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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
Post-Effective Amendment No. 2
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Post-Effective Amendment No. 9
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:
It is proposed that this filing will become effective (check appropriate box):
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____ immediately upon filing pursuant to paragraph (b) of Rule 485.
X on May 1, 1999 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.
____ 75 days after filing pursuant to paragraph (a)(2).
____ on ___________ pursuant to paragraph (a)(2) of Rule 485.
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If appropriate, check the following box:
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______ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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PART A
Information Required in a Prospectus
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TRAVELERS ACCESS (ABD II) PROSPECTUS
This prospectus describes TRAVELERS 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"). Travelers 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, we refer to both Contracts and certificates as
"Contracts."
You can choose to have your purchase payments accumulate on a fixed basis and/or
a variable basis. Your contract value will vary daily to reflect the investment
experience of the subaccounts ("funding options") you select and any interest
credited to the Fixed Account. The variable funding options currently available
are:
Capital Appreciation Fund
Money Market Portfolio
DELAWARE GROUP PREMIUM FUND, INC.
REIT Series
DREYFUS VARIABLE INVESTMENT FUND
Capital Appreciation Portfolio
Small Cap Portfolio
GREENWICH STREET SERIES FUND
Equity Index Portfolio Class II
SALOMON BROTHERS VARIABLE SERIES FUNDS, INC.
Salomon Brothers Variable Investors Fund
TRAVELERS SERIES FUND, INC.
Alliance Growth Portfolio
MFS Total Return Portfolio
Putnam Diversified Income Portfolio
THE TRAVELERS SERIES TRUST
Convertible Bond Portfolio
Disciplined Mid Cap Stock Portfolio
Disciplined Small Cap Stock Portfolio
Equity Income Portfolio
Federated High Yield Portfolio
Federated Stock Portfolio
Large Cap Portfolio
Lazard International Stock Portfolio
MFS Emerging Growth Portfolio
MFS Mid Cap Growth Portfolio
MFS Research Portfolio
Strategic Stock Portfolio
Travelers Quality Bond Portfolio
WARBURG PINCUS TRUST
Emerging Markets Portfolio
The Fixed Account is described in Appendix B. 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 The Travelers Fund
ABD II For Variable Annuities ("Fund ABD II") by requesting a copy of the
Statement of Additional Information ("SAI") dated May 1, 1999. 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, call (800) 842-9368 or access the SEC's website (http://www.sec.gov). The
SAI's table of contents appears in Appendix C of this prospectus.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
VARIABLE ANNUITY CONTRACTS ARE NOT DEPOSITS OF ANY BANK, AND ARE NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY.
PROSPECTUS DATED MAY 1, 1999
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TABLE OF CONTENTS
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Index Of Special Terms................ 2
Summary............................... 3
Fee Table............................. 6
Condensed Financial Information....... 8
The Annuity Contract.................. 8
Contract Owner Inquiries............ 9
Purchase Payments................... 9
Accumulation Units.................. 9
The Funding Options................. 9
Charges And Deductions................ 12
General............................. 12
Administrative Charges.............. 12
Mortality and Expense Risk Charge... 13
Funding Option Expenses............. 13
Premium Tax......................... 13
Changes in Taxes Based Upon Premium
or Value......................... 13
Transfers............................. 13
Dollar Cost Averaging............... 13
Access To Your Money.................. 14
Systematic Withdrawals.............. 15
Loans............................... 15
Ownership Provisions.................. 15
Types of Ownership.................. 15
Beneficiary......................... 15
Annuitant........................... 16
Death Benefit......................... 16
Death Proceeds Before the Maturity
Date............................. 16
Payment of Proceeds................. 17
Death Proceeds After the Maturity
Date............................. 17
The Annuity Period.................... 17
Maturity Date....................... 17
Allocation of Annuity............... 18
Variable Annuity.................... 18
Fixed Annuity....................... 19
Payment Options....................... 19
Election of Options................. 19
Annuity Options..................... 19
Income Options...................... 20
Miscellaneous Contract Provisions..... 20
Right to Return..................... 20
Termination......................... 21
Required Reports.................... 21
Suspension of Payments.............. 21
Transfers of Contract Values to
Other Annuities.................. 21
The Separate Account.................. 21
Performance Information............. 22
Federal Tax Considerations.......... 22
General Taxation of Annuities....... 22
Types of Contracts: Qualified or
Nonqualified..................... 23
Nonqualified Annuity Contracts...... 23
Qualified Annuity Contracts......... 23
Penalty Tax for Premature
Distributions.................... 24
Diversification Requirements for
Variable Annuities............... 24
Ownership of the Investments........ 24
Mandatory Distributions for
Qualified Plans.................. 24
Other Information..................... 25
The Insurance Company............... 25
Financial Statements................ 25
IMSA................................ 25
Year 2000 Compliance................ 25
Distribution of Variable Annuity
Contracts........................ 26
Conformity with State and Federal
Laws............................. 26
Voting Rights....................... 26
Legal Proceedings And Opinions...... 26
Appendix A: Condensed Financial
Information......................... A-1
Appendix B: The Fixed Account......... B-1
Appendix C: Contents of the Statement
of Additional Information........... C-1
</TABLE>
INDEX OF SPECIAL TERMS
The following terms are italicized throughout the prospectus. Refer to the page
listed for an explanation of each term.
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Accumulation Unit..................... 9
Annuitant............................. 16
Annuity Payments...................... 18
Annuity Unit.......................... 9
Contract Date......................... 9
Contract Owner (You, Your)............ 8
Contract Value........................ 8
Contract Year......................... 9
Fixed Account......................... B-1
Funding Option(s)..................... 8
Income Payments....................... 20
Maturity Date......................... 8
Purchase Payment...................... 8
Written Request....................... 9
</TABLE>
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SUMMARY:
TRAVELERS ACCESS
THIS SUMMARY DETAILS SOME OF THE MORE IMPORTANT POINTS THAT YOU SHOULD KNOW AND
CONSIDER BEFORE PURCHASING THE CONTRACT.
CAN YOU GIVE ME A GENERAL DESCRIPTION OF THE VARIABLE ANNUITY CONTRACT? The
Contract offered by The 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 payout 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 and/or to the Fixed Account. We guarantee money
directed to the Fixed Account as to principal and interest. 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.
The Contract, like all deferred variable annuity contracts, has two phases: the
accumulation phase and the payout phase. During the accumulation phase
generally, under a qualified contract, your pre-tax contributions accumulate on
a tax-deferred basis and are taxed as income when you make a withdrawal,
presumably when you are in a lower tax bracket. During the accumulation phase,
under a 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 payout phase occurs when you begin receiving regular payments
from your Contract. The amount of money you accumulate in your Contract
determines the amount of income (annuity payments) you receive during the payout
phase.
During the payout phase, you may choose to receive annuity payments from the
Fixed Account or the variable funding options. If you want to receive scheduled
payments from your annuity, you can choose from a number of annuity or income
options.
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 variable funding options, the dollar amount of your payments may
increase or decrease.
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.
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.)
IS THERE A RIGHT TO RETURN PERIOD? 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
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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.
WHAT TYPES OF INVESTMENT OPTIONS ARE AVAILABLE? You can direct your money into
the Fixed Account or any or all of the funding options shown on the cover page.
The funding options are described in the accompanying fund prospectuses.
Depending on market conditions, you may make or lose money in any of these
options.
The value of the Contract will vary depending upon the investment performance of
the funding options you choose. Past performance is not a guarantee of future
results. Standard and nonstandard performance is shown in the Statement of
Additional Information that you may request free of charge.
You can transfer between the variable funding options as frequently as you wish
without any current tax implications. Currently there is no charge for
transfers, nor a limit to the number of transfers allowed. 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. Please refer to Appendix B for information regarding transfers
to and from the Fixed Account.
WHAT EXPENSES WILL BE ASSESSED UNDER THE CONTRACT? 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 on the deduction date, the Company
deducts an annual contract 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 also charges for management and other expenses. If you withdraw all
amounts under the Contract, or if you begin receiving annuity payments, the
Company may be required by your state to deduct a premium tax.
HOW WILL MY CONTRIBUTIONS AND WITHDRAWALS BE TAXED? Generally, 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.
HOW MAY I ACCESS MY MONEY? You can take withdrawals any time during the
accumulation phase. There is no withdrawal charge, however, income taxes and a
penalty tax may apply to taxable amounts withdrawn, you may also have to pay
income taxes and a tax penalty on any money you take out.
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WHAT IS THE DEATH BENEFIT UNDER THE CONTRACT? The death benefit applies upon
the first death of the owner, joint owner, or annuitant. Assuming you are the
Annuitant, if you die before you move to the payout 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 and written distribution instructions. Please refer
to the Death Benefit section in the prospectus for details.
ARE THERE ANY 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 charges and 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.
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FUND ABD FEE TABLE
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CONTRACT OWNER TRANSACTION EXPENSES
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Annual Contract Administrative Charge $30
(Waived if contract value is $40,000 or more)
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%
</TABLE>
FUNDING OPTION EXPENSES:
(as a percentage of average daily net assets of the Funding Option as of
December 31, 1998, unless otherwise noted)
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<CAPTION>
TOTAL
ANNUAL OPERATING
MANAGEMENT FEE OTHER EXPENSES EXPENSES
(AFTER EXPENSE (AFTER EXPENSE (AFTER EXPENSE
PORTFOLIO NAME: REIMBURSEMENT) 12B-1 FEE REIMBURSEMENT) REIMBURSEMENT)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Appreciation Fund................. 0.75% 0.10% 0.85%
Money Market Portfolio.................... 0.32% 0.08% 0.40%(1)
DELAWARE GROUP PREMIUM FUND, INC.
REIT Series........................... 0.58% 0.27% 0.85%(2)
DREYFUS VARIABLE INVESTMENT FUND
Capital Appreciation Portfolio........ 0.75% 0.06% 0.81%
Small Cap Portfolio................... 0.75% 0.02% 0.77%
GREENWICH STREET SERIES FUND
Equity Index Portfolio Class II....... 0.21% 0.25% 0.09% 0.55%(3)
SALOMON BROTHERS VARIABLE SERIES FUNDS,
INC.
Salomon Brothers Variable Investors
Fund................................ 0.70% 0.30% 1.00%(4)
TRAVELERS SERIES FUND, INC.
Alliance Growth Portfolio............. 0.80% 0.02% 0.82%(5)
MFS Total Return Portfolio............ 0.80% 0.04% 0.84%(5)
Putnam Diversified Income Portfolio... 0.75% 0.12% 0.87%(5)
THE TRAVELERS SERIES TRUST
Convertible Bond Portfolio............ 0.60% 0.20% 0.80%(6)
Disciplined Mid Cap Stock Portfolio... 0.70% 0.25% 0.95%(7)
Disciplined Small Cap Stock
Portfolio........................... 0.80% 0.20% 1.00%(6)
Equity Income Portfolio............... 0.75% 0.20% 0.95%(7)
Federated High Yield Portfolio........ 0.65% 0.25% 0.90%
Federated Stock Portfolio............. 0.63% 0.28% 0.91%
Large Cap Portfolio................... 0.75% 0.20% 0.95%(7)
Lazard International Stock
Portfolio........................... 0.83% 0.42% 1.25%
MFS Emerging Growth Portfolio......... 0.75% 0.14% 0.89%
MFS Mid Cap Growth Portfolio.......... 0.80% 0.20% 1.00%(6)
MFS Research Portfolio................ 0.80% 0.20% 1.00%(6)
Strategic Stock Portfolio............. 0.60% 0.30% 0.90%(6)
Travelers Quality Bond Portfolio...... 0.32% 0.31% 0.63%
WARBURG PINCUS TRUST
Emerging Markets Portfolio............ 0.20% 1.20% 1.40%(8)
</TABLE>
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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. "Other Expenses" include operating costs of the fund. These expenses
are reflected in each funding option's net asset value and are not deducted from
the account value under the Contract.
(1) Other Expenses have been restated to reflect the current expense
reimbursement arrangement with The Travelers Insurance Company. Travelers
has agreed to reimburse the Fund for the amount by which its aggregate
expenses (including the management fee, but excluding brokerage commissions,
interest charges and taxes) exceeds 0.40%. Without such arrangement, Total
Expenses would have been 0.65% for the MONEY MARKET PORTFOLIO.
(2) The adviser for the DELAWARE REIT SERIES has agreed to voluntarily waive its
fee and pay the expenses of the Series to the extent that the Series' annual
operating expenses, exclusive of taxes, interest, brokerage commissions and
extraordinary expenses, do not exceed 0.85% of its average daily net assets
through October 31,1999. Without such arrangements, the Total Annual
Operating Expenses for the Portfolio would have been 1.02%.
(3) Other expenses for the EQUITY INDEX PORTFOLIO have been restated to reflect
the current expense reimbursement arrangement whereby the adviser has agreed
to reimburse the Portfolio for the amount by which expenses exceed 0.30%.
Without such arrangement, Total Annual Operating Expenses would have been
0.42%. In addition, the Portfolio Management Fee includes 0.06% for fund
administration. Class 2 of this fund has a distribution plan or "Rule 12b-1
plan".
(4) SBAM has waived all of its Management Fees for the Salomon Brothers Fund for
the period ended December 31, 1998. If such fees were not waived or expenses
reimbursed, the actual annualized Total Annual Operating Expenses for the
INVESTORS FUND would have been 2.07%.
(5) Expenses are as of October 31, 1998 (the Fund's fiscal year end). There were
no fees waived or expenses reimbursed for these funds in 1998.
(6) Travelers Insurance has agreed to reimburse the CONVERTIBLE BOND PORTFOLIO,
the STRATEGIC STOCK PORTFOLIO, the DISCIPLINED SMALL CAP STOCK PORTFOLIO,
the MFS MID CAP GROWTH PORTFOLIO, and the MFS RESEARCH PORTFOLIO for
expenses for the period ended December 31, 1998. If such expenses were not
reimbursed, the actual annualized Total Annual Operating Expenses would have
been 1.86%, 1.51%, 2.98%, 1.62%, and 1.37%, respectively.
(7) Other Expenses reflect the current expense reimbursement arrangement with
Travelers where Travelers has agreed to reimburse the Portfolios for the
amount by which their aggregate expenses (including management fees, but
excluding brokerage commissions, interest charges and taxes) exceeds 0.95%.
Without such arrangements, the Total Annual Operating Expenses for the
Portfolios would have been 1.22% for the TRAVELERS DISCIPLINED MID CAP STOCK
PORTFOLIO, 1.23% for the LARGE CAP PORTFOLIO, and 1.09% for the EQUITY
INCOME PORTFOLIO.
(8) Fee waivers and expense reimbursements or credits reduced expenses for the
WARBURG PINCUS EMERGING MARKETS PORTFOLIO during 1998, but this may be
discontinued at any time. Absent this waiver of fees, the Portfolio's
Management Fees, Other Expenses and Total Annual Operating Expenses would
equal 1.25%, 6.96% and 8.21%, respectively. The Portfolio's other expenses
are based on annualized estimates of expenses for the fiscal year ending
December 31, 1998, net of any fee waivers or expense reimbursements.
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EXAMPLE*
Assuming a 5% annual return on assets, a $1,000 investment would be subject to
the following expenses:
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IF CONTRACT IS SURRENDERED, ANNUITIZED
OR IF NO WITHDRAWALS HAVE BEEN MADE:
-----------------------------------------
PORTFOLIO NAME 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
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Capital Appreciation Fund................................... $23 $71 $121 $260
Money Market Portfolio...................................... 18 57 98 213
DELAWARE GROUP PREMIUM FUND, INC.
REIT Series............................................. 23 71 121 260
DREYFUS VARIABLE INVESTMENT FUND
Capital Appreciation Portfolio.......................... 23 70 119 256
Small Cap Portfolio..................................... 22 68 117 251
GREENWICH STREET SERIES FUND
Equity Index Portfolio Class II......................... 20 62 106 229
SALOMON BROTHERS VARIABLE SERIES FUNDS, INC.
Salomon Brothers Variable Investors Fund................ 24 75 129 275
TRAVELERS SERIES FUND, INC.
Alliance Growth Portfolio............................... 23 70 119 256
MFS Total Return Portfolio.............................. 23 70 120 258
Putnam Diversified Income Portfolio..................... 23 71 122 262
THE TRAVELERS SERIES TRUST
Convertible Bond Portfolio.............................. 22 69 118 254
Disciplined Mid Cap Stock Portfolio..................... 24 74 126 270
Disciplined Small Cap Stock Portfolio................... 24 75 129 275
Equity Income Portfolio................................. 24 74 126 270
Federated High Yield Portfolio.......................... 23 72 124 265
Federated Stock Portfolio............................... 24 72 124 266
Large Cap Portfolio..................................... 24 74 126 270
Lazard International Stock Portfolio.................... 27 83 141 299
MFS Emerging Growth Portfolio........................... 23 72 123 264
MFS Mid Cap Growth Portfolio............................ 24 75 129 275
MFS Research Portfolio.................................. 24 75 129 275
Strategic Stock Portfolio............................... 23 72 124 265
Travelers Quality Bond Portfolio........................ 21 64 110 237
WARBURG PINCUS TRUST
Emerging Markets Portfolio.............................. 28 87 148 314
</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 .010% OF ASSETS.
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
See Appendix A.
THE ANNUITY CONTRACT
- --------------------------------------------------------------------------------
Travelers Access is a contract between the contract owner ("you"), 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
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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 12-month
period following the contract date is called a contract year.
Certain changes and elections must be made in writing to the Company. Where the
term "written request" is used, it means that written information must be sent
to the Company's Home Office in a form and content satisfactory to us.
CONTRACT OWNER INQUIRIES
If you have any questions about the Contract, call the Company's Home Office at
1-800-842-9368.
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 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. These funding options are subsections of the Separate
Account, which invest in the underlying mutual funds. You will find detailed
information about the options and their inherent risks in the current underlying
mutual fund prospectuses which must accompany this prospectus. You are not
investing in the underlying mutual fund. 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 1-800-842-9368.
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.
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The current variable funding options are listed below, along with their
investment advisers and any subadviser:
<TABLE>
<CAPTION>
INVESTMENT
FUNDING OPTIONS OBJECTIVE INVESTMENT ADVISER/SUBADVISER
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Capital Appreciation Fund Seeks growth of capital through the use of common Travelers Asset Management
stocks. Income is not an objective. The Fund International Corporation
invests principally in common stocks of small to ("TAMIC")
large companies which are expected to experience Subadviser: Janus
wide fluctuations in price in both rising and Capital Corp.
declining markets.
Money Market Portfolio Seeks high current income from short-term money TAMIC
market instruments while preserving capital and
maintaining a high degree of liquidity.
DELAWARE GROUP PREMIUM FUND,
INC.
REIT Series Seeks maximum long-term total return, by Delaware Management Company,
investing in securities of companies primarily Inc.
engaged in the real estate industry. Capital Subadviser: Lincoln Investment
appreciation is a secondary objective. Management, Inc.
DREYFUS VARIABLE INVESTMENT
FUND
Capital Appreciation Seeks primarily to provide long-term capital The Dreyfus Corporation
Portfolio growth consistent with the preservation of Subadviser: Fayez Sarofim & Co.
capital; current income is a secondary investment
objective. The portfolio invests primarily in the
common stocks of domestic and foreign issuers.
Small Cap Portfolio Seeks to maximize capital appreciation. The Dreyfus Corporation
GREENWICH STREET SERIES FUND
Equity Index Portfolio Seeks to replicate, before deduction of expenses, Travelers Investment Management
Class II the total return performance of the S&P 500 Company ("TIMCO")
Index.
SALOMON BROTHERS VARIABLE
SERIES FUND, INC.
Salomon Brothers Variable Seeks long-term growth of capital. Current income Salomon Brothers Asset
Investors Fund is a secondary objective. Management ("SBAM")
TRAVELERS SERIES FUND, INC.
Alliance Growth Portfolio Seeks long-term growth of capital by investing Travelers Investment Adviser
predominantly in equity securities of companies ("TIA")
with a favorable outlook for earnings and whose Subadviser: Alliance Capital
rate of growth is expected to exceed that of the Management L.P.
U.S. economy over time. Current income is only an
incidental consideration.
MFS Total Return Portfolio Seeks to obtain above-average income (compared to TIA
a portfolio entirely invested in equity Subadviser: Massachusetts
securities) consistent with the prudent Financial Services Company
deployment of capital. Generally, at least 40% of ("MFS")
the Portfolio's assets will be invested in equity
securities.
Putnam Diversified Income Seeks high current income consistent with TIA
Portfolio preservation of capital. The Portfolio will Subadviser: Putnam Investment
allocate its investments among the U.S. Management, Inc.
Government Sector, the High Yield Sector, and the
International Sector of the fixed income
securities markets.
THE TRAVELERS SERIES TRUST
Convertible Bond Portfolio Seeks current income and capital appreciation by TAMIC
investing in convertible securities and in
combinations of nonconvertible fixed-income
securities and warrants or call options that
together resemble convertible securities
("synthetic convertible securities").
</TABLE>
10
<PAGE> 13
<TABLE>
<CAPTION>
INVESTMENT
FUNDING OPTIONS OBJECTIVE INVESTMENT ADVISER/SUBADVISER
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
THE TRAVELERS SERIES TRUST (CONTINUED)
Disciplined Mid Cap Stock Seeks growth of capital by investing primarily in TAMIC
Portfolio a broadly diversified portfolio of common stocks. Subadviser: TIMCO
Disciplined Small Cap Stock Seeks long term capital appreciation by investing TAMIC
Portfolio primarily (at least 65% of its total assets) in Subadviser: TIMCO
the common stocks of U.S. companies with
relatively small market capitalizations at the
time of investment.
Equity Income Portfolio Seeks reasonable income by investing at least 65% TAMIC
in income-producing equity securities. The Subadviser: Fidelity Management
balance may be invested in all types of domestic & Research Company ("FMR")
and foreign securities, including bonds. The
Portfolio seeks to achieve a yield that exceeds
that of the securities comprising the S&P 500.
The Subadviser also considers the potential for
capital appreciation.
Federated High Yield Seeks high current income by investing primarily TAMIC
Portfolio in a professionally managed, diversified Subadviser: Federated
portfolio of fixed income securities. Investment Counseling, Inc.
Federated Stock Portfolio Seeks growth of income and capital by investing TAMIC
principally in a professionally managed and Subadviser: Federated
diversified portfolio of common stock of Investment Counseling, Inc.
high-quality companies (i.e., leaders in their
industries and characterized by sound management
and the ability to finance expected growth).
Large Cap Portfolio Seeks long-term growth of capital by investing TAMIC
primarily in equity securities of companies with Subadviser: FMR
large market capitalizations.
Lazard International Stock Seeks capital appreciation by investing primarily TAMIC
Portfolio in the equity securities of non-United States Subadviser: Lazard Asset
companies (i.e., incorporated or organized Management
outside the United States).
MFS Emerging Growth Seeks long-term growth of capital. Dividend and TAMIC
Portfolio interest income from portfolio securities, if Subadviser: MFS
any, is incidental.
MFS Mid Cap Growth Seeks to obtain long term growth of capital by TAMIC
Portfolio investing, under normal market conditions, at Subadviser: MFS
least 65% of its total assets in equity
securities of companies with medium market
capitalization which the investment adviser
believes have above-average growth potential.
MFS Research Portfolio Seeks to provide long-term growth of capital and TAMIC
future income. Subadviser: MFS
Strategic Stock Portfolio Seeks to provide an above-average total return TAMIC
through a combination of potential capital Subadviser: TIMCO
appreciation and dividend income by investing
primarily in high dividend yield stocks
periodically selected from the companies included
in (i) the Dow Jones Industrial Average and (ii)
a subset of the Standard & Poor's Industrial
Index.
Travelers Quality Bond Seeks current income, moderate capital volatility TAMIC
Portfolio and total return.
WARBURG PINCUS TRUST
Emerging Markets Portfolio Seeks long-term growth of capital by investing Warburg Pincus Asset
primarily in equity securities of non-U.S. Management, Inc.
issuers consisting of companies in emerging
securities markets.
</TABLE>
11
<PAGE> 14
CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
GENERAL
We deduct the charges described below. The charges are for the service and
benefits we provide, costs and expenses we incur, and risks we assume under the
Contracts. Services and benefits we provide include:
- the ability for you to make withdrawals and surrenders under the
Contracts;
- the death benefit paid on the death of the contract owner, annuitant, or
first of the joint contract owners,
- the available funding options and related programs (including dollar-cost
averaging, portfolio rebalancing, and systematic withdrawal programs);
- administration of the annuity options available under the Contracts; and
- the distribution of various reports to contract owners.
Costs and expenses we incur include:
- losses associated with various overhead and other expenses associated
with providing the services and benefits provided by the Contracts,
- sales and marketing expenses, and
- other costs of doing business.
Risks we assume include:
- risks that annuitants may live longer than estimated when the annuity
factors under the Contracts were established,
- that the amount of the death benefit will be greater than the contract
value, and
- that the costs of providing the services and benefits under the Contracts
will exceed the charges deducted.
We may also deduct a charge for taxes.
Unless otherwise specified, charges are deducted proportionately from all
funding options in which you are invested.
We may reduce or eliminate the administrative charges, the mortality and expense
risk charge, and the distribution charge under the Contract when certain sales
or administration of the Contract result in savings or reduced expenses and/or
risks. In no event will we reduce or eliminate the administrative charge where
such reduction or elimination would be unfairly discriminatory to any person.
ADMINISTRATIVE CHARGES
A Contract administrative charge of $30 is deducted annually from Contracts with
a value of less than $40,000 on the deduction date. 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
deduction date is $40,000 or more.
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
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<PAGE> 15
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.
FUNDING OPTION EXPENSES
The charges and expenses 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.
TRANSFERS
- --------------------------------------------------------------------------------
Up to 30 days before the maturity date, you may transfer all or part of the
contract value between variable 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. Please refer to Appendix B for information
regarding transfers between the Fixed Accounts and the variable funding options.
DOLLAR COST AVERAGING
Dollar cost averaging or the pre-authorized transfer program (the "DCA Program")
allows you to transfer a set dollar amount to other funding options on a monthly
or quarterly basis during the accumulation phase of the Contract so that more
accumulation units are purchased in a funding option if the value per unit is
low and fewer accumulation units are purchased if the value per unit is high.
Therefore, a lower-than-average cost per unit may be achieved over the long run.
You may elect the DCA Program through written request or other method acceptable
to the Company. You must have a minimum total contract value of $5,000 to enroll
in the DCA Program. The minimum amount that may be transferred through this
program is $400.
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<PAGE> 16
You may establish pre-authorized transfers of contract values from the Fixed
Account, subject to certain restrictions. Under the DCA Program, automated
transfers from the Fixed Account may not deplete your Fixed Account Value in
less than twelve months from your enrollment in the DCA Program.
In addition to the DCA Program, Travelers may credit increased interest rates to
contract owners under an administrative Special DCA Program established at the
discretion of Travelers, depending on availability and state law. Under this
program, the contract owner may pre-authorize level transfers to any of the
funding options under either a 6 Month Program or 12 Month Program. The 6 Month
Program and the 12 Month Program will generally have different credited interest
rates. Under the 6 Month Transfer Program, the interest rate can accrue up to 6
months on funds in the Special DCA Program and all purchase payments and accrued
interest must be transferred on a level basis to the selected funding option in
6 months. Under the 12 Month Program, the interest rate can accrue up to 12
months on funds in the Special DCA Program and all purchase payments and accrued
interest in this Program must be transferred on a level basis to the selected
funding options in 12 months.
The pre-authorized transfers will begin after the initial Program purchase
payment and complete enrollment instructions are received by Travelers. If
complete Program enrollment instructions are not received by the Company within
15 days of receipt of the initial Program purchase payment, the entire balance
in the Program will be credited with the non-Program interest rate then in
effect for the Fixed Account.
You may start or stop participation in the DCA Program at any time, but you must
give the Company at least 30 days' notice to change any automated transfer
instructions that are currently in place. If you stop the Special DCA Program
and elect to remain in the Fixed Account, your contract value will be credited
for the remainder of 6 or 12 months with the interest rate for non-Program
funds.
A contract owner may only have one DCA Program or Special DCA Program in place
at one time. Any subsequent purchase payments received by the Company within the
Program period selected will be allocated to the current funding options over
the remainder of that Program transfer period, unless otherwise directed by the
contract owner.
All provisions and terms of the Contract apply to the DCA and Special DCA
Programs, 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.
For information about withdrawals from your payout option after the Maturity
Date (with no life contingency), refer to the Statement of Additional
Information.
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.
14
<PAGE> 17
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.
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. If the first joint owner to die is also
the annuitant, the death benefit will be paid to the beneficiary if there is no
contingent annuitant. If the first joint owner to die is not the annuitant, 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 designated beneficiary may
15
<PAGE> 18
be the joint owner). 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.
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, where the owner and annuitant are not the same
person, the contract owner may also name one individual as a contingent
annuitant by written request before the Contract becomes effective. If the
annuitant dies before the maturity date while the owner is still living and a
contingent annuitant has been named, the contingent annuitant becomes the
annuitant, and the Contract continues. However, if the annuitant who is also the
owner dies before the maturity date, the death benefit is paid to the
beneficiary. The contingent annuitant does not become the annuitant and is not
entitled to receive any contract benefits. A contingent annuitant may not be
changed, deleted or added after the Contract becomes effective.
DEATH BENEFIT
- --------------------------------------------------------------------------------
Before the maturity date, when there is no contingent annuitant, a death benefit
is payable when either the annuitant, or the contract owner dies. The death
benefit is calculated at the close of the business day on which the Company's
Home Office receives due proof of death and written payment instructions.
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 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
occurring on or before the annuitant's 75th birthday.
DEATH OF ANY OWNER OR THE ANNUITANT ON OR AFTER AGE 85 (90 IN FLORIDA). The
Company will pay the beneficiary a death benefit in an amount equal to the
contract value, less any applicable premium tax.
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<PAGE> 19
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 the beneficiary(ies), or if none, to the contract owner's estate.
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 which is payable over the life of the beneficiary or over a period not
exceeding the beneficiary's life expectancy.
Under a nonqualified contract, 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 (NONQUALIFIED CONTRACTS ONLY).
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.
DEATH OF CONTRACT OWNER WHO IS NOT THE ANNUITANT (NONQUALIFIED CONTRACTS ONLY).
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. If the
surviving joint owner (or if none, 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.
ENTITY AS OWNER. In the case of a nonqualified Contract owned by a nonnatural
person (e.g. a trust or another entity), the death benefit will be paid only
upon the death of the annuitant.
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 scheduled annuity payments. You can choose
the month and the year in which those payments begin (maturity date). You can
also choose among payout 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 thereafter during the lifetime of the
survivor. Income options that are not based on any lifetime are also available.
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, or, for nonqualified contracts, the
annuitant's 75th birthday or ten years after the
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<PAGE> 20
effective date of the contract, if later. (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 may not be available
in all states. Refer to your contract.) 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 as you have selected
during the accumulation period. At least 30 days before the maturity date, you
may transfer the contract value among the funding options in order to change the
basis on which annuity payments will be determined. (See "Transfers.")
VARIABLE ANNUITY
You may choose to receive annuity payments that are based on the performance of
one or more of the variable funding options. This is called a variable payout
because the amount you receive each month will increase or decrease depending on
how the variable funding options perform. When you annuitize, we will credit you
with annuity units. An annuity unit measures the dollar value of an annuity
payment. We determine the number of annuity units to credit you with by dividing
the first monthly annuity payment for each funding option by the accumulation
unit value for that funding option as of 14 days before the annuity payments
begin. The number of annuity units (but not their value) remains fixed during
the annuity period.
HOW WE DETERMINE THE FIRST ANNUITY PAYMENT. The Contract contains tables used
to determine the first monthly annuity payment. If a variable annuity is
elected, the amount applied to it will be the value of the funding options as of
14 days before the annuity payments begin less any premium taxes due.
The first monthly payment amount depends on the annuity option elected and the
annuitant's adjusted age. The Contract contains a formula for determining the
adjusted age. We calculate the first monthly payment by multiplying the benefit
per $1,000 applied, shown in the Contract tables, by the number of thousands of
dollars of Contract value applied to the annuity option. We also factor in an
assumed daily net investment factor of 3%. This assumed daily net investment
factor is used to determine the guaranteed payout rates shown. If net investment
rates are higher at the time annuitization is selected, payout rates will be
higher than those shown. Payout rates will not be lower than those shown. We
reserve the right to require satisfactory proof of an annuitant's age before we
make the first annuity payment.
HOW WE DETERMINE THE PAYMENTS AFTER THE FIRST. The dollar amount of all annuity
payments after the first will change from month to month based on the investment
performance of the applicable funding options. The total amount of each annuity
payment will equal 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 payment is due.
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<PAGE> 21
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. The amount
applied to effect an income or annuity option will be the contract value as of
the date the 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 such 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
administrative expense charge.
On the maturity date, we will pay the amount due under the Contract in one lump
sum (except in states 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 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.
19
<PAGE> 22
Option 3 -- Joint and Last Survivor Life Annuity -- No Refund. The Company will
make regular annuity payments during the lifetime of the annuitant and a second
person. When either person dies, we will continue making payments to the
survivor. No further payments will be made following the death of the survivor.
Option 4 -- Joint and Last Survivor Life Annuity -- Annuity Reduced on Death of
Primary Payee. The Company will make annuity payments during the lifetimes of
the annuitant and a second person. 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.
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.
20
<PAGE> 23
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, and 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.
21
<PAGE> 24
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 "nonstandardized 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 is converted to a percentage of assets based on the actual
fee collected, divided by the average net assets for Contracts 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 annual contract administrative charge, which, if reflected,
would decrease the level of performance shown.
For funding options that were in existence prior to the date they became
available under the Separate Account, the standardized average annual total
return quotations may be accompanied by returns showing 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.
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.
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.
22
<PAGE> 25
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. An exception to
this is a qualified plan called a Roth IRA. Under Roth IRAs, after-tax
contributions accumulate until maturity, when amounts (including earnings) may
be withdrawn tax free. 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 contract value exceeds your investment in the contract. The
investment in the contract equals the total purchase payments you paid less any
amount received previously which was excludible from gross income. Any direct or
indirect borrowing against the value of the contract or pledging of the contract
as security for a loan will be treated as a cash distribution under the tax law.
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.
23
<PAGE> 26
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, 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 or the year of retirement.
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.
24
<PAGE> 27
OTHER INFORMATION
- --------------------------------------------------------------------------------
THE INSURANCE COMPANY
The Travelers Life and Annuity Company is a stock insurance company chartered in
1973 in Connecticut and has continuously engaged in the insurance business since
that time. It is licensed to 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
Citigroup Inc. The Company's Home Office is located at One Tower Square,
Hartford, Connecticut 06183.
FINANCIAL STATEMENTS
The financial statements for the insurance company are located in the Statement
of Additional Information. The financial statements for the separate account
will be available through annual reports to shareholders. These reports are
accessible through the SEC's website that appears on page 1 of the prospectus.
IMSA
The Company is a member of the Insurance Marketplace Standards Association
("IMSA"), and as such may use the IMSA logo and IMSA membership in its
advertisements. Companies that belong to IMSA subscribe to a set of ethical
standards covering the various aspects of sales and service for individually
sold life insurance and annuities. IMSA members have adopted policies and
procedures that demonstrate a commitment to honesty, fairness and integrity in
all customer contacts involving the sale and service of individual life
insurance and annuity products.
YEAR 2000 COMPLIANCE
The Company is highly dependent on computer systems and systems applications for
conducting its ongoing business functions. In 1996, The Travelers Insurance
Company and its subsidiaries, including the Company, began the process of
identifying, assessing and implementing changes to computer programs to address
the Year 2000 issue and developed a comprehensive plan that encompasses The
Travelers Insurance Company and its insurance subsidiaries, to address the
issue. The issue involves the ability of computer systems that have time
sensitive programs to recognize properly the Year 2000. The inability to do so
could result in major failures or miscalculations that would disrupt the
Company's ability to meet its customer and other obligations on a timely basis.
The Company has achieved substantial compliance with respect to its business
critical systems in accordance with its Year 2000 plan and is in the process of
certification to validate compliance. The Company anticipates completing the
certification process by June 30, 1999. An ongoing re-certification process will
be put in place for third and fourth quarter 1999 to ensure all systems and
products remain compliant.
The total cost associated with the required modifications and conversions is
being expensed as incurred in the period 1996 through 1999. The Company also has
third party customers, financial institutions, vendors and others with which it
conducts business and has confirmed their plans to address and resolve Year 2000
issues on a timely basis. While it is likely that these efforts by third party
vendors and customers will be successful, it is possible that a series of
failures by third parties could have a material adverse effect on the Company's
results of operations in future periods.
In addition, the Company is developing contingency plans to address perceived
risks associated with the Year 2000 effort. These include business resumption
plans to address the possibility of internal systems failures and the
possibility of failure of systems or processes outside the Company's control. As
of year-end 1998, the Company has completed initial business resumption
25
<PAGE> 28
contingency plans which would enable business critical units to function
beginning January 1, 2000 in the event of an unexpected failure. Business
resumption contingency plans are expected to be finalized by June 30, 1999.
Preparations for the management of the date change will continue through 1999.
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. Any sales
representative or employee who sells the Contracts will be 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 and distributor of the
Contracts is CFBDS, Inc., 21 Milk St., Boston, MA. CFBDS, Inc. is not affiliated
with the Company or the Separate Account.
Up-front compensation paid to sales representatives will not exceed 7.00 % of
the purchase payments made under the Contracts. If asset-based compensation is
paid, it will not exceed 2% of the average account value annually. From time to
time, the Company may pay or permit other promotional incentives, in cash,
credit or other compensation.
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 legal requirements of any governmental agency to
which the Company, the Contract or the contract owner is subject. Where a state
requires contract owner approval, we will comply.
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 the separate account,
the principal underwriter or the Company. 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 passed on by the General Counsel of the Company.
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<PAGE> 29
APPENDIX A: CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
THE TRAVELERS FUND ABD II FOR VARIABLE ANNUITIES
ACCUMULATION UNIT VALUES
<TABLE>
<CAPTION>
YEARS ENDED PERIOD FROM
------------------------------------- DECEMBER 16, 1996
DECEMBER 31, DECEMBER 31, TO
FUNDING OPTION 1998 1997 DECEMBER 31, 1996
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C>
CAPITAL APPRECIATION FUND (12/96)*
Unit Value at beginning of year............... $ 1.283 $ 1.032 $ 1.000
Unit Value at end of year..................... 2.046 1.283 1.032
Number of units outstanding at end of year.... 23,010,432 6,344,051 29,824
MONEY MARKET PORTFOLIO(2/97)*
Unit Value at beginning of year............... $ 1.033 $ 1.000 N/A
Unit Value at end of year..................... 1.070 1.033 N/A
Number of units outstanding at end of year.... 16,762,447 5,369,177 N/A
DELAWARE GROUP PREMIUM FUND, INC.
REIT SERIES(5/98)*
Unit Value at beginning of year............... $ 1.000 N/A N/A
Unit Value at end of year..................... 0.901 N/A N/A
Number of units outstanding at end of year.... 632,612 N/A N/A
DREYFUS VARIABLE INVESTMENT FUND
CAPITAL APPRECIATION PORTFOLIO (4/98)
Unit Value at beginning of year............... $ 1.000 N/A N/A
Unit Value at end of year..................... 1.112 N/A N/A
Number of units outstanding at end of year.... 2,833,960 N/A N/A
SMALL CAP PORTFOLIO (4/98)*
Unit Value at beginning of year............... $ 1.000 N/A N/A
Unit Value at end of year..................... 0.871 N/A N/A
Number of units outstanding at end of year.... 3,051,249 N/A N/A
SALOMON BROTHERS VARIABLE SERIES FUNDS, INC.
SALOMON BROTHERS VARIABLE INVESTORS FUND
(4/98)*
Unit Value at beginning of year............... $ 1.000 N/A N/A
Unit Value at end of year..................... 1.029 N/A N/A
Number of units outstanding at end of year.... 3,232,444 N/A N/A
TRAVELERS SERIES FUND INC.
ALLIANCE GROWTH PORTFOLIO (12/96)*
Unit Value at beginning of year............... $ 1.319 $ 1.037 $ 1.000
Unit Value at end of year..................... 1.679 1.319 1.037
Number of units outstanding at end of year.... 31,011,054 8,259,362 2,250
MFS TOTAL RETURN PORTFOLIO (1/97)*
Unit Value at beginning of year............... $ 1.183 $ 1.000 N/A
Unit Value at end of year..................... 1.303 1.183 N/A
Number of units outstanding at end of year.... 42,017,841 9,959,634 N/A
PUTNAM DIVERSIFIED INCOME PORTFOLIO (12/96)*
Unit Value at beginning of year............... $ 1.070 $ 1.007 $ 1.000
Unit Value at end of year..................... 1.062 1.070 1.007
Number of units outstanding at end of year.... 3,797,291 1,132,608 3,300
THE TRAVELERS SERIES TRUST
CONVERTIBLE BOND PORTFOLIO (5/98)*
Unit Value at beginning of year............... $ 1.000 N/A N/A
Unit Value at end of year..................... 1.000 N/A N/A
Number of units outstanding at end of year.... 414,907 N/A N/A
DISCIPLINED MID CAP STOCK PORTFOLIO (6/97)*
Unit Value at beginning of year............... $ 1.195 $ 1.000 N/A
Unit Value at end of year..................... 1.377 1.195 N/A
Number of units outstanding at end of year.... 5,142,990 1,668,733 N/A
DISCIPLINED SMALL CAP STOCK PORTFOLIO (5/98)
Unit Value at beginning of year............... $ 1.000 N/A N/A
Unit Value at end of year..................... 0.894 N/A N/A
Number of units outstanding at end of year.... 450,528 N/A N/A
EQUITY INCOME PORTFOLIO (12/96)*
Unit Value at beginning of year............... $ 1.339 $ 1.026 $ 1.339
Unit Value at end of year..................... 1.484 1.339 1.026
Number of units outstanding at end of year.... 25,733,333 6,719,150 30,196
FEDERATED HIGH YIELD PORTFOLIO (1/97)*
Unit Value at beginning of year............... $ 1.140 $ 1.000 N/A
Unit Value at end of year..................... 1.177 1.140 N/A
Number of units outstanding at end of year.... 18,811,555 4,566,993 N/A
FEDERATED STOCK PORTFOLIO (1/97)*
Unit Value at beginning of year............... $ 1.285 $ 1.000 N/A
Unit Value at end of year..................... 1.494 1.285 N/A
Number of units outstanding at end of year.... 11,892,034 3,816,999 N/A
</TABLE>
A-1
<PAGE> 30
THE TRAVELERS FUND ABD II FOR VARIABLE ANNUITIES
ACCUMULATION UNIT VALUES
<TABLE>
<CAPTION>
YEARS ENDED PERIOD FROM
------------------------------------- DECEMBER 16, 1996
DECEMBER 31, DECEMBER 31, TO
FUNDING OPTION 1998 1997 DECEMBER 31, 1996
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C>
THE TRAVELERS SERIES TRUST (CONT'D)
LARGE CAP PORTFOLIO (12/96)*
Unit Value at beginning of year............... $ 1.245 $ 1.023 $ 1.000
Unit Value at end of year..................... 1.665 1.245 1.023
Number of units outstanding at end of year.... 15,040,703 4,815,858 7,800
LAZARD INTERNATIONAL STOCK PORTFOLIO (12/96)*
Unit Value at beginning of year............... $ 1.095 $ 1.027 $ 1.000
Unit Value at end of year..................... 1.216 1.095 1.027
Number of units outstanding at end of year.... 17,270,810 5,694,288 5,702
MFS EMERGING GROWTH PORTFOLIO (12/96)*
Unit Value at beginning of year............... $ 1.198 $ 1.004 $ 1.000
Unit Value at end of year..................... 1.587 1.198 1.004
Number of units outstanding at end of year.... 15,538,984 4,218,974 31,886
MFS MID CAP GROWTH PORTFOLIO (4/98)*
Unit Value at beginning of year............... 1,000 N/A N/A
Unit Value at end of year..................... 0.985 N/A N/A
Number of units outstanding at end of year.... 965,761 N/A N/A
MFS RESEARCH PORTFOLIO (5/98)*
Unit Value at beginning of year............... 1.000 N/A N/A
Unit Value at end of year..................... 1.054 N/A N/A
Number of units outstanding at end of year.... 211,400 N/A N/A
STRATEGIC STOCK PORTFOLIO (5/98)*
Unit Value at beginning of year............... 1.000 N/A N/A
Unit Value at end of year..................... 0.948 N/A N/A
Number of units outstanding at end of year.... 147,123 N/A N/A
TRAVELERS QUALITY BOND PORTFOLIO (12/96)*
Unit Value at beginning of year............... $ 1.057 $ 1.001 $ 1.000
Unit Value at end of year..................... 1.131 1.057 1.001
Number of units outstanding at end of year.... 15,435,236 3,137,736 95,203
WARBURG PINCUS TRUST
EMERGING MARKETS PORTFOLIO (5/98)*
Unit Value at beginning of year............... 1.000 N/A N/A
Unit Value at end of year..................... 0.734 N/A N/A
Number of units outstanding at end of year.... 780,839 N/A N/A
</TABLE>
* Reflects date money was first applied to this funding option through the
Separate Account. Condensed financial information is shown as of this date.
Funding Options not listed had no amounts yet allocated to them. "Number of
units outstanding at end of year" may include units for contract owners in the
payout phase. The financial statements for Fund ABD II are contained in the
Annual Report filed with the Securities and Exchange Commission. The financial
statements of The Travelers Life and Annuity Company are contained in the SAI.
A-2
<PAGE> 31
APPENDIX B
- --------------------------------------------------------------------------------
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 under 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.
B-1
<PAGE> 32
APPENDIX C
- --------------------------------------------------------------------------------
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 Principal Underwriting Agreement
Valuation of Assets
Mixed and Shared Funding
Performance Information
Federal Tax Considerations
Independent Accountants
Financial Statements
- --------------------------------------------------------------------------------
Copies of the Statement of Additional Information dated May 1, 1999 (Form No.
L-21195S) 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:
- ----------------------------------------
- ----------------------------------------
C-1
<PAGE> 33
THIS PAGE INTENTIONALLY LEFT BLANK.
<PAGE> 34
L-21269 May, 1999
<PAGE> 35
TRAVELERS ACCESS SELECT (ABD II) PROSPECTUS
This prospectus describes TRAVELERS ACCESS SELECT, 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"). Travelers Access Select 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, we refer to both Contracts
and certificates as "Contracts."
You can choose to have your purchase payments accumulate on a fixed and/or a
variable basis. Your contract value will vary daily to reflect the investment
experience of the subaccounts ("funding options") you select and any interest
credited to the Fixed Account. The variable funding options currently available
are:
Capital Appreciation Fund
Money Market Portfolio
DELAWARE GROUP PREMIUM FUND, INC.
REIT Series
DREYFUS VARIABLE INVESTMENT FUND
Capital Appreciation Portfolio
Small Cap Portfolio
GREENWICH STREET SERIES FUND
Appreciation Portfolio
Diversified Strategic Income Portfolio
Equity Index Portfolio Class II
Total Return Portfolio
SALOMON BROTHERS VARIABLE SERIES FUNDS, INC.
Salomon Brothers Variable Investors Fund
TRAVELERS SERIES FUND, INC.
Alliance Growth Portfolio
MFS Total Return Portfolio
THE TRAVELERS SERIES TRUST
Convertible Bond Portfolio
Disciplined Mid Cap Stock Portfolio
Disciplined Small Cap Stock Portfolio
Equity Income Portfolio
Federated High Yield Portfolio
Federated Stock Portfolio
Large Cap Portfolio
Lazard International Stock Portfolio
MFS Emerging Growth Portfolio
MFS Mid Cap Growth Portfolio
Travelers Quality Bond Portfolio
WARBURG PINCUS TRUST
Warburg Pincus Emerging Markets Portfolio
The Fixed Account is described in Appendix B. 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 The Travelers Fund
ABD II for Variable Annuities ("Fund ABD II") by requesting a copy of the
Statement of Additional Information ("SAI") dated May 1, 1999. 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
Insurance Company, Annuity Services, One Tower Square, Hartford, Connecticut
06183, call (800) 842-8573 or access the SEC's website (http://www.sec.gov). The
SAI's table of contents appears in Appendix C of this prospectus.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
VARIABLE ANNUITY CONTRACTS ARE NOT DEPOSITS OF ANY BANK, AND ARE NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY.
PROSPECTUS DATED MAY 1, 1999
<PAGE> 36
TABLE OF CONTENTS
<TABLE>
<S> <C>
Index of Special Terms................ 2
Summary............................... 3
Fee Table............................. 6
Condensed Financial Information....... 8
The Annuity Contract.................. 8
Contract Owner Inquiries............ 8
Purchase Payments................... 8
Accumulation Units.................. 8
The Funding Options................. 9
Charges and Deductions................ 11
General............................. 11
Administrative Charges.............. 11
Mortality and Expense Risk Charge... 12
Funding Option Expenses............. 12
Premium Tax......................... 12
Changes in Taxes Based Upon Premium
or Value......................... 12
Transfers............................. 12
Dollar Cost Averaging............... 13
Access to Your Money.................. 13
Systematic Withdrawals.............. 14
Loans............................... 14
Ownership Provisions.................. 14
Types of Ownership.................. 14
Beneficiary......................... 15
Annuitant........................... 15
Death Benefit......................... 15
Death Proceeds Before the Maturity
Date............................. 15
Payment of Proceeds................. 16
Death Proceeds After the Maturity
Date............................. 16
The Annuity Period.................... 16
Maturity Date....................... 16
Allocation of Annuity............... 17
Variable Annuity.................... 17
Fixed Annuity....................... 18
Payment Options....................... 18
Election of Options................. 18
Annuity Options..................... 18
Income Options...................... 19
Miscellaneous Contract Provisions..... 19
Right to Return..................... 19
Termination......................... 20
Required Reports.................... 20
Suspension of Payments.............. 20
Transfers of Contract Values to
Other Annuities.................. 20
The Separate Account.................. 20
Performance Information............. 21
Federal Tax Considerations............ 21
General Taxation of Annuities....... 22
Types of Contracts: Qualified or
Nonqualified..................... 22
Nonqualified Annuity Contracts...... 22
Qualified Annuity Contracts......... 22
Penalty Tax for Premature
Distributions.................... 23
Diversification Requirements for
Variable Annuities............... 23
Ownership of the Investments........ 23
Mandatory Distributions for
Qualified Plans.................. 23
Other Information..................... 24
The Insurance Company............... 24
Financial Statements................ 24
IMSA................................ 24
Year 2000 Compliance................ 24
Distribution of Variable Annuity
Contracts........................ 25
Conformity with State and Federal
Laws............................. 25
Voting Rights....................... 25
Legal Proceedings And Opinions...... 25
Appendix A: Condensed Financial
Information......................... A-1
Appendix B: The Fixed Account......... B-1
Appendix C: Contents of the Statement
of Additional Information........... C-1
</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..................... 8
Annuitant............................. 15
Annuity Payments...................... 18
Annuity Unit.......................... 8
Contract Date......................... 8
Contract Owner (You, Your)............ 8
Contract Value........................ 8
Contract Year......................... 8
Fixed Account......................... B-1
Funding Option(s)..................... 9
Income Payments....................... 19
Maturity Date......................... 8
Purchase Payment...................... 8
Written Request....................... 8
</TABLE>
2
<PAGE> 37
SUMMARY:
TRAVELERS ACCESS SELECT
THIS SUMMARY DETAILS SOME OF THE MORE IMPORTANT POINTS THAT YOU SHOULD KNOW AND
CONSIDER BEFORE PURCHASING THE CONTRACT.
CAN YOU GIVE ME A GENERAL DESCRIPTION OF THE VARIABLE ANNUITY CONTRACT? The
Contract offered by The 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 payout 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 and/or to the Fixed Account. We guarantee money
directed to the Fixed Account as to principal and interest. 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.
The Contract, like all deferred variable annuity contracts, has two phases: the
accumulation phase and the payout phase. During the accumulation phase
generally, under a qualified contract, your pre-tax contributions accumulate on
a tax-deferred basis and are taxed as income when you make a withdrawal,
presumably when you are in a lower tax bracket. During the accumulation phase,
under a 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 payout phase occurs when you begin receiving regular payments
from your Contract. The amount of money you accumulate in your Contract
determines the amount of income (annuity payments) you receive during the payout
phase.
During the payout phase, you may choose to receive annuity payments from the
Fixed Account or the variable funding options. If you want to receive scheduled
payments from your annuity, you can choose from a number of annuity or income
options.
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 variable funding options, the dollar amount of your payments may
increase or decrease.
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.
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.)
IS THERE A RIGHT TO RETURN PERIOD? 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
3
<PAGE> 38
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.
WHAT TYPES OF INVESTMENT OPTIONS ARE AVAILABLE? You can direct your money into
the Fixed Account or any or all of the funding options shown on the cover page.
The funding options are described in the accompanying fund prospectuses.
Depending on market conditions, you may make or lose money in any of these
options.
The value of the Contract will vary depending upon the investment performance of
the funding options you choose. Past performance is not a guarantee of future
results. Standard and nonstandard performance is shown in the Statement of
Additional Information that you may request free of charge.
You can transfer between the variable funding options as frequently as you wish
without any current tax implications. Currently there is no charge for
transfers, nor a limit to the number of transfers allowed. 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. Please refer to Appendix B for information regarding transfers
to and from the Fixed Account.
WHAT EXPENSES WILL BE ASSESSED UNDER THE CONTRACT? 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 on the date of assessment, the
Company deducts an annual contract 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 also charges for management and other expenses. If you withdraw
all amounts under the Contract, or if you begin receiving annuity payments, the
Company may be required by your state to deduct a premium tax.
HOW WILL MY CONTRIBUTIONS AND WITHDRAWALS BE TAXED? Generally, 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.
HOW MAY I ACCESS MY MONEY? You can take withdrawals any time during the
accumulation phase. There is no withdrawal charge, however, income taxes and a
penalty tax may apply to taxable amounts withdrawn. You may also have to pay
income taxes and a tax penalty on any money you take out.
WHAT IS THE DEATH BENEFIT UNDER THE CONTRACT? The death benefit applies upon
the first death of the owner, joint owner, or annuitant. Assuming you are the
Annuitant, if you die before you move to the payout 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
4
<PAGE> 39
proof of death and written distribution instructions. Please refer to the Death
Benefit section in the prospectus for details.
ARE THERE ANY 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 charges and 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.
5
<PAGE> 40
FUND ABD FEE TABLE
- --------------------------------------------------------------------------------
CONTRACT OWNER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Annual Contract Administrative Charge (Waived if
contract value is $40,000 or more on the deduction
date) $30
</TABLE>
<TABLE>
<S> <C>
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%
</TABLE>
FUNDING OPTION EXPENSES:
(as a percentage of average daily net assets of the Funding Option as of
December 31, 1998, unless otherwise noted)
<TABLE>
<CAPTION>
TOTAL ANNUAL
MANAGEMENT FEE OTHER EXPENSES OPERATING EXPENSES
(AFTER EXPENSE 12B-1 (AFTER EXPENSE (AFTER EXPENSE
PORTFOLIO NAME: REIMBURSEMENT) FEE REIMBURSEMENT) REIMBURSEMENT)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Appreciation Fund................... 0.75% 0.10% 0.85%
Money Market Portfolio...................... 0.32% 0.08% 0.40%(1)
DELAWARE GROUP PREMIUM FUND, INC.
REIT Series............................. 0.58% 0.27% 0.85%(2)
DREYFUS VARIABLE INVESTMENT FUND
Capital Appreciation Portfolio.......... 0.75% 0.06% 0.81%
Small Cap Portfolio..................... 0.75% 0.02% 0.77%
GREENWICH STREET SERIES FUND
Appreciation Portfolio.................. 0.75% 0.05% 0.80%(3)
Diversified Strategic Income
Portfolio............................. 0.65% 0.13% 0.78%(3)
Equity Index Portfolio Class II......... 0.21% 0.25% 0.09% 0.55%(4)
Total Return Portfolio.................. 0.75% 0.04% 0.79%
SALOMON BROTHERS VARIABLE SERIES FUNDS, INC.
Salomon Brothers Variable Investors
Fund.................................. 0.70% 0.30% 1.00%(5)
TRAVELERS SERIES FUND, INC.
Alliance Growth Portfolio............... 0.80% 0.02% 0.82%(6)
MFS Total Return Portfolio.............. 0.80% 0.04% 0.84%(6)
THE TRAVELERS SERIES TRUST
Convertible Bond Portfolio.............. 0.60% 0.20% 0.80%(7)
Disciplined Mid Cap Stock Portfolio..... 0.70% 0.25% 0.95%(8)
Disciplined Small Cap Stock Portfolio... 0.80% 0.20% 1.00%(7)
Equity Income Portfolio................. 0.75% 0.20% 0.95%(8)
Federated High Yield Portfolio.......... 0.65% 0.25% 0.90%
Federated Stock Portfolio............... 0.63% 0.28% 0.91%
Large Cap Portfolio..................... 0.75% 0.20% 0.95%(8)
Lazard International Stock Portfolio.... 0.83% 0.42% 1.25%
MFS Emerging Growth Portfolio........... 0.75% 0.14% 0.89%
MFS Mid Cap Growth Portfolio............ 0.80% 0.20% 1.00%(7)
Travelers Quality Bond Portfolio........ 0.32% 0.31% 0.63%
WARBURG PINCUS TRUST
Emerging Markets Portfolio.............. 0.20% 1.20% 1.40%(9)
</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. "Other Expenses" include operating costs of the fund. These expenses
are reflected in each funding option's net asset value and are not deducted from
the account value under the Contract.
(1) Other Expenses have been restated to reflect the current expense
reimbursement arrangement with The Travelers Insurance Company. Travelers
has agreed to reimburse the Fund for the amount by which its aggregate
expenses (including the management fee, but excluding brokerage commissions,
interest charges and taxes) exceeds 0.40%. Without such arrangement, Total
Expenses would have been 0.65% for the MONEY MARKET PORTFOLIO.
6
<PAGE> 41
(2) The adviser for the DELAWARE REIT SERIES has agreed to voluntarily waive its
fee and pay the expenses of the Series to the extent that the Series' annual
operating expenses, exclusive of taxes, interest, brokerage commissions and
extraordinary expenses, do not exceed 0.85% of its average daily net assets
through October 31, 1999. Without such arrangements, the Total Annual
Operating Expenses for the Portfolio would have been 1.02%.
(3) The portfolio Management Fee for the SMITH BARNEY APPRECIATION PORTFOLIO and
the DIVERSIFIED STRATEGIC INCOME PORTFOLIO includes 0.20% for fund
administration.
(4) Other expenses for the EQUITY INDEX PORTFOLIO have been restated to reflect
the current expense reimbursement arrangement whereby the adviser has agreed
to reimburse the Portfolio for the amount by which expenses exceed 0.30%.
Without such arrangement, Total Annual Operating Expenses would have been
0.42%. In addition, the portfolio Management Fee includes 0.06% for fund
administration. Class 2 of this fund has a distribution plan or "Rule 12b-1
plan".
(5) SBAM has waived all of its Management Fees for the Salomon Brothers Fund for
the period ended December 31, 1998. If such fees were not waived or expenses
reimbursed, the actual annualized Total Annual Operating Expenses for the
INVESTORS FUND would have been 2.07%.
(6) Expenses are as of October 31, 1998 (the Fund's fiscal year end). There were
no fees waived or expenses reimbursed for these funds in 1998.
(7) Travelers Insurance has agreed to reimburse the CONVERTIBLE BOND PORTFOLIO,
the DISCIPLINED SMALL CAP STOCK PORTFOLIO, and the MFS MID CAP GROWTH
PORTFOLIO for expenses for the period ended December 31, 1998. If such
expenses were not reimbursed, the actual annualized Total Annual Operating
Expenses would have been 1.86%, 2.98%, and 1.62% respectively.
(8) Other Expenses reflect the current expense reimbursement arrangement with
Travelers where Travelers has agreed to reimburse the Portfolios for the
amount by which their aggregate expenses (including management fees, but
excluding brokerage commissions, interest charges and taxes) exceeds 0.95%.
Without such arrangements, the Total Annual Operating Expenses for the
Portfolios would have been 1.22% for the TRAVELERS DISCIPLINED MID CAP STOCK
PORTFOLIO, 1.23% for the LARGE CAP PORTFOLIO, and 1.09% for the EQUITY
INCOME PORTFOLIO.
(9) Fee waivers and expense reimbursements or credits reduced expenses for the
WARBURG PINCUS EMERGING MARKETS PORTFOLIO during 1998, but this may be
discontinued at any time. Absent this waiver of fees, the Portfolio's
Management Fees, Other Expenses and Total Operating Expenses would equal
1.25%, 6.96% and 8.21%, respectively. The Portfolio's other expenses are
based on annualized estimates of expenses for the fiscal year ending
December 31, 1998, net of any fee waivers or expense reimbursements.
EXAMPLE*
Assuming a 5% annual return on assets, a $1,000 investment would be subject to
the following expenses:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
IF CONTRACT IS SURRENDERED, ANNUITIZED
OR IF NO WITHDRAWALS HAVE BEEN MADE:
-----------------------------------------
PORTFOLIO NAME 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
Capital Appreciation Fund................................... $23 $71 $121 $260
Money Market Portfolio...................................... 18 57 98 213
DELAWARE GROUP PREMIUM FUND, INC.
REIT Series.............................................. 23 71 121 260
DREYFUS VARIABLE INVESTMENT FUND
Capital Appreciation Portfolio........................... 23 70 119 256
Small Cap Portfolio...................................... 22 68 117 251
GREENWICH STREET SERIES FUND
Appreciation Portfolio................................... 22 69 118 254
Diversified Strategic Income Portfolio................... 22 69 117 252
Equity Index Class II.................................... 20 62 106 229
Total Return Portfolio................................... 22 69 118 253
SALOMON BROTHERS VARIABLE SERIES FUNDS, INC.
Salomon Brothers Variable Investors Fund................. 24 75 129 275
TRAVELERS SERIES FUND, INC.
Alliance Growth Portfolio................................ 23 70 119 256
MFS Total Return Portfolio............................... 23 70 120 258
THE TRAVELERS SERIES TRUST
Convertible Bond Portfolio............................... 22 69 118 254
Disciplined Mid Cap Stock Portfolio...................... 24 74 126 270
Disciplined Small Cap Stock Portfolio.................... 24 75 129 275
Equity Income Portfolio.................................. 24 74 126 270
Federated High Yield Portfolio........................... 23 72 124 265
Federated Stock Portfolio................................ 24 72 124 266
Large Cap Portfolio...................................... 24 74 126 270
Lazard International Stock Portfolio..................... 27 83 141 299
MFS Emerging Growth Portfolio............................ 23 72 123 264
MFS Mid Cap Growth Portfolio............................. 24 75 129 275
Travelers Quality Bond Portfolio......................... 21 64 110 237
WARBURG PINCUS TRUST
Emerging Markets Portfolio............................... 28 87 148 314
</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 .010% OF ASSETS.
7
<PAGE> 42
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
See Appendix A
THE ANNUITY CONTRACT
- --------------------------------------------------------------------------------
Travelers Access Select 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. You
assume 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. The date the contract and its benefits became
effective is referred to as the contract date. Each 12-month period following
the contract date is called a contract year.
Certain changes and elections must be made in writing to the Company. Where the
term "written request" is used, it means that written information must be sent
to the Company's Home Office in a form and content satisfactory to us.
CONTRACT OWNER INQUIRIES
If you have any questions about the Contract, call the Company's Home Office at
1-800-842-8573.
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 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.
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<PAGE> 43
THE FUNDING OPTIONS
You choose which of the following variable funding options to have your purchase
payments allocated to. These funding options are subsections of the Separate
Account, which invest in the
underlying mutual funds. You will find detailed information about the options
and their inherent risks in the current underlying mutual fund prospectuses
which must accompany this prospectus. You are not investing directly in the
underlying mutual funds. 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.
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.
The current variable funding options are listed below, along with their
investment advisers and any subadviser:
<TABLE>
<CAPTION>
FUNDING OPTIONS INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUBADVISER
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Capital Appreciation Fund Seeks growth of capital through the use of Travelers Asset Management
common stocks. Income is not an objective. The International Corporation
Fund invests principally in common stocks of ("TAMIC")
small to large companies which are expected to Subadviser: Janus
experience wide fluctuations in price in both Capital Corp.
rising and declining markets.
Money Market Portfolio Seeks high current income from short-term money TAMIC
market instruments while preserving capital and
maintaining a high degree of liquidity.
DELAWARE GROUP PREMIUM FUND,
INC.
REIT Series Seeks maximum long-term total return by Delaware Management Company,
investing in securities of companies primarily Inc.
engaged in the real estate industry. Capital Subadviser: Lincoln Investment
appreciation is a secondary objective. Management, Inc.
DREYFUS VARIABLE INVESTMENT
FUND
Capital Appreciation Seeks primarily to provide long-term capital The Dreyfus Corporation
Portfolio growth consistent with the preservation of Subadviser: Fayez Sarofim & Co.
capital; current income is a secondary
investment objective. The portfolio invests
primarily in the common stocks of domestic and
foreign issuers.
Small Cap Portfolio Seeks to maximize capital appreciation. The Dreyfus Corporation
GREENWICH STREET SERIES FUND
Appreciation Portfolio Seeks long term appreciation of capital by SSBC Fund Management Inc.
investing primarily in equity securities. ("SSBC")
Diversified Strategic Seeks high current income by investing primarily SSBC
Income Portfolio in the following fixed income securities: U.S. Subadviser: Smith Barney Global
Gov't and mortgage-related securities, foreign Capital Management, Inc.
gov't bonds and corporate bonds rated below
investment grade.
Equity Index Portfolio Seeks to replicate, before deduction of Travelers Investment Management
Class II expenses, the total return performance of the Company ("TIMCO")
S&P 500 Index.
Total Return Portfolio An equity portfolio that seeks to provide total SSBC
return, consisting of long-term capital
appreciation and income. The Portfolio will
invest primarily in a diversified portfolio of
dividend-paying common stocks.
SALOMON BROTHERS VARIABLE
SERIES FUND, INC.
Salomon Brothers Variable Seeks long-term growth of capital. Current Salomon Brothers Asset
Investors Fund income is a secondary objective. Management ("SBAM")
</TABLE>
9
<PAGE> 44
<TABLE>
<CAPTION>
FUNDING OPTIONS INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUBADVISER
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TRAVELERS SERIES FUND, INC.
Alliance Growth Portfolio Seeks long-term growth of capital by investing Travelers Investment Adviser
predominantly in equity securities of companies ("TIA")
with a favorable outlook for earnings and whose Subadviser: Alliance Capital
rate of growth is expected to exceed that of the Management L.P.
U.S. economy over time. Current income is only
an incidental consideration.
MFS Total Return Portfolio Seeks to obtain above-average income (compared TIA
to a portfolio entirely invested in equity Subadviser: MFS
securities) consistent with the prudent
deployment of capital. Generally, at least 40%
of the Portfolio's assets will be invested in
equity securities.
THE TRAVELERS SERIES TRUST
Convertible Bond Portfolio Seeks current income and capital appreciation by TAMIC
investing in convertible securities and in
combinations of nonconvertible fixed-income
securities and warrants or call options that
together resemble convertible securities
("synthetic convertible securities").
Disciplined Mid Cap Stock Seeks growth of capital by investing primarily TAMIC
Portfolio (formerly "Mid in a broadly diversified portfolio of common Subadviser: TIMCO
Cap Disciplined Equity stocks.
Fund")
Disciplined Small Cap Stock Seeks long term capital appreciation by TAMIC
Portfolio investing primarily (at least 65% of its total Subadviser: TIMCO
assets) in the common stocks of U.S. companies
with relatively small market capitalizations at
the time of investment.
Equity Income Portfolio Seeks reasonable income by investing at least TAMIC
65% in income-producing equity securities. The Subadviser: Fidelity Management
balance may be invested in all types of domestic & Research Company ("FMR")
and foreign securities, including bonds. The
Portfolio seeks to achieve a yield that exceeds
that of the securities comprising the S&P 500.
The Subadviser also considers the potential for
capital appreciation.
Federated High Yield Seeks high current income by investing primarily TAMIC
Portfolio in a professionally managed, diversified Subadviser: Federated
portfolio of fixed income securities. Investment Counseling, Inc.
Federated Stock Portfolio Seeks growth of income and capital by investing TAMIC
principally in a professionally managed and Subadviser: Federated
diversified portfolio of common stock of high- Investment Counseling, Inc.
quality companies (i.e., leaders in their
industries and characterized by sound management
and the ability to finance expected growth).
Large Cap Portfolio Seeks long-term growth of capital by investing TAMIC
primarily in equity securities of companies with Subadviser: FMR
large market capitalizations.
Lazard International Stock Seeks capital appreciation by investing TAMIC
Portfolio primarily in the equity securities of non-United Subadviser: Lazard Asset
States companies (i.e., incorporated or Management
organized outside the United States).
MFS Emerging Growth Seeks long-term growth of capital. Dividend and TAMIC
Portfolio interest income from portfolio securities, if Subadviser: MFS
any, is incidental.
MFS Mid Cap Growth Seeks to obtain long term growth of capital by TAMIC
Portfolio investing, under normal market conditions, at Subadviser: MFS
least 65% of its total assets in equity
securities of companies with medium market
capitalization which the investment adviser
believes have above-average growth potential.
Travelers Quality Bond Seeks current income, moderate capital TAMIC
Portfolio volatility and total return.
</TABLE>
10
<PAGE> 45
<TABLE>
<CAPTION>
FUNDING OPTIONS INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUBADVISER
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
WARBURG PINCUS TRUST
Emerging Markets Portfolio Seeks long-term growth of capital by investing Warburg Pincus Asset
primarily in equity securities of non-U.S. Management, Inc.
issuers consisting of companies in emerging
securities markets.
</TABLE>
CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
GENERAL
We deduct the charges described below. The charges are for the service and
benefits we provide, costs and expenses we incur, and risks we assume under the
Contracts. Services and benefits we provide include:
- the ability for you to make withdrawals and surrenders under the
Contracts;
- the death benefit paid on the death of the contract owner, annuitant, or
first of the joint contract owners,
- the available funding options and related programs (including dollar-cost
averaging, portfolio rebalancing, and systematic withdrawal programs);
- administration of the annuity options available under the Contracts; and
- the distribution of various reports to contract owners.
Costs and expenses we incur include:
- losses associated with various overhead and other expenses associated
with providing the services and benefits provided by the Contracts,
- sales and marketing expenses, and
- other costs of doing business.
Risks we assume include:
- risks that annuitants may live longer than estimated when the annuity
factors under the Contracts were established,
- that the amount of the death benefit will be greater than the contract
value, and
- that the costs of providing the services and benefits under the Contracts
will exceed the charges deducted.
We may also deduct a charge for taxes.
Unless otherwise specified, charges are deducted proportionately from all
funding options in which you are invested.
We may reduce or eliminate the administrative charges, the mortality and expense
risk charge, and the distribution charge under the Contract when certain sales
or administration of the Contract result in savings or reduced expenses and/or
risks. In no event will we reduce or eliminate the administrative charge where
such reduction or elimination would be unfairly discriminatory to any person.
ADMINISTRATIVE CHARGES
A Contract administrative charge of $30 is deducted annually from Contracts with
a value of less than $40,000 on the deduction date. 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. This charge will be prorated from the date of purchase to the next charge
deduction date. A prorated charge will also be made if the Contract is
completely withdrawn or
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<PAGE> 46
terminated. We will not deduct a contract administrative charge: (1) from the
distribution of the death proceeds. (2) after an annuity payout has begun, or
(3) if the contract value on the deduction date is $40,000 or more.
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 variable 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.
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.
TRANSFERS
- --------------------------------------------------------------------------------
Up to 30 days before the maturity date, you may transfer all or part of the
contract value between variable 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. Please refer to Appendix B for information
regarding transfers between the Fixed Amount and the variable funding options.
12
<PAGE> 47
DOLLAR COST AVERAGING
Dollar cost averaging or the pre-authorized transfer program (the "DCA Program")
allows you to transfer a set dollar amount to other funding options on a monthly
or quarterly basis during the accumulation phase of the Contract so that more
accumulation units are purchased in a funding option if the value per unit is
low and fewer accumulation units are purchased if the value per unit is high.
Therefore, a lower-than-average cost per unit may be achieved over the long run.
You may elect the DCA Program through written request or other method acceptable
to the Company. You must have a minimum total contract value of $5,000 to enroll
in the DCA Program. The minimum amount that may be transferred through this
program is $400.
You may establish pre-authorized transfers of contract values from the Fixed
Account, subject to certain restrictions. Under the DCA Program, automated
transfers from the Fixed Account may not deplete your Fixed Account Value in
less than twelve months from your enrollment in the DCA Program.
In addition to the DCA Program, Travelers may credit increased interest rates to
contract owners under an administrative Special DCA Program established at the
discretion of Travelers, depending on availability and state law. Under this
program, the contract owner may pre-authorize level transfers to any of the
funding options under either a 6 Month Program or 12 Month Program. The 6 Month
Program and the 12 Month Program will generally have different credited interest
rates. Under the 6 Month Transfer Program, the interest rate can accrue up to 6
months on funds in the Special DCA Program and all purchase payments and accrued
interest must be transferred on a level basis to the selected funding option in
6 months. Under the 12 Month Program, the interest rate can accrue up to 12
months on funds in the Special DCA Program and all purchase payments and accrued
interest in this Program must be transferred on a level basis to the selected
funding options in 12 months.
The pre-authorized transfers will begin after the initial Program purchase
payment and complete enrollment instructions are received by Travelers. If
complete Program enrollment instructions are not received by the Company within
15 days of receipt of the initial Program purchase payment, the entire balance
in the Program will be credited with the non-Program interest rate then in
effect for the Fixed Account.
You may start or stop participation in the DCA Program at any time, but you must
give the Company at least 30 days' notice to change any automated transfer
instructions that are currently in place. If you stop the Special DCA Program
and elect to remain in the Fixed Account, your contract value will be credited
for the remainder of 6 or 12 months with the interest rate for non-Program
funds.
A contract owner may only have one DCA Program or Special DCA Program in place
at one time. Any subsequent purchase payments received by the Company within the
Program period selected will be allocated to the current funding options over
the remainder of that Program transfer period, unless otherwise directed by the
contract owner.
All provisions and terms of the Contract apply to the DCA and Special DCA
Programs, 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.
For information about
13
<PAGE> 48
withdrawals from your payout option after the Maturity Date (with no life
contingency), refer to the Statement of Additional Information.
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.
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. If the first joint owner to die is also
the annuitant, the death benefit will be paid to the beneficiary if there is no
contingent annuitant. If the joint owner to die is not the annuitant, the entire
interest of the deceased joint owner in the Contract will pass to the surviving
joint owner.
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<PAGE> 49
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 designated beneficiary may be the joint owner). 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.
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, where the owner and annuitant are not the same
person, the contract owner may also name one individual as a contingent
annuitant by written request before the Contract becomes effective. If the
annuitant dies before the maturity date while the owner is still living and a
contingent annuitant has been named, the contingent annuitant becomes the
annuitant, and the contract continues. However, if the annuitant who is also the
owner dies before the maturity date, the death benefit is paid to the
beneficiary. The contingent annuitant does not become the annuitant and is not
entitled to receive any contract benefits. A contingent annuitant may not be
changed, deleted or added after the Contract becomes effective.
DEATH BENEFIT
- --------------------------------------------------------------------------------
Before the maturity date, when there is no contingent annuitant, a death benefit
is payable when either the annuitant, or a contract owner dies. The death
benefit is calculated at the close of the business day on which the Company's
Home Office receives due proof of death and written payment instructions.
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 tax, withdrawals not previously deducted and any outstanding loans:
1) the contract value;
2) the total purchase payments made under the Contract; or
15
<PAGE> 50
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 (90 IN FLORIDA). The
Company will pay the beneficiary a death benefit in an amount equal to the
contract value, less any applicable premium tax.
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 the beneficiary(ies), or if none, to the contract owner's estate.
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 which is payable over the life of the beneficiary or over a period not
exceeding the beneficiary's life expectancy.
Under a nonqualified contract, 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 (NONQUALIFIED CONTRACTS ONLY).
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.
DEATH OF CONTRACT OWNER WHO IS NOT THE ANNUITANT (NONQUALIFIED CONTRACTS ONLY).
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. If the
surviving joint owner (or if none, 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.
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 scheduled annuity payments. You can choose
the month and the year in which those payments begin (maturity date). You can
also choose among payout plans (annuity or income options). 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
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<PAGE> 51
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 thereafter during the lifetime of the survivor. Income
options that are not based on any lifetime are also available. 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, or, for nonqualified contracts, the
annuitant's 75th birthday or ten years after the effective date of the contract,
if later. (For Contracts issued in Florida and New York, 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 may not be available
in all states. Refer to your contract.) 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 as you have selected
during the accumulation period. At least 30 days before the maturity date, you
may transfer the contract value among the funding options in order to change the
basis on which annuity payments will be determined. (See "Transfers.")
VARIABLE ANNUITY
You may choose to receive annuity payments that are based on the performance of
one or more of the variable funding options. This is called a variable payout
because the amount you receive each month will increase or decrease depending on
how the variable funding options perform. When you annuitize, we will credit you
with annuity units. An annuity unit measures the dollar value of an annuity
payment. We determine the number of annuity units to credit you with by dividing
the first monthly annuity payment for each funding option by the accumulation
unit value for that funding option as of 14 days before the annuity payments
begin. The number of annuity units (but not their value) remains fixed during
the annuity period.
HOW WE DETERMINE THE FIRST ANNUITY PAYMENT. The Contract contains tables used
to determine the first monthly annuity payment. If a variable annuity is
elected, the amount applied to it will be the value of the funding options as of
14 days before the annuity payments begin less any premium taxes due.
The first monthly payment amount depends on the annuity option elected and the
annuitant's adjusted age. The Contract contains a formula for determining the
adjusted age. We calculate the first monthly payment by multiplying the benefit
per $1,000 applied, shown in the Contract tables, by the number of thousands of
dollars of Contract value applied to the annuity option. We also factor in an
assumed daily net investment factor of 3%. This assumed daily net investment
factor is used to determine the guaranteed payout rates shown. If net investment
rates are higher at the time annuitization is selected, payout rates will be
higher than those shown. Payout rates will not be lower than those shown. We
reserve the right to require satisfactory proof of an annuitant's age before we
make the first annuity payment.
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<PAGE> 52
HOW WE DETERMINE THE PAYMENTS AFTER THE FIRST. The dollar amount of all annuity
payments after the first will change from month to month based on the investment
performance of the applicable funding options. The total amount of each annuity
payment will equal 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 payment is due.
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 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. The amount
applied to effect an income or annuity option will be the contract value as of
the date the 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 such 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
administrative expense charge.
On the maturity date, we will pay the amount due under the Contract in one lump
sum (except in states 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 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
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<PAGE> 53
maximum periodic payment, since there is no assurance of a minimum number of
payments or provision for a death benefit for beneficiaries.
Option 2 -- Life Annuity with 120, 180 or 240 Monthly Payments Assured. The
Company will make monthly annuity payments during the lifetime of the annuitant,
with the agreement that if, at the death of that person, payments have been made
for less than 120, 180 or 240 months as elected, we will continue making
payments to the beneficiary during the remainder of the period.
Option 3 -- Joint and Last Survivor Life Annuity -- No Refund. The Company will
make regular annuity payments during the lifetime of the annuitant and a second
person. When either person dies, we will continue making payments to the
survivor. No further payments will be made following the death of the survivor.
Option 4 -- Joint and Last Survivor Life Annuity -- Annuity Reduced on Death of
Primary Payee. The Company will make annuity payments during the lifetimes of
the annuitant and a second person. 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 each
funding option or the Fixed Account 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.
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;
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<PAGE> 54
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.
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, and 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
20
<PAGE> 55
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.
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 "nonstandardized total returns," 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 contract
administrative charge is converted to a percentage of assets based on the actual
fee collected, divided by the average net assets for Contracts 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 annual contract administrative charge, which, if reflected,
would decrease the level of performance shown.
For funding options that were in existence prior to the date they became
available under the Separate Account, the standardized average annual total
return quotations may be accompanied by returns showing 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.
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.
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.
21
<PAGE> 56
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.
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. An exception to
this is a qualified plan called a Roth IRA. Under Roth IRAs, after-tax
contributions accumulate until maturity, when amounts (including earnings) may
be withdrawn tax free. 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 contract value exceeds your investment in the contract. The
investment in the contract equals the total purchase payments you paid less any
amount received previously which was excludible from gross income. Any direct or
indirect borrowing against the value of the contract or pledging of the contract
as security for a loan will be treated as a cash distribution under the tax law.
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
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<PAGE> 57
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, 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 or the year of retirement.
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.
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<PAGE> 58
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 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
Citigroup Inc. The Company's Home Office is located at One Tower Square,
Hartford, Connecticut 06183.
FINANCIAL STATEMENTS
The financial statements for the insurance company are located in the Statement
of Additional Information. The financial statements for the separate account
will be available through annual reports to shareholders. These reports are
accessible through the SEC's website that appears on page 1 of the prospectus.
IMSA
The Company is a member of the Insurance Marketplace Standards Association
("IMSA"), and as such may use the IMSA logo and IMSA membership in its
advertisements. Companies that belong to IMSA subscribe to a set of ethical
standards covering the various aspects of sales and service for individually
sold life insurance and annuities. IMSA members have adopted policies and
procedures that demonstrate a commitment to honesty, fairness and integrity in
all customer contacts involving the sale and service of individual life
insurance and annuity products.
YEAR 2000 COMPLIANCE
The Company is highly dependent on computer systems and systems applications for
conducting its ongoing business functions. In 1996, The Travelers Insurance
Company and its subsidiaries, including the Company, began the process of
identifying, assessing and implementing changes to computer programs to address
the Year 2000 issue and developed a comprehensive plan that encompasses The
Travelers Insurance Company and its insurance subsidiaries, to address the
issue. The issue involves the ability of computer systems that have time
sensitive programs to recognize properly the Year 2000. The inability to do so
could result in major failures or miscalculations that would disrupt the
Company's ability to meet its customer and other obligations on a timely basis.
The Company has achieved substantial compliance with respect to its business
critical systems in accordance with its Year 2000 plan and is in the process of
certification to validate compliance. The Company anticipates completing the
certification process by June 30, 1999. An ongoing re-certification process will
be put in place for third and fourth quarter 1999 to ensure all systems and
products remain compliant.
The total cost associated with the required modifications and conversions is
being expensed as incurred in the period 1996 through 1999. The Company also has
third party customers, financial institutions, vendors and others with which it
conducts business and has confirmed their plans to address and resolve Year 2000
issues on a timely basis. While it is likely that these efforts by third party
vendors and customers will be successful, it is possible that a series of
failures by third parties could have a material adverse effect on the Company's
results of operations in future periods.
In addition, the Company is developing contingency plans to address perceived
risks associated with the Year 2000 effort. These include business resumption
plans to address the possibility of internal systems failures and the
possibility of failure of systems or processes outside the Company's control. As
of year-end 1998, the Company has completed initial business resumption
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<PAGE> 59
contingency plans which would enable business critical units to function
beginning January 1, 2000 in the event of an unexpected failure. Business
resumption contingency plans are expected to be finalized by June 30, 1999.
Preparations for the management of the date change will continue through 1999.
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. Any sales
representative or employee who sells the Contracts will be 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 and distributor of the
Contracts is CFBDS, Inc., 21 Milk St., Boston, MA. CFBDS, Inc. is not affiliated
with the Company or the Separate Account.
Up-front compensation paid to sales representatives will not exceed 7.00% of the
purchase payments made under the Contracts. If asset-based compensation is paid,
it will not exceed 2% of the average account value annually. From time to time,
the Company may pay or permit other promotional incentives, in cash, credit or
other compensation.
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 legal requirements of any governmental agency to
which the Company, the Contract or the contract owner is subject. Where a state
requires contract owner approval, we will comply.
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 the separate account,
the principal underwriter or the Company. 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 passed on by the General Counsel of the Company.
