<PAGE> 1
Registration Statement No. 333-00165
811-07487
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 4
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 4
THE TRAVELERS SEPARATE ACCOUNT QP 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
Vice President and 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, 1999 pursuant to paragraph (b) of Rule 485.
- ------
60 days after filing pursuant to paragraph (a)(1) of Rule 485.
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on ___________ pursuant to paragraph (a)(1) of Rule 485.
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If appropriate, check the following box:
this post-effective amendment designates a new effective date for
- ------- a previously filed post-effective amendment.
<PAGE> 2
PART A
Information Required in a Prospectus
<PAGE> 3
GOLD TRACK
PROSPECTUS
This prospectus describes Gold Track, a flexible premium group variable annuity
contract (the "Contract") issued by The Travelers Insurance Company (the
"Company", "us" or "we").
The Contract's value will vary daily to reflect the investment experience of the
funding options you select and the interest credited to the Fixed Account. The
variable funding options available through Travelers Separate Account QP for
Variable Annuities are:
<TABLE>
<S> <C>
Capital Appreciation Fund TEMPLETON VARIABLE PRODUCTS SERIES FUND
Dreyfus Stock Index Fund Templeton Asset Allocation Fund (Class I)
High Yield Bond Trust Templeton Bond Fund (Class I)
Managed Assets Trust Templeton Stock Fund (Class I)
AMERICAN ODYSSEY FUNDS, INC. TRAVELERS SERIES FUND, INC.
Core Equity Fund Alliance Growth Portfolio
Emerging Opportunities Fund MFS Total Return Portfolio
Global High-Yield Bond Fund Putnam Diversified Income Portfolio
Intermediate-Term Bond Fund Smith Barney High Income Portfolio
International Equity Fund Smith Barney International Equity Portfolio
Long-Term Bond Fund Smith Barney Large Capitalization Growth Portfolio
DELAWARE GROUP PREMIUM FUND, INC. Smith Barney Large Cap Value Portfolio
REIT Series Smith Barney Money Market Portfolio
DREYFUS VARIABLE INVESTMENT FUND THE TRAVELERS SERIES TRUST
Capital Appreciation Portfolio Convertible Bond Portfolio
Small Cap Portfolio Disciplined Mid Cap Stock Portfolio
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND Disciplined Small Cap Stock Portfolio
Equity Income Portfolio MFS Mid Cap Growth Portfolio
Growth Portfolio MFS Research Portfolio
High Income Portfolio Social Awareness Stock Portfolio
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II Strategic Stock Portfolio
Asset Manager Portfolio Travelers Quality Bond Portfolio
SALOMON BROTHERS VARIABLE SERIES FUNDS, INC. U.S. Government Securities Portfolio
Salomon Brothers Variable Investors Fund Utilities Portfolio
</TABLE>
THE FIXED ACCOUNT IS DESCRIBED IN A SEPARATE PROSPECTUS. SOME OF THE FUNDING
OPTIONS MAY NOT BE AVAILABLE IN ALL STATES. THIS PROSPECTUS MUST BE ACCOMPANIED
BY THE CURRENT PROSPECTUSES FOR SEPARATE ACCOUNT QP'S UNDERLYING FUNDS. PLEASE
READ AND RETAIN THEM FOR FUTURE REFERENCE.
This prospectus sets forth the information that you should know before
investing. You can receive additional information by requesting a Statement of
Additional Information ("SAI")dated May 1, 1999. The SAI has been filed with the
Securities and Exchange Commission ("SEC") and incorporated by reference to this
prospectus. To request a free copy, write to The Travelers Insurance Company,
Annuity Services, One Tower Square, Hartford, CT 06183-5030, call
1-800-842-9368, or access the SEC's website (http://www.sec.gov). See Appendix B
for the SAI's table of contents.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
VARIABLE ANNUITY CONTRACTS ARE NOT DEPOSITS OF ANY BANK, AND ARE NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY.
PROSPECTUS DATED: MAY 1, 1999
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<S> <C>
Index of Special Terms..................... 2
Summary.................................... 3
Fee Table.................................. 6
Condensed Financial Information............ 11
The Variable Annuity Contract.............. 11
Contract Owner Inquiries................. 11
Allocated Contracts...................... 11
Unallocated Contracts.................... 11
Purchase Payments........................ 12
Accumulation Units....................... 12
The Funding Options...................... 12
Transfers.................................. 15
Dollar Cost Averaging.................... 15
Asset Allocation Advice.................. 16
Access to Your Contract Values............. 17
Systematic Withdrawals..................... 17
Charges and Deductions..................... 17
General.................................. 17
Withdrawal Charge........................ 18
Free Withdrawal Allowance.............. 19
Mortality and Expense Risk Charge........ 19
Funding Option Charges................... 19
Premium Tax.............................. 19
Administrative Charge.................... 19
Semiannual Policy Fee.................. 20
Administrative Expense................. 20
TPA Administrative Charges............... 20
Ownership Provisions....................... 20
Types of Ownership....................... 20
Beneficiary.............................. 21
Annuitant................................ 21
Death Benefit.............................. 21
Payment of Proceeds...................... 21
Death Benefit Proceeds Prior to Maturity
Date................................... 22
Death Proceeds After the Maturity Date... 22
The Annuity Period......................... 23
Maturity Date............................ 23
Allocation of Annuity.................... 23
Variable Annuity......................... 23
Fixed Annuity.............................. 24
Election of Options...................... 24
Minimum Amounts.......................... 24
Misstatement............................. 25
Retired Life Certificate................. 25
Allocation of Cash Surrender Value During
the Annuity Period..................... 25
Annuity Options.......................... 25
Miscellaneous Contract Provisions.......... 26
Right to Return.......................... 26
Contract and Participant's Individual
Account Termination.................... 26
Contract Exchanges....................... 27
Postponement of Payment (Emergency
Procedure)............................. 27
Account Value............................ 27
The Separate Account....................... 27
Performance Information.................. 28
Standardized Method...................... 28
Nonstandardized Method................... 28
General.................................. 28
Federal Tax Considerations................. 29
General Taxation of Annuities............ 29
Types of Contracts: Qualified or
Nonqualified........................... 29
Investor Control......................... 29
Mandatory Distributions for Qualified
Plans.................................. 30
Nonqualified Annuity Contracts........... 30
Qualified Annuity Contracts.............. 30
Penalty Tax for Premature
Distributions.......................... 31
Diversification Requirements............. 31
Other Information.......................... 31
The Insurance Company.................... 31
Year 2000 Compliance..................... 31
Distribution of Variable Annuity
Contracts.............................. 32
Conformity with State and Federal Laws... 32
Voting Rights............................ 32
Contract Modification.................... 32
Legal Proceedings........................ 33
APPENDIX A: CONDENSED FINANCIAL
INFORMATION.............................. A-1
APPENDIX B: CONTENTS OF THE STATEMENT OF
ADDITIONAL INFORMATION................... B-1
</TABLE>
INDEX OF SPECIAL TERMS
The following terms are italicized throughout the prospectus. Refer to the page
listed for an explanation of each term.
<TABLE>
<S> <C>
Accumulation Unit.......................... 12
Annuitant.................................. 21
Annuity Payments........................... 11
Annuity Unit............................... 12
Cash Value................................. 11
Contract Date.............................. 11
Contract Owner (You, Your)................. 11
Contract Value............................. 11
Contract Year.............................. 11
Funding Option(s).......................... 12
Individual Account......................... 11
Maturity Date.............................. 11
Participant................................ 11
Purchase Payment........................... 11
Written Request............................ 11
</TABLE>
2
<PAGE> 5
SUMMARY:
TRAVELERS GOLD TRACK
THIS SUMMARY DETAILS SOME OF THE MORE IMPORTANT POINTS THAT YOU SHOULD KNOW AND
CONSIDER BEFORE PURCHASING THE CONTRACT. PLEASE READ THE PROSPECTUS CAREFULLY.
CAN YOU GIVE ME A DESCRIPTION OF THE VARIABLE ANNUITY CONTRACT? The Contract is
intended for retirement savings or other long-term investment purposes. The
Contract provides a death benefit as well as guaranteed income options. You
direct your payment(s) to one or more of the variable funding options and/or to
the Fixed Account. The variable funding options are designed to produce a higher
rate of return than the Fixed Account; however, this is not guaranteed. You may
gain or lose money in the funding options.
The Contract, like all deferred variable annuity contracts has two phases: the
accumulation phase and the payout phase. During the accumulation phase, under a
qualified contract, generally your pre-tax contributions accumulate on a
tax-deferred basis and are taxed as income when you make a withdrawal,
presumably when you are in a lower tax bracket. During the accumulation phase,
under a nonqualified Contract, earnings on your after-tax contributions
accumulate on a tax-deferred basis and are taxed as income when you make a
withdrawal. The income phase occurs when you begin receiving payments from your
Contract. The amount of money you accumulate in your Contract determines the
amount of income (annuity payments) you receive during the payout phase.
During the payout phase, you may choose to receive income payments from the
Fixed Account or the variable funding options. If you want to receive scheduled
payments from your annuity, you can choose from a number of annuity options.
Once you elect an annuity option or an income option and begin to receive
payments, it cannot be changed. During the payout phase, you have the same
investment choices you had during the accumulation phase. If amounts are
directed to the variable funding options, the dollar amount of your payments may
increase or decrease.
WHO SHOULD PURCHASE THIS CONTRACT? The Contract is currently available for use
in connection with qualified retirement plans (which include contracts
qualifying under Section 401(a), 403(b), or 457 of the Internal Revenue Code
(the "Code"). The Contract may also be issued for nonqualified and unfunded
deferred compensation plans which do not qualify for special treatment under the
Code.
The minimum purchase payment allowed is an average of $1,000 annually per
individual certificate, or $10,000 annually per group contract.
WHO IS THE CONTRACT ISSUED TO? If a group allocated contract is purchased, we
issue certificates to the individual participants. If a group unallocated
contract is purchased, we issue only the contract. Where we refer to "you," we
are referring to the group participant. For convenience, we refer to both
contracts and certificates as "contracts."
Depending on your retirement plan provisions, certain features and/or funding
options described in this prospectus may not be available to you (for example,
dollar-cost averaging, the CHART program, etc.). Your retirement plan provisions
supercede the prospectus. If you have any questions about your specific
retirement plan, contact your plan administrators.
IS THERE A RIGHT TO RETURN PERIOD? If you cancel the Contract within ten days
after you receive it, you receive a full refund of the Cash Value (including
charges). Where state law requires a longer
3
<PAGE> 6
right to return (free look), or the return of the purchase payments, we will
comply. You bear the investment risk during the free look period; therefore, the
Cash Value returned to you may be greater or less than your purchase payment.
The Cash Value will be determined as of the close of business on the day we
receive a written request for a refund.
WHAT TYPES OF INVESTMENT OPTIONS ARE AVAILABLE? You can direct your money into
the Fixed Account and any or all of the variable funding options shown on the
cover page. The funding options are described in the prospectuses for the funds.
Depending on market conditions, you may make or lose money in any of these
options.
The value of the Contract will vary depending upon the investment performance of
the funding options you choose. Refer to the SAI for performance information for
each funding option. Past performance is not a guarantee of future results.
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. We may, in the future, charge a fee
for any transfer request, or limit the number of transfers allowed. At the
minimum, we would always allow at least one transfer every six months.
WHAT EXPENSES WILL BE ASSESSED UNDER THE CONTRACT? The Contract has insurance
features and investment features, and there are costs related to each. For each
allocated contract we may deduct a semiannual administrative charge of $15. A
maximum sub-account administrative charge of .10% annually will be charged in
addition to or instead of the semiannual administrative charge, depending upon
the terms of your allocated contract. The maximum annual insurance charge is
1.20% of the amounts you direct to the variable funding options. Each funding
option also charges for management, any applicable asset allocation fee and
other expenses. Please refer to the Fee Table for more information about the
charges.
If you withdraw amounts from the Contract, a withdrawal charge may apply. The
amount of the charge depends on a number of factors, including length of time
since the purchase payment was made (for deferred sales charges) or the length
of time the contract has been in force (for surrender charges). If you withdraw
all amounts under the Contract, or if you begin receiving annuity/income
payments, the Company may be required by your state to deduct a premium tax.
HOW WILL MY CONTRIBUTIONS AND WITHDRAWALS BE TAXED? 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 payments. Under a nonqualified
Contract, payments are made with after-tax dollars, and any earnings accumulate
tax-deferred. You will be taxed on these earnings when they are withdrawn from
the Contract.
If you own a qualified Contract and 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
distribution amount required by federal law. If you are younger than 59 1/2 when
you take money out, you may be charged a 10% federal penalty tax on the amount
withdrawn.
HOW MAY I ACCESS MY MONEY? You can take withdrawals any time during the
accumulation phase. A withdrawal charge may apply. After the first contract
year, you may withdraw up to 10% of the cash value (as of the end of the
previous contract year) without a sales charge. Of course, you may have to pay
income taxes, a federal tax penalty or premium taxes on any money you take out.
You may choose to receive monthly, quarterly, semiannual or annual
("systematic") withdrawals of at least $50 if your Contract's cash value is
$5,000 or more. All applicable sales charges and premium taxes will be deducted.
4
<PAGE> 7
WHAT IS THE DEATH BENEFIT UNDER THE CONTRACT? The death benefit applies upon
the first death of the owner, joint owner or annuitant. Assuming you are the
Annuitant, if you die before you move to the 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 is calculated
as of the close of the business day on which the Home Office receives due proof
of death.
Any amount paid will be reduced by any applicable premium tax, outstanding loans
or surrenders not previously deducted. Certain states may have varying age
requirements. Please refer to the Death Benefit section of the prospectus for
more details.
ARE THERE ANY ADDITIONAL FEATURES? This Contract has other features you may be
interested in. These include:
- DOLLAR COST AVERAGING. This is a program that allows you to invest a
fixed amount of money in Funding Options each month, theoretically
giving you a lower average cost per unit over time as compared to a
single one-time purchase. Dollar cost averaging requires regular
investments regardless of fluctuating price levels, and does not
guarantee a profit nor prevent loss in a declining market. Potential
investors should consider their financial ability to continue
purchases through periods of low price levels.
- ASSET ALLOCATION ADVICE. If allowed, you may elect to enter into a
separate advisory agreement with Copeland Financial Services, Inc.
("Copeland"), an affiliate of the Company, for the purpose of
receiving asset allocation advice under Copeland's CHART Program. The
CHART Program allocates all Purchase Payments among the American
Odyssey Funds. The CHART Program and applicable fees are fully
described in a separate Disclosure Statement.
- SYSTEMATIC WITHDRAWAL. Before the maturity date, you can arrange to
have money sent to you at set intervals throughout the year. Of
course, any applicable charges and taxes will apply on amounts
withdrawn.
5
<PAGE> 8
FEE TABLE
- --------------------------------------------------------------------------------
MAXIMUM CONTRACT OWNER TRANSACTION CHARGE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
YEARS SINCE
PURCHASE PAYMENT
CONTINGENT DEFERRED SALES CHARGE MADE PERCENTAGE
- -------------------------------------------------------------------------------------
<S> <C> <C>
As a percentage of purchase payments 0-5 5%
6+ 0%
OR
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
SURRENDER CHARGE CONTRACT YEAR PERCENTAGE
- -------------------------------------------------------------------------------------
<S> <C> <C>
As a percentage of amount surrendered 1-2 5%
3-4 4%
5-6 3%
7-8 2%
9+ 0%
</TABLE>
MAXIMUM CONTRACT ADMINISTRATIVE CHARGE
<TABLE>
<S> <C> <C>
Semiannual Contract Administrative Charge (allocated
contracts only) $ 15
AND/OR
Funding Option Administrative Charge .10%
(As a percentage of amounts allocated to the variable
funding options under allocated contracts)
</TABLE>
MAXIMUM SEPARATE ACCOUNT ANNUAL EXPENSES
<TABLE>
<S> <C> <C>
Mortality and Expense Risk Fees 1.20%
</TABLE>
(As a percentage of average daily net assets of the Separate Account)
6
<PAGE> 9
FUNDING OPTION EXPENSES
(As a percentage of average daily net assets of the funding option as of
December 31, 1998, unless otherwise noted.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL ANNUAL
OPERATING
MANAGEMENT FEE OTHER EXPENSES EXPENSES
(AFTER EXPENSE (AFTER EXPENSE (AFTER EXPENSE
UNDERLYING FUNDS: REIMBURSEMENT) REIMBURSEMENT) REIMBURSEMENT)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dreyfus Stock Index Fund............................. 0.25% 0.01% 0.26%
Capital Appreciation Fund............................ 0.75% 0.10% 0.85%
High Yield Bond Trust................................ 0.50% 0.32% 0.82%
Managed Assets Trust................................. 0.50% 0.10% 0.60%
AMERICAN ODYSSEY FUNDS, INC.
Core Equity Fund................................. 0.56% 0.09% 0.65%
Emerging Opportunities Fund...................... 0.73% 0.14% 0.87%(1)
Global High-Yield Bond Fund...................... 0.63% 0.15% 0.78%(2)
Intermediate-Term Bond Fund...................... 0.49% 0.11% 0.60%
International Equity Fund........................ 0.60% 0.13% 0.73%
Long-Term Bond Fund.............................. 0.50% 0.10% 0.60%
AMERICAN ODYSSEY FUNDS, INC.*
Core Equity Fund................................. 0.56% 1.34% 1.90%
Emerging Opportunities Fund...................... 0.73% 1.39% 2.12%(1)
Global High-Yield Bond Fund...................... 0.63% 1.40% 2.03%(2)
Intermediate-Term Bond Fund...................... 0.49% 1.36% 1.85%
International Equity Fund........................ 0.60% 1.38% 1.98%
Long-Term Bond Fund.............................. 0.50% 1.35% 1.85%
DELAWARE GROUP PREMIUM FUND, INC.
REIT Series...................................... 0.58% 0.27% 0.85%(3)
DREYFUS VARIABLE INVESTMENT FUND
Capital Appreciation Portfolio................... 0.75% 0.06% 0.81%
Small Cap Portfolio.............................. 0.75% 0.02% 0.77%
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND
Equity Income Portfolio.......................... 0.49% 0.08% 0.57%(4)
Growth Portfolio................................. 0.59% 0.07% 0.66%(4)
High Income Portfolio............................ 0.58% 0.12% 0.70%
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II
Asset Manager Portfolio.......................... 0.54% 0.09% 0.63%(4)
SALOMON BROTHERS VARIABLE SERIES FUNDS, INC.
Salomon Brothers Variable Investors Fund......... 0.70% 0.30% 1.00%(5)
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Templeton Asset Allocation Fund.................. 0.60% 0.18% 0.78%
Templeton Bond Fund.............................. 0.50% 0.23% 0.73%
Templeton Stock Fund............................. 0.70% 0.19% 0.89%
TRAVELERS SERIES FUND, INC.
Alliance Growth Portfolio........................ 0.80% 0.02% 0.82%(6)
MFS Total Return Portfolio....................... 0.80% 0.04% 0.84%(6)
Putnam Diversified Income Portfolio.............. 0.75% 0.12% 0.87%(6)
Smith Barney High Income Portfolio............... 0.60% 0.07% 0.67%(6)
Smith Barney International Equity Portfolio...... 0.90% 0.10% 1.00%(6)
Smith Barney Large Capitalization Growth
Portfolio...................................... 0.75% 0.25% 1.00%(7)
Smith Barney Large Cap Value Portfolio........... 0.65% 0.03% 0.68%(6)
Smith Barney Money Market Portfolio.............. 0.50% 0.14% 0.64%(6)
THE TRAVELERS SERIES TRUST
Convertible Bond Portfolio....................... 0.60%. 0.20% 0.80%(8)
Disciplined Mid Cap Stock Portfolio.............. 0.70% 0.25% 0.95%(9)
Disciplined Small Cap Stock Portfolio............ 0.80% 0.20% 1.00%(8)
MFS Mid Cap Growth Portfolio..................... 0.80% 0.20% 1.00%(8)
MFS Research Portfolio........................... 0.80% 0.20% 1.00%(8)
Social Awareness Stock Portfolio................. 0.65% 0.19% 0.84%
Strategic Stock Portfolio........................ 0.60% 0.30% 0.90%(8)
Travelers Quality Bond Portfolio................. 0.32% 0.31% 0.63%
U.S. Government Securities Portfolio............. 0.32% 0.13% 0.45%
Utilities Portfolio.............................. 0.65% 0.15% 0.80%
</TABLE>
* Includes CHART asset allocation fee of 1.25%.
7
<PAGE> 10
NOTES:
The purpose of this Fee Table is to assist Contract Owners in understanding the
various maximum costs and expenses that Contract Owners or Participants will
bear, directly or indirectly, under the Contract. See "Charges and Deductions"
in this prospectus for additional information. Expenses shown do not include
premium taxes, which may be applicable. "Other Expenses" include operating costs
of the fund. These expenses are reflected in each funding option's net asset
value and are not deducted from the account value under the contract.
(1) Management Fees for the AMERICAN ODYSSEY EMERGING OPPORTUNITIES FUND
reflect the period 05/01/98 to 12/31/98. On May 1, 1998, the Fund adopted
its current fee structure.
(2) Fees and expenses for the AMERICAN ODYSSEY GLOBAL HIGH YIELD BOND FUND
reflect the period 05/01/98 to 12/31/98. On May 1, 1998, the Fund adopted
its current fee structure and investment objective and strategy.
(3) The adviser for the DELAWARE REIT SERIES has The adviser for the Delaware
REIT Series has agreed to voluntarily waive its fee and pay the expenses of
the Series to the extent that the Series' annual operating expenses,
exclusive of taxes, interest, brokerage commissions and extraordinary
expenses, do not exceed 0.85% of its average daily net assets through
October 31, 1999. Without such arrangements, the Total Annual Operating
Expenses for the Portfolio would have been 1.02%.
(4) A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, certain funds, or FMR on behalf of
certain funds, have entered into arrangements with their custodian whereby
credits realized as a result of uninvested cash balances were used to
reduce custodian expenses. Without these reductions, the Total Annual
Operating Expenses in this table would have been 0.64% for VIP II ASSET
MANAGER PORTFOLIO, 0.58% for VIP EQUITY INCOME PORTFOLIO, and 0.68% for VIP
GROWTH PORTFOLIO.
(5) SBAM has waived all of its Management Fees for the following Salomon
Brothers Fund for the period ended December 31, 1998. If such fees were not
waived or expenses reimbursed, the actual annualized Total Annual Operating
Expenses for the INVESTORS FUND would have been 2.07%.
(6) Expenses are as of October 31, 1998 (the Fund's fiscal year end). There
were no fees waived or expenses reimbursed for these funds in 1998.
(7) The Manager waived all or part of its fees for the period ended October 31,
1998. If such fees were not waived, the annualized Total Annual Operating
Expenses for the SMITH BARNEY LARGE CAPITALIZATION GROWTH PORTFOLIO would
have been 1.77%.
(8) Travelers Insurance has agreed to reimburse the CONVERTIBLE BOND PORTFOLIO,
the STRATEGIC STOCK PORTFOLIO, the DISCIPLINED SMALL CAP STOCK PORTFOLIO,
the MFS MID CAP GROWTH PORTFOLIO, and the MFS RESEARCH PORTFOLIO for
expenses for the period ended December 31, 1998. If such expenses were not
reimbursed, the actual annualized Total Annual Operating Expenses would
have been 1.86%, 1.51%, 2.98%, 1.62%, and 1.37%, respectively.
(9) Other Expenses reflect the current expense reimbursement arrangement with
Travelers where Travelers has agreed to reimburse the Portfolios for the
amount by which their aggregate expenses (including management fees, but
excluding brokerage commissions, interest charges and taxes) exceeds 0.95%.
Without such arrangements, the annualized Total Annual Operating Expenses
for the Portfolios would have been 1.22% for the TRAVELERS DISCIPLINED MID
CAP STOCK PORTFOLIO.
8
<PAGE> 11
EXAMPLE WITH DEFERRED SALES CHARGES (PERCENTAGE OF PURCHASE PAYMENT)*
Assuming a 5% annual return on assets, a $1,000 investment would be subject to
the following expenses:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
IF CONTRACT IS NOT SURRENDERED OR
IF CONTRACT IS SURRENDERED AT THE ANNUITIZED AT END OF PERIOD
END OF PERIOD SHOWN: SHOWN:
------------------------------------- -------------------------------------
UNDERLYING FUNDING OPTIONS: 1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Dreyfus Stock Index Fund......................... $69 $109 $152 $221 $19 $ 59 $102 $221
Capital Appreciation Fund........................ 75 127 182 281 25 77 132 281
High Yield Bond Trust............................ 75 126 180 278 25 76 130 278
Managed Assets Trust............................. 73 120 169 256 23 70 119 256
AMERICAN ODYSSEY FUNDS, INC.(1):
Core Equity Fund.............................. 73 121 172 261 23 71 122 261
Emerging Opportunities Fund................... 75 128 183 283 25 78 133 283
Global High-Yield Bond Fund................... 74 125 178 274 24 75 128 274
Intermediate-Term Bond Fund................... 73 120 169 256 23 70 119 256
International Equity Fund..................... 74 124 176 269 24 74 126 269
Long-Term Bond Fund........................... 73 120 169 256 23 70 119 256
AMERICAN ODYSSEY FUNDS, INC.(2):
Core Equity Fund.............................. 86 158 233 380 36 108 183 380
Emerging Opportunities Fund................... 88 165 243 399 38 115 193 399
Global High-Yield Bond Fund................... 87 162 239 391 37 112 189 391
Intermediate-Term Bond Fund................... 85 157 231 375 35 107 181 375
International Equity Fund..................... 86 161 237 387 36 111 187 387
Long-Term Bond Fund........................... 85 157 231 375 35 107 181 375
DELAWARE GROUP PREMIUM FUND, INC.
REIT Series................................... 75 127 182 281 25 77 132 281
DREYFUS VARIABLE INVESTMENT FUND
Capital Appreciation Portfolio................ 75 126 180 277 25 76 130 277
Small Cap Portfolio........................... 74 125 178 273 24 75 128 273
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND
Equity-Income Portfolio....................... 72 119 168 253 22 69 118 253
Growth Portfolio.............................. 73 121 172 262 23 71 122 262
High Income Portfolio......................... 74 123 174 266 24 73 124 266
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II
Asset Manager Portfolio....................... 73 121 171 259 23 71 121 259
SALOMON BROTHERS VARIABLE SERIES FUNDS, INC.
Salomon Brothers Variable Investors Fund...... 77 132 189 296 27 82 139 296
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Templeton Asset Allocation Fund............... 74 125 178 274 24 75 128 274
Templeton Bond Fund........................... 74 124 176 269 24 74 126 269
Templeton Stock Fund.......................... 75 128 184 285 25 78 134 285
TRAVELERS SERIES FUND, INC.
Alliance Growth Portfolio..................... 75 126 180 278 25 76 130 278
MFS Total Return Portfolio.................... 75 127 181 280 25 77 131 280
Putnam Diversified Income Portfolio........... 75 128 183 283 25 78 133 283
Smith Barney High Income Portfolio............ 73 122 173 263 23 72 123 263
Smith Barney International Equity Portfolio... 77 132 189 296 27 82 139 296
Smith Barney Large Capitalization Growth
Portfolio................................... 77 132 189 296 27 82 139 296
Smith Barney Large Cap Value Portfolio........ 73 122 173 264 23 72 123 264
Smith Barney Money Market Portfolio........... 73 121 171 260 23 71 121 260
THE TRAVELERS SERIES TRUST
Convertible Bond Portfolio.................... 75 126 179 276 25 76 129 276
Disciplined Mid Cap Stock Portfolio........... 76 130 187 291 26 80 137 291
Disciplined Small Cap Stock Portfolio......... 77 132 189 296 27 82 139 296
MFS Mid Cap Growth Portfolio.................. 77 132 189 296 27 82 139 296
MFS Research Portfolio........................ 77 132 189 296 27 82 139 296
Social Awareness Stock Portfolio.............. 75 127 181 280 25 77 131 280
Strategic Stock Portfolio..................... 76 129 184 286 26 79 134 286
Travelers Quality Bond Portfolio.............. 73 121 171 259 23 71 121 259
U.S. Government Securities Portfolio.......... 71 115 162 241 21 65 112 241
Utilities Portfolio........................... 75 126 179 276 25 76 129 276
</TABLE>
* THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THE
EXAMPLE REFLECTS THE $15 SEMIANNUAL CONTRACT FEE AS AN ANNUAL CHARGE OF .328%
OF ASSETS.
(1) Reflects expenses that would be incurred for those Contract Owners who DO
NOT participate in the CHART Asset Allocation program.
(2) Reflects expenses that would be incurred for those Contract Owners who DO
participate in the CHART Asset Allocation program.
9
<PAGE> 12
EXAMPLE WITH SURRENDER CHARGES (PERCENTAGE OF AMOUNT SURRENDERED)*
Assuming a 5% annual return on assets, a $1,000 investment would be subject to
the following expenses:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
IF CONTRACT IS SURRENDERED AT THE IF CONTRACT IS NOT SURRENDERED OR
END OF PERIOD SHOWN: ANNUITIZED AT END OF PERIOD SHOWN:
------------------------------------- -------------------------------------
UNDERLYING FUNDING OPTIONS: 1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
Dreyfus Stock Index Fund................ $71 $103 $137 $221 $19 $ 59 $102 $221
Capital Appreciation Fund............... 76 120 166 281 25 77 132 281
High Yield Bond Trust................... 76 119 164 278 25 76 130 278
Managed Assets Trust.................... 74 113 154 256 23 70 119 256
AMERICAN ODYSSEY FUNDS, INC.(1):
Core Equity Fund..................... 74 115 156 261 23 71 122 261
Emerging Opportunities Fund.......... 77 121 167 283 25 78 133 283
Global High-Yield Bond Fund.......... 76 118 163 274 24 75 128 274
Intermediate-Term Bond Fund.......... 74 113 154 256 23 70 119 256
International Equity Fund............ 75 117 160 269 24 74 126 269
Long-Term Bond Fund.................. 74 113 154 256 23 70 119 256
AMERICAN ODYSSEY FUNDS, INC.(2):
Core Equity Fund..................... 86 150 215 380 36 108 183 380
Emerging Opportunities Fund.......... 88 156 225 399 38 115 193 399
Global High-Yield Bond Fund.......... 87 154 221 391 37 112 189 391
Intermediate-Term Bond Fund.......... 86 149 213 375 35 107 181 375
International Equity Fund............ 87 152 219 387 36 111 187 387
Long-Term Bond Fund.................. 86 149 213 375 35 107 181 375
DELAWARE GROUP PREMIUM FUND, INC.
REIT Series.......................... 76 120 166 281 25 77 132 281
DREYFUS VARIABLE INVESTMENT FUND
Capital Appreciation Portfolio....... 76 119 164 277 25 76 130 277
Small Cap Portfolio.................. 76 118 162 273 24 75 128 273
FIDELITY'S VARIABLE INSURANCE PRODUCTS
FUND
Equity-Income Portfolio.............. 74 112 152 253 22 69 118 253
Growth Portfolio..................... 75 115 157 262 23 71 122 262
High Income Portfolio................ 75 116 159 266 24 73 124 266
FIDELITY'S VARIABLE INSURANCE PRODUCTS
FUND II
Asset Manager Portfolio.............. 74 114 155 259 23 71 121 259
SALOMON BROTHERS VARIABLE SERIES FUNDS,
INC.
Salomon Brothers Variable Investors
Fund............................... 78 125 173 296 27 82 139 296
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Templeton Asset Allocation Fund...... 76 118 163 274 24 75 128 274
Templeton Bond Fund.................. 75 117 160 269 24 74 126 269
Templeton Stock Fund................. 77 121 168 285 25 78 134 285
TRAVELERS SERIES FUND, INC.
Alliance Growth Portfolio............ 76 119 164 278 25 76 130 278
MFS Total Return Portfolio........... 76 120 165 280 25 77 131 280
Putnam Diversified Income
Portfolio.......................... 77 121 167 283 25 78 133 283
Smith Barney High Income Portfolio... 75 115 157 263 23 72 123 263
Smith Barney International Equity
Portfolio.......................... 78 125 173 296 27 82 139 296
Smith Barney Large Capitalization
Growth Portfolio................... 78 125 173 296 27 82 139 296
Smith Barney Large Cap Value
Portfolio.......................... 75 115 158 264 23 72 123 264
Smith Barney Money Market Portfolio.. 74 114 156 260 23 71 121 260
THE TRAVELERS SERIES TRUST
Convertible Bond Portfolio........... 76 119 164 276 25 76 129 276
Disciplined Mid Cap Stock
Portfolio.......................... 77 123 171 291 26 80 137 291
Disciplined Small Cap Stock
Portfolio.......................... 78 125 173 296 27 82 139 296
MFS Mid Cap Growth Portfolio......... 78 125 173 296 27 82 139 296
MFS Research Portfolio............... 78 125 173 296 27 82 139 296
Social Awareness Stock Portfolio..... 76 120 165 280 25 77 131 280
Strategic Stock Portfolio............ 77 122 168 286 26 79 134 286
Travelers Quality Bond Portfolio..... 74 114 155 259 23 71 121 259
U.S. Government Securities
Portfolio.......................... 73 109 146 241 21 65 112 241
Utilities Portfolio.................. 76 119 164 276 25 76 129 276
</TABLE>
* THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THE
EXAMPLE REFLECTS THE $15 SEMIANNUAL CONTRACT FEE AS AN ANNUAL CHARGE OF .328%
OF ASSETS.
(1) Reflects expenses that would be incurred for those Contract Owners who DO
NOT participate in the CHART Asset Allocation program.
(2) Reflects expenses that would be incurred for those Contract Owners who DO
participate in the CHART Asset Allocation program.
10
<PAGE> 13
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
See Appendix A on page A-1.
THE VARIABLE ANNUITY CONTRACT
- --------------------------------------------------------------------------------
Gold Track is designed to help you accumulate money for retirement. Certificates
are issued to individual participants under a group contract. Under the
Contract, you (the contract owner or participant, as applicable) make purchase
payments to us and we credit them to your account. We promise to pay you an
income in the form of annuity payments, beginning on a future date that you
choose, the maturity date. The purchase payments accumulate tax deferred in the
funding options that you select. You assume the risk of gain or loss according
to the performance of the funding options. The cash value is the amount of
purchase payments, plus or minus any investment experience or interest. The cash
value also reflects all withdrawals made and charges deducted. There is
generally no guarantee that at the maturity date the cash value will equal or
exceed the total purchase payments made under the Contract. The date the
Contract and its benefits became effective is referred to as the contract date.
Each 12-month period following this contract date is called a contract year. The
record of accumulation units credited to an owner is called the owner's account.
The record of accumulation units credited to a participant is called the
individual account, or participant's interest.
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.
The Contracts may be issued on either an allocated or an unallocated basis. Both
the allocated and unallocated contracts provide for fixed (Fixed Acccount
Option) and variable (Separate Account) accumulations and annuity payouts. The
Fixed Account Option is described in a separate prospectus.
CONTRACT OWNER INQUIRIES
If you have any questions about the Contract, call the Company's Home Office at
1-800-842-9368.
ALLOCATED CONTRACTS
A group allocated Contract will cover all present and future participants under
the Contract. A participant under an allocated Contract receives a certificate
which evidences participation in the Contract.
UNALLOCATED CONTRACTS
We offer an unallocated annuity Contract, designed for use with certain
Qualified Plans where the employer has secured the services of a Third Party
Administrator (TPA).
The Contracts will be issued to an employer or the trustee(s) or custodian of an
employer's Qualified Plan. All purchase payments are held under the Contract, as
directed by the contract owner. There are no individual accounts under the
unallocated Contracts for individual participants in the Qualified Plan.
11
<PAGE> 14
PURCHASE PAYMENTS
The initial purchase payment must be paid before the Contract becomes effective.
The minimum purchase payment allowed is an average of $1,000 annually per
individual certificate, or $10,000 annually per group contract. We will apply
the initial purchase payment within two business days after we receive it in
good order at our Home Office. Subsequent purchase payments received in good
order will be credited 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 the 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. The period between the
contract effective date and the maturity date is the accumulation period. During
the annuity period (i.e., after the maturity date), you are credited with
annuity units.
THE FUNDING OPTIONS
You choose which of the following variable funding options to have your purchase
payments allocated to. You will find detailed information about the options and
their inherent risks in the current prospectuses for the funding options which
must accompany this prospectus. You are not investing directly in the underlying
mutual funds. Since each option has varying degrees of risk, please read the
prospectuses carefully before investing. You may obtain additional copies of the
prospectuses by contacting your registered representative or by calling
1-800-842-9368.
The current funding options are listed below along with their investment
objectives, advisers and any subadviser:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
INVESTMENT INVESTMENT INVESTMENT
OPTIONS OBJECTIVE ADVISER/SUBADVISER
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Dreyfus Stock Index Fund Seeks to provide investment results that correspond to Mellon Equity Securities
the price and yield performance of publicly traded
common stocks in the aggregate, as represented by the
Standard & Poor's 500 Composite Stock Price Index.
Capital Appreciation Fund Seeks growth of capital through the use of common Travelers Asset Management
stocks. Income is not an objective. The Fund invests International Corporation
principally in common stocks of small to large companies ("TAMIC")
which are expected to experience wide fluctuations in Subadviser: Janus Capital
price in both rising and declining markets. Corp.
High Yield Bond Trust* Seeks generous income. The assets of the High Yield Bond TAMIC
Trust will be invested in bonds which, as a class, sell
at discounts from par value and are typically high risk
securities.
Managed Assets Trust** Seeks high total investment return through a fully TAMIC
managed investment policy in a portfolio of equity, debt Subadviser: Travelers
and convertible securities. Investment Management
Company ("TIMCO")
</TABLE>
12
<PAGE> 15
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
INVESTMENT INVESTMENT INVESTMENT
OPTIONS OBJECTIVE ADVISER/SUBADVISER
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
AMERICAN ODYSSEY FUNDS,
INC.
Core Equity Fund Seeks maximum long-term total return by investing American Odyssey Funds
primarily in common stocks of well-established Management, Inc.
companies. Subadviser: Equinox
Capital Management, L.L.C.
Emerging Opportunities Seeks maximum long-term total return by investing American Odyssey Funds
Fund primarily in common stocks of small, rapidly growing Management, Inc.
companies. Subadviser: Cowen Asset
Management and Chartwell
Investment Partners
Global High-Yield Bond Seeks maximum long-term total return (capital American Odyssey Funds
Fund*(1) appreciation and income) by investing primarily in Management, Inc.
high-yield debt securities from the United States and Subadviser: Credit Suisse
abroad. Asset Management
Intermediate-Term Bond Seeks maximum long-term total return by investing American Odyssey Funds
Fund* primarily in intermediate-term corporate debt Management, Inc.
securities, U.S. government securities, mortgage-related Subadviser: TAMIC
securities and asset-backed securities, as well as money
market instruments.
International Equity Fund Seeks maximum long-term total return by investing American Odyssey Funds
primarily in common stocks of established non-U.S. Management, Inc.
companies. Subadviser: Bank of
Ireland Asset Management
(U.S.) Limited
Long-Term Bond Fund* Seeks maximum long-term total return by investing American Odyssey Funds
primarily in long-term corporate debt securities, U.S. Management, Inc.
government securities, mortgage-related securities, and Subadviser: Western Asset
asset-backed securities, as well as money market Management Company
instruments.
DELAWARE GROUP PREMIUM
FUND, INC.
REIT Series Seeks maximum long-term total return by investing in Delaware Management
securities of companies primarily engaged in the real Company, Inc.
estate industry. Subadviser: Lincoln
Investment Management,
Inc.
DREYFUS VARIABLE INVESTMENT
FUND
Capital Appreciation Seeks primarily to provide long-term capital growth The Dreyfus Corporation
Portfolio consistent with the preservation of capital; current Subadviser: Fayez Sarofim
income is a secondary investment objective. The & Co.
portfolio invests primarily in the common stocks of
domestic and foreign issuers.
Small Cap Portfolio Seeks to maximize capital appreciation. The Dreyfus Corporation
FIDELITY'S VARIABLE
INSURANCE PRODUCTS FUND
VIP Equity-Income Seeks reasonable income by investing primarily in Fidelity Management &
Portfolio income- producing equity securities; in choosing these Research Company ("FMR")
securities, the portfolio manager will also consider the
potential for capital appreciation.
VIP Growth Portfolio Seeks capital appreciation by purchasing common stocks FMR
of well-known, established companies, and small emerging
growth companies, although its investments are not
restricted to any one type of security. Capital
appreciation may also be found in other types of
securities, including bonds and preferred stocks.
VIP High Income Seeks to obtain a high level of current income by FMR
Portfolio* investing primarily in high yielding, lower-rated,
fixed-income securities, while also considering growth
of capital.
</TABLE>
13
<PAGE> 16
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
INVESTMENT INVESTMENT INVESTMENT
OPTIONS OBJECTIVE ADVISER/SUBADVISER
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FIDELITY'S VARIABLE
INSURANCE PRODUCTS FUND II
VIP II Asset Manager Seeks high total return with reduced risk over the FMR
Portfolio** long-term by allocating its assets among stocks, bonds
and short-term fixed-income instruments.
SALOMON BROTHERS VARIABLE
SERIES FUND, INC.
Salomon Brothers Variable Seeks long-term growth of capital. Current income is a Salomon Brothers Asset
Investors Fund secondary objective. Management
TEMPLETON VARIABLE PRODUCTS
SERIES FUND
Templeton Asset Seeks a high level of total return with reduced risk Templeton Investment
Allocation Fund** over the long term through a flexible policy of Counsel, Inc.
(Class I) investing in stocks of companies in any nation and debt
obligations of companies and governments of any nation.
Templeton Bond Fund* Seeks high current income by investing primarily in debt Templeton Global Bond
(Class I) securities of companies, governments and government Managers
agencies of various nations throughout the world.
Templeton Stock Fund Seeks capital growth by investing primarily in common Templeton Investment
(Class I) stocks issued by companies, large and small, in various Counsel, Inc.
nations throughout the world.
TRAVELERS SERIES FUND, INC.
Alliance Growth Portfolio Seeks long-term growth of capital by investing Travelers Investment
predominantly in equity securities of companies with a Adviser ("TIA")
favorable outlook for earnings and whose rate of growth Subadviser: Alliance
is expected to exceed that of the U.S. economy over Capital Management L.P.
time. Current income is only an incidental
consideration.
MFS Total Return Seeks to obtain above-average income (compared to a TIA
Portfolio** portfolio entirely invested in equity securities) Subadviser: Massachusetts
consistent with the prudent employment of capital. Finance Services Company
Generally, at least 40% of the Portfolio's assets will ("MFS")
be invested in equity securities.
Putnam Diversified Income Seeks high current income consistent with preservation TIA
Portfolio** of capital. The Portfolio will allocate its investments Subadviser: Putnam
among the U.S. Government Sector, the High Yield Sector, Investment Management,
and the International Sector of the fixed income Inc.
securities markets.
Smith Barney High Income Seeks high current income. Capital appreciation is a SSBC Fund Management Inc.
Portfolio* secondary objective. The Portfolio will invest at least ("SSBC")
65% of its assets in high-yielding corporate debt
obligations and preferred stock.
Smith Barney Seeks total return on assets from growth of capital and SSBC
International Equity income by investing at least 65% of its assets in a
Portfolio diversified portfolio of equity securities of
established non-U.S. issuers.
Smith Barney Large Seeks long-term growth of capital by investing in equity SSBC
Capitalization Growth securities of companies with large market
Portfolio capitalization.
Smith Barney Large Cap Seeks current income and long-term growth of income and SSBC
Value Portfolio capital by investing primarily, but not exclusively, in
common stocks.
Smith Barney Money Market Seeks maximum current income and preservation of capital SSBC
Portfolio* by investing in high quality, short-term money market
instruments. An investment in this fund is neither
insured nor guaranteed by the U.S. Government, and there
is no assurance that a stable $1 value per share will be
maintained.
THE TRAVELERS SERIES TRUST
Convertible Bond Seeks current income and capital appreciation by TAMIC
Portfolio* investing in convertible securities and in combinations
of nonconvertible fixed-income securities and warrants
or call options that together resemble convertible
securities ("synthetic convertible securities").
Disciplined Mid Cap Stock Seeks growth of capital by investing primarily in a TAMIC
Fund broadly diversified portfolio of common stocks. Subadviser: TIMCO
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
INVESTMENT INVESTMENT INVESTMENT
OPTIONS OBJECTIVE ADVISER/SUBADVISER
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
THE TRAVELERS SERIES TRUST,
CONTINUED
Disciplined Small Cap Seeks long term capital appreciation by investing TAMIC
Fund primarily (at least 65% of its total assets) in the Subadviser: TIMCO
common stocks of U.S. Companies with relatively small
market capitalizations at the time of investment.
MFS Mid Cap Growth Seeks to obtain long term growth of capital by TAMIC
Portfolio investing, under normal market conditions, at least 65% Subadviser: MFS
of its total assets in equity securities of companies
with medium market capitalization which the investment
adviser believes have above-average growth potential.
MFS Research Portfolio Seeks to provide long-term growth of capital and future TAMIC
income. Subadviser: MFS
Social Awareness Stock Seeks long-term capital appreciation and retention of SSBC
Portfolio net investment income by selecting investments,
primarily common stocks, which meet the social criteria
established for the Portfolio. Social criteria currently
excludes companies that derive a significant portion of
their revenues from the production of tobacco, tobacco
products, alcohol, or military defense systems, or in
the provision of military defense related services or
gambling services.
Strategic Stock Portfolio Seeks to provide an above-average total return through a TAMIC
combination of potential capital appreciation and Subadviser: TIMCO
dividend income by investing primarily in high dividend
yield stocks periodically selected from the companies
included in (i) the Dow Jones Industrial Average and
(ii) a sub-set of the S&P Industrial Index.
Travelers Quality Bond Seeks current income, moderate capital volatility and TAMIC
Portfolio* total return.
U.S. Government Seeks to select investments from the point of view of an TAMIC
Securities Portfolio* investor concerned primarily with highest credit
quality, current income and total return. The assets of
the U.S. Government Securities Portfolio will be
invested in direct obligations of the United States, its
agencies and instrumentalities.
Utilities Portfolio Seeks to provide current income by investing in equity SSBC
and debt securities of companies in the utility
industries.
</TABLE>
(1) Formerly American Odyssey Short-Term Bond Fund. The name investment
objective and investment subadviser of this fund were changed pursuant to a
shareholder vote effective May 1, 1998.
* The funding options marked with an asterisk (*) are considered competing
funds, and may be subject to transfer restrictions. Those marked with two
asterisks (**) are not currently considered competing funds, but may be so in
the future because of an allowable change in the funding option's investment
strategy. Please refer to the contract for transfer restrictions.
TRANSFERS
- --------------------------------------------------------------------------------
You may transfer cash values from one or more funding options to other funding
options, subject to the terms and conditions of the Contract (and your Plan). If
authorized by the contract owner, participants under allocated Contracts may
transfer all or any of their cash value from one funding option to another up to
30 days before the due date of the first annuity payment.
DOLLAR COST AVERAGING (AUTOMATED TRANSFERS)
Dollar cost averaging or the pre-authorized transfer program (the "DCA Program")
allows you (the owner or participant), if permitted, to transfer a set dollar
amount to other funding options on a monthly or quarterly basis during the
accumulation phase of the Contract so that more accumulation units are purchased
in a funding option if the value per unit is low and fewer accumulation units
are purchased if the value per unit is high. Therefore, a lower-than-average
cost per unit may be achieved over the long run.
15
<PAGE> 18
You may elect the DCA Program through written request or other method acceptable
to the Company. Certain minimums apply to amounts transferred and/or to enroll
in the program.
You may establish pre-authorized transfers of contract values from the Fixed
Account, subject to certain restrictions. Under the DCA Program, automated
transfers from the Fixed Account may not deplete your Fixed Account Value in
less than twelve months from your enrollment in the DCA Program.
In addition to the DCA Program, Travelers may credit increased interest rates to
contract owners under an administrative Special DCA Program established at the
discretion of Travelers, depending on availability and state law. Under this
program, the contract owner may pre-authorize level transfers to any of the
funding options under either a 6 Month Program or 12 Month Program. The 6 Month
Program and the 12 Month Program will generally have different credited interest
rates. Under the 6 Month Transfer Program, the interest rate can accrue up to 6
months on funds in the Special DCA Program and all purchase payments and accrued
interest must be transferred on a level basis to the selected funding option in
6 months. Under the 12 Month Program, the interest rate can accrue up to 12
months on funds in the Special DCA Program and all purchase payments and accrued
interest in this Program must be transferred on a level basis to the selected
funding options in 12 months.
