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Registration Statement No. 33-83446
811-8740
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 4
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 4
THE TRAVELERS FUND VA FOR VARIABLE ANNUITIES
--------------------------------------------
(Exact name of Registrant)
THE TRAVELERS LIFE AND ANNUITY COMPANY
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(Name of Depositor)
ONE TOWER SQUARE, HARTFORD, CONNECTICUT 06183
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(Address of Depositor's Principal Executive Offices)
Insurance Company's Telephone Number, including area code: (860) 277-0111
ERNEST J. WRIGHT
Secretary
The Travelers Life and Annuity Company
One Tower Square
Hartford, Connecticut 06183
---------------------------
(Name and address of Agent for Service)
Approximate Date of Proposed Public Offering: ___________________
It is proposed that this filing will become effective (check appropriate box):
______ immediately upon filing pursuant to paragraph (b) of Rule 485.
__X___ on May 1, 1998 pursuant to paragraph (b) of Rule 485.
______ 60 days after filing pursuant to paragraph (a)(1) of Rule 485.
______ on __________ pursuant to paragraph (a)(1) of Rule 485.
If appropriate, check the following box:
______ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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THE TRAVELERS FUND VA FOR VARIABLE ANNUITIES
Cross-Reference Sheet
Form N-4
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<CAPTION>
ITEM
NO. CAPTION IN PROSPECTUS
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<S> <C>
1. Cover Page Cover Page
2. Definitions Glossary of Special Terms
3. Synopsis Prospectus Summary
4. Condensed Financial Information Not Available
5. General Description of Registrant, The Insurance Company; The Separate
Depositor and Portfolio Companies Account and the Underlying Funds
6. Deductions and Expenses Charges and Deductions; Distribution of
Variable Annuity Contracts
7. General Description of Variable The Contract
Annuity Contracts
8. Annuity Period The Annuity Period
9. Death Benefit Death Benefit
10. Purchases and Contract Value The Contract
11. Redemptions Surrenders and Redemptions
12. Taxes Federal Tax Considerations
13. Legal Proceedings Legal Proceedings and Opinions
14. Table of Contents of Statement Appendix A
of Additional Information
CAPTION IN STATEMENT OF ADDITIONAL
INFORMATION
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15. Cover Page Cover Page
16. Table of Contents Table of Contents
17. General Information and History The Insurance Company; The Separate
Account and the Underlying Funds
18. Services Distribution and Management Services
19. Purchase of Securities Being Offered Not Applicable
20. Underwriters Principal Underwriter
21. Calculation of Performance Data Performance Information
22. Annuity Payments Not Applicable
23. Financial Statements Financial Statements
</TABLE>
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PART A
Information Required in a Prospectus
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UNIVERSAL ANNUITY
PROSPECTUS
This prospectus describes the Individual Variable Annuity Contracts (the
"Contracts") to which Purchase Payments may be made as either a single payment
or on a flexible basis. The Contracts are issued by The Travelers Life and
Annuity Company. Purchase Payments may be allocated to one or more of the
following Underlying Funds of The Travelers Fund VA for Variable Annuities (Fund
VA):
<TABLE>
<S> <C>
Capital Appreciation Fund Dreyfus Stock Index Fund
High Yield Bond Trust American Odyssey International Equity Fund
Managed Assets Trust American Odyssey Emerging Opportunities Fund
U.S. Government Securities
Portfolio American Odyssey Core Equity Fund
Social Awareness Stock Portfolio American Odyssey Long-Term Bond Fund
Utilities Portfolio American Odyssey Intermediate-Term Bond Fund
Templeton Bond Fund American Odyssey Global High-Yield Bond Fund
Templeton Stock Fund Smith Barney Large Cap Value Portfolio
Templeton Asset Allocation Fund Alliance Growth Portfolio
Fidelity's High Income Portfolio Smith Barney International Equity Portfolio
Fidelity's Equity-Income Portfolio Putnam Diversified Income Portfolio
Fidelity's Growth Portfolio Smith Barney High Income Portfolio
Fidelity's Asset Manager Portfolio MFS Total Return Portfolio
Money Market Portfolio
</TABLE>
This prospectus sets forth the information that you should know before
investing. Please read it and retain it for future reference. Additional
information is contained in a Statement of Additional Information ("SAI") dated
May 1, 1998, which has been filed with the Securities and Exchange Commission
("SEC") and is incorporated by reference into this prospectus. A copy may be
obtained, without charge, by writing to The Travelers Life and Annuity Company,
Annuity Services, One Tower Square, Hartford, Connecticut 06183-5030, or by
calling 860-842-9368, or by accessing the SEC's website (http://www.sec. gov).
The Table of Contents of the SAI appears in Appendix A of this prospectus.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES OF
FUND VA'S UNDERLYING FUNDS. BOTH THIS PROSPECTUS AND EACH OF THE UNDERLYING FUND
PROSPECTUSES SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
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.
VARIABLE ANNUITY CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR ENDORSED OR
GUARANTEED BY ANY BANK, NOR ARE THEY FEDERALLY 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.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1998.
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TABLE OF CONTENTS
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<S> <C>
GLOSSARY OF SPECIAL TERMS.............................................................. 4
PROSPECTUS SUMMARY..................................................................... 5
FEE TABLE.............................................................................. 6
THE VARIABLE ANNUITY CONTRACT.......................................................... 9
PURCHASE PAYMENTS.................................................................... 9
Application of Purchase Payments.................................................. 9
Number of Accumulation Units...................................................... 9
Fund VA........................................................................... 9
Underlying Funds.................................................................. 10
TRANSFERS.............................................................................. 12
Dollar-Cost Averaging (Automated Transfers).......................................... 12
Asset Allocation Advice.............................................................. 12
Telephone Transfers.................................................................. 13
SURRENDERS AND REDEMPTIONS............................................................. 13
Systematic Withdrawals............................................................... 13
DEATH BENEFIT.......................................................................... 13
CHARGES AND DEDUCTIONS................................................................. 14
Contingent Deferred Sales Charge..................................................... 14
Premium Tax.......................................................................... 15
Administrative Charge................................................................ 15
Mortality and Expense Risk Charge.................................................... 15
Reduction or Elimination of Contract Charges......................................... 15
Investment Advisory Fees............................................................. 16
THE ANNUITY PERIOD..................................................................... 16
Maturity Date........................................................................ 16
Allocation of Annuity Payments....................................................... 16
Annuity Unit Value................................................................... 16
Determination of First Annuity Payment............................................... 17
Determination of Second and Subsequent Annuity Payments.............................. 17
Fixed Annuity........................................................................ 17
PAYOUT OPTIONS......................................................................... 17
Election of Options.................................................................. 17
Annuity Options...................................................................... 18
Income Options....................................................................... 19
MISCELLANEOUS.......................................................................... 19
Termination.......................................................................... 19
Required Reports..................................................................... 19
Right to Return...................................................................... 20
Suspension of Payments............................................................... 20
Voting Rights........................................................................ 20
Distribution of Variable Annuity Contracts........................................... 21
State Regulation..................................................................... 21
Legal Proceedings and Opinions....................................................... 21
</TABLE>
2
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'
<TABLE>
<S> <C>
THE INSURANCE COMPANY AND SEPARATE ACCOUNT............................................. 21
THE INSURANCE COMPANY................................................................ 21
IMSA................................................................................. 22
Year 2000 Compliance................................................................. 22
THE SEPARATE ACCOUNT................................................................. 22
Substitution of Investments....................................................... 22
Investment Advisers............................................................... 23
Performance Information........................................................... 24
FEDERAL TAX CONSIDERATIONS............................................................. 24
General.............................................................................. 24
Investor Control..................................................................... 25
Section 403(b) Plans and Arrangements................................................ 25
Qualified Pension and Profit-Sharing Plans........................................... 26
Individual Retirement Annuities...................................................... 26
Section 457 Plans.................................................................... 26
The Employee Retirement Income Security Act of 1974.................................. 27
Federal Income Tax Withholding....................................................... 27
Tax Advice........................................................................... 28
The Fixed Account.................................................................... 29
APPENDIX A............................................................................. 30
</TABLE>
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GLOSSARY OF SPECIAL TERMS
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As used in this Prospectus, the following terms have the indicated meanings:
ACCUMULATION UNIT: an accounting unit of measure used to calculate the value of
a contract before Annuity Payments begin.
ANNUITANT: the person on whose life the Variable Annuity contract is issued.
ANNUITY COMMENCEMENT DATE: the date on which Annuity Payments are to begin
under the terms of the Contract and/or the Plan. Also referred to as "Maturity
Date".
ANNUITY PAYMENTS: a series of periodic payments for life; for life with either
a minimum number of payments or a determinable sum assured; or for the joint
lifetime of the Annuitant and another person and thereafter during the lifetime
of the survivor.
ANNUITY UNIT: an accounting unit of measure used to calculate the dollar amount
of Annuity Payments.
CASH SURRENDER VALUE: the amount payable to the Owner or other payee upon
termination of the contract during the lifetime of the Annuitant.
CASH VALUE: the current value of Accumulation Units credited to the contract
less any administrative charges.
COMPANY: The Travelers Life and Annuity Company.
COMPANY'S HOME OFFICE: the principal executive offices of the Company, located
at One Tower Square, Hartford, Connecticut, 06183.
CONTRACT: the Variable Annuity contract described in this prospectus.
CONTRACT DATE: the date on which the Contract and its benefits and provisions
become effective.
CONTRACT YEARS: annual periods computed from the Contract Date.
CONTRACT OWNER (OWNER): the person to whom the Contract is issued.
CONTRACT OWNER'S ACCOUNT (OWNER'S ACCOUNT): the record of Accumulation Units
credited to the Contract Owner.
INCOME PAYMENTS: optional forms of periodic payments made by the Company which
are not based on the life of the Annuitant.
MATURITY DATE: the date on which the first Annuity Payment is to begin.
PURCHASE PAYMENT: a gross amount paid to the Company under the Contract during
the accumulation period.
SEPARATE ACCOUNT: The Travelers Fund VA for Variable Annuities, which contains
assets set aside by the Company, the investment experience of which is kept
separate from that of other assets of the Company.
UNDERLYING FUND(S): the investment option(s) available under The Travelers Fund
VA for Variable Annuities to which payments under the Contract may be allocated.
(The portion of the Contract or Account allocated to the Underlying Fund is
referred to in the Contract as "Sub-Accounts.")
VALUATION DATE: generally, a day on which an account is valued. A valuation
date is any day on which the New York Stock Exchange is open for trading. The
value of Accumulation Units and Annuity Units will be determined as of the close
of trading on the New York Stock Exchange.
VALUATION PERIOD: the period between the close of business on successive
Valuation Dates.
VARIABLE ANNUITY: an annuity contract which provides for accumulation and for
Annuity Payments which vary in amount in accordance with the investment
experience of a Separate Account.
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PROSPECTUS SUMMARY
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INTRODUCTION
The Contract described in this prospectus is both an insurance product and a
security. As an insurance product, it is subject to the insurance laws and
regulations of each state in which it is available for distribution. As a
security it is subject to federal securities laws. The Contract is a variable
annuity designed to help Contract Owners accumulate money for retirement. It
allows Purchase Payments to be allocated to any or all of the Underlying Funds.
The Contracts described in this prospectus are issued by The Travelers Life and
Annuity Company (the "Company" or "The Travelers"). The minimum Purchase Payment
under tax-qualified contracts is $20, except in the case of individual
retirement annuities ("IRAs") where the initial minimum Purchase Payment is
$1,000. For nonqualified contracts, the minimum Purchase Payment is $1,000
initially, and $100 thereafter. (See "The Variable Annuity Contract -- Purchase
Payments," page 9.) Purchase Payments are allocated to the Underlying Funds of
Fund VA in accordance with the selection made by the Contract Owner. A
description of the investment objectives for each begins on page 8.
For Individual Contracts there is a Right to Return. (See
"Miscellaneous -- Right to Return," page 19.)
TRANSFERS AND SURRENDERS
Transfers may be made among available Underlying Funds without fee, penalty or
charge at any time before Annuity or Income Payments begin. (See "Transfers,"
page 12.)
Prior to the Maturity Date, all or part of the Contract value may be
surrendered, subject to certain charges and limitations. Income taxes will be
payable on the taxable portion of the amount surrendered, and a penalty tax may
be incurred if you are under age 59 1/2. (See "Surrenders and Redemptions," page
13, and "Federal Tax Considerations -- Section 403(b) Plans and Arrangements,"
page 25.)
ASSET ALLOCATION
Some Contract Owners may elect to enter into an asset allocation investment
advisory agreement which is fully described in a separate Disclosure Statement.
