<PAGE> 1
Registration No. 333-23327
811-07463
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. 1
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 4
THE TRAVELERS FUND ABD II FOR VARIABLE ANNUITIES
------------------------------------------------
(Exact name of Registrant)
THE TRAVELERS LIFE AND ANNUITY COMPANY
--------------------------------------
(Name of Depositor)
ONE TOWER SQUARE, HARTFORD, CONNECTICUT 06183
---------------------------------------------
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number, including area code: (860) 277-0111
---------------
ERNEST J. WRIGHT
Secretary
The Travelers Life and Annuity Company
One Tower Square
Hartford, Connecticut 06183
---------------------------
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: July 21, 1997
It is proposed that this filing will become effective (check appropriate box):
________ immediately upon filing pursuant to paragraph (b) of Rule 485
________ on ____________ pursuant to paragraph (b) of Rule 485
________ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
________ on ___________ pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following box:
______ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Pursuant to Rule 24f-2 of the Investment Company Act of 1940, the Registrant
hereby declares that an indefinite amount of Variable Annuity Contract units
was registered under the Securities Act of 1933. A Rule 24f-2 Notice for the
fiscal year ended December 31, 1996 was filed with the Commissionon February
28, 1997.
<PAGE> 2
THE TRAVELERS FUND ABD II FOR VARIABLE ANNUITIES
Cross-Reference Sheet
Form N-4
<TABLE>
<CAPTION>
ITEM
NO. CAPTION IN PROSPECTUS
- ---- ---------------------
<S> <C> <C>
1. Cover Page Prospectus
2. Definitions Glossary of Special Terms
3. Synopsis Prospectus Summary
4. Condensed Financial Information Not Applicable
5. General Description of Registrant, The Insurance Company; The Separate
Depositor, and Portfolio Companies Account and the Funding Options; Voting
Rights
6. Deductions (and Expenses) Fee Table; Charges and Deductions;
Distribution of Variable Annuity Contracts
7. General Description of Variable The Contract; Ownership Provisions; Transfers
Annuity Contracts
8. Annuity Period The Annuity Period; Payment Options
9. Death Benefit Death Benefit
10. Purchases and Contract Value The Contract
11. Redemptions Surrenders and Redemptions; Miscellaneous
Contract Provisions; The Contract
12. Taxes Federal Tax Considerations
13. Legal Proceedings Legal Proceedings and Opinions
14. Table of Contents of Statement Appendix D
of Additional Information
CAPTION IN STATEMENT OF ADDITIONAL
INFORMATION
-----------------------------------
15. Cover Page Statement of Additional Information
16. Table of Contents Table of Contents
17. General Information and History The Insurance Company
18. Services Principal Underwriter; Distribution and
Management Agreement
19. Purchase of Securities Being Offered Valuation of Assets
20. Underwriters Principal Underwriter
21. Calculation of Performance Data Performance Information
22. Annuity Payments Not Applicable
23. Financial Statements Financial Statements
</TABLE>
<PAGE> 3
PART A
Information Required in a Prospectus
<PAGE> 4
TRAVELERS
PORTFOLIO ARCHITECT ACCESS
VARIABLE ANNUITY CONTRACT PROFILE
JULY 21, 1997
THIS PROFILE IS A SUMMARY OF SOME OF THE MORE IMPORTANT POINTS THAT YOU SHOULD
KNOW AND CONSIDER BEFORE PURCHASING THE CONTRACT. THE CONTRACT IS MORE FULLY
DESCRIBED IN THE FULL PROSPECTUS WHICH IS ATTACHED TO THIS PROFILE. PLEASE READ
THE PROSPECTUS CAREFULLY. THE TERMS "WE," "US," "OUR" AND THE "COMPANY" REFER TO
TRAVELERS LIFE AND ANNUITY COMPANY. "YOU" AND "YOUR" REFER TO THE CONTRACT
OWNER.
1. THE VARIABLE ANNUITY CONTRACT. The Contract offered by Travelers Life and
Annuity Company is a variable annuity that is intended for retirement savings or
other long-term investment purposes. The Contract provides a death benefit as
well as guaranteed income options. Under a qualified Contract, you can make one
or more payments, as you choose, on a tax-deferred basis. Under a nonqualified
Contract, you can make one or more payments with after-tax dollars. You direct
your payment(s) to one or more of the variable funding options listed in Section
4 and/or to the Fixed Account. We guarantee money directed to the Fixed Account
as to principal and interest. The initial interest rate is guaranteed for a
one-year period. After that, interest is declared each calendar quarter by the
Company. The variable funding options are designed to produce a higher rate of
return than the Fixed Account, however, this is not guaranteed. You may also
lose money in the variable funding options.
You can transfer between the 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. The Company may, in the future, charge
a fee for any transfer request, or limit the number of transfers allowed. The
Company, at the minimum, would always allow one transfer every six months. You
may transfer between the Fixed Account and the 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.
The Contract, like all deferred variable annuity contracts, has two phases: the
accumulation phase and the income phase. During the accumulation phase, under a
qualified contract, your tax-deferred 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 nonqualified
contract, earnings on your after-tax contributions accumulate on a tax-deferred
basis and are taxed as income when you make a withdrawal. The income 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 income phase.
2. ANNUITY PAYMENTS (THE INCOME PHASE). You may choose to receive income
payments from the Fixed Account or the variable funding options. If you want to
receive payments from your annuity, you can choose one of the following annuity
options: Option 1 -- payments for your life (life annuity) -- assuming that you
are the annuitant; Option 2 -- payments for your life with an added guarantee
that payments will continue to your beneficiary for a certain number of months
(120, 180 or 240, as you select), if you should die during that period; Option
3 -- Joint and Last Survivor Annuity, in which payments are made for your life
and the life of another person (usually your spouse). This option can also be
elected with payments continuing at a reduced rate after the death of one payee.
There are also two Income Options: Fixed Amount -- the contract value will be
paid to you in equal payments; or Fixed Period -- the contract value will be
used to make payments for a fixed time period. If you should die before the end
of the Fixed Period, the remaining amount would go to your beneficiary.
<PAGE> 5
Once you make an election of an annuity option or an income option and begin to
receive payments, it cannot be changed. During the income phase, you have the
same investment choices you had during the accumulation phase. If amounts are
directed to the funding options, the dollar amount of your payments may increase
or decrease.
3. PURCHASE. You may purchase the Contract with an initial payment of at least
$20,000. You may make additional payments of at least $500 at any time during
the accumulation phase. (In some states, additional payments are not allowed.)
4. INVESTMENT OPTIONS. You can direct your money into the Fixed Account or any
or all of the following funding options. They are described in the prospectuses
for the funds. Depending on market conditions, you may make or lose money in any
of these options:
<TABLE>
<S> <C>
Capital Appreciation Fund MFS Emerging Growth Portfolio
Cash Income Trust Federated Stock Portfolio
Alliance Growth Portfolio Federated High Yield Portfolio
MFS Total Return Portfolio Large Cap Portfolio
Putnam Diversified Income Portfolio Equity Income Portfolio
Travelers Quality Bond Portfolio Mid Cap Disciplined Equity Fund
Lazard International Stock Portfolio
</TABLE>
5. EXPENSES. The Contract has insurance features and investment features, and
there are costs related to each. For Contracts with a value of less than
$40,000, the Company deducts an annual administrative charge of $30. The annual
insurance charge is 1.25% of the amounts you direct to the funding options and a
related sub-account administrative charge of .15% annually is charged.
Each funding option has a charge for investment management and other expenses.
The charges, which vary by funding option, range from 0.75% to 1.25% annually,
of the average daily net asset balance of the funding option.
If you withdraw amounts under the contract, or if you begin receiving annuity
payments, the Company may be required by your state to deduct a premium tax of
0%-5%.
The following table is designed to help you understand the Contract charges. The
"Total Annual Insurance Charge" column includes the mortality and expense risk
charge, the sub-account administrative charges, and reflects the $30 annual
contract charge as .021%. The "Total Annual Funding Option Expenses" column
reflects the investment charges for each portfolio, including any expense waiver
or reimbursement. The column "Total Annual Charges" reflects the sum of the
previous two columns. The columns under the heading "Examples" show you how much
you would pay under the Contract for a one-year period and for a 10-year period.
As required by the SEC, the examples assume that you invested $1,000 in a
Contract that earns 5% annually and that you withdraw your money at the end of
year 1 and at the end of year 10. For years 1 and 10, the examples show the
total annual charges assessed during that time. For these examples, the premium
tax is assumed to be 0%.
<TABLE>
<CAPTION>
EXAMPLES:
TOTAL ANNUAL
TOTAL ANNUAL EXPENSES
TOTAL ANNUAL FUNDING OPTION TOTAL ANNUAL AT END OF:
PORTFOLIO NAME INSURANCE CHARGES EXPENSES CHARGES 1 YEAR 10 YEARS
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C>
Capital Appreciation Fund............... 1.42% 0.83% 2.25% $ 23 $259
Cash Income Trust....................... 1.42% 0.78% 2.20% 22 254
Alliance Growth......................... 1.42% 0.87% 2.29% 23 263
MFS Total Return........................ 1.42% 0.91% 2.33% 24 267
Putnam Diversified Income............... 1.42% 0.96% 2.38% 24 272
Travelers Quality Bond.................. 1.42% 0.75% 2.17% 22 250
Lazard International Stock.............. 1.42% 1.25% 2.67% 27 300
MFS Emerging Growth..................... 1.42% 0.95% 2.37% 24 271
Federated Stock......................... 1.42% 0.95% 2.37% 24 271
Federated High Yield.................... 1.42% 0.95% 2.37% 24 271
Large Cap............................... 1.42% 0.95% 2.37% 24 271
Equity Income........................... 1.42% 0.95% 2.37% 24 271
Mid Cap Disciplined Equity.............. 1.42% 0.95% 2.37% 24 271
</TABLE>
ii
<PAGE> 6
6. TAXES. The payments you make to a qualified Contract during the accumulation
phase are made with before-tax dollars. You will be taxed on your purchase
payments and on any earnings when you make a withdrawal or begin receiving
annuity or income payments. Under a nonqualified Contract, payments to the
contract are made with after-tax dollars, and any earnings will accumulate
tax-deferred. You will be taxed on these earnings when they are withdrawn from
the Contract.
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. If you are younger than 59 1/2 when you
take money out, you may be charged a 10% federal penalty tax on the amount
withdrawn.
7. ACCESS TO YOUR MONEY. You can take withdrawals any time during the
accumulation phase. While there is no withdrawal charge, income taxes and a
penalty tax may apply to taxable amounts withdrawn.
8. PERFORMANCE. The value of the Contract will vary depending upon the
investment performance of the funding options you choose. The following chart
shows total returns for each funding option for the time periods shown. These
rates of return reflect the insurance charges, administrative charge, investment
charges and all other expenses of the funding option. The rates of return do not
reflect any applicable taxes, which, if applied, would reduce such performance.
Past performance is not a guarantee of future results.
LAST TEN CALENDAR YEARS (OR FULL YEARS SINCE INCEPTION):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
PORTFOLIO NAME 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Appreciation
Fund................... 26.39% 35.46% -6.12% 13.45% 15.97% 32.04% -6.89% 13.85% 8.50% -9.21%
Cash Income Trust........ 2.69% 2.77% 3.31% 0.77% 1.80% 5.16% 6.53% 6.16% 5.60%
Travelers Series Fund,
Inc....................
Alliance Growth........ 27.56% 32.97%
MFS Total Return....... 12.88% 23.93%
Putnam Diversified
Income............... 6.70% 15.74%
</TABLE>
Those funding options not illustrated above do not yet have one full year of
performance history.
9. DEATH BENEFIT. Assuming you are the Annuitant, if you die before the
Contract is in the income phase, the person you have chosen as your beneficiary
will receive a death benefit. The death benefit paid depends on your age at the
time of your death. The death benefit value is calculated at the close of the
business day on which the Company's Home Office receives due proof of death. If
you die on or before age 75, the person you have selected as the beneficiary
will receive an amount equal to the greatest of the following:
1) the contract value;
2) the total purchase payments made under the Contract; or
3) the contract value on the latest fifth contract year before the
Company receives due proof of death.
If the annuitant dies after age 75 but before age 85 (90 in Florida) and before
the contract maturity date, the beneficiary will receive
1) the contract value;
2) Total purchase payments made under the Contract; or
3) The Contract value on the latest fifth year anniversary occurring on
or before the annuitant's 75th birthday;
iii
<PAGE> 7
If the annuitant dies on or after age 85 and before the maturity date, the death
benefit will equal Contract value.
NOTE: In all cases described above, amounts will be reduced by loans
outstanding, premium taxes owed and partial withdrawals not previously deducted.
This death benefit may not be available in all states. Certain states may have
varying age requirements. The death benefit applies upon the first death of the
owner, joint owner, or annuitant. Please refer to the Contract prospectus for
more details.
10. OTHER INFORMATION
RIGHT TO RETURN. If you cancel the Contract within twenty days after you
receive it, you will receive a full refund of the Contract Value (including
charges). Where state law requires a longer right to return period, or the
return of purchase payments, the Company will comply. You bear the investment
risk during the right to return period; therefore, the Contract value returned
may be greater or less than your purchase payment. If the Contract is purchased
as an Individual Retirement Annuity, and is returned within the first seven days
after delivery, your full purchase payment will be refunded; during the
remainder of the right to return period, the Contract value (including charges)
will be refunded. The Contract value will be determined at the close of business
on the day we receive a written request for a refund.
WHO SHOULD PURCHASE THIS CONTRACT? The Contract is currently available for use
in connection with (1) individual nonqualified purchases; (2) rollovers for
Individual Retirement Annuities (IRAs) and (3) rollovers for other qualified
retirement plans. Qualified contracts include contracts qualifying under Section
401(a), 403(b), or 408(b) of the Internal Revenue Code of 1986, as amended.
ADDITIONAL FEATURES. This Contract has other features you may be interested in.
These include:
DOLLAR COST AVERAGING. This is a program that allows you to invest a fixed
amount of money in 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.
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.
AUTOMATIC REBALANCING. You may elect to have the Company periodically
reallocate the values in your Contract to match your original (or your latest)
funding option allocation request.
11. INQUIRIES. If you need more information, please contact us at (800)
842-8573 or:
Travelers Life and Annuity Company
Annuity Services
One Tower Square
Hartford, CT 06183
iv
<PAGE> 8
THE TRAVELERS FUND ABD II FOR VARIABLE ANNUITIES
This prospectus describes TRAVELERS PORTFOLIO ARCHITECT ACCESS, a flexible
premium variable annuity contract (the "Contract") issued by The Travelers Life
and Annuity Company (the "Company," "we" or "our"). 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 ("nonqualified Contracts"). Portfolio Architect Access may be
issued as an individual Contract or as a group Contract. In states where only
group Contracts are available, you will be issued a certificate summarizing the
provisions of the group Contract. For convenience, this prospectus refers to
both Contracts and certificates as "Contracts."
You can choose to have your purchase payments accumulate on a fixed basis (i.e.
a Fixed Account funded through the Company's general account) and/or a variable
basis (i.e., one or more of the sub-accounts ("funding options") of the
Travelers Fund ABD II for Variable Annuities ("Fund ABD")). Your contract value
will vary daily to reflect the investment experience of the funding options you
select and any interest credited to the Fixed Account. The variable funding
options currently available are: Capital Appreciation Fund; Cash Income Trust;
Alliance Growth Portfolio, MFS Total Return Portfolio, and Putnam Diversified
Income Portfolio, of the Travelers Series Fund, Inc.; and Travelers Quality Bond
Portfolio, Lazard International Stock Portfolio, MFS Emerging Growth Portfolio,
Federated Stock Portfolio, Federated High Yield Portfolio, Large Cap Portfolio,
Equity Income Portfolio and Mid Cap Disciplined Equity Fund of the Travelers
Series Trust. The Fixed Account funding option is described in Appendix A.
Unless specified otherwise, this prospectus refers to the variable funding
options. The contracts and/or some of the funding options may not be available
in all states. THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT
PROSPECTUSES FOR THE VARIABLE FUNDING OPTIONS. THESE PROSPECTUSES SHOULD BE READ
AND RETAINED FOR FUTURE REFERENCE.
This prospectus provides the information that you should know before investing
in the Contract. You can receive additional information about Fund ABD II by
requesting a copy of the Statement of Additional Information ("SAI") dated July
21, 1997. The SAI has been filed with the Securities and Exchange Commission
("SEC") and is incorporated by reference into this prospectus. To request a
copy, write to The Travelers Life and Annuity Company, Annuity Services, One
Tower Square, Hartford, Connecticut 06183, or call (800) 842-8573. The Table of
Contents of the SAI appears in Appendix B of this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
VARIABLE ANNUITY CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR ENDORSED OR
GUARANTEED BY ANY BANK, NOR ARE THEY FEDERALLY INSURED OR OTHERWISE PROTECTED BY
THE FDIC, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY; THEY ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL INVESTMENT.
PROSPECTUS DATED JULY 21, 1997
<PAGE> 9
TABLE OF CONTENTS
<TABLE>
<S> <C>
INDEX OF SPECIAL TERMS................. 2
FEE TABLE.............................. 3
THE ANNUITY CONTRACT................... 4
Purchase Payments...................... 4
Accumulation Units..................... 4
The Funding Options.................... 5
Substitutions and Additions............ 6
CHARGES AND DEDUCTIONS................. 6
Administrative Charges................. 6
Mortality and Expense Risk Charge...... 6
Reduction or Elimination of Contract
Charges.............................. 6
Funding Option Expenses................ 7
Premium Tax............................ 7
Changes in Taxes Based Upon Premium or
Value................................ 7
OWNERSHIP PROVISIONS................... 7
Types of Ownership..................... 7
Beneficiary............................ 7
Annuitant.............................. 8
TRANSFERS.............................. 8
Dollar Cost Averaging.................. 8
ACCESS TO YOUR MONEY................... 8
Systematic Withdrawals................. 9
Loans.................................. 9
DEATH BENEFIT.......................... 9
Death Proceeds Before the Maturity
Date................................. 10
Death Proceeds After the Maturity
Date................................. 10
THE ANNUITY PERIOD..................... 10
Maturity Date.......................... 10
Allocation of Annuity.................. 11
Variable Annuity....................... 11
Fixed Annuity.......................... 12
PAYMENT OPTIONS........................ 12
Election of Options.................... 12
Annuity Options........................ 12
Income Options......................... 13
MISCELLANEOUS CONTRACT PROVISIONS...... 13
Right to Return........................ 13
Termination............................ 14
Required Reports....................... 14
Suspension of Payments................. 14
Transfers of Contract Values to Other
Annuities............................ 14
THE SEPARATE ACCOUNT................... 14
Performance Information................ 15
FEDERAL TAX CONSIDERATIONS............. 15
General Taxation of Annuities.......... 15
Types of Contracts: Qualified or
Nonqualified......................... 16
Nonqualified Annuity Contracts......... 16
Qualified Annuity Contracts............ 16
Penalty Tax for Premature
Distributions........................ 16
Diversification Requirements for
Variable Annuities................... 17
Ownership of the Investments........... 17
Mandatory Distributions for Qualified
Plans................................ 17
OTHER INFORMATION...................... 17
The Insurance Company.................. 17
Distribution of Variable Annuity
Contracts............................ 18
Conformity with State and Federal
Laws................................. 18
Voting Rights.......................... 18
Legal Proceedings And Opinions......... 18
APPENDIX A: The Fixed Account.......... 19
APPENDIX B: Table of Contents of the
Statement of Additional
Information.......................... 20
</TABLE>
INDEX OF SPECIAL TERMS
The following terms are italicized throughout the prospectus. Refer to the page
listed for an explanation of each term.
