SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 6
on
FORM S-2
to
REGISTRATION STATEMENT ON FORM S-1
UNDER THE SECURITIES ACT OF 1933
THE TRAVELERS INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
CONNECTICUT
(State or other jurisdiction of incorporation or organization)
I.R.S. Employer Identification Number: 06-0555090
One Tower Square, Hartford, Connecticut 06183 (203) 277-0111
(Address, including Zip Code, and Telephone Number, including Area Code,
of Registrant's Principal Executive Offices)
Ernest J. Wright
The Travelers Insurance Company
One Tower Square
Hartford, Connecticut 06183
(203) 277-4345
(Name, Address, including Zip Code, and Telephone Number,
including Area Code, of Agent for Service)
Approximate date of commencement of proposed sale to the public: The annuities
covered by this registration statement are to be issued from time to time
after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. X
If the Registrant elects to deliver its latest Annual Report to
security-holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this Form, check the following box. ____
<PAGE>
PART I
INFORMATION REQUIRED IN PROSPECTUS
THE TRAVELERS INSURANCE COMPANY
Cross Reference Sheet Pursuant to Regulation S-K, Item 501(b)
Item
No. Form S-2 Caption Heading in Prospectus
1. Forepart of the Registration Outside Front Cover Page
Statement and Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Back Inside Front Cover
Cover Pages of Prospectus
3. Summary Information, Risk Prospectus Summary; Inside Front
Factors and Ratio of Earnings to Cover Page
Fixed Charges
4. Use of Proceeds Investments by the Company
5. Determination of Offering Price Not Applicable
6. Dilution Not Applicable
7. Selling Security Holders Not Applicable
8. Plan of Distribution Distribution of Certificates
(Contracts)
9. Description of Securities Description of Certificates
to be Registered (Contracts)
10. Interests of Named Experts Not Applicable
and Counsel
11. Information with Respect to Outside Front Cover Page; The
the Registrant Insurance Company; Incorporated by
Reference to Form 10-K and Form 8-K
12. Incorporation of Certain Incorporation of Certain Documents by
Information by Reference Reference
13. Disclosure of Commission Not Applicable
Position on Indemnification
for Securities Act Liabilities
PART A
INFORMATION REQUIRED IN A PROSPECTUS
<PAGE>
T-MARK
GROUP MODIFIED GUARANTEED ANNUITY CONTRACTS
ISSUED BY
THE TRAVELERS INSURANCE COMPANY
PROSPECTUS
May 1, 1995
ONE TOWER SQUARE, HARTFORD, CONNECTICUT 06183 *
TELEPHONE: (203) 277-0111
<PAGE>
T-MARK
GROUP MODIFIED GUARANTEED ANNUITY CONTRACTS
PROSPECTUS
This Prospectus describes $200 million in interests of group
modified guaranteed annuity contracts and certificates offered by
The Travelers Insurance Company (the "Company"). These contracts
and certificates are used in connection with (1) plans qualified
under Section 401(a), 401(k) or 403(a) of the Internal Revenue Code
(the "Code") (pension and profit-sharing plans); (2) annuity
purchase plans adopted pursuant to Section 403(b) by public school
systems and certain organizations tax-exempt under Section
501(c)(3) of the Code; (3) individual retirement annuities (IRAs)
established by persons eligible under Section 408 of the Code; (4)
contracts purchased by the United States Government, any state
government or political subdivision thereof, or any agency or
instrumentality (within the meaning of Section 414(d) of the Code),
for use in satisfying its obligation to provide a benefit under a
governmental plan; and (5) deferred compensation plans under
Section 457 of the Code. In addition, this Prospectus describes
annuity contracts and Certificates offered for various non tax-
benefited purposes to the general public (subject to state
approval).
Participation in a contract will be separately accounted for by the
issuance of a Certificate evidencing the Participant's interest
under a group contract issued to an employer or a group trust.
A minimum purchase payment of at least $5,000 must accompany the
application for a contract or a Statement of Participant. No
additional payment of less than $5,000 is permitted under a
Certificate. (See "Application and Purchase Payment," page 1.)
The Maturity Value will be guaranteed by the general assets of the
Company. The Company intends generally to invest funds received in
relation to Certificates in fixed income securities, including
public bonds, privately placed bonds, and mortgages, some of which
fixed income securities may be zero coupon securities. (See
"Investments by the Company," page 7.)
THESE SECURITIES MAY BE SUBJECT TO A SUBSTANTIAL MARKET VALUE
ADJUSTMENT IF NOT HELD TO THE MATURITY DATE OF A DEPOSIT WHICH
COULD RESULT IN YOUR RECEIPT OF LESS THAN YOUR ORIGINAL PURCHASE
PAYMENT. IN ADDITION, THESE SECURITIES MAY BE SUBJECT TO A
SURRENDER CHARGE IF A SURRENDER IS MADE BEFORE A DEPOSIT HAS BEEN
IN THE CERTIFICATE FOR AT LEAST FIVE YEARS. See "Market Value
Adjustment," page 3, and "Surrender Charge," page 3.
UPON A SUBSEQUENT GUARANTEE PERIOD, THE GUARANTEED INTEREST RATE
WILL BE DECLARED BY THE COMPANY BASED ON VARIOUS FACTORS. IT MAY
BE HIGHER OR LOWER THAN THE PREVIOUS GUARANTEED INTEREST RATE. See
"Guarantee Periods," page 1 and "Establishment of Guaranteed
Interest Rates," page 2.
EXCEPT FOR CERTIFICATES ISSUED TO RESIDENTS OF THE STATE OF NEW
YORK, THERE IS NO MINIMUM GUARANTEED RENEWAL INTEREST RATE.
THIS PROSPECTUS IS ACCOMPANIED BY A COPY OF THE COMPANY'S LATEST
ANNUAL REPORT ON FORM 10-K WHICH CONTAINS ADDITIONAL INFORMATION
ABOUT THE COMPANY.
MUTUAL FUNDS, ANNUITIES AND INSURANCE PRODUCTS ARE NOT DEPOSITS OR
OBLIGATIONS OF, OR GUARANTEED BY ANY BANK, NOR ARE THEY INSURED OR
OTHERWISE PROTECTED BY THE FDIC, THE FEDERAL RESERVE BOARD, OR ANY
OTHER AGENCY; THEY ARE SUBJECT TO INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF PRINCIPAL INVESTMENT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1995
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act"), and in
accordance therewith files reports and other information with the
Securities and Exchange Commission (the "Commission"). Such
reports and other information can be inspected and copied at the
public reference facilities maintained by the Commission at: Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549; Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and Seven World Trade Center, New York, New York
10048. Copies of such material can also be obtained from the
Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates.
The Company has filed with the Commission a Registration Statement
under the Securities Act of 1933, as amended (the "Act") with
respect to the securities offered hereby. For further information
with respect to the Company and these securities, reference is made
to the Registration Statement and exhibits thereto. Statements
contained in this Prospectus as to the contents of any contract or
other document are not necessarily complete, and in each instance,
reference is made to the copy of such contract or document filed as
an exhibit to the Company's Registration Statement, each such
statement being qualified in all respects by such reference. The
Company does not plan to furnish subsequent annual reports
containing financial information to the owners of contracts or
certificates described in this Prospectus.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's latest Annual Report on Form 10-K and the current
reports on Form 8-K (dated January 3, 1995 and April 21, 1995) have
been filed with the Commission pursuant to Section 15(d) of the
Exchange Act. They are incorporated by reference into this
Prospectus and the 10-K must accompany this Prospectus. The Form
10-K contains additional information about the Company, including
certified financial statements for the Company's latest fiscal
year.
The Company will provide without charge to each person to whom this
Prospectus is delivered, on the written or oral request of any such
person, a copy of any or all of the documents incorporated by
reference in the Registration Statement of which this Prospectus
forms a part other than exhibits to such documents unless such
exhibits are specifically incorporated by reference into such
documents. Requests should be directed to The Travelers Insurance
Company, Annuity Services--5 SHS, One Tower Square, Hartford,
Connecticut 06183-5030, telephone (800) 842-0125.
<PAGE>
TABLE OF CONTENTS
GLOSSARY OF SPECIAL TERMS iv
PROSPECTUS SUMMARY v
THE INSURANCE COMPANY 1
DESCRIPTION OF THE CERTIFICATES 1
General 1
Application and Purchase Payment 1
Right to Cancel 1
ACCUMULATION PERIOD 1
Guarantee Periods 1
Establishment of Guaranteed Interest Rates 2
SURRENDERS 3
General 3
Surrender Charge 3
Market Value Adjustment 3
Waiver, Reduction or Elimination of Surrender Charge 4
Reduction or Elimination of Surrender Charges 5
Premium Taxes 5
Death Benefit 5
Payment On Surrender 5
ANNUITY PERIOD 5
Electing the Annuity Commencement Date and Form of
Annuity 5
Change of Annuity Commencement Date or Annuity Option 6
Annuity Options 6
Annuity Payments 6
Death of Annuitant After Annuity Commencement Date 6
INVESTMENTS BY THE COMPANY 7
AMENDMENT OF CERTIFICATES 7
ASSIGNMENT OF CERTIFICATES 7
DISTRIBUTION OF CERTIFICATES 7
FEDERAL TAX CONSIDERATIONS 7
General 7
Section 403(b) Plans and Arrangements 7
Qualified Pension and Profit-Sharing Plans 8
Individual Retirement Annuities 8
Section 457 Plans 8
Non-Qualified Annuities 9
The Employee Retirement Income Security Act of 1974 9
Federal Income Tax Withholding 9
Tax Advice 10
LEGAL OPINION 10
INDEPENDENT ACCOUNTANTS 11
APPENDIX A 12
<PAGE>
GLOSSARY OF SPECIAL TERMS
In this Prospectus "We," "Us," "Our," and the "Company" refer to
The Travelers Insurance Company, and "You," "Yours," and
"Participant" refer to a person who has been issued a Certificate.
In addition, as used in this Prospectus, the following terms have
the indicated meanings:
ACCOUNT
An Account is the Cash Value or Cash Surrender Value credited to a
Participant or to the Owner. A Participant may have more than one
Individual Account.
ACCUMULATED VALUE
The value of the Deposit which is credited daily at the Guaranteed
Interest Rate.
ANNUITY COMMENCEMENT DATE
The date designated in the Certificate or otherwise by the
Participant to receive benefits.
CASH SURRENDER VALUE
The Cash Value of all the Deposits credited to that Account, less
the Surrender Charge and any applicable premium tax.
CASH VALUE
The Maturity Value of a Deposit on the Maturity Date or the Market
Adjusted Value before the Maturity Date of that Deposit. The Cash
Value of an Account on any date is the sum of the Cash Value of all
the Deposits credited to the Account.
CERTIFICATE
Evidence of a participating interest under a group annuity contract
as set forth in this Prospectus. Any reference in this Prospectus
to Certificate includes the underlying group annuity contract.
CERTIFICATE DATE
The effective date of participation under the group annuity
contract as designated in the Certificate.
CERTIFICATE YEAR
Annual periods computed from the Certificate Date.
COMPANY
The Travelers Insurance Company.
COMPANY'S HOME OFFICE
The principal executive offices of The Travelers Insurance Company
located at One Tower Square, Hartford, Connecticut 06183.
DEPOSIT
The net premium payment or renewal amount applied to the credit of
an Account at a Guaranteed Interest Rate to the Maturity Date.
GUARANTEE PERIOD
The period between the initial Premium Payment or Renewal Date and
the Maturity Date during which a Guaranteed Interest Rate is
credited.
GUARANTEED INTEREST RATE
The annual effective interest rate which is the applicable interest
rate contained in a schedule of rates established by the Company
from time to time for various durations.
INDIVIDUAL ACCOUNT
The Cash Value or Cash Surrender Value credited to a Participant or
beneficiary.
MARKET ADJUSTED VALUE
The current value of the Deposit on a date before the Maturity
Date. This value is computed using the market value adjustment
formula, as described in this Prospectus.
MATURITY DATE OF A DEPOSIT
The date on which a Guarantee Period for a Deposit ends.
MATURITY VALUE
The guaranteed value of the Deposit which is the net premium
payment or renewal amount plus interest credited thereon during the
Guarantee Period. The Company will declare the annual effective
rate of interest when the net premium is applied, as described in
this Prospectus.
OWNER
The person or entity to whom the group annuity contract is issued.
OWNER'S ACCOUNT
The Cash Value credited to the Owner.
PARTICIPANT
An eligible person who participates in the Plan and on whose life
a Certificate is issued.
PARTICIPANT'S INTEREST
The Cash Value or Cash Surrender Value of the Participant's
Individual Account to which the Participant is entitled under the
group Certificate. The Participant's Interest will be the value of
that Participant's Individual Accounts unless the owner (under the
terms of the Plan, if any) instructs us otherwise.
STATEMENT OF PARTICIPANT
An application for participation under the group Modified
Guaranteed Annuity contract.
<PAGE>
PROSPECTUS SUMMARY
The Travelers Insurance Company ("the Company"), an indirect wholly
owned subsidiary of Travelers Group Inc., is offering group
modified guaranteed annuity contracts for non-tax-benefited and
tax-benefited purchases (subject to state approvals). As described
in this Prospectus, group modified guaranteed annuity contracts
have a Guaranteed Interest Rate which is credited to the Deposit in
the contract when the Deposit is held to its Maturity Date.
Surrenders prior to the Maturity Date are subject to a Market Value
Adjustment and a surrender charge (if applicable).
When a payment is made under a Statement of Participant, the
Participant selects a Guarantee Period from among those then
offered by the Company. During this Guarantee Period, the purchase
payment earns interest at the applicable Guaranteed Interest Rate
as established by the Company. Interest is credited on a daily
basis and this compounding effect is reflected in the Guaranteed
Interest Rate. At the end of each Guarantee Period, a subsequent
Guarantee Period of seven days will begin, unless the Participant
elects a different duration. The Participant must elect the length
of a subsequent Guarantee Period during the 30 days before the end
of the previous Guarantee Period. Failure to make an election will
result in an automatic renewal of the Deposit for a period of seven
days. As of the first day of each subsequent Guarantee Period, the
funds will earn interest at the then applicable subsequent
Guaranteed Interest Rate. (See "Guarantee Periods," page 1 and
"Establishment of Guaranteed Interest Rates," page 2.)
Subject to certain restrictions, total and partial surrenders are
permitted. However, these surrenders may be subject to a surrender
charge and/or a Market Value Adjustment. No Market Value
Adjustment will be applied to any surrender effective as of the end
of a Guarantee Period. No surrender charge will be applied to any
payment that has been in the Certificate for at least five years.
For Deposits which have not been credited to the Certificate for at
least five years, a graded surrender charge beginning at a maximum
of 7% will be assessed if you surrender. The surrender charge will
apply if a surrender occurs at the expiration date of the Guarantee
Period for Deposits in the contract less than five years. We will
waive the surrender charge in certain instances. (See "Waiver,
Reduction or Elimination of Surrender Charge," page 4.) For 403(b)
plan participants, partial and full surrenders may be subject to
restrictions. (See "Section 403(b) Plans and Arrangements," page
7.)
We may defer payment of any surrender for a period of up to six
months from the date we receive notice of surrender or the period
permitted by state law, if less, but such a deferral of payment
will not be for a period greater than five business days except
under extraordinary circumstances. We will pay annual interest of
at least 3.5% on any amounts deferred for more than thirty days
during such period if we choose to exercise this deferral right.
(See"Surrenders," page 3.)
A Market Value Adjustment will be applied only when the surrender
occurs prior to the Maturity Date of the Deposit. The Market
Adjusted Value will reflect the relationship, at the time of
surrender, between the rate we are then crediting on new Deposits
with the same duration as the time remaining in the Guarantee
Period, and the Guaranteed Interest Rate applicable to that
Deposit. Generally, the primary factor affecting the amount of the
Market Value Adjustment is the level of interest rates on
investments to be made by the Company at the time that the current
Guaranteed Interest Rates are established. The Market Adjusted
Value is sensitive, therefore, to changes in current interest
rates. The Market Value Adjustment may increase or decrease the
value of your investment prior to the Maturity Date. It is
possible that the amount you receive upon surrender would be less
than your original Deposit if interest rates increase. Also, if
interest rates decrease, the amount you receive upon surrender may
be more than your original Deposit and accrued interest. (See
"Surrenders," page 3.)
On the Annuity Commencement Date specified by the Participant, the
Company will pay the designated Participant a lump sum payment or
start to pay a series of payments. A series of payments may be
elected under certain Annuity Options. (See "Annuity Options,"
page 6.)
The Certificate provides for a guaranteed death benefit. In the
event of the death of the Participant prior to that Participant's
Annuity Commencement Date, the Company will pay to the Owner or the
Participant as provided in the Plan (if any) the death benefit in
lieu of any other payment under the Certificate. The amount of the
death benefit will equal (1) the greater of the Cash Value or the
Accumulated Value of that Participant's Interest if death occurs
before age 65, or (2) the Cash Value of that Participant's Interest
if death occurs on or after age 65. (See "Death Benefit," page 5.)
<PAGE>
THE INSURANCE COMPANY
The Travelers Insurance Company (the "Company") is an indirect
wholly owned subsidiary of Travelers Group Inc. The Company is a
stock insurance company chartered in 1864 in the state of
Connecticut and has been 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 principal executive office is
located at One Tower Square, Hartford, Connecticut 06183,
telephone number (203) 277-0111.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The group modified guaranteed annuity contracts described in this
Prospectus are available for use in connection with non-tax-
benefited purchases (subject to state approval). The Company is
also offering the contracts in the following tax-benefited
programs: (1) Section 401(a), 401(k) and 403(a) plans; (2) Section
403(b) plans; (3) IRAs; (4) governmental plans as described in
Section 414(d); and (5) deferred compensation plans described in
Section 457. All Section references are to the Internal Revenue
Code (the "Code"), unless otherwise noted.
As described in this Prospectus, the contracts have a Guaranteed
Interest Rate which is credited to a Deposit in the contract when
the Deposit is held to its Maturity Date. Surrenders prior to the
Deposit's Maturity Date are subject to a Market Value Adjustment
and a surrender charge (if applicable).
These contracts may not be available in all states.
APPLICATION AND PURCHASE PAYMENT
A Certificate, as described in this Prospectus, evidences an
interest in a group annuity contract. To apply for a Certificate,
an individual must complete a Statement of Participant and make a
minimum purchase payment of $5,000. Additional purchase payments
of at least $5,000 may be made under a Certificate. Payments under
a Certificate may not exceed $1,000,000 in any one year without our
prior approval.
In the event that your application is not properly completed, we
will attempt to contact you by telephone. We will return an
improperly completed application, along with the corresponding
purchase payment, ten days after we receive it if the application
has not been properly completed by that time.
The Maturity Value is guaranteed by our general assets. A payment
is credited to an Account which the Company establishes on the date
we receive a properly completed Statement of Participant along with
the purchase payment. The Company then issues a Certificate and
confirms the purchase payment in writing. Additional payments are
credited and confirmed in the same manner. Interest is earned the
next day.
RIGHT TO CANCEL
State law may afford a right to cancel a Certificate for a certain
period of time after receipt of the Certificate and allow a refund
of the entire purchase payment. For revocation to be effective, a
written notice of cancellation must be mailed or delivered to the
Company's Home Office.
ACCUMULATION PERIOD
GUARANTEE PERIODS
The Participant or Owner (as stated in the Plan, if any) selects
the duration of the Guarantee Period from among those durations we
offer. As of the date of this Prospectus, we are offering
Guarantee Periods with durations ranging from seven days to ten
years; however, the Guarantee Periods we offer in the future could
be different. The duration selected will determine the Guaranteed
Interest Rate, and the Deposit (less surrenders made and less
applicable premium taxes, if any) will earn interest at this
Guaranteed Interest Rate during the entire Guarantee Period. All
interest earned will be credited daily; this compounding effect is
reflected in the Guaranteed Interest Rate.
<PAGE>
The following is an illustration of how we will credit interest
during the Guarantee Period. For the purpose of this example, we
have made the assumptions as indicated.
Example of Guaranteed Interest Rate Accumulation
------------------------------------------------
Beginning Account Value: $50,000
Guarantee Period: 5 Years
Guaranteed Interest Rate: 5% Annual Effective Rate
<TABLE>
<CAPTION>
Interest Credited
to the Account
During the Cumulative Interest Accumulated
Year Guarantee Period Credited to the Account Value
------ ----------------- ----------------------- -----------
<S> <C> <C> <C>
6 months $ 1,234.75 $ 1,234.75 $ 51,234.75
1 2,500.00 2,500.00 52,500.00
2 2,625.00 5,125.00 55,125.00
3 2,756.25 7,881.25 57,881.25
4 2,894.06 10,775.31 60,775.31
5 3,038.77 13,814.08 63,814.08
Guaranteed Value of the Deposit at the end of five years is: $50,000.00 + $13,814.08 = $63,814.08
</TABLE>
NOTE: EXAMPLE ASSUMES NO SURRENDERS OF ANY AMOUNT DURING THE
ENTIRE FIVE-YEAR PERIOD. A MARKET VALUE ADJUSTMENT APPLIES AND A
SURRENDER CHARGE MAY APPLY TO ANY INTERIM SURRENDER. (SEE
"SURRENDERS," PAGE 3.) THE HYPOTHETICAL INTEREST RATES ARE
ILLUSTRATIVE ONLY AND ARE NOT INTENDED TO PREDICT FUTURE INTEREST
RATES TO BE DECLARED UNDER THE CERTIFICATE. ACTUAL INTEREST RATES
DECLARED FOR ANY GIVEN TIME MAY BE MORE OR LESS THAN THOSE SHOWN.
At the end of any Guarantee Period, a subsequent Guarantee Period
will begin. We will notify you in writing about a subsequent
Guarantee Period before Maturity. This written notification will
not specify the interest rate for renewal Deposits. You or the
Participant (as provided in the Plan, if any) must elect, during
the 30-day period before the end of the previous Guarantee Period,
a Guarantee Period of a different duration from among those we
offer at that time. The election may be made by notifying us in
writing or by calling 1-800-TRANSFR (outside Connecticut) or 1-800-
233-3591 (in Connecticut). If no election is made, we will
automatically renew the Deposit for a period of seven days. In no
event may subsequent Guarantee Periods extend beyond the Annuity
Commencement Date then in effect for that Certificate. For
example, if the Participant is age 62 at the expiration of a
Guarantee Period and the Annuity Commencement Date for the
Participant is age 65, a three-year Guarantee Period is the maximum
Guarantee Period that may be selected under that Certificate. The
Deposit will then earn interest at a Guaranteed Interest Rate which
we have declared for such duration. Interest rates may fluctuate
daily.