(See "The Travelers Fund VA for Variable Annuities -- Asset Allocation Advice,"
page 12.)
CHARGES AND EXPENSES
No sales charge is deducted from Purchase Payments when they are received.
However, a Contingent Deferred Sales Charge of 5% will be deducted if a Purchase
Payment is surrendered within five years of the date it was received. Under
certain circumstances, the Contingent Deferred Sales Charge may be waived. (See
"Charges and Deductions -- Contingent Deferred Sales Charge," page 14.)
Premium taxes may apply to annuities in a few states. The applicable amount will
be deducted in compliance with each state's laws. (See "Charges and
Deductions -- Premium Tax," page 15.)
The Company will deduct $15 semiannually from the Contract to cover
administrative expenses associated with the Contract. (See "Charges and
Deductions -- Administrative Charge," page 15.)
The Company deducts an insurance charge from the Separate Account to compensate
for mortality and expense risks assumed by the Company. The charge is equivalent
on an annual basis to 1.25% of the daily net assets of the Separate Account.
(See "Charges and Deductions -- Mortality and Expense Risk Charge," page 15.)
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For investment options under Fund VA, the investment management and advisory
services fee is deducted from the assets of the underlying funds. (See the
prospectuses for the Underlying Funds for a description of their respective
investment management and advisory fees.)
ANNUITY PAYMENTS
At the Maturity Date, the Contract provides lifetime Annuity Payments, as well
as other types of payout plans. (See "Payout Options," page 17.) If a variable
payout is selected, the payments will continue to vary with the investment
performance of the selected Underlying Funds. Variable payout is not available
for Contracts issued in New Jersey and Florida.
DEATH BENEFIT
A death benefit is payable to the Beneficiary of the Contract if the Annuitant
dies before Annuity or Income Payments begin. (See "Death Benefit," page 13.)
FEE TABLE
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FUND VA AND ITS UNDERLYING FUNDS
The purpose of this Fee Table is to help individuals understand the various
costs and expenses that a Contract Owner may bear, directly or indirectly, under
the Contract. The information, except as noted, reflects expenses of Fund VA and
its Underlying Funds for the fiscal year ending December 31, 1997. For
additional information, including possible waivers or reductions of these
expenses, see "Charges and Deductions," page 14. Expenses shown do not include
premium taxes, which may be applicable.
CONTRACT CHARGES AND EXPENSES
<TABLE>
<S> <C>
CONTINGENT DEFERRED SALES CHARGE (as a percentage of purchase payments)........ 5.00%
SEMIANNUAL CONTRACT ADMINISTRATIVE CHARGE...................................... $15
ANNUAL SEPARATE ACCOUNT EXPENSES
MORTALITY AND EXPENSE RISK CHARGE (as a percentage of average net assets of
Fund VA)..................................................................... 1.25%
UNDERLYING FUND EXPENSES:
(as a percentage of average net assets of amounts allocated to the Underlying Fund)
</TABLE>
6
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<TABLE>
<CAPTION>
OTHER TOTAL
EXPENSES UNDERLYING
MANAGEMENT (AFTER FUND
UNDERLYING FUNDS FEE REIMBURSEMENT) EXPENSES
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<S> <C> <C> <C>
Capital Appreciation Fund............................ 0.75% 0.09% 0.84%
High Yield Bond Trust................................ 0.50% 0.34% 0.84%
Managed Assets Trust................................. 0.50% 0.13% 0.63%
Money Market Portfolio............................... 0.32% 0.08% 0.40%
U.S. Government Securities Portfolio................. 0.32% 0.26% 0.58%
Social Awareness Stock Portfolio..................... 0.65% 0.33% 0.98%
Utilities Portfolio.................................. 0.65% 0.41% 1.06%
Templeton Bond Fund.................................. 0.50% 0.18% 0.68%
Templeton Stock Fund................................. 0.69% 0.19%(1) 0.88%
Templeton Asset Allocation Fund...................... 0.60% 0.18%(1) 0.78%
Fidelity's High Income Portfolio..................... 0.59% 0.12%(2) 0.71%
Fidelity's Equity-Income Portfolio................... 0.50% 0.08%(2) 0.58%
Fidelity's Growth Portfolio.......................... 0.60% 0.09%(2) 0.69%
Fidelity's Asset Manager Portfolio................... 0.55% 0.10%(2) 0.65%
Dreyfus Stock Index Fund............................. 0.25% 0.03% 0.28%
American Odyssey International Equity Fund........... 0.65% 0.12%(3) 0.77%
American Odyssey Emerging Opportunities Fund......... 0.60% 0.26%(3) 0.86%
American Odyssey Core Equity Fund.................... 0.57% 0.08%(3) 0.65%
American Odyssey Long-Term Bond Fund................. 0.50% 0.12%(3) 0.62%
American Odyssey Intermediate-Term Bond Fund......... 0.50% 0.13%(3) 0.63%
American Odyssey Global High-Yield Bond Fund......... 0.43% 0.25%(4) 0.68%
Smith Barney Large Cap Value Portfolio............... 0.65% 0.04%(5) 0.69%
Alliance Growth Portfolio............................ 0.80% 0.02%(5) 0.82%
Smith Barney International Equity Portfolio.......... 0.90% 0.11%(5) 1.01%
Putnam Diversified Income Portfolio.................. 0.75% 0.13%(5) 0.88%
Smith Barney High Income Portfolio................... 0.60% 0.10%(5) 0.70%
MFS Total Return Portfolio........................... 0.80% 0.06%(5) 0.86%
</TABLE>
(1) Management Fees and Total Underlying Fund Expenses have been restated to
reflect the management fee schedule which was approved by shareholders and
effective May 1, 1997. Actual Management Fees and Total Underlying Fund
Expenses during 1997 were lower.
(2) A portion of the brokerage commissions that certain funds pay was used to
reduce the fund's expenses. In addition, certain funds have entered into
arrangements with their custodian and transfer agent whereby interest
earned on uninvested cash balances was used to reduce custodian and transfer
agent expenses. Without these reductions, the Total Underlying Fund Expenses
presented in this table would have been 0.57% for Equity -Income Portfolio,
0.67% for Growth Portfolio, and 0.64% for Asset Manager Portfolio.
(3) These fees reflect an expense reimbursement with the Fund's investment
adviser. Without reimbursement, Total Underlying Fund Expenses would have
been 0.79% for the International Equity Fund and 0.67% for the Core Equity
Fund. The figures After Expense Reimbursement may be greater than the
figures before expense reimbursement because of repayments by the Fund to
the Manager once the Fund is operating below the expense limitation.
(4) The Management Fees and Other Expenses for the Global High-Yield Bond Fund
are estimates and are not based on actual 1997 Fund expenses. Prior to May
1, 1998, the Global High-Yield Bond Fund was named the "Short-Term Bond
Fund" and had a substantially different investment objective and investment
program. Information about the Short-Term Bond Fund is unlikely to be
helpful to investors in the Global High-Yield Bond Fund.
(5) Other expenses are as of October 31, 1997 (the Fund's fiscal year end).
There were no fees waived or expenses reimbursed for these funds in 1997.
7
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EXAMPLE*
Assuming a 5% annual return on assets, a $1,000 investment would be subject to
the following expenses:
<TABLE>
<CAPTION>
IF CONTRACT IS SURRENDERED AT THE IF CONTRACT IS NOT SURRENDERED OR
END OF PERIOD SHOWN ANNUITIZED AT END OF PERIOD SHOWN:
------------------------------------- -------------------------------------
INVESTMENT ALTERNATIVE 1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
UNDERLYING FUNDING OPTIONS
Capital Appreciation Fund............... 73 120 170 257 23 70 120 257
Dreyfus Stock Index Fund................ 67 103 141 198 17 53 91 198
High Yield Bond Trust................... 73 120 170 257 23 70 120 257
Managed Assets Trust.................... 71 114 159 235 21 64 109 235
Money Market Portfolio.................. 68 107 147 211 18 57 97 211
AMERICAN ODYSSEY FUNDS, INC.(1)
Core Equity Fund..................... 71 114 160 238 21 64 110 238
Emerging Opportunities Fund.......... 73 121 171 259 23 71 121 259
Global High-Yield Bond Fund.......... 71 115 162 241 21 65 112 241
Intermediate-Term Bond Fund.......... 71 114 159 235 21 64 109 235
International Equity Fund............ 72 118 166 250 22 68 116 250
Long-Term Bond Fund.................. 70 113 159 234 20 63 109 234
AMERICAN ODYSSEY FUNDS, INC.(2)
Core Equity Fund..................... 83 151 222 359 33 101 172 359
Emerging Opportunities Fund.......... 85 158 232 378 35 108 182 378
Global High-Yield Bond Fund.......... 84 152 223 362 34 102 173 362
Intermediate-Term Bond Fund.......... 83 151 221 357 33 101 171 357
International Equity Fund............ 84 155 228 370 34 105 178 370
Long-Term Bond Fund.................. 83 151 221 356 33 101 171 356
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND
Equity Income Portfolio.............. 70 112 157 230 20 62 107 230
Growth Portfolio..................... 71 115 162 242 21 65 112 242
High Income Portfolio................ 71 116 163 244 21 66 113 244
FIDELITY'S VARIABLE INSURANCE
PRODUCTS FUND II
Asset Manager Portfolio.............. 71 114 160 238 21 64 110 238
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Templeton Asset Allocation Fund...... 72 118 167 251 22 68 117 251
Templeton Bond Fund.................. 71 115 162 241 21 65 112 241
Templeton Stock Fund................. 73 121 172 261 23 71 122 261
TRAVELERS SERIES FUND, INC.
Alliance Growth Portfolio............ 72 119 169 255 22 69 119 255
MFS Total Return Portfolio........... 73 121 171 259 23 71 121 259
Putnam Diversified Income
Portfolio.......................... 73 121 172 261 23 71 122 261
Smith Barney High Income Portfolio... 71 116 163 243 21 66 113 243
Smith Barney International Equity
Portfolio.......................... 74 125 178 274 24 75 128 274
Smith Barney Large Cap Value
Portfolio
(formerly Smith Barney Income and
Growth Portfolio).................. 71 115 162 242 21 65 112 242
THE TRAVELERS SERIES TRUST
Social Awareness Stock Portfolio..... 74 124 177 271 24 74 127 271
U.S. Government Securities
Portfolio.......................... 70 112 157 231 20 62 107 231
Utilities Portfolio.................. 75 127 181 279 25 77 131 279
</TABLE>
* THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THE EXAMPLE
REFLECTS THE $15 SEMIANNUAL CONTRACT FEE AS AN ANNUAL CHARGE OF 0.146% OF
ASSETS.
** The applicable sales charge may be waived upon annuitization. (see "Charges
and Deductions").
(1) Reflects expenses that would be incurred for those Contract Owners who DO
NOT participate in the CHART Asset Allocation program.
(2) Reflects expenses that would be incurred for those Contract Owners who DO
participate in the CHART Asset Allocation program.
8
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THE VARIABLE ANNUITY CONTRACT
- --------------------------------------------------------------------------------
The Contract is a variable annuity designed to help Contract Owners accumulate
money for retirement. The following brief description of the key features of the
Contract is subject to the specific terms of the Contract itself. Reference
should also be made to the Glossary of Special Terms.
PURCHASE PAYMENTS
Purchase Payments under tax-qualified retirement plans (except IRAs), that is,
tax-sheltered annuities (i.e., 403(b)), corporate pension and profit-sharing,
governmental and deferred compensation plans for governmental and tax-exempt
organization employees, may be made under the Contract in amounts of $20 or more
per Participant, subject to the terms of the Plan. The initial minimum Purchase
Payment for IRAs is $1,000; for nonqualified Contracts, the initial minimum
Purchase Payment is $1,000 and $100 thereafter. The initial Purchase Payment is
due and payable before the Contract becomes effective.
Purchase Payments accumulate under the Contract until the Annuity Commencement
Date. The Company will automatically begin paying Annuity Payments to the Owner
on the Annuity Commencement Date, if the Owner is then living. (See "Annuity
Option -- Automatic Option," page 18.) The Owner may choose instead a number of
alternative arrangements for benefit payments. If the Owner dies before a payout
begins, the amount due will be paid to the beneficiary.
APPLICATION OF PURCHASE PAYMENTS
Each Purchase Payment will be applied to the Contract to provide Accumulation
Units of the Underlying Funds, as selected by the Contract Owner. Such
Accumulation Units will be credited to an Owner's Account. If the Contract
application is in good order, the Company will apply the initial Purchase
Payment within two business days of receipt of the Purchase Payment at the
Company's Home Office. If the application is not in good order, the Company will
attempt to secure the missing information within five business days. If the
application is not complete at the end of this period, the Company will inform
the applicant of the reason for the delay. The Purchase Payment will be returned
immediately unless the applicant specifically consents to the Company keeping
the Purchase Payment until the application is complete. Once it is complete, the
Purchase Payment will be applied within two business days.
