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Registration Statement No. 333-58809
811-08869
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective No. 1
And
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Post-Effective No. 1
THE TRAVELERS SEPARATE ACCOUNT SIX 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)
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective (check appropriate box):
___ immediately upon filing pursuant to paragraph (b) of Rule 485.
X on May 1, 1999 pursuant to paragraph (b) of Rule 485.
___ 60 days after filing pursuant to paragraph (a)(1) of Rule 485.
___ 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.
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PART A
Information Required in a Prospectus
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TRAVELERS RETIREMENT ACCOUNT
PROSPECTUS
This prospectus describes TRAVELERS RETIREMENT ACCOUNT, a flexible premium
deferred variable annuity contract (the "Contract") issued by The Travelers Life
and Annuity Company (the "Company," "we" or "our").
Your contract value will vary daily to reflect the investment experience of the
funding options you select. The funding options currently available through The
Travelers Separate Account Six for Variable Annuities are:
High Yield Bond Trust
Managed Assets Trust
Money Market Portfolio
AMERICAN ODYSSEY FUNDS, INC.
Core Equity Fund
Emerging Opportunities Fund
Global High-Yield Bond Fund
Intermediate-Term Bond Fund
International Equity Fund
Long-Term Bond Fund
DELAWARE GROUP PREMIUM FUND, INC.
REIT Series
Small Cap Value Series
DREYFUS VARIABLE INVESTMENT FUND
Capital Appreciation Portfolio
Small Cap Portfolio
GREENWICH STREET SERIES FUND
Equity Index Portfolio Class II
MONTGOMERY FUNDS III
Montgomery Variable Series: Growth Fund
OCC ACCUMULATION TRUST
Equity Portfolio
SALOMON BROTHERS VARIABLE SERIES FUNDS, INC.
Salomon Brothers Variable Capital Fund
Salomon Brothers Variable Investors Fund
Salomon Brothers Variable Total Return
Fund
STRONG VARIABLE INSURANCE FUNDS, INC.
Strong Schafer Value Fund II
TRAVELERS SERIES FUND, INC.
Alliance Growth Portfolio
MFS Total Return Portfolio
Putnam Diversified Income Portfolio
Smith Barney High Income Portfolio
Smith Barney International Equity Portfolio
Smith Barney Large Capitalization Growth Portfolio
THE TRAVELERS SERIES TRUST
Disciplined Mid Cap Stock Portfolio
Disciplined Small Cap Stock Portfolio
Equity Income Portfolio
Federated Stock Portfolio
Large Cap Portfolio
Lazard International Stock Portfolio
MFS Mid Cap Growth Portfolio
MFS Research Portfolio
Social Awareness Stock Portfolio
Strategic Stock Portfolio
Travelers Quality Bond Portfolio
U.S. Government Securities Portfolio
Utilities Portfolio
WARBURG PINCUS TRUST
Emerging Markets Portfolio
SOME OF THE FUNDING OPTIONS MAY NOT BE AVAILABLE IN ALL STATES. THIS PROSPECTUS
MUST BE ACCOMPANIED BY THE CURRENT PROSPECTUSES FOR SEPARATE ACCOUNT SIX'S
UNDERLYING FUNDS. PLEASE READ AND RETAIN THEM FOR FUTURE REFERENCE.
This prospectus provides the information that you should know before investing.
You can receive additional information by requesting a copy of the Statement of
Additional Information ("SAI") dated May 1, 1999. The SAI has been filed with
the Securities and Exchange Commission ("SEC") and is incorporated by reference
into this prospectus. To request a free copy, write to The Travelers Life and
Annuity Company, Annuity Services, One Tower Square, Hartford, Connecticut
06183-5030, call (800) 842-9406, or access the SEC's website
(http://www.sec.gov). See Appendix B for the SAI's table of Contents.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS IS ACCOMPANIED BY A COPY OF THE TRAVELERS LIFE AND ANNUITY
COMPANY'S LATEST ANNUAL REPORT ON FORM 10-K FOR THE PERIOD ENDED DECEMBER 31,
1998.
VARIABLE ANNUITY CONTRACTS ARE NOT DEPOSITS OF ANY BANK, AND ARE NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY.
PROSPECTUS DATED MAY 1, 1999
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<S> <C>
Index of Special Terms................ 2
Summary............................... 3
Fee Table............................. 6
The Variable Annuity Contract......... 12
Contract Owner Inquiries............ 12
Purchase Payments................... 12
Conservation Credit................. 12
Accumulation Units.................. 12
The Funding Options................. 13
Transfers............................. 16
Dollar Cost Averaging Program....... 16
Asset Allocation Advice............. 17
Access to Your Money.................. 17
Systematic Withdrawals.............. 18
Managed Distribution Program........ 18
Charges and Deductions................ 18
General............................. 18
Withdrawal Charge................... 19
Free Withdrawal Allowance........... 19
Premium Tax......................... 20
Mortality and Expense Risk Charge... 20
Funding Option Expenses............. 20
Floor Benefit/Liquidity Benefit
Charges.......................... 20
CHART Asset Allocation Program
Charges.......................... 20
Changes in Taxes Based Upon Premium
or Value......................... 20
Ownership Provisions.................. 20
Types of Ownership.................. 20
Death Benefit......................... 21
Death Proceeds Before the Maturity
Date............................. 21
Standard Death Benefit.............. 21
Optional Death Benefit and Credit... 21
Step-Up Death Benefit Value......... 21
Death Proceeds After the Maturity
Date............................. 22
Payment of Proceeds................. 22
The Annuity Period.................... 22
Maturity Date....................... 22
Liquidity Benefit................... 22
Allocation of Annuity............... 23
Annuitization Credit................ 23
Variable Annuity.................... 23
Fixed Annuity....................... 24
Payout Options........................ 24
Election of Options................. 24
Variable Annuitization Floor
Benefit.......................... 24
Annuity Options..................... 25
Miscellaneous Contract Provisions..... 25
Right to Return..................... 25
Termination......................... 26
Required Reports.................... 26
Suspension of Payments.............. 26
Financial Statements................ 26
The Separate Account.................. 26
Performance Information............. 27
Federal Tax Considerations............ 27
General Taxation of Annuities....... 27
Qualified Contracts................. 27
Penalty Tax for Premature
Distributions.................... 28
Taxation of Surrenders Under
Liquidity Feature................ 28
Ownership of the Investments........ 28
Mandatory Distributions for
Qualified Plans.................. 28
Available Information............... 29
Incorporation of Certain Documents
By Reference..................... 29
Other Information..................... 29
The Insurance Company............... 29
Year 2000 Compliance................ 30
Distribution of Variable Annuity
Contracts........................ 30
Conformity with State and Federal
Laws............................. 30
Voting Rights....................... 31
Legal Proceedings and Opinions...... 31
Appendix A: Table of Contents of the
Statement of Additional
Information......................... A-1
Appendix B: Waiver of Withdrawal
Charge for Nursing Home
Confinement......................... B-1
Appendix C: Market Value Adjustment... C-1
</TABLE>
INDEX OF SPECIAL TERMS
The following terms are italicized throughout the prospectus. Refer to the page
listed for an explanation of each term.
<TABLE>
<S> <C>
Accumulation Unit..................... 12
Annuitant............................. 20
Annuity Payments...................... 22
Annuity Unit.......................... 12
Contract Date......................... 12
Contract Owner (You, Your)............ 20
Contract Value........................ 12
Contract Year......................... 12
Death Report Date..................... 21
Funding Option(s)..................... 13
Maturity Date......................... 12
Purchase Payment...................... 12
Written Request....................... 12
</TABLE>
2
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SUMMARY: TRAVELERS RETIREMENT ACCOUNT
THIS SUMMARY DETAILS SOME OF THE MORE IMPORTANT POINTS THAT YOU SHOULD KNOW AND
CONSIDER BEFORE PURCHASING THE CONTRACT. PLEASE READ THE PROSPECTUS CAREFULLY.
CAN YOU GIVE ME A DESCRIPTION OF THE VARIABLE ANNUITY CONTRACT? The Contract is
intended for retirement savings or other long-term investment purposes. The
Contract provides a death benefit as well as guaranteed income options. You
direct your payment(s) to one or more of the variable funding options. Depending
on market conditions, you may gain or lose money in any of these options.
The Contract, like all deferred variable annuity contracts, has two phases: the
accumulation phase and the payout phase. During the accumulation phase,
generally your pre-tax contributions accumulate on a tax-deferred basis and are
taxed as income when you make a withdrawal, presumably when you are in a lower
tax bracket. The payout phase occurs when you begin receiving payments from your
Contract. The amount of money you accumulate in your Contract determines the
amount of the payments you receive during the payout phase.
Once you make an election of an annuity option and begin to receive payments, it
cannot be changed. During the payout phase, you have the same investment choices
you had during the accumulation phase. The dollar amount of your payments may
increase or decrease.
In addition, depending on which annuity option you select, and depending on
market conditions, there are several other options and features available upon
annuitization. These include an annuitization credit, a variable annuitization
floor benefit, a liquidity benefit and an increasing benefit option. Please
refer to your Contract and the prospectus for further details.
WHO SHOULD PURCHASE THIS CONTRACT? The Contract is currently available for use
in connection with qualified retirement plans, which include contracts
qualifying under Sections 401, 403, 408 or 457 of the Internal Revenue Code of
1986, as amended.
You may purchase the Contract with an initial payment of at least $20,000. You
may make additional payments of at least $5,000 at any time during the
accumulation phase.
We may add a conservation credit to funds received as purchase payments if such
funds originated from another contract issued by Us or Our affiliates. If
applied, the amount of this credit will be determined by us.
If you select the Optional Death Benefit, we will add a credit to each purchase
payment equal to 2% of that purchase payment. These credits are applied pro rata
to the same funding options to which your purchase payment was applied.
WHO IS THE CONTRACT ISSUED TO? If you purchase an individual contract, you are
the contract owner. If a group contract is purchased, we issue certificates to
the individual participants. Where we refer to "you," we are referring to the
individual contract owner or to the group participant, as applicable. We refer
to both contracts and certificates as "contracts."
We issue group contracts in connection with retirement plans. Depending on your
retirement plan provisions, certain features and/or funding options described in
this prospectus may not be available to you. Your retirement plan provisions
supercede this prospectus. If you have any questions about your specific
retirement plan, contact your plan administrators.
IS THERE A RIGHT TO RETURN PERIOD? If you cancel the contract within ten days
after you receive it, you receive a full refund of the Cash Value (including
charges). Where state law requires a longer right to return (free look), or the
return of the purchase payments, we will comply. You bear the investment risk
during the free look period; therefore the Cash Value returned to you may be
greater or less than your purchase payment. If the Contract is purchased as an
Individual Retirement Annuity (IRA), and is returned within the first seven days
after contract delivery, your full purchase payment will be refunded. During the
remainder of the IRA free look period, the
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Cash Value (including charges) will be refunded. The Cash Value will be
determined as of the close of business on the day we receive a written request
for a refund.
WHAT TYPES OF INVESTMENT OPTIONS ARE AVAILABLE? You can direct your money into
any or all of the funding options shown on the cover page. They are described in
the accompanying fund prospectuses. Depending on market conditions, you may make
or lose money in any of these options.
The value of the Contract will vary depending upon the investment performance of
the funding options you choose. Refer to the SAI for performance information for
each funding option. Past performance is not a guarantee of future results.
You can transfer between the funding options as frequently as you wish without
any current tax applications. Currently there is no charge for transfers, nor a
limit to the number of transfers allowed. We may, in the future, charge a fee
for any transfer request or limit the number of transfers allowed. At the
minimum, we would always allow at least one transfer every six months.
WHAT EXPENSES WILL BE ASSESSED UNDER THE CONTRACT? The Contract has insurance
features and investment features, and there are costs related to each. For the
Standard Death Benefit, the annual insurance charge is .80% of the amounts you
direct to the funding options. For the Optional Death Benefit and Credit option,
the annual insurance charge is 1.25%. Each funding option also charges for
management and other expenses. Please refer to the Fee Table for more
information about the charges.
If you withdraw amounts from the Contract, the Company may deduct a withdrawal
charge (0% to 5%) of the amount of purchase payments you made to the Contract.
If you withdraw all amounts under the Contract, or if you begin receiving
annuity payments, the Company may be required by your state to deduct a premium
tax.
If the Variable Annuitization Floor Benefit is selected, there is a Floor
Benefit charge assessed. This charge will vary based upon market conditions, and
will be set at the time you choose this option. Once established, this charge
will remain the same throughout the term of the annuitization.
HOW WILL MY CONTRIBUTIONS AND WITHDRAWALS BE TAXED? Generally, the payments you
make 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.
If you reach a certain age, you may be required by federal tax laws to begin
receiving payments from your annuity or risk paying a penalty tax. In those
cases, we can calculate and pay you the minimum required distribution amounts.
If you are younger than 59 1/2 when you take money out, you may be charged a 10%
federal penalty tax on the amount withdrawn.
During the annuity period, if you have elected the optional Variable Annuity
Floor Option and take a surrender, there will be tax implications. Consult your
tax advisor.
HOW MAY I ACCESS MY MONEY? You can take withdrawals any time during the
accumulation phase. A withdrawal charge may apply. During the first contract
year, you may withdraw up to 20% of the initial purchase payment without a
withdrawal charge. After the first contract year, you may withdraw up to 20% of
the contract value (as of the end of the previous contract year) without a
withdrawal charge. Of course, you may have to pay income taxes and a tax penalty
on taxable amounts you withdraw.
You may choose to receive monthly, quarterly, semiannual or annual
("systematic") withdrawals of at least $100 if your Contract's cash value is
$15,000 or more. All applicable sales charges and premium taxes will be
deducted.
WHAT IS THE DEATH BENEFIT UNDER THE CONTRACT? The person chosen as the
beneficiary will receive a death benefit upon the death of the owner/annuitant
before the maturity date. You may select either the Standard Death Benefit or
the Optional Death Benefit and Credit at the time of purchase. The death benefit
paid depends on your age at the time of your death. The death
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benefit is calculated as of the close of the business day on which the Home
Office receives due proof of death and written distribution instructions.
Any amount paid will be reduced by any applicable premium tax or surrenders not
previously deducted. Certain states may have varying age requirements. Please
refer to the Death Benefit section of the prospectus for more details.
ARE THERE ANY ADDITIONAL FEATURES? This Contract has other features you may be
interested in. These may include:
- DOLLAR COST AVERAGING. This is a program that allows you to invest a
fixed amount of money in Funding Options each month, theoretically
giving you a lower average cost per unit over time as compared to a
single one-time purchase. Dollar cost averaging requires regular
investments regardless of fluctuating price levels, and does not
guarantee a profit nor prevent loss in a declining market. Potential
investors should consider their financial ability to continue purchases
through periods of low price levels.
- ASSET ALLOCATION ADVICE. If allowed, you may elect to enter into a
separate advisory agreement with Copeland Financial Services, Inc.
("Copeland"), an affiliate of the Company, for the purpose of receiving
asset allocation advice under Copeland's CHART Program. The CHART
Program allocates all purchase payments among the American Odyssey
Funds. The CHART Program and applicable fees are fully disclosed in a
separate Disclosure Statement.
- MANAGED DISTRIBUTION PROGRAM. This program allows for the Company to
automatically calculate and distribute to you, in November of the
applicable tax year, an amount that will satisfy the Internal Revenue
Service's minimum distribution requirements imposed on certain contracts
once the owner reaches age 70 1/2 or retires. These minimum
distributions occur during the accumulation phase.
- 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 charges and taxes will apply on amounts
withdrawn.
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FEE TABLE
- --------------------------------------------------------------------------------
CONTRACT CHARGES AND EXPENSES:
WITHDRAWAL CHARGE (as a percentage of purchase payments withdrawn):
<TABLE>
<CAPTION>
LENGTH OF TIME FROM PURCHASE PAYMENT WITHDRAWAL
(NUMBER OF YEARS) CHARGE
<S> <C>
1 5%
2 4%
3 3%
4 2%
5 1%
6 and thereafter 0%
</TABLE>
During the annuity period, if you have elected the Liquidity Benefit, a
surrender charge of 5% of the amount withdrawn will be assessed. See "Liquidity
Benefit."
ANNUAL SEPARATE ACCOUNT EXPENSES:
(as a percentage of the average daily net assets of the Separate Account Five)
<TABLE>
<CAPTION>
OPTIONAL
STANDARD DEATH BENEFIT
DEATH BENEFIT & CREDIT
<S> <C> <C>
Mortality and Expense Risk Charge.................... .80% 1.25%
Administrative Expense Charge........................ None None
---- -------
Total Separate Account Charges.................... .80% 1.25%
</TABLE>
During the annuity period, if you have elected the Floor Benefit, a charge of up
to 3.80% or 4.25% may apply. See "Floor Benefit Charge."
FUNDING OPTION EXPENSES:
(as a percentage of average daily net assets of the funding option as of
December 31, 1998, unless otherwise noted.)
Each of the American Odyssey Funds is listed twice, once with the optional CHART
asset allocation fee of .80% reflected, and once without the optional asset
allocation fee.
<TABLE>
<CAPTION>
TOTAL ANNUAL
MANAGEMENT OTHER OPERATING
FEE EXPENSES EXPENSES
(AFTER EXPENSES 12B-1 (AFTER EXPENSES (AFTER EXPENSES
PORTFOLIO NAME ARE REIMBURSED) FEES ARE REIMBURSED) ARE REIMBURSED)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
High Yield Bond Trust...................... 0.50% 0.32% 0.82%
Managed Assets Trust....................... 0.50% 0.10% 0.60%
Money Market Portfolio..................... 0.32% 0.08% 0.40%(1)
AMERICAN ODYSSEY FUNDS, INC.
Core Equity Fund...................... 0.56% 0.09% 0.65%
Emerging Opportunities Fund........... 0.77% 0.14% 0.91%(2)
Global High-Yield Bond Fund........... 0.68% 0.16% 0.84%(3)
Intermediate-Term Bond Fund........... 0.49% 0.11% 0.60%
International Equity Fund............. 0.60% 0.13% 0.73%
Long-Term Bond Fund................... 0.50% 0.10% 0.60%
AMERICAN ODYSSEY FUNDS, INC.
(Includes CHART Asset Allocation Fee of
0.80%.)
Core Equity Fund...................... 0.56% 0.89% 1.45%
Emerging Opportunities Fund........... 0.77% 1.39% 2.16%(2)
Global High-Yield Bond Fund........... 0.68% 1.41% 2.09%(3)
Intermediate-Term Bond Fund........... 0.49% 0.91% 1.40%
International Equity Fund............. 0.60% 0.93% 1.53%
Long-Term Bond Fund................... 0.50% 0.90% 1.40%
DELAWARE GROUP PREMIUM FUND, INC.
REIT Series........................... 0.58% 0.27% 0.85%(4)
Small Cap Value Series................ 0.75% 0.10% 0.85%
</TABLE>
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<TABLE>
<CAPTION>
TOTAL ANNUAL
MANAGEMENT OTHER OPERATING
FEE EXPENSES EXPENSES
(AFTER EXPENSES 12B-1 (AFTER EXPENSES (AFTER EXPENSES
PORTFOLIO NAME ARE REIMBURSED) FEES ARE REIMBURSED) ARE REIMBURSED)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DREYFUS VARIABLE INVESTMENT FUND
Capital Appreciation Portfolio........ 0.75% 0.06% 0.81%
Small Cap Portfolio................... 0.75% 0.02% 0.77%
GREENWICH STREET SERIES FUND
Equity Index Portfolio Class II....... 0.21% 0.25% 0.09% 0.55%(5)
MONTGOMERY FUNDS III
Montgomery Variable Series: Growth
Fund................................ 1.00% 0.25% 1.25%(6)
OCC ACCUMULATION TRUST
Equity Portfolio...................... 0.80% 0.14% 0.94%
SALOMON BROTHERS VARIABLE SERIES FUNDS,
INC.
Salomon Brothers Variable Capital
Fund................................ 0.85% 0.15% 1.00%(7)
Salomon Brothers Variable Investors
Fund................................ 0.70% 0.30% 1.00%(7)
Salomon Brothers Variable Total Return
Fund................................ 0.80% 0.20% 1.00%(7)
STRONG VARIABLE INSURANCE FUNDS, INC.
Strong Schafer Value Fund II.......... 1.00% 0.20% 1.20%(8)
TRAVELERS SERIES FUND, INC.
Alliance Growth Portfolio............. 0.80% 0.02% 0.82%(9)
MFS Total Return Portfolio............ 0.80% 0.04% 0.84%(9)
Putnam Diversified Income Portfolio... 0.75% 0.12% 0.87%(9)
Smith Barney High Income Portfolio.... 0.60% 0.07% 0.67%(9)
Smith Barney International Equity
Portfolio........................... 0.90% 0.10% 1.00%(9)
Smith Barney Large Capitalization
Growth Portfolio.................... 0.75% 0.25% 1.00%(10)
THE TRAVELERS SERIES TRUST
Disciplined Mid Cap Stock Portfolio... 0.70% 0.25% 0.95%(11)
Disciplined Small Cap Stock
Portfolio........................... 0.80% 0.20% 1.00%(12)
Equity Income Portfolio............... 0.75% 0.20% 0.95%(11)
Federated Stock Portfolio............. 0.63% 0.28% 0.91%
Large Cap Portfolio................... 0.75% 0.20% 0.95%(11)
Lazard International Stock
Portfolio........................... 0.83% 0.42% 1.25%
MFS Mid Cap Growth Portfolio.......... 0.80% 0.20% 1.00%(12)
MFS Research Portfolio................ 0.80% 0.20% 1.00%(12)
Social Awareness Stock Portfolio...... 0.65% 0.19% 0.84%
Strategic Stock Portfolio............. 0.60% 0.30% 0.90%(12)
Travelers Quality Bond Portfolio...... 0.32% 0.31% 0.63%
U.S. Government Securities
Portfolio........................... 0.32% 0.13% 0.45%
Utilities Portfolio................... 0.65% 0.15% 0.80%
WARBURG PINCUS TRUST
Emerging Markets Portfolio............ 0.20% 1.20% 1.40%(13)
</TABLE>
NOTES:
The purpose of this 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. "Other Expenses" include operating costs of the fund. These expenses
are reflected in each funding option's net asset value and are not deducted from
the account value under the Contract.