<TABLE>
<S> <C>
Accumulation Unit...................... 4
Accumulation Period.................... 5
Annuitant.............................. 8
Annuity Payments....................... 10
Annuity Unit........................... 11
Contract Date.......................... 4
Contract Owner (You, Your)............. 4
Contract Value......................... 4
Contract Year.......................... 4
Fixed Account.......................... 19
Funding Option(s)...................... 5
Income Payments........................ 12
Maturity Date.......................... 4
Purchase Payment....................... 4
Written Request........................ 4
</TABLE>
2
<PAGE> 10
FUND ABD II FEE TABLE
- --------------------------------------------------------------------------------
CONTRACT OWNER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Annual Contract Administrative Charge (Waived if
contract value is $40,000 or more) $30
ANNUAL SEPARATE ACCOUNT CHARGES:
(as a percentage of the average daily net assets of the
Separate Account)
Mortality and Expense Risk Charge................... 1.25%
Administrative Expense Charge....................... 0.15%
------
Total Separate Account Charges................... 1.40%
FUNDING OPTION EXPENSES:
(as a percentage of average daily net assets of the Funding
Option)
</TABLE>
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
FEE EXPENSES FUNDING
(AFTER EXPENSES (AFTER EXPENSES OPTION
PORTFOLIO NAME ARE REIMBURSED) ARE REIMBURSED) EXPENSES
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital Appreciation Fund..................... 0.75% 0.08%(1) 0.83%
Cash Income Trust............................. 0.32% 0.46%(1)(2) 0.78%
Alliance Growth............................... 0.80% 0.07%(1) 0.87%
MFS Total Return.............................. 0.80% 0.11%(1) 0.91%
Putnam Diversified Income..................... 0.75% 0.21%(1) 0.96%
Travelers Quality Bond........................ 0.32% 0.43%(1)(3) 0.75%
Lazard International Stock.................... 0.83% 0.42%(1)(3) 1.25%
MFS Emerging Growth........................... 0.75% 0.20%(1)(3) 0.95%
Federated Stock............................... 0.63% 0.32%(3) 0.95%
Federated High Yield.......................... 0.65% 0.30%(3) 0.95%
Large Cap (Sub-Adv. Fidelity)................. 0.75% 0.20%(1)(4) 0.95%
Equity Income (Sub-Adv. Fidelity)............. 0.75% 0.20%(1)(4) 0.95%
Mid Cap Disciplined Equity Fund............... 0.70% 0.25%(1)(5) 0.95%
</TABLE>
NOTES:
The purpose of the Fee Table is to assist contract owners in understanding the
various costs and expenses that a contract owner will bear, directly or
indirectly. See "Charges and Deductions" in this prospectus for additional
information. Expenses shown do not include premium taxes, which may be
applicable.
(1) Includes a Sub-Administrator Charge of .06%.
(2) Other Expenses take into account the current expense reimbursement
arrangement with the Company. The Company has agreed to reimburse the
funding option for the amount by which its aggregate expenses (including the
management fee, but excluding brokerage commissions, interest charges and
taxes) exceeds 0.60%. Without such arrangement, Other Expenses would have
been 1.71% for Cash Income Trust.
(3) The Travelers has waived all of its fees for the period ended December 31,
1996. In addition, the Travelers has agreed to reimburse the Portfolios'
expenses for the same period. Without such arrangements, Other Expenses for
the Travelers Series Trust Portfolios would have been: Travelers Quality
Bond, 1.76%; Lazard International Stock, 2.87%, MFS Emerging Growth, 2.09%;
Federated High Yield, 2.19% and Federated Stock, 3.03%.
(4) Other Expenses take into account the current expense reimbursement
arrangement with the Company. The Company has agreed to reimburse the
funding option for the amount by which its aggregate expenses (including the
management fee, but excluding brokerage commissions, interest charges and
taxes) exceeds 0.95%. Without such arrangements, Other Expenses for the
Travelers Series Trust Large Cap Portfolio and Equity Income Portfolios
would have been 1.55%.
(5) Other Expenses for the Mid Cap Disciplined Equity Fund are based on
estimated expenses for 1996 since the portfolio has no investment history.
They also take into account the current expense reimbursement arrangement
with the Company in which The Company has agreed to reimburse the funding
option for the amount by which its aggregate expenses (including the
management fee, but excluding brokerage commissions, interest charges and
taxes) exceeds 0.95%.
3
<PAGE> 11
EXAMPLE*
Assuming a 5% annual return, a $1,000 investment would be subject to the
following expenses, whether the contract has been surrendered, annuitized, or if
no withdrawals have been made:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
PORTFOLIO NAME 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Appreciation Fund......................................................... $ 23 $ 70 $ 121 $ 259
Cash Income Trust................................................................. 22 69 118 254
Alliance Growth................................................................... 23 72 123 263
MFS Total Return.................................................................. 24 73 125 267
Putnam Diversified Income......................................................... 24 74 127 272
Travelers Quality Bond............................................................ 22 68 n/a n/a
Lazard International Stock........................................................ 27 83 n/a n/a
MFS Emerging Growth............................................................... 24 74 n/a n/a
Federated Stock................................................................... 24 74 n/a n/a
Federated High Yield.............................................................. 24 74 n/a n/a
Large Cap......................................................................... 24 74 n/a n/a
Equity Income..................................................................... 24 74 n/a n/a
Mid Cap Disciplined Equity Fund................................................... 24 74 n/a n/a
</TABLE>
* THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE REFLECTS THE $30 ANNUAL CONTRACT ADMINISTRATIVE CHARGE AS AN ANNUAL
CHARGE OF .021% OF ASSETS. FOR NEW FUNDING OPTIONS, EXPENSES ARE GIVEN ONLY
FOR YEARS ONE AND THREE.
THE ANNUITY CONTRACT
- --------------------------------------------------------------------------------
Travelers Portfolio Architect Access Annuity is a contract between you, the
contract owner, and Travelers Life and Annuity Company (called "us" or the
"Company"). Under this contract, you make purchase payments to us and we credit
them to your Contract. The Company promises to pay you an income, in the form of
annuity or income 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, and one
fixed account option. 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, plus or minus any investment experience or
interest. The contract value also reflects all surrenders 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,
except as noted under the Death Benefit provisions described in this prospectus.
The date the contract and its benefits became effective is referred to as the
contract date. Each anniversary of this 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 written information must be sent
to the Company's Home Office in a form and content satisfactory to us.
PURCHASE PAYMENTS
The initial purchase payment must be at least $20,000. Additional payments of at
least $500 may be made under the Contract at any time. Under certain
circumstances, we may waive the minimum purchase payment requirement. Purchase
payments over $1,000,000 may be made with our prior consent. In some states, we
do not accept additional purchase payments.
We will apply the initial purchase payment within two business days after we
receive it in good order at our Home Office. Subsequent purchase payments
received in good order will be credited to a Contract within one business day.
Our business day ends when the New York Stock Exchange closes, usually 4:00 p.m.
Eastern time.
ACCUMULATION UNITS
An accumulation unit is used to calculate the value of a Contract. An
accumulation unit works like a share of a mutual fund. Each funding option has a
corresponding accumulation unit value. The
4
<PAGE> 12
accumulation units are valued each business day and 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 the accumulation unit. We
calculate the value of an accumulation unit for each funding option each day
after the New York Stock Exchange closes. After the value is calculated, your
Contract is credited. The period between the contract effective date and the
maturity date is the accumulation period. During the annuity period (i.e., after
the maturity date), you are credited with annuity units.
THE FUNDING OPTIONS
You choose which of the following variable funding options to have your purchase
payments allocated to. You will find detailed information about the options and
their inherent risks in the current prospectuses for the funding options which
must accompany this prospectus. Since each option has varying degrees of risk,
please read the prospectuses carefully before investing. Additional copies of
the prospectuses may be obtained by contacting your registered representative or
by calling 1-800-842-8573.
The current variable funding options are listed below, along with their
investment advisers and any subadviser:
<TABLE>
<CAPTION>
FUNDING OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER SUB-ADVISER
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital Appreciation Fund growth of capital Travelers Asset Janus Capital
Management Corporation
International
Corporation
("TAMIC")
Cash Income Trust high current income while TAMIC
emphasizing preservation of
capital and maintaining a high
degree of liquidity
Alliance Growth Portfolio long-term growth of capital Travelers Investment Alliance Capital
Advisers, Inc. Management L.P.
("TIA")
MFS Total Return Portfolio obtain above-average income TIA Massachusetts
(compared to a portfolio Financial Services
entirely invested in equity Company ("MFS")
securities) consistent with
the prudent employment of
capital
Putnam Diversified Income Portfolio high current income consistent TIA Putnam Investment
with preservation of capital Management, Inc
Travelers Quality Bond Portfolio current income, moderate capital TAMIC
volatility and total return
Lazard International Stock Portfolio capital appreciation through TAMIC Lazard Asset
investing primarily in the Management
equity securities of
non-United States companies
MFS Emerging Growth Portfolio long-term growth of capital TAMIC MFS
Federated Stock Portfolio growth of income and capital TAMIC Federated Investment
Counseling, Inc.
Federated High Yield Portfolio high current income TAMIC Federated Investment
Counseling, Inc.
Large Cap Portfolio long-term growth of capital TAMIC Fidelity Management &
Research Company
Equity Income Portfolio reasonable income TAMIC Fidelity Management &
Research Company
Mid Cap Disciplined Equity Fund growth of capital TAMIC Travelers Investment
Management Company
</TABLE>
5
<PAGE> 13
SUBSTITUTIONS AND ADDITIONS
If any of the funding options become unavailable for allocating purchase
payments, or if we believe that further investment in a funding option 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 applicable state and SEC approval. From time to time we
may make new funding options available.
CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
ADMINISTRATIVE CHARGES
A Contract administrative charge of $30 is deducted annually from Contracts with
a value of less than $40,000. This charge compensates us for expenses incurred
in establishing and maintaining the Contract. The charge is deducted from the
contract value on the fourth Friday of each August by canceling accumulation
units applicable to each funding option on a pro rata basis. For the first
contract year this charge will be prorated (i.e. calculated) from the date of
purchase. A prorated charge will also be made if the Contract is completely
withdrawn or terminated. We will not deduct a contract administrative charge:
(1) if the distribution results from the death of the contract owner or the
annuitant with no contingent annuitant surviving, (2) after an annuity payout
has begun, or (3) if the contract value on the date of assessment is equal to or
greater than $40,000.
An administrative expense charge (sometimes called "sub-account administrative
charge") is deducted on each business day from amounts allocated to the variable
funding options in order to compensate the Company for certain related
administrative and operating expenses. The charge equals, on an annual basis,
0.15% of the daily net asset value allocated to each of the variable funding
options.
MORTALITY AND EXPENSE RISK CHARGE
Each business day, the Company deducts a mortality and expense risk charge. The
deduction is reflected in our calculation of accumulation and annuity unit
values. This charge equals, on an annual basis, 1.25% of the amounts held in
each funding option. We reserve the right to lower this charge at any time. The
mortality risk portion compensates us for guaranteeing to provide annuity
payments according to the terms of the Contract regardless of how long the
annuitant lives and for guaranteeing to provide the death benefit if an
annuitant dies prior to the maturity date. The expense risk portion compensates
us for the risk that the charges under the Contract, which cannot be increased
during the duration of the Contract, will be insufficient to cover actual costs.
REDUCTION OR ELIMINATION OF CONTRACT CHARGES
The administrative charges, and the mortality and expense risk charge under the
Contract may be reduced or eliminated when certain sales or administration of
the Contract result in savings or reduction of administrative or sales expenses,
and/or mortality and expense risks. Any such reduction will be based on the
following: (1) the size and type of group to which sales are to be made; (2) the
total amount of purchase payments to be received; and (3) any prior or existing
relationship with the Company. There may be other circumstances, of which we are
not presently aware, which could result in fewer sales expenses, administrative
charges, or mortality and expense risk charges. For certain trusts, the Company
may change the order in which purchase payments and earnings are withdrawn in
order to determine the withdrawal charge. In no event will reduction or
elimination of the withdrawal charge or the administrative charge be permitted
where such reduction or elimination will be unfairly discriminatory to any
person.
6
<PAGE> 14
FUNDING OPTION EXPENSES
The deductions from and expenses paid out of the assets of the various funding
options are summarized in the fee table and are described in the accompanying
prospectuses.
PREMIUM TAX
Certain state and local governments charge premium taxes ranging from 0% to 5%,
depending upon jurisdiction. The Company is responsible for paying these taxes
and will determine the method used to recover premium tax expenses incurred.
Where required, the Company will deduct any applicable premium taxes from the
contract value either upon death, surrender, annuitization, or at the time
purchase payments are made to the Contract, but no earlier than when the Company
has a tax liability under state law.
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.
OWNERSHIP PROVISIONS
- --------------------------------------------------------------------------------
TYPES OF OWNERSHIP
Contract Owner (you). The Contract belongs to the contract owner named in the
Contract (on the Specifications page), or to any other person to whom the
contract is subsequently assigned. An assignment of ownership or a collateral
assignment may be made only for nonqualified 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 the Contract is not assigned.
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.
Joint Owner. For nonqualified contracts only, joint owners (i.e., spouses) may
be named 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. All rights of a joint owner end at
death if the other joint owner survives. The entire interest of the deceased
joint owner in the Contract will pass to the surviving joint owner.
BENEFICIARY
The beneficiary is named by you in a written request. The beneficiary has the
right to receive any remaining contractual benefits upon the death of the
annuitant or the contract owner. If more than one beneficiary survives the
annuitant, they will share equally in benefits unless different shares are
recorded with the Company by written request before the death of the annuitant
or contract owner.
With nonqualified contracts, as discussed under "Death Benefit," the beneficiary
named in the contract may differ from the designated beneficiary (for example,
the joint owner or a contingent annuitant). In such cases, the designated
beneficiary receives the contract benefits (rather than the beneficiary) upon
your death.
Unless an irrevocable beneficiary has been named, you have the right to change
any beneficiary by written request during the lifetime of the annuitant and
while the Contract continues.
7
<PAGE> 15
ANNUITANT
The annuitant is designated in the Contract (on the Specifications page), and is
the individual on whose life the maturity date and the amount of the monthly
annuity payments depend. The annuitant may not be changed after the contract is
in effect.
For nonqualified Contracts only, the contract owner may also name one individual
as a contingent annuitant by written request before the Contract becomes
effective. A contingent annuitant may not be changed, deleted or added after the
Contract becomes effective. For Contracts issued in New York, a contingent
annuitant may not be named.
TRANSFERS
- --------------------------------------------------------------------------------
Before the maturity date, you may transfer all or part of the contract value
between funding options. There are no charges or restrictions on the amount or
frequency of transfers currently; however, we reserve the right to charge a fee
for any transfer request, and to limit the number of transfers to one in any
six-month period. Since different funding options have different expenses, a
transfer of contract values from one funding option to another could result in
your investment becoming subject to higher or lower expenses. After the maturity
date, you may make transfers between funding options only with our consent.
DOLLAR COST AVERAGING
Dollar cost averaging (or "automated transfers") allows you to transfer a set
dollar amount to other funding options on a monthly or quarterly basis so that
more accumulation units are purchased in a funding option if the value per unit
is low and less accumulation units are purchased if the value per unit is high.
Therefore, a lower-than-average value per unit may be achieved over the long
run.
You may elect automated transfers through written request or other method
acceptable to the Company. (For Contracts issued in New York, the election must
be made in writing.) You must have a minimum total contract value of $5,000 to
enroll in the Dollar Cost Averaging program. The minimum amount that may be
transferred through this program is $400.
You may establish automated transfers of contract values from the Fixed Account,
subject to certain restrictions. Automated transfers from the Fixed Account may
not deplete your Fixed Account Value in less than twelve months from your
enrollment in the Dollar Cost Averaging program.
You may start or stop participation in the Dollar Cost Averaging 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. All provisions and
terms of the Contract apply to automated transfers, including provisions
relating to the transfer of money between investment options. We reserve the
right to suspend or modify transfer privileges at any time and to assess a
processing fee for this service.
ACCESS TO YOUR MONEY
- --------------------------------------------------------------------------------
Any time before the maturity date, you may redeem all or any portion of the
contract value, less any premium tax not previously deducted. You must submit a
written request specifying the fixed or variable funding option(s) from which
amounts are to be withdrawn. If no funding options are specified, the withdrawal
will be made on a pro rata basis. The contract value will be determined as of
the close of business after we receive your surrender request at the Home
Office. The contract value may be more or less than the purchase payments made.
8
<PAGE> 16
We may defer payment of any contract value for a period of up to seven days
after the written request is received, but it is our intent to pay as soon as
possible. We cannot process requests for withdrawal 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. Any
applicable premium taxes will be deducted. To elect systematic withdrawals, you
must have a contract value of at least $15,000 and you must make the election on
the form provided by the Company. 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 at least 30 days' notice must be given to change
any systematic withdrawal instructions that are currently in place.
We reserve the right to discontinue offering systematic withdrawals or to assess
a processing fee for this service 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 59 1/2. You should consult with
your tax adviser regarding the tax consequences of systematic withdrawals.
LOANS
Loans may be available under your Contract. If available, all loan provisions
are described in your Contract or loan agreement.
DEATH BENEFIT
- --------------------------------------------------------------------------------
Before the maturity date, a death benefit is payable to the beneficiary when
either the annuitant, the contract owner or the first of joint owners dies and
there is no contingent annuitant. The death benefit is calculated at the close
of the business day on which the Company's Home Office receives due proof of
death.
If the Company is notified of the death more than six months after the death,
the death benefit will be the contract value.
DEATH PROCEEDS BEFORE THE MATURITY DATE
DEATH OF ANY OWNER OR THE ANNUITANT BEFORE AGE 75. The Company will pay the
beneficiary an amount equal to the greatest of (1), (2) or (3) below, each
reduced by any applicable premium tax, withdrawals not previously deducted and
any outstanding loans:
1) the contract value;
2) the total purchase payments made under the Contract; or
3) the contract value on the latest fifth contract year anniversary
before the Company receives due proof of death.
DEATH OF ANY OWNER OR THE ANNUITANT ON OR AFTER AGE 75, BUT BEFORE AGE 85 (90 IN
FLORIDA). The Company will pay the beneficiary a death benefit in an amount
equal to the greatest of (1), (2) or (3) below, (each reduced by any applicable
premium, prior surrenders not previously deducted or any outstanding loans):
1) the contract value;
9
<PAGE> 17
2) the total purchase payments made under the Contract; or
3) the contract value on the latest fifth contract year anniversary
occurring on or before the annuitant's 75th birthday.
