<PAGE> 1
Registration Statement No. 333-60227
811-08909
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective No. 2
And
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Post-Effective No. 2
THE TRAVELERS SEPARATE ACCOUNT SEVEN FOR VARIABLE ANNUITIES
-----------------------------------------------------------
(Exact name of Registrant)
THE TRAVELERS INSURANCE COMPANY
-------------------------------
(Name of Depositor)
ONE TOWER SQUARE, HARTFORD, CONNECTICUT 06183
---------------------------------------------
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number, including area code: (860) 277-0111
--------------
ERNEST J. WRIGHT
The Travelers Insurance Company
One Tower Square
Hartford, Connecticut 06183
---------------------------
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective (check appropriate box):
____ immediately upon filing pursuant to paragraph (b) of Rule 485.
X on May 1, 2000 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.
<PAGE> 2
PART A
Information Required in a Prospectus
<PAGE> 3
TRAVELERS PREMIER ADVISERS -- ASSETMANAGER VARIABLE ANNUITY PROSPECTUS:
THE TRAVELERS SEPARATE ACCOUNT SEVEN FOR VARIABLE ANNUITIES
THE TRAVELERS SEPARATE ACCOUNT EIGHT FOR VARIABLE ANNUITIES
This prospectus describes TRAVELERS PREMIER ADVISERS -- ASSETMANAGER, a flexible
premium variable annuity contract (the "Contract") issued by The Travelers
Insurance Company or The Travelers Life and Annuity Company, depending on the
state in which you purchased your Contract. The Contract is available in
connection with certain retirement plans that qualify for special federal income
tax treatment ("qualified Contracts") as well as those that do not qualify for
such treatment ("nonqualified Contracts"). We may issue it as an individual
Contract or as a group Contract. In states where only group Contracts are
available, you will be issued a certificate summarizing the provisions of the
group Contract. For convenience, we refer to Contracts and certificates as
"Contracts."
You can choose to have your premium ("purchase payments") accumulate on a fixed
basis and/ or a variable basis. Your contract value will vary daily to reflect
the investment experience of the subaccounts ("funding options") you select and
any interest credited to the Fixed Account. The variable funding options are:
SALOMON BROTHERS VARIABLE SERIES FUND INC.
Capital Fund
High Yield Bond Fund
Investors Fund
Small Cap Growth Fund
Strategic Bond Fund
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
Emerging Markets Equity Portfolio
Equity Growth Portfolio
Global Equity Portfolio
Active International Allocation Portfolio
Mid Cap Growth Portfolio
Mid Cap Value Portfolio
THE UNIVERSAL INSTITUTIONAL FUNDS, INC. (CONTINUED)
Technology Portfolio
Value Portfolio
VAN KAMPEN LIFE INVESTMENT TRUST
Comstock Portfolio
Domestic Income Portfolio
Emerging Growth Portfolio
Enterprise Portfolio
Government Portfolio
Growth and Income Portfolio
Money Market Portfolio
Morgan Stanley Real Estate Securities Portfolio
The Fixed Account is described in Appendix C. Unless specified otherwise, this
prospectus refers to the variable funding options. The contracts and/or some of
the funding options may not be available in all states. THIS PROSPECTUS IS VALID
ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES FOR THE VARIABLE FUNDING
OPTIONS. READ AND RETAIN THEM FOR FUTURE REFERENCE.
This prospectus provides the information that you should know before investing
in the Contract. You can receive additional information about the Travelers
Separate Account Seven for Variable Annuities or the Travelers Separate Account
Eight for Variable Annuities ("Separate Account") by requesting a copy of the
Statement of Additional Information ("SAI") dated May 1, 2000. The SAI has been
filed with the Securities and Exchange Commission ("SEC") and is incorporated by
reference into this prospectus. To request a copy, write to The Travelers
Insurance Company, Annuity Investor Services, One Tower Square, Hartford,
Connecticut 06183, call 1-800-599-9460 or access the SEC's website
(http://www.sec.gov). See Appendix D for the SAI's table of contents.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
VARIABLE ANNUITY CONTRACTS ARE NOT DEPOSITS OF ANY BANK, AND ARE NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY.
PROSPECTUS DATED MAY 1, 2000
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<S> <C>
Index of Special Terms................ 2
Summary............................... 3
Fee Table............................. 6
Condensed Financial Information....... 8
The Annuity Contract.................. 8
Contract Owner Inquiries............ 9
Purchase Payments................... 9
Accumulation Units.................. 9
The Funding Options................. 9
Charges and Deductions................ 11
General............................. 11
Administrative Charges.............. 12
Mortality and Expense Risk Charge... 12
Funding Option Expenses............. 13
Premium Tax......................... 13
Changes in Taxes Based Upon Premium
or Value......................... 13
Transfers............................. 13
Dollar Cost Averaging............... 13
Access to Your Money.................. 14
Systematic Withdrawals.............. 14
Loans............................... 15
Ownership Provisions.................. 15
Types of Ownership.................. 15
Beneficiary......................... 15
Annuitant........................... 15
Death Benefit......................... 16
Death Proceeds Before the Maturity
Date............................. 16
Payment of Proceeds................. 17
Death Proceeds After the Maturity
Date............................. 18
The Annuity Period.................... 18
Maturity Date....................... 18
Allocation of Annuity............... 19
Variable Annuity.................... 19
Fixed Annuity....................... 19
Payment Options....................... 20
Election of Options................. 20
Annuity Options..................... 20
Income Options...................... 21
Miscellaneous Contract Provisions..... 21
Right to Return..................... 21
Termination......................... 21
Required Reports.................... 21
Suspension of Payments.............. 22
Transfers of Contract Values to
Other Annuities.................. 22
The Separate Accounts................. 22
Performance Information............. 22
Federal Tax Considerations............ 23
General Taxation of Annuities....... 23
Types of Contracts: Qualified or
Nonqualified..................... 23
Nonqualified Annuity Contracts...... 24
Qualified Annuity Contracts......... 24
Penalty Tax for Premature
Distributions.................... 24
Diversification Requirements for
Variable Annuities............... 25
Ownership of the Investments........ 25
Mandatory Distributions for
Qualified Plans.................. 25
Taxation of Death Benefit
Proceeds......................... 25
Other Information..................... 26
The Insurance Companies............. 26
Financial Statements................ 26
IMSA................................ 26
Distribution of Variable Annuity
Contracts........................ 26
Conformity with State and Federal
Laws............................. 26
Voting Rights....................... 27
Legal Proceedings and Opinions...... 27
Appendix A: Condensed Financial
Information for The Travelers
Insurance Company: Separate Account
Seven............................... A-1
Appendix B: Condensed Financial
Information for The Travelers Life
and Annuity Company:Separate Account
Eight............................... B-1
Appendix C: Fixed Account............. C-1
Appendix D: Contents of the Statement
of Additional Information........... D-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..................... 9
Accumulation Period................... 9
Annuitant............................. 15
Annuity Payments...................... 8
Annuity Unit.......................... 9
Contingent Annuitant.................. 16
Contract Date......................... 8
Contract Owner (You, Your)............ 15
Contract Value........................ 8
Contract Year......................... 8
Death Report Date..................... 16
Fixed Account......................... C-1
Funding Option(s)..................... 9
Maturity Date......................... 8
Purchase Payment...................... 8
Underlying Fund....................... 9
Written Request....................... 9
</TABLE>
2
<PAGE> 5
SUMMARY:
TRAVELERS PREMIER ADVISERS -- ASSETMANAGER
THIS SUMMARY DETAILS SOME OF THE MORE IMPORTANT POINTS THAT YOU SHOULD KNOW AND
CONSIDER BEFORE PURCHASING THE CONTRACT. PLEASE READ THE ENTIRE PROSPECTUS
CAREFULLY.
WHAT COMPANY WILL ISSUE MY CONTRACT? Your issuing company is either The
Travelers Insurance Company or The Travelers Life and Annuity Company, ("the
Company," "We" or "Us") depending on where you purchase your Contract. Each
company sponsors its own Separate Account, both of which are described later in
this prospectus. The Travelers Insurance Company sponsors the Travelers Separate
Account Seven for Variable Annuities ("Separate Account Seven"); The Travelers
Life and Annuity Company sponsors the Travelers Separate Account Eight for
Variable Annuities ("Separate Account Eight"). When we refer to the Separate
Account, we are referring to either Separate Account Seven or Separate Account
Eight, depending upon your issuing company. Your issuing company is The
Travelers Life and Annuity Company unless you purchased your contract in the
following locations listed below, which contracts are issued by The Travelers
Insurance Company.
<TABLE>
<S> <C>
Kansas New York
Maine North Carolina
New Hampshire Puerto Rico
New Jersey Tennessee
Wyoming
</TABLE>
You may also refer to the cover page of your Contract for the name of your
issuing company. You may only purchase a Contract in locations where the
Contract has been approved for sale. This Contract may not currently be
available for sale in all locations.
CAN YOU GIVE ME A GENERAL DESCRIPTION OF THE VARIABLE ANNUITY CONTRACT? The
Contract offered by the Company is intended for retirement savings or other
long-term investment purposes. The Contract provides a death benefit as well as
guaranteed payout options. You direct your payment(s) to one or more of the
variable funding options and/or to the Fixed Account. We guarantee money
directed to the Fixed Account as to principal and interest. The variable funding
options are designed to produce a higher rate of return than the Fixed Account;
however, this is not guaranteed. You can also lose money in the variable funding
options.
The Contract, like all deferred variable annuity contracts, has two phases: the
accumulation phase and the payout phase. During the accumulation phase
generally, under a qualified contract, your pre-tax contributions accumulate on
a tax-deferred basis and are taxed as income when you make a withdrawal,
presumably when you are in a lower tax bracket. During the accumulation phase,
under a nonqualified contract, earnings on your after-tax contributions
accumulate on a tax-deferred basis and are taxed as income when you make a
withdrawal. The payout phase occurs when you begin receiving payments from your
Contract. The amount of money you accumulate in your Contract determines the
amount of income (annuity payments) you receive during the payout phase.
During the payout phase, you may choose to receive annuity payments from the
Fixed Account or the variable funding options. If you want to receive payments
from your annuity, you can choose one of a number of annuity options or income
options.
Once you choose one of the annuity options or income options and begin to
receive payments, it cannot be changed. During the payout phase, you have the
same investment choices you had during the accumulation phase. If amounts are
directed to the variable funding options, the dollar amount of your payments may
increase or decrease.
3
<PAGE> 6
WHO SHOULD PURCHASE THIS CONTRACT? The Contract is currently available for use
in connection with (1) individual nonqualified purchases; (2) rollovers from
Individual Retirement Annuities (IRAs); and (3) rollovers from other qualified
retirement plans. Qualified contracts include contracts qualifying under Section
401(a), 403(b), or 408(b) of the Internal Revenue Code of 1986. Purchase of this
Contract through a tax qualified retirement plan ("Plan") does not provide any
additional tax deferral benefits beyond those provided by the Plan. Accordingly,
if you are purchasing this Contract through a Plan, you should consider
purchasing this Contract for its Death Benefit, Annuity Option Benefits, and
other non-tax-related benefits.
You may purchase the Contract with an initial payment of at least $20,000. You
may make additional payments of at least $500 at any time during the
accumulation phase.
IS THERE A RIGHT TO RETURN PERIOD? If you cancel the Contract within twenty
days after you receive it, you will receive a full refund of the contract value
(including charges). Where state law requires a longer right to return period,
or the return of purchase payments, the Company will comply. You bear the
investment risk on the purchase payment during the right to return period;
therefore, the Contract value returned may be greater or less than your purchase
payment.
If the Contract is purchased as an Individual Retirement Annuity, and is
returned within the first seven days after delivery, your full purchase payment
will be refunded. During the remainder of the right to return period, the
Contract value (including charges) will be refunded. The Contract value will be
determined at the close of business on the day we receive a written request for
a refund.
WHAT TYPES OF INVESTMENT OPTIONS ARE AVAILABLE? You can direct your money into
the Fixed Account or any or all of the funding options shown on the cover page.
The funding options are described in the prospectuses for the funds. Depending
on market conditions, you may make or lose money in any of these options.
The value of the Contract will vary depending upon the investment performance of
the funding options you choose. Past performance is not a guarantee of future
results. Standard and Nonstandard performance is shown in the Statement of
Additional Information that you may request free of charge.
You can transfer between the funding options as frequently as you wish without
any current tax implications. Currently there is no charge for transfers, nor a
limit to the number of transfers allowed. We may, in the future, charge a fee
for any transfer request, or limit the number of transfers allowed. At a
minimum, we would always allow one transfer every six months. We reserve the
right to restrict transfers that we determine will disadvantage other contract
owners. You may transfer between the Fixed Account and the funding options twice
a year (during the 30 days after the six-month contract date anniversary),
provided the amount is not greater than 15% of the Fixed Account Value on that
date.
WHAT EXPENSES WILL BE ASSESSED UNDER THE CONTRACT? The Contract has insurance
features and investment features, and there are costs related to each. For
contracts with a value of less than $75,000 the Company deducts an annual
contract administrative charge of $50. The subaccount administrative charge and
the mortality and expense risk ("M&E") charge are deducted from the amounts in
the variable funding options. The subaccount administrative charge is 0.15%
annually. The annual M&E charge depends on the Death Benefit you choose:
<TABLE>
<CAPTION>
CONTRACT YEARS 0-6 CONTRACT YEARS 7 AND LATER
------------------ --------------------------
<S> <C> <C>
Standard Death Benefit.................. 1.45% 1.40%
Enhanced Death Benefit.................. 1.60% 1.40%
</TABLE>
Each funding option has a charge for investment management and other expenses.
Please refer to the Fee Table for more details.
4
<PAGE> 7
HOW WILL MY CONTRIBUTIONS AND WITHDRAWALS BE TAXED? Generally, the payments you
make to a qualified Contract during the accumulation phase are made with
before-tax dollars. You will be taxed on your purchase payments and on any
earnings when you make a withdrawal or begin receiving annuity or income
payments. Under a nonqualified Contract, payments to the contract are made with
after-tax dollars, and earnings will accumulate tax-deferred. You will be taxed
on these earnings when they are withdrawn from the Contract.
For owners of qualified Contracts, if you reach a certain age, you may be
required by federal tax laws to begin receiving payments from your annuity or
risk paying a penalty tax. In those cases, we can calculate and pay you the
minimum required distribution amounts. If you are younger than 59 1/2 when you
take money out, you may be charged a 10% federal penalty tax on the amount
withdrawn.
HOW MAY I ACCESS MY MONEY? You can take withdrawals any time during the
accumulation phase. While there is no withdrawal charges, income taxes, and/or a
penalty tax may apply to taxable amounts withdrawn.
WHAT IS THE DEATH BENEFIT UNDER THE CONTRACT? You may choose to purchase the
Standard or the Enhanced Death Benefit. The death benefit applies upon the first
death of the owner, joint owner, or annuitant. Assuming you are the Annuitant,
the death benefit is as follows: If you die before the Contract is in the payout
phase, the person you have chosen as your beneficiary will receive a death
benefit. The death benefit value is calculated at the close of the business day
on which the Company's Home Office receives due proof of death and written
payment instructions. Certain states may have varying age requirements. Please
refer to the Death Benefit section in the prospectus for more details.
ARE THERE ANY ADDITIONAL FEATURES? This Contract has other features you may be
interested in. These include:
- SYSTEMATIC WITHDRAWAL OPTION. Before the maturity date, you can arrange
to have money sent to you at set intervals throughout the year. Of
course, any applicable income and penalty taxes will apply on amounts
withdrawn.
- 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 than a single one-time
purchase. Dollar Cost Averaging requires regular investments regardless
of fluctuating price levels, and does not guarantee profits or prevent
losses in a declining market. Potential investors should consider their
financial ability to continue purchases through periods of low price
levels.
- AUTOMATIC REBALANCING. You may elect to have the Company periodically
reallocate the values in your Contract to match your original (or your
latest) funding option allocation request.
5
<PAGE> 8
FEE TABLE
- --------------------------------------------------------------------------------
CONTRACT OWNER TRANSACTION EXPENSES
<TABLE>
<S> <C>
ANNUAL CONTRACT ADMINISTRATIVE
CHARGE $50
(Waived if contract value is $75,000 or more)
ANNUAL SEPARATE ACCOUNT CHARGES
(as a percentage of the average daily net assets of the
Separate Account)
</TABLE>
<TABLE>
<CAPTION>
CONTRACT YEARS 0-6 CONTRACT YEARS 7 AND LATER
------------------ --------------------------
<S> <C> <C>
STANDARD DEATH BENEFIT
Mortality & Expense Risk Charge............ 1.45% 1.40%
Administrative Expense Charge.............. 0.15% 0.15%
---- ----
Total Separate Account Charges......... 1.60% 1.55%
ENHANCED DEATH BENEFIT
Mortality & Expense Risk Charge............ 1.60% 1.40%
Administrative Expense Charge.............. 0.15% 0.15%
---- ----
Total Separate Account Charges......... 1.75% 1.55%
</TABLE>
FUNDING OPTION EXPENSES:
(as a percentage of average daily net assets of the Funding Option as of
December 31, 1999, unless otherwise noted)
<TABLE>
<CAPTION>
TOTAL ANNUAL
OPERATING
MANAGEMENT FEE OTHER EXPENSES EXPENSES
(AFTER EXPENSE (AFTER EXPENSE (AFTER EXPENSE
FUNDING OPTIONS: REIMBURSEMENT) 12B-1 FEES REIMBURSEMENT) REIMBURSEMENT)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
Active International Allocation Portfolio... 0.00% 1.15% 1.15%(1)
Emerging Markets Equity Portfolio........... 0.42% 1.37% 1.79%(1)
Equity Growth Portfolio..................... 0.29% 0.56% 0.85%(1)
Global Equity Portfolio..................... 0.47% 0.68% 1.15%(1)
Mid Cap Growth Portfolio.................... 0.00% 1.05% 1.05%(1)
Mid Cap Value Portfolio..................... 0.43% 0.62% 1.05%(1)
Technology Portfolio........................ 0.00% 1.15% 1.15%(1)
Value Portfolio............................. 0.18% 0.67% 0.85%(1)
SALOMON BROTHERS VARIABLE SERIES FUND INC.
Capital Fund................................ 0.00% 1.00% 1.00%(2)
High Yield Bond Fund........................ 0.00% 1.00% 1.00%(2)
Investors Fund.............................. 0.53% 0.45% 0.98%(2)
Small Cap Growth Fund....................... 0.00% 1.50% 1.50%(2)
Strategic Bond Fund......................... 0.27% 0.73% 1.00%(2)
VAN KAMPEN LIFE INVESTMENT TRUST
Comstock Portfolio.......................... 0.00% 0.95% 0.95%(3)
Domestic Income Portfolio................... 0.01% 0.60% 0.61%(3)
Emerging Growth Portfolio................... 0.67% 0.18% 0.85%(3)
Enterprise Portfolio........................ 0.48% 0.12% 0.60%(3)
Government Portfolio........................ 0.36% 0.24% 0.60%(3)
Growth and Income Portfolio................. 0.43% 0.32% 0.75%(3)
Money Market Portfolio...................... 0.19% 0.43% 0.62%(3)
Morgan Stanley Real Estate Securities
Portfolio................................. 0.97% 0.13% 1.10%(3)
</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
6
<PAGE> 9
reflected in each funding option's net asset value and are not deducted from the
account value under the Contract.
(1) The Advisers, with respect to the Portfolios listed in the Universal
Institutional Fund Inc. have voluntarily agreed to a reduction in its
management fees and to reimburse the Portfolios for which it acts as
Investment Adviser if such fees would cause Total Annual Operating Expenses
to exceed the amounts set forth in the tables above. Additionally, in
determining the actual amount of voluntary management fee waiver and/or
expense reimbursement for a portfolio, if any, the Advisers exclude from
total annualized operating expenses certain investment related expenses,
such as foreign country tax expense and interest expense on borrowing.
Included in "Other Expenses" of the EMERGING MARKETS EQUITY PORTFOLIO are
0.04% of such investment related expenses. Absent fee waivers and/or
reimbursements, the expenses would have been:
<TABLE>
<CAPTION>
TOTAL ANNUAL
MANAGEMENT OTHER OPERATING
PORTFOLIO FEES EXPENSES EXPENSES
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Active International Allocation Portfolio......... 0.80% 1.83% 2.63%
Emerging Markets Equity Portfolio................. 1.25% 1.37% 2.62%
Equity Growth Portfolio........................... 0.55% 0.56% 1.11%
Global Equity Portfolio........................... 0.80% 0.68% 1.48%
Mid Cap Growth Portfolio.......................... 0.75% 7.31% 8.06%
Mid Cap Value Portfolio........................... 0.75% 0.62% 1.37%
Technology Portfolio.............................. 0.80% 11.77% 12.57%
Value Portfolio................................... 0.55% 0.67% 1.22%
</TABLE>
(2) Reflects the voluntary agreement by Salomon Brothers Asset Management to
impose an expense cap for the fiscal year ending December 31, 1999 on the
Total Annual Operating Expenses of each fund at the amount shown in the
table through the reimbursement of expenses. Absent fee waivers and/or
reimbursements, the expenses would have been:
<TABLE>
<CAPTION>
TOTAL ANNUAL
MANAGEMENT OTHER OPERATING
PORTFOLIO FEES EXPENSES EXPENSES
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital Fund...................................... 0.85% 1.14% 1.99%
High Yield Bond Fund.............................. 0.75% 1.05% 1.80%
Investors Fund.................................... 0.70% 0.45% 1.15%
Small Cap Growth Fund............................. 0.75% 15.61% 16.36%
Strategic Bond Fund............................... 0.75% 0.73% 1.48%
</TABLE>
(3) Van Kampen has voluntarily agreed to a reduction in its management fees and
to reimburse the Portfolios for which it acts as investment adviser if such
fees would cause the Total Annual Operating Expenses to exceed the amounts
set forth in the table above. The ratio of expenses to average net assets
does not reflect credits earned on overnight cash balances for the DOMESTIC
INCOME PORTFOLIO and the MONEY MARKET PORTFOLIO. Absent fee waivers and/or
reimbursements, the expenses would have been:
<TABLE>
<CAPTION>
TOTAL ANNUAL
MANAGEMENT OTHER OPERATING
PORTFOLIO FEES EXPENSES EXPENSES
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Comstock Portfolio................................ 0.60% 9.76% 10.36%
Domestic Income Portfolio......................... 0.50% 0.60% 1.10%
Emerging Growth Portfolio......................... 0.70% 0.18% 0.88%
Enterprise Portfolio.............................. 0.50% 0.12% 0.62%
Government Portfolio.............................. 0.50% 0.24% 0.74%
Growth and Income Portfolio....................... 0.60% 0.32% 0.92%
Money Market Portfolio............................ 0.50% 0.43% 0.93%
Morgan Stanley Real Estate Securities Portfolio... 1.00% 0.13% 1.13%
</TABLE>
7
<PAGE> 10
EXAMPLE*:
Assuming a 5% annual return on assets, a $1,000 investment would be subject to
the following expenses whether the Contract is surrendered, annuitized, or if no
withdrawals have been made:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
STANDARD DEATH BENEFIT AT THE END ENHANCED DEATH BENEFIT AT THE END
OF THE PERIOD SHOWN OF THE PERIOD SHOWN
------------------------------------- -------------------------------------
FUNDING OPTION 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>
- -------------------------------------------------------------------------------------------------------------------------
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
Active International Allocation
Portfolio........................... 28 86 146 308 29 90 154 315
Emerging Markets Equity Portfolio..... 34 105 177 367 36 109 184 375
Equity Growth Portfolio............... 25 77 131 278 26 81 139 286
Global Equity Portfolio............... 28 86 146 308 29 90 154 315
Mid Cap Growth Portfolio.............. 27 83 141 298 28 87 149 306
Mid Cap Value Portfolio............... 27 83 141 298 26 81 139 286
Technology Portfolio.................. 28 86 146 308 29 90 154 315
Value Portfolio....................... 25 77 131 278 28 87 149 306
SALOMON BROTHERS VARIABLE SERIES FUND INC.
Capital Fund.......................... 26 81 139 293 28 86 146 301
High Yield Bond Fund.................. 26 81 139 293 28 86 146 301
Investors Fund........................ 26 81 138 291 28 85 145 299
Small Cap Growth Fund................. 31 96 163 341 33 101 171 348
Strategic Bond Fund................... 26 81 139 293 28 86 146 301
VAN KAMPEN LIFE INVESTMENT TRUST
Comstock Portfolio.................... 26 80 136 288 27 84 144 296
Domestic Income Portfolio............. 23 70 119 254 24 74 127 262
Emerging Growth Portfolio............. 25 77 131 278 26 81 139 286
Enterprise Portfolio.................. 22 69 119 253 24 74 126 261
Government Portfolio.................. 22 69 119 253 24 74 126 261
Growth and Income Portfolio........... 24 74 126 268 25 78 134 276
Money Market Portfolio................ 23 70 120 255 24 74 127 263
Morgan Stanley Real Estate Securities
Portfolio........................... 27 84 144 303 29 89 151 311
</TABLE>
* THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THE EXAMPLE
REFLECTS THE ANNUAL CONTRACT ADMINISTRATIVE CHARGE AS AN ANNUAL CHARGE OF
0.018% OF ASSETS.
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
See Appendices A and B.
THE ANNUITY CONTRACT
- --------------------------------------------------------------------------------
Travelers Premier Advisers -- AssetManager is a contract between the contract
owner ("you"), and the Company. You make purchase payments to us and we credit
them to your Contract. The Company promises to pay you an income, in the form of
annuity or income payments, beginning on a future date that you choose, the
maturity date. The purchase payments accumulate tax deferred in the funding
options of your choice. We offer multiple variable funding options. The contract
owner assumes the risk of gain or loss according to the performance of the
variable funding options. The contract value is the amount of purchase payments,
plus or minus any investment experience or interest. The contract value also
reflects all surrenders made and charges deducted. There is generally no
guarantee that at the maturity date the contract value will equal or exceed the
total purchase payments made under the Contract. The date the contract and its
benefits become effective is referred to as the contract date. Each 12-month
period following the contract date is called a contract year.
8
<PAGE> 11
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 1-800-599-9460.
PURCHASE PAYMENTS
The initial purchase payment must be at least $20,000. You may make additional
payments of at least $500 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. The initial purchase payment is due and payable
before the Contract becomes effective.
We will apply the initial purchase payment within two business days after we
receive it in good order at our Home Office. Subsequent purchase payments will
be credited to a Contract on the same business day, if received in good order by
our Home Office by 4:00 p.m. Eastern time. A business day is any day that the
New York Stock Exchange is open. Our business day ends at 4:00 p.m. Eastern time
unless we need to close earlier due to an emergency.
ACCUMULATION UNITS
The period between the contract effective date and the maturity date is the
accumulation period. During the accumulation period, 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 their values
may increase or decrease from day to day. The number of accumulation units we
will credit to your Contract once we receive a purchase payment is determined by
dividing the amount directed to each funding option by the value of its
accumulation unit. We calculate the value of an accumulation unit for each
funding option each day the New York Stock Exchange is open. The values are
calculated as of 4:00 p.m. Eastern time. After the value is calculated, we
credit your Contract. During the annuity period (i.e., after the maturity date),
you are credited with annuity units.
THE FUNDING OPTIONS
You choose which of the following variable funding options to have your purchase
payments allocated to. These funding options are subsections of the Separate
Account, which invest in the underlying mutual funds ("underlying funds"). You
will find detailed information about the options and their inherent risks in the
current prospectuses for the funding options which must accompany this
prospectus. You are not investing directly in the underlying fund. Since each
option has varying degrees of risk, please read the prospectuses carefully
before investing. Contact your registered representative or call 1-800-599-9460
to request additional copies of the prospectuses.
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 state and SEC approval, if necessary. From time to time we
may make new funding options available.
The current variable funding options are listed below, along with their
investment advisers and any subadviser:
9
<PAGE> 12
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
FUNDING INVESTMENT INVESTMENT
OPTION OBJECTIVE ADVISER/SUBADVISER
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SALOMON BROTHERS VARIABLE SERIES FUND, INC.
Capital Fund Seeks capital appreciation, primarily through Salomon Brothers Asset
investments in common stocks which are believed to have Management Inc. ("SBAM")
above-average price appreciation potential and which
may involve above average risk.
High Yield Bond Fund Seeks to maximize current income, and, secondarily, to SBAM
seek capital appreciation through investments in medium
or lower rating categories.
Investors Fund Seeks long-term growth of capital, and, secondarily, SBAM
current income, through investments in common stocks of
well-known companies.
Small Cap Growth Fund Seeks long-term growth of capital by investing SBAM
primarily in equity securities of companies with market
capitalizations similar to that of companies included
in the Russell 2000 Index.
Strategic Bond Fund Seeks a high level of current income. As a secondary SBAM
objective, the portfolio will seek capital
appreciation.
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
Emerging Markets Seeks long-term capital appreciation by investing Morgan Stanley Dean Witter
Equity Portfolio primarily in equity securities of emerging market Investment Management Inc.
country issuers with a focus on those in which the ("MSDW")
adviser believes the economies are developing strongly
and in which the markets are becoming more
sophisticated.
Equity Growth Seeks to maximize long-term capital appreciation by MSDW
Portfolio investing primarily in the equity securities of U.S.
and, to a limited extent, foreign companies that
exhibit strong or accelerating growth earnings.
Global Equity Seeks long-term capital appreciation by investing MSDW
Portfolio primarily in equity securities of issuers throughout
the world, including the U.S.
Active International Seeks above-average capital appreciation by investing MSDW
Allocation Portfolio in a highly diversified mix of equity securities of
non-U.S. issuers.
Mid Cap Growth Seeks long-term capital growth by investing primarily Miller Aderson & Sherrerd
Portfolio in common stocks and other equity securities. LLP ("MAS")
Mid Cap Value Seeks above-average total return over a market cycle of MAS
Portfolio three to five years by investing in common stock and
other equity securities of issuers with equity
capitalizations in the range of the companies
represented in the S&P Mid Cap 400 Index (currently
$100 million to $8 billion).
Technology Portfolio Seeks long-term capital appreciation by investing MAS
primarily in equity securities of companies that the
investment adviser expects to benefit from their
involvement in technology or technolgy-related
industries.
Value Portfolio Seeks above-average total return over a market cycle of MAS
three to five years by investing primarily in a
diversified portfolio of common stocks and other equity
securities that the adviser believes to be relatively
undervalued based on various measures such as price
earnings ratios and price book ratios.
VAN KAMPEN LIFE INVESTMENT TRUST
Comstock Portfolio Seeks capital growth and income through investments in Van Kampen Asset
equity securities Management, Inc. ("VKAM")
</TABLE>
10
<PAGE> 13
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
FUNDING INVESTMENT INVESTMENT
OPTION OBJECTIVE ADVISER/SUBADVISER
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Domestic Income Seeks current income primarily and capital appreciation VKAM
Portfolio as a secondary objective only when consistent with its
primary investment objective. The Portfolio attempts to
achieve these objectives through investment primarily
in a diversified portfolio of fixed-income securities.
The Portfolio may invest in investment grade securities
and lower rated and nonrated securities. Lower rated
securities (commonly known as "junk bonds") are
regarded by the rating agencies as predominantly
speculative with respect to the issuer's continuing
ability to meet principal and interest payments.
Emerging Growth Seeks capital appreciation by investing primarily in VKAM
Portfolio common stocks of companies considered to be emerging
growth companies.
Enterprise Portfolio Seeks capital appreciation through investments believed VKAM
by the Adviser to have above-average potential for
capital appreciation.
Government Portfolio Seeks to provide investors with a high current return VKAM
consistent with preservation of capital by investing
primarily in debt securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities.
Growth and Income Seeks long-term growth of capital and income by VKAM
Portfolio investing primarily in income-producing equity
securities, including common stocks and convertible
securities.
Money Market Seeks protection of capital and high current income VKAM
Portfolio through investments in money market instruments.
Investments in the Money Market Portfolio are neither
insured nor guaranteed by the U.S. Government. Although
the Money Market Portfolio seeks to maintain a stable
net asset value of $1.00 per share, there is no
assurance that it will be able to do so.
Morgan Stanley Real Seeks long-term growth of capital, with current income VKAM
Estate Securities as a secondary consideration, by investing principally
Portfolio in securities of companies operating in the real estate
industry ("Real Estate Securities). A "real estate
industry company" is a company that derives at least
50% of its assets (market to market), gross income or
net profits from the ownership, construction,
management or sale of residential, commercial or
industrial real estate.
</TABLE>
CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
GENERAL
We deduct the charges described below. The charges are for the service and
benefits we provide, costs and expenses we incur, and risks we assume under the
Contracts. Services and benefits we provide include:
- the ability for you to make withdrawals and surrenders under the
Contracts;
- the death benefit paid on the death of the contract owner, annuitant, or
first of the joint contract owners,
- the available funding options and related programs (including dollar-cost
averaging, portfolio rebalancing, and systematic withdrawal programs);
- administration of the annuity options available under the Contracts; and
- the distribution of various reports to contract owners.
11
<PAGE> 14
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 including commission payments to your sales
agent, and
- other costs of doing business.
Risks we assume include:
- that annuitants may live longer than estimated when the annuity factors
under the Contracts were established;
- that the amount of the death benefit will be greater than the contract
value, and
- that the costs of providing the services and benefits under the Contracts
will exceed the charges deducted.
We may also deduct a charge for taxes.
Unless otherwise specified, charges are deducted proportionately from all
funding options in which you are invested.
ADMINISTRATIVE CHARGES
We will deduct an annual contract administrative charge on the fourth Friday of
each August from Contracts with a value of less than $75,000 on that date. This
charge compensates us for expenses incurred in establishing and maintaining the
Contract. The $50 charge is deducted from the contract value by canceling
accumulation units applicable to each variable funding option on a pro rata
basis. For the first Contract year this charge will be prorated (i.e.
calculated) from the date of purchase. A prorated charge will also be made if
the Contract is completely withdrawn or terminated. We will not deduct a
contract administrative charge:
(1) from the distribution of death proceeds;
(2) after an annuity payout has begun, or
(3) if the contract value on the date of assessment equals or is greater
than $75,000.
An administrative expense charge (sometimes called "sub-account administrative
charge") is deducted on each business day from amounts allocated to the variable
funding options in order to compensate the Company for certain related
administrative and operating expenses. The charge equals, on an annual basis,
0.15% of the daily net asset value allocated to each of the variable funding
options.
MORTALITY AND EXPENSE RISK CHARGE
Each business day, the Company deducts a mortality and expense risk ("M&E")
charge from amounts held in the variable funding options. The deduction is
reflected in our calculation of accumulation and annuity unit values. The
charges stated are the maximum for this product. We reserve the right to lower
this charge at any time. This charge compensates the Company for risks assumed,
benefits provided and expenses incurred, including the payment of commissions to
your sales agent.
If you choose the Standard Death Benefit, the M&E charge is 1.45% annually for
the first six contract years. Beginning in the seventh contract year, the charge
is reduced to 1.40%.
If you choose the Enhanced Death Benefit, the M&E charge is 1.60% annually for
the first six contract years. Beginning in the seventh contract year, the charge
is reduced to 1.40%.
12
<PAGE> 15
FUNDING OPTION EXPENSES
The charges and expenses of the funding options are summarized in the fee table
and are described in the accompanying prospectuses.
PREMIUM TAX
Certain state and local governments charge premium taxes ranging from 0% to 5%,
depending upon jurisdiction. The Company is responsible for paying these taxes
and will determine the method used to recover premium tax expenses incurred. We
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 we have a tax liability under state law.
CHANGES IN TAXES BASED UPON PREMIUM OR VALUE
If there is any change in a law assessing taxes against the Company based upon
premiums, contract gains or value of the contract, we reserve the right to
charge you proportionately for this tax.
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 fee for any transfer request, and to
limit the number of transfers to one in any six-month period. We also reserve
the right to restrict transfers by any market timing firm or any other third
party authorized to initiate transfers on behalf of multiple contract owners. We
may, among other things, not accept: 1) the transfer instructions of any agent
acting under a power of attorney on behalf of more than one owner, or 2) the
transfer or exchange instructions of individual owners who have executed
pre-authorized transfer forms which are submitted by market timing firms or
other third parties on behalf of more than one owner. We further reserve the
right to limit transfers that we determine will disadvantage other contract
owners.
Since different funding options have different expenses, a transfer of contract
values from one funding option to another could result in your investment
becoming subject to higher or lower expenses. After the maturity date, you may
make transfers between funding options only with our consent.
DOLLAR COST AVERAGING
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. Using this
method, 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.
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
13
<PAGE> 16
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 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.
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. Unless you submit
a written request specifying the fixed or variable funding option(s)from which
amounts are to be withdrawn, 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 contract value may be
more or less than the purchase payments made. Withdrawals during the annuity
period are not allowed.
We may defer payment of any contract value for a period of up to seven days
after the written request is received, but it is our intent to pay as soon as
possible. We cannot process requests for withdrawals that are not in good order.
We will contact you if there is a deficiency causing a delay and will advise
what is needed to act upon the withdrawal request.
SYSTEMATIC WITHDRAWALS
After the first contract year and before the maturity date, you may choose to
withdraw a specified dollar amount (at least $100) on a monthly, quarterly,
semiannual or annual basis. Any applicable premium taxes and withdrawal charge
will be deducted. To elect systematic withdrawals, you must have a contract
value of at least $15,000 and you must make the election on the form provided by
14
<PAGE> 17
the Company. We will surrender accumulation units pro rata from all investment
options in which you have an interest, unless you instruct us otherwise. You may
begin or discontinue systematic withdrawals at any time by notifying us in
writing, but at least 30 days' notice must be given to change any systematic
withdrawal instructions that are currently in place.
We reserve the right to discontinue offering systematic withdrawals or to assess
a processing fee for this service upon 30 days' written notice to contract
owners (where allowed by state law).
Each systematic withdrawal is subject to federal income taxes on the taxable
portion. In addition, a 10% federal penalty tax may be assessed on systematic
withdrawals if the contract owner is under age 59 1/2. You should consult with
your tax adviser regarding the tax consequences of systematic withdrawals.
LOANS
Loans may be available under your Contract. If available, all loan provisions
are described in your Contract or loan agreement.
OWNERSHIP PROVISIONS
- --------------------------------------------------------------------------------
TYPES OF OWNERSHIP
CONTRACT OWNER
Contract Owner (you). The Contract belongs to the contract owner named in the
Contract (on the Specifications page), or to any other person to whom the
contract is subsequently assigned. An assignment of ownership or a collateral
assignment may be made only for nonqualified contracts. You have sole power
during the annuitant's lifetime to exercise any rights and to receive all
benefits given in the contract provided you have not named an irrevocable
beneficiary and provided the Contract is not assigned.
You receive all payments while the annuitant is alive unless you direct them to
an alternate recipient. An alternate recipient does not become the contract
owner.
Joint Owner. For nonqualified contracts only, joint owners (e.g. spouses) may
be named in a written request before the contract is in effect. Joint owners may
independently exercise transfers allowed under the Contract. All other rights of
ownership must be exercised by both owners. Joint owners own equal shares of any
benefits accruing or payments made to them.
BENEFICIARY
You name the beneficiary in a written request. The beneficiary has the right to
receive any death benefits under the contract upon the death of the annuitant or
a contract owner. If more than one beneficiary survives the annuitant or
contract owner, they will share equally in benefits unless different shares are
recorded with the Company by written request before the death of the annuitant
or contract owner. In the case of a non-spousal beneficiary or a spousal
beneficiary who has chosen not to assume the contract, the death benefit
proceeds will be held in a fixed account until the beneficiary elects a
Settlement Option or takes a distribution.
Unless an irrevocable beneficiary has been named, you have the right to change
any beneficiary by written request during the lifetime of the annuitant and
while the Contract continues.
ANNUITANT
The annuitant is designated in the Contract (on the Specifications page), and is
the individual on whose life the maturity date and the amount of the monthly
annuity payments depend. The annuitant may not be changed after the contract is
in effect.
15
<PAGE> 18
A contingent annuitant may not be changed, deleted or added after the Contract
becomes effective.
DEATH BENEFIT
- --------------------------------------------------------------------------------
At purchase, you select either the Standard or Enhanced Death Benefit. Before
the maturity date, when there is no contingent annuitant, a death benefit is
payable when either the annuitant or a contract owner dies. The death benefit is
calculated at the close of the business day on which the Company's Home Office
receives due proof of death and written payment instructions ("death report
date").
DEATH PROCEEDS BEFORE THE MATURITY DATE
STANDARD DEATH BENEFIT: The Company will pay a death benefit in an amount equal
to the greatest of (1), or (2) below, each reduced by any applicable premium
tax, withdrawals not previously deducted and any outstanding loans:
(1) the contract value; or
(2) the total purchase payments made under the Contract.
ENHANCED DEATH BENEFIT: The Company will pay a death benefit in an amount equal
to the greatest of (1), (2) or (3) below, each reduced by any applicable premium
tax, withdrawals not previously deducted and any outstanding loans:
(1) the contract value; or
(2) the total purchase payments made under the Contract; or
(3) the "Step-Up Value" described below.
STEP-UP VALUE. The step-up value will initially equal the first purchase
payment. When an additional purchase payment is made, the step-up value will be
increased by the amount of that purchase payment. When a partial surrender is
taken, the step-up value will be reduced by a partial surrender reduction as
described below. On each Contract anniversary before the annuitant's 80th
birthday and before the annuitant's death, if the contract value is greater than
the step-up value, the step-up value will be reset to equal that greater amount.
The step-up value will not be reduced on these anniversary recalculations
(provided no surrenders are made on that day). The only changes made to the
step-up value on or after the annuitant's 80th birthday will be those related to
additional purchase payments or partial surrenders.
PARTIAL SURRENDER REDUCTION. If you make a partial surrender, the step-up value
is reduced by a partial surrender reduction which equals (1) the step-up value,
multiplied by (2) the amount of the partial surrender, divided by (3) the
contract valuebefore the surrender.
For example, assume your current contract value is $55,000. If your original
step-up value is $50,000, and you decide to make a partial withdrawal of
$10,000, the step-up value would be reduced as follows:
50,000 x (10,000/55,000)59,090
Your new step-up value would be 50,000-9,090, or $40,910.
The following example shows what would happen in a declining market. Assume your
current contract value is $30,000. If your original step-up value is $50,000,
and you decide to make a partial withdrawal of $10,000, the step-up value would
be reduced as follows:
50,000 x (10,000/30,000)516,666
Your new step-up value would be 50,000-16,666, or $33,334.
16
<PAGE> 19
PAYMENT OF PROCEEDS
The process of paying death benefit proceeds before the maturity date under
various situations for nonqualified contracts and qualified contracts is
summarized in the charts below. The charts do not encompass every situation and
are merely intended as a general guide. More detailed information is provided in
your Contract. 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.
NONQUALIFIED CONTRACTS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
BEFORE THE MATURITY DATE, UPON THE COMPANY WILL MANDATORY PAYOUT
THE DEATH OF THE PAY THE PROCEEDS TO: UNLESS. . . RULES APPLY*
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OWNER (WHO IS NOT THE The Unless, the beneficiary is the Yes
ANNUITANT) (WITH NO JOINT beneficiary(ies), or contract owner's spouse and the
OWNER) if none, to the spouse elects to continue the
contract owner's contract as the new owner rather than
estate. receive the distribution.
- ---------------------------------------------------------------------------------------------------------------
OWNER (WHO IS THE ANNUITANT) The Unless, the beneficiary is the Yes
(WITH NO JOINT OWNER) beneficiary(ies), or contract owner's spouse and the
if none, to the spouse elects to continue the
contract owner's contract as the new owner rather than
estate. receive the distribution.
- ---------------------------------------------------------------------------------------------------------------
JOINT OWNER (WHO IS NOT THE The surviving joint Unless the surviving joint owner is Yes
ANNUITANT) owner. the spouse and elects to assume and
continue the contract.
- ---------------------------------------------------------------------------------------------------------------
JOINT OWNER (WHO IS THE The Unless the beneficiary is the Yes
ANNUITANT) beneficiary(ies), or contract owner's spouse and the
if none, to the spouse elects to assume and continue
contract owner's the contract.
estate.
Or, unless there is a contingent
annuitant the contingent annuitant
becomes the annuitant and the
proceeds will be paid to the
surviving joint owner. If the
surviving joint owner is the spouse,
the spouse may elect to assume and
continue the contract.
- ---------------------------------------------------------------------------------------------------------------
ANNUITANT (WHO IS NOT THE The Unless, there is a contingent No
CONTRACT OWNER) beneficiary(ies). annuitant. Then, the contingent
annuitant becomes the annuitant and
the Contract continues in effect
(generally using the original
maturity date). The proceeds will
then be paid upon the death of the
contingent annuitant or owner.
- ---------------------------------------------------------------------------------------------------------------
ANNUITANT (WHO IS THE CONTRACT See death of "owner N/A
OWNER) who is the
annuitant" above.
- ---------------------------------------------------------------------------------------------------------------
ANNUITANT (where owner is a The beneficiary(ies) Yes (Death of
nonnatural person/trust) (e.g. the trust). annuitant is
treated as death
of the owner in
these
circumstances.)
- ---------------------------------------------------------------------------------------------------------------
CONTINGENT ANNUITANT(ASSUMING No death proceeds N/A
ANNUITANT IS STILL ALIVE) are payable;
contract continues.
- ---------------------------------------------------------------------------------------------------------------
BENEFICIARY No death proceeds N/A
are payable;
contract continues.
- ---------------------------------------------------------------------------------------------------------------
CONTINGENT BENEFICIARY No death proceeds N/A
are payable;
contract continues.
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 20
* Certain payout rules of the Internal Revenue Code (IRC) are triggered upon the
death of any Owner. Non-spousal Beneficiaries (as well as spousal
beneficiaries who choose not to assume the contract) must begin taking
distributions based on the Beneficiary's life expectancy within one year of
death or take a complete distribution of contract proceeds within 5 years of
death.
QUALIFIED CONTRACTS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
MANDATORY PAYOUT
RULES APPLY*
BEFORE THE MATURITY DATE, UPON THE COMPANY WILL (SEE *
THE DEATH OF THE PAY THE PROCEEDS TO: UNLESS. . . ABOVE)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OWNER/ANNUITANT The Yes
beneficiary(ies), or
if none, to the
contract owner's
estate.
- ---------------------------------------------------------------------------------------------------------------
BENEFICIARY No death proceeds N/A
are payable;
contract continues.
- ---------------------------------------------------------------------------------------------------------------
CONTINGENT BENEFICIARY No death proceeds N/A
are payable;
contract continues.
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
DEATH PROCEEDS AFTER THE MATURITY DATE
If any owner or the annuitant dies on or after the maturity date, the Company
will pay the beneficiary a death benefit consisting of any benefit remaining
under the annuity or income option then in effect.
THE ANNUITY PERIOD
- --------------------------------------------------------------------------------
MATURITY DATE
Under the Contract, you can receive regular income payments (annuity payments).
You can choose the month and the year in which those payments begin (maturity
date). You can also choose among income plans (annuity or income options). While
the annuitant is alive, you can change your selection any time up to the
maturity date. Annuity or income payments will begin on the maturity date stated
in the Contract unless the Contract has been fully surrendered or the proceeds
have been paid to the beneficiary before that date, or unless you elect another
date. Annuity payments are a series of periodic payments (a) for life; (b) for
life with either a minimum number of payments or a specific amount assured; or
(c) for the joint lifetime of the annuitant and another person, and thereafter
during the lifetime of the survivor. We may require proof that the annuitant is
alive before annuity payments are made. Not all options may be available in all
states.
You may choose to annuitize at any time after you purchase the contract. Unless
you elect otherwise, the maturity date will be the annuitant's 90th birthday or
ten years after the effective date, if later. (In certain states, the maturity
date elected may not be later than the annuitant's 90th birthday; refer to your
Contract.)
At least 30 days before the original maturity date, a contract owner may elect
to extend the maturity date to any time prior to the annuitant's 90th birthday,
or to a later date with the Company's consent. Certain annuity options taken at
the maturity date may be used to meet the minimum required distribution
requirements of federal tax law, or a program of partial surrenders may be used
instead. These mandatory distribution requirements take effect generally upon
the death of the contract owner, or with qualified contracts upon either the
later of the contract owner's attainment of age 70 1/2 or year of retirement; or
the death of the contract owner. You should seek independent tax advice
regarding the election of minimum required distributions.
18
<PAGE> 21
ALLOCATION OF ANNUITY
When an annuity option is elected, it may be elected as a variable annuity, a
fixed annuity, or a combination of both. If, at the time annuity payments begin,
no election has been made to the contrary, the contract value will be applied to
provide an annuity funded by the same investment options as you have selected
during the accumulation period . At least 30 days before the maturity date, you
may transfer the contract value among the funding options in order to change the
basis on which annuity payments will be determined. (See "Transfers.")
VARIABLE ANNUITY
You may choose an annuity payout that fluctuates depending on the investment
experience of the variable funding options. The number of annuity units credited
to the Contract is determined by dividing the first monthly annuity payment
attributable to each funding option by the corresponding accumulation unit value
as of 14 days before the date annuity payments begin. An annuity unit is used to
measure the dollar value of an annuity payment. The number of annuity units (but
not their value) remains fixed during the annuity period.
DETERMINATION OF FIRST ANNUITY PAYMENT. The Contract contains tables used to
determine the first monthly annuity payment. 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 date annuity payments begin less any applicable premium taxes not
previously deducted.
The amount of the first monthly payment depends on the annuity option elected
and the annuitant's adjusted age. A formula for determining the adjusted age is
contained in the Contract. The total first monthly annuity payment is determined
by multiplying the benefit per $1,000 of value shown in the Contract tables by
the number of thousands of dollars of contract value applied to that annuity
option and factors in an assumed daily net investment factor. The Assumed Daily
Net Investment factor corresponds to an annual interest rate of 3%, used to
determine the guaranteed payout rates shown. If investment rates are higher at
the time annuitization is selected, payout rates will be higher than those
shown. The Company reserves the right to require satisfactory proof of age of
any person on whose life annuity payments are based before making the first
payment under any of the payment options.
DETERMINATION OF SECOND AND SUBSEQUENT ANNUITY PAYMENTS. The dollar amount of
all subsequent annuity payments changes from month to month based on the
investment experience of the applicable funding options. The total amount of
each annuity payment will be equal to the sum of the basic payments in each
funding option. The actual amounts of these payments are determined by
multiplying the number of annuity units credited to each funding option by the
corresponding annuity unit value as of the date 14 days before the date the
payment is due.
FIXED ANNUITY
You may choose a fixed annuity that provides payments which do not vary during
the annuity period. We will calculate the dollar amount of the first fixed
annuity payment as described under "Variable Annuity," except that the amount
applied to begin the annuity will be the contract value, determined as of the
date annuity payments begin. Payout rates will not be lower than those shown in
the Contract. If it would produce a larger payment, the first fixed annuity
payment will be determined using the Life Annuity Tables in effect on the
maturity date.
19
<PAGE> 22
PAYMENT OPTIONS
- --------------------------------------------------------------------------------
ELECTION OF OPTIONS
While the annuitant is alive, you can change your annuity or income option
selection any time up to the maturity date. Once annuity or income payments have
begun, no further elections are allowed.
During the annuitant's lifetime, if you do not elect otherwise before the
maturity date, we will pay you (or another designated payee) the first of a
series of monthly annuity or income payments based on the life of the annuitant,
in accordance with Annuity Option 2 (Life Annuity with 120 monthly payments
assured). For certain qualified contracts, Annuity Option 4 (Joint and Last
Survivor Joint Life Annuity -- Annuity Reduced on Death of Primary Payee) will
be the automatic option as described in the Contract.
The minimum amount that can be placed under an annuity or income option will be
$2,000 unless we agree to a lesser amount. If any monthly periodic payment due
is less than $100, the Company reserves the right to make payments at less
frequent intervals, or to pay the contract value in a lump-sum.
On the maturity date, we will pay the amount due under the Contract in
accordance with the payment option that you select. You may choose to receive a
single lump-sum payment. You must elect an option in writing, in a form
satisfactory to the Company. Any election made during the lifetime of the
annuitant must be made by the contract owner.
ANNUITY OPTIONS
Subject to the conditions described in "Election of Options" above, all or any
part of the contract value (less any applicable premium taxes) may be paid under
one or more of the following annuity options. Payments under the annuity options
may be elected on a monthly, quarterly, semiannual or annual basis. We may offer
additional options.
Option 1 -- Life Annuity -- No Refund. The Company will make annuity payments
during the lifetime of the annuitant ending with the last payment before death.
This option offers the maximum periodic payment, since there is no assurance of
a minimum number of payments or provision for a death benefit for beneficiaries.
Option 2 -- Life Annuity with 120, 180 or 240 Monthly Payments Assured. The
Company will make monthly annuity payments during the lifetime of the annuitant,
with the agreement that if, at the death of that person, payments have been made
for less than 120, 180 or 240 months as elected, we will continue making
payments to the beneficiary during the remainder of the period.
Option 3 -- Joint and Last Survivor Life Annuity -- No Refund. The Company will
make regular annuity payments during the lifetime of the annuitant and a second
person. When either person dies, we will continue making payments to the
survivor. No further payments will be made following the death of the survivor.
Option 4 -- Joint and Last Survivor Life Annuity -- Annuity Reduced on Death of
Primary Payee. The Company will make annuity payments during the lifetimes of
the annuitant and a second person. One will be designated the primary payee, the
other will be designated the secondary payee. On the death of the secondary
payee, the Company will continue to make monthly annuity payments to the primary
payee in the same amount that would have been payable during the joint lifetime
of the two persons. On the death of the primary payee, the Company will continue
to make annuity payments to the secondary payee in an amount equal to 50% of the
payments which would have been made during the lifetime of the primary payee. No
further payments will be made once both payees have died.
20
<PAGE> 23
Option 5 -- Other Annuity Options. The Company will make any other arrangements
for annuity payments as may be mutually agreed upon.
INCOME OPTIONS
Instead of one of the annuity options described above, and subject to the
conditions described under "Election of Options," all or part of the Contract's
cash surrender value (or, if required by state law, contract value) may be paid
under one or more of the following income options, provided that they are
consistent with federal tax law qualification requirements. Payments under the
income options may be elected on a monthly, quarterly, semiannual or annual
basis:
Option 1 -- Payments of a Fixed Amount. The Company will make equal payments of
the amount elected until the cash surrender value applied under this option has
been exhausted. The first payment and all later payments will be paid from each
funding option or the Fixed Account in proportion to the cash surrender value
attributable to each funding option and/or Fixed Account. The final payment will
include any amount insufficient to make another full payment.
Option 2 -- Payments for a Fixed Period. The Company will make payments for the
period selected. The amount of each payment will be equal to the remaining cash
surrender value applied under this option divided by the number of remaining
payments.
Option 3 -- Other Income Options. The Company will make any other arrangements
for Income Options as may be mutually agreed upon.
MISCELLANEOUS CONTRACT PROVISIONS
- --------------------------------------------------------------------------------
RIGHT TO RETURN
You may return the Contract for a full refund of the contract value (including
charges) within twenty days after you receive it (the "right to return period").
You bear the investment risk on the purchase payment during the right to return
period; therefore, the contract value returned may be greater or less than your
purchase payment.
If the Contract is purchased as an Individual Retirement Annuity, and is
returned within the first seven days after delivery, your purchase payment will
be refunded in full; during the remainder of the right to return period, the
contract value (including charges) will be refunded. The contract value will be
determined following the close of the business day on which we receive the
Contract and 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 premium tax, and any applicable
administrative charge.
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 report date for each funding
21
<PAGE> 24
option to which the contract owner has allocated amounts during the applicable
period. The Company will keep all records required under federal and state laws.
SUSPENSION OF PAYMENTS
The Company reserves the right to suspend or postpone the date of any payment or
determination of values on any business day (1) when the New York Stock Exchange
("the Exchange") is closed; (2) when trading on the Exchange is restricted; (3)
when an emergency exists as determined by the SEC so that the sale of securities
held in the Separate Account may not reasonably occur or so that the Company may
not reasonably determine the value the Separate Account's net assets; or (4)
during any other period when the SEC, by order, so permits for the protection of
security holders.
TRANSFERS OF CONTRACT VALUES TO OTHER ANNUITIES
Where state law permits, we may allow contract owners to transfer their contract
values into other annuities offered by us or our affiliated insurance companies
under rules then in effect.
THE SEPARATE ACCOUNTS
- --------------------------------------------------------------------------------
The Travelers Insurance Company and the Travelers Life and Annuity Company each
sponsor separate accounts: The Travelers Separate Account Seven for Variable
Annuities ("Separate Account Seven") and the Travelers Separate Account Eight
for Variable Annuities ("Separate Account Eight"), respectively. Both Separate
Account Seven and Separate Account Eight were established on June 30, 1998 and
are registered with the SEC as unit investment trusts (separate account) under
the Investment Company Act of 1940, as amended (the "1940 Act"). The Separate
Account assets attributable to the Contracts will be invested exclusively in the
shares of the variable funding options.
The assets of Separate Account Seven and Separate Account Eight are held for the
exclusive and separate benefit of the owners of each separate account, according
to the laws of Connecticut. Income, gains and losses, whether or not realized,
from assets allocated to the Separate Account are, in accordance with the
Contracts, credited to or charged against the Separate Account without regard to
other income, gains and losses of the Company. The assets held by the Separate
Account 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 the Separate Account. All such income and/or distributions are reinvested in
shares of the respective funding option at net asset value. Shares of the
funding options are currently sold only to life insurance company separate
accounts to fund variable annuity and variable life insurance contracts.
PERFORMANCE INFORMATION
From time to time, we may advertise several types of historical performance for
the Contract's funding options. We may advertise the "standardized average
annual total returns" of the funding option, calculated in a manner prescribed
by the SEC, and 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). The deduction for the annual contract
administrative charge is converted to a
22
<PAGE> 25
percentage of assets based on the actual fee collected, divided by the average
net assets for Contracts sold.
NONSTANDARDIZED METHOD. Nonstandardized "total returns" will be calculated in a
similar manner based on the performance of the funding options over a period of
time, usually for the calendar year-to-date, and for the past one-, three-,
five- and ten-year periods. Nonstandardized total returns will not reflect the
deduction of the annual contract administrative charge, which, if reflected,
would decrease the level of performance shown.
For funding options that were in existence before they became available under
the Separate Account, the nonstandardized average annual total return quotations
will reflect 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, 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.
TAX-FREE EXCHANGES: Certain provisions of the Internal Revenue Code provide
that, generally, no gain or loss is recognized when an annuity contract is
received in exchange for a life, endowment, or annuity contract. Since different
annuity contracts have different expenses, fees and benefits, a tax-free
exchange could result in your investment becoming subject to higher or lower
fees and/or expenses.
TYPES OF CONTRACTS: QUALIFIED OR NONQUALIFIED
If you purchase an annuity contract with proceeds of an eligible rollover
distribution from any pension plan, specially sponsored program, or individual
retirement annuity (IRA) with pre-tax dollars, your contract is referred to as a
qualified contract. Some examples of qualified contracts are: IRAs, 403(b)
annuities, pension and profit-sharing plans (including 401(k) plans), Keogh
Plans, and certain other qualified deferred compensation plans. An exception to
this is a qualified plan called a Roth IRA. Under Roth IRAs, after-tax
contributions accumulate until maturity, when
23
<PAGE> 26
amounts (including earnings) may be withdrawn tax-free. If you purchase the
contract on an individual basis with after-tax dollars and not under one of the
programs described above, your contract is referred to as nonqualified.
NONQUALIFIED ANNUITY CONTRACTS
As the owner of a nonqualified annuity, you do not receive any tax benefit
(deduction or deferral of income) on purchase payments, but you will not be
taxed on increases in the value of your contract until a distribution occurs --
either as a withdrawal (distribution made prior to the maturity date), or as
annuity payments. When a withdrawal is made, you are taxed on the amount of the
withdrawal that is considered earnings. Similarly, when you receive an annuity
payment, part of each payment is considered a return of your purchase payments
and will not be taxed. The remaining portion of the annuity payment (i.e., any
earnings) will be considered ordinary income for tax purposes.
If a nonqualified annuity is owned by other than an individual, however, (e.g.,
by a corporation), increases in the value of the contract attributable to
purchase payments made after February 28, 1986 are includible in income
annually. Furthermore, for contracts issued after April 22, 1987, if you
transfer the contract without adequate consideration all deferred increases in
value will be includible in your income at the time of the transfer.
If you make a partial withdrawal, this money will generally be taxed as first
coming from earnings, (income in the contract), and then from your purchase
payments. These withdrawn earnings are includible in your income. (See "Penalty
Tax for Premature Distributions" below.) There is income in the contract to the
extent the contract value exceeds your investment in the contract. The
investment in the contract equals the total purchase payments you paid less any
amount received previously which was excludible from gross income. Any direct or
indirect borrowing against the value of the contract or pledging of the contract
as security for a loan will be treated as a cash distribution under the tax law.
Federal tax law requires that nonqualified annuity contracts meet minimum
mandatory distribution requirements upon the death of the contract owner,
including the first of joint owners. If these requirements are not met, the
surviving joint owner, or the beneficiary, will have to pay taxes prior to
distribution. The distribution required depends, among other things, upon
whether an annuity option is elected or whether the new contract owner is the
surviving spouse. We will administer Contracts in accordance with these rules
and we will notify you when you should begin receiving payments.
QUALIFIED ANNUITY CONTRACTS
Under a qualified annuity, since amounts paid into the contract have not yet
been taxed, the full amount of all distributions, including lump-sum withdrawals
and annuity payments, are taxed at the ordinary income tax rate unless the
distribution is transferred to an eligible rollover account or contract. The
Contract is available as a vehicle for IRA rollovers and for other qualified
contracts. There are special rules which govern the taxation of qualified
contracts, including withdrawal restrictions, requirements for mandatory
distributions, and contribution limits. We have provided a more complete
discussion in the SAI.
PENALTY TAX FOR PREMATURE DISTRIBUTIONS
Taxable distributions taken before the contract owner has reached the age of
59 1/2 will be subject to a 10% additional tax penalty unless the distribution
is taken in a series of periodic distributions, for life or life expectancy, or
unless the distribution follows the death or disability of the contract owner.
Other exceptions may be available in certain qualified plans.
24
<PAGE> 27
DIVERSIFICATION REQUIREMENTS FOR VARIABLE ANNUITIES
The Code requires that any nonqualified variable annuity contracts based on a
separate account shall not be treated as an annuity for any period if
investments made in the account are not adequately diversified. Final tax
regulations define how separate accounts must be diversified. The Company
monitors the diversification of investments constantly and believes that its
accounts are adequately diversified. The consequence of any failure to diversify
is essentially the loss to the Contract Owner of tax deferred treatment. The
Company intends to administer all contracts subject to this provision of law in
a manner that will maintain adequate diversification.
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 both qualified and
nonqualified annuities.
TAXATION OF DEATH BENEFIT PROCEEDS
Amounts may be distributed from a Contract because of the death of an owner or
annuitant. Generally, such amounts are includible in the income of the recipient
as follows: (i) if distributed in a lump sum, they are taxed in the same manner
as a full surrender of the contract; or (ii) if distributed under a payment
option, they are taxed in the same way as annuity payments.
25
<PAGE> 28
OTHER INFORMATION
- --------------------------------------------------------------------------------
THE INSURANCE COMPANIES
Please refer to the table on the first page of the Summary of this prospectus to
determine which company issued your Contract.
The Travelers Insurance Company is a stock insurance company chartered in 1864
in Connecticut and continuously engaged in the insurance business since that
time. It is licensed to conduct life insurance business in all states of the
United States, the District of Columbia, Puerto Rico, Guam, the U.S. and British
Virgin Islands and the Bahamas. The Company is an indirect wholly owned
subsidiary of Citigroup Inc. The Company's Home Office is located at One Tower
Square, Hartford, Connecticut 06183.
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, the District of Columbia and Puerto Rico, and
intends to seek licensure in the remaining 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.
FINANCIAL STATEMENTS
The financial statements for each insurance company and for each separate
account are located in their respective Statements of Additional Information.
IMSA
The Companies are members of the Insurance Marketplace Standards Association
("IMSA"), and as such may use the IMSA logo and IMSA membership in
advertisements. Companies that belong to IMSA subscribe to a set of ethical
standards covering the various aspects of sales and service for individually
sold life insurance and annuities. IMSA members have adopted policies and
procedures that demonstrate a commitment to honesty, fairness and integrity in
all customer contacts involving the sale and service of individual life
insurance and annuity products.
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 of the Contracts is CFBDS,
Inc., 21 Milk St., Boston, MA. CFBDS, Inc. is not affiliated with the Company or
the Separate Account. However, it is currently anticipated that Travelers
Distribution LLC, an affiliated broker-dealer, may become the principal
underwriter for the Contracts during the year 2000.
Up-front compensation paid to sales representatives will not exceed 7% 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.
Where a state has not approved a contract feature or funding option, it will not
be available in that state. Any paid-up annuity, contract value or death
benefits that are available under the Contract are not less than the
26
<PAGE> 29
minimum benefits required by the statutes of the state in which the Contract is
delivered. We reserve the right to make any changes, including retroactive
changes, in the Contract to the extent that the change is required to meet the
requirements of any law or regulation issued by any governmental agency to which
the Company, the Contract or the contract owner is subject.
VOTING RIGHTS
The Company is the legal owner of the shares of the funding options. However, we
believe that when a funding option solicits proxies in conjunction with a vote
of shareholders we are required to obtain from you and from other owners
instructions on how to vote those shares. When we receive those instructions, we
will vote all of the shares we own in proportion to those instructions. This
will also include any shares we own on our own behalf. Should we determine that
we are no longer required to comply with the above, we will vote on the shares
in our own right.
LEGAL PROCEEDINGS AND OPINIONS
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 Companies, their authority to issue variable annuity
contracts under Connecticut law and the validity of the forms of the variable
annuity contracts under Connecticut law, have been passed on by the General
Counsel of the Companies.
THE TRAVELERS INSURANCE COMPANY
There are no pending legal proceedings affecting the Separate Account. There is
one material pending legal proceeding, other than ordinary routine litigation
incidental to business, to which the Company is a party.
In March 1997, a purported class action entitled Patterman v. The Travelers,
Inc., et al. was commenced in the Superior Court of Richmond County, Georgia,
alleging, among other things, violations of the Georgia RICO statute and other
state laws by an affiliate of the Company, Primerica Financial Services, Inc.
and certain of its affiliates. Plaintiffs seek unspecified compensatory and
punitive damages and other relief. In October 1997, defendants answered the
complaint, denied liability and asserted numerous affirmative defenses. In
February 1998, on defendants' motion, the Superior Court of Richmond County
transferred the lawsuit to the Superior Court of Gwinnett County, Georgia.
Plaintiffs appealed the transfer order, and in December 1998 the Court of
Appeals of the State of Georgia reversed the lower court's decision. Defendants
petitioned the Georgia Supreme Court to hear an appeal from the decision of the
Court of Appeals, and the petition was granted in May 1998. In September 1999,
oral argument on defendants' petition was heard and, on February 28, 2000, the
Georgia Supreme Court affirmed the Georgia County Appeals and remanded the
matter to the Superior Court of Richmond County. In March 2000, defendants moved
the Georgia Supreme Court to reconsider its February 28, 2000 decision, and that
motion remains pending. Proceedings in the trial court have been stayed pending
appeal. Defendants intend to vigorously contest the litigation.
THE TRAVELERS LIFE AND ANNUITY COMPANY
There are no pending material legal proceedings affecting the Separate Account,
the principal underwriter or the Company.
27
<PAGE> 30
APPENDIX A -- CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
THE TRAVELERS SEPARATE ACCOUNT SEVEN FOR VARIABLE ANNUITIES
ACCUMULATION UNIT VALUES
<TABLE>
<CAPTION>
PERIOD FROM JANUARY 11, 1999
(EFFECTIVE DATE) TO
DECEMBER 31, 1999
----------------------------
STANDARD ENHANCED
DEATH BENEFIT DEATH BENEFIT
- -------------------------------------------------------------------------------------------
<S> <C> <C>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS EQUITY PORTFOLIO (10/99)
Unit Value at beginning of year......................... 1.000 1.000
Unit Value at end of year............................... 1.355 1.354
Number of units outstanding at end of year.............. 21,280 --
GLOBAL EQUITY PORTFOLIO (8/99)
Unit Value at beginning of year......................... 1.000 1.000
Unit Value at end of year............................... 0.974 0.973
Number of units outstanding at end of year.............. 139,371 12,006
MID CAP VALUE PORTFOLIO (9/99)
Unit Value at beginning of year......................... 1.000 1.000
Unit Value at end of year............................... 1.038 1.037
Number of units outstanding at end of year.............. 104,342 --
VALUE PORTFOLIO (6/99)
Unit Value at beginning of year......................... 1.000 1.000
Unit Value at end of year............................... 0.882 0.882
Number of units outstanding at end of year.............. 17,311 36,000
SALOMON BROTHERS VARIABLE SERIES FUND, INC.
CAPITAL FUND
Unit Value at beginning of year......................... -- --
Unit Value at end of year............................... -- --
Number of units outstanding at end of year.............. -- --
HIGH YIELD BOND FUND (11/99)
Unit Value at beginning of year......................... 1.000 1.000
Unit Value at end of year............................... 1.021 1.020
Number of units outstanding at end of year.............. 34,570 --
INVESTORS FUND (9/99)
Unit Value at beginning of year......................... 1.000 1.000
Unit Value at end of year............................... 0.936 0.936
Number of units outstanding at end of year.............. 23,365 --
STRATEGIC BOND FUND (9/99)
Unit Value at beginning of year......................... 1.000 1.000
Unit Value at end of year............................... 1.006 1.005
Number of units outstanding at end of year.............. 179,398 --
VAN KAMPEN LIFE INVESTMENT TRUST
DOMESTIC INCOME PORTFOLIO (10/99)
Unit Value at beginning of year......................... 1.000 1.000
Unit Value at end of year............................... 0.994 0.993
Number of units outstanding at end of year.............. 93,053 --
EMERGING GROWTH PORTFOLIO (9/99)
Unit Value at beginning of year......................... 1.000 1.000
Unit Value at end of year............................... 1.610 1.609
Number of units outstanding at end of year.............. 138,452 --
ENTERPRISE PORTFOLIO (8/99)
Unit Value at beginning of year......................... 1.000 1.000
Unit Value at end of year............................... 1.134 1.133
Number of units outstanding at end of year.............. 253,292 10,646
GOVERNMENT PORTFOLIO (8/99)
Unit Value at beginning of year......................... 1.000 1.000
Unit Value at end of year............................... 0.990 0.989
Number of units outstanding at end of year.............. 92,300 11,329
GROWTH AND INCOME PORTFOLIO (6/99)
Unit Value at beginning of year......................... 1.000 1.000
Unit Value at end of year............................... 1.035 1.035
Number of units outstanding at end of year.............. 120,714 54,000
MONEY MARKET PORTFOLIO (8/99)
Unit Value at beginning of year......................... 1.000 1.000
Unit Value at end of year............................... 1.016 1.015
Number of units outstanding at end of year.............. 236,219 168,354
MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO (10/99)
Unit Value at beginning of year......................... 1.000 1.000
Unit Value at end of year............................... 0.903 0.902
Number of units outstanding at end of year.............. 21,751 --
</TABLE>
A-1
<PAGE> 31
APPENDIX A -- CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
THE TRAVELERS SEPARATE ACCOUNT SEVEN FOR VARIABLE ANNUITIES
ACCUMULATION UNIT VALUES (CONTINUED)
The date shown next to each funding option is the date money first came into the
funding option through the Separate Account. The financial statements of
Separate Account Seven and the consolidated financial statements of The
Travelers Insurance Company are contained in the SAI.
Any funds not listed above were not yet available as of December 31, 1999.
A-2
<PAGE> 32
APPENDIX B -- CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
THE TRAVELERS SEPARATE ACCOUNT EIGHT FOR VARIABLE ANNUITIES
ACCUMULATION UNIT VALUES
<TABLE>
<CAPTION>
PERIOD FROM JANUARY 11, 1999
(EFFECTIVE DATE) TO
DECEMBER 31, 1999
-----------------------------
STANDARD ENHANCED
DEATH BENEFIT DEATH BENEFIT
- -------------------------------------------------------------------------------------------
<S> <C> <C>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
EMERGING MARKETS EQUITY PORTFOLIO (7/99)
Unit Value at beginning of year......................... 1.000 1.000
Unit Value at end of year............................... 1.355 1.354
Number of units outstanding at end of year.............. 353,532 15,517
GLOBAL EQUITY PORTFOLIO (7/99)
Unit Value at beginning of year......................... 1.000 1.000
Unit Value at end of year............................... 0.974 0.973
Number of units outstanding at end of year.............. 452,564 272,045
MID CAP VALUE PORTFOLIO (7/99)
Unit Value at beginning of year......................... 1.000 1.000
Unit Value at end of year............................... 1.038 1.037
Number of units outstanding at end of year.............. 681,124 249,819
VALUE PORTFOLIO (7/99)
Unit Value at beginning of year......................... 1.000 1.000
Unit Value at end of year............................... 0.882 0.882
Number of units outstanding at end of year.............. 371,587 209,684
SALOMON BROTHERS VARIABLE SERIES FUND, INC.
CAPITAL FUND (7/99)
Unit Value at beginning of year......................... 1.000 1.000
Unit Value at end of year............................... 1.035 1.035
Number of units outstanding at end of year.............. 255,200 30,255
HIGH YIELD BOND FUND (7/99)
Unit Value at beginning of year......................... 1.000 1.000
Unit Value at end of year............................... 1.021 1.020
Number of units outstanding at end of year.............. 100,089 17,063
INVESTORS FUND (7/99)
Unit Value at beginning of year......................... 1.000 1.000
Unit Value at end of year............................... 0.936 0.936
Number of units outstanding at end of year.............. 244,831 129,164
STRATEGIC BOND FUND (7/99)
Unit Value at beginning of year......................... 1.000 1.000
Unit Value at end of year............................... 1.006 1.005
Number of units outstanding at end of year.............. 69,985 48,819
VAN KAMPEN LIFE INVESTMENT TRUST
DOMESTIC INCOME PORTFOLIO (7/99)
Unit Value at beginning of year......................... 1.000 1.000
Unit Value at end of year............................... 0.994 0.993
Number of units outstanding at end of year.............. 37,791 152,070
EMERGING GROWTH PORTFOLIO (7/99)
Unit Value at beginning of year......................... 1.000 1.000
Unit Value at end of year............................... 1.610 1.609
Number of units outstanding at end of year.............. 603,789 619,928
ENTERPRISE PORTFOLIO (7/99)
Unit Value at beginning of year......................... 1.000 1.000
Unit Value at end of year............................... 1.134 1.133
Number of units outstanding at end of year.............. 687,390 415,538
GOVERNMENT PORTFOLIO (7/99)
Unit Value at beginning of year......................... 1.000 1.000
Unit Value at end of year............................... 0.990 0.989
Number of units outstanding at end of year.............. 54,074 109,658
GROWTH AND INCOME PORTFOLIO (7/99)
Unit Value at beginning of year......................... 1.000 1.000
Unit Value at end of year............................... 1.035 1.035
Number of units outstanding at end of year.............. 411,634 384,865
MONEY MARKET PORTFOLIO (7/99)
Unit Value at beginning of year......................... 1.000 1.000
Unit Value at end of year............................... 1.016 1.015
Number of units outstanding at end of year.............. 392,981 347,383
MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO (7/99)
Unit Value at beginning of year......................... 1.000 1.000
Unit Value at end of year............................... 0.903 0.902
Number of units outstanding at end of year.............. 39,126 12,247
</TABLE>
B-1
<PAGE> 33
APPENDIX B -- CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
THE TRAVELERS SEPARATE ACCOUNT EIGHT FOR VARIABLE ANNUITIES
ACCUMULATION UNIT VALUES (CONTINUED)
The date shown next to each funding option is the date money first came into the
funding option through the Separate Account. The financial statements of
Separate Account Eight and the financial statements of The Travelers Life and
Annuity Company are contained in the SAI.
Any funds not listed above were not yet available as of December 31, 1999.
B-2
<PAGE> 34
APPENDIX C
- --------------------------------------------------------------------------------
THE FIXED ACCOUNT
The Fixed Account is secured by part of the general assets of the Company. The
general assets of the Company include all assets of the Company other than those
held in the separate accounts sponsored by the Company or its affiliates.
The staff of the SEC does not generally review the disclosure in the prospectus
relating to the Fixed Account. Disclosure regarding the Fixed Account and the
general account may, however, be subject to certain provisions of the federal
securities laws relating to the accuracy and completeness of statements made in
the prospectus.
Under the Fixed Account, the Company assumes the risk of investment gain or
loss, guarantees a specified interest rate, and guarantees a specified periodic
annuity payment. The investment gain or loss of the Separate Account or any of
the funding options does not affect the Fixed Account portion of the contract
owner's contract value, or the dollar amount of fixed annuity payments made
under any payout option.
We guarantee that, at any time, the Fixed Account contract value will not be
less than the amount of the purchase payments allocated to the Fixed Account,
plus interest credited as described below, less any applicable premium taxes or
prior surrenders.
Purchase payments allocated to the Fixed Account and any transfers made to the
Fixed Account become part of the Company's general account which supports
insurance and annuity obligations. Neither the general account nor any interest
therein is registered under, nor subject to the provisions of, the Securities
Act of 1933 or Investment Company Act of 1940. We will invest the assets of the
Fixed Account at our discretion. Investment income from such Fixed Account
assets will be allocated to us and to the Contracts participating in the Fixed
Account.
Investment income from the Fixed Account allocated to us includes compensation
for mortality and expense risks borne by us in connection with Fixed Account
Contracts. The amount of such investment income allocated to the Contracts will
vary from year to year in our sole discretion at such rate or rates as we
prospectively declare from time to time.
The initial rate for any allocations into the Fixed Account is guaranteed for
one year from the date of such allocation. Subsequent renewal rates will be
guaranteed for the calendar quarter. We also guarantee that for the life of the
Contract we will credit interest at not less than 3% per year. Any interest
credited to amounts allocated to the Fixed Account in excess of 3% per year will
be determined in our sole discretion. You assume the risk that interest credited
to the Fixed Account may not exceed the minimum guarantee of 3% for any given
year.
TRANSFERS
You may make transfers from the Fixed Account to any other available funding
option(s) twice a year during the 30 days following the semiannual anniversary
of the contract effective date. The transfers are limited to an amount of up to
15% of the Fixed Account Value on the semiannual contract effective date
anniversary. (This restriction does not apply to transfers under the Dollar Cost
Averaging Program.) Amounts previously transferred from the Fixed Account to
other funding options may not be transferred back to the Fixed Account for a
period of at least six months from the date of transfer. We reserve the right to
waive either of these restrictions.
Automated transfers from the Fixed Account to any of the funding options may
begin at any time. Automated transfers from the Fixed Account may not deplete
your Fixed Account value in a period of less than twelve months from your
enrollment in the Dollar Cost Averaging Program.
C-1
<PAGE> 35
APPENDIX D
- --------------------------------------------------------------------------------
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information contains more specific information and
financial statements relating to The Travelers Insurance or 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
Performance Information
Mixed and Shared Funding
Federal Tax Considerations
Independent Accountants
Financial Statements
- --------------------------------------------------------------------------------
Copies of the Statement of Additional Information dated May 1, 2000 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 Insurance Company, Annuity Investor Services, One Tower
Square, Hartford, Connecticut 06183. The Travelers Insurance Company Statement
of Additional Information is printed on Form L-21258S, and the The Travelers
Life and Annuity Statement of Additional Information is printed on Form L-21259S
Name:
- ----------------------------------------
Address:
- ----------------------------------------
- ----------------------------------------
D-1
<PAGE> 36
THIS PAGE INTENTIONALLY LEFT BLANK.
D-2
<PAGE> 37
L-21258 May 1, 2000
<PAGE> 38
PART B
Information Required in a Statement of Additional Information
<PAGE> 39
TRAVELERS PREMIER ADVISERS - ASSET MANAGER
STATEMENT OF ADDITIONAL INFORMATION
dated
May 1, 2000
for
THE TRAVELERS SEPARATE ACCOUNT SEVEN FOR VARIABLE ANNUITIES
ISSUED BY
THE TRAVELERS INSURANCE COMPANY
This Statement of Additional Information ("SAI") is not a prospectus but relates
to, and should be read in conjunction with, the Variable Annuity Contract
Prospectus dated May 1, 2000. A copy of the Prospectus may be obtained by
writing to The Travelers Insurance Company, Annuity Services, One Tower Square,
Hartford, Connecticut 06183-8036, or by calling (800) 599-9460 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 . . . . . . . . . . . . . 2
VALUATION OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . 3
MIXED AND SHARED FUNDING . . . . . . . . . . . . . . . . . . . . . . . . . 7
FEDERAL TAX CONSIDERATIONS . . . . . . . . . . . .. . . . . . . . . . . . .. 7
INDEPENDENT ACCOUNTANTS. . . . . . . . . . . . . . . . . . . . . . . . . ..10
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
<PAGE> 40
THE INSURANCE COMPANY
The Travelers Insurance Company (the "Company"), is a stock insurance
company chartered in 1864 in Connecticut and continuously engaged in the
insurance business since that time. The Company is licensed to conduct life
insurance business in all states of the United States, the District of Columbia,
Puerto Rico, Guam, the U.S. and British Virgin Islands and the Bahamas. The
Company's Home Office is located at One Tower Square, Hartford, Connecticut
06183 and its telephone number is (860) 277-0111.
The Company is a wholly owned subsidiary of The Travelers Insurance Group
Inc., an indirect, wholly owned subsidiary of Citigroup Inc. ("Citigroup"), a
diversified holding company whose businesses provide a broad range of financial
services to consumer and corporate customers around the world. Citigroup's
activities are conducted through the Global Consumer, Global Corporate and
Investment Bank, Global Investment Management and Private Banking, and
Investment Activities segments.
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 ("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. The Separate Account 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 the Separate Account 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 the Separate Account and
the Contracts. The offering is continuous. CFBDS's principal executive offices
are located at 21 Milk St., Boston, MA 02109. CFBDS is not affiliated with the
Company or the Separate Account. However, it is currently anticipated that
Travelers Distribution LLC, an affiliated broker dealer, may become the
principal underwriter for the Contracts during the year 2000.
1
<PAGE> 41
DISTRIBUTION AND PRINCIPAL UNDERWRITING AGREEMENT
Under the terms of the Distribution and Principal Underwriting Agreement
among Separate Account Seven, 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.
VALUATION OF ASSETS
FUNDING OPTIONS: The value of the assets of each Funding Option is determined at
4:00 p.m. eastern time on each business day, unless we need to close earlier due
to an emergency. A business day is any day the New York Stock Exchange is open.
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.
2
<PAGE> 42
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 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.)
PERFORMANCE INFORMATION
From time to time, the Company may advertise several types of historical
performance for Funding Options of the Separate Account. 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). The
deduction for the annual contract administrative charge is converted to a
percentage of assets based on the actual fee collected (or anticipated to be
collected, if a new product), divided by the average net assets for contracts
sold (or anticipated to be sold) under the Prospectus to which this SAI relates.
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. Nonstandardized total returns will not
reflect the annual contract administrative charge, which, if reflected, would
decrease the level of performance shown.
For Funding Options that were in existence before they became available
under the Separate Account, the nonstandardized average annual total return
quotations will reflect 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.
3
<PAGE> 43
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 Funding Options.
Average annual total returns for each Funding Option computed according to the
standardized and nonstandardized methods for the period ending December 31, 1999
are set forth in the following tables.
4
<PAGE> 44
TRAVELERS ASSET MANAGER
STANDARDIZED PERFORMANCE UPDATE AS OF 12/31/99
<TABLE>
<CAPTION>
ENHANCED DEATH BENEFIT
- -----------------------------------------------------------------------------------------------------------------------------------
STOCK FUNDS: 1 Year 5 Year 10 Year (or inception) Inception Date #
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MSDW Universal Funds Emerging Markets Equity Port. - - 35.35% 7/1/99
- -----------------------------------------------------------------------------------------------------------------------------------
MSDW Universal Funds Global Equity Portfolio - - -2.69% 7/1/99
- -----------------------------------------------------------------------------------------------------------------------------------
MSDW Universal Funds Mid Cap Value Portfolio - - 3.68% 7/1/99
- -----------------------------------------------------------------------------------------------------------------------------------
MSDW Universal Funds Value Portfolio - - -11.83% 6/28/99
- -----------------------------------------------------------------------------------------------------------------------------------
Salomon Brothers Capital Fund - - 3.45% 7/1/99
- -----------------------------------------------------------------------------------------------------------------------------------
Salomon Brothers Investors Fund - - -6.42% 7/1/99
- -----------------------------------------------------------------------------------------------------------------------------------
Van Kampen Emerging Growth Portfolio - - 60.91% 7/1/99
- -----------------------------------------------------------------------------------------------------------------------------------
Van Kampen Enterprise Portfolio - - 13.30% 7/1/99
- -----------------------------------------------------------------------------------------------------------------------------------
Van Kampen Growth and Income Portfolio - - 3.45% 6/28/99
- -----------------------------------------------------------------------------------------------------------------------------------
Van Kampen LIT Real Estate Securities Portfolio - - -9.79% 7/1/99
- -----------------------------------------------------------------------------------------------------------------------------------
BOND FUNDS:
- -----------------------------------------------------------------------------------------------------------------------------------
Salomon Brothers High Yield Bond Fund - - 2.01% 7/1/99
- -----------------------------------------------------------------------------------------------------------------------------------
Salomon Brothers Strategic Bond Fund - - 0.53% 7/1/99
- -----------------------------------------------------------------------------------------------------------------------------------
Van Kampen Domestic Income Portfolio - - -0.70% 7/1/99
- -----------------------------------------------------------------------------------------------------------------------------------
Van Kampen Government Portfolio - - -1.06% 7/1/99
- -----------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET FUNDS:
- -----------------------------------------------------------------------------------------------------------------------------------
Van Kampen Money Market Portfolio - - 1.48% 7/1/99
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
# The inception date used to calculate standardized performance is based on the
date that the investment option became active in the product.
5
<PAGE> 45
TRAVELERS ASSET MANAGER
NON STANDARDIZED PERFORMANCE UPDATE AS OF 12/31/99
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Cumulative Returns
- -----------------------------------------------------------------------------------------------------------------------------------
ENHANCED DEATH BENEFIT YTD 1 YR 3YR 5YR 10YR
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STOCK FUNDS:
- -----------------------------------------------------------------------------------------------------------------------------------
MSDW Universal Funds Emerging Markets Equity Port. 92.31% 92.31% 41.21% - -
- -----------------------------------------------------------------------------------------------------------------------------------
MSDW Universal Funds Global Equity Portfolio 2.29% 2.29% - - -
- -----------------------------------------------------------------------------------------------------------------------------------
MSDW Universal Funds Mid Cap Value Portfolio 18.03% 18.03% - - -
- -----------------------------------------------------------------------------------------------------------------------------------
MSDW Universal Funds Value Portfolio -3.52% -3.52% - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Salomon Brothers Capital Fund 19.97% 19.97% - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Salomon Brothers Investors Fund 9.72% 9.72% - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Van Kampen Emerging Growth 100.86% 100.86% 221.36% - -
- -----------------------------------------------------------------------------------------------------------------------------------
Van Kampen Enterprise Portfolio 23.68% 23.68% 95.07% 222.19% 324.64%
- -----------------------------------------------------------------------------------------------------------------------------------
Van Kampen Growth and Income 11.03% 11.03% 56.02% - -
- -----------------------------------------------------------------------------------------------------------------------------------
Van Kampen LIT Real Estate Securities Portfolio -5.06% -5.06% -1.50% - -
- -----------------------------------------------------------------------------------------------------------------------------------
BOND FUNDS:
- -----------------------------------------------------------------------------------------------------------------------------------
Salomon Brothers High Yield Bond Fund 3.69% 3.69% - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Salomon Brothers Strategic Bond Fund -1.37% -1.37% - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Van Kampen Domestic Income Portfolio -3.81% -3.81% 11.30% 39.18% 79.58%
- -----------------------------------------------------------------------------------------------------------------------------------
Van Kampen Government Portfolio -5.04% -5.04% 10.29% 27.44% 59.93%
- -----------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET FUNDS:
- -----------------------------------------------------------------------------------------------------------------------------------
Van Kampen Money Market Portfolio 2.81% 2.81% 9.85% 17.33% 34.72%
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Average Annual Returns
- -----------------------------------------------------------------------------------------------------------------------------------
Inception To Inception
ENHANCED DEATH BENEFIT 3YR 5YR 10YR Date Date#
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STOCK FUNDS:
- -----------------------------------------------------------------------------------------------------------------------------------
MSDW Universal Funds Emerging Markets Equity Port. 12.19% - - 10.36% 10/1/96
- -----------------------------------------------------------------------------------------------------------------------------------
MSDW Universal Funds Global Equity Portfolio - - - 10.44% 1/3/97
- -----------------------------------------------------------------------------------------------------------------------------------
MSDW Universal Funds Mid Cap Value Portfolio - - - 23.10% 1/2/97
- -----------------------------------------------------------------------------------------------------------------------------------
MSDW Universal Funds Value Portfolio - - - 3.30% 1/2/97
- -----------------------------------------------------------------------------------------------------------------------------------
Salomon Brothers Capital Fund - - - 19.45% 2/17/98
- -----------------------------------------------------------------------------------------------------------------------------------
Salomon Brothers Investors Fund - - - 10.00% 2/17/98
- -----------------------------------------------------------------------------------------------------------------------------------
Van Kampen Emerging Growth 47.57% - - 38.14% 7/3/95
- -----------------------------------------------------------------------------------------------------------------------------------
Van Kampen Enterprise Portfolio 24.95% 26.35% 15.55% 12.48% 4/7/86
- -----------------------------------------------------------------------------------------------------------------------------------
Van Kampen Growth and Income 15.98% - - 15.73% 12/23/96
- -----------------------------------------------------------------------------------------------------------------------------------
Van Kampen LIT Real Estate Securities Portfolio -0.50% - - 8.77% 7/3/95
- -----------------------------------------------------------------------------------------------------------------------------------
BOND FUNDS:
- -----------------------------------------------------------------------------------------------------------------------------------
Salomon Brothers High Yield Bond Fund - - - 1.55% 5/1/98
- -----------------------------------------------------------------------------------------------------------------------------------
Salomon Brothers Strategic Bond Fund - - - 1.67% 2/17/98
- -----------------------------------------------------------------------------------------------------------------------------------
Van Kampen Domestic Income Portfolio 3.63% 6.83% 6.03% 5.46% 11/4/87
- -----------------------------------------------------------------------------------------------------------------------------------
Van Kampen Government Portfolio 3.32% 4.97% 4.80% 4.65% 4/7/86
- -----------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET FUNDS:
- -----------------------------------------------------------------------------------------------------------------------------------
Van Kampen Money Market Portfolio 3.18% 3.25% 3.02% 3.67% 4/7/86
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Calendar Year Returns
- ----------------------------------------------------------------------------------------------------
ENHANCED DEATH BENEFIT 1998 1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
STOCK FUNDS:
- ----------------------------------------------------------------------------------------------------
MSDW Universal Funds Emerging Markets Equity Port. -25.50% -1.44% -
- ----------------------------------------------------------------------------------------------------
MSDW Universal Funds Global Equity Portfolio 11.52% - -
- ----------------------------------------------------------------------------------------------------
MSDW Universal Funds Mid Cap Value Portfolio 13.95% - -
- ----------------------------------------------------------------------------------------------------
MSDW Universal Funds Value Portfolio -3.94% - -
- ----------------------------------------------------------------------------------------------------
Salomon Brothers Capital Fund - - -
- ----------------------------------------------------------------------------------------------------
Salomon Brothers Investors Fund - - -
- ----------------------------------------------------------------------------------------------------
Van Kampen Emerging Growth 35.17% 18.36% 14.63%
- ----------------------------------------------------------------------------------------------------
Van Kampen Enterprise Portfolio 22.81% 28.44% 22.65%
- ----------------------------------------------------------------------------------------------------
Van Kampen Growth and Income 17.60% 19.49% -
- ----------------------------------------------------------------------------------------------------
Van Kampen LIT Real Estate Securities Portfolio -13.13% 19.42% 37.95%
- ----------------------------------------------------------------------------------------------------
BOND FUNDS:
- ----------------------------------------------------------------------------------------------------
Salomon Brothers High Yield Bond Fund - - -
- ----------------------------------------------------------------------------------------------------
Salomon Brothers Strategic Bond Fund - - -
- ----------------------------------------------------------------------------------------------------
Van Kampen Domestic Income Portfolio 5.20% 9.98% 4.82%
- ----------------------------------------------------------------------------------------------------
Van Kampen Government Portfolio 7.81% 7.72% 0.34%
- ----------------------------------------------------------------------------------------------------
MONEY MARKET FUNDS:
- ----------------------------------------------------------------------------------------------------
Van Kampen Money Market Portfolio 3.50% 3.24% 3.06%
- ----------------------------------------------------------------------------------------------------
</TABLE>
# The inception date is the underlying fund commenced operations.
6
<PAGE> 46
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 foresee any such disadvantages either to variable annuity contract
owners or variable life policy owners, each Funding Option's Board of Directors
intends to monitor events in order to identify any material conflicts between
them and to determine what action, if any, should be taken. If a Board of
Directors was to conclude that separate funds should be established for variable
life and variable annuity separate accounts, the variable annuity contract
owners would not bear any of the related expenses, but variable annuity contract
owners and variable life insurance policy owners would no longer have the
economies of scale resulting from a larger combined fund.
FEDERAL TAX CONSIDERATIONS
The following description of the federal income tax consequences under
this Contract is not exhaustive and is not intended to cover all situations.
Because of the complexity of the law and the fact that the tax results will vary
according to the factual status of the individual involved, tax advice may be
needed by a person contemplating purchase of an annuity contract and by a
contract owner or beneficiary who may make elections under a contract. For
further information, please consult a qualified tax adviser.
MANDATORY DISTRIBUTIONS FOR QUALIFIED PLANS
Federal tax law generally requires that minimum annual distributions
begin by April 1st of the calendar year following the calendar year in which a
participant under a qualified plan, a Section 403(b) annuity, or an IRA attains
age 70 1/2. Distributions must also begin or be continued according to required
patterns following the death of the contract owner or the annuitant.
NONQUALIFIED ANNUITY CONTRACTS
Individuals may purchase tax-deferred annuities without tax law funding
limits. The purchase payments receive no tax benefit, deduction or deferral, but
increases in the value of the contract are generally deferred from tax until
distribution. If a nonqualified annuity is owned by other than an individual,
however, (e.g., by a corporation), the increases in value attributable to
purchase payments made after February 28, 1986 are includable in income
annually. Furthermore, for contracts issued after April 22, 1987, all deferred
increases in value will be includable in the income of a contract owner when the
contract owner transfers the contract without adequate consideration.
If two or more annuity contracts are purchased from the same insurer
within the same calendar year, distributions from any of them will be taxed
based upon the amount of income in all of the same calendar year series of
annuities. This will generally have the effect of causing taxes to be paid
sooner on the deferred gain in the contracts.
Those receiving partial distributions made before the maturity date will
generally be taxed on an income-first basis to the extent of income in the
contract. If you are exchanging another annuity contract for this annuity,
certain pre-August 14, 1982 deposits into an annuity contract that have been
placed in the contract by means of a tax-deferred exchange under Section 1035 of
the Code may be withdrawn first without income tax liability. This information
on deposits must be provided to the
7
<PAGE> 47
Company by the other insurance company at the time of the exchange. There is
income in the contract generally to the extent the cash value exceeds the
investment in the contract. The investment in the contract is equal to the
amount of premiums paid less any amount received previously which was excludable
from gross income. Any direct or indirect borrowing against the value of the
contract or pledging of the contract as security for a loan will be treated as a
cash distribution under the tax law.
The federal tax law requires that nonqualified annuity contracts meet
minimum mandatory distribution requirements upon the death of the contract
owner, including the first of joint owners. Failure to meet these requirements
will cause the surviving joint owner, or the beneficiary, to lose the tax
benefits associated with annuity contracts, i.e., primarily the tax deferral
prior to distribution. The distribution required depends, among other things,
upon whether an annuity option is elected or whether the new contract owner is
the surviving spouse. Contracts will be administered by the Company in
accordance with these rules and the Company will make a notification when
payments should be commenced.
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
8
<PAGE> 48
converted amounts with other Roth IRA contributions, including any other
conversion amounts from other tax years.
Qualified distributions from a Roth IRA are tax-free. A qualified
distribution requires that the Roth IRA has been held for at least 5 years, and
the distribution is made after age 59 1/2, on death or disability of the owner,
or for a limited amount ($10,000) for a qualified first time home purchase for
the owner or certain relatives. Income tax and a 10% penalty tax may apply to
distributions made (1) before age 59 1/2 (subject to certain exceptions) or (2)
during five taxable years starting with the year in which the first contribution
is made to the Roth IRA.
QUALIFIED PENSION AND PROFIT-SHARING PLANS
Under a qualified pension or profit-sharing plan, purchase payments made
by an employer are not currently taxable to the participant and increases in the
value of a contract are not subject to taxation until received by a participant
or beneficiary.
Distributions are taxable to the participant or beneficiary as ordinary
income in the year of receipt. Any distribution that is considered the
participant's "investment in the contract" is treated as a return of capital and
is not taxable. Certain lump-sum distributions may be eligible for special
forward averaging tax treatment for certain classes of individuals.
FEDERAL INCOME TAX WITHHOLDING
The portion of a distribution which is taxable income to the recipient
will be subject to federal income tax withholding as follows:
1. ELIGIBLE ROLLOVER DISTRIBUTION FROM SECTION 403(b) PLANS OR ARRANGEMENTS
OR FROM QUALIFIED PENSION AND PROFIT-SHARING PLANS
There is a mandatory 20% tax withholding for plan distributions that are
eligible for rollover to an IRA or to another retirement plan but that are not
directly rolled over. A distribution made directly to a participant or
beneficiary may avoid this result if:
(a) a periodic settlement distribution is elected based upon a life or
life expectancy calculation, or
(b) a term-for-years settlement distribution is elected for a period of
ten years or more, payable at least annually, or
(c) a minimum required distribution as defined under the tax law is taken
after the attainment of the age of 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.
9
<PAGE> 49
2. OTHER NON-PERIODIC DISTRIBUTIONS (FULL OR PARTIAL REDEMPTIONS)
To the extent not described as requiring 20% withholding in 1 above, the
portion of a non-periodic distribution which constitutes taxable income will be
subject to federal income tax withholding, if the aggregate distributions exceed
$200 for the year, unless the recipient elects not to have taxes withheld. If no
such election is made, 10% of the taxable distribution will be withheld as
federal income tax. Election forms will be provided at the time distributions
are requested. This form of withholding applies to all annuity programs.
3. PERIODIC DISTRIBUTIONS (DISTRIBUTIONS PAYABLE OVER A PERIOD GREATER THAN ONE
YEAR)
The portion of a periodic distribution which constitutes taxable income
will be subject to federal income tax withholding under the wage withholding
tables as if the recipient were married claiming three exemptions. A recipient
may elect not to have income taxes withheld or have income taxes withheld at a
different rate by providing a completed election form. Election forms will be
provided at the time distributions are requested. This form of withholding
applies to all annuity programs. As of January 1, 1999, a recipient receiving
periodic payments (e.g., monthly or annual payments under an annuity option)
which total $14,850 or less per year, will generally be exempt from periodic
withholding.
Recipients who elect not to have withholding made are liable for payment
of federal income tax on the taxable portion of the distribution. All recipients
may also be subject to penalties under the estimated tax payment rules if
withholding and estimated tax payments are not sufficient to cover tax
liabilities.
Recipients who do not provide a social security number or other taxpayer
identification number will not be permitted to elect out of withholding.
Additionally, U.S citizens residing outside of the country, or U.S. legal
residents temporarily residing outside the country, are not permitted to elect
out of withholding.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of The Travelers Insurance
Company and subsidiaries as of December 31, 1999 and 1998, and for each of the
years in the three-year period ended December 31, 1999, included herein, and
the financial statements of Separate Account Seven as of December 31, 1999 and
for the period from June 28, 1999 (date operations commenced) to December 31,
1999, also included herein, have been included in reliance upon the reports of
KPMG LLP, independent certified public accountants, appearing elsewhere herein,
and upon the authority of said firm as experts in accounting and auditing.
10
<PAGE> 50
ANNUAL REPORT
DECEMBER 31, 1999
THE TRAVELERS SEPARATE ACCOUNT SEVEN
FOR VARIABLE ANNUITIES
[TRAVELERS LIFE & ANNUITY LOGO]
The Travelers Insurance Company
The Travelers Life and Annuity Company
One Tower Square
Hartford, CT 06183
<PAGE> 51
THE TRAVELERS SEPARATE ACCOUNT SEVEN
FOR VARIABLE ANNUITIES
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Investments in eligible funds at market value:
Morgan Stanley Dean Witter Universal Funds, Inc., 24,410 shares (cost $323,513) ... $ 326,262
Salomon Brothers Variable Series Funds Inc., 24,309 shares (cost $246,052) ........ 237,733
Van Kampen Life Investment Trust, 476,883 shares (cost $1,259,202) ................ 1,331,708
----------------
Total Investments (cost $1,828,767) ............................................. $ 1,895,703
Receivables:
Dividends ......................................................................... 1,829
Purchase payments and transfers from other Travelers accounts ..................... 15,476
Other assets ........................................................................ 919
----------------
Total Assets .................................................................... 1,913,927
----------------
LIABILITIES:
Payables:
Contract surrenders and transfers to other Travelers accounts ..................... 15,476
Insurance charges ................................................................. 681
Administrative fees ............................................................... 68
Accrued liabilities ................................................................. 72
----------------
Total Liabilities ............................................................... 16,297
----------------
NET ASSETS: $ 1,897,630
================
</TABLE>
See Notes to Financial Statements
-1-
<PAGE> 52
THE TRAVELERS SEPARATE ACCOUNT SEVEN
FOR VARIABLE ANNUITIES
STATEMENT OF OPERATIONS
FOR THE PERIOD JUNE 28, 1999 (DATE OPERATIONS COMMENCED) TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Dividends ................................................................... $ 38,956
EXPENSES:
Insurance charges ........................................................... $ 5,576
Administrative fees ......................................................... 558
----------------
Total expenses ............................................................ 6,134
----------------
Net investment income ................................................... 32,822
----------------
REALIZED GAIN (LOSS) AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold ............................................ 256,756
Cost of investments sold .................................................. 252,120
----------------
Net realized gain (loss) ................................................ 4,636
Unrealized gain (loss) on investments:
Unrealized gain at December 31, 1999 ...................................... 66,936
----------------
Net realized gain (loss) and unrealized gain (loss) ..................... 71,572
----------------
Net increase in net assets resulting from operations ........................ $ 104,394
================
</TABLE>
See Notes to Financial Statements
-2-
<PAGE> 53
THE TRAVELERS SEPARATE ACCOUNT SEVEN
FOR VARIABLE ANNUITIES
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD JUNE 28, 1999 (DATE OPERATIONS COMMENCED) TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
<S> <C>
OPERATIONS:
Net investment income .............................................. $ 32,822
Net realized gain (loss) from investment transactions .............. 4,636
Unrealized gain (loss) on investments .............................. 66,936
-----------------
Net increase in net assets resulting from operations ............. 104,394
-----------------
UNIT TRANSACTIONS:
Participant purchase payments
(applicable to 1,791,841 units) .................................. 1,813,116
Participant transfers from other Travelers accounts
(applicable to 243,070 units) .................................... 248,046
Administrative charges
(applicable to 3 units) .......................................... (3)
Contract surrenders
(applicable to 2,530 units) ...................................... (2,617)
Participant transfers to other Travelers accounts
(applicable to 264,625 units) .................................... (265,306)
-----------------
Net increase in net assets resulting from unit transactions ...... 1,793,236
-----------------
Net increase in net assets ..................................... 1,897,630
NET ASSETS:
Beginning of period ................................................ -
-----------------
End of period ...................................................... $ 1,897,630
=================
</TABLE>
See Notes to Financial Statements
-3-
<PAGE> 54
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Travelers Separate Account Seven for Variable Annuities ("Separate
Account Seven") is a separate account of The Travelers Insurance Company
("The Travelers"), an indirect wholly owned subsidiary of Citigroup Inc.,
and is available for funding certain variable annuity contracts issued by
The Travelers. Separate Account Seven is registered under the Investment
Company Act of 1940, as amended, as a unit investment trust. Separate
Account Seven is comprised of the Travelers Premier Advisers AssetManager
product.
Participant purchase payments applied to Separate Account Seven are
invested in one or more eligible funds in accordance with the selection
made by the contract owner. As of December 31, 1999, the eligible funds
available under Separate Account Seven were: Emerging Markets Equity
Portfolio, Global Equity Portfolio, Mid Cap Value Portfolio and Value
Portfolio of the Morgan Stanley Dean Witter Universal Funds Inc.; Salomon
Brothers Variable Capital Fund, Salomon Brothers Variable High Yield Bond
Fund, Salomon Brothers Variable Investors Fund and Salomon Brothers
Variable Strategic Bond Fund of Salomon Brothers Variable Series Funds
Inc.(which is managed by affiliates of The Travelers); Domestic Income
Portfolio, Emerging Growth Portfolio, Enterprise Portfolio, Government
Portfolio, Growth and Income Portfolio, Money Market Portfolio, and Morgan
Stanley Real Estate Securities Portfolio of the Van Kampen Life Investment
Trust. Morgan Stanley Dean Witter Universal Funds Inc. and Salomon
Brothers Variable Series Funds Inc. are incorporated under Maryland law and
Van Kampen Life Investment Trust is a Delaware business Trust. Not all
funds may be available in all states or to all contract owners.
The following is a summary of significant accounting policies consistently
followed by Separate Account Seven in the preparation of its financial
statements.
SECURITY VALUATION. Investments are valued daily at the net asset values
per share of the underlying funds.
SECURITY TRANSACTIONS. Security transactions are accounted for on the
trade date. Dividend income is recorded on the ex-dividend date.
FEDERAL INCOME TAXES. The operations of Separate Account Seven form a part
of the total operations of The Travelers and are not taxed separately. The
Travelers is taxed as a life insurance company under the Internal Revenue
Code of 1986, as amended (the "Code"). Under existing federal income tax
law, no taxes are payable on the investment income of Separate Account
Seven. Separate Account Seven is not taxed as a "regulated investment
company" under Subchapter M of the Code.
OTHER. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
2. INVESTMENTS
The aggregate costs of purchases and proceeds from sales of investments
were $2,080,887 and $256,756, respectively, for the period ended December
31, 1999. Realized gains and losses from investment transactions are
reported on an average cost basis. The cost of investments in eligible
funds was $1,828,767 at December 31, 1999. Gross unrealized appreciation
for all investments at December 31, 1999 was $85,914. Gross unrealized
depreciation for all investments at December 31, 1999 was $18,978.
-4-
<PAGE> 55
NOTES TO FINANCIAL STATEMENTS - CONTINUED
3. CONTRACT CHARGES
Insurance charges are paid for the mortality and expense risks assumed by
The Travelers. Each business day, The Travelers deducts a mortality and
expense risk charge which is reflected in the calculation of accumulation
and annuity unit values. For the first six contract years this charge
equals, on an annual basis, 1.45% and 1.60% for the Standard Death Benefit
and Enhanced Death Benefit contracts, respectively. Beginning in the
seventh contract year, the charge is reduced to 1.40% of the amounts held
in each funding option.
Administrative fees are paid for administrative expenses. This fee is also
deducted each business day and reflected in the calculation of accumulation
and annuity unit values. This charge equals, on an annual basis, 0.15% of
the amounts held in each funding option.
For contracts in the accumulation phase with a contract value less than
$75,000, an annual charge of $50 (prorated for partial periods) is deducted
from participant account balances and paid to The Travelers to cover
contract administrative charges.
4. NET CONTRACT OWNERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------------------------------------
ACCUMULATION UNIT NET
UNITS VALUE ASSETS
------------ ------ -------
<S> <C> <C> <C>
Morgan Stanley Dean Witter Universal Funds, Inc.
Emerging Markets Equity Portfolio
Standard Death Benefit .................................... 21,280 $ 1.355 $ 28,828
Enhanced Death Benefit .................................... - 1.354 -
Global Equity Portfolio
Standard Death Benefit .................................... 139,371 0.974 135,727
Enhanced Death Benefit .................................... 12,006 0.973 11,683
Mid Cap Value Portfolio
Standard Death Benefit .................................... 104,342 1.038 108,261
Enhanced Death Benefit .................................... - 1.037 -
Value Portfolio
Standard Death Benefit .................................... 17,311 0.882 15,276
Enhanced Death Benefit .................................... 36,000 0.882 31,743
Salomon Brothers Variable Series Funds Inc.
Salomon Brothers Variable High Yield Bond Fund
Standard Death Benefit .................................... 34,570 1.021 35,288
Enhanced Death Benefit .................................... - 1.020 -
Salomon Brothers Variable Investors Fund
Standard Death Benefit .................................... 23,365 0.936 21,881
Enhanced Death Benefit .................................... - 0.936 -
Salomon Brothers Variable Strategic Bond Fund
Standard Death Benefit .................................... 179,398 1.006 180,474
Enhanced Death Benefit .................................... - 1.005 -
</TABLE>
-5-
<PAGE> 56
NOTES TO FINANCIAL STATEMENTS - CONTINUED
4. NET CONTRACT OWNERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------------------------------------
ACCUMULATION UNIT NET
UNITS VALUE ASSETS
------------- --------- ----------
<S> <C> <C> <C>
Van Kampen Life Investment Trust
Domestic Income Portfolio
Standard Death Benefit .......................... 93,053 $ 0.994 $ 92,470
Enhanced Death Benefit .......................... - 0.993 -
Emerging Growth Portfolio
Standard Death Benefit .......................... 138,452 1.610 222,941
Enhanced Death Benefit .......................... - 1.609 -
Enterprise Portfolio
Standard Death Benefit .......................... 253,292 1.134 287,189
Enhanced Death Benefit .......................... 10,646 1.133 12,062
Government Portfolio
Standard Death Benefit .......................... 92,300 0.990 91,389
Enhanced Death Benefit .......................... 11,329 0.989 11,209
Growth and Income Portfolio
Standard Death Benefit .......................... 120,714 1.035 124,980
Enhanced Death Benefit .......................... 54,000 1.035 55,865
Money Market Portfolio
Standard Death Benefit .......................... 236,219 1.016 239,885
Enhanced Death Benefit .......................... 168,354 1.015 170,843
Morgan Stanley Real Estate Securities Portfolio
Standard Death Benefit .......................... 21,751 0.903 19,636
Enhanced Death Benefit .......................... - 0.902 -
--------------
Net Contract Owners' Equity ............................................................................ $ 1,897,630
==============
</TABLE>
-6-
<PAGE> 57
NOTES TO FINANCIAL STATEMENTS - CONTINUED
5. STATEMENT OF INVESTMENTS
<TABLE>
<CAPTION>
INVESTMENT OPTIONS NO. OF MARKET
SHARES VALUE
---------------- ----------------
<S> <C> <C>
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC. (17.2%)
Emerging Markets Equity Portfolio (Cost $19,609) 2,074 $ 28,854
Global Equity Portfolio (Cost $145,800) 11,030 142,067
Mid Cap Value Portfolio (Cost $105,134) 6,934 108,303
Value Portfolio (Cost $52,970) 4,372 47,038
---------------- ----------------
Total (Cost $323,513) 24,410 326,262
---------------- ----------------
SALOMON BROTHERS VARIABLE SERIES FUNDS INC. (12.5%)
Salomon Brothers Variable High Yield Bond Fund (Cost $37,780) 3,829 35,300
Salomon Brothers Variable Investors Fund (Cost $21,265) 1,790 21,889
Salomon Brothers Variable Strategic Bond Fund (Cost $187,007) 18,690 180,544
---------------- ----------------
Total (Cost $246,052) 24,309 237,733
---------------- ----------------
VAN KAMPEN LIFE INVESTMENT TRUST (70.3%)
Domestic Income Portfolio (Cost $91,725) 11,506 92,506
Emerging Growth Portfolio (Cost $184,680) 4,824 223,025
Enterprise Portfolio (Cost $261,022) 11,240 293,481
Government Portfolio (Cost $103,009) 11,637 102,639
Growth and Income Portfolio (Cost $174,546) 11,467 175,787
Money Market Portfolio (Cost $424,621) 424,621 424,621
Morgan Stanley Real Estate Securities Portfolio (Cost $19,599) 1,588 19,649
---------------- ----------------
Total (Cost $1,259,202) 476,883 1,331,708
---------------- ----------------
TOTAL INVESTMENT OPTIONS (100%)
(COST $1,828,767) $ 1,895,703
================
</TABLE>
-7-
<PAGE> 58
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF SEPARATE ACCOUNT SEVEN OPERATIONS AND CHANGES IN NET ASSETS
FOR THE PERIOD JUNE 28, 1999 (DATE OPERATIONS COMMENCED) TO
DECEMBER 31, 1999
<TABLE>
<CAPTION>
EMERGING MARKETS GLOBAL EQUITY MID CAP VALUE
EQUITY PORTFOLIO PORTFOLIO PORTFOLIO
--------------------- ---------------------- ----------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends ............................................... $ - $ 5,995 $ 10,613
--------------------- ---------------------- ----------------------
EXPENSES:
Insurance charges ....................................... 71 553 294
Administrative fees ..................................... 7 55 30
--------------------- ---------------------- ----------------------
Net investment income (loss) ........................ (78) 5,387 10,289
--------------------- ---------------------- ----------------------
REALIZED GAIN (LOSS) AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold ........................ 53 57,566 282
Cost of investments sold .............................. 44 57,892 272
--------------------- ---------------------- ----------------------
Net realized gain (loss) ............................ 9 (326) 10
--------------------- ---------------------- ----------------------
Unrealized gain (loss) on investment:
End of period ......................................... 9,245 (3,733) 3,170
--------------------- ---------------------- ----------------------
Net increase (decrease) in net assets
resulting from operations ........................... 9,176 1,328 13,469
--------------------- ---------------------- ----------------------
UNIT TRANSACTIONS:
Participant purchase payments ........................... 19,652 171,681 94,792
Participant transfers from other Travelers accounts ..... - 31,649 -
Administrative charges .................................. - (1) -
Contract surrenders ..................................... - (236) -
Participant transfers to other Travelers accounts ....... - (57,011) -
--------------------- ---------------------- ----------------------
Net increase (decrease) in net assets
resulting from unit transactions .................... 19,652 146,082 94,792
--------------------- ---------------------- ----------------------
Net increase (decrease) in net assets ............... 28,828 147,410 108,261
NET ASSETS:
Beginning of period ................................... - - -
--------------------- ---------------------- ----------------------
End of period ......................................... $ 28,828 $ 147,410 $ 108,261
===================== ====================== ======================
<CAPTION>
SALOMON BROTHERS
VARIABLE HIGH YIELD
VALUE PORTFOLIO BOND FUND
---------------------- ----------------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends ............................................... $ 573 $ 3,093
---------------------- ----------------------
EXPENSES:
Insurance charges ....................................... 353 52
Administrative fees ..................................... 34 5
---------------------- ----------------------
Net investment income (loss) ........................ 186 3,036
---------------------- ----------------------
REALIZED GAIN (LOSS) AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold ........................ 358 493
Cost of investments sold .............................. 391 489
---------------------- ----------------------
Net realized gain (loss) ............................ (33) 4
---------------------- ----------------------
Unrealized gain (loss) on investment:
End of period ......................................... (5,932) (2,480)
---------------------- ----------------------
Net increase (decrease) in net assets
resulting from operations ........................... (5,779) 560
---------------------- ----------------------
UNIT TRANSACTIONS:
Participant purchase payments ........................... 52,799 35,176
Participant transfers from other Travelers accounts ..... - -
Administrative charges .................................. (1) -
Contract surrenders ..................................... - (448)
Participant transfers to other Travelers accounts ....... - -
---------------------- ----------------------
Net increase (decrease) in net assets
resulting from unit transactions .................... 52,798 34,728
---------------------- ----------------------
Net increase (decrease) in net assets ............... 47,019 35,288
NET ASSETS:
Beginning of period ................................... - -
---------------------- ----------------------
End of period ......................................... $ 47,019 $ 35,288
====================== ======================
</TABLE>
-8-
<PAGE> 59
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
SALOMON BROTHERS SALOMON BROTHERS
VARIABLE INVESTORS VARIABLE STRATEGIC DOMESTIC INCOME EMERGING GROWTH
FUND BOND FUND PORTFOLIO PORTFOLIO
- --------------------- -------------------- ------------------- --------------------
<S> <C> <C> <C>
$ 111 $ 9,008 $ - $ -
- --------------------- -------------------- ------------------- --------------------
38 507 291 275
4 52 30 29
- --------------------- -------------------- ------------------- --------------------
69 8,449 (321) (304)
- --------------------- -------------------- ------------------- --------------------
34 1,085 260 290
33 1,072 257 248
- --------------------- -------------------- ------------------- --------------------
1 13 3 42
- --------------------- -------------------- ------------------- --------------------
624 (6,463) 781 38,346
- --------------------- -------------------- ------------------- --------------------
694 1,999 463 38,084
- --------------------- -------------------- ------------------- --------------------
21,187 179,071 92,007 174,495
- - - 10,620
- - - -
- (596) - (258)
- - - -
- --------------------- -------------------- ------------------- --------------------
21,187 178,475 92,007 184,857
- --------------------- -------------------- ------------------- --------------------
21,881 180,474 92,470 222,941
- - - -
- --------------------- -------------------- ------------------- --------------------
$ 21,881 $ 180,474 $ 92,470 $ 222,941
===================== ==================== =================== ====================
<CAPTION>
ENTERPRISE GOVERNMENT GROWTH AND INCOME MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------- -------------------- ------------------- --------------------
<C> <C> <C> <C>
$ - $ - $ 5,995 $ 3,568
- -------------------- -------------------- ------------------- --------------------
801 533 661 1,088
81 53 64 108
- -------------------- -------------------- ------------------- --------------------
(882) (586) 5,270 2,372
- -------------------- -------------------- ------------------- --------------------
56,127 50,462 10,238 79,456
51,014 50,342 10,557 79,456
- -------------------- -------------------- ------------------- --------------------
5,113 120 (319) -
- -------------------- -------------------- ------------------- --------------------
32,459 (371) 1,241 -
- -------------------- -------------------- ------------------- --------------------
36,690 (837) 6,192 2,372
- -------------------- -------------------- ------------------- --------------------
287,426 142,006 174,950 348,221
30,793 11,399 9,468 154,117
- - (1) -
(167) - (72) (840)
(55,491) (49,970) (9,692) (93,142)
- -------------------- -------------------- ------------------- --------------------
262,561 103,435 174,653 408,356
- -------------------- -------------------- ------------------- --------------------
299,251 102,598 180,845 410,728
- - - -
- -------------------- -------------------- ------------------- --------------------
$ 299,251 $ 102,598 $ 180,845 $ 410,728
==================== ==================== =================== ====================
</TABLE>
-9-
<PAGE> 60
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF SEPARATE ACCOUNT SEVEN OPERATIONS AND CHANGES IN NET ASSETS
FOR THE PERIOD JUNE 28, 1999 (DATE OPERATIONS COMMENCED) TO DECEMBER 31,
1999 (CONTINUED)
<TABLE>
<CAPTION>
MORGAN STANLEY REAL
ESTATE SECURITIES
PORTFOLIO COMBINED
------------------------ ----------------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends .............................................. $ - $ 38,956
------------------------ ----------------------
EXPENSES:
Insurance charges ...................................... 59 5,576
Administrative fees .................................... 6 558
------------------------ ----------------------
Net investment income (loss) ....................... (65) 32,822
------------------------ ----------------------
REALIZED GAIN (LOSS) AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold ....................... 52 256,756
Cost of investments sold ............................. 53 252,120
------------------------ ----------------------
Net realized gain (loss) ........................... (1) 4,636
------------------------ ----------------------
Unrealized gain (loss) on investment:
End of period ........................................ 49 66,936
------------------------ ----------------------
Net increase (decrease) in net assets
resulting from operations .......................... (17) 104,394
------------------------ ----------------------
UNIT TRANSACTIONS:
Participant purchase payments .......................... 19,653 1,813,116
Participant transfers from other Travelers accounts .... - 248,046
Administrative charges ................................. - (3)
Contract surrenders .................................... - (2,617)
Participant transfers to other Travelers accounts ...... - (265,306)
------------------------ ----------------------
Net increase (decrease) in net assets
resulting from unit transactions ................... 19,653 1,793,236
------------------------ ----------------------
Net increase (decrease) in net assets .............. 19,636 1,897,630
NET ASSETS:
Beginning of period .................................. - -
------------------------ ----------------------
End of period ........................................ $ 19,636 $ 1,897,630
======================== ======================
</TABLE>
-10-
<PAGE> 61
NOTES TO FINANCIAL STATEMENTS - CONTINUED
7. SCHEDULE OF ACCUMULATION UNITS FOR SEPARATE ACCOUNT SEVEN FOR THE PERIOD
JUNE 28, 1999 (DATE OPERATIONS COMMENCED) TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
SALOMON SALOMON
EMERGING BROTHERS BROTHERS
MARKETS GLOBAL MID CAP VARIABLE VARIABLE
EQUITY EQUITY VALUE VALUE HIGH YIELD INVESTORS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO BOND FUND FUND
------------- ------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Accumulation units beginning of year ........ - - - - - -
Accumulation units purchased and
transferred from other Travelers accounts . 21,280 211,086 104,342 53,312 35,014 23,365
Accumulation units redeemed and
transferred to other Travelers accounts ... - (59,709) - (1) (444) -
------------- ------------- ------------- ------------- ------------ -------------
Accumulation units end of year .............. 21,280 151,377 104,342 53,311 34,570 23,365
============= ============= ============= ============= ============ =============
<CAPTION>
SALOMON
BROTHERS
VARIABLE DOMESTIC EMERGING GROWTH AND
STRATEGIC INCOME GROWTH ENTERPRISE GOVERNMENT INCOME
BOND FUND PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Accumulation units beginning of year ........ - - - - - -
Accumulation units purchased and
transferred from other Travelers accounts . 179,990 93,053 138,637 316,975 153,836 184,879
Accumulation units redeemed and
transferred to other Travelers accounts ... (592) - (185) (53,037) (50,207) (10,165)
------------- ------------- ------------- ------------- ------------ -------------
Accumulation units end of year .............. 179,398 93,053 138,452 263,938 103,629 174,714
============= ============= ============= ============= ============ =============
<CAPTION>
MORGAN
STANLEY REAL
MONEY ESTATE
MARKET SECURITIES
PORTFOLIO PORTFOLIO COMBINED
------------- ------------- -------------
<S> <C> <C> <C>
Accumulation units beginning of year ........ - - -
Accumulation units purchased and
transferred from other Travelers accounts . 497,391 21,751 2,034,911
Accumulation units redeemed and
transferred to other Travelers accounts ... (92,818) - (267,158)
------------- ------------- -------------
Accumulation units end of year .............. 404,573 21,751 1,767,753
============= ============= =============
</TABLE>
-11-
<PAGE> 62
INDEPENDENT AUDITORS' REPORT
To the Owners of Variable Annuity Contracts of
The Travelers Separate Account Seven for Variable Annuities:
We have audited the accompanying statement of assets and liabilities of The
Travelers Separate Account Seven for Variable Annuities as of December 31,
1999, and the related statements of operations and changes in net assets for
the period June 28, 1999 (date operations commenced) to December 31, 1999.
These financial statements are the responsibility of management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of shares owned as of December 31, 1999, by
correspondence with the underlying funds. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Travelers Separate Account
Seven for Variable Annuities as of December 31, 1999, the results of its
operations and the changes in its net assets for the period June 28, 1999 (date
operations commenced) to December 31, 1999, in conformity with generally
accepted accounting principles.
/s/ KPMG LLP
Hartford, Connecticut
February 18, 2000
-12-
<PAGE> 63
Independent Auditors
KPMG LLP
Hartford, Connecticut
This report is prepared for the general information of contract owners and is
not an offer of shares of The Travelers Separate Account Seven for Variable
Annuities or Separate Account Seven's underlying funds. It should not be used
in connection with any offer except in conjunction with the Prospectus for The
Travelers Separate Account Seven for Variable Annuities product(s) offered by
The Travelers Insurance Company and the Prospectuses of the underlying funds,
which collectively contain all pertinent information, including the applicable
sales commissions.
SEP7 (Annual) (12-99) Printed in U.S.A.
<PAGE> 64
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholder
The Travelers Insurance Company and Subsidiaries:
We have audited the accompanying consolidated balance sheets of The Travelers
Insurance Company and Subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income, changes in retained earnings and
accumulated other changes in equity from non-owner sources and cash flows for
each of the years in the three-year period ended December 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Travelers
Insurance Company and Subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Hartford, Connecticut
January 18, 2000
F-1
<PAGE> 65
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
($ in millions)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
REVENUES
Premiums $1,738 $1,740 $1,583
Net investment income 2,506 2,185 2,037
Realized investment gains 113 149 199
Other revenues 521 440 354
- -------------------------------------------------------------------------------------------------- ------------- -------------
Total Revenues 4,878 4,514 4,173
- -------------------------------------------------------------------------------------------------- ------------- -------------
BENEFITS AND EXPENSES
Current and future insurance benefits 1,515 1,475 1,341
Interest credited to contractholders 937 876 829
Amortization of deferred acquisition costs 315 275 252
General and administrative expenses 519 505 468
- -------------------------------------------------------------------------------------------------- ------------- -------------
Total Benefits and Expenses 3,286 3,131 2,890
- -------------------------------------------------------------------------------------------------- ------------- -------------
Income from continuing operations before federal income taxes 1,592 1,383 1,283
- -------------------------------------------------------------------------------------------------- ------------- -------------
Federal income tax expense
Current 409 442 434
Deferred 136 39 10
- -------------------------------------------------------------------------------------------------- ------------- -------------
Total Federal Income Taxes 545 481 444
- -------------------------------------------------------------------------------------------------- ------------- -------------
Net income $1,047 $902 $839
================================================================================================== ============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE> 66
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ in millions)
<TABLE>
<CAPTION>
DECEMBER 31, 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Fixed maturities, available for sale at fair value (cost, $24,500, $22,973) $23,866 $23,893
Equity securities, at fair value (cost, $691, $474) 784 518
Mortgage loans 2,285 2,606
Real estate held for sale 236 143
Policy loans 1,258 1,857
Short-term securities 1,283 1,098
Trading securities, at market value 1,678 1,186
Other invested assets 2,098 2,251
- ----------------------------------------------------------------------------------------------------------------------------
Total Investments 33,488 33,552
- ----------------------------------------------------------------------------------------------------------------------------
Cash 85 65
Investment income accrued 395 393
Premium balances receivable 178 99
Reinsurance recoverables 3,234 3,387
Deferred acquisition costs 2,688 2,317
Separate and variable accounts 22,199 15,313
Other assets 1,264 1,422
- ----------------------------------------------------------------------------------------------------------------------------
Total Assets $63,531 $56,548
- ----------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Contractholder funds $17,567 $16,739
Future policy benefits and claims 12,563 12,326
Separate and variable accounts 22,194 15,305
Deferred federal income taxes 23 422
Trading securities sold not yet purchased, at market value 1,098 873
Other liabilities 2,466 2,783
- ----------------------------------------------------------------------------------------------------------------------------
Total Liabilities 55,911 48,448
- ----------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER'S EQUITY
Common stock, par value $2.50; 40 million shares authorized, issued and outstanding 100 100
Additional paid-in capital 3,819 3,800
Retained earnings 4,099 3,602
Accumulated other changes in equity from non-owner sources (398) 598
- ----------------------------------------------------------------------------------------------------------------------------
Total Shareholder's Equity 7,620 8,100
- ----------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholder's Equity $63,531 $56,548
============================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE> 67
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN RETAINED EARNINGS AND
ACCUMULATED OTHER CHANGES IN EQUITY FROM NON-OWNER SOURCES
($ in millions)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN RETAINED EARNINGS 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $3,602 $2,810 $2,471
Net income 1,047 902 839
Dividends to parent 550 110 500
- -----------------------------------------------------------------------------------------------------------
Balance, end of year $4,099 $3,602 $2,810
===========================================================================================================
- -----------------------------------------------------------------------------------------------------------
STATEMENTS OF ACCUMULATED OTHER CHANGES
IN EQUITY FROM NON-OWNER SOURCES
- -----------------------------------------------------------------------------------------------------------
Balance, beginning of year $598 $535 $223
Unrealized gains (losses), net of tax (996) 62 313
Foreign currency translation, net of tax 0 1 (1)
- -----------------------------------------------------------------------------------------------------------
Balance, end of year $(398) $598 $535
===========================================================================================================
- -----------------------------------------------------------------------------------------------------------
SUMMARY OF CHANGES IN EQUITY
FROM NON-OWNER SOURCES
- -----------------------------------------------------------------------------------------------------------
Net Income $1,047 $902 $839
Other changes in equity from non-owner sources (996) 63 312
- -----------------------------------------------------------------------------------------------------------
Total changes in equity from non-owner sources $51 $965 $1,151
===========================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE> 68
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
($ in millions)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Premiums collected $1,715 $1,763 $1,519
Net investment income received 2,365 2,021 2,059
Other revenues received 537 419 373
Benefits and claims paid (1,094) (1,127) (1,230)
Interest credited to contractholders (958) (918) (853)
Operating expenses paid (1,013) 751) (638)
Income taxes paid (393) (506) (368)
Trading account investments purchases, net (80) (38) (54)
Other (104) 12 18
- ---------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 975 875 826
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments
Fixed maturities 4,103 2,608 2,259
Mortgage loans 662 722 663
Proceeds from sales of investments
Fixed maturities 12,562 13,390 7,592
Equity securities 100 212 341
Mortgage loans - - 207
Real estate held for sale 219 53 169
Purchases of investments
Fixed maturities (18,129) (18,072) (11,143)
Equity securities (309) (194) (483)
Mortgage loans (470) 457) (771)
Policy loans, net 599 15 38
Short-term securities (purchases) sales, net 316 495) (2)
Other investments purchases, net (413) (550) (260)
Securities transactions in course of settlement, net (463) 192 311
- ---------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (1,223) (2,576) (1,079)
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Redemption of commercial paper, net - - (50)
Contractholder fund deposits 5,764 4,383 3,544
Contractholder fund withdrawals (4,946) (2,565) (2,757)
Dividends to parent company (550) (110) (500)
- ---------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 268 1,708 237
- ---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 20 7 (16)
- ---------------------------------------------------------------------------------------------------------------------
Cash at December 31, $85 $65 $58
====================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE> 69
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies used in the preparation of the accompanying
financial statements follow.
Basis of Presentation
The Travelers Insurance Company (TIC), together with its subsidiaries (the
Company), is a wholly owned subsidiary of The Travelers Insurance Group
Inc. (TIGI), an indirect wholly owned subsidiary of Citigroup Inc.
(Citigroup). The consolidated financial statements include the accounts of
the Company and its insurance and non-insurance subsidiaries on a fully
consolidated basis. The primary insurance entities of the Company are TIC
and its subsidiaries, The Travelers Life and Annuity Company (TLAC),
Primerica Life Insurance Company (Primerica Life), and its subsidiaries,
Primerica Life Insurance Company of Canada and National Benefit Life
Insurance Company (NBL).
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and benefits and
expenses during the reporting period. Actual results could differ from
those estimates.
Certain prior year amounts have been reclassified to conform to the 1999
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 that were not
effective until 1998 in accordance with Statement of Financial Accounting
Standards No. 127, "Deferral of the Effective Date of Certain Provisions of
SFAS 125." The adoption of the collateral provisions of FAS 125 created
additional assets and liabilities on the Company's consolidated statement
of financial position related to the recognition of securities provided and
received as collateral. There was no impact on the Company's results of
operations from the adoption of the collateral provisions of FAS 125.
F-6
<PAGE> 70
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use During the third quarter of 1998, the Company adopted
(effective January 1, 1998) the Accounting Standards Executive Committee of
the American Institute of Certified Public Accountants' Statement of
Position 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" (SOP 98-1). SOP 98-1 provides guidance on
accounting for the costs of computer software developed or obtained for
internal use and for determining when specific costs should be capitalized
or expensed. The adoption of SOP 98-1 did not have a material impact on the
Company's financial condition, results of operations or liquidity.
Accounting by Insurance and Other Enterprises for Insurance - Related
Assessments
In January 1999, the Company adopted (effective January 1, 1999) 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. The adoption of this SOP
had no impact on the Company's financial condition, results of operations
or liquidity.
ACCOUNTING POLICIES
Investments
Fixed maturities include bonds, notes and redeemable preferred stocks. Fair
values of investments in fixed maturities are based on quoted market prices
or dealer quotes or, if these are not available, discounted expected cash
flows using market rates commensurate with the credit quality and maturity
of the investment. Also included in fixed maturities are loan-backed and
structured securities, which are amortized using the retrospective method.
The effective yield used to determine amortization is calculated based upon
actual historical and projected future cash flows, which are obtained from
a widely-accepted securities data provider. Fixed maturities are classified
as "available for sale" and are reported at fair value, with unrealized
investment gains and losses, net of income taxes, charged or credited
directly to shareholder's equity.
Equity securities, which include common and nonredeemable preferred stocks,
are classified as "available for sale" and carried at fair value based
primarily on quoted market prices. Changes in fair values of equity
securities are charged or credited directly to shareholder's equity, net of
income taxes.
Mortgage loans are carried at amortized cost. A mortgage loan is considered
impaired when it is probable that the Company will be unable to collect
principal and interest amounts due. For mortgage loans that are determined
to be impaired, a reserve is established for the difference between the
amortized cost and fair market value of the underlying collateral. In
estimating fair value, the Company uses interest rates reflecting the
higher returns required in the current real estate financing market.
Impaired loans were insignificant at December 31, 1999 and 1998.
F-7
<PAGE> 71
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Real estate held for sale is carried at the lower of cost or fair value
less estimated cost to sell. Fair value of foreclosed properties is
established at the time of foreclosure by internal analysis or external
appraisers, using discounted cash flow analyses and other accepted
techniques. Thereafter, an allowance for losses on real estate held for
sale is established if the carrying value of the property exceeds its
current fair value less estimated costs to sell. There was no such
allowance at December 31, 1999 and 1998.
Trading securities and related liabilities are normally held for periods
less than six months. These investments are marked to market with the
change recognized in net investment income during the current period.
Short-term securities, consisting primarily of money market instruments and
other debt issues purchased with a maturity of less than one year, are
carried at amortized cost which approximates market.
Other invested assets include partnership investments and real estate joint
ventures accounted for on the equity method of accounting. Undistributed
income is reported in net investment income.
Accrual of income is suspended on fixed maturities or mortgage loans that
are in default, or on which it is likely that future payments will not be
made as scheduled. Interest income on investments in default is recognized
only as payment is received.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments, including financial
futures contracts, options, forward contracts, interest rate swaps,
currency swaps, and equity swaps, as a means of hedging exposure to
interest rate and foreign currency risk. Hedge accounting is used to
account for derivatives. To qualify for hedge accounting the changes in
value of the derivative must be expected to substantially offset the
changes in value of the hedged item. Hedges are monitored to ensure that
there is a high correlation between the derivative instruments and the
hedged investment.
Gains and losses arising from financial futures contracts are used to
adjust the basis of hedged investments and are recognized in net investment
income over the life of the investment.
Payments to be received or made under interest rate swaps are accrued and
recognized in net investment income. Swaps hedging investments are carried
at fair value with unrealized gains and losses, net of taxes, charged or
credited directly to shareholder's equity. Interest rate and currency swaps
hedging liabilities are off-balance sheet.
Forward contracts, interest rate options and equity swaps were not
significant at December 31, 1999 and 1998. Information concerning
derivative financial instruments is included in Note 5.
INVESTMENT GAINS AND LOSSES
Realized investment gains and losses are included as a component of pre-tax
revenues based upon specific identification of the investments sold on the
trade date. Also included are gains and losses arising from the
remeasurement of the local currency value of foreign investments to U.S.
dollars, the functional currency of the Company. The foreign exchange
effects of Canadian operations are included in unrealized gains and losses.
F-8
<PAGE> 72
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
POLICY LOANS
Policy loans are carried at the amount of the unpaid balances that are not
in excess of the net cash surrender values of the related insurance
policies. The carrying value of policy loans, which have no defined
maturities, is considered to be fair value.
DEFERRED ACQUISITION COSTS
Costs of acquiring individual life insurance, annuities and long-term care
business, principally commissions and certain expenses related to policy
issuance, underwriting and marketing, all of which vary with and are
primarily related to the production of new business, are deferred.
Acquisition costs relating to traditional life insurance, including term
insurance and long-term care insurance, are amortized in relation to
anticipated premiums; universal life in relation to estimated gross
profits; and annuity contracts employing a level yield method. For life
insurance, a 15 to 20-year amortization period is used; for long-term care
business, a 10 to 20-year period is used, and a seven 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.
VALUE OF INSURANCE IN FORCE
The value of insurance in force is an asset recorded at the time of
acquisition of an insurance company. It represents the actuarially
determined present value of anticipated profits to be realized from life
insurance, annuities and health contracts at the date of acquisition using
the same assumptions that were used for computing related liabilities where
appropriate. The value of insurance in force was the actuarially determined
present value of the projected future profits discounted at interest rates
ranging from 14% to 18%. Traditional life insurance and guaranteed
renewable health policies are amortized in relation to anticipated
premiums; universal life is amortized in relation to estimated gross
profits; and annuity contracts are amortized employing a level yield
method. The value of insurance in force is reviewed periodically for
recoverability to determine if any adjustment is required. Adjustments, if
any, are charged to income.
SEPARATE AND VARIABLE ACCOUNTS
Separate and variable accounts primarily represent funds for which
investment income and investment gains and losses accrue directly to, and
investment risk is borne by, the contractholders. Each account has specific
investment objectives. The assets of each account are legally segregated
and are not subject to claims that arise out of any other business of the
Company. The assets of these accounts are carried at market value. Certain
other separate accounts provide guaranteed levels of return or benefits and
the assets of these accounts are primarily carried at market value. Amounts
assessed to the contractholders for management services are included in
revenues. Deposits, net investment income and realized investment gains and
losses for these accounts are excluded from revenues, and related liability
increases are excluded from benefits and expenses.
GOODWILL
Goodwill represents the cost of acquired businesses in excess of net assets
and is being amortized on a straight-line basis principally over a 40-year
period. The carrying amount is regularly reviewed for indication of
impairment in value that in the view of management would be other than
temporary. If it is determined that goodwill is unlikely to be recovered,
impairment is recognized on a discounted cash flow basis.
F-9
<PAGE> 73
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
CONTRACTHOLDER FUNDS
Contractholder funds represent receipts from the issuance of universal
life, corporate owned life insurance, pension investment and certain
deferred annuity contracts. Contractholder fund balances are increased by
such receipts and credited interest and reduced by withdrawals, mortality
charges and administrative expenses charged to the contractholders.
Interest rates credited to contractholder funds range from 3.5% to 10.0%.
FUTURE POLICY BENEFITS
Future policy benefits represent liabilities for future insurance policy
benefits. Benefit reserves for life insurance and annuities have been
computed based upon mortality, morbidity, persistency and interest
assumptions applicable to these coverages, which range from 2.5% to 10.0%,
including adverse deviation. These assumptions consider Company experience
and industry standards. The assumptions vary by plan, age at issue, year of
issue and duration. Appropriate recognition has been given to experience
rating and reinsurance.
OTHER LIABILITIES
Included in Other Liabilities is the Company's estimate of its liability
for guaranty fund and other insurance-related assessments. State guaranty
fund assessments are based upon the Company's share of premium written or
received in one or more years prior to an insolvency occurring in the
industry. Once an insolvency has occurred, the Company recognizes a
liability for such assessments if it is probable that an assessment will be
imposed and the amount of the assessment can be reasonably estimated. At
December 31, 1999, the Company had a liability of $21.9 million for
guaranty fund assessments and a related premium tax offset recoverable of
$4.7 million. The assessments are expected to be paid over a period of
three to five years and the premium tax offsets are expected to be realized
over a period of 10 to 15 years.
SECURITIES LOANED
Securities loaned are recorded at the amount of cash received as
collateral. The Company receives cash collateral in an amount in excess of
the market value of securities loaned. The Company monitors the market
value of securities loaned on a daily basis with additional collateral
obtained as necessary.
PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company's insurance subsidiaries, domiciled principally in Connecticut
and Massachusetts, prepare statutory financial statements in accordance
with the accounting practices prescribed or permitted by the insurance
departments of the states of domicile. Prescribed statutory accounting
practices include certain publications of the National Association of
Insurance Commissioners (NAIC) as well as state laws, regulations, and
general administrative rules. Permitted statutory accounting practices
encompass all accounting practices not so prescribed. The impact of any
permitted accounting practices on statutory surplus of the Company is not
material.
The NAIC recently completed a process intended to codify statutory
accounting practices for certain insurance enterprises. As a result of this
process, the NAIC will issue a revised statutory Accounting Practices and
Procedures Manual - version effective January 1, 2001 (the revised Manual)
that will be effective for years beginning January 1, 2001. 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
F-10
<PAGE> 74
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
by the Connecticut insurance commissioner. The Company has not yet
determined the impact that this change will have on the statutory capital
and surplus of its insurance subsidiaries.
PREMIUMS
Premiums are recognized as revenues when due. Reserves are established for
the portion of premiums that will be earned in future periods and for
deferred profits on limited-payment policies that are being recognized in
income over the policy term.
OTHER REVENUES
Other revenues include management fees for variable annuity separate
accounts; surrender, mortality and administrative charges and fees earned
on investment, universal life and other insurance contracts; and revenues
of non-insurance subsidiaries.
CURRENT AND FUTURE INSURANCE BENEFITS
Current and future insurance benefits represent charges for mortality and
morbidity related to fixed annuities, universal life, term life and health
insurance benefits.
INTEREST CREDITED TO CONTRACTHOLDERS
Interest credited to contractholders represents amounts earned by universal
life, corporate owned life insurance, pension investment and certain
deferred annuity contracts in accordance with contract provisions.
FEDERAL INCOME TAXES
The provision for federal income taxes is comprised of two components,
current income taxes and deferred income taxes. Deferred federal income
taxes arise from changes during the year in cumulative temporary
differences between the tax basis and book basis of assets and liabilities.
A 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 June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (FAS 133). In June 1999, the
FASB issued Statement of Financial Standards No. 137 "Deferral of the
Effective Date of FASB Statement No. 133" (FAS 137) which allows entities
which have not adopted FAS 133 to defer its effective date to all fiscal
quarters of all fiscal years beginning after June 15, 2000. FAS 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the consolidated balance sheet and measure those instruments
at fair value. If certain conditions are met, a derivative may be
specifically designated as (a) a hedge of the exposure to changes in the
fair value of a recognized asset or liability or an unrecognized firm
commitment, (b) a hedge of the exposure to variable cash flows of a
recognized asset or liability or of a forecasted transaction, or (c) a
hedge of the foreign currency exposure of a net investment in a foreign
F-11
<PAGE> 75
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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. Upon initial application of FAS 133, hedging relationships
must be designated anew and documented pursuant to the provisions of this
statement. The Company adopted the deferral provisions of FAS 137,
effective January 1, 2000 and has not yet determined the impact that FAS
133 will have on its consolidated financial statements.
2. COMMERCIAL PAPER AND LINES OF CREDIT
TIC has issued commercial paper directly to investors in prior years. No
commercial paper was outstanding at December 31, 1999 or December 31, 1998.
TIC must maintain bank lines of credit at least equal to the amount of the
outstanding commercial paper. Citigroup and TIC have an agreement with a
syndicate of banks to provide $1.0 billion of revolving credit, to be
allocated to Citigroup or the Company. TIC's participation in this
agreement is limited to $250 million. The agreement consists of a five-year
revolving credit facility that expires in June 2001. At December 31, 1999
and 1998, no credit under this agreement was allocated to TIC. Under this
facility the Company is required to maintain certain minimum equity and
risk-based capital levels. At December 31, 1999, the Company was in
compliance with these provisions. If TIC had borrowings outstanding on this
facility, the interest rate would be based upon LIBOR plus a contractually
negotiated margin.
3. REINSURANCE
The Company participates in reinsurance in order to limit losses, minimize
exposure to large risks, provide additional capacity for future growth and
to effect business-sharing arrangements. Reinsurance is accomplished
through various plans of reinsurance, primarily yearly renewable term
coinsurance and modified coinsurance. The Company remains primarily liable
as the direct insurer on all risks reinsured.
Since 1997 universal life business was reinsured under an 80%/20% quota
share reinsurance program and term life business was reinsured under a
90%/10% quota share reinsurance program. Prior to 1997, the Company
reinsured all of its life business via first dollar quota share treaties on
an 80%/20% basis. Maximum retention of $1.5 million is generally reached on
policies in excess of $7.5 million. For other plans of insurance, it is the
policy of the Company to obtain reinsurance for amounts above certain
retention limits on individual life policies, which limits vary with age
and underwriting classification. Generally, the maximum retention on an
ordinary life risk is $1.5 million. Total inforce business ceded under
reinsurance contracts is $222.5 billion and $201.3 billion at December 31,
1999 and 1998.
The Company writes workers' compensation business through its Accident
Department. This business is ceded 100% to an affiliate, The Travelers
Indemnity Company.
F-12
<PAGE> 76
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
A summary of reinsurance financial data reflected within the consolidated
statements of income and balance sheets is presented below ($ in millions):
<TABLE>
<CAPTION>
WRITTEN PREMIUMS 1999 1998 1997
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Direct $2,274 $2,310 $2,148
Assumed from:
Non-affiliated companies - - 1
Ceded to:
Affiliated companies (206) (242) (280)
Non-affiliated companies (322) (317) (273)
------------------------------------------------------------------------------------------------------
Total Net Written Premiums $1,746 $1,751 $1,596
======================================================================================================
</TABLE>
<TABLE>
<CAPTION>
EARNED PREMIUMS 1999 1998 1997
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Direct $2,248 $1,949 $2,170
Assumed from:
Non-affiliated companies - - 1
Ceded to:
Affiliated companies (193) (251) (321)
Non-affiliated companies (327) (308) (291)
------------------------------------------------------------------------------------------------------
Total Net Earned Premiums $1,728 $1,390 $1,559
======================================================================================================
</TABLE>
Reinsurance recoverables at December 31, 1999 and 1998 include amounts
recoverable on unpaid and paid losses and were as follows ($ in millions):
<TABLE>
<CAPTION>
REINSURANCE RECOVERABLES 1999 1998
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Life and Accident and Health Business:
Non-affiliated companies $1,221 $1,297
Property-Casualty Business:
Affiliated companies 2,013 2,090
------------------------------------------------------------------------------------------------------
Total Reinsurance Recoverables $3,234 $3,387
======================================================================================================
</TABLE>
Total reinsurance recoverables at December 31, 1999 and 1998 include $569
million and $640 million, respectively, from The Metropolitan Life
Insurance Company in connection with the sale of the Company's group life
insurance and related businesses in 1995.
F-13
<PAGE> 77
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
4. SHAREHOLDER'S EQUITY
Shareholder's Equity and Dividend Availability
The Company's statutory net income, which includes the statutory net income
of all insurance subsidiaries, was $890 million, $702 million and $754
million for the years ended December 31, 1999, 1998 and 1997, respectively.
The Company's statutory capital and surplus was $5.03 billion and $4.95
billion at December 31, 1999 and 1998, respectively.
The Company is currently subject to various regulatory restrictions that
limit the maximum amount of dividends available to be paid to its parent
without prior approval of insurance regulatory authorities. Statutory
surplus of $679 million is available in 2000 for dividend payments by the
Company without prior approval of the Connecticut Insurance Department. In
addition, under a revolving credit facility, the Company is required to
maintain certain minimum equity and risk-based capital levels. The Company
was in compliance with these covenants at December 31, 1999 and 1998. The
Company paid dividends of $550 million, $110 million and $500 million in
1999, 1998 and 1997, respectively.
F-14
<PAGE> 78
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
4. SHAREHOLDER'S EQUITY (continued)
Accumulated Other Changes in Equity from Non-Owner Sources, Net of Tax
Changes in each component of Accumulated Other Changes in Equity from Non-Owner
Sources were as follows:
<TABLE>
<CAPTION>
ACCUMULATED OTHER
NET UNREALIZED FOREIGN CHANGES IN EQUITY FROM
GAIN (LOSS) ON CURRENCY NON-OWNER SOURCES
INVESTMENT SECURITIES TRANSLATION
($ in millions) ADJUSTMENTS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE, JANUARY 1, 1997 $232 $(9) $223
Unrealized gain on investment securities,
net of tax of $239 442 - 442
Less: reclassification adjustment for gains
included in net income, net of tax of $70 129 - 129
Foreign currency translation adjustment,
net of tax of $0 - (1) (1)
- -------------------------------------------------------------------------------------------------------------------------------
CURRENT PERIOD CHANGE 313 (1) 312
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 545 (10) 535
Unrealized gains on investment securities,
net of tax of $85 159 - 159
Less: reclassification adjustment for gains
included in net income, net of tax of $52 97 - 97
Foreign currency translation adjustment,
net of tax of $2 - 1 1
- -------------------------------------------------------------------------------------------------------------------------------
CURRENT PERIOD CHANGE 62 1 63
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 607 (9) 598
Unrealized losses on investment securities,
net of tax of $497 (923) - (923)
Less: reclassification adjustment for gains
included in net income, net of tax of $40 73 - 73
- -------------------------------------------------------------------------------------------------------------------------------
CURRENT PERIOD CHANGE (996) - (996)
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 $(389) $(9) $(398)
===============================================================================================================================
</TABLE>
F-15
<PAGE> 79
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
5. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Derivative Financial Instruments
The Company uses derivative financial instruments, including financial
futures, interest rate swaps, currency swaps, options and forward contracts
as a means of hedging exposure to interest rate, equity price, and foreign
currency risk on anticipated transactions or existing assets and
liabilities. The Company, through a subsidiary that is a broker/dealer,
Tribeca Investments LLC (Tribeca) holds and issues derivative instruments
for trading purposes. All of these derivative financial instruments have
off-balance sheet risk. Financial instruments with off-balance sheet risk
involve, to varying degrees, elements of credit and market risk in excess
of the amount recognized in the balance sheet. The contract or notional
amounts of these instruments reflect the extent of involvement the Company
has in a particular class of financial instrument. However, the maximum
loss of cash flow associated with these instruments can be less than these
amounts. For interest rate swaps, currency swaps, options and forward
contracts, credit risk is limited to the amount that it would cost the
Company to replace the contracts. Financial futures contracts and purchased
listed option contracts have little credit risk since organized exchanges
are the counterparties. The Company as a writer of option contracts has no
credit risk since the counterparty has no performance obligation after it
has paid a cash premium.
The Company monitors creditworthiness of counterparties to these financial
instruments by using criteria of acceptable risk that are consistent with
on-balance sheet financial instruments. The controls include credit
approvals, limits and other monitoring procedures.
The Company uses exchange-traded financial futures contracts to manage its
exposure to changes in interest rates which arise from the sale of certain
insurance and investment products, or the need to reinvest proceeds from
the sale or maturity of investments. To hedge against adverse changes in
interest rates, the Company enters long or short positions in financial
futures contracts which offset asset price changes resulting from changes
in market interest rates until an investment is purchased or a product is
sold.
Margin payments are required to enter a futures contract and contract gains
or losses are settled daily in cash. The contract amount of futures
contracts represents the extent of the Company's involvement, but not
future cash requirements, as open positions are typically closed out prior
to the delivery date of the contract.
At December 31, 1999 and 1998, the Company held financial futures contracts
with notional amounts of $255 million and $459 million, respectively. These
financial futures had a deferred gain of $1.8 million and a deferred loss
of $.5 million in 1999, and a deferred gain of $3.3 million and a deferred
loss of $.1 million in 1998. Total gains of $6.9 million and $1.5 million
from financial futures were deferred at December 31, 1999 and 1998,
respectively, relating to anticipated investment purchases and investment
product sales, and are reported as other liabilities. At December 31, 1999
and 1998, the Company's futures contracts had no fair value because these
contracts were marked to market and settled in cash daily.
F-16
<PAGE> 80
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The Company enters into interest rate swaps in connection with other
financial instruments to provide greater risk diversification and better
match assets and liabilities. Under interest rate swaps, the Company agrees
with other parties to exchange, at specified intervals, the difference
between fixed-rate and floating-rate interest amounts calculated by
reference to an agreed notional principal amount. The Company also enters
into basis swaps in which both legs of the swap are floating with each
based on a different index. Generally, no cash is exchanged at the outset
of the contract and no principal payments are made by either party. A
single net payment is usually made by one counterparty at each due date.
Swap agreements are not exchange-traded so they are subject to the risk of
default by the counterparty.
At December 31, 1999 and 1998, the Company held interest rate swap
contracts with notional amounts of $1,498.2 million and $1,077.9 million,
respectively. The fair value of these financial instruments was $25.3
million (gain position) and $26.3 million (loss position) at December 31,
1999 and was $5.6 million (gain position) and $19.6 million (loss position)
at December 31, 1998. The fair values were determined using the discounted
cash flow method. At December 31, 1999, the Company held swap contracts
with affiliate counterparties with a notional amount of $207.5 million and
a fair value of $22.6 million (loss position).
The Company enters into currency swaps in connection with other financial
instruments to provide greater risk diversification and better match assets
purchased in U.S. Dollars with corresponding funding agreements issued in
foreign currencies. Under currency swaps, the Company agrees with other
parties to exchange, at specified intervals, foreign currency for U.S.
Dollars based upon interest amounts calculated by reference to an agreed
notional principal amount. Generally, there is an exchange of foreign
currency for U.S. Dollars at the outset of the contract based upon the
prevailing foreign exchange rate. Swap agreements are not exchange traded
so they are subject to the risk of default by the counterparty.
At December 31, 1999 and 1998, the Company held currency swap contracts
with notional amounts of $732.7 million and $10.0 million, respectively.
The fair value of these financial instruments was $59.2 million (loss
position) at December 31, 1999 and $.4 million (gain position) at December
31, 1998. The fair values were determined using the discounted cash flow
method.
The Company uses equity option contracts to manage its exposure to changes
in equity market prices that arise from the sale of certain insurance
products. To hedge against adverse changes in the equity market prices, the
Company enters long positions in equity option contracts with major
financial institutions. These contracts allow the Company, for a fee, the
right to receive a payment if the Standard and Poor's 500 Index falls below
agreed upon strike prices.
At December 31, 1999 and 1998, the Company held equity options with
notional amounts of $275.4 million and zero, respectively. The fair value
of these financial instruments was $32.6 million (gain position) at
December 31, 1999. The fair value of these contracts represent the
estimated replacement cost as quoted by independent third party brokers.
The off-balance sheet risks of interest rate options, equity swaps and
forward contracts were not significant at December 31, 1999 and 1998.
The off-balance sheet risk of derivative instruments held for trading
purposes was not significant at December 31, 1999 and 1998.
F-17
<PAGE> 81
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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, 1999 and 1998. The Company had unfunded commitments to
partnerships with a value of $459.7 million at December 31, 1999.
Fair Value of Certain Financial Instruments
The Company uses various financial instruments in the normal course of its
business. Certain insurance contracts are excluded by Statement of
Financial Accounting Standards No. 107, "Disclosure about Fair Value of
Financial Instruments", and therefore are not included in the amounts
discussed.
At December 31, 1999 and 1998, investments in fixed maturities had a
carrying value and a fair value of $23.9 billion and $23.9 billion,
respectively. See Notes 1 and 12.
At December 31, 1999 mortgage loans had a carrying value of $2.3 billion
and a fair value of $2.3 billion and in 1998 had a carrying value of $2.6
billion and a fair value of $2.8 billion. In estimating fair value, the
Company used interest rates reflecting the current real estate financing
market.
Citigroup Preferred Stock included in other invested assets had a carrying
value and fair value of $987 million at December 31, 1999 and 1998.
At December 31, 1999, contractholder funds with defined maturities had a
carrying value of $5.0 billion and a fair value of $4.7 billion, compared
with a carrying value and a fair value of $3.3 billion at December 31,
1998. The fair value of these contracts is determined by discounting
expected cash flows at an interest rate commensurate with the Company's
credit risk and the expected timing of cash flows. Contractholder funds
without defined maturities had a carrying value of $10.1 billion and a fair
value of $9.9 billion at December 31, 1999, compared with a carrying value
of $10.4 billion and a fair value of $10.2 billion at December 31, 1998.
These contracts generally are valued at surrender value.
The carrying values of $228 million and $144 million of financial
instruments classified as other assets approximated their fair values at
December 31, 1999 and 1998, respectively. The carrying values of $1.2
billion and $2.3 billion of financial instruments classified as other
liabilities also approximated their fair values at December 31, 1999 and
1998, respectively. Fair value is determined using various methods,
including discounted cash flows, as appropriate for the various financial
instruments.
The assets of separate accounts providing a guaranteed return had a
carrying value and a fair value of $251 million at December 31, 1999,
compared with a carrying value and a fair value of $235 million at December
31, 1998. The liabilities of separate accounts providing a guaranteed
return had a carrying value and a fair value of $251 million at December
31, 1999, compared with a carrying value and a fair value of $209 million
and $206 million, respectively, at December 31, 1998.
The carrying values of cash, trading securities and trading securities sold
not yet purchased are carried at fair value. The carrying values of
short-term securities and investment income accrued approximated their fair
values.
The carrying value of policy loans, which have no defined maturities, is
considered to be fair value.
F-18
<PAGE> 82
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
6. COMMITMENTS AND CONTINGENCIES
Financial Instruments with Off-Balance Sheet Risk
See Note 5 for a discussion of financial instruments with off-balance sheet
risk.
Litigation
In March 1997, a purported class action entitled Patterman v. The
Travelers, Inc., et al. was commenced in the Superior Court of Richmond
County, Georgia, alleging, among other things, violations of the Georgia
RICO statute and other state laws by an affiliate of the Company, Primerica
Financial Services, Inc. and certain of its affiliates. Plaintiffs seek
unspecified compensatory and punitive damages and other relief. In October
1997, defendants answered the complaint, denied liability and asserted
numerous affirmative defenses. In February 1998, on defendants' motion, the
Superior Court of Richmond County transferred the lawsuit to the Superior
Court of Gwinnett County, Georgia. Plaintiffs appealed the transfer order,
and in December 1998 the Court of Appeals of the State of Georgia reversed
the lower court's decision. Defendants petitioned the Georgia Supreme Court
to hear an appeal from the decision of the Court of Appeals, and the
petition was granted in May 1998. In September 1999, oral argument on
defendants' petition was heard and, on February 28, 2000, the Georgia
Supreme Court affirmed the Georgia Court of Appeals and remanded the matter
to the Superior Court of Richmond County. In March 2000, defendants moved
the Georgia Supreme Court to reconsider its February 28, 2000 decision, and
that motion remains pending. Proceedings in the trial court have been
stayed pending appeal. Defendants intend to vigorously contest the
litigation.
The Company is also a defendant or co-defendant in various other litigation
matters in the normal course of business. Although there can be no
assurances, as of December 31, 1999, 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.
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 TIGI. The Company's share of net expense for the qualified
pension and other postretirement benefit plans was not significant for
1999, 1998 and 1997. Through plans sponsored by TIGI, the Company also
provides defined contribution pension plans for certain agents. Company
contributions are primarily a function of production. The expense for these
plans was not significant in 1999, 1998 and 1997.
401(k) Savings Plan
Substantially all of the Company's employees are eligible to participate in
a 401(k) savings plan sponsored by Citigroup. 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 1999, 1998 and 1997.
F-19
<PAGE> 83
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
8. RELATED PARTY TRANSACTIONS
The principal banking functions, including payment of salaries and
expenses, for certain subsidiaries and affiliates of TIGI are handled by
two companies. The Company 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. The Company provides various
employee benefits coverages to employees of certain subsidiaries of TIGI.
The premiums for these coverages were charged in accordance with cost
allocation procedures based upon salaries or census. In addition,
investment advisory and management services, data processing services and
claims processing services are shared with affiliated companies. Charges
for these services are shared by the companies on cost allocation methods
based generally on estimated usage by department.
The Company maintains a short-term investment pool in which its insurance
affiliates participate. The position of each company participating in the
pool is calculated and adjusted daily. At December 31, 1999 and 1998, the
pool totaled approximately $2.6 billion and $2.3 billion, respectively. The
Company's share of the pool amounted to $1.0 billion and $793 million at
December 31, 1999 and 1998, respectively, and is included in short-term
securities in the consolidated balance sheet.
Included in short-term investments at December 31, 1998 was a 90-day
variable rate note receivable from Citigroup. The rate was based upon the
AA financial commercial paper rate plus 14 basis points. The rate at
December 31, 1998 was 5.47%. The balance, which was $500 million at
December 31, 1998, was paid in full on February 25, 1999. Interest accrued
at December 31, 1998 was $2.2 million. Interest earned was $3.9 million and
$9.4 million in 1999 and 1998, respectively.
The Company markets deferred annuity products and life and health insurance
through its affiliate, Salomon Smith Barney Financial Consultants (SSB).
Premiums and deposits related to these products were $1.4 billion, $1.3
billion, and $1.0 billion in 1999, 1998 and 1997, respectively.
At December 31, 1999 and 1998 the Company had outstanding loaned securities
to SSB for $123.0 million and $39.7 million, respectively.
Included in other invested assets is a $987 million investment in Citigroup
preferred stock at December 31, 1999 and 1998, carried at cost.
The Company sells structured settlement annuities to the insurance
subsidiaries of Travelers Property Casualty Corp. (TAP) in connection with
the settlement of certain policyholder obligations. Such premiums and
deposits were $156 million, $104 million, and $88 million for 1999, 1998
and 1997, respectively. Reserves and contractholder funds related to these
annuities amounted to $798 million and $787 million in 1999 and 1998,
respectively.
In the ordinary course of business, the Company purchases and sells
securities through affiliated broker-dealers. These transactions are
conducted on an arm's length basis.
F-20
<PAGE> 84
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Primerica Life has entered into a General Agency Agreement with Primerica
Financial Services, Inc. (Primerica), that provides that Primerica will be
Primerica Life's general agent for marketing all insurance of Primerica
Life. In consideration of such services, Primerica Life agreed to pay
Primerica marketing fees of no less than $10 million based upon U.S. gross
direct premiums received by Primerica Life. In each of 1999 and 1998 the
fees paid by Primerica Life were $12.5 million.
In 1998 Primerica became a distributor of products for Travelers Life &
Annuity. Primerica sold $903 million and $256 million of deferred annuities
in 1999 and 1998, respectively.
The Company participates in a stock option plan sponsored by Citigroup that
provides for the granting of stock options in Citigroup common stock to
officers and key employees. To further encourage employee stock ownership,
during 1997 Citigroup introduced the WealthBuilder stock option program.
Under this program, all employees meeting certain requirements have been
granted Citigroup stock options.
The Company applies Accounting Principles Board Opinion No. 25 (APB 25) and
related interpretations in accounting for stock options. Since stock
options under the Citigroup plans are issued at fair market value on the
date of award, no compensation cost has been recognized for these awards.
FAS 123 provides an alternative to APB 25 whereby fair values may be
ascribed to options using a valuation model and amortized to compensation
cost over the vesting period of the options.
Had the Company applied FAS 123 in accounting for Citigroup stock options,
net income would have been the pro forma amounts indicated below:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999 1998 1997
($ in millions)
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income, as reported $1,047 $902 $839
FAS 123 pro forma adjustments, after tax (16) (13) (9)
------------------------------------------------------------------------------------------------------
Net income, pro forma $1,031 $889 $830
------------------------------------------------------------------------------------------------------
</TABLE>
F-21
<PAGE> 85
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
9. LEASES
Most leasing functions for TIGI and its subsidiaries are administered by
TAP. Rent expense related to all leases is shared by the companies on a
cost allocation method based generally on estimated usage by department.
Net rent expense was $30 million, $24 million, and $15 million in 1999,
1998 and 1997, respectively.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
YEAR ENDING DECEMBER 31, MINIMUM OPERATING RENTAL
($ in millions) PAYMENTS
--------------------------------------------------------------------------
<S> <C>
2000 $38
2001 42
2002 41
2003 41
2004 41
Thereafter 273
--------------------------------------------------------------------------
Total Rental Payments $476
=========================================================================
</TABLE>
Future sublease rental income of approximately $79 million will partially
offset these commitments. Also, the Company will be reimbursed for 50% of
the rental expense for a particular lease totaling $195 million, by an
affiliate. Minimum future capital lease payments are not significant.
The Company is reimbursed for use of furniture and equipment through cost
sharing agreements by its affiliates.
F-22
<PAGE> 86
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
10. FEDERAL INCOME TAXES
EFFECTIVE TAX RATE
<TABLE>
<CAPTION>
($ in millions)
--------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1999 1998 1997
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income Before Federal Income Taxes $1,592 $1,383 $1,283
Statutory Tax Rate 35% 35% 35%
--------------------------------------------------------------------------------------------------------
Expected Federal Income Taxes 557 484 449
Tax Effect of:
Non-taxable investment income (19) (5) (4)
Other, net 7 2 (1)
--------------------------------------------------------------------------------------------------------
Federal Income Taxes $ 545 $ 481 $ 444
========================================================================================================
Effective Tax Rate 34% 35% 35%
--------------------------------------------------------------------------------------------------------
</TABLE>
COMPOSITION OF FEDERAL INCOME TAXES
<TABLE>
<CAPTION>
Current:
<S> <C> <C> <C>
United States $377 $418 $410
Foreign 32 24 24
--------------------------------------------------------------------------------------------------------
Total 409 442 434
--------------------------------------------------------------------------------------------------------
Deferred:
United States 143 40 10
Foreign (7) (1) --
--------------------------------------------------------------------------------------------------------
Total 136 39 10
--------------------------------------------------------------------------------------------------------
Federal Income Taxes $545 $481 $444
========================================================================================================
</TABLE>
Additional tax benefits attributable to employee stock plans allocated
directly to shareholder's equity were $17 million for each of the years
ended December 31, 1999, 1998 and 1997.
F-23
<PAGE> 87
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The net deferred tax liabilities at December 31, 1999 and 1998 were
comprised of the tax effects of temporary differences related to the
following assets and liabilities:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
($ in millions) 1999 1998
---- ----
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred Tax Assets:
Benefit, reinsurance and other reserves $ 645 $ 616
Operating lease reserves 70 76
Investments, net 11 --
Other employee benefits 106 103
Other 142 135
-----------------------------------------------------------------------------------------------------------------
Total 974 930
-----------------------------------------------------------------------------------------------------------------
Deferred Tax Liabilities:
Deferred acquisition costs and value of insurance in force (773) (673)
Investments, net -- (489)
Other (124) (90)
-----------------------------------------------------------------------------------------------------------------
Total (897) (1,252)
-----------------------------------------------------------------------------------------------------------------
Net Deferred Tax (Liability) Asset Before Valuation Allowance 77 (322)
Valuation Allowance for Deferred Tax Assets (100) (100)
-----------------------------------------------------------------------------------------------------------------
Net Deferred Tax Liability After Valuation Allowance $ (23) $ (422)
-----------------------------------------------------------------------------------------------------------------
</TABLE>
The Company and its life insurance subsidiaries file a consolidated federal
income tax return. Federal income taxes are allocated to each member of the
consolidated group on a separate return basis adjusted for credits and
other amounts required by the consolidation process. Any resulting
liability will be paid currently to the Company. Any credits for losses
will be paid by the Company to the extent that such credits are for tax
benefits that have been utilized in the consolidated federal income tax
return.
The $100 million valuation allowance is sufficient to cover any capital
losses on investments that may exceed the capital gains able to be
generated in the life insurance group's consolidated federal income tax
return based upon management's best estimate of the character of the
reversing temporary differences. Reversal of the valuation allowance is
contingent upon the recognition of future capital gains or a change in
circumstances that causes the recognition of the benefits to become more
likely than not. There was no change in the valuation allowance during
1999. The initial recognition of any benefit produced by the reversal of
the valuation allowance will be recognized by reducing goodwill.
At December 31, 1999, the Company had no ordinary or capital loss
carryforwards.
F-24
<PAGE> 88
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The policyholders surplus account, which arose under prior tax law, is
generally that portion of the gain from operations that has not been
subjected to tax, plus certain deductions. The balance of this account is
approximately $932 million. Income taxes are not provided for on this
amount because under current U.S. tax rules such taxes will become payable
only to the extent such amounts are distributed as a dividend or exceed
limits prescribed by federal law. Distributions are not contemplated from
this account. At current rates the maximum amount of such tax would be
approximately $326 million.
11. NET INVESTMENT INCOME
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1999 1998 1997
($ in millions) ---- ---- ----
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GROSS INVESTMENT INCOME
Fixed maturities $1,806 $1,598 $1,460
Mortgage loans 235 295 291
Joint ventures and partnerships 141 74 55
Trading 141 43 57
Other, including policy loans 287 240 263
------------------------------------------------------------------------------------------------------
2,610 2,250 2,126
------------------------------------------------------------------------------------------------------
Investment expenses 104 65 89
------------------------------------------------------------------------------------------------------
Net investment income $2,506 $2,185 $2,037
------------------------------------------------------------------------------------------------------
</TABLE>
12. INVESTMENTS AND INVESTMENT GAINS (LOSSES)
Realized investment gains (losses) for the periods were as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1999 1998 1997
($ in millions) ---- ---- ----
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REALIZED INVESTMENT GAINS
Fixed maturities $(23) $111 $ 71
Equity securities 7 6 (9)
Mortgage loans 29 21 59
Real estate held for sale 108 16 67
Other (8) (5) 11
------------------------------------------------------------------------------------------------------
Total Realized Investment Gains $113 $149 $199
------------------------------------------------------------------------------------------------------
</TABLE>
F-25
<PAGE> 89
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Changes in net unrealized investment gains (losses) that are reported as
accumulated other changes in equity from non-owner sources or unrealized
gains on Citigroup stock in shareholder's equity were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1999 1998 1997
($ in millions) ---- ---- ----
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UNREALIZED INVESTMENT GAINS (LOSSES)
Fixed maturities $(1,554) $ 91 $ 446
Equity securities 49 13 25
Other (30) (169) 520
-------------------------------------------------------------------------------------------------------------
Total Unrealized Investment Gains (Losses) (1,535) (65) 991
-------------------------------------------------------------------------------------------------------------
Related taxes (539) (20) 350
-------------------------------------------------------------------------------------------------------------
Change in unrealized investment gains (losses) (996) (45) 641
Transferred to paid in capital, net of tax -- (585) --
Balance beginning of year 598 1,228 587
-------------------------------------------------------------------------------------------------------------
Balance End of Year $ (398) $ 598 $1,228
-------------------------------------------------------------------------------------------------------------
</TABLE>
Included in Other in 1998 is the unrealized loss on Citigroup common stock
of $167 million prior to the conversion to preferred stock. Also included
in Other were unrealized gains of $506 million, which were reported in
1997, related to appreciation of Citigroup common stock.
F-26
<PAGE> 90
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Fixed Maturities
The amortized cost and fair value of investments in fixed maturities were
as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
GROSS GROSS
DECEMBER 31, 1999 AMORTIZED UNREALIZED UNREALIZED FAIR
($ in millions) COST GAINS LOSSES VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
Mortgage-backed securities - CMOs and
pass-through securities $ 5,081 $ 22 $ 224 $ 4,879
U.S. Treasury securities and obligations of
U.S. Government and government agencies and
authorities 1,032 14 53 993
Obligations of states, municipalities and
political subdivisions 214 -- 31 183
Debt securities issued by foreign governments 811 35 10 836
All other corporate bonds 13,938 69 384 13,623
Other debt securities 3,319 30 99 3,250
Redeemable preferred stock 105 4 7 102
-------------------------------------------------------------------------------------------------------------------
Total Available For Sale $24,500 $ 174 $ 808 $23,866
-------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
GROSS GROSS
DECEMBER 31, 1998 AMORTIZED UNREALIZED UNREALIZED FAIR
($ in millions) COST GAINS LOSSES VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
Mortgage-backed securities - CMOs and
pass-through securities $ 4,717 $ 147 $ 11 $ 4,853
U.S. Treasury securities and obligations of
U.S. Government and government agencies and
authorities 1,563 186 3 1,746
Obligations of states, municipalities and
political subdivisions 239 18 -- 257
Debt securities issued by foreign governments 634 41 3 672
All other corporate bonds 13,025 532 57 13,500
Other debt securities 2,709 106 38 2,777
Redeemable preferred stock 86 3 1 88
------------------------------------------------------------------------------------------------------------------
Total Available For Sale $22,973 $ 1,033 $ 113 $23,893
------------------------------------------------------------------------------------------------------------------
</TABLE>
F-27
<PAGE> 91
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Proceeds from sales of fixed maturities classified as available for sale
were $12.6 billion, $13.4 billion and $7.6 billion in 1999, 1998 and 1997,
respectively. Gross gains of $200 million, $314 million and $170 million
and gross losses of $223 million, $203 million and $99 million in 1999,
1998 and 1997, respectively, were realized on those sales.
Fair values of investments in fixed maturities are based on quoted market
prices or dealer quotes or, if these are not available, discounted expected
cash flows using market rates commensurate with the credit quality and
maturity of the investment. The fair value of investments for which a
quoted market price or dealer quote are not available amounted to $4.8
billion and $4.8 billion at December 31, 1999 and 1998, respectively.
The amortized cost and fair value of fixed maturities at December 31, 1999,
by contractual maturity, are shown below. Actual maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
AMORTIZED
($ in millions) COST FAIR VALUE
--------------------------------------------------------------------------------------
<S> <C> <C>
MATURITY:
Due in one year or less $1,624 $1,622
Due after 1 year through 5 years 6,633 6,599
Due after 5 years through 10 years 5,257 5,132
Due after 10 years 5,905 5,634
--------------------------------------------------------------------------------------
19,419 18,987
--------------------------------------------------------------------------------------
Mortgage-backed securities 5,081 4,879
--------------------------------------------------------------------------------------
Total Maturity $24,500 $23,866
--------------------------------------------------------------------------------------
</TABLE>
The Company makes investments in collateralized mortgage obligations
(CMOs). CMOs typically have high credit quality, offer good liquidity, and
provide a significant advantage in yield and total return compared to U.S.
Treasury securities. The Company's investment strategy is to purchase CMO
tranches which are protected against prepayment risk, including planned
amortization class (PAC) tranches. Prepayment protected tranches are
preferred because they provide stable cash flows in a variety of interest
rate scenarios. The Company does invest in other types of CMO tranches if a
careful assessment indicates a favorable risk/return tradeoff. The Company
does not purchase residual interests in CMOs.
At December 31, 1999 and 1998, the Company held CMOs classified as
available for sale with a fair value of $3.8 billion and $3.4 billion,
respectively. Approximately 52% and 54%, respectively, of the Company's CMO
holdings are fully collateralized by GNMA, FNMA or FHLMC securities at
December 31, 1999 and 1998. In addition, the Company held $1.1 billion and
$1.4 billion of GNMA, FNMA or FHLMC mortgage-backed pass-through securities
at December 31, 1999 and 1998, respectively. Virtually all of these
securities are rated AAA.
F-28
<PAGE> 92
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Equity Securities
The cost and fair values of investments in equity securities were as
follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
GROSS GROSS
EQUITY SECURITIES: UNREALIZED UNREALIZED FAIR
($ in millions) COST GAINS LOSSES VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1999
Common stocks $195 $123 $ 4 $314
Non-redeemable preferred stocks 496 15 41 470
-------------------------------------------------------------------------------------------------------------------
Total Equity Securities $691 $138 $45 $784
-------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1998
Common stocks $129 $44 $ 3 $170
Non-redeemable preferred stocks 345 10 7 348
-------------------------------------------------------------------------------------------------------------------
Total Equity Securities $474 $54 $10 $518
-------------------------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales of equity securities were $100 million, $212 million
and $341 million in 1999, 1998 and 1997, respectively. Gross gains of $15
million, $30 million and $53 million and gross losses of $8 million, $24
million and $62 million in 1999, 1998 and 1997, respectively, were realized
on those sales.
Mortgage Loans and Real Estate Held For Sale
At December 31, 1999 and 1998, the Company's mortgage loan and real estate
held for sale portfolios consisted of the following:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
($ in millions) 1999 1998
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Mortgage Loans $2,228 $2,370
Underperforming Mortgage Loans 57 236
--------------------------------------------------------------------------------------------------
Total Mortgage Loans 2,285 2,606
--------------------------------------------------------------------------------------------------
Real Estate Held For Sale - Foreclosed 223 112
Real Estate Held For Sale - Investment 13 31
--------------------------------------------------------------------------------------------------
Total Real Estate 236 143
--------------------------------------------------------------------------------------------------
Total Mortgage Loans and Real Estate Held for Sale $2,521 $2,749
==================================================================================================
</TABLE>
Underperforming mortgage loans include delinquent mortgage loans, loans in
the process of foreclosure, foreclosed loans and loans modified at interest
rates below market.
F-29
<PAGE> 93
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Aggregate annual maturities on mortgage loans at December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
YEAR ENDING DECEMBER 31,
($ in millions)
-----------------------------------------------------------------------
<S> <C>
Past Maturity $ 39
2000 162
2001 172
2002 137
2003 131
2004 140
Thereafter 1,504
-----------------------------------------------------------------------
Total $2,285
=======================================================================
</TABLE>
Trading Securities
Trading securities of the Company are held in Tribeca.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
($ in millions) 1999 1998
-------------------------------------------------------------------------------------------
TRADING SECURITIES OWNED
<S> <C> <C>
Convertible bond arbitrage $1,045 $754
Merger arbitrage 421 427
Other 212 5
-------------------------------------------------------------------------------------------
Total $1,678 $1,186
-------------------------------------------------------------------------------------------
TRADING SECURITIES SOLD NOT YET PURCHASED
Convertible bond arbitrage $799 $521
Merger arbitrage 299 352
-------------------------------------------------------------------------------------------
Total $1,098 $873
-------------------------------------------------------------------------------------------
</TABLE>
The Company's trading portfolio investments and related liabilities are
normally held for periods less than six months. Therefore, expected future
cash flows for these assets and liabilities are expected to be realized in
less than one year.
F-30
<PAGE> 94
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Concentrations
At December 31, 1999 and 1998, the Company had an investment in Citigroup
Preferred Stock of $987 million. See Note 8.
The Company maintains a short-term investment pool for its insurance
affiliates in which the Company also participates. See Note 8.
The Company had concentrations of investments, primarily fixed maturities,
in the following industries:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
($ in millions) 1999 1998
--------------------------------------------------------------------------
<S> <C> <C>
Banking $1,906 $2,131
Electric Utilities 1,653 1,513
Finance 1,571 1,346
--------------------------------------------------------------------------
</TABLE>
The Company held investments in Foreign Banks in the amount of $1,012
million and $997 million at December 31, 1999 and 1998, respectively, which
are included in the table above. Also, below investment grade assets
included in the preceding table were not significant.
Included in fixed maturities are below investment grade assets totaling
$2.2 billion and $2.1 billion at December 31, 1999 and 1998, 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 and notes that are classified as below investment grade.
Mortgage loan investments are relatively evenly dispersed throughout the
United States, with no significant holdings in any one state. Also, there
is no significant mortgage loan investment in a particular property type.
F-31
<PAGE> 95
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The Company monitors creditworthiness of counterparties to all financial
instruments by using controls that include credit approvals, limits and
other monitoring procedures. Collateral for fixed maturities often includes
pledges of assets, including stock and other assets, guarantees and letters
of credit. The Company's underwriting standards with respect to new
mortgage loans generally require loan to value ratios of 75% or less at the
time of mortgage origination.
Non-Income Producing Investments
Investments included in the consolidated balance sheets that were
non-income producing for the preceding 12 months were insignificant.
Restructured Investments
The Company had mortgage loans and debt securities that were restructured
at below market terms at December 31, 1999 and 1998. The balances of the
restructured investments were insignificant. The new terms typically defer
a portion of contract interest payments to varying future periods. The
accrual of interest is suspended on all restructured assets, and interest
income is reported only as payment is received. Gross interest income on
restructured assets that would have been recorded in accordance with the
original terms of such loans was insignificant in 1999 and in 1998.
Interest on these assets, included in net investment income was
insignificant in 1999 and 1998.
13. DEPOSIT FUNDS AND RESERVES
At December 31, 1999, the Company had $27.0 billion of life and annuity
deposit funds and reserves. Of that total, $13.8 billion is not subject to
discretionary withdrawal based on contract terms. The remaining $13.2
billion is for life and annuity products that are subject to discretionary
withdrawal by the contractholder. Included in the amount that is subject to
discretionary withdrawal is $2.1 billion of liabilities that are
surrenderable with market value adjustments. Also included are an
additional $4.9 billion of life insurance and individual annuity
liabilities which are subject to discretionary withdrawals, and have an
average surrender charge of 4.6%. In the payout phase, these funds are
credited at significantly reduced interest rates. The remaining $6.2
billion of liabilities are surrenderable without charge. More than 12.7% of
these relate to individual life products. These risks would have to be
underwritten again if transferred to another carrier, which is considered a
significant deterrent against withdrawal by long-term policyholders.
Insurance liabilities that are surrendered or withdrawn are reduced by
outstanding policy loans and related accrued interest prior to payout.
F-32
<PAGE> 96
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
14. RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
The following table reconciles net income to net cash provided by operating
activities:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1999 1998 1997
($ in millions) ---- ---- ----
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income From Continuing Operations $ 1,047 $ 902 $ 839
Adjustments to reconcile net income to net cash provided by
operating activities:
Realized gains (113) (149) (199)
Deferred federal income taxes 136 39 10
Amortization of deferred policy acquisition costs 315 275 252
Additions to deferred policy acquisition costs (686) (566) (471)
Investment income (221) (202) (32)
Premium balances (23) 23 (64)
Insurance reserves and accrued expenses 421 348 111
Other 99 205 380
---------------------------------------------------------------------------------------------------------------------
Net cash provided by operations $ 975 $ 875 $ 826
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
</TABLE>
15. NON-CASH INVESTING AND FINANCING ACTIVITIES
Significant non-cash investing and financing activities include the
acquisition of real estate through foreclosures of mortgage loans amounting
to $205 million in 1999, the transfer of Citigroup common stock to
Citigroup preferred stock valued at $987 million in 1998 and the conversion
of $119 million of real estate held for sale to other invested assets as a
joint venture in 1997.
F-33
<PAGE> 97
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
16. OPERATING SEGMENTS
The Company has two reportable business segments that are separately
managed due to differences in products, services, marketing strategy and
resource management. The business of each segment is maintained and
reported through separate legal entities within the Company. The management
groups of each segment report separately to the common ultimate parent,
Citigroup Inc.
The TRAVELERS LIFE & ANNUITY business segment consolidates primarily the
business of The Travelers Insurance Company and The Travelers Life and
Annuity Company. Travelers Life & Annuity offers individual annuity, group
annuity, individual life and long-term care products distributed by the
Company and TLAC under the Travelers name. Among the range of individual
products offered are fixed and variable deferred annuities, payout
annuities and term, universal and variable life and long-term care
insurance. The group products include institutional pensions, including
guaranteed investment contracts, payout annuities, group annuities to
employer-sponsored retirement and savings plans and structured finance
transactions.
The PRIMERICA LIFE business segment consolidates primarily the business of
Primerica Life Insurance Company, Primerica Life Insurance Company of
Canada and National Benefit Life Insurance Company. The Primerica Life
business segment offers individual life products, primarily term insurance,
to customers through a nationwide sales force of approximately 80,000 full
and part-time licensed Personal Financial Analysts.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies (see Note 1), except that
management also includes receipts on long-duration contracts (universal
life-type and investment contracts) as deposits along with premiums in
measuring business volume.
BUSINESS SEGMENT INFORMATION:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
TRAVELERS LIFE & PRIMERICA LIFE
1999 ($ in millions) ANNUITY INSURANCE TOTAL
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Business Volume:
Premiums $ 666 $ 1,072 $ 1,738
Deposits 11,220 -- 11,220
------- ------- -------
Total business volume $11,886 $ 1,072 $12,958
Net investment income 2,249 257 2,506
Interest credited to contractholders 937 -- 937
Amortization of deferred acquisition costs 127 188 315
Federal income taxes on Operating Income 319 186 505
Operating Income (excludes realized gains or
losses and the related FIT) $ 619 $ 355 $ 974
Segment Assets $56,615 $ 6,916 $63,531
-----------------------------------------------------------------------------------------------------------------
</TABLE>
F-34
<PAGE> 98
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
TRAVELERS LIFE & PRIMERICA LIFE
1998 ($ in millions) ANNUITY INSURANCE TOTAL
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Business Volume:
Premiums $ 683 $1,057 $ 1,740
Deposits 7,693 -- 7,693
------- ------ -------
Total business volume $ 8,376 $1,057 $ 9,433
Net investment income 1,965 220 2,185
Interest credited to contractholders 876 -- 876
Amortization of deferred acquisition costs 88 187 275
Federal income taxes on Operating Income 260 170 430
Operating Income (excludes realized gains or
losses and the related FIT) $ 493 $ 312 $ 805
Segment Assets $49,646 $6,902 $56,548
-----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
TRAVELERS LIFE PRIMERICA LIFE
1997 ($ in millions) & ANNUITY INSURANCE TOTAL
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Business Volume:
Premiums $ 548 $1,035 $ 1,583
Deposits 5,276 -- 5,276
------- ------ -------
Total business volume $ 5,824 $1,035 $ 6,859
Net investment income 1,836 201 2,037
Interest credited to contractholders 829 -- 829
Amortization of deferred acquisition costs 68 184 252
Federal income taxes on Operating Income 221 153 374
Operating Income (excludes realized gains or
losses and the related FIT) $ 427 $ 283 $ 710
Segment Assets $42,330 $7,110 $49,440
-----------------------------------------------------------------------------------------------------------------
</TABLE>
The amount of investments in equity method investees and total expenditures
for additions to long-lived assets other than financial instruments,
long-term customer relationships of a financial institution, mortgage and
other servicing rights, deferred policy acquisition costs, and deferred tax
assets, were not material.
F-35
<PAGE> 99
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
BUSINESS SEGMENT RECONCILIATION:
($ in millions)
----------------------------------------------------------------------------------------------------------
REVENUES 1999 1998 1997
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total business volume $12,958 $9,433 $6,859
Net investment income 2,506 2,185 2,037
Realized investment gains 113 149 199
Other revenues 521 440 354
Elimination of deposits (11,220) (7,693) (5,276)
----------------------------------------------------------------------------------------------------------
Total revenues $4,878 $4,514 $4,173
==========================================================================================================
OPERATING INCOME 1999 1998 1997
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total operating income of business segments $ 974 $805 $710
Realized investment gains net of tax 73 97 129
----------------------------------------------------------------------------------------------------------
Income from continuing operations $1,047 $902 $839
==========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
ASSETS 1999 1998 1997
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total assets of business segments $63,531 $56,548 $49,440
==========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
REVENUE BY PRODUCTS 1999 1998 1997
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred Annuities $5,694 $4,198 $3,303
Group and Payout Annuities 7,275 5,326 3,737
Individual Life and Health Insurance 2,434 2,270 2,102
Other (a) 695 413 307
Elimination of deposits (11,220) (7,693) (5,276)
----------------------------------------------------------------------------------------------------------
Total Revenue $4,878 $4,514 $4,173
==========================================================================================================
</TABLE>
(a) Other represents revenue attributable to unallocated capital and run-off
businesses.
The Company's revenue was derived almost entirely from U.S. domestic
business. Revenue attributable to foreign countries was insignificant.
The Company had no transactions with a single customer representing 10% or
more of its revenue.
F-36
<PAGE> 100
STATEMENT OF ADDITIONAL INFORMATION
SEPARATE ACCOUNT SEVEN
Individual Variable Annuity Contract
issued by
The Travelers Insurance Company
One Tower Square
Hartford, Connecticut 06183
L-21258S May 2000
<PAGE> 101
PART C
Other Information
Item 24. Financial Statements and Exhibits
(a) The financial statements of the Registrant and the Report of Independent
Auditors thereto are contained in the Registrant's Annual Report and are
included in the Statement of Additional Information. The financial
statements of the Registrant include:
Statement of Assets and Liabilities as of December 31, 1999
Statement of Operations for the period June 28, 1999 (date
operations commenced) to December 31, 1999
Statement of Changes in Net Assets for the period June 28, 1999
(date operations commenced) to December 31, 1999
Statement of Investments as of December 31, 1999
Notes to Financial Statements
The consolidated financial statements of The Travelers Insurance Company
and subsidiaries and the report of Independent Accountants, are contained
in the Statement of Additional Information. The consolidated financial
statements of The Travelers Insurance Company and subsidiaries include:
Consolidated Statements of Income for the years ended December
31, 1999, 1998 and 1997
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Changes in Retained Earnings and
Accumulated Other Changes in Equity from Non-Owner Sources for
the years ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
(b) Exhibits
1. Resolution of The Travelers Insurance Company Board of Directors
authorizing the establishment of the Registrant. (Incorporated herein by
reference to Exhibit 1 to the Registration Statement on Form N-4, filed
July 30, 1998.)
2. Not Applicable.
3(a). Form of Distribution and Principal Underwriting Agreement among the
Registrant, The Travelers Insurance Company and CFBDS, Inc. (Incorporated
herein by reference to Exhibit 3(a) to Pre-Effective Amendment No. 1 to
the Registration Statement on Form N-4, File No. 333-60227 filed November
9, 1998)
3(b). Form of Selling Agreement. (Incorporated herein by reference to Exhibit
3(b) to Pre-Effective Amendment No. 1 to the Registration Statement on
Form N-4, File No. 333-60227 filed November 9, 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. 333-60227 filed November 9, 1998)
<PAGE> 102
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. 333-60227 filed November 9, 1998)
6(a). Charter of The Travelers Insurance Company, as amended on October 19,
1994. (Incorporated herein by reference to Exhibit 6(a) to the
Registration Statement on Form N-4, File No. 333-40193, filed November 13,
1998.)
6(b). By-Laws of The Travelers Insurance 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. 333-40193, filed November 13,
1998.)
9. Opinion of Counsel as to the legality of securities being registered.
(Incorporated herein by reference to Exhibit 3(a) to the Registration
Statement on Form N-4, filed July 30, 1998.).
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. 333-60227 filed November 9, 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 30, 1998.).
15(b).Powers of Attorney authorizing Ernest J. Wright or Kathleen A. McGah as
signatory for George C. Kokulis, Katherine M. Sullivan and Glenn D.
Lammey.
Item 25. Directors and Officers of the Depositor
<TABLE>
<CAPTION>
Name and Principal Positions and Offices
Business Address with Insurance Company
- ------------------ ----------------------
<S> <C>
George C. Kokulis* Director, President and Chief Executive Officer
Katherine M. Sullivan* Director and Senior Vice President
Marc P. Weill** Director and Senior Vice President
Mary Jean Thornton* Executive Vice President and
Chief Information Officer
Stuart Baritz*** Senior Vice President
Jay S. Fishman* Senior Vice President
Barry Jacobson* Senior Vice President
Russell H. Johnson* Senior Vice President
Marla Berman Lewitus* Senior Vice President and General Counsel
Brendan Lynch* Senior Vice President
Warren H. May* Senior Vice President
Kathleen Preston* Senior Vice President
David A. Tyson* Senior Vice President
F. Denney Voss* Senior Vice President
Glenn D. Lammey* Chief Financial Officer, Chief
</TABLE>
<PAGE> 103
<TABLE>
<S> <C>
Accounting Officer and Controller
David A. Golino* Vice President
Donald R. Munson, Jr.* Vice President
Anthony Cocolla Second Vice President
Scott R. Hansen Second Vice President
Linn K. Richardson* Second Vice President and Actuary
Paul Weissman Second Vice President and Actuary
Ernest J. Wright* Vice President and Secretary
Kathleen A. McGah* Assistant Secretary and
Deputy General Counsel
Principal Business Address:
* The Travelers Insurance Company ** Citigroup Inc.
One Tower Square 388 Greenwich Street
Hartford, CT 06183 New York, N.Y. 10013
*** Travelers Portfolio Group
1345 Avenue of the Americas
New York, NY 10105
</TABLE>
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. 333-40193,
filed April 12, 2000.
Item 27. Number of Contract Owners
As of February 29, 2000, 33 contract owners held qualified and non-qualified
contracts offered by the Registrant.
Item 28. Indemnification
Sections 33-770 to 33-778, inclusive of the Connecticut General Statutes
("C.G.S.") regarding indemnification of directors and officers of Connecticut
corporations provides in general that Connecticut corporations shall indemnify
their officers, directors and certain other defined individuals against
judgments, fines, penalties, amounts paid in settlement and reasonable expenses
actually incurred in connection with proceedings against the corporation. The
corporation's obligation to provide such indemnification generally does not
apply unless (1) the individual is wholly successful on 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.
<PAGE> 104
Citigroup Inc. also provides liability insurance for its directors and officers
and the directors and officers of its subsidiaries, including the Registrant.
This insurance provides for coverage against loss from claims made against
directors and officers in their capacity as such, including, subject to certain
exceptions, liabilities under the federal securities laws.
Rule 484 Undertaking
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 29. Principal Underwriter
(a) CFBDS, Inc.
21 Milk Street
Boston, MA 02109
CFBDS, Inc. also serves as principal underwriter for the following :
(a) CFBDS, the Registrant's Distributor, is also the distributor for
CitiFunds(SM) International Growth & Income Portfolio, CitiFunds(SM)
International Growth Portfolio, CitiFunds(SM) U.S. Treasury Reserves,
CitiFunds(SM) Cash Reserves, CitiFunds(SM) Premium U.S. Treasury Reserves,
CitiFunds(SM) Premium Liquid Reserves, CitiFunds(SM) Institutional U.S. Treasury
Reserves, CitiFunds(SM) Institutional Liquid Reserves, CitiFunds(SM)
Institutional Cash Reserves, CitiFunds(SM) Tax Free Reserves, CitiFunds(SM)
Institutional Tax Free Reserves, CitiFunds(SM) California Tax Free Reserves,
CitiFunds(SM) Connecticut Tax Free Reserves, CitiFunds(SM) New York Tax Free
Reserves, CitiFunds(SM) New York Tax Free Income Portfolio, CitiFunds(SM)
National Tax Free Income Portfolio, CitiFunds(SM) California Tax Free Income
Portfolio, CitiFunds(SM) Intermediate Income Portfolio, CitiFunds(SM) Balanced
Portfolio, CitiFunds(SM) Small Cap Value Portfolio, CitiFunds(SM) Growth &
Income Portfolio, CitiFunds(SM) Large Cap Growth Portfolio, CitiFunds(SM) Small
Cap Growth Portfolio, CitiFunds(SM) Short-Term U.S. Government Income Portfolio,
CitiFunds(SM) Emerging Asian Markets Equity Portfolio CitiSelect(R) VIP Folio
200, CitiSelect(R) VIP Folio 300, CitiSelect(R) VIP Folio 400, CitiSelect(R) VIP
Folio 500, CitiFunds(SM) Small Cap Growth VIP Portfolio, CitiSelect(R) Folio
100, CitiSelect(R) Folio 200, CitiSelect(R) Folio 300, CitiSelect(R) Folio 400,
and CitiSelect(R) 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, High Yield 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, Emerging Asian Markets Equity Portfolio.
<PAGE> 105
CFBDS also serves as the distributor for the following funds: The Travelers Fund
U for Variable Annuities, The Travelers Fund VA for Variable Annuities, The
Travelers Fund BD for Variable Annuities, The Travelers Fund BD II for Variable
Annuities, The Travelers Fund BD III for Variable Annuities, The Travelers Fund
BD IV for Variable Annuities, The Travelers Fund ABD for Variable Annuities, The
Travelers Fund ABD II for Variable Annuities, The Travelers Separate Account PF
for Variable Annuities, The Travelers Separate Account PF II for Variable
Annuities, The Travelers Separate Account 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 Eight for Variable Annuities, The Travelers
Separate Account Nine for Variable Annuities, The Travelers Separate Account Ten
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
CFBDS is also the distributor for the following funds: Emerging Growth Fund,
Government Fund, Growth and Income Fund, International Equity Fund, Municipal
Fund, Balanced Investments, Emerging Markets Equity Investments, Government
Money Investments, High Yield Investments, Intermediate Fixed Income
Investments, International Equity Investments, International Fixed Income
Investments, Large Capitalization Growth Investments, Large Capitalization Value
Equity Investments, Long-Term Bond Investments, Mortgage Backed Investments,
Municipal Bond Investments, Small Capitalization Growth Investments, Small
Capitalization Value Equity Investments, Appreciation Portfolio, Diversified
Strategic Income Portfolio, Emerging Growth Portfolio, Equity Income Portfolio,
Equity Index Portfolio, Growth & Income Portfolio, Intermediate High Grade
Portfolio, International Equity Portfolio, Money Market Portfolio, Total Return
Portfolio.
CFBDS is also the distributor for the following Smith Barney Mutual Fund
registrants: 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.,
Smith Barney Large Cap Blend Fund, Smith Barney Fundamental Value Fund Inc.,
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, 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, Smith Barney High Income Portfolio, Smith Barney
Large Cap Value Portfolio, Smith Barney International
<PAGE> 106
Equity Portfolio, Smith Barney Large Capitalization Growth Portfolio, Smith
Barney Money Market Portfolio, Smith Barney Pacific Basin Portfolio, 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, Large Cap Value Fund,
Short-Term High Grade Bond Fund, U.S. Government Securities Fund, Cash
Portfolio, Government Portfolio, Municipal Portfolio, Concert Peachtree Growth
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, 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.
CFBDS is also the distributor for the following Salomon Brothers funds: Salomon
Brothers Institutional Money Market Fund, Salomon Brothers Cash Management Fund,
Salomon Brothers New York Municipal Money Market Fund, Salomon Brothers National
Intermediate Municipal Fund, Salomon Brothers U.S. Government Income Fund,
Salomon Brothers High Yield Bond Fund, Salomon Brothers Strategic Bond Fund,
Salomon Brothers Total Return Fund, Salomon Brothers Asia Growth Fund, Salomon
Brothers Capital Fund Inc, Salomon Brothers Investors Fund Inc, Salomon Brothers
Opportunity Fund Inc, Salomon Brothers Institutional High Yield Bond Fund,
Salomon Brothers Institutional Emerging Markets Debt Fund, Salomon Brothers
Variable Investors Fund, Salomon Brothers Variable Capital Fund, Salomon
Brothers Variable Total Return Fund, Salomon Brothers Variable High Yield Bond
Fund, Salomon Brothers Variable Strategic Bond Fund, Salomon Brothers Variable
U.S. Government Income Fund, and Salomon Brothers Variable Asia Growth Fund.
(b) The information required by this Item 29 with respect to each director and
officer of CFBDS, Inc. is incorporated by reference to Schedule A of Form
BD filed by CFBDS pursuant to the Securities and Exchange Act of 1934
(File No.8-32417).
(c) Not Applicable
Item 30. Location of Accounts and Records
(1) The Travelers Insurance Company
One Tower Square
Hartford, Connecticut 06183
Item 31. Management Services
Not Applicable.
<PAGE> 107
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> 108
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 17th day of
April, 2000.
THE TRAVELERS SEPARATE ACCOUNT SEVEN FOR VARIABLE ANNUITIES
(Registrant)
THE TRAVELERS INSURANCE COMPANY
(Depositor)
By:*GLENN D. LAMMEY
-------------------
Glenn D. Lammey, Chief Financial Officer,
Chief Accounting Officer and Controller
As required by the Securities Act of 1933, this registration statement has been
signed by the following persons in the capacities indicated on the 17th day of
April 2000.
*GEORGE C. KOKULIS Director, President and Chief Executive Officer
- ------------------
(George C. Kokulis) (Principal Executive Officer)
*KATHERINE M. SULLIVAN Director
- ----------------------
(Katherine M. Sullivan)
*MARC P. WEILL Director
- --------------
(Marc P. Weill)
*By: /s/Ernest J. Wright, Attorney-in-Fact
<PAGE> 109
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit
No. Description Method of Filing
- ------- ----------- ----------------
<S> <C> <C>
10. Consent of KPMG LLP, Independent Electronically
Certified Public Accountants.
15(b). Powers of Attorney authorizing Ernest J. Wright or Electronically
Kathleen A. McGah as signatory for George C. Kokulis,
Katherine M. Sullivan and Glenn D. Lammey.
</TABLE>
<PAGE> 1
Exhibit 10
Consent of Independent Certified Public Accountants
Board of Directors
The Travelers Insurance Company
We consent to the use of our reports included herein and to the reference to our
firm as experts under the heading "Independent Accountants."
/s/KPMG LLP
Hartford, Connecticut
April 14, 2000
<PAGE> 1
Exhibit 15(b)
THE TRAVELERS SEPARATE ACCOUNT SEVEN FOR VARIABLE ANNUITIES
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, GEORGE C. KOKULIS of Simsbury, Connecticut, Director,
President and Chief Executive Officer of The Travelers Insurance Company
(hereafter the "Company"), do hereby make, constitute and appoint ERNEST J.
WRIGHT, Secretary of said Company, and KATHLEEN A. McGAH, Assistant Secretary of
said Company, or either one of them acting alone, my true and lawful
attorney-in-fact, for me, and in my name, place and stead, to sign registration
statements on behalf of said Company on Form N-4 or other appropriate form under
the Securities Act of 1933 and the Investment Company Act of 1940 for The
Travelers Separate Account Seven 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 10th day of
April 2000.
/s/George C. Kokulis
Director, President and Chief Executive Officer
The Travelers Insurance Company
<PAGE> 2
THE TRAVELERS SEPARATE ACCOUNT SEVEN FOR VARIABLE ANNUITIES
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, KATHERINE M. SULLIVAN of Longmeadow, Massachusetts, a
Director of The Travelers Insurance Company (hereafter the "Company"), do hereby
make, constitute and appoint ERNEST J. WRIGHT, Secretary of said Company, and
KATHLEEN A. McGAH, Assistant Secretary of said Company, or either one of them
acting alone, my true and lawful attorney-in-fact, for me, and in my name, place
and stead, to sign registration statements on behalf of said Company on Form N-4
or other appropriate form under the Securities Act of 1933 and the Investment
Company Act of 1940 for The Travelers Separate Account Seven 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 31st day of
March 2000.
/s/Katherine M. Sullivan
Director
The Travelers Insurance Company
<PAGE> 3
THE TRAVELERS SEPARATE ACCOUNT SEVEN FOR VARIABLE ANNUITIES
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, GLENN D. LAMMEY of Simsbury, Connecticut, Chief Financial
Officer, Chief Accounting Officer and Controller of The Travelers Insurance
Company (hereafter the "Company"), do hereby make, constitute and appoint ERNEST
J. WRIGHT, Secretary of said Company, and KATHLEEN A. McGAH, Assistant Secretary
of said Company, or either one of them acting alone, my true and lawful
attorney-in-fact, for me, and in my name, place and stead, to sign registration
statements on behalf of said Company on Form N-4 or other appropriate form under
the Securities Act of 1933 and the Investment Company Act of 1940 for The
Travelers Separate Account Seven 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 31st day of
March 2000.
/s/Glenn D. Lammey
Chief Financial Officer,
Chief Accounting Officer and Controller
The Travelers Insurance Company
