<PAGE> 1
ANNUAL REPORT
DECEMBER 31, 1998
THE TRAVELERS SEPARATE ACCOUNT TM II
FOR VARIABLE ANNUITIES
[TRAVELERS LIFE & ANNUITY LOGO]
The Travelers Insurance Company
The Travelers Life and Annuity Company
One Tower Square
Hartford, CT 06183
<PAGE> 2
THE TRAVELERS SEPARATE ACCOUNT TM II
FOR VARIABLE ANNUITIES
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C> <C>
Assets:
Investments in eligible funds at market value:
Delaware Group Premium Fund, Inc, 320,452 shares (cost $3,574,145) .................. $ 3,781,432
Dreyfus Variable Investment Fund, 366,470 shares (cost $15,441,599) ................. 16,648,209
OCC Accumulation Trust, 146,974 shares (cost $5,325,426) ............................ 5,687,883
Salomon Brothers Variable Series Funds Inc, 326,421 shares (cost $3,218,097) ........ 3,593,895
Strong Variable Insurance Funds, Inc, 277,860 shares (cost $2,478,598) .............. 2,800,825
Templeton Variable Products Series Fund, 649,855 shares (cost $6,857,560) ........... 7,307,854
The Montgomery Funds III, 93,497 shares (cost $1,320,776) ........................... 1,438,923
The Travelers Series Trust, 2,706,128 shares (cost $30,925,953) ..................... 32,871,057
Travelers Series Fund Inc, 26,788,183 shares (cost $61,324,667) ..................... 64,171,281
Warburg Pincus Trust, 108,010 shares (cost $860,830) ................................ 884,601
------------
Total Investments (cost $131,327,651) .......................................... $139,185,960
Receivables:
Dividends ........................................................................... 510,532
Purchase payments and transfers from other Travelers accounts ....................... 4,207,224
Other assets ............................................................................. 1,296
------------
Total Assets ................................................................... 143,905,012
------------
LIABILITIES:
Payables:
Contract surrenders and transfers to other Travelers accounts ....................... 932,801
Insurance charges ................................................................... 47,497
Administrative fees ................................................................. 4,428
------------
Total Liabilities .............................................................. 984,726
------------
NET ASSETS: ................................................................................... $142,920,286
============
</TABLE>
See Notes to Financial Statements
-1-
<PAGE> 3
THE TRAVELERS SEPARATE ACCOUNT TM II
FOR VARIABLE ANNUITIES
STATEMENT OF OPERATIONS
FOR THE PERIOD JULY 28, 1998 (DATE OPERATIONS COMMENCED) TO DECEMBER 31, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends ....................................................... $ 980,054
EXPENSES:
Insurance charges ............................................... $ 407,165
Administrative fees ............................................. 38,076
------------
Total expenses ............................................. 445,241
------------
Net investment income ................................. 534,813
------------
REALIZED GAIN (LOSS) AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold ............................. 389,499,288
Cost of investments sold ................................... 386,517,468
------------
Net realized gain (loss) .............................. 2,981,820
Unrealized gain (loss) on investments:
Unrealized gain at December 31, 1998 ....................... 7,858,309
------------
Net realized gain (loss) and unrealized gain (loss) ... 10,840,129
------------
Net increase in net assets resulting from operations ............ $ 11,374,942
============
</TABLE>
See Notes to Financial Statements
-2-
<PAGE> 4
THE TRAVELERS SEPARATE ACCOUNT TM II
FOR VARIABLE ANNUITIES
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD JULY 28, 1998 (DATE OPERATIONS COMMENCED) TO DECEMBER 31, 1998
<TABLE>
<S> <C>
OPERATIONS:
Net investment income ........................................... $ 534,813
Net realized gain (loss) from investment transactions ........... 2,981,820
Unrealized gain (loss) on investments ........................... 7,858,309
-------------
Net increase in net assets resulting from operations ....... 11,374,942
-------------
UNIT TRANSACTIONS:
Participant purchase payments
(applicable to 138,305,866 units) .......................... 132,280,431
Participant transfers from other Travelers accounts
(applicable to 430,013,960 units) .......................... 405,411,741
Administrative charges
(applicable to 119 units) .................................. (111)
Contract surrenders
(applicable to 672,124 units) .............................. (670,504)
Participant transfers to other Travelers accounts
(applicable to 427,375,544 units) .......................... (405,476,213)
-------------
Net increase in net assets resulting from unit transactions ..... 131,545,344
-------------
Net increase in net assets ................................. 142,920,286
NET ASSETS:
Beginning of period ............................................. --
-------------
End of period ................................................... $ 142,920,286
=============
</TABLE>
See Notes to Financial Statements
-3-
<PAGE> 5
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Travelers Separate Account TM II for Variable Annuities ("Separate Account
TM II") is a separate account of The Travelers Life and Annuity Company
("Travelers Life"), which is a wholly owned subsidiary of The Travelers
Insurance Company ("The Travelers"), an indirect wholly owned subsidiary of
Citigroup Inc. (formerly Travelers Group Inc.), and is available for funding
certain variable annuity contracts issued by Travelers Life. Separate Account TM
II is registered under the Investment Company Act of 1940, as amended, as a unit
investment trust.
Participant purchase payments applied to Separate Account TM II are invested in
one or more eligible funds in accordance with the selection made by the contract
owner. As of December 31, 1998, the eligible funds available under Separate
Account TM II were: U.S. Government Securities Portfolio, Lazard International
Stock Portfolio, Large Cap Portfolio, Disciplined Mid Cap Stock Portfolio,
Disciplined Small Cap Stock Portfolio, MFS Research Portfolio, Strategic Stock
Portfolio, Jurika & Voyles Core Equity Portfolio and NWQ Large Cap Portfolio of
The Travelers Series Trust; Smith Barney High Income Portfolio, Smith Barney
Money Market Portfolio, Smith Barney Large Capitalization Growth Portfolio, AIM
Capital Appreciation Portfolio and TBC Managed Income Portfolio of Travelers
Series Fund Inc. and Salomon Brothers Variable Investors Fund of Salomon
Brothers Variable Series Funds Inc. (all of which are managed by affiliates of
The Travelers); Franklin Small Cap Investments Fund (Class 2 shares), Templeton
Developing Markets Fund (Class 2 shares) and Templeton International Fund (Class
2 shares) of Templeton Variable Products Series Fund; Small Cap Portfolio and
Capital Appreciation Portfolio of Dreyfus Variable Investment Fund; REIT Series
and Small Cap Value Series of Delaware Group Premium Fund, Inc; Montgomery
Variable Series: Growth Fund of The Montgomery Funds III; Equity Portfolio of
OCC Accumulation Trust; Strong Schafer Value Fund II of Strong Variable
Insurance Funds, Inc. and Emerging Markets Portfolio of Warburg Pincus Trust.
All of the funds are Massachusetts business trusts, except for Travelers Series
Fund Inc., Salomon Brothers Variable Series Funds Inc. and Delaware Group
Premium Fund, Inc. which are incorporated under Maryland law; Strong Variable
Insurance Funds, Inc. which is a Wisconsin corporation and The Montgomery Funds
III which is a Delaware business trust. Not all funds may be available in all
states or to all contract owners.
The following is a summary of significant accounting policies consistently
followed by Separate Account TM II in the preparation of its financial
statements.
SECURITY VALUATION. Investments are valued daily at the net asset values per
share of the underlying funds.
SECURITY TRANSACTIONS. Security transactions are accounted for on the trade
date. Dividend income is recorded on the ex-dividend date.
FEDERAL INCOME TAXES. The operations of Separate Account TM II form a part of
the total operations of Travelers Life and are not taxed separately. Travelers
Life is taxed as a life insurance company under the Internal Revenue Code of
1986, as amended (the "Code"). Under existing federal income tax law, no taxes
are payable on the investment income of Separate Account TM II. Separate Account
TM II is not taxed as a "regulated investment company" under Subchapter M of the
Code.
OTHER. 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 expenses during the
reporting period. Actual results could differ from those estimates.
-4-
<PAGE> 6
NOTES TO FINANCIAL STATEMENTS - CONTINUED
2. INVESTMENTS
The aggregate costs of purchases and proceeds from sales of investments were
$517,845,116 and $389,499,288, respectively, for the period ended December 31,
1998. Realized gains and losses from investment transactions are reported on an
identified cost basis. The cost of investments in eligible funds was
$131,327,651 at December 31, 1998. Gross unrealized appreciation for all
investments at December 31, 1998 was $8,124,067. Gross unrealized depreciation
for all investments at December 31, 1998 was $265,758.
3. CONTRACT CHARGES
Insurance charges are paid for the mortality and expense risks assumed by
Travelers Life. For contracts with a standard death benefit provision, these
charges are equivalent to 1.55% of the average net assets of Separate Account TM
II on an annual basis. For contracts with an enhanced death benefit provision,
these charges are equivalent to 1.70% of the average net assets of Separate
Account TM II on an annual basis.
Administrative fees are paid for administrative expenses incurred by Travelers
Life. This charge is equivalent to 0.15% of the average net assets of Separate
Account TM II on an annual basis.
For contracts in the accumulation phase with a contract value less than $50,000,
an annual charge of $40 (prorated for partial periods) is deducted from
participant account balances and paid to Travelers Life to cover contract
administrative charges.