(1) Other Expenses have been restated to reflect the current expense
reimbursement arrangement with The Travelers Insurance Company. Travelers
has agreed to reimburse the Fund for the amount by which its aggregate
expenses (including the management fee, but excluding brokerage
commissions, interest charges and taxes) exceeds 0.40%. Without such
arrangement, Total Expenses would have been 0.65% for the TRAVELERS MONEY
MARKET PORTFOLIO.
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(2) Management Fees for the AMERICAN ODYSSEY EMERGING OPPORTUNITIES FUND
reflect the period 05/01/98 to 12/31/98. On May 1, 1998, the Fund adopted
its current fee structure.
(3) Fees and expenses for the AMERICAN ODYSSEY GLOBAL HIGH YIELD BOND FUND
reflect the period 05/01/98 to 12/31/98. On May 1, 1998, the Fund adopted
its current fee structure and investment objective and strategy.
(4) The adviser for the DELAWARE REIT SERIES has agreed to voluntarily waive
its fee and pay the expenses of the Series to the extent that the Series'
annual operating expenses, exclusive of taxes, interest, brokerage
commissions and extraordinary expenses, do not exceed 0.85% of its average
daily net assets through October 31, 1999. Without such arrangements, the
Total Annual Operating Expenses for the Portfolio would have been 1.02%.
(5) Other expenses for the EQUITY INDEX PORTFOLIO have been restated to reflect
the current expense reimbursement arrangement whereby the adviser has
agreed to reimburse the Portfolio for the amount by which expenses exceed
0.30%. Without such arrangement, Total Annual Operating Expenses would have
been 0.42%. In addition, the Portfolio Management Fee includes 0.06% for
fund administration. Class 2 of this fund has a distribution plan or "Rule
12b-1 plan".
(6) The investment manager of the MONTGOMERY VARIABLE SERIES: GROWTH FUND has
agreed to reduce some or all of its management fees if necessary to keep
Total Annual Operating Expenses, expressed on an annualized basis, at or
below one and one quarter percent (1.25%) of its average net assets. Absent
this waiver of fees, the Portfolio's Total Annual Operating Expenses would
equal 1.40%.
(7) SBAM has waived all of its Management Fees for the following Salomon
Brothers Funds for the period ended December 31, 1998. If such fees were
not waived or expenses reimbursed, the actual annualized Total Annual
Operating Expenses for the INVESTORS FUND, the CAPITAL FUND, and the TOTAL
RETURN FUND would have been 2.07%, 3.26%, and 2.90%, respectively.
(8) The Adviser for STRONG SCHAFER VALUE FUND II has voluntarily agreed to cap
the Fund's Total Annual Operating Expenses at 1.20%. The Adviser has no
current intention to, but may in the future, discontinue or modify any
waiver of fees or absorption of expenses at its discretion without further
notification. Absent the waiver of fees, the Total Annual Operating
Expenses would be 2.00%.
(9) Expenses are as of October 31, 1998 (the Fund's fiscal year end). There
were no fees waived or expenses reimbursed for these funds in 1998.
(10) The Manager waived all or part of its fees for the period ended October 31,
1998. If such fees were not waived, the annualized Total Annual Operating
Expenses for the SMITH BARNEY LARGE CAPITALIZATION GROWTH PORTFOLIO would
have been 1.77%.
(11) Other Expenses reflect the current expense reimbursement arrangement with
Travelers where Travelers has agreed to reimburse the Portfolios for the
amount by which their aggregate expenses (including management fees, but
excluding brokerage commissions, interest charges and taxes) exceeds 0.95%.
Without such arrangements, the Total Annual Operating Expenses for the
Portfolios would have been 1.22% for the TRAVELERS DISCIPLINED MID CAP
STOCK PORTFOLIO, 1.23% for the LARGE CAP PORTFOLIO, and 1.09% for the
EQUITY INCOME PORTFOLIO.
(12) Travelers Insurance has agreed to reimburse the STRATEGIC STOCK PORTFOLIO,
the DISCIPLINED SMALL CAP STOCK PORTFOLIO, the MFS MID CAP GROWTH
PORTFOLIO, and the MFS RESEARCH PORTFOLIO for expenses for the period ended
December 31, 1998. If such expenses were not reimbursed, the actual
annualized Total Annual Operating Expenses would have been 1.51%, 2.98%,
1.62%, and 1.37%, respectively.
(13) Fee waivers and expense reimbursements or credits reduced expenses for the
WARBURG PINCUS EMERGING MARKETS PORTFOLIO during 1998, but this may be
discontinued at any time. Absent this waiver of fees, the Portfolio's
Management Fees, Other Expenses and Total Annual Operating Expenses would
equal 1.25%, 6.96% and 8.21%, respectively. The Portfolio's other expenses
are based on annualized estimates of expenses for the fiscal year ending
December 31, 1998, net of any fee waivers or expense reimbursements.
8
<PAGE> 11
EXAMPLE*
Assuming a 5% annual return on assets, a $1,000 investment would be subject to
the following expenses:
<TABLE>
<CAPTION>
(A) = STANDARD DEATH BENEFIT
(B) = OPTIONAL DEATH BENEFIT
AND CREDIT
- ---------------------------------------------------------------------------------------------------------------------
IF CONTRACT IS SURRENDERED AT THE IF CONTRACT IS NOT SURRENDERED OR
END OF PERIOD SHOWN ANNUITIZED AT END OF PERIOD SHOWN:
------------------------------------- -------------------------------------
UNDERLYING FUNDING OPTIONS 1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Yield Bond Trust............. (a) 66 81 98 192 16 51 88 192
(b) 71 95 121 240 21 65 111 240
Managed Assets Trust.............. (a) 64 74 87 168 14 44 77 168
(b) 69 88 110 217 19 58 100 217
Money Market Portfolio............ (a) 62 68 76 145 12 38 66 145
(b) 67 82 100 195 17 52 90 195
AMERICAN ODYSSEY FUNDS, INC.(1)
Core Equity Fund.............. (a) 65 76 89 174 15 46 79 174
(b) 69 90 113 222 19 60 103 222
Emerging Opportunities Fund... (a) 67 84 103 202 17 54 93 202
(b) 72 98 126 249 22 68 116 249
Global High-Yield Bond Fund... (a) 67 82 99 194 17 52 89 194
(b) 71 95 122 242 21 65 112 242
Intermediate-Term Bond Fund... (a) 64 74 87 168 14 44 77 168
(b) 69 88 110 217 19 58 100 217
International Equity Fund..... (a) 66 78 93 182 16 48 86 182
(b) 70 92 117 231 20 62 107 231
Long-Term Bond Fund........... (a) 64 74 87 168 14 44 77 168
(b) 69 88 110 217 19 58 100 217
AMERICAN ODYSSEY FUNDS, INC.(2)
Core Equity Fund.............. (a) 73 100 130 258 23 70 120 258
(b) 77 114 153 303 27 84 143 303
Emerging Opportunities Fund... (a) 75 108 144 285 25 78 134 285
(b) 80 122 166 328 30 92 156 328
Global High-Yield Bond Fund... (a) 75 106 140 278 25 76 130 278
(b) 79 119 162 321 29 89 152 321
Intermediate-Term Bond Fund... (a) 72 99 128 253 22 69 118 253
(b) 77 112 151 298 27 82 141 298
International Equity Fund..... (a) 74 103 135 267 24 73 125 267
(b) 78 116 157 311 28 86 147 311
Long-Term Bond Fund........... (a) 72 99 128 253 22 69 118 253
(b) 77 112 151 298 27 82 141 298
DELAWARE GROUP PREMIUM FUND, INC.
REIT Series................... (a) 67 82 100 195 17 52 90 195
(b) 71 96 123 243 21 66 113 243
Small Cap Value Series........ (a) 67 82 100 195 17 52 90 195
(b) 71 96 123 243 21 66 113 243
DREYFUS VARIABLE INVESTMENT FUND
Capital Appreciation
Portfolio................... (a) 66 81 98 191 16 51 88 191
(b) 71 95 121 239 21 65 111 239
Small Cap Portfolio........... (a) 66 80 96 187 16 50 86 187
(b) 71 93 119 235 21 63 109 235
GREENWICH STREET SERIES FUND
Equity Index Portfolio Class
II.......................... (a) 61 65 71 134 11 35 61 134
(b) 66 79 94 185 16 49 84 185
MONTGOMERY FUNDS III
Montgomery Variable Series:
Growth Fund................. (a) 71 94 120 238 21 64 110 238
(b) 75 108 143 284 25 78 133 284
OCC ACCUMULATION TRUST
Equity Portfolio.............. (a) 68 85 104 205 18 55 94 205
(b) 72 99 127 252 22 69 117 252
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
* The Example should not be considered a representation of past or future expenses. Actual expenses may be greater
or less than those shown.
(1) Reflects expenses that would be incurred for those Contract Owners who DO NOT participate in the CHART Asset
Allocation program.
(2) Reflects expenses that would be incurred for those Contract Owners who DO participate in the CHART Asset
Allocation program.
</TABLE>
9
<PAGE> 12
EXAMPLE*
Assuming a 5% annual return on assets, a $1,000 investment would be subject to
the following expenses:
<TABLE>
<CAPTION>
(A) = STANDARD DEATH BENEFIT
(B) = OPTIONAL DEATH BENEFIT
AND CREDIT
- ---------------------------------------------------------------------------------------------------------------------
IF CONTRACT IS SURRENDERED AT THE IF CONTRACT IS NOT SURRENDERED OR
END OF PERIOD SHOWN ANNUITIZED AT END OF PERIOD SHOWN:
------------------------------------- -------------------------------------
UNDERLYING FUNDING OPTIONS 1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SALOMON BROTHERS VARIABLE SERIES
FUNDS, INC.
Salomon Brothers Variable
Capital Fund................ (a) 68 87 107 212 18 57 97 212
(b) 73 100 130 258 23 70 120 258
Salomon Brothers Variable
Investors Fund.............. (a) 68 87 107 212 18 57 97 212
(b) 73 100 130 258 23 70 120 258
Salomon Brothers Variable
Total Return Fund........... (a) 68 87 107 212 18 57 97 212
(b) 73 100 130 258 23 70 120 258
STRONG VARIABLE INSURANCE FUNDS,
INC.
Strong Schafer Value Fund
II.......................... (a) 70 93 118 233 20 63 108 233
(b) 75 106 141 279 25 76 131 279
TRAVELERS SERIES FUND, INC.
Alliance Growth Portfolio..... (a) 66 81 98 192 16 51 88 192
(b) 71 95 121 240 21 65 111 240
MFS Total Return Portfolio.... (a) 67 82 99 194 17 52 89 194
(b) 71 95 122 242 21 65 112 242
Putnam Diversified Income
Portfolio................... (a) 67 83 101 198 17 53 91 198
(b) 72 96 124 245 22 66 114 245
Smith Barney High Income
Portfolio................... (a) 65 76 90 176 15 46 80 176
(b) 69 90 114 224 19 60 104 224
Smith Barney International
Equity Portfolio............ (a) 68 87 107 212 18 57 97 212
(b) 73 100 130 258 23 70 120 258
Smith Barney Large
Capitalization Growth
Portfolio................... (a) 68 87 107 212 18 57 97 212
(b) 73 100 130 258 23 70 120 258
THE TRAVELERS SERIES TRUST
Disciplined Mid Cap Stock
Portfolio................... (a) 68 85 105 206 18 55 95 206
(b) 72 99 128 253 22 69 118 253
Disciplined Small Cap Stock
Portfolio................... (a) 68 87 107 212 18 57 97 212
(b) 73 100 130 258 23 70 120 258
Equity Income Portfolio....... (a) 68 85 105 206 18 55 95 206
(b) 72 99 128 253 22 69 118 253
Federated Stock Portfolio..... (a) 67 84 103 202 17 54 93 202
(b) 72 98 126 249 22 68 116 249
Large Cap Portfolio........... (a) 68 85 105 206 18 55 95 206
(b) 72 99 128 253 22 69 118 253
Lazard International Stock
Portfolio................... (a) 71 94 120 238 21 64 110 238
(b) 75 108 143 284 25 78 133 284
MFS Mid Cap Growth Portfolio.. (a) 68 87 107 212 18 57 97 212
(b) 73 100 130 258 23 70 120 258
MFS Research Portfolio........ (a) 68 87 107 212 18 57 97 212
(b) 73 100 130 258 23 70 120 258
Social Awareness Stock
Portfolio................... (a) 67 82 99 194 17 52 89 194
(b) 71 95 122 242 21 65 112 242
Strategic Stock Portfolio..... (a) 67 84 102 201 17 54 92 201
(b) 72 97 125 248 22 67 115 248
</TABLE>
* The Example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.
(1) Reflects expenses that would be incurred for those Contract Owners who DO
NOT participate in the CHART Asset Allocation program.
(2) Reflects expenses that would be incurred for those Contract Owners who DO
participate in the CHART Asset Allocation program.
10
<PAGE> 13
EXAMPLE*
Assuming a 5% annual return on assets, a $1,000 investment would be subject to
the following expenses:
<TABLE>
<CAPTION>
(A) = STANDARD DEATH BENEFIT
(B) = OPTIONAL DEATH BENEFIT
AND CREDIT
- ---------------------------------------------------------------------------------------------------------------------
IF CONTRACT IS SURRENDERED AT THE IF CONTRACT IS NOT SURRENDERED OR
END OF PERIOD SHOWN ANNUITIZED AT END OF PERIOD SHOWN:
------------------------------------- -------------------------------------
UNDERLYING FUNDING OPTIONS 1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
THE TRAVELERS SERIES TRUST,
(CONT.)
Travelers Quality Bond
Portfolio................... (a) 65 75 88 171 15 45 78 171
(b) 69 89 112 220 19 59 102 220
U.S. Government Securities
Portfolio................... (a) 63 70 79 151 13 40 69 151
(b) 67 84 102 201 17 54 92 201
Utilities Portfolio........... (a) 66 80 97 190 16 50 87 190
(b) 71 94 120 238 21 64 110 238
WARBURG PINCUS TRUST
Emerging Markets Portfolio.... (a) 72 99 128 253 22 69 118 253
(b) 77 112 151 298 27 82 141 298
</TABLE>
<TABLE>
<S> <C>
* The Example should not be considered a representation of
past or future expenses. Actual expenses may be greater or
less than those shown.
(1) Reflects expenses that would be incurred for those Contract
Owners who DO NOT participate in the CHART Asset Allocation
program.
(2) Reflects expenses that would be incurred for those Contract
Owners who DO participate in the CHART Asset Allocation
program.
</TABLE>
11
<PAGE> 14
THE VARIABLE ANNUITY CONTRACT
- --------------------------------------------------------------------------------
The Travelers Retirement Account is designed to help you accumulate money for
retirement. Under the Contract, you (the contract owner or participant, as
applicable) make purchase payments to us and we credit them to your account. We
promise to pay you an income in the form of annuity payments, beginning on a
future date that you choose, the maturity date. The purchase payments and any
applicable credits accumulate tax deferred in the funding options that you
choose. You assume the risk of gain or loss according to the performance of the
funding options. The contract value is the amount of purchase payments, plus any
applicable credits, plus or minus any investment experience or interest. The
contract value also reflects all prior 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 become effective is referred to as the
contract date. Each 12 month period following this contract date is called a
contract year. The record of accumulation units credited to an owner is called
the owner's account. The record of accumulation units credited to a participant
is called the individual account, or participant's interest.
Certain changes and elections must be made in writing to the Company. Where the
term "written request" is used, it means that written information must be sent
to the Company's Home Office in a form and content satisfactory to Us.
CONTRACT OWNER INQUIRIES
Any questions you have about your Contract should be directed to the Company's
Home Office at 1-800-842-9406.
PURCHASE PAYMENTS
The initial purchase payment must be at least $20,000. Additional payments of at
least $5,000 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.
If the Optional Death Benefit is selected, we will add a credit to your Contract
with each purchase payment. Each credit is added to the contract value when the
applicable purchase payment is applied, and will equal 2% of each purchase
payment. These credits are applied pro rata to the same funding options to which
your purchase payment was applied.
CONSERVATION CREDIT
If you are purchasing this Contract with funds from another contract issued by
Us or Our affiliate, you may receive a conservation credit to your purchase
payments. If applied, the amount of such credit will be determined by Us.
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. When we receive a
purchase payment, we determine the number of accumulation units credited to your
Contract 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.
12
<PAGE> 15
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. You will find detailed
information about the options and their inherent risks in the current underlying
mutual fund prospectuses which must accompany this prospectus. You are not
investing directly in the underlying mutual funds. Since each option has varying
degrees of risk, please read the prospectuses carefully before investing. You
may obtain additional copies of the prospectuses by contacting your registered
representative or by calling 1-800-842-9406.
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.
The current funding options are listed below, along with their investment
advisers and any subadviser:
<TABLE>
<CAPTION>
FUNDING OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUB-ADVISER
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
High Yield Bond Trust Seeks generous income. The assets of the High Travelers Asset Management
Yield Bond Trust will be invested in bonds International Corporation
which, as a class, sell at discounts from par ("TAMIC")
value and are typically high risk securities.
Managed Assets Trust Seeks high total investment return through a TAMIC
fully managed investment policy in a Subadviser: Travelers
portfolio of equity, debt and convertible Investment Management Company
securities. ("TIMCO")
Money Market Portfolio Seeks high current income from short-term TAMIC
money market instruments while preserving
capital and maintaining a high degree of
liquidity.
AMERICAN ODYSSEY FUNDS, INC.
Core Equity Fund Seeks maximum long-term total return by American Odyssey Funds
investing primarily in common stocks of well- Management, Inc.
established companies. Subadviser: Equinox Capital
Management, L.L.C.
Emerging Opportunities Fund Seeks maximum long-term total return by American Odyssey Funds
investing primarily in common stocks of Management, Inc.
small, rapidly growing companies. Subadviser: Cowen Asset
Management and Chartwell
Investment Partners
Global High-Yield Bond Fund Seeks maximum long-term total return (capital American Odyssey Funds
appreciation and income) by investing Management, Inc.
primarily in high-yield debt securities from Subadviser: Credit Suisse Asset
the United States and abroad. Management
Intermediate-Term Bond Fund Seeks maximum long-term total return by American Odyssey Funds
investing primarily in intermediate-term Management, Inc.
corporate debt securities, U.S. government Subadviser: TAMIC
securities, mortgage-related securities and
asset-backed securities, as well as money
market instruments.
International Equity Fund Seeks maximum long-term total return by American Odyssey Funds
investing primarily in common stocks of Management, Inc.
established non-U.S. companies. Subadviser: Bank of Ireland
Asset Management (U.S.) Limited
Long-Term Bond Fund Seeks maximum long-term total return by American Odyssey Funds
investing primarily in long-term corporate Management, Inc.
debt securities, U.S. government securities, Subadviser: Western Asset
mortgage-related securities, and asset-backed Management Company
securities, as well as money market
instruments.
</TABLE>
13
<PAGE> 16
<TABLE>
<CAPTION>
FUNDING OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUB-ADVISER
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DELAWARE GROUP PREMIUM
FUND, INC.
REIT Series Seeks maximum long-term total return by Delaware Management Company,
investing in securities of companies Inc.
primarily engaged in the real estate Subadviser: Lincoln Investment
industry. Management, Inc.
Small Cap Value Series Seeks capital appreciation by investing Delaware Management Company,
primarily in common stocks whose market Inc.
values appear low relative to their
underlying value or future potential.
DREYFUS VARIABLE
INVESTMENT FUND
Capital Appreciation Portfolio Seeks primarily to provide long-term capital The Dreyfus Corporation
growth consistent with the preservation of Subadviser: Fayez Sarofim & Co.
capital; current income is a secondary ("Sarofim")
investment objective. The portfolio invests
primarily in the common stocks of domestic
and foreign issuers.
Small Cap Portfolio Seeks to maximize capital appreciation. The Dreyfus Corporation
GREENWICH STREET SERIES FUND
Equity Index Portfolio Seeks to replicate, before deduction of TIMCO
Class II(1) expenses, the total return performance of the
S&P 500 Index.
MONTGOMERY FUNDS III
Montgomery Variable Series: Seeks capital appreciation. Under normal Montgomery Asset Management
Growth Fund conditions, it invests at least 65% of its
assets in equity securities.
OCC ACCUMULATION TRUST Seeks long-term capital appreciation through Op Cap Advisors
Equity Portfolio investment in a diversified portfolio of
equity securities selected on the basis of a
value oriented approach to investing.
SALOMON BROTHERS VARIABLE
SERIES FUND, INC.
Salomon Brothers Variable Seeks above-average income (compared to a Salomon Brothers Asset
Total Return Fund portfolio invested entirely in equity Management ("SBAM")
securities). Secondarily, seeks opportunities
for growth of capital and income.
Salomon Brothers Variable Seeks long-term growth of capital. Current SBAM
Investors Fund income is a secondary objective.
Salomon Brothers Variable Seeks capital appreciation through SBAM
Capital Fund investments primarily in common stock, or
securities convertible to common stocks,
which are believed to have above-average
price appreciation potential and which may
also involve above-average risk.