DEATH OF ANY OWNER OR THE ANNUITANT ON OR AFTER AGE 85. The Company will pay the
beneficiary a death benefit in an amount equal to the contract value, less any
applicable premium tax. This provision does not apply in Florida.
PAYMENT OF PROCEEDS
The process of paying death benefit proceeds under various situations is
described below. 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.
DEATH OF ANNUITANT WHO IS THE CONTRACT OWNER. The Company will pay the proceeds
to any surviving joint owner, or if none, to the beneficiary(ies), or if none,
to the contract owner's estate.
Under a nonqualified contract, the death benefit proceeds must be distributed to
the beneficiary within five years of the contract owner's death. Or, the
beneficiary may elect to receive payments from an annuity which begins within
one year of the contract owner's death and is payable over the life of the
beneficiary of over a period not exceeding the beneficiary's life expectancy
If the beneficiary is the contract owner's spouse, he or she may elect to
continue the contract as the new contract owner rather than receiving the
distribution. In such case, the distribution rules applicable when a contract
owner dies generally will apply when that spouse, as contract owner, dies.
DEATH OF ANNUITANT WHO IS NOT THE CONTRACT OWNER. If there is no contingent
annuitant, the Company will pay the death proceeds to the beneficiary. However,
if there is a contingent annuitant, he or she becomes the annuitant and the
Contract continues in effect (generally using the original maturity date). The
proceeds described above will be paid upon the death of the last surviving
contingent annuitant.
ENTITY AS OWNER. In the case of a nonqualified Contract owned by a nonnatural
person (e.g. a trust or another entity), any annuitant will be treated as the
contract owner. Any change in the annuitant will be treated as the death of the
contract owner.
DEATH PROCEEDS AFTER THE MATURITY DATE
If any 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.
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 plans (annuity or income options). We
ask you to choose the maturity date and the annuity option when you purchase the
contract. While the annuitant is alive, you can change your selection any time
up to the maturity date. Annuity or income payments will begin on the maturity
date stated in the Contract unless the Contract has been fully surrendered or
the proceeds have been paid to the beneficiary before that date. Annuity
payments are a series of periodic payments (a) for life; (b) for life with
either a minimum number of payments or a specific amount assured; or (c) for the
joint lifetime of the annuitant and another person, and
10
<PAGE> 18
thereafter during the lifetime of the survivor. We may require proof that the
annuitant is alive before annuity payments are made.
Unless you elect otherwise, the maturity date will be the annuitant's 70th
birthday for qualified contracts and the annuitant's 75th birthday, or ten years
after the effective date of the contract, if later, for nonqualified contracts.
(For Contracts issued in Florida, the maturity date elected may not be later
than the annuitant's 90th birthday.)
For nonqualified Contracts, at least 30 days before the original maturity date,
a contract owner may elect to extend the maturity date to any time prior to the
annuitant's 85th birthday or, for qualified Contracts, to a later date with the
Company's consent. Certain annuity options taken at the maturity date may be
used to meet the minimum required distribution requirements of federal tax law,
or a program of partial surrenders may be used instead. These mandatory
distribution requirements take effect generally upon the death of the contract
owner, or with 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. Independent tax advice should be sought regarding the election of minimum
required distributions.
ALLOCATION OF ANNUITY
When an annuity option is elected, it may be elected as a variable annuity, a
fixed annuity, or a combination of both. (Variable payouts under this Contract
are not permitted in Florida or New Jersey.) If, at the time annuity payments
begin, no election has been made to the contrary, the contract value will be
applied to provide an annuity funded by the same investment options. 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 annuity payments will be
determined. (See "Transfers.")
VARIABLE ANNUITY
You may choose an annuity payout that fluctuates depending on the investment
experience of the variable funding options. The number of annuity units credited
to the Contract is determined by dividing the first monthly annuity payment
attributable to each funding option by the corresponding annuity unit value as
of 14 days before the date annuity payments begin. An annuity unit is used to
measure the dollar 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. The Contract contains tables used to
determine the first monthly annuity payment. The amount applied to effect a
variable annuity will be the value of the funding options as of 14 days before
the date annuity payments begin less any applicable premium taxes not previously
deducted.
The amount of the first monthly payment depends on the annuity option elected. A
formula for determining the adjusted age is contained in the Contract. The total
first monthly annuity payment is determined by multiplying the benefit per
$1,000 of value shown in the tables of the Contract by the number of thousands
of dollars of value of the Contract applied to that annuity option. The Company
reserves the right to require satisfactory proof of age of any person on whose
life annuity payments are based before making the first payment under any of the
settlement options.
DETERMINATION OF SECOND AND SUBSEQUENT ANNUITY PAYMENTS. The dollar amount of
the second and subsequent annuity payments is not predetermined and may change
from month to month based on the investment experience of the applicable funding
option. The total amount of each annuity payment will be equal to the sum of the
basic payments in each funding option. The actual amounts of these payments are
determined by multiplying the number of annuity units credited to each funding
option by the corresponding annuity unit value as of the date 14 days before the
date the payment is due.
11
<PAGE> 19
FIXED ANNUITY
You may choose a fixed annuity that provides payments which 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
applied to effect the annuity will be the contract value, determined as of the
date annuity payments begin. 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 or income option
selection any time up to the maturity date. Income options differ from annuity
options in that the amount of the payments made under income options are not
based upon the life of any person. Therefore, the annuitant may outlive the
payment period. Once annuity or income 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 Joint 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 or income 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 one lump
sum (except in Florida, where this is not permitted), or in accordance with the
payment option that you select. 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.
ANNUITY OPTIONS
Subject to the conditions described in "Election of Options" above, all or any
part of the contract value (or, where required by state law, contract value) may
be paid under one or more of the following annuity options. Payments under the
annuity options may be elected on a monthly, quarterly, semiannual or annual
basis.
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.
12
<PAGE> 20
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. One will be designated the primary payee, the
other will be designated the 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 -- Other Annuity Options. The Company will make any other arrangements
for annuity payments as may be mutually agreed upon.
INCOME OPTIONS
Instead of one of the annuity options described above, and subject to the
conditions described under "Election of Options," all or part of the contract
value may be paid under one or more of the following income options, provided
that they are consistent with federal tax law qualification requirements.
Payments under the income options may be elected on a monthly, quarterly,
semiannual or annual basis:
Option 1 -- Payments of a Fixed Amount. The Company will make equal payments of
the amount elected until the contract value applied under this option has been
exhausted. The first payment and all later payments will be paid from amounts
attributable to each investment option in proportion to the contract value
attributable to each. The final payment will include any amount insufficient to
make another full payment.
Option 2 -- Payments for a Fixed Period. The Company will make payments for the
fixed period selected based on the contract value as of the date payments begin.
If, at the death of the annuitant, the total number of fixed payments has not
been made, the payments will be made to the beneficiary.
Option 3 -- Other Income Options. The Company will make any other arrangements
for income payments as may be mutually agreed upon.
The amount applied to effect an income option will be the contract value as of
the date income payments begin, less any applicable premium taxes not previously
deducted. (Certain states may have different requirements that we will honor.)
The contract value used to determine the amount of any income payment will be
determined on the same basis as the contract value during the accumulation
period, including the deduction for mortality and expense risks and the contract
administrative expense charge.
MISCELLANEOUS CONTRACT PROVISIONS
- --------------------------------------------------------------------------------
RIGHT TO RETURN
You may return the Contract for a full refund of the contract value (including
charges) within twenty days after you receive it (the "right to return period").
You bear the investment risk during the right to return period; therefore, the
contract value returned may be greater or less than your purchase payment. If
the Contract is purchased as an Individual Retirement Annuity, and is returned
within the first seven days after delivery, your purchase payment will be
refunded in full; during the remainder of the right to return period, the
contract value (including charges) will be refunded. The contract value will be
determined following the close of the business day on which we receive a written
request for a refund. Where state law requires a longer period, or the return of
purchase payments or other variations of this provision, the Company will
comply. Refer to your Contract for any state-specific information.
13
<PAGE> 21
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 the contract value as of that date is less than $1,000 and
no purchase payments have been made for at least two years, unless otherwise
specified by state law. Termination will not occur until 31 days after the
Company has mailed notice of termination to the contract owner's last known
address and to any assignee of record. If the Contract is terminated, we will
pay you the contract value less any applicable premium tax, less any applicable
administrative charge.
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 date of the report 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 or 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.
TRANSFERS OF CONTRACT VALUES TO OTHER ANNUITIES
We may permit contract owners to transfer their contract values into other
annuities offered by us or our affiliated insurance companies under rules then
in effect.
THE SEPARATE ACCOUNT
- --------------------------------------------------------------------------------
The Travelers Fund ABD II For Variable Annuities ("Fund ABD II") was established
on October 17, 1995 and is registered with the SEC as a unit investment trust
(separate account) under the Investment Company Act of 1940, as amended (the
"1940 Act"). The assets of Fund ABD II will be invested exclusively in the
shares of the variable funding options.
The assets of Fund ABD II are held for the exclusive benefit of the owners of
this separate account, according to the laws of Connecticut. Income, gains and
losses, whether or not realized, from assets allocated to Fund ABD II are, in
accordance with the Contracts, credited to or charged against Fund ABD II
without regard to other income, gains and losses of the Company. The assets held
by Fund ABD II are not chargeable with liabilities arising out of any other
business which the Company may conduct. Obligations under the Contract are
obligations of the Company.
All investment income and other distributions of the funding options are payable
to Fund ABD II. All such income and/or distributions are reinvested 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.
14
<PAGE> 22
PERFORMANCE INFORMATION
From time to time, we may advertise several types of historical performance for
the Contract's funding options. We may advertise the "standardized average
annual total returns" of the funding option, calculated in a manner prescribed
by the SEC, as well as the "non-standardized total return," as described below.
Specific examples of the performance information appear in the SAI.
STANDARDIZED METHOD. Quotations of average annual total returns are computed
according to a formula in which a hypothetical initial investment of $1,000 is
applied to the funding option, and then related to ending redeemable values over
one-, five-, and ten-year periods, or for a period covering the time during
which the funding option has been in existence, if less. These quotations
reflect the deduction of all recurring charges during each period (on a pro rata
basis in the case of fractional periods). The deduction for the annual
administrative charge ($30) is converted to a percentage of assets based on the
actual fee collected (or anticipated to be collected, if a new product), divided
by the average net assets for Contracts sold (or anticipated to be sold).
NONSTANDARDIZED METHOD. Nonstandardized "total returns" will be calculated in a
similar manner based on the performance of the funding options over a period of
time, usually for the calendar year-to-date, and for the past one-, three-,
five- and ten-year periods. Nonstandardized total returns will not reflect the
deduction of the $30 annual contract administrative charge, which, if reflected,
would decrease the level of performance shown.
GENERAL Within the guidelines prescribed by the SEC and the National
Association of Securities Dealers, Inc. ("NASD"), performance information may be
quoted numerically or may be presented in a table, graph or other illustration.
Advertisements may include data comparing performance to well-known indices of
market performance (including, but not limited to, the Dow Jones Industrial
Average, the Standard & Poor's (S&P) 500 Index and the S&P 400 Index, the Lehman
Brothers Long T-Bond Index, the Russell 1000, 2000 and 3000 Indices, the Value
Line Index, and the Morgan Stanley Capital International's EAFE Index).
Advertisements may also include published editorial comments and performance
rankings compiled by independent organizations (including, but not limited to,
Lipper Analytical Services, Inc. and Morningstar, Inc.) and publications that
monitor the performance of the Separate Account and the variable funding
options.
For funding options that were in existence prior to the date they became
available under the Separate Account, the standardized and nonstandardized
average annual total return quotations will show the investment performance that
such funding options would have achieved (reduced by the applicable charges) had
they been held under the Contract for the period quoted. The total return
quotations are based upon historical earnings and are not necessarily
representative of future performance. The contract value at redemption may be
more or less than original cost.
FEDERAL TAX CONSIDERATIONS
- --------------------------------------------------------------------------------
The following general discussion of the federal income tax consequences under
this Contract is not intended to cover all situations, and is not meant to
provide tax 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
adviser regarding your personal situation. For your information, a more detailed
tax discussion 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 money put into an annuity. The
Internal Revenue Code (Code) governs how this money is 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.
15
<PAGE> 23
TYPES OF CONTRACTS: QUALIFIED OR NONQUALIFIED
If you purchase an annuity contract with proceeds of an eligible rollover
distribution from any pension plan, specially sponsored program, or individual
retirement annuity (IRA) with pre-tax dollars, your contract is referred to as a
qualified contract. Some examples of qualified contracts are: IRAs, 403(b)
annuities, pension and profit-sharing plans (including 401(k) plans), Keogh
Plans, and certain other qualified deferred compensation plans. 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 nonqualified.
NONQUALIFIED ANNUITY CONTRACTS
As the owner of a nonqualified 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. 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 tax purposes.
If a nonqualified 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 includible in income
annually. Furthermore, for contracts issued after April 22, 1987, if you
transfer the contract without adequate consideration all deferred increases in
value will be includible 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 includible in your income. (See "Penalty
Tax for Premature Distributions" below). There is income in the contract to the
extent the cash 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.
Federal tax law requires that nonqualified annuity contracts meet minimum
mandatory distribution requirements upon the death of the contract owner,
including the first of joint owners. If these requirements are not met, the
surviving joint owner, or the beneficiary, will have to pay taxes prior to
distribution. The distribution required depends, among other things, upon
whether an annuity option is elected or whether the new 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.
QUALIFIED ANNUITY CONTRACTS
Under a qualified annuity, since amounts paid into the contract have not yet
been taxed, the full amount of all distributions, including lump-sum withdrawals
and annuity payments, are 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.
PENALTY TAX FOR PREMATURE DISTRIBUTIONS
Taxable distributions taken before the contract owner has reached the age of
59 1/2 will be subject to a 10% additional tax penalty unless the distribution
is taken in a series of periodic distributions,
16
<PAGE> 24
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.
DIVERSIFICATION REQUIREMENTS FOR VARIABLE ANNUITIES
The Code requires that any nonqualified variable annuity contracts based on a
separate account shall not be treated as an annuity for any period 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. 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
Assets in the separate accounts, also referred to as segregated asset accounts,
must be owned by the Company and not by the Contract Owner for federal income
tax purposes. Otherwise, the deferral of taxes is lost and income and gains from
the accounts would be includable annually in the Contract Owner's gross income.
The Internal Revenue Service has stated in published rulings that a variable
contract owner will be considered the owner of the assets of a segregated asset
account if the owner possesses an incident of ownership in those assets, such as
the ability to exercise investment control over the assets. The Treasury
Department announced, in connection with the issuance of temporary regulations
concerning investment diversification, that those regulations "do not provide
guidance concerning the circumstances in which investor control of the
investments of a segregated asset account may cause the investor, rather than
the insurance company, to be treated as the owner of the assets of the account."
This announcement, dated September 15, 1986, also stated that the guidance would
be issued by way of regulations or rulings on the "extent to which policyholders
may direct their investments to particular subaccounts [of a segregated asset
account] without being treated as owners of the underlying assets." As of the
date of this prospectus, no such guidance has been issued.
The Company does not know if such guidance will be issued, or if it is, what
standards it may set. Furthermore, the Company does not know if such guidance
may be issued with retroactive effect. New regulations are generally issued with
a prospective-only effect as to future sales or as to future voluntary
transactions in existing contracts. The Company therefore reserves the right to
modify the contract as necessary to attempt to prevent Contract Owners from
being considered the owner of the assets of the separate account.
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
70 1/2. 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 70 1/2. Distributions must begin or be
continued according to required patterns following the death of the contract
owner or annuitant of both qualified and nonqualified annuities.
OTHER INFORMATION
- --------------------------------------------------------------------------------
THE INSURANCE COMPANY
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
17
<PAGE> 25
conduct life insurance business in a majority of the states of the United
States, and intends to seek licensure in the remaining states, except New York.
The Company is an indirect wholly owned subsidiary of Travelers Group Inc. The
Company's Home Office is located at One Tower Square, Hartford, Connecticut
06183.
DISTRIBUTION OF VARIABLE ANNUITY CONTRACTS
The Company intends to sell the Contracts in all jurisdictions where it is
licensed to do business and where the Contract is approved. The Contracts will
be sold by life insurance sales agents who represent the Company, and who are
licensed registered representatives of the Company or certain other registered
broker-dealers. The compensation paid to sales representatives will not exceed
6.5% of the payments made under the Contracts.
From time to time, the Company may pay or permit other promotional incentives,
in cash, credit or other compensation.
Any sales representative or employee will have been qualified to sell variable
annuities under applicable federal and state laws. Each broker-dealer is
registered with the SEC under the Securities Exchange Act of 1934, and all are
members of the NASD. The principal underwriter for the Contracts is Tower Square
Securities, Inc., an affiliate of the Company; however, it is currently
anticipated that an affiliated broker-dealer may become the principal
underwriter for the Contracts during 1997.
CONFORMITY WITH STATE AND FEDERAL LAWS
The Contract is governed by the laws of the state in which it is delivered. Any
paid-up annuity, contract 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 the Contract is delivered. 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 funding options. However, we
believe that when a funding option 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. When we receive those instructions, we
will vote all of the shares we own in proportion to those instructions. This
will also include any shares we own on our own behalf. Should we determine that
we are no longer required to comply with the above, we will vote on the shares
in our own right.
LEGAL PROCEEDINGS AND OPINIONS
There are no pending material legal proceedings affecting Fund ABD II. 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 Company, its 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 reviewed by the General Counsel of
the Company.
18
<PAGE> 26
APPENDIX A
- --------------------------------------------------------------------------------
THE FIXED ACCOUNT
The Fixed Account is secured by part of the general assets of the Company. The
general assets of the Company 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 portion of the contract
owner's 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 surrenders.
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. Neither the general account nor any interest
therein is registered under, nor 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.
The initial rate for any allocations into the Fixed Account is guaranteed for
one year from the date of such allocation. Subsequent renewal rates will be
guaranteed for the calendar quarter. We also guarantee that for the life of the
Contract we will credit interest at not less than 3% per year. Any interest
credited to amounts allocated to the Fixed Account in excess of 3% per year will
be determined in our sole discretion. You assume the risk that interest credited
to the Fixed Account may not exceed the minimum guarantee of 3% for any given
year.
TRANSFERS
You may make transfers from the Fixed Account to any other available funding
option(s) twice a year during the 30 days following the semiannual anniversary
of the contract effective date. The transfers are limited to an amount of up to
15% of the Fixed Account Value on the semiannual contract effective date
anniversary. (This restriction does not apply to transfers from the Dollar Cost
Averaging Program.) Amounts previously transferred from the Fixed Account to
other 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.
Automated transfers from the Fixed Account to any of the 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.