At the beginning of any subsequent Guarantee Period for a Deposit,
the value of the Deposit will be the Maturity Value of that Deposit
at the end of the Guarantee Period just ending. This amount (less
surrenders made since the beginning of the subsequent Guarantee
Period) will earn interest in the subsequent Guarantee Period at
the then applicable Guaranteed Interest Rate, which may be higher
or lower than the previous Guaranteed Interest Rate.
At your written request, we will notify you of the subsequent
Guaranteed Interest Rate. You may also call us at 1-800-842-0125
to inquire about subsequent Guaranteed Interest Rates.
ESTABLISHMENT OF GUARANTEED INTEREST RATES
The Guaranteed Interest Rate for a chosen Guarantee Period will be
known at the time a Deposit is received or renewed, and we will
send a confirmation which will show the amount and the applicable
Guaranteed Interest Rate. There is no minimum Guaranteed Interest
Rate for renewal Deposits. (Certificates issued to residents of the
state of New York provide for a minimum renewal interest rate of 3%
per annum.) The rate on renewal Deposits will be equal to or
greater than the rate credited on new Deposits at that time.
<PAGE>
Prior to the Annuity Commencement Date, we currently send a
quarterly statement showing a summary of the Account within 30 days
after the end of each calendar quarter. We reserve the right to
send statements less frequently but not less than once in each
calendar year.
The Company has no specific formula for determining the rate of
interest that it will declare as Guaranteed Interest Rates in the
future. The Guaranteed Interest Rates will be declared from time
to time as market conditions dictate. (See "Investments by the
Company," page 7.) In addition, the Company may also consider
various other factors in determining Guaranteed Interest Rates for
a given period, including regulatory and tax requirements, sales
commissions and administrative expenses we bear, general economic
trends, and competitive factors. THE COMPANY'S MANAGEMENT WILL
MAKE THE FINAL DETERMINATION AS TO THE GUARANTEED INTEREST RATES TO
BE DECLARED. WE CANNOT PREDICT NOR CAN WE GUARANTEE FUTURE
GUARANTEED INTEREST RATES.
SURRENDERS
GENERAL
Subject to certain tax law and retirement plan restrictions (see
"Federal Tax Considerations," page 7), full and partial surrenders
may be made under a Certificate at any time. For Participants in
Section 403(b) tax deferred annuity plans, a cash surrender may not
be made from certain salary reduction amounts prior to age 59 1/2,
separation from service, death, disability or hardship. (See
"Section 403(b) Plans and Arrangements," page 7.)
In the case of all surrenders, the Cash Value will be reduced by
the amount surrendered on the surrender date and that amount will
be payable to the Participant (or the Owner as provided in the
Plan, if any). When a surrender is made, the Deposit and the
Maturity Value of that Deposit will be reduced in the same
proportion as the ratio of the gross amount surrendered to the Cash
Value. Upon request the Company will inform you of the amount
payable under a full or partial surrender. Any full or partial
surrender may be subject to tax. (See "Federal Tax
Considerations," page 7.)
SURRENDER CHARGE
No deduction for a sales charge is made from the purchase payment
when received. However, a surrender charge may be assessed on
surrenders made before the Deposit has been under the Certificate
for five years. The surrender charge is computed as a percentage
of the amount surrendered, which includes the Deposit and the
earnings credited thereon subject to a Market Value Adjustment and
increases in dollar amount as the value of the deposit increases.
The following chart indicates the percentage charge applied:
Years Since Deposit Charge as Percentage
was Made of Gross Surrender Value
1 7%
2 6%
3 5%
4 4%
5 3%
Thereafter 0%
No surrender charge will be made for surrenders of a Deposit which
has been in the Certificate for at least five years.
The surrender charges listed above will apply to full or partial
surrenders, irrespective of the length of the Guarantee Period
selected. For example, assume a Guarantee Period of four years.
Further assume an election not to renew the Deposit for a second
Guarantee Period, but to redeem it on its Maturity Date. In this
hypothetical case, any surrenders made during the fourth year, even
on the Maturity Date, will be subject to a 4% Surrender Charge.
MARKET VALUE ADJUSTMENT
The amount payable on a partial or full surrender may be adjusted
up or down by the application of the Market Value Adjustment
formula. The Market Adjusted Value of a Deposit is the current
value of the Deposit on a date before its Maturity Date. This
value is generally computed using Formula A below, except that
contracts issued in the State of New York shall use Formula B in
computing the Market Adjusted Value. Both formulas are as follows:
<PAGE>
FORMULA A
Market Adjusted Value = (Maturity Value) x [1/1 +iC + .005] t/365
FORMULA B (To be used only in connection with contracts issued in
the State of New York.)
Market Adjusted Value = (Maturity Value) x [1/1 + iC + .0025] t/365
(where "iC" is the current Guaranteed Interest Rate for a Guarantee
Period of "t" days and "t" is the number of days remaining in the
Guarantee Period.)
The current Guaranteed Interest Rate is declared periodically by
the Company and is the rate (straight line interpolation between
whole years) which the Company is then paying on premiums paid
under this class of contracts if applied to the same maturity date
of the Deposit to which the formula is being applied.
A Market Value Adjustment will only be applied when the surrender
occurs prior to the Maturity Date of the Deposit. The Market
Adjusted Value will reflect the relationship, at the time of
surrender, between the rate the Company is then crediting on new
Deposits with the same duration as the time remaining on the
Guarantee Period, and the Guaranteed Interest Rate applicable to
the Deposit. Generally, the primary factor affecting the amount of
the Market Value Adjustment is the level of interest rates on
investments to be made by the Company at the time that the current
Guaranteed Interest Rates are established. The Market Adjusted
Value is sensitive, therefore, to changes in current interest
rates. So, the level of the Market Value Adjustment is dependent
upon the current interest rate at the time of surrender. The Market
Value Adjustment may increase or decrease the value of this
investment prior to the Maturity Date. It is possible that the
amount you receive upon surrender would be less than your original
purchase payment if interest rates increase. Also, if interest
rates decrease, the amount you receive on surrender may be more
than your original purchase payment and accrued interest.
For example, assume the purchase of a Certificate and the selection
of a Guarantee Period of ten years and a Guaranteed Interest Rate
for that duration of 9% per year. Further assume at the end of
seven years a partial surrender is made. (A partial surrender does
not affect the current Guaranteed Interest Rate as applied to all
remaining deposits.) If the market rate we are then crediting for
new Deposits of three years is 7%, then the Market Adjusted Value
will be greater than the Deposit accumulated at the Guaranteed
Interest Rate (disregarding premium taxes, if any). On the other
hand, if the current rate we are crediting on new Deposits of three
years is, for example, 11%, the Market Adjusted Value will be less
than the Deposit accumulated at the Guaranteed Interest Rate. (For
an illustration showing an upward and downward adjustment, see
Appendix A.)
WAIVER, REDUCTION OR ELIMINATION OF SURRENDER Charge
The surrender charge will be waived if:
--an annuity payout is begun;
--an Income Option of at least three years' duration is begun
after the first Certificate Year;
--the Participant becomes disabled (as defined by the Internal
Revenue Service) subsequent to purchase of the Certificate;
--the Participant dies;
--the Participant under a tax deferred annuity plan (403(b) plan)
retires after age 55, provided the Certificate has been in effect
five years or more;
--the Participant under an IRA plan reaches age 70 1/2, provided
the Certificate has been in effect five years or more;
--the Participant under a qualified pension or profit-sharing
plan, including a 401(k) plan, retires at or after age 59 1/2,
provided the Certificate has been in effect five years or more; or
if refunds are made to satisfy the anti-discrimination test; (for
Participants under contracts issued before May 1, 1992, the
surrender charge will also be waived if the Participant retires at
normal retirement age (as defined by the plan), provided the
Certificate has been in effect one year or more); or
<PAGE>
--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 IRS rules.
In addition, for Participants under a 403(b) annuity, a pension or
profit-sharing plan, or a Section 457 deferred compensation plan,
there is a 10% free withdrawal allowance for partial surrenders.
A Participant under an IRA plan who is over age 59 1/2 has a 20%
free withdrawal allowance. This means that, each Certificate Year
after the first Certificate Year, and before the Annuity
Commencement Date, for the first partial surrender made by each
Participant in that Certificate Year, 10% (20% for IRA plans) of
each Participant's Cash Value may be withdrawn without imposition
of any applicable surrender charge. All Cash Values withdrawn will
reflect the imposition of any applicable Market Value Adjustment.
Full surrenders are not eligible for the free withdrawal allowance.
Failure to use all or part of the free withdrawal allowance in any
Certificate Year forfeits the balance of the allowance for that
Certificate Year. For 403(b) plan participants, partial and full
surrenders may be subject to restrictions. (See "Section 403(b)
Plans and Arrangements," page 7.)
REDUCTION OR ELIMINATION OF SURRENDER CHARGES
The amount of the surrender charge and the duration that it may be
assessed on a Certificate or the underlying group contract may be
reduced or eliminated when sales of the Certificates are made to
persons in certain employee purchase arrangements in such a manner
that results in savings or reductions of sales expenses. The
entitlement to such a reduction in the surrender charge will be
based on the size and type of group to which sales are to be made
(the sales expenses for a larger group are generally less than for
a smaller group), and any prior or existing relationship with the
Company (per certificate sales expenses are likely to be less when
there is a prior or existing relationship because of the likelihood
of utilizing existing sales mechanisms).
There may be other circumstances, of which the Company is not
presently aware, which could result in reduced sales expenses. In
no event will reductions or elimination of the surrender charge and
its duration be permitted where such reductions or elimination will
be unfairly discriminatory to any person.
PREMIUM TAXES
Certain state and local governments impose premium taxes. These
taxes currently range from 0.5% to 5.0%, depending upon
jurisdiction. The Company, in its sole discretion and in
compliance with any applicable state law, will determine the method
used to recover premium tax expenses incurred. The Company 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 the Company has
a tax liability under state law.
DEATH BENEFIT
If a Participant dies before his or her Annuity Commencement Date,
the Death Benefit payable to that Participant's Beneficiary will
equal (a) the greater of the Cash Value or the Accumulated Value of
that Participant's Interest if death occurs before age 65; or (b)
the Cash Value of that Participant's Interest if death occurs on or
after age 65 less any applicable premium tax.
PAYMENT ON SURRENDER
We may defer payment of any partial or full surrender for a period
not exceeding six months from the date we receive your notice of
surrender or the period permitted by state insurance law, if less.
Only under extraordinary circumstances will we defer a surrender
payment more than five business days, and if we defer payment for
more than 30 days, we will pay annual interest of at least 3.5% on
the amount deferred. While all circumstances under which we could
defer payment upon surrender may not be foreseeable at this time,
such circumstances could include, for example, our inability to
liquidate assets due to a general financial crisis. If we intend
to withhold payment for more than thirty days, we will notify you
in writing.
ANNUITY PERIOD
ELECTING THE ANNUITY COMMENCEMENT DATE AND FORM OF ANNUITY
For each Certificate, an Annuity Commencement Date must be
indicated on the Statement of Participant. The value of an Account
(less applicable premium taxes, if any) may be applied on the
Annuity Commencement Date under any of the Annuity Options
described below. In the absence of an election, the value of the
Account will be applied on the Annuity Commencement Date under
Option 2 to provide a life annuity with 120 monthly payments
certain or, if the
<PAGE>
contract is issued to fund a qualified pension and profit-sharing
plan or a Section 403(b) plan subject to ERISA, the value of the
Account will be applied under Option 4 to provide a joint and last
survivor life annuity.
CHANGE OF ANNUITY COMMENCEMENT DATE OR ANNUITY OPTION
The Annuity Commencement Date and the Annuity Option may be
changed, but any such change must be made in writing and received
by us at least 30 days prior to the scheduled Annuity Commencement
Date.
ANNUITY OPTIONS
Any one of the following Annuity Options may be elected subject to
certain tax law qualification limitations on distributions:
OPTION 1--LIFE ANNUITY: It would be possible under this Option for
a Participant to receive only one payment if he/she died before the
due date of the second annuity payment, two if he/she died before
the third payment and so on.
OPTION 2--LIFE ANNUITY WITH 120, 180 OR 240 MONTHLY PAYMENTS
ASSURED: An annuity providing monthly income based on the life of
the Participant for a fixed period of 120 months, 180 months or 240
months (as selected). If the Participant dies before the monthly
payments are completed, the Company will continue to make payments
for the remainder of the period.
OPTION 3--CASH REFUND LIFE ANNUITY: An annuity payable monthly
during the lifetime of the Participant on whose life payments are
based provided that, at the death of the Participant, the
beneficiary will receive an additional payment equal to the excess,
if any, of (a) minus (b) where (a) is the amount applied under this
option and (b) is the sum of all Annuity Payments previously made.
OPTION 4--JOINT AND LAST SURVIVOR LIFE ANNUITY: An annuity payable
monthly during the joint lifetime of the Participant and a
secondary payee on whose lives payments are based, and thereafter
during the remaining lifetime of the survivor, ceasing with the
last payment prior to the death of the survivor. It would be
possible under this Option for the Participant or secondary payee
to receive only one payment in the event of death before the due
date for the second payment and so on.
OPTION 5--OTHER ANNUITY OPTIONS: An annuity payable as is mutually
agreed on by the Company and the Participant or Owner, as provided
in the Plan, if any.
The Tables contained in the Certificate provide for guaranteed
dollar amounts of monthly payments for each $1,000 applied under
the first five Annuity Options. For Options 1, 2, 3 and 4, the
amount of each payment will depend on the age (and sex, if
applicable) of the payees.
The Tables for Options 1, 2, 3 and 4 are based on the Progressive
Annuity Table (assuming births in the year 1900) and a net
investment rate of 3.5% a year. The Company may, at its
discretion, if mortality appears more favorable and interest rates
justify, apply other tables which will result in higher monthly
payments for each $1,000 applied under one or more of the five
Annuity Options. Income Options (Payments of a Fixed Amount,
Payments for a Fixed Period and Amounts Held at Interest) are also
available where permitted by tax laws.
ANNUITY PAYMENTS
The first payment under any Annuity Option will be made on the
first day of the month following the Annuity Commencement Date.
Subsequent payments will be made on the first day of each month in
accordance with the manner of payment selected.
If at any time payments under an Annuity Option are less than $50
per payment, we may change the frequency of payment to such
intervals as will result in annuity payments of at least $50.
Once annuity payments have commenced for a Participant, no
surrender of the annuity benefit can be made for the purpose of
receiving a lump-sum settlement in lieu of payments.
DEATH OF ANNUITANT AFTER ANNUITY COMMENCEMENT DATE
In the event of the death of the Annuitant after the Annuity
Commencement Date, the present values on the date of death of any
remaining guaranteed payments will be paid in one sum to the
beneficiary designated unless other provisions have been made.
Calculations of present values will be based on the interest rate
that we use to determine the amount of each payment.
<PAGE>
INVESTMENTS BY THE COMPANY
Assets of the Company must be invested in accordance with
requirements established by applicable state laws regarding the
nature and quality of investments that may be made by life
insurance companies and the percentage of their assets that may be
committed to any particular type of investment. In general, these
laws permit investments, within specified limits and subject to
certain qualifications, in federal, state, and municipal
obligations, corporate bonds, preferred and common stocks, real
estate mortgages, real estate and certain other investments. All
claims by purchasers of the contracts and Certificates, and other
general account products, will be funded by the Company's general
account.
In establishing Guaranteed Interest Rates, the Company will
consider the yields on fixed income securities that are part of the
Company's current investment strategy for the Certificates at the
time that the Guaranteed Interest Rates are established. (See
"Establishment of Guaranteed Interest Rates," page 2.) The current
investment strategy for the Contracts is to invest in fixed income
securities, including public bonds, privately placed bonds, and
mortgages, some of which fixed income securities may be zero coupon
securities. While the foregoing generally describes our investment
strategy, we are not obligated to follow any particular strategy
except as may be required by federal law and Connecticut and other
state insurance laws.
AMENDMENT OF CERTIFICATES
We reserve the right to amend the Certificates to meet the
requirements of applicable federal or state laws or regulations.
We will notify you in writing of any such amendments.
ASSIGNMENT OF CERTIFICATES
Rights evidenced by a Certificate may be assigned as permitted by
applicable law, unless endorsed to the contrary. An assignment
will not be binding on us until we receive notice in writing. We
assume no responsibility for the validity or effect of any
assignment. You should consult your tax advisor regarding the tax
consequences of an assignment. Ownership of contracts issued in
connection with Section 401(a), 401(k), 403(a), 403(b), 408, 414(d)
or 457 plans may not generally be assigned.
DISTRIBUTION OF CERTIFICATES
Travelers Equities Sales, Inc. ("TESI") is the principal
underwriter of the Certificates. TESI is registered with the
Securities and Exchange Commission under the Securities Exchange
Act of 1934 as a broker-dealer, and is a member of the National
Association of Securities Dealers, Inc.
TESI may enter into Distribution Agreements with certain broker-
dealers registered under the Securities Exchange Act of 1934.
Under the Distribution Agreements such broker-dealers may offer
Certificates to persons who have established an account with the
broker-dealer. In addition, the Company may offer Certificates to
members of certain other eligible groups. The Company will pay a
maximum commission of 4.5% for the sale of a Certificate. In the
future, the Company may pay a commission on an election of a
subsequent Guarantee Period by a Participant.
In addition, the Company may offer contracts and Certificates to
members of certain other eligible groups through trusts or
otherwise.
FEDERAL TAX CONSIDERATIONS
GENERAL
The Company is taxed as a life insurance company under Subchapter
L of the Internal Revenue Code (the "Code"). Generally, amounts
credited to a contract are not taxable until received by the Owner,
Participant or beneficiary, either in the form of Annuity Payments
or other distributions. Tax consequences and limits are described
further below for each annuity program.
SECTION 403(B) PLANS AND ARRANGEMENTS
Purchase Payments for tax-deferred annuity contracts may be made by
an employer for employees under annuity plans adopted by public
educational organizations and certain organizations which are tax
exempt under Section 501(c)(3) of the Code. Within statutory
limits, these payments are not currently includable in the gross
income of the participants. Increases in the value of the contract
attributable to these purchase payments are similarly not subject
to current taxation. The income in the contract is taxable as
ordinary income whenever distributed.
<PAGE>
An additional tax of 10% will apply to any taxable distribution
received by the Participant before the age of 59 1/2, except when
due to death, disability, or as part of a series of payments for
life or life expectancy, or made after the age of 55 with
separation from service. There are other statutory exceptions.
Amounts attributable to salary reductions and income thereon may
not be withdrawn prior to attaining the age of 59 1/2, separation
from service, death, total and permanent disability, or in the case
of hardship as defined by federal tax law and regulations.
Hardship withdrawals are available only to the extent of the salary
reduction contributions and not from the income attributable to
such contributions. These restrictions do not apply to assets held
generally as of December 31, 1988.
Distribution must begin by April 1st of the calendar year following
the calendar year in which the Participant attains the age of 70
1/2. Certain other mandatory distribution rules apply at the death
of the participant.
Eligible rollover distributions, including most partial or full
redemptions or "term-for-years" distributions of less than 10
years, are eligible for direct rollover to another 403(b) contract
or to an Individual Retirement Arrangement (IRA) without federal
income tax withholding.
QUALIFIED PENSION AND PROFIT-SHARING PLANS
Under a qualified pension or profit-sharing trust described in
Section 401(a) of the Code and exempt from tax under Section 501(a)
of the Code, 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 in the form of Annuity or Income Payments 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 described in Section
402 of the Code may be eligible for special ten-year forward
averaging treatment for individuals born before January 1, 1936.
All individuals may be eligible for favorable five-year forward
averaging of lump-sum distributions. Certain eligible rollover
distributions including most partial and full surrenders or term-
for-years distributions of less than 10 years are eligible for
direct rollover to an eligible retirement plan or to an IRA without
federal income tax withholding.
An additional tax of 10% will apply to any taxable distribution
received by the Participant before the age of 59 1/2, except by
reason of death, disability or as part of a series of payments for
life or life expectancy, or at early retirement at or after the age
of 55. There are other statutory exceptions.
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 is not employed, 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 $2,250.
Partial or full distributions made prior to the age of 59 1/2,
except in the case of death, disability or distribution for life or
life expectancy, will incur a penalty tax of 10% plus ordinary
income tax treatment of the taxable amount received. Distributions
after the age of 59 1/2 are treated as ordinary income. Amounts
contributed after 1986 on a non-deductible basis are not includable
in income when distributed. Distributions must commence by April
1st of the calendar year after the close of the calendar year in
which the individual attains the age of 70 1/2. The individual
must maintain personal and tax return records of any non-deductible
contributions and distributions.
Section 408(k) of 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.
SECTION 457 PLANS
Section 457 of the Code allows employees and independent
contractors of state and local governments and tax-exempt
organizations to defer a portion of their salaries or compensation
to retirement years without paying current income tax on either the
deferrals or the earnings on the deferrals.
The Owner of contracts issued under Section 457 plans is the
employer or a contractor of the Participant and amounts may not be
made available to participants (or beneficiaries) until separation
from service, retirement or death or an unforeseeable emergency as
determined by Treasury Regulations. The proceeds of annuity
contracts purchased by Section 457 plans are subject to the claims
of general creditors of the employer or contractor.
Distributions must begin generally by April lst of the calendar
year following the calendar year in which the Participant attains
the age of 70 1/2. Certain other mandatory distribution rules
apply upon the death of the Participant.
<PAGE>
All distributions from plans that meet the requirements of Section
457 of the Code are taxable as ordinary income in the year paid or
made available to the Participant or beneficiary.
NONQUALIFIED ANNUITIES
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 an Owner when that Owner transfers the contract without
adequate consideration.
The federal tax law requires nonqualified annuity contracts issued
on or after January 19, 1985 to meet minimum mandatory distribution
requirements upon the death of the Owner. Failure to meet these
requirements will cause the succeeding Owner or beneficiary to lose
the tax benefits associated with annuity contracts, i.e., primarily
the tax deferral prior to distribution. The distribution required
depends upon whether an Annuity Option is elected or whether the
succeeding Owner is the surviving spouse. Contracts will be
administered by the Company in accordance with these rules.
If two or more nonqualified 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 annuitization of
a contract will generally be taxed on an income-first basis to the
extent of income in the contract. Certain pre-August 14, 1982
deposits into a nonqualified 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 withdrawal under the tax law.