NUMBER OF ACCUMULATION UNITS
The number of Accumulation Units to be credited will be determined by dividing
the Purchase Payment applied to the designated Underlying Fund by the current
Accumulation Unit Value of that Underlying Fund.
The Accumulation Unit Value for each Underlying Fund was established at $1.00 at
inception. The value of an Accumulation Unit on any Valuation Date is determined
by multiplying the value on the immediately preceding Valuation Date by the net
investment factor for the Valuation Period just ended. The net investment factor
is described in the SAI. The value of an Accumulation Unit on any date other
than a Valuation Date will be equal to its value as of the next succeeding
Valuation Date. The value of an Accumulation Unit may increase or decrease.
FUND VA
Fund VA currently invests in the following Underlying Funds. Each Underlying
Fund has risks associated with it. Please read the accompanying prospectus for
each carefully. Underlying Funds may be added or withdrawn as permitted by
applicable law. Additionally, some of the Underlying Funds may not be available
in every state due to various insurance regulations.
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<PAGE> 14
UNDERLYING FUNDS:
CAPITAL APPRECIATION FUND. The objective of the Capital Appreciation Fund is
growth of capital through the use of common stocks. Income is not an objective.
The Fund invests principally in common stocks of small to large companies which
are expected to experience wide fluctuations in price in both rising and
declining markets.
MONEY MARKET PORTFOLIO. The objective of the Money Market Portfolio is to seek
high current income from short-term money market instruments while preserving
capital and maintaining a high degree of liquidity.
HIGH YIELD BOND TRUST. The objective of the High Yield Bond Trust is generous
income. The assets of the High Yield Bond Trust will be invested in bonds which,
as a class, sell at discounts from par value and are typically high risk
securities.
MANAGED ASSETS TRUST. The objective of the Managed Assets Trust is high total
investment return through a fully managed investment policy. Assets of the
Managed Assets Trust will be invested in a portfolio of equity, debt and
convertible securities.
DREYFUS STOCK INDEX FUND. The objective of the Dreyfus Stock Index Fund is to
provide investment results that correspond to the price and yield performance of
publicly traded common stocks in the aggregate, as represented by the Standard &
Poor's 500 Composite Stock Price Index.
THE TRAVELERS SERIES TRUST PORTFOLIOS
U.S. GOVERNMENT SECURITIES PORTFOLIO. The objective of the U.S. Government
Securities Portfolio is the selection of investments from the point of view of
an investor concerned primarily with highest credit quality, current income and
total return. The assets of the U.S. Government Securities Portfolio will be
invested in direct obligations of the United States, its agencies and
instrumentalities.
SOCIAL AWARENESS STOCK PORTFOLIO. The objective of the Social Awareness Stock
Portfolio is long-term capital appreciation and retention of net investment
income. The Portfolio seeks to fulfill this objective by selecting investments,
primarily common stocks, which meet the social criteria established for the
Portfolio. Social criteria currently excludes companies that derive a
significant portion of their revenues from the production of tobacco, tobacco
products, alcohol, or military defense systems, or in the provision of military
defense related services or gambling services.
UTILITIES PORTFOLIO. The objective of the Utilities Portfolio is to provide
current income by investing in equity and debt securities of companies in the
utility industries.
TEMPLETON VARIABLE PRODUCTS SERIES
TEMPLETON BOND FUND. The objective of the Templeton Bond Fund is high current
income through a flexible policy of investing primarily in debt securities of
companies, governments and government agencies of various nations throughout the
world.
TEMPLETON STOCK FUND. The objective of the Templeton Stock Fund is capital
growth through a policy of investing primarily in common stocks issued by
companies, large and small, in various nations throughout the world.
TEMPLETON ASSET ALLOCATION FUND. The objective of the Templeton Asset
Allocation Fund is a high level of total return with reduced risk over the long
term through a flexible policy of investing in stocks of companies in any nation
and debt obligations of companies and governments of any nation. Changes in the
asset mix will be adjusted in an attempt to capitalize on total return potential
produced by changing economic conditions throughout the world.
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FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND
FIDELITY'S HIGH INCOME PORTFOLIO. The objective of the High Income Portfolio is
to seek to obtain a high level of current income by investing primarily in high
yielding, lower-rated, fixed-income securities, while also considering growth of
capital.
FIDELITY'S EQUITY-INCOME PORTFOLIO. The objective of the Equity-Income
Portfolio is to seek reasonable income by investing primarily in
income-producing equity securities; in choosing these securities, the portfolio
manager will also consider the potential for capital appreciation.
FIDELITY'S GROWTH PORTFOLIO. The objective of the Growth Portfolio is to seek
capital appreciation. The Portfolio normally purchases common stocks of
well-known, established companies, and small emerging growth companies, although
its investments are not restricted to any one type of security. Capital
appreciation may also be found in other types of securities, including bonds and
preferred stocks.
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II
FIDELITY'S ASSET MANAGER PORTFOLIO. The objective of the Asset Manager
Portfolio is to seek high total return with reduced risk over the long-term by
allocating its assets among stocks, bonds and short-term fixed-income
instruments.
AMERICAN ODYSSEY FUNDS, INC.
AMERICAN ODYSSEY INTERNATIONAL EQUITY FUND.* The objective of the International
Equity Fund is to seek maximum long-term total return by investing primarily in
common stocks of established non-U.S. companies.
AMERICAN ODYSSEY EMERGING OPPORTUNITIES FUND.* The objective of the Emerging
Opportunities Fund is to seek maximum long-term total return by investing
primarily in common stocks of small, rapidly growing companies.
AMERICAN ODYSSEY CORE EQUITY FUND.* The objective of the Core Equity Fund is to
seek maximum long-term total return by investing primarily in common stocks of
well-established companies.
AMERICAN ODYSSEY LONG-TERM BOND FUND.* The objective of the Long-Term Bond Fund
is to seek maximum long-term total return by investing primarily in long-term
corporate debt securities, U.S. government securities, mortgage-related
securities, and asset-backed securities, as well as money market instruments.
AMERICAN ODYSSEY INTERMEDIATE-TERM BOND FUND.* The objective of the
Intermediate-Term Bond Fund is to seek maximum long-term total return by
investing primarily in intermediate-term corporate debt securities, U.S.
government securities, mortgage-related securities and asset-backed securities,
as well as money market instruments.
AMERICAN ODYSSEY GLOBAL HIGH-YIELD BOND FUND.* The objective of the Global
High-Yield Bond Fund is maximum long-term total return (capital appreciation
and income) by investing primarily in high-yield debt securities from the United
States and abroad.
TRAVELERS SERIES FUND, INC.
SMITH BARNEY LARGE CAP VALUE PORTFOLIO. The objective of the Large Cap Value
Portfolio is current income and long-term growth of income and capital by
investing primarily, but not exclusively, in common stocks.
ALLIANCE GROWTH PORTFOLIO. The objective of the Growth Portfolio is long-term
growth of capital by investing predominantly in equity securities of companies
with a favorable outlook for earnings
- ---------------
* Funds available for use with an asset allocation program, for which there is
a fee. See "Asset Allocation Advice" on page 12 for more information.
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and whose rate of growth is expected to exceed that of the U.S. economy over
time. Current income is only an incidental consideration.
SMITH BARNEY INTERNATIONAL EQUITY PORTFOLIO. The objective of the International
Equity Portfolio is total return on assets from growth of capital and income by
investing at least 65% of its assets in a diversified portfolio of equity
securities of established non-U.S. issuers.
PUTNAM DIVERSIFIED INCOME PORTFOLIO. The objective of the Diversified Income
Portfolio is to seek high current income consistent with preservation of
capital. The Portfolio will allocate its investments among the U.S. Government
Sector, the High Yield Sector, and the International Sector of the fixed income
securities markets.
SMITH BARNEY HIGH INCOME PORTFOLIO. The investment objective of the High Income
Portfolio is high current income. Capital appreciation is a secondary objective.
The Portfolio will invest at least 65% of its assets in high-yielding corporate
debt obligations and preferred stock.
MFS TOTAL RETURN PORTFOLIO. The Total Return Portfolio's objective is to obtain
above-average income (compared to a portfolio entirely invested in equity
securities) consistent with the prudent employment of capital. Generally, at
least 40% of the Portfolio's assets will be invested in equity securities.
TRANSFERS
Before Annuity or Income Payments begin, the Owner may transfer all or part of
the Contract Value among available Underlying Funds without fee, penalty or
charge. There are currently no restrictions on frequency of transfers, but the
Company reserves the right to limit transfers to one in any six-month period.
Since the available Underlying Funds have different investment advisory fees, a
transfer from one Underlying Fund to another could result in higher or lower
investment advisory fees. (See "Investment Advisory Fees," page 16.)
DOLLAR COST AVERAGING (AUTOMATED TRANSFERS)
By written request, the Owner may elect automated transfers of Contract Values
on a monthly or quarterly basis from specific Underlying Funds to other
Underlying Funds. Certain minimums may apply to enroll in the program. He or she
may stop or change participation in the Dollar Cost Averaging program at any
time, provided the Company receives at least 30 days' written notice.
Automated transfers are subject to all Contract provisions, including those
relating to the transfer of money between Underlying Funds. Certain minimums may
apply to amounts transferred.
Dollar cost averaging requires regular investment regardless of fluctuating
prices and does not guarantee profits nor prevent losses in a declining market.
Before electing this option, individuals should consider their financial ability
to continue purchases through periods of low price levels.
ASSET ALLOCATION ADVICE
Some Contract Owners may elect to enter into a separate advisory agreement with
Copeland Financial Services, Inc. ("Copeland"), an affiliate of the Company.
Copeland provides asset allocation advice under its CHARTSM Program, which is
fully described in a separate Disclosure Statement. Under the CHART Program,
Purchase Payments and Cash Values are allocated among the six American Odyssey
Funds. Copeland's charge for this advisory service is equal to a maximum of
1.50% of the assets subject to the CHART Program. This fee is currently reduced
by 0.25%, the amount of the fee paid to the investment manager of American
Odyssey Funds, and it is further reduced for assets over $25,000. Another
reduction is made for Participants in Plans subject to ERISA with respect to
amounts allocated to the American Odyssey Intermediate-Term Bond Fund because
that Fund has as its subadviser an affiliate of Copeland. A $30 initial fee is
also charged. The CHART Program fee will be paid by quarterly withdrawals from
the Cash Values allocated to the American Odyssey Funds. The Company will not
treat these withdrawals as taxable
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distributions. The CHART Program may not be available in all marketing programs
through which the Universal Annuity Contract is sold.
SURRENDERS AND REDEMPTIONS
The Contract Owner may redeem all or any portion of the Cash Surrender Value at
any time prior to the Annuity Commencement Date. The Owner or Participant must
submit a written surrender request. Surrenders will be made pro rata from all
the investment options unless he or she specifies the Underlying Fund(s) from
which surrender is to be made. The Cash Surrender Value will be determined as of
the Valuation Date next following receipt of the Owner's surrender request at
the Company's Home Office.
The Company may defer payment of any Cash Surrender Value for a period of not
more than seven days after the request is received in good order. The Cash
Surrender Value of an Owner's Account on any date will be equal to the Cash
Value of the applicable Contract or Account less any applicable Contingent
Deferred Sales Charge, outstanding cash loans, and any premium tax not
previously deducted. The Cash Surrender Value may be more or less than the
Purchase Payments made depending on the value of the Contract or Account at the
time of surrender.
For those participating in the Texas Optional Retirement Program, a withdrawal
is available only upon termination of employment, retirement or death as
provided in the Texas Optional Retirement Program.
SYSTEMATIC WITHDRAWALS
Each Contract Year, Contract Owners may elect to take monthly, quarterly,
semiannual or annual systematic withdrawals of a specified dollar amount. Any
applicable premium taxes will be deducted. To elect this option, an election
form provided by the Company must be completed. Systematic withdrawals may be
stopped at any time, provided the Company receives at least 30 days' written
notice.