19
<PAGE> 27
APPENDIX B
- --------------------------------------------------------------------------------
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information contains more specific information and
financial statements relating to 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 Management Agreement
Valuation of Assets
Telephone Transfers
Federal Tax Considerations
Independent Accountants
Financial Statements
- --------------------------------------------------------------------------------
Copies of the Statement of Additional Information dated July 21, 1997 (Form No.
L- _______ are available without charge. To request a copy, please clip this
coupon on the dotted line above, enter your name and address in the spaces
provided below, and mail to: The Travelers Life and Annuity Company, Annuity
Services, One Tower Square, Hartford, Connecticut 06183-9061.
Name:
Address:
20
<PAGE> 28
PART B
Information Required in a Statement of Additional Information
<PAGE> 29
STATEMENT OF ADDITIONAL INFORMATION
dated
July 21, 1997
for
THE TRAVELERS FUND ABD II FOR VARIABLE ANNUITIES
ISSUED BY
THE TRAVELERS LIFE AND ANNUITY COMPANY
This Statement of Additional Information ("SAI") is not a prospectus but
relates to, and should be read in conjunction with, the Individual Variable
Annuity Contract Prospectus dated July 21, 1997. A copy of the Prospectus may
be obtained by writing to The Travelers Life and Annuity Company, Annuity
Services, One Tower Square, Hartford, Connecticut 06183-9061, or by calling
(800) 842-8735.
TABLE OF CONTENTS
THE INSURANCE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . 1
PRINCIPAL UNDERWRITER . . . . . . . . . . . . . . . . . . . . . . . . . 1
DISTRIBUTION AND MANAGEMENT AGREEMENT . . . . . . . . . . . . . . . . . . 1
VALUATION OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 3
TELEPHONE TRANSFERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
FEDERAL TAX CONSIDERATIONS . . . . . . . . . . . .. . . . . . . . . . . . 5
INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . . . 8
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
<PAGE> 30
THE INSURANCE COMPANY
The Travelers Life and Annuity Company (the "Company"), is a stock
insurance company chartered in 1973 in Connecticut. It is a wholly owned
subsidiary of The Travelers Insurance Company, which is indirectly owned,
through a wholly owned subsidiary, by Travelers Group Inc., a financial
services holding company engaged, through its subsidiaries, principally in four
business segments: (i) Investment Services; (ii) Consumer Finance Services;
(iii) Life Insurance Services; and (iv) Property and Casualty Insurance
Services.
STATE REGULATION. The Company is subject to the laws of the state of
Connecticut governing insurance companies and to regulation by the Insurance
Commissioner of the state of Connecticut. An annual statement covering the
operations of the Company for the preceding year, as well as its financial
conditions as of December 31 of such year, must be filed with the Commissioner
in a prescribed format on or before March 1 of each year. The Company's books
and assets are subject to review or examination by the Commissioner or his
agents at all times, and a full examination of its operations is conducted at
least once every four years.
The Company is also subject to the insurance laws and regulations of all
other states in which it is licensed to operate. However, the insurance
departments of each of these states generally apply the laws of the home state
(jurisdiction of domicile) in determining the field of permissible investments.
THE SEPARATE ACCOUNT. Fund ABD II meets the definition of a separate account
under the federal securities laws, and will comply with the provisions of the
1940 Act. Additionally, the operations of Fund ABD II are subject to the
provisions of Section 38a-433 of the Connecticut General Statutes which
authorizes the Connecticut Insurance Commissioner to adopt regulations under
it. Section 38a-433 contains no restrictions on the investments of the Separate
Account, and the Commissioner has adopted no regulations under the Section that
affect the Separate Account.
PRINCIPAL UNDERWRITER
Tower Square Securities, Inc. ("Tower Square"), an affiliate of the
Company, serves as principal underwriter for Fund ABD II and the Contracts. The
offering is continuous. Tower Square is an indirect wholly owned subsidiary of
Travelers Group Inc. and its principal executive offices are located at One
Tower Square, Hartford, Connecticut. It is anticipated that an affiliated
broker-dealer will become the principal underwriter during 1997.
DISTRIBUTION AND MANAGEMENT AGREEMENT
Under the terms of the Distribution and Management Agreement among
Fund ABD II, the Company and Tower Square, the Company provides all
administrative services and mortality and expense risk guarantees related to
variable annuity contracts sold by the Company in connection with Fund ABD II.
Tower Square performs the sales functions related to the Contracts. The Company
reimburses Tower Square for commissions paid, other sales expenses and certain
overhead expenses connected with sales functions. The Company also pays all
costs (including costs associated with the preparation of sales literature);
all costs of qualifying Fund ABD II and the variable annuity contract with
regulatory authorities; the costs of proxy solicitation; and all custodian,
accountant's and legal
1
<PAGE> 31
fees. The Company also provides without cost to Fund ABD II all necessary
office space, facilities, and personnel to manage its affairs.
VALUATION OF ASSETS
FUNDING OPTIONS: The value of the assets of each funding option is determined
on each business day as of the close of the New York Stock Exchange. Each
security traded on a national securities exchange is valued at the last
reported sale price on the business day. If there has been no sale on that day,
then the value of the security is taken to be the mean between the reported bid
and asked prices on the business day or on the basis of quotations received
from a reputable broker or any other recognized source.
Any security not traded on a securities exchange but traded in the
over-the-counter-market and for which market quotations are readily available
is valued at the mean between the quoted bid and asked prices on the business
day or on the basis of quotations received from a reputable broker or any other
recognized source.
Any security not traded on a securities exchange but traded in the
over-the-counter-market and for which market quotations are readily available
is valued at the mean between the quoted bid and asked prices on the Valuation
Date or on the basis of quotations received from a reputable broker or any
other recognized source.
Securities traded on the over-the-counter-market and listed securities
with no reported sales are valued at the mean between the last reported bid and
asked prices or on the basis of quotations received from a reputable broker or
other recognized source.
Short-term investments for which a quoted market price is available
are valued at market. Short-term investments maturing in more than sixty days
for which there is no reliable quoted market price are valued by "marking to
market" (computing a market value based upon quotations from dealers or issuers
for securities of a similar type, quality and maturity.) "Marking to market"
takes into account unrealized appreciation or depreciation due to changes in
interest rates or other factors which would influence the current fair values
of such securities. Short-term investments maturing in sixty days or less for
which there is no reliable quoted market price are valued at amortized cost
which approximates market.
THE CONTRACT VALUE: The value of an accumulation unit on any business day is
determined by multiplying the value on the preceding business day by the net
investment factor for the valuation period just ended. The net investment
factor is used to measure the investment performance of a funding option from
one valuation period to the next. The net investment factor for a funding
option for any valuation period is equal to the sum of 1.000000 plus the net
investment rate (the gross investment rate less any applicable funding option
deductions during the valuation period relating to the mortality and expense
risk charge and the administrative expense charge). The gross investment rate
of a funding option is equal to (a) minus (b), divided by (c) where:
(a) = investment income plus capital gains and losses (whether realized or
unrealized);
(b) = any deduction for applicable taxes (presently zero); and
(c) = the value of the assets of the funding option at the beginning
of the valuation period.
2
<PAGE> 32
The gross investment rate may be either positive or negative. A funding
option's investment income includes any distribution whose ex-dividend date
occurs during the valuation period.
ACCUMULATION UNIT VALUE. The value of an accumulation unit on any business day
is determined by multiplying the value on the preceding business day by the net
investment factor for the valuation period just ended. The net investment
factor is calculated for each funding option and takes into account the
investment performance, expenses and the deduction of certain expenses.
ANNUITY UNIT VALUE. An annuity unit value as of any business day is equal to
(a) the value of the annuity unit on the immediately preceding business day,
multiplied by (b) the corresponding net investment factor for the valuation
period just ended, divided by (c) the assumed net investment factor for the
valuation period. (For example, the assumed net investment factor based on an
annual assumed net investment rate of 3.0% for a Valuation Period of one day is
1.000081 and, for a period of two days, is 1.000081 x 1.000081.)
PERFORMANCE INFORMATION
From time to time, the Company may advertise several types of
historical performance for the Funding Options of Fund ABD II. The Company may
advertise the "standardized average annual total returns" of the Funding
Option, calculated in a manner prescribed by the Securities and Exchange
Commission, as well as the "non-standardized total return," as described below:
STANDARDIZED METHOD. Quotations of average annual total returns are
computed according to a formula in which a hypothetical initial investment of
$1,000 is applied to the Funding Option, and then related to ending redeemable
values over one-, five-, and ten-year periods, or for a period covering the
time during which the Funding Option has been in existence, if less. If a
Funding Option has been in existence for less than one year, the "since
inception" total return performance quotations are year-to-date and are not
average annual total returns. These quotations reflect the deduction of all
recurring charges during each period (on a pro rata basis in the case of
fractional periods). The deduction for the annual administrative charge ($30)
is converted to a percentage of assets based on the actual fee collected (or
anticipated to be collected, if a new product), divided by the average net
assets for contracts sold (or anticipated to be sold) under the Prospectus to
which this Statement of Additional Information relates.
NON-STANDARDIZED METHOD. Non-standardized "total returns" will be
calculated in a similar manner based on the performance of the Funding Options
over a period of time, usually for the calendar year-to-date, and for the past
one-, three-, five- and ten-year periods. Non-standardized total returns will
not reflect the deduction of the $30 annual contract administrative charge,
which, if reflected, would decrease the level of performance shown.
GENERAL. Within the guidelines prescribed by the SEC and the National
Association of Securities Dealers, Inc. ("NASD"), performance information may
be quoted numerically or may be presented in a table, graph or other
illustration. Advertisements may include data comparing performance to
well-known indices of market performance (including, but not limited to, the
Dow Jones Industrial Average, the Standard & Poor's (S&P) 500 Index and the S&P
400 Index, the Lehman
3
<PAGE> 33
Brothers Long T-Bond Index, the Russell 1000, 2000 and 3000 Indices, the Value
Line Index, and the Morgan Stanley Capital International's EAFE Index).
Advertisements may also include published editorial comments and performance
rankings compiled by independent organizations (including, but not limited to,
Lipper Analytical Services, Inc. and Morningstar, Inc.) and publications that
monitor the performance of Fund ABD II and the Funding Options.
For Funding Options that were in existence prior to the date they
became available under Fund ABD II, the standardized and non-standardized
average annual total return quotations will show the investment performance
that such Funding Options would have achieved (reduced by the applicable
charges) had they been held under the Contract for the period quoted. The total
return quotations are based upon historical earnings and are not necessarily
representative of future performance. An Owner's Contract Value at redemption
may be more or less than original cost.
Average annual total returns for each of the Funding Options
(excluding Cash Income Trust) computed according to the standardized and
non-standardized methods for the periods ending June 30, 1997 and December 31,
1996 (beginning at inception date), respectively, are set forth in the
following table.
<TABLE>
<CAPTION>
TOTAL RETURN CALCULATIONS
FUNDING OPTIONS OF FUND ABD II
- -----------------------------------------------------------------------------------------------------------------------------
STANDARDIZED NON-STANDARDIZED
Inception
Date
- -----------------------------------------------------------------------------------------------------------------------------
1-YR 5-YR 10-YR 1-YR 3-YR 5-YR 10-YR
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alliance Growth 24.63% 24.21%* -- 27.58% 25.40%* -- -- 6/94
Capital Appreciation 26.36% 19.88% 10.12% 26.41% 16.85% 15.98% 11.22% 5/83
Fund
Equity Income 30.77%* -- -- 11.16%* -- -- -- 8/96
Federated Stock 33.34%* -- -- 12.07%* -- -- -- 8/96
Large Cap 26.98%* -- -- 12.76%* -- -- -- 8/96
Lazard International Stock -- -- -- -- --
17.01%* 7.17%* 8/96
MFS Emerging Growth 15.71%* -- --- 5.50%* -- -- -- 8/96
Federated High Yield 13.48%* -- -- 7.09%* -- -- -- 8/96
Putnam Diversified
Income 8.58% 8.12%* -- 6.72% 9.01%* -- -- 6/94
Travelers Quality Bond 4.76%* -- -- 3.06%* -- -- -- 8/96
MFS Total Return 20.02% 14.70%* -- 12.90% 13.16%* -- -- 6/94
Travelers Cash Income 3.28% 2.38% 3.82%* 2.72% 2.94% 2.28% 3.86%* 12/87
</TABLE>
* Since inception.
4
<PAGE> 34
TELEPHONE TRANSFERS
A contract owner may place a transfer request by telephone. The telephone
transfer privilege is available automatically; no special election is necessary
for a contract owner to have this privilege. All transfers must be in
accordance with the terms of the Contract. In certain cases, the Company may
allow you to authorize your agent to make telephone transfers. Transfer
instructions are currently accepted on each Valuation Date between 9:00 a.m.
and 4:00 p.m., Eastern time, at 1-800-842-8573. Once instructions have been
accepted, they may not be rescinded; however, new telephone instructions may be
given the following day. If the transfer instructions are not in good order,
the Company will not execute the transfer and will promptly notify the caller.
The Company will make a reasonable effort to record each telephone transfer
conversation, but in the event that no recording is effective or available, the
contract owner will remain liable for each telephone transfer effected.
Additionally, the Company is not liable for acting upon instructions believed
to be genuine and in accordance with the procedures described above. As a
result of this policy, the contract owner may bear the risk of loss in the
event that the Company follows instructions that prove to be fraudulent.
FEDERAL TAX CONSIDERATIONS
The following description of the federal income tax consequences under this
Contract is not exhaustive and is not intended to cover all situations. Because
of the complexity of the law and the fact that the tax results will vary
according to the factual status of the individual involved, tax advice may be
needed by a person contemplating purchase of an annuity contract and by a
contract owner or beneficiary who may make elections under a contract. For
further information, please consult a qualified tax adviser.
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 a participant
under a qualified plan, a Section 403(b) annuity, or an IRA attains age 701/2.
Distributions must also begin or be continued according to required patterns
following the death of the contract owner or the annuitant.
NONQUALIFIED ANNUITY CONTRACTS
Individuals may purchase tax-deferred annuities without tax law funding
limits. The purchase payments receive no tax benefit, deduction or deferral,
but increases in the value of the contract are generally deferred from tax
until distribution. If a nonqualified annuity is owned by other than an
individual, however, (e.g., by a corporation), the increases in value
attributable to purchase payments made after February 28, 1986 are includable
in income annually. Furthermore, for contracts issued after April 22, 1987, all
deferred increases in value will be includable in the income of a contract
owner when the contract owner transfers the contract without adequate
consideration.
If two or more annuity contracts are purchased from the same insurer within
the same calendar year, distributions from any of them will be taxed based upon
the amount of income in all of the same calendar year series of annuities. This
will generally have the effect of causing taxes to be paid sooner on the
deferred gain in the contracts.
5
<PAGE> 35
Those receiving partial distributions made before the maturity date will
generally be taxed on an income-first basis to the extent of income in the
contract. If you are exchanging another annuity contract for this annuity,
certain pre-August 14, 1982 deposits into an annuity contract that have been
placed in the contract by means of a tax-deferred exchange under Section 1035
of the Code may be withdrawn first without income tax liability. This
information on deposits must be provided to the Company by the other insurance
company at the time of the exchange. There is income in the contract generally
to the extent the cash value exceeds the investment in the contract. The
investment in the contract is equal to the amount of premiums paid less any
amount received previously which was excludable from gross income. Any direct
or indirect borrowing against the value of the contract or pledging of the
contract as security for a loan will be treated as a cash distribution under
the tax law.
The federal tax law requires that nonqualified annuity contracts meet
minimum mandatory distribution requirements upon the death of the contract
owner, including the first of joint owners. Failure to meet these requirements
will cause the surviving joint owner, or the beneficiary to lose the tax
benefits associated with annuity contracts, i.e., primarily the tax deferral
prior to distribution. The distribution required depends, among other things,
upon whether an annuity option is elected or whether the new contract owner is
the surviving spouse. Contracts will be administered by the Company in
accordance with these rules and the Company will make a notification when
payments should be commenced.
INDIVIDUAL RETIREMENT ANNUITIES
To the extent of earned income for the year and not exceeding $2,000 per
individual, an individual may make deductible contributions to an individual
retirement annuity (IRA). There are certain limits on the deductible amount
based on the adjusted gross income of the individual and spouse and based on
their participation in a retirement plan. If an individual is married and the
spouse does not have earned income, the individual may establish IRAs for the
individual and spouse. Purchase payments may then be made annually into IRAs
for both spouses in the maximum amount of 100% of earned income up to a
combined limit of $4,000.
The Code provides for the purchase of a Simplified Employee Pension (SEP)
plan. A SEP is funded through an IRA with an annual employer contribution limit
of 15% of compensation up to $30,000 for each participant.
SIMPLE Plan IRA Form
Effective January 1, 1997, employers may establish a savings incentive
match plan for employees ("SIMPLE plan") under which employees can make
elective salary reduction contributions to an IRA based on a percentage of
compensation of up to $6,000. (Alternatively, the employer can establish a
SIMPLE cash or deferred arrangement under IRS Section 401(k)). Under a SIMPLE
plan IRA, the employer must either make a matching contribution of 100% on the
first 3% or 7% contribution for all eligible employees. Early withdrawals are
subject to the 10% early withdrawal penalty generally applicable to IRAs,
except that an early withdrawal by an employee under a SIMPLE plan IRA, within
the first two years of participation, shall be subject to a 25% early
withdrawal tax.
6
<PAGE> 36
QUALIFIED PENSION AND PROFIT-SHARING PLANS
Under a qualified pension or profit-sharing plan, purchase payments made by
an employer are not currently taxable to the participant and increases in the
value of a contract are not subject to taxation until received by a participant
or beneficiary.
Distributions are taxable to the participant or beneficiary as ordinary
income in the year of receipt. Any distribution that is considered the
participant's "investment in the contract" is treated as a return of capital
and is not taxable. Certain lump-sum distributions may be eligible for special
forward averaging tax treatment for certain classes of individuals.
FEDERAL INCOME TAX WITHHOLDING
The portion of a distribution which is taxable income to the recipient will
be subject to federal income tax withholding as follows:
1. ELIGIBLE ROLLOVER DISTRIBUTION FROM SECTION 403(B) PLANS OR ARRANGEMENTS OR
FROM QUALIFIED PENSION AND PROFIT-SHARING PLANS
There is a mandatory 20% tax withholding for plan distributions that are
eligible for rollover to an IRA or to another retirement plan but that are not
directly rolled over. A distribution made directly to a participant or
beneficiary may avoid this result if:
(a) a periodic settlement distribution is elected based upon a life or life
expectancy calculation, or
(b) a term-for-years settlement distribution is elected for a period of ten
years or more, payable at least annually, or
(c) a minimum required distribution as defined under the tax law is taken after
the attainment of the age of 701/2 or as otherwise required by law.
A distribution including a rollover that is not a direct rollover will be
subject to the 20% withholding, and a 10% additional tax penalty may apply to
any amount not added back in the rollover. The 20% withholding may be recovered
when the participant or Beneficiary files a personal income tax return for the
year if a rollover was completed within 60 days of receipt of the funds, except
to the extent that the participant or spousal Beneficiary is otherwise
underwithheld or short on estimated taxes for that year.
