<PAGE> 1
Registration Statement No. 333-27687
811-08223
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. 1
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Pre-Effective Amendment No. 1
THE TRAVELERS FUND BD IV FOR VARIABLE ANNUITIES
-----------------------------------------------
(Exact name of Registrant)
THE TRAVELERS LIFE AND ANNUITY COMPANY
--------------------------------------
(Name of Depositor)
ONE TOWER SQUARE, HARTFORD, CONNECTICUT 06183
---------------------------------------------
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number, including area code: (860) 277-0111
---------------
ERNEST J. WRIGHT
The Travelers Life and Annuity Company
One Tower Square
Hartford, Connecticut 06183
---------------------------
(Name and Address of Agent for Service)
<TABLE>
<S> <C>
Approximate Date of Proposed As soon as practicable following the effectiveness
Public Offering: of the Registration Statement.
</TABLE>
It is proposed that this filing will become effective (check appropriate box):
N/A immediately upon filing pursuant to paragraph (b) of Rule 485.
- ----
N/A on ___________ pursuant to paragraph (b) of Rule 485.
- ----
N/A 60 days after filing pursuant to paragraph (a)(1) of Rule 485.
- ----
N/A on ___________ pursuant to paragraph (a)(1) of Rule 485.
- ----
If appropriate, check the following box:
this post-effective amendment designates a new effective date for a
- ---- previously filed post-effective amendment.
PURSUANT TO RULE 24f-2 OF THE INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT
HEREBY DECLARES THAT AN INDEFINITE AMOUNT OF VARIABLE ANNUITY CONTRACT UNITS IS
BEING REGISTERED UNDER THE SECURITIES ACT OF 1933.
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
<PAGE> 2
THE TRAVELERS FUND BD IV FOR VARIABLE ANNUITIES
Cross-Reference Sheet
Form N-4
<TABLE>
<CAPTION>
Item
No. Caption in Prospectus
- --- ---------------------
<S> <C>
1. Cover Page Prospectus
2. Definitions Index of Special Terms
3. Synopsis Prospectus Summary
4. Condensed Financial Information Condensed Financial Information
5. General Description of Registrant, The Insurance Company; The Separate
Depositor, and Portfolio Companies Account and the Underlying Funds
6. Deductions Charges and Deductions; Distribution of
Variable Annuity Contracts
7. General Description of Variable The Annuity Contract
Annuity Contracts
8. Annuity Period The Annuity Period
9. Death Benefit Death Benefit
10. Purchases and Contract Value The Contract; Distribution of Variable Annuity
Contract
11. Redemptions Surrenders and Redemptions
12. Taxes Federal Tax Considerations
13. Legal Proceedings Legal Proceedings and Opinions
14. able of Contents of Statement Appendix B - Contents of the Statement
of Additional Information of Additional Information
Caption in Statement of Additional
Information
----------------------------------------
15. Cover Page Cover Page
16. Table of Contents Table of Contents
17. General Information and History The Insurance Company
18. Services Principal Underwriter; Distribution and
Management Agreement
19. Purchase of Securities Being Offered Valuation of Assets
20. Underwriters Principal Underwriter
21. Calculation of Performance Data Performance Information
22. Annuity Payments Not Applicable
23. Financial Statements Financial Statements
</TABLE>
<PAGE> 3
PART A
Information Required in a Prospectus
<PAGE> 4
TRAVELERS INDEX ANNUITY
This prospectus describes THE TRAVELERS INDEX ANNUITY, a single premium variable
annuity contract (the "Contract") issued by The Travelers Life and Annuity
Company (the "Company," "us" or "we"). The Contract is available in connection
with certain retirement plans that qualify for special federal income tax
treatment (such as IRAs) as well as those that do not qualify for such treatment
("nonqualified Contracts"). Travelers Index Annuity is issued as an individual
Contract or as a group Contract. In states where only group Contracts are
available, you will be issued a certificate summarizing the provisions of the
group Contract. For convenience, this prospectus refers to both Contracts and
certificates as "Contracts."
You can choose to have your premium (purchase payment) accumulate on a fixed
basis (i.e. a Fixed Option funded through the Company's general account) and/or
a variable basis (i.e., one or more of the sub-accounts ("funding options")) of
the Travelers Fund BD IV for Variable Annuities ("Fund BD IV"). Your contract
value will vary daily to reflect the investment experience of the funding
options you select and any interest credited to the Fixed Option. The variable
funding options currently available are: the EAFE(R) Equity Index Fund and the
Small Cap Index Fund of the BT Insurance Funds Trust, the Equity Index Portfolio
of the Greenwich Street Series Fund and Cash Income Trust.
The Fixed Option is described in Appendix A. Unless specified otherwise, this
prospectus refers to the variable funding options. The Contracts and/or some of
the funding options may not be available in all states. THIS PROSPECTUS IS VALID
ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES FOR THE VARIABLE FUNDING
OPTIONS. THESE PROSPECTUSES SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
In addition, you can choose to protect your investment by purchasing a guarantee
from the Company called the Principal Protection Feature. If purchased, we will
guarantee that on the Principal Protection Expiration Date (the last day of the
eighth Contract Year), your Contract will be worth at least either 115%, 100%,
or 90%, depending on your selection, of your Purchase Payment adjusted for
withdrawal reductions, even if the value of your Contract on that date is less
than the chosen percentage of your original payment. To qualify for the
Principal Protection Feature, you must allocate your original payment to the
Protected Funding Option -- Equity Index Portfolio -- and keep your payment in
that funding option until the Principal Protection Expiration Date. There is a
separate charge for this feature.
This prospectus provides the information that you should know before investing
in the Contract. You can receive additional information about Fund BD IV by
requesting a copy of the Statement of Additional Information ("SAI") dated
, 1997. The SAI has been filed with the Securities and Exchange
Commission ("SEC") and is incorporated by reference into this prospectus. To
request a copy, write to The Travelers Life and Annuity Company, Annuity
Services, One Tower Square, Hartford, Connecticut 06183, or call (800) 842-8573.
The Table of Contents of the SAI appears in Appendix B of this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
VARIABLE ANNUITY CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR ENDORSED OR
GUARANTEED BY ANY BANK, NOR ARE THEY FEDERALLY INSURED OR OTHERWISE PROTECTED BY
THE FDIC, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY; THEY ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL INVESTMENT.
PROSPECTUS DATED , 1997
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<S> <C>
INDEX OF SPECIAL TERMS................. 2
FEE TABLES............................. 3
THE ANNUITY CONTRACT................... 6
Purchase Payments...................... 6
Accumulation Units..................... 6
The Funding Options.................... 6
Optional Principal Protection
Feature.............................. 7
Principal Protection Expiration Date... 7
Substitutions and Additions............ 8
CHARGES AND DEDUCTIONS................. 8
Withdrawal Charge...................... 8
Free Withdrawal Allowance.............. 8
Optional Principal Protection Fee...... 8
Principal Protection Cancellation Charge .. 9
Administrative Charges................. 9
Mortality and Expense Risk Charge...... 10
Reduction or Elimination of Contract
Charges.............................. 10
Funding Option Expenses................ 10
Premium Tax............................ 10
Changes in Taxes Based Upon Premium or
Value................................ 10
OWNERSHIP PROVISIONS................... 10
Types of Ownership..................... 10
Beneficiary............................ 11
Annuitant.............................. 11
TRANSFERS.............................. 11
Dollar Cost Averaging.................. 11
ACCESS TO YOUR MONEY................... 12
Systematic Withdrawals................. 12
DEATH BENEFIT.......................... 13
Standard Death Benefit................. 13
Enhanced Death Benefit................. 13
Payment of Proceeds.................... 14
Death Proceeds After the Maturity
Date................................. 14
THE ANNUITY PERIOD..................... 15
Maturity Date.......................... 15
Allocation of Annuity.................. 15
Variable Annuity....................... 15
Fixed Annuity.......................... 16
PAYMENT OPTIONS........................ 16
Election of Options.................... 16
Annuity Options........................ 16
MISCELLANEOUS CONTRACT PROVISIONS...... 17
Right to Return........................ 17
Termination............................ 17
Required Reports....................... 18
Suspension of Payments................. 18
Transfers of Contract Values to Other
Annuities............................ 18
THE SEPARATE ACCOUNT................... 18
Mixed and Shared Funding............... 18
Performance Information................ 19
FEDERAL TAX CONSIDERATIONS............. 20
General Taxation of Annuities.......... 20
Types of Contracts: Qualified or
Nonqualified......................... 20
Nonqualified Annuity Contracts......... 20
Qualified Annuity Contracts............ 21
Penalty Tax for Premature
Distributions........................ 21
Ownership of the Investments........... 21
Diversification Requirements........... 21
OTHER INFORMATION...................... 21
The Insurance Company.................. 21
Distribution of Variable Annuity
Contracts............................ 21
Conformity with State and Federal
Laws................................. 22
Voting Rights.......................... 22
Legal Proceedings And Opinions......... 22
APPENDIX A: The Fixed Account.......... 23
APPENDIX B: Table of Contents of the
Statement of Additional
Information.......................... 24
</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...................... 6
Annuitant.............................. 11
Annuity Payments....................... 15
Annuity Unit........................... 6
Cash Surrender Value................... 12
Company (We, Our)...................... 6
Contract Date.......................... 6
Contract Owner (You, Your)............. 10
Contract Value......................... 6
Contract Year.......................... 6
Fixed Account Option................... 23
Funding Option(s)...................... 6
Maturity Date.......................... 6
Principal Protection Expiration Date... 7
Principal Protection Feature........... 7
Purchase Payment....................... 6
Written Request........................ 6
</TABLE>
2
<PAGE> 6
FEE TABLE
- --------------------------------------------------------------------------------
CONTRACT OWNER TRANSACTION EXPENSES
<TABLE>
<S> <C>
WITHDRAWAL CHARGE (as a percentage of original purchase payment withdrawn):
LENGTH OF TIME FROM PURCHASE PAYMENT
</TABLE>
<TABLE>
<CAPTION>
(NUMBER OF YEARS) CHARGE
<S> <C>
1 6%
2 6%
3 5%
4 5%
5 4%
6 4%
7 3%
8 2%
9 and over 0%
ANNUAL CONTRACT ADMINISTRATIVE CHARGE
(Waived if contract value is $50,000 or more) $30
ANNUAL SEPARATE ACCOUNT CHARGES:
(as a percentage of the average daily net assets of the Separate Account)
</TABLE>
<TABLE>
<CAPTION>
STANDARD ENHANCED
DEATH DEATH
BENEFIT BENEFIT
------------------
<S> <C> <C>
Mortality and Expense Risk Charge...................................................... 1.25% 1.45%
Administrative Charge.................................................................. 0.15% 0.15%
-------- --------
Total Separate Account Charges....................................................... 1.40% 1.60%
FUNDING OPTION EXPENSES:
(as a percentage of average daily net assets of the Funding Option)
</TABLE>
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
FEE EXPENSES FUNDING
(AFTER EXPENSES (AFTER EXPENSES OPTION
PORTFOLIO NAME ARE REIMBURSED) ARE REIMBURSED) EXPENSES
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Small Cap Index Fund 0.35% 0.10% 0.45%
EAFE Equity Index Fund 0.45% 0.20% 0.65%
Equity Index Portfolio 0.15% 0.15% 0.30%
Cash Income Trust 0.32% 0.28%(*) 0.60%
</TABLE>
NOTES:
The purpose of the Fee Table is to assist contract owners in understanding the
various costs and expenses that a contract owner will bear, directly or
indirectly. See "Charges and Deductions" in this prospectus for additional
information. Expenses shown do not include premium taxes, which may be
applicable.
* Includes a Sub-Administrator Charge of .06%. Other Expenses take into account
the current expense reimbursement arrangement with the Company. The Company
has agreed to reimburse the Fund for the amount by which its aggregate
expenses (including the management fee, but excluding brokerage commissions,
interest charges and taxes) exceeds 0.60%. Without such arrangement, Other
Expenses would have been 1.71% for Cash Income Trust.
3
<PAGE> 7
EXAMPLE*
STANDARD DEATH BENEFIT
Assuming a 5% annual return, a $1,000 investment would be subject to the
following expenses, if
(a) surrendered, annuitized or withdrawn at the end of the period shown, or
(b) if no withdrawals are made at the end of the period shown.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
PORTFOLIO NAME 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Small Cap Index Fund $ 79(a) $ 109(a) n/a n/a
19(b) 59(b) n/a n/a
EAFE Index Fund 81(a) 115(a) n/a n/a
21(b) 65(b) n/a n/a
Equity Index Portfolio 77(a) 104(a) n/a n/a
17(b) 54(b) n/a n/a
Cash Income Trust 81(a) 113(a) 149(a) 235(a)
21(b) 63(b) 109(b) 235(b)
</TABLE>
* THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE REFLECTS THE $30 ANNUAL CONTRACT ADMINISTRATIVE CHARGE AS AN ANNUAL
CHARGE OF .021% OF ASSETS. FOR NEW FUNDING OPTIONS, EXPENSES ARE GIVEN ONLY
FOR YEARS ONE AND THREE.
EXAMPLE*
ENHANCED DEATH BENEFIT
Assuming a 5% annual return, a $1,000 investment would be subject to the
following expenses, if
(a) surrendered, annuitized or withdrawn at the end of the period shown, or
(b) if no withdrawals are made at the end of the period shown.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
PORTFOLIO NAME 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Small Cap Index Fund $ 81(a) $ 115(a) n/a n/a
21(b) 65(b) n/a n/a
EAFE Index Fund 83(a) 121(a) n/a n/a
23(b) 71(b) n/a n/a
Equity Index Portfolio 80(a) 110(a) n/a n/a
20(b) 60(b) n/a n/a
Cash Income Trust 83(a) 119(a) 159(a) 256(b)
23(b) 69(b) 119(b) 256(b)
</TABLE>
* THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE REFLECTS THE $30 ANNUAL CONTRACT ADMINISTRATIVE CHARGE AS AN ANNUAL
CHARGE OF .021% OF ASSETS. FOR NEW FUNDING OPTIONS, EXPENSES ARE GIVEN ONLY
FOR YEARS ONE AND THREE.
4
<PAGE> 8
FEE TABLE WITH PRINCIPAL PROTECTION FEATURE
- --------------------------------------------------------------------------------
CONTRACT OWNER TRANSACTION EXPENSES
<TABLE>
<S> <C>
WITHDRAWAL CHARGE (as a percentage of original purchase payment withdrawn):
LENGTH OF TIME FROM PURCHASE PAYMENT
</TABLE>
<TABLE>
<CAPTION>
(NUMBER OF YEARS) CHARGE
<S> <C>
1 6%
2 6%
3 5%
4 5%
5 4%
6 4%
7 3%
8 2%
9 and over 0%
ANNUAL CONTRACT ADMINISTRATIVE CHARGE
(Waived if contract value is $50,000 or more) $30
PRINCIPAL PROTECTION CANCELLATION CHARGE
(as a percentage of purchase payment withdrawn from Protected Funding Option):
</TABLE>
<TABLE>
<CAPTION>
CONTRACT YEARS CHARGE
<S> <C>
1 -- 8 up to 4%
ANNUAL SEPARATE ACCOUNT CHARGES:
(as a percentage of the average daily net assets of the Separate Account)
</TABLE>
<TABLE>
<CAPTION>
STANDARD ENHANCED
DEATH DEATH
BENEFIT BENEFIT
------------------
<S> <C> <C>
Mortality and Expense Risk Charge...................................................... 1.25% 1.45%
Principal Protection Fee (maximum)(1).................................................. 2.00% 2.00%
Administrative Charge.................................................................. 0.15% 0.15%
-------- --------
Total Separate Account Charges....................................................... 3.40% 3.60%
FUNDING OPTION EXPENSES:
(as a percentage of average daily net assets of the Funding Option)
</TABLE>
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
FEE EXPENSES FUNDING
(AFTER EXPENSES (AFTER EXPENSES OPTION
PORTFOLIO NAME ARE REIMBURSED) ARE REIMBURSED) EXPENSES
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Equity Index Portfolio 0.15% 0.15% 0.30%
</TABLE>
NOTES:
(1) The Principal Protection Fee is an annual insurance change that varies with
the level of guarantee chosen under the Principal Protection Feature. The
maximum Principal Protection Fee is 2.00% annually.
The purpose of the Fee Table is to assist contract owners in understanding
the various costs and expenses that a contract owner will bear, directly or
indirectly. See "Charges and Deductions" in this prospectus for additional
information. Expenses shown do not include premium taxes, which may be
applicable.
EXAMPLE*
Assuming a 5% annual return, a $1,000 investment would be subject to the
following expenses, if
(a) surrendered, annuitized or withdrawn at the end of the period shown, or
(b) if no withdrawals are made at the end of the period shown.
<TABLE>
<CAPTION>
STANDARD DEATH BENEFIT ENHANCED DEATH BENEFIT
- -----------------------------------------------------------------------------------------------------
PORTFOLIO NAME 1 YEAR 3 YEARS 1 YEAR 3 YEARS
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Equity Index Portfolio $ 137(a) $ 204(a) $ 139(a) $ 210(a)
37(b) 114(b) 39(b) 120(b)
</TABLE>
* THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE REFLECTS THE $30 ANNUAL CONTRACT ADMINISTRATIVE CHARGE AS AN ANNUAL
CHARGE OF .021% OF ASSETS. FOR NEW FUNDING OPTIONS, EXPENSES ARE GIVEN ONLY
FOR YEARS ONE AND THREE.
5
<PAGE> 9
THE ANNUITY CONTRACT
- --------------------------------------------------------------------------------
Travelers Index Annuity is a contract between you, the contract owner, and
Travelers Life and Annuity Company (called "us" or the "Company"). Under this
contract, you make a purchase payment to us and we credit it to your account.
The Company promises to pay you an income, in the form of annuity payments,
beginning on a future date that you choose, the maturity date. The purchase
payment accumulates tax deferred in the funding options of your choice. We offer
multiple variable funding options, and one fixed account option. The contract
owner assumes the risk of gain or loss according to the performance of the
variable funding options. The contract value is the amount of purchase payments,
plus or minus any investment experience or interest. The contract value also
reflects all surrenders made and charges deducted. There is generally no
guarantee that at the maturity date the contract value will equal or exceed the
total purchase payments made under the Contract, except as noted under the
Principal Protection Feature provisions and under the Death Benefit provisions
described in this prospectus. The date the Contract and its benefits became
effective is referred to as the contract date. Each anniversary of this contract
date is called a contract year.
Certain changes and elections must be made in writing to the Company. Where the
term "written request" is used, it means that written information must be sent
to the Company's Home Office in a form and content satisfactory to us.
PURCHASE PAYMENT
The single purchase payment must be at least $10,000. Under certain
circumstances, we may waive the minimum purchase payment requirement. For a
single purchase payment over $1 million, you must receive the Company's Home
Office approval before we will accept the purchase payments.
We will apply the single purchase payment within two business days after we
receive it in good order at our Home Office. Our business day ends when the New
York Stock Exchange closes, usually 4:00 p.m. Eastern time.
ACCUMULATION UNITS
An accumulation unit is used to calculate the value of a Contract. An
accumulation unit works like a share of a mutual fund. Each funding option has a
corresponding accumulation unit value. The accumulation units are valued each
business day and may increase or decrease from day to day. The number of
accumulation units we will credit to your Contract once we receive a purchase
payment is determined by dividing the amount directed to each funding option by
the value of the accumulation unit. We calculate the value of an accumulation
unit for each funding option each day after the New York Stock Exchange closes.
After the value is calculated, your account is credited. During the annuity
period (i.e., after the maturity date), you are credited with annuity units.
FUNDING OPTIONS
You choose which of the following variable funding options to have your purchase
payment allocated to. You will find detailed information about the options and
their inherent risks in the current prospectuses for the funding options which
must accompany this prospectus. Since each option has varying degrees of risk,
please read the prospectuses carefully before investing. Additional copies of
the prospectuses may be obtained by contacting your registered representative or
by calling 1-800-842-8573.
6
<PAGE> 10
The current funding options are listed below, along with their investment
advisers:
<TABLE>
<CAPTION>
- -------------------------------------------------------
<S> <C>
FUNDING OPTION INVESTMENT ADVISER
<CAPTION>
- -------------------------------------------------------
<S> <C>
Small Cap Index Fund Bankers Trust
- -------------------------------------------------------
EAFE Equity Index Fund Bankers Trust
- -------------------------------------------------------
Equity Index Portfolio* Travelers Investment
Management Co.
- -------------------------------------------------------
Cash Income Trust Travelers Asset Management
International Corp.
- -------------------------------------------------------
</TABLE>
* IF ELECTED WITH THE PRINCIPAL PROTECTION FEATURE, THIS IS REFERRED TO AS THE
"PROTECTED FUNDING OPTION."
OPTIONAL PRINCIPAL PROTECTION FEATURE
You can choose to protect your investment by purchasing a guarantee called the
Principal Protection Feature. If you purchase this feature, the Company will
guarantee that on the Principal Protection Expiration Date (which is the last
day of the eighth Contract Year), your Contract will be worth at least either
115%, 100%, or 90% (depending on the guarantee you purchased) of your original
purchase payment adjusted only for withdrawal reductions (including the
Principal Protection Cancellation Charge), even if the value of your Contract on
that date is less than your original payment. The purchase payment is not
adjusted for administrative charges and mortality and expense risk charges. To
qualify for the Principal Protection Feature, you must select this feature when
you purchase the Contract, allocate your entire purchase payment to the
Protected Funding Option, the Equity Index Portfolio, and keep your payment in
that funding option until the Principal Protection Expiration Date. An annual
insurance charge and a Cancellation Charge are associated with this feature.