DEATH BENEFIT
If the Annuitant dies on or after age 75 and before Annuity or Income Payments
begin, the Company will pay to the beneficiary the Cash Value, as of the date it
receives at its Home Office proof of death, less any premium tax incurred. If
the Annuitant dies before age 75 and before Annuity or Income Payments begin,
after receipt of due proof of death, the Company will pay the greatest of (1),
(2) or (3) below:
1. the Cash Value, less any premium tax incurred or outstanding cash loans;
2. the total Purchase Payments allocated for that Contract Owner, less any
prior surrenders or cash loans; or
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3. the Cash Value, on the fifth Contract Year immediately preceding the
date of receipt of due proof of death by the Company, less any
applicable premium tax, outstanding cash loans or surrenders made since
such fifth year anniversary.
In some jurisdictions, until state approval is received, the applicable age at
which the death benefit formula will reduce will be age 65 rather than age 75.
CHARGES AND DEDUCTIONS
CONTINGENT DEFERRED SALES CHARGE
No sales charges are deducted at the time a Purchase Payment is applied under
the Contract. A Contingent Deferred Sales Charge of 5% will be assessed if an
amount is surrendered (withdrawn) within five years of its payment date. (For
this calculation, the five years will be measured from the first day of the
calendar month of the payment date.)
In the case of a partial surrender, payments made first will be considered to be
surrendered first ("first in, first out"). In no event may the Contingent
Deferred Sales Charge exceed 5% of premiums paid in the five years immediately
preceding the surrender date, nor may the charge exceed 5% of the amount
withdrawn. Unless the Company receives instructions to the contrary, the
Contingent Deferred Sales Charge will be deducted from the amount requested.
The Contingent Deferred Sales Charge will be waived if:
-- an annuity payout is begun;
-- an income option of at least three years' duration (without right of
withdrawal) is begun after the first Contract Year;
-- the Annuitant under an Individual Contract dies;
-- the Annuitant under an Individual Contract becomes disabled (as defined
by the Internal Revenue Service) subsequent to purchase of the
Contract;
-- the Annuitant under an Individual Contract, under a tax-deferred
annuity plan (403(b) plan) retires after age 55, provided the Contract
has been in effect five years or more and provided the payment is made
to the Contract Owner;
-- 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 an Individual Contract, under a qualified pension
or profit-sharing plan (including a 401(k) plan) retires at or after
age 59 1/2, provided the Contract has been in effect five years or
more; or if refunds are made to satisfy the anti-discrimination test.
(For those under Contract issued before May 1, 1992, the Contingent
Deferred Sales Charge will also be waived if the Annuitant retires at
normal retirement age (as defined by the Plan), provided the Contract,
as applicable has been in effect one year or more);
-- 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 Internal Revenue Service ("IRS")
rules.
There is a 10% free withdrawal allowance available for partial withdrawals taken
during any Contract Year after the first. Such withdrawals will be free of
charge until the free withdrawal amount is exceeded. Participants under IRA
plans with Contracts issued prior to May 1, 1994, are entitled to a 20% free
withdrawal allowance after the first Contract Year. Free withdrawals from IRA
plans are only available after the Participant has attained age 59 1/2. The free
withdrawal amount that is available will be calculated as of the Contract
Anniversary Date immediately preceding the surrender date. The free withdrawal
allowance does not apply to full surrenders. For 403(b) plan
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Participants, partial and full withdrawals (surrenders) may be subject to
restrictions. (See "Section 403(b) Plans and Arrangements," page 25.)
The Company expects the Contingent Deferred Sales Charge under the Contracts
will be insufficient to cover distribution expenses. The difference will be
covered by the general assets of the Company which are attributable, in part, to
the mortality and expense risk charges assessed under the Contract.
PREMIUM TAX
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 Contract Value either upon death,
surrender, annuitization, or at the time Purchase Payments are made to the
Contract, but no earlier than when the Company has a tax liability under state
law.
ADMINISTRATIVE CHARGE
On all Contracts there will be a semiannual administrative charge of $15. The
administrative charge will be deducted from the account in June and December of
each year. This charge will be prorated from the date of purchase to the next
date of assessment of charge. A prorated charge will also be assessed upon
voluntary or involuntary surrender of the Contract. This charge will not be
assessed after an annuity payout has begun. The administrative charge will be
deducted from the Contract Value by canceling Accumulation Units in each
Underlying Fund on a pro rata basis. The administrative charge will offset the
actual expenses of the Company in administering the Contract. The charge is set
at a level which does not exceed the average expected cost of the administrative
services to be provided while the Contract is in force.
MORTALITY AND EXPENSE RISK CHARGE
There is an insurance charge against the assets of the Separate Account to cover
the mortality and expense risks associated with guarantees which the Company
provides under these Variable Annuity Contracts. This charge, on an annual
basis, is 1.25% of the Separate Account value and is deducted on each Valuation
Date at the rate of 0.003425% for each day in the Valuation Period.
The Company estimates that approximately 50% of the charge is for the assumption
of mortality risk, while the remainder is for the assumption of expense risk.
The mortality risk charge compensates the Company for guaranteeing to provide
Annuity Payments according to the terms of the Contract regardless of how long
the Annuitant lives and for the guaranteeing to provide the death benefit if the
Annuitant dies prior to the Maturity Date. The expense risk charge compensates
the Company for the risk that the charges under the Contract, which cannot be
increased during the duration of the Contract, will be insufficient to cover
actual costs.
If the amount deducted for these mortality and expense risks is not sufficient
to cover the mortality costs and expense shortfalls, the loss is borne by the
Company. If the deduction is more than sufficient, the excess will be a profit
to the Company. The Company expects to make a profit from the insurance charge.
REDUCTION OR ELIMINATION OF CONTRACT CHARGES
The amount of the Contingent Deferred Sales Charge, mortality and expense risk
charge, and the administrative charge assessed under the Contract may be reduced
or eliminated when sales of the Contract are made to individuals or a group of
individuals in such a manner that results in savings or reduction of sales
expenses. The entitlement to such a reduction in the Contingent Deferred Sales
Charges, mortality and expense risk charge or the administrative charge will be
based on the following: (1) 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 because of the ability to implement large numbers of contracts
with fewer sales contacts); (2) the total amount of Purchase Payments to be
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received (per Contract sales expenses are likely to be less on larger Purchase
Payments than on smaller ones); and (3) 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 implementing the
Contract with fewer sales contacts).
There may be other circumstances, of which the Company is not presently aware,
which could result in fewer sales expenses. In no event will reduction or
elimination of the Contingent Deferred Sales Charge, mortality and expense risk
charge or the administrative charge be permitted where such reduction or
elimination will be unfairly discriminatory to any person.
INVESTMENT ADVISORY FEES
For information on the Investment Advisory Fees of Fund VA's underlying funds
refer to the Fee Table and to the prospectuses for those funds.
THE ANNUITY PERIOD
MATURITY DATE
Annuity Payments will ordinarily begin on the date stated in the Contract.
However, a later Annuity Commencement Date may be elected. The Annuity
Commencement Date must be before the individual's 70th birthday, unless the
Company consents to a later date. Federal income tax law requires that certain
minimum distribution payments be taken from pension, profit-sharing, Section
403(b), Section 457 and IRA plans after the individual reaches the age of
70 1/2. A number of payout options are available (see "Payout Options," page
17). No Contingent Deferred Sales Charge will be assessed if an Annuity Option
is elected, or an Income Option of at least three years' duration (without right
of withdrawal) is elected after the first Contract Year. Federal income tax law
also requires that certain minimum distribution payments be taken upon the death
of the Contract Owner of a nonqualified annuity contract and upon the death of
the Annuitant of a pension, profit-sharing, Section 403(b), Section 457, or IRA
plan.
ALLOCATION OF ANNUITY PAYMENTS
When Annuity Payments begin, the accumulated value in each Underlying Fund will
be applied to provide an Annuity with the amount of Annuity Payments varying
with the investment experience of that same Underlying Fund. If the Owner wishes
to have Annuity Payments which vary with the investment experience of a
different Underlying Fund, transfers among accounts must be made at least 30
days before the date Annuity Payments begin. If the Owner wishes to have a fixed
dollar annuity whose payments do not vary, the Company will exchange that
Contract for a different contract or provide such other settlement agreements as
are appropriate to effect the payment of such an Annuity. (Variable payout may
not be availabale in all states. Refer to your contract.)
Once Annuity Payments begin, these Contract Owners will automatically
receive a fixed dollar annuity whose payments do not vary with the investment
experience of an Underlying Fund.
ANNUITY UNIT VALUE
The dollar value of an Annuity Unit for each Underlying Fund was established at
$1.00 at inception. The value of an Annuity Unit as of any Valuation Date is
determined 14 days in advance in order to allow adequate time for the required
calculations and the mailing of annuity checks in advance of their due dates.
(If the date 14 days in advance is not a Valuation Date, the calculation is made
on the next following Valuation Date, which would generally be 13 or 12 days in
advance.)
Specifically, the Annuity Unit Value for an Underlying Fund as of a Valuation
Date is equal to (a) the value of the Annuity Unit on the immediately preceding
Valuation Date multiplied by (b) the net investment factor for the Valuation
Period ending on or next following 14 days prior to the current Valuation Date,
divided by (c) the assumed net investment factor for the Valuation
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Period. (For example, the assumed net investment factor based on an annual
assumed net investment rate of 3.5% for a Valuation Period of one day is
1.0000942 and, for a period of two days, is 1.0000942 X 1.0000942.)
The value of an Annuity Unit as of any date other than a Valuation Date is equal
to its value on the next succeeding Valuation Date.
The number of Annuity Units credited to the Contract is determined by dividing
the first monthly Annuity Payment attributable to each Underlying Fund by the
Underlying Fund's Annuity Unit Value as of the due date of the first Annuity
Payment. The number of Annuity Units remains fixed during the annuity period.
DETERMINATION OF FIRST ANNUITY PAYMENT
The Contract contains tables used to determine the first monthly Annuity
Payment. The amount applied to effect an Annuity will be the Cash Value of the
Contract as of 14 days before the date Annuity Payments commence less any
applicable premium taxes not previously deducted.
The amount of the first monthly payment depends on the Annuity Option elected
(see "Automatic Option," page 18) and the adjusted age of the Participant. A
formula for determining the adjusted age is contained in the Contract. The
tables are determined from the Progressive Annuity Table assuming births in the
year 1900 and an assumed annual net investment rate of 3.5%. The total first
monthly Annuity Payment is determined by multiplying the benefit per $1,000 of
value shown in the tables of the Contract by the number of thousands of dollars
of value of the Contract applied to that Annuity Option. The Company reserves
the right to require proof of age before Annuity Payments begin.
DETERMINATION OF SECOND AND SUBSEQUENT ANNUITY PAYMENTS
The dollar amount of the second and subsequent Annuity Payments is not
predetermined and may change from month to month based on the investment
experience of the applicable Underlying Funds. The actual amounts of these
payments are determined by multiplying the number of Annuity Units credited to
the Contract in each Underlying Fund by the corresponding Annuity Unit Value as
of the date on which payment is due. The interest rate assumed in the annuity
tables would produce a level Annuity Unit Value and, therefore, level Annuity
Payments if the net investment rate remained constant at the assumed rate. In
fact, payments will vary up or down as the net investment rate varies up or down
from the assumed rate, and there can be no assurance that a net investment rate
will be as high as the assumed rate.
FIXED ANNUITY
A fixed Annuity is an annuity with payments which remain fixed as to dollar
amount throughout the payment period. The dollar amount of the first Fixed
Annuity Payment will be calculated as described under "Variable Annuity" above.
All subsequent payments will be made in the same amount, and that amount will be
assured throughout the payment period. If it would produce a larger payment, the
Company agrees that the first Fixed Annuity Payment will be determined using the
Life Annuity Tables in effect on the Maturity Date.
PAYOUT OPTIONS
ELECTION OF OPTIONS
On the Annuity Commencement Date, or other agreed-upon date, the Company will
pay an amount payable under the Contract in one lump sum, or in accordance with
the payment option selected by the Contract Owner. Election of an Annuity Option
or an Income Option must be made in writing in a form satisfactory to the
Company. Any election made during the lifetime of the Annuitant under an
Individual Contract, must be made by the Contract Owner. The terms of options
elected may be restricted to meet the contract qualification requirements of
Section 401(a)(9) of the Internal Revenue Code. If, at the death of an Annuitant
under an
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Individual Contract, there is no election in effect for that Annuitant, the
beneficiary may elect an Annuity Option or Income Option in lieu of the Death
Benefit. The minimum amount that can be placed under an Annuity Option or Income
Option, as described below, is $2,000 unless the Company consents to a lesser
amount. If any monthly periodic payment due any payee is less than $20, the
Company reserves the right to make payments at less frequent intervals. Annuity
Options and Income Options may be elected on a monthly, quarterly, semiannual or
annual basis.