STRONG VARIABLE INSURANCE
FUNDS, INC.
Strong Shafer Value Seeks primarily long-term capital Strong Capital Management, Inc.
Fund II appreciation. Current income is a secondary Subadviser: Shafer Capital
objective when selecting investments. Management, Inc.
TRAVELERS SERIES FUND, INC.
Alliance Growth Portfolio Seeks long-term growth of capital by Travelers Investment Adviser
investing predominantly in equity securities ("TIA")
of companies with a favorable outlook for Subadviser: Alliance Capital
earnings and whose rate of growth is expected Management L.P.
to exceed that of the U.S. economy over time.
Current income is only an incidental
consideration.
MFS Total Return Portfolio Seeks to obtain above-average income TIA
(compared to a portfolio entirely invested in Subadviser: Massachusetts
equity securities) consistent with the Financial Services Company
prudent employment of capital. Generally, at ("MFS")
least 40% of the Portfolio's assets will be
invested in equity securities.
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
FUNDING OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUB-ADVISER
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TRAVELERS SERIES FUND, INC.
(CONT.)
Putnam Diversified Income Seeks high current income consistent with TIA
Portfolio preservation of capital. The Portfolio will Subadviser: Putnam Investment
allocate its investments among the U.S. Management, Inc.
Government Sector, the High Yield Sector, and
the International Sector of the fixed income
securities markets.
Smith Barney High Income Seeks high current income. Capital SSBC Fund
Portfolio appreciation is a secondary objective. The Management Inc. ("SSBC")
Portfolio will invest at least 65% of its
assets in high-yielding corporate debt
obligations and preferred stock.
Smith Barney International Seeks total return on assets from growth of SSBC
Equity Portfolio capital and income by investing at least 65%
of its assets in a diversified portfolio of
equity securities of established non-U.S.
issuers.
Smith Barney Large Seeks long-term growth of capital by SSBC
Capitalization Growth Portfolio investing in equity securities of companies
with large market capitalizations.
TRAVELERS SERIES TRUST
Disciplined Mid Cap Seeks growth of capital by investing TAMIC
Stock Fund primarily in a broadly diversified portfolio Subadviser: TIMCO
of common stocks.
Disciplined Small Cap Fund Seeks long term capital appreciation by TAMIC
investing primarily (at least 65% of its Subadviser: TIMCO
total assets) in the common stocks of U.S.
Companies with relatively small market
capitalizations at the time of investment.
Equity Income Portfolio Seeks reasonable income by investing at least TAMIC
65% in income-producing equity securities. Subadviser: Fidelity Management
The balance may be invested in all types of & Research Company
domestic and foreign securities, including
bonds. The Portfolio seeks to achieve a yield
that exceeds that of the securities
comprising the S&P 500. The Subadviser also
considers the potential for capital
appreciation.
Federated Stock Portfolio Seeks growth of income and capital by TAMIC
investing principally in a professionally Subadviser: Federated
managed and diversified portfolio of common Investment Counseling, Inc.
stock of high-quality companies (i.e.,
leaders in their industries and characterized
by sound management and the ability to
finance expected growth).
Large Cap Portfolio Seeks long-term growth of capital by TAMIC
investing primarily in equity securities of Subadviser: Fidelity Management
companies with large market capitalizations. & Research Company
Lazard International Stock Seeks capital appreciation by investing TAMIC
Portfolio primarily in the equity securities of Subadviser: Lazard Asset
non-United States companies (i.e., Management
incorporated or organized outside the United
States).
MFS Mid Cap Growth Seeks to obtain long term growth of capital TAMIC
Portfolio by investing, under normal market conditions, Subadviser: MFS
at least 65% of its total assets in equity
securities of companies with medium market
capitalization which the investment adviser
believes have above-average growth potential.
MFS Research Portfolio Seeks to provide long-term growth of capital TAMIC
and future income. Subadviser: MFS
</TABLE>
15
<PAGE> 18
<TABLE>
<CAPTION>
FUNDING OPTION INVESTMENT OBJECTIVE INVESTMENT ADVISER/SUB-ADVISER
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TRAVELERS SERIES TRUST,
(CONT.)
Social Awareness Stock Seeks long-term capital appreciation and SSBC
Portfolio retention of net investment income by
selecting investments, primarily common
stocks, which meet the social criteria
established for the Portfolio. Social
criteria currently excludes companies that
derive a significant portion of their
revenues from the production of tobacco,
tobacco products, alcohol, or military
defense systems, or in the provision of
military defense related services or gambling
services.
Strategic Stock Portfolio Seeks to provide an above-average total TAMIC
return through a combination of potential Subadviser: TIMCO
capital 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 Industrial Index.
Travelers Quality Bond Seeks current income, moderate capital TAMIC
Portfolio(1) volatility and total return.
U.S. Government Seeks to select investments from the point of TAMIC
Securities Portfolio(1) view of 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.
Utilities Portfolio Seeks to provide current income by investing SSBC
in equity and debt securities of companies in
the utility industries.
WARBURG PINCUS TRUST
Emerging Markets Portfolio Seeks long-term growth of capital by Warburg Pincus Asset
investing primarily in equity securities of Management, Inc.
non-U.S. issuers consisting of companies in
emerging market securities.
</TABLE>
(1) Currently available under Variable Annuitization Floor Benefit.
An asset allocation program is available for certain funding options under the
Contract. See "Asset Allocation Advice."
TRANSFERS
- --------------------------------------------------------------------------------
Up to 30 days before the maturity date, you may transfer all or part of the
contract value between funding options. Transfers are made at the value(s) next
determined after we receive your request at the Home Office. There are no
charges or restrictions on the amount or frequency of transfers currently;
however, we reserve the right to charge a per-transfer fee on transfers
exceeding 12 per year, and, 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 also make transfers between
funding options.
DOLLAR COST AVERAGING PROGRAM
Dollar cost averaging or the pre-authorized transfer program (the "DCA Program")
allows you to transfer a set dollar amount to other funding options on a monthly
or quarterly basis during the accumulation phase of the Contract so that more
accumulation units are purchased in a funding option if the value per unit is
low and fewer accumulation units are purchased if the value per unit is high.
Therefore, a lower-than-average cost per unit may be achieved over the long run.
You may elect the DCA Program through written request or other method acceptable
to the Company. You must have a minimum total contract value of $5,000 to enroll
in the DCA Program. The minimum amount that may be transferred through this
program is $400.
16
<PAGE> 19
You may establish pre-authorized transfers of contract values from the Fixed
Account, subject to certain restrictions. Under the DCA Program, automated
transfers from the Fixed Account may not deplete your Fixed Account Value in
less than twelve months from your enrollment in the DCA Program.
In addition to the DCA Program, Travelers may credit increased interest rates to
contract owners under an administrative Special DCA Program established at the
discretion of Travelers, depending on availability and state law. Under this
program, the contract owner may pre-authorize level transfers to any of the
funding options under either a 6 Month Program or 12 Month Program. The 6 Month
Program and the 12 Month Program will generally have different credited interest
rates. Under the 6 Month Transfer Program, the interest rate can accrue up to 6
months on funds in the Special DCA Program and all purchase payments and accrued
interest must be transferred on a level basis to the selected funding option in
6 months. Under the 12 Month Program, the interest rate can accrue up to 12
months on funds in the Special DCA Program and all purchase payments and accrued
interest in this Program must be transferred on a level basis to the selected
funding options in 12 months.
The pre-authorized transfers will begin after the initial Program purchase
payment and complete enrollment instructions are received by Travelers. If
complete Program enrollment instructions are not received by the Company within
15 days of receipt of the initial Program purchase payment, the entire balance
in the Program will be credited with the non-Program interest rate then in
effect for the Fixed Account.
You may start or stop participation in the DCA Program at any time, but you must
give the Company at least 30 days' notice to change any automated transfer
instructions that are currently in place. If you stop the Special DCA Program
and elect to remain in the Fixed Account, your contract value will be credited
for the remainder of 6 or 12 months with the interest rate for non-Program
funds.
A contract owner may only have one DCA Program or Special DCA Program in place
at one time. Any subsequent purchase payments received by the Company within the
Program period selected will be allocated to the current funding options over
the remainder of that Program transfer period, unless otherwise directed by the
contract owner.
All provisions and terms of the Contract apply to the DCA and Special DCA
Programs, including provisions relating to the transfer of money between
investment options. We reserve the right to suspend or modify transfer
privileges at any time and to assess a processing fee for this service.
ASSET ALLOCATION ADVICE
Owners may elect to enter into a separate advisory agreement with Copeland
Financial Services, Inc. ("Copeland"), an affiliate of the Company. For a fee,
Copeland provides asset allocation advice under its CHART program, which is
fully described in a separate disclosure statement. The CHART Program may not be
available in all marketing programs through which this Contract is sold.
ACCESS TO YOUR MONEY
- --------------------------------------------------------------------------------
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
pro rata basis. The contract value will be determined as of the close of
business after we receive your surrender request at the Home Office. The value
may be more or less than the purchase payments made depending on the contract
value at the time of surrender.
We may defer payment of any cash surrender value (that is, contract value, less
charges for surrender and any premium taxes due) for a period of up to seven
days after the written request is received, but it is our intent to pay as soon
as possible. We cannot process requests for withdrawal that are not in good
order. We will contact you if there is a deficiency causing a delay and will
advise what is needed to act upon the withdrawal request.
17
<PAGE> 20
We also provide access to your money during the annuitization period, which is
discussed in detail in the "Annuity Period" section of this prospectus.
SYSTEMATIC WITHDRAWALS
Each contract year you may elect to take monthly, quarterly, semiannual or
annual systematic withdrawals of a specified dollar amount. Any applicable
withdrawal charges (in excess of the free withdrawal allowance) and any
applicable premium taxes will be deducted. To elect this option, an election
form provided by the Company must be completed. Systematic withdrawals may be
stopped at any time provided the Company receives at least 30 days' written
notice.
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 imposed 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.
MANAGED DISTRIBUTION PROGRAM. Under the Systematic Withdrawal option, you may
choose to participate in the Managed Distribution Program. At no cost to you,
you may instruct the Company to calculate and make minimum distributions that
may be required by the IRS upon reaching age 70 1/2. (See "Federal Tax
Considerations".) These payments will not be subject to the withdrawal charge
and will be in lieu of the 20% free withdrawal allowance. No Dollar Cost
Averaging will be permitted if you are participating in the Managed Distribution
Program.
CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
GENERAL
We deduct the charges described below. The charges are for the service and
benefits we provide, costs and expenses we incur, and risks we assume under the
Contracts. We may also deduct a charge for taxes. Services and benefits we
provide include:
- the ability for you to make withdrawals and surrenders under the
Contracts;
- the death benefit paid on the death of the annuitant;
- the available funding options and related programs, (including a
managed distribution program);
- administration of the annuity options available under the Contracts;
- distribution of various reports to contract owners.
Costs and expenses we incur include:
- losses associated with various overhead and other expenses
associated with providing the services and benefits provided by the
Contracts;
- sales and marketing expenses, and
- other costs of doing business.
Risks we assume include:
- the annuitants may live longer than estimated when the annuity
factors under the Contracts were established;
- the amount of the death benefit will be greater than the contract
value;
- the costs of providing the services and benefits under the contracts
will exceed the charges deducted.
Unless otherwise specified, charges are deducted proportionately from all
funding options in which you are invested.
We may reduce or eliminate the withdrawal charge and/or the mortality and
expense risk charge under the Contract when certain sales or administration of
the Contract result in savings or reduced expenses and/or risks. For certain
trusts, we may change the order in which purchase
18
<PAGE> 21
payments and earnings are withdrawn in order to determine the withdrawal charge.
We will not reduce or eliminate the withdrawal charge where such reduction or
elimination would be unfairly discriminatory to any person.
WITHDRAWAL CHARGE
We do not deduct a sales charge from purchase payments when they are made to the
Contract. However, a withdrawal charge (deferred sales charge) will be deducted
if any or all of the contract value is withdrawn during the first five years
following a purchase payment. The length of time from when we receive the
purchase payment to the time of withdrawal determines the amount of the charge.
The withdrawal charge is equal to a percentage of the amount of purchase
payments, plus any credits applied, which are withdrawn from the Contract and is
calculated as follows:
<TABLE>
<CAPTION>
LENGTH OF TIME FROM
PURCHASE PAYMENT WITHDRAWAL
(NUMBER OF YEARS) CHARGE
<S> <C>
1 5%
2 4%
3 3%
4 2%
5 1%
6 and thereafter 0%
</TABLE>
For purposes of the withdrawal charge calculation, withdrawals will be deemed to
be taken in the following order:
(a) first from any purchase payments and associated credits to which
no withdrawal charge applies;
(b) next from any remaining free withdrawal amount (as described
below) after the reduction by the amount of (a);
(c) next from remaining purchase payments and associated credits (on a
first-in, first-out basis); and then
(d) then from contract earnings (in excess of any free withdrawal
amount). Unless you instruct us otherwise, we will deduct the
withdrawal charge from the amount requested.
Where permitted by state law, we will not deduct a withdrawal charge:
(1) from payments we make due to the death of the annuitant;
(2) if an annuity payout, other than under the Liquidity Benefit
Option, (see "Liquidity Benefit") has begun;
(3) if an income option of at least ten years' duration is elected;
(4) from amounts withdrawn which are deposited to other contracts
issued by us or our affiliate (subject to Our approval);
(5) if withdrawals are taken under our Managed Distribution Program,
if elected by you (see "Access to Your Contract Values"); or
(6) if you are confined to an Eligible Nursing Home, as described in
Appendix B.
FREE WITHDRAWAL ALLOWANCE
There is a 20% free withdrawal allowance available each year. (If you have
purchase payments no longer subject to a withdrawal charge, the maximum you may
withdraw without a withdrawal charge is the greater of (a) the free withdrawal
allowance, or (b) the total amount of purchase payments no longer subject to a
withdrawal charge. Note: Any free withdrawal taken will reduce purchase payments
no longer subject to a withdrawal charge.) During the first contract year, the
available withdrawal amount will be 20% of the initial purchase payment. After
the first contract year, the available withdrawal amount will be calculated as
of the end of the previous contract year. The free withdrawal allowance applies
to partial withdrawals and to full withdrawals, except
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<PAGE> 22
those transferred directly to annuity contracts issued by other financial
institutions. In Washington state, the free withdrawal provision applies to all
withdrawals.
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.
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,
.80% of the amounts held in each funding option. For the Optional Death Benefit
and Credit, the charge equals on an annual basis, 1.25%. 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.
FLOOR BENEFIT/LIQUIDITY BENEFIT CHARGES
If the Variable Annuitization Floor Benefit is selected, a charge is deducted
upon election of this benefit. This charge compensates us for guaranteeing a
minimum variable annuity payment regardless of the performance of the funding
options selected by you. This charge will vary based upon market conditions, but
will never increase your annual separate account charge by more than 3%. The
charge will be set at the time of election, and will remain level throughout the
term of annuitization. If the Liquidity Benefit is selected, there is a
surrender charge of 5% of the amount withdrawn. Please refer to "The Annuity
Period" for a description of these benefits.
CHART ASSET ALLOCATION PROGRAM CHARGES
Under the CHART Program, purchase payments and cash values are allocated among
the specified asset allocation funds. The charge for this advisory service is
equal to a maximum of .80% of the assets subject to the CHART Program. The CHART
Program fee will be paid by quarterly withdrawals from the cash values allocated
to the asset allocation funds. The Company will not treat these withdrawals as
taxable distributions. Please refer to "Miscellaneous Contract Provisions" for
further information.
CHANGES IN TAXES BASED UPON PREMIUM OR VALUE
If there is any change in a law assessing taxes against the Company based upon
premiums, contract gains or value of the contract, we reserve the right to
charge you proportionately for this tax.
OWNERSHIP PROVISIONS
- --------------------------------------------------------------------------------
TYPES OF OWNERSHIP
Contract owner (you). The Contract belongs to the contract owner named in the
Contract (on the Specifications page). The annuitant is the individual upon
whose life the maturity date and the amount of monthly annuity payments depend.
Because this is a qualified contract, the contract owner and the annuitant must
always be the same person. You have sole power to exercise any rights and to
receive all benefits given in the contract provided you have not named an
irrevocable beneficiary.
Beneficiary. The beneficiary is named by you in a written request. The
beneficiary has the right to receive any remaining contractual benefits upon
your death. If more than one beneficiary
20
<PAGE> 23
survives the annuitant, they will share equally in benefits unless different
shares are recorded with the Company by written request before your death.
Unless an irrevocable beneficiary has been named, you have the right to change
any beneficiary by written request and while the Contract continues.
DEATH BENEFIT
- --------------------------------------------------------------------------------
DEATH PROCEEDS BEFORE THE MATURITY DATE
The person chosen as the beneficiary will receive a death benefit upon the death
of the owner/annuitant before the maturity date. You may select either the
Standard Death Benefit or the Optional Death Benefit and Credit at the time of
purchase:
STANDARD DEATH BENEFIT:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
ANNUITANT'S AGE DEATH BENEFIT PAYABLE
ON THE CONTRACT DATE (CALCULATED AS OF THE DEATH REPORT DATE)
- ------------------------------------------------------------------------------------------
<S> <C>
Before age 80 Greater of:
(1) contract value, or
(2) total purchase payments less any withdrawals (and
related charges).
- ------------------------------------------------------------------------------------------
On or after age 80 Contract value.
- ------------------------------------------------------------------------------------------
</TABLE>
OPTIONAL DEATH BENEFIT AND CREDIT
The Optional Death Benefit and Credit varies depending on the Annuitant's age on
the contract date.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
ANNUITANT'S AGE DEATH BENEFIT PAYABLE
ON THE CONTRACT DATE (CALCULATED AS OF THE DEATH REPORT DATE)
- ------------------------------------------------------------------------------------------
<S> <C>
Under Age 70 IF NOTIFIED WITHIN 6 MONTHS OF THE DEATH: Greatest of:
(1) contract value;
(2) total purchase payments, less any withdrawals (and
related charges), or
(3) maximum Step Up death benefit value (described below)
associated with contract date anniversaries beginning with
the 5th, and ending with the last before the annuitant's
76th birthday.
IF NOTIFIED 6 MONTHS OR MORE AFTER THE DEATH: contract value
(unless prohibited by state law)
- ------------------------------------------------------------------------------------------
Age 70-75 IF NOTIFIED WITHIN 6 MONTHS OF THE DEATH: Greatest of:
(1) above,
(2) above, or
(3) the Step Up death benefit value (described below)
associated with the 5th contract date anniversary.
IF NOTIFIED 6 MONTHS OR MORE AFTER THE DEATH: contract value
(unless prohibited by state law)
- ------------------------------------------------------------------------------------------
Age 76-80 Greater of (1) or (2) above.
- ------------------------------------------------------------------------------------------
Age over 80 The contract value.
- ------------------------------------------------------------------------------------------
</TABLE>
All death benefit values described above are calculated at the close of business
on the date the Company received due proof of death and written distribution
instructions (the death report date). The amounts will be reduced by any
applicable premium taxes due and any outstanding loans.
STEP-UP DEATH BENEFIT VALUE
A separate Step-Up death benefit value will be established on the fifth contract
date anniversary, and on each subsequent contract date anniversary on or before
the death report date and will initially equal the contract value on that
anniversary. After a Step-Up death benefit 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. Step-Up death benefit values will be
recalculated by increasing them by the amount of each applicable purchase
payment and by reducing them by a Partial
21
<PAGE> 24
Surrender Reduction (as described below) for each applicable partial surrender.
Recalculations of Step-Up death benefit 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 a Step-Up death benefit 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.
DEATH PROCEEDS AFTER THE MATURITY DATE
If the death of the 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.
PAYMENT OF PROCEEDS
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.
The Company will pay the proceeds to the beneficiary(ies), or if none, to the
contract owner's estate.
THE ANNUITY PERIOD
- --------------------------------------------------------------------------------
MATURITY DATE
Under the Contract, you can receive scheduled 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 selection any time up to 30 days prior
to the maturity date. Annuity payments will begin on the maturity date requested
by you 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
or (d) for a number of payments assured. We may require proof that the annuitant
is alive before annuity payments are made.
You may annuitize your contract immediately after purchase, or select a later
maturity date. Unless you elect otherwise, the maturity date will be the later
of the annuitant's 90th birthday, or ten years after the effective date of the
Contract. In certain states, the maturity date elected may not be later than the
annuitant's 90th birthday.
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. Depending on your plan, these mandatory
distribution requirements take effect generally 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. Please refer to the optional, no-cost Managed Distribution
Program described in the "Access to Your Money" section of this prospectus.
Independent tax advice should be sought regarding the election of minimum
required distributions.
LIQUIDITY BENEFIT
If you select any annuity option which guarantees you payments for a minimum
period of time, ("period certain") you may take a lump sum payment (equal to a
portion or all of the value of the remaining payments) any time after the first
contract year. There is a surrender charge of 5% of the amount withdrawn under
this option.
For variable annuity payments, we use the Assumed Net Investment Factor,
("ANIF") as the interest rate to determine the lump sum amount. If you request
only a percentage of the amount available, we will reduce the amount of each
payment during the rest of the period certain by that
22
<PAGE> 25
percentage. After the period expires, your payments will increase to the level
as if no liquidation had taken place.
For fixed annuity payments, we calculate the present value of the remaining
period certain payments using a current interest rate. The current interest rate
used depends on the amount of time left in the annuity option you elected. The
current rate will be the same rate we would give to someone electing an annuity
option for that same amount of time. If you request a percentage of the amount
available during the period certain, we will reduce the amount of each payment
during the rest of the period certain by that percentage. After the period
certain expires, your payments will increase to the level as if no liquidation
had taken place.
