<PAGE> 1
Registration Statement No. 333-82009
811-09411
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
Post-Effective Amendment No. 1 to the
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
And
Post-Effective Amendment No. 1 to the
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
THE TRAVELERS SEPARATE ACCOUNT NINE 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.
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PART A
Information Required in a Prospectus
<PAGE> 3
TRAVELERS VINTAGE II VARIABLE ANNUITY PROSPECTUS:
THE TRAVELERS SEPARATE ACCOUNT NINE FOR VARIABLE ANNUITIES
THE TRAVELERS SEPARATE ACCOUNT TEN FOR VARIABLE ANNUITIES
This prospectus describes TRAVELERS VINTAGE II VARIABLE ANNUITY, 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:
ALLIANCE VARIABLE PRODUCT SERIES FUND, INC.
Premier Growth Portfolio Class B
AMERICAN VARIABLE INSURANCE SERIES CLASS 2 SHARES
Global Growth Fund Class 2
Growth Fund Class 2
Growth-Income Fund Class 2
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS
TRUST(1)
Franklin Small Cap Fund Class 2(2)
Templeton International Securities Fund Class 2(3)
GREENWICH STREET SERIES FUND
Appreciation Portfolio
Diversified Strategic Income Portfolio
Equity Index Portfolio Class II
Total Return Portfolio
JANUS ASPEN SERIES
Aggressive Growth Portfolio -- Service Shares
SALOMON BROTHERS VARIABLE SERIES FUNDS INC.
Capital Fund
Investors Fund
Small Cap Growth Fund
THE TRAVELERS SERIES TRUST
Disciplined Small Cap Stock Portfolio
Equity Income Portfolio
Large Cap Portfolio
MFS Emerging Growth Portfolio
MFS Research Portfolio
Strategic Stock Portfolio
TRAVELERS SERIES FUND INC.
Alliance Growth Portfolio
MFS Total Return Portfolio
Smith Barney Aggressive Growth Portfolio
Smith Barney High Income Portfolio
Smith Barney International Equity Portfolio
Smith Barney Large Capitalization Growth
Portfolio
Smith Barney Large Cap Value Portfolio
Smith Barney Mid Cap Portfolio
Smith Barney Money Market Portfolio
Travelers Managed Income Portfolio
Van Kampen Enterprise Portfolio
VAN KAMPEN LIFE INVESTMENT TRUST
Emerging Growth Portfolio
VARIABLE INSURANCE PRODUCTS FUND II (FIDELITY)
Contrafund(R) Portfolio -- Service Class
- ---------------
(1) Formerly Templeton Variable Products Series Fund
(2) Formerly offered as Franklin Small Cap Investments Fund Class 2
(3) Formerly offered as Templeton International Fund Class 2
The Fixed Account is described in Appendix B. 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 Nine for Variable Annuities or the Travelers Separate Account
Ten 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 1-800-842-8573 or access the SEC's website
(http://www.sec.gov). See Appendix C 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....... 12
The Annuity Contract.................. 12
Contract Owner Inquiries......... 12
Purchase Payments................ 12
Accumulation Units............... 12
The Funding Options.............. 13
Charges and Deductions................ 16
General.......................... 16
Withdrawal Charge................ 16
Free Withdrawal Allowance........ 17
Administrative Charges........... 17
Mortality and Expense Risk
Charge......................... 18
Funding Option Expenses.......... 18
Premium Tax...................... 18
Changes in Taxes Based Upon
Premium or Value............... 18
Transfers............................. 18
Dollar Cost Averaging............ 19
Access to Your Money.................. 20
Systematic Withdrawals........... 20
Managed Distribution Program..... 20
Loans............................ 20
Ownership Provision................... 21
Types of Ownership............... 21
Contract Owner................. 21
Beneficiary.................... 21
Annuitant...................... 21
Death Benefit......................... 22
Death Proceeds Before the
Maturity Date.................. 22
Payment of Proceeds.............. 25
Death Proceeds After the Maturity
Date........................... 27
The Annuity Period.................... 27
Maturity Date.................... 27
Allocation of Annuity............ 28
Variable Annuity................. 28
Fixed Annuity.................... 28
Payment Options....................... 29
Election of Options.............. 29
Annuity Options.................. 29
Miscellaneous Contract Provisions..... 30
Right to Return.................. 30
Termination...................... 30
Required Reports................. 30
Suspension of Payments........... 30
Transfers of Contract Values to
Other Annuities................ 30
The Separate Accounts................. 31
Performance Information.......... 31
Federal Tax Considerations............ 32
General Taxation of Annuities.... 32
Types of Contracts: Qualified or
Nonqualified................... 32
Nonqualified Annuity Contracts... 32
Qualified Annuity Contracts...... 33
Penalty Tax for Premature
Distributions.................. 33
Diversification Requirements for
Variable Annuities............. 33
Ownership of the Investments..... 33
Mandatory Distributions for
Qualified Plans................ 34
Taxation of Death Benefit
Proceeds....................... 34
Other Information..................... 34
The Insurance Companies.......... 34
Financial Statements............. 35
IMSA............................. 35
Distribution of Variable Annuity
Contracts...................... 35
Conformity with State and Federal
Laws........................... 35
Voting Rights.................... 35
Legal Proceedings and Opinions... 36
Appendix A: Condensed Financial
Information for The Travelers Life
and Annuity Company................. A-1
Appendix B: The Fixed Account......... B-1
Appendix C: Contents of the Statement
of Additional Information........... C-1
</TABLE>
INDEX OF SPECIAL TERMS
The following terms are italicized throughout the prospectus. Refer to the page
listed for an explanation of each term.
<TABLE>
<S> <C>
Accumulation Unit..................... 12
Accumulation Period................... 12
Annuitant............................. 21
Annuity Payments...................... 12
Annuity Unit.......................... 13
Cash Surrender Value.................. 20
Contingent Annuitant.................. 21
Contract Date......................... 12
Contract Owner (You, Your)............ 21
Contract Value........................ 12
Contract Year......................... 12
Death Report Date..................... 22
Fixed Account......................... B-1
Funding Option(s)..................... 13
Maturity Date......................... 12
Purchase Payment...................... 12
Underlying Fund....................... 13
Written Request....................... 12
</TABLE>
2
<PAGE> 5
SUMMARY:
TRAVELERS VINTAGE II VARIABLE ANNUITY
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 Nine for Variable Annuities ("Separate Account Nine"); The Travelers
Life and Annuity Company sponsors the Travelers Separate Account Ten for
Variable Annuities ("Separate Account Ten"). When we refer to the Separate
Account, we are referring to either Separate Account Nine or Separate Account
Ten, depending upon your issuing company.
Your issuing company is The Travelers Life and Annuity Company unless you
purchased your Contract in one of the following locations. Contracts issued in
the locations listed below are issued by The Travelers Insurance Company.
<TABLE>
<S> <C>
Bahamas Oregon(1)
British Virgin Islands Puerto Rico
Guam U.S. Virgin Islands
New Hampshire Washington(1)
New York
</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 where the Contract has been
approved for sale. This Contract may not currently be available for sale in all
locations.
- ---------------
(1) The Travelers Insurance Company issues only single premium contracts with
variable and fixed accounts for these states. The Travelers Life and Annuity
Company issues only flexible premium contracts with variable accounts in
these states. Please refer to your Contract or ask your agent for more
information.
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.
3
<PAGE> 6
Once you choose one of the annuity 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.
WHO SHOULD PURCHASE THIS CONTRACT? The Contract is currently available for use
in connection with (1) individual nonqualified purchases; (2) Individual
Retirement Annuities (IRAs); and (3) rollovers from other qualified retirement
plans. Qualified contracts include contracts qualifying under Section 401,
403(b) or 408(b) of the Internal Revenue Code of 1986, as amended. 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 $5,000. 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 ten 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 $40,000, the Company deducts an annual
administrative charge of $30. 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: 1.15%
for the standard death benefit, 1.25% for the step-up death benefit, and 1.40%
for the roll-up death benefit. Each underlying Fund also charges for management
and other expenses.
4
<PAGE> 7
A withdrawal charge will apply to withdrawals from the Contract, and is
calculated as a percentage of the purchase payments. The maximum percentage is
6%, gradually decreasing to 0% in years eight and later.
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 payments. Under a
nonqualified Contract, payments to the contract are made with after-tax dollars,
and any credits 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. Withdrawal charges, income taxes, and/or a penalty tax may
apply to taxable amounts withdrawn.
WHAT IS THE DEATH BENEFIT UNDER THE CONTRACT? 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. 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:
- - 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.
- - 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.
- - 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.
- - MANAGED DISTRIBUTION PROGRAM. This program allows us to automatically
calculate and distribute to you, in November of the applicable tax year, an
amount that will satisfy the Internal Revenue Service's minimum distribution
requirements imposed on certain contracts once the owner reaches age 70 1/2 or
retires. These minimum distributions occur during the accumulation phase.
5
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FEE TABLE
- --------------------------------------------------------------------------------
CONTRACT CHARGES AND EXPENSES
WITHDRAWAL CHARGE(as a percentage of the purchase
payments withdrawn)
YEARS SINCE PURCHASE
<TABLE>
<CAPTION>
PAYMENT MADE WITHDRAWAL CHARGE
<S> <C>
1 or less 6%
2 6%
3 6%
4 5%
5 5%
6 4%
7 3%
8 and over 0%
</TABLE>
[/R]
<TABLE>
<S> <C>
ANNUAL CONTRACT ADMINISTRATIVE CHARGE $30
(Waived if contract value is $40,000 or more)
</TABLE>
<TABLE>
<S> <C> <C> <C>
ANNUAL SEPARATE ACCOUNT CHARGES:
(as a percentage of the average daily net assets of
the Separate Account)
</TABLE>
<TABLE>
<CAPTION>
STANDARD STEP-UP
DEATH DEATH ROLL-UP
BENEFIT BENEFIT DEATH BENEFIT
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mortality & Expense Risk Charge................. 1.15% 1.25% 1.40%
Administrative Expense Charge................... 0.15% 0.15% 0.15%
----- ----- -----
Total Separate Account Charges................ 1.30% 1.40% 1.55%
FUNDING OPTION EXPENSES:
(as a percentage of average daily net assets of the Funding Option as of December 31, 1999,
unless otherwise noted)
</TABLE>
<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>
ALLIANCE VARIABLE PRODUCT SERIES FUND, INC.
Premier Growth Portfolio -- Class B...... 1.00 % 0.25% 0.04% 1.29%
AMERICAN VARIABLE INSURANCE SERIES
Global Growth Fund -- Class 2............ 0.68 % 0.25% 0.03% 0.96%
Growth Fund -- Class 2................... 0.38 % 0.25% 0.01% 0.64%
Growth-Income Fund -- Class 2............ 0.34 % 0.25% 0.01% 0.60%
FRANKLIN TEMPLETON VARIABLE INSURANCE
PRODUCTS TRUST
Franklin Small Cap Fund -- Class 2
(formerly offered as Franklin Small Cap
Investments Fund -- Class 2)........... 0.55 % 0.25% 0.27% 1.07%(1)
Templeton International Securities
Fund -- Class 2 (formerly offered as
Templeton International Fund -- Class
2)..................................... 0.69 % 0.25% 0.19% 1.13%(2)
GREENWICH STREET SERIES FUND
Appreciation Portfolio................... 0.75 % 0.04% 0.79%(3)
Diversified Strategic Income Portfolio... 0.65 % 0.13% 0.78%(3)
Equity Index Portfolio -- Class II
Shares................................. 0.21 % 0.25% 0.05% 0.51%(4)
Total Return Portfolio................... 0.75 % 0.04% 0.79%(3)
JANUS ASPEN SERIES
Aggressive Growth Portfolio -- Service
Shares................................. 0.65 % 0.25% 0.02% 0.92%(5)
SALOMON BROTHERS VARIABLE SERIES FUND INC.
Capital Fund............................. 0.00 % 1.00% 1.00%(6)
Investors Fund........................... 0.53 % 0.45% 0.98%(6)
Small Cap Growth Fund.................... 0.00 % 1.50% 1.50%(6)
</TABLE>
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<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 TRAVELERS SERIES TRUST
Disciplined Small Cap Stock Portfolio.... 0.80 % 0.20% 1.00%(7)
Equity Income Portfolio.................. 0.75 % 0.13% 0.88%
Large Cap Portfolio...................... 0.75 % 0.12% 0.87%
MFS Emerging Growth Portfolio............ 0.75 % 0.12% 0.87%
MFS Research Portfolio................... 0.80 % 0.19% 0.99%
Strategic Stock Portfolio................ 0.60 % 0.30% 0.90%(7)
TRAVELERS SERIES FUND INC.
Alliance Growth Portfolio................ 0.80 % 0.02% 0.82%(8)
MFS Total Return Portfolio............... 0.80 % 0.04% 0.84%(8)
Smith Barney Aggressive Growth
Portfolio.............................. 0.80 % 0.20% 1.00%(9)
Smith Barney High Income Portfolio....... 0.60 % 0.06% 0.66%(8)
Smith Barney International Equity
Portfolio.............................. 0.90 % 0.10% 1.00%(8)
Smith Barney Large Capitalization Growth
Portfolio.............................. 0.75 % 0.11% 0.86%(8)
Smith Barney Large Cap Value Portfolio... 0.65 % 0.02% 0.67%(8)
Smith Barney Mid Cap Portfolio........... 0.75 % 0.20% 0.95%(9)
Smith Barney Money Market Portfolio...... 0.50 % 0.04% 0.54%(8)
Travelers Managed Income Portfolio....... 0.65 % 0.11% 0.76%(8)
Van Kampen Enterprise Portfolio.......... 0.70 % 0.03% 0.73%(8)
VAN KAMPEN LIFE INVESTMENT TRUST
Emerging Growth Portfolio................ 0.67 % 0.18% 0.85%(10)
VARIABLE INSURANCE PRODUCTS FUND II
Contrafund(R) Portfolio -- Service
Class.................................. 0.58 % 0.10% 0.07% 0.75%(11)
</TABLE>
NOTES:
The purpose of this Fee Table is to assist Contract Owners in understanding the
various costs and expenses that a Contract Owner will bear, directly or
indirectly. See "Charges and Deductions" in this prospectus for additional
information. Expenses shown do not include premium taxes, which may be
applicable. "Other Expenses" include operating costs of the fund. These expenses
are reflected in each funding option's net asset value and are not deducted from
the account value under the Contract.
(1) On 2/8/00, a merger and reorganization was approved to merge the assets of
FRANKLIN SMALL CAP INVESTMENTS FUND into FRANKLIN SMALL CAP FUND, effective
5/1/00. The above table shows restated total expenses based upon the new
fees and assets of FRANKLIN SMALL CAP FUND as of 12/31/99, and not the
assets of the combined Fund on 5/1/00. However, if the table reflected both
the new fees and the combined assets, the Fund's expenses after 5/1/00
would be estimated as: Management Fees 0.55%, Distribution and Service Fee
0.25%, Other expenses 0.27% and Total Fund Operating Expenses 1.07%. The
Fund's Class 2 distribution plan or "Rule 12b-1 Plan" is described in the
Fund's prospectus.
(2) On 2/8/00, a merger and reorganization was approved to merge the assets of
Templeton International Equity Fund into Templeton International Fund
(which then changed its name to Templeton International Securities Fund),
effective 5/1/00. The table shows restated total expenses based upon the
new fees and assets of Templeton International Fund as of 12/31/99, and not
the assets of the combined Fund on 5/1/00. However, if the table reflected
both the new fees and the combined assets, the Fund's expenses after 5/1/00
would be estimated as: Management Fees 0.65%, Distribution and Service Fee
0.25%, Other expenses 0.20% and Total Fund Operating Expenses 1.10%. The
Fund's Class 2 distribution plan or "Rule 12b-1 Plan" is described in the
Fund's prospectus.
(3) The Portfolio Management Fee for the APPRECIATION PORTFOLIO, the TOTAL
RETURN, and the DIVERSIFIED STRATEGIC INCOME PORTFOLIO includes 0.20% for
fund administration.
(4) The Portfolio Management Fee for EQUITY INDEX PORTFOLIO-CLASS II includes
0.06% for fund administration and a distribution plan or "Rule 12b-1 plan".
Fees for Class II reflect the period from 3/22/99 (inception date) to
12/31/99. On March 22, 1999, the fund adopted its current fee structure.
(5) Expenses are based on the estimated expenses that the new Service Shares
Class expects to incur in its initial fiscal year. All expenses are shown
without the effect of offset arrangements.
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<PAGE> 10
(6) The Adviser has waived all or a portion of its Management Fees for the year
ended December 31, 1999. If such fees were not waived or expenses
reimbursed, the Management Fee, Other Expenses, and Total Annual Operating
Expenses would have been as follows: 0.70%, 0.45% and 1.15% respectively
for the INVESTORS FUND; 0.85%, 1.14%, and 1.99% respectively for the
CAPITAL FUND; and 0.75%, 15.61%, and 16.36% respectively for the SMALL CAP
GROWTH FUND. Expenses for the Small Cap Growth Fund are annualized.
(7) Travelers Insurance has agreed to reimburse the STRATEGIC STOCK PORTFOLIO
and the DISCIPLINED SMALL CAP STOCK PORTFOLIO for expenses for the period
ended December 31, 1999 which exceeded 0.90% and 1.00% respectively.
Without such voluntary arrangements, the actual annualized Total Annual
Operating Expenses would have been 0.99% and 1.49% respectively.
(8) Expenses are as of October 31, 1999 (the Fund's fiscal year end). There
were no fees waived or expenses reimbursed for these funds in 1999.
(9) Other Expenses reflect the current expense reimbursement arrangement with
the Adviser. The Adviser has agreed to reimburse AGGRESSIVE GROWTH
PORTFOLIO and MID CAP PORTFOLIO for the amount by which their aggregate
expenses exceed 1.00% and 0.95% respectively. Without such arrangements
through 2/29/00, the Total Annual Operating Expenses for the Portfolios
would have been 1.76% and 2.46% respectively.
(10) The Adviser has voluntarily agreed to reduce its management fees and to
reimburse the EMERGING GROWTH PORTFOLIO for the amount by which the Total
Annual Operating Expenses exceed the amount set forth in the table above.
If certain expenses had not been assumed by the Adviser, Total Return would
have been lower and the Ratio of Expenses to Average Net Assets would have
been 0.88%.
(11) A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, through arrangements with certain funds
custodian, credits realized as a result of uninvested cash balances were
used to reduce a portion of each applicable fund's expenses. Without these
reductions, the Total Annual Operating Expenses presented in the table
would have been 0.78% for CONTRAFUND PORTFOLIO -- SERVICE CLASS.
8
<PAGE> 11
EXAMPLE*: STANDARD DEATH BENEFIT
Assuming a 5% annual return on assets, a $1,000 investment would be subject to
the following expenses:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
IF CONTRACT IS NOT SURRENDERED OR
IF CONTRACT IS SURRENDERED AT THE ANNUITIZED AT END OF PERIOD
END OF PERIOD SHOWN: 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>
- -------------------------------------------------------------------------------------------------------------------------
ALLIANCE VARIABLE PRODUCT SERIES FUND,
INC.
Premier Growth Portfolio -- Class B... 86 141 188 293 26 81 138 293
AMERICAN VARIABLE INSURANCE SERIES
Global Growth Fund -- Class 2......... 83 131 171 260 23 71 121 260
Growth Fund -- Class 2................ 80 121 155 227 20 61 105 227
Growth-Income Fund -- Class 2......... 79 120 153 223 19 60 103 223
FRANKLIN TEMPLETON VARIABLE INSURANCE
PRODUCTS TRUST
Franklin Small Cap Fund -- Class 2.... 84 134 177 272 24 74 127 272
Templeton International Securities
Fund -- Class 2..................... 85 136 180 278 25 76 130 278
GREENWICH STREET SERIES FUND
Appreciation Portfolio................ 81 126 163 243 21 66 113 243
Diversified Strategic Income
Portfolio........................... 81 125 162 242 21 65 112 242
Equity Index Portfolio -- Class II
Shares.............................. 78 117 148 214 18 57 98 214
Total Return Portfolio................ 81 126 163 243 21 66 113 243
JANUS ASPEN SERIES
Aggressive Growth Portfolio -- Service
Shares.............................. 83 130 169 256 23 70 119 256
SALOMON BROTHERS VARIABLE SERIES FUND INC.
Capital Fund.......................... 83 132 173 264 23 72 123 264
Investors Fund........................ 83 132 172 262 23 72 122 262
Small Cap Growth Fund................. 88 147 198 314 28 87 148 314
THE TRAVELERS SERIES TRUST
Disciplined Small Cap Stock
Portfolio........................... 83 132 173 264 23 72 123 264
Equity Income Portfolio............... 82 128 167 252 22 68 117 252
Large Cap Portfolio................... 82 128 167 251 22 68 117 251
MFS Emerging Growth Portfolio......... 82 128 167 251 22 68 117 251
MFS Research Portfolio................ 83 132 173 263 23 72 123 263
Strategic Stock Portfolio............. 82 129 168 254 22 69 118 254
TRAVELERS SERIES FUND INC.
Alliance Growth Portfolio............. 82 127 164 246 22 67 114 246
MFS Total Return Portfolio............ 82 127 165 248 22 67 115 248
Smith Barney Aggressive Growth
Portfolio........................... 83 132 173 264 23 72 123 264
Smith Barney High Income Portfolio.... 80 122 156 229 20 62 106 229
Smith Barney International Equity
Portfolio........................... 83 132 173 264 23 72 123 264
Smith Barney Large Capitalization
Growth Portfolio.................... 82 128 166 250 22 68 116 250
Smith Barney Large Cap Value
Portfolio........................... 80 122 157 231 20 62 107 231
Smith Barney Mid Cap Portfolio........ 83 131 171 260 23 71 121 260
Smith Barney Money Market Portfolio... 79 118 150 217 19 58 100 217
Travelers Managed Income Portfolio.... 81 125 161 240 21 65 111 240
Van Kampen Enterprise Portfolio....... 81 124 160 237 21 64 110 237
VAN KAMPEN LIFE INVESTMENT TRUST
Emerging Growth Portfolio............. 82 128 166 249 22 68 116 249
VARIABLE INSURANCE PRODUCTS FUND II
Contrafund(R) Portfolio -- Service
Class............................... 81 125 161 239 21 65 111 239
</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 $30 ANNUAL CONTRACT ADMINISTRATIVE CHARGE AS AN ANNUAL
CHARGE OF .009% OF ASSETS.
** The Withdrawal Charge is waived if a lifetime annuity payout has begun or
if, after the first contract year, you elect annuity payments for a fixed
period of at least five years. (See "Charges and Deductions.")
9
<PAGE> 12
EXAMPLE*: STEP-UP DEATH BENEFIT
Assuming a 5% annual return on assets, a $1,000 investment would be subject to
the following expenses:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
IF CONTRACT IS NOT SURRENDERED OR
IF CONTRACT IS SURRENDERED AT THE ANNUITIZED AT END OF PERIOD
END OF PERIOD SHOWN: 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>
- -------------------------------------------------------------------------------------------------------------------------
ALLIANCE VARIABLE PRODUCT SERIES FUND,
INC.
Premier Growth Portfolio -- Class B... 87 144 193 303 27 84 143 303
AMERICAN VARIABLE INSURANCE SERIES
Global Growth Fund -- Class 2......... 84 134 176 271 24 74 126 271
Growth Fund -- Class 2................ 81 124 160 238 21 64 110 238
Growth-Income Fund -- Class 2......... 80 123 158 234 20 63 108 234
FRANKLIN TEMPLETON VARIABLE INSURANCE
PRODUCTS TRUST
Franklin Small Cap Fund -- Class 2.... 85 137 182 282 25 77 132 282
Templeton International Securities
Fund -- Class 2..................... 86 139 185 287 26 79 135 287
GREENWICH STREET SERIES FUND
Appreciation Portfolio................ 82 129 168 253 22 69 118 253
Diversified Strategic Income
Portfolio........................... 82 128 167 252 22 68 117 252
Equity Index Portfolio -- Class II
Shares.............................. 79 120 154 224 19 60 104 224
Total Return Portfolio................ 82 129 168 253 22 69 118 253
JANUS ASPEN SERIES
Aggressive Growth Portfolio -- Service
Shares.............................. 84 133 174 266 24 73 124 266
SALOMON BROTHERS VARIABLE SERIES FUND INC.
Capital Fund.......................... 84 135 178 275 24 75 128 275
Investors Fund........................ 84 135 177 273 24 75 127 273
Small Cap Growth Fund................. 89 150 203 323 29 90 153 323
THE TRAVELERS SERIES TRUST
Disciplined Small Cap Stock
Portfolio........................... 84 135 178 275 24 75 128 275
Equity Income Portfolio............... 83 132 172 262 23 72 122 262
Large Cap Portfolio................... 83 131 172 261 23 71 122 261
MFS Emerging Growth Portfolio......... 83 131 172 261 23 71 122 261
MFS Research Portfolio................ 84 135 178 274 24 75 128 274
Strategic Stock Portfolio............. 83 132 173 264 23 72 123 264
TRAVELERS SERIES FUND INC.
Alliance Growth Portfolio............. 83 130 169 256 23 70 119 256
MFS Total Return Portfolio............ 83 130 170 258 23 70 120 258
Smith Barney Aggressive Growth
Portfolio........................... 84 135 178 275 24 75 128 275
Smith Barney High Income Portfolio.... 81 125 161 240 21 65 111 240
Smith Barney International Equity
Portfolio........................... 84 135 178 275 24 75 128 275
Smith Barney Large Capitalization
Growth Portfolio.................... 83 131 171 260 23 71 121 260
Smith Barney Large Cap Value
Portfolio........................... 81 125 162 241 21 65 112 241
Smith Barney Mid Cap Portfolio........ 84 134 176 271 24 74 120 271
Smith Barney Money Market Portfolio... 80 121 155 227 20 61 105 227
Travelers Managed Income Portfolio.... 82 128 166 250 22 68 116 250
Van Kampen Enterprise Portfolio....... 82 127 165 247 22 67 115 247
VAN KAMPEN LIFE INVESTMENT TRUST
Emerging Growth Portfolio............. 83 131 171 259 23 71 121 259
VARIABLE INSURANCE PRODUCTS FUND II
Contrafund(R) Portfolio -- Service
Class............................... 82 128 166 249 22 68 116 249
</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 $30 ANNUAL CONTRACT ADMINISTRATIVE CHARGE AS AN ANNUAL
CHARGE OF .009% OF ASSETS.
** The Withdrawal Charge is waived if a lifetime annuity payout has begun or
if, after the first contract year, you elect annuity payments for a fixed
period of at least five years. (See "Charges and Deductions.")
10
<PAGE> 13
EXAMPLE*: ROLL-UP DEATH BENEFIT
Assuming a 5% annual return on assets, a $1,000 investment would be subject to
the following expenses:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
IF CONTRACT IS NOT SURRENDERED OR
IF CONTRACT IS SURRENDERED AT THE ANNUITIZED AT END OF PERIOD
END OF PERIOD SHOWN: 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>
- -------------------------------------------------------------------------------------------------------------------------
ALLIANCE VARIABLE PRODUCT SERIES FUND,
INC.
Premier Growth Portfolio -- Class B... 89 148 200 317 29 88 150 317
AMERICAN VARIABLE INSURANCE SERIES
Global Growth Fund -- Class 2......... 86 138 184 285 26 78 134 285
Growth Fund -- Class 2................ 82 129 168 253 22 69 118 253
Growth-Income Fund -- Class 2......... 82 128 166 249 22 68 116 249
FRANKLIN TEMPLETON VARIABLE INSURANCE
PRODUCTS TRUST
Franklin Small Cap Fund -- Class 2.... 87 142 189 296 27 82 139 296
Templeton International Securities
Fund -- Class 2..................... 87 144 192 302 27 84 142 302
GREENWICH STREET SERIES FUND
Appreciation Portfolio................ 84 133 175 269 24 73 125 269
Diversified Strategic Income
Portfolio........................... 84 133 175 268 24 73 125 268
Equity Index Portfolio -- Class II
Shares.............................. 81 125 161 240 21 65 111 240
Total Return Portfolio................ 84 133 175 269 24 73 125 269
JANUS ASPEN SERIES
Aggressive Growth Portfolio -- Service
Shares.............................. 85 137 182 282 25 77 132 282
SALOMON BROTHERS VARIABLE SERIES FUND INC.
Capital Fund.......................... 86 140 186 289 26 80 136 289
Investors Fund........................ 86 139 185 287 26 79 135 287
Small Cap Growth Fund................. 91 154 211 337 31 94 161 337
THE TRAVELERS SERIES TRUST
Disciplined Small Cap Stock
Portfolio........................... 86 140 186 289 26 80 136 289
Equity Income Portfolio............... 85 136 180 278 25 76 130 278
Large Cap Portfolio................... 85 136 180 277 25 76 130 277
MFS Emerging Growth Portfolio......... 85 136 180 277 25 76 130 277
MFS Research Portfolio................ 86 139 185 288 26 79 135 288
Strategic Stock Portfolio............. 85 137 181 280 25 77 131 280
TRAVELERS SERIES FUND INC.
Alliance Growth Portfolio............. 84 134 177 272 24 74 127 272
MFS Total Return Portfolio............ 84 135 178 274 24 75 128 274
Smith Barney Aggressive Growth
Portfolio........................... 86 140 186 289 26 80 136 289
Smith Barney High Income Portfolio.... 82 129 169 255 22 69 119 255
Smith Barney International Equity
Portfolio........................... 86 140 186 289 26 80 136 289
Smith Barney Large Capitalization
Growth Portfolio.................... 85 135 179 276 25 75 129 276
Smith Barney Large Cap Value
Portfolio........................... 83 130 169 256 23 70 119 256
Smith Barney Mid Cap Portfolio........ 86 138 184 285 26 78 134 285
Smith Barney Money Market Portfolio... 81 126 163 243 21 66 113 243
Travelers Managed Income Portfolio.... 84 132 174 265 24 72 124 265
Van Kampen Enterprise Portfolio....... 83 132 172 262 23 72 122 262
VAN KAMPEN LIFE INVESTMENT TRUST
Emerging Growth Portfolio............. 84 135 178 275 24 75 128 275
VARIABLE INSURANCE PRODUCTS FUND II
Contrafund(R) Portfolio -- Service
Class............................... 83 132 173 264 23 72 123 264
</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 $30 ANNUAL CONTRACT ADMINISTRATIVE CHARGE AS AN ANNUAL
CHARGE OF .009% OF ASSETS.
** The Withdrawal Charge is waived if a lifetime annuity payout has begun or
if, after the first contract year, you elect annuity payments for a fixed
period of at least five years. (See "Charges and Deductions.")
11
<PAGE> 14
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
See Appendix A for Condensed Financial Information for Travelers Separate
Account Ten for Variable Annuities. As of December 31, 1999, Travelers Separate
Account Nine for Variable Annuities had no Condensed Financial Information.
THE ANNUITY CONTRACT
- --------------------------------------------------------------------------------
Travelers Vintage II Variable Annuity 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
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, and one fixed account option. The
contract owner assumes the risk of gain or loss according to the performance of
the variable funding options. The contract value is the amount of purchase
payments, plus or minus any investment experience or interest. The contract
value also reflects all surrenders made and charges deducted. There is generally
no guarantee that at the maturity date the contract value will equal or exceed
the total purchase payments made under the Contract. 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.
Certain changes and elections must be made in writing to the Company. Where the
term "written request" is used, it means that written information must be sent
to the Company's Home Office in a form and content satisfactory to us.
CONTRACT OWNER INQUIRIES
Any questions you have about your Contract should be directed to the Company's
Home Office at 1-800-842-8573.
PURCHASE PAYMENTS
The initial purchase payment must be at least $5,000. 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
12
<PAGE> 15
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 1-800-842-8573
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:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
FUNDING INVESTMENT INVESTMENT
OPTION OBJECTIVE ADVISER/SUBADVISER
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ALLIANCE VARIABLE PRODUCT SERIES FUND
Premier Growth Portfolio Class Seeks long-term growth of capital by investing Alliance Capital Management
B primarily in equity securities of a limited number
of large, carefully selected, high quality U.S.
companies that are judged likely to achieve
superior earning momentum.
AMERICAN VARIABLE INSURANCE SERIES
Global Growth Fund -- Class Seeks capital appreciation by investing primarily Capital Research and Management
2 in common stocks of companies located around the Company
world.
Growth Fund -- Class 2 Seeks capital appreciation by investing primarily Capital Research and Management
in common stocks of companies that appear to offer Company
superior opportunities for growth and capital.
Growth-Income Fund -- Class Seeks capital appreciation and income by investing Capital Research and Management
2 primarily in common stocks or other securities Company
which demonstrate the potential for appreciation
and/or dividends.
FRANKLIN TEMPLETON VARIABLE INSURANCE
PRODUCTS TRUST
Franklin Small Cap Fund Seeks long-term capital growth. The Fund seeks to Franklin Advisers, Inc.
(Class 2) accomplish its objective by investing primarily
(normally at least 65% of its assets) in equity
securities of smaller capitalization growth
companies.
Templeton International Seeks long-term capital growth through a flexible Templeton Investment Counsel,
Securities Fund (Class 2) policy of investing in stocks and debt obligations Inc.
of companies and governments outside the United
States. Any income realized will be incidental.
GREENWICH STREET SERIES FUND
Appreciation Portfolio Seeks long term appreciation of capital by SSB Citi Fund Management LLC.
investing primarily in equity securities. ("SSB Citi")
Diversified Strategic Seeks high current income by investing primarily SSB Citi
Income Portfolio in the following fixed income securities: U.S. Subadviser: Smith Barney Global
Gov't and mortgage-related securities, foreign Capital Management, Inc.
gov't bonds and corporate bonds rated below
investment grade.
Equity Index Portfolio Seeks to replicate, before deduction of expenses, Travelers Investment Management
Class II the total return performance of the S&P 500 Index. Co. ("TIMCO")
</TABLE>
13
<PAGE> 16
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
FUNDING INVESTMENT INVESTMENT
OPTION OBJECTIVE ADVISER/SUBADVISER
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Total Return Portfolio (an equity portfolio) Seeks to provide total SSB Citi
return, consisting of long-term capital
appreciation and income. The Portfolio will invest
primarily in a diversified portfolio of
dividend-paying common stocks.
JANUS ASPEN SERIES
Aggressive Growth Seeks long-term capital growth by investing Janus Capital
Portfolio -- Service Shares primarily in common stocks selected for their
growth potential normally investing at least 50%
in the equity assets of medium-sized companies.
SALOMON BROTHERS VARIABLE SERIES
FUNDS INC.
Capital Fund Seeks capital appreciation, primarily through Salomon Brothers Asset
investments in common stocks which are believed to Management Inc. ("SBAM")
have above-average price appreciation potential
and which may involve above average risk.
Investors Fund Seeks long-term growth of capital, and, SBAM
secondarily, 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.
THE TRAVELERS SERIES TRUST
Disciplined Small Cap Stock Seeks long term capital appreciation by investing Travelers Asset Management
Portfolio primarily (at least 65% of its total assets) in International Company LLC
the common stocks of U.S. Companies with ("TAMIC")
relatively small market capitalizations at the Subadviser: TIMCO
time of investment.
Equity Income Portfolio Seeks reasonable income by investing at least 65% TAMIC
in income-producing equity securities. The balance Subadviser: Fidelity Management
may be invested in all types of domestic and & Research Co ("FMR")
foreign securities, including bonds. The Portfolio
seeks to achieve a yield that exceeds that of the
securities comprising the S&P 500. The Subadviser
also considers the potential for capital
appreciation.
Large Cap Portfolio Seeks long-term growth of capital by investing TAMIC
primarily in equity securities of companies with Subadviser: FMR
large market capitalizations.
MFS Emerging Growth Seeks to provide long-term growth of capital. TAMIC Subadviser: Massachusetts
Portfolio Dividend and interest income from portfolio Financial Services ("MFS")
securities, if any, is incidental to the MFS
Portfolio's investment objective.
MFS Research Portfolio Seeks to provide long-term growth of capital and TAMIC
future income. Subadviser: MFS
Strategic Stock Portfolio Seeks to provide an above-average total return TAMIC
through a combination of potential capital Subadviser: TIMCO
appreciation and dividend income by investing
primarily in high dividend yielding stocks
periodically selected from the companies included
in (i) the Dow Jones Industrial Average and (ii) a
subset of the S&P Industrial Index.
TRAVELERS SERIES FUND INC.
Alliance Growth Portfolio Seeks long-term growth of capital. Current income Travelers Investment Advisers
is only an incidental consideration. The Portfolio ("TIA")
invests predominantly in equity securities of Subadviser: Alliance Capital
companies with a favorable outlook for earnings Management L.P.
and whose rate of growth is expected to exceed
that of the U.S. economy over time.
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
FUNDING INVESTMENT INVESTMENT
OPTION OBJECTIVE ADVISER/SUBADVISER
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MFS Total Return Portfolio (a balanced portfolio) Seeks to obtain TIA
above-average income (compared to a portfolio Subadviser: MFS
entirely invested in equity securities) consistent
with the prudent employment of capital. Generally,
at least 40% of the Portfolio's assets are
invested in equity securities.
Smith Barney Aggressive Seeks capital appreciation by investing primarily SSB Citi
Growth Portfolio in common stocks of companies that are
experiencing, or have the potential to experience,
growth of earnings, or that exceed the average
earnings growth rate of companies whose securities
are included in the S&P 500.
Smith Barney High Income Seeks high current income. Capital appreciation is SSB Citi
Portfolio a secondary objective. The Portfolio will invest
at least 65% of its assets in high-yielding
corporate debt obligations and preferred stock.
Smith Barney International Seeks total return on assets from growth of SSB Citi
Equity Portfolio capital and income by investing at least 65% of
its assets in a diversified portfolio of equity
securities of established non-U.S. issuers.
Smith Barney Large Cap Seeks current income and long-term growth of SSB Citi
Value Portfolio income and capital by investing primarily, but not
exclusively, in common stocks.
Smith Barney Large Seeks long-term growth of capital by investing in SSB Citi
Capitalization Growth equity securities of companies with large market
Portfolio capitalizations.
Smith Barney Mid Cap Seeks long-term growth of capital by investing SSB Citi
Portfolio primarily in equity securities of medium-sized
companies with market capitalizations between $1
billion and $5 billion at the time of investment.
Smith Barney Money Market Seeks maximum current income and preservation of SSB Citi
Portfolio capital.
Travelers Managed Income Seeks high current income consistent with prudent TIA
Portfolio risk of capital through investments in corporate Subadviser: TAMIC
debt obligations, preferred stocks, and
obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities.
Van Kampen Enterprise Seeks capital appreciation through investment in SSB Citi
Portfolio securities believed to have above-average Subadviser: Van Kampen Asset
potential for capital appreciation. Any income Management Inc.
received on such securities is incidental to the
objective of capital appreciation.
VAN KAMPEN LIFE INVESTMENT TRUST
Emerging Growth Portfolio Seeks capital appreciation by investing primarily Van Kampen Asset Management
in common stocks of companies considered to be Inc.
emerging growth companies.
VARIABLE INSURANCE PRODUCTS FUND II
Contrafund(R) Portfolio -- Seeks long-term capital appreciation by investing FMR
Service Class primarily in common stocks of companies whose
value the adviser believes is not fully recognized
by the public.
</TABLE>
15
<PAGE> 18
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 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.
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 Smith
Barney Financial Consultant, 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.
We may reduce or eliminate the withdrawal charge, the administrative charges
and/or the mortality and expense risk charge under the Contract when certain
sales or administration of the Contract result in savings or reduced expenses
and/or risks. For certain trusts, we may change the order in which purchase
payments and earnings are withdrawn in order to determine the withdrawal charge.
We will not reduce or eliminate the withdrawal charge or the administrative
charge where such reduction or elimination would be unfairly discriminatory to
any person.
WITHDRAWAL CHARGE
We do not deduct a sales charge from purchase payments when they are made to the
Contract. However, a withdrawal charge will apply if purchase payments are
withdrawn before they have
16
<PAGE> 19
been in the Contract for eight years. We will assess the charge as a percentage
of the purchase payment withdrawn as follows:
<TABLE>
<CAPTION>
YEARS SINCE PURCHASE WITHDRAWAL
PAYMENT MADE CHARGE
<S> <C>
1 or less 6%
2 6%
3 6%
4 5%
5 5%
6 4%
7 3%
8 and over 0%
</TABLE>
For purposes of the withdrawal charge calculation, withdrawals are deemed to be
taken first from:
(a) any purchase payment to which no withdrawal charge applies, and then
(b) any remaining free withdrawal allowance (as described below) (after
being reduced by (a)), then
(c) from any purchase payment to which a withdrawal charge applies (on a
first-in, first-out basis), then
(d) from any Contract earnings.
Unless you instruct us otherwise, we will deduct the withdrawal charge from the
amount requested.
We will not deduct a withdrawal charge if purchase payments are distributed:
- due to the death of the contract owner or the annuitant (with no
contingent annuitant surviving);
- under the Travelers Minimum Distribution Program;
- if a lifetime annuity payout has begun;
- if, after the first contract year, you elect annuity payments for a fixed
period of at least five years; or
- if amounts withdrawn under this contract are applied to other contract(s)
issued by us or our affiliates (subject to our approval).
FREE WITHDRAWAL ALLOWANCE
Beginning in the second contract year, you may withdraw up to 15% of the
contract value annually. We calculate the available withdrawal amount as of the
end of the previous Contract year. The free withdrawal provision applies to all
partial withdrawals. We reserve the right to not permit the provision on a full
surrender. In Washington state, the free withdrawal provision applies to all
withdrawals.
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 $40,000 on that date. This
charge compensates us for expenses incurred in establishing and maintaining the
Contract. The $30 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
17
<PAGE> 20
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 $40,000.
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. If you choose the standard death benefit, the M&E
charge is 1.15% annually. If you choose the step-up death benefit, the M&E
charge is 1.25% annually. If you choose the roll-up death benefit, the M&E
charge is 1.40% annually. This charge compensates the Company for risks assumed,
benefits provided and expenses incurred, including the payment of commissions to
your sales agent.
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
18
<PAGE> 21
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 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.
19
<PAGE> 22
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 cash
surrender value, that is, the contract value less any withdrawal charge and 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 cash surrender
value will be determined as of the close of business after we receive your
surrender request at the Home Office. The cash surrender value may be more or
less than the purchase payments made. Withdrawals during the annuity period are
not allowed.
We may defer payment of any cash surrender value for a period of up to seven
days after the written request is received, but it is our intent to pay as soon
as possible. We cannot process requests for 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
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.
MANAGED DISTRIBUTION PROGRAM. Under the systematic withdrawal option, you may
choose to participate in the Managed Distribution Program. At no cost to you,
you may instruct us to calculate and make minimum distributions that may be
required by the IRS upon reaching age 70 1/2. (See "Federal Tax
Considerations.") These payments will not be subject to the withdrawal charge
and will be in lieu of the free withdrawal allowance. No Dollar Cost Averaging
will be permitted if you are participating in the Managed Distribution Program.
LOANS
Loans may be available under your Contract. If available, all loan provisions
are described in your Contract or loan agreement.
20
<PAGE> 23
OWNERSHIP PROVISIONS
- --------------------------------------------------------------------------------
TYPES OF OWNERSHIP
Contract Owner (you). The Contract belongs to the contract owner named in the
Contract (on the Specifications page), or to any other person to whom the
contract is subsequently assigned. An assignment of ownership or a collateral
assignment may be made only for nonqualified contracts. You have sole power
during the annuitant's lifetime to exercise any rights and to receive all
benefits given in the contract provided you have not named an irrevocable
beneficiary and provided the Contract is not assigned.
You receive all payments while the annuitant is alive unless you direct them to
an alternate recipient. An alternate recipient does not become the contract
owner.
Joint Owner. For nonqualified contracts only, joint owners (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 benefit proceeds 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. If the case of a non-spousal
beneficiary or a spousal beneficiary who has not chosen 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.
A contingent annuitant may not be changed, deleted or added after the Contract
becomes effective.
21
<PAGE> 24
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. At purchase, you
elect either the Standard Death Benefit the Step-Up Benefit (also referred to as
the "Annual Step-Up"), or the Roll-Up Benefit. 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").
Three different types of death benefits are available under the Contract:
- the standard death benefit
- the annual step-up death benefit
- the roll-up death benefit
The annual step-up and roll-up death benefits may not be available in all
jurisdictions.
For all death benefits described below, we will subtract from the proceeds any
applicable premium tax and/or outstanding loans.
For all death benefits, we must be notified of the annuitant's death no later
than six months from the date of death in order to pay the death proceeds as
described under "Death Proceeds Before the Maturity Date." If we are notified
more than six months after the death, we will pay death proceeds equal to the
contract value on the death report date, less any applicable premium tax and/or
outstanding loans.
Note: If the owner dies before the annuitant, the death benefit is recalculated,
replacing all references to "annuitant" with "owner."
DEATH PROCEEDS BEFORE THE MATURITY DATE
STANDARD DEATH BENEFIT
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------
AGE ON CONTRACT DATE DEATH BENEFIT
- ------------------------------------------------------------------------------------------
If annuitant was younger than age 76 on - the contract value;
the Contract Date, the death benefit will - the total purchase payments made under
be the greatest of the contract (less any partial surrenders);
or
- the step-up value, if any, as described
below.
- ------------------------------------------------------------------------------------------
If annuitant was age 76 through 80 on the - the contract value; or
Contract Date, the death benefit will be - the total purchase payments made under
the greater of the contract (less any partial
surrenders).
- ------------------------------------------------------------------------------------------
If annuitant was age 81 or older on the - the contract value
Contract Date, the death benefit will be
- ------------------------------------------------------------------------------------------
</TABLE>
STEP-UP VALUE (STANDARD DEATH BENEFIT)
The step-up value for the standard death benefit depends on the annuitant's age
on the contract date as follows:
IF ANNUITANT WAS YOUNGER THAN AGE 68 ON THE CONTRACT DATE
A step-up value will be established on the seventh contract date anniversary
(provided it is before the death report date). The initial step-up value will
equal the contract value on that anniversary.
22
<PAGE> 25
Whenever a purchase payment is made, the step-up value will be increased by the
amount of that purchase payment. Whenever a partial surrender is taken, the
step-up value will be reduced by a partial surrender reduction as described
below. On each contract date anniversary that occurs before the annuitant's 76th
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 the contract value
on that date. If the step-up value is greater than the contract value, the
step-up value will remain unchanged. 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 76th
birthday will be those related to additional purchase payments or partial
surrenders as described below. If the death report date is before the seventh
contract date anniversary, there is no step-up value.
IF ANNUITANT WAS AGE 68 THROUGH 75 ON THE CONTRACT DATE
A step-up value will be established on the seventh contract date anniversary
(provided it is before the death report date). The step-up value will equal the
contract value on that anniversary. Whenever a purchase payment is made, the
step-up value will be increased by the amount of that purchase payment. Whenever
a partial surrender is taken, the step-up value will be reduced by a partial
surrender reduction as described below. The only changes made to the step-up
value on or after the seventh contract date anniversary will be those related to
additional purchase payments or partial surrenders as described below. If the
death report date is before the seventh contract date anniversary, there is no
step-up value.
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
in effect immediately before the reduction for partial surrender, multiplied by
(2) the amount of the partial surrender, divided by (3) the contract value
before the surrender. See the example of the partial surrender reduction below.
ANNUAL STEP-UP DEATH BENEFIT
(not available when either the annuitant or owner is age 76 or older on the
contract date)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
DEATH BENEFIT
- ------------------------------------------------------------------------------------------
<S> <C>
The death benefit will be the greatest - the contract value;
of:
- the total purchase payments made under
this contract (less all partial
surrenders); or
- the step-up value, if any, as described
below.
- ------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE> 26
ROLL-UP DEATH BENEFIT
(not available when either the annuitant or owner is age 76 or older on the
contract date)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
AGE AT DEATH DEATH BENEFIT
- ------------------------------------------------------------------------------------------
<S> <C>
If the annuitant dies before age 80, the - the contract value;
death benefit will be the greatest of: - the roll-up death benefit value (as
described below); or
- the step-up value, if any, as described
below.
- ------------------------------------------------------------------------------------------
If the annuitant dies on or after age 80, - the contract value;
the death benefit will be the greatest - the roll-up death benefit value (as
of: described below) on the annuitant's
80(th) birthday, plus any additional
purchase payments and minus any partial
surrender reductions (as described below)
that occur after the annuitant's 80(th)
birthday; or
- the step-up value, if any, as described
below.
- ------------------------------------------------------------------------------------------
</TABLE>
STEP-UP VALUE (FOR ANNUAL STEP-UP AND ROLL-UP DEATH BENEFITS)
The initial step-up value will equal the first purchase payment. Whenever an
additional purchase payment is made, the step-up value will be increased by the
amount of that purchase payment. Whenever a partial surrender is taken, the
step-up value will be reduced by a partial surrender reduction as described
below. On each contract date anniversary that occurs 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 the contract value
on that date. If the step-up value is greater than the contract value, the
step-up value will remain unchanged. 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 as described below.
ROLL-UP DEATH BENEFIT VALUE
On the contract date, the roll-up death benefit value is equal to the purchase
payment. On each contract date anniversary, the roll-up death benefit value will
be recalculated to equal a) plus b) minus c), increased by 5%, where:
a) is the roll-up death benefit value as of the previous contract date
anniversary
b) is any purchase payment made during the previous contract year
c) is any partial surrender reduction (as described below) during the
previous contract year
On dates other than the contract date anniversary, the roll-up death benefit
value will equal a) plus b) minus c) where:
a) is the roll-up death benefit value as of the previous contract date
anniversary
b) is any purchase payment made during the previous contract year
c) is any partial surrender reduction (as described below) during the
previous contract year
24
<PAGE> 27
The maximum roll-up death benefit equals 200% of the difference between all
purchase payments and all partial surrender reductions (as described below).
PARTIAL SURRENDER REDUCTION (FOR ANNUAL STEP-UP AND ROLL-UP DEATH BENEFITS).
The partial surrender reduction equals (1) the death benefit value (standard,
step-up or roll-up value) in effect immediately before the reduction for partial
surrender, multiplied by (2) the amount of the partial surrender, divided by (3)
the contract value before 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) -- 9,090
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) -- 16,666
Your new step-up value would be 50,000-16,666, or $33,334.
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>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
BEFORE THE MATURITY DATE, UPON THE COMPANY WILL PAY THE UNLESS... MANDATORY PAYOUT
THE DEATH OF THE PROCEEDS TO: RULES APPLY*
- --------------------------------------------------------------------------------------------------------------
Owner (who is not the The beneficiary (ies), Unless, the beneficiary is Yes
annuitant) (with no joint or if none, to the the contract owner's spouse
owner) contract owner's estate. and the spouse elects to
continue the contract as the
new owner rather than receive
the distribution.
- --------------------------------------------------------------------------------------------------------------
Owner (who is the annuitant) The beneficiary (ies), Unless, the beneficiary is Yes
(with no joint owner) or if none, to the the contract owner's spouse
contract owner's estate. and the spouse elects to
continue the contract as the
new owner rather than receive
the distribution.
- --------------------------------------------------------------------------------------------------------------
Joint Owner (who is not the The surviving joint Unless the surviving joint Yes
annuitant) owner. owner is the spouse and
elects to assume and continue
the contract.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE> 28
<TABLE>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
BEFORE THE MATURITY DATE, UPON THE COMPANY WILL PAY THE UNLESS... MANDATORY PAYOUT
THE DEATH OF THE PROCEEDS TO: RULES APPLY*
- --------------------------------------------------------------------------------------------------------------
Joint Owner (who is the The beneficiary (ies), Unless the beneficiary is the Yes
annuitant) or if none, to the contract owner's spouse and
contract owner's estate. the spouse elects to assume
and continue the contract.
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 beneficiary (ies). Unless, there is a contingent No
contract owner) 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 who N/A
owner) 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 are N/A
annuitant is still alive) payable; contract
continues.
- --------------------------------------------------------------------------------------------------------------
Beneficiary No death proceeds are N/A
payable; contract
continues.
- --------------------------------------------------------------------------------------------------------------
Contingent Beneficiary No death proceeds are N/A
payable; contract
continues.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
* 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
26
<PAGE> 29
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>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
BEFORE THE MATURITY DATE, UPON THE COMPANY WILL PAY THE UNLESS... MANDATORY PAYOUT
THE DEATH OF THE PROCEEDS TO: RULES APPLY (SEE *
ABOVE)
- --------------------------------------------------------------------------------------------------------------
Owner/Annuitant The beneficiary (ies), Yes
or if none, >to the
contract owner's estate.
- --------------------------------------------------------------------------------------------------------------
Beneficiary No death proceeds are N/A
payable; contract
continues.
- --------------------------------------------------------------------------------------------------------------
Contingent Beneficiary No death proceeds are N/A
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 options). While the
annuitant is alive, you can change your selection any time up to the maturity
date. Annuity payments will begin on the maturity date stated in the Contract
unless the Contract has been fully surrendered or the proceeds have been paid to
the beneficiary before that date, 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, for qualified contracts, the maturity date will be the
annuitant's 70th birthday. For nonqualified contracts, unless you elect
otherwise, the maturity date will be the later of the annuitant's 95th birthday
or ten years after the effective date of the contract, if later. (For Contracts
issued in Florida and New York, the maturity date elected may not be later than
the annuitant's 90th birthday.)
27
<PAGE> 30
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.
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 cash surrender value will be
applied to provide an annuity funded by the same investment options as you have
selected during the accumulation period (contract value, in Oregon). 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 cash surrender
28
<PAGE> 31
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.
PAYMENT OPTIONS
- --------------------------------------------------------------------------------
ELECTION OF OPTIONS
While the annuitant is alive, you can change your annuity option selection any
time up to the maturity date. Once annuity payments have begun, no further
elections are allowed.
During the annuitant's lifetime, if you do not elect otherwise before the
maturity date, we will pay you (or another designated payee) the first of a
series of monthly annuity payments based on the life of the annuitant, in
accordance with Annuity Option 2 (Life Annuity with 120 monthly payments
assured). For certain qualified contracts, Annuity Option 4 (Joint and Last
Survivor Joint Life Annuity -- Annuity Reduced on Death of Primary Payee) will
be the automatic option as described in the Contract.
The minimum amount that can be placed under an annuity option will be $2,000
unless we agree to a lesser amount. If any monthly periodic payment due is less
than $100, the Company reserves the right to make payments at less frequent
intervals, or to pay the contract value in a lump-sum.
On the maturity date, we will pay the amount due under the Contract in
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 cash surrender 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
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<PAGE> 32
would have been made during the lifetime of the primary payee. No further
payments will be made once both payees have died.
Option 5 -- Payments for a Fixed Period. (Fixed Account Only). We will make
periodic payments for the period selected.
MISCELLANEOUS CONTRACT PROVISIONS
- --------------------------------------------------------------------------------
RIGHT TO RETURN
You may return the Contract for a full refund of the contract value (including
charges) within ten days after you receive it (the "right to return period").
You bear the investment risk 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 cash surrender 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 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.
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<PAGE> 33
THE SEPARATE ACCOUNTS
- --------------------------------------------------------------------------------
The Travelers Insurance Company and the Travelers Life and Annuity Company each
sponsor separate accounts: The Travelers Separate Account Nine for Variable
Annuities ("Separate Account Nine") and the Travelers Separate Account Ten for
Variable Annuities ("Separate Account Ten"), respectively. Both Separate Account
Nine and Separate Account Ten were established on June 18, 1999 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 Nine and Separate Account Ten 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 percentage of assets based on the actual
fee collected, divided by the average net assets for Contracts sold. Each
quotation assumes a total redemption at the end of each period with the
applicable withdrawal charge deducted at that time.
NONSTANDARDIZED METHOD. Nonstandardized "total returns" will be calculated in a
similar manner based on the performance of the funding options over a period of
time, usually for the calendar year-to-date, and for the past one-, three-,
five- and ten-year periods. Nonstandardized total returns will not reflect the
deduction of the annual contract administrative charge, which, if reflected,
would decrease the level of performance shown. The withdrawal charge is not
reflected because the Contract is designed for long-term investment.
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.
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<PAGE> 34
GENERAL. Within the guidelines prescribed by the SEC and the National
Association of Securities Dealers, Inc. ("NASD"), performance information may be
quoted numerically or may be presented in a table, graph or other illustration.
Advertisements may include data comparing performance to well-known indices of
market performance (including, but not limited to, the Dow Jones Industrial
Average, the Standard & Poor's (S&P) 500 Index and the S&P 400 Index, the Lehman
Brothers Long T-Bond Index, the Russell 1000, 2000 and 3000 Indices, the Value
Line Index, and the Morgan Stanley Capital International's EAFE Index).
Advertisements may also include published editorial comments and performance
rankings compiled by independent organizations (including, but not limited to,
Lipper Analytical Services, Inc. and Morningstar, Inc.) and publications that
monitor the performance of the Separate Account and the variable funding
options.
FEDERAL TAX CONSIDERATIONS
- --------------------------------------------------------------------------------
The following general discussion of the federal income tax consequences under
this Contract is not intended to cover all situations, and is not meant to
provide tax advice. Because of the complexity of the law and the fact that the
tax results will vary depending on many factors, you should consult your tax
adviser regarding your personal situation. For your information, a more detailed
tax discussion is contained in the SAI.
GENERAL TAXATION OF ANNUITIES
Congress has recognized the value of saving for retirement by providing certain
tax benefits, in the form of tax deferral, for money put into an annuity. The
Internal Revenue Code (Code) governs how this money is ultimately taxed,
depending upon the type of contract, qualified or non-qualified, and the manner
in which the money is distributed, as briefly described below.
TAX-FREE EXCHANGES: The Internal Revenue Code provides 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 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
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<PAGE> 35
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.
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
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<PAGE> 36
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.
OTHER INFORMATION
- --------------------------------------------------------------------------------
THE INSURANCE COMPANIES
Please refer to 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
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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 Separate Account Ten are
located in their respective Statements of Additional Information. As of December
31, 1999, Separate Account Nine had no financial statement.
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 Company, 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, cash surrender value or death
benefits that are available under the Contract are not less than the minimum
benefits required by the statutes of the state in which the Contract is
delivered. We reserve the right to make any changes, including retroactive
changes, in the Contract to the extent that the change is required to meet the
requirements of any law or regulation issued by any governmental agency to which
the Company, the Contract or the contract owner is subject.
VOTING RIGHTS
The Company is the legal owner of the shares of the funding options. However, we
believe that when a funding option solicits proxies in conjunction with a vote
of shareholders we are required to obtain from you and from other owners
instructions on how to vote those shares. When we receive those instructions, we
will vote all of the shares we own in proportion to those instructions. This
will also include any shares we own on our own behalf. Should we determine that
we are no longer required to comply with the above, we will vote on the shares
in our own right.
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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.
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APPENDIX A
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
THE TRAVELERS SEPARATE ACCOUNT TEN FOR VARIABLE ANNUITIES
ACCUMULATION UNIT VALUES
<TABLE>
<CAPTION>
PERIOD FROM OCTOBER 14, 1999
PORTFOLIO NAME (EFFECTIVE DATE) TO DECEMBER 31, 1999
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
<CAPTION>
STANDARD STEP-UP ROLL-UP
-------- ------- -------
<S> <C> <C> <C>
ALLIANCE VARIABLE PRODUCT SERIES FUND
PREMIER GROWTH PORTFOLIO CLASS B (11/99)
Unit Value at beginning of year........................... 1.000 1.000 1.000
Unit Value at end of year................................. 1.127 1.127 1.127
Number of units outstanding at end of year................ 98,377 314,797 99,866
AMERICAN VARIABLE INSURANCE SERIES CLASS 2
GLOBAL GROWTH FUND (11/99)
Unit Value at beginning of year........................... 1.000 1.000 1.000
Unit Value at end of year................................. 1.211 1.211 1.210
Number of units outstanding at end of year................ 123,540 316,138 45,911
GROWTH FUND (11/99)
Unit Value at beginning of year........................... 1.000 1.000 1.000
Unit Value at end of year................................. 1.167 1.167 1.167
Number of units outstanding at end of year................ 1,134,441 477,335 131,798
GROWTH-INCOME FUND (11/99)
Unit Value at beginning of year........................... 1.000 1.000 1.000
Unit Value at end of year................................. 1.039 1.039 1.039
Number of units outstanding at end of year................ 46,596 174,106 303,426
TEMPLETON VARIABLE PRODUCTS SERIES FUND
FRANKLIN SMALL CAP INVESTMENTS FUND CLASS 2 (11/99)
Unit Value at beginning of year........................... 1.000 1.000 1.000
Unit Value at end of year................................. 1.215 1.215 1.215
Number of units outstanding at end of year................ 549,437 167,294 113,599
TEMPLETON INTERNATIONAL FUND CLASS 2(11/99)
Unit Value at beginning of year........................... 1.000 1.000 1.000
Unit Value at end of year................................. 1.115 1.115 1.114
Number of units outstanding at end of year................ 53,095 121,036 68,217
GREENWICH STREET SERIES FUND
APPRECIATION PORTFOLIO (11/99)
Unit Value at beginning of year........................... 1.000 1.000 1.000
Unit Value at end of year................................. 1.044 1.044 1.044
Number of units outstanding at end of year................ 84,121 31,957 38,295
DIVERSIFIED STRATEGIC INCOME PORTFOLIO (11/99)
Unit Value at beginning of year........................... 1.000 1.000 1.000
Unit Value at end of year................................. 0.999 0.999 0.999
Number of units outstanding at end of year................ 341,104 137,491 15,447
EQUITY INDEX PORTFOLIO CLASS II (11/99)
Unit Value at beginning of year........................... 1.000 1.000 1.000
Unit Value at end of year................................. 1.067 1.067 1.067
Number of units outstanding at end of year................ 348,286 55,283 9,761
TOTAL RETURN PORTFOLIO (12/99)
Unit Value at beginning of year........................... 1.000 1.000 1.000
Unit Value at end of year................................. 1.037 1.037 1.037
Number of units outstanding at end of year................ 12,938 2,425 2,903
SALOMON BROTHERS VARIABLE SERIES FUND, INC.
CAPITAL FUND (11/99)
Unit Value at beginning of year........................... 1.000 1.000 1.000
Unit Value at end of year................................. 1.033 1.033 1.033
Number of units outstanding at end of year................ 20,279 78,169 1,992
INVESTORS FUND (11/99)
Unit Value at beginning of year........................... 1.000 1.000 1.000
Unit Value at end of year................................. 1.029 1.029 1.029
Number of units outstanding at end of year................ 10,159 19,926 28,784
</TABLE>
A-1
<PAGE> 40
APPENDIX A
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
THE TRAVELERS SEPARATE ACCOUNT TEN FOR VARIABLE ANNUITIES
ACCUMULATION UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
PERIOD FROM OCTOBER 14, 1999
PORTFOLIO NAME (EFFECTIVE DATE) TO DECEMBER 31, 1999
- ----------------------------------------------------------------------------------------------------
<CAPTION>
STANDARD STEP-UP ROLL-UP
-------- ------- -------
<S> <C> <C> <C>
<S> <C> <C> <C>
SMALL CAP GROWTH FUND (11/99)
Unit Value at beginning of year........................... 1.000 1.000 1.000
Unit Value at end of year................................. 1.141 1.141 1.141
Number of units outstanding at end of year................ 35,132 61,393 --
THE TRAVELERS SERIES TRUST
DISCIPLINED SMALL CAP STOCK PORTFOLIO (11/99)
Unit Value at beginning of year........................... 1.000 1.000 1.000
Unit Value at end of year................................. 1.088 1.088 1.088
Number of units outstanding at end of year................ 24,556 -- --
EQUITY INCOME PORTFOLIO (11/99)
Unit Value at beginning of year........................... 1.000 1.000 1.000
Unit Value at end of year................................. 1.013 1.013 1.013
Number of units outstanding at end of year................ 19,805 10,535 --
LARGE CAP PORTFOLIO (11/99)
Unit Value at beginning of year........................... 1.000 1.000 1.000
Unit Value at end of year................................. 1.066 1.065 1.065
Number of units outstanding at end of year................ 559,758 157,286 1,681
MFS EMERGING GROWTH PORTFOLIO (11/99)
Unit Value at beginning of year........................... 1.000 1.000 1.000
Unit Value at end of year................................. 1.433 1.433 1.432
Number of units outstanding at end of year................ 857,752 266,524 15,369
MFS RESEARCH PORTFOLIO (11/99)
Unit Value at beginning of year........................... 1.000 1.000 1.000
Unit Value at end of year................................. 1.061 1.061 1.061
Number of units outstanding at end of year................ 54,286 16,748 5,622
STRATEGIC STOCK PORTFOLIO (11/99)
Unit Value at beginning of year........................... 1.000 1.000 1.000
Unit Value at end of year................................. 0.989 0.989 0.988
Number of units outstanding at end of year................ 29,465 -- 796
TRAVELERS SERIES FUND INC.
ALLIANCE GROWTH PORTFOLIO (11/99)
Unit Value at beginning of year........................... 1.000 1.000 1.000
Unit Value at end of year................................. 1.132 1.132 1.132
Number of units outstanding at end of year................ 774,589 468,390 108,285
MFS TOTAL RETURN PORTFOLIO (11/99)
Unit Value at beginning of year........................... 1.000 1.000 1.000
Unit Value at end of year................................. 0.999 0.999 0.999
Number of units outstanding at end of year................ 340,973 99,074 442
SMITH BARNEY AGGRESSIVE GROWTH PORTFOLIO (11/99)
Unit Value at beginning of year........................... 1.000 1.000 1.000
Unit Value at end of year................................. 1.210 1.210 1.209
Number of units outstanding at end of year................ 74,420 302,417 237,187
SMITH BARNEY HIGH INCOME PORTFOLIO (11/99)
Unit Value at beginning of year........................... 1.000 1.000 1.000
Unit Value at end of year................................. 1.016 1.016 1.016
Number of units outstanding at end of year................ 83,518 67,445 113,822
SMITH BARNEY INTERNATIONAL EQUITY PORTFOLIO (11/99)
Unit Value at beginning of year........................... 1.000 1.000 1.000
Unit Value at end of year................................. 1.207 1.206 1.206
Number of units outstanding at end of year................ 69,739 153,407 31,135
SMITH BARNEY LARGE CAPITALIZATION GROWTH PORTFOLIO (11/99)
Unit Value at beginning of year........................... 1.000 1.000 1.000
Unit Value at end of year................................. 1.090 1.090 1.090
Number of units outstanding at end of year................ 241,754 175,985 110,096
</TABLE>
A-2
<PAGE> 41
APPENDIX A
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
THE TRAVELERS SEPARATE ACCOUNT TEN FOR VARIABLE ANNUITIES
ACCUMULATION UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
PERIOD FROM OCTOBER 14, 1999
PORTFOLIO NAME (EFFECTIVE DATE) TO DECEMBER 31, 1999
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
<CAPTION>
STANDARD STEP-UP ROLL-UP
-------- ------- -------
<S> <C> <C> <C>
SMITH BARNEY LARGE CAP VALUE PORTFOLIO (11/99)
Unit Value at beginning of year........................... 1.000 1.000 1.000
Unit Value at end of year................................. 0.964 0.964 0.964
Number of units outstanding at end of year................ 99,981 93,179 107,886
SMITH BARNEY MID CAP PORTFOLIO (11/99)
Unit Value at beginning of year........................... 1.000 1.000 1.000
Unit Value at end of year................................. 1.172 1.171 1.171
Number of units outstanding at end of year................ 26,517 49,546 19,386
SMITH BARNEY MONEY MARKET PORTFOLIO (11/99)
Unit Value at beginning of year........................... 1.000 1.000 1.000
Unit Value at end of year................................. 1.006 1.006 1.005
Number of units outstanding at end of year................ 25,456 750,776 50,000
TRAVELERS MANAGED INCOME PORTFOLIO (11/99)
Unit Value at beginning of year........................... 1.000 1.000 1.000
Unit Value at end of year................................. 0.994 0.994 0.994
Number of units outstanding at end of year................ 2,445 150,289 2,457
VAN KAMPEN ENTERPRISE PORTFOLIO (11/99)
Unit Value at beginning of year........................... 1.000 1.000 1.000
Unit Value at end of year................................. 1.145 1.145 1.144
Number of units outstanding at end of year................ 168,261 3,784 3,773
VAN KAMPEN LIFE INVESTMENT TRUST
EMERGING GROWTH PORTFOLIO (11/99)
Unit Value at beginning of year........................... 1.000 1.000 1.000
Unit Value at end of year................................. 1.345 1.344 1.344
Number of units outstanding at end of year................ 148,853 237,085 116,490
VARIABLE INSURANCE PRODUCTS FUND II
CONTRAFUND PORTFOLIO -- SERVICE CLASS (11/99)
Unit Value at beginning of year........................... 1.000 1.000 1.000
Unit Value at end of year................................. 1.138 1.138 1.138
Number of units outstanding at end of year................ 68,187 151,914 700
</TABLE>
The date shown next to the name of each funding option is the date money first
came into the funding option through the Separate Account.
The financial statements of Separate Account Ten 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.
A-3
<PAGE> 42
THIS PAGE INTENTIONALLY LEFT BLANK.
<PAGE> 43
APPENDIX B
- --------------------------------------------------------------------------------
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.
B-1
<PAGE> 44
THIS PAGE INTENTIONALLY LEFT BLANK.
<PAGE> 45
APPENDIX C
- --------------------------------------------------------------------------------
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information contains more specific information and
financial statements relating to The Travelers Insurance Company 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-20668S, and the The Travelers
Life and Annuity Statement of Additional Information is printed on Form L-20669S
Name:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
C-1
<PAGE> 46
L-20668 May 1, 2000
<PAGE> 47
PART B
Information Required in a Statement of Additional Information
<PAGE> 48
TRAVELERS VINTAGE II
STATEMENT OF ADDITIONAL INFORMATION
dated
May 1, 2000
for
THE TRAVELERS SEPARATE ACCOUNT NINE 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 Individual Variable Annuity
Contract Prospectus dated May 1, 2000. A copy of the Prospectus may be obtained
by writing to The Travelers Insurance Company, Annuity Investor Services, One
Tower Square, Hartford, Connecticut 06183-9061, or by calling 1-800-842-8573 or
by accessing the Securities and Exchange Commission's website at
http://www.sec.gov.
TABLE OF CONTENTS
<TABLE>
<S> <C>
THE INSURANCE COMPANY ................................ 2
PRINCIPAL UNDERWRITER ................................ 2
DISTRIBUTION AND PRINCIPAL UNDERWRITING AGREEMENT .... 3
VALUATION OF ASSETS .................................. 3
PERFORMANCE INFORMATION .............................. 4
MIXED AND SHARED FUNDING ............................. 8
FEDERAL TAX CONSIDERATIONS ........................... 8
INDEPENDENT ACCOUNTANTS .............................. 11
FINANCIAL STATEMENTS ................................. F-1
</TABLE>
1
<PAGE> 49
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 a 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 (the "Commissioner"). An annual statement covering the
operations of the Company for the preceding year, as well as its financial
conditions as of December 31 of such year, must be filed with the Commissioner
in a prescribed format on or before March 1 of each year. The Company's books
and assets are subject to review or examination by the Commissioner or his
agents at all times, and a full examination of its operations is conducted at
least once every four years.
The Company is also subject to the insurance laws and regulations of
all other states in which it is licensed to operate. However, the insurance
departments of each of these states generally apply the laws of the home state
(jurisdiction of domicile) in determining the field of permissible investments.
THE SEPARATE ACCOUNT. Separate Account Nine meets the definition of a separate
account under the federal securities laws, and will comply with the provisions
of the 1940 Act. Additionally, the operations of Separate Account Nine are
subject to the provisions of Section 38a-433 of the Connecticut General Statutes
which authorizes the Commissioner to adopt regulations under it. Section 38a-433
contains no restrictions on the investments of the Separate Account, and the
Commissioner has adopted no regulations under the Section that affect the
Separate Account.
PRINCIPAL UNDERWRITER
CFBDS, Inc. serves as principal underwriter for Separate Account Nine
and the Contracts. The offering is continuous. CFBDS's principal executive
offices are located at 21 Milk Street, Boston, Massachusetts. CFBDS is not
affiliated with the Company or Separate Account Nine. 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.
2
<PAGE> 50
DISTRIBUTION AND PRINCIPAL UNDERWRITING AGREEMENT
Under the terms of the Distribution and Principal Underwriting
Agreement among the Separate Account, 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.
3
<PAGE> 51
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 business day
just ended, divided by (c) the assumed net investment factor for the valuation
period. (For example, the assumed net investment factor based on an annual
assumed net investment rate of 3.0% for a valuation period of one day is
1.000081 and, for a period of two days, is 1.000081 x 1.000081.)
PERFORMANCE INFORMATION
From time to time, the Company may advertise several types of
historical performance for the Funding Options of the Separate Account. The
Company may advertise the "standardized average annual total returns" of the
Funding Options available through the Separate Account, calculated in a manner
prescribed by the Securities and Exchange Commission, as well as the
"nonstandardized total returns," as described below:
STANDARDIZED METHOD. Quotations of average annual total returns are
computed according to a formula in which a hypothetical initial investment of
$1,000 is allocated to the Funding Option, and then related to ending redeemable
values over one-, five- and ten-year periods, or for a period covering the time
during which the Funding Option has been in existence, if less. If a Funding
Option has been in existence for less than one year, the "since inception" total
return performance quotations are year-to-date and are not average annual total
returns. These quotations reflect the deduction of all recurring charges during
each period (on a pro rata basis in the case of fractional periods). The
deduction for the annual contract administrative charge is converted to a
percentage of assets based on the actual fee collected, divided by the average
net assets per contract sold under the Prospectus to which this SAI relates.
Each quotation assumes a total redemption at the end of each period with the
applicable withdrawal charge deducted at that time.
NONSTANDARDIZED METHOD. Nonstandardized "total returns" will be
calculated in a similar manner based on the performance of the Funding Options
over a period of time, usually for the calendar year-to-date, and for the past
one-, three-, five- and ten-year periods. Nonstandardized total returns will not
reflect the deduction of the annual contract administrative charge, which, if
reflected, would decrease the level of performance shown. The withdrawal charge
is not reflected because the Contract is designed for long-term investment.
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
4
<PAGE> 52
they been held under the Contract for the period quoted. The total return
quotations are based upon historical earnings and are not necessarily
representative of future performance.
GENERAL. Within the guidelines prescribed by the SEC and the National
Association of Securities Dealers, Inc. ("NASD"), performance information may be
quoted numerically or may be presented in a table, graph or other illustration.
Advertisements may include data comparing performance to well-known indices of
market performance (including, but not limited to, the Dow Jones Industrial
Average, the Standard & Poor's (S&P) 500 Index and the S&P 400 Index, the Lehman
Brothers Long T-Bond Index, the Russell 1000, 2000 and 3000 Indices, the Value
Line Index, and the Morgan Stanley Capital International's EAFE Index).
Advertisements may also include published editorial comments and performance
rankings compiled by independent organizations (including, but not limited to,
Lipper Analytical Services, Inc. and Morningstar, Inc.) and publications that
monitor the performance of the Separate Account and the Funding Options.
Average annual total returns for each of the Funding Options computed
according to the nonstandardized method for the period ending December 31, 1999
are set forth in the following table. Actual returns for the Separate Account
are not available, since the separate account is new and therefore has no
investment history. However, average annual total returns have been calculated
using each Funding Option's investment performance since inception.
5
<PAGE> 53
TRAVELERS VINTAGE II
NONSTANDARDIZED PERFORMANCE UPDATE AS OF 12/31/99
<TABLE>
<CAPTION>
CUMULATIVE RETURNS
------------------------------------------------------
ROLL-UP DEATH BENEFIT YTD 1 YR 3YR 5YR 10YR
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STOCK ACCOUNTS:
- -----------------------------------------------------------------------------------------------------------------
Alliance Growth Portfolio 30.23% 30.23% 110.22% 255.59% -
- -----------------------------------------------------------------------------------------------------------------
Alliance Premier Growth Portfolio Class B * 30.12% 30.12% 149.88% 330.71% -
- -----------------------------------------------------------------------------------------------------------------
American Funds Global Growth Fund * 67.11% 67.11% - - -
- -----------------------------------------------------------------------------------------------------------------
American Funds Growth Fund * 54.89% 54.89% 163.74% 284.39% 479.14%
- -----------------------------------------------------------------------------------------------------------------
American Funds Growth-Income Fund * 9.50% 9.50% 57.44% 139.84% 227.14%
- -----------------------------------------------------------------------------------------------------------------
Equity Income Portfolio (Fidelity) 3.31% 3.31% 48.97% - -
- -----------------------------------------------------------------------------------------------------------------
Equity Index Portfolio Class II * 18.75% 18.75% 97.57% 226.08% -
- -----------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund (R) Portfolio- 22.26% 22.26% 91.20% - -
Service Class*
- -----------------------------------------------------------------------------------------------------------------
Franklin Small Cap Investments Fund Class 2 * 71.69% 71.69% - - -
- -----------------------------------------------------------------------------------------------------------------
Large Cap Portfolio (Fidelity) 27.33% 27.33% 106.60% - -
- -----------------------------------------------------------------------------------------------------------------
MFS Emerging Growth Portfolio 74.07% 74.07% 174.55% - -
- -----------------------------------------------------------------------------------------------------------------
MFS Research Portfolio 21.78% 21.78% - - -
- -----------------------------------------------------------------------------------------------------------------
Salomon Brothers Capital Fund 20.21% 20.21% - - -
- -----------------------------------------------------------------------------------------------------------------
Salomon Brothers Investors Fund 9.94% 9.94% - - -
- -----------------------------------------------------------------------------------------------------------------
Salomon Brothers Small Cap Growth Fund - - - - -
- -----------------------------------------------------------------------------------------------------------------
Smith Barney Aggressive Growth Portfolio - - - - -
- -----------------------------------------------------------------------------------------------------------------
Smith Barney Appreciation Portfolio 11.39% 11.39% 62.62% 143.59% -
- -----------------------------------------------------------------------------------------------------------------
Smith Barney International Equity Portfolio 65.17% 65.17% 75.13% 122.38% -
- -----------------------------------------------------------------------------------------------------------------
Smith Barney Large Cap Growth Portfolio 28.83% 28.83% - - -
- -----------------------------------------------------------------------------------------------------------------
Smith Barney Large Cap Value Portfolio -1.47% -1.47% 32.84% 105.25% -
- -----------------------------------------------------------------------------------------------------------------
Smith Barney Mid Cap Portfolio - - - - -
- -----------------------------------------------------------------------------------------------------------------
Smith Barney Total Return Portfolio 20.16% 20.16% 42.87% 116.96% -
- -----------------------------------------------------------------------------------------------------------------
Strategic Stock Portfolio 3.35% 3.35% - - -
- -----------------------------------------------------------------------------------------------------------------
Templeton International Fund Class 2 * 21.34% 21.34% 45.84% 103.17% -
- -----------------------------------------------------------------------------------------------------------------
Travelers Disciplined Small Cap Stock 18.56% 18.56% - - -
Portfolio
- -----------------------------------------------------------------------------------------------------------------
Van Kampen Emerging Growth Portfolio 101.27% 101.27% 223.28% - -
- -----------------------------------------------------------------------------------------------------------------
Van Kampen Enterprise Portfolio 24.00% 24.00% 93.45% 205.86% -
- -----------------------------------------------------------------------------------------------------------------
BOND ACCOUNTS:
- -----------------------------------------------------------------------------------------------------------------
Smith Barney Diversified Strategic Income 0.16% 0.16% 11.73% 39.87% -
Portfolio
- -----------------------------------------------------------------------------------------------------------------
Smith Barney High Income Portfolio 1.02% 1.02% 12.00% 46.28% -
- -----------------------------------------------------------------------------------------------------------------
Travelers Managed Income Portfolio -0.66% -0.66% 11.03% 28.52% -
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
AVERAGE ANNUAL RETURNS
-----------------------------------------------------------
ROLL-UP DEATH BENEFIT 3YR 5YR 10YR Inception Inception
Date to Date #
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STOCK ACCOUNTS:
- ---------------------------------------------------------------------------------------------------------------------
Alliance Growth Portfolio 28.10% 28.86% - 6/20/94 26.77%
- ---------------------------------------------------------------------------------------------------------------------
Alliance Premier Growth Portfolio Class B * 35.70% 33.90% - 6/26/92 24.37%
- ---------------------------------------------------------------------------------------------------------------------
American Funds Global Growth Fund * - - - 4/30/97 35.96%
- ---------------------------------------------------------------------------------------------------------------------
American Funds Growth Fund * 38.16% 30.88% 19.19% 2/8/84 17.79%
- ---------------------------------------------------------------------------------------------------------------------
American Funds Growth-Income Fund * 16.33% 19.11% 12.58% 2/28/85 13.69%
- ---------------------------------------------------------------------------------------------------------------------
Equity Income Portfolio (Fidelity) 14.21% - - 8/30/96 16.30%
- ---------------------------------------------------------------------------------------------------------------------
Equity Index Portfolio Class II * 25.48% 26.65% - 11/30/91 19.36%
- ---------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund (R) Portfolio- 24.12% - - 1/31/95 26.58%
Service Class*
- ---------------------------------------------------------------------------------------------------------------------
Franklin Small Cap Investments Fund Class 2 * - - - 5/1/98 30.94%
- ---------------------------------------------------------------------------------------------------------------------
Large Cap Portfolio (Fidelity) 27.36% - - 8/30/96 28.83%
- ---------------------------------------------------------------------------------------------------------------------
MFS Emerging Growth Portfolio 40.02% - - 8/30/96 37.53%
- ---------------------------------------------------------------------------------------------------------------------
MFS Research Portfolio - - - 3/23/98 14.64%
- ---------------------------------------------------------------------------------------------------------------------
Salomon Brothers Capital Fund - - - 2/17/98 19.69%
- ---------------------------------------------------------------------------------------------------------------------
Salomon Brothers Investors Fund - - - 2/17/98 10.22%
- ---------------------------------------------------------------------------------------------------------------------
Salomon Brothers Small Cap Growth Fund - - - 11/1/99 21.30%
- ---------------------------------------------------------------------------------------------------------------------
Smith Barney Aggressive Growth Portfolio - - - 11/1/99 20.69%
- ---------------------------------------------------------------------------------------------------------------------
Smith Barney Appreciation Portfolio 17.60% 19.48% - 10/16/91 13.02%
- ---------------------------------------------------------------------------------------------------------------------
Smith Barney International Equity Portfolio 20.54% 17.32% - 6/20/94 14.54%
- ---------------------------------------------------------------------------------------------------------------------
Smith Barney Large Cap Growth Portfolio - - - 5/1/98 32.00%
- ---------------------------------------------------------------------------------------------------------------------
Smith Barney Large Cap Value Portfolio 9.93% 15.46% - 6/20/94 13.45%
- ---------------------------------------------------------------------------------------------------------------------
Smith Barney Mid Cap Portfolio - - - 11/1/99 16.64%
- ---------------------------------------------------------------------------------------------------------------------
Smith Barney Total Return Portfolio 12.63% 16.75% - 12/3/93 15.21%
- ---------------------------------------------------------------------------------------------------------------------
Strategic Stock Portfolio - - - 5/1/98 -2.14%
- ---------------------------------------------------------------------------------------------------------------------
Templeton International Fund Class 2 * 13.40% 15.22% - 5/1/92 13.47%
- ---------------------------------------------------------------------------------------------------------------------
Travelers Disciplined Small Cap Stock - - - 5/1/98 2.58%
Portfolio
- ---------------------------------------------------------------------------------------------------------------------
Van Kampen Emerging Growth Portfolio 47.86% - - 7/3/95 38.41%
- ---------------------------------------------------------------------------------------------------------------------
Van Kampen Enterprise Portfolio 24.60% 25.04% - 6/21/94 23.19%
- ---------------------------------------------------------------------------------------------------------------------
BOND ACCOUNTS:
- ---------------------------------------------------------------------------------------------------------------------
Smith Barney Diversified Strategic Income 3.77% 6.94% - 10/16/91 5.03%
Portfolio
- ---------------------------------------------------------------------------------------------------------------------
Smith Barney High Income Portfolio 3.85% 7.90% - 6/22/94 6.84%
- ---------------------------------------------------------------------------------------------------------------------
Travelers Managed Income Portfolio 3.55% 5.14% - 6/28/94 4.56%
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
CALENDAR YEAR RETURNS
----------------------------------
ROLL-UP DEATH BENEFIT 1998 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
STOCK ACCOUNTS:
- ---------------------------------------------------------------------------------------------
Alliance Growth Portfolio 27.07% 27.04% 27.38%
- ---------------------------------------------------------------------------------------------
Alliance Premier Growth Portfolio Class B * 45.70% 31.80% 20.80%
- ---------------------------------------------------------------------------------------------
American Funds Global Growth Fund * 26.80% - -
- ---------------------------------------------------------------------------------------------
American Funds Growth Fund * 33.20% 27.84% 11.34%
- ---------------------------------------------------------------------------------------------
American Funds Growth-Income Fund * 16.29% 23.64% 16.61%
- ---------------------------------------------------------------------------------------------
Equity Income Portfolio (Fidelity) 10.68% 30.29% -
- ---------------------------------------------------------------------------------------------
Equity Index Portfolio Class II * 26.62% 31.40% 21.60%
- ---------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund (R) Portfolio- 27.97% 22.21% 19.37%
Service Class*
- ---------------------------------------------------------------------------------------------
Franklin Small Cap Investments Fund Class 2 * - - -
- ---------------------------------------------------------------------------------------------
Large Cap Portfolio (Fidelity) 33.49% 21.55% -
- ---------------------------------------------------------------------------------------------
MFS Emerging Growth Portfolio 32.24% 19.27% -
- ---------------------------------------------------------------------------------------------
MFS Research Portfolio - - -
- ---------------------------------------------------------------------------------------------
Salomon Brothers Capital Fund - - -
- ---------------------------------------------------------------------------------------------
Salomon Brothers Investors Fund - - -
- ---------------------------------------------------------------------------------------------
Salomon Brothers Small Cap Growth Fund - - -
- ---------------------------------------------------------------------------------------------
Smith Barney Aggressive Growth Portfolio - - -
- ---------------------------------------------------------------------------------------------
Smith Barney Appreciation Portfolio 17.30% 24.47% 18.07%
- ---------------------------------------------------------------------------------------------
Smith Barney International Equity Portfolio 4.85% 1.12% 15.90%
- ---------------------------------------------------------------------------------------------
Smith Barney Large Cap Growth Portfolio - - -
- ---------------------------------------------------------------------------------------------
Smith Barney Large Cap Value Portfolio 8.13% 24.68% 17.93%
- ---------------------------------------------------------------------------------------------
Smith Barney Mid Cap Portfolio - - -
- ---------------------------------------------------------------------------------------------
Smith Barney Total Return Portfolio 3.35% 15.05% 23.48%
- ---------------------------------------------------------------------------------------------
Strategic Stock Portfolio - - -
- ---------------------------------------------------------------------------------------------
Templeton International Fund Class 2 * 7.32% 12.00% 22.18%
- ---------------------------------------------------------------------------------------------
Travelers Disciplined Small Cap Stock - - -
Portfolio
- ---------------------------------------------------------------------------------------------
Van Kampen Emerging Growth Portfolio 35.43% 18.60% 14.86%
- ---------------------------------------------------------------------------------------------
Van Kampen Enterprise Portfolio 23.20% 26.63% 21.03%
- ---------------------------------------------------------------------------------------------
BOND ACCOUNTS:
- ---------------------------------------------------------------------------------------------
Smith Barney Diversified Strategic Income 4.77% 6.47% 9.55%
Portfolio
- ---------------------------------------------------------------------------------------------
Smith Barney High Income Portfolio -1.10% 12.10% 11.39%
- ---------------------------------------------------------------------------------------------
Travelers Managed Income Portfolio 3.46% 8.04% 1.43%
- ---------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 54
TRAVELERS VINTAGE II (CONT'D)
NONSTANDARDIZED PERFORMANCE UPDATE AS OF 12/31/99
<TABLE>
<CAPTION>
CUMULATIVE RETURNS AVERAGE ANNUAL RETURNS
------------------------------------------ ---------------------------------------------
ROLL-UP DEATH BENEFIT YTD 1 YR 3YR 5YR 10YR 3YR 5YR 10YR Inception Inception
Date to Date #
- ---------------------------------------------------------------------------------- ---------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCED ACCOUNTS:
- ---------------------------------------------------------------------------------- ---------------------------------------------
MFS Total Return Portfolio 1.05% 1.05% 32.58% 84.98% - 9.86% 13.08% - 6/20/94 11.28%
- ---------------------------------------------------------------------------------- ---------------------------------------------
MONEY MARKET ACCOUNTS:
- ---------------------------------------------------------------------------------- ---------------------------------------------
Smith Barney Money Market Portfolio 3.15% 3.15% 10.40% 18.41% - 3.35% 3.44% - 6/20/94 3.35%
- ---------------------------------------------------------------------------------- ---------------------------------------------
<CAPTION>
CALENDAR YEAR RETURNS
-----------------------------
ROLL-UP DEATH BENEFIT 1998 1997 1996
- ---------------------------------------------------------------------
<S> <C> <C> <C>
BALANCED ACCOUNTS:
- ---------------------------------------------------------------------
MFS Total Return Portfolio 9.95% 19.33% 12.73%
- ---------------------------------------------------------------------
MONEY MARKET ACCOUNTS:
- ---------------------------------------------------------------------
Smith Barney Money Market Portfolio 3.43% 3.48% 3.33%
- ---------------------------------------------------------------------
</TABLE>
* Certain funds offer multiple classes of shares. The performance above may
reflect the fees and performance of another class of the same fund for periods
before the current class existed. If the current class's 12b-1 fee and other
expenses were higher, the performance shown would be lower. # The inception date
is the date that the underlying fund commenced operations.
7
<PAGE> 55
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 conceivable 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 includible in income
annually. Furthermore, for contracts issued after April 22, 1987, all deferred
increases in value will be includible 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
8
<PAGE> 56
withdrawn first without income tax liability. This information on deposits must
be provided to the Company by the other insurance company at the time of the
exchange. There is income in the contract generally to the extent the cash value
exceeds the investment in the contract. The investment in the contract is equal
to the amount of premiums paid less any amount received previously which was
excludable from gross income. Any direct or indirect borrowing against the value
of the contract or pledging of the contract as security for a loan will be
treated as a cash distribution under the tax law.
The federal tax law requires that nonqualified annuity contracts meet
minimum mandatory distribution requirements upon the death of the contract
owner, including the first of joint owners. Failure to meet these requirements
will cause the surviving joint owner, or the beneficiary to lose the tax
benefits associated with annuity contracts, i.e., primarily the tax deferral
prior to distribution. The distribution required depends, among other things,
upon whether an annuity option is elected or whether the new contract owner is
the surviving spouse. Contracts will be administered by the Company in
accordance with these rules and the Company will make a notification when
payments should be commenced.
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
9
<PAGE> 57
be subject to tax and other special rules apply. You should consult a tax
adviser before combining any converted amounts with other Roth IRA
contributions, including any other conversion amounts from other tax years.
Qualified distributions from a Roth IRA are tax-free. A qualified
distribution requires that the Roth IRA has been held for at least 5 years, and
the distribution is made after age 59 1/2, on death or disability of the owner,
or for a limited amount ($10,000) for a qualified first time home purchase for
the owner or certain relatives. Income tax and a 10% penalty tax may apply to
distributions made (1) before age 59 1/2 (subject to certain exceptions) or (2)
during five taxable years starting with the year in which the first contribution
is made to the Roth IRA.
QUALIFIED PENSION AND PROFIT-SHARING PLANS
Under a qualified pension or profit-sharing plan, purchase payments
made by an employer are not currently taxable to the participant and increases
in the value of a contract are not subject to taxation until received by a
participant or beneficiary.
Distributions are taxable to the participant or beneficiary as ordinary
income in the year of receipt. Any distribution that is considered the
participant's "investment in the contract" is treated as a return of capital and
is not taxable. Certain lump-sum distributions may be eligible for special
forward averaging tax treatment for certain classes of individuals.
FEDERAL INCOME TAX WITHHOLDING
The portion of a distribution which is taxable income to the recipient
will be subject to federal income tax withholding as follows:
1. ELIGIBLE ROLLOVER DISTRIBUTION FROM SECTION 403(b) PLANS OR ARRANGEMENTS OR
FROM QUALIFIED PENSION AND PROFIT-SHARING PLANS
There is a mandatory 20% tax withholding for plan distributions that are
eligible for rollover to an IRA or to another retirement plan but that are not
directly rolled over. A distribution made directly to a participant or
beneficiary may avoid this result if:
(a) a periodic settlement distribution is elected based upon a life or
life expectancy calculation, or
(b) a term-for-years settlement distribution is elected for a period of
ten years or more, payable at least annually, or
(c) a minimum required distribution as defined under the tax law is taken
after the attainment of the age of 701/2 or as otherwise required by
law.
A distribution including a rollover that is not a direct rollover will
be subject to the 20% withholding, and a 10% additional tax penalty may apply to
any amount not added back in the rollover. The 20% withholding may be recovered
when the participant or beneficiary files a personal income tax return for the
year if a rollover was completed within 60 days of receipt of the funds, except
to the extent that the participant or spousal beneficiary is otherwise
underwithheld or short on estimated taxes for that year.
2. OTHER NON-PERIODIC DISTRIBUTIONS (FULL OR PARTIAL REDEMPTIONS)
10
<PAGE> 58
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, 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.
11
<PAGE> 59
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> 60
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 $839
================================================================================================== ============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE> 61
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ 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 $56,548
============================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE> 62
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN RETAINED EARNINGS AND
ACCUMULATED OTHER CHANGES IN EQUITY FROM NON-OWNER SOURCES
($ 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 $1,151
===========================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE> 63
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
($ 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> 64
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> 65
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> 66
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> 67
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> 68
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> 69
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> 70
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 $201.3 billion at December 31,
1999 and 1998.
The Company writes workers' compensation business through its Accident
Department. This business is ceded 100% to an affiliate, The Travelers
Indemnity Company.
F-12
<PAGE> 71
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
A summary of reinsurance financial data reflected within the consolidated
statements of income and balance sheets is presented below ($ 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> 72
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 $500 million in
1999, 1998 and 1997, respectively.
F-14
<PAGE> 73
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
4. SHAREHOLDER'S EQUITY (continued)
Accumulated Other Changes in Equity from Non-Owner Sources, Net of Tax
Changes in each component of Accumulated Other Changes in Equity from Non-Owner
Sources were as follows:
<TABLE>
<CAPTION>
ACCUMULATED OTHER
NET UNREALIZED FOREIGN CHANGES IN EQUITY FROM
GAIN (LOSS) ON CURRENCY NON-OWNER SOURCES
INVESTMENT SECURITIES TRANSLATION
($ 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> 74
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> 75
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> 76
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> 77
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> 78
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> 79
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> 80
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 $195 million, by an
affiliate. Minimum future capital lease payments are not significant.
The Company is reimbursed for use of furniture and equipment through cost
sharing agreements by its affiliates.
F-22
<PAGE> 81
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
10. FEDERAL INCOME TAXES
EFFECTIVE TAX RATE
<TABLE>
<CAPTION>
($ 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 $17 million for each of the years
ended December 31, 1999, 1998 and 1997.
F-23
<PAGE> 82
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The net deferred tax liabilities at December 31, 1999 and 1998 were
comprised of the tax effects of temporary differences related to the
following assets and liabilities:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
($ 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> 83
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 $199
------------------------------------------------------------------------------------------------------
</TABLE>
F-25
<PAGE> 84
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Changes in net unrealized investment gains (losses) that are reported as
accumulated other changes in equity from non-owner sources or unrealized
gains on Citigroup stock in shareholder's equity were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1999 1998 1997
($ 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 $506 million, which were reported in
1997, related to appreciation of Citigroup common stock.
F-26
<PAGE> 85
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Fixed Maturities
The amortized cost and fair value of investments in fixed maturities were
as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
GROSS GROSS
DECEMBER 31, 1999 AMORTIZED UNREALIZED UNREALIZED FAIR
($ 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> 86
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
$1.4 billion of GNMA, FNMA or FHLMC mortgage-backed pass-through securities
at December 31, 1999 and 1998, respectively. Virtually all of these
securities are rated AAA.
F-28
<PAGE> 87
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Equity Securities
The cost and fair values of investments in equity securities were as
follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
GROSS GROSS
EQUITY SECURITIES: UNREALIZED UNREALIZED FAIR
($ 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 $2,749
==================================================================================================
</TABLE>
Underperforming mortgage loans include delinquent mortgage loans, loans in
the process of foreclosure, foreclosed loans and loans modified at interest
rates below market.
F-29
<PAGE> 88
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Aggregate annual maturities on mortgage loans at December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
YEAR ENDING DECEMBER 31,
($ 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> 89
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> 90
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 $6.2
billion of liabilities are surrenderable without charge. More than 12.7% of
these relate to individual life products. These risks would have to be
underwritten again if transferred to another carrier, which is considered a
significant deterrent against withdrawal by long-term policyholders.
Insurance liabilities that are surrendered or withdrawn are reduced by
outstanding policy loans and related accrued interest prior to payout.
F-32
<PAGE> 91
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
14. RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
The following table reconciles net income to net cash provided by operating
activities:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1999 1998 1997
($ 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> 92
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 $63,531
-----------------------------------------------------------------------------------------------------------------
</TABLE>
F-34
<PAGE> 93
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
TRAVELERS LIFE & PRIMERICA LIFE
1998 ($ 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 $49,440
-----------------------------------------------------------------------------------------------------------------
</TABLE>
The amount of investments in equity method investees and total expenditures
for additions to long-lived assets other than financial instruments,
long-term customer relationships of a financial institution, mortgage and
other servicing rights, deferred policy acquisition costs, and deferred tax
assets, were not material.
F-35
<PAGE> 94
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
BUSINESS SEGMENT RECONCILIATION:
($ 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> 95
TRAVELERS VINTAGE II
STATEMENT OF ADDITIONAL INFORMATION
THE TRAVELERS SEPARATE ACCOUNT NINE FOR VARIABLE ANNUITIES
Individual Variable Annuity Contract
issued by
The Travelers Insurance Company
One Tower Square
Hartford, Connecticut 06183
L-20668S May 2000
<PAGE> 96
PART C
Other Information
Item 24. Financial Statements and Exhibits
(a) The financial statements of the Registrant are not provided since the
Registrant did not have assets as of the year ended December 31, 1999.
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 June 30, 1999.)
2. Not Applicable.
3(a). 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). 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 the Registration Statement on Form N-4, filed on September 29,
1999.)
5. Application. (Incorporated herein by reference to Exhibit 5 to the
Registration Statement on Form N-4, filed on September 29, 1999.)
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.)
<PAGE> 97
9. Opinion of Counsel as to the legality of securities being registered.
(Incorporated herein by reference to Exhibit 9 to the Registration
Statement on Form N-4 filed June 30, 1999.)
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
the Registration Statement on Form N-4, filed on September 29, 1999.)
15. Powers of Attorney authorizing Ernest J. Wright or Kathleen A. McGah as
signatory for Michael A. Carpenter, J. Eric Daniels, Jay S. Benet,
George C. Kokulis, Robert I. Lipp, Katherine M. Sullivan and Marc P.
Weill. (Incorporated herein by reference to Exhibit 15 to the
Registration Statement on Form N-4 filed June 30, 1999.)
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
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
</TABLE>
<PAGE> 98
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
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, 4 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.
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
<PAGE> 99
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.
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 Seven for Variable Annuities, The Travelers
Separate Account Eight 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,
<PAGE> 100
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 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
<PAGE> 101
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 27 with respect to each director
and officer of CFBDS 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.
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> 102
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 13th day of
April, 2000.
THE TRAVELERS SEPARATE ACCOUNT NINE 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 13th day of
April 2000.
*GEORGE C. KOKULIS Director, President and Chief Executive Officer
- ---------------------------- (Principal Executive Officer)
(George C. Kokulis)
*KATHERINE M. SULLIVAN Director
- ----------------------------
(Katherine M. Sullivan)
*MARC P. WEILL Director
- ----------------------------
(Marc P. Weill)
*By: /s/Ernest J. Wright, Attorney-in-Fact
<PAGE> 103
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
- ------- ----------- ----------------
<S> <C> <C>
10. Consent of KPMG LLP, Independent Certified Public Accountants. Electronically
15(b). Powers of Attorney authorizing Ernest J. Wright and Kathleen A. Electronically
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 11, 2000
<PAGE> 1
Exhibit 15(b)
THE TRAVELERS SEPARATE ACCOUNT NINE FOR VARIABLE ANNUITIES
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, GEORGE C. KOLULIS 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
Nine 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 NINE 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 Nine 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 NINE 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 Nine 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