ANNUITY OPTIONS
AUTOMATIC OPTION -- Unless the Company is directed otherwise by the Owner, if he
or she is living and has a spouse and no election has been made, the Company
will, on his or her Annuity Commencement Date, pay to the Annuitant the first of
a series of Annuity Payments based on the life of the Annuitant as the primary
payee and the Annuitant's spouse in accordance with Option 5 below.
If the Annuitant is living and no election has been made and the Annuitant has
no spouse, the Company will, on the Annuity Commencement Date, pay to the
Annuitant the first of a series of Annuity Payments based on the life of the
Annuitant, in accordance with Option 2 with 120 monthly payments assured.
OPTION 1 -- LIFE ANNUITY -- NO REFUND: The Company will make Annuity Payments
during the lifetime of the person on whose life the payments are based,
terminating with the last payment preceding death. While this option offers the
maximum periodic payment, there is no assurance of a minimum number of payments,
nor is there a provision for a death benefit for beneficiaries.
OPTION 2 -- LIFE ANNUITY WITH 120, 180 OR 240 MONTHLY PAYMENTS ASSURED: The
Company will make monthly Annuity Payments during the lifetime of the person on
whose life payments are based, with the agreement that if, at the death of that
person, payments have been made for less than 120, 180 or 240 months, as
elected, payments will be continued during the remainder of the period to the
beneficiary designated. The beneficiary may instead receive a single sum
settlement equal to the discounted value of the future payments with the
interest rate equivalent to the assumption originally used when the Annuity
began.
OPTION 3 -- UNIT REFUND LIFE ANNUITY: The Company will make Annuity Payments
during the lifetime of the person on whose life payments are based, terminating
with the last payment due before the death of that person, provided that, at
death, the beneficiary will receive in one sum the current dollar value of the
number of Annuity Units equal to (a) minus (b) (if that difference is positive)
where: (a) is the total amount applied under the option divided by the Annuity
Unit Value on the due date of the first Annuity Payment, and (b) is the product
of the number of the Annuity Units represented by each payment and the number of
payments made.
OPTION 4 -- JOINT AND LAST SURVIVOR LIFE ANNUITY -- NO REFUND: The Company will
make Annuity Payments during the joint lifetime of the two persons on whose
lives payments are based, and during the lifetime of the survivor. No further
payments will be made following the death of the survivor. There is no assurance
of a minimum number of payments, nor is there a provision for a death benefit
upon the survivor's death.
OPTION 5 -- JOINT AND LAST SURVIVOR LIFE ANNUITY -- ANNUITY REDUCES ON DEATH OF
PRIMARY PAYEE: The Company will make Annuity Payments during the lifetime of the
two persons on whose lives payments are based. One of the two persons will be
designated as the primary payee. The other will be designated as the secondary
payee. On the death of the secondary payee, if survived by the primary payee,
the Company will continue to make monthly Annuity Payments to the primary payee
in the same amount that would have been payable during the joint lifetime of the
two persons. On the death of the primary payee, if survived by the secondary
payee, the Company will continue to make Annuity Payments to the secondary payee
in an amount equal to 50% of the payments which would have been made during the
lifetime of the primary payee. No further payments will be made following the
death of the survivor.
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OPTION 6 -- OTHER ANNUITY OPTIONS: The Company will make any other arrangements
for Annuity Payments as may be mutually agreed upon.
INCOME OPTIONS
OPTION 1 -- PAYMENTS OF A FIXED AMOUNT: The Company will make equal payments of
the amount elected until the Cash Value applied under this option has been
exhausted. The final payment will include any amount insufficient to make
another full payment.
OPTION 2 -- PAYMENTS FOR A FIXED PERIOD: The Company will make payments for the
number of years selected. The amount of each payment will be equal to the
remaining Cash Value applied under this option divided by the number of
remaining payments.
OPTION 3 -- INVESTMENT INCOME: The Company will make payments for the period
agreed on. The amount payable will be equal to the excess, if any, of the Cash
Value under this option over the amount applied under this option. No payment
will be made if the Cash Value is less than the amount applied, and it is
possible that no payments would be made for a period of time. Payments under
this option are not considered to be Annuity Payments and are taxable in full as
ordinary income. (See "Federal Tax Considerations," page 24.) This option will
generally be inappropriate under federal tax law for periods that exceed the
Participant's attainment of age 70 1/2.
The Cash Value used to determine the amount of any Income Payment will be
calculated as of 14 days before the date an Income Payment is due and will be
determined on the same basis as the Cash Value of the Contract, including the
deduction for mortality and expense risks.
Income Options differ from Annuity Options in that the amount of the payments
made under Income Options are unrelated to the length of life of any person.
Although the Company continues to deduct the charge for mortality and expense
risks, it assumes no mortality risks for amounts applied under any Income
Option. Moreover, except with respect to lifetime payments of investment income
under Income Option 3, payments are unrelated to the actual life span of any
person. Thus, the Participant may outlive the payment period.
While Income Options do not directly involve mortality risks for the Company, an
individual may elect to apply the remaining Cash Value to provide an Annuity at
the guaranteed rates even though Income Payments have been received under an
Income Option. Before an Owner makes any Income Option election, he or she
should consult a tax adviser as to any adverse tax consequences the election
might have.
MISCELLANEOUS
- --------------------------------------------------------------------------------
TERMINATION
We reserve the right to terminate this Contract on any Valuation Date if:
1. the Cash Value, if any, is less than $500, and;
2. premium has not been paid for at least three years.
If this Contract is terminated, the Cash Value of the Owner's Account, if any,
less any applicable premium tax not previously deducted will be paid to you.
Termination will not occur until 31 days after the Company has mailed notice of
termination to the Group Contract Owner or the Participant, as provided in the
Plan, at the last known address; and to any assignee of record.
REQUIRED REPORTS
As often as required by law, but at least once in each Contract Year before the
due date of the first Annuity Payment, the Company will furnish a report which
will show the number of
19
<PAGE> 24
Accumulation Units credited to the Contract in each Underlying Fund and the
corresponding Accumulation Unit Value as of the date of the report. The Company
will keep all records required under federal or state laws.
RIGHT TO RETURN
The Contract may be returned for a full refund of the Contract's Cash Value
(including charges) within ten days after the delivery of the Contract to the
Contract Owner, unless state law requires a longer period. The Contract Owner
bears the investment risk during the free-look period; therefore, the Cash Value
returned may be greater or less than the Purchase Payment made under the
Contract. However, if applicable state law so requires, or if the Contract was
purchased in an Individual Retirement Annuity, the Purchase Payment will be
returned in full. All Cash Values will be determined as of the Valuation Date
next following the Company's receipt of the Contract Owner's written request for
refund.
The right to return is not available to participants of the Texas Optional
Retirement Program.
SUSPENSION OF PAYMENTS
If a national stock exchange is closed (except for holidays or weekends), or
trading is restricted due to an existing emergency as defined by the SEC so that
disposal of the Separate Account's investments or determination of its net asset
value is not reasonably practicable, or the Commission has ordered that the
right of redemption (surrender) be suspended for the protection of Contract
Owners, the Company may postpone all procedures (including making Annuity
Payments) which require valuation of Separate Accounts until the stock exchange
is reopened and trading is no longer restricted.
VOTING RIGHTS
The Contract Owner has certain voting rights in the Underlying Funds. The number
of votes which an Owner may cast in the accumulation period is equal to the
number of Accumulation Units credited to the account under the Contract. During
the annuity period, the Contract Owner may cast the number of votes equal to (i)
the reserve related to the Contract divided by (ii) the value of an Accumulation
Unit. During the annuity period, the voting rights of an Annuitant, will decline
as the reserve for the Contract declines.
Upon the death of the person authorized to vote under the Contract, all voting
rights will vest in the beneficiary of the Contract, except in the case of
nonqualified Individual Contracts, where the surviving spouse may succeed to the
ownership.
In accordance with its view of present applicable law, the Company will vote
shares of the Underlying Funds at regular and special meetings of the
shareholders of the funds in accordance with instructions received from persons
having a voting interest in Fund VA. The Company will vote shares for which it
has not received instructions in the same proportion as it votes shares for
which it has received instructions. However, if the 1940 Act or any regulation
thereunder should be amended, or if the present interpretation thereof should
change, and as a result the Company determines that it is permitted to vote
shares of the mutual funds in its own right, it may elect to do so.
The number of shares which a person has a right to vote will be determined as of
the date concurrent with the date established by the respective mutual fund for
determining shareholders eligible to vote at the meeting of the fund, and voting
instructions will be solicited by written communication before the meeting in
accordance with the procedures established by the mutual fund.
Each person having a voting interest in Fund VA will receive periodic reports
relating to the fund(s) in which he or she has an interest, proxy material and a
form with which to give such instructions with respect to the proportion of the
fund shares held in Fund VA corresponding to his or her interest in Fund VA.
20
<PAGE> 25
DISTRIBUTION OF VARIABLE ANNUITY CONTRACTS
The Company intends to sell the Contract in all jurisdictions where the
Company is licensed to do business. The Contract may be purchased from agents
who are licensed by state insurance authorities to sell variable annuity
contracts issued by the Company, and who are also registered representatives of
broker-dealers which have Selling Agreements with Tower Square Securities, Inc.
("Tower Square"). Tower Square, whose principal business address is One Tower
Square, Hartford, Connecticut, serves as the principal underwriter for the
variable annuity contracts described herein. It is anticipated, however, that
Travelers Distribution Company, an affiliated broker-dealer, may become the
principal underwriter for the Contracts during 1998. The offering is
continuous. Tower Square is a registered broker-dealer with the SEC under the
Securities Exchange Act of 1934 and is a member of the National Association of
Securities Dealers, Inc. ("NASD"). Tower Square is an affiliate of the Company
and an indirect wholly owned subsidiary of Travelers Insurance Company, and
serves as principal underwriter pursuant to a Distribution and Management
Agreement to which the Separate Accounts, the Company and Tower Square are
parties.
Agents will be compensated for sales of the Contracts on a commission and
service fee basis. The compensation paid to sales agents will not exceed 7.0% of
the payments made under the Contract. In addition, certain production,
persistency and managerial bonuses may be paid.
From time to time the Company may pay or permit other promotional incentives, in
cash, credit or other compensation.
STATE REGULATION
The Company is subject to the laws of the state of Connecticut governing
insurance companies and to regulation by the Insurance Commissioner of the state
of Connecticut. An annual statement in a prescribed form must be filed with that
Commissioner on or before March 1 in each year covering the operations of the
Company for the preceding year and its financial condition on December 31 of
such year. Its books and assets are subject to review or examination by the
Commissioner or his agents at all times, and a full examination of its
operations is conducted by the National Association of Insurance Commissioners
("NAIC") at least once in every four years.
In addition, the Company is subject to the insurance laws and regulations of the
other states in which it is licensed to operate. Generally, the insurance
departments of the states apply the laws of the jurisdiction of domicile in
determining the field of permissible investments.
LEGAL PROCEEDINGS AND OPINIONS
There are no pending material legal proceedings affecting the Separate
Account, the principal underwriter or the Company. Legal matters in connection
with the federal laws and regulations affecting the issue and sale of the
Contract described in this prospectus, as well as the organization of the
Company, its authority to issue variable annuity contracts under Connecticut
law and the validity of the forms of the variable annuity contracts under
Connecticut law, have been passed on by the General Counsel of the Company.
THE INSURANCE COMPANY AND SEPARATE ACCOUNT
- --------------------------------------------------------------------------------
THE INSURANCE COMPANY
The Travelers Life and Annuity Company (the "Company"), an indirect wholly owned
subsidiary of Travelers Group Inc., is a stock insurance company chartered in
1973 in Connecticut and continuously engaged in the insurance business since
that time. The Company is licensed to conduct a life insurance business in a
majority of the states of the United States and intends to
21
<PAGE> 26
become licensed in the remaining states, except New York. The Company's Home
Office is located at One Tower Square, Hartford, Connecticut 06183.
IMSA
The Company is a member of the Insurance Marketplace Standards Association
("IMSA"), and as such may use the IMSA logo and IMSA membership in its
advertisements. Companies that belong to IMSA subscribe to a set of ethical
standards covering the various aspects of sales and service for individually
sold life insurance and annuities. IMSA members have adopted policies and
procedures that demonstrate a commitment to honesty, fairness and integrity in
all customer contacts involving the sale and service of individual life
insurance and annuity products.
YEAR 2000 COMPLIANCE
Generally, existing computer programs were designed without considering the
impact of the upcoming change in the century. As a result, software and computer
systems may need to be upgraded or replaced in order to comply with "Year 2000"
requirements. If not corrected, these computer applications could fail or create
erroneous results by or at the Year 2000. The business, financial condition, and
results of operations of a company could be materially and adversely affected by
the failure of its systems and applications (or those either provided or
operated by third-parties) to properly operate or manage dates beyond the year
1999.
