<PAGE> 1
Registration Statement No. 333-40191
811-08479
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. 1
And
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 1
THE TRAVELERS SEPARATE ACCOUNT TM II FOR VARIABLE ANNUITIES
-------------------------------------------------------------
(Exact name of Registrant)
THE TRAVELERS LIFE AND ANNUITY COMPANY
--------------------------------------
(Name of Depositor)
ONE TOWER SQUARE, HARTFORD, CONNECTICUT 06183
----------------------------------------------
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number, including area code: (860) 277-0111
--------------
ERNEST J. WRIGHT
The Travelers Life and Annuity Company
One Tower Square
Hartford, Connecticut 06183
---------------------------
(Name and Address of Agent for Service)
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<S> <C>
Approximate Date of Proposed Public Offering: As soon as practicable following the
Proposed Public Offering: effectiveness of the Registration Statement.
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.
</TABLE>
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 SEPARATE ACCOUNT TM II 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 Contract Profile
4. Condensed Financial Information Condensed Financial Information
5. General Description of Registrant, The Insurance Company; The Separate
Depositor, and Portfolio Companies Account; the Funding Options
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 Annuity Contract; Distribution of Variable
Annuity Contracts
11. Redemptions Access to Your Money
12. Taxes Federal Tax Considerations
13. Legal Proceedings Legal Proceedings and Opinions
14. Table of Contents of Statement Appendix A - 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 MARQUIS PORTFOLIOS VARIABLE ANNUITY
CONTRACT PROFILE
1998
THIS PROFILE IS A SUMMARY OF SOME OF THE MORE IMPORTANT POINTS THAT YOU SHOULD
KNOW AND CONSIDER BEFORE PURCHASING THE CONTRACT. THE CONTRACT IS MORE FULLY
DESCRIBED IN THE FULL PROSPECTUS WHICH IS ATTACHED TO THIS PROFILE. PLEASE READ
THE PROSPECTUS CAREFULLY. THE TERMS "WE," "US," "OUR" AND THE "COMPANY" REFER TO
THE TRAVELERS LIFE AND ANNUITY COMPANY. "YOU" AND "YOUR" REFER TO THE CONTRACT
OWNER.
1. THE VARIABLE ANNUITY CONTRACT. The Contract offered by The Travelers Life
and Annuity Company is a variable annuity that is intended for retirement
savings or other long-term investment purposes. The Contract provides a death
benefit as well as guaranteed income options. Under a qualified Contract, you
can make one or more payments, as you choose, on a tax-deferred basis. Under a
nonqualified Contract, you can make one or more payments with after-tax dollars.
You direct your payment(s) to one or more of the variable funding options listed
in Section 4.
You can transfer between the funding options as frequently as you wish without
any current tax implications. Currently there is no charge for transfers, nor a
limit to the number of transfers allowed. The Company may, in the future, charge
a fee for any transfer request, or limit the number of transfers allowed. The
Company, at the minimum, would always allow one transfer every six months.
The Contract, like all deferred variable annuity contracts, has two phases: the
accumulation phase and the income phase. During the accumulation phase, under a
qualified contract, your tax-deferred contributions accumulate on a tax-deferred
basis and are taxed as income when you make a withdrawal, presumably when you
are in a lower tax bracket. During the accumulation phase, under a nonqualified
contract, earnings on your after-tax contributions accumulate on a tax-deferred
basis and are taxed as income when you make a withdrawal. The income phase
occurs when you begin receiving payments from your Contract. The amount of money
you accumulate in your Contract determines the amount of income (annuity
payments) you receive during the income phase.
2. ANNUITY PAYMENTS (THE INCOME PHASE). If you want to receive scheduled
payments from your annuity, you can choose one of the following annuity options:
Option 1 -- payments for your life (life annuity) -- assuming that you are the
annuitant; Option 2 -- payments for your life with an added guarantee that
payments will continue to your beneficiary for a certain number of months (120,
180 or 240, as you select), if you should die during that period; Option
3 -- Joint and Last Survivor Annuity, in which payments are made for your life
and the life of another person (usually your spouse); Option 4 -- Joint Survivor
Life Annuity -- the annuity is reduced on death of Primary Payee; Option
5 -- Payment for a Fixed Period.
Once you make an election of an annuity option and begin to receive payments, it
cannot be changed. During the income phase, you have the same investment choices
you had during the accumulation phase. If amounts are directed to the funding
options, the dollar amount of your payments may increase or decrease.
3. PURCHASE. You may purchase the Contract with an initial payment of at least
$25,000. You may make additional payments of at least $500 at any time during
the accumulation phase.
WHO SHOULD PURCHASE THIS CONTRACT? The Contract is currently available for use
in connection with (1) individual nonqualified purchases; (2) rollovers for
Individual Retirement Annuities (IRAs) and (3) rollovers for other qualified
retirement plans. Qualified contracts include contracts qualifying under Section
401(a), 403(b), or 408(b) of the Internal Revenue Code of 1986, as amended.
4. INVESTMENT OPTIONS. You can direct your money into any or all of the
following funding options in the separate account. They are described in the
accompanying fund prospectuses. Depending on market conditions, you may make or
lose money in any of these options:
DELAWARE GROUP PREMIUM FUND, INC.
REIT Series
Small Cap Value Series
DREYFUS VARIABLE INVESTMENT FUND
Capital Appreciation Portfolio
Small Cap Portfolio
MONTGOMERY FUNDS III
Montgomery Variable Series: Growth
Fund
OCC ACCUMULATION TRUST
Equity Portfolio
SALOMON BROTHERS VARIABLE SERIES FUND, INC.
Salomon Brothers Variable Investors Fund
STRONG VARIABLE INSURANCE FUNDS, INC.
Strong Schafer Value Fund II
<PAGE> 5
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Franklin Small Cap Investments Fund
Class II
Templeton Developing Markets Fund
Class II
Templeton International Fund Class II
TRAVELERS SERIES FUND, INC.
AIM Capital Appreciation Portfolio
Smith Barney High Income Portfolio
Smith Barney Large Capitalization
Growth Portfolio
Smith Barney Money Market Portfolio
TBC Managed Income Portfolio
THE TRAVELERS SERIES TRUST
Disciplined Mid Cap Stock Portfolio
Disciplined Small Cap Stock Portfolio
Jurika & Voyles Core Equity Portfolio
Large Cap Portfolio
Lazard International Stock Portfolio
MFS Research Portfolio
NWQ Large Cap Portfolio
Strategic Stock Portfolio
U.S. Government Securities Portfolio
WARBURG PINCUS TRUST
Emerging Markets Portfolio
5. EXPENSES. The Contract has insurance features and investment features, and
there are costs related to each. For Contracts with a value of less than
$50,000, the Company deducts an annual administrative charge of $40. For the
Standard Death Benefit the annual insurance charge is 1.55% of the amounts you
direct to the funding options. For the Enhanced Death Benefit option, the annual
insurance charge is 1.70%.
There is an administrative expense charge of 0.15% (annually) deducted from
amounts allocated to the variable funding options.
Each funding option has charges for management and other expenses. The charges
range from 0.49% to 1.83% annually, of the average daily net asset balance of
the funding option, depending on the funding option.
The following table is designed to help you understand the Contract charges. In
the table below, "(a)" represents charges and expenses for the Standard Death
Benefit and "(b)" represents charges and expenses for the Enhanced Death
Benefit. "Total Annual Insurance Charge" includes the mortality and expense risk
charge, and the administrative charges. The column "Total Annual Charges"
reflects the $40 annual contract charge (which is represented as 0.018% below),
the mortality and expense risk charge, and the investment charges for each
portfolio. The columns under the heading "Examples" show how much you would pay
under the Contract for a one-year period and for a 10-year period. As required
by the SEC, the examples assume that you invested $1,000 in a Contract that
earns 5% annually and that you withdraw your money at the end of year 1 and at
the end of year 10. For years 1 and 10, the examples show the aggregate of all
the annual charges assessed during that time. For these examples, the premium
tax is assumed to be 0%. Please refer to the Fee Table in the prospectus for
more details.
<TABLE>
<CAPTION>
EXAMPLES:
TOTAL ANNUAL
EXPENSES
TOTAL ANNUAL TOTAL UNDERLYING TOTAL ANNUAL AT END OF:
UNDERLYING FUNDING OPTIONS: INSURANCE CHARGES FUND EXPENSES CHARGES 1 YEAR 10 YEARS
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DELAWARE GROUP PREMIUM FUND, INC.
REIT Series (a)........................... 1.70% .85% 2.55% $26 $290
REIT Series (b)........................... 1.85% .85% 2.70% 27 305
Small Cap Value Series (a)................ 1.70% .85% 2.55% 26 290
Small Cap Value Series (b)................ 1.85% .85% 2.70% 27 305
DREYFUS VARIABLE INVESTMENT FUND
Capital Appreciation Portfolio (a)........ 1.70% .80% 2.50% 25 285
Capital Appreciation Portfolio (b)........ 1.85% .80% 2.65% 27 300
Small Cap Portfolio (a)................... 1.70% .78% 2.48% 25 283
Small Cap Portfolio (b)................... 1.85% .78% 2.63% 27 298
THE MONTGOMERY FUND III
Montgomery Variable Series: Growth Fund
(a)..................................... 1.70% 1.25% 2.95% 30 329
Montgomery Variable Series: Growth Fund
(b)..................................... 1.85% 1.25% 3.10% 31 343
OCC ACCUMULATION TRUST
Equity Portfolio (a)...................... 1.70% .99% 2.69% 27 304
Equity Portfolio (b)...................... 1.85% .99% 2.84% 29 318
</TABLE>
ii
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<TABLE>
<CAPTION>
EXAMPLES:
TOTAL ANNUAL
EXPENSES
TOTAL ANNUAL TOTAL UNDERLYING TOTAL ANNUAL AT END OF:
UNDERLYING FUNDING OPTIONS (CONT'D): INSURANCE CHARGES FUND EXPENSES CHARGES 1 YEAR 10 YEARS
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SALOMON BROTHERS VARIABLE SERIES FUNDS, INC.
Salomon Brothers Variable Investors Fund
(a)..................................... 1.70% 1.00% 2.70% $27 $305
Salomon Brothers Variable Investors Fund
(b)..................................... 1.85% 1.00% 2.85% 29 319
STRONG VARIABLE INSURANCE FUNDS, INC.
Strong Schafer Value Fund II (a).......... 1.70% 1.20% 2.90% 29 324
Strong Schafer Value Fund II (b).......... 1.85% 1.20% 3.05% 31 338
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Franklin Small Cap Investments Fund Class
II (a).................................. 1.70% 1.25% 2.95% 30 329
Franklin Small Cap Investments Fund Class
II (b).................................. 1.85% 1.25% 3.10% 31 343
Templeton Developing Markets Fund Class II
(a)..................................... 1.70% 1.83% 3.53% 36 382
Templeton Developing Markets Fund Class II
(b)..................................... 1.85% 1.83% 3.68% 37 395
Templeton International Fund Class II
(a)..................................... 1.70% 1.13% 2.83% 29 317
Templeton International Fund Class II
(b)..................................... 1.85% 1.13% 2.98% 30 332
TRAVELERS SERIES FUND INC.
AIM Capital Appreciation Portfolio (a).... 1.70% .85% 2.55% 26 290
AIM Capital Appreciation Portfolio (b).... 1.85% .85% 2.70% 27 305
TBC Managed Income Portfolio (a).......... 1.70% .87% 2.57% 26 292
TBC Managed Income Portfolio (b).......... 1.85% .87% 2.72% 28 307
Smith Barney High Income Portfolio (a).... 1.70% .70% 2.40% 24 275
Smith Barney High Income Portfolio (b).... 1.85% .70% 2.55% 26 290
Smith Barney Large Capitalization Growth
Portfolio (a)........................... 1.70% 1.00% 2.70% 27 305
Smith Barney Large Capitalization Growth
Portfolio (b)........................... 1.85% 1.00% 2.85% 29 319
Smith Barney Money Market Portfolio (a)... 1.70% .65% 2.35% 24 270
Smith Barney Money Market Portfolio (b)... 1.85% .65% 2.50% 25 285
THE TRAVELERS SERIES TRUST
Disciplined Mid Cap Stock Portfolio (a)... 1.70% .95% 2.65% 27 300
Disciplined Mid Cap Stock Portfolio (b)... 1.85% .95% 2.80% 28 315
Disciplined Small Cap Stock Portfolio
(a)..................................... 1.70% 1.00% 2.70% 27 305
Disciplined Small Cap Stock Portfolio
(b)..................................... 1.85% 1.00% 2.85% 29 319
Jurika & Voyles Core Equity Portfolio
(a)..................................... 1.70% 1.00% 2.70% 27 305
Jurika & Voyles Core Equity Portfolio
(b)..................................... 1.85% 1.00% 2.85% 29 319
Large Cap Portfolio (a)................... 1.70% .95% 2.65% 27 300
Large Cap Portfolio (b)................... 1.85% .95% 2.80% 28 315
Lazard International Stock Portfolio
(a)..................................... 1.70% 1.25% 2.95% 30 329
Lazard International Stock Portfolio
(b)..................................... 1.85% 1.25% 3.10% 31 343
MFS Research Portfolio (a)................ 1.70% 1.00% 2.70% 27 305
MFS Research Portfolio (b)................ 1.85% 1.00% 2.85% 29 319
NWQ Large Cap Portfolio (a)............... 1.70% 1.00% 2.70% 27 305
NWQ Large Cap Portfolio (b)............... 1.85% 1.00% 2.85% 29 319
Strategic Stock Portfolio (a)............. 1.70% .90% 2.60% 26 295
Strategic Stock Portfolio (b)............. 1.85% .90% 2.75% 28 310
U.S. Government Securities Portfolio
(a)..................................... 1.70% .49% 2.28% 22 254
U.S. Government Securities Portfolio
(b)..................................... 1.85% .49% 2.43% 24 269
WARBURG PINCUS TRUST
Emerging Markets Portfolio (a)............ 1.70% 1.40% 3.10% 31 343
Emerging Markets Portfolio (b)............ 1.85% 1.40% 3.25% 33 357
</TABLE>
6. TAXES. The payments you make to a qualified Contract during the accumulation
phase are made with before-tax dollars. You will be taxed on your purchase
payments and on any earnings when you make a withdrawal or begin receiving
annuity payments. Under a nonqualified Contract, payments to the contract are
made with after-tax dollars, and any earnings will accumulate tax-deferred. You
will be taxed on these earnings when they are withdrawn from the Contract.
For owners of qualified Contracts, if you reach a certain age, you may be
required by federal tax laws to begin receiving payments from your annuity or
risk paying a penalty tax. In those cases, we can calculate and pay you the
minimum required distribution amounts. If you are younger than
iii
<PAGE> 7
9 1/2 when you take money out, you may be charged a 10% federal penalty tax on
the amount withdrawn.
7. ACCESS TO YOUR MONEY. You can take withdrawals any time during the
accumulation phase. No sales charges apply. Of course, you may have to pay
income taxes and a tax penalty on taxable amounts you withdraw.
8. DEATH BENEFIT. If the annuitant or any owner dies before the income phase,
the beneficiary will receive a death benefit. The death benefit paid depends on
the age at the time of death, and whether you elected the Standard Death Benefit
or the Enhanced Death Benefit at purchase. The death benefit value is calculated
at the close of the business day on which the Company's Home Office receives due
proof of death. Under the Standard Death Benefit if the death occurs before age
80, the death benefit equals the greater of: (1) the Contract Value; or (2) the
total purchase payments made under the Contract.
Under the Standard Benefit, if the annuitant or any owner dies on or after age
80 and before the maturity date, the death benefit payable will be the contract
value.
Under the Enhanced Death Benefit, if the annuitant or any owner dies before age
90 and before the maturity date, the death benefit equals the greatest of (1) or
(2) above, or (3) the maximum anniversary value, adjusted for subsequent partial
surrenders or purchase payments (this amount is adjusted annually through age
80, and is locked in through age 90).
Under the Enhanced Death Benefit if the annuitant or any owner dies on or after
age 90 and before the maturity date, the death benefit payable will be the
contract value.
NOTE: In all cases described above, amounts will be reduced by premium taxes
owed and partial withdrawals not previously deducted. Certain states may have
varying age requirements. Please refer to the Contract prospectus for more
details.
9. OTHER INFORMATION
RIGHT TO RETURN. If you cancel the Contract within ten days after you receive
it, you will receive a full refund of the Contract Value, unless state law
requires a longer right to return period, or the return of purchase payments.
You bear the investment risk during the right to return period; therefore, the
Contract Value returned may be greater or less than your purchase payment. If
the Contract is purchased as an Individual Retirement Annuity, and is returned
within the first seven days after delivery, your full purchase payment will be
refunded; during the remainder of the right to return period, the Contract Value
(including charges) will be refunded. The Contract Value will be determined at
the close of business on the day we receive a written request for a refund.
WHO SHOULD PURCHASE THIS CONTRACT? The Contract is currently available for use
in connection with (1) individual nonqualified purchases; (2) rollovers for
Individual Retirement Annuities (IRAs) and (3) rollovers for other qualified
retirement plans. Qualified contracts include contracts qualifying under Section
401(a), 403(b), or 408(b) of the Internal Revenue Code of 1986, as amended.
ADDITIONAL FEATURES. This Contract has other features you may be interested in
including the SYSTEMATIC WITHDRAWAL OPTION. Before the maturity date, you can
arrange to have money sent to you at set intervals throughout the year. Of
course, any applicable income and penalty taxes will apply on amounts withdrawn.
ASSET ALLOCATION PROGRAM
If you choose, you can elect to have your contributions allocated among a set of
funding options according to an optional asset allocation model. The model is
based on your personal investment risk tolerance and other factors. The Asset
Allocation Program was designed in conjunction with Ibbotson Associates, a
recognized provider of asset allocation consulting services.
10. INQUIRIES. If you need more information, please contact us at (800)
842-8573 or:
The Travelers Life and Annuity Company
Annuity Services
One Tower Square
Hartford, CT 06183
iv
<PAGE> 8
TRAVELERS MARQUIS PORTFOLIOS PROSPECTUS
THE TRAVELERS SEPARATE ACCOUNT TM II FOR VARIABLE ANNUITIES
This prospectus describes TRAVELERS MARQUIS PORTFOLIOS, a flexible premium
variable annuity contract (the "Contract") issued by The Travelers Life and
Annuity Company (the "Company," "we" or "our"). The Contract is available in
connection with certain retirement plans that qualify for special federal income
tax treatment ("qualified Contracts") as well as those that do not qualify for
such treatment ("nonqualified Contracts"). Travelers Marquis Portfolios may be
issued as an individual Contract or as a group Contract. In states where only
group Contracts are available, you will be issued a certificate summarizing the
provisions of the group Contract. For convenience, this prospectus refers to
both Contracts and certificates as "Contracts."
Your purchase payments accumulate on a variable basis through one or more of the
sub-accounts ("funding options") of the Travelers Separate Account TM II for
Variable Annuities ("Separate Account TM II"). Your contract value will vary
daily to reflect the investment experience of the funding options you select.
The funding options currently available are:
DELAWARE GROUP PREMIUM FUND, INC.
REIT Series
Small Cap Value Series
DREYFUS VARIABLE INVESTMENT FUND
Capital Appreciation Portfolio
Small Cap Portfolio
MONTGOMERY FUNDS III
Montgomery Variable Series: Growth Fund
OCC ACCUMULATION TRUST
Equity Portfolio
SALOMON BROTHERS VARIABLE SERIES FUND, INC.
Salomon Brothers Variable Investors Fund
STRONG VARIABLE INSURANCE FUNDS, INC.
Strong Schafer Value Fund II
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Franklin Small Cap Investments Fund Class II
Templeton Developing Markets Fund Class II
Templeton International Fund Class II
TRAVELERS SERIES FUND, INC.
AIM Capital Appreciation Portfolio
Smith Barney High Income Portfolio
Smith Barney Large Capitalization Growth
Portfolio
Smith Barney Money Market Portfolio
TBC Managed Income Portfolio
THE TRAVELERS SERIES TRUST
Disciplined Mid Cap Stock Portfolio
Disciplined Small Cap Stock Portfolio
Jurika & Voyles Core Equity Portfolio
Large Cap Portfolio
Lazard International Stock Portfolio
MFS Research Portfolio
NWQ Large Cap Portfolio
Strategic Stock Portfolio
U.S. Government Securities Portfolio
WARBURG PINCUS TRUST
Emerging Markets Portfolio
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 FUNDING OPTIONS. THESE PROSPECTUSES SHOULD BE READ AND
RETAINED FOR FUTURE REFERENCE.
This prospectus provides the information that you should know before investing
in the Contract. You can receive additional information about Separate Account
TM II by requesting a copy of the Statement of Additional Information ("SAI")
dated 1998. The SAI has been filed with the Securities and Exchange
Commission ("SEC") and is incorporated by reference into this prospectus. To
request a copy, write to The Travelers Life and Annuity Company, Annuity
Services, One Tower Square, Hartford, Connecticut 06183, call (800) 842-8573, or
access the SEC's website (http://www.sec.gov). The Table of Contents of the SAI
appears in Appendix A 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 , 1998
<PAGE> 9
TABLE OF CONTENTS
<TABLE>
<S> <C>
INDEX OF SPECIAL TERMS................. 2
FEE TABLE.............................. 3
THE ANNUITY CONTRACT................... 6
Purchase Payments...................... 6
Accumulation Units..................... 6
The Funding Options.................... 6
Substitutions and Additions............ 9
CHARGES AND DEDUCTIONS................. 9
General................................ 9
Administrative Charges................. 10
Mortality and Expense Risk Charge...... 10
Funding Option Expenses................ 10
Premium Tax............................ 10
Changes in Taxes Based Upon Premium or
Value................................ 10
OWNERSHIP PROVISIONS................... 11
Types of Ownership..................... 11
Beneficiary............................ 11
Annuitant.............................. 11
TRANSFERS.............................. 11
Dollar Cost Averaging.................. 12
ASSET ALLOCATION PROGRAM............... 12
ACCESS TO YOUR MONEY................... 12
Systematic Withdrawals................. 13
DEATH BENEFIT.......................... 13
Death Proceeds Before the Maturity Date . 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....................... 17
Suspension of Payments................. 17
Transfers of Contract Values to Other
Annuities............................ 17
THE SEPARATE ACCOUNT................... 18
Performance Information................ 18
FEDERAL TAX CONSIDERATIONS............. 19
General Taxation of Annuities.......... 19
Types of Contracts: Qualified or
Nonqualified......................... 19
Nonqualified Annuity Contracts......... 19
Qualified Annuity Contracts............ 20
Penalty Tax for Premature
Distributions........................ 20
Diversification Requirements for
Variable Annuities................... 20
Ownership of the Investments........... 21
Mandatory Distributions for Qualified
Plans................................ 21
OTHER INFORMATION...................... 21
The Insurance Company.................. 21
IMSA................................... 21
Year 2000 Compliance................... 22
Distribution of Variable Annuity
Contracts............................ 22
Conformity with State and Federal
Laws................................. 22
Voting Rights.......................... 22
Legal Proceedings and Opinions......... 23
APPENDIX A: 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
Contract Date.......................... 6
Contract Owner (You, Your)............. 6
Contract Value......................... 6
Contract Year.......................... 6
Funding Option(s)...................... 6
Maturity Date.......................... 6
Purchase Payment....................... 6
Written Request........................ 6
</TABLE>
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SEPARATE ACCOUNT TM II
- --------------------------------------------------------------------------------
CONTRACT OWNER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Annual Contract Administrative Charge
(Waived if contract value is $50,000 or more) $40
</TABLE>
ANNUAL SEPARATE ACCOUNT CHARGES:
(as a percentage of the average daily net assets of the Separate Account)
<TABLE>
<CAPTION>
ENHANCED
STANDARD DEATH
DEATH BENEFIT BENEFIT
<S> <C> <C>
Mortality and Expense Risk Charge.................... 1.55% 1.70%
Administrative Expense Charge........................ .15% .15%
----- -----
Total Separate Account Charges.................... 1.70% 1.85%
FUNDING OPTION EXPENSES:
(as a percentage of average daily net assets of the
Funding Option)
</TABLE>
<TABLE>
<CAPTION>
MANAGEMENT OTHER
FEE EXPENSES
(AFTER EXPENSE 12B-1 (AFTER EXPENSE TOTAL UNDERLYING
FUNDING OPTIONS REIMBURSEMENT) FEE REIMBURSEMENT) FUND EXPENSES
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DELAWARE GROUP PREMIUM FUND, INC.
REIT Series.............................. 0.75% 0.10%(1) 0.85%
Small Cap Value Series................... 0.75% 0.10%(2) 0.85%
DREYFUS VARIABLE INVESTMENT FUND
Capital Appreciation Portfolio........... 0.75% 0.05% 0.80%
Small Cap Portfolio...................... 0.75% 0.03% 0.78%
THE MONTGOMERY FUND III
Montgomery Variable Series: Growth
Fund................................... 1.00% 0.25%(3) 1.25%
OCC ACCUMULATION TRUST
Equity Portfolio......................... 0.80% 0.19% 0.99%
SALOMON BROTHERS VARIABLE SERIES FUNDS INC.
Salomon Brothers Variable Investors
Fund................................... 0.70% 0.30%(4) 1.00%
STRONG VARIABLE INSURANCE FUNDS, INC.
Strong Schafer Value Fund II............. 1.00% 0.20%(13) 1.20%
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Franklin Small Cap Investments Fund Class
II..................................... 0.40% 0.25% 0.60%(5) 1.25%
Templeton Developing Markets Fund Class
II..................................... 1.25% 0.25% 0.33%(6) 1.83%
Templeton International Fund Class II.... 0.69% 0.25% 0.19%(7) 1.13%
TRAVELERS SERIES FUND INC.
AIM Capital Appreciation Portfolio....... 0.80% 0.05%(8) 0.85%
TBC Managed Income Portfolio............. 0.65% 0.22%(8) 0.87%
Smith Barney High Income Portfolio....... 0.60% 0.10%(8) 0.70%
Smith Barney Large Capitalization Growth
Portfolio.............................. 0.75% 0.25%(8) 1.00%
Smith Barney Money Market Portfolio...... 0.60% 0.05%(9) 0.65%
THE TRAVELERS SERIES TRUST
Disciplined Mid Cap Stock Portfolio...... 0.70% 0.25%(10) 0.95%
Disciplined Small Cap Stock Portfolio.... 0.80% 0.20%(11) 1.00%
Jurika & Voyles Core Equity Portfolio.... 0.75% 0.25%(12) 1.00%
Large Cap Portfolio...................... 0.75% 0.20%(10) 0.95%
Lazard International Stock Portfolio..... 0.825% 0.425%(10) 1.25%
MFS Research Portfolio................... 0.80% 0.20%(11) 1.00%
NWQ Large Cap Portfolio.................. 0.75% 0.25%(12) 1.00%
Strategic Stock Portfolio................ 0.60% 0.30%(11) 0.90%
U.S. Government Securities Portfolio..... 0.32% 0.17% 0.49%
WARBURG PINCUS TRUST
Emerging Markets Portfolio............... 0.81% 0.59%(14) 1.40%
</TABLE>
3
<PAGE> 11
NOTES:
The purpose of the Fee Table is to assist contract owners in understanding the
various costs and expenses that a contract owner will bear, directly or
indirectly. See "Charges and Deductions" in this prospectus for additional
information. Expenses shown do not include premium taxes, which may be
applicable.
(1) The adviser for the Delaware REIT Series has agreed to voluntarily waive
its fee and pay the expenses of the Series to the extent that the Series'
annual operating expenses, exclusive of taxes, interest, brokerage
commissions and extraordinary expenses, do not exceed 0.85% of its average
daily net assets through October 31, 1998.
(2) The adviser for the Delaware Small Cap Value Series has agreed to
voluntarily waive its fee and pay the expenses of the Series to the extent
that the Series' annual operating expenses, exclusive of taxes, interest,
brokerage commissions and extraordinary expenses, do not exceed 0.85% of
its average daily net assets through October 31, 1998.
(3) The Montgomery Variable Series: Growth Fund's investment manager has agreed
to reduce some or all of its management fees if necessary to keep total
annual operating expenses, expressed on an annualized basis, at or below
one and one quarter percent (1.25%) of its average net assets.
(4) The amounts set forth for Other Expenses are based on estimates for the
current fiscal year and will include fees for shareholder services,
administrative fees, custodial fees, legal and accounting fees, printing
costs and registration fees. These expenses reflect the voluntary agreement
by the Fund's adviser to impose an expense cap of 1.00% for the fiscal year
ending December 31, 1998 on the total operating expenses of each Fund
(exclusive of taxes, interest and extraordinary expenses such as litigation
and indemnification expenses). Absent such agreement, the ratio of other
expenses and total operating expenses to the average daily net assets would
be 1.91% and 2.61%, respectively, for the Salomon Brothers Variable
Investors Fund.
(5) The Franklin Small Cap Investments Fund Investment Manager has agreed in
advance to waive management fees and make certain payments to reduce Fund
expenses as necessary so that Total Fund Operating Expenses do not exceed
1.25% of the Fund's Class 2 net assets through 1998. The Investment Manager
may end this arrangement at a later date. Estimated Management Fees, Rule
12b-1 Fees, Other Expenses and Total Fund Operating Expenses before any
waivers would be 0.75%, 0.25%, 0.60% and 1.60% respectively.
(6) Class 2 of the Templeton Developing Markets Fund has a distribution plan or
"Rule 12b-1 plan". Because Class 2 shares were not offered until May 1,
1997, figures (other than 12b-1 Fees) are estimates for 1998 based on the
historical expenses of the Fund's Class 1 shares for the fiscal year ended
December 31, 1997.
(7) Class 2 of the Templeton International Fund has a distribution plan or
"Rule 12b-1 plan". Because Class 2 shares were not offered until May 1,
1997, figures (other than 12b-1 Fees) are estimates for 1998 based on the
historical expenses of the Fund's Class 1 shares for the fiscal year ended
December 31, 1997. Management Fees and Total Operating Expenses have been
restated to reflect the management fee schedule approved by shareholders
and effective May 1, 1997. Actual Management Fees and Total Operating
Expenses before May 1, 1997 were 0.63% and 1.13% respectively for the
fiscal year ended December 31, 1997.
(8) Other Expenses are as of October 31, 1997 (the Fund's fiscal year-end).
There were no fees waived or expenses reimbursed for these funds in 1997.
(9) Other Expenses are as of October 31, 1997 and take into account the current
expense limitations agreed to by the Portfolios' investment manager (the
"Manager"). The Manager waived all of its fees for the period and
reimbursed the Portfolio for its expenses. Without such arrangement, the
Total Expenses for the Smith Barney Money Market Portfolio would have been
0.67%.
(10) Other Expenses reflect the current expense reimbursement arrangement with
Travelers where Travelers has agreed to reimburse the Portfolios for the
amount by which their aggregate expenses (including management fees, but
excluding brokerage commissions, interest charges and taxes) exceeds 0.95%
(1.25% for the Lazard International Stock Portfolio). Without such
arrangements, the Total Funding Option Expenses for the Portfolios would
have been as follows: 1.82% for Disciplined Mid Cap Stock Portfolio; 2.65%
for Large Cap Portfolio; and 1.76% for Lazard International Stock
Portfolio.
(11) Other Expenses are based on estimates for the current fiscal year and will
include fees for shareholder services, administrative fees, custodial fees,
legal and accounting fees, printing costs and registration fees.
Additionally, these fees reflect a voluntary expense reimbursement
arrangement by Travelers to reimburse the Portfolios for the amount by
which their aggregate total operating expenses exceed 1.00% for the
Disciplined Small Cap Stock Portfolio, MFS Research Portfolio; and 0.90%
for the Strategic Stock Portfolio. These expenses have been illustrated at
a limit which the Portfolios' adviser believes to be in line with the
actual projected expenses of the Portfolios.
(12) The Advisers have voluntarily agreed to cap each Fund's Total Operating
Expenses at 1.00%. The applicable adviser has no current intentions to, but
may in the future, discontinue or modify any waiver of fees or absorption
of expenses at its discretion without further notification.
(13) Strong Schafer Value's investment advisor has voluntarily agreed to cap the
Fund's total operating expenses at 1.20%. The adviser has no current
intentions to, but may in the future, discontinue or modify any waiver of
fees or absorption of expenses at its discretion without further
notification.
(14) The Warburg Pincus Emerging Markets Portfolio's investment advisor and
co-administrator have agreed to limit the Portfolio's total operating
expenses to 1.40% through December 31, 1998. Absent this waiver of fees,
the Portfolio's management fees, other expenses and total operating
expenses would equal 1.25%, 0.71% and 1.96%, respectively. The Portfolio's
other expenses are based on annualized estimates of expenses for the fiscal
year ending December 31, 1998, net of any fee waivers or expense
reimbursements.
4
<PAGE> 12
EXAMPLE*
Assuming a 5% annual return, a $1,000 investment would be subject to the
following expenses, whether the contract has been surrendered or annuitized, or
if no withdrawals have been made:
<TABLE>
<CAPTION>
(A) = STANDARD DEATH BENEFIT
(B) = ENHANCED DEATH BENEFIT
- --------------------------------------------------------------------------------------------------------
PORTFOLIO NAME 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DELAWARE GROUP PREMIUM FUND, INC.
REIT Series (a)........................................... $26 $ 60 $136 $290
REIT Series (b)........................................... 27 64 144 305
Small Cap Value Series (a)................................ 26 60 136 290
Small Cap Value Series (b)................................ 27 64 144 305
DREYFUS VARIABLE INVESTMENT FUND
Capital Appreciation Portfolio (a)........................ 25 78 134 285
Capital Appreciation Portfolio (b)........................ 27 83 141 300
Small Cap Portfolio (a)................................... 25 78 133 283
Small Cap Portfolio (b)................................... 27 82 140 298
THE MONTGOMERY FUND III
Montgomery Variable Series: Growth Fund (a)............... 30 92 156 329
Montgomery Variable Series: Growth Fund (b)............... 31 96 163 343
OCC ACCUMULATION TRUST
Equity Portfolio (a)...................................... 27 84 143 304
Equity Portfolio (b)...................................... 29 89 151 318
SALOMON BROTHERS VARIABLE SERIES FUNDS, INC.
Salomon Brothers Variable Investors Fund (a).............. 27 84 144 305
Salomon Brothers Variable Investors Fund (b).............. 29 89 151 319
STRONG VARIABLE INSURANCE FUNDS, INC.
Strong Schafer Value Fund II (a).......................... 29 90 154 324
Strong Schafer Value Fund II (b).......................... 31 95 161 338
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Franklin Small Cap Investments Fund Class II (a).......... 30 92 156 329
Franklin Small Cap Investments Fund Class II (b).......... 31 96 163 343
Templeton Developing Markets Fund Class II (a)............ 36 109 184 382
Templeton Developing Markets Fund Class II (b)............ 37 113 191 395
Templeton International Fund Class II (a)................. 29 88 150 317
Templeton International Fund Class II (b)................. 30 93 158 332
TRAVELERS SERIES FUND INC.
AIM Capital Appreciation Portfolio (a).................... 26 80 136 290
AIM Capital Appreciation Portfolio (b).................... 27 84 144 305
TBC Managed Income Portfolio (a).......................... 26 80 137 292
TBC Managed Income Portfolio (b).......................... 28 85 145 307
Smith Barney High Income Portfolio (a).................... 24 75 129 275
Smith Barney High Income Portfolio (b).................... 26 80 136 290
Smith Barney Large Capitalization Growth Portfolio (a).... 27 84 144 305
Smith Barney Large Capitalization Growth Portfolio (b).... 29 89 151 319
Smith Barney Money Market Portfolio (a)................... 24 74 126 270
Smith Barney Money Market Portfolio (b)................... 25 78 134 285
THE TRAVELERS SERIES TRUST
Disciplined Mid Cap Stock Portfolio (a)................... 27 83 141 300
Disciplined Mid Cap Stock Portfolio (b)................... 28 87 149 315
Disciplined Small Cap Stock Portfolio (a)................. 27 84 144 305
Disciplined Small Cap Stock Portfolio (b)................. 29 89 151 319
Jurika & Voyles Core Equity Portfolio (a)................. 27 84 144 305
Jurika & Voyles Core Equity Portfolio (b)................. 29 89 151 319
Large Cap Portfolio (a)................................... 27 83 141 300
Large Cap Portfolio (b)................................... 28 87 149 315
Lazard International Stock Portfolio (a).................. 30 92 156 329
Lazard International Stock Portfolio (b).................. 31 96 163 343
MFS Research Portfolio (a)................................ 27 84 144 305
MFS Research Portfolio (b)................................ 29 89 151 319
NWQ Large Cap Portfolio (a)............................... 27 84 144 305
NWQ Large Cap Portfolio (b)............................... 29 89 151 319
Strategic Stock Portfolio (a)............................. 26 81 139 295
Strategic Stock Portfolio (b)............................. 28 86 146 310
U.S. Government Securities Portfolio (a).................. 22 69 118 254
U.S. Government Securities Portfolio (b).................. 24 74 126 269
</TABLE>
5
<PAGE> 13
<TABLE>
<CAPTION>
(A) = STANDARD DEATH BENEFIT
(B) = ENHANCED DEATH BENEFIT
- --------------------------------------------------------------------------------------------------------
PORTFOLIO NAME 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WARBURG PINCUS TRUST
Emerging Markets Portfolio (a)............................ $31 $ 96 $163 $343
Emerging Markets Portfolio (b)............................ 33 101 171 357
</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 $40 annual contract administrative charge as an annual
charge of 0.018% of assets.
THE ANNUITY CONTRACT
- --------------------------------------------------------------------------------
Travelers Marquis Portfolios is a contract between you, the contract owner, and
The The Travelers Life and Annuity Company (called "us" or the "Company"). Under
this contract, you make purchase payments to us and we credit them to your
Contract. The Company promises to pay you an income, in the form of annuity
payments, beginning on a future date that you choose, the maturity date. The
purchase payments accumulate tax deferred in the funding option(s) of your
choice. The contract owner assumes the risk of gain or loss according to the
performance of the funding options. The contract value is the amount of purchase
payments, plus or minus any investment experience. The contract value also
reflects all surrenders made and charges deducted. There is generally no
guarantee that at the maturity date the contract value will equal or exceed the
total purchase payments made under the Contract. The date the contract and its
benefits became effective is referred to as the contract date. Each 12-month
period following the contract date is called a contract year.
Certain changes and elections must be made in writing to the Company. Where the
term "written request" is used, it means that written information must be sent
to the Company's Home Office in a form and content satisfactory to us. Our Home
Office is located at One Tower Square, Hartford, CT 06183.
PURCHASE PAYMENTS
The initial purchase payment must be at least $25,000. Additional payments of at
least $500 may be made under the Contract at any time. Under certain
circumstances, we may waive the minimum purchase payment requirement. Purchase
payments over $1,000,000 may be made with our prior consent.
We will apply the initial purchase payment within two business days after we
receive it at our Home Office in good order. Subsequent purchase payments
received in good order will be credited to a Contract within one business day.
Our business day ends when the New York Stock Exchange closes, usually 4:00 p.m.
Eastern time.
ACCUMULATION UNITS
An accumulation unit is used to calculate the value of a Contract. An
accumulation unit works like a share of a mutual fund. Each funding option has a
corresponding accumulation unit value. The accumulation units are valued each
business day and may increase or decrease from day to day. The number of
accumulation units we will credit to your Contract once we receive a purchase
payment is determined by dividing the amount directed to each funding option by
the value of the accumulation unit. We calculate the value of an accumulation
unit for each funding option each day after the New York Stock Exchange closes.
After the value is calculated, your Contract is credited. During the annuity
period (i.e., after the maturity date), you are credited with annuity units.
THE FUNDING OPTIONS
You choose which of the following funding options to have your purchase payments
allocated to. These funding options are subsections of the Separate Account
which invest in the underlying mutual funds which support the funding options.
You will find detailed information about the
6
<PAGE> 14
options and their inherent risks in the current prospectuses for the funding
options which must accompany this prospectus. You are not investing directly in
the underlying mutual funds, but only through the Separate Account. 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 Smith Barney Financial Consultant or by calling 1-800-842-8573.
The current funding options available in the separate account are listed below,
along with their investment advisers and any subadviser:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
FUNDING INVESTMENT INVESTMENT
OPTION OBJECTIVE ADVISER/SUB-ADVISER
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DELAWARE GROUP PREMIUM
FUND, INC.
REIT Series Seeks to achieve maximum long-term total return. Delaware Management Company,
Capital appreciation is a secondary objective. The Inc.
Series seeks to achieve its objectives by investing Subadviser:
in securities of companies primarily engaged in the Lincoln Investment
real estate industry. Under normal circumstances, at Management, Inc.
least 65% of the Series total assets will be invested
in equity securities of real estate investment trusts
("REITs"). The Series operates as a nondiversified
fund as defined by the Investment Company Act of
1940.
Small Cap Value Series Seeks capital appreciation by investing in small- to Delaware Management Company,
mid-cap common stocks whose market value appears low Inc.
relative to their underlying value or future earnings
and growth potential. Emphasis will also be placed on
securities of companies that may be temporarily out
of favor or whose value is not yet recognized by the
market.
DREYFUS VARIABLE
INVESTMENT FUND
Capital Appreciation To provide long-term capital growth consistent with The Dreyfus Corporation
Portfolio the preservation of capital; income is a secondary Subadviser:
investment objective. The Portfolio seeks investment Fayez Sarofim & Co.
opportunities generally in large capitalization ("Sarofim")
companies (those with market capitalizations
exceeding $500 million) which its investment adviser
believes have the potential to experience above
average and predictable earnings growth.
Small Cap Portfolio Seeks to maximize capital appreciation by investing The Dreyfus Corporation
principally in common stocks of companies that have
the potential for significant growth.
MONTGOMERY FUNDS III
Montgomery Variable Seeks capital appreciation by investing primarily in Montgomery Asset Management
Series: Growth Fund equity securities, usually common stock, of domestic
companies of all sizes and emphasizes companies
having market capitalizations of $1 billion or more.
OCC ACCUMULATION TRUST
Equity Portfolio Seeks long-term capital appreciation through OpCap Advisors
investment in securities (primarily equity
securities) of companies that are believed by the
adviser to be undervalued in the marketplace in
relation to factors such as the companies' assets or
earnings.
SALOMON BROTHERS VARIABLE
SERIES FUND, INC.
Salomon Brothers Seeks long-term growth of capital with current income Salomon Brothers Asset
Variable Investors Fund as a secondary objective, by investing in common Management ("SBAM")
stocks of well-known companies.
STRONG VARIABLE INSURANCE
FUNDS, INC.
Strong Schafer Value Seeks primarily long-term capital appreciation. Schafer Capital Management,
Fund II Current income is a secondary objective when Inc.
selecting investments.
</TABLE>
7
<PAGE> 15
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
FUNDING INVESTMENT INVESTMENT
OPTION OBJECTIVE ADVISER/SUB-ADVISER
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TEMPLETON VARIABLE
PRODUCTS
SERIES FUND
Franklin Small Cap Seeks long-term capital growth. The Fund seeks to Franklin Advisers, Inc.
Investments Fund Class accomplish its objective by investing primarily
II (normally at least 65% of its assets) in equity
securities of smaller capitalization growth companies
("small cap companies").
Templeton Developing Seeks long-term capital appreciation. The Fund seeks Templeton Asset Management
Markets Fund Class II to achieve this objective by investing primarily Ltd.
(normally at least 65% of assets) in equity
securities of issuers in countries having developing
markets.
Templeton International Seeks long-term capital growth through a flexible Templeton Investment
Fund Class II policy of investing in stocks and debt obligations of Counsel, Inc.
companies and governments outside the United States.
Any income realized will be incidental.
TRAVELERS SERIES FUND,
INC.
AIM Capital Seeks capital appreciation by investing principally Travelers Investment Adviser
Appreciation Portfolio in common stock, with emphasis on medium-sized and ("TIA")
smaller emerging growth companies. Subadviser: AIM Capital
Management Inc.
Smith Barney High Seeks high current income. Capital appreciation is a Mutual Management Corp.
Income Portfolio secondary objective. The Portfolio will invest at ("MMC")
least 65% of its assets in high-yielding corporate
debt obligations and preferred stock.
Smith Barney Large Seeks long-term growth of capital by investing, under MMC
Capitalization Growth normal market conditions, 65% of its assets in equity
Portfolio securities of companies with large market
capitalizations.
Smith Barney Money Seeks maximum current income and preservation of MMC
Market Portfolio capital by investing in high quality, short-term
money market instruments. An investment in this fund
is neither insured nor guaranteed by the U.S.
Government, and there is no assurance that a stable
$1 value per share will be maintained.
TBC Managed Income Seeks high current income consistent with prudent TIA
Portfolio risk of capital through investments in corporate debt Subadviser: The Boston
obligations, preferred stocks, and obligations issued Company Asset Management,
or guaranteed by the U.S. Government or its agencies Inc.
or instrumentalities.
THE TRAVELERS SERIES
TRUST
Disciplined Mid Cap Seeks growth of capital by investing primarily in a Travelers Asset
Stock Portfolio broadly diversified portfolio of U.S. common stocks. Management International
(formerly "Mid Cap Corporation ("TAMIC")
Disciplined Equity Subadviser: Travelers
Fund") Investment Management
Company ("TIMCO")
Disciplined Small Cap Seeks long-term capital appreciation by investing TAMIC
Stock Portfolio primarily Subadviser: TIMCO
(at least 65% of its total assets) in the common
stocks of U.S. Companies with relatively small market
capitalizations at the time of investment.
Jurika & Voyles Core Seeks long-term capital appreciation. The Portfolio TAMIC
Equity Portfolio invests primarily in the common stock of quality Subadviser: Jurika & Voyles
companies of all market capitalizations that offer L.P.
current value and significant future growth
potential.
Large Cap Portfolio Seeks long-term growth of capital by investing TAMIC
primarily in equity securities of companies with Subadviser: Fidelity
large market capitalizations. Management & Research
Company
Lazard International Seeks capital appreciation by investing primarily in TAMIC
Stock Portfolio the equity securities of non-United States companies Subadviser: Lazard Asset
(i.e., incorporated or organized outside the United Management
States).
</TABLE>
8
<PAGE> 16
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
FUNDING INVESTMENT INVESTMENT
OPTION OBJECTIVE ADVISER/SUB-ADVISER
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
THE TRAVELERS SERIES
TRUST (CONTINUED)
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------
FUNDING INVESTMENT INVESTMENT
OPTION OBJECTIVE ADVISER/SUB-ADVISER
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MFS Research Portfolio Seeks to provide long-term growth of capital and TAMIC
future income. Subadviser: Massachusetts
Financial Services Company
MFS
NWQ Large Cap Portfolio Seeks to achieve consistent, superior total return TAMIC
with minimum risk to principal. Subadviser: NWQ Investment
Management Company
Strategic Stock Seeks to provide an above-average total return TAMIC
Portfolio through a combination of potential capital Subadviser: TIMCO
appreciation and dividend income by investing
primarily in high dividend yield stocks periodically
selected from the companies included in (i) the Dow
Jones Industrial Average and (ii) the Standard &
Poor's 100 Stock Index.
U.S. Government Seeks to select investments from the point of view of TAMIC
Securities Portfolio an investor concerned primarily with highest credit
quality, current income and total return. The assets
of the U.S. Government Securities Portfolio will be
invested in direct obligations of the United States,
its agencies and instrumentalities.
WARBURG PINCUS TRUST
Emerging Markets Seeks long-term growth of capital by investing Warburg Pincus Asset
Portfolio primarily in equity securities of non-U.S. issuers Management, Inc.
consisting of companies in emerging securities
markets.
</TABLE>
SUBSTITUTIONS AND ADDITIONS
If any of the funding options become unavailable for allocating purchase
payments, or if we believe that further investment in a funding option is
inappropriate for the purposes of the Contract, we may substitute another
funding option. However, we will not make any substitutions without notifying
you and obtaining any applicable state and SEC approval. From time to time we
may make new funding options available.
CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
GENERAL
We deduct the charges described below. The charges are for the service and
benefits we provide, costs and expenses we incur, and risks we assume under the
Contracts. Services and benefits we provide include: the ability for you to make
withdrawals and surrenders under the Contracts; the death benefit paid on the
death of the contract owner, annuitant, or first of the joint contract owners,
the available funding options and related programs, including dollar-cost
averaging, asset allocation, portfolio rebalancing, and systematic withdrawal
programs; administration of the annuity options available under the Contracts;
and the distribution of various reports to contract owners. Costs and expenses
we incur include those associated with various overhead and other expenses
associated with providing the services and benefits provided by the Contracts,
sales and marketing expenses, and other costs of doing business. Risks we assume
include the risks that annuitants may live longer than estimated when the
annuity factors under the Contracts were established, that the amount of the
death benefit will be greater than contract value or the maximum of all
anniversary values for the Enhanced Death Benefit, and that the costs of
providing the services and benefits under the Contracts will exceed the charges
deducted. We may also deduct a charge for taxes.
9
<PAGE> 17
Unless otherwise specified, charges are deducted proportionately from all
funding options in which you are invested.
ADMINISTRATIVE CHARGES
A Contract administrative charge of $40 is deducted annually from Contracts with
a value of less than $50,000. This charge compensates us for expenses incurred
in establishing and maintaining the Contract. The charge is deducted from the
contract value on the fourth Friday of each August by canceling accumulation
units applicable to each funding option on a pro rata basis. For the first year,
this charge will be prorated (i.e. calculated) from the date of purchase. A
prorated charge will also be made if the Contract is completely withdrawn or
terminated. We will not deduct a contract administrative charge: (1) from
distributions of death proceeds; (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 expense charge (sometimes called "sub-account administrative
charge") is deducted on each business day from amounts allocated to the funding
options in order to compensate the Company for certain related administrative
and operating expenses. The charge equals, on an annual basis, 0.15% of the
daily net asset value allocated to each funding option.
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. For the Standard Death Benefit, this charge equals, on an annual basis,
1.55% of the amounts held in each funding option. For the Enhanced Death
Benefit, the charge equals on an annual basis, 1.70%. We reserve the right to
lower the charge at any time.
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.
10
<PAGE> 18
OWNERSHIP PROVISIONS
- --------------------------------------------------------------------------------
TYPES OF OWNERSHIP
Contract Owner ("you"). The Contract belongs to the contract owner named in the
Contract (on the Specifications page), or to any other person to whom the
contract is subsequently assigned. An assignment of ownership or a collateral
assignment may be made only for nonqualified contracts. You have sole power
during the annuitant's lifetime to exercise any rights and to receive all
benefits given in the contract provided you have not named an irrevocable
beneficiary and provided the Contract is not assigned.
You receive all payments while the annuitant is alive unless you direct them to
an alternate recipient. An alternate recipient does not become the contract
owner.
Joint Owner. For nonqualified contracts only, joint owners (i.e., spouses) may
be named in a written request before the contract is in effect. Joint owners may
independently exercise transfers allowed under the Contract. All other rights of
ownership must be exercised by both owners. Joint owners own equal shares of any
benefits accruing or payments made to them. All rights of a joint owner end at
death if the other joint owner survives. The entire interest of the deceased
joint owner in the Contract will pass to the surviving joint owner.
BENEFICIARY
The beneficiary is named by you in a written request. The beneficiary has the
right to receive any remaining contractual benefits upon the death of the
annuitant or the contract owner. If more than one beneficiary survives the
annuitant, they will share equally in benefits unless different shares are
recorded with the Company by written request before the death of the annuitant
or contract owner.
With nonqualified contracts, 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.
TRANSFERS
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Up to 30 days before the maturity date, you may transfer all or part of the
contract value between funding options. There are no charges or restrictions on
the amount or frequency of transfers currently; however, we reserve the right to
charge a fee for any transfer request, to limit the number of transfers. We will
always allow at least one transfer 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.
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DOLLAR COST AVERAGING
Dollar cost averaging (or "automated transfers") allows you to transfer a set
dollar amount to other funding options on a monthly or quarterly basis so that
more accumulation units are purchased in a funding option if the cost per unit
is low and less accumulation units are purchased if the cost 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. (For Contracts issued in New York, the election must
be made in writing.) You must have a minimum contract value of $5,000 to enroll
in the Dollar Cost Averaging program. The minimum total automated transfer
amount is $400.
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.
ASSET ALLOCATION PROGRAM
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An asset allocation program is available and is offered to you in conjunction
with your Contract. Under this program, your purchase payments are allocated
among a set of funding options based on asset allocation models which were
designed by Ibbotson Associates. Your asset allocation model will be based on
your responses to a personal profile questionnaire that measures your personal
investment risk tolerance, investment time horizon, financial goals and other
factors. If you elect to participate in the asset allocation program, initial
and additional purchase payments will be allocated among the model and funding
options you select. Although you may only use one model at a time, you may elect
to change your selection as your tolerance for risk, and/or your needs and
objectives change. You may use a questionnaire that we offer to determine the
model that best meets your risk tolerance and time horizons.
From time to time, Ibbotson Associates reviews the models and may find that
asset allocations within a particular model may need to be changed. We will
notify you regarding any such change.
In order to participate in this program, you will need to complete the required
questionnaire. All Travelers Marquis Portfolios contract features will continue
to apply. Contact your Financial Consulant for additional information.
ACCESS TO YOUR MONEY
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Any time before the maturity date, you may redeem all or any portion of the
contract value, less any premium tax not previously deducted. You must submit a
written request specifying the funding option(s) from which amounts are to be
withdrawn. If no funding options are specified, the withdrawal will be made on a
prorata basis. The contract value will be determined as of the close of business
after we receive your surrender request at the Home Office. The contract value
may be more or less than the purchase payments made.
We may defer payment of any contract value for a period of up to seven days
after the written request is received, but it is our intent to pay as soon as
possible. We cannot process requests for
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withdrawal that are not in good order. We will contact you if there is a
deficiency causing a delay and will advise what is needed to act upon the
withdrawal request.
SYSTEMATIC WITHDRAWALS
Beginning in the second contract year, before the maturity date, you may choose
to withdraw a specified dollar amount (at least $100) on a monthly, quarterly,
semiannual or annual basis. Any applicable premium taxes will be deducted. To
elect systematic withdrawals, you must have a contract value of at least $15,000
and you must make the election on the form provided by the Company. We will
surrender accumulation units pro rata from all funding options in which you have
an interest, unless you instruct us otherwise. You may begin or discontinue
systematic withdrawals at any time by notifying us in writing, but at least 30
days' notice must be given to change any systematic withdrawal instructions that
are currently in place.
We reserve the right to discontinue offering systematic withdrawals or to assess
a processing fee for this service upon 30 days' written notice to contract
owners (where allowed by state law).
Each systematic withdrawal is subject to federal income taxes on the taxable
portion. In addition, a 10% federal penalty tax may be assessed on systematic
withdrawals if the contract owner is under age 59 1/2. You should consult with
your tax adviser regarding the tax consequences of systematic withdrawals.
DEATH BENEFIT
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Before the maturity date, when there is no contingent annuitant, a death benefit
is payable to the beneficiary when either the annuitant, the contract owner or
the first of joint owners dies and there is no contingent annuitant. The death
benefit is calculated at the close of the business day on which the Company's
Home Office received due proof of death and written payment instructions (i.e.,
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 (unless prohibited by state
law).
DEATH PROCEEDS BEFORE THE MATURITY DATE
STANDARD DEATH BENEFIT:
DEATH OF ANY CONTRACT OWNER OR THE ANNUITANT BEFORE AGE 80. The Company will pay
the beneficiary an amount equal to the greater of (1) or (2) below, each reduced
by any applicable premium tax:
(1) the contract value; or
(2) the total purchase payments made under the Contract less any partial
withdrawals.
DEATH OF ANY OWNER OR THE ANNUITANT ON OR AFTER AGE 80. The death benefit
payable as of the death report date will be the contract value, less any
applicable premium tax.
ENHANCED DEATH BENEFIT:
DEATH OF ANY CONTRACT OWNER OR THE ANNUITANT BEFORE AGE 80. The Company will pay
to the beneficiary the greatest of (1) or (2) above or (3):
(3) the maximum of all Anniversary Values (as described below) in effect
on the death report date.
DEATH OF ANY CONTRACT OWNER OR ANNUITANT ON OR AFTER AGE 80, BUT BEFORE AGE 90.
The Company will pay to the beneficiary the greatest of (1), (2) or (3) below,
each reduced by any applicable premium tax or outstanding loans as of the death
report date:
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(1) the contract value;
(2) the total purchase payments made under the Contract less any partial
withdrawals; or
(3) the maximum of all Anniversary Values (as described below) occurring
on or before the annuitant's 80th birthday.
DEATH OF ANY OWNER OR THE ANNUITANT ON OR AFTER AGE 90. The death benefit
payable as of the death report date will be the contract value, less any
applicable premium tax.
ANNIVERSARY VALUE. A separate Anniversary Value will be established on each
anniversary of the contract date which occurs on or before the death report date
and will initially equal the contract value on that anniversary. After an
Anniversary Value has been established, it will be recalculated each time a
purchase payment is made or a partial surrender is taken until the death report
date. Anniversary Values will be increased by the amount of each applicable
purchase payment and reduced by a Partial Surrender Reduction (as described
below) for each applicable partial surrender. Recalculations of Anniversary
Values related to any purchase payments or any partial surrenders will be made
in the order that such purchase payments or partial surrenders occur.
THE PARTIAL SURRENDER REDUCTION referenced above is equal to (1) the amount of
an Anniversary Value immediately prior to the reduction for the partial
surrender, multiplied by (2) the amount of the partial surrender divided by the
contract value immediately prior to 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 of over a period not exceeding the beneficiary's life expectancy
If the beneficiary is the contract owner's spouse, he or she may elect to
continue the contract as the new contract owner rather than receiving the
distribution. In such case, the distribution rules applicable when a contract
owner dies generally will apply when that spouse, as contract owner, dies.
DEATH OF ANNUITANT WHO IS NOT THE CONTRACT OWNER. If there is no contingent
annuitant, the Company will pay the death proceeds to the beneficiary. However,
if there is a contingent annuitant, he or she becomes the annuitant and the
Contract continues in effect (generally using the original maturity date). The
proceeds described above will be paid upon the death of the last surviving
contingent annuitant.
ENTITY AS OWNER. In the case of a nonqualified Contract owned by a nonnatural
person (e.g. a trust or another entity), any annuitant will be treated as the
contract owner. Any change in the annuitant will be treated as the death of the
contract owner.
DEATH PROCEEDS AFTER THE MATURITY DATE
If 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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THE ANNUITY PERIOD
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MATURITY DATE
Under the Contract, you can receive regular income payments (annuity payments).
You can choose the month and the year in which those payments begin (maturity
date). While the annuitant is alive, you can change your maturity date selection
any time up to 30 days before 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 90th birthday, ten years after the effective date of the contract,
or later with our consent. (In certain states, the maturity date elected may not
be later than the annuitant's 90th birthday; refer to your Contract.)
Certain annuity options taken at the maturity date may be used to meet the
minimum required distribution requirements of federal tax law, or a program of
partial surrenders may be used instead. These mandatory distribution
requirements take effect generally upon the death of the contract owner, or with
qualified contracts upon either the later of the contract owner's attainment of
age 70 1/2 or year of retirement; or the death of the contract owner.
Independent tax advice should be sought regarding the election of minimum
required distributions.
ALLOCATION OF ANNUITY
When an annuity option is elected, it may be elected as a variable annuity, a
fixed annuity, or a combination of both. (Variable payouts under this Contract
may not be permitted in certain states; refer to your contract.) If, at the time
annuity payments begin, no election has been made to the contrary, the contract
value will be applied to provide an annuity funded by the same investment
options. At least 30 days before the maturity date, you may transfer the
contract value among the funding options in order to change the basis on which
annuity payments will be determined. (See "Transfers.")
VARIABLE ANNUITY
You may choose an annuity payout that fluctuates depending on the investment
experience of the variable funding options. The number of annuity units credited
to the Contract is determined by dividing the first monthly annuity payment
attributable to each funding option by the corresponding annuity unit value as
of 14 days before the date annuity payments begin. An annuity unit is used to
measure the dollar value of an annuity payment. The number of annuity units (but
not their value) remains fixed during the annuity period.
DETERMINATION OF FIRST ANNUITY PAYMENT. The Contract contains Life Annuity
Tables used to determine the first monthly annuity payment. The amount applied
to effect a variable annuity will be the value of the funding options as of 14
days before the date annuity payments begin less any applicable premium taxes
not previously deducted.
The amount of the first monthly payment depends on the annuity option elected. A
formula for determining the adjusted age is contained in the Contract. The total
first monthly annuity payment is determined by multiplying the benefit per
$1,000 of value shown in the tables of the Contract by the number of thousands
of dollars of value of the Contract applied to that annuity option. The Company
reserves the right to require satisfactory proof of age of any person on whose
life annuity payments are based before making the first payment under any of the
settlement options.
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DETERMINATION OF SECOND AND SUBSEQUENT ANNUITY PAYMENTS. The dollar amount of
the second and subsequent annuity payments is not predetermined and may change
from month to month based on the investment experience of the applicable funding
option. The total amount of each annuity payment will be equal to the sum of the
basic payments in each funding option. The actual amounts of these payments are
determined by multiplying the number of annuity units credited to each funding
option by the corresponding annuity unit value as of the date 14 days before the
date the payment is due.
FIXED ANNUITY
You may choose a fixed annuity that provides payments which do not vary during
the annuity period. We will calculate the dollar amount of the first fixed
annuity payment as described under "Variable Annuity," except that the amount
applied to effect the annuity will be 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
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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 if prohibited by state law), or in accordance with the payment
option that you select. You must elect an option in writing, in a form
satisfactory to the Company. Any election made during the lifetime of the
annuitant must be made by the contract owner.
ANNUITY OPTIONS
Subject to the conditions described in "Election of Options" above, all or any
part of the contract value may be paid under one or more of the following
annuity options. Payments under the annuity options may be elected on a monthly,
quarterly, semiannual or annual basis. We may 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 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.
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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 -- Payment for a Fixed Period. The Company will make monthly payments
for the period selected.
MISCELLANEOUS CONTRACT PROVISIONS
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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 right to return period; therefore, the
contract value returned may be greater or less than your purchase payment. If
the Contract is purchased as an Individual Retirement Annuity, and is returned
within the first seven days after delivery, your purchase payment will be
refunded in full; during the remainder of the right to return period, the
contract value (including charges) will be refunded. The contract value will be
determined following the close of the business day on which we receive a written
request for a refund. Where state law requires a longer period, or the return of
purchase payments or other variations of this provision, the Company will
comply. Refer to your Contract for any state-specific information.
TERMINATION
You do not need to make any purchase payments after the first to keep the
Contract in effect. However, we reserve the right to terminate the Contract on
any business day if the contract value as of that date is less than $2,000 and
no purchase payments have been made for at least two years, unless otherwise
specified by state law. Termination will not occur until 31 days after the
Company has mailed notice of termination to the contract owner's last known
address and to any assignee of record. If the Contract is terminated, we will
pay you the contract value, less any applicable contract or premium tax charges.
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
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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
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The Travelers Separate Account TM II For Variable Annuities ("Separate Account
TM II") was established on November 5, 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 Separate Account TM II will be
invested exclusively in the shares of the variable funding options.
The assets of Separate Account TM II are held for the exclusive benefit of the
owners of this separate account, according to the laws of Connecticut. Income,
gains and losses, whether or not realized, from assets allocated to Separate
Account TM II are, in accordance with the Contracts, credited to or charged
against the Separate Account TM II without regard to other income, gains and
losses of the Company. The assets held by Separate Account TM II are not
chargeable with liabilities arising out of any other business which the Company
may conduct. Obligations under the Contract are obligations of the Company.
All investment income and other distributions of the funding options are payable
to Separate Account TM II. All such income and/or distributions are reinvested
in shares of the respective funding option at net asset value. Shares of the
funding options are currently sold only to life insurance company separate
accounts to fund variable annuity and variable life insurance contracts.
PERFORMANCE INFORMATION
From time to time, we may advertise several types of historical performance for
the Contract's funding options. We may advertise the "standardized average
annual total returns" of the funding option, calculated in a manner prescribed
by the SEC, as well as the "nonstandardized average annual total return," as
described below. Specific examples of the performance information appear in the
SAI.
STANDARDIZED METHOD. Quotations of average annual total returns are computed
according to a formula in which a hypothetical initial investment of $1,000 is
applied to the funding option, and then related to ending redeemable values over
one-, five-, and ten-year periods, or for a period covering the time during
which the funding option has been in existence, if less. These quotations
reflect the deduction of all recurring charges during each period (on a pro rata
basis in the case of fractional periods). The deduction for the annual
administrative charge is converted to a percentage of assets based on the actual
fee collected (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.
NONSTANDARDIZED METHOD. Nonstandardized total returns will be calculated in a
similar manner based on the performance of the funding options over a period of
time, usually for the calendar year, year-to-date, and for the past one-,
three-, five- and ten-year periods. Nonstandardized total returns will not
reflect the deduction of the annual contract administrative charge, which, if
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reflected, would decrease the level of performance shown. Various other time
periods may also be shown and returns may be reflected on a cumulative or an
average annual basis.
For funding options that were in existence prior to the date they became
available under the Separate Account, the standardized average annual total
return quotations may be accompanied by returns showing the investment
performance that such funding options would have achieved (reduced by the
applicable charges) had they been held under the Contract for the period quoted.
The total return quotations are based upon historical earnings and are not
necessarily representative of future performance.
GENERAL Within the guidelines prescribed by the SEC and the National
Association of Securities Dealers, Inc. ("NASD"), performance information may be
quoted numerically or may be presented in a table, graph or other illustration.
Advertisements may include data comparing performance to well-known indices of
market performance (including, but not limited to, the Dow Jones Industrial
Average, the Standard & Poor's (S&P) 500 Index and the S&P 400 Index, the Lehman
Brothers Long T-Bond Index, the Russell 1000, 2000 and 3000 Indices, the Value
Line Index, and the Morgan Stanley Capital International's EAFE Index).
Advertisements may also include published editorial comments and performance
rankings compiled by independent organizations (including, but not limited to,
Lipper Analytical Services, Inc. and Morningstar, Inc.) and publications that
monitor the performance of the Separate Account and the variable funding
options.
FEDERAL TAX CONSIDERATIONS
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The following general discussion of the federal income tax consequences under
this Contract is not intended to cover all situations, and is not meant to
provide tax advice. Because of the complexity of the law and the fact that the
tax results will vary depending on many factors, you should consult your tax
adviser regarding your personal situation. For your information, a more detailed
tax discussion is contained in the SAI.
GENERAL TAXATION OF ANNUITIES
Congress has recognized the value of saving for retirement by providing certain
tax benefits, in the form of tax deferral, for money put into an annuity. The
Internal Revenue Code (Code) governs how this money is ultimately taxed,
depending upon the type of contract, qualified or non-qualified, and the manner
in which the money is distributed, as briefly described below.
TYPES OF CONTRACTS: QUALIFIED OR NONQUALIFIED
If you purchase an annuity contract with proceeds of an eligible rollover
distribution from any pension plan, specially sponsored program, or individual
retirement annuity (IRA) with pre-tax dollars, your contract is referred to as a
qualified contract. Some examples of qualified contracts are: IRAs, 403(b)
annuities, pension and profit-sharing plans (including 401(k) plans), Keogh
Plans, and certain other qualified deferred compensation plans. If you purchase
the contract on an individual basis with after-tax dollars and not under one of
the programs described above, your contract is referred to as nonqualified.
NONQUALIFIED ANNUITY CONTRACTS
As the owner of a nonqualified annuity, you do not receive any tax benefit
(deduction or deferral of income) on purchase payments, but you will not be
taxed on increases in the value of your contract until a distribution
occurs -- either as a withdrawal (distribution made prior to the maturity date),
or as annuity payments. When a withdrawal is made, you are taxed on the amount
of the withdrawal that is considered earnings. Similarly, when you receive an
annuity payment, part
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of each payment is considered a return of your purchase payments and will not be
taxed. The remaining portion of the annuity payment (i.e., any earnings) will be
considered ordinary income for tax purposes.
If a nonqualified annuity is owned by other than an individual, however, (e.g.,
by a corporation), increases in the value of the contract attributable to
purchase payments made after February 28, 1986 are includible in income
annually. Furthermore, for contracts issued after April 22, 1987, if you
transfer the contract without adequate consideration all deferred increases in
value will be includible in your income at the time of the transfer.
If you make a partial withdrawal, this money will generally be taxed as first
coming from earnings, (income in the contract), and then from your purchase
payments. These withdrawn earnings are includible in your income. (See "Penalty
Tax for Premature Distributions" below). There is income in the contract to the
extent the cash value exceeds your investment in the contract. The investment in
the contract equals the total purchase payments you paid less any amount
received previously which was excludible from gross income. Any direct or
indirect borrowing against the value of the contract or pledging of the contract
as security for a loan will be treated as a cash distribution under the tax law.
Federal tax law requires that nonqualified annuity contracts meet minimum
mandatory distribution requirements upon the death of the contract owner,
including the first of joint owners. If these requirements are not met, the
surviving joint owner, or the beneficiary, will have to pay taxes prior to
distribution. The distribution required depends, among other things, upon
whether an annuity option is elected or whether the new contract owner is the
surviving spouse. We will administer Contracts in accordance with these rules
and we will notify you when you should begin receiving payments.
QUALIFIED ANNUITY CONTRACTS
Under a qualified annuity, since amounts paid into the contract have not yet
been taxed, the full amount of all distributions, including lump-sum withdrawals
and annuity payments, are taxed at the ordinary income tax rate unless the
distribution is transferred to an eligible rollover account or contract. The
Contract is available as a vehicle for IRA rollovers and for other qualified
contracts. There are special rules which govern the taxation of qualified
contracts, including withdrawal restrictions, requirements for mandatory
distributions, and contribution limits. We have provided a more complete
discussion in the SAI.
PENALTY TAX FOR PREMATURE DISTRIBUTIONS
Taxable distributions taken before the contract owner has reached the age of
59 1/2 will be subject to a 10% additional tax penalty unless the distribution
is taken in a series of periodic distributions, for life or life expectancy, or
unless the distribution follows the death or disability of the contract owner.
Other exceptions may be available in certain qualified plans.
DIVERSIFICATION REQUIREMENTS FOR VARIABLE ANNUITIES
The Code requires that any nonqualified variable annuity contracts based on a
separate account shall not be treated as an annuity for any period if
investments made in the account are not adequately diversified. Final tax
regulations define how separate accounts must be diversified. The Company
monitors the diversification of investments constantly and believes that its
accounts are adequately diversified. The consequence of any failure to diversify
is essentially the loss to the Contract Owner of tax deferred treatment. The
Company intends to administer all contracts subject to this provision of law in
a manner that will maintain adequate diversification.
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<PAGE> 28
OWNERSHIP OF THE INVESTMENTS
Assets in the separate accounts, also referred to as segregated asset accounts,
must be owned by the Company and not by the Contract Owner for federal income
tax purposes. Otherwise, the deferral of taxes is lost and income and gains from
the accounts would be includable annually in the Contract Owner's gross income.
The Internal Revenue Service has stated in published rulings that a variable
contract owner will be considered the owner of the assets of a segregated asset
account if the owner possesses an incident of ownership in those assets, such as
the ability to exercise investment control over the assets. The Treasury
Department announced, in connection with the issuance of temporary regulations
concerning investment diversification, that those regulations "do not provide
guidance concerning the circumstances in which investor control of the
investments of a segregated asset account may cause the investor, rather than
the insurance company, to be treated as the owner of the assets of the account."
This announcement, dated September 15, 1986, also stated that the guidance would
be issued by way of regulations or rulings on the "extent to which policyholders
may direct their investments to particular subaccounts [of a segregated asset
account] without being treated as owners of the underlying assets." As of the
date of this prospectus, no such guidance has been issued.
The Company does not know if such guidance will be issued, or if it is, what
standards it may set. Furthermore, the Company does not know if such guidance
may be issued with retroactive effect. New regulations are generally issued with
a prospective-only effect as to future sales or as to future voluntary
transactions in existing contracts. The Company therefore reserves the right to
modify the contract as necessary to attempt to prevent Contract Owners from
being considered the owner of the assets of the separate account.
MANDATORY DISTRIBUTIONS FOR QUALIFIED PLANS
Federal tax law requires that minimum annual distributions begin by April 1st of
the calendar year following the calendar year in which an IRA owner attains age
70 1/2. Participants in qualified plans and 403(b) annuities may defer minimum
distributions until the later of April 1st of the calendar year following the
calendar year in which they attain age 70 1/2. Distributions must begin or be
continued according to required patterns following the death of the contract
owner or annuitant of both qualified and nonqualified annuities.
OTHER INFORMATION
- --------------------------------------------------------------------------------
THE INSURANCE COMPANY
The Travelers Life and Annuity Company (the "Company") is a stock insurance
company chartered in 1973 in the State of Connecticut and continuously engaged
in the insurance business since that time. The Company is licensed to conduct a
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., a financial
services holding company. The Company's Home Office is located at One Tower
Square, Hartford, Connecticut 06183.
IMSA
The Company is a member of the Insurance Marketplace Standards Association
("IMSA"), and as such may use the IMSA logo and IMSA membership in its
advertisements. Companies that belong to IMSA subscribe to a set of ethical
standards covering the various aspects of sales and service for individually
sold life insurance and annuities. IMSA members have adopted policies and
procedures that demonstrate a commitment to honesty, fairness and integrity in
all customer contacts involving the sale and service of individual life
insurance and annuity products.
21
<PAGE> 29
YEAR 2000 COMPLIANCE
Generally, computer programs were designed without considering the impact of the
upcoming change in the century. As a result, software and computer systems may
need to be upgraded or replaced in order to comply with "Year 2000"
requirements. If not corrected, these computer applications could fail or create
erroneous results by or at the Year 2000. The business, financial condition, and
result of operations of a company could be materially and adversely affected by
the failure of its systems and applications (or those either provided or
operated by third-parties) to properly operate or manage dates beyond the year
1999.
The Company has investigated the nature and extent of the work required for our
computer systems to process beyond the turn of the century, and has made
progress toward achieving this goal, including upgrading and/or replacing
existing systems. We are confirming with our service providers that they are
also in the process of replacing or modifying their systems with the same goal.
We expect that our principal systems will be Year 2000 compliant by early 1999.
While these efforts involve substantial costs, we closely monitor associated
costs and continue to evaluate associated risks based on actual expenses. While
it is likely that these efforts will be successful, if necessary modifications
and conversions are not completed in a timely manner, the Year 2000 requirements
could have a material adverse effect on certain operations of the Company.
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 Smith Barney Inc. The compensation paid
to sales representatives will not exceed 6.5% of the payments made under the
Contracts.
From time to time, the Company may pay or permit other promotional incentives,
in cash, credit or other compensation.
Any sales representative or employee will have been qualified to sell variable
annuities under applicable federal and state laws. Each broker-dealer is
registered with the SEC under the Securities Exchange Act of 1934, and all are
members of the NASD. The principal underwriter for the Contracts is Tower Square
Securities, Inc., an affiliate of the Company; however, it is currently
anticipated that another broker-dealer may become the principal underwriter for
the Contracts during 1998.
CONFORMITY WITH STATE AND FEDERAL LAWS
The Contract is governed by the laws of the state in which it is delivered. Any
paid-up annuity, contract value or death benefits that are available under the
Contract are not less than the minimum benefits required by the statutes of the
state in which the Contract is delivered. We reserve the right to make any
changes, including retroactive changes, in the Contract to the extent that the
change is required to meet the requirements of any law or regulation issued by
any governmental agency to which the Company, the Contract or the contract owner
is subject.
VOTING RIGHTS
The Company is the legal owner of the shares of the funding options. However, we
believe that when a funding option solicits proxies in conjunction with a vote
of shareholders we are required to obtain from you and from other owners
instructions on how to vote those shares. When we receive those instructions, we
will vote all of the shares we own in proportion to those instructions. This
will also include any shares we own on our own behalf. Should we determine that
we are no longer required to comply with the above, we will vote on the shares
in our own right.
22
<PAGE> 30
LEGAL PROCEEDINGS AND OPINIONS
There are no pending material legal proceedings affecting the Separate Account,
the Principal Underwriter or the Company. Legal matters in connection with the
federal laws and regulations affecting the issue and sale of the Contract
described in this prospectus, as well as the organization of the Company, its
authority to issue variable annuity contracts under Connecticut law and the
validity of the forms of the variable annuity contracts under Connecticut law,
have been passed on by the General Counsel of the Company.
23
<PAGE> 31
APPENDIX A
- --------------------------------------------------------------------------------
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
Mixed and Shared Funding
Valuation of Assets
Performance Information
Federal Tax Considerations
Experts
Financial Statements
- --------------------------------------------------------------------------------
Copies of the Statement of Additional Information dated , 1998 (Form No.
L-21255-S) 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:
24
<PAGE> 32
PART B
Information Required in a Statement of Additional Information
<PAGE> 33
TRAVELERS MARQUIS PORTFOLIOS
STATEMENT OF ADDITIONAL INFORMATION
dated
, 1998
------
for
THE TRAVELERS SEPARATE ACCOUNT TM II FOR VARIABLE ANNUITIES
ISSUED BY
THE TRAVELERS LIFE AND ANNUITY COMPANY
This Statement of Additional Information ("SAI") is not a prospectus but relates
to, and should be read in conjunction with, the Individual Variable Annuity
Contract Prospectus dated ________, 1998. A copy of the Prospectus may be
obtained by writing to The Travelers Life and Annuity Company, Annuity Investor
Services, One Tower Square, Hartford, Connecticut 06183-9061, or by calling
1-800-842-8573.
TABLE OF CONTENTS
THE INSURANCE COMPANY .............................................. 2
PRINCIPAL UNDERWRITER .............................................. 2
DISTRIBUTION AND MANAGEMENT AGREEMENT .............................. 3
MIXED AND SHARED FUNDING ........................................... 3
PERFORMANCE INFORMATION ............................................ 3
VALUATION OF ASSETS ................................................ 7
FEDERAL TAX CONSIDERATIONS ......................................... 8
EXPERTS ............................................................ 11
FINANCIAL STATEMENTS ............................................... F-1
<PAGE> 34
THE INSURANCE COMPANY
The Travelers Life and Annuity Company (the "Company"), is a stock
insurance company chartered in 1973 in Connecticut. It is a wholly owned
subsidiary of The Travelers Insurance Company, which is indirectly owned,
through a wholly owned subsidiary, by Travelers Group Inc., a financial services
holding company engaged, through its subsidiaries, principally in four business
segments: (i) Investment Services; (ii) Consumer Finance Services; (iii) Life
Insurance Services; and (iv) Property and Casualty Insurance Services.
STATE REGULATION. The Company is subject to the laws of the state of Connecticut
governing insurance companies and to regulation by the Insurance Commissioner of
the state of Connecticut. An annual statement covering the operations of the
Company for the preceding year, as well as its financial conditions as of
December 31 of such year, must be filed with the Commissioner in a prescribed
format on or before March 1 of each year. The Company's books and assets are
subject to review or examination by the Commissioner or his agents at all times,
and a full examination of its operations is conducted at least once every four
years.
The Company is also subject to the insurance laws and regulations of
all other states in which it is licensed to operate. However, the insurance
departments of each of these states generally apply the laws of the home state
(jurisdiction of domicile) in determining the field of permissible investments.
THE SEPARATE ACCOUNT. Separate Account TM II meets the definition of a separate
account under the federal securities laws, and will comply with the provisions
of the 1940 Act. Additionally, the operations of Separate Account TM II are
subject to the provisions of Section 38a-433 of the Connecticut General Statutes
which authorizes the Connecticut Insurance Commissioner to adopt regulations
under it. Section 38a-433 contains no restrictions on the investments of the
Separate Account, and the Commissioner has adopted no regulations under the
Section that affect the Separate Account.
PRINCIPAL UNDERWRITER
Tower Square Securities, Inc. ("Tower Square"), an indirect
wholly-owned subsidiary of the Company, serves as principal underwriter for
Separate Account TM II 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 a new broker-dealer, will become the
principal underwriter during 1998.
2
<PAGE> 35
DISTRIBUTION AND MANAGEMENT AGREEMENT
Under the terms of the Distribution and Management Agreement among
Separate Account TM II, the Company and Tower Square, the Company provides all
administrative services and mortality and expense risk guarantees related to
variable annuity contracts sold by the Company in connection with Separate
Account TM II. Tower Square performs the sales functions related to the
Contracts. The Company reimburses Tower Square for commissions paid, other sales
expenses and certain overhead expenses connected with sales functions. The
Company also pays all costs (including costs associated with the preparation of
sales literature); all costs of qualifying Separate Account TM II 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 Separate Account TM II all necessary office space,
facilities, and personnel to manage its affairs.
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.
PERFORMANCE INFORMATION
From time to time, the Company may advertise several types of
historical performance for the funding options of Separate Account TM II. 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
"nonstandardized total returns," as described below:
STANDARDIZED METHOD. Quotations of average annual total returns are
computed according to a formula in which a hypothetical initial investment of
$1,000 is allocated to the funding option, and then related to ending redeemable
values over one-, five- and ten-year periods, or for a period covering the time
during which the funding option has been in existence, if less. If a Funding
Option has been in existence for less than one year, the "since inception" total
return performance quotations are year-to-date and are not average annual total
returns. These quotations reflect the deduction of all recurring charges during
each period (on a pro rata basis in the case of fractional periods). The
deduction for the annual contract administrative charge is converted to a
percentage of assets based on the actual fee collected, divided by the average
net assets 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 any applicable withdrawal charge at that time.
3
<PAGE> 36
NONSTANDARDIZED METHOD. Nonstandardized "total returns" will be
calculated in a similar manner based on the performance of the funding options
over a period of time, usually for the calendar year-to-date, and for the past
one-, three-, five- and ten-year periods. Additionally, cumulative and
year-to-date returns may also be shown. Nonstandard total returns will not
reflect the deduction of the annual contract administrative charge, which, if
reflected, would decrease the level of performance shown.
For funding options that were in existence prior to the date they
became available under Separate Account TM II, the standardized average annual
total return quotations may be accompanied by returns showing the investment
performance that such funding options would have achieved (reduced by the
applicable charges) had they been held 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.
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 Separate Account TM II and the
funding options.
Average annual total returns for each of the funding options
available under Separate Account TM II computed according to the nonstandardized
method for the period ending December 31, 1997 are set forth in the following
table. No standarized information is currently available.
4
<PAGE> 37
TOTAL RETURN CALCULATIONS
FUNDING OPTIONS OF FUND TM
STANDARD DEATH BENEFIT
<TABLE>
<S><C>
STANDARDIZED NONSTANDARDIZED
------------ ---------------
M&E: 1.55% PLUS (taking into (taking into account all
ADMIN. CHARGE: .15% account all charges charges and fees)
and fees)
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
PORTFOLIO NAME 1 Year 1 Year 5 Year 10 Year
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DELAWARE GROUP PREMIUM FUND, INC.
- -----------------------------------------------------------------------------------------------------------
REIT Series N/A
- -----------------------------------------------------------------------------------------------------------
Small Cap Value Series N/A 30.70% 17.25%*
- -----------------------------------------------------------------------------------------------------------
DREYFUS VARIABLE INVESTMENT FUND
- -----------------------------------------------------------------------------------------------------------
Capital Appreciation Portfolio N/A 25.90% 17.84%*
- -----------------------------------------------------------------------------------------------------------
Small Cap Portfolio N/A 14.78% 24.01% 41.58%*
- -----------------------------------------------------------------------------------------------------------
THE MONTGOMERY FUND III
- -----------------------------------------------------------------------------------------------------------
Montgomery Variable Series: Growth Fund N/A 26.41% 27.51%*
- -----------------------------------------------------------------------------------------------------------
OCC ACCUMULATION TRUST
- -----------------------------------------------------------------------------------------------------------
Equity Portfolio N/A 24.51% 17.40% 15.79%*
- -----------------------------------------------------------------------------------------------------------
SALOMON BROTHERS VARIABLE SERIES FUNDS
INC.
- -----------------------------------------------------------------------------------------------------------
Salomon Brothers Variable Investors
Fund N/A
- -----------------------------------------------------------------------------------------------------------
STRONG VARIABLE INSURANCE FUNDS, INC.
- -----------------------------------------------------------------------------------------------------------
Strong SchaferValue Fund II N/A -5.99%*
- -----------------------------------------------------------------------------------------------------------
TEMPLETON VARIABLE PRODUCTS SERIES FUND
- -----------------------------------------------------------------------------------------------------------
Franklin Small Cap Investments
Fund Class II N/A
- -----------------------------------------------------------------------------------------------------------
Templeton Developing Markets
Fund Class II** N/A -30.57% -20.87%*
- -----------------------------------------------------------------------------------------------------------
Templeton International
Fund Class II** N/A 11.81% 16.66% 13.06%*
- -----------------------------------------------------------------------------------------------------------
TRAVELERS SERIES FUND INC.
- -----------------------------------------------------------------------------------------------------------
AIM Capital Appreciation Portfolio N/A 10.25% 8.18%*
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S><C>
NONSTANDARDIZED
---------------
M&E: 1.55% PLUS (taking into account all charges and fees except
ADMIN. CHARGE: .15% deferred sales charges and administrative charges)
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PORTFOLIO NAME 1 Year 3 Year 5 Year 10 Year Inception Date
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DELAWARE GROUP PREMIUM FUND, INC.
- -----------------------------------------------------------------------------------------------------------------------
REIT Series 5/6/97
- -----------------------------------------------------------------------------------------------------------------------
Small Cap Value Series 30.72% 23.33% 17.27%* 12/23/93
- -----------------------------------------------------------------------------------------------------------------------
DREYFUS VARIABLE INVESTMENT FUND
- -----------------------------------------------------------------------------------------------------------------------
Capital Appreciation Portfolio 25.93% 26.84% 17.87%* 4/5/93
- -----------------------------------------------------------------------------------------------------------------------
Small Cap Portfolio 14.80% 18.73% 24.03% 41.60%* 8/31/90
- -----------------------------------------------------------------------------------------------------------------------
THE MONTGOMERY FUND III
- -----------------------------------------------------------------------------------------------------------------------
Montgomery Variable Series: Growth Fund 26.44% 27.54%* 2/9/96
- -----------------------------------------------------------------------------------------------------------------------
OCC ACCUMULATION TRUST
- -----------------------------------------------------------------------------------------------------------------------
Equity Portfolio 24.53% 27.28% 17.42% 15.81%* 8/1/88
- -----------------------------------------------------------------------------------------------------------------------
SALOMON BROTHERS VARIABLE SERIES FUNDS
INC.
- -----------------------------------------------------------------------------------------------------------------------
Salomon Brothers Variable Investors
Fund 2/17/98
- -----------------------------------------------------------------------------------------------------------------------
STRONG VARIABLE INSURANCE FUNDS, INC.
- -----------------------------------------------------------------------------------------------------------------------
Strong SchaferValue Fund II -5.99%* 10/10/97
- -----------------------------------------------------------------------------------------------------------------------
TEMPLETON VARIABLE PRODUCTS SERIES FUND
- -----------------------------------------------------------------------------------------------------------------------
Franklin Small Cap Investments
Fund Class II 5/1/98
- -----------------------------------------------------------------------------------------------------------------------
Templeton Developing Markets
Fund Class II** -30.56% -20.85%* 2/16/96
- -----------------------------------------------------------------------------------------------------------------------
Templeton International
Fund Class II** 11.83% 15.81% 16.68% 13.08%* 5/1/92
- -----------------------------------------------------------------------------------------------------------------------
TRAVELERS SERIES FUND INC.
- -----------------------------------------------------------------------------------------------------------------------
AIM Capital Appreciation Portfolio 10.27% 8.20%* 10/10/95
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 38
TOTAL RETURN CALCULATIONS
FUNDING OPTIONS OF FUND TM
STANDARD DEATH BENEFIT
<TABLE>
<S><C>
STANDARDIZED NONSTANDARDIZED
------------ ---------------
M&E: 1.55% PLUS (taking into (taking into account all
ADMIN. CHARGE: .15% account all charges charges and fees)
and fees)
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
PORTFOLIO NAME 1 Year 1 Year 5 Year 10 Year
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TBC Managed Income Portfolio N/A 7.86% 6.24%*
- -----------------------------------------------------------------------------------------------------------
Smith Barney High Income Portfolio N/A 11.92% 10.77%*
- -----------------------------------------------------------------------------------------------------------
Smith Barney Large Capitalization
Growth Portfolio N/A
- -----------------------------------------------------------------------------------------------------------
Smith Barney Money Market Portfolio N/A 3.30% 3.21%*
- -----------------------------------------------------------------------------------------------------------
THE TRAVELERS SERIES TRUST
- -----------------------------------------------------------------------------------------------------------
Disciplined Mid Cap Stock Portfolio N/A 45.75%*
- -----------------------------------------------------------------------------------------------------------
Disciplined Small Cap Stock Portfolio N/A
- -----------------------------------------------------------------------------------------------------------
Jurika & Voyles Core Equity Portfolio N/A
- -----------------------------------------------------------------------------------------------------------
Large Cap Portfolio N/A 19.94% 25.23%*
- -----------------------------------------------------------------------------------------------------------
Lazard International Stock Portfolio N/A 6.40% 9.79%*
- -----------------------------------------------------------------------------------------------------------
MFS Research Portfolio N/A
- -----------------------------------------------------------------------------------------------------------
NWQ Large Cap Portfolio N/A
- -----------------------------------------------------------------------------------------------------------
Strategic Stock Portfolio N/A
- -----------------------------------------------------------------------------------------------------------
U.S. Government Securities Portfolio N/A 10.73% 6.17% 5.26%*
- -----------------------------------------------------------------------------------------------------------
WARBURG PINCUS TRUST
- -----------------------------------------------------------------------------------------------------------
Emerging Markets Portfolio N/A
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
NONSTANDARDIZED
---------------
M&E: 1.55% PLUS (taking into account all charges and fees except
ADMIN. CHARGE: .15% deferred sales charges and administrative charges)
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PORTFOLIO NAME 1 Year 3 Year 5 Year 10 Year Inception Date
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TBC Managed Income Portfolio 7.88% 7.57% 6.26%* 6/28/94
- -----------------------------------------------------------------------------------------------------------------------
Smith Barney High Income Portfolio 11.94% 13.38% 10.79%* 6/22/94
- -----------------------------------------------------------------------------------------------------------------------
Smith Barney Large Capitalization
Growth Portfolio 5/1/98
- -----------------------------------------------------------------------------------------------------------------------
Smith Barney Money Market Portfolio 3.32% 3.38% 3.23%* 6/20/94
- -----------------------------------------------------------------------------------------------------------------------
THE TRAVELERS SERIES TRUST
- -----------------------------------------------------------------------------------------------------------------------
Disciplined Mid Cap Stock Portfolio 45.79%* 4/1/97
- -----------------------------------------------------------------------------------------------------------------------
Disciplined Small Cap Stock Portfolio 5/1/98
- -----------------------------------------------------------------------------------------------------------------------
Jurika & Voyles Core Equity Portfolio 6/1/98
- -----------------------------------------------------------------------------------------------------------------------
Large Cap Portfolio 19.96% 25.27%* 8/30/96
- -----------------------------------------------------------------------------------------------------------------------
Lazard International Stock Portfolio 6.42% 9.82%* 8/1/96
- -----------------------------------------------------------------------------------------------------------------------
MFS Research Portfolio 3/23/98
- -----------------------------------------------------------------------------------------------------------------------
NWQ Large Cap Portfolio 6/1/98
- -----------------------------------------------------------------------------------------------------------------------
Strategic Stock Portfolio 5/1/98
- -----------------------------------------------------------------------------------------------------------------------
U.S. Government Securities Portfolio 10.75% 10.57% 6.19% 5.28%* 1/24/92
- -----------------------------------------------------------------------------------------------------------------------
WARBURG PINCUS TRUST
- -----------------------------------------------------------------------------------------------------------------------
Emerging Markets Portfolio 12/31/97
- -----------------------------------------------------------------------------------------------------------------------
* Since inception.
** Because Class 2 shares were not offered until May 1, 1997, performance shown for periods prior to that date represents the
historical results of Class 1 shares. Performance of Class 2 shares for periods after May 1, 1997 reflect Class 2's higher
annual fees and expanses resulting from its rule 12b-1 plan. Maximum annual expanses are .25%.
</TABLE>
6
<PAGE> 39
TOTAL RETURN CALCULATIONS
FUNDING OPTIONS OF FUND TM
ENHANCED DEATH BENEFIT
<TABLE>
<S><C>
STANDARDIZED NONSTANDARDIZED
------------ ---------------
M&E: 1.70% (taking into (taking into account all
ADMIN: .15% account all charges charges and fees)
and fees)
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
PORTFOLIO NAME 1 Year 1 Year 5 Year 10 Year
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DELAWARE GROUP PREMIUM FUND, INC.
- ------------------------------------------------------------------------------------------------------------
REIT Series N/A
- ------------------------------------------------------------------------------------------------------------
Small Cap Value Series N/A 30.51% 17.07%*
- ------------------------------------------------------------------------------------------------------------
DREYFUS VARIABLE INVESTMENT FUND
- ------------------------------------------------------------------------------------------------------------
Capital Appreciation Portfolio N/A 25.72% 17.67%*
- ------------------------------------------------------------------------------------------------------------
Small Cap Portfolio N/A 14.61% 23.83% 41.37%*
- ------------------------------------------------------------------------------------------------------------
THE MONTGOMERY FUND III
- ------------------------------------------------------------------------------------------------------------
Montgomery Variable Series: Growth Fund N/A 26.23% 27.33%*
- ------------------------------------------------------------------------------------------------------------
OCC ACCUMULATION TRUST
- ------------------------------------------------------------------------------------------------------------
Equity Portfolio N/A 24.39% 17.28% 15.68%*
- ------------------------------------------------------------------------------------------------------------
SALOMON BROTHERS VARIABLE SERIES FUNDS
INC.
- ------------------------------------------------------------------------------------------------------------
Salomon Brothers Variable Investors
Fund N/A
- ------------------------------------------------------------------------------------------------------------
STRONG VARIABLE INSURANCE FUNDS, INC.
- ------------------------------------------------------------------------------------------------------------
Strong SchaferValue Fund II N/A -6.13%*
- ------------------------------------------------------------------------------------------------------------
TEMPLETON VARIABLE PRODUCTS SERIES FUND
- ------------------------------------------------------------------------------------------------------------
Franklin Small Cap Investments
Fund Class II N/A
- ------------------------------------------------------------------------------------------------------------
Templeton Developing Markets
Fund Class II** N/A -30.68% -20.99%*
- ------------------------------------------------------------------------------------------------------------
Templeton International
Fund Class II** N/A 11.64% 16.48% 12.89%*
- ------------------------------------------------------------------------------------------------------------
TRAVELERS SERIES FUND INC.
- ------------------------------------------------------------------------------------------------------------
AIM Capital Appreciation Portfolio N/A 10.08% 8.02%*
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S><C>
NONSTANDARDIZED
---------------
M&E: 1.70% (taking into account all charges and fees except
ADMIN: .15% deferred sales charges and administrative charges)
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
PORTFOLIO NAME 1 Year 3 Year 5 Year 10 Year Inception Date
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DELAWARE GROUP PREMIUM FUND, INC.
- --------------------------------------------------------------------------------------------------------------------------
REIT Series 5/6/97
- --------------------------------------------------------------------------------------------------------------------------
Small Cap Value Series 30.53% 23.15% 17.09%* 12/23/93
- --------------------------------------------------------------------------------------------------------------------------
DREYFUS VARIABLE INVESTMENT FUND
- --------------------------------------------------------------------------------------------------------------------------
Capital Appreciation Portfolio 25.74% 26.65% 17.69%* 4/5/93
- --------------------------------------------------------------------------------------------------------------------------
Small Cap Portfolio 14.63% 18.55% 23.85% 41.39%* 8/31/90
- --------------------------------------------------------------------------------------------------------------------------
THE MONTGOMERY FUND III
- --------------------------------------------------------------------------------------------------------------------------
Montgomery Variable Series: Growth Fund 26.25% 27.35%* 2/9/96
- --------------------------------------------------------------------------------------------------------------------------
OCC ACCUMULATION TRUST
- --------------------------------------------------------------------------------------------------------------------------
Equity Portfolio 24.41% 27.15% 17.30% 15.70%* 8/1/88
- --------------------------------------------------------------------------------------------------------------------------
SALOMON BROTHERS VARIABLE SERIES FUNDS
INC.
- --------------------------------------------------------------------------------------------------------------------------
Salomon Brothers Variable Investors
Fund 2/17/98
- --------------------------------------------------------------------------------------------------------------------------
STRONG VARIABLE INSURANCE FUNDS, INC.
- --------------------------------------------------------------------------------------------------------------------------
Strong SchaferValue Fund II -6.13%* 10/10/97
- --------------------------------------------------------------------------------------------------------------------------
TEMPLETON VARIABLE PRODUCTS SERIES FUND
- --------------------------------------------------------------------------------------------------------------------------
Franklin Small Cap Investments
Fund Class II 5/1/98
- --------------------------------------------------------------------------------------------------------------------------
Templeton Developing Markets
Fund Class II** -30.66% -20.98%* 2/16/96
- --------------------------------------------------------------------------------------------------------------------------
Templeton International
Fund Class II** 11.66% 15.64% 16.51% 12.91%* 5/1/92
- --------------------------------------------------------------------------------------------------------------------------
TRAVELERS SERIES FUND INC.
- --------------------------------------------------------------------------------------------------------------------------
AIM Capital Appreciation Portfolio 10.11% 8.04%* 10/10/95
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 40
<TABLE>
<S><C>
STANDARDIZED NONSTANDARDIZED
------------ ---------------
M&E: 1.70% (taking into (taking into account all
ADMIN: .15% account all charges charges and fees)
and fees)
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
PORTFOLIO NAME 1 Year 1 Year 5 Year 10 Year
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TBC Managed Income Portfolio N/A 7.70% 6.08%*
- ------------------------------------------------------------------------------------------------------------
Smith Barney High Income Portfolio N/A 11.75% 10.61%*
- ------------------------------------------------------------------------------------------------------------
Smith Barney Large Capitalization
Growth Portfolio N/A
- ------------------------------------------------------------------------------------------------------------
Smith Barney Money Market Portfolio N/A 3.15% 3.06%*
- ------------------------------------------------------------------------------------------------------------
THE TRAVELERS SERIES TRUST
- ------------------------------------------------------------------------------------------------------------
Disciplined Mid Cap Stock Portfolio N/A 45.54%*
- ------------------------------------------------------------------------------------------------------------
Disciplined Small Cap Stock Portfolio N/A
- ------------------------------------------------------------------------------------------------------------
Jurika & Voyles Core Equity Portfolio N/A
- ------------------------------------------------------------------------------------------------------------
Large Cap Portfolio N/A 19.76% 25.05%*
- ------------------------------------------------------------------------------------------------------------
Lazard International Stock Portfolio N/A 6.24% 9.63%*
- ------------------------------------------------------------------------------------------------------------
MFS Research Portfolio N/A
- ------------------------------------------------------------------------------------------------------------
NWQ Large Cap Portfolio N/A
- ------------------------------------------------------------------------------------------------------------
Strategic Stock Portfolio N/A
- ------------------------------------------------------------------------------------------------------------
U.S. Government Securities Portfolio N/A 10.56% 6.01% 5.13%*
- ------------------------------------------------------------------------------------------------------------
WARBURG PINCUS TRUST
- ------------------------------------------------------------------------------------------------------------
Emerging Markets Portfolio N/A
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S><C>
NONSTANDARDIZED
---------------
M&E: 1.70% (taking into account all charges and fees except
ADMIN: .15% deferred sales charges and administrative charges)
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
PORTFOLIO NAME 1 Year 3 Year 5 Year 10 Year Inception Date
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TBC Managed Income Portfolio 7.72% 7.41% 6.10%* 6/28/94
- -----------------------------------------------------------------------------------------------------------------------
Smith Barney High Income Portfolio 11.78% 13.21% 10.63%* 6/22/94
- -----------------------------------------------------------------------------------------------------------------------
Smith Barney Large Capitalization
Growth Portfolio 5/1/98
- -----------------------------------------------------------------------------------------------------------------------
Smith Barney Money Market Portfolio 3.17% 3.22% 3.08%* 6/20/94
- -----------------------------------------------------------------------------------------------------------------------
THE TRAVELERS SERIES TRUST
- -----------------------------------------------------------------------------------------------------------------------
Disciplined Mid Cap Stock Portfolio 45.58%* 4/1/97
- -----------------------------------------------------------------------------------------------------------------------
Disciplined Small Cap Stock Portfolio 5/1/98
- -----------------------------------------------------------------------------------------------------------------------
Jurika & Voyles Core Equity Portfolio 6/1/98
- -----------------------------------------------------------------------------------------------------------------------
Large Cap Portfolio 19.79% 25.08%* 8/30/96
- -----------------------------------------------------------------------------------------------------------------------
Lazard International Stock Portfolio 6.26% 9.66%* 8/1/96
- -----------------------------------------------------------------------------------------------------------------------
MFS Research Portfolio 3/23/98
- -----------------------------------------------------------------------------------------------------------------------
NWQ Large Cap Portfolio 6/1/98
- -----------------------------------------------------------------------------------------------------------------------
Strategic Stock Portfolio 5/1/98
- -----------------------------------------------------------------------------------------------------------------------
U.S. Government Securities Portfolio 10.58% 10.41% 6.03% 6.09%* 1/24/92
- -----------------------------------------------------------------------------------------------------------------------
WARBURG PINCUS TRUST
- -----------------------------------------------------------------------------------------------------------------------
Emerging Markets Portfolio 12/31/97
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
* Since inception.
** Because Class 2 shares were not offered until May 1, 1997, performance shown for periods prior to that date represents the
historical results of Class 1 shares. Performance of Class 2 shares for periods after May 1, 1997 reflect Class 2's higher
annual fees and expanses resulting from its rule 12b-1 plan. Maximum annual expanses are .25%.
</TABLE>
8
<PAGE> 41
VALUATION OF ASSETS
FUNDING OPTIONS: The value of the assets of each funding option is determined on
each business day as of the close of the New York Stock Exchange. Each security
traded on a national securities exchange is valued at the last reported sale
price on the business day. If there has been no sale on that day, then the value
of the security is taken to be the mean between the reported bid and asked
prices on the business day or on the basis of quotations received from a
reputable broker or any other recognized source.
Any security not traded on a securities exchange but traded in the
over-the-counter-market and for which market quotations are readily available is
valued at the mean between the quoted bid and asked prices on the business day
or on the basis of quotations received from a reputable broker or any other
recognized source.
Securities traded on the over-the-counter-market and listed securities
with no reported sales are valued at the mean between the last reported bid and
asked prices or on the basis of quotations received from a reputable broker or
other recognized source.
Short-term investments for which a quoted market price is available are
valued at market. Short-term investments maturing in more than sixty days for
which there is no reliable quoted market price are valued by "marking to market"
(computing a market value based upon quotations from dealers or issuers for
securities of a similar type, quality and maturity.) "Marking to market" takes
into account unrealized appreciation or depreciation due to changes in interest
rates or other factors which would influence the current fair values of such
securities. Short-term investments maturing in sixty days or less for which
there is no reliable quoted market price are valued at amortized cost which
approximates market.
THE CONTRACT VALUE: The value of an Accumulation Unit on any business day is
determined by multiplying the value on the preceding business day by the net
investment factor for the valuation period just ended. The net investment factor
is used to measure the investment performance of a funding option from one
valuation period to the next. The net investment factor for a funding option for
any valuation period is equal to the sum of 1.000000 plus the net investment
rate (the gross investment rate less any applicable funding option deductions
during the valuation period relating to the mortality and expense risk charge
and the administrative expense charge). The gross investment rate of a funding
option is equal to (a) minus (b), divided by (c) where:
(a) = investment income plus capital gains and losses (whether realized or
unrealized);
(b) = any deduction for applicable taxes (presently zero); and
(c) = the value of the assets of the funding option at the beginning
of the valuation period.
The gross investment rate may be either positive or negative. A funding
option's investment income includes any distribution whose ex-dividend date
occurs during the valuation period.
ACCUMULATION UNIT VALUE. The value of the accumulation unit for each funding
option was initially established at $1.00. The value of an accumulation unit on
any business day is determined by multiplying the value on the preceding
business day by the net investment factor for the valuation
9
<PAGE> 42
period just ended. The net investment factor is calculated for each funding
option and takes into account the investment performance, expenses and the
deduction of certain expenses.
ANNUITY UNIT VALUE. The initial Annuity Unit Value applicable to each funding
option was established at $1.00. An Annuity Unit Value as of any business day is
equal to (a) the value of the Annuity Unit on the preceding business day,
multiplied by (b) the corresponding net investment factor for the 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.)
FEDERAL TAX CONSIDERATIONS
The following description of the federal income tax consequences under
this Contract is not exhaustive and is not intended to cover all situations.
Because of the complexity of the law and the fact that the tax results will vary
according to the factual status of the individual involved, tax advice may be
needed by a person contemplating purchase of an annuity contract and by a
contract owner or beneficiary who may make elections under a contract. For
further information, please consult a qualified tax adviser.
MANDATORY DISTRIBUTIONS FOR QUALIFIED PLANS
Federal tax law requires that minimum annual distributions begin by
April 1st of the calendar year following the calendar year in which a
participant under a qualified plan, a Section 403(b) annuity, or an IRA attains
age 70 1/2. Distributions must also begin or be continued according to required
patterns following the death of the contract owner or the annuitant.
NONQUALIFIED ANNUITY CONTRACTS
Individuals may purchase tax-deferred annuities without tax law funding
limits. The purchase payments receive no tax benefit, deduction or deferral, but
increases in the value of the contract are generally deferred from tax until
distribution. If a nonqualified annuity is owned by other than an individual,
however, (e.g., by a corporation), the increases in value attributable to
purchase payments made after February 28, 1986 are includable in income
annually. Furthermore, for contracts issued after April 22, 1987, all deferred
increases in value will be includable in the income of a contract owner when the
contract owner transfers the contract without adequate consideration.
If two or more annuity contracts are purchased from the same insurer
within the same calendar year, distributions from any of them will be taxed
based upon the amount of income in all of the same calendar year series of
annuities. This will generally have the effect of causing taxes to be paid
sooner on the deferred gain in the contracts.
Those receiving partial distributions made before the maturity date
will generally be taxed on an income-first basis to the extent of income in the
contract. If you are exchanging another annuity contract for this annuity,
certain pre-August 14, 1982 deposits into an annuity contract that have been
placed in the contract by means of a tax-deferred exchange under Section 1035 of
the Code may be withdrawn first without income tax liability. This information
on deposits must be provided to the Company by the other insurance company at
the time of the exchange. There is income in the contract
10
<PAGE> 43
generally to the extent the cash value exceeds the investment in the contract.
The investment in the contract is equal to the amount of premiums paid less any
amount received previously which was excludable from gross income. Any direct or
indirect borrowing against the value of the contract or pledging of the contract
as security for a loan will be treated as a cash distribution under the tax law.
The federal tax law requires that nonqualified annuity contracts meet
minimum mandatory distribution requirements upon the death of the contract
owner, including the first of joint owners. Failure to meet these requirements
will cause the surviving joint owner, or the beneficiary to lose the tax
benefits associated with annuity contracts, i.e., primarily the tax deferral
prior to distribution. The distribution required depends, among other things,
upon whether an annuity option is elected or whether the new contract owner is
the surviving spouse. Contracts will be administered by the Company in
accordance with these rules and the Company will make a notification when
payments should be commenced.
INDIVIDUAL RETIREMENT ANNUITIES
To the extent of earned income for the year and not exceeding $2,000
per individual, an individual may make deductible contributions to an individual
retirement annuity (IRA). There are certain limits on the deductible amount
based on the adjusted gross income of the individual and spouse and based on
their participation in a retirement plan. If an individual is married and the
spouse does not have earned income, the individual may establish IRAs for the
individual and spouse. Purchase payments may then be made annually into IRAs for
both spouses in the maximum amount of 100% of earned income up to a combined
limit of $4,000.
The Code provides for the purchase of a Simplified Employee Pension
(SEP) plan. A SEP is funded through an IRA with an annual employer contribution
limit of 15% of compensation up to $30,000 for each participant.
SIMPLE Plan IRA Form
Effective January 1, 1997, employers may establish a savings incentive
match plan for employees ("SIMPLE plan") under which employees can make elective
salary reduction contributions to an IRA based on a percentage of compensation
of up to $6,000. (Alternatively, the employer can establish a SIMPLE cash or
deferred arrangement under IRS Section 401(k)). Under a SIMPLE plan IRA, the
employer must either make a matching contribution of 100% on the first 3% or 7%
contribution for all eligible employees. Early withdrawals are subject to the
10% early withdrawal penalty generally applicable to IRAs, except that an early
withdrawal by an employee under a SIMPLE plan IRA, within the first two years of
participation, shall be subject to a 25% early withdrawal tax.
ROTH IRAs
Effective January 1, 1998, Section 408A of the Code permits certain
individuals to contribute to a Roth IRA. Eligibility to make contributions is
based upon income, and the applicable limits vary based on marital status and/or
whether the contribution is a rollover contribution from another IRA or an
annual contribution. Contributions to a Roth IRA, which are subject to certain
limitations ($2,000 per year for annual contributions), are not deductible and
must be made in cash or as a rollover or transfer from another Roth IRA or other
IRA. A conversion of a "traditional" IRA to a Roth IRA may be subject to tax and
other special rules apply. You should consult a tax adviser before combining any
11
<PAGE> 44
converted amounts with other Roth IRA contributions, including any other
conversion amounts from other tax years.
Qualified distributions from a Roth IRA are tax-free. A qualified
distribution requires that the Roth IRA has been held for at least 5 years, and
the distribution is made after age 59 1/2, on death or disability of the owner,
or for a limited amount ($10,000) for a qualified first time home purchase for
the owner or certain relatives. Income tax and a 10% penalty tax may apply to
distributions made (1) before age 59 1/2 (subject to certain exceptions) or (2)
during five taxable years starting with the year in which the first contribution
is made to the Roth IRA.
QUALIFIED PENSION AND PROFIT-SHARING PLANS
Under a qualified pension or profit-sharing plan, purchase payments
made by an employer are not currently taxable to the participant and increases
in the value of a contract are not subject to taxation until received by a
participant or beneficiary.
Distributions are taxable to the participant or beneficiary as ordinary
income in the year of receipt. Any distribution that is considered the
participant's "investment in the contract" is treated as a return of capital and
is not taxable. Certain lump-sum distributions may be eligible for special
forward averaging tax treatment for certain classes of individuals.
FEDERAL INCOME TAX WITHHOLDING
The portion of a distribution which is taxable income to the recipient
will be subject to federal income tax withholding as follows:
1. ELIGIBLE ROLLOVER DISTRIBUTION FROM SECTION 403(b) PLANS OR
ARRANGEMENTS OR FROM QUALIFIED PENSION AND PROFIT-SHARING PLANS
There is a mandatory 20% tax withholding for plan distributions that
are eligible for rollover to an IRA or to another retirement plan but that are
not directly rolled over. A distribution made directly to a participant or
beneficiary may avoid this result if:
(a) a periodic settlement distribution is elected based upon a life or
life expectancy calculation, or
(b) a term-for-years settlement distribution is elected for a period of
ten years or more, payable at least annually, or
(c) a minimum required distribution as defined under the tax law is
taken after the attainment of the age of 70 1/2 or as otherwise
required by law.
A distribution including a rollover that is not a direct rollover will
be subject to the 20% withholding, and a 10% additional tax penalty may apply to
any amount not added back in the rollover. The 20% withholding may be recovered
when the participant or beneficiary files a personal income tax return for the
year if a rollover was completed within 60 days of receipt of the funds, except
to the extent that the participant or spousal beneficiary is otherwise
underwithheld or short on estimated taxes for that year.
12
<PAGE> 45
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, 1998, a recipient receiving
periodic payments (e.g., monthly or annual payments under an annuity option)
which total $15,200 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.
EXPERTS
Independent Accountants:
The financial statements of The Travelers Life and Annuity Company as
of December 31, 1997 and 1996, and for each of the years in the three-year
period ended December 31, 1997, have been included herein in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
13
<PAGE> 46
THE TRAVELERS LIFE AND ANNUITY COMPANY
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, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the results of its operations and
its cash flows for each of the years in the three-year period ended December 31,
1997, in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
January 26, 1998
F-1
<PAGE> 47
THE TRAVELERS LIFE AND ANNUITY COMPANY
STATEMENTS OF INCOME AND RETAINED EARNINGS
($ in thousands)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
REVENUES
Premiums $ 35,190 $ 17,462 $ 10,691
Net investment income 168,653 151,326 123,197
Realized investment gains (losses) 44,871 (9,613) 18,713
Other 8,163 2,276 1,286
-------- -------- --------
Total Revenues 256,877 161,451 153,887
-------- -------- --------
BENEFITS AND EXPENSES
Current and future insurance benefits 95,639 77,285 73,818
Interest credited to contractholders 35,165 35,607 30,472
Operating expenses, including amortization of deferred acquisition
costs and value of insurance in force 16,498 8,977 6,161
-------- -------- --------
Total Benefits and Expenses 147,302 121,869 110,451
-------- -------- --------
Income before federal income taxes 109,575 39,582 43,436
-------- -------- --------
Federal income taxes:
Current 33,859 29,456 2,555
Deferred expense (benefit) 4,344 (15,665) 11,964
-------- -------- --------
Total Federal Income Taxes 38,203 13,791 14,519
-------- -------- --------
Net income 71,372 25,791 28,917
Retained earnings beginning of year 167,698 157,907 128,990
Dividends to parent 14,000 16,000 -
-------- -------- --------
Retained Earnings End of Year $225,070 $167,698 $157,907
======== ======== ========
</TABLE>
See Notes to Financial Statements.
F-2
<PAGE> 48
THE TRAVELERS LIFE AND ANNUITY COMPANY
BALANCE SHEETS
($ in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996
- ------------ ---- ----
<S> <C> <C>
ASSETS
Fixed maturities, available for sale at fair value (cost, $1,571,121; $1,440,806) $1,678,120 $1,484,670
Equity securities, at fair value (cost, $15,092; $12,396) 16,289 15,902
Mortgage loans 160,247 128,440
Real estate held for sale - 10,111
Policy loans 2,894 1,750
Short-term securities 169,229 81,162
Other invested assets 118,348 88,641
---------- ----------
Total Investments $2,145,127 $1,810,676
---------- ----------
Separate accounts 812,059 290,940
Deferred acquisition costs and value of insurance in force 90,966 40,027
Deferred federal income taxes 33,661 57,617
Other assets 73,414 55,023
---------- ----------
Total Assets $3,155,227 $2,254,283
---------- ----------
LIABILITIES
Future policy benefits $971,602 $967,621
Contractholder funds 818,971 582,183
Separate accounts 812,059 290,716
Other liabilities 86,934 41,895
---------- ----------
Total Liabilities $2,689,566 $1,882,415
---------- ----------
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 225,070 167,698
Unrealized investment gains, net of taxes 70,277 33,856
---------- ----------
Total Shareholder's Equity 465,661 371,868
---------- ----------
Total Liabilities and Shareholder's Equity $3,155,227 $2,254,283
========== ==========
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE> 49
THE TRAVELERS LIFE AND ANNUITY COMPANY
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
($ in thousands)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997 1996 1995
- ------------------------------- ---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Premiums collected $ 34,553 $ 6,472 $ 1,950
Net investment income received 170,460 71,083 66,219
Benefits and claims paid (90,820) (70,331) (71,710)
Interest credited to contractholders (35,165) (813) -
Operating expenses paid (40,868) (5,482) (3,013)
Income taxes paid (22,440) (23,931) (35,305)
Other (7,702) (6,857) (6,772)
---------- --------- ---------
Net Cash Provided by (Used in) Operating Activities 8,018 (29,859) (48,631)
---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments
Fixed maturities 81,899 20,301 11,752
Mortgage loans 8,972 37,789 24,137
Proceeds from sales of investments
Fixed maturities 856,846 978,970 459,971
Equity securities 12,404 12,818 11,823
Mortgage loans 5,483 22,437 7,013
Real estate held for sale 4,493 - -
Purchases of investments
Fixed maturities (1,020,803) (994,443) (515,098)
Equity securities (6,382) (5,412) (156)
Mortgage loans (41,967) (21,450) (4,890)
Policy loans (1,144) (1,750) -
Short-term securities, purchases, net (88,067) (19,688) (5,051)
Other investments, (purchases) sales, net (51,502) (6,160) 9,274
Securities transactions in course of settlement 10,526 (51,703) 45,727
---------- --------- ---------
Net Cash Provided by (Used in) Investing Activities (229,242) (28,291) 44,502
---------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Contractholder fund deposits 325,932 96,490 5,707
Contractholder fund withdrawals (89,145) (22,340) (1,874)
Dividends to parent company (14,000) (16,000) -
---------- --------- ---------
Net Cash Provided by Financing Activities $ 222,787 $ 58,150 $ 3,833
---------- --------- ---------
Net increase (decrease) in cash $ 1,563 $ - $ (296)
---------- --------- ---------
Cash at December 31, $ 1,563 $ - $ -
========== ========= =========
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE> 50
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies used in the preparation of the accompanying
financial statements follow.
Basis of Presentation
The Travelers Life and Annuity Company (the Company) is a wholly owned
subsidiary of The Travelers Insurance Company (TIC), an indirect wholly
owned subsidiary of Travelers Group Inc. (Travelers Group). The financial
statements and accompanying footnotes of the Company are prepared in
conformity with generally accepted accounting principles. The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and benefits and expenses during the
reporting period. Actual results could differ from those estimates.
The accompanying financial statements reflect a change in presentation of
the assets, liabilities and operations of the structured settlement
separate account business of the Company. The assets and liabilities were
previously reported in separate account line items and are now incorporated
in various financial statement classifications. As a result of this change,
invested assets in the amount of $814.5 million and $863.6 million at
December 31, 1997 and 1996, respectively, associated with structured
settlement contract obligations, are reported as investments. The related
structured settlement contract obligations, which were $842.3 million and
$809.1 million at December 31, 1997 and 1996, respectively, are included in
future policy benefits and contractholder funds. Additionally, structured
settlement transactions included in the income statement for the years
ended December 31, 1997, 1996 and 1995 are premiums of $23.2 million, $8.1
million and $8.0 million, respectively, net investment income of $65.9
million, $62.3 million and $60.0 million, respectively, and benefits and
expenses of $66.5 million, $56.4 million and $51.8 million, respectively.
The 1996 and 1995 amounts were previously reported as a net $13.9 million
and $16.2 million, respectively, included in other revenue.
This change in presentation has no effect on net income, total assets,
total liabilities, or shareholder's equity as reflected in the statements
of income and retained earnings, and balance sheets for the periods
presented.
The Company has determined that a change in presentation was warranted
because of the nature of this particular separate account and the change in
product focus of the Company. The assets of the structured settlement
separate account are owned by, and investment risk is borne by, the
Company, which also guarantees the obligations of this separate account.
Consequently, the Company, not the contractholder, bears the risks of this
separate account.
The Company is now offering a variety of variable annuity products where
the investment risk is borne by the contractholder, not the Company, and
the benefits are not guaranteed. The premiums and deposits related to these
products are reported in separate accounts. The Company considers it
necessary to differentiate, for financial statement purposes, the results
of the risks it has assumed from those it has not. See also Note 6.
Certain reclassifications have been made to the prior year's financial
statements to conform to the current year's presentation.
F-5
<PAGE> 51
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Accounting Changes
EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS
In February, 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits" (FAS 132).
FAS 132 supersedes the disclosure requirements in FASB Statements No. 87,
"Employers' Accounting for Pensions," No. 88, "Employers' Accounting for
Settlements and Curtailments of Defined Benefits Pension Plans and
Termination of Benefits," and No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." FAS 132 addresses disclosure
only and does not address measurement or recognition. In addition to other
disclosure changes, FAS 132 allows employers to disclose total
contributions to multi-employer plans without disaggregating the amounts
attributable to pensions and other postretirement benefits. This statement
is effective for fiscal years beginning after December 15, 1997. Earlier
application is encouraged. Effective December 31, 1997, the Company adopted
FAS 132. The adoption of this standard did not have any impact on results
of operations, financial condition or liquidity.
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES
Effective January 1, 1997, the Company adopted Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" (FAS 125). FAS 125
establishes accounting and reporting standards for transfers and servicing
of financial assets and extinguishments of liabilities. These standards are
based on an approach that focuses on control. Under this approach, after a
transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred,
derecognizes financial assets when control has been surrendered, and
derecognizes liabilities when extinguished. FAS 125 provides standards for
distinguishing transfers of financial assets that are sales from transfers
that are secured borrowings. The requirements of FAS 125 are effective for
transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996, and are to be applied
prospectively. However, in December 1996 the FASB issued Statement of
Financial Accounting Standards 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. Application of FAS 125
prior to the effective date or retroactively is not permitted. The adoption
of the provisions of FAS 125 effective January 1, 1997 did not have a
material impact on results of operations, financial condition or liquidity.
The adoption of the provisions of FAS 127 effective January, 1998 will not
have a material impact on the results of operations, financial condition or
liquidity of the Company.
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.
F-6
<PAGE> 52
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Accounting for Stock-Based Compensation
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (FAS 123).
This statement establishes financial accounting and reporting standards for
stock-based employee compensation plans as well as transactions in which an
entity issues its equity instruments to acquire goods or services from
non-employees. This statement defines a fair value-based method of
accounting for employee stock options or similar equity instruments, and
encourages all entities to adopt this method of accounting for all employee
stock compensation plans. However, it also allows an entity to continue to
measure compensation cost for those plans using the intrinsic value-based
method of accounting prescribed by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25). Entities electing
to remain with the accounting method prescribed in APB 25 must make
pro-forma disclosures of net income and earnings per share, as if the fair
value-based method of accounting defined by FAS 123 had been applied. FAS
123 is applicable to fiscal years beginning after December 15, 1995. The
Company has elected to continue to account for its stock-based employee
compensation plans using the accounting method prescribed by APB 25 and,
had the Company applied FAS 123 in accounting for stock options, net income
would have been reduced by an insignificant amount in 1997, 1996 and 1995.
The Company has adopted FAS 123 for its stock-based non-employee
compensation plans.
Accounting Policies
INVESTMENTS
Fixed maturities include bonds, notes and redeemable preferred stocks. Fair
values of investments in fixed maturities are based on quoted market prices
or dealer quotes or, if these are not available, discounted expected cash
flows using market rates commensurate with the credit quality and maturity
of the investment. Fixed maturities are classified as "available for sale"
and are reported at fair value, with unrealized investment gains and
losses, net of income taxes, charged or credited directly to shareholder's
equity.
Equity securities, which include common and non-redeemable preferred
stocks, are classified as "available for sale" and are carried at fair
value based primarily on quoted market prices. Changes in fair values of
equity securities are charged or credited directly to shareholder's equity,
net of income taxes.
Mortgage loans are carried at amortized cost. A mortgage loan is considered
impaired when it is probable that the Company will be unable to collect
principal and interest amounts due. For mortgage loans that are determined
to be impaired, a reserve is established for the difference between the
amortized cost and fair market value of the underlying collateral. In
estimating fair value, the Company uses interest rates reflecting the
higher returns required in the current real estate financing market.
Impaired loans were insignificant at December 31, 1997 and 1996.
Real estate held for sale is carried at the lower of cost or fair value
less estimated cost to sell. Fair value of foreclosed properties is
established at the time of foreclosure by internal analysis or external
appraisers, using discounted cash flow analyses and other accepted
techniques. Thereafter, an allowance for losses on real estate held for
sale is established if the carrying value of the property exceeds its
current fair value less estimated costs to sell. There was no such
allowance at December 31, 1996.
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.
F-7
<PAGE> 53
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Accrual of income, included in other assets, is suspended on fixed
maturities or mortgage loans that are in default, or on which it is likely
that future payments will not be made as scheduled. Interest income on
investments in default is recognized only as payment is received.
Included in investments are invested assets associated with Structured
Settlement Guaranteed Separate Accounts where the investment risk is borne
by the Company. See Note 6.
INVESTMENT GAINS AND LOSSES
Realized investment gains and losses are included as a component of pre-tax
revenues based upon specific identification of the investments sold on the
trade date. Also included are gains and losses arising from the
remeasurement of the local currency value of foreign investments to U.S.
dollars, the functional currency of the Company.
POLICY LOANS
Policy loans are carried at the amount of the unpaid balances that are not
in excess of the net cash surrender values of the related insurance
policies. The carrying value of policy loans, which have no defined
maturities, is considered to be fair value.
SEPARATE ACCOUNTS
The Company has separate account assets and liabilities representing funds
for which investment income and investment gains and losses accrue directly
to, and investment risk is borne by, the contractholders. Each of these
accounts have specific investment objectives. The assets and liabilities of
these accounts are carried at fair value, and amounts assessed to the
contractholders for management services are included in 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.
The Company also has a separate account for structured settlement annuity
obligations where the investment risk is borne by the Company. The assets
and liabilities of this separate account are included in investments,
future policy benefits and contractholder funds for financial reporting
purposes. See Note 6.
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.
F-8
<PAGE> 54
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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 3.0% to 7.5%,
including a provision for adverse deviation. These assumptions consider
Company experience and industry standards. The assumptions vary by plan,
age at issue, year of issue and duration.
CONTRACTHOLDER FUNDS
Contractholder funds represent receipts from the issuance of universal
life, certain individual annuity contracts, and structured settlement
contracts. Contractholder fund balances are increased by such receipts and
credited interest and reduced by withdrawals, mortality charges and
administrative expenses charged to the contractholders. Interest rates
credited to contractholder funds range from 3.9% to 7.2%.
PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company, domiciled in the State of Connecticut, prepares statutory
financial statements in accordance with the accounting practices prescribed
or permitted by the State of Connecticut Insurance Department. Prescribed
statutory accounting practices include certain publications of the National
Association of Insurance Commissioners 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 earned on investment and other insurance contracts.
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.
F-9
<PAGE> 55
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Future Application of Accounting Standards
In December 1997, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of
Position 97-3, "Accounting by Insurance and Other Enterprises for
Insurance-Related Assessments" (SOP 97-3). SOP 97-3 provides guidance for
determining when an entity should recognize a liability for guaranty-fund
and other insurance-related assessments, how to measure that liability, and
when an asset may be recognized for the recovery of such assessments
through premium tax offsets or policy surcharges. This SOP is effective for
financial statements for fiscal years beginning after December 15, 1998,
and the effect of initial adoption is to be reported as a cumulative
catch-up adjustment. Restatement of previously issued financial statements
is not allowed. The Company has not yet determined when it will implement
this SOP and does not anticipate any material impact on the Company's
financial condition, results of operations or liquidity.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" (FAS 130). FAS 130 establishes
standards for the reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. All items
that are required to be recognized under accounting standards as components
of comprehensive income are to be reported in a financial statement that is
displayed with the same prominence as other financial statements. FAS 130
stipulates that comprehensive income reflect the change in equity of an
enterprise during a period from transactions and other events and
circumstances from non-owner sources. Comprehensive income will thus
represent the sum of net income and other comprehensive income, although
FAS 130 does not require the use of the terms comprehensive income or other
comprehensive income. The accumulated balance of other comprehensive income
shall be displayed separately from retained earnings and additional paid-in
capital in the statement of financial position. FAS 130 is effective for
fiscal years beginning after December 15, 1997. The Company anticipates
that the adoption of FAS 130 will result primarily in reporting unrealized
gains and losses on investments in debt and equity securities in
comprehensive income.
In June 1997, the FASB also issued Statement of Financial Accounting
Standards No. 131, "Disclosures About Segments of an Enterprise and Related
Information" (FAS 131). FAS 131 establishes standards for the way that
public enterprises report information about operating segments in annual
financial statements and requires that selected information about those
operating segments be reported in interim financial statements. FAS 131
supersedes Statement of Financial Accounting Standards No. 14, "Financial
Reporting for Segments of a Business Enterprise" (FAS 14). FAS 131 requires
that all public enterprises report financial and descriptive information
about its reportable operating segments. Operating segments are defined as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decisionmaker
in deciding how to allocate resources and in assessing performance. FAS 131
is effective for fiscal years beginning after December 15, 1997. The
Company's reportable operating segment will not change as a result of the
adoption of FAS 131.
F-10
<PAGE> 56
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
2. REINSURANCE
The Company participates in reinsurance in order to limit losses, minimize
exposure to large risks, provide capacity for future growth and to effect
business-sharing arrangements. The Company remains primarily liable as the
direct insurer on all risks reinsured.
Life insurance in force ceded to TIC at December 31, 1997 and 1996 was
$76.4 million and $90.7 million, respectively. Life insurance in force
ceded to non-affiliates at December 31, 1997 and 1996, was $4.5 billion and
$2.2 billion, respectively.
3. SHAREHOLDER'S EQUITY
Unrealized Investment Gains (Losses)
See Note 11 for an analysis of the change in unrealized gains and losses on
investments.
Shareholder's Equity and Dividend Availability
The Company's statutory net income was $80.3 million, $17.9 million and
$23.0 million for the years ended December 31, 1997, 1996 and 1995,
respectively.
Statutory capital and surplus was $328.2 million and $254.1 million at
December 31, 1997 and 1996, 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 $63.6 million is available in 1998 for dividend payments by the
Company without prior approval of the Connecticut Insurance Department.
4. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Derivative Financial Instruments
The Company uses derivative financial instruments, including financial
futures, equity options, forward contracts and interest rate swaps as a
means of hedging exposure to foreign currency, equity price changes and/or
interest rate risk on anticipated transactions or existing assets and
liabilities. The Company does not hold or issue derivative instruments for
trading purposes.
These derivative financial instruments have off-balance sheet risk.
Financial instruments with off-balance sheet risk involve, to varying
degrees, elements of credit and market risk in excess of the amount
recognized in the balance sheet. The contract or notional amounts of these
instruments reflect the extent of involvement the Company has in a
particular class of financial instrument. However, the maximum loss of cash
flow associated with these instruments can be less than these amounts. For
forward contracts and interest rate swaps, credit risk is limited to the
amounts calculated to be due the Company on such contracts. Financial
futures contracts and purchased listed option contracts have little credit
risk since organized exchanges are the counterparties.
F-11
<PAGE> 57
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
The Company monitors creditworthiness of counterparties to these financial
instruments by using criteria of acceptable risk that are consistent with
on-balance sheet financial instruments. The controls include credit
approvals, limits and other monitoring procedures.
The Company uses exchange traded financial futures contracts to manage its
exposure to changes in interest rates which arise from the sale of certain
insurance and investment products, or the need to reinvest proceeds from
the sale or maturity of investments. To hedge against adverse changes in
interest rates, the Company enters long or short positions in financial
futures contracts to offset asset price changes resulting from changes in
market interest rates until an investment is purchased or a product is
sold.
Margin payments are required to enter a futures contract and contract gains
or losses are settled daily in cash. The contract amount of futures
contracts represents the extent of the Company's involvement, but not
future cash requirements, as open positions are typically closed out prior
to the delivery date of the contract.
At December 31, 1997 and 1996, the Company held financial futures contracts
with notional amounts of $156.3 million and $20.3 million, respectively. At
December 31, 1997 and 1996, the Company's futures contracts had no fair
value because these contracts are marked to market and settled in cash
daily.
The off-balance sheet risks of equity options, forward contracts, and
interest rate swaps were not significant at December 31, 1997 and 1996.
Financial Instruments with Off-Balance Sheet Risk
In the normal course of business, the Company issues fixed and variable
rate loan commitments and has unfunded commitments to partnerships. The
off-balance sheet risk of these financial instruments was not significant
at December 31, 1997 and 1996.
Fair Value of Certain Financial Instruments
The Company uses various financial instruments in the normal course of its
business. Fair values of financial instruments that are considered
insurance contracts are not required to be disclosed and are not included
in the amounts discussed.
At December 31, 1997, investments in fixed maturities had a carrying value
and a fair value of $1.7 billion, compared with a carrying value and a fair
value of $1.5 billion at December 31, 1996. See Notes 1 and 11.
At December 31, 1997 and 1996, mortgage loans had a carrying value of
$160.2 million and $128.4 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 $33.8 million and $22.7 million of financial
instruments classified as other assets approximated their fair values at
December 31, 1997 and 1996, respectively. The carrying values of $72.7
million and $38.5 million of financial instruments classified as other
liabilities also approximated their fair values at December 31, 1997 and
1996, respectively. Fair value is determined using various methods,
including discounted cash flows, as appropriate for the various financial
instruments.
F-12
<PAGE> 58
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
At December 31, 1997, contractholder funds with defined maturities had a
carrying value of $694.9 million and a fair value of $695.9 million,
compared with a carrying value of $546.5 million and a fair value of $545.2
million at December 31, 1996. The fair value of these contracts is
determined by discounting expected cash flows at an interest rate
commensurate with the Company's credit risk and the expected timing of cash
flows. Contractholder funds without defined maturities had a carrying value
of $98.5 million and a fair value of $93.9 million at December 31, 1997,
compared with a carrying value of $26.9 million and a fair value of $25.6
million at December 31, 1996. These contracts generally are valued at
surrender value.
The carrying values of short-term securities and policy loans approximated
their fair values.
5. COMMITMENTS AND CONTINGENCIES
Financial Instruments with Off-Balance Sheet Risk
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,
1997 and 1996.
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,
1997, 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.
6. STRUCTURED SETTLEMENT CONTRACTS
The Company has structured settlement contracts that provide guarantees for
the contractholders independent of the investment performance of the assets
held in the related separate account. The assets held in the separate
account are owned by the Company and contractholders do not share in their
investment performance.
The Company maintains assets sufficient to fund the guaranteed benefits
attributable to the liabilities. Assets held in the separate account cannot
be used to satisfy any other obligations of the Company.
The Company reports the related assets and liabilities in investments,
future policy benefit reserves and contractholder funds.
F-13
<PAGE> 59
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
7. BENEFIT PLANS
Pension and Other Postretirement Benefits
The Company participates in a qualified, noncontributory defined benefit
pension plan sponsored by an affiliate. In addition, the Company provides
certain other postretirement benefits to retired employees through a plan
sponsored by an affiliate. The Company's share of net expense for the
qualified pension and other postretirement benefit plans was not
significant for 1997, 1996 and 1995. Beginning January 1, 1996, the
Company's other postretirement benefit plans were amended to restrict
benefit eligibility to retirees and certain retiree-eligible employees.
Previously, covered employees could become eligible for postretirement
benefits if they reached retirement age while working for the Company.
401(k) Savings Plan
Substantially all of the Company's employees are eligible to participate in
a 401(k) savings plan sponsored by Travelers Group. Prior to January 1,
1996, the Company made matching contributions to the 401(k) savings plan on
behalf of participants in the amount of 50% of the first 5% of pre-tax
contributions made by the employee, plus an additional variable matching
contribution based on the profitability of The Travelers Insurance Group
Inc. (TIGI) and its subsidiaries. During 1996, the Company made matching
contributions in an amount equal to the lesser of 100% of the pre-tax
contributions made by the employee or $1,000. Effective January 1, 1997,
the Company discontinued matching contributions for the majority of its
employees. The Company's expenses in connection with the 401(k) savings
plan were not significant in 1997, 1996 and 1995.
8. RELATED PARTY TRANSACTIONS
The principal banking functions, including payment of salaries and
expenses, for certain subsidiaries and affiliates of TIGI, including the
Company, are handled by two companies. TIC handles banking functions for
the life and annuity operations of Travelers Life and Annuity and some of
its non-insurance affiliates. The Travelers Indemnity Company handles
banking functions for the property-casualty operations, including most of
its property-casualty insurance and non-insurance affiliates. Settlements
between companies are made at least monthly. TIC provides various employee
benefit coverages to certain subsidiaries of TIGI. The premiums for these
coverages were charged in accordance with cost allocation procedures based
upon salaries or census. In addition, investment advisory and management
services, data processing services and claims processing services are
provided by affiliated companies. Charges for these services are shared by
the companies on cost allocation methods based generally on estimated usage
by department.
TIC maintains a short-term investment pool in which the Company
participates. The position of each company participating in the pool is
calculated and adjusted daily. At December 31, 1997 and 1996, the pool
totaled approximately $2.6 billion and $2.9 billion, respectively. The
Company's share of the pool amounted to $145.5 million and $68.2 million at
December 31, 1997 and 1996, 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 $400
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.
F-14
<PAGE> 60
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
The Company sells structured settlement annuities to an affiliate, The
Travelers Indemnity Company. Premiums and deposits were $70.6 million,
$36.9 million and $36.6 million for 1997, 1996 and 1995, respectively.
The Company began marketing variable annuity products through its
affiliate, Salomon Smith Barney, in 1995. Premiums and deposits
related to these products were $615.6 million, $300.0 million and $20.5
million in 1997, 1996 and 1995, respectively.
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. To further encourage employee
stock ownership, during 1997 Travelers Group introduced the WealthBuilder
stock option program. Under this program, all employees meeting certain
requirements have been granted Travelers Group stock options.
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 1997, 1996 and 1995.
At December 31, 1997 and 1996, the Company had investments in Tribeca
Investments LLC in the amounts of $16.5 million and $7.8 million, included
in other invested assets.
9. FEDERAL INCOME TAXES
($ in thousands)
<TABLE>
<CAPTION>
EFFECTIVE TAX RATE
FOR THE YEAR ENDED DECEMBER 31, 1997 1996 1995
------------------------------- ---- ---- ----
<S> <C> <C> <C>
Income Before Federal Income Taxes $109,575 $39,582 $43,436
Statutory Tax Rate 35% 35% 35%
-------- ------- -------
Expected Federal Income Taxes 38,351 13,854 15,203
Tax Effect of:
Non-taxable investment income (24) (15) (13)
Other, net (124) (48) (671)
-------- ------- -------
Federal Income Taxes 38,203 $13,791 $14,519
======== ======= =======
Effective Tax Rate 35% 35% 33%
-------- ------- -------
COMPOSITION OF FEDERAL INCOME TAXES
Current:
United States 33,805 $29,435 $2,555
Foreign 54 21 -
-------- ------- -------
Total 33,859 29,456 2,555
-------- ------- -------
Deferred:
United States 4,344 (15,665) 11,964
-------- ------- -------
Total Net Earned Premiums $38,203 $13,791 $14,519
======== ======= =======
</TABLE>
F-15
<PAGE> 61
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
The net deferred tax assets at December 31, 1997 and 1996 were comprised of
the tax effects of temporary differences related to the following assets
and liabilities:
<TABLE>
<CAPTION>
($ in thousands) 1997 1996
---- ----
<S> <C> <C>
Deferred Tax Assets:
Benefit, reinsurance and other reserves $100,969 $79,484
Other 2,571 3,043
-------- -------
Total 103,540 82,527
-------- -------
Deferred Tax Liabilities:
Investments, net 42,933 12,113
Deferred acquisition costs and value of insurance in force 23,650 10,066
Other 1,226 662
------- -------
Total 67,809 22,841
------- -------
Net Deferred Tax Asset Before Valuation Allowance 35,731 59,686
Valuation Allowance for Deferred Tax Assets (2,070) (2,070)
------- -------
Net Deferred Tax Asset After Valuation Allowance $33,661 $57,616
------- -------
</TABLE>
Starting in 1994 and continuing for at least five years, TIC and its life
insurance subsidiaries, including the Company, has filed, and will file, a
consolidated federal income tax return. Federal income taxes are allocated
to each member on a separate return basis adjusted for credits and other
amounts required by the consolidation process. Any resulting liability has
been, and will be, paid currently to TIC. Any credits for losses have been,
and will be, paid by TIC to the extent that such credits are for tax
benefits that have been utilized in the consolidated federal income tax
return.
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 if
life/non-life consolidation is elected in 1999, 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
1997. The initial recognition of any benefit provided by the reversal of
the valuation allowance will be recognized by reducing goodwill.
In management's judgment, the $33.7 million "net deferred tax asset after
valuation allowance" as of December 31, 1997, is fully recoverable against
expected future years' taxable ordinary income and capital gains. At
December 31, 1997, 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 $700 thousand.
F-16
<PAGE> 62
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
10. NET INVESTMENT INCOME
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
($ in thousands) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
GROSS INVESTMENT INCOME
Fixed maturities $120,900 $113,296 $105,821
Equity securities 704 554 835
Mortgage loans 14,905 18,278 14,974
Real estate held for sale 1,457 3,480 2,476
Other 32,459 19,854 2,537
-------- -------- --------
170,425 155,462 126,643
-------- -------- --------
Investment expenses 1,772 4,136 3,446
-------- -------- --------
Net investment income $168,653 $151,326 $123,197
-------- -------- --------
</TABLE>
11. INVESTMENTS AND INVESTMENT GAINS (LOSSES)
Realized investment gains (losses) for the periods were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
($ in thousands) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
REALIZED INVESTMENT GAINS (LOSSES)
Fixed maturities $29,236 $(11,491) $(4,240)
Equity securities 8,385 4,613 6,138
Mortgage loans (8) 1,979 725
Real estate held for sale 2,164 (73) (35)
Other 5,094 (4,641) 16,125
------- -------- -------
Total Realized Investment Gains (Losses) $44,871 $(9,613) $18,713
------- -------- -------
</TABLE>
Changes in net unrealized investment gains (losses) that are included as a
separate component of shareholder's equity were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
($ in thousands) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
UNREALIZED INVESTMENT GAINS (LOSSES)
Fixed maturities $34,451 $(23,953) $111,551
Equity securities (2,394) (746) 1,834
Other 23,975 22,431 4,390
------- -------- --------
Total Unrealized Investment Gains (Losses) 56,032 (2,268) 117,775
Related taxes 19,611 (794) 41,221
------- -------- --------
Change in unrealized investment gains (losses) 36,421 (1,474) 76,554
Balance beginning of year 33,856 35,330 (41,224)
------- -------- -------
Balance End of Year $70,277 $33,856 $35,330
------- -------- -------
</TABLE>
F-17
<PAGE> 63
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Fixed Maturities
Proceeds from sales of fixed maturities classified as available for sale
were $856.8 million and $2.1 billion in 1997 and 1996, respectively. Gross
gains of $38.1 million and $8.4 million and gross losses of $8.9 million
and $19.9 million in 1997 and 1996, respectively, were realized on those
sales.
Fair values of investments in fixed maturities are based on quoted market
prices or dealer quotes or, if these are not available, discounted expected
cash flows using market rates commensurate with the credit quality and
maturity of the investment. The fair value of investments for which a
quoted market price or dealer quote are not available amounted to $485.3
million and $360.1 million at December 31, 1997 and 1996, respectively.
The amortized cost and fair values of investments in fixed maturities were
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 GROSS GROSS
($ in thousands) AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
Mortgage-backed securities - CMOs and
pass-through securities $ 144,921 $ 8,254 $ (223) $ 152,952
U.S. Treasury securities and
obligations of U.S. Government and
government agencies and authorities 248,081 34,111 (123) 282,069
Obligations of states and political
subdivisions 14,560 392 (2) 14,950
Debt securities issued by foreign
governments 85,367 6,194 (228) 91,333
All other corporate bonds 1,077,211 59,972 (1,387) 1,135,796
Redeemable preferred stock 981 48 (9) 1,020
---------- -------- ------- ----------
Total Available For Sale $1,571,121 $108,971 $(1,972) $1,678,120
========== ======== ======= ==========
</TABLE>
F-18
<PAGE> 64
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1996 GROSS GROSS
($ in thousands) AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
Mortgage-backed securities - CMOs and
pass-through securities $154,788 $ 3,312 $(901) $157,199
U.S. Treasury securities and obligations of
U.S. Government and government agencies and
authorities 255,858 16,855 (61) 272,652
Obligations of states and political
subdivisions 16,124 263 (189) 16,198
Debt securities issued by foreign
governments 109,120 3,215 (1,447) 110,888
All other corporate bonds 904,831 28,204 (5,387) 927,648
Redeemable preferred stock 85 - - 85
---------- ------- ------- ----------
Total Available For Sale $1,440,806 $51,849 $(7,985) $1,484,670
========== ======= ======= ==========
</TABLE>
The amortized cost and fair value of fixed maturities available for sale at
December 31, 1997, by contractual maturity, are shown below. Actual
maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
($ in thousands) AMORTIZED FAIR
COST VALUE
<S> <C> <C>
MATURITY:
Due in one year or less $ 17,978 $ 18,312
Due after 1 year through 5 years 211,272 216,191
Due after 5 years through 10 years 381,690 401,338
Due after 10 years 815,260 889,327
---------- ----------
1,426,200 1,525,168
---------- ----------
Mortgage-backed securities 144,921 152,952
---------- ----------
Total Maturity $1,571,121 $1,678,120
========== ==========
</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.
F-19
<PAGE> 65
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
At December 31, 1997 and 1996, the Company held CMOs with a market value of
$122.8 million and $126.3 million, respectively. The Company's CMO holdings
were 97.5% and 97.6% collateralized by GNMA, FNMA or FHLMC securities at
December 31, 1997 and 1996, respectively.
Equity Securities
The cost and market values of investments in equity securities were as
follows:
<TABLE>
<CAPTION>
EQUITY SECURITIES: GROSS GROSS
($ in thousands) UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
---- ----- ------ ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Common stocks $ 3,318 $ 583 $ (70) $ 3,831
Non-redeemable preferred stocks 11,774 931 (247) 12,458
------- ------ ----- -------
Total Equity Securities $15,092 $1,514 $(317) $16,289
------- ------ ----- -------
DECEMBER 31, 1996
Common stocks $ 2,722 $3,441 $(163) $ 6,000
Non-redeemable preferred stocks 9,674 323 (95) 9,902
------- ------ ----- -------
Total Equity Securities $12,396 $3,764 $(258) $15,902
------- ------ ------ -------
</TABLE>
Proceeds from sales of equity securities were $12.4 million and $20.3
million in 1997 and 1996, respectively. Gross gains of $8.6 million and
$4.7 million and gross losses of $172 thousand and $155 thousand in 1997
and 1996, respectively, were realized on those sales.
Mortgage Loans and Real Estate Held For Sale
Underperforming assets include delinquent mortgage loans, loans in the
process of foreclosure, foreclosed loans and loans modified at interest
rates below market.
At December 31, 1997 and 1996, the Company's mortgage loan portfolios and
real estate held for sale consisted of the following:
<TABLE>
<CAPTION>
($ in thousands) 1997 1996
---- ----
<S> <C> <C>
Current Mortgage Loans $ 160,247 $128,292
Underperforming Mortgage Loans - 148
--------- --------
Total 160,247 128,440
--------- --------
Real Estate Held For Sale - 10,111
--------- --------
Total $ 160,247 $138,551
--------- --------
</TABLE>
F-20
<PAGE> 66
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Aggregate annual maturities on mortgage loans at December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
($ in thousands)
<S> <C>
Past Maturity $ -
1998 5,108
1999 8,773
2000 8,920
2001 11,352
2002 17,986
Thereafter 108,108
--------
Total $160,247
========
</TABLE>
Joint Venture
In October 1997, TIC and Tishman Speyer Properties (Tishman), a worldwide
real estate owner, developer and manager, formed a joint real estate
venture with an initial equity commitment of $792 million. TIC and certain
of its affiliates committed $420 million in real estate equity and $100
million in cash while Tishman committed $272 million in properties and
cash. Both companies are serving as asset managers for the venture and
Tishman is primarily responsible for the venture's real estate acquisition
and development efforts. The Company's investment in the joint venture
totaled $54.8 million at December 31, 1997.
Concentrations
At December 31, 1997 and 1996, the Company had investments of $50.8 million
and $75.1 million in the State of Israel, respectively. Additionally, in
1996 the Company had $40.6 million in Merrill Lynch Trust Series 45.
The Company participates in a short-term investment pool maintained by an
affiliate. See Note 8.
Included in fixed maturities are below investment grade assets totaling
$76.7 million and $81.7 million at December 31, 1997 and 1996,
respectively. The Company defines its below investment grade assets as
those securities rated "Ba1" or below by external rating agencies, or the
equivalent by internal analysts when a public rating does not exist. Such
assets include publicly traded below investment grade bonds and certain
other privately issued bonds that are classified as below investment grade
bonds.
The Company also had concentrations of investments, primarily fixed
maturities, in the following industries:
<TABLE>
<CAPTION>
($ in thousands) 1997 1996
---- ----
<S> <C> <C>
Transportation $138,903 $ 86,819
Banking 130,966 71,506
Electric utilities 106,724 76,426
------- ------
</TABLE>
Below investment grade assets included in the preceding table were not
significant.
F-21
<PAGE> 67
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Concentrations of mortgage loans by property type at December 31, 1997 and
1996 were as follows:
<TABLE>
<CAPTION>
($ in thousands) 1997 1996
---- ----
<S> <C> <C>
Agricultural $62,463 $49,801
Office 47,453 35,333
Retail 23,214 21,924
------ ------
</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 at December 31,
1996. 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. Interest on these assets, included in net investment income
was insignificant.
12. LIFE AND ANNUITY DEPOSIT FUNDS AND RESERVES
At December 31, 1997, the Company had $1.8 million of life and annuity
deposit funds and reserves. Of that total, $1.5 million were not subject to
discretionary withdrawal based on contract terms. The remaining $.3 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 $.2 million of liabilities that are
surrenderable with market value adjustments. An additional $.1 million of
the life insurance and individual annuity liabilities are subject to
discretionary withdrawals with an average surrender charge of 4.8%. The
life insurance risks would have to be underwritten again if transferred to
another carrier, which is considered a significant deterrent for long-term
policyholders. Insurance liabilities that are surrendered or withdrawn from
the Company are reduced by outstanding policy loans and related accrued
interest prior to payout.
F-22
<PAGE> 68
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
13. RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES
The following table reconciles net income to net cash provided by (used in)
operating activities:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997 1996 1995
---- ---- ----
($ in thousands)
<S> <C> <C> <C>
Net Income From Continuing Operations $71,372 $ 25,791 $ 28,917
Adjustments to reconcile net income to cash provided by
operating activities:
Realized (gains) losses (44,871) 9,613 (18,713)
Deferred federal income taxes 4,344 (15,665) 11,964
Amortization of deferred policy acquisition costs and
value of insurance in force 6,036 3,286 1,563
Additions to deferred policy acquisition costs (56,975) (20,753) (3,109)
Investment income accrued 908 1,308 (819)
Premium balances receivable (3,450) (3,561) (2,277)
Insurance reserves and accrued expenses 3,981 (16,459) (20,081)
Other 26,673 (13,419) (46,076)
------ -------- --------
Net cash provided by (used in) operations $8,018 $(29,859) $(48,631)
------ -------- --------
</TABLE>
14. NON-CASH INVESTING AND FINANCING ACTIVITIES
There were no significant non-cash investing and financing activities for
1997, 1996 and 1995.
F-23
<PAGE> 69
TRAVELERS MARQUIS PORTFOLIOS
STATEMENT OF ADDITIONAL INFORMATION
Individual Variable Annuity Contract
issued by
The Travelers Life and Annuity Company
One Tower Square
Hartford, Connecticut 06183
, 1998
-----
14
<PAGE> 70
PART C
Other Information
Item 24. Financial Statements and Exhibits
(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 financial statements of
The Travelers Life and Annuity Company include:
Statements of Income and Retained Earnings for the years ended
December 31, 1997, 1996 and 1995
Balance Sheets as of December 31, 1997 and 1996
Statements of Cash Flows for the years ended December 31, 1997,
1996 and 1995
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 November 13, 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 November 13, 1997.)
3(b). Form of Selling Agreement. (Incorporated herein by reference to
Exhibit 3(b) to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-4, File No. 333-40193, filed June 10, 1998.)
4. Variable Annuity Contract.
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 the Registration Statement on Form N-4 filed November 13, 1997.)
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 filed November 13,
1997.)
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 November 13, 1997.)
10(a). Consent of KPMG Peat Marwick LLP, Independent Certified Public
Accountants.
<PAGE> 71
13. Computation of Total Return Calculations - Standardized and
Non-Standardized. (Incorporated herein by reference to Exhibit 13
to Pre-Effective Amendment No. 1 to the Registration Statement on
Form N-4, File No. 333-40193, filed June 10, 1998.)
15. 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
to the Registration Statement on Form N-4 filed November 13, 1997.)
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
Virginia M. Meany* Vice President
Selig Ehrlich* Vice President and Actuary
Donald R. Munson, Jr.* Second Vice President
Ernest J. Wright* Vice President and Secretary
Kathleen A. McGah* Assistant Secretary and Counsel
</TABLE>
<TABLE>
<S> <C>
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>
Item 26. Persons Controlled by or Under Common Control with the Depositor or
Registrant
Incorporated herein by reference to Item 26 to Post-Effective
Amendment No. 3 the Registration Statement on Form N-4, File No. 33-58131 filed
April 10, 1998.
<PAGE> 72
Item 27. Number of Contract Owners
Not applicable.
Item 28. Indemnification
Section 33-770 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 33-770 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> 73
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 BD IV for Variable Annuities
The Travelers Fund ABD for Variable Annuities
The Travelers Fund ABD II for Variable Life Insurance
The Travelers Separate Account QP for Variable Annuities
The Travelers Separate Account PF for Variable Annuities
The Travelers Separate Account PF II for Variable Annuities
The Travelers Separate Account TM for Variable Annuities
The Travelers 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 Two
The Travelers Variable Life Insurance Separate Account Three
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
Jay S. Benet Member, Board of Directors
George C. Kokulis Member, Board of Directors
Warren H. May Member, Board of Directors
Joanne K. Russo Member, Board of Directors, Senior Vice President
William F. Scully, III Member, Board of Directors, Senior Vice President
Cynthia P. Macdonald Vice President, Chief Compliance Officer, and
Assistant Secretary
William D. Wilcox General Counsel and Secretary
Kathleen A. McGah Assistant Secretary and Counsel
Donald R. Munson, Jr. Senior Vice President
Stuart L. Baritz Vice President
</TABLE>
<PAGE> 74
<TABLE>
<CAPTION>
(b) Name and Principal Positions and Offices
Business Address * With Underwriter
------------------ ----------------
<S> <C>
Michael P. Kiley Vice President
Tracey Kiff-Judson Vice President - Operations and Trading
Whitney F. Burr Second Vice President
Marlene M. Ibsen Second Vice President
Robin A. Jones Second Vice President
John F. Taylor Second Vice President
John J. Williams, Jr. Director and Assistant Compliance Officer
Dennis D. D'Angelo Director
George Markoulakis Director
John H. Straka Director
Thomas P. Tooley Director
</TABLE>
* Principal business address: One Tower Square, Hartford,
Connecticut 06183
(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> 75
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 June 10, 1998.
THE TRAVELERS SEPARATE ACCOUNT TM II 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 June 10, 1998.
<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)
</TABLE>
*By:
------------------------------------
Ernest J. Wright, Attorney-in-Fact
<PAGE> 76
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 November 13, 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 November 13, 1997.)
3(b) Form of Selling Agreement. (Incorporated herein by reference to
Exhibit 3(b) to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-4, File No. 333-40193, filed June 10, 1998.)
4 Form of Variable Annuity Contract. Electronically
5 Application. Electronically
6(a) Charter of The Travelers Life and Annuity Company, as
amended on October 19, 1994. (Incorporated herein by
reference to Exhibit 6(a) to the Registration Statement
on Form N-4 filed November 13, 1997.)
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 filed November 13, 1997.)
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
November 13, 1997.)
10(a) Consent of KPMG Peat Marwick LLP, Independent Electronically
Certified Public Accountants.
13 Schedule for Computation of Total Return
Calculations - Standardized and Non-Standardized.
(Incorporated herein by reference to Exhibit 13 to
Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-4, File No. 333-40193,
filed June 10, 1998.)
15 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 to the
Registration Statement on Form N-4 filed November 13, 1997.)
</TABLE>
<PAGE> 1
EXHIBIT 4
THE TRAVELERS LIFE AND ANNUITY COMPANY * ONE TOWER SQUARE
* HARTFORD,CONNECTICUT *06183
A STOCK COMPANY
We are pleased to provide You the benefits of this Variable Annuity
Contract. Please read Your Contract and all attached forms carefully.
IF YOU HAVE ANY QUESTIONS CONCERNING YOUR CONTRACT, PLEASE CONTACT US AT
[1-800-842-8573].
RIGHT TO EXAMINE THIS CONTRACT
IF THIS CONTRACT IS RETURNED TO US AT OUR OFFICE OR TO OUR AGENT TO BE
CANCELED WITHIN 10 DAYS AFTER ITS DELIVERY TO YOU, WE WILL PAY YOU THE
CONTRACT VALUE DETERMINED AS OF THE NEXT VALUATION DATE AFTER WE
RECEIVE THE WRITTEN REQUEST AT OUR OFFICE, PLUS ANY PREMIUM TAX OR
CONTRACT CHARGES PAID. IF THIS CONTRACT IS ISSUED AS AN INDIVIDUAL
RETIREMENT ANNUITY (IRA), AND IS RETURNED TO US AT OUR OFFICE OR TO OUR
AGENT WITHIN 7 DAYS OF ITS DELIVERY TO YOU, WE WILL PAY YOU THE FULL
AMOUNT OF ANY PREMIUM PAID, WITHOUT ADJUSTMENT FOR ANY PREMIUM TAX OR
CONTRACT CHARGES PAID. IF THIS CONTRACT IS RETURNED DURING THE BALANCE
OF THE RIGHT TO EXAMINE PERIOD, WE WILL PAY YOU THE CONTRACT VALUE AS
STATED ABOVE. AFTER THE CONTRACT IS RETURNED, IT WILL BE CONSIDERED AS
NEVER IN EFFECT.
This Contract is issued in consideration of the Purchase Payments. It
is subject to the terms and conditions stated on the attached pages,
all of which are a part of it.
Executed at Hartford, Connecticut
[sig]
President
This is a legal Contract between You and Us. READ YOUR CONTRACT CAREFULLY.
FLEXIBLE PREMIUM INDIVIDUAL DEFERRED VARIABLE ANNUITY CONTRACT
LIFE ANNUITY COMMENCING AT MATURITY DATE
ELECTIVE OPTIONS NON-PARTICIPATING
ANNUITY PAYMENTS AND OTHER VALUES PROVIDED BY THIS CONTRACT, WHEN BASED
ON THE INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT, ARE VARIABLE AND
ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT.
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TABLE OF CONTENTS
[Right to Examine this Contract Cover Page
Contract Specifications Page 3
Definitions Page 5
Owner, Beneficiary and Annuitant Provisions Page 7
Purchase Payment and Valuation Provisions Page 9
Death Benefit Provisions Page 11
Settlement Provisions Page 12
General Provisions Page 13
Annuity Tables Page 16]
Any Amendments, Riders or Endorsements follow the Annuity Tables.
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CONTRACT SPECIFICATIONS
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CONTRACT NUMBER [SPECIMEN]
OWNER [JOHN DOE]
[JOINT OWNER] [ ]
ANNUITANT [JOHN DOE]
[CONTINGENT ANNUITANT] [SUSAN DOE]
CONTRACT DATE [FEBRUARY 1, 1998]
MATURITY DATE [DECEMBER 31, 2015]
[INITIAL PURCHASE PAYMENT] [$25,000.00]
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MINIMUM PURCHASE PAYMENT: $25,000
MINIMUM SUBSEQUENT PURCHASE PAYMENT: $500
MAXIMUM PURCHASE PAYMENT WITHOUT OUR APPROVAL: $1,000,000
SEPARATE ACCOUNT: [THE TRAVELERS SEPARATE ACCOUNT TM II FOR VARIABLE ANNUITIES
FUNDING OPTIONS:
<TABLE>
<S> <C>
The Travelers Series Trust: Capital Appreciation Fund
Equity Income Portfolio Cash Income Trust
Federated High Yield Portfolio Travelers Series Fund Inc.:
Federated Stock Portfolio Alliance Growth Portfolio
Large Cap Portfolio MFS Total Return Portfolio
Lazard International Stock Portfolio Putnam Diversified Income Portfolio]
Mid Cap Disciplined Equity Fund
Travelers Quality Bond Portfolio
</TABLE>
FUNDING OPTION DEDUCTIONS:
The Administrative Charge and the Mortality and Expense Risk Charge result in a
daily deduction of .00004658 per Funding Option. When expressed on an annual
basis, the daily deduction equals 1.70% per Funding Option.
ADMINISTRATIVE CHARGE: .15% on an annual basis
MORTALITY AND EXPENSE RISK CHARGE: 1.55% on an annual basis]
CONTRACT FEE: $40.00 annually assessed on the [fourth Friday of August.]
This fee will not be assessed under the following situations:
a) if Your Contract Value is $50,000 or greater on the date the
charge is assessed;
b) distribution of proceeds due to death; or
c) after an Annuity payout has begun.
WITHDRAWAL CHARGES DEDUCTED ON SURRENDER: 0%
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TRANSFER CHARGE: [$0]
We reserve the right to assess a Transfer Charge of up to $10.00 on transfers
exceeding [12] per year. We will notify You In Writing at Your last known
address at least 31 day's prior to the imposition of any such Transfer Charge.
ASSUMED DAILY NET INVESTMENT FACTOR:
Upon annuitization, the Assumed Daily Net Investment Factor is 1.000081 for each
Funding Option.
TERMINATION: We reserve the right to terminate this Contract when the Contract
Value is less than $2,000 and no Purchase Payments have been made for two years.
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DEFINITIONS
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ACCUMULATION UNIT - an accounting unit of measure used to calculate the value of
this Contract before Annuity payments begin.
AGE - age last birthday.
ANNUITANT - the person on whose life the Maturity Date and Annuity payments
depend.
ANNUITY UNIT - an accounting unit of measure used to calculate the amount of
Annuity Payments.
CODE - the Internal Revenue Code of 1986, as amended, and all related laws and
regulations which are in effect during the term of this Contract.
CONTRACT - a Contract which describes the benefits, rights and obligations of
the Owner and Us.
CONTRACT DATE - the date on which the Contract is issued.
CONTRACT YEARS - twelve month periods beginning with the Contract Date.
DEATH REPORT DATE - the Valuation Date coincident with or next following the day
on which We have received 1) Due Proof of Death and 2) a Written Request for an
election of a single sum payment or an alternate Settlement Option as described
in the Contract.
DUE PROOF OF DEATH - (i) a copy of a certified death certificate; (ii) a copy of
a certified decree of a court of competent jurisdiction as to the finding of
death; (iii) a written statement by a medical doctor who attended the deceased;
or (iv) any other proof satisfactory to Us.
FUNDING OPTIONS - the Underlying Funds available under the Separate Account for
this Contract.
MATURITY DATE - the date on which the Annuity payments are to begin.
NONQUALIFIED CONTRACT - a Contract other than a Qualified Contract.
OUR OFFICE - the Home Office of The Travelers Life and Annuity Company or any
other office which We may designate for the purpose of administering this
Contract.
PREMIUM TAX - the amount of tax, if any, charged by a state or municipality. We
will deduct any applicable Premium Tax from the Contract Value either upon
surrender, annuitization, death, or at the time a Purchase Payment is made, but
no earlier than when We have the liability under state law.
PURCHASE PAYMENTS - payments of premium You make to Us under this Contract.
QUALIFIED CONTRACT - a Contract used in a retirement plan or program whereby the
Purchase Payments and any gains are intended to qualify under Sections 401, 403,
408, 414(d) or 457 of the Code.
RECORDED - a Written Request is Recorded when the information is noted in Our
file for this Contract.
SEPARATE ACCOUNT- the Separate Account indicated in the Contract Specifications
which We established for this class of Contracts and certain other Contracts.
TERMINATION - discontinuance of this Contract by Us or by Your Written Request.
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UNDERLYING FUND - an open-end diversified management investment company or
portfolio thereof, indicated in the Contract Specifications, which serves as a
variable investment option under the Separate Account.
VALUATION DATE -a date on which a Funding Option is valued, which is every day
the New York Stock Exchange is open for trading (except for when trading is
restricted due to an emergency as defined by the Securities and Exchange
Commission.)
VALUATION PERIOD - the period beginning at the close of business of the New York
Stock Exchange on each Valuation Date and ending at the close of business for
the next succeeding Valuation Date. Also referred to as the period between
successive valuations.
WE, US, OUR - The Travelers Life and Annuity Company.
WRITTEN REQUEST - written information including requests for Contract changes
sent to Us in a form and content satisfactory to Us and received at Our Office.
YOU, YOUR - the Owner, including a Joint Owner.
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OWNER, BENEFICIARY AND ANNUITANT PROVISIONS
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OWNER
This Contract belongs to the Owner shown in the Contract Specifications or to
any person subsequently named in a Written Request of Transfer of Ownership as
provided below. As Owner, You have sole power during the Annuitant's lifetime to
exercise any rights and to receive all benefits given in this Contract provided
You have not named an irrevocable Beneficiary and provided the Contract is not
assigned.
You will be the recipient of all payments while the Annuitant is alive unless
You direct them to an alternate recipient under a Recorded payment direction. An
alternate recipient under a payment direction does not become the Owner. A
payment direction is revocable by You at any time by Written Request giving 30
days' advance notice.
JOINT OWNER
Joint Owners may be named in a Written Request prior to the Contract Date. Joint
Owners may independently exercise transfers between accounts. All other rights
of ownership must be exercised by Joint action. Joint Owners own equal shares of
any benefits accruing or payments made to them. All rights of a Joint Owner end
at death if another Joint Owner survives. The entire interest of the deceased
Joint Owner in this Contract will pass to the surviving Joint Owner.
If a Joint Owner dies before payment of an Annuity Option begins and is survived
by the Annuitant, any surviving Joint Owner is the "designated beneficiary"
referred to in Section 72(s) of the Code, and his or her rights pre-empt those
of the Beneficiary named in a Written Request.
TRANSFER OF OWNERSHIP
You may transfer ownership by Written Request. You may not revoke any transfer
after the effective date of such transfer. Once the Transfer of Ownership is
Recorded by Us, it will take effect as of the date of Your Request, subject to
any payments made or other actions taken by Us before the recording.
Unless provided otherwise, a Transfer of Ownership does not affect the interest
of any Beneficiary designated prior to the effective date of the transfer.
A Transfer of Ownership may have adverse tax consequences to You as the former
Owner; please consult Your tax advisor.
ASSIGNMENT
You may collaterally assign ownership, of all or a portion of this Contract by
Written Request without the approval of any Beneficiary unless irrevocably
named. You may not exercise any rights of ownership while the assignment remains
in effect without the approval of the collateral assignee. We are not
responsible for the validity of any Assignment. Once the collateral Assignment
is Recorded by Us, it will take effect as of the date of Your Written Request,
subject to any payments made or other actions taken by Us before the Request is
received.
If a claim is made based on an Assignment, We may require proof of interest of
the claimant. A Recorded Assignment takes precedence over any rights of a
Beneficiary. Any amounts due under a Recorded assignment will be paid in a
single sum.
An Assignment may have adverse tax consequences to You; please consult Your tax
advisor.
CREDITOR CLAIMS
To the extent permitted by law, no right or benefit of the Owner or Beneficiary
under this Contract shall be subject to the claims of creditors or any legal
process except as may be provided by an assignment.
BENEFICIARY
The Beneficiary is the party named in a Written Request. The Beneficiary has the
right to receive any remaining Contractual benefits upon the death of the
Annuitant, or under certain circumstances, upon the death of the Owner. If there
is more than one Beneficiary surviving the Annuitant, the Beneficiaries will
share equally in benefits unless different shares are Recorded with Us by
Written Request prior to the death of the Annuitant.
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If a Joint Owner dies before payment of an Annuity Option begins and is survived
by the Annuitant, any surviving Joint Owner is the "designated beneficiary"
referred to in Section 72(s) of the Code, and his or her rights pre-empt those
of the Beneficiary named in a Written Request.
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.
Once a change in Beneficiary is Recorded by Us, it will take effect as of the
date of the Written Request, subject to any payments made or other actions taken
by Us before the recording.
If no Beneficiary has been named by You, or if no Beneficiary is living when the
Annuitant dies, the interest of any Beneficiary will pass:
a) if You are living, to You; or
b) if You have died and there is a surviving Joint Owner, to the Joint
Owner; or
c) if You have died and there is not a Joint Owner surviving, to Your
estate.
ANNUITANT
The Annuitant is the individual shown in the Contract Specifications on whose
life Annuity payments are based. The Annuitant may not be changed after the
Contract Date.
CONTINGENT ANNUITANT
You may name one individual as a Contingent Annuitant by Written Request prior
to the Contract Date. A Contingent Annuitant may not be changed, deleted or
added to the Contract after the Contract Date. For purposes of this provision
the Owner cannot be the Annuitant.
If the Annuitant dies prior to the Maturity Date while this Contract is in
effect and while the Contingent Annuitant is living:
a) the death benefit will not be payable upon the Annuitant's death; and
b) the Contingent Annuitant becomes the Annuitant; and
c) all other rights and benefits provided by this Contract will continue
in effect.
When a Contingent Annuitant becomes the Annuitant, the Maturity Date remains the
same as previously in effect, unless otherwise provided.
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PURCHASE PAYMENT AND VALUATION PROVISIONS
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PURCHASE PAYMENT
PURCHASE PAYMENT
A Purchase Payment is any payment You make for this Contract and the benefits it
provides. An initial lump sum Purchase Payment must be made to the Contract and
is due and payable before the Contract becomes effective. Each Purchase Payment
is payable as shown in the Contract Specifications to Us at Our Office or to one
of Our authorized representatives. No Purchase Payment after the initial
Purchase Payment is required to continue this Contract in force, except as
provided in the Termination provision.
Net Purchase Payments are that part of Your Purchase Payments applied to the
Contract Value. A net Purchase Payment is equal to the Purchase Payment less any
applicable Premium Tax.
ALLOCATION OF PURCHASE PAYMENT
We will apply any net Purchase Payment to provide Accumulation Units of selected
Funding Options of this Contract. The Purchase Payment will be applied within
two business days following its receipt at Our Office. The net Purchase Payment
will be allocated to the Funding Options in the proportion specified by You for
this Contract. The available Underlying Funds to which Funding Option assets are
allocated are shown in the Contract Specifications; Underlying Funds may be
subsequently added or deleted.
FUNDING OPTION VALUATION
NUMBER OF ACCUMULATION UNITS
The number of Accumulation Units to be credited to each Funding Option once a
Purchase Payment has been received by Us will be determined by dividing the net
Purchase Payment applied to that Funding Option by the then Accumulation Unit
Value of that Funding Option.
ACCUMULATION UNIT VALUE
We determine the value of an Accumulation Unit in each Funding Option on each
Valuation Date by multiplying the value on the preceding Valuation Date by the
net investment factor for that Funding Option for the Valuation Period just
ended.
The value of an Accumulation Unit on any date other than a Valuation Date will
be equal to its value as of the next Valuation Date.
NET INVESTMENT FACTOR
The net investment factor is a factor applied 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 1.0000 plus the net investment rate.
Each Funding Option's net investment rate for a Valuation Period is equal to the
gross investment rate for that Funding Option, less the applicable Funding
Option deduction for the Valuation Period.
All Funding Option deductions are shown in the Contract Specifications.
The gross investment rate of a Funding Option for a Valuation Period is equal to
(1) divided by (2):
where (1) is:
a) investment income, plus
b) capital gains and losses, whether realized or unrealized, less
c) a deduction for any tax levied against the Separate Account and its
Underlying Funds;
and (2) is the amount of the assets at the beginning of the Valuation Period.
The gross investment rate is based on the net asset value of the Underlying Fund
and may be either positive or negative. Investment income includes any
distribution whose ex-dividend date occurs during the Valuation Period.
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TRANSFER BETWEEN FUNDING OPTIONS
You may transfer all or any part of the Contract Value from one Funding Option
to any other Funding Option at any time up to [30] days before the due date of
the first Annuity payment. We reserve the right to limit the number of transfers
from one Funding Option to any other Funding Option. We will always allow at
least one transfer in any six month period.
Transfers between Funding Options will result in the addition or deletion of
Accumulation Units having a total value equal to the dollar amount being
transferred to or from a particular Funding Option. The number of Accumulation
Units will be determined by using the Accumulation Unit Value of the Funding
Options involved as of the next Valuation Date after We receive notification of
request for transfer. Transfers will be subject to any applicable Transfer
Charge stated in the Contract Specifications.
CONTRACT VALUES
CONTRACT VALUE
The Contract Value on any date equals the sum of the accumulated values in the
Funding Options. The accumulated value in a Funding Option equals the number of
outstanding Accumulation Units credited to that Funding Option, multiplied by
the then current Accumulation Unit Value for that Funding Option.
CONTRACT FEE
A Contract Fee in the amount and for the period shown in the Contract
Specifications will be deducted from the Contract Value to reimburse Us for
administrative expenses relating to the Contract. The Contract Fee will be
deducted by surrendering on a pro rata basis Accumulation Units from all Funding
Options in which You have an interest.
We will deduct the charge on a pro rata basis if the Contract has been in effect
for less than a full period on the date a Contract Fee is deducted. The Contract
Fee will also be prorated upon full surrender or Termination of the Contract.
CASH SURRENDER VALUE
The Cash Surrender Value is equal to the Contract Value less any applicable
charges, fees or taxes deducted upon surrender.
CASH SURRENDER
You may elect by Written Request to receive the Cash Surrender Value before the
due date of the first Annuity payment and without the consent of any Beneficiary
unless irrevocably named. In the case of a full surrender, this Contract will be
canceled. A partial surrender will reduce Your Contract Value. If You have a
balance in more than one Funding Option, Your Contract Value will be reduced
from all Your Funding Options on a pro rata basis, unless You request otherwise.
The Cash Surrender Value will be determined as of the next Valuation Date
following receipt of Your Written Request. We may delay payment of the Cash
Surrender Value of the Funding Options for a period of not more than five
business days after We receive Your Written Request.
CONTRACT CONTINUATION
Except as provided in the Termination provision, this Contract does not require
continuing Purchase Payments and will automatically continue as a paid-up
Contract during the lifetime of the Annuitant until the Maturity Date, or until
it is surrendered.
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DEATH BENEFIT PROVISIONS
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DEATH OF ANNUITANT
A death benefit is payable to the Beneficiary upon the death of the Annuitant
before the Maturity Date, unless there is a Contingent Annuitant surviving. A
death benefit is also payable under those Settlement Options which provide for
death benefits. We will pay the Beneficiary the death benefit in a single sum as
described below upon receiving Due Proof of Death. A Beneficiary may request
that a death benefit payable under this Contract be applied to a Settlement
Option subject to the provisions of this Contract and the current tax laws.
DEATH OF OWNER WITH ANNUITANT SURVIVING
If the Owner is not the Annuitant, and the Owner (including the first of Joint
Owners) dies before the Maturity Date with the Annuitant surviving, We will
recalculate the value of the death benefit under the provisions of Death
Proceeds Prior To The Maturity Date below; by replacing all references to
"Annuitant" with "Owner." The value of the death benefit, as recalculated, will
be paid in a single lump sum or by other election to the party taking proceeds
under the current tax laws. The party must take distributions no later than
under the applicable elections of that provision.
DEATH PROCEEDS PRIOR TO THE MATURITY DATE
If the Annuitant dies before Age 80 and before the Maturity Date, We will pay
the Beneficiary the greater of a) or b) below, less any applicable Premium Tax
as of the Death Report Date:
a) the Contract Value on the Death Report Date; or
b) the total Purchase Payments less the total amount of any partial
surrenders (including associated charges, if any) made under this
Contract.
We must be notified of the Annuitant's death no later than six months from the
Annuitant's date of death in order for Us to make payment of death proceeds as
described above. If notification is received more than six months after the
Annuitant's death, We will make payment of death proceeds equal to the Contract
Value on the Death Report Date less any applicable Premium Tax.
If the Annuitant dies on or after Age 80 and before the Maturity Date, We will
pay the Beneficiary the Contract Value on the Death Report Date less any
applicable Premium Tax.
DEATH PROCEEDS AFTER THE MATURITY DATE
If the Annuitant dies on or after the Maturity Date, We will pay the Beneficiary
a death benefit consisting of any benefit remaining under the Annuity option
then in effect.
INTEREST ON DEATH PROCEEDS
Any interest on death proceeds will be paid in accordance with rules in effect
in Your state at the time of death.
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SETTLEMENT PROVISIONS
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MATURITY DATE
The Maturity Date is shown in the Contract Specifications. This is the date on
which We will begin paying to You the first of a series of Annuity payments in
accordance with an Annuity Option elected by You. Annuity payments will begin
under this Contract on the Maturity Date unless the Contract has been fully
surrendered or the proceeds have been paid to the Beneficiary prior to that
date. We may require proof that the Annuitant is alive before Annuity payments
are made. If no Maturity Date is specified, the automatic Maturity Date will be
the greater of when the Annuitant reaches Age 90 or ten years after the Contract
Date.
Additionally, to the extent permitted by law, at least 30 days before the
original Maturity Date, You may change the Maturity Date by Written Request to
any time prior to the Annuitant's 90th birthday, or to a later date with our
consent.
ELECTION OF SETTLEMENT OPTIONS
On the Maturity Date, or other agreed upon date, We will pay the amount payable
under this Contract to You in one lump sum or in accordance with an Annuity
Option elected by You. While the Annuitant is alive, You may change Your
Settlement Option election by Written Request, but only before the Maturity
Date. We reserve the right to require satisfactory proof of the Age of any
person on whose life Annuity payments are based before making the first payment
under any Annuity Option.
During the Annuitant's lifetime, if no election has been made on the Maturity
Date, We will pay You the first of a series of periodic Annuity payments based
on the life of the Annuitant, in accordance with Annuity Option 2, with 120
monthly payments assured.
Once Annuity payments have commenced, no election changes are allowed.
MINIMUM AMOUNTS
The minimum amount that can be placed under a Settlement Option is $2,000 unless
We consent to a lesser amount. If any periodic payments due are less than $100,
We reserve the right to change the frequency to an interval resulting in a
payment of at least $100.00 per year. We may make other arrangements that are
equitable to the Annuitant.
ALLOCATION OF ANNUITY
At the time an election of one of the Annuity Options is made, the person
electing the option may elect to have the Cash Surrender Value applied to
provide a Variable Annuity, a Fixed Annuity or a combination of both.
If no election is made to the contrary, the value of a Funding Option will be
applied when Annuity payments start to provide an Annuity which varies with the
investment experience of that same Funding Option.
You may elect to transfer Contract Value from one Funding Option to another, as
described in the provision Transfer Between Funding Options, in order to
reallocate the basis on which Annuity payments will be determined. Once Annuity
payments start, You may, with Our consent, change the allocation of Your values
in each Funding Option.
VARIABLE ANNUITY
AMOUNT OF FIRST PAYMENT
The Life Annuity Tables are used to determine the first monthly Annuity payment.
They show the dollar amount of the first monthly Annuity payment which can be
purchased with each $1,000 applied. The amount applied to a Variable Annuity
will be the Cash Surrender Value as of [14] days before the date Annuity
payments start.
ANNUITY UNIT VALUE
On any Valuation Date, the Annuity Unit Value for a Funding Option equals the
Funding Option Annuity Unit Value on the preceding Valuation Date, multiplied by
the net investment factor for that Funding Option for the Valuation Period just
ended, divided by the Assumed Daily Net Investment Factor. The Assumed Daily Net
Investment Factor is shown in the Contract Specifications. The Value of an
Annuity Unit on any date other than a Valuation Date will be equal to its value
as of the next Valuation Date.
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NUMBER OF ANNUITY UNITS
We determine the number of Annuity Units credited to this Contract in each
Funding Option by dividing the first monthly Annuity payment attributable to
that Funding Option by the Funding Option's Unit Value as of 14 days before the
due date of the first Annuity payment.
AMOUNT OF SECOND AND SUBSEQUENT PAYMENTS
The dollar amount of the second and subsequent payments may change from month to
month. The amount of the Annuity payment for each Funding Option is found by
multiplying the number of Annuity Units credited to the Contract for that
Funding Option by the Annuity Unit Value for that Funding Option. The total
amount of each Annuity Payment will be equal to the sum of the payments in each
Funding Option.
FIXED ANNUITY
A Fixed Annuity is an Annuity with payments which remain fixed as to dollar
amount throughout the payment period. The Life Annuity Tables are used to
determine the monthly Annuity payment. They show the dollar amount of monthly
Annuity payments which can be purchased with each $1,000 applied. The amount
applied to a Fixed Annuity will be the Cash Surrender Value applicable to the
Fixed Annuity as of the day Fixed Annuity payments begin. If it would produce a
larger payment, the Fixed Annuity payment will be determined using the Life
Annuity Tables in effect on the Maturity Date.
ANNUITY OPTIONS
Subject to conditions stated in Elections Of Settlement Options and Minimum
Amounts, all or any part of the Cash Surrender Value of this Contract may be
paid under one or more of the Annuity Options below. We may offer additional
options.
OPTION 1. LIFE ANNUITY - NO REFUND
We will make periodic Annuity payments during the lifetime of the person on
whose life the payments are based, ending with the last payment preceding death.
OPTION 2. LIFE ANNUITY WITH 120, 180 OR 240 MONTHLY PAYMENTS ASSURED
We will make periodic Annuity payments during the lifetime of the person on
whose life the payments are based. If at the death of that person, payments have
been made for less than 120, 180, or 240 months, as elected, We will continue to
make payments to the designated Beneficiary during the remainder of the period.
OPTION 3. JOINT AND LAST SURVIVOR LIFE ANNUITY
We will make periodic Annuity payments during the Joint lifetime of two persons
on whose lives payments are based and during the lifetime of the survivor. No
more payments will be made after the death of the survivor.
OPTION 4. JOINT AND LAST SURVIVOR LIFE ANNUITY - ANNUITY REDUCED ON DEATH OF
PRIMARY PAYEE
We will make periodic Annuity payments during the Joint lifetime of two persons
on whose lives payments are based. One of the two persons will be designated as
the primary payee. The other will be designated as the secondary payee. On the
death of the secondary payee, if survived by the primary payee, We will continue
to make periodic Annuity payments to the primary payee in the same amount that
would have been payable during the Joint lifetime of the two persons. On the
death of the primary payee, if survived by the secondary payee, We will continue
to make periodic Annuity payments to the secondary payee in an amount equal to
50% of the payments which would have been made during the lifetime of the
primary payee. No further payments will be made following the death of the
survivor.
OPTION 5. PAYMENTS FOR A FIXED PERIOD
We will make periodic payments for the period selected.
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GENERAL PROVISIONS
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CONTRACT
The entire Contract between You and Us consists of the Contract, together with
the application, if a copy of such application is attached to the Contract when
issued and any Amendments, Riders or Endorsements.
CONTRACT CHANGES
The only way this Contract may be changed is by a written Amendment, Rider or
Endorsement signed by one of Our officers.
INCONTESTABILITY
We will not contest this Contract from the Contract Date.
MISSTATEMENT
If this Contract is issued as a Nonqualified Contract, and the Annuitant's (or,
if applicable, the Owner's) sex or date of birth was misstated, all benefits of
the Contract are what the Purchase Payment(s) paid would have purchased at the
correct sex and Age. Proof of the Annuitant's and Owner's Age may be filed at
any time at Our Office.
If this Contract is issued as a Qualified Contract, and the Annuitant's date of
birth was misstated, all benefits of the Contract are what the Purchase
Payment(s) paid would have purchased at the correct Age. Proof of the
Annuitant's Age may be filed at any time at Our Office.
SUBSTITUTION OF UNDERLYING FUNDS
If it is not possible to continue to offer an Underlying Fund, or in Our
judgment becomes inappropriate for the purposes of this Contract, We may
substitute another Underlying Fund without Your consent. Substitution may be
made with respect to both existing investments and investment of future Purchase
Payments. However, no such substitution will be made without notice to You and
without prior approval of the Securities and Exchange Commission, to the extent
required by law.
TERMINATION
We reserve the right to terminate this Contract on any Valuation Date as stated
in the Contract Specifications. Termination will not occur until 31 days after
We have mailed notice of Termination to You at Your last known address. If this
Contract is terminated, We will pay You the Cash Surrender Value, if any.
REQUIRED REPORTS
We will furnish a report to the Owner as often as required by law, but at least
once in each Contract Year before the due date of the first Annuity payment. The
report will show the number of Accumulation Units credited to the Contract in
each Funding Option and the corresponding Accumulation Unit Value as of the date
of the report.
VOTING RIGHTS
If required by federal law, You may have the right to vote at the meetings of
the shareholders of the Underlying Funds. If You have voting rights, We will
send a notice to You telling You the time and place of a meeting. The notice
will also explain matters to be voted upon and how many votes You may exercise.
MORTALITY AND EXPENSES
Our actual mortality and expense experience will not affect the amount of any
Annuity payments or any other values under this Contract.
NON-PARTICIPATING
This Contract does not share in Our surplus earnings, so You will receive no
dividends under it.
TAXES BASED UPON PREMIUM OR VALUE
If there is a law or change in law assessing taxes against Us based upon the
premium or value of this Contract, We reserve the right to charge You
proportionately for that tax. This would include, but is not limited to, a tax
based upon Our realized net capital gains in the Funding Options, on which We
are not currently taxed.
14
<PAGE> 15
CONFORMITY WITH STATE AND FEDERAL LAWS
This Contract is governed by the law of the state in which it is delivered. Any
paid-up Annuity, Cash Surrender Value or death benefits that are available under
this Contract are not less than the minimum benefits required by the statutes of
the state in which this Contract is delivered.
Upon receiving appropriate state approval, We may at any time make any changes,
including retroactive changes, in this Contract to the extent that the change is
required to meet the requirements of any law or regulation issued by a
governmental agency to which We or You are subject.
EMERGENCY PROCEDURE
We reserve the right to suspend or postpone the date of any payment of any
benefit or values for any Valuation Period (1) when the New York Stock Exchange
is closed; (2) when trading on the Exchange is restricted; (3) when an emergency
exists as determined by the Securities and Exchange Commission so that disposal
of the securities held in the Funding Options is not reasonably practicable or
it is not reasonably practicable to determine the value of the Funding Option's
net assets, or (4) during any other period when the Securities and Exchange
Commission, by order, so permits for the protection of security holders. Any
provision of this Contract which specifies a Valuation Date will be superseded
by this Emergency Procedure.
RELATION OF THIS CONTRACT TO THE SEPARATE ACCOUNT AND FUNDING OPTIONS
We will have exclusive and absolute ownership and control of the assets of Our
Separate Account and the Funding Options. That portion of the assets of a
Separate Account or Funding Option equal to the reserves and other Contract
liabilities with respect to such Separate Account or Funding Option shall not be
chargeable with liabilities arising out of any other business We conduct. Our
determination of the value of an Accumulation Unit and an Annuity Unit by the
method described in this Contract will be conclusive.
REDUCTION OR ELIMINATION OF CONTRACT CHARGES
All charges and fees under the Contract may be reduced or eliminated when
certain sales or administration of the Contract result in savings or reduction
of expenses, and/or risks.
TRANSFERS TO OTHER CONTRACTS ISSUED BY US
Under specific conditions, We may allow You to transfer funds held by You in
this Contract to another Contract issued by Us without incurring a Withdrawal
Charge as shown in the Contract Specifications. Once the transfer is complete
and We have established a new Contract at Your direction, new Withdrawal Charges
may apply to the new Contract in accordance with the provisions of such
Contract.
15
<PAGE> 16
LIFE ANNUITY TABLES
GUARANTEED AMOUNT OF MONTHLY ANNUITY PAYMENTS
PURCHASED WITH EACH $1,000 OF PROCEEDS APPLIED
OPTIONS 1 AND 2 - SINGLE LIFE ANNUITIES
THIS TABLE WILL BE USED FOR NONQUALIFIED CONTRACTS.
<TABLE>
<CAPTION>
MALE NUMBER OF MONTHLY PAYMENTS GUARANTEED
AGE NONE 120 180 240
<S> <C> <C> <C> <C>
45 3.67 3.65 3.64 3.61
46 3.72 3.70 3.68 3.65
47 3.77 3.75 3.73 3.70
48 3.82 3.80 3.78 3.74
49 3.88 3.86 3.83 3.79
50 3.94 3.92 3.89 3.84
51 4.00 3.98 3.94 3.89
52 4.07 4.04 4.00 3.95
53 4.14 4.11 4.07 4.00
54 4.21 4.18 4.13 4.06
55 4.29 4.25 4.20 4.12
56 4.37 4.33 4.27 4.18
57 4.46 4.41 4.34 4.24
58 4.55 4.49 4.42 4.30
59 4.65 4.58 4.50 4.36
60 4.75 4.68 4.58 4.43
61 4.86 4.78 4.67 4.49
62 4.98 4.88 4.75 4.56
63 5.10 5.00 4.85 4.63
64 5.24 5.11 4.94 4.69
65 5.38 5.24 5.04 4.76
66 5.54 5.36 5.13 4.83
67 5.70 5.50 5.23 4.89
68 5.87 5.64 5.34 4.95
69 6.06 5.78 5.44 5.01
70 6.26 5.93 5.54 5.07
71 6.47 6.09 5.64 5.12
72 6.69 6.24 5.74 5.17
73 6.93 6.41 5.84 5.22
74 7.18 6.58 5.94 5.26
75 7.45 6.75 6.04 5.30
</TABLE>
Dollar amounts of the monthly Annuity payments for the first and second options
are based on the 1983 Individual Annuitant Mortality Table A, projected to the
year 2015 using Projection Scale G, and a net investment rate of 3% per annum.
16
<PAGE> 17
LIFE ANNUITY TABLES
GUARANTEED AMOUNT OF MONTHLY ANNUITY PAYMENTS
PURCHASED WITH EACH $1,000 OF PROCEEDS APPLIED
OPTIONS 1 AND 2 - SINGLE LIFE ANNUITIES
THIS TABLE WILL BE USED FOR NONQUALIFIED CONTRACTS.
<TABLE>
<CAPTION>
FEMALE NUMBER OF MONTHLY PAYMENTS GUARANTEED
AGE NONE 120 180 240
<S> <C> <C> <C> <C>
45 3.43 3.43 3.42 3.41
46 3.47 3.47 3.46 3.45
47 3.51 3.51 3.50 3.48
48 3.55 3.55 3.54 3.52
49 3.60 3.59 3.58 3.56
50 3.65 3.64 3.63 3.61
51 3.70 3.69 3.67 3.65
52 3.75 3.74 3.72 3.70
53 3.81 3.79 3.78 3.75
54 3.86 3.85 3.83 3.80
55 3.93 3.91 3.89 3.85
56 3.99 3.97 3.95 3.91
57 4.06 4.04 4.01 3.96
58 4.13 4.11 4.08 4.02
59 4.21 4.18 4.14 4.08
60 4.29 4.26 4.22 4.15
61 4.38 4.34 4.29 4.21
62 4.47 4.43 4.37 4.28
63 4.57 4.52 4.46 4.35
64 4.67 4.62 4.54 4.42
65 4.78 4.72 4.63 4.49
66 4.90 4.83 4.73 4.56
67 5.02 4.94 4.82 4.64
68 5.16 5.07 4.93 4.71
69 5.31 5.19 5.03 4.78
70 5.46 5.33 5.14 4.86
71 5.63 5.47 5.25 4.93
72 5.81 5.62 5.36 5.00
73 6.01 5.78 5.48 5.06
74 6.22 5.95 5.59 5.12
75 6.45 6.12 5.71 5.18
</TABLE>
Dollar amounts of the monthly Annuity payments for the first and second options
are based on the 1983 Individual Annuitant Mortality Table A, projected to the
year 2015 using Projection Scale G, and a net investment rate of 3% per annum.
17
<PAGE> 18
LIFE ANNUITY TABLES
GUARANTEED AMOUNT OF MONTHLY ANNUITY PAYMENTS
PURCHASED WITH EACH $1,000 OF PROCEEDS APPLIED
OPTIONS 1, AND 2 - SINGLE LIFE ANNUITIES
THIS TABLE WILL BE USED FOR QUALIFIED CONTRACTS.
<TABLE>
<CAPTION>
UNISEX NUMBER OF MONTHLY PAYMENTS GUARANTEED
AGE NONE 120 180 240
<S> <C> <C> <C> <C>
45 3.55 3.54 3.53 3.51
46 3.60 3.59 3.57 3.55
47 3.64 3.63 3.62 3.60
48 3.69 3.68 3.66 3.64
49 3.74 3.73 3.71 3.68
50 3.80 3.78 3.76 3.73
51 3.85 3.84 3.81 3.78
52 3.91 3.89 3.87 3.83
53 3.97 3.95 3.92 3.88
54 4.04 4.02 3.98 3.93
55 4.11 4.08 4.05 3.99
56 4.18 4.15 4.11 4.05
57 4.26 4.23 4.18 4.11
58 4.34 4.30 4.25 4.17
59 4.43 4.39 4.33 4.23
60 4.52 4.47 4.40 4.30
61 4.62 4.56 4.49 4.36
62 4.73 4.66 4.57 4.43
63 4.84 4.76 4.66 4.50
64 4.96 4.87 4.75 4.57
65 5.08 4.98 4.84 4.63
66 5.22 5.10 4.94 4.70
67 5.36 5.23 5.04 4.77
68 5.52 5.36 5.14 4.84
69 5.68 5.49 5.24 4.91
70 5.86 5.64 5.35 4.97
71 6.05 5.79 5.46 5.03
72 6.25 5.94 5.56 5.09
73 6.47 6.10 5.67 5.15
74 6.70 6.27 5.78 5.20
75 6.95 6.45 5.88 5.25
</TABLE>
Dollar amounts of the monthly Annuity payments for the first and second options
are based on the 1983 Individual Annuitant Mortality Table A, projected to the
year 2015 using Projection Scale G, and a net investment rate of 3% per annum.
18
<PAGE> 19
LIFE ANNUITY TABLES
GUARANTEED AMOUNT OF MONTHLY ANNUITY PAYMENTS
PURCHASED WITH EACH $1,000 OF PROCEEDS APPLIED
THESE TABLES WILL BE USED FOR NONQUALIFIED CONTRACTS.
OPTION 3 - JOINT AND LAST SURVIVOR LIFE ANNUITY
<TABLE>
<CAPTION>
MALE FEMALE AGE
AGE 45 50 55 60 65 70 75
<S> <C> <C> <C> <C> <C> <C> <C>
45 3.25 3.34 3.42 3.49 3.54 3.58 3.61
50 3.30 3.42 3.53 3.64 3.73 3.80 3.85
55 3.34 3.48 3.64 3.78 3.92 4.04 4.13
60 3.37 3.54 3.72 3.92 4.12 4.30 4.45
65 3.39 3.58 3.79 4.04 4.30 4.57 4.82
70 3.41 3.60 3.84 4.13 4.46 4.82 5.20
75 3.42 3.62 3.87 4.19 4.58 5.04 5.55
</TABLE>
OPTION 4 - JOINT AND LAST SURVIVOR LIFE ANNUITY
REDUCED 50% ON DEATH OF PRIMARY PAYEE
AGE OF PRIMARY MALE
AND SECONDARY FEMALE DOLLAR AMOUNT
45 3.44
50 3.66
55 3.94
60 4.30
65 4.78
70 5.45
75 6.36
Dollar amounts of the monthly Annuity payments for the third and fourth options
are based on the 1983 Individual Annuitant Mortality Table A, projected to the
year 2015 using Projection Scale G, and a net investment rate of 3% per annum.
19
<PAGE> 20
LIFE ANNUITY TABLES
GUARANTEED AMOUNT OF MONTHLY ANNUITY PAYMENTS
PURCHASED WITH EACH $1,000 OF PROCEEDS APPLIED
THESE TABLES WILL BE USED FOR QUALIFIED CONTRACTS.
OPTION 3 - JOINT AND LAST SURVIVOR LIFE ANNUITY
<TABLE>
<CAPTION>
UNISEX
AGE 45 50 55 60 65 70 75
<S> <C> <C> <C> <C> <C> <C> <C>
45 3.26 3.33 3.39 3.44 3.48 3.50 3.52
50 3.33 3.43 3.52 3.60 3.66 3.71 3.74
55 3.39 3.52 3.65 3.77 3.87 3.95 4.01
60 3.44 3.60 3.77 3.94 4.10 4.23 4.34
65 3.48 3.66 3.87 4.10 4.33 4.54 4.72
70 3.50 3.71 3.95 4.23 4.54 4.86 5.15
75 3.52 3.74 4.01 4.34 4.72 5.15 5.60
</TABLE>
OPTION 4 - JOINT AND LAST SURVIVOR LIFE ANNUITY
REDUCED 50% ON DEATH OF PRIMARY PAYEE
AGE OF PRIMARY
AND SECONDARY UNISEX DOLLAR AMOUNT
45 3.40
50 3.60
55 3.87
60 4.21
65 4.68
70 5.31
75 6.20
Dollar amounts of the monthly Annuity payments for the third and fourth options
are based on the 1983 Individual Annuitant Mortality Table A, projected to the
year 2015 using Projection Scale G, and a net investment rate of 3% per annum.
20
<PAGE> 21
ANNUITY TABLES
GUARANTEED AMOUNT OF MONTHLY ANNUITY PAYMENTS
PURCHASED WITH EACH $1,000 OF PROCEEDS APPLIED
OPTION 5 - PAYMENTS FOR A FIXED PERIOD
THIS TABLE WILL BE USED FOR NONQUALIFIED AND QUALIFIED CONTRACTS.
<TABLE>
<CAPTION>
MONTHLY MONTHLY
NUMBER OF PAYMENT NUMBER OF PAYMENT
YEARS AMOUNT YEARS AMOUNT
<S> <C> <C> <C>
5 17.91 18 5.96
6 15.14 19 5.73
7 13.16 20 5.51
8 11.68 21 5.32
9 10.53 22 5.15
10 9.61 23 4.99
11 8.86 24 4.84
12 8.24 25 4.71
13 7.71 26 4.59
14 7.26 27 4.47
15 6.87 28 4.37
16 6.53 29 4.27
17 6.23 30 4.18
</TABLE>
The dollar amounts of the monthly Annuity payments for the fifth option are
based on a net investment rate of 3% per annum.
21
<PAGE> 22
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<PAGE> 23
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<PAGE> 24
FLEXIBLE PREMIUM INDIVIDUAL DEFERRED VARIABLE ANNUITY CONTRACT
LIFE ANNUITY COMMENCING AT MATURITY DATE
ELECTIVE OPTIONS NON-PARTICIPATING
<PAGE> 1
<TABLE>
<CAPTION>
[TRAVELERS LOGO] TRAVELERS MARQUIS PORTFOLIOS
The Travelers Life and Annuity Company
One Tower Square o Hartford, CT 06183-9061 DATA COLLECTION FORM
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
ISSUING COMPANY
- ------------------------------------------------------------------------------------------------------------------------------------
Check one: [ ] The Travelers Insurance Company ( NEED APPROPRIATE STATES TO LIST HERE )
[ ] The Travelers Life and Annuity Company (All other jurisdictions)
- ------------------------------------------------------------------------------------------------------------------------------------
OWNER INFORMATION (REFERS TO CONTRACT OR CERTIFICATE OWNER)
- ------------------------------------------------------------------------------------------------------------------------------------
Name Address
- ------------------------------------------------------------------------------------------------------------------------------------
Date of Birth (DOB)
- ------------------------------------------------------------------------------------------------------------------------------------
SS# Sex [ ] M [ ] F
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Citizen [ ] Y [ ] N Telephone (Daytime) ( ) -
- ------------------------------------------------------------------------------------------------------------------------------------
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)
- ------------------------------------------------------------------------------------------------------------------------------------
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)
- ------------------------------------------------------------------------------------------------------------------------------------
Name SS# DOB
- ------------------------------------------------------------------------------------------------------------------------------------
BENEFICIARY INFORMATION
- ------------------------------------------------------------------------------------------------------------------------------------
Full Name SS# DOB Relationship % ToReceive
- ------------------------------------------------------------------------------------------------------------------------------------
1.
- ------------------------------------------------------------------------------------------------------------------------------------
2.
- ------------------------------------------------------------------------------------------------------------------------------------
3.
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPTIONS
- ------------------------------------------------------------------------------------------------------------------------------------
AIM Capital Appreciation Portfolio % Salomon Brothers Investors Fund %
------- --------
Delaware Small Cap Value Series % Smith Barney High Income Portfolio %
------- --------
Delaware Investments REIT Series % Smith Barney Large Cap Growth Portfolio %
------- --------
Dreyfus Capital Appreciation Portfolio % Smith Barney Money Market Portfolio %
------- --------
Dreyfus Small Cap Portfolio % Strategic Stock Portfolio %
------- --------
Franklin Small Company Investments Fund % Strong Schafer Value Fund II %
------- --------
Jurika & Voyles Core Equity Portfolio % TBC Managed Income Portfolio %
------- --------
Large Cap Portfolio (Fidelity Sub-adviser) % Templeton Developing Markets Fund %
------- --------
Lazard International Stock Portfolio % Templeton International Fund %
------- --------
MFS Research Portfolio % Travelers Disciplined Mid Cap Stock Portfolio %
------- --------
Montgomery Variable Series: Growth Fund % Travelers Disciplined Small Cap %
------- --------
NWQ Large Cap Portfolio % Travelers U.S. Government Securities Portfolio %
------- --------
OpCap OCC Accumulation Trust Equity % Warburg Pincus Emerging Markets Portfolio %
Portfolio ------- --------
Other %
------------------------------------------------- --------
TOTAL 100%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
DOLLAR COST AVERAGING SYSTEMATIC WITHDRAWAL PURCHASE AMOUNT ($25,000 MINIMUM)
- ------------------------------------------------------------------------------------------------------------------------------------
[ ] Y [ ] N [ ] Y [ ] N Amount of Initial Purchase Payment:
--------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
TYPE OF PLAN REPLACEMENT INFORMATION
- ------------------------------------------------------------------------------------------------------------------------------------
[ ] Nonqualified [ ] 403(b) TSA Will the contract applied for replace any existing annuity
[ ] IRA Rollover/Transfer Rollover/Transfer contract or life insurance policy? [ ] Y [ ] N
[ ] Roth IRA Rollover/ [ ] Other, please specify: If Yes, specify company name and contract number in the
Transfer
---------------------
[ ] Roth IRA Conversion "Remarks" section below.
- ------------------------------------------------------------------------------------------------------------------------------------
DEATH BENEFIT [ ] Standard
[ ] Enhanced
- ------------------------------------------------------------------------------------------------------------------------------------
Remarks:
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
ACKNOWLEDGMENT
- ------------------------------------------------------------------------------------------------------------------------------------
I understand the certificate 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 CERTIFICATE 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 certificate 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 certificates, 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 certificate 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 or
application containing any false, incomplete or misleading information is guilty of a felony of the third degree.
- ------------------------------------------------------------------------------------------------------------------------------------
Owner's Signature Date
- ------------------------------------------------------------------------------------------------------------------------------------
Joint Owner's Signature Date
- ------------------------------------------------------------------------------------------------------------------------------------
City State Zip Code
- ------------------------------------------------------------------------------------------------------------------------------------
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
Please Include: Phone #: ( ) Fax #: ( )
----------------------------------------------------- --------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Representative's Name SS# License #
- ------------------------------------------------------------------------------------------------------------------------------------
Representative's Signature Date
- ------------------------------------------------------------------------------------------------------------------------------------
Broker/Dealer
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 10
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 under the heading "Experts" in the Statement of Additional Information.
KPMG Peat Marwick LLP
Hartford, Connecticut
June 9, 1998