With certain exceptions, the law will impose an additional tax if
an Owner makes a withdrawal of any amount under the contract which
is allocable to an investment made after August 13, 1982. The
amount of the additional tax will be 10% of the amount includable
in income by the Owner because of the withdrawal. The additional
tax will not be imposed if the amount is received on or after the
Owner reaches the age of 59 1/2, or if the amount is one of a
series of substantially equal periodic payments made for life or
life expectancy of the taxpayer. The additional tax will not be
imposed if the withdrawal or partial surrender follows the death or
disability of the Owner.
THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974
Under the Employee Retirement Income Security Act of 1974
("ERISA"), as amended, certain special provisions may apply to the
contract if the Owner of a Section 403(b) plan contract or certain
other tax-benefited contracts requests that the contract be issued
to conform to ERISA or if the Company has notice that the contract
was issued pursuant to a plan subject to ERISA.
ERISA requires that certain Annuity Options, withdrawals or other
payments and any application for a loan secured by the contract may
not be made until the Participant has filed a Qualified Election
with the plan administrator. Under certain plans, ERISA also
requires that a designation of a beneficiary other than the
Participant's spouse be deemed invalid unless the Participant has
filed a Qualified Election.
A Qualified Election must include either the written consent of the
Participant's spouse, notarized or witnessed by an authorized plan
representative, or the Participant's certification that there is no
spouse or that the spouse cannot be located.
The Company intends to administer all contracts to which ERISA
applies in a manner consistent with the direction of the plan
administrator regarding the provisions of the plan, in accordance
with applicable law. Because these requirements differ according
to the plan, a person contemplating the purchase of an annuity
contract should consider the provisions of the plan.
FEDERAL INCOME TAX WITHHOLDING
The portion of a distribution which is taxable income to the
recipient will be subject to federal income tax withholding,
generally pursuant to Section 3405 of the Code. The application of
this provision is summarized below.
<PAGE>
1. ELIGIBLE ROLLOVER DISTRIBUTION FROM SECTION 403(B) PLANS OR
ARRANGEMENTS OR FROM QUALIFIED PENSION AND PROFIT-SHARING PLANS
There is an unwaivable 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 complete 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 require 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,
to the extent such aggregate distributions exceed $200 for the
year, unless the recipient elects not to have taxes withheld. If
an election out is not provided, 10% of the taxable distribution
will be withheld as federal income tax. Election forms will be
provided at the time distributions are requested. This form of
withholding applies to all annuity programs.
3. PERIODIC DISTRIBUTIONS (DISTRIBUTIONS PAYABLE OVER A PERIOD
GREATER THAN ONE YEAR)
The portion of a periodic distribution which constitutes taxable
income will be subject to federal income tax withholding under the
wage withholding tables as if the recipient were married claiming
three exemptions. A recipient may elect not to have income taxes
withheld or have income taxes withheld at a different rate by
providing a completed election form. Election forms will be
provided at the time distributions are requested. This form of
withholding applies to all annuity programs. As of January 1,
1994, a recipient receiving periodic payments (e.g., monthly or
annual payments under an Annuity Option) which total $13,700 or
less per year, will generally be exempt from the withholding
requirements.
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.
Recipients who do not provide a social security number or other
taxpayer identification number will not be permitted to elect out
of withholding. Additionally, United States citizens residing
outside of the country, or U.S. legal residents temporarily
residing outside the country, are not permitted to elect out of
withholding.
TAX ADVICE
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 an Owner, Participant or
beneficiary who may make elections under a contract. It should be
understood that the foregoing description of the federal income tax
consequences under these contracts is not exhaustive and that
special rules are provided with respect to situations not discussed
here. It should be understood that if a tax-benefited plan loses
its exempt status, employees could lose some of the tax benefits
described. For further information, a qualified tax adviser should
be consulted.
LEGAL OPINION
Legal matters in connection with federal laws and regulations
affecting the issue and sale of the Modified Guaranteed Annuity
Contracts described in this Prospectus and the organization of the
Company, its authority to issue Modified Guaranteed Annuity
Contracts under Connecticut law, and the validity of the forms of
the Modified Guaranteed Annuity Contracts under Connecticut law
have been passed on by the General Counsel of the Life and
Annuities Division of the Company.
<PAGE>
INDEPENDENT ACCOUNTANTS
The consolidated statements of operations and retained earnings and
cash flows for the year ended December 31, 1994 and the
consolidated balance sheets of The Travelers Insurance Company as
of December 31, 1994 and 1993, included in The Travelers Insurance
Company's Form 10-K for the year ended December 31, 1994, have been
incorporated by reference herein in reliance upon the report (also
incorporated by reference herein) of KPMG Peat Marwick LLP,
independent certified public accountants, and upon the authority of
said firm as experts in accounting and auditing. The consolidated
statements of operations and retained earnings and cash flows of
The Travelers Insurance Company for the years ended December 31,
1993 and 1992, have been incorporated by reference herein in
reliance upon the reports dated January 24, 1994 and February 9,
1993 (except for Notes 2 and 5, as to which the date is January 24,
1994), which includes an explanatory paragraph regarding the
Company's change in its methods of accounting for post-retirement
benefits other than pensions, income taxes and foreclosed assets in
1992 (also incorporated by reference herein) of Coopers & Lybrand
L.L.P., independent accountants, and upon the authority of said
firm as experts in accounting and auditing.
<PAGE>
APPENDIX A
ILLUSTRATION OF A MARKET VALUE ADJUSTMENT
-----------------------------------------
Deposit: $50,000.00
Guarantee Period: 5 Years
Guaranteed Interest Rate: 5% Effective Annual Rate
The following examples illustrate how the Market Value
Adjustment may affect the values of your contract. In these
examples, the surrender occurs one year after a Deposit of
$50,000 was made to the Contract. The Maturity Value of
this Deposit would be $63,814.08 at the end of the five-year
Guarantee Period. However, after one year, when the
surrenders occur in these examples, the value of the Deposit
and accumulated guaranteed interest would be $52,500.00.
The Market Value Adjustment will be based on the rate the
Company is crediting at the time of surrender on new
Deposits of the same term-to-maturity as the time remaining
in your Guarantee Period. One year after the Deposit, you
would have four years remaining in the five-year Guarantee
Period.
EXAMPLE OF A NEGATIVE MARKET VALUE ADJUSTMENT
A negative Market Value Adjustment results from a surrender
that occurs when interest rates have increased since the
date of Deposit. Assume interest rates have increased one
year after the Deposit and the Company is crediting 7% for a
four-year Guarantee Period. If you surrender the full
Deposit, the Market Adjusted Value would be:
$47,784.02 = $63,814.08 x [1/1 + .07 + .005] 4
The Market Value Adjustment is a reduction of $4,715.98 from
the Deposit plus accumulated interest:
$47,784.02 = $52,500.00 - $4,715.98
If instead of a full surrender, 50% of the Deposit were
surrendered, the Market Adjusted Value of the surrendered
portion would be 50% of the full surrender:
$23,892.01 = $31,907.04 x [1/1 + .07 + .005] 4
The Maturity Value after the partial surrender would be 50%
of the Maturity Value prior to surrender, or $31,907.04.
EXAMPLE OF A POSITIVE MARKET VALUE ADJUSTMENT
A positive Market Value Adjustment results from a surrender
that occurs when interest rates have decreased since the
date of Deposit. Assume interest rates have decreased one
year later and the Company is then crediting 3.5% for a
four-year Guarantee Period.
If you surrender the full Deposit, the Market Adjusted Value
would be:
$54,548.54 = $63,814.08 x [1/1 + .035 + .005] 4
The Market Value Adjustment is an increase of $2,048.54 over
the Deposit plus accumulated interest:
$54,548.54 = $52,500.00 + $2,048.54
If instead of a full surrender, 50% of the Deposit were
surrendered, the Market Adjusted Value of the surrendered
portion would be 50% of the full surrender:
$27,274.27 = $31,907.04 x [1/1 + .035 + .005] 4
The Maturity Value after the partial surrender would be 50%
of the Maturity Value prior to the surrender, or $31,907.04.
These examples only illustrate what may happen when interest
rates increase or decrease after a Deposit is made to the
Contract. A particular Market Value Adjustment may have a
greater or lesser impact than that shown in these examples,
depending on how much interest rates have changed since the
Deposit and the amount of time remaining to Maturity. In
addition, a surrender charge may be assessed on surrenders
made before the Deposit has been under the contract for five
years.
<PAGE>
GROUP MODIFIED GUARANTEED ANNUITY CONTRACTS
ISSUED BY
THE TRAVELERS INSURANCE COMPANY
L-11167 TIC Ed 5-95
PRINTED IN U.S.A.
T-MARK
INDIVIDUAL MODIFIED GUARANTEED ANNUITY CONTRACTS
ISSUED BY
THE TRAVELERS INSURANCE COMPANY
PROSPECTUS
MAY 1, 1995
One Tower Square, Hartford, Connecticut 06183 *
Telephone: (203) 277-0111
<PAGE>
T-MARK
Individual Modified Guaranteed Annuity Contracts
PROSPECTUS
This Prospectus describes $200 million in interests of individual
modified guaranteed annuity contracts offered by The Travelers
Insurance Company (the "Company"). These contracts are offered to
the general public for individual non tax-benefited purchases. The
Company may also offer these individual contracts in the following
tax-benefited programs: (1) plans qualified under Sections 401(a),
401(k) or 403(a) of the Internal Revenue Code (the "Code"); (2)
annuity purchase plans adopted by public school systems and certain
tax-exempt organizations pursuant to Section 403(b) of the Code;
(3) individual retirement annuities (IRAs) established by persons
eligible under Section 408 of the Code; (4) contracts purchased by
the United States Government, any state government or political
subdivision thereof, or any agency or instrumentality (within the
meaning of Section 414(d) of the Code), for use in satisfying its
obligation to provide a benefit under a governmental plan; and (5)
deferred compensation plans under Section 457 of the Code.
A minimum purchase payment of at least $5,000 must accompany the
application for a contract. No additional payment of less than
$5,000 is permitted under a contract. (See "Application and
Purchase Payment," page 1.)
The Maturity Value will be guaranteed by the general assets of the
Company. The Company intends generally to invest funds received in
relation to contracts in fixed income securities, including public
bonds, privately placed bonds, and mortgages, some of which fixed
income securities may be zero coupon securities. (See "Investments
by the Company," page 6.)
THESE SECURITIES MAY BE SUBJECT TO A SUBSTANTIAL MARKET VALUE
ADJUSTMENT IF NOT HELD TO THE MATURITY DATE OF A DEPOSIT WHICH
COULD RESULT IN THE RECEIPT OF LESS THAN YOUR ORIGINAL PURCHASE
PAYMENT. IN ADDITION, THESE SECURITIES MAY BE SUBJECT TO A
SURRENDER CHARGE IF A SURRENDER IS MADE BEFORE A DEPOSIT HAS BEEN
IN THE CONTRACT FOR AT LEAST FIVE YEARS. (SEE "MARKET VALUE
ADJUSTMENT," PAGE 3, AND "SURRENDER CHARGE," PAGE 3.)
UPON A SUBSEQUENT GUARANTEE PERIOD, THE GUARANTEED INTEREST RATE
WILL BE DECLARED BY THE COMPANY BASED ON VARIOUS FACTORS. IT MAY
BE HIGHER OR LOWER THAN THE PREVIOUS GUARANTEED INTEREST RATE.
(SEE "GUARANTEE PERIODS," PAGE 1, AND "ESTABLISHMENT OF GUARANTEED INTEREST
RATES," PAGE 2.)
EXCEPT FOR CONTRACTS ISSUED TO RESIDENTS OF THE STATE OF NEW YORK,
THERE IS NO MINIMUM GUARANTEED RENEWAL INTEREST RATE.
THIS PROSPECTUS IS ACCOMPANIED BY A COPY OF THE COMPANY'S LATEST
ANNUAL REPORT ON FORM 10-K WHICH CONTAINS ADDITIONAL INFORMATION
ABOUT THE COMPANY.
MUTUAL FUNDS, ANNUITIES AND INSURANCE PRODUCTS ARE NOT DEPOSITS OR
OBLIGATIONS OF, OR GUARANTEED BY ANY BANK, NOR ARE THEY INSURED OR
OTHERWISE PROTECTED BY THE FDIC, THE FEDERAL RESERVE BOARD, OR ANY
OTHER AGENCY; THEY ARE SUBJECT TO INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF PRINCIPAL INVESTMENT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1995.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act"), and in
accordance therewith files reports and other information with the
Securities and Exchange Commission (the "Commission"). Such
reports and other information can be inspected and copied at the
public reference facilities maintained by the Commission at: Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549; Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and Seven World Trade Center, New York, New York
10048. Copies of such material can also be obtained from the
Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates.
The Company has filed with the Commission a Registration Statement
under the Securities Act of 1933, as amended (the "Act") with
respect to the securities offered hereby. For further information
with respect to the Company and these securities, reference is made
to the Registration Statement and exhibits thereto. Statements
contained in this Prospectus as to the contents of any contract or
other document are not necessarily complete, and in each instance,
reference is made to the copy of such contract or document filed as
an exhibit to the Company's Registration Statement, each such
statement being qualified in all respects by such reference. The
Company does not plan to furnish subsequent annual reports
containing financial information to the owners of contracts or
certificates described in this Prospectus.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's latest Annual Report on Form 10-K and the current
reports on Form 8-K (dated January 1, 1995 and April 21, 1995) have
been filed with the Commission pursuant to Section 15(d) of the
Exchange Act. They are incorporated by reference into this
Prospectus and the 10-K must accompany this Prospectus. The Form
10-K contains additional information about the Company, including
certified financial statements for the Company's latest fiscal
year.
The Company will provide without charge to each person to whom this
Prospectus is delivered, on the written or oral request of any such
person, a copy of any or all of the documents incorporated by
reference in the Registration Statement of which this Prospectus
forms a part other than exhibits to such documents unless such
exhibits are specifically incorporated by reference into such
documents. Requests should be directed to The Travelers Insurance
Company, Annuity Services--5 SHS, One Tower Square, Hartford,
Connecticut 06183-5030, telephone (800) 842-0125.
<PAGE>
TABLE OF CONTENTS
GLOSSARY OF SPECIAL TERMS iv
PROSPECTUS SUMMARY v
THE INSURANCE COMPANY 1
DESCRIPTION OF THE CONTRACTS 1
General 1
Application and Purchase Payment 1
Right to Cancel 1
ACCUMULATION PERIOD 1
Guarantee Periods 1
Establishment of Guaranteed Interest Rates 2
SURRENDERS 3
General 3
Surrender Charge 3
Market Value Adjustment 3
Waiver, Reduction or Elimination of Surrender Charge 4
Reduction or Elimination of Surrender Charges 5
Premium Taxes 5
Death Benefit 5
Payment On Surrender 5
ANNUITY PERIOD 5
Electing the Maturity Date and Form of Annuity 5
Change of Maturity Date or Annuity Option 6
Annuity Options 6
Annuity Payments 6
Death of Annuitant After Maturity Date 6
INVESTMENTS BY THE COMPANY 6
AMENDMENT OF CONTRACTS 7
ASSIGNMENT OF CONTRACTS 7
DISTRIBUTION OF CONTRACTS 7
FEDERAL TAX CONSIDERATIONS 7
General 7
Section 403(b) Plans and Arrangements 7
Qualified Pension and Profit-Sharing Plans 8
Individual Retirement Annuities 8
Section 457 Plans 8
Non-Qualified Annuities 8
Federal Income Tax Withholding 9
Tax Advice 10
LEGAL OPINION 10
INDEPENDENT ACCOUNTANTS 10
APPENDIX A 11
<PAGE>
GLOSSARY OF SPECIAL TERMS
In this Prospectus "We," "Us," "Our" and the "Company" refer to The
Travelers Insurance Company and "You" and "Yours" refer to an Owner
who has been issued a Contract.
In addition, as used in this Prospectus, the following terms have
the indicated meanings.
ACCOUNT
An Account is the Cash Value or Cash Surrender Value credited to a
participant or to the owner.
ACCUMULATED VALUE
The value of the Deposit which is credited daily at the Guaranteed
Interest Rate.
ANNUITANT
The person on whose life the modified guaranteed annuity contract
is issued.
CASH SURRENDER VALUE
The Cash Value of all the Deposits credited to that Account, less
the Surrender Charge and any applicable premium tax.
CASH VALUE
The Maturity Value of a Deposit on the Maturity Date or the Market
Adjusted Value before the Maturity Date of that Deposit. The Cash
Value on any date is the sum of the Cash Value of all the Deposits
credited to the contract.
COMPANY
The Travelers Insurance Company.
COMPANY'S HOME OFFICE
The principal executive offices of The Travelers Insurance Company
located at One Tower Square, Hartford, Connecticut.
CONTRACT DATE
The effective date of the contract as designated in the contract.
CONTRACT YEAR
Annual periods computed from the Contract Date.
DEPOSIT
The net premium payment or renewal amount applied to the contract
at a Guaranteed Interest Rate to the Maturity Date.
GUARANTEE PERIOD
The period between the initial Premium Payment or Renewal Date and
the Maturity Date during which a Guaranteed Interest Rate is
credited.
GUARANTEED INTEREST RATE
The annual effective interest rate which is the applicable interest
rate contained in a schedule of rates established by the Company
from time to time for various durations.
MARKET ADJUSTED VALUE
The current value of the Deposit on a date before the Maturity
Date. This value is computed using the market value adjustment
formula, as described in this Prospectus.
MATURITY DATE OF THE CONTRACT
The date designated in the contract or otherwise by the Owner to
receive benefits.
MATURITY DATE OF A DEPOSIT
The date on which a Guarantee Period for a Deposit ends.
MATURITY VALUE
The guaranteed value of the Deposit which is the net premium
payment or renewal amount plus interest credited on it during the
Guarantee Period. The Company will declare the annual effective
rate of interest when the net premium is applied, as described in
this Prospectus.
OWNER
The person or entity to whom the contract is issued.
<PAGE>
PROSPECTUS SUMMARY
The Travelers Insurance Company (the "Company"), an indirect
wholly owned subsidiary of Travelers Group Inc., is offering
individual modified guaranteed annuity contracts for non
tax-benefited and tax-benefited purchases. As described in
this Prospectus, individual modified guaranteed annuity
contracts have a Guaranteed Interest Rate which is credited
to the Deposit in the contract when the Deposit is held to
its Maturity Date. Surrenders prior to the Maturity Date of
the Deposit are subject to a Market Value Adjustment and a
Surrender Charge (if applicable).
When a payment is made under an application, the Applicant
selects a Guarantee Period from among those then offered by
the Company. During this Guarantee Period, the purchase
payment earns interest at the applicable Guaranteed Interest
Rate as established by the Company. Interest is credited on
a daily basis and this compounding effect is reflected in
the Guaranteed Interest Rate. At the end of each Guarantee
Period, a subsequent Guarantee Period of seven days will
begin, unless the Owner elects a different duration. The
Owner must elect the length of a subsequent Guarantee Period
during the 30 days before the end of the previous Guarantee
Period. Failure to make an election will result in an
automatic renewal of the Deposit for a period of seven days.
As of the first day of each subsequent Guarantee Period the
funds will earn interest at the then applicable subsequent
Guaranteed Interest Rate and the interest credited will earn
interest at the then applicable Guaranteed Interest Rate.
(See "Guarantee Periods," page 1 and "Establishment of
Guaranteed Interest Rates," page 2.)
Subject to certain restrictions, surrenders are permitted.
However, these surrenders may be subject to a surrender
charge and/or a Market Value Adjustment. No Market Value
Adjustment will be applied to any surrender effective as of
the end of a Guarantee Period. No surrender charge will be
applied to any payment that has been in the contract for at
least five years. For Deposits which have not been credited
to the contract for at least five years, a graded surrender
charge beginning at a maximum of 7% will be assessed if you
surrender. The surrender charge will apply if a surrender
occurs at the expiration date of the Guarantee Period for
Deposits in the contract less than five years. We will
waive the surrender charge in certain instances. (See
"Waiver, Reduction or Elimination of Surrender Charge," page
4.) For 403(b) plan participants, partial and full
surrenders may be subject to restrictions. (See "Section
403(b) Plans and Arrangements," page 7.)
We may defer payment of any surrender for a period of up to
six months from the date we receive notice of surrender or
the period permitted by state law, if less, but such a
deferral of payment will not be for a period greater than
five business days except under extraordinary circumstances.
We will pay annual interest of at least 3.5% on any amounts
deferred for more than thirty days during such period if we
choose to exercise this deferral right. (See "Surrenders,"
page 3.)
A Market Value Adjustment will only be applied when the
surrender occurs prior to the Maturity Date of the Deposit.
The Market Adjusted Value will reflect the relationship, at
the time of surrender, between the rate we are then
crediting on new Deposits with the same durations as the
time remaining on the Guarantee Period, and the Guaranteed
Interest Rate applicable to that Deposit. Generally, the
primary factor affecting the amount of the Market Value
Adjustment is the level of interest rates on investments to
be made by the Company at the time that the current
Guaranteed Interest Rates are established. The Market
Adjusted Value is sensitive, therefore, to changes in
current interest rates. The level of the Market Value
Adjustment is dependent upon the current interest rate at
the time of surrender. The Market Value Adjustment may
increase or decrease the value of this investment prior to
the Maturity Date. It is possible that the amount you
receive upon surrender would be less than your original
Deposit if interest rates increase. Also, if interest rates
decrease, the amount you receive upon surrender may be more
than your original Deposit and accrued interest. (See
"Surrenders," page 3.)
On the Maturity Date specified by the Owner, the Company
will pay the Owner a lump sum payment or start to pay a
series of payments. A series of payments may be elected
under certain Annuity Options. (See "Annuity Options," page 6.)
The contract provides for a guaranteed death benefit. In
the event of the death of the Annuitant prior to the
Maturity Date, the Company will pay to the Owner or
beneficiary the death benefit in lieu of any other payment
under the contract. The amount of the death benefit will
equal (1) the greater of the Cash Value or the Accumulated
Value if death occurs before age 65, or (2) the Cash Value
if death occurs on or after age 65. (See "Death Benefit,"
page 5.)
<PAGE>
THE INSURANCE COMPANY
The Travelers Insurance Company (the "Company") is a wholly
owned subsidiary of The Travelers Insurance Group Inc.,
which is indirectly owned, through a wholly owned
subsidiary, by Travelers Group Inc. The Company is a stock
insurance company chartered in 1864 in the state of
Connecticut and has been 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.
