the normal income taxes due on the distribution. PUERTO RICO TAX CONSIDERATIONS The Puerto Rico Internal Revenue Code of 1994 (the "1994 Code") taxes distributions from non-qualified annuity contracts differently than in the U.S. Distributions that are not in the form of an annuity (including partial surrenders and period certain payments) are treated under the 1994 Code first as a return of investment. Therefore, no taxable income is recognized for Puerto Rico tax purposes until the cumulative amount paid exceeds your tax basis. The amount of income on annuity distributions (payable over your lifetime) is also calculated differently under the 1994 Code. Since Puerto Rico residents are also subject to U.S. income tax on all income other than income sourced to Puerto Rico, the timing of recognition of income from an annuity contract could vary between the two jurisdictions. Although the 1994 Code provides a credit against the Puerto Rico income tax for U.S. income taxes paid, an individual may not get full credit because of the timing differences. You should consult with a personal tax adviser regarding the tax consequences of purchasing an annuity contract and/or any proposed distribution, particularly a partial distribution or election to annuitize. NON-RESIDENT ALIENS Distributions to non-resident aliens ("NRAs") are subject to special and complex tax and withholding rules under the Code, some of which are based upon the particular facts and circumstances of the Contract Owner, the beneficiary and the transaction itself. In addition, Annuity Payments to NRAs in many countries are exempt from U.S. tax (or subject to lower rates) based upon a tax treaty. NRAs should seek guidance from a tax adviser regarding their personal situation. OTHER INFORMATION - -------------------------------------------------------------------------------- THE INSURANCE COMPANIES Please refer to your Contract to determine which Company issued your Contract. The Travelers Insurance Company is a stock insurance company chartered in 1863 in Connecticut and continuously engaged in the insurance business since that time. It 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 is an indirect wholly owned subsidiary of Citigroup Inc. The Company's Home Office is located at One Cityplace, Hartford, Connecticut 06103-3415. 47 The Travelers Life and Annuity Company is a stock insurance company chartered in 1973 in Connecticut and continuously engaged in the insurance business since that time. It is licensed to conduct life insurance business in all states of the United States (except New York), the District of Columbia and Puerto Rico. The Company is an indirect wholly-owned subsidiary of Citigroup Inc. The Company's Home Office is located at One Cityplace, Hartford, Connecticut 06103-3415. FINANCIAL STATEMENTS The financial statements for the Company are located in the Statement of Additional Information. DISTRIBUTION OF VARIABLE ANNUITY CONTRACTS DISTRIBUTION AND PRINCIPAL UNDERWRITING AGREEMENT. Travelers Distribution LLC ("TDLLC") serves as the principal underwriter and distributor of the securities offered through this Prospectus pursuant to the terms of the Distribution and Principal Underwriting Agreement. TDLLC also acts as the principal underwriter and distributor of other variable annuity contracts and variable life insurance policies issued by the Company and its affiliated companies. TDLLC's principal executive offices are located at One Cityplace, Hartford, Connecticut 06103. TDLLC is registered as a broker-dealer with the Securities and Exchange Commission ("SEC") under the Securities Exchange Act of 1934, as well as the securities commissions in the states in which it operates, and is a member of the National Association of Securities Dealers, Inc. ("NASD"). TDLLC is affiliated with the Company and each Separate Account. TDLLC, as the principal underwriter and distributor, does not retain any fees under the Contracts. The Contracts are offered on a continuous basis. TDLLC enters into selling agreements with broker-dealers who are registered with the SEC and are members of the NASD, and with entities that may offer the Contracts but are exempt from registration. Applications for the Contract are solicited by registered representatives who are associated persons of such broker-dealer firms. Such representatives act as appointed agents of the Company under applicable state insurance law and must be licensed to sell variable insurance products. We intend to offer the Contract in all jurisdictions where we are licensed to do business and where the Contract is approved. COMPENSATION. Broker-dealers who have selling agreements with TDLLC are paid compensation for the promotion and sale of the Contracts according to one or more schedules. Registered representatives who solicit sales of