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Registration No. 2-79529
811-3575
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 32
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 32
THE TRAVELERS FUND U 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
Secretary
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.
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X on May 1, 1999 pursuant to paragraph (b) of Rule 485.
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60 days after filing pursuant to paragraph (a)(1) of Rule 485.
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on ___________ pursuant to paragraph (a)(1) of Rule 485.
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If appropriate, check the following box:
_____ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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PART A
INFORMATION REQUIRED IN A PROSPECTUS
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UNIVERSAL ANNUITY
PROSPECTUS
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This prospectus describes Universal Annuity, a flexible premium variable annuity
Contract (the "Contract") issued by The Travelers Insurance Company (the
"Company," "us" or "we").
The Contract's value will vary daily to reflect the investment experience of the
funding options you select and the interest credited to the Fixed (Flexible
Annuity) Account. The variable funding options are:
MANAGED SEPARATE ACCOUNTS
Travelers Growth and Income Stock Account ("Account GIS")
Travelers Money Market Account
("Account MM")
Travelers Quality Bond Account
("Account QB")
Travelers Timed Aggressive Stock Account ("Account TAS")
Travelers Timed Growth and Income Stock
Account ("Account TGIS")
Travelers Timed Short-Term Bond Account ("Account TSB")
TRAVELERS FUND U FOR VARIABLE ANNUITIES
Capital Appreciation Fund
Dreyfus Stock Index Fund
High Yield Bond Trust
Managed Assets Trust
AMERICAN ODYSSEY FUNDS, INC.
Core Equity Fund
Emerging Opportunities Fund
Global High-Yield Bond Fund
Intermediate-Term Bond Fund
International Equity Fund
Long-Term Bond Fund
DREYFUS VARIABLE INVESTMENT FUND
Small Cap Portfolio
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND
VIP Equity Income Portfolio
VIP Growth Portfolio
VIP High Income Portfolio
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II
VIP II Asset Manager Portfolio
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Templeton Asset Allocation Fund
(Class 1)
Templeton Bond Fund (Class 1)
Templeton Stock Fund (Class 1)
TRAVELERS SERIES FUND, INC.
Alliance Growth Portfolio
MFS Total Return Portfolio
Putnam Diversified Income Portfolio
Smith Barney High Income Portfolio
Smith Barney International Equity Portfolio
Smith Barney Large Cap Value Portfolio
TRAVELERS SERIES TRUST
Disciplined Mid Cap Stock Portfolio
Social Awareness Stock Portfolio
U.S. Government Securities Portfolio
Utilities Portfolio
THE FIXED ACCOUNT IS DESCRIBED IN APPENDIX A. SOME OF THE FUNDING OPTIONS MAY
NOT BE AVAILABLE IN ALL STATES. THIS PROSPECTUS MUST BE ACCOMPANIED BY THE
CURRENT PROSPECTUSES FOR FUND U'S UNDERLYING FUNDS. PLEASE READ AND RETAIN THEM
FOR FUTURE REFERENCE.
This prospectus provides the information that you should know before investing.
You can receive additional information by requesting a Statement of Additional
Information ("SAI") dated May 1, 1999. The SAI has been filed with the
Securities and Exchange Commission ("SEC") and is incorporated by reference into
this prospectus. To request a free copy write to The Travelers Insurance
Company, Annuity Services, One Tower Square, Hartford, Connecticut 06183-5030,
call 1-800-842-9368, 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, 1999
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary......................................... 3
Fee Table....................................... 6
Condensed Financial Information................. 8
The Variable Annuity Contract................... 9
Contract Owner Inquiries...................... 9
Purchase Payments............................. 9
Accumulation Units............................ 9
The Funding Options........................... 9
Transfers..................................... 12
Dollar-Cost Averaging (Automated
Transfers)................................ 12
Asset Allocation Advice..................... 13
Tactical Asset Allocation Services............ 14
Tactical Asset Allocation Risks............. 14
Access to your Contract Values................ 15
Systematic Withdrawals...................... 15
Charges and Deductions........................ 16
General..................................... 16
Withdrawal Charge........................... 16
Free Withdrawal Allowance................... 18
Premium Tax................................. 18
Administrative Charge....................... 18
Mortality and Expense Risk Charge........... 18
Funding Option Expenses..................... 18
Tactical Asset Allocation Services Fees..... 18
Managed Separate Account: Management and
Fees...................................... 19
Ownership Provisions.......................... 20
Types of Ownership.......................... 20
Beneficiary................................. 20
Annuitant................................... 21
Death Benefit................................. 21
Payment of Proceeds......................... 21
Death Proceeds after the Maturity Date...... 22
The Annuity Period.............................. 22
Maturity Date............................... 22
Allocation of Annuity....................... 23
Variable Annuity............................ 23
How We Determine the First Annuity Payment.. 23
How We Determine Payments after the First
Annuity Payment........................... 23
Fixed Annuity............................... 23
Payout Options................................ 24
Election of Options......................... 24
Annuity Options............................. 24
Income Options.............................. 25
Miscellaneous Contract Provisions............... 25
Right to Return............................. 25
Termination of Individual Contract.......... 26
Termination of Group Contract or Account.... 26
Distribution from One Account to Another
Account................................... 27
Required Reports............................ 27
Change of Contract.......................... 27
Assignment.................................. 28
Suspension of Payments...................... 28
Other Information............................... 28
The Insurance Company....................... 28
Financial Statements........................ 28
IMSA........................................ 28
Year 2000 Compliance........................ 29
Distribution of Variable Annuity
Contracts................................. 29
Conformity with State and Federal Laws...... 29
Voting Rights............................... 30
Legal Proceedings and Opinions.............. 30
The Separate Accounts........................... 31
Performance Information..................... 31
Federal Tax Considerations...................... 32
General Taxation of Annuities............... 32
Types of Contracts: Qualified or
Nonqualified.............................. 32
Investor Control............................ 33
Mandatory Distributions for Qualified
Plans..................................... 33
Nonqualified Annuity Contracts.............. 33
Qualified Annuity Contracts................. 34
Penalty Tax for Premature Distributions..... 34
Diversification Requirements................ 34
Managed Separate Accounts....................... 34
The Travelers Growth and Income Stock Account
For Variable Annuities (Account GIS).......... 35
The Travelers Quality Bond Account For Variable
Annuities (Account QB)........................ 36
The Travelers Money Market Account For Variable
Annuities (Account MM)........................ 37
The Travelers Timed Growth and Income Stock
Account For Variable Annuities (Account
TGIS)......................................... 39
The Travelers Timed Short-Term Bond Account For
Variable Annuities (Account TSB).............. 40
The Travelers Timed Aggressive Stock Account For
Variable Annuities (Account TAS).............. 41
The Travelers Timed Bond Account For Variable
Annuities(Account TB)......................... 42
Investments, Practices and Risks of the Managed
Separate Accounts............................. 43
Investments at a Glance......................... 46
Appendix A (The Fixed Account).................. A-1
Appendix B (Condensed Financial Information).... B-1
Appendix C (Contents of 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 Units.............................. 9
Annuitant....................................... 21
Annuity Payments................................ 22
Annuity Unit.................................... 9
Cash Surrender Value............................ 15
Cash Value...................................... 9
Contract Date................................... 9
Contract Owner (You, Your or Owner)............. 9
Contract Year................................... 9
Funding Option(s)............................... 9
Income Payments................................. 25
Individual Account.............................. 9
Managed Separate Account........................ 19
Maturity Date................................... 22
Owner's Account................................. 9
Participant..................................... 9
Participant's Interest.......................... 9
Purchase Payment................................ 9
Written Request................................. 9
</TABLE>
2
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SUMMARY:
TRAVELERS UNIVERSAL ANNUITY
THIS SUMMARY DETAILS SOME OF THE MORE IMPORTANT POINTS THAT YOU SHOULD KNOW AND
CONSIDER BEFORE PURCHASING THE CONTRACT. PLEASE READ THE PROSPECTUS CAREFULLY.
CAN YOU GIVE ME A DESCRIPTION OF THE VARIABLE ANNUITY CONTRACT? The Contract is
intended for retirement savings or other long-term investment purposes. The
Contract provides a death benefit as well as guaranteed payout options. You
direct your payment(s) to one or more of the variable funding options and/or to
the Fixed (Flexible Annuity) Account. The variable funding options are designed
to produce a higher rate of return than the Fixed Account; however, this is not
guaranteed. You may gain or lose money in the funding options.
The Contract, like all deferred variable annuity contracts has two phases: the
accumulation phase and the payout phase. During the accumulation phase, under a
qualified contract, generally your pre-tax contributions accumulate on a
tax-deferred basis and are taxed as income when you make a withdrawal,
presumably when you are in a lower tax bracket. During the accumulation phase,
under a nonqualified Contract, earnings on your after-tax contributions
accumulate on a tax-deferred basis and are taxed as income when you make a
withdrawal. The income phase occurs when you begin receiving payments from your
Contract. The amount of money you accumulate in your Contract determines the
amount of income (annuity payments) you receive during the payout phase.
During the payout phase, you may choose to receive income payments from the
Fixed Account or the variable funding options. If you want to receive scheduled
payments from your annuity, you can choose from a number of annuity options.
Once you elect an annuity option or an income option and begin to receive
payments, it cannot be changed. During the payout phase, you have the same
investment choices you had during the accumulation phase. 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 (IRA) or IRA Rollover pursuant to Section 408 of the
Internal Revenue Code of 1986, as amended; and (3) qualified retirement plans
(which include contracts qualifying under Section 401(a), 403(b), 408(b) or 457
of the Internal Revenue Code.
You may purchase a qualified Contract with an initial payment of at least $20,
except in the case of an IRA, for which the minimum initial payment is $1,000.
Under a qualified Contract, you may make additional payments of at least $20.
For nonqualified Contracts, the minimum initial purchase payment is $1,000, and
$100 thereafter.
WHO IS THE CONTRACT ISSUED TO? If you purchase an individual contract, you are
the contract owner. If a group "allocated" contract is purchased, we issue
certificates to the individual participants. Where we refer to "you," we are
referring to the individual contract owner, or to the group participant, as
applicable. For convenience, we refer to both contracts and certificates as
"contracts."
We issue group contracts in connection with retirement plans. Depending on your
retirement plan provisions, certain features and/or funding options described in
this prospectus may not be available to you (for example, dollar-cost averaging,
the CHART program, etc.). Your retirement
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plan provisions supercede the prospectus. If you have any questions about your
specific retirement plan, contact your plan administrators.
IS THERE A RIGHT TO RETURN PERIOD? If you cancel the Contract within ten days
after you receive it, you receive a full refund of the Cash Value (including
charges). Where state law requires a longer right to return (free look), or the
return of the purchase payments, we will comply. You bear the investment risk
during the free look period; therefore, the Cash Value returned to you may be
greater or less than your purchase payment. If the Contract is purchased as an
Individual Retirement Annuity (IRA), and is returned within the first seven days
after Contract delivery, your full purchase payment will be refunded. During the
remainder of the IRA free look period, the Cash Value (including charges) will
be refunded. The Cash Value will be determined as of the close of business on
the day we receive a written request for a refund.
WHAT TYPES OF INVESTMENT OPTIONS ARE AVAILABLE? You can direct your money into
the Fixed Account and any or all of the variable 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. Refer to the SAI for performance information for
each funding option. Past performance is not a guarantee of future results.
You can transfer between the funding options as frequently as you wish without
any current tax 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 the
minimum, we would always allow at least one transfer every six months.
WHAT EXPENSES WILL BE ASSESSED UNDER THE CONTRACT? The Contract has insurance
features and investment features, and there are costs related to each. For each
contract we deduct a semiannual administrative charge of $15. The annual
insurance charge is 1.25% of the amounts you direct to the variable funding
options. Each funding option also charges for management, any applicable asset
allocation fee and other expenses. Please refer to the Fee Table for more
information about the charges.
If you withdraw amounts from the Contract, we may deduct a withdrawal charge.
The charge equals 5% of each purchase payment if withdrawn within 5 years of the
payment date. If you withdraw all amounts under the Contract, or if you begin
receiving annuity/income payments, the Company may be required by your state to
deduct a premium tax.
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 payments. Under a
nonqualified Contract, payments are made with after-tax dollars, and any
earnings accumulate tax-deferred. You will be taxed on these earnings when they
are withdrawn from the Contract.
If you own a qualified Contract, and 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
distribution amount required by federal law. 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. A withdrawal charge may apply. After the first contract
year, you may withdraw up to 10% of the cash value (as of the end of the
previous contract year) without a deferred sales charge. Of
4
<PAGE> 7
course, you may have to pay income taxes, a federal tax penalty or premium taxes
on any money you take out.
You may choose to receive monthly, quarterly, semiannual or annual
("systematic") withdrawals of at least $50 if your Contract's cash value is
$5,000 or more. All applicable sales charges and premium taxes will be deducted.
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, if you die before you move to the income phase, the person you have
chosen as your beneficiary will receive a death benefit. The death benefit paid
depends on your age at the time of your death. The death benefit is calculated
as of the close of the business day on which the Home Office receives due proof
of death.
Any amount paid will be reduced by any applicable premium tax, outstanding loans
or surrenders not previously deducted. Certain states may have varying age
requirements. Please refer to the Death Benefit section of the prospectus for
more details.
ARE THERE ANY ADDITIONAL FEATURES? This Contract has other features you may be
interested in. These include:
- DOLLAR COST AVERAGING. This is a program that allows you to invest a
fixed amount of money in Funding Options each month, theoretically
giving you a lower average cost per unit over time as compared to a
single one-time purchase. Dollar cost averaging requires regular
investments regardless of fluctuating price levels, and does not
guarantee a profit nor prevent loss in a declining market. Potential
investors should consider their financial ability to continue
purchases through periods of low price levels.
- TACTICAL ASSET ALLOCATION PROGRAM. If allowed, you may elect to enter
into a separate Tactical Asset Allocation services agreement with
registered investment advisers who provide Tactical Asset Allocation
services. These agreements permit the registered investment advisers
to act on your behalf by transferring all or a portion of the Cash
Value from one Market Timed Account to another. The registered
investment advisers can transfer funds only from one Market Timed
Account to another Market Timed Account. Purchase Payments are
allocated to the following Funding Options when you participate in the
Tactical Asset Allocation Program: Travelers Timed Growth and Income
Stock Account; Travelers Timed Short-Term Bond Account and Travelers
Timed Aggressive Stock Account. The Tactical Asset Allocation Program
and applicable fees are fully described in a separate Disclosure
Statement.
- ASSET ALLOCATION ADVICE. If allowed, you may elect to enter into a
separate advisory agreement with Copeland Financial Services, Inc.
("Copeland"), an affiliate of the Company, for the purpose of
receiving asset allocation advice under Copeland's CHART Program. The
CHART Program allocates all Purchase Payments among the American
Odyssey Funds. The CHART Program and applicable fees are fully
described in a separate Disclosure Statement.
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FEE TABLE
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ACCOUNTS GIS, QB, MM, TGIS, TSB, TAS AND TB
FUND U AND ITS UNDERLYING FUNDS
CONTRACT CHARGES AND EXPENSES
<TABLE>
<S> <C>
CONTINGENT DEFERRED SALES CHARGE (as a percentage of
purchase payments withdrawn)
If withdrawn within 5 years after the purchase
payment is made..................................... 5.00%
If withdrawn 5 or more years after the purchase
payment is made..................................... 0%
SEMIANNUAL CONTRACT ADMINISTRATIVE CHARGE.............. $15
ANNUAL SEPARATE ACCOUNT EXPENSES
MORTALITY AND EXPENSE RISK CHARGE (as a percentage of
average net assets of
Managed Separate Accounts and Fund U)............... 1.25%
FUNDING OPTION EXPENSES:
(as a percentage of average daily net assets of the funding
option as of December 31, 1998, unless otherwise noted.)
</TABLE>
<TABLE>
<CAPTION>
MARKET ANNUAL
INVESTMENT ALTERNATIVE MANAGEMENT FEE TIMING FEE(1) EXPENSES(2)
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<S> <C> <C> <C>
MANAGED SEPARATE ACCOUNTS
Travelers Growth and Income Stock Account (GIS).. 0.56% n/a 0.56%
Travelers Money Market Account (MM).............. 0.32% n/a 0.32%
Travelers Quality Bond Account (QB).............. 0.32% n/a 0.32%
Travelers Timed Aggressive Stock Account (TAS)... 0.35% 1.25% 1.60%
Travelers Timed Bond Account (TB)*............... 0.50% 1.25% 1.75%
Travelers Timed Growth and Income Stock Account
(TGIS)......................................... 0.32% 1.25% 1.57%
Travelers Timed Short-Term Bond Account (TSB).... 0.32% 1.25% 1.57%
</TABLE>
* Travelers Timed Bond Account. Not available to new Contract Owners.
<TABLE>
<CAPTION>
TOTAL
ANNUAL OPERATING
MANAGEMENT FEE OTHER EXPENSES EXPENSES
(AFTER EXPENSE (AFTER EXPENSE (AFTER EXPENSE
REIMBURSEMENT) REIMBURSEMENT) REIMBURSEMENT)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UNDERLYING FUNDING OPTIONS
Capital Appreciation Fund............................ 0.75% 0.10% 0.85%
Dreyfus Stock Index Fund............................. 0.25% 0.01% 0.26%
High Yield Bond Trust................................ 0.50% 0.32% 0.82%
Managed Assets Trust................................. 0.50% 0.10% 0.60%
AMERICAN ODYSSEY FUNDS, INC.
Core Equity Fund................................. 0.56% 0.09% 0.65%
Emerging Opportunities Fund...................... 0.73% 0.14% 0.87%(3)
Global High-Yield Bond Fund...................... 0.63% 0.15% 0.78%(4)
Intermediate-Term Bond Fund...................... 0.49% 0.11% 0.60%
International Equity Fund........................ 0.60% 0.13% 0.73%
Long-Term Bond Fund.............................. 0.50% 0.10% 0.60%
AMERICAN ODYSSEY FUNDS, INC.**
Core Equity Fund................................. 0.56% 1.34% 1.90%
Emerging Opportunities Fund...................... 0.73% 1.39% 2.12%(3)
Global High-Yield Bond Fund...................... 0.63% 1.40% 2.03%(4)
Intermediate-Term Bond Fund...................... 0.49% 1.36% 1.85%
International Equity Fund........................ 0.60% 1.38% 1.98%
Long-Term Bond Fund.............................. 0.50% 1.35% 1.85%
DREYFUS VARIABLE INVESTMENT FUND
Small Cap Portfolio.............................. 0.75% 0.02% 0.77%
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND
Equity Income Portfolio.......................... 0.49% 0.08% 0.57%(5)
Growth Portfolio................................. 0.59% 0.07% 0.66%(5)
High Income Portfolio............................ 0.58% 0.12% 0.70%
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II
Asset Manager Portfolio.......................... 0.54% 0.09% 0.63%(5)
</TABLE>
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<TABLE>
<CAPTION>
TOTAL
ANNUAL OPERATING
MANAGEMENT FEE OTHER EXPENSES EXPENSES
(AFTER EXPENSE (AFTER EXPENSE (AFTER EXPENSE
REIMBURSEMENT) REIMBURSEMENT) REIMBURSEMENT)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Templeton Asset Allocation Fund.................. 0.60% 0.18% 0.78%
Templeton Bond Fund.............................. 0.50% 0.23% 0.73%
Templeton Stock Fund............................. 0.70% 0.19% 0.89%
TRAVELERS SERIES FUND, INC.
Alliance Growth Portfolio........................ 0.80% 0.02% 0.82%(6)
G.T. Global Strategic Income Portfolio*.......... 0.80% 0.23% 1.03%(6)
MFS Total Return Portfolio....................... 0.80% 0.04% 0.84%(6)
Putnam Diversified Income Portfolio.............. 0.75% 0.12% 0.87%(6)
Smith Barney High Income Portfolio............... 0.60% 0.07% 0.67%(6)
Smith Barney International Equity Portfolio...... 0.90% 0.10% 1.00%(6)
Smith Barney Large Cap Value Portfolio
(formerly Smith Barney Income and Growth
Portfolio)..................................... 0.65% 0.03% 0.68%(6)
THE TRAVELERS SERIES TRUST
Disciplined Mid Cap Stock Portfolio.............. 0.70% 0.25% 0.95%(7)
Social Awareness Stock Portfolio................. 0.65% 0.19% 0.84%
U.S. Government Securities Portfolio............. 0.32% 0.13% 0.45%
Utilities Portfolio.............................. 0.65% 0.15% 0.80%
</TABLE>
NOTES:
The purpose of this Fee Table is to help you understand the various costs and
expenses that you will bear, directly or indirectly, under the Contract. The
information, except as noted, reflects expenses of the managed separate accounts
as well as Fund U and its underlying funds for the fiscal year ending December
31, 1998. For additional information, including possible waivers or reductions
of these expenses, see "Charges and Deductions." Expenses shown do not include
premium taxes, which may apply. "Other Expenses" include operating costs of the
Separate Account or fund. These expenses are reflected in each Fund's net asset
value and are not deducted from the account value under the Contract.
* Not available to new Contract Owners.
** Includes 1.25% CHART asset allocation fee.
(1) Contract Owners may discontinue market timing services at any time and
thereby avoid any subsequent fees for those services by transferring to a
non-timed account.
(2) These figures do not include the mortality and expense risk fee which is
deducted from the daily unit values of the separate account.
(3) Management Fees for the AMERICAN ODYSSEY EMERGING OPPORTUNITIES FUND reflect
the period 05/01/98 to 12/31/98. May 1, 1998, the Fund adopted its current
fee structure.
(4) Fees and expenses for the AMERICAN ODYSSEY GLOBAL HIGH YIELD BOND FUND
reflect the period 05/01/98 to 12/31/98. On May 1, 1998, the Fund adopted
its current fee structure and investment objective and strategy.
(5) A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, certain funds, or FMR on behalf of
certain funds, have entered into arrangements with their custodian whereby
credits realized. As a result of uninvested cash balances were used to
reduce custodian expenses. Without these reductions, the Total Annual
Operating Expenses in this table would have been 0.64% for VIP II ASSET
MANAGER PORTFOLIO, 0.58% for VIP EQUITY INCOME PORTFOLIO, and 0.68% for VIP
GROWTH PORTFOLIO.
(6) Expenses are as of October 31, 1998 (the Fund's fiscal year end). There were
no fees waived or expenses reimbursed for these funds in 1998.
(7) Other Expenses reflect the current expense reimbursement arrangement with
Travelers where Travelers has agreed to reimburse the Portfolio for the
amount by which its aggregate expenses (including management fees, but
excluding brokerage commissions, interest charges and taxes) exceeds 0.95%.
Without such arrangement, the Total Annual Operating Expenses for the
Portfolio would have been 1.22% for the TRAVELERS DISCIPLINED MID CAP STOCK
PORTFOLIO.
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EXAMPLE*
Assuming a 5% annual return on assets, a $1,000 investment would be subject to
the following expenses:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
IF CONTRACT IS SURRENDERED AT THE IF CONTRACT IS NOT SURRENDERED OR
END OF PERIOD SHOWN ANNUITIZED AT END OF PERIOD SHOWN:
------------------------------------- -------------------------------------
INVESTMENT ALTERNATIVE 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>
MANAGED SEPARATE ACCOUNTS
Account GIS.......................... $70 $112 $157 $231 $20 $ 62 $107 $231
Account MM........................... 68 105 144 205 18 55 94 205
Account QB........................... 68 105 144 205 18 55 94 205
Account TAS.......................... 81 143 209 334 31 93 159 334
Account TB**......................... 82 148 216 348 32 98 166 348
Account TGIS......................... 80 142 207 331 30 92 157 331
Account TSB.......................... 80 142 207 331 30 92 157 331
UNDERLYING FUNDING OPTIONS
Capital Appreciation Fund............... 73 121 172 261 23 71 122 261
Dreyfus Stock Index Fund................ 67 103 141 199 17 53 91 199
High Yield Bond Trust................... 73 120 170 258 23 70 120 258
Managed Assets Trust.................... 71 113 159 235 21 63 109 235
AMERICAN ODYSSEY FUNDS, INC.(1)
Core Equity Fund..................... 71 115 161 240 21 65 111 240
Emerging Opportunities Fund.......... 73 122 173 263 23 72 123 263
Global High-Yield Bond Fund.......... 72 119 168 253 22 69 118 253
Intermediate-Term Bond Fund.......... 71 113 159 235 21 63 109 235
International Equity Fund............ 72 117 165 248 22 67 115 248
Long-Term Bond Fund.................. 71 113 159 235 21 63 109 235
AMERICAN ODYSSEY FUNDS, INC.(2)
Core Equity Fund..................... 83 152 223 361 33 102 173 361
Emerging Opportunities Fund.......... 86 159 234 381 36 109 184 381
Global High-Yield Bond Fund.......... 85 156 229 373 35 106 179 373
Intermediate-Term Bond Fund.......... 83 151 221 357 33 101 171 357
International Equity Fund............ 84 154 227 369 34 104 177 369
Long-Term Bond Fund.................. 83 151 221 357 33 101 171 357
DREYFUS VARIABLE INVESTMENT FUND
Small Cap Portfolio.................. 72 119 168 252 22 69 118 252
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND
Equity Income Portfolio.............. 70 112 157 232 20 62 107 232
Growth Portfolio..................... 71 115 162 241 21 65 112 241
High Income Portfolio................ 72 116 164 245 22 66 114 245
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II
Asset Manager Portfolio.............. 71 114 160 238 21 64 110 238
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Templeton Asset Allocation Fund...... 72 119 168 253 22 69 118 253
Templeton Bond Fund.................. 72 117 165 248 22 67 115 248
Templeton Stock Fund................. 73 122 174 265 23 72 124 265
TRAVELERS SERIES FUND, INC.
Alliance Growth Portfolio............ 73 120 170 258 23 70 120 258
G.T. Global Strategic Income
Portfolio** 78 128 182 279 28 78 132 279
MFS Total Return Portfolio........... 73 121 171 260 23 71 121 260
Putnam Diversified Income
Portfolio.......................... 73 122 173 263 23 72 123 263
Smith Barney High Income Portfolio... 71 116 162 242 21 66 112 242
Smith Barney International Equity
Portfolio.......................... 75 125 179 276 25 75 129 276
Smith Barney Large Cap Value
Portfolio
(formerly Smith Barney Income and
Growth Portfolio).................. 71 116 163 243 21 66 113 243
THE TRAVELERS SERIES TRUST
Disciplined Mid Cap Stock
Portfolio.......................... 74 124 177 271 24 74 127 271
Social Awareness Stock Portfolio..... 73 121 171 260 23 71 121 260
U.S. Government Securities
Portfolio.......................... 69 109 151 219 19 59 101 219
Utilities Portfolio.................. 73 119 169 256 23 69 119 256
</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 $15 SEMIANNUAL CONTRACT FEE AS AN ANNUAL CHARGE OF
0.171% OF ASSETS.
** Not currently available to new Contract Owners in most states.
(1) Reflects expenses that would be incurred for those Contract Owners who DO
NOT participate in the CHART Asset Allocation Program.
(2) Reflects expenses that would be incurred for those Contract Owners who DO
participate in the CHART Asset Allocation Program.
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
See Appendix B, page B-1.
8
<PAGE> 11
THE VARIABLE ANNUITY CONTRACT
- --------------------------------------------------------------------------------
Travelers Universal Annuity is designed to help you accumulate money for
retirement. Certificates are issued to individual participants under a group
contract. Under the Contract, you (the contract owner or participant, as
applicable) make purchase payments to us and we credit them to your account. We
promise to pay you an income in the form of annuity or income payments,
beginning on a future date that you choose, the maturity date. The purchase
payments accumulate tax deferred in the funding options that you select. You
assume the risk of gain or loss according to the performance of the funding
options. The cash value is the amount of purchase payments, plus or minus any
investment experience or interest. The cash value also reflects all withdrawals
made and charges deducted. There is generally no guarantee that at the maturity
date the cash value will equal or exceed the total purchase payments made under
the Contract. The date the Contract and its benefits become effective is
referred to as the contract date. Each 12-month period following this contract
date is called a contract year. The record of accumulation units credited to an
owner is called the owner's account. The record of accumulation units credited
to a participant is called the individual account, or participant's interest.
Certain changes and elections must be made in writing to the Company. Where the
term "written request" is used, it means that written information must be sent
to our Home Office in a form and content satisfactory to us.
CONTRACT OWNER INQUIRIES
If you have any questions about the Contract, call the Company's Home Office at
1-800-599-9460.
PURCHASE PAYMENTS
The initial purchase payment must be paid before the Contract becomes effective.
Minimum purchase payment amounts are:
- IRAs: $1,000
- Other tax-qualified retirement plans: $20 per participant (subject to plan
requirements)
- Nonqualified contacts: $1,000; minimum of $100 for subsequent payment
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
received in good order will be credited within one business day. Our business
day ends when the New York Stock Exchange closes, usually 4:00 p.m. Eastern
time.
ACCUMULATION UNITS
An accumulation unit is used to calculate the value of a Contract. An
accumulation unit works like a share of a mutual fund. Each funding option has a
corresponding accumulation unit value. The accumulation units are valued each
business day and may increase or decrease from day to day. When we receive a
purchase payment, we determine the number of accumulation units credited to the
Contract by dividing the amount directed to each funding option by the value of
the accumulation unit. We calculate the value of an accumulation unit for each
funding option each day after the New York Stock Exchange closes. After the
value is calculated, your account is credited. The period between the contract
effective date and the maturity date is the accumulation period. During the
annuity period (i.e., after the maturity date), you are credited with annuity
units.
THE FUNDING OPTIONS
You choose which of the variable funding options to have your purchase payments
allocated to. These include the managed separate accounts and the subsections of
Fund U, which invest in the underlying mutual 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 mutual fund. Since each option has
varying degrees
9
<PAGE> 12
of risk, please read the prospectuses carefully before investing. You may obtain
additional copies of the prospectuses by contacting your registered
representative or by calling 1-800-842-8573.
From time to time we may add new funding options. Some of the funding options
may not be available in every state due to various insurance regulations or in
every plan, due to plan restrictions.
The current funding options are listed below, along with their investment
advisers and any subadviser:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
INVESTMENT INVESTMENT INVESTMENT
OPTIONS OBJECTIVE ADVISER/SUBADVISER
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MANAGED SEPARATE ACCOUNTS
Travelers Growth and Seeks long-term accumulation of principal through Travelers Asset Management
Income Stock Account capital appreciation and retention of net investment International Corporation
income. ("TAMIC")
Subadviser: Travelers
Investment Management
Company ("TIMCO")
Travelers Money Market Seeks preservation of capital, a high degree of TAMIC
Account liquidity and the highest possible current income
available from certain short-term money market
securities.
Travelers Quality Bond Seeks current income, moderate capital volatility and TAMIC
Account total return.
Travelers Timed Seeks growth of capital by investing primarily in a TIMCO
Aggressive Stock Account broadly diversified portfolio of common stocks.
Travelers Timed Growth Seeks long-term accumulation of principal through TIMCO
and Income Stock capital appreciation and retention of net investment
income.
Travelers Timed Short- Seeks high current income with limited price volatility. TIMCO
Term Bond Account
FUNDING OPTIONS
Capital Appreciation Fund Seeks growth of capital through the use of common TAMIC
stocks. Income is not an objective. The Fund invests Subadviser: Janus Capital
principally in common stocks of small to large companies Corp.
which are expected to experience wide fluctuations in
price in both rising and declining markets.
Dreyfus Stock Index Fund Seeks to provide investment results that correspond to Mellon Equity Securities
the price and yield performance of publicly traded
common stocks in the aggregate, as represented by the
Standard & Poor's 500 Composite Stock Price Index.
High Yield Bond Trust Seeks generous income. The assets of the High Yield Bond TAMIC
Trust will be invested in bonds which, as a class, sell
at discounts from par value and are typically high risk
securities.
Managed Assets Trust Seeks high total investment return through a fully TAMIC
managed investment policy in a portfolio of equity, debt Subadviser: TIMCO
and convertible securities.
AMERICAN ODYSSEY FUNDS,
INC.
Core Equity Fund Seeks maximum long-term total return by investing American Odyssey Funds
primarily in common stocks of well-established Management, Inc.
companies. Subadviser: Equinox
Capital Management, LLC.
Emerging Opportunities Seeks maximum long-term total return by investing American Odyssey Funds
Fund primarily in common stocks of small, rapidly growing Management, Inc.
companies. Subadvisers: SG Cowen
Asset Management and
Chartwell Investment
Partners
Global High-Yield Bond Seeks maximum long-term total return (capital American Odyssey Funds
Fund appreciation and income) by investing primarily in Management, Inc.
high-yield debt securities from the United States and Subadviser: Credit Suisse
abroad. Asset Management
</TABLE>
10
<PAGE> 13
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
INVESTMENT INVESTMENT INVESTMENT
OPTIONS OBJECTIVE ADVISER/SUBADVISER
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
AMERICAN ODYSSEY FUNDS, INC. (CONTINUED)
Intermediate-Term Bond Seeks maximum long-term total return by investing American Odyssey Funds
Fund primarily in intermediate-term corporate debt Management, Inc.
securities, U.S. government securities, mortgage-related Subadviser: TAMIC
securities and asset-backed securities, as well as money
market instruments.
International Equity Fund Seeks maximum long-term total return by investing American Odyssey Funds
primarily in common stocks of established non-U.S. Management, Inc.
companies. Subadviser: Bank of
Ireland Asset Management
(U.S.) Limited
Long-Term Bond Fund Seeks maximum long-term total return by investing American Odyssey Funds
primarily in long-term corporate debt securities, U.S. Management, Inc.
government securities, mortgage-related securities, and Subadviser: Western Asset
asset-backed securities, as well as money market Management Company
instruments.
DREYFUS VARIABLE INVESTMENT FUND
Small Cap Portfolio Seeks to maximize capital appreciation. The Dreyfus Corporation
FIDELITY'S VARIABLE
INSURANCE PRODUCTS FUND
VIP Equity Income Seeks reasonable income by investing primarily in Fidelity Management &
Portfolio income- producing equity securities, in choosing these Research Company
securities, the portfolio manager will also consider the
potential for capital appreciation.
VIP Growth Portfolio Seeks capital appreciation by purchasing common stocks Fidelity Management &
of well-known, established companies, and small emerging Research Company
growth companies, although its investments are not
restricted to any one type of security. Capital
appreciation may also be found in other types of
securities, including bonds and preferred stocks.
VIP High Income Portfolio Seeks to obtain a high level of current income by Fidelity Management &
investing primarily in high yielding, lower-rated, Research Company
fixed-income securities, while also considering growth
of capital.
FIDELITY'S VARIABLE
INSURANCE PRODUCTS FUND II
VIP II Asset Manager Seeks high total return with reduced risk over the Fidelity Management &
Portfolio long-term by allocating its assets among stocks, bonds Research Company
and short-term fixed-income instruments.
TEMPLETON VARIABLE PRODUCTS
SERIES FUND
Templeton Asset Seeks a high level of total return with reduced risk Templeton Investment
Allocation Fund (Class 1) over the long term through a flexible policy of Counsel, Inc.
investing in stocks of companies in any nation and debt
obligations of companies and governments of any nation.
Templeton Bond Fund Seeks high current income by investing primarily in debt Templeton Global Bond
(Class 1) securities of companies, governments and government Managers
agencies of various nations throughout the world.
Templeton Stock Fund Seeks capital growth by investing primarily in common Templeton Investment
(Class 1) stocks issued by companies, large and small, in various Counsel, Inc.
nations throughout the world.
TRAVELERS SERIES FUND, INC.
Alliance Growth Portfolio Seeks long-term growth of capital by investing Travelers Investment
predominantly in equity securities of companies with a Adviser ("TIA")
favorable outlook for earnings and whose rate of growth Subadviser: Alliance
is expected to exceed that of the U.S. economy over Capital Management L.P.
time. Current income is only an incidental
consideration.
MFS Total Return Seeks to obtain above-average income (compared to a TIA
Portfolio portfolio entirely invested in equity securities) Subadviser: Massachusetts
consistent with the prudent employment of capital. Financial Services Company
Generally, at least 40% of the Portfolio's assets will ("MFS")
be invested in equity securities.
Putman Diversified Income Seeks high current income consistent with preservation TIA
Portfolio of capital. The Portfolio will allocate its investments Subadviser: Putnam
among the U.S. Government Sector, the High Yield Sector, Investment Management,
and the International Sector of the fixed income Inc.
securities markets.
</TABLE>
11
<PAGE> 14
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
INVESTMENT INVESTMENT INVESTMENT
OPTIONS OBJECTIVE ADVISER/SUBADVISER
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TRAVELERS SERIES FUND, INC.
(CONTINUED)
Smith Barney High Income Seeks high current income. Capital appreciation is a SSBC Fund Management Inc.
Portfolio secondary objective. The Portfolio will invest at least ("SSBC")
65% of its assets in high-yielding corporate debt
obligations and preferred stock.
Smith Barney Seeks total return on assets from growth of capital and SSBC
International Equity income by investing at least 65% of its assets in a
Portfolio diversified portfolio of equity securities of
established non-U.S. issuers.
Smith Barney Large Cap Seeks current income and long-term growth of income and SSBC
Value Portfolio capital by investing primarily, but not exclusively, in
common stocks.
THE TRAVELERS SERIES TRUST
Disciplined Mid Cap Stock Seeks growth of capital by investing primarily in a TAMIC
Portfolio broadly diversified portfolio of common stocks. Subadvisor: TIMCO
Social Awareness Stock Seeks long-term capital appreciation and retention of SSBC
Portfolio net investment income by selecting investments,
primarily common stocks, which meet the social criteria
established for the Portfolio. Social criteria currently
excludes companies that derive a significant portion of
their revenues from the production of tobacco, tobacco
products, alcohol, or military defense systems, or in
the provision of military defense related services or
gambling services.
U.S. Government Seeks to select investments from the point of view of an TAMIC
Securities Portfolio investor concerned primarily with highest credit
quality, current income and total return. The assets of
the U.S. Government Securities Portfolio will be
invested in direct obligations of the United States, its
agencies and instrumentalities.
Utilities Portfolio Seeks to provide current income by investing in equity SSBC
and debt securities of companies in the utility
industries.
</TABLE>
TRANSFERS
- --------------------------------------------------------------------------------
Up to 30 days before the maturity date, you may transfer all or part of the cash
value among available variable funding options. There are no charges or
restrictions on the amount or frequency of transfers currently; however we
reserve the right to charge a fee for any transfer request, and to limit
transfers to one in any six-month period. This does not apply to transfers by
third party market timing services among timed funding options. During the
annuity period, transfers are allowed only with our consent. Please refer to
Appendix A for information regarding transfers between the Fixed Account and the
variable funding options.
Since the available funding options have different investment advisory fees, a
transfer from one funding option to another could result in higher or lower
investment advisory fees. (See "Investment Advisory Fees.") We reserve the right
to modify transfer privileges at any time and to charge for transfers upon 30
days' notice to the contract owner (where permitted by law).
DOLLAR COST AVERAGING (AUTOMATED TRANSFERS)
Dollar cost averaging or the pre-authorized transfer program (the "DCA Program")
allows you (the Owner, or Participant, if permitted,) to transfer a set dollar
amount to other funding options on a monthly or quarterly basis during the
accumulation phase of the Contract so that more accumulation units are purchased
in a funding option if the value per unit is low and fewer accumulation units
are purchased if the value per unit is high. Therefore, a lower-than-average
cost per unit may be achieved over the long run.
12
<PAGE> 15
You may elect the DCA Program through written request or other method acceptable
to the Company. Certain minimums may apply to enroll in the program and to
amounts transferred.
You may establish pre-authorized transfers of contract values from the Fixed
Account, subject to certain restrictions. Under the DCA Program, automated
transfers from the Fixed Account may not deplete your Fixed Account Value in
less than twelve months from your enrollment in the DCA Program.
In addition to the DCA Program, Travelers may credit increased interest rates to
contract owners under an administrative Special DCA Program established at the
discretion of Travelers, depending on availability and state law. Under this
program, the contract owner may pre-authorize level transfers to any of the
funding options under either a 6 Month Program or 12 Month Program. The 6 Month
Program and the 12 Month Program will generally have different credited interest
rates. Under the 6 Month Transfer Program, the interest rate can accrue up to 6
months on funds in the Special DCA Program and all purchase payments and accrued
interest must be transferred on a level basis to the selected funding option in
6 months. Under the 12 Month Program, the interest rate can accrue up to 12
months on funds in the Special DCA Program and all purchase payments and accrued
interest in this Program must be transferred on a level basis to the selected
funding options in 12 months.
The pre-authorized transfers will begin after the initial Program purchase
payment and complete enrollment instructions are received by Travelers. If
complete Program enrollment instructions are not received by the Company within
15 days of receipt of the initial Program purchase payment, the entire balance
in the Program will be credited with the non-Program interest rate then in
effect for the Fixed Account.
You may start or stop participation in the DCA Program at any time, but you must
give the Company at least 30 days' notice to change any automated transfer
instructions that are currently in place. If you stop the Special DCA Program
and elect to remain in the Fixed Account, your contract value will be credited
for the remainder of 6 or 12 months with the interest rate for non-Program
funds.
A contract owner may only have one DCA Program or Special DCA Program in place
at one time. Any subsequent purchase payments received by the Company within the
Program period selected will be allocated to the current funding options over
the remainder of that Program transfer period, unless otherwise directed by the
contract owner.
All provisions and terms of the Contract apply to the DCA and Special DCA
Programs, including provisions relating to the transfer of money between
investment options. We reserve the right to suspend or modify transfer
privileges at any time and to assess a processing fee for this service.
ASSET ALLOCATION ADVICE
You may elect to enter into a separate advisory agreement with Copeland
Financial Services, Inc. ("Copeland"), an affiliate of the Company. Copeland
provides asset allocation advice under its CHART Program(R), which is fully
described in a separate Disclosure Statement. Under the CHART Program, purchase
payments and cash values are allocated among the six American Odyssey Funds.
Copeland's charge for this advisory service is a maximum of 1.50% of the assets
subject to the CHART Program. This fee is currently reduced by 0.25%, the amount
of the fee paid to the investment manager of American Odyssey Funds, and it is
further reduced for assets over $25,000. Another reduction is made for
participants in plans subject to ERISA with respect to amounts allocated to the
American Odyssey Intermediate-Term Bond Fund because that Fund has as its
subadviser an affiliate of Copeland. A $30 initial fee is also charged. The
CHART Program fee will be paid by quarterly withdrawals from the cash values
allocated to the American Odyssey Funds. The Company will not treat these
withdrawals as taxable distributions. The CHART Program may not be available in
all marketing programs through which the Universal Annuity Contract is sold.
13
<PAGE> 16
TACTICAL ASSET ALLOCATION SERVICES
- --------------------------------------------------------------------------------
Accounts TGIS, TSB and TAS ("Market Timed Accounts") are funding options
available to individuals who have entered into tactical asset allocation
services agreements ("Tactical Asset Allocation agreements") with registered
investment advisers who provide tactical asset allocation services ("registered
investment advisers"). These agreements allow the registered investment advisers
to act on your behalf by transferring all or a portion of your cash value units
from one Market Timed Account to another. The registered investment advisers can
transfer funds only from one Market Timed Account to another Market Timed
Account.
You may transfer account values from any of the Market Timed Accounts to any of
the other funding options. However, if you are in a Market Timed Account,
transfer all current account values and direct all future allocations to a
non-timed Funding option, the tactical asset allocation agreements with the
registered investment advisers automatically terminate. If this occurs, the
registered investment advisers no longer have the right to transfer funds on
your behalf. Partial withdrawals from the Market Timed Accounts do not affect
the tactical asset allocation agreements.
Copeland, a registered investment adviser and an affiliate of the Company,
provides Tactical Asset Allocation services for a fee. The fee equals 1.25%
annually of the current value of the assets subject to the program. Copeland
also charges a $30 program application fee. If you terminate your tactical asset
allocation agreement and decide to reenter an agreement, the tactical asset
allocation fees will be reassessed, and a new $30 application fee will be
charged by Copeland.
We deduct the tactical asset allocation fee from the assets of the Market Timed
Accounts according to a payment method for which the Company, Accounts TGIS, TSB
and, TAS, the original principal underwriter of the Contracts, and Copeland
obtained an exemptive order from the SEC on February 7, 1990 ("asset charge
payment method"). Although the Tactical Asset Allocation agreements are between
you and Copeland; we are solely responsible for payment of the fee to Copeland.
On each Valuation Date, we deduct the amount necessary to pay the fee from each
Market Timed Account and, in turn, pay that amount to Copeland. This is the only
payment method available to those who enter into tactical asset allocation
agreements. Individuals in the Market Timed Accounts may use unaffiliated market
timing investment advisers with our approval and if such advisers agree to an
arrangement substantially identical to the asset charge payment method.
You are asked to approve annually the terms of the Distribution and Management
Agreement in order to continue the asset charge payment method. Because the
tactical asset allocation services are provided according to individual
agreements between you and the registered investment advisers, the Boards of
Managers of the Market Timed Accounts do not exercise any supervisory or
oversight role for services or the related fees.
Under the asset charge payment method, the daily deductions for market timing
fees are not treated by the Company as taxable distributions. (See "Federal Tax
Considerations".)
TACTICAL ASSET ALLOCATION RISKS
If you invest in the Market Timed Accounts without a tactical asset allocation
agreement, you may bear a higher proportion of the expenses associated with
Separate Account portfolio turnover. In addition, those who allocate amounts to
these Accounts without a tactical asset allocation agreement will still have the
tactical asset allocation fees deducted on a daily basis. We intend to identify
any such individuals and restore to their accounts, no less frequently than
monthly, an amount equal to the deductions for the tactical asset allocation
fees. However, this restored amount will not reflect any investment experience
of the fees deducted.
If you participate in a tactical asset allocation agreement, you may be subject
to the following additional risks: (1) higher transaction costs; (2) higher
portfolio turnover rate; (3) investment return goals not being achieved by the
registered investment advisers which provide Tactical Asset Allocation services;
and (4) higher account expenses for depleting and, then starting up the
14
<PAGE> 17
account. Actions by the registered investment advisers which provide tactical
asset allocation services may also increase risks generally found in any
investment, i.e., the failure to achieve an investment objective, and possible
lower yield. In addition, if more than one Tactical Asset Allocation strategy
uses a Market Timed Account, those who invest in the Market Timed Account when
others are transferred into or out of that Account by the registered investment
advisers may bear part of the direct costs incurred by those individuals who
were transferred. For example, if 90% of a Market Timed Account is under one
tactical asset allocation strategy, and those funds are transferred into or out
of that Account, those constituting the other 10% of the Market Timed Account
may bear a higher portion of the expense for the transfer.
ACCESS TO YOUR CONTRACT VALUES
- --------------------------------------------------------------------------------
Under a group Contract, before a participant's maturity date, we will pay all or
any portion of that participant's cash surrender value to the owner or
participant, as provided in the plan. A Group contract owner's account may be
surrendered for cash without the consent of any participant, as provided in the
plan.
Under an Individual Contract, the contract owner may redeem all or any portion
of the cash surrender value any time before the maturity date. You must submit a
written request for withdrawal. We will make withdrawals pro rata from all the
funding options unless you specify the funding option(s) from which surrender is
to be made. The cash surrender value will be determined as of the business day
after we receive the surrender request at our Home Office.