2. OTHER NON-PERIODIC DISTRIBUTIONS (FULL OR PARTIAL REDEMPTIONS)
To the extent not described as requiring 20% withholding in 1 above, the
portion of a non-periodic distribution which constitutes taxable income will be
subject to federal income tax withholding, if the aggregate distributions
exceed $200 for the year, unless the recipient elects not to have taxes
withheld. If no such election is made, 10% of the taxable distribution will be
withheld as federal income tax. Election forms will be provided at the time
distributions are requested. This form of withholding applies to all annuity
programs.
3. PERIODIC DISTRIBUTIONS (DISTRIBUTIONS PAYABLE OVER A PERIOD GREATER THAN ONE
YEAR)
7
<PAGE> 37
The portion of a periodic distribution which constitutes taxable income
will be subject to federal income tax withholding under the wage withholding
tables as if the recipient were married claiming three exemptions. A recipient
may elect not to have income taxes withheld or have income taxes withheld at a
different rate by providing a completed election form. Election forms will be
provided at the time distributions are requested. This form of withholding
applies to all annuity programs. As of January 1, 1997, a recipient receiving
periodic payments (e.g., monthly or annual payments under an annuity option)
which total $14,850 or less per year, will generally be exempt from periodic
withholding.
Recipients who elect not to have withholding made are liable for payment of
federal income tax on the taxable portion of the distribution. All recipients
may also be subject to penalties under the estimated tax payment rules if
withholding and estimated tax payments are not sufficient to cover tax
liabilities.
Recipients who do not provide a social security number or other taxpayer
identification number will not be permitted to elect out of withholding.
Additionally, U.S citizens residing outside of the country, or U.S. legal
residents temporarily residing outside the country, are not permitted to elect
out of withholding.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., independent accountants, 100 Pearl Street,
Hartford, Connecticut, are the independent auditors for Fund ABD II. The
services provided to Fund ABD II included primarily the audit of the Fund's
financial statements. The financial statements of Fund ABD II appear in the
Fund's Annual Report for the period December 16, 1996 (date operations
commenced) to December 31, 1996, which is incorporated herein by reference in
this SAI. Such financial statements have been audited by Coopers & Lybrand
L.L.P., as indicated in their report thereon, which report is included in the
Fund's Annual Report in reliance upon the authority of said firm as experts in
accounting and auditing.
The financial statements of The Travelers Life and Annuity Company as
of December 31, 1996 and 1995, and for each of the years in the three-year
period ended December 31, 1996, have been included herein in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants, and
upon the authority of said firm as experts in accounting and auditing.
8
<PAGE> 38
Independent Auditors' Report
The Board of Directors and Shareholder
The Travelers Life and Annuity Company:
We have audited the accompanying balance sheets of The Travelers Life and
Annuity Company as of December 31, 1996 and 1995, and the related statements of
income and retained earnings and cash flows for each of the years in the
three-year period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Travelers Life and Annuity
Company as of December 31, 1996 and 1995, and the results of its operations and
its cash flows for each of the years in the three-year period ended December 31,
1996, in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
January 17, 1997
8
<PAGE> 39
THE TRAVELERS LIFE AND ANNUITY COMPANY
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
(for the year ended December 31, in thousands) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Premiums $ 9,357 $ 2,652 $ 3,498
Net investment income 89,040 63,209 66,093
Realized investment gains (losses) (9,613) 18,713 (2,074)
Other 16,223 17,466 18,702
- ----------------------------------------------------------------------------------------------------------
Total revenues 105,007 102,040 86,219
- ----------------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Current and future insurance benefits 56,448 52,390 55,596
Amortization of deferred acquisition costs
and value of insurance in force 3,286 1,563 -
Other operating expenses 5,691 4,651 2,758
- ----------------------------------------------------------------------------------------------------------
Total benefits and expenses 65,425 58,604 58,354
- ----------------------------------------------------------------------------------------------------------
Income before federal income taxes 39,582 43,436 27,865
- ----------------------------------------------------------------------------------------------------------
Federal income taxes:
Current 29,456 2,555 4,742
Deferred expense (benefit) (15,665) 11,964 4,798
- ----------------------------------------------------------------------------------------------------------
Total federal income taxes 13,791 14,519 9,540
- ----------------------------------------------------------------------------------------------------------
Net income 25,791 28,917 18,325
Retained earnings beginning of year 157,907 128,990 110,665
Dividends to parent 16,000 - -
- ----------------------------------------------------------------------------------------------------------
Retained earnings end of year $167,698 $157,907 $128,990
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
9
<PAGE> 40
THE TRAVELERS LIFE AND ANNUITY COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
(at December 31, in thousands) 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Fixed maturities, available for sale at fair value
(cost, $672,173; $678,293) $ 694,535 $ 724,639
Equity securities, at fair value (cost, $6,654; $9,453) 9,554 13,099
Mortgage loans 90,542 125,813
Real estate held for sale, net of accumulated depreciation of $0; $524 10,111 8,995
Policy loans 1,750 -
Short-term securities 70,755 51,381
Other investments 69,754 65,805
- -----------------------------------------------------------------------------------------------------------------
Total investments 947,001 989,732
- -----------------------------------------------------------------------------------------------------------------
Separate accounts 1,187,812 886,688
Deferred acquisition costs and value of insurance in force 40,027 22,560
Deferred federal income taxes 57,616 41,158
Other assets 21,827 24,501
- -----------------------------------------------------------------------------------------------------------------
Total assets $2,254,283 $1,964,639
- -----------------------------------------------------------------------------------------------------------------
LIABILITIES
Future policy benefits $ 654,534 $ 671,027
Contractholder funds 86,097 11,947
Separate accounts 1,124,605 856,867
Other liabilities 17,179 61,247
- -----------------------------------------------------------------------------------------------------------------
Total liabilities 1,882,415 1,601,088
- -----------------------------------------------------------------------------------------------------------------
SHAREHOLDER'S EQUITY
Common stock, par value $100; 100,000
shares authorized, 30,000 issued and outstanding 3,000 3,000
Additional paid-in capital 167,314 167,314
Retained earnings 167,698 157,907
Unrealized investment gains, net of taxes 33,856 35,330
- -----------------------------------------------------------------------------------------------------------------
Total shareholder's equity 371,868 363,551
- -----------------------------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity $2,254,283 $1,964,639
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
10
<PAGE> 41
THE TRAVELERS LIFE AND ANNUITY COMPANY
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
(for the year ended December 31, in thousands) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Premiums collected $ 6,472 $ 1,950 $ 3,498
Net investment income received 71,083 66,219 57,240
Benefits and claims paid (70,331) (71,710) (72,298)
Interest credited to contractholders (813) - -
Operating expenses paid (5,482) (3,013) (4,400)
Income taxes refunded (paid) (23,931) (35,305) 1,030
Other (6,857) (6,772) 22,507
- -------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (29,859) (48,631) 7,577
- -------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments
Fixed maturities 20,301 11,752 29,043
Mortgage loans 37,789 24,137 60,260
Proceeds from sales of investments
Fixed maturities 978,970 459,971 41,671
Equity securities 12,818 11,823 9,373
Mortgage loans 22,437 7,013 23,327
Real estate held for sale - - 34,181
Purchases of investments
Fixed maturities (994,443) (515,098) (204,412)
Equity securities (5,412) (156) (375)
Mortgage loans (21,450) (4,890) (5,607)
Policy loans (1,750) - -
Short-term securities, (purchases) sales, net (19,688) (5,051) (1,146)
Other investments, (purchases) sales, net (6,160) 9,274 682
Securities transactions in course of settlement (51,703) 45,727 5,722
- -------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (28,291) 44,502 (7,281)
- -------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Contractholder fund deposits 96,490 5,707 -
Contractholder fund withdrawals (22,340) (1,874) -
Dividends to parent company (16,000) - -
- -------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 58,150 3,833 -
- -------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash $ - $ (296) $ 296
- -------------------------------------------------------------------------------------------------------------
Cash at December 31 $ - $ - $ 296
- -------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
11
<PAGE> 42
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
The Travelers Life and Annuity Company (the Company) is a wholly owned
subsidiary of The Travelers Insurance Company (TIC), which is a wholly
owned subsidiary of The Travelers Insurance Group Inc. (TIGI), which is
an indirect wholly owned subsidiary of Travelers Group Inc. (Travelers
Group), a financial services holding company engaged, through its
subsidiaries, principally in four business segments: (i) Investment
Services; (ii) Consumer Finance Services; (iii) Property & Casualty
Insurance Services; and (iv) Life Insurance Services (through TIC and its
subsidiaries). The periodic reports of Travelers Group provide additional
business and financial information concerning that company and its
consolidated subsidiaries.
The Company offers fixed and variable deferred annuities and individual
life insurance to individuals and small businesses. It also provides
single premium group annuity close-out contracts and individual
structured settlement annuities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies used in the preparation of the
accompanying financial statements follow.
Basis of presentation
The financial statements and accompanying footnotes of the Company are
prepared in conformity with generally accepted accounting principles. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and benefits
and expenses during the reporting period. Actual results could differ
from those estimates.
Certain prior year amounts have been reclassified to conform with the
1996 presentation.
Investments
Fixed maturities include bonds, notes and redeemable preferred stocks.
Fixed maturities are valued based upon quoted market prices, or if quoted
market prices are not available, discounted expected cash flows using
market rates commensurate with the credit quality and maturity of the
investment. Fixed maturities are classified as "available for sale" and
are reported at fair value, with unrealized investment gains and losses,
net of income taxes, charged or credited directly to shareholder's
equity.
Equity securities, which include common and nonredeemable preferred
stocks, are classified as "available for sale" and are carried at fair
value based primarily on quoted market prices. Changes in fair values of
equity securities are charged or credited directly to shareholder's
equity, net of income taxes.
12
<PAGE> 43
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Mortgage loans are carried at amortized cost. A mortgage loan is
considered impaired when it is probable that the Company will be unable
to collect principal and interest amounts due. For mortgage loans that
are determined to be impaired, a reserve is established for the
difference between the amortized cost and fair market value of the
underlying collateral. In estimating fair value, the Company uses
interest rates reflecting the higher returns required in the current real
estate financing market. Impaired loans were insignificant at December
31, 1996 and 1995.
Real estate held for sale is carried at the lower of cost or fair value
less estimated costs to sell. Fair value of foreclosed properties is
established at the time of foreclosure by internal analysis or external
appraisers, using discounted cash flow analyses and other acceptable
techniques. Thereafter, an allowance for losses on real estate held for
sale is established if the carrying value of the property exceeds its
current fair value less estimated costs to sell. There was no such
allowance at December 31, 1996 and 1995.
Short-term securities, consisting primarily of money market instruments
and other debt issues purchased with a maturity of less than one year,
are carried at amortized cost which approximates market.
Accrual of income, included in other assets, is suspended on fixed
maturities or mortgage loans that are in default, or on which it is
likely that future payments will not be made as scheduled. Interest
income on investments in default is recognized only as payment is
received.
Investment Gains and Losses
Realized investment gains and losses are included as a component of
pre-tax revenues based upon specific identification of the investments
sold on the trade date. Also included are gains and losses arising from
the remeasurement of the local currency value of foreign investments to
U.S. dollars, the functional currency of the Company.
Policy Loans
Policy loans are carried at the amount of the unpaid balances that are
not in excess of the net cash surrender values of the related insurance
policies. The carrying value of policy loans, which have no defined
maturities, is considered to be fair value.
Separate Accounts
Separate account liabilities primarily represent structured settlement
annuity obligations, which provide guaranteed levels of return or
benefits to contractholders. The separate account assets supporting these
obligations, which are legally segregated and are not subject to claims
that arise out of any other business of the Company, are primarily
carried at fair value. Earnings on structured settlement contracts,
generally net investment income less policyholder benefits and operating
expenses, are included in other revenues.
13
<PAGE> 44
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
In addition, the Company has other separate accounts, representing funds
for which investment income and investment gains and losses accrue
directly to, and investment risk is borne by, the contractholders. Each
of these accounts have specific investment objectives. The assets and
liabilities of these accounts are carried at fair value, and amounts
assessed to the contractholders for management services are included in
revenues. Deposits, net investment income and realized investment gains
and losses for these accounts are excluded from revenues, and related
liability increases are excluded from benefits and expenses.
Deferred Acquisition Costs and Value of Insurance In Force
Costs of acquiring individual life insurance and annuity business,
principally commissions and certain expenses related to policy issuance,
underwriting and marketing, all of which vary with and are primarily
related to the production of new business, are deferred. Acquisition
costs relating to traditional life insurance are amortized in relation
to anticipated premiums; universal life in relation to estimated
gross profits; and annuity contracts employing a level yield method. A
10- to 25-year amortization period is used for life insurance, and a 10-
to 20-year period is employed for annuities. Deferred acquisition costs
are reviewed periodically for recoverability to determine if any
adjustment is required. Adjustments, if any are charged to income.
The value of insurance in force represents the actuarially determined
present value of anticipated profits to be realized from annuities
contracts at the date of acquisition using the same assumptions that were
used for computing related liabilities where appropriate. The value of
insurance in force was the actuarially determined present value of the
projected future profits discounted at an interest rate of 16% for the
business acquired. The value of the business in force is amortized using
current interest crediting rates to accrete interest and amortized
employing a level yield method. The value of insurance in force is
reviewed periodically for recoverability to determine if any adjustment
is required. Adjustments, if any are charged to income.
Future Policy Benefits
Benefit reserves represent liabilities for future insurance policy
benefits. Benefit reserves for life insurance and annuity policies have
been computed based upon mortality, morbidity, persistency and interest
assumptions applicable to these coverages, which range from 4.5% to 7.5%,
including a provision for adverse deviation. These assumptions consider
Company experience and industry standards. The assumptions vary by plan,
age at issue, year of issue and duration.
14
<PAGE> 45
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Contractholder Funds
Contractholder funds represent receipts from the issuance of universal
life and certain individual annuity contracts. Contractholder Fund
balances are increased by such receipts and credited interest and reduced
by withdrawals, mortality charges and administrative expenses charged to
the contractholders. Interest rates credited to contractholder funds
range from 3.9% to 7.0%.
Permitted Statutory Accounting Practices
The Company, domiciled in the State of Connecticut, prepares statutory
financial statements in accordance with the accounting practices
prescribed or permitted by the State of Connecticut Insurance Department.
Prescribed statutory accounting practices include certain publications
of the National Association of Insurance Commissioners as well as state
laws, regulations, and general administrative rules. Permitted statutory
accounting practices encompass all accounting practices not so
prescribed. The impact of any permitted accounting practices on the
statutory surplus of the Company is not material.
Premiums
Premiums are recognized as revenues when due. Reserves are established
for the portion of premiums that will be earned in future periods.
Other Revenues
Other revenues include surrender, mortality and administrative charges
and fees as earned on investment and other insurance contracts. Other
revenues also include structured settlement policyholder revenues, which
relate to contracts issued through a separate account of the Company, net
of the related policyholder benefits and expenses.
Federal Income Taxes
The provision for federal income taxes is comprised of two components,
current income taxes and deferred income taxes. Deferred federal income
taxes arise from changes during the year in cumulative temporary
differences between the tax basis and book basis of assets and
liabilities. The deferred federal income tax asset is recognized to the
extent that future realization of the tax benefit is more likely than
not, with a valuation allowance for the portion that is not likely to be
recognized.
15
<PAGE> 46
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Future Application of Accounting Standards
In June 1996, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 125 (FAS 125),
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." FAS 125 provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities. These standards are based on consistent
application of a financial-components approach that focuses on control.
Under that approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the
liabilities it has incurred, derecognizes financial assets when control
has been surrendered and derecognizes liabilities when extinguished. FAS
125 provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured
borrowings. The requirements of FAS No. 125 are effective for transfers
and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996, and are to be applied prospectively.
However, in December 1996 the FASB issued FAS No. 127, "Deferral of the
Effective Date of Certain Provisions of FASB Statement No. 125," which
delays until January 1, 1998 the effective date for certain provisions.
The adoption of the provisions of this statement effective January 1,
1997 will not have a material impact on results of operations, financial
condition or liquidity and the Company is currently evaluating the impact
of the provisions whose effective date has been delayed until January 1,
1998.
3. CHANGES IN ACCOUNTING PRINCIPLES
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This
statement establishes accounting standards for the impairment of
long-lived assets and certain identifiable intangibles to be disposed.
This statement requires a write down to fair value when long-lived assets
to be held and used are impaired. The statement also requires long-lived
assets to be disposed (e.g., real estate held for sale) be carried at the
lower of cost or fair value less cost to sell, and does not allow such
assets to be depreciated. The adoption of this standard did not have a
material impact on the Company's financial condition, results of
operations or liquidity.
Accounting for Stock-Based Compensation
The Company participates in a stock option plan sponsored by Travelers
Group that provides for the granting of stock options in Travelers Group
common stock to officers and key employees. The Company applies
Accounting Principles Board Opinion No. 25 (APB 25) and related
interpretations in accounting for stock options. Since stock options are
issued at fair market value on the date of award, no compensation cost
has been recognized for these awards. In October 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (FAS 123).
This statement provides an alternative to APB 25 whereby fair values may
be ascribed to options using a valuation model and amortized to
compensation cost over the vesting period of the options. Had the Company
applied FAS 123 in accounting for stock options, net income would have
been reduced by an insignificant amount in 1996 and 1995.
16
<PAGE> 47
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
3. CHANGES IN ACCOUNTING PRINCIPLES, Continued
Accounting by Creditors for Impairment of a Loan
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of
a Loan," and Statement of Financial Accounting Standards No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosures," which describe how impaired loans should be measured
when determining the amount of a loan loss accrual. These statements
amended existing guidance on the measurement of restructured loans in a
troubled debt restructuring involving a modification of terms. Their
adoption did not have a material impact on the Company's financial
condition, results of operations or liquidity.
4. REINSURANCE
The Company participates in reinsurance in order to limit losses,
minimize exposure to large risks, provide capacity for future growth and
to effect business-sharing arrangements. The Company remains primarily
liable as the direct insurer on all risks reinsured.
Life insurance in force ceded to TIC at December 31, 1996 and 1995 was
$90.7 million and $97.7 million, respectively. At December 31, 1996 and
1995, $2.2 billion and $601.2 million, respectively, was ceded to
non-affiliates.
5. SHAREHOLDER'S EQUITY
Unrealized Investment Gains (Losses)
An analysis of the change in unrealized gains and losses on investments
is shown in Note 12.
Shareholder's Equity and Dividend Availability
The Company's statutory net income was $17.9 million, $23.0 million and
$5.7 million for the years ended December 31, 1996, 1995 and 1994,
respectively.
Statutory capital and surplus was $254.1 million and $257.8 million at
December 31, 1996 and 1995, respectively.
The Company is currently subject to various regulatory restrictions that
limit the maximum amount of dividends available to be paid to its parent
without prior approval of insurance regulatory authorities. Statutory
surplus of $14.8 million is available in 1997 for dividend payments by
the Company without prior approval of the Connecticut Insurance
Department.