the Contract typically receive a portion of the compensation payable to the broker-dealer firm, depending on the agreement between the firm and the registered representative. Compensation paid on the Contracts, as well as other incentives or payments, are not assessed as an additional direct charge to Contract Owners or the Separate Account. We intend to recoup commissions and other sales expenses through fees and charges imposed under the Contract and from profits on payments received by the Company and TDLLC for providing administrative, marketing and other support and services to the Funds. The amount and timing of compensation may vary depending on the selling agreement but is not expected to exceed 10% of Purchase Payments (if up-front compensation is paid to registered representatives) and up to 2% annually of average account value (if asset-based compensation is paid to registered representatives). We may also periodically establish commission specials; however, commissions paid under these specials will not exceed the amounts described immediately above. To the extent permitted by NASD rules and other applicable laws and regulations, TDLLC may pay or allow other promotional incentives or payments in the form of cash or other compensation. Broker-dealer firms may receive separate compensation or reimbursement for, among other things, training of sales personnel, marketing or other services they provide to the Company or our affiliates. In addition, the Company or TDLLC may enter into special compensation arrangements with certain broker-dealer firms based on aggregate or anticipated sales of the Contracts or other criteria. These special compensation arrangements will not be offered to all broker-dealer firms and the terms of such arrangements may differ between broker-dealer firms. 48 The Company and TDLLC have entered into such arrangements with AIG Advisor Group (including Advantage Capital Corporation, FSC Securities Corporation, Royal Alliance Associates, Inc., Sentra Securities Corporation, Spelman & Co., Inc. and SunAmerica Securities, Inc.), Citigroup Global Market (f/k/a Smith Barney), ING Advisors Network (including Financial Network Corporation, Locust Street Securities, Multi-Financial Securities, IFG Network Securities, VESTAX Securities, Washington Square Securities and PrimeVest Financial Services), NFP Securities, Inc., and Piper Jaffray. Any such compensation payable to a broker-dealer firm will be made by TDLLC or the Company out of their own assets and will not result in any additional direct charge to you. The Company and TDLLC have entered into selling agreements with certain broker-dealer firms that have an affiliate that acts as investment adviser to one or more Underlying Funds or serves as a subadviser to a Portfolio of The Travelers Series Trust or Travelers Series Fund Inc., which are offered under the Contracts. These firms include Fidelity Management & Research Company, Morgan Stanley Investment Advisers Inc., Merrill Lynch Investment Managers, L.P., Salomon Brothers Asset Management and Smith Barney Fund Management. The Contracts feature Portfolios of the Pioneer Variable Contracts Trust as Variable Funding Options. Pioneer Variable Contracts Trust is advised by Pioneer Investment Management Inc. and is distributed by its affiliate, Pioneer Funds Distributor, Inc. ("PFD"). The Company and TDLLC have entered into a distribution arrangement with PFD under which a fee is payable by the Company and TDLLC to PFD based on the amount of new sales each year for providing wholesale distribution support in relation to the Contracts. Pioneer Variable Contracts Trust and PFD have also entered into agreement(s) with the Company and TDLLC under which a fee is payable by PFD (based on average net assets of the Funds attributable to the Contracts) in connection with the Company's provision of administrative, marketing or other support services to the Fund. CITICORP INVESTMENT SERVICES, INC. TDLLC has entered into a selling agreement with Citicorp Investment Services, Inc. ("CIS"), which is affiliated with the Company. CIS is a subsidiary of Citibank, N.A. Registered representatives of CIS, who are properly licensed and appointed, may offer the Contract to customers. CONFORMITY WITH STATE AND FEDERAL LAWS The laws of the state in which we deliver a contract govern that Contract. Where a state has not approved a contract feature or funding option, it will not be available in that state. Any paid-up annuity, Cash Surrender Value or death benefits that are available under the Contract are not less than the minimum benefits required by the statutes of the state in which we delivered the Contract. We reserve the right to make any changes, including retroactive changes, in the Contract to the extent that the change is required to meet the requirements of any law or regulation issued by any governmental agency to which the Company, the Contract or the Contract Owner is subject. VOTING RIGHTS The Company is the legal owner of the shares of the Underlying Funds. However, we believe that when an Underlying Fund solicits proxies in conjunction with a vote of shareholders we are required to obtain from you and from other owners instructions on how to vote those shares. We will vote all shares, including those we may own on our own behalf, and those where we have not received instructions from Contract Owners, in the same proportion as shares for which we received voting instructions. Should we determine that we are no longer required to comply with the above, we will vote the shares in our own right. In certain limited circumstances, and when permitted by law, we may disregard voting instructions. If we do disregard voting instructions, a summary of that action and the reasons for such action would be included in the next annual report to Contract Owners. RESTRICTIONS ON FINANCIAL TRANSACTIONS Federal laws designed to counter terrorism and prevent money laundering might, in certain circumstances, require us to block a Contract Owner's ability to make certain transactions and thereby refuse to accept any request for transfers, withdrawals, surrenders, or death benefits, until the instructions are received from the appropriate regulator. We may also be required to provide additional information about you and your Contract to government regulators. 49 LEGAL PROCEEDINGS AND OPINIONS Legal matters in connection with the federal laws and regulations affecting the issue and sale of the Contract described in this prospectus, as well as the organization of the Companies, their authority to issue variable annuity contracts under Connecticut law and the validity of the forms of the variable annuity contracts under Connecticut law, have been passed on by the Deputy General Counsel of the Companies. In 2003, several issues in the mutual fund and variable insurance product industries have come under the scrutiny of federal and state regulators. Like many other companies in our industry, the Companies have received a request for information from the Securities and Exchange Commission (SEC) and a subpoena from the New York Attorney General regarding market timing and late trading. In March 2004, the SEC requested additional information about the Companies' variable product operations on market timing, late trading and revenue sharing. The Companies are cooperating fully with all of these reviews and are not able to predict their outcomes. Notwithstanding the above, there are no pending legal proceedings affecting either the Separate Account or the principal underwriter. There are no pending legal proceedings against either Company likely to have a material adverse affect on the ability of either Company to meet its obligations under the applicable Contract. 50 APPENDIX A - -------------------------------------------------------------------------------- TIC SEPARATE ACCOUNT ELEVEN FOR VARIABLE ANNUITIES ACCUMULATION UNIT VALUES (IN DOLLARS) The following Accumulation Unit Value ("AUV") information should be read in conjunction with the Separate Account's audited financial statement and notes, which are included in the Statement of Additional Information ("SAI"). The first table provides the AUV information for the MINIMUM Separate Account Charge available under the Contract. The second table provides the AUV information for the MAXIMUM Separate Account Charge available under the Contract. The Separate Account Charges that fall in between this range are included in the SAI, which is free of charge. You may request a copy of the SAI by calling the toll-free number found on the first page of this prospectus or by mailing in the coupon attached in Appendix E. Please refer to the Fee Table section of this prospectus for more information on Separate Account Charges. SEPARATE ACCOUNT CHARGES 1.55%
UNIT VALUE AT NUMBER OF UNITS BEGINNING OF UNIT VALUE AT OUTSTANDING AT PORTFOLIO NAME YEAR YEAR END OF YEAR END OF YEAR - -------------- -------- --------------- --------------- ------------------- Money Market Portfolio (8/03)........................................ 2003 1.000 0.994 91,318 AIM Variable Insurance Funds, Inc. AIM V.I. Capital Appreciation Fund -- Series II (9/03) .............. 2003 1.000 1.225 15,956 AIM V.I. Mid Cap Core Equity Fund -- Series II (8/03) ............... 2003 1.000 1.244 50,443 Franklin Templeton Variable Insurance Products Trust Franklin Rising Dividends Securities Fund -- Class 2 Shares (7/03) ............................................... 2003 1.000 1.216 15,562 Franklin Small Cap Fund -- Class 2 Shares (9/03) .................... 2003 1.000 1.335 7,435 Templeton Foreign Securities Fund -- Class 2 Shares (9/03) .......... 2003 1.000 1.338 8,952 Greenwich Street Series Fund Salomon Brothers Variable Aggressive Growth Fund -- Class II Shares (9/03) .............................................. 2003 1.000 1.257 12,035 Oppenheimer Variable Account Funds Oppenheimer Capital Appreciation Fund/VA -- Service Shares (9/03) ... 2003 1.000 1.233 3,553 Oppenheimer Global Securities Fund/VA -- Service Shares (8/03) ...... 2003 1.000 1.413 6,739 Pioneer Variable Contracts Trust Pioneer America Income VCT Portfolio -- Class II Shares (11/03) ..... 2003 1.000 0.995 78,737
A-1 ACCUMULATION UNIT VALUES (IN DOLLARS) SEPARATE ACCOUNT CHARGES 1.55% (CONTINUED)
UNIT VALUE AT NUMBER OF UNITS BEGINNING OF UNIT VALUE AT OUTSTANDING AT PORTFOLIO NAME YEAR YEAR END OF YEAR END OF YEAR - -------------- -------- --------------- --------------- ------------------- Pioneer Balanced VCT Portfolio -- Class II Shares (10/03) ........... 2003 1.000 1.110 13,104 Pioneer Emerging Markets VCT Portfolio -- Class II Shares (9/03) .... 2003 1.000 1.510 10,089 Pioneer Equity Income VCT Portfolio -- Class II Shares (9/03) ....... 2003 1.000 1.205 21,997 Pioneer Europe VCT Portfolio -- Class II Shares (9/03) .............. 2003 1.000 1.283 -- Pioneer Fund VCT Portfolio -- Class II Shares (8/03) ................ 2003 1.000 1.213 19,404 Pioneer Growth Shares VCT Portfolio -- Class II Shares (9/03) ....... 2003 1.000 1.154 16,323 Pioneer High Yield VCT Portfolio -- Class II Shares (8/03) .......... 2003 1.000 1.152 23,361 Pioneer International Value VCT Portfolio -- Class II Shares (9/03) .............................................. 2003 1.000 1.290 8,905 Pioneer Mid Cap Value VCT Portfolio -- Class II Shares (9/03) ....... 2003 1.000 1.324 2,823 Pioneer Real Estate Shares VCT Portfolio -- Class II Shares (7/03) .............................................. 2003 1.000 1.261 11,099 Pioneer Small Cap Value VCT Portfolio -- Class II Shares (9/03) ..... 2003 1.000 1.355 1,360 Pioneer Small Company VCT Portfolio -- Class II Shares (8/03) ....... 2003 1.000 1.285 -- Pioneer Strategic Income VCT Portfolio -- Class II Shares (7/03) .... 2003 1.000 1.089 286,913 Pioneer Value VCT Portfolio -- Class II Shares (9/03) ............... 2003 1.000 1.192 14,987 Salomon Brothers Variable Series Funds Inc. Total Return Fund -- Class II (8/03) ................................ 2003 1.000 1.115 7,880
A-2 ACCUMULATION UNIT VALUES (IN DOLLARS) SEPARATE ACCOUNT CHARGES 2.50%
UNIT VALUE AT NUMBER OF UNITS BEGINNING OF UNIT VALUE AT OUTSTANDING AT PORTFOLIO NAME YEAR YEAR END OF YEAR END OF YEAR - -------------- -------- --------------- --------------- ------------------- Money Market Portfolio (8/03) ....................................... 2003 1.000 0.988 -- AIM Variable Insurance Funds, Inc. AIM V.I. Capital Appreciation Fund -- Series II (9/03) .............. 2003 1.000 1.217 -- AIM V.I. Mid Cap Core Equity Fund -- Series II (8/03) ............... 2003 1.000 1.237 -- Franklin Templeton Variable Insurance Products Trust Franklin Rising Dividends Securities Fund -- Class 2 Shares (7/03) ............................................... 2003 1.000 1.208 -- Franklin Small Cap Fund -- Class 2 Shares (9/03) .................... 2003 1.000 1.326 -- Templeton Foreign Securities Fund -- Class 2 Shares (9/03) .......... 2003 1.000 1.330 -- Greenwich Street Series Fund Salomon Brothers Variable Aggressive Growth Fund -- Class II Shares (9/03) .............................................. 2003 1.000 1.249 -- Oppenheimer Variable Account Funds Oppenheimer Capital Appreciation Fund/VA -- Service Shares (9/03) ... 2003 1.000 1.225 -- Oppenheimer Global Securities Fund/VA -- Service Shares (8/03) ...... 2003 1.000 1.404 -- Pioneer Variable Contracts Trust Pioneer America Income VCT Portfolio -- Class II Shares (11/03) ..... 2003 1.000 0.989 -- Pioneer Balanced VCT Portfolio -- Class II Shares (10/03) ........... 2003 1.000 1.103 -- Pioneer Emerging Markets VCT Portfolio -- Class II Shares (9/03) .... 2003 1.000 1.501 -- Pioneer Equity Income VCT Portfolio -- Class II Shares (9/03) ....... 2003 1.000 1.197 -- Pioneer Europe VCT Portfolio -- Class II Shares (9/03) .............. 2003 1.000 1.275 --
A-3 ACCUMULATION UNIT VALUES (IN DOLLARS) SEPARATE ACCOUNT CHARGES 2.50% (CONTINUED)
UNIT VALUE AT NUMBER OF UNITS BEGINNING OF UNIT VALUE AT OUTSTANDING AT PORTFOLIO NAME YEAR YEAR END OF YEAR END OF YEAR - -------------- -------- --------------- --------------- ------------------- Pioneer Fund VCT Portfolio -- Class II Shares (8/03) ................ 2003 1.000 1.205 -- Pioneer Growth Shares VCT Portfolio -- Class II Shares (9/03) ....... 2003 1.000 1.146 -- Pioneer High Yield VCT Portfolio -- Class II Shares (8/03) .......... 2003 1.000 1.145 -- Pioneer International Value VCT Portfolio -- Class II Shares (9/03) .............................................. 2003 1.000 1.282 -- Pioneer Mid Cap Value VCT Portfolio -- Class II Shares (9/03) ....... 2003 1.000 1.315 -- Pioneer Real Estate Shares VCT Portfolio -- Class II Shares (7/03) .. 2003 1.000 1.253 -- Pioneer Small Cap Value VCT Portfolio -- Class II Shares (9/03) ..... 2003 1.000 1.346 -- Pioneer Small Company VCT Portfolio -- Class II Shares (8/03) ....... 2003 1.000 1.277 -- Pioneer Strategic Income VCT Portfolio -- Class II Shares (7/03) .... 2003 1.000 1.082 -- Pioneer Value VCT Portfolio -- Class II Shares (9/03) ............... 2003 1.000 1.184 -- Salomon Brothers Variable Series Funds Inc. Total Return Fund -- Class II (8/03) ................................ 2003 1.000 1.108 --
NOTES Effective May 3, 2004, the Greenwich Street Series Fund: Salomon Brothers Variable Emerging Growth Fund -- Class II shares changed its name to Salomon Brothers Variable Aggressive Growth Fund. Funding options not listed above had no amount allocated to them or where not available as of December 31, 2003. "Number of Units outstanding at the end of the period" may include units for Contracts Owners in payout phase, where appropriate. The date next to each funding option's name reflects the date money first came into the funding option through the Separate Account. A-4 APPENDIX B - -------------------------------------------------------------------------------- TLAC SEPARATE ACCOUNT TWELVE FOR VARIABLE ANNUITIES ACCUMULATION UNIT VALUES (IN DOLLARS) The following Accumulation Unit Value ("AUV") information should be read in conjunction with the Separate Account's audited financial statement and notes, which are included in the Statement of Additional Information ("SAI"). The first table provides the AUV information for the MINIMUM Separate Account Charge available under the Contract. The second table provides the AUV information for the MAXIMUM Separate Account Charge available under the Contract. The Separate Account Charges that fall in between this range are included in the SAI, which is free of charge. You may request a copy of the SAI by calling the toll-free number found on the first page of this prospectus or by mailing in the coupon attached in Appendix E. Please refer to the Fee Table section of this prospectus for more information on Separate Account Charges. SEPARATE ACCOUNT CHARGES 1.55%
UNIT VALUE AT NUMBER OF UNITS BEGINNING OF UNIT VALUE AT OUTSTANDING AT PORTFOLIO NAME YEAR YEAR END OF YEAR END OF YEAR - -------------- -------- --------------- --------------- ------------------- Money Market Portfolio (5/03) ....................................... 2003 1.000 0.994 2,282,924 AIM Variable Insurance Funds, Inc AIM V.I. Capital Appreciation Fund -- Series II (6/03) .............. 2003 1.000 1.225 438,519 AIM V.I. Mid Cap Core Equity Fund -- Series II (6/03) ............... 2003 1.000 1.244 207,276 Franklin Templeton Variable Insurance Products Trust Franklin Rising Dividends Securities Fund -- Class 2 Shares (6/03) .. 2003 1.000 1.216 490,925 Franklin Small Cap Fund -- Class 2 Shares (6/03) .................... 2003 1.000 1.335 136,305 Templeton Foreign Securities Fund -- Class 2 Shares (6/03) .......... 2003 1.000 1.338 354,061 Greenwich Street Series Fund Salomon Brothers Variable Aggressive Growth Fund -- Class II Shares (6/03) .............................................. 2003 1.000 1.257 388,371 Oppenheimer Variable Account Funds Oppenheimer Capital Appreciation Fund/VA -- Service Shares (6/03) ... 2003 1.000 1.233 553,903 Oppenheimer Global Securities Fund/VA -- Service Shares (6/03) ...... 2003 1.000 1.413 538,318 Pioneer Variable Contracts Trust Pioneer America Income VCT Portfolio -- Class II Shares (5/03) ...... 2003 1.000 0.995 727,262
B-1 ACCUMULATION UNIT VALUES (IN DOLLARS) SEPARATE ACCOUNT CHARGES 1.55% (CONTINUED)
UNIT VALUE AT NUMBER OF UNITS BEGINNING OF UNIT VALUE AT OUTSTANDING AT PORTFOLIO NAME YEAR YEAR END OF YEAR END OF YEAR - -------------- -------- --------------- --------------- ------------------- Pioneer Balanced VCT Portfolio -- Class II Shares (6/03) ............ 2003 1.000 1.110 1,352,707 Pioneer Emerging Markets VCT Portfolio -- Class II Shares (6/03) .... 2003 1.000 1.510 99,808 Pioneer Equity Income VCT Portfolio -- Class II Shares (6/03) ....... 2003 1.000 1.205 764,575 Pioneer Europe VCT Portfolio -- Class II Shares (6/03) .............. 2003 1.000 1.283 12,781 Pioneer Fund VCT Portfolio -- Class II Shares (6/03) ................ 2003 1.000 1.213 2,035,041 Pioneer Growth Shares VCT Portfolio -- Class II Shares (6/03) ....... 2003 1.000 1.154 706,463 Pioneer High Yield VCT Portfolio -- Class II Shares (6/03) .......... 2003 1.000 1.152 4,494,810 Pioneer International Value VCT Portfolio -- Class II Shares (6/03) .............................................. 2003 1.000 1.290 278,342 Pioneer Mid Cap Value VCT Portfolio -- Class II Shares (6/03) ....... 2003 1.000 1.324 356,319 Pioneer Real Estate Shares VCT Portfolio -- Class II Shares (6/03) .............................................. 2003 1.000 1.261 507,422 Pioneer Small Cap Value VCT Portfolio -- Class II Shares (6/03) ..... 2003 1.000 1.355 477,289 Pioneer Small Company VCT Portfolio -- Class II Shares (6/03) ....... 2003 1.000 1.285 25,055 Pioneer Strategic Income VCT Portfolio -- Class II Shares (5/03) .... 2003 1.000 1.089 652,477 Pioneer Value VCT Portfolio -- Class II Shares (6/03) ............... 2003 1.000 1.192 304,001 Salomon Brothers Variable Series Funds Inc. Total Return Fund -- Class II (6/03) ................................ 2003 1.000 1.115 498,482
B-2 ACCUMULATION UNIT VALUES (IN DOLLARS) SEPARATE ACCOUNT CHARGES 2.50%
UNIT VALUE AT NUMBER OF UNITS BEGINNING OF UNIT VALUE AT OUTSTANDING AT PORTFOLIO NAME YEAR YEAR END OF YEAR END OF YEAR - -------------- -------- --------------- --------------- ------------------- Money Market Portfolio (5/03) ....................................... 2003 1.000 0.988 12,446 AIM Variable Insurance Funds AIM V.I. Capital Appreciation Fund -- Series II (6/03) .............. 2003 1.000 1.217 17,132 AIM V.I. Mid Cap Core Equity Fund -- Series II (6/03) ............... 2003 1.000 1.237 53,264 Franklin Templeton Variable Insurance Products Trust Franklin Rising Dividends Securities Fund -- Class 2 Shares (6/03) ............................................... 2003 1.000 1.208 256,644 Franklin Small Cap Fund -- Class 2 Shares (6/03) .................... 2003 1.000 1.326 7,904 Templeton Foreign Securities Fund -- Class 2 Shares (6/03) .......... 2003 1.000 1.330 19,832 Greenwich Street Series Fund Salomon Brothers Variable Aggressive Growth Fund -- Class II Shares (6/03) .............................................. 2003 1.000 1.249 96,304 Oppenheimer Variable Account Funds Oppenheimer Capital Appreciation Fund/VA -- Service Shares (6/03) ... 2003 1.000 1.225 72,815 Oppenheimer Global Securities Fund/VA -- Service Shares (6/03) ...... 2003 1.000 1.404 24,647 Pioneer Variable Contracts Trust Pioneer America Income VCT Portfolio -- Class II Shares (5/03) ...... 2003 1.000 0.989 6,698 Pioneer Balanced VCT Portfolio -- Class II Shares (6/03) ............ 2003 1.000 1.103 869,720 Pioneer Emerging Markets VCT Portfolio -- Class II Shares (6/03) .... 2003 1.000 1.501 13,750 Pioneer Equity Income VCT Portfolio -- Class II Shares (6/03) ....... 2003 1.000 1.197 62,477 Pioneer Europe VCT Portfolio -- Class II Shares (6/03) .............. 2003 1.000 1.275 --
B-3 ACCUMULATION UNIT VALUES (IN DOLLARS) SEPARATE ACCOUNT CHARGES 2.50% (CONTINUED)
UNIT VALUE AT NUMBER OF UNITS BEGINNING OF UNIT VALUE AT OUTSTANDING AT PORTFOLIO NAME YEAR YEAR END OF YEAR END OF YEAR - -------------- -------- --------------- --------------- ------------------- Pioneer Fund VCT Portfolio -- Class II Shares (6/03) ................ 2003 1.000 1.205 81,704 Pioneer Growth Shares VCT Portfolio -- Class II Shares (6/03) ....... 2003 1.000 1.146 4,572 Pioneer High Yield VCT Portfolio -- Class II Shares (6/03) .......... 2003 1.000 1.145 1,355,872 Pioneer International Value VCT Portfolio -- Class II Shares (6/03) .............................................. 2003 1.000 1.282 2,286 Pioneer Mid Cap Value VCT Portfolio -- Class II Shares (6/03) ....... 2003 1.000 1.315 85,990 Pioneer Real Estate Shares VCT Portfolio -- Class II Shares (6/03) .. 2003 1.000 1.253 61,196 Pioneer Small Cap Value VCT Portfolio -- Class II Shares (6/03) ..... 2003 1.000 1.346 42,069 Pioneer Small Company VCT Portfolio -- Class II Shares (6/03) ....... 2003 1.000 1.277 576 Pioneer Strategic Income VCT Portfolio -- Class II Shares (5/03) .... 2003 1.000 1.082 91,426 Pioneer Value VCT Portfolio -- Class II Shares (6/03) ............... 2003 1.000 1.184 39,816 Salomon Brothers Variable Series Funds Inc. Total Return Fund -- Class II (6/03) ................................ 2003 1.000 1.108 88,478
NOTES Effective May 3, 2004, the Greenwich Street Series Fund: Salomon Brothers Variable Emerging Growth Fund -- Class II shares changed its name to Salomon Brothers Variable Aggressive Growth Fund. Funding options not listed above had no amount allocated to them or where not available as of December 31, 2003. "Number of Units outstanding at the end of the period" may include units for Contracts Owners in payout phase, where appropriate. The date next to each funding option's name reflects the date money first came into the funding option through the Separate Account. B-4 APPENDIX C - -------------------------------------------------------------------------------- THE FIXED ACCOUNT The Fixed Account is part of the Company's general account assets. These general account assets include all assets of the Company other than those held in the Separate Accounts sponsored by the Company or its affiliates. The staff of the SEC does not generally review the disclosure in the prospectus relating to the Fixed Account. Disclosure regarding the Fixed Account and the general account may, however, be subject to certain provisions of the federal securities laws relating to the accuracy and completeness of statements made in the prospectus. Under the Fixed Account, the Company assumes the risk of investment gain or loss, guarantees a specified interest rate, and guarantees a specified periodic Annuity Payment. The investment gain or loss of the Separate Account or any of the funding options does not affect the Fixed Account Contract Value, or the dollar amount of fixed Annuity Payments made under any payout option. We guarantee that, at any time, the Fixed Account Contract Value will not be less than the amount of the Purchase Payments allocated to the Fixed Account, plus interest credited as described below, less any applicable premium taxes or prior withdrawals. Purchase Payments allocated to the Fixed Account and any transfers made to the Fixed Account become part of the Company's general account, which supports insurance and annuity obligations. Where permitted by state law, we reserve the right to restrict Purchase Payments into the Fixed Account whenever the credited interest rate on the Fixed Account is equal to the minimum guaranteed interest rate specified in your Contract. The general account and any interest therein is not registered under, or subject to the provisions of, the Securities Act of 1933 or Investment Company Act of 1940. We will invest the assets of the Fixed Account at our discretion. Investment income from such Fixed Account assets will be allocated to us and to the Contracts participating in the Fixed Account. Investment income from the Fixed Account allocated to us includes compensation for mortality and expense risks borne by us in connection with Fixed Account Contracts. The amount of such investment income allocated to the Contracts will vary from year to year in our sole discretion at such rate or rates as we prospectively declare from time to time. We guarantee the initial rate for any allocations into the Fixed Account for one year from the date of such allocation. We guarantee subsequent renewal rates for the calendar quarter. We also guarantee that for the life of the Contract we will credit interest at a rate not less than the minimum interest rate allowed by state law. We reserve the right to change the rate subject to applicable state law. We will determine any interest we credit to amounts allocated to the Fixed Account in excess of the minimum guaranteed rate in our sole discretion. You assume the risk that interest credited to the Fixed Account may not exceed the minimum guaranteed rate for any given year. We have no specific formula for determining the interest rate. Some factors we may consider are regulatory and tax requirements, general economic trends and competitive factors TRANSFERS You may make transfers from the Fixed Account to any other available Variable Funding Option(s) twice a year during the 30 days following the semiannual anniversary of the Contract Date. We limit transfers to an amount of up to 15% of the Fixed Account Contract Value on the semiannual Contract Date anniversary. (This restriction does not apply to transfers under the Dollar Cost Averaging Program.) Amounts previously transferred from the Fixed Account to Variable Funding Options may not be transferred back to the Fixed Account for a period of at least six months from the date of transfer. We reserve the right to waive either of these restrictions. Where permitted by state law, we reserve the right to restrict transfers into the Fixed Account whenever the credited interest rate on the Fixed Account is equal to the minimum guaranteed interest rate specified in your Contract Automated transfers from the Fixed Account to any of the Variable Funding Options may begin at any time. Automated transfers from the Fixed Account may not deplete your Fixed Account value in a period of less than twelve months from your enrollment in the Dollar Cost Averaging Program. C-1 APPENDIX D - -------------------------------------------------------------------------------- WAIVER OF WITHDRAWAL CHARGE FOR NURSING HOME CONFINEMENT (AVAILABLE ONLY IF THE OWNER IS AGE 70 OR YOUNGER ON THE DATE THE CONTRACT IS ISSUED.) If, after the first Contract Year and before the Maturity Date, and you begin confinement in an eligible nursing home, you may surrender or make withdrawal, subject to the maximum withdrawal amount described below, without incurring a withdrawal charge. In order for the Company to waive the withdrawal charge, the withdrawal must be made during continued confinement in an eligible nursing home after the qualifying period