The Company has investigated the nature and extent of the work required for our
computer systems to process beyond the turn of the century, and has made
progress toward achieving this goal, including upgrading and/or replacing
existing systems. We are confirming with our service providers that they are
also in the process of replacing or modifying their systems with the same goal.
We expect that our principal systems will be Year 2000 compliant by early 1999.
While these efforts involve substantial costs, we closely monitor associated
costs and continue to evaluate associated risks based on actual expenses. While
it is likely that these efforts will be successful, if necessary modifications
and conversions are not completed in a timely manner, the Year 2000
requirements could have a material adverse effect on certain operations of the
Company.
THE SEPARATE ACCOUNT
Fund VA is a unit investment trust registered with the SEC under the 1940 Act,
which means that Fund VA's assets are invested exclusively in the shares of the
Underlying Funds.
Under Connecticut law, the assets of Fund VA will be held for the exclusive
benefit of its owners. Income, gains and losses, whether or not realized, for
assets allocated to Fund VA, are in accordance with the applicable annuity
contracts, credited to or charged against the Separate Account without regard to
other income, gains or losses of the Company. The assets in the Separate Account
are not chargeable with liabilities arising out of any other business which the
Company may conduct. The obligations arising under the Variable Annuity
contracts are obligations of the Company.
SUBSTITUTION OF INVESTMENTS
If any of the Underlying Funds become unavailable, or in the judgment of the
Company become inappropriate for the purposes of the Contract, the Company may
substitute another Underlying Fund without consent of Contract Owners.
Substitution may be made with respect to both existing investments and the
investment of future Purchase Payments. However, no such substitution will be
made without notice to Contract Owners and without prior approval of the SEC, to
the extent required by the 1940 Act, or other applicable law.
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<PAGE> 27
INVESTMENT ADVISERS
The Underlying Funds receive investment management and advisory services from
the following investment professionals:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
UNDERLYING FUND INVESTMENT ADVISER SUBADVISER
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Capital Appreciation Fund Travelers Asset Management Janus Capital Corporation
International Corporation (TAMIC)
- -------------------------------------------------------------------------------------------------------
High Yield Bond Trust TAMIC
- -------------------------------------------------------------------------------------------------------
Money Market Porfolio TAMIC
- -------------------------------------------------------------------------------------------------------
Managed Assets Trust TAMIC The Travelers Investment
Management Company (TIMCO)
- -------------------------------------------------------------------------------------------------------
U.S. Government Securities TAMIC
Portfolio
- -------------------------------------------------------------------------------------------------------
Social Awareness Stock Portfolio Mutual Management
Corporation ("MMC")
- -------------------------------------------------------------------------------------------------------
Utilities Portfolio MMC
- -------------------------------------------------------------------------------------------------------
Templeton Stock Fund Templeton Investment Counsel,
Inc.
- -------------------------------------------------------------------------------------------------------
Templeton Asset Allocation Fund Templeton Investment Counsel,
Inc.
- -------------------------------------------------------------------------------------------------------
Templeton Bond Fund Templeton Global Bond Managers
- -------------------------------------------------------------------------------------------------------
Fidelity's High Income Portfolio Fidelity Management & Research
Company
- -------------------------------------------------------------------------------------------------------
Fidelity's Equity-Income Fidelity Management & Research
Portfolio Company
- -------------------------------------------------------------------------------------------------------
Fidelity's Growth Portfolio Fidelity Management & Research
Company
- -------------------------------------------------------------------------------------------------------
Fidelity's Asset Manager Fidelity Management & Research
Portfolio Company
- -------------------------------------------------------------------------------------------------------
Dreyfus Stock Index Fund Mellon Equity Associates
- -------------------------------------------------------------------------------------------------------
American Odyssey International American Odyssey Funds Bank of Ireland Asset Management
Equity Fund Management, Inc. (U.S.) Limited
- -------------------------------------------------------------------------------------------------------
American Odyssey Emerging American Odyssey Funds Cowen Asset Management and
Opportunities Fund Management, Inc. Chartwell Investment Partners
- -------------------------------------------------------------------------------------------------------
American Odyssey Core Equity American Odyssey Funds Equinox Capital Management, Inc.
Fund Management, Inc.
- -------------------------------------------------------------------------------------------------------
American Odyssey Long-Term American Odyssey Western Asset Management
Bond Fund Funds Management, Inc. Company
- -------------------------------------------------------------------------------------------------------
American Odyssey Intermediate- American Odyssey Funds TAMIC
Term Bond Fund Management, Inc
- -------------------------------------------------------------------------------------------------------
American Odyssey Global American Odyssey Funds BEA Associates
High-Yield Bond* Management, Inc.
- -------------------------------------------------------------------------------------------------------
Smith Barney Large Cap Value MMC
Portfolio
- -------------------------------------------------------------------------------------------------------
</TABLE>
* Formerly American Odyssey Global High-Yield Bond Fund. The name, investment
objectives and investment subadviser of this fund were changed pursuant to a
shareholder vote effective May 1, 1998.
23
<PAGE> 28
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
UNDERLYING FUND INVESTMENT ADVISER SUBADVISER
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Alliance Growth Portfolio Travelers Investment Alliance Capital Management L.P.
Advisors Inc. ("TIA")
- -------------------------------------------------------------------------------------------------------
Smith Barney International MMC
Equity Portfolio
- -------------------------------------------------------------------------------------------------------
Putnam Diversified Income Travelers Investment Putnam Investment Management,
Portfolio Advisors Inc. ("TIA") Inc.
- -------------------------------------------------------------------------------------------------------
Smith Barney High Income MMC
Portfolio
- -------------------------------------------------------------------------------------------------------
MFS Total Return Portfolio Travelers Investment Massachusetts Financial Services
Advisors Inc. ("TIA") Company
- -------------------------------------------------------------------------------------------------------
</TABLE>
PERFORMANCE INFORMATION
From time to time, the Company may advertise several types of historical
performance for the underlying funds of Fund VA. We may advertise the
"standardized average annual total returns" of the funding option, calculated
in a manner prescribed by the SEC, as well as the "nonstandardized total
return," as described below. Specific examples of the performance information
appear in the SAI.
STANDARDIZED METHOD.Quotations of average annual total returns are computed
according to a formula in which a hypothetical initial investment of $1,000 is
applied to the funding option, and then related to ending redeemable values
over one-, five-, and ten-year periods, or for a period covering the time
during which the funding option has been in existence, if less. These
quotations reflect the deduction of all recurring charges during each period
(on a pro rata basis in the case of fractional periods). The deduction for the
semiannual administrative charge ($15) is converted to a percentage of assets
based on the actual fee collected (or anticipated to be collected, if a new
product), divided by the average net assets for Contracts sold (or anticipated
to be sold). Each quotation assumes a total redemption at the end of each
period with the applicable withdrawal charge deducted at that time.
NONSTANDARDIZED METHOD. Nonstandardized "total returns" will becalculated in a
similar manner based on the performance of the funding options over a period of
time, usually for the calender year-to-date, and for the past one-, three-,
five- and ten-year periods. Nonstandardized total returns will not reflect the
deduction of the $15 semiannual contract administrative charge, which, if
reflected, would decrease the level of performance shown. The withdrawal charge
is not reflected because the Contract is designed for long-term investment.
For underlying funds that were in existence prior to the date they
became available under the Separate Account, the standardized average annual
total returns may be accompanied by returns showing the investment performance
that such underlying funds would have achieved (reduced by the applicable
charges) had they been held under the Contract for the period quoted. The total
return quotations are based upon historical earnings and are not necessarily
representative of future performance.
GENERAL. Within the guidelines prescribed by the SEC and the National
Association of Securities Dealers, Inc. ("NASD"), performance information may be
quoted numerically or may be presented in a table, graph or other illustration.
Advertisements may include data comparing performance to well-known indices of
market performance (including but not limited to, the Dow Jones Industrial
Average, the Standard & Poor's (S&P) 500 Index and the S&P 400 Index, the Lehman
Brothers Long T-Bond Index, the Russell 1000, 2000, and 3000 Indices, the Value
Line Index, and the Morgan Stanley Capital International's EAFE Index).
Advertisements may also include published editorial comments and performance
rankings compiled by independent organizations (including, but not limited to,
Lipper Analytical Services, Inc. and Morningstar, Inc.) and publications that
monitor the performance of the Separate Account and the variable funding
options.
FEDERAL TAX CONSIDERATIONS
- --------------------------------------------------------------------------------
GENERAL
The Company is taxed as a life insurance company under Subchapter L of the
Internal Revenue Code (the "Code"). Investment income and gains of a Separate
Account that are credited to a variable annuity contract incur no current
federal income tax. Generally, amounts credited to a contract are not taxable
until received by the Contract 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.
24
<PAGE> 29
INVESTOR CONTROL
In certain circumstances, owners of variable annuity contracts may be considered
the owners, for federal income tax purposes, of the assets of the separate
accounts used to support their contract. In those circumstances, income and
gains from the separate account assets would be includable in the variable
contract owner's gross income.
The IRS has stated in published rulings that a variable contract owner will be
considered the owner of separate account assets if the contract owner possesses
incidents of ownership in those assets, such as the ability to exercise
investment control over the assets. The U.S. Treasury Department has also
announced, in connection with the issuance of regulations concerning
diversification, that those regulations "do not provide guidance concerning the
circumstances in which investor control of the investments of a segregated asset
account may cause the investor (i.e., the Contract Owner), rather than the
insurance company, to be treated as the owner of the assets in the account."
This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyholders may direct their
investments to particular Sub-Accounts without being treated as owners of the
underlying assets." As of the date of this prospectus, no such guidance has been
issued.
The ownership rights under the Contract are similar to, but different in certain
respects from, those described by the IRS in rulings in which it determined that
the owners were not owners of separate account assets. For example, a Contract
Owner or Participant of this Contract has additional flexibility in allocating
payments and cash values. These differences could result in the Contract Owner
being treated as the owner of the assets of Fund VA. In addition, the Company
does not know what standard will be set forth in the regulations or rulings
which the Treasury is expected to issue, nor does the Company know if such
guidance will be issued. The Company therefore reserves the right to modify the
Contract as necessary to attempt to prevent the Contract Owner from being
considered the owner of a pro rata share of the assets of Fund VA.
The remaining tax discussion assumes that the Contract qualifies as an annuity
contract for federal income tax purposes.
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.
25
<PAGE> 30
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.
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.
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. Payments under Income
Option 3 are taxable in full. 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 begin by April 1st of
the calendar year following 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.
ROTH IRAs
Effective January 1, 1998, Section 408A of the Code permits certain individuals
to contribute to a Roth IRA. Eligibility to make contributions is based upon
income, and the applicable limits vary based on marital status and/or whether
the contribution is a rollover contribution from another IRA or an annual
contribution. Contributions to a Roth IRA, which are subject to certain
limitations, ($2,000 per year for annual contributions), are not deductible and
must be made in cash or as a rollover or transfer from another Roth IRA or
other IRA. A conversion of a "traditional" IRA to a Roth IRA may be subject to
tax and other special rules apply. You should consult a tax adviser before
combining any converted amounts with other Roth IRA contributions, including
any other conversion amounts from other tax years.
Qualified distributions from a Roth IRA are tax-free. A qualified distribution
requires that the Roth IRA has been held for at least 5 years, and the
distribution is made after age 59 1/2, on death or disability of the owner, or
for a limited amount ($10,000) for a qualified first time home purchase for the
owner or certain relatives. Income tax and a 10% penalty tax may apply to
distributions made (1) before age 59 1/2 (subject to certain exceptions) or (2)
during five taxable years starting with the year in which the first
contribution is made to the Roth IRA.
SECTION 457 PLANS
Section 457 of the Code allows employees and independent contractors of state
and local governments and taxexempt 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.
26
<PAGE> 31
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 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 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.
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 certain tax-qualified Contracts if the
Owner 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 that is 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 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.
1. ELIGIBLE ROLLOVER DISTRIBUTION FROM SECTION 403(B) PLANS OR ARRANGEMENTS
OR FROM QUALIFIED PENSION AND PROFIT-SHARING PLANS
There is a mandatory 20% tax withholding for plan distributions that are
eligible for rollover to an IRA or to another retirement plan but that are
not directly rolled over. A distribution made directly to a participant or
beneficiary may avoid this result if:
(a) a periodic settlement distribution is elected based upon a life or
life expectancy calculation, or
(b) a 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
27
<PAGE> 32
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, 1998, a recipient receiving periodic payments (e.g.,
monthly or annual payments under an Annuity Option) which total $15,200 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-qualified plan loses its exempt status, employees could lose some
of the tax benefits described. For further information regarding federal income
taxes and any applicable state income taxes, a qualified tax adviser should be
consulted.