17
<PAGE> 48
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
6. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company does not hold or issue derivative instruments for trading
purposes. The carrying value of derivative instruments was not
significant at December 31, 1996 and 1995.
Fair Value of Certain Financial Instruments
The Company uses various financial instruments in the normal course of
its business. Fair values of financial instruments which are considered
insurance contracts are not required to be disclosed and are not included
in the amounts discussed.
At December 31, 1996, investments in fixed maturities had a carrying
value and a fair value of $694.5 million, compared with a carrying value
and a fair value of $724.6 million at December 31, 1995. See Note 12.
At December 31, 1996 and 1995, mortgage loans had a carrying value of
$90.5 million and $125.8 million, respectively, which approximates fair
value. In estimating fair value, the Company used interest rates
reflecting the higher returns required in the current real estate
financing market.
The carrying values of $2.1 million and $1.9 million of financial
instruments classified as other assets approximated their fair values at
December 31, 1996 and 1995, respectively. The carrying values of $13.3
million and $55.3 million of financial instruments classified as other
liabilities also approximated their fair values at December 31, 1996 and
1995, respectively. Fair value is determined using various methods
including discounted cash flows, as appropriate for the various financial
instruments.
The assets of separate accounts providing a guaranteed return had a
carrying value and a fair value of $896.9 million and $901.0 million,
respectively, at December 31, 1996, compared to a carrying value and a
fair value of $869.1 million and $923.0 million, respectively, at
December 31, 1995. The liabilities of separate accounts providing a
guaranteed return had a carrying value and a fair value of $808.7 million
and $695.3 million, respectively, at December 31, 1996, compared to a
carrying value and a fair value of $839.1 million and $766.3 million,
respectively, at December 31, 1995.
The carrying values of short-term securities and policy loans
approximated their fair values.
18
<PAGE> 49
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
7. COMMITMENTS AND CONTINGENCIES
Financial Instruments with Off-Balance Sheet Risk
The Company has, in the normal course of business, provided fixed rate
loan commitments and commitments to partnerships.
The off-balance sheet risks of fixed rate loan commitments, commitments
to partnerships and forward contracts were not significant at December
31, 1996 and 1995.
Litigation
The Company is a defendant in various litigation matters in the normal
course of business. Although there can be no assurances, as of December
31, 1996, the Company believes, based on information currently available,
that the ultimate resolution of these legal proceedings would not be
likely to have a material adverse effect on its results of operations,
financial condition or liquidity.
8. BENEFIT PLANS
Pension Plans
The Company participates in a qualified, noncontributory defined benefit
pension plan sponsored by Travelers Group covering the majority of
Travelers Group's U.S. employees. Benefits for the qualified plan are
based on an account balance formula. Under this formula, each employee's
accrued benefit can be expressed as an account that is credited with
amounts based upon the employee's pay, length of service and a specified
interest rate, all subject to a minimum benefit level. This plan is
funded in accordance with the Employee Retirement Income Security Act of
1974 and the Internal Revenue Code.
The Company also participates in a nonqualified, noncontributory defined
benefit pension plan sponsored by an affiliate covering the majority of
the Company's U.S. employees. Contributions are based on benefits paid.
The Company's share of net pension expense was not significant for 1996,
1995 or 1994.
Other Benefit Plans
In addition to pension benefits, the Company provides certain health care
and life insurance benefits for retired employees through a plan
sponsored by TIGI. Retirees may elect certain prepaid health care benefit
plans. Life insurance benefits are generally set at a fixed amount.
Beginning January 1, 1996, these plans were amended to restrict benefit
eligibility to retirees and certain retiree-eligible employees. The cost
recognized by the Company for these benefits represents its allocated
share of the total costs of the plan, net of retiree contributions. The
Company's share of the total cost of the plan for 1996, 1995 and 1994 was
not significant.
19
<PAGE> 50
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
8. BENEFIT PLANS, Continued
Savings, Investment and Stock Ownership Plan
Under the savings, investment and stock ownership plan available to
substantially all employees of TIGI, the Company matches a portion of
employee contributions. Effective April 1, 1993, the match decreased from
100% to 50% of an employee's first 5% contribution and a variable match
based on the profitability of TIGI and its subsidiaries was added through
December 31, 1995. Effective January 1, 1996, the match remained at 50%
of an employee's first 5% contribution with a maximum of $1,000.
Effective January 1, 1997, employee contributions will be matched with
Travelers Group stock options. The Company's expense was not significant
for 1996, 1995 or 1994.
9. RELATED PARTY TRANSACTIONS
The principal banking functions, including payment of salaries and
expenses, for certain subsidiaries and affiliates of TIGI, including the
Company, are handled by TIC. Settlements for these functions between TIC
and its affiliates are made regularly. TIC provides various employee
benefit coverages to certain subsidiaries of TIGI. The premiums for these
coverages were charged in accordance with cost allocation procedures
based upon salaries or census. In addition, investment advisory and
management services, data processing services and claims processing
services are provided by affiliated companies. Charges for these services
are shared by the companies on cost allocation methods based generally on
estimated usage by department.
TIGI and its subsidiaries maintain a short-term investment pool in which
the Company participates. The position of each company participating in
the pool is calculated and adjusted daily. At December 31, 1996 and 1995,
the pool totaled approximately $2.9 billion and $2.2 billion,
respectively. The Company's share of the pool amounted to $68.2 million
and $49.5 million at December 31, 1996 and 1995, respectively, and is
included in short-term securities in the balance sheet.
The Company's TTM Modified Guaranteed Annuity Contracts are subject to a
limited guarantee agreement by TIC in a principal amount of up to $250
million. TIC's obligation is to pay in full to any owner or beneficiary
of the TTM Modified Guaranteed Annuity Contracts principal and interest
as and when due under the annuity contract to the extent that the Company
fails to make such payment. In addition, TIC guarantees that the Company
will maintain a minimum statutory capital and surplus level.
The Company sells structured settlement annuities to an affiliate,
Travelers Property Casualty Corp., (TAP), formerly Travelers/Aetna
Property Casualty Corp. Such deposits were $36.9 million, $36.6 million
and $37.6 million for 1996, 1995 and 1994, respectively.
The Company began marketing variable annuity products through its
affiliate, Smith Barney, Inc., in 1995. Deposits related to these
products were $300.0 million and $20.5 million in 1996 and 1995,
respectively.
Most leasing functions for TIGI and its subsidiaries are handled by TAP.
Rent expense related to these leases are shared by the companies on a
cost allocation method based generally on estimated usage by department.
The company's rent expense was insignificant in 1996, 1995 and 1994.
20
<PAGE> 51
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
10. FEDERAL INCOME TAXES
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Effective tax rate
Income before federal income taxes $ 39,582 $43,436 $27,865
Statutory tax rate 35% 35% 35%
-------------------------------------------------------------------------------------------
Expected federal income taxes $ 13,854 $15,203 $ 9,753
Tax effect of:
Nontaxable investment income (15) (13) (90)
Adjustments to benefit and other reserves - - (117)
Other, net (48) (671) (6)
--------------------------------------------------------------------------------------------
Federal income taxes $ 13,791 $14,519 $ 9,540
--------------------------------------------------------------------------------------------
Effective tax rate 35% 33% 34%
-------------------------------------------------------------------------------------------
Composition of federal income taxes
Current:
United States $ 29,435 $ 2,555 $ 4,742
Foreign 21 - -
--------------------------------------------------------------------------------------------
Total 29,456 2,555 4,742
--------------------------------------------------------------------------------------------
Deferred:
United States (15,665) 11,964 4,798
--------------------------------------------------------------------------------------------
Federal income taxes $ 13,791 $14,519 $ 9,540
--------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 52
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
10. FEDERAL INCOME TAXES, Continued
The net deferred tax assets at December 31, 1996 and 1995 were comprised
of the tax effects of temporary differences related to the following
assets and liabilities:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Benefit, reinsurance and other reserves $79,484 $ 67,104
Other 3,043 2,570
------------------------------------------------------------------------------------------
Total 82,527 69,674
------------------------------------------------------------------------------------------
Deferred tax liabilities:
Investments, Net 12,113 19,625
Deferred acquisition costs and
value of insurance in force 10,066 6,285
Other 662 536
------------------------------------------------------------------------------------------
Total 22,841 26,446
------------------------------------------------------------------------------------------
Net deferred tax asset before valuation allowance 59,686 43,228
Valuation allowance for deferred tax assets (2,070) (2,070)
------------------------------------------------------------------------------------------
Net deferred tax asset after valuation allowance $57,616 $41,158
------------------------------------------------------------------------------------------
</TABLE>
Starting in 1994 and continuing for at least five years, TIC and its life
insurance subsidiaries, including the Company, will file a consolidated
federal income tax return. Federal income taxes are allocated to each
member on a separate return basis adjusted for credits and other amounts
required by the consolidation process. Any resulting liability will be
paid currently to TIC. Any credits for losses will be paid by TIC to the
extent that such credits are for tax benefits that have been utilized in
the consolidated federal income tax return.
A net deferred tax asset valuation allowance of $2.1 million has been
established to reduce the deferred tax asset on investment losses to the
amount that, based upon available evidence, is more likely than not to be
realized. Reversal of the valuation allowance is contingent upon the
recognition of future capital gains in the Company's consolidated life
insurance company federal income tax return through 1998, and the
consolidated federal income tax return of Travelers Group commencing in
1999, or a change in circumstances which causes the recognition of the
benefits to become more likely than not. There was no change in the
valuation allowance during 1996. The initial recognition of any benefit
provided by the reversal of the valuation allowance will be recognized by
reducing goodwill.
22
<PAGE> 53
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
10. FEDERAL INCOME TAXES, Continued
In management's judgment, the $57.6 million "net deferred tax asset after
valuation allowance" as of December 31, 1996, is fully recoverable
against expected future years' taxable ordinary income and capital gains.
At December 31, 1996, the Company has no ordinary or capital loss
carryforwards.
The "policyholders surplus account", which arose under prior tax law, is
generally that portion of the gain from operations that has not been
subjected to tax, plus certain deductions. The balance of this account,
which, under provisions of the Tax Reform Act of 1984, will not increase
after 1983, is estimated to be $2.0 million. This amount has not been
subjected to current income taxes but, under certain conditions that
management considers to be remote, may become subject to income taxes in
future years. At current rates, the maximum amount of such tax (for which
no provision has been made in the financial statements) would be
approximately $700 thousand.
11. NET INVESTMENT INCOME
<TABLE>
<CAPTION>
(For the year ended December 31, in thousands) 1996 1995 1994
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross investment income
Fixed maturities $54,029 $49,486 $44,354
Equity securities 411 497 827
Mortgage loans 15,491 11,644 17,178
Real estate held for sale 3,480 2,476 6,299
Other 19,770 2,552 4,480
---------------------------------------------------------------------------------------
93,181 66,655 73,138
---------------------------------------------------------------------------------------
Investment expenses 4,141 3,446 7,045
---------------------------------------------------------------------------------------
Net investment income $89,040 $63,209 $66,093
---------------------------------------------------------------------------------------
</TABLE>
23
<PAGE> 54
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
12. INVESTMENTS AND INVESTMENT GAINS (LOSSES)
Realized investment gains (losses) for the periods were as follows:
<TABLE>
<CAPTION>
(For the year ended December 31, in thousands) 1996 1995 1994
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Realized
Fixed maturities $(11,491) $(4,240) $ (908)
Equity securities 4,613 6,138 1,675
Mortgage loans 1,979 725 36
Real estate held for sale (73) (35) -
Other (4,641) 16,125 (2,877)
-----------------------------------------------------------------------------------------
Realized investment gains (losses) $ (9,613) $18,713 $(2,074)
-----------------------------------------------------------------------------------------
</TABLE>
Changes in net unrealized investment gains (losses) that are included as
a separate component of shareholder's equity were as follows:
<TABLE>
<CAPTION>
(For the year ended December 31, in thousands) 1996 1995 1994
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized
Fixed maturities $(23,953) $111,551 $(65,205)
Equity securities (746) 1,834 (27)
Other 22,431 4,390 (28)
------------------------------------------------------------------------------------------
(2,268) 117,775 (65,260)
Related taxes (794) 41,221 (22,841)
------------------------------------------------------------------------------------------
Change in unrealized investment gains (losses) (1,474) 76,554 (42,419)
Balance beginning of year 35,330 (41,224) 1,195
------------------------------------------------------------------------------------------
Balance end of year $ 33,856 $ 35,330 $(41,224)
------------------------------------------------------------------------------------------
</TABLE>
Fixed Maturities
Proceeds from sales of fixed maturities classified as available for sale
were $979.0 million and $460.0 million in 1996 and 1995, respectively.
Gross gains of $8.4 million and $7.9 million and gross losses of $19.9
million and $10.3 million in 1996 and 1995, respectively, were realized
on those sales.
24
<PAGE> 55
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
12. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
The amortized cost and fair values of investments in fixed maturities
were as follows:
<TABLE>
<CAPTION>
December 31, 1996
----------------------------------------------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
(in thousands) cost gains losses value
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
Mortgage-backed securities -
CMOs and pass through
securities $ 88,138 $ 1,637 $ 629 $ 89,146
U.S. Treasury securities
and obligations of U.S.
Government and
government agencies
and authorities 115,059 10,371 61 125,369
Obligations of states and
political subdivisions 3,500 255 -- 3,755
Debt securities issued
by foreign governments 56,097 1,473 1,269 56,301
All other corporate bonds 409,294 13,862 3,277 419,879
Redeemable preferred stock 85 -- -- 85
----------------------------------------------------------------------------------------------------
Total $672,173 $27,598 $5,236 $694,535
----------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE> 56
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
12. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
<TABLE>
<CAPTION>
December 31, 1995
------------------------------------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
(in thousands) cost gains losses value
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
Mortgage-backed securities -
CMOs and pass through
securities $ 89,044 $ 2,545 $ 378 $ 91,211
U.S. Treasury securities
and obligations of U.S.
Government and
government agencies
and authorities 160,988 24,267 1 185,254
Obligations of states and
political subdivisions 3,500 499 - 3,999
All other corporate bonds 424,676 21,576 2,162 444,090
Redeemable preferred stock 85 - - 85
------------------------------------------------------------------------------------------
Total $678,293 $48,887 $2,541 $724,639
------------------------------------------------------------------------------------------
</TABLE>
The amortized cost and fair value of fixed maturities available for sale
at December 31, 1996, by contractual maturity, are shown below. Actual
maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
Maturity Amortized Fair
(in thousands) cost value
-------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 11,184 $ 11,204
Due after 1 year through 5 years 50,397 50,366
Due after 5 years through 10 years 169,634 173,049
Due after 10 years 352,820 370,770
-------------------------------------------------------------------------
584,035 605,389
Mortgage-backed securities 88,138 89,146
-------------------------------------------------------------------------
Total $672,173 $694,535
-------------------------------------------------------------------------
</TABLE>
The Company makes significant investments in collateralized mortgage
obligations (CMOs). CMOs typically have high credit quality, offer good
liquidity, and provide a significant advantage in yield and total return
compared to U.S. Treasury securities. The Company's investment strategy
is to purchase CMO tranches which are protected against prepayment risk,
including planned amortization class (PAC) tranches. Prepayment protected
tranches are preferred because they provide stable cash flows in a
variety of interest rate scenarios. The Company does invest in other
types of CMO tranches if a careful assessment indicates a favorable
risk/return tradeoff. The Company does not purchase residual interests in
CMOs.
26
<PAGE> 57
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
12. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
At December 31, 1996 and 1995, the Company held CMOs with a market value
of $67.7 million and $68.6 million, respectively. The Company's CMO
holdings are 100% and approximately 94% collateralized by GNMA, FNMA or
FHLMC securities at December 31, 1996 and 1995, respectively.
Equity Securities
The cost and market values of investments in equity securities were as
follows:
<TABLE>
<CAPTION>
December 31, 1996
----------------------------------------------------------------------------------------------------
Gross Gross
unrealized unrealized Fair
(in thousands) Cost gains losses value
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stocks $1,630 $2,845 $83 $4,392
Nonredeemable preferred stocks 5,024 138 - 5,162
----------------------------------------------------------------------------------------------------
Total $6,654 $2,983 $83 $9,554
----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
----------------------------------------------------------------------------------------------------
Gross Gross
unrealized unrealized Fair
(in thousands) Cost gains losses value
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stocks $3,310 $3,374 $ 68 $ 6,616
Nonredeemable preferred stocks 6,143 340 - 6,483
----------------------------------------------------------------------------------------------------
Total $9,453 $3,714 $ 68 $13,099
----------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales of equity securities were $12.8 million and $11.8
million in 1996 and 1995, respectively. Gross gains of $4.7 million and
$4.9 million and gross losses of $155 thousand and $474 thousand in 1996
and 1995, respectively, were realized on those sales.
Real estate held for sale and mortgage loans
Underperforming assets include delinquent mortgage loans, loans in the
process of foreclosure, foreclosed loans and loans modified at interest
rates below market.
27
<PAGE> 58
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
12. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
At December 31, 1996 and 1995, the Company's real estate held for sale
and mortgage loan portfolios consisted of the following:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
---------------------------------------------------------------------------
<S> <C> <C>
Current mortgage loans $ 90,394 $108,142
Underperforming mortgage loans 148 17,671
---------------------------------------------------------------------------
Total 90,542 125,813
---------------------------------------------------------------------------
Real estate held for sale 10,111 8,995
---------------------------------------------------------------------------
Total $100,653 $134,808
---------------------------------------------------------------------------
</TABLE>
Aggregate annual maturities on mortgage loans at December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
(in thousands)
---------------------------------------------------
<S> <C>
Past maturity $ 1,677
1997 5,662
1998 316
1999 5,088
2000 5,734
2001 5,678
Thereafter 66,387
---------------------------------------------------
Total $90,542
---------------------------------------------------
</TABLE>
Concentrations
At December 31, 1996 the Company had investments of $75.1 million in the
State of Israel and $40.6 million in Merrill Lynch Trust Series 45. In
1995, the Company had no concentration of credit risk in a single
investee exceeding 10% of shareholder's equity.
The Company participates in a short-term investment pool maintained by an
affiliate. See Note 9.
Included in fixed maturities are below investment grade assets totaling
$40.7 million and $59.0 million at December 31, 1996 and 1995,
respectively. The Company defines its below investment grade assets as
those securities rated "Ba1" or below by external rating agencies, or the
equivalent by internal analysts when a public rating does not exist. Such
assets include publicly traded below investment grade bonds and certain
other privately issued bonds that are classified as below investment
grade loans.
28
<PAGE> 59
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
12. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
The Company also had concentrations of investments, primarily fixed
maturities, in the following industries:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
------------------------------------------------------------------------------------------
<S> <C> <C>
Foreign governments $108,850 $ -
Finance 90,222 25,853
Transportation 86,819 44,118
------------------------------------------------------------------------------------------
</TABLE>
Below investment grade assets included in the totals of the previous
table were as follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
----------------------------------------------------------------------------------------
<S> <C> <C>
Foreign governments $6,567 $ -
Finance 2,386 451
Transportation 776 18,648
----------------------------------------------------------------------------------------
</TABLE>
Concentrations of mortgage loans by property type at December 31, 1996
and 1995 were as follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
-----------------------------------------------------------------------------------------
<S> <C> <C>
Agricultural $33,501 $29,820
Office 22,533 32,024
Retail 20,024 27,870
-----------------------------------------------------------------------------------------
</TABLE>
The Company monitors creditworthiness of counterparties to all financial
instruments by using controls that include credit approvals, limits and
other monitoring procedures. Collateral for fixed maturities often
includes pledges of assets, including stock and other assets, guarantees
and letters of credit. The Company's underwriting standards with respect
to new mortgage loans generally require loan to value ratios of 75% or
less at the time of mortgage origination.
Non-Income Producing Investments
Investments included in the balance sheets that were non-income producing
for the preceding 12 months were insignificant.
Restructured Investments
The Company had mortgage loan and debt securities which were restructured
at below market terms totaling approximately $1.0 million and $17.7
million at December 31, 1996 and 1995, respectively. The new terms
typically defer a portion of contract interest payments to varying future
periods. The accrual of interest is suspended on all restructured assets,
and interest income is reported only as payment is received. Gross
interest income on restructured assets that would have been recorded in
accordance with the original terms of such assets was insignificant in
1996 and amounted to $4.9 million in 1995. Interest on these assets,
included in net investment income, was insignificant in 1996 and amounted
to $2.0 million in 1995.
29
<PAGE> 60
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
13. LIFE AND ANNUITY DEPOSIT FUNDS AND RESERVES
At December 31, 1996, the Company had $740.6 million of life and annuity
deposit funds and reserves. Of that total, $659.0 million were not
subject to discretionary withdrawal based on contract terms. The
remaining $81.6 million were life and annuity products that were subject
to discretionary withdrawal by the contractholders. Included in the
amount that is subject to discretionary withdrawal were $50.4 million of
liabilities that are surrenderable with market value adjustments. An
additional $31.2 million of the life insurance and individual annuity
liabilities are subject to discretionary withdrawals with an average
surrender charge of 6.7%. The life insurance risks would have to be
underwritten again if transferred to another carrier, which is considered
a significant deterrent for long-term policyholders. Insurance
liabilities that are surrendered or withdrawn from the Company are
reduced by outstanding policy loans and related accrued interest prior to
payout.
14. RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES
The following table reconciles net income to net cash provided by (used
in) operating activities:
<TABLE>
<CAPTION>
(For the year ended December 31, in thousands) 1996 1995 1994
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income from continuing operations $ 25,791 $ 28,917 $ 18,325
Adjustments to reconcile net income to
cash provided by operating activities
Realized (gains) losses 9,613 (18,713) 2,074
Deferred federal income taxes (15,665) 11,964 4,798
Amortization of deferred policy acquisition
costs and value of insurance in force 3,286 1,563 -
Additions to deferred policy acquisition costs (20,753) (3,109) (21,014)
Investment income accrued 1,308 (819) 1,085
Premium balances receivable (3,561) (2,277) -
Insurance reserves and accrued expenses (16,459) (20,081) (16,062)
Other (13,419) (46,076) 18,371
------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities $(29,859) $(48,631) $ 7,577
------------------------------------------------------------------------------------------------------------
</TABLE>
15. NONCASH INVESTING AND FINANCING ACTIVITIES
Significant noncash investing and financing activities include: a) the
transfer of $2.6 million of real estate held for sale and mortgage loans
from one of the Company's separate accounts to the general account in
1995, b) acquisition of real estate through foreclosures of mortgage
loans amounting to $1.1 million, $0 and $10.3 million in 1996, 1995 and
1994, respectively.
30
<PAGE> 61
STATEMENT OF ADDITIONAL INFORMATION
FUND ABD II
Individual Variable Annuity Contract
issued by
The Travelers Life and Annuity Company
One Tower Square
Hartford, Connecticut 06183
L-12548S (7/97)
9
<PAGE> 62
PORTFOLIO ARCHITECT
ANNUAL REPORT
DECEMBER 31, 1996
THE TRAVELERS FUND ABD II
FOR VARIABLE ANNUITIES
[TRAVELERSLIFE LOGO]
The Travelers Insurance Company
The Traverlers Life and Annuity Company
One Tower Square
Hartford, CT 06183
<PAGE> 63
THE TRAVELERS FUND ABD II
FOR VARIABLE ANNUITIES
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C> <C>
ASSETS:
Investments in eligible funds at market value:
Capital Appreciation Fund, 780 shares (cost $30,910)............................... $ 28,636
Travelers Series Fund Inc.:
Alliance Growth Portfolio, 139 shares (cost $2,336)............................. 2,334
Putnam Diversified Income Portfolio, 287 shares (cost $3,477)................... 3,325
The Travelers Series Trust:
Travelers Quality Bond Portfolio, 9,203 shares (cost $95,608)................... 92,947
Lazard International Stock Portfolio, 544 shares (cost $5,700).................. 5,860
MFS Emerging Growth Portfolio, 3,022 shares (cost $32,647)...................... 31,883
Large Cap Portfolio, 707 shares (cost $7,828)................................... 7,983
Equity Income Portfolio, 2,795 shares (cost $31,132)............................ 30,994
----------
Total Investments (cost $209,638).............................................. $ 203,962
Dividends receivable................................................................ 4,649
------------
Total Assets................................................................... 208,611
------------
LIABILITIES:
Accrued liabilities................................................................. 58
------------
Total Liabilities.............................................................. 58
------------
NET ASSETS: $ 208,553
============
</TABLE>
See Notes to Financial Statements
-1-
<PAGE> 64
THE TRAVELERS FUND ABD II
FOR VARIABLE ANNUITIES
STATEMENT OF OPERATIONS
FOR THE PERIOD DECEMBER 16, 1996
(DATE OPERATIONS COMMENCED) TO DECEMBER 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends............................................................................ $ 5,162
EXPENSES:
Insurance charges.................................................................... $ 54
Administrative fees.................................................................. 5
-----------
Total expenses...................................................................... 59
------------
Net investment income.............................................................. 5,103
------------
UNREALIZED LOSS ON INVESTMENTS:
December 31, 1996.................................................................. (5,676)
-------------
Net decrease in net assets resulting from operations................................. $ (573)
=============
</TABLE>
See Notes to Financial Statements
-2-
<PAGE> 65
THE TRAVELERS FUND ABD II
FOR VARIABLE ANNUITIES
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD DECEMBER 16, 1996
(DATE OPERATIONS COMMENCED) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
1996
----
<S> <C>
OPERATIONS:
Net investment income......................................................... $ 5,103
Unrealized loss on investments................................................ (5,676)
------------
Net decrease in net assets resulting from operations......................... (573)
------------
UNIT TRANSACTIONS:
Participant purchase payments.................................................
(applicable to 206,161 units)................................................ 209,126
------------
Net increase in net assets resulting from unit transactions................ 209,126
------------
Net increase in net assets................................................ 208,553
NET ASSETS:
Beginning of period........................................................... -
------------
End of period................................................................. $ 208,553
============
</TABLE>
See Notes to Financial Statements
-3-
<PAGE> 66
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Travelers Fund ABD II for Variable Annuities ("Fund ABD II") is a
separate account of The Travelers Life and Annuity Company ("Travelers
Life"), which is a wholly owned subsidiary of The Travelers Insurance
Company ("The Travelers"), an indirect wholly owned subsidiary of Travelers
Group Inc., and is available for funding certain variable annuity contracts
issued by Travelers Life. Fund ABD II is registered under the Investment
Company Act of 1940, as amended, as a unit investment trust.
Participant purchase payments applied to Fund ABD II are invested in one or
more eligible funds in accordance with the selection made by the contract
owner. As of December 31, 1996, the eligible funds available under Fund ABD
II are: Capital Appreciation Fund; Cash Income Trust; Alliance Growth
Portfolio, Putnam Diversified Income Portfolio, and MFS Total Return
Portfolio of Travelers Series Fund Inc.; Travelers Quality Bond Portfolio,
Lazard International Stock Portfolio, MFS Emerging Growth Portfolio,
Federated Stock Portfolio, Federated High Yield Portfolio, Large Cap
Portfolio and Equity Income Portfolio of The Travelers Series Trust. All of
the funds are Massachusetts business trusts, except Travelers Series Fund
Inc. which is incorporated under Maryland law. All eligible funds are
managed by affiliates of The Travelers.
The following is a summary of significant accounting policies consistently
followed by Fund ABD II in the preparation of its financial statements.
SECURITY VALUATION. Investments are valued daily at the net asset values
per share of the underlying funds.
FEDERAL INCOME TAXES. The operations of Fund ABD II form a part of the
total operations of Travelers Life and are not taxed separately. Travelers
Life is taxed as a life insurance company under the Internal Revenue Code of
1986, as amended (the "Code"). Under existing federal income tax law, no
taxes are payable on the investment income of Fund ABD II. Fund ABD II is
not taxed as a "regulated investment company" under Subchapter M of the
Code.
OTHER. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Security transactions are accounted for on the trade date. Dividend income
is recorded on the ex-dividend date.
2. INVESTMENTS
Purchases of investments aggregated $209,638, for the period ended December
31, 1996. There were no sales for the period ended December 31, 1996.
Realized gains and losses from investment transactions are reported on an
identified cost basis. The cost of investments in eligible funds was
$209,638 at December 31, 1996. Gross unrealized appreciation for all
investments at December 31, 1996 was $315. Gross unrealized depreciation
for all investments at December 31, 1996 was $5,991.
-4-
<PAGE> 67
NOTES TO FINANCIAL STATEMENTS - CONTINUED
3. CONTRACT CHARGES
Insurance charges are paid for the mortality and expense risks assumed by
Travelers Life. These charges are equivalent to 1.25% of the average net
assets of Fund ABD II on an annual basis.
Administrative fees are paid for administrative expenses incurred by
Travelers Life. This charge is equivalent to 0.15% of the average net assets
of Fund ABD II on an annual basis.
For contracts in the accumulation phase with a contract value less than
$40,000, an annual charge of $30 (prorated for partial periods) is deducted
from participant account balances and paid to Travelers Life to cover
contract administrative charges.
No sales charge is deducted from participant purchase payments when they are
received. However, Travelers Life generally assesses a contingent deferred
sales charge of up to 6% if a participant's purchase payment is surrendered
within seven years of its payment date. No contingent deferred sales
charges were assessed for the period ended December 31, 1996.
4. NET CONTRACT OWNERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------------------------
ACCUMULATION UNIT NET
UNITS VALUE ASSETS
----- ----- ------
<S> <C> <C> <C>
Capital Appreciation Fund............................................. 29,824 $ 1.032 $ 30,772
Travelers Series Fund Inc.
Alliance Growth Portfolio............................................ 2,250 1.037 2,333
Putnam Diversified Income Portfolio.................................. 3,300 1.007 3,323
The Travelers Series Trust
Travelers Quality Bond Portfolio..................................... 95,203 1.001 95,290
Lazard International Stock Portfolio................................. 5,702 1.027 5,857
MFS Emerging Growth Portfolio........................................ 31,886 1.004 32,019
Large Cap Portfolio.................................................. 7,800 1.023 7,979
Equity Income Portfolio.............................................. 30,196 1.026 30,980
---------------
Net Contract Owners' Equity.................................................................................... $ 208,553
===============
</TABLE>
-5-
<PAGE> 68
NOTES TO FINANCIAL STATEMENTS - CONTINUED
5. SCHEDULE OF FUND ABD II OPERATIONS AND CHANGES IN NET ASSETS
FOR THE PERIOD DECEMBER 16, 1996
(DATE OPERATIONS COMMENCED) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
PUTNAM LAZARD
CAPITAL ALLIANCE DIVERSIFIED TRAVELERS INTERNATIONAL
APPRECIATION GROWTH INCOME QUALITY BOND STOCK
FUND PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends............................... $ 2,151 $ 86 $ 177 $ 2,347 $ -
---------- ------------- ---------- ------------ ------------
EXPENSES:
Insurance charges....................... 13 1 2 4 3
Administrative fees..................... 2 - - - -
---------- ------------- ---------- ------------ ------------
Net investment income (loss)...... 2,136 85 175 2,343 (3)
---------- ------------- ---------- ------------ ------------
UNREALIZED GAIN (LOSS) ON INVESTMENTS:
End of period....................... (2,274) (2) (152) (2,661) 160
---------- ------------- ---------- ------------ ------------
Net increase (decrease) in net assets
resulting from operations......... (138) 83 23 (318) 157
---------- ------------- ---------- ------------ ------------
UNIT TRANSACTIONS:
Participant purchase payments........... 30,910 2,250 3,300 95,608 5,700
---------- ------------- ---------- ------------ ------------
Net increase in net assets resulting
from unit transactions............ 30,910 2,250 3,300 95,608 5,700
---------- ------------- ---------- ------------ ------------
Net increase in net assets........ 30,772 2,333 3,323 95,290 5,857
NET ASSETS:
Beginning of period................. - - - - -
---------- ------------- ---------- ------------ ------------
End of period....................... $ 30,772 $ 2,333 $ 3,323 $ 95,290 $ 5,857
========== ============= ========== ============ ============
</TABLE>
-6-
<PAGE> 69
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
MFS EMERGING
GROWTH LARGE CAP EQUITY INCOME
PORTFOLIO PORTFOLIO PORTFOLIO COMBINED
------------- ----------- ------------ ----------
<S> <C> <C> <C>
$ 151 $ 28 $ 222 $ 5,162
--------- ---------- ----------- ----------
14 4 13 54
1 - 2 5
--------- ---------- ----------- ----------
136 24 207 5,103
--------- ---------- ----------- ----------
(764) 155 (138) (5,676)
--------- ---------- ----------- ----------
(628) 179 69 (573)
--------- ---------- ----------- ----------
32,647 7,800 30,911 209,126
--------- ---------- ----------- ----------
32,647 7,800 30,911 209,126
--------- ---------- ----------- ----------
32,019 7,979 30,980 208,553
- - - -
--------- ---------- ----------- ----------
$ 32,019 $ 7,979 $ 30,980 $ 208,553
========= ========== =========== ==========
</TABLE>
-7-
<PAGE> 70
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF ACCUMULATION UNITS FOR FUND ABD II
FOR THE PERIOD DECEMBER 16, 1996
(DATE OPERATIONS COMMENCED) TO DECEMBER 31, 1996.
<TABLE>
<CAPTION>
PUTNAM
CAPITAL ALLIANCE DIVERSIFIED TRAVELERS
APPRECIATION GROWTH INCOME QUALITY BOND
FUND PORTFOLIO PORTFOLIO FUND
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Accumulation units beginning of period.................... - - - -
Accumulation units purchased and
transferred from other Travelers accounts.............. 29,824 2,250 3,300 95,203
Accumulation units redeemed and
transferred to other Travelers accounts................ - - - -
------------- ------------ ------------ ------------
Accumulation units end of period.......................... 29,824 2,250 3,300 95,203
============= ============= ============= =============
<CAPTION>
LAZARD MFS EMERGING
INTERNATIONAL GROWTH LARGE CAP EQUITY INCOME
STOCK PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------ ---------- -------------
<S> <C> <C> <C> <C>
Accumulation units beginning of period.................... - - - -
Accumulation units purchased and
transferred from other Travelers accounts.............. 5,702 31,886 7,800 30,196
Accumulation units redeemed and
transferred to other Travelers accounts................ - - - -
------------- ------------ ------------ ------------
Accumulation units end of period.......................... 5,702 31,886 7,800 30,196
============= ============= ============= =============
</TABLE>
-8-
<PAGE> 71
REPORT OF INDEPENDENT ACCOUNTANTS
To the Owners of Variable Annuity Contracts of
The Travelers Fund ABD II for Variable Annuities:
We have audited the accompanying statement of assets and liabilities of The
Travelers Fund ABD II for Variable Annuities as of December 31, 1996, and the
related statement of operations and changes in net assets for the period
December 16, 1996 (date operations commenced) to December 31, 1996. These
financial statements are the responsibility of management. Our responsibility
is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of shares owned as of December 31, 1996, by
correspondence with the underlying funds. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Travelers Fund ABD II for
Variable Annuities as of December 31, 1996, the results of its operations and
the changes in its net assets for the period December 16, 1996 (date operations
commenced) to December 31, 1996, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 7, 1997
-9-
<PAGE> 72
Independent Accountants
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
This report is prepared for the general information of contract owners and is
not an offer of shares of The Travelers Fund ABD II for Variable Annuities or
Fund ABD II's underlying funds. It should not be used in connection with any
offer except in conjunction with the Prospectuses for the Variable Annuity
products offered by The Travelers Life and Annuity Company and the Prospectuses
of the underlying funds, which collectively contain all pertinent information,
including the applicable sales commissions.
FNDABDII (Annual) (12-96) Printed in U.S.A.
<PAGE> 73
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) The financial statements of the Registrant and the Report of
Independent Accountants thereto are contained in the Registrant's
Annual Report and are incorporated into the Statement of Additional
Information by reference. The financial statements of the Registrant
include:
Statement of Assets and Liabilities as of December 31, 1996
Statement of Operations for the period December 16, 1996
(date operations commenced) to December 31, 1996
Statementof Changes in Net Assets for the period December
16, 1996 (date operations commenced) to December 31,
1996
Notes to Financial Statements
The audited financial statements of The Travelers Life and Annuity
Company and the report of Independent Accountants, are contained in
the Statement of Additional Information. The financial statements of
The Travelers Life and Annuity Company include:
Statements of Income and Retained Earnings for the years ended
December 31, 1996, 1995 and 1994
Balance Sheets as of December 31, 1996 and 1995
Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994
Notes to Financial Statements
(b) Exhibits
1. Resolution of The Travelers Life and Annuity Company Board of
Directors authorizing the establishment of the Registrant.
(Incorporated herein by reference to Exhibit 1 to the
Registration Statement on Form N-4, filed December 22, 1995.)
2. Exempt.
3(a). Distribution and Management Agreement among the Registrant,
The Travelers Life and Annuity Company and Tower Square
Securities, Inc. (Incorporated herein by reference to Exhibit
3(a) to the Registration Statement on Form N-4, filed December
22, 1995.)
3(b). Form of Selling Agreement. (Incorporated herein by reference
to Exhibit 3(b) to the Post-Effective Amendment No. 3 to the
Registration Statement on Form N-4, File No. 33-65339 filed
April 29, 1997.)
4. Form of Variable Annuity Contract(s). (Incorporated herein
by reference to Exhibit 4 to the Registration Statement on Form
N-4, filed June 17, 1996.)
5. None.
6(a). Charter of The Travelers Life and Annuity Company, as
amended on April 10, 1990. (Incorporated herein by reference to
Exhibit 3(a) to the Registration Statement on Form N-4, File
No. 33-58131, filed via Edgar on March 17, 1995.)
<PAGE> 74
6(b). By-Laws of The Travelers Life and Annuity Company, as amended on
October 20, 1994. (Incorporated herein by reference to Exhibit
3(b) to the Registration Statement on Form N-4, File No.