(See "Charges and Deductions").
At this time, the only Protected Funding Option is Equity Index Portfolio. At
some time in the future, we may add additional Protected Funding Options.
If you buy the Principal Protection Feature, you may not transfer out of the
Protected Funding Option before the end of the eighth contract year. You may
withdraw or annuitize all or part of your contract value before the Principal
Protection Expiration Date, subject to a Principal Protection Cancellation
Charge and withdrawal charges. The amounts you withdraw (including the
withdrawal charge and Principal Protection Cancellation Charge) will reduce the
amount of the principal guarantee proportionately.
PRINCIPAL PROTECTION EXPIRATION DATE
If you purchase the Principal Protection Feature, the Company will fulfill its
obligations under that feature on the Principal Protection Expiration Date
(which is the last day of the eighth contract year). On that date, we will
contribute to your contract value any amount needed to bring your contract value
up to 115%, 100% or 90%, depending on your selection, of your original payment
adjusted for withdrawal reductions. In addition, on the Principal Protection
Expiration Date, we will transfer your contract value to the Cash Income Trust,
a money market fund, unless you select, in writing a different funding option.
On and after the Principal Protection Expiration Date, you may remain in the
Contract and transfer to any funding options, purchase a new Travelers Index
Annuity Contract with the Principal Protection Feature, annuitize your Contract,
exchange this Contract for another annuity contract, or withdraw your contract
value. Your registered representative will help you with your decision.
SUBSTITUTIONS AND ADDITIONS
If any of the funding options become unavailable under the Contract, or if we
believe that further investment in a funding option is inappropriate for the
purposes of the Contract, we may substitute another funding option. However, we
will not make any substitutions without notifying you, obtaining state approval
if applicable, and without prior approval of the SEC, to the extent required
7
<PAGE> 11
by the 1940 Act or other applicable law. From time to time we may make new
funding options available.
CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
WITHDRAWAL CHARGE
No sales charges are deducted from the purchase payment when it is applied under
the Contract. However, a withdrawal charge will be deducted if any or all of the
purchase payment is withdrawn during the first eight years following the
purchase payment. The length of time from when we receive the purchase payment
to the time of withdrawal determines the amount of the charge.
The withdrawal charge is equal to a percentage of the purchase payment withdrawn
from the Contract and is calculated as follows:
<TABLE>
<CAPTION>
LENGTH OF TIME FROM
PURCHASE PAYMENT WITHDRAWAL
(NUMBER OF YEARS) CHARGE
<S> <C>
1 6%
2 6%
3 5%
4 5%
5 4%
6 4%
7 3%
8 2%
9 and over 0%
</TABLE>
For purposes of the withdrawal charge and Principal Protection Cancellation
Charge (described below) calculations, any withdrawals will be deemed to be
taken first from any free withdrawal allowance (as described below); next from
the remainder of the purchase payment; and then from Contract earnings (in
excess of the free withdrawal allowance). Unless you instruct us otherwise, we
will deduct the withdrawal charge from the allowance requested.
We will not deduct a withdrawal charge or Principal Protection Cancellation
Charge from payments we make due to the death of the (1) contract owner or the
death of the annuitant with no contingent annuitant surviving; or (2) minimum
distribution requirements.
FREE WITHDRAWAL ALLOWANCE
There is a 10% free withdrawal allowance available each year after the first
contract year. The available amount will be calculated as of the end of the
previous contract year. The free withdrawal allowance applies to any partial
withdrawals and to full withdrawals, except those transferred directly to
annuity contracts issued by other financial institutions. If you have selected
the Principal Protection Feature, the Principal Protection Cancellation Charge
will not be assessed on the 10% free withdrawal allowance. However, any free
withdrawal allowance reduces the principal guarantee proportionately.
OPTIONAL PRINCIPAL PROTECTION FEE
The Company offers you the option of purchasing a guarantee on your investment.
You can obtain protection for 115%, 100% or 90% of your principal if you buy the
Principal Protection Feature at the time you purchase your Contract. Under this
feature, we will guarantee that, on the Principal Protection Expiration Date
(which is the last day of the eighth contract year), your Contract will be worth
at least either 115%, 100%, or 90% (depending on your choice of guarantees) of
your purchase payment, less a reduction for withdrawals, withdrawal charges, and
the Principal Protection Cancellation Charge, even if the value of your Contract
on that date is less than the chosen percentage of your original purchase
payment. Of course, if your contract value is more than the chosen percentage of
original purchase payment, you will receive the greater value.
8
<PAGE> 12
There is an annual charge, the Principal Protection Fee, for this feature. The
Principal Protection Fee compensates the Company for the risks that it will bear
in providing this guarantee of principal. The Principal Protection Fee is
deducted daily from your contract value at a maximum annual rate of 2.00%. The
charge varies based on the level of guarantee chosen and the current market
conditions that determine our actual costs associated with the Principal
Protection Feature. The charge will be set monthly and will lock in at the time
of contract purchase. The Principal Protection Fee is set forth in your
Contract. Generally, the Principal Protection Fee will conform with the chart
below. Please note that these ranges are estimates. The actual charge will vary
due to market conditions, and will be determined by the Company.
<TABLE>
<CAPTION>
LEVEL OF GUARANTEE CHARGE RANGE
% OF PURCHASE PAYMENT % OF CONTRACT VALUE
<S> <C>
115% 1.25%-2.00%
100% 0.75%-1.50%
90% 0.50%-1.25%
</TABLE>
The Principal Protection Feature must be selected at the time you purchase your
Contract and will extend for the eight years from the contract date until the
Principal Protection Expiration Date. This guarantee is valid only if your
Contract is held to the Principal Protection Expiration Date, and you do not
annuitize before that date.
PRINCIPAL PROTECTION CANCELLATION CHARGE
We will assess a Principal Protection Cancellation Charge if you select the
Principal Protection Feature and make a full or partial withdrawal from the
Contract, before the Principal Protection Expiration Date. This charge
compensates Travelers for costs incurred should the Contract owner withdraw from
the Principal Protection Feature before the Principal Protection Expiration
Date.
The Principal Protection Cancellation Charge equals up to 4% percent of the
original purchase payment withdrawn. The percent charged depends on the length
of time you have had your contract. The Principal Protection Cancellation Charge
is set forth in your Contract.
If you have selected the Principal Protection Feature, any amounts you withdraw
(including the withdrawal charge and Principal Protection Cancellation Charge)
will reduce the amount of the principal guarantee proportionately.
Note: The Company has applied to the SEC for exemptive relief, allowing the
Company to assess this fee. It will not be assessed until such relief is
granted.
ADMINISTRATIVE CHARGES
A Contract Administrative Fee of $30 is deducted annually from Contracts with a
value of less than $50,000. This fee compensates us for expenses incurred in
establishing and maintaining the Contract. The fee is deducted from the contract
value on the fourth Friday of each August by canceling accumulation units
applicable to each funding option on a pro rata basis. This fee will be prorated
from the date of purchase to the next date of assessment of the fee. A prorated
fee will also be made if the Contract is completely withdrawn or terminated. We
will not deduct a Contract Administrative Fee: (1) if the distribution results
from the death of the contract owner or the annuitant with no contingent
annuitant surviving, (2) after an annuity payout has begun, or (3) if the
contract value on the date of assessment is equal to or greater than $50,000.
An Administrative Charge is deducted on each business day from amounts allocated
to the variable funding options in order to compensate the Company for certain
related administrative and operating expenses. The charge equals, on an annual
basis, 0.15% of the amounts allocated to each of the variable funding options.
MORTALITY AND EXPENSE RISK CHARGE
Each business day, the Company deducts a mortality and expense risk charge. The
deduction is reflected in our calculation of accumulation and annuity unit
values. We reserve the right to lower this charge at any time. The mortality
risk portion compensates us for guaranteeing to provide annuity payments
according to the terms of the Contract regardless of how long the annuitant
lives
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<PAGE> 13
and for guaranteeing to provide the death benefit if an annuitant dies prior to
the maturity date. The expense risk portion compensates us for the risk that the
charges under the Contract, which cannot be increased during the duration of the
Contract, will be insufficient to cover actual costs.
For those contract owners who have elected a standard death benefit provision,
the insurance charge is equivalent, on an annual basis, to 1.25% of the daily
net asset value of amounts held in the Separate Account.
For those contract owners who have elected an enhanced death benefit provision,
the insurance charge is equivalent, on an annual basis, to 1.45% of the daily
net asset value of amounts held in the Separate Account.
REDUCTION OR ELIMINATION OF CONTRACT CHARGES
The withdrawal charge, the Principal Protection Cancellation Charge, the
administrative charges, the mortality and expense risk charge and the Principal
Protection Fee under the Contract may be reduced or eliminated when certain
sales or administration of the Contract result in savings or reduction of
administrative or sales expenses, mortality and expense risks and/or the
Principal Protection Fee. Any such reduction will be based on the following: (1)
the size and type of group to which sales are to be made; (2) the total amount
of purchase payments to be received; and (3) any prior or existing relationship
with the Company. There may be other circumstances, of which we are not
presently aware, which could result in fewer sales expenses, administrative
charges, or mortality and expense risk charges. Any reduction or elimination of
the charges will be permitted only where it will not be unfairly discriminatory
to any person.
FUNDING OPTION EXPENSES
The deductions from and expenses paid out of the assets of the various funding
options are summarized in the fee table and are described in the accompanying
prospectuses.
PREMIUM TAX
Certain state and local governments charge premium taxes ranging from 0% to 5%,
depending upon jurisdiction. The Company is responsible for paying these taxes
and will determine the method used to recover premium tax expenses incurred.
Where required, the Company will deduct any applicable premium taxes from the
contract value either upon death, surrender, annuitization, or at the time
purchase payments are made to the Contract, but no earlier than when the Company
has a tax liability under state law.
CHANGES IN TAXES BASED UPON PREMIUM OR VALUE
If there is any change in a law assessing taxes against the Company based upon
premiums, contract gains or value of the Contract, we reserve the right to
charge you proportionately for this tax.
OWNERSHIP PROVISIONS
- --------------------------------------------------------------------------------
TYPES OF OWNERSHIP
Contract owner (you). The Contract belongs to the contract owner named in the
Contract (on the Specifications page), or to any other person to whom the
contract is subsequently assigned. An assignment of ownership or a collateral
assignment may be made only for nonqualified contracts. You have sole power
during the annuitant's lifetime to exercise any rights and to receive all
benefits given in the Contract provided that you have not named an irrevocable
beneficiary and provided the Contract is not assigned.
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<PAGE> 14
You receive all payments while the annuitant is alive unless you direct them to
an alternate recipient. An alternate recipient does not become the contract
owner.
Joint Owner. For nonqualified contracts only, joint owners (i.e., spouses) may
be named in a written request before the contract is in effect. Joint owners may
independently exercise transfers allowed under the Contract. All other rights of
ownership must be exercised by both owners. Joint owners own equal shares of any
benefits accruing or payments made to them. All rights of a joint owner end at
death if the other joint owner survives. The entire interest of the deceased
joint owner in the Contract will pass to the surviving joint owner.
BENEFICIARY
The beneficiary is named by you in a written request. The beneficiary has the
right to receive any remaining contractual benefits upon the death of the
annuitant or the contract owner. If more than one beneficiary survives the
annuitant, they will share equally in benefits unless different shares are
recorded with the Company by written request before the death of the annuitant
or contract owner.
With nonqualified contracts, as discussed under "Death Benefit," the beneficiary
named in the contract may differ from the designated beneficiary (for example,
the joint owner or a contingent annuitant). In such cases, the designated
beneficiary receives the contract benefits (rather than the beneficiary) upon
your death.
Unless an irrevocable beneficiary has been named, you have the right to change
any beneficiary by written request during the lifetime of the annuitant and
while the Contract continues.
ANNUITANT
The annuitant is designated in the Contract (on the Specifications page), and is
the individual on whose life the maturity date and the amount of the monthly
annuity payments depend. The annuitant may not be changed after the contract is
in effect.
For nonqualified contracts only, the contract owner may also name one individual
as a contingent annuitant by written request before the Contract becomes
effective. A contingent annuitant may not be changed, deleted or added after the
Contract becomes effective. 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 in effect.
TRANSFERS
- --------------------------------------------------------------------------------
Before the maturity date, you may transfer all or part of the contract value
between funding options if you have not elected the Principal Protection
Feature. There are no charges or restrictions on the amount or frequency of
transfers currently except for the Fixed Options; however, we reserve the right
to charge a fee for any transfer request, and to limit the number of transfers
to one in any six-month period. Since different funding options have different
expenses, a transfer of contract values from one funding option to another could
result in your investment becoming subject to higher or lower expenses. After
the maturity date, you may make transfers between funding options only with our
consent.
DOLLAR COST AVERAGING
This feature is not available if you selected the Principal Protection
Guarantee.
Dollar cost averaging (or "automated transfers") allows you to transfer a set
dollar amount to other funding options on a monthly or quarterly basis so that
more accumulation units are purchased in a funding option if the value per unit
is low and less accumulation units are purchased
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<PAGE> 15
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 automated transfers through written request or other method
acceptable to the Company. You must have a minimum total contract value of
$10,000 to enroll in the Dollar Cost Averaging program. The minimum amount that
may be transferred through this program is $400.
You may establish automated transfers of contract values from the Fixed Account,
subject to certain restrictions. Automated transfers from the Fixed Account may
not deplete your Fixed Account Value in less than twelve months from your
enrollment in the Dollar Cost Averaging program.
You may start or stop participation in the Dollar Cost Averaging program at any
time, but you must give the Company at least 30 days' notice to change any
automated transfer instructions that are currently in place. All provisions and
terms of the Contract apply to automated transfers, including provisions
relating to the transfer of money between investment options. We reserve the
right to suspend or modify transfer privileges at any time and to assess a
processing fee for this service.
ACCESS TO YOUR MONEY
- --------------------------------------------------------------------------------
Any time before the maturity date, you may redeem all or any portion of the cash
surrender value, that is, the contract value, less any withdrawal charge, any
applicable Principal Protection Cancellation Charge, and any premium tax not
previously deducted. You must submit a written request specifying the fixed or
variable funding option(s) from which amounts are to be withdrawn. The cash
surrender value will be determined as of the close of business after we receive
your surrender request at the Home Office. The cash surrender value may be more
or less than the purchase payment made depending on the contract value at the
time of surrender.
If you select the Principal Protection Feature and withdraw any amounts prior to
the Principal Protection Expiration Date, the amounts withdrawn, including the
withdrawal charge and Principal Protection Cancellation Charge, will no longer
be protected by the principal guarantee and will reduce the amount of the
principal guarantee proportionately.
The Company may defer payment of any cash surrender value for a period of up to
seven days after the written request is received, but it is our intent to pay as
soon as possible. We cannot process requests for surrender that are not in good
order. We will contact you if there is a deficiency causing a delay and will
advise what is needed to act upon the withdrawal request.
SYSTEMATIC WITHDRAWALS
Before the maturity date, you may choose to withdraw a specified dollar amount
(at least $100) on a monthly, quarterly, semiannual or annual basis. Any
applicable withdrawal charges and Principal Protection Cancellation Charge (in
excess of the free withdrawal allowance) and any applicable premium taxes will
be deducted. To elect systematic withdrawals, you must have a contract value of
at least $15,000 and you must make the election on the form provided by the
Company. We will surrender accumulation units pro rata from all funding options
in which you have an interest, unless you instruct us otherwise. You may begin
or discontinue systematic withdrawals at any time by notifying us in writing,
but at least 30 days' notice must be given to change any systematic withdrawal
instructions that are currently in place.
If you select the Principal Protection Feature and withdraw any amounts prior to
the Principal Protection Expiration Date, the amounts withdrawn (including the
withdrawal charge and Principal Protection Cancellation Charge) will no longer
be protected by the principal guarantee and will reduce the amount of the
principal guarantee proportionately.
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<PAGE> 16
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.
DEATH BENEFIT
Before the maturity date, a death benefit is payable to the beneficiary when
either the annuitant, the contract owner or the first of joint owners dies and
there is no contingent annuitant. The death benefit is calculated at the close
of the business day on which the Company's Home Office receives due proof of
death (the "death report date"). If the Company is notified of the death more
than six months after the date of death, the death benefit will be the contract
value.
STANDARD DEATH BENEFIT
DEATH PROCEEDS BEFORE THE MATURITY DATE
IF ANY CONTRACT OWNER OR THE ANNUITANT DIES BEFORE AGE 85. The Company will pay
an amount equal to the greater of (a), (b) or (c) below, each reduced by any
applicable premium tax:
(a) the contract value; or
(b) the purchase payment made under the Contract less any partial
withdrawals (and associated charges); or
(c) the death benefit value, which will be reset once every eight years
to the contract value immediately preceding the death report date.
DEATH OF ANY CONTRACT OWNER OR THE ANNUITANT ON OR AFTER AGE 85. The Company
will pay a death benefit in an amount equal to the contract value as of the
death report date, less any applicable premium tax.
ENHANCED DEATH BENEFIT
IF ANY CONTRACT OWNER OR THE ANNUITANT DIES BEFORE AGE 80. The Company will pay
an amount equal to the greater of (a) or (b) below, each reduced by any
applicable premium tax:
(a) the contract value; or
(b) the Roll-Up Death Benefit Value (as described below) available as of
the death report date.
IF ANY CONTRACT OWNER OR THE ANNUITANT DIES ON OR AFTER AGE 80, BUT BEFORE AGE
90. Travelers will pay an amount equal to the greater of (a) or (b) below, each
reduced by any applicable premium tax:
(a) the contract value; or
(b) the Roll-Up Death Benefit Value (as described below) available as of
the Annuitant's 80th birthday, less any Partial Surrender Reductions
(as described below) which occur after the Annuitant's 80th
birthday.
DEATH OF ANY CONTRACT OWNER OR THE ANNUITANT ON OR AFTER AGE 90. The Company
will pay a death benefit in an amount equal to the contract value as of the
death report date, less any applicable premium tax.
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<PAGE> 17
ROLL-UP DEATH BENEFIT VALUE: On the contract date, the Roll-Up Death Benefit
Value is equal to the purchase payment. On each anniversary of the contract
date, the Roll-Up Death Benefit Value will be recalculated as follows:
(a) the Roll-Up Death Benefit Value on the previous contract date
anniversary; minus
(b) any Partial Surrender Reductions (as described below) since the
previous contract date anniversary.
The maximum Roll-Up Death Benefit payable equals 200% of the difference between
the purchase payment and all Partial Surrender Reductions (as described below).
The Partial Surrender Reduction equals:
(1) the amount of the Roll-Up Death Benefit Value just before the
reduction for the partial surrender, multiplied by
(2) the amount of the partial surrender divided by the contract value
just before the partial surrender.
PAYMENT OF PROCEEDS
The process of paying death benefit proceeds under various situations is
described below. Generally, the person(s) receiving the benefit may request that
the proceeds be paid in a lump sum, or be applied to one of the settlement
options available under the Contract.
DEATH OF ANNUITANT WHO IS THE CONTRACT OWNER. The Company will pay the proceeds
to any surviving joint owner, or if none, to the beneficiary(ies), or if none,
to the contract owner's estate.
Under a nonqualified contract, the death benefit proceeds must be distributed to
the beneficiary within five years of the contract owner's death. Or, the
beneficiary may elect to receive payments from an annuity which begins within
one year of the contract owner's death and is payable over the life of the
beneficiary or over a period not exceeding the beneficiary's life expectancy.
If the beneficiary is the contract owner's spouse, he or she may elect to
continue the contract as the new contract owner rather than receiving the
distribution. In such case, the distribution rules applicable when a contract
owner dies generally will apply when that spouse, as contract owner, dies.
DEATH OF ANNUITANT WHO IS NOT THE CONTRACT OWNER. If there is no contingent
annuitant, the Company will pay the death proceeds to the beneficiary. However,
if there is a contingent annuitant, he or she becomes the annuitant and the
Contract continues in effect (generally using the original maturity date). The
proceeds described above will be paid upon the death of the last surviving
contingent annuitant.
ENTITY AS OWNER. In the case of a nonqualified Contract owned by a nonnatural
person (e.g. a trust or another entity), any annuitant will be treated as the
contract owner. Any change in the annuitant will be treated as the death of the
contract owner.
DEATH PROCEEDS AFTER THE MATURITY DATE
If the death of any contract owner or annuitant occurs on or after the maturity
date, the Company will pay the beneficiary a death benefit consisting of any
benefit remaining under the annuity option then in effect.
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<PAGE> 18
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). We ask you to choose the maturity date and the annuity option when you
purchase the contract. While the annuitant is alive, you can change your
selection any time up to the maturity date. Annuity payments will begin on the
maturity date stated in the Contract unless the Contract has been fully
surrendered or the proceeds have been paid to the beneficiary before that date.
Annuity payments are a series of periodic payments (a) for life; (b) for life
with either a minimum number of payments or a specific amount assured; or (c)
for the joint lifetime of the annuitant and another person, and thereafter
during the lifetime of the survivor. We may require proof that the annuitant is
alive before annuity payments are made.
Unless you elect otherwise, the maturity date will be the later of the
annuitant's 75th birthday, or ten years after the effective date of the
Contract. (For Contracts issued in Florida the maturity date elected may not be
later than the annuitant's 90th birthday.)
If you select the Principal Protection Feature, you may not select a maturity
date that is prior to the Principal Protection Expiration Date (that is, prior
to the last day of the eighth contract year).