DESCRIPTION OF THE CONTRACTS
GENERAL
This Prospectus describes individual modified guaranteed
annuity contracts offered by the Company for non tax-
benefited purchases. The Company also offers the contracts
in the following tax-benefited programs: (1) Section
401(a), 401(k) and 403(a) Plans; (2) Section 403(b) Plans;
(3) IRAs; (4) certain governmental plans defined by Section
414(d); and (5) deferred compensation plans under Section
457. All section references are to the Internal Revenue
Code (the "Code"), unless otherwise noted.
As described in this Prospectus, the contracts have a
Guaranteed Interest Rate which is credited to a Deposit in
the contract when the Deposit is held to its Maturity Date.
Surrenders made prior to the Deposit's Maturity Date are
subject to a Market Value Adjustment and a Surrender Charge
(if applicable).
These individual contracts may not be available in all
states.
APPLICATION AND PURCHASE PAYMENT
To apply for a contract, an individual must complete an
application and make a minimum purchase payment of $5,000.
Additional purchase payments of at least $5,000 may be made
under a contract. Payments under a contract may not exceed
$1,000,000 in any one year without our prior approval.
In the event that your application is not properly
completed, we will attempt to contact you by telephone. We
will return an improperly completed application, along with
the corresponding purchase payment, ten days after we
receive it if the application has not been properly
completed by that time.
The Maturity Value is guaranteed by our general assets. A
payment is credited to a contract on the date we receive a
properly completed application along with the purchase
payment. The Company then issues a contract and confirms the
purchase payment in writing. Additional payments are
credited and confirmed in the same manner. Interest is
earned the next day.
RIGHT TO CANCEL
State law may afford a right to cancel a contract for a
certain period of time after receipt of the contract and
allow a refund of the entire purchase payment. For
revocation to be effective, a written notice of cancellation
must be mailed or delivered to the Company's Home Office.
ACCUMULATION PERIOD
GUARANTEE PERIODS
The Owner selects the duration of the Guarantee Period from
among those durations we offer. As of the date of this
Prospectus, we are offering Guarantee Periods with durations
ranging from seven days to ten years; however the Guarantee
Periods we offer in the future could be different. The
duration selected will determine the Guaranteed Interest
Rate, and the Deposit (less surrenders made and less
applicable premium taxes, if any) will earn interest at this
Guaranteed Interest Rate during the entire Guarantee Period.
All interest earned will be credited daily; this compounding
effect is reflected in the Guaranteed Interest Rate.
<PAGE>
The following is an illustration of how we will credit
interest during the Guarantee Period. For the purpose of
this example, we have made the assumptions as indicated.
Example of Guaranteed Interest Rate Accumulation
------------------------------------------------
Beginning Account Value: $50,000
Guarantee Period: 5 Years
Guaranteed Interest Rate: 5% Annual Effective Rate
<TABLE>
<CAPTION>
Interest Credited
to the Account
During the Cumulative Interest Accumulated
Year Guarantee Period Credited to the Account Value
------ ----------------- ----------------------- -----------
<S> <C> <C> <C>
6 months $ 1,234.75 $ 1,234.75 $ 51,234.75
1 2,500.00 2,500.00 52,500.00
2 2,625.00 5,125.00 55,125.00
3 2,756.25 7,881.25 57,881.25
4 2,894.06 10,775.31 60,775.31
5 3,038.77 13,814.08 63,814.08
Guaranteed Value of the Deposit at the end of five years is: $50,000.00 + $13,814.08 = $63,814.08
</TABLE>
NOTE: EXAMPLE ASSUMES NO SURRENDERS OF ANY AMOUNT DURING
THE ENTIRE FIVE-YEAR PERIOD. A MARKET VALUE ADJUSTMENT
APPLIES AND A SURRENDER CHARGE MAY APPLY TO ANY INTERIM
SURRENDER (SEE "SURRENDERS," PAGE 3). THE HYPOTHETICAL
INTEREST RATES ARE ILLUSTRATIVE ONLY AND ARE NOT INTENDED
TO PREDICT FUTURE INTEREST RATES TO BE DECLARED UNDER THE
CONTRACT. ACTUAL INTEREST RATES DECLARED FOR ANY GIVEN
TIME MAY BE MORE OR LESS THAN THOSE SHOWN.
At the end of any Guarantee Period, a subsequent Guarantee
Period will begin. We will notify you in writing about a
subsequent Guarantee Period before Maturity. This written
notification will not specify the interest rate for renewal
Deposits. You must elect, during the 30-day period before
the end of the previous Guarantee Period, a Guarantee Period
of a different duration from among those we offer at that
time. The election may be made by notifying us in writing
or by calling 1-800-TRANSFR (outside Connecticut) or 1-800-
233-3591 (in Connecticut). If no election is made, we will
automatically renew the Deposit for a period of seven days.
In no event may subsequent Guarantee Periods extend beyond
the Maturity Date then in effect for the contract. For
example, if the Annuitant is age 62 at the expiration of a
Guarantee Period and the Maturity Date for the Annuitant is
age 65, a three-year Guarantee Period is the maximum
Guarantee Period that may be selected under the contract.
The Deposit will then earn interest at a Guaranteed Interest
Rate which we have declared for such duration. Interest
rates may fluctuate daily.
At the beginning of any subsequent Guarantee Period for a
Deposit, the value of the Deposit will be the Maturity Value
of that Deposit at the end of the Guarantee Period just
ending. This amount will earn interest in the subsequent
Guarantee Period at the then applicable Guaranteed Interest
Rate, which may be higher or lower than the previous
Guaranteed Interest Rate.
At your written request, we will notify you of the
subsequent Guaranteed Interest Rate. You may also call us
at 1-800-842-0125 to inquire about subsequent Guaranteed
Interest Rates.
ESTABLISHMENT OF GUARANTEED INTEREST RATES
The Guaranteed Interest Rate for a chosen Guarantee Period
will be known at the time a Deposit is received or renewed,
and we will send a confirmation which will show the amount
and the applicable Guaranteed Interest Rate. There is no
minimum Guaranteed Interest Rate for renewal Deposits.
(Contracts issued to residents of the state of New York
provide for a minimum renewal interest rate of 3% per
annum.) The rate on renewal Deposits will be equal to or
greater than the rate credited on new comparable Deposits at
that time.
Prior to the Contract Maturity Date, we currently send a
quarterly statement showing a summary of the Account within
30 days after the end of each calendar quarter. We reserve
the right to send statements less frequently but not less
than once in each calendar year.
<PAGE>
The Company has no specific formula for determining the
rate of interest that it will declare as Guaranteed Interest
Rates in the future. The Guaranteed Interest Rates will be
declared from time to time as market conditions dictate.
(See "Investments by the Company," page 6.)
In addition, the Company may also consider various other
factors in determining Guaranteed Interest Rates for a given
period, including regulatory and tax requirements, sales
commissions and administrative expenses we bear, general
economic trends, and competitive factors. THE COMPANY'S
MANAGEMENT WILL MAKE THE FINAL DETERMINATION AS TO THE
GUARANTEED INTEREST RATES TO BE DECLARED. WE CANNOT PREDICT
NOR CAN WE GUARANTEE FUTURE GUARANTEED INTEREST RATES.
SURRENDERS
GENERAL
Subject to certain tax law and retirement plan restrictions
(see "Federal Tax Considerations," page 7), full and partial
surrenders may be made under a contract at any time. For
participants in Section 403(b) tax deferred annuity plans, a
cash surrender may not be made from certain salary reduction
amounts prior to age 59 1/2, separation from service, death,
disability or hardship. (See "Section 403(b) Plans and
Arrangements," page 7.)
In the case of all surrenders, the Cash Value will be
reduced by the amount surrendered on the Surrender Date and
that amount will be payable to the Owner. When a surrender
is made, the Deposit and the Maturity Value of that Deposit
will be reduced in the same proportion as the ratio of the
gross amount surrendered to the Cash Value. Upon request,
the Company will inform you of the amount payable under a
full or partial surrender. Any full or partial surrender
may be subject to tax. (See "Federal Tax Considerations,"
page 7.)
SURRENDER CHARGE
No deduction for a sales charge is made from the purchase
payment when received. A surrender charge, however, may be
assessed on surrenders made before the Deposit has been
under the contract for five years. The surrender charge is
computed as a percentage of the amount surrendered, which
includes the Deposit and the earnings credited thereon
subject to a Market Value Adjustment and increases in dollar
amount as the value of the deposit increases. This chart
indicates the percentage charge applied:
Years Since Deposit Charge as Percentage
was Made, of Gross Surrender Value
1 7%
2 6%
3 5%
4 4%
5 3%
Thereafter 0%
No Surrender Charge will be made for surrenders of a Deposit
which has been in the contract for at least five years.
The above surrender charges will apply to full or partial
surrenders, irrespective of the length of the Guarantee
Period selected. For example, assume a Guarantee Period of
four years. Further assume an election not to renew the
Deposit for a second Guarantee Period, but to redeem it on
its Maturity Date. In this hypothetical case, any
surrenders made during the fourth year, even on the Maturity
Date, will be subject to a 4% Surrender Charge.
MARKET VALUE ADJUSTMENT
The amount payable on a partial or full surrender may be
adjusted up or down by the application of the Market Value
Adjustment formula. The Market Adjusted Value of a Deposit
is the current value of the Deposit on a date before its
Maturity Date. This value is generally computed using
Formula A below, except that contracts issued in the State
of New York shall use Formula B below in computing the
Market Adjusted Value. Both formulas are as follows:
<PAGE>
FORMULA A
Market Adjusted Value = (Maturity Value) x [1/1+iC+.005]t/365
FORMULA B (To be used only in connection with contracts issued in the State of
New York)
Market Adjusted Value = (Maturity Value) x [1/1+iC+.0025]t/365
(where "iC" is the current Guaranteed Interest Rate for a
Guarantee Period of "t" days and "t" is the number of days
remaining in the guarantee period.)
The current Guaranteed Interest Rate is periodically
declared by the Company and is the rate (straight line
interpolation between whole years) which the Company is the
paying on premiums allocated to this class of contract with
the same maturity date as the Deposit to which the formula
is being applied.
A Market Value Adjustment will only be applied when the
surrender occurs prior to the Maturity Date of the Deposit.
The Market Adjusted Value will reflect the relationship, at
the time of surrender, between the rate the Company is then
crediting on new Deposits with the same duration as the time
remaining on the Guarantee Period, and the Guaranteed
Interest Rate applicable to the Deposit. Generally, the
primary factor affecting the amount of the Market Value
Adjustment is the level of interest rates on investments to
be made by the Company at the time that the current
Guaranteed Interest Rates are established. The Market
Adjusted Value is sensitive, therefore, to changes in
current interest rates. So, the level of the Market Value
Adjustment is dependent on the current interest rate at the
time of surrender. The Market Value Adjustment may increase
or decrease the value of this investment prior to the
Maturity Date. It is possible that the amount you receive
upon surrender would be less than your original purchase
payment if interest rates increase. Also, if interest rates
decrease, the amount you receive on surrender may be more
than your original purchase payment and accrued interest.
For example, assume the purchase of a Contract and the
selection of a Guarantee Period of ten years and a
Guaranteed Interest Rate for that duration of 9% a year.
Assume at the end of seven years, a partial surrender is
made. (A partial surrender does not affect the current
Guaranteed Interest Rate as applied to all remaining
deposits.) If the market rate we are then crediting for new
Deposits of three years is 7%, then the Market Adjusted
Value will be greater than the Deposit accumulated at the
Guaranteed Interest Rate (disregarding premium taxes, if
any). On the other hand, if the current rate we are
crediting on new Deposits of three years is, for example,
11%, the Market Adjusted Value will be less than the Deposit
accumulated at the Guaranteed Interest Rate. (For an
illustration showing an upward and downward adjustment, see
Appendix A.)
WAIVER, REDUCTION OR ELIMINATION OF SURRENDER CHARGE
The surrender charge will be waived if:
-an annuity payout is begun;
-an Income Option of at least three years' duration is begun
after the first Contract Year;
-the Annuitant dies;
-the Annuitant becomes disabled (as defined by the Internal
Revenue Service) subsequent to purchase of the contract;
-the Annuitant under a tax deferred annuity (403(b) plan)
retires after age 55, provided the contract has been in
effect five years or more;
-the Annuitant under an IRA plan reaches age 70 1/2, provided
the contract has been in effect five years or more;
-the Annuitant under a qualified pension or profit-sharing
plan (including a 401(k) plan), retires at or after age 59
1/2, provided the Contract has been in effect five years or
more; or if refunds are made to satisfy the anti-
discrimination test; (For Annuitants under contracts issued
before May 1, 1992, the surrender charge will also be waived
if the Annuitant retires at normal retirement age (as
defined by the plan), provided the Contract has been in
effect one year or more); or
<PAGE>
-the Annuitant under a Section 457 deferred compensation
plan retires and the contract 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
IRS rules.
In addition, for Owners under a 403(b) annuity, a pension or
profit-sharing plan, a non tax-benefited annuity, or a
Section 457 Deferred Compensation Plan, there is a 10% free
withdrawal allowance for partial surrenders. An Owner under
an IRA plan who is over age 59 1/2 has a 20% free withdrawal
allowance. This means that, for the first partial surrender
in each year after the first Contract Year, and before the
Maturity Date of the contract, 10% (20% for IRA plans) of
the Cash Value of the contract may be withdrawn without
imposition of any applicable Surrender Charge. All Cash
Values withdrawn will reflect the imposition of any
applicable Market Value Adjustment. Full surrenders are not
eligible for the free withdrawal allowance. Failure to use
all or part of the free withdrawal allowance in any Contract
Year forfeits the balance of the allowance for that Contract
Year. For 403(b) plan participants, partial and full
surrenders may be subject to restrictions. (See "Section
403(b) Plans and Arrangements," page 7.)
REDUCTION OR ELIMINATION OF SURRENDER CHARGES
The amount of the surrender charge and the duration that it
may be assessed on a contract may be reduced or eliminated
when sales of the contracts are made to persons in certain
purchase arrangements in a manner that results in savings of
sales expenses. The entitlement to such a reduction in the
surrender charge will be based on (1) the size and type of
group to which sales are to be made (sales expenses for a
larger group are generally less than for a smaller group),
and (2) any prior or existing relationship with the Company
(per contract sales expenses are likely to be less when
there is a prior or existing relationship because of the
likelihood of utilizing existing sales mechanisms).
There may be other circumstances, of which the Company is
not presently aware, which could result in fewer sales
expenses. In no event will reductions or elimination of the
surrender charge and its duration be permitted where such
reductions or elimination will be unfairly discriminatory to
any person.
PREMIUM TAXES
Certain state and local governments impose premium taxes.
These taxes currently range from 0.5% to 5.0%, depending
upon jurisdiction. The Company, in its sole discretion and
in compliance with any applicable state law, will determine
the method used to recover premium tax expenses incurred.
The Company 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 the Company has a tax liability
under state law.
DEATH BENEFIT
If an Annuitant dies before his or her Maturity Date, the
Death Benefit payable to the Owner or beneficiary will equal
(a) the greater of the Cash Value or the Accumulated Value
if death occurs before age 65; or (b) the Cash Value if
death occurs on or after age 65, less any applicable premium
tax.
PAYMENT ON SURRENDER
We may defer payment of any partial or full surrender for a
period not exceeding six months from the date we receive
your notice of surrender or the period permitted by state
insurance law, if less. Only under extraordinary
circumstances will we defer a surrender payment more than
five business days, and if we defer payment for more than 30
days, we will pay annual interest of at least 3.5% on the
amount deferred. While all circumstances under which we
could defer payment upon surrender may not be foreseeable at
this time, such circumstances could include, for example,
our inability to liquidate assets due to a general financial
crisis. If we intend to withhold payment for more than
thirty days, we will notify you in writing.
ANNUITY PERIOD
ELECTING THE MATURITY DATE AND FORM OF ANNUITY
For each contract, a Maturity Date for the contract must be
indicated on the Application. The value of an Account (less
applicable premium taxes, if any) may be applied on the
Maturity Date under any of the Annuity Options described
below. In the absence of an election, the Cash Value will
be applied on the Maturity Date under the Option 2 to
provide a life annuity with 120 monthly payments certain or,
if the contract is issued to fund a qualified pension and
profit-sharing plan or a Section 403(b) plan subject to
ERISA, the Cash Value will be applied under Option 4 to
provide a joint and last survivor life annuity.
<PAGE>
CHANGE OF MATURITY DATE OR ANNUITY OPTION
The Maturity Date and the Annuity Option may be changed, but
any such change must be made in writing and received by us
at least 30 days prior to the scheduled Maturity Date.
ANNUITY OPTIONS
Any one of the following Annuity Options may be elected
subject to certain tax law qualification limitations on
distributions:
OPTION 1--LIFE ANNUITY: Under this Option an Owner may
receive only one payment if the Annuitant died before the
due date of the second annuity payment, two if the Annuitant
died before the third payment and so on.
OPTION 2--LIFE ANNUITY WITH 120, 180 OR 240 MONTHLY PAYMENTS
ASSURED: An annuity providing monthly income based on the
life of the Annuitant with a guarantee for a fixed period of
120 months, 180 months or 240 months (as selected). If the
Annuitant dies before the guaranteed monthly payments are
completed, the Company will continue to make payments for
the remainder of the period.
OPTION 3--CASH REFUND LIFE ANNUITY: An annuity payable
monthly during the lifetime of the Annuitant on whose life
payments are based provided that, at the death of the
Annuitant, the Owner or beneficiary will receive an
additional payment equal to the excess, if any, of (a) minus
(b) where (a) is the amount applied under this option and
(b) is the sum of all Annuity payments previously made.
OPTION 4--JOINT AND LAST SURVIVOR LIFE ANNUITY: An annuity
payable monthly during the joint lifetime of the Annuitant
and a secondary payee on whose lives payments are based, and
thereafter during the remaining lifetime of the survivor,
ceasing with the last payment prior to the death of the
survivor. It would be possible under this Option for the
Owner or secondary payee to receive only one payment in the
event of death of both Owner and secondary payee before the
due date for the second payment and so on.
OPTION 5--OTHER ANNUITY OPTIONS: An annuity payable as is
mutually agreed on by the Company and the Owner.
The Tables contained in the Contract provide for guaranteed
dollar amounts of monthly payments for each $1,000 applied
under the first five Annuity Options. For Options 1, 2, 3
and 4, the amount of each payment will depend on the age
(and sex, if applicable) of the payee(s).
The Tables for Options 1, 2, 3 and 4 are based on the
Progressive Annuity Table (assuming births in the year 1900)
and a net investment rate of 3.5% a year. The Company may,
at our discretion, if mortality appears more favorable and
interest rates justify, apply other tables which will result
in higher monthly payments for each $1,000 applied under one
or more of the five Annuity Options. Income Options
(Payments of a Fixed Amount, Payments for a Fixed Period and
Amounts Held at Interest) are also available where permitted
by tax laws.
ANNUITY PAYMENTS
The first payment under any Annuity Option will be made on
the first day of the month following the Maturity Date.
Subsequent payments will be made on the first day of each
month in accordance with the manner of payment selected.
If at any time payments under an Annuity Option are less
than $50 per payment, we may change the frequency of payment
to such intervals as will result in annuity payments of at
least $50.
Once annuity payments have commenced for an Annuitant, no
surrender of the annuity benefit can be made for the purpose
of receiving a lump-sum settlement in lieu of payments.
DEATH OF ANNUITANT AFTER MATURITY DATE
In the event of the death of the Annuitant after the
Maturity Date, the present values on the date of death of
any remaining guaranteed payments will be paid in one sum to
the beneficiary designated unless other provisions have been
made. Calculations of present values will be based on the
interest rate that we use to determine the amount of each
payment.
INVESTMENTS BY THE COMPANY
Assets of the Company must be invested in accordance with
requirements established by applicable state laws regarding
the nature and quality of investments that may be made by
life insurance companies and the percentage of their assets
that may be committed to any particular type of investment.
In general, these laws permit investments, within specified
limits and subject to certain qualifications, in federal,
state, and municipal obligations, corporate bonds, preferred
and common stocks, real estate mortgages, real estate and
certain other investments. All claims by purchasers
<PAGE>
of the modified guaranteed annuity contracts, and other general
account products, will be funded by the Company's general
account.
In establishing Guaranteed Interest Rates, the Company will
consider the yields on the fixed income securities that are
part of the Company's current investment strategy for the
Contracts at the time that the Guaranteed Interest Rates are
established. (See "Establishment of Guaranteed Interest
Rates," page 2.) The current investment strategy for the
Contracts is to invest in fixed income securities, including
public bonds, privately placed bonds, and mortgages, some of
which fixed income securities may be zero coupon securities.
While the foregoing generally describes our investment
strategy, we are not obligated to follow any particular
strategy except as may be required by federal law and
Connecticut and other state insurance laws.
AMENDMENT OF CONTRACTS
We reserve the right to amend the contracts to meet the
requirements of applicable federal or state laws or
regulations. We will notify you in writing of any such
amendments.
ASSIGNMENT OF CONTRACTS
The contract may be assigned as permitted by applicable law
unless endorsed to the contrary. An assignment will not be
binding on us until we receive notice in writing. We assume
no responsibility for the validity or effect of any
assignment. You should consult your tax advisor regarding
the tax consequences of an assignment. Ownership of
contracts issued in connection with Section 401(a), 401(k),
403(a), 403(b), 408, 414(d) or 457 plans may not generally
be assigned.
DISTRIBUTION OF CONTRACTS
Travelers Equities Sales, Inc. ("TESI") is the principal
underwriter for the contracts. TESI is registered with the
Securities and Exchange Commission under the Securities
Exchange Act of 1934 as a broker-dealer and is a member of
the National Association of Securities Dealers, Inc.
TESI may enter into Distribution Agreements with certain
broker-dealers registered under the Securities Exchange Act
of 1934. The Company will pay a maximum commission of 4.5%
for the sale of a contract. In the future, the Company may
pay a commission on an election of a subsequent Guarantee
Period by an Owner.
FEDERAL TAX CONSIDERATIONS
GENERAL
The Company is taxed as a life insurance company under
Subchapter L of the Internal Revenue Code (the "Code").
Generally, amounts credited to a contract are not taxable
until received by the Owner, participant or beneficiary,
either in the form of Annuity Payments or other
distributions. Tax consequences and limits are described
further below for each annuity program.
SECTION 403(B) PLANS AND ARRANGEMENTS
Purchase Payments for tax-deferred annuity contracts may be
made by an employer for employees under annuity plans
adopted by public educational organizations and certain
organizations which are tax exempt under Section 501(c)(3)
of the Code. Within statutory limits, these payments are
not currently includable in the gross income of the
participants. Increases in the value of the contract
attributable to these purchase payments are similarly not
subject to current taxation. The income in the contract is
taxable as ordinary income whenever distributed.