33-58131, filed via Edgar on March 17, 1995.)
7. None.
8. None.
9. Opinion of Counsel as to the legality of securities being
registered. (Incorporated herein by reference to Exhibit 9 to
Post-Effective Amendment No. 3 to the Registration Statement on
Form N-4. File No. 33-23327 filed on April 29, 1997.
10(a). Consent of Coopers & Lybrand L.L.P., Independent Accountants.
10(b). Consent of KPMG Peat Marwick LLP, Independent Certified Public
Accountants.
13. Schedule for computation of each performance quotation -
Standardized
13. Schedule for computation of each performance quotation - Non-
Standardized. (Incorporated herein by reference to Exhibit 13
to Post-Effective Amendment No. 3 to the Registration Statement
on Form N-4, File No. 33-65339, filed April 29, 1997.)
15(a). Powers of Attorney authorizing Jay S. Fishman or Ernest J.
Wright as signatory for Michael A. Carpenter, Robert I. Lipp,
Charles O. Prince III, Marc P. Weill, Irwin R. Ettinger, Donald
T. DeCarlo and Christine B. Mead. (Incorporated herein by
reference to Exhibit 15 to the Registration Statement on Form
N-4, filed December 22, 1995.)
15(b). Powers of Attorney authorizing Ernest J. Wright or Kathleen
A. McGah as signatory for Michael A. Carpenter, Ian R. Stuart
and Katherine M. Sullivan. (Incorporated herein by reference to
Exhibit 15(b) to the Registration Statement on Form N-4, filed
June 17, 1996.)
15(c). Powers of Attorney authorizing Ernest J. Wright or Kathleen A.
McGah as signatory for Jay S. Benet and George C. Kokulis.
(Incorporated herein by reference to Exhibit 15(c) to
Post-Effective Amendment No. 1 to the Registration Statement on
Form N-4, filed August 15, 1997.)
15(d). Power of Attorney authorizing Ernest J. Wright or Kathleen A.
McGah as signatory for Ian R. Stuart. (Incorporated herein by
reference to Exhibit 15(d) to Post-Effective Amendment No. 2 to
the Registration Statement on Form N-4 filed February 28,
1997.)
27. Financial Data Schedules. (Incorporated herein by reference to
Exhibit 27 to Post-Effective Amendment No. 3 to the
Registration Statement on Form N-4, File No. 33-65339 filed
April 29, 1997.
<PAGE> 75
Item 25. Directors and Officers of the Depositor
<TABLE>
<CAPTION>
Name and Principal Positions and Offices
Business Address with Depositor
- ------------------ ----------------------
<S> <C>
Michael A. Carpenter* Director, Chairman of the Board
President and Chief Executive Officer
Jay S. Benet* Director and Senior Vice President
George C. Kokulis* Director and Senior Vice President
Robert I. Lipp* Director
Ian R. Stuart* Director, Senior Vice President,
Chief Financial Officer, Chief
Accounting Officer and Controller
Katherine M. Sullivan* Director and Senior Vice President
and General Counsel
Marc P. Weill** Director and Senior Vice President
Stuart Baritz** Senior Vice President
Elizabeth C. Georgakopoulos* Senior Vice President
Barry Jacobson* Senior Vice President
Russell H. Johnson* Senior Vice President
Warren H. May* Senior Vice President
Christine M. Modie* Senior Vice President
David A. Tyson* Senior Vice President
F. Denney Voss* Senior Vice President
Paula Burton* Vice President
William Hogant* Vice President and Actuary
Donald R. Munson, Jr.* Second Vice President
Ernest J. Wright* Vice President and Secretary
Kathleen A. McGah* Assistant Secretary and Counsel
</TABLE>
Principal Business Address:
* The Travelers Life and Annuity Company **Travelers Group Inc.
One Tower Square 388 Greenwich Street
Hartford, CT 06183 New York, N.Y. 10013
<PAGE> 76
Item 26. Persons Controlled by or Under Common Control with the Depositor or
Registrant (To be filed by amendment)
<PAGE> 77
Item 27. Number of Contract Owners
As of March 1, 1997, 38 contract owners held qualified and non-qualified
contracts offered by the Registrant.
Item 28. Indemnification
Section 33-320a of the Connecticut General Statutes ("C.G.S.") regarding
indemnification of directors and officers of Connecticut corporations provides
in general that Connecticut corporations shall indemnify their officers,
directors and certain other defined individuals against judgments, fines,
penalties, amounts paid in settlement and reasonable expenses actually incurred
in connection with proceedings against the corporation. The corporation's
obligation to provide such indemnification generally does not apply unless (1)
the individual is successful on the merits in the defense of any such
proceeding; or (2) a determination is made (by persons specified in the
statute) that the individual acted in good faith and in the best interests of
the corporation; or (3) the court, upon application by the individual,
determines in view of all of the circumstances that such person is fairly and
reasonably entitled to be indemnified, and then for such amount as the court
shall determine. With respect to proceedings brought by or in the right of the
corporation, the statute provides that the corporation shall indemnify its
officers, directors and certain other defined individuals, against reasonable
expenses actually incurred by them in connection with such proceedings, subject
to certain limitations.
C.G.S. Section 33-320a provides an exclusive remedy; a Connecticut corporation
cannot indemnify a director or officer to an extent either greater or less than
that authorized by the statute, e.g., pursuant to its certificate of
incorporation, by-laws, or any separate contractual arrangement. However, the
statute does specifically authorize a corporation to procure indemnification
insurance to provide greater indemnification rights. The premiums for such
insurance may be shared with the insured individuals on an agreed basis.
Travelers Group Inc. also provides liability insurance for its directors and
officers and the directors and officers of its subsidiaries, including the
Depositor. This insurance provides for coverage against loss from claims made
against directors and officers in their capacity as such, including, subject to
certain exceptions, liabilities under the Federal securities laws.
Rule 484 Undertaking
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liability (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
<PAGE> 78
Item 29. Principal Underwriter
<TABLE>
<S> <C>
(a) Tower Square Securities, Inc.
One Tower Square
Hartford, CT 06183
Tower Square Securities, Inc. also serves as the principal underwriter
for:
The Travelers Growth and Income Stock Account for Variable Annuities
The Travelers Quality Bond Account for Variable Annuities
The Travelers Money Market Account for Variable Annuities
The Travelers Timed Growth and Income Stock Account for Variable
Annuities
The Travelers Timed Short-Term Bond Account for Variable Annuities
The Travelers Timed Aggressive Stock Account for Variable Annuities
The Travelers Timed Bond Account for Variable Annuities
The Travelers Fund U for Variable Annuities
The Travelers Fund VA for Variable Annuities
The Travelers Fund BD for Variable Annuities
The Travelers Fund BD II for Variable Annuities
The Travelers Fund ABD for Variable Annuities
The Travelers Separate Account QP for Variable Annuities
The Travelers Separate Account QP II for Variable Annuities
The Travelers Fund UL for Variable Life Insurance
The Travelers Fund UL II for Variable Life Insurance
The Travelers Variable Life Insurance Separate Account One
The Travelers Variable Life Insurance Separate Account Three
The Travelers Variable Life Insurance Separate Account Two
The Travelers Variable Life Insurance Separate Account Four
<CAPTION>
(b) Name and Principal Positions and Offices
Business Address * With Underwriter
------------------ ---------------------
<S> <C>
Russell H. Johnson Chairman of the Board, Chief Executive Officer,
President and Chief Operating Officer
William F. Scully, III Member, Board of Directors,
Senior Vice President, Treasurer
and Chief Financial Officer
Cynthia P. Macdonald Vice President, Chief Compliance Officer
and Assistant Secretary
Joanne K. Russo Member, Board of Directors
Senior Vice President
Kathleen A. McGah General Counsel and Secretary
Jay S. Benet Member, Board of Directors
George C. Kokulis Member, Board of Directors
Warren H. May Member, Board of Directors
Donald R. Munson, Jr. Senior Vice President
Stuart L. Baritz Vice President
Michael P. Kiley Vice President
Whitney F. Burr Second Vice President
Marlene M. Ibsen Second Vice President
Robin A. Jones Second Vice President
Tracey Kiff-Judson Second Vice President
John F. Taylor Second Vice President
John J. Williams, Jr. Director and Assistant Compliance Officer
Susan M. Curcio Director and Operations Manager
</TABLE>
<PAGE> 79
(b) (cont'd)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices
Business Address * With Underwriter
------------------ ---------------------
<S> <C>
Dennis D. D'Angelo Director
Thomas P. Tooley Director
Nancy S. Waldrop Assistant Treasurer
</TABLE>
* Principal business address: One Tower Square, Hartford,
Connecticut 06183
(c). Not Applicable.
Item 30. Location of Accounts and Records
The Travelers Life and Annuity Company
One Tower Square
Hartford, Connecticut 06183
Item 31. Management Services
Not applicable.
Item 32. Undertakings
The undersigned Registrant hereby undertakes:
(a) To file a post-effective amendment to this registration statement as
frequently as is necessary to ensure that the audited financial
statements in the registration statement are never more than sixteen
months old for so long as payments under the variable annuity
contracts may be accepted;
(b) To include either (1) as part of any application to purchase a
contract offered by the prospectus, a space that an applicant can
check to request a Statement of Additional Information, or (2) a post
card or similar written communication affixed to or included in the
prospectus that the applicant can remove to send for a Statement of
Additional Information; and
(c) To deliver any Statement of Additional Information and any financial
statements required to be made available under this Form N-4 promptly
upon written or oral request.
The Company hereby represents:
(a) That the aggregate charges under the Contracts of the Registrant
described herein are reasonable in relation to the services rendered,
the expenses expected to be incurred, and the risks assumed by the
company.
<PAGE> 80
SIGNATURES
As required by the Investment Company Act of 1940, the Registrant has caused
this amendment to this Registration Statement to be signed on its behalf, in
the City of Hartford, State of Connecticut, on July 3, 1997.
THE TRAVELERS FUND ABD II FOR VARIABLE ANNUITIES
(Registrant)
THE TRAVELERS LIFE AND ANNUITY COMPANY
(Depositor)
By:*IAN R. STUART
-----------------------------------------
Ian R. Stuart
Director, Senior Vice President,
Chief Financial Officer
Chief Accounting Officer and Controller
As required by the Securities Act of 1933, this amendment to this Registration
Statement has been signed below by the following persons in the capacities
indicated on July 3, 1997.
<TABLE>
<S> <C>
*MICHAEL A. CARPENTER Chairman of the Board, President
- ----------------------------- and Chief Executive Officer
(Michael A. Carpenter)
*JAY S. BENET Director
- -----------------------------
(Jay S. Benet)
*GEORGE C. KOKULIS Director
- -----------------------------
(George C. Kokulis
*ROBERT I. LIPP Director
- -----------------------------
(Robert I. Lipp)
*KATHERINE M. SULLIVAN Director, Senior Vice President and
- ----------------------------- General Counsel
(Katherine M. Sullivan)
*IAN R. STUART Director, Senior Vice President,
- ----------------------------- Chief Financial Officer, Chief
(Ian R. Stuart) Accounting Officer and Controller
*MARC P. WEILL Director
- -----------------------------
(Marc P. Weill)
*By: Ernest J. Wright, Attorney-in-Fact
</TABLE>
<PAGE> 81
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
- ------- ------------ ----------------
<S> <C> <C>
1. Resolution of The Travelers Life and Annuity Company
Board of Directors authorizing the establishment
of the Registrant. (Incorporated herein by reference
to Exhibit 1 to the Registration Statement on Form N-4,
filed December 22, 1995.)
3(a). Form of Distribution and Management Agreement among the
Registrant, The Travelers Life and Annuity Company and Tower
Square Securities, Inc. (Incorporated herein by reference to
Exhibit 3(a) to the Registration Statement on Form N-4, filed
December 22, 1995.)
3(b). Form of Selling Agreement. (Incorporated herein by
reference to Exhibit 3(b) to the Post-Effective Amendment
No. 3 to the Registration Statement on Form N-4,
File No. 33-65339 filed April 29, 1997.)
4. Form of Variable Annuity Contract(s). (Incorporated
herein by reference to Exhibit 4 to the Registration
Statement on Form N-4, filed June 17, 1996.)
6(a). Charter of The Travelers Life and Annuity Company, as
amended on April 10, 1990. (Incorporated herein
by reference to Exhibit 3(a) to the Registration
Statement on Form N-4, File No. 33-58131, filed via
Edgar on March 17, 1995.)
6(b). By-Laws of The Travelers Life and Annuity Company, as
amended on October 20, 1994. (Incorporated herein
by reference to Exhibit 3(b) to the Registration
Statement on Form N-4, File No. 33-58131, filed via
Edgar on March 17, 1995.)
9. Opinion of Counsel as to the legality of securities being
registered by Registrant. (Incorporated herein by
reference to Exhibit 9 to the Post-Effective Amendment
No. 3 to the Registration Statement on Form N-4,
File No. 33-65339 filed April 29, 1997.)
10(a). Consent of Coopers & Lybrand, L.L.P., Independent Electronically
Accountants.
10(b). Consent of KPMG Peat Marwick LLP, Independent Electronically
Certified Public Accountants.
</TABLE>
<PAGE> 82
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
- ------- ----------- ----------------
<S> <C> <C>
13. Schedule of computation of each performance quotation - Electronically
Standardized.
Schedule for computation of each performance
quotation - Non-Standardized. (Incorporated herein by
reference to Exhibit 13 to Post-Effective Amendment
No. 3 to the Registration Statement on Form N-4,
File No. 33-65339, filed April 29, 1997.)
15. Powers of Attorney authorizing Jay S. Fishman or
Ernest J. Wright as signatory for Michael A Carpenter,
Robert I. Lipp, Charles O. Prince III, Marc P. Weill,
Irwin R. Ettinger, Donald T. DeCarlo and Christine B.
Mead. (Incorporated herein by reference to Exhibit 15
to the Registration Statement on Form N-4, filed
December 22, 1995.)
15(b). Powers of Attorney authorizing Ernest J. Wright and
and Kathleen A. McGah as signatory for Michael A.
Carpenter, Ian R. Stuart and Katherine M. Sullivan.
Incorporated herein by reference to Exhibit 15(b) to the
Registration Statement on Form N-4, filed June 17, 1996.)
15(c). Powers of Attorney authorizing Ernest J. Wright and
Kathleen A. McGah as signatory for Jay S. Benet and
George C. Kokulis. (Incorporated herein by reference to
Exhibit 15(c) to Post-Effective Amendment No. 1 to the
Registration Statement on Form N-4, filed August 15, 1996.)
15(d). Power of Attorney authorizing Ernest J. Wright and
Kathleen A. McGah as signatory for Ian R. Stuart.
(Incorporated herein by reference to Exhibit 15(d) to the
Registration Statement on Form N-4 filed February 28, 1997.)
27. Financial Data Schedules. (Incorporated herein by reference
to Exhibit 27 to the Post-Effective Amendment No. 3 to the
Registration Statement on Form N-4, File No. 33-65339
filed April 29, 1997.)
</TABLE>
<PAGE> 1
EXHIBIT 10(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Pre-Effective Amendment
No. 1 to the Registration Statement of The Travelers Fund ABD II for Variable
Annuities (the "Fund") on Form N-4 (File No. 333-23327) of our report dated
February 7, 1997, on our audit of the financial statements of the Fund, which
report is included in the Fund's Annual Report for the period December 16, 1996
(date operations commenced) to December 31, 1996 which is incorporated by
reference in this Pre-Effective Amendment to the Registration Statement. We
also consent to the reference to our Firm as experts in accounting and auditing
under the caption "Independent Accountants" in the Statement of Additional
Information.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
June 30, 1997
<PAGE> 1
EXHIBIT 10(b)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
The Travelers Life and Annuity Company:
We consent to the use of our report included herein and to the reference to our
firm as experts under the heading "Independent Accountants".
Hartford,Connecticut
July 2, 1997
<PAGE> 1
EXHIBIT 13
SEC STANDARDIZED PERFORMANCE
The following performance data is required by the SEC rules governing uniform
performance reporting. This performance data reflects deductions of all the
fees and charges including: 1) the 1.25% annual mortality and expense risk
charge, 2) the 0.15% sub-account administrative charge, 3) portfolio management
fees, and 4) the annual administrative charge. Performance data quoted
represents past performance. Investment return and principal value of an
investment will fluctuate so that an investor's units, when redeemed, may be
worth more or less than their original cost. An investment in the Travelers
Cash Income Trust is neither insured nor guaranteed by the U.S. Government.
When presented to the public, this performance information must be preceded or
accompanied by the current prospectuses. This performance date is based on
hypothetical investment of $1,000.
<TABLE>
<CAPTION>
STANDARDIZED AVERAGE ANNUAL RETURNS AS OF 6/30/97 (UPDATED QUARTERLY)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
STOCK ACCOUNTS: 1 Year 5 Year 10 Year (or inception)
- ----------------------------------------------------------------------------------------------------------------------
Alliance Growth Portfolio 24.63% - 24.21% (6/94)
- ----------------------------------------------------------------------------------------------------------------------
Capital Appreciation Portfolio (Janus sub-adviser) 26.36% 19.88% 10.12%
- ----------------------------------------------------------------------------------------------------------------------
Equity Income Portfolio (Fidelity sub-adviser) - - 30.77% (8/96)
- ----------------------------------------------------------------------------------------------------------------------
Federated Stock Portfolio - - 33.34% (8/96)
- ----------------------------------------------------------------------------------------------------------------------
Large Cap Portfolio (Fidelity sub-adviser) - - 26.98% (8/96)
- ----------------------------------------------------------------------------------------------------------------------
Lazard International Stock Portfolio - - 17.01% (8/96)
- ----------------------------------------------------------------------------------------------------------------------
MFS Emerging Growth Portfolio - - 15.71% (8/96)
- ----------------------------------------------------------------------------------------------------------------------
Smith Barney Appreciation Portfolio 27.06% 14.04% 12.50% (10/91)
- ----------------------------------------------------------------------------------------------------------------------
BOND ACCOUNTS:
- ----------------------------------------------------------------------------------------------------------------------
Federated High Yield Portfolio - - 13.48% (8/96)
- ----------------------------------------------------------------------------------------------------------------------
Putnam Diversified Income Portfolio 8.58% - 8.12% (6/94)
- ----------------------------------------------------------------------------------------------------------------------
Smith Barney Diversified Strategic Income Portfolio 9.20% 6.24% 12.50% (10/91)
- ----------------------------------------------------------------------------------------------------------------------
Travelers Quality Bond Portfolio - - 4.76% (8/96)
- ----------------------------------------------------------------------------------------------------------------------
ASSET ALLOCATION ACCOUNTS:
- ----------------------------------------------------------------------------------------------------------------------
MFS Total Return Portfolio 20.02% - 14.70% (6/94)
- ----------------------------------------------------------------------------------------------------------------------
MONEY MARKET ACCOUNT:
- ----------------------------------------------------------------------------------------------------------------------
Travelers Cash Income Trust 3.28% 2.38% 3.82% (12/87)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
L-21135