The pre-authorized transfers will begin after the initial Program purchase
payment and complete enrollment instructions are received by Travelers. If
complete Program enrollment instructions are not received by the Company within
15 days of receipt of the initial Program purchase payment, the entire balance
in the Program will be credited with the non-Program interest rate then in
effect for the Fixed Account.
You may start or stop participation in the DCA Program at any time, but you must
give the Company at least 30 days' notice to change any automated transfer
instructions that are currently in place. If you stop the Special DCA Program
and elect to remain in the Fixed Account, your contract value will be credited
for the remainder of 6 or 12 months with the interest rate for non-Program
funds.
A contract owner may only have one DCA Program or Special DCA Program in place
at one time. Any subsequent purchase payments received by the Company within the
Program period selected will be allocated to the current funding options over
the remainder of that Program transfer period, unless otherwise directed by the
contract owner.
All provisions and terms of the Contract apply to the DCA and Special DCA
Programs, including provisions relating to the transfer of money between
investment options. We reserve the right to suspend or modify transfer
privileges at any time and to assess a processing fee for this service.
ASSET ALLOCATION ADVICE
Owners may elect to enter into a separate advisory agreement with Copeland
Financial Services, Inc. ("Copeland"), an affiliate of the Company. Copeland
provides asset allocation advice under its CHART program, which is fully
described in a separate disclosure statement. Under the CHART Program, purchase
payments and cash values are allocated among the specified asset allocation
funds. Copeland's charge for this advisory service is equal to a maximum of
1.50% of the assets subject to the CHART Program. The CHART Program fee will be
paid by quarterly withdrawals from the cash values allocated to the asset
allocation funds. The fee is in addition to the Contract charges described in
"Charges Under the Contract." The Company will not treat these withdrawals as
taxable distributions. The CHART Program may not be available in all marketing
programs through which this Contract is sold.
16
<PAGE> 19
ACCESS TO YOUR CONTRACT VALUES
- --------------------------------------------------------------------------------
Before your maturity date, we will pay all or any portion of your cash surrender
value to the contract owner or to you, as provided in the plan. A contract
owner's account may be surrendered for cash without the consent of any
participant, as provided in the plan.
We may defer payment of any cash surrender value for up to seven days after we
receive the request in good order. The cash surrender value equals the Contract
or Account cash value less any applicable withdrawal charge, outstanding cash
loans, and any premium tax not previously deducted. The cash surrender value may
be more or less than the purchase payments made depending on the value of the
Contract or account at the time of surrender. For information about withdrawals
from your payout option after the Maturity Date (with no life contingency),
refer to the Statement of Additional Information.
Participants in Section 403(b) tax deferred annuity plans may not withdraw
certain salary reduction amounts before reaching age 59 1/2, unless withdrawn
due to separation from service, death, disability or hardship. (See "Federal Tax
Considerations.")
SYSTEMATIC WITHDRAWALS
Before the maturity date, you may choose to withdraw a specified dollar amount
(at least $50) 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 minimum contract value of $5,000. 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.
CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
GENERAL
We deduct the charges described below. The charges are for the service and
benefits we provide, costs and expenses we incur, and risks we assume under the
Contracts. We may also deduct a charge for taxes. Services and benefits we
provide include:
- the ability for you to make withdrawals and surrenders under the
Contracts;
- the death benefit paid on the death of the contract owner, annuitant, or
first of the joint contract owners,
- the available funding options and related programs (including dollar-cost
averaging, portfolio rebalancing, and systematic withdrawal programs);
17
<PAGE> 20
- administration of the annuity options available under the Contracts; and
- the distribution of various reports to contract owners.
Costs and expenses we incur include:
- losses associated with various overhead and other expenses associated
with providing the services and benefits provided by the Contracts,
- sales and marketing expenses, and
- other costs of doing business.
Risks we assume include:
- annuitants may live longer than estimated when the annuity factors under
the Contracts were established,
- the amount of the death benefit will be greater than the contract value
and
- the costs of providing the services and benefits under the Contracts will
exceed the charges deducted.
Unless otherwise specified, charges are deducted proportionately from all
funding options in which you are invested.
We may reduce or eliminate the withdrawal charge, the administrative charges
and/or the mortality and expense risk charge under the Contract when certain
sales or administration of the Contract result in savings or reduced expenses
and/or risks. For certain trusts, we may change the order in which purchase
payments and earnings are withdrawn in order to determine the withdrawal charge.
We will not reduce or eliminate the withdrawal charge or the administrative
charge where such reduction or elimination would be unfairly discriminatory to
any person.
WITHDRAWAL CHARGE
Purchase payments made under the Contract are not subject to a front-end sales
load. However, when withdrawn, the Company will deduct a surrender charge or a
contingent deferred sales charge, as negotiated. Any sales charge, penalty tax
and withholding will be deducted from either the amount surrendered or from the
remaining Contract balance, as requested by the contract owner or participant.
The maximum contingent deferred sales charge is 5% of each purchase payment for
a period of five years from the date the purchase payment was made. The maximum
surrender charge is:
<TABLE>
<CAPTION>
CONTRACT YEAR PERCENTAGE OF AMOUNT SURRENDERED
- ----------------- --------------------------------
<S> <C>
1-2 5%
3-4 4%
5-6 3%
7-8 2%
9 and thereafter 0%
</TABLE>
For deferred sales charge options, purchase payments will be withdrawn in the
order they were received by us and then any earnings.
The sales charges can be changed if the Company anticipates it will incur
decreased sales-related expenses due to the nature of the Plan to which the
Contract is issued or the involvement of TPAs. When considering a change in the
sales charges, the Company will take into account:
(a) The expected level of initial agent or the Company involvement during
the establishment and maintenance of the Contract including the amount
of enrollment activity required, and the amount of service required by
the contract owner in support of the Plan, and
(b) Contract Owner, agent or TPA involvement in conducting ongoing
enrollment of subsequently eligible participants, and
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<PAGE> 21
(c) The expected level of commission the Company may pay to the agent or
TPA for distribution expenses, and
(d) Any other factors which the Company anticipates will increase or
decrease the sales-related expenses associated with the sale of the
Contract in connection with the Plan.
We will not assess a sales charge if a withdrawal is made under one of the
following circumstances:
- retirement of participant
- separation from service by participant
- loans (if available)
- hardship (as defined by the Code) suffered by the participant
- death of participant
- disability (as defined by the Code) of participant
- return of excess plan contributions
- minimum required distributions, generally when participant reaches age
70 1/2
- transfers to an Employee Stock Fund
- certain Plan expenses, as mutually agreed upon
- annuitization under this Contract or another Contract issued by us.
For Section 401(a) plans with less than 50 participants at the time of sale,
Highly Compensated Employees, as defined by the Internal Revenue Code, during
the first 5 contract years may be subject to surrender charges for all
distributions listed above except loans and return of excess plan contributions.
For unallocated Contracts, we make the deductions described above pursuant to
the terms of the various agreements among the custodian, the principal
underwriter, and us.
FREE WITHDRAWAL ALLOWANCE
For Contracts in use with deferred compensation plans, the tax deferred annuity
plans and combined qualified plans/tax-deferred annuity plans, there is
currently a 10% free withdrawal allowance available each year after the first
contract/certificate year. (If you have purchase payments no longer subject to a
withdrawal charge, the maximum you may withdraw without a withdrawal charge is
the greater of (a) the free withdrawal allowance, or (b) the total amount of
purchase payments no longer subject to a withdrawal charge. Note: Any free
withdrawal taken will reduce purchase payments no longer subject to a withdrawal
charge.) The available withdrawal amount will be calculated as of the first
valuation date of any given contract year. The free withdrawal allowance applies
to partial surrenders of any amount and to full surrenders, except those full
surrenders transferred directly to annuity contracts issued by other financial
institutions.
MORTALITY AND EXPENSE RISK CHARGE
A mortality and expense risk charge is deducted on each business day from
amounts held in the Separate Account. This charge is equivalent, on an annual
basis, to a maximum of 1.20% of the amounts allocated to each funding option.
FUNDING OPTION CHARGES
There are certain deductions from and expenses paid out of the assets of each
funding option. These are described in the applicable prospectus for each
funding option.
PREMIUM TAX
Certain states and local governments impose a premium tax, ranging up to 5.0%.
The Company is responsible for paying these taxes and will determine the method
used to recover premium tax expenses incurred. Where required, we will deduct
any applicable premium taxes from the cash value either upon death, surrender,
annuitization, or at the time purchase payments are made to the Contract, but no
earlier than when we have a tax liability under state law.
ADMINISTRATIVE CHARGE
The following administrative charges may apply as described in your Contract.
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<PAGE> 22
SEMIANNUAL POLICY FEE. A semiannual policy fee of up to $15 may be deducted from
the value of each participant's individual account. Any such deduction will be
made pro rata from each of the funding options, at the end of each 6-month
period. This fee is assessed only during the accumulation period. This charge
may apply only to allocated contracts.
ADMINISTRATIVE EXPENSE. This charge is deducted on each business day from the
variable funding options in order to compensate the Company for certain
administrative and operating expenses of the funding options. The charge is
equivalent, on an annual basis, to a maximum of 0.10% of the daily net asset
value of each funding options. This charge is assessed during the accumulation
and annuity periods.
As discussed below, the level of the semiannual policy fee and the
administrative expense charge is subject to negotiation. In determining the
level of the semiannual fee and the administrative expense charge, we consider
certain factors including, but not limited to, the following:
(a) The size and characteristics of the Contract and the group to which it
is issued including: the annual amount of purchase payments per
participant, the expected turnover of employees, whether the contract
owner will remit purchase payment allocations electronically, and any
other factors pertaining to the characteristics of the group or the
Plan which may enable the Company to reduce the expense of
administration.
(b) Determination of the Company's anticipated expenses in administering
the Contract, such as: billing for purchase payments, producing
periodic reports, providing for the direct payment of Contract charges
rather than having them deducted from Contract values, and any other
factors pertaining to the level and expense of administrative services
which will be provided under the Contract.
(c) TPA and/or agent involvement.
TPA ADMINISTRATIVE CHARGES
The Company may be directed by the contract owner to deduct charges from
purchase payments or account values for payment to the contract owner and/or the
TPA. These charges are not levied by the Contract. Such charges may include
maintenance fees and transaction fees.
OWNERSHIP PROVISIONS
- --------------------------------------------------------------------------------
TYPES OF OWNERSHIP
Contract Owner ("you"). If a group "allocated" contract is purchased, we issue
certificates to the individual participants. If a group unallocated contract is
purchased, we issue only the contract. Where we refer to "you," we are referring
to the contract owner, or to the group participant, as applicable. For
convenience, we refer to both contracts and certificates as "contracts."
You receive all payments while the annuitant is alive unless you direct them to
an alternate recipient. An alternate recipient does not become the contract
owner.
Joint Owner. For nonqualified contracts only, joint owners (i.e., spouses) may
be named in a written request before the contract is in effect. Joint owners may
independently exercise transfers allowed under the Contract. All other rights of
ownership must be exercised by both owners. Joint owners own equal shares of any
benefits accruing or payments made to them. All rights of a joint owner end at
death if the other joint owner survives. If the first joint owner to die is also
the annuitant, the death benefit will be paid to the beneficiary if there is no
contingent annuitant. If the first joint owner to die is not the annuitant, the
entire interest under the contract will pass to the surviving joint owner.
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BENEFICIARY
You name the beneficiary 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 the Company receives other instructions,
by written request before the death of the annuitant or contract owner.
With nonqualified contracts, as discussed under "Death Benefit," the beneficiary
named in the contract may differ from the designated beneficiary. (For example,
the designated beneficiary may be the joint owner.) In such cases, the
designated beneficiary receives the contract benefits (rather than the
beneficiary) upon your death.
Unless an irrevocable beneficiary has been named, you have the right to change
any beneficiary by written request during the lifetime of the annuitant and
while the Contract continues.
ANNUITANT
The annuitant is designated in the Contract (on the Specifications page), and is
the individual on whose life the maturity date and the amount of the monthly
annuity payments depend. The annuitant may not be changed after the contract is
in effect.
For nonqualified Contracts only, where the owner and annuitant are not the same
person, the contract owner may also name one individual as a contingent
annuitant by written request before the Contract becomes effective. If the
annuitant dies before the maturity date, and a contingent annuitant has been
named, the contingent annuitant becomes the annuitant, and the contract
continues. However, if the annuitant who is also the contract owner dies, the
death benefit is paid to the beneficiary. The contingent annuitant does not
become the annuitant and is not entitled to receive any contract benefits. A
contingent annuitant may not be changed, deleted or added after the Contract
becomes effective.
DEATH BENEFIT
- --------------------------------------------------------------------------------
(This benefit is available under Allocated Contracts only)
PAYMENT OF PROCEEDS
The death benefit will be paid to the contract owner, or the beneficiary, as
provided in the plan, upon the first death of any owner or the annuitant.
The process of paying death benefit proceeds under various situations is
described below. Generally, the person(s) receiving the benefit may request that
the proceeds be paid in a lump sum, or be applied to one of the settlement
options available under the Contract.
DEATH OF ANNUITANT WHO IS THE CONTRACT OWNER. The Company will pay the proceeds
to the beneficiary(ies), or if none, to the contract owner's estate.
The death benefit proceeds must be distributed to the beneficiary within five
years of the contract owner's death. Or, the beneficiary may elect to receive
payments from an annuity which begins within one year of the contract owner's
death and which is payable over the life of the beneficiary or over a period not
exceeding the beneficiary's life expectancy.
Under a nonqualified contract, if the beneficiary is the contract owner's
spouse, he or she may elect to continue the contract as the new contract owner
rather than receiving the distribution. In such case, the distribution rules
applicable when a contract owner dies generally will apply when that spouse, as
contract owner, dies.
DEATH OF ANNUITANT WHO IS NOT THE CONTRACT OWNER (NONQUALIFIED CONTRACTS ONLY).
If there is no contingent annuitant, the Company will pay the death proceeds to
the beneficiary. However, if there is a contingent annuitant, he or she becomes
the annuitant and the Contract continues in
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<PAGE> 24
effect (generally using the original maturity date). The proceeds described
below will be paid upon the death of the last surviving contingent annuitant.
DEATH OF CONTRACT OWNER WHO IS NOT THE ANNUITANT (NONQUALIFIED CONTRACTS ONLY).
The Company will pay the proceeds to any surviving joint owner, or if none, to
the beneficiary(ies), or if none, to the contract owner's estate. If the
surviving joint owner (or if none, the beneficiary) is the Contract Owner's
spouse, he or she may elect to continue the contract as the new contract owner
rather than receiving the distribution.
ENTITY AS OWNER. In the case of a nonqualified Contract owned by a nonnatural
person (e.g. a trust or other entity), the death benefit will be paid only upon
the death of the annuitant.
We must be notified of a participant's death no later than six months after the
participant's date of death in order for the beneficiary to receive the death
proceeds as described. If notification is received more than six months after
the participant's death, unless prohibited by state law the beneficiary shall
receive the cash value of the participant's individual account less any
outstanding loan amounts as of the date we receive due proof of death.
An election to receive death benefits under a form of annuity must be made
within one year after the death. The election must be made by written notice to
us at our Home Office. The beneficiary may choose to have annuity payments made
on a variable basis, fixed basis, or a combination of the two.
No election to provide annuity payments will become operative unless the amount
placed under the annuity option is at least $2,000. The manner in which the
annuity payments are determined and in which they may vary from month to month
are the same as applicable to a participant's individual account after
retirement.
We will pay this benefit upon receiving due proof of death along with a written
request noting the cash value and the total purchase payments attributable to
the participant under the Contract. In addition, we will require copies of
records and any other reasonable proof we find necessary to verify the cash
value and total purchase payments attributable to the participant under the
unallocated Contract.
DEATH BENEFIT PROCEEDS PRIOR TO MATURITY DATE
In the event the participant dies before the selected maturity date or the
participant's age (whichever occurs first), the death benefit payable will be
the greater of:
(a) the cash value of the participant's individual account or
(b) the total purchase payments under that participant's individual
account, less, for each option, any applicable premium tax, minus
outstanding loan amounts and prior surrenders not previously
deducted as of the date we receive due proof of death.
If the participant dies on or after age 75 and before the maturity date, we will
pay the beneficiary the cash value of the participant's individual account, less
any applicable premium tax or outstanding loan amounts as of the date we receive
due proof of death.
DEATH PROCEEDS AFTER THE MATURITY DATE
If the annuitant dies on or after the maturity date, we will pay the beneficiary
a death benefit consisting of any benefit remaining under the annuity option
then in effect.
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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 options). While the
annuitant is alive, you can change your selection any time up to the maturity
date. Annuity payments will begin on the maturity date stated in the Certificate
unless it 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. Not
all options may be available in all states.
You may choose to annuitize at any time after you purchase the contract. Under
nonqualified contracts, unless you elect otherwise, the maturity date will be
the annuitant's 75th birthday or ten years after the effective date of the
contract, if later. Under qualified contracts, the maturity date must be before
the individual's 70th birthday, unless we consent to a later date.
At least 30 days before the original maturity date, you may extend the maturity
date to any time prior to the annuitant's 85th birthday or to a later date with
our consent. Certain annuity options taken at the maturity date may be used to
meet the minimum required distribution requirements of federal tax law, or a
program of partial surrenders may be used instead. These mandatory distribution
requirements take effect generally upon the death of the contract owner, or with
qualified contracts upon either the later of the contract owner's attainment of
age 70 1/2 or year of retirement; or the death of the contract owner. You should
seek independent tax advice 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. If, at the time annuity payments begin,
no election has been made to the contrary, the contract value will be applied to
provide an annuity funded by the same investment options as you have selected
during the accumulation period. At least 30 days before the maturity date, you
may transfer the contract value among the funding options in order to change the
basis on which annuity payments will be determined. (See "Transfers.")
VARIABLE ANNUITY
You may choose to receive annuity payments that are based on the performance of
one or more of the variable funding options. This is called a variable payout
because the amount you receive each month will increase or decrease depending on
how the variable funding options perform. When you annuitize, we will credit you
with annuity units. An annuity unit measures the dollar value of an annuity
payment. We determine the number of annuity units to credit you with by dividing
the first monthly annuity payment for each funding option by the accumulation
unit value for that funding option as of 14 days before the annuity payments
begin. The number of annuity units (but not their value) remains fixed during
the annuity period.
HOW WE DETERMINE THE FIRST ANNUITY PAYMENT. The Contract contains tables used
to determine the first monthly annuity payment. If a variable annuity is
elected, the amount applied to it will be the value of the funding options as of
14 days before the annuity payments begin less any premium taxes due.
The first monthly payment amount depends on the annuity option elected and the
annuitant's adjusted age. The Contract contains a formula for determining the
adjusted age. We calculate the first monthly payment by multiplying the benefit
per $1,000 applied, shown in the Contract tables, by the number of thousands of
dollars of Contract value applied to the annuity option. We also factor in an
assumed daily net investment factor of 3%. This assumed daily net investment
factor is
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used to determine the guaranteed payout rates shown. If net investment rates are
higher at the time annuitization is selected, payout rates will be higher than
those shown. Payout rates will not be lower than those shown. We reserve the
right to require satisfactory proof of an annuitant's age before we make the
first annuity payment.
HOW WE DETERMINE THE PAYMENTS AFTER THE FIRST. The dollar amount of all annuity
payments after the first will change from month to month based on the investment
performance of the applicable funding options. The total amount of each annuity
payment will equal the sum of the basic payments in each funding option. The
actual amounts of these payments are determined by multiplying the number of
annuity units credited to each funding option by the corresponding annuity unit
value as of the date 14 days before the payment is due.
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 begin the annuity will be the contract value, determined as of the
date annuity payments begin. If it would produce a larger payment, the first
fixed annuity payment will be determined using the Life Annuity Tables in effect
on the maturity date.
ELECTION OF OPTIONS
Any amount distributed from the Contract may be applied to any one of the
annuity options described below.
Election of any of these options must be made by written request to our Home
Office at least 30 days prior to the date such election is to become effective.
The form of such annuity option shall be determined by the contract owner. The
following information must be provided with any such request:
a) the participant's name, address, date of birth, social security number;
b) the amount to be distributed;
c) the annuity option which is to be purchased;
d) the date the annuity option payments are to begin;
e) if the form of the annuity provides a death benefit in the event of the
participant's death, the name, relationship and address of the
beneficiary as designated by you; and
f) any other data that we may require.
The beneficiary, as specified in item (e) above, may be changed by you or the
annuitant as long as we are notified by written request while the annuitant is
alive and before payments have begun. If the beneficiary designation is
irrevocable, such designation cannot be changed or revoked without the consent
of the beneficiary. After we receive the written request and the written consent
of the beneficiary (if required), the new beneficiary designation will take
effect as of the date the notice is signed. We have no further responsibility
for any payment we made before the written request.
MINIMUM AMOUNTS
The minimum amount that can be placed under an Annuity option is $2,000 unless
we consent to a lesser amount. If any periodic payments due are less than $100,
we reserve the right to make payments at less frequent intervals.
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MISSTATEMENT
If an annuitant's sex or age was misstated, all benefits of this Contract are
what the cash values would have purchased on the date of issue at the correct
sex and age.
RETIRED LIFE CERTIFICATE
We will issue to each person to whom annuity benefits are being paid under this
Contract a certificate setting forth a statement in substance of the benefits to
which such person is entitled under this Contract.
ALLOCATION OF CASH SURRENDER VALUE DURING THE ANNUITY PERIOD
At the time an annuity option is elected, you also may elect to have the
participant's cash surrender value applied to provide a variable annuity, a
fixed annuity, or a combination of both.
If no election is made to the contrary, the cash surrender value will provide an
annuity which varies with the investment experience of the corresponding funding
option(s) at the time of election. You or the participant, if you so authorize,
may elect to transfer cash values from one funding option to another, as
described in the provision "Transfers of Cash Value Between Funding Options," in
order to reallocate the basis on which annuity payments will be determined. Once
annuity payments have begun, no further transfers are allowed.
ANNUITY OPTIONS
OPTION 1 -- LIFE ANNUITY/NO REFUND. A life annuity is an annuity payable during
the lifetime of the annuitant and terminating with the last monthly payment
preceding the death of the annuitant.
OPTION 2 -- LIFE ANNUITY WITH 120, 180 OR 240 MONTHLY PAYMENTS ASSURED. An
annuity payable monthly during the lifetime of an annuitant with the provision
that if, at the death of the annuitant, payments have been made for less than
120,180 or 240 months, as elected, then we will continue to make payments to the
designated beneficiary during the remainder of the period.
OPTION 3 -- LIFE ANNUITY -- CASH REFUND. We will make monthly annuity payments
during the lifetime of the annuitant, ceasing with the last payment due prior to
the death of the annuitant, provided that, at the death of the annuitant, the
Beneficiary will receive an additional payment equal to the dollar value, if
any, of (a) minus (b) where, for a variable annuity:
(a) is the total amount applied under the option divided by the annuity
unit value on the due date of the first annuity payment;
(b) and is
(1) the number of annuity units represented by each payment;
times
(2) the number of payments made;
and for a Fixed Annuity:
(a) is the cash value applied on the maturity date under this option; and
(b) is the dollar amount of annuity payments already paid.
OPTION 4 -- JOINT AND LAST SURVIVOR LIFE ANNUITY. Monthly annuity payments
based upon the joint lifetime of two persons selected: payments made first to
the annuitant, and upon his/her death, paid to the survivor. No more payments
will be made after the death of the survivor.
OPTION 5 -- JOINT AND LAST SURVIVOR ANNUITY -- ANNUITY REDUCED ON DEATH OF
PRIMARY PAYEE. Monthly annuity payments to the annuitant during the joint
lifetime of the two persons selected. One of the two persons will be designated
as the primary payee. The other will be designated as the secondary payee. On
the death of the secondary payee, if survived by the primary payee, we
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<PAGE> 28
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, if survived by the secondary payee, we will
continue to make monthly annuity payments to the secondary payee in an amount
equal to 50% of the payments which would have been made during the lifetime of
the primary payee. No further payments will be made following the death of the
survivor.
OPTION 6 -- FIXED PAYMENTS FOR A FIXED PERIOD OF 120, 180, OR 240 MONTHS. We
will make monthly payments for the period selected. If at the death of the
annuitant, payments have been made for less than 120, 180, or 240 months, as
elected, we will continue to make payments to the designated beneficiary during
the remainder of the period.
OPTION 7 -- OTHER ANNUITY OPTIONS. We will make other arrangements for annuity
payments as may be mutually agreed upon by you and us.
MISCELLANEOUS CONTRACT PROVISIONS
- --------------------------------------------------------------------------------
RIGHT TO RETURN
For Contracts in use with deferred compensation plans, tax-deferred annuity
plans, and combined qualified plans/tax deferred annuity plans, you may return
the Contract for a full refund of the cash value (including charges) within ten
days after you receive it (the "right to return period"). Where state law
requires a longer right to return period, or the return of purchase payments,
the Company will comply. The contract owner bears the investment risk during the
right to return period; therefore, the cash value returned may be greater or
less than your purchase payment. All cash values will be determined as of the
next valuation following the Company's receipt of your written request for
refund.
CONTRACT AND PARTICIPANT'S INDIVIDUAL ACCOUNT TERMINATION
Under the allocated Contracts, if the cash value in a participant's individual
account is less than the termination amount as stated in your Contract, we
reserve the right to terminate that account and move the cash value of that
participant's individual account to your account.
Any cash value to which a terminating participant is not entitled under the Plan
will be moved to your account at your direction.
You may discontinue this Contract by written request at any time for any reason.
We reserve the right to discontinue this Contract if:
a) the cash value of the Contract is less than the termination amount; or
b) We determine within our sole discretion and judgment that the Plan or
administration of the Plan is not in conformity with applicable law; or
c) We receive notice that is satisfactory to us of plan termination.
If we discontinue this Contract or we receive your written request to
discontinue the Contract, we will, in our sole discretion and judgment:
a) accept no further payments for this Contract; and
b) pay you the cash surrender value of the funding options within 7 days of
the date of our written notice to you, or distribute the cash surrender
value of each participant's individual account as described in the
settlement provisions section at your direction; and
c) pay you an amount as described in the Fixed Account prospectus.
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If the Contract is discontinued, we will distribute the cash surrender value to
you no later than 7 days following our mailing the written notice of
discontinuance to you at the most current address available on our records.
Discontinuance of the Contract will not affect payments we are making under
annuity options which began before the date of discontinuance.
CONTRACT EXCHANGES
a) You may transfer all or any part of Your Account's cash surrender value from
any funding option to any contract not issued by us. Such transfers may be
subject to a sales charge, as described in the Contract. If authorized by the
contract owner, a participant may transfer all or any part of the individual
account's cash surrender value from one funding option to any contract not
issued by us.
b) Under specific conditions, we may allow you to transfer to this Contract
funds held by you in another group annuity contract issued by us or to
transfer amounts from this Contract to another Contract issued by us without
applying a sales charge to the funds being transferred. Once the transfer is
complete and we have established an account for you at your direction, a new
sales charge may apply, as described in the new Contract.
c) Under specific conditions, when authorized by state insurance law, we may
credit a Plan up to 4% of the amount transferred to us from another group
annuity not issued by us as reimbursement to the Plan for any exit penalty
assessed by the other issuer. We may recover this credit through reduced
compensation paid to the servicing agent or broker.
POSTPONEMENT OF PAYMENT (EMERGENCY PROCEDURE)
Payment of any benefit or values may be postponed whenever (1) the New York
Stock Exchange is closed; (2) when trading on the New York Stock Exchange is
restricted; (3) when an emergency exists as determined by the SEC so that
disposal of the securities held in the funding options is not reasonably
practicable or it is not reasonably practicable to determine the value of the
funding option's net assets; or (4) during any other period when the SEC, by
order, so permits for the protection of security holders.
ACCOUNT VALUE
During the accumulation period, the account value can be determined by
multiplying the total number of funding option accumulation units credited to
that account by the current accumulation unit value for the appropriate funding
option and adding the sums for each funding option. There is no assurance that
the value in any of the funding options will equal or exceed the purchase
payments made to such funding options.
THE SEPARATE ACCOUNT
- --------------------------------------------------------------------------------
The Separate Account was established on December 26, 1995, in accordance with
authorization by the Board of Directors of the Company. It is the Separate
Account in which the Company sets aside and invests the assets attributable to
the Contracts sold under this prospectus. The Separate Account is registered as
a unit investment trust under the Investment Company Act of 1940. This
registration does not, however, involve Securities and Exchange Commission
supervision of the management or the investment practices or policies of the
Separate Account or the Company.
Under Connecticut law, the assets of the Separate Account attributable to the
Contracts offered under this prospectus are held for the benefit of the owners
of, and the persons entitled to payments under, those Contracts. The assets in
the Separate Account are not chargeable with liabilities arising out of any
other business the Company may conduct. Therefore, you will not be affected by
the rate of return of the Company's General Account, nor by the investment
performance of any of the Company's other separate accounts.
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The Company does not guarantee the investment results of the Separate Account or
the funding options. There is no assurance that the account value on the
maturity date or the aggregate amount of the variable annuity payments will
equal the sum of purchase payments made under the Contract. Since each funding
option has different investment objectives, each is subject to different risks.
These risks are more fully described in the prospectuses for the funding options
which must accompany this prospectus. Additional copies of the prospectuses may
be requested from your sales representative or from the Home Office.
The Company reserves the right, subject to compliance with the law, to
substitute the shares of any other registered investment company for the shares
of any funding option held by the Separate Account. Substitution may occur if
shares of the funding option(s) become unavailable or due to changes in
applicable law or interpretations of law. Current law requires approval of the
Securities and Exchange Commission and notification to you of any such
substitution. The Company also reserves the right, subject to compliance with
the law, to offer additional funding options.
PERFORMANCE INFORMATION
From time to time, the Company may advertise different types of historical
performance for the funding options available through Separate Account QP. The
Company may advertise the "standardized average annual total returns" of each,
calculated in a manner prescribed by the SEC, as well as the "nonstandardized
average annual total returns," as described below. Specific examples of the
performance information appear in the SAI.
STANDARDIZED METHOD. Quotations of average annual total returns are computed
according to a formula in which a hypothetical initial investment of $1,000 is
applied to the funding option, and then related to ending redeemable values over
one-, five-, and ten-year periods, or for a period covering the time during
which the funding option has been in existence, if less. These quotations
reflect the deduction of all recurring charges during each period (on a pro rata
basis in the case of fractional periods). The deduction for the semiannual
administrative charge ($15) 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 charges deducted at that time.
NONSTANDARDIZED METHOD. Nonstandardized "total returns" will be calculated in a
similar manner based on the performance of the funding options over a period of
time, usually for the calendar year-to-date, and for the past one-, three-,
five- and ten-year periods. Nonstandardized total returns will not reflect the
deduction of the $15 semiannual 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 investments.
For funding options that were in existence prior to the date they became
available under the Separate Account, the standardized average annual total
return quotations may be accompanied by returns showing the investment
performance that such funding options would have achieved (reduced by the
applicable charges) had they been held under the Contract for the period quoted.
The total return quotations are based upon historical earnings and are not
necessarily representative of future performance.
GENERAL Within the guidelines prescribed by the SEC and the National
Association of Securities Dealers, Inc. ("NASD"), performance information may be
quoted numerically or may be presented in a table, graph or other illustration.
Advertisements may include data comparing performance to well-known indices of
market performance (including, but not limited to, the Dow Jones Industrial
Average, the Standard & Poor's (S&P) 500 Index and the S&P 400 Index, the Lehman
Brothers Long T-Bond Index, the Russell 1000, 2000 and 3000 indices, the Value
Line Index, and the Morgan Stanley Capital International's EAFE Index).
Advertisements may also include published editorial comments and performance
rankings compiled by independent organizations (including, but not limited to,
Lipper Analytical Services, Inc. and Morningstar, Inc.)
28
<PAGE> 31
and publications that monitor the performance of the Separate Account and the
variable funding options.
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 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 advisor regarding your personal situation. For your
information, a more detailed discussion is contained in the SAI.
GENERAL TAXATION OF ANNUITIES
Congress has recognized the value of saving for retirement by providing certain
tax benefits, in the form of tax deferral, for money put into an annuity. The
Internal Revenue Code (Code) governs how this money is ultimately taxed,
depending upon the type of contract, qualified or non-qualified, and the manner
in which the money is distributed, as briefly described below.
TYPES OF CONTRACTS: QUALIFIED OR NONQUALIFIED
If you purchase an annuity contract with proceeds of an eligible rollover
distribution from any pension plan, specially sponsored program, or individual
retirement annuity (IRA) with pre-tax dollars, your contract is referred to as a
qualified contract. Some examples of qualified contracts are: IRAs, 403(b)
annuities, pension and profit-sharing plans (including 401(k) plans), Keogh
Plans and certain other qualified deferred compensation plans. An exception is a
qualified plan called a Roth IRA. Under Roth IRAs, after-tax contributions
accumulate until maturity, when amounts (including earnings) may be withdrawn
tax free. If you purchase the contract on an individual basis and with after-tax
dollars and not under one of the programs described above, your contract is
referred to as nonqualified.
INVESTOR CONTROL
In certain circumstances, owners of variable annuity contracts may be considered
the owners, for federal income tax purposes, of the assets of the separate
accounts used to support their contract. In those circumstances, income and
gains from the separate account assets would be includable in the variable
contract owner's gross income.
The IRS has stated in published rulings that a variable contract owner will be
considered the owner of separate account assets if the contract owner possesses
incidents of ownership in those assets, such as the ability to exercise
investment control over the assets. The U.S. Treasury Department has also
announced, in connection with the issuance of regulations concerning
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 (i.e., the contract owner), rather than the
insurance company, to be treated as the owner of the assets in the account."
This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyholders may direct their
investments to particular sub-accounts without being treated as owners of the
underlying assets." As of the date of this prospectus, no such guidance has been
issued.
The ownership rights under the Contract are similar to, but different in certain
respects from, those described by the IRS in rulings in which it determined that
the owners were not owners of separate account assets. For example, a contract
owner or participant of this Contract has additional flexibility in allocating
payments and cash values. These differences could result in the contract owner
being treated as the owner of the assets of Fund QP. In addition, the Company
does not know what standard will be set forth in the regulations or rulings
which the Treasury is expected to issue, nor does the Company know if such
guidance will be issued. The Company
29
<PAGE> 32
therefore reserves the right to modify the Contract as necessary to attempt to
prevent the contract owner from being considered the owner of a pro rata share
of the assets of Fund QP.
The remaining tax discussion assumes that the Contract qualifies as an annuity
contract for federal income tax purposes.
MANDATORY DISTRIBUTIONS FOR QUALIFIED PLANS
Federal tax law requires that minimum annual distributions begin by April 1st of
the calendar year following the calendar year in which an IRA owner attains age
70 1/2. Participants in qualified plans and 403(b) annuities may defer minimum
distributions until the later of April 1st of the calendar year following the
calendar year in which they attain age 70 1/2 or the year of retirement.
Distributions must begin or be continued according to required patterns
following the death of the contract owner or annuitant of both qualified and
nonqualified annuities.
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. There are special rules which govern the taxation of qualified
contracts, including withdrawal
30
<PAGE> 33
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
The Code states that in order to qualify for the tax benefits described above,
investments made in the separate account of any nonqualified variable annuity
contract must satisfy certain diversification requirements. Tax regulations
define how separate accounts must be diversified. We monitor the investments
constantly and believe that our accounts are adequately diversified. We intend
to administer all contracts subject to this provision of law in a manner that
will maintain adequate diversification.
OTHER INFORMATION
- --------------------------------------------------------------------------------
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 Citigroup Inc., a bank holding company. The Company's Home Office
is located at One Tower Square, Hartford, Connecticut 06183.
YEAR 2000 COMPLIANCE
The Company is highly dependent on computer systems and system applications for
conducting its ongoing business functions. In 1996, the Company began the
process of identifying, assessing and implementing changes to computer programs
necessary to address the Year 2000 issue and developed a comprehensive plan to
address the issue. This issue involves the ability of computer systems that have
time sensitive programs to recognize properly the Year 2000. The inability to do
so could result in major failures or miscalculations that would disrupt the
Company's ability to meet its customer and other obligations on a timely basis.
The Company has achieved substantial compliance with respect to its business
critical systems in accordance with its Year 2000 plan and is in the process of
certification to validate compliance. The Company anticipates completing the
certification process by June 30, 1999. An ongoing re-certification process will
be put in place for third and fourth quarter 1999 to ensure all systems and
products remain compliant.
The total pre-tax cost associated with the required modifications and
conversions is expected to be between $25 million and $35 million and is being
expensed as incurred in the period 1996 through 1999. The Company has incurred
approximately $22 million to date on these efforts. The Company also has third
party customers, financial institutions, vendors and others with which it
conducts business and has confirmed their plans to address and resolve Year 2000
issues on a timely basis. While it is likely that these efforts by third party
vendors and customers will be successful, it is possible that a series of
failures by third parties could have a material adverse effect on the Company's
results of operations in future periods.
In addition, the Company is developing contingency plans to address perceived
risks associated with the Year 2000 effort. These include business resumption
plans to address the possibility of
31
<PAGE> 34
internal systems failures and the possibility of failure of systems or processes
outside the Company's control. As of year-end 1998, the Company has completed
initial business resumption contingency plans which would enable business
critical units to function beginning January 1, 2000 in the event of an
unexpected failure. Business resumption contingency plans are expected to be
finalized by June 30, 1999. Preparations for the management of the date change
will continue through 1999.
DISTRIBUTION OF VARIABLE ANNUITY CONTRACTS
The Company intends to sell the Contracts in all jurisdictions where it is
licensed to do business and where the Contract is approved. Any sales
representative or employee who sells the Contracts will be qualified to sell
variable annuities under applicable federal and state laws. Each broker-dealer
is registered with the SEC under the Securities Exchange Act of 1934, and all
are members of the NASD. The principal underwriter and distributor of the
Contracts is CFBDS, Inc., 21 Milk St., Boston, MA. CFBDS, Inc. is not affiliated
with the Company or the Separate Account.
Up-front compensation paid to sales representatives will not exceed 7.00% of the
purchase payments made under the Contracts. If asset-based compensation is paid,
it will not exceed 2% of the average account value annually. From time to time,
the Company may pay or permit other promotional incentives, in cash, credit or
other compensation.
CONFORMITY WITH STATE AND FEDERAL LAWS
The Contract is governed by the laws of the state in which it is delivered. Any
paid-up annuity, 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 legal requirements issued by any governmental
agency to which the Company, the Contract or the contract owner is subject.
Where a state requires contract owner approval, we will comply.
VOTING RIGHTS
The Company is the legal owner of the shares of the funding options. However, we
believe that when a funding option solicits proxies in conjunction with a vote
of shareholders we are required to obtain from you and from other owners
instructions on how to vote those shares. When we receive those instructions, we
will vote all of the shares we own in proportion to those instructions. This
will also include any shares we own on our own behalf. Should we determine that
we are no longer required to comply with the above, we will vote the shares in
our own right.
CONTRACT MODIFICATION
The Company reserves the right to modify the Contract to keep it qualified under
all related law and regulations which are in effect during the term of this
Contract. We will obtain the approval of any regulatory authority needed for the
modifications.
32
<PAGE> 35
LEGAL PROCEEDINGS
There are no pending material legal proceedings affecting the separate account.
There is one material pending legal proceeding, other than ordinary routine
litigation incidental to the business, to which the Company is a party. In March
1997, a purported class action entitled Patterman v. The Travelers, Inc. et al,
was commenced in the Superior Court of Richmond County, Georgia, alleging, among
other things, violations of the Georgia RICO statute and other state laws by an
affiliate of the Company, Primerica Financial Services, Inc. and certain of its
affiliates. Plaintiffs seek unspecified compensatory and punitive damages and
other relief. In October 1997, defendants answered the complaint, denied
liability and asserted numerous affirmative defenses. In February 1998, the
Superior Court of Richmond County transferred the lawsuit to the Superior Court
of Gwinnett County, Georgia. The plaintiffs appealed the transfer order, and in
December 1998 the Court of Appeals of the state of Georgia reversed the lower
court's decision. Later in December 1998, defendants petitioned the Georgia
Supreme Court to hear the appeal from the decision of the Court of Appeals.
Pending appeal, proceedings in the trial court have been stayed. Defendants
intend to vigorously contest the litigation.
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, have been passed on by the General Counsel of the
Company.
33
<PAGE> 36
APPENDIX A
CONDENSED FINANCIAL INFORMATION (1996-1997)
- --------------------------------------------------------------------------------
THE TRAVELERS SEPARATE ACCOUNT QP FOR VARIABLE ANNUITIES
ACCUMULATION UNIT VALUES
For the period ended December 31, 1996, all contract owner units and values had
a mortality and expense risk charge equivalent to 0.95%.
For the fiscal year ended 1997 and thereafter, accumulation units and associated
unit values noted as P1, P2(1), P3, P4, P5 and P6(2) represent a mortality and
expense risk charge of 0.60%, 0.80%, 0.95%, 1.15%, 1.20% and 0.90%,
respectively.
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 1, 1996
(EFFECTIVE DATE)
PORTFOLIO NAME YEAR ENDED 1997 TO DECEMBER 31, 1996
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
P1 P3 P4 P5 P6
------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CAPITAL APPRECIATION FUND
Unit Value at beginning of
year......................... $ 1.000 $ 1.000 $ 1.028 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year...... 1.290 1.285 1.285 1.282 1.279 1.028
Number of units outstanding at
end of year.................. 68,643 126,822 1,445,911 58,734 350,624 293,629
DREYFUS STOCK INDEX FUND
Unit Value at beginning of
year......................... $ 1.000 $ - $ 1.076 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year...... 1.424 1.418 1.415 1.412 1.076
Number of units outstanding at
end of year.................. 13,090 1,416,791 87,374 343,089 204,067
HIGH YIELD BOND TRUST
Unit Value at beginning of
year......................... $ 1.000 $ 1.000 $ 1.031 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year...... 1.196 1.191 1.191 1.188 1.186 1.031
Number of units outstanding at
end of year.................. 197 7,092 28,158 3,683 3,815 6,520
MANAGED ASSETS TRUST
Unit Value at beginning of
year......................... $ 1.000 $ 1.000 $ 1.043 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year...... 1.258 1.254 1.253 1.250 1.247 1.043
Number of units outstanding at
end of year.................. 5,565 74,574 287,178 12,488 223,823 78,508
AMERICAN ODYSSEY FUNDS, INC.
AMERICAN ODYSSEY CORE EQUITY
FUND
Unit Value at beginning of
year......................... $ 1.000 $ 1.000 $ 1.080 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year...... 1.417 1.412 1.411 1.408 1.405 1.080
Number of units outstanding at
end of year.................. 1,292 185,044 2,781,580 95,491 42,002 496,794
AMERICAN ODYSSEY EMERGING
OPPORTUNITIES FUND
Unit Value at beginning of
year......................... $ 1.000 $ 1.000 $ 0.885 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year...... 0.942 0.939 0.938 0.936 0.934 0.885
Number of units outstanding at
end of year.................. 5,090 129,811 2,458,031 24,064 33,718 404,384
AMERICAN ODYSSEY GLOBAL HIGH-
YIELD BOND FUND**
Unit Value at beginning of
year......................... $ - $ 1.000 $ 1.010 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year...... 1.062 1.062 1.059 1.057 1.010
Number of units outstanding at
end of year.................. 29,906 472,674 4,094 5,622 116,408
AMERICAN ODYSSEY INTERMEDIATE-
TERM BOND FUND
Unit Value at beginning of
year......................... $ - $ 1.000 $ 1.107 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year...... 1.083 1.083 1.080 1.078 1.017
Number of units outstanding at
end of year.................. 58,486 940,500 12,156 10,975 195,701
</TABLE>
A-1
<PAGE> 37
APPENDIX A
CONDENSED FINANCIAL INFORMATION (1996-1997)
- --------------------------------------------------------------------------------
THE TRAVELERS SEPARATE ACCOUNT QP FOR VARIABLE ANNUITIES
ACCUMULATION UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 1, 1996
(EFFECTIVE DATE)
PORTFOLIO NAME YEAR ENDED 1997 TO DECEMBER 31, 1996
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
P1 P3 P4 P5 P6
------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
AMERICAN ODYSSEY INTERNATIONAL
EQUITY FUND
Unit Value at beginning of
year......................... $ 1.000 $ 1.000 $ 1.091 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year...... 1.141 1.136 1.136 1.133 1.131 1.091
Number of units outstanding at
end of year.................. 3,405 145,853 1,647,285 25,147 16,165 239,079
AMERICAN ODYSSEY LONG-TERM BOND
FUND
Unit Value at beginning of
year......................... $ - $ 1.000 $ 1.022 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year...... 1.135 1.135 1.132 1.130 1.022
Number of units outstanding at
end of year.................. 115,168 1,504,310 24,590 22,291 232,943
FIDELITY'S VARIABLE INSURANCE
PRODUCTS FUND
EQUITY-INCOME PORTFOLIO
Unit Value at beginning of
year......................... $ 1.000 $ - $ 1.043 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year...... 1.329 1.324 1.321 1.318 1.043
Number of units outstanding at
end of year.................. 11,243 1,680,061 68,894 313,762 417,374
GROWTH PORTFOLIO
Unit Value at beginning of
year......................... $ 1.000 $ - $ 0.993 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year...... 1.220 1.215 1.212 1.209 0.993
Number of units outstanding at
end of year.................. 18,843 2,899,381 226,450 318,582 804,434
HIGH INCOME PORTFOLIO
Unit Value at beginning of
year......................... $ 1.000 $ - $ 1.013 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year...... 1.186 1.181 1.178 1.176 1.013
Number of units outstanding at
end of year.................. 921 320,529 75,810 40,547 91,884
FIDELITY'S VARIABLE INSURANCE
PRODUCTS FUND II
ASSET MANAGER PORTFOLIO
Unit Value at beginning of
year......................... $ 1.000 $ - $ 1.048 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year...... 1.258 1.253 1.249 1.247 1.048
Number of units outstanding at
end of year.................. 873 924,065 46,494 244,401 290,881
TEMPLETON VARIABLE PRODUCTS
SERIES FUND
TEMPLETON ASSET ALLOCATION FUND
Unit Value at beginning of
year......................... $ 1.000 $ - $ 1.067 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year...... 1.226 1.221 1.218 1.216 1.067
Number of units outstanding at
end of year.................. 7,711 463,517 23,178 358,096 70,211
TEMPLETON BOND FUND
Unit Value at beginning of
year......................... $ - $ - $ 1.035 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year...... 1.051 1.048 1.047 1.035
Number of units outstanding at
end of year.................. 26,610 397 6,032 15,303
TEMPLETON STOCK FUND
Unit Value at beginning of
year......................... $ 1.000 $ - $ 1.080 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year...... 1.202 1.197 1.194 1.192 1.080
Number of units outstanding at
end of year.................. 44,138 1,718,317 129,091 218,117 369,698
</TABLE>
A-2
<PAGE> 38
APPENDIX A
CONDENSED FINANCIAL INFORMATION (1996-1997)
- --------------------------------------------------------------------------------
THE TRAVELERS SEPARATE ACCOUNT QP FOR VARIABLE ANNUITIES
ACCUMULATION UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 1, 1996
(EFFECTIVE DATE)
PORTFOLIO NAME YEAR ENDED 1997 TO DECEMBER 31, 1996
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
P1 P3 P4 P5 P6
------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
TRAVELERS SERIES FUND, INC.
ALLIANCE GROWTH PORTFOLIO
Unit Value at beginning of
year......................... $ 1.000 $ 1.000 $ 1.065 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year...... 1.367 1.362 1.361 1.358 1.355 1.065
Number of units outstanding at
end of year.................. 10,959 27,182 315,371 25,227 46,772 44,777
MFS TOTAL RETURN PORTFOLIO
Unit Value at beginning of
year......................... $ 1.000 $ 1.000 $ 1.045 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year...... 1.260 1.256 1.255 1.252 1.249 1.045
Number of units outstanding at
end of year.................. 9,157 11,241 20,522 23,942 89,438 2,087
PUTNAM DIVERSIFIED INCOME
PORTFOLIO
Unit Value at beginning of
year......................... $ 1.000 $ 1.000 $ 1.019 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year...... 1.092 1.088 1.088 1.085 1.083 1.019
Number of units outstanding at
end of year.................. 6,058 1,776 36,214 2,136 17,658 12,636
SMITH BARNEY HIGH INCOME
PORTFOLIO
Unit Value at beginning of
year......................... $ - $ 1.000 $ 1.042 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year...... 1.176 1.176 1.173 1.171 1.042
Number of units outstanding at
end of year.................. 3,775 34,790 2,552 6,261 278
SMITH BARNEY INTERNATIONAL
EQUITY PORTFOLIO
Unit Value at beginning of
year......................... $ 1.000 $ 1.000 $ 1.017 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year...... 1.040 1.036 1.035 1.033 1.031 1.017
Number of Units outstanding at
end of year.................. 6,580 17,229 97,802 4,658 5,601 8,808
SMITH BARNEY LARGE CAP VALUE
PORTFOLIO
Unit Value at beginning of
year......................... $ 1.000 $ 1.000 $ 1.058 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year...... 1.334 1.329 1.328 1.324 1.322 1.058
Number of units outstanding at
end of year.................. 7,515 75,718 1,048,182 9,074 51,250 270,469
SMITH BARNEY MONEY MARKET
PORTFOLIO
Unit Value at beginning of
year......................... $ - $ 1.000 $ 1.010 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year...... 1.052 1.051 1.048 1.047 1.010
Number of units outstanding at
end of year.................. 19,062 124,936 24,063 39,703 56,124
THE TRAVELERS SERIES TRUST
SOCIAL AWARENESS STOCK
PORTFOLIO
Unit Value at beginning of
year......................... $ 1.000 $ 1.000 $ 1.036 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year...... 1.311 1.307 1.306 1.303 1.300 1.036
Number of units outstanding at
end of year.................. 1,465 6,831 124,610 4,603 58,974 35,689
TRAVELERS QUALITY BOND
PORTFOLIO (9/97)*
Unit Value at beginning of
year......................... $ - $ - $ 1.000 $ 1.000 $ 1.000 n/a
Unit Value at end of year...... 1.020 1.020 1.019
Number of units outstanding at
end of year.................. 5,949 9,879 9,055
</TABLE>
A-3
<PAGE> 39
APPENDIX A
CONDENSED FINANCIAL INFORMATION (1996-1997)
- --------------------------------------------------------------------------------
THE TRAVELERS SEPARATE ACCOUNT QP FOR VARIABLE ANNUITIES
ACCUMULATION UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 1, 1996
(EFFECTIVE DATE)
PORTFOLIO NAME YEAR ENDED 1997 TO DECEMBER 31, 1996
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
P1 P3 P4 P5 P6
------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT SECURITIES
PORTFOLIO
Unit Value at beginning of
year......................... $ - $ 1.000 $ 1.025 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year...... 1.145 1.144 1.141 1.139 1.025
Number of units outstanding at
end of year.................. 3,011 81,229 2,710 14,373 51,072
UTILITIES PORTFOLIO
Unit Value at beginning of
year......................... $ 1.000 $ 1.000 $ 1.034 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year...... 1.289 1.284 1.283 1.280 1.278 1.034
Number of units outstanding at
end of year.................. 1,494 1,816 23,673 538 462 7,796
</TABLE>
The financial statements of Separate Account QP are contained in the Annual
Report which should be read along with this information and which is
incorporated by reference into the SAI. The consolidated financial statements of
The Travelers Insurance Company and Subsidiaries are contained in the SAI.
Funding options not listed above were not yet available through the Separate
Account as of December 31, 1997.
* Reflects date money first came into funding option through the Separate
Account.
** Formerly American Odyssey Short-Term Bond Fund. The name, investment
objective, and investment subadviser of this fund were changed pursuant to a
shareholder vote effective May 1, 1998.
(1) As of December 31, 1997 no contracts had been sold with a mortality and
expense risk charge of .80%.
(2) The .90% mortality and expense risk charge is currently sold only through
Gold Track Select Contracts.
A-4
<PAGE> 40
APPENDIX A
CONDENSED FINANCIAL INFORMATION (1998)
- --------------------------------------------------------------------------------
THE TRAVELERS SEPARATE ACCOUNT QP FOR VARIABLE ANNUITIES
ACCUMULATION UNIT VALUES
<TABLE>
<CAPTION>
PORTFOLIO NAME YEAR ENDED 1998
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
P1 P2 P3 P4 P5 P6
-------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
CAPITAL APPRECIATION FUND
Unit Value at beginning of
year.......................... $ 1.290 $ 1.287 $ 1.285 $ 1.285 $ 1.282 $ 1.279
Unit Value at end of year....... 2.073 2.063 2.059 2.056 2.047 2.040
Number of units outstanding at
end of year................... 413,409 241,615 2,581,625 2,358,987 429,279 961,744
DREYFUS STOCK INDEX FUND
Unit Value at beginning of
year.......................... $ 1.424 $ 1.421 $ 1.419 $ 1.418 $ 1.415 $ 1.412
Unit Value at end of year....... 1.815 1.807 1.803 1.801 1.793 1.787
Number of units outstanding at
end of year................... 138,866 33 - 2,284,987 257,393 1,121,361
HIGH YIELD BOND TRUST
Unit Value at beginning of
year.......................... $ 1.196 $ 1.193 $ 1.191 $ 1.191 $ 1.188 $ 1.186
Unit Value at end of year....... 1.267 1.261 1.258 1.257 1.251 1.247
Number of units outstanding at
end of year................... 533 3,334 255,952 54,195 33,994 28,684
MANAGED ASSETS TRUST
Unit Value at beginning of
year.......................... $ 1.258 $ 1.255 $ 1.254 $ 1.253 $ 1.250 $ 1.247
Unit Value at end of year....... 1.519 1.512 1.509 1.507 1.500 1.495
Number of units outstanding at
end of year................... 23,844 51,150 1,472,171 602,633 146,528 299,403
AMERICAN ODYSSEY FUNDS, INC.
AMERICAN ODYSSEY CORE EQUITY
FUND
Unit Value at beginning of
year.......................... $ 1.417 $ 1.414 $ 1.412 $ 1.411 $ 1.408 $ 1.405
Unit Value at end of year....... 1.628 1.620 1.617 1.615 1.608 1.603
Number of units outstanding at
end of year................... 58,294 1,060,046 3,149,947 3,478,529 347,272 153,298
AMERICAN ODYSSEY EMERGING
OPPORTUNITIES FUND
Unit Value at beginning of
year.......................... $ 0.942 $ 0.940 $ 0.939 $ 0.938 $ 0.936 $ 0.934
Unit Value at end of year....... 0.856 0.852 0.850 0.849 0.845 0.842
Number of units outstanding at
end of year................... 70,995 1,040,352 2,811,132 3,784,469 236,065 68,535
AMERICAN ODYSSEY GLOBAL HIGH-
YIELD BOND FUND**
Unit Value at beginning of
year.......................... $ 1.066 $ 1.064 $ 1.062 $ 1.062 $ 1.059 $ 1.057
Unit Value at end of year....... 1.020 1.015 1.013 1.012 1.007 1.004
Number of units outstanding at
end of year................... 3,181 320,821 770,544 1,102,248 64,167 14,668
AMERICAN ODYSSEY INTERMEDIATE-
TERM BOND FUND
Unit Value at beginning of
year.......................... $ 1.087 $ 1.085 $ 1.083 $ 1.083 $ 1.080 $ 1.078
Unit Value at end of year....... 1.172 1.167 1.164 1.163 1.158 1.154
Number of units outstanding at
end of year................... 1,407 520,065 1,072,949 1,143,580 55,670 30,548
AMERICAN ODYSSEY INTERNATIONAL
EQUITY FUND
Unit Value at beginning of
year.......................... $ 1.141 $ 1.138 $ 1.136 $ 1.136 $ 1.133 $ 1.131
Unit Value at end of year....... 1.302 1.297 1.294 1.292 1.286 1.282
Number of units outstanding at
end of year................... 20,676 791,438 2,315,866 2,595,394 210,146 35,028
</TABLE>
A-5
<PAGE> 41
APPENDIX A
CONDENSED FINANCIAL INFORMATION (1998)
- --------------------------------------------------------------------------------
THE TRAVELERS SEPARATE ACCOUNT QP FOR VARIABLE ANNUITIES
ACCUMULATION UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
PORTFOLIO NAME YEAR ENDED 1998
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
P1 P2 P3 P4 P5 P6
-------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
AMERICAN ODYSSEY LONG-TERM BOND
FUND
Unit Value at beginning of
year.......................... $ 1.140 $ 1.137 $ 1.135 $ 1.135 $ 1.132 $ 1.130
Unit Value at end of year....... 1.235 1.230 1.227 1.226 1.220 1.216
Number of units outstanding at
end of year................... 6,982 872,955 2,127,335 2,268,910 154,138 50,376
DREYFUS VARIABLE INVESTMENT FUND
CAPITAL APPRECIATION PORTFOLIO
(7/98)*
Unit Value at beginning of
year.......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year....... 1.077 1.076 1.076 1.075 1.074 1.074
Number of units outstanding at
end of year................... 502 60,832 18,841 6,816 1,944 -
SMALL CAP PORTFOLIO (9/98)*
Unit Value at beginning of
year.......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year....... 1.199 1.198 1.198 1.198 1.197 1.196
Number of units outstanding at
end of year................... - 1,748 2,563 - 1,114 6,726
FIDELITY'S VARIABLE INSURANCE
PRODUCTS FUND
EQUITY-INCOME PORTFOLIO
Unit Value at beginning of
year.......................... $ 1.329 $ 1.326 $ 1.325 $ 1.324 $ 1.321 $ 1.318
Unit Value at end of year....... 1.475 1.469 1.465 1.464 1.457 1.452
Number of units outstanding at
end of year................... 39,301 624 373 2,294,202 302,651 738,800
GROWTH PORTFOLIO
Unit Value at beginning of
year.......................... $ 1.220 $ 1.217 $ 1.215 $ 1.215 $ 1.212 $ 1.209
Unit Value at end of year....... 1.692 1.684 1.680 1.678 1.671 1.665
Number of units outstanding at
end of year................... 77,604 431 36 3,726,583 297,359 626,091
HIGH INCOME PORTFOLIO
Unit Value at beginning of
year.......................... $ 1.186 $ 1.183 $ 1.182 $ 1.181 $ 1.178 $ 1.176
Unit Value at end of year....... 1.128 1.122 1.120 1.119 1.114 1.110
Number of units outstanding at
end of year................... 40,705 95 - 578,543 181,391 97,958
FIDELITY'S VARIABLE INSURANCE
PRODUCTS FUND II
ASSET MANAGER PORTFOLIO
Unit Value at beginning of
year.......................... $ 1.258 $ 1.255 $ 1.253 $ 1.253 $ 1.249 $ 1.247
Unit Value at end of year....... 1.439 1.432 1.429 1.427 1.421 1.416
Number of units outstanding at
end of year................... 32,515 188 - 1,072,725 106,115 290,394
SALOMON BROTHER'S VARIABLE SERIES
FUND, INC.
SALOMON BROTHERS VARIABLE
INVESTORS FUND (10/98)*
Unit Value at beginning of
year.......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year....... 1.206 1.206 1.206 1.205 1.205 1.204
Number of units outstanding at
end of year................... - 1,374 - - - -
</TABLE>
A-6
<PAGE> 42
APPENDIX A
CONDENSED FINANCIAL INFORMATION (1998)
- --------------------------------------------------------------------------------
THE TRAVELERS SEPARATE ACCOUNT QP FOR VARIABLE ANNUITIES
ACCUMULATION UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
PORTFOLIO NAME YEAR ENDED 1998
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
P1 P2 P3 P4 P5 P6
-------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
TEMPLETON VARIABLE PRODUCT SERIES
FUND
TEMPLETON ASSET ALLOCATION FUND
Unit Value at beginning of
year.......................... $ 1.226 $ 1.223 $ 1.222 $ 1.221 $ 1.218 $ 1.216
Unit Value at end of year....... 1.297 1.291 1.288 1.287 1.281 1.277
Number of units outstanding at
end of year................... 41,126 93 - 512,555 52,584 421,487
TEMPLETON BOND FUND
Unit Value at beginning of
year.......................... $ 1.056 $ 1.053 $ 1.052 $ 1.051 $ 1.048 $ 1.047
Unit Value at end of year....... 1.125 1.120 1.117 1.116 1.111 1.107
Number of units outstanding at
end of year................... - - - 36,290 3,185 15,040
TEMPLETON STOCK FUND
Unit Value at beginning of
year.......................... $ 1.202 $ 1.199 $ 1.198 $ 1.197 $ 1.194 $ 1.192
Unit Value at end of year....... 1.209 1.204 1.201 1.200 1.195 1.191
Number of units outstanding at
end of year................... 212,737 875 - 2,102,810 193,454 499,388
TRAVELERS SERIES FUND, INC.
ALLIANCE GROWTH PORTFOLIO
Unit Value at beginning of
year.......................... $ 1.367 $ 1.363 $ 1.362 $ 1.361 $ 1.358 $ 1.355
Unit Value at end of year....... 1.753 1.746 1.742 1.740 1.732 1.726
Number of units outstanding at
end of year................... 32,748 66,181 1,050,338 571,621 201,618 121,866
MFS TOTAL RETURN PORTFOLIO
Unit Value at beginning of
year.......................... $ 1.260 $ 1.257 $ 1.256 $ 1.255 $ 1.252 $ 1.249
Unit Value at end of year....... 1.399 1.393 1.390 1.388 1.382 1.377
Number of units outstanding at
end of year................... 67,299 85,454 338,122 38,600 114,873 90,723
PUTNAM DIVERSIFIED INCOME
PORTFOLIO
Unit Value at beginning of
year.......................... $ 1.092 $ 1.090 $ 1.088 $ 1.088 $ 1.085 $ 1.083
Unit Value at end of year....... 1.093 1.088 1.086 1.084 1.080 1.076
Number of units outstanding at
end of year................... 31,397 36,325 95,775 46,716 89,751 82,211
SMITH BARNEY HIGH INCOME
PORTFOLIO
Unit Value at beginning of
year.......................... $ 1.180 $ 1.178 $ 1.176 $ 1.176 $ 1.173 $ 1.171
Unit Value at end of year....... 1.179 1.173 1.171 1.170 1.165 1.161
Number of units outstanding at
end of year................... - 2,810 131,098 44,716 14,828 38,681
SMITH BARNEY INTERNATIONAL
EQUITY PORTFOLIO
Unit Value at beginning of
year.......................... $ 1.040 $ 1.037 $ 1.036 $ 1.035 $ 1.033 $ 1.031
Unit Value at end of year....... 1.101 1.096 1.093 1.092 1.087 1.083
Number of units outstanding at
end of year................... 13,292 4,211 180,603 118,339 54,366 18,937
SMITH BARNEY LARGE
CAPITALIZATION GROWTH
PORTFOLIO (5/98)*
Unit Value at beginning of
year.......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year....... 1.314 1.313 1.313 1.313 1.312 1.311
Number of units outstanding at
end of year................... - - 4,942 - - -
</TABLE>
A-7
<PAGE> 43
APPENDIX A
CONDENSED FINANCIAL INFORMATION (1998)
- --------------------------------------------------------------------------------
THE TRAVELERS SEPARATE ACCOUNT QP FOR VARIABLE ANNUITIES
ACCUMULATION UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
PORTFOLIO NAME YEAR ENDED 1998
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
P1 P2 P3 P4 P5 P6
-------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
SMITH BARNEY LARGE CAP VALUE
PORTFOLIO
Unit Value at beginning of
year.......................... $ 1.334 $ 1.330 $ 1.329 $ 1.328 $ 1.324 $ 1.322
Unit Value at end of year....... 1.456 1.449 1.446 1.445 1.438 1.433
Number of units outstanding at
end of year................... 21,635 7,331 509,575 1,199,090 81,366 190,418
SMITH BARNEY MONEY MARKET
PORTFOLIO
Unit Value at beginning of
year.......................... $ 1.056 $ 1.053 $ 1.052 $ 1.051 $ 1.048 $ 1.047
Unit Value at end of year....... 1.102 1.097 1.095 1.094 1.089 1.085
Number of units outstanding at
end of year................... - 2,799 296,260 433,846 371,996 237,923
THE TRAVELERS SERIES TRUST
DISCIPLINED MID CAP STOCK
PORTFOLIO (9/98)*
Unit Value at beginning of
year.......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year....... 1.222 1.289 1.289 1.288 1.288 1.287
Number of units outstanding at
end of year................... 9 1,037 - - 111 -
DISCIPLINED SMALL CAP STOCK
PORTFOLIO (11/98)*
Unit Value at beginning of
year.......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year....... 1.091 1.091 1.088 1.091 1.087 1.090
Number of units outstanding at
end of year................... - - 113 - 172 -
MFS MID CAP GROWTH PORTFOLIO
(9/98)*
Unit Value at beginning of
year.......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year....... 1.213 1.212 1.212 1.212 1.211 1.211
Number of units outstanding at
end of year................... - 1,512 538 - - -
MFS RESEARCH PORTFOLIO (10/98)*
Unit Value at beginning of
year.......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year....... 1.245 1.245 1.245 1.244 1.244 1.243
Number of units outstanding at
end of year................... 4,261 7,232 214 - - -
SOCIAL AWARENESS STOCK PORTFOLIO
Unit Value at beginning of
year.......................... $ 1.311 $ 1.308 $ 1.307 $ 1.306 $ 1.303 $ 1.300
Unit Value at end of year....... 1.724 1.716 1.712 1.711 1.703 1.697
Number of units outstanding at
end of year................... 12,064 18,134 417,397 293,875 81,076 157,955
STRATEGIC STOCK PORTFOLIO
(9/98)*
Unit Value at beginning of
year.......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year....... 1.072 1.071 1.071 1.071 1.070 1.070
Number of units outstanding at
end of year................... - - 866 - - -
TRAVELERS QUALITY BOND PORTFOLIO
(9/97)*
Unit Value at beginning of
year.......................... $ 1.021 $ 1.021 $ 1.020 $ 1.020 $ 1.020 $ 1.019
Unit Value at end of year....... 1.102 1.099 1.098 1.097 1.094 1.092
Number of units outstanding at
end of year................... 228 32 806 21,396 23,910 101,354
</TABLE>
A-8
<PAGE> 44
APPENDIX A
CONDENSED FINANCIAL INFORMATION (1998)
- --------------------------------------------------------------------------------
THE TRAVELERS SEPARATE ACCOUNT QP FOR VARIABLE ANNUITIES
ACCUMULATION UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
PORTFOLIO NAME YEAR ENDED 1998
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
P1 P2 P3 P4 P5 P6
-------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT SECURITIES
PORTFOLIO
Unit Value at beginning of
year.......................... $ 1.149 $ 1.146 $ 1.144 $ 1.141 $ 1.139 $ 1.145
Unit Value at end of year....... 1.259 1.253 1.249 1.243 1.239 1.250
Number of units outstanding at
end of year................... 6,143 29,647 145,195 22,572 62,648 210,497
UTILITIES PORTFOLIO
Unit Value at beginning of
year.......................... $ 1.289 $ 1.285 $ 1.283 $ 1.280 $ 1.278 $ 1.284
Unit Value at end of year....... 1.514 1.507 1.502 1.495 1.490 1.504
Number of units outstanding at
end of year................... 6,675 1,413 43,847 15,300 6,389 77,322
</TABLE>
For 1998, unit values are shown for all morality and expense risk charges even
if there are no units outstanding. This information was not presented in prior
years.
The financial statements of Separate Account QP are contained in the Annual
Report which should be read along with this information and which is
incorporated by reference into the SAI. The consolidated financial statements of
The Travelers Insurance Company and Subsidiaries are contained in the SAI.
Funding options not listed above were not yet available through the Separate
Account as of December 31, 1998.
* Reflects date money first came into funding option through the Separate
Account.
** Formerly American Odyssey Short-Term Bond Fund. The name, investment
objective, and investment subadviser of this fund were changed pursuant to a
shareholder vote effective May 1, 1998.
(1) As of December 31, 1997 no contracts had been sold with a mortality and
expense risk charge of .80%.
(2) The .90% mortality and expense risk charge is currently sold only through
Gold Track Select Contracts.
A-9
<PAGE> 45
APPENDIX B
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 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
Federal Tax Considerations
Performance Information
Mixed and Shared Funding
Independent Accountants
Financial Statements
- --------------------------------------------------------------------------------
COPIES OF THE STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1998 (FORM NO. L
12549S) ARE AVAILABLE WITHOUT CHARGE. TO REQUEST A COPY, PLEASE COMPLETE THE
COUPON FOUND BELOW AND MAIL IT TO: THE TRAVELERS INSURANCE COMPANY, ANNUITY
SERVICES, ONE TOWER SQUARE, HARTFORD, CONNECTICUT, 06183-9061.
Name:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
B-1
<PAGE> 46
THIS PAGE INTENTIONALLY LEFT BLANK.
<PAGE> 47
THIS PAGE INTENTIONALLY LEFT BLANK.
<PAGE> 48
THE TRAVELERS SEPARATE ACCOUNT QP
FOR VARIABLE ANNUITIES
L-12549 Printed in U.S.A.
TIC Ed. 5-99
<PAGE> 49
GOLD TRACK SELECT
PROSPECTUS
This prospectus describes Gold Track Select, a flexible premium group variable
annuity contract (the "Contract") issued by The Travelers Insurance Company (the
"Company", "us" or "we").
The Contract's value will vary daily to reflect the investment experience of the
funding options you select and the interest credited to the Fixed Account. The
variable funding options available through Travelers Separate Account QP for
Variable Annuities are:
<TABLE>
<S> <C>
High Yield Bond Trust STRONG VARIABLE INSURANCE FUNDS, INC.
Managed Assets Trust Strong Schafer Value Fund II
Money Market Portfolio TRAVELERS SERIES FUND, INC.
AMERICAN ODYSSEY FUNDS, INC. Alliance Growth Portfolio
Core Equity Fund MFS Total Return Portfolio
Emerging Opportunities Fund Putnam Diversified Income Portfolio
Global High-Yield Bond Fund Smith Barney High Income Portfolio
Intermediate-Term Bond Fund Smith Barney International Equity Portfolio
International Equity Fund Smith Barney Large Capitalization Growth Portfolio
Long-Term Bond Fund THE TRAVELERS SERIES TRUST
DELAWARE GROUP PREMIUM FUND, INC. Disciplined Mid Cap Stock Portfolio
REIT Series Disciplined Small Cap Stock Portfolio
Small Cap Value Series Equity Income Portfolio
DREYFUS VARIABLE INVESTMENT FUND Federated Stock Portfolio
Capital Appreciation Portfolio Large Cap Portfolio
Small Cap Portfolio Lazard International Stock Portfolio
GREENWICH STREET SERIES FUND MFS Mid Cap Growth Portfolio
Equity Index Portfolio Class II MFS Research Portfolio
MONTGOMERY FUNDS III Social Awareness Stock Portfolio
Montgomery Variable Series: Growth Fund Strategic Stock Portfolio
OCC ACCUMULATION TRUST Travelers Quality Bond Portfolio
Equity Portfolio U.S. Government Securities Portfolio
SALOMON BROTHERS VARIABLE SERIES FUNDS, INC. Utilities Portfolio
Salomon Brothers Variable Capital Fund WARBURG PINCUS TRUST
Salomon Brothers Variable Total Return Fund Emerging Markets Portfolio
Salomon Brothers Variable Investors Fund
</TABLE>
THE FIXED ACCOUNT IS DESCRIBED IN A SEPARATE PROSPECTUS. SOME OF THE FUNDING
OPTIONS MAY NOT BE AVAILABLE IN ALL STATES. THIS PROSPECTUS MUST BE ACCOMPANIED
BY THE CURRENT PROSPECTUSES FOR SEPARATE ACCOUNT QP'S UNDERLYING FUNDS. PLEASE
READ AND RETURN THEM FOR FUTURE REFERENCE.
This prospectus sets forth the information that you should know before
investing. You can receive additional information by requesting a Statement of
Additional Information ("SAI")dated May 1, 1999. The SAI has been filed with the
Securities and Exchange Commission ("SEC") and is incorporated by reference to
this prospectus. To request a free copy, write to The Travelers Insurance
Company, Annuity Services, One Tower Square, Hartford, CT 06183-5030, call
1-800-842-9368, or access the SEC's website (http://www.sec.gov). See Appendix B
for the SAI's table of contents.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
VARIABLE ANNUITY CONTRACTS ARE NOT DEPOSITS OF ANY BANK, AND ARE NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY.
PROSPECTUS DATED: MAY 1, 1999
<PAGE> 50
TABLE OF CONTENTS
<TABLE>
<S> <C>
Index of Special Terms..................... 2
Summary.................................... 3
Fee Table.................................. 6
The Variable Annuity Contract.............. 11
Contract Owner Inquiries................. 11
Allocated Contracts...................... 11
Unallocated Contracts.................... 11
Purchase Payments........................ 12
Accumulation Units....................... 12
The Funding Options...................... 12
Transfers.................................. 15
Dollar Cost Averaging.................... 15
Asset Allocation Advice.................. 16
Access to Your Contract Values............. 16
Systematic Withdrawals................... 17
Charges and Deductions..................... 18
General.................................. 18
Withdrawal Charge........................ 18
Free Withdrawal Allowance.............. 19
Mortality and Expense Risk Charge........ 19
Funding Option Charges................... 19
Premium Tax.............................. 20
Administrative Charge.................... 20
TPA Administrative Charges............... 20
Ownership Provisions....................... 20
Types of Ownership....................... 20
Beneficiary.............................. 21
Annuitant................................ 21
Death Benefit.............................. 21
Death Benefit Proceeds Prior to Maturity
Date................................... 21
Death Proceeds After the Maturity Date... 22
Payment of Proceeds...................... 22
The Annuity Period....................... 23
Maturity Date.......................... 23
Allocation of Annuity.................. 23
Variable Annuity....................... 23
Determination of First Annuity
Payment.............................. 24
Determination of Second and Subsequent
Annuity Payments..................... 24
Fixed Annuity............................ 24
Election of Options...................... 24
Minimum Amounts.......................... 25
Misstatement............................. 25
Retired Life Certificate................. 25
Allocation of Cash Surrender Value During
the Annuity Period..................... 25
Annuity Options.......................... 25
Miscellaneous Contract Provisions.......... 26
Right to Return.......................... 26
Contract and Participant's Individual
Account Termination.................... 26
Contract Exchanges....................... 27
Postponement of Payment (Emergency
Procedure)............................. 27
Account Value............................ 27
The Separate Account....................... 28
Performance Information.................. 28
Standardized Method.................... 28
Nonstandardized Method................. 28
General................................ 29
Federal Tax Considerations................. 29
General Taxation of Annuities............ 29
Types of Contracts: Qualified or
Nonqualified........................... 29
Investor Control......................... 29
Mandatory Distributions for Qualified
Plans.................................. 30
Nonqualified Annuity Contracts........... 30
Qualified Annuity Contracts.............. 31
Penalty Tax for Premature
Distributions.......................... 31
Diversification Requirements............. 31
Other Information.......................... 31
The Insurance Company.................... 31
Year 2000 Compliance..................... 31
Distribution of Variable Annuity
Contracts.............................. 32
Conformity with State and Federal Laws... 32
Voting Rights............................ 32
Contract Modification.................... 32
Legal Proceedings........................ 33
APPENDIX A: CONDENSED FINANCIAL
INFORMATION.............................. A-1
APPENDIX B: CONTENTS OF THE STATEMENT OF
ADDITIONAL INFORMATION................... B-1
APPENDIX C................................. C-1
</TABLE>
INDEX OF SPECIAL TERMS
The following terms are italicized throughout the prospectus. Refer to the page
listed for an explanation of each term.
<TABLE>
<S> <C>
Accumulation Unit.......................... 12
Annuitant.................................. 20
Annuity Payments........................... 15
Annuity Unit............................... 12
Cash Value................................. 11
Contract Date.............................. 11
Contract Owner (You, Your)................. 11
Contract Value............................. 11
Contract Year.............................. 11
Funding Option(s).......................... 11
Individual Account......................... 11
Maturity Date.............................. 11
Participant................................ 11
Purchase Payment........................... 11
Written Request............................ 11
</TABLE>
2
<PAGE> 51
SUMMARY:
TRAVELERS GOLD TRACK SELECT
THIS SUMMARY DETAILS SOME OF THE MORE IMPORTANT POINTS THAT YOU SHOULD KNOW AND
CONSIDER BEFORE PURCHASING THE CONTRACT. PLEASE READ THE PROSPECTUS CAREFULLY.
CAN YOU GIVE ME A DESCRIPTION OF THE VARIABLE ANNUITY CONTRACT? The Contract is
intended for retirement savings or other long-term investment purposes. The
Contract provides a death benefit as well as guaranteed income options. You
direct your payment(s) to one or more of the variable funding options listed
below and/or to the Fixed Account. The variable funding options are designed to
produce a higher rate of return than the Fixed Account; however, this is not
guaranteed. You may gain or lose money in the funding options.
The Contract, like all deferred variable annuity contracts has two phases: the
accumulation phase and the payout phase. During the accumulation phase, under a
qualified contract, generally your pre-tax contributions accumulate on a
tax-deferred basis and are taxed as income when you make a withdrawal,
presumably when you are in a lower tax bracket. During the accumulation phase,
under a nonqualified Contract, earnings on your after-tax contributions
accumulate on a tax-deferred basis and are taxed as income when you make a
withdrawal. The payout phase occurs when you begin receiving payments from your
Contract. The amount of money you accumulate in your Contract determines the
amount of income (annuity payments) you receive during the payout phase.
During the payout phase, you may choose to receive income payments from the
Fixed Account or the variable funding options. If you want to receive scheduled
payments from your annuity, you can choose from a number of annuity options.
Once you elect an annuity option or an income option and begin to receive
payments, it cannot be changed. During the income phase, you have the same
investment choices you had during the accumulation phase. If amounts are
directed to the variable funding options, the dollar amount of your payments may
increase or decrease.
WHO SHOULD PURCHASE THIS CONTRACT? The Contract is currently available for use
in connection with qualified retirement plans (which include contracts
qualifying under Section 401(a), 403(b), or 457 of the Internal Revenue Code
(the "Code"). The Contract may also be issued for nonqualified and unfunded
deferred compensation plans which do not qualify for special treatment under the
Code.
The minimum purchase payment allowed is an average of $1,000 annually per
individual certificate, or $10,000 annually per group contract.
WHO IS THE CONTRACT ISSUED TO? If a group allocated contract is purchased, we
issue certificates to the individual participants. If a group unallocated
contract is purchased, we issue only the contract. Where we refer to "you," we
are referring to the group participant.
Depending on your retirement plan provisions, certain features and/or funding
options described in this prospectus may not be available to you (for example,
dollar-cost averaging, the CHART program, etc.). Your retirement plan provisions
supercede the prospectus. If you have any questions about your specific
retirement plan, contact your plan administrators.
IS THERE A RIGHT TO RETURN PERIOD? If you cancel the Contract within ten days
after you receive it, you receive a full refund of the Cash Value (including
charges). Where state law requires a longer right to return (free look), or the
return of the purchase payments, we will comply. You bear the investment risk
during the free look period; therefore, the cash value returned to you may be
3
<PAGE> 52
greater or less than your purchase payment. The cash value will be determined as
of the close of business on the day we receive a written request for a refund.
WHAT TYPES OF INVESTMENT OPTIONS ARE AVAILABLE? You can direct your money into
the Fixed Account and any or all of the variable funding options shown on the
cover page. The funding options are described in the prospectuses for the funds.
Depending on market conditions, you may make or lose money in any of these
options.
The value of the Contract will vary depending upon the investment performance of
the funding options you choose. Refer to the SAI for performance information for
each funding option. Past performance is not a guarantee of future results.
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. We may, in the future, charge a fee
for any transfer request, or limit the number of transfers allowed. At the
minimum, we would always allow at least one transfer every six months.
WHAT EXPENSES WILL BE ASSESSED UNDER THE CONTRACT? The Contract has insurance
features and investment features, and there are costs related to each. A maximum
sub-account administrative charge of .10% annually will be charged, depending
upon the terms of your allocated contract. The maximum annual insurance charge
is 1.20% of the amounts you direct to the variable funding options. Each funding
option also charges for management, any applicable asset allocation fee and
other expenses. Please refer to the Fee Table for more information about the
charges.
If you withdraw amounts from the Contract, a surrender charge may apply. The
amount of the charge depends on the length of time the contract/certificate has
been in force. If you withdraw all amounts under the contract/certificate, or if
you begin receiving annuity/income payments, the Company may be required by your
state to deduct a premium tax.
HOW WILL MY CONTRIBUTIONS AND WITHDRAWALS BE TAXED? 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 payments. Under a nonqualified
Contract, payments are made with after-tax dollars, and any earnings accumulate
tax-deferred. You will be taxed on these earnings when they are withdrawn from
the Contract.
If you own a qualified Contract, 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
distribution amount required by federal law. If you are younger than 59 1/2 when
you take money out, you may be charged a 10% federal penalty tax on the amount
withdrawn.
HOW MAY I ACCESS MY MONEY? You can take withdrawals any time during the
accumulation phase. A withdrawal charge may apply. After the first
contract/certificate year, you may withdraw up to 10% of the cash value (as of
the end of the previous contract year) without a surrender charge. Of course,
you may have to pay income taxes, a federal tax penalty or premium taxes on any
money you take out.
You may choose to receive monthly, quarterly, semiannual or annual
("systematic") withdrawals of at least $50 if your Contract's cash value is
$5,000 or more. All applicable sales charges and premium taxes will be deducted.
WHAT IS THE DEATH BENEFIT UNDER THE CONTRACT? The death benefit applies upon
the first death of the owner, joint owner or annuitant. Assuming you are the
annuitant, if you die before you move to the 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 is
4
<PAGE> 53
calculated as of the close of the business day on which the Home Office receives
due proof of death.
Any amount paid will be reduced by any applicable premium tax, outstanding loans
or surrenders not previously deducted. Certain states may have varying age
requirements. Please refer to the Death Benefit section of the prospectus for
more details.
ARE THERE ANY ADDITIONAL FEATURES? This Contract has other features you may be
interested in. These include:
- DOLLAR COST AVERAGING. This is a program that allows you to invest a
fixed amount of money in funding options each month, theoretically
giving you a lower average cost per unit over time as compared to a
single one-time purchase. Dollar cost averaging requires regular
investments regardless of fluctuating price levels, and does not
guarantee a profit nor prevent loss in a declining market. Potential
investors should consider their financial ability to continue
purchases through periods of low price levels.
- ASSET ALLOCATION ADVICE. If allowed, you may elect to enter into a
separate advisory agreement with Copeland Financial Services, Inc.
("Copeland"), an affiliate of the Company, for the purpose of
receiving asset allocation advice under Copeland's CHART Program. The
CHART Program allocates all purchase payments among the American
Odyssey Funds. The CHART Program and applicable fees are fully
described in a separate Disclosure Statement.
- 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.
5
<PAGE> 54
FEE TABLE
- --------------------------------------------------------------------------------
MAXIMUM CONTRACT/CERTIFICATE OWNER TRANSACTION CHARGE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
SURRENDER CHARGE CONTRACT/CERTIFICATE YEAR PERCENTAGE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
As a percentage of amount surrendered 1-2 5%
3-4 4%
5-6 3%
7-8 2%
9+ 0%
</TABLE>
MAXIMUM SEPARATE ACCOUNT ANNUAL EXPENSES
<TABLE>
<S> <C> <C>
Mortality and Expense Risk Fees 1.20%
</TABLE>
(As a percentage of average daily net assets of the Separate Account)
MAXIMUM CONTRACT/CERTIFICATE ADMINISTRATIVE CHARGE
<TABLE>
<S> <C> <C>
Funding Option Administrative Charge .10%
</TABLE>
(As a percentage of amounts allocated to the variable funding options under
allocated contracts)
6
<PAGE> 55
FUNDING OPTION EXPENSES
(as a percentage of average daily net assets of the funding option as of
December 31, 1998, unless otherwise noted.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL
ANNUAL
OPERATING
MANAGEMENT FEE OTHER EXPENSES EXPENSES
(AFTER EXPENSE 12B-1 (AFTER EXPENSE (AFTER EXPENSE
UNDERLYING FUNDS: REIMBURSEMENT) FEES REIMBURSEMENT) REIMBURSEMENT)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Appreciation Fund**.................... 0.75% 0.10% 0.85%
High Yield Bond Trust.......................... 0.50% 0.32% 0.82%
Managed Assets Trust........................... 0.50% 0.10% 0.60%
Money Market Portfolio......................... 0.32% 0.08 0.40%(1)
AMERICAN ODYSSEY FUNDS, INC.
Core Equity Fund........................... 0.56% 0.09% 0.65%
Emerging Opportunities Fund................ 0.73% 0.14% 0.87%(2)
Global High-Yield Bond Fund................ 0.63% 0.15% 0.78%(3)
Intermediate-Term Bond Fund................ 0.49% 0.11% 0.60%
International Equity Fund.................. 0.60% 0.13% 0.73%
Long-Term Bond Fund........................ 0.50% 0.10% 0.60%
AMERICAN ODYSSEY FUNDS, INC.*
Core Equity Fund........................... 0.56% 1.34% 1.90%
Emerging Opportunities Fund................ 0.73% 1.39% 2.12%(2)
Global High-Yield Bond Fund................ 0.63% 1.40% 2.03%(3)
Intermediate-Term Bond Fund................ 0.49% 1.36% 1.85%
International Equity Fund.................. 0.60% 1.38% 1.98%
Long-Term Bond Fund........................ 0.50% 1.35% 1.85%
DELAWARE GROUP PREMIUM FUND, INC.
REIT Series................................ 0.58% 0.27% 0.85%(4)
Small Cap Value Series..................... 0.75% 0.10% 0.85%
DREYFUS VARIABLE INVESTMENT FUND
Capital Appreciation Portfolio............. 0.75% 0.06% 0.81%
Small Cap Portfolio........................ 0.75% 0.02% 0.77%
GREENWICH STREET SERIES FUND
Equity Index Portfolio Class II............ 0.21% 0.25% 0.09% 0.55%(5)
MONTGOMERY FUNDS III
Montgomery Variable Series: Growth Fund.... 1.00% 0.25% 1.25%(6)
OCC ACCUMULATION TRUST
Equity Portfolio........................... 0.80% 0.14% 0.94%
SALOMON BROTHERS VARIABLE SERIES FUNDS, INC.
Salomon Brothers Variable Capital Fund..... 0.85% 0.15% 1.00%(7)
Salomon Brothers Variable Investors Fund... 0.70% 0.30% 1.00%(7)
Salomon Brothers Variable Total Return
Fund..................................... 0.80% 0.20% 1.00%(7)
STRONG VARIABLE INSURANCE FUNDS, INC.
Strong Schaefer Value Fund II.............. 1.00% 0.20% 1.20%(8)
TRAVELERS SERIES FUND, INC.
Alliance Growth Portfolio.................. 0.80% 0.02% 0.82%(9)
MFS Total Return Portfolio................. 0.80% 0.04% 0.84%(9)
Putnam Diversified Income Portfolio........ 0.75% 0.12% 0.87%(9)
Smith Barney High Income Portfolio......... 0.60% 0.07% 0.67%(9)
Smith Barney International Equity
Portfolio................................ 0.90% 0.10% 1.00%(9)
Smith Barney Large Capitalization Growth
Portfolio................................ 0.75% 0.25% 1.00%(10)
Smith Barney Large Cap Value Portfolio**... 0.65% 0.03% 0.68%(9)
Smith Barney Money Market Portfolio**...... 0.50% 0.14% 0.64%(9)
</TABLE>
7
<PAGE> 56
<TABLE>
<CAPTION>
TOTAL
ANNUAL
OPERATING
MANAGEMENT FEE OTHER EXPENSES EXPENSES
(AFTER EXPENSE 12B-1 (AFTER EXPENSE (AFTER EXPENSE
UNDERLYING FUNDS: REIMBURSEMENT) FEES REIMBURSEMENT) REIMBURSEMENT)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
THE TRAVELERS SERIES TRUST
Disciplined Mid Cap Stock Portfolio........ 0.70% 0.25% 0.95%(11)
Disciplined Small Cap Stock Portfolio...... 0.80% 0.20% 1.00%(12)
Equity Income Portfolio.................... 0.75% 0.20% 0.95%(11)
Federated High Yield Portfolio**........... 0.65% 0.25% 0.90%
Federated Stock Portfolio.................. 0.63% 0.28% 0.91%
Large Cap Portfolio........................ 0.75% 0.20% 0.95%(11)
Lazard International Stock Portfolio....... 0.83% 0.42% 1.25%
MFS Mid Cap Growth Portfolio............... 0.80% 0.20% 1.00%(12)
MFS Research Portfolio..................... 0.80% 0.20% 1.00%(12)
Social Awareness Stock Portfolio........... 0.65% 0.19% 0.84%
Strategic Stock Portfolio.................. 0.60% 0.30% 0.90%(12)
Travelers Quality Bond Portfolio........... 0.32% 0.31% 0.63%
U.S. Government Securities Portfolio....... 0.32% 0.13% 0.45%
Utilities Portfolio........................ 0.65% 0.15% 0.80%
WARBURG PINCUS TRUST
Emerging Markets Portfolio................. 0.20% 1.20% 1.40%(13)
</TABLE>
* Includes CHART asset allocation fee of 1.25%.
** No longer available to new Contract Owners.
NOTES:
The purpose of this Fee Table is to assist Contract Owners in understanding the
various maximum costs and expenses that Contract Owners or Participants will
bear, directly or indirectly, under the Contract. See "Charges and Deductions"
in this prospectus for additional information. Expenses shown do not include
premium taxes, which may be applicable. "Other Expenses" include operating costs
of the fund. These expenses are reflected in each funding option's net asset
value and are not deducted from the account value under the contract.
(1) Other Expenses have been restated to reflect the current expense
reimbursement arrangement with The Travelers Insurance Company. Travelers
has agreed to reimburse the Fund for the amount by which its aggregate
expenses (including the management fee, but excluding brokerage
commissions, interest charges and taxes) exceeds 0.40%. Without such
arrangement, Total Annual Operating Expenses would have been 0.65% for the
TRAVELERS MONEY MARKET PORTFOLIO.
(2) Management Fees for the AMERICAN ODYSSEY EMERGING OPPORTUNITIES FUND
reflect the period 05/01/98 to 12/31/98. On May 1, 1998, the Fund adopted
its current fee structure.
(3) Fees and expenses for the AMERICAN ODYSSEY GLOBAL HIGH YIELD BOND FUND
reflect the period 05/01/98 to 12/31/98. On May 1, 1998, the Fund adopted
its current fee structure and investment objective and strategy.
(4) The adviser for the DELAWARE REIT SERIES has agreed to voluntarily waive
its fee and pay the expenses of the Series to the extent that the Series'
annual operating expenses, exclusive of taxes, interest, brokerage
commissions and extraordinary expenses, do not exceed 0.85% of its average
daily net assets through October 31, 1999. Without such arrangements, the
Total Annual Operating Expenses for the Portfolio would have been 1.02%.
(5) Other expenses for the EQUITY INDEX PORTFOLIO have been restated to reflect
the current expense reimbursement arrangement whereby the adviser has
agreed to reimburse the Portfolio for the amount by which expenses exceed
0.30%. Without such arrangement, Total Annual Operating Expenses would have
been 0.42%. In addition, the Portfolio Management Fee includes 0.06% for
fund administration. Class 2 of this fund has a distribution plan or "Rule
12b-1 plan".
(6) The investment manager of the MONTGOMERY VARIABLE SERIES: GROWTH FUND has
agreed to reduce some or all of its management fees if necessary to keep
Total Annual Operating Expenses, expressed on an annualized basis, at or
below one and one quarter percent (1.25%) of its average net assets. Absent
this waiver of fees, the Portfolio's Total Annual Operating Expenses would
equal 1.40%.
(7) SBAM has waived all of its Management Fees for the following Salomon
Brothers Funds for the period ended December 31, 1998. If such fees were
not waived or expenses reimbursed, the actual annualized Total Annual
Operating Expenses for the INVESTORS FUND, CAPITAL FUND, and TOTAL RETURN
FUND would have been 2.07%, 3.26%, and 2.90%, respectively.
(8) The Adviser for STRONG SCHAFER VALUE FUND II has voluntarily agreed to cap
the Fund's Total Annual Operating Expenses at 1.20%. The Adviser has no
current intention to, but may in the future, discontinue or modify any
waiver of fees or absorption of expenses at its discretion without further
notification. Absent the waiver of fees, the Total Annual Operating
Expenses would be 2.00%.
8
<PAGE> 57
(9) Expenses are as of October 31, 1998 (the Fund's fiscal year end). There
were no fees waived or expenses reimbursed for these funds in 1998.
(10) The Manager waived all or part of its fees for the period ended October
31, 1998. If such fees were not waived, the annualized Total Annual
Operating Expenses for the SMITH BARNEY LARGE CAPITALIZATION GROWTH
Portfolio would have been 1.77%.
(11) Other Expenses reflect the current expense reimbursement arrangement with
Travelers where Travelers has agreed to reimburse the Portfolios for the
amount by which their aggregate expenses (including management fees, but
excluding brokerage commissions, interest charges and taxes) exceeds
0.95%. Without such arrangements, the Total Annual Operating Expenses for
the Portfolios would have been 1.22% for the TRAVELERS DISCIPLINED MID CAP
STOCK PORTFOLIO, 1.23% for the LARGE CAP PORTFOLIO, and 1.09% for the
EQUITY INCOME PORTFOLIO.
(12) Travelers Insurance has agreed to reimburse the STRATEGIC STOCK PORTFOLIO,
DISCIPLINED SMALL CAP STOCK PORTFOLIO, the MFS MID CAP GROWTH PORTFOLIO,
and the MFS RESEARCH PORTFOLIO for expenses for the period ended December
31, 1998. If such expenses were not reimbursed, the actual annualized
Total Annual Operating Expenses would have been 1.51% 2.98%, 1.62%, and
1.37%, respectively.
(13) Fee waivers and expense reimbursements or credits reduced expenses for the
WARBURG PINCUS EMERGING MARKETS PORTFOLIO during 1998, but this may be
discontinued at any time. Absent this waiver of fees, the Portfolio's
Management Fees, Other Expenses and Total Annual Operating Expenses would
equal 1.25%, 6.96% and 8.21%, respectively. The Portfolio's other expenses
are based on annualized estimates of expenses for the fiscal year ending
December 31, 1998, net of any fee waivers or expense reimbursements.
9
<PAGE> 58
EXAMPLE WITH SURRENDER CHARGES (PERCENTAGE OF AMOUNT SURRENDERED)*
Assuming a 5% annual return on assets, a $1,000 investment would be subject to
the following expenses:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
IF CONTRACT IS NOT SURRENDERED OR
IF CONTRACT IS SURRENDERED AT THE ANNUITIZED AT END OF PERIOD
END OF PERIOD SHOWN: SHOWN:
------------------------------------- -------------------------------------
UNDERLYING FUNDING OPTIONS: 1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Capital Appreciation Fund+........................ $73 $111 $150 $248 $22 $67 $115 $248
High Yield Bond Trust............................. 73 110 148 245 22 66 114 245
Managed Assets Trust.............................. 71 104 138 222 19 60 103 222
Money Market Portfolio............................ 69 98 128 201 17 54 92 201
AMERICAN ODYSSEY FUNDS, INC.(1)
Core Equity Fund............................... 71 105 140 227 20 61 105 227
Emerging Opportunities Fund.................... 73 111 151 250 22 68 116 250
Global High-Yield Bond Fund.................... 73 109 147 241 21 65 112 241
Intermediate-Term Bond Fund.................... 71 104 138 222 19 60 103 222
International Equity Fund...................... 72 107 144 236 21 64 109 236
Long-Term Bond Fund............................ 71 104 138 222 19 60 103 222
AMERICAN ODYSSEY FUNDS, INC.(2)
Core Equity Fund............................... 83 141 200 350 32 99 167 350
Emerging Opportunities Fund.................... 85 147 210 370 34 105 178 370
Global High-Yield Bond Fund.................... 84 144 206 362 34 102 174 362
Intermediate-Term Bond Fund.................... 83 139 198 346 32 97 165 346
International Equity Fund...................... 84 143 204 358 33 101 171 358
Long-Term Bond Fund............................ 83 139 198 346 32 97 165 346
DELAWARE GROUP PREMIUM FUND, INC.
REIT Series.................................... 73 111 150 248 22 67 115 248
Small Cap Value Series......................... 73 111 150 248 22 67 115 248
DREYFUS VARIABLE INVESTMENT FUND
Capital Appreciation Portfolio................. 73 110 148 244 21 66 113 244
Small Cap Portfolio............................ 72 108 146 240 21 65 111 240
GREENWICH STREET SERIES FUND
Equity Index Portfolio Class II................ 70 102 135 217 19 58 100 217
MONTGOMERY FUNDS III
Montgomery Variable Series: Growth Fund........ 77 122 169 289 26 79 136 289
OCC ACCUMULATION TRUST
Equity Portfolio............................... 74 113 154 257 23 70 120 257
SALOMON BROTHERS VARIABLE SERIES FUNDS, INC.
Salomon Brothers Variable Capital Fund......... 75 115 157 264 23 72 123 264
Salomon Brothers Variable Investors Fund....... 75 115 157 264 23 72 123 264
Salomon Brothers Variable Total Return Fund.... 75 115 157 264 23 72 123 264
STRONG VARIABLE INSURANCE FUNDS, INC.
Strong Schaefer Value Fund II.................. 77 121 167 284 25 78 133 284
TRAVELERS SERIES FUND, INC.
Alliance Growth Portfolio...................... 73 110 148 245 22 66 114 245
MFS Total Return Portfolio..................... 73 111 149 247 22 67 115 247
Putnam Diversified Income Portfolio............ 73 111 151 250 22 68 116 250
Smith Barney High Income Portfolio............. 72 106 141 230 20 62 106 230
Smith Barney International Equity Portfolio.... 75 115 157 264 23 72 123 264
Smith Barney Large Capitalization Growth
Portfolio.................................... 75 115 157 264 23 72 123 264
Smith Barney Large Cap Value Portfolio+........ 72 106 142 231 20 62 107 231
Smith Barney Money Market Portfolio+........... 71 105 140 226 20 61 105 226
THE TRAVELERS SERIES TRUST
Disciplined Mid Cap Stock Portfolio............ 74 114 155 258 23 70 120 258
Disciplined Small Cap Stock Portfolio.......... 75 115 157 264 23 72 123 264
Equity Income Portfolio........................ 74 114 155 258 23 70 120 258
Federated High Yield Portfolio+................ 74 112 152 253 22 69 118 253
Federated Stock Portfolio...................... 74 113 153 254 22 69 118 254
Large Cap Portfolio............................ 74 114 155 258 23 70 120 258
Lazard International Stock Portfolio........... 77 122 169 289 26 79 136 289
MFS Mid Cap Growth Portfolio................... 75 115 157 264 23 72 123 264
MFS Research Portfolio......................... 75 115 157 264 23 72 123 264
Social Awareness Stock Portfolio............... 73 111 149 247 22 67 115 247
Strategic Stock Portfolio...................... 74 112 152 253 22 69 118 253
Travelers Quality Bond Portfolio............... 71 104 139 225 20 61 104 225
U.S. Government Securities Portfolio........... 69 99 130 206 18 55 95 206
Utilities Portfolio............................ 73 109 147 243 21 66 113 243
WARBURG PINCUS TRUST
Emerging Markets Portfolio..................... 78 127 177 303 27 84 143 303
</TABLE>
+ No longer available to new Contract Owners.
(1) Reflects expenses that would be incurred for those Contract Owners who DO
NOT participate in the CHART Asset Allocation program.
(2) Reflects expenses that would be incurred for those Contract Owners who DO
participate in the CHART Asset Allocation program.
10
<PAGE> 59
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
See Appendix A on page A-1.
THE VARIABLE ANNUITY CONTRACT
- --------------------------------------------------------------------------------
Gold Track is designed to help you accumulate money for retirement. Certificates
are issued to individual participants under a group contract. Under the
Contract, you (the contract owner or participant, as applicable) make purchase
payments to us and we credit them to your account. We promise to pay you an
income in the form of annuity payments, beginning on a future date that you
choose, the maturity date. The purchase payments accumulate tax deferred in the
funding options that you select. You assume the risk of gain or loss according
to the performance of the funding options. The cash value is the amount of
purchase payments, plus or minus any investment experience or interest. The cash
value also reflects all withdrawals made and charges deducted. There is
generally no guarantee that at the maturity date the cash value will equal or
exceed the total purchase payments made under the Contract. The date the
Contract and its benefits became effective is referred to as the contract date.
Each 12-month period following this contract date is called a contract year. The
record of accumulation units credited to an owner is called the owner's account.
The record of accumulation units credited to a participant is called the
individual account, or participant's interest.
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.
The Contracts may be issued on either an allocated or an unallocated basis. Both
the allocated and unallocated contracts provide for fixed (Fixed Acccount
Option) and variable (Separate Account) accumulations and annuity payouts. The
Fixed Account Option is described in a separate prospectus.
CONTRACT OWNER INQUIRIES
If you have any questions about the Contract, call the Company's Home Office at
1-800-842-9368.
ALLOCATED CONTRACTS
A group allocated Contract will cover all present and future participants under
the Contract. A participant under an allocated Contract receives a certificate
which evidences participation in the Contract.
UNALLOCATED CONTRACTS
We offer an unallocated annuity Contract, designed for use with certain
Qualified Plans where the employer has secured the services of a Third Party
Administrator (TPA).
The Contracts will be issued to an employer or the trustee(s) or custodian of an
employer's Qualified Plan. All purchase payments are held under the Contract, as
directed by the contract owner. There are no individual accounts under the
unallocated Contracts for individual participants in the Qualified Plan.
11
<PAGE> 60
PURCHASE PAYMENTS
The initial purchase payment must be paid before the Contract becomes effective.
The minimum purchase payment allowed is an average of $1,000 annually per
individual certificate, or $10,000 annually per group contract. We will apply
the initial purchase payment within two business days after we receive it in
good order at our Home Office. Subsequent purchase payments received in good
order will be credited 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 the 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. The period between the
contract effective date and the maturity date is the accumulation period. During
the annuity period (i.e., after the maturity date), you are credited with
annuity units.
THE FUNDING OPTIONS
You choose which of the following variable funding options to have your purchase
payments allocated to. These funding options are subsections of the Separate
Account which invest in the underlying mutual funds. You will find detailed
information about the options and their inherent risks in the current underlying
mutual fund prospectuses which must accompany this prospectus. You are not
investing directly in the underlying mutual funds. Since each option has varying
degrees of risk, please read the prospectuses carefully before investing. You
may obtain additional copies of the prospectuses by contacting your registered
representative or by calling 1-888-453-8722.
The current funding options are listed below along with their investment
objectives, advisers and any subadvisers:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
INVESTMENT INVESTMENT INVESTMENT
OPTIONS OBJECTIVE ADVISER/SUBADVISER
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
High Yield Bond Trust* Seeks generous income. The assets of the High Yield Bond Travelers Asset Management
Trust will be invested in bonds which, as a class, sell International Corporation
at discounts from par value and are typically high risk ("TAMIC")
securities.
Managed Assets Trust** Seeks high total investment return through a fully TAMIC
managed investment policy in a portfolio of equity, debt Subadviser: Travelers
and convertible securities. Investment Management
Company ("TIMCO")
Money Market Portfolio* Seeks high current income from short term money market TAMIC
instruments while preserving capital and maintaining a
high degree of liquidity.
AMERICAN ODYSSEY FUNDS,
INC.
Core Equity Fund Seeks maximum long-term total return by investing American Odyssey Funds
primarily in common stocks of well-established Management, Inc.
companies. Subadviser: Equinox
Capital Management, L.L.C.
Emerging Opportunities Seeks maximum long-term total return by investing American Odyssey Funds
Fund primarily in common stocks of small, rapidly growing Management, Inc.
companies. Subadviser: Cowen Asset
Management and Chartwell
Investment Partners
</TABLE>
12
<PAGE> 61
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
INVESTMENT INVESTMENT INVESTMENT
OPTIONS OBJECTIVE ADVISER/SUBADVISER
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Global High-Yield Bond Seeks maximum long-term total return (capital American Odyssey Funds
Fund*(1) appreciation and income) by investing primarily in Management, Inc.
high-yield debt securities from the United States and Subadviser: Credit Suisse
abroad. Asset Management
Intermediate-Term Bond Seeks maximum long-term total return by investing American Odyssey Funds
Fund* primarily in intermediate-term corporate debt Management, Inc.
securities, U.S. government securities, mortgage-related Subadviser: TAMIC
securities and asset-backed securities, as well as money
market instruments.
International Equity Fund Seeks maximum long-term total return by investing American Odyssey Funds
primarily in common stocks of established non-U.S. Management, Inc.
companies. Subadviser: Bank of
Ireland Asset Management
(U.S.) Limited
Long-Term Bond Fund* Seeks maximum long-term total return by investing American Odyssey Funds
primarily in long-term corporate debt securities, U.S. Management, Inc.
government securities, mortgage-related securities, and Subadviser: Western Asset
asset-backed securities, as well as money market Management Company
instruments.
DELAWARE GROUP PREMIUM
FUND, INC.
REIT Series Seeks maximum long-term total return by investing in Delaware Management
securities of companies primarily engaged in the real Company, Inc.
estate industry. Subadviser: Lincoln
Investment Management,
Inc.
Small Cap Value Series Seeks capital appreciation by investing primarily in Delaware Management
common stocks whose market values appear low relative to Company, Inc.
their underlying value or future potential
DREYFUS VARIABLE INVESTMENT
FUND
Capital Appreciation Seeks primarily to provide long-term capital growth The Dreyfus Corporation
Portfolio consistent with the preservation of capital; current Subadviser: Fayez Sarofim
income is a secondary investment objective. The & Co.
portfolio invests primarily in the common stocks of
domestic and foreign issuers.
Small Cap Portfolio Seeks to maximize capital appreciation. The Dreyfus Corporation
GREENWICH STREET SERIES
FUND
Equity Index Portfolio Seeks to replicate, before deduction of expenses, the TIMCO
Class II total return performance of the S&P 500 Index.
MONTGOMERY FUNDS III
Montgomery Variable Seeks capital appreciation. Under normal conditions, it Montgomery Asset
Series Growth Fund invests at least 65% of its assets in equity securities. Management
OCC ACCUMULATION TRUST
Equity Portfolio Seeks long-term capital appreciation through investment Op Cap Advisors
in a diversified portfolio of equity securities selected
on the basis of a value oriented approach to investing.
SALOMON BROTHERS VARIABLE
SERIES FUND, INC.
Salomon Brothers Variable Seeks capital appreciation through investments primarily Salomon Brothers Asset
Capital Fund in common stock, or securities convertible to common Management ("SBAM")
stocks, which are believed to have above-average price
appreciation potential and which may also involve above-
average risk.
Salomon Brothers Variable Seeks long-term growth of capital. Current income is a SBAM
Investors Fund secondary objective.
Salomon Brothers Variable Seeks above-average income (compared to a portfolio SBAM
Total Return Fund** invested entirely in equity securities). Secondarily,
seeks opportunities for growth of capital and income.
</TABLE>
13
<PAGE> 62
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
INVESTMENT INVESTMENT INVESTMENT
OPTIONS OBJECTIVE ADVISER/SUBADVISER
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
STRONG VARIABLE INSURANCE
FUNDS, INC.
Strong Shafer Value Seeks primarily long-term capital appreciation. Current Strong Capital Management,
Fund II income is a secondary objective when selecting Inc.
investments. Subadviser: Shafer Capital
Management, Inc.
TRAVELERS SERIES FUND, INC.
Alliance Growth Portfolio Seeks long-term growth of capital by investing Travelers Investment
predominantly in equity securities of companies with a Adviser ("TIA")
favorable outlook for earnings and whose rate of growth Subadviser: Alliance
is expected to exceed that of the U.S. economy over Capital Management L.P.
time. Current income is only an incidental
consideration.
MFS Total Return Seeks to obtain above-average income (compared to a TIA
Portfolio** portfolio entirely invested in equity securities) Subadviser: Massachusetts
consistent with the prudent employment of capital. Finance Services Company
Generally, at least 40% of the Portfolio's assets will ("MFS")
be invested in equity securities.
Putnam Diversified Income Seeks high current income consistent with preservation TIA
Portfolio** of capital. The Portfolio will allocate its investments Subadviser: Putnam
among the U.S. Government Sector, the High Yield Sector, Investment Management,
and the International Sector of the fixed income Inc.
securities markets.
Smith Barney High Income Seeks high current income. Capital appreciation is a SSBC Fund Management Inc.
Portfolio* secondary objective. The Portfolio will invest at least ("SSBC")
65% of its assets in high-yielding corporate debt
obligations and preferred stock.
Smith Barney Seeks total return on assets from growth of capital and SSBC
International Equity income by investing at least 65% of its assets in a
Portfolio diversified portfolio of equity securities of
established non-U.S. issuers.
Smith Barney Large Seeks long-term growth of capital by investing in equity SSBC
Capitalization Growth securities of companies with large market
Portfolio capitalization.
THE TRAVELERS SERIES TRUST
Disciplined Mid Cap Stock Seeks growth of capital by investing primarily in a TAMIC
Fund broadly diversified portfolio of common stocks. Subadviser: TIMCO
Disciplined Small Cap Seeks long term capital appreciation by investing TAMIC
Fund primarily (at least 65% of its total assets) in the Subadviser: TIMCO
common stocks of U.S. Companies with relatively small
market capitalizations at the time of investment.
Equity Income Portfolio Seeks reasonable income by investing at least 65% in TAMIC
income-producing equity securities. The balance may be Subadviser: Fidelity
invested in all types of domestic and foreign Management & Research
securities, including bonds. The Portfolio seeks to Company ("FMR")
achieve a yield that exceeds that of the securities
comprising the S&P 500. The Subadviser also considers
the potential for capital appreciation.
Federated Stock Portfolio Seeks growth of income and capital by investing TAMIC
principally in a professionally managed and diversified Subadviser: Federated
portfolio of common stock of high-quality companies Investment Counseling,
(i.e., leaders in their industries and characterized by Inc.
sound management and the ability to finance expected
growth).
Large Cap Portfolio Seeks long-term growth of capital by investing primarily TAMIC
in equity securities of companies with large market Subadviser: FMR
capitalizations.
Lazard International Seeks capital appreciation by investing primarily in the TAMIC
Stock Portfolio equity securities of non-United States companies (i.e., Subadviser: Lazard Asset
incorporated or organized outside the United States). Management
MFS Mid Cap Growth Seeks to obtain long term growth of capital by TAMIC
Portfolio investing, under normal market conditions, at least 65% Subadviser: MFS
of its total assets in equity securities of companies
with medium market capitalization which the investment
adviser believes have above-average growth potential.
MFS Research Portfolio Seeks to provide long-term growth of capital and future TAMIC
income. Subadviser: MFS
</TABLE>
14
<PAGE> 63
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
INVESTMENT INVESTMENT INVESTMENT
OPTIONS OBJECTIVE ADVISER/SUBADVISER
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
THE TRAVELERS SERIES TRUST,
CONTINUED
Social Awareness Stock Seeks long-term capital appreciation and retention of SSBC
Portfolio net investment income by selecting investments,
primarily common stocks, which meet the social criteria
established for the Portfolio. Social criteria currently
excludes companies that derive a significant portion of
their revenues from the production of tobacco, tobacco
products, alcohol, or military defense systems, or in
the provision of military defense related services or
gambling services.
Strategic Stock Portfolio Seeks to provide an above-average total return through a TAMIC
combination of potential capital appreciation and Subadviser: TIMCO
dividend income by investing primarily in high dividend
yield stocks periodically selected from the companies
included in (i) the Dow Jones Industrial Average and
(ii) a sub-set of the Standard & Poor's Industrial
Index.
Travelers Quality Bond Seeks current income, moderate capital volatility and TAMIC
Portfolio* total return.
U.S. Government Seeks to select investments from the point of view of an TAMIC
Securities Portfolio* investor concerned primarily with highest credit
quality, current income and total return. The assets of
the U.S. Government Securities Portfolio will be
invested in direct obligations of the United States, its
agencies and instrumentalities.
Utilities Portfolio Seeks to provide current income by investing in equity SSBC
and debt securities of companies in the utility
industries.
WARBURG PINCUS TRUST
Emerging Markets Seeks long-term growth of capital by investing primarily Warburg Pincus Asset
Portfolio in equity securities of non-U.S. issuers consisting of Management, Inc.
companies in emerging market securities.
</TABLE>
(1) Formerly American Odyssey Short-Term Bond Fund. The name investment
objective and investment subadviser of this fund were changed pursuant to a
shareholder vote effective May 1, 1998.
* The funding options marked with an asterisk (*) are considered competing
funds, and may be subject to transfer restrictions. Those marked with two
asterisks (**) are not currently considered competing funds, but may be so in
the future because of an allowable change in the funding option's investment
strategy. Please refer to the contract for transfer restrictions.
TRANSFERS
- --------------------------------------------------------------------------------
You may transfer cash values from one or more funding options to other funding
options, subject to the terms and conditions of the Contract (and your Plan). If
authorized by the contract owner, participants under allocated Contracts may
transfer all or any of their cash value from one funding option to another up to
30 days before the due date of the first annuity payment.
DOLLAR COST AVERAGING (AUTOMATED TRANSFERS)
Dollar cost averaging or the pre-authorized transfer program (the "DCA Program")
allows you (the owner or the participant), if permitted, to transfer a set
dollar amount to other funding options on a monthly or quarterly basis during
the accumulation phase of the Contract so that more accumulation units are
purchased in a funding option if the value per unit is low and fewer
accumulation units are purchased if the value per unit is high. Therefore, a
lower-than-average cost per unit may be achieved over the long run.
You may elect the DCA Program through written request or other method acceptable
to the Company. Certain minimums apply to amounts transferred and/or to enroll
in the program.
15
<PAGE> 64
You may establish pre-authorized transfers of contract values from the Fixed
Account, subject to certain restrictions. Under the DCA Program, automated
transfers from the Fixed Account may not deplete your Fixed Account Value in
less than twelve months from your enrollment in the DCA Program.
In addition to the DCA Program, Travelers may credit increased interest rates to
contract owners under an administrative Special DCA Program established at the
discretion of Travelers, depending on availability and state law. Under this
program, the contract owner may pre-authorize level transfers from the Fixed
Account, subject to certain restrictions, under either a 6 Month Program or 12
Month Program. The 6 Month Program and the 12 Month Program will generally have
different credited interest rates. Under the 6 Month Transfer Program, the
interest rate can accrue up to 6 months on funds in the Special DCA Program and
all purchase payments and accrued interest must be transferred on a level basis
to the selected funding option in 6 months. Under the 12 Month Program, the
interest rate can accrue up to 12 months on funds in the Special DCA Program and
all purchase payments and accrued interest in this Program must be transferred
on a level basis to the selected funding options in 12 months.
The pre-authorized transfers will begin after the initial Program purchase
payment and complete enrollment instructions are received by Travelers. If
complete Program enrollment instructions are not received by the Company within
15 days of receipt of the initial Program purchase payment, the entire balance
in the Program will be credited with the non-Program interest rate then in
effect for the Fixed Account.
You may start or stop participation in the DCA Program at any time, but you must
give the Company at least 30 days' notice to change any automated transfer
instructions that are currently in place. If you stop the Special DCA Program
and elect to remain in the Fixed Account, your contract value will be credited
for the remainder of 6 or 12 months with the interest rate for non-Program
funds.
A contract owner may only have one DCA Program or Special DCA Program in place
at one time. Any subsequent purchase payments received by the Company within the
Program period selected will be allocated to the current funding options over
the remainder of that Program transfer period, unless otherwise directed by the
contract owner.
All provisions and terms of the Contract apply to the DCA and Special DCA
Programs, including provisions relating to the transfer of money between
investment options. We reserve the right to suspend or modify transfer
privileges at any time and to assess a processing fee for this service.
ASSET ALLOCATION ADVICE
Owners may elect to enter into a separate advisory agreement with Copeland
Financial Services, Inc. ("Copeland"), an affiliate of the Company. Copeland
provides asset allocation advice under its CHART program, which is fully
described in a separate disclosure statement. Under the CHART Program, purchase
payments and cash values are allocated among the specified asset allocation
funds. Copeland's charge for this advisory service is equal to a maximum of
1.50% of the assets subject to the CHART Program. The CHART Program fee will be
paid by quarterly withdrawals from the cash values allocated to the asset
allocation funds. The fee is in addition to the Contract charges described in
"Charges Under the Contract." The Company will not treat these withdrawals as
taxable distributions. The CHART Program may not be available in all marketing
programs through which this Contract is sold.
ACCESS TO YOUR CONTRACT VALUES
- --------------------------------------------------------------------------------
Before your maturity date, we will pay all or any portion of your cash surrender
value to the contract owner or to you, as provided in the plan. A contract
owner's account may be surrendered for cash without the consent of any
participant, as provided in the plan.
16
<PAGE> 65
We may defer payment of any cash surrender value for up to seven days after we
receive the request in good order. The cash surrender value equals the Contract
or Account cash value less any applicable withdrawal charge, outstanding cash
loans, and any premium tax not previously deducted. The cash surrender value may
be more or less than the purchase payments made depending on the value of the
Contract or account at the time of surrender. For information about withdrawals
from your payout option after the Maturity Date (with no life contingency),
refer to the Statement of Additional Information.
Participants in Section 403(b) tax deferred annuity plans may not withdraw
certain salary reduction amounts before reaching age 59 1/2, unless withdrawn
due to separation from service, death, disability or hardship. (See "Federal Tax
Considerations.")
Participants in the Texas Optional Retirement Program should refer to Appendix C
for information regarding access to contract values.
SYSTEMATIC WITHDRAWALS
Before the maturity date, you may choose to withdraw a specified dollar amount
(at least $50) 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 minimum contract value of $5,000. 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.
17
<PAGE> 66
CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
GENERAL
We deduct the charges described below. The charges are for the service and
benefits we provide, costs and expenses we incur, and risks we assume under the
Contracts. We may also deduct a charge for taxes. Services and benefits we
provide include:
- the ability for you to make withdrawals and surrenders under the
Contracts;
- the death benefit paid on the death of the contract owner, annuitant, or
first of the joint contract owners,
- the available funding options and related programs (including dollar-cost
averaging, portfolio rebalancing, and systematic withdrawal programs);
- administration of the annuity options available under the Contracts; and
- the distribution of various reports to contract owners.
Costs and expenses we incur include:
- losses associated with various overhead and other expenses associated
with providing the services and benefits provided by the Contracts,
- sales and marketing expenses, and
- other costs of doing business.
Risks we assume include:
- risks that annuitants may live longer than estimated when the annuity
factors under the Contracts were established,
- that the amount of the death benefit will be greater than the contract
value and
- that the costs of providing the services and benefits under the Contracts
will exceed the charges deducted.
Unless otherwise specified, charges are deducted proportionately from all
funding options in which you are invested.
We may reduce or eliminate the withdrawal charge, the administrative charges
and/or the mortality and expense risk charge under the Contract when certain
sales or administration of the Contract result in savings or reduced expenses
and/or risks. For certain trusts, we may change the order in which purchase
payments and earnings are withdrawn in order to determine the withdrawal charge.
We will not reduce or eliminate the withdrawal charge or the administrative
charge where such reduction or elimination would be unfairly discriminatory to
any person.
WITHDRAWAL CHARGE
Purchase payments made under the Contract are not subject to a front-end sales
load. However, when withdrawn, the Company will charge a surrender charge, as
negotiated. Any sales charge, penalty tax and withholding will be deducted from
either the amount surrendered or from the remaining Contract balance, as
requested by the contract owner or participant. The maximum surrender charge is
5% of the amount surrendered in the first two contract/certificate years, up to
4% in years three and four; up to 3% in years five and six, up to 2% in years
seven and eight and 0% beginning in the ninth year. Any applicable sales charge
will not exceed 8.5% of the aggregate amount of the purchase payments made.
18
<PAGE> 67
The sales charges can be changed if the Company anticipates it will incur
decreased sales-related expenses due to the nature of the Plan to which the
Contract is issued or the involvement of TPAs. When considering a change in the
sales charges, the Company will take into account:
(a) The expected level of initial agent or the Company involvement during
the establishment and maintenance of the Contract including the amount
of enrollment activity required, and the amount of service required by
the contract owner in support of the Plan, and
(b) Contract Owner, agent or TPA involvement in conducting ongoing
enrollment of subsequently eligible participants, and
(c) The expected level of commission the Company may pay to the agent or
TPA for distribution expenses, and
(d) Any other factors which the Company anticipates will increase or
decrease the sales-related expenses associated with the sale of the
Contract in connection with the Plan.
We may not assess a sales charge if a withdrawal is made under one of the
following circumstances:
- retirement of participant
- separation from service by participant
- loans (if available)
- hardship (as defined by the Code) suffered by the participant
- death of participant
- disability (as defined by the Code) of participant
- return of excess plan contributions
- minimum required distributions, generally when participant reaches age
70 1/2
- transfers to an Employee Stock Fund
- certain Plan expenses, as mutually agreed upon
- annuitization under this Contract or another Contract issued by us.
For Section 401(a) plans with less than 50 participants at the time of sale,
Highly Compensated Employees, as defined by the Internal Revenue Code, during
the first 5 contract years may be subject to surrender charges for all
distributions listed above except loans and return of excess plan contributions.
For unallocated Contracts, we make the deductions described above pursuant to
the terms of the various agreements among the custodian, the principal
underwriter, and us.
FREE WITHDRAWAL ALLOWANCE
For Contracts in use with deferred compensation plans, the tax deferred annuity
plans and combined qualified plans/tax-deferred annuity plans, there is
currently a 10% free withdrawal allowance available each year after the first
contract/certificate year. (If you have purchase payments no longer subject to a
withdrawal charge, the maximum you may withdraw without a withdrawal charge is
the greater of (a) the free withdrawal allowance, or (b) the total amount of
purchase payments no longer subject to a withdrawal charge. Note: Any free
withdrawal taken will reduce purchase payments no longer subject to a withdrawal
charge.) (If you have purchase payments no longer subject to a withdrawal
charge, the maximum you may withdraw without a withdrawal charge is the greater
of (a) the free withdrawal allowance, or (b) the total amount of purchase
payments no longer subject to a withdrawal charge. Note: Any free withdrawal
taken will reduce purchase payments no longer subject to a withdrawal charge.)
The available withdrawal amount will be calculated as of the first valuation
date of any given contract year. The free withdrawal allowance applies to
partial surrenders of any amount and to full surrenders, except those full
surrenders transferred directly to annuity contracts issued by other financial
institutions.
MORTALITY AND EXPENSE RISK CHARGE
A mortality and expense risk charge is deducted on each business day from
amounts held in the Separate Account. This charge is equivalent, on an annual
basis, to a maximum of 1.20% of the amounts allocated to each funding option.
FUNDING OPTION CHARGES
There are certain deductions from and expenses paid out of the assets of each
funding option. These are described in the applicable prospectus for each
funding option.
19
<PAGE> 68
PREMIUM TAX
Certain states and local governments impose a premium tax, ranging up to 5.0%.
The Company is responsible for paying these taxes and will determine the method
used to recover premium tax expenses incurred. Where required, we will deduct
any applicable premium taxes from the cash value either upon death, surrender,
annuitization, or at the time purchase payments are made to the Contract, but no
earlier than when we have a tax liability under state law.
ADMINISTRATIVE CHARGE
This charge is deducted on each business day from the variable funding options
in order to compensate the Company for certain administrative and operating
expenses of the funding options. The charge is equivalent, on an annual basis,
to a maximum of 0.10% of the daily net asset value of each funding options. This
charge is assessed during the accumulation and annuity periods.
As discussed below, the level of the administrative expense charge is subject to
negotiation. In determining the level of the administrative expense charge, we
consider certain factors including, but not limited to, the following:
(a) The size and characteristics of the Contract and the group to which it is
issued including: the annual amount of purchase payments per participant,
the expected turnover of employees, whether the contract owner will make
purchase payment allocations electronically.
(b) Determination of the Company's anticipated expenses in administering the
Contract, such as: billing for purchase payments, producing periodic
reports, providing for the direct payment of Contract charges rather than
having them deducted from Contract values.
(c) TPA and/or agent involvement.
TPA ADMINISTRATIVE CHARGES
The Company may be directed by the contract owner to deduct charges from
purchase payments or account values for payment to the contract owner and/or the
TPA. These charges are not levied by the Contract. Such charges may include
maintenance fees and transaction fees.
OWNERSHIP PROVISIONS
- --------------------------------------------------------------------------------
TYPES OF OWNERSHIP
Contract Owner ("you"). If a group "allocated" contract is purchased, we issue
certificates to the individual participants. If a group unallocated contract is
purchased, we issue only the contract. Where we refer to "you," we are referring
to the contract owner, or to the group participant, as applicable.
You receive all payments while the annuitant is alive unless you direct them to
an alternate recipient. An alternate recipient does not become the contract
owner.
Joint Owner. For nonqualified contracts only, joint owners (i.e., spouses) may
be named in a written request before the contract is in effect. Joint owners may
independently exercise transfers allowed under the Contract. All other rights of
ownership must be exercised by both owners. Joint owners own equal shares of any
benefits accruing or payments made to them. All rights of a joint owner end at
death if the other joint owner survives. If the first joint owner to die is also
the annuitant, the death benefit will be paid to the beneficiary if there is no
contingent annuitant. If the first joint owner to die is not the annuitant, the
entire interest under the contract will pass to the surviving joint owner.
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<PAGE> 69
BENEFICIARY
You name the beneficiary 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 the Company receives other instructions,
by written request before the death of the annuitant or contract owner.
With nonqualified contracts, as discussed under "Death Benefit," the beneficiary
named in the contract may differ from the designated beneficiary (for example,
the designated beneficiary may be the joint owner). In such cases, the
designated beneficiary receives the contract benefits (rather than the
beneficiary) upon your death.
Unless an irrevocable beneficiary has been named, you have the right to change
any beneficiary by written request during the lifetime of the annuitant and
while the Contract continues.
ANNUITANT
The annuitant is designated in the Contract (on the Specifications page), and is
the individual on whose life the maturity date and the amount of the monthly
annuity payments depend. The annuitant may not be changed after the contract is
in effect.
For nonqualified Contracts only, where the owner and annuitant are not the same
person, the contract owner may also name one individual as a contingent
annuitant by written request before the Contract becomes effective. If the
annuitant dies before the maturity date, and a contingent annuitant has been
named, the contingent annuitant becomes the annuitant, and the contract
continues. However, if the annuitant who is also the owner dies, the death
benefit is paid to the beneficiary. The contingent annuitant does not become the
annuitant and is not entitled to receive any contract benefits. A contingent
annuitant may not be changed, deleted or added after the Contract becomes
effective.
DEATH BENEFIT
- --------------------------------------------------------------------------------
Before the maturity date, where there is no contingent annuitant, a death
benefit is payable to the beneficiary when either the annuitant, contract owner
or the first of joint owners dies. The death benefit is calculated at the close
of the business day on which the Company's home office receives due proof of
death.
DEATH BENEFIT PROCEEDS PRIOR TO MATURITY DATE
ALLOCATED CONTRACT. If the participant dies before the maturity date or the
participant reaches age 75 (whichever occurs first), the death benefit payable
will be the greater of:
(a) the cash value of the participant's individual account or
(b) the total purchase payments under that participant's individual
account, less, for each option, any applicable premium tax, minus
outstanding loan amounts and prior surrenders not previously deducted
as of the date we receive due proof of death.
If the participant dies on or after age 75 and before the maturity date, we will
pay the beneficiary the cash value of the participant's individual account, less
any applicable premium tax or outstanding loan amounts as of the date we receive
due proof of death.
UNALLOCATED CONTRACT. (This death benefit is available only with our consent and
by endorsement to the Contract and may not be available in all jurisdictions.)
The unallocated Contract provides
21
<PAGE> 70
that, in the event the participant dies before the selected maturity date, or
the participant's attainment of age 75 (whichever occurs first), the death
benefit payable will be the greater of:
a) the cash value attributable to the participant under the Contract or
b) the total purchase payments attributable to the participant under the
contract, less any applicable premium tax, prior surrenders not
previously deducted and any outstanding loan balance (if applicable) as
of the date we receive due proof of death.
If the participant dies on or after attainment of age 75 and before the maturity
date, we will pay the beneficiary the cash value attributable to the participant
under the Contract, less any applicable premium tax, prior surrenders not
previously deducted and any outstanding loan balance (if applicable) as of the
date we receive due proof of death.
DEATH PROCEEDS AFTER THE MATURITY DATE
If the annuitant dies on or after the maturity date, we will pay the beneficiary
a death benefit consisting of any benefit remaining under the annuity option
then in effect.
PAYMENT OF PROCEEDS
The death benefit will be paid to the contract owner, or the beneficiary, as
provided in the plan.
The process of paying death benefit proceeds under various situations is
described below. Generally, the person(s) receiving the benefit may request that
the proceeds be paid in a lump sum, or be applied to one of the settlement
options available under the Contract.
DEATH OF ANNUITANT WHO IS THE CONTRACT OWNER. The Company will pay the proceeds
to the beneficiary(ies), or if none, to the contract owner's estate.
The death benefit proceeds must be distributed to the beneficiary within five
years of the contract owner's death. Or, the beneficiary may elect to receive
payments from an annuity which begins within one year of the contract owner's
death and which is payable over the life of the beneficiary or over a period not
exceeding the beneficiary's life expectancy.
Under a nonqualified contract, if the beneficiary is the contract owner's
spouse, he or she may elect to continue the contract as the new contract owner
rather than receiving the distribution. In such case, the distribution rules
applicable when a contract owner dies generally will apply when that spouse, as
contract owner, dies.
DEATH OF ANNUITANT WHO IS NOT THE CONTRACT OWNER (NONQUALIFIED CONTRACTS ONLY).
If there is no contingent annuitant, the Company will pay the death proceeds to
the beneficiary. However, if there is a contingent annuitant, he or she becomes
the annuitant and the Contract continues in effect (generally using the original
maturity date). The proceeds described above will be paid upon the death of the
last surviving contingent annuitant.
DEATH OF CONTRACT OWNER WHO IS NOT THE ANNUITANT (NONQUALIFIED CONTRACTS ONLY).
The Company will pay the proceeds to any surviving joint owner, or if none, to
the beneficiary(ies), or if none, to the contract owner's estate. If the
surviving joint owner (or if none, the beneficiary) is the contract owner's
spouse, he or she may elect to continue the contract as the new contract owner
rather than receiving the distribution.
ENTITY AS OWNER. In the case of a nonqualified Contract owned by a nonnatural
person (e.g. a trust or other entity), the death benefit will be paid only upon
the death of the annuitant.
We must be notified of a participant's death no later than six months after the
participant's date of death in order for the beneficiary to receive the death
proceeds as described. If we receive more than six months after the
participant's death, unless prohibited by state law, the beneficiary will
receive the cash value of the participant's individual account less any
outstanding loan amounts as of the date we receive due proof of death.
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An election to receive death benefits under a form of annuity must be made
within one year after the death. The election must be made by written notice to
us at our Home Office. The beneficiary may choose to have annuity payments made
on a variable basis, fixed basis, or a combination of the two.
We will pay this benefit upon receiving due proof of death along with a written
request noting the cash value and the total purchase payments attributable to
the participant under the Contract. In addition, we will require copies of
records and any other reasonable proof we find necessary to verify the cash
value and total purchase payments attributable to the participant under the
unallocated Contract.
THE ANNUITY PERIOD
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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 options). While the
annuitant is alive, you can change your selection any time up to the maturity
date. Annuity payments will begin on the maturity date stated in the Certificate
unless it 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. Not
all options may be available in all states.
You may choose to annuitize at any time after you purchase the contract. Under
nonqualified contracts, unless you elect otherwise, the maturity date will be
the annuitant's 75th birthday or ten years after the effective date of the
contract, if later. Under qualified contracts, the maturity date must be before
the individual's 70th birthday, unless we consent to a later date.
At least 30 days before the original maturity date, you may extend the maturity
date to any time prior to the annuitant's 85th birthday or to a later date with
our consent. Certain annuity options taken at the maturity date may be used to
meet the minimum required distribution requirements of federal tax law, or a
program of partial surrenders may be used instead. These mandatory distribution
requirements take effect generally upon the death of the contract owner, or with
qualified contracts upon either the later of the contract owner's attainment of
age 70 1/2 or year of retirement; or the death of the contract owner. You should
seek independent tax advice 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. If, at the time annuity payments begin,
no election has been made to the contrary, the contract value will be applied to
provide an annuity funded by the same investment options as you have selected
during the accumulation period. At least 30 days before the maturity date, you
may transfer the contract value among the funding options in order to change the
basis on which annuity payments will be determined. (See "Transfers.")
VARIABLE ANNUITY
You may choose to receive annuity payments that are based on the performance of
one or more of the variable funding options. This is called a variable payout
because the amount you receive each month will increase or decrease depending on
how the variable funding options perform. When you annuitize, we will credit you
with annuity units. An annuity unit measures the dollar value of an annuity
payment. We determine the number of annuity units to credit you with by dividing
the first monthly annuity payment for each funding option by the accumulation
unit value for that funding option as of 14 days before the annuity payments
begin. The number of annuity units (but not their value) remains fixed during
the annuity period.
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HOW WE DETERMINE THE FIRST ANNUITY PAYMENT. The Contract contains tables used to
determine the first monthly annuity payment. If a variable annuity is elected,
the amount applied to it will be the value of the funding options as of 14 days
before the annuity payments begin less any premium taxes due.
The first monthly payment amount depends on the annuity option elected and the
annuitant's adjusted age. The Contract contains a formula for determining the
adjusted age. We calculate the first monthly payment by multiplying the benefit
per 1,000 applied, shown in the Contract tables, by the number of thousands of
dollars of Contract value applied to the annuity option. We also factor in an
assumed daily net investment factor of 3%. This assumed daily net investment
factor is used to determine the guaranteed payout rates shown. If net investment
rates are higher at the time annuitization is selected, payout rates will be
higher than those shown. Payout rates will not be lower than those shown. We
reserve the right to require satisfactory proof of an annuitant's age before we
make the first annuity payment.
HOW WE DETERMINE THE PAYMENTS AFTER THE FIRST. The first dollar amount of all
annuity payments after the first will change from month to month based on the
investment performance of the applicable funding options. The total amount of
each annuity payment will equal the sum of the basic payments in each funding
option. The actual amounts of these payments are determined by multiplying the
number of annuity units credited to each funding option by the corresponding
annuity unit value as of the date 14 days before the payment is due.
FIXED ANNUITY
You may choose a fixed annuity that provides payments which do not vary during
the annuity period. We will calculate the dollar amount of the first fixed
annuity payment as described under "Variable Annuity," except that the amount
applied to begin the annuity will be the contract value, determined as of the
date annuity payments begin. If it would produce a larger payment, the first
fixed annuity payment will be determined using the Life Annuity Tables in effect
on the maturity date.
ELECTION OF OPTIONS
Any amount distributed from the Contract may be applied to any one of the
annuity options described below.
Election of any of these options must be made by written request to our Home
Office at least 30 days prior to the date such election is to become effective.
The form of such annuity option shall be determined by the contract owner. The
following information must be provided with any such request:
a) the participant's name, address, date of birth, social security number;
b) the amount to be distributed;
c) the annuity option which is to be purchased;
d) the date the annuity option payments are to begin;
e) if the form of the annuity provides a death benefit in the event of the
participant's death, the name, relationship and address of the
beneficiary as designated by you; and
f) any other data that we may require.
The beneficiary, as specified in item (e) above, may be changed by you or the
annuitant as long as we are notified by written request while the annuitant is
alive and before payments have begun. If the beneficiary designation is
irrevocable, such designation cannot be changed or revoked without the consent
of the beneficiary. After we receive the written request and the written consent
of the beneficiary (if required), the new beneficiary designation will take
effect as of the
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date the notice is signed. We have no further responsibility for any payment we
made before the written request.
MINIMUM AMOUNTS
The minimum amount that can be placed under an Annuity option is $2,000 unless
we consent to a lesser amount. If any periodic payments due are less than $100,
we reserve the right to make payments at less frequent intervals.
MISSTATEMENT
If an annuitant's sex or age was misstated, all benefits of this Contract are
what the cash values would have purchased on the date of issue at the correct
sex and age.
RETIRED LIFE CERTIFICATE
We will issue to each person to whom annuity benefits are being paid under this
Contract a certificate setting forth a statement in substance of the benefits to
which such person is entitled under this Contract.
ALLOCATION OF CASH SURRENDER VALUE DURING THE ANNUITY PERIOD
At the time an annuity option is elected, you also may elect to have the
participant's cash surrender value applied to provide a variable annuity, a
fixed annuity, or a combination of both.
If no election is made to the contrary, the cash surrender value will provide an
annuity which varies with the investment experience of the corresponding funding
option(s) at the time of election. You or the participant, if you so authorize,
may elect to transfer cash values from one funding option to another, as
described in the provision "Transfers of Cash Value Between Funding Options," in
order to reallocate the basis on which annuity payments will be determined. Once
annuity payments have begun, no further transfers are allowed.
ANNUITY OPTIONS
OPTION 1 -- LIFE ANNUITY/NO REFUND. A life annuity is an annuity payable during
the lifetime of the annuitant and terminating with the last monthly payment
preceding the death of the annuitant.
OPTION 2 -- LIFE ANNUITY WITH 120, 180 OR 240 MONTHLY PAYMENTS ASSURED. An
annuity payable monthly during the lifetime of an annuitant with the provision
that if, at the death of the annuitant, payments have been made for less than
120,180 or 240 months, as elected, then we will continue to make payments to the
designated beneficiary during the remainder of the period.
OPTION 3 -- LIFE ANNUITY -- CASH REFUND. We will make monthly annuity payments
during the lifetime of the annuitant, ceasing with the last payment due prior to
the death of the annuitant, provided that, at the death of the annuitant, the
Beneficiary will receive an additional payment equal to the dollar value, if
any, of (a) minus (b) where, for a variable annuity:
(a) is the total amount applied under the option divided by the annuity
unit value on the due date of the first annuity payment;
(b) and is
(1) the number of annuity units represented by each payment;
times
(2) the number of payments made;
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and for a Fixed Annuity:
(a) is the cash value applied on the maturity date under this option; and
(b) is the dollar amount of annuity payments already paid.
OPTION 4 -- JOINT AND LAST SURVIVOR LIFE ANNUITY. Monthly annuity payments
based upon the joint lifetime of two persons selected: payments made first to
the annuitant, and upon his/her death, paid to the survivor. No more payments
will be made after the death of the survivor.
OPTION 5 -- JOINT AND LAST SURVIVOR ANNUITY -- ANNUITY REDUCED ON DEATH OF
PRIMARY PAYEE. Monthly annuity payments to the annuitant during the joint
lifetime of the two persons selected. One of the two persons will be designated
as the primary payee. The other will be designated as the secondary payee. On
the death of the secondary payee, if survived by the primary payee, we 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, if survived by the secondary payee, we will
continue to make monthly annuity payments to the secondary payee in an amount
equal to 50% of the payments which would have been made during the lifetime of
the primary payee. No further payments will be made following the death of the
survivor.
OPTION 6 -- FIXED PAYMENTS FOR A FIXED PERIOD OF 120, 180, OR 240 MONTHS. We
will make monthly payments for the period selected. If at the death of the
annuitant, payments have been made for less than 120, 180, or 240 months, as
elected, we will continue to make payments to the designated beneficiary during
the remainder of the period.
OPTION 7 -- OTHER ANNUITY OPTIONS. We will make other arrangements for annuity
payments as may be mutually agreed upon by you and us.
MISCELLANEOUS CONTRACT PROVISIONS
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RIGHT TO RETURN
For Contracts in use with deferred compensation plans, tax-deferred annuity
plans, and combined qualified plans/tax deferred annuity plans, you may return
the Contract for a full refund of the cash value (including charges) within ten
days after you receive it (the "right to return period"). Where state law
requires a longer right to return period, or the return of purchase payments,
the Company will comply. The contract owner bears the investment risk during the
right to return period; therefore, the cash value returned may be greater or
less than your purchase payment. All cash values will be determined as of the
next valuation following the Company's receipt of your written request for
refund.
The right to return described above does not apply to participants in the Texas
ORP.
CONTRACT AND PARTICIPANT'S INDIVIDUAL ACCOUNT TERMINATION
Under the allocated Contracts, if the cash value in a participant's individual
account is less than the termination amount as stated in your Contract, we
reserve the right to terminate that account and move the cash value of that
participant's individual account to your account.
Any cash value to which a terminating participant is not entitled under the Plan
will be moved to your account at your direction.
You may discontinue this Contract by written request at any time for any reason.
We reserve the right to discontinue this Contract if:
a) the cash value of the Contract is less than the termination amount; or
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b) We determine within our sole discretion and judgment that the Plan or
administration of the Plan is not in conformity with applicable law; or
c) We receive notice that is satisfactory to us of plan termination.
If we discontinue this Contract or we receive your written request to
discontinue the Contract, we will, in our sole discretion and judgment:
a) accept no further payments for this Contract; and
b) pay you the cash surrender value of the funding options within 7 days of
the date of our written notice to you, or distribute the cash surrender
value of each participant's individual account as described in the
settlement provisions section at your direction; and
c) pay you an amount as described in the Fixed Account prospectus.
If the Contract is discontinued, we will distribute the cash surrender value to
you no later than 7 days following our mailing the written notice of
discontinuance to you at the most current address available on our records.
Discontinuance of the Contract will not affect payments we are making under
annuity options which began before the date of discontinuance.
CONTRACT EXCHANGES
a) You may transfer all or any part of Your Account's cash surrender value from
any funding option to any contract not issued by us. Such transfers may be
subject to a sales charge, as described in the Contract. If authorized by the
contract owner, a participant may transfer all or any part of the individual
account's cash surrender value from one funding option to any contract not
issued by us.
b) Under specific conditions, we may allow you to transfer to this Contract
funds held by you in another group annuity contract issued by us or to
transfer amounts from this Contract to another Contract issued by us without
applying a sales charge to the funds being transferred. Once the transfer is
complete and we have established an account for you at your direction, a new
sales charge may apply, as described in the new Contract.
c) Under specific conditions, when authorized by state insurance law, we may
credit a Plan up to 4% of the amount transferred to us from another group
annuity not issued by us as reimbursement to the Plan for any exit penalty
assessed by the other issuer. We may recover this credit through reduced
compensation paid to the servicing agent or broker.
POSTPONEMENT OF PAYMENT (EMERGENCY PROCEDURE)
Payment of any benefit or values may be postponed whenever (1) the New York
Stock Exchange is closed; (2) when trading on the New York Stock Exchange is
restricted; (3) when an emergency exists as determined by the SEC so that
disposal of the securities held in the funding options is not reasonably
practicable or it is not reasonably practicable to determine the value of the
funding option's net assets; or (4) during any other period when the SEC, by
order, so permits for the protection of security holders.
ACCOUNT VALUE
During the accumulation period, the account value can be determined by
multiplying the total number of funding option accumulation units credited to
that account by the current accumulation unit value for the appropriate funding
option and adding the sums for each funding option. There is no assurance that
the value in any of the funding options will equal or exceed the purchase
payments made to such funding options.
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THE SEPARATE ACCOUNT
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The Separate Account was established on December 26, 1995, in accordance with
authorization by the Board of Directors of the Company. It is the Separate
Account in which the Company sets aside and invests the assets attributable to
the Contracts sold under this prospectus. The Separate Account is registered as
a unit investment trust under the Investment Company Act of 1940. This
registration does not, however, involve Securities and Exchange Commission
supervision of the management or the investment practices or policies of the
Separate Account or the Company.
Under Connecticut law, the assets of the Separate Account attributable to the
Contracts offered under this prospectus are held for the benefit of the owners
of, and the persons entitled to payments under, those Contracts. The assets in
the Separate Account are not chargeable with liabilities arising out of any
other business the Company may conduct. Therefore, you will not be affected by
the rate of return of the Company's General Account, nor by the investment
performance of any of the Company's other separate accounts.
The Company does not guarantee the investment results of the Separate Account or
the funding options. There is no assurance that the account value on the
maturity date or the aggregate amount of the variable annuity payments will
equal the sum of purchase payments made under the Contract. Since each funding
option has different investment objectives, each is subject to different risks.
These risks are more fully described in the prospectuses for the funding options
which must accompany this prospectus. Additional copies of the prospectuses may
be requested from your sales representative or from the Home Office.