An additional tax of 10% will apply to any taxable
distribution received by the participant before the age of
59 1/2, except when due to death, disability, or as part of
a series of payments for life or life expectancy, or made
after the age of 55 with separation from service. There are
other statutory exceptions.
Amounts attributable to salary reductions and income thereon
may not be withdrawn prior to attaining the age of 59 1/2,
separation from service, death, total and permanent
disability, or in the case of hardship as defined by federal
tax law and regulations. Hardship withdrawals are available
only to the extent of the salary reduction contributions and
not from the income attributable to such contributions.
These restrictions do not apply to assets held generally as
of December 31, 1988.
Distribution must begin by April 1st of the calendar year
following the calendar year in which the participant attains
the age of 70 1/2. Certain other mandatory distribution
rules apply at the death of the participant.
<PAGE>
Eligible rollover distributions, including most partial or
full redemptions or "term-for-years" distributions of less
than 10 years, are eligible for direct rollover to another
403(b) contract or to an Individual Retirement Arrangement
(IRA) without federal income tax withholding.
QUALIFIED PENSION AND PROFIT-SHARING PLANS
Under a qualified pension or profit-sharing trust described
in Section 401(a) of the Code and exempt from tax under
Section 501(a) of the Code, 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 in the form of Annuity or Income Payments 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 described in Section 402 of the Code may be
eligible for special ten-year forward averaging treatment
for individuals born before January 1, 1936. All
individuals may be eligible for favorable five-year forward
averaging of lump-sum distributions. Certain eligible
rollover distributions including most partial and full
surrenders or term-for-years distributions of less than 10
years are eligible for direct rollover to an eligible
retirement plan or to an IRA without federal income tax
withholding.
An additional tax of 10% will apply to any taxable
distribution received by the participant before the age of
59 1/2, except by reason of death, disability or as part of
a series of payments for life or life expectancy, or at
early retirement at or after the age of 55. There are other
statutory exceptions.
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 is not
employed, 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 $2,250.
Partial or full distributions made prior to the age of 59
1/2, except in the case of death, disability or distribution
for life or life expectancy, will incur a penalty tax of 10%
plus ordinary income tax treatment of the taxable amount
received. Distributions after the age of 59 1/2 are treated
as ordinary income. Amounts contributed after 1986 on a
non-deductible basis are not includable in income when
distributed. Distributions must commence by April 1st of
the calendar year after the close of the calendar year in
which the individual attains the age of 70 1/2. The
individual must maintain personal and tax return records of
any non-deductible contributions and distributions.
Section 408(k) of 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.
SECTION 457 PLANS
Section 457 of the Code allows employees and independent
contractors of state and local governments and tax-exempt
organizations to defer a portion of their salaries or
compensation to retirement years without paying current
income tax on either the deferrals or the earnings on the
deferrals.
The Owner of contracts issued under Section 457 plans is the
employer or a contractor of the participant and amounts may
not be made available to participants (or beneficiaries)
until separation from service, retirement or death or an
unforeseeable emergency as determined by Treasury
Regulations. The proceeds of annuity contracts purchased by
Section 457 plans are subject to the claims of general
creditors of the employer or contractor.
Distributions must begin generally by April lst of the
calendar year following the calendar year in which the
participant attains the age of 70 1/2. Certain other
mandatory distribution rules apply upon the death of the
participant.
All distributions from plans that meet the requirements of
Section 457 of the Code are taxable as ordinary income in
the year paid or made available to the participant or
beneficiary.
NONQUALIFIED ANNUITIES
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 an Owner when that Owner transfers the contract without
adequate consideration.
The federal tax law requires nonqualified annuity contracts
issued on or after January 19, 1985 to meet minimum
mandatory distribution requirements upon the death of the
Owner. Failure to meet these requirements will cause the
succeeding Owner or beneficiary to lose the tax benefits
associated with annuity contracts, i.e., primarily the tax
deferral prior to distribution. The distribution required
depends upon whether an Annuity Option is elected or whether
the succeeding Owner is the surviving spouse. Contracts
will be administered by the Company in accordance with these
rules.
If two or more nonqualified 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
annuitization of a contract will generally be taxed on an
income-first basis to the extent of income in the contract.
Certain pre-August 14, 1982 deposits into a nonqualified
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 withdrawal under the tax law.
With certain exceptions, the law will impose an additional
tax if an Owner makes a withdrawal of any amount under the
contract which is allocable to an investment made after
August 13, 1982. The amount of the additional tax will be
10% of the amount includable in income by the Owner because
of the withdrawal. The additional tax will not be imposed
if the amount is received on or after the Owner reaches the
age of 59 1/2, or if the amount is one of a series of
substantially equal periodic payments made for life or life
expectancy of the taxpayer. The additional tax will not be
imposed if the withdrawal or partial surrender follows the
death or disability of the Owner.
FEDERAL INCOME TAX WITHHOLDING
The portion of a distribution which is taxable income to the
recipient will be subject to federal income tax withholding,
generally pursuant to Section 3405 of the Code. The
application of this provision is summarized below.
1. ELIGIBLE ROLLOVER DISTRIBUTION FROM SECTION 403(B) PLANS OR
ARRANGEMENTS OR FROM QUALIFIED PENSION AND PROFIT-SHARING
PLANS
There is an unwaivable 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 complete 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 require 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, to the extent such aggregate distributions
exceed $200 for the year, unless the recipient elects not to
have taxes withheld. If an election out is not provided,
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.
<PAGE>
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, 1994, a recipient receiving periodic payments (e.g.,
monthly or annual payments under an Annuity Option) which
total $13,700 or less per year, will generally be exempt
from the withholding requirements.
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.
Recipients who do not provide a social security number or
other taxpayer identification number will not be permitted
to elect out of withholding. Additionally, United States
citizens residing outside of the country, or U.S. legal
residents temporarily residing outside the country, are not
permitted to elect out of withholding.
TAX ADVICE
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 an
Owner, participant or beneficiary who may make elections
under a contract. It should be understood that the
foregoing description of the federal income tax consequences
under these contracts is not exhaustive and that special
rules are provided with respect to situations not discussed
here. It should be understood that if a tax-benefited plan
loses its exempt status, employees could lose some of the
tax benefits described. For further information, a
qualified tax adviser should be consulted.
LEGAL OPINION
Legal matters in connection with federal laws and
regulations affecting the issue and sale of the Modified
Guaranteed Annuity Contracts described in this Prospectus
and the organization of the Company, its authority to issue
Modified Guaranteed Annuity Contracts under Connecticut law
and the validity of the forms of the Modified Guaranteed
Annuity Contracts under Connecticut law have been passed on
by the General Counsel of the Life and Annuities Division of
the Company.
INDEPENDENT ACCOUNTANTS
The consolidated statements of operations and retained
earnings and cash flows for the year ended December 31, 1994
and the consolidated balance sheets of The Travelers
Insurance Company as of December 31, 1994 and 1993, included
in The Travelers Insurance Company's Form 10-K for the year
ended December 31, 1994, have been incorporated by reference
herein in reliance upon the report (also incorporated by
reference herein) of KPMG Peat Marwick LLP, independent
certified public accountants, and upon the authority of said
firm as experts in accounting and auditing. The report of KPMG
Peat Marwick LLP covering the December 31, 1994 financial
statements refers to a change in accounting for investments.
The consolidated statements of operations and retained earnings
and cash flows of The Travelers Insurance Company for the years
ended December 31, 1993 and 1992, have been incorporated by
reference herein in reliance upon the reports dated January
24, 1994 and February 9, 1993 (except for Notes 2 and 5, as
to which the date is January 24, 1994), which includes an
explanatory paragraph regarding the Company's change in its
methods of accounting for post-retirement benefits other
than pensions, income taxes and foreclosed assets in 1992
(also incorporated by reference herein) of Coopers & Lybrand
L.L.P., independent accountants, and upon the authority of
said firm as experts in accounting and auditing.
<PAGE>
APPENDIX A
ILLUSTRATION OF A MARKET VALUE ADJUSTMENT
Deposit: $50,000.00
Guarantee Period: 5 Years
Guaranteed Interest Rate: 5% Effective Annual Rate
The following examples illustrate how the Market Value Adjustment
may affect the values of your contract. In these examples, the
surrender occurs one year after a Deposit of $50,000 was made to
the Contract. The Maturity Value of this Deposit would be
$63,814.08 at the end of the five-year Guarantee Period. However,
after one year, when the surrenders occur in these examples, the
value of the Deposit and accumulated guaranteed interest would be
$52,500.00.
The Market Value Adjustment will be based on the rate the Company
is crediting at the time of surrender on new Deposits of the same
term-to-maturity as the time remaining in your Guarantee Period.
One year after the Deposit, you would have four years remaining in
the five-year Guarantee Period.
EXAMPLE OF A NEGATIVE MARKET VALUE ADJUSTMENT
A negative Market Value Adjustment results from a surrender that
occurs when interest rates have increased since the date of
Deposit. Assume interest rates have increased one year after the
Deposit and the Company is crediting 7% for a four-year Guarantee
Period. If you surrender the full Deposit, the Market Adjusted
Value would be:
$47,784.02 = $63,814.08 x [1/1 + .07 + .005]4
The Market Value Adjustment is a reduction of $4,715.98 from the
Deposit plus accumulated interest:
$47,784.02 = $52,500.00 - $4,715.98
If instead of a full surrender, 50% of the Deposit were
surrendered, the Market Adjusted Value of the surrendered portion
would be 50% of the full surrender:
$23,892.01 = $31,907.04 x [1/1 + .035 + .005]4
The Maturity Value after the partial surrender would be 50% of the
Maturity Value prior to surrender, or $31,907.04.
EXAMPLE OF A POSITIVE MARKET VALUE ADJUSTMENT
A positive Market Value Adjustment results from a surrender that
occurs when interest rates have decreased since the date of
Deposit. Assume interest rates have decreased one year later and
the Company is then crediting 3.5% for a four-year Guarantee
Period.
If you surrender the full Deposit, the Market Adjusted Value would
be:
$54,548.54 = $63,814.08 x [1/1 + .035 + .005]4
The Market Value Adjustment is an increase of $2,048.54 over the
Deposit plus accumulated interest:
$54,548.54 = $52,500.00 + $2,048.54
If instead of a full surrender, 50% of the Deposit were
surrendered, the Market Adjusted Value of the surrendered portion
would be 50% of the full surrender:
$27,274.27 = $31,907.04 x [1/1 + .035 + .005]4
The Maturity Value after the partial surrender would be 50% of the
Maturity Value prior to the surrender, or $31,907.04.
These examples only illustrate what may happen when interest rates
increase or decrease after a Deposit is made to the Contract. A
particular Market Value Adjustment may have a greater or lesser
impact than that shown in these examples, depending on how much
interest rates have changed since the Deposit and the amount of
time remaining to Maturity. In addition, a surrender charge may be
assessed on surrenders made before the Deposit has been under the
contract for five years.
<PAGE>
INDIVIDUAL MODIFIED GUARANTEED ANNUITY CONTRACTS
Issued By
THE TRAVELERS INSURANCE COMPANY
L-11168 TIC Ed 5-95
PRINTED IN U.S.A.
Financials
<PAGE> 1
Independent Auditors' Report
The Board of Directors and Shareholder of
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, 1994 and 1993, and the
related consolidated statements of operations and retained earnings and cash
flows for the year ended December 31, 1994. 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, 1994 and 1993, and the
results of their operations and their cash flows for the year ended December
31, 1994, in conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities", in 1994.
/s/KPMG PEAT MARWICK LLP
Hartford, Connecticut
January 17, 1995
16
<PAGE> 2
Report of Independent Accountants
To the Board of Directors and Shareholder of
The Travelers Insurance Company and Subsidiaries:
We have audited the consolidated statements of operations and retained earnings
and cash flows of The Travelers Insurance Company and Subsidiaries for the year
ended December 31, 1993. These consolidated financial statements are the
responsibility of Company management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management as well as
evaluating the overall consolidated financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of operations and
cash flows of The Travelers Insurance Company and Subsidiaries for the year
ended December 31, 1993 in conformity with generally accepted accounting
principles.
/S/ COOPERS & LYBRAND
Hartford, Connecticut
January 24, 1994
17
<PAGE> 3
Report of Independent Accountants
To the Board of Directors and Shareholder of
The Travelers Insurance Company and Subsidiaries:
We have audited the consolidated statements of operations and retained earnings
and cash flows for The Travelers Insurance Company and Subsidiaries for the
year ended December 31, 1992. These consolidated financial statements are the
responsibility of Company management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of
operations and cash flows of The Travelers Insurance Company and Subsidiaries
for the year ended December 31, 1992 in conformity with generally accepted
accounting principles.
As discussed in Notes 2, 5, 10 and 13 to the consolidated financial statements,
the Company changed its method of accounting for postretirement benefits other
than pensions, accounting for income taxes and accounting for foreclosed assets
in 1992.
/S/ COOPERS & LYBRAND
Hartford, Connecticut
February 9, 1993, except for Notes 2 and 5,
as to which the date is January 24, 1994
18
<PAGE> 4
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------|------------------------------
(for the year ended December 31, in millions) 1994 | 1993 1992
- --------------------------------------------------------------------------|------------------------------
|
<S> <C> | <C> <C>
REVENUES |
Premiums $ 3,861 | $ 2,725 $ 2,686
Net investment income 1,849 | 1,884 2,101
Realized investment gains (losses) 14 | (21) (747)
Other 1,023 | 859 785
- --------------------------------------------------------------------------|------------------------------
6,747 | 5,447 4,825
- --------------------------------------------------------------------------|------------------------------
BENEFITS AND EXPENSES |
Current and future insurance benefits 3,421 | 3,121 3,000
Interest credited to contractholders 967 | 1,206 1,456
Claim settlement expenses 193 | 231 264
Amortization of deferred acquisition costs and value of |
insurance in force 284 | 55 61
General and administrative expenses 1,025 | 751 987
- --------------------------------------------------------------------------|------------------------------
5,890 | 5,364 5,768
- --------------------------------------------------------------------------|------------------------------
|
Income (loss) before federal income taxes |
and cumulative effects |
of changes in accounting principles 857 | 83 (943)
- --------------------------------------------------------------------------|------------------------------
|
Federal income taxes: |
Current 36 | 20 2
Deferred 276 | (78) (340)
- --------------------------------------------------------------------------|------------------------------
312 | (58) (338)
- --------------------------------------------------------------------------|------------------------------
|
Income (loss) before cumulative effects of changes |
in accounting principles 545 | 141 (605)
Cumulative effect of change in accounting |
for postretirement benefits other than |
pensions, net of tax - | - (126)
Cumulative effect of change in accounting |
for income taxes - | - 350
- --------------------------------------------------------------------------|------------------------------
|
Net income (loss) 545 | 141 (381)
Retained earnings beginning of year 1,017 | 888 1,281
Dividends to parent company - | (14) (14)
Preference stock tax benefit allocated by parent - | 2 2
- --------------------------------------------------------------------------|------------------------------
Retained earnings end of year $ 1,562 | $ 1,017 $ 888
- --------------------------------------------------------------------------|------------------------------
</TABLE>
See notes to consolidated financial statements.
19
<PAGE> 5
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
(at December 31, in millions) 1994 1993
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Fixed maturities, available for sale at market in 1994 (cost, $18,579);
at lower of aggregate cost or market in 1993 (market, $18,284) $17,260 $18,045
Bonds, held for investment (market, $18) - 18
Equity securities, at market (cost, $173; $199) 169 220
Mortgage loans 4,938 6,845
Real estate held for sale, net of accumulated depreciation of $9; $0 383 954
Policy loans 1,581 1,366
Short-term securities 2,279 1,376
Other investments 885 687
- ---------------------------------------------------------------------------------------------------------
Total investments 27,495 29,511
- ---------------------------------------------------------------------------------------------------------
Cash 102 50
Investment income accrued 362 379
Premium balances receivable 215 224
Reinsurance recoverable 2,915 2,883
Deferred acquisition costs and value of insurance in force 1,939 1,794
Deferred federal income taxes 950 855
Separate and variable accounts 5,160 4,666
Other assets 1,397 979
- ---------------------------------------------------------------------------------------------------------
Total assets $40,535 $41,341
- ---------------------------------------------------------------------------------------------------------
LIABILITIES
Contractholder funds $16,354 $17,850
Future policy benefits 11,480 11,263
Policy and contract claims 1,222 1,274
Separate and variable accounts 5,128 4,644
Short-term debt 74 -
Other liabilities 1,923 2,007
- ---------------------------------------------------------------------------------------------------------
Total liabilities 36,181 37,038
- ---------------------------------------------------------------------------------------------------------
SHAREHOLDER'S EQUITY
Common stock, par value $2.50; 40 million
shares authorized, issued and outstanding 100 100
Additional paid-in capital 3,452 3,179
Unrealized investment gains (losses), net of taxes (760) 7
Retained earnings 1,562 1,017
- ---------------------------------------------------------------------------------------------------------
Total shareholder's equity 4,354 4,303
- ---------------------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity $40,535 $41,341
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
20
<PAGE> 6
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
(for the year ended December 31, in millions) 1994 | 1993 1992
- ----------------------------------------------------------------------------|--------------------------------
<S> <C> | <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES |
Premiums collected $ 3,722 | $ 2,530 $ 2,594
Net investment income received 1,895 | 1,794 2,134
Other revenues received 734 | 568 568
Benefits and claims paid (3,572) | (2,902) (3,123)
Interest credited to contractholders (922) | (1,154) (1,404)
Operating expenses paid (972) | (859) (869)
Income taxes (paid) refunded (27) | 25 (2)
Trading account investments, (purchases) sales, net - | (1,576) (364)
Other (141) | 202 522
- ----------------------------------------------------------------------------|--------------------------------
Net cash provided by (used in) operating activities 717 | (1,372) 56
- ----------------------------------------------------------------------------|--------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES |
Investment repayments |
Fixed maturities 2,783 | 2,624 2,084
Mortgage loans 1,337 | 1,210 1,063
Proceeds from investments sold |
Fixed maturities 1,370 | 102 175
Equity securities 359 | 75 173
Mortgage loans 557 | 310 254
Real estate 728 | 949 235
Investments in |
Fixed maturities (4,767) | (3,269) (2,471)
Equity securities (340) | (51) (119)
Mortgage loans (94) | (246) (63)
Policy loans, net (215) | (2) (184)
Short-term securities, (purchases) sales, net (903) | 860 (615)
Other investments, (purchases) sales, net (50) | 53 191
Securities sold under repurchase agreement (209) | - -
Cash from disposition of operations 53 | - 5
- ----------------------------------------------------------------------------|--------------------------------
Net cash provided by investing activities 609 | 2,615 728
- ----------------------------------------------------------------------------|--------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES |
Issuance (redemption) of short-term debt, net 74 | - -
Contractholder fund deposits 2,197 | 3,159 3,047
Contractholder fund withdrawals (3,529) | (4,418) (5,003)
Dividends to parent company - | (14) (14)
Return of capital to parent company (23) | - -
Contributions from parent company - | - 500
Other 7 | 6 2
- ----------------------------------------------------------------------------|--------------------------------
Net cash used in financing activities (1,274) | (1,267) (1,468)
- ----------------------------------------------------------------------------|--------------------------------
Net increase (decrease) in cash $ 52 | $ (24) $ (684)
- ----------------------------------------------------------------------------|--------------------------------
|
Cash at December 31 $ 102 | $ 50 $ 74
- -------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
21
<PAGE> 7
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Travelers Insurance Company and its subsidiaries (the Company) is a
wholly owned subsidiary of The Travelers Insurance Group Inc. (TIG).
TIG is an indirect wholly owned subsidiary of The Travelers Inc.
Significant accounting policies used in the preparation of the
accompanying financial statements follow.
Basis of presentation
In December 1992, Primerica Corporation (Primerica) acquired
approximately 27% of the common stock of the Company's then parent, The
Travelers Corporation (the Acquisition). The Acquisition was accounted
for as a purchase. In connection with the Acquisition, Primerica
transferred 100% of the preferred provider organization and third party
administrator networks of Transport Life Insurance Company (a wholly
owned subsidiary of Primerica) to The Travelers Corporation, which
contributed them to the Company. The Company realized an increase to
shareholder's equity of $23 million related to this contribution.
Effective December 31, 1993, Primerica acquired the approximately 73% of
The Travelers Corporation common stock which it did not already own, and
The Travelers Corporation was merged into Primerica, which was renamed
The Travelers Inc. This was effected through the exchange of .80423
shares of The Travelers Inc. common stock for each share of The
Travelers Corporation common stock (the Merger). All subsidiaries of
The Travelers Corporation were contributed to TIG. In conjunction with
the Merger, The Travelers Inc. contributed Travelers Insurance Holdings
Inc. (formerly Primerica Insurance Holdings, Inc.) and its subsidiaries
(TIHI) to TIG, which in turn contributed TIHI to the Company.
TIHI is an intermediate holding company whose primary subsidiaries are
Primerica Life Insurance Company (Primerica Life) and its subsidiary
National Benefit Life Insurance Company (NBL), and Transport Life
Insurance Company (Transport). Through its subsidiaries, TIHI primarily
offers individual insurance and specialty accident and health insurance.
The Company realized an increase to shareholder's equity of $2.1 billion
at December 31, 1993 related to the contribution of TIHI. At December
31, 1993 and subsequent, TIHI is included in the Life and Annuities
segment.
The consolidated financial statements and the accompanying notes reflect
the historical operations of the Company for the years ended December 31,
1993 and 1992. The results of operations of TIHI and its subsidiaries
are not included in the 1993 and 1992 financial statements. The
Company's consolidated balance sheet and related data at December 31,
1994 and 1993 include TIHI on a fully consolidated basis. The
Acquisition and the Merger are being accounted for as a "step
acquisition." The consolidated balance sheet and related data at
December 31, 1993 reflect adjustments of assets and liabilities of the
Company (except TIHI) to their fair values determined at each acquisition
date (i.e., 27% of values at December 31, 1992 as carried forward and 73%
of the values at December 31, 1993). These assets and liabilities are
reflected in the consolidated balance sheet at December 31, 1993 based
upon management's then best estimate of their fair values. Evaluation and
appraisal of assets and liabilities, including investments, the value of
insurance in force, reinsurance recoverable, other insurance assets and
liabilities and related deferred income taxes were completed during 1994.