28
<PAGE> 33
THE FIXED ACCOUNT
- --------------------------------------------------------------------------------
Purchase Payments allocated to the Fixed Account portion of the Contract and any
transfer made to the Fixed Account become part of the general account of the
Company which supports insurance and annuity obligations. Because of exemptive
and exclusionary provisions, interests in the general account have not been
registered under the Securities Act of 1933 (the "1933 Act"), nor is the general
account registered as an investment company under the 1940 Act. Accordingly,
neither the general account or any interest therein is generally subject to the
provisions of the 1933 or 1940 Acts, and the staff of the Securities and
Exchange Commission does not generally review the disclosure in the prospectus
relating to the Fixed Account. Disclosure regarding the Fixed Account and the
general account may, however, be subject to certain generally applicable
provisions of the federal securities laws relating to the accuracy and
completeness of statements made in the prospectus.
Under the Fixed Account, the Company assumes the risk of investment gain or
loss, guarantees a specified interest rate, and guarantees a specified monthly
annuity payment. The investment gain or loss of Fund VA does not affect the
fixed account portion of the Contract Value, or the dollar amount of fixed
annuity payments made under any payout option.
The Fixed Account is secured by part of the general assets of the Company. The
general assets of the Company include all assets of the Company other than those
held in Fund VA or any other separate account sponsored by the Company or its
affiliates. Purchase Payments will be allocated to the Fixed Account at the
direction of the Contract Owner at the time of purchase or at a later date.
The Company will invest the assets of the Fixed Account in those assets chosen
by the Company and allowed by applicable law. Investment income from such Fixed
Account assets will be allocated by the Company between itself and the Contracts
participating in the Fixed Account.
Investment income from the Fixed Account allocated to the Company includes
compensation for mortality and expense risks borne by the Company in connection
with Fixed Account Contracts. The amount of such investment income allocated to
the Contracts will vary from year to year in the sole discretion of the Company
at such rate or rates as the Company prospectively declares from time to time.
The interest rate credited to the Fixed Account will be guaranteed for at least
three months. The Company also guarantees that for the life of the Contract it
will credit interest at not less than 3% per year. ANY INTEREST CREDITED TO
AMOUNTS ALLOCATED TO THE FIXED ACCOUNT IN EXCESS OF 3% PER YEAR WILL BE
DETERMINED IN THE SOLE DISCRETION OF THE COMPANY. THE CONTRACT OWNER ASSUMES THE
RISK THAT INTEREST CREDITED TO THE FIXED ACCOUNT MAY NOT EXCEED THE MINIMUM
GUARANTEE OF 3.5% FOR ANY GIVEN YEAR.
The Company guarantees that, at any time, the Fixed Account Contract Value will
not be less than the amount of the purchase payments allocated to the Fixed
Account, plus interest credited as described above, less any applicable premium
taxes or prior surrenders. If the Contract Owner effects a surrender, the amount
available from the Fixed Account will be reduced by any applicable Contingent
Deferred Sales Charge.
29
<PAGE> 34
APPENDIX A
CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
The Statement of Additional Information contains more specific information and
financial statements relating to the Separate Accounts and The Travelers Life
and Annuity Company. A list of the contents of the Statement of Additional
Information is set forth below:
Description of The Travelers Life and Annuity Company and The Separate
Accounts
The Insurance Company
The Separate Account
Valuation of Separate Account Assets
Net Investment Factor
Performance Data
Average Annual Total Return Quotations of Fund VA
Distribution and Management Services
Independent Accountants
Financial Statements
COPIES OF THE STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1998 (FORM NO.
L-1165S) ARE AVAILABLE WITHOUT CHARGE. TO REQUEST A COPY, PLEASE CLIP THIS
COUPON ON THE DOTTED LINE, ENTER YOUR NAME AND ADDRESS IN THE SPACES PROVIDED
BELOW, AND MAIL TO: THE TRAVELERS LIFE AND ANNUITY COMPANY, ANNUITY SERVICES,
ONE TOWER SQUARE, HARTFORD, CONNECTICUT 06183-5030.
Name:
Address:
----------------------------------------------------------------------
30
<PAGE> 35
THE TRAVELERS UNIVERSAL ANNUITY
VARIABLE ANNUITY CONTRACTS
ISSUED BY
THE TRAVELERS LIFE AND ANNUITY COMPANY
L-12428 TLAC Ed. 5-98
Printed in U.S.A.
<PAGE> 36
PART B
Information Required in a Statement of Additional Information
<PAGE> 37
UNIVERSAL ANNUITY
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
THE TRAVELERS FUND VA FOR VARIABLE ANNUITIES
- --------------------------------------------------------------------------------
VARIABLE ANNUITY CONTRACTS
ISSUED BY
THE TRAVELERS LIFE AND ANNUITY COMPANY
MAY 1, 1998
This Statement of Additional Information is not a prospectus but
relates to, and should be read in conjunction with, the Prospectus dated May 1,
1998. A copy of the Prospectus may be obtained by writing to The Travelers
Life and Annuity Company (the "Company"), Annuity Services, One Tower Square,
Hartford, Connecticut 06183-5030, or by calling 860-842-9368.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
DESCRIPTION OF THE TRAVELERS LIFE AND ANNUITY COMPANY AND THE SEPARATE ACCOUNT. . . . . . . . . . 2
The Insurance Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
The Separate Account. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
VALUATION OF SEPARATE ACCOUNT ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
NET INVESTMENT FACTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
DISTRIBUTION AND MANAGEMENT SERVICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
1
<PAGE> 38
DESCRIPTION OF THE TRAVELERS LIFE AND ANNUITY COMPANY
AND THE SEPARATE ACCOUNTS
THE INSURANCE COMPANY
The Travelers Life and Annuity Company (the "Company"), an indirect
wholly owned subsidiary of Travelers Group Inc., is a stock insurance company
chartered in 1973 in Connecticut and continuously engaged in the insurance
business since that time. The Company is licensed to conduct a life insurance
business in a majority of the states of the United States, and intends to seek
licensure in the remaining states, except New York. The Company's Home Office
is located at One Tower Square, Hartford, Connecticut 06183, and its telephone
number is (860) 277-0111.
The Company is a wholly owned subsidiary of The Travelers Insurance
Company, which is indirectly owned, through a wholly owned subsidiary, by
Travelers Group Inc., a financial services holding company engaged, through its
subsidiaries, principally in four business segments: (i) Investment Services;
(ii) Consumer Finance Services; (iii) Life Insurance Services; and (iv)
Property and Casualty Insurance Services.
THE SEPARATE ACCOUNT
Fund VA meets the definition of a separate account under federal
securities laws, and will comply with the provisions of the Investment Company
Act of 1940, as amended (the "1940 Act"). Additionally, the operations of
the Separate Account is subject to the provisions of Section 38a-433 of the
Connecticut General Statutes which authorize the Connecticut Insurance
Commissioner to adopt regulations under it. The Section contains no
restrictions on investments of the Separate Account, and the Commissioner has
adopted no regulations under the Section that affect the Separate Account.
VALUATION OF SEPARATE ACCOUNT ASSETS
The value of the assets of each Separate Account is determined on each
Valuation Date as of the close of the New York Stock Exchange. If the New York
Stock Exchange is not open for trading on any such day, then such computation
shall be made as of the normal close of the New York Stock Exchange. Each
security traded on a national securities exchange is valued at the last
reported sale price on the Valuation Date. If there has been no sale on that
day, then the value of the security is taken to be the mean between the
reported bid and asked prices on the Valuation Date or on the basis of
quotations received from a reputable broker or any other recognized source.
Any security not traded on a securities exchange but traded in the
over-the-counter market and for which market quotations are readily available
is valued at the mean between the quoted bid and asked prices on the Valuation
Date or on the basis of quotations received from a reputable broker or any
other recognized source.
Securities traded on the over-the-counter market and listed securities
with no reported sales are valued at the mean between the last reported bid and
asked prices or on the basis of quotations received from a reputable broker or
other recognized source.
Short-term investments for which a quoted market price is available
are valued at market. Short-term investments maturing in more than sixty days
for which there is no reliable quoted market price are valued by "marking to
market" (computing a market value based upon quotations from dealers or issuers
for securities of a similar type, quality and maturity). "Marking to market"
takes into account unrealized appreciation or depreciation due to changes in
interest rates or other factors which would influence the current fair values
of such securities. Short-term investments maturing in sixty days or less for
which there is no reliable quoted market price are valued at amortized cost
which approximates market.
2
<PAGE> 39
NET INVESTMENT FACTOR
The net investment factor is used to measure the investment
performance of an investment alternative from one Valuation Period to the next.
The net investment factor is determined by dividing (a) by (b) and adding (c)
to the result where:
(a) is the net result of the Valuation Period's investment income
(including, in the case of assets invested in an underlying mutual
fund, distributions whose ex-dividend date occurs during the
Valuation Period), PLUS capital gains and losses (whether realized
or unrealized), LESS any deduction for applicable taxes (presently
zero);
(b) is the value of the assets at the beginning of the Valuation
Period (or, in the case of assets invested in an underlying mutual
fund, value is based on the net asset value of the mutual fund);
(c) is the net result of 1.000, LESS the Valuation Period deduction
for the insurance charge, LESS the applicable deduction for the
investment advisory fee, and in the case of Accounts TGIS, TSB,
TAS and TB, LESS the applicable deduction for market timing fees
(the deduction for the investment advisory fee is not applicable
in the case of assets invested in an Underlying Fund, since the
fee is reflected in the net asset value of the fund).
The net investment factor may be more or less than one.
3
<PAGE> 40
PERFORMANCE INFORMATION
STANDARDIZED METHOD. Quotations of average annual total return are
computed according to a formula in which a hypothetical initial investment of
$1,000 is applied to an Investment Alternative, and then related to ending
redeemable values over one-, five- and ten-year periods (or fractional portions
thereof). The quotations reflect the deduction of all recurring charges during
each period (on a pro rata basis in the case of fractional periods). The
deduction for the semiannual administrative charge ($15) is converted to a
percentage of assets based on the actual fee collected, divided by the average
net assets for contracts sold (or anticipated to be sold).
NONSTANDARDIZED METHOD. Nonstandardized "total returns" will be
calculated in a similar manner based on the performance of the funding options
over a period of time, usually for the calendar year-to-date, and, for the past
one-,three-,five- and ten-year periods. Nonstandardized total returns will not
reflect the deduction of the $15 semiannual contract administrative charge,
which, if reflected, would decrease the level of performance shown.
For funding options that were in existence prior to the date they
became available under the Separate Account the standardized average annual
total return quotations may be accompanied by returns showing the investment
performance that such funding options would have achieved (reduced by the
applicable changes) had they been held under the contract for the period
quoted. The total return quotations are based upon historical earnings and are
not necessarily representative of future performance.
GENERAL. Performance information may be quoted numerically or may be presented
in a table, graph or other illustration. Advertisements may include data
comparing performance to well-known indices of market performance (including,
but not limited to, the Dow Jones Industrial Average, the Standard & Poor's
(S&P) 500 Index, and the S&P 400 Index, the Lehman Brothers Long T-Bond Index,
the Russell 1000, 2000 and 3000 Indices, the Value Line Index, and the Morgan
Stanley Capital International's EAFE Index). Advertisements may also include
published editorial comments and performance rankings compiled by independent
organizations (including, but not limited to, Lipper Analytical Services, Inc.
and Morningstar, Inc.) and publications that monitor the performance of
separate accounts and mutual funds.
Actual returns for Separate Account VA are not available, since the
separate account is new and therefore has no investment history.
4
<PAGE> 41
DISTRIBUTION AND MANAGEMENT SERVICES
Under the terms of a Distribution and Management Agreement between the
Separate Account, the Company and Tower Square Securities, Inc., the Company
provides all sales and administrative services and mortality and expense risk
guarantees related to variable annuity contracts issued by the Company in
connection with the Separate Account and assumes the risk of minimum death
benefits, as applicable. The Company also pays all sales costs (including
costs associated with the preparation of sales literature); all costs of
qualifying the Separate Account and the variable annuity contracts with
regulatory authorities; the costs of proxy solicitation; all custodian,
accountants' and legal fees. The Company also provides without cost to the
Separate Accounts all necessary office space, facilities, and personnel to
manage its affairs.