The market value adjustment formula for calculating the present value described
above for fixed annuity payments is as follows:
Present Value =LOGO[Payment(s) X (1/1 + iC)(t/365)]
Where
<TABLE>
<S> <C> <C>
iC = the interest rate described above
n = the number of payments remaining in the contract owner's
certain period at the time of request for this benefit
t = number of days remaining until that payment is made,
adjusting for leap years.
</TABLE>
See Appendix C for examples of this market value adjustment.
ALLOCATION OF ANNUITY
If, at the time annuity payments begin, no election has been made to the
contrary, the cash surrender value will be applied to provide an annuity funded
by the same funding options selected during the accumulation period. At least 30
days before the maturity date, you may transfer the contract value among the
funding options in order to change the basis on which annuity payments will be
determined. (See "Transfers.")
ANNUITIZATION CREDIT. This credit is applied to the contract value used to
purchase one of the Annuity Options described below. The credit equals 0.5% of
your contract value if you annuitize during contract years 2-5, 1% during
contract years 6-10, and 2% after contract year 10. There is no credit applied
to contracts held less than 1 year.
VARIABLE ANNUITY
You may choose to receive annuity payments that are based on the performance of
one or more of the variable funding options. This is called a variable payout
because the amount you receive each month will increase or decrease depending on
how the variable funding options perform. When you annuitize, we will credit you
with annuity units. An annuity unit measures the dollar value of an annuity
payment. We determine the number of annuity units to credit you with by dividing
the first monthly annuity payment for each funding option by the accumulation
unit value for that funding option as of 14 days before the annuity payments
begin. The number of annuity units (but not their value) remains fixed during
the annuity period.
HOW WE DETERMINE THE FIRST ANNUITY PAYMENT. The Contract contains tables used
to determine the first monthly annuity payment. If a variable annuity is
elected, the amount applied to it will be the value of the funding options as of
14 days before the annuity payments begin less any premium taxes due.
The first monthly payment amount depends on the annuity option elected, the
annuitant's adjusted age, and the ANIF selected by you at the time of
annuitization (3% or 5%). The Contract contains a formula for determining the
adjusted age. We calculate the first monthly payment by multiplying the benefit
per $1,000 applied, shown in the Contract tables, by the number of thousands of
dollars of contract value applied to the annuity option. The ANIF is used to
determine the guaranteed payout rates shown. If you select the 5% ANIF, your
initial payments will be higher. If you select the 3% ANIF, the amount of your
payments will increase more quickly. If net
23
<PAGE> 26
investment rates are higher at the time annuitization is selected, payout rates
will be higher than those shown. Payout rates will not be lower than those
shown. We reserve the right to require satisfactory proof of an annuitant's age
before we make the first annuity payment.
HOW WE DETERMINE THE PAYMENTS AFTER THE FIRST. The dollar amount of all annuity
payments after the first will change from month to month based on the investment
performance of the applicable funding options. The total amount of each annuity
payment will equal the sum of the basic payments in each funding option. The
actual amounts of these payments are determined by multiplying the number of
annuity units credited to each funding option by the corresponding annuity unit
value as of the date 14 days before the payment is due.
FIXED ANNUITY
You may choose a fixed annuity that provides payments which do not vary during
the annuity period. We will calculate the dollar amount of the first fixed
annuity payment as described under "Variable Annuity," except that the amount
applied to 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 Fixed Life Annuity Tables in effect on the maturity
date.
If you have elected the Increasing Benefit Option, the payments will be
calculated as above, however, the initial payment will be less than that
reflected in the table and the subsequent payments will be increased by the
percentage you elected.
PAYOUT OPTIONS
- --------------------------------------------------------------------------------
ELECTION OF OPTIONS
You can change your annuity option selection any time up to the maturity date.
Once annuity payments have begun, no further elections are allowed.
AUTOMATIC OPTION. Unless we are directed otherwise before the maturity date, we
will pay you (or another designated payee) the first of a series of fixed
monthly annuity payments based on your lifetime in accordance with Annuity
Option 2 (Life Annuity with 120 monthly payments assured). For certain
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 as described
above. You must elect an option in writing, in a form satisfactory to the
Company. Any election made during your lifetime must be made by you.
VARIABLE ANNUITIZATION FLOOR BENEFIT. This benefit may not be available, or may
only be available under certain annuity options, if we determine the market
conditions so dictate. If available, the Company will guarantee that, regardless
of the performance of the funding options selected by you, your annuity payments
will never be less than a certain percentage of your first annuity payment. This
percentage will vary depending on market conditions, but will never be less than
50%. You may not elect this benefit if you are over age 80. Additionally, you
must select from certain funds available under this guarantee. Currently, these
funds are the Equity Index Portfolio Class II, the Travelers Quality Bond
Portfolio, and the U.S. Government Securities Portfolio. We may, at our
discretion increase or decrease the number of funds available under this
benefit. This benefit is not currently available under Option 5. The benefit is
not available with the 5% ANIF under any option. If you select this benefit, you
may not elect to liquidate any portion of your contract.
24
<PAGE> 27
There is a charge for this guarantee, which will begin upon election of this
benefit. This charge will vary based upon market conditions, and will be
established at the time the benefit is elected. Once established, the charge
will remain level throughout the remainder of the annuitization, and will never
increase your annual separate account charge by more than 3% per year.
We reserve the right to restrict the amount of contract value to be annuitized
under this benefit.
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. We may offer additional options. Options 1-5 below may be
applied to either a Fixed or Variable Annuity.
INCREASING BENEFIT OPTION. For Fixed Annuities, the annuity payment you receive
may be either level (except after death of Primary Payee in Option 4) or
increasing. If increasing payments are elected, the initial payment will be less
than the corresponding level payment for the same annuity option, but your
payments will increase on each contract date anniversary by a percentage chosen
by you. You may choose a whole number from 1 to 4%.
Option 1 -- Life Annuity -- No Refund. The Company will make annuity payments
during your lifetime 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 your lifetime, with the
agreement that if, at your death, payments have been made for less than 120, 180
or 240 months as elected, we will continue making payments to the beneficiary
during the remainder of the period.
Option 3 -- Joint and Last Survivor Life Annuity -- No Refund. The Company will
make regular annuity payments during your lifetime and the lifetime of 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
you 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.
Option 6 -- Income Option: The Company will make a certain number of payments
which are not based on the annuitant's lifetime.
MISCELLANEOUS CONTRACT PROVISIONS
- --------------------------------------------------------------------------------
RIGHT TO RETURN
You may return the Contract for a full refund of the contract value (including
charges) within ten days after you receive it (the "right to return period").
You bear the investment risk during the 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
25
<PAGE> 28
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 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.
FINANCIAL STATEMENTS
The Financial Statements for the Company are included in the Form 10-K, which is
attached to this prospectus. Because the separate account is new, it has no
financial statements. When available, the financial statements for the separate
account will be available through annual reports to shareholders. These reports
will also be accessible through the SEC'S website that appears on the first page
of this prospectus.
THE SEPARATE ACCOUNT
- --------------------------------------------------------------------------------
The Travelers Separate Account Six For Variable Annuities ("Separate Account
Six") was established on June 8, 1998 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 Six will be invested
exclusively in the shares of the variable funding options.
The assets of Separate Account Six are held for the exclusive benefit of the
owners of this separate account, according to the laws of Connecticut. The
assets held by Separate Account Six 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 Six. 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.
26
<PAGE> 29
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 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). 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-to-date, and for the past one-, three-,
five- and ten-year periods. The withdrawal charge is not reflected because the
contract is designed for long-term investment.
For funding options that were in existence prior to the date they became
available under the Separate Account, the standardized average annual total
return quotations may be accompanied by returns showing the investment
performance that such funding options would have achieved (reduced by the
applicable 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
- --------------------------------------------------------------------------------
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. This contract is
intended primarily for use as a qualified annuity, therefore this tax discussion
will be limited to such contracts.
QUALIFIED CONTRACTS
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
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are: IRAs, 403(b) annuities, pension and profit-sharing plans (including 401(k)
plans), Keogh Plans, and certain other qualified deferred compensation plans.
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.
TAXATION OF SURRENDERS UNDER LIQUIDITY FEATURE
As discussed above, no taxable income is recognized prior to the distribution of
proceeds to the Contract Owner. The Liquidity Benefit available under this
Contract is a distribution under the Code, and is therefore subject to ordinary
income tax as well as the penalty tax for premature distributions, if
applicable.
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 or the year of retirement.
Distributions must begin or be continued according to required patterns
following the death of the contract owner or annuitant of qualified annuities.
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AVAILABLE INFORMATION
- --------------------------------------------------------------------------------
The Company is subject to the information requirements of the Securities
Exchange Act of 1934 (the "1934 Act"), as amended, and files reports and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports and other information can be inspected and copied at the public
reference facilities of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. and at the Commission's Regional Offices located at Seven World
Trade Center, New York, New York 10048, and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
can also be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
Under the Securities Act of 1933, the Company has filed with the Commission a
registration statement (the "Registration Statement") relating to the Contracts
offered by this Prospectus. This Prospectus has been filed as a part of the
Registration Statement and does not contain all of the information set forth in
the Registration Statement and the exhibits, and reference is hereby made to
such Registration Statement and exhibits for further information relating to the
Company and the Contracts. The Registration Statement and the exhibits may be
inspected and copied as described above. Although the Company does furnish the
Annual Report on Form 10-K for the year ended December 31, 1998 to owners of
contracts or certificates, the Company does not plan to furnish subsequent
annual reports containing financial information to the owners of contracts or
certificates described in this Prospectus.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
- --------------------------------------------------------------------------------
The Company's latest Annual Report on Form 10-K has been filed with the
Commission pursuant to Section 15(d) of the 1934 Act.
The Form 10-K for the fiscal year ended December 31, 1998 contains additional
information about the Company, including audited financial statements for the
Company's latest fiscal year. It was filed on March 17, 1999 via Edgar; File No.
33-33691.
If requested, the Company will furnish, without charge, to each person to whom a
copy of this Prospectus is delivered, a copy of the documents referred to above
which have been incorporated by reference in the Prospectus, other than exhibits
to the documents (unless such exhibits are specifically incorporated by
reference in such documents). Any such requests should be directed to The
Travelers Insurance Company, One Tower Square, Hartford, Connecticut 06183-5030,
Attention: Annuity Services. The telephone number is (860) 422-3985. You may
also obtain copies of any documents, incorporated by reference into this
prospectus by accessing the SEC's website (http://www.sec.gov).
OTHER INFORMATION
- --------------------------------------------------------------------------------
THE INSURANCE COMPANY
The Travelers Life and Annuity Company is a stock insurance company chartered in
1973 in Connecticut and continuously engaged in the insurance business since
that time. It is licensed to conduct life insurance business in a majority of
the states of the United States, and intends to seek licensure in the remaining
states of the United States, except New York. The Company is an indirect wholly
owned subsidiary of Citigroup Inc. The Company's Home Office is located at One
Tower Square, Hartford, Connecticut 06183.
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YEAR 2000 COMPLIANCE
The Company is highly dependent on computer systems and systems applications for
conducting its ongoing business functions. In 1996, The Travelers Insurance
Company and its subsidiaries, including the Company, began the process of
identifying, assessing and implementing changes to computer programs to address
the Year 2000 issue and developed a comprehensive plan that encompasses The
Travelers Insurance Company and its insurance subsidiaries, to address the
issue. The issue involves the ability of computer systems that have time
sensitive programs to recognize properly the Year 2000. The inability to do so
could result in major failures or miscalculations that would disrupt the
Company's ability to meet its customer and other obligations on a timely basis.
The Company has achieved substantial compliance with respect to its business
critical systems in accordance with its Year 2000 plan and is in the process of
certification to validate compliance. The Company anticipates completing the
certification process by June 30, 1999. An ongoing re-certification process will
be put in place for third and fourth quarter 1999 to ensure all systems and
products remain compliant.
The total cost associated with the required modifications and conversions is
being expensed as incurred in the period 1996 through 1999. The Company also has
third party customers, financial institutions, vendors and others with which it
conducts business and has confirmed their plans to address and resolve Year 2000
issues on a timely basis. While it is likely that these efforts by third party
vendors and customers will be successful, it is possible that a series of
failures by third parties could have a material adverse effect on the Company's
results of operations in future periods.
In addition, the Company is developing contingency plans to address perceived
risks associated with the Year 2000 effort. These include business resumption
plans to address the possibility of internal systems failures and the
possibility of failure of systems or processes outside the Company's control. As
of year-end 1998, the Company has completed initial business resumption
contingency plans which would enable business critical units to function
beginning January 1, 2000 in the event of an unexpected failure. Business
resumption contingency plans are expected to be finalized by June 30, 1999.
Preparations for the management of the date change will continue through 1999.
DISTRIBUTION OF VARIABLE ANNUITY CONTRACTS
The Company intends to sell the Contracts in all jurisdictions where it is
licensed to do business and where the Contract is approved. Any sales
representative or employee who sells the Contracts will be qualified to sell
variable annuities under applicable federal and state laws. Each broker-dealer
is registered with the SEC under the Securities Exchange Act of 1934, and all
are members of the NASD. The principal underwriter and distributor of the
Contracts is CFBDS, Inc., 21 Milk St., Boston, MA. CFBDS, Inc. is not affiliated
with the Company or the Separate Account.
Up-front compensation paid to sales representatives will not exceed 7.00 % of
the purchase payments made under the Contracts. If asset-based compensation is
paid, it will not exceed 2% of the average account value annually. From time to
time, the Company may pay or permit other promotional incentives, in cash,
credit or other compensation.
CONFORMITY WITH STATE AND FEDERAL LAWS
The Contract is governed by the laws of the state in which it is delivered. Any
paid-up annuity, 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 legal requirements of any governmental agency to
which the Company, the Contract or the contract owner is subject. Where a state
requires contract owner approval, we will comply.
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VOTING RIGHTS
The Company is the legal owner of the shares of the funding options. However, we
believe that when a funding option solicits proxies in conjunction with a vote
of shareholders we are required to obtain from you and from other owners
instructions on how to vote those shares. When we receive those instructions, we
will vote all of the shares we own in proportion to those instructions. This
will also include any shares we own on our own behalf. Should we determine that
we are no longer required to comply with the above, we will vote on the shares
in our own right.
LEGAL PROCEEDINGS AND OPINIONS
There are no pending material legal proceedings affecting the Separate Account
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 reviewed by
the General Counsel of the Company.
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APPENDIX A
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TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information contains more specific information and
financial statements relating to The 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 Principal Underwriting Agreement
Valuation of Assets
Mixed and Shared Funding
Performance Information
Federal Tax Considerations
Independent Accountants
Financial Statements
- --------------------------------------------------------------------------------
Copies of the Statement of Additional Information dated May 1, 1999 (Form No.
21256S) are available without charge. To request a copy, please clip this coupon
on the dotted line above, enter your name and address in the spaces provided
below, and mail to: The Travelers Life and Annuity Company, Annuity Services,
One Tower Square, Hartford, Connecticut 06183-9061.
Name:
Address:
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APPENDIX B
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WAIVER OF WITHDRAWAL CHARGE FOR NURSING HOME CONFINEMENT
(This waiver is not available if the Annuitant is age 71 or older on the date
the Contract is issued. Please refer to your contract for any state variations
of this Waiver.)
If, after the first contract year and prior to the maturity date of the
Contract, the annuitant begins confinement in an Eligible Nursing Home, and
remains confined for the qualifying period, you may make a total or partial
withdrawal, subject to the maximum withdrawal amount described below, without
incurring a Withdrawal Charge. In order for the Withdrawal Charge to be waived,
the withdrawal must be made during continued confinement in an Eligible Nursing
Home after the qualifying period has been satisfied, or within sixty (60) days
after such confinement ends. The qualifying period is confinement in an Eligible
Nursing Home for ninety (90) consecutive days. We will require proof of
confinement in a form satisfactory to us, which may include certification by a
licensed physician that such confinement is medically necessary.
An Eligible Nursing Home is defined as an institution or special nursing unit of
a hospital which:
(a) is Medicare approved as a provider of skilled nursing care services; and
(b) is not, other than in name only, an acute care hospital, a home for the
aged, a retirement home, a rest home, a community living center, or a place
mainly for the treatment of alcoholism, mental illness or drug abuse.
OR
Meets all of the following standards:
(a) is licensed as a nursing care facility by the state in which it is licensed;
(b) is either a freestanding facility or a distinct part of another facility
such as a ward, wing, unit or swing-bed of a hospital or other facility;
(c) provides nursing care to individuals who are not able to care for themselves
and who require nursing care;
(d) provides, as a primary function, nursing care and room and board; and
charges for these services;
(e) care is provided under the supervision of a licensed physician, registered
nurse (RN) or licensed practical nurse (LPN);
(f) may provide care by a licensed physical, respiratory, occupational or speech
therapist; and
(g) is not, other than in name only, an acute care hospital, a home for the
aged, a retirement home, a rest home, a community living center, or a place
mainly for the treatment of alcoholism, mental illness or drug abuse.
FILING A CLAIM: You must provide the Company with written notice of a claim
during continued confinement following completion of the qualifying period, or
within sixty days after such confinement ends.
The maximum withdrawal amount available without incurring a Withdrawal Charge is
the contract value on the next valuation date following written proof of claim,
less any purchase payments made within a one year period prior to the date
confinement in an Eligible Nursing Home begins, less any additional purchase
payments made on or after the Annuitant's 71st birthday.
Any withdrawal requested which falls under the scope of this waiver will be paid
as soon as we receive proper written proof of your claim, and will be paid in a
lump sum. You should consult with your personal tax adviser regarding the
taxable nature of any withdrawals taken from your contract.
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<PAGE> 39
APPENDIX C
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MARKET VALUE ADJUSTMENT
If you (the Annuitant) have selected any period certain option, you may elect to
surrender a payment equal to a portion or all of the present value of the
remaining period certain payments any time after the first contract year. There
is a surrender charge of 5% of the amount withdrawn under this option.
For fixed annuity payments, we calculate the present value of the remaining
period certain payments using a current interest rate. The current interest rate
is the then current annual rate of return offered by Us on new Fixed Annuity
period certain only annuitizations for the amount of time remaining in the
certain period. If the period of time remaining is less than the minimum length
of time for which we offer a new Fixed Annuity Period Certain Only
Annuitization, then the interest rate will be the rate of return for that
minimum length of time.
The formula for calculating the Present Value is as follows:
Present Value =LOGO[Payment(s) X (1/1 + iC)(t/365)]
Where
iC = the interest rate described above
n = the number of payments remaining in the contract owner's certain
period at the time of request for this benefit
t = number of days remaining until that payment is made, adjusting for
leap years.
If you request a percentage of the total amount available, the remaining period
certain payments will be reduced by that percentage for the remainder of the
certain period. After the certain period expires, any remaining payments will
increase to the level they would have been had no liquidation taken place.
Illustration:
<TABLE>
<S> <C>
Amount Annuitized: $12,589.80
Annuity Option: Life w/10 Year Certain
$1,000 Annually--first payment
Annuity Payments: immediately
</TABLE>
For the purposes of this illustration, assume after two years (immediately
preceding the third payment), you choose to receive full liquidity, and the
current rate of return which we are then crediting for 8 year fixed Period
Certain Only Annuitizations is 4.00%. The total amount available for liquidity
is calculated as follows:
1000 + (1000/1.04) + (1000/1.04)( 7/8)2 + (1000/1.04)( 7/8)3 +
(1000/1.04)( 7/8)4 + (1000/1.04)( 7/8)5
+ (1000/1.04)( 7/8)6 + (1000/1.04)( 7/8)7 = $7002.06
The surrender penalty is calculated as 5% of $7,002.06, or $350.10.
The net result to you after subtraction of the surrender penalty of $350.10
would be $6,651.96.
You would receive no more payments for 8 years. After 8 years, if you are still
living, you will receive $1000 annually until your death.
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<PAGE> 43
L-21257 May, 1999
<PAGE> 44
PART B
Information Required in a Statement of Additional Information
<PAGE> 45
TRAVELERS RETIREMENT ACCOUNT
VARIABLE ANNUITY
STATEMENT OF ADDITIONAL INFORMATION
dated
May 1, 1999
for
THE TRAVELERS SEPARATE ACCOUNT SIX
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 Variable Annuity Contract
Prospectus dated May 1, 1999. A copy of the Prospectus may be obtained by
writing to The Travelers Life and Annuity Company, Annuity Services, One Tower
Square, Hartford, Connecticut 06183-8036, or by calling (800) 842-9406 or by
accessing the Securities and Exchange Commission's website at
http://www.sec.gov.
TABLE OF CONTENTS
THE INSURANCE COMPANY ..................................................... 1
PRINCIPAL UNDERWRITER ..................................................... 1
DISTRIBUTION AND PRINCIPAL UNDERWRITING AGREEMENT ......................... 1
VALUATION OF ASSETS ....................................................... 2
MIXED AND SHARED FUNDING .................................................. 3
PERFORMANCE INFORMATION ................................................... 3
FEDERAL TAX CONSIDERATIONS ................................................ 9
INDEPENDENT ACCOUNTANTS ................................................... 11
FINANCIAL STATEMENTS ...................................................... F-1
<PAGE> 46
THE INSURANCE COMPANY
The Travelers Life and Annuity Company (the "Company") is a stock
insurance company chartered in 1973 in Connecticut and continuously engaged in
the insurance business since that time. The Company is licensed to conduct a
life insurance business in all states, (except New Hampshire and New York) and
the District of Columbia and Puerto Rico. The Company's Home Office is located
at One Tower Square Hartford, Connecticut 06183 and its telephone number is
(860) 277-0111.