22
<PAGE> 8
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
The excess of the 27% share of assigned value of identifiable net assets
over cost at December 31, 1992, which was allocated to the Company
through the "pushdown" basis of accounting, was approximately $56
million and is being amortized over ten years on a straight-line basis.
The excess of the purchase price of the common stock over the fair value
of the 73% of net assets acquired at December 31, 1993, which was
allocated to the Company through the "pushdown" basis of accounting, was
approximately $340 million and is being amortized over 40 years on a
straight-line basis.
The consolidated statement of operations and retained earnings, the
consolidated statement of cash flows and the related accompanying notes
for the year ended December 31, 1994, which are presented on a purchase
accounting basis, are separated from the corresponding 1993 and 1992
information, which is presented on a historical accounting basis, to
indicate the difference in valuation bases.
Principles of Consolidation
The financial statements have been prepared in conformity with generally
accepted accounting principles and include the Company and its
significant insurance and noninsurance subsidiaries. Certain prior
year amounts have been reclassified to conform with the 1994
presentation.
Investments
Fixed maturities include bonds, notes and redeemable preferred stocks.
Fixed maturities are valued based upon quoted market prices, or if
quoted market prices are not available, discounted expected cash flows
using market rates commensurate with the credit quality and maturity of
the investment. Securities 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. As of December 31, 1993, in conjunction with the Merger, the
majority of fixed maturities were classified as "available for sale" and
recorded at the lower of aggregate cost or market value. Fixed
maturities classified as "held for investment" were carried at amortized
cost.
Equity securities, which include common and nonredeemable preferred
stocks, are 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. Real estate held for sale
is carried at the lower of cost or fair value less estimated costs to
sell. Fair value was established at time of foreclosure by appraisers,
both internal and external, using discounted cash flow analyses and
other acceptable techniques.
23
<PAGE> 9
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Accrual of income is suspended on fixed maturities or mortgage loans
that are in default, or on which it is likely that future interest
payments will not be made as scheduled. Interest income on investments
in default is recognized only as payment is received.
Gains or losses arising from futures contracts used to hedge investments
are treated as basis adjustments and are recognized in income over the
life of the hedged investments.
Gains and losses arising from forward contracts used to hedge foreign
investments in the Company's U.S. portfolios are a component of realized
investment gains and losses. Gains and losses arising from forward
contracts used to hedge investments in foreign operations (primarily
Canadian) are reflected directly in shareholder's equity, net of income
taxes.
Interest rate swaps are used to manage interest rate risk in the
investment portfolio and are marked to market with unrealized gains and
losses recorded as a component of shareholder's equity, net of income
taxes. Rate differentials on interest rate swap agreements are accrued
between settlement dates and are recognized as an adjustment to interest
income from the related investment.
Investment Gains and Losses
Realized investment gains and losses are included as a component of
pretax revenues based upon specific identification of the investments
sold on the trade date and, prior to the Merger, included adjustments to
investment valuation reserves. These adjustments reflected changes
considered to be other than temporary in the net realizable value of
investments. Also included are gains and losses arising from the
translation of the local currency value of foreign investments to U.S.
dollars, the functional currency of the Company.
Policy Loans
Policy loans are carried at the amount of the unpaid balances that are
not in excess of the net cash surrender values of the related insurance
policies. The carrying value of policy loans, which have no defined
maturities, is considered to be fair value.
Deferred Acquisition Costs
Costs of acquiring individual life insurance, annuities, and health
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 and guaranteed
renewable health contracts are amortized over the period of anticipated
premiums; universal life in relation to estimated gross profits; and
annuity contracts employing a level yield method. For life insurance, a
10- to 25-year amortization period is used; for guaranteed renewable
health, a 10-year period, and a 10- to 15-year period is employed for
annuities. Deferred acquisition costs are reviewed periodically for
recoverability to determine if any adjustment is required.
24
<PAGE> 10
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Value of Insurance In Force
The value of insurance in force represents the actuarially determined
present value of anticipated profits to be realized from life insurance,
annuities and health contracts at the date of the Merger 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% for the business acquired. The
value of the business in force is amortized over the contract period
using current interest crediting rates to accrete interest and using
amortization methods based on the specified products. Traditional life
insurance and guaranteed renewable health policies are amortized over
the period of 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 carried at
amortized cost, except at December 31, 1993 the assets and liabilities
of these accounts were recorded at the value assigned at the acquisition
dates. 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
The excess of the 27% share of assigned value of identifiable assets
over cost at December 31, 1992 allocated to the Company as a result of
the Acquisition amounted to approximately $56 million and is being
amortized over 10 years on a straight-line basis. Goodwill resulting
from the excess of the purchase price over the fair value of the 73% of
net assets acquired related to the Merger amounted to approximately $340
million at December 31, 1993 and is being amortized over 40 years on a
straight-line basis. TIHI has goodwill of $246 million.
25
<PAGE> 11
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Contractholder Funds
Contractholder funds represent receipts from the issuance of universal
life, pension investment and certain individual annuity contracts. Such
receipts are considered deposits on investment contracts that do not
have substantial mortality or morbidity risk. Account balances are also
increased by interest credited and reduced by withdrawals, mortality
charges and administrative expenses charged to the contractholders.
Calculations of contractholder account balances for investment contracts
reflect lapse, withdrawal and interest rate assumptions based on
contract provisions, the Company's experience and industry standards.
Interest rates credited to contractholder funds range from 3.4% to 8.0%.
Contractholder funds also include other funds that policyholders leave
on deposit with the Company.
Benefit Reserves
Benefit reserves represent liabilities for future insurance policy
benefits. Benefit reserves for traditional life insurance, annuities,
and accident and health policies have been computed based upon
mortality, morbidity, persistency and interest assumptions applicable to
these coverages, which range from 2.5% to 12.0%, including adverse
deviation. These assumptions consider Company experience and industry
standards and may be revised if it is determined that the future
experience will differ substantially from that previously assumed. The
assumptions vary by plan, age at issue, year of issue and duration.
Appropriate recognition has been given to experience rating and
reinsurance.
Operating Leases
At December 31, 1993, operating leases were recorded at the value
assigned at the acquisition dates and included in the consolidated
balance sheet as a component of other liabilities. This liability is
being amortized over the average lease period.
Permitted Statutory Accounting Practices
The Company, domiciled principally in Connecticut and Massachusetts,
prepares statutory financial statements in accordance with the
accounting practices prescribed or permitted by the insurance
departments of those states. Prescribed statutory accounting practices
include a variety of publications of the National Association of
Insurance Commissioners 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.
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. At December 31, 1993, the
deferred profits on limited-payment policies were recorded at the values
assigned at the acquisition dates.
26
<PAGE> 12
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Other Revenues
Other revenues include surrender, mortality and administrative charges
and fees as earned on investment, universal life and other insurance
contracts. Other revenues also include gains and losses on dispositions
of assets and operations other than realized investment gains and
losses, revenues of noninsurance subsidiaries, and the pretax operating
results of real estate joint ventures.
Interest Credited to Contractholders
Interest credited to contractholders represents amounts earned by
universal life, pension investment and certain individual 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 in the Company's deferred federal income tax
asset during the year. 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.
Accounting Standards not yet Adopted
Statement of Financial Accounting Standards No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures"
(FAS 118), and Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" (FAS 114), describe
how impaired loans should be measured when determining the amount of a
loan loss accrual. These statements also amend existing guidance on the
measurement of restructured loans in a troubled debt restructuring
involving a modification of terms. The adoption of these statements,
effective January 1, 1995, will not have a material effect on results of
operations or financial position.
2. CHANGES IN ACCOUNTING PRINCIPLES
Accounting for Certain Debt and Equity Securities
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (FAS 115), which addresses accounting and
reporting for investments in equity securities that have a readily
determinable fair value and for all debt securities. Investment
securities have been classified as "available for sale" and are
reported at fair value, with unrealized gains and losses, net of income
taxes, charged or credited directly to shareholder's equity. Previously,
securities classified as available for sale were carried at the lower
of aggregate cost or market value. Initial adoption of this standard
resulted in an increase of approximately $232 million (net of taxes) to
net unrealized gains which is included in shareholder's equity. This
increase included an unrealized gain of $133 million (net of income
taxes) on TIHI's investment in the common stock of The Travelers Inc.
See note 15 for additional disclosures.
27
<PAGE> 13
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. CHANGES IN ACCOUNTING PRINCIPLES, Continued
Offsetting of Amounts Related to Certain Contracts
Effective January 1, 1994, the Company adopted Financial Accounting
Standards Board Interpretation No. 39, "Offsetting of Amounts Related to
Certain Contracts" (Interpretation 39). The general principle of
Interpretation 39 states that amounts due from and due to another party
may not be offset in the consolidated balance sheet unless a right of
setoff exists and the parties intend to exercise the right of setoff.
Implementation of Interpretation 39 did not have a material impact on the
Company's financial position; however, assets and liabilities were both
increased by $68 million as of December 31, 1994.
Accounting and Reporting for Reinsurance Contracts
In the first quarter of 1993, the Company implemented Statement of
Financial Accounting Standards No. 113, "Accounting and Reporting for
Reinsurance of Short-Duration and Long-Duration Contracts" (FAS 113).
FAS 113 requires the reporting of reinsurance receivables and prepaid
reinsurance premiums as assets and precludes the immediate recognition
of gains for all reinsurance contracts unless the liability to the
policyholder has been extinguished. Implementation of FAS 113 did not
have an impact on the Company's earnings, however, assets and
liabilities increased by like amounts. See note 5 for additional
reinsurance disclosures.
Postretirement Benefits Other Than Pensions
In 1992, the Company adopted Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" (FAS 106). As required, the Company changed its method of
accounting for retiree benefit plans effective January 1, 1992, to
accrue for the Company's share of the costs of postretirement benefits
over the service period rendered by employees. Previously these
benefits were charged to expense when paid. The Company elected
to recognize immediately the liability for postretirement benefits as
the cumulative effect of a change in accounting principle. This
resulted in a noncash after-tax charge to net income of $126 million.
See note 10 for additional information relating to FAS 106.
Accounting for Income Taxes
In the third quarter of 1992, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109)
with retroactive application to January 1, 1992. FAS 109 establishes new
principles for calculating and reporting the effects of federal income
taxes in financial statements. FAS 109 replaces the income statement
orientation inherent in the prior income tax accounting standard with a
balance sheet approach. Under the new approach, deferred tax assets and
liabilities are generally determined based on the difference between the
financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are
expected to reverse. FAS 109 allows recognition of deferred tax assets
if 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.
28
<PAGE> 14
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. CHANGES IN ACCOUNTING PRINCIPLES, Continued
The implementation of FAS 109 resulted in a one time increase to
earnings of $350 million in the first quarter of 1992. This increase in
earnings was principally due to tax rate differences and the recognition
of a portion of previously unrecognized deferred tax assets. See note
13 for further discussion of FAS 109.
Accounting for Foreclosed Assets
In February 1993, The Travelers Corporation announced its intent to
accelerate the sale of foreclosed real estate and, effective December
31, 1992, changed its method of accounting for foreclosed assets in
compliance with the American Institute of Certified Public Accountants'
Statement of Position 92-3, "Accounting for Foreclosed Assets" (SOP
92-3). This guidance requires that in-substance foreclosures and
foreclosed assets held for sale be carried at the lower of cost or
fair value less estimated costs to sell. Previously, all foreclosed
assets were carried at cost less accumulated depreciation. This
accounting change resulted in a pretax charge of $412 million to
realized investment losses in 1992.
3. ACQUISITIONS AND DISPOSITIONS
In December 1994, the Company and its affiliates sold its group dental
insurance business to Metropolitan Life Insurance Company (MetLife) and
realized a gain on the sale of $9 million (aftertax).
On January 3, 1995, the Company and its affiliates completed the sale of
its group life and related businesses to MetLife, and completed the
formation of The MetraHealth Companies, Inc. (MetraHealth), a joint
venture of the medical businesses of the Company and its affiliates and
MetLife.
The Company and its affiliates sold its group life business as well as
related non-medical group insurance businesses to MetLife for $350
million. The assets transferred included customer lists, books and
records, and furniture and equipment. In connection with the sale, the
Company and its affiliates agreed to cede 100% of its risks in the
group life and related businesses to MetLife on an indemnity reinsurance
basis, effective January 1, 1995. In connection with the reinsurance
transaction, the Company and its affiliates transferred assets with a
fair market value of approximately $1.5 billion to MetLife, equal to the
statutory reserves and other liabilities transferred.
On January 3, 1995, the Company and MetLife and certain of their
affiliates formed the MetraHealth joint venture by contributing their
group medical businesses to MetraHealth, in exchange for shares of
common stock of MetraHealth. The assets transferred included cash,
fixed assets, customer lists, books and records, certain trademarks and
other assets used exclusively or primarily in the medical businesses.
The Company also contributed all of the capital stock of its wholly
owned subsidiary, The Travelers Employee Benefits Company, to
MetraHealth. The total contribution by the Company amounted to $336
million at carrying value on the date of contribution. No gain was
recognized upon the formation of the joint venture. Upon formation of
the joint venture the Company owned 42.6% of the outstanding capital
stock of MetraHealth, TIG owned 7.4% and the other 50% was owned by
MetLife and its affiliates.
29
<PAGE> 15
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
3. ACQUISITIONS AND DISPOSITIONS, Continued
In connection with the formation of the joint venture, the transfer of
the fee based medical business (Administrative Services Only) and other
noninsurance business to MetraHealth was completed on January 3, 1995.
As the medical insurance business of the Company comes due for renewal
and after obtaining regulatory approvals, the risks will be transferred
to MetraHealth. In the interim the related operating results for this
medical insurance business will be reported by the Company.
All of the businesses sold to MetLife or contributed to MetraHealth were
included in the Company's Managed Care and Employee Benefits Operations
(MCEBO). Revenues and net income from MCEBO for the year ended 1994
amounted to $3.5 billion and $157 million, respectively. Beginning in
1995 the Company's results will reflect the runoff medical insurance
business, plus its equity interest in the earnings of MetraHealth.
On December 31, 1993, in conjunction with the Merger, The Travelers Inc.
contributed TIHI to TIG, which TIG then contributed to the Company at a
carrying value of $2.1 billion. Through its subsidiaries TIHI primarily
offers individual life insurance and specialty accident and health
insurance.
In December 1992, in conjunction with the Acquisition, The Travelers
Corporation acquired Transport Life Insurance Company's preferred
provider and third party administrator organizations from Primerica
Corporation (see note 1), and on December 30, 1992 contributed these
businesses to the Company.
4. COMMERCIAL PAPER AND LINES OF CREDIT
The Company issues commercial paper directly to investors and had $74
million outstanding at December 31, 1994. The Company maintains unused
credit availability under bank lines of credit at least equal to the
amount of the outstanding commercial paper.
In 1994, The Travelers Inc., Commercial Credit Company (an indirect
wholly owned subsidiary of The Travelers Inc.) and the Company entered
into an agreement with a syndicate of banks to provide $1.5 billion of
revolving credit, to be allocated to any of the above-indicated
companies. The revolving credit facility consists of a 364-day
revolving credit in the amount of $300 million and a 5-year revolving
credit in the amount of $1.2 billion. The participation of the Company
in this facility is limited to $300 million, and at December 31, 1994,
the Company's allocation was $200 million, all of which was unused.
30
<PAGE> 16
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
5. 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
coinsurance, modified coinsurance and yearly renewable term. The
Company remains primarily liable as the direct insurer on all risks
reinsured. It is the policy of the Company to obtain reinsurance for
amounts above certain retention limits on individual life policies which
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 the Travelers Indemnity Company.
A summary of reinsurance financial data reflected within the
consolidated statement of operations and retained earnings is presented
below (in millions):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------|------------------------------
1994 | 1993 1992
- -----------------------------------------------------------------|------------------------------
<S> <C> | <C> <C>
Written Premiums: |
Direct $ 4,529 | $ 3,308 $ 3,163
|
Assumed from: |
Affiliated companies 59 | 31 15
Non-affiliated companies 33 | 60 115
|
Ceded to: |
Affiliated companies (358) | (496) (522)
Non-affiliated companies (341) | (98) (62)
- -----------------------------------------------------------------|------------------------------
|
Total Net Written Premiums $ 3,922 | $ 2,805 $ 2,709
=================================================================|==============================
|
Earned Premiums: |
Direct $ 4,475 | $ 3,256 $ 3,124
|
Assumed from: |
Affiliated companies 65 | 32 15
Non-affiliated companies 30 | 32 110
|
Ceded to: |
Affiliated companies (384) | (512) (491)
Non-affiliated companies (333) | (87) (64)
- -----------------------------------------------------------------|------------------------------
|
Total Net Earned Premiums $ 3,853 | $ 2,721 $ 2,694
=================================================================|==============================
</TABLE>
31
<PAGE> 17
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
5. REINSURANCE, Continued
Reinsurance recoverables at December 31 include amounts recoverable on
unpaid and paid losses and were as follows (in millions):
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
1994 1993
------------------------------------------------------------------------------
<S> <C> <C>
Reinsurance Recoverables:
Life and accident and health business:
Affiliated companies $ 3 $ 3
Non-affiliated companies 661 689
Property-casualty business:
Affiliated companies 2,251 2,191
------------------------------------------------------------------------------
Total Reinsurance Recoverables $ 2,915 $ 2,883
==============================================================================
</TABLE>
6. SHAREHOLDER'S EQUITY
Additional Paid-In Capital
The increase of $273 million in additional paid-in capital during 1994
is due primarily to the finalization of the evaluations and appraisals
used to assign fair values to assets and liabilities under purchase
accounting.
The increase of $1.7 billion in additional paid-in capital during 1993
arose from a contribution of $400 million from The Travelers Corporation
and the contribution of TIHI (see notes 1 and 3). This was partially
offset by the impact of the initial evaluations and appraisals used to
assign fair values to assets and liabilities under purchase accounting.
The increase in additional paid-in capital during December 31, 1992
arose from a contribution of $500 million in 1992 from The Travelers
Corporation and the contribution of Transport Life Insurance Company's
preferred provider and third party administrator organizations in 1992
(see note 3).
Unrealized Investment Gains (Losses)
An analysis of the change in unrealized gains and losses on investments
is shown in note 15.
32
<PAGE> 18
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
6. SHAREHOLDER'S EQUITY, Continued
Shareholder's Equity and Dividend Availability
The statutory net income, including TIHI, was $100 million for the year
ended December 31, 1994. The statutory net loss, excluding TIHI, was
$648 million and $346 million for the years ended December 31, 1993 and
1992, respectively.
Statutory capital and surplus was $2.1 billion and $1.8 billion at
December 31, 1994 and 1993, respectively.
The Company is currently subject to various regulatory restrictions that
limit the maximum amount of dividends available to TIG without prior
approval of insurance regulatory authorities. Under statutory
accounting practices, there is no statutory surplus available in 1995
for dividends to TIG without prior approval of the Connecticut Insurance
Department.
Dividend payments to the Company from its insurance subsidiaries are
subject to similar restrictions and statutory surplus of the
subsidiaries is not available in 1995 for dividends to the Company
without prior approval of insurance regulatory authorities.
7. ADDITIONAL OPERATING INFORMATION
The Company has segmented its business by major product lines. TIHI was
contributed to the Company on December 31, 1993, and its assets at that
date and subsequent and its operations for the year ended December 31,
1994 are included in the following table in the Life and Annuities
segment. Transport Life Insurance Company's preferred provider and
third party administrator organizations were contributed to the Company
in December 1992 and are included in the Managed Care and Employee
Benefits segment.
33
<PAGE> 19
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
7. ADDITIONAL OPERATING INFORMATION, continued
Results included in the table below reflect 1993 fourth quarter
after-tax charges of $103 million for an addition to reserves for
foreclosed properties held for sale and 1992 fourth quarter after-tax
charges of $272 million for implementation of SOP 92-3 and $193 million
for an addition to mortgage loan valuation reserves.
<TABLE>
<CAPTION>
Managed Care Corporate
Travelers Life and Employee and Other
(in millions) and Annuities Benefits Operations Consolidated
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994
- ----
Revenues
Premiums $ 1,492 $ 2,369 $ - $ 3,861
Net investment income 1,603 246 - 1,849
Realized investment gains 13 - 1 14
Other 173 850 - 1,023
- ------------------------------------------------------------------------------------------------------------------------
Total $ 3,281 $ 3,465 $ 1 $ 6,747
- ------------------------------------------------------------------------------------------------------------------------
Income (loss) before federal income taxes $ 604 $ 257 $ (4) $ 857
Net income (loss) 392 157 (4) 545
Assets 33,078 5,131 2,326 40,535
- ------------------------------------------------------------------------------------------------------------------------
1993
- ----
Revenues
Premiums $ 330 $ 2,395 $ - $ 2,725
Net investment income 1,616 265 3 1,884
Realized investment gains (losses) (45) 24 - (21)
Other 120 737 2 859
- ------------------------------------------------------------------------------------------------------------------------
Total $ 2,021 $ 3,421 $ 5 $ 5,447
- ------------------------------------------------------------------------------------------------------------------------
Income (loss) before federal income taxes $ (87) $ 173 $ (3) $ 83
Net income (loss) 19 123 (1) 141
Assets (purchase accounting value) 34,155 4,744 2,442 41,341
- ------------------------------------------------------------------------------------------------------------------------
1992
- ----
Revenues
Premiums $ 278 $ 2,408 $ - $ 2,686
Net investment income 1,799 290 12 2,101
Realized investment gains (losses) (725) (22) - (747)
Other 140 645 - 785
- ------------------------------------------------------------------------------------------------------------------------
Total $ 1,492 $ 3,321 $ 12 $ 4,825
- ------------------------------------------------------------------------------------------------------------------------
Income (loss) before federal
income taxes and cumulative effects of
changes in accounting principles $ (844) $ (100) $ 1 $ (943)
Cumulative effect of change in
accounting for postretirement
benefits other than pensions, net of tax (25) (101) - (126)
Cumulative effect of change in
accounting for income taxes 223 124 3 350
Net income (loss) (343) (42) 4 (381)
Assets 31,378 4,498 2,191 38,067
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE> 20
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. DISCLOSURE ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF
FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments, including financial
futures, interest rate swaps and forward contracts, as a means of
prudently hedging exposure to price, foreign currency and/or interest
rate risk on anticipated investment purchases or existing assets and
liabilities. Also, in the normal course of business, the Company has
fixed and variable rate loan commitments and unfunded commitments to
partnerships. 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 consolidated 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 credit loss or cash flow associated with these instruments can be
less than these amounts. For forward contracts and interest rate swaps,
credit risk is limited to the amounts calculated to be due the Company on
such contracts. For unfunded commitments to partnerships, credit
exposure is the amount of the unfunded commitments. For fixed and
variable rate loan commitments, credit exposure is represented by the
contractual amount of these instruments.