INDEPENDENT ACCOUNTANTS
The financial statements of the Travelers Life and Annuity
Company as of December 31, 1997 and 1996 and for each of the years in the
three-year period ended December 31, 1997 have been included herein in
reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, and upon the authority of said firm as experts in
accounting and auditing.
5
<PAGE> 42
THE TRAVELERS LIFE AND ANNUITY COMPANY
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholder
The Travelers Life and Annuity Company:
We have audited the accompanying balance sheets of The Travelers Life and
Annuity Company as of December 31, 1997 and 1996, and the related statements of
income and retained earnings and cash flows for each of the years in the
three-year period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Travelers Life and Annuity
Company as of December 31, 1997 and 1996, and the results of its operations and
its cash flows for each of the years in the three-year period ended December 31,
1997, in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
January 26, 1998
F-1
<PAGE> 43
THE TRAVELERS LIFE AND ANNUITY COMPANY
STATEMENTS OF INCOME AND RETAINED EARNINGS
($ in thousands)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
REVENUES
Premiums $ 35,190 $ 17,462 $ 10,691
Net investment income 168,653 151,326 123,197
Realized investment gains (losses) 44,871 (9,613) 18,713
Other 8,163 2,276 1,286
-------- -------- --------
Total Revenues 256,877 161,451 153,887
-------- -------- --------
BENEFITS AND EXPENSES
Current and future insurance benefits 95,639 77,285 73,818
Interest credited to contractholders 35,165 35,607 30,472
Operating expenses, including amortization of deferred acquisition
costs and value of insurance in force 16,498 8,977 6,161
-------- -------- --------
Total Benefits and Expenses 147,302 121,869 110,451
-------- -------- --------
Income before federal income taxes 109,575 39,582 43,436
-------- -------- --------
Federal income taxes:
Current 33,859 29,456 2,555
Deferred expense (benefit) 4,344 (15,665) 11,964
-------- -------- --------
Total Federal Income Taxes 38,203 13,791 14,519
-------- -------- --------
Net income 71,372 25,791 28,917
Retained earnings beginning of year 167,698 157,907 128,990
Dividends to parent 14,000 16,000 -
-------- -------- --------
Retained Earnings End of Year $225,070 $167,698 $157,907
======== ======== ========
</TABLE>
See Notes to Financial Statements.
F-2
<PAGE> 44
THE TRAVELERS LIFE AND ANNUITY COMPANY
BALANCE SHEETS
($ in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996
- ------------ ---- ----
<S> <C> <C>
ASSETS
Fixed maturities, available for sale at fair value (cost, $1,571,121; $1,440,806) $1,678,120 $1,484,670
Equity securities, at fair value (cost, $15,092; $12,396) 16,289 15,902
Mortgage loans 160,247 128,440
Real estate held for sale - 10,111
Policy loans 2,894 1,750
Short-term securities 169,229 81,162
Other invested assets 118,348 88,641
---------- ----------
Total Investments $2,145,127 $1,810,676
---------- ----------
Separate accounts 812,059 290,940
Deferred acquisition costs and value of insurance in force 90,966 40,027
Deferred federal income taxes 33,661 57,617
Other assets 73,414 55,023
---------- ----------
Total Assets $3,155,227 $2,254,283
---------- ----------
LIABILITIES
Future policy benefits $971,602 $967,621
Contractholder funds 818,971 582,183
Separate accounts 812,059 290,716
Other liabilities 86,934 41,895
---------- ----------
Total Liabilities $2,689,566 $1,882,415
---------- ----------
SHAREHOLDER'S EQUITY
Common stock, par value $100; 100,000 shares authorized, 30,000 issued and outstanding 3,000 3,000
Additional paid-in capital 167,314 167,314
Retained earnings 225,070 167,698
Unrealized investment gains, net of taxes 70,277 33,856
---------- ----------
Total Shareholder's Equity 465,661 371,868
---------- ----------
Total Liabilities and Shareholder's Equity $3,155,227 $2,254,283
========== ==========
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE> 45
THE TRAVELERS LIFE AND ANNUITY COMPANY
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
($ in thousands)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997 1996 1995
- ------------------------------- ---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Premiums collected $ 34,553 $ 6,472 $ 1,950
Net investment income received 170,460 71,083 66,219
Benefits and claims paid (90,820) (70,331) (71,710)
Interest credited to contractholders (35,165) (813) -
Operating expenses paid (40,868) (5,482) (3,013)
Income taxes paid (22,440) (23,931) (35,305)
Other (7,702) (6,857) (6,772)
---------- --------- ---------
Net Cash Provided by (Used in) Operating Activities 8,018 (29,859) (48,631)
---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments
Fixed maturities 81,899 20,301 11,752
Mortgage loans 8,972 37,789 24,137
Proceeds from sales of investments
Fixed maturities 856,846 978,970 459,971
Equity securities 12,404 12,818 11,823
Mortgage loans 5,483 22,437 7,013
Real estate held for sale 4,493 - -
Purchases of investments
Fixed maturities (1,020,803) (994,443) (515,098)
Equity securities (6,382) (5,412) (156)
Mortgage loans (41,967) (21,450) (4,890)
Policy loans (1,144) (1,750) -
Short-term securities, purchases, net (88,067) (19,688) (5,051)
Other investments, (purchases) sales, net (51,502) (6,160) 9,274
Securities transactions in course of settlement 10,526 (51,703) 45,727
---------- --------- ---------
Net Cash Provided by (Used in) Investing Activities (229,242) (28,291) 44,502
---------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Contractholder fund deposits 325,932 96,490 5,707
Contractholder fund withdrawals (89,145) (22,340) (1,874)
Dividends to parent company (14,000) (16,000) -
---------- --------- ---------
Net Cash Provided by Financing Activities $ 222,787 $ 58,150 $ 3,833
---------- --------- ---------
Net increase (decrease) in cash $ 1,563 $ - $ (296)
---------- --------- ---------
Cash at December 31, $ 1,563 $ - $ -
========== ========= =========
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE> 46
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies used in the preparation of the accompanying
financial statements follow.
Basis of Presentation
The Travelers Life and Annuity Company (the Company) is a wholly owned
subsidiary of The Travelers Insurance Company (TIC), an indirect wholly
owned subsidiary of Travelers Group Inc. (Travelers Group). The financial
statements and accompanying footnotes of the Company are prepared in
conformity with generally accepted accounting principles. The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and benefits and expenses during the
reporting period. Actual results could differ from those estimates.
The accompanying financial statements reflect a change in presentation of
the assets, liabilities and operations of the structured settlement
separate account business of the Company. The assets and liabilities were
previously reported in separate account line items and are now incorporated
in various financial statement classifications. As a result of this change,
invested assets in the amount of $814.5 million and $863.6 million at
December 31, 1997 and 1996, respectively, associated with structured
settlement contract obligations, are reported as investments. The related
structured settlement contract obligations, which were $842.3 million and
$809.1 million at December 31, 1997 and 1996, respectively, are included in
future policy benefits and contractholder funds. Additionally, structured
settlement transactions included in the income statement for the years
ended December 31, 1997, 1996 and 1995 are premiums of $23.2 million, $8.1
million and $8.0 million, respectively, net investment income of $65.9
million, $62.3 million and $60.0 million, respectively, and benefits and
expenses of $66.5 million, $56.4 million and $51.8 million, respectively.
The 1996 and 1995 amounts were previously reported as a net $13.9 million
and $16.2 million, respectively, included in other revenue.
This change in presentation has no effect on net income, total assets,
total liabilities, or shareholder's equity as reflected in the statements
of income and retained earnings, and balance sheets for the periods
presented.
The Company has determined that a change in presentation was warranted
because of the nature of this particular separate account and the change in
product focus of the Company. The assets of the structured settlement
separate account are owned by, and investment risk is borne by, the
Company, which also guarantees the obligations of this separate account.
Consequently, the Company, not the contractholder, bears the risks of this
separate account.
The Company is now offering a variety of variable annuity products where
the investment risk is borne by the contractholder, not the Company, and
the benefits are not guaranteed. The premiums and deposits related to these
products are reported in separate accounts. The Company considers it
necessary to differentiate, for financial statement purposes, the results
of the risks it has assumed from those it has not. See also Note 6.
Certain reclassifications have been made to the prior year's financial
statements to conform to the current year's presentation.
F-5
<PAGE> 47
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Accounting Changes
EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS
In February, 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits" (FAS 132).
FAS 132 supersedes the disclosure requirements in FASB Statements No. 87,
"Employers' Accounting for Pensions," No. 88, "Employers' Accounting for
Settlements and Curtailments of Defined Benefits Pension Plans and
Termination of Benefits," and No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." FAS 132 addresses disclosure
only and does not address measurement or recognition. In addition to other
disclosure changes, FAS 132 allows employers to disclose total
contributions to multi-employer plans without disaggregating the amounts
attributable to pensions and other postretirement benefits. This statement
is effective for fiscal years beginning after December 15, 1997. Earlier
application is encouraged. Effective December 31, 1997, the Company adopted
FAS 132. The adoption of this standard did not have any impact on results
of operations, financial condition or liquidity.
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES
Effective January 1, 1997, the Company adopted Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" (FAS 125). FAS 125
establishes accounting and reporting standards for transfers and servicing
of financial assets and extinguishments of liabilities. These standards are
based on an approach that focuses on control. Under this approach, after a
transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred,
derecognizes financial assets when control has been surrendered, and
derecognizes liabilities when extinguished. FAS 125 provides standards for
distinguishing transfers of financial assets that are sales from transfers
that are secured borrowings. The requirements of FAS 125 are effective for
transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996, and are to be applied
prospectively. However, in December 1996 the FASB issued Statement of
Financial Accounting Standards No. 127, "Deferral of the Effective Date of
Certain Provisions of FASB Statement No. 125," which delays until January
1, 1998 the effective date for certain provisions. Application of FAS 125
prior to the effective date or retroactively is not permitted. The adoption
of the provisions of FAS 125 effective January 1, 1997 did not have a
material impact on results of operations, financial condition or liquidity.
The adoption of the provisions of FAS 127 effective January, 1998 will not
have a material impact on the results of operations, financial condition or
liquidity of the Company.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." This statement
establishes accounting standards for the impairment of long-lived assets
and certain identifiable intangibles to be disposed. This statement
requires a write down to fair value when long-lived assets to be held and
used are impaired. The statement also requires long-lived assets to be
disposed (e.g., real estate held for sale) be carried at the lower of cost
or fair value less cost to sell, and does not allow such assets to be
depreciated. The adoption of this standard did not have a material impact
on the Company's financial condition, results of operations or liquidity.
F-6
<PAGE> 48
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Accounting for Stock-Based Compensation
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (FAS 123).
This statement establishes financial accounting and reporting standards for
stock-based employee compensation plans as well as transactions in which an
entity issues its equity instruments to acquire goods or services from
non-employees. This statement defines a fair value-based method of
accounting for employee stock options or similar equity instruments, and
encourages all entities to adopt this method of accounting for all employee
stock compensation plans. However, it also allows an entity to continue to
measure compensation cost for those plans using the intrinsic value-based
method of accounting prescribed by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25). Entities electing
to remain with the accounting method prescribed in APB 25 must make
pro-forma disclosures of net income and earnings per share, as if the fair
value-based method of accounting defined by FAS 123 had been applied. FAS
123 is applicable to fiscal years beginning after December 15, 1995. The
Company has elected to continue to account for its stock-based employee
compensation plans using the accounting method prescribed by APB 25 and,
had the Company applied FAS 123 in accounting for stock options, net income
would have been reduced by an insignificant amount in 1997, 1996 and 1995.
The Company has adopted FAS 123 for its stock-based non-employee
compensation plans.
Accounting Policies
INVESTMENTS
Fixed maturities include bonds, notes and redeemable preferred stocks. Fair
values of investments in fixed maturities are based on quoted market prices
or dealer quotes or, if these are not available, discounted expected cash
flows using market rates commensurate with the credit quality and maturity
of the investment. Fixed maturities are classified as "available for sale"
and are reported at fair value, with unrealized investment gains and
losses, net of income taxes, charged or credited directly to shareholder's
equity.
Equity securities, which include common and non-redeemable preferred
stocks, are classified as "available for sale" and are carried at fair
value based primarily on quoted market prices. Changes in fair values of
equity securities are charged or credited directly to shareholder's equity,
net of income taxes.
Mortgage loans are carried at amortized cost. A mortgage loan is considered
impaired when it is probable that the Company will be unable to collect
principal and interest amounts due. For mortgage loans that are determined
to be impaired, a reserve is established for the difference between the
amortized cost and fair market value of the underlying collateral. In
estimating fair value, the Company uses interest rