<PAGE> 1
Registration No. 33-65343
811-07465
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 3
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 3
THE TRAVELERS FUND ABD FOR VARIABLE ANNUITIES
---------------------------------------------
(Exact name of Registrant)
THE TRAVELERS INSURANCE 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 Insurance 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):
immediately upon filing pursuant to paragraph
- - ----- (b) of Rule 485
X on May 1, 1997 pursuant to paragraph (b) of Rule 485
- - -----
60 days after filing pursuant to paragraph (a)(1) of Rule 485
- - -----
on pursuant to paragraph (a)(1) of Rule 485
- - ----- ------
If appropriate, check the following box:
______ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Pursuant to Rule 24f-2 of the Investment Company Act of 1940, the Registrant
hereby declares that an indefinite amount of Variable Annuity Contract units was
registered under the Securities Act of 1933. A Rule 24f-2 Notice for the fiscal
year ended December 31, 1996 was filed on February 28, 1997.
<PAGE> 2
THE TRAVELERS FUND ABD FOR VARIABLE ANNUITIES
Cross-Reference Sheet
Form N-4
<TABLE>
<CAPTION>
ITEM
NO. CAPTION IN PROSPECTUS
- - --- ---------------------
<S> <C> <C>
1. Cover Page Prospectus
2. Definitions Glossary of Special Terms
3. Synopsis Prospectus Summary
4. Condensed Financial Information Not Applicable
5. General Description of Registrant, The Insurance Company; The Separate
Depositor, and Portfolio Companies Account and the Funding Options; Voting
Rights
6. Deductions (and Expenses) Fee Table; Charges and Deductions;
Distribution of Variable Annuity Contracts
7. General Description of Variable The Contract; Ownership Provisions; Transfers
Annuity Contracts
8. Annuity Period The Annuity Period; Payment Options
9. Death Benefit Death Benefit
10. Purchases and Contract Value The Contract
11. Redemptions Surrenders and Redemptions; Miscellaneous
Contract Provisions; The Contract
12. Taxes Federal Tax Considerations
13. Legal Proceedings Legal Proceedings and Opinions
14. Table of Contents of Statement Appendix D
of Additional Information
CAPTION IN STATEMENT OF ADDITIONAL
INFORMATION
----------------------------------------
15. Cover Page Statement of Additional Information
16. Table of Contents Table of Contents
17. General Information and History The Insurance Company
18. Services Principal Underwriter; Distribution and
Management Agreement
19. Purchase of Securities Being Offered Valuation of Assets
20. Underwriters Principal Underwriter
21. Calculation of Performance Data Performance Information
22. Annuity Payments Not Applicable
23. Financial Statements Financial Statements
</TABLE>
<PAGE> 3
PART A
Information Required in a Prospectus
<PAGE> 4
TRAVELERS PORTFOLIO ARCHITECT VARIABLE ANNUITY
CONTRACT PROFILE
MAY 1, 1997
THIS PROFILE IS A SUMMARY OF SOME OF THE MORE IMPORTANT POINTS THAT YOU SHOULD
KNOW AND CONSIDER BEFORE PURCHASING THE CONTRACT. THE CONTRACT IS MORE FULLY
DESCRIBED IN THE FULL PROSPECTUS WHICH IS ATTACHED TO THIS PROFILE. PLEASE READ
THE PROSPECTUS CAREFULLY. THE TERMS "WE," "US", "OUR" AND THE "COMPANY" REFER TO
TRAVELERS INSURANCE COMPANY. "YOU" AND "YOUR" REFER TO THE CONTRACT OWNER.
1. THE VARIABLE ANNUITY CONTRACT. The Contract offered by Travelers Insurance
Company is a variable annuity that is intended for retirement savings or other
long-term investment purposes. The Contract provides a death benefit as well as
guaranteed income options. Under a tax-qualified Contract, you can make one or
more payments, as you choose, on a tax-deferred basis. Under a non tax-qualified
Contract, you can make one or more payments with after-tax dollars. You direct
your payment(s) to one or more of the variable funding options listed in Section
4 and/or to the Fixed Account. We guarantee money directed to the Fixed Account
as to principal and interest. The initial interest rate is guaranteed for a
one-year period. After that, interest is declared each calendar quarter by the
Company. The variable funding options are designed to produce a higher rate of
return than the Fixed Account, however, this is not guaranteed. You may also
lose money in the variable funding options.
You can transfer between the funding options as frequently as you wish without
any current tax implications. Currently there is no charge for transfers, nor a
limit to the number of transfers allowed. The Company may, in the future, charge
a fee for any transfer request, or limit the number of transfers allowed. The
Company, at the minimum, would always allow one transfer every six months. You
may transfer between the Fixed Account and the funding options twice a year
(during the 30 days after the six-month contract date anniversary), provided the
amount is not greater than 15% of the Fixed Account Value on that date.
The Contract, like all deferred variable annuity contracts, has two phases: the
accumulation phase and the income phase. During the accumulation phase, under a
tax-qualified contract, your tax-deferred contributions accumulate on a
tax-deferred basis and are taxed as income when you make a withdrawal,
presumably when you are in a lower tax bracket. During the accumulation phase,
under a tax-nonqualified contract, earnings on your after-tax contributions
accumulate on a taxdeferred basis and are taxed as income when you make a
withdrawal. The income 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 income
phase.
2. ANNUITY PAYMENTS (THE INCOME PHASE). You may choose to receive income
payments from the Fixed Account or the variable funding options. If you want to
receive regular payments from your annuity, you can choose one of the following
annuity options: Option 1 -- payments for your life (life annuity) -- assuming
that you are the annuitant; Option 2 -- payments for your life with an added
guarantee that payments will continue to your beneficiary for a certain number
of months (120, 180 or 240, as you select), if you should die during that
period; Option 3 -- Joint and Last Survivor Annuity, in which payments are made
for your life and the life of another person (usually your spouse). This option
can also be elected with payments continuing at a reduced rate after the death
of one payee. There are also two Income Options: Fixed Amount -- the cash
surrender value of your Contract will be paid to you in equal payments; or Fixed
Period -- the cash surrender value will be used to make payments for a fixed
time period. If you should die before the end of the Fixed Period, the remaining
amount would go to your beneficiary.
Once you make an election of an annuity option or an income option and begin to
receive payments, it cannot be changed. During the income phase, you have the
same investment choices you had during the accumulation phase. If amounts are
directed to the funding options, the dollar amount of your payments may increase
or decrease.
<PAGE> 5
3. PURCHASE. You may purchase the Contract with an initial payment of at least
$5,000. You may make additional payments of at least $500 at any time during the
accumulation phase. (In some states, additional payments are not allowed.)
4. INVESTMENT OPTIONS. You can direct your money into the Fixed Account or any
or all of the following funding options. They are described in the prospectuses
for the funds. Depending on market conditions, you may make or lose money in any
of these options:
<TABLE>
<S> <C>
Capital Appreciation Fund MFS Emerging Growth Portfolio
Cash Income Trust Federated Stock Portfolio
Alliance Growth Portfolio Federated High Yield Portfolio
MFS Total Return Portfolio Large Cap Portfolio
Putnam Diversified Income Portfolio Equity Income Portfolio
Travelers Quality Bond Portfolio Mid Cap Disciplined Equity Fund
Lazard International Equity Portfolio
</TABLE>
5. EXPENSES. The Contract has insurance features and investment features, and
there are costs related to each. For Contracts with a value of less than
$40,000, the Company deducts an annual administrative charge of $30. The annual
insurance charge is 1.25% of the amounts you direct to the funding options; and
a related sub-account administrative charge of .15% annually is charged.
Each funding option charges for management and other expenses. The charges range
from 0.75% to 1.25% annually, of the average daily net asset balance of the
funding option, depending on the funding option.
If you withdraw money, the Company may deduct a withdrawal charge (0% to 6%) of
the purchase payments from the Contract. 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 of 0%-5%.
The following table is designed to help you understand the Contract charges. The
column "Total Annual Charges" shows the total of the $30 annual contract charge
(which is represented as .021% below), the mortality and expense risk charge of
1.25% and the sub-account charge of .15%. The investment charges for each
portfolio are also shown. The columns under the heading "Examples" show you how
much you would pay under the Contract for a one-year period and for a 10-year
period. The examples assume that you invested $1,000 in a Contract that earns 5%
annually and that you withdraw your money at the end of year 1 and at the end of
year 10. For year 1, the Total Annual Insurance Charges are assessed as well as
the withdrawal charges. For year 10, the example shows the aggregate of all the
annual charges assessed during that time, but no withdrawal charge is shown. The
"Total Annual Insurance Charge" includes the mortality and expense risk charge
and the administrative charges. For these examples, the premium tax is assumed
to be 0%.
<TABLE>
<CAPTION>
EXAMPLES:
TOTAL ANNUAL
TOTAL ANNUAL EXPENSES
TOTAL ANNUAL FUNDING OPTION TOTAL ANNUAL AT END OF:
PORTFOLIO NAME INSURANCE CHARGES EXPENSES CHARGES 1 YEAR 10 YEARS
<S> <C> <C> <C> <C> <C>
- - ------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C>
Capital Appreciation Fund............... 1.42% 0.83% 2.25% $ 83 $259
Cash Income Trust....................... 1.42% 0.78% 2.20% 82 254
Alliance Growth......................... 1.42% 0.87% 2.29% 83 263
MFS Total Return........................ 1.42% 0.91% 2.33% 84 267
Putnam Diversified Income............... 1.42% 0.96% 2.38% 84 272
Travelers Quality Bond.................. 1.42% 0.75% 2.17% 82 250
Lazard International Equity............. 1.42% 1.25% 2.67% 87 300
MFS Emerging Growth..................... 1.42% 0.95% 2.37% 84 271
Federated Stock......................... 1.42% 0.95% 2.37% 84 271
Federated High Yield.................... 1.42% 0.95% 2.37% 84 271
Large Cap............................... 1.42% 0.95% 2.37% 84 271
Equity Income........................... 1.42% 0.95% 2.37% 84 271
Mid Cap Disciplined Equity.............. 1.42% 0.95% 2.37% 84 271
</TABLE>
2
<PAGE> 6
6. TAXES. The payments you make to a qualified Contract during the accumulation
phase are made with before-tax dollars. You will be taxed on your purchase
payments and on any earnings when you make a withdrawal or begin receiving
annuity or income payments. Under a non tax-qualified 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 tax-qualified Contracts, if you reach a certain age, you may be
required by federal tax laws to begin receiving payments from your annuity or
risk paying a penalty tax. In those cases, we can calculate and pay you the
minimum required distribution amounts. If you are younger than 59 1/2 when you
take money out, you may be charged a 10% federal penalty tax on the amount
withdrawn.
7. ACCESS TO YOUR MONEY. You can take out money any time during the
accumulation phase. A withdrawal charge may apply. The amount of the charge
depends on a number of factors, including the length of time since the purchase
payment was made (6% if withdrawn within one year, gradually decreasing to 0%
for payments held by the Company for 8 years or more). After the first contract
year, you may withdraw up to 10% of the contract value (as of the end of the
prior year end) without a withdrawal charge. Of course, you may also have to pay
income taxes and a tax penalty on any money you take out.
8. PERFORMANCE. The value of the Contract will vary depending upon the
investment performance of the funding options you choose. The following chart
shows total returns for each funding option for the time periods shown. These
numbers reflect the insurance charges, administrative charge, investment charges
and all other expenses of the funding option. The numbers do not reflect any
withdrawal charge or any applicable taxes, which, if applied, would reduce such
performance. Past performance is not a guarantee of future results.
LAST TEN CALENDAR YEARS (OR FULL YEARS SINCE INCEPTION):
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------
PORTFOLIO NAME 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Appreciation
Fund................... 26.39% 35.46% -6.12% 13.45% 15.97% 32.04% -6.89% 13.85% 8.50% -9.21%
Cash Income Trust........ 2.69% 2.77% 3.31% 0.77% 1.80% 5.16% 6.53% 6.16% 5.60%
Travelers Series Fund,
Inc....................
Alliance Growth........ 27.56% 32.97%
MFS Total Return....... 12.88% 23.93%
Putnam Diversified
Income............... 6.70% 15.74%
</TABLE>
Those funding options not illustrated above do not yet have one full year of
performance history.
9. DEATH BENEFIT. Assuming you are the Annuitant, if you die before you move to
the income phase, the person you have chosen as your beneficiary will receive a
death benefit. The death benefit paid depends on your age at the time of your
death. The death benefit value is calculated at the close of the business day on
which the Company's Home Office receives due proof of death. If you die before
you reach age 90, the death benefit equals the greatest of: (1) the Contract
Value;(2) the total purchase payments made under the Contract less all partial
withdrawals; or (3) the maximum "final death benefit value" occurring on or
before your 80(th) birthday (after adjustments for all purchase payments and
withdrawals). (See the Contract prospectus for a full explanation of "final
death benefit value".)
Assuming you are the annuitant, if you die on or after age 90 and before the
maturity date, the death benefit payable will be the contract value, less any
applicable premium tax or outstanding loans.
In certain states, the death benefit described above is not yet available. In
these states, if the annuitant dies before the contract is in the income phase,
the person you have selected as the
3
<PAGE> 7
beneficiary will receive an amount equal to the greater of the following in
instances where the annuitant dies before age 75:
1) the Contract Value;
2) the total purchase payments made under the Contract; or
3) the Contract Value on the latest fifth Contract year before the
Company receives due proof of death.
If the annuitant dies after age 75 but before age 85 (90 in Florida and New
York) and before the contract maturity date, the beneficiary will receive
1) the Contract value;
2) Total purchase payments made under the Contract; or
3) The Contract value on the latest fifth year anniversary occurring on
or before the Annuitant's 75th birthday;
If the annuitant dies on or after age 85 and before the maturity date, the death
benefit will equal Contract value.
NOTE: In all cases described above, amounts will be reduced by loans
outstanding, premium taxes owed and partial withdrawals not previously deducted.
This death benefit may not be available in all states. Certain states may have
varying age requirements. Please refer to the Contract prospectus for more
details.
10. OTHER INFORMATION
RIGHT TO RETURN. If you cancel the Contract within twenty days after you
receive it, you will receive a full refund of the Contract Value (including
charges). Where state law requires a longer right to return period, or the
return of purchase payments, the Company will comply. You bear the investment
risk during the right to return period; therefore, the Contract Value returned
may be greater or less than your purchase payment. If the Contract is purchased
as an Individual Retirement Annuity, and is returned within the first seven days
after delivery, your full purchase payment will be refunded; during the
remainder of the right to return period, the Contract Value (including charges)
will be refunded. The Contract Value will be determined at the close of business
on the day we receive a written request for a refund.
WHO SHOULD PURCHASE THIS CONTRACT? The Contract is currently available for use
in connection with (1) individual nonqualified purchases; (2) rollovers for
Individual Retirement Annuities (IRAs) and (3) rollovers for other qualified
retirement plans. Qualified contracts include contracts qualifying under Section
401(a), 403(b), or 408(b) of the Internal Revenue Code of 1986, as amended.
ADDITIONAL FEATURES. This Contract has other features you may be interested in.
These include:
DOLLAR COST AVERAGING. This is a program that allows you to invest a fixed
amount of money in funding options each month, theoretically giving you a lower
average cost per unit over time than a single one-time purchase. Dollar Cost
Averaging requires regular investments regardless of fluctuating price levels,
and does not guarantee profits or prevent losses in a declining market.
Potential investors should consider their financial ability to continue
purchases through periods of low price levels.
SYSTEMATIC WITHDRAWAL OPTION. Before the maturity date, you can arrange to
have money sent to you at set intervals throughout the year. Of course, any
applicable income and penalty taxes will apply on amounts withdrawn.
4
<PAGE> 8
AUTOMATIC REBALANCING. You may elect to have the Company periodically
reallocate the values in your Contract to match your original (or your latest)
funding option allocation request.
11. INQUIRIES. If you need more information, please contact us at (800)
842-8573 or:
Travelers Insurance Company
Annuity Services
One Tower Square
Hartford, CT 06183
5
<PAGE> 9
THE TRAVELERS FUND ABD FOR VARIABLE ANNUITIES
This prospectus describes PORTFOLIO ARCHITECT, a flexible premium variable
annuity contract (the "Contract") issued by The Travelers Insurance Company (the
"Company" "we" or "our"). The Contract is available in connection with certain
retirement plans that qualify for special federal income tax treatment
("qualified Contracts") as well as those that do not qualify for such treatment
("nonqualified Contracts"). Portfolio Architect may be issued as an individual
Contract or as a group Contract. In states where only group Contracts are
available, you will be issued a certificate summarizing the provisions of the
group Contract. For convenience, this prospectus refers to both Contracts and
certificates as "Contracts."
You can choose to have your purchase payments accumulate on a fixed basis (i.e.
a Fixed Account funded through the Company's general account) and/or a variable
basis (i.e., one or more of the sub-accounts ("funding options")) of the
Travelers Fund ABD for Variable Annuities ("Fund ABD"). Your contract value will
vary daily to reflect the investment experience of the funding options you
select and any interest credited to the Fixed Account. The variable funding
options currently available are: Capital Appreciation Fund; Cash Income Trust;
Alliance Growth Portfolio, MFS Total Return Portfolio, and Putnam Diversified
Income Portfolio, of the Travelers Series Fund, Inc.; and Travelers Quality Bond
Portfolio, Lazard International Stock Portfolio, MFS Emerging Growth Portfolio,
Federated Stock Portfolio, Federated High Yield Portfolio, Large Cap Portfolio,
Equity Income Portfolio and Mid Cap Disciplined Equity Fund of the Travelers
Series Trust. The Fixed Account funding option is described in Appendix A.
Unless specified otherwise, this prospectus refers to the variable funding
options. The contracts and/or some of the funding options may not be available
in all states. THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT
PROSPECTUSES FOR THE VARIABLE FUNDING OPTIONS. THESE PROSPECTUSES SHOULD BE READ
AND RETAINED FOR FUTURE REFERENCE.
This prospectus provides the information that you should know before investing
in the Contract. You can receive additional information about Fund ABD by
requesting a copy of the Statement of Additional Information ("SAI") dated May
1, 1997. The SAI has been filed with the Securities and Exchange Commission
("SEC") and is incorporated by reference into this prospectus. To request a
copy, write to The Travelers Insurance Company, Annuity Services, One Tower
Square, Hartford, Connecticut 06183, or call (800) 842-8573. The Table of
Contents of the SAI appears in Appendix B of this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
VARIABLE ANNUITY CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR ENDORSED OR
GUARANTEED BY ANY BANK, NOR ARE THEY FEDERALLY INSURED OR OTHERWISE PROTECTED BY
THE FDIC, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY; THEY ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL INVESTMENT.
PROSPECTUS DATED MAY 1, 1997
<PAGE> 10
TABLE OF CONTENTS
<TABLE>
<S> <C>
INDEX OF SPECIAL TERMS................. 2
FEE TABLE.............................. 3
THE ANNUITY CONTRACT................... 4
Purchase Payments...................... 5
Accumulation Units..................... 5
The Funding Options.................... 5
Substitutions and Additions............ 6
CHARGES AND DEDUCTIONS................. 6
Withdrawal Charge...................... 6
Free Withdrawal Allowance.............. 7
Administrative Charges................. 7
Mortality and Expense Risk Charge...... 7
Reduction or Elimination of Contract
Charges.............................. 7
Funding Option Expenses................ 8
Premium Tax............................ 8
Changes in Taxes Based Upon Premium or
Value................................ 8
OWNERSHIP PROVISIONS................... 8
Types of Ownership..................... 8
Beneficiary............................ 8
Annuitant.............................. 9
TRANSFERS.............................. 9
Dollar Cost Averaging.................. 9
ACCESS TO YOUR MONEY................... 9
Systematic Withdrawals................. 10
Loans.................................. 10
DEATH BENEFIT.......................... 10
Death Proceeds Before the Maturity Date
(New Death Benefit).................. 11
Death Proceeds Before the Maturity Date
(If the New Death Benefit is not
available in your State)............. 11
THE ANNUITY PERIOD..................... 12
Maturity Date.......................... 12
Allocation of Annuity.................. 13
Variable Annuity....................... 13
Fixed Annuity.......................... 13
PAYMENT OPTIONS........................ 14
Election of Options.................... 14
Annuity Options........................ 14
Income Options......................... 15
MISCELLANEOUS CONTRACT PROVISIONS...... 15
Right to Return........................ 15
Termination............................ 15
Required Reports....................... 16
Suspension of Payments................. 16
Transfers of Contract Values to Other
Annuities............................ 16
THE SEPARATE ACCOUNT................... 16
Mixed and Shared Funding............... 16
Performance Information................ 17
FEDERAL TAX CONSIDERATIONS............. 17
General Taxation of Annuities.......... 17
Nonqualified Annuity Contracts......... 17
Qualified Annuity Contracts............ 17
Penalty Tax for Premature
Distributions........................ 18
Diversification Requirements for
Variable Annuities................... 18
Ownership of the Investments........... 18
Mandatory Distributions for Qualified
Plans................................ 19
OTHER INFORMATION...................... 20
Insurance Company...................... 20
Distribution of Variable Annuity
Contracts............................ 20
Conformity with State and Federal
Laws................................. 20
Voting Rights.......................... 20
Legal Proceedings And Opinions......... 20
APPENDIX A: The Fixed Account.......... 21
APPENDIX B: Table of Contents of the
Statement of Additional
Information.......................... 22
</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...................... 5
Annuitant.............................. 8
Annuity Payments....................... 12
Annuity Unit........................... 12
Cash Surrender Value................... 9
Contract Date.......................... 4
Contract Owner (You, Your)............. 4
Contract Value......................... 4
Contract Year.......................... 4
Fixed Account.......................... 21
Funding Option(s)...................... 5
Income Payments........................ 13
Maturity Date.......................... 4
Purchase Payment....................... 4
Written Request........................ 4
</TABLE>
2
<PAGE> 11
FUND ABD FEE TABLE
- - --------------------------------------------------------------------------------
CONTRACT OWNER TRANSACTION EXPENSES
<TABLE>
<S> <C>
WITHDRAWAL CHARGE (as a percentage of purchase payments withdrawn):
Length of Time From Purchase Payment
</TABLE>
<TABLE>
<CAPTION>
(NUMBER OF YEARS) CHARGE
<S> <C>
1 6%
2 6%
3 5%
4 5%
5 4%
6 3%
7 2%
8 and over 0%
ANNUAL CONTRACT ADMINISTRATIVE CHARGE
(Waived if contract value is $40,000 or more) $30
ANNUAL SEPARATE ACCOUNT CHARGES:
(as a percentage of the average daily net assets of the Separate Account)
Mortality and Expense Risk Charge............................................. 1.25%
Administrative Expense Charge................................................. 0.15%
------
Total Separate Account Charges............................................ 1.40%
FUNDING OPTION EXPENSES:
(as a percentage of average daily net assets of the Funding Option)
</TABLE>
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
FEE EXPENSES FUNDING
(AFTER EXPENSES (AFTER EXPENSES OPTION
PORTFOLIO NAME ARE REIMBURSED) ARE REIMBURSED) EXPENSES
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital Appreciation Fund..................... 0.75% 0.08%(1) 0.83%
Cash Income Trust............................. 0.32% 0.46%(1)(2) 0.78%
Alliance Growth............................... 0.80% 0.07%(1) 0.87%
MFS Total Return.............................. 0.80% 0.11%(1) 0.91%
Putnam Diversified Income..................... 0.75% 0.21%(1) 0.96%
Travelers Quality Bond........................ 0.32% 0.43%(1)(3) 0.75%
Lazard International Stock.................... 0.83% 0.42%(1)(3) 1.25%
MFS Emerging Growth........................... 0.75% 0.20%(1)(3) 0.95%
Federated Stock............................... 0.63% 0.32%(3) 0.95%
Federated High Yield.......................... 0.65% 0.30%(3) 0.95%
Large Cap (Sub-Adv. Fidelity)................. 0.75% 0.20%(1)(4) 0.95%
Equity Income (Sub-Adv. Fidelity)............. 0.75% 0.20%(1)(4) 0.95%
Mid Cap Disciplined Equity Fund............... 0.70% 0.25%(1)(5) 0.95%
</TABLE>
NOTES:
The purpose of the Fee Table is to assist contract owners in understanding the
various costs and expenses that a contract owner will bear, directly or
indirectly. See "Charges and Deductions" in this prospectus for additional
information. Expenses shown do not include premium taxes, which may be
applicable.
(1) Includes a Sub-Administrator Charge of .06%.
(2) Other Expenses take into account the current expense reimbursement
arrangement with the Company. The Company has agreed to reimburse the Fund
for the amount by which its aggregate expenses (including the management
fee, but excluding brokerage commissions, interest charges and taxes)
exceeds 0.60%. Without such arrangement, Other Expenses would have been
1.71% for Cash Income Trust.
(3) The Travelers has waived all of its fees for the period ended December 31,
1996. In addition, the Travelers has agreed to reimburse the Portfolios'
expenses for the same period. Without such arrangements, Other Expenses for
the Travelers Series Trust Travelers Quality Bond Portfolio, Lazard
International Stock Portfolio, MFS Emerging Growth Portfolio, Federated High
Yield Portfolio, and Federated Stock Portfolios would have been 1.76%,
2.87%, 2.09%, 2.19%, and 3.03%, respectively.
(4) Other Expenses take into account the current expense reimbursement
arrangement with the Company. The Company has agreed to reimburse the Fund
for the amount by which its aggregate expenses (including the management
fee, but
3
<PAGE> 12
excluding brokerage commissions, interest charges and taxes) exceeds 0.95%.
Without such arrangements, Other Expenses for the Travelers Series Trust
Large Cap Portfolio and Equity Income Portfolios would have been 1.55%.
(5) Other Expenses for the Mid Cap Disciplined Equity Fund are based on
estimated expenses for 1996 since the portfolio has no investment history.
They also take into account the current expense reimbursement arrangement
with the Company in which The Company has agreed to reimburse the Fund for
the amount by which its aggregate expenses (including the management fee,
but excluding brokerage commissions, interest charges and taxes) exceeds
0.95%.
EXAMPLE*
Assuming a 5% annual return, a $1,000 investment would be subject to the
following expenses, if
(a) surrendered or withdrawn at the end of the period shown, or
(b) if annuitized, or if no withdrawals are made at the end of the period
shown.
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------
PORTFOLIO NAME 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Appreciation Fund......................................................... $83(a) $120(a) $161(a) $ 259(a)
23(b) 70(b) 121(b) 259(b)
Cash Income Trust................................................................. 82(a) 119(a) 158(a) 254(a)
22(b) 69(b) 118(b) 254(b)
Alliance Growth................................................................... 83(a) 122(a) 163(a) 263(a)
23(b) 72(b) 123(b) 263(b)
MFS Total Return.................................................................. 84(a) 123(a) 165(a) 267(a)
24(b) 73(b) 125(b) 267(b)
Putnam Diversified Income......................................................... 84(a) 124(a) 167(a) 272(a)
24(b) 74(b) 127(b) 272(b)
Travelers Quality Bond............................................................ 82(a) 118(a) n/a n/a
22(b) 68(b) n/a n/a
Lazard International Stock........................................................ 87(a) 133(a) n/a n/a
27(b) 83(b) n/a n/a
MFS Emerging Growth............................................................... 84(a) 124(a) n/a n/a
24(b) 74(b) n/a n/a
Federated Stock................................................................... 84(a) 124(a) n/a n/a
24(b) 74(b) n/a n/a
Federated High Yield.............................................................. 84(a) 124(a) n/a n/a
24(b) 74(b) n/a n/a
Large Cap......................................................................... 84(a) 124(a) n/a n/a
24(b) 74(b) n/a n/a
Equity Income..................................................................... 84(a) 124(a) n/a n/a
24(b) 74(b) n/a n/a
Mid Cap Disciplined Equity Fund................................................... 84(a) 124(a) n/a n/a
24(b) 74(b) n/a n/a
</TABLE>
* THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE REFLECTS THE $30 ANNUAL CONTRACT ADMINISTRATIVE CHARGE AS AN ANNUAL
CHARGE OF .021% OF ASSETS. FOR NEW FUNDING OPTIONS, EXPENSES ARE GIVEN ONLY
FOR YEARS ONE AND THREE.
THE ANNUITY CONTRACT
- - --------------------------------------------------------------------------------
Travelers Portfolio Architect Annuity is a contract between you, the contract
owner, and Travelers Insurance Company (called "us" or the "Company"). Under
this contract, you make purchase payments to us and we credit them to your
account. The Company promises to pay you an income, in the form of annuity or
income payments, beginning on a future date that you choose, the maturity date.
The purchase payments accumulate tax deferred in the funding options of your
choice. We offer multiple variable funding options, and one fixed account
option. The contract owner assumes the risk of gain or loss according to the
performance of the variable funding options. The contract value is the amount of
purchase payments, plus or minus any investment experience or interest. The
contract value also reflects all surrenders made and charges deducted. There is
generally no guarantee that at the maturity date the contract value will equal
or exceed the total purchase payments made under the Contract, except as noted
under the Death Benefit provisions described in this prospectus. The date the
contract and its benefits became effective is referred to as the contract date.
Each anniversary of this contract date is called a contract year.
Certain changes and elections must be made in writing to the Company. Where the
term "written request" is used, it means that written information must be sent
to the Company's Home Office in a form and content satisfactory to us.
4
<PAGE> 13
PURCHASE PAYMENTS
The initial purchase payment must be at least $5,000. 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 at our Home Office. Subsequent purchase payments 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 account is credited. During the annuity
period (i.e., after the maturity date), you are credited with annuity units.
THE FUNDING OPTIONS
You choose which of the following variable funding options to have your purchase
payments allocated to. You will find detailed information about the options and
their inherent risks in the current prospectuses for the funding options which
must accompany this prospectus. Since each option has varying degrees of risk,
please read the prospectuses carefully before investing. Additional copies of
the prospectuses may be obtained by contacting your registered representative or
by calling 1-800-842-8573.
The current variable funding options are listed below, along with their
investment advisers and any subadviser:
<TABLE>
<CAPTION>
FUNDING OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER SUB-ADVISER
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital Appreciation Fund growth of capital Travelers Asset Janus Capital
Management Corporation
International
Corporation
("TAMIC")
Cash Income Trust high current income while TAMIC
emphasizing preservation of
capital and maintaining a high
degree of liquidity
Alliance Growth Portfolio long-term growth of capital Travelers Investment Alliance Capital
Advisers ("TIA") Management L.P.
MFS Total Return Portfolio obtain above-average income TIA Massachusetts
(compared to a portfolio Financial Services
entirely invested in equity Company ("MFS")
securities) consistent with
the prudent employment of
capital
Putnam Diversified Income Portfolio high current income consistent TIA Putnam Investment
with preservation of capital Management, Inc
Travelers Quality Bond Portfolio current income, moderate capital TAMIC
volatility and total return
</TABLE>
5
<PAGE> 14
<TABLE>
<CAPTION>
FUNDING OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER SUB-ADVISER
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Lazard International Stock Portfolio capital appreciation through TAMIC Lazard Asset
investing primarily in the Management
equity securities of
non-United States companies
MFS Emerging Growth Portfolio long-term growth of capital TAMIC MFS
Federated Stock Portfolio growth of income and capital TAMIC Federated Investment
Counseling, Inc.
Federated High Yield Portfolio high current income TAMIC Federated Investment
Counseling, Inc.
Large Cap Portfolio long-term growth of capital TAMIC Fidelity Management &
Research Company
Equity Income Portfolio reasonable income TAMIC Fidelity Management &
Research Company
Mid Cap Disciplined Equity Fund growth of capital TAMIC Travelers Investment
Management Company
</TABLE>
SUBSTITUTIONS AND ADDITIONS
If any of the funding options become unavailable for allocating purchase
payments, or if we believe that further investment in a funding option is
inappropriate for the purposes of the Contract, we may substitute another
funding option. However, we will not make any substitutions without notifying
you and obtaining any applicable state and SEC approval. From time to time we
may make new funding options available.
CHARGES AND DEDUCTIONS
- - --------------------------------------------------------------------------------
WITHDRAWAL CHARGE
No sales charges are deducted from purchase payments when they are applied under
the Contract. However, a withdrawal charge will be deducted if any or all of the
contract value is withdrawn during the first seven years following a purchase
payment. The length of time from when we receive the purchase payment to the
time of withdrawal determines the amount of the charge.
The withdrawal charge is equal to a percentage of purchase payments withdrawn
from the Contract and is calculated as follows:
<TABLE>
<CAPTION>
LENGTH OF TIME FROM
PURCHASE PAYMENT WITHDRAWAL
(NUMBER OF YEARS) CHARGE
<S> <C>
1 6%
2 6%
3 5%
4 5%
5 4%
6 3%
7 2%
8 and over 0%
</TABLE>
For purposes of the withdrawal charge calculation, withdrawals will be deemed to
be taken first from any free withdrawal amount (as described below); next from
remaining purchase payments (on a first-in, first-out basis); and then from
contract earnings (in excess of the free withdrawal amount). Unless you instruct
us otherwise, we will deduct the withdrawal charge from the amount requested.
We will not deduct a withdrawal charge (1) from payments we make due to the
death of the contract owner or the death of the annuitant with no contingent
annuitant surviving; (2) if an
6
<PAGE> 15
annuity payout has begun; or (3) if an income option of at least five years'
duration is begun after the first contract year.
FREE WITHDRAWAL ALLOWANCE
There is a 10% free withdrawal allowance available each year after the first
contract year. The available amount will be calculated as of the end of the
previous contract year. The free withdrawal allowance applies to any partial
withdrawals and to full withdrawals, except those transferred directly to
annuity contracts issued by other financial institutions. In Washington state,
this provision applies to all withdrawals.
ADMINISTRATIVE CHARGES
A Contract administrative charge of $30 is deducted annually from Contracts with
a value of less than $40,000. This charge compensates us for expenses incurred
in establishing and maintaining the Contract. The charge is deducted from the
contract value on the fourth Friday of each August by canceling accumulation
units applicable to each funding option on a pro rata basis. 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 terminated.
We will not deduct a contract administrative charge: (1) if the distribution
results from the death of the contract owner or the annuitant with no contingent
annuitant surviving, (2) after an annuity payout has begun, or (3) if the
contract value on the date of assessment is equal to or greater than $40,000.
An administrative expense charge (sometimes called "sub-account administrative
charge") is deducted on each business day from amounts allocated to the variable
funding options in order to compensate the Company for certain related
administrative and operating expenses. The charge equals, on an annual basis,
0.15% of the daily net asset value allocated to each of the variable funding
options.
MORTALITY AND EXPENSE RISK CHARGE
Each business day, the Company deducts a mortality and expense risk charge. The
deduction is reflected in our calculation of accumulation and annuity unit
values. This charge equals, on an annual basis, 1.25% of the amounts held in
each funding option. We reserve the right to lower this charge at any time. The
mortality risk portion compensates us for guaranteeing to provide annuity
payments according to the terms of the Contract regardless of how long the
annuitant lives and for guaranteeing to provide the death benefit if an
annuitant dies prior to the maturity date. The expense risk portion compensates
us for the risk that the charges under the Contract, which cannot be increased
during the duration of the Contract, will be insufficient to cover actual costs.
REDUCTION OR ELIMINATION OF CONTRACT CHARGES
The withdrawal charge, the administrative charges, and the mortality and expense
risk charge under the Contract may be reduced or eliminated when certain sales
or administration of the Contract result in savings or reduction of
administrative or sales expenses, and/or mortality and expense risks. Any such
reduction will be based on the following: (1) the size and type of group to
which sales are to be made; (2) the total amount of purchase payments to be
received; and (3) any prior or existing relationship with the Company. There may
be other circumstances, of which we are not presently aware, which could result
in fewer sales expenses, administrative charges, or mortality and expense risk
charges. For certain trusts, the Company may change the order in which purchase
payments and earnings are withdrawn in order to determine the withdrawal charge.
In no event will reduction or elimination of the withdrawal charge or the
administrative charge be permitted where such reduction or elimination will be
unfairly discriminatory to any person.
7
<PAGE> 16
FUNDING OPTION EXPENSES
The deductions from and expenses paid out of the assets of the various funding
options are summarized in the fee table and are described in the accompanying
prospectuses.
PREMIUM TAX
Certain state and local governments charge premium taxes ranging from 0% to 5%,
depending upon jurisdiction. The Company is responsible for paying these taxes
and will determine the method used to recover premium tax expenses incurred.
Where required, the Company will deduct any applicable premium taxes from the
contract value either upon death, surrender, annuitization, or at the time
purchase payments are made to the Contract, but no earlier than when the Company
has a tax liability under state law.
CHANGES IN TAXES BASED UPON PREMIUM OR VALUE
If there is any change in a law assessing taxes against the Company based upon
premiums, contract gains or value of the contract, we reserve the right to
charge you proportionately for this tax.
OWNERSHIP PROVISIONS
- - --------------------------------------------------------------------------------
TYPES OF OWNERSHIP
Contract Owner (you). The Contract belongs to the contract owner named in the
Contract (on the Specifications page), or to any other person to whom the
contract is subsequently assigned. An assignment of ownership or a collateral
assignment may be made only for nonqualified contracts. You have sole power
during the annuitant's lifetime to exercise any rights and to receive all
benefits given in the contract provided you have not named an irrevocable
beneficiary and provided the Contract is not assigned.
You receive all payments while the annuitant is alive unless you direct them to
an alternate recipient. An alternate recipient does not become the contract
owner.
Joint Owner. For nonqualified contracts only, joint owners (i.e., spouses) may
be named in a written request before the contract is in effect. Joint owners may
independently exercise transfers allowed under the Contract. All other rights of
ownership must be exercised by both owners. Joint owners own equal shares of any
benefits accruing or payments made to them. All rights of a joint owner end at
death if the other joint owner survives. The entire interest of the deceased
joint owner in the Contract will pass to the surviving joint owner.
BENEFICIARY
The beneficiary is named by you in a written request. The beneficiary has the
right to receive any remaining contractual benefits upon the death of the
annuitant or the contract owner. If more than one beneficiary survives the
annuitant, they will share equally in benefits unless different shares are
recorded with the Company by written request before the death of the annuitant
or contract owner.
With nonqualified contracts, as discussed under "Death Benefit," the beneficiary
named in the contract may differ from the designated beneficiary (for example,
the joint owner or a contingent annuitant). In such cases, the designated
beneficiary receives the contract benefits (rather than the beneficiary) upon
your death.
Unless an irrevocable beneficiary has been named, you have the right to change
any beneficiary by written request during the lifetime of the annuitant and
while the Contract continues.
8
<PAGE> 17
ANNUITANT
The annuitant is designated in the Contract (on the Specifications page), and is
the individual on whose life the maturity date and the amount of the monthly
annuity payments depend. The annuitant may not be changed after the contract is
in effect.
For nonqualified Contracts only, the contract owner may also name one individual
as a contingent annuitant by written request before the Contract becomes
effective. A contingent annuitant may not be changed, deleted or added after the
Contract becomes effective. For Contracts issued in New York, a contingent
annuitant may not be named.
TRANSFERS
- - --------------------------------------------------------------------------------
Before the maturity date, you may transfer all or part of the contract value
between funding options. There are no charges or restrictions on the amount or
frequency of transfers currently; however, we reserve the right to charge a fee
for any transfer request, and to limit the number of transfers to one in any
six-month period. Since different funding options have different expenses, a
transfer of contract values from one funding option to another could result in
your investment becoming subject to higher or lower expenses. After the maturity
date, you may make transfers between funding options only with our consent.
DOLLAR COST AVERAGING
Dollar cost averaging (or "automated transfers") allows you to transfer a set
dollar amount to other funding options on a monthly or quarterly basis so that
more accumulation units are purchased in a funding option if the value per unit
is low and less accumulation units are purchased if the value per unit is high.
Therefore, a lower-than-average value per unit may be achieved over the long
run.
You may elect automated transfers through written request or other method
acceptable to the Company. (For Contracts issued in New York, the election must
be made in writing.) You must have a minimum total contract value of $5,000 to
enroll in the Dollar Cost Averaging program. The minimum amount that may be
transferred through this program is $400.
You may establish automated transfers of contract values from the Fixed Account,
subject to certain restrictions. Automated transfers from the Fixed Account may
not deplete your Fixed Account Value in less than twelve months from your
enrollment in the Dollar Cost Averaging program.
You may start or stop participation in the Dollar Cost Averaging program at any
time, but you must give the Company at least 30 days' notice to change any
automated transfer instructions that are currently in place. All provisions and
terms of the Contract apply to automated transfers, including provisions
relating to the transfer of money between investment options. We reserve the
right to suspend or modify transfer privileges at any time and to assess a
processing fee for this service.
ACCESS TO YOUR MONEY
- - --------------------------------------------------------------------------------
Any time before the maturity date, you may redeem all or any portion of the cash
surrender value, that is, the contract value, less any withdrawal charge and 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. The cash surrender value will be determined as of the close of
business after we receive your surrender request at the Home Office. The cash
surrender value may be more or less than the purchase payments made depending on
the contract value at the time of surrender.
9
<PAGE> 18
We may defer payment of any cash surrender 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 withdrawal charges (in excess of the free withdrawal allowance) and
any applicable premium taxes will be deducted. To elect systematic withdrawals,
you must have a contract value of at least $15,000 and you must make the
election on the form provided by the Company. We will surrender accumulation
units pro rata from all funding options in which you have an interest, unless
you instruct us otherwise. You may begin or discontinue systematic withdrawals
at any time by notifying us in writing, but at least 30 days' notice must be
given to change any systematic withdrawal instructions that are currently in
place.
We reserve the right to discontinue offering systematic withdrawals or to assess
a processing fee for this service upon 30 days' written notice to contract
owners (where allowed by state law).
Each systematic withdrawal is subject to federal income taxes on the taxable
portion. In addition, a 10% federal penalty tax may be assessed on systematic
withdrawals if the contract owner is under age 59 1/2. You should consult with
your tax adviser regarding the tax consequences of systematic withdrawals.
LOANS
Loans may be available under your Contract. If available, all loan provisions
are described in your Contract or loan agreement.
DEATH BENEFIT
- - --------------------------------------------------------------------------------
Before the maturity date, a death benefit is payable to the beneficiary when
either the annuitant, the contract owner or the first of joint owners dies and
there is no contingent annuitant. The death benefit is calculated at the close
of the business day on which the Company's Home Office received due proof of
death. If the Company is notified of the annuitant's, contract owner's, or first
of the joint owner's death more than six months after the death, the death
benefit will be the contract value. A beneficiary may request that a death
benefit payable under the Contract be applied to one of the settlement options
available under the Contract. (See also "Nonqualified Annuity Contracts," in
this prospectus.)
For nonqualified contracts, if the contract owner (including the first of joint
owners) dies before the maturity date, a distribution may be required under the
minimum distribution requirements of the federal tax law. If so required, we
will recalculate the value of the death benefit under the provisions of "Death
Proceeds Before the Maturity Date," below. The value of the death benefit, as
recalculated, will be credited to the party taking distributions upon the death
of the contract owner with the annuitant or contingent annuitant surviving. This
will generally be the surviving joint owner or otherwise the beneficiary in
accordance with all the circumstances and the terms of the Contract. This party
may differ from the beneficiary who was named by the contract owner in a written
request and who would receive any remaining contractual benefits upon the death
of the annuitant. This party may be paid in a single lump sum, or by other
options, but should take distributions as required by minimum distribution
requirements of the federal tax law. If your spouse is the surviving joint
owner, he or she may elect to continue the Contract as owner rather than taking
a distribution under the Contract. (See "Nonqualified Annuity Contracts" in this
10
<PAGE> 19
prospectus.) In this case, all references to age in the "Death Proceeds Before
the Maturity Date" section will be based on the contract owner's age rather than
the annuitant's age.
DEATH PROCEEDS BEFORE THE MATURITY DATE (NEW DEATH BENEFIT):
IF THE ANNUITANT DIES BEFORE AGE 80 AND BEFORE THE MATURITY DATE 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 or outstanding loans:
1) the contract value;
2) the total purchase payments made under the Contract less all partial
withdrawals; or
3) the highest of all "final death benefit values" as described below.
A separate death benefit value will be established on the contract date and on
each anniversary of the contract date which occurs on or before the death report
date. The death benefit value established on the contract date will initially
equal the purchase payment. The death benefit value established on each contract
date anniversary will initially equal the contract value on that anniversary.
Thereafter, each death benefit value will be adjusted to reflect any purchase
payments made, or any partial withdrawals taken, from the date on which a
particular death benefit value was established until the death report date. Once
any adjustment has been made, a "death benefit value" then becomes equal to the
previous death benefit value plus or minus that adjustment.
Adjustments to the death benefit values for any purchase payments or partial
withdrawals will be made in the order that such purchase payments or partial
withdrawals occur. For each purchase payment, death benefit values will be
increased by the amount of the purchase payment. For each partial withdrawal,
death benefit values will be reduced by a "partial withdrawal reduction" which
equals the product of (i) the death benefit value immediately before the
reduction of the partial withdrawal, and (ii) the amount of the partial
withdrawal divided by the contract value immediately before the partial
withdrawal. The "final death benefit value" associated with the contract date
and with each contract date anniversary equals the initial death benefit value
plus or minus all adjustments until the death report date.
IF THE ANNUITANT DIES ON OR AFTER AGE 80, BUT BEFORE AGE 90 AND BEFORE THE
MATURITY DATE, the death benefit payable will be the greatest of (1), (2) or (3)
below, less any applicable premium tax or outstanding loans:
1) the contract value;
2) the total purchase payments made under the Contract less all partial
withdrawals; or
3) the maximum of all "final death benefit value" associated with the
contract date or any contract date anniversary occurring on or before
the annuitant's 80th birthday.
IF THE ANNUITANT DIES ON OR AFTER AGE 90 AND BEFORE THE MATURITY DATE, the death
benefit payable will be the contract value, less any applicable premium tax or
outstanding loans.
If state approval has not been received for the above Death Benefit, and for
contracts sold prior to such approval, the following will apply:
DEATH PROCEEDS BEFORE THE MATURITY DATE
(IF THE NEW DEATH BENEFIT IS NOT AVAILABLE IN YOUR STATE):
IF THE ANNUITANT DIES BEFORE AGE 75 AND BEFORE THE MATURITY DATE, 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
11
<PAGE> 20
3) the contract value on the latest fifth contract year anniversary
before the Company receives due proof of death.
IF THE ANNUITANT DIES ON OR AFTER AGE 75, BUT BEFORE AGE 85 (90 IN FLORIDA AND
NEW YORK) AND BEFORE THE MATURITY DATE, the Company will pay the beneficiary a
death benefit in an amount equal to the greatest of (1), (2) or (3) below, (each
reduced by any applicable premium, prior surrenders not previously deducted or
any outstanding loans):
1) the contract value;
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.
IF THE ANNUITANT DIES ON OR AFTER AGE 85 AND BEFORE THE MATURITY DATE, the
Company will pay the beneficiary a death benefit in an amount equal to the
contract value, less any applicable premium tax. This provision does not apply
in New York and Florida.
NOTE: IF AN ANNUITANT WHO IS NOT ALSO A CONTRACT OWNER OR A JOINT OWNER DIES
PRIOR TO THE MATURITY DATE WHILE THIS CONTRACT IS IN EFFECT AND WHILE THE
CONTINGENT ANNUITANT IS LIVING:
1) the contract value will not be payable upon the annuitant's death;
2) the contingent annuitant becomes the annuitant; and
3) all other rights and benefits provided by this Contract will continue
in effect.
When a contingent annuitant becomes the annuitant, the maturity date remains the
same as previously in effect, unless otherwise provided.
THE ANNUITY PERIOD
- - --------------------------------------------------------------------------------
MATURITY DATE
Under the Contract, you can receive regular income payments (annuity payments).
You can choose the month and the year in which those payments begin (maturity
date). You can also choose among income plans (annuity or income options). We
ask you to choose the maturity date and the annuity option when you purchase the
contract. While the annuitant is alive, you can change your selection any time
up to the maturity date. Annuity or income payments will begin on the maturity
date stated in the Contract unless the Contract has been fully surrendered or
the proceeds have been paid to the beneficiary before that date. Annuity
payments are a series of periodic payments (a) for life; (b) for life with
either a minimum number of payments or a specific amount assured; or (c) for the
joint lifetime of the annuitant and another person, and thereafter during the
lifetime of the survivor. We may require proof that the annuitant is alive
before annuity payments are made.
Unless you elect otherwise, the maturity date will be the annuitant's 70th
birthday for qualified contracts and the annuitant's 75th birthday, or ten years
after the effective date of the contract, if later, for nonqualified contracts.
(For Contracts issued in Florida 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
12
<PAGE> 21
contract owner. Independent tax advice should be sought regarding the election
of minimum required distributions.
ALLOCATION OF ANNUITY
When an annuity option is elected, it may be elected as a variable annuity, a
fixed annuity, or a combination of both. (Variable payouts under this Contract
are not permitted in Florida or New Jersey.) If, at the time annuity payments
begin, no election has been made to the contrary, the cash surrender value will
be applied to provide an annuity funded by the same investment options (contract
value, in Oregon). At least 30 days before the maturity date, you may transfer
the contract value among the funding options in order to change the basis on
which annuity payments will be determined. (See "Transfers.")
VARIABLE ANNUITY
You may choose an annuity payout that fluctuates depending on the investment
experience of the variable funding options. The number of annuity units credited
to the Contract is determined by dividing the first monthly annuity payment
attributable to each funding option by the corresponding annuity unit value as
of 14 days before the date annuity payments begin. An annuity unit is used to
measure the dollar value of an annuity payment. The number of annuity units (but
not their value) remains fixed during the annuity period.
DETERMINATION OF FIRST ANNUITY PAYMENT. The Contract contains tables used to
determine the first monthly annuity payment. The amount applied to effect a
variable annuity will be the value of the funding options as of 14 days before
the date annuity payments begin less any applicable premium taxes not previously
deducted.
The amount of the first monthly payment depends on the annuity option elected. A
formula for determining the adjusted age is contained in the Contract. The total
first monthly annuity payment is determined by multiplying the benefit per
$1,000 of value shown in the tables of the Contract by the number of thousands
of dollars of value of the Contract applied to that annuity option. The Company
reserves the right to require satisfactory proof of age of any person on whose
life annuity payments are based before making the first payment under any of the
settlement options.
DETERMINATION OF SECOND AND SUBSEQUENT ANNUITY PAYMENTS. The dollar amount of
the second and subsequent annuity payments is not predetermined and may change
from month to month based on the investment experience of the applicable funding
option. The total amount of each annuity payment will be equal to the sum of the
basic payments in each funding option. The actual amounts of these payments are
determined by multiplying the number of annuity units credited to each funding
option by the corresponding annuity unit value as of the date 14 days before the
date the payment is due.
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 cash surrender 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.
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PAYMENT OPTIONS
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ELECTION OF OPTIONS
While the annuitant is alive, you can change your annuity or income option
selection any time up to the maturity date. Income options differ from annuity
options in that the amount of the payments made under income options are not
based upon the life of any person. Therefore, the annuitant may outlive the
payment period. Once annuity or income payments have begun, no further elections
are allowed.
During the annuitant's lifetime, if you do not elect otherwise before the
maturity date, we will pay you (or another designated payee) the first of a
series of monthly annuity payments based on the life of the annuitant, in
accordance with Annuity Option 2 (Life Annuity with 120 monthly payments
assured). For certain qualified contracts, Annuity Option 4 (Joint and Last
Survivor Joint Life Annuity -- Annuity Reduced on Death of Primary Payee) will
be the automatic option as described in the contract.
The minimum amount that can be placed under an annuity or income option will be
$2,000 unless we agree to a lesser amount. If any monthly periodic payment due
is less than $100, the Company reserves the right to make payments at less
frequent intervals, or to pay the contract value in a lump-sum.
On the maturity date, we will pay the amount due under the Contract in one lump
sum (except in Florida, where this is not permitted), or in accordance with the
payment option that you select. You must elect an option in writing, in a form
satisfactory to the Company. Any election made during the lifetime of the
annuitant must be made by the contract owner.
ANNUITY OPTIONS
Subject to the conditions described in "Election of Options" above, all or any
part of the cash surrender value (or, where required by state law, contract
value) may be paid under one or more of the following annuity options. Payments
under the annuity options may be elected on a monthly, quarterly, semiannual or
annual basis.
Option 1 -- Life Annuity -- No Refund. The Company will make annuity payments
during the lifetime of the annuitant ending with the last payment before death.
This option offers the maximum periodic payment, since there is no assurance of
a minimum number of payments or provision for a death benefit for beneficiaries.
Option 2 -- Life Annuity with 120, 180 or 240 Monthly Payments Assured. The
Company will make monthly annuity payments during the lifetime of the annuitant,
with the agreement that if, at the death of that person, payments have been made
for less than 120, 180 or 240 months as elected, we will continue making
payments to the beneficiary during the remainder of the period.
Option 3 -- Joint and Last Survivor Life Annuity -- No Refund. The Company will
make regular annuity payments during the lifetime of the annuitant and a second
person. When either person dies, we will continue making payments to the
survivor. No further payments will be made following the death of the survivor.
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
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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 cash
surrender value (or, where required by state law, 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 cash surrender 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 cash
surrender 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 cash surrender value as of the date payments
begin. If, at the death of the annuitant, the total number of fixed payments has
not been made, the payments will be made to the beneficiary.
Option 3 -- Other Income Options. The Company will make any other arrangements
for income payments as may be mutually agreed upon.
The amount applied to effect an income option will be the cash surrender value
as of the date income payments begin, less any applicable premium taxes not
previously deducted and any applicable withdrawal charge. (Certain states may
have different requirements that we will honor.) The cash surrender value used
to determine the amount of any income payment will be determined on the same
basis as the cash surrender value during the accumulation period, including the
deduction for mortality and expense risks and the contract administrative
expense charge.
MISCELLANEOUS CONTRACT PROVISIONS
- - --------------------------------------------------------------------------------
RIGHT TO RETURN
You may return the Contract for a full refund of the contract value (including
charges) within twenty days after you receive it (the "right to return period").
You bear the investment risk during the right to return period; therefore, the
contract value returned may be greater or less than your purchase payment. If
the Contract is purchased as an Individual Retirement Annuity, and is returned
within the first seven days after delivery, your purchase payment will be
refunded in full; during the remainder of the right to return period, the
contract value (including charges) will be refunded. The contract value will be
determined following the close of the business day on which we receive a written
request for a refund. Where state law requires a longer period, or the return of
purchase payments or other variations of this provision, the Company will
comply. Refer to your Contract for any state-specific information.
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
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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 cash surrender value (contract value less any applicable premium
tax, in the states that so require), less any applicable administrative charge.
REQUIRED REPORTS
As often as required by law, but at least once in each contract year before the
due date of the first annuity payment, we will furnish a report showing the
number of accumulation units credited to the Contract and the corresponding
accumulation unit value(s) as of the date of the report for each funding option
to which the contract owner has allocated amounts during the applicable period.
The Company will keep all records required under federal or state laws.
SUSPENSION OF PAYMENTS
The Company reserves the right to suspend or postpone the date of any payment or
determination of values on any business day (1) when the New York Stock Exchange
("the Exchange") is closed; (2) when trading on the Exchange is restricted; (3)
when an emergency exists as determined by the SEC so that the sale of securities
held in the Separate Account may not reasonably occur or so that the Company may
not reasonably determine the value the Separate Account's net assets; or (4)
during any other period when the SEC, by order, so permits for the protection of
security holders.
TRANSFERS OF CONTRACT VALUES TO OTHER ANNUITIES
We may permit contract owners to transfer their contract values into other
annuities offered by us or our affiliated insurance companies under rules then
in effect.
THE SEPARATE ACCOUNT
- - --------------------------------------------------------------------------------
The Travelers Fund ABD For Variable Annuities ("Fund ABD") 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 will be invested exclusively in the shares
of the variable funding options.
The assets of Fund ABD 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 are, in
accordance with the Contracts, credited to or charged against Fund ABD without
regard to other income, gains and losses of the Company. The assets held by Fund
ABD 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. 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.
MIXED AND SHARED FUNDING
It is conceivable that in the future it may be disadvantageous for both variable
annuity and variable life insurance separate accounts, or for variable separate
accounts of different insurance companies, to invest simultaneously in the same
portfolios (called "mixed" and "shared" funding). Currently neither the
insurance companies nor the portfolios foresee any such disadvantages to the
companies or to variable contract owners. Each portfolio's board of trustees,
directors or managers
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intends to monitor events in order to identify any material conflicts between
such policy owners and to determine what action, if any, should be taken in
response thereto.
PERFORMANCE INFORMATION
From time to time, we may advertise several types of historical performance for
the Contract's funding options. We may advertise the "standardized average
annual total returns" of the funding option, calculated in a manner prescribed
by the SEC, as well as the "non-standardized total return," as described below.
Specific examples of the performance information appear in the SAI.
STANDARDIZED METHOD. Quotations of average annual total returns are computed
according to a formula in which a hypothetical initial investment of $1,000 is
applied to the funding option, and then related to ending redeemable values over
one-, five-, and ten-year periods, or for a period covering the time during
which the funding option has been in existence, if less. These quotations
reflect the deduction of all recurring charges during each period (on a pro rata
basis in the case of fractional periods). The deduction for the annual
administrative charge ($30) is converted to a percentage of assets based on the
actual fee collected (or anticipated to be collected, if a new product), divided
by the average net assets for Contracts sold (or anticipated to be sold). Each
quotation assumes a total redemption at the end of each period with the
applicable withdrawal charge deducted at that time.
NON-STANDARDIZED METHOD. Non-standardized "total returns" will be calculated in
a similar manner based on the performance of the funding options over a period
of time, usually for the calendar year-to-date, and for the past one-, three-,
five- and ten-year periods. Non-standardized total returns will not reflect the
deduction of any withdrawal charge or the $30 annual contract administrative
charge, which, if reflected, would decrease the level of performance shown. The
withdrawal charge is not reflected because the Contract is designed for
long-term investment.
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 and the variable funding options.
For funding options that were in existence prior to the date they became
available under Fund ABD, the standardized and non-standardized average annual
total return quotations will show the investment performance that such funding
options would have achieved (reduced by the applicable charges) had they been
held under the Contract for the period quoted. The total return quotations are
based upon historical earnings and are not necessarily representative of future
performance. The contract value at redemption may be more or less than original
cost.
FEDERAL TAX CONSIDERATIONS
- - --------------------------------------------------------------------------------
The following general discussion of the federal income tax consequences under
this Contract is not intended to cover all situations, and is not meant to
provide tax advice. Because of the complexity of the law and the fact that the
tax results will vary depending on many factors, you should consult your tax
adviser regarding your personal situation. For your information, a more detailed
tax discussion is contained in the SAI.
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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. 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 includable 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 includable in your income at the time of the transfer.
If you make a partial withdrawal, this money will generally be taxed as first
coming from earnings, (income in the contract), and then from your purchase
payments. These withdrawn earnings are includable in your income. (See "Penalty
Tax for Premature Distributions" below). There is income in the contract to the
extent the cash value exceeds your investment in the contract. The investment in
the contract equals the total purchase payments you paid less any amount
received previously which was 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.
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.
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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 tax-qualified plans.
DIVERSIFICATION REQUIREMENTS FOR VARIABLE ANNUITIES
The Code requires that any nonqualified variable annuity contracts based on a
separate account shall not be treated as an annuity for any period if
investments made in the account are not adequately diversified. Final tax
regulations define how separate accounts must be diversified. The Company
monitors the diversification of investments constantly and believes that its
accounts are adequately diversified. The consequence of any failure to diversify
is essentially the loss to the Contract Owner of tax deferred treatment. The
Company intends to administer all contracts subject to this provision of law in
a manner that will maintain adequate diversification.
OWNERSHIP OF THE INVESTMENTS
Assets in the separate accounts, also referred to as segregated asset accounts,
must be owned by the Company and not by the Contract Owner for federal income
tax purposes. Otherwise, the deferral of taxes is lost and income and gains from
the accounts would be includable annually in the Contract Owner's gross income.
The Internal Revenue Service has stated in published rulings that a variable
contract owner will be considered the owner of the assets of a segregated asset
account if the owner possesses an incident of ownership in those assets, such as
the ability to exercise investment control over the assets. The Treasury
Department announced, in connection with the issuance of temporary regulations
concerning investment diversification, that those regulations "do not provide
guidance concerning the circumstances in which investor control of the
investments of a segregated asset account may cause the investor, rather than
the insurance company, to be treated as the owner of the assets of the account."
This announcement, dated September 15, 1986, also stated that the guidance would
be issued by way of regulations or rulings on the "extent to which policyholders
may direct their investments to particular subaccounts [of a segregated asset
account] without being treated as owners of the underlying assets." As of the
date of this prospectus, no such guidance has been issued.
The Company does not know if such guidance will be issued, or if it is, what
standards it may set. Furthermore, the Company does not know if such guidance
may be issued with retroactive effect. New regulations are generally issued with
a prospective-only effect as to future sales or as to future voluntary
transactions in existing contracts. The Company therefore reserves the right to
modify the contract as necessary to attempt to prevent Contract Owners from
being considered the owner of the assets of the separate account.
MANDATORY DISTRIBUTIONS FOR QUALIFIED PLANS
Federal tax law requires that minimum annual distributions begin by April 1st of
the calendar year following the calendar year in which an IRA owner attains age
70 1/2. Participants in qualified plans and 403(b) annuities may defer minimum
distributions until the later of April 1st of the calendar year following the
calendar year in which they attain age 70 1/2. Distributions must begin or be
continued according to required patterns following the death of the contract
owner or annuitant of both qualified and nonqualified annuities.
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OTHER INFORMATION
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THE INSURANCE COMPANY
The Travelers Insurance Company is a stock insurance company chartered in 1864
in Connecticut and continuously engaged in the insurance business since that
time. It is licensed to conduct life insurance business in all states of the
United States, the District of Columbia, Puerto Rico, Guam, the U.S. and British
Virgin Islands and the Bahamas. The Company is an indirect wholly owned
subsidiary of Travelers Group Inc. The Company's Home Office is located at One
Tower Square, Hartford, Connecticut 06183.
DISTRIBUTION OF VARIABLE ANNUITY CONTRACTS
The Company intends to sell the Contracts in all jurisdictions where it is
licensed to do business and where the Contract is approved. The Contracts will
be sold by life insurance sales agents who represent the Company, and who are
licensed registered representatives of the Company or certain other registered
broker-dealers. The compensation paid to sales representatives will not exceed
6.5% of the payments made under the Contracts.
From time to time, the Company may pay or permit other promotional incentives,
in cash, credit or other compensation.
Any sales representative or employee will have been qualified to sell variable
annuities under applicable federal and state laws. Each broker-dealer is
registered with the SEC under the Securities Exchange Act of 1934, and all are
members of the NASD. The principal underwriter for the Contracts is Tower Square
Securities, Inc., an affiliate of the Company; however, it is currently
anticipated that an affiliated broker-dealer may become the principal
underwriter for the Contracts during 1997.
CONFORMITY WITH STATE AND FEDERAL LAWS
The Contract is governed by the laws of the state in which it is delivered. Any
paid-up annuity, cash surrender value or death benefits that are available under
the Contract are not less than the minimum benefits required by the statutes of
the state in which the Contract is delivered. We reserve the right to make any
changes, including retroactive changes, in the Contract to the extent that the
change is required to meet the requirements of any law or regulation issued by
any governmental agency to which the Company, the Contract or the contract owner
is subject.
VOTING RIGHTS
The Company is the legal owner of the shares of the funding options. However, we
believe that when a funding option solicits proxies in conjunction with a vote
of shareholders we are required to obtain from you and from other owners
instructions on how to vote those shares. When we receive those instructions, we
will vote all of the shares we own in proportion to those instructions. This
will also include any shares we own on our own behalf. Should we determine that
we are no longer required to comply with the above, we will vote on the shares
in our own right.
LEGAL PROCEEDINGS AND OPINIONS
There are no pending material legal proceedings affecting Fund ABD. Legal
matters in connection with the federal laws and regulations affecting the issue
and sale of the Contract described in this prospectus, as well as the
organization of the Company, its authority to issue variable annuity contracts
under Connecticut law and the validity of the forms of the variable annuity
contracts under Connecticut law, have been reviewed by the General Counsel of
the Life and Annuities Division of the Company.
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APPENDIX A
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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 Fund ABD or any other separate account 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 Fund ABD 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. If the contract owner effects a surrender, the amount
available from the Fixed Account will be reduced by any applicable withdrawal
charge as described under "Charges and Deductions" in this prospectus.
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 semi-annual anniversary
of the contract effective date. The transfers are limited to an amount of up to
15% of the Fixed Account Value on the semi-annual contract effective date
anniversary. (This restriction does not apply to transfers from the Dollar Cost
Averaging Program.) Amounts previously transferred from the Fixed Account to
other funding options may not be transferred back to the Fixed Account for a
period of at least six months from the date of transfer. We reserve the right to
waive either of these restrictions.
Automated transfers from the Fixed Account to any of the funding options may
begin at any time. Automated transfers from the Fixed Account may not deplete
your Fixed Account value in a period of less than twelve months from your
enrollment in the Dollar Cost Averaging Program.
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APPENDIX B
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TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information contains more specific information and
financial statements relating to the Separate Account and The Travelers
Insurance Company. A list of the contents of the Statement of Additional
Information is set forth below:
The Insurance Company
Principal Underwriter
Distribution and Management Agreement
Valuation of Assets
Telephone Transfers
Federal Tax Considerations
Independent Accountants
Financial Statements
- - --------------------------------------------------------------------------------
Copies of the Statement of Additional Information dated May 1, 1997 (Form No.
L-12547S) 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 Insurance Company, Annuity Services,
One Tower Square, Hartford, Connecticut 06183-9061.
Name:
Address:
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(THIS DOCUMENT IS NOT PART OF THE PROSPECTUS)
TRAVELERS IRA DISCLOSURE STATEMENT
- - --------------------------------------------------------------------------------
This disclosure statement describes the general requirements of an Individual
Retirement Annuity (IRA) as well as the specific features of The Travelers
Insurance Company's Individual Retirement Annuity (The Travelers IRA). It is
provided in accordance with Internal Revenue Service regulations.
RIGHT TO REVOKE YOUR IRA
You may revoke your Travelers IRA at any time within 20 days (unless state law
requires a longer period) after the contract is delivered to you by notifying
The Travelers in writing within that 20-day period. Notice of revocation should
be submitted to:
The Travelers Insurance Company and its Affiliates
Annuity Services
One Tower Square
Hartford, Connecticut 06183-4056
You may also mail or deliver the revocation notice to your Financial
Representative. If you return the Contract within seven days of delivery, then
upon revocation you will be entitled to a full refund of your IRA contribution
without adjustment for administrative expenses, sales commissions (if any) or
fluctuations in market value. If you return the Contract during the remainder of
the 20-day period, then upon revocation you will receive your Contract Value,
without reduction for contract charges, but including the effects of any
fluctuations in market value. If you have any questions concerning your right of
revocation, please call 1-800-842-9368 during normal business hours.
ANNUITY CONTRACT DESCRIPTION
Your Travelers IRA is an annuity contract issued in your name for the exclusive
benefit of you or your beneficiaries. The Contract has the following features:
1. Your interest in the Contract is nonforfeitable.
2. Ownership of the Contract is not transferable.
3. The Contract may not be pledged or used as security for a loan.
4. You may begin to receive distributions under the Contract at any time. The
distributions may consist of a single sum, or a periodic annuity based upon
life expectancy, or of a guaranteed amount per year for a period of years, or
of any other distribution method agreed to by the Company.
5. If you die before distribution has begun, or after distribution has begun but
before the entire interest has been distributed, your beneficiaries must
receive distributions in the manner described under "DISTRIBUTIONS."
ELIGIBLE INDIVIDUALS
Anyone with earned income or compensation for services may contribute to an IRA.
If you or your spouse are active participants in an employer sponsored
retirement plan, your deductible contributions may be limited as described under
"CONTRIBUTIONS".
CONTRIBUTIONS
Maximum Deductible Amount: If you are not married, the maximum deductible
amount is $2,000. Whether you may deduct or the amount you may deduct depends on
whether you (and/or your spouse if you are married) are an active participant in
an employer-sponsored retirement plan as
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<PAGE> 32
described below and the adjusted gross income indicated on your Federal income
tax return. If you are not an active participant in an employer-sponsored
retirement plan, you may make a fully deductible IRA contribution in any amount
up to the lesser of 100% of your earned income or compensation for the year or
$2,000.
Spousal IRA: If you are married and neither you or your spouse is an active
participant in an employer-sponsored retirement plan, the maximum deductible
amount of payments which can be made to your IRA and to your spouse's IRA is the
lesser of $4,000 or 100% of your combined compensation. In any event, the
maximum premium paid to either IRA (yours or your spouses) may not exceed
$2,000.
An Employer-Sponsored Retirement Plan: includes any of the following types of
retirement plans:
- - - a qualified pension/profit sharing described in IRC Section 401(a) or 401(k);
- - - a Simplified Employee Pension plan (SEP) described in IRC Section 408(k);
- - - a pension or retirement plan maintained by a federal, state or local
government or agency or Instrumentality thereof (other than a plan describe in
IRC Section 457);
- - - tax sheltered annuities and custodial accounts described in IRC Section
403(b);
- - - a qualified annuity plan under IRC Section 403(a);
- - - a trust described in IRC Section 501(c)(18); or
- - - a SIMPLE IRA plan or a SIMPLE 401(k) plan
Active Participant: You are an active participant in an employer-sponsored
retirement plan even if you do not have a vested right to any benefits under the
plan. Whether you are an "active participant" depends on the type of plan
maintained by your employer. Generally, you are considered an active participant
in a defined contribution plan if an employer contribution or forfeiture was
credited to your account under the plan for the year. You are considered an
active participant in a defined benefit plan if you are eligible to participate
in the plan, even though you may elect not to participate. You are also treated
as an active participant for a year during which you make voluntary or mandatory
contribution to any type of plan, even though your employer makes no
contribution to the plan. The Form W2 (Wage and Tax Statement) that you receive
from your employer annually will indicate whether you were an active participant
for the prior year.
If you (or your spouse, are filing a joint tax return) are covered by an
employer-sponsored retirement plan, your IRA contribution is tax deductible only
to the extent that your adjusted gross income does not exceed the following
limits.
Applicable Dollar Amount: The maximum deductible amount of your IRA
contribution is reduced proportionately for adjusted gross income which exceeds
the "applicable dollar amount" if you are an active participant. The applicable
dollar amount is $25,000 for an individual and $40,000 for married couples
filing a joint tax return. The applicable dollar amount for married individuals
filing separate returns is $0. A husband and a wife who file separate returns
for a taxable year and who live apart at all times during such taxable year are
not treated as married individuals for this purpose. If your adjusted gross
income exceeds the applicable dollar amount by not more than $10,000, you may
make a deductible IRA contribution but the deductible contribution will be
proportionately less than the maximum. "Adjusted gross income" for this purpose
is computed before your IRA deduction has been taken.
If you qualify for less than the maximum deductible amount, use the following
calculation to determine the amount of your deductible contribution:
1. Subtract the applicable dollar amount (discussed above) from your adjusted
gross income. If the result is $10,000 or more, you can only make a
nondeductible contribution.
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<PAGE> 33
2. Subtract the amount determined in Step 1 from $10,000.
3. Divide the amount determined in Step 2 by $10,000.
4. Multiply $2,000 (or $4,000 if a spousal IRA) times the fraction determined
under Step 3. This is your maximum deductible contribution limit.
If the adjusted dollar deduction limit is not a multiple of $10, it should be
rounded up to the next highest $10 increment. If the amount calculated is less
than $200 but more than zero, the deductible contribution limit equals $200. The
$200 minimum floor on the deduction limit applies if your adjusted gross income
does not exceed $35,000 (for a single taxpayer), $50,000 (for married taxpayers
filing jointly), or $10,000 (for a married taxpayer filing separately).
Adjusted gross income for married couples filing a joint tax return is
calculated by aggregating the compensation of both spouses. The deduction
limitations determined above apply to each individual.
Non Deductible Amount: If you or your spouse are not eligible to make the
maximum deductible contribution to an IRA, you may make a nondeductible
contribution of up to the lesser of $2,000 ($4,000 if a spousal IRA) or 100% of
your compensation reduced by any deductible IRA contribution. Earnings on all
IRA contributions are tax deferred until distribution.
You are required to report to the IRS on Form 8606 the extent to which your IRA
contribution is nondeductible. If you overstate the amount of nondeductible
contributions for a taxable year, a penalty of $100 will be assessed for each
overstatement unless you can show that the overstatement was due to a reasonable
cause and that steps have been taken to correct the overstatement.
Compensation: Compensation means, wages, salaries, professional fees, or other
amounts derived from or received from personal service actually rendered
(including, but not limited to, commissions) and includes earned income as
defined in IRC Section(c)(2). Compensation does not include amounts received as
earnings or profits from property or amounts not includable in gross income.
Compensation also does not include any amount received as a pension or annuity
or as deferred compensation. The term "compensation" shall include any amount
includable in the individual's gross income under IRC Section 71 with respect to
a divorce or separation instrument.
Time of Contribution: You may make contributions to your IRA at any time up to
and including the due date for filing your tax return (without extensions) for
the year. You may continue to make annual contributions to your IRA up to (but
not including) the calendar year in which you reach age 70 1/2. You may continue
to make annual contributions to your spousal IRA up to (but not including) the
calendar year in which your spouse reaches age 70 1/2.
ROLLOVER CONTRIBUTIONS
Qualified Retirement Plan To IRA: You may roll over to an IRA any taxable
portion of your balance in a qualified pension or profit-sharing plan, or in a
tax-sheltered annuity qualified under Section 403(b) of the Internal Revenue
Code, or to another IRA except generally for the following:
a) any distribution that is part of a series of substantially equal payments
made over your life or life expectancy or the joint life expectancies of you
and your spouse;
b) any distribution made for a specified period of ten years or more; and
c) any distribution which is a required minimum distribution described under
"DISTRIBUTIONS".
If you are subsequently covered under another qualified pension or
profit-sharing plan or tax sheltered annuity program which accepts rollover
contributions, you may transfer the assets of a rollover IRA into the new plan,
provided the rollover IRA assets were not commingled with other types of
contributions, (e.g. other IRA contributions or other plan contributions).
SIMPLE IRA
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<PAGE> 34
funds may not be rolled into your IRA during the first two years of your
participation in your employer's SIMPLE IRA.
Mandatory Withholding Requirements: If an IRA rollover from a qualified pension
or profit-sharing plan or from a tax-sheltered annuity is not conducted by means
of a "direct rollover" of funds between qualified plan and IRA trustees,
custodians or issuers, then 20% mandatory federal income tax withholding will be
taken from the distribution. You will not have the right to elect out of this
withholding. Qualified plans and tax-sheltered annuity plans and arrangements
must offer you the option of transferring distributed amounts eligible for
rollover by direct rollover to an eligible retirement plan, such as an IRA. If
you elect not to use a direct rollover but do deposit the net taxable
distribution in an IRA within 60 days from your receipt of the amount, you may
make up the 20% withheld from any other funds that you have available. If you
receive a distribution check from a qualified plan or tax-sheltered annuity that
is negotiable only by the IRA trustee, custodian or issuer of the IRA which is
to receive the rollover distribution, you may forward that check immediately
(but no later than 60 days) to the IRA trustee, custodian or issuer and the
Internal Revenue Service will treat the transaction as a direct rollover.
Limitations: Rollovers must be completed within 60 days after receipt of the
distribution. If the distribution is from a qualified pension/profit sharing
plan or a tax sheltered annuity and if property other than cash is distributed,
then you must roll over the property in the form received and may not first
convert it to cash.
SIMPLIFIED EMPLOYEE PENSION (SEP-IRA)
A Simplified Employee Pension or "SEP" is a special IRA plan under section
408(k) which permits employers to make deductible contributions to separate IRAs
established for their employees. If your employer has adopted a SEP plan, your
employer may make deductible SEP contributions directly to your Travelers IRA
each year in an amount of up to the lesser of $30,000 or 15% of your current
year compensation. The contributions and any earnings thereon are not taxable
until withdrawn. Your employer must provide you with information describing the
terms of your SEP plan. In addition, you may make your own annual contributions
to your IRA each year up to the lesser of $2,000 or 100% of current year
compensation.
Contributions at Age 70 1/2 or Older: A deductible contribution may be made by
your employer to a SEP even for years when you are age 70 1/2 or older.
SPOUSAL IRA
You may be eligible to set up and contribute to an IRA for your spouse whether
or not he or she has received any compensation for the taxable year. You and
your spouse must set up separate IRAs. The total deduction for both your IRA and
the spousal IRA is limited to the lesser of $4,000 or 100% of the annual
compensation includable in your gross income. The contribution may be divided
between each IRA any way you wish, provided the total amount contributed to
either IRA does not exceed $2,000.
You must meet the following five requirements to set up a spousal IRA:
1. You must be married at the end of the year.
2. Your spouse must be under age 70 1/2 at the end of the tax year.
3. You must file a joint return for the tax year.
4. You must have taxable compensation for the year.
5. Your spouse's taxable compensation for the year is less than yours.
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<PAGE> 35
SIMPLE IRA PLANS
Beginning in 1997, certain small businesses may have a Savings Incentive Match
Plan for Employees called a SIMPLE plan. SIMPLE contributions may only be made
to SIMPLE IRA accounts through salary reduction and employer matching
contributions. If an individual takes a distribution from a SIMPLE IRA within
two years of the date of participation in the plan, the 10% premature penalty
for premature distributions is increased to 25%. After the two year period, a
SIMPLE IRA may be rolled into an IRA.
EXCESS CONTRIBUTIONS
Excise Tax: Generally, any contributions exceeding the limitations discussed in
"CONTRIBUTIONS" are excess contributions subject to a nondeductible 6% excise
tax for each year (or portion thereof) that the excess contribution remains in
the IRA . This excise tax is not applied if the excess contribution and any
interest earned on it up to the date of distribution are withdrawn no later than
the due date of your tax return, plus any extensions. The interest element will
be taxable income to you in the tax year in which you receive it.
Withdrawal of Excess Contributions: If the excess contribution and interest
thereon is withdrawn after the due date for filing your return, and the excess
contribution did not cause your total contribution for the year to exceed $4,000
($30,000 if a Simplified Employee Pension) the 10% premature distribution tax
penalty will not apply. The excess contribution will not be included in your
gross income, provided no deduction was taken for such excess contribution. The
6% excise tax will generally apply to such amount however.
Alternate Method: An excess contribution may be eliminated in later years where
the maximum allowable contribution is not made. Thus, if you make less than the
maximum contribution allowed in any year after the excess contribution is made,
the difference between the allowable deduction and the amount contributed is
used to reduce the excess contribution and accumulated earnings. You may use
part of your current year allowable deduction to correct an excess contribution
provided no deduction was taken for the excess contribution in the prior tax
year.
Failure To Eliminate Excess Contribution: If an excess amount is contributed in
one year and not eliminated in later years, the excess will be subject to a 6%
excise tax each year until it has been eliminated.
TAX STATUS
Tax Deductible Status: Your contributions are generally tax deductible to the
extent described in "CONTRIBUTIONS" and any income earned from the Investment is
not taxable until it is distributed.
Loss Of Deferred Status: If any of the events prohibited under Section 4975 of
the Code (such as any sale, exchange or leasing of any property between you and
your IRA) occurs during the existence of your IRA, your account will be
disqualified and the entire balance in your account will be treated as if
distributed to you as of the first day of the year in which the prohibited event
occurs. The "distribution" will be subject to ordinary income tax and, if you
are under age 59 1/2 at the time, it will also be subject to the 10% penalty tax
on premature distributions during the year in which you make such a prohibited
sale, exchange or leasing of property of the like.
Annual Information: Financial Information pertaining to your IRA will be
provided to you annually by the Company.
Penalty Reporting/IRS Form 5329: IRS Form 5329 should be filed with your tax
return for each taxable year during which penalty taxes are imposed on excess
contributions, premature distributions, prohibited transactions, and excess
accumulations.
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<PAGE> 36
DISTRIBUTIONS
Premature Distributions: If you receive a payment from your IRA before you
attain age 59 1/2, the payment will be considered a premature distribution
unless such distribution is made on account of death or disability, the
distribution is made over life or life expectancy, or a rollover contribution of
the entire amount is made to another IRA within 60 days. In addition, payments
made after 1996 to pay medical expenses which exceed 7.5% of your adjusted gross
income and distributions to pay medical insurance for yourself, spouse and
dependents if you have separated from employment and have received unemployment
compensation under a state or federal program for at least 12 weeks will not be
considered a premature distribution. The amount received in a premature
distribution will then be included in your gross income for the taxable year of
receipt. If no exception applies, your income tax liability for that tax year is
increased by an amount equal to 10% of the amount includable in your gross
income. This additional tax will apply only to the portion of a distribution
which is includable in your income. Distributions from a SIMPLE IRA made in the
first two years of date of participation are subject to a 25% premature penalty
tax. Distributions up to the amount of your nondeductible contributions are not
subject to the 10% penalty tax, but any earnings on your nondeductible
contributions will be subject to the 10% penalty tax. Use IRS Form 5329 to
report and calculate the 10% tax penalty.
Minimum Required Distributions: Distributions must begin by April 1st of the
calendar year following the year in which you attain age 70 1/2. You may elect
to receive your entire interest in a single sum or you may elect a periodic
distribution over either (a) your life, (b) the lives of you and your designated
beneficiary, (c) a period not extending beyond your life expectancy, or (d) a
period not extending beyond the life expectancy of you and your designated
beneficiary (subject to certain limitations if your designated beneficiary is
not your spouse.).
50% Excise Tax: Once payments are required to commence, a minimum distribution
is calculated based on your life expectancy or the joint life expectancy of you
and your beneficiary. A 50% nondeductible excise tax may be imposed on an
under-distribution, representing the difference between the minimum payout
required for the tax year in question and the amount actually paid out to you.
Use IRS Form 5329 to calculate and report the tax.
For example, if the minimum payout that you should receive is $1,000 for the
taxable year and you only receive $600, an excise tax of $200 (50% of the $400
under-payment) may apply. Payments received under a life annuity commencing not
later than age 70 1/2 avoid this excise tax.
Death After Commencement of Distributions: If you die after distributions have
begun, but before the entire interest has been distributed, the entire remaining
balance must be distributed at least as rapidly as under the method of
distribution in effect as of the date of death.
Death Before Commencement of Distributions: If you die before distributions
have begun, the entire amount remaining in your IRA, at the election of your
beneficiary(ies) will be:
I. paid out by December 31, of the 5th year of the anniversary of your death or
II. paid in equal or substantially equal payments over the life or life
expectancy of a designated beneficiary(ies) or
III. if your beneficiary is a surviving spouse, the IRA balance may be rolled
over into a IRA in the surviving spouses' name. If your surviving spouse is
the sole beneficiary, distributions are not required until the date you
would have attained age 70 1/2. If your spouse then dies before
distributions begin he or she will be treated as the IRA contract owner,
and the restrictions of the above paragraph apply.
Ordinary Income: Distributions from your IRA are taxed as ordinary income
regardless of their source. (See "Nondeductible Contributions" below.) IRA
distributions are not eligible for capital gains treatment. Payments from a life
annuity spread the tax over the duration of your life. Payments under the IRA
contract are taxable as you receive them.
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Estate And Gift Tax: The value of an annuity or other payment received by your
beneficiary is generally includable in your gross estate, but does not
constitute a taxable gift to the beneficiary.
Excess Distribution Penalty: If you receive more than $160,000 annually from
IRAs and other retirement plans, you will generally be subject to a 15% tax on
the excess over $160,000. The excess distribution penalty has been temporarily
suspended and will not apply to distributions taken during 1997, 1998 and 1999.
Excess Accumulation Penalty: An excess accumulation penalty may be imposed on
your estate if you die with an excess accumulation in your IRA when combined
with your other retirement plans. You should consult your tax advisor for
further information. Note that the excess accumulation penalty continues to
apply in 1997, 1998 and 1999.
Nondeductible Contributions: To the extent that a distribution constitutes a
return of your nondeductible contributions, it will not be included in your
income. The amount of any distribution includable in income is the portion that
bears the same ratio to the total distribution that your aggregate nondeductible
contributions bear to the balance at the end of the year (calculated after
adding back distributions during the year) of all your IRAs.
Rollover To Another IRA: The proceeds of your IRA or any portion may be used as
a rollover contribution to another IRA. This rollover will avoid taxation to the
extent you reinvest the distribution within 60 days of when you receive it. A
rollover of this nature may occur only once a year.
FURTHER INFORMATION MAY BE OBTAINED FROM ANY DISTRICT OFFICE OF THE INTERNAL
REVENUE SERVICE OR BY OBTAINING IRS PUBLICATION 590, INDIVIDUAL RETIREMENT
ARRANGEMENTS (IRAS).
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PART B
Information Required in a Statement of Additional Information
<PAGE> 39
STATEMENT OF ADDITIONAL INFORMATION
dated
May 1, 1997
for
THE TRAVELERS FUND ABD FOR VARIABLE ANNUITIES
ISSUED BY
THE TRAVELERS INSURANCE 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, 1997. A copy of the Prospectus may be obtained
by writing to The Travelers Insurance Company, Annuity Services, One Tower
Square, Hartford, Connecticut 06183-9061, or by calling (800) 842-9368.
TABLE OF CONTENTS
<TABLE>
<S> <C>
THE INSURANCE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
PRINCIPAL UNDERWRITER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
DISTRIBUTION AND MANAGEMENT AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
VALUATION OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
TELEPHONE TRANSFERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
FEDERAL TAX CONSIDERATIONS . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
<PAGE> 40
THE INSURANCE COMPANY
The Travelers Insurance Company (the "Company"), is a stock insurance
company chartered in 1864 in Connecticut and continuously engaged in the
insurance business since that time. It is licensed to conduct life insurance
business in all states of the United States, the District of Columbia, Puerto
Rico, Guam, the U.S. and British Virgin Islands and the Bahamas. The Company is
an indirect wholly owned subsidiary of Travelers Group Inc., a financial
services holding company. The Company's Home Office is located at One Tower
Square, Hartford, Connecticut 06183.
STATE REGULATION. The Company is subject to the laws of the state of Connecticut
governing insurance companies and to regulation by the Insurance Commissioner of
the state of Connecticut. An annual statement covering the operations of the
Company for the preceding year, as well as its financial conditions as of
December 31 of such year, must be filed with the Commissioner in a prescribed
format on or before March 1 of each year. The Company's books and assets are
subject to review or examination by the Commissioner or his agents at all times,
and a full examination of its operations is conducted at least once every four
years.
The Company is also subject to the insurance laws and regulations of all
other states in which it is licensed to operate. However, the insurance
departments of each of these states generally apply the laws of the home state
(jurisdiction of domicile) in determining the field of permissible investments.
THE SEPARATE ACCOUNT. Fund ABD 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 are subject to the provisions of
Section 38a-433 of the Connecticut General Statutes which authorizes the
Connecticut Insurance Commissioner to adopt regulations under it. Section
38a-433 contains no restrictions on the investments of the Separate Account, and
the Commissioner has adopted no regulations under the Section that affect the
Separate Account.
PRINCIPAL UNDERWRITER
Tower Square Securities, Inc. ("Tower Square"), an indirect,
wholly-owned subsidiary of the Company, serves as principal underwriter for Fund
ABD and the Contracts. The offering is continuous. Tower Square's principal
executive offices are located at One Tower Square, Hartford, Connecticut. It is
anticipated that an affiliated broker dealer will become the principal
underwriter during 1997.
DISTRIBUTION AND MANAGEMENT AGREEMENT
Under the terms of the Distribution and Management Agreement among Fund
ABD, the Company and Tower Square, the Company provides all administrative
services and mortality and expense risk guarantees related to variable annuity
contracts sold by the Company in connection with Fund ABD. Tower Square
performs the sales functions related to the Contracts. The Company reimburses
Tower Square for commissions paid, other sales expenses and certain overhead
expenses connected with sales functions. The Company also pays all costs
(including costs associated with the preparation of sales literature); all costs
of qualifying Fund ABD and the variable annuity contract with regulatory
authorities; the costs of proxy solicitation; and all custodian, accountant's
and legal fees. The Company also provides without cost to Fund ABD all
necessary office space, facilities, and personnel to manage its affairs.
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<PAGE> 41
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:
(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.
The gross investment rate may be either positive or negative. A funding
option's investment income includes any distribution whose ex-dividend date
occurs during the valuation period.
ACCUMULATION UNIT VALUE. The value of an accumulation unit on any business day
is determined by multiplying the value on the preceding business day by the net
investment factor for the valuation period just ended. The net investment factor
is calculated for each funding option and takes into account the investment
performance, expenses and the deduction of certain expenses.
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<PAGE> 42
ANNUITY UNIT VALUE. An annuity unit value as of any business day is equal to (a)
the value of the annuity unit on the immediately preceding business day,
multiplied by (b) the corresponding net investment factor for the valuation
period just ended, divided by (c) the assumed net investment factor for the
valuation period. (For example, the assumed net investment factor based on an
annual assumed net investment rate of 3.0% for a Valuation Period of one day is
1.000081 and, for a period of two days, is 1.000081 x 1.000081.)
PERFORMANCE INFORMATION
From time to time, the Company may advertise several types of
historical performance for the Funding Options of Fund ABD. The Company may
advertise the "standardized average annual total returns" of the Funding Option,
calculated in a manner prescribed by the Securities and Exchange Commission, as
well as the "non-standardized total return," as described below:
STANDARDIZED METHOD. Quotations of average annual total returns are
computed according to a formula in which a hypothetical initial investment of
$1,000 is applied to the Funding Option, and then related to ending redeemable
values over one-, five-, and ten-year periods, or for a period covering the time
during which the Funding Option has been in existence, if less. If a Funding
Option has been in existence for less than one year, the "since inception" total
return performance quotations are year-to-date and are not average annual total
returns. These quotations reflect the deduction of all recurring charges during
each period (on a pro rata basis in the case of fractional periods). The
deduction for the annual administrative charge ($30) is converted to a
percentage of assets based on the actual fee collected (or anticipated to be
collected, if a new product), divided by the average net assets for contracts
sold (or anticipated to be sold) under the Prospectus to which this Statement of
Additional Information relates. Each quotation assumes a total redemption at the
end of each period with the assessment of any applicable Withdrawal Charge at
that time.
NON-STANDARDIZED METHOD. Non-standardized "total returns" will be
calculated in a similar manner based on the performance of the Funding Options
over a period of time, usually for the calendar year-to-date, and for the past
one-, three-, five- and ten-year periods. Non-standardized total returns will
not reflect the deduction of any applicable Withdrawal Charge or the $30 annual
contract administrative charge, which, if reflected, would decrease the level of
performance shown. The Withdrawal Charge is not reflected because the Contract
is designed for long-term investment.
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 and the Underlying Funds.
3
<PAGE> 43
For Funding Options that were in existence prior to the date they
became available under Fund ABD, the standardized and non-standardized average
annual total return quotations will show the investment performance that such
Funding Options would have achieved (reduced by the applicable charges) had they
been held under the Contract for the period quoted. The total return quotations
are based upon historical earnings and are not necessarily representative of
future performance. An Owner's Contract Value at redemption may be more or less
than original cost.
Average annual total returns for each of the Funding Options (excluding
Cash Income Trust) computed according to the standardized and non-standardized
methods for the period ending December 31, 1996 (beginning at inception date)
are set forth in the following table.
TOTAL RETURN CALCULATIONS
FUNDING OPTIONS OF FUND ABD
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------------
STANDARDIZED NON-STANDARDIZED
INCEPTION
DATE
- - ---------------------------------------------------------------------------------------------------------------------------
1-YR 5-YR 10-YR 1-YR 3-YR 5-YR 10-YR
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alliance Growth 21.55% 23.97%* -- 27.58% 25.40%* -- -- 6/94
Capital Appreciation 20.39% 15.54% 11.21% 26.41% 16.85% 15.98% 11.22% 5/83
Fund
Equity Income 5.15%* -- -- 11.16%* -- -- -- 8/96
Federated Stock 6.06%* -- -- 12.07%* -- -- -- 8/96
Large Cap 6.76%* -- -- 12.76%* -- -- -- 8/96
Lazard International Stock 1.17%* -- -- 7.17%* -- -- -- 8/96
MFS Emerging Growth -0.51%* -- -- 5.50%* -- -- -- 8/96
Federated High Yield 1.09%* -- -- 7.09%* -- -- -- 8/96
Putnam Diversified
Income 0.70% 7.24%* -- 6.72% 9.01%* -- -- 6/94
Travelers Quality Bond -2.94%* -- -- 3.06%* -- -- -- 8/96
MFS Total Return 6.88% 11.49%* -- 12.90% 13.16%* -- -- 6/94
Travelers Cash Income -3.31% 1.52% 3.84%* 2.72% 2.94% 2.28% 3.86%* 12/87
</TABLE>
* Since inception.
TELEPHONE TRANSFERS
A contract owner may place a transfer request by telephone. The telephone
transfer privilege is available automatically; no special election is necessary
for a contract owner to have this privilege. All transfers must be in accordance
with the terms of the Contract. In certain cases, the Company may allow you to
authorize your agent to make telephone transfers. Transfer instructions are
currently accepted on each Valuation Date between 9:00 a.m. and 4:00 p.m.,
Eastern time, at 1-800-842-8573. Once instructions have been accepted, they may
not be rescinded; however, new telephone instructions may be given the following
day. If the transfer instructions are not in good order, the Company will not
execute the transfer and will promptly notify the caller.
4
<PAGE> 44
The Company will make a reasonable effort to record each telephone transfer
conversation, but in the event that no recording is effective or available, the
contract owner will remain liable for each telephone transfer effected.
Additionally, the Company is not liable for acting upon instructions believed to
be genuine and in accordance with the procedures described above. As a result of
this policy, the contract owner may bear the risk of loss in the event that the
Company follows instructions that prove to be fraudulent.
FEDERAL TAX CONSIDERATIONS
The following description of the federal income tax consequences under this
Contract is not exhaustive and is not intended to cover all situations. Because
of the complexity of the law and the fact that the tax results will vary
according to the factual status of the individual involved, tax advice may be
needed by a person contemplating purchase of an annuity contract and by a
contract owner or beneficiary who may make elections under a contract. For
further information, please consult a qualified tax adviser.
MANDATORY DISTRIBUTIONS FOR QUALIFIED PLANS
Federal tax law requires that minimum annual distributions begin by April
1st of the calendar year following the calendar year in which a participant
under a qualified plan, a Section 403(b) annuity, or an IRA attains age 701/2.
Distributions must also begin or be continued according to required patterns
following the death of the contract owner or the annuitant.
NONQUALIFIED ANNUITY CONTRACTS
Individuals may purchase tax-deferred annuities without tax law funding
limits. The purchase payments receive no tax benefit, deduction or deferral, but
increases in the value of the contract are generally deferred from tax until
distribution. If a nonqualified annuity is owned by other than an individual,
however, (e.g., by a corporation), the increases in value attributable to
purchase payments made after February 28, 1986 are includable in income
annually. Furthermore, for contracts issued after April 22, 1987, all deferred
increases in value will be includable in the income of a contract owner when the
contract owner transfers the contract without adequate consideration.
If two or more annuity contracts are purchased from the same insurer within
the same calendar year, distributions from any of them will be taxed based upon
the amount of income in all of the same calendar year series of annuities. This
will generally have the effect of causing taxes to be paid sooner on the
deferred gain in the contracts.
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.
5
<PAGE> 45
The federal tax law requires that nonqualified annuity contracts meet
minimum mandatory distribution requirements upon the death of the contract
owner, including the first of joint owners. Failure to meet these requirements
will cause the surviving joint owner, or the beneficiary to lose the tax
benefits associated with annuity contracts, i.e., primarily the tax deferral
prior to distribution. The distribution required depends, among other things,
upon whether an annuity option is elected or whether the new contract owner is
the surviving spouse. Contracts will be administered by the Company in
accordance with these rules and the Company will make a notification when
payments should be commenced.
INDIVIDUAL RETIREMENT ANNUITIES
To the extent of earned income for the year and not exceeding $2,000 per
individual, an individual may make deductible contributions to an individual
retirement annuity (IRA). There are certain limits on the deductible amount
based on the adjusted gross income of the individual and spouse and based on
their participation in a retirement plan. If an individual is married and the
spouse does not have earned income, the individual may establish IRAs for the
individual and spouse. Purchase payments may then be made annually into IRAs for
both spouses in the maximum amount of 100% of earned income up to a combined
limit of $4,000.
The Code provides for the purchase of a Simplified Employee Pension (SEP)
plan. A SEP is funded through an IRA with an annual employer contribution limit
of 15% of compensation up to $30,000 for each participant.
SIMPLE Plan IRA Form
Effective January 1, 1997, employers may establish a savings incentive match
plan for employees ("SIMPLE plan") under which employees can make elective
salary reduction contributions to an IRA based on a percentage of compensation
of up to $6,000. (Alternatively, the employer can establish a SIMPLE cash or
deferred arrangement under IRS Section 401(k)). Under a SIMPLE plan IRA, the
employer must either make a matching contribution of 100% on the first 3% or 7%
contribution for all eligible employes. 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.
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:
6
<PAGE> 46
1. ELIGIBLE ROLLOVER DISTRIBUTION FROM SECTION 403(b) PLANS OR ARRANGEMENTS OR
FROM QUALIFIED PENSION AND PROFIT-SHARING PLANS
There is a mandatory 20% tax withholding for plan distributions that are
eligible for rollover to an IRA or to another retirement plan but that are not
directly rolled over. A distribution made directly to a participant or
beneficiary may avoid this result if:
(a) a periodic settlement distribution is elected based upon a life or life
expectancy calculation, or
(b) a term-for-years settlement distribution is elected for a period of ten
years or more, payable at least annually, or
(c) a minimum required distribution as defined under the tax law is taken
after the attainment of the age of 701/2 or as otherwise required by law.
A distribution including a rollover that is not a direct rollover will be
subject to the 20% withholding, and a 10% additional tax penalty may apply to
any amount not added back in the rollover. The 20% withholding may be recovered
when the participant or Beneficiary files a personal income tax return for the
year if a rollover was completed within 60 days of receipt of the funds, except
to the extent that the participant or spousal Beneficiary is otherwise
underwithheld or short on estimated taxes for that year.
2. OTHER NON-PERIODIC DISTRIBUTIONS (FULL OR PARTIAL REDEMPTIONS)
To the extent not described as requiring 20% withholding in 1 above, the
portion of a non-periodic distribution which constitutes taxable income will be
subject to federal income tax withholding, if the aggregate distributions exceed
$200 for the year, unless the recipient elects not to have taxes withheld. If no
such election is made, 10% of the taxable distribution will be withheld as
federal income tax. Election forms will be provided at the time distributions
are requested. This form of withholding applies to all annuity programs.
3. PERIODIC DISTRIBUTIONS (DISTRIBUTIONS PAYABLE OVER A PERIOD GREATER THAN ONE
YEAR)
The portion of a periodic distribution which constitutes taxable income will
be subject to federal income tax withholding under the wage withholding tables
as if the recipient were married claiming three exemptions. A recipient may
elect not to have income taxes withheld or have income taxes withheld at a
different rate by providing a completed election form. Election forms will be
provided at the time distributions are requested. This form of withholding
applies to all annuity programs. As of January 1, 1997, a recipient receiving
periodic payments (e.g., monthly or annual payments under an annuity option)
which total $14,850 or less per year, will generally be exempt from periodic
withholding.
Recipients who elect not to have withholding made are liable for payment of
federal income tax on the taxable portion of the distribution. All recipients
may also be subject to penalties under the estimated tax payment rules if
withholding and estimated tax payments are not sufficient to cover tax
liabilities.
Recipients who do not provide a social security number or other taxpayer
identification number will not be permitted to elect out of withholding.
Additionally, U.S citizens residing outside of the country, or U.S. legal
residents temporarily residing outside the country, are not permitted to elect
out of withholding.
7
<PAGE> 47
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., independent accountants, 100 Pearl Street,
Hartford, Connecticut, are the independent auditors for Fund ABD. The services
provided to Fund ABD will include primarily the audit of the Fund's financial
statements. Financial statements for Fund ABD are not available since the Fund
had no assets or activity as of the effective date of this SAI.
The consolidated financial statements of the Travelers Insurance
Company and Subsidiaries as of December 31, 1996 and 1995, and for each of the
years in the three-year period ended December 31, 1996, have been included
herein in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, and upon the authority of said firm as experts in
accounting and auditing.
8
<PAGE> 48
Independent Auditors' Report
The Board of Directors and Shareholder
The Travelers Insurance Company and Subsidiaries:
We have audited the accompanying consolidated balance sheets of The Travelers
Insurance Company and Subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income and retained earnings and cash flows
for each of the years in the three-year period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Travelers
Insurance Company and Subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
January 17, 1997
9
<PAGE> 49
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------
(for the year ended December 31, in millions) 1996 1995 1994
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Premiums $1,379 $1,496 $ 1,492
Net investment income 1,887 1,824 1,702
Realized investment gains 65 106 13
Other 298 221 199
- - ---------------------------------------------------------------------------------------------------
Total revenues 3,629 3,647 3,406
- - ---------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Current and future insurance benefits 1,163 1,185 1,216
Interest credited to contractholders 830 967 961
Amortization of deferred acquisition costs and
value of insurance in force 281 290 281
Other operating expenses 380 368 351
- - ---------------------------------------------------------------------------------------------------
Total benefits and expenses 2,654 2,810 2,809
- - ---------------------------------------------------------------------------------------------------
Income from continuing operations before
federal income taxes 975 837 597
- - ---------------------------------------------------------------------------------------------------
Federal income taxes:
Current expense (benefit) 284 233 (96)
Deferred 58 57 307
- - ---------------------------------------------------------------------------------------------------
Total federal income taxes 342 290 211
- - ---------------------------------------------------------------------------------------------------
Income from continuing operations 633 547 386
Discontinued operations, net of income taxes
Income from operations (net of taxes of $0, $18 and $83) -- 72 150
Gain on disposition (net of taxes of $14, $68 and $18) 26 131 9
- - ---------------------------------------------------------------------------------------------------
Income from discontinued operations 26 203 159
- - ---------------------------------------------------------------------------------------------------
Net income 659 750 545
Retained earnings beginning of year 2,312 1,562 1,017
Dividends to parent 500 -- --
- - ---------------------------------------------------------------------------------------------------
Retained earnings end of year $2,471 $2,312 $ 1,562
- - ---------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
10
<PAGE> 50
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------
(at December 31, in millions) 1996 1995
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Fixed maturities, available for sale at fair value (cost, $18,515; $18,187) $18,846 $18,842
Equity securities, at fair value (cost, $325; $182) 332 224
Mortgage loans 2,883 3,626
Real estate held for sale, net of accumulated depreciation of $0; $9 297 293
Policy loans 1,910 1,888
Short-term securities 891 1,554
Other investments 1,235 874
- - -------------------------------------------------------------------------------------------------------
Total investments 26,394 27,301
- - -------------------------------------------------------------------------------------------------------
Cash 74 73
Investment income accrued 343 338
Premium balances receivable 105 107
Reinsurance recoverables 3,858 4,107
Deferred acquisition costs and value of insurance in force 2,133 1,962
Separate and variable accounts 9,023 6,949
Other assets 1,043 1,464
- - -------------------------------------------------------------------------------------------------------
Total assets $42,973 $42,301
- - -------------------------------------------------------------------------------------------------------
LIABILITIES
Contractholder funds $13,693 $14,525
Future policy benefits 11,450 11,783
Policy and contract claims 536 571
Separate and variable accounts 8,948 6,916
Commercial paper 50 73
Deferred federal income taxes 57 32
Other liabilities 1,911 2,173
- - -------------------------------------------------------------------------------------------------------
Total liabilities 36,645 36,073
- - -------------------------------------------------------------------------------------------------------
SHAREHOLDER'S EQUITY
Common stock, par value $2.50; 40 million
shares authorized, issued and outstanding 100 100
Additional paid-in capital 3,170 3,134
Retained earnings 2,471 2,312
Unrealized investment gains, net of taxes 587 682
- - -------------------------------------------------------------------------------------------------------
Total shareholder's equity 6,328 6,228
- - -------------------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity $42,973 $42,301
- - -------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
11
<PAGE> 51
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------
(for the year ended December 31, in millions) 1996 1995 1994
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Premiums collected $ 1,387 $ 1,346 $ 1,394
Net investment income received 1,910 1,855 1,719
Other revenues received (expense paid) 131 90 (2)
Benefits and claims paid (1,060) (846) (1,115)
Interest credited to contractholders (820) (960) (868)
Operating expenses paid (343) (615) (536)
Income taxes paid (328) (63) (27)
Other (70) (137) (81)
- - ----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 807 670 484
Net cash provided by (used in) discontinued operations (350) (596) 233
- - ----------------------------------------------------------------------------------------------------------
Net cash provided by operations 457 74 717
- - ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments
Fixed maturities 1,928 1,974 2,528
Mortgage loans 917 680 1,266
Proceeds from sales of investments
Fixed maturities 9,101 6,773 1,316
Equity securities 479 379 357
Mortgage loans 178 704 546
Real estate held for sale 210 253 728
Purchases of investments
Fixed maturities (11,556) (10,748) (4,594)
Equity securities (594) (305) (340)
Mortgage loans (470) (144) (102)
Policy loans, net (23) (325) (193)
Short-term securities, (purchases) sales, net 498 291 (367)
Other investments, (purchases) sales, net (137) (267) (299)
Securities transactions in course of settlement (52) 258 24
Net cash provided by (used in) investing activities of
discontinued operations 348 1,425 (261)
- - ----------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 827 948 609
- - ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance (redemption) of short-term debt, net (23) (1) 73
Contractholder fund deposits 2,493 2,705 1,951
Contractholder fund withdrawals (3,262) (3,755) (3,357)
Dividends to parent company (500) -- --
Return of capital to parent company -- -- (23)
Net cash provided by financing activities
of discontinued operations -- -- 84
Other 9 -- (2)
- - ----------------------------------------------------------------------------------------------------------
Net cash used in financing activities (1,283) (1,051) (1,274)
- - ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash $ 1 $ (29) $ 52
- - ----------------------------------------------------------------------------------------------------------
Cash at December 31 $ 74 $ 73 $ 102
- - ----------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
12
<PAGE> 52
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
The Travelers Insurance Company and Subsidiaries (the Company) is a
wholly owned subsidiary of The Travelers Insurance Group Inc. (TIGI).
TIGI is an indirect wholly owned subsidiary of Travelers Group Inc.
(Travelers Group), a financial services holding company engaged, through
its subsidiaries, principally in four business segments: (i) Investment
Services; (ii) Consumer Finance Services; (iii) Property & Casualty
Insurance Services; and (iv) Life Insurance Services (through the
Company). The periodic reports of Travelers Group provide additional
business and financial information concerning that company and its
consolidated subsidiaries.
The Company principally operates through two major business units within
its Life Insurance Services segment:
- TRAVELERS LIFE AND ANNUITY offers fixed and variable deferred
annuities, payout annuities and term, universal and variable life and
long-term care insurance to individuals and small businesses. It also
provides group pension products, including guaranteed investment
contracts and group annuities for employer-sponsored retirement and
savings plans. These products are primarily marketed through The
Copeland Companies (Copeland), an indirect, wholly owned subsidiary
of the Company, the Financial Consultants of Smith Barney Inc., an
affiliate of the Company, and a core group of approximately 500
independent agencies. The Company's Corporate and Other Segment was
absorbed into Travelers Life and Annuity during the second quarter
of 1996.
- PRIMERICA LIFE INSURANCE offers individual life products, primarily
term insurance, to consumers through a nationwide sales force of more
than 86,000 full and part-time independent representatives.
The Company sold group life and health insurance through its Managed Care
and Employee Benefits Operations segment (MCEBO) through 1994. See Note
4.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies used in the preparation of the
accompanying financial statements follow.
Basis of presentation
The consolidated financial statements include the accounts of the Company
and its insurance and non-insurance subsidiaries on a fully
consolidated basis. The primary insurance subsidiaries of the Company
are: The Travelers Life and Annuity Company (TLAC), and Primerica Life
Insurance Company (Primerica Life) and its subsidiary National Benefit
Life Insurance Company (NBL).
As discussed in Note 4 of Notes to Consolidated Financial Statements, in
January 1995 the group life insurance and related businesses of the
Company were sold to Metropolitan Life Insurance Company (MetLife) and
also in January 1995, the group medical component was exchanged for a 42%
interest in The MetraHealth Companies, Inc. (MetraHealth). The Company's
interest in MetraHealth was sold on October 2, 1995 and through that date
had been accounted for on the equity method. The Company's discontinued
operations reflect the results of the medical insurance business not
transferred, the equity interest in the earnings of MetraHealth through
October 2, 1995 (date of sale) and the gains from the sales of these
businesses. All of the businesses sold to MetLife or contributed to
MetraHealth were included in the Company's MCEBO segment in 1994. MCEBO
marketed group life and health insurance, managed health care programs
and administrative services associated with employee benefit plans.
13
<PAGE> 53
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
In September 1995, Travelers Group made a pro rata distribution to its
stockholders of shares of Class A Common Stock of Transport Holdings
Inc., which at the time was a wholly owned subsidiary of Travelers Group
and was the indirect owner of the business of Transport Life Insurance
Company (Transport Life). Immediately prior to this distribution, the
Company distributed Transport Life, an indirect wholly owned subsidiary
of the Company, to TIGI, as a return of capital.
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.
As more fully described in Note 4, all of the operations comprising MCEBO
are presented as a discontinued operation and, accordingly, prior year
amounts have been restated.
Certain prior year amounts have been reclassified to conform with the
1996 presentation.
Investments
Fixed maturities include bonds, notes and redeemable preferred stocks.
Fixed maturities are valued based upon quoted market prices, or if quoted
market prices are not available, discounted expected cash flows using
market rates commensurate with the credit quality and maturity of the
investment. Fixed maturities are classified as "available for sale" and
are reported at fair value, with unrealized investment gains and losses,
net of income taxes, charged or credited directly to shareholder's
equity.
Equity securities, which include common and nonredeemable preferred
stocks, are classified as "available for sale" and 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 higher returns required in the current real
estate financing market. Impaired loans were insignificant at December
31, 1996 and 1995.
Real estate held for sale is carried at the lower of cost or fair value
less estimated costs to sell. Fair value of foreclosed properties is
established at time of foreclosure by internal analysis or external
appraisers, using discounted cash flow analyses and other acceptable
techniques. Thereafter, an allowance for losses on real estate held for
sale is established if the carrying value of the property exceeds its
current fair value less estimated costs to sell. There was no such
allowance at December 31, 1996 and 1995.
Short-term securities, consisting primarily of money market instruments
and other debt issues purchased with a maturity of less than one year,
are carried at amortized cost which approximates market.
14
<PAGE> 54
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
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.
Derivative Financial Instruments
The Company uses derivative financial instruments, including financial
futures contracts, equity options, forward contracts and interest rate
swaps and caps, as a means of hedging exposure to interest rate, equity
price 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, equity options, and interest rate swaps and caps were
not significant at December 31, 1996 and 1995. Information concerning
derivative financial instruments is included in Note 8.
Investment Gains and Losses
Realized investment gains and losses are included as a component of
pretax 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. The foreign
exchange effects of Canadian operations are included in unrealized gains
and losses.
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.
Deferred Acquisition Costs and Value of Insurance in Force
Costs of acquiring individual life insurance, annuities and health
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, including term
insurance and guaranteed renewable health contracts, including long-term
care, are amortized in relation to anticipated premiums; universal
life in relation to estimated gross profits; and annuity contracts
employing a level yield method. For life insurance, a 10- to 25-year
amortization period is used; for guaranteed renewable health, a 10- to
20-year period, and a 10- to 20-year period is employed for annuities.
Deferred acquisition costs are reviewed periodically for recoverability
to determine if any adjustment is required.
15
<PAGE> 55
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
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 life
insurance, annuities and health 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 interest rates ranging from 14% to 18%. Traditional life
insurance and guaranteed renewable health policies are amortized in
relation to anticipated premiums; universal life is amortized in relation
to estimated gross profits; and 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.
Separate and Variable Accounts
Separate and variable accounts primarily represent funds for which
investment income and investment gains and losses accrue directly to, and
investment risk is borne by, the contractholders. Each account has
specific investment objectives. The assets of each account are legally
segregated and are not subject to claims that arise out of any other
business of the Company. The assets of these accounts are carried at
market value. Certain other separate accounts provide guaranteed levels
of return or benefits and the assets of these accounts are primarily
carried at market value. Amounts assessed to the contractholders for
management services are included in revenues. Deposits, net investment
income and realized investment gains and losses for these accounts are
excluded from revenues, and related liability increases are excluded from
benefits and expenses.
Goodwill
Goodwill represents the cost of acquired businesses in excess of net
assets and is being amortized on a straight-line basis principally over a
40-year period. The carrying amount is regularly reviewed for indication
of impairment in value, which in the view of management, would be other
than temporary. Impairments would be recognized in operating results if a
permanent diminution in value is deemed to have occurred.
Contractholder Funds
Contractholder funds represent receipts from the issuance of universal
life, pension investment and certain deferred annuity contracts.
Contractholder Fund balances are increased by such receipts and credited
interest and reduced by withdrawals, mortality charges and administrative
expenses charged to the contractholders. Interest rates credited to
contractholder funds range from 3.5% to 8.6%.
16
<PAGE> 56
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Future Policy Benefits
Benefit reserves represent liabilities for future insurance policy
benefits. Benefit reserves for life insurance and annuities have been
computed based upon mortality, morbidity, persistency and interest
assumptions applicable to these coverages, which range from 2.5% to
10.0%, including adverse deviation. These assumptions consider Company
experience and industry standards. The assumptions vary by plan, age at
issue, year of issue and duration. Appropriate recognition has been given
to experience rating and reinsurance.
Permitted Statutory Accounting Practices
The Company, whose insurance subsidiaries are domiciled principally in
Connecticut and Massachusetts, prepares statutory financial statements in
accordance with the accounting practices prescribed or permitted by the
insurance departments of those states. Prescribed statutory accounting
practices include certain publications of the National Association of
Insurance Commissioners as well as state laws, regulations, and general
administrative rules. Permitted statutory accounting practices encompass
all accounting practices not so prescribed. The impact of any permitted
accounting practices on statutory surplus of the Company is not material.
Premiums
Premiums are recognized as revenues when due. Reserves are established
for the portion of premiums that will be earned in future periods and for
deferred profits on limited-payment policies that are being recognized in
income over the policy term.
Other Revenues
Other revenues include surrender, mortality and administrative charges
and fees as earned on investment, universal life and other insurance
contracts. Other revenues also include gains and losses on dispositions
of assets and operations other than realized investment gains and losses
and revenues of non-insurance subsidiaries.
Interest Credited to Contractholders
Interest credited to contractholders represents amounts earned by
universal life, pension investment and certain deferred annuity contracts
in accordance with contract provisions.
17
<PAGE> 57
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Federal Income Taxes
The provision for federal income taxes is comprised of two components,
current income taxes and deferred income taxes. Deferred federal income
taxes arise from changes during the year in cumulative temporary
differences between the tax basis and book basis of assets and
liabilities. The deferred federal income tax asset is recognized to the
extent that future realization of the tax benefit is more likely than
not, with a valuation allowance for the portion that is not likely to be
recognized.
Future Application of Accounting Standards
In June 1996, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 125 (FAS 125),
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities". FAS 125 provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities. These standards are based on consistent
application of a financial-components approach that focuses on control.
Under that approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the
liabilities it has incurred, derecognizes financial assets when control
has been surrendered and derecognizes liabilities when extinguished. FAS
125 provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured
borrowings. The requirements of FAS 125 are effective for transfers and
servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996, and are to be applied prospectively.
However, in December 1996 the FASB issued FAS 127, "Deferral of the
Effective Date of Certain Provisions of FASB Statement No. 125," which
delays until January 1, 1998 the effective date for certain provisions.
The adoption of the provisions of this statement effective January 1,
1997 will not have a material impact on results of operations, financial
condition or liquidity and the Company is currently evaluating the impact
of the provisions whose effective date has been delayed until January 1,
1998.
3. CHANGES IN ACCOUNTING PRINCIPLES
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This
statement establishes accounting standards for the impairment of
long-lived assets and certain identifiable intangibles to be disposed.
This statement requires a write down to fair value when long-lived assets
to be held and used are impaired. The statement also requires that
long-lived assets to be disposed (e.g., real estate held for sale) be
carried at the lower of cost or fair value less cost to sell and does not
allow such assets to be depreciated. The adoption of this standard did
not have a material impact on the Company's results of operations,
financial condition, or liquidity.
Accounting for Stock-Based Compensation
The Company participates in a stock option plan sponsored by Travelers
Group that provides for the granting of stock options in Travelers Group
common stock to officers and key employees. The Company applies
Accounting Principles Board Opinion No. 25 (APB 25) and related
interpretations in accounting for stock options. Since stock options are
issued at fair market value on the date of award, no compensation cost
has been recognized for these awards. In October 1995, the Financial
Accounting Standards Board issued
18
<PAGE> 58
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
3. CHANGES IN ACCOUNTING PRINCIPLES, Continued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (FAS 123). This statement provides an
alternative to APB 25 whereby fair values may be ascribed to options
using a valuation model and amortized to compensation cost over the
vesting period of the options. Had the Company applied FAS 123 in
accounting for stock options, net income would have been reduced by $2.8
million and $1.3 million in 1996 and 1995, respectively.
Accounting by Creditors for Impairment of a Loan
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of
a Loan," and Statement of Financial Accounting Standards No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosures," which describe how impaired loans should be measured
when determining the amount of a loan loss accrual. These statements
amended existing guidance on the measurement of restructured loans in a
troubled debt restructuring involving a modification of terms. Their
adoption did not have a material impact on the Company's results of
operations, financial condition, or liquidity.
4. DISPOSITIONS AND DISCONTINUED OPERATIONS
In December 1994, the Company and its affiliates sold their group dental
insurance business to MetLife for $52 million and recognized a gain of $9
million net of taxes. On January 3, 1995, the Company and its affiliates
completed the sale of their group life and related non-medical group
insurance businesses to MetLife for $350 million and recognized in the
first quarter of 1995 a gain of $20 million net of taxes. In connection
with the sale, the Company ceded 100% of its risks in the group life and
related businesses to MetLife on an indemnity reinsurance basis,
effective January 1, 1995. In connection with the reinsurance
transaction, the Company transferred assets with a fair market value of
approximately $1.5 billion to MetLife, equal to the statutory reserves
and other liabilities transferred.
On January 3, 1995, the Company and MetLife and certain of their
affiliates, formed the MetraHealth joint venture by contributing their
group medical businesses to MetraHealth, in exchange for shares of common
stock of MetraHealth. No gain was recognized as a result of this
transaction. Upon formation of the joint venture, the Company owned 42%
of the outstanding capital stock of MetraHealth, TIGI owned 8% and the
other 50% was owned by MetLife and its affiliates. In March 1995,
MetraHealth acquired HealthSpring, Inc. for common stock of MetraHealth
resulting in a reduction in the participation of the Company and TIGI,
and MetLife in the MetraHealth venture to 48.25% each. As the medical
insurance business of the Company came due for renewal, the risks were
transferred to MetraHealth and the related operating results for this
medical insurance business were reported by the Company in 1995 as part
of discontinued operations.
On October 2, 1995, the Company and its affiliates completed the sale of
their ownership in MetraHealth to United HealthCare Corporation and
through that date had accounted for its interest in MetraHealth on the
equity method. Gross proceeds to the Company in 1995 were $708 million in
cash recognizing a gain of $111 million after-tax. During 1996 the
Company received a contingency payment based on MetraHealth's 1995
results. In conjunction with this payment, certain reserves associated
with the group medical business and exit costs related to the
discontinued operations were reevaluated resulting in a final after-tax
gain of $26 million.
19
<PAGE> 59
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
4. DISPOSITIONS AND DISCONTINUED OPERATIONS, Continued
All of the businesses sold to MetLife or contributed to MetraHealth were
included in the Company's MCEBO segment in 1994. The Company's
discontinued operations in 1996 and 1995 reflect the results of the
medical insurance business not transferred, the equity interest in the
earnings of MetraHealth through October 2, 1995 (date of sale) and the
gains from sales of these businesses. Revenues from discontinued
operations for the years ended December 31, 1996, 1995 and 1994 amounted
to $85.6 million, $1.2 billion and $3.3 billion, respectively. The assets
and liabilities of the discontinued operations have not been segregated
in the consolidated balance sheet as of December 31, 1996 and 1995. The
assets and liabilities of the discontinued operations consist primarily
of investments and insurance-related assets and liabilities. At December
31, 1996, these assets and liabilities each amounted to $180 million. At
December 31, 1995, these assets and liabilities each amounted to $1.8
billion.
In September 1995, Travelers Group made a pro rata distribution to its
stockholders of shares of Class A Common Stock of Transport Holdings
Inc., which at the time was a wholly owned subsidiary of Travelers Group
and was the indirect owner of the business of Transport Life. Immediately
prior to this distribution, the Company distributed Transport, an
indirect, wholly owned subsidiary of the Company, to TIGI, as a return of
capital, resulting in a reduction in additional paid-in capital of $334
million. The results of Transport through September 1995 are included in
income from continuing operations.
5. COMMERCIAL PAPER AND LINES OF CREDIT
The Company issues commercial paper directly to investors and had $50
million outstanding at December 31, 1996. The Company maintains unused
credit availability under bank lines of credit at least equal to the
amount of the outstanding commercial paper. Interest expense related to
the commercial paper was not significant in 1996.
Travelers Group, Commercial Credit Company (CCC) (an indirect wholly
owned subsidiary of Travelers Group) and the Company have an agreement
with a syndicate of banks to provide $1.0 billion of revolving credit, to
be allocated to any of Travelers Group, CCC or the Company. The Company's
participation in this agreement is limited to $250 million. The revolving
credit facility consists of a five-year revolving credit facility which
expires in 2001. At December 31, 1996, $100 million was allocated to the
Company. Under this facility the Company is required to maintain certain
minimum equity and risk-based capital levels. At December 31, 1996, the
Company was in compliance with these provisions. There were no amounts
outstanding under this agreement at December 31, 1996 and 1995.
20
<PAGE> 60
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
6. REINSURANCE
The Company participates in reinsurance in order to limit losses,
minimize exposure to large risks, provide additional capacity for future
growth and to effect business-sharing arrangements. Reinsurance is
accomplished through various plans of reinsurance, primarily yearly
renewable term coinsurance and modified coinsurance. The Company remains
primarily liable as the direct insurer on all risks reinsured. Since June
1994, the Company is reinsuring its life insurance risks via first dollar
quota share treaties on an 80%/20% basis. Maximum retention of $1.5
million is generally reached on policies in excess of $7.5 million. For
other plans of insurance it is the policy of the Company to obtain
reinsurance for amounts above certain retention limits on individual life
policies which vary with age and underwriting classification. Generally,
the maximum retention on an ordinary life risk is $1.5 million.
The Company writes workers' compensation business through its Accident
Department. This business is ceded 100% to an affiliate, Travelers
Property Casualty Corp. (TAP).
A summary of reinsurance financial data reflected within the consolidated
statement of operations and retained earnings is presented below (in
millions):
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------
1996 1995 1994
- - -------------------------------------------------------------------------------
<S> <C> <C> <C>
Written Premiums:
Direct $ 1,982 $ 2,166 $ 2,153
Assumed from:
Non-affiliated companies 5 -- --
Ceded to:
Affiliated companies (284) (374) (358)
Non-affiliated companies (309) (302) (306)
- - -------------------------------------------------------------------------------
Total net written premiums $ 1,394 $ 1,490 $ 1,489
- - -------------------------------------------------------------------------------
Earned Premiums:
Direct $ 1,897 $ 2,067 $ 2,301
Assumed from:
Non-affiliated companies 5 -- --
Ceded to:
Affiliated companies (219) (283) (384)
Non-affiliated companies (315) (298) (305)
- - -------------------------------------------------------------------------------
Total net earned premiums $ 1,368 $ 1,486 $ 1,612
- - -------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 61
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
6. REINSURANCE, Continued
Reinsurance recoverables at December 31, include amounts recoverable on
unpaid and paid losses and were as follows (in millions):
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
1996 1995
- - --------------------------------------------------------------------------------
<S> <C> <C>
Reinsurance Recoverables:
Life and accident and health business:
Non-affiliated companies $1,497 $1,744
Property-casualty business:
Affiliated companies 2,361 2,363
- - --------------------------------------------------------------------------------
Total Reinsurance Recoverables $3,858 $4,107
================================================================================
</TABLE>
Total reinsurance recoverables at December 31, 1996 and 1995 include $720
million and $929 million, respectively, from MetLife in connection with
the sale of the Company's group life and related businesses. See Note 4.
7. SHAREHOLDER'S EQUITY
Additional Paid-In Capital
The increase of $36 million in additional paid-in capital during 1996 is
due primarily to contributions of non-insurance subsidiaries from TIGI.
Unrealized Investment Gains (Losses)
An analysis of the change in unrealized gains and losses on investments
is shown in Note 15.
Shareholder's Equity and Dividend Availability
The Company's statutory net income, which includes all insurance
subsidiaries, was $656 million, $235 million and $100 million for the
years ended December 31, 1996, 1995 and 1994, respectively.
The Company's statutory capital and surplus was $3,442 million and
$3,197 million at December 31, 1996 and 1995, respectively.
The Company is currently subject to various regulatory restrictions that
limit the maximum amount of dividends available to be paid to its parent
without prior approval of insurance regulatory authorities. Statutory
surplus of $507 million is available in 1997 for dividend payments by the
Company without prior approval of the Connecticut Insurance Department.
In addition, under a revolving credit facility, the Company is required
to maintain certain minimum equity and risk based capital levels. The
Company is in compliance with these covenants at December 31, 1996.
22
<PAGE> 62
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL
INSTRUMENTS
Derivative Financial Instruments
The Company uses derivative financial instruments, including financial
futures, equity options, 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 calculated to be due the Company on such
contracts. Financial futures contracts and purchased listed option
contracts have little credit risk since organized exchanges are the
counterparties.
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 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, the Company enters long or short
positions in financial futures contracts which offset asset price changes
resulting from changes in market interest rates until an investment is
purchased or a product is sold.
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, 1996 and 1995, the Company held financial futures
contracts with notional amounts of $169 million and $68 million,
respectively, and a deferred gain of $1 million and a deferred loss of
$.2 million, respectively. Total gains from financial futures of $2
million were deferred at December 31, 1996. These deferred gains, which
relate to anticipated investment purchases and investment product sales
expected to occur by the end of the second quarter of 1997, are reported
as other liabilities. At December 31, 1996 and 1995, the Company's
futures contracts had no fair value because these contracts are marked to
market and settled in cash daily.
The off-balance sheet risks of equity options, forward contracts, and
interest rate swaps were not significant at December 31, 1996 and 1995.
23
<PAGE> 63
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL
INSTRUMENTS, Continued
The Company purchased a 5-year interest rate cap, with a notional amount
of $200 million, from Travelers Group in 1995 to hedge against losses
that could result from increasing interest rates. This instrument, which
does not have off-balance sheet risk, gives the Company the right to
receive payments if interest rates exceed specific levels at specific
dates. The premium of $2 million paid for this instrument is being
amortized over its life. The interest rate cap asset is reported at fair
value which is $1 million at December 31, 1996.
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, 1996 and 1995.
Fair Value of Certain Financial Instruments
The Company uses various financial instruments in the normal course of
its business. Fair values of financial instruments which are considered
insurance contracts are not required to be disclosed and are not included
in the amounts discussed.
At December 31, 1996 and 1995, investments in fixed maturities had a
carrying value and a fair value of $18.8 billion. See Note 15.
At December 31, 1996, mortgage loans had a carrying value of $2.9
billion, which approximated fair value, compared with a carrying value of
$3.6 billion, which approximated fair value at December 31, 1995. In
estimating fair value, the Company used interest rates reflecting the
higher returns required in the current real estate financing market.
The carrying values of $154 million and $647 million of financial
instruments classified as other assets approximated their fair values at
December 31, 1996 and 1995, respectively. The carrying values of $825
million and $1.3 billion of financial instruments classified as other
liabilities also approximated their fair values at December 31, 1996 and
1995, respectively. Fair value is determined using various methods
including discounted cash flows, as appropriate for the various financial
instruments.
At December 31, 1996, contractholder funds with defined maturities had a
carrying value of $1.7 billion and a fair value of $1.7 billion, compared
with a carrying value of $2.4 billion and a fair value of $2.5 billion at
December 31, 1995. 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
$9.1 billion and a fair value of $8.8 billion at December 31, 1996,
compared with a carrying value of $9.3 billion and a fair value of $9.0
billion at December 31, 1995. These contracts generally are valued at
surrender value.
The assets of separate accounts providing a guaranteed return had a
carrying value and a fair value of $1.1 billion and $1.1 billion,
respectively, at December 31, 1996, compared with a carrying value and a
fair value of $1.5 billion and $1.6 billion, respectively, at December
31, 1995. The liabilities of separate accounts providing a guaranteed
return had a carrying value and a fair value of $1.0 billion and $.9
billion, respectively, at December 31, 1996, compared with a carrying
value and a fair value of $1.5 billion and $1.4 billion, respectively, at
December 31, 1995.
24
<PAGE> 64
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL
INSTRUMENTS, Continued
The carrying values of cash, short-term securities, investment income
accrued and commercial paper approximated their fair values.
The carrying value of policy loans, which have no defined maturities, is
considered to be fair value.
9. COMMITMENTS AND CONTINGENCIES
Financial Instruments with Off-Balance Sheet Risk
See Note 8 for a discussion of financial instruments with off-balance
sheet risk.
Litigation
The Company is a defendant or codefendant in various litigation matters
in the normal course of business. Although there can be no assurances, as
of December 31, 1996, the Company believes, based on information
currently available, that the ultimate resolution of these legal
proceedings would not be likely to have a material adverse effect on its
results of operations, financial condition or liquidity.
10. BENEFIT PLANS
Pension Plans
The Company participates in a qualified, noncontributory defined benefit
pension plan sponsored by Travelers Group covering the majority of
Travelers Group's U.S. employees. Benefits for the qualified plan are
based on an account balance formula. Under this formula, each employee's
accrued benefit can be expressed as an account that is credited with
amounts based upon the employee's pay, length of service and a specified
interest rate, all subject to a minimum benefit level. This plan is
funded in accordance with the Employee Retirement Income Security Act of
1974 and the Internal Revenue Code.
The Company also participates in a nonqualified, noncontributory defined
benefit pension plan sponsored by an affiliate covering the majority of
the Company's U.S. employees. Contributions are based on benefits paid.
The Company's share of net pension expense was not significant for 1996,
1995 and 1994.
Through plans sponsored by TIGI, the Company also provides defined
contribution pension plans for certain agents. Company contributions are
primarily a function of production. The expense for these plans was not
significant in 1996, 1995 and 1994.
25
<PAGE> 65
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
10. BENEFIT PLANS, Continued
Other Benefit Plans
In addition to pension benefits, the Company provides certain health care
and life insurance benefits for retired employees through a plan
sponsored by TIGI. Retirees may elect certain prepaid health care benefit
plans. Life insurance benefits are generally set at a fixed amount.
Beginning January 1, 1996, these plans were amended to restrict benefit
eligibility to retirees and certain retiree-eligible employees. The cost
recognized by the Company for these benefits represents its allocated
share of the total costs of the plan, net of retiree contributions. The
Company's share of the total cost of the plan for 1996, 1995 and 1994 was
not significant.
401(K) Savings Plan
Under the savings, investment and stock ownership plan available to
substantially all employees of TIGI, the Company matches a portion of
employee contributions. Effective April 1, 1993, the match decreased from
100% to 50% of an employee's first 5% contribution and a variable match
based on the profitability of TIGI and its subsidiaries was added through
December 31, 1995. Effective January 1, 1996, the match remained at 50%
of an employee's first 5% contribution with a maximum of $1,000.
Effective January 1, 1997, employee contributions will be matched with
Travelers Group stock options. The Company's matching obligation was not
significant in 1996, 1995 and 1994.
11. RELATED PARTY TRANSACTIONS
The principal banking functions, including payment of salaries and
expenses, for certain subsidiaries and affiliates of TIGI are handled by
the Company. Settlements for these payments between the Company and its
affiliates are made regularly. The Company provides various employee
benefits coverages to employees of 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 shared with affiliated companies. Charges
for these services are shared by the companies on cost allocation methods
based generally on estimated usage by department.
An affiliate 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, 1996 and 1995, the pool
totaled approximately $2.9 billion and $2.2 billion, respectively. The
Company's share of the pool amounted to $196 million and $1.4 billion at
December 31, 1996 and 1995, respectively, and is included in short-term
securities in the consolidated balance sheet.
The Company sells structured settlement annuities to TAP in connection
with the settlement of certain policyholder obligations. Such deposits
were $40 million, $38 million and $39 million for 1996, 1995 and 1994,
respectively.
26
<PAGE> 66
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
11. RELATED PARTY TRANSACTIONS, Continued
The Company markets deferred annuity products and life and health
insurance through its affiliate, Smith Barney Inc. Premiums and deposits
related to these products were $820 million, $583 million and $161
million in 1996, 1995 and 1994, respectively.
At December 31, 1996 and 1995, the Company had an investment of $22
million and $24 million, respectively, in bonds of its affiliate, CCC.
This is included in fixed maturities in the consolidated balance sheet.
The Company had an investment of $648 million and $445 million in common
stock of Travelers Group at December 31, 1996 and 1995, respectively.
This investment is carried at fair value.
12. LEASES
Most leasing functions for TIGI and its subsidiaries are administered by
TAP. In 1996, TAP assumed the obligations for several leases. Rent
expense related to all leases are shared by the companies on a cost
allocation method based generally on estimated usage by department. Rent
expense was $24 million, $22 million and $23 million in 1996, 1995 and
1994, respectively.
<TABLE>
<CAPTION>
-----------------------------------------------------------
Minimum operating
(in millions) rental payments
-----------------------------------------------------------
<S> <C>
Year ending December 31,
1997 $ 57
1998 49
1999 41
2000 39
2001 42
Thereafter 362
-----------------------------------------------------------
$590
-----------------------------------------------------------
</TABLE>
The Company is reimbursed by affiliates of TIGI for utilization of space
and equipment. Future sublease rental income of approximately $92 million
will partially offset these commitments. Minimum future capital lease
payments are not significant.
27
<PAGE> 67
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
13. FEDERAL INCOME TAXES
<TABLE>
<CAPTION>
(in millions) 1996 1995 1994
-------------------------------------------------------------------------------------
Effective tax rate
<S> <C> <C> <C>
Income before federal income taxes $975 $837 $597
Statutory tax rate 35% 35% 35%
-------------------------------------------------------------------------------------
Expected federal income taxes $341 $293 $209
Tax effect of:
Nontaxable investment income (3) (4) (4)
Other, net 4 1 6
-------------------------------------------------------------------------------------
Federal income taxes (benefit) $342 $290 $211
-------------------------------------------------------------------------------------
Effective tax rate 35% 35% 35%
-------------------------------------------------------------------------------------
Composition of federal income taxes
Current:
United States $263 $220 $(108)
Foreign 21 13 12
-------------------------------------------------------------------------------------
Total 284 233 (96)
-------------------------------------------------------------------------------------
Deferred:
United States 57 52 302
Foreign 1 5 5
-------------------------------------------------------------------------------------
Total 58 57 307
-------------------------------------------------------------------------------------
Federal income taxes $342 $290 $211
-------------------------------------------------------------------------------------
</TABLE>
Tax benefits allocated directly to shareholder's equity for the years
ended December 31, 1996 and 1995 were $8 million and $7 million,
respectively.
28
<PAGE> 68
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
13. FEDERAL INCOME TAXES, Continued
The net deferred tax liabilities at December 31, 1996 and 1995 were
comprised of the tax effects of temporary differences related to the
following assets and liabilities:
<TABLE>
<CAPTION>
(in millions) 1996 1995
---------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Benefit, reinsurance and other reserves $ 510 $ 447
Contractholder funds 32 54
Operating lease reserves 71 56
Other employee benefits 104 74
Other 121 208
---------------------------------------------------------------------------------------
Total 838 839
---------------------------------------------------------------------------------------
Deferred tax liabilities:
Deferred acquisition costs and value of insurance in force 571 538
Investments, Net 131 152
Other 93 81
---------------------------------------------------------------------------------------
Total 795 771
---------------------------------------------------------------------------------------
Net deferred tax asset before valuation allowance 43 68
Valuation allowance for deferred tax assets (100) (100)
---------------------------------------------------------------------------------------
Net deferred tax (liability) asset after valuation allowance $ (57) $ (32)
---------------------------------------------------------------------------------------
</TABLE>
Starting in 1994 and continuing for at least five years, the Company and
its life insurance subsidiaries will file a consolidated federal income
tax return. Federal income taxes are allocated to each member of the
consolidated return on a separate return basis adjusted for credits and
other amounts required by the consolidation process. Any resulting
liability will be paid currently to the Company. Any credits for losses
will be paid by the Company to the extent that such credits are for tax
benefits that have been utilized in the consolidated federal income tax
return.
29
<PAGE> 69
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
13. FEDERAL INCOME TAXES, Continued
A net deferred tax asset valuation allowance of $100 million has been
established to reduce the deferred tax asset on investment losses to the
amount that, based upon available evidence, is more likely than not to be
realized. Reversal of the valuation allowance is contingent upon the
recognition of future capital gains in the Company's consolidated life
insurance company federal income tax return through 1998, and the
consolidated federal income tax return of Travelers Group commencing in
1999, or a change in circumstances which causes the recognition of the
benefits to become more likely than not. There was no change in the
valuation allowance during 1996. The initial recognition of any benefit
produced by the reversal of the valuation allowance will be recognized by
reducing goodwill.
At December 31, 1996, the Company has no ordinary or capital loss
carryforwards.
The policyholders surplus account, which arose under prior tax law, is
generally that portion of the gain from operations that has not been
subjected to tax, plus certain deductions. The balance of this account,
which, under provisions of the Tax Reform Act of 1984, will not increase
after 1983, is estimated to be $932 million. This amount has not been
subjected to current income taxes but, under certain conditions that
management considers to be remote, may become subject to income taxes in
future years. At current rates, the maximum amount of such tax (for which
no provision has been made in the financial statements) would be
approximately $326 million.
14. NET INVESTMENT INCOME
<TABLE>
<CAPTION>
(For the year ended December 31, in millions) 1996 1995 1994
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross investment income
Fixed maturities $1,328 $1,191 $1,082
Mortgage loans 331 419 511
Policy loans 156 163 110
Real estate held for sale 94 111 174
Other 77 97 52
-------------------------------------------------------------------------------------------
1,986 1,981 1,929
-------------------------------------------------------------------------------------------
Investment expenses 99 157 227
-------------------------------------------------------------------------------------------
Net investment income $1,887 $1,824 $1,702
-------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE> 70
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES)
Realized investment gains (losses) for the periods were as follows:
<TABLE>
<CAPTION>
(For the year ended December 31, in millions) 1996 1995 1994
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Realized
Fixed maturities $(63) $(43) $(3)
Equity securities 47 36 18
Mortgage loans 49 47 -
Real estate held for sale 33 18 -
Other (1) 48 (2)
-----------------------------------------------------------------------------------------
Realized investment gains $ 65 $106 $13
----------------------------------------------------------------------------------------
</TABLE>
Changes in net unrealized investment gains (losses) that are included as
a separate component of shareholder's equity were as follows:
<TABLE>
<CAPTION>
(For the year ended December 31, in millions) 1996 1995 1994
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized
Fixed maturities $(323) $1,974 $(1,319)
Equity securities (35) 46 (25)
Other 220 200 165
-------------------------------------------------------------------------------------------
(138) 2,220 (1,179)
Related taxes (43) 778 (412)
-------------------------------------------------------------------------------------------
Change in unrealized investment gains (losses) (95) 1,442 (767)
Balance beginning of year 682 (760) 7
-------------------------------------------------------------------------------------------
Balance end of year $ 587 $ 682 $ (760)
--------------------------------------------------------------------------------------------
</TABLE>
The initial adoption of FAS 115 resulted in an increase of approximately
$232 million (net of taxes) to net unrealized gains in 1994.
Fixed Maturities
Proceeds from sales of fixed maturities classified as available for sale
were $9.1 billion and $6.8 billion in 1996 and 1995, respectively. Gross
gains of $107 million and $80 million and gross losses of $175 million
and $124 million in 1996 and 1995, respectively, were realized on those
sales.
31
<PAGE> 71
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
The amortized cost and fair value of investments in fixed maturities were
as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
December 31, 1996
---------------------------------------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
(in millions) cost gains losses value
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
Mortgage-backed securities -
CMOs and pass through
securities $ 3,755 $ 69 $23 $ 3,801
U.S. Treasury securities
and obligations of U.S.
Government and
government agencies
and authorities 1,188 50 4 1,234
Obligations of states,
municipalities and
political subdivisions 76 1 1 76
Debt securities issued by
foreign governments 565 24 3 586
All other corporate bonds 12,925 259 41 13,143
Redeemable preferred stock 6 - - 6
---------------------------------------------------------------------------------------------
Total $18,515 $403 $72 $18,846
---------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE> 72
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
December 31, 1995
-----------------------------------------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
(in millions) cost gains losses value
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
Mortgage-backed securities -
CMOs and pass through
securities $ 4,174 $103 $15 $ 4,262
U.S. Treasury securities
and obligations of U.S.
Government and
government agencies
and authorities 1,327 116 - 1,443
Obligations of states,
municipalities and
political subdivisions 91 2 - 93
Debt securities issued by
foreign governments 311 17 - 328
All other corporate bonds 12,283 442 10 12,715
Redeemable preferred stock 1 - - 1
-----------------------------------------------------------------------------------------------
Total $18,187 $680 $25 $18,842
-----------------------------------------------------------------------------------------------
</TABLE>
The amortized cost and fair value of fixed maturities at December 31,
1996, by contractual maturity, are shown below. Actual maturities will
differ from contractual maturities because borrowers may have the right
to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
Maturity Amortized Fair
(in millions) cost value
-------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 971 $ 975
Due after 1 year through 5 years 4,970 5,043
Due after 5 years through 10 years 4,871 4,946
Due after 10 years 3,949 4,083
-------------------------------------------------------------------------------------------
14,761 15,047
Mortgage-backed securities 3,754 3,799
-------------------------------------------------------------------------------------------
Total $18,515 $18,846
-------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE> 73
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
The Company makes 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, 1996 and 1995, the Company held CMOs, classified as
available for sale with a fair value of $1.9 billion and $2.3 billion,
respectively. Approximately 88% and 89% of the Company's CMO holdings are
fully collateralized by GNMA, FNMA or FHLMC securities at December 31,
1996 and 1995. In addition, the Company held $843.5 million and $917
million of GNMA, FNMA or FHLMC mortgage-backed pass-through securities at
December 31, 1996 and 1995, respectively. Virtually all of these
securities are rated AAA. The Company also held $1.4 billion and $1.3
billion of securities that are backed primarily by credit card or car
loan receivables at December 31, 1996 and 1995, respectively.
Equity Securities
The cost and fair values of investments in equity securities were as
follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
December 31, 1996
---------------------------------------------------------------------------------------
Gross Gross
unrealized unrealized Fair
(in millions) Cost gains losses value
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stocks $211 $38 $30 $219
Nonredeemable preferred stocks 114 2 3 113
---------------------------------------------------------------------------------------
Total $325 $40 $33 $332
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
December 31, 1995
---------------------------------------------------------------------------------------
Gross Gross
unrealized unrealized Fair
(in millions) Cost gains losses value
---------------------------------------------------------------------------------------
Common stocks $138 $48 $5 $181
Nonredeemable preferred stocks 44 2 3 43
--------------------------------------------------------------------------------------
Total $182 $50 $8 $224
--------------------------------------------------------------------------------------
</TABLE>
34
<PAGE> 74
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
Proceeds from sales of equity securities were $479 million and $379
million in 1996 and 1995, respectively. Gross gains of $64 million and
$27 million and gross losses of $11 million and $2 million in 1996 and
1995, respectively, were realized on those sales.
Real estate held for sale and mortgage loans
Underperforming assets include delinquent mortgage loans, loans in the
process of foreclosure, foreclosed loans and loans modified at interest
rates below market.
At December 31, 1996 and 1995, the Company's real estate held for sale
and mortgage loan portfolios consisted of the following (in millions):
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
1996 1995
----------------------------------------------------------------------------
<S> <C> <C>
Current mortgage loans $2,832 $3,385
Underperforming mortgage loans 51 241
----------------------------------------------------------------------------
Total 2,883 3,626
----------------------------------------------------------------------------
Real estate held for sale 297 293
----------------------------------------------------------------------------
Total $3,180 $3,919
----------------------------------------------------------------------------
</TABLE>
Aggregate annual maturities on mortgage loans at December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
----------------------------------------------------
(in millions)
----------------------------------------------------
<S> <C>
Past maturity $ 78
1997 299
1998 349
1999 293
2000 364
2001 224
Thereafter 1,276
----------------------------------------------------
Total $2,883
----------------------------------------------------
</TABLE>
35
<PAGE> 75
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
Concentrations
At December 31, 1996 and 1995, the Company had no concentration of credit
risk in a single investee exceeding 10% of consolidated shareholder's
equity.
The Company participates in a short-term investment pool maintained by an
affiliate. See Note 11.
Included in fixed maturities are below investment grade assets totaling
$1.1 billion and $1.0 billion at December 31, 1996 and 1995,
respectively. The Company defines its below investment grade assets as
those securities rated "Ba1" or below by external rating agencies, or the
equivalent by internal analysts when a public rating does not exist. Such
assets include publicly traded below investment grade bonds and certain
other privately issued bonds that are classified as below investment
grade loans.
The Company also had concentrations of investments, primarily
fixed maturities, in the following industries:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
(in millions) 1996 1995
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Banking $1,959 $1,226
Finance 1,823 1,491
Electric utilities 1,093 1,023
Oil and gas 652 861
---------------------------------------------------------------------------------------------------
</TABLE>
Below investment grade assets included in the totals above, were as
follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
(in millions) 1996 1995
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Banking $ 1 $ 8
Finance 65 56
Electric utilities 49 26
Oil and gas 58 66
---------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1996 and 1995, concentrations of mortgage loans were for
properties located in highly populated areas in the states listed below:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
(in millions) 1996 1995
---------------------------------------------------------------------------------------------------
<S> <C> <C>
California $ 643 $ 736
New York 297 400
---------------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE> 76
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
Other mortgage loan investments are relatively evenly dispersed
throughout the United States, with no holdings in any state exceeding
$258 million and $332 million at December 31, 1996 and 1995,
respectively.
Concentrations of mortgage loans by property type at December 31, 1996
and 1995 were as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
(in millions) 1996 1995
----------------------------------------------------------------------------------------------
<S> <C> <C>
Office $1,195 $1,513
Agricultural 677 556
Retail 307 426
Apartment 284 580
----------------------------------------------------------------------------------------------
</TABLE>
The Company monitors creditworthiness of counterparties to all financial
instruments by using controls that include credit approvals, limits and
other monitoring procedures. Collateral for fixed maturities often
includes pledges of assets, including stock and other assets, guarantees
and letters of credit. The Company's underwriting standards with respect
to new mortgage loans generally require loan to value ratios of 75% or
less at the time of mortgage origination.
Non-Income Producing Investments
Investments included in the consolidated balance sheets that were
non-income producing for the preceding 12 months were as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
(in millions) 1996 1995
----------------------------------------------------------------------------------------
<S> <C> <C>
Mortgage loans $ 7 $18
Real estate 37 65
Fixed maturities - 4
----------------------------------------------------------------------------------------
Total $44 $87
----------------------------------------------------------------------------------------
</TABLE>
Restructured Investments
The Company had mortgage loans and debt securities which were
restructured at below market terms totaling approximately $18 million and
$67 million at December 31, 1996 and 1995, respectively. The new terms
typically defer a portion of contract interest payments to varying future
periods. The accrual of interest is suspended on all restructured assets,
and interest income is reported only as payment is received. Gross
interest income on restructured assets that would have been recorded in
accordance with the original terms of such loans amounted to $5 million
in 1996 and $16 million in 1995. Interest on these assets, included in
net investment income, aggregated $2 million and $8 million in 1996 and
1995, respectively.
37
<PAGE> 77
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
16. DEPOSIT FUNDS AND RESERVES
At December 31, 1996, the Company had $21.9 billion of life and annuity
deposit funds and reserves. Of that total, $11.6 billion is not subject
to discretionary withdrawal based on contract terms. The remaining $10.3
billion is for life and annuity products that are subject to
discretionary withdrawal by the contractholder. Included in the amount
that is subject to discretionary withdrawal is $1.7 billion of
liabilities that are surrenderable with market value adjustments. Also
included are an additional $5.4 billion of the life insurance and
individual annuity liabilities which are subject to discretionary
withdrawals, and have an average surrender charge of 5.0%. In the payout
phase, these funds are credited at significantly reduced interest rates.
The remaining $3.2 billion of liabilities are surrenderable without
charge. More than 11% of these relate to individual life products. These
risks would have to be underwritten again if transferred to another
carrier, which is considered a significant deterrent against withdrawal
by long-term policyholders. Insurance liabilities that are surrendered or
withdrawn are reduced by outstanding policy loans and related accrued
interest prior to payout.
17. RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING
ACTIVITIES
The following table reconciles net income to net cash provided by
operating activities:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
(For the year ended December 31, in millions) 1996 1995 1994
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income from continuing operations $ 633 $ 547 $ 386
Adjustments to reconcile net income to
net cash provided by operating activities
Realized gains (65) (106) (13)
Deferred federal income taxes 58 57 307
Amortization of deferred policy acquisition
costs and value of insurance in force 281 290 281
Additions to deferred policy acquisition costs (350) (454) (435)
Investment income accrued 2 (9) (47)
Premium balances receivable (6) (8) 5
Insurance reserves and accrued expenses (1) 291 212
Other 255 62 (212)
----------------------------------------------------------------------------------------
Net cash provided by
operating activities 807 670 484
Net cash provided by (used in)
discontinued operations (350) (596) 233
----------------------------------------------------------------------------------------
Net cash provided by
operations $ 457 $ 74 $ 717
----------------------------------------------------------------------------------------
</TABLE>
38
<PAGE> 78
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
18. NONCASH INVESTING AND FINANCING ACTIVITIES
Significant noncash investing and financing activities include: a) the
1995 transfer of assets with a fair market value of approximately $1.5
billion and statutory reserves and other liabilities of approximately
$1.5 billion to MetLife (see Note 4); b) the 1995 return of capital of
Transport to TIGI (see Note 4); c) the acquisition of real estate through
foreclosures of mortgage loans amounting to $117 million, $97 million and
$229 million in 1996, 1995 and 1994, respectively; d) the acceptance of
purchase money mortgages for sales of real estate aggregating $23
million, $27 million and $96 million in 1996, 1995 and 1994,
respectively; and e) the 1994 exchange of $23 million of the Company's
investment in Travelers Group common stock for $35 million of Travelers
Group nonredeemable preferred stock.
39
<PAGE> 79
STATEMENT OF ADDITIONAL INFORMATION
FUND ABD
Individual Variable Annuity Contract issued by
The Travelers Insurance Company
One Tower Square
Hartford, Connecticut 06183
L-12547S (5/97)
40
<PAGE> 80
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) The financial statements of the Registrant are not provided since
the Registrant had no assets as of the effective date of the Registration
Statement.
The consolidated financial statements of The Travelers Insurance Company and
Subsidiaries and the report of Independent Accountants, are contained in the
Statement of Additional Information. The consolidated financial statements of
The Travelers Insurance Company and Subsidiaries include:
Consolidated Statements of Income and Retained Earnings for the
years ended December 31, 1996, 1995 and 1994
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
(b) Exhibits
<S> <C>
1. Resolution of The Travelers Insurance Company Board of Directors authorizing the establishment of the
Registrant. (Incorporated herein by reference to Exhibit 1 to the Registration Statement on Form
N-4, filed December 22, 1995.)
2. Exempt.
3(a). Distribution and Management Agreement among the Registrant, The Travelers Insurance Company and Tower
Square Securities, Inc. (Incorporated herein by reference to Exhibit 3(a) to the Registration
Statement on Form N-4, filed December 22, 1995.)
3(b). Form of Selling Agreement.
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 Insurance Company, as amended on October 19, 1994. (Incorporated herein by
reference to Exhibit 3(a)(i) to Registration Statement on Form S-2, File No. 33-58677, filed via
Edgar on April 18, 1995.)
6(b). By-Laws of The Travelers Insurance Company, as amended on October 20, 1994. (Incorporated herein by
reference to Exhibit 3(b)(i) to the Registration Statement on Form S-2, File No. 33-58677, filed via
Edgar on April 18, 1995.)
7. None.
8. None.
9. Opinion of Counsel as to the legality of securities being registered.
</TABLE>
<PAGE> 81
<TABLE>
<S> <C>
10(a). Consent of KPMG Peat Marwick LLP, Independent Certified Public Accountants.
13. Schedule for computation of each performance quotation - Standardized and Non-Standardized.
15(a). Powers of Attorney authorizing Jay S. Fishman or Ernest J. Wright as signatory for Robert I. Lipp,
Michael A. Carpenter, 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, 1996.)
15(d). Powers 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.)
</TABLE>
<PAGE> 82
Item 25. Directors and Officers of the Depositor
<TABLE>
<S> <C>
Name and Principal Positions and Offices
Business Address with Depositor
Michael A. Carpenter* Director, Chairman of the Board
President and Chief Executive Officer
Jay S. Benet* Director and Senior Vice President
George C. Kokulis* Director and Senior Vice President
Robert I. Lipp* Director
Ian R. Stuart* Director, Senior Vice President,
Chief Financial Officer, Chief
Accounting Officer and Controller
Katherine M. Sullivan* Director and Senior Vice President
and General Counsel
Marc P. Weill** Director and Senior Vice President
Stuart Baritz** Senior Vice President
Jay S. Fishman* Senior Vice President
Elizabeth C. Georgakopoulos* Senior Vice President
Barry Jacobson* Senior Vice President
Russell H. Johnson* Senior Vice President
Warren H. May* Senior Vice President
Christine M. Modie* Senior Vice President
David A. Tyson* Senior Vice President
F. Denney Voss* Senior Vice President
Paula Burton* Vice President
Charles N. Vest* Vice President and Actuary
Donald R. Munson, Jr.* Second Vice President
Ernest J. Wright* Vice President and Secretary
Kathleen A. McGah* Assistant Secretary and Counsel
</TABLE>
Principal Business Address:
* The Travelers Insurance Company **Travelers Group Inc.
One Tower Square 388 Greenwich Street
Hartford, CT 06183 New York, N.Y. 10013
<PAGE> 83
Item 26. Persons Controlled by or Under Common Control with the Depositor
or Registrant
OWNERSHIP OF THE TRAVELERS INSURANCE COMPANY
<TABLE>
<CAPTION>
Company State of Organization Ownership Principal Business
- - ------- ---------------------- --------- ------------------
<S> <C> <C> <C>
Travelers Group Inc. Delaware Publicly Held ---------------
Associated Madison Companies Inc. Delaware 100.00 ----------------
PFS Services Inc. Georgia 100.00 ----------------
The Travelers Insurance Group, Inc. Connecticut 100.00 ----------------
The Travelers Insurance Company Connecticut 100.00 Insurance
</TABLE>
- - --------------------------------------------------------------------------------
PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
THE TRAVELERS INSURANCE COMPANY
<TABLE>
<CAPTION>
% of Voting
Securities
Owned Directly
State of or Indirectly by
Organization The Travelers Inc. Principal Business
------------ ----------------- ------------------
<S> <C> <C> <C>
AC Health Ventures, Inc. Delaware 100.00 Inactive
AMCO Biotech, Inc. Delaware 100.00 Inactive
Associated Madison Companies, Inc. Delaware 100.00 Holding company.
American National Life Insurance (T & C), Ltd. Turks and
Caicos Islands 100.00 Insurance
ERISA Corporation New York 100.00 Inactive
Mid-America Insurance Services, Inc. Georgia 100.00 Third party
administrator
National Marketing Corporation Pennsylvania 100.00 Inactive
PFS Services, Inc. Georgia 100.00 General partner and
holding company
The Travelers Insurance Group Inc. Connecticut 100.00 Holding company
Constitution Plaza, Inc. Connecticut 100.00 Real estate brokerage
</TABLE>
3/18/97
<PAGE> 84
<TABLE>
<CAPTION>
% of Voting
Securities
Owned Directly
State of or Indirectly by
Organization The Travelers Inc. Principal Business
------------ ----------------- ------------------
<C> <C> <C>
<S> <C> <C> <C>
KP Properties Corporation Massachusetts 100.00 Real estate
KPI 85, Inc. Massachusetts 100.00 Real estate
KRA Advisers Corporation Massachusetts 100.00 Real estate
KRP Corporation Massachusetts 100.00 Real estate
La Metropole S.A. Belgium 98.83 P-C insurance/
reinsurance
The Prospect Company Delaware 100.00 Investments
89th & York Avenue Corporation New York 100.00 Real estate
979 Third Avenue Corporation Delaware 100.00 Real estate
Meadow Lane, Inc. Georgia 100.00 Real estate
development
Panther Valley, Inc. New Jersey 100.00 Real estate
management
Prospect Management Services Company Delaware 100.00 Real estate
management
The Travelers Asset Funding Corporation Connecticut 100.00 Investment adviser
Travelers Capital Funding Corporation Connecticut 100.00 Furniture/equipment
The Travelers Insurance Company Connecticut 100.00 Insurance
The Plaza Corporation Connecticut 100.00 Holding company
The Copeland Companies New Jersey 100.00 Holding company
American Odyssey Funds Management, Inc. New Jersey 100.00 Investment advisor
American Odyssey Funds, Inc. Maryland 100.00 Investment management
Copeland Administrative Services, Inc. New Jersey 100.00 Administrative
services
Copeland Associates, Inc. Delaware 100.00 Fixed/variable
annuities
Copeland Associates Agency of
Ohio, Inc. Ohio 99.00 Fixed/variable
annuities
Copeland Associates of Alabama,
Inc. Alabama 100.00 Fixed/variable
annuities
Copeland Associates of Montana, Inc. Montana 100.00 Fixed/variable
annuities
Copeland Benefits Management Company New Jersey 51.00 Investment marketing
Copeland Equities, Inc. New Jersey 100.00 Fixed/variable
annuities
H.C. Copeland Associates, Inc.
of Massachusetts Massachusetts 100.00 Fixed annuities
Copeland Financial Services, Inc. New Jersey 100.00 Investment advisory
services.
Copeland Healthcare Services, Inc. New Jersey 100.00 Life insurance
marketing
H.C. Copeland and Associates, Inc. of
Texas Texas 100.00 Fixed/variable
annuities
Three Parkway Inc. - I Pennsylvania 100.00 Investment real
estate
</TABLE>
2
<PAGE> 85
<TABLE>
<CAPTION>
% of Voting
Securities
Owned Directly
State of or Indirectly by
Organization The Travelers Inc. Principal Business
------------ ----------------- ------------------
<S> <C> <C> <C>
Three Parkway Inc. - II Pennsylvania 100.00 Investment real
estate
Three Parkway Inc. - III Pennsylvania 100.00 Investment real
estate
Tower Square Securities, Inc. Connecticut 100.00 Broker dealer
Travelers Asset Management International
Corporation New York 100.00 Investment adviser
Travelers Distribution Company Delaware 100.00
Travelers Investment Adviser, Inc. Delaware 100.00 Investment Advisor
Travelers/Net Plus Agency of Ohio, Inc. Ohio 100.00 Insurance agency
Travelers/Net Plus Insurance Agency, Inc. Massachusetts 100.00 Insurance agency
Travelers/Net Plus, Inc. Connecticut 100.00
The Travelers Life and Annuity Company Connecticut 100.00 Life insurance
Travelers Insurance Holdings Inc. Georgia 100.00 Holding company
AC RE, Ltd. Bermuda 100.00 Reinsurance
American Financial Life Insurance Company Texas 100.00 Insurance
Primerica Life Insurance Company Massachusetts 100.00 Life insurance
National Benefit Life Insurance Company New York 100.00 Insurance
Primerica Financial Services (Canada)
Ltd. Canada 100.00 Holding company
PFSL Investments Canada Ltd. Canada 100.00 Mutual fund dealer
Primerica Financial Services Ltd. Canada 82.82 General agent
Primerica Life Insurance Company
of Canada Canada 100.00 Life insurance
The Travelers Insurance Corporation Proprietary Limited Australia 100.00 Inactive
Travelers Canada Corporation Canada 100.00 Inactive
Travelers Mortgage Securities Corporation Delaware 100.00 Collateralized
obligations
Travelers of Ireland Limited Ireland 99.90 Data processing
Travelers Property Casualty Corp. Delaware 82.00 Holding company
The Aetna Casualty and Surety Company Connecticut 100.00 Insurance company
AE Development Group, Inc. Connecticut 100.00
Aetna Casualty & Surety Company of Canada Canada 100.00
Aetna Casualty and Surety Company of America Connecticut 100.00 Insurance company
Aetna Casualty and Surety Company of Illinois Illinois 100.00 Insurance company
Aetna Casualty Company of Connecticut Connecticut 100.00 Insurance company
</TABLE>
3
<PAGE> 86
<TABLE>
<CAPTION>
% of Voting
Securities
Owned Directly
State of or Indirectly by
Organization The Travelers Inc. Principal Business
------------ ----------------- ------------------
<S> <C> <C> <C>
Aetna Commercial Insurance Company Connecticut 100.00 Insurance company
Aetna Excess and Surplus Lines Company Connecticut 100.00 Insurance Company
Aetna Lloyds of Texas Insurance Company Texas 100.00 Insurance company
Aetna National Accounts U.K. Limited United Kingdom 100.00 Insurance company
Axia Services, Inc. New York 100.00
Farmington Casualty Company Connecticut 100.00 Insurance company
Farmington Management, Inc. Connecticut 100.00
Urban Diversified Properties, Inc. Connecticut 100.00
The Standard Fire Insurance Company Connecticut 100.00
AE Properties, Inc. California 100.00
Aetna Insurance Company Connecticut 100.00 Insurance company
Aetna Insurance Company of Illinois Illinois 100.00 Insurance company
Aetna Personal Security Insurance
Company Connecticut 100.00 Insurance company
Community Rehabilitation Investment
Corporation Connecticut 100.00
The Automobile Insurance Company of
Hartford, Connecticut Connecticut 100.00 Insurance company
The Travelers Indemnity Company Connecticut 100.00 P-C insurance
Commercial Insurance Resources, Inc. Delaware 100.00 Holding company
Gulf Insurance Company Missouri 100.00 P-C insurance
Atlantic Insurance Company Texas 100.00 P-C insurance
Gulf Risk Services, Inc. Delaware 100.00 Claims/risk management
Gulf Underwriters Insurance
Company Missouri 100.00 P-C ins/surplus lines
Select Insurance Company Texas 100.00 P-C insurance
Countersignature Agency, Inc. Florida 100.00 Countersign ins policies
First Floridian Auto and Home Insurance
Company Florida 100.00 Insurance company
First Trenton Indemnity Company New Jersey 100.00 P-C insurance
Laramia Insurance Agency, Inc. North Carolina 100.00 Flood insurance
Secure Affinity Agency, Inc. Delaware 100.00 P-C insurance agency
The Charter Oak Fire Insurance Company Connecticut 100.00 P-C insurance
The Parker Realty and Insurance Agency,
Inc. Vermont 58.00 Real estate
The Phoenix Insurance Company Connecticut 100.00 P-C insurance
</TABLE>
4
<PAGE> 87
<TABLE>
<CAPTION>
% of Voting
Securities
Owned Directly
State of or Indirectly by
Organization The Travelers Inc. Principal Business
------------ ----------------- ------------------
<S> <C> <C> <C>
Constitution State Service Company Montana 100.00 Service company
The Travelers Indemnity Company of
America Georgia 100.00 P-C insurance
The Travelers Indemnity Company of
Connecticut Connecticut 100.00 Insurance
The Travelers Indemnity Company of
Illinois Illinois 100.00 P-C insurance
The Premier Insurance Company of
Massachusetts Massachusetts 100.00 Insurance
The Travelers Home and Marine Insurance
Company Indiana 100.00 P-C insurance
The Travelers Indemnity Company of
Missouri Missouri 100.00 P-C insurance
The Travelers Lloyds Insurance Company Texas 100.00 Non-life insurance
The Travelers Marine Corporation California 100.00 General insurance
brokerage
TI Home Mortgage Brokerage, Inc. Delaware 100.00 Mortgage brokerage
services
TravCo Insurance Company Indiana 100.00 P-C insurance
Travelers Bond Investments, Inc. Connecticut 100.00 Bond investments
Travelers General Agency of
Hawaii, Inc. Hawaii 100.00 Insurance agency
Travelers Medical Management
Services Inc. Delaware 100.00 Managed care
Travelers Specialty Property Casualty
Company, Inc. Connecticut 100.00 Insurance management
Primerica Convention Services, Inc. Georgia 100.00
Primerica Finance Corporation Delaware 100.00 Holding company
PFS Distributors, Inc. Georgia 100.00 General partner
PFS Investments Inc. Georgia 100.00 Broker dealer
PFS T.A., Inc. Delaware 100.00 Joint venture partner
Primerica Financial Services Home Mortgages, Inc. Georgia 100.00 Mortgage loan broker
Primerica Financial Services, Inc. Nevada 100.00 General agency
Primerica Financial Services Agency of New York, Inc. New York 100.00 General agency licensing
Primerica Financial Services Insurance Marketing of
Connecticut, Inc. Connecticut 100.00 General agency licensing
Primerica Financial Services Insurance Marketing of
Idaho, Inc. Idaho 100.00 General agency licensing
Primerica Financial Services Insurance Marketing of
Nevada, Inc. Nevada 100.00 General agency licensing
Primerica Financial Services Insurance Marketing of
Pennsylvania, Inc. Pennsylvania 100.00 General agency licensing
Primerica Financial Services Insurance Marketing of the
Virgin Islands, Inc. United States
Virgin Islands 100.00 General agency licensing
Primerica Financial Services Insurance Marketing of
Wyoming, Inc. Wyoming 100.00 General agency licensing
Primerica Financial Services Insurance Marketing, Inc. Delaware 100.00 General agency licensing
</TABLE>
5
<PAGE> 88
<TABLE>
<CAPTION>
% of Voting
Securities
Owned Directly
State of or Indirectly by
Organization The Travelers Inc. Principal Business
------------ ----------------- ------------------
<S> <C> <C> <C>
Primerica Financial Services of Alabama, Inc. Alabama 100.00 General agency licensing
Primerica Financial Services of Arizona, Inc. Arizona 100.00 General agency licensing
Primerica Financial Services of Kentucky Inc. Kentucky 100.00 General agency licensing
Primerica Financial Services of New Mexico, Inc. New Mexico 100.00 General agency licensing
Primerica Insurance Agency of Massachusetts, Inc. Massachusetts 100.00 General agency licensing
Primerica Insurance Marketing Services of
Puerto Rico, Inc. Puerto Rico 100.00 Insurance agency
Primerica Insurance Services of Louisiana, Inc. Louisiana 100.00 General agency licensing
Primerica Insurance Services of Maryland, Inc. Maryland 100.00 General agency licensing
Primerica Services, Inc. Georgia 100.00 Print operations
RCM Acquisition Inc. Delaware 100.00 Investments
SCN Acquisitions Company Delaware 100.00 Investments
SL&H Reinsurance, Ltd. Nevis 100.00 Reinsurance
Southwest Service Agreements, Inc. North Carolina 100.00 Warranty/service
agreements
Southwest Warranty Corporation Florida 100.00 Extended automobile
warranty
Berg Associates New Jersey 100.00 Inactive
CCC Holdings, Inc. Delaware 100.00 Holding company
Commercial Credit Company Delaware 100.00 Holding company.
American Health and Life Insurance Company Maryland 100.00 LH&A Insurance
Brookstone Insurance Company Vermont 100.00 Insurance managers
CC Finance Company, Inc. New York 100.00 Consumer lending
CC Financial Services, Inc. Hawaii 100.00 Consumer lending
CCC Fairways, Inc. Delaware 100.00 Investment company
Chesapeake Appraisal and Settlement Services Inc. Maryland 100.00 Appraisal/title
Chesapeake Appraisal and Settlement Services
Agency of Ohio Inc. Ohio 100.00 Appraisal/Title
City Loan Financial Services, Inc. Ohio 100.00 Direct loan
Commercial Credit Banking Corporation Oregon 100.00 Consumer finance
Commercial Credit Consumer Services, Inc. Minnesota 100.00 Consumer finance
Commercial Credit Corporation [AL] Alabama 100.00 Consumer finance
Commercial Credit Corporation [CA] California 100.00 Consumer finance
Commercial Credit Corporation [HI] Hawaii 100.00 Financial services
</TABLE>
6
<PAGE> 89
<TABLE>
<CAPTION>
% of Voting
Securities
Owned Directly
State of or Indirectly by
Organization The Travelers Inc. Principal Business
------------ ----------------- ------------------
<S> <C> <C> <C>
Commercial Credit Corporation [IA] Iowa 100.00 Consumer finance
Commercial Credit of Alabama, Inc. Delaware 100.00 Consumer lending
Commercial Credit of Mississippi, Inc. Delaware 100.00 Consumer finance
Commercial Credit Corporation [KY] Kentucky 100.00 Consumer finance
Certified Insurance Agency, Inc. Kentucky 100.00 Insurance agency
Commercial Credit Investment, Inc. Kentucky 100.00 Investment company
National Life Insurance Agency of Kentucky, Inc. Kentucky 100.00 Insurance agency
Union Casualty Insurance Agency, Inc. Kentucky 100.00 Insurance agency
Commercial Credit Corporation [MD] Maryland 100.00 Consumer finance
Action Data Services, Inc. Missouri 100.00 Data processing
Commercial Credit Plan, Incorporated [OK] Oklahoma 100.00 Consumer finance
Commercial Credit Corporation [NY] New York 100.00 Consumer finance
Commercial Credit Corporation [SC] South Carolina 100.00 Consumer finance
Commercial Credit Corporation [WV] West Virginia 100.00 Consumer finance
Commercial Credit Corporation NC North Carolina 100.00 Consumer finance
Commercial Credit Europe, Inc. Delaware 100.00 Inactive
Commercial Credit Far East Inc. Delaware 100.00 Inactive
Commercial Credit Insurance Services, Inc. Maryland 100.00 Insurance broker
Commercial Credit Insurance Agency (P&C) of
Mississippi, Inc. Mississippi 100.00 Insurance agency
Commercial Credit Insurance Agency of
Alabama, Inc. Alabama 100.00 Insurance agency
Commercial Credit Insurance Agency of
Hawaii, Inc. Hawaii 100.00 Insurance agency
Commercial Credit Insurance Agency of
Kentucky, Inc. Kentucky 100.00 Insurance agency
Commercial Credit Insurance Agency of
Massachusetts, Inc. Massachusetts 100.00 Insurance agency
Commercial Credit Insurance Agency of
Nevada, Inc. Nevada 100.00 Credit LH&A, P-C insurance
Commercial Credit Insurance Agency of New
Mexico, Inc. New Mexico 100.00 Insurance agency/Broker
Commercial Credit Insurance Agency of Ohio, Inc. Ohio 100.00 Insurance agency/broker
Commercial Credit International, Inc. Delaware 100.00 Holding company
Commercial Credit International Banking
Corporation Oregon 100.00 International lending
Commercial Credit Corporation CCC Limited Canada 100.00 Second mortgage loans
Commercial Credit Services do Brazil Ltda. Brazil 99.00 Inactive
</TABLE>
7
<PAGE> 90
<TABLE>
<CAPTION>
% of Voting
Securities
Owned Directly
State of or Indirectly by
Organization The Travelers Inc. Principal Business
------------ ----------------- ------------------
<S> <C> <C> <C>
Commercial Credit Services Belgium S.A. Belgium 100.00 Inactive
Commercial Credit Limited Delaware 100.00 Inactive
Commercial Credit Loan, Inc. [NY] New York 100.00 Consumer finance
Commercial Credit Loans, Inc. [DE] Delaware 100.00 Consumer finance
Commercial Credit Loans, Inc. [OH] Ohio 100.00 Consumer finance
Commercial Credit Loans, Inc. [VA] Virginia 100.00 Consumer finance
Commercial Credit Management Corporation Maryland 100.00 Intercompany services
Commercial Credit Plan Incorporated [TN] Tennessee 100.00 Consumer finance
Commercial Credit Plan Incorporated [UT] Utah 100.00 Consumer finance
Commercial Credit Plan Incorporated of Georgetown Delaware 100.00 Consumer finance
Commercial Credit Plan Industrial Loan Company Virginia 100.00 Consumer finance
Commercial Credit Plan, Incorporated [CO] Colorado 100.00 Consumer finance
Commercial Credit Plan, Incorporated [DE] Delaware 100.00 Consumer finance
Commercial Credit Plan, Incorporated [GA] Georgia 100.00 Consumer finance
Commercial Credit Plan, Incorporated [MO] Missouri 100.00 Consumer finance
Commercial Credit Securities, Inc. Delaware 100.00 Broker dealer
DeAlessandro & Associates, Inc. Delaware 100.00 Inactive
Park Tower Holdings, Inc. Delaware 100.00 Holding company
CC Retail Services, Inc. Delaware 100.00 Leasing, financing
Troy Textiles, Inc. Delaware 100.00 Inactive
Commercial Credit Development Corporation Delaware 100.00 Direct loan
Myers Park Properties, Inc. Delaware 100.00 Inactive
Travelers Home Mortgage Services of Alabama, Inc. Delaware 100.00 Inactive
Penn Re, Inc. North Carolina 100.00 Management company
Plympton Concrete Products, Inc. Delaware 100.00 Inactive
Resource Deployment, Inc. Texas 100.00 Management company
The Travelers Bank Delaware 100.00 Banking services
The Travelers Bank USA Delaware 100.00 Credit card bank
Travelers Home Equity, Inc. North Carolina 100.00 Financial services
CC Consumer Services of Alabama, Inc. Alabama 100.00 Financial services
</TABLE>
8
<PAGE> 91
<TABLE>
<CAPTION>
% of Voting
Securities
Owned Directly
State of or Indirectly by
Organization The Travelers Inc. Principal Business
------------ ----------------- ------------------
<S> <C> <C> <C>
CC Home Lenders Financial, Inc. Georgia 100.00 Financial services
CC Home Lenders, Inc. Ohio 100.00 Financial services
Commercial Credit Corporation [TX] Texas 100.00 Consumer finance
Commercial Credit Financial of Kentucky, Inc. Kentucky 100.00 Consumer finance
Commercial Credit Financial of West
Virginia, Inc. West Virginia 100.00 Consumer finance
Commercial Credit Plan Consumer Discount
Company Pennsylvania 100.00 Financial services
Commercial Credit Services of Kentucky, Inc. Kentucky 100.00 Financial services.
Travelers Home Mortgage Services, Inc. North Carolina 100.00 Financial services
Triton Insurance Company Missouri 100.00 P-C insurance
Verochris Corporation Delaware 100.00 Joint venture company
AMC Aircraft Corp. Delaware 100.00 Aviation
World Service Life Insurance Company Colorado 100.00 Life insurance
Greenwich Street Capital Partners, Inc. Delaware 100.00 Investments
Greenwich Street Investments, Inc. Delaware 100.00 Investments
Greenwich Street Capital Partners Offshore
Holdings, Inc. Delaware 100.00 Investments
Mirasure Insurance Company, Ltd. Bermuda 100.00 Inactive
Pacific Basin Investments Ltd. Delaware 100.00 Inactive
Primerica Corporation [WY] Wyoming 100.00 Inactive
Primerica, Inc. Delaware 100.00 Name saver
Smith Barney Corporate Trust Company Delaware 100.00 Trust company
Smith Barney Holdings Inc. Delaware 100.00 Holding company
Nextco Inc. Delaware 100.00 Purchasing
R-H Capital, Inc. Delaware 100.00 Investments
R-H Sports Enterprises Inc Georgia 100.00 Sports representation
SB Cayman Holdings I Inc. Delaware 100.00 Holding company
Greenwich (Cayman) I Limited Cayman Islands 100.00 Corporate services
Greenwich (Cayman) II Limited Cayman Islands 100.00 Corporate services
Greenwich (Cayman) III Limited Cayman Islands 100.00 Corporate services
SB Cayman Holdings II Inc. Delaware 100.00 Holding company
SB Cayman Holdings III Inc. Delaware 100.00 Holding company
</TABLE>
9
<PAGE> 92
<TABLE>
<CAPTION>
% of Voting
Securities
Owned Directly
State of or Indirectly by
Organization The Travelers Inc. Principal Business
------------ ----------------- ------------------
<S> <C> <C> <C>
SB Cayman Holdings IV Inc. Delaware 100.00 Holding company
Smith Barney (Delaware) Inc. Delaware 100.00 Holding company
1345 Media Corp. Delaware 100.00 Holding company
Corporate Realty Advisors, Inc. Delaware 100.00 Realty trust adviser
IPO Holdings Inc. Delaware 100.00 Holding company
Institutional Property Owners, Inc. V Delaware 100.00 Investments
Institutional Property Owners, Inc. VI Delaware 100.00 General partner
MLA 50 Corporation Delaware 100.00 Limited partner
MLA GP Corporation Delaware 100.00 General partner
Smith Barney Acquisition Corporation Delaware 100.00 Offshore fund adviser
Smith Barney Global Capital Management, Inc. Delaware 100.00 Investment management
Smith Barney Realty, Inc. Delaware 100.00 Investments
Smith Barney Risk Investors, Inc. Delaware 100.00 Investments
Smith Barney Venture Corp. Delaware 100.00 Investments
Smith Barney (Ireland) Limited Ireland 100.00 Fund management
Smith Barney Asia Inc. Delaware 100.00 Investment banking
Smith Barney Asset Management Group (Asia) Pte. Ltd. Singapore 100.00 Asset management
Smith Barney Canada Inc. Canada 100.00 Investment dealer
Smith Barney Capital Services Inc. Delaware 100.00 Derivative product
transactions
Smith Barney Cayman Islands, Ltd. Cayman Islands 100.00 Securities trading
Smith Barney Commercial Corp. Delaware 100.00 Commercial credit
Smith Barney Commercial Corporation Asia Limited Hong Kong 99.00 Commodities trading
Smith Barney Europe Holdings, Ltd. United Kingdom 100.00 Holding corp.
Smith Barney Europe, Ltd. United Kingdom 100.00 Securities brokerage
Smith Barney Futures Management Inc. Delaware 100.00 Commodities pool operator
Smith Barney Offshore Fund Ltd. Delaware 100.00 Commodity pool
Smith Barney Overview Fund PLC Dublin 100.00 Commodity fund
Smith Barney Inc. Delaware 100.00 Broker dealer
SBHU Life Agency, Inc. Delaware 100.00 Insurance brokerage
Robinson-Humphrey Insurance Services Inc. Georgia 100.00 Insurance brokerage
</TABLE>
10
<PAGE> 93
<TABLE>
<CAPTION>
% of Voting
Securities
Owned Directly
State of or Indirectly by
Organization The Travelers Inc. Principal Business
------------ ----------------- ------------------
<S> <C> <C> <C>
Robinson-Humphrey Insurance Services of
Alabama, Inc. Alabama 100.00 Insurance brokerage
SBHU Life Agency of Arizona, Inc. Arizona 100.00 Insurance brokerage
SBHU Life Agency of Indiana, Inc. Indiana 100.00 Insurance brokerage
SBHU Life Agency of Utah, Inc. Utah 100.00 Insurance brokerage
SBHU Life Insurance Agency of Massachusetts, Inc. Massachusetts 100.00 Insurance brokerage
SBS Insurance Agency of Hawaii, Inc. Hawaii 100.00 Insurance brokerage
SBS Insurance Agency of Idaho, Inc. Idaho 100.00 Insurance brokerage
SBS Insurance Agency of Maine, Inc. Maine 100.00 Insurance brokerage
SBS Insurance Agency of Montana, Inc. Montana 100.00 Insurance brokerage
SBS Insurance Agency of Nevada, Inc. Nevada 100.00 Insurance brokerage
SBS Insurance Agency of Ohio, Inc. Ohio 100.00 Insurance brokerage
SBS Insurance Agency of South Dakota, Inc. South Dakota 100.00 Insurance brokerage
SBS Insurance Agency of Wyoming, Inc. Wyoming 100.00 Insurance brokerage
SBS Insurance Brokerage Agency of Arkansas, Inc. Arkansas 100.00 Insurance brokerage
SBS Insurance Brokers of Kentucky, Inc. Kentucky 100.00 Insurance brokerage
SBS Insurance Brokers of New Hampshire, Inc. New Hampshire 100.00 Insurance brokerage
SBS Insurance Brokers of North Dakota, Inc. North Dakota 100.00 Insurance brokerage
SBS Life Insurance Agency of Puerto Rico, Inc. Puerto Rico 100.00 Insurance brokerage
SLB Insurance Agency of Maryland, Inc. Maryland 100.00 Insurance brokerage
Smith Barney Life Agency Inc. Louisiana 100.00 Insurance brokerage
Smith Barney (Hong Kong) Limited Hong Kong 100.00 Broker dealer
Smith Barney (Netherlands) Inc. Delaware 100.00 Broker dealer
Smith Barney International Incorporated Oregon 100.00 Broker dealer
Smith Barney (Singapore) Pte Ltd Singapore 100.00 Commodities
Smith Barney Pacific Holdings, Inc. British
Virgin Islands 100.00 Holding company
Smith Barney (Asia) Limited Hong Kong 100.00 Broker dealer
Smith Barney (Pacific) Limited Hong Kong 100.00 Commodities dealer
Smith Barney Securities Pte Ltd Singapore 100.00 Securities brokerage
Smith Barney Puerto Rico Inc. Puerto Rico 100.00 Broker dealer
The Robinson-Humphrey Company, Inc. Delaware 100.00 Broker dealer
</TABLE>
11
<PAGE> 94
<TABLE>
<CAPTION>
% of Voting
Securities
Owned Directly
State of or Indirectly by
Organization The Travelers Inc. Principal Business
------------ ----------------- ------------------
<S> <C> <C> <C>
Smith Barney Mortgage Brokers Inc. Delaware 100.00 Mortgage brokerage
Smith Barney Mortgage Capital Corp. Delaware 100.00 Mortgage-backed securities
Smith Barney Mortgage Capital Group, Inc. Delaware 100.00 Mortgage trading
Smith Barney Mutual Funds Management Inc. Delaware 100.00 Investment management
Smith Barney Asset Management Co., Ltd. Japan 100.00 Investment advisor
Smith Barney Strategy Advisers Inc. Delaware 100.00 Investment management
E.C. Tactical Management S.A. Luxembourg 100.00 Investment management
Smith Barney Offshore, Inc. Delaware 100.00 Decathlon Fund advisor
Decathlon Offshore Limited Cayman Islands 100.00 Commodity fund
Smith Barney S.A. France 100.00 Commodities trading
Smith Barney Asset Management France S.A. France 100.00 Com. based asset
management
Smith Barney Securities Investment Consulting Co. Ltd. Taiwan 99.00 Investrment analysis
Smith Barney Shearson (Chile) Corredora de Seguro Limitada Chile 100.00 Insurance brokerage
Structured Mortgage Securities Corporation Delaware 100.00 Mortgage-backed securities
The Travelers Investment Management Company Connecticut 100.00 Investment advisor
Smith Barney Private Trust Company New York 100.00 Trust company.
Smith Barney Private Trust Company of Florida Florida 100.00 Trust company
Tinmet Corporation Delaware 100.00 Inactive
Travelers Group Diversified Distribution Services, Inc. Delaware 100.00 Alternative marketing
Travelers Group Exchange, Inc. Delaware 100.00 Insurance agency
Travelers Services Inc. Delaware 100.00 Holding company
Tribeca Management Inc. Delaware 100.00
TRV Employees Investments, Inc. Delaware 100.00 Investments
TRV/RCM Corp. Delaware 100.00 Inactive
TRV/RCM LP Corp. Delaware 100.00 Inactive
</TABLE>
12
<PAGE> 95
Item 27. Number of Contract Owners
As of March 1, 1997, there were no contract owners of variable annuity contracts
funded through the Registrant
Item 28. Indemnification
Section 33-320a of the Connecticut General Statutes ("C.G.S.") regarding
indemnification of directors and officers of Connecticut corporations provides
in general that Connecticut corporations shall indemnify their officers,
directors and certain other defined individuals against judgments, fines,
penalties, amounts paid in settlement and reasonable expenses actually incurred
in connection with proceedings against the corporation. The corporation's
obligation to provide such indemnification generally does not apply unless (1)
the individual is successful on the merits in the defense of any such
proceeding; or (2) a determination is made (by persons specified in the statute)
that the individual acted in good faith and in the best interests of the
corporation; or (3) the court, upon application by the individual, determines in
view of all of the circumstances that such person is fairly and reasonably
entitled to be indemnified, and then for such amount as the court shall
determine. With respect to proceedings brought by or in the right of the
corporation, the statute provides that the corporation shall indemnify its
officers, directors and certain other defined individuals, against reasonable
expenses actually incurred by them in connection with such proceedings, subject
to certain limitations.
C.G.S. Section 33-320a provides an exclusive remedy; a Connecticut corporation
cannot indemnify a director or officer to an extent either greater or less than
that authorized by the statute, e.g., pursuant to its certificate of
incorporation, by-laws, or any separate contractual arrangement. However, the
statute does specifically authorize a corporation to procure indemnification
insurance to provide greater indemnification rights. The premiums for such
insurance may be shared with the insured individuals on an agreed basis.
Travelers Group Inc. also provides liability insurance for its directors and
officers and the directors and officers of its subsidiaries, including the
Depositor. This insurance provides for coverage against loss from claims made
against directors and officers in their capacity as such, including, subject to
certain exceptions, liabilities under the Federal securities laws.
Rule 484 Undertaking
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liability (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE> 96
Item 29. Principal Underwriter
(a) Tower Square Securities, Inc.
One Tower Square
Hartford, CT 06183
Tower Square Securities, Inc. also serves as the principal
underwriter for:
The Travelers Growth and Income Stock Account for Variable Annuities
The Travelers Quality Bond Account for Variable Annuities
The Travelers Money Market Account for Variable Annuities
The Travelers Timed Growth and Income Stock Account for Variable Annuities
The Travelers Timed Short-Term Bond Account for Variable Annuities
The Travelers Timed Aggressive Stock Account for Variable Annuities
The Travelers Timed Bond Account for Variable Annuities
The Travelers Fund U for Variable Annuities
The Travelers Fund VA for Variable Annuities
The Travelers Fund BD for Variable Annuities
The Travelers Fund BD II for Variable Annuities
The Travelers Fund ABD II for Variable Annuities
The Travelers Separate Account QP for Variable Annuities
The Travelers Separate Account QP II for Variable Annuities
The Travelers Fund UL for Variable Life Insurance
The Travelers Fund UL II for Variable Life Insurance
The Travelers Variable Life Insurance Separate Account One
The Travelers Variable Life Insurance Separate Account Three
The Travelers Variable Life Insurance Separate Account Two
The Travelers Variable Life Insurance Separate Account Four
<TABLE>
<CAPTION>
(b) Name and Principal Positions and Offices
Business Address * With Underwriter
------------------ ----------------
<S> <C>
Russell H. Johnson Chairman of the Board, Chief Executive Officer,
President and Chief Operating Officer
William F. Scully, III Member, Board of Directors,
Senior Vice President, Treasurer
and Chief Financial Officer
Cynthia P. Macdonald Vice President, Chief Compliance Officer
and Assistant Secretary
Joanne K. Russo Member, Board of Directors
Senior Vice President
Kathleen A. McGah General Counsel and Secretary
Jay S. Benet Member, Board of Directors
George C. Kokulis Member, Board of Directors
Warren H. May Member, Board of Directors
Donald R. Munson, Jr. Senior Vice President
Stuart L. Baritz Vice President
Michael P. Kiley Vice President
Tracey Kiff-Judson Second Vice President
Robin A. Jones Second Vice President
Whitney F. Burr Second Vice President
Marlene M. Ibsen Second Vice President
John J. Williams, Jr. Director and Assistant Compliance Officer
Susan M. Cursio Director and Operations Manager
Dennis D. D'Angelo Director
Thomas P. Tooley Director
</TABLE>
<PAGE> 97
Nancy S. Waldrop Assistant Treasurer
* Principal business address: One Tower Square, Hartford,
Connecticut 06183
(c) Not Applicable.
Item 30. Location of Accounts and Records
The Travelers Insurance 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> 98
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 28th day of
April, 1997.
THE TRAVELERS FUND ABD FOR VARIABLE ANNUITIES
(Registrant)
THE TRAVELERS INSURANCE COMPANY
(Depositor)
By: *IAN R. STUART
----------------------------------------
Ian R. Stuart
Senior Vice President,
Chief Financial Officer
Chief Accounting Officer and Controller
As required by the Securities Act of 1933, this amendment to this registration
statement has been signed by the following persons in the capacities indicated
on this 28th day of April, 1997.
*MICHAEL A. CARPENTER Chairman of the Board, President and Chief
- - -------------------------- Executive Officer
(Michael A. Carpenter)
*JAY S. BENET Director
- - --------------------------
(Jay S. Benet)
*GEORGE C. KOKULIS Director
- - --------------------------
(George C. Kokulis)
*ROBERT I. LIPP Director
- - --------------------------
(Robert I. Lipp)
*IAN R. STUART Director, Senior Vice President,
- - -------------------------- Chief Financial Officer Chief Accounting Officer
(Ian R. Stuart) and Controller
*KATHERINE M. SULLIVAN Director, Senior Vice President and
- - -------------------------- General Counsel
(Katherine M. Sullivan)
*MARC P. WEILL Director
- - --------------------------
(Marc P. Weill)
*By: Ernest J. Wright, Attorney-in-Fact
<PAGE> 99
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
- - --- ----------- ----------------
<S> <C> <C>
1. Resolution of The Travelers Insurance Company
Board of Directors authorizing the establishment
of the Registrant. (Incorporated herein by reference
to Exhibit 1 to the Registration Statement on Form N-4,
filed December 22, 1995.)
3(a). Form of Distribution and Management Agreement
among the Registrant, The Travelers Insurance
Company and Tower Square Securities, Inc.
(Incorporated herein by reference to Exhibit 3(a) to
the Registration Statement on Form N-4, filed
December 22, 1995.)
3(b). Form of Selling Agreement. Electronically
4. Form of Variable Annuity Contract(s). (Incorporated herein
by reference to Exhibit 4 to the Registration Statement on
Form N-4, filed June 17, 1996.)
6(a). Charter of The Travelers Insurance Company, as
amended on October 19, 1994. (Incorporated herein
by reference to Exhibit 3(a)(i) to the Registration
Statement on Form S-2, File No. 33-58677, filed via
Edgar on April 18, 1995.)
6(b). By-Laws of The Travelers Insurance Company, as
amended on October 20, 1994. (Incorporated herein
by reference to Exhibit 3(b)(i) to the Registration
Statement on Form S-2, File No. 33-58677, filed via
Edgar on April 18, 1995.)
9. Opinion of Counsel as to the legality of securities being Electronically
registered by Registrant.
10(b). Consent of KPMG Peat Marwick LLP, Independent Electronically
Certified Public Accountants.
</TABLE>
<PAGE> 100
<TABLE>
<S> <C> <C>
13. Schedule of computation for each performance. Electronically
Standardized and Nonstandardized
15. Powers of Attorney authorizing Jay S. Fishman or
Ernest J. Wright as signatory for Robert I. Lipp,
Michael A Carpenter, Charles O. Prince III,
Marc P. Weill, Irwin R. Ettinger, Donald T. DeCarlo
and Christine B. Mead. (Incorporated herein by
reference to Exhibit 15 to the Registration Statement
on Form N-4, filed December 22, 1995.)
15(b). Powers of Attorney authorizing Ernest J. Wright and
and Kathleen A. McGah as signatory for Michael A.
Carpenter, Ian R. Stuart and Katherine M. Sullivan.
(Incorporated herein by reference to Exhibit 15(b) to
the Registration Statement on Form N-4 filed
June 17, 1996.)
15(c). Powers of Attorney authorizing Ernest J. Wright and
and Kathleen A. McGah as signatory for Jay S. Benet
and George C. Kokulis. (Incorporated herein by reference
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 and
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.)
</TABLE>
<PAGE> 1
Exhibit 3(b)
SELLING AGREEMENT
THIS AGREEMENT is made among Travelers Insurance Company ("TIC"), Travelers Life
and Annuity Companies ("TLAC"), (collectively the "Insurance Companies") and
Tower Square Securities (Underwriter) and Exhibit 3b, ("Broker/Dealer") together
with such affiliated insurance agencies (collectively the "Selling Entities") as
are specified on the Selling Agreement Schedule Page.
In consideration of the mutual promises contained in this agreement, the parties
agree as follows:
1. Purpose and Background. The Underwriter, the Insurance Companies,
Broker/Dealer and Selling Entities enter into this agreement for the purpose of
authorizing Broker/Dealer, through its insurance licensed agents as described in
Section 5 below, to solicit applications for such life insurance (including
variable life), annuity contracts (including fixed, variable, and modified
guaranteed annuity products) and, long term care insurance contracts
(collectively the "Insurance Policies") as are listed on the Selling Agreement
Schedule Pages (the "Schedule Pages"). These Schedules Page may be amended from
time to time to add other Insurance Policies.
2. Licensing and Appointment. The Insurance Companies have each respectively
appointed Underwriter to serve as the distributor and principal underwriter of
the variable life or variable annuity Insurance Policies. The Underwriter is
registered with the SEC, the National Association of Securities Dealers, Inc.
("NASD") and all appropriate state securities regulatory authorities as a
Broker/Dealer.
The Underwriter and Broker/Dealer desire that Broker/Dealer through its
registered representatives ("Registered Representatives") be authorized to sell
the Insurance Policies.
3. Securities Licensing/NASD Compliance. Broker/Dealer shall, at all times
when performing its functions under this agreement, be registered as a
securities broker with the SEC and NASD and licensed or registered as a
securities broker-dealer in the states and other local jurisdictions that
require such licensing or registration in connection with sales of the variable
products.
Broker/Dealer agrees to abide by all rules and regulations of the NASD and to
comply with all applicable state and insurance and securities laws and
regulations. For the purpose of compliance with any applicable federal or state
securities laws or regulations promulgated under them, Broker/Dealer
acknowledges and agrees that in performing Broker/Dealer services covered by
this Agreement, it is acting in the capacity of an independent broker and dealer
as defined by the By-Laws of the NASD and not as an agent or employee of either
Underwriter or any registered investment company.
1
<PAGE> 2
4. Insurance Licensing. Broker/Dealer (and if appropriate Insurance Selling
Entities) agree that at all times when performing its functions under this
agreement, the entity soliciting sales of the Insurance Policies will be validly
licensed as an insurance agency in the states and other jurisdictions that
require such licensing or registration in connection sales or solicitation of
the Insurance Policies. If applicable, Broker/Dealer represents that it or its
insurance agency affiliate is properly authorized under applicable state law to
receive insurance commissions generated from sales of the Insurance Policies.
Broker/Dealer and Selling Entities each represent that they are engaged in the
issuance of the Insurance Policies in accordance with federal securities laws
and the applicable insurance laws of those states in which the Insurance
Policies have been qualified for sale.
Broker/Dealer represents and warrants that it is authorized and licensed as an
agent under applicable state insurance laws to solicit, negotiate and effect the
contracts of insurance contemplated hereunder. In the event Broker/Dealer is not
licensed as such, an insurance agency affiliated with Broker/Dealer shall be
licensed as an agent under applicable state insurance laws to solicit, negotiate
and effect the contracts of insurance contemplated hereunder.
5. Appointment of Broker/Dealer. The Insurance Companies (and with respect to
any variable life insurance or annuity product, Underwriter) hereby authorize
the Broker/Dealer to sell those Insurance Policies listed on the Schedule Page,
as such page may be amended from time to time, the variable Insurance Policies
through its validly appointed and licensed registered representatives (the
"Registered Representatives"). Broker/Dealer is also appointed to perform
certain administrative services necessary to facilitate the solicitation and
sales of the Insurance Policies.
Broker/Dealer or, if applicable, Selling Entities, are appointed as a general
agencies of Insurance Companies and is authorized to sell the Insurance Policies
listed on the Schedule Pages.
Broker/Dealer and Selling Entities must comply with the following requirements:
(a) All securities services provided in connection with the sale of
insurance securities will be through registered representatives of
Broker/Dealer;
(b) Unregistered employees will not engage in any securities activities,
nor receive any compensation based on transactions in insurance securities or
the provision of securities advice;
(c) Broker/Dealer will maintain books and records relating to transactions
in insurance securities at its home office;
2
<PAGE> 3
(d) Customers purchasing variable Insurance Policies will make their
checks payable to Insurance Companies unless a Netting Agreement has been
entered into;
For the purpose of compliance with any applicable state insurance laws or
regulations promulgated under them, Broker/Dealer acknowledges and agrees that
solely in performing the insurance-selling functions reflected by this
Agreement, it or its Registered Representative is acting as the agent of the
Insurance Companies, and in that capacity is authorized only to solicit
applications from the public for the Insurance Policies.
6. Responsibility for Registered Representatives Activities. Broker/Dealer
will select and supervise persons whom it will train to solicit applications for
the Insurance Policies in conformance with applicable state and federal laws and
regulations. Persons engaged in the sale of variable Insurance Policies will be
registered representatives of Broker/Dealer in accordance with the rules of the
NASD. All individuals soliciting sales of Insurance Policies will be properly
licensed and appointed to the Travelers Insurance Companies in accordance with
the state insurance laws of those jurisdictions in which the Insurance Policies
may lawfully be distributed.
The Insurance Companies shall have authority to determine whether to appoint or
terminate a particular registered representative of the Broker Dealer as an
agent of the Insurance Companies. Broker/Dealer agrees to cooperate in supplying
information or making recommendations necessary to complete such insurance agent
appointments. Additionally, Broker/Dealer shall supply the information required
in the "Recommendation Letter" set forth in Exhibit 1 for each of its agents for
which it seeks appointment.
Upon request by Underwriter, Broker/Dealer and/or Insurance Agency shall furnish
such appropriate records as may be necessary to establish supervision of its
Registered Representatives in connection with sales of the Insurance Policies.
Upon Underwriter's review of such supervisory materials, Broker/Dealer shall
make such changes to its registered representatives' rules of conduct as
Underwriter may reasonably request but only to the extent that such requests
relate to sales of the Insurance Policies.
Broker/Dealer shall notify Underwriter if any Registered Representative ceases
to be a registered representative of Broker/Dealer or ceases to maintain the
proper licensing required for the sale of the Insurance Policies or fails to
meet material rules and standards imposed by either Broker/Dealer or the Selling
Entities.
7. Suitability of Sales of Contract. Broker/Dealer will review all contract
proposals and applications for suitability and for completeness and correctness
as to form concerning sales of variable Insurance Policies. Broker/Dealer shall
also be responsible for ensuring compliance with NASD suitability rules and
standards applicable to purchases of the Insurance Policies.
3
<PAGE> 4
Broker/Dealer will promptly, but in no case later than the end of the business
day that Broker/Dealer receives applications and payment, forward to the
applicable Insurance Company, at addresses provided, all such applications found
suitable and in good form, together with any payments received with such
applications without deduction or reduction unless a Netting Agreement has been
entered into. Broker/Dealer will immediately return to the applicant all
applications together with any payments received therewith deemed by
Broker/Dealer to be unsuitable or not complete and correct as to form. The
Insurance Companies reserve the right to reject any Insurance Product
application and return any payment made in connection with an application which
is rejected. Insurance Policies issued on applications accepted by the Insurance
Companies will be forwarded to Broker/Dealer or at the direction of
Broker/Dealer to the registered representative for delivery to the Contract
Owner. Broker/Dealer shall obtain and retain a written receipt for each Contract
which Broker/Dealer delivers.
The parties acknowledge that sales and solicitations may, where consistent with
state insurance laws and regulations, be conducted either without an
application, or on a basis where an application is submitted subsequent to a
sale. If such sales procedures are permitted, Broker/Dealer agrees that it will
continue to be responsible for compliance with applicable laws concerning, among
other things, suitability and policy delivery requirements. Broker/Dealer agrees
to hold Underwriter harmless for any failure to follow such rules or
regulations.
8. Solicitation/Representatives Concerning the Contracts. Broker/Dealer will
perform the selling functions required by this Agreement in accordance with the
terms and conditions of any applicable prospectus(es). Broker/Dealer will make
only representations included in the prospectus or in any authorized
supplemental material. No sales solicitations, including the delivery of
supplemental sales literature or other such materials, shall occur, be delivered
to, or used with a prospective purchaser unless accompanied or preceded by
appropriate and then-current prospectus(es).
Any material prepared or used by Broker/Dealer or its Registered
Representative, which describes in whole or in part or refers by name or form to
any of the Insurance Companies' Insurance Policies or underlying funds or uses
the name of the Insurance Companies, Underwriter, or Travelers Group Inc., or
the logos or service marks of any of them, or the name, logos or service marks
of any "Affiliated Company" of any of them, as that term is defined in Section
2(a)(2) of the Investment Company Act of 1940, must be approved by Underwriter
in writing prior to any such use.
Broker/Dealer and Selling Entities acknowledge that information pertaining to
Underwriter and Insurance Companies is proprietary in nature. Selling Entities
agree that they will not disclose any information concerning Insurance Companies
or Underwriter's products, services or programs or any person for consideration
or otherwise unless Broker/Dealer and/or Selling Entities consents to such use
in writing. Broker/Dealer and Selling Entities agree that, following the
termination of this Agreement for any reason, they will not enter into any plan,
program scheme or course of action which would
4
<PAGE> 5
systematically attempt to induce any Contract owner (s) away from Travelers,
except that Broker Dealer may always recommend a move to another company's
product if such move would be more suitable than Traveler's product for a
particular client or clients or in the event of a detrimental change in the
financial stability of Travelers which Broker Dealer believe would jeopardize
their clients.
9. Compensation. Compensation payable to Broker/Dealer on sales of the
Contracts solicited by Broker/Dealer will be paid to Broker/Dealer, or as
necessary to meet any and all legal requirements, to a licensed insurance
affiliate, in accordance with the compensation schedule(s) set forth on the
Schedule Pages as such Schedule Pages may be amended from time to time and are
in effect at the time the Contract payments are received by the applicable
Insurance Company (in the case of annuities) or at the time the applications are
received (in the case of life insurance). The Insurance Companies and
Underwriter reserve the privilege of revising the compensation schedules set
forth in the Schedule Pages at any time with thirty (30) days prior written
notice to Broker/Dealer. The parties understand that with regard to rate
specials only, for the modified guaranteed annuity contracts, commission
schedules may be adjusted without provision of prior notice.
10. Assignment of Agreement. This Agreement may not be assigned except by
mutual consent and will continue, subject to the termination by any party on
written notice to the other party, except that in the event Broker/Dealer ceases
to be a registered Broker/Dealer or a member of the NASD, this Agreement will
immediately terminate. Underwriter reserves the right to designate, at its sole
discretion, an alternative Principal Underwriter for the distribution of the
Contracts covered by this Agreement with thirty (30) days prior written notice
to Broker/Dealer except in the event that TIC replaces Underwriter as discussed
below.
The parties understand that if TIC replaces Underwriter any such substituted
party will automatically assume all of Underwriter's rights and duties under
this agreement. TIC may assume such functions itself or assign these to
affiliated, properly licensed broker-dealers. TIC will notify Broker/Dealer if
any such substitution occurs.
11. Indemnification. No party to this Agreement will be liable for any
obligation, act or omission of the other. Each party to this Agreement will hold
harmless and indemnify the (1) Registered Investment Companies which are used to
fund the Contracts, (2) Insurance Companies, (3) Underwriter, (4) Broker/Dealer,
and (5) Selling Entities, as appropriate, for any loss or expense suffered as a
result of the violation or noncompliance by any party to this agreement of any
of the terms of this agreement or of any applicable law or regulation. No party
nor any of its employees or agents will be liable to the other party for any
direct, special or consequential damages arising out of or in connection with
the performance of any services pursuant to the Agreement. Each party to this
agreement agrees to indemnify and hold harmless any other affected party for any
losses, claims, damages or liabilities (or actions in respect thereof) which
arise out of or are based on any untrue statement or alleged untrue statement of
a material fact required to be stated or
5
<PAGE> 6
necessary to make the statements made not misleading in the connection with the
solicitation, sale, or administration of the of the Insurance Policies.
12. Notices. All notices to the Insurance Companies or Underwriter relating to
this Agreement should be sent to the attention of:
The Travelers Insurance Companies
One Tower Square
Hartford, CT 06183-6091
All notices to Broker/Dealer will be duly given if mailed or
faxed to the address provided to Insurance Companies by Broker/Dealer from time
to time.
13. Independent Contractors. Underwriter and Insurance Companies are
independent contractors with respect to Broker/Dealer, Insurance Agency, and to
Registered Representatives.
14. Governing Law. This Agreement shall be construed in accordance with and
governed by the laws of the state of Connecticut.
15. Amendment of Agreement. Underwriter reserves the right to amend this
Agreement at any time, and the submission of an application by Broker/Dealer
after notice of any such amendment has been sent to the other parties shall
constitute the other parties' agreement to any such amendment. The compensation
schedules attached to the Schedule Pages may, however, be revised at any time
without the provision of prior notice with regard to rate specials only for the
modified guaranteed annuities.
16. Termination. This Agreement may be terminated, without cause, by any party
upon thirty (30) days' prior written notice, and may be terminated, for failure
to perform satisfactorily or other cause, by any party immediately; and shall be
terminated if Broker/Dealer shall cease to be a registered Broker/Dealer under
the Securities Exchange Act of 1934, as amended, and a member of the NASD.
Notwithstanding, the following sections shall survive any such termination:
Sections 6, 8, 10, 11 and 14.
17. Waiver Upon Termination. Failure of any party to terminate this Agreement
0for any of the causes set forth in this agreement will not constitute a waiver
of the right to terminate this Agreement at a later time for any of these
causes.
18. Books and Records. Broker/Dealer shall maintain all books and records
required by applicable laws and regulations in connection with the offer and
sale of the Insurance Policies. The books, accounts and records of Broker/Dealer
relating to the sale of the Insurance Policies shall be maintained so as to
clearly and accurately disclose the nature and details of all transactions.
6
<PAGE> 7
19. Cooperation with Regulatory Investigations. Broker/Dealer and Underwriter
agree to cooperate fully in any insurance, securities or other regulatory
investigation, inquiry, inspection, or proceeding or in any judicial proceeding
arising in connection with the Insurance Policies. Broker/Dealer and Underwriter
shall cooperate with each other to resolve any customer complaint, and each
agrees to promptly notify the other upon receipt of notice of any investigation,
claim, or proceeding involving the Contracts or any situation which would
materially affect the respective party's ability to perform its obligations
hereunder.
20. Fidelity Bond. Broker/Dealer represents that all of its directors,
officers, employees and Registered Representatives are and shall be continuously
covered by a blanket fidelity bond, covering for larceny and embezzlement,
issued by a reputable bonding company. This bond shall be maintained at
Broker/Dealer's expense and shall be, at least, of the form, type and amount
required under the NASD Rules of Fair Practice.
21. Counterparts. This Agreement may be executed in one or more counterpart,
each of which shall be deemed in all respects an original.
7
<PAGE> 8
In reliance on the representations set forth and in consideration of the
undertakings described herein, the parties represented below do hereby contract
and agree. This agreement is effective _______________, 1997
Travelers Insurance Company Travelers Life and Annuity Company
By: By:
------------------------------- -------------------------------
Title: Title:
---------------------------- ----------------------------
Date: Date:
----------------------------- -----------------------------
Tower Square Securities, Inc. ----------------------------------
Broker Dealer
By: By:
------------------------------- -------------------------------
Title: Title:
---------------------------- ----------------------------
Date:
-----------------------------
- - ---------------------------------- ----------------------------------
Insurance Agency Insurance Agency
By: By:
------------------------------- -------------------------------
Title: Title:
---------------------------- ----------------------------
Date: Date:
----------------------------- -----------------------------
8
<PAGE> 1
EXHIBIT 9
April 28, 1997
The Travelers Insurance Company
One Tower Square
Hartford, Connecticut 06183
Gentlemen:
With reference to Post-Effective Amendment No. 3 to the Registration
Statement on Form N-4 filed by The Travelers Insurance Company and The Travelers
Fund ABD for Variable Annuities with the Securities and Exchange Commission
covering Flexible Premium Variable Annuity contracts, I have examined such
documents and such law as I have considered necessary and appropriate, and on
the basis of such examination, it is my opinion that:
1. The Travelers Insurance Company is duly organized and existing
under the laws of the State of Connecticut and has been duly
authorized to do business and to issue variable annuity contracts
by the Insurance Commissioner of the State of Connecticut.
2. The Travelers Fund ABD for Variable Annuities is a duly
authorized and validly existing separate account established
pursuant to Section 38a-433 of the Connecticut General Statutes.
3. The variable annuity contracts covered by the above Registration
Statement, and all pre-and post-effective amendments relating
thereto, have been approved and authorized by the Insurance
Commissioner of the State of Connecticut and when issued will be
valid, legal and binding obligations of The Travelers Insurance
Company and The Travelers Fund ABD for Variable Annuities.
I hereby consent to the filing of this opinion as an exhibit to the
above-referenced Post-Effective Amendment and to the reference to this opinion
under the caption "Legal Proceedings and Opinion" in the Prospectus constituting
a part of such Post-Effective Amendment.
Katherine M. Sullivan
General Counsel
The Travelers Insurance Company
<PAGE> 1
Exhibit 10(a)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
The Travelers Insurance Company:
We consent to the use of our report included herein and to the reference to our
firm as experts under the heading "Independent Accountants".
KPMG Peat Marwick LLP
Hartford, Connecticut
April 23, 1997
<PAGE> 1
EXHIBIT 13
THE TRAVELERS FUND ABD FOR VARIABLE ANNUITIES
SCHEDULE FOR COMPUTATION OF TOTAL RETURN CALCULATIONS
The standardized and nonstandardized average annual total returns are computed
according to the formula described below. A hypothetical initial investment of
$1,000 is applied to the Funding Option, and then related to ending redeemable
values as of the most recent fiscal year end, for the calendar year-to-date
(nonstandardized only), and over a 1-year, 3-year (nonstandardized only),
5-year, and 10-year period, or since inception if a Funding Option has not been
in existence for one of the prescribed periods.
T = (ERV/P)1/n -1 where:
T = average annual total return
P = a hypothetical initial payment of $1,000
n = the applicable year (1, 3, 5, 10) or portion thereof
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of each of the periods
Both the standardized and nonstandardized performance returns reflect the
deduction for the management fees and other expenses for a Funding Option, the
mortality and expense risk charge and the administrative expense charge.
For Funding Options that were in existence prior to the date they became
available under Fund ABD, the standardized and nonstandarized average total
return quotations will show the investment performance that such Funding Options
would have achieved (reduced by applicable charges/fees had they been held under
the Contract for the period quoted. The total return quotations are based on
historical earnings and are not necessarily representative of future
performance. An Owner's Contract Value at redemption may be more or less than
original cost.
Standardized Method
The standardized returns take into consideration all fees and/or charges
applicable to the Funding Option or contract.
Under the standardized method, the $30 annual contract administrative charge is
reflected in the calculation and is assumed to be deducted at the end of August
of each year. It is expressed as a percentage of assets based on the actual fees
collected (or, anticipated, if a new product) divided by the average net assets
(or, anticipated average net assets, if a new product) for contracts sold under
the prospectus for each year for which performance is shown.
Each standardized average annual total return quotation assumes a total
redemption at the end of each period with the assessment of any applicable
withdrawal charge (6%, 6%, 5%, 5%, 4%, 3% 2%) at that time.
Nonstandardized Method
Nonstandardized returns do not reflect the deduction of any applicable
withdrawal charge or the $30 annual administrative charge, which, if reflected,
would decrease the level of performance shown. The withdrawal charge is not
reflected because the contract is designed for long-term investment.
For a Schedule of the Computation of the Total Return Quotations, both
Standardized and Nonstandardized, see attached.
<PAGE> 2
Portfolio Architect
Standardized Performance
CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
Unit Values Dollars Units Dollars Units Dollars Units Annual Fee
----------- ------- ------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
--------
12/31/86 0.355923 1000 2809.596 0.016%
--------
08/31/87 0.487589 -0.12622 -0.259 0.016%
08/31/88 0.341875 -0.18642 -0.545 0.016%
08/31/89 0.424192 -0.17214 -0.406 0.016%
08/31/90 0.357292 -0.17558 -0.491 0.016%
08/31/91 0.461437 -0.18391 -0.399 0.016%
--------
12/31/91 0.491180 1000 2035.914 0.016%
--------
08/31/92 0.493850 -0.10725 -0.217 -0.21456 -0.434 0.016%
08/31/93 0.641665 -0.18493 -0.288 -0.25500 -0.397 0.016%
08/31/94 0.620510 -0.20552 -0.331 -0.28340 -0.457 0.016%
08/31/95 0.780701 -0.22813 -0.292 -0.31457 -0.403 0.016%
--------
12/31/95 0.816209 1000 1225.176 0.016%
--------
08/31/96 0.928253 -0.15002 -0.162 -0.36512 -0.393 -0.50347 -0.542 0.021%
--------
12/31/96 1.031780 -0.08427 -0.082 -0.13994 -0.136 -0.19297 -0.187 0.021%
--------
</TABLE>
<TABLE>
<CAPTION>
One-Year Five-Year Ten-Year
<S> <C> <C> <C>
Ending units 1224.932 2034.257 2805.076
Contract Value $1,263.86 $2,098.91 $2,894.22
Cash Surrender Value $1,203.86 $2,058.91 $2,894.22
--------
Total Return 20.39% 105.89% 189.42%
-------- -------- --------
Average Annual Total Return 15.54% 11.21%
-------- --------
</TABLE>
<TABLE>
<CAPTION>
ALLIANCE GROWTH PORTFOLIO
Unit Values Dollars Units Dollars Units Annual Fee
<S> <C> <C> <C> <C> <C> <C>
- - --------
06/20/94 0.584317 1000 1711.400 0.016%
- - --------
08/31/94 0.605634 -0.03214 -0.053 0.016%
08/31/95 0.785461 -0.19045 -0.242 0.016%
- - --------
12/31/95 0.812738 1000 1230.409 0.016%
- - --------
08/31/96 0.879764 -0.14617 -0.166 -0.29918 -0.340 0.021%
- - --------
12/31/96 1.036860 -0.08275 -0.080 -0.11508 -0.111 0.021%
- - --------
</TABLE>
<TABLE>
<CAPTION>
One-Year Since inception
<S> <C> <C>
Ending units 1230.163 1710.654
Contract Value $1,275.51 $1,773.71
Cash Surrender Value $1,215.51 $1,723.71
-------- --------
Total Return 21.55% 72.37%
-------- --------
Average Annual Total Return 23.97%
--------
</TABLE>
MFS TOTAL RETURN PORTFOLIO
<TABLE>
<CAPTION>
Unit Values Dollars Units Dollars Units Annual Fee
<S> <C> <C> <C> <C> <C> <C>
- - --------
06/20/94 1.000000 1000 1000.000 0.016%
08/31/94 1.018312 -0.03185 -0.031 0.016%
08/31/95 1.121520 -0.17118 -0.153 0.016%
- - --------
12/31/95 1.211283 1000 825.571 0.016%
- - --------
08/31/96 1.252736 -0.14279 -0.114 -0.24925 -0.199 0.021%
- - --------
12/31/96 1.367557 -0.07591 -0.056 -0.09193 -0.067 0.021%
- - --------
</TABLE>
<TABLE>
<CAPTION>
One-Year Since inception
<S> <C> <C>
Ending units 825.401 999.550
Contract Value $1,128.78 $1,366.94
Cash Surrender Value $1,068.78 $1,316.94
--------
Total Return 6.88% 31.69%
-------- --------
Average Annual Total Return 11.48%
--------
</TABLE>
PUTNAM DIVERSIFIED INCOME PORTFOLIO
<TABLE>
<CAPTION>
Unit Values Dollars Units Dollars Units Annual Fee
<S> <C> <C> <C> <C> <C> <C>
- - --------
06/20/94 0.809110 1000 1235.926 0.016%
- - --------
08/31/94 0.818177 -0.03174 -0.039 0.016%
08/31/95 0.897324 -0.16961 -0.189 0.016%
- - --------
12/31/95 0.943425 1000 1059.968 0.016%
- - --------
08/31/96 0.955299 -0.14127 -0.148 -0.24037 -0.252 0.021%
- - --------
12/31/96 1.006841 -0.07298 -0.072 -0.08508 -0.084 0.021%
- - --------
</TABLE>
<TABLE>
<CAPTION>
One-Year Since inception
<S> <C> <C>
Ending units 1059.748 1235.362
Contract Value $1,067.00 $1,243.81
Cash Surrender Value $1,007.00 $1,193.81
--------
Total Return 0.70% 19.38%
-------- --------
Average Annual Total Return 7.24%
--------
</TABLE>
<PAGE> 3
EQUITY INCOME PORTFOLIO (FIDELITY SUB-ADVISER)
<TABLE>
<CAPTION>
Unit Values Dollars Units Annual Fee
<S> <C> <C> <C> <C>
- - --------
08/30/96 0.922928 1000 1083.508 0.021%
- - --------
08/31/96 0.922928 -0.00058 -0.001 0.021%
- - --------
12/31/96 1.025939 -0.07411 -0.072 0.021%
- - --------
</TABLE>
<TABLE>
<CAPTION>
Since inception
<S> <C>
Ending units 1083.435
Contract Value $1,111.54
Cash Surrender Value $1,051.54
Total Return 5.15%
</TABLE>
FEDERATED STOCK PORTFOLIO
<TABLE>
<CAPTION>
Unit Values Dollars Units Annual Fee
<S> <C> <C> <C> <C>
- - --------
08/30/96 1.000000 1000 1000.000 0.021%
- - --------
08/31/96 1.000000 -0.00058 -0.001 0.021%
- - --------
12/31/96 1.120708 -0.07443 -0.066 0.021%
- - --------
</TABLE>
<TABLE>
<CAPTION>
Since inception
<S> <C>
Ending units 999.933
Contract Value $1,120.63
Cash Surrender Value $1,060.63
Total Return 6.06%
</TABLE>
LARGE CAP PORTFOLIO (FIDELITY SUB-ADVISER)
<TABLE>
<CAPTION>
Unit Values Dollars Units Annual Fee
<S> <C> <C> <C> <C>
- - --------
08/30/96 0.907122 1000 1102.388 0.021%
- - --------
08/31/96 0.907122 -0.00058 -0.001 0.021%
- - --------
12/31/96 1.022896 -0.07467 -0.073 0.021%
- - --------
</TABLE>
<TABLE>
<CAPTION>
Since inception
<S> <C>
Ending units 1102.314
Contract Value $1,127.55
Cash Surrender Value $1,067.55
Total Return 6.76%
</TABLE>
LAZARD INTERNATIONAL EQUITY PORTFOLIO
<TABLE>
<CAPTION>
Unit Values Dollars Units Annual Fee
<S> <C> <C> <C> <C>
- - --------
08/01/96 0.958308 1000 1043.506 0.021%
- - --------
08/31/96 0.945756 -0.01715 -0.018 0.021%
- - --------
12/31/96 1.027066 -0.07225 -0.070 0.021%
- - --------
</TABLE>
<TABLE>
<CAPTION>
Since inception
<S> <C>
Ending units 1043.418
Contract Value $1,071.66
Cash Surrender Value $1,011.66
Total Return 1.17%
</TABLE>
<PAGE> 4
MFS EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
Unit Values Dollars Units Annual Fee
<S> <C> <C> <C> <C>
- - --------
08/30/96 0.951800 1000 1050.641 0.021%
- - --------
08/31/96 0.951800 -0.00058 -0.001 0.021%
- - --------
12/31/96 1.004157 -0.07212 -0.072 0.021%
- - --------
</TABLE>
<TABLE>
<CAPTION>
Since inception
<S> <C>
Ending units 1050.568
Contract Value $1,054.94
Cash Surrender Value $994.94
Total Return -0.51%
</TABLE>
FEDERATED HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
Unit Values Dollars Units Annual Fee
<S> <C> <C> <C> <C>
- - --------
08/30/96 1.000000 1000 1000.000 0.021%
- - --------
08/31/96 1.000000 -0.00058 -0.001 0.021%
- - --------
12/31/96 1.070940 -0.07268 -0.068 0.021%
- - --------
</TABLE>
<TABLE>
<CAPTION>
Since inception
<S> <C>
Ending units 999.931
Contract Value $1,070.87
Cash Surrender Value $1,010.87
Total Return 1.09%
</TABLE>
TRAVELERS QUALITY BOND PORTFOLIO
<TABLE>
<CAPTION>
Unit Values Dollars Unit Annual Fee
<S> <C> <C> <C> <C>
- - --------
08/30/96 0.971168 1000 1029.688 0.021%
- - --------
08/31/96 0.971168 -0.00058 -0.001 0.021%
- - --------
12/31/96 1.000909 -0.07127 -0.071 0.021%
- - --------
</TABLE>
<TABLE>
<CAPTION>
Since inception
<S> <C>
Ending units 1029.616
Contract Value $1,030.55
Cash Surrender Value $970.55
Total Return -2.94%
</TABLE>
TRAVELERS CASH INCOME TRUST
<TABLE>
<CAPTION>
Unit Values Dollars Units Dollars Units Dollars Units Annual Fee
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- - --------
12/31/87 1.000000 1000 1000.000 0.016%
- - --------
08/31/88 1.034369 -0.10880 -0.105 0.016%
08/31/89 1.101482 -0.17085 -0.155 0.016%
08/31/90 1.166930 -0.18143 -0.155 0.016%
08/31/91 1.231601 -0.19180 -0.156 0.016%
- - --------
12/31/91 1.256672 1000 795.753 0.016%
- - --------
08/31/92 1.274683 -0.10773 -0.085 -0.20039 -0.157 0.016%
08/31/93 1.287798 -0.16311 -0.127 -0.20485 -0.159 0.016%
08/31/94 1.296908 -0.16450 -0.127 -0.20659 -0.159 0.016%
08/31/95 1.356929 -0.16887 -0.124 -0.21208 -0.156 0.016%
- - --------
12/31/95 1.369504 1000 730.191 0.016%
- - --------
08/31/96 1.391588 -0.14152 -0.102 -0.22952 -0.165 -0.28825 -0.207 0.021%
- - --------
12/31/96 1.406691 -0.07170 -0.051 -0.07809 -0.056 -0.09807 -0.070 0.021%
- - --------
</TABLE>
<TABLE>
<CAPTION>
One-Year Five-Year Since Inception
<S> <C> <C> <C>
Ending units 730.038 795.069 998.521
Contract Value $1,026.94 $1,118.42 $1,404.61
Cash Surrender Value $966.94 $1,078.42 $1,404.61
--------
Total Return -3.31% 7.84% 40.46%
-------- -------- --------
Average Annual Total Return 1.52% 3.84%
-------- --------
</TABLE>
<PAGE> 5
PORTFOLIO ARCHITECT
Non-Standardized Performance
Capital Appreciation Fund
<TABLE>
<CAPTION>
Unit Value Dollars Units Dollars Units Dollars Units Dollars Units Dollars Units Annual Fee
--------- ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
05/26/83 0.348580 1000 2868.782
- - --------
12/31/86 0.355923 1000 2809.596 0.000%
- - --------
08/31/87 0.487589 0.00000 0.000 0.000 0.000 0.000%
08/31/88 0.341875 0.00000 0.000 0.000 0.000 0.000%
08/31/89 0.424192 0.00000 0.000 0.000 0.000 0.000%
08/31/90 0.357292 0.00000 0.000 0.000 0.000 0.000%
08/31/91 0.461437 0.00000 0.000 0.000 0.000 0.000%
- - --------
12/31/91 0.491180 1000 2035.914 0.000%
- - --------
08/31/92 0.493850 0.00000 0.000 0.00000 0.000 0.000 0.000 0.000%
08/31/93 0.641665 0.00000 0.000 0.00000 0.000 0.000 0.000 0.000%
- - --------
12/31/93 0.646424 1000 1546.972
- - --------
08/31/94 0.620510 0.00000 0.00000 0.00000 0.000 0.00000 0.000 0.000 0.000 0.000%
08/31/95 0.780701 0.00000 0.00000 0.00000 0.000 0.00000 0.000 0.000 0.000 0.000%
- - --------
12/31/95 0.816209 1000 1225.176 0.000%
- - --------
08/31/96 0.928253 0.00000 0.000 0.00000 0.00000 0.00000 0.000 0.00000 0.000 0.000 0.000 0.000%
- - --------
12/31/96 1.031780 0.00000 0.000 0.00000 0.00000 0.00000 0.000 0.00000 0.000 0.000 0.000 0.000%
- - --------
</TABLE>
<TABLE>
<CAPTION>
One-Year Three-Year Five-Year Ten-Year Since Inception
<S> <C> <C> <C> <C> <C>
Ending Units 1225.176 1546.972 2035.914 2809.596 2868.782
Contract Value $1,264.11 $1,596.13 $2,100.62 $2,898.88 $2,959.95
---------
Total Return 26.41% 59.61% 110.06% 189.89% 196.00%
--------- --------- --------- --------- ---------
Average Annual Total Return 16.85% 15.98% 11.22% 8.30%
--------- --------- --------- ---------
</TABLE>
ALLIANCE GROWTH PORTFOLIO
<TABLE>
<CAPTION>
Unit Value Dollars Units Dollars Units Dollars Units Annual Fee
---------- ------- ----- ------- ----- ------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- - --------
06/20/94 0.584317 1000 1711.400 0.000%
- - --------
08/31/94 0.605634 0.00000 0.000 0.000%
08/31/95 0.785461 0.00000 0.000 0.000%
- - --------
12/31/95 0.812738 1000 1230.409 0.000%
- - --------
08/31/96 0.879764 0.00000 0.000 0.00000 0.000 0.000%
- - --------
12/31/96 1.036860 0.00000 0.000 0.00000 0.000 0.000%
- - --------
</TABLE>
<TABLE>
<CAPTION>
One-Year Since Inception
<S> <C> <C>
Ending Units 1230.409 1711.400
Contract Value $1,275.76 $1,774.48
---------
Total Return 27.58% 77.45%
--------- ---------
Average Annual Total Return 25.40%
---------
</TABLE>
MFS TOTAL RETURN PORTFOLIO
<TABLE>
<CAPTION>
Unit Value Dollars Units Dollars Units Annual Fee
---------- ------- ----- ------- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
- - --------
06/20/94 1.000000 1000 1000.000 0.000%
- - --------
08/31/94 1.018312 0.00000 0.000 0.000%
08/31/95 1.121520 0.00000 0.000 0.000%
- - --------
12/31/95 1.211665 1000 825.311
- - --------
08/31/96 1.252736 0.00000 0.000 0.00000 0.000 0.000%
- - --------
12/31/96 1.367988 0.00000 0.000 0.00000 0.000 0.000%
- - --------
</TABLE>
<TABLE>
<CAPTION>
One-Year Since Inception
<S> <C> <C>
Ending Units 825.311 1000.000
Contract Value $1,129.02 $1,367.99
--------
Total Return 12.90% 12.90%
-------- --------
Average Annual Total Return 13.16%
--------
</TABLE>
PUTNAM DIVERSIFIED INCOME PORTFOLIO
<TABLE>
<CAPTION>
Unit Value Dollars Units Dollars Units Annual Fee
---------- ------- ----- ------- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
- - --------
06/20/94 0.809110 1000 1235.926 0.000%
- - --------
08/31/94 0.818177 0.00000 0.000 0.000%
08/31/95 0.897324 0.00000 0.000 0.000%
- - --------
12/31/95 0.943425 1000 1059.968 0.000%
- - --------
08/31/96 0.955299 0.00000 0.000 0.00000 0.000 0.000%
- - --------
12/31/96 1.006841 0.00000 0.000 0.00000 0.000 0.000%
- - --------
</TABLE>
<TABLE>
<CAPTION>
One-Year Since Inception
<S> <C> <C>
Ending Units 1059.968 1235.926
Contract Value $1,067.22 $1,244.38
---------
Total Return 6.72% 24.44%
--------- ---------
Average Annual Total Return 9.01%
---------
</TABLE>
EQUITY INCOME PORTFOLIO (FIDELITY SUB-ADVISER)
<TABLE>
<CAPTION>
Unit Value Dollars Units Annual Fee
---------- ------- ----- ----------
<C> <C> <C> <C> <C>
- - --------
08/30/96 0.922928 1000 1083.508 0.000%
- - --------
08/31/96 0.922928 0.00000 0.000 0.000%
- - --------
12/31/96 1.025939 0.00000 0.000 0.000%
- - --------
</TABLE>
<TABLE>
<CAPTION>
Since Inception
<S> <C>
Ending Units 1083.508
Contract Value $1,111.61
Total Return 11.16%
</TABLE>
FEDERATED STOCK PORTFOLIO
<TABLE>
<CAPTION>
Unit Value Dollars Units Annual Fee
---------- ------- ----- ----------
<S> <C> <C> <C> <C>
- - --------
08/30/96 1.000000 1000 1000.000 0.000%
- - --------
08/31/96 1.000000 0.00000 0.000 0.000%
- - --------
12/31/96 1.120708 0.00000 0.000 0.000%
- - --------
</TABLE>
<TABLE>
<CAPTION>
Since Inception
<S> <C>
Ending Units 1000.000
Contract Value $1,120.71
Total Return 12.07%
</TABLE>
LARGE CAP PORTFOLIO (FIDELITY SUB-ADVISER)
<TABLE>
<CAPTION>
Unit Value Dollars Units Annual Fee
---------- ------- ----- ----------
<C> <C> <C> <C> <C>
- - --------
08/30/96 0.907122 1000 1102.388 0.000%
- - --------
08/31/96 0.907122 0.00000 0.000 0.000%
- - --------
12/31/96 1.022896 0.00000 0.000 0.000%
- - --------
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
Since inception
<S> <C>
Ending units 1102.388
Contract Value $1,127.63
Total Return 12.76%
</TABLE>
LAZARD INTERNATIONAL EQUITY PORTFOLIO
<TABLE>
<CAPTION>
Unit Value Dollars Units Annual Fee
---------- ------- ----- ----------
<S> <C> <C> <C> <C>
08/01/96 0.958308 1000 1043.506 0.000%
08/31/96 0.945756 0.00000 0.000 0.000%
12/31/96 1.027066 0.00000 0.000 0.000%
</TABLE>
<TABLE>
<CAPTION>
Since Inception
<S> <C>
Ending Units 1043.506
Contract Value $1,071.75
Total Return 7.17%
</TABLE>
MFS EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
Unit Value Dollars Units Annual Fee
---------- ------- ----- ----------
<S> <C> <C> <C> <C>
- - --------
08/30/96 0.951800 1000 1050.641 0.000%
- - --------
08/31/96 0.951800 0.00000 0.000 0.000%
- - --------
12/31/96 1.004157 0.00000 0.000 0.000%
- - --------
</TABLE>
<TABLE>
<CAPTION>
Since Inception
<S> <C>
Ending Units 1050.641
Contract Value $1,055.01
Total Return 5.50%
</TABLE>
FEDERATED HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
Unit Value Dollars Units Annual Fee
---------- -------- ----- ----------
<S> <C> <C> <C> <C>
08/30/96 1.000000 1000 1000.000 0.000%
08/31/96 1.000000 0.00000 0.000 0.000%
12/31/96 1.070940 0.00000 0.000 0.000%
</TABLE>
<TABLE>
<CAPTION>
Since Inception
<S> <C>
Ending Units 1000.000
Contract Value $1,070.94
Total Return 7.09%
</TABLE>
TRAVELERS QUALITY BOND PORTFOLIO
<TABLE>
<CAPTION>
Unit Value Dollars Units Annual Fee
---------- ------- ----- ----------
<S> <C> <C> <C> <C>
- - --------
08/30/96 0.971168 1000 1029.688 0.000%
- - --------
08/31/96 0.971168 0.00000 0.000 0.000%
- - --------
12/31/96 1.000909 0.00000 0.000 0.000%
- - --------
</TABLE>
<TABLE>
<CAPTION>
Since Inception
<S> <C>
Ending Units 1029.688
Contract Value $1,030.62
Total Return 3.06%
</TABLE>
TRAVELERS CASH INCOME TRUST
<TABLE>
<CAPTION>
Unit Value Dollars Units Dollars Units Dollars Units Dollars Units Annual Fee
----------- ------- ----- ------- ----- ------- ----- ------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- - --------
12/31/87 1.000000 1000 1000.000 0.000%
- - --------
08/31/88 1.034369 0.00000 0.000 0.000%
08/31/89 1.101482 0.00000 0.000 0.000%
08/31/90 1.166930 0.00000 0.000 0.000%
08/31/91 1.231601 0.00000 0.000 0.000%
- - --------
12/31/91 1.256672 1000 795.753 0.000%
- - --------
08/31/92 1.274683 0.00000 0.000 0.00000 0.000 0.000%
08/31/93 1.287798 0.00000 0.000 0.00000 0.000 0.000%
- - --------
12/31/93 1.289480 1000 775.506
- - --------
08/31/94 1.296908 0.00000 0.00000 0.00000 0.000 0.00000 0.000 0.000%
08/31/95 1.356929 0.00000 0.00000 0.00000 0.000 0.00000 0.000 0.000%
- - --------
12/31/95 1.369504 1000 730.191 0.000%
- - --------
08/31/96 1.391588 0.00000 0.000 0.00000 0.00000 0.00000 0.000 0.00000 0.000 0.000%
- - --------
12/31/96 1.406691 0.00000 0.000 0.00000 0.00000 0.00000 0.000 0.00000 0.000 0.000%
- - --------
</TABLE>
<TABLE>
<CAPTION>
One-Year Three-Year Five-Year Since Inception
<S> <C> <C> <C> <C>
Ending Units 730.191 775.506 795.753 1000.000
Contract Value $1,027.15 $1,090.90 $1,119.38 $1,406.69
---------
Total Return 2.72% 9.09% 11.94% 40.67%
--------- --------- --------- ---------
Average Annual Total Return 2.94% 2.28% 3.86%
--------- --------- ---------
</TABLE>