The Company reserves the right, subject to compliance with the law, to
substitute the shares of any other registered investment company for the shares
of any funding option held by the Separate Account. Substitution may occur if
shares of the funding option(s) become unavailable or due to changes in
applicable law or interpretations of law. Current law requires approval of the
Securities and Exchange Commission and notification to you of any such
substitution. The Company also reserves the right, subject to compliance with
the law, to offer additional funding options.
PERFORMANCE INFORMATION
From time to time, the Company may advertise different types of historical
performance for the funding options available through Separate Account QP. The
Company may advertise the "standardized average annual total returns" of each,
calculated in a manner prescribed by the SEC, as well as the "nonstandardized
average annual total returns," as described below. Specific examples of the
performance information appear in the SAI.
STANDARDIZED METHOD. Quotations of average annual total returns are computed
according to a formula in which a hypothetical initial investment of $1,000 is
applied to the funding option, and then related to ending redeemable values over
one-, five-, and ten-year periods, or for a period covering the time during
which the funding option has been in existence, if less. These quotations
reflect the deduction of all recurring charges during each period (on a pro rata
basis in the case of fractional periods). Each quotation assumes a total
redemption at the end of each period with the applicable withdrawal charges
deducted at that time.
NONSTANDARDIZED METHOD. Nonstandardized "total returns" will be calculated in a
similar manner based on the performance of the funding options over a period of
time, usually for the calendar year-to-date, and for the past one-, three-,
five- and ten-year periods. The withdrawal charge is not reflected because the
Contract is designed for long-term investments.
For underlying funds that were in existence prior to the date they became
available under the Separate Account, the standardized average annual total
return quotations may be accompanied by returns showing the investment
performance that such underlying funds would have achieved (reduced by the
applicable charges) had they been held under the Contract for the period
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quoted. The total return quotations are based upon historical earnings and are
not necessarily representative of future performance.
GENERAL Within the guidelines prescribed by the SEC and the National
Association of Securities Dealers, Inc. ("NASD"), performance information may be
quoted numerically or may be presented in a table, graph or other illustration.
Advertisements may include data comparing performance to well-known indices of
market performance (including, but not limited to, the Dow Jones Industrial
Average, the Standard & Poor's (S&P) 500 Index and the S&P 400 Index, the Lehman
Brothers Long T-Bond Index, the Russell 1000, 2000 and 3000 indices, the Value
Line Index, and the Morgan Stanley Capital International's EAFE Index).
Advertisements may also include published editorial comments and performance
rankings compiled by independent organizations (including, but not limited to,
Lipper Analytical Services, Inc. and Morningstar, Inc.) and publications that
monitor the performance of the Separate Account and the variable funding
options.
FEDERAL TAX CONSIDERATIONS
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The following description of the federal income tax consequences under this
Contract is not exhaustive and 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 advisor regarding your personal situation. For your
information, a more detailed discussion is contained in the SAI.
GENERAL TAXATION OF ANNUITIES
Congress has recognized the value of saving for retirement by providing certain
tax benefits, in the form of tax deferral, for money put into an annuity. The
Internal Revenue Code (Code) governs how this money is ultimately taxed,
depending upon the type of contract, qualified or non-qualified, and the manner
in which the money is distributed, as briefly described below.
TYPES OF CONTRACTS: QUALIFIED OR NONQUALIFIED
If you purchase an annuity contract with proceeds of an eligible rollover
distribution from any pension plan, specially sponsored program, or individual
retirement annuity (IRA) with pre-tax dollars, your contract is referred to as a
qualified contract. Some examples of qualified contracts are: IRAs, 403(b)
annuities, pension and profit-sharing plans (including 401(k) plans), Keogh
Plans and certain other qualified deferred compensation plans. An exception is a
qualified plan called a Roth IRA. Under Roth IRAs, after-tax contributions
accumulate until maturity, when amounts (including earnings) may be withdrawn
tax-free. If you purchase the contract on an individual basis and with after-tax
dollars and not under one of the programs described above, your contract is
referred to as nonqualified.
INVESTOR CONTROL
In certain circumstances, owners of variable annuity contracts may be considered
the owners, for federal income tax purposes, of the assets of the separate
accounts used to support their contract. In those circumstances, income and
gains from the separate account assets would be includable in the variable
contract owner's gross income.
The IRS has stated in published rulings that a variable contract owner will be
considered the owner of separate account assets if the contract owner possesses
incidents of ownership in those assets, such as the ability to exercise
investment control over the assets. The U.S. Treasury Department has also
announced, in connection with the issuance of regulations concerning
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 (i.e., the contract owner), rather than the
insurance company, to be treated as the owner of the assets in the account."
This announcement also stated that guidance would be issued by way of
regulations or rulings on the
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"extent to which policyholders may direct their investments to particular
sub-accounts without being treated as owners of the underlying assets." As of
the date of this prospectus, no such guidance has been issued.
The ownership rights under the Contract are similar to, but different in certain
respects from, those described by the IRS in rulings in which it determined that
the owners were not owners of separate account assets. For example, a contract
owner or participant of this Contract has additional flexibility in allocating
payments and cash values. These differences could result in the contract owner
being treated as the owner of the assets of Fund QP. In addition, the Company
does not know what standard will be set forth in the regulations or rulings
which the Treasury is expected to issue, nor does the Company know if such
guidance will be issued. The Company therefore reserves the right to modify the
Contract as necessary to attempt to prevent the contract owner from being
considered the owner of a pro rata share of the assets of Fund QP.
The remaining tax discussion assumes that the Contract qualifies as an annuity
contract for federal income tax purposes.
MANDATORY DISTRIBUTIONS FOR QUALIFIED PLANS
Federal tax law requires that minimum annual distributions begin by April 1st of
the calendar year following the calendar year in which an IRA owner attains age
70 1/2. Participants in qualified plans and 403(b) annuities may defer minimum
distributions until the later of April 1st of the calendar year following the
calendar year in which they attain age 70 1/2 or retirement. Distributions must
begin or be continued according to required patterns following the death of the
contract owner or annuitant of both qualified and nonqualified annuities.
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
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Contracts in accordance with these rules and we will notify you when you should
begin receiving payments.
QUALIFIED ANNUITY CONTRACTS
Under a qualified annuity, since amounts paid into the contract have not yet
been taxed, the full amount of all distributions, including lump-sum withdrawals
and annuity payments are taxed at the ordinary income tax rate unless the
distribution is transferred to an eligible rollover account or contract. The
Contract is available as a vehicle for IRA rollovers and for other qualified
contracts. There are special rules which govern the taxation of qualified
contracts, including withdrawal restrictions, requirements for mandatory
distributions, and contribution limits. We have provided a more complete
discussion in the SAI.
PENALTY TAX FOR PREMATURE DISTRIBUTIONS
Taxable distributions taken before the contract owner has reached the age of
59 1/2 will be subject to a 10% additional tax penalty unless the distribution
is taken in a series of periodic distributions, 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
The Code states that in order to qualify for the tax benefits described above,
investments made in the separate account of any nonqualified variable annuity
contract must satisfy certain diversification requirements. Tax regulations
define how separate accounts must be diversified. We monitor the investments
constantly and believe that our accounts are adequately diversified. We intend
to administer all contracts subject to this provision of law in a manner that
will maintain adequate diversification.
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 Citigroup Inc., a bank holding company. The Company's Home Office
is located at One Tower Square, Hartford, Connecticut 06183.
YEAR 2000 COMPLIANCE
The Company is highly dependent on computer systems and system applications for
conducting its ongoing business functions. In 1996, the Company began the
process of identifying, assessing and implementing changes to computer programs
necessary to address the Year 2000 issue and developed a comprehensive plan to
address the issue. This issue involves the ability of computer systems that have
time sensitive programs to recognize properly the Year 2000. The inability to do
so could result in major failures or miscalculations that would disrupt the
Company's ability to meet its customer and other obligations on a timely basis.
The Company has achieved substantial compliance with respect to its business
critical systems in accordance with its Year 2000 plan and is in the process of
certification to validate compliance. The Company anticipates completing the
certification process by June 30, 1999. An ongoing re-certification process will
be put in place for third and fourth quarter 1999 to ensure all systems and
products remain compliant.
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The total pre-tax cost associated with the required modifications and
conversions is expected to be between $25 million and $35 million and is being
expensed as incurred in the period 1996 through 1999. The Company has incurred
approximately $22 million to date on these efforts. The Company also has third
party customers, financial institutions, vendors and others with which it
conducts business and has confirmed their plans to address and resolve Year 2000
issues on a timely basis. While it is likely that these efforts by third party
vendors and customers will be successful, it is possible that a series of
failures by third parties could have a material adverse effect on the Company's
results of operations in future periods.
In addition, the Company is developing contingency plans to address perceived
risks associated with the Year 2000 effort. These include business resumption
plans to address the possibility of internal systems failures and the
possibility of failure of systems or processes outside the Company's control. As
of year-end 1998, the Company has completed initial business resumption
contingency plans which would enable business critical units to function
beginning January 1, 2000 in the event of an unexpected failure. Business
resumption contingency plans are expected to be finalized by June 30, 1999.
Preparations for the management of the date change will continue through 1999.
DISTRIBUTION OF VARIABLE ANNUITY CONTRACTS
The Company intends to sell the Contracts in all jurisdictions where it is
licensed to do business and where the Contract is approved. Any sales
representative or employee who sells the Contracts will be qualified to sell
variable annuities under applicable federal and state laws. Each broker-dealer
is registered with the SEC under the Securities Exchange Act of 1934, and all
are members of the NASD. The principal underwriter and distributor of the
Contracts is CFBDS, Inc., 21 Milk St., Boston, MA. CFBDS, Inc. is not affiliated
with the Company or the Separate Account.
Up-front compensation paid to sales representatives will not exceed 7.00 % of
the purchase payments made under the Contracts. If asset-based compensation is
paid, it will not exceed 2% of the average account value annually. From time to
time, the Company may pay or permit other promotional incentives, in cash,
credit or other compensation.
CONFORMITY WITH STATE AND FEDERAL LAWS
The Contract is governed by the laws of the state in which it is delivered. Any
paid-up annuity, 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 the shares in
our own right.
CONTRACT MODIFICATION
The Company reserves the right to modify the Contract to keep it qualified under
all related law and regulations which are in effect during the term of this
Contract. We will obtain the approval of any regulatory authority needed for the
modifications.
32
<PAGE> 81
LEGAL PROCEEDINGS
There are no pending material legal proceedings affecting the separate account.
There is one material pending legal proceeding, other than ordinary routine
litigation incidental to the business, to which the Company is a party. In March
1997, a purported class action entitled Patterman v. The Travelers, Inc. et al,
was commenced in the Superior Court of Richmond County, Georgia, alleging, among
other things, violations of the Georgia RICO statute and other state laws by an
affiliate of the Company, Primerica Financial Services, Inc. and certain of its
affiliates. Plaintiffs seek unspecified compensatory and punitive damages and
other relief. In October 1997, defendants answered the complaint, denied
liability and asserted numerous affirmative defenses. In February 1998, the
Superior Court of Richmond County transferred the lawsuit to the Superior Court
of Gwinnett County, Georgia. The plaintiffs appealed the transfer order, and in
December 1998 the Court of Appeals of the state of Georgia reversed the lower
court's decision. Later in December 1998, defendants petitioned the Georgia
Supreme Court to hear the appeal from the decision of the Court of Appeals.
Pending appeal, proceedings in the trial court have been stayed. Defendants
intend to vigorously contest the litigation.
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, have been passed on by the General Counsel of the
Company.
33
<PAGE> 82
APPENDIX A
CONDENSED FINANCIAL INFORMATION (1996-1997)
- --------------------------------------------------------------------------------
THE TRAVELERS SEPARATE ACCOUNT QP FOR VARIABLE ANNUITIES
ACCUMULATION UNIT VALUES
For the period ended December 31, 1996, all contract owner units and values had
a mortality and expense risk charge equivalent to 0.95%.
For the fiscal year ended 1997 and thereafter, accumulation units and associated
unit values noted as P1, P2(1), P3, P4, P5 and P6 represent a mortality and
expense risk charge of 0.60%, 0.80%, 0.90%, 0.95%, 1.15% and 1.20%,
respectively.
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 1, 1996
(EFFECTIVE DATE)
PORTFOLIO NAME YEAR ENDED 1997 TO DECEMBER 31, 1996
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
P1 P3 P4 P5 P6
------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CAPITAL APPRECIATION FUND
Unit Value at beginning of
year......................... $ 1.000 $ 1.000 $ 1.028 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year...... 1.290 1.285 1.285 1.282 1.279 1.028
Number of units outstanding at
end of year.................. 68,643 126,822 1,445,911 58,734 350,624 293,629
HIGH YIELD BOND TRUST
Unit Value at beginning of
year......................... $ 1.000 $ 1.000 $ 1.031 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year...... 1.196 1.191 1.191 1.188 1.186 1.031
Number of units outstanding at
end of year.................. 197 7,092 28,158 3,683 3,815 6,520
MANAGED ASSETS TRUST
Unit Value at beginning of
year......................... $ 1.000 $ 1.000 $ 1.043 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year...... 1.258 1.254 1.253 1.250 1.247 1.043
Number of units outstanding at
end of year.................. 5,565 74,574 287,178 12,488 223,823 78,508
AMERICAN ODYSSEY FUNDS, INC.
AMERICAN ODYSSEY CORE EQUITY
FUND
Unit Value at beginning of
year......................... $ 1.000 $ 1.000 $ 1.080 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year...... 1.417 1.412 1.411 1.408 1.405 1.080
Number of units outstanding at
end of year.................. 1,292 185,044 2,781,580 95,491 42,002 496,794
AMERICAN ODYSSEY EMERGING
OPPORTUNITIES FUND
Unit Value at beginning of
year......................... $ 1.000 $ 1.000 $ 0.885 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year...... 0.942 0.939 0.938 0.936 0.934 0.885
Number of units outstanding at
end of year.................. 5,090 129,811 2,458,031 24,064 33,718 404,384
AMERICAN ODYSSEY GLOBAL HIGH-
YIELD BOND FUND**
Unit Value at beginning of
year......................... $ - $ 1.000 $ 1.010 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year...... 1.062 1.062 1.059 1.057 1.010
Number of units outstanding at
end of year.................. 29,906 472,674 4,094 5,622 116,408
AMERICAN ODYSSEY INTERMEDIATE-
TERM BOND FUND
Unit Value at beginning of
year......................... $ - $ 1.000 $ 1.107 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year...... 1.083 1.083 1.080 1.078 1.017
Number of units outstanding at
end of year.................. 58,486 940,500 12,156 10,975 195,701
AMERICAN ODYSSEY INTERNATIONAL
EQUITY FUND
Unit Value at beginning of
year......................... $ 1.000 $ 1.000 $ 1.091 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year...... 1.141 1.136 1.136 1.133 1.131 1.091
Number of units outstanding at
end of year.................. 3,405 145,853 1,647,285 25,147 16,165 239,079
</TABLE>
A-1
<PAGE> 83
APPENDIX A
CONDENSED FINANCIAL INFORMATION (1996-1997)
- --------------------------------------------------------------------------------
THE TRAVELERS SEPARATE ACCOUNT QP FOR VARIABLE ANNUITIES
ACCUMULATION UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 1, 1996
(EFFECTIVE DATE)
PORTFOLIO NAME YEAR ENDED 1997 TO DECEMBER 31, 1996
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
P1 P3 P4 P5 P6
------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
AMERICAN ODYSSEY LONG-TERM BOND
FUND
Unit Value at beginning of
year......................... $ - $ 1.000 $ 1.022 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year...... 1.135 1.135 1.132 1.130 1.022
Number of units outstanding at
end of year.................. 115,168 1,504,310 24,590 22,291 232,943
TRAVELERS SERIES FUND, INC.
ALLIANCE GROWTH PORTFOLIO
Unit Value at beginning of
year......................... $ 1.000 $ 1.000 $ 1.065 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year...... 1.367 1.362 1.361 1.358 1.355 1.065
Number of units outstanding at
end of year.................. 10,959 27,182 315,371 25,227 46,772 44,777
MFS TOTAL RETURN PORTFOLIO
Unit Value at beginning of
year......................... $ 1.000 $ 1.000 $ 1.045 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year...... 1.260 1.256 1.255 1.252 1.249 1.045
Number of units outstanding at
end of year.................. 9,157 11,241 20,522 23,942 89,438 2,087
PUTNAM DIVERSIFIED INCOME
PORTFOLIO
Unit Value at beginning of
year......................... $ 1.000 $ 1.000 $ 1.019 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year...... 1.092 1.088 1.088 1.085 1.083 1.019
Number of units outstanding at
end of year.................. 6,058 1,776 36,214 2,136 17,658 12,636
SMITH BARNEY HIGH INCOME
PORTFOLIO
Unit Value at beginning of
year......................... $ - $ 1.000 $ 1.042 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year...... 1.176 1.176 1.173 1.171 1.042
Number of units outstanding at
end of year.................. 3,775 34,790 2,552 6,261 278
SMITH BARNEY INTERNATIONAL
EQUITY PORTFOLIO
Unit Value at beginning of
year......................... $ 1.000 $ 1.000 $ 1.017 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year...... 1.040 1.036 1.035 1.033 1.031 1.017
Number of Units outstanding at
end of year.................. 6,580 17,229 97,802 4,658 5,601 8,808
SMITH BARNEY LARGE CAP VALUE
PORTFOLIO
Unit Value at beginning of
year......................... $ 1.000 $ 1.000 $ 1.058 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year...... 1.334 1.329 1.328 1.324 1.322 1.058
Number of units outstanding at
end of year.................. 7,515 75,718 1,048,182 9,074 51,250 270,469
SMITH BARNEY MONEY MARKET
PORTFOLIO
Unit Value at beginning of
year......................... $ - $ 1.000 $ 1.010 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year...... 1.052 1.051 1.048 1.047 1.010
Number of units outstanding at
end of year.................. 19,062 124,936 24,063 39,703 56,124
THE TRAVELERS SERIES TRUST
EQUITY INCOME PORTFOLIO(7/97)*
Unit Value at beginning of
year......................... $ - $ 1.000 $ - $ 1.000 $ 1.000 n/a
Unit Value at end of year...... 1.062 1.061 1.060
Number of units outstanding at
end of year.................. 66,733 3,543 2,047
</TABLE>
A-2
<PAGE> 84
APPENDIX A
CONDENSED FINANCIAL INFORMATION (1996-1997)
- --------------------------------------------------------------------------------
THE TRAVELERS SEPARATE ACCOUNT QP FOR VARIABLE ANNUITIES
ACCUMULATION UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 1, 1996
(EFFECTIVE DATE)
PORTFOLIO NAME YEAR ENDED 1997 TO DECEMBER 31, 1996
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
P1 P3 P4 P5 P6
------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
FEDERATED HIGH YIELD
PORTFOLIO(10/97)*
Unit Value at beginning of
year......................... $ - $ 1.000 $ - $ 1.000 $ - n/a
Unit Value at end of year...... 1.011 1.010
Number of units outstanding at
end of year.................. 3,118 123
FEDERATED STOCK PORTFOLIO(7/97)*
Unit Value at beginning of
year......................... $ - $ 1.000 $ - $ 1.000 $ 1.000 n/a
Unit Value at end of year...... 1.083 1.082 1.081
Number of units outstanding at
end of year.................. 21,106 1,133 205
LARGE CAP PORTFOLIO(7/97)*
Unit Value at beginning of
year......................... $ - $ 1.000 $ - $ 1.000 $ - n/a
Unit Value at end of year...... 1.028 1.027
Number of units outstanding at
end of year.................. 15,144 3,857
LAZARD INTERNATIONAL STOCK
PORTFOLIO(8/97)*
Unit Value at beginning of
year......................... $ - $ 1.000 $ - $ 1.000 $ 1.000 n/a
Unit Value at end of year...... 0.979 0.978 0.978
Number of units outstanding at
end of year.................. 3,686 896 513
SOCIAL AWARENESS STOCK
PORTFOLIO
Unit Value at beginning of
year......................... $ 1.000 $ 1.000 $ 1.036 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year...... 1.311 1.307 1.306 1.303 1.300 1.036
Number of units outstanding at
end of year.................. 1,465 6,831 124,610 4,603 58,974 35,689
TRAVELERS QUALITY BOND
PORTFOLIO (9/97)*
Unit Value at beginning of
year......................... $ - $ - $ 1.000 $ 1.000 $ 1.000 n/a
Unit Value at end of year...... 1.020 1.020 1.019
Number of units outstanding at
end of year.................. 5,949 9,879 9,055
U.S. GOVERNMENT SECURITIES
PORTFOLIO
Unit Value at beginning of
year......................... $ - $ 1.000 $ 1.025 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year...... 1.145 1.144 1.141 1.139 1.025
Number of units outstanding at
end of year.................. 3,011 81,229 2,710 14,373 51,072
UTILITIES PORTFOLIO
Unit Value at beginning of
year......................... $ 1.000 $ 1.000 $ 1.034 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year...... 1.289 1.284 1.283 1.280 1.278 1.034
Number of units outstanding at
end of year.................. 1,494 1,816 23,673 538 462 7,796
</TABLE>
The financial statements of Separate Account QP are contained in the Annual
Report which should be read along with this information and which is
incorporated by reference into the SAI. The consolidated financial statements of
The Travelers Insurance Company and Subsidiaries are contained in the SAI.
Funding options not listed above were not yet available through the Separate
Account as of December 31, 1997.
* Reflects date money first came into funding option through the Separate
Account.
** Formerly American Odyssey Short-Term Bond Fund. The name, investment
objective, and investment subadviser of this fund were changed pursuant to a
shareholder vote effective May 1, 1998.
(1) As of December 31, 1997 no contracts had been sold with a mortality and
expense risk charge of .80%.
(2) The .90% mortality and expense risk charge is currently sold only through
Gold Track Select Contracts.
A-3
<PAGE> 85
APPENDIX A
CONDENSED FINANCIAL INFORMATION (1998)
- --------------------------------------------------------------------------------
THE TRAVELERS SEPARATE ACCOUNT QP FOR VARIABLE ANNUITIES
ACCUMULATION UNIT VALUES
<TABLE>
<CAPTION>
PORTFOLIO NAME YEAR ENDED 1998
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
P1 P2 P3 P4 P5 P6
-------- ---------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
CAPITAL APPRECIATION FUND
Unit Value at beginning of
year.......................... $ 1.290 $ 1.287 $ 1.285 $ 1.285 $ 1.282 $ 1.279
Unit Value at end of year....... 2.073 2.063 2.059 2.056 2.047 2.040
Number of units outstanding at
end of year................... 413,409 241,615 2,581,625 2,358,987 429,279 961,744
DREYFUS STOCK INDEX FUND
Unit Value at beginning of
year.......................... $ 1.424 $ 1.421 $ 1.419 $ 1.418 $ 1.415 $ 1.412
Unit Value at end of year....... 1.815 1.807 1.803 1.801 1.793 1.787
Number of units outstanding at
end of year................... 138,866 33 - 2,284,987 257,393 1,121,361
HIGH YIELD BOND TRUST
Unit Value at beginning of
year.......................... $ 1.196 $ 1.193 $ 1.191 $ 1.191 $ 1.188 $ 1.186
Unit Value at end of year....... 1.267 1.261 1.258 1.257 1.251 1.247
Number of units outstanding at
end of year................... 533 3,334 255,952 54,195 33,994 28,684
MANAGED ASSETS TRUST
Unit Value at beginning of
year.......................... $ 1.258 $ 1.255 $ 1.254 $ 1.253 $ 1.250 $ 1.247
Unit Value at end of year....... 1.519 1.512 1.509 1.507 1.500 1.495
Number of units outstanding at
end of year................... 23,844 51,150 1,472,171 602,633 146,528 299,403
MONEY MARKET PORTFOLIO(9/98)
Unit Value at beginning of
year.......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year....... 1.013 1.012 1.012 1.012 1.011 1.011
Number of units outstanding at
end of year................... - 16,146 9,415 - 3,453 -
AMERICAN ODYSSEY FUNDS, INC.
AMERICAN ODYSSEY CORE EQUITY
FUND
Unit Value at beginning of
year.......................... $ 1.417 $ 1.414 $ 1.412 $ 1.411 $ 1.408 $ 1.405
Unit Value at end of year....... 1.628 1.620 1.617 1.615 1.608 1.603
Number of units outstanding at
end of year................... 58,294 1,060,046 3,149,947 3,478,529 347,272 153,298
AMERICAN ODYSSEY EMERGING
OPPORTUNITIES FUND
Unit Value at beginning of
year.......................... $ 0.942 $ 0.940 $ 0.939 $ 0.938 $ 0.936 $ 0.934
Unit Value at end of year....... 0.856 0.852 0.850 0.849 0.845 0.842
Number of units outstanding at
end of year................... 70,995 1,040,352 2,811,132 3,784,469 236,065 68,535
AMERICAN ODYSSEY GLOBAL HIGH-
YIELD BOND FUND**
Unit Value at beginning of
year.......................... $ 1.066 $ 1.064 $ 1.062 $ 1.062 $ 1.059 $ 1.057
Unit Value at end of year....... 1.020 1.015 1.013 1.012 1.007 1.004
Number of units outstanding at
end of year................... 3,181 320,821 770,544 1,102,248 64,167 14,668
AMERICAN ODYSSEY INTERMEDIATE-
TERM BOND FUND
Unit Value at beginning of
year.......................... $ 1.087 $ 1.085 $ 1.083 $ 1.083 $ 1.080 $ 1.078
Unit Value at end of year....... 1.172 1.167 1.164 1.163 1.158 1.154
Number of units outstanding at
end of year................... 1,407 520,065 1,072,949 1,143,580 55,670 30,548
AMERICAN ODYSSEY INTERNATIONAL
EQUITY FUND
Unit Value at beginning of
year.......................... $ 1.141 $ 1.138 $ 1.136 $ 1.136 $ 1.133 $ 1.131
Unit Value at end of year....... 1.302 1.297 1.294 1.292 1.286 1.282
Number of units outstanding at
end of year................... 20,676 791,438 2,315,866 2,595,394 210,146 35,028
</TABLE>
A-4
<PAGE> 86
APPENDIX A
CONDENSED FINANCIAL INFORMATION (1998)
- --------------------------------------------------------------------------------
THE TRAVELERS SEPARATE ACCOUNT QP FOR VARIABLE ANNUITIES
ACCUMULATION UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
PORTFOLIO NAME YEAR ENDED 1998
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
P1 P2 P3 P4 P5 P6
-------- ---------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
AMERICAN ODYSSEY LONG-TERM BOND
FUND
Unit Value at beginning of
year.......................... $ 1.140 $ 1.137 $ 1.135 $ 1.135 $ 1.132 $ 1.130
Unit Value at end of year....... 1.235 1.230 1.227 1.226 1.220 1.216
Number of units outstanding at
end of year................... 6,982 872,955 2,127,335 2,268,910 154,138 50,376
DELAWARE GROUP PREMIUM FUND, INC.
SMALL CAP VALUE SERIES(9/98)
Unit Value at beginning of
year.......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year....... 1.121 1.120 1.119 1.120 1.120 1.119
Number of units outstanding at
end of year................... - 2,407 - 3,994 - 124
DREYFUS VARIABLE INVESTMENT FUND
CAPITAL APPRECIATION
PORTFOLIO(5/98)
Unit Value at beginning of
year.......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year....... 1.077 1.076 1.076 1.075 1.074 1.074
Number of units outstanding at
end of year................... 502 60,832 18,841 6,816 1,944 -
SMALL CAP PORTFOLIO(5/98)
Unit Value at beginning of
year.......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year....... 1.199 1.198 1.198 1.198 1.197 1.196
Number of units outstanding at
end of year................... - 1,748 2,563 - 1,114 6,726
MONTGOMERY FUNDS III
MONTGOMERY VARIABLE SERIES
GROWTH FUND(11/98)
Unit Value at beginning of
year.......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year....... 1.071 1.071 1.070 1.070 1.070 1.070
Number of units outstanding at
end of year................... - - 338 - - -
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO(5/98)
Unit Value at beginning of
year.......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year....... 1.146 1.145 1.145 1.145 1.144 1.144
Number of units outstanding at
end of year................... - - 2,056 - - -
SALOMON BROTHERS VARIABLE SERIES
FUNDS, INC.
SALOMON BROTHERS VARIABLE
CAPITAL FUND(10/98)
Unit Value at beginning of
year.......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year....... 1.147 1.146 1.146 1.146 1.146 1.145
Number of units outstanding at
end of year................... - 4,438 246 - 164 -
SALOMON BROTHERS VARIABLE
INVESTORS FUND(10/98)
Unit Value at beginning of
year.......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year....... 1.206 1.206 1.206 1.205 1.205 1.204
Number of units outstanding at
end of year................... - 1,374 - - - -
</TABLE>
A-5
<PAGE> 87
APPENDIX A
CONDENSED FINANCIAL INFORMATION (1998)
- --------------------------------------------------------------------------------
THE TRAVELERS SEPARATE ACCOUNT QP FOR VARIABLE ANNUITIES
ACCUMULATION UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
PORTFOLIO NAME YEAR ENDED 1998
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
P1 P2 P3 P4 P5 P6
-------- ---------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
SALOMON BROTHERS VARIABLE TOTAL
RETURN FUND(9/98)
Unit Value at beginning of
year.......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year....... 1.060 1.059 1.059 1.059 1.058 1.058
Number of units outstanding at
end of year................... - 6,719 - - - -
STRONG VARIABLE INSURANCE FUNDS,
INC.
STRONG, SCHAFER VALUE FUND
II(5/98)
Unit Value at beginning of
year.......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year....... 1.291 1.291 1.290 1.290 1.289 1.289
Number of units outstanding at
end of year................... - 1,963 325 - 41 -
TRAVELERS SERIES FUND, INC.
ALLIANCE GROWTH PORTFOLIO
Unit Value at beginning of
year.......................... $ 1.367 $ 1.363 $ 1.362 $ 1.361 $ 1.358 $ 1.355
Unit Value at end of year....... 1.753 1.746 1.742 1.740 1.732 1.726
Number of units outstanding at
end of year................... 32,748 66,181 1,050,338 571,621 201,618 121,866
MFS TOTAL RETURN PORTFOLIO
Unit Value at beginning of
year.......................... $ 1.260 $ 1.257 $ 1.256 $ 1.255 $ 1.252 $ 1.249
Unit Value at end of year....... 1.399 1.393 1.390 1.388 1.382 1.377
Number of units outstanding at
end of year................... 67,299 85,454 338,122 38,600 114,873 90,723
PUTNAM DIVERSIFIED INCOME
PORTFOLIO
Unit Value at beginning of
year.......................... $ 1.092 $ 1.090 $ 1.088 $ 1.088 $ 1.085 $ 1.083
Unit Value at end of year....... 1.093 1.088 1.086 1.084 1.080 1.076
Number of units outstanding at
end of year................... 31,397 36,325 95,775 46,716 89,751 82,211
SMITH BARNEY HIGH INCOME
PORTFOLIO
Unit Value at beginning of
year.......................... $ 1.180 $ 1.178 $ 1.176 $ 1.176 $ 1.173 $ 1.171
Unit Value at end of year....... 1.179 1.173 1.171 1.170 1.165 1.161
Number of units outstanding at
end of year................... - 2,810 131,098 44,716 14,828 38,681
SMITH BARNEY INTERNATIONAL
EQUITY PORTFOLIO
Unit Value at beginning of
year.......................... $ 1.040 $ 1.037 $ 1.036 $ 1.035 $ 1.033 $ 1.031
Unit Value at end of year....... 1.101 1.096 1.093 1.092 1.087 1.083
Number of Units outstanding at
end of year................... 13,292 4,211 180,603 118,339 54,366 18,937
SMITH BARNEY LARGE
CAPITALIZATION GROWTH
PORTFOLIO(5/98)
Unit Value at beginning of
year.......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year....... 1.314 1.313 1.313 1.313 1.312 1.311
Number of units outstanding at
end of year................... - - 4,942 - - -
SMITH BARNEY LARGE CAP VALUE
PORTFOLIO (5/98)*
Unit Value at beginning of
year.......................... $ 1.334 $ 1.330 $ 1.329 $ 1.328 $ 1.324 $ 1.322
Unit Value at end of year....... 1.456 1.449 1.446 1.445 1.438 1.433
Number of units outstanding at
end of year................... 21,635 7,331 509,575 1,199,090 81,366 190,418
</TABLE>
A-6
<PAGE> 88
APPENDIX A
CONDENSED FINANCIAL INFORMATION (1998)
- --------------------------------------------------------------------------------
THE TRAVELERS SEPARATE ACCOUNT QP FOR VARIABLE ANNUITIES
ACCUMULATION UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
PORTFOLIO NAME YEAR ENDED 1998
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
P1 P2 P3 P4 P5 P6
-------- ---------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
SMITH BARNEY MONEY MARKET
PORTFOLIO (5/98)*
Unit Value at beginning of
year.......................... $ 1.056 $ 1.053 $ 1.052 $ 1.051 $ 1.048 $ 1.047
Unit Value at end of year....... 1.102 1.097 1.095 1.094 1.089 1.085
Number of units outstanding at
end of year................... - 2,799 296,260 433,846 371,996 237,923
THE TRAVELERS SERIES TRUST
DISCIPLINED MID CAP STOCK
PORTFOLIO(5/98)
Unit Value at beginning of
year.......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year....... 1.290 1.289 1.289 1.288 1.288 1.287
Number of units outstanding at
end of year................... 9 1,037 - - 111 -
DISCIPLINED SMALL CAP STOCK
PORTFOLIO (5/98)*
Unit Value at beginning of
year.......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year....... 1.091 1.091 1.091 1.091 1.090 1.090
Number of units outstanding at
end of year................... - - 113 - 172 -
EQUITY INCOME PORTFOLIO
Unit Value at beginning of
year.......................... $ 1.063 $ 1.062 $ 1.062 $ 1.062 $ 1.061 $ 1.060
Unit Value at end of year....... 1.187 1.184 1.182 1.182 1.178 1.176
Number of units outstanding at
end of year................... - 86,915 2,633,036 - 163,749 27,697
FEDERATED HIGH YIELD PORTFOLIO
Unit Value at beginning of
year.......................... $ 1.011 $ 1.011 $ 1.011 $ 1.011 $ 1.010 $ 1.010
Unit Value at end of year....... 1.053 1.050 1.049 1.048 1.046 1.044
Number of units outstanding at
end of year................... - 11,120 99,171 - 5,125 678
FEDERATED STOCK PORTFOLIO
Unit Value at beginning of
year.......................... $ 1.084 $ 1.083 $ 1.083 $ 1.083 $ 1.082 $ 1.081
Unit Value at end of year....... 1.270 1.266 1.264 1.263 1.259 1.257
Number of units outstanding at
end of year................... - 8,544 591,770 - 14,772 972
LARGE CAP PORTFOLIO
Unit Value at beginning of
year.......................... $ 1.029 $ 1.028 $ 1.028 $ 1.027 $ 1.027 $ 1.026
Unit Value at end of year....... 1.386 1.382 1.380 1.379 1.375 1.372
Number of units outstanding at
end of year................... - 10,852 520,424 - 68,162 1,349
LAZARD INTERNATIONAL STOCK
PORTFOLIO
Unit Value at beginning of
year.......................... $ 0.981 $ 0.980 $ 0.979 $ 0.979 $ 0.978 $ 0.978
Unit Value at end of year....... 1.098 1.095 1.093 1.092 1.089 1.087
Number of units outstanding at
end of year................... - 6,737 139,586 - 20,939 32,949
MFS MID CAP GROWTH PORTFOLIO
(5/98)*
Unit Value at beginning of
year.......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year....... 1.213 1.212 1.212 1.212 1.211 1.211
Number of units outstanding at
end of year................... - 1,512 538 - - -
MFS RESEARCH PORTFOLIO (5/98)*
Unit Value at beginning of
year.......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year....... 1.245 1.245 1.245 1.244 1.244 1.243
Number of units outstanding at
end of year................... 4,261 7,232 214 - - -
</TABLE>
A-7
<PAGE> 89
APPENDIX A
CONDENSED FINANCIAL INFORMATION (1998)
- --------------------------------------------------------------------------------
THE TRAVELERS SEPARATE ACCOUNT QP FOR VARIABLE ANNUITIES
ACCUMULATION UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
PORTFOLIO NAME YEAR ENDED 1998
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
P1 P2 P3 P4 P5 P6
-------- ---------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
SOCIAL AWARENESS STOCK PORTFOLIO
Unit Value at beginning of
year.......................... $ 1.311 $ 1.308 $ 1.307 $ 1.306 $ 1.303 $ 1.300
Unit Value at end of year....... 1.724 1.716 1.712 1.711 1.703 1.697
Number of units outstanding at
end of year................... 12,064 18,134 417,397 293,875 81,076 157,955
STRATEGIC STOCK PORTFOLIO
(5/98)*
Unit Value at beginning of
year.......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year....... 1.072 1.071 1.071 1.071 1.070 1.070
Number of units outstanding at
end of year................... - - 866 - - -
TRAVELERS QUALITY BOND PORTFOLIO
Unit Value at beginning of
year.......................... $ 1.021 $ 1.021 $ 1.020 $ 1.020 $ 1.020 $ 1.019
Unit Value at end of year....... 1.102 1.099 1.098 1.097 1.094 1.092
Number of units outstanding at
end of year................... 228 32 806 21,396 23,910 101,354
U.S. GOVERNMENT SECURITIES
PORTFOLIO
Unit Value at beginning of
year.......................... $ 1.149 $ 1.146 $ 1.145 $ 1.144 $ 1.141 $ 1.139
Unit Value at end of year....... 1.259 1.253 1.250 1.249 1.243 1.239
Number of units outstanding at
end of year................... 6,143 29,647 210,497 145,195 22,572 62,648
UTILITIES PORTFOLIO
Unit Value at beginning of
year.......................... $ 1.289 $ 1.285 $ 1.284 $ 1.283 $ 1.280 $ 1.278
Unit Value at end of year....... 1.514 1.507 1.504 1.502 1.495 1.490
Number of units outstanding at
end of year................... 6,675 1,413 77,322 43,847 15,300 6,389
WARBURG PINCUS TRUST
EMERGING MARKETS PORTFOLIO
(10/98)*
Unit Value at beginning of
year.......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Unit Value at end of year....... 1.080 1.079 1.079 1.079 1.079 1.078
Number of units outstanding at
end of year................... - 285 309 - - -
</TABLE>
For 1998, unit values are shown for all mortality and expense risk charges even
if there are no units outstanding. This information was not presented in prior
years.
The financial statements of Separate Account QP are contained in the Annual
Report which should be read along with this information and which is
incorporated by reference into the SAI. The consolidated financial statements of
The Travelers Insurance Company and Subsidiaries are contained in the SAI.
Funding options not listed above were not yet available through the Separate
Account as of December 31, 1998.
* Reflects date money first came into funding option through the Separate
Account.
** Formerly American Odyssey Short-Term Bond Fund. The name, investment
objective, and investment subadviser of this fund were changed pursuant to a
shareholder vote effective May 1, 1998.
(1) The .95% mortality and expense risk charge is not currently available
through Gold Track Select Contracts.
A-8
<PAGE> 90
APPENDIX B
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 Company. A list of
the contents of the Statement of Additional Information is set forth below:
The Insurance Company
Principal Underwriter
Distribution and Principal Underwriting Agreement
Valuation of Assets
Federal Tax Considerations
Mixed and Shared Funding
Performance Information
Independent Accountants
Financial Statements
- --------------------------------------------------------------------------------
COPIES OF THE STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1999 (FORM NO. L
12549S) ARE AVAILABLE WITHOUT CHARGE. TO REQUEST A COPY, PLEASE COMPLETE THE
COUPON FOUND BELOW AND MAIL IT TO: THE TRAVELERS INSURANCE COMPANY, ANNUITY
SERVICES, ONE TOWER SQUARE, HARTFORD, CONNECTICUT, 06183-9061.
Name:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
B-1
<PAGE> 91
APPENDIX C
- --------------------------------------------------------------------------------
TEXAS OPTIONAL RETIREMENT PLAN PARTICIPANTS
As provided in the Texas Optional Retirement Program ("Texas ORP"), a
participant may not receive a loan, a surrender or payment of any annuity or any
benefit under the Contract, and may not transfer or exchange the cash surrender
value of the contract until one of the following events:
- Death
- Disability (as defined by Internal Revenue Code 72(m)(7)
- Attainment of age 70 1/2
- Retirement
- Termination of employment in all public institutions of higher education
in Texas
If the participant does not begin a second year of participation in the Texas
ORP, the Company will pay the participant's cash surrender value, as directed by
the Contract Owner.
The Company will require a written statement from the applicable institution
certifying their agreement to any withdrawals.
C-1
<PAGE> 92
THIS PAGE INTENTIONALLY LEFT BLANK.
<PAGE> 93
THIS PAGE INTENTIONALLY LEFT BLANK.
<PAGE> 94
THE TRAVELERS SEPARATE ACCOUNT QP
FOR VARIABLE ANNUITIES
L-12549-C Printed in U.S.A.
TIC Ed. 5-99
<PAGE> 95
PART B
Information Required in a Statement of Additional Information
<PAGE> 96
GOLD TRACK
GOLD TRACK SELECT
STATEMENT OF ADDITIONAL INFORMATION
dated
May 1, 1999
for
THE TRAVELERS FUND QP 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 Group Variable Annuity Contract
Prospectus dated May 1, 1999. A copy of the Prospectus may be obtained by
writing to The Travelers Insurance Company, Annuity Services, One Tower Square,
Hartford, Connecticut 06183-5030, or by calling 1-800-842-9368 or by accessing
the Securities and Exchange Commission's website at http://www.sec.gov. This SAI
should be read in conjunction with the accompanying 1998 Annual Report for the
Fund.
TABLE OF CONTENTS
THE INSURANCE COMPANY . . . . . . . . . . . . . . . . . . . . . . . 1
PRINCIPAL UNDERWRITER . . . . . . . . . . . . . . . . . . . . . . 1
DISTRIBUTION AND PRINCIPAL UNDERWRITING AGREEMENT . . . . . . . . . 1
VALUATION OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . 2
MIXED AND SHARED FUNDING . . . . . . . . . . . . . . . . . . . . . . 3
PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . 3
FEDERAL TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . 15
INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . 18
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . F-1
<PAGE> 97
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's
Home Office is located at One Tower Square, Hartford, Connecticut 06183 and its
telephone number is (860) 277-0111.
The Company is indirectly owned by a wholly owned subsidiary of
Citigoup Inc. Citigroup Inc. consists of businesses that produce a broad range
of financial services, including asset management, banking and consumer finance,
credit and charge cards, insurance, investments, investment banking and trading.
Among its businesses are Citibank, Commercial Credit, Primerica Financial
Services, Salomon Smith Barney, Salomon Smith Barney Asset Management, and
Travelers Property Casualty.
STATE REGULATION. The Company is subject to the laws of the state of Connecticut
governing insurance companies and to regulation by the Insurance Commissioner of
the state of Connecticut (the "Commissioner"). An annual statement covering the
operations of the Company for the preceding year, as well as its financial
conditions as of December 31 of such year, must be filed with the Commissioner
in a prescribed format on or before March 1 of each year. The Company's books
and assets are subject to review or examination by the Commissioner or his
agents at all times, and a full examination of its operations is conducted at
least once every four years.
The Company is also subject to the insurance laws and regulations of
all other states in which it is licensed to operate. However, the insurance
departments of each of these states generally apply the laws of the jurisdiction
of domicile in determining the field of permissible investments.
THE SEPARATE ACCOUNT. Separate Account QP 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 Separate Account QP are subject
to the provisions of Section 38a-433 of the Connecticut General Statutes which
authorizes the Commissioner to adopt regulations under it. Section 38a-433
contains no restrictions on the investments of the Separate Account, and the
Commissioner has adopted no regulations under the Section that affect the
Separate Account.
PRINCIPAL UNDERWRITER
CFBDS, Inc. serves as principal underwriter for Separate Account QP
and the Contracts. The offering is continuous. CFBDS's principal executive
offices are located at 21 Milk Street, Boston, Massachusetts. CFBDS is not
affiliated with the Company or Separate Account QP.
DISTRIBUTION AND PRINCIPAL UNDERWRITING AGREEMENT
Under the terms of the Distribution and Principal Underwriting
Agreement among Separate Account QP, CFBDS and the Company, CFBDS acts as agent
for the distribution of the Contracts and as principal underwriter for the
Contracts. The Company reimburses CFBDS for certain sales and overhead expenses
connected with sales functions.
1
<PAGE> 98
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 CASH 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 expense risk charge and the Funding
Option Administrative 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 the accumulation unit for each Funding
Option was initially established at $1.00. The value of an accumulation unit on
any business day is determined by multiplying the value on the preceding
business day by the net investment factor for the valuation 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.
2
<PAGE> 99
ANNUITY UNIT VALUE. The initial Annuity Unit Value applicable to each Funding
Option was established at $1.00. An annuity unit value as of any business day is
equal to (a) the value of the annuity unit on the preceding business day,
multiplied by (b) the corresponding net investment factor for the valuation
period just ended, divided by (c) the assumed net investment factor for the
valuation period. (For example, the assumed net investment factor based on an
annual assumed net investment rate of 3.0% for a Valuation Period of one day is
1.000081 and, for a period of two days, is 1.000081 x 1.000081.) After the
maturity date, withdrawals from the annuity unit value will be permitted only if
you have elected a variable payout option for a fixed period which is not based
on any lifetime. The maximum withdrawal amount will be calculated by computing
the payments at 7% annual interest rate.
MIXED AND SHARED FUNDING
Certain variable annuity separate accounts and variable life
insurance separate accounts may invest in the Funding Options simultaneously
(called "mixed" and "shared" funding). It is conceivable that in the future it
may be disadvantageous to do so. Although the Company and the Funding Options do
not currently foresee any such disadvantages either to variable annuity contract
owners or variable life policy owners, each Funding Option's Board of Directors
intends to monitor events in order to identify any material conflicts between
them and to determine what action, if any, should be taken. If a Board of
Directors was to conclude that separate funds should be established for variable
life and variable annuity separate accounts, the variable annuity contract
owners would not bear any of the related expenses, but variable annuity contract
owners and variable life insurance policy owners would no longer have the
economies of scale resulting from a larger combined fund.
PERFORMANCE INFORMATION
TOTAL RETURN PERFORMANCE
From time to time, the Company may advertise several types of
historical performance for the Funding Options of Separate Account QP. The
Company may advertise the "standardized average annual total returns" of the
Funding Options, calculated in a manner prescribed by the Securities and
Exchange Commission, as well as the "nonstandardized total returns," as
described below:
STANDARDIZED METHOD. Quotations of average annual total returns are
computed according to a formula in which a hypothetical initial investment of
$1,000 is applied to the Funding Option, and then related to ending redeemable
values over one-, five-, and ten-year periods, or for a period covering the time
during which the Funding Option has been in existence if less. If a Funding
Option has been in existence for less than one year, the "Since Inception" total
return performance quotations are year-to-date and are not average annual total
returns. These quotations reflect the deduction of all maximum recurring charges
during each period (on a pro rata basis in the case of fractional periods). The
deduction for the semiannual account charge is converted to a percentage of
assets based on the actual fees collected, divided by the average net assets for
contracts sold under the Prospectus to which this SAI relates. Each quotation
assumes a total redemption at the end of each period with the assessment of any
applicable maximum surrender charge or deferred sales charge at that time.
NONSTANDARDIZED METHOD. Nonstandardized "total returns" will be
calculated in a similar manner based on the performance of the Funding Options
over a period of time, usually for the calendar year-to-date, and for the past
one-, three-, five- and ten-year periods. Non-standardized total
3
<PAGE> 100
return will not reflect the deduction of any applicable surrender or deferred
sales charge or the semiannual account charge, which, if reflected, would
decrease the level of performance shown. The surrender charge or deferred sales
charge is not reflected because the Contract is designed for long-term
investment.