We may defer payment of any cash surrender value for up to seven days after we
receive the request in good order. The cash surrender value equals the Contract
or Account cash value less any applicable withdrawal charge, outstanding cash
loans, and any premium tax not previously deducted. The cash surrender value may
be more or less than the purchase payments made depending on the value of the
Contract or account at the time of surrender. For information about withdrawals
from your payout option after the Maturity Date (with no life contingency),
refer to the Statement of Additional Information.
For those participating in the Texas Optional Retirement Program, withdrawals
may only be made upon termination of employment, retirement or death as provided
in the Texas Optional Retirement Program.
Participants in Section 403(b) tax deferred annuity plans may not withdraw
certain salary reduction amounts before reaching age 59 1/2, unless withdrawn
due to separation from service, death, disability or hardship. (See "Federal Tax
Considerations.")
SYSTEMATIC WITHDRAWALS
Each contract year, you may elect to take monthly, quarterly, semiannual or
annual systematic withdrawals of a specified dollar amount. Any applicable
premium taxes will be deducted. To elect this option, an election form provided
by the Company must be completed. Systematic withdrawals may be stopped at any
time, provided the Company receives at least 30 days' written notice.
We reserve the right to discontinue offering systematic withdrawals or to assess
a processing fee for this service upon 30 days' written notice to contract
owners (where permitted by law).
Each systematic withdrawal is subject to federal income tax 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 withdrawal.
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. We may also deduct a charge for taxes. Services and benefits we
provide include:
- the ability for you to make withdrawals and surrenders under the
Contracts;
- the death benefit paid on the death of the contract owner, annuitant, or
first of the joint contract owners,
- the available funding options and related programs (including dollar-cost
averaging, portfolio rebalancing, and systematic withdrawal programs);
- administration of the annuity options available under the Contracts; and
- the distribution of various reports to contract owners.
Costs and expenses we incur include:
- losses associated with various overhead and other expenses associated
with providing the services and benefits provided by the Contracts,
- sales and marketing expenses, and
- other costs of doing business.
Risks we assume include:
- risks that annuitants may live longer than estimated when the annuity
factors under the Contracts were established,
- that the amount of the death benefit will be greater than the contract
value and
- that the costs of providing the services and benefits under the Contracts
will exceed the charges deducted.
Unless otherwise specified, charges are deducted proportionately from all
funding options in which you are invested.
We may reduce or eliminate the withdrawal charge, 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 (deferred sales charge) of 5% will apply
if a purchase payment is withdrawn within five years of its payment date. This
deferred sales charge is deducted only from purchase payments withdrawn, not on
growth. For this calculation, the five years is measured from the first day of
the month the payment is made.
In the case of a partial withdrawal, payments made first will be considered to
be withdrawn first ("first in, first out"). In no event may the withdrawal
charge exceed 5% of premiums paid in the five years immediately preceding the
withdrawal date, nor may the charge exceed 5% of the
16
<PAGE> 19
amount withdrawn. Unless the Company receives instructions to the contrary, the
withdrawal charge will be deducted from the amount requested.
For purposes of the withdrawal charge calculation, withdrawals will be deemed to
be taken in the following order:
(a) from any purchase payments to which no withdrawal charge applies;
(b) from any remaining free withdrawal allowance (as described below) after
reduction by the amount of (a);
(c) from any purchase payments to which withdrawal charges apply (on a
first-in, first-out basis); and, finally
(d) from any Contract earnings.
NOTE: Any free withdrawals taken will not reduce purchase payments still subject
to a withdrawal charge.
We will not deduct a withdrawal charge (1) from the distribution of death
proceeds; or (2) after the first contract year, upon election of an annuity
payout (based upon life expectancy); or (3) made due to minimum distribution
requirements.
The withdrawal charge will be waived if:
- - an annuity payout is begun;
- - an income option of at least three years' duration (without right of
withdrawal) is begun after the first contract year;
- - the participant under a group Contract or annuitant under an individual
Contract dies;
- - the participant under a group Contract or annuitant under an individual
Contract becomes disabled (as defined by the Internal Revenue Service)
subsequent to purchase of the Contract;
- - the participant under a group Contract, or annuitant under an individual
Contract, under a tax-deferred annuity plan (403(b) plan) retires after age
55, provided the Contract has been in effect five years or more and provided
the payment is made to the contract owner or participant, as provided in the
plan;
- - the participant under a group Contract, or annuitant under an individual
Contract, under an IRA plan reaches age 70 1/2, provided the certificate, has
been in effect five years or more;
- - the participant under a group Contract, or annuitant under an individual
Contract, under a qualified pension or profit-sharing plan (including a 401(k)
plan) retires at or after age 59 1/2, provided the certificate or Contract, as
applicable has been in effect five years or more; or if refunds are made to
satisfy the anti-discrimination test. (For those under Certificates issued
before May 1, 1992, the withdrawal charge will also be waived if the
participant or annuitant retires at normal retirement age (as defined by the
Plan), provided the Certificate or Contract, as applicable has been in effect
one year or more);
- - the participant under a Section 457 deferred compensation plan retires and the
Certificate has been in effect five years or more, or if a financial hardship
or disability withdrawal has been allowed by the Plan administrator under
applicable Internal Revenue Service ("IRS") rules;
- - for group Contracts, the participant under a Section 457 deferred compensation
plan established by the Deferred Compensation Board of the state of New York
or a "public employer" in that state (as defined in Section 5 of the New York
State Finance Laws) terminates employment. The withdrawal charge will also be
waived for such a plan at the termination date specified in the Contract; or
- - for group Contracts, the participant under a pension or profit-sharing plan,
including a 401(k) plan, Section 457 deferred compensation plan, or a tax
deferred annuity plan
17
<PAGE> 20
(403(b) plan) that is subject to the Employee Retirement Income Security Act
of 1974 ("ERISA") retires at normal retirement age (as defined by the plan) or
terminates employment, provided that the contract owner purchases this
Contract in conjunction with a group unallocated flexible annuity contract
issued by the Company.
FREE WITHDRAWAL ALLOWANCE
Beginning in the second Contract year, you may withdraw up to 10% of the cash
value annually without a withdrawal charge. (If you have purchase payments no
longer subject to a withdrawal charge, the maximum you may withdraw without a
withdrawal charge is the greater of (a) the free withdrawal allowance, or (b)
the total amount of purchase payments no longer subject to a withdrawal charge.
Note: Any free withdrawal taken will reduce purchase payments no longer subject
to a withdrawal charge.) IRA Contract owners who have Contracts, issued before
May 1, 1994, have a 20% free withdrawal allowance annually after the first year.
Free withdrawals from IRA plans are only available after the participant reaches
age 59 1/2. We calculate the free withdrawal amount as of the Contract
anniversary date before the surrender date. The free withdrawal allowance does
not apply to full surrenders. For 403(b) plan participants, partial and full
withdrawals (surrenders) may be subject to restrictions. (See "Federal Tax
Considerations.")
PREMIUM TAX
Certain state and local governments impose premium taxes ranging from 0% to 5%
depending upon jurisdiction. The Company is responsible for paying these taxes
and will determine the method used to recover premium tax expenses incurred.
Where required, we will deduct any applicable premium taxes from the cash 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.
ADMINISTRATIVE CHARGE
We deduct a semiannual administrative charge of $15 for each individual account
maintained. The administrative charge will be deducted from the account in June
and December of each year. The first charge will be prorated (i.e. calculated)
from the date of purchase. A prorated charge will also be made if the Contract
is completely withdrawn or terminated. This charge does not apply after an
annuity payout has begun. The administrative charge will be deducted from the
cash value by canceling accumulation units in each funding option on a pro rata
basis.
MORTALITY AND EXPENSE RISK CHARGE
Each business day, the Company deducts a mortality and expense risk ("M&E")
charge from amounts held in the Separate Accounts. This charge, on an annual
basis, is 1.25% of the Separate Account value. (This charge equals 0.003425% for
each business day.) We reserve the right to lower this charge at any time.
FUNDING OPTION EXPENSES
The charges and expenses of the funding options are summarized in the fee table
and are described in the accompanying prospectuses.
TACTICAL ASSET ALLOCATION SERVICES FEES
In connection with the tactical asset allocation services provided to
participants in Accounts TGIS, TSB and TAS, Copeland receives a fee equal on an
annual basis to 1.25% of the current value of the assets subject to the program.
The Company deducts this fee daily from the assets of the Market Timed Accounts.
Copeland also charges a $30 tactical asset allocation application fee.
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<PAGE> 21
Participants may discontinue tactical asset allocation services at any time and
avoid any subsequent fees for those services by transferring to a non-timed
account. (See "Market Timing Services.")
MANAGED SEPARATE ACCOUNTS: MANAGEMENT AND FEES
The investments and administration of each managed separate account are under
the direction of a Board of Managers. Subject to the authority of each Board of
Managers, TIMCO and TAMIC furnish investment management and advisory services as
indicated in the Investment Option Chart. Additionally, the Board of Managers
for each managed separate account annually selects an independent public
accountant, reviews the terms of the management and investment advisory
agreements, recommends any changes in the fundamental investment policies (and
submits any such changes to contract owners at the annual meeting), and takes
any other actions necessary in connection with the operation and management of
the managed separate accounts.
The Travelers Investment Management Company ("TIMCO") is a registered investment
adviser that has provided investment advisory services since its incorporation
in 1967. Its principal offices are located at One Tower Square, Hartford,
Connecticut, and it is a wholly owned subsidiary of Salomon Smith Barney
Holdings Inc., which is a wholly owned subsidiary of Citigroup Inc., a bank
services holding company. TIMCO provides investment management and advisory
services to Accounts TGIS, TSB and TAS. The fees are as follows:
<TABLE>
<CAPTION>
ACCOUNT ANNUAL MANAGEMENT FEE
------- ---------------------
<S> <C>
Account TAS.......................... 0.35% of average daily net assets
Account TGIS......................... 0.3233% of average daily net assets
Account TSB.......................... 0.3233% of average daily net assets
</TABLE>
Travelers Asset Management International Corporation ("TAMIC") is a registered
investment adviser that has provided investment advisory services since its
incorporation in 1978. Its principal offices are located at One Tower Square,
Hartford, Connecticut, and it is an indirect wholly owned subsidiary of
Citigroup Inc., a bank holding company. TAMIC provides investment and management
and advisory services to Accounts GIS, QB, MM and TB.
<TABLE>
<CAPTION>
ACCOUNT ANNUAL MANAGEMENT FEE
------- ---------------------
<S> <C>
0.65% of the first $500,000,000,
Account GIS.......................... plus
0.55% of the next $500,000,000,
plus
0.50% of the next $500,000,000,
plus
0.45% of the next $500,000,000,
plus
0.40% of amounts over
$2,000,000,000
(of Account GIS's aggregate net
asset value)
0.50% of the first $50,000,000,
Account TB........................... plus
0.40% of the next $100,000,000,
plus
0.30% of the next $100,000,000,
plus
0.25% of amounts over $250,000,000
(of Account TB's aggregate net
asset value)
Account QB........................... 0.3233% of average daily net assets
Account MM........................... 0.3233% of average daily net assets
</TABLE>
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<PAGE> 22
TAMIC also supervises the subadvisor of Account GIS, TIMCO. According to the
terms of this written subadvisory agreement, TAMIC will pay TIMCO a fee
equivalent on an annual basis to the following:
<TABLE>
<CAPTION>
AGGREGATE
ANNUAL NET ASSET
SUBADVISORY VALUE OF
FEE THE ACCOUNT
- ----------- -----------
<C> <S> <C>
0.45 % of the first $ 700,000,000 plus
0.275% of the next $ 300,000,000 plus
0.25 % of the next $ 500,000,000 plus
0.225% of the next $ 500,000,000 plus
0.20 % of amounts over $ 2,000,000,000
</TABLE>
TIMCO also acts as investment adviser or subadviser for:
- other investment companies used to fund variable products
- individual and pooled pension and profit-sharing accounts
- affiliated companies of The Travelers Insurance Company.
TAMIC also acts as investment adviser or subadviser for:
- other investment companies used to fund variable products
- individual and pooled pension and profit-sharing accounts and domestic
insurance companies affiliated with The Travelers Insurance Company
- nonaffiliated insurance companies.
OWNERSHIP PROVISIONS
- --------------------------------------------------------------------------------
TYPES OF OWNERSHIP
Contract Owner ("you"). If you purchase an individual contract, you are the
contract owner. If a group "allocated" contract is purchased, we issue
certificates to the individual participants. Where we refer to "you," we are
referring to the individual contract owner, or to the group participant, as
applicable. For convenience, we refer to both contracts and certificates as
"contracts."
You receive all payments while the annuitant is alive unless you direct them to
an alternate recipient. An alternate recipient does not become the contract
owner.
Joint Owner. For nonqualified contracts only, joint owners (i.e., spouses) may
be named in a written request before the contract is in effect. Joint owners may
independently exercise transfers allowed under the Contract. All other rights of
ownership must be exercised by both owners. Joint owners own equal shares of any
benefits accruing or payments made to them. All rights of a joint owner end at
death if the other joint owner survives. If the first joint owner to die is also
the annuitant, the death benefit will be paid to the beneficiary if there is no
contingent annuitant. If the first joint owner to die is not the annuitant, the
entire interest under the contract will pass to the surviving joint owner.
BENEFICIARY
You name the beneficiary in a written request. Generally, the beneficiary has
the right to receive any remaining contractual benefits upon the death of the
annuitant or the contract owner. If more than one beneficiary survives the
annuitant, they will share equally in benefits unless the Company receives other
instructions, by written request before the death of the annuitant or contract
owner.
With nonqualified contracts, as discussed under "Death Benefit," the beneficiary
named in the contract may differ from the designated beneficiary. (For example,
the designated beneficiary may be the joint owner). In such cases, the
designated beneficiary receives the contract benefits (rather than the
beneficiary) upon your death.
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<PAGE> 23
Unless an irrevocable beneficiary has been named, you have the right to change
any beneficiary by written request during the lifetime of the annuitant and
while the Contract continues.
ANNUITANT
The annuitant is designated in the Contract (on the Specifications page), and is
the individual on whose life the maturity date and the amount of the monthly
annuity payments depend. The annuitant may not be changed after the contract is
in effect.
For nonqualified Contracts only, where the owner and the annuitant are not the
same person, the contract owner may also name one individual as a contingent
annuitant by written request before the Contract becomes effective. If the
annuitant dies prior to the maturity date while the owner is still living, and a
contingent annuitant has been named, the contingent annuitant becomes the
annuitant and the Contract continues. However, if the annuitant who is also the
owner dies before the maturity date, the death benefit is paid to the
beneficiary. The contingent annuitant does not become the annuitant and is not
entitled to receive any contract benefits. A contingent annuitant may not be
changed, deleted or added after the Contract becomes effective.
DEATH BENEFIT
- --------------------------------------------------------------------------------
The following death benefit applies to all contracts that include a death
benefit. We calculate the death benefit amount as of the date our Home Office
receives proof of death. All amounts will be reduced by any outstanding loans
and any premium taxes due.
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------
INDIVIDUAL CONTRACT GROUP CONTRACT
- ------------------------------------------------------------------------------------------------------
IF ANNUITANT DIES ON OR AFTER AGE 75, AND BEFORE THE IF PARTICIPANT DIES ON OR AFTER AGE 75, AND
MATURITY DATE: BEFORE THE MATURITY DATE:
- ------------------------------------------------------------------------------------------------------
Amount paid: the cash value of the contract Amount paid: the participant's interest
under the contract
- ------------------------------------------------------------------------------------------------------
IF ANNUITANT DIES BEFORE AGE 75, AND BEFORE THE IF PARTICIPANT DIES BEFORE AGE 75, AND
MATURITY DATE: BEFORE THE MATURITY DATE:
- ------------------------------------------------------------------------------------------------------
Amount paid: the greater of (1),(2) or (3) below: Amount paid: the greatest of (1), (2) or (3)
below:
- ------------------------------------------------------------------------------------------------------
(1) the cash value (1) the participant's interest
- ------------------------------------------------------------------------------------------------------
(2) the total purchase payments made, less any prior (2) the total purchase payments made on
withdrawals or loans behalf of the participant, less any
prior withdrawals or loans
- ------------------------------------------------------------------------------------------------------
(3) the cash value on the 5(th) multiple contract (3) the participant's interest on the 5(th)
year anniversary (i.e., 5(th), 10(th), 15(th), multiple certificate year anniversary
etc.) less any withdrawals made since that (i.e., 5(th), 10(th), 15(th), etc.) less
anniversary before we receive proof of death. any withdrawals made since that
anniversary before we receive proof of
death.
- ------------------------------------------------------------------------------------------------------
</TABLE>
PAYMENT OF PROCEEDS
Under an individual contract, the death benefit will generally be paid to the
beneficiary. Under a group contract, the death benefit will be paid to the
contract owner, or the beneficiary, as provided in the plan.
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<PAGE> 24
The process of paying death benefit proceeds under various situations is
described below. Generally, the person(s) receiving the benefit may request that
the proceeds be paid in a lump sum, or be applied to one of the settlement
options available under the Contract.
DEATH OF ANNUITANT WHO IS THE CONTRACT OWNER. The Company will pay the proceeds
to the beneficiary(ies), or if none, to the contract owner's estate.
The death benefit proceeds must be distributed to the beneficiary within five
years of the contract owner's death. Or, the beneficiary may elect to receive
payments from an annuity which begins within one year of the contract owner's
death and which is payable over the life of the beneficiary or over a period not
exceeding the beneficiary's life expectancy.
Under a nonqualified contract, if the beneficiary is the contract owner's
spouse, he or she may elect to continue the contract as the new contract owner
rather than receiving the distribution. In such case, the distribution rules
applicable when a contract owner dies generally will apply when that spouse, as
contract owner, dies.
DEATH OF ANNUITANT WHO IS NOT THE CONTRACT OWNER (NONQUALIFIED CONTRACTS ONLY).
The Company will pay the death proceeds to the beneficiary.
DEATH OF CONTRACT OWNER WHO IS NOT THE ANNUITANT (NONQUALIFIED CONTRACTS ONLY).
The Company will pay the proceeds to any surviving joint owner, or if none, to
the beneficiary(ies), or if none, to the contract owner's estate. If the
surviving joint owner (or if none, the beneficiary) is the Contract Owner's
spouse, he or she may elect to continue the contract as the new contract owner
rather than receiving the distribution.
ENTITY AS OWNER. In the case of a nonqualified Contract owned by a nonnatural
person (e.g. a trust or other entity), the death benefit will be paid only upon
the death of the annuitant.
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 scheduled annuity payments. You can choose
the month and the year in which those payments begin (maturity date). You can
also choose among payout plans (annuity or income 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/Certificate unless it has been fully surrendered or the proceeds have
been paid to the beneficiary before that date. Annuity payments are a series of
periodic payments (a) for life; (b) for life with either a minimum number of
payments or a specific amount assured; or (c) for the joint lifetime of the
annuitant and another person, and thereafter during the lifetime of the
survivor. Income options that are not based on any lifetime are also available.
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. Under
nonqualified contracts, unless you elect otherwise, the maturity date will be
the annuitant's 75th birthday or ten years after the effective date of the
contract, if later. Under qualified contracts, the maturity date must be before
the individual's 70th birthday, unless we consent to a later date.
At least 30 days before the original maturity date, you may extend the maturity
date to any time prior to the annuitant's 85th birthday or to a later date with
our 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
22
<PAGE> 25
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 contract value will be applied to
provide an annuity funded by the same investment options as you have selected
during the accumulation period. At least 30 days before the maturity date, you
may transfer the contract value among the funding options in order to change the
basis on which annuity payments will be determined. (See "Transfers.")
VARIABLE ANNUITY
You may choose to receive annuity payments that are based on the performance of
one or more of the variable funding options. This is called a variable payout
because the amount you receive each month will increase or decrease depending on
how the variable funding options perform. When you annuitize, we will credit you
with annuity units. An annuity unit measures the dollar value of an annuity
payment. We determine the number of annuity units to credit you with by dividing
the first monthly annuity payment for each funding option by the accumulation
unit value for that funding option as of 14 days before the annuity payments
begin. The number of annuity units (but not their value) remains fixed during
the annuity period.
HOW WE DETERMINE THE FIRST ANNUITY PAYMENT. The Contract contains tables used
to determine the first monthly annuity payment. If a variable annuity is
elected, the amount applied to it will be the value of the funding options as of
14 days before the annuity payments begin less any premium taxes due.
The first monthly payment amount depends on the annuity option elected and the
annuitant's adjusted age. The Contract contains a formula for determining the
adjusted age. We calculate the first monthly payment by multiplying the benefit
per $1,000 applied, shown in the Contract tables, by the number of thousands of
dollars of Contract value applied to the annuity option. We also factor in an
assumed daily net investment factor of 3.5%. This assumed daily net investment
factor is used to determine the guaranteed payout rates shown. If net investment
rates are higher at the time annuitization is selected, payout rates will be
higher than those shown. Payout rates will not be lower than those shown. We
reserve the right to require satisfactory proof of an annuitant's age before we
make the first annuity payment.
HOW WE DETERMINE THE PAYMENTS AFTER THE FIRST. The dollar amount of all annuity
payments after the first will change from month to month based on the investment
performance of the applicable funding options. The total amount of each annuity
payment will equal the sum of the basic payments in each funding option. The
actual amounts of these payments are determined by multiplying the number of
annuity units credited to each funding option by the corresponding annuity unit
value as of the date 14 days before the payment is due.
FIXED ANNUITY
You may choose a fixed annuity that provides payments which do not vary during
the annuity period. We will calculate the dollar amount of the first fixed
annuity payment as described under "Variable Annuity," except that the amount
applied to begin the annuity will be the cash value, determined as of the date
annuity payments begin. If it would produce a larger payment, the first fixed
annuity payment will be determined using the Life Annuity Tables in effect on
the maturity date.
23
<PAGE> 26
PAYOUT OPTIONS
- --------------------------------------------------------------------------------
ELECTION OF OPTIONS
On the maturity date, we will pay the amount due under the Contract in one lump
sum, or in accordance with the payment option selected by the contract owner.
Election of an annuity option or an income option must be made in writing in a
form satisfactory to the Company. Any election made during the lifetime of the
group Contract participant, or the annuitant under an individual Contract, must
be made by the participant, as provided in the plan or the contract owner, as
applicable. The terms of options elected may be restricted to meet the contract
qualification requirements of Section 401(a)(9) of the Internal Revenue Code.
Income options differ from annuity options in that the amount of the payments
made under income options are unrelated to the length of life of any person.
Thus, the participant may outlive the payment period. Although the Company
continues to deduct the charge for mortality and expense risks, it assumes no
mortality risks for amounts applied under any income option.
The minimum amount that can be placed under an annuity option or income option,
is $2,000 unless we consent to a lesser amount. If any monthly periodic payment
due is less than $20, we reserve the right to make payments at less frequent
intervals. Annuity options and income options may be elected on a monthly,
quarterly, semiannual or annual basis.
AUTOMATIC OPTION -- Unless we are directed otherwise by the owner, if the
participant is living and has a spouse and no election has been made, the
Company will, on that participant's maturity date, pay to the participant the
first of a series of annuity payments based on the life of the participant as
the primary payee and the participant's spouse in accordance with Option 5
below.
Unless the plan provides otherwise, if the participant has no spouse, the
Company will, on the maturity date, pay to the participant the first of a series
of annuity payments based on the life of the participant, in accordance with
Option 2 with 120 monthly payments assured.
ANNUITY OPTIONS
OPTION 1 -- LIFE ANNUITY -- NO REFUND: The Company will make annuity payments
during the lifetime of the person on whose life the payments are based,
terminating with the last payment preceding death. While this option offers the
maximum periodic payment, there is no assurance of a minimum number of payments,
nor is there a 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 person on
whose life payments are based, 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, payments will be continued during the remainder of the period to the
beneficiary designated. The beneficiary may instead receive a single sum
settlement equal to the discounted value of the future payments with the
interest rate equivalent to the assumption originally used when the annuity
began.
OPTION 3 -- UNIT REFUND LIFE ANNUITY: The Company will make annuity payments
during the lifetime of the person on whose life payments are based, terminating
with the last payment due before the death of that person, provided that, at
death, the beneficiary will receive in one sum the current dollar value of the
number of annuity units equal to (a) minus (b) (if that difference is positive)
where: (a) is the total amount applied under the option divided by the annuity
unit value on the due date of the first annuity payment, and (b) is the product
of the number of the annuity units represented by each payment and the number of
payments made.
OPTION 4 -- JOINT AND LAST SURVIVOR LIFE ANNUITY -- NO REFUND: The Company will
make annuity payments during the joint lifetime of the two persons on whose
lives payments are based, and during the lifetime of the survivor. No further
payments will be made following the death of the
24
<PAGE> 27
survivor. There is no assurance of a minimum number of payments, nor is there a
provision for a death benefit upon the survivor's death.
OPTION 5 -- JOINT AND LAST SURVIVOR LIFE ANNUITY -- ANNUITY REDUCES ON DEATH OF
PRIMARY PAYEE: The Company will make annuity payments during the lifetime of the
two persons on whose lives payments are based. One of the two persons will be
designated as the primary payee. The other will be designated as the secondary
payee. On the death of the secondary payee, if survived by the primary payee,
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, if survived by the secondary
payee, the Company will continue to make annuity payments to the secondary payee
in an amount equal to 50% of the payments which would have been made during the
lifetime of the primary payee. No further payments will be made following the
death of the survivor.
OPTION 6 -- OTHER ANNUITY OPTIONS: The Company will make any other arrangements
for annuity payments as may be mutually agreed upon.
INCOME OPTIONS
Income payments are periodic payments made by the Company which are not based on
the life of the participant.
The cash surrender value used to determine the amount of any income payment will
be calculated as of 14 days before the date an income payment is due and will be
determined on the same basis as the cash surrender value during the Accumulation
Phase, including the deduction for mortality and expense risks.
While income options do not directly involve mortality risks for the Company, an
individual may elect to apply the remaining cash surrender value to provide an
annuity at the guaranteed rates even though income payments have been received
under an income option. Before an owner or participant makes any income option
election, he or she should consult a tax adviser as to any adverse tax
consequences the election might have.
OPTION 1 -- PAYMENTS OF A FIXED AMOUNT: The Company will make equal payments of
the amount elected until the cash surrender value applied under this option has
been exhausted. The final payment will include any amount insufficient to make
another full payment.
OPTION 2 -- PAYMENTS FOR A FIXED PERIOD: The Company will make payments for the
number of years selected. The amount of each payment will be equal to the
remaining cash surrender value applied under this option divided by the number
of remaining payments.
OPTION 3 -- INVESTMENT INCOME: The Company will make payments for the period
agreed on. The amount payable will be equal to the excess, if any, of the cash
surrender value under this option over the amount applied under this option. No
payment will be made if the cash surrender value is less than the amount
applied, and it is possible that no payments would be made for a period of time.
Payments under this option are not considered to be annuity payments and are
taxable in full as ordinary income. (See "Federal Tax Considerations.") This
option will generally be inappropriate under federal tax law for periods that
exceed the Participant's attainment of age 70 1/2.
MISCELLANEOUS CONTRACT PROVISIONS
- --------------------------------------------------------------------------------
RIGHT TO RETURN
For all individual Contracts, the Contract may be returned for a full refund of
the Contract's cash value (including charges) within ten days after the delivery
of the Contract to the contract owner, unless state law requires a longer
period. The contract owner bears the investment risk during the right to return
period; therefore, the cash value returned may be greater or less than the
purchase
25
<PAGE> 28
payment made under the Contract. However, if applicable state law so requires,
or if the Contract was purchased in an Individual Retirement Annuity, the
purchase payment will be returned in full. All cash values will be determined as
of the valuation date next following the Company's receipt of the contract
owner's written request for refund.
For group Contracts issued in the state of New York, during the 20 days after
receiving a certificate, the participant may return it to us, by mail or in
person, if for any reason the participant has changed his or her mind. Upon
return of the certificate, the Company will refund to the contract owner the sum
of all purchase payments made under the Contract, and will make the separate
accounts whole if the accumulation value has declined.
The right to return is not available to participants of the Texas Optional
Retirement Program.
TERMINATION OF INDIVIDUAL CONTRACT
You do not need to make any purchase payments after the first to keep the
Contract in effect. However, unless otherwise specified by state law, we reserve
the right to terminate the Contract on any business day if the cash value as of
that date is less than $1,000 and no purchase payments have been made for at
least two years. 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
value less any applicable premium tax, and less any applicable administrative
charge.
TERMINATION OF GROUP CONTRACT OR ACCOUNT
TERMINATION BY OWNER -- If an owner or a participant terminates an account, in
whole or in part, while the contract remains in effect; and the value of the
terminated account is to be either paid in cash to you or to a participant; or
transferred to any other funding vehicle, the Company will pay or transfer the
cash surrender value of the terminated account.
If this Contract is terminated, whether or not the plan is terminated; and the
owner or the participant, as provided in the plan, elect that values are not to
be paid out in cash or transferred, the Company reserves the right to agree to
apply a participant's interest either as instructed by the owner or the
participant, or under one of the options described under "Options in the Event
of Termination of a Participant."
TERMINATION BY PARTICIPANT -- If a participant terminates an individual account,
in whole or in part, while the contract remains in effect; and the value of the
terminated individual account is to be either paid in cash to the participant,
or transferred to any other funding vehicle, the Company will pay or transfer
the cash surrender value of the terminated account.
TERMINATION BY THE COMPANY AND TERMINATION AMOUNT -- If the cash value in a
participant's individual account is less than the termination amount stated in
the Contract, and no premium has been applied to the account for at least three
years, the Company reserves the right to terminate that account, and to move the
cash value of that participant's individual account to the owner's account.
If the plan does not allow for this movement to the owner's account, the cash
value, less any applicable premium tax not previously deducted, will be paid to
that participant or to the owner, as provided in the plan.
We reserve the right to terminate this Contract on any valuation date if:
1. there is no cash value in any participant's individual account, and
2. the cash value of the owner's account, if any, is less than $500, and
3. premium has not been paid for at least three years.
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If this Contract is terminated, the cash value of the owner's account, if any,
less any applicable premium tax not previously deducted will be paid to you.
Termination will not occur until 31 days after the Company has mailed notice of
termination to the group contract owner or the participant, as provided in the
plan, at the last known address; and to any assignee of record.
OPTIONS IN THE EVENT OF TERMINATION OF A PARTICIPANT -- In the event that,
before a participant's maturity date, that participant terminates participation
in the plan, the owner or that participant, as provided in the plan, with
respect to that participant's interest may elect:
1. If that participant is at least 50 years of age, to have that
participant's interest applied to provide an annuity option or an income
option.
2. If the Contract is continued, to have that participant's interest
applied to continue as a paid-up deferred annuity for that participant,
(i.e., the cash value remains in the Contract and the annuity becomes
payable under the same terms and conditions as the annuity that would
have otherwise been payable at the maturity date).
3. To have the owner or that participant, as provided in the plan, receive
that participant's interest in cash.
4. If that participant becomes a participant under another group contract
of this same type which is in effect with us, to transfer that
participant's interest to that group contract.
5. To make any other arrangements as may be mutually agreed on.
If this Contract is continued, any cash value to which a terminating participant
is not entitled under the plan, will be moved to the owner's account.
AUTOMATIC BENEFIT -- In the event of termination, unless otherwise provided in
the Plan, a participant's interest will continue as a paid-up deferred annuity
in accordance with option 2. above, if this Contract is continued. Or, if this
Contract is terminated, will be paid in cash to the Owner or to that
participant, as provided in the plan.
ANNUITY PAYMENTS -- Termination of this contract or the plan will not affect
payments being made under any annuity option which began before the date of
termination.
DISTRIBUTION FROM ONE ACCOUNT TO ANOTHER ACCOUNT
Under a group Contract, the owner may, as provided for in the plan, distribute
the cash value from the owner's account to one or more individual accounts. No
distribution will be allowed between individual accounts.
The owner may, as required by and provided for in the plan, move the cash value
from any or all individual accounts to the owner's account without a 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, the Company will furnish a report showing
the number of accumulation units credited to the Contract in each funding option
and the corresponding accumulation unit values as of the date of the report. The
Company will keep all records required under federal or state laws.
CHANGE OF CONTRACT
For group Contracts, the Company may, at any time, make any changes, including
retroactive changes, in the Contract to the extent that the change is required
to meet the requirements of any federal law or regulation to which the Company
is subject.
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Except as provided in the paragraph immediately above, no change may be made in
the Contract before the fifth anniversary of the contract date, and in no event
will changes be made with respect to payments being made by the Company under
any annuity option which has commenced prior to the date of change. On and after
the fifth anniversary of the contract date, the Company reserves the right to
change the termination amount (see "Termination of Contract or Account"), the
calculation of the net investment rate and the unit values, and the annuity
tables. Any change in the annuity tables will be applicable only to premiums
received under the Contract after the change. The ability to make such change
lessens the value of mortality and expense guarantees. Other changes (including
changes to the administrative charge) may be applicable to all owners' accounts
and individual accounts under the Contract, to only the owners' accounts and
individual accounts established after the change, or to only premiums received
under the Contract after the date of change as the Company declares at the time
of change. The Company will give notice to the owner at least 90 days before the
date the change is to take effect.
ASSIGNMENT
The participant may not assign his or her rights under a group Contract. The
owner may assign his or her rights under an individual or a group Contract if
allowed by the plan.
SUSPENSION OF PAYMENTS
If a national stock exchange is closed (except for holidays or weekends), or
trading is restricted due to an existing emergency as defined by the SEC so that
disposal of the separate account's investments or determination of its net asset
value is not reasonably practicable, or the Commission has ordered that the
right of redemption (surrender) be suspended for the protection of contract
owners, the Company may postpone all procedures (including making annuity
payments) which require valuation of separate accounts until the stock exchange
is reopened and trading is no longer restricted.
OTHER INFORMATION
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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. It 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 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 the insurance company are located in the Statement
of Additional Information. The financial statements for the separate accounts
will be available through annual reports to shareholders. These reports are
accessible through the SEC's website that appears on page 1 of the prospectus.
IMSA
The Company is a member of the Insurance Marketplace Standards Association
("IMSA"), and as such may use the IMSA logo and IMSA membership in its
advertisements. Companies that belong to IMSA subscribe to a set of ethical
standards covering the various aspects of sales and service for individually
sold life insurance and annuities. IMSA members have adopted policies and
procedures that demonstrate a commitment to honesty, fairness and integrity in
all customer contacts involving the sale and service of individual life
insurance and annuity products.
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YEAR 2000 COMPLIANCE
The Company is highly dependent on computer systems and system applications for
conducting its ongoing business functions. In 1996, the Company began the
process of identifying, assessing and implementing changes to computer programs
necessary to address the Year 2000 issue and developed a comprehensive plan to
address the issue. This issue involves the ability of computer systems that have
time sensitive programs to recognize properly the Year 2000. The inability to do
so could result in major failures or miscalculations that would disrupt the
Company's ability to meet its customer and other obligations on a timely basis.
The Company has achieved substantial compliance with respect to its business
critical systems in accordance with its Year 2000 plan and is in the process of
certification to validate compliance. The Company anticipates completing the
certification process by June 30, 1999. An ongoing re-certification process will
be put in place for third and fourth quarter 1999 to ensure all systems and
products remain compliant.
The total pre-tax cost associated with the required modifications and
conversions is expected to be between $25 million and $35 million and is being
expensed as incurred in the period 1996 through 1999. The Company has incurred
approximately $22 million to date on these efforts. The Company also has third
party customers, financial institutions, vendors and others with which it
conducts business and has confirmed their plans to address and resolve Year 2000
issues on a timely basis. While it is likely that these efforts by third party
vendors and customers will be successful, it is possible that a series of
failures by third parties could have a material adverse effect on the Company's
results of operations in future periods.
In addition, the Company is developing contingency plans to address perceived
risks associated with the Year 2000 effort. These include business resumption
plans to address the possibility of internal systems failures and the
possibility of failure of systems or processes outside the Company's control. As
of year-end 1998, the Company has completed initial business resumption
contingency plans which would enable business critical units to function
beginning January 1, 2000 in the event of an unexpected failure. Business
resumption contingency plans are expected to be finalized by June 30, 1999.
Preparations for the management of the date change will continue through 1999.
DISTRIBUTION OF VARIABLE ANNUITY CONTRACTS
The Company intends to sell the Contracts in all jurisdictions where it is
licensed to do business and where the Contract is approved. Any sales
representative or employee who sells the Contracts will be qualified to sell
variable annuities under applicable federal and state laws. Each broker-dealer
is registered with the SEC under the Securities Exchange Act of 1934, and all
are members of the NASD. The principal underwriter and distributor of the
Contracts is CFBDS, Inc., 21 Milk St., Boston, MA. CFBDS, Inc. is not affiliated
with the Company or the Separate Account.
Up-front compensation paid to sales representatives will not exceed 7.00% of the
purchase payments made under the Contracts. If asset-based compensation is paid,
it will not exceed 2% of the average account value annually. From time to time,
the Company may pay or permit other promotional incentives, in cash, credit or
other compensation.
CONFORMITY WITH STATE AND FEDERAL LAWS
The Contract is governed by the laws of the state in which it is delivered. Any
paid-up annuity, 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 legal requirements of any governmental agency to
which the Company, the Contract or the contract owner is subject. In states
where contract owner approval is required, we will comply.
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VOTING RIGHTS
The contract owner or participant, as applicable, has certain voting rights in
the funding options. The number of votes which an owner or participant, as
provided in the plan, may cast in the accumulation period is equal to the number
of accumulation units credited to the account under the Contract. During the
annuity period, the group participant or the individual contract owner may cast
the number of votes equal to (i) the reserve related to the Contract divided by
(ii) the value of an accumulation unit. During the annuity period, the voting
rights of a participant or, under an individual Contract, an annuitant, will
decline as the reserve for the Contract declines.
Upon the death of the person authorized to vote under the Contract, all voting
rights will vest in the beneficiary of the Contract, except in the case of
nonqualified individual Contracts, where the surviving spouse may succeed to the
ownership.
FUND U. In accordance with its view of present applicable law, the Company will
vote shares of the underlying funds at regular and special meetings of the
shareholders of the funds in accordance with instructions received from persons
having a voting interest in Fund U. The Company will vote shares for which it
has not received instructions in the same proportion as it votes shares for
which it has received instructions. However, if the 1940 Act or any regulation
thereunder should be amended, or if the present interpretation thereof should
change, and as a result the Company determines that it is permitted to vote
shares of the mutual funds in its own right, it may elect to do so.
The number of shares which a person has a right to vote will be determined as of
the date concurrent with the date established by the respective mutual fund for
determining shareholders eligible to vote at the meeting of the fund, and voting
instructions will be solicited by written communication before the meeting in
accordance with the procedures established by the mutual fund.
Each person having a voting interest in Fund U will receive periodic reports
relating to the fund(s) in which he or she has an interest, proxy material and a
form with which to give such instructions with respect to the proportion of the
fund shares held in Fund U corresponding to his or her interest in Fund U.
ACCOUNTS GIS, QB, MM, TGIS, TSB, TAS AND TB. Contract owners participating in
Accounts GIS, QB, MM, TGIS, TSB, TAS or TB will be entitled to vote at their
meetings on (i) any change in the fundamental investment policies of or other
policies related to the accounts requiring the owners' approval; (ii) amendment
of the investment advisory agreements; (iii) election of the members of the
Board of Managers of the accounts; (iv) ratification of the selection of an
independent public accountant for the accounts; (v) any other matters which, in
the future, under the 1940 Act require the owners' approval; and (vi) any other
business which may properly come before the meeting.
The number of votes which each contract owner or a participant may cast,
including fractional votes, shall be determined as of the date to be chosen by
the Board of Managers within 75 days of the date of the meeting, and at least 20
days' written notice of the meeting will be given.
Votes for which participants under a group Contract are entitled to instruct the
owner, but for which the owner has received no instructions, will be cast by the
owner for or against each proposal to be voted on only in the same proportion as
votes for which instructions have been received.
LEGAL PROCEEDINGS AND OPINIONS
There are no pending material legal proceedings affecting the separate accounts.
There is one material pending legal proceeding, other than ordinary routine
litigation incidental to the 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
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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, the
Superior Court of Richmond County transferred the lawsuit to the Superior Court
of Gwinnett County, Georgia. The plaintiffs appealed the transfer order, and in
December 1998 the Court of Appeals of the state of Georgia reversed the lower
court's decision. Later in December 1998, defendants petitioned the Georgia
Supreme Court to hear the appeal from the decision of the Court of Appeals.
Pending appeal, proceedings in the trial court have been stayed. Defendants
intend to vigorously contest the litigation.
Legal matters in connection with federal laws and regulations affecting the
issue and sale of the Contract described in this Prospectus as well as the
organization of the Company, its authority to issue variable annuity contracts
under Connecticut law and the validity of the forms of the variable annuity
contracts under Connecticut law have been passed on by the General Counsel of
the Company.
THE SEPARATE ACCOUNTS
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THE SEPARATE ACCOUNTS
Two different types of separate accounts are available to Fund the Contracts
described in this prospectus. The first type, Fund U, is a unit investment trust
registered with the SEC under the 1940 Act. Fund U's assets are invested
exclusively in the shares of the underlying funds.
The second type of separate account available under the Contract, the "managed
separate accounts," (Accounts GIS, QB, MM, TGIS, TSB, TAS and TB) are
diversified, open-end management investment companies registered with the SEC
under the 1940 Act. The assets of the managed separate accounts are invested
directly in securities such as stocks, bonds or money market instruments which
are compatible with the stated investment policies of each separate account.
Each of the separate accounts available in connection with the Contract has
different investment objectives and fundamental investment policies.
The separate accounts were established on the following dates: Fund U -- May 16,
1983; Account GIS -- September 22, 1967; Account QB -- July 29, 1974; Account
MM -- December 29, 1981; Accounts TGIS and TSB -- October 30, 1986; and Accounts
TAS and TB -- January 2, 1987.
Under Connecticut law, the assets of the separate accounts will be held for the
exclusive benefit of its owners. Income, gains and losses, whether or not
realized, for assets allocated to the separate accounts, are in accordance with
the applicable annuity contracts, credited to or charged against the separate
accounts without regard to other income, gains or losses of the Company. The
assets in the separate accounts are not chargeable with liabilities arising out
of any other business which the Company may conduct. The obligations arising
under the variable annuity contracts are obligations of the Company.
For each managed separate account, neither the investment objective nor the
fundamental investment restrictions, as described in the SAI, can be changed
without a vote of the majority of the outstanding voting securities of the
Accounts, as defined by the 1940 Act.
PERFORMANCE INFORMATION
From time to time, the Company may advertise several types of historical
performance for the funding options of Fund U. The Company may also advertise
the standardized average annual total returns of Accounts GIS, QB, MM, TGIS,
TSB, TAS, TB and Fund U, calculated in a manner prescribed by the SEC, as well
as the nonstandardized total returns, as described below.
STANDARDIZED METHOD. Quotations of average annual total returns are computed
according to a formula in which a hypothetical initial investment of $1,000 is
applied to the funding option, and then related to ending redeemable values over
one-, five-, and ten-year periods, or for a period covering the time during
which the funding option has been in existence, if less. These quotations
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reflect the deduction of all recurring charges during each period (on a pro rata
basis in the case of fractional periods). The deduction for the annual
administrative charge is converted to a percentage of assets based on the actual
fee collected, 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 calender 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 standardized average annual total returns may be
accompanied by returns showing the investment performance that such funding
options would have achieved (reduced by the applicable charges) had they been
held under the Contract for the period quoted. The total return quotations are
based upon historical earnings and are not necessarily representative of future
performance.
GENERAL. Within the guidelines prescribed by the SEC and the National
Association of Securities Dealers, Inc. ("NASD"), performance information may be
quoted numerically or may be presented in a table, graph or other illustration.
Advertisements may include data comparing performance to well-known indices of
market performance (including but not limited to, the Dow Jones Industrial
Average, the Standard & Poor's (S&P) 500 Index and the S&P 400 Index, the Lehman
Brothers Long T-Bond Index, the Russell 1000, 2000, and 3000 Indices, the Value
Line Index, and the Morgan Stanley Capital International's EAFE Index).
Advertisements may also include published editorial comments and performance
rankings compiled by independent organizations (including, but not limited to,
Lipper Analytical Services, Inc. and Morningstar, Inc.) and publications that
monitor the performance of the Separate Account and the variable funding
options.
FEDERAL TAX CONSIDERATIONS
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The following description of the federal income tax consequences under this
Contract is not exhaustive and 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 advisor regarding your personal situation. For your
information, a more detailed discussion is contained in the SAI.
GENERAL TAXATION OF ANNUITIES
Congress has recognized the value of saving for retirement by providing certain
tax benefits, in the form of tax deferral, for money put into an annuity. The
Internal Revenue Code (Code) governs how this money is ultimately taxed,
depending upon the type of contract, qualified or non-qualified, and the manner
in which the money is distributed, as briefly described below.
TYPES OF CONTRACTS: QUALIFIED OR NONQUALIFIED
If you purchase an annuity contract with proceeds of an eligible rollover
distribution from any pension plan, specially sponsored program, or individual
retirement annuity (IRA) with pre-tax dollars, your contract is referred to as a
qualified contract. Some examples of qualified contracts are: IRAs, 403(b)
annuities, pension and profit-sharing plans (including 401(k) plans), Keogh
Plans and certain other qualified deferred compensation plans. 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 and
with after-tax dollars and not under one of the programs described above, your
contract is referred to as nonqualified.
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INVESTOR CONTROL
In certain circumstances, owners of variable annuity contracts may be considered
the owners, for federal income tax purposes, of the assets of the separate
accounts used to support their contract. In those circumstances, income and
gains from the separate account assets would be includable in the variable
contract owner's gross income.
The IRS has stated in published rulings that a variable contract owner will be
considered the owner of separate account assets if the contract owner possesses
incidents of ownership in those assets, such as the ability to exercise
investment control over the assets. The U.S. Treasury Department has also
announced, in connection with the issuance of regulations concerning
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 (i.e., the contract owner), rather than the
insurance company, to be treated as the owner of the assets in the account."
This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyholders may direct their
investments to particular sub-accounts without being treated as owners of the
underlying assets." As of the date of this prospectus, no such guidance has been
issued.
The ownership rights under the Contract are similar to, but different in certain
respects from, those described by the IRS in rulings in which it determined that
the owners were not owners of separate account assets. For example, a contract
owner or participant of this Contract has additional flexibility in allocating
payments and cash values. These differences could result in the contract owner
being treated as the owner of the assets of Fund U. In addition, the Company
does not know what standard will be set forth in the regulations or rulings
which the Treasury is expected to issue, nor does the Company know if such
guidance will be issued. The Company therefore reserves the right to modify the
Contract as necessary to attempt to prevent the contract owner from being
considered the owner of a pro rata share of the assets of Fund U.
The remaining tax discussion assumes that the Contract qualifies as an annuity
contract for federal income tax purposes.
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 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.
NONQUALIFIED ANNUITY CONTRACTS
As the owner of a nonqualified annuity, you do not receive any tax benefit
(deduction or deferral of income) on purchase payments, but you will not be
taxed on increases in the value of your Contract until a distribution
occurs -- either as a withdrawal (distribution made prior to the maturity date),
or as annuity payments. When a withdrawal is made, you are taxed on the amount
of the withdrawal that is considered earnings. Similarly, when you receive an
annuity payment, part of each payment is considered a return of your purchase
payments and will not be taxed. The remaining portion of the annuity payment
(i.e., any earnings) will be considered ordinary income for tax purposes.
If a nonqualified annuity is owned by other than an individual, however, (e.g.,
by a corporation), increases in the value of the Contract attributable to
purchase payments made after February 28, 1986 are includable 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 includable 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 includable in your income. (See "Penalty
Tax for Premature Distributions" below). There is
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income in the Contract to the extent the cash value exceeds your investment in
the Contract. The investment in the Contract equals the total purchase payments
you paid less any amount received previously which was 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.
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 generally
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, and also special rules
regarding Roth IRAs. 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 tax-qualified plans.
DIVERSIFICATION REQUIREMENTS
The Code states that in order to qualify for the tax benefits described above,
investments made in the separate account of any nonqualified variable annuity
Contract must satisfy certain diversification requirements. Tax regulations
define how separate accounts must be diversified. We monitor the investments
constantly and believe that our accounts are adequately diversified. We intend
to administer all Contracts subject to this provision of law in a manner that
will maintain adequate diversification.
MANAGED SEPARATE ACCOUNTS
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As described earlier in this prospectus, there are various funding options
available to you under your Universal Annuity contract. You may select from
several underlying funding options, which are described in detail in separate
prospectuses. In addition, you may choose to invest in one or more of the
Managed Separate Accounts (the "Accounts") also offered through your Contract.
Detailed information regarding these Accounts such as investment objectives,
investment techniques, risk factors and management of the Accounts, is provided
below. Not all funding options or Accounts may be available to you. Please refer
to your Contract. There can be no assurance that the Accounts' investment
objectives will be achieved.
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THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT
FOR VARIABLE ANNUITIES (ACCOUNT GIS)
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INVESTMENT ADVISER: TIMCO
PORTFOLIO MANAGER: Sandip Bhagat
INVESTMENT OBJECTIVE: Long-term accumulation of principal through capital
appreciation and retention of net investment income.
KEY INVESTMENTS: Common stock of large U.S. companies.
SELECTION PROCESS: Account GIS invests primarily in stocks of large U.S.
companies representing a wide range of industries. Stock selection is based on a
quantitative screening process which favors companies that achieve earnings
growth above consensus expectations, and whose stocks offer attractive relative
value. In order to achieve consistent performance, TIMCO manages Account GIS to
mirror the overall risk, sector weightings and growth/value style
characteristics of the Standard & Poor's 500 Stock Index ("S&P 500"). The S&P
500 is a value-weighted equity index comprised mainly of large-company stocks.
ADDITIONAL INVESTMENTS, INVESTMENT STRATEGIES AND TECHNIQUES: Account GIS, to a
lesser extent, will invest in other securities. A complete description of all
investments, and their associated risks, is contained in the SAI. These
additional investments include, but are not limited to, the following:
- fixed-income securities such as bonds and notes,
including U.S. Government securities;
- exchange-traded stock index futures
- covered call options, put options
- foreign securities
For a complete list of all investments available to Account GIS, please refer to
the "Investments at a Glance" table at the end of this section and in the SAI.
PRINCIPAL RISK FACTORS: Account GIS is most subject to equities risk. For a
complete discussion of equities risk and other risks carried by the investments
of Account GIS, please refer to the "Investments, Practices and Risks" section
of this prospectus. Please see the SAI for a detailed description of all
investments, and their associated risks, available to Account GIS.
FUNDAMENTAL INVESTMENT POLICIES
The fundamental investment policies of Account GIS permit it to:
1. invest up to 5% of its assets in the securities of any one issuer
(exclusive of securities issued or guaranteed by the United States
government, its agencies or instrumentalities);
2. borrow from banks in amounts of up to 5% of its assets, but only for
emergency purposes;
3. purchase interests in real estate represented by securities for which
there is an established market;
4. make loans through the acquisition of a portion of a privately placed
issue of bonds, debentures or other evidences of indebtedness of a type
customarily purchased by institutional investors;
5. acquire up to 10% of the voting securities of any one issuer (it is the
present practice of Account GIS not to exceed 5% of the voting
securities of any one issuer);
6. make purchases on margin in the form of short-term credits which are
necessary for the clearance of transactions; and place up to 5% of its
net asset value in total margin deposits for positions in futures
contracts; and
7. invest up to 5% of its assets in restricted securities (securities which
may not be publicly offered without registration under the Securities
Act of 1933).
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THE TRAVELERS QUALITY BOND ACCOUNT
FOR VARIABLE ANNUITIES (ACCOUNT QB)
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INVESTMENT ADVISER: TAMIC
PORTFOLIO MANAGER: F. Denney Voss
INVESTMENT OBJECTIVE: Current income, moderate capital volatility and total
return.
KEY INVESTMENTS: Investment grade debt securities and money market instruments.
SELECTION PROCESS: The adviser expects that the Fund's investments generally
will maintain an average duration of 5 years or less. Investment in longer term
obligations may be made if the manager decides that the investment yields
justify a longer term commitment. No more than 25% of the value of the Account's
total assets will be invested in any one industry. The portfolio will be
actively managed and, under certain market conditions, investments may be sold
prior to maturity.
ADDITIONAL INVESTMENTS, INVESTMENT STRATEGIES AND TECHNIQUES: Account QB may
invest in many types of fixed-income securities and employ various types of
strategies. A complete description of all investments, and their associated
risks, is contained in the SAI. These additional investments include, but are
not limited to, the following:
- treasury bills
- repurchase agreements
- commercial paper
- certificates of deposit
- banker's acceptances
- bonds, notes, debentures
- convertible securities
- when-issued securities
- interest rate future contracts
For a complete list of all investments available to Account QB, please refer to
the "Investments at a Glance" table at the end of this section and in the SAI.
PRINCIPAL RISK FACTORS: Account QB is most subject to fixed-income securities
risk. For a complete discussion of fixed-income securities risk and other risks
carried by the investments of Account QB, please refer to the "Investments,
Practices and Risks" section of this prospectus.
FUNDAMENTAL INVESTMENT POLICIES
The fundamental investment policies of Account QB permit it to:
1. invest up to 15% of the value of its assets in the securities of any one
issuer (exclusive of obligations of the United States government and its
instrumentalities, for which there is no limit);
2. borrow from banks in amounts of up to 5% of its assets, but only for
emergency purposes;
3. purchase interests in real estate represented by securities for which
there is an established market;
4. make loans through the acquisition of a portion of a privately placed
issue of bonds, debentures or other evidences of indebtedness of a type
customarily purchased by institutional investors;
5. acquire up to 10% of the voting securities of any one issuer (it is the
present practice of Account QB not to exceed 5% of the voting securities
of any one issuer); and
6. make purchases on margin in the form of short-term credits which are
necessary for the clearance of transactions; and place up to 5% of its
net asset value in total margin deposits for positions in futures
contracts.
36
<PAGE> 39
THE TRAVELERS MONEY MARKET ACCOUNT
FOR VARIABLE ANNUITIES (ACCOUNT MM)
- --------------------------------------------------------------------------------
INVESTMENT ADVISER: TAMIC
PORTFOLIO MANAGER: Emil J. Molinaro, Jr.
INVESTMENT OBJECTIVE: Preservation of capital, a high degree of liquidity and
high current income
KEY INVESTMENTS: Money market instruments.
SELECTION PROCESS: The Account is a "money market" Account that invests in high
quality U.S. dollar denominated money market instruments. High quality
instruments generally are rated in the highest rating category by national
rating agencies or are deemed comparable. Eligible securities must have a
remaining maturity of 13 months or less (subject to certain exceptions). The
Account's manager selects from the following or other similar investments, as
described in the "Investments at a Glance" table at the end of this section and
in the SAI.
COMMERCIAL PAPER AND
SHORT-TERM CORPORATE DEBT Commercial paper is short-term unsecured
promissory notes issued by corporations to
finance their short-term credit needs. Commercial
paper is usually sold at a discount and is issued
with a maturity of not more than 9 months.
Short-term corporate debt that the Fund may
purchase includes notes and bonds issued by
corporations to finance longer-term credit needs.
These debt securities are issued with maturities
of more than 9 months. The Account may purchase
short-term corporate debt with a remaining
maturity of 397 days or less at the time of
purchase.
U.S. GOVERNMENT MONEY MARKET
SECURITIES These are short-term debt instruments issued or
guaranteed by the U.S. Government or its
agencies, instrumentalities or
government-sponsored enterprises. The full faith
and credit of the United States does not back all
U.S. Government securities. For example,
securities issued by Fannie Mae are supported by
that agency's right to borrow from the U.S.
Treasury under certain circumstances. Other U.S.
government securities, such as those issued by
the Federal Farm Credit Banks Funding
Corporation, are supported only by the credit of
the entity that issued them.
CREDIT AND LIQUIDITY
ENHANCEMENTS Enhancements include letters of credit,
guarantees, puts and demand features, and
insurance provided by domestic or foreign
entities such as banks and other financial
institutions. Credit and liquidity enhancements
are designed to enhance the credit quality of an
instrument to eligible security status. However,
they expose the Fund to the credit risk of the
entity providing the credit or liquidity
enhancement. Changes in the credit quality of the
provider could affect the value of the security
and the Fund's share price.
PUT FEATURES Entitle the holder to put or sell a security back
to the issuer or another party who issued the
put. Demand features, standby commitments, and
tender options are types of put features. In
exchange for getting the put, the Fund may accept
a lower rate of interest. The Fund evaluates the
credit quality of the put provider as well as the
issuer, if a different party. The put
37
<PAGE> 40
provider's creditworthiness affects the credit
quality of the investment.
VARIABLE AND FLOATING RATE
SECURITIES Have interest rates that adjust periodically,
which may be either at specific intervals or
whenever an external benchmark rate changes.
Interest-rate adjustments are designed to help
maintain a stable price for the security.
REPURCHASE AGREEMENTS These agreements permit the Account to buy a
security at one price and, at the same time,
agree to sell it back at a higher price. Delays
or losses to the Account could result if the
other party to the agreement defaults or becomes
insolvent.
RISK FACTORS
Corporate debt securities held by the Account may be subject to several types of
investment risk, including market or interest-rate risk. This risk relates to
the change in market value caused by fluctuations in prevailing interest rates
and credit risk, which, in turn, relates to the ability of the issuer to make
timely interest payments and to repay the principal at maturity. Short-term
corporate debt is less subject to market or interest-rate risk than longer-term
corporate debt. Certain corporate debt securities may be subject to call or
income risk. This risk appears during periods of falling interest rates and
involves the possibility that securities with high interest rates will be
prepaid or "called" by the issuer prior to maturity.
Because interest rates on money market instruments fluctuate in response to
economic factors, rates on the Account's short-term investments and the daily
dividends paid to its shareholders will vary, rising or falling with short-term
interest rates generally. Yields from short-term securities may be lower than
yields from longer-term securities. Also, the value of the Account's securities
generally varies inversely with interest rates, the amount of outstanding debt
and other factors. This means that the value of the Account's investments
usually increases as short-term interest rates fall and decreases as short-term
interest rates rise.
Account investments may be unprofitable in a time of sustained high inflation.
In addition, the Account's investments in certificates of deposit issued by U.S.
branches of foreign banks and foreign branches of U.S. banks involve somewhat
more risk, but also more potential reward, than investments in comparable
domestic obligations.
FUNDAMENTAL INVESTMENT POLICIES
The fundamental investment policies of Account MM permit it to:
1. invest up to 25% of its assets in the securities of issuers in any
single industry (exclusive of securities issued by domestic banks and
savings and loan associations, or securities issued or guaranteed by the
United States government, its agencies, authorities or
instrumentalities); neither all finance companies, as a group, nor all
utility companies, as a group, are considered a single industry for the
purpose of this restriction;
2. invest up to 5% of its assets in the securities of any one issuer, other
than securities issued or guaranteed by the United States Government.
However, Account MM may invest up to 25% of its total assets in first
tier securities, as defined in Rule 2a-7, of a single issuer for a
period of up to three business days after the purchase thereof;
3. acquire up to 10% of the outstanding securities of any one issuer
(exclusive of securities issued or guaranteed by the United States
government, its agencies or instrumentalities);
4. borrow money from banks on a temporary basis in an aggregate amount not
to exceed one third of Account MM's assets (including the amount
borrowed); and
38
<PAGE> 41
5. pledge, hypothecate or transfer, as security for indebtedness, any
securities owned or held by Account MM as may be necessary in connection
with any borrowing mentioned above and in an aggregate amount of up to
5% of Account MM's assets.
THE TRAVELERS TIMED GROWTH AND INCOME STOCK ACCOUNT
FOR VARIABLE ANNUITIES (ACCOUNT TGIS)
- --------------------------------------------------------------------------------
INVESTMENT ADVISER: TIMCO
PORTFOLIO MANAGERS: Sandip Bhagat
INVESTMENT OBJECTIVE: Long-term accumulation of principal through capital
appreciation and retention of net investment income.
KEY INVESTMENTS: Common stock of large U.S. companies.
SELECTION PROCESS: Account TGIS invests primarily in stocks of large U.S.
companies representing a wide range of industries, while maintaining a highly
marketable portfolio in order to accommodate cash flows associated with
market-timing moves. Stock selection is based on a quantitative screening
process which favors companies that achieve earnings growth above consensus
expectations, and whose stocks offer attractive relative value. In order to
achieve consistent performance, TIMCO manages Account TGIS to mirror the overall
risk, sector weightings and growth/value style characteristics of the Standard &
Poor's 500 Stock Index ("S&P 500"). The S&P 500 is a value-weighted equity index
comprised mainly of large-company stocks.
ADDITIONAL INVESTMENTS, INVESTMENT STRATEGIES AND TECHNIQUES: Account TGIS will
also use exchange-traded financial futures contracts to facilitate market-timed
moves, and as a hedge to protect against changes in stock prices or interest
rates. Account TGIS, to a lesser extent, may invest in other securities. These
additional investments include, but are not limited to, the following:
- fixed-income securities such as bonds and notes;
- including U.S. Government securities
- covered call options, put options
- foreign securities
For a complete list of all investments available to Account TGIS, please refer
to the "Investments at a Glance" table at the end of this section and in the
SAI.
PRINCIPAL RISK FACTORS: Account TGIS is most subject to equities risk and
market-timing risk. For a complete discussion of these and other risks carried
by the investments of Account GIS, please refer to the "Investments, Practices
and Risks" section of this prospectus. Please see the SAI for a detailed
description of all investments, and their associated risks, available to Account
TGIS.
FUNDAMENTAL INVESTMENT POLICIES
The fundamental investment policies of Account TGIS are the same as Account GIS.
(See "Account GIS -- Fundamental Investment Policies.")
39
<PAGE> 42
THE TRAVELERS TIMED SHORT-TERM BOND ACCOUNT
FOR VARIABLE ANNUITIES (ACCOUNT TSB)
- --------------------------------------------------------------------------------
INVESTMENT ADVISER: TIMCO
PORTFOLIO MANAGER: Emil Molinaro, Jr.
INVESTMENT OBJECTIVE High current income with limited price volatility while
maintaining a high degree of liquidity.
KEY INVESTMENTS: High quality fixed-income securities.
SELECTION PROCESS: The Account invests in high quality U.S. dollar denominated
instruments. High quality instruments generally are rated in the highest rating
category by national rating agencies or are deemed comparable. The weighted
average maturity of the portfolio is not expected to exceed 9 months. The
Account's manager selects from the following or other similar investments, as
described in the "Investments at a Glance" table at the end of this section and
in the SAI.
COMMERCIAL PAPER AND
SHORT-TERM CORPORATE DEBT Commercial paper is short-term unsecured
promissory notes issued by corporations to
finance their short-term credit needs. Commercial
paper is usually sold at a discount and is issued
with a maturity of not more than 9 months.
Short-term corporate debt that the Fund may
purchase includes notes and bonds rated at least
AA with final maturities of 18 months or less at
time of purchase.
U.S. GOVERNMENT SECURITIES These are short-term debt instruments issued or
guaranteed by the U.S. Government or its
agencies, instrumentalities or
government-sponsored enterprises. The full faith
and credit of the United States does not back all
U.S. Government securities. For example,
securities issued by Fannie Mae are supported by
that agency's right to borrow from the U.S.
Treasury under certain circumstances. Other U.S.
Government securities, such as those issued by
the Federal Farm Credit Banks Funding
Corporation, are supported only by the credit of
the entity that issued them.
REPURCHASE AGREEMENTS Permit the Account to buy a security at one price
and, at the same time, agree to sell it back at a
higher price. Delays or losses to the Account
could result if the other party to the agreement
defaults or becomes insolvent.
RISK FACTORS
Corporate debt securities held by the Account may be subject to several types of
investment risk, including market or interest-rate risk. This risk relates to
the change in market value caused by fluctuations in prevailing interest rates
and credit risk, which, in turn, relates to the ability of the issuer to make
timely interest payments and to repay the principal at maturity. Short-term
corporate debt is less subject to market or interest-rate risk than longer-term
corporate debt. Certain corporate debt securities may be subject to call or
income risk. This risk appears during periods of falling interest rates and
involves the possibility that securities with high interest rates will be
prepaid or "called" by the issuer prior to maturity.
Because interest rates on money market instruments fluctuate in response to
economic factors, rates on the Account's short-term investments and the daily
dividends paid to its shareholders will vary, rising or falling with short-term
interest rates generally. Yields from short-term securities may
40
<PAGE> 43
be lower than yields from longer-term securities. Also, the value of the
Account's securities generally varies inversely with interest rates, the amount
of outstanding debt and other factors. This means that the value of the
Account's investments usually increases as short-term interest rates fall and
decreases as short-term interest rates rise.
FUNDAMENTAL INVESTMENT POLICIES
The fundamental investment policies of Account TSB permit it to:
1. invest up to 25% of its assets in the securities of issuers in any
single industry (exclusive of securities issued by domestic banks and
savings and loan associations, or securities issued or guaranteed by the
United States government, its agencies, authorities or
instrumentalities); neither all finance companies, as a group, nor all
utility companies, as a group, are considered a single industry for the
purpose of this restriction;
2. invest up to 10% of its assets in the securities of any one issuer,
including repurchase agreements with any one bank or dealer (exclusive
of securities issued or guaranteed by the United States government, its
agencies or instrumentalities);
3. acquire up to 10% of the outstanding securities of any one issuer
(exclusive of securities issued or guaranteed by the United States
government, its agencies or instrumentalities);
4. borrow money from banks on a temporary basis in an aggregate amount not
to exceed one third of Account TSB's assets (including the amount
borrowed); and
5. pledge, hypothecate or transfer, as security for indebtedness, any
securities owned or held by Account TSB as may be necessary in
connection with any borrowing mentioned above and in an aggregate amount
of up to 5% of Account TSB's assets.
THE TRAVELERS TIMED AGGRESSIVE STOCK ACCOUNT
FOR VARIABLE ANNUITIES (ACCOUNT TAS)
- --------------------------------------------------------------------------------
INVESTMENT ADVISER: TIMCO
PORTFOLIO MANAGER: Sandip Bhagat
INVESTMENT OBJECTIVE: Growth of capital
KEY INVESTMENTS: Common stock of mid-size U.S. companies
SELECTION PROCESS: In selecting investments for the portfolio, TIMCO identifies
stocks which appear to be undervalued. A computer model reviews over one
thousand stocks using fundamental and technical criteria such as price relative
to book value, earnings growth and momentum, and the change in price relative to
a broad composite stock index.
Computer-aided analysis may also be used to match certain characteristics of the
portfolio, such as industry sector representation, to the characteristics of a
market index, or to impose a tilt toward certain attributes. Account TAS
currently focuses on mid-sized domestic companies with market capitalizations
that fall between $500 million and $10 billion.
ADDITIONAL INVESTMENTS, INVESTMENT STRATEGIES AND TECHNIQUES: Account TAS may
invest in smaller or larger companies without limitation. A complete description
of all investments, and their associated risks, is contained in the SAI. These
additional investments include, but are not limited to, the following:
- convertible securities
- rights and warrants
- foreign securities
- illiquid securities
- money market instruments
- call or put options
41
<PAGE> 44
In addition, Account TAS will use exchange-traded futures contracts to
facilitate market-timed moves. for a complete list of all investments available
to Account TAS, please refer to the "Investments at a Glance" table at the end
of this section and in the SAI.
PRINCIPAL RISK FACTORS: Account TAS is most subject to equities risk, including
smaller companies risk, and market-timing risk. For a complete discussion of
these types of risk as well as other risks carried by the investments of Account
TAS, please refer to the "Investments, Practices and Risks" Section of this
prospectus. Please see the SAI for a detailed description of all investments,
and their associated risks, available to Account TAS.
FUNDAMENTAL INVESTMENT POLICIES
The fundamental investment policies of Account TAS permit it to:
1. invest up to 5% of its assets in the securities of any one issuer;
2. borrow money from banks in amounts of up to 10% of its assets, but only
as a temporary measure for emergency or extraordinary purposes;
3. pledge up to 10% of its assets to secure borrowings;
4. invest up to 25% of its assets in the securities of issuers in the same
industry; and
5. invest up to 10% of its assets in repurchase agreements maturing in more
than seven days and securities for which market quotations are not
readily available.
THE TRAVELERS TIMED BOND ACCOUNT FOR VARIABLE ANNUITIES
(ACCOUNT TB)
- --------------------------------------------------------------------------------
NOTE: The Travelers Timed Bond Account is not currently available to new
contract owners.
INVESTMENT ADVISER: TAMIC
PORTFOLIO MANAGER: Richard John
INVESTMENT OBJECTIVE: Current income and total return.
KEY INVESTMENTS: Highest credit quality debt securities.
SELECTION PROCESS: Account TB invests primarily in direct or indirect
obligations of the United States and its instrumentalities, and in obligations
of independent Federal Agencies. These debt securities include, but are not
limited to Treasury Bills, Treasury Notes and Treasury Bonds. Some examples of
the U.S. instrumentalities, enterprises or agencies in whose Securities the
Account may invest are:
<TABLE>
<S> <C>
- - Government National Mortgage - Export -- Import Bank of the U.S.
Association
- Farm Credit System
- - Small Business Administration
- Federal Home Loan Mortgage
- - Federal Housing Association Corporation
- Student Loan Marketing Association
</TABLE>
For a complete list of all investments available to Account TB, please refer to
the "Investments at a Glance" at the end of this section and in the SAI.
ADDITIONAL INVESTMENTS, INVESTMENT STRATEGIES AND TECHNIQUES: In addition,
Account TB may use exchange-traded futures contracts to facilitate market timed
moves, and as a hedge to protect against changes in interest rates. A complete
description of all investments and associated risks is contained in the SAI.
These additional investments include, but are not limited to :
- money market investments
- when-issued securities
- covered call options
42
<PAGE> 45
PRINCIPAL RISK FACTORS: Account TB is most subject to fixed-income securities
risk and market timing risk. For a complete discussion of these and other risks
carried by the investments of Account TB, please refer to the "Investments,
Practices and Risks" section of this prospectus. Please see the SAI for a
detailed description of all investments, and their associated risks, available
to Account TB.
FUNDAMENTAL INVESTMENT POLICIES
The fundamental investment policies of Account TB permit it to:
1. invest up to 5% of its assets in the securities of any one issuer
(exclusive of securities of the United States government, its agencies
or instrumentalities, for which there is no limit);
2. borrow money from banks in amounts of up to 10% of its assets, but only
as a temporary measure for emergency or extraordinary purposes;
3. pledge up to 10% of its assets to secure borrowings;
4. invest up to 25% of its assets in the securities of issuers in the same
industry (exclusive of securities of the U.S. government, its agencies
or instrumentalities, for which there is no limit); and
5. invest up to 10% of its assets in repurchase agreements maturing in more
than seven days.
INVESTMENTS, PRACTICES AND RISKS OF THE MANAGED SEPARATE ACCOUNTS
- --------------------------------------------------------------------------------
Each Account invests in various instruments subject to its particular investment
policy. The Accounts invest in some or all of the following, as indicated below
and in the Statement of Additional Information. For a free copy of the Statement
of Additional Information, see the front cover of this prospectus.
EQUITIES
(GIS, QB, TAS, TGIS) Equity securities include common and preferred
stock, warrants, rights, depository receipts and
shares, trust certificates, and real estate
instruments.
Equities are subject to market risk. Many factors
affect the stock market prices and dividend
payouts of equity investments. These factors
include general business conditions, investor
confidence in the economy, and current conditions
in a particular industry or company. Each company
determines whether or not to pay dividends on
common stock. Equity securities are subject to
financial risks relating to the issuer's earning
stability and overall financial soundness.
Smaller and emerging growth companies are
particularly sensitive to these factors.
Equity securities that are traded
over-the-counter may be more volatile than
exchange-listed stocks, and the Fund may
experience difficulty in purchasing or selling
these securities at a fair price.
When you sell your shares, they may be worth more
or less than what you paid for them.
FIXED INCOME INVESTMENTS
(All Accounts) Each Account may invest in fixed income
securities. Fixed income securities include U.S.
government securities, certificates of deposit,
and short-term money market instruments. Fixed
income securities may have all types of interest
rate payment and reset terms, including fixed
rate, adjustable rate, zero coupon, contingent,
deferred, payment in kind and auction rate
features.
43
<PAGE> 46
The value of debt securities varies inversely
with interest rates. This means generally that
the value of these investments increases as
short-term interest rates fall and decreases as
short-term interest rates rise. Yields from
short-term securities normally may be lower than
yields from longer-term securities. A bond's
price is affected by its issuer's credit quality.
An issuer may not always make payments on a fixed
income security. Some fixed income securities,
such as mortgage-backed securities are subject to
prepayment risk, which occurs when an issuer can
prepay the principal owed on a security before
its maturity.
High-yield, high-risk securities, commonly called
"junk bonds," are considered speculative. While
generally providing greater income than
investments in higher-quality securities, these
securities will involve greater risk of principal
and income (including the possibility of default
or bankruptcy of the issuers of the security).
TACTICAL ASSET ALLOCATION
RISKS
(TAS, TGIS, TG, TSB) If you participate in a tactical asset allocation
agreement, you may be subject to the following
additional risks: (1) higher transaction costs;
(2) higher portfolio turnover rate; (3)
investment return goals not being achieved by the
registered investment advisers which provide
tactical asset allocation services; and (4)
higher account expenses for depleting and, then
starting up the account. Actions by the
registered investment advisers which provide
tactical asset allocation services may also
increase risks generally found in any investment,
i.e., the failure to achieve an investment
objective, and possible lower yield. In addition,
if more than one tactical asset allocation
strategy uses a Market Timed Account, those who
invest in the Market Timed Account when others
are transferred into or out of that Account by
the registered investment advisers may bear part
of the direct costs incurred by those individuals
who were transferred. For example, if 90% of a
Market Timed Account is under one tactical asset
allocation strategy, and those funds are
transferred into or out of that Account, those
constituting the other 10% of the Market Timed
Account may bear a higher portion of the expense
for the transfer.
FOREIGN SECURITIES
(GIS, QB, TAS, TGIS) An investment in foreign securities involves risk
in addition to those of U.S. securities,
including possible political and economic
instability and the possible imposition of
exchange controls or other restrictions on
investments. The Account also bears an
"information" risk associated with the different
accounting, auditing, and financial reporting
standards in many foreign countries. If an
Account invests in securities denominated or
quoted in currencies other than the U.S. dollar,
changes in foreign currency rates relative to the
U.S. dollar will affect the U.S. dollar value of
the Account's assets.
44
<PAGE> 47
DERIVATIVES AND HEDGING
TECHNIQUES
(GIS, QB, TAS, TGIS, TB) An Account may use derivative contracts, such as
futures and options on securities, may be used
for any of the following purposes:
- To hedge against the economic impact of
adverse changes in the market value of its
securities, due to changes in stock market
prices, currency exchange rates or interest
rates;
- As a substitute for buying or selling
securities
- To enhance return
Even a small investment in derivative contracts
can have a big impact on an Account's stock
market, currency and interest rate exposure.
Therefore, using derivatives can
disproportionately increase losses and reduce
opportunities for gain when stock prices,
currency rates or interest rates are changing.
For a more complete description of derivative and
hedging techniques and their associated risks,
please refer to the Statement of Additional
Information.
OTHER RISK FACTORS
SELECTION RISK
(GIS, QB, TAS, TGIS) Account investors are subject to selection risk
in that a strategy used, or stock selected, may
fail to have the desired effect. Specifically,
stocks believed to show potential for capital
growth may not achieve that growth. Strategies or
instruments used to hedge against a possible risk
or loss may fail to protect against the
particular risk or loss.
TEMPORARY DEFENSIVE POSITIONS
(All Accounts) The Accounts may depart from principal investment
strategies in response to adverse market,
economic or political conditions by taking
temporary defensive positions in various types of
money market and short-term debt securities. If
an Account takes a temporary defensive position,
it is not pursuing its investment goal.
45
<PAGE> 48
INVESTMENTS AT A GLANCE
- --------------------------------------------------------------------------------
Each Account invests in various instruments subject to its particular investment
policies. The Accounts invest in some or all of the following, as indicated
below. These techniques and practices are described together with their risks,
in the SAI.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
INVESTMENT TECHNIQUES GIS MM QB TAS TGIS TSB TB
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Affiliated Bank Transactions
- ---------------------------------------------------------------------------------------------------------------------------------
American Depositary Receipts X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Asset-Backed Mortgage Securities X X
- ---------------------------------------------------------------------------------------------------------------------------------
Bankers Acceptances X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Buying Put and Call Options X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Certificates of Deposit X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Commercial Paper X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Convertible Securities X X
- ---------------------------------------------------------------------------------------------------------------------------------
Corporate Asset-Backed Securities X
- ---------------------------------------------------------------------------------------------------------------------------------
Debt Securities X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Emerging Market Securities
- ---------------------------------------------------------------------------------------------------------------------------------
Equity Securities X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Floating & Variable Rate Instruments X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Foreign Securities X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Forward Contracts on Foreign Currency
- ---------------------------------------------------------------------------------------------------------------------------------
Futures Contracts X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Illiquid Securities X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Indexed Securities X
- ---------------------------------------------------------------------------------------------------------------------------------
Index Futures Contracts X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Investment Company Securities X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Investment in Unseasoned Companies X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Lending Portfolio Securities X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Letters of Credit X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Loan Participations
- ---------------------------------------------------------------------------------------------------------------------------------
Options on Foreign Currencies
- ---------------------------------------------------------------------------------------------------------------------------------
Options on Index Futures Contracts X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Options on Stock Indices X X
- ---------------------------------------------------------------------------------------------------------------------------------
Other Direct Indebtedness X X
- ---------------------------------------------------------------------------------------------------------------------------------
Real Estate-Related Instruments X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreements X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Reverse Repurchase Agreements X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Short Sales "Against the Box"
- ---------------------------------------------------------------------------------------------------------------------------------
Short-Term Money Market Instruments X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Swap Agreements
- ---------------------------------------------------------------------------------------------------------------------------------
Temporary Bank Borrowing X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Variable Amount Master Demand Notes X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
When-Issued and Delayed Delivery Securities X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
Writing Covered Call Options X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
46
<PAGE> 49
APPENDIX A
- --------------------------------------------------------------------------------
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 Account or any other separate account sponsored by the
Company or its affiliates. In the contract, we refer to this account as the
"flexible annuity account."
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 above, less any applicable premium taxes or
prior surrenders. If the contract owner effects a surrender, the amount
available from the Fixed Account will be reduced by any applicable withdrawal
charge as described under "Charges and Deductions" in this prospectus.
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 the
Company prospectively declares 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 3.5% per year. Any interest
credited to amounts allocated to the Fixed Account in excess of 3.5% per year
will be determined in our sole discretion. You assume the risk that interest
credit to the Fixed Account may not exceed the minimum guarantee of 3.5% for any
given year.
TRANSFERS
Under nonqualified contracts, 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 10% of the Fixed Account Value on the semiannual
Contract effective date anniversary. (This restriction does not apply to
transfers from the Dollar Cost Averaging Program or to transfers under qualified
contracts.) We reserve the right to waive this restriction.
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.
A-1
<PAGE> 50
THIS PAGE INTENTIONALLY LEFT BLANK.
<PAGE> 51
APPENDIX
B
CONDENSED FINANCIAL INFORMATION
- -------------------------------------------------------------------------
THE TRAVELERS FUND U FOR VARIABLE ANNUITIES
ACCUMULATION UNIT VALUES
<TABLE>
<CAPTION>
1998 1997 1996 1995
-------------------- ------------------- ------------------- -------------------
Q NQ Q NQ Q NQ Q NQ
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CAPITAL APPRECIATION FUND*
Unit Value at beginning of year... $ 3.779 $ 3.920 $ 3.034 $ 3.146 $ 2.396 $ 2.485 $ 1.779 $ 1.845
Unit Value at end of year......... 6.033 6.257 3.779 3.920 3.034 3.146 2.396 2.485
Number of units outstanding at end
of year (thousands)............. 104,732 11,574 84,250 9,791 64,294 7,828 45,979 4,415
HIGH YIELD BOND TRUST
Unit Value at beginning of year... $ 3.261 $ 3.295 $ 2.833 $ 2.863 $ 2.472 $ 2.498 $ 2.167 $ 2.189
Unit Value at end of year......... 3.432 3.468 3.261 3.295 2.833 2.863 2.472 2.498
Number of units outstanding at end
of year (thousands)............. 6,959 1,011 6,673 973 5,312 657 4,592 498
MANAGED ASSETS TRUST
Unit Value at beginning of year... $ 3.720 $ 4.004 $ 3.105 $ 3.342 $ 2.763 $ 2.975 $ 2.201 $ 2.369
Unit Value at end of year......... 4.462 4.802 3.720 4.004 3.105 3.342 2.763 2.975
Number of units outstanding at end
of year (thousands)............. 53,900 5,958 53,841 5,164 55,055 4,632 57,020 4,114
<CAPTION>
<S> <C> <C>
CAPITAL APPRECIATION FUND*
Unit Value at beginning of year... $ 1.892 $ 1.962
Unit Value at end of year......... 1.779 1.845
Number of units outstanding at end
of year (thousands)............. 40,160 3,605
HIGH YIELD BOND TRUST
Unit Value at beginning of year... $ 2.222 $ 2.245
Unit Value at end of year......... 2.167 2.189
Number of units outstanding at end
of year (thousands)............. 4,708 585
MANAGED ASSETS TRUST
Unit Value at beginning of year... $ 2.281 $ 2.455
Unit Value at end of year......... 2.201 2.369
Number of units outstanding at end
of year (thousands)............. 58,355 4,813
</TABLE>
<TABLE>
<CAPTION>
1993 1992 1991 1990
------------------- ------------------- ------------------- -------------------
Q NQ Q NQ Q NQ Q NQ
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CAPITAL APPRECIATION FUND*
Unit Value at beginning of year... $ 1.665 $ 1.727 $ 1.433 $ 1.487 $ 1.075 $ 1.114 $ 1.157 $ 1.200
Unit Value at end of year......... 1.892 1.962 1.665 1.727 1.433 1.487 1.075 1.114
Number of units outstanding at end
of year (thousands)............. 30,003 2,825 16,453 1,020 12,703 887 11,356 553
HIGH YIELD BOND TRUST
Unit Value at beginning of year... $ 1.974 $ 1.994 $ 1.767 $ 1.785 $ 1.418 $ 1.433 $ 1.573 $ 1.590
Unit Value at end of year......... 2.222 2.245 1.976 1.994 1.767 1.785 1.418 1.433
Number of units outstanding at end
of year (thousands)............. 5,066 603 4,730 428 4,018 344 4,045 341
MANAGED ASSETS TRUST
Unit Value at beginning of year... $ 2.111 $ 2.273 $ 2.034 $ 2.189 $ 1.691 $ 1.821 $ 1.671 $ 1.799
Unit Value at end of year......... 2.281 2.455 2.111 2.273 2.034 2.189 1.691 1.821
Number of units outstanding at end
of year (thousands)............. 63,538 4,490 65,926 4,120 58,106 3,359 51,489 2,744
<CAPTION>
<S> <C> <C>
- -----------------------------------------------------------------
CAPITAL APPRECIATION FUND*
Unit Value at beginning of year... $ 1.015 $ 1.052
Unit Value at end of year......... 1.157 1.200
Number of units outstanding at end
of year (thousands)............. 12,038 495
HIGH YIELD BOND TRUST
Unit Value at beginning of year... $ 1.571 $ 1.588
Unit Value at end of year......... 1.573 1.590
Number of units outstanding at end
of year (thousands)............. 6,074 573
MANAGED ASSETS TRUST
Unit Value at beginning of year... $ 1.331 $ 1.433
Unit Value at end of year......... 1.671 1.799
Number of units outstanding at end
of year (thousands)............. 47,104 2,836
</TABLE>
Q = Qualified
NQ = NonQualified
The financial statements of Fund U are contained in the Annual Report
which should be read along with this information and which is
incorporated by reference into the SAI. The consolidated financial
statements of The Travelers Insurance Company and Subsidiaries are
contained in the SAI.
* Prior to May 1, 1994, the Capital Appreciation Fund was known as the
Aggressive Stock Trust.
B-1
<PAGE> 52
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
THE TRAVELERS FUND U FOR VARIABLE ANNUITIES
ACCUMULATION UNIT VALUES
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
DREYFUS STOCK INDEX FUND (1/92)*
Unit Value at beginning of year.................... $ 2.456 $ 1.870 $ 1.546 $ 1.144 $ 1.148 $ 1.064 $ 1.000
Unit Value at end of year.......................... 3.110 2.456 1.870 1.546 1.144 1.148 1.064
Number of units outstanding at end of year
(thousands)...................................... 147,531 109,317 66,098 43,247 31,600 26,789 12,089
AMERICAN ODYSSEY FUNDS, INC.
AMERICAN ODYSSEY CORE EQUITY FUND (6/93)*
Unit Value at beginning of period.................. $ 2.143 $ 1.647 $ 1.354 $ .990 $ 1.012 $ 1.000 --
Unit Value at end of period........................ 2.445 2.143 1.647 1.354 .990 1.012 --
Number of units outstanding at end of period
(thousands)...................................... 187,872 185,895 170,552 137,330 100,082 37,136 --
AMERICAN ODYSSEY EMERGING OPPORTUNITIES FUND
(5/93)*
Unit Value at beginning of period.................. $ 1.541 $ 1.460 $ 1.526 $ 1.168 $ 1.079 $ 1.000 --
Unit Value at end of period........................ 1.390 1.541 1.460 1.526 1.168 1.079 --
Number of units outstanding at end of period
(thousands)...................................... 187,717 162,146 122,877 103,815 73,838 27,011 --
AMERICAN ODYSSEY GLOBAL HIGH-YIELD BOND FUND**
(5/93)*
Unit Value at beginning of period.................. $ 1.183 $ 1.129 $ 1.102 $ 1.006 $ 1.020 $ 1.000 --
Unit Value at end of period........................ 1.125 1.183 1.129 1.102 1.006 1.020 --
Number of units outstanding at end of period
(thousands)...................................... 70,747 48,929 44,077 24,416 17,611 8,201 --
AMERICAN ODYSSEY INTERMEDIATE-TERM BOND FUND
(6/93)*
Unit Value at beginning of period.................. $ 1.229 $ 1.157 $ 1.128 $ .993 $ 1.035 $ 1.000 --
Unit Value at end of period........................ 1.317 1.229 1.157 1.128 .993 1.035 --
Number of units outstanding at end of period
(thousands)...................................... 93,456 86,914 78,211 68,878 50,403 19,564 --
AMERICAN ODYSSEY INTERNATIONAL EQUITY FUND (5/93)*
Unit Value at beginning of period.................. $ 1.592 $ 1.534 $ 1.274 $ 1.084 $ 1.180 $ 1.000 --
Unit Value at end of period........................ 1.806 1.592 1.534 1.274 1.084 1.180 --
Number of units outstanding at end of period
(thousands)...................................... 161,690 143,959 121,896 70,364 47,096 16,944 --
AMERICAN ODYSSEY LONG-TERM BOND FUND (6/93)*
Unit Value at beginning of period.................. $ 1.352 $ 1.221 $ 1.221 $ .990 $ 1.085 $ 1.000 --
Unit Value at end of period........................ 1.456 1.352 1.221 1.221 .990 1.085 --
Number of units outstanding at end of period
(thousands)...................................... 170,067 159,728 137,075 101,376 70,928 25,467 --
DREYFUS VARIABLE INVESTMENT FUND
SMALL CAP PORTFOLIO (5/98)*
Unit Value at beginning of period.................. $ 1.000 -- -- -- -- -- --
Unit Value at end of period........................ 0.860 -- -- -- -- -- --
Number of units outstanding at end of period
(thousands)...................................... 4,815 -- -- -- -- -- --
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND
EQUITY-INCOME PORTFOLIO (7/93)*
Unit Value at beginning of period.................. $ 2.118 $ 1.674 $ 1.484 $ 1.112 $ 1.052 $ 1.000 --
Unit Value at end of period........................ 2.335 2.118 1.674 1.484 1.112 1.052 --
Number of units outstanding at end of period
(thousands)...................................... 243,964 237,050 205,636 153,463 78,856 13,414 --
GROWTH PORTFOLIO (1/92)*
Unit Value at beginning of year.................... $ 2.201 $ 1.805 $ 1.594 $ 1.192 $ 1.207 $ 1.024 $ 1.000
Unit Value at end of year.......................... 3.033 2.201 1.805 1.594 1.192 1.207 1.024
Number of units outstanding at end of year
(thousands)...................................... 295,980 289,002 274,892 229,299 176,304 101,260 30,240
HIGH INCOME PORTFOLIO (2/92)*
Unit Value at beginning of year.................... $ 2.052 $ 1.766 $ 1.568 $ 1.316 $ 1.354 $ 1.138 $ 1.000
Unit Value at end of year.......................... 1.939 2.052 1.766 1.568 1.316 1.354 1.138
Number of units outstanding at end of year
(thousands)...................................... 49,347 48,895 40,309 32,601 25,813 17,381 4,875
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II
(1/92)*
ASSET MANAGER PORTFOLIO
Unit Value at beginning of year.................... $ 1.879 $ 1.577 $ 1.394 $ 1.207 $ 1.301 $ 1.088 $ 1.000
Unit Value at end of year.......................... 2.135 1.879 1.577 1.394 1.207 1.301 1.088
Number of units outstanding at end of year
(thousands)...................................... 226,655 240,064 249,050 270,795 282,474 162,413 30,207
</TABLE>
B-2
<PAGE> 53
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
THE TRAVELERS FUND U FOR VARIABLE ANNUITIES
ACCUMULATION UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
TEMPLETON VARIABLE PRODUCTS SERIES FUND:
TEMPLETON ASSET ALLOCATION FUND (1/92)* (CLASS 1)
Unit Value at beginning of year.................... $ 2.070 $ 1.815 $ 1.546 $ 1.277 $ 1.333 $ 1.070 $ 1.000
Unit Value at end of year.......................... 2.176 2.070 1.815 1.546 1.277 1.333 1.070
Number of units outstanding at end of year
(thousands)...................................... 105,824 124,603 113,809 107,460 103,407 51,893 13,888
TEMPLETON BOND FUND (1/92)* (CLASS 1)
Unit Value at beginning of year.................... $ 1.367 $ 1.351 $ 1.250 $ 1.101 $ 1.172 $ 1.065 $ 1.000
Unit Value at end of year.......................... 1.447 1.367 1.351 1.250 1.101 1.172 1.065
Number of units outstanding at end of year
(thousands)...................................... 9,863 10,502 10,260 10,527 10,186 8,014 3,477
TEMPLETON STOCK FUND (1/92)* (CLASS 1)
Unit Value at beginning of year.................... $ 2.211 $ 2.001 $ 1.655 $ 1.338 $ 1.385 $ 1.047 $ 1.000
Unit Value at end of year.......................... 2.211 2.211 2.001 1.655 1.338 1.385 1.047
Number of units outstanding at end of year
(thousands)...................................... 164,479 180,876 154,614 122,937 101,462 43,847 10,433
TRAVELERS SERIES FUND
ALLIANCE GROWTH PORTFOLIO (2/95)*
Unit Value at beginning of period.................. $ 2.091 $ 1.640 $ 1.284 $ 1.000 -- -- --
Unit Value at end of period........................ 2.664 2.091 1.640 1.284 -- -- --
Number of units outstanding at end of period
(thousands)...................................... 31,613 19,535 10,809 2,498 -- -- --
G.T. GLOBAL STRATEGIC INCOME PORTFOLIO*** (3/95)*
Unit Value at beginning of period.................. $ 1.487 $ 1.402 $ 1.195 $ 1.000 -- -- --
Unit Value at end of period........................ 1.446 1.487 1.402 1.195 -- -- --
Number of units outstanding at end of period
(thousands)...................................... 240 222 242 162 -- -- --
MFS TOTAL RETURN PORTFOLIO (2/95)*
Unit Value at beginning of period.................. $ 1.630 $ 1.362 $ 1.205 $ 1.000 -- -- --
Unit Value at end of period........................ 1.798 1.630 1.362 1.205 -- -- --
Number of units outstanding at end of period
(thousands)...................................... 22,751 14,655 7,302 2,734 -- -- --
PUTNAM DIVERSIFIED INCOME PORTFOLIO (3/95)*
Unit Value at beginning of period.................. $ 1.282 $ 1.206 $ 1.128 $ 1.000 -- -- --
Unit Value at end of period........................ 1.275 1.282 1.206 1.128 -- -- --
Number of units outstanding at end of period
(thousands)...................................... 7,549 5,171 2,375 774 -- -- --
SMITH BARNEY HIGH INCOME PORTFOLIO (3/95)*
Unit Value at beginning of period.................. $ 1.412 $ 1.256 $ 1.124 $ 1.000 -- -- --
Unit Value at end of period........................ 1.400 1.412 1.256 1.124 -- -- --
Number of units outstanding at end of period
(thousands)...................................... 2,256 1,307 553 138 -- -- --
SMITH BARNEY INTERNATIONAL EQUITY PORTFOLIO (2/95)*
Unit Value at beginning of period.................. $ 1.339 $ 1.321 $ 1.137 $ 1.000 -- -- --
Unit Value at end of period........................ 1.408 1.339 1.321 1.137 -- -- --
Number of units outstanding at end of period
(thousands)...................................... 8,376 7,634 5,777 593 -- -- --
SMITH BARNEY LARGE CAP VALUE PORTFOLIO (2/95)*
(formerly Smith Barney Income and Growth Portfolio)
Unit Value at beginning of period.................. $ 1.843 $ 1.474 $ 1.246 $ 1.000 -- -- --
Unit Value at end of period........................ 1.999 1.843 1.474 1.246 -- -- --
Number of units outstanding at end of period
(thousands)...................................... 13,038 10,871 6,133 1,747 -- -- --
TRAVELERS SERIES TRUST
DISCIPLINED MID CAP STOCK PORTFOLIO (5/98)*
Unit Value at beginning of period.................. $ 1.000 -- -- -- -- -- --
Unit Value at end of period........................ 1.040 -- -- -- -- -- --
Number of units outstanding at end of period
(thousands)...................................... 1,388 -- -- -- -- -- --
SOCIAL AWARENESS STOCK PORTFOLIO (5/92)*
Unit Value at beginning of period.................. $ 2.176 $ 1.731 $ 1.461 $ 1.109 $ 1.153 $ 1.086 $ 1.000
Unit Value at end of period........................ 2.842 2.176 1.731 1.461 1.109 1.153 1.086
Number of units outstanding at end of year
(thousands)...................................... 13,305 9,539 6,355 4,841 3,499 2,920 1,332
</TABLE>
B-3
<PAGE> 54
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
THE TRAVELERS FUND U FOR VARIABLE ANNUITIES
ACCUMULATION UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
TRAVELERS SERIES TRUST (CONTINUED)
U.S. GOVERNMENT SECURITIES PORTFOLIO (1/92)*
Unit Value at beginning of period.................. $ 1.472 $ 1.323 $ 1.321 $ 1.074 $ 1.153 $ 1.066 $ 1.000
Unit Value at end of period........................ 1.602 1.472 1.323 1.321 1.074 1.153 1.066
Number of units outstanding at end of period
(thousands)...................................... 36,339 22,809 19,054 21,339 22,709 22,142 8,566
UTILITIES PORTFOLIO (2/94)*
Unit Value at beginning of period.................. $ 1.686 $ 1.363 $ 1.284 $ 1.005 $ 1.000 -- --
Unit Value at end of period........................ 1.969 1.686 1.363 1.284 1.005 -- --
Number of units outstanding at end of period
(thousands)...................................... 16,378 12,539 13,258 11,918 5,740 -- --
</TABLE>
* Represents date money was first applied to funding option through Separate
Account.
** Formerly American Odyssey Short-Term Bond Fund. The name, investment
objectives and investment subadviser were changed pursuant to a shareholder
vote effective May 1, 1998.
*** Not currently available to new Contract Owners in most states.
The financial statements of Fund U are contained in the Annual Report which
should be read along with this information and which is incorporated by
reference into the SAI. The consolidated financial statements of The Travelers
Insurance Company and Subsidiaries are contained in the SAI.
"Number of units outstanding at end of period" may include units for contract
owners in the payout phase.
B-4
<PAGE> 55
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES
PER UNIT DATA FOR AN ACCUMULATION AND ANNUITY UNIT OUTSTANDING THROUGHOUT EACH
YEAR
The following information on per unit data has been audited by
PricewaterhouseCoopers LLP, independent accountants. Their report on the per
unit data for each of the five years in the period ended December 31, 1998 is
contained in the Account GIS Annual Report which should be read along with this
information and which is incorporated by reference into the SAI. The
consolidated financial statements of The Travelers Insurance Company and
Subsidiaries are contained in the SAI.
<TABLE>
<CAPTION>
CONTRACTS ISSUED ON OR AFTER TO MAY 16, 1983 1998 1997 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED PER UNIT DATA
Total investment income................ $ .234 $ .228 $ .212 $ .205 $ .189 $ .184 $ .188 $ .198
Operating expenses..................... .303 .228 .175 .140 .115 .106 .098 .091
-------- -------- -------- ------- ------- ------- ------- -------
Net investment income (loss)........... (.069) .000 .037 .065 .074 .078 .090 .107
Unit Value at beginning of year........ 14.955 11.371 9.369 6.917 7.007 6.507 6.447 5.048
Net realized and change in unrealized gains
(losses)............................. 4.367 3.584 1.965 2.387 (.164) .422 (.030) 1.292
-------- -------- -------- ------- ------- ------- ------- -------
Unit Value at end of year.............. $ 19.253 $ 14.955 $ 11.371 $ 9.369 $ 6.917 $ 7.007 $ 6.507 $ 6.447
======== ======== ======== ======= ======= ======= ======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase (decrease) in unit value... $ 4.30 $ 3.58 $ 2.00 $ 2.45 $ (.09) $ .50 $ .06 $ 1.40
Ratio of operating expenses to average net
assets............................... 1.81% 1.70% 1.70% 1.70% 1.65% 1.57% 1.58% 1.58%
Ratio of net investment income (loss) to
average net assets................... (.41)% .00% .36% .79% 1.05% 1.15% 1.43% 1.86%
Number of units outstanding at end of year
(thousands).......................... 32,051 29,545 27,578 26,688 26,692 28,497 29,661 26,235
Portfolio turnover rate................ 50% 64% 85% 96% 103% 81% 189% 319%
CONTRACTS ISSUED PRIOR TO MAY 16, 1983 1998 1997 1996 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------------
SELECTED PER UNIT DATA
Total investment income................ $ .243 $ .233 $ .216 $ .208 $ .192 $ .189 $ .192 $ .201
Operating expenses..................... .272 .201 .154 .123 .100 .092 .085 .077
-------- -------- -------- ------- ------- ------- ------- -------
Net investment income (loss)........... (.029) .032 .062 .085 .092 .097 .107 .124
Unit Value at beginning of year........ 15.510 11.763 9.668 7.120 7.194 6.664 6.587 5.145
Net realized and change in unrealized gains
(losses)............................. 4.536 3.715 2.033 2.463 (.166) .433 (.030) 1.318
-------- -------- -------- ------- ------- ------- ------- -------
Unit Value at end of year.............. $ 20.017 $ 15.510 $ 11.763 $ 9.668 $ 7.120 $ 7.194 $ 6.664 $ 6.587
======== ======== ======== ======= ======= ======= ======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase (decrease) in unit value... $ 4.51 $ 3.75 $ 2.10 $ 2.55 $ (.07) $ .53 $ .08 $ 1.44
Ratio of operating expenses to average net
assets............................... 1.56% 1.45% 1.45% 1.45% 1.41% 1.33% 1.33% 1.33%
Ratio of net investment income (loss) to
average net assets................... (.16)% .24% .60% 1.02% 1.30% 1.40% 1.67% 2.11%
Number of units outstanding at end of year
(thousands).......................... 13,894 15,194 16,554 17,896 19,557 21,841 22,516 24,868
Portfolio turnover rate................ 50% 64% 85% 96% 103% 81% 189% 319%
<CAPTION>
<S> <C> <C>
- -----------------------------------------------------------------------------------
SELECTED PER UNIT DATA
Total investment income................ $ .192 $ .191
Operating expenses..................... .079 .095
------- -------
Net investment income (loss)........... .113 .096
Unit Value at beginning of year........ 5.295 4.191
Net realized and change in unrealized gains
(losses)............................. (.360) 1.008
------- -------
Unit Value at end of year.............. $ 5.048 $ 5.295
======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase (decrease) in unit value... $ (.25) $ 1.10
Ratio of operating expenses to average net
assets............................... 1.57% 1.58%
Ratio of net investment income (loss) to
average net assets................... 2.25% 2.33%
Number of units outstanding at end of year
(thousands).......................... 19,634 15,707
Portfolio turnover rate................ 54% 27%
CONTRACTS ISSUED PRIOR TO MAY 16, 1983 1990 1989
- -----------------------------------------------------------------------------------------------------
SELECTED PER UNIT DATA
Total investment income................ $ .199 $ .191
Operating expenses..................... .069 .066
------- -------
Net investment income (loss)........... .130 .125
Unit Value at beginning of year........ 5.383 4.250
Net realized and change in unrealized gains
(losses)............................. (.368) 1.008
------- -------
Unit Value at end of year.............. $ 5.145 $ 5.383
======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase (decrease) in unit value... $ (.24) $ 1.13
Ratio of operating expenses to average net
assets............................... 1.33% 1.33%
Ratio of net investment income (loss) to
average net assets................... 2.50% 2.56%
Number of units outstanding at end of year
(thousands).......................... 28,053 31,326
Portfolio turnover rate................ 54% 27%
</TABLE>
B-5
<PAGE> 56
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES
PER UNIT DATA FOR AN ACCUMULATION AND ANNUITY UNIT OUTSTANDING THROUGHOUT EACH
YEAR
The following information on per unit data has been audited by
PricewaterhouseCoopers LLP, independent accountants. Their report on the per
unit data for each of the five years in the period ended December 31, 1998 is
contained in the Account QB Annual Report which should be read along with this
information and which is incorporated by reference into the SAI. The
consolidated financial statements of The Travelers Insurance Company and
Subsidiaries are contained in the SAI.
<TABLE>
<CAPTION>
CONTRACTS ISSUED ON OR AFTER MAY 16, 1983 1998 1997 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED PER UNIT DATA
Total investment income............... $ .350 $ .342 $ .368 $ .319 $ .310 $ .299 $ .311 $ .299
Operating expenses.................... .088 .082 .078 .073 .069 .067 .061 .056
------- ------- ------- ------- ------- ------- ------- -------
Net investment income................. .262 .260 .290 .246 .241 .232 .250 .243
Unit Value at beginning of year....... 5.393 5.060 4.894 4.274 4.381 4.052 3.799 3.357
Net realized and change in unrealized
gains (losses)...................... .110 .073 (.124) .374 (.348) .097 .003 .199
------- ------- ------- ------- ------- ------- ------- -------
Unit Value at end of year............. $ 5.765 $ 5.393 $ 5.060 $ 4.894 $ 4.274 $ 4.381 $ 4.052 $ 3.799
======= ======= ======= ======= ======= ======= ======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase (decrease) in unit value... $ .37 $ .33 $ .17 $ .62 $ (.11) $ .33 $ .25 $ .44
Ratio of operating expenses to average
net assets.......................... 1.57% 1.57% 1.57% 1.57% 1.57% 1.57% 1.58% 1.57%
Ratio of net investment income to
average net assets.................. 4.71% 5.00% 5.87% 5.29% 5.62% 5.41% 6.38% 6.84%
Number of units outstanding at end of
year (thousands).................... 21,251 21,521 24,804 27,066 27,033 28,472 20,250 17,211
Portfolio turnover rate............... 438% 196% 176% 138% 27% 24% 23% 21%
CONTRACTS ISSUED PRIOR TO MAY 16, 1983 1998 1997 1996 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------------
SELECTED PER UNIT DATA
Total investment income............... $ .363 $ .353 $ .379 $ .328 $ .318 $ .306 $ .317 $ .304
Operating expenses.................... .076 .071 .067 .063 .059 .058 .050 .048
------- ------- ------- ------- ------- ------- ------- -------
Net investment income................. .287 .282 .312 .265 .259 .248 .267 .256
Unit Value at beginning of year....... 5.593 5.234 5.050 4.400 4.498 4.150 3.880 3.421
Net realized and change in unrealized
gains (losses)...................... .114 .077 (.128) .385 (.357) .100 .003 .203
------- ------- ------- ------- ------- ------- ------- -------
Unit Value at end of year............. $ 5.994 $ 5.593 $ 5.234 $ 5.050 $ 4.400 $ 4.498 $ 4.150 $ 3.880
======= ======= ======= ======= ======= ======= ======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase (decrease) in unit value... $ .40 $ .36 $ .18 $ .65 $ (.10) $ .35 $ .27 $ .46
Ratio of operating expenses to average
net assets.......................... 1.33% 1.33% 1.33% 1.33% 1.33% 1.33% 1.33% 1.33%
Ratio of net investment income to
average net assets.................. 4.96% 5.25% 6.12% 5.54% 5.87% 5.66% 6.61% 7.09%
Number of units outstanding at end of
year (thousands).................... 6,880 7,683 8,549 9,325 10,694 12,489 13,416 14,629
Portfolio turnover rate............... 438% 196% 176% 138% 27% 24% 23% 21%
<CAPTION>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
SELECTED PER UNIT DATA
Total investment income............... $ .277 $ .270
Operating expenses.................... .048 .047
------- -------
Net investment income................. .229 .223
Unit Value at beginning of year....... 3.129 2.852
Net realized and change in unrealized
gains (losses)...................... (.001) .054
------- -------
Unit Value at end of year............. $ 3.357 $ 3.129
======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase (decrease) in unit value... $ .23 $ .28
Ratio of operating expenses to average
net assets.......................... 1.57% 1.57%
Ratio of net investment income to
average net assets.................. 7.06% 7.44%
Number of units outstanding at end of
year (thousands).................... 14,245 13,135
Portfolio turnover rate............... 41% 33%
CONTRACTS ISSUED PRIOR TO MAY 16, 1983 1990* 1989
- --------------------------------------------------------------------------------------------------------------------------------
SELECTED PER UNIT DATA
Total investment income............... $ .281 $ .270
Operating expenses.................... .040 .035
------- -------
Net investment income................. .241 .235
Unit Value at beginning of year....... 3.181 2.892
Net realized and change in unrealized
gains (losses)...................... (.001) .054
------- -------
Unit Value at end of year............. $ 3.421 $ 3.181
======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase (decrease) in unit value... $ .24 $ .29
Ratio of operating expenses to average
net assets.......................... 1.33% 1.33%
Ratio of net investment income to
average net assets.................. 7.31% 7.60%
Number of units outstanding at end of
year (thousands).................... 16,341 18,248
Portfolio turnover rate............... 41% 33%
</TABLE>
B-6
<PAGE> 57
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES
PER UNIT DATA FOR AN ACCUMULATION AND ANNUITY UNIT OUTSTANDING THROUGHOUT EACH
YEAR
The following information on per unit data has been audited by
PricewaterhouseCoopers LLP, independent accountants. Their report on the per
unit data for each of the five years in the period ended December 31, 1998 is
contained in the Account MM Annual Report which should be read along with this
information and which is incorporated by reference into the SAI. The
consolidated financial statements of The Travelers Insurance Company and
Subsidiaries are contained in the SAI.
<TABLE>
<CAPTION>
CONTRACTS ISSUED ON OR AFTER MAY 16, 1983 1998 1997 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED PER UNIT DATA
Total investment income............... $ .133 $ .128 $ .121 $ .127 $ .087 $ .065 $ .077 $ .118
Operating expenses.................... .038 .036 .035 .034 .032 .031 .031 .030
-------- -------- ------- ------- ------- ------- ------- -------
Net investment income................. .095 .092 .086 .093 .055 .034 .046 .088
Unit Value at beginning of year....... 2.355 2.263 2.177 2.084 2.029 1.995 1.949 1.861
-------- -------- ------- ------- ------- ------- ------- -------
Unit Value at end of year............. $ 2.450 $ 2.355 $ 2.263 $ 2.177 $ 2.084 $ 2.029 $ 1.995 $ 1.949
======== ======== ======= ======= ======= ======= ======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase in unit value............ $ .10 $ .09 $ .09 $ .09 $ .06 $ .03 $ .05 $ .09
Ratio of operating expenses to average
net assets.......................... 1.57% 1.57% 1.57% 1.57% 1.57% 1.57% 1.57% 1.57%
Ratio of net investment income to
average net assets.................. 3.95% 4.02% 3.84% 4.36% 2.72% 1.68% 2.33% 4.66%
Number of units outstanding at end of
year (thousands).................... 41,570 36,134 38,044 35,721 39,675 34,227 42,115 55,013
CONTRACTS ISSUED PRIOR TO MAY 16, 1983 1998 1997 1996 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------------
SELECTED PER UNIT DATA
Total investment income............... $ .138 $ .134 $ .125 $ .130 $ .091 $ .067 $ .079 $ .120
Operating expenses.................... .033 .032 .030 .030 .028 .027 .027 .026
-------- -------- ------- ------- ------- ------- ------- -------
Net investment income................. .105 .102 .095 .100 .063 .040 .052 .094
Unit Value at beginning of year....... 2.443 2.341 2.246 2.146 2.083 2.043 1.991 1.897
-------- -------- ------- ------- ------- ------- ------- -------
Unit Value at end of year............. $ 2.548 $ 2.443 $ 2.341 $ 2.246 $ 2.146 $ 2.083 $ 2.043 $ 1.191
======== ======== ======= ======= ======= ======= ======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase in unit value............ $ .11 $ .10 $ .10 $ .10 $ .06 $ .04 $ .05 $ .09
Ratio of operating expenses to average
net assets.......................... 1.33% 1.33% 1.33% 1.33% 1.33% 1.33% 1.33% 1.33%
Ratio of net investment income to
average net assets.................. 4.20% 4.27% 4.10% 4.61% 2.98% 1.93% 2.58% 4.90%
Number of units outstanding at end of
year (thousands).................... 91 105 112 206 206 218 227 262
<CAPTION>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
SELECTED PER UNIT DATA
Total investment income............... $ .149 $ .156
Operating expenses.................... .029 .027
------- -------
Net investment income................. .120 .129
Unit Value at beginning of year....... 1.741 1.612
------- -------
Unit Value at end of year............. $ 1.861 $ 1.741
======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase in unit value............ $ .12 $ .13
Ratio of operating expenses to average
net assets.......................... 1.57% 1.57%
Ratio of net investment income to
average net assets.................. 6.68% 7.65%
Number of units outstanding at end of
year (thousands).................... 67,343 57,916
CONTRACTS ISSUED PRIOR TO MAY 16, 1983 1990* 1989
- --------------------------------------------------------------------------------------------------------------------------------
SELECTED PER UNIT DATA
Total investment income............... $ .151 $ .156
Operating expenses.................... .024 .021
------- -------
Net investment income................. .127 .135
Unit Value at beginning of year....... 1.770 1.635
------- -------
Unit Value at end of year............. $ 1.897 $ 1.770
======= =======
SIGNIFICANT RATIOS AND ADDITIONAL DATA
Net increase in unit value............ $ .13 $ .14
Ratio of operating expenses to average
net assets.......................... 1.33% 1.33%
Ratio of net investment income to
average net assets.................. 6.93% 7.81%
Number of units outstanding at end of
year (thousands).................... 326 367
</TABLE>
* On May 1, 1990, TAMIC replaced TIMCO as the investment adviser for Account MM.
B-7
<PAGE> 58
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
THE TRAVELERS TIMED GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES
PER UNIT DATA FOR AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT EACH PERIOD
The following information on per unit data has been audited by
PricewaterhouseCoopers LLP, independent accountants. Their report on the per
unit data for each of the five years in the period ended December 31, 1998 is
contained in the Account TGIS Annual Report which should be read along with this
information and which is incorporated by reference into the SAI. The
consolidated financial statements of The Travelers Insurance Company and
Subsidiaries are contained in the SAI.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED PER UNIT DATA
Total investment income........... $ .064 $ .075 $ .061 $ .083 $ .064 $ .043 $ .046 $ .045
Operating expenses................ .110 .090 .069** .057** .041** .042** .045** .045**
------- ------- ------- ------- ------- ------- ------- -------
Net investment income (loss)...... (.046) (.015) (.008) .026 .023 .001 .001 --
Unit Value at beginning of year... $ 3.526 $ 2.717 $ 2.263 $ 1.695 $ 1.776 $ 1.689 $ 1.643 $ 1.391
Net realized and change in
unrealized gains (losses)....... .988 .824 .462 .542 (.104) 0.086 0.045 0.252
------- ------- ------- ------- ------- ------- ------- -------
Unit Value at end of year......... $ 4.468 $ 3,526 $ 2.717 $ 2.263 $ 1.695 $ 1.776 $ 1.689 $ 1.643
======= ======= ======= ======= ======= ======= ======= =======
SIGNIFICANT RATIOS AND ADDITIONAL
DATA
Net increase (decrease) in unit
value........................... $ .94 $ .81 $ .45 $ .57 $ (.08) $ .09 $ .05 $ .25
Ratio of operating expenses to
average net assets*............. 2.82% 2.82%** 2.82%** 2.82%** 2.82%** 2.82%** 2.82%** 2.82%**
Ratio of net investment income
(loss) to average net assets*... (1.16)% (.45)% (.34)% 1.37% 1.58% 0.08% 0.78% 1.33%
Number of units outstanding at end
of year (thousands)............. 25,192 60,312 68,111 105,044 29,692 -- 217,428 --
Portfolio turnover rate........... 81% 63% 81% 79% 19% 70% 119% 489%
<CAPTION>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
SELECTED PER UNIT DATA
Total investment income........... $ .099 $ .161
Operating expenses................ .034** .023
------- -------
Net investment income (loss)...... .065 .138
Unit Value at beginning of year... $ 1.447 $ 1.108
Net realized and change in
unrealized gains (losses)....... (.121) .201
------- -------
Unit Value at end of year......... $ 1.391 $ 1.447
======= =======
SIGNIFICANT RATIOS AND ADDITIONAL
DATA
Net increase (decrease) in unit
value........................... $ (.06) $ .34
Ratio of operating expenses to
average net assets*............. 2.41%** 1.57%
Ratio of net investment income
(loss) to average net assets*... 1.86% 2.81%
Number of units outstanding at end
of year (thousands)............. 5,708 --
Portfolio turnover rate........... 653% 149%
</TABLE>
* Annualized
** Effective May 1, 1990, market timing fees are included in operating
expenses. Prior to May 1, 1990, market timing fee payments were made by
separate check from a contract owner, and were not recorded in the financial
statements of Account TGIS, or by contractual surrender to the extent
allowed under federal tax law.
B-8
<PAGE> 59
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
THE TRAVELERS TIMED SHORT-TERM BOND ACCOUNT FOR VARIABLE ANNUITIES*
PER UNIT DATA FOR AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT EACH YEAR
The following information on per unit data has been audited by
PricewaterhouseCoopers LLP, independent accountants. Their report on the per
unit data for each of the five years in the period ended December 31, 1998 is
contained in the Account TSB Annual Report which should be read along with this
information and which is incorporated by reference into the SAI. The
consolidated financial statements of The Travelers Insurance Company and
Subsidiaries are contained in the SAI.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED PER UNIT DATA
Total investment income........... $ .078 $ .077 $ .057 $ .074 $ .055 $ .041 $ .054 $ .076
Operating expenses................ .040 .039** .030** .035** .036** .037** .041** .036**
------- ------- ------- ------- ------- ------- ------- -------
Net investment income............. .038 0.38 .027 .039 .019 .004 .013 .040
Unit value at beginning of year... 1.399 1.361 1.333 1.292 1.275 1.271 1.258 1.218
Net realized and change in
unrealized gains (losses)***.... .000 .000 .001 .002 (.002) -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Unit value at end of year......... $ 1.437 $ 1.399 $ 1.361 $ 1.333 $ 1.292 $ 1.275 $ 1.271 $ 1.258
======= ======= ======= ======= ======= ======= ======= =======
SIGNIFICANT RATIOS AND ADDITIONAL
DATA
Net increase in unit value........ $ .04 $ .04 $ .03 $ .04 $ .02 $ -- $ .01 $ .04
Ratio of operating expenses to
average net assets****.......... 2.82% 2.82%** 2.82%** 2.82%** 2.82%** 2.82%** 2.82%** 2.82%**
Ratio of net investment income to
average net assets****.......... 2.71% 2.77% 2.47% 3.17% 1.45% .39% 1.12% 3.07%
Number of units outstanding at end
of year (thousands)............. 137,067 47,262 54,565 -- 216,713 353,374 173,359 439,527
<CAPTION>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
SELECTED PER UNIT DATA
Total investment income........... $ .099 $ .102
Operating expenses................ .030** .017
------- -------
Net investment income............. .069 .085
Unit value at beginning of year... 1.149 1.064
Net realized and change in
unrealized gains (losses)***.... -- --
------- -------
Unit value at end of year......... $ 1.218 $ 1.149
======= =======
SIGNIFICANT RATIOS AND ADDITIONAL
DATA
Net increase in unit value........ $ .07 $ .09
Ratio of operating expenses to
average net assets****.......... 2.41%** 1.57%
Ratio of net investment income to
average net assets****.......... 5.89% 7.63%
Number of units outstanding at end
of year (thousands)............. 369,769 360,074
</TABLE>
* Prior to May 1, 1994, the Account was known as The Travelers Timed Money
Market Account for Variable Annuities.
** Effective May 1, 1990, market timing fees are included in operating
expenses. Prior to May 1, 1990, market timing fee payments were made by
separate check from a contract owner, and were not recorded in the financial
statements of Account TSB, or by contractual surrender to the extent allowed
under federal tax law.
*** Effective May 2, 1994, Account TSB was authorized to invest in securities
with a maturity of greater than one year. As a result, net realized and
change in unrealized gains (losses) are no longer included in total
investment income.
**** Annualized.
B-9
<PAGE> 60
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
THE TRAVELERS TIMED AGGRESSIVE STOCK ACCOUNT FOR VARIABLE ANNUITIES
PER UNIT DATA FOR AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT EACH YEAR
The following information on per unit data has been audited by
PricewaterhouseCoopers LLP, independent accountants. Their report on the per
unit data for each of the five years in the period ended December 31, 1998 is
contained in the Account TAS Annual Report which should be read along with this
information and which is incorporated by reference into the SAI. The
consolidated financial statements of The Travelers Insurance Company and
Subsidiaries are contained in the SAI.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED PER UNIT DATA
Total investment income........... $ .056 $ .063 $ .041 $ .042 $ .036 $ .037 $ .041 $ .044
Operating expenses................ .098 .085 .069** .057** .049** .048** .043** .039**
-------- -------- ------- ------- ------- ------- ------- -------
Net investment income (loss)...... (.042) (.022) (.028) (.015) (.013) (.011) (.002) .005
Unit Value at beginning of year... 3.389 2.623 2.253 1.706 1.838 1.624 1.495 1.136
Net realized and unrealized gains
(losses)........................ .560 .788 .398 .562 (.119) .225 .131 .354
-------- -------- ------- ------- ------- ------- ------- -------
Unit Value at end of year......... $ 3.907 $ 3.389 $ 2.623 $ 2.253 $ 1.706 $ 1.838 $ 1.624 $ 1.495
======== ======== ======= ======= ======= ======= ======= =======
SIGNIFICANT RATIOS AND ADDITIONAL
DATA
Net increase (decrease) in unit
value........................... .52 $ .77 $ .37 $ .55 $ (.13) $ .21 $ (.13) $ .36
Ratio of operating expenses to
average net assets*............. 2.85% 2.85%** 2.84%** 2.83%** 2.80%** 2.82%** 2.93%** 2.99%**
Ratio of net investment income
(loss) to average net assets*... (1.21)% (.76)% (1.13)% (.74)% (.72)% (.80)% (.12)% .37%
Number of units outstanding at end
of year (thousands)............. 16,452 25,865 30,167 45,575 25,109 43,059 20,225 19,565
Portfolio turnover rate........... 113% 92% 98% 113% 142% 71% 269% 261%
<CAPTION>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
SELECTED PER UNIT DATA
Total investment income........... $ .045 $ .052
Operating expenses................ .073** .051
------- -------
Net investment income (loss)...... (.028) .001
Unit Value at beginning of year... 1.189 1.059
Net realized and unrealized gains
(losses)........................ (.025) .129
------- -------
Unit Value at end of year......... $ 1.136 $ 1.189
======= =======
SIGNIFICANT RATIOS AND ADDITIONAL
DATA
Net increase (decrease) in unit
value........................... $ (.05) $ .13
Ratio of operating expenses to
average net assets*............. 2.64%** 1.95%
Ratio of net investment income
(loss) to average net assets*... (3.73)% .91%
Number of units outstanding at end
of year (thousands)............. 5,585 --
Portfolio turnover rate........... 0% 77%
</TABLE>
* Annualized
** Effective May 1, 1990, market timing fees are included in operating expenses.
Prior to May 1, 1990, market timing fee payments were made by separate check
from a contract owner and were not recorded in the financial statements of
Account TAS, or by contractual surrender to the extent allowed under federal
tax law.
+ On May 1, 1990, TIMCO replaced Keystone Custodian Funds, Inc. as the
investment adviser for Account TAS.
B-10
<PAGE> 61
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
THE TRAVELERS TIMED BOND ACCOUNT FOR VARIABLE ANNUITIES*
PER UNIT DATA FOR AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT EACH YEAR
The following information on per unit data for 1997 and prior has been audited
by PricewaterhouseCoopers LLP, independent accountants. The consolidated
financial statements of The Travelers Insurance Company and Subsidiaries are
contained in the SAI.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED PER UNIT DATA
Total investment income........... .000 $ .025 $ .033 $ .071 $ .007 $ .054 $ .051
Operating expenses................ .000 .011 .015*** .031*** .006*** .036*** .032***
------- ------- ------- ------- ------- ------- -------
Net investment income............. .000 .014 .018 .040 .001 .018 .019
Unit Value at beginning of year... $ 1.273 1.232 1.383 1.215 1.234 1.132 1.087
Net realized and change in
unrealized gains (losses)....... .000 .027 (.169) .128 (.020) .084 .026
------- ------- ------- ------- ------- ------- -------
Unit Value at end of year......... $ 1.273 $ 1.273 $ 1.232 $ 1.383 $ 1.215 $ 1.234 $ 1.132
======= ======= ======= ======= ======= ======= =======
SIGNIFICANT RATIOS AND ADDITIONAL
DATA
Net increase (decrease) in unit
value........................... $ .00 $ .04 $ (.15) $ .17 $ (.02) $ .10 $ .05
Ratio of operating expenses to
average net assets**............ -- 3.00%*** 3.00%*** 3.00%*** 3.00%*** 3.00%*** 2.99%***
Ratio of net investment income to
average net assets**............ -- 3.64% 3.48% 3.98% 1.02% 1.48% 1.71%
Number of units outstanding at end
of year (thousands)............. -- -- -- 11,466 -- 20,207 21,868
Portfolio turnover rate........... -- 129% 153% 117% -- 190% 505%
<CAPTION>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
SELECTED PER UNIT DATA
Total investment income........... $ .052 $ .072 $ .147
Operating expenses................ .031*** .018*** .023
------- ------- -------
Net investment income............. .021 .054 .124
Unit Value at beginning of year... .994 1.036 1.114
Net realized and change in
unrealized gains (losses)....... .072 (.096) (.202)
------- ------- -------
Unit Value at end of year......... $ 1.087 $ .994 $ 1.036
======= ======= =======
SIGNIFICANT RATIOS AND ADDITIONAL
DATA
Net increase (decrease) in unit
value........................... $ .09 $ (.04) $ (.08)
Ratio of operating expenses to
average net assets**............ 3.00%*** 2.58%*** 2.02%
Ratio of net investment income to
average net assets**............ 3.07% 3.88% 11.15%
Number of units outstanding at end
of year (thousands)............. 19,521 14,115 660
Portfolio turnover rate........... 627% 370% 10%
</TABLE>
* This Fund is not available to new Contract Owners, and had no assets in 1998.
Therefore, there is no 1998 Annual Report for Account TB.
** Annualized
*** Effective May 1, 1990, market timing fees are included in operating
expenses. Prior to May 1, 1990, market timing fee payments were made by
separate check from a contract owner, and were not recorded in the financial
statements of Account TB, or by contractual surrender to the extent allowed
under federal tax law.
+ On May 1, 1990, TAMIC replaced Keystone Custodian Funds, Inc. as the
investment adviser for Account TB.
B-11
<PAGE> 62
THIS PAGE INTENTIONALLY LEFT BLANK.
<PAGE> 63
APPENDIX C
- --------------------------------------------------------------------------------
CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information contains more specific information and
financial statements relating to The Travelers Insurance Company. A list of the
contents of the Statement of Additional Information is set forth below:
Description of The Travelers Insurance Company and The Separate Accounts
The Insurance Company
The Separate Accounts
Mixed and Shared Funding
Investment Objectives, Policies and Risks
Description of Certain Types of Investments and Investment Techniques
Available to the Separate Accounts
Investment Restrictions
The Travelers Growth and Income Stock Account For Variable Annuities
The Travelers Timed Growth and Income Stock Account for Variable
Annuities
The Travelers Timed Aggressive Stock Account for Variable Annuities
The Travelers Quality Bond Account for Variable Annuities
The Travelers Timed Bond Account for Variable Annuities
The Travelers Money Market Account for Variable Annuities
The Travelers Timed Short-Term Bond Account for Variable Annuities
Investment Management and Advisory Services
Advisory Fees
TIMCO
TAMIC
Valuation of Assets
Net Investment Factor
Federal Tax Considerations
Performance Data
Yield Quotations of Account MM
Average Annual Total Return Quotations of Accounts GIS, QB, MM, TGIS,
TSB, TAS, TB and Fund U
The Board of Managers
Administrative Services
Distribution and Principal Underwriting Agreement
Securities Custodian
Independent Accountants
Financial Statements
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
COPIES OF THE STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1999 (FORM NO.
L-11165S) ARE AVAILABLE WITHOUT CHARGE. TO REQUEST A COPY, PLEASE CLIP THIS
COUPON ON THE DOTTED LINE, ENTER YOUR NAME AND ADDRESS IN THE SPACES PROVIDED
BELOW, AND MAIL TO: THE TRAVELERS INSURANCE COMPANY, ANNUITY SERVICES, ONE TOWER
SQUARE, HARTFORD, CONNECTICUT 06183-5030.
Name:
Address:
C-1
<PAGE> 64
THIS PAGE INTENTIONALLY LEFT BLANK.
<PAGE> 65
THIS PAGE INTENTIONALLY LEFT BLANK.
<PAGE> 66
THE TRAVELERS UNIVERSAL ANNUITY
INDIVIDUAL AND GROUP
VARIABLE ANNUITY CONTRACTS
ISSUED BY
THE TRAVELERS INSURANCE COMPANY
L-11165 Printed in U.S.A.
TIC Ed. 5-99
<PAGE> 67
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
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UNIVERSAL ANNUITY
STATEMENT OF ADDITIONAL INFORMATION: MAY 1, 1999
THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES
THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES
THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES
THE TRAVELERS TIMED GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES
THE TRAVELERS TIMED SHORT-TERM BOND ACCOUNT FOR VARIABLE ANNUITIES
THE TRAVELERS TIMED AGGRESSIVE STOCK ACCOUNT FOR VARIABLE ANNUITIES
THE TRAVELERS TIMED BOND ACCOUNT FOR VARIABLE ANNUITIES
THE TRAVELERS FUND U FOR VARIABLE ANNUITIES
VARIABLE ANNUITY CONTRACTS
ISSUED BY
THE TRAVELERS INSURANCE COMPANY
This Statement of Additional Information is not a prospectus but
relates to, and should be read in conjunction with, the Prospectus dated May 1,
1999. A copy of the Prospectus may be obtained by writing to The Travelers
Insurance Company (the "Company"), Annuity Services, One Tower Square, Hartford,
Connecticut 06183-5030, by calling 1-800-842-9368 or by accessing the Securities
and Exchange Commission's website at http://www.sec.gov. This Statement of
Additional Information should be read in conjunction with the accompanying 1998
Annual Report for the Separate Accounts.
TABLE OF CONTENTS
PAGE
Description Of The Travelers Insurance Company And The Separate Accounts .. 3
The Insurance Company .................................................... 3
The Separate Accounts .................................................... 3
Mixed and Shared Funding ................................................. 3
Investment Objectives, Policies And Risks ................................. 3
Description Of Certain Types Of Investments And Investment Techniques
Available To The Separate Accounts ........................................ 5
Investment Restrictions ................................................... 19
The Travelers Growth and Income Stock Account for Variable Annuities ..... 19
The Travelers Timed Growth and Income Stock Account for Variable Annuities 19
The Travelers Timed Aggressive Stock Account for Variable Annuities ...... 20
The Travelers Quality Bond Account for Variable Annuities ................ 22
The Travelers Timed Bond Account for Variable Annuities .................. 23
The Travelers Money Market Account for Variable Annuities ................ 24
The Travelers Timed Short-Term Bond Account for Variable Annuities ....... 25
Investment Management And Advisory Services ............................... 27
Advisory Fees ............................................................ 27
TIMCO .................................................................... 28
TAMIC .................................................................... 29
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PAGE
Valuation Of Assets ................................................... 30
Net Investment Factor ................................................. 31
Federal Tax Considerations ............................................ 31
Performance Information ............................................... 34
The Board Of Managers ................................................. 40
Administrative Services ............................................... 42
Securities Custodian .................................................. 42
Independent Accountants ............................................... 42
Financial Statements .................................................. F-1
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DESCRIPTION OF THE TRAVELERS INSURANCE COMPANY
AND THE SEPARATE ACCOUNTS
THE INSURANCE COMPANY
The Travelers Insurance Company (the "Company") is a stock insurance
company chartered in 1864 in Connecticut and continuously engaged in the
insurance business since that time. The Company is licensed to conduct life
insurance business in all states of the United States, the District of Columbia,
Puerto Rico, Guam, the U.S. and British Virgin Islands and the Bahamas. The
Company's Home Office is located at One Tower Square, Hartford, Connecticut
06183 and its telephone number is (860) 2770-0111.
The Company is indirectly owned by a wholly owned subsidiary of
Citigroup Inc. Citigroup Inc. consists of businesses that produce a broad range
of financial services, including asset management, banking and consumer finance,
credit and charge cards, insurance, investments, investment banking and trading.
Among its businesses are Citibank, Commercial Credit, Primerica Financial
Services, Salomon Smith Barney, Salomon Smith Barney Asset Management, and
Travelers Property Casualty.
STATE REGULATION. The Company is subject to the laws of the state of Connecticut
governing insurance companies and to regulation by the Insurance Commissioner of
the state of Connecticut (the "Commissioner"). An annual statement covering the
operations of the Company for the preceding year, as well as its financial
conditions as of December 31 of such year, must be filed with the Commissioner
in a prescribed format on or before March 1 of each year. The Company's books
and assets are subject to review or examination by the Commissioner or his
agents at all times, and a full examination of its operations is conducted at
least once every four years.
The Company is also subject to the insurance laws and regulations of
all other states in which it is licensed to operate. However, the insurance
departments of each of these states generally apply the laws of the home state
(jurisdiction of domicile) in determining the field of permissible investments.
THE SEPARATE ACCOUNTS
Each of the Separate Accounts available under the variable annuity
contracts described in this Statement of Additional Information meets the
definition of a separate account under federal securities laws, and will comply
with the provisions of the Investment Company Act of 1940, as amended (the "1940
Act"). Additionally, the operations of each of the Separate Accounts are subject
to the provisions of Section 38a-433 of the Connecticut General Statutes which
authorize the Connecticut Insurance Commissioner to adopt regulations under it.
The Section contains no restrictions on investments of the Separate Accounts,
and the Commissioner has adopted no regulations under the Section that affect
the Separate Accounts.
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.
INVESTMENT OBJECTIVES, POLICIES AND RISKS
Each Account's investment objective and, unless noted as fundamental,
its investment policies may be changed without approval of shareholders or
holders of variable annuity and variable life insurance contracts. A change in
an Account's investment objective or policies may result in the Account having a
different investment objective from those that an owner selected as appropriate
at the time of investment.
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Listed below for quick reference are the types of investments that each
Account may make and its investment techniques. Any investments, policies and
restrictions generally are considered at the time of purchase; the sale of
instruments is not required in the event of a subsequent change in
circumstances. More detailed information about the Accounts' investments and
investment techniques follows the chart.
<TABLE>
<CAPTION>
GIS QB MM TGIS TSB TAS TB
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT TECHNIQUE
Affiliated Bank Transactions
American Depositary Receipts X X X X
Asset-Backed Mortgage Securities X X
Bankers' Acceptances X X X X X X X
Buying Put and Call Options X X X X
Certificates of Deposit X X X X X X X
Commercial Paper X X X X X X X
Convertible Securities X X
Corporate Asset-Backed Securities
Debt Securities X X X X X X X
Emerging Market Securities
Equity Securities X X X X
Floating & Variable Rate Instruments X X X X X X X
Foreign Securities X X X X
Forward Contracts on Foreign Currency
Futures Contracts X X X X X
Illiquid Securities X X X X X
Indexed Securities X
Index Futures Contracts X X X X X
Investment Company Securities X X X X X
Investment in Unseasoned Companies X X X X
Lending Portfolio Securities X X X X X
Letters of Credit X X X X X
Loan Participations
Money Market Instruments X
Options on Foreign Currencies
Options on Index Futures Contracts X X X X X X
Options on Stock Indices X X
Other Direct Indebtedness X X X
Real Estate-Related Instruments X X X X X
Repurchase Agreements X X X X X X X
Reverse Repurchase Agreements X X X X X
Short Sales "Against the Box"
Short-Term Money Market Instruments X X X X X X X
Swap Agreements
Temporary Bank Borrowing X X X X X
U.S. Government Securities X X X X X X X
Variable Amount Master Demand Notes X X X X X
When-Issued & Delayed Delivery Securities X X X X X
Writing Covered Call Options X X X X
</TABLE>
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DESCRIPTION OF CERTAIN TYPES OF INVESTMENTS AND INVESTMENT
TECHNIQUES AVAILABLE TO THE SEPARATE ACCOUNTS
WRITING COVERED CALL OPTIONS: The Accounts will write only "covered" call
options, that is, they will own the underlying securities which are acceptable
for escrow when they write the call option and until the obligation to sell the
underlying security is extinguished by exercise or expiration of the call
option, or until a call option covering the same underlying security and having
the same exercise price and expiration date is purchased. These call options
generally will be short-term contracts with a duration of nine months or less.
The Accounts will receive a premium for writing a call option, but give up,
until the expiration date, the opportunity to profit from an increase in the
underlying security's price above the exercise price. The Accounts will retain
the risk of loss from a decrease in the price of the underlying security.
Writing covered call options is a conservative investment technique which is
believed to involve relatively little risk, but which is capable of enhancing an
Account's total returns.
The premium received for writing a covered call option will be recorded as a
liability in each Account's Statement of Assets and Liabilities. This liability
will be adjusted daily to the option's current market value, which will be the
latest sale price at the close of the New York Stock Exchange, or, in the
absence of such sale, at the latest bid quotation. The liability will be
extinguished upon expiration of the option, the purchase of an identical option
in a closing transaction, or delivery of the underlying security upon exercise
of the option.
The Options Clearing Corporation is the issuer of, and the obligor on, the
covered call options written by the Accounts. In order to secure an obligation
to deliver to the Options Clearing Corporation the underlying security of a
covered call option, the Accounts will be required to make escrow arrangements.
In instances where the Accounts believe it is appropriate to close a covered
call option, they can close out the previously written call option by purchasing
a call option on the same underlying security with the same exercise price and
expiration date. The Accounts may also, under certain circumstances, be able to
transfer a previously written call option.
A previously written call option can be closed out by purchasing an identical
call option only on a national securities exchange which provides a secondary
market in the call option. There is no assurance that a liquid secondary market
will exist for a particular call option at such time. If the Accounts cannot
effect a closing transaction, they will not be able to sell the underlying
security while the previously written option remains outstanding, even though it
might otherwise be advantageous to do so.
If a substantial number of the call options are exercised, the Accounts' rates
of portfolio turnover may exceed historical levels. This would result in higher
brokerage commissions in connection with the writing of covered call options and
the purchase of call options to close out previously written options. Such
brokerage commissions are normally higher than those applicable to purchases and
sales of portfolio securities.
BUYING PUT AND CALL OPTIONS: The Accounts may purchase call options on specific
securities, or on futures contracts whose price volatility is expected to
closely match that of securities, eligible for purchase by the Accounts, in
anticipation of or as a substitute for the purchase of the securities
themselves. These options may be listed on a national exchange or executed
"over-the-counter" with a broker-dealer as the counterparty. While the
investment advisers anticipate that the majority of option purchases and sales
will be executed on a national exchange, put or call options on specific
securities or for non-standard terms are likely to be executed directly with a
broker-dealer when it is advantageous to do so. Option contracts will be
short-term in nature, generally less than nine months.
The Accounts will pay a premium in exchange for the right to purchase (call) or
sell (put) a specific number of shares of an equity security or futures contract
at a specified price (the strike price) on or before the expiration date of the
options contract. In either case, each Account's risk is limited to the option
premium paid.
The Accounts may sell the put and call options prior to their expiration and
realize a gain or loss thereby. A call option will expire worthless if the price
of the related security is below the contract strike price at the time of
expiration; a put option will expire worthless if the price of the related
security is above the contract strike price at the time of expiration.
Put and call options will be employed for bona fide hedging purposes only.
Liquid securities sufficient to fulfill the call option delivery obligation will
be identified and segregated in an account; deliverable securities sufficient to
fulfill the
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put option obligation will be similarly identified and segregated. In the case
of put options on futures contracts, portfolio securities whose price volatility
is expected to match that of the underlying futures contract will be identified
and segregated.
MONEY MARKET INSTRUMENTS: Money market securities are instruments with remaining
maturities of one year or less, such as bank certificates of deposit, bankers'
acceptances, commercial paper (including master demand notes), and obligations
issued or guaranteed by the United States Government, its agencies or
instrumentalities, some of which may be subject to repurchase agreements.
SHORT-TERM MONEY MARKET INSTRUMENTS. The Accounts, may at any time invest funds
awaiting investment or held as reserves for the purposes of satisfying
redemption requests, payment of dividends or making other distributions to
shareholders, in cash and short-term money market instruments. Short-term money
market instruments may include (i) short-term U.S. Government Securities and,
short-term obligations of foreign sovereign governments and their agencies and
instrumentalities, (ii) interest bearing savings deposits on, and certificates
of deposit and bankers' acceptances of, United States and foreign banks, (iii)
commercial paper of U.S. or of foreign issuers rated A-1 or higher by S&P or
Prime-1 by Moody's, issued by companies which have an outstanding debt issue
rated AA or higher by S&P or Aa or higher by Moody's or, if not rated,
determined by the Investment Subadviser to be of comparable quality to those
rated obligations which may be purchased by the Accounts.
CERTIFICATES OF DEPOSIT: Certificates of deposit are receipts issued by a bank
in exchange for the deposit of funds. The issuer agrees to pay the amount
deposited plus interest to the bearer of the receipt on the date specified on
the certificate. The certificate usually can be traded in the secondary market
prior to maturity.
Certificates of deposit will be limited to U.S. dollar-denominated certificates
of United States banks which have at least $1 billion in deposits as of the date
of their most recently published financial statements (including foreign
branches of U.S. banks, U.S. branches of foreign banks which are members of the
Federal Reserve System or the Federal Deposit Insurance Corporation).
The Accounts will not acquire time deposits or obligations issued by the
International Bank for Reconstruction and Development, the Asian Development
Bank or the Inter-American Development Bank. Additionally, the Accounts do not
currently intend to purchase such foreign securities (except to the extent that
certificates of deposit of foreign branches of U.S. banks may be deemed foreign
securities) or purchase certificates of deposit, bankers' acceptances or other
similar obligations issued by foreign banks. Additionally, Account TSB invests
in Euro Certificates of Deposit issued by banks outside of the United States,
with interest and principal paid in U.S. dollars.
BANKERS' ACCEPTANCES: Bankers' acceptances typically arise from short-term
credit arrangements designed to enable businesses to obtain funds to finance
commercial transactions. Generally, an acceptance is a time draft drawn on a
bank by an exporter or an importer to obtain a stated amount of funds to pay for
specific merchandise. The draft is then "accepted" by the bank which, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be as
long as 270 days, most acceptances have maturities of six months or less.
Bankers' acceptances acquired by Accounts MM or TSB must have been accepted by
U.S. commercial banks, including foreign branches of U.S. commercial banks,
having total deposits at the time of purchase in excess of $1 billion, and must
be payable in U.S. dollars.
UNITED STATES GOVERNMENT SECURITIES: Securities issued or guaranteed by the
United States Government include a variety of Treasury securities that differ
only in their interest rates, maturities and dates of issuance. Treasury Bills
have maturities of one year or less, Treasury Notes have maturities of one to
ten years, and Treasury Bonds generally have maturities of greater than ten
years at the date of issuance.
Securities issued or guaranteed by the United States Government or its agencies
or instrumentalities include direct obligations of the United States Treasury
and securities issued or guaranteed by the Federal Housing Administration,
Farmers Home Administration, Export-Import Bank of the United States, Small
Business Administration, Government National Mortgage Association, General
Services Administration, Central Bank for Cooperatives, Federal Home Loan Banks,
Federal Loan Mortgage Corporation, Federal Intermediate Credit Banks, Federal
Land Banks, Maritime Administration, The Tennessee Valley Authority, District of
Columbia Armory Board and Federal National Mortgage Association.
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Some obligations of United States Government agencies and instrumentalities,
such as Treasury Bills and Government National Mortgage Association pass-through
certificates, are supported by the full faith and credit of the United States;
others, such as securities of Federal Home Loan Banks, are supported by the
right of the issuer to borrow from the Treasury; still others, such as bonds
issued by the Federal National Mortgage Association, a private corporation, are
supported only by the credit of the instrumentality. Because the United States
Government is not obligated by law to provide support to an instrumentality it
sponsors, the Accounts will invest in the securities issued by such an
instrumentality only when the investment advisers determine that the credit risk
with respect to the instrumentality does not make the securities unsuitable
investments. United States Government securities will not include international
agencies or instrumentalities in which the United States Government, its
agencies or instrumentalities participate, such as the World Bank, the Asian
Development Bank or the Inter-American Development Bank, or issues insured by
the Federal Deposit Insurance Corporation.
REPURCHASE AGREEMENTS: Interim cash balances may be invested from time to time
in repurchase agreements with approved counterparties. Approved counterparties
are limited to national banks or reporting broker-dealers meeting the Advisor's
credit quality standards as presenting minimal risk of default. All repurchase
transactions must be collateralized by U.S. Government securities with market
value no less than 102% of the amount of the transaction, including accrued
interest. Repurchase transactions generally mature the next business day but, in
the event of a transaction of longer maturity, collateral will be marked to
market daily and, when required, additional cash or qualifying collateral will
be required from the counterparty.
In executing a repurchase agreement, a portfolio purchases eligible securities
subject to the seller's simultaneous agreement to repurchase them on a mutually
agreed upon date and at a mutually agreed upon price. The purchase and resale
prices are negotiated with the counterparty on the basis of current short-term
interest rates, which may be more or less than the rate on the securities
collateralizing the transaction. Physical delivery or, in the case of
"book-entry" securities, segregation in the counterparty's account at the
Federal Reserve for the benefit of the Account is required to establish a
perfected claim to the collateral for the term of the agreement in the event the
counterparty fails to fulfill its obligation.
As the securities collateralizing a repurchase transaction are generally of
longer maturity than the term of the transaction, in the event of default by the
counterparty on its obligation, the Account would bear the risks of delay,
adverse market fluctuation and transaction costs in disposing of the collateral.
WHEN-ISSUED SECURITIES. Certain Accounts may, from time to time, purchase
new-issue government or agency securities on a "when-issued,"
"delayed-delivery," or "to-be-announced" basis ("when-issued securities"). The
prices of such securities are fixed at the time the commitment to purchase is
made and may be expressed in either dollar-price or yield- maintenance terms.
Delivery and payment may be at a future date beyond customary settlement time.
It is the Accounts' customary practice to make when-issued purchases for
settlement no more than 90 days beyond the commitment date.
The commitment to purchase a when-issued security may be viewed as a senior
security, which is marked to market and reflected in the Account's net asset
value daily from the commitment date. While the adviser or subadviser intends
for the Account to take physical delivery of these securities, offsetting
transactions may be made prior to settlement, if it is advantageous to do so. An
Account does not make payment or begin to accrue interest on these securities
until settlement date. To invest its assets pending settlement, an Account
normally invests in short-term money market instruments and other securities
maturing no later than the scheduled settlement date.
The Accounts do not intend to purchase when-issued securities for speculative or
"leverage" purposes. Consistent with Section 18 of the 1940 Act and the position
of the SEC thereunder, when an Account commits to purchase a security on a
when-issued basis, the adviser or subadviser identifies and places in a
segregated account high-grade money market instruments and other liquid
securities equal in value to the purchase cost of the when-issued securities.
The adviser and subadvisers believe that purchasing securities in this manner
will be advantageous to the Accounts. However, this practice entails certain
additional risks, namely the default of the counterparty on its obligations to
deliver the security as scheduled. In this event, an Account would experience a
gain or loss equal to the appreciation or depreciation in value from the
commitment date. The adviser and subadvisers employ a rigorous credit quality
procedure in determining the counterparties to deal with in purchasing
when-issued securities and, in some
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circumstances, require the counterparty to post cash or some other form of
security as margin to protect the value of the delivery obligation pending
settlement.
FLOATING AND VARIABLE RATE INSTRUMENTS: Obligations that have a floating or
variable rate of interest bear interest at rates that are not fixed, but vary
with changes in specified market rates or indices, such as the prime rate, and
at specified intervals. Certain of these obligations may carry a demand feature
that would permit the holder to tender them back to the issuer at par value
prior to maturity. Each Account limits its purchases of floating and variable
rate obligations to those of the same quality as it otherwise is allowed to
purchase. The advisers or subadvisers monitor on an ongoing basis the ability of
an issuer of a demand instrument to pay principal and interest on demand. Each
Accounts' right to obtain payment at par on a demand instrument can be affected
by events occurring between the date the Accounts elect to demand payment and
the date payment is due. Those events may affect the ability of the issuer of
the instrument to make payment when due, except when such demand instruments
permit same-day settlement. To facilitate settlement, these same-day demand
instruments may be held in book entry form at a bank other than the Accounts'
custodian, subject to a subcustodian agreement approved by the Account between
that bank and the Accounts' custodian.
The floating and variable rate obligations that the Accounts may purchase
include certificates of participation in obligations purchased from banks. A
certificate of participation gives an Account an undivided interest in the
underlying obligations in the proportion that the Account's interest bears to
the total principal amount of such obligations. Certain of such certificates of
participation may carry a demand feature that would permit the holder to tender
them back to the issuer prior to maturity.
VARIABLE AMOUNT MASTER DEMAND NOTES: Variable amount master demand notes are
unsecured obligations that permit the investment of fluctuating amounts by an
Account at varying rates of interest pursuant to direct arrangements between the
Account as lender and the issuer as borrower. Master demand notes permit daily
fluctuations in the interest rate and daily changes in the amounts borrowed.
Each Account has the right to increase the amount under the note at any time up
to the full amount provided by the note agreement, or to decrease the amount,
and the borrower may repay up to the full amount of the note without penalty.
Because these types of notes are direct lending arrangements between the lender
and the borrower, it is not generally contemplated that such instruments will be
traded. Also, there is no secondary market for these notes, although they are
redeemable and thus repayable by the borrower at face value plus accrued
interest at any time. Accordingly, an Account's right to redeem is dependent on
the ability of the borrower to pay principal and interest on demand. In
connection with master demand note arrangements, the advisers or subadvisers
will consider the earning power, cash flow and other liquidity ratios of the
issuer. These notes, as such, are not typically rated by credit rating agencies.
Unless they are so rated, each Account will invest in them only if, at the time
of an investment, the issuer meets the criteria set forth for all other
commercial paper. Pursuant to procedures established by the adviser or
subadviser, such notes are treated as instruments maturing in one day and valued
at their par value. The advisers and subadvisers intend to continuously monitor
factors related to the ability of the borrower to pay principal and interest on
demand.
VARIABLE RATE MASTER DEMAND NOTES. Variable rate master demand notes are
unsecured obligations that permit a Fund to invest different amounts at varying
interest rates under arrangements between the Account (as lender) and the issuer
of the note (as borrower). Under the note, an Account has the right at any time
to increase the amount up to the full amount provided by the note agreement, or
to decrease the amount, and the borrower has the right to repay at any time up
to the full amount of the note without penalty. Notes purchased by an Account
permit it to demand payment of principal and accrued interest at any time (on
not more than seven days notice). Notes acquired by an Account may have
maturities of more than one year, provided that: (1) the Account is entitled to
payment of principal and accrued interest upon not more than seven days notice,
and (2) the interest rate on such notes is adjusted automatically at periodic
intervals, which normally do not exceed 31 days but may extend up to one year.
The notes are deemed to have a maturity equal to the longer of the period
remaining to the next interest-rate adjustment or the demand notice period.
Because these notes are direct lending arrangements between the lender and the
borrower, the notes normally are not traded and have no secondary market,
although the notes are redeemable and, thus, repayable at any time by the
borrower at face value plus accrued interest. Accordingly, an Account's right to
redeem depends on the borrower's ability to pay interest on demand and repay
principal. In connection with variable rate master demand notes, an adviser or
subadviser considers, under standards established by the Board, earning power,
cash flow and other liquidity ratios of a borrower and monitors the ability of a
borrower to pay principal and interest on demand. These notes are not typically
rated by credit rating agencies. Unless rated, an Account will invest in them
only if the investment adviser determines that the issuer meets the criteria
established for commercial paper.
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ZERO COUPON BONDS AND STEP-UP BONDS. Zero coupon bonds do not pay interest. They
are sold at a substantial discount from face value. Additionally, zero coupon
bonds give the issuer the flexibility of reduced cash interest expense for
several years, and they give the purchaser the potential advantage of
compounding the coupons at a higher rate than might otherwise be available.
Zero coupon bonds are very risky, however, for the investor. Because the cash
flows from zero coupon bonds are deferred and because zero coupon bonds often
represent subordinated debt, their prices are more volatile than most other
bonds.
Step-up bonds are a variant of zero coupon bonds. Step-up bonds pay little or no
initial interest rate for several years and then a higher rate until maturity.
They are also issued at a discount from face value.
For tax purposes, a purchaser of zero coupon bonds owes income tax on the
interest that has accrued each year, even though the Account has received no
cash. Certain federal tax law income and capital-gain distribution requirements
may have an adverse effect on an Account to the extent it invests in zero coupon
bonds.
PAY-IN-KIND BONDS. Pay-in-kind bonds pay interest either in cash or in
additional securities at the issuer's option for a specified period. Like zero
coupon bonds, PIK bonds are designed to give the issuer flexibility in managing
cash flow. Unlike zero coupon bonds, however, PIK bonds offer the investor the
opportunity to sell the additional securities issued in lieu of interest and
thus obtain current income on the original investment. Certain federal tax law
income and capital gain distribution requirements may have an adverse effect on
an Account to the extent that it invests in PIK bonds.
RESET BONDS. The interest rate on reset bonds is adjusted periodically to a
level that should allow the bonds to trade at a specified dollar level,
generally par or $101. The rate can usually be raised, but the bonds have a low
call premium, limiting the opportunity for capital gain. Some reset bonds have a
maximum rate, generally 2.5% or 3% above the initial rate.
INCREASING RATE NOTES. Increasing rate notes ("IRNs") have interest rates that
increase periodically (by 1/4% per quarter, for example). IRNs are generally
used as a temporary financing instrument since the increasing rate is an
incentive for the issuer to refinance with longer term debt.
EQUITY SECURITIES. By definition, equity securities include common and preferred
stocks, convertible securities, and warrants. Common stocks, the most familiar
type, represent an equity (ownership) interest in a corporation. Although equity
securities have a history of long-term growth in value, their prices fluctuate
based on changes in a company's financial condition and on overall market and
economic conditions. Smaller companies are especially sensitive to these
factors.
STOCKS. Certain Accounts expect to remain fully invested in common stocks to the
extent practicable, and is therefore subject to the general risk of the stock
market. The value of an Account's shares can be expected to fluctuate in
response to changes in market and economic conditions as well as the financial
conditions and prospects of the issuers in which it invests. Certain Accounts
also may invest in stocks of smaller companies that may individually exhibit
more price volatility than the broad market averages. Although equity securities
have historically demonstrated long-term growth in value, their prices fluctuate
based on changes in a company's financial condition and general economic
conditions. This is especially true in the case of smaller companies. Moreover,
Accounts may invest in stocks of growth-oriented companies that intend to
reinvest earnings rather than pay dividends. An Account may make investments in
stocks that may at times have limited market liquidity and whose purchase or
sale would result in above average transaction costs. Another factor that would
increase the fundamental risk of investing in smaller companies is the lack of
publicly available information due to their relatively short operating record as
public companies.
Investing in medium capitalization stocks may involve greater risk than
investing in large capitalization stocks, since they can be subject to more
abrupt or erratic movements. However, they tend to involve less risk than stocks
of small capitalization companies.
The nature of investing in emerging growth companies involves greater risk than
is customarily associated with investments in more established companies.
Emerging growth companies often have limited product lines, markets or financial
resources, and they may be dependent on one-person management. In addition,
there may be less research
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available on many promising small and medium sized emerging growth companies
making it more difficult to find and analyze these companies. The securities of
emerging growth companies may have limited marketability and may be subject to
more abrupt or erratic market movements than securities of larger, more
established growth companies or the market averages in general. Shares of an
Account, therefore, are subject to greater fluctuation in value than shares of a
conservative equity portfolio or of a growth portfolio that invests entirely in
proven growth stocks.
CONVERTIBLE SECURITIES. Convertible securities may include corporate notes or
preferred stock but ordinarily are long-term debt obligations of an issuer that
are convertible at a stated price or exchange rate into the issuer's common
stock. Convertible securities have characteristics similar to both common stock
and debt obligations. Although to a lesser degree than with debt securities, the
market value of convertible securities tends to decline as interest rates
increase and, conversely, to increase as interest rates decline. In addition,
because of the conversion feature, the market value of convertible securities
tends to vary with fluctuations in the market value of the underlying common
stock and, therefore, reacts to variations in the general stock market. However,
when the market price of the common stock underlying a convertible security
exceeds the conversion price, the price of the convertible security tends to
reflect the value of the underlying common stock. As the market price of the
underlying common stock declines, the convertible security tends to trade
increasingly on a yield basis, and thus may not depreciate to the same extent as
the underlying common stock.
As fixed-income securities, convertible securities are investments that provide
a stable stream of income with generally higher yields than common stocks. Like
all fixed-income securities, there can be no assurance of the current income
because the issuers of the convertible securities may default on their
obligations. Convertible securities generally offer lower interest or dividend
yields than non-convertible securities of similar quality because of the
potential through the conversion feature for capital appreciation. There can be
no assurance of capital appreciation because securities prices fluctuate.
Convertible securities generally are subordinated to other similar but
not-convertible debt of the same issuer, although convertible bonds enjoy
seniority payment rights over all equity securities. Convertible preferred stock
is senior to the issuer's common stock. Because of the conversion feature,
however, convertible securities typically have lower ratings than similar
non-convertible securities.
A synthetic convertible security is comprised of two distinct securities that
together resemble convertible securities. Synthetic convertible securities
combine non-convertible bonds or preferred stock with warrants or stock call
options. The options that form a portion of the convertible security are listed
on a securities exchange or on the National Association of Securities Dealers
Automated Quotations Systems. The two components of a synthetic convertible
security generally are not offered as a unit but may be purchased and sold by a
Fund at different times. Synthetic convertible securities differ from
convertible securities in that each component of a synthetic convertible
security has a separate market value and responds differently from the other to
market fluctuations. Investing in synthetic convertible securities involves the
risks normally involved in holding the securities comprising the synthetic
convertible security.
DEBT SECURITIES. Debt securities held by an Account may be subject to several
types of investment risk, including market or interest rate risk, which relates
to the change in market value caused by fluctuations in prevailing interest
rates and credit risk, which relates to the ability of the issuer to make timely
interest payments and to repay the principal upon maturity. Call or income risk
relates to corporate bonds during periods of falling interest rates, and
involves the possibility that securities with high interest rates will be
prepaid or "called" by the issuer prior to maturity. Investment-grade debt
securities are generally regarded as having adequate capacity to pay interest
and repay principal, but have speculative characteristics.
Below-investment-grade debt securities (sometimes referred to as
"high-yield/high-risk" or "junk" bonds) have greater speculative
characteristics. Adverse business, financial, or economic conditions will likely
impair capacity or willingness to pay interest and repay principal.
The yield on debt instruments over a period of time should reflect prevailing
interest rates, which depend on a number of factors, including government action
in the capital markets, government fiscal and monetary policy, needs of
businesses for capital goods for expansion, and investor expectations as to
future inflation. The yield on a particular debt instrument is also affected by
the risk that the issuer will be unable to pay principal and interest.
Certain Accounts may invest in corporate debt obligations that may be rated
below the three highest rating categories of a nationally recognized statistical
rating organization (AAA, AA, or A for S&P and AAA, AA, or A for Moody's (see
the Appendix for more information) or, if unrated, of comparable quality and may
have speculative characteristics or be speculative. Lower-rated or comparable
unrated bonds are commonly referred to as "junk bonds". There is no
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minimum acceptable rating for a security to be purchased or held by certain
Accounts, and an Account may, from time to time, purchase or hold securities
rated in the lowest rating category and may include bonds in default. Credit
ratings evaluate the safety of the principal and interest payments but not the
market value of high yield bonds. Further, the value of such bonds is likely to
fluctuate over time.
Lower-rated bonds usually offer higher yields with greater risks than
higher-rated bonds. Lower-rated bonds have more risk associated with them that
the issuer of such bonds will default on principal and interest payments. This
is because of reduced creditworthiness and increased risk of default.
Lower-rated securities generally tend to reflect short-term corporate and market
developments to a greater extent than higher-rated securities that react
primarily to fluctuations in the general level of interest rates. Short-term
corporate and market developments affecting the price or liquidity of
lower-rated securities could include adverse news affecting major issuers,
underwriters, or dealers of lower-rated corporate debt obligations. In addition,
since there are fewer investors in lower-rated securities, it may be harder to
sell the securities at an optimum time.
As a result of these factors, lower-rated securities tend to have more price
volatility and carry more risk to principal and income than higher-rated
securities.
An economic downturn may adversely affect the value of some lower-rated bonds.
Such a downturn may especially affect highly leveraged companies or companies in
cyclically sensitive industries, where deterioration in a company's cash flow
may impair its ability to meet its obligations to pay principal and interest to
bondholders in a timely fashion. From time to time, as a result of changing
conditions, issuers of lower-rated bonds may seek or may be required to
restructure the terms and conditions of securities they have issued. As a result
of these restructuring, holders of lower-rated securities may receive less
principal and interest than they had bargained for at the time such bonds were
purchased. In the event of a restructuring, an Account may bear additional legal
or administrative expenses in order to maximize recovery from an issuer.
Additionally, an increase in interest rates may also adversely impact the value
of high yield bonds.
The secondary trading market for lower rated bonds is generally less liquid than
the secondary trading market for higher-rated bonds. Adverse publicity and the
perception of investors relating to issuers, underwriters, dealers or underlying
business conditions, whether or not warranted by fundamental analysis, may
affect the price or liquidity of lower-rated bonds. On occasion, therefore, it
may become difficult to price or dispose of a particular security in the
Account.
An Account may, from time to time, own zero coupon bonds and pay-in-kind
securities. A zero coupon bond makes no periodic interest payments and the
entire obligation becomes due only upon maturity. Pay-in-kind securities make
periodic payments in the form of additional securities as opposed to cash. The
price of zero coupon bonds and pay-in-kind securities is generally more
sensitive to fluctuations in interest rates than are conventional bonds.
Additionally, federal tax law requires that interest on zero coupon bonds be
reported as income to the Account even though it receives no cash interest until
the maturity or payment date of such securities.
Many corporate debt obligations, including many lower rated bonds, permit the
issuers to call the security and therefore redeem their obligations earlier than
the stated maturity dates. Issuers are more likely to call bonds during periods
of declining interest rates. In these cases, if an Account owns a bond that is
called, the Account will receive its return of principal earlier than expected
and would likely be required to reinvest the proceeds at a lower interest rate,
thus reducing income to the Account.
EVALUATING THE RISKS OF LOWER-RATED SECURITIES. An Account's adviser or
subadviser will follow certain steps to evaluate the risks associated with
investing in lower-rated securities. These techniques include:
CREDIT RESEARCH. The adviser or subadviser performs its own
credit analysis in addition to using nationally recognized statistical
rating organizations and other sources, including discussions with the
issuer's management, the judgment of other investment analysts, and its
own informed judgment. The credit analysis will consider the issuer's
financial soundness, its responsiveness to changes in interest rates
and business conditions, and its anticipated cash flow, interest or
dividend coverage and earnings. In evaluating an issuer, the adviser or
subadviser places special emphasis on the estimated current value of
the issuer's assets rather than historical costs.
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DIVERSIFICATION. An Account generally invests in securities of
many different issuers, industries, and economic sectors to reduce
portfolio risk.
ECONOMIC ANALYSIS. The adviser or subadviser will also analyze
current developments and trends in the economy and in the financial
markets. When investing in lower-rated securities, timing and selection
are critical and analysis of the business cycle can be important.
Achievement by an Account investing in these bonds of its investment objective
may be more dependent on the credit analysis of a lower-rated bond than would be
the case if the Account invested exclusively in higher-rated bonds.
EXCHANGE-TRADED FINANCIAL FUTURES. Certain Accounts may use exchange-traded
financial futures contracts consisting of stock index futures contracts and
futures contracts on debt securities ("interest rate futures") as a hedge to
protect against changes in stock prices or interest rates. A stock index futures
contract is a contractual obligation to buy or sell a specified index of stock
at a future date for a fixed price.
An Account will not purchase or sell futures contracts for which the aggregate
initial margin exceeds 5% of the fair market value of its assets, after taking
into account unrealized profits and losses on any such contracts which it has
entered into. When a futurescontract is purchased, the Account will set aside an
amount of cash and cash equivalents equal to the total market value of the
futures contract, less the amount of the initial margin. At no time will the
Account's investments in such futures be used for speculative purposes.
All financial futures contracts will be traded on exchanges that are licensed
and regulated by the Commodity Futures Trading Commission ("CFTC"). To ensure
that its futures transactions meet CFTC standards, the Account will enter into
futures contracts for hedging purposes only (i.e., for the purposes or with the
intent specified in CFTC regulations and interpretations, subject to the
requirements of the Securities and Exchange Commission).
The use of options, futures contracts, options on futures contracts, forward
contracts and options on foreign currencies may result in the loss of principal,
particularly where such instruments are traded for other than hedging purposes
(e.g., to enhance current yield).
STOCK INDEX FUTURES CONTRACTS. Certain Accounts may purchase and sell stock
index futures contracts. Stock index futures contracts bind purchaser and seller
to deliver, at a future date specified in the contract, a cash amount equal to a
multiple of the difference between the value of a specified stock index on that
date and the settlement price specified by the contract. That is, the seller of
the futures contract must pay and the purchaser would receive a multiple of any
excess of the value of the index over the settlement price, and conversely, the
purchaser must pay and the seller would receive a multiple of any excess of the
settlement price over the value of the index. A public market currently exists
for stock index futures contracts based on the S&P 500 Index, the New York Stock
Exchange Composite Index, the Value Line Stock Index, and the Major Market
Index. It is expected that financial instruments related to broad-based indices,
in addition to those for which futures contracts are currently traded, will in
the future be the subject of publicly traded futures contracts. Each Account may
purchase and sell stock index futures contracts on its benchmark index or
similar index.
Positions taken in the futures markets are not normally held until delivery or
cash settlement is required, but instead are liquidated through offsetting
transactions that may result in a gain or a loss. While futures positions taken
by an Account are usually liquidated in this manner, an Account may instead make
or take delivery of underlying securities whenever it appears economically
advantageous to do so. A clearing organization associated with the relevant
exchange assumes responsibility for closing out transactions and guarantees
that, as between the clearing members of the exchange, the sale and purchase
obligations will be performed with regard to all positions that remain open at
the termination of the contract.
When futures contracts are entered into by an Account, either as the purchaser
or the seller of such contracts, the Fund is required to deposit with its
custodian in a segregated account in the name of the futures commission merchant
("FCM") an initial margin of cash or U.S. Treasury bills equaling as much as 5%
to 10% or more of the contract settlement price. The nature of initial margin
requirements in futures transactions differs from traditional margin payments
made in securities transactions in that initial margins for futures contracts do
not involve the borrowing of funds by the customer to finance the transaction.
Instead, a customer's initial margin on a futures contract represents a good
faith deposit securing the customer's contractual obligations under the futures
contract. The initial margin deposit is returned,
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assuming these obligations have been met, when the futures contract is
terminated. In addition, subsequent payments to and from the FCM, called
"variation margin," are made on a daily basis as the price of the underlying
security or stock index fluctuates reflecting the change in value in the long
(purchase) or short (sale) positions in the financial futures contract, a
process known as "marking to market."
Futures contracts generally are not entered into to acquire the underlying asset
and generally are not held to maturity. Prior to the contract settlement date,
an Account will normally close all futures positions by entering into an
offsetting transaction which operates to cancel the position held, and which
usually results in a profit or loss.
OPTIONS ON STOCK INDEX FUTURES CONTRACTS. Certain Accounts also may purchase
call and put options and write covered call and put options on stock index
futures contracts of the type into which the particular Fund is authorized to
enter. Covered put and call options on futures contracts will be covered in the
same manner as covered options on securities and securities indices. The
Accounts may invest in such options for the purpose of closing out a futures
position that has become illiquid.
Options on futures contracts are traded on exchanges that are licensed and
regulated by the CFTC. A call option on a futures contract gives the purchaser
the right in return for the premium paid, to purchase a futures contract (assume
a "long" position) at a specified exercise price at any time before the option
expires. A put option gives the purchaser the right, in return for the premium
paid, to sell a futures contract (assume a "short" position), for a specified
exercise price, at any time before the option expires.
Unlike entering into a futures contract itself, purchasing options on futures
contracts allows a buyer to decline to exercise the option, thereby avoiding any
loss beyond forgoing the purchase price (or "premium") paid for the options.
Whether, in order to achieve a particular objective, the Account enters into a
stock index futures contract, on the one hand, or an option contract on a stock
index futures contract, on the other, will depend on all the circumstances,
including the relative costs, liquidity, availability and capital requirements
of such futures and options contracts. Each Account will consider the relative
risks involved, which may be quite different. These factors, among others, will
be considered in light of market conditions and the particular objective to be
achieved.
CERTAIN ADDITIONAL RISKS OF FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS.
In addition to the risks described in the Prospectus, the use of stock index
futures contracts and options on such futures contracts may entail the following
risks. First, although such instruments when used by an Account are intended to
correlate with the Account's portfolio securities, in many cases the futures
contracts or options on futures contracts used may be based on stock indices the
components of which are not identical to the portfolio securities owned or
intended to be acquired by the Account. Second, due to supply and demand
imbalances and other market factors, the price movements of stock index futures
contracts and options thereon may not necessarily correspond exactly to the
price movements of the stock indices on which such instruments are based.
Accordingly, there is a risk that an Account's transactions in those instruments
will not in fact offset the impact on the Account of adverse market developments
in the manner or to the extent contemplated or that such transactions will
result in losses to the Account which are not offset by gains with respect to
corresponding portfolio securities owned or to be purchased by that Account.
To some extent, careful management of these strategies can minimize these risks.
For example, where price movements in a futures contract are expected to be less
volatile than price movements in the related portfolio securities owned or
intended to be acquired by an Account, it may, in order to compensate for this
difference, use an amount of futures contracts which is greater than the amount
of such portfolio securities. Similarly, where the price movement of a futures
contract is anticipated to be more volatile, an Account may use an amount of
such contracts which is smaller than the amount of portfolio securities to which
such contracts relate.
The risk that the hedging technique used will not actually or entirely offset an
adverse change in the value of an Account's securities is particularly relevant
to futures contracts. An Account, in entering into a futures purchase contract,
potentially could lose any or all of the contract's settlement price. In
addition, because stock index futures contracts require delivery at a future
date of an amount of cash equal to a multiple of the difference between the
value of a specified stock index on that date and the settlement price, an
algebraic relationship exists between any price movement in the underlying index
and the potential cost of settlement to an Account. A small increase or decrease
in the value of the underlying index can, therefore, result in a much greater
increase or decrease in the cost to the Fund. Although the Accounts intend to
establish positions in these instruments only when there appears to be an active
market, there is no assurance that a liquid market for such instruments will
exist when they seek to "close out" (i.e., terminate) a
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particular stock index futures contract position. Trading in such instruments
could be interrupted, for example, because of a lack of either buyers or
sellers. In addition, the futures exchanges may suspend trading after the price
of such instruments has risen or fallen more than the maximum amount specified
by the exchange. An Account may be able, by adjusting investment strategy in the
cash or other contract markets, to offset to some extent any adverse effects of
being unable to liquidate a futures position. Nevertheless, in some cases, an
Account may experience losses as a result of such inability. Therefore it may
have to liquidate other more advantageous investments to meet its cash needs.
In addition, FCMs or brokers in certain circumstances will have access to the
Accounts' assets posted as margin in connection with these transactions as
permitted under the Act. The Accounts will use only FCMs or brokers in whose
reliability and financial soundness they have full confidence and have adopted
certain other procedures and limitations to reduce the risk of loss with respect
to any assets which brokers hold or to which they may have access. Nevertheless,
in the event of a broker's insolvency or bankruptcy, it is possible that an
Account could experience a delay or incur costs in recovering such assets or
might recover less than the full amount due. Also the value of such assets could
decline by the time the Account could effect such recovery.
The success of these techniques depends, among other things, on the adviser's or
subadviser's ability to predict the direction and volatility of price movements
in the futures markets as well as the securities markets and on its ability to
select the proper type, time, and duration of futures contracts. There can be no
assurance that these techniques will produce their intended results. In any
event, the adviser or subadviser will use stock index futures contracts and
options thereon only when it believes the overall effect is to reduce, rather
than increase, the risks to which an Account is exposed. These transactions
also, of course, may be more, rather than less, favorable to an Account than
originally anticipated.
SWAPS. Swaps are over-the-counter (OTC) agreements that typically require
counterparties to make periodic payments to each other for a specified period.
The calculation of these payments is based on an agreed-upon amount, called the
notional amount, that generally is exchanged only in currency swaps. The
periodic payments may be a fixed or floating (variable) amount. Floating
payments may change with fluctuations in interest or currency rates or equity or
commodity prices, depending on the contract terms. Swaps are used to hedge a
risk or obtain more desirable financing terms, and they can be used to profit
from correctly anticipating rate and price movements.
FOREIGN AND EMERGING MARKETS SECURITIES. Certain Accounts may invest in foreign
and/or emerging markets securities. These securities may include U.S.
dollar-denominated securities and debt securities of foreign governments
(including provinces and municipalities) or their agencies or instrumentalities,
securities issued or guaranteed by international organizations designated or
supported by multiple governments or entities to promote economic reconstruction
or development, and securities of foreign corporations and financial
institutions.
Certain Accounts may invest in American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs") and European Depositary Receipts ("EDRs"), and
similar instruments providing for indirect investment in securities of foreign
issuers. Due to the absence of established securities markets in certain foreign
countries and restrictions in certain countries on direct investment by foreign
countries and restrictions in certain countries on direct investment by foreign
entities, an Account may invest in certain issuers through the purchase of
sponsored and unsponsored ADRs or other similar securities, such as American
Depositary Shares, Global Depositary Shares of International Depositary
Receipts. ADRs are receipts typically issued by U.S. banks evidencing ownership
of the underlying securities into which they are convertible. These securities
may or may not be denominated in the same currency as the underlying securities.
Unsponsored ADRs may be created without the participation of the foreign issuer.
Holders of unsponsored ADRs generally bear all the costs of the ADR facility,
whereas foreign issuers typically bear certain costs in a sponsored ADR. The
bank or trust company depository of an unsponsored ADR may be under no
obligation to distribute shareholder communications received from the foreign
issuer or to pass through voting rights.
Subject to any limit on an Account's investments in foreign securities, there
may be no limit on the amount of assets that may be invested in securities of
issuers domiciled in a single country or market. To the extent that an Account's
assets are invested substantially in a single country or market, the Account is
more susceptible to the risks of investing in that country or market than it
would be if its assets were geographically more diversified.
Investments in foreign securities may offer an Account an opportunity to pursue
the performance potential of an overseas market. Such securities, however, also
entail risks in addition to the risks of U.S. securities. Foreign governments
may nationalize or expropriate assets or impose confiscatory taxes on an
investment. Civil wars or other
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political or financial instability or diplomatic developments may affect the
value of a Fund's foreign investments. Foreign countries may impose currency
exchange controls, foreign withholding taxes, or other factors that may affect
the value of an investment. Movement in foreign currency exchange rates against
the U.S. dollar may result in significant changes in the value of overseas
investments. Generally, if the U.S. dollar weakens, the value of the foreign
investment in U.S. dollars increases. Conversely, when the U.S. dollar
strengthens, the value of the foreign investment in U.S. dollars decreases.
There is generally less information publicly available about a foreign issuer
than about a U.S. issuer, and foreign issuers generally are not subject to
accounting, auditing and financial reporting practices comparable with U.S.
practices. Some foreign securities or markets are more thinly traded and, as a
result, foreign securities may be less liquid and more volatile than U.S.
securities. Foreign settlement procedures and trade regulations may involve
risks and expenses not present in U.S. settlements.
The risks of investing in foreign securities may be intensified in the case of
investment in emerging markets. Securities of many issuers in emerging markets
may be less liquid and more volatile than comparable domestic securities.
Investment in emerging markets may be subject to delays in settlements,
resulting in periods when a portion of an Account's assets is uninvested and no
return is earned thereon. Certain markets may require payment for securities
before delivery, and in such markets the Account bears the risk that the
securities will not be delivered and that the payment will not be returned.
In addition, many emerging market countries have experienced substantial, and in
some periods extremely high, rates of inflation for many years. Inflation and
rapid fluctuations in inflation rates have had and may continue to have adverse
effects on the economies and securities markets of certain of these countries.
In many cases, emerging market countries are among the world's largest debtors
to commercial banks, foreign governments, international financial organizations
and other financial institutions. In recent years, the governments of some of
these countries have encountered difficulties in servicing their external debt
obligations, which led to defaults on certain obligations and the restructuring
of certain indebtedness.
Foreign securities transactions also include generally higher commission rates
and the risks of adverse changes in investment or exchange control regulations,
political instability that could affect U.S. investments in foreign countries,
and potential restrictions on the flow of international capital.
Additionally, dividends payable on foreign securities may be subject to foreign
taxes withheld prior to distribution. Moreover, individual foreign economies may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payment positions.
ILLIQUID SECURITIES. Certain Accounts may make investments in illiquid
securities. Illiquid securities are those that are not readily marketable within
seven days in the ordinary course of business and include restricted securities
that may not be publicly sold without registration under the Securities Act of
1933 (the "1933 Act") and Rule 144A securities. In most instances such
securities are traded at a discount from the market value of unrestricted
securities of the same issuer until the restriction is eliminated. If a Fund
sells such portfolio securities, it may be deemed an underwriter, as such term
is defined in the 1933 Act, with respect to those sales, and registration of
such securities under the 1933 Act may be required. The Accounts will not bear
the expense of such registration. In determining securities subject to the
percentage limitation, an Account will include, in addition to restricted
securities, repurchase agreements maturing in more than seven days and other
securities not having readily available market quotations, including options
traded over-the-counter, certain mortgage related securities and other
securities subject to restrictions on resale.
RULE 144A SECURITIES. Certain Rule 144A securities may be considered illiquid
and, therefore, their purchase is subject to a Fund's limitation on the purchase
of illiquid securities, unless the adviser under guidelines approved by the
Board determines on an ongoing basis that an adequate trading market exists for
the securities. If qualified institutional buyers become uninterested for a time
in purchasing Rule 144A securities held by an Account, the Account's level of
illiquidity could increase. The Board has established standards and procedures
for determining the liquidity of Rule 144A securities and periodically monitors
the adviser's implementation of the standards and procedures. The ability to
sell to qualified institutional buyers under Rule 144A has developed in recent
years, and the adviser cannot predict how this market will develop.
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LOANS OF SECURITIES TO BROKER DEALERS. The Account may lend securities to
brokers and dealers pursuant to agreements requiring that the loans be
continuously secured by cash, liquid securities, or any combination of cash and
liquid securities, as collateral equal at all times in value to at least 102% of
the market value of the securities loaned. The Account will not loan securities
if, after a loan, the aggregate of all outstanding securities loans exceeds one
third of the value of the Account's total assets taken at their current market
value. The Account continues to receive interest or dividends on the securities
loaned and simultaneously earns interest on the investment of any cash loan
collateral in U.S. Treasury notes, certificates of deposit, other high grade,
short-term obligations or interest-bearing cash equivalents. Although voting
rights attendant to securities loaned pass to the borrower, such loans may be
called at any time and will be called so that the Account may vote the
securities if, in the opinion of the investment adviser, a material event
affecting the investment would occur. There may be risks of delay in receiving
additional collateral, in recovering the securities loaned, or even loss of
rights in the collateral should the borrower of the securities fail financially.
However, loans may be made only to borrowers deemed to be of good standing,
under standards approved by the Board of Managers ("Board"), when the income to
be earned from the loan justifies the risks.
REVERSE REPURCHASE AGREEMENTS: A reverse repurchase agreement transaction is
similar to borrowing cash. In a reverse repurchase agreement, an Account
transfers possession of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash and agrees on a stipulated date in the future
to repurchase the portfolio instrument by remitting the original consideration
plus interest at an agreed upon rate. The use of reverse repurchase agreements
may enable an Account to avoid selling portfolio instruments at a time when a
sale may be deemed to be disadvantageous, but the ability to enter into reverse
repurchase agreements does not ensure that the Account will be able to avoid
selling portfolio instruments at a disadvantageous time.
The Accounts will enter into reverse repurchase agreements only with parties
whose creditworthiness has been found satisfactory to the adviser or subadviser.
Such transactions may increase fluctuations in an Account's yield or in the
market value of its assets.
When effecting reverse repurchase agreements, liquid assets of an Account, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and are maintained until the transaction is settled. During the period any
reverse repurchase agreements are outstanding, but only to the extent necessary
to assure completion of the reverse repurchase agreements, an Account may
restrict the purchase of portfolio instruments to money market instruments
maturing on or before the expiration date of the reverse repurchase agreements.
TEMPORARY INVESTMENTS. Permissible temporary investments for defensive or cash
management purposes may include U.S. government securities and money market
instruments, including instruments of banks that are members of the Federal
Deposit Insurance Corporation with assets of at least $1 billion, such as
certificates of deposit, demand and time deposits, and bankers' acceptances;
prime commercial paper, including master demand notes; and repurchase agreements
secured by U.S. government securities.
Certain Accounts may invest in debt obligations which involve equity features
such as conversion or exchange rights, warrants for the acquisition of common
stock of the same or a different issuer, participations based on revenues, sales
or profits, or the purchase of common stock in a unit transaction (where
corporate debt securities and common stock are offered as a unit).
TEMPORARY BANK BORROWING: Certain Accounts may borrow from banks for temporary
purposes, including the meeting of redemption requests which might require the
untimely disposition of securities.
LETTERS OF CREDIT: Certain Accounts may also engage in trades of municipal
obligations, certificates of participation therein, commercial paper and other
short-term obligations that are backed by irrevocable letters of credit issued
by banks which assume the obligation for payment of principal and interest in
the event of default by an issuer. Only banks the securities of which, in the
opinion of the Investment Subasviser, are of investment quality comparable to
other permitted investments of the Accounts may be used for letter of
credit-backed investment.
INVESTMENT IN UNSEASONED COMPANIES: Certain Accounts may also invest Account
assets in securities of companies that have operated for less than three years,
including the operations of predecessors. The Accounts have undertaken that they
will not make investments that will result in more than 5% of total assets being
invested in the securities of
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newly formed companies and equity securities that are not readily marketable.
Investing in securities of unseasoned companies may, under certain
circumstances, involve greater risk than is customarily associated with
investment in more established companies.
REAL ESTATE-RELATED INSTRUMENTS: Some Accounts may engage in the purchase and
sale of real estate related instruments including real estate investment trusts,
commercial and residential mortgage-backed securities, and real estate
financings. Real estate-related instruments are sensitive to factors such as
real estate values and property taxes, interest rates, cash flow of underlying
real estate assets, over building and the management skill and creditworthiness
of the issuer. Real estate-related instruments may also be affected by tax and
regulatory requirements, such as those relating to the environment.
CORPORATE ASSET-BACKED SECURITIES: Corporate asset-backed securities, issued by
trusts and special purpose corporations, are backed by a pool of assets, such as
credit card or automobile loan receivables, representing the obligations of a
number of different parties. Corporate asset-backed securities present certain
risks. For instance, in the case of credit care receivables, these securities
may not have the benefit of any security interest in the related collateral.
ASSET-BACKED MORTGAGE SECURITIES: Securities of this type include interests in
pools of lower-rated debt securities, or consumer loans or mortgages, or complex
instruments such as collateralized mortgage obligations and stripped
mortgage-backed securities. The value of these securities may be significantly
affected by changes in interest rates, the market's perception of the issuers,
and the creditworthiness of the parties involved. Some securities may have a
structure that makes their reaction to interest rates and other factors
difficult to predict, making their value highly volatile. These securities may
also be subject to prepayment risk.
LOAN PARTICIPATIONS AND OTHER DIRECT INDEBTEDNESS: By purchasing a loan
participation, a Fund acquires some or all of the interest of a bank or other
lending institution in a loan to a corporate borrower. Many such loans are
secured, and most impose restrictive covenants which must be met by the
borrower. These loans are made generally to finance internal growth, mergers,
acquisitions, stock repurchases, leveraged buy-outs and other corporate
activities. Such loans may be in default at the time of purchase.
Some Accounts may also purchase other direct indebtedness such as trade or other
claims against companies, which generally represent money owed by the company to
a supplier of goods and services. These claims may also be purchased at a time
when the company is in default. Certain of the loan participations and other
direct indebtedness acquired by these Accounts may involve revolving credit
facilities or other standby financing commitments which obligate the Accounts to
pay additional cash on a certain date or on demand.
The highly leveraged nature of many such loans and other direct indebtedness may
make such loans especially vulnerable to adverse changes in economic or market
conditions. Loan participations and other direct indebtedness may not be in the
form of securities or may be subject to restrictions on transfer, and only
limited opportunities may exist to resell such instruments. As a result, the
Accounts may be unable to sell such investments at an opportune time or may have
to resell them at less than fair market value.
INVESTMENT COMPANY SECURITIES: Generally, the Accounts may purchase and sell
securities of open and closed-end investment companies subject to the limits
prescribed under the 1940 Act.
AFFILIATED BANK TRANSACTIONS: Certain Accounts may engage in transactions with
financial institutions that are, or may be considered to be "affiliated persons"
of the fund under the Investment Company Act of 1940. These transactions may
include repurchase agreements with custodian banks; short-term obligations of,
and repurchase agreements with, the 50 largest U.S. banks (measured by
deposits); municipal securities, U.S. government securities with affiliated
financial institutions that are primary dealers in these securities; short-term
currency transactions; and short-term borrowings. The Board of Managers and the
advisers of Accounts engaged in affiliated bank transactions have established
and will periodically review procedures applicable to transactions involving
affiliated financial institutions.
INDEXED SECURITIES: Certain Accounts may purchase securities whose prices are
indexed to the prices of other securities, securities indices, currencies,
precious metals or other commodities, or other financial indicators. Indexed
securities typically, but not always, are debt securities or deposits whose
value at maturity or coupon rate is determined by reference to a specific
instrument or statistic. Gold-indexed securities, for example, typically provide
for a maturity value that depends on the price of gold, resulting, in a security
whose price tends to rise and fall together with gold
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prices. Currency-indexed securities typically are short-term to
intermediate-term debt securities whose maturity values or interest rates are
determined by reference to the values of one or more specified foreign
currencies, and may offer higher yields than U.S. dollar-denominated securities
of equivalent issuers. Currency-indexed securities may be positively or
negatively indexed; that is, their maturity value may increase when the
specified currency value increases, resulting in a security that performs
similarly to a foreign-denominated instrument, or their maturity value may
decline when foreign currencies increase, resulting in a security whose price
characteristics are similar to a put on the underlying currency.
Currency-indexed securities may also have prices that depend on the values of a
number of different foreign currencies relative to each other.
The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which they are
indexed, and may also be influenced by interest rate changes in the United
States and abroad. At the same time, indexed securities are subject to the
credit risks associated with the issuer of the security, and their values may
decline substantially if the issuer's creditworthiness deteriorates. Recent
issuers of indexed securities have included banks, corporations, and certain
U.S. government agencies. Indexed securities may be more volatile than the
underlying instruments.
SHORT SALES "AGAINST THE BOX": Some Accounts may enter into a short sale against
the box. If an Account decides to enter into such transitions, it will be
required to set aside securities equivalent in kind and amount to the securities
sold short (or securities convertible or exchangeable into such securities) and
will be required to hold such securities while the short sale is outstanding.
COMMERCIAL PAPER RATINGS: Investments in commercial paper are limited to those
rated A-1 by Standard & Poor's Corporation and Prime-1 by Moody's Investors
Service, Inc. Commercial paper rated A-1 by S&P has the following
characteristics: (1) liquidity ratios are adequate to meet cash requirements;
(2) the issuer's long-term senior debt is rated "A" or better, although in some
cases "BBB" credits may be allowed; (3) the issuer has access to at least two
additional channels of borrowing; (4) basic earnings and cash flow have an
upward trend with allowances made for unusual circumstances; and (5) the
issuer's industry is typically well established and the issuer has a strong
position within the industry.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Among the factors considered by Moody's in assigning ratings are the following:
(1) evaluating the management of the issuer; (2) economic evaluation of the
issuer's industry or industries and an appraisal of speculative-type risks which
may be inherent in certain areas; (3) evaluation of the issuer's products in
relation to competition and customer acceptance; (4) liquidity; (5) amount and
quality of long-term debt; (6) trend of earnings over a period of ten years; (7)
financial strength of a parent company and the relationship which exists with
the issuer; and (8) recognition by the management of obligations which may be
present or may arise as a result of public preparations to meet such
obligations. The relative strength or weakness of the above factors determines
how the issuer's commercial paper is rated within various categories.
INVESTMENT RESTRICTIONS
The Separate Accounts each have different investment objectives and
policies, as discussed above and in the Prospectus. Each Managed Separate
Account has certain fundamental investment restrictions, which are set forth
below. Neither the investment objective nor the fundamental investment
restrictions can be changed without a vote of a majority of the outstanding
voting securities of the Accounts, as defined in the 1940 Act.
The percentage restrictions (for either fundamental investment policies
or investment restrictions) are interpreted such that if they are adhered to at
the time of investment, a later increase in a percentage beyond the specified
limit resulting from a change in the values of portfolio securities or in the
amount of net assets shall not be considered a violation. It must be recognized
that there are risks inherent in the ownership of any investment and that there
can be no assurance that the investment objectives of the Separate Accounts will
be achieved.
THE TRAVELERS GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES
THE TRAVELERS TIMED GROWTH AND INCOME STOCK ACCOUNT FOR VARIABLE ANNUITIES
INVESTMENT RESTRICTIONS
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The investment restrictions for Accounts GIS and TGIS, as set forth
below, are identical, except where indicated. The investment restrictions set
forth in items 1 through 9 are fundamental and may not be changed without a vote
of a majority of the outstanding voting securities of Account GIS or Account
TGIS, as defined in the 1940 Act. Items 10 through 13 may be changed by a vote
of the Board of Managers of Account GIS or Account TGIS.
1. Not more than 5% of the assets of the Account will be invested in
the securities of any one issuer, except obligations of the United
States Government and its instrumentalities.
2. Borrowings will not be made, except that the right is reserved to
borrow from banks for emergency purposes, provided that such
borrowings will not exceed 5% of the value of the assets of
Account GIS, or 10% of the value of the assets of Account TGIS,
and that immediately after the borrowing, and at all times
thereafter, and while any such borrowing is unrepaid, there will
be asset coverage of at least 300% for all borrowings of the
Account.
3. Securities of other issuers will not be underwritten, except that
the Account could be deemed an underwriter when engaged in the
sale of restricted securities. (See item 13.)
4. Interests in real estate will not be purchased, except as may be
represented by securities for which there is an established
market.
5. No purchase of commodities or commodity contracts will be made,
except transactions involving financial futures in order to limit
transaction and borrowing costs and for hedging purposes, as
discussed above.
6. Loans will be made only through the acquisition of a portion of
privately placed issue of bonds, debentures or other evidences of
indebtedness of a type customarily purchased by institutional
investors. (See item 13.)
7. Investments will not be made in the securities of a company for
the purpose of exercising management or control.
8. Not more than 10% of the voting securities of any one issuer will
be acquired. (It is the present practice of the Account not to
exceed 5% of the voting securities of any one issuer.)
9. Senior securities will not be issued.
10. Short sales of securities will not be made.
11. Purchases will not be made on margin, except for short-term
credits which are necessary for the clearance of transactions, and
for the placement of not more than 5% of its net asset value in
total margin deposits for positions in futures contracts.
12. The Account will not invest in the securities of other investment
companies, except as part of a plan of merger, consolidation or
acquisition of assets.
13. Not more than 5% of the value of the assets of the Account may be
invested in restricted securities (securities which may not be
publicly offered without registration under the Securities Act of
1933).
Changes in the investments of Accounts GIS and TGIS may be made from
time to time to take into account changes in the outlook for particular
industries or companies. The Accounts' investments will not, however, be
concentrated in any one industry; that is, no more than 25% of the value of
their assets will be invested in any one industry. While Accounts GIS and TGIS
may occasionally invest in foreign securities, it is not anticipated that such
investments will, at any time, account for more than 10% of their investment
portfolios.
The assets of Accounts GIS and TGIS will be kept fully invested, except
that (a) sufficient cash may be kept on hand to provide for variable annuity
contract obligations, and (b) reasonable amounts of cash, United States
Government
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or other liquid securities, such as short-term bills and notes, may be held for
limited periods, pending investment in accordance with their respective
investment policies.
PORTFOLIO TURNOVER
Although Accounts GIS and TGIS intend to purchase securities for
long-term appreciation of capital and income, and do not intend to place
emphasis on obtaining short-term trading profits, such short-term trading may
occur. A higher turnover rate should not be interpreted as indicating a
variation from the stated investment policy of seeking long-term accumulation of
capital, and will normally increase the brokerage costs of Accounts GIS and
TGIS. However, negotiated fees and the use of futures contracts will help to
reduce brokerage costs. While there is no restriction on portfolio turnover,
Account GIS expects to have a moderate to high level of portfolio turnover in
the range of 150% to 300%, and Account TGIS expects that its portfolio turnover
will be higher than normal since the Account is being timed by third party
investment advisory services. The portfolio turnover rate for Account GIS for
the years ended December 31, 1996, 1997 and 1998 was 85%, 64% and 50%,
respectively. The portfolio turnover rate for Account TGIS for the years ended
December 31, 1996, 1997 and 1998 was 81%, 63% and 81%%, respectively.
THE TRAVELERS TIMED AGGRESSIVE STOCK ACCOUNT FOR VARIABLE ANNUITIES
INVESTMENT RESTRICTIONS
The investment restrictions set forth below are fundamental and may not
be changed without a vote of a majority of the outstanding voting securities of
Account TAS, as defined in the 1940 Act. Account TAS may not:
1. invest more than 5% of its total assets, computed at market
value, in the securities of any one issuer;
2. invest in more than 10% of any class of securities of any one
issuer;
3. invest more than 5% of the value of its total assets in
companies which have been in operation for less than three
years;
4. borrow money, except to facilitate redemptions or for
emergency or extraordinary purposes and then only from banks
and in amounts of up to 10% of its gross assets computed at
cost; while outstanding, a borrowing may not exceed one-third
of the value of its net assets, including the amount borrowed;
Account TAS has no intention of attempting to increase its net
income by means of borrowing and all borrowings will be repaid
before additional investments are made; assets pledged to
secure borrowings shall be no more than the lesser of the
amount borrowed or 10% of the gross assets of Account TAS
computed at cost;
5. underwrite securities, except that Account TAS may purchase
securities from issuers thereof or others and dispose of such
securities in a manner consistent with its other investment
policies; in the disposition of restricted securities the
Account may be deemed to be an underwriter, as defined in the
Securities Act of 1933 (the "1933 Act");
6. purchase real estate or interests in real estate, except
through the purchase of securities of a type commonly
purchased by financial institutions which do not include
direct interest in real estate or mortgages, or commodities or
commodity contracts, except transactions involving financial
futures in order to limit transaction and borrowing costs and
for hedging purposes as described above;
7. invest for the primary purpose of control or management;
8. make margin purchases or short sales of securities, except for
short-term credits which are necessary for the clearance of
transactions, and to place not more than 5% of its net asset
value in total margin deposits for positions in futures
contracts;
9. make loans, except that Account TAS may purchase money market
securities, enter into repurchase agreements, buy publicly and
privately distributed debt securities and lend limited amounts
of its portfolio
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securities to broker-dealers; all such investments must be
consistent with the Account's investment objective and
policies;
10. invest more than 25% of its total assets in the securities of
issuers in any single industry;
11. purchase the securities of any other investment company,
except in the open market and at customary brokerage rates and
in no event more than 3% of the voting securities of any
investment company;
12. invest in interests in oil, gas or other mineral exploration
or development programs; or
13. invest more than 5% of its net assets in warrants, valued at
the lower of cost or market; warrants acquired by the Account
in units or attached to securities will be deemed to be
without value with regard to this restriction. Account TAS is
subject to restrictions in the sale of portfolio securities
to, and in its purchase or retention of securities of,
companies in which the management personnel of The Travelers
Investment Management Company ("TIMCO") have a substantial
interest.
Account TAS may make investments in an amount of up to 10% of the value
of its net assets in restricted securities which may not be publicly sold
without registration under the 1933 Act. In most instances such securities are
traded at a discount from the market value of unrestricted securities of the
same issuer until the restriction is eliminated. If and when Account TAS sells
such portfolio securities, it may be deemed an underwriter, as such term is
defined in the 1933 Act, with respect thereto, and registration of such
securities under the 1933 Act may be required. Account TAS will not bear the
expense of such registration. Account TAS intends to reach agreements with all
such issuers whereby they will pay all expenses of registration. In determining
securities subject to the 10% limitation, Account TAS will include, in addition
to restricted securities, repurchase agreements maturing in more than seven days
and other securities not having readily available market quotations.
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PORTFOLIO TURNOVER
Although Account TAS intends to invest in securities selected primarily
for prospective capital growth and does not intend to place emphasis on
obtaining short-term trading profits, such short-term trading may occur. A high
turnover rate should not be interpreted as indicating a variation from the
stated investment policy, and will normally increase Account TAS's brokerage
costs. While there is no restriction on portfolio turnover, Account TAS's
portfolio turnover rate may be high since the Account is being timed by third
party investment advisory services. The portfolio turnover rate for the years
ended December 31, 1996, 1997 and 1998 was 98%, 92% and 113%, respectively.
THE TRAVELERS QUALITY BOND ACCOUNT FOR VARIABLE ANNUITIES
INVESTMENT RESTRICTIONS
The investment restrictions set forth in items 1 through 9 below are
fundamental and may not be changed without a vote of a majority of the
outstanding voting securities of Account QB, as defined in the 1940 Act. Items
10 through 13 may be changed by a vote of the Board of Managers of Account QB.
1. Not more than 15% of the value of the assets of Account QB will be
invested in the securities of any one issuer, except obligations
of the United States Government and its instrumentalities, for
which there is no limit.
2. Borrowings will not be made, except that the right is reserved to
borrow from banks for emergency purposes, provided that these
borrowings will not exceed 5% of the value of the assets of
Account QB and that immediately after the borrowing, and at all
times thereafter, and while any borrowing is unrepaid, there will
be asset coverage of at least 300% for all borrowings of Account
QB.
3. Securities of other issuers will not be underwritten, except that
Account QB could be deemed to be an underwriter when engaged in
the sale of restricted securities.
4. Interests in real estate will not be purchased, except as may be
represented by securities for which there is an established
market.
5. No purchase of commodities or commodity contracts will be made,
except transactions involving financial futures used as a hedge
against unanticipated changes in prevailing levels of interest
rates.
6. Loans will be made only through the acquisition of a portion of
privately placed issue of bonds, debentures and other evidences of
indebtedness of a type customarily purchased by institutional
investors.
7. Investments will not be made in the securities of a company for
the purpose of exercising management or control.
8. Not more than 10% of the voting securities of any one issuer will
be acquired.
9. Senior securities will not be issued.
10. Short sales of securities will not be made.
11. Purchases will not be made on margin, except for any short-term
credits that are necessary for the clearance of transactions and
to place up to 5% of the value of its net assets in total margin
deposits for positions in futures contracts.
12. Account QB will not invest in the securities of other investment
companies, except as part of a plan of merger, consolidation or
acquisition of assets.
13. The average period of maturity (or in the case of mortgage-backed
securities, the estimated average life of cash flows) of all fixed
interest debt instruments held by Account QB will not exceed five
years.
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<PAGE> 90
The investments of Account QB will not be concentrated in any one
industry; that is, no more than 25% of the value of its assets will be invested
in any one industry. There is no investment policy as to Account QB's investment
in foreign securities.
PORTFOLIO TURNOVER
Brokerage costs associated with short-term debt instruments are
significantly lower than those incurred on equity investments, and thus, a high
portfolio turnover rate would not adversely affect the brokerage costs of
Account QB to the same extent as high turnover in a separate account which
invests primarily in common stock. The portfolio turnover rate for Account QB
for the years ended December 31, 1996, 1997 and 1998 was 76%, 196% and 438%,
respectively.
THE TRAVELERS TIMED BOND ACCOUNT FOR VARIABLE ANNUITIES
INVESTMENT RESTRICTIONS
The investment restrictions set forth below are fundamental and may not
be changed without a vote of a majority of the outstanding voting securities of
Account TB, as defined in the 1940 Act. Account TB may not:
1. invest more than 5% of its total assets, computed at market
value, in the securities of any one issuer (exclusive of
securities of the United States Government, its agencies or
instrumentalities, for which there is no limit);
2. invest in more than 10% of any class of securities of any one
issuer;
3. invest more than 5% of the value of its total assets in
companies which have been in operation for less than three
years;
4. borrow money, except to facilitate redemptions or for
emergency or extraordinary purposes and then only from banks
and in amounts of up to 10% of its gross assets computed at
cost; while outstanding according to the 1940 Act, a borrowing
may not exceed one-third of the value of the net assets,
including the amount borrowed; Account TB has no intention of
attempting to increase its net income by borrowing and all
borrowings will be repaid before additional investments are
made; assets pledged to secure borrowings shall be no more
than the lesser of the amount borrowed or 10% of the gross
assets computed at cost;
5. underwrite securities, except that Account TB may purchase
securities from issuers thereof or others and dispose of such
securities in a manner consistent with its other investment
policies; in the disposition of restricted securities Account
TB may be deemed to be an underwriter, as defined in the 1933
Act;
6. purchase real estate or interests in real estate, except
through the purchase of securities of a type commonly
purchased by financial institutions which do not include
direct interest in real estate or mortgages, or commodities or
commodity contracts, except transactions involving financial
futures in order to limit transactions and borrowing costs and
for hedging purposes as discussed above;
7. invest for the primary purpose of control or management;
8. make margin purchases or short sales of securities, except for
short-term credits which are necessary for the clearance of
transactions, and to place not more than 5% of its net asset
value in total margin deposits for positions in futures
contracts;
9. make loans, except that Account TB may purchase money market
securities, enter into repurchase agreements, buy publicly and
privately distributed debt securities and lend limited amounts
of its portfolio securities to brokers-dealers; all such
investments must be consistent with the investment objective
and policies;
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<PAGE> 91
10. invest more than 25% of its total assets in the securities of
issuers in any single industry (exclusive of securities of the
United States government, its agencies or instrumentalities,
for which there is no limit); or
11. purchase the securities of any other investment company,
except in the open market and at customary brokerage rates and
in no event more than 3% of the voting securities of any
investment company. When consistent with its investment
objectives, Account TB may purchase securities of brokers,
dealers, underwriters or investment advisers. Account TB is
subject to restrictions in the sale of portfolio securities
to, and in its purchase or retention of securities of,
companies in which the management personnel of Travelers Asset
Management International Corporation ("TAMIC") have a
substantial interest.
PORTFOLIO TURNOVER
Brokerage costs associated with debt instruments are significantly
lower than those incurred on equity investments, and thus, a high portfolio
turnover rate would not adversely affect the brokerage costs of Account TB to
the same extent as high turnover in a separate account which invests primarily
in common stock. While there is no restriction on portfolio turnover, Account
TB's turnover rate may be high since the Account is being timed by third party
investment advisory services. The portfolio turnover rate for Account TB for the
years ended December 31, 1996, 1997 and 1998 was 153%, 129% and 0%,
respectively.
THE TRAVELERS MONEY MARKET ACCOUNT FOR VARIABLE ANNUITIES
INVESTMENT RESTRICTIONS
In keeping with the objective of obtaining the highest possible current
income consistent with a high degree of liquidity and preservation of capital,
Account MM operates under the following restrictions, which restrictions are
fundamental and may not be changed without a vote of a majority of the
outstanding voting securities of Account MM, as defined in the 1940 Act. Account
MM may not:
1. purchase any security which has a maturity date more than one
year from the date of the Account's purchase;
2. invest more than 25% of its assets in the securities of
issuers in any single industry (exclusive of securities issued
by domestic banks and savings and loan associations, or
securities issued or guaranteed by the United States
Government, its agencies, authorities or instrumentalities).
Neither all finance companies, as a group, nor all utility
companies, as a group, are considered a single industry for
the purpose of restriction;
3. acquire more than 10% of the outstanding securities of any one
issuer, including repurchase agreements with any one bank or
dealer (exclusive of securities issued or guaranteed by the
United States Government, its agencies or instrumentalities);
4. invest more than 5% of its assets in the securities of any one
issuer, other than securities issued or guaranteed by the
United States Government. However, the Fund may invest up to
25% of its total assets in first tier securities, as defined
in Rule 2a-7, of a single issuer for a period of up to three
business days after the purchase thereof;
5. borrow money, except from banks on a temporary basis in an
aggregate amount not to exceed one-third of the Account's
assets (including the amount borrowed); the borrowings may be
used exclusively to facilitate the orderly maturation and sale
of portfolio securities during any periods of abnormally heavy
redemption requests, if they should occur; such borrowings may
not be used to purchase investments and the Account will not
purchase any investment while any such borrowing exists;
immediately after the borrowing, and at all times thereafter
while any borrowing is unrepaid, there will be asset coverage
of at least 300% for all borrowings of the Account;
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<PAGE> 92
6. pledge, hypothecate or in any manner transfer, as security for
indebtedness, any securities owned or held by the Account,
except as may be necessary in connection with any borrowing
mentioned above and in an aggregate amount not to exceed 5% of
the Account's assets;
7. make loans, provided that the Account may purchase money
market securities and enter into repurchase agreements;
8. (a) make investments for the purpose of exercising control;
(b) purchase securities of other investment companies, except
in connection with a merger, consolidation, acquisition or
reorganization; (c) invest in real estate (other than money
market securities secured by real estate or interests therein,
or money market securities issued by companies which invest in
real estate or interests therein), commodities or commodity
contracts, interests in oil, gas or other mineral exploration
or other development programs; (d) purchase any securities on
margin; (e) make short sales of securities or maintain a short
position or write, purchase or sell puts, calls, straddles,
spreads or combinations thereof; (f) invest in securities of
issuers (other than agencies, authorities or instrumentalities
of the United States Government) having a record, together
with predecessors, of less than three years of continuous
operation if more than 5% of the Account's assets would be
invested in such securities; (g) purchase or retain securities
of any issuer if the officers and directors of the investment
adviser who individually own more than 0.5% of the outstanding
securities of such issuer together own more than 5% of the
securities of such issuer; or (h) act as an underwriter of
securities;
9. invest in securities which under the 1933 Act or other
securities laws cannot be readily disposed of with
registration or which are otherwise not readily marketable at
the time of purchase, including repurchase agreements that
mature in more than seven days, if as a result more than 10%
of the value of the Account's assets is invested in these
securities. At present, the Account has no investments in
these securities and has no present expectation of purchasing
any, although it may in the future; and
10. issue senior securities.
PORTFOLIO TURNOVER
A portfolio turnover rate is not applicable to Account MM which invests
only in money market instruments.
THE TRAVELERS TIMED SHORT-TERM BOND ACCOUNT FOR VARIABLE ANNUITIES
INVESTMENT RESTRICTIONS
In keeping with the objective of obtaining the highest possible current
income consistent with a high degree of liquidity and preservation of capital,
Account TSB operates under the following restrictions, which restrictions are
fundamental and may not be changed without a vote of a majority of the
outstanding voting securities of Account TSB, as defined in the 1940 Act.
Account TSB may not:
1. purchase any security which has a maturity date more than
three years from the date such security was purchased;
2. invest more than 25% of its assets in the securities of
issuers in any single industry (exclusive of securities issued
by domestic banks and savings and loan associations, or
securities issued or guaranteed by the United States
Government, its agencies, authorities or instrumentalities);
neither all finance companies, as a group, nor all utility
companies, as a group, are considered a single industry for
the purpose of restriction;
3. invest more than 10% of its assets in the securities of any
one issuer, including repurchase agreements with any one bank
or dealer (exclusive of securities issued or guaranteed by the
United States Government, its agencies or instrumentalities);
4. acquire more than 10% of the outstanding securities of any one
issuer (exclusive of securities issued or guaranteed by the
United States Government, its agencies or instrumentalities);
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5. borrow money, except from banks on a temporary basis in an
aggregate amount not to exceed one-third of the Account's
assets (including the amount borrowed); the borrowings may be
used exclusively to facilitate the orderly maturation and sale
of portfolio securities during any periods of abnormally heavy
redemption requests, if they should occur; such borrowings may
not be used to purchase investments and the Account will not
purchase any investment while any such borrowing exists;
immediately after the borrowing, and at all times thereafter
while any borrowing is unrepaid, there will be asset coverage
of at least 300% for all borrowings of the Account;
6. pledge, hypothecate or in any manner transfer, as security for
indebtedness, any securities owned or held by the Account,
except as may be necessary in connection with any borrowing
mentioned above and in an aggregate amount not to exceed 5% of
the Account's assets;
7. make loans, provided that the Account may purchase money
market securities and enter into repurchase agreements;
8. (a) make investments for the purpose of exercising control;
(b) purchase securities of other investment companies, except
in connection with a merger, consolidation, acquisition or
reorganization; (c) invest in real estate (other than money
market securities secured by real estate or interests therein,
or money market securities issued by companies which invest in
real estate or interests therein), commodities or commodity
contracts, interests in oil, gas or other mineral exploration
or other development programs; (d) purchase any securities on
margin; (e) make short sales of securities or maintain a short
position or write, purchase or sell puts, calls, straddles,
spreads or combinations thereof; (f) invest in securities of
issuers (other than agencies, authorities or instrumentalities
of the United States Government) having a record, together
with predecessors, of less than three years of continuous
operation if more than 5% of the Account's assets would be
invested in such securities; (g) purchase or retain securities
of any issuer if the officers and directors of the investment
adviser who individually own more than 0.5% of the outstanding
securities of such issuer together own more than 5% of the
securities of such issuer; or (h) act as an underwriter of
securities;
9. invest in securities which under the 1933 Act or other
securities laws cannot be readily disposed of with
registration or which are otherwise not readily marketable at
the time of purchase, including repurchase agreements that
mature in more than seven days, if as a result more than 10%
of the value of the Account's assets is invested in these
securities. At present, the Account has no investments in
these securities and has no present expectation of purchasing
any, although it may in the future; and
10. issue senior securities.
PORTFOLIO TURNOVER
Brokerage costs associated with short-term debt instruments are
significantly lower than those incurred on equity investments, and thus, a high
portfolio turnover rate would not adversely affect the brokerage costs of
Account TSB to the same extent as high turnover in a separate account which
invests primarily in common stock. While there is no restriction on portfolio
turnover, Account TSB's turnover rate may be high since the Account is being
timed by third party investment advisory services.
A portfolio turnover rate is not applicable to Account TSB which invests only in
short-term instruments.
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<PAGE> 94
INVESTMENT MANAGEMENT AND ADVISORY SERVICES
The investments and administration of the separate accounts are under
the direction of the Board of Managers. The Travelers Investment Management
Company (TIMCO) furnishes investment management and advisory services to
Accounts TGIS, TSB and TAS according to the terms of written Investment Advisory
Agreements. The Investment Advisory Agreements between Account TGIS and TIMCO
and Account TSB and TIMCO, were each approved by a vote of the variable annuity
contract owners at their meeting held on April 23, 1993. The Investment Advisory
Agreement between Account TAS and TIMCO was approved by a vote of the variable
annuity contract owners at their meeting held on April 23, 1993, and amended
effective May 1, 1996 by virtue of contract owner approval at a meeting held on
April 19, 1996.
Travelers Asset Management International Corporation (TAMIC) furnishes
investment management and advisory services to Accounts GIS, QB, MM and TB
according to the terms of written Investment Advisory Agreements. The Investment
Advisory Agreements between Account QB and TAMIC, Account MM and TAMIC, and
Account TB and TAMIC, were each approved by a vote of variable annuity contract
owners at their meeting held on April 23, 1993. The Investment Adviosry
Agreement between Account GIS and TAMIC was approved by a vote of the variable
annuity contract owners at their meeting held on April 27, 1998.
The agreements between Accounts TGIS, TSB and TAS and TIMCO, and the
agreements between Accounts GIS, QB, MM and TB and TAMIC, will all continue in
effect as described below in (3), as required by the 1940 Act.
Each of the agreements:
1. provides that for investment management and advisory services,
the Company will pay to TIMCO and TAMIC, on an annual basis,
an advisory fee based on the current value of the assets of
the accounts for which TIMCO and TAMIC act as investment
advisers (see "Advisory Fees" in the prospectus);
2. may not be terminated by TIMCO or TAMIC without the prior
approval of a new investment advisory agreement by those
casting a majority of the votes entitled to be cast and will
be subject to termination without the payment of any penalty,
upon sixty days written notice, by the Board of Managers or by
a vote of those casting a majority of the votes entitled to be
cast;
3. will continue in effect for a period more than two years from
the date of its execution, only so long as its continuance is
specifically approved at least annually by a vote of a
majority of the Board of Managers, or by a vote of a majority
of the outstanding voting securities of the Accounts. In
addition, and in either event, the terms of the agreements
must be approved annually by a vote of a majority of the Board
of Managers who are not parties to, or interested persons of
any party to, the agreements, cast in person at a meeting
called for the purpose of voting on the approval and at which
the Board of Managers has been furnished the information that
is reasonably necessary to evaluate the terms of the
agreements; and
4. will automatically terminate upon assignment.
ADVISORY FEES
The advisory fee for each Separate Account is described in the
prospectus.
The advisory fees paid to TIMCO by each of the Accounts during the last
three fiscal years were:
<TABLE>
<CAPTION>
ACCOUNT GIS ACCOUNT TSB ACCOUNT TGIS ACCOUNT TAS
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
1996 $2,079,020 $ 267,590 $ 596,659 $ 259,403
1997 $2,723,508 $ 248,469 $ 631,320 $ 281,157
1998 $1,094,293* $ 517,425 $ 461,300 $ 256,041
</TABLE>
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<PAGE> 95
The advisory fees paid to TAMIC by each of the Accounts during the last
three fiscal years were:
<TABLE>
<CAPTION>
ACCOUNT GIS ACCOUNT QB ACCOUNT MM ACCOUNT TB
---------- - ---------- ---------- ----------
<S> <C> <C> <C> <C>
1996 $ -0- $ 576,329 $ 253,092 $ 26,799
1997 $ -0- $ 529,458 $ 290,557 $ 10,088
1998 $3,274,491* $ 518,262 $ 324,122 $ -0-
</TABLE>
* TIMCO served as investment adviser from January 1, 1998 through April 30,
1998. Effective May 1, 1998, TIMCO became the Subadviser and TAMIC became the
Adviser. The subadvisory fee paid to TIMCO by TAMIC for Account GIS for the
period May 1, 1998 through December 31, 1998 was $2,291,392.
TIMCO
Investment decisions for Accounts TGIS, TSB and TAS will be made
independently from each other and from any other accounts that may be or become
managed by TIMCO. If, however, accounts managed by TIMCO are simultaneously
engaged in the purchase of the same security, then available securities may be
allocated to each account and may be averaged as to price in whatever manner
TIMCO deems to be fair. In some cases, this system might adversely affect the
price or volume of securities being bought or sold by an account, while in other
cases it may produce better executions or lower brokerage rates.
BROKERAGE
Subject to approval of the Board of Managers, and in accordance with
the Investment Advisory Agreements, TIMCO will place purchase and sale orders
for portfolio securities of the Accounts through brokerage firms which it may
select from time to time with the objective of seeking the best execution by
responsible brokerage firms at reasonably competitive rates. To the extent
consistent with this policy, certain brokerage transactions may be placed with
firms, which provide brokerage, and research services to TIMCO, and such
transactions may be paid for at higher rates than other firms would charge. The
term "brokerage and research services" includes advice as to the value of
securities; the advisability of investing in, purchasing or selling securities;
the availability of securities for purchasers or sellers of securities;
furnishing analyses and reports concerning issues, industries, securities,
economic factors and trends, portfolio strategy and performance of accounts; and
effecting securities transactions and performing functions incidental thereto
(such as clearance and settlement). These brokerage and research services may be
utilized in providing investment advice to Accounts TGIS, TSB and TAS, and may
also be utilized in providing investment advice and management to all accounts
over which TIMCO exercises investment discretion, but not all of such services
will necessarily be utilized in providing investment advice to all accounts.
This practice may be expected to result in greater cost to the Accounts than
might otherwise be the case if brokers whose charges were based on execution
alone were used for such transactions. TIMCO believes that brokers' research
services are very important in providing investment advice to the Accounts, but
is unable to give the services a dollar value. While research services are not
expected to reduce the expenses of TIMCO, TIMCO will, through the use of these
services, avoid the additional expenses which would be incurred if it should
attempt to develop comparable information through its own staff.
Transactions in the over-the-counter market are placed with the
principal market makers unless better price and execution may be obtained
otherwise. Brokerage fees will be incurred in connection with futures
transactions, and Accounts TGIS and TAS will be required to deposit and maintain
funds with brokers as margin to guarantee performance of future obligations.
The overall reasonableness of brokerage commissions paid is evaluated
by personnel of TIMCO responsible for trading and managing the portfolios of
Accounts GIS, TGIS, TSB and TAS by comparing brokerage firms utilized by TIMCO
to other firms with respect to the following factors: the prices paid or
received in securities transactions, speed of execution and settlement, size and
difficulty of the brokerage transactions, the financial soundness of the firms,
and the quality, timeliness and quantity of research information and reports.
The total brokerage commissions paid by Account GIS for the fiscal
years ended December 31, 1996, 1997 and 1998 were $890,690, $818,411 and
$896,520, respectively. For the fiscal year ended December 31, 1998, portfolio
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<PAGE> 96
transactions in the amount of $615,069,128 were directed to certain brokers
because of research services, of which $687,254 was paid in commissions with
respect to these transactions. Commissions in the amount of $81,520 and $16,215
were paid to Salomon Smith Barney Inc. and The Robinson Humphrey Company, Inc.,
respectively, both affiliates of TIMCO, which equals, for each, 9.1% and 1.8% of
Account GIS's aggregate brokerage commissions paid to such brokers during 1998.
The percentage of the Account GIS's aggregate dollar amount of transactions
involving the payment of commissions effected through Salomon Smith Barney and
Robinson Humphrey was 9.1% and 1.4% respectively.
The total brokerage commissions paid by Account TGIS for the fiscal
years ended December 31, 1996, 1997 and 1998 were $307,174, $235,144 and
$348,258, respectively. For the fiscal year ended December 31, 1998, portfolio
transactions in the amount of $285,900,901 were directed to certain brokers
because of research services, of which $317,005 were paid in commissions with
respect to these transactions. Commissions in the amount of $12,991 and $3,685
were paid to Salomon Smith Barney Inc. and The Robinson Humphrey Company, Inc.,
respectively, both affiliates of TIMCO, which equals, for each, 3.7% and 1.1% of
Account TGIS's aggregate brokerage commissions paid to such brokers during 1998.
The percentage of the Account TGIS's aggregate dollar amount of transactions
involving the payment of commissions effected through Salomon Smith Barney and
Robinson Humphrey was 3.8% and 0.8% respectively.
The total brokerage commissions paid by Account TAS for the fiscal
years ended December 31, 1996, 1997 and 1998 were $263,570, $168,647 and
$259,177, respectively. For the fiscal year ended December 31, 1998, portfolio
transactions in the amount of $134,746,068 were directed to certain brokers
because of research services, of which $216,464 were paid in commissions with
respect to these transactions. Commissions in the amount of $5,937 and $3,745
were paid to Salomon Smith Barney Inc. and The Robinson Humphrey Company, Inc.,
respectively, both affiliates of TIMCO, which equals, for each, 2.3% and 1.4% of
Account TAS's aggregate brokerage commissions paid to such brokers during 1998.
The percentage of the Account TAS's aggregate dollar amount of transactions
involving the payment of commissions effected through Salomon Smith Barney and
Robinson Humphrey was 2.0% and 1.6%, respectively.
No formulas were used in placing portfolio transactions with brokers
who provided research services, and no specific amount of transactions was
allocated for research services.
TAMIC
Investment advice and management for TAMIC's clients (Accounts GIS, QB,
MM and TB) are furnished in accordance with their respective investment
objectives and policies and investment decisions for the Accounts will be made
independently from those of any other accounts managed by TAMIC. However,
securities owned by Accounts GIS, QB, MM or TB may also be owned by other
clients and it may occasionally develop that the same investment advice and
decision for more than one client is made at the same time. Furthermore, it may
develop that a particular security is bought or sold for only some clients even
though it might be held or bought or sold for other clients, or that a
particular security is bought for some clients when other clients are selling
the security. When two or more accounts are engaged in the purchase or sale of
the same security, the transactions are allocated as to amount in accordance
with a formula which is equitable to each account. It is recognized that in some
cases this system could have a detrimental effect on the price or volume of the
security as far as Accounts GIS, QB, MM or TB are concerned. In other cases,
however, it is believed that the ability of the accounts to participate in
volume transactions will produce better executions for the accounts.
BROKERAGE
Subject to approval of the Board of Managers, it is the policy of
TAMIC, in executing transactions in portfolio securities, to seek best execution
of orders at the most favorable prices. The determination of what may constitute
best execution and price in the execution of a securities transaction by a
broker involves a number of considerations, including, without limitation, the
overall direct net economic result to Accounts QB and TB, involving both price
paid or received and any commissions and other cost paid, the efficiency with
which the transaction is effected, the ability to effect the transaction at all
where a large block is involved, the availability of the broker to stand ready
to execute possible difficult transactions in the future, and the financial
strength and stability of the broker. Such considerations are judgmental and are
weighed by management in determining the overall reasonableness of brokerage
commissions paid.
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<PAGE> 97
Subject to the foregoing, a factor in the selection of brokers is the receipt of
research services, analyses and reports concerning issuers, industries,
securities, economic factors and trends, and other statistical and factual
information. Any such research and other statistical and factual information
provided by brokers is considered to be in addition to and not in lieu of
services required to be performed by TAMIC under its Investment Advisory
Agreements. The cost, value and specific application of such information are
indeterminable and hence are not practicably allocable among Accounts QB and TB
and other clients of TAMIC who may indirectly benefit from the availability of
such information. Similarly, Accounts QB and TB may indirectly benefit from
information made available as a result of transactions for such clients.
Purchases and sales of bonds and money market instruments will usually
be principal transactions and will normally be purchased directly from the
issuer or from the underwriter or market maker for the securities. There usually
will be no brokerage commissions paid for such purchases. Purchases from the
underwriters will include the underwriting commission or concession, and
purchases from dealers serving as market makers will include the spread between
the bid and asked prices. Where transactions are made in the over-the-counter
market, Accounts GIS, QB and TB will deal with primary market makers unless more
favorable prices are otherwise obtainable. Brokerage fees will be incurred in
connection with futures transactions, and Accounts QB and TB will be required to
deposit and maintain funds with brokers as margin to guarantee performance of
future obligations.
TAMIC may follow a policy of considering the sale of units of Account
QB and TB a factor in the selection of broker-dealers to execute portfolio
transactions, subject to the requirements of best execution described above.
The policy of TAMIC with respect to brokerage is and will be reviewed
by the Board of Managers periodically. Because of the possibility of further
regulatory developments affecting the securities exchanges and brokerage
practices generally, the foregoing practices may be changed, modified or
eliminated.
The total brokerage commissions paid by Account QB for the fiscal years
ended December 31, 1996, 1997 and 1998 were $745,209, $0 and $0, respectively.
For the fiscal year ended December 31, 1998, no portfolio transactions were
directed to certain brokers because of research services.
The total brokerage commissions paid by Account TB for the fiscal years
ended December 31, 1996, 1997 and 1998 were $75,437, $0 and $0, respectively.
For the fiscal year ended December 31, 1998, no portfolio transactions were
directed to certain brokers because of research services.
PORTFOLIO TRANSACTIONS
Subject to the general supervision of the Board of Managers, TAMIC is
responsible for the investment decisions and the placement of orders for
portfolio transactions of Account MM. Portfolio transactions occur primarily
with issuers, underwriters or major dealers in money market instruments acting
as principals. Such transactions are normally on a net basis and do not involve
payment of brokerage commissions. The cost of securities purchased from an
underwriter usually includes a commission paid by the issuer to the underwriter,
and transactions with dealers normally reflect the spread between the bid and
asked prices. TAMIC seeks to obtain the best net price and most favorable
execution of orders for the purchase and sale of portfolio securities.
VALUATION OF ASSETS
The value of the assets of each funding option is determined on each
business day as of the close of the New York Stock Exchange. Each security
traded on a national securities exchange is valued at the last reported sale
price on the business day. If there has been no sale on that day, then the value
of the security is taken to be the mean between the reported bid and asked
prices on the business day or on the basis of quotations received from a
reputable broker or any other recognized source.
When market quotations are not considered to be readily available for
long-term corporate bonds and notes, such investments are generally stated at
fair value on the basis of valuations furnished by a pricing service. These
valuations are determined for normal institutional-size trading units of such
securities using methods based on market transactions for comparable securities
and various relationships between securities which are generally recognized by
institutional traders. Securities, including restricted securities, for which
pricing services are not readily available are value by management at prices
which it deems in good faith to be fair.
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<PAGE> 98
Short term investments for which a quoted market price is available are
valued at market. Short-term investments for which there is no reliable quoted
market price are valued at amortized cost which approximates market.
NET INVESTMENT FACTOR
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 an investment alternative from
one Valuation Period to the next. The net investment factor is determined by
dividing (a) by (b) and adding (c) to the result where:
(a) is the net result of the Valuation Period's investment income
(including, in the case of assets invested in an underlying
mutual fund, distributions whose ex-dividend date occurs during
the Valuation Period), PLUS capital gains and losses (whether
realized or unrealized), LESS any deduction for applicable taxes
(presently zero);
(b) is the value of the assets at the beginning of the Valuation
Period (or, in the case of assets invested in an underlying
mutual fund, value is based on the net asset value of the mutual
fund);
(c) is the net result of 1.000, LESS the Valuation Period deduction
for the insurance charge, LESS the applicable deduction for the
investment advisory fee, and in the case of Accounts TGIS, TSB,
TAS and TB, LESS the applicable deduction for market timing fees
(the deduction for the investment advisory fee is not applicable
in the case of assets invested in an Underlying Fund, since the
fee is reflected in the net asset value of the fund).
The net investment factor may be more or less than one.
ACCUMULATION UNIT 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 business day 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. 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.) After the maturity date, withdrawals from the
annuity unit value will be permitted only if you have elected a variable payout
option for a fixed period which is not based on any lifetime. The maximum
withdrawal amount will be calculated by computing the payments at 7% annual
interest rate.
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.
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<PAGE> 99
MANDATORY DISTRIBUTIONS FOR QUALIFIED PLANS
Federal tax law generally requires that minimum annual distributions
begin by April 1st of the calendar year following the calendar year in which a
participant under a qualified plan, a Section 403(b) annuity, or an IRA attains
age 70 1/2. Distributions must also begin or be continued according to required
patterns following the death of the contract owner or the annuitant.
NONQUALIFIED ANNUITY CONTRACTS
Individuals may purchase tax-deferred annuities without tax law funding
limits. The purchase payments receive no tax benefit, deduction or deferral, but
increases in the value of the contract are generally deferred from tax until
distribution. If a nonqualified annuity is owned by other than an individual,
however, (e.g., by a corporation), the increases in value attributable to
purchase payments made after February 28, 1986 are includable in income
annually. Furthermore, for contracts issued after April 22, 1987, all deferred
increases in value will be includable in the income of a contract owner when the
contract owner transfers the contract without adequate consideration.
If two or more annuity contracts are purchased from the same insurer
within the same calendar year, distributions from any of them will be taxed
based upon the amount of income in all of the same calendar year series of
annuities. This will generally have the effect of causing taxes to be paid
sooner on the deferred gain in the contracts.
Those receiving partial distributions made before the maturity date
will generally be taxed on an income-first basis to the extent of income in the
contract. If you are exchanging another annuity contract for this annuity,
certain pre-August 14, 1982 deposits into an annuity contract that have been
placed in the contract by means of a tax-deferred exchange under Section 1035 of
the Code may be withdrawn first without income tax liability. This information
on deposits must be provided to the 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.
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<PAGE> 100
ROTH IRAs
Effective January 1, 1998, Section 408A of the Code permits certain
individuals to contribute to a Roth IRA. Eligibility to make contributions is
based upon income, and the applicable limits vary based on marital status and/or
whether the contribution is a rollover contribution from another IRA or an
annual contribution. Contributions to a Roth IRA, which are subject to certain
limitations, ($2,000 per year for annual contributions), are not deductible and
must be made in cash or as a rollover or transfer from another Roth IRA or other
IRA. A conversion of a "traditional" IRA to a Roth IRA may be subject to tax and
other special rules apply. You should consult a tax adviser before combining any
converted amounts with other Roth IRA contributions, including any other
conversion amounts from other tax years.
Qualified distributions from a Roth IRA are tax-free. A qualified
distribution requires that the Roth IRA has been held for at least 5 years, and
the distribution is made after age 59 1/2, on death or disability of the owner,
or for a limited amount ($10,000) for a qualified first time home purchase for
the owner or certain relatives. Income tax and a 10% penalty tax may apply to
distributions made (1) before age 59 1/2 (subject to certain exceptions) or (2)
during five taxable years starting with the year in which the first contribution
is made to the Roth IRA.
QUALIFIED PENSION AND PROFIT-SHARING PLANS
Under a qualified pension or profit-sharing plan, purchase payments
made by an employer are not currently taxable to the participant and increases
in the value of a contract are not subject to taxation until received by a
participant or beneficiary.
Distributions are taxable to the participant or beneficiary as ordinary
income in the year of receipt. Any distribution that is considered the
participant's "investment in the contract" is treated as a return of capital and
is not taxable. Certain lump-sum distributions may be eligible for special
forward averaging tax treatment for certain classes of individuals.
FEDERAL INCOME TAX WITHHOLDING
The portion of a distribution which is taxable income to the recipient
will be subject to federal income tax withholding as follows:
1. ELIGIBLE ROLLOVER DISTRIBUTION FROM SECTION 403(b) PLANS OR ARRANGEMENTS OR
FROM QUALIFIED PENSION AND PROFIT-SHARING PLANS
There is a mandatory 20% tax withholding for plan distributions that are
eligible for rollover to an IRA or to another retirement plan but that are not
directly rolled over. A distribution made directly to a participant or
beneficiary may avoid this result if:
(a) a periodic settlement distribution is elected based upon a life or
life expectancy calculation, or
(b) a term-for-years settlement distribution is elected for a period of
ten years or more, payable at least annually, or
(c) a minimum required distribution as defined under the tax law is taken
after the attainment of the age of 70 1/2 or as otherwise required by
law.
A distribution including a rollover that is not a direct rollover will
be subject to the 20% withholding, and a 10% additional tax penalty may apply to
any amount not added back in the rollover. The 20% withholding may be recovered
when the participant or beneficiary files a personal income tax return for the
year if a rollover was completed within 60 days of receipt of the funds, except
to the extent that the participant or spousal beneficiary is otherwise
underwithheld or short on estimated taxes for that year.
2. OTHER NON-PERIODIC DISTRIBUTIONS (FULL OR PARTIAL REDEMPTIONS)
To the extent not described as requiring 20% withholding in 1 above, the
portion of a non-periodic distribution which constitutes taxable income will be
subject to federal income tax withholding, if the aggregate distributions exceed
$200 for the year, unless the recipient elects not to have taxes withheld. If no
such election is made, 10% of the taxable distribution will be withheld as
federal income tax. Election forms will be provided at the time distributions
are requested. This form of withholding applies to all annuity programs.
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<PAGE> 101
3. PERIODIC DISTRIBUTIONS (DISTRIBUTIONS PAYABLE OVER A PERIOD GREATER THAN ONE
YEAR)
The portion of a periodic distribution which constitutes taxable income
will be subject to federal income tax withholding under the wage withholding
tables as if the recipient were married claiming three exemptions. A recipient
may elect not to have income taxes withheld or have income taxes withheld at a
different rate by providing a completed election form. Election forms will be
provided at the time distributions are requested. This form of withholding
applies to all annuity programs. As of January 1, 1999, a recipient receiving
periodic payments (e.g., monthly or annual payments under an annuity option)
which total $14,700 or less per year, will generally be exempt from periodic
withholding.
Recipients who elect not to have withholding made are liable for
payment of federal income tax on the taxable portion of the distribution. All
recipients may also be subject to penalties under the estimated tax payment
rules if withholding and estimated tax payments are not sufficient to cover tax
liabilities.
Recipients who do not provide a social security number or other
taxpayer identification number will not be permitted to elect out of
withholding. Additionally, U.S citizens residing outside of the country, or U.S.
legal residents temporarily residing outside the country, are not permitted to
elect out of withholding.
PERFORMANCE INFORMATION
From time to time, the Company may advertise several types of
historical performance for Accounts GIS, QB, MM, TGIS, TSB, TAS, TB and the
Funding Options of Fund U.
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 an Account or 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 for contracts sold under the Prospectus to
which this Statement of Additional Information relates. Each quotation assumes a
total redemption at the end of each period with the assessment of any applicable
withdrawal charge at that time. For Accounts TGIS, TSB, TAS and TB, market
timing fees are included in expenses in the calculation of performance for
periods on or after May 1, 1990, the date on which the market timing fee became
a charge against the daily assets of the timed accounts. The performance for
periods prior to May 1, 1990 does not reflect the deduction of the market-timing
fee.
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 any applicable withdrawal charge or 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.
TOTAL RETURN QUOTATIONS FOR TIMED ACCOUNTS. Because Accounts TGIS, TSB,
TAS and TB are primarily available to Contract Owners who have entered into
third party market timing services agreements, the Accounts may experience wide
fluctuations in assets over a given time period. Consequently, performance data
computed according to both the standardized and nonstandardized methods for
Accounts TGIS, TSB, TAS and TB may not always be useful in evaluating the
performance of these Accounts. In addition, performance data for Accounts TGIS,
TSB, TAS and TB alone will not generally be useful to the purchase of evaluating
the performance of a market timing strategy that uses these Accounts.
For funding options that were in existence before they became available
under Fund U, the standardized average total return quotations may be
accompanied by returns showing the investment performance that such funding
options would have achieved (reduced by the applicable charges) had they been
held available under the Contract for the
34
<PAGE> 102
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 Fund U and the Funding Options.
Average annual total returns of each managed Separate Account computed
according to the standardized and non-standardized methods for the periods ended
December 31, 1998 are set forth in the following tables.
35
<PAGE> 103
TRAVELERS UNIVERSAL ANNUITY STANDARDIZED PERFORMANCE
STANDARDIZED AVERAGE ANNUAL RETURNS AS OF 12/31/98
<TABLE>
<CAPTION>
STOCK ACCOUNTS: 1 Year 5 Year 10 Year (or inception)
--------------- ------ ------ ----------------------
<S> <C> <C> <C> <C>
Alliance Growth Portfolio # 22.26% -- 27.90% (2/95)
American Odyssey Core Equity Fund 8.95% 18.57% 17.13% (5/93)
American Odyssey Emerging Opportunities Fund -14.43% 4.18% 5.83% (5/93)
American Odyssey International Equity Fund 8.32% 7.95% 10.86% (5/93)
Capital Appreciation Fund (Janus) 54.45% 25.47% 17.60%
Dreyfus Small Cap Portfolio @ -- -- -18.71% (5/98)
Dreyfus Stock Index Fund * 21.46% 21.37% 17.54% (1/92)
Fidelity VIP Equity Income Portfolio * 5.09% 16.55% 16.62% (7/93)
Fidelity VIP Growth Portfolio * 32.59% 19.52% 17.11% (1/92)
Smith Barney International Equity Portfolio # -0.02% -- 8.05% (2/95)
Smith Barney Large Cap Value Portfolio # 3.31% -- 18.74% (2/95)
Social Awareness Stock Portfolio (Smith Barney) 25.46% 19.06% 16.70% (5/92)
Templeton Global Stock Fund * -5.14% 8.89% 11.88% (1/92)
Travelers Disciplined Mid Cap Stock Portfolio @ -- -- -1.11% (5/98)
Travelers Growth and Income Stock Account 23.57% 21.73% 14.37%
Utilities Portfolio (Smith Barney) 11.61% 14.00% 14.60% (2/94)
BOND ACCOUNTS:
American Odyssey Global High-Yield Bond Fund -- -- -11.15% (5/98)
American Odyssey Intermediate-Term Bond Fund 1.98% 3.90% 4.84% (5/93)
American Odyssey Long-Term Bond Fund 2.54% 5.05% 6.74% (5/93)
Fidelity VIP High Income Portfolio * -10.37% 6.48% 9.86% (2/92)
Putnam Diversified Income Portfolio # -5.69% -- 5.27% (3/95)
Smith Barney High Income Portfolio # -5.90% -- 8.00% (3/95)
Templeton Global Bond Fund * 0.69% 3.25% 5.24% (1/92)
Travelers High Yield Bond Trust 0.09% 8.16% 8.20%
Travelers Quality Bond Account 1.75% 4.63% 7.70%
Travelers U.S. Government Securities Portfolio 3.69% 5.81% 6.80% (1/92)
BALANCED ACCOUNTS:
Fidelity VIP II Asset Manager Portfolio * 8.47% 9.53% 11.33% (1/92)
MFS Total Return Portfolio # 5.13% -- 15.34% (2/95)
Templeton Global Asset Allocation Fund * -0.06% 9.40% 11.62% (1/92)
Travelers Managed Assets Trust 14.78% 13.56% 11.20%
MONEY MARKET ACCOUNTS:
Travelers Money Market Account -1.12% 2.78% 4.58%
</TABLE>
The inception date used to calculate standardized performance is based on the
date that the investment option became active under the product.
Funds denoted with * were not added as an Investment Option under Fund U until
January 24, 1992 (Fidelity VIP Equity Income Portfolio was added July 19, 1993);
Funds denoted with # were not added to Fund U until February 13, 1995; and Funds
denoted with @ were not added to Fund U until May 1, 1998.
36
<PAGE> 104
TRAVELERS UNIVERSAL ANNUITY
NONSTANDARDIZED PERFORMANCE UPDATE AS OF 12/31/98
<TABLE>
<CAPTION>
CUMULATIVE RETURNS
--------------------------------------------------
YTD 1 YR 3YR 5YR 10YR
--- ---- --- --- ----
<S> <C> <C> <C> <C> <C>
STOCK ACCOUNTS:
Alliance Growth Portfolio # 27.43% 27.43% 107.5% -- --
American Odyssey Core Equity Fund 14.11% 14.11% 80.5% 141.5% --
American Odyssey Emerging Opportunities Fund -9.79% -9.79% -8.9% 28.9% --
American Odyssey International Equity Fund 13.47% 13.47% 41.7% 53.0% --
Capital Appreciation Fund (Janus) 59.63% 59.63% 151.8% 218.9% 494.6%
Dreyfus Small Cap Portfolio @ -4.67% -4.67% 26.6% 70.8% --
Dreyfus Stock Index Fund * 26.62% 26.62% 101.2% 170.8% --
Fidelity VIP Equity Income Portfolio * 10.24% 10.24% 57.4% 122.0% 276.8%
Fidelity VIP Growth Portfolio * 37.76% 37.76% 90.3% 151.2% 420.4%
Smith Barney International Equity Portfolio # 5.14% 5.14% 23.8% -- --
Smith Barney Large Cap Value Portfolio # 8.46% 8.46% 60.5% -- --
Social Awareness Stock Portfolio (Smith Barney) 30.63% 30.63% 94.5% 146.5% --
Templeton Global Stock Fund * 0.00% 0.00% 33.6% 59.6% 179.7%
Travelers Disciplined Mid Cap Stock Portfolio @ 15.49% 15.49% -- -- --
Travelers Growth and Income Stock Account 28.73% 28.73% 105.5% 174.8% 359.3%
Utilities Portfolio (Smith Barney) 16.77% 16.77% 53.3% -- --
BOND ACCOUNTS:
American Odyssey Global High-Yield Bond Fund -- -- -- -- --
American Odyssey Intermediate-Term Bond Fund 7.13% 7.13% 16.7% 27.2% --
American Odyssey Long-Term Bond Fund 7.69% 7.69% 19.2% 34.2% --
Fidelity VIP High Income Portfolio * -5.52% -5.52% 23.6% 43.2% 153.0%
Putnam Diversified Income Portfolio # -0.58% -0.58% 13.0% -- --
Smith Barney High Income Portfolio # -0.80% -0.80% 24.6% -- --
Templeton Global Bond Fund * 5.84% 5.84% 15.8% 23.5% 80.8%
Travelers High Yield Bond Trust 5.23% 5.23% 38.8% 54.4% 118.4%
Travelers Quality Bond Account 6.90% 6.90% 17.8% 31.6% 102.1%
Travelers U.S. Government Securities Portfolio 8.84% 8.84% 21.3% 38.9% --
BALANCED ACCOUNTS:
Fidelity VIP II Asset Manager Portfolio * 13.62% 13.62% 53.2% 64.1% --
MFS Total Return Portfolio # 10.28% 10.28% 49.2% -- --
Templeton Global Asset Allocation Fund * 5.09% 5.09% 40.7% 63.2% 178.0%
Travelers Managed Assets Trust 19.94% 19.94% 61.4% 95.6% 235.2%
MONEY MARKET ACCOUNTS:
Travelers Money Market Account 4.03% 4.03% 12.6% 20.8% 52.0%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURNS CALENDAR YEAR RETURNS
--------------------------------------------------- ----------------------------
3YR 5YR 10YR Inception 1997 1996 1995
--- --- ---- --------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STOCK ACCOUNTS:
Alliance Growth Portfolio # 27.53% -- -- 26.39% (6/94) 27.47% 27.77% 33.15%
American Odyssey Core Equity Fund 21.74% 19.27% -- 17.07% (5/93) 30.09% 21.61% 36.85%
American Odyssey Emerging Opportunities Fund -3.05% 5.20% -- 5.98% (5/93) 5.59% -4.36% 30.61%
American Odyssey International Equity Fund 12.31% 8.87% -- 10.99% (5/93) 3.76% 20.36% 17.53%
Capital Appreciation Fund (Janus) 36.00% 26.09% 19.50% 12.18% (5/83) 24.58% 26.60% 34.67%
Dreyfus Small Cap Portfolio @ 8.17% 11.30% -- 24.90% (8/90) 15.31% 15.15% 27.78%
Dreyfus Stock Index Fund * 26.22% 22.03% -- 15.67% (9/89) 31.32% 21.00% 35.09%
Fidelity VIP Equity Income Portfolio * 16.31% 17.29% 14.18% 12.99% (10/86) 26.52% 12.85% 33.41%
Fidelity VIP Growth Portfolio * 23.90% 20.22% 17.92% 15.90% (10/86) 21.95% 13.27% 33.69%
Smith Barney International Equity Portfolio # 7.37% -- -- 5.92% (6/94) 1.35% 16.18% 9.86%
Smith Barney Large Cap Value Portfolio # 17.06% -- -- 17.39% (6/94) 25.07% 18.31% 31.41%
Social Awareness Stock Portfolio (Smith Barney) 24.81% 19.76% -- 16.95% (5/92) 25.70% 18.47% 31.75%
Templeton Global Stock Fund * 10.12% 9.79% 10.82% 10.70% (8/88) 10.49% 20.89% 23.69%
Travelers Disciplined Mid Cap Stock Portfolio @ -- -- -- 27.86% (4/97) -- -- --
Travelers Growth and Income Stock Account 27.11% 22.39% 16.46% 13.23% (5/83) 31.52% 21.37% 35.44%
Utilities Portfolio (Smith Barney) 15.30% -- -- 14.80% (2/94) 23.74% 6.12% 27.69%
BOND ACCOUNTS:
American Odyssey Global High-Yield Bond Fund -- -- -- -6.38% (5/98) -- -- --
American Odyssey Intermediate-Term Bond Fund 5.29% 4.93% -- 4.97% (5/93) 6.17% 2.63% 13.59%
American Odyssey Long-Term Bond Fund 6.03% 6.05% -- 6.84% (5/93) 10.66% 0.04% 20.94%
Fidelity VIP High Income Portfolio * 7.32% 7.44% 9.72% 9.73% (9/85) 16.21% 12.61% 19.11%
Putnam Diversified Income Portfolio # 4.16% -- -- 6.33% (6/94) 6.36% 6.89% 15.93%
Smith Barney High Income Portfolio # 7.61% -- -- 8.27% (6/94) 12.44% 11.75% 16.48%
Templeton Global Bond Fund * 5.01% 4.30% 6.10% 6.05% (8/88) 1.23% 8.08% 13.50%
Travelers High Yield Bond Trust 11.55% 9.08% 8.12% 8.20% (5/83) 15.12% 14.60% 14.09%
Travelers Quality Bond Account 5.61% 5.64% 7.29% 7.79% (5/83) 6.58% 3.38% 14.49%
Travelers U.S. Government Securities Portfolio 6.64% 6.79% -- 7.04% (1/92) 11.24% 0.18% 22.94%
BALANCED ACCOUNTS:
Fidelity VIP II Asset Manager Portfolio * 15.27% 10.41% -- 11.57% (9/89) 19.15% 13.17% 15.51%
MFS Total Return Portfolio # 14.25% -- -- 14.01% (6/94) 19.69% 13.02% 24.15%
Templeton Global Asset Allocation Fund * 12.05% 10.29% 10.76% 10.64% (8/88) 14.09% 17.38% 21.03%
Travelers Managed Assets Trust 17.30% 14.36% 12.85% 10.04% (5/83) 19.81% 12.36% 25.54%
MONEY MARKET ACCOUNTS:
Travelers Money Market Account 4.02% 3.85% 4.27% 5.14% (5/83) 4.10% 3.94% 4.44%
</TABLE>
The underlying funds however, were in existence prior to those date. Performance
figures for periods prior to the dates these funds were added to Fund U
represent actual returns of the underlying funds adjusted to reflect the charges
that would have been assessed had those underlying funds been offered under Fund
U during that period.
37
<PAGE> 105
TRAVELERS UNIVERSAL ANNUITY STANDARDIZED PERFORMANCE
STANDARDIZED AVERAGE ANNUAL RETURNS AS OF 12/31/98
<TABLE>
<CAPTION>
STOCK ACCOUNTS: 1 Year 5 Year 10 Year (or inception)
--------------- ------ ------ ----------------------
<S> <C> <C> <C> <C>
WITH CHART FEE OF 1.25%
American Odyssey Core Equity Fund 7.54% 17.06% 15.68% (6/93)
American Odyssey Emerging Opportunities Fund -15.49% 2.83% 4.51% (5/93)
American Odyssey International Equity Fund 6.91% 6.56% 9.48% (5/93)
American Odyssey Global High-Yield Bond Fund -- -- -11.89% (5/98)
American Odyssey Intermediate-Term Bond Fund 0.65% 2.55% 3.53% (6/93)
American Odyssey Long-Term Bond Fund 1.20% 3.69% 4.54% (1/94)
Travelers Timed Growth and Income Account 21.50% 19.54% 14.33% (1/88)
Travelers Timed Bond Account * -5.14% -0.56% 2.47% (4/90)
Travelers Timed Short-Term Bond Account -2.44% 1.29% 3.07% (11/87)
Travelers Timed Aggressive Stock Account 9.31% 15.34% 23.44% (4/90)
</TABLE>
The inception date used to calculate standardized performance is based on the
date that the investment option became active under the product.
38
<PAGE> 106
TRAVELERS UNIVERSAL ANNUITY -
NONSTANDARDIZED PERFORMANCE UPDATE AS OF 12/31/98
<TABLE>
<CAPTION>
-------------------------------------------
1 YR 3YR 5YR 10YR
---- --- --- ----
<S> <C> <C> <C> <C>
WITH CHART FEE OF 1.25%
American Odyssey Core Equity Fund 12.69% 73.87% 126.88% --
American Odyssey Emerging Opportunities Fund -10.91% -12.26% 21.07% --
American Odyssey International Equity Fund 12.07% 36.49% 43.73% --
American Odyssey Global High-Yield Bond Fund -- -- -- --
American Odyssey Intermediate-Term Bond Fund 5.80% 12.43% 19.52% --
American Odyssey Long-Term Bond Fund 6.35% 14.81% 26.05% --
Travelers Timed Growth and Income Account 26.66% 97.34% 151.42% 303.09%
Travelers Timed Bond Account * -- -7.95% 3.19% --
Travelers Timed Short-Term Bond Account 2.71% 7.78% 12.68% 35.04%
Travelers Timed Aggressive Stock Account 14.46% 72.17% 111.10% --
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURNS CALENDAR YEAR RETURNS
---------------------------------------------------- ------------------------------
3YR 5YR 10YR Inception 1997 1996 1995
--- --- ---- --------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
WITH CHART FEE OF 1.25%
American Odyssey Core Equity Fund 20.23% 17.79% -- 15.90% (5/93) 28.48% 20.09% 35.15%
American Odyssey Emerging Opportunities Fund -4.26% 3.90% -- 4.72% (5/93) 4.28% -5.56% 28.99%
American Odyssey International Equity Fund 10.91% 7.52% -- 9.70% (5/93) 2.48% 18.85% 16.07%
American Odyssey Global High-Yield Bond Fund -- -- -- -7.16% (5/98) -- -- --
American Odyssey Intermediate-Term Bond Fund 3.98% 3.63% -- 3.74% (5/93) 4.85% 1.35% 12.19%
American Odyssey Long-Term Bond Fund 4.71% 4.74% -- 5.62% (5/93) 9.28% -1.21% 19.44%
Travelers Timed Growth and Income Account 25.41% 20.24% 14.95% 14.59% (1/88) 29.80% 20.03% 33.56%
Travelers Timed Bond Account * -2.72% 0.63% -- 2.72% (4/90) 3.34% -10.92% 13.80%
Travelers Timed Short-Term Bond Account 2.53% 2.41% 3.05% 3.32% (11/87) 2.81% 2.07% 3.17%
Travelers Timed Aggressive Stock Account 19.83% 16.11% -- 23.71% (4/90) 29.19% 16.43% 32.08%
</TABLE>
* No longer available for sale to new contract holders.
39
<PAGE> 107
THE BOARD OF MANAGERS
The investments and administration of each of the Separate Accounts are
under the direction of the Board of Managers, listed below. Members of the Board
of Managers of Accounts GIS, QB, MM, TGIS, TSB, TAS and TB are elected annually
by those Contract Owners participating in the Separate Accounts. A majority of
the members of the Board of Managers are persons who are not affiliated with The
Travelers Insurance Company, TIMCO, TAMIC or their affiliates.
<TABLE>
<CAPTION>
Name Present Position and Principal Occupation During Last Five Years
- ---- ----------------------------------------------------------------
<S> <C>
*Heath B. McLendon Managing Director (1993-present), Salomon Smith Barney Inc. ("Salomon
Chairman and Member Smith Barney"); President and Director (1994-present), SSBC Fund
388 Greenwich Street Management Inc.; Director and President (1996-present), Travelers
New York, New York Investment Adviser, Inc.; Chairman and Director of fifty-nine investment
Age 65 companies associated with Salomon Smith Barney; Trustee (1999-present)
of certain of Citifunds' family of Trusts; Trustee, Drew University;
Advisory Director, First Empire State Corporation; Chairman, Board of
Managers, seven Variable Annuity Separate Accounts of The Travelers
Insurance Company+; Chairman, Board of Trustees, five Mutual Funds
sponsored by The Travelers Insurance Company++; prior to July 1993,
Senior Executive Vice President of Shearson Lehman Brothers Inc.
Knight Edwards Of Counsel (1988-present), Edwards & Angell, Attorneys; Member, Advisory
Member Board (1973-1994), thirty-one mutual funds sponsored by Keystone Group,
154 Arlington Avenue Inc.; Member, Board of Managers, seven Variable Annuity Separate
Providence, Rhode Island Accounts of The Travelers Insurance Company+; Trustee, five Mutual Funds
Age 75 sponsored by The Travelers Insurance Company++.
Robert E. McGill, III Retired manufacturing executive. Director (1983-1995), Executive Vice
Member President (1989-1994) and Senior Vice President, Finance and
295 Hancock Street Administration (1983-1989), The Dexter Corporation (manufacturer of
Williamstown, Massachusetts specialty chemicals and materials); Vice Chairman (1990-1992), Director
Age 67 (1983-1995), Life Technologies, Inc. (life science/biotechnology
products); Director, (1994-present), The Connecticut Surety Corporation
(insurance); Director (1995-present), Chemfab Corporation (specialty
materials manufacturer); Director (1999-present), Ravenswoods Winery,
Inc.; Member, Board of Managers, seven Variable Annuity Separate
Accounts of The Travelers Insurance Company+; Trustee, five Mutual Funds
sponsored by The Travelers Insurance Company++.
Lewis Mandell Dean, School of Management (1998-present), University at Buffalo; Dean,
Member College of Business Administration (1995-1998), Marquette University;
160 Jacobs Hall Professor of Finance (1980-1995) and Associate Dean (1993-1995), School
Buffalo, New York of Business Administration, and Director, Center for Research and
Age 56 Development in Financial Services (1980-1995), University of
Connecticut; Director (1992-present), GZA Geoenvironmental Tech, Inc.
(engineering services); Member, Board of Managers, seven Variable
Annuity Separate Accounts of The Travelers Insurance Company+; Trustee,
five Mutual Funds sponsored by The Travelers Insurance Company++.
40
</TABLE>
<PAGE> 108
<TABLE>
<CAPTION>
<S> <C>
Frances M. Hawk, CFA, CFP Private Investor, (1997-present), Portfolio Manager (1992-1997), HLM
Member Management Company, Inc. (investment management); Assistant Treasurer,
28 Woodland Street Pensions and Benefits. Management (1989-1992), United Technologies
Sherborn, Massachusetts Corporation (broad- based designer and manufacturer of high technology
Age 51 products); Member, Board of Managers, seven Variable Annuity Separate
Accounts of The Travelers Insurance Company+; Trustee, five Mutual Funds
sponsored by The Travelers Insurance Company++.
Ernest J. Wright Vice President and Secretary (1996-present), Assistant Secretary
Secretary to the Board (1994-1996), Counsel (1987-present), The Travelers Insurance Company;
One Tower Square Secretary, seven Variable Annuity Separate Accounts of The Travelers
Hartford, Connecticut Insurance Company+; Secretary, Board of Trustees, five Mutual Funds
Age 58 sponsored by The Travelers Insurance Company++.
Kathleen A. McGah Assistant Secretary and Counsel (1995-present), The Travelers Insurance
Assistant Secretary to the Board Company; Assistant Secretary, seven Variable Annuity Separate Accounts
One Tower Square of The Travelers Insurance Company+; Assistant Secretary, Board of
Hartford, Connecticut Trustees, five Mutual Funds sponsored by The Travelers Insurance
Age 48 Company++. Prior to January 1995, Counsel, ITT Hartford Life Insurance
Company.
David Golino Second Vice President (1996-present), The Travelers Insurance Company;
Principal Accounting Officer Principal Accounting Officer, seven Variable Annuity Separate Accounts
To the Board of Managers of The Travelers Insurance Company+. Prior to May 1996, Senior Manager,
One Tower Square Deloitte & Touche LLP.
Hartford, Connecticut
Age 37
</TABLE>
+ These seven Variable Annuity Separate Accounts are: The Travelers Growth
and Income Stock Account for Variable Annuities, The Travelers Quality
Bond Account for Variable Annuities, The Travelers Money Market Account
for Variable Annuities, The Travelers Timed Growth and Income Stock
Account for Variable Annuities, The Travelers Timed Short-Term Bond
Account for Variable Annuities, The Travelers Timed Aggressive Stock
Account for Variable Annuities and The Travelers Timed Bond Account for
Variable Annuities.
++ These five Mutual Funds are: Capital Appreciation Fund, Money Market
Portfolio, Trust, High Yield Bond Trust, Managed Assets Trust and The
Travelers Series Trust.
* Mr. McLendon is an "interested person" within the meaning of the 1940
Act by virtue of his position as Managing Director of Salomon Smith Barney Inc.,
an indirect wholly owned subsidiary of Citigroup Inc. and also owns shares and
options to purchase shares of Citigroup Inc., the indirect parent of The
Travelers Insurance Company.
The Company is responsible for payment of the fees and expenses of the
Board of Managers, and the expenses of audit of the Separate Accounts, as well
as other expenses for services related to the operations of the accounts, for
which it deducts certain amounts from purchase payments and from the accounts.
Members of the Board of Managers who are also officers or employees of
Citigroup Inc. or its subsidiaries are not entitled to any fee. Members of the
Board of Managers who are not affiliated as employees of Citigroup Inc. or its
subsidiaries receive an aggregate retainer of $19,000 for service on the Boards
of the seven Variable Annuity Separate Accounts established by The Travelers
Insurance Company and the five Mutual Funds sponsored by The Travelers Insurance
Company. They also receive an aggregate fee of $2,500 for each meeting of such
Boards attended. Board Members with 10 years of service may agree to provide
services as emeritus director at age 72 or upon reaching 80 years of age and
will receive 50% of the annual retainer and 50% of meeting fees if attended.
41
<PAGE> 109
ADMINISTRATIVE SERVICES
Under the terms of an Administrative Services Agreement and Agreement
to Provide Guarantees (formerly the Distribution and Management Agreement)
between each Separate Account and the Company, the Company provides all
administrative services and mortality and expense risk guarantees related to
variable annuity contracts issued by the Company in connection with the Separate
Accounts and assumes the risk of minimum death benefits, as applicable. The
Company also pays all sales costs (including costs associated with the
preparation of sales literature); all costs of qualifying the Separate Accounts
and the variable annuity contracts with regulatory authorities; the costs of
proxy solicitation; all custodian, accountants' and legal fees; and all
compensation paid to the unaffiliated members of the Board of Managers. In
addition, under the terms of the Administrative Services Agreement and Agreement
to Provide Guarantees between the Company and Accounts TGIS, TSB, TAS and TB,
the Company deducts amounts necessary to pay fees to third-party registered
investment advisers which provide market timing investment advisory services to
Contract Owners in those accounts and, in turn, pays such fees to the registered
investment advisers. The Company also provides without cost to the Separate
Accounts all necessary office space, facilities, and personnel to manage its
affairs.
The Company received the following amounts from the Separate Accounts
in each of the last three fiscal years for services provided under the
Administrative Services Agreement and Agreement to Provide Guarantees:
<TABLE>
<CAPTION>
SEPARATE ACCOUNT 1998 1997 1996
---------------- ----------- ----------- -----------
<S> <C> <C> <C>
GIS $ 9,908,196 $ 7,623,733 $ 5,889,123
QB $ 2,069,452 $ 2,144,373 $ 2,322,938
MM $ 1,489,538 $ 1,296,431 $ 1,141,046
U $76,905,285 $60,630,629 $43,929,076
TGIS $ 1,966,228 $ 2,750,311 $ 2,727,368
TSB $ 2,222,330 $ 1,092,109 $ 1,217,057
TAS $ 1,063,785 $ 1,191,956 $ 1,196,757
TB $ 0 $ 32,789 $ 77,050
</TABLE>
SECURITIES CUSTODIAN
Chase Manhattan Bank, N.A., Chase MetroTech Center, Brooklyn, New York,
is the custodian of the portfolio securities and similar investments of Accounts
GIS, QB, MM, TGIS, TSB, TAS and TB.
INDEPENDENT ACCOUNTANTS
Effective January 1, 1999, KPMG LLP, CitiPlace II, Hartford,
Connecticut, are the independent auditors for Accounts GIS, QB, MM, TGIS, TSB,
TAS, TB. The services provided to these Accounts include primarily the
examination of the Accounts' financial statements.
Prior to January 1, 1999, PricewaterhouseCoopers LLP were the
independent auditors for the Accounts. The reports by PricewaterhouseCoopers LLP
on the financial statements for fiscal years ended December 31, 1998 and 1997,
did not contain an adverse opinion or disclaimer of opinion, and were not
qualified or modified as to uncertainty, audit scope, or accounting principles.
The decision to change principal accountants was approved by the Board
of Managers at a meeting held on January 29, 1999, where it was decided to
engage KPMG LLP as the principal accountant to audit Accounts GIS's QB's, MM's,
TGIS's, TSB's, TAS's and TB's financial statements since it would promote
consistency and possible efficiencies among affiliated separate accounts and
mutual funds.
During the past two fiscal years and any subsequent interim period
preceding such termination, there were no disagreements with
PricewaterhouseCoopers LLP on any matters of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements if not resolved to the satisfaction of the
42
<PAGE> 110
former accountant would have caused it to make reference to the subject matter
of disagreement in connection with its report.
Financial statements as of and for the year ended December 31, 1998 of
Accounts GIS, QB, MM, TGIS, TSB, and TAS, included in the Annual Reports (for
each) incorporated by reference in this SAI, have been incorporated herein in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of that firm as experts in accounting and auditing.
The consolidated financial statements of The Travelers Insurance
Company and Subsidiaries as of December 31, 1998 and 1997, and for each of the
years in the three-year period ended December 31, 1998, included herein, and the
financial statements of Fund U as of December 31, 1998 and for the year ended
December 31, 1998, incorporated herein by reference, have been included or
incorporated in reliance upon the reports of KPMG LLP, independent certified
public accountants, appearing elsewhere herein or incorporated herein by
reference, and upon the authority of said firm as experts in accounting and
auditing.
43
<PAGE> 111
FINANCIAL STATEMENTS
TRAVELERS INSURANCE COMPANY
44
<PAGE> 112
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, 1998 and 1997, 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, 1998. 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, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Hartford, Connecticut
January 25, 1999
F-1
<PAGE> 113
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
($ IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
REVENUES
Premiums $1,740 $1,583 $1,387
Net investment income 2,185 2,037 1,950
Realized investment gains 149 199 65
Other revenues 440 354 284
- ------------------------------------------------------------------------------------------------
Total Revenues 4,514 4,173 3,686
- ------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Current and future insurance benefits 1,475 1,341 1,187
Interest credited to contractholders 876 829 863
Amortization of deferred acquisition costs and value of 311 293 281
insurance in force
General and administrative expenses 469 427 380
- ------------------------------------------------------------------------------------------------
Total Benefits and Expenses 3,131 2,890 2,711
- ------------------------------------------------------------------------------------------------
Income from continuing operations before federal income 1,383 1,283 975
taxes
- ------------------------------------------------------------------------------------------------
Federal income taxes:
Current expense 442 434 284
Deferred 39 10 58
- ------------------------------------------------------------------------------------------------
Total Federal Income Taxes 481 444 342
- ------------------------------------------------------------------------------------------------
Income from continuing operations 902 839 633
Discontinued operations, net of income taxes
Gain on disposition (net of taxes of $0, $0 and $14) - - 26
- ------------------------------------------------------------------------------------------------
Income from Discontinued Operations - - 26
================================================================================================
Net income $ 902 $ 839 $ 659
================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE> 114
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31, 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Fixed maturities, available for sale at fair value (cost, $23,893 $21,511
$22,973, $20,682)
Equity securities, at fair value (cost, $474, $480) 518 512
Mortgage loans 2,606 2,869
Real estate held for sale 143 134
Policy loans 1,857 1,872
Short-term securities 1,098 1,102
Trading securities, at market value 1,186 800
Other invested assets 2,251 1,702
- ---------------------------------------------------------------------------------------------
Total Investments 33,552 30,502
- ---------------------------------------------------------------------------------------------
Cash 65 58
Investment income accrued 393 338
Premium balances receivable 99 106
Reinsurance recoverables 3,387 3,753
Deferred acquisition costs and value of insurance in force 2,567 2,312
Separate and variable accounts 15,313 11,319
Other assets 1,172 1,052
- ---------------------------------------------------------------------------------------------
Total Assets $56,548 $49,440
- ---------------------------------------------------------------------------------------------
LIABILITIES
Contractholder funds $16,739 $14,913
Future policy benefits and claims 12,326 12,361
Separate and variable accounts 15,305 11,309
Deferred federal income taxes 422 409
Trading securities sold not yet purchased, at market value 873 462
Other liabilities 2,783 2,661
- ---------------------------------------------------------------------------------------------
Total Liabilities 48,448 42,115
- ---------------------------------------------------------------------------------------------
SHAREHOLDER'S EQUITY
Common stock, par value $2.50; 40 million shares authorized, 100 100
issued and outstanding
Additional paid-in capital 3,800 3,187
Retained earnings 3,602 2,810
Accumulated other changes in equity from non-owner sources 598 535
Unrealized gain on Citigroup Inc. stock, net of tax - 693
- ---------------------------------------------------------------------------------------------
Total Shareholder's Equity 8,100 7,325
- ---------------------------------------------------------------------------------------------
Total Liabilities and Shareholder's Equity $56,548 $49,440
=============================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE> 115
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN RETAINED EARNINGS AND ACCUMULATED
OTHER CHANGES IN EQUITY FROM NON-OWNER SOURCES
($ IN MILLIONS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
STATEMENTS OF CHANGES IN RETAINED 1998 1997 1996
EARNINGS
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $2,810 $2,471 $2,312
Net income 902 839 659
Dividends to parent 110 500 500
- --------------------------------------------------------------------------
Balance, end of year $3,602 $2,810 $2,471
==========================================================================
- --------------------------------------------------------------------------
STATEMENTS OF ACCUMULATED OTHER CHANGES
IN EQUITY FROM NON-OWNER SOURCES
- --------------------------------------------------------------------------
Balance, beginning of year $ 535 $ 223 $ 449
Unrealized gains (losses), net of tax 62 313 (226)
Foreign currency translation, net of 1 (1) -
tax
- --------------------------------------------------------------------------
Balance, end of year $ 598 $ 535 $ 223
==========================================================================
- --------------------------------------------------------------------------
SUMMARY OF CHANGES IN EQUITY
FROM NON-OWNER SOURCES
- --------------------------------------------------------------------------
Net Income $ 902 $ 839 $ 659
Other changes in equity from
non-owner sources 63 312 (226)
- --------------------------------------------------------------------------
Total changes in equity from
non-owner sources $ 965 $1,151 $ 433
==========================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE> 116
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, 1998 1997 1996
---- ---- ----
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Premiums collected $1,763 $1,519 $1,387
Net investment income received 2,021 2,059 1,910
Other revenues received 255 180 131
Benefits and claims paid (1,127) (1,230) (1,060)
Interest credited to contractholders (918) (853) (820)
Operating expenses paid (587) (445) (343)
Income taxes paid (506) (368) (328)
Trading account investments, (purchases) sales, net (38) (54) -
Other 12 18 (70)
- ---------------------------------------------------------------------------------------------------
Net cash provided by operating activities 875 826 807
Net cash used in discontinued operations - - (350)
- ---------------------------------------------------------------------------------------------------
Net Cash Provided by Operations 875 826 457
- ---------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments
Fixed maturities 2,608 2,259 1,928
Mortgage loans 722 663 917
Proceeds from sales of investments
Fixed maturities 13,390 7,592 9,101
Equity securities 212 341 479
Mortgage loans - 207 178
Real estate held for sale 53 169 210
Purchases of investments
Fixed maturities (18,072) (11,143) (11,556)
Equity securities (194) (483) (594)
Mortgage loans (457) (771) (470)
Policy loans, net 15 38 (23)
Short-term securities, (purchases) sales, net (495) (2) 498
Other investments, purchases, net (550) (260) (137)
Securities transactions in course of settlement 192 311 (52)
Net cash provided by investing activities of - - 348
discontinued operations
- ---------------------------------------------------------------------------------------------------
Net Cash Provided by (Used In) Investing Activities (2,576) (1,079) 827
- ---------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Redemption of commercial paper, net - (50) (23)
Contractholder fund deposits 4,383 3,544 2,493
Contractholder fund withdrawals (2,565) (2,757) (3,262)
Dividends to parent company (110) (500) (500)
Other - - 9
- ---------------------------------------------------------------------------------------------------
Net Cash Provided by (Used In) Financing Activities 1,708 237 (1,283)
- ---------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 7 (16) 1
- ---------------------------------------------------------------------------------------------------
Cash at December 31, $ 65 $ 58 $ 74
===================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE> 117
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) and, collectively 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), formerly Travelers Group Inc. The consolidated financial
statements include the accounts of TIC and its insurance and non-insurance
subsidiaries on a fully consolidated basis. The primary insurance
subsidiaries of the Company are The Travelers Life and Annuity Company (TLAC)
and Primerica Life Insurance Company (Primerica Life) and its subsidiary
National Benefit Life Insurance Company (NBL).
As discussed in Note 2 of Notes to Consolidated Financial Statements, in
January 1995 the group life insurance and related businesses of the Company
were sold to Metropolitan Life Insurance Company (MetLife). Also in January
1995, the group medical component was exchanged for a 42% interest in The
MetraHealth Companies, Inc. (MetraHealth). The Company's interest in
MetraHealth was sold on October 2, 1995 and a final contingent payment was
made during 1996. The Company's discontinued operations reflect the results
of the gain from the contingent payment in 1996.
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 with the 1998
presentation.
F-6
<PAGE> 118
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
ACCOUNTING CHANGES
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities
Effective January 1, 1997, the Company adopted Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" (FAS 125). This
statement establishes accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. These
standards are based on an approach that focuses on control. Under this
approach, after a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and the liabilities it has
incurred, derecognizes financial assets when control has been surrendered and
derecognizes liabilities when extinguished. FAS 125 provides standards for
distinguishing transfers of financial assets that are sales from transfers
that are secured borrowings. Effective January 1, 1998, the Company adopted
the collateral provisions of FAS 125 which were not effective until 1998 in
accordance with Statement of Financial Accounting Standards No. 127,
"Deferral of the Effective Date of Certain Provisions of SFAS 125". The
adoption of the collateral provisions of FAS 125 created additional assets
and liabilities on the Company's 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.
Reporting Comprehensive Income
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (FAS 130). FAS
130 establishes standards for the reporting and display of comprehensive
income and its components in a full set of general-purpose financial
statements. All items that are required to be recognized under accounting
standards as components of comprehensive income are required to be reported
in an annual financial statement that is displayed with the same prominence
as other financial statements. This statement stipulates that comprehensive
income reflect the change in equity of an enterprise during a period from
transactions and other events and circumstances from non-owner sources.
Comprehensive income thus represents the sum of net income and other
changes in equity from non-owner sources. The accumulated balance of other
changes in equity from non-owner sources is required to be displayed
separately from retained earnings and additional paid-in capital in the
consolidated balance sheet. The adoption of FAS 130 resulted primarily in the
Company reporting unrealized gains and losses on investments in debt and
equity securities in changes in equity from non-owner sources. See Note 5.
F-7
<PAGE> 119
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Disclosures About Segments of an Enterprise and Related Information
During 1998, the Company adopted Statement of Financial Accounting Standards No.
131, "Disclosures About Segments of an Enterprise and Related Information" (FAS
131). FAS 131 establishes standards for the way that public enterprises report
information about operating segments in annual financial statements and requires
that selected information about those operating segments be reported in interim
financial statements. This statement supersedes Statement of Financial
Accounting Standards No. 14, "Financial Reporting for Segments of a Business
Enterprise". FAS 131 requires that all public enterprises report financial and
descriptive information about its reportable operating segments. Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decisionmaker in deciding how to allocate resources and in assessing
performance. As a result of the adoption of FAS 131, the Company has two
reportable operating segments, Travelers Life and Annuity and Primerica Life
Insurance. See Note 17.
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,
statement 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, 1998 and 1997.
F-8
<PAGE> 120
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, 1998 and 1997.
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.
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 and interest rate swaps and
caps, as a means of hedging exposure to interest rate and foreign currency
risk. Hedge accounting is used to account for derivatives. To qualify for
hedge accounting the changes in value of the derivative must be expected to
substantially offset the changes in value of the hedged item. Hedges are
monitored to ensure that there is a high correlation between the derivative
instruments and the hedged investment.
Gains and losses arising from financial futures contracts are used to adjust
the basis of hedged investments and are recognized in net investment income
over the life of the investment.
Payments to be received or made under interest rate swaps are accrued and
recognized in net investment income. Swaps are carried at fair value with
unrealized gains and losses, net of taxes, charged or credited directly to
shareholder's equity.
Forward contracts, and options, and interest rate caps were not significant
at December 31, 1998 and 1997. Information concerning derivative financial
instruments is included in Note 6.
INVESTMENT GAINS AND LOSSES
Realized investment gains and losses are included as a component of pre-tax
revenues based upon specific identification of the investments sold on the
trade date. Also included are gains and losses arising from the remeasurement
of the local currency value of foreign investments to U.S. dollars, the
functional currency of the Company. The foreign exchange effects of Canadian
operations are included in unrealized gains and losses.
F-9
<PAGE> 121
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 AND VALUE OF INSURANCE IN FORCE
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 7 to 20 year period is employed for
annuities. Deferred acquisition costs are reviewed periodically for
recoverability to determine if any adjustment is required.
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.
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. Impairments would be recognized in operating results if a
permanent diminution in value is deemed to have occurred.
F-10
<PAGE> 122
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 9.1%.
FUTURE POLICY BENEFITS
Benefit reserves 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.
PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company, whose insurance subsidiaries are domiciled principally in
Connecticut and Massachusetts, prepares 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 January 1, 2001 for the calendar year 2001 statutory financial
statements. It is expected that the State of Connecticut will require that,
effective January 1, 2001, insurance companies domiciled in Connecticut
prepare their statutory basis financial statements in accordance with the
revised Manual subject to any deviations prescribed or permitted by the
Connecticut insurance commissioner. The Company has not yet determined the
impact that this change will have on 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 surrender, mortality and administrative charges and
fees earned on investment, universal life and other insurance contracts.
Other revenues also include gains and losses on dispositions of assets other
than realized investment gains and losses and revenues of non-insurance
subsidiaries.
F-11
<PAGE> 123
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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. The deferred
federal income tax asset is recognized to the extent that future realization
of the tax benefit is more likely than not, with a valuation allowance for
the portion that is not likely to be recognized.
FUTURE APPLICATION OF ACCOUNTING STANDARDS
In December 1997, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of
Position 97-3, "Accounting by Insurance and Other Enterprises for
Insurance-Related Assessments" (SOP 97-3). SOP 97-3 provides guidance for
determining when an entity should recognize a liability for guaranty-fund and
other insurance-related assessments, how to measure that liability, and when
an asset may be recognized for the recovery of such assessments through
premium tax offsets or policy surcharges. This SOP is effective for financial
statements for fiscal years beginning after December 15, 1998, and the effect
of initial adoption is to be reported as a cumulative catch-up adjustment.
Restatement of previously issued financial statements is not allowed. The
Company plans to implement SOP 97-3 in the first quarter of 1999 and expects
there to be no material impact on the Company's financial condition, results
of operations or liquidity.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133). This statement establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments 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
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 forecasted transaction, or (c) a hedge of the
foreign currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. The accounting for
changes in the fair value of a derivative (that is, gains and losses) depends
on the intended use of the derivative and the resulting designation. FAS 133
is effective for all fiscal quarters of fiscal years beginning after June 15,
1999. Upon initial application of FAS 133, hedging relationships must be
designated anew and documented pursuant to the provisions of this statement.
The Company has not yet determined the impact that FAS 133 will have on its
consolidated financial statements.
F-12
<PAGE> 124
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
2. DISPOSITIONS AND DISCONTINUED OPERATIONS
On January 3, 1995, the Company and its affiliates completed the sale of
their group life and related non-medical group insurance businesses to
MetLife for $350 million and formed the MetraHealth joint venture by
contributing their group medical businesses to MetraHealth, in exchange for
shares of common stock of MetraHealth. No gain was recognized as a result of
this transaction.
On October 2, 1995, the Company and its affiliates completed the sale of
their ownership in MetraHealth to United HealthCare Corporation. During 1996
the Company received a contingency payment based on MetraHealth's 1995
results. In conjunction with this payment, certain reserves associated with
the group medical business and exit costs related to the discontinued
operations were reevaluated resulting in a final after-tax gain of $26
million.
3. COMMERCIAL PAPER AND LINES OF CREDIT
TIC issues commercial paper directly to investors. No commercial paper was
outstanding at December 31, 1998 or 1997. TIC maintains unused credit
availability under bank lines of credit at least equal to the amount of the
outstanding commercial paper. No interest was paid in 1998 and interest
expense was not significant in 1997.
Citigroup, Commercial Credit Company (CCC) (an indirect wholly owned
subsidiary of Citigroup) and TIC have an agreement with a syndicate of banks
to provide $1.0 billion of revolving credit, to be allocated to any of
Citigroup, CCC or TIC. TIC's participation in this agreement is limited to
$250 million. The agreement consists of a five-year revolving credit facility
that expires in 2001. At December 31, 1998, $700 million was allocated to
Citigroup, $300 million was allocated to CCC and $0 was allocated to TIC.
Under this facility TIC is required to maintain certain minimum equity and
risk-based capital levels. At December 31, 1998, TIC was in compliance with
these provisions. There were no amounts outstanding under this agreement at
December 31, 1998 and 1997. If TIC had borrowings outstanding on this
facility, the interest rate would be based upon LIBOR plus a negotiated
margin.
4. 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.
Beginning in 1997, new universal life business was reinsured under an 80%/20%
quota share reinsurance program and new term life business was reinsured
under a 90%/10% quota share reinsurance program. 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 $1.5 million.
The Company writes workers' compensation business through its Accident
Department. This business is ceded 100% to an affiliate, The Travelers
Indemnity Company.
F-13
<PAGE> 125
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
A summary of reinsurance financial data reflected within the consolidated
statements of income and balance sheets is presented below ($ in millions):
<TABLE>
<CAPTION>
WRITTEN PREMIUMS 1998 1997 1996
----------------------------------------------------------------------
<S> <C> <C> <C>
Direct $2,310 $2,148 $1,982
Assumed from:
Non-affiliated companies - 1 5
Ceded to:
Affiliated companies (242) (280) (284)
Non-affiliated companies (317) (273) (309)
----------------------------------------------------------------------
Total Net Written Premiums $1,751 $1,596 $1,394
======================================================================
</TABLE>
<TABLE>
<CAPTION>
EARNED PREMIUMS 1998 1997 1996
----------------------------------------------------------------------
<S> <C> <C> <C>
Direct $1,949 $2,170 $1,897
Assumed from:
Non-affiliated companies - 1 5
Ceded to:
Affiliated companies (251) (321) (219)
Non-affiliated companies (308) (291) (315)
----------------------------------------------------------------------
Total Net Earned Premiums $1,390 $1,559 $1,368
======================================================================
</TABLE>
Reinsurance recoverables at December 31, 1998 and 1997 include amounts
recoverable on unpaid and paid losses and were as follows ($ in millions):
<TABLE>
<CAPTION>
REINSURANCE RECOVERABLES 1998 1997
-----------------------------------------------------------
<S> <C> <C>
Life and Accident and Health Business:
Non-affiliated companies $1,297 $1,362
Property-Casualty Business:
Affiliated companies 2,090 2,391
-----------------------------------------------------------
Total Reinsurance Recoverables $3,387 $3,753
===========================================================
</TABLE>
Total reinsurance recoverables at December 31, 1998 and 1997 include $640
million and $697 million, respectively, from MetLife in connection with the
sale of the Company's group life and related businesses.
F-14
<PAGE> 126
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
5. SHAREHOLDER'S EQUITY
Additional Paid-In Capital
Additional paid-in capital increased during 1998 primarily due to the
conversion of Citigroup common stock to Citigroup preferred stock. This
increase in stockholder's equity was offset by a decrease in unrealized
investment gains due to the same transaction. See Note 13.
Unrealized Investment Gains (Losses)
An analysis of the change in unrealized gains and losses on investments is
shown in Note 13.
Shareholder's Equity and Dividend Availability
The Company's statutory net income, which includes all insurance
subsidiaries, was $702 million, $754 million and $656 million for the years
ended December 31, 1998, 1997 and 1996, respectively.
The Company's statutory capital and surplus was $4.95 billion and $4.12
billion at December 31, 1998 and 1997, 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 $504 million is available in 1999 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 is in
compliance with these covenants at December 31, 1998 and 1997.
F-15
<PAGE> 127
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
ACCUMULATED OTHER CHANGES IN EQUITY FROM NON-OWNER SOURCES, NET OF TAX
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
NET UNREALIZED FOREIGN CURRENCY ACCUMULATED OTHER
GAIN ON TRANSLATION CHANGES IN EQUITY FROM
INVESTMENT ADJUSTMENTS NON-OWNER SOURCES
(for the year ended December 31, $ in millions) SECURITIES
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998
Balance, beginning of year $545 $(10) $535
Current-year change 62 1 63
- --------------------------------------------------------------------------------------------------------------------------
Balance, end of year $607 $(9) $598
==========================================================================================================================
1997
Balance, beginning of year $232 $(9) $223
Current-year change 313 (1) 312
- --------------------------------------------------------------------------------------------------------------------------
Balance, end of year $545 $(10) $535
==========================================================================================================================
1996
Balance, beginning of year $458 $(9) $449
Current-year change (226) - (226)
- --------------------------------------------------------------------------------------------------------------------------
Balance, end of year $232 $(9) $223
==========================================================================================================================
</TABLE>
TAX EFFECTS ALLOCATED TO EACH COMPONENT OF OTHER CHANGES IN EQUITY FROM
NON-OWNER SOURCES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Pre-tax Tax expense After-tax
(for the year ended December 31, $ in millions) amount (benefit) amount
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998
Unrealized gain on investment securities:
Unrealized holding gains arising during year $ 244 $ 85 $ 159
Less: reclassification adjustment for gains
realized in net income 149 52 97
- ---------------------------------------------------------------------------------------------------------
Net unrealized gain on investment securities 95 33 62
Foreign currency translation adjustments 3 2 1
- ---------------------------------------------------------------------------------------------------------
Other changes in equity from non-owner sources $ 98 $ 35 $ 63
=========================================================================================================
1997
Unrealized gain on investment securities:
Unrealized holding gains arising during year $ 681 $ 239 $ 442
Less: reclassification adjustment for gains
realized in net income 199 70 129
- ---------------------------------------------------------------------------------------------------------
Net unrealized gain on investment securities 482 169 313
Foreign currency translation adjustments (1) - (1)
- ---------------------------------------------------------------------------------------------------------
Other changes in equity from non-owner sources $ 481 $ 169 $ 312
=========================================================================================================
1996
Unrealized gain on investment securities:
Unrealized holding losses arising during year $(283) $ (99) $(184)
Less: reclassification adjustment for gains
realized in net income 65 23 42
- ---------------------------------------------------------------------------------------------------------
Net unrealized loss on investment securities (348) (122) (226)
Foreign currency translation adjustments - - -
- ---------------------------------------------------------------------------------------------------------
Other changes in equity from non-owner sources $(348) $(122) $(226)
=========================================================================================================
</TABLE>
F-16
<PAGE> 128
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
6. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Derivative Financial Instruments
The Company uses derivative financial instruments, including financial
futures, interest rate swaps, options and forward contracts as a means of
hedging exposure to interest rate and foreign currency risk on anticipated
transactions or existing assets and liabilities. The Company does not hold or
issue derivative instruments for trading purposes. These derivative financial
instruments have off-balance sheet risk. Financial instruments with
off-balance sheet risk involve, to varying degrees, elements of credit and
market risk in excess of the amount recognized in the balance sheet. The
contract or notional amounts of these instruments reflect the extent of
involvement the Company has in a particular class of financial instrument.
However, the maximum loss of cash flow associated with these instruments can
be less than these amounts. For interest rate 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 have little
credit risk since organized exchanges are the counterparties. The Company is
a writer of option contracts and as such 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, 1998 and 1997, the Company held financial futures contracts
with notional amounts of $459 million and $625 million, respectively. These
financial futures had a deferred gain of $3.3 million and a deferred loss of
$.1 million in 1998 and a deferred gain of $.7 million, and a deferred loss
of $4.1 million in 1997. Total gains of $1.5 million and losses of $5.8
million from financial futures were deferred at December 31, 1998 and 1997,
respectively, relating to anticipated investment purchases and investment
product sales, and are reported as other liabilities. At December 31, 1998
and 1997, the Company's futures contracts had no fair value because these
contracts were marked to market and settled in cash daily.
F-17
<PAGE> 129
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 an asset with a corresponding liability. Under interest rate swaps, the
Company agrees with other parties to exchange, at specific intervals, the
difference between fixed-rate and floating-rate interest amounts calculated
by reference to 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 and are subject to the risk of default by the
counterparty.
At December 31, 1998 and 1997, the Company held interest rate swap contracts
with notional amounts of $1,077.9 million and $234.7 million, respectively.
The fair value of these financial instruments was $5.6 million (gain
position) and $19.6 million (loss position) at December 31, 1998 and was $.3
million (gain position) and $2.5 million (loss position) at December 31,
1997. The fair values were determined using the discounted cash flow method.
The off-balance sheet risks of options and forward contracts were not
significant at December 31, 1998 and 1997.
The Company purchased a 5-year interest rate cap, with a notional amount of
$200 million, from Travelers Group Inc. in 1995 to hedge against losses that
could result from increasing interest rates. This instrument, which does not
have off-balance sheet risk, gave the Company the right to receive payments
if interest rates exceeded specific levels at specific dates. The premium of
$2 million paid for this instrument was being amortized over its life. The
interest rate cap asset was terminated in 1998. The fair value at December
31, 1997 was $0.
Financial Instruments with Off-Balance Sheet Risk
In the normal course of business, the Company issues fixed and variable rate
loan commitments and has unfunded commitments to partnerships. The
off-balance sheet risk of these financial instruments was not significant at
December 31, 1998 and 1997.
Fair Value of Certain Financial Instruments
The Company uses various financial instruments in the normal course of its
business. Fair values of financial instruments that are considered insurance
contracts are not required to be disclosed and are not included in the
amounts discussed.
At December 31, 1998 and 1997, investments in fixed maturities had a carrying
value and a fair value of $23.9 billion and $21.5 billion, respectively. See
Notes 1 and 13.
At December 31, 1998 mortgage loans had a carrying value of $2.6 billion and
a fair value of $2.8 billion and in 1997 had a carrying value of $2.9 billion
and a fair value of $3.0 billion. In estimating fair value, the Company used
interest rates reflecting the current real estate financing market.
F-18
<PAGE> 130
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The carrying values of $144 million and $143 million of financial instruments
classified as other assets approximated their fair values at December 31,
1998 and 1997, respectively. The carrying values of $2.3 billion and $2.0
billion of financial instruments classified as other liabilities also
approximated their fair values at December 31, 1998 and 1997, respectively.
Fair value is determined using various methods, including discounted cash
flows, as appropriate for the various financial instruments.
At December 31, 1998, contractholder funds with defined maturities had a
carrying value and a fair value of $3.3 billion, compared with a carrying
value and a fair value of $2.3 billion at December 31, 1997. The fair value
of these contracts is determined by discounting expected cash flows at an
interest rate commensurate with the Company's credit risk and the expected
timing of cash flows. Contractholder funds without defined maturities had a
carrying value of $10.4 billion and a fair value of $10.2 billion at December
31, 1998, compared with a carrying value of $9.7 billion and a fair value of
$9.5 billion at December 31, 1997. These contracts generally are valued at
surrender value.
The assets of separate accounts providing a guaranteed return had a carrying
value and a fair value of $235 million at December 31, 1998, compared with a
carrying value and a fair value of $260 million at December 31, 1997. The
liabilities of separate accounts providing a guaranteed return had a carrying
value and a fair value of $209 million and $206 million, respectively, at
December 31, 1998, compared with a carrying value and a fair value of $209
million and $206 million, respectively, at December 31, 1997.
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.
7. COMMITMENTS AND CONTINGENCIES
Financial Instruments with Off-Balance Sheet Risk
See Note 6 for a discussion of financial instruments with off-balance sheet
risk.
F-19
<PAGE> 131
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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, the Superior Court of Richmond County
transferred the lawsuit to the Superior Court of Gwinnett County, Georgia.
The plaintiffs appealed the transfer order, and in December 1998 the Court of
Appeals of the State of Georgia reversed the lower court's decision. Later in
December 1998, defendants petitioned the Georgia Supreme Court to hear the
appeal from the decision of the Court of Appeals. Pending appeal, proceedings
in the trial court have been stayed. 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, 1998, the Company believes, based on
information currently available, that the ultimate resolution of these legal
proceedings would not be likely to have a material adverse effect on its
results of operations, financial condition or liquidity.
8. 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 1998,
1997 and 1996. 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 1998, 1997 and 1996.
401(k) Savings Plan
Substantially all of the Company's employees are eligible to participate in a
401(k) savings plan sponsored by Citigroup. During 1996, the Company made
matching contributions in an amount equal to the lesser of 100% of the
pre-tax contributions made by the employee or $1,000. Effective January 1,
1997, the Company discontinued matching contributions for the majority of its
employees. The Company's expenses in connection with the 401(k) savings plan
were not significant in 1998, 1997 and 1996.
F-20
<PAGE> 132
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
9. 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 Travelers Insurance Company (Life Department) handles banking functions
for the life and annuity operations of Travelers Life and Annuity and some of
its non-insurance affiliates. The Travelers Indemnity Company handles banking
functions for the property-casualty operations, including most of its
property-casualty insurance and non-insurance affiliates. Settlements between
companies are made at least monthly. 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, 1998 and 1997, the
pool totaled approximately $2.3 billion and $2.6 billion, respectively. The
Company's share of the pool amounted to $793 million and $725 million at
December 31, 1998 and 1997, respectively, and is included in short-term
securities in the consolidated balance sheet.
Included in short-term investments is a 90 day variable rate note receivable
from Citigroup issued on August 28, 1998 and renewed on November 25, 1998.
The rate is based upon the AA financial commercial paper rate plus 14 basis
points. The rate at December 31, 1998 is 5.47%. The balance at December 31,
1998 is $500 million. Interest accrued at December 31, 1998 was $2.2 million.
Interest earned during 1998 was $9.4 million. Citigroup repaid this note on
February 25, 1999.
The Company sells structured settlement annuities to the insurance
subsidiaries of TAP in connection with the settlement of certain policyholder
obligations. Such premiums and deposits were $104 million, $88 million, and
$40 million for 1998, 1997 and 1996, respectively. Reserves and
contractholder funds related to these annuities amounted to $787 million and
$795 million in 1998 and 1997, respectively.
The Company markets deferred annuity products and life and health insurance
through its affiliate, Salomon Smith Barney Inc. (SSB). Premiums and
deposits related to these products were $1.3 billion, $1.0 billion, and
$820 million in 1998, 1997 and 1996, respectively.
During the year the Company lent out $78.5 million par of debentures to SSB
for $84.8 million in cash collateral. Loaned debentures totaling $37.6
million with cash collateral of $39.7 million remained outstanding at
December 31, 1998.
The Company sold $27.4 million par of 6.125% U.S. Treasury bonds to SSB for
$31.1 million.
F-21
<PAGE> 133
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The Company purchased $36 million par of 6.56% Chase Commercial Mortgage
Securities Corp. bonds from SSB for $35.9 million.
Primerica Life has entered into a General Agency Agreement with Primerica
Financial Service, 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 1998 the fees paid by Primerica Life
were $12.5 million.
In 1998 Primerica became a distributor of products for Travelers Life and
Annuity. During the year Primerica sold $256 million of deferred annuities.
Included in other invested assets is a $987 million investment in Citigroup
preferred stock at December 31, 1998, carried at cost. Also, included in
other invested assets is a $1.15 billion investment in common stock of
Citigroup at December 31, 1997, carried at fair value.
The Company participates in a stock option plan sponsored by Citigroup that
provides for the granting of stock options in Citigroup common stock to
officers and key employees. To further encourage employee stock ownership,
during 1997 Citigroup introduced the WealthBuilder stock option program.
Under this program, all employees meeting certain requirements have been
granted Citigroup stock options.
The Company applies APB 25 and related interpretations in accounting for
stock options. Since stock options under the Citigroup plans are issued at
fair market value on the date of award, no compensation cost has been
recognized for these awards. FAS 123 provides an alternative to APB 25
whereby fair values may be ascribed to options using a valuation model and
amortized to compensation cost over the vesting period of the options.
Had the Company applied FAS 123 in accounting for Citigroup stock options,
net income would have been the pro forma amounts indicated below:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
YEAR ENDING DECEMBER 31, 1998 1997 1996
($ IN MILLIONS)
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income, as reported $902 $839 $659
FAS 123 pro forma adjustments, after tax (13) (9) (3)
-----------------------------------------------------------------------------------------------------
Net income, pro forma $889 $830 $656
</TABLE>
The Company had an interest rate cap agreement with Citigroup. See Note 6.
F-22
<PAGE> 134
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
10. LEASES
Most leasing functions for TIGI and its subsidiaries are administered by TAP.
In 1996, TAP assumed the obligations for several leases. Rent expense related
to all leases are shared by the companies on a cost allocation method based
generally on estimated usage by department. Rent expense was $18 million, $15
million, and $24 million in 1998, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
---------------------------------------------------
YEAR ENDING DECEMBER 31, MINIMUM OPERATING
($ in millions) RENTAL PAYMENTS
---------------------------------------------------
<S> <C>
1999 $ 47
2000 50
2001 54
2002 44
2003 42
Thereafter 296
---------------------------------------------------
Total Rental Payments $533
===================================================
</TABLE>
Future sublease rental income of approximately $86 million will partially
offset these commitments. Also, the Company will be reimbursed for 50% of the
rental expense for a particular lease totaling $207 million, by an affiliate.
Minimum future capital lease payments are not significant.
The Company is reimbursed for use of furniture and equipment through cost
sharing agreements by its affiliates.
F-23
<PAGE> 135
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
11. FEDERAL INCOME TAXES
($ in millions)
EFFECTIVE TAX RATE
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Income Before Federal Income Taxes $1,383 $1,283 $ 975
Statutory Tax Rate 35% 35% 35%
----------------------------------------------------------------------------------
Expected Federal Income Taxes 484 449 341
Tax Effect of:
Non-taxable investment income (5) (4) (3)
Other, net 2 (1) 4
----------------------------------------------------------------------------------
Federal Income Taxes $ 481 $ 444 $ 342
==================================================================================
Effective Tax Rate 35% 35% 35%
----------------------------------------------------------------------------------
COMPOSITION OF FEDERAL INCOME TAXES
Current:
United States $ 418 $ 410 $ 263
Foreign 24 24 21
---------------------------------------------------------------------------------
Total 442 434 284
---------------------------------------------------------------------------------
Deferred:
United States 40 10 57
Foreign (1) - 1
---------------------------------------------------------------------------------
Total 39 10 58
----------------------------------------------------------------------------------
Federal Income Taxes $ 481 $ 444 $ 342
=================================================================================
</TABLE>
Additional tax benefits attributable to employee stock plans allocated
directly to shareholder's equity for the years ended December 31, 1998, 1997
and 1996 were $17 million, $17 million and $8 million, respectively.
F-24
<PAGE> 136
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The net deferred tax liabilities at December 31, 1998 and 1997 were comprised
of the tax effects of temporary differences related to the following assets
and liabilities:
<TABLE>
<CAPTION>
($ in millions) 1998 1997
---- ----
<S> <C> <C>
Deferred Tax Assets:
Benefit, reinsurance and other reserves $ 616 $ 561
Operating lease reserves 76 80
Other employee benefits 103 102
Other 135 127
----------------------------------------------------------------------------------
Total 930 870
----------------------------------------------------------------------------------
Deferred Tax Liabilities:
Deferred acquisition costs and value of 673 608
insurance in force
Investments, net 489 484
Other 90 87
----------------------------------------------------------------------------------
Total 1,252 1,179
----------------------------------------------------------------------------------
Net Deferred Tax Liability Before Valuation (322) (309)
Allowance
Valuation Allowance for Deferred Tax Assets (100) (100)
----------------------------------------------------------------------------------
Net Deferred Tax Liability After Valuation Allowance $ (422) $ (409)
----------------------------------------------------------------------------------
</TABLE>
The Company and its life insurance subsidiaries will 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 1998. The initial recognition of any
benefit produced by the reversal of the valuation allowance will be
recognized by reducing goodwill.
At December 31, 1998, the Company had no ordinary or capital loss
carryforwards.
F-25
<PAGE> 137
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 to exceed limits
prescribed by federal law. Distributions are not contemplated from this
account. At current rates the maximum amount of such tax would be
approximately $326 million.
12. NET INVESTMENT INCOME
<TABLE>
<CAPTION>
----------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996
---- ---- ----
($ in millions)
----------------------------------------------------------------------
<S> <C> <C> <C>
GROSS INVESTMENT INCOME
Fixed maturities $1,598 $1,460 $1,387
Mortgage loans 295 291 334
Policy loans 131 137 156
Other, including trading 226 238 171
----------------------------------------------------------------------
2,250 2,126 2,048
----------------------------------------------------------------------
Investment expenses 65 89 98
----------------------------------------------------------------------
Net investment income $2,185 $2,037 $1,950
----------------------------------------------------------------------
</TABLE>
13. INVESTMENTS AND INVESTMENT GAINS (LOSSES)
Realized investment gains (losses) for the periods were as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996
---- ---- ----
($ in millions)
----------------------------------------------------------------------
<S> <C> <C> <C>
REALIZED INVESTMENT GAINS
Fixed maturities $111 $71 $(63)
Equity securities 6 (9) 47
Mortgage loans 21 59 49
Real estate held for sale 16 67 33
Other (5) 11 (1)
----------------------------------------------------------------------
Total Realized Investment Gains $149 $199 $65
----------------------------------------------------------------------
</TABLE>
F-26
<PAGE> 138
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Changes in net unrealized investment gains (losses) that are reported as
accumulated other changes in equity from non-owner sources or unrealized
gains on Citigroup stock in shareholder's equity were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996
------- ------- -------
($ in millions)
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UNREALIZED INVESTMENT GAINS (LOSSES)
Fixed maturities $ 91 $ 446 $ (323)
Equity securities 13 25 (35)
Other (169) 520 220
-------------------------------------------------------------------------------------------------
Total Unrealized Investment Gains (Losses) (65) 991 (138)
-------------------------------------------------------------------------------------------------
Related taxes (20) 350 (43)
-------------------------------------------------------------------------------------------------
Change in unrealized investment gains (45) 641 (95)
(losses)
Transferred to paid in capital, net of tax (585) -- --
Balance beginning of year 1,228 587 682
-------------------------------------------------------------------------------------------------
Balance End of Year $ 598 $ 1,228 $ 587
-------------------------------------------------------------------------------------------------
</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 and $203 million, which were
reported in 1997 and 1996, respectively, related to appreciation of Citigroup
common stock.
Fixed Maturities
Proceeds from sales of fixed maturities classified as available for sale were
$13.4 billion, $7.6 billion and $9.1 billion in 1998, 1997 and 1996,
respectively. Gross gains of $314 million, $170 million and $107 million and
gross losses of $203 million, $99 million and $175 million in 1998, 1997 and
1996, respectively, were realized on those sales.
Fair values of investments in fixed maturities are based on quoted market
prices or dealer quotes or, if these are not available, discounted expected
cash flows using market rates commensurate with the credit quality and
maturity of the investment. The fair value of investments for which a quoted
market price or dealer quote are not available amounted to $4.8 billion and
$5.1 billion at December 31, 1998 and 1997, respectively.
F-27
<PAGE> 139
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The amortized cost and fair value of investments in fixed maturities were as
follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
DECEMBER 31, 1998 GROSS GROSS
($ in millions) AMORTIZED UNREALIZED UNREALIZED FAIR
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 $23,893
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1997 GROSS GROSS
($ in millions) AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
Mortgage-backed securities - CMOs and
pass-through securities $ 3,842 $ 124 $ 2 $ 3,964
U.S. Treasury securities and obligations of
U.S. Government and government agencies and
authorities 1,580 149 1 1,728
Obligations of states, municipalities and
political subdivisions 78 8 -- 86
Debt securities issued by foreign governments 622 31 4 649
All other corporate bonds 11,787 459 17 12,229
Other debt securities 2,761 88 7 2,842
Redeemable preferred stock 12 1 -- 13
- --------------------------------------------------------------------------------------------------------------
Total Available For Sale $20,682 $ 860 $ 31 $21,511
- --------------------------------------------------------------------------------------------------------------
</TABLE>
F-28
<PAGE> 140
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The amortized cost and fair value of fixed maturities at December 31, 1998, by
contractual maturity, are shown below. Actual maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
($ in millions) AMORTIZED FAIR
COST VALUE
- -----------------------------------------------------------------
<S> <C> <C>
MATURITY:
Due in one year or less $ 1,296 $ 1,305
Due after 1 year through 5 years 6,253 6,412
Due after 5 years through 10 years 5,096 5,310
Due after 10 years 5,611 6,013
- -----------------------------------------------------------------
18,256 19,040
- -----------------------------------------------------------------
Mortgage-backed securities 4,717 4,853
- -----------------------------------------------------------------
Total Maturity $22,973 $23,893
- -----------------------------------------------------------------
</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, 1998 and 1997, the Company held CMOs classified as available for
sale with a fair value of $3.4 billion and $2.1 billion, respectively.
Approximately 54% and 72%, respectively, of the Company's CMO holdings are fully
collateralized by GNMA, FNMA or FHLMC securities at December 31, 1998 and 1997.
In addition, the Company held $1.4 billion and $1.9 billion of GNMA, FNMA or
FHLMC mortgage-backed pass-through securities at December 31, 1998 and 1997,
respectively. Virtually all of these securities are rated AAA.
F-29
<PAGE> 141
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Equity Securities
The cost and fair values of investments in equity securities were as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
EQUITY SECURITIES: GROSS UNREALIZED GROSS UNREALIZED FAIR
($ in millions) COST GAINS LOSSES VALUE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
Common stocks $129 $ 44 $ 3 $170
Non-redeemable preferred stocks 345 10 7 348
- ------------------------------------------------------------------------------------------------
Total Equity Securities $474 $ 54 $ 10 $518
- ------------------------------------------------------------------------------------------------
DECEMBER 31, 1997
Common stocks $179 $ 34 $ 11 $202
Non-redeemable preferred stocks 301 13 4 310
- ------------------------------------------------------------------------------------------------
Total Equity Securities $480 $ 47 $ 15 $512
- ------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales of equity securities were $212 million, $341 million
and $479 million in 1998, 1997 and 1996, respectively. Gross gains of $30
million, $53 million and $64 million and gross losses of $24 million, $62
million and $11 million in 1998, 1997 and 1996, respectively, were realized
on those sales.
Mortgage Loans and Real Estate Held For Sale
At December 31, 1998 and 1997, the Company's mortgage loan and real estate
held for sale portfolios consisted of the following ($ in millions):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C>
Current Mortgage Loans $2,370 $2,866
Underperforming Mortgage Loans 236 3
- ------------------------------------------------------------------------------------
Total Mortgage Loans 2,606 2,869
- ------------------------------------------------------------------------------------
Real Estate Held For Sale - Foreclosed 112 117
Real Estate Held For Sale - Investment 31 17
- ------------------------------------------------------------------------------------
Total Real Estate 143 134
- ------------------------------------------------------------------------------------
Total Mortgage Loans and Real Estate Held for Sale $2,749 $3,003
====================================================================================
</TABLE>
Underperforming mortgage loans include delinquent mortgage loans, loans in the
process of foreclosure, foreclosed loans and loans modified at interest rates
below market.
F-30
<PAGE> 142
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Aggregate annual maturities on mortgage loans at December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
YEAR ENDING DECEMBER 31,
($ in millions)
- -----------------------------------------------------------------------
<S> <C>
Past Maturity $ 186
1999 188
2000 196
2001 260
2002 118
2003 206
Thereafter 1,452
- -----------------------------------------------------------------------
Total $2,606
=======================================================================
</TABLE>
Joint Venture
In October 1997, the Company and Tishman Speyer Properties (Tishman), a
worldwide real estate owner, developer and manager, formed a real estate
joint venture with an initial equity commitment of $792 million. The
Company and certain of its affiliates originally committed $420 million in
real estate equity and $100 million in cash while Tishman originally
committed $272 million in properties and cash. Both companies are serving
as general partners for the venture and Tishman is primarily responsible
for the venture's real estate acquisition and development efforts. The
Company's carrying value of this investment was $252.4 million and $204.8
million at December 31, 1998 and 1997, respectively.
Trading Securities
Trading securities of the Company are held in a subsidiary that is a
broker/dealer, Tribeca Investments L.L.C.
<TABLE>
<CAPTION>
($ in millions)
- -------------------------------------------------------------------------------------
TRADING SECURITIES OWNED 1998 1997
------ ------
<S> <C> <C>
Convertible bond arbitrage $ 754 $ 370
Merger arbitrage 427 352
Other 5 78
- -------------------------------------------------------------------------------------
Total $1,186 $ 800
- -------------------------------------------------------------------------------------
TRADING SECURITIES SOLD NOT YET PURCHASED
Convertible bond arbitrage $ 521 $ 249
Merger arbitrage 352 213
- -------------------------------------------------------------------------------------
Total $ 873 $ 462
- -------------------------------------------------------------------------------------
</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-31
<PAGE> 143
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Concentrations
At December 31, 1998 and 1997, the Company had no concentration of credit
risk in a single investee exceeding 10% of consolidated shareholder's
equity.
The Company maintains a short-term investment pool for its insurance
affiliates in which the Company also participates. See Note 9.
Included in fixed maturities are below investment grade assets totaling
$2.1 billion and $1.4 billion at December 31, 1998 and 1997, respectively.
The Company defines its below investment grade assets as those securities
rated "Ba1" or below by external rating agencies, or the equivalent by
internal analysts when a public rating does not exist. Such assets include
publicly traded below investment grade bonds and certain other privately
issued bonds that are classified as below investment grade.
The Company had concentrations of investments, primarily fixed maturities,
in the following industries:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
($ in millions) 1998 1997
-----------------------------------------------------------------------
<S> <C> <C>
Banking $2,131 $2,215
Electric Utilities 1,513 1,377
Finance 1,346 1,556
Asset-Backed Credit Cards 1,013 778
-----------------------------------------------------------------------
</TABLE>
Below investment grade assets included in the preceding table were not
significant.
At December 31, 1998 and 1997, concentrations of mortgage loans of $751
million and $794 million, respectively, were for properties located in
highly populated areas in the state of California.
Other mortgage loan investments are relatively evenly dispersed throughout
the United States, with no significant holdings in any one state.
Significant concentrations of mortgage loans by property type at December
31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------
($ in millions) 1998 1997
------------------------------------------------------------------------
<S> <C> <C>
Office $1,185 $1,382
Agricultural 887 771
------------------------------------------------------------------------
</TABLE>
F-32
<PAGE> 144
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, 1998 and 1997. 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 1998 and in 1997.
Interest on these assets, included in net investment income was
insignificant in 1998 and 1997.
14. DEPOSIT FUNDS AND RESERVES
At December 31, 1998, the Company had $25.7 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 $11.9
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 $2.4 billion of liabilities that are
surrenderable with market value adjustments. Also included are an
additional $5.1 billion of life insurance and individual annuity
liabilities which are subject to discretionary withdrawals, and have an
average surrender charge of 4.7%. In the payout phase, these funds are
credited at significantly reduced interest rates. The remaining $4.4
billion of liabilities are surrenderable without charge. More than 14.2% of
these relate to individual life products. These risks would have to be
underwritten again if transferred to another carrier, which is considered a
significant deterrent against withdrawal by long-term policyholders.
Insurance liabilities that are surrendered or withdrawn are reduced by
outstanding policy loans and related accrued interest prior to payout.
F-33
<PAGE> 145
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
15. RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
The following table reconciles net income to net cash provided by operating
activities:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996
---- ---- ----
($ in millions)
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income From Continuing Operations $902 $839 $633
Adjustments to reconcile net income to net cash provided by
operating activities:
Realized gains (149) (199) (65)
Deferred federal income taxes 39 10 58
Amortization of deferred policy acquisition costs and
value of insurance in force 311 293 281
Additions to deferred policy acquisition costs (566) (471) (350)
Investment income accrued (55) 14 2
Premium balances receivable 7 3 (6)
Insurance reserves and accrued expenses 335 131 (1)
Other 51 206 255
--------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 875 826 807
Net cash used in discontinued operations - - (350)
Net cash provided by operations $875 $826 $457
--------------------------------------------------------------------------------------------------------------
</TABLE>
16. NON-CASH INVESTING AND FINANCING ACTIVITIES
Significant non-cash investing and financing activities include 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-34
<PAGE> 146
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
17. 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 AND ANNUITY business segment consolidates primarily the
business of Travelers Insurance Company and The Travelers Life and Annuity
Company. The Travelers Life and Annuity business segment offers fixed and
variable deferred annuities, payout annuities and term, universal and variable
life and long-term care insurance to individuals and small businesses. It also
provides group pension products, including guaranteed investment contracts and
group annuities for employer-sponsored retirement and savings plans.
The PRIMERICA LIFE business segment consolidates primarily the business of
Primerica Life Insurance Company 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 AND 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 and value of
insurance in force 115 196 311
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 $56,548
</TABLE>
F-35
<PAGE> 147
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
TRAVELERS LIFE AND PRIMERICA LIFE
1997 ($ 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 and value of
insurance in force 96 197 293
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 $49,440
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
TRAVELERS LIFE AND PRIMERICA LIFE
1996 ($ IN MILLIONS) ANNUITY INSURANCE TOTAL
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Business Volume:
Premiums $ 357 $ 1,030 $ 1,387
Deposits 3,502 -- 3,502
------- ------- -------
Total business volume $ 3,859 $ 1,030 $ 4,889
Net investment income 1,775 175 1,950
Interest credited to contractholders 863 -- 863
Amortization of deferred acquisition costs and value of
insurance in force 83 198 281
Federal income taxes on Operating Income 189 130 319
Operating Income (excludes realized gains or losses and
the related FIT) $ 356 $ 235 $ 591
Segment Assets $37,564 $ 5,409 $42,973
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The amount of investments in equity method investees and total expenditures for
additions to long-lived assets other than financial instruments, long-term
customer relationships of a financial institution, mortgage and other servicing
rights, deferred policy acquisition costs, and deferred tax assets, were not
material.
F-36
<PAGE> 148
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
BUSINESS SEGMENT RECONCILIATION:
($ in millions)
<TABLE>
<CAPTION>
REVENUES 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Total business volume $ 9,433 $ 6,859 $ 4,889
Net investment income 2,185 2,037 1,950
Realized investment gains 149 199 65
Other revenues 440 354 284
Elimination of deposits (7,693) (5,276) (3,502)
- -------------------------------------------------------------------------------
Total revenues $ 4,514 $ 4,173 $ 3,686
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
OPERATING INCOME 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Total operating income of business segments $805 $710 $591
Realized investment gains net of tax 97 129 42
- --------------------------------------------------------------------------------
Income from continuing operations $902 $839 $633
================================================================================
</TABLE>
<TABLE>
<CAPTION>
ASSETS 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Total assets of business segments $56,548 $49,440 $42,973
================================================================================
</TABLE>
<TABLE>
<CAPTION>
REVENUE BY PRODUCTS 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred Annuities $ 4,198 $ 3,303 $ 2,635
Group and Payout Annuities 5,326 3,737 2,194
Individual Life & Health Insurance 2,270 2,102 1,956
Other (a) 413 307 403
Elimination of deposits (7,693) (5,276) (3,502)
- --------------------------------------------------------------------------------
Total Revenue $ 4,514 $ 4,173 $ 3,686
================================================================================
</TABLE>
(a) Other represents revenue attributable to unallocated capital and run-off
business.
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-37
<PAGE> 149
THE TRAVELERS
THE TRAVELERS VARIABLE ANNUITIES
INDIVIDUAL AND GROUP VARIABLE ANNUITY CONTRACTS
Issued By
THE TRAVELERS INSURANCE COMPANY
PENSION AND PROFIT-SHARING,
SECTION 403(b) AND SECTION 408, AND
DEFERRED COMPENSATION PROGRAMS
<PAGE> 150
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) The financial statements of the Registrant, as well as of The Travelers
Growth and Income Stock Account for Variable Annuities, The Travelers
Quality Bond Account for Variable Annuities, The Travelers Money Market
Account for Variable Annuities, The Travelers Timed Growth and Income
Stock Account for Variable Annuities, The Travelers Timed Short-Term Bond
Account for Variable Annuities, The Travelers Timed Aggressive Stock
Account for Variable Annuities, and The Travelers Timed Bond Account for
Variable Annuities, and the Reports of Independent Accountants thereto,
are in the Annual Reports for the respective Accounts and are
incorporated into the Statement of Additional Information by reference.
For each of the Accounts, these financial statements include the
following as applicable:
Statement of Assets and Liabilities as of December 31, 1998
(except The Travelers Timed Bond Account for Variable
Annuities which was timed out as of December 31, 1998)
Statement of Operations for the year ended December 31, 1998
Statement of Changes in Net Assets for the years ended December
31, 1998 and 1997
Statement of Investments as of December 31, 1998 (except The
Travelers Timed Bond Account for Variable Annuities which
was timed out as of December 31, 1998)
Notes to Financial Statements
The consolidated financial statements of The Travelers Insurance
Company and Subsidiaries and the report of Independent Auditors, 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, 1998, 1997 and 1996
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Changes in Retained Earnings and
Accumulated Other Changes in Equity from Non-Owner Sources
for the years ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 Notes to Consolidated Financial
Statements
(b) Exhibits
1. Resolution of The Travelers Insurance Company's Board of Directors
authorizing the establishment of the Registrant. (Incorporated herein by
reference to Exhibit 1 to Post-Effective Amendment No. 29 to the
Registration Statement on Form N-4 filed April 19, 1996.)
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)
<PAGE> 151
4. Example of Variable Annuity Contract. (Incorporated herein by reference
to Exhibit 4 to Post-Effective Amendment No. 29 to the Registration
Statement on Form N-4 filed April 19, 1996.)
5. Example of Application. (Incorporated herein by reference to Exhibit 5 to
Post-Effective Amendment No. 29 to the Registration Statement on Form N-4
filed April 19, 1996.)
6(a). Charter of The Travelers Insurance Company, as amended on October 19,
1994. (Incorporated herein by reference to Exhibit 3(a)(i) to
Registration Statement on Form S-2, File No. 33-58677, filed via EDGAR on
April 18, 1995.)
6(b). By-Laws of The Travelers Insurance Company, as amended on October 20,
1994. (Incorporated herein by reference to Exhibit 3(a)(ii) to
Registration Statement on Form S-2, File No. 33-58677, filed via EDGAR on
April 18, 1995.)
7. None.
8(a). Participation Agreement among Variable Insurance Products Fund, Fidelity
Distributors Corporation and The Travelers Insurance Company.
(Incorporated herein by reference to Exhibit 8(a) to Post-Effective
Amendment No. 29 to the Registration Statement on Form N-4 filed April
19, 1996.)
8(b). Participation Agreement among Variable Insurance Products Fund II,
Fidelity Distributors Corporation and The Travelers Insurance Company.
(Incorporated herein by reference to Exhibit 8(b) to Post-Effective
Amendment No. 29 to the Registration Statement on Form N-4 filed April
19, 1996.)
8(c). Participation Agreement among Templeton Variable Products Series Fund,
Templeton Funds Distributor, Inc. and The Travelers Insurance Company.
(Incorporated herein by reference to Exhibit 8(c) to Post-Effective
Amendment No. 29 to the Registration Statement on Form N-4 filed April
19, 1996.)
8(d). Participation Agreement between The Travelers Insurance Company and
Dreyfus Stock Index Fund. (Incorporated herein by reference to Exhibit
8(d) to Post-Effective Amendment No. 29 to the Registration Statement on
Form N-4 filed April 19, 1996.)
8(e). Participation Agreement among American Odyssey Funds, Inc., Copeland
Equities, Inc. and The Travelers Insurance Company. (Incorporated herein
by reference to Exhibit 8(e) to Post-Effective Amendment No. 29 to the
Registration Statement on Form N-4 filed April 19, 1996.)
9. Opinion of Counsel as to the legality of securities being registered by
Registrant. (Incorporated herein by reference to Exhibit 9 to
Post-Effective Amendment No. 30 to the Registration Statement on Form N-4
filed April 24, 1997.)
10. Consent of KPMG LLP, Independent Certified Public Accountants.
13. Schedule for Computation of Total Return Calculations - Standardized and
Non-Standardized. (Incorporated herein by reference to Exhibit 13 to
Post-Effective Amendment No. 30 to the Registration Statement on Form
N-4, filed April 24, 1997.)
15(a). Powers of Attorney authorizing Ernest J. Wright or Kathleen A. McGah as
signatory for Michael A. Carpenter, Jay S. Benet, George C. Kokulis, Ian
R. Stuart and Katherine M. Sullivan. (Incorporated herein by reference to
Exhibit 15(a) to Post-Effective Amendment No. 30 to the Registration
Statement on Form N-4, filed April 24, 1997.)
15(b). Powers of Attorney authorizing Jay S. Fishman or Ernest J. Wright as
signatory for Robert I. Lipp, Charles O. Prince, III, Marc P. Weill,
Irwin R. Ettinger, and Donald T. DeCarlo. (Incorporated herein by
reference to Exhibit 15(b) to Post-Effective Amendment No. 28 to the
Registration Statement on Form N-4 filed April 24, 1996.)
<PAGE> 152
15(c). Powers of Attorney authorizing Ernest J. Wright or Kathleen A. McGah as
signatory for J. Eric Daniels and Jay S. Benet.
Item 25. Directors and Officers of the Depositor
Name and Principal Positions and Offices
Business Address with Insurance Company
Michael A. Carpenter** Director, Chairman of the Board
J. Eric Daniels* President and Chief Executive Officer
Jay S. Benet* Director, Senior Vice President
Chief Financial Officer, Chief
Accounting Officer and Controller
George C. Kokulis* Director and Senior Vice President
Robert I. Lipp* Director
Katherine M. Sullivan* Director and Senior Vice President
and General Counsel
Marc P. Weill** Director and Senior Vice President
Stuart Baritz*** Senior Vice President
Jay S. Fishman* Senior Vice President
Elizabeth C. Georgakopoulos* Senior Vice President
Barry Jacobson* Senior Vice President
Russell H. Johnson* Senior Vice President
Warren H. May* Senior Vice President
Christine M. Modie* Senior Vice President
Kathleen Preston* Senior Vice President
David A. Tyson* Senior Vice President
F. Denney Voss* Senior Vice President
Ambrose J. Murphy* Deputy General Counsel
Virginia M. Meany* Vice President
Selig Ehrlich* Vice President and Actuary
Donald R. Munson, Jr.* Second Vice President
Anthony Cocolla Second Vice President
Scott R. Hansen Second Vice President
Ernest J. Wright* Vice President and Secretary
Kathleen A. McGah* Assistant Secretary and Counsel
Principal Business Address:
* 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
<PAGE> 153
Item 26. Persons Controlled by or Under Common Control with the Depositor or
Registrant
Incorporated herein by reference to Exhibit 16 to Post-Effective
Amendment No. 2 to the Registration Statement on Form N-4, File No. 333-27689,
filed April 16, 1999.
Item 27. Number of Contract Owners
As of March 31, 1999, 334,546 contract owners held qualified and non-qualified
contracts offered by the Registrant.
Item 28. Indemnification
Sections 33-770 et seq. inclusive of the Connecticut General Statutes ("C.G.S.")
regarding indemnification of directors and officers of Connecticut corporations
provides in general that Connecticut corporations shall indemnify their
officers, directors and certain other defined individuals against judgments,
fines, penalties, amounts paid in settlement and reasonable expenses actually
incurred in connection with proceedings against the corporation. The
corporation's obligation to provide such indemnification generally does not
apply unless (1) the individual is wholly successful on the merits in the
defense of any such proceeding; or (2) a determination is made (by persons
specified in the statute) that the individual acted in good faith and in the
best interests of the corporation and in all other cases, his conduct was at
least not opposed to the best interests of the corporation, and in a criminal
case he had no reasonable cause to believe his conduct was unlawful; or (3) the
court, upon application by the individual, determines in view of all of the
circumstances that such person is fairly and reasonably entitled to be
indemnified, and then for such amount as the court shall determine. With respect
to proceedings brought by or in the right of the corporation, the statute
provides that the corporation shall indemnify its officers, directors and
certain other defined individuals, against reasonable expenses actually incurred
by them in connection with such proceedings, subject to certain limitations.
Citigroup Inc. also provides liability insurance for its directors and officers
and the directors and officers of its subsidiaries, including the Registrant.
This insurance provides for coverage against loss from claims made against
directors and officers in their capacity as such, including, subject to certain
exceptions, liabilities under the federal securities laws.
Rule 484 Undertaking
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, 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
<PAGE> 154
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, CitiSelect VIP Folio 200, CitiSelect VIP Folio 300,
CitiSelect VIP Folio 400, CitiSelect VIP Folio 500, CitiFunds(SM) Small Cap
Growth VIP Portfolio, CitiSelect Folio 200, CitiSelect Folio 300, CitiSelect
Folio 400, and CitiSelect Folio 500. CFBDS is also the placement agent for Large
Cap Value Portfolio, Small Cap Value Portfolio, International Portfolio, Foreign
Bond Portfolio, Intermediate Income Portfolio, Short-Term Portfolio, Growth &
Income Portfolio, U.S. Fixed Income Portfolio, Large Cap Growth Portfolio, Small
Cap Growth Portfolio, International Equity Portfolio, Balanced Portfolio,
Government Income Portfolio, Tax Free Reserves Portfolio, Cash Reserves
Portfolio and U.S. Treasury Reserves Portfolio. CFBDS also serves as the
distributor for the following funds: The Travelers Fund U for Variable
Annuities, The Travelers Fund VA for Variable Annuities, The Travelers Fund BD
for Variable Annuities, The Travelers Fund BD II for Variable Annuities, The
Travelers Fund BD III for Variable Annuities, The Travelers Fund BD IV for
Variable Annuities, The Travelers Fund ABD II for Variable Annuities, The
Travelers Separate Account PF for Variable Annuities, The Travelers Separate
Account PF II for Variable Annuities, The Travelers Separate Account QP for
Variable Annuities, The Travelers Separate Account TM for Variable Annuities,
The Travelers Separate Account TM II for Variable Annuities, The Travelers
Separate Account Five for Variable Annuities, The Travelers Separate Account Six
for Variable Annuities, The Travelers Separate Account Seven for Variable
Annuities, The Travelers Separate Account Eight for Variable Annuities, The
Travelers Fund UL for Variable Life Insurance, The Travelers Fund UL II for
Variable Life Insurance, The Travelers Fund UL III for Variable Life Insurance,
The Travelers Variable Life Insurance Separate Account One, The Travelers
Variable Life Insurance Separate Account Two, The Travelers Variable Life
Insurance Separate Account Three, The Travelers Variable Life Insurance Separate
Account Four, The Travelers Separate Account MGA, The Travelers Separate Account
MGA II, The Travelers Growth and Income Stock Account for Variable Annuities,
The Travelers Quality Bond Account for Variable Annuities, The Travelers Money
Market Account for Variable Annuities, The Travelers Timed Growth and Income
Stock Account for Variable Annuities, The Travelers Timed Short-Term Bond
Account for Variable Annuities, The Travelers Timed Aggressive Stock Account for
Variable Annuities, The Travelers Timed Bond Account for Variable Annuities,
Emerging Growth Fund, Government Fund, Growth and Income Fund, International
Equity Fund, Municipal Fund, Balanced Investments, Emerging Markets Equity
Investments, Government Money Investments, High Yield Investments, Intermediate
Fixed Income Investments, International Equity Investments, International Fixed
Income Investments, Large Capitalization Growth Investments, Large
Capitalization Value Equity Investments, Long-Term Bond Investments, Mortgage
Backed Investments, Municipal Bond Investments, Small Capitalization Growth
Investments, Small Capitalization Value Equity Investments, Appreciation
Portfolio, Diversified Strategic Income Portfolio, Emerging Growth Portfolio,
Equity Income Portfolio, Equity Index Portfolio, Growth & Income Portfolio,
Intermediate High Grade Portfolio, International Equity Portfolio, Money Market
Portfolio, Total Return Portfolio, Smith Barney Adjustable Rate Government
Income Fund, Smith Barney Aggressive Growth Fund Inc., Smith Barney Appreciation
Fund, Smith Barney Arizona Municipals Fund Inc., Smith Barney California
Municipals Fund Inc., Balanced Portfolio, Conservative Portfolio, Growth
Portfolio, High Growth Portfolio, Income Portfolio, Global Portfolio, Select
Balanced Portfolio, Select Conservative Portfolio, Select Growth Portfolio,
Select High Growth Portfolio, Select Income Portfolio, Concert Social Awareness
Fund, Smith Barney Large Cap Blend Fund, Smith Barney Fundamental Value Fund
Inc., Large Cap Value Fund, Short-Term High Grade Bond Fund, U.S. Government
Securities Fund, Smith Barney Balanced Fund, Smith Barney
<PAGE> 155
Convertible Fund, Smith Barney Diversified Strategic Income Fund, Smith Barney
Exchange Reserve Fund, Smith Barney High Income Fund, Smith Barney Municipal
High Income Fund, Smith Barney Premium Total Return Fund, Smith Barney Total
Return Bond Fund, Cash Portfolio, Government Portfolio, Municipal Portfolio,
Concert Peachtree Growth Fund, Smith Barney Contrarian Fund, Smith Barney
Government Securities Fund, Smith Barney Hansberger Global Small Cap Value Fund,
Smith Barney Hansberger Global Value Fund, Smith Barney Investment Grade Bond
Fund, Smith Barney Special Equities Fund, Smith Barney Intermediate Maturity
California Municipals Fund, Smith Barney Intermediate Maturity New York
Municipals Fund, Smith Barney Large Capitalization Growth Fund, Smith Barney S&P
500 Index Fund, Smith Barney Mid Cap Blend Fund, Smith Barney Managed
Governments Fund Inc., Smith Barney Managed Municipals Fund Inc., Smith Barney
Massachusetts Municipals Fund, Cash Portfolio, Government Portfolio, Retirement
Portfolio, California Money Market Portfolio, Florida Portfolio, Georgia
Portfolio, Limited Term Portfolio, New York Money Market Portfolio, New York
Portfolio, Pennsylvania Portfolio, Smith Barney Municipal Money Market Fund,
Inc., Smith Barney Natural Resources Fund Inc., Smith Barney New Jersey
Municipals Fund Inc., Smith Barney Oregon Municipals Fund, Zeros Plus Emerging
Growth Series 2000, Smith Barney Security and Growth Fund, Smith Barney Small
Cap Blend Fund, Inc., Smith Barney Telecommunications Income Fund, Income and
Growth Portfolio, Reserve Account Portfolio, U.S. Government/High Quality
Securities Portfolio, Emerging Markets Portfolio, European Portfolio, Global
Government Bond Portfolio, International Balanced Portfolio, International
Equity Portfolio, Pacific Portfolio, AIM Capital Appreciation Portfolio,
Alliance Growth Portfolio, GT Global Strategic Income Portfolio, MFS Total
Return Portfolio, Putnam Diversified Income Portfolio, Smith Barney High Income
Portfolio, Smith Barney Large Cap Value Portfolio, Smith Barney International
Equity Portfolio, Smith Barney Large Capitalization Growth Portfolio, Smith
Barney Money Market Portfolio, Smith Barney Pacific Basin Portfolio, TBC Managed
Income Portfolio, Van Kampen American Capital Enterprise Portfolio, Centurion
Tax-Managed U.S. Equity Fund, Centurion Tax-Managed International Equity Fund,
Centurion U.S. Protection Fund, Centurion International Protection Fund, Global
High-Yield Bond Fund, International Equity Fund, Emerging Opportunities Fund,
Core Equity Fund, Long-Term Bond Fund, Global Dimensions Fund L.P., Citicorp
Private Equity L.P., AIM V.I. Capital Appreciation Fund, AIM V.I. Government
Series Fund, AIM V.I. Growth Fund, AIM V.I. International Equity Fund, AIM V.I.
Value Fund, Fidelity VIP Growth Portfolio, Fidelity VIP High Income Portfolio,
Fidelity VIP Equity Income Portfolio, Fidelity VIP Overseas Portfolio, Fidelity
VIP II Contrafund Portfolio, Fidelity VIP II Index 500 Portfolio, MFS World
Government Series, MFS Money Market Series, MFS Bond Series, MFS Total Return
Series, MFS Research Series, MFS Emerging Growth Series, Salomon Brothers
Institutional Money Market Fund, Salomon Brothers Cash Management Fund, Salomon
Brothers New York Municipal Money Market Fund, Salomon Brothers National
Intermediate Municipal Fund, Salomon Brothers U.S. Government Income Fund,
Salomon Brothers High Yield Bond Fund, Salomon Brothers Strategic Bond Fund,
Salomon Brothers Total Return Fund, Salomon Brothers Asia Growth Fund, Salomon
Brothers Capital Fund Inc, Salomon Brothers Investors Fund Inc, Salomon Brothers
Opportunity Fund Inc, Salomon Brothers Institutional High Yield Bond Fund,
Salomon Brothers Institutional Emerging Markets Debt Fund, Salomon Brothers
Variable Investors Fund, Salomon Brothers Variable Capital Fund, Salomon
Brothers Variable Total Return Fund, Salomon Brothers Variable High Yield Bond
Fund, Salomon Brothers Variable Strategic Bond Fund, Salomon Brothers Variable
U.S. Government Income Fund, and Salomon Brothers Variable Asia Growth Fund.
(b) The information required by this Item 29 with respect to each director
and officer of CFBDS, Inc. is incorporated by reference to Schedule A of Form BD
filed by CFBDS pursuant to the Securities and Exchange Act of 1934 (File No.
8-32417).
(c) Not applicable.
Item 30. Location of Accounts and Records
(1) The Travelers Insurance Company
One Tower Square
Hartford, Connecticut 06183
<PAGE> 156
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:
(d) That the aggregate charges under the Contract 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> 157
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 post-effective amendment to this
Registration Statement and has duly caused this amendment to this Registration
Statement to be signed on its behalf, in the City of Hartford, State of
Connecticut, on April 26th, 1999.
THE TRAVELERS FUND U FOR VARIABLE ANNUITIES
(Registrant)
THE TRAVELERS INSURANCE COMPANY
(Depositor)
By: *JAY S. BENET
----------------------------------------------
Jay S. Benet
Senior Vice President, Chief Financial Officer
Chief Accounting Officer and Controller
As required by the Securities Act of 1933, this post-effective amendment to this
registration statement has been signed by the following persons in the
capacities indicated on the 26th day of April 1999.
*MICHAEL A. CARPENTER Director and Chairman of the Board
- -------------------------
(Michael A. Carpenter)
*J. ERIC DANIELS Director, President and Chief Executive Officer
- -------------------------
(J. Eric Daniels)
*JAY S. BENET Director, Senior Vice President, Chief
- ------------------------- Financial Officer, Chief Accounting Officer
(Jay S. Benet) and Controller
*GEORGE C. KOKULIS Director
- -------------------------
(George C. Kokulis
*ROBERT I. LIPP Director
- -------------------------
(Robert I. Lipp)
*KATHERINE M. SULLIVAN Director, Senior Vice President and
- ------------------------- General Counsel
(Katherine M. Sullivan)
*MARC P. WEILL Director
- -------------------------
(Marc P. Weill)
*By: /s/Ernest J. Wright, Attorney-in-Fact
<PAGE> 158
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
<S> <C> <C>
10 Consent of KPMG LLP, Independent Certified Electronically
Public Accountants.
15(c). Powers of Attorney authorizing Ernest J. Wright or Kathleen A. Electronically
McGah as signatory for J. Eric Daniels and Jay S. Benet.
</TABLE>
<PAGE> 1
Consent of Independent Certified Public Accountants
The Board of Directors
The Travelers Insurance Company
We consent to the use of our reports included herein or incorporated herein by
reference and to the reference to our firm as experts under the heading
"Independent Accountants."
KPMG LLP
Hartford, Connecticut
April 23, 1999
<PAGE> 1
THE TRAVELERS FUND U FOR VARIABLE ANNUITIES
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, J. ERIC DANIELS of Farmington, Connecticut, Director, President
and Chief Executive Officer of The Travelers 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 Fund U for
Variable Annuities, a separate account of the Company dedicated specifically to
the funding of variable annuity contracts to be offered by said Company, and
further, to sign any and all amendments thereto, including post-effective
amendments, that may be filed by the Company on behalf of said registrant.
IN WITNESS WHEREOF, I have hereunto set my hand this 15th day of
January 1999.
/s/ J. Eric Daniels
Director, President and Chief Executive Officer
The Travelers Insurance Company
<PAGE> 2
THE TRAVELERS FUND U FOR VARIABLE ANNUITIES
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, JAY S. BENET of West Hartford, Connecticut, Director, Senior
Vice President and Chief Financial Officer, Chief Accounting Officer and
Controller of The Travelers 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 Fund U for Variable Annuities,
a separate account of the Company dedicated specifically to the funding of
variable annuity contracts to be offered by said Company, and further, to sign
any and all amendments thereto, including post-effective amendments, that may be
filed by the Company on behalf of said registrant.
IN WITNESS WHEREOF, I have hereunto set my hand this 15th day of
January 1999.
/s/ Jay S. Benet
Director, Senior Vice President
Chief Financial Officer,
Chief Accounting Officer and Controller
The Travelers Insurance Company