-5-
<PAGE> 7
NOTES TO FINANCIAL STATEMENTS - CONTINUED
4. NET CONTRACT OWNERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------------
ACCUMULATION UNIT NET
UNITS VALUE ASSETS
----- ----- ------
<S> <C> <C> <C>
Delaware Group Premium Fund, Inc.
REIT Series
Standard Death Benefit .............................. 1,203,931 $ 0.958 $ 1,153,491
Enhanced Death Benefit .............................. 737,088 0.957 705,757
Small Cap Value Series
Standard Death Benefit .............................. 997,680 1.005 1,002,951
Enhanced Death Benefit .............................. 945,867 1.005 950,264
Dreyfus Variable Investment Fund
Capital Appreciation Portfolio
Standard Death Benefit .............................. 3,607,198 1.080 3,894,165
Enhanced Death Benefit .............................. 2,235,635 1.079 2,411,970
Small Cap Portfolio
Standard Death Benefit ................................... 11,692,226 0.992 11,602,619
Enhanced Death Benefit .............................. 1,337,518 0.992 1,326,424
OCC Accumulation Trust
Equity Portfolio
Standard Death Benefit .............................. 2,145,584 1.013 2,172,492
Enhanced Death Benefit .............................. 3,539,272 1.012 3,581,371
Salomon Brothers Variable Series Funds Inc
Salomon Brothers Variable Investors Fund
Standard Death Benefit .............................. 2,216,940 1.036 2,297,846
Enhanced Death Benefit .............................. 1,268,600 1.036 1,314,059
Strong Variable Insurance Funds, Inc
Strong Schafer Value Fund II
Standard Death Benefit .............................. 1,223,602 1.035 1,266,918
Enhanced Death Benefit .............................. 1,493,135 1.035 1,545,008
Templeton Variable Products Series Fund
Franklin Small Cap Investments Fund (Class 2 shares)
Standard Death Benefit .............................. 1,140,671 1.072 1,222,415
Enhanced Death Benefit .............................. 1,065,535 1.071 1,141,163
Templeton Developing Markets Fund (Class 2 shares)
Standard Death Benefit .............................. 553,203 1.018 563,367
Enhanced Death Benefit .............................. 495,430 1.018 504,218
Templeton International Fund (Class 2 shares)
Standard Death Benefit .............................. 3,208,623 0.934 2,995,252
Enhanced Death Benefit .............................. 2,007,980 0.933 1,873,274
</TABLE>
-6-
<PAGE> 8
NOTES TO FINANCIAL STATEMENTS - CONTINUED
4. NET CONTRACT OWNERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------------
ACCUMULATION UNIT NET
UNITS VALUE ASSETS
----- ----- ------
<S> <C> <C> <C>
The Montgomery Funds III
Montgomery Variable Series: Growth Fund
Standard Death Benefit .............................. 707,170 $ 1.034 $ 731,562
Enhanced Death Benefit .............................. 711,899 1.034 736,008
The Travelers Series Trust
Jurika & Voyles Core Equity Portfolio
Standard Death Benefit .............................. 688,244 1.120 770,827
Enhanced Death Benefit .............................. 211,666 1.119 236,939
Large Cap Portfolio
Standard Death Benefit .............................. 2,626,893 1.124 2,951,954
Enhanced Death Benefit .............................. 2,924,400 1.123 3,284,141
Lazard International Stock Portfolio
Standard Death Benefit .............................. 5,353,658 0.923 4,940,941
Enhanced Death Benefit .............................. 4,798,972 0.922 4,426,008
MFS Research Portfolio
Standard Death Benefit .............................. 1,147,635 1.036 1,189,468
Enhanced Death Benefit .............................. 1,181,631 1.036 1,223,916
NWQ Large Cap Portfolio
Standard Death Benefit .............................. 2,138,258 0.985 2,106,668
Enhanced Death Benefit .............................. 1,602,093 0.985 1,577,402
Strategic Stock Portfolio
Standard Death Benefit .............................. 1,617,601 0.998 1,613,956
Enhanced Death Benefit .............................. 1,341,879 0.997 1,337,993
Disciplined Mid Cap Stock Portfolio
Standard Death Benefit .............................. 1,803,332 1.102 1,987,371
Enhanced Death Benefit .............................. 1,019,641 1.101 1,122,984
Disciplined Small Cap Stock Portfolio
Standard Death Benefit .............................. 573,554 0.994 570,354
Enhanced Death Benefit .............................. 411,984 0.994 409,425
US Government Securities Portfolio
Standard Death Benefit .............................. 2,467,008 1.046 2,580,359
Enhanced Death Benefit .............................. 1,161,742 1.045 1,214,345
</TABLE>
-7-
<PAGE> 9
NOTES TO FINANCIAL STATEMENTS - CONTINUED
4. NET CONTRACT OWNERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------------
ACCUMULATION UNIT NET
UNITS VALUE ASSETS