For nonqualified Contracts, at least 30 days before the original maturity date,
a contract owner may elect to extend the maturity date to any time prior to the
annuitant's 85th birthday or, for qualified Contracts, to a later date with the
Company's consent. Certain annuity options taken at the maturity date may be
used to meet the minimum required distribution requirements of federal tax law,
or a program of partial surrenders may be used instead. These mandatory
distribution requirements take effect generally upon the death of the contract
owner, or with qualified contracts upon either the contract owner's attainment
of age 70 1/2 or the death of the contract owner. Independent tax advice should
be sought regarding the election of minimum required distributions.
ALLOCATION OF ANNUITY
When an annuity option is elected, it may be elected as a variable annuity, a
fixed annuity, or a combination of both. (Variable payouts under this Contract
may not be permitted in certain states.) If, at the time annuity payments begin,
no election has been made to the contrary, the cash surrender value (or contract
value, if a state so requires) will be applied to provide an annuity funded by
the same investment options. At least 30 days before the maturity date, you may
transfer the contract value among the funding options in order to change the
basis on which annuity payments will be determined; however, if the Principal
Protection Feature is selected, you may not transfer or annuitize prior to the
Principal Protection Expiration Date.
VARIABLE ANNUITY
You may choose an annuity payout that fluctuates depending on the investment
experience of the variable funding options. The number of annuity units credited
to the Contract is determined by dividing the first monthly annuity payment
attributable to each funding option by the corresponding annuity unit value as
of 14 days before the date annuity payments begin. An annuity unit is used to
measure the dollar value of an annuity payment. The number of annuity units (but
not their value) remains fixed during the annuity period.
DETERMINATION OF FIRST ANNUITY PAYMENT. The Contract contains tables used to
determine the first monthly annuity payment. The amount applied to effect a
variable annuity will be the value of the funding options as of 14 days before
the date annuity payments begin less any applicable premium taxes not previously
deducted.
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<PAGE> 19
The amount of the first monthly payment depends on the annuity option elected. A
formula for determining the adjusted age is contained in the Contract. The total
first monthly annuity payment is determined by multiplying the benefit per
$1,000 of value shown in the tables of the Contract by the number of thousands
of dollars of value of the Contract applied to that annuity option. The Company
reserves the right to require satisfactory proof of age of any person on whose
life annuity payments are based before making the first payment under any of the
settlement options.
DETERMINATION OF SECOND AND SUBSEQUENT ANNUITY PAYMENTS. The dollar amount of
the second and subsequent annuity payments is not predetermined and may change
from month to month based on the investment experience of the applicable funding
option. The total amount of each annuity payment will be equal to the sum of the
basic payments in each funding option. The actual amounts of these payments are
determined by multiplying the number of annuity units credited to each funding
option by the corresponding annuity unit value as of the date 14 days before the
date the payment is due.
FIXED ANNUITY
You may choose a fixed annuity that provides payments which do not vary during
the annuity period. We will calculate the dollar amount of the first fixed
annuity payment as described under "Variable Annuity," except that the cash
surrender value will be determined as of the date annuity payments begin. If it
would produce a larger payment, the first fixed annuity payment will be
determined using the Life Annuity Tables in effect on the maturity date.
PAYMENT OPTIONS
- --------------------------------------------------------------------------------
ELECTION OF OPTIONS
While the annuitant is alive, you can change your annuity option selection any
time up to the maturity date. Once annuity payments have begun, no further
elections are allowed.
During the annuitant's lifetime, if you do not elect otherwise before the
maturity date, we will pay you (or another designated payee) the first of a
series of monthly annuity payments based on the life of the annuitant, in
accordance with Annuity Option 2 (Life Annuity with 120 monthly payments
assured). For certain qualified contracts, Annuity Option 4 (Joint and Last
Survivor Joint Life Annuity -- Annuity Reduced on Death of Primary Payee) will
be the automatic option as described in the contract.
The minimum amount that can be placed under an annuity option will be $2,000
unless we agree to a lesser amount. If any monthly periodic payment due is less
than $100, the Company reserves the right to make payments at less frequent
intervals, or to pay the contract value in a lump-sum.
On the maturity date, we will pay the amount due under the Contract in one lump
sum (except in Florida, where this is not permitted), or in accordance with the
payment option that you select. You must elect an option in writing, in a form
satisfactory to the Company. Any election made during the lifetime of the
annuitant must be made by the contract owner.
ANNUITY OPTIONS
Subject to the conditions described in "Election of Options" above, all or any
part of the cash surrender value (contract value, if specified by state law) may
be paid under one or more of the following annuity options. Payments under the
annuity options may be elected on a monthly, quarterly, semiannual or annual
basis. We may also offer additional options.
Option 1 -- Life Annuity -- No Refund. The Company will make annuity payments
during the lifetime of the annuitant ending with the last payment before death.
This option offers the
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<PAGE> 20
maximum periodic payment, since there is no assurance of a minimum number of
payments or provision for a death benefit for beneficiaries.
Option 2 -- Life Annuity with 120, 180 or 240 Monthly Payments Assured. The
Company will make monthly annuity payments during the lifetime of the annuitant,
with the agreement that if, at the death of that person, payments have been made
for less than 120, 180 or 240 months as elected, we will continue making
payments to the beneficiary during the remainder of the period.
Option 3 -- Joint and Last Survivor Life Annuity -- No Refund. The Company will
make regular annuity payments during the lifetime of the annuitant and a second
person. When either person dies, we will continue making payments to the
survivor. No further payments will be made following the death of the survivor.
Option 4 -- Joint and Last Survivor Life Annuity -- Annuity Reduced on Death of
Primary Payee. The Company will make annuity payments during the lifetimes of
the annuitant and a second person. One will be designated the primary payee, the
other will be designated the secondary payee. On the death of the secondary
payee, the Company will continue to make monthly annuity payments to the primary
payee in the same amount that would have been payable during the joint lifetime
of the two persons. On the death of the primary payee, the Company will continue
to make annuity payments to the secondary payee in an amount equal to 50% of the
payments which would have been made during the lifetime of the primary payee. No
further payments will be made once both payees have died.
Option 5 -- Payments of a Fixed Amount. The Company will make equal payments of
the amount elected until the cash surrender value applied under this option has
been exhausted. The first payment and all later payments will be paid from
amounts attributable to each investment option in proportion to the cash
surrender value attributable to each. The final payment will include any amount
insufficient to make another full payment.
MISCELLANEOUS CONTRACT PROVISIONS
- --------------------------------------------------------------------------------
RIGHT TO RETURN
You may return the Contract for a full refund of the contract value (including
charges) within ten days after you receive it (the "right to return period").
You bear the investment risk during the period; therefore, the contract value
returned may be greater or less than your purchase payment. If the Contract is
purchased as an Individual Retirement Annuity, and is returned within the first
seven days after delivery, your purchase payment will be refunded in full;
during the remainder of the right to return period, the contract value
(including charges) will be refunded. The contract value will be determined
following the close of the business day on which we receive a written request
for a refund. Where state law requires a longer right to return period, or the
return of purchase payments or other variations of this provision, the Company
will comply. Refer to your Contract for any state-specific information.
TERMINATION
You do not need to make any purchase payments after the first to keep the
Contract in effect. However, we reserve the right to terminate the Contract on
any business day if the contract value as of that date is less than $1,000 and
no purchase payments have been made for at least two years, unless otherwise
specified by state law. Termination will not occur until 31 days after the
Company has mailed notice of termination to the contract owner's last known
address and to any assignee of record. If the Contract is terminated, we will
pay you the cash surrender value (contract value less any applicable premium
tax, in the states that so require), less any applicable administrative charge.
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REQUIRED REPORTS
As often as required by law, but at least once in each contract year before the
due date of the first annuity payment, we will furnish a report showing the
number of accumulation units credited to the Contract and the corresponding
accumulation unit value(s) as of the date of the report for each funding option
to which the contract owner has allocated amounts during the applicable period.
The Company will keep all records required under federal or state laws.
SUSPENSION OF PAYMENTS
The Company reserves the right to suspend or postpone the date of any payment or
determination of values on any business day (1) when the New York Stock Exchange
("the Exchange") is closed; (2) when trading on the Exchange is restricted; (3)
when an emergency exists as determined by the SEC so that the sale of securities
held in the Separate Account may not reasonably occur or so that the Company may
not reasonably determine the value the Separate Account's net assets; or (4)
during any other period when the SEC, by order, so permits for the protection of
security holders.
TRANSFERS OF CONTRACT VALUES TO OTHER ANNUITIES
We may permit contract owners to transfer their contract values into other
annuities offered by us or our affiliated insurance companies under rules then
in effect.
THE SEPARATE ACCOUNT
- --------------------------------------------------------------------------------
The Travelers Fund BD IV For Variable Annuities ("Fund BD IV") was established
on March 27, 1997 and is registered with the SEC as a unit investment trust
(separate account) under the Investment Company Act of 1940, as amended (the
"1940 Act"). The assets of Fund BD IV will be invested exclusively in the shares
of the variable funding options, as well as other variable funding options
available in similar variable annuity contracts offered by the Company.
The assets of Fund BD IV are held for the exclusive benefit of the owners of
this separate account, according to the laws of Connecticut. Income, gains and
losses, whether or not realized, from assets allocated to Fund BD IV are, in
accordance with the Contracts, credited to or charged against Fund BD IV without
regard to other income, gains and losses of the Company. The assets held by Fund
BD IV are not chargeable with liabilities arising out of any other business
which the Company may conduct. Obligations under the Contract are obligations of
the Company.
All investment income and other distributions of the funding options are payable
to Fund BD IV. All such income and/or distributions are reinvested in shares of
the respective funding option at net asset value. Shares of the funding options
are currently sold only to life insurance company separate accounts to fund
variable annuity and variable life insurance contracts.
MIXED AND SHARED FUNDING
It is conceivable that in the future it may be disadvantageous for both variable
annuity and variable life insurance separate accounts, or for variable separate
accounts of different insurance companies, to invest simultaneously in the same
portfolios (called "mixed" and "shared" funding). Currently neither the
insurance companies nor the portfolios foresee any such disadvantages to the
companies or to variable contract owners. Each portfolio's board of trustees,
directors or managers intends to monitor events in order to identify any
material conflicts between such policy owners and to determine what action, if
any, should be taken in response thereto.
18
<PAGE> 22
PERFORMANCE INFORMATION
From time to time, we may advertise several types of historical performance for
the Contract's funding options. We may advertise the "standardized average
annual total returns" of the funding option, calculated in a manner prescribed
by the SEC, as well as the "non-standardized total return," as described below.
Examples of the performance figures are illustrated in the SAI.
STANDARDIZED METHOD. Quotations of average annual total returns are computed
according to a formula in which a hypothetical initial investment of $1,000 is
applied to the funding option, and then related to ending redeemable values over
one-, five-, and ten-year periods, or for a period covering the time during
which the funding option has been in existence, if less. These quotations
reflect the deduction of all recurring charges during each period (on a pro rata
basis in the case of fractional periods). The deduction for the annual
administrative charge ($30) is converted to a percentage of assets based on the
actual fee collected (or anticipated to be collected, if a new product), divided
by the average net assets for Contracts sold (or anticipated to be sold). Each
quotation assumes a total redemption at the end of each period with the
applicable withdrawal charge deducted at that time.
NON-STANDARDIZED METHOD. Non-standardized "total returns" will be calculated in
a similar manner based on the performance of the funding options over a period
of time, usually for the calendar year-to-date, and for the past one-, three-,
five- and ten-year periods. Non-standardized total returns will not reflect the
deduction of any withdrawal charge or the $30 annual contract administrative
charge, which, if reflected, would decrease the level of performance shown. The
withdrawal charge is not reflected because the Contract is designed for
long-term investment.
GENERAL Within the guidelines prescribed by the SEC and the National
Association of Securities Dealers, Inc. ("NASD"), performance information may be
quoted numerically or may be presented in a table, graph or other illustration.
Advertisements may include data comparing performance to well-known indices of
market performance (including, but not limited to, the Dow Jones Industrial
Average, the Standard & Poor's (S&P) 500 Index and the S&P 400 Index, the Lehman
Brothers Long T-Bond Index, the Russell 1000, 2000 and 3000 Indices, the Value
Line Index, and the Morgan Stanley Capital International's EAFE Index).
Advertisements may also include published editorial comments and performance
rankings compiled by independent organizations (including, but not limited to,
Lipper Analytical Services, Inc. and Morningstar, Inc.) and publications that
monitor the performance of the separate account and the variable funding
options.
For funding options that were in existence prior to the date they became
available under the Separate Account, the standardized and non-standardized
average annual total return quotations may accompany 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. The contract value at
redemption may be more or less than original cost.
FEDERAL TAX CONSIDERATIONS
- --------------------------------------------------------------------------------
The following general discussion of the federal income tax consequences under
this Contract is not intended to cover all situations, and is not meant to
provide tax advice. Because of the complexity of the law and the fact that the
tax results will vary depending on many factors, you should consult your tax
adviser regarding your personal situation. For your information, a more detailed
tax discussion is contained in the SAI.
19
<PAGE> 23
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 under 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, pension and profit-sharing plans (including 401(k) plans),
and Keogh Plans. If you purchase the contract with after-tax dollars and not
under one of the programs described above, your contract is referred to as
nonqualified.
NONQUALIFIED ANNUITY CONTRACTS
As the owner of a nonqualified annuity, you 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, all deferred
increases in value will be includable in your income if you should transfer the
contract for an amount substantially less than the value of the contract.
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 withdrawals and annuity payments are taxed at
the ordinary income tax rate. The Contract is available as a vehicle for IRA
rollovers. There are special rules which govern the taxation of qualified
contracts, including 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 money
distributed was (1) paid on or after the owner
20
<PAGE> 24
dies; (2) paid if the taxpayer becomes totally disabled, (as that term is
defined in the Code); (3) paid in a series of substantially equal payments made
annually (or more frequently) under a lifetime annuity; (4) paid as an immediate
annuity; or (5) paid from purchase payments made prior to August 14, 1982.
OWNERSHIP OF THE INVESTMENTS
Assets in the funding options must be owned by the Company and not by the
contract owner for federal income tax purposes. Otherwise, the deferral of taxes
is lost by the owner.
The Internal Revenue Service (IRS) has stated that a variable contract owner
will be considered the owner of the assets of a funding option if the owner has
some degree of control over those investments. The IRS has not, however,
described in detail the circumstances in which investor control of the
investments of a separate account may cause the investor, rather than the
insurance company, to be treated as the owner of the assets of the account.
We do not know if such guidance will be issued, or if it is, what standards may
be set. Furthermore, we do not know if such guidance may be issued with
retroactive effect. New regulations generally apply to future sales or to future
voluntary transactions in existing contracts. We therefore reserve the right to
modify the contract as necessary to attempt to maintain favorable tax treatment.
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 Life and Annuity Company is a stock insurance company chartered in
1973 in Connecticut and continuously engaged in the insurance business since
that time. It is licensed to conduct life insurance business in a majority of
the states of the United States, and intends to seek licensure in the remaining
states, except New York. The Company is an indirect wholly owned subsidiary of
Travelers Group Inc. The Company's Home Office is located at One Tower Square,
Hartford, Connecticut 06183.
DISTRIBUTION OF VARIABLE ANNUITY CONTRACTS
The Company intends to sell the Contracts in all jurisdictions where it is
licensed to do business and where the Contract is approved. The Contracts will
be sold by life insurance sales agents who represent the Company, and who are
licensed registered representatives of the Company or certain other registered
broker-dealers. The compensation paid to sales representatives will not exceed
6.5% of the payments made under the Contracts.
From time to time, the Company may pay or permit other promotional incentives,
in cash, credit or other compensation.
Any sales representative or employee will have been qualified to sell variable
annuities under applicable federal and state laws. Each broker-dealer is
registered with the SEC under the Securities Exchange Act of 1934, and all are
members of the NASD. The principal underwriter for the Contracts is Tower Square
Securities, Inc., an affiliate of the Company; however, it is currently
21
<PAGE> 25
anticipated that an affiliated broker-dealer may become the principal
underwriter for the Contracts during 1997.
CONFORMITY WITH STATE AND FEDERAL LAWS
The Contract is governed by the laws of the state in which it is delivered. Any
paid-up annuity, cash surrender value or death benefits that are available under
the Contract are not less than the minimum benefits required by the statutes of
the state in which the Contract is delivered. We reserve the right to make any
changes, including retroactive changes, in the Contract to the extent that the
change is required to meet the requirements of any law or regulation issued by
any governmental agency to which the Company, the Contract or the contract owner
is subject.
VOTING RIGHTS
The Company is the legal owner of the shares of the funding options. However, we
believe that when a funding option solicits proxies in conjunction with a vote
of shareholders we are required to obtain from you and from other owners
instructions on how to vote those shares. When we receive those instructions, we
will vote all of the shares we own in proportion to those instructions. This
will also include any shares we own on our own behalf. Should we determine that
we are no longer required to comply with the above, we will vote on the shares
in our own right.
LEGAL PROCEEDINGS AND OPINIONS
There are no pending material legal proceedings affecting Fund BD IV. Legal
matters in connection with the federal laws and regulations affecting the issue
and sale of the Contract described in this prospectus, as well as the
organization of the Company, its authority to issue variable annuity contracts
under Connecticut law and the validity of the forms of the variable annuity
contracts under Connecticut law, have been reviewed by the General Counsel of
the Company.
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<PAGE> 26
APPENDIX A
- --------------------------------------------------------------------------------
THE FIXED ACCOUNT OPTION
(AVAILABLE ONLY IF YOU HAVE NOT SELECTED THE PRINCIPAL PROTECTION FEATURE
OR AFTER THE PRINCIPAL PROTECTION EXPIRATION DATE)
The Fixed Account is secured by part of the general assets of the Company. The
general assets of the Company include all assets of the Company other than those
held in the Separate Account or any other separate account sponsored by the
Company or its affiliates.
The staff of the SEC does not generally review the disclosure in the prospectus
relating to the Fixed Option. Disclosure regarding the Fixed Option and the
general account may, however, be subject to certain provisions of the federal
securities laws relating to the accuracy and completeness of statements made in
the prospectus.
Under the Fixed Option, the Company assumes the risk of investment gain or loss,
guarantees a specified interest rate, and guarantees a specified periodic
annuity payment. The investment gain or loss of the Separate Account or any of
the funding options does not affect the Fixed Option portion of the contract
owner's contract value, or the dollar amount of fixed annuity payments made
under any payout option.
We guarantee that, at any time, the Fixed Option contract value will not be less
than the amount of the purchase payments allocated to the Fixed Option, plus
interest credited as described below, less any applicable premium taxes or prior
surrenders. If the contract owner effects a surrender, the amount available from
the Fixed Option will be reduced by any applicable withdrawal charge as
described under "Charges and Deductions" in this prospectus.
Purchase payments allocated to the Fixed Option and any transfers made to the
Fixed Option become part of the Company's general account which supports
insurance and annuity obligations. Neither the general account nor any interest
therein is registered under, or subject to the provisions of, the Securities Act
of 1933 or Investment Company Act of 1940. We will invest the assets of the
Fixed Option at our discretion. Investment income from such Fixed Option assets
will be allocated to us and to the Contracts participating in the Fixed Option.
Investment income from the Fixed Option allocated to us includes compensation
for mortality and expense risks borne by us in connection with Fixed Option
Contracts. The amount of such investment income allocated to the Contracts will
vary from year to year in our sole discretion at such rate or rates as we
prospectively declare from time to time.
The initial rate for any allocations into the Fixed Option is guaranteed for one
year from the date of such allocation. Subsequent renewal rates will be
guaranteed for the calendar quarter. We also guarantee that for the life of the
Contract we will credit interest at not less than 3% per year. Any interest
credited to amounts allocated to the Fixed Option in excess of 3% per year will
be determined in our sole discretion. You assume the risk that interest credited
to the Fixed Option may not exceed the minimum guarantee of 3% for any given
year.
TRANSFERS
You may make transfers from the Fixed Option to any other available funding
option(s) twice a year during the 30 days following the semiannual anniversary
of the contract effective date. The transfers are limited to an amount of up to
15% of the Fixed Option Value on the semiannual contract effective date
anniversary. (This restriction does not apply to transfers from the Dollar Cost
Averaging Program.) Amounts previously transferred from the Fixed Option to
other funding options may not be transferred back to the Fixed Option for a
period of at least six months from the date of transfer. We reserve the right to
waive either of these restrictions.
Automated transfers from the Fixed Option to any of the funding options may
begin at any time. Automated transfers from the Fixed Option may not deplete
your Fixed Option value in a period of less than twelve months from your
enrollment in the Dollar Cost Averaging Program.
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<PAGE> 27
APPENDIX B
- --------------------------------------------------------------------------------
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information contains more specific information and
financial statements relating to The Travelers Life and Annuity Company. A list
of the contents of the Statement of Additional Information is set forth below:
The Insurance Company
Principal Underwriter
Distribution and Management Agreement
Performance Information
Valuation of Assets
Independent Accountants
Financial Statements
- --------------------------------------------------------------------------------
Copies of the Statement of Additional Information dated May 1, 1997 (Form No.
L-12683S) are available without charge. To request a copy, please clip this
coupon on the dotted line above, enter your name and address in the spaces
provided below, and mail to: The Travelers Life and Annuity Company, Annuity
Services, One Tower Square, Hartford, Connecticut 06183-9061.
Name:
Address:
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<PAGE> 28
PART B
Information Required in a Statement of Additional Information
<PAGE> 29
Travelers Index Annuity
STATEMENT OF ADDITIONAL INFORMATION
dated
_______, 1997
for
THE TRAVELERS FUND BD IV FOR VARIABLE ANNUITIES
ISSUED BY
THE TRAVELERS LIFE AND ANNUITY COMPANY
This Statement of Additional Information ("SAI") is not a prospectus but relates
to, and should be read in conjunction with, the Individual Variable Annuity
Contract Prospectus dated _________, 1997. A copy of the Prospectus may be
obtained by writing to The Travelers Life and Annuity Company, Annuity Services,
One Tower Square, Hartford, Connecticut 06183-9061, or by calling
1-800-842-8573.