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<PAGE> 60
APPENDIX A
- --------------------------------------------------------------------------------
CONDENSED FINANCIAL INFORMATION
THE TRAVELERS FUND ABD II FOR VARIABLE ANNUITIES
ACCUMULATION UNIT VALUES
<TABLE>
<CAPTION>
YEARS
ENDED PERIOD FROM
DECEMBER 31, DECEMBER 16, 1996
----------------------- TO
FUNDING OPTION 1998 1997 DECEMBER 31, 1996
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C>
CAPITAL APPRECIATION FUND (12/96)
Unit Value at beginning of period....................... $ 1.283 $ 1.032 $ 1.000
Unit Value at end of period............................. 2.046 1.283 1.032
Number of units outstanding at end of period............ 23,010,432 6,344,051 29,824
MONEY MARKET PORTFOLIO (2/97)
Unit Value at beginning of period....................... $ 1.033 $ 1.000 N/A
Unit Value at end of period............................. 1.070 1.033 N/A
Number of units outstanding at end of period............ 16,762,447 5,369,177 N/A
DELAWARE GROUP PREMIUM FUND, INC.:
REIT SERIES (5/98)
Unit Value at beginning of period....................... $ 1.000 N/A N/A
Unit Value at end of period............................. 0.901 N/A N/A
Number of units outstanding at end of period............ 632,612 N/A N/A
DREYFUS VARIABLE INVESTMENT FUND:
CAPITAL APPRECIATION PORTFOLIO (4/98)
Unit Value at beginning of period....................... $ 1.000 N/A N/A
Unit Value at end of period............................. 1.112 N/A N/A
Number of units outstanding at end of period............ 2,833,960 N/A N/A
SMALL CAP PORTFOLIO (4/98)
Unit Value at beginning of period....................... $ 1.000 N/A N/A
Unit Value at end of period............................. 0.871 N/A N/A
Number of units outstanding at end of period............ 3,051,249 N/A N/A
GREENWICH STREET SERIES FUND:
APPRECIATION PORTFOLIO (6/97)
Unit Value at beginning of period....................... $ 1.092 $ 1.000 N/A
Unit Value at end of period............................. 1.283 1.092 N/A
Number of units outstanding at end of period............ 16,532,767 5,241,524 N/A
DIVERSIFIED STRATEGIC INCOME PORTFOLIO (6/97)
Unit Value at beginning of period....................... $ 1.048 $ 1.000 N/A
Unit Value at end of period............................. 1.100 1.048 N/A
Number of units outstanding at end of period............ 24,838,532 5,444,154 N/A
TOTAL RETURN PORTFOLIO (5/98)
Unit Value at beginning of period....................... $ 1.000 N/A N/A
Unit Value at end of period............................. 0.953 N/A N/A
Number of units outstanding at end of period............ 1,281,704 N/A N/A
SALOMON BROTHERS VARIABLE SERIES FUNDS, INC.:
SALOMON BROTHERS VARIABLE INVESTORS FUND (4/98)
Unit Value at beginning of period....................... $ 1.000 N/A N/A
Unit Value at end of period............................. 1.029 N/A N/A
Number of units outstanding at end of period............ 3,232,444 N/A N/A
TRAVELERS SERIES FUND, INC.:
ALLIANCE GROWTH PORTFOLIO (12/96)
Unit Value at beginning of period....................... $ 1.319 $ 1.037 $ 1.000
Unit Value at end of period............................. 1.679 1.319 1.037
Number of units outstanding at end of period............ 31,011,054 8,259,362 2,250
MFS TOTAL RETURN PORTFOLIO (1/97)
Unit Value at beginning of period....................... $ 1.183 $ 1.000 N/A
Unit Value at end of period............................. 1.303 1.183 N/A
Number of units outstanding at end of period............ 42,017,841 9,959,634 N/A
THE TRAVELERS SERIES TRUST:
CONVERTIBLE BOND PORTFOLIO (5/98)
Unit Value at beginning of period....................... $ 1.000 N/A N/A
Unit Value at end of period............................. 1.000 N/A N/A
Number of units outstanding at end of period............ 414,907 N/A N/A
</TABLE>
A-1
<PAGE> 61
APPENDIX A
- --------------------------------------------------------------------------------
CONDENSED FINANCIAL INFORMATION
THE TRAVELERS FUND ABD II FOR VARIABLE ANNUITIES
ACCUMULATION UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
YEARS
ENDED PERIOD FROM
DECEMBER 31, DECEMBER 16, 1996
----------------------- TO
FUNDING OPTION 1998 1997 DECEMBER 31, 1996
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C>
THE TRAVELERS SERIES TRUST (CONT'D)
DISCIPLINED MID CAP STOCK PORTFOLIO (6/97)
Unit Value at beginning of period....................... $ 1.195 $ 1.000 N/A
Unit Value at end of period............................. 1.377 1.195 N/A
Number of units outstanding at end of period............ 5,142,990 1,668,733 N/A
DISCIPLINED SMALL CAP STOCK PORTFOLIO (5/98)
Unit Value at beginning of period....................... $ 1.000 N/A N/A
Unit Value at end of period............................. 0.894 N/A N/A
Number of units outstanding at end of period............ 450,528 N/A N/A
EQUITY INCOME PORTFOLIO (12/96)
Unit Value at beginning of period....................... $ 1.339 $ 1.026 $ 1.000
Unit Value at end of period............................. 1.484 1.339 1.026
Number of units outstanding at end of period............ 25,733,333 6,719,150 30,196
FEDERATED HIGH YIELD PORTFOLIO (1/97)
Unit Value at beginning of period....................... $ 1.140 $ 1.000 N/A
Unit Value at end of period............................. 1.177 1.140 N/A
Number of units outstanding at end of period............ 18,811,555 4,566,993 N/A
FEDERATED STOCK PORTFOLIO (1/97)
Unit Value at beginning of period....................... $ 1.285 $ 1.000 N/A
Unit Value at end of period............................. 1.495 1.285 N/A
Number of units outstanding at end of period............ 11,892,034 3,816,999 N/A
LARGE CAP PORTFOLIO (12/96)
Unit Value at beginning of period....................... $ 1.245 $ 1.023 $ 1.000
Unit Value at end of period............................. 1.665 1.245 1.023
Number of units outstanding at end of period............ 15,040,703 4,815,858 7,800
LAZARD INTERNATIONAL STOCK PORTFOLIO (12/96)
Unit Value at beginning of period....................... $ 1.095 $ 1.027 $ 1.000
Unit Value at end of period............................. 1.216 1.095 1.027
Number of units outstanding at end of period............ 17,270,810 5,694,288 5,702
MFS EMERGING GROWTH PORTFOLIO (12/96)
Unit Value at beginning of period....................... $ 1.198 $ 1.004 $ 1.000
Unit Value at end of period............................. 1.587 1.198 1.004
NUMBER OF UNITS OUTSTANDING AT END OF PERIOD............ 15,538,984 4,218,974 31,886
TRAVELERS QUALITY BOND PORTFOLIO (12/96)
Unit Value at beginning of period....................... $ 1.057 $ 1.001 $ 1.000
Unit Value at end of period............................. 1.131 1.057 1.001
NUMBER OF UNITS OUTSTANDING AT END OF PERIOD............ 15,435,236 3,137,736 95,203
MFS MID CAP GROWTH PORTFOLIO (4/98)
Unit Value at beginning of period....................... $ 1.000 N/A N/A
Unit Value at end of period............................. 0.985 N/A N/A
NUMBER OF UNITS OUTSTANDING AT END OF PERIOD............ 965,761 N/A N/A
WARBURG PINCUS TRUST:
EMERGING MARKETS PORTFOLIO (5/98)
Unit Value at beginning of period....................... $ 1.000 N/A N/A
Unit Value at end of period............................. 0.734 N/A N/A
Number of units outstanding at end of period............ 780,839 N/A N/A
</TABLE>
Funding Options not listed had no amounts yet allocated to them. The date next
to each funding options name represents the date money first came into the
funding option through the Separate Account. "Number of units outstanding at end
of period" may include units for contract owners in the payout phase. The
financial statements for Fund ABD II are contained in the Annual Report filed
with the Securities and Exchange Commission. The consolidated financial
statements of The Travelers Life and Annuity Company are contained in the SAI.
A-2
<PAGE> 62
APPENDIX B
- --------------------------------------------------------------------------------
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 variable 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 under 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.
B-1
<PAGE> 63
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<PAGE> 64
APPENDIX C
- --------------------------------------------------------------------------------
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 Principal Underwriting Agreement
Valuation of Assets
Mixed and Shared Funding
Performance Information
Federal Tax Considerations
Independent Accountants
Financial Statements
- --------------------------------------------------------------------------------
Copies of the Statement of Additional Information dated May 1, 1999 (Form No.
L-21195S) 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
Investor Services, One Tower Square, Hartford, Connecticut 06183-9061.
Name:
Address:
C-1
<PAGE> 65
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<PAGE> 66
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<PAGE> 67
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<PAGE> 68
L-21195 May, 1999
<PAGE> 69
PART B
Information Required in a Statement of Additional Information
<PAGE> 70
STATEMENT OF ADDITIONAL INFORMATION
dated
May 1, 1999
for
THE TRAVELERS FUND ABD II FOR VARIABLE ANNUITIES
(ACCESS AND ACCESS SELECT)
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 May 1, 1999. A copy of the Prospectus may be obtained
by writing to The Travelers Life and Annuity Company, Annuity Investor Services,
One Tower Square, Hartford, Connecticut 06183-9061, or by calling (800) 842-8573
or by accessing the Securities and Exchange Commission's website at
http://www.sec.gov. This SAI should be read in conjunction with the accompanying
1998 Annual Report for the Fund.
TABLE OF CONTENTS
<TABLE>
<S> <C>
THE INSURANCE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . 1
PRINCIPAL UNDERWRITER . . . . . . . . . . . . . . . . . . . . . . . . 1
DISTRIBUTION AND PRINCIPAL UNDERWRITING AGREEMENT . . . . . . . . . . 1
VALUATION OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . 2
MIXED AND SHARED FUNDING . . . . . . . . . . . . . . . . . . . . . . . 3
PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . 3
FEDERAL TAX CONSIDERATIONS . . . . . . . . . . . .. . . . . . . . . . 9
INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . 12
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
<PAGE> 71
THE INSURANCE COMPANY
The Travelers Life and Annuity Company (the "Company") is a stock
insurance company chartered in 1973 in Connecticut and continuously engaged in
the insurance business since that time. The Company is licensed to conduct a
life insurance business in all states, (except New Hampshire and New York) and
the District of Columbia and Puerto Rico. The Company's Home Office is located
at One Tower Square Hartford, Connecticut 06183 and its telephone number is
(860) 277-0111.
The Company is a wholly owned subsidiary of The Travelers Insurance
Company, which is indirectly owned, through a wholly owned subsidiary, by
Citigroup Inc. Citigroup Inc. consists of businesses that produce a broad range
of financial services, including asset management, banking and consumer finance,
credit and charge cards, insurance, investments, investment banking and trading.
Among its businesses are Citibank, Commercial Credit, Primerica Financial
Services, Salomon Smith Barney, Salomon Smith Barney Asset Management, and
Travelers Property Casualty.
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 (the "Commissioner"). 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 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
CFBDS, Inc. serves as principal underwriter for Fund ABD II and the
Contracts. The offering is continuous. CFBDS's principal executive offices are
located at 21 Milk Street, Boston, Massachusetts. CFBDS is not affiliated with
the Company or Fund ABD II.
DISTRIBUTION AND PRINCIPAL UNDERWRITING AGREEMENT
Under the terms of the Distribution and Principal Underwriting
Agreement among Fund ABD II, CFBDS and the Company, CFBDS acts as agent for the
distribution of the Contracts and as principal underwriter for the Contracts.
The Company reimburses CFBDS for certain sales and overhead expenses connected
with sales functions.
1
<PAGE> 72
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.
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:
<TABLE>
<S> <C> <C>
(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.
</TABLE>
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 the accumulation unit for each Funding
Option was initially established at $1.00. 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
2
<PAGE> 73
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. The initial Annuity Unit Value applicable to each Funding
Option was established at $1.00. An annuity unit value as of any business day is
equal to (a) the value of the annuity unit on the 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.) After the
maturity date, withdrawals from the annuity unit value will be permitted only if
you have elected a variable payout option for a fixed period which is not based
on any lifetime. The maximum withdrawal amount will be calculated by computing
the payments at 7% annual interest rate.
MIXED AND SHARED FUNDING
Certain variable annuity separate accounts and variable life insurance
separate accounts may invest in the Funding Options simultaneously (called
"mixed" and "shared" funding). It is conceivable that in the future it may be
disadvantageous to do so. Although the Company and the Funding Options do not
currently foresee any such disadvantages either to variable annuity contract
owners or variable life policy owners, each Funding Option's Board of Directors
intends to monitor events in order to identify any material conflicts between
them and to determine what action, if any, should be taken. If a Board of
Directors was to conclude that separate funds should be established for variable
life and variable annuity separate accounts, the variable annuity contract
owners would not bear any of the related expenses, but variable annuity contract
owners and variable life insurance policy owners would no longer have the
economies of scale resulting from a larger combined fund.
PERFORMANCE INFORMATION
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
Options, calculated in a manner prescribed by the Securities and Exchange
Commission, as well as the "nonstandardized total returns," 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 contract administrative charge is converted to a
percentage of assets based on the actual fee collected, divided by the average
net assets for contracts sold under the Prospectus to which this SAI relates.
3
<PAGE> 74
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 annual contract administrative charge, which, if
reflected, would decrease the level of performance shown.
For Funding Options that were in existence prior to the date they
became available under Fund ABD II, the standardized average annual total return
quotations may be accompanied by returns showing 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.
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 Fund ABD II and the Funding Options.
Average annual total returns for each of the Funding Options (excluding
Money Market Portfolio) computed according to the standardized and
nonstandardized methods for the periods ending December 31, 1998, are set forth
in the following tables.
4
<PAGE> 75
PORTFOLIO ARCHITECT ACCESS
SEC STANDARDIZED PERFORMANCE
STANDARDIZED AVERAGE ANNUAL RETURNS AS OF 12/31/98
<TABLE>
<CAPTION>
STOCK ACCOUNTS: 1 Year 5 Year 10 Year (or inception)
- --------------- ------ ------ ------------------------
<S> <C> <C> <C> <C>
Alliance Growth Portfolio 27.20% -- 28.90% (12/96)
Capital Appreciation Fund (Janus) 59.43% -- 42.00% (12/96)
Delaware Investments REIT Series -- -- -9.88% (5/98)
Dreyfus Capital Appreciation Portfolio -- -- 11.20% (4/98)
Dreyfus Small Cap Portfolio -- -- -13.04% (4/98)
Equity Income Portfolio (Fidelity) 10.82% -- 21.31% (12/96)
Federated Stock Portfolio 16.22% -- 22.53% (1/97)
Large Cap Portfolio (Fidelity) 33.65% -- 28.38% (12/96)
Lazard International Stock Portfolio 11.03% -- 10.04% (12/96)
MFS Emerging Growth Portfolio 32.38% -- 25.36% (12/96)
MFS Mid Cap Growth Portfolio -- -- -1.49% (4/98)
MFS Research Portfolio -- -- 5.35% (5/98)
Salomon Brothers Investors Fund -- -- 2.83% (4/98)
Strategic Stock Portfolio -- -- -0.12% (7/98)
Travelers Disciplined Mid Cap Stock Portfolio 15.27% -- 22.56% (6/97)
Travelers Disciplined Small Cap Stock Portfolio -- -- -10.66% (5/98)
Warburg Pincus Emerging Markets Portfolio -- -- -26.65% (5/98)
BOND ACCOUNTS:
Federated High Yield Portfolio 3.23% -- 8.50% (1/97)
Putnam Diversified Income Portfolio -0.76% -- 2.97% (12/96)
Travelers Convertible Bond Portfolio -- -- -0.04% (5/98)
Travelers Quality Bond Portfolio 6.95% -- 6.21% (12/96)
BALANCED ACCOUNTS:
MFS Total Return Portfolio 10.07% -- 14.34% (1/97)
MONEY MARKET ACCOUNTS:
Travelers Money Market Portfolio 3.56% -- 3.59% (2/97)
</TABLE>
The inception date used to calculate standardized performance is based on the
date that the investment option became active under the Separate Account.
5
<PAGE> 76
PORTFOLIO ARCHITECT ACCESS
NONSTANDARDIZED AVERAGE ANNUAL RETURNS AS OF 12/31/98
<TABLE>
<CAPTION>
Cumulative Returns
--------------------------------------------------------
YTD 1 YR 3YR 5YR 10YR
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
STOCK ACCOUNTS:
Alliance Growth Portfolio 27.23% 27.23% 106.5% -- --
Capital Appreciation Fund (Janus) 59.47% 59.47% 150.7% 216.6% 483.5%
Delaware Investments REIT Series -- -- -- -- --
Dreyfus Capital Appreciation Portfolio 28.50% 28.50% 101.0% 169.0% --
Dreyfus Small Cap Portfolio -4.81% -4.81% 26.0% 69.6% --
Equity Income Portfolio (Fidelity) 10.85% 10.85% -- -- --
Federated Stock Portfolio 16.25% 16.25% -- -- --
Large Cap Portfolio (Fidelity) 33.69% 33.69% -- -- --
Lazard International Stock Portfolio 11.06% 11.06% -- -- --
MFS Emerging Growth Portfolio 32.42% 32.42% -- -- --
MFS Mid Cap Growth Portfolio -- -- -- -- --
MFS Research Portfolio -- -- -- -- --
Salomon Brothers Investors Fund -- -- -- -- --
Strategic Stock Portfolio -- -- -- -- --
Travelers Disciplined Mid Cap Stock Portfolio 15.30% 15.30% -- -- --
Travelers Disciplined Small Cap Stock Portfolio -- -- -- -- --
Warburg Pincus Emerging Markets Portfolio -17.28% -17.28% -- -- --
BOND ACCOUNTS:
Federated High Yield Portfolio 3.25% 3.25% -- -- --
Putnam Diversified Income Portfolio -0.74% -0.74% 12.6% -- --
Travelers Convertible Bond Portfolio -- -- -- -- --
Travelers Quality Bond Portfolio 6.98% 6.98% -- -- --
BALANCED ACCOUNTS:
MFS Total Return Portfolio 10.10% 10.10% 48.6% -- --
MONEY MARKET ACCOUNTS:
Travelers Money Market Portfolio 3.59% 3.59% 10.2% 17.1% 42.9%
<CAPTION>
Average Annual Returns Calendar Year Returns
---------------------- -------------------------
3YR 5YR 10YR Inception 1997 1996 1995
----- ----- ----- ----------------- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STOCK ACCOUNTS:
Alliance Growth Portfolio 27.32% -- -- 26.20% (6/94) 27.24% 27.58% 32.99%
Capital Appreciation Fund (Janus) 35.81% 25.90% 19.28% 12.01% (5/83) 24.38% 26.41% 34.47%
Delaware Investments REIT Series -- -- -- -9.78% (5/98) -- -- --
Dreyfus Capital Appreciation Portfolio 26.17% 21.87% -- 19.94% (4/93) 26.30% 23.84% 31.71%
Dreyfus Small Cap Portfolio 8.01% 11.13% -- 24.71% (8/90) 15.14% 14.98% 27.59%
Equity Income Portfolio (Fidelity) -- -- -- 22.53% (8/96) 30.48% -- --
Federated Stock Portfolio -- -- -- 25.98% (8/96) 31.67% -- --
Large Cap Portfolio (Fidelity) -- -- -- 29.67% (8/96) 21.74% -- --
Lazard International Stock Portfolio -- -- -- 10.37% (8/96) 6.63% -- --
MFS Emerging Growth Portfolio -- -- -- 24.45% (8/96) 19.34% -- --
MFS Mid Cap Growth Portfolio -- -- -- -0.52% (3/98) -- -- --
MFS Research Portfolio -- -- -- 5.28% (3/98) -- -- --
Salomon Brothers Investors Fund -- -- -- 9.24% (2/98) -- -- --
Strategic Stock Portfolio -- -- -- -6.59% (5/98) -- -- --
Travelers Disciplined Mid Cap Stock Portfolio -- -- -- 27.66% (4/97) -- -- --
Travelers Disciplined Small Cap Stock Portfolio -- -- -- -11.91% (5/98) -- -- --
Warburg Pincus Emerging Markets Portfolio -- -- -- -17.28% (12/97) -- -- --
BOND ACCOUNTS:
Federated High Yield Portfolio -- -- -- 10.36% (8/96) 13.85% -- --
Putnam Diversified Income Portfolio 4.02% -- -- 6.18% (6/94) 6.26% 6.72% 15.76%
Travelers Convertible Bond Portfolio -- -- -- 0.02% (5/98) -- -- --
Travelers Quality Bond Portfolio -- -- -- 6.75% (8/96) 5.65% -- --
BALANCED ACCOUNTS:
MFS Total Return Portfolio 14.11% -- -- 13.85% (6/94) 19.56% 12.90% 23.95%
MONEY MARKET ACCOUNTS:
Travelers Money Market Portfolio 3.30% 3.20% 3.63% 3.81% (12/87) 3.60% 2.72% 2.79%
</TABLE>
The inception date represents the date the funding options began operating
6
<PAGE> 77
PORTFOLIO ARCHITECT ACCESS SELECT
SEC STANDARDIZED PERFORMANCE
STANDARIZED AVERAGE ANNUAL RETURNS AS OF 12/31/98
<TABLE>
<CAPTION>
STOCK ACCOUNTS: 1 Year 5 Year 10 Year (or inception)
- --------------- ------ ------ ----------------------------
<S> <C> <C> <C> <C>
Alliance Growth Portfolio 27.20% -- 28.90% (12/96)
Capital Appreciation Fund (Janus) 59.43% -- 42.00% (12/96)
Delaware Investments REIT Series -- -- -9.88% (5/98)
Dreyfus Capital Appreciation Portfolio -- -- 11.20% (4/98)
Dreyfus Small Cap Portfolio -- -- -13.04% (4/98)
Equity Income Portfolio (Fidelity) 10.82% -- 21.31% (12/96)
Federated Stock Portfolio 16.22% -- 22.53% (1/97)
Large Cap Portfolio (Fidelity) 33.65% -- 28.38% (12/96)
Lazard International Stock Portfolio 11.03% -- 10.04% (12/96)
MFS Emerging Growth Portfolio 32.38% -- 25.36% (12/96)
MFS Mid Cap Growth Portfolio -- -- -1.49% (4/98)
Salomon Brothers Investors Fund -- -- 2.83% (4/98)
Smith Barney Appreciation Portfolio 17.44% -- 17.32% (6/97)
Smith Barney Total Return Portfolio -- -- -4.76% (5/98)
Travelers Disciplined Mid Cap Stock Portfolio 15.27% -- 22.56% (6/97)
Travelers Disciplined Small Cap Stock Portfolio -- -- -10.66% (5/98)
Warburg Pincus Emerging Markets Portfolio -- -- -26.65% (5/98)
BOND ACCOUNTS:
Federated High Yield Portfolio 3.23% -- 8.50% (1/97)
Smith Barney Diversified Strategic Income Portfolio 4.90% -- 6.29% (6/97)
Travelers Convertible Bond Portfolio -- -- -0.04% (5/98)
Travelers Quality Bond Portfolio 6.95% -- 6.21% (12/96)
BALANCED ACCOUNTS:
MFS Total Return Portfolio 10.07% -- 14.34% (1/97)
MONEY MARKET ACCOUNTS:
Travelers Money Market Portfolio 3.56% -- 3.59% (2/97)
</TABLE>
The inception date used to calculate standardized performance is based on the
date that the investment option became active under the Separate Account.
7
<PAGE> 78
PORTFOLIO ARCHITECT ACCESS SELECT
NONSTANDARDIZED PERFORMANCE AS OF 12/31/98
<TABLE>
<CAPTION>
Cumulative Returns
-----------------------------------------------------
YTD 1 YR 3YR 5YR 10YR
--- ---- --- --- ----
STOCK ACCOUNTS:
<S> <C> <C> <C> <C> <C>
Alliance Growth Portfolio 27.23% 27.23% 106.5% -- --
Capital Appreciation Fund (Janus) 59.47% 59.47% 150.7% 216.6% 483.5%
Delaware Investments REIT Series -- -- -- -- --
Dreyfus Capital Appreciation Portfolio 28.50% 28.50% 101.0% 169.0% --
Dreyfus Small Cap Portfolio -4.81% -4.81% 26.0% 69.6% --
Equity Income Portfolio (Fidelity) 10.85% 10.85% -- -- --
Federated Stock Portfolio 16.25% 16.25% -- -- --
Large Cap Portfolio (Fidelity) 33.69% 33.69% -- -- --
Lazard International Stock Portfolio 11.06% 11.06% -- -- --
MFS Emerging Growth Portfolio 32.42% 32.42% -- -- --
MFS Mid Cap Growth Portfolio -- -- -- -- --
Salomon Brothers Investors Fund -- -- -- -- --
Smith Barney Appreciation Portfolio 17.47% 17.47% 73.2% 114.7% --
Smith Barney Total Return Portfolio 3.60% 3.60% 47.6% 92.4% --
Travelers Disciplined Mid Cap Stock Portfolio 15.30% 15.30% -- -- --
Travelers Disciplined Small Cap Stock Portfolio -- -- -- -- --
Warburg Pincus Emerging Markets Portfolio -17.28% -17.28% -- -- --
BOND ACCOUNTS:
Federated High Yield Portfolio 3.25% 3.25% -- -- --
Smith Barney Diversified Strategic Income 4.93% 4.93% 22.8% 34.5% --
Portfolio
Travelers Convertible Bond Portfolio -- -- -- -- --
Travelers Quality Bond Portfolio 6.98% 6.98% -- -- --
BALANCED ACCOUNTS:
MFS Total Return Portfolio 10.10% 10.10% 48.6% -- --
MONEY MARKET ACCOUNTS:
Travelers Money Market Portfolio 3.59% 3.59% 10.2% 17.1% 42.9%
Average Annual Returns Calendar Year Returns
--------------------------------------------------- -------------------------
3YR 5YR 10YR Inception 1997 1996 1995
--- --- ---- ------------------- ----- ----- -----
STOCK ACCOUNTS:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alliance Growth Portfolio 27.32% -- -- 26.20% (6/94) 27.24% 27.58% 32.99%
Capital Appreciation Fund (Janus) 35.81% 25.90% 19.28% 12.01% (5/83) 24.38% 26.41% 34.47%
Delaware Investments REIT Series -- -- -- -9.78% (5/98) -- -- --
Dreyfus Capital Appreciation Portfolio 26.17% 21.87% -- 19.94% (4/93) 26.30% 23.84% 31.71%
Dreyfus Small Cap Portfolio 8.01% 11.13% -- 24.71% (8/90) 15.14% 14.98% 27.59%
Equity Income Portfolio (Fidelity) -- -- -- 22.53% (8/96) 30.48% -- --
Federated Stock Portfolio -- -- -- 25.98% (8/96) 31.67% -- --
Large Cap Portfolio (Fidelity) -- -- -- 29.67% (8/96) 21.74% -- --
Lazard International Stock Portfolio -- -- -- 10.37% (8/96) 6.63% -- --
MFS Emerging Growth Portfolio -- -- -- 24.45% (8/96) 19.34% -- --
MFS Mid Cap Growth Portfolio -- -- -- -0.52% (3/98) -- -- --
Salomon Brothers Investors Fund -- -- -- 9.24% (2/98) -- -- --
Smith Barney Appreciation Portfolio 20.06% 16.50% -- 13.42% (10/91) 24.66% 18.24% 27.05%
Smith Barney Total Return Portfolio 13.85% 13.98% -- 14.40% (12/93) 15.22% 23.68% 23.17%
Travelers Disciplined Mid Cap Stock Portfolio -- -- -- 27.66% (4/97) -- -- --
Travelers Disciplined Small Cap Stock Portfolio -- -- -- -11.91% (5/98) -- -- --
Warburg Pincus Emerging Markets Portfolio -- -- -- -17.28% (12/97) -- -- --
BOND ACCOUNTS:
Federated High Yield Portfolio -- -- -- 10.36% (8/96) 13.85% -- --
Smith Barney Diversified Strategic Income 7.07% 6.10% -- 5.89% (10/91) 6.63% 9.72% 14.45%
Portfolio
Travelers Convertible Bond Portfolio -- -- -- 0.02% (5/98) -- -- --
Travelers Quality Bond Portfolio -- -- -- 6.75% (8/96) 5.65% -- --
BALANCED ACCOUNTS:
MFS Total Return Portfolio 14.11% -- -- 13.85% (6/94) 19.56% 12.90% 23.95%
MONEY MARKET ACCOUNTS:
Travelers Money Market Portfolio 3.30% 3.20% 3.63% 3.81% (12/87) 3.60% 2.72% 2.79%
</TABLE>
The inception date represents the date the funding options began operating
8
<PAGE> 79
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 generally 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.
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
9
<PAGE> 80
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.
ROTH IRAS
Effective January 1, 1998, Section 408A of the Code permits certain
individuals to contribute to a Roth IRA. Eligibility to make contributions is
based upon income, and the applicable limits vary based on marital status and/or
whether the contribution is a rollover contribution from another IRA or an
annual contribution. Contributions to a Roth IRA, which are subject to certain
limitations ($2,000 per year for annual contributions), are not deductible and
must be made in cash or as a rollover or transfer from another Roth IRA or other
IRA. A conversion of a "traditional" IRA to a Roth IRA may be subject to tax and
other special rules apply. You should consult a tax adviser before combining any
converted amounts with other Roth IRA contributions, including any other
conversion amounts from other tax years.
Qualified distributions from a Roth IRA are tax-free. A qualified
distribution requires that the Roth IRA has been held for at least 5 years, and
the distribution is made after age 59-1/2, on death or disability of the owner,
or for a limited amount ($10,000) for a qualified first time home purchase for
the owner or certain relatives. Income tax and a 10% penalty tax may apply to
distributions made (1) before age 59-1/2 (subject to certain exceptions) or (2)
during five taxable years starting with the year in which the first contribution
is made to the Roth IRA.
10
<PAGE> 81
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.
11
<PAGE> 82
3. PERIODIC DISTRIBUTIONS (DISTRIBUTIONS PAYABLE OVER A PERIOD GREATER THAN ONE
YEAR)
The portion of a periodic distribution which constitutes taxable income
will be subject to federal income tax withholding under the wage withholding
tables as if the recipient were married claiming three exemptions. A recipient
may elect not to have income taxes withheld or have income taxes withheld at a
different rate by providing a completed 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, 1999, a recipient receiving
periodic payments (e.g., monthly or annual payments under an annuity option)
which total $14,700 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
The financial statements of The Travelers Life and Annuity Company as
of December 31, 1998 and 1997, and for each of the years in the three-year
period ended December 31, 1998, included herein, and the financial statements of
Fund ABD II as of December 31, 1998 and for the year ended December 31, 1998,
incorporated herein by reference, have been included or incorporated in reliance
upon the reports of KPMG LLP, independent certified public accountants,
appearing elsewhere herein or incorporated herein by reference, and upon the
authority of said firm as experts in accounting and auditing.
12
<PAGE> 83
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, 1998 and 1997, and the related statements of
income, changes in retained earnings and accumulated other changes in equity
from non-owner sources and cash flows for each of the years in the three-year
period ended December 31, 1998. 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, 1998 and 1997, and the results of its operations and
its cash flows for each of the years in the three-year period ended December 31,
1998, in conformity with generally accepted accounting principles.
/s/ KPMG LLP
Hartford, Connecticut
January 25, 1999
F-1
<PAGE> 84
THE TRAVELERS LIFE AND ANNUITY COMPANY
STATEMENTS OF INCOME
($ in thousands)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
REVENUES
Premiums $ 23,677 $ 35,190 $ 17,462
Net investment income 171,003 168,653 151,326
Realized investment gains (losses) 18,493 44,871 (9,613)
Fee income 14,687 5,004 1,336
Other 14,199 3,159 940
- -------------------------------------------------------------------------- ------------- --------------
Total Revenues 242,059 256,877 161,451
- -------------------------------------------------------------------------- ------------- --------------
BENEFITS AND EXPENSES
Current and future insurance benefits 81,371 95,639 77,285
Interest credited to contractholders 51,535 35,165 35,607
Amortization of deferred acquisition costs and
value in insurance in force 17,031 6,036 3,286
Operating expenses 3,937 10,462 5,691
- -------------------------------------------------------------------------- ------------- --------------
Total Benefits and Expenses 153,874 147,302 121,869
- -------------------------------------------------------------------------- ------------- --------------
Income before federal income taxes 88,185 109,575 39,582
- -------------------------------------------------------------------------- ------------- --------------
Federal income taxes:
Current 18,917 33,859 29,456
Deferred expense (benefit) 11,783 4,344 (15,665)
- -------------------------------------------------------------------------- ------------- --------------
Total Federal Income Taxes 30,700 38,203 13,791
- -------------------------------------------------------------------------- ------------- --------------
Net income $ 57,485 $ 71,372 $ 25,791
========================================================================== ============= ==============
</TABLE>
See Notes to Financial Statements.
F-2
<PAGE> 85
THE TRAVELERS LIFE AND ANNUITY COMPANY
BALANCE SHEETS
($ in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1998 1997
- ------------------------------------------------------------------------------------------ ---------------- -----------------
<S> <C> <C>
ASSETS
Fixed maturities, available for sale at fair value (cost, $1,707,347; $1,571,121) $1,838,681 $1,678,120
Equity securities, at fair value (cost, $25,826; $15,092) 26,685 16,289
Mortgage loans 174,565 160,247
Short-term securities 126,176 169,229
Other invested assets 136,122 121,242
- ------------------------------------------------------------------------------------------ ---------------- -----------------
Total Investments 2,302,229 2,145,127
- ------------------------------------------------------------------------------------------ ---------------- -----------------
Separate accounts 2,178,474 812,059
Deferred acquisition costs and value of insurance in force 194,213 90,966
Premium balances receivable 16,074 9,288
Deferred federal income taxes 12,395 33,661
Other assets 41,119 61,904
- ------------------------------------------------------------------------------------------ ---------------- -----------------
Total Assets $4,744,504 $3,153,005
- ------------------------------------------------------------------------------------------ ---------------- -----------------
LIABILITIES
Future policy benefits $963,171 $971,602
Contractholder funds 947,411 818,971
Separate accounts 2,178,474 812,059
Other liabilities 114,690 84,712
- ------------------------------------------------------------------------------------------ ---------------- -----------------
Total Liabilities 4,203,746 2,687,344
- ------------------------------------------------------------------------------------------ ---------------- -----------------
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 282,555 225,070
Accumulated other changes in equity from non-owner sources 87,889 70,277
- ------------------------------------------------------------------------------------------ ---------------- -----------------
Total Shareholder's Equity 540,758 465,661
- ------------------------------------------------------------------------------------------ ---------------- -----------------
Total Liabilities and Shareholder's Equity $4,744,504 $3,153,005
========================================================================================== ================ =================
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE> 86
THE TRAVELERS LIFE AND ANNUITY COMPANY
STATEMENTS OF CHANGES IN RETAINED EARNINGS AND ACCUMULATED
OTHER CHANGES IN EQUITY FROM NON-OWNER SOURCES
($ IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------ ---------------- ----------------- -------------------
STATEMENTS OF CHANGES IN RETAINED EARNINGS 1998 1997 1996
- ------------------------------------------------------ ---------------- ----------------- -------------------
<S> <C> <C> <C>
Balance, beginning of year $225,070 $167,698 $157,907
Net income 57,485 71,372 25,791
Dividends to parent - 14,000 16,000
- ------------------------------------------------------ ---------------- ----------------- -------------------
Balance, end of year $282,555 $225,070 $167,698
====================================================== ================ ================= ===================
- ------------------------------------------------------ ---------------- ----------------- -------------------
STATEMENTS OF ACCUMULATED OTHER CHANGES
IN EQUITY FROM NON-OWNER SOURCES
- ------------------------------------------------------ ---------------- ----------------- -------------------
Balance, beginning of year $70,277 $33,856 $35,330
Unrealized gains (losses), net of tax 17,612 36,421 (1,474)
- ------------------------------------------------------ ---------------- ----------------- -------------------
Balance, end of year $87,889 $70,277 $33,856
====================================================== ================ ================= ===================
- ------------------------------------------------------ ---------------- ----------------- -------------------
SUMMARY OF CHANGES IN EQUITY
FROM NON-OWNER SOURCES
- ------------------------------------------------------ ---------------- ----------------- -------------------
Net Income $57,485 $71,372 $25,791
Other changes in equity from
non-owner sources 17,612 36,421 (1,474)
- ------------------------------------------------------ ---------------- ----------------- -------------------
Total changes in equity from
non-owner sources $75,097 $107,793 $24,317
====================================================== ================ ================= ===================
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE> 87
THE TRAVELERS LIFE AND ANNUITY COMPANY
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
($ in thousands)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996
- ----------------------------------------------------------------------------------- --------------- --------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Premiums collected $ 22,300 $ 34,553 $ 6,472
Net investment income received 146,158 170,460 71,083
Benefits and claims paid (90,872) (90,820) (70,331)
Interest credited to contractholders (51,535) (35,165) (813)
Operating expenses paid (75,632) (40,868) (5,482)
Income taxes paid (25,214) (22,440) (23,931)
Other (596) (7,702) (6,857)
- ----------------------------------------------------------------------------------- --------------- --------------- -------------
Net Cash Provided by (Used in) Operating Activities (75,391) 8,018 (29,859)
- ----------------------------------------------------------------------------------- --------------- --------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments
Fixed maturities 113,456 81,899 20,301
Mortgage loans 25,462 8,972 37,789
Proceeds from sales of investments
Fixed maturities 1,095,976 856,846 978,970
Equity securities 6,020 12,404 12,818
Mortgage loans - 5,483 22,437
Real estate held for sale - 4,493 -
Purchases of investments
Fixed maturities (1,320,704) (1,020,803) (994,443)
Equity securities (13,653) (6,382) (5,412)
Mortgage loans (39,158) (41,967) (21,450)
Policy loans (2,010) (1,144) (1,750)
Short-term securities, (purchases) sales, net 43,054 (88,067) (19,688)
Other investments, (purchases) sales, net 1,110 (51,502) (6,160)
Securities transactions in course of settlement 36,459 10,526 (51,703)
- ----------------------------------------------------------------------------------- --------------- --------------- -------------
Net Cash Used in Investing Activities (53,988) (229,242) (28,291)
- ----------------------------------------------------------------------------------- --------------- --------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Contractholder fund deposits 211,476 325,932 96,490
Contractholder fund withdrawals (83,036) (89,145) (22,340)
Dividends to parent company - (14,000) (16,000)
- ----------------------------------------------------------------------------------- --------------- --------------- -------------
Net Cash Provided by Financing Activities 128,440 222,787 58,150
- ----------------------------------------------------------------------------------- --------------- --------------- -------------
Net increase (decrease) in cash (939) 1,563 -
- ----------------------------------------------------------------------------------- --------------- --------------- -------------
Cash at December 31, $624 $1,563 $ -
=================================================================================== =============== =============== =============
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE> 88
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies used in the preparation of the accompanying
financial statements follow.
Basis of Presentation
The Travelers Life and Annuity Company (the Company) is a wholly owned
subsidiary of The Travelers Insurance Company (TIC), an indirect wholly
owned subsidiary of Citigroup Inc. (Citigroup), formerly Travelers Group
Inc. 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.
The Company offers a variety of variable annuity products where the
investment risk is borne by the contractholder, not the Company, and the
benefits are not guaranteed. The premiums and deposits related to these
products are reported in separate accounts. The Company considers it
necessary to differentiate, for financial statement purposes, the results
of the risks it has assumed from those it has not. See also Note 6.
Certain reclassifications have been made to the prior year's financial
statements to conform to the current year's presentation.
ACCOUNTING CHANGES
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities
Effective January 1, 1997, the Company adopted Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" (FAS 125). This
statement establishes accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. These
standards are based on an approach that focuses on control. Under this
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 standards
for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. Effective January 1, 1998, the
Company adopted the collateral provisions of FAS 125 which were not
effective until 1998 in accordance with Statement of Financial Accounting
Standards No. 127, "Deferral of the Effective Date of Certain Provisions of
SFAS 125". The adoption of the collateral provisions of FAS 125 created
additional assets and liabilities on the Company's statement of financial
position related to the recognition of securities provided and received as
collateral. There was no impact on the results of operations from the
adoption of the collateral provisions of FAS 125.
F-6
<PAGE> 89
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Reporting Comprehensive Income
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (FAS 130).
FAS 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. All items that are required to be recognized under
accounting standards as components of comprehensive income are required to
be reported in an annual financial statement that is displayed with the
same prominence as other financial statements. This statement stipulates
that comprehensive income reflect the change in equity of an enterprise
during a period from transactions and other events and circumstances from
non-owner sources. Comprehensive income thus represents the sum of net
income and other changes in equity from non-owner sources. The accumulated
balance of other changes in equity from non-owner sources is required to be
displayed separately from retained earnings and additional paid-in capital
in the balance sheet. The adoption of FAS 130 resulted in the Company
reporting unrealized gains and losses on investments in debt and equity
securities in changes in equity from non-owner sources. See Note 3.
Disclosures About Segments of an Enterprise and Related Information
During 1998, Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information" (FAS
131) became effective. FAS 131 establishes standards for the way that
public enterprises report information about operating segments in annual
financial statements and requires that selected information about those
operating segments be reported in interim financial statements. This
statement supersedes Statement of Financial Accounting Standards No. 14,
"Financial Reporting for Segments of a Business Enterprise". FAS 131
requires that all public enterprises report financial and descriptive
information about its reportable operating segments. Operating segments are
defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decisionmaker in deciding how to allocate resources and in assessing
performance. The Company only has one reportable operating segment and
therefore, no additional disclosures are required under FAS 131.
Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use
During the third quarter of 1998, the Company adopted (effective January 1,
1998) the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants' Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" (SOP 98-1). SOP 98-1 provides guidance on accounting for the
costs of computer software developed or obtained for internal use and for
determining when specific costs should be capitalized or expensed. The
adoption of SOP 98-1 had no impact on the Company's financial condition,
statement of operations or liquidity.
F-7
<PAGE> 90
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
ACCOUNTING POLICIES
Investments
Fixed maturities include bonds, notes and redeemable preferred stocks. Fair
values of investments in fixed maturities are based on quoted market prices
or dealer quotes or, if these are not available, discounted expected cash
flows using market rates commensurate with the credit quality and maturity
of the investment. The effective yield used to determine amortization is
calculated based upon actual historical and projected future cash flows,
which are obtained from a widely-accepted securities data provider. 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 non-redeemable 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.
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
current real estate financing market. Impaired loans were insignificant at
December 31, 1998 and 1997.
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.
Other invested assets include real estate joint ventures and partnership
investments accounted for on the equity method of accounting. All changes
in equity of these investments are recorded in net investment income.
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.
Included in investments are invested assets associated with Structured
Settlement Guaranteed Separate Accounts where the investment risk is borne
by the Company. See Note 6.
F-8
<PAGE> 91
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments, including financial
futures contracts, options, forward contracts and interest rate swaps and
caps, as a means of hedging exposure to interest rate and foreign currency
risk. Hedge accounting is used to account for derivatives. To qualify for
hedge accounting the changes in value of the derivative must be expected to
substantially offset the changes in value of the hedged item. Hedges are
monitored to ensure that there is a high correlation between the derivative
instruments and the hedged investment.
Gains and losses arising from financial futures contracts are used to
adjust the basis of hedged investments and are recognized in net investment
income over the life of the investment.
Forward contracts, and options, and interest rate caps were not significant
at December 31, 1998 and 1997. Information concerning derivative financial
instruments is included in Note 4.
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
The Company has separate account assets and liabilities 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 fee income.
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.
The Company also has a separate account for structured settlement annuity
obligations where the investment risk is borne by the Company. The assets
and liabilities of this separate account are included in investments,
future policy benefits and contractholder funds for financial reporting
purposes. See Note 6.
F-9
<PAGE> 92
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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 15 to 20
year amortization period is used for life insurance, and a 7 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 is an asset recorded at the time of
acquisition of an insurance company. It represents the actuarially
determined present value of anticipated profits to be realized from annuity
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
annuity business acquired. The annuity contracts are 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 3.0% 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.
CONTRACTHOLDER FUNDS
Contractholder funds represent receipts from the issuance of universal
life, certain individual annuity contracts, and structured settlement
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 3.3% to 7.2%.
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 (NAIC) 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.
F-10
<PAGE> 93
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
The NAIC recently completed a process intended to codify statutory
accounting practices for certain insurance enterprises. As a result of this
process, the NAIC will issue a revised statutory Accounting Practices and
Procedures Manual - version effective January 1, 2001 (the revised Manual)
that will be effective January 1, 2001 for the calendar year 2001 statutory
financial statements. It is expected that the State of Connecticut will
require that, effective January 1, 2001, insurance companies domiciled in
Connecticut prepare their statutory basis financial statements in
accordance with the revised Manual subject to any deviations prescribed or
permitted by the Connecticut insurance commissioner. The Company has not
yet determined the impact that this change will have on its statutory
capital and surplus.
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 earned on investment and other insurance contracts.
FEDERAL INCOME TAXES
The provision for federal income taxes comprises 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.
FUTURE APPLICATION OF ACCOUNTING STANDARDS
In December 1997, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of
Position 97-3, "Accounting by Insurance and Other Enterprises for
Insurance-Related Assessments" (SOP 97-3). SOP 97-3 provides guidance for
determining when an entity should recognize a liability for guaranty-fund
and other insurance-related assessments, how to measure that liability, and
when an asset may be recognized for the recovery of such assessments
through premium tax offsets or policy surcharges. This SOP is effective for
financial statements for fiscal years beginning after December 15, 1998,
and the effect of initial adoption is to be reported as a cumulative
catch-up adjustment. Restatement of previously issued financial statements
is not allowed. The Company plans to implement SOP 97-3 in the first
quarter of 1999 and expects there to be no material impact on the Company's
financial condition, results of operations or liquidity.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133). This statement establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments imbedded in other contracts, (collectively
referred to as derivatives) and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value.
F-11
<PAGE> 94
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
If certain conditions are met, a derivative may be specifically designated
as (a) a hedge of the exposure to changes in the fair value of a recognized
asset or liability or an unrecognized firm commitment, (b) a hedge of the
exposure to variable cash flows of a forecasted transaction, or (c) a hedge
of the foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available-for-sale security,
or a foreign-currency-denominated forecasted transaction. The accounting
for changes in the fair value of a derivative (that is, gains and losses)
depends on the intended use of the derivative and the resulting
designation. FAS 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Upon initial application of FAS 133, hedging
relationships must be designated anew and documented pursuant to the
provisions of this statement. The Company has not yet determined the impact
that FAS 133 will have on its financial statements.
2. 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, 1998 and 1997 was
$69.6 million and $76.4 million, respectively. Life insurance premiums
ceded were $4.2 million, $2.4 million and $1.3 million in 1998, 1997 and
1996, respectively. Life insurance premiums ceded to non-affiliates were
insignificant. Life insurance in force ceded to non-affiliates at December
31, 1998 and 1997, was $8.8 billion and $4.5 billion, respectively.
3. SHAREHOLDER'S EQUITY
Unrealized Investment Gains (Losses)
See Note 11 for an analysis of the change in unrealized gains and losses on
investments.
Shareholder's Equity and Dividend Availability
The Company's statutory net income (loss) was $(3.2) million, $80.3 million
and $17.9 million for the years ended December 31, 1998, 1997 and 1996,
respectively.
Statutory capital and surplus was $328.2 million at both December 31, 1998
and 1997.
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 $32.8 million is available in 1999 for dividend payments by the
Company without prior approval of the Connecticut Insurance Department.
F-12
<PAGE> 95
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
TAX EFFECTS ALLOCATED TO EACH COMPONENT OF
OTHER CHANGES IN EQUITY FROM NON-OWNER SOURCES
<TABLE>
<CAPTION>
For the years ended December 31, PRE-TAX AMOUNT TAX EXPENSE/ AFTER-TAX
($ in thousands) (BENEFIT) AMOUNT
---------------------------------------------------------------- --------------- ---------------- --------------
<S> <C> <C> <C>
1998
Unrealized gain on investment securities:
Unrealized holding gains arising during year $45,589 $15,957 $29,632
Less: reclassification adjustment for gains
realized in net income 18,493 6,473 12,020
---------------------------------------------------------------- --------------- ---------------- --------------
Other changes in equity from non-owner sources $27,096 $9,484 $17,612
================================================================ =============== ================ ==============
1997
Unrealized gain on investment securities:
Unrealized holding gains arising during year $100,903 $35,316 $65,587
Less: reclassification adjustment for gains
realized in net income 44,871 15,705 29,166
---------------------------------------------------------------- --------------- ---------------- --------------
Other changes in equity from non-owner sources $56,032 $19,611 $36,421
================================================================ =============== ================ ==============
1996
Unrealized gain (loss) on investment securities:
Unrealized holding gains (losses) arising during year $(11,881) $4,158 $(7,723)
Less: reclassification adjustment for losses realized
in net income (9,613) (3,364) (6,249)
---------------------------------------------------------------- --------------- ---------------- --------------
Other changes in equity from non-owner sources $(2,268) $794 $(1,474)
================================================================ =============== ================ ==============
</TABLE>
4. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Derivative Financial Instruments
The Company uses derivative financial instruments, including financial
futures, forward contracts and interest rate swaps as a means of hedging
exposure to foreign currency, equity price changes and/or interest rate
risk on anticipated transactions or existing assets and liabilities. The
Company does not hold or issue derivative instruments for trading purposes.
These derivative financial instruments have off-balance sheet risk.
Financial instruments with off-balance sheet risk involve, to varying
degrees, elements of credit and market risk in excess of the amount
recognized in the balance sheet. The contract or notional amounts of these
instruments reflect the extent of involvement the Company has in a
particular class of financial instrument.
However, the maximum loss of cash flow associated with these instruments
can be less than these amounts. For forward contracts and interest rate
swaps, credit risk is limited to the amounts that it would cost the Company
to replace such contracts. Financial futures contracts and purchased listed
option contracts have little credit risk since organized exchanges are the
counterparties.
F-13
<PAGE> 96
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
The Company monitors creditworthiness of counterparties to these financial
instruments by using criteria of acceptable risk that are consistent with
on-balance sheet financial instruments. The controls include credit
approvals, limits and other monitoring procedures.
The Company uses exchange traded financial futures contracts to manage its
exposure to changes in interest rates and equity prices which arise from
the sale of certain insurance and investment products, or the need to
reinvest proceeds from the sale or maturity of investments. To hedge
against adverse changes in interest rates and equity prices, the Company
enters long or short positions in financial futures contracts which offset
changes in the fair value of investments and liabilities resulting from
changes in market interest rates or equity prices until an investment is
purchased, a product is sold or a liability is settled.
Margin payments are required to enter a futures contract and contract gains
or losses are settled daily in cash. The contract amount of futures
contracts represents the extent of the Company's involvement, but not
future cash requirements, as open positions are typically closed out prior
to the delivery date of the contract.
At December 31, 1998 and 1997, the Company held financial futures contracts
with notional amounts of $41.5 million and $156.3 million, respectively. At
December 31, 1998 and 1997, the Company's futures contracts had no fair
value because these contracts are marked to market and settled in cash
daily.
The Company enters into interest rate swaps in connection with other
financial instruments to provide greater risk diversification and better
match an asset with a corresponding liability. Under interest rate swaps,
the Company agrees with other parties to exchange, at specific intervals,
the difference between fixed-rate and floating-rate interest amounts
calculated by reference to a notional principal amount. Generally, no cash
is exchanged at the outset of the contract and no principal payments are
made by either party. A single net payment is usually made by one
counterparty at each due date. Swaps are not exchange traded and are
subject to the risk of default by the counterparty.
As of December 31, 1998 and 1997, the Company held interest rate swap
contracts with notional amounts of $165.3 million and $17.3 million,
respectively. The fair value of these financial instruments was $3.4
million (gain position) and $.7 million (loss position) at December 31,
1998 and was $.7 million (loss position) at December 31, 1997. The fair
values were determined using the discounted cash flow method.
The off-balance sheet risks of forward contracts were not significant at
December 31, 1998 and 1997.
Financial Instruments with Off-Balance Sheet Risk
In the normal course of business, the Company issues fixed and variable
rate loan commitments and has unfunded commitments to partnerships. The
off-balance sheet risk of these financial instruments was not significant
at December 31, 1998 and 1997.
F-14
<PAGE> 97
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Fair Value of Certain Financial Instruments
The Company uses various financial instruments in the normal course of its
business. Fair values of financial instruments that are considered
insurance contracts are not required to be disclosed and are not included
in the amounts discussed.
At December 31, 1998, investments in fixed maturities had a carrying value
and a fair value of $1.8 billion, compared with a carrying value and a fair
value of $1.7 billion at December 31, 1997. See Notes 1 and 11.
At December 31, 1998, mortgage loans had a carrying value of $174.6 million
and a fair value of $185.7 million and in 1997 had a carrying value of
$160.2 million and a fair value of $172.6 million. In estimating fair
value, the Company used interest rates reflecting the current real estate
financing market.
The carrying values of $36.5 million and $54.4 million of financial
instruments classified as other assets approximated their fair values at
December 31, 1998 and 1997, respectively. The carrying values of $98.4
million and $70.5 million of financial instruments classified as other
liabilities also approximated their fair values at December 31, 1998 and
1997, respectively. Fair value is determined using various methods,
including discounted cash flows, as appropriate for the various financial
instruments.
At December 31, 1998, contractholder funds with defined maturities had a
carrying value of $725.6 million and a fair value of $698.1 million,
compared with a carrying value of $694.9 million and a fair value of $695.9
million at December 31, 1997. The fair value of these contracts is
determined by discounting expected cash flows at an interest rate
commensurate with the Company's credit risk and the expected timing of cash
flows. Contractholder funds without defined maturities had a carrying value
of $483.0 million and a fair value of $442.5 million at December 31, 1998,
compared with a carrying value of $98.5 million and a fair value of $93.9
million at December 31, 1997. These contracts generally are valued at
surrender value.
The carrying values of short-term securities and policy loans approximated
their fair values.
5. COMMITMENTS AND CONTINGENCIES
Financial Instruments with Off-Balance Sheet Risk
See Note 4.
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,
1998, 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.
F-15
<PAGE> 98
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
6. STRUCTURED SETTLEMENT CONTRACTS
The Company has structured settlement contracts that provide guarantees for
the contractholders independent of the investment performance of the assets
held in the related separate account. The assets held in the separate
account are owned by the Company and contractholders do not share in their
investment performance.
The Company maintains assets sufficient to fund the guaranteed benefits
attributable to the liabilities. Assets held in the separate account cannot
be used to satisfy any other obligations of the Company.
The Company reports the related assets and liabilities in investments,
future policy benefit reserves and contractholder funds.
These contracts were purchased by the insurance subsidiaries of Travelers
Property Casualty Corp. (TAP), an affiliate of the Company, in connection
with the settlement of certain of their policyholder obligations. Effective
April 1, 1998, all new contracts have been written by TIC.
7. BENEFIT PLANS
Pension and Other Postretirement Benefits
The Company participates in a qualified, noncontributory defined benefit
pension plan sponsored by Citigroup. In addition, the Company provides
certain other postretirement benefits to retired employees through a plan
sponsored by The Travelers Insurance Group Inc. (TIGI), TIC's direct
parent. The Company's share of net expense for the qualified pension and
other postretirement benefit plans was not significant for 1998, 1997 and
1996.
401(k) Savings Plan
Substantially all of the Company's employees are eligible to participate in
a 401(k) savings plan sponsored by Citigroup. During 1996, the Company made
matching contributions in an amount equal to the lesser of 100% of the
pre-tax contributions made by the employee or $1,000. Effective January 1,
1997, the Company discontinued matching contributions for the majority of
its employees. The Company's expenses in connection with the 401(k) savings
plan were not significant in 1998, 1997 and 1996.
F-16
<PAGE> 99
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
8. 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 two companies. TIC handles banking functions for
the life and annuity operations of Travelers Life & Annuity and some of its
non-insurance affiliates. The Travelers Indemnity Company handles banking
functions for the property-casualty operations, including most of its
property-casualty insurance and non-insurance affiliates. Settlements
between companies are made at least monthly. 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.
TIC maintains 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, 1998 and 1997, the pool
totaled approximately $2.3 billion and $2.6 billion, respectively. The
Company's share of the pool amounted to $93.1 million and $145.5 million at
December 31, 1998 and 1997, 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 $450
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 sold structured settlement annuities to the insurance
affiliates of Travelers Property Casualty (TAP). Premiums and deposits were
$8.9 million, $70.6 million and $36.9 million for 1998, 1997 and 1996,
respectively. The reduction in premiums and deposits from 1997 to 1998 was
a result of a decision to use TIC as the primary issuer of structured
settlement annuities and the Company as the assignment company. Policy
reserves and contractholder fund liabilities associated with these
structured settlements were $808.7 and $842.3 million at December 31, 1998
and 1997, respectively.
The Company began marketing variable annuity products through its
affiliate, Salomon Smith Barney Inc. (SSB) in 1995. Premiums and deposits
related to these products were $932.1 million, $615.6 million and $300.0
million in 1998, 1997 and 1996, respectively. In 1996, the Company began
marketing various life products through SSB as well. Premiums related to
such products were $42.1 million, $25.1 million and $20.5 million in 1998,
1997 and 1996, respectively.
During 1998, the Company began marketing deferred annuity products through
its affiliate Primerica Financial Services (Primerica). Deposits received
were $216 million.
The Company participates in a stock option plan sponsored by Citigroup that
provides for the granting of stock options in Citigroup common stock to
officers and key employees. To further encourage employee stock ownership,
during 1997 the Company's ultimate parent introduced the WealthBuilder
stock option program. Under this program, all employees meeting certain
requirements are granted Citigroup stock options.
F-17
<PAGE> 100
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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 1998, 1997 and 1996.
At December 31, 1998 and 1997, the Company had investments in Tribeca
Investments, L.L.C., an affiliate of the Company in the amounts of $18.3
million and $16.5 million, included in other invested assets.
9. FEDERAL INCOME TAXES ($ in thousands)
EFFECTIVE TAX RATE
<TABLE>
<CAPTION>
--------------------------------------------------------- ----------------- ---------------- -----------------
FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996
--------------------------------------------------------- ----------------- ---------------- -----------------
<S> <C> <C> <C>
Income Before Federal Income Taxes $88,185 $109,575 $39,582
Statutory Tax Rate 35% 35% 35%
--------------------------------------------------------- ----------------- ---------------- -----------------
Expected Federal Income Taxes 30,865 38,351 13,854
Tax Effect of:
Non-taxable investment income (20) (24) (15)
Other, net (145) (124) (48)
--------------------------------------------------------- ----------------- ---------------- -----------------
Federal Income Taxes $30,700 $38,203 $13,791
========================================================= ================= ================ =================
Effective Tax Rate 35% 35% 35%
--------------------------------------------------------- ----------------- ---------------- -----------------
COMPOSITION OF FEDERAL INCOME TAXES 1998 1998 1996
---- ---- ----
Current:
United States $18,794 $33,805 $29,435
Foreign 123 54 21
--------------------------------------------------------- ----------------- ---------------- -----------------
Total 18,917 33,859 29,456
--------------------------------------------------------- ----------------- ---------------- -----------------
Deferred:
United States 11,783 4,344 (15,665)
--------------------------------------------------------- ----------------- ---------------- -----------------
Federal Income Taxes $30,700 $38,203 $13,791
========================================================= ================= ================ =================
</TABLE>
F-18
<PAGE> 101
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
The net deferred tax assets at December 31, 1998 and 1997 were comprised of
the tax effects of temporary differences related to the following assets
and liabilities:
<TABLE>
<CAPTION>
($ in thousands) 1998 1997
---- ----
--------------------------------------------------------------------- ---------------- --------------
<S> <C> <C>
Deferred Tax Assets:
Benefit, reinsurance and other reserves $121,150 $100,969
Other 2,810 2,571
--------------------------------------------------------------------- ---------------- --------------
Total 123,960 103,540
--------------------------------------------------------------------- ---------------- --------------
Deferred Tax Liabilities:
Investments, net 56,103 42,933
Deferred acquisition costs and value of insurance in force 51,993 23,650
Other 1,399 1,226
--------------------------------------------------------------------- ---------------- --------------
Total 109,495 67,809
--------------------------------------------------------------------- ---------------- --------------
Net Deferred Tax Asset Before Valuation Allowance 14,465 35,731
Valuation Allowance for Deferred Tax Assets (2,070) (2,070)
--------------------------------------------------------------------- ---------------- --------------
Net Deferred Tax Asset After Valuation Allowance $12,395 $33,661
--------------------------------------------------------------------- ---------------- --------------
</TABLE>
TIC and its life insurance subsidiaries, including the Company, has filed,
and 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 has been, and will be, paid currently to TIC. Any
credits for losses have been, and 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.
The $2.1 million valuation allowance is sufficient to cover any capital
losses on investments that may exceed the capital gains able to be
generated in the life insurance group's consolidated federal income tax
return based upon management's best estimate of the character of the
reversing temporary differences. Reversal of the valuation allowance is
contingent upon the recognition of future capital gains or a change in
circumstances that causes the recognition of the benefits to become more
likely than not. There was no change in the valuation allowance during
1998. The initial recognition of any benefit provided by the reversal of
the valuation allowance will be recognized by reducing goodwill.
F-19
<PAGE> 102
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
In management's judgment, the $12.4 million "net deferred tax asset after
valuation allowance" as of December 31, 1998, is fully recoverable against
expected future years' taxable ordinary income and capital gains. At
December 31, 1998, 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 is
approximately $2 million. Income taxes are not provided for on this amount
because under current U.S. tax rules such taxes will become payable only to
the extent such amounts are distributed as a dividend to exceed limits
prescribed by federal law. Distributions are not contemplated from this
account. At current rates the maximum amount of such tax would be
approximately $700 thousand.
10. NET INVESTMENT INCOME
<TABLE>
<CAPTION>
-------------------------------------------------------------- --------------- --------------- --------------
FOR THE YEAR ENDED DECEMBER 31,
($ in thousands) 1998 1997 1996
-------------------------------------------------------------- --------------- --------------- --------------
<S> <C> <C> <C>
GROSS INVESTMENT INCOME
Fixed maturities $130,825 $120,900 $113,296
Joint venture and partnership income 22,107 32,336 19,775
Mortgage loans 15,969 14,905 18,278
Other 3,322 2,284 4,113
-------------------------------------------------------------- --------------- --------------- --------------
172,223 170,425 155,462
-------------------------------------------------------------- --------------- --------------- --------------
Investment expenses 1,220 1,772 4,136
-------------------------------------------------------------- --------------- --------------- --------------
Net investment income $171,003 $168,653 $151,326
-------------------------------------------------------------- --------------- --------------- --------------
</TABLE>
11. INVESTMENTS AND INVESTMENT GAINS (LOSSES)
Realized investment gains (losses) for the periods were as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------- --------------- --------------- ---------------
FOR THE YEAR ENDED DECEMBER 31,
($ in thousands) 1998 1997 1996
---------------------------------------------------------------- --------------- --------------- ---------------
<S> <C> <C> <C>
REALIZED INVESTMENT GAINS (LOSSES)
Fixed maturities $15,620 $29,236 $(11,491)
Equity securities 1,819 8,385 4,613
Mortgage loans 623 (8) 1,979
Real estate held for sale - 2,164 (73)
Other 431 5,094 (4,641)
---------------------------------------------------------------- --------------- --------------- ---------------
Total Realized Investment Gains (Losses) $18,493 $44,871 $(9,613)
---------------------------------------------------------------- --------------- --------------- ---------------
</TABLE>
F-20
<PAGE> 103
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Changes in net unrealized investment gains (losses) that are included as
accumulated other changes in equity from non-owner sources in shareholder's
equity were as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------- --------------- --------------- ---------------
FOR THE YEAR ENDED DECEMBER 31,
($ in thousands) 1998 1997 1996
---------------------------------------------------------------- --------------- --------------- ---------------
<S> <C> <C> <C>
UNREALIZED INVESTMENT GAINS (LOSSES)
Fixed maturities $24,336 $34,451 $(23,953)
Equity securities (338) (2,394) (746)
Other 3,098 23,975 22,431
---------------------------------------------------------------- --------------- --------------- ---------------
Total Unrealized Investment Gains (Losses) 27,096 56,032 (2,268)
Related taxes 9,484 19,611 (794)
---------------------------------------------------------------- --------------- --------------- ---------------
Change in unrealized investment gains (losses) 17,612 36,421 (1,474)
Balance beginning of year 70,277 33,856 35,330
---------------------------------------------------------------- --------------- --------------- ---------------
Balance End of Year $87,889 $70,277 $33,856
---------------------------------------------------------------- --------------- --------------- ---------------
</TABLE>
Fixed Maturities
Proceeds from sales of fixed maturities classified as available for sale
were $1.1 billion, $.9 billion and $1.0 billion in 1998, 1997 and 1996,
respectively. Gross gains of $32.6 million, $38.1 million and $8.4 million
and gross losses of $17.0 million, $8.9 million and $19.9 million in 1998,
1997 and 1996, respectively were realized on those sales.
Fair values of investments in fixed maturities are based on quoted market
prices or dealer quotes or, if these are not available, discounted expected
cash flows using market rates commensurate with the credit quality and
maturity of the investment. The fair value of investments for which a
quoted market price or dealer quote are not available amounted to $427.0
million and $485.3 million at December 31, 1998 and 1997, respectively.
F-21
<PAGE> 104
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
The amortized cost and fair values of investments in fixed maturities were
as follows:
<TABLE>
<CAPTION>
------------------------------------------------- ---------------- --------------- ---------------- ---------------
DECEMBER 31, 1998 GROSS GROSS
($ in thousands) AMORTIZED COST UNREALIZED UNREALIZED FAIR
GAINS LOSSES VALUE
------------------------------------------------- ---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
Mortgage-backed securities - CMOs and
pass-through securities $220,105 $ 11,571 $(193) $231,483
U.S. Treasury securities and obligations
of U.S. Government and government agencies
and authorities 289,376 53,782 (274) 342,884
Obligations of states and political
subdivisions 28,749 994 (17) 29,726
Debt securities issued by foreign
governments 40,786 2,966 (375) 43,377
All other corporate bonds 1,124,298 75,870 (13,000) 1,187,168
Redeemable preferred stock 4,033 119 (109) 4,043
------------------------------------------------- ---------------- --------------- ---------------- ---------------
Total Available For Sale $1,707,347 $145,302 $(13,968) $1,838,681
------------------------------------------------- ---------------- --------------- ---------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997 GROSS GROSS
($ in thousands) AMORTIZED COST UNREALIZED UNREALIZED FAIR
GAINS LOSSES VALUE
------------------------------------------------- ---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
Mortgage-backed securities - CMOs and
pass-through securities $144,921 $ 8,254 $(223) $152,952
U.S. Treasury securities and obligations
of U.S. Government and government agencies
and authorities 248,081 34,111 (123) 282,069
Obligations of states and political
subdivisions 14,560 392 (2) 14,950
Debt securities issued by foreign
governments 85,367 6,194 (228) 91,333
All other corporate bonds 1,077,211 59,972 (1,387) 1,135,796
Redeemable preferred stock 981 48 (9) 1,020
------------------------------------------------- ---------------- --------------- ---------------- ---------------
Total Available For Sale $1,571,121 $108,971 $(1,972) $1,678,120
------------------------------------------------- ---------------- --------------- ---------------- ---------------
</TABLE>
The amortized cost and fair value of fixed maturities available for sale at
December 31, 1998, by contractual maturity, are shown below. Actual
maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
F-22
<PAGE> 105
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
----------------------------------------------------- ------------------ ------------------
($ in thousands) AMORTIZED FAIR
COST VALUE
----------------------------------------------------- ------------------ ------------------
<S> <C> <C>
MATURITY:
Due in one year or less $ 21,149 $ 21,655
Due after 1 year through 5 years 249,251 256,032
Due after 5 years through 10 years 356,358 379,061
Due after 10 years 860,484 950,450
----------------------------------------------------- ------------------ ------------------
1,487,242 1,607,198
----------------------------------------------------- ------------------ ------------------
Mortgage-backed securities 220,105 231,483
----------------------------------------------------- ------------------ ------------------
Total Maturity $1,707,347 $1,838,681
----------------------------------------------------- ------------------ ------------------
</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.
At December 31, 1998 and 1997, the Company held CMOs with a market value of
$181.6 million and $122.8 million, respectively. The Company's CMO holdings
were 62.9% and 97.5% collateralized by GNMA, FNMA or FHLMC securities at
December 31, 1998 and 1997, respectively.
Equity Securities
The cost and market values of investments in equity securities were as
follows:
<TABLE>
<CAPTION>
--------------------------------------------- ----------- ---------------------- ---------------------- -----------
EQUITY SECURITIES: GROSS UNREALIZED GROSS UNREALIZED FAIR VALUE
($ in thousands) COST GAINS LOSSES
--------------------------------------------- ----------- ---------------------- ---------------------- -----------
<S> <C> <C> <C>
DECEMBER 31, 1998
Common stocks $ 5,185 $889 $(292) $5,782
Non-redeemable preferred stocks 20,641 707 (445) 20,903
--------------------------------------------- ----------- ---------------------- ---------------------- -----------
Total Equity Securities $25,826 $1,596 $(737) $26,685
--------------------------------------------- ----------- ---------------------- ---------------------- -----------
DECEMBER 31, 1997
Common stocks $3,318 $ 583 $(70) $3,831
Non-redeemable preferred stocks 11,774 931 (247) 12,458
--------------------------------------------- ----------- ---------------------- ---------------------- -----------
Total Equity Securities $15,092 $1,514 $(317) $16,289
--------------------------------------------- ----------- ---------------------- ---------------------- -----------
</TABLE>
F-23
<PAGE> 106
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Proceeds from sales of equity securities were $6.0 million, $12.4 million
and $12.8 million in 1998, 1997 and 1996, respectively. Gross gains of $2.6
million, $8.6 million and $4.7 million and gross losses of $815 thousand,
$172 thousand and $155 thousand in 1998, 1997 and 1996, respectively were
realized on those sales.
Mortgage Loans
Underperforming assets include delinquent mortgage loans, loans in the
process of foreclosure and loans modified at interest rates below market.
At December 31, 1998 and 1997, the Company's mortgage loan portfolios
consisted of the following:
<TABLE>
<CAPTION>
- ----------------------------------------------------- ------------- --------------
($ in thousands) 1998 1997
- ----------------------------------------------------- ------------- --------------
<S> <C> <C>
Current Mortgage Loans $170,635 $160,247
Underperforming Mortgage Loans 3,930 -
- ----------------------------------------------------- ------------- --------------
Total 174,565 160,247
- ----------------------------------------------------- ------------- --------------
</TABLE>
Aggregate annual maturities on mortgage loans at December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------- -------
($ in thousands)
<S> <C>
Past Maturity $ 129
1999 11,649
2000 11,309
2001 8,697
2002 16,272
2003 4,998
Thereafter 121,511
- ----------------------------------------------------- -------
Total 174,565
===================================================== =======
</TABLE>
Joint Venture
In October 1997, TIC and Tishman Speyer Properties (Tishman), a worldwide
real estate owner, developer and manager, formed a joint real estate
venture with an initial equity commitment of $792 million. TIC and certain
of its affiliates committed $420 million in real estate equity and $100
million in cash while Tishman committed $272 million in properties and
cash. Both companies are serving as asset managers for the venture and
Tishman is primarily responsible for the venture's real estate acquisition
and development efforts. The Company's investment in the joint venture,
which is included in other invested assets, totaled $62.4 million and $54.8
million at December 31, 1998 and 1997, respectively.
F-24
<PAGE> 107
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Concentrations
The Company's significant individual investment concentrations included
$53.3 million and $32.7 million in Bellsouth Corp. at December 31, 1998 and
1997, respectively. In addition, there was an investment of $50.8 million
in the State of Israel in 1997.
The Company participates in a short-term investment pool maintained by an
affiliate. See Note 8.
Included in fixed maturities are below investment grade assets totaling
$102.4 million and $76.7 million at December 31, 1998 and 1997,
respectively. The Company defines its below investment grade assets as
those securities rated "Ba1" or below by external rating agencies, or the
equivalent by internal analysts when a public rating does not exist. Such
assets include publicly traded below investment grade bonds and certain
other privately issued bonds that are classified as below investment grade
bonds.
The Company's three largest industry concentrations of investments,
primarily fixed maturities, were as follows:
<TABLE>
<CAPTION>
-------------------------------------------- ----------- -----------
($ in thousands) 1998 1997
-------------------------------------------- ----------- -----------
<S> <C> <C>
Banking $160,713 $130,966
Transportation 155,116 138,903
Electric utilities 109,027 106,724
-------------------------------------------- ----------- -----------
</TABLE>
Below investment grade assets included in the preceding table were not
significant.
Concentrations of mortgage loans by property type at December 31, 1998 and
1997 were as follows:
<TABLE>
<CAPTION>
-------------------------------------------- ----------- -----------
($ in thousands) 1998 1997
-------------------------------------------- ----------- -----------
<S> <C> <C>
Agricultural $78,579 $62,463
Office 51,813 47,453
-------------------------------------------- ----------- -----------
</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
There were no investments included in the balance sheets that were
non-income producing for the preceding 12 months.
F-25
<PAGE> 108
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Restructured Investments
Mortgage loan and debt securities which were restructured at below market
terms at December 31, 1998 and 1997 were insignificant. The new terms of
restructured investments 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. Interest on these assets, included in net investment income,
was insignificant.
12. LIFE AND ANNUITY DEPOSIT FUNDS AND RESERVES
At December 31, 1998, the Company had $1.9 billion of life and annuity
deposit funds and reserves. Of that total, $1.5 billion were not subject to
discretionary withdrawal based on contract terms. The remaining $.4 billion
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 $.2 billion of liabilities that are
surrenderable with market value adjustments. An additional $.2 billion of
life insurance and individual annuity liabilities are subject to
discretionary withdrawals with an average surrender charge of 4.6%. The
life insurance risks would have to be underwritten again if transferred to
another carrier, which is considered a significant deterrent for long-term
policyholders. Insurance liabilities that are surrendered or withdrawn from
the Company are reduced by outstanding policy loans and related accrued
interest prior to payout.
13. RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES
The following table reconciles net income to net cash provided by (used in)
operating activities:
<TABLE>
<CAPTION>
------------------------------------------------------------------ ------------- ------------- -------------
FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996
---- ---- ----
($ in thousands)
------------------------------------------------------------------ ------------- ------------- -------------
<S> <C> <C> <C>
Net Income From Continuing Operations $57,485 $71,372 $ 25,791
Adjustments to reconcile net income to cash provided by
operating activities:
Realized (gains) losses (18,493) (44,871) 9,613
Deferred federal income taxes 11,783 4,344 (15,665)
Amortization of deferred policy acquisition costs and
value of insurance in force 17,031 6,036 3,286
Additions to deferred policy acquisition costs (120,278) (56,975) (20,753)
Investment income accrued (3,821) 908 1,308
Premium balances receivable (6,786) (3,450) (3,561)
Insurance reserves and accrued expenses (8,431) 3,981 (16,459)
Other (3,881) 26,673 (13,419)
------------------------------------------------------------------ ------------- ------------- -------------
Net cash provided by (used in) operations $(75,391) $8,018 $(29,859)
------------------------------------------------------------------ ------------- ------------- -------------
</TABLE>
14. NON-CASH INVESTING AND FINANCING ACTIVITIES
There were no significant non-cash investing and financing activities for
1998, 1997 and 1996.
F-26
<PAGE> 109
STATEMENT OF ADDITIONAL INFORMATION
FUND ABD II FOR VARIABLE ANNUITIES
(ACCESS AND ACCESS SELECT)
Individual Variable Annuity Contract
issued by
The Travelers Life and Annuity Company
One Tower Square
Hartford, Connecticut 06183
L-21195S May, 1999
<PAGE> 110
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, 1998
Statement of Operations for the year ended December 31, 1998
Statement of Changes in Net Assets for the year ended December 31,
1998 and 1997
Statement of Investments as of December 31, 1998
Notes to Financial Statements
The 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 for the years ended December 31, 1998, 1997
and 1996
Balance Sheets as of December 31, 1998 and 1997
Statements of Changes in Retained Earnings and Accumulated Other
Changes in Equity from Non-Owner Sources for the years ended
December 31, 1998, 1997 and 1996
Statements of Cash Flows for the years ended December 31, 1998,
1997 and 1996
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 Principal Underwriting Agreement among the Registrant,
The Travelers Life and Annuity Company and CFBDS, Inc. (Incorporated
herein by reference to Exhibit 3(a) to Pre-Effective Amendment No. 1 to
the Registration Statement on Form N-4, File No. 333-60215 filed
November 9, 1998)
3(b). Selling Agreement. (Incorporated herein by reference to Exhibit 3(b) to
the Registration Statement on Form N-4, filed May 23, 1997.)
(Incorporated herein by reference to Exhibit 3(b) to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-4, File No.
333-60215 filed November 9, 1998)
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> 111
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.
33-65339, filed April 29, 1997.)
10. Consent of KPMG LLP, Independent Certified Public Accountants.
13. Schedule for computation of each performance quotation - Standardized.
(Incorporated herein by reference to Exhibit 13 to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-4, File No.
333-232237 filed July 3, 1997.)
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.)
15(e) Powers of Attorney authorizing Ernest J. Wright or Kathleen A. McGah as
signatory for J. Eric Daniels and Jay S. Benet. (Incorporated herein by
reference to Exhibit 15(e) to Post-Effective Amendment No. 5 to the
Registration Statement on Form N-4, File No. 33-65339 filed April ___,
1999.)
<PAGE> 112
Item 25. Directors and Officers of the Depositor
<TABLE>
<CAPTION>
Name and Principal Positions and Offices
Business Address with Insurance Company
- ------------------ ----------------------
<S> <C>
Michael A. Carpenter** Director, Chairman of the Board
J. Eric Daniels* President and Chief Executive Officer
Jay S. Benet* Director, Senior Vice President
Chief Financial Officer, Chief
Accounting Officer and Controller
George C. Kokulis* Director and Senior Vice President
Robert I. Lipp* Director
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
Kathleen Preston* Senior Vice President
David A. Tyson* Senior Vice President
F. Denney Voss* Senior Vice President
Ambrose J. Murphy* Deputy General Counsel
Virginia M. Meany* Vice President
Selig Ehrlich* Vice President and Actuary
Donald R. Munson, Jr.* Second Vice President
Anthony Cocolla Second Vice President
Scott R. Hansen Second Vice President
Ernest J. Wright* Vice President and Secretary
Kathleen A. McGah* Assistant Secretary and Counsel
Principal Business Address:
* The Travelers Insurance Company ** Citigroup Inc.
One Tower Square 388 Greenwich Street
Hartford, CT 06183 New York, N.Y. 10013
*** Travelers Portfolio Group
1345 Avenue of the Americas
New York, NY 10105
</TABLE>
Item 26. Persons Controlled by or Under Common Control with the Depositor or
Registrant
Incorporated herein by reference to Exhibit 16 to Post-Effective
Amendment No. 2 to the Registration Statement on Form N-4, File No. 333-27689,
filed April 16, 1999.
<PAGE> 113
Item 27. Number of Contract Owners
As of March 31, 1999, 2,535 contract owners held qualified and non-qualified
contracts offered by the Registrant.
Item 28. Indemnification
Sections 33-770 to 33-778, inclusive 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 wholly 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 and in all other cases, his conduct was at
least not opposed to the best interests of the corporation, and in a criminal
case he had no reasonable cause to believe his conduct was unlawful; 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.
Citigroup Inc. also provides liability insurance for its directors and officers
and the directors and officers of its subsidiaries, including the Registrant.
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 liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question 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> 114
Item 29. Principal Underwriter
(a) CFBDS, Inc.
21 Milk Street
Boston, MA 02109
CFBDS, Inc. also serves as principal underwriter for the following:
(a) CFBDS, the Registrant's Distributor, is also the distributor for CitiFundsSM
International Growth & Income Portfolio, CitiFundsSM International Growth
Portfolio, CitiFundsSM U.S. Treasury Reserves, CitiFundsSM Cash Reserves,
CitiFundsSM Premium U.S. Treasury Reserves, CitiFundsSM Premium Liquid Reserves,
CitiFundsSM Institutional U.S. Treasury Reserves, CitiFundsSM Institutional
Liquid Reserves, CitiFundsSM Institutional Cash Reserves, CitiFundsSM Tax Free
Reserves, CitiFundsSM Institutional Tax Free Reserves, CitiFundsSM California
Tax Free Reserves, CitiFundsSM Connecticut Tax Free Reserves, CitiFundsSM New
York Tax Free Reserves, CitiFundsSM New York Tax Free Income Portfolio,
CitiFundsSM National Tax Free Income Portfolio, CitiFundsSM California Tax Free
Income Portfolio, CitiFundsSM Intermediate Income Portfolio, CitiFundsSM
Balanced Portfolio, CitiFundsSM Small Cap Value Portfolio, CitiFundsSM Growth &
Income Portfolio, CitiFundsSM Large Cap Growth Portfolio, CitiFundsSM Small Cap
Growth Portfolio, CitiSelect VIP Folio 200, CitiSelect VIP Folio 300, CitiSelect
VIP Folio 400, CitiSelect VIP Folio 500, CitiFundsSM Small Cap Growth VIP
Portfolio, CitiSelect Folio 200, CitiSelect Folio 300, CitiSelect Folio 400, and
CitiSelect Folio 500. CFBDS is also the placement agent for Large Cap Value
Portfolio, Small Cap Value Portfolio, International Portfolio, Foreign Bond
Portfolio, Intermediate Income Portfolio, Short-Term Portfolio, Growth & Income
Portfolio, U.S. Fixed Income Portfolio, Large Cap Growth Portfolio, Small Cap
Growth Portfolio, International Equity Portfolio, Balanced Portfolio, Government
Income Portfolio, Tax Free Reserves Portfolio, Cash Reserves Portfolio and U.S.
Treasury Reserves Portfolio. CFBDS also serves as the distributor for the
following funds: 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 BD III for
Variable Annuities, The Travelers Fund BD IV for Variable Annuities, The
Travelers Fund ABD for Variable Annuities, The Travelers Separate Account PF for
Variable Annuities, The Travelers Separate Account PF II for Variable Annuities,
The Travelers Separate Account QP for Variable Annuities, The Travelers Separate
Account TM for Variable Annuities, The Travelers Separate Account TM II for
Variable Annuities, The Travelers Separate Account Five for Variable Annuities,
The Travelers Separate Account Six for Variable Annuities, The Travelers
Separate Account Seven for Variable Annuities, The Travelers Separate Account
Eight for Variable Annuities, The Travelers Fund UL for Variable Life Insurance,
The Travelers Fund UL II for Variable Life Insurance, The Travelers Fund UL III
for Variable Life Insurance, The Travelers Variable Life Insurance Separate
Account One, The Travelers Variable Life Insurance Separate Account Two, The
Travelers Variable Life Insurance Separate Account Three, The Travelers Variable
Life Insurance Separate Account Four, The Travelers Separate Account MGA, The
Travelers Separate Account MGA II, 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, Emerging Growth Fund, Government Fund, Growth
and Income Fund, International Equity Fund, Municipal Fund, Balanced
Investments, Emerging Markets Equity Investments, Government Money Investments,
High Yield Investments, Intermediate Fixed Income Investments, International
Equity Investments, International Fixed Income Investments, Large Capitalization
Growth Investments, Large Capitalization Value Equity Investments, Long-Term
Bond Investments, Mortgage Backed Investments, Municipal Bond Investments, Small
Capitalization Growth Investments, Small Capitalization Value Equity
Investments, Appreciation Portfolio, Diversified Strategic Income Portfolio,
Emerging Growth Portfolio, Equity Income Portfolio, Equity Index Portfolio,
Growth &
<PAGE> 115
Income Portfolio, Intermediate High Grade Portfolio, International
Equity Portfolio, Money Market Portfolio, Total Return Portfolio, Smith Barney
Adjustable Rate Government Income Fund, Smith Barney Aggressive Growth Fund
Inc., Smith Barney Appreciation Fund, Smith Barney Arizona Municipals Fund Inc.,
Smith Barney California Municipals Fund Inc., Balanced Portfolio, Conservative
Portfolio, Growth Portfolio, High Growth Portfolio, Income Portfolio, Global
Portfolio, Select Balanced Portfolio, Select Conservative Portfolio, Select
Growth Portfolio, Select High Growth Portfolio, Select Income Portfolio, Concert
Social Awareness Fund, Smith Barney Large Cap Blend Fund, Smith Barney
Fundamental Value Fund Inc., Large Cap Value Fund, Short-Term High Grade Bond
Fund, U.S. Government Securities Fund, Smith Barney Balanced Fund, Smith Barney
Convertible Fund, Smith Barney Diversified Strategic Income Fund, Smith Barney
Exchange Reserve Fund, Smith Barney High Income Fund, Smith Barney Municipal
High Income Fund, Smith Barney Premium Total Return Fund, Smith Barney Total
Return Bond Fund, Cash Portfolio, Government Portfolio, Municipal Portfolio,
Concert Peachtree Growth Fund, Smith Barney Contrarian Fund, Smith Barney
Government Securities Fund, Smith Barney Hansberger Global Small Cap Value Fund,
Smith Barney Hansberger Global Value Fund, Smith Barney Investment Grade Bond
Fund, Smith Barney Special Equities Fund, Smith Barney Intermediate Maturity
California Municipals Fund, Smith Barney Intermediate Maturity New York
Municipals Fund, Smith Barney Large Capitalization Growth Fund, Smith Barney S&P
500 Index Fund, Smith Barney Mid Cap Blend Fund, Smith Barney Managed
Governments Fund Inc., Smith Barney Managed Municipals Fund Inc., Smith Barney
Massachusetts Municipals Fund, Cash Portfolio, Government Portfolio, Retirement
Portfolio, California Money Market Portfolio, Florida Portfolio, Georgia
Portfolio, Limited Term Portfolio, New York Money Market Portfolio, New York
Portfolio, Pennsylvania Portfolio, Smith Barney Municipal Money Market Fund,
Inc., Smith Barney Natural Resources Fund Inc., Smith Barney New Jersey
Municipals Fund Inc., Smith Barney Oregon Municipals Fund, Zeros Plus Emerging
Growth Series 2000, Smith Barney Security and Growth Fund, Smith Barney Small
Cap Blend Fund, Inc., Smith Barney Telecommunications Income Fund, Income and
Growth Portfolio, Reserve Account Portfolio, U.S. Government/High Quality
Securities Portfolio, Emerging Markets Portfolio, European Portfolio, Global
Government Bond Portfolio, International Balanced Portfolio, International
Equity Portfolio, Pacific Portfolio, AIM Capital Appreciation Portfolio,
Alliance Growth Portfolio, GT Global Strategic Income Portfolio, MFS Total
Return Portfolio, Putnam Diversified Income Portfolio, Smith Barney High Income
Portfolio, Smith Barney Large Cap Value Portfolio, Smith Barney International
Equity Portfolio, Smith Barney Large Capitalization Growth Portfolio, Smith
Barney Money Market Portfolio, Smith Barney Pacific Basin Portfolio, TBC Managed
Income Portfolio, Van Kampen American Capital Enterprise Portfolio, Centurion
Tax-Managed U.S. Equity Fund, Centurion Tax-Managed International Equity Fund,
Centurion U.S. Protection Fund, Centurion International Protection Fund, Global
High-Yield Bond Fund, International Equity Fund, Emerging Opportunities Fund,
Core Equity Fund, Long-Term Bond Fund, Global Dimensions Fund L.P., Citicorp
Private Equity L.P., AIM V.I. Capital Appreciation Fund, AIM V.I. Government
Series Fund, AIM V.I. Growth Fund, AIM V.I. International Equity Fund, AIM V.I.
Value Fund, Fidelity VIP Growth Portfolio, Fidelity VIP High Income Portfolio,
Fidelity VIP Equity Income Portfolio, Fidelity VIP Overseas Portfolio, Fidelity
VIP II Contrafund Portfolio, Fidelity VIP II Index 500 Portfolio, MFS World
Government Series, MFS Money Market Series, MFS Bond Series, MFS Total Return
Series, MFS Research Series, MFS Emerging Growth Series, Salomon Brothers
Institutional Money Market Fund, Salomon Brothers Cash Management Fund, Salomon
Brothers New York Municipal Money Market Fund, Salomon Brothers National
Intermediate Municipal Fund, Salomon Brothers U.S. Government Income Fund,
Salomon Brothers High Yield Bond Fund, Salomon Brothers Strategic Bond Fund,
Salomon Brothers Total Return Fund, Salomon Brothers Asia Growth Fund, Salomon
Brothers Capital Fund Inc, Salomon Brothers Investors Fund Inc, Salomon Brothers
Opportunity Fund Inc, Salomon Brothers Institutional High Yield Bond Fund,
Salomon Brothers Institutional Emerging Markets Debt Fund, Salomon Brothers
Variable Investors Fund, Salomon Brothers Variable Capital Fund, Salomon
Brothers Variable Total Return Fund, Salomon Brothers Variable High Yield Bond
Fund, Salomon Brothers Variable Strategic Bond Fund, Salomon Brothers Variable
U.S. Government Income Fund, and Salomon Brothers Variable Asia Growth Fund.
<PAGE> 116
(b) The information required by this Item 29 with respect to each director
and officer of CFBDS, Inc. is incorporated by reference to Schedule A of Form BD
filed by CFBDS pursuant to the Securities and Exchange Act of 1934 (File No.
8-32417).
(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> 117
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets the requirements of Securities Act
Rule 485(b) for effectiveness of this amendment to this registration statement
and has caused this amendment to this registration statement to be signed on its
behalf, in the City of Hartford, and State of Connecticut, on this 21st day of
April, 1999.
THE TRAVELERS FUND ABD II FOR VARIABLE ANNUITIES
(Registrant)
THE TRAVELERS LIFE AND ANNUITY COMPANY
(Depositor)
By: *JAY S. BENET
----------------------------------------------
Jay S. Benet
Senior Vice President, Chief Financial Officer
Chief Accounting Officer and Controller
As required by the Securities Act of 1933, this post-effective amendment to this
registration statement has been signed by the following persons in the
capacities indicated on the 21st day of April 1999.
<TABLE>
<S> <C>
*MICHAEL A. CARPENTER Director and Chairman of the Board
- --------------------------
(Michael A. Carpenter)
*J. ERIC DANIELS Director, President and Chief Executive Officer
- --------------------------
(J. Eric Daniels)
*JAY S. BENET Director, Senior Vice President, Chief
- --------------------------
(Jay S. Benet) Financial Officer, Chief Accounting Officer
and Controller
*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)
*MARC P. WEILL Director
- --------------------------
(Marc P. Weill)
</TABLE>
*By: /s/Ernest J. Wright, Attorney-in-Fact
<PAGE> 1
Consent of Independent Certified Public Accountants
The Board of Directors
The Travelers Life and Annuity Company
We consent to the use of our reports included herein or incorporated herein by
reference and to the reference to our firm as experts under the heading
"Independent Accountants."
KPMG LLP
Hartford, Connecticut
April 21, 1999