----- ----- ------
<S> <C> <C> <C>
Travelers Series Fund Inc
AIM Capital Appreciation Portfolio
Standard Death Benefit .............................. 2,829,493 $ 1.074 $ 3,037,479
Enhanced Death Benefit .............................. 2,034,539 1.073 2,182,695
Smith Barney Money Market Portfolio
Standard Death Benefit .............................. 16,945,764 1.013 17,170,292
Enhanced Death Benefit .............................. 5,361,023 1.013 5,428,571
Smith Barney High Income Portfolio
Standard Death Benefit .............................. 4,153,841 0.949 3,943,597
Enhanced Death Benefit .............................. 2,336,688 0.949 2,216,995
Smith Barney Large Capitalization Growth Portfolio
Standard Death Benefit .............................. 5,546,493 1.165 6,459,447
Enhanced Death Benefit .............................. 4,295,306 1.164 4,999,136
TBC Managed Income Portfolio
Standard Death Benefit .............................. 9,136,205 0.997 9,112,331
Enhanced Death Benefit .............................. 8,972,968 0.997 8,943,510
Warburg Pincus Trust
Emerging Markets Portfolio
Standard Death Benefit .............................. 617,918 0.843 520,716
Enhanced Death Benefit .............................. 436,823 0.842 367,872
------------ ------------ ------------
Net Contract Owners' Equity ................................... $142,920,286
============
</TABLE>
-8-
<PAGE> 10
NOTES TO FINANCIAL STATEMENTS - CONTINUED
5. STATEMENT OF INVESTMENTS
<TABLE>
<CAPTION>
INVESTMENT OPTIONS NO. OF MARKET
SHARES VALUE
----------- -----------
<S> <C> <C>
DELAWARE GROUP PREMIUM FUND, INC. (2.7%)
REIT Series (Cost $1,799,541) ............................................. 202,722 $ 1,844,767
Small Cap Value Series (Cost $1,774,604) .................................. 117,730 1,936,665
----------- -----------
Total (Cost $3,574,145) .............................................. 320,452 3,781,432
----------- -----------
DREYFUS VARIABLE INVESTMENT FUND (12.0%)
Capital Appreciation Portfolio (Cost $5,750,986) .......................... 174,618 6,305,464
Small Cap Portfolio (Cost $9,690,613) ..................................... 191,852 10,342,745
----------- -----------
Total (Cost $15,441,599) ............................................. 366,470 16,648,209
----------- -----------
OCC ACCUMULATION TRUST (4.1%)
Equity Portfolio
Total (Cost $5,325,426) .............................................. 146,974 5,687,883
----------- -----------
SALOMON BROTHERS VARIABLE SERIES FUNDS INC. (2.6%)
Salomon Brothers Variable Investors Fund
Total (Cost $3,218,097) .............................................. 326,421 3,593,895
----------- -----------
STRONG VARIABLE INSURANCE FUNDS, INC. (2.0%)
Strong Schafer Value Fund II
Total (Cost $2,478,598) .............................................. 277,860 2,800,825
----------- -----------
TEMPLETON VARIABLE PRODUCTS SERIES FUND (5.2%)
Franklin Small Cap Investments Fund (Class 2 shares) (Cost $2,036,513) .... 253,979 2,344,230
Templeton Developing Markets Fund (Class 2 shares) (Cost $919,295) ........ 206,286 1,056,184
Templeton International Fund (Class 2 shares) (Cost $3,901,752) ........... 189,590 3,907,440
----------- -----------
Total (Cost $6,857,560) .............................................. 649,855 7,307,854
----------- -----------
THE MONTGOMERY FUNDS III (1.0%)
Montgomery Variable Series: Growth Fund
Total (Cost $1,320,776) .............................................. 93,497 1,438,923
----------- -----------
</TABLE>
-9-
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS - CONTINUED
5. STATEMENT OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
NO. OF MARKET
SHARES VALUE
------------ ------------
<S> <C> <C>
THE TRAVELERS SERIES TRUST (23.6%)
Jurika & Voyles Core Equity Portfolio (Cost $942,858) ..................... 97,796 $ 1,004,362
Large Cap Portfolio (Cost $5,625,886) ..................................... 353,727 6,165,458
Lazard International Stock Portfolio (Cost $8,646,963) .................... 714,112 9,197,757
MFS Research Portfolio (Cost $2,193,525) .................................. 227,203 2,399,262
NWQ Large Cap Portfolio (Cost $3,477,744) ................................. 383,536 3,628,254
Strategic Stock Portfolio (Cost $2,855,996) ............................... 308,395 2,917,419
Disciplined Mid Cap Stock Portfolio (Cost $2,566,017) ..................... 216,273 3,101,352
Disciplined Small Cap Stock Portfolio (Cost $871,294) ..................... 110,178 977,281
U.S. Government Securities Portfolio (Cost $3,745,670) .................... 294,908 3,479,912
------------ ------------
Total (Cost $30,925,953) ............................................. 2,706,128 32,871,057