has been satisfied, or within sixty (60) days after such confinement ends. The qualifying period is confinement in an eligible nursing home for ninety (90) consecutive days. We will require proof of confinement in a form satisfactory to us, which may include certification by a licensed physician that such confinement is medically necessary. An eligible nursing home is defined as an institution or special nursing unit of a hospital which: (a) is Medicare approved as a provider of skilled nursing care services; and (b) is not, other than in name only, an acute care hospital, a home for the aged, a retirement home, a rest home, a community living center, or a place mainly for the treatment of alcoholism. OR Meets all of the following standards: (a) is licensed as a nursing care facility by the state in which it is licensed; (b) is either a freestanding facility or a distinct part of another facility such as a ward, wing, unit or swing-bed of a hospital or other facility; (c) provides nursing care to individuals who are not able to care for themselves and who require nursing care; (d) provides, as a primary function, nursing care and room and board; and charges for these services; (e) provides care under the supervision of a licensed physician, registered nurse (RN) or licensed practical nurse (LPN); (f) may provide care by a licensed physical, respiratory, occupational or speech therapist; and (g) is not, other than in name only, an acute care hospital, a home for the aged, a retirement home, a rest home, a community living center, or a place mainly for the treatment of alcoholism. We will not waive withdrawal charges if confinement is due to one or more of the following causes: (a) mental, nervous, emotional or personality disorder without demonstrable organic disease, including, but not limited to, neurosis, psychoneurosis, psychopathy or psychosis (b) the voluntary taking or injection of drugs, unless prescribed or administered by a licensed physician (c) the voluntary taking of any drugs prescribed by a licensed physician and intentionally not taken as prescribed (d) sensitivity to drugs voluntarily taken, unless prescribed by a physician (e) drug addiction, unless addiction results from the voluntary taking of drugs prescribed by a licensed physician, or the involuntary taking of drugs. FILING A CLAIM: You must provide the Company with written notice of a claim during continued confinement after the 90-day qualifying period, or within sixty days after such confinement ends. The maximum withdrawal amount for which we will waive the withdrawal charge is the Contract Value on the next valuation date following written proof of claim, less any Purchase Payments made within a one-year period D-1 before confinement in an eligible nursing home begins, less any Purchase Payment Credits applied within 12 months prior to the withdrawal, less any Purchase Payments made on or after the Annuitant's 71st birthday. We will pay any withdrawal requested under the scope of this waiver as soon as we receive proper written proof of your claim, and we will pay the withdrawal in a lump sum. You should consult with your personal tax adviser regarding the tax impact of any withdrawals taken from your Contract. D-2 APPENDIX E - -------------------------------------------------------------------------------- CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION The Statement of Additional Information contains more specific information and financial statements relating to The Travelers Insurance Company or The Travelers Life and Annuity Company. A list of the contents of the Statement of Additional Information is set forth below: The Insurance Company Principal Underwriter Distribution and Principal Underwriting Agreement Valuation of Assets Federal Tax Considerations Independent Accountants Condensed Financial Information Financial Statements - -------------------------------------------------------------------------------- Copies of the Statement of Additional Information dated May 3, 2004 are available without charge. To request a copy, please clip this coupon on the line above, enter your name and address in the spaces provided below, and mail to: Travelers Life & Annuity at One Cityplace, 3CP, Hartford, Connecticut 06103-3415. The Travelers Insurance Company Statement of Additional Information is printed on Form L-19932S, and The Travelers Life and Annuity Statement of Additional Information is printed on Form L-19932S-TLAC. Name: ------------------------------------------------------------------------ Address: ------------------------------------------------------------------------ ------------------------------------------------------------------------ E-1 THIS PAGE INTENTIONALLY LEFT BLANK. L-19932 May 3, 2004 (Rev. 9/04) 15423-01-0904 -----END PRIVACY-ENHANCED MESSAGE-----