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. Many
transactions include the use of collateral to minimize credit risk and
lower the effective cost to the borrower.
The Company may occasionally enter 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 specified intervals, the difference between
fixed-rate and floating rate interest amounts calculated by reference to
an agreed notional principal amount. Generally, no cash is exchanged at
the outset of the contract and no principal payments are made by either
party. A single net payment is usually made by one counterparty at each
due date. Swap agreements are not exchange traded so they are subject
to the risk of default by the counterparty. In all cases,
counterparties under these agreements are major financial institutions
with the risk of non-performance considered remote. At December 31,
1994 and 1993, the Company had entered into interest rate swaps with
contract values of $145 million and $153 million, respectively. At both
December 31, 1994 and 1993, the fair value of interest rate swaps was $1
million (loss position) which is determined using a discounted cash flow
method.
The off-balance-sheet risks of financial futures contracts, forward
contracts, fixed and variable rate loan commitments and unfunded
commitments to partnerships were not considered significant at December
31, 1994 and 1993.
35
<PAGE> 21
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. DISCLOSURE ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF
FINANCIAL INSTRUMENTS, Continued
Fair Value of Certain Financial Instruments
The Company uses various financial instruments in the normal course of
its business. Fair values of financial instruments which are considered
insurance contracts are not required to be disclosed and are not
included in the amounts discussed.
At December 31, 1994 and 1993, investments in fixed maturities have a
fair value of $17.3 billion and $18.3 billion, respectively. See note
15.
At December 31, 1994, mortgage loans have a carrying value of $4.9
billion, which approximates fair value, compared with a carrying value
and a fair value of $6.8 billion at December 31, 1993. In estimating
fair value, the Company used interest rates reflecting the higher
returns required in the current real estate financing market.
The carrying value of $417 million and $320 million of financial
instruments classified as other assets approximates fair values at
December 31, 1994 and 1993, respectively. The carrying value of $1.2
billion and $878 million of financial instruments classified as other
liabilities also approximates their fair values at December 31, 1994 and
1993, respectively. Fair value is determined using various methods
including discounted cash flows and carrying value, as appropriate for
the various financial instruments.
At December 31, 1994, contractholder funds with defined maturities have
a carrying value of $4.2 billion and a fair value of $4.0 billion,
compared with a carrying value and a fair value of $5.0 billion at
December 31, 1993. 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 have a carrying value of
$9.1 billion and a fair value of $8.8 billion at December 31, 1994,
compared with a carrying value of $13.0 billion and a fair value of
$12.7 billion at December 31, 1993. These contracts generally are
valued at surrender value.
The assets of separate accounts providing a guaranteed return have a
carrying value and a fair value of $1.5 billion and $1.4 billion,
respectively, at December 31, 1994, compared with a carrying value and a
fair value of $1.5 billion and $1.6 billion, respectively, at December
31, 1993. The liabilities of separate accounts providing a guaranteed
return have a carrying value and a fair value of $1.5 billion and $1.3
billion, respectively, at December 31, 1994, compared with a carrying
value and a fair value of $1.5 billion and $1.7 billion, respectively,
at December 31, 1993.
36
<PAGE> 22
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. DISCLOSURE ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF
FINANCIAL INSTRUMENTS, Continued
The carrying values of cash, short-term securities and investment income
accrued approximate their fair values.
The carrying value of policy loans, which have no defined maturities, is
considered to be fair value.
9. COMMITMENTS AND CONTINGENCIES
Financial Instruments with Off-Balance-Sheet Risk
See Note 8 for a discussion of financial instruments with
off-balance-sheet risk.
Litigation
In April 1989, a lawsuit was filed against the Company by the federal
government alleging the Company improperly handled health benefit claims
for individuals who are actively employed and eligible for Medicare
coverage. In November 1992, the court ruled on cross motions for
summary judgment. The court found that the Company had no liability
when acting in the capacity of an administrator of claims. However, the
court also recognized that, while the government's right of recovery
with respect to insured claims is governed by the substantive terms of
our customers' health benefit plan, the right of recovery is independent
of procedural limitations in the Company's contracts.
The Company is a defendant or codefendant in various litigation matters.
Although there can be no assurances, as of December 31, 1994, 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.
10. BENEFIT PLANS
Pension Plans
The Company participates in qualified and nonqualified, noncontributory
defined benefit pension plans covering the majority of the Company's
U.S. employees. Benefits for the qualified plan are based on an account
balance formula. Under this formula, each employee's accrued benefit
can be expressed as an account that is credited with amounts based upon
the employee's pay, length of service and a specified interest rate, all
subject to a minimum benefit level. This plan is funded in accordance
with the Employee Retirement Income Security Act of 1974 and the
Internal Revenue Code. For the nonqualified plan, contributions are
based on benefits paid.
Certain subsidiaries of TIHI participate in a noncontributory defined
benefit plan sponsored by their ultimate parent, The Travelers Inc.
37
<PAGE> 23
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
10. BENEFIT PLANS, Continued
The Company's share of net pension expense was $6 million, $8 million
and $22 million for 1994, 1993 and 1992, respectively.
Through plans sponsored by TIG, 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
$2 million in 1994, 1993 and 1992. Certain non-U.S. employees of TIHI
are covered by noncontributory defined benefit plans. These plans are
funded based upon local laws.
Other Benefit Plans
In addition to pension benefits, the Company provides certain health
care and life insurance benefits for retired employees through a plan
sponsored by TIG. This plan does not include employees of TIHI.
Covered employees may become eligible for these benefits if they reach
retirement age while working for the Company. These retirees may elect
certain prepaid health care benefit plans. Life insurance benefits
generally are set at a fixed amount. The cost recognized by the Company
for these benefits represents its allocated share of the total costs of
the plan, net of employee contributions.
In the third quarter of 1992, TIG adopted FAS 106 and elected to
recognize the accumulated postretirement benefit obligation (i.e., the
transition obligation) as a change in accounting principle retroactive
to January 1, 1992. The Company's pretax share of the total cost of the
plan for 1994, 1993 and 1992 was $14 million, $29 million and $26
million, respectively.
The Merger resulted in a change in control of The Travelers Corporation
as defined in the applicable plans, and provisions of some employee
benefit plans secured existing compensation and benefit entitlements
earned prior to the change in control, and provided a salary and benefit
continuation floor for employees whose employment was affected. The
costs related to these changes have been assumed by TIG.
Savings, Investment and Stock Ownership Plan
Under the savings, investment and stock ownership plan available to
substantially all employees of TIG (except TIHI), the Company matches a
portion of employee contributions. Effective April 1, 1993, the match
decreased from 100% to 50% of an employee's first 5% contribution and a
variable match based on TIG's profitability was added. The Company's
matching obligations were $7 million, $10 million and $16 million in
1994, 1993 and 1992, respectively.
38
<PAGE> 24
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
11. RELATED PARTY TRANSACTIONS
The principal banking functions for certain subsidiaries and affiliates
of TIG, and salaries and expenses for TIG and its insurance subsidiaries
(excluding TIHI), are handled by the Company. Settlements for these
functions between the Company and its affiliates are made regularly.
The Company provides various insurance coverages, principally life and
health, to employees of certain subsidiaries of TIG. The premiums for
these coverages were charged in accordance with normal cost allocation
procedures. In addition, investment advisory and management services,
data processing services and claims processing services are provided by
affiliated companies.
TIG and its subsidiaries maintain short-term investment pools in which
the Company participates. The positions of each company participating
in the pools are calculated and adjusted daily. At December 31, 1994
and 1993, the pools totaled approximately $1.5 billion and $1.3 billion,
respectively. The Company's share of the pools amounted to $1.1 billion
and $439 million at December 31, 1994 and 1993, respectively, and is
included in short-term securities in the consolidated balance sheet.
The Company markets a variable annuity product through its affiliate,
Smith Barney. Sales of this product were $158 million in 1994.
The Company leases new furniture and equipment from a noninsurance
subsidiary of TIG. The rental expense charged to the Company for this
furniture and equipment was $9 million, $10 million and $9 million in
1994, 1993 and 1992, respectively.
At December 31, 1994 and 1993, TIC has an investment of $23 million and
$27 million, respectively, in bonds of its affiliate, Commercial Credit
Company. This is included in fixed maturities in the consolidated
balance sheet.
TIHI has an investment of $231 million and $110 million in common stock
of The Travelers Inc. at December 31, 1994 and 1993, respectively.
This is carried at fair value at December 31, 1994 and at cost at
December 31, 1993. At December 31, 1994, TIHI has an investment of $35
million in redeemable preferred stock of The Travelers Inc. which is
carried at fair value. TIHI has notes receivable from The Travelers
Inc. of $30 million at December 31, 1994 and 1993, which are carried at
cost. These assets are included in other investments in the
consolidated balance sheet.
39
<PAGE> 25
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
12. LEASES
The Company has entered into various operating and capital lease
agreements for office space and data processing and certain other
equipment. Rental expense under operating leases was $99 million, $113
million and $122 million in 1994, 1993 and 1992, respectively. Future
net minimum rental and lease payments are estimated as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
Minimum operating Minimum capital
------------------------------------------------------------------------------------------
(in millions) rental payments lease payments
------------------------------------------------------------------------------------------
<S> <C> <C>
Year ending December 31,
1995 $ 112 $ 7
1996 85 7
1997 69 4
1998 54 4
1999 47 4
Thereafter 36 64
------------------------------------------------------------------------------------------
$ 403 $ 90
------------------------------------------------------------------------------------------
</TABLE>
The Company is reimbursed by affiliates of TIG for utilization of space
and equipment.
The following is a summary of assets under capital leases:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
(in millions) 1994 1993
-------------------------------------------------------------------------
<S> <C> <C>
Buildings $ 25 $ 25
Equipment 14 14
-------------------------------------------------------------------------
39 39
Less accumulated depreciation 17 14
-------------------------------------------------------------------------
Net $ 22 $ 25
-------------------------------------------------------------------------
</TABLE>
The net carrying value of the assets is recorded at amortized cost and
at the value assigned at the acquisition dates at December 31, 1994 and
1993, respectively.
40
<PAGE> 26
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
13. FEDERAL INCOME TAXES
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
(in millions) 1994 | 1993 1992
------------------------------------------------------------|------------------------------
<S> <C> | <C> <C>
Effective tax rate |
|
Income (loss) before federal |
income taxes $ 857 | $ 83 $ (943)
------------------------------------------------------------|------------------------------
Statutory tax rate 35% | 35% 34%
------------------------------------------------------------|------------------------------
|
Expected federal income taxes $ 300 | $ 29 $ (321)
Tax effect of: |
Nontaxable investment income (4) | (1) (1)
Adjustments to benefit and other reserves - | (46) (18)
Adjustment to deferred tax asset for |
enacted change in tax rates from |
34% to 35% - | (25) -
Goodwill 12 | - -
Other 4 | (15) 2
------------------------------------------------------------|------------------------------
Federal income taxes $ 312 | $ (58) $ (338)
------------------------------------------------------------|------------------------------
|
Effective tax rate 36% | (70%) 36%
------------------------------------------------------------|------------------------------
|
Composition of federal income taxes |
Current: |
United States $ 22 | $ 17 $ (3)
Foreign 14 | 3 5
------------------------------------------------------------|------------------------------
Total 36 | 20 2
------------------------------------------------------------|------------------------------
|
Deferred: |
United States 271 | (78) (340)
Foreign 5 | - -
------------------------------------------------------------|------------------------------
Total 276 | (78) (340)
------------------------------------------------------------|------------------------------
Federal income taxes $ 312 | $ (58) $ (338)
-------------------------------------------------------------------------------------------
</TABLE>
41
<PAGE> 27
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
13. FEDERAL INCOME TAXES, Continued
The net deferred tax assets at December 31, 1994 and 1993 were comprised
of the tax effects of the temporary differences related to the following
assets and liabilities:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
(in millions) 1994 1993
----------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Benefit, reinsurance and other reserves $ 453 $ 575
Contractholder funds 158 184
Investments 690 492
Other employee benefits 87 65
Other 257 146
----------------------------------------------------------------------------------------------
Total 1,645 1,462
----------------------------------------------------------------------------------------------
Deferred tax liabilities:
Deferred acquisition costs and value of insurance in force 529 504
Prepaid pension expense 5 3
Other 61 -
----------------------------------------------------------------------------------------------
Total 595 507
----------------------------------------------------------------------------------------------
Net deferred tax asset before valuation allowance 1,050 955
Valuation allowance for deferred tax assets (100) (100)
----------------------------------------------------------------------------------------------
Net deferred tax asset after valuation allowance $ 950 $ 855
----------------------------------------------------------------------------------------------
</TABLE>
Starting in 1994 and continuing for at least five years, 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 return 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 Company has no receivable for unreimbursed credits from its
previous allocation agreement with The Travelers Corporation.
42
<PAGE> 28
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
13. FEDERAL INCOME TAXES, Continued
A net deferred tax asset valuation allowance of $100 million has been
established to reduce the net deferred tax asset on investment losses to
the amount that, based upon available evidence, is more likely than not
to be realized. Reversal of the valuation allowance is contingent upon
the recognition of future capital gains in the Company's consolidated
life insurance company federal income tax return through 1998, and the
consolidated federal income tax return of The Travelers Inc. commencing
in 1999 or a change in circumstances which causes the recognition of the
benefits to become more likely than not. There was no net change in the
valuation allowance during 1994. The initial recognition of any benefit
produced by the reversal of the valuation allowance will be recognized
by reducing goodwill.
The Company has a net deferred tax asset, after the valuation allowance
of $100 million, which relates to temporary differences that are
expected to reverse as net ordinary deductions except for a deferred tax
asset of $319 million which relates to the unrealized loss on fixed
maturity investments. Management does not intend to realize the
unrealized loss on the fixed maturity investments except to the extent
of offsetting capital gains. The Company will have to generate
approximately $1.8 billion of taxable income, before reversal of these
temporary differences, primarily over the next 10 to 15 years, to
realize the remainder of the deferred tax asset, exclusive of the
unrealized loss on fixed maturity investments. Management expects to
realize the remainder of the deferred tax asset based upon its
expectation of future positive taxable income, after the reversal of
these deductible temporary differences, in the consolidated life
insurance company federal income tax return through 1998, and the
consolidated federal income tax return of The Travelers Inc. commencing
in 1999. The taxable income of The Travelers Inc. consolidated return,
after reversal of the deductible temporary differences, is expected to
be at least $1 billion annually. At December 31, 1994, the Company has
no ordinary or capital loss carryforwards.
The "policyholders surplus account", which arose under prior tax law, is
generally that portion of the gain from operations that has not been
subjected to tax, plus certain deductions. The balance of this account,
which, under provisions of the Tax Reform Act of 1984, will not increase
after 1983, is estimated to be $932 million. This amount has not been
subjected to current income taxes but, under certain conditions that
management considers to be remote, may become subject to income taxes in
future years. At current rates, the maximum amount of such tax (for
which no provision has been made in the financial statements) is
approximately $326 million.
See note 2 for a discussion of the implementation of new principles for
accounting for income taxes.
43
<PAGE> 29
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
14. NET INVESTMENT INCOME
<TABLE>
<CAPTION>
------------------------------------------------------------------|------------------------------
(For the year ended December 31, in millions) 1994 | 1993 1992
------------------------------------------------------------------|------------------------------
<S> <C> | <C> <C>
Gross investment income |
Fixed maturities $ 1,253 | $ 1,221 $ 1,242
Mortgage loans 534 | 692 868
Real estate 177 | 383 384
Policy loans 112 | 106 109
Other 7 | (23) -
------------------------------------------------------------------|------------------------------
2,083 | 2,379 2,603
------------------------------------------------------------------|------------------------------
|
Investment expenses 234 | 495 502
------------------------------------------------------------------|------------------------------
Net investment income $ 1,849 | $ 1,884 $ 2,101
------------------------------------------------------------------|------------------------------
</TABLE>
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES)
Realized investment gains (losses) for the periods were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------|-----------------------------
(For the year ended December 31, in millions) 1994 | 1993 1992
-------------------------------------------------------------------|-----------------------------
<S> <C> | <C> <C>
Realized |
|
Fixed maturities $ (3) | $ 182 $ (11)
Equity securities 19 | 14 9
Mortgage loans - | (32) (386)
Real estate - | (222) (400)
Other (2) | 37 41
-------------------------------------------------------------------|-----------------------------
Realized investment gains (losses) $ 14 | $ (21) $ (747)
-------------------------------------------------------------------|-----------------------------
</TABLE>
44
<PAGE> 30
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
Changes in net unrealized investment gains (losses) that are included as
a separate component of shareholder's equity were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
(For the year ended December 31, in millions) 1994 | 1993 1992
-------------------------------------------------------------------|-----------------------------
<S> <C> | <C> <C>
Unrealized |
|
Fixed maturities $ (1,319) | $ (235) $ 146
Equity securities (25) | (17) 6
Other 165 | 28 4
-------------------------------------------------------------------|-----------------------------
(1,179) | (224) 156
Related taxes (412) | (83) 53
-------------------------------------------------------------------|-----------------------------
|
Net unrealized investment gains (losses) (767) | (141) 103
Contribution of TIHI - 5 | -
Balance beginning of year 7 143 | 40
--------------------------------------------------------------------------------------|----------
Balance end of year $ (760) $ 7 | $ 143
-------------------------------------------------------------------------------------------------
</TABLE>
The initial adoption of FAS 115 resulted in an increase of approximately
$232 million (net of taxes) to net unrealized gains in 1994.
Fixed Maturities
Proceeds from sales of fixed maturities classified as available for sale
were $1.4 billion in 1994, resulting in gross realized gains of $15
million and gross realized losses of $27 million. There were no sales
of fixed maturities classified as available for sale in 1993 or 1992 as,
in conjunction with the Merger, fixed maturities were first classified
as "available for sale" effective December 31, 1993.
Prior to December 31, 1993, fixed maturities that were intended to be
held to maturity were recorded at amortized cost and classified as held
for investment. Sales from the amortized cost portfolios have been made
periodically. Such sales were $97 million and $195 million in 1993 and
1992, respectively. Gross gains of $7 million and $10 million in 1993
and 1992, respectively, and gross losses of $1 million and $6 million in
1993 and 1992, respectively, were realized on those sales.
Prior to December 31, 1993, the carrying values of the trading portfolio
fixed maturities were adjusted to market value as it was likely they
would be sold prior to maturity. At December 31, 1992, these fixed
maturities had market values of $4.8 billion. Sales of trading
portfolio fixed maturities were $4.0 billion and $642 million in 1993
and 1992, respectively. Gross gains of $165 million and $24 million in
1993 and 1992, respectively, and gross losses of $2 million and $4
million in 1993 and 1992, respectively, were realized on those sales.
45
<PAGE> 31
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
The amortized cost and market value of investments in fixed maturities
were as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
December 31, 1994
------------------------------------------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Market
(in millions) cost gains losses value
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
Mortgage-backed securities -
CMOs and pass through
securities $ 3,779 $ 3 $ 304 $ 3,478
U.S. Treasury securities
and obligations of U.S.
Government and
government agencies
and authorities 3,080 3 306 2,777
Obligations of states,
municipalities and
political subdivisions 87 - 7 80
Debt securities issued by
foreign governments 398 - 26 372
All other corporate bonds 11,225 14 696 10,543
Redeemable preferred stock 10 - - 10
------------------------------------------------------------------------------------------------
Total $ 18,579 $ 20 $ 1,339 $ 17,260
------------------------------------------------------------------------------------------------
</TABLE>
46
<PAGE> 32
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
December 31, 1993
------------------------------------------------------------------------------------------------
Gross Gross
Carrying unrealized unrealized Market
(in millions) value gains losses value
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
Mortgage-backed securities -
CMOs and pass through
securities $ 4,219 $ 18 $ 18 $ 4,219
U.S. Treasury securities
and obligations of U.S.
Government and
government agencies
and authorities 2,807 67 6 2,868
Obligations of states,
municipalities and
political subdivisions 259 9 - 268
Debt securities issued by
foreign governments 333 6 - 339
All other corporate bonds 10,474* 125 29 10,570
Redeemable preferred stock 20 - - 20
Held for investment 18 - - 18
------------------------------------------------------------------------------------------------
Total $ 18,130 $ 225 $ 53 $ 18,302
------------------------------------------------------------------------------------------------
</TABLE>
* Before valuation reserves of $67 million.
The amortized cost and market value of fixed maturities at December 31,
1994, 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>
------------------------------------------------------------------------------------------------
Maturity Amortized Market
(in millions) cost value
------------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 1,217 $ 1,197
Due after 1 year through 5 years 4,691 4,434
Due after 5 years through 10 years 5,731 5,310
Due after 10 years 3,161 2,841
------------------------------------------------------------------------------------------------
14,800 13,782
Mortgage-backed securities 3,779 3,478
------------------------------------------------------------------------------------------------
Total $ 18,579 $ 17,260
------------------------------------------------------------------------------------------------
</TABLE>
47
<PAGE> 33
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
The Company makes significant investments in collateralized mortgage
obligations (CMOs). CMOs typically have high credit quality, offer good
liquidity, and provide a significant advantage in yield and total return
compared to U.S. Treasury securities. The Company's investment strategy
is to purchase CMO tranches which are protected against prepayment risk,
primarily planned amortization class (PAC) tranches. Prepayment
protected tranches are preferred because they provide stable cash flows
in a variety of 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, 1994 and 1993, the Company held CMOs with a market value
of $2.2 billion and $2.5 billion, respectively. Approximately 88% of
the Company's CMO holdings are fully collateralized by GNMA, FNMA or
FHLMC securities at December 31, 1994 and 1993. The majority of these
are GNMA-backed securities. In addition, the Company held $1.3 billion
and $1.9 billion of GNMA, FNMA or FHLMC mortgage-backed securities at
December 31, 1994 and 1993, respectively. Virtually all of these
securities are rated AAA. The Company also held $927 million and $899
million of securities that are backed primarily by credit card or car
loan receivables at December 31, 1994 and 1993, respectively.