TABLE OF CONTENTS
<TABLE>
<S> <C>
THE INSURANCE COMPANY . . . . . . . . . . . . . . . . . . . . 2
PRINCIPAL UNDERWRITER . . . . . . . . . . . . . . . . . . . 2
DISTRIBUTION AND MANAGEMENT AGREEMENT . . . . . . . . . . . . 2
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . 2
VALUATION OF ASSETS . . . . . . . . . . . . . . . . . . . . . 5
TELEPHONE TRANSFERS. . . . . . . . . . . . . . . . . . . . . . 6
FEDERAL TAX CONSIDERATIONS. . . . . . . . . . . . . . . . . . 6
INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . . 9
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
<PAGE> 30
THE INSURANCE COMPANY
The Travelers Life and Annuity Company (the "Company"), is a stock
insurance company chartered in 1973 in Connecticut. It is a wholly owned
subsidiary of The Travelers Insurance Company, which is indirectly owned,
through a wholly owned subsidiary, by Travelers Group Inc., a financial services
holding company engaged, through its subsidiaries, principally in four business
segments: (i) Investment Services; (ii) Consumer Finance Services; (iii) Life
Insurance Services; and (iv) Property and Casualty Insurance Services.
PRINCIPAL UNDERWRITER
Tower Square Securities, Inc. ("Tower Square"), a wholly-owned
subsidiary of the Company, serves as principal underwriter for the Separate
Account and the Contracts. The offering is continuous. Tower Square's principal
executive offices are located at One Tower Square, Hartford, Connecticut. It is
anticipated that an affiliated broker-dealer will become the principal
underwriter during 1997.
DISTRIBUTION AND MANAGEMENT AGREEMENT
Under the terms of the Distribution and Management Agreement among Fund
BD IV, the Company and Tower Square, the Company provides all administrative
services and mortality and expense risk guarantees related to variable annuity
contracts sold by the Company in connection with Fund BD IV. Tower Square
performs the sales functions related to the Contracts. The Company reimburses
Tower Square for commissions paid, other sales expenses and certain overhead
expenses connected with sales functions. The Company also pays all costs
(including costs associated with the preparation of sales literature); all costs
of qualifying Fund BD IV and the variable annuity contract with regulatory
authorities; the costs of proxy solicitation; and all custodian, accountant's
and legal fees. The Company also provides without cost to Fund BD IV all
necessary office space, facilities, and personnel to manage its affairs.
PERFORMANCE INFORMATION
From time to time, the Company may advertise several types of historical
performance for funding options of Fund BD IV. The Company may advertise the
"standardized average annual total returns" of the funding options available
through the Separate Account, calculated in a manner prescribed by the
Securities and Exchange Commission, as well as the "non-standardized total
return," as described below:
STANDARDIZED METHOD. Quotations of average annual total return are
computed according to a formula in which a hypothetical initial investment of
$1,000 is allocated to an funding option, and then related to ending redeemable
values over one-, five- and ten-year periods, or inception, if a funding option
has not been in existence for one of the prescribed periods. These quotations
reflect the deduction of all recurring charges during each period (on a pro rata
basis in the case of fractional periods). The deduction for the annual contract
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<PAGE> 31
administrative charge ($30) is converted to a percentage of assets based on the
actual fee collected, divided by the average net assets per contract 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 all associated
withdrawal charges.
NONSTANDARDIZED METHOD. Nonstandardized "total return" will be
calculated in a manner similar to "standardized" as describe above. However,
nonstandardized total return will not reflect the deduction of any applicable
withdrawal charge or the $30 annual contract administrative charge, which, if
reflected, would decrease the level of performance shown. The withdrawal charge
is not reflected because the Contract is designed for long-term investment.
GENERAL. Within the guidelines prescribed by the SEC and the National
Association of Securities Dealers, Inc. ("NASD"), performance information may be
quoted numerically or may be presented in a table, graph or other illustration.
Advertisements may include data comparing performance to well-known indices of
market performance (including, but not limited to, the Dow Jones Industrial
Average, the Standard & Poor's (S&P) 500 Index and the S&P 400 Index, the Lehman
Brothers Long T-Bond Index, the Russell 1000, 2000 and 3000 Indices, the Value
Line Index, and the Morgan Stanley Capital International's EAFE Index).
Advertisements may also include published editorial comments and performance
rankings compiled by independent organizations (including, but not limited to,
Lipper Analytical Services, Inc. and Morningstar, Inc.) and publications that
monitor the performance of Fund BD IV and the funding options.
For funding options that were in existence before they became available
under Fund BD IV, the standardized average total return and non-standardized
total return quotations will show the investment performance that such funding
options would have achieved (reduced by the applicable charges) had they been
held available under the Contract for the period quoted. The total return
quotations are based upon historical earnings and are not necessarily
representative of future performance. A Contract Owner's Contract Value at
redemption may be more or less than original cost.
Average annual total returns for each of the funding options available under
Fund BD IV computed according to the standardized and non-standardized methods
for the period ending June 30, 1997 are set forth in the following table.
<TABLE>
<CAPTION>
STANDARDIZED TOTAL RETURN CALCULATIONS
- -------------------------------------------------------------------------------
Portfolio Name Since Inception
1 Year 5 Year Inception Date
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Standard Death Benefit
Cash Income Trust* (2.72%) 1.64% 3.51% 12/87
Equity Index* 25.51% 16.40% 15.13% 10/91
Equity Index** 18.96% 13.72% 12.54% 10/91
Enhanced Death Benefit
Cash Income Trust* (2.93%) 1.43% 3.30% 12/87
Equity Index* 25.25% 16.16% 14.90% 10/91
Equity Index** 18.70% 13.48% 12.30% 10/91
</TABLE>
*Without Principal Protection Feature elected.
**With Principal Protection Feature elected.
3
<PAGE> 32
<TABLE>
<CAPTION>
NONSTANDARDIZED TOTAL RETURN CALCULATIONS
- -------------------------------------------------------------------------------
Portfolio Name Since Inception
1 Year 3 Year 5 Year Inception Date
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Standard Death Benefit
Cash Income Trust* 3.39% 3.47% 2.42% 3.84% 12/87
Equity Index* 28.45% 27.65% 17.73% 16.77% 10/91
Equity Index** 27.02% 25.17% 15.43% 14.48% 10/91
Enhanced Death Benifit
Cash Income Trust* 1.89% 3.49% 2.35% 3.70% 12/87
Equity Index* 28.31% 27.40% 17.50% 16.54% 10/91
Equity Index** 26.88% 24.92% 15.20% 14.25% 10/91
</TABLE>
*Without Principal Protection Feature elected.
**With Principal Protection Feature elected.
VALUATION OF ASSETS
The value of the assets of each funding option is determined on each
business 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.
NET INVESTMENT FACTOR
THE CONTRACT VALUE: The value of an Accumulation Unit on any business day is
determined by multiplying the value on the immediately preceding business day by
the net investment factor for the valuation period just ended. The net
investment factor is used to measure the investment performance of a funding
option from one valuation period to the next. The net investment factor for a
funding option for any valuation period is equal to the sum of 1.000000 plus the
net investment rate (the gross investment rate less any applicable funding
option deductions during the valuation period relating to the mortality and
expense risk charge and the administrative
4
<PAGE> 33
expense charge). The gross investment rate of a funding option is equal to (a)
minus (b), divided by (c) where:
(a) = investment income plus capital gains and losses (whether realized or
unrealized);
(b) = any deduction for applicable taxes (presently zero); and
(c) = the value of the assets of the funding option at the beginning of the
valuation period.
The gross investment rate may be either positive or negative. A
Sub-Account's assets are based on the net asset value of the funding option, and
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 business day
just ended. The net investment factor is calculated for each funding option and
takes into account the investment performance, expenses and the deduction of
certain expenses.
ANNUITY UNIT VALUE. The initial Annuity Unit Value applicable to each funding
option was established at $1.00. An Annuity Unit Value as of any business day is
equal to (a) the value of the Annuity Unit on the preceding business day,
multiplied by (b) the corresponding net investment factor for the business day
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.)
TELEPHONE TRANSFERS
A contract owner may place a transfer request by telephone. The telephone
transfer privilege is available automatically; no special election is necessary
for a contract owner to have this privilege. All transfers must be in accordance
with the terms of the Contract. Transfer instructions are currently accepted on
each business day between 9:00 a.m. and 4:00 p.m., Eastern time, at
1-800-842-8573. Once instructions have been accepted, they may not be rescinded;
however, new telephone instructions may be given the following day. If the
transfer instructions are not in good order, the Company will not execute the
transfer and will promptly notify the caller.
The Company will make a reasonable effort to record each telephone transfer
conversation, but in the event that no recording is effective or available, the
contract owner will remain liable for each telephone transfer effected.
Additionally, the Company is not liable for acting upon instructions believed to
be genuine and in accordance with the procedures described above. As a result of
this policy, the contract owner may bear the risk of loss in the event that the
Company follows instructions that prove to be fraudulent.
FEDERAL TAX CONSIDERATIONS
The following description of the federal income tax consequences under this
Contract is not exhaustive and is not intended to cover all situations. Because
of the complexity of the law and
5
<PAGE> 34
the fact that the tax results will vary according to the factual status of the
individual involved, tax advice may be needed by a person contemplating purchase
of an annuity contract and by a contract owner or beneficiary who may make
elections under a contract. For further information, please consult a qualified
tax adviser.
MANDATORY DISTRIBUTIONS FOR QUALIFIED PLANS
Federal tax law requires that minimum annual distributions begin by April
1st of the calendar year following the calendar year in which a participant
under a qualified plan, a Section 403(b) annuity, or an IRA attains age 701/2.
Distributions must also begin or be continued according to required patterns
following the death of the contract owner or the annuitant.
NONQUALIFIED ANNUITY CONTRACTS
Individuals may purchase tax-deferred annuities without tax law funding
limits. The purchase payments receive no tax benefit, deduction or deferral, but
increases in the value of the contract are generally deferred from tax until
distribution. If a nonqualified annuity is owned by other than an individual,
however, (e.g., by a corporation), the increases in value attributable to
purchase payments made after February 28, 1986 are includable in income
annually. Furthermore, for contracts issued after April 22, 1987, all deferred
increases in value will be includable in the income of a contract owner when the
contract owner transfers the contract without adequate consideration.
If two or more annuity contracts are purchased from the same insurer within
the same calendar year, distributions from any of them will be taxed based upon
the amount of income in all of the same calendar year series of annuities. This
will generally have the effect of causing taxes to be paid sooner on the
deferred gain in the contracts.
Those receiving partial distributions made before the maturity date will
generally be taxed on an income-first basis to the extent of income in the
contract. If you are exchanging another annuity contract for this annuity,
certain pre-August 14, 1982 deposits into an annuity contract that have been
placed in the contract by means of a tax-deferred exchange under Section 1035 of
the Code may be withdrawn first without income tax liability. This information
on deposits must be provided to the Company by the other insurance company at
the time of the exchange. There is income in the contract generally to the
extent the cash value exceeds the investment in the contract. The investment in
the contract is equal to the amount of premiums paid less any amount received
previously which was excludable from gross income. Any direct or indirect
borrowing against the value of the contract or pledging of the contract as
security for a loan will be treated as a cash distribution under the tax law.
The federal tax law requires that nonqualified annuity contracts meet
minimum mandatory distribution requirements upon the death of the contract
owner, including the first of joint owners. Failure to meet these requirements
will cause the surviving joint owner, or the beneficiary to lose the tax
benefits associated with annuity contracts, i.e., primarily the tax deferral
prior to distribution. The distribution required depends, among other things,
upon whether an annuity option is elected or whether the new contract owner is
the surviving spouse. Contracts will be administered by the Company in
accordance with these rules and the Company will make a notification when
payments should be commenced.
6
<PAGE> 35
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.
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:
7
<PAGE> 36
(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.
3. PERIODIC DISTRIBUTIONS (DISTRIBUTIONS PAYABLE OVER A PERIOD GREATER THAN ONE
YEAR)
The portion of a periodic distribution which constitutes taxable income will
be subject to federal income tax withholding under the wage withholding tables
as if the recipient were married claiming three exemptions. A recipient may
elect not to have income taxes withheld or have income taxes withheld at a
different rate by providing a completed election form. Election forms will be
provided at the time distributions are requested. This form of withholding
applies to all annuity programs. As of January 1, 1997, a recipient receiving
periodic payments (e.g., monthly or annual payments under an annuity option)
which total $14,850 or less per year, will generally be exempt from periodic
withholding.
Recipients who elect not to have withholding made are liable for payment of
federal income tax on the taxable portion of the distribution. All recipients
may also be subject to penalties under the estimated tax payment rules if
withholding and estimated tax payments are not sufficient to cover tax
liabilities.
Recipients who do not provide a social security number or other taxpayer
identification number will not be permitted to elect out of withholding.
Additionally, U.S citizens residing outside of the country, or U.S. legal
residents temporarily residing outside the country, are not permitted to elect
out of withholding.
8
<PAGE> 37
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., independent accountants, 100 Pearl Street,
Hartford, Connecticut, are the independent auditors for Fund BD IV. The services
to be provided to Fund BD IV will include primarily the audit of the Fund's
financial statements. As of the effective date of the prospectus, Fund BD IV had
no assets.
The financial statements of The Travelers Life and Annuity Company as of
December 31, 1996 and 1995, and for each of the years in the three-year period
ended December 31, 1996, have been included herein in reliance upon the report
of KPMG Peat Marwick LLP, independent certified public accountants, and upon the
authority of said firm as experts in accounting and auditing.
9
<PAGE> 38
Independent Auditors' Report
The Board of Directors and Shareholder
The Travelers Life and Annuity Company:
We have audited the accompanying balance sheets of The Travelers Life and
Annuity Company as of December 31, 1996 and 1995, and the related statements of
income and retained earnings and cash flows for each of the years in the
three-year period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Travelers Life and Annuity
Company as of December 31, 1996 and 1995, and the results of its operations and
its cash flows for each of the years in the three-year period ended December 31,
1996, in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
January 17, 1997
8
<PAGE> 39
THE TRAVELERS LIFE AND ANNUITY COMPANY
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
(for the year ended December 31, in thousands) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Premiums $ 9,357 $ 2,652 $ 3,498
Net investment income 89,040 63,209 66,093
Realized investment gains (losses) (9,613) 18,713 (2,074)
Other 16,223 17,466 18,702
- ----------------------------------------------------------------------------------------------------------
Total revenues 105,007 102,040 86,219
- ----------------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Current and future insurance benefits 56,448 52,390 55,596
Amortization of deferred acquisition costs
and value of insurance in force 3,286 1,563 -
Other operating expenses 5,691 4,651 2,758
- ----------------------------------------------------------------------------------------------------------
Total benefits and expenses 65,425 58,604 58,354
- ----------------------------------------------------------------------------------------------------------
Income before federal income taxes 39,582 43,436 27,865
- ----------------------------------------------------------------------------------------------------------
Federal income taxes:
Current 29,456 2,555 4,742
Deferred expense (benefit) (15,665) 11,964 4,798
- ----------------------------------------------------------------------------------------------------------
Total federal income taxes 13,791 14,519 9,540
- ----------------------------------------------------------------------------------------------------------
Net income 25,791 28,917 18,325
Retained earnings beginning of year 157,907 128,990 110,665
Dividends to parent 16,000 - -
- ----------------------------------------------------------------------------------------------------------
Retained earnings end of year $167,698 $157,907 $128,990
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
9
<PAGE> 40
THE TRAVELERS LIFE AND ANNUITY COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
(at December 31, in thousands) 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Fixed maturities, available for sale at fair value
(cost, $672,173; $678,293) $ 694,535 $ 724,639
Equity securities, at fair value (cost, $6,654; $9,453) 9,554 13,099
Mortgage loans 90,542 125,813
Real estate held for sale, net of accumulated depreciation of $0; $524 10,111 8,995
Policy loans 1,750 -
Short-term securities 70,755 51,381
Other investments 69,754 65,805
- -----------------------------------------------------------------------------------------------------------------
Total investments 947,001 989,732
- -----------------------------------------------------------------------------------------------------------------
Separate accounts 1,187,812 886,688
Deferred acquisition costs and value of insurance in force 40,027 22,560
Deferred federal income taxes 57,616 41,158
Other assets 21,827 24,501
- -----------------------------------------------------------------------------------------------------------------
Total assets $2,254,283 $1,964,639
- -----------------------------------------------------------------------------------------------------------------
LIABILITIES
Future policy benefits $ 654,534 $ 671,027
Contractholder funds 86,097 11,947
Separate accounts 1,124,605 856,867
Other liabilities 17,179 61,247
- -----------------------------------------------------------------------------------------------------------------
Total liabilities 1,882,415 1,601,088
- -----------------------------------------------------------------------------------------------------------------
SHAREHOLDER'S EQUITY
Common stock, par value $100; 100,000
shares authorized, 30,000 issued and outstanding 3,000 3,000
Additional paid-in capital 167,314 167,314
Retained earnings 167,698 157,907
Unrealized investment gains, net of taxes 33,856 35,330
- -----------------------------------------------------------------------------------------------------------------
Total shareholder's equity 371,868 363,551
- -----------------------------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity $2,254,283 $1,964,639
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
10
<PAGE> 41
THE TRAVELERS LIFE AND ANNUITY COMPANY
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
(for the year ended December 31, in thousands) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Premiums collected $ 6,472 $ 1,950 $ 3,498
Net investment income received 71,083 66,219 57,240
Benefits and claims paid (70,331) (71,710) (72,298)
Interest credited to contractholders (813) - -
Operating expenses paid (5,482) (3,013) (4,400)
Income taxes refunded (paid) (23,931) (35,305) 1,030
Other (6,857) (6,772) 22,507
- -------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (29,859) (48,631) 7,577
- -------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments
Fixed maturities 20,301 11,752 29,043
Mortgage loans 37,789 24,137 60,260
Proceeds from sales of investments
Fixed maturities 978,970 459,971 41,671
Equity securities 12,818 11,823 9,373
Mortgage loans 22,437 7,013 23,327
Real estate held for sale - - 34,181
Purchases of investments
Fixed maturities (994,443) (515,098) (204,412)
Equity securities (5,412) (156) (375)
Mortgage loans (21,450) (4,890) (5,607)
Policy loans (1,750) - -
Short-term securities, (purchases) sales, net (19,688) (5,051) (1,146)
Other investments, (purchases) sales, net (6,160) 9,274 682
Securities transactions in course of settlement (51,703) 45,727 5,722
- -------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (28,291) 44,502 (7,281)
- -------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Contractholder fund deposits 96,490 5,707 -
Contractholder fund withdrawals (22,340) (1,874) -
Dividends to parent company (16,000) - -
- -------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 58,150 3,833 -
- -------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash $ - $ (296) $ 296
- -------------------------------------------------------------------------------------------------------------
Cash at December 31 $ - $ - $ 296
- -------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
11
<PAGE> 42
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
The Travelers Life and Annuity Company (the Company) is a wholly owned
subsidiary of The Travelers Insurance Company (TIC), which is a wholly
owned subsidiary of The Travelers Insurance Group Inc. (TIGI), which is
an indirect wholly owned subsidiary of Travelers Group Inc. (Travelers
Group), a financial services holding company engaged, through its
subsidiaries, principally in four business segments: (i) Investment
Services; (ii) Consumer Finance Services; (iii) Property & Casualty
Insurance Services; and (iv) Life Insurance Services (through TIC and its
subsidiaries). The periodic reports of Travelers Group provide additional
business and financial information concerning that company and its
consolidated subsidiaries.
The Company offers fixed and variable deferred annuities and individual
life insurance to individuals and small businesses. It also provides
single premium group annuity close-out contracts and individual
structured settlement annuities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies used in the preparation of the
accompanying financial statements follow.
Basis of presentation
The financial statements and accompanying footnotes of the Company are
prepared in conformity with generally accepted accounting principles. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and benefits
and expenses during the reporting period. Actual results could differ
from those estimates.
Certain prior year amounts have been reclassified to conform with the
1996 presentation.
Investments
Fixed maturities include bonds, notes and redeemable preferred stocks.
Fixed maturities are valued based upon quoted market prices, or if quoted
market prices are not available, discounted expected cash flows using
market rates commensurate with the credit quality and maturity of the
investment. Fixed maturities are classified as "available for sale" and
are reported at fair value, with unrealized investment gains and losses,
net of income taxes, charged or credited directly to shareholder's
equity.
Equity securities, which include common and nonredeemable preferred
stocks, are classified as "available for sale" and are carried at fair
value based primarily on quoted market prices. Changes in fair values of
equity securities are charged or credited directly to shareholder's
equity, net of income taxes.
12
<PAGE> 43
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Mortgage loans are carried at amortized cost. A mortgage loan is
considered impaired when it is probable that the Company will be unable
to collect principal and interest amounts due. For mortgage loans that
are determined to be impaired, a reserve is established for the
difference between the amortized cost and fair market value of the
underlying collateral. In estimating fair value, the Company uses
interest rates reflecting the higher returns required in the current real
estate financing market. Impaired loans were insignificant at December
31, 1996 and 1995.
Real estate held for sale is carried at the lower of cost or fair value
less estimated costs to sell. Fair value of foreclosed properties is
established at the time of foreclosure by internal analysis or external
appraisers, using discounted cash flow analyses and other acceptable
techniques. Thereafter, an allowance for losses on real estate held for
sale is established if the carrying value of the property exceeds its
current fair value less estimated costs to sell. There was no such
allowance at December 31, 1996 and 1995.
Short-term securities, consisting primarily of money market instruments
and other debt issues purchased with a maturity of less than one year,
are carried at amortized cost which approximates market.
Accrual of income, included in other assets, is suspended on fixed
maturities or mortgage loans that are in default, or on which it is
likely that future payments will not be made as scheduled. Interest
income on investments in default is recognized only as payment is
received.
Investment Gains and Losses
Realized investment gains and losses are included as a component of
pre-tax revenues based upon specific identification of the investments
sold on the trade date. Also included are gains and losses arising from
the remeasurement of the local currency value of foreign investments to
U.S. dollars, the functional currency of the Company.
Policy Loans
Policy loans are carried at the amount of the unpaid balances that are
not in excess of the net cash surrender values of the related insurance
policies. The carrying value of policy loans, which have no defined
maturities, is considered to be fair value.
Separate Accounts
Separate account liabilities primarily represent structured settlement
annuity obligations, which provide guaranteed levels of return or
benefits to contractholders. The separate account assets supporting these
obligations, which are legally segregated and are not subject to claims
that arise out of any other business of the Company, are primarily
carried at fair value. Earnings on structured settlement contracts,
generally net investment income less policyholder benefits and operating
expenses, are included in other revenues.
13
<PAGE> 44
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
In addition, the Company has other separate accounts, representing funds
for which investment income and investment gains and losses accrue
directly to, and investment risk is borne by, the contractholders. Each
of these accounts have specific investment objectives. The assets and
liabilities of these accounts are carried at fair value, and amounts
assessed to the contractholders for management services are included in
revenues. Deposits, net investment income and realized investment gains
and losses for these accounts are excluded from revenues, and related
liability increases are excluded from benefits and expenses.
Deferred Acquisition Costs and Value of Insurance In Force
Costs of acquiring individual life insurance and annuity business,
principally commissions and certain expenses related to policy issuance,
underwriting and marketing, all of which vary with and are primarily
related to the production of new business, are deferred. Acquisition
costs relating to traditional life insurance are amortized in relation
to anticipated premiums; universal life in relation to estimated
gross profits; and annuity contracts employing a level yield method. A
10- to 25-year amortization period is used for life insurance, and a 10-
to 20-year period is employed for annuities. Deferred acquisition costs
are reviewed periodically for recoverability to determine if any
adjustment is required. Adjustments, if any are charged to income.
The value of insurance in force represents the actuarially determined
present value of anticipated profits to be realized from annuities
contracts at the date of acquisition using the same assumptions that were
used for computing related liabilities where appropriate. The value of
insurance in force was the actuarially determined present value of the
projected future profits discounted at an interest rate of 16% for the
business acquired. The value of the business in force is amortized using
current interest crediting rates to accrete interest and amortized
employing a level yield method. The value of insurance in force is
reviewed periodically for recoverability to determine if any adjustment
is required. Adjustments, if any are charged to income.
Future Policy Benefits
Benefit reserves represent liabilities for future insurance policy
benefits. Benefit reserves for life insurance and annuity policies have
been computed based upon mortality, morbidity, persistency and interest
assumptions applicable to these coverages, which range from 4.5% to 7.5%,
including a provision for adverse deviation. These assumptions consider
Company experience and industry standards. The assumptions vary by plan,
age at issue, year of issue and duration.
14
<PAGE> 45
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Contractholder Funds
Contractholder funds represent receipts from the issuance of universal
life and certain individual annuity contracts. Contractholder Fund
balances are increased by such receipts and credited interest and reduced
by withdrawals, mortality charges and administrative expenses charged to
the contractholders. Interest rates credited to contractholder funds
range from 3.9% to 7.0%.
Permitted Statutory Accounting Practices
The Company, domiciled in the State of Connecticut, prepares statutory
financial statements in accordance with the accounting practices
prescribed or permitted by the State of Connecticut Insurance Department.
Prescribed statutory accounting practices include certain publications
of the National Association of Insurance Commissioners as well as state
laws, regulations, and general administrative rules. Permitted statutory
accounting practices encompass all accounting practices not so
prescribed. The impact of any permitted accounting practices on the
statutory surplus of the Company is not material.
Premiums
Premiums are recognized as revenues when due. Reserves are established
for the portion of premiums that will be earned in future periods.
Other Revenues
Other revenues include surrender, mortality and administrative charges
and fees as earned on investment and other insurance contracts. Other
revenues also include structured settlement policyholder revenues, which
relate to contracts issued through a separate account of the Company, net
of the related policyholder benefits and expenses.
Federal Income Taxes
The provision for federal income taxes is comprised of two components,
current income taxes and deferred income taxes. Deferred federal income
taxes arise from changes during the year in cumulative temporary
differences between the tax basis and book basis of assets and
liabilities. The deferred federal income tax asset is recognized to the
extent that future realization of the tax benefit is more likely than
not, with a valuation allowance for the portion that is not likely to be
recognized.
15
<PAGE> 46
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Future Application of Accounting Standards
In June 1996, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 125 (FAS 125),
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." FAS 125 provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities. These standards are based on consistent
application of a financial-components approach that focuses on control.
Under that approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the
liabilities it has incurred, derecognizes financial assets when control
has been surrendered and derecognizes liabilities when extinguished. FAS
125 provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured
borrowings. The requirements of FAS No. 125 are effective for transfers
and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996, and are to be applied prospectively.
However, in December 1996 the FASB issued FAS No. 127, "Deferral of the
Effective Date of Certain Provisions of FASB Statement No. 125," which
delays until January 1, 1998 the effective date for certain provisions.
The adoption of the provisions of this statement effective January 1,
1997 will not have a material impact on results of operations, financial
condition or liquidity and the Company is currently evaluating the impact
of the provisions whose effective date has been delayed until January 1,
1998.
3. CHANGES IN ACCOUNTING PRINCIPLES
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This
statement establishes accounting standards for the impairment of
long-lived assets and certain identifiable intangibles to be disposed.
This statement requires a write down to fair value when long-lived assets
to be held and used are impaired. The statement also requires long-lived
assets to be disposed (e.g., real estate held for sale) be carried at the
lower of cost or fair value less cost to sell, and does not allow such
assets to be depreciated. The adoption of this standard did not have a
material impact on the Company's financial condition, results of
operations or liquidity.
Accounting for Stock-Based Compensation
The Company participates in a stock option plan sponsored by Travelers
Group that provides for the granting of stock options in Travelers Group
common stock to officers and key employees. The Company applies
Accounting Principles Board Opinion No. 25 (APB 25) and related
interpretations in accounting for stock options. Since stock options are
issued at fair market value on the date of award, no compensation cost
has been recognized for these awards. In October 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (FAS 123).
This statement provides an alternative to APB 25 whereby fair values may
be ascribed to options using a valuation model and amortized to
compensation cost over the vesting period of the options. Had the Company
applied FAS 123 in accounting for stock options, net income would have
been reduced by an insignificant amount in 1996 and 1995.
16
<PAGE> 47
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
3. CHANGES IN ACCOUNTING PRINCIPLES, Continued
Accounting by Creditors for Impairment of a Loan
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of
a Loan," and Statement of Financial Accounting Standards No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosures," which describe how impaired loans should be measured
when determining the amount of a loan loss accrual. These statements
amended existing guidance on the measurement of restructured loans in a
troubled debt restructuring involving a modification of terms. Their
adoption did not have a material impact on the Company's financial
condition, results of operations or liquidity.
4. REINSURANCE
The Company participates in reinsurance in order to limit losses,
minimize exposure to large risks, provide capacity for future growth and
to effect business-sharing arrangements. The Company remains primarily
liable as the direct insurer on all risks reinsured.
Life insurance in force ceded to TIC at December 31, 1996 and 1995 was
$90.7 million and $97.7 million, respectively. At December 31, 1996 and
1995, $2.2 billion and $601.2 million, respectively, was ceded to
non-affiliates.
5. SHAREHOLDER'S EQUITY
Unrealized Investment Gains (Losses)
An analysis of the change in unrealized gains and losses on investments
is shown in Note 12.
Shareholder's Equity and Dividend Availability
The Company's statutory net income was $17.9 million, $23.0 million and
$5.7 million for the years ended December 31, 1996, 1995 and 1994,
respectively.
Statutory capital and surplus was $254.1 million and $257.8 million at
December 31, 1996 and 1995, respectively.
The Company is currently subject to various regulatory restrictions that
limit the maximum amount of dividends available to be paid to its parent
without prior approval of insurance regulatory authorities. Statutory
surplus of $14.8 million is available in 1997 for dividend payments by
the Company without prior approval of the Connecticut Insurance
Department.
17
<PAGE> 48
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
6. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company does not hold or issue derivative instruments for trading
purposes. The carrying value of derivative instruments was not
significant at December 31, 1996 and 1995.
Fair Value of Certain Financial Instruments
The Company uses various financial instruments in the normal course of
its business. Fair values of financial instruments which are considered
insurance contracts are not required to be disclosed and are not included
in the amounts discussed.
At December 31, 1996, investments in fixed maturities had a carrying
value and a fair value of $694.5 million, compared with a carrying value
and a fair value of $724.6 million at December 31, 1995. See Note 12.
At December 31, 1996 and 1995, mortgage loans had a carrying value of
$90.5 million and $125.8 million, respectively, which approximates fair
value. In estimating fair value, the Company used interest rates
reflecting the higher returns required in the current real estate
financing market.
The carrying values of $2.1 million and $1.9 million of financial
instruments classified as other assets approximated their fair values at
December 31, 1996 and 1995, respectively. The carrying values of $13.3
million and $55.3 million of financial instruments classified as other
liabilities also approximated their fair values at December 31, 1996 and
1995, respectively. Fair value is determined using various methods
including discounted cash flows, as appropriate for the various financial
instruments.
The assets of separate accounts providing a guaranteed return had a
carrying value and a fair value of $896.9 million and $901.0 million,
respectively, at December 31, 1996, compared to a carrying value and a
fair value of $869.1 million and $923.0 million, respectively, at
December 31, 1995. The liabilities of separate accounts providing a
guaranteed return had a carrying value and a fair value of $808.7 million
and $695.3 million, respectively, at December 31, 1996, compared to a
carrying value and a fair value of $839.1 million and $766.3 million,
respectively, at December 31, 1995.
The carrying values of short-term securities and policy loans
approximated their fair values.
18
<PAGE> 49
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
7. COMMITMENTS AND CONTINGENCIES
Financial Instruments with Off-Balance Sheet Risk
The Company has, in the normal course of business, provided fixed rate
loan commitments and commitments to partnerships.
The off-balance sheet risks of fixed rate loan commitments, commitments
to partnerships and forward contracts were not significant at December
31, 1996 and 1995.
Litigation
The Company is a defendant in various litigation matters in the normal
course of business. Although there can be no assurances, as of December
31, 1996, the Company believes, based on information currently available,
that the ultimate resolution of these legal proceedings would not be
likely to have a material adverse effect on its results of operations,
financial condition or liquidity.
8. BENEFIT PLANS
Pension Plans
The Company participates in a qualified, noncontributory defined benefit
pension plan sponsored by Travelers Group covering the majority of
Travelers Group's U.S. employees. Benefits for the qualified plan are
based on an account balance formula. Under this formula, each employee's
accrued benefit can be expressed as an account that is credited with
amounts based upon the employee's pay, length of service and a specified
interest rate, all subject to a minimum benefit level. This plan is
funded in accordance with the Employee Retirement Income Security Act of
1974 and the Internal Revenue Code.
The Company also participates in a nonqualified, noncontributory defined
benefit pension plan sponsored by an affiliate covering the majority of
the Company's U.S. employees. Contributions are based on benefits paid.
The Company's share of net pension expense was not significant for 1996,
1995 or 1994.
Other Benefit Plans
In addition to pension benefits, the Company provides certain health care
and life insurance benefits for retired employees through a plan
sponsored by TIGI. Retirees may elect certain prepaid health care benefit
plans. Life insurance benefits are generally set at a fixed amount.
Beginning January 1, 1996, these plans were amended to restrict benefit
eligibility to retirees and certain retiree-eligible employees. The cost
recognized by the Company for these benefits represents its allocated
share of the total costs of the plan, net of retiree contributions. The
Company's share of the total cost of the plan for 1996, 1995 and 1994 was
not significant.
19
<PAGE> 50
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
8. BENEFIT PLANS, Continued
Savings, Investment and Stock Ownership Plan
Under the savings, investment and stock ownership plan available to
substantially all employees of TIGI, the Company matches a portion of
employee contributions. Effective April 1, 1993, the match decreased from
100% to 50% of an employee's first 5% contribution and a variable match
based on the profitability of TIGI and its subsidiaries was added through
December 31, 1995. Effective January 1, 1996, the match remained at 50%
of an employee's first 5% contribution with a maximum of $1,000.
Effective January 1, 1997, employee contributions will be matched with
Travelers Group stock options. The Company's expense was not significant
for 1996, 1995 or 1994.
9. RELATED PARTY TRANSACTIONS
The principal banking functions, including payment of salaries and
expenses, for certain subsidiaries and affiliates of TIGI, including the
Company, are handled by TIC. Settlements for these functions between TIC
and its affiliates are made regularly. TIC provides various employee
benefit coverages to certain subsidiaries of TIGI. The premiums for these
coverages were charged in accordance with cost allocation procedures
based upon salaries or census. In addition, investment advisory and
management services, data processing services and claims processing
services are provided by affiliated companies. Charges for these services
are shared by the companies on cost allocation methods based generally on
estimated usage by department.
TIGI and its subsidiaries maintain a short-term investment pool in which
the Company participates. The position of each company participating in
the pool is calculated and adjusted daily. At December 31, 1996 and 1995,
the pool totaled approximately $2.9 billion and $2.2 billion,
respectively. The Company's share of the pool amounted to $68.2 million
and $49.5 million at December 31, 1996 and 1995, respectively, and is
included in short-term securities in the balance sheet.
The Company's TTM Modified Guaranteed Annuity Contracts are subject to a
limited guarantee agreement by TIC in a principal amount of up to $250
million. TIC's obligation is to pay in full to any owner or beneficiary
of the TTM Modified Guaranteed Annuity Contracts principal and interest
as and when due under the annuity contract to the extent that the Company
fails to make such payment. In addition, TIC guarantees that the Company
will maintain a minimum statutory capital and surplus level.
The Company sells structured settlement annuities to an affiliate,
Travelers Property Casualty Corp., (TAP), formerly Travelers/Aetna
Property Casualty Corp. Such deposits were $36.9 million, $36.6 million
and $37.6 million for 1996, 1995 and 1994, respectively.
The Company began marketing variable annuity products through its
affiliate, Smith Barney, Inc., in 1995. Deposits related to these
products were $300.0 million and $20.5 million in 1996 and 1995,
respectively.
Most leasing functions for TIGI and its subsidiaries are handled by TAP.
Rent expense related to these leases are shared by the companies on a
cost allocation method based generally on estimated usage by department.
The company's rent expense was insignificant in 1996, 1995 and 1994.
20
<PAGE> 51
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
10. FEDERAL INCOME TAXES
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Effective tax rate
Income before federal income taxes $ 39,582 $43,436 $27,865
Statutory tax rate 35% 35% 35%
-------------------------------------------------------------------------------------------
Expected federal income taxes $ 13,854 $15,203 $ 9,753
Tax effect of:
Nontaxable investment income (15) (13) (90)
Adjustments to benefit and other reserves - - (117)
Other, net (48) (671) (6)
--------------------------------------------------------------------------------------------
Federal income taxes $ 13,791 $14,519 $ 9,540
--------------------------------------------------------------------------------------------
Effective tax rate 35% 33% 34%
-------------------------------------------------------------------------------------------
Composition of federal income taxes
Current:
United States $ 29,435 $ 2,555 $ 4,742
Foreign 21 - -
--------------------------------------------------------------------------------------------
Total 29,456 2,555 4,742
--------------------------------------------------------------------------------------------
Deferred:
United States (15,665) 11,964 4,798
--------------------------------------------------------------------------------------------
Federal income taxes $ 13,791 $14,519 $ 9,540
--------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 52
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
10. FEDERAL INCOME TAXES, Continued
The net deferred tax assets at December 31, 1996 and 1995 were comprised
of the tax effects of temporary differences related to the following
assets and liabilities:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Benefit, reinsurance and other reserves $79,484 $ 67,104
Other 3,043 2,570
------------------------------------------------------------------------------------------
Total 82,527 69,674
------------------------------------------------------------------------------------------
Deferred tax liabilities:
Investments, Net 12,113 19,625
Deferred acquisition costs and
value of insurance in force 10,066 6,285
Other 662 536
------------------------------------------------------------------------------------------
Total 22,841 26,446
------------------------------------------------------------------------------------------
Net deferred tax asset before valuation allowance 59,686 43,228
Valuation allowance for deferred tax assets (2,070) (2,070)
------------------------------------------------------------------------------------------
Net deferred tax asset after valuation allowance $57,616 $41,158
------------------------------------------------------------------------------------------
</TABLE>
Starting in 1994 and continuing for at least five years, TIC and its life
insurance subsidiaries, including the Company, will file a consolidated
federal income tax return. Federal income taxes are allocated to each
member on a separate return basis adjusted for credits and other amounts
required by the consolidation process. Any resulting liability will be
paid currently to TIC. Any credits for losses will be paid by TIC to the
extent that such credits are for tax benefits that have been utilized in
the consolidated federal income tax return.
A net deferred tax asset valuation allowance of $2.1 million has been
established to reduce the deferred tax asset on investment losses to the
amount that, based upon available evidence, is more likely than not to be
realized. Reversal of the valuation allowance is contingent upon the
recognition of future capital gains in the Company's consolidated life
insurance company federal income tax return through 1998, and the
consolidated federal income tax return of Travelers Group commencing in
1999, or a change in circumstances which causes the recognition of the
benefits to become more likely than not. There was no change in the
valuation allowance during 1996. The initial recognition of any benefit
provided by the reversal of the valuation allowance will be recognized by
reducing goodwill.
22
<PAGE> 53
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
10. FEDERAL INCOME TAXES, Continued
In management's judgment, the $57.6 million "net deferred tax asset after
valuation allowance" as of December 31, 1996, is fully recoverable
against expected future years' taxable ordinary income and capital gains.
At December 31, 1996, the Company has no ordinary or capital loss
carryforwards.
The "policyholders surplus account", which arose under prior tax law, is
generally that portion of the gain from operations that has not been
subjected to tax, plus certain deductions. The balance of this account,
which, under provisions of the Tax Reform Act of 1984, will not increase
after 1983, is estimated to be $2.0 million. This amount has not been
subjected to current income taxes but, under certain conditions that
management considers to be remote, may become subject to income taxes in
future years. At current rates, the maximum amount of such tax (for which
no provision has been made in the financial statements) would be
approximately $700 thousand.
11. NET INVESTMENT INCOME
<TABLE>
<CAPTION>
(For the year ended December 31, in thousands) 1996 1995 1994
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross investment income
Fixed maturities $54,029 $49,486 $44,354
Equity securities 411 497 827
Mortgage loans 15,491 11,644 17,178
Real estate held for sale 3,480 2,476 6,299
Other 19,770 2,552 4,480
---------------------------------------------------------------------------------------
93,181 66,655 73,138
---------------------------------------------------------------------------------------
Investment expenses 4,141 3,446 7,045
---------------------------------------------------------------------------------------
Net investment income $89,040 $63,209 $66,093
---------------------------------------------------------------------------------------
</TABLE>
23
<PAGE> 54
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
12. INVESTMENTS AND INVESTMENT GAINS (LOSSES)
Realized investment gains (losses) for the periods were as follows:
<TABLE>
<CAPTION>
(For the year ended December 31, in thousands) 1996 1995 1994
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Realized
Fixed maturities $(11,491) $(4,240) $ (908)
Equity securities 4,613 6,138 1,675
Mortgage loans 1,979 725 36
Real estate held for sale (73) (35) -
Other (4,641) 16,125 (2,877)
-----------------------------------------------------------------------------------------
Realized investment gains (losses) $ (9,613) $18,713 $(2,074)
-----------------------------------------------------------------------------------------
</TABLE>
Changes in net unrealized investment gains (losses) that are included as
a separate component of shareholder's equity were as follows:
<TABLE>
<CAPTION>
(For the year ended December 31, in thousands) 1996 1995 1994
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized
Fixed maturities $(23,953) $111,551 $(65,205)
Equity securities (746) 1,834 (27)
Other 22,431 4,390 (28)
------------------------------------------------------------------------------------------
(2,268) 117,775 (65,260)
Related taxes (794) 41,221 (22,841)
------------------------------------------------------------------------------------------
Change in unrealized investment gains (losses) (1,474) 76,554 (42,419)
Balance beginning of year 35,330 (41,224) 1,195
------------------------------------------------------------------------------------------
Balance end of year $ 33,856 $ 35,330 $(41,224)
------------------------------------------------------------------------------------------
</TABLE>
Fixed Maturities
Proceeds from sales of fixed maturities classified as available for sale
were $979.0 million and $460.0 million in 1996 and 1995, respectively.
Gross gains of $8.4 million and $7.9 million and gross losses of $19.9
million and $10.3 million in 1996 and 1995, respectively, were realized
on those sales.
24
<PAGE> 55
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
12. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
The amortized cost and fair values of investments in fixed maturities
were as follows:
<TABLE>
<CAPTION>
December 31, 1996
----------------------------------------------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
(in thousands) cost gains losses value
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
Mortgage-backed securities -
CMOs and pass through
securities $ 88,138 $ 1,637 $ 629 $ 89,146
U.S. Treasury securities
and obligations of U.S.
Government and
government agencies
and authorities 115,059 10,371 61 125,369
Obligations of states and
political subdivisions 3,500 255 -- 3,755
Debt securities issued
by foreign governments 56,097 1,473 1,269 56,301
All other corporate bonds 409,294 13,862 3,277 419,879
Redeemable preferred stock 85 -- -- 85
----------------------------------------------------------------------------------------------------
Total $672,173 $27,598 $5,236 $694,535
----------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE> 56
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
12. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
<TABLE>
<CAPTION>
December 31, 1995
------------------------------------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
(in thousands) cost gains losses value
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
Mortgage-backed securities -
CMOs and pass through
securities $ 89,044 $ 2,545 $ 378 $ 91,211
U.S. Treasury securities
and obligations of U.S.
Government and
government agencies
and authorities 160,988 24,267 1 185,254
Obligations of states and
political subdivisions 3,500 499 - 3,999
All other corporate bonds 424,676 21,576 2,162 444,090
Redeemable preferred stock 85 - - 85
------------------------------------------------------------------------------------------
Total $678,293 $48,887 $2,541 $724,639
------------------------------------------------------------------------------------------
</TABLE>
The amortized cost and fair value of fixed maturities available for sale
at December 31, 1996, by contractual maturity, are shown below. Actual
maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
Maturity Amortized Fair
(in thousands) cost value
-------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 11,184 $ 11,204
Due after 1 year through 5 years 50,397 50,366
Due after 5 years through 10 years 169,634 173,049
Due after 10 years 352,820 370,770
-------------------------------------------------------------------------
584,035 605,389
Mortgage-backed securities 88,138 89,146
-------------------------------------------------------------------------
Total $672,173 $694,535
-------------------------------------------------------------------------
</TABLE>
The Company makes significant investments in collateralized mortgage
obligations (CMOs). CMOs typically have high credit quality, offer good
liquidity, and provide a significant advantage in yield and total return
compared to U.S. Treasury securities. The Company's investment strategy
is to purchase CMO tranches which are protected against prepayment risk,
including planned amortization class (PAC) tranches. Prepayment protected
tranches are preferred because they provide stable cash flows in a
variety of interest rate scenarios. The Company does invest in other
types of CMO tranches if a careful assessment indicates a favorable
risk/return tradeoff. The Company does not purchase residual interests in
CMOs.
26
<PAGE> 57
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
12. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
At December 31, 1996 and 1995, the Company held CMOs with a market value
of $67.7 million and $68.6 million, respectively. The Company's CMO
holdings are 100% and approximately 94% collateralized by GNMA, FNMA or
FHLMC securities at December 31, 1996 and 1995, respectively.
Equity Securities
The cost and market values of investments in equity securities were as
follows:
<TABLE>
<CAPTION>
December 31, 1996
----------------------------------------------------------------------------------------------------
Gross Gross
unrealized unrealized Fair
(in thousands) Cost gains losses value
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stocks $1,630 $2,845 $83 $4,392
Nonredeemable preferred stocks 5,024 138 - 5,162
----------------------------------------------------------------------------------------------------
Total $6,654 $2,983 $83 $9,554
----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
----------------------------------------------------------------------------------------------------
Gross Gross
unrealized unrealized Fair
(in thousands) Cost gains losses value
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stocks $3,310 $3,374 $ 68 $ 6,616
Nonredeemable preferred stocks 6,143 340 - 6,483
----------------------------------------------------------------------------------------------------
Total $9,453 $3,714 $ 68 $13,099
----------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales of equity securities were $12.8 million and $11.8
million in 1996 and 1995, respectively. Gross gains of $4.7 million and
$4.9 million and gross losses of $155 thousand and $474 thousand in 1996
and 1995, respectively, were realized on those sales.
Real estate held for sale and mortgage loans
Underperforming assets include delinquent mortgage loans, loans in the
process of foreclosure, foreclosed loans and loans modified at interest
rates below market.
27
<PAGE> 58
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
12. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
At December 31, 1996 and 1995, the Company's real estate held for sale
and mortgage loan portfolios consisted of the following:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
---------------------------------------------------------------------------
<S> <C> <C>
Current mortgage loans $ 90,394 $108,142
Underperforming mortgage loans 148 17,671
---------------------------------------------------------------------------
Total 90,542 125,813
---------------------------------------------------------------------------
Real estate held for sale 10,111 8,995
---------------------------------------------------------------------------
Total $100,653 $134,808
---------------------------------------------------------------------------
</TABLE>
Aggregate annual maturities on mortgage loans at December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
(in thousands)
---------------------------------------------------
<S> <C>
Past maturity $ 1,677
1997 5,662
1998 316
1999 5,088
2000 5,734
2001 5,678
Thereafter 66,387
---------------------------------------------------
Total $90,542
---------------------------------------------------
</TABLE>
Concentrations
At December 31, 1996 the Company had investments of $75.1 million in the
State of Israel and $40.6 million in Merrill Lynch Trust Series 45. In
1995, the Company had no concentration of credit risk in a single
investee exceeding 10% of shareholder's equity.
The Company participates in a short-term investment pool maintained by an
affiliate. See Note 9.
Included in fixed maturities are below investment grade assets totaling
$40.7 million and $59.0 million at December 31, 1996 and 1995,
respectively. The Company defines its below investment grade assets as
those securities rated "Ba1" or below by external rating agencies, or the
equivalent by internal analysts when a public rating does not exist. Such
assets include publicly traded below investment grade bonds and certain
other privately issued bonds that are classified as below investment
grade loans.
28
<PAGE> 59
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
12. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
The Company also had concentrations of investments, primarily fixed
maturities, in the following industries:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
------------------------------------------------------------------------------------------
<S> <C> <C>
Foreign governments $108,850 $ -
Finance 90,222 25,853
Transportation 86,819 44,118
------------------------------------------------------------------------------------------
</TABLE>
Below investment grade assets included in the totals of the previous
table were as follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
----------------------------------------------------------------------------------------
<S> <C> <C>
Foreign governments $6,567 $ -
Finance 2,386 451
Transportation 776 18,648
----------------------------------------------------------------------------------------
</TABLE>
Concentrations of mortgage loans by property type at December 31, 1996
and 1995 were as follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
-----------------------------------------------------------------------------------------
<S> <C> <C>
Agricultural $33,501 $29,820
Office 22,533 32,024
Retail 20,024 27,870
-----------------------------------------------------------------------------------------
</TABLE>
The Company monitors creditworthiness of counterparties to all financial
instruments by using controls that include credit approvals, limits and
other monitoring procedures. Collateral for fixed maturities often
includes pledges of assets, including stock and other assets, guarantees
and letters of credit. The Company's underwriting standards with respect
to new mortgage loans generally require loan to value ratios of 75% or
less at the time of mortgage origination.
Non-Income Producing Investments
Investments included in the balance sheets that were non-income producing
for the preceding 12 months were insignificant.
Restructured Investments
The Company had mortgage loan and debt securities which were restructured
at below market terms totaling approximately $1.0 million and $17.7
million at December 31, 1996 and 1995, respectively. The new terms
typically defer a portion of contract interest payments to varying future
periods. The accrual of interest is suspended on all restructured assets,
and interest income is reported only as payment is received. Gross
interest income on restructured assets that would have been recorded in
accordance with the original terms of such assets was insignificant in
1996 and amounted to $4.9 million in 1995. Interest on these assets,
included in net investment income, was insignificant in 1996 and amounted
to $2.0 million in 1995.
29
<PAGE> 60
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, Continued
13. LIFE AND ANNUITY DEPOSIT FUNDS AND RESERVES
At December 31, 1996, the Company had $740.6 million of life and annuity
deposit funds and reserves. Of that total, $659.0 million were not
subject to discretionary withdrawal based on contract terms. The
remaining $81.6 million were life and annuity products that were subject
to discretionary withdrawal by the contractholders. Included in the
amount that is subject to discretionary withdrawal were $50.4 million of
liabilities that are surrenderable with market value adjustments. An
additional $31.2 million of the life insurance and individual annuity
liabilities are subject to discretionary withdrawals with an average
surrender charge of 6.7%. The life insurance risks would have to be
underwritten again if transferred to another carrier, which is considered
a significant deterrent for long-term policyholders. Insurance
liabilities that are surrendered or withdrawn from the Company are
reduced by outstanding policy loans and related accrued interest prior to
payout.
14. RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES
The following table reconciles net income to net cash provided by (used
in) operating activities:
<TABLE>
<CAPTION>
(For the year ended December 31, in thousands) 1996 1995 1994
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income from continuing operations $ 25,791 $ 28,917 $ 18,325
Adjustments to reconcile net income to
cash provided by operating activities
Realized (gains) losses 9,613 (18,713) 2,074
Deferred federal income taxes (15,665) 11,964 4,798
Amortization of deferred policy acquisition
costs and value of insurance in force 3,286 1,563 -
Additions to deferred policy acquisition costs (20,753) (3,109) (21,014)
Investment income accrued 1,308 (819) 1,085
Premium balances receivable (3,561) (2,277) -
Insurance reserves and accrued expenses (16,459) (20,081) (16,062)
Other (13,419) (46,076) 18,371
------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities $(29,859) $(48,631) $ 7,577
------------------------------------------------------------------------------------------------------------
</TABLE>
15. NONCASH INVESTING AND FINANCING ACTIVITIES
Significant noncash investing and financing activities include: a) the
transfer of $2.6 million of real estate held for sale and mortgage loans
from one of the Company's separate accounts to the general account in
1995, b) acquisition of real estate through foreclosures of mortgage
loans amounting to $1.1 million, $0 and $10.3 million in 1996, 1995 and
1994, respectively.
30
<PAGE> 61
Travelers Index Annuity
STATEMENT OF ADDITIONAL INFORMATION
Individual Variable Annuity Contract
issued by
The Travelers Life and Annuity Company
One Tower Square
Hartford, Connecticut 06183
L-12253S ______, 1997
11
<PAGE> 62
PART C
Other Information
Item 24. Financial Statements and Exhibits
<TABLE>
<S> <C>
(a) The financial statements of the Registrant will not be provided since the Registrant will have no assets as
of the effective date of the Registrant Statement.
The financial statements of The Travelers Life and Annuity Company and the report of Independent
Accountants, are contained in the Statement of Additional Information. The consolidated financial
statements of The Travelers Life and Annuity Company include:
Statements of Income and Retained Earnings for the years ended December 31, 1996,
1995 and 1994
Balance Sheets as of December 31, 1996 and 1995
Statements of Cash Flows for the years ended December 31, 1996, 1995 and
1994
Notes to Financial Statements
(b) Exhibits
1. Resolution of The Travelers Life and Annuity Company Board of Directors authorizing the establishment of
the Registrant. (Incorporated herein by reference to Exhibit 1 to the Registration Statement on Form N-4,
filed May 23, 1997.)
2. Not Applicable.
3(a). Form of Distribution and Management Agreement among the Registrant, The Travelers Life and Annuity Company
and Tower Square Securities, Inc. (Incorporated herein by reference to Exhibit 3(a) to the Registration
Statement on Form N-4, filed May 23, 1997.)
3(b). Form of Selling Agreement (Incorporated herein by reference to Exhibit 3(b) to the Registration Statement
on Form N-4, filed May 23, 1997.)
4. Variable Annuity Contract. (Incorporated herein by reference to Exhibit 4 to the
Registration Statement on Form N-4, filed May 23, 1997.)
5. Application.
6(a). Charter of The Travelers Life and Annuity Company, as amended on April 10, 1990. (Incorporated herein by
reference to Exhibit 6(a) to Registration Statement on Form N-4, File No. 33-58131, filed via Edgar on
March 17, 1995.)
6(b). By-Laws of The Travelers Life and Annuity Company, as amended on October 20, 1994. (Incorporated herein by
reference to Exhibit 6(b) to the Registration Statement on Form N-4, File No. 33-58131, filed via Edgar on
March 17, 1995.)
9. Opinion of Counsel as to the legality of securities being registered. (Incorporated herein by reference to
Exhibit 9 to the Registration Statement on Form N-4, filed May 23, 1997.)
10(a). Consent of KPMG Peat Marwick LLP, Independent Certified Public Accountants.
13. Computation of Total Return Calculations - Standardized and Non-Standardized.
</TABLE>
<PAGE> 63
<TABLE>
<S> <C>
15(a). Powers of Attorney authorizing Ernest J. Wright or Kathleen A. McGah as signatory for Michael A. Carpenter,
Jay S. Benet, George C. Kokulis, Robert I. Lipp, Ian R. Stuart, Katherine M. Sullivan and Marc P. Weill.
(Incorporated herein by reference to Exhibit 15(a) to the Registration Statement on Form N-4, filed May 23,
1997.)
</TABLE>
<PAGE> 64
Item 25. Directors and Officers of the Depositor
<TABLE>
<CAPTION>
Name and Principal Positions and Offices
Business Address with Insurance Company
- ---------------- ----------------------
<S> <C>
Michael A. Carpenter* Director, Chairman of the Board
President and Chief Executive Officer
Jay S. Benet* Director and Senior Vice President
George C. Kokulis* Director and Senior Vice President
Robert I. Lipp* Director
Ian R. Stuart* Director, Senior Vice President,
Chief Financial Officer, Chief
Accounting Officer and Controller
Katherine M. Sullivan* Director and Senior Vice President
and General Counsel
Marc P. Weill** Director and Senior Vice President
Stuart Baritz** Senior Vice President
Elizabeth C. Georgakopoulos* Senior Vice President
Barry Jacobson* Senior Vice President
Russell H. Johnson* Senior Vice President
Warren H. May* Senior Vice President
Christine M. Modie* Senior Vice President
David A. Tyson* Senior Vice President
F. Denney Voss* Senior Vice President
Paula Burton* Vice President
William Hogan* Vice President and Actuary
Donald R. Munson, Jr.* Second Vice President
Ernest J. Wright* Vice President and Secretary
Kathleen A. McGah* Assistant Secretary and Counsel
Principal Business Address:
* The Travelers Life and Annuity Company ** Travelers Group Inc.
One Tower Square 388 Greenwich Street
Hartford, CT 06183 New York, N.Y. 10013
</TABLE>
<PAGE> 65
Item 26. Persons Controlled by or Under Common Control with the Depositor or
Registrant
OWNERSHIP OF THE TRAVELERS LIFE AND ANNUITY COMPANY
<TABLE>
<CAPTION>
Company State of Organization Ownership Principal Business
- ------- --------------------- --------- ------------------
<S> <C> <C> <C>
Travelers Group Inc. Delaware Publicly Held
Associated Madison Companies Inc. Delaware 100.00 ================
PFS Services Inc. Georgia 100.00
The Travelers Insurance Group, Inc. Connecticut 100.00 ================
The Travelers Insurance Company Connecticut 100.00 Insurance
The Travelers Life and Annuity Company Connecticut 100.00 Insurance
</TABLE>
PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
THE TRAVELERS LIFE AND ANNUITY COMPANY
<TABLE>
<CAPTION>
% of Voting
Securities
State of Owned Directly
Organization or Indirectly by Principal Business
------------ The Travelers Inc. ------------------
------------------
<S> <C> <C> <C>
AC Health Ventures, Inc. Delaware 100.00 Inactive
AMCO Biotech, Inc. Delaware 100.00 Inactive
Associated Madison Companies, Inc. Delaware 100.00 Holding company.
American National Life Insurance (T & C), Ltd. Nevis 100.00 Insurance
ERISA Corporation New York 100.00 Inactive
Mid-America Insurance Services, Inc. Georgia 100.00 Third party administrator
National Marketing Corporation Pennsylvania 100.00 Inactive
PFS Services, Inc. Georgia 100.00 General partner and holding
company
The Travelers Insurance Group Inc. Connecticut 100.00 Holding company
</TABLE>
07/21/97
<PAGE> 66
<TABLE>
<CAPTION>
% of Voting
Securities
State of Owned Directly
Organization or Indirectly by Principal Business
------------ The Travelers Inc. ------------------
------------------
<S> <C> <C> <C>
Constitution Plaza, Inc. Connecticut 100.00 Real estate brokerage
KP Properties Corporation Massachusetts 100.00 Real estate
KPI 85, Inc. Massachusetts 100.00 Real estate
KRA Advisers Corporation Massachusetts 100.00 Real estate
KRP Corporation Massachusetts 100.00 Real estate
La Metropole S.A. Belgium 98.83 P-C insurance/reinsurance
The Prospect Company Delaware 100.00 Investments
89th & York Avenue Corporation New York 100.00 Real estate
979 Third Avenue Corporation Delaware 100.00 Real estate
Meadow Lane, Inc. Georgia 100.00 Real estate development
Panther Valley, Inc. New Jersey 100.00 Real estate management
Prospect Management Services Company Delaware 100.00 Real estate management
The Travelers Asset Funding Corporation Connecticut 100.00 Investment adviser
Travelers Capital Funding Corporation Connecticut 100.00 Furniture/equipment
The Travelers Insurance Company Connecticut 100.00 Insurance
Applied Expert Systems Inc. Massachusetts 23.40 EDP Software
The Plaza Corporation Connecticut 100.00 Holding company
The Copeland Companies (Holding Company) New Jersey 100.00 Holding company
American Odyssey Funds Management, Inc. New Jersey 100.00 Investment advisor
American Odyssey Funds, Inc. Maryland 100.00 Investment management
Copeland Associates, Inc. Delaware 100.00 Fixed/variable annuities
Copeland Associates Agency of Ohio, Inc. Ohio 99.00 Fixed/variable annuities
Copeland Associates of Alabama, Inc. Alabama 100.00 Fixed/variable annuities
Copeland Associates of Montana, Inc. Montana 100.00 Fixed/variable annuities
Copeland Associates of Nevada, Inc. Nevada 100.00 Insurance
Copeland Benefits Management Company New Jersey 51.00 Investment marketing
Copeland Equities, Inc. New Jersey 100.00 Fixed/variable annuities
Donald F. Smith & Associates New Jersey 100.00 Insurance agency
Donald F. Smith Insurance Benefit Services, Massachusetts 100.00 Insurance agent
Inc.
H.C. Copeland Associates, Inc. of Massachusetts 100.00 Fixed annuities
Massachusetts
</TABLE>
2
<PAGE> 67
<TABLE>
<CAPTION>
% of Voting
Securities
State of Owned Directly
Organization or Indirectly by Principal Business
------------ The Travelers Inc. ------------------
------------------
<S> <C> <C> <C>
Smith Annuity Services, Inc. New Jersey 100.00 Broker dealer
Copeland Financial Services, Inc. New Jersey 100.00 Investment advisory services
Copeland Mortgage Services, Inc. New Jersey 100.00 Mortgage services
H.C. Copeland and Associates, Inc. of Texas Texas 100.00 Fixed/variable annuities
Three Parkway Inc. - I Pennsylvania 100.00 Investment real estate
Three Parkway Inc. - II Pennsylvania 100.00 Investment real estate
Three Parkway Inc. - III Pennsylvania 100.00 Investment real estate
Tower Square Securities, Inc. Connecticut 100.00 Broker dealer
Travelers Asset Management International Corporation New York 100.00 Investment adviser
Travelers Distribution Company Delaware 100.00 Broker dealer
Travelers Investment Adviser, Inc. Delaware 100.00 Investment advisor
Travelers/Net Plus Insurance Agency, Inc. Massachusetts 100.00 Insurance agency
Travelers/Net Plus, Inc. Connecticut 100.00 Insurance agency
Travelers/Net Plus Agency of Ohio, Inc. Ohio 100.00 Insurance agency
The Travelers Life and Annuity Company Connecticut 100.00 Life insurance
Travelers Group Investment Management, LLC Delaware 50.00 Investment advisor
Travelers Insurance Holdings Inc. Georgia 100.00 Holding company
AC RE, Ltd. Bermuda 100.00 Reinsurance
American Financial Life Insurance Company Texas 100.00 Insurance
Primerica Life Insurance Company Massachusetts 100.00 Life insurance
National Benefit Life Insurance Company New York 100.00 Insurance
Primerica Financial Services (Canada) Ltd. Canada 100.00 Holding company
PFSL Investments Canada Ltd. Canada 100.00 Mutual fund dealer
Primerica Financial Services Ltd. Canada 82.82 General agent
Primerica Life Insurance Company of Canada Canada 100.00 Life insurance
The Travelers Insurance Corporation Proprietary Limited Australia 100.00 Inactive
Travelers Canada Corporation Canada 100.00 Inactive
Travelers Mortgage Securities Corporation Delaware 100.00 Collateralized obligations
Travelers Property Casualty Corp. Delaware 82.00 Holding company
The Standard Fire Insurance Company Connecticut 100.00 Insurance company
</TABLE>
3
<PAGE> 68
<TABLE>
<CAPTION>
% of Voting
Securities
State of Owned Directly
Organization or Indirectly by Principal Business
------------ The Travelers Inc. ------------------
------------------
<S> <C> <C> <C>
AE Properties, Inc. California 100.00 Insurance
Community Rehabilitation Investment Corporation Connecticut 100.00 Investment services
The Automobile Insurance Company of Hartford, Connecticut 100.00 Insurance company
Connecticut
TravCal Secure Insurance Company California 100.00 Auto insurance
TravCal Indemnity Company California 100.00 Auto insurance
Travelers Personal Security Insurance Company Connecticut 100.00 Insurance company
Travelers Property Casualty Insurance Company Connecticut 100.00 Insurance company
Travelers Property Casualty Insurance Company of Illinois 100.00 Insurance company
Illinois
The Travelers Indemnity Company Connecticut 100.00 P-C insurance
Commercial Insurance Resources, Inc. Delaware 100.00 Holding company
Gulf Insurance Company Missouri 100.00 P-C insurance
Atlantic Insurance Company Texas 100.00 P-C insurance
Gulf Group Lloyds Texas 0.00 P-C insurance
Gulf Risk Services, Inc. Delaware 100.00 Claims/risk management
Gulf Underwriters Insurance Company Missouri 100.00 P-C ins/surplus lines
Select Insurance Company Texas 100.00 P-C insurance
Countersignature Agency, Inc. Florida 100.00 Countersign ins policies
First Floridian Auto and Home Insurance Company Florida 100.00 Insurance company
First Trenton Indemnity Company New Jersey 100.00 P-C insurance
Red Oak Insurance Company New Jersey 100.00 Insurance company
Laramia Insurance Agency, Inc. North Carolina 100.00 Flood insurance
Secure Affinity Agency, Inc. Delaware 100.00 P-C insurance agency
The Charter Oak Fire Insurance Company Connecticut 100.00 P-C insurance
The Parker Realty and Insurance Agency, Inc. Vermont 58.00 Real estate
The Phoenix Insurance Company Connecticut 100.00 P-C insurance
Constitution State Service Company Montana 100.00 Service company
The Travelers Indemnity Company of America Georgia 100.00 P-C insurance
The Travelers Indemnity Company of Connecticut Connecticut 100.00 Insurance
The Travelers Indemnity Company of Illinois Illinois 100.00 P-C insurance
The Premier Insurance Company of Massachusetts Massachusetts 100.00 Insurance
</TABLE>
4
<PAGE> 69
<TABLE>
<CAPTION>
% of Voting
Securities
State of Owned Directly
Organization or Indirectly by Principal Business
------------ The Travelers Inc. ------------------
------------------
<S> <C> <C> <C>
The Travelers Home and Marine Insurance Company Indiana 100.00 P-C insurance
The Travelers Indemnity Company of Missouri Missouri 100.00 P-C insurance
The Travelers Lloyds Insurance Company Texas 100.00 Non-life insurance
The Travelers Marine Corporation California 100.00 General insurance brokerage
TI Home Mortgage Brokerage, Inc. Delaware 100.00 Mortgage brokerage services
TravCo Insurance Company Indiana 100.00 P-C insurance
Travelers Bond Investments, Inc. Connecticut 100.00 Bond investments
Travelers General Agency of Hawaii, Inc. Hawaii 100.00 Insurance agency
Travelers Medical Management Services Inc. Delaware 100.00 Managed care
Travelers Specialty Property Casualty Company, Inc. Connecticut 100.00 Insurance management
Travelers Casualty and Surety Company Connecticut 100.00 Insurance company
AE Development Group, Inc. Connecticut 100.00 Insurance
Aetna Casualty & Surety Company of Canada Canada 100.00 Insurance company
Aetna Information Services Inc. Connecticut 50.00 Insurance
Aetna National Accounts U.K. Limited United Kingdom 100.00 Insurance company
Charter Oak Services Corporation New York 100.00 Insurance
Farmington Casualty Company Connecticut 100.00 Insurance company
Farmington Management, Inc. Connecticut 100.00 Management services
Travelers Casualty and Surety Company of America Connecticut 100.00 Insurance company
Travelers Casualty and Surety Company of Illinois Illinois 100.00 Insurance company
Travelers Casualty Company of Connecticut Connecticut 100.00 Insurance company
Travelers Commercial Insurance Company Connecticut 100.00 Insurance company
Travelers Excess and Surplus Lines Company Connecticut 100.00 Insurance Company
Travelers Lloyds of Texas Insurance Company Texas 100.00 Insurance company
Urban Diversified Properties, Inc. Connecticut 100.00 Insurance
Primerica Client Services, Inc. Delaware 100.00 Discount purchase club
Primerica Convention Services, Inc. Georgia 100.00 Convention planner
Primerica Finance Corporation Delaware 100.00 Holding company
PFS Distributors, Inc. Georgia 100.00 General partner
PFS Investments Inc. Georgia 100.00 Broker dealer
</TABLE>
5
<PAGE> 70
<TABLE>
<CAPTION>
% of Voting
Securities
State of Owned Directly
Organization or Indirectly by
------------ The Travelers Inc.
------------------
<S> <C> <C>
PFS T.A., Inc. Delaware 100.00
Primerica Financial Services Home Mortgages, Inc. Georgia 100.00
Primerica Financial Services, Inc. Nevada 100.00
Primerica Financial Services Agency of New York, Inc. New York 100.00
Primerica Financial Services Insurance Marketing of Connecticut, Inc. Connecticut 100.00
Primerica Financial Services Insurance Marketing of Idaho, Inc. Idaho 100.00
Primerica Financial Services Insurance Marketing of Nevada, Inc. Nevada 100.00
Primerica Financial Services Insurance Marketing of Pennsylvania, Inc. Pennsylvania 100.00
Primerica Financial Services Insurance Marketing of the Virgin United States Virgin
Islands, Inc. Islands 100.00
Primerica Financial Services Insurance Marketing of Wyoming, Inc. Wyoming 100.00
Primerica Financial Services Insurance Marketing, Inc. Delaware 100.00
Primerica Financial Services of Alabama, Inc. Alabama 100.00
Primerica Financial Services of Arizona, Inc. Arizona 100.00
Primerica Financial Services of Kentucky Inc. Kentucky 100.00
Primerica Financial Services of New Mexico, Inc. New Mexico 100.00
Primerica Insurance Agency of Massachusetts, Inc. Massachusetts 100.00
Primerica Insurance Marketing Services of Puerto Rico, Inc. Puerto Rico 100.00
Primerica Insurance Services of Louisiana, Inc. Louisiana 100.00
Primerica Insurance Services of Maryland, Inc. Maryland 100.00
Primerica Services, Inc. Georgia 100.00
RCM Acquisition Inc. Delaware 100.00
SCN Acquisitions Company Delaware 100.00
SL&H Reinsurance, Ltd. Nevis 100.00
Southwest Service Agreements, Inc. North Carolina 100.00
Southwest Warranty Corporation Florida 100.00
Berg Associates New Jersey 100.00
CCC Holdings, Inc. Delaware 100.00
Commercial Credit Company Delaware 100.00
American Health and Life Insurance Company Maryland 100.00
Brookstone Insurance Company Vermont 100.00
</TABLE>
<TABLE>
<CAPTION>
Principal Business
------------------
<S> <C>
PFS T.A., Inc. Joint venture partner
Primerica Financial Services Home Mortgages, Inc. Mortgage loan broker
Primerica Financial Services, Inc. General agency
Primerica Financial Services Agency of New York, Inc. General agency licensing
Primerica Financial Services Insurance Marketing of Connecticut, Inc. General agency licensing
Primerica Financial Services Insurance Marketing of Idaho, Inc. General agency licensing
Primerica Financial Services Insurance Marketing of Nevada, Inc. General agency licensing
Primerica Financial Services Insurance Marketing of Pennsylvania, Inc. General agency licensing
Primerica Financial Services Insurance Marketing of the Virgin
Islands, Inc. General agency licensing
Primerica Financial Services Insurance Marketing of Wyoming, Inc. General agency licensing
Primerica Financial Services Insurance Marketing, Inc. General agency licensing
Primerica Financial Services of Alabama, Inc. General agency licensing
Primerica Financial Services of Arizona, Inc. General agency licensing
Primerica Financial Services of Kentucky Inc. General agency licensing
Primerica Financial Services of New Mexico, Inc. General agency licensing
Primerica Insurance Agency of Massachusetts, Inc. General agency licensing
Primerica Insurance Marketing Services of Puerto Rico, Inc. Insurance agency
Primerica Insurance Services of Louisiana, Inc. General agency licensing
Primerica Insurance Services of Maryland, Inc. General agency licensing
Primerica Services, Inc. Print operations
RCM Acquisition Inc. Investments
SCN Acquisitions Company Investments
SL&H Reinsurance, Ltd. Reinsurance
Southwest Service Agreements, Inc. Warranty/service agreements
Southwest Warranty Corporation Extended automobile warranty
Berg Associates Inactive
CCC Holdings, Inc. Holding company
Commercial Credit Company Holding company.
American Health and Life Insurance Company LH&A Insurance
Brookstone Insurance Company Insurance managers
</TABLE>
6
<PAGE> 71
<TABLE>
<CAPTION>
% of Voting
Securities
State of Owned Directly
Organization or Indirectly by
------------ The Travelers Inc. Principal Business
------------------ ------------------
<S> <C> <C> <C>
CC Finance Company, Inc. New York 100.00 Consumer lending
CC Financial Services, Inc. Hawaii 100.00 Consumer lending
CCC Fairways, Inc. Delaware 100.00 Investment company
Chesapeake Appraisal and Settlement Services Inc. Maryland 100.00 Appraisal/title
Chesapeake Appraisal and Settlement Services Agency of Ohio Inc. Ohio 100.00 Appraisal/Title
City Loan Financial Services, Inc. Ohio 100.00 Direct loan
City Loan Financial, Inc. Ohio 100.00 Consumer finance
Commercial Credit Banking Corporation Oregon 100.00 Consumer finance
Commercial Credit Consumer Services, Inc. Minnesota 100.00 Consumer finance
Commercial Credit Corporation (Hawaii) Hawaii 100.00 Financial services
Commercial Credit Corporation (AL) Alabama 100.00 Consumer finance
Commercial Credit Corporation (CA) California 100.00 Consumer finance
Commercial Credit Corporation (IA) Iowa 100.00 Consumer finance
Commercial Credit of Alabama, Inc. Delaware 100.00 Consumer lending
Commercial Credit of Mississippi, Inc. Delaware 100.00 Consumer finance
Commercial Credit Corporation (KY) Kentucky 100.00 Consumer finance
Certified Insurance Agency, Inc. Kentucky 100.00 Insurance agency
Commercial Credit Investment, Inc. Kentucky 100.00 Investment company
National Life Insurance Agency of Kentucky, Inc. Kentucky 100.00 Insurance agency
Union Casualty Insurance Agency, Inc. Kentucky 100.00 Insurance agency
Commercial Credit Corporation (MD) Maryland 100.00 Consumer finance
Action Data Services, Inc. Missouri 100.00 Data processing
Commercial Credit Plan, Incorporated (OK) Oklahoma 100.00 Consumer finance
Commercial Credit Corporation (NY) New York 100.00 Consumer finance
Commercial Credit Corporation (SC) South Carolina 100.00 Consumer finance
Commercial Credit Corporation (WV) West Virginia 100.00 Consumer finance
Commercial Credit Corporation NC North Carolina 100.00 Consumer finance
Commercial Credit Europe, Inc. Delaware 100.00 Inactive
Commercial Credit Far East Inc. Delaware 100.00 Inactive
Commercial Credit Insurance Services, Inc. Maryland 100.00 Insurance broker
</TABLE>
7
<PAGE> 72
<TABLE>
<CAPTION>
% of Voting
Securities
State of Owned Directly
Organization or Indirectly by
------------ The Travelers Inc. Principal Business
------------------ ------------------
<S> <C> <C> <C>
Commercial Credit Insurance Agency (P&C) of Mississippi, Inc. Mississippi 100.00 Insurance agency
Commercial Credit Insurance Agency of Alabama, Inc. Alabama 100.00 Insurance agency
Commercial Credit Insurance Agency of Hawaii, Inc. Hawaii 100.00 Insurance agency
Commercial Credit Insurance Agency of Kentucky, Inc. Kentucky 100.00 Insurance agency
Commercial Credit Insurance Agency of Massachusetts, Inc. Massachusetts 100.00 Insurance agency
Commercial Credit Insurance Agency of Nevada, Inc. Nevada 100.00 Credit LH&A, P-C
insurance
Commercial Credit Insurance Agency of New Mexico, Inc. New Mexico 100.00 Insurance agency/Broker
Commercial Credit Insurance Agency of Ohio, Inc. Ohio 100.00 Insurance agency/broker
Commercial Credit International, Inc. Delaware 100.00 Holding company
Commercial Credit International Banking Corporation Oregon 100.00 International lending
Commercial Credit Corporation CCC Limited Canada 100.00 Second mortgage loans
Commercial Credit Services do Brazil Ltda. Brazil 99.00 Inactive
Commercial Credit Services Belgium S.A. Belgium 100.00 Inactive
Commercial Credit Limited Delaware 100.00 Inactive
Commercial Credit Loan, Inc. (NY) New York 100.00 Consumer finance
Commercial Credit Loans, Inc. (DE) Delaware 100.00 Consumer finance
Commercial Credit Loans, Inc. (OH) Ohio 100.00 Consumer finance
Commercial Credit Loans, Inc. (VA) Virginia 100.00 Consumer finance
Commercial Credit Management Corporation Maryland 100.00 Intercompany services
Commercial Credit Plan Incorporated (TN) Tennessee 100.00 Consumer finance
Commercial Credit Plan Incorporated (UT) Utah 100.00 Consumer finance
Commercial Credit Plan Incorporated of Georgetown Delaware 100.00 Consumer finance
Commercial Credit Plan Industrial Loan Company Virginia 100.00 Consumer finance
Commercial Credit Plan, Incorporated (CO) Colorado 100.00 Consumer finance
Commercial Credit Plan, Incorporated (DE) Delaware 100.00 Consumer finance
Commercial Credit Plan, Incorporated (GA) Georgia 100.00 Consumer finance
Commercial Credit Plan, Incorporated (MO) Missouri 100.00 Consumer finance
Commercial Credit Securities, Inc. Delaware 100.00 Broker dealer
DeAlessandro & Associates, Inc. Delaware 100.00 Inactive
Park Tower Holdings, Inc. Delaware 100.00 Holding company
</TABLE>
8
<PAGE> 73
<TABLE>
<CAPTION>
% of Voting
Securities
State of Owned Directly
Organization or Indirectly by
------------ The Travelers Inc. Principal Business
------------------ ------------------
<S> <C> <C> <C>
CC Retail Services, Inc. Delaware 100.00 Leasing, financing
Troy Textiles, Inc. Delaware 100.00 Inactive
Commercial Credit Development Corporation Delaware 100.00 Direct loan
Myers Park Properties, Inc. Delaware 100.00 Inactive
Travelers Home Mortgage Services of Alabama, Inc. Delaware 100.00 Inactive
Penn Re, Inc. North Carolina 100.00 Management company
Plympton Concrete Products, Inc. Delaware 100.00 Inactive
Resource Deployment, Inc. Texas 100.00 Management company
Security Pacific Finance System Incorporated Delaware 100.00 Holding company
BA Financial Management Services, Inc. Delaware 100.00 Mgt, payroll,
leaseholding
Dealers Credit, Inc. Delaware 100.00 Insurance agent
Security Pacific Consumer Discount Company Pennsylvania 100.00 Consumer loans
Security Pacific Finance Credit Corp. Delaware 100.00 Consumer credit
Security Pacific Financial Services Inc. Delaware 100.00 Consumer credit
Security Pacific Financial Services of Minnesota Inc. Minnesota 100.00 Consumer credit
Security Pacific Financial Services of Nevada Inc. Nevada 100.00 Credit insurance
Security Pacific Financial Services of West Virginia Inc. West Virginia 100.00 Industrial loans
SPF Advertising Agency, Inc. Kansas 100.00 Advertising discounts
The Midwestern Agency Corporation, Inc. Iowa 100.00 Insurance commissions
Security Pacific Financial Services of Des Moines Inc. Iowa 100.00 Consumer loans
Security Pacific Mortgage Corporation Virginia 100.00 Second mortgages
The Travelers Bank Delaware 100.00 Banking services
The Travelers Bank USA Delaware 100.00 Credit card bank
Travelers Home Equity, Inc. North Carolina 100.00 Financial services
CC Consumer Services of Alabama, Inc. Alabama 100.00 Financial services
CC Home Lenders Financial, Inc. Georgia 100.00 Financial services
CC Home Lenders, Inc. Ohio 100.00 Financial services
Commercial Credit Corporation (TX) Texas 100.00 Consumer finance
Commercial Credit Financial of Kentucky, Inc. Kentucky 100.00 Consumer finance
Commercial Credit Financial of West Virginia, Inc. West Virginia 100.00 Consumer finance
</TABLE>
9
<PAGE> 74
<TABLE>
<CAPTION>
% of Voting
Securities
State of Owned Directly
Organization or Indirectly by
------------ The Travelers Inc. Principal Business
------------------ ------------------
<S> <C> <C> <C>
Commercial Credit Plan Consumer Discount Company Pennsylvania 100.00 Financial services
Commercial Credit Services of Kentucky, Inc. Kentucky 100.00 Financial services.
Travelers Home Mortgage Services, Inc. North Carolina 100.00 Financial services
Travelers Home Mortgage Services of Pennsylvania, Inc. Pennsylvania 100.00 Financial services
Triton Insurance Company Missouri 100.00 P-C insurance
Verochris Corporation Delaware 100.00 Joint venture company
AMC Aircraft Corp. Delaware 100.00 Aviation
World Service Life Insurance Company Colorado 100.00 Life insurance
Greenwich Street Capital Partners, Inc. Delaware 100.00 Investments
Greenwich Street Investments, Inc. Delaware 100.00 Investments
Greenwich Street Capital Partners Offshore Holdings, Inc. Delaware 100.00 Investments
Mirasure Insurance Company, Ltd. Bermuda 100.00 Inactive
Pacific Basin Investments Ltd. Delaware 100.00 Inactive
Primerica Corporation (WY) Wyoming 100.00 Inactive
Primerica, Inc. Delaware 100.00 Name saver
Smith Barney Corporate Trust Company Delaware 100.00 Trust company
Smith Barney Holdings Inc. Delaware 100.00 Holding company
Nextco Inc. Delaware 100.00 Purchasing
R-H Capital, Inc. Delaware 100.00 Investments
R-H Sports Enterprises Inc Georgia 100.00 Sports representation
SB Cayman Holdings I Inc. Delaware 100.00 Holding company
Smith Barney Private Trust Company (Cayman) Limited Cayman Islands 50.00 Trust company
Greenwich (Cayman) I Limited Cayman Islands 50.00 Corporate services
Greenwich (Cayman) II Limited Cayman Islands 50.00 Corporate services
Greenwich (Cayman) III Limited Cayman Islands 50.00 Corporate services
SB Cayman Holdings II Inc. Delaware 100.00 Holding company
Smith Barney Private Trust Company (Cayman) Limited Cayman Islands 50.00 Trust company
Greenwich (Cayman) I Limited Cayman Islands 50.00 Corporate services
Greenwich (Cayman) II Limited Cayman Islands 50.00 Corporate services
Greenwich (Cayman) III Limited Cayman Islands 50.00 Corporate services
</TABLE>
10
<PAGE> 75
<TABLE>
<CAPTION>
% of Voting
Securities
State of Owned Directly
Organization or Indirectly by
------------ The Travelers Inc. Principal Business
------------------ ------------------
<S> <C> <C> <C>
SB Cayman Holdings III Inc. Delaware 100.00 Holding company
Smith Barney Credit Services (Cayman) Ltd. Cayman Islands 50.00 Corporate services
SB Cayman Holdings IV Inc. Delaware 100.00 Holding company
Smith Barney Credit Services (Cayman) Ltd. Cayman Islands 50.00 Corporate services
Smith Barney (Delaware) Inc. Delaware 100.00 Holding company
1345 Media Corp. Delaware 100.00 Holding company
Corporate Realty Advisors, Inc. Delaware 100.00 Realty trust adviser
IPO Holdings Inc. Delaware 100.00 Holding company
Institutional Property Owners, Inc. V Delaware 100.00 Investments
Institutional Property Owners, Inc. VI Delaware 100.00 General partner
MLA 50 Corporation Delaware 100.00 Limited partner
MLA GP Corporation Delaware 100.00 General partner
Smith Barney Acquisition Corporation Delaware 100.00 Offshore fund adviser
Smith Barney Acquisition Fund, Inc. Cayman Islands 100.00 Commodities fund
Smith Barney Global Capital Management, Inc. Delaware 100.00 Investment management
Smith Barney Realty, Inc. Delaware 100.00 Investments
Smith Barney Risk Investors, Inc. Delaware 100.00 Investments
Smith Barney Venture Corp. Delaware 100.00 Investments
Smith Barney (Ireland) Limited Ireland 100.00 Fund management
Smith Barney Asia Inc. Delaware 100.00 Investment banking
Smith Barney Asset Management Group (Asia) Pte. Ltd. Singapore 100.00 Asset management
Smith Barney Canada Inc. Canada 100.00 Investment dealer
Smith Barney Capital Services Inc. Delaware 100.00 Derivative product transactions
Smith Barney Cayman Islands, Ltd. Cayman Islands 100.00 Securities trading
Smith Barney Commercial Corp. Delaware 100.00 Commercial credit
Smith Barney Commercial Corporation Asia Limited Hong Kong 99.00 Commodities trading
Smith Barney Europe Holdings, Ltd. United Kingdom 100.00 Holding company
Smith Barney Europe, Ltd. United Kingdom 100.00 Corporate finance
Smith Barney Futures Management Inc. Delaware 100.00 Commodities pool operator
Smith Barney Offshore Fund Ltd. Delaware 100.00 Commodity pool
</TABLE>
11
<PAGE> 76
Item 27. Number of Contract Owners
Not applicable.
Item 28. Indemnification
Section 33-320a of the Connecticut General Statutes ("C.G.S.") regarding
indemnification of directors and officers of Connecticut corporations provides
in general that Connecticut corporations shall indemnify their officers,
directors and certain other defined individuals against judgments, fines,
penalties, amounts paid in settlement and reasonable expenses actually incurred
in connection with proceedings against the corporation. The corporation's
obligation to provide such indemnification generally does not apply unless (1)
the individual is successful on the merits in the defense of any such
proceeding; or (2) a determination is made (by persons specified in the statute)
that the individual acted in good faith and in the best interests of the
corporation; or (3) the court, upon application by the individual, determines in
view of all of the circumstances that such person is fairly and reasonably
entitled to be indemnified, and then for such amount as the court shall
determine. With respect to proceedings brought by or in the right of the
corporation, the statute provides that the corporation shall indemnify its
officers, directors and certain other defined individuals, against reasonable
expenses actually incurred by them in connection with such proceedings, subject
to certain limitations.
C.G.S. Section 33-320a provides an exclusive remedy; a Connecticut corporation
cannot indemnify a director or officer to an extent either greater or less than
that authorized by the statute, e.g., pursuant to its certificate of
incorporation, by-laws, or any separate contractual arrangement. However, the
statute does specifically authorize a corporation to procure indemnification
insurance to provide greater indemnification rights. The premiums for such
insurance may be shared with the insured individuals on an agreed basis.
Travelers Group Inc. also provides liability insurance for its directors and
officers and the directors and officers of its subsidiaries, including the
Depositor. This insurance provides for coverage against loss from claims made
against directors and officers in their capacity as such, including, subject to
certain exceptions, liabilities under the Federal securities laws.
Rule 484 Undertaking
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liability (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE> 77
Item 29. Principal Underwriter
(a) Tower Square Securities, Inc.
One Tower Square
Hartford, Connecticut 06183
Tower Square Securities, Inc. also serves as principal underwriter for the
following :
The Travelers Growth and Income Stock Account for Variable Annuities
The Travelers Quality Bond Account for Variable Annuities
The Travelers Money Market Account for Variable Annuities
The Travelers Timed Growth and Income Stock Account for Variable Annuities
The Travelers Timed Short-Term Bond Account for Variable Annuities
The Travelers Timed Aggressive Stock Account for Variable Annuities
The Travelers Timed Bond Account for Variable Annuities
The Travelers Fund U for Variable Annuities
The Travelers Fund VA for Variable Annuities
The Travelers Fund BD for Variable Annuities
The Travelers Fund BD II for Variable Annuities
The Travelers Fund BD III for Variable Annuities
The Travelers Fund ABD for Variable Annuities
The Travelers Fund ABD II for Variable Annuities
The Travelers Separate Account QP for Variable Annuities
The Travelers Separate Account QP II for Variable Annuities
The Travelers Separate Account PF for Variable Annuities
The Travelers Separate Account PF II for Variable Annuities
The Travelers Fund UL for Variable Life Insurance
The Travelers Fund UL II for Variable Life Insurance
The Travelers Variable Life Insurance Separate Account One
The Travelers Variable Life Insurance Separate Account Three
The Travelers Variable Life Insurance Separate Account Two
The Travelers Variable Life Insurance Separate Account Four
<TABLE>
<CAPTION>
(b) Name and Principal Positions and Offices
Business Address * With Underwriter
------------------ ----------------
<S> <C>
Russell H. Johnson Chairman of the Board Chief Executive Officer,
President and Chief Operating Officer
William F. Scully, III Member, Board of Directors,
Senior Vice President, Treasurer
and Chief Financial Officer
Cynthia P. Macdonald Vice President, Chief Compliance
Officer, and Assistant Secretary
Joanne K. Russo Member, Board of Directors
Senior Vice President
William D. Wilcox General Counsel and Secretary
Kathleen A. McGah Assistant Secretary
Jay S. Benet Member, Board of Directors
George C. Kokulis Member, Board of Directors
Warren H. May Member, Board of Directors
Donald R. Munson, Jr. Senior Vice President
Stuart L. Baritz Vice President
</TABLE>
<PAGE> 78
<TABLE>
<CAPTION>
(b) Name and Principal Positions and Offices
Business Address * With Underwriter
------------------ ---------------------
<S> <C>
Michael P. Kiley Vice President
Tracey Kiff-Judson Second Vice President
Robin A. Jones Second Vice President
Whitney F. Burr Second Vice President
Marlene M. Ibsen Second Vice President
John Taylor Second Vice President
John J. Williams, Jr. Director and Assistant Compliance Officer
Susan M. Curcio Director and Operations Manager
Dennis D. D'Angelo Director
Thomas P. Tooley Director
Nancy S. Waldrop Assistant Treasurer
* Principal business address: One Tower Square, Hartford, Connecticut 06183
</TABLE>
(c) Not Applicable
Item 30. Location of Accounts and Records
(1) The Travelers Life and Annuity Company
One Tower Square
Hartford, Connecticut 06183
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
The undersigned Registrant hereby undertakes:
(a) To file a post-effective amendment to this registration statement as
frequently as is necessary to ensure that the audited financial
statements in the registration statement are never more than sixteen
months old for so long as payments under the variable annuity contracts
may be accepted;
(b) To include either (1) as part of any application to purchase a contract
offered by the prospectus, a space that an applicant can check to
request a Statement of Additional Information, or (2) a post card or
similar written communication affixed to or included in the prospectus
that the applicant can remove to send for a Statement of Additional
Information; and
(c) To deliver any Statement of Additional Information and any financial
statements required to be made available under this Form N-4 promptly
upon written or oral request.
The Company hereby represents:
(a). That the aggregate charges under the Contracts of the Registrant
described herein are reasonable in relation to the services rendered,
the expenses expected to be incurred, and the risks assumed by the
Company.
<PAGE> 79
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant has duly caused this Registration Statement to be signed on
its behalf in the City of Hartford, State of Connecticut, on August 12, 1997.
THE TRAVELERS FUND BD IV FOR VARIABLE ANNUITIES
(Registrant)
THE TRAVELERS LIFE AND ANNUITY COMPANY
(Depositor)
By: *IAN R. STUART
---------------------------------------------------
Ian R. Stuart
Senior Vice President, Chief Financial Officer,
Chief Accounting Office and Controller
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
indicated on August 12, 1997.
<TABLE>
<S> <C>
*MICHAEL A. CARPENTER Director, Chairman of the Board, President
- -------------------------------------------- and Chief Executive Officer
(Michael A. Carpenter)
*JAY S. BENET Director
- --------------------------------------------
(Jay S. Benet)
*GEORGE C. KOKULIS Director
- --------------------------------------------
(George C. Kokulis
*ROBERT I. LIPP Director
- --------------------------------------------
(Robert I. Lipp)
*IAN R. STUART Director, Senior Vice President, Chief
- -------------------------------------------- Financial Officer, Chief Accounting Officer
(Ian R. Stuart) and Controller
*KATHERINE M. SULLIVAN Director, Senior Vice President and
- -------------------------------------------- General Counsel
(Katherine M. Sullivan)
*MARC P. WEILL Director
- --------------------------------------------
(Marc P. Weill)
*By: Ernest J. Wright, Attorney-in-Fact
</TABLE>
<PAGE> 80
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
- ------- ----------- ----------------
<S> <C> <C>
1 Resolution of The Travelers Life and Annuity Company Board of
Directors authorizing the establishment of the Registrant. (Incorporated
herein by reference to Exhibit 1 to the Registration Statement on
Form N-4, filed May 23, 1997.)
3(a) Form of Distribution and Management Agreement among the
Registrant, The Travelers Life and Annuity Company and Tower Square
Securities, Inc. (Incorporated herein by reference to Exhibit 3(a)
to the Registration Statement on Form N-4, filed May 23, 1997.)
3(b) Form of Selling Agreement. (Incorporated herein by reference
to Exhibit 3(b) to the Registration Statement on Form N-4,
filed May 23, 1997.)
4 Form of Variable Annuity Contract. (Incorporated herein by
reference to Exhibit 4 to the Registration Statement on Form N-4,
filed May 23, 1997.)
5 Application. Electronically
6(a) Charter of The Travelers Life and Annuity Company, as amended on
October 10, 1990. (Incorporated herein by reference to Exhibit 6(a) to
the Registration Statement on Form N-4, File No. 33-58131, filed
via Edgar on March 17, 1995.)
6(b) By-Laws of The Travelers Life and Annuity Company, as amended on October
20, 1994. (Incorporated herein by reference to Exhibit 6(b) to
the Registration Statement on Form N-4, File No. 33-58131, filed
via Edgar on March 17, 1995.)
9 Opinion of Counsel as to the legality of securities being
registered by Registrant. (Incorporated herein by reference to
Exhibit 9 to the Registration Statement on Form N-4, filed May 23,
1997.)
10(a) Consent of KPMG Peat Marwick LLP, Independent Electronically
Certified Public Accountants.
13 Schedule for Computation of Total Return Electronically
Calculations - Standardized and Non-Standardized.
15(a) Powers of Attorney authorizing Ernest J. Wright or
Kathleen A. McGah as signatory for Michael A. Carpenter,
Jay S. Benet, George C. Kokulis, Robert I. Lipp, Ian R.
Stuart, Katherine M. Sullivan and Marc P. Weill.
(Incorporated herein by reference to Exhibit 15(a) to the
Registration Statement on Form N-4, filed May 23, 1997.)
</TABLE>
<PAGE> 1
Travelers Life & Annuity EXHIBIT 5
[LOGO]
<TABLE>
<S> <C>
TRAVELERS
INDEX ANNUITY
DATA COLLECTION FORM
Travelers Life and Annuity Company - One Tower Square - Hartford, CT 06183-5030
- --------------------------------------------------------------------------------------------------------------------------
CONTRACT OWNER INFORMATION
- --------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------ -------------------------------------------------------------------
Name Address
- ------------------------------------------------------ -------------------------------------------------------------------
- ------------------------------------------------------ -------------------------------------------------------------------
Date of Birth (DOB)
- ------------------------------------------------------ -------------------------------------------------------------------
- ----------------------------- ------------------------ -------------------------------------------------------------------
SS# Sex M |_| F |_|
- ----------------------------- ------------------------ -------------------------------------------------------------------
- ----------------------------- --------------------------------------------------------------------------------------------
U.S. Citizen Y|_| N |_| The Owner stated above will be used for all correspondence and tax reporting purposes.
- --------------------------------------------------------------------------------------------------------------------------
Joint Owner (Nonqualified only) |_| Relationship to Owner
- --------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------ ---------------------------------------------- --------------------
Name SS# DOB
- ------------------------------------------------------ ---------------------------------------------- --------------------
- --------------------------------------------------------------------------------------------------------------------------
ANNUITANT (IF DIFFERENT FROM OWNER, NONQUALIFIED ONLY)
- --------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------ ---------------------------------------------- --------------------
Name SS# DOB
- ------------------------------------------------------ ---------------------------------------------- --------------------
- ------------------ -------------------------------------------------------------------------------------------------------
Sex: M |_| F |_| If no Annuitant is specified, the Owner stated above will be the Annuitant.
- ------------------ -------------------------------------------------------------------------------------------------------
- ------------------------------------------------------ -------------------------------------------------------------------
CONTINGENT ANNUITANT, IF ANY (NONQUALIFIED ONLY) COMPLETE ONE OF THE TWO INVESTMENT OPTION SECTIONS BELOW:
- ---------------------------------- ------------------- ---------------------------------------- --------------------------
Name DOB 1. INVESTMENT OPTIONS PERCENTAGE OF PAYMENT
- ---------------------------------- ------------------- ---------------------------------------- --------------------------
BENEFICIARY INFORMATION Equity Index Portfolio (TH) %
- ------------------------------------------------------
Full Name EAFE Equity Index Fund (TE) %
- ------------------------------------------------------
Relationship to Owner Small Cap Index Fund (TJ) %
- ------------------------------------------------------
TYPE OF PLAN Travelers Cash Income Trust (TK) %
- ------------------------------------------------------
|_| Nonqualified |_| IRA rollover |_| TSA rollover Travelers Fixed Account (TF) %
- ------------------------------------------------------
Other %
- ------------------------------------------------------
REPLACEMENT INFORMATION TOTAL 100 %
- ------------------------------------------------------ -------------------------------------------------------------------
Will the contract applied for replace any existing 2. PRINCIPAL PROTECTED INVESTMENT OPTIONS *
annuity contract or life insurance policy?
Y |_| N |_| -------------------------------------------------------------------
Equity Index Portfolio (TH) %
If Yes, specify company name & contract number below: Other %
- ----------------------------------------------------
TOTAL 100 %
-------------------------------------------------------------------
PURCHASE PAYMENT ($10,000 MIN.): $
- ------------------------------------------------------ -------------------------------------------------------------------
DOLLAR COST AVERAGING: |_|Y |_|N SYSTEMATIC WITHDRAWAL *When electing the Principal Protected Investment Options, check
(NOT AVAILABLE WITH PRINCIPAL |_|Y |_|N off the percentage of your purchase payment you want to protect:
PROTECTION) ATTACH COMPLETED FORM Attach completed Form |_| 90% |_| 100% |_| 115%
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Please check off the following if choosing the Enhanced Death Benefit Option: |_| Yes, I elect the Enhanced Death Benefit
(if not checked, you will receive the Standard Death Benefit)
- --------------------------------------------------------------------------------------------------------------------------
ACKNOWLEDGMENT: The contract will take effect when the first purchase payment is received and the application is approved
in the Home Office of The Travelers. ALL PAYMENTS AND VALUES PROVIDED BY THE CONTRACT APPLIED FOR, WHEN BASED ON
INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO A FIXED DOLLAR AMOUNT. No
Representative is authorized to make changes to the contract or application. I ACKNOWLEDGE RECEIPT OF A CURRENT
PROSPECTUS. In Nonqualified situations if the owner is a trust, I/we hereby certify the trust is solely for the benefit of
a natural person and not a Deferred Compensation Plan.
For Nonqualified contracts, if the Owner dies and is survived by the Annuitant before an Annuity Option or an Income
Option payment begins, the surviving Joint Owner assumes full ownership of the contract and not the Beneficiary named by
Written Request.
NOTE: Any person who knowingly and with intent to injure, defraud, or deceive any insurer files a statement of claim
containing any false, incomplete or misleading information, is guilty of a felony of the third degree.
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------- ----------------------------------------------------------------
Owner's Signature Date
- --------------------------------------------------------------------------------------------------------------------------
Joint Owner's Signature City, State, Zip
- --------------------------------------------------------------------------------------------------------------------------
REPRESENTATIVE USE ONLY
- --------------------------------------------------------------------------------------------------------------------------
I acknowledge that all data representations and signatures were recorded by me or in my presence in response to my inquiry
and request and that all such representations and signatures are accurate and valid to the best of my knowledge and
belief. Will the contract applied for replace any existing annuity contract or life insurance policy? Y |_| N |_|
SELECT ONE: A |_| B |_| C |_|
Please Include: Phone #: ( ) Fax #: ( )
- --------------------------------------------------------- --------------------------------- ------------------------------
Representative's Name Date SS#
- ------------------------------ -------------------------------------------------------------------------------------------
Representative's Signature Broker/Dealer
- --------------------------------------------------------- ----------------------------------------------------------------
L-21203-AS 7/97
</TABLE>
<PAGE> 1
Consent of Independent Certified Public Accountants
The Board of Directors
The Travelers Life and Annuity Company:
We consent to the use of our report included herein and to the reference to our
firm as experts under the heading "Independent Accountants".
Hartford, Connecticut
August 12, 1997
<PAGE> 1
EXHIBIT 13
THE TRAVELERS FUND BD IV FOR VARIABLE ANNUITIES
SCHEDULE FOR COMPUTATION OF TOTAL RETURN CALCULATIONS
The standardized and nonstandardized average annual total returns are computed
according to the formula described below. A hypothetical initial investment of
$1,000 is applied to the Funding Option, and then related to ending redeemable
values as of the most recent fiscal year end, for the calendar year-to-date
(nonstandardized only), and over a 1-year, 3-year (nonstandardized only),
5-year, and 10-year period, or since inception if a Funding Option has not been
in existence for one of the prescribed periods.
T = (ERV/P)1/n -1 where:
T = average annual total return
P = a hypothetical initial payment of $1,000
n = the applicable year (1, 3, 5, 10) or portion thereof
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of each of the periods
Both the standardized and nonstandardized performance returns reflect the
deduction for the management fees and other expenses for a Funding Option, the
mortality and expense risk charge and the administrative expense charge.
For Funding Options that were in existence prior to the date they became
available under the Separate Account, the standardized and nonstandardized
average total return quotations will show the investment performance that such
Funding Options would have achieved (reduced by applicable charges/fees had they
been held under the Contract for the period quoted. The total return quotations
are based on historical earnings and are not necessarily representative of
future performance. An Owner's Contract Value at redemption may be more or less
than original cost.
Standardized Method
The standardized returns take into consideration all fees and/or charges
applicable to the Funding Option or contract, for both the standard death
benefit and the enhanced death benefit, with and without the Principal
Protection Option.
Under the standardized method, the $30 annual contract administrative charge is
reflected in the calculation and is assumed to be deducted at the end of August
of each year. It is expressed as a percentage of assets based on the actual fees
collected (or, anticipated, if a new product) divided by the average net assets
(or, anticipated average net assets, if a new product) for contracts sold under
the prospectus for each year for which performance is shown.
Each standardized average annual total return quotation assumes a total
redemption at the end of each period with the assessment of any applicable
withdrawal charge (6%, 6%, 5%, 5%, 4%, 4%, 3% 2%) at that time. For the returns
sharing the Principal Protection Option, the maximum cancellation charge is
assumed.
Nonstandardized Method
Nonstandardized returns do not reflect the deduction of any applicable
withdrawal charge or the $30 annual administrative charge, which, if reflected,
would decrease the level of performance shown. The withdrawal charge is not
reflected because the contract is designed for long-term investment.
For a Schedule of the Computation of the Total Return Quotations, both
Standardized and Nonstandardized, see attached.
<PAGE> 2
TRAVELERS INDEX ANNUITY
NONSTANDARDIZED PERFORMANCE AS OF 7/31/97
CUMULATIVE RETURNS
------------------
<TABLE>
<CAPTION>
1.40% M&E/ADMIN. 1.60% M&E/ADMIN.
---------------- ----------------
------------------------------------------ ----------------------------------------------
Travelers CIT Equity Index Portfolio Travelers CIT Equity Index Portfolio
------------- ---------------------- ------------- ----------------------
<S> <C> <C> <C> <C>
YTD 2.01% 28.45% 1.89% 28.31%
1 YR 3.39 48.65 3.18 48.36
3 YR 10.80 108.12 10.86 106.90
5 YR 12.72 126.28 12.33 124.05
10 YR ----- ------ ----- ------
------------------------------------------ ----------------------------------------------
</TABLE>
AVERAGE ANNUAL RETURNS
----------------------
<TABLE>
------------------------------------------ ----------------------------------------------
<S> <C> <C> <C> <C>
3 YR 3.47% 27.65% 3.49% 27.40%
5 YR 2.42 17.73 2.35 17.50
10 YR ---- ----- ---- -----
Inception 3.84 16.77 3.70 16.54
------------------------------------------ ----------------------------------------------
</TABLE>
CALENDAR YEAR RETURNS
---------------------
<TABLE>
------------------------------------------ ----------------------------------------------
<S> <C> <C> <C> <C>
1996 2.72% 20.09% 2.51% 19.85%
1995 2.79 33.97 2.58 33.71
1994 3.33 (-0.55) 3.12 (-0.75)
1993 0.78 7.17 0.58 6.96
------------------------------------------ ----------------------------------------------
</TABLE>
<PAGE> 3
NONSTANDARDIZED PERFORMANCE AS OF 7/31/97
CUMULATIVE RETURNS
<TABLE>
<CAPTION>
3.40% M&E/ADMIN. 3.60% M&E/ADMIN.
---------------- ----------------
Equity Index Portfolio Equity Index Portfolio
---------------------- ----------------------
---------------------- ----------------------
<S> <C> <C>
YTD 27.02% 26.88%
1 YR 45.79 45.51
3 YR 96.22 95.06
5 YR 104.98 102.97
10 YR ------ ------
---------------------- ----------------------
</TABLE>
AVERAGE ANNUAL RETURNS
----------------------
<TABLE>
<CAPTION>
---------------------- ----------------------
<S> <C> <C>
3 YR 25.17% 24.92%
5 YR 15.43 15.20
10 YR ------ -------
Inception 14.48 14.25
---------------------- ----------------------
</TABLE>
CALENDAR YEAR RETURNS
---------------------
<TABLE>
<CAPTION>
---------------------- ----------------------
<S> <C> <C>
1996 17.73% 17.50%
1995 31.38 31.12
1994 (-2.52) (-2.72)
1993 5.06 4.85
---------------------- ----------------------
</TABLE>
<PAGE> 4
STANDARDIZED PERFORMANCE AS OF 6/30/97
(Updated Quarterly)
AVERAGE ANNUAL RETURNS
<TABLE>
<CAPTION>
1.40% M&E/ADMIN. 1.60% M&E/ADMIN.
---------------- ----------------
Travelers CIT Equity Index Portfolio Travelers CIT Equity Index Portfolio
------------- ---------------------- ------------- ----------------------
<S> <C> <C> <C> <C>
1 YR -2.72% 25.51% -2.93% 25.25%
5 YR 1.64 16.40 1.43 16.16
10 YR ---- ----- ---- -----
Inception 3.51 (12/87) 15.13 (10/91) 3.30 (12/87) 14.90 (10/91)
</TABLE>
<TABLE>
<CAPTION>
3.40% M&E/ADMIN./PROTECTION 3.60% M&E/ADMIN./PROTECTION
--------------------------- ---------------------------
Equity Index Portfolio Equity Index Portfolio
---------------------- ----------------------
AVERAGE ANNUAL RETURNS
----------------------
<S> <C> <C>
1 YR 18.96% 18.70%
5 YR 13.72 13.48
10 YR ----- -----
Inception (10/91) 12.54 12.30
</TABLE>