The Company is a wholly owned subsidiary of The Travelers Insurance
Company, which is a wholly owned subsidiary of Citigroup Inc. Citigroup consists
of businesses that produce a broad range of financial services, including asset
management, banking and consumer finance, credit and charge cards, insurance,
investments, investment banking and trading. Among its businesses are Citibank,
Commercial Credit, Primerica Financial Services, Salomon Smith Barney, Salomon
Smith Barney Asset Management, and Travelers Property Casualty.
STATE REGULATION. The Company is subject to the laws of the state of Connecticut
governing insurance companies and to regulation by the Insurance Commissioner of
the state of Connecticut (the "Commissioner"). An annual statement covering the
operations of the Company for the preceding year, as well as its financial
conditions as of December 31 of such year, must be filed with the Commissioner
in a prescribed format on or before March 1 of each year. The Company's books
and assets are subject to review or examination by the Commissioner or his
agents at all times, and a full examination of its operations is conducted at
least once every four years.
The Company is also subject to the insurance laws and regulations of all
other states in which it is licensed to operate. However, the insurance
departments of each of these states generally apply the laws of the home state
(jurisdiction of domicile) in determining the field of permissible investments.
THE SEPARATE ACCOUNT. Separate Account Six 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 Six are
subject to the provisions of Section 38a-433 of the Connecticut General Statutes
which authorizes the Commissioner to adopt regulations under it. Section 38a-433
contains no restrictions on the investments of the Separate Account, and the
Commissioner has adopted no regulations under the Section that affect the
Separate Account.
PRINCIPAL UNDERWRITER
CFBDS, Inc. serves as principal underwriter for Separate Account Six and
the Contracts. The offering is continuous. CFBDS, Inc.'s principal executive
offices are located at 21 Milk Street, Boston, MA 02116. CFBDS is not affiliated
with the Company or Separate Account Six.
DISTRIBUTION AND PRINCIPAL UNDERWRITING AGREEMENT
Under the terms of the Distribution and Principal Underwriting Agreement
among Separate Account Six, CFBDS and the Company, CFBDS acts as agent for the
distribution of the Contracts and as principal underwriter for the Contracts.
The Company reimburses CFBDS for certain sales and overhead expenses connected
with sales functions.
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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 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
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<PAGE> 48
preceding business day, multiplied by (b) the corresponding net investment
factor for the valuation period just ended, divided by (c) the assumed net
investment factor for the valuation period. (For example, the assumed net
investment factor based on an annual assumed net investment rate of 3.0% for a
Valuation Period of one day is 1.000081 and, for a period of two days, is
1.000081 x 1.000081.) After the maturity date, withdrawals from the annuity unit
value will be permitted only if you have elected a variable payout option for a
fixed period which is not based on any lifetime. The maximum withdrawal amount
will be calculated by computing the payments at 7% annual interest rate.
MIXED AND SHARED FUNDING
Certain variable annuity separate accounts and variable life insurance
separate accounts may invest in the Funding Options simultaneously (called
"mixed" and "shared" funding). It is conceiveable that in the future it may be
disadvantageous to do so. Although the Company and the Funding Options do not
currently forsee any such disadvantages either to variable annuity contract
owners or variable life policy owners, each Funding Option's Board of Directors
intends to monitor events in order to identify any material conflicts between
them and to determine what action, if any, should be taken. If a Board of
Directors was to conclude that separate funds should be established for variable
life and variable annuity separate accounts, the variable annuity contract
owners would not bear any of the related expenses, but variable annuity contract
owners and variable life insurance policy owners would no longer have the
economies of scale resulting from a larger combined fund.
PERFORMANCE INFORMATION
From time to time, the Company may advertise several types of historical
performance for the Funding Options of Separate Account Six. The Company may
advertise the "standardized average annual total returns" of the Funding
Options, calculated in a manner prescribed by the Securities and Exchange
Commission, as well as the "nonstandardized total returns," as described below:
STANDARDIZED METHOD. Quotations of average annual total returns are
computed according to a formula in which a hypothetical initial investment of
$1,000 is applied to the Funding Option, and then related to ending redeemable
values over one-, five-, and ten-year periods, or for a period covering the time
during which the Funding Option has been in existence, if less. If a Funding
Option has been in existence for less than one year, the "since inception" total
return performance quotations are year-to-date and are not average annual total
returns. These quotations reflect the deduction of all recurring charges during
each period (on a pro rata basis in the case of fractional periods). Each
quotation assumes a total redemption at the end of each period with the
assessment of any applicable withdrawal charge at that time.
NONSTANDARDIZED METHOD. Nonstandardized "total returns" will be calculated
in a similar manner based on the performance of the Funding Options over a
period of time, usually for the calendar year-to-date, and for the past one-,
three-, five- and ten-year periods. Two sets of illustrations will be shown -
one taking deferred sales charges into consideration, one not taking deferred
sales charges into consideration. For each set, the maximum M&E of 1.25% is
reflected. If Nonstandardized total returns reflected the deduction of any
applicable withdrawal charge, the level of performance shown would be decreased.
The withdrawal charge is not reflected because the Contract is designed for
long-term investment.
4
<PAGE> 49
For Funding Options that were in existence prior to the date they became
available under Separate Account Six, 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 Separate Account Six and the Funding Options.
Average annual total returns have been calculated using each Funding
Option's investment performance since inception. The returns were computed
according to the nonstandardized method for the period ending December 31, 1998
as if they had been available under Separate Account Six during that time. They
are set forth in the following tables. No standardized information is currently
available.
5
<PAGE> 50
TRAVELERS REQUIREMENT ACCOUNT
NON STANDARDIZED PERFORMANCE - AVERAGE ANNUAL RETURNS AS OF 12/31/1998
(TAKING INTO ACCOUNT ALL CHARGES AND FEES)
<TABLE>
<CAPTION>
STOCK ACCOUNTS: 1 Year 5 Year 10 Year (or inception)
- --------------- ------ ------ ----------------------
<S> <C> <C> <C>
Alliance Growth Portfolio 22.45% -- 26.21% (6/94)
American Odyssey Core Equity Fund 9.10% 25.14% 17.02% (5/93)
American Odyssey Emerging Opportunities Fund -14.30% 4.03% 5.87% (5/93)
American Odyssey International Equity Fund 8.45% 13.24% 10.87% (5/93)
WITH CHART FEE OF 0.80%
American Odyssey Core Equity Fund 8.19% 24.15% 16.09% (5/93)
American Odyssey Emerging Opportunities Fund -14.98% 3.19% 5.03% (5/93)
American Odyssey International Equity Fund 7.54% 12.33% 9.99% (5/93)
Delaware Investments REIT Series -- -- -14.26% (5/98)
Delaware Small Cap Value Series -10.70% 15.30% 12.49% (12/93)
Dreyfus Capital Appreciation Portfolio 23.59% 27.45% 20.03% (4/93)
Dreyfus Small Cap Portfolio -9.43% 12.41% 24.67% (8/90)
Equity Income Portfolio (Fidelity) 5.96% -- 21.13% (8/96)
Equity Index Portfolio 22.26% 29.11% 19.86% (11/91)
Federated Stock Portfolio 11.31% -- 24.82% (8/96)
Large Cap Portfolio (Fidelity) 28.82% -- 27.95% (8/96)
Lazard International Stock Portfolio 6.22% -- 9.24% (8/96)
MFS Mid Cap Growth Portfolio -- -- -5.38% (3/98)
MFS Research Portfolio -- -- -0.27% (3/98)
Montgomery Variable Series: Growth Fund -3.36% -- 17.24% (2/96)
OCC Accumulation Trust Equity Portfolio 5.44% 22.99% 15.61% (8/88)
Salomon Brothers Capital Fund -- -- 11.84% (2/98)
Salomon Brothers Investors Fund -- -- 4.35% (2/98)
Smith Barney International Equity Portfolio 0.16% -- 5.61% (6/94)
Smith Barney Large Cap Growth Portfolio -- -- 18.61% (5/98)
Social Awareness Stock Portfolio (Smith Barney) 25.60% 26.26% 16.80% (5/92)
Strategic Stock Portfolio -- -- -11.16% (5/98)
Strong Schafer Value Fund II -4.25% -- -4.53% (10/97)
Travelers Disciplined Mid Cap Stock Portfolio 10.47% -- 25.46% (4/97)
Travelers Disciplined Small Cap Stock Portfolio -- -- -16.20% (5/98)
Utilities Portfolio (Smith Barney) 11.71% -- 14.56% (2/94)
Warburg Pincus Emerging Markets Portfolio -- -- -21.32% (12/97)
BOND ACCOUNTS:
American Odyssey Global High-Yield Bond Fund -- -- -11.06% (5/98)
American Odyssey Intermediate-Term Bond Fund 2.13% 6.90% 4.83% (5/93)
American Odyssey Long-Term Bond Fund 2.68% 9.19% 6.71% (5/93)
WITH CHART FEE OF 0.80%
American Odyssey Global High-Yield Bond Fund -- -- -11.53% (5/93)
American Odyssey Intermediate-Term Bond Fund 1.28% 6.04% 3.99% (5/93)
American Odyssey Long-Term Bond Fund 1.82% 8.31% 5.86% (5/93)
Putnam Diversified Income Portfolio -5.55% -- 5.97% (6/94)
Smith Barney High Income Portfolio -5.76% -- 8.17% (6/94)
Travelers High Yield Bond Trust 0.23% 11.82% 7.70% (6/83)
Travelers Quality Bond Portfolio 2.20% -- 5.35% (8/96)
Travelers U.S. Government Securities Portfolio 3.83% 10.12% 6.97% (1/92)
BALANCED ACCOUNTS:
MFS Total Return Portfolio 5.30% -- 13.75% (6/94)
Salomon Brothers Total Return Fund -- -- -0.31% (2/98)
Travelers Managed Assets Trust 14.93% 19.00% 9.99% (6/83)
MONEY MARKET ACCOUNTS:
Travelers Money Market Portfolio -1.25% 2.87% 3.93% (12/87)
</TABLE>
Returns for periods less than one year are cumulative. The inception date
reflects the date the underlying fund began operating.
6
<PAGE> 51
TRAVELERS RETIREMENT ACCOUNT
NONSTANDARDIZED PERFORMANCE - AVERGE ANNUAL RETURNS AS OF 12/31/1998
(TAKING INTO ACCOUNT ALL CHARGES AND FEES EXCEPT DEFERRED SALES CHARGE)
<TABLE>
<CAPTION>
YTD 1 YR 3YR 5YR (OR 10 YEAR Inception)
--- ---- --- --- ---------
<S> <C> <C> <C> <C> <C> <C>
STOCK ACCOUNTS:
Alliance Growth Portfolio 27.45% 27.45% 27.52% -- 26.40% (6/94)
American Odyssey Core Equity Fund 14.10% 14.10% 21.80% 19.31% 17.10% (5/93)
American Odyssey Emerging Opportunities Fund -9.79% -9.79% -3.02% 5.23% 6.01% (5/93)
American Odyssey International Equity Fund 13.45% 13.45% 12.30% 8.86% 10.98% (5/93)
WITH CHART FEE OF 0.80%
American Odyssey Core Equity Fund 13.19% 13.19% 20.83% 18.36% 16.18% (5/93)
American Odyssey Emerging Opportunities Fund -10.51% -10.51% -3.79% 4.40% 5.17% (5/93)
American Odyssey International Equity Fund 12.54% 12.54% 11.40% 8.00% 10.10% (5/93)
Delaware Small Cap Value Series -6.00% -6.00% 14.30% 12.21% 12.62% (12/93)
Dreyfus Capital Appreciation Portfolio 28.59% 28.59% 26.32% 22.03% 20.11% (4/93)
Dreyfus Small Cap Portfolio -4.66% -4.66% 8.17% 11.30% 24.90% (8/90)
Equity Income Portfolio (Fidelity) 10.96% 10.96% -- -- 22.44% (8/96)
Equity Index Portfolio 27.26% 27.26% 27.08% 23.18% 20.04% (11/91)
Federated Stock Portfolio 16.31% 16.31% -- -- 26.08% (8/96)
Large Cap Portfolio (Fidelity) 33.82% 33.82% -- -- 29.18% (8/96)
Lazard International Stock Portfolio 11.22% 11.22% -- -- 10.69% (8/96)
MFS Mid Cap Growth Portfolio -- -- -- -- -0.40% (3/98)
MFS Research Portfolio -- -- -- -- 4.73% (3/98)
Montgomery Variable Series: Growth Fund 1.64% 1.64% -- -- 18.25% (2/96)
OCC Accumulation Trust Equity Portfolio 10.44% 10.44% 18.94% 18.80% 15.75% (8/88)
Salomon Brothers Capital Fund -- -- -- -- 16.84% (2/98)
Salomon Brothers Investors Fund -- -- -- -- 9.35% (2/98)
Smith Barney International Equity Portfolio 5.16% 5.16% 7.43% -- 5.97% (6/94)
Smith Barney Large Cap Growth Portfolio -- -- -- -- 23.61% (5/98)
Social Awareness Stock Portfolio (Smith Barney) 30.60% 30.60% 24.81% 19.76% 16.95% (5/92)
Strategic Stock Portfolio -- -- -- -- -6.49% (5/98)
Strong Schafer Value Fund II 0.75% 0.75% -- -- -0.44% (10/97)
Travelers Disciplined Mid Cap Stock Portfolio 15.47% 15.47% -- -- 27.85% (4/97)
Travelers Disciplined Small Cap Stock Portfolio -- -- -- -- -11.78% (5/98)
Utilities Portfolio (Smith Barney) 16.71% 16.71% 15.28% -- 14.80% (2/94)
Warburg Pincus Emerging Markets Portfolio -17.18% -17.18% -- -- -17.18% (12/97)
BOND ACCOUNTS:
American Odyssey Global High-Yield Bond Fund -- -- -- -- -6.38% (5/98)
American Odyssey Intermediate-Term Bond Fund 7.13% 7.13% 5.29% 4.93% 4.97% (5/93)
American Odyssey Long-Term Bond Fund 7.68% 7.68% 6.02% 6.05% 6.84% (5/93)
WITH CHART FEE OF 0.80%
American Odyssey Global High-Yield Bond Fund -- -- -- -- -6.88% (5/98)
American Odyssey Intermediate-Term Bond Fund 6.28% 6.28% 4.45% 4.10% 4.14% (5/93)
American Odyssey Long-Term Bond Fund 6.82% 6.82% 5.18% 5.21% 5.99% (5/93)
Putnam Diversified Income Portfolio -0.58% -0.58% 4.16% -- 6.33% (6/94)
Smith Barney High Income Portfolio -0.80% -0.80% 7.61% -- 8.50% (6/94)
Travelers High Yield Bond Trust 5.23% 5.23% 11.54% 9.07% 7.76% (6/83)
Travelers Quality Bond Portfolio 7.20% 7.20% -- -- 6.93% (8/96)
Travelers U.S. Government Securities Portfolio 8.83% 8.83% 6.64% 6.79% 7.03% (1/92)
BALANCED ACCOUNTS:
MFS Total Return Portfolio 10.30% 10.30% 14.28% -- 14.02% (6/94)
Salomon Brothers Total Return Fund -- -- -- -- 4.69% (2/98)
Travelers Managed Assets Trust 19.93% 19.93% 17.29% 14.35% 10.08% (6/83)
MONEY MARKET ACCOUNTS:
Travelers Money Market Portfolio 3.75% 3.75% 3.45% 3.36% 3.97% (12/87)
</TABLE>
Returns for periods less than one year are cumulative. The inception date
reflects the date the underlying fund began operating.
7
<PAGE> 52
TRAVELERS RETIREMENT ACCOUNT - CALENDAR YEAR PERFORMANCE
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
STOCK ACCOUNTS:
Alliance Growth Portfolio 27.43% 27.76% 33.20% -- -- --
American Odyssey Core Equity Fund 30.27% 21.62% 36.86% -2.24% -- --
American Odyssey Emerging Opportunities Fund 5.71% -4.35% 30.62% 8.32% -- --
American Odyssey International Equity Fund 3.74% 20.36% 17.53% -8.14% -- --
WITH CHART FEE OF 0.80%
American Odyssey Core Equity Fund 29.23% 20.65% 35.80% -- -- --
American Odyssey Emerging Opportunities Fund 4.86% -5.11% 29.60% -- -- --
American Odyssey International Equity Fund 2.91% 19.41% 16.61% -- -- --
Delaware Investments REIT Series -- -- -- -- -- --
Delaware Small Cap Value Series 31.30% 21.03% 19.71% -0.46% -- --
Dreyfus Capital Appreciation Portfolio 26.49% 24.02% 31.90% 1.76% -- --
Dreyfus Small Cap Portfolio 15.31% 15.15% 27.78% 5.62% 49.87% 23.00%
Equity Income Portfolio (Fidelity) 30.06% -- -- -- -- --
Equity Index Portfolio 32.04% 22.20% 36.39% 1.30% 9.14% 7.22%
Federated Stock Portfolio 31.78% -- -- -- -- --
Large Cap Portfolio (Fidelity) 20.49% -- -- -- -- --
Lazard International Stock Portfolio 6.89% -- -- -- -- --
MFS Mid Cap Growth Portfolio -- -- -- -- -- --
MFS Research Portfolio -- -- -- -- -- --
Montgomery Variable Series: Growth Fund 27.00% -- -- -- -- --
OCC Accumulation Trust Equity Portfolio 25.08% 21.85% 37.17% 2.53% 6.52% 16.45%
Salomon Brothers Capital Fund -- -- -- -- -- --
Salomon Brothers Investors Fund -- -- -- -- -- --
Smith Barney International Equity Portfolio 1.44% 16.25% 9.90% -- -- --
Smith Barney Large Cap Growth Portfolio -- -- -- -- -- --
Social Awareness Stock Portfolio (Smith Barney) 25.73% 18.48% 31.76% -3.83% 6.18% --
Strategic Stock Portfolio -- -- -- -- -- --
Strong Schafer Value Fund II -- -- -- -- -- --
Travelers Disciplined Mid Cap Stock Portfolio -- -- -- -- -- --
Travelers Disciplined Small Cap Stock Portfolio -- -- -- -- -- --
Utilities Portfolio (Smith Barney) 23.74% 6.13% 27.70% -- -- --
Warburg Pincus Emerging Markets Portfolio -- -- -- -- -- --
BOND ACCOUNTS:
American Odyssey Global High-Yield Bond Fund -- -- -- -- -- --
American Odyssey Intermediate-Term Bond Fund 6.17% 2.64% 13.60% -4.05% -- --
American Odyssey Long-Term Bond Fund 10.65% 0.04% 20.94% -6.93% -- --
WITH CHART FEE OF 0.80%
American Odyssey Global High-Yield Bond Fund -- -- -- -- -- --
American Odyssey Intermediate-Term Bond Fund 5.33% 1.82% 12.70% -- -- --
American Odyssey Long-Term Bond Fund 9.77% -0.76% 19.99% -- -- --
Putnam Diversified Income Portfolio 6.36% 6.89% 15.94% -- -- --
Smith Barney High Income Portfolio 12.46% 11.74% 17.60% -- -- --
Travelers High Yield Bond Trust 15.12% 14.59% 14.09% -2.50% 12.59% 11.73%
Travelers Quality Bond Portfolio 5.81% -- -- -- -- --
Travelers U.S. Government Securities Portfolio 11.24% 0.18% 22.95% -6.82% 8.14% --
BALANCED ACCOUNTS:
MFS Total Return Portfolio 19.69% 13.09% 24.14% -- -- --
Salomon Brothers Total Return Fund -- -- -- -- -- --
Travelers Managed Assets Trust 19.78% 12.36% 25.54% -3.48% 8.01% 3.82%
MONEY MARKET ACCOUNTS:
Travelers Money Market Portfolio 3.76% 2.87% 2.94% 3.48% 0.93% 1.97%
</TABLE>
8
<PAGE> 53
FEDERAL TAX CONSIDERATIONS
The following description of the federal income tax consequences under
this Contract is not exhaustive and is not intended to cover all situations.
Because of the complexity of the law and the fact that the tax results will vary
according to the factual status of the individual involved, tax advice may be
needed by a person contemplating purchase of an annuity contract and by a
contract owner or beneficiary who may make elections under a contract. For
further information, please consult a qualified tax adviser.
MANDATORY DISTRIBUTIONS FOR QUALIFIED PLANS
Federal tax law generally requires that minimum annual distributions begin
by April 1st of the calendar year following the calendar year in which a
participant under a qualified plan, a Section 403(b) annuity, or an IRA attains
age 701/2. Distributions must also begin or be continued according to required
patterns following the death of the contract owner or the annuitant.
INDIVIDUAL RETIREMENT ANNUITIES
To the extent of earned income for the year and not exceeding $2,000 per
individual, an individual may make deductible contributions to an individual
retirement annuity (IRA). There are certain limits on the deductible amount
based on the adjusted gross income of the individual and spouse and based on
their participation in a retirement plan. If an individual is married and the
spouse does not have earned income, the individual may establish IRAs for the
individual and spouse. Purchase payments may then be made annually into IRAs for
both spouses in the maximum amount of 100% of earned income up to a combined
limit of $4,000.
The Code provides for the purchase of a Simplified Employee Pension (SEP)
plan. A SEP is funded through an IRA with an annual employer contribution limit
of 15% of compensation up to $30,000 for each participant.
SIMPLE PLAN IRA FORM
Effective January 1, 1997, employers may establish a savings incentive
match plan for employees ("SIMPLE plan") under which employees can make elective
salary reduction contributions to an IRA based on a percentage of compensation
of up to $6,000. (Alternatively, the employer can establish a SIMPLE cash or
deferred arrangement under IRS Section 401(k)). Under a SIMPLE plan IRA, the
employer must either make a matching contribution of 100% on the first 3% or 7%
contribution for all eligible employees. Early withdrawals are subject to the
10% early withdrawal penalty generally applicable to IRAs, except that an early
withdrawal by an employee under a SIMPLE plan IRA, within the first two years of
participation, shall be subject to a 25% early withdrawal tax.
ROTH IRAS
Effective January 1, 1998, Section 408A of the Code permits certain
individuals to contribute to a Roth IRA. Eligibility to make contributions is
based upon income, and the applicable limits vary based on marital status and/or
whether the contribution is a rollover contribution from another IRA or an
annual contribution. Contributions to a Roth IRA, which are subject to certain
limitations ($2,000 per year for annual contributions), are not deductible and
must be made in cash or as a rollover or transfer from another Roth IRA or other
IRA. A conversion of a "traditional" IRA to a Roth IRA may be subject to tax and
other special rules apply. You should consult a tax adviser before combining any
converted amounts with other Roth IRA contributions, including any other
conversion amounts from other tax years.
Qualified distributions from a Roth IRA are tax-free. A qualified
distribution requires that the Roth IRA has been held for at least 5 years, and
the distribution is made after age 59-1/2, on death or
9
<PAGE> 54
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 701/2 or as otherwise
required by law.
A distribution including a rollover that is not a direct rollover will be
subject to the 20% withholding, and a 10% additional tax penalty may apply to
any amount not added back in the rollover. The 20% withholding may be recovered
when the participant or beneficiary files a personal income tax return for the
year if a rollover was completed within 60 days of receipt of the funds, except
to the extent that the participant or spousal beneficiary is otherwise
underwithheld or short on estimated taxes for that year.
2. OTHER NON-PERIODIC DISTRIBUTIONS (FULL OR PARTIAL REDEMPTIONS)
To the extent not described as requiring 20% withholding in 1 above, the
portion of a non-periodic distribution which constitutes taxable income will be
subject to federal income tax withholding, if the aggregate distributions exceed
$200 for the year, unless the recipient elects not to have taxes withheld. If no
such election is made, 10% of the taxable distribution will be withheld as
federal income tax. Election forms will be provided at the time distributions
are requested. This form of withholding applies to all annuity programs.
10
<PAGE> 55
3. PERIODIC DISTRIBUTIONS (DISTRIBUTIONS PAYABLE OVER A PERIOD GREATER THAN ONE
YEAR)
The portion of a periodic distribution which constitutes taxable income
will be subject to federal income tax withholding under the wage withholding
tables as if the recipient were married claiming three exemptions. A recipient
may elect not to have income taxes withheld or have income taxes withheld at a
different rate by providing a completed election form. Election forms will be
provided at the time distributions are requested. This form of withholding
applies to all annuity programs. As of January 1, 1999, a recipient receiving
periodic payments (e.g., monthly or annual payments under an annuity option)
which total $14,700 or less per year, will generally be exempt from periodic
withholding.
Recipients who elect not to have withholding made are liable for payment
of federal income tax on the taxable portion of the distribution. All recipients
may also be subject to penalties under the estimated tax payment rules if
withholding and estimated tax payments are not sufficient to cover tax
liabilities.
Recipients who do not provide a social security number or other taxpayer
identification number will not be permitted to elect out of withholding.
Additionally, U.S citizens residing outside of the country, or U.S. legal
residents temporarily residing outside the country, are not permitted to elect
out of withholding.
INDEPENDENT ACCOUNTANTS
The financial statements of The Travelers Life and Annuity Company as of
December 31, 1998 and 1997, and for each of the years in the three-year period
ended December 31, 1998, included herein, have been included in reliance upon
the report of KPMG LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
11
<PAGE> 56
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, 1998 and 1997, and the related statements of
income, changes in retained earnings and accumulated other changes in equity
from non-owner sources and cash flows for each of the years in the three-year
period ended December 31, 1998. These 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, 1998 and 1997, and the results of its operations and
its cash flows for each of the years in the three-year period ended December 31,
1998, in conformity with generally accepted accounting principles.
/s/ KPMG LLP
Hartford, Connecticut
January 25, 1999
F-1
<PAGE> 57
THE TRAVELERS LIFE AND ANNUITY COMPANY
STATEMENTS OF INCOME
($ in thousands)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
REVENUES
Premiums $ 23,677 $ 35,190 $ 17,462
Net investment income 171,003 168,653 151,326
Realized investment gains (losses) 18,493 44,871 (9,613)
Fee income 14,687 5,004 1,336
Other 14,199 3,159 940
- -------------------------------------------------------------------------- ------------- --------------
Total Revenues 242,059 256,877 161,451
- -------------------------------------------------------------------------- ------------- --------------
BENEFITS AND EXPENSES
Current and future insurance benefits 81,371 95,639 77,285
Interest credited to contractholders 51,535 35,165 35,607
Amortization of deferred acquisition costs and
value in insurance in force 17,031 6,036 3,286
Operating expenses 3,937 10,462 5,691
- -------------------------------------------------------------------------- ------------- --------------
Total Benefits and Expenses 153,874 147,302 121,869
- -------------------------------------------------------------------------- ------------- --------------
Income before federal income taxes 88,185 109,575 39,582
- -------------------------------------------------------------------------- ------------- --------------
Federal income taxes:
Current 18,917 33,859 29,456
Deferred expense (benefit) 11,783 4,344 (15,665)
- -------------------------------------------------------------------------- ------------- --------------
Total Federal Income Taxes 30,700 38,203 13,791
- -------------------------------------------------------------------------- ------------- --------------
Net income $ 57,485 $ 71,372 $ 25,791
========================================================================== ============= ==============
</TABLE>
See Notes to Financial Statements.
F-2
<PAGE> 58
THE TRAVELERS LIFE AND ANNUITY COMPANY
BALANCE SHEETS
($ in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1998 1997
- ------------------------------------------------------------------------------------------ ---------------- -----------------
<S> <C> <C>
ASSETS
Fixed maturities, available for sale at fair value (cost, $1,707,347; $1,571,121) $1,838,681 $1,678,120
Equity securities, at fair value (cost, $25,826; $15,092) 26,685 16,289
Mortgage loans 174,565 160,247
Short-term securities 126,176 169,229
Other invested assets 136,122 121,242
- ------------------------------------------------------------------------------------------ ---------------- -----------------
Total Investments 2,302,229 2,145,127
- ------------------------------------------------------------------------------------------ ---------------- -----------------
Separate accounts 2,178,474 812,059
Deferred acquisition costs and value of insurance in force 194,213 90,966
Premium balances receivable 16,074 9,288
Deferred federal income taxes 12,395 33,661
Other assets 41,119 61,904
- ------------------------------------------------------------------------------------------ ---------------- -----------------
Total Assets $4,744,504 $3,153,005
- ------------------------------------------------------------------------------------------ ---------------- -----------------
LIABILITIES
Future policy benefits $963,171 $971,602
Contractholder funds 947,411 818,971
Separate accounts 2,178,474 812,059
Other liabilities 114,690 84,712
- ------------------------------------------------------------------------------------------ ---------------- -----------------
Total Liabilities 4,203,746 2,687,344
- ------------------------------------------------------------------------------------------ ---------------- -----------------
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 282,555 225,070
Accumulated other changes in equity from non-owner sources 87,889 70,277
- ------------------------------------------------------------------------------------------ ---------------- -----------------
Total Shareholder's Equity 540,758 465,661
- ------------------------------------------------------------------------------------------ ---------------- -----------------
Total Liabilities and Shareholder's Equity $4,744,504 $3,153,005
========================================================================================== ================ =================
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE> 59
THE TRAVELERS LIFE AND ANNUITY COMPANY
STATEMENTS OF CHANGES IN RETAINED EARNINGS AND ACCUMULATED
OTHER CHANGES IN EQUITY FROM NON-OWNER SOURCES
($ IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------ ---------------- ----------------- -------------------
STATEMENTS OF CHANGES IN RETAINED EARNINGS 1998 1997 1996
- ------------------------------------------------------ ---------------- ----------------- -------------------
<S> <C> <C> <C>
Balance, beginning of year $225,070 $167,698 $157,907
Net income 57,485 71,372 25,791
Dividends to parent - 14,000 16,000
- ------------------------------------------------------ ---------------- ----------------- -------------------
Balance, end of year $282,555 $225,070 $167,698
====================================================== ================ ================= ===================
- ------------------------------------------------------ ---------------- ----------------- -------------------
STATEMENTS OF ACCUMULATED OTHER CHANGES
IN EQUITY FROM NON-OWNER SOURCES
- ------------------------------------------------------ ---------------- ----------------- -------------------
Balance, beginning of year $70,277 $33,856 $35,330
Unrealized gains (losses), net of tax 17,612 36,421 (1,474)
- ------------------------------------------------------ ---------------- ----------------- -------------------
Balance, end of year $87,889 $70,277 $33,856
====================================================== ================ ================= ===================
- ------------------------------------------------------ ---------------- ----------------- -------------------
SUMMARY OF CHANGES IN EQUITY
FROM NON-OWNER SOURCES
- ------------------------------------------------------ ---------------- ----------------- -------------------
Net Income $57,485 $71,372 $25,791
Other changes in equity from
non-owner sources 17,612 36,421 (1,474)
- ------------------------------------------------------ ---------------- ----------------- -------------------
Total changes in equity from
non-owner sources $75,097 $107,793 $24,317
====================================================== ================ ================= ===================
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE> 60
THE TRAVELERS LIFE AND ANNUITY COMPANY
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
($ in thousands)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996
- ----------------------------------------------------------------------------------- --------------- --------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Premiums collected $ 22,300 $ 34,553 $ 6,472
Net investment income received 146,158 170,460 71,083
Benefits and claims paid (90,872) (90,820) (70,331)
Interest credited to contractholders (51,535) (35,165) (813)
Operating expenses paid (75,632) (40,868) (5,482)
Income taxes paid (25,214) (22,440) (23,931)
Other (596) (7,702) (6,857)
- ----------------------------------------------------------------------------------- --------------- --------------- -------------
Net Cash Provided by (Used in) Operating Activities (75,391) 8,018 (29,859)
- ----------------------------------------------------------------------------------- --------------- --------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments
Fixed maturities 113,456 81,899 20,301
Mortgage loans 25,462 8,972 37,789
Proceeds from sales of investments
Fixed maturities 1,095,976 856,846 978,970
Equity securities 6,020 12,404 12,818
Mortgage loans - 5,483 22,437
Real estate held for sale - 4,493 -
Purchases of investments
Fixed maturities (1,320,704) (1,020,803) (994,443)
Equity securities (13,653) (6,382) (5,412)
Mortgage loans (39,158) (41,967) (21,450)
Policy loans (2,010) (1,144) (1,750)
Short-term securities, (purchases) sales, net 43,054 (88,067) (19,688)
Other investments, (purchases) sales, net 1,110 (51,502) (6,160)
Securities transactions in course of settlement 36,459 10,526 (51,703)
- ----------------------------------------------------------------------------------- --------------- --------------- -------------
Net Cash Used in Investing Activities (53,988) (229,242) (28,291)
- ----------------------------------------------------------------------------------- --------------- --------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Contractholder fund deposits 211,476 325,932 96,490
Contractholder fund withdrawals (83,036) (89,145) (22,340)
Dividends to parent company - (14,000) (16,000)
- ----------------------------------------------------------------------------------- --------------- --------------- -------------
Net Cash Provided by Financing Activities 128,440 222,787 58,150
- ----------------------------------------------------------------------------------- --------------- --------------- -------------
Net increase (decrease) in cash (939) 1,563 -
- ----------------------------------------------------------------------------------- --------------- --------------- -------------
Cash at December 31, $624 $1,563 $ -
=================================================================================== =============== =============== =============
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE> 61
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 Citigroup Inc. (Citigroup), formerly Travelers Group
Inc. 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 Company offers 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.
ACCOUNTING CHANGES
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities
Effective January 1, 1997, the Company adopted Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" (FAS 125). This
statement establishes accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. These
standards are based on an approach that focuses on control. Under this
approach, after a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and the liabilities it has
incurred, derecognizes financial assets when control has been surrendered
and derecognizes liabilities when extinguished. FAS 125 provides standards
for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. Effective January 1, 1998, the
Company adopted the collateral provisions of FAS 125 which were not
effective until 1998 in accordance with Statement of Financial Accounting
Standards No. 127, "Deferral of the Effective Date of Certain Provisions of
SFAS 125". The adoption of the collateral provisions of FAS 125 created
additional assets and liabilities on the Company's statement of financial
position related to the recognition of securities provided and received as
collateral. There was no impact on the results of operations from the
adoption of the collateral provisions of FAS 125.
F-6
<PAGE> 62
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Reporting Comprehensive Income
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (FAS 130).
FAS 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. All items that are required to be recognized under
accounting standards as components of comprehensive income are required to
be reported in an annual financial statement that is displayed with the
same prominence as other financial statements. This statement stipulates
that comprehensive income reflect the change in equity of an enterprise
during a period from transactions and other events and circumstances from
non-owner sources. Comprehensive income thus represents the sum of net
income and other changes in equity from non-owner sources. The accumulated
balance of other changes in equity from non-owner sources is required to be
displayed separately from retained earnings and additional paid-in capital
in the balance sheet. The adoption of FAS 130 resulted in the Company
reporting unrealized gains and losses on investments in debt and equity
securities in changes in equity from non-owner sources. See Note 3.
Disclosures About Segments of an Enterprise and Related Information
During 1998, Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information" (FAS
131) became effective. FAS 131 establishes standards for the way that
public enterprises report information about operating segments in annual
financial statements and requires that selected information about those
operating segments be reported in interim financial statements. This
statement supersedes Statement of Financial Accounting Standards No. 14,
"Financial Reporting for Segments of a Business Enterprise". FAS 131
requires that all public enterprises report financial and descriptive
information about its reportable operating segments. Operating segments are
defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decisionmaker in deciding how to allocate resources and in assessing
performance. The Company only has one reportable operating segment and
therefore, no additional disclosures are required under FAS 131.
Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use
During the third quarter of 1998, the Company adopted (effective January 1,
1998) the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants' Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" (SOP 98-1). SOP 98-1 provides guidance on accounting for the
costs of computer software developed or obtained for internal use and for
determining when specific costs should be capitalized or expensed. The
adoption of SOP 98-1 had no impact on the Company's financial condition,
statement of operations or liquidity.
F-7
<PAGE> 63
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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. The effective yield used to determine amortization is
calculated based upon actual historical and projected future cash flows,
which are obtained from a widely-accepted securities data provider. Fixed
maturities are classified as "available for sale" and are reported at fair
value, with unrealized investment gains and losses, net of income taxes,
charged or credited directly to shareholder's equity.
Equity securities, which include common and 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
current real estate financing market. Impaired loans were insignificant at
December 31, 1998 and 1997.
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.
Other invested assets include real estate joint ventures and partnership
investments accounted for on the equity method of accounting. All changes
in equity of these investments are recorded in net investment income.
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.
F-8
<PAGE> 64
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments, including financial
futures contracts, options, forward contracts and interest rate swaps and
caps, as a means of hedging exposure to interest rate and foreign currency
risk. Hedge accounting is used to account for derivatives. To qualify for
hedge accounting the changes in value of the derivative must be expected to
substantially offset the changes in value of the hedged item. Hedges are
monitored to ensure that there is a high correlation between the derivative
instruments and the hedged investment.
Gains and losses arising from financial futures contracts are used to
adjust the basis of hedged investments and are recognized in net investment
income over the life of the investment.
Forward contracts, and options, and interest rate caps were not significant
at December 31, 1998 and 1997. Information concerning derivative financial
instruments is included in Note 4.
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 fee income.
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.
F-9
<PAGE> 65
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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 15 to 20
year amortization period is used for life insurance, and a 7 to 20 year
period is employed for annuities. Deferred acquisition costs are reviewed
periodically for recoverability to determine if any adjustment is required.
Adjustments, if any, are charged to income.
The value of insurance in force is an asset recorded at the time of
acquisition of an insurance company. It represents the actuarially
determined present value of anticipated profits to be realized from annuity
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
annuity business acquired. The annuity contracts are amortized employing a
level yield method. The value of insurance in force is reviewed
periodically for recoverability to determine if any adjustment is required.
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 3.3% 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 (NAIC) as well as state laws,
regulations, and general administrative rules. Permitted statutory
accounting practices encompass all accounting practices not so prescribed.
The impact of any permitted accounting practices on the statutory surplus
of the Company is not material.
F-10
<PAGE> 66
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
The NAIC recently completed a process intended to codify statutory
accounting practices for certain insurance enterprises. As a result of this
process, the NAIC will issue a revised statutory Accounting Practices and
Procedures Manual - version effective January 1, 2001 (the revised Manual)
that will be effective January 1, 2001 for the calendar year 2001 statutory
financial statements. It is expected that the State of Connecticut will
require that, effective January 1, 2001, insurance companies domiciled in
Connecticut prepare their statutory basis financial statements in
accordance with the revised Manual subject to any deviations prescribed or
permitted by the Connecticut insurance commissioner. The Company has not
yet determined the impact that this change will have on its statutory
capital and surplus.
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 comprises two components, current
income taxes and deferred income taxes. Deferred federal income taxes arise
from changes during the year in cumulative temporary differences between
the tax basis and book basis of assets and liabilities. The deferred
federal income tax asset is recognized to the extent that future
realization of the tax benefit is more likely than not, with a valuation
allowance for the portion that is not likely to be recognized.
FUTURE APPLICATION OF ACCOUNTING STANDARDS
In December 1997, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of
Position 97-3, "Accounting by Insurance and Other Enterprises for
Insurance-Related Assessments" (SOP 97-3). SOP 97-3 provides guidance for
determining when an entity should recognize a liability for guaranty-fund
and other insurance-related assessments, how to measure that liability, and
when an asset may be recognized for the recovery of such assessments
through premium tax offsets or policy surcharges. This SOP is effective for
financial statements for fiscal years beginning after December 15, 1998,
and the effect of initial adoption is to be reported as a cumulative
catch-up adjustment. Restatement of previously issued financial statements
is not allowed. The Company plans to implement SOP 97-3 in the first
quarter of 1999 and expects there to be no material impact on the Company's
financial condition, results of operations or liquidity.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133). This statement establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments imbedded in other contracts, (collectively
referred to as derivatives) and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value.
F-11
<PAGE> 67
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
If certain conditions are met, a derivative may be specifically designated
as (a) a hedge of the exposure to changes in the fair value of a recognized
asset or liability or an unrecognized firm commitment, (b) a hedge of the
exposure to variable cash flows of a forecasted transaction, or (c) a hedge
of the foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available-for-sale security,
or a foreign-currency-denominated forecasted transaction. The accounting
for changes in the fair value of a derivative (that is, gains and losses)
depends on the intended use of the derivative and the resulting
designation. FAS 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Upon initial application of FAS 133, hedging
relationships must be designated anew and documented pursuant to the
provisions of this statement. The Company has not yet determined the impact
that FAS 133 will have on its financial statements.
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, 1998 and 1997 was
$69.6 million and $76.4 million, respectively. Life insurance premiums
ceded were $4.2 million, $2.4 million and $1.3 million in 1998, 1997 and
1996, respectively. Life insurance premiums ceded to non-affiliates were
insignificant. Life insurance in force ceded to non-affiliates at December
31, 1998 and 1997, was $8.8 billion and $4.5 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 (loss) was $(3.2) million, $80.3 million
and $17.9 million for the years ended December 31, 1998, 1997 and 1996,
respectively.
Statutory capital and surplus was $328.2 million at both December 31, 1998
and 1997.
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 $32.8 million is available in 1999 for dividend payments by the
Company without prior approval of the Connecticut Insurance Department.
F-12
<PAGE> 68
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
TAX EFFECTS ALLOCATED TO EACH COMPONENT OF
OTHER CHANGES IN EQUITY FROM NON-OWNER SOURCES
<TABLE>
<CAPTION>
For the years ended December 31, PRE-TAX AMOUNT TAX EXPENSE/ AFTER-TAX
($ in thousands) (BENEFIT) AMOUNT
---------------------------------------------------------------- --------------- ---------------- --------------
<S> <C> <C> <C>
1998
Unrealized gain on investment securities:
Unrealized holding gains arising during year $45,589 $15,957 $29,632
Less: reclassification adjustment for gains
realized in net income 18,493 6,473 12,020
---------------------------------------------------------------- --------------- ---------------- --------------
Other changes in equity from non-owner sources $27,096 $9,484 $17,612
================================================================ =============== ================ ==============
1997
Unrealized gain on investment securities:
Unrealized holding gains arising during year $100,903 $35,316 $65,587
Less: reclassification adjustment for gains
realized in net income 44,871 15,705 29,166
---------------------------------------------------------------- --------------- ---------------- --------------
Other changes in equity from non-owner sources $56,032 $19,611 $36,421
================================================================ =============== ================ ==============
1996
Unrealized gain (loss) on investment securities:
Unrealized holding gains (losses) arising during year $(11,881) $4,158 $(7,723)
Less: reclassification adjustment for losses realized
in net income (9,613) (3,364) (6,249)
---------------------------------------------------------------- --------------- ---------------- --------------
Other changes in equity from non-owner sources $(2,268) $794 $(1,474)
================================================================ =============== ================ ==============
</TABLE>
4. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Derivative Financial Instruments
The Company uses derivative financial instruments, including financial
futures, 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 that it would cost the Company
to replace such contracts. Financial futures contracts and purchased listed
option contracts have little credit risk since organized exchanges are the
counterparties.
F-13
<PAGE> 69
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 and equity prices 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 and equity prices, the Company
enters long or short positions in financial futures contracts which offset
changes in the fair value of investments and liabilities resulting from
changes in market interest rates or equity prices until an investment is
purchased, a product is sold or a liability is settled.
Margin payments are required to enter a futures contract and contract gains
or losses are settled daily in cash. The contract amount of futures
contracts represents the extent of the Company's involvement, but not
future cash requirements, as open positions are typically closed out prior
to the delivery date of the contract.
At December 31, 1998 and 1997, the Company held financial futures contracts
with notional amounts of $41.5 million and $156.3 million, respectively. At
December 31, 1998 and 1997, the Company's futures contracts had no fair
value because these contracts are marked to market and settled in cash
daily.
The Company enters into interest rate swaps in connection with other
financial instruments to provide greater risk diversification and better
match an asset with a corresponding liability. Under interest rate swaps,
the Company agrees with other parties to exchange, at specific intervals,
the difference between fixed-rate and floating-rate interest amounts
calculated by reference to a notional principal amount. Generally, no cash
is exchanged at the outset of the contract and no principal payments are
made by either party. A single net payment is usually made by one
counterparty at each due date. Swaps are not exchange traded and are
subject to the risk of default by the counterparty.
As of December 31, 1998 and 1997, the Company held interest rate swap
contracts with notional amounts of $165.3 million and $17.3 million,
respectively. The fair value of these financial instruments was $3.4
million (gain position) and $.7 million (loss position) at December 31,
1998 and was $.7 million (loss position) at December 31, 1997. The fair
values were determined using the discounted cash flow method.
The off-balance sheet risks of forward contracts were not significant at
December 31, 1998 and 1997.
Financial Instruments with Off-Balance Sheet Risk
In the normal course of business, the Company issues fixed and variable
rate loan commitments and has unfunded commitments to partnerships. The
off-balance sheet risk of these financial instruments was not significant
at December 31, 1998 and 1997.
F-14
<PAGE> 70
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Fair Value of Certain Financial Instruments
The Company uses various financial instruments in the normal course of its
business. Fair values of financial instruments that are considered
insurance contracts are not required to be disclosed and are not included
in the amounts discussed.
At December 31, 1998, investments in fixed maturities had a carrying value
and a fair value of $1.8 billion, compared with a carrying value and a fair
value of $1.7 billion at December 31, 1997. See Notes 1 and 11.
At December 31, 1998, mortgage loans had a carrying value of $174.6 million
and a fair value of $185.7 million and in 1997 had a carrying value of
$160.2 million and a fair value of $172.6 million. In estimating fair
value, the Company used interest rates reflecting the current real estate
financing market.
The carrying values of $36.5 million and $54.4 million of financial
instruments classified as other assets approximated their fair values at
December 31, 1998 and 1997, respectively. The carrying values of $98.4
million and $70.5 million of financial instruments classified as other
liabilities also approximated their fair values at December 31, 1998 and
1997, respectively. Fair value is determined using various methods,
including discounted cash flows, as appropriate for the various financial
instruments.
At December 31, 1998, contractholder funds with defined maturities had a
carrying value of $725.6 million and a fair value of $698.1 million,
compared with a carrying value of $694.9 million and a fair value of $695.9
million at December 31, 1997. The fair value of these contracts is
determined by discounting expected cash flows at an interest rate
commensurate with the Company's credit risk and the expected timing of cash
flows. Contractholder funds without defined maturities had a carrying value
of $483.0 million and a fair value of $442.5 million at December 31, 1998,
compared with a carrying value of $98.5 million and a fair value of $93.9
million at December 31, 1997. 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
See Note 4.
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,
1998, the Company believes, based on information currently available, that
the ultimate resolution of these legal proceedings would not be likely to
have a material adverse effect on its results of operations, financial
condition or liquidity.
F-15
<PAGE> 71
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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.
These contracts were purchased by the insurance subsidiaries of Travelers
Property Casualty Corp. (TAP), an affiliate of the Company, in connection
with the settlement of certain of their policyholder obligations. Effective
April 1, 1998, all new contracts have been written by TIC.
7. BENEFIT PLANS
Pension and Other Postretirement Benefits
The Company participates in a qualified, noncontributory defined benefit
pension plan sponsored by Citigroup. In addition, the Company provides
certain other postretirement benefits to retired employees through a plan
sponsored by The Travelers Insurance Group Inc. (TIGI), TIC's direct
parent. The Company's share of net expense for the qualified pension and
other postretirement benefit plans was not significant for 1998, 1997 and
1996.
401(k) Savings Plan
Substantially all of the Company's employees are eligible to participate in
a 401(k) savings plan sponsored by Citigroup. During 1996, the Company made
matching contributions in an amount equal to the lesser of 100% of the
pre-tax contributions made by the employee or $1,000. Effective January 1,
1997, the Company discontinued matching contributions for the majority of
its employees. The Company's expenses in connection with the 401(k) savings
plan were not significant in 1998, 1997 and 1996.
F-16
<PAGE> 72
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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 & 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, 1998 and 1997, the pool
totaled approximately $2.3 billion and $2.6 billion, respectively. The
Company's share of the pool amounted to $93.1 million and $145.5 million at
December 31, 1998 and 1997, 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 $450
million. TIC's obligation is to pay in full to any owner or beneficiary of
the TTM Modified Guaranteed Annuity Contracts principal and interest as and
when due under the annuity contract to the extent that the Company fails to
make such payment. In addition, TIC guarantees that the Company will
maintain a minimum statutory capital and surplus level.
The Company sold structured settlement annuities to the insurance
affiliates of Travelers Property Casualty (TAP). Premiums and deposits were
$8.9 million, $70.6 million and $36.9 million for 1998, 1997 and 1996,
respectively. The reduction in premiums and deposits from 1997 to 1998 was
a result of a decision to use TIC as the primary issuer of structured
settlement annuities and the Company as the assignment company. Policy
reserves and contractholder fund liabilities associated with these
structured settlements were $808.7 and $842.3 million at December 31, 1998
and 1997, respectively.
The Company began marketing variable annuity products through its
affiliate, Salomon Smith Barney Inc. (SSB) in 1995. Premiums and deposits
related to these products were $932.1 million, $615.6 million and $300.0
million in 1998, 1997 and 1996, respectively. In 1996, the Company began
marketing various life products through SSB as well. Premiums related to
such products were $42.1 million, $25.1 million and $20.5 million in 1998,
1997 and 1996, respectively.
During 1998, the Company began marketing deferred annuity products through
its affiliate Primerica Financial Services (Primerica). Deposits received
were $216 million.
The Company participates in a stock option plan sponsored by Citigroup that
provides for the granting of stock options in Citigroup common stock to
officers and key employees. To further encourage employee stock ownership,
during 1997 the Company's ultimate parent introduced the WealthBuilder
stock option program. Under this program, all employees meeting certain
requirements are granted Citigroup stock options.
F-17
<PAGE> 73
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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 1998, 1997 and 1996.
At December 31, 1998 and 1997, the Company had investments in Tribeca
Investments, L.L.C., an affiliate of the Company in the amounts of $18.3
million and $16.5 million, included in other invested assets.
9. FEDERAL INCOME TAXES ($ in thousands)
EFFECTIVE TAX RATE
<TABLE>
<CAPTION>
--------------------------------------------------------- ----------------- ---------------- -----------------
FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996
--------------------------------------------------------- ----------------- ---------------- -----------------
<S> <C> <C> <C>
Income Before Federal Income Taxes $88,185 $109,575 $39,582
Statutory Tax Rate 35% 35% 35%
--------------------------------------------------------- ----------------- ---------------- -----------------
Expected Federal Income Taxes 30,865 38,351 13,854
Tax Effect of:
Non-taxable investment income (20) (24) (15)
Other, net (145) (124) (48)
--------------------------------------------------------- ----------------- ---------------- -----------------
Federal Income Taxes $30,700 $38,203 $13,791
========================================================= ================= ================ =================
Effective Tax Rate 35% 35% 35%
--------------------------------------------------------- ----------------- ---------------- -----------------
COMPOSITION OF FEDERAL INCOME TAXES 1998 1998 1996
---- ---- ----
Current:
United States $18,794 $33,805 $29,435
Foreign 123 54 21
--------------------------------------------------------- ----------------- ---------------- -----------------
Total 18,917 33,859 29,456
--------------------------------------------------------- ----------------- ---------------- -----------------
Deferred:
United States 11,783 4,344 (15,665)
--------------------------------------------------------- ----------------- ---------------- -----------------
Federal Income Taxes $30,700 $38,203 $13,791
========================================================= ================= ================ =================
</TABLE>
F-18
<PAGE> 74
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
The net deferred tax assets at December 31, 1998 and 1997 were comprised of
the tax effects of temporary differences related to the following assets
and liabilities:
<TABLE>
<CAPTION>
($ in thousands) 1998 1997
---- ----
--------------------------------------------------------------------- ---------------- --------------
<S> <C> <C>
Deferred Tax Assets:
Benefit, reinsurance and other reserves $121,150 $100,969
Other 2,810 2,571
--------------------------------------------------------------------- ---------------- --------------
Total 123,960 103,540
--------------------------------------------------------------------- ---------------- --------------
Deferred Tax Liabilities:
Investments, net 56,103 42,933
Deferred acquisition costs and value of insurance in force 51,993 23,650
Other 1,399 1,226
--------------------------------------------------------------------- ---------------- --------------
Total 109,495 67,809
--------------------------------------------------------------------- ---------------- --------------
Net Deferred Tax Asset Before Valuation Allowance 14,465 35,731
Valuation Allowance for Deferred Tax Assets (2,070) (2,070)
--------------------------------------------------------------------- ---------------- --------------
Net Deferred Tax Asset After Valuation Allowance $12,395 $33,661
--------------------------------------------------------------------- ---------------- --------------
</TABLE>
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.
The $2.1 million valuation allowance is sufficient to cover any capital
losses on investments that may exceed the capital gains able to be
generated in the life insurance group's consolidated federal income tax
return based upon management's best estimate of the character of the
reversing temporary differences. Reversal of the valuation allowance is
contingent upon the recognition of future capital gains or a change in
circumstances that causes the recognition of the benefits to become more
likely than not. There was no change in the valuation allowance during
1998. The initial recognition of any benefit provided by the reversal of
the valuation allowance will be recognized by reducing goodwill.
F-19
<PAGE> 75
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
In management's judgment, the $12.4 million "net deferred tax asset after
valuation allowance" as of December 31, 1998, is fully recoverable against
expected future years' taxable ordinary income and capital gains. At
December 31, 1998, 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 is
approximately $2 million. Income taxes are not provided for on this amount
because under current U.S. tax rules such taxes will become payable only to
the extent such amounts are distributed as a dividend to exceed limits
prescribed by federal law. Distributions are not contemplated from this
account. At current rates the maximum amount of such tax would be
approximately $700 thousand.
10. NET INVESTMENT INCOME
<TABLE>
<CAPTION>
-------------------------------------------------------------- --------------- --------------- --------------
FOR THE YEAR ENDED DECEMBER 31,
($ in thousands) 1998 1997 1996
-------------------------------------------------------------- --------------- --------------- --------------
<S> <C> <C> <C>
GROSS INVESTMENT INCOME
Fixed maturities $130,825 $120,900 $113,296
Joint venture and partnership income 22,107 32,336 19,775
Mortgage loans 15,969 14,905 18,278
Other 3,322 2,284 4,113
-------------------------------------------------------------- --------------- --------------- --------------
172,223 170,425 155,462
-------------------------------------------------------------- --------------- --------------- --------------
Investment expenses 1,220 1,772 4,136
-------------------------------------------------------------- --------------- --------------- --------------
Net investment income $171,003 $168,653 $151,326
-------------------------------------------------------------- --------------- --------------- --------------
</TABLE>
11. INVESTMENTS AND INVESTMENT GAINS (LOSSES)
Realized investment gains (losses) for the periods were as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------- --------------- --------------- ---------------
FOR THE YEAR ENDED DECEMBER 31,
($ in thousands) 1998 1997 1996
---------------------------------------------------------------- --------------- --------------- ---------------
<S> <C> <C> <C>
REALIZED INVESTMENT GAINS (LOSSES)
Fixed maturities $15,620 $29,236 $(11,491)
Equity securities 1,819 8,385 4,613
Mortgage loans 623 (8) 1,979
Real estate held for sale - 2,164 (73)
Other 431 5,094 (4,641)
---------------------------------------------------------------- --------------- --------------- ---------------
Total Realized Investment Gains (Losses) $18,493 $44,871 $(9,613)
---------------------------------------------------------------- --------------- --------------- ---------------
</TABLE>
F-20
<PAGE> 76
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Changes in net unrealized investment gains (losses) that are included as
accumulated other changes in equity from non-owner sources in shareholder's
equity were as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------- --------------- --------------- ---------------
FOR THE YEAR ENDED DECEMBER 31,
($ in thousands) 1998 1997 1996
---------------------------------------------------------------- --------------- --------------- ---------------
<S> <C> <C> <C>
UNREALIZED INVESTMENT GAINS (LOSSES)
Fixed maturities $24,336 $34,451 $(23,953)
Equity securities (338) (2,394) (746)
Other 3,098 23,975 22,431
---------------------------------------------------------------- --------------- --------------- ---------------
Total Unrealized Investment Gains (Losses) 27,096 56,032 (2,268)
Related taxes 9,484 19,611 (794)
---------------------------------------------------------------- --------------- --------------- ---------------
Change in unrealized investment gains (losses) 17,612 36,421 (1,474)
Balance beginning of year 70,277 33,856 35,330
---------------------------------------------------------------- --------------- --------------- ---------------
Balance End of Year $87,889 $70,277 $33,856
---------------------------------------------------------------- --------------- --------------- ---------------
</TABLE>
Fixed Maturities
Proceeds from sales of fixed maturities classified as available for sale
were $1.1 billion, $.9 billion and $1.0 billion in 1998, 1997 and 1996,
respectively. Gross gains of $32.6 million, $38.1 million and $8.4 million
and gross losses of $17.0 million, $8.9 million and $19.9 million in 1998,
1997 and 1996, respectively were realized on those sales.
Fair values of investments in fixed maturities are based on quoted market
prices or dealer quotes or, if these are not available, discounted expected
cash flows using market rates commensurate with the credit quality and
maturity of the investment. The fair value of investments for which a
quoted market price or dealer quote are not available amounted to $427.0
million and $485.3 million at December 31, 1998 and 1997, respectively.
F-21
<PAGE> 77
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
The amortized cost and fair values of investments in fixed maturities were
as follows:
<TABLE>
<CAPTION>
------------------------------------------------- ---------------- --------------- ---------------- ---------------
DECEMBER 31, 1998 GROSS GROSS
($ in thousands) AMORTIZED COST UNREALIZED UNREALIZED FAIR
GAINS LOSSES VALUE
------------------------------------------------- ---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
Mortgage-backed securities - CMOs and
pass-through securities $220,105 $ 11,571 $(193) $231,483
U.S. Treasury securities and obligations
of U.S. Government and government agencies
and authorities 289,376 53,782 (274) 342,884
Obligations of states and political
subdivisions 28,749 994 (17) 29,726
Debt securities issued by foreign
governments 40,786 2,966 (375) 43,377
All other corporate bonds 1,124,298 75,870 (13,000) 1,187,168
Redeemable preferred stock 4,033 119 (109) 4,043
------------------------------------------------- ---------------- --------------- ---------------- ---------------
Total Available For Sale $1,707,347 $145,302 $(13,968) $1,838,681
------------------------------------------------- ---------------- --------------- ---------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997 GROSS GROSS
($ in thousands) AMORTIZED COST UNREALIZED UNREALIZED FAIR
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) $1,678,120
------------------------------------------------- ---------------- --------------- ---------------- ---------------
</TABLE>
The amortized cost and fair value of fixed maturities available for sale at
December 31, 1998, by contractual maturity, are shown below. Actual
maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
F-22
<PAGE> 78
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
----------------------------------------------------- ------------------ ------------------
($ in thousands) AMORTIZED FAIR
COST VALUE
----------------------------------------------------- ------------------ ------------------
<S> <C> <C>
MATURITY:
Due in one year or less $ 21,149 $ 21,655
Due after 1 year through 5 years 249,251 256,032
Due after 5 years through 10 years 356,358 379,061
Due after 10 years 860,484 950,450
----------------------------------------------------- ------------------ ------------------
1,487,242 1,607,198
----------------------------------------------------- ------------------ ------------------
Mortgage-backed securities 220,105 231,483
----------------------------------------------------- ------------------ ------------------
Total Maturity $1,707,347 $1,838,681
----------------------------------------------------- ------------------ ------------------
</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.
At December 31, 1998 and 1997, the Company held CMOs with a market value of
$181.6 million and $122.8 million, respectively. The Company's CMO holdings
were 62.9% and 97.5% collateralized by GNMA, FNMA or FHLMC securities at
December 31, 1998 and 1997, respectively.
Equity Securities
The cost and market values of investments in equity securities were as
follows:
<TABLE>
<CAPTION>
--------------------------------------------- ----------- ---------------------- ---------------------- -----------
EQUITY SECURITIES: GROSS UNREALIZED GROSS UNREALIZED FAIR VALUE
($ in thousands) COST GAINS LOSSES
--------------------------------------------- ----------- ---------------------- ---------------------- -----------
<S> <C> <C> <C>
DECEMBER 31, 1998
Common stocks $ 5,185 $889 $(292) $5,782
Non-redeemable preferred stocks 20,641 707 (445) 20,903
--------------------------------------------- ----------- ---------------------- ---------------------- -----------
Total Equity Securities $25,826 $1,596 $(737) $26,685
--------------------------------------------- ----------- ---------------------- ---------------------- -----------
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
--------------------------------------------- ----------- ---------------------- ---------------------- -----------
</TABLE>
F-23
<PAGE> 79
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Proceeds from sales of equity securities were $6.0 million, $12.4 million
and $12.8 million in 1998, 1997 and 1996, respectively. Gross gains of $2.6
million, $8.6 million and $4.7 million and gross losses of $815 thousand,
$172 thousand and $155 thousand in 1998, 1997 and 1996, respectively were
realized on those sales.
Mortgage Loans
Underperforming assets include delinquent mortgage loans, loans in the
process of foreclosure and loans modified at interest rates below market.
At December 31, 1998 and 1997, the Company's mortgage loan portfolios
consisted of the following:
<TABLE>
<CAPTION>
- ----------------------------------------------------- ------------- --------------
($ in thousands) 1998 1997
- ----------------------------------------------------- ------------- --------------
<S> <C> <C>
Current Mortgage Loans $170,635 $160,247
Underperforming Mortgage Loans 3,930 -
- ----------------------------------------------------- ------------- --------------
Total 174,565 160,247
- ----------------------------------------------------- ------------- --------------
</TABLE>
Aggregate annual maturities on mortgage loans at December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------- -------
($ in thousands)
<S> <C>
Past Maturity $ 129
1999 11,649
2000 11,309
2001 8,697
2002 16,272
2003 4,998
Thereafter 121,511
- ----------------------------------------------------- -------
Total 174,565
===================================================== =======
</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,
which is included in other invested assets, totaled $62.4 million and $54.8
million at December 31, 1998 and 1997, respectively.
F-24
<PAGE> 80
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Concentrations
The Company's significant individual investment concentrations included
$53.3 million and $32.7 million in Bellsouth Corp. at December 31, 1998 and
1997, respectively. In addition, there was an investment of $50.8 million
in the State of Israel in 1997.
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
$102.4 million and $76.7 million at December 31, 1998 and 1997,
respectively. The Company defines its below investment grade assets as
those securities rated "Ba1" or below by external rating agencies, or the
equivalent by internal analysts when a public rating does not exist. Such
assets include publicly traded below investment grade bonds and certain
other privately issued bonds that are classified as below investment grade
bonds.
The Company's three largest industry concentrations of investments,
primarily fixed maturities, were as follows:
<TABLE>
<CAPTION>
-------------------------------------------- ----------- -----------
($ in thousands) 1998 1997
-------------------------------------------- ----------- -----------
<S> <C> <C>
Banking $160,713 $130,966
Transportation 155,116 138,903
Electric utilities 109,027 106,724
-------------------------------------------- ----------- -----------
</TABLE>
Below investment grade assets included in the preceding table were not
significant.
Concentrations of mortgage loans by property type at December 31, 1998 and
1997 were as follows:
<TABLE>
<CAPTION>
-------------------------------------------- ----------- -----------
($ in thousands) 1998 1997
-------------------------------------------- ----------- -----------
<S> <C> <C>
Agricultural $78,579 $62,463
Office 51,813 47,453
-------------------------------------------- ----------- -----------
</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
There were no investments included in the balance sheets that were
non-income producing for the preceding 12 months.
F-25
<PAGE> 81
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Restructured Investments
Mortgage loan and debt securities which were restructured at below market
terms at December 31, 1998 and 1997 were insignificant. The new terms of
restructured investments 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, 1998, the Company had $1.9 billion of life and annuity
deposit funds and reserves. Of that total, $1.5 billion were not subject to
discretionary withdrawal based on contract terms. The remaining $.4 billion
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 billion of liabilities that are
surrenderable with market value adjustments. An additional $.2 billion of
life insurance and individual annuity liabilities are subject to
discretionary withdrawals with an average surrender charge of 4.6%. The
life insurance risks would have to be underwritten again if transferred to
another carrier, which is considered a significant deterrent for long-term
policyholders. Insurance liabilities that are surrendered or withdrawn from
the Company are reduced by outstanding policy loans and related accrued
interest prior to payout.
13. RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES
The following table reconciles net income to net cash provided by (used in)
operating activities:
<TABLE>
<CAPTION>
------------------------------------------------------------------ ------------- ------------- -------------
FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996
---- ---- ----
($ in thousands)
------------------------------------------------------------------ ------------- ------------- -------------
<S> <C> <C> <C>
Net Income From Continuing Operations $57,485 $71,372 $ 25,791
Adjustments to reconcile net income to cash provided by
operating activities:
Realized (gains) losses (18,493) (44,871) 9,613
Deferred federal income taxes 11,783 4,344 (15,665)
Amortization of deferred policy acquisition costs and
value of insurance in force 17,031 6,036 3,286
Additions to deferred policy acquisition costs (120,278) (56,975) (20,753)
Investment income accrued (3,821) 908 1,308
Premium balances receivable (6,786) (3,450) (3,561)
Insurance reserves and accrued expenses (8,431) 3,981 (16,459)
Other (3,881) 26,673 (13,419)
------------------------------------------------------------------ ------------- ------------- -------------
Net cash provided by (used in) operations $(75,391) $8,018 $(29,859)
------------------------------------------------------------------ ------------- ------------- -------------
</TABLE>
14. NON-CASH INVESTING AND FINANCING ACTIVITIES
There were no significant non-cash investing and financing activities for
1998, 1997 and 1996.
F-26
<PAGE> 82
TRAVELERS RETIREMENT PRODUCT
VARIABLE ANNUITY
STATEMENT OF ADDITIONAL INFORMATION
SEPARATE ACCOUNT SIX
Individual and Group
Variable Annuity Contract
issued by
The Travelers Life and Annuity Company
One Tower Square
Hartford, Connecticut 06183
L-21257S May 1, 1999
<PAGE> 83
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 Prospectus.
The financial statements of The Travelers Life and Annuity Company
include:
Statements of Income for the years ended December 31, 1998, 1997 and
1996 Balance Sheets as of December 31, 1998 and 1997
Statements of Changes in Retained Earnings and Accumulated Other
Changes in Equity from Non-Owner Sources for the year ended
December 31, 1998, 1997 and 1996
Statements of Cash Flows for the years ended December 31, 1998, 1997
and 1996 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 July 9, 1998.)
2. Not Applicable.
3(a). Form of Distribution and Principal Underwriting Agreement among the
Registrant, The Travelers Life and Annuity Company and CFBDS, Inc.
(Incorporated herein by reference to Exhibit 3(a) to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-4, File No.
333-58809, filed November 3, 1998.)
3(b). Form of Selling Agreement. (Incorporated herein by reference to Exhibit
3(b) to the Registration Statement on Form N-4, File No. 333-40191,
filed June 10, 1998.)
4. Variable Annuity Contract. (Incorporated herein by reference to Exhibit
4 to Pre-Effective Amendment No. 1 to the Registration Statement on
Form N-4, File No. 333-58809, filed November 3, 1998.)
5. Application. (Incorporated herein by reference to Exhibit 5 to
Pre-Effective Amendment No. 1 to the Registration Statement on Form
N-4, File No. 333-58809, filed November 3, 1998.)
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, File No. 333-40191, 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, File No. 333-40191, 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 July 9, 1998.)
<PAGE> 84
10. Consent of KPMG LLP, Independent Certified Public Accountants.
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. 333-58809, filed November 3, 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 July 9, 1998.)
15(a). Powers of Attorney authorizing Ernest J. Wright or Kathleen A. McGah as
signatory for J. Eric Daniels and Jay S. Benet.
Item 25. Directors and Officers of the Depositor
Name and Principal Positions and Offices
Business Address with Insurance Company
- ---------------- ----------------------
Michael A. Carpenter** Director, Chairman of the Board
J. Eric Daniels* President and Chief Executive Officer
Jay S. Benet* Director, Senior Vice President
Chief Financial Officer, Chief
Accounting Officer and Controller
George C. Kokulis* Director and Senior Vice President
Robert I. Lipp* Director
Katherine M. Sullivan* Director and Senior Vice President
and General Counsel
Marc P. Weill** Director and Senior Vice President
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
Kathleen Preston* Senior Vice President
David A. Tyson* Senior Vice President
F. Denney Voss* Senior Vice President
Ambrose J. Murphy* Deputy General Counsel
Virginia M. Meany* Vice President
Selig Ehrlich* Vice President and Actuary
Donald R. Munson, Jr.* Second Vice President
Anthony Cocolla Second Vice President
Scott R. Hansen Second Vice President
Ernest J. Wright* Vice President and Secretary
Kathleen A. McGah* Assistant Secretary and Counsel
Principal Business Address:
<PAGE> 85
* The Travelers Insurance Company ** Citigroup Inc.
One Tower Square 388 Greenwich Street
Hartford, CT 06183 New York, N.Y. 10013
*** Travelers Portfolio Group
1345 Avenue of the Americas
New York, NY 10105
Item 26. Persons Controlled by or Under Common Control with the Depositor or
Registrant
Incorporated herein by reference to Exhibit 16 to Post-Effective Amendment
No. 2 to the Registration Statement on Form N-4, File No. 333-27689, filed April
16, 1999.
Item 27. Number of Contract Owners
Not applicable.
Item 28. Indemnification
Sections 33-770 to 33-778, inclusive of the Connecticut General Statutes
("C.G.S.") regarding indemnification of directors and officers of Connecticut
corporations provides in general that Connecticut corporations shall indemnify
their officers, directors and certain other defined individuals against
judgments, fines, penalties, amounts paid in settlement and reasonable expenses
actually incurred in connection with proceedings against the corporation. The
corporation's obligation to provide such indemnification generally does not
apply unless (1) the individual is wholly successful on the merits in the
defense of any such proceeding; or (2) a determination is made (by persons
specified in the statute) that the individual acted in good faith and in the
best interests of the corporation and in all other cases, his conduct was at
least not opposed to the best interests of the corporation, and in a criminal
case he had no reasonable cause to believe his conduct was unlawful; or (3) the
court, upon application by the individual, determines in view of all of the
circumstances that such person is fairly and reasonably entitled to be
indemnified, and then for such amount as the court shall determine. With respect
to proceedings brought by or in the right of the corporation, the statute
provides that the corporation shall indemnify its officers, directors and
certain other defined individuals, against reasonable expenses actually incurred
by them in connection with such proceedings, subject to certain limitations.
Citigroup Inc. also provides liability insurance for its directors and officers
and the directors and officers of its subsidiaries, including the Registrant.
This insurance provides for coverage against loss from claims made against
directors and officers in their capacity as such, including, subject to certain
exceptions, liabilities under the federal securities laws.
Rule 484 Undertaking
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director,
<PAGE> 86
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 29. Principal Underwriter
(a) CFBDS, Inc.
21 Milk Street
Boston, MA 02109
CFBDS, Inc. also serves as principal underwriter for the following :
(a) CFBDS, the Registrant's Distributor, is also the distributor for CitiFundsSM
International Growth & Income Portfolio, CitiFundsSM International Growth
Portfolio, CitiFundsSM U.S. Treasury Reserves, CitiFundsSM Cash Reserves,
CitiFundsSM Premium U.S. Treasury Reserves, CitiFundsSM Premium Liquid Reserves,
CitiFundsSM Institutional U.S. Treasury Reserves, CitiFundsSM Institutional
Liquid Reserves, CitiFundsSM Institutional Cash Reserves, CitiFundsSM Tax Free
Reserves, CitiFundsSM Institutional Tax Free Reserves, CitiFundsSM California
Tax Free Reserves, CitiFundsSM Connecticut Tax Free Reserves, CitiFundsSM New
York Tax Free Reserves, CitiFundsSM New York Tax Free Income Portfolio,
CitiFundsSM National Tax Free Income Portfolio, CitiFundsSM California Tax Free
Income Portfolio, CitiFundsSM Intermediate Income Portfolio, CitiFundsSM
Balanced Portfolio, CitiFundsSM Small Cap Value Portfolio, CitiFundsSM Growth &
Income Portfolio, CitiFundsSM Large Cap Growth Portfolio, CitiFundsSM Small Cap
Growth Portfolio, CitiSelect VIP Folio 200, CitiSelect VIP Folio 300, CitiSelect
VIP Folio 400, CitiSelect VIP Folio 500, CitiFundsSM Small Cap Growth VIP
Portfolio, CitiSelect Folio 200, CitiSelect Folio 300, CitiSelect Folio 400, and
CitiSelect Folio 500. CFBDS is also the placement agent for Large Cap Value
Portfolio, Small Cap Value Portfolio, International Portfolio, Foreign Bond
Portfolio, Intermediate Income Portfolio, Short-Term Portfolio, Growth & Income
Portfolio, U.S. Fixed Income Portfolio, Large Cap Growth Portfolio, Small Cap
Growth Portfolio, International Equity Portfolio, Balanced Portfolio, Government
Income Portfolio, Tax Free Reserves Portfolio, Cash Reserves Portfolio and U.S.
Treasury Reserves Portfolio. CFBDS also serves as the distributor for the
following funds: The Travelers Fund U for Variable Annuities, The Travelers Fund
VA for Variable Annuities, The Travelers Fund BD for Variable Annuities, The
Travelers Fund BD II for Variable Annuities, The Travelers Fund BD III for
Variable Annuities, The Travelers Fund BD IV for Variable Annuities, The
Travelers Fund ABD II for Variable Annuities, The Travelers Separate Account PF
for Variable Annuities, The Travelers Separate Account PF II for Variable
Annuities, The Travelers Separate Account QP for Variable Annuities, The
Travelers Separate Account TM for Variable Annuities, The Travelers Separate
Account TM II for Variable Annuities, The Travelers Separate Account Five for
Variable Annuities, The Travelers Separate Account Six for Variable Annuities,
The Travelers Separate Account Seven for Variable Annuities, The Travelers
Separate Account Eight for Variable Annuities, The Travelers Fund UL for
Variable Life Insurance, The Travelers Fund UL II for Variable Life Insurance,
The Travelers Fund UL III for Variable Life Insurance, The Travelers Variable
Life Insurance Separate Account One, The Travelers Variable Life Insurance
Separate Account Two, The Travelers Variable Life Insurance Separate Account
Three, The Travelers Variable Life Insurance Separate Account Four, The
Travelers Separate Account MGA, The Travelers Separate Account MGA II, The
Travelers Growth and Income Stock Account for Variable Annuities, The Travelers
Quality Bond Account for Variable Annuities, The Travelers Money Market Account
for Variable Annuities, The Travelers Timed Growth and Income Stock Account for
Variable Annuities, The Travelers Timed Short-Term Bond Account for Variable
Annuities, The Travelers Timed Aggressive Stock Account for Variable Annuities,
The Travelers Timed Bond Account for Variable Annuities, Emerging Growth Fund,
Government Fund, Growth and Income Fund, International Equity Fund, Municipal
Fund, Balanced Investments, Emerging Markets Equity Investments, Government
Money Investments, High Yield Investments, Intermediate Fixed Income
Investments, International Equity Investments, International Fixed Income
Investments, Large Capitalization Growth
<PAGE> 87
Investments, Large Capitalization Value Equity Investments, Long-Term Bond
Investments, Mortgage Backed Investments, Municipal Bond Investments, Small
Capitalization Growth Investments, Small Capitalization Value Equity
Investments, Appreciation Portfolio, Diversified Strategic Income Portfolio,
Emerging Growth Portfolio, Equity Income Portfolio, Equity Index Portfolio,
Growth & Income Portfolio, Intermediate High Grade Portfolio, International
Equity Portfolio, Money Market Portfolio, Total Return Portfolio, Smith Barney
Adjustable Rate Government Income Fund, Smith Barney Aggressive Growth Fund
Inc., Smith Barney Appreciation Fund, Smith Barney Arizona Municipals Fund Inc.,
Smith Barney California Municipals Fund Inc., Balanced Portfolio, Conservative
Portfolio, Growth Portfolio, High Growth Portfolio, Income Portfolio, Global
Portfolio, Select Balanced Portfolio, Select Conservative Portfolio, Select
Growth Portfolio, Select High Growth Portfolio, Select Income Portfolio, Concert
Social Awareness Fund, Smith Barney Large Cap Blend Fund, Smith Barney
Fundamental Value Fund Inc., Large Cap Value Fund, Short-Term High Grade Bond
Fund, U.S. Government Securities Fund, Smith Barney Balanced Fund, Smith Barney
Convertible Fund, Smith Barney Diversified Strategic Income Fund, Smith Barney
Exchange Reserve Fund, Smith Barney High Income Fund, Smith Barney Municipal
High Income Fund, Smith Barney Premium Total Return Fund, Smith Barney Total
Return Bond Fund, Cash Portfolio, Government Portfolio, Municipal Portfolio,
Concert Peachtree Growth Fund, Smith Barney Contrarian Fund, Smith Barney
Government Securities Fund, Smith Barney Hansberger Global Small Cap Value Fund,
Smith Barney Hansberger Global Value Fund, Smith Barney Investment Grade Bond
Fund, Smith Barney Special Equities Fund, Smith Barney Intermediate Maturity
California Municipals Fund, Smith Barney Intermediate Maturity New York
Municipals Fund, Smith Barney Large Capitalization Growth Fund, Smith Barney S&P
500 Index Fund, Smith Barney Mid Cap Blend Fund, Smith Barney Managed
Governments Fund Inc., Smith Barney Managed Municipals Fund Inc., Smith Barney
Massachusetts Municipals Fund, Cash Portfolio, Government Portfolio, Retirement
Portfolio, California Money Market Portfolio, Florida Portfolio, Georgia
Portfolio, Limited Term Portfolio, New York Money Market Portfolio, New York
Portfolio, Pennsylvania Portfolio, Smith Barney Municipal Money Market Fund,
Inc., Smith Barney Natural Resources Fund Inc., Smith Barney New Jersey
Municipals Fund Inc., Smith Barney Oregon Municipals Fund, Zeros Plus Emerging
Growth Series 2000, Smith Barney Security and Growth Fund, Smith Barney Small
Cap Blend Fund, Inc., Smith Barney Telecommunications Income Fund, Income and
Growth Portfolio, Reserve Account Portfolio, U.S. Government/High Quality
Securities Portfolio, Emerging Markets Portfolio, European Portfolio, Global
Government Bond Portfolio, International Balanced Portfolio, International
Equity Portfolio, Pacific Portfolio, AIM Capital Appreciation Portfolio,
Alliance Growth Portfolio, GT Global Strategic Income Portfolio, MFS Total
Return Portfolio, Putnam Diversified Income Portfolio, Smith Barney High Income
Portfolio, Smith Barney Large Cap Value Portfolio, Smith Barney International
Equity Portfolio, Smith Barney Large Capitalization Growth Portfolio, Smith
Barney Money Market Portfolio, Smith Barney Pacific Basin Portfolio, TBC Managed
Income Portfolio, Van Kampen American Capital Enterprise Portfolio, Centurion
Tax-Managed U.S. Equity Fund, Centurion Tax-Managed International Equity Fund,
Centurion U.S. Protection Fund, Centurion International Protection Fund, Global
High-Yield Bond Fund, International Equity Fund, Emerging Opportunities Fund,
Core Equity Fund, Long-Term Bond Fund, Global Dimensions Fund L.P., Citicorp
Private Equity L.P., AIM V.I. Capital Appreciation Fund, AIM V.I. Government
Series Fund, AIM V.I. Growth Fund, AIM V.I. International Equity Fund, AIM V.I.
Value Fund, Fidelity VIP Growth Portfolio, Fidelity VIP High Income Portfolio,
Fidelity VIP Equity Income Portfolio, Fidelity VIP Overseas Portfolio, Fidelity
VIP II Contrafund Portfolio, Fidelity VIP II Index 500 Portfolio, MFS World
Government Series, MFS Money Market Series, MFS Bond Series, MFS Total Return
Series, MFS Research Series, MFS Emerging Growth Series, Salomon Brothers
Institutional Money Market Fund, Salomon Brothers Cash Management Fund, Salomon
Brothers New York Municipal Money Market Fund, Salomon Brothers National
Intermediate Municipal Fund, Salomon Brothers U.S. Government Income Fund,
Salomon Brothers High Yield Bond Fund, Salomon Brothers Strategic Bond Fund,
Salomon Brothers Total Return Fund, Salomon Brothers Asia Growth Fund, Salomon
Brothers Capital Fund Inc, Salomon Brothers Investors Fund Inc, Salomon Brothers
Opportunity Fund Inc, Salomon Brothers Institutional High Yield Bond Fund,
Salomon Brothers Institutional Emerging Markets Debt Fund, Salomon Brothers
Variable Investors Fund, Salomon Brothers Variable Capital Fund, Salomon
Brothers Variable Total Return Fund, Salomon Brothers Variable High Yield Bond
<PAGE> 88
Fund, Salomon Brothers Variable Strategic Bond Fund, Salomon Brothers Variable
U.S. Government Income Fund, and Salomon Brothers Variable Asia Growth Fund.
(b) The information required by this Item 29 with respect to each director and
officer of CFBDS, Inc. is incorporated by reference to Schedule A of Form BD
filed by CFBDS pursuant to the Securities and Exchange Act of 1934 (File No.
8-32417).
(c) Not Applicable
Item 30. Location of Accounts and Records
(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> 89
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets the requirements of Securities Act
Rule 485(b) for effectiveness of this amendment to this registration statement
and has caused this amendment to this registration statement to be signed on its
behalf, in the City of Hartford, and State of Connecticut, on this 28th day of
April, 1999.
THE TRAVELERS SEPARATE ACCOUNT SIX FOR VARIABLE ANNUITIES
(Registrant)
THE TRAVELERS LIFE AND ANNUITY COMPANY
(Depositor)
By: *JAY S. BENET
--------------------------------------
Jay S. Benet
Senior Vice President, Chief Financial
Officer Chief Accounting Officer and
Controller
As required by the Securities Act of 1933, this post-effective amendment to this
registration statement has been signed by the following persons in the
capacities indicated on the 28th day of April 1999.
*MICHAEL A. CARPENTER Director and Chairman of the Board
(Michael A. Carpenter)
*J. ERIC DANIELS Director, President and Chief Executive
(J. Eric Daniels) Officer
*JAY S. BENET Director, Senior Vice President, Chief
(Jay S. Benet) Financial Officer, Chief Accounting Officer
and Controller
*GEORGE C. KOKULIS Director
(George C. Kokulis
*ROBERT I. LIPP Director
(Robert I. Lipp)
*KATHERINE M. SULLIVAN Director, Senior Vice President and
(Katherine M. Sullivan) General Counsel
*MARC P. WEILL Director
(Marc P. Weill)
*By: /s/Ernest J. Wright, Attorney-in-Fact
<PAGE> 90
EXHIBIT INDEX
Exhibit
No. Description Method of Filing
- --- ----------- ----------------
10 Consent of KPMG LLP, Independent Certified Public Electronically
Accountants
15(a) Powers of Attorney authorizing Ernest J. Wright or Electronically
Kathleen A. McGah as signatory for J. Eric Daniels
and Jay S. Benet.
<PAGE> 1
Consent of Independent Certified Public Accountants
The Board of Directors
The Travelers Life and Annuity Company:
We consent to the use of our report included herein and to the reference to our
firm as experts under the heading "Independent Accountants."
KPMG LLP
Hartford, Connecticut
April 27, 1999
<PAGE> 1
Exhibit 15(a)
THE TRAVELERS SEPARATE ACCOUNT SIX FOR VARIABLE ANNUITIES
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, J. ERIC DANIELS of Farmington, Connecticut, Director, President
and Chief Executive Officer of The Travelers Life and Annuity Company (hereafter
the "Company"), do hereby make, constitute and appoint ERNEST J. WRIGHT,
Secretary of said Company, and KATHLEEN A. McGAH, Assistant Secretary of said
Company, or either one of them acting alone, my true and lawful
attorney-in-fact, for me, and in my name, place and stead, to sign registration
statements on behalf of said Company on Form N-4 or other appropriate form under
the Securities Act of 1933 and the Investment Company Act of 1940 for The
Travelers Separate Account Six for Variable Annuities, a separate account of the
Company dedicated specifically to the funding of variable annuity contracts to
be offered by said Company, and further, to sign any and all amendments thereto,
including post-effective amendments, that may be filed by the Company on behalf
of said registrant.
IN WITNESS WHEREOF, I have hereunto set my hand this 15th day of January
1999.
/s/ J. Eric Daniels
Director, President and Chief Executive
Officer The Travelers Life and Annuity Company
<PAGE> 2
THE TRAVELERS SEPARATE ACCOUNT SIX FOR VARIABLE ANNUITIES
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, JAY S. BENET of West Hartford, Connecticut, Director, Senior Vice
President and Chief Financial Officer, Chief Accounting Officer and Controller
of The Travelers Life and Annuity Company (hereafter the "Company"), do hereby
make, constitute and appoint ERNEST J. WRIGHT, Secretary of said Company, and
KATHLEEN A. McGAH, Assistant Secretary of said Company, or either one of them
acting alone, my true and lawful attorney-in-fact, for me, and in my name, place
and stead, to sign registration statements on behalf of said Company on Form N-4
or other appropriate form under the Securities Act of 1933 and the Investment
Company Act of 1940 for The Travelers Separate Account Six for Variable
Annuities, a separate account of the Company dedicated specifically to the
funding of variable annuity contracts to be offered by said Company, and
further, to sign any and all amendments thereto, including post-effective
amendments, that may be filed by the Company on behalf of said registrant.
IN WITNESS WHEREOF, I have hereunto set my hand this 15th day of January
1999.
/s/ Jay S. Benet
Director, Senior Vice President
Chief Financial Officer,
Chief Accounting Officer and Controller
The Travelers Life and Annuity Company