------------ ------------
TRAVELERS SERIES FUND INC. (46.2%)
AIM Capital Appreciation Portfolio (Cost $4,470,540) ...................... 359,458 5,204,953
Smith Barney Money Market Portfolio (Cost $23,489,202) .................... 23,489,202 23,489,202
Smith Barney High Income Portfolio (Cost $6,044,784) ...................... 484,728 6,136,658
Smith Barney Large Capitalization Growth Portfolio (Cost $9,473,445) ...... 932,367 11,421,492
TBC Managed Income Portfolio (Cost $17,846,696) ........................... 1,522,428 17,918,976
------------ ------------
Total (Cost $61,324,667) ............................................. 26,788,183 64,171,281
------------ ------------
WARBURG PINCUS TRUST (0.6%)
Emerging Markets Portfolio
Total (Cost $860,830) ................................................ 108,010 884,601
------------ ------------
TOTAL INVESTMENT OPTIONS (100%)
(COST $131,327,651) ............................................................ $139,185,960
============
</TABLE>
-10-
<PAGE> 12
This page intentionally left blank.
-11-
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF SEPARATE ACCOUNT TM II OPERATIONS AND CHANGES IN NET ASSETS FOR
THE PERIOD JULY 28, 1998 (DATE OPERATIONS COMMENCED) TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
CAPITAL
SMALL CAP VALUE APPRECIATION SMALL CAP EQUITY
REIT SERIES SERIES PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ............................................. $ -- $ -- $ 31,135 $ 22,086 $ 141
----------- ----------- ----------- ----------- -----------
EXPENSES:
Insurance charges ..................................... 5,805 5,666 15,924 26,033 17,910
Administrative fees ................................... 543 526 1,489 2,486 1,639
----------- ----------- ----------- ----------- -----------
Net investment income (loss) ................ (6,348) (6,192) 13,722 (6,433) (19,408)
----------- ----------- ----------- ----------- -----------
REALIZED GAIN (LOSS) AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold ................... 60,795 9,960 4,502 65,049,438 38,591
Cost of investments sold ......................... 66,035 10,879 5,215 64,044,683 39,809
----------- ----------- ----------- ----------- -----------
Net realized gain (loss) .................... (5,240) (919) (713) 1,004,755 (1,218)
----------- ----------- ----------- ----------- -----------
Unrealized gain (loss) on investments:
End of period .................................... 45,226 162,061 554,478 652,132 362,457
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations ........................ 33,638 154,950 567,487 1,650,454 341,831
----------- ----------- ----------- ----------- -----------
UNIT TRANSACTIONS:
Participant purchase payments ......................... 1,758,923 1,728,349 5,218,728 6,560,739 5,309,323
Participant transfers from other Travelers accounts ... 177,277 81,035 611,630 70,235,969 169,853
Administrative charges ................................ (1) (2) (5) (2) (7)
Contract surrenders ................................... (1,342) (3,183) (12,507) (2,787) (8,105)
Participant transfers to other Travelers accounts ..... (109,247) (7,934) (79,198) (65,515,330) (59,032)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from unit transactions ............ 1,825,610 1,798,265 5,738,648 11,278,589 5,412,032
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets ............ 1,859,248 1,953,215 6,306,135 12,929,043 5,753,863
NET ASSETS:
Beginning of period .............................. -- -- -- -- --
----------- ----------- ----------- ----------- -----------
End of period .................................... $ 1,859,248 $ 1,953,215 $ 6,306,135 $12,929,043 $ 5,753,863
=========== =========== =========== =========== ===========
</TABLE>
-12-
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
SALOMON FRANKLIN SMALL TEMPLETON TEMPLETON
BROTHERS CAP INVESTMENTS DEVELOPING INTERNATIONAL MONTGOMERY JURIKA & VOYLES
VARIABLE STRONG SCHAFER FUND MARKETS FUND FUND VARIABLE SERIES CORE EQUITY LARGE CAP
INVESTORS FUND VALUE FUND II (CLASS 2 SHARES) (CLASS 2 SHARES) (CLASS 2 SHARES) GROWTH FUND PORTFOLIO PORTFOLIO
- -------------- ------------- ---------------- ---------------- ---------------- ----------- --------- ---------
<C> <C> <C> <C> <C> <C> <C> <C>
$ 14,689 $ 5,236 $ -- $ -- $ -- $ 11,682 $ 3,755 $ 248,560
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
10,710 7,183 6,925 3,477 34,570 4,520 1,792 17,198
1,004 661 642 322 3,308 419 171 1,580
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
2,975 (2,608) (7,567) (3,799) (37,878) 6,743 1,792 229,782
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
29,912 1,613 4,559 6,047 130,671,255 106,308 7,218 431,443
31,605 3,604 4,990 6,221 128,688,215 108,866 6,636 428,235
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(1,693) (1,991) (431) (174) 1,983,040 (2,558) 582 3,208
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
375,798 322,227 307,717 136,889 5,688 118,147 61,504 539,572
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
377,080 317,628 299,719 132,916 1,950,850 122,332 63,878 772,562
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
3,201,318 2,410,619 2,022,259 951,263 6,937,682 1,416,121 922,174 5,796,995
46,390 113,291 71,937 22,826 130,490,663 56,717 22,602 310,157
(3) (4) (3) (1) (3) (1) -- (7)
(8,768) (4,893) (3,076) (982) (3,759) (641) (216) (6,169)
(4,112) (24,715) (27,258) (38,437) (134,506,907) (126,958) (672) (637,443)
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
3,234,825 2,494,298 2,063,859 934,669 2,917,676 1,345,238 943,888 5,463,533
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
3,611,905 2,811,926 2,363,578 1,067,585 4,868,526 1,467,570 1,007,766 6,236,095
-- -- -- -- -- -- -- --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 3,611,905 $ 2,811,926 $ 2,363,578 $ 1,067,585 $ 4,868,526 $ 1,467,570 $ 1,007,766 $ 6,236,095
============ ============ ============ ============ ============ ============ ============ ============
</TABLE>
-13-
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF SEPARATE ACCOUNT TM II OPERATIONS AND CHANGES IN NET ASSETS FOR
THE PERIOD JULY 28, 1998 (DATE OPERATIONS COMMENCED) TO DECEMBER 31, 1998
(CONTINUED)
<TABLE>
<CAPTION>
LAZARD DISCIPLINED MID
INTERNATIONAL MFS RESEARCH NWQ LARGE GAP STRATEGIC STOCK CAP STOCK
STOCK PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ............................................. $ 96,305 $ 3,749 $ 17,758 $ 35,650 $ --
----------- ----------- ----------- ----------- -----------
EXPENSES:
Insurance charges ..................................... 28,729 5,549 10,691 7,330 9,257
Administrative fees ................................... 2,661 512 994 667 874
----------- ----------- ----------- ----------- -----------
Net investment income (loss) ..................... 64,915 (2,312) 6,073 27,653 (10,131)
----------- ----------- ----------- ----------- -----------
REALIZED GAIN (LOSS) AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold ................... 1,861 18,491 19,611 31,527 923
Cost of investments sold ......................... 2,166 20,730 22,655 33,002 982
----------- ----------- ----------- ----------- -----------
Net realized gain (loss) .................... (305) (2,239) (3,044) (1,475) (59)
----------- ----------- ----------- ----------- -----------
Unrealized gain (loss) on investments:
End of period .................................... 550,794 205,737 150,510 61,423 535,335
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations ........................ 615,404 201,186 153,539 87,601 525,145
----------- ----------- ----------- ----------- -----------
UNIT TRANSACTIONS:
Participant purchase payments ......................... 8,588,169 2,112,816 3,309,500 2,840,287 2,532,048
Participant transfers from other Travelers accounts ... 266,376 104,137 251,563 31,239 66,917
Administrative charges ................................ (9) (3) (5) (1) (1)
Contract surrenders ................................... (9,807) (1,062) (2,334) (4,975) (2,320)
Participant transfers to other Travelers accounts ..... (93,184) (3,690) (28,193) (2,202) (11,434)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from unit transactions ............ 8,751,545 2,212,198 3,530,531 2,864,348 2,585,210
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets ....... 9,366,949 2,413,384 3,684,070 2,951,949 3,110,355
NET ASSETS:
Beginning of period .............................. -- -- -- -- --
----------- ----------- ----------- ----------- -----------
End of period .................................... $ 9,366,949 $ 2,413,384 $ 3,684,070 $ 2,951,949 $ 3,110,355
=========== =========== =========== =========== ===========
</TABLE>
-14-
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
SMITH BARNEY
DISCIPLINED LARGE
SMALL U.S. GOVERNMENT AIM CAPITAL SOUTH BARNEY SMITH BARNEY CAPITALIZATION TBC MANAGED EMERGING
CAP STOCK SECURITIES APPRECIATION MONEY MARKET HIGH INCOME GROWTH INCOME MARKETS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
<C> <C> <C> <C> <C> <C> <C> <C>
$ 2,865 $ 304,227 $ -- $ 168,574 $ -- $ 6,620 $ -- $ 7,022
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
2,976 11,092 15,049 57,267 16,386 30,492 51,542 3,092
278 1,045 1,406 5,395 1,543 2,847 4,773 291
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(389) 292,090 (16,455) 105,912 (17,929) (26,719) (56,315) 3,639
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
10,562 525,645 469 192,204,726 34 14,383 246,880 2,535
11,042 506,725 616 192,204,726 34 18,601 247,944 3,252
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(480) 18,920 (147) -- -- (4,218) (1,064) (717)
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
105,987 (265,758) 734,413 -- 91,874 1,948,047 72,280 23,771
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
105,118 45,252 717,811 105,912 73,945 1,917,110 14,901 26,693
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
829,815 3,942,622 4,467,894 25,653,678 5,712,582 9,214,211 18,002,816 839,500
59,430 266,108 97,130 200,480,348 403,017 404,667 541,359 29,103
(3) (4) (6) (6) (10) (8) (16) --
(3,748) (990) (13,941) (535,572) (8,595) (11,370) (18,673) (689)
(10,833) (458,284) (48,714) (203,105,497) (20,347) (66,027) (484,546) (6,019)
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
874,661 3,749,452 4,502,363 22,492,951 6,086,647 9,541,473 18,040,940 861,895
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
979,779 3,794,704 5,220,174 22,598,863 6,160,592 11,458,583 18,055,841 888,588
-- -- -- -- -- -- -- --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 979,779 $ 3,794,704 $ 5,220,174 $ 22,598,863 $ 6,160,592 $ 11,458,583 $ 18,055,841 $ 888,588
============ ============ ============ ============ ============ ============ ============ ============
</TABLE>
-15-
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF SEPARATE ACCOUNT TM II OPERATIONS AND CHANGES IN NET ASSETS FOR
THE PERIOD JULY 28, 1998 (DATE OPERATIONS COMMENCED) TO DECEMBER 31, 1998
(CONTINUED)
<TABLE>
<CAPTION>
COMBINED
-------------
<S> <C>
INVESTMENT INCOME:
Dividends .................................................. $ 980,054
-------------
EXPENSES:
Insurance charges .......................................... 407,165
Administrative fees ........................................ 38,076
-------------
Net investment income (loss) .......................... 534,813
-------------
REALIZED GAIN (LOSS) AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold ........................ 389,499,288
Cost of investments sold .............................. 386,517,468
-------------
Net realized gain (loss) ......................... 2,981,820
-------------
Unrealized gain (loss) on investments:
End of period ......................................... 7,858,309
-------------
Net increase (decrease) in net assets
resulting from operations ............................. 11,374,942
-------------
UNIT TRANSACTIONS:
Participant purchase payments .............................. 132,280,431
Participant transfers from other Travelers accounts ........ 405,411,741
Administrative charges ..................................... (111)
Contract surrenders ........................................ (670,504)
Participant transfers to other Travelers accounts .......... (405,476,213)
-------------
Net increase (decrease) in net assets
resulting from unit transactions ................. 131,545,344
-------------
Net increase (decrease) in net assets ............ 142,920,286
NET ASSETS:
Beginning of period ................................... --
-------------
End of period ......................................... $ 142,920,286
=============
</TABLE>
-16-
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS - CONTINUED
7. SCHEDULE OF ACCUMULATION UNITS FOR SEPARATE ACCOUNT TM II FOR THE PERIOD JULY
28, 1998 (DATE OPERATIONS COMMENCED) TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
SALOMON
BROTHERS
SMALL CAP CAPITAL VARIABLE
VALUE APPRECIATION SMALL CAP EQUITY INVESTORS
REIT SERIES SERIES PORTFOLIO PORTFOLIO PORTFOLIO FUND
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Accumulation units beginning of period ........... -- -- -- -- -- --
Accumulation units purchased and
transferred from other Travelers accounts ... 2,065,636 1,955,424 5,939,726 87,276,047 5,754,525 3,498,905
Accumulation units redeemed and
transferred to other Travelers accounts ..... (124,617) (11,877) (96,893) (74,246,303) (69,669) (13,365)
----------- ----------- ----------- ----------- ----------- -----------
Accumulation units end of period ................. 1,941,019 1,943,547 5,842,833 13,029,744 5,684,856 3,485,540
=========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN SMALL TEMPLETON
CAP DEVELOPING TEMPLETON JURIKA &
STRONG INVESTMENTS MARKETS INTERNATIONAL MONTGOMERY VOYLES
SCHAFER FUND FUND FUND VARIABLE CORE
VALUE (CLASS 2 (CLASS 2 (CLASS 2 SERIES: EQUITY
FUND II SHARES) SHARES) SHARES) GROWTH FUND PORTFOLIO
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Accumulation units beginning of period ........... -- -- -- -- -- --
Accumulation units purchased and
transferred from other Travelers accounts ... 2,747,065 2,237,675 1,090,845 154,867,917 1,551,266 900,768
Accumulation units redeemed and
transferred to other Travelers accounts ..... (30,328) (31,469) (42,212) (149,651,314) (132,197) (858)
----------- ----------- ----------- ----------- ----------- -----------
Accumulation units end of period ................. 2,716,737 2,206,206 1,048,633 5,216,603 1,419,069 899,910
=========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
DISCIPLINED
LAZARD MID
INTERNATIONAL MFS NWQ LARGE STRATEGIC CAP
LARGE CAP STOCK RESEARCH CAP STOCK STOCK
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Accumulation units beginning of period ........... -- -- -- -- -- --
Accumulation units purchased and
transferred from other Travelers accounts ... 6,200,679 10,278,820 2,334,409 3,774,475 2,967,034 2,837,584
Accumulation units redeemed and
transferred to other Travelers accounts ..... (649,386) (126,190) (5,143) (34,124) (7,554) (14,611)
---------- ---------- ---------- ---------- ---------- ----------
Accumulation units end of period ................. 5,551,293 10,152,630 2,329,266 3,740,351 2,959,480 2,822,973
========== ========== ========== ========== ========== ==========
</TABLE>
-17-
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS - CONTINUED
7. SCHEDULE OF ACCUMULATION UNITS FOR SEPARATE ACCOUNT TM II
FOR THE PERIOD JULY 28, 1998 (DATE OPERATIONS COMMENCED) TO DECEMBER 31, 1998
(CONTINUED)
<TABLE>
<CAPTION>
SMITH
SMITH SMITH BARNEY
U.S. AIM BARNEY BARNEY LARGE
DISCIPLINED GOVERNMENT CAPITAL MONEY HIGH CAPITALIZATION
SMALL CAP SECURITIES APPRECIATION MARKET INCOME GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Accumulation units beginning of period............ -- -- -- -- -- --
Accumulation units purchased and
transferred from other Travelers accounts ... 1,000,905 4,067,680 4,929,597 223,926,422 6,521,883 9,916,038
Accumulation units redeemed and
transferred to other Travelers accounts ..... (15,367) (438,930) (65,565) (201,619,635) (31,354) (74,239)
----------- ----------- ----------- ----------- ----------- -----------
Accumulation units end of period ................. 985,538 3,628,750 4,864,032 22,306,787 6,490,529 9,841,799
=========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
TBC MANAGED EMERGING
INCOME MARKETS
PORTFOLIO PORTFOLIO COMBINED
------------ ------------ ------------
<S> <C> <C> <C>
Accumulation units beginning of period ........... -- -- --
Accumulation units purchased and
transferred from other Travelers accounts ... 18,614,756 1,063,745 568,319,826
Accumulation units redeemed and
transferred to other Travelers accounts ..... (505,583) (9,004) (428,047,787)
------------ ------------ ------------
Accumulation units end of period ................. 18,109,173 1,054,741 140,272,039
============ ============ ============
</TABLE>
-18-
<PAGE> 20
INDEPENDENT AUDITORS' REPORT
To the Owners of Variable Annuity Contracts of The Travelers Separate Account TM
II for Variable Annuities:
We have audited the accompanying statement of assets and liabilities of The
Travelers Separate Account TM II for Variable Annuities as of December 31, 1998,
and the related statement of operations and changes in net assets for the period
July 28, 1998 (date operations commenced) to December 31, 1998. These financial
statements are the responsibility of management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit 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. Our procedures included
confirmation of shares owned as of December 31, 1998, by correspondence with the
underlying funds. 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 audit provides 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 Separate Account
TM II for Variable Annuities as of December 31, 1998, the results of its
operations and the changes in its net assets for the period July 28, 1998 (date
operations commenced) to December 31, 1998, in conformity with generally
accepted accounting principles.
KPMG LLP
Hartford, Connecticut
February 17, 1999
-19-
<PAGE> 21
Independent Auditors
KPMG LLP
Hartford, Connecticut
This report is prepared for the general information of contract owners and is
not an offer of shares of The Travelers Separate Account TM II for Variable
Annuities or Separate Account TM II's underlying funds. It should not be used in
connection with any offer except in conjunction with the Prospectus for The
Travelers Separate Account TM II for Variable Annuities product(s) offered by
The Travelers Life and Annuity Company and the Prospectuses of the underlying
funds, which collectively contain all pertinent information, including the
applicable sales commissions.
SepTM II (Annual) (12-98) Printed in U.S.A.