Equity Securities
The cost and market values of investments in equity securities were as
follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
December 31, 1994
------------------------------------------------------------------------------------------------
Gross Gross
unrealized unrealized Market
(in thousands) Cost gains losses value
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stocks $ 133 $ 19 $ 21 $ 131
Nonredeemable preferred stocks 40 - 2 38
------------------------------------------------------------------------------------------------
Total $ 173 $ 19 $ 23 $ 169
------------------------------------------------------------------------------------------------
December 31, 1993
------------------------------------------------------------------------------------------------
Common stocks $ 129 $ 22 $ 3 $ 148
Nonredeemable preferred stocks 70 3 1 72
------------------------------------------------------------------------------------------------
Total $ 199 $ 25 $ 4 $ 220
------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales of equity securities were $359 million in 1994,
resulting in gross realized gains of $24 million and gross realized
losses of $6 million.
48
<PAGE> 34
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
Mortgage loans and real estate
Underperforming assets include delinquent mortgage loans, loans in the
process of foreclosure, foreclosed loans and loans modified at interest
rates below market. The Company continues its strategy, adopted in
conjunction with the Merger, to dispose of these real estate assets and
some of the mortgage loans and to reinvest the proceeds to obtain
current market yields.
At December 31, 1994 and 1993, the Company's mortgage loan and real
estate held for sale portfolios consisted of the following (in
millions):
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
1994 1993
------------------------------------------------------------------------------
<S> <C> <C>
Current mortgage loans $ 4,467 $ 5,680
Underperforming mortgage loans 471 1,165
------------------------------------------------------------------------------
Total mortgage loans 4,938 6,845
------------------------------------------------------------------------------
Real estate held for sale 383 954
------------------------------------------------------------------------------
Total mortgage loans and real estate $ 5,321 $ 7,799
------------------------------------------------------------------------------
</TABLE>
Aggregate annual maturities on mortgage loans at December 31, 1994 are as
follows:
<TABLE>
<CAPTION>
-----------------------------------------------------
(in millions)
-----------------------------------------------------
<S> <C>
Past maturity $ 196
1995 708
1996 517
1997 550
1998 614
1999 611
Thereafter 1,742
-----------------------------------------------------
Total $ 4,938
-----------------------------------------------------
</TABLE>
Concentrations
At December 31, 1994 and 1993, the Company had no concentration of
credit risk in a single investee exceeding 10% of consolidated
shareholder's equity.
The Company participates in two short-term investment pools maintained by
TIG and its subsidiaries. These pools are discussed in note 11.
49
<PAGE> 35
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
Included in fixed maturities are below investment grade assets totaling
$922 million and $814 million at December 31, 1994 and 1993,
respectively. The Company defines its below investment grade assets as
those securities rated "Ba1" or below by external rating agencies, or
the equivalent by the internal analysts when a public rating does not
exist. Such assets include publicly traded below investment grade
bonds, highly leveraged transactions and certain other privately issued
bonds that are classified as below investment grade loans.
The Company also has significant concentrations of investments in the
following industries:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
(in millions) 1994 1993
------------------------------------------------------------------------------------------------
<S> <C> <C>
Finance $ 1,241 $ 1,442
Electric utilities 1,222 1,348
Banking 953 743
Oil and gas 859 651
------------------------------------------------------------------------------------------------
</TABLE>
Below investment grade assets included in the totals above, are as
follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
(in millions) 1994 1993
------------------------------------------------------------------------------------------------
<S> <C> <C>
Finance $ 75 $ 45
Electric utilities 32 47
Banking 21 21
Oil and gas 33 38
------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1994 and 1993, significant concentrations of mortgage
loans were for properties located in highly populated areas in the
states listed below. The amounts are shown below:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
(in millions) 1994 1993
------------------------------------------------------------------------------------------------
<S> <C> <C>
California $ 929 $ 1,174
New York 558 780
Florida 432 588
Texas 380 584
Illinois 347 485
------------------------------------------------------------------------------------------------
</TABLE>
Other mortgage loan investments are fairly evenly dispersed throughout
the United States, with no holdings in any state exceeding $273 million
and $324 million at December 31, 1994 and 1993, respectively.
50
<PAGE> 36
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
Concentrations of mortgage loans by property type at December 31, 1994
and 1993 are shown below:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
(in millions) 1994 1993
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Office $ 2,065 $ 2,769
Apartment 1,029 1,635
Retail 606 891
Agricultural 540 643
Hotel 402 547
-----------------------------------------------------------------------------------------------
</TABLE>
Real estate investments are dispersed throughout the United States, with
no holdings in any state exceeding $111 million or $191 million at
December 31, 1994 or 1993, respectively.
Real estate assets at December 31, 1994 and 1993 included office
properties with carrying values of $205 million and $568 million,
respectively.
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.
Investment Valuation Reserves
At December 31, 1994, 1993 and 1992, total investment valuation
reserves, which are deducted from the applicable investment carrying
values in the consolidated balance sheet, were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
(in millions) 1994 | 1993 1992
------------------------------------------------------------------|------------------------------
<S> <C> | <C> <C>
Beginning of year $ 67 | $ 1,417 $ 864
Increase - | 195 821
Impairments, net of gains/recoveries - | (602) (268)
FAS 115/Purchase accounting adjustment (67) | (943) -
-------------------------------------------------------------------------------------------------
End of year $ - $ 67 | $ 1,417
-------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1993, investment valuation reserves were comprised of
$67 million for securities. Increases in the investment valuation
reserves are reflected as realized investment losses.
51
<PAGE> 37
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
Nonincome Producing
Investments included in the consolidated balance sheets that were
nonincome producing for the preceding 12 months were as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
(in millions) 1994 1993
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Mortgage loans $ 127 $ 249
Real estate 73 147
Fixed maturities 6 24
-----------------------------------------------------------------------------------------------
Total $ 206 $ 420
-----------------------------------------------------------------------------------------------
</TABLE>
Restructured
The Company has mortgage loans and debt securities which were
restructured at below market terms totaling approximately $259 million
and $796 million at December 31, 1994 and 1993, respectively. At
December 31, 1993, the Company's restructured assets are recorded at
purchase accounting value. 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 amounted to $52 million in 1994 and $121
million in 1993. Interest on these assets, included in net investment
income, aggregated $17 million and $52 million in 1994 and 1993,
respectively.
16. LIFE AND ANNUITY DEPOSIT FUNDS AND RESERVES
At December 31, 1994, the Company has $23.2 billion of life and annuity
deposit funds and reserves. Of that total, $11.6 billion are not
subject to discretionary withdrawal based on contract terms and related
market conditions. The remaining $11.6 billion are for life and annuity
products that are subject to discretionary withdrawal by the
contractholder. Included in the amount that is subject to discretionary
withdrawal are $1.9 billion of liabilities that are surrenderable with
market value adjustments. An additional $5.7 billion of the life
insurance and individual annuity liabilities are subject to
discretionary withdrawals with an average surrender charge of 5.5%.
Another $1.4 billion of liabilities are surrenderable at book value over
5 to 10 years. In the payout phase, these funds are credited at
significantly reduced interest rates. The remaining $2.6 billion of
liabilities are surrenderable without charge. Approximately 30% of
these liabilities relate to individual life products. These risks would
have to be underwritten again if transferred to another carrier, which
is considered a significant deterrent for long-term policyholders.
Insurance liabilities that are surrendered or withdrawn from the Company
are reduced by outstanding policy loans and related accrued interest
prior to payout.
52
<PAGE> 38
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
17. RESTRUCTURING COSTS
During 1992, the Company announced a series of organizational
restructuring initiatives associated with its plan to streamline its
business and corporate operations. These initiatives have been
substantially completed. These initiatives resulted in a pretax charge
in 1992 of $151 million, consisting of $96 million for severance,
benefits, accrued vacation and outplacement costs, $5 million for
relocation costs due to consolidation efforts, $19 million for lease
costs, $15 million for writeoff of goodwill related to identified
divestitures and $16 million of miscellaneous other costs.
18. RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
In the first quarter of 1992, the Company changed its presentation of
cash flows from operating activities from the indirect method to the
direct method. The following table reconciles net income (loss) to net
cash provided by operating activities:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
(For the year ended December 31, in millions) 1994 | 1993 1992
----------------------------------------------------------------|-------------------------------
<S> <C> | <C> <C>
Net income (loss) $ 545 | $ 141 $ (381)
Reconciling adjustments |
Realized gains (losses) (14) | 21 747
Deferred federal income taxes 276 | (78) (340)
Amortization of deferred policy acquisition |
costs and value of insurance in force 284 | 55 61
Additions to deferred policy acquisition costs (429) | 5 (2)
Trading account investments, |
(purchases) sales, net - | (1,576) (364)
Investment income accrued 17 | 1 29
Premium balances receivable 9 | 41 3
Insurance reserves and accrued expenses 165 | 542 (81)
Restructuring reserves - | (79) 121
Cumulative effects of changes in |
accounting principles - | - (224)
Other, including investment valuation reserves |
in 1993 and 1992 (136) | (445) 487
----------------------------------------------------------------|-------------------------------
|
Net cash provided by (used in) |
operating activities $ 717 | $ (1,372) $ 56
------------------------------------------------------------------------------------------------
</TABLE>
53
<PAGE> 39
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
19. NONCASH INVESTING AND FINANCING ACTIVITIES
Significant noncash investing and financing activities include: a) the
1994 exchange of $23 million of TIHI's investment in The Travelers Inc.
common stock for $35 million of The Travelers Inc. nonredeemable
preferred stock; b) the acquisition of real estate through foreclosures
of mortgage loans amounting to $229 million, $563 million and $753
million in 1994, 1993 and 1992, respectively; c) the acceptance of
purchase money mortgages for sales of real estate aggregating $96
million, $190 million and $72 million in 1994, 1993 and 1992,
respectively; d) the 1993 contribution of TIHI by The Travelers Inc. (see
note 3); e) the 1993 contribution of $400 million of bond investments by
The Travelers Corporation (see note 6); f) increases in investment
valuation reserves in 1993 and 1992 for securities, mortgage loans and/or
investment real estate (see note 15); g) the 1993 transfer of $352
million of mortgage loans and bonds from the Company's general account to
two separate accounts; and h) the contribution in 1992 of Transport Life
Insurance Company's preferred provider and third party administrator
organizations by The Travelers Corporation (see note 3).
54
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
Registration Fees: $50,000 for $200,000,000 in interests of Modified
Guaranteed Annuity Contracts
Estimate of Printing Costs: $9,000.00
Cost of Independent Accountants: $8,000.00
Item 15. Indemnification of Directors and Officers
Section 33-320a 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
corporations obligation to provide such indemnification generally does not
apply unless (1) the individual is 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; 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.
C.G.S. Section 33-320a provides an exclusive remedy; a Connecticut
corporation cannot indemnify a director or officer to an extent either
greater or less than that authorized by the statute, e.g., pursuant to its
certificate of incorporation, by-laws, or any separate contractual arrangement.
However, the statute does specifically authorize a corporation to procure
indemnification insurance to provide greater indemnification rights. The
premiums for such insurance may be shared with the insured individuals on an
agreed basis.
Travelers Group Inc. 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.
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
have 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 their counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification
<PAGE>
by them is against public policy as expressed in the Act and will be governed
by the final adjudication of such issue.
Item 16. Exhibits
(a) Exhibits
*4. Instruments Defining the Rights of Security Holders. (Copies
of the Modified Guaranteed Annuity Contracts are incorporated
herein by reference to Exhibits 4(a) and 4(b) to the Registration
Statement on Form S-1, File No. 33-3094, February 3, 1986, and
Exhibit 4(c) to the Registration Statement on Form S-1, File No.
33-33691, April 6, 1990.)
5. Opinion Re: Legality, Including Consent.
*10. Material Contracts.
a. Restated Second Amended General Agency Agreement (SAGAA) dated as
of November 1, 1989 by and among Primerica Life Insurance Company
(formerly Massachusetts Indemnity Life Insurance Company;
hereinafter "Primerica Life"), A.L. Williams & Associates, Inc.
and Arthur L. Williams, Jr., incorporated by reference to Exhibit
10.15 to the Annual Report on Form 10-K of The Travelers Inc.
(formerly Primerica Corporation) for the fiscal year ended
December 31, 1990 (File No. 1-9924) (the "Primerica 1990 10-K").
b. Restated First Amendment to SAGAA dated as of November 1, 1989,
by and among Primerica Life, A.L. Williams & Associates, Inc.
and Arthur L. Williams, Jr., incorporated by reference to
Exhibit 10.16 to the Primerica 1990 10-K.
c. Master Agreement, dated as of September 1, 1994, between the
Company and Metropolitan Life Insurance Company ("MetLife"),
incorporated by reference to Exhibit 10.03 to The Travelers
Insurance Companys Form 10-Q for the quarter ended September
30, 1994, File No. 33-33691, filed on November 14, 1994.
d. Group Life Insurance and Related Businesses Acquisition
Agreement, dated as of September 1, 1994, among MetLife, the
Company, The Travelers Indemnity Company of Rhode Island and The
Travelers Insurance Company of Illinois, incorporated by
reference to Exhibit 10.04 to The Travelers Insurance Companys
Form 10-Q for the quarter ended September 30, 1994, File No. 33-
33691, filed on November 14, 1994.
23(a). Consent of Coopers & Lybrand L.L.P., Independent Accountants, to the
inclusion in this Form S-2 of their reports on the Company's
statements contained in Form 10-K (as incorporated by reference
herein), and to the reference in the Prospectuses to such firm as
"Experts" in accounting and auditing.
23(b). Consent of KPMG Peat Marwick LLP, Independent Auditors, to the
inclusion in this Form S-2 of their reports on the Company's
financial statements contained in Form 10-K (as incorporated by
reference herein), and to the reference in the Prospectuses to such
firm as "Experts" in accounting and auditing.
23(c). Consent of Counsel (see Exhibit 5).
<PAGE>
24(a). Power of Attorney authorizing Jay S. Fishman as signatory for
Donald T. DeCarlo.
*24(b). Powers of Attorney authorizing Jay S. Fishman as signatory for Marc
P. Weill, James F. Calvano, Irwin R. Ettinger, Michael A. Carpenter
and James L. Morgan. (Incorporated herein by reference to Exhibit 24
to Registration Statement on Form S-2, File No. 33-89812, filed on
February 27, 1995.)
*24(c). Powers of Attorney authorizing Jay S. Fishman as signatory for
Robert I. Lipp and Charles O. Prince, III. (Incorporated herein by
reference to Exhibit 24 to Post-Effective Amendment No. 5 to the
Registration Statement on Form S-2 filed on April 11, 1994).
* Incorporated herein by reference.
Item 17. Undertakings
The undersigned registrant hereby undertakes as follows, pursuant to Item 512
of Regulation S-K:
(a) Rule 415 offerings:
1. To file, during any period in which offers or sales of the
registered securities are being made, a post-effective amendment to
this registration statement:
a. to include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
b. to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement; and
c. to include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
2. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at the time
shall be deemed to be the initial bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(h) Requests for Acceleration of Effective Date:
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described under Item
15 above 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
<PAGE>
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 against the registrant 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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Hartford, State of Connecticut, on April 21, 1995.
THE TRAVELERS INSURANCE COMPANY
(Registrant)
By: /s/Jay S. Fishman
Jay S. Fishman
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities indicated
on April 21, 1995.
*ROBERT I. LIPP Director, Chairman and President
(Robert I. Lipp) (Principal Executive Officer)
/s/JAY S. FISHMAN Director and Chief Financial Officer
(Jay S. Fishman)
*CHARLES O. PRINCE, III Director
(Charles O. Prince, III)
*MARC P. WEILL Director
(Marc P. Weill)
*IRWIN R. ETTINGER Director
(Irwin R. Ettinger)
*MICHAEL A. CARPENTER Director
(Michael A. Carpenter)
*DONALD T. DeCARLO Director
(Donald T. DeCarlo)
/s/JAMES L. MORGAN Senior Vice President - Finance
(James L. Morgan) and Chief Accounting Officer
*By: /s/Jay S. Fishman
Jay S. Fishman, Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description Method of Filing
4 Instruments Defining the Rights of Security Holders
(Copies of the Modified Guaranteed Annuity
Contracts are incorporated herein by reference to
Exhibits 4(a) and 4(b) to the Registration Statement
on Form S-1, File No. 33-3094, February 3, 1986,
and Exhibit 4(c) to the Registration Statement on
Form S-1, File No. 33-33691, April 6, 1990.)
5 Opinion Re: Legality, Including Consent. Electronically
10 Material Contracts.
a. Restated Second Amended General Agency
Agreement (SAGAA) dated as of November 1,
1989 by and among Primerica Life Insurance
Company (formerly Massachusetts Indemnity
Life Insurance Company; hereinafter "Primerica
Life"), A.L. Williams & Associates, Inc. and
Arthur L. Williams, Jr., incorporated by refer-
ence to Exhibit 10.15 to the Annual Report
on Form 10-K of The Travelers Inc. (formerly
Primerica Corporation) for the fiscal year ended
December 31, 1990 (File No. 1-9924) (the
"Primerica 1990 10-K").
b. Restated First Amendment to SAGAA dated as of
November 1, 1989, by and among Primerica Life,
A.L. Williams & Associates, Inc. and Arthur L.
Williams, Jr., incorporated by reference to
Exhibit 10.16 to the Primerica 1990 10-K.
c. Master Agreement, dated as of September 1, 1994,
between the Company and Metropolitan Life Insurance
Company ("MetLife"), incorporated by reference to
Exhibit 10.03 to The Travelers Insurance Companys
Form 10-Q for the quarter ended September 30, 1994,
File No. 33-33691, filed on November 14, 1994.
d. Group Life Insurance and Related Businesses
Acquisition Agreement, dated as of September 1,
1994, among MetLife, the Company, The Travelers
Indemnity Company of Rhode Island and The
Travelers Insurance Company of Illinois,
incorporated by reference to Exhibit 10.04 to The
Travelers Insurance Companys Form 10-Q for the
quarter ended September 30, 1994, File No.
33-33691, filed on November 14, 1994.
<PAGE>
Exhibit
No. Description Method of Filing
23(a) Consent of Coopers & Lybrand L.L.P., Independent Electronically
Accountants, to the inclusion in this Form S-2 of
their reports on the Company's financial statements
contained in Form 10-K (as incorporated by reference
herein), and to the reference in the Prospectuses
to such firm as "Experts" in accounting and auditing.
23(b) Consent of KPMG Peat Marwick LLP, Independent Electronically
Auditors, to the inclusion in this Form S-2 of their
reports on the Company's financial statements
contained in Form 10-K (as incorporated by reference
herein), and to the reference in the Prospectuses
to such firm as "Experts" in accounting and auditing.
23(c) Consent of Counsel (see Exhibit 5). Electronically
24(a) Power of Attorney authorizing Jay S. Fishman Electronically
as signatory for Donald T. DeCarlo.
24(b) Powers of Attorney authorizing Jay S. Fishman as
signatory for Marc P. Weill, James F. Calvano,
Irwin R. Ettinger, Michael A.Carpenter and
James L. Morgan. (Incorporated herein by reference
to Exhibit 24 to Registration Statement on Form S-2,
File No. 33-89812, filed on February 27, 1995.)
24(c) Powers of Attorney authorizing Jay S. Fishman as
signatory for Robert I. Lipp and Charles O.
Prince, III. (Incorporated herein by reference to
Exhibit 24 to Post-Effective Amendment No. 5 to the
Registration Statement on Form S-2 filed on
April 11, 1994).
Exhibit 5 and 23(c)
April 21, 1995
The Travelers Insurance Company
One Tower Square
Hartford, Connecticut 06183
Gentlemen:
With reference to Post-Effective Amendment No. 6 on Form S-2 to the
Registration Statement on Form S-1 filed by The Travelers Insurance Company
with the Securities and Exchange Commission covering Group and Individual
Modified Guaranteed Annuity Contracts, I have examined such documents and such
law as I have considered necessary and appropriate, and on the basis of such
examination, it is my opinion that:
1. The Travelers Insurance Company is duly organized and existing under
the laws of the State of Connecticut and has been duly authorized to
do business and to issue Group and Individual Modified
Guaranteed Annuity Contracts by the Insurance Commissioner of the
State of Connecticut.
2. The Group Modified Guaranteed Annuity Contracts covered by the
above-referenced registration statement have been approved and
authorized by the Insurance Commissioner of the State of Connecticut,
and the Individual Modified Guaranteed Annuity Contracts, which are
issued only in the State of New York, have been approved and
authorized by the Insurance Commissioner of the State of New York.
The Group and Individual Modified Guaranteed Annuity Contracts, when
issued, will be valid, legal and binding obligations of The
Travelers Insurance Company.
I hereby consent to the filing of this opinion as an exhibit to the
above-referenced Post-Effective Amendment and to the reference to such
opinion under the caption "Legal Opinion" in the Prospectuses constituting
a part of Post-Effective Amendment No. 6.
Sincerely,
/s/Ernest J. Wright
Ernest J. Wright
General Counsel
Life and Annuities Division
The Travelers Insurance Company
EXHIBIT 23(A)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Post-Effective Amendment No. 6 of this
Registration Statement on Form S-2 of our reports on the financial statements of
The Travelers Insurance Company and Subsidiaries (the "Company") dated January
24, 1994 and February 9, 1993 (except for Notes 2 and 5, as to which the date is
January 24, 1994), which includes an explanatory paragraph regarding the change
in the methods of accounting for post-retirement benefits other than pensions,
income taxes, and foreclosed assets in 1992, on our audits of the consolidated
financial statements of the Company. We also consent to the reference to our
Firm as experts under the caption "Independent Accountants".
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
April 21, 1995
The Board of Directors
The Travelers Insurance Company:
We consent to the inclusion in this Post-Effective Amendment No. 6 to the
registration statement (No. 33-33691) on Form S-2, filed by The Travelers
Insurance Company, of our reports, dated January 17, 1995, and to the
reference to our firm as experts under the heading "Independent Accountants"
in the prospectus. Our reports refer to a change in accounting for investments
in accordance with the provisions of Statement of Financial Accounting
Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities.
KPMG PEAT MARWICK LLP
Hartford, Connecticut
April 12, 1995
EXHIBIT 24(a)
MODIFIED GUARANTEED ANNUITY CONTRACTS
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, Donald T. DeCarlo of Douglaston, New York, director of The
Travelers Insurance Company (hereinafter the "Company"), do hereby make,
constitute and appoint JAY S. FISHMAN, Director and Chief Financial Officer of
said Company, and ERNEST J. WRIGHT, 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 S-2 or other appropriate form under the Securities Act of
1933 for Modified Guaranteed Annuity Contracts to be offered by the Company
and further, to sign any and all amendments thereto, including post-effective
amendments, that may be filed by the Company on behalf of said registrant.
IN WITNESS WHEREOF, I have hereunto set my hand this 10th day of April,
1995.
/s/Donald T. DeCarlo
Director
The Travelers Insurance Company