For Funding Options that were in existence prior to the date they
became available under the Separate Account, the standardized average annual
total return quotations may be accompanied by returns showing the investment
performance that such Funding Options would have achieved (reduced by the
applicable maximum charges) had they been held under the Contract for the period
quoted. The total return quotations are based upon historical earnings and are
not necessarily representative of future performance
GENERAL. Within the guidelines prescribed by the SEC and the
National Association of Securities Dealers, Inc. ("NASD"), performance
information may be quoted numerically or may be presented in a table, graph or
other illustration. Advertisements may include data comparing performance to
well-known indices of market performance (including, but not limited to, the Dow
Jones Industrial Average, the Standard & Poor's (S&P) 500 Index and the S&P 400
Index, the Lehman Brothers Long T-Bond Index, the Russell 1000, 2000 and 3000
Indices, the Value Line Index, and the Morgan Stanley Capital International's
EAFE Index). Advertisements may also include published editorial comments and
performance rankings compiled by independent organizations (including, but not
limited to, Lipper Analytical Services, Inc. and Morningstar, Inc.) and
publications that monitor the performance of Fund QP and the Funding Options.
Average annual total returns for each of the Funding Options
computed according to the standardized and nonstandardized methods for the
periods ending December 31, 1998 are set forth in the following tables.
4
<PAGE> 101
REGISTERED GOLD TRACK
SEC STANDARDIZED AVERAGE ANNUAL RETURNS AS OF 12/31/98
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
STOCK ACCOUNTS: 1 Year 5 Year 10 Year (or inception)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alliance Growth Portfolio 20.72% - 24.40% (10/96)
- --------------------------------------------------------------------------------------------------------------------------
American Odyssey Core Equity Fund 8.07% - 20.34% (10/96)
- --------------------------------------------------------------------------------------------------------------------------
American Odyssey Emerging Opportunities Fund -14.59% - -9.68% (10/96)
- --------------------------------------------------------------------------------------------------------------------------
American Odyssey International Equity Fund 7.44% - 8.92% (10/96)
- --------------------------------------------------------------------------------------------------------------------------
Capital Appreciation Fund (Janus) 51.22% - 34.05% (10/96)
- --------------------------------------------------------------------------------------------------------------------------
Delaware Investments REIT Series - - - (5/98)
- --------------------------------------------------------------------------------------------------------------------------
Dreyfus Capital Appreciation Portfolio - - 1.89% (7/98)
- --------------------------------------------------------------------------------------------------------------------------
Dreyfus Small Cap Portfolio - - 13.60% (9/98)
- --------------------------------------------------------------------------------------------------------------------------
Dreyfus Stock Index Fund 19.96% - 26.09% (10/96)
- --------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity Income Portfolio 4.40% - 15.15% (10/96)
- --------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio 30.52% - 22.39% (10/96)
- --------------------------------------------------------------------------------------------------------------------------
MFS Mid Cap Growth Portfolio - - 14.94% (9/98)
- --------------------------------------------------------------------------------------------------------------------------
MFS Research Portfolio - - 18.05% (10/98)
- --------------------------------------------------------------------------------------------------------------------------
Salomon Brothers Investors Fund - - 14.35% (10/98)
- --------------------------------------------------------------------------------------------------------------------------
Smith Barney International Equity Portfolio -0.41% - 1.04% (10/96)
- --------------------------------------------------------------------------------------------------------------------------
Smith Barney Large Cap Growth Portfolio - - 24.45% (8/98)
- --------------------------------------------------------------------------------------------------------------------------
Smith Barney Large Cap Value Portfolio 2.72% - 14.35% (10/96)
- --------------------------------------------------------------------------------------------------------------------------
Social Awareness Stock Portfolio (Smith Barney) 23.71% - 23.46% (10/96)
- --------------------------------------------------------------------------------------------------------------------------
Strategic Stock Portfolio - - 1.56% (9/98)
- --------------------------------------------------------------------------------------------------------------------------
Templeton Global Stock Fund -5.37% - 5.38% (10/96)
- --------------------------------------------------------------------------------------------------------------------------
Travelers Disciplined Mid Cap Stock Portfolio - - 17.41% (9/98)
- --------------------------------------------------------------------------------------------------------------------------
Travelers Disciplined Small Cap Stock Portfolio - - 3.53% (11/98)
- --------------------------------------------------------------------------------------------------------------------------
Utilities Portfolio (Smith Barney) 10.54% - 16.50% (10/96)
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
BOND ACCOUNTS: 1 Year 5 Year 10 Year (or inception)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
American Odyssey Global High-Yield Bond Fund - - -11.05% (6/98)
- --------------------------------------------------------------------------------------------------------------------------
American Odyssey Intermediate-Term Bond Fund 1.45% - 3.94% (10/96)
- --------------------------------------------------------------------------------------------------------------------------
American Odyssey Long-Term Bond Fund 1.98% - 6.39% (10/96)
- --------------------------------------------------------------------------------------------------------------------------
Fidelity VIP High Income Portfolio -10.57% - 2.14% (10/96)
- --------------------------------------------------------------------------------------------------------------------------
Putnam Diversified Income Portfolio -5.86% - 0.73% (10/96)
- --------------------------------------------------------------------------------------------------------------------------
Smith Barney High Income Portfolio -6.07% - 4.32% (10/96)
- --------------------------------------------------------------------------------------------------------------------------
Templeton Global Bond Fund 0.23% - 2.02% (10/96)
- --------------------------------------------------------------------------------------------------------------------------
Travelers Convertible Bond Portfolio - - - (5/98)
- --------------------------------------------------------------------------------------------------------------------------
Travelers High Yield Bond Trust -0.35% - 7.59% (10/96)
- --------------------------------------------------------------------------------------------------------------------------
Travelers Quality Bond Portfolio ~ 1.52% - 2.67% (9/97)
- --------------------------------------------------------------------------------------------------------------------------
Travelers U.S. Government Securities Portfolio 3.07% - 7.29% (10/96)
- --------------------------------------------------------------------------------------------------------------------------
BALANCED ACCOUNTS:
- --------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Asset Manager Portfolio 7.61% - 13.77% (10/96)
- --------------------------------------------------------------------------------------------------------------------------
MFS Total Return Portfolio 4.46% - 12.47% (10/96)
- --------------------------------------------------------------------------------------------------------------------------
Templeton Global Asset Allocation Fund -0.52% - 8.72% (10/96)
- --------------------------------------------------------------------------------------------------------------------------
Travelers Managed Assets Trust 13.59% - 14.21% (6/97)
- --------------------------------------------------------------------------------------------------------------------------
MONEY MARKET ACCOUNTS:
- --------------------------------------------------------------------------------------------------------------------------
Smith Barney Money Market Portfolio -1.75% - 1.11% (10/96)
- --------------------------------------------------------------------------------------------------------------------------
VIP and VIP II refer to Variable Insurance Products Fund and Variable Insurance Products Fund II respectively.
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The inception date used to calculate standardized performance is based on the
date that the investment option became active under the Separate Account.
5
<PAGE> 102
REGISTERED GOLD TRACK
NONSTANDARDIZED PERFORMANCE AS OF 12/31/98
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Cumulative Returns
- -----------------------------------------------------------------------------------------------------------------------------
YTD 1 YR 3YR 5YR 10YR
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STOCK ACCOUNTS:
- -----------------------------------------------------------------------------------------------------------------------------
Alliance Growth Portfolio 27.39% 27.39% 107.17% - -
- -----------------------------------------------------------------------------------------------------------------------------
American Odyssey Core Equity Fund 14.05% 14.05% 80.49% 141.23% -
- -----------------------------------------------------------------------------------------------------------------------------
American Odyssey Emerging Opportunities Fund -9.83% -9.83% -8.93% 28.71% -
- -----------------------------------------------------------------------------------------------------------------------------
American Odyssey International Equity Fund 13.39% 13.39% 41.43% 52.55% -
- -----------------------------------------------------------------------------------------------------------------------------
Capital Appreciation Fund (Janus) 59.52% 59.52% 151.44% 218.12% 490.90%
- -----------------------------------------------------------------------------------------------------------------------------
Delaware Investments REIT Series - - - - -
- -----------------------------------------------------------------------------------------------------------------------------
Dreyfus Capital Appreciation Portfolio 28.52% 28.52% 101.42% 170.08% -
- -----------------------------------------------------------------------------------------------------------------------------
Dreyfus Small Cap Portfolio -4.71% -4.71% 26.40% 70.42% -
- -----------------------------------------------------------------------------------------------------------------------------
Dreyfus Stock Index Fund 26.58% 26.58% 100.98% 170.22% -
- -----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity Income Portfolio 10.19% 10.19% 57.20% 121.54% 274.99%
- -----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio 37.71% 37.71% 90.07% 150.66% 418.00%
- -----------------------------------------------------------------------------------------------------------------------------
MFS Mid Cap Growth Portfolio - - - - -
- -----------------------------------------------------------------------------------------------------------------------------
MFS Research Portfolio - - - - -
- -----------------------------------------------------------------------------------------------------------------------------
Salomon Brothers Investors Fund - - - - -
- -----------------------------------------------------------------------------------------------------------------------------
Smith Barney International Equity Portfolio 5.11% 5.11% 23.82% - -
- -----------------------------------------------------------------------------------------------------------------------------
Smith Barney Large Cap Growth Portfolio - - - - -
- -----------------------------------------------------------------------------------------------------------------------------
Smith Barney Large Cap Value Portfolio 8.41% 8.41% 60.23% - -
- -----------------------------------------------------------------------------------------------------------------------------
Social Awareness Stock Portfolio (Smith Barney) 30.53% 30.53% 94.24% 145.86% -
- -----------------------------------------------------------------------------------------------------------------------------
Strategic Stock Portfolio - - - - -
- -----------------------------------------------------------------------------------------------------------------------------
Templeton Global Stock Fund -0.11% -0.11% 33.26% 59.04% 178.02%
- -----------------------------------------------------------------------------------------------------------------------------
Travelers Disciplined Mid Cap Stock Portfolio 15.41% 15.41% - - -
- -----------------------------------------------------------------------------------------------------------------------------
Travelers Disciplined Small Cap Stock Portfolio - - - - -
- -----------------------------------------------------------------------------------------------------------------------------
Utilities Portfolio (Smith Barney) 16.65% 16.65% 53.04% - -
- -----------------------------------------------------------------------------------------------------------------------------
BOND ACCOUNTS:
- -----------------------------------------------------------------------------------------------------------------------------
American Odyssey Global High-Yield Bond Fund - - - - -
- -----------------------------------------------------------------------------------------------------------------------------
American Odyssey Intermediate-Term Bond Fund 7.08% 7.08% 16.56% 26.92% -
- -----------------------------------------------------------------------------------------------------------------------------
American Odyssey Long-Term Bond Fund 7.63% 7.63% 19.02% 33.83% -
- -----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP High Income Portfolio -5.59% -5.59% 23.41% 42.79% 151.11%
- -----------------------------------------------------------------------------------------------------------------------------
Putnam Diversified Income Portfolio -0.63% -0.63% 12.84% - -
- -----------------------------------------------------------------------------------------------------------------------------
Smith Barney High Income Portfolio -0.85% -0.85% 24.47% - -
- -----------------------------------------------------------------------------------------------------------------------------
Templeton Global Bond Fund 5.79% 5.79% 15.62% 23.16% 79.92%
- -----------------------------------------------------------------------------------------------------------------------------
Travelers Convertible Bond Portfolio - - - - -
- -----------------------------------------------------------------------------------------------------------------------------
Travelers High Yield Bond Trust 5.18% 5.18% 38.60% 54.03% 117.30%
- -----------------------------------------------------------------------------------------------------------------------------
Travelers Quality Bond Portfolio ~ 7.14% 7.14% - - -
- -----------------------------------------------------------------------------------------------------------------------------
Travelers U.S. Government Securities Portfolio 8.78% 8.78% 21.10% 38.59% -
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Average Annual Returns
- -----------------------------------------------------------------------------------------------------------------------------
3YR 5YR 10YR Inception*
- -----------------------------------------------------------------------------------------------------------------------------
STOCK ACCOUNTS:
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Alliance Growth Portfolio 27.45% - - 26.33% (6/94)
- -----------------------------------------------------------------------------------------------------------------------------
American Odyssey Core Equity Fund 21.73% 19.25% - 17.04% (5/93)
- -----------------------------------------------------------------------------------------------------------------------------
American Odyssey Emerging Opportunities Fund -3.07% 5.17% - 5.95% (5/93)
- -----------------------------------------------------------------------------------------------------------------------------
American Odyssey International Equity Fund 12.24% 8.81% - 10.92% (5/93)
- -----------------------------------------------------------------------------------------------------------------------------
Capital Appreciation Fund (Janus) 35.94% 26.03% 19.43% 12.14% (5/83)
- -----------------------------------------------------------------------------------------------------------------------------
Delaware Investments REIT Series - - - -9.78% (5/98)
- -----------------------------------------------------------------------------------------------------------------------------
Dreyfus Capital Appreciation Portfolio 26.26% 21.97% - 20.05% (4/93)
- -----------------------------------------------------------------------------------------------------------------------------
Dreyfus Small Cap Portfolio 8.11% 11.24% - 24.83% (8/90)
- -----------------------------------------------------------------------------------------------------------------------------
Dreyfus Stock Index Fund 26.17% 21.98% - 15.61% (9/89)
- -----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity Income Portfolio 16.26% 17.23% 14.12% 12.93% (10/86)
- -----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio 23.85% 20.16% 17.87% 15.84% (10/86)
- -----------------------------------------------------------------------------------------------------------------------------
MFS Mid Cap Growth Portfolio - - - -0.44% (3/98)
- -----------------------------------------------------------------------------------------------------------------------------
MFS Research Portfolio - - - 4.69% (3/98)
- -----------------------------------------------------------------------------------------------------------------------------
Salomon Brothers Investors Fund - - - 9.30% (2/98)
- -----------------------------------------------------------------------------------------------------------------------------
Smith Barney International Equity Portfolio 7.38% - - 5.92% (6/94)
- -----------------------------------------------------------------------------------------------------------------------------
Smith Barney Large Cap Growth Portfolio - - - 23.57% (5/98)
- -----------------------------------------------------------------------------------------------------------------------------
Smith Barney Large Cap Value Portfolio 17.00% - - 17.33% (6/94)
- -----------------------------------------------------------------------------------------------------------------------------
Social Awareness Stock Portfolio (Smith Barney) 24.75% 19.70% - 16.89% (5/92)
- -----------------------------------------------------------------------------------------------------------------------------
Strategic Stock Portfolio - - - -6.52% (5/98)
- -----------------------------------------------------------------------------------------------------------------------------
Templeton Global Stock Fund 10.03% 9.72% 10.76% 10.63% (8/88)
- -----------------------------------------------------------------------------------------------------------------------------
Travelers Disciplined Mid Cap Stock Portfolio - - - 27.79% (4/97)
- -----------------------------------------------------------------------------------------------------------------------------
Travelers Disciplined Small Cap Stock Portfolio - - - -11.82% (5/98)
- -----------------------------------------------------------------------------------------------------------------------------
Utilities Portfolio (Smith Barney) 15.22% - - 14.74% (2/94)
- -----------------------------------------------------------------------------------------------------------------------------
BOND ACCOUNTS:
- -----------------------------------------------------------------------------------------------------------------------------
American Odyssey Global High-Yield Bond Fund - - - -6.41% (5/98)
- -----------------------------------------------------------------------------------------------------------------------------
American Odyssey Intermediate-Term Bond Fund 5.24% 4.88% - 4.92% (5/93)
- -----------------------------------------------------------------------------------------------------------------------------
American Odyssey Long-Term Bond Fund 5.97% 6.00% - 6.79% (5/93)
- -----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP High Income Portfolio 7.26% 7.38% 9.64% 9.65% (9/85)
- -----------------------------------------------------------------------------------------------------------------------------
Putnam Diversified Income Portfolio 4.11% - - 6.27% (6/94)
- -----------------------------------------------------------------------------------------------------------------------------
Smith Barney High Income Portfolio 7.56% - - 8.45% (6/94)
- -----------------------------------------------------------------------------------------------------------------------------
Templeton Global Bond Fund 4.95% 4.25% 6.05% 5.99% (8/88)
- -----------------------------------------------------------------------------------------------------------------------------
Travelers Convertible Bond Portfolio - - - -2.26% (5/98)
- -----------------------------------------------------------------------------------------------------------------------------
Travelers High Yield Bond Trust 11.48% 9.02% 8.07% 7.75% (6/83)
- -----------------------------------------------------------------------------------------------------------------------------
Travelers Quality Bond Portfolio ~ - - - 6.88% (8/96)
- -----------------------------------------------------------------------------------------------------------------------------
Travelers U.S. Government Securities Portfolio 6.58% 6.74% - 6.97% (1/92)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Calendar Year Returns
- -----------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
STOCK ACCOUNTS:
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alliance Growth Portfolio 27.37% 27.69% 33.12%
- -----------------------------------------------------------------------------------------------------------------------------
American Odyssey Core Equity Fund 30.21% 21.55% 36.78%
- -----------------------------------------------------------------------------------------------------------------------------
American Odyssey Emerging Opportunities Fund 5.66% -4.40% 30.54%
- -----------------------------------------------------------------------------------------------------------------------------
American Odyssey International Equity Fund 3.69% 20.29% 17.47%
- -----------------------------------------------------------------------------------------------------------------------------
Capital Appreciation Fund (Janus) 24.57% 26.54% 34.61%
- -----------------------------------------------------------------------------------------------------------------------------
Delaware Investments REIT Series - - -
- -----------------------------------------------------------------------------------------------------------------------------
Dreyfus Capital Appreciation Portfolio 26.42% 23.96% 31.84%
- -----------------------------------------------------------------------------------------------------------------------------
Dreyfus Small Cap Portfolio 15.25% 15.10% 27.71%
- -----------------------------------------------------------------------------------------------------------------------------
Dreyfus Stock Index Fund 31.31% 20.92% 35.02%
- -----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity Income Portfolio 26.49% 12.79% 33.35%
- -----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio 21.91% 13.22% 33.63%
- -----------------------------------------------------------------------------------------------------------------------------
MFS Mid Cap Growth Portfolio - - -
- -----------------------------------------------------------------------------------------------------------------------------
MFS Research Portfolio - - -
- -----------------------------------------------------------------------------------------------------------------------------
Salomon Brothers Investors Fund - - -
- -----------------------------------------------------------------------------------------------------------------------------
Smith Barney International Equity Portfolio 1.39% 16.18% 9.84%
- -----------------------------------------------------------------------------------------------------------------------------
Smith Barney Large Cap Growth Portfolio - - -
- -----------------------------------------------------------------------------------------------------------------------------
Smith Barney Large Cap Value Portfolio 25.01% 18.22% 31.35%
- -----------------------------------------------------------------------------------------------------------------------------
Social Awareness Stock Portfolio (Smith Barney) 25.66% 18.42% 31.68%
- -----------------------------------------------------------------------------------------------------------------------------
Strategic Stock Portfolio - - -
- -----------------------------------------------------------------------------------------------------------------------------
Templeton Global Stock Fund 10.43% 20.80% 23.63%
- -----------------------------------------------------------------------------------------------------------------------------
Travelers Disciplined Mid Cap Stock Portfolio - - -
- -----------------------------------------------------------------------------------------------------------------------------
Travelers Disciplined Small Cap Stock Portfolio - - -
- -----------------------------------------------------------------------------------------------------------------------------
Utilities Portfolio (Smith Barney) 23.68% 6.07% 27.63%
- -----------------------------------------------------------------------------------------------------------------------------
BOND ACCOUNTS:
- -----------------------------------------------------------------------------------------------------------------------------
American Odyssey Global High-Yield Bond Fund - - -
- -----------------------------------------------------------------------------------------------------------------------------
American Odyssey Intermediate-Term Bond Fund 6.12% 2.58% 13.54%
- -----------------------------------------------------------------------------------------------------------------------------
American Odyssey Long-Term Bond Fund 10.60% -0.01% 20.88%
- -----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP High Income Portfolio 16.14% 12.55% 19.05%
- -----------------------------------------------------------------------------------------------------------------------------
Putnam Diversified Income Portfolio 6.30% 6.83% 15.87%
- -----------------------------------------------------------------------------------------------------------------------------
Smith Barney High Income Portfolio 12.41% 11.68% 17.54%
- -----------------------------------------------------------------------------------------------------------------------------
Templeton Global Bond Fund 1.18% 8.02% 13.44%
- -----------------------------------------------------------------------------------------------------------------------------
Travelers Convertible Bond Portfolio - - -
- -----------------------------------------------------------------------------------------------------------------------------
Travelers High Yield Bond Trust 15.06% 14.53% 14.03%
- -----------------------------------------------------------------------------------------------------------------------------
Travelers Quality Bond Portfolio ~ 5.75% - -
- -----------------------------------------------------------------------------------------------------------------------------
Travelers U.S. Government Securities Portfolio 11.18% 0.13% 22.88%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 103
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Cumulative Returns
- -----------------------------------------------------------------------------------------------------------------
YTD 1 YR 3YR 5YR 10YR
- -----------------------------------------------------------------------------------------------------------------
BALANCED ACCOUNTS:
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fidelity VIP II Asset Manager Portfolio 13.56% 13.56% 53.02% 63.77% -
- -----------------------------------------------------------------------------------------------------------------
MFS Total Return Portfolio 10.25% 10.25% 49.07% - -
- -----------------------------------------------------------------------------------------------------------------
Templeton Global Asset Allocation Fund 5.00% 5.00% 40.47% 62.76% 176.49%
- -----------------------------------------------------------------------------------------------------------------
Travelers Managed Assets Trust 19.87% 19.87% 61.16% 95.09% 233.48%
- -----------------------------------------------------------------------------------------------------------------
MONEY MARKET ACCOUNTS:
- -----------------------------------------------------------------------------------------------------------------
Smith Barney Money Market Portfolio 3.70% 3.70% 11.44% - -
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Average Annual Returns
- -----------------------------------------------------------------------------------------------------------------
3YR 5YR 10YR Inception
- -----------------------------------------------------------------------------------------------------------------
BALANCED ACCOUNTS:
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fidelity VIP II Asset Manager Portfolio 15.22% 10.36% - 11.52% (9/89)
- -----------------------------------------------------------------------------------------------------------------
MFS Total Return Portfolio 14.22% - - 13.97% (6/94)
- -----------------------------------------------------------------------------------------------------------------
Templeton Global Asset Allocation Fund 11.98% 10.23% 10.70% 10.58% (8/88)
- -----------------------------------------------------------------------------------------------------------------
Travelers Managed Assets Trust 17.23% 14.29% 12.79% 10.02% (6/83)
- -----------------------------------------------------------------------------------------------------------------
MONEY MARKET ACCOUNTS:
- -----------------------------------------------------------------------------------------------------------------
Smith Barney Money Market Portfolio 3.67% - - 3.66% (6/94)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Calendar Year Returns
- -----------------------------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------
BALANCED ACCOUNTS:
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Fidelity VIP II Asset Manager Portfolio 19.12% 13.12% 15.45%
- -----------------------------------------------------------------------------------
MFS Total Return Portfolio 19.63% 13.02% 24.07%
- -----------------------------------------------------------------------------------
Templeton Global Asset Allocation Fund 14.03% 17.32% 20.97%
- -----------------------------------------------------------------------------------
Travelers Managed Assets Trust 19.72% 12.30% 25.47%
- -----------------------------------------------------------------------------------
MONEY MARKET ACCOUNTS:
- -----------------------------------------------------------------------------------
Smith Barney Money Market Portfolio 3.73% 3.60% 4.05%
- -----------------------------------------------------------------------------------
</TABLE>
*The inception date represents the date the funding options began operating
7
<PAGE> 104
SEC STANDARDIZED PERFORMANCE
GOLD TRACK SELECT
STANDARDIZED AVERAGE ANNUAL RETURNS AS OF 12/31/98
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
STOCK ACCOUNTS: 1 Year 5 Year 10 Year (or inception)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alliance Growth Portfolio 21.02% - 25.42% (10/96)
- -----------------------------------------------------------------------------------------------------------------------
American Odyssey Core Equity Fund 8.34% - 21.31% (10/96)
- -----------------------------------------------------------------------------------------------------------------------
American Odyssey Emerging Opportunities Fund -14.34% - -9.07% (10/96)
- -----------------------------------------------------------------------------------------------------------------------
American Odyssey International Equity Fund 7.72% - 9.75% (10/96)
- -----------------------------------------------------------------------------------------------------------------------
Capital Appreciation Fund (Janus) 50.09% - 34.60% (10/96)
- -----------------------------------------------------------------------------------------------------------------------
Delaware Investments REIT Series - - - (5/98)
- -----------------------------------------------------------------------------------------------------------------------
Delaware Small Cap Value Series - - 6.29% (9/98)
- -----------------------------------------------------------------------------------------------------------------------
Dreyfus Capital Appreciation Portfolio - - 2.01% (7/98)
- -----------------------------------------------------------------------------------------------------------------------
Dreyfus Small Cap Portfolio - - 13.67% (9/98)
- -----------------------------------------------------------------------------------------------------------------------
Equity Income Portfolio (Fidelity) 5.36% - 7.97% (7/97)
- -----------------------------------------------------------------------------------------------------------------------
Federated Stock Portfolio 10.44% - 12.76% (7/97)
- -----------------------------------------------------------------------------------------------------------------------
Large Cap Portfolio (Fidelity) 27.06% - 20.19% (7/97)
- -----------------------------------------------------------------------------------------------------------------------
Lazard International Stock Portfolio 5.61% - 2.32% (8/97)
- -----------------------------------------------------------------------------------------------------------------------
MFS Mid Cap Growth Portfolio - - 15.01% (9/98)
- -----------------------------------------------------------------------------------------------------------------------
MFS Research Portfolio - - 18.11% (10/98)
- -----------------------------------------------------------------------------------------------------------------------
Montgomery Variable Series: Growth Fund - - 1.62% (11/98)
- -----------------------------------------------------------------------------------------------------------------------
OCC Accumulation Trust Equity Portfolio - - 8.66% (10/98)
- -----------------------------------------------------------------------------------------------------------------------
Salomon Brothers Capital Fund - - 8.80% (10/98)
- -----------------------------------------------------------------------------------------------------------------------
Salomon Brothers Investors Fund - - 14.41% (10/98)
- -----------------------------------------------------------------------------------------------------------------------
Smith Barney International Equity Portfolio -0.14% - 1.78% (10/96)
- -----------------------------------------------------------------------------------------------------------------------
Smith Barney Large Cap Growth Portfolio - - 24.54% (8/98)
- -----------------------------------------------------------------------------------------------------------------------
Smith Barney Large Cap Value Portfolio 2.99% - 15.24% (10/96)
- -----------------------------------------------------------------------------------------------------------------------
Social Awareness Stock Portfolio (Smith Barney) 24.01% - 24.47% (10/96)
- -----------------------------------------------------------------------------------------------------------------------
Strategic Stock Portfolio - - 1.63% (9/98)
- -----------------------------------------------------------------------------------------------------------------------
Strong Schafer Value Fund II - - 22.44% (9/98)
- -----------------------------------------------------------------------------------------------------------------------
Travelers Disciplined Mid Cap Stock Portfolio - - 17.47% (9/98)
- -----------------------------------------------------------------------------------------------------------------------
Travelers Disciplined Small Cap Stock Portfolio - - 3.56% (11/98)
- -----------------------------------------------------------------------------------------------------------------------
Utilities Portfolio (Smith Barney) 10.82% - 17.42% (10/96)
- -----------------------------------------------------------------------------------------------------------------------
Warburg Pincus Emerging Markets Portfolio - - 2.43% (10/98)
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
BOND ACCOUNTS: 1 Year 5 Year 10 Year (or inception)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
American Odyssey Global High-Yield Bond Fund - - -11.09% (5/98)
- -----------------------------------------------------------------------------------------------------------------------
American Odyssey Intermediate-Term Bond Fund 1.72% - 4.71% (10/96)
- -----------------------------------------------------------------------------------------------------------------------
American Odyssey Long-Term Bond Fund 2.25% - 7.19% (10/96)
- -----------------------------------------------------------------------------------------------------------------------
Federated High Yield Portfolio -1.81% - -0.70% (10/97)
- -----------------------------------------------------------------------------------------------------------------------
Putnam Diversified Income Portfolio -5.60% - 1.47% (10/96)
- -----------------------------------------------------------------------------------------------------------------------
Smith Barney High Income Portfolio -5.81% - 5.11% (10/96)
- -----------------------------------------------------------------------------------------------------------------------
Travelers High Yield Bond Trust -0.08% - 8.40% (10/96)
- -----------------------------------------------------------------------------------------------------------------------
Travelers Quality Bond Portfolio 1.79% - 2.96% (9/97)
- -----------------------------------------------------------------------------------------------------------------------
Travelers U.S. Government Securities Portfolio 3.34% - 8.10% (10/96)
- -----------------------------------------------------------------------------------------------------------------------
BALANCED ACCOUNTS:
- -----------------------------------------------------------------------------------------------------------------------
MFS Total Return Portfolio 4.73% - 13.35% (10/96)
- -----------------------------------------------------------------------------------------------------------------------
Salomon Brothers Total Return Fund - - 0.48% (9/98)
- -----------------------------------------------------------------------------------------------------------------------
Travelers Managed Assets Trust 13.88% - 17.60% (10/96)
- -----------------------------------------------------------------------------------------------------------------------
MONEY MARKET ACCOUNTS:
- -----------------------------------------------------------------------------------------------------------------------
Smith Barney Money Market Portfolio -1.49% - 1.84% (10/96)
- -----------------------------------------------------------------------------------------------------------------------
Travelers Money Market Portfolio - - -3.99% (9/98)
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The inception date used to calculate standardized performance is based on the
date that the investment option became active under the Separate Account
8
<PAGE> 105
GOLD TRACK SELECT
NONSTANDARDIZED PERFORMANCE AS OF 12/31/98
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Cumulative Returns
- --------------------------------------------------------------------------------------------------------------------------------
YTD 1 YR 3YR 5YR 10YR
- --------------------------------------------------------------------------------------------------------------------------------
STOCK ACCOUNTS:
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Alliance Growth Portfolio 27.39% 27.39% 107.2% - -
- --------------------------------------------------------------------------------------------------------------------------------
American Odyssey Core Equity Fund 14.05% 14.05% 80.5% 141.2% -
- --------------------------------------------------------------------------------------------------------------------------------
American Odyssey Emerging Opportunities Fund -9.83% -9.83% -8.9% 28.7% -
- --------------------------------------------------------------------------------------------------------------------------------
American Odyssey International Equity Fund 13.39% 13.39% 41.4% 52.5% -
- --------------------------------------------------------------------------------------------------------------------------------
Capital Appreciation Fund (Janus) + 59.52% 59.52% 151.44% 218.12% 490.90%
- --------------------------------------------------------------------------------------------------------------------------------
Delaware Investments REIT Series - - - - -
- --------------------------------------------------------------------------------------------------------------------------------
Delaware Small Cap Value Series -6.05% -6.05% 49.2% 77.5% -
- --------------------------------------------------------------------------------------------------------------------------------
Dreyfus Capital Appreciation Portfolio 28.52% 28.52% 101.4% 170.1% -
- --------------------------------------------------------------------------------------------------------------------------------
Dreyfus Small Cap Portfolio -4.71% -4.71% 26.4% 70.4% -
- --------------------------------------------------------------------------------------------------------------------------------
Equity Income Portfolio (Fidelity) ~ 10.91% 10.91% - - -
- --------------------------------------------------------------------------------------------------------------------------------
Federated Stock Portfolio ~ 16.26% 16.26% - - -
- --------------------------------------------------------------------------------------------------------------------------------
Large Cap Portfolio (Fidelity) ~ 33.75% 33.75% - - -
- --------------------------------------------------------------------------------------------------------------------------------
Lazard International Stock Portfolio ~ 11.17% 11.17% - - -
- --------------------------------------------------------------------------------------------------------------------------------
MFS Mid Cap Growth Portfolio - - - - -
- --------------------------------------------------------------------------------------------------------------------------------
MFS Research Portfolio - - - - -
- --------------------------------------------------------------------------------------------------------------------------------
Montgomery Variable Series: Growth Fund 1.59% 1.59% - - -
- --------------------------------------------------------------------------------------------------------------------------------
OCC Accumulation Trust Equity Portfolio 10.39% 10.39% 68.1% 136.2% 350.8%
- --------------------------------------------------------------------------------------------------------------------------------
Salomon Brothers Capital Fund - - - - -
- --------------------------------------------------------------------------------------------------------------------------------
Salomon Brothers Investors Fund - - - - -
- --------------------------------------------------------------------------------------------------------------------------------
Smith Barney International Equity Portfolio 5.11% 5.11% 23.8% - -
- --------------------------------------------------------------------------------------------------------------------------------
Smith Barney Large Cap Growth Portfolio - - - - -
- --------------------------------------------------------------------------------------------------------------------------------
Smith Barney Large Cap Value Portfolio + 8.41% 8.41% 60.2% - -
- --------------------------------------------------------------------------------------------------------------------------------
Social Awareness Stock Portfolio (Smith Barney) 30.53% 30.53% 94.2% 145.9% -
- --------------------------------------------------------------------------------------------------------------------------------
Strategic Stock Portfolio - - - - -
- --------------------------------------------------------------------------------------------------------------------------------
Strong Schafer Value Fund II 0.69% 0.69% - - -
- --------------------------------------------------------------------------------------------------------------------------------
Travelers Disciplined Mid Cap Stock Portfolio 15.41% 15.41% - - -
- --------------------------------------------------------------------------------------------------------------------------------
Travelers Disciplined Small Cap Stock Portfolio - - - - -
- --------------------------------------------------------------------------------------------------------------------------------
Utilities Portfolio (Smith Barney) 16.65% 16.65% 53.0% - -
- --------------------------------------------------------------------------------------------------------------------------------
Warburg Pincus Emerging Markets Portfolio -17.22% -17.22% - - -
- --------------------------------------------------------------------------------------------------------------------------------
BOND ACCOUNTS:
- --------------------------------------------------------------------------------------------------------------------------------
American Odyssey Global High-Yield Bond Fund - - - - -
- --------------------------------------------------------------------------------------------------------------------------------
American Odyssey Intermediate-Term Bond Fund 7.08% 7.08% 16.6% 26.9% -
- --------------------------------------------------------------------------------------------------------------------------------
American Odyssey Long-Term Bond Fund 7.63% 7.63% 19.0% 33.8% -
- --------------------------------------------------------------------------------------------------------------------------------
Federated High Yield Portfolio ~ + 3.36% 3.36% - - -
- --------------------------------------------------------------------------------------------------------------------------------
Putnam Diversified Income Portfolio -0.63% -0.63% 12.8% - -
- --------------------------------------------------------------------------------------------------------------------------------
Smith Barney High Income Portfolio -0.85% -0.85% 24.5% - -
- --------------------------------------------------------------------------------------------------------------------------------
Travelers High Yield Bond Trust 5.18% 5.18% 38.6% 54.0% 117.3%
- --------------------------------------------------------------------------------------------------------------------------------
Travelers Quality Bond Portfolio 7.14% 7.14% - - -
- --------------------------------------------------------------------------------------------------------------------------------
Travelers U.S. Government Securities Portfolio 8.78% 8.78% 21.1% 38.6% -
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Average Annual Returns
- -----------------------------------------------------------------------------------------------------------------------------
3YR 5YR 10YR Inception
- -----------------------------------------------------------------------------------------------------------------------------
STOCK ACCOUNTS:
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Alliance Growth Portfolio 27.45% - - 26.33% (6/94)
- -----------------------------------------------------------------------------------------------------------------------------
American Odyssey Core Equity Fund 21.73% 19.25% - 17.04% (5/93)
- -----------------------------------------------------------------------------------------------------------------------------
American Odyssey Emerging Opportunities Fund -3.07% 5.17% - 5.95% (5/93)
- -----------------------------------------------------------------------------------------------------------------------------
American Odyssey International Equity Fund 12.24% 8.81% - 10.92% (5/93)
- -----------------------------------------------------------------------------------------------------------------------------
Capital Appreciation Fund (Janus) + 35.94% 26.03% 19.43% 12.14% (5/83)
- -----------------------------------------------------------------------------------------------------------------------------
Delaware Investments REIT Series - - - -9.78% (5/98)
- -----------------------------------------------------------------------------------------------------------------------------
Delaware Small Cap Value Series 14.24% 12.16% - 12.56% (12/93)
- -----------------------------------------------------------------------------------------------------------------------------
Dreyfus Capital Appreciation Portfolio 26.26% 21.97% - 20.05% (4/93)
- -----------------------------------------------------------------------------------------------------------------------------
Dreyfus Small Cap Portfolio 8.11% 11.24% - 24.83% (8/90)
- -----------------------------------------------------------------------------------------------------------------------------
Equity Income Portfolio (Fidelity) ~ - - - 22.38% (8/96)
- -----------------------------------------------------------------------------------------------------------------------------
Federated Stock Portfolio ~ - - - 26.02% (8/96)
- -----------------------------------------------------------------------------------------------------------------------------
Large Cap Portfolio (Fidelity) ~ - - - 29.11% (8/96)
- -----------------------------------------------------------------------------------------------------------------------------
Lazard International Stock Portfolio ~ - - - 10.63% (8/96)
- -----------------------------------------------------------------------------------------------------------------------------
MFS Mid Cap Growth Portfolio - - - -0.44% (3/98)
- -----------------------------------------------------------------------------------------------------------------------------
MFS Research Portfolio - - - 4.69% (3/98)
- -----------------------------------------------------------------------------------------------------------------------------
Montgomery Variable Series: Growth Fund - - - 18.19% (2/96)
- -----------------------------------------------------------------------------------------------------------------------------
OCC Accumulation Trust Equity Portfolio 18.88% 18.74% 16.24% 15.69% (8/88)
- -----------------------------------------------------------------------------------------------------------------------------
Salomon Brothers Capital Fund - - - 16.79% (2/98)
- -----------------------------------------------------------------------------------------------------------------------------
Salomon Brothers Investors Fund - - - 9.30% (2/98)
- -----------------------------------------------------------------------------------------------------------------------------
Smith Barney International Equity Portfolio 7.38% - - 5.92% (6/94)
- -----------------------------------------------------------------------------------------------------------------------------
Smith Barney Large Cap Growth Portfolio - - - 23.57% (5/98)
- -----------------------------------------------------------------------------------------------------------------------------
Smith Barney Large Cap Value Portfolio + 17.00% - - 17.33% (6/94)
- -----------------------------------------------------------------------------------------------------------------------------
Social Awareness Stock Portfolio (Smith Barney) 24.75% 19.70% - 16.89% (5/92)
- -----------------------------------------------------------------------------------------------------------------------------
Strategic Stock Portfolio - - - -6.52% (5/98)
- -----------------------------------------------------------------------------------------------------------------------------
Strong Schafer Value Fund II - - - -0.49% (10/97)
- -----------------------------------------------------------------------------------------------------------------------------
Travelers Disciplined Mid Cap Stock Portfolio - - - 27.79% (4/97)
- -----------------------------------------------------------------------------------------------------------------------------
Travelers Disciplined Small Cap Stock Portfolio - - - -11.82% (5/98)
- -----------------------------------------------------------------------------------------------------------------------------
Utilities Portfolio (Smith Barney) 15.22% - - 14.74% (2/94)
- -----------------------------------------------------------------------------------------------------------------------------
Warburg Pincus Emerging Markets Portfolio - - - -17.22% (12/97)
- -----------------------------------------------------------------------------------------------------------------------------
BOND ACCOUNTS:
- -----------------------------------------------------------------------------------------------------------------------------
American Odyssey Global High-Yield Bond Fund - - - -6.41% (5/98)
- -----------------------------------------------------------------------------------------------------------------------------
American Odyssey Intermediate-Term Bond Fund 5.24% 4.88% - 4.92% (5/93)
- -----------------------------------------------------------------------------------------------------------------------------
American Odyssey Long-Term Bond Fund 5.97% 6.00% - 6.79% (5/93)
- -----------------------------------------------------------------------------------------------------------------------------
Federated High Yield Portfolio ~ + - - - 10.46% (8/96)
- -----------------------------------------------------------------------------------------------------------------------------
Putnam Diversified Income Portfolio 4.11% - - 6.27% (6/94)
- -----------------------------------------------------------------------------------------------------------------------------
Smith Barney High Income Portfolio 7.56% - - 8.45% (6/94)
- -----------------------------------------------------------------------------------------------------------------------------
Travelers High Yield Bond Trust 11.48% 9.02% 8.07% 7.75% (6/83)
- -----------------------------------------------------------------------------------------------------------------------------
Travelers Quality Bond Portfolio - - - 6.88% (8/96)
- -----------------------------------------------------------------------------------------------------------------------------
Travelers U.S. Government Securities Portfolio 6.58% 6.74% - 6.97% (1/92)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Calendar Year Returns
- -------------------------------------------------------------------------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------------------------
STOCK ACCOUNTS:
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alliance Growth Portfolio 27.37% 27.69% 33.12%
- -------------------------------------------------------------------------------------------------
American Odyssey Core Equity Fund 30.21% 21.55% 36.78%
- -------------------------------------------------------------------------------------------------
American Odyssey Emerging Opportunities Fund 5.66% -4.40% 30.54%
- -------------------------------------------------------------------------------------------------
American Odyssey International Equity Fund 3.69% 20.29% 17.47%
- -------------------------------------------------------------------------------------------------
Capital Appreciation Fund (Janus) + 24.57% 26.54% 34.61%
- -------------------------------------------------------------------------------------------------
Delaware Investments REIT Series - - -
- -------------------------------------------------------------------------------------------------
Delaware Small Cap Value Series 31.23% 20.97% 19.65%
- -------------------------------------------------------------------------------------------------
Dreyfus Capital Appreciation Portfolio 26.42% 23.96% 31.84%
- -------------------------------------------------------------------------------------------------
Dreyfus Small Cap Portfolio 15.25% 15.10% 27.71%
- -------------------------------------------------------------------------------------------------
Equity Income Portfolio (Fidelity) ~ 29.99% - -
- -------------------------------------------------------------------------------------------------
Federated Stock Portfolio ~ 31.72% - -
- -------------------------------------------------------------------------------------------------
Large Cap Portfolio (Fidelity) ~ 20.43% - -
- -------------------------------------------------------------------------------------------------
Lazard International Stock Portfolio ~ 6.84% - -
- -------------------------------------------------------------------------------------------------
MFS Mid Cap Growth Portfolio - - -
- -------------------------------------------------------------------------------------------------
MFS Research Portfolio - - -
- -------------------------------------------------------------------------------------------------
Montgomery Variable Series: Growth Fund 26.93% - -
- -------------------------------------------------------------------------------------------------
OCC Accumulation Trust Equity Portfolio 25.02% 21.79% 37.11%
- -------------------------------------------------------------------------------------------------
Salomon Brothers Capital Fund - - -
- -------------------------------------------------------------------------------------------------
Salomon Brothers Investors Fund - - -
- -------------------------------------------------------------------------------------------------
Smith Barney International Equity Portfolio 1.39% 16.18% 9.84%
- -------------------------------------------------------------------------------------------------
Smith Barney Large Cap Growth Portfolio - - -
- -------------------------------------------------------------------------------------------------
Smith Barney Large Cap Value Portfolio + 25.01% 18.22% 31.35%
- -------------------------------------------------------------------------------------------------
Social Awareness Stock Portfolio (Smith Barney) 25.66% 18.42% 31.68%
- -------------------------------------------------------------------------------------------------
Strategic Stock Portfolio - - -
- -------------------------------------------------------------------------------------------------
Strong Schafer Value Fund II - - -
- -------------------------------------------------------------------------------------------------
Travelers Disciplined Mid Cap Stock Portfolio - - -
- -------------------------------------------------------------------------------------------------
Travelers Disciplined Small Cap Stock Portfolio - - -
- -------------------------------------------------------------------------------------------------
Utilities Portfolio (Smith Barney) 23.68% 6.07% 27.63%
- -------------------------------------------------------------------------------------------------
Warburg Pincus Emerging Markets Portfolio - - -
- -------------------------------------------------------------------------------------------------
BOND ACCOUNTS:
- -------------------------------------------------------------------------------------------------
American Odyssey Global High-Yield Bond Fund - - -
- -------------------------------------------------------------------------------------------------
American Odyssey Intermediate-Term Bond Fund 6.12% 2.58% 13.54%
- -------------------------------------------------------------------------------------------------
American Odyssey Long-Term Bond Fund 10.60% -0.01% 20.88%
- -------------------------------------------------------------------------------------------------
Federated High Yield Portfolio ~ + 13.94% - -
- -------------------------------------------------------------------------------------------------
Putnam Diversified Income Portfolio 6.30% 6.83% 15.87%
- -------------------------------------------------------------------------------------------------
Smith Barney High Income Portfolio 12.41% 11.68% 17.54%
- -------------------------------------------------------------------------------------------------
Travelers High Yield Bond Trust 15.06% 14.53% 14.03%
- -------------------------------------------------------------------------------------------------
Travelers Quality Bond Portfolio 5.75% - -
- -------------------------------------------------------------------------------------------------
Travelers U.S. Government Securities Portfolio 11.18% 0.13% 22.88%
- -------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 106
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Cumulative Returns
- -------------------------------------------------------------------------------------------------------------------
YTD 1 YR 3YR 5YR 10YR
- -------------------------------------------------------------------------------------------------------------------
BALANCED ACCOUNTS:
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MFS Total Return Portfolio 10.25% 10.25% 49.1% - -
- -------------------------------------------------------------------------------------------------------------------
Salomon Brothers Total Return Fund - - - - -
- -------------------------------------------------------------------------------------------------------------------
Travelers Managed Assets Trust 19.87% 19.87% 61.2% 95.1% 233.5%
- -------------------------------------------------------------------------------------------------------------------
MONEY MARKET ACCOUNTS:
- -------------------------------------------------------------------------------------------------------------------
Smith Barney Money Market Portfolio + 3.70% 3.70% 11.4% - -
- -------------------------------------------------------------------------------------------------------------------
Travelers Money Market Portfolio 3.69% 3.69% 10.6% 17.7% 44.4%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Average Annual Returns
- --------------------------------------------------------------------------------------------------------------
3YR 5YR 10YR Inception
- --------------------------------------------------------------------------------------------------------------
BALANCED ACCOUNTS:
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MFS Total Return Portfolio 14.22% - - 13.97% (6/94)
- --------------------------------------------------------------------------------------------------------------
Salomon Brothers Total Return Fund - - - 4.64% (2/98)
- --------------------------------------------------------------------------------------------------------------
Travelers Managed Assets Trust 17.23% 14.29% 12.79% 10.02% (6/83)
- --------------------------------------------------------------------------------------------------------------
MONEY MARKET ACCOUNTS:
- --------------------------------------------------------------------------------------------------------------
Smith Barney Money Market Portfolio + 3.67% - - 3.66% (6/94)
- --------------------------------------------------------------------------------------------------------------
Travelers Money Market Portfolio 3.40% 3.30% 3.74% 3.92% (12/87)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Calendar Year Returns
- -------------------------------------------------------------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------------
BALANCED ACCOUNTS:
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
MFS Total Return Portfolio 19.63% 13.02% 24.07%
- -------------------------------------------------------------------------------------
Salomon Brothers Total Return Fund - - -
- -------------------------------------------------------------------------------------
Travelers Managed Assets Trust 19.72% 12.30% 25.47%
- -------------------------------------------------------------------------------------
MONEY MARKET ACCOUNTS:
- -------------------------------------------------------------------------------------
Smith Barney Money Market Portfolio + 3.73% 3.60% 4.05%
- -------------------------------------------------------------------------------------
Travelers Money Market Portfolio 3.70% 2.82% 2.89%
- -------------------------------------------------------------------------------------
</TABLE>
*The inception date represents the date the funding options began operating
10
<PAGE> 107
TRAVELERS GOLD TRACK
SEC STANDARDIZED AVERAGE ANNUAL RETURNS AS OF 12/31/98
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
STOCK ACCOUNTS: 1 Year 5 Year 10 Year (or inception)
- ---------------------------------------------------------------------------------------------------------------------------------
WITH CHART FEE OF 1.25%
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
American Odyssey Core Equity Fund 6.72% - 18.85% (10/96)
- ---------------------------------------------------------------------------------------------------------------------------------
American Odyssey Emerging Opportunities Fund -15.65% - -10.79% (10/96)
- ---------------------------------------------------------------------------------------------------------------------------------
American Odyssey International Equity Fund 6.11% - 7.57% (10/96)
- ---------------------------------------------------------------------------------------------------------------------------------
BOND ACCOUNTS
- ---------------------------------------------------------------------------------------------------------------------------------
WITH CHART FEE OF 1.25%
- ---------------------------------------------------------------------------------------------------------------------------------
American Odyssey Global High -Yield Bond Fund - - -11.61% (5/98)
- ---------------------------------------------------------------------------------------------------------------------------------
American Odyssey Intermediate-Term Bond Fund 0.19% - 2.65% (10/96)
- ---------------------------------------------------------------------------------------------------------------------------------
American Odyssey Long-Term Bond Fund 0.71% - 5.07% (10/96)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The inception date used to calculate standardized performance is based on the
date that the investment option became active under the product.
11
<PAGE> 108
TRAVELERS GOLD TRACK
NONSTANDARDIZED PERFORMANCE AS OF 12/31/98
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
1 YR 3YR 5YR 10YR
- ------------------------------------------------------------------------------------------------------------------
STOCK ACCOUNTS
- ------------------------------------------------------------------------------------------------------------------
WITH CHART FEE OF 1.25%
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
American Odyssey Core Equity Fund 12.63% 73.87% 126.69% -
- ------------------------------------------------------------------------------------------------------------------
American Odyssey Emerging Opportunities Fund -10.96% -12.28% 20.95% -
- ------------------------------------------------------------------------------------------------------------------
American Odyssey International Equity Fund 11.98% 36.24% 43.32% -
- ------------------------------------------------------------------------------------------------------------------
BOND ACCOUNTS
- ------------------------------------------------------------------------------------------------------------------
WITH CHART FEE OF 1.25%
- ------------------------------------------------------------------------------------------------------------------
American Odyssey Global High -Yield Bond Fund - - - -
- ------------------------------------------------------------------------------------------------------------------
American Odyssey Intermediate-Term Bond Fund 5.75% 12.27% 19.23% -
- ------------------------------------------------------------------------------------------------------------------
American Odyssey Long-Term Bond Fund 6.29% 14.63% 25.73% -
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
- ------------------------------------------------------------------------------------------------------------------------------
3YR 5YR 10YR Inception
- ------------------------------------------------------------------------------------------------------------------------------
STOCK ACCOUNTS
- ------------------------------------------------------------------------------------------------------------------------------
WITH CHART FEE OF 1.25%
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
American Odyssey Core Equity Fund 20.23% 17.77% - 15.60% (5/93)
- ------------------------------------------------------------------------------------------------------------------------------
American Odyssey Emerging Opportunities Fund -4.27% 3.88% - 4.64% (5/93)
- ------------------------------------------------------------------------------------------------------------------------------
American Odyssey International Equity Fund 10.85% 7.46% - 9.55% (5/93)
- ------------------------------------------------------------------------------------------------------------------------------
BOND ACCOUNTS
- ------------------------------------------------------------------------------------------------------------------------------
WITH CHART FEE OF 1.25%
- ------------------------------------------------------------------------------------------------------------------------------
American Odyssey Global High -Yield Bond Fund - - - -7.19% (5/98)
- ------------------------------------------------------------------------------------------------------------------------------
American Odyssey Intermediate-Term Bond Fund 3.93% 3.58% - 3.62% (5/93)
- ------------------------------------------------------------------------------------------------------------------------------
American Odyssey Long-Term Bond Fund 4.65% 4.68% - 5.46% (5/93)
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
CALENDAR YEAR RETURNS
- ---------------------------------------------------------------------------------------
1997 1996 1995
- ---------------------------------------------------------------------------------------
STOCK ACCOUNTS
- ---------------------------------------------------------------------------------------
WITH CHART FEE OF 1.25%
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
American Odyssey Core Equity Fund 28.59% 20.05% 35.12%
- ---------------------------------------------------------------------------------------
American Odyssey Emerging Opportunities Fund 4.34% -5.59% 28.95%
- ---------------------------------------------------------------------------------------
American Odyssey International Equity Fund 2.40% 18.81% 16.03%
- ---------------------------------------------------------------------------------------
BOND ACCOUNTS
- ---------------------------------------------------------------------------------------
WITH CHART FEE OF 1.25%
- ---------------------------------------------------------------------------------------
American Odyssey Global High -Yield Bond Fund - - -
- ---------------------------------------------------------------------------------------
American Odyssey Intermediate-Term Bond Fund 4.80% 1.30% 12.14%
- ---------------------------------------------------------------------------------------
American Odyssey Long-Term Bond Fund 9.22% -1.26% 19.40%
- ---------------------------------------------------------------------------------------
</TABLE>
Inception date is the date that the underlying fund commenced operations.
Returns for periods less than one year are cumulative
12
<PAGE> 109
TRAVELERS GOLD TRACK SELECT
STANDARDIZED AVERAGE ANNUAL RETURNS AS OF 12/31/98
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
STOCK ACCOUNTS: 1 Year 5 Year 10 Year (or inception)
- --------------------------------------------------------------------------------------------------------------------------------
WITH CHART FEE OF 1.25%
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
American Odyssey Core Equity Fund 8.13% - 20.24% (6/93)
- --------------------------------------------------------------------------------------------------------------------------------
American Odyssey Emerging Opportunities Fund -14.52% - -9.73% (5/93)
- --------------------------------------------------------------------------------------------------------------------------------
American Odyssey International Equity Fund 7.50% - 8.84% (5/93)
- --------------------------------------------------------------------------------------------------------------------------------
BOND ACCOUNTS
- --------------------------------------------------------------------------------------------------------------------------------
WITH CHART FEE OF 1.25%
- --------------------------------------------------------------------------------------------------------------------------------
American Odyssey Global High -Yield Bond Fund - - 11.48% (5/98)
- --------------------------------------------------------------------------------------------------------------------------------
American Odyssey Intermediate-Term Bond Fund 1.52% - 3.86% (6/93)
- --------------------------------------------------------------------------------------------------------------------------------
American Odyssey Long-Term Bond Fund 2.04% - 6.32% (1/94)
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The inception date used to calculate standardized performance is based on the
date that the investment option became active under the Separate Account.
13
<PAGE> 110
TRAVELERS GOLD TRACK SELECT
NONSTANDARDIZED PERFORMANCE AS OF 12/31/98
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
1 YR 3YR 5YR 10YR
- -------------------------------------------------------------------------------------------------------------
WITH CHART FEE OF 1.25%
- -------------------------------------------------------------------------------------------------------------
STOCK ACCOUNTS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
American Odyssey Core Equity Fund 12.63% 73.87% 126.69% -
- -------------------------------------------------------------------------------------------------------------
American Odyssey Emerging Opportunities Fund -10.96% -12.28% 20.95% -
- -------------------------------------------------------------------------------------------------------------
American Odyssey International Equity Fund 11.98% 36.24% 43.32% -
- -------------------------------------------------------------------------------------------------------------
BOND ACCOUNTS
- -------------------------------------------------------------------------------------------------------------
WITH CHART FEE OF 1.25%
- -------------------------------------------------------------------------------------------------------------
American Odyssey Global High -Yield Bond Fund - - - -
- -------------------------------------------------------------------------------------------------------------
American Odyssey Intermediate-Term Bond Fund 5.75% 12.27% 19.23% -
- -------------------------------------------------------------------------------------------------------------
American Odyssey Long-Term Bond Fund 6.29% 14.63% 25.73% -
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
- ------------------------------------------------------------------------------------------------------------------------
3YR 5YR 10YR Inception
- ------------------------------------------------------------------------------------------------------------------------
WITH CHART FEE OF 1.25%
- ------------------------------------------------------------------------------------------------------------------------
STOCK ACCOUNTS
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
American Odyssey Core Equity Fund 20.23% 17.77% - 15.60% (5/93)
- ------------------------------------------------------------------------------------------------------------------------
American Odyssey Emerging Opportunities Fund -4.27% 3.88% - 4.64% (5/93)
- ------------------------------------------------------------------------------------------------------------------------
American Odyssey International Equity Fund 10.85% 7.46% - 9.55% (5/93)
- ------------------------------------------------------------------------------------------------------------------------
BOND ACCOUNTS
- ------------------------------------------------------------------------------------------------------------------------
WITH CHART FEE OF 1.25%
- ------------------------------------------------------------------------------------------------------------------------
American Odyssey Global High -Yield Bond Fund - - - -7.19% (5/98)
- ------------------------------------------------------------------------------------------------------------------------
American Odyssey Intermediate-Term Bond Fund 3.93% 3.58% - 3.62% (5/93)
- ------------------------------------------------------------------------------------------------------------------------
American Odyssey Long-Term Bond Fund 4.65% 4.68% - 5.46% (5/93)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
CALENDAR YEAR RETURNS
- ---------------------------------------------------------------------------------------------------
1997 1996 1995
- ---------------------------------------------------------------------------------------------------
WITH CHART FEE OF 1.25%
- ---------------------------------------------------------------------------------------------------
STOCK ACCOUNTS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
American Odyssey Core Equity Fund 28.59% 20.05% 35.12%
- ---------------------------------------------------------------------------------------------------
American Odyssey Emerging Opportunities Fund 4.34% -5.59% 28.95%
- ---------------------------------------------------------------------------------------------------
American Odyssey International Equity Fund 2.40% 18.81% 16.03%
- ---------------------------------------------------------------------------------------------------
BOND ACCOUNTS
- ---------------------------------------------------------------------------------------------------
WITH CHART FEE OF 1.25%
- ---------------------------------------------------------------------------------------------------
American Odyssey Global High -Yield Bond Fund - - -
- ---------------------------------------------------------------------------------------------------
American Odyssey Intermediate-Term Bond Fund 4.80% 1.30% 12.14%
- ---------------------------------------------------------------------------------------------------
American Odyssey Long-Term Bond Fund 9.22% -1.26% 19.40%
- ---------------------------------------------------------------------------------------------------
</TABLE>
Performance data quoted represents past performance. Inception date is the date
that the underlying fund commenced operations. Returns for periods less than one
year are cumulative
14
<PAGE> 111
FEDERAL TAX CONSIDERATIONS
The following description of the federal income tax consequences
under this Contract is not exhaustive and is not intended to cover all
situations. Because of the complexity of the law and the fact that the tax
results will vary according to the factual status of the individual involved,
tax advice may be needed by a person contemplating purchase of an annuity
contract and by a contract owner or beneficiary who may make elections under a
contract. For further information, please consult a qualified tax adviser.
MANDATORY DISTRIBUTIONS FOR QUALIFIED PLANS
Federal tax law generally requires that minimum annual distributions
begin by April 1st of the calendar year following the calendar year in which a
participant under a qualified plan, a Section 403(b) annuity, or an IRA attains
age 70 1/2. Distributions must also begin or be continued according to required
patterns following the death of the contract owner or the annuitant.
NONQUALIFIED ANNUITY CONTRACTS
Individuals may purchase tax-deferred annuities without tax law
funding limits. The purchase payments receive no tax benefit, deduction or
deferral, but increases in the value of the contract are generally deferred from
tax until distribution. If a nonqualified annuity is owned by other than an
individual, however, (e.g., by a corporation), the increases in value
attributable to purchase payments made after February 28, 1986 are includable in
income annually. Furthermore, for contracts issued after April 22, 1987, all
deferred increases in value will be includable in the income of a contract owner
when the contract owner transfers the contract without adequate consideration.
If two or more annuity contracts are purchased from the same insurer
within the same calendar year, distributions from any of them will be taxed
based upon the amount of income in all of the same calendar year series of
annuities. This will generally have the effect of causing taxes to be paid
sooner on the deferred gain in the contracts.
Those receiving partial distributions made before the maturity date
will generally be taxed on an income-first basis to the extent of income in the
contract. If you are exchanging another annuity contract for this annuity,
certain pre-August 14, 1982 deposits into an annuity contract that have been
placed in the contract by means of a tax-deferred exchange under Section 1035 of
the Code may be withdrawn first without income tax liability. This information
on deposits must be provided to the Company by the other insurance company at
the time of the exchange. There is income in the contract generally to the
extent the cash value exceeds the investment in the contract. The investment in
the contract is equal to the amount of premiums paid less any amount received
previously which was excludable from gross income. Any direct or indirect
borrowing against the value of the contract or pledging of the contract as
security for a loan will be treated as a cash distribution under the tax law.
The federal tax law requires that nonqualified annuity contracts
meet minimum mandatory distribution requirements upon the death of the contract
owner, including the first of joint owners. Failure to meet these requirements
will cause the surviving joint owner, or the beneficiary to lose the tax
benefits associated with annuity contracts, i.e., primarily the tax deferral
prior to distribution. The distribution required depends, among other things,
upon whether an annuity option is elected or whether the new contract owner is
the surviving spouse. Contracts will be administered by the
15
<PAGE> 112
Company in accordance with these rules and the Company will make a notification
when payments should be commenced.
INDIVIDUAL RETIREMENT ANNUITIES
To the extent of earned income for the year and not exceeding $2,000
per individual, an individual may make deductible contributions to an individual
retirement annuity (IRA). There are certain limits on the deductible amount
based on the adjusted gross income of the individual and spouse and based on
their participation in a retirement plan. If an individual is married and the
spouse does not have earned income, the individual may establish IRAs for the
individual and spouse. Purchase payments may then be made annually into IRAs for
both spouses in the maximum amount of 100% of earned income up to a combined
limit of $4,000.
The Code provides for the purchase of a Simplified Employee Pension
(SEP) plan. A SEP is funded through an IRA with an annual employer contribution
limit of 15% of compensation up to $30,000 for each participant.
SIMPLE Plan IRA Form
Effective January 1, 1997, employers may establish a savings
incentive match plan for employees ("SIMPLE plan") under which employees can
make elective salary reduction contributions to an IRA based on a percentage of
compensation of up to $6,000. (Alternatively, the employer can establish a
SIMPLE cash or deferred arrangement under IRS Section 401(k)). Under a SIMPLE
plan IRA, the employer must either make a matching contribution of 100% on the
first 3% or 7% contribution for all eligible employees. Early withdrawals are
subject to the 10% early withdrawal penalty generally applicable to IRAs, except
that an early withdrawal by an employee under a SIMPLE plan IRA, within the
first two years of participation, shall be subject to a 25% early withdrawal
tax.
ROTH IRAS
Effective January 1, 1998, Section 408A of the Code permits certain
individuals to contribute to a Roth IRA. Eligibility to make contributions is
based upon income, and the applicable limits vary based on marital status and/or
whether the contribution is a rollover contribution from another IRA or an
annual contribution. Contributions to a Roth IRA, which are subject to certain
limitations ($2,000 per year for annual contributions), are not deductible and
must be made in cash or as a rollover or transfer from another Roth IRA or other
IRA. A conversion of a "traditional" IRA to a Roth IRA may be subject to tax and
other special rules apply. You should consult a tax adviser before combining any
converted amounts with other Roth IRA contributions, including any other
conversion amounts from other tax years.
Qualified distributions from a Roth IRA are tax-free. A qualified
distribution requires that the Roth IRA has been held for at least 5 years, and
the distribution is made after age 59 1/2, on death or disability of the owner,
or for a limited amount ($10,000) for a qualified first time home purchase for
the owner or certain relatives. Income tax and a 10% penalty tax may apply to
distributions made (1) before age 59 1/2 (subject to certain exceptions) or (2)
during five taxable years starting with the year in which the first contribution
is made to the Roth IRA.
16
<PAGE> 113
QUALIFIED PENSION AND PROFIT-SHARING PLANS
Under a qualified pension or profit-sharing plan, purchase payments
made by an employer are not currently taxable to the participant and increases
in the value of a contract are not subject to taxation until received by a
participant or beneficiary.
Distributions are taxable to the participant or beneficiary as
ordinary income in the year of receipt. Any distribution that is considered the
participant's "investment in the contract" is treated as a return of capital and
is not taxable. Certain lump-sum distributions may be eligible for special
forward averaging tax treatment for certain classes of individuals.
FEDERAL INCOME TAX WITHHOLDING
The portion of a distribution which is taxable income to the
recipient will be subject to federal income tax withholding as follows:
1. ELIGIBLE ROLLOVER DISTRIBUTION FROM SECTION 403(b) PLANS OR ARRANGEMENTS
OR FROM QUALIFIED PENSION AND PROFIT-SHARING PLANS
There is a mandatory 20% tax withholding for plan distributions that
are eligible for rollover to an IRA or to another retirement plan but that are
not directly rolled over. A distribution made directly to a participant or
beneficiary may avoid this result if:
(a) a periodic settlement distribution is elected based upon a life or
life expectancy calculation, or
(b) a term-for-years settlement distribution is elected for a period of
ten years or more, payable at least annually, or
(c) a minimum required distribution as defined under the tax law is
taken after the attainment of the age of 70 1/2 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.
17
<PAGE> 114
3. PERIODIC DISTRIBUTIONS (DISTRIBUTIONS PAYABLE OVER A PERIOD GREATER THAN ONE
YEAR)
The portion of a periodic distribution which constitutes taxable
income will be subject to federal income tax withholding under the wage
withholding tables as if the recipient were married claiming three exemptions. A
recipient may elect not to have income taxes withheld or have income taxes
withheld at a different rate by providing a completed election form. Election
forms will be provided at the time distributions are requested. This form of
withholding applies to all annuity programs. As of January 1, 1999, a recipient
receiving periodic payments (e.g., monthly or annual payments under an annuity
option) which total $14,700 or less per year, will generally be exempt from
periodic withholding.
Recipients who elect not to have withholding made are liable for
payment of federal income tax on the taxable portion of the distribution. All
recipients may also be subject to penalties under the estimated tax payment
rules if withholding and estimated tax payments are not sufficient to cover tax
liabilities.
Recipients who do not provide a social security number or other
taxpayer identification number will not be permitted to elect out of
withholding. Additionally, U.S citizens residing outside of the country, or U.S.
legal residents temporarily residing outside the country, are not permitted to
elect out of withholding.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of The Travelers Insurance
Company and Subsidiaries as of December 31, 1998 and 1997, and for each of the
years in the three-year period ended December 31, 1998, included herein, and the
financial statements of Separate Account QP as of December 31, 1998 and for the
year ended December 31, 1998, incorporated herein by reference, have been
included or incorporated in reliance upon the reports of KPMG LLP, independent
certified public accountants, appearing elsewhere herein or incorporated herein
by reference, and upon the authority of said firm as experts in accounting and
auditing.
18
<PAGE> 115
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, 1998 and 1997, and the
related consolidated statements of income, changes in retained earnings and
accumulated other changes in equity from non-owner sources and cash flows for
each of the years in the three-year period ended December 31, 1998. These
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, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Hartford, Connecticut
January 25, 1999
F-1
<PAGE> 116
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
($ IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
REVENUES
Premiums $1,740 $1,583 $1,387
Net investment income 2,185 2,037 1,950
Realized investment gains 149 199 65
Other revenues 440 354 284
- ------------------------------------------------------------------------------------------------
Total Revenues 4,514 4,173 3,686
- ------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Current and future insurance benefits 1,475 1,341 1,187
Interest credited to contractholders 876 829 863
Amortization of deferred acquisition costs and value of 311 293 281
insurance in force
General and administrative expenses 469 427 380
- ------------------------------------------------------------------------------------------------
Total Benefits and Expenses 3,131 2,890 2,711
- ------------------------------------------------------------------------------------------------
Income from continuing operations before federal income 1,383 1,283 975
taxes
- ------------------------------------------------------------------------------------------------
Federal income taxes:
Current expense 442 434 284
Deferred 39 10 58
- ------------------------------------------------------------------------------------------------
Total Federal Income Taxes 481 444 342
- ------------------------------------------------------------------------------------------------
Income from continuing operations 902 839 633
Discontinued operations, net of income taxes
Gain on disposition (net of taxes of $0, $0 and $14) - - 26
- ------------------------------------------------------------------------------------------------
Income from Discontinued Operations - - 26
================================================================================================
Net income $ 902 $ 839 $ 659
================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE> 117
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31, 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Fixed maturities, available for sale at fair value (cost, $23,893 $21,511
$22,973, $20,682)
Equity securities, at fair value (cost, $474, $480) 518 512
Mortgage loans 2,606 2,869
Real estate held for sale 143 134
Policy loans 1,857 1,872
Short-term securities 1,098 1,102
Trading securities, at market value 1,186 800
Other invested assets 2,251 1,702
- ---------------------------------------------------------------------------------------------
Total Investments 33,552 30,502
- ---------------------------------------------------------------------------------------------
Cash 65 58
Investment income accrued 393 338
Premium balances receivable 99 106
Reinsurance recoverables 3,387 3,753
Deferred acquisition costs and value of insurance in force 2,567 2,312
Separate and variable accounts 15,313 11,319
Other assets 1,172 1,052
- ---------------------------------------------------------------------------------------------
Total Assets $56,548 $49,440
- ---------------------------------------------------------------------------------------------
LIABILITIES
Contractholder funds $16,739 $14,913
Future policy benefits and claims 12,326 12,361
Separate and variable accounts 15,305 11,309
Deferred federal income taxes 422 409
Trading securities sold not yet purchased, at market value 873 462
Other liabilities 2,783 2,661
- ---------------------------------------------------------------------------------------------
Total Liabilities 48,448 42,115
- ---------------------------------------------------------------------------------------------
SHAREHOLDER'S EQUITY
Common stock, par value $2.50; 40 million shares authorized, 100 100
issued and outstanding
Additional paid-in capital 3,800 3,187
Retained earnings 3,602 2,810
Accumulated other changes in equity from non-owner sources 598 535
Unrealized gain on Citigroup Inc. stock, net of tax - 693
- ---------------------------------------------------------------------------------------------
Total Shareholder's Equity 8,100 7,325
- ---------------------------------------------------------------------------------------------
Total Liabilities and Shareholder's Equity $56,548 $49,440
=============================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE> 118
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN RETAINED EARNINGS AND ACCUMULATED
OTHER CHANGES IN EQUITY FROM NON-OWNER SOURCES
($ IN MILLIONS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
STATEMENTS OF CHANGES IN RETAINED 1998 1997 1996
EARNINGS
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $2,810 $2,471 $2,312
Net income 902 839 659
Dividends to parent 110 500 500
- --------------------------------------------------------------------------
Balance, end of year $3,602 $2,810 $2,471
==========================================================================
- --------------------------------------------------------------------------
STATEMENTS OF ACCUMULATED OTHER CHANGES
IN EQUITY FROM NON-OWNER SOURCES
- --------------------------------------------------------------------------
Balance, beginning of year $ 535 $ 223 $ 449
Unrealized gains (losses), net of tax 62 313 (226)
Foreign currency translation, net of 1 (1) -
tax
- --------------------------------------------------------------------------
Balance, end of year $ 598 $ 535 $ 223
==========================================================================
- --------------------------------------------------------------------------
SUMMARY OF CHANGES IN EQUITY
FROM NON-OWNER SOURCES
- --------------------------------------------------------------------------
Net Income $ 902 $ 839 $ 659
Other changes in equity from
non-owner sources 63 312 (226)
- --------------------------------------------------------------------------
Total changes in equity from
non-owner sources $ 965 $1,151 $ 433
==========================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE> 119
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
($ IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996
---- ---- ----
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Premiums collected $1,763 $1,519 $1,387
Net investment income received 2,021 2,059 1,910
Other revenues received 255 180 131
Benefits and claims paid (1,127) (1,230) (1,060)
Interest credited to contractholders (918) (853) (820)
Operating expenses paid (587) (445) (343)
Income taxes paid (506) (368) (328)
Trading account investments, (purchases) sales, net (38) (54) -
Other 12 18 (70)
- ---------------------------------------------------------------------------------------------------
Net cash provided by operating activities 875 826 807
Net cash used in discontinued operations - - (350)
- ---------------------------------------------------------------------------------------------------
Net Cash Provided by Operations 875 826 457
- ---------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments
Fixed maturities 2,608 2,259 1,928
Mortgage loans 722 663 917
Proceeds from sales of investments
Fixed maturities 13,390 7,592 9,101
Equity securities 212 341 479
Mortgage loans - 207 178
Real estate held for sale 53 169 210
Purchases of investments
Fixed maturities (18,072) (11,143) (11,556)
Equity securities (194) (483) (594)
Mortgage loans (457) (771) (470)
Policy loans, net 15 38 (23)
Short-term securities, (purchases) sales, net (495) (2) 498
Other investments, purchases, net (550) (260) (137)
Securities transactions in course of settlement 192 311 (52)
Net cash provided by investing activities of - - 348
discontinued operations
- ---------------------------------------------------------------------------------------------------
Net Cash Provided by (Used In) Investing Activities (2,576) (1,079) 827
- ---------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Redemption of commercial paper, net - (50) (23)
Contractholder fund deposits 4,383 3,544 2,493
Contractholder fund withdrawals (2,565) (2,757) (3,262)
Dividends to parent company (110) (500) (500)
Other - - 9
- ---------------------------------------------------------------------------------------------------
Net Cash Provided by (Used In) Financing Activities 1,708 237 (1,283)
- ---------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 7 (16) 1
- ---------------------------------------------------------------------------------------------------
Cash at December 31, $ 65 $ 58 $ 74
===================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE> 120
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies used in the preparation of the accompanying
financial statements follow.
Basis of Presentation
The Travelers Insurance Company (TIC) and, collectively with its subsidiaries
(the Company) is a wholly owned subsidiary of The Travelers Insurance Group
Inc. (TIGI), an indirect wholly owned subsidiary of Citigroup Inc.
(Citigroup), formerly Travelers Group Inc. The consolidated financial
statements include the accounts of TIC 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 2 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). 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 a final contingent payment was
made during 1996. The Company's discontinued operations reflect the results
of the gain from the contingent payment in 1996.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and benefits and expenses during the
reporting period. Actual results could differ from those estimates.
Certain prior year amounts have been reclassified to conform with the 1998
presentation.
F-6
<PAGE> 121
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
ACCOUNTING CHANGES
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities
Effective January 1, 1997, the Company adopted Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" (FAS 125). This
statement establishes accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. These
standards are based on an approach that focuses on control. Under this
approach, after a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and the liabilities it has
incurred, derecognizes financial assets when control has been surrendered and
derecognizes liabilities when extinguished. FAS 125 provides standards for
distinguishing transfers of financial assets that are sales from transfers
that are secured borrowings. Effective January 1, 1998, the Company adopted
the collateral provisions of FAS 125 which were not effective until 1998 in
accordance with Statement of Financial Accounting Standards No. 127,
"Deferral of the Effective Date of Certain Provisions of SFAS 125". The
adoption of the collateral provisions of FAS 125 created additional assets
and liabilities on the Company's consolidated statement of financial position
related to the recognition of securities provided and received as collateral.
There was no impact on the Company's results of operations from the adoption
of the collateral provisions of FAS 125.
Reporting Comprehensive Income
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (FAS 130). FAS
130 establishes standards for the reporting and display of comprehensive
income and its components in a full set of general-purpose financial
statements. All items that are required to be recognized under accounting
standards as components of comprehensive income are required to be reported
in an annual financial statement that is displayed with the same prominence
as other financial statements. This statement stipulates that comprehensive
income reflect the change in equity of an enterprise during a period from
transactions and other events and circumstances from non-owner sources.
Comprehensive income thus represents the sum of net income and other
changes in equity from non-owner sources. The accumulated balance of other
changes in equity from non-owner sources is required to be displayed
separately from retained earnings and additional paid-in capital in the
consolidated balance sheet. The adoption of FAS 130 resulted primarily in the
Company reporting unrealized gains and losses on investments in debt and
equity securities in changes in equity from non-owner sources. See Note 5.
F-7
<PAGE> 122
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Disclosures About Segments of an Enterprise and Related Information
During 1998, the Company adopted Statement of Financial Accounting Standards No.
131, "Disclosures About Segments of an Enterprise and Related Information" (FAS
131). FAS 131 establishes standards for the way that public enterprises report
information about operating segments in annual financial statements and requires
that selected information about those operating segments be reported in interim
financial statements. This statement supersedes Statement of Financial
Accounting Standards No. 14, "Financial Reporting for Segments of a Business
Enterprise". FAS 131 requires that all public enterprises report financial and
descriptive information about its reportable operating segments. Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decisionmaker in deciding how to allocate resources and in assessing
performance. As a result of the adoption of FAS 131, the Company has two
reportable operating segments, Travelers Life and Annuity and Primerica Life
Insurance. See Note 17.
Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use
During the third quarter of 1998, the Company adopted (effective January 1,
1998) the Accounting Standards Executive Committee of the American Institute
of Certified Public Accountants' Statement of Position 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use" (SOP
98-1). SOP 98-1 provides guidance on accounting for the costs of computer
software developed or obtained for internal use and for determining when
specific costs should be capitalized or expensed. The adoption of SOP 98-1
did not have a material impact on the Company's financial condition,
statement of operations or liquidity.
ACCOUNTING POLICIES
Investments
Fixed maturities include bonds, notes and redeemable preferred stocks. Fair
values of investments in fixed maturities are based on quoted market prices
or dealer quotes or, if these are not available, discounted expected cash
flows using market rates commensurate with the credit quality and maturity of
the investment. Also included in fixed maturities are loan-backed and
structured securities, which are amortized using the retrospective method.
The effective yield used to determine amortization is calculated based upon
actual historical and projected future cash flows, which are obtained from a
widely-accepted securities data provider. Fixed maturities are classified as
"available for sale" and are reported at fair value, with unrealized
investment gains and losses, net of income taxes, charged or credited
directly to shareholder's equity.
Equity securities, which include common and 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, 1998 and 1997.
F-8
<PAGE> 123
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Real estate held for sale is carried at the lower of cost or fair value less
estimated cost to sell. Fair value of foreclosed properties is established at
the time of foreclosure by internal analysis or external appraisers, using
discounted cash flow analyses and other accepted 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, 1998 and 1997.
Trading securities and related liabilities are normally held for periods less
than six months. These investments are marked to market with the change
recognized in net investment income during the current period.
Short-term securities, consisting primarily of money market instruments and
other debt issues purchased with a maturity of less than one year, are
carried at amortized cost which approximates market.
Accrual of income 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, options, forward contracts and interest rate swaps and
caps, as a means of hedging exposure to interest rate and foreign currency
risk. Hedge accounting is used to account for derivatives. To qualify for
hedge accounting the changes in value of the derivative must be expected to
substantially offset the changes in value of the hedged item. Hedges are
monitored to ensure that there is a high correlation between the derivative
instruments and the hedged investment.
Gains and losses arising from financial futures contracts are used to adjust
the basis of hedged investments and are recognized in net investment income
over the life of the investment.
Payments to be received or made under interest rate swaps are accrued and
recognized in net investment income. Swaps are carried at fair value with
unrealized gains and losses, net of taxes, charged or credited directly to
shareholder's equity.
Forward contracts, and options, and interest rate caps were not significant
at December 31, 1998 and 1997. Information concerning derivative financial
instruments is included in Note 6.
INVESTMENT GAINS AND LOSSES
Realized investment gains and losses are included as a component of pre-tax
revenues based upon specific identification of the investments sold on the
trade date. Also included are gains and losses arising from the remeasurement
of the local currency value of foreign investments to U.S. dollars, the
functional currency of the Company. The foreign exchange effects of Canadian
operations are included in unrealized gains and losses.
F-9
<PAGE> 124
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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 long-term care
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 long-term care insurance, 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
15 to 20 year amortization period is used; for long-term care business, a 10
to 20 year period is used, and a 7 to 20 year period is employed for
annuities. Deferred acquisition costs are reviewed periodically for
recoverability to determine if any adjustment is required.
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 that 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.
F-10
<PAGE> 125
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
CONTRACTHOLDER FUNDS
Contractholder funds represent receipts from the issuance of universal life,
corporate owned life insurance, 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 9.1%.
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 the states of domicile. Prescribed statutory
accounting practices include certain publications of the National Association
of Insurance Commissioners (NAIC) as well as state laws, regulations, and
general administrative rules. Permitted statutory accounting practices
encompass all accounting practices not so prescribed. The impact of any
permitted accounting practices on statutory surplus of the Company is not
material.
The NAIC recently completed a process intended to codify statutory accounting
practices for certain insurance enterprises. As a result of this process, the
NAIC will issue a revised statutory Accounting Practices and Procedures
Manual version effective January 1, 2001 (the revised Manual) that will be
effective January 1, 2001 for the calendar year 2001 statutory financial
statements. It is expected that the State of Connecticut will require that,
effective January 1, 2001, insurance companies domiciled in Connecticut
prepare their statutory basis financial statements in accordance with the
revised Manual subject to any deviations prescribed or permitted by the
Connecticut insurance commissioner. The Company has not yet determined the
impact that this change will have on the statutory capital and surplus of its
insurance subsidiaries.
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 earned on investment, universal life and other insurance contracts.
Other revenues also include gains and losses on dispositions of assets other
than realized investment gains and losses and revenues of non-insurance
subsidiaries.
F-11
<PAGE> 126
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
INTEREST CREDITED TO CONTRACTHOLDERS
Interest credited to contractholders represents amounts earned by universal
life, corporate owned life insurance, pension investment and certain deferred
annuity contracts in accordance with contract provisions.
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 December 1997, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of
Position 97-3, "Accounting by Insurance and Other Enterprises for
Insurance-Related Assessments" (SOP 97-3). SOP 97-3 provides guidance for
determining when an entity should recognize a liability for guaranty-fund and
other insurance-related assessments, how to measure that liability, and when
an asset may be recognized for the recovery of such assessments through
premium tax offsets or policy surcharges. This SOP is effective for financial
statements for fiscal years beginning after December 15, 1998, and the effect
of initial adoption is to be reported as a cumulative catch-up adjustment.
Restatement of previously issued financial statements is not allowed. The
Company plans to implement SOP 97-3 in the first quarter of 1999 and expects
there to be no material impact on the Company's financial condition, results
of operations or liquidity.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133). This statement establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, (collectively
referred to as derivatives) and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. If certain
conditions are met, a derivative may be specifically designated as (a) a
hedge of the exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment, (b) a hedge of the exposure to
variable cash flows of a forecasted transaction, or (c) a hedge of the
foreign currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. The accounting for
changes in the fair value of a derivative (that is, gains and losses) depends
on the intended use of the derivative and the resulting designation. FAS 133
is effective for all fiscal quarters of fiscal years beginning after June 15,
1999. Upon initial application of FAS 133, hedging relationships must be
designated anew and documented pursuant to the provisions of this statement.
The Company has not yet determined the impact that FAS 133 will have on its
consolidated financial statements.
F-12
<PAGE> 127
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
2. DISPOSITIONS AND DISCONTINUED OPERATIONS
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 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.
On October 2, 1995, the Company and its affiliates completed the sale of
their ownership in MetraHealth to United HealthCare Corporation. 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.
3. COMMERCIAL PAPER AND LINES OF CREDIT
TIC issues commercial paper directly to investors. No commercial paper was
outstanding at December 31, 1998 or 1997. TIC maintains unused credit
availability under bank lines of credit at least equal to the amount of the
outstanding commercial paper. No interest was paid in 1998 and interest
expense was not significant in 1997.
Citigroup, Commercial Credit Company (CCC) (an indirect wholly owned
subsidiary of Citigroup) and TIC have an agreement with a syndicate of banks
to provide $1.0 billion of revolving credit, to be allocated to any of
Citigroup, CCC or TIC. TIC's participation in this agreement is limited to
$250 million. The agreement consists of a five-year revolving credit facility
that expires in 2001. At December 31, 1998, $700 million was allocated to
Citigroup, $300 million was allocated to CCC and $0 was allocated to TIC.
Under this facility TIC is required to maintain certain minimum equity and
risk-based capital levels. At December 31, 1998, TIC was in compliance with
these provisions. There were no amounts outstanding under this agreement at
December 31, 1998 and 1997. If TIC had borrowings outstanding on this
facility, the interest rate would be based upon LIBOR plus a negotiated
margin.
4. 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.
Beginning in 1997, new universal life business was reinsured under an 80%/20%
quota share reinsurance program and new term life business was reinsured
under a 90%/10% quota share reinsurance program. 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
limits vary with age and underwriting classification. Generally, the maximum
retention on an ordinary life risk is $1.5 million.
The Company writes workers' compensation business through its Accident
Department. This business is ceded 100% to an affiliate, The Travelers
Indemnity Company.
F-13
<PAGE> 128
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
A summary of reinsurance financial data reflected within the consolidated
statements of income and balance sheets is presented below ($ in millions):
<TABLE>
<CAPTION>
WRITTEN PREMIUMS 1998 1997 1996
----------------------------------------------------------------------
<S> <C> <C> <C>
Direct $2,310 $2,148 $1,982
Assumed from:
Non-affiliated companies - 1 5
Ceded to:
Affiliated companies (242) (280) (284)
Non-affiliated companies (317) (273) (309)
----------------------------------------------------------------------
Total Net Written Premiums $1,751 $1,596 $1,394
======================================================================
</TABLE>
<TABLE>
<CAPTION>
EARNED PREMIUMS 1998 1997 1996
----------------------------------------------------------------------
<S> <C> <C> <C>
Direct $1,949 $2,170 $1,897
Assumed from:
Non-affiliated companies - 1 5
Ceded to:
Affiliated companies (251) (321) (219)
Non-affiliated companies (308) (291) (315)
----------------------------------------------------------------------
Total Net Earned Premiums $1,390 $1,559 $1,368
======================================================================
</TABLE>
Reinsurance recoverables at December 31, 1998 and 1997 include amounts
recoverable on unpaid and paid losses and were as follows ($ in millions):
<TABLE>
<CAPTION>
REINSURANCE RECOVERABLES 1998 1997
-----------------------------------------------------------
<S> <C> <C>
Life and Accident and Health Business:
Non-affiliated companies $1,297 $1,362
Property-Casualty Business:
Affiliated companies 2,090 2,391
-----------------------------------------------------------
Total Reinsurance Recoverables $3,387 $3,753
===========================================================
</TABLE>
Total reinsurance recoverables at December 31, 1998 and 1997 include $640
million and $697 million, respectively, from MetLife in connection with the
sale of the Company's group life and related businesses.
F-14
<PAGE> 129
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
5. SHAREHOLDER'S EQUITY
Additional Paid-In Capital
Additional paid-in capital increased during 1998 primarily due to the
conversion of Citigroup common stock to Citigroup preferred stock. This
increase in stockholder's equity was offset by a decrease in unrealized
investment gains due to the same transaction. See Note 13.
Unrealized Investment Gains (Losses)
An analysis of the change in unrealized gains and losses on investments is
shown in Note 13.
Shareholder's Equity and Dividend Availability
The Company's statutory net income, which includes all insurance
subsidiaries, was $702 million, $754 million and $656 million for the years
ended December 31, 1998, 1997 and 1996, respectively.
The Company's statutory capital and surplus was $4.95 billion and $4.12
billion at December 31, 1998 and 1997, 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 $504 million is available in 1999 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, 1998 and 1997.
F-15
<PAGE> 130
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
ACCUMULATED OTHER CHANGES IN EQUITY FROM NON-OWNER SOURCES, NET OF TAX
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
NET UNREALIZED FOREIGN CURRENCY ACCUMULATED OTHER
GAIN ON TRANSLATION CHANGES IN EQUITY FROM
INVESTMENT ADJUSTMENTS NON-OWNER SOURCES
(for the year ended December 31, $ in millions) SECURITIES
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998
Balance, beginning of year $545 $(10) $535
Current-year change 62 1 63
- --------------------------------------------------------------------------------------------------------------------------
Balance, end of year $607 $(9) $598
==========================================================================================================================
1997
Balance, beginning of year $232 $(9) $223
Current-year change 313 (1) 312
- --------------------------------------------------------------------------------------------------------------------------
Balance, end of year $545 $(10) $535
==========================================================================================================================
1996
Balance, beginning of year $458 $(9) $449
Current-year change (226) - (226)
- --------------------------------------------------------------------------------------------------------------------------
Balance, end of year $232 $(9) $223
==========================================================================================================================
</TABLE>
TAX EFFECTS ALLOCATED TO EACH COMPONENT OF OTHER CHANGES IN EQUITY FROM
NON-OWNER SOURCES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Pre-tax Tax expense After-tax
(for the year ended December 31, $ in millions) amount (benefit) amount
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998
Unrealized gain on investment securities:
Unrealized holding gains arising during year $ 244 $ 85 $ 159
Less: reclassification adjustment for gains
realized in net income 149 52 97
- ---------------------------------------------------------------------------------------------------------
Net unrealized gain on investment securities 95 33 62
Foreign currency translation adjustments 3 2 1
- ---------------------------------------------------------------------------------------------------------
Other changes in equity from non-owner sources $ 98 $ 35 $ 63
=========================================================================================================
1997
Unrealized gain on investment securities:
Unrealized holding gains arising during year $ 681 $ 239 $ 442
Less: reclassification adjustment for gains
realized in net income 199 70 129
- ---------------------------------------------------------------------------------------------------------
Net unrealized gain on investment securities 482 169 313
Foreign currency translation adjustments (1) - (1)
- ---------------------------------------------------------------------------------------------------------
Other changes in equity from non-owner sources $ 481 $ 169 $ 312
=========================================================================================================
1996
Unrealized gain on investment securities:
Unrealized holding losses arising during year $(283) $ (99) $(184)
Less: reclassification adjustment for gains
realized in net income 65 23 42
- ---------------------------------------------------------------------------------------------------------
Net unrealized loss on investment securities (348) (122) (226)
Foreign currency translation adjustments - - -
- ---------------------------------------------------------------------------------------------------------
Other changes in equity from non-owner sources $(348) $(122) $(226)
=========================================================================================================
</TABLE>
F-16
<PAGE> 131
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
6. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Derivative Financial Instruments
The Company uses derivative financial instruments, including financial
futures, interest rate swaps, options and forward contracts as a means of
hedging exposure to interest rate and foreign currency 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 interest rate swaps, options and forward
contracts, credit risk is limited to the amount that it would cost the
Company to replace the contracts. Financial futures contracts have little
credit risk since organized exchanges are the counterparties. The Company is
a writer of option contracts and as such has no credit risk since the
counterparty has no performance obligation after it has paid a cash premium.
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, 1998 and 1997, the Company held financial futures contracts
with notional amounts of $459 million and $625 million, respectively. These
financial futures had a deferred gain of $3.3 million and a deferred loss of
$.1 million in 1998 and a deferred gain of $.7 million, and a deferred loss
of $4.1 million in 1997. Total gains of $1.5 million and losses of $5.8
million from financial futures were deferred at December 31, 1998 and 1997,
respectively, relating to anticipated investment purchases and investment
product sales, and are reported as other liabilities. At December 31, 1998
and 1997, the Company's futures contracts had no fair value because these
contracts were marked to market and settled in cash daily.
F-17
<PAGE> 132
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The Company enters into interest rate swaps in connection with other
financial instruments to provide greater risk diversification and better
match an asset with a corresponding liability. Under interest rate swaps, the
Company agrees with other parties to exchange, at specific intervals, the
difference between fixed-rate and floating-rate interest amounts calculated
by reference to an agreed notional principal amount. The Company also enters
into basis swaps in which both legs of the swap are floating with each based
on a different index. Generally, no cash is exchanged at the outset of the
contract and no principal payments are made by either party. A single net
payment is usually made by one counterparty at each due date. Swap agreements
are not exchange traded and are subject to the risk of default by the
counterparty.
At December 31, 1998 and 1997, the Company held interest rate swap contracts
with notional amounts of $1,077.9 million and $234.7 million, respectively.
The fair value of these financial instruments was $5.6 million (gain
position) and $19.6 million (loss position) at December 31, 1998 and was $.3
million (gain position) and $2.5 million (loss position) at December 31,
1997. The fair values were determined using the discounted cash flow method.
The off-balance sheet risks of options and forward contracts were not
significant at December 31, 1998 and 1997.
The Company purchased a 5-year interest rate cap, with a notional amount of
$200 million, from Travelers Group Inc. in 1995 to hedge against losses that
could result from increasing interest rates. This instrument, which does not
have off-balance sheet risk, gave the Company the right to receive payments
if interest rates exceeded specific levels at specific dates. The premium of
$2 million paid for this instrument was being amortized over its life. The
interest rate cap asset was terminated in 1998. The fair value at December
31, 1997 was $0.
Financial Instruments with Off-Balance Sheet Risk
In the normal course of business, the Company issues fixed and variable rate
loan commitments and has unfunded commitments to partnerships. The
off-balance sheet risk of these financial instruments was not significant at
December 31, 1998 and 1997.
Fair Value of Certain Financial Instruments
The Company uses various financial instruments in the normal course of its
business. Fair values of financial instruments that are considered insurance
contracts are not required to be disclosed and are not included in the
amounts discussed.
At December 31, 1998 and 1997, investments in fixed maturities had a carrying
value and a fair value of $23.9 billion and $21.5 billion, respectively. See
Notes 1 and 13.
At December 31, 1998 mortgage loans had a carrying value of $2.6 billion and
a fair value of $2.8 billion and in 1997 had a carrying value of $2.9 billion
and a fair value of $3.0 billion. In estimating fair value, the Company used
interest rates reflecting the current real estate financing market.
F-18
<PAGE> 133
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The carrying values of $144 million and $143 million of financial instruments
classified as other assets approximated their fair values at December 31,
1998 and 1997, respectively. The carrying values of $2.3 billion and $2.0
billion of financial instruments classified as other liabilities also
approximated their fair values at December 31, 1998 and 1997, respectively.
Fair value is determined using various methods, including discounted cash
flows, as appropriate for the various financial instruments.
At December 31, 1998, contractholder funds with defined maturities had a
carrying value and a fair value of $3.3 billion, compared with a carrying
value and a fair value of $2.3 billion at December 31, 1997. The fair value
of these contracts is determined by discounting expected cash flows at an
interest rate commensurate with the Company's credit risk and the expected
timing of cash flows. Contractholder funds without defined maturities had a
carrying value of $10.4 billion and a fair value of $10.2 billion at December
31, 1998, compared with a carrying value of $9.7 billion and a fair value of
$9.5 billion at December 31, 1997. 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 $235 million at December 31, 1998, compared with a
carrying value and a fair value of $260 million at December 31, 1997. The
liabilities of separate accounts providing a guaranteed return had a carrying
value and a fair value of $209 million and $206 million, respectively, at
December 31, 1998, compared with a carrying value and a fair value of $209
million and $206 million, respectively, at December 31, 1997.
The carrying values of cash, trading securities and trading securities sold
not yet purchased are carried at fair value. The carrying values of
short-term securities and investment income accrued approximated their fair
values.
The carrying value of policy loans, which have no defined maturities, is
considered to be fair value.
7. COMMITMENTS AND CONTINGENCIES
Financial Instruments with Off-Balance Sheet Risk
See Note 6 for a discussion of financial instruments with off-balance sheet
risk.
F-19
<PAGE> 134
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Litigation
In March 1997, a purported class action entitled Patterman v. The Travelers,
Inc. et al. was commenced in the Superior Court of Richmond County, Georgia,
alleging, among other things, violations of the Georgia RICO statute and
other state laws by an affiliate of the Company, Primerica Financial
Services, Inc. and certain of its affiliates. Plaintiffs seek unspecified
compensatory and punitive damages and other relief. In October 1997,
defendants answered the complaint, denied liability and asserted numerous
affirmative defenses. In February 1998, the Superior Court of Richmond County
transferred the lawsuit to the Superior Court of Gwinnett County, Georgia.
The plaintiffs appealed the transfer order, and in December 1998 the Court of
Appeals of the State of Georgia reversed the lower court's decision. Later in
December 1998, defendants petitioned the Georgia Supreme Court to hear the
appeal from the decision of the Court of Appeals. Pending appeal, proceedings
in the trial court have been stayed. Defendants intend to vigorously contest
the litigation.
The Company is also a defendant or co-defendant in various other litigation
matters in the normal course of business. Although there can be no
assurances, as of December 31, 1998, the Company believes, based on
information currently available, that the ultimate resolution of these legal
proceedings would not be likely to have a material adverse effect on its
results of operations, financial condition or liquidity.
8. BENEFIT PLANS
Pension and Other Postretirement Benefits
The Company participates in a qualified, noncontributory defined benefit
pension plan sponsored by Citigroup. In addition, the Company provides
certain other postretirement benefits to retired employees through a plan
sponsored by TIGI. The Company's share of net expense for the qualified
pension and other postretirement benefit plans was not significant for 1998,
1997 and 1996. 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 1998, 1997 and 1996.
401(k) Savings Plan
Substantially all of the Company's employees are eligible to participate in a
401(k) savings plan sponsored by Citigroup. During 1996, the Company made
matching contributions in an amount equal to the lesser of 100% of the
pre-tax contributions made by the employee or $1,000. Effective January 1,
1997, the Company discontinued matching contributions for the majority of its
employees. The Company's expenses in connection with the 401(k) savings plan
were not significant in 1998, 1997 and 1996.
F-20
<PAGE> 135
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
9. RELATED PARTY TRANSACTIONS
The principal banking functions, including payment of salaries and expenses,
for certain subsidiaries and affiliates of TIGI are handled by two companies.
The Travelers Insurance Company (Life Department) handles banking functions
for the life and annuity operations of Travelers Life and Annuity and some of
its non-insurance affiliates. The Travelers Indemnity Company handles banking
functions for the property-casualty operations, including most of its
property-casualty insurance and non-insurance affiliates. Settlements between
companies are made at least monthly. 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.
The Company maintains a short-term investment pool in which its insurance
affiliates participate. The position of each company participating in the
pool is calculated and adjusted daily. At December 31, 1998 and 1997, the
pool totaled approximately $2.3 billion and $2.6 billion, respectively. The
Company's share of the pool amounted to $793 million and $725 million at
December 31, 1998 and 1997, respectively, and is included in short-term
securities in the consolidated balance sheet.
Included in short-term investments is a 90 day variable rate note receivable
from Citigroup issued on August 28, 1998 and renewed on November 25, 1998.
The rate is based upon the AA financial commercial paper rate plus 14 basis
points. The rate at December 31, 1998 is 5.47%. The balance at December 31,
1998 is $500 million. Interest accrued at December 31, 1998 was $2.2 million.
Interest earned during 1998 was $9.4 million. Citigroup repaid this note on
February 25, 1999.
The Company sells structured settlement annuities to the insurance
subsidiaries of TAP in connection with the settlement of certain policyholder
obligations. Such premiums and deposits were $104 million, $88 million, and
$40 million for 1998, 1997 and 1996, respectively. Reserves and
contractholder funds related to these annuities amounted to $787 million and
$795 million in 1998 and 1997, respectively.
The Company markets deferred annuity products and life and health insurance
through its affiliate, Salomon Smith Barney Inc. (SSB). Premiums and
deposits related to these products were $1.3 billion, $1.0 billion, and
$820 million in 1998, 1997 and 1996, respectively.
During the year the Company lent out $78.5 million par of debentures to SSB
for $84.8 million in cash collateral. Loaned debentures totaling $37.6
million with cash collateral of $39.7 million remained outstanding at
December 31, 1998.
The Company sold $27.4 million par of 6.125% U.S. Treasury bonds to SSB for
$31.1 million.
F-21
<PAGE> 136
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The Company purchased $36 million par of 6.56% Chase Commercial Mortgage
Securities Corp. bonds from SSB for $35.9 million.
Primerica Life has entered into a General Agency Agreement with Primerica
Financial Service, Inc. (Primerica), that provides that Primerica will be
Primerica Life's general agent for marketing all insurance of Primerica Life.
In consideration of such services, Primerica Life agreed to pay Primerica
marketing fees of no less than $10 million based upon U.S. gross direct
premiums received by Primerica Life. In 1998 the fees paid by Primerica Life
were $12.5 million.
In 1998 Primerica became a distributor of products for Travelers Life and
Annuity. During the year Primerica sold $256 million of deferred annuities.
Included in other invested assets is a $987 million investment in Citigroup
preferred stock at December 31, 1998, carried at cost. Also, included in
other invested assets is a $1.15 billion investment in common stock of
Citigroup at December 31, 1997, carried at fair value.
The Company participates in a stock option plan sponsored by Citigroup that
provides for the granting of stock options in Citigroup common stock to
officers and key employees. To further encourage employee stock ownership,
during 1997 Citigroup introduced the WealthBuilder stock option program.
Under this program, all employees meeting certain requirements have been
granted Citigroup stock options.
The Company applies APB 25 and related interpretations in accounting for
stock options. Since stock options under the Citigroup plans are issued at
fair market value on the date of award, no compensation cost has been
recognized for these awards. FAS 123 provides an alternative to APB 25
whereby fair values may be ascribed to options using a valuation model and
amortized to compensation cost over the vesting period of the options.
Had the Company applied FAS 123 in accounting for Citigroup stock options,
net income would have been the pro forma amounts indicated below:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
YEAR ENDING DECEMBER 31, 1998 1997 1996
($ IN MILLIONS)
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income, as reported $902 $839 $659
FAS 123 pro forma adjustments, after tax (13) (9) (3)
-----------------------------------------------------------------------------------------------------
Net income, pro forma $889 $830 $656
</TABLE>
The Company had an interest rate cap agreement with Citigroup. See Note 6.
F-22
<PAGE> 137
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
10. 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 $18 million, $15
million, and $24 million in 1998, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
---------------------------------------------------
YEAR ENDING DECEMBER 31, MINIMUM OPERATING
($ in millions) RENTAL PAYMENTS
---------------------------------------------------
<S> <C>
1999 $ 47
2000 50
2001 54
2002 44
2003 42
Thereafter 296
---------------------------------------------------
Total Rental Payments $533
===================================================
</TABLE>
Future sublease rental income of approximately $86 million will partially
offset these commitments. Also, the Company will be reimbursed for 50% of the
rental expense for a particular lease totaling $207 million, by an affiliate.
Minimum future capital lease payments are not significant.
The Company is reimbursed for use of furniture and equipment through cost
sharing agreements by its affiliates.
F-23
<PAGE> 138
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
11. FEDERAL INCOME TAXES
($ in millions)
EFFECTIVE TAX RATE
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Income Before Federal Income Taxes $1,383 $1,283 $ 975
Statutory Tax Rate 35% 35% 35%
----------------------------------------------------------------------------------
Expected Federal Income Taxes 484 449 341
Tax Effect of:
Non-taxable investment income (5) (4) (3)
Other, net 2 (1) 4
----------------------------------------------------------------------------------
Federal Income Taxes $ 481 $ 444 $ 342
==================================================================================
Effective Tax Rate 35% 35% 35%
----------------------------------------------------------------------------------
COMPOSITION OF FEDERAL INCOME TAXES
Current:
United States $ 418 $ 410 $ 263
Foreign 24 24 21
---------------------------------------------------------------------------------
Total 442 434 284
---------------------------------------------------------------------------------
Deferred:
United States 40 10 57
Foreign (1) - 1
---------------------------------------------------------------------------------
Total 39 10 58
----------------------------------------------------------------------------------
Federal Income Taxes $ 481 $ 444 $ 342
=================================================================================
</TABLE>
Additional tax benefits attributable to employee stock plans allocated
directly to shareholder's equity for the years ended December 31, 1998, 1997
and 1996 were $17 million, $17 million and $8 million, respectively.
F-24
<PAGE> 139
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The net deferred tax liabilities at December 31, 1998 and 1997 were comprised
of the tax effects of temporary differences related to the following assets
and liabilities:
<TABLE>
<CAPTION>
($ in millions) 1998 1997
---- ----
<S> <C> <C>
Deferred Tax Assets:
Benefit, reinsurance and other reserves $ 616 $ 561
Operating lease reserves 76 80
Other employee benefits 103 102
Other 135 127
----------------------------------------------------------------------------------
Total 930 870
----------------------------------------------------------------------------------
Deferred Tax Liabilities:
Deferred acquisition costs and value of 673 608
insurance in force
Investments, net 489 484
Other 90 87
----------------------------------------------------------------------------------
Total 1,252 1,179
----------------------------------------------------------------------------------
Net Deferred Tax Liability Before Valuation (322) (309)
Allowance
Valuation Allowance for Deferred Tax Assets (100) (100)
----------------------------------------------------------------------------------
Net Deferred Tax Liability After Valuation Allowance $ (422) $ (409)
----------------------------------------------------------------------------------
</TABLE>
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 group 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.
The $100 million valuation allowance is sufficient to cover any capital
losses on investments that may exceed the capital gains able to be generated
in the life insurance group's consolidated federal income tax return based
upon management's best estimate of the character of the reversing temporary
differences. Reversal of the valuation allowance is contingent upon the
recognition of future capital gains or a change in circumstances that causes
the recognition of the benefits to become more likely than not. There was no
change in the valuation allowance during 1998. The initial recognition of any
benefit produced by the reversal of the valuation allowance will be
recognized by reducing goodwill.
At December 31, 1998, the Company had no ordinary or capital loss
carryforwards.
F-25
<PAGE> 140
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The policyholders surplus account, which arose under prior tax law, is
generally that portion of the gain from operations that has not been
subjected to tax, plus certain deductions. The balance of this account is
approximately $932 million. Income taxes are not provided for on this amount
because under current U.S. tax rules such taxes will become payable only to
the extent such amounts are distributed as a dividend to exceed limits
prescribed by federal law. Distributions are not contemplated from this
account. At current rates the maximum amount of such tax would be
approximately $326 million.
12. NET INVESTMENT INCOME
<TABLE>
<CAPTION>
----------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996
---- ---- ----
($ in millions)
----------------------------------------------------------------------
<S> <C> <C> <C>
GROSS INVESTMENT INCOME
Fixed maturities $1,598 $1,460 $1,387
Mortgage loans 295 291 334
Policy loans 131 137 156
Other, including trading 226 238 171
----------------------------------------------------------------------
2,250 2,126 2,048
----------------------------------------------------------------------
Investment expenses 65 89 98
----------------------------------------------------------------------
Net investment income $2,185 $2,037 $1,950
----------------------------------------------------------------------
</TABLE>
13. INVESTMENTS AND INVESTMENT GAINS (LOSSES)
Realized investment gains (losses) for the periods were as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996
---- ---- ----
($ in millions)
----------------------------------------------------------------------
<S> <C> <C> <C>
REALIZED INVESTMENT GAINS
Fixed maturities $111 $71 $(63)
Equity securities 6 (9) 47
Mortgage loans 21 59 49
Real estate held for sale 16 67 33
Other (5) 11 (1)
----------------------------------------------------------------------
Total Realized Investment Gains $149 $199 $65
----------------------------------------------------------------------
</TABLE>
F-26
<PAGE> 141
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Changes in net unrealized investment gains (losses) that are reported as
accumulated other changes in equity from non-owner sources or unrealized
gains on Citigroup stock in shareholder's equity were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996
------- ------- -------
($ in millions)
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UNREALIZED INVESTMENT GAINS (LOSSES)
Fixed maturities $ 91 $ 446 $ (323)
Equity securities 13 25 (35)
Other (169) 520 220
-------------------------------------------------------------------------------------------------
Total Unrealized Investment Gains (Losses) (65) 991 (138)
-------------------------------------------------------------------------------------------------
Related taxes (20) 350 (43)
-------------------------------------------------------------------------------------------------
Change in unrealized investment gains (45) 641 (95)
(losses)
Transferred to paid in capital, net of tax (585) -- --
Balance beginning of year 1,228 587 682
-------------------------------------------------------------------------------------------------
Balance End of Year $ 598 $ 1,228 $ 587
-------------------------------------------------------------------------------------------------
</TABLE>
Included in Other in 1998 is the unrealized loss on Citigroup common stock of
$167 million prior to the conversion to preferred stock. Also included in
Other were unrealized gains of $506 million and $203 million, which were
reported in 1997 and 1996, respectively, related to appreciation of Citigroup
common stock.
Fixed Maturities
Proceeds from sales of fixed maturities classified as available for sale were
$13.4 billion, $7.6 billion and $9.1 billion in 1998, 1997 and 1996,
respectively. Gross gains of $314 million, $170 million and $107 million and
gross losses of $203 million, $99 million and $175 million in 1998, 1997 and
1996, respectively, were realized on those sales.
Fair values of investments in fixed maturities are based on quoted market
prices or dealer quotes or, if these are not available, discounted expected
cash flows using market rates commensurate with the credit quality and
maturity of the investment. The fair value of investments for which a quoted
market price or dealer quote are not available amounted to $4.8 billion and
$5.1 billion at December 31, 1998 and 1997, respectively.
F-27
<PAGE> 142
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The amortized cost and fair value of investments in fixed maturities were as
follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
DECEMBER 31, 1998 GROSS GROSS
($ in millions) AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
Mortgage-backed securities - CMOs and
pass-through securities $ 4,717 $ 147 $ 11 $ 4,853
U.S. Treasury securities and obligations of
U.S. Government and government agencies and
authorities 1,563 186 3 1,746
Obligations of states, municipalities and
political subdivisions 239 18 -- 257
Debt securities issued by foreign governments 634 41 3 672
All other corporate bonds 13,025 532 57 13,500
Other debt securities 2,709 106 38 2,777
Redeemable preferred stock 86 3 1 88
- ---------------------------------------------------------------------------------------------------------
Total Available For Sale $22,973 $ 1,033 $ 113 $23,893
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1997 GROSS GROSS
($ in millions) AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
Mortgage-backed securities - CMOs and
pass-through securities $ 3,842 $ 124 $ 2 $ 3,964
U.S. Treasury securities and obligations of
U.S. Government and government agencies and
authorities 1,580 149 1 1,728
Obligations of states, municipalities and
political subdivisions 78 8 -- 86
Debt securities issued by foreign governments 622 31 4 649
All other corporate bonds 11,787 459 17 12,229
Other debt securities 2,761 88 7 2,842
Redeemable preferred stock 12 1 -- 13
- --------------------------------------------------------------------------------------------------------------
Total Available For Sale $20,682 $ 860 $ 31 $21,511
- --------------------------------------------------------------------------------------------------------------
</TABLE>
F-28
<PAGE> 143
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The amortized cost and fair value of fixed maturities at December 31, 1998, by
contractual maturity, are shown below. Actual maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
($ in millions) AMORTIZED FAIR
COST VALUE
- -----------------------------------------------------------------
<S> <C> <C>
MATURITY:
Due in one year or less $ 1,296 $ 1,305
Due after 1 year through 5 years 6,253 6,412
Due after 5 years through 10 years 5,096 5,310
Due after 10 years 5,611 6,013
- -----------------------------------------------------------------
18,256 19,040
- -----------------------------------------------------------------
Mortgage-backed securities 4,717 4,853
- -----------------------------------------------------------------
Total Maturity $22,973 $23,893
- -----------------------------------------------------------------
</TABLE>
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, 1998 and 1997, the Company held CMOs classified as available for
sale with a fair value of $3.4 billion and $2.1 billion, respectively.
Approximately 54% and 72%, respectively, of the Company's CMO holdings are fully
collateralized by GNMA, FNMA or FHLMC securities at December 31, 1998 and 1997.
In addition, the Company held $1.4 billion and $1.9 billion of GNMA, FNMA or
FHLMC mortgage-backed pass-through securities at December 31, 1998 and 1997,
respectively. Virtually all of these securities are rated AAA.
F-29
<PAGE> 144
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Equity Securities
The cost and fair values of investments in equity securities were as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
EQUITY SECURITIES: GROSS UNREALIZED GROSS UNREALIZED FAIR
($ in millions) COST GAINS LOSSES VALUE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
Common stocks $129 $ 44 $ 3 $170
Non-redeemable preferred stocks 345 10 7 348
- ------------------------------------------------------------------------------------------------
Total Equity Securities $474 $ 54 $ 10 $518
- ------------------------------------------------------------------------------------------------
DECEMBER 31, 1997
Common stocks $179 $ 34 $ 11 $202
Non-redeemable preferred stocks 301 13 4 310
- ------------------------------------------------------------------------------------------------
Total Equity Securities $480 $ 47 $ 15 $512
- ------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales of equity securities were $212 million, $341 million
and $479 million in 1998, 1997 and 1996, respectively. Gross gains of $30
million, $53 million and $64 million and gross losses of $24 million, $62
million and $11 million in 1998, 1997 and 1996, respectively, were realized
on those sales.
Mortgage Loans and Real Estate Held For Sale
At December 31, 1998 and 1997, the Company's mortgage loan and real estate
held for sale portfolios consisted of the following ($ in millions):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C>
Current Mortgage Loans $2,370 $2,866
Underperforming Mortgage Loans 236 3
- ------------------------------------------------------------------------------------
Total Mortgage Loans 2,606 2,869
- ------------------------------------------------------------------------------------
Real Estate Held For Sale - Foreclosed 112 117
Real Estate Held For Sale - Investment 31 17
- ------------------------------------------------------------------------------------
Total Real Estate 143 134
- ------------------------------------------------------------------------------------
Total Mortgage Loans and Real Estate Held for Sale $2,749 $3,003
====================================================================================
</TABLE>
Underperforming mortgage loans include delinquent mortgage loans, loans in the
process of foreclosure, foreclosed loans and loans modified at interest rates
below market.
F-30
<PAGE> 145
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Aggregate annual maturities on mortgage loans at December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
YEAR ENDING DECEMBER 31,
($ in millions)
- -----------------------------------------------------------------------
<S> <C>
Past Maturity $ 186
1999 188
2000 196
2001 260
2002 118
2003 206
Thereafter 1,452
- -----------------------------------------------------------------------
Total $2,606
=======================================================================
</TABLE>
Joint Venture
In October 1997, the Company and Tishman Speyer Properties (Tishman), a
worldwide real estate owner, developer and manager, formed a real estate
joint venture with an initial equity commitment of $792 million. The
Company and certain of its affiliates originally committed $420 million in
real estate equity and $100 million in cash while Tishman originally
committed $272 million in properties and cash. Both companies are serving
as general partners for the venture and Tishman is primarily responsible
for the venture's real estate acquisition and development efforts. The
Company's carrying value of this investment was $252.4 million and $204.8
million at December 31, 1998 and 1997, respectively.
Trading Securities
Trading securities of the Company are held in a subsidiary that is a
broker/dealer, Tribeca Investments L.L.C.
<TABLE>
<CAPTION>
($ in millions)
- -------------------------------------------------------------------------------------
TRADING SECURITIES OWNED 1998 1997
------ ------
<S> <C> <C>
Convertible bond arbitrage $ 754 $ 370
Merger arbitrage 427 352
Other 5 78
- -------------------------------------------------------------------------------------
Total $1,186 $ 800
- -------------------------------------------------------------------------------------
TRADING SECURITIES SOLD NOT YET PURCHASED
Convertible bond arbitrage $ 521 $ 249
Merger arbitrage 352 213
- -------------------------------------------------------------------------------------
Total $ 873 $ 462
- -------------------------------------------------------------------------------------
</TABLE>
The Company's trading portfolio investments and related liabilities are
normally held for periods less than six months. Therefore, expected future
cash flows for these assets and liabilities are expected to be realized in
less than one year.
F-31
<PAGE> 146
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Concentrations
At December 31, 1998 and 1997, the Company had no concentration of credit
risk in a single investee exceeding 10% of consolidated shareholder's
equity.
The Company maintains a short-term investment pool for its insurance
affiliates in which the Company also participates. See Note 9.
Included in fixed maturities are below investment grade assets totaling
$2.1 billion and $1.4 billion at December 31, 1998 and 1997, respectively.
The Company defines its below investment grade assets as those securities
rated "Ba1" or below by external rating agencies, or the equivalent by
internal analysts when a public rating does not exist. Such assets include
publicly traded below investment grade bonds and certain other privately
issued bonds that are classified as below investment grade.
The Company had concentrations of investments, primarily fixed maturities,
in the following industries:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
($ in millions) 1998 1997
-----------------------------------------------------------------------
<S> <C> <C>
Banking $2,131 $2,215
Electric Utilities 1,513 1,377
Finance 1,346 1,556
Asset-Backed Credit Cards 1,013 778
-----------------------------------------------------------------------
</TABLE>
Below investment grade assets included in the preceding table were not
significant.
At December 31, 1998 and 1997, concentrations of mortgage loans of $751
million and $794 million, respectively, were for properties located in
highly populated areas in the state of California.
Other mortgage loan investments are relatively evenly dispersed throughout
the United States, with no significant holdings in any one state.
Significant concentrations of mortgage loans by property type at December
31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------
($ in millions) 1998 1997
------------------------------------------------------------------------
<S> <C> <C>
Office $1,185 $1,382
Agricultural 887 771
------------------------------------------------------------------------
</TABLE>
F-32
<PAGE> 147
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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 insignificant.
Restructured Investments
The Company had mortgage loans and debt securities that were restructured
at below market terms at December 31, 1998 and 1997. The balances of the
restructured investments were insignificant. 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 was insignificant in 1998 and in 1997.
Interest on these assets, included in net investment income was
insignificant in 1998 and 1997.
14. DEPOSIT FUNDS AND RESERVES
At December 31, 1998, the Company had $25.7 billion of life and annuity
deposit funds and reserves. Of that total, $13.8 billion is not subject to
discretionary withdrawal based on contract terms. The remaining $11.9
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 $2.4 billion of liabilities that are
surrenderable with market value adjustments. Also included are an
additional $5.1 billion of life insurance and individual annuity
liabilities which are subject to discretionary withdrawals, and have an
average surrender charge of 4.7%. In the payout phase, these funds are
credited at significantly reduced interest rates. The remaining $4.4
billion of liabilities are surrenderable without charge. More than 14.2% of
these relate to individual life products. These risks would have to be
underwritten again if transferred to another carrier, which is considered a
significant deterrent against withdrawal by long-term policyholders.
Insurance liabilities that are surrendered or withdrawn are reduced by
outstanding policy loans and related accrued interest prior to payout.
F-33
<PAGE> 148
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
15. RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
The following table reconciles net income to net cash provided by operating
activities:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996
---- ---- ----
($ in millions)
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income From Continuing Operations $902 $839 $633
Adjustments to reconcile net income to net cash provided by
operating activities:
Realized gains (149) (199) (65)
Deferred federal income taxes 39 10 58
Amortization of deferred policy acquisition costs and
value of insurance in force 311 293 281
Additions to deferred policy acquisition costs (566) (471) (350)
Investment income accrued (55) 14 2
Premium balances receivable 7 3 (6)
Insurance reserves and accrued expenses 335 131 (1)
Other 51 206 255
--------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 875 826 807
Net cash used in discontinued operations - - (350)
Net cash provided by operations $875 $826 $457
--------------------------------------------------------------------------------------------------------------
</TABLE>
16. NON-CASH INVESTING AND FINANCING ACTIVITIES
Significant non-cash investing and financing activities include the
transfer of Citigroup common stock to Citigroup preferred stock valued at
$987 million in 1998 and the conversion of $119 million of real estate held
for sale to other invested assets as a joint venture in 1997.
F-34
<PAGE> 149
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
17. OPERATING SEGMENTS
The Company has two reportable business segments that are separately managed due
to differences in products, services, marketing strategy and resource
management. The business of each segment is maintained and reported through
separate legal entities within the Company. The management groups of each
segment report separately to the common ultimate parent, Citigroup Inc.
The TRAVELERS LIFE AND ANNUITY business segment consolidates primarily the
business of Travelers Insurance Company and The Travelers Life and Annuity
Company. The Travelers Life and Annuity business segment 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.
The PRIMERICA LIFE business segment consolidates primarily the business of
Primerica Life Insurance Company and National Benefit Life Insurance Company.
The Primerica Life business segment offers individual life products, primarily
term insurance, to customers through a nationwide sales force of approximately
80,000 full and part-time licensed Personal Financial Analysts.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies (see Note 1), except that management
also includes receipts on long-duration contracts (universal life-type and
investment contracts) as deposits along with premiums in measuring business
volume.
BUSINESS SEGMENT INFORMATION:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
TRAVELERS LIFE AND PRIMERICA LIFE
1998 ($ IN MILLIONS) ANNUITY INSURANCE TOTAL
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Business Volume:
Premiums $ 683 $ 1,057 $ 1,740
Deposits 7,693 -- 7,693
------- ------- -------
Total business volume $ 8,376 $ 1,057 $ 9,433
Net investment income 1,965 220 2,185
Interest credited to contractholders 876 -- 876
Amortization of deferred acquisition costs and value of
insurance in force 115 196 311
Federal income taxes on Operating Income 260 170 430
Operating Income (excludes realized gains or losses and
the related FIT) $ 493 $ 312 $ 805
Segment Assets $49,646 $ 6,902 $56,548
</TABLE>
F-35
<PAGE> 150
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
TRAVELERS LIFE AND PRIMERICA LIFE
1997 ($ IN MILLIONS) ANNUITY INSURANCE TOTAL
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Business Volume
Premiums $ 548 $ 1,035 $ 1,583
Deposits 5,276 -- 5,276
------- ------- -------
Total business volume $ 5,824 $ 1,035 $ 6,859
Net investment income 1,836 201 2,037
Interest credited to contractholders 829 -- 829
Amortization of deferred acquisition costs and value of
insurance in force 96 197 293
Federal income taxes on Operating Income 221 153 374
Operating Income (excludes realized gains or losses and
the related FIT) $ 427 $ 283 $ 710
Segment Assets $42,330 $ 7,110 $49,440
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
TRAVELERS LIFE AND PRIMERICA LIFE
1996 ($ IN MILLIONS) ANNUITY INSURANCE TOTAL
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Business Volume:
Premiums $ 357 $ 1,030 $ 1,387
Deposits 3,502 -- 3,502
------- ------- -------
Total business volume $ 3,859 $ 1,030 $ 4,889
Net investment income 1,775 175 1,950
Interest credited to contractholders 863 -- 863
Amortization of deferred acquisition costs and value of
insurance in force 83 198 281
Federal income taxes on Operating Income 189 130 319
Operating Income (excludes realized gains or losses and
the related FIT) $ 356 $ 235 $ 591
Segment Assets $37,564 $ 5,409 $42,973
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The amount of investments in equity method investees and total expenditures for
additions to long-lived assets other than financial instruments, long-term
customer relationships of a financial institution, mortgage and other servicing
rights, deferred policy acquisition costs, and deferred tax assets, were not
material.
F-36
<PAGE> 151
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
BUSINESS SEGMENT RECONCILIATION:
($ in millions)
<TABLE>
<CAPTION>
REVENUES 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Total business volume $ 9,433 $ 6,859 $ 4,889
Net investment income 2,185 2,037 1,950
Realized investment gains 149 199 65
Other revenues 440 354 284
Elimination of deposits (7,693) (5,276) (3,502)
- -------------------------------------------------------------------------------
Total revenues $ 4,514 $ 4,173 $ 3,686
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
OPERATING INCOME 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Total operating income of business segments $805 $710 $591
Realized investment gains net of tax 97 129 42
- --------------------------------------------------------------------------------
Income from continuing operations $902 $839 $633
================================================================================
</TABLE>
<TABLE>
<CAPTION>
ASSETS 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Total assets of business segments $56,548 $49,440 $42,973
================================================================================
</TABLE>
<TABLE>
<CAPTION>
REVENUE BY PRODUCTS 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred Annuities $ 4,198 $ 3,303 $ 2,635
Group and Payout Annuities 5,326 3,737 2,194
Individual Life & Health Insurance 2,270 2,102 1,956
Other (a) 413 307 403
Elimination of deposits (7,693) (5,276) (3,502)
- --------------------------------------------------------------------------------
Total Revenue $ 4,514 $ 4,173 $ 3,686
================================================================================
</TABLE>
(a) Other represents revenue attributable to unallocated capital and run-off
business.
The Company's revenue was derived almost entirely from U.S. domestic business.
Revenue attributable to foreign countries was insignificant.
The Company had no transactions with a single customer representing 10% or more
of its revenue.
F-37
<PAGE> 152
GOLD TRACK
GOLD TRACK SELECT
STATEMENT OF ADDITIONAL INFORMATION
SEPARATE ACCOUNT QP FOR VARIABLE ANNUITIES
Group Variable Annuity Contract
issued by
The Travelers Insurance Company
One Tower Square
Hartford, Connecticut 06183
L-12549S May, 1999
<PAGE> 153
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) The financial statements of the Registrant and the Report of
Independent Accountants thereto are contained in the Registrant's
Annual Report and are incorporated into the Statement of Additional
Information by reference. The financial statements of the Registrant
include:
Statement of Assets and Liabilities as of December 31, 1998
Statement of Operations for the year ended December 31,
1998 Statement of Changes in Net Assets for the year ended
December 31, 1998 and 1997
Statement of Investments as of December 31, 1998 Notes to
Financial Statements
The 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 for the years ended
December 31, 1998, 1997 and 1996
Consolidated Balance Sheets as of December 31, 1998 and
1997
Consolidated Statements of Changes in Retained Earnings and
Accumulated Other Changes in Equity from Non-Owner
Sources for the years ended December 31, 1998, 1997
and 1996
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 Notes to
Consolidated Financial Statements
(b) Exhibits
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 January 11, 1996.)
2. Exempt.
3(a). Distribution and Principal Underwriting Agreement among the
Registrant, The Travelers Insurance Company and CFBDS, Inc.
(Incorporated herein by reference to Exhibit 3(a) to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-4, File No.
333-60227 filed November 9, 1998)
3(b). Selling Agreement. (Incorporated herein by reference to Exhibit 3(b)
to the Registration Statement on Form N-4, filed May 23, 1997.)
(Incorporated herein by reference to Exhibit 3(b) to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-4, File No.
333-60227 filed November 9, 1998)
4. Variable Annuity Contract(s). (Incorporated herein by reference to
Exhibit 4 to the Registration Statement on Form N-4, filed
August 27, 1996.)
5. None.
<PAGE> 154
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. (Incorporated herein by reference to Exhibit 9 to
Post-Effective Amendment No. 3 to the Registration Statement on Form
N-4 filed April 30, 1997.)
10. Consent of KPMG LLP, Independent Certified Public Accountants.
11. Not Applicable.
12. None
13. Schedule for computation of each performance quotation -
Standardized and Non-Standardized. (Incorporated herein be reference
to Exhibit No. 13 to the Post-Effective Amendment No. 2 to the
Registration Statement on Form N-4, filed April 30, 1997.)
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 January 11, 1996.)
15(b). Powers of Attorney authorizing Ernest J. Wright or Kathleen A. McGah
as signatory for Michael A. Carpenter, Jay S. Benet, George C.
Kokulis, Ian R. Stuart, and Katherine M. Sullivan. (Incorporated
herein by reference to Exhibit 15(b) to the Registration Statement
on Form N-4, filed August 27, 1996.)
15(c). Power of Attorney authorizing Ernest J. Wright or Kathleen A. McGah
as signatory for Ian R. Stuart. (Incorporated herein by reference to
Exhibit No. 15(c) to Post-Effective Amendment No. 2 to the
Registration Statement on Form N-4, filed April 30, 1997.)
15(e). Powers of Attorney authorizing Ernest J. Wright or Kathleen A. McGah
as signatory for J. Eric Daniels and Jay S. Benet.
Item 25. Directors and Officers of the Depositor
Michael A. Carpenter** Director, Chairman of the Board
J. Eric Daniels* President and Chief Executive Officer
Jay S. Benet* Director, Senior Vice President
Chief Financial Officer, Chief
Accounting Officer and Controller
George C. Kokulis* Director and Senior Vice President
Robert I. Lipp* Director
Katherine M. Sullivan* Director and Senior Vice President
and General Counsel
Marc P. Weill** Director and Senior Vice President
<PAGE> 155
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
Kathleen Preston* Senior Vice President
David A. Tyson* Senior Vice President
F. Denney Voss* Senior Vice President
Ambrose J. Murphy* Deputy General Counsel
Virginia M. Meany* Vice President
Selig Ehrlich* Vice President and Actuary
Donald R. Munson, Jr.* Second Vice President
Anthony Cocolla Second Vice President
Scott R. Hansen Second Vice President
Ernest J. Wright* Vice President and Secretary
Kathleen A. McGah* Assistant Secretary and Counsel
Principal Business Address:
* The Travelers Insurance Company ** Citigroup Inc.
One Tower Square 388 Greenwich Street
Hartford, CT 06183 New York, N.Y. 10013
*** Travelers Portfolio Group
1345 Avenue of the Americas
New York, NY 10105
Item 26. Persons Controlled by or Under Common Control with the Depositor or
Registrant
Incorporated herein by reference to Exhibit 16 to Post-Effective
Amendment No. 2 to the Registration Statement on Form N-4, File No. 333-27689,
filed April 16, 1999.
Item 27. Number of Contract Owners
As of March 31, 1999, 22,244 contract owners held qualified and non-qualified
contracts offered through the Registrant.
Item 28. Indemnification
Sections 33-770 to 33-778, inclusive of the Connecticut General Statutes
("C.G.S.") regarding indemnification of directors and officers of Connecticut
corporations provides in general that Connecticut corporations shall indemnify
their officers, directors and certain other defined individuals against
judgments, fines, penalties, amounts paid in settlement and reasonable expenses
actually incurred in connection with proceedings against the corporation. The
corporation's obligation to provide such indemnification generally does not
apply unless (1) the individual is wholly successful on
<PAGE> 156
the merits in the defense of any such proceeding; or (2) a determination is made
(by persons specified in the statute) that the individual acted in good faith
and in the best interests of the corporation and in all other cases, his conduct
was at least not opposed to the best interests of the corporation, and in a
criminal case he had no reasonable cause to believe his conduct was unlawful; or
(3) the court, upon application by the individual, determines in view of all of
the circumstances that such person is fairly and reasonably entitled to be
indemnified, and then for such amount as the court shall determine. With respect
to proceedings brought by or in the right of the corporation, the statute
provides that the corporation shall indemnify its officers, directors and
certain other defined individuals, against reasonable expenses actually incurred
by them in connection with such proceedings, subject to certain limitations.
Citigroup Inc. also provides liability insurance for its directors and officers
and the directors and officers of its subsidiaries, including the Registrant.
This insurance provides for coverage against loss from claims made against
directors and officers in their capacity as such, including, subject to certain
exceptions, liabilities under the federal securities laws.
Rule 484 Undertaking
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 29. Principal Underwriter
(a) CFBDS, Inc.
21 Milk Street
Boston, MA 02109
CFBDS, Inc. also serves as principal underwriter for the following:
(a) CFBDS, the Registrant's Distributor, is also the distributor for CitiFundsSM
International Growth & Income Portfolio, CitiFundsSM International Growth
Portfolio, CitiFundsSM U.S. Treasury Reserves, CitiFundsSM Cash Reserves,
CitiFundsSM Premium U.S. Treasury Reserves, CitiFundsSM Premium Liquid Reserves,
CitiFundsSM Institutional U.S. Treasury Reserves, CitiFundsSM Institutional
Liquid Reserves, CitiFundsSM Institutional Cash Reserves, CitiFundsSM Tax Free
Reserves, CitiFundsSM Institutional Tax Free Reserves, CitiFundsSM California
Tax Free Reserves, CitiFundsSM Connecticut Tax Free Reserves, CitiFundsSM New
York Tax Free Reserves, CitiFundsSM New York Tax Free Income Portfolio,
CitiFundsSM National Tax Free Income Portfolio, CitiFundsSM California Tax Free
Income Portfolio, CitiFundsSM Intermediate Income Portfolio, CitiFundsSM
Balanced Portfolio, CitiFundsSM Small Cap Value Portfolio, CitiFundsSM Growth &
Income Portfolio, CitiFundsSM Large Cap Growth Portfolio, CitiFundsSM Small Cap
Growth Portfolio, CitiSelect VIP Folio 200, CitiSelect VIP Folio 300, CitiSelect
VIP Folio 400, CitiSelect VIP Folio 500, CitiFundsSM Small Cap Growth VIP
Portfolio, CitiSelect Folio 200, CitiSelect Folio 300, CitiSelect Folio 400, and
CitiSelect Folio 500. CFBDS is also the placement agent for Large Cap Value
Portfolio, Small Cap Value Portfolio, International Portfolio, Foreign Bond
Portfolio, Intermediate Income Portfolio, Short-Term Portfolio, Growth & Income
Portfolio, U.S. Fixed Income
<PAGE> 157
Portfolio, Large Cap Growth Portfolio, Small Cap Growth Portfolio, International
Equity Portfolio, Balanced Portfolio, Government Income Portfolio, Tax Free
Reserves Portfolio, Cash Reserves Portfolio and U.S. Treasury Reserves
Portfolio. CFBDS also serves as the distributor for the following funds: The
Travelers Fund U for Variable Annuities, The Travelers Fund VA for Variable
Annuities, The Travelers Fund BD for Variable Annuities, The Travelers Fund BD
II for Variable Annuities, The Travelers Fund BD III for Variable Annuities, The
Travelers Fund BD IV for Variable Annuities, The Travelers Fund ABD for Variable
Annuities, The Travelers Fund ABD II for Variable Annuities, The Travelers
Separate Account PF for Variable Annuities, The Travelers Separate Account PF II
for Variable Annuities, The Travelers Separate Account TM for Variable
Annuities, The Travelers Separate Account TM II for Variable Annuities, The
Travelers Separate Account Five for Variable Annuities, The Travelers Separate
Account Six for Variable Annuities, The Travelers Separate Account Seven for
Variable Annuities, The Travelers Separate Account Eight for Variable Annuities,
The Travelers Fund UL for Variable Life Insurance, The Travelers Fund UL II for
Variable Life Insurance, The Travelers Fund UL III for Variable Life Insurance,
The Travelers Variable Life Insurance Separate Account One, The Travelers
Variable Life Insurance Separate Account Two, The Travelers Variable Life
Insurance Separate Account Three, The Travelers Variable Life Insurance Separate
Account Four, The Travelers Separate Account MGA, The Travelers Separate Account
MGA II, The Travelers Growth and Income Stock Account for Variable Annuities,
The Travelers Quality Bond Account for Variable Annuities, The Travelers Money
Market Account for Variable Annuities, The Travelers Timed Growth and Income
Stock Account for Variable Annuities, The Travelers Timed Short-Term Bond
Account for Variable Annuities, The Travelers Timed Aggressive Stock Account for
Variable Annuities, The Travelers Timed Bond Account for Variable Annuities,
Emerging Growth Fund, Government Fund, Growth and Income Fund, International
Equity Fund, Municipal Fund, Balanced Investments, Emerging Markets Equity
Investments, Government Money Investments, High Yield Investments, Intermediate
Fixed Income Investments, International Equity Investments, International Fixed
Income Investments, Large Capitalization Growth Investments, Large
Capitalization Value Equity Investments, Long-Term Bond Investments, Mortgage
Backed Investments, Municipal Bond Investments, Small Capitalization Growth
Investments, Small Capitalization Value Equity Investments, Appreciation
Portfolio, Diversified Strategic Income Portfolio, Emerging Growth Portfolio,
Equity Income Portfolio, Equity Index Portfolio, Growth & Income Portfolio,
Intermediate High Grade Portfolio, International Equity Portfolio, Money Market
Portfolio, Total Return Portfolio, Smith Barney Adjustable Rate Government
Income Fund, Smith Barney Aggressive Growth Fund Inc., Smith Barney Appreciation
Fund, Smith Barney Arizona Municipals Fund Inc., Smith Barney California
Municipals Fund Inc., Balanced Portfolio, Conservative Portfolio, Growth
Portfolio, High Growth Portfolio, Income Portfolio, Global Portfolio, Select
Balanced Portfolio, Select Conservative Portfolio, Select Growth Portfolio,
Select High Growth Portfolio, Select Income Portfolio, Concert Social Awareness
Fund, Smith Barney Large Cap Blend Fund, Smith Barney Fundamental Value Fund
Inc., Large Cap Value Fund, Short-Term High Grade Bond Fund, U.S. Government
Securities Fund, Smith Barney Balanced Fund, Smith Barney Convertible Fund,
Smith Barney Diversified Strategic Income Fund, Smith Barney Exchange Reserve
Fund, Smith Barney High Income Fund, Smith Barney Municipal High Income Fund,
Smith Barney Premium Total Return Fund, Smith Barney Total Return Bond Fund,
Cash Portfolio, Government Portfolio, Municipal Portfolio, Concert Peachtree
Growth Fund, Smith Barney Contrarian Fund, Smith Barney Government Securities
Fund, Smith Barney Hansberger Global Small Cap Value Fund, Smith Barney
Hansberger Global Value Fund, Smith Barney Investment Grade Bond Fund, Smith
Barney Special Equities Fund, Smith Barney Intermediate Maturity California
Municipals Fund, Smith Barney Intermediate Maturity New York Municipals Fund,
Smith Barney Large Capitalization Growth Fund, Smith Barney S&P 500 Index Fund,
Smith Barney Mid Cap Blend Fund, Smith Barney Managed Governments Fund Inc.,
Smith Barney Managed Municipals Fund Inc., Smith Barney Massachusetts Municipals
Fund, Cash Portfolio, Government Portfolio, Retirement Portfolio, California
Money Market Portfolio, Florida Portfolio, Georgia Portfolio, Limited Term
Portfolio, New York Money Market Portfolio, New York Portfolio, Pennsylvania
Portfolio, Smith Barney Municipal Money Market Fund, Inc., Smith Barney Natural
Resources Fund Inc., Smith Barney New Jersey Municipals Fund Inc., Smith Barney
Oregon Municipals Fund, Zeros Plus Emerging Growth Series 2000, Smith Barney
Security and Growth Fund, Smith Barney Small Cap Blend Fund, Inc., Smith Barney
Telecommunications Income Fund, Income and Growth Portfolio, Reserve Account
Portfolio, U.S.
<PAGE> 158
Government/High Quality Securities Portfolio, Emerging Markets Portfolio,
European Portfolio, Global Government Bond Portfolio, International Balanced
Portfolio, International Equity Portfolio, Pacific Portfolio, AIM Capital
Appreciation Portfolio, Alliance Growth Portfolio, GT Global Strategic Income
Portfolio, MFS Total Return Portfolio, Putnam Diversified Income Portfolio,
Smith Barney High Income Portfolio, Smith Barney Large Cap Value Portfolio,
Smith Barney International Equity Portfolio, Smith Barney Large Capitalization
Growth Portfolio, Smith Barney Money Market Portfolio, Smith Barney Pacific
Basin Portfolio, TBC Managed Income Portfolio, Van Kampen American Capital
Enterprise Portfolio, Centurion Tax-Managed U.S. Equity Fund, Centurion
Tax-Managed International Equity Fund, Centurion U.S. Protection Fund, Centurion
International Protection Fund, Global High-Yield Bond Fund, International Equity
Fund, Emerging Opportunities Fund, Core Equity Fund, Long-Term Bond Fund, Global
Dimensions Fund L.P., Citicorp Private Equity L.P., AIM V.I. Capital
Appreciation Fund, AIM V.I. Government Series Fund, AIM V.I. Growth Fund, AIM
V.I. International Equity Fund, AIM V.I. Value Fund, Fidelity VIP Growth
Portfolio, Fidelity VIP High Income Portfolio, Fidelity VIP Equity Income
Portfolio, Fidelity VIP Overseas Portfolio, Fidelity VIP II Contrafund
Portfolio, Fidelity VIP II Index 500 Portfolio, MFS World Government Series, MFS
Money Market Series, MFS Bond Series, MFS Total Return Series, MFS Research
Series, MFS Emerging Growth Series, Salomon Brothers Institutional Money Market
Fund, Salomon Brothers Cash Management Fund, Salomon Brothers New York Municipal
Money Market Fund, Salomon Brothers National Intermediate Municipal Fund,
Salomon Brothers U.S. Government Income Fund, Salomon Brothers High Yield Bond
Fund, Salomon Brothers Strategic Bond Fund, Salomon Brothers Total Return Fund,
Salomon Brothers Asia Growth Fund, Salomon Brothers Capital Fund Inc, Salomon
Brothers Investors Fund Inc, Salomon Brothers Opportunity Fund Inc, Salomon
Brothers Institutional High Yield Bond Fund, Salomon Brothers Institutional
Emerging Markets Debt Fund, Salomon Brothers Variable Investors Fund, Salomon
Brothers Variable Capital Fund, Salomon Brothers Variable Total Return Fund,
Salomon Brothers Variable High Yield Bond Fund, Salomon Brothers Variable
Strategic Bond Fund, Salomon Brothers Variable U.S. Government Income Fund, and
Salomon Brothers Variable Asia Growth Fund.
(b) The information required by this Item 29 with respect to each director and
officer of CFBDS, Inc. is incorporated by reference to Schedule A of Form BD
filed by CFBDS pursuant to the Securities and Exchange Act of 1934 (File No.
8-32417).
(c) Not Applicable.
Item 30. Location of Accounts and Records
The Travelers Insurance Company
One Tower Square
Hartford, Connecticut 06183
Item 31. Management Services
Not applicable.
<PAGE> 159
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:
(d) 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> 160
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 post-effective amendment to this
registration statement and has duly caused this post-effective amendment to this
registration statement to be signed on its behalf in the City of Hartford, State
of Connecticut, on 23rd day of April 1999.
THE TRAVELERS SEPARATE ACCOUNT QP FOR VARIABLE ANNUITIES
(Registrant)
THE TRAVELERS INSURANCE COMPANY
(Depositor)
By: *JAY S. BENET
-------------------------------------------------
Jay S. Benet
Senior Vice President, Chief Financial Officer
Chief Accounting Officer and Controller
As required by the Securities Act of 1933, this post-effective amendment to this
registration statement has been signed by the following persons in the
capacities indicated on the 23rd day of April 1999.
<TABLE>
<S> <C>
*MICHAEL A. CARPENTER Director and Chairman of the Board
- ---------------------------------
(Michael A. Carpenter)
*J. ERIC DANIELS Director, President and Chief Executive Officer
- ---------------------------------
(J. Eric Daniels)
*JAY S. BENET Director, Senior Vice President, Chief
- --------------------------------- Financial Officer, Chief Accounting Officer
(Jay S. Benet) and Controller
*GEORGE C. KOKULIS Director
- ---------------------------------
(George C. Kokulis
*ROBERT I. LIPP Director
- ---------------------------------
(Robert I. Lipp)
*KATHERINE M. SULLIVAN Director, Senior Vice President and
- --------------------------------- General Counsel
(Katherine M. Sullivan)
*MARC P. WEILL Director
- ---------------------------------
(Marc P. Weill)
</TABLE>
*By: /s/Ernest J. Wright, Attorney-in-Fact
<PAGE> 161
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
- --- ----------- ----------------
<S> <C> <C>
10. Consent of KPMG LLP, Independent Certified Electronically
Public Accountants.
15(d). Powers of Attorney authorizing Ernest J. Wright or Kathleen A. Electronically
McGah as signatory for J. Eric Daniels and Jay S. Benet.
</TABLE>
<PAGE> 1
Consent of Independent Certified Public Accountants
The Board of Directors
The Travelers Insurance Company
We consent to the use of our reports included herein or incorporated herein by
reference and to the reference to our firm as experts under the heading
"Independent Accountants."
KPMG LLP
Hartford, Connecticut
April 26, 1999
<PAGE> 1
THE TRAVELERS SEPARATE ACCOUNT QP FOR VARIABLE ANNUITIES
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, J. ERIC DANIELS of Farmington, Connecticut, Director,
President and Chief Executive Officer of The Travelers Insurance Company
(hereafter the "Company"), do hereby make, constitute and appoint ERNEST J.
WRIGHT, Secretary of said Company, and KATHLEEN A. McGAH, Assistant Secretary of
said Company, or either one of them acting alone, my true and lawful
attorney-in-fact, for me, and in my name, place and stead, to sign registration
statements on behalf of said Company on Form N-4 or other appropriate form under
the Securities Act of 1933 and the Investment Company Act of 1940 for The
Travelers Separate Account QP for Variable Annuities, a separate account of the
Company dedicated specifically to the funding of variable annuity contracts to
be offered by said Company, and further, to sign any and all amendments thereto,
including post-effective amendments, that may be filed by the Company on behalf
of said registrant.
IN WITNESS WHEREOF, I have hereunto set my hand this 15th day of
January 1999.
/s/ J. Eric Daniels
Director, President and Chief Executive Officer
The Travelers Insurance Company
<PAGE> 2
THE TRAVELERS SEPARATE ACCOUNT QP FOR VARIABLE ANNUITIES
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, JAY S. BENET of West Hartford, Connecticut, Director, Senior
Vice President and Chief Financial Officer, Chief Accounting Officer and
Controller of The Travelers Insurance Company (hereafter the "Company"), do
hereby make, constitute and appoint ERNEST J. WRIGHT, Secretary of said Company,
and KATHLEEN A. McGAH, Assistant Secretary of said Company, or either one of
them acting alone, my true and lawful attorney-in-fact, for me, and in my name,
place and stead, to sign registration statements on behalf of said Company on
Form N-4 or other appropriate form under the Securities Act of 1933 and the
Investment Company Act of 1940 for The Travelers Separate Account QP for
Variable Annuities, a separate account of the Company dedicated specifically to
the funding of variable annuity contracts to be offered by said Company, and
further, to sign any and all amendments thereto, including post-effective
amendments, that may be filed by the Company on behalf of said registrant.
IN WITNESS WHEREOF, I have hereunto set my hand this 15th day of
January 1999.
/s/ Jay S. Benet
Director, Senior Vice President
Chief Financial Officer,
Chief Accounting Officer and Controller
The Travelers Insurance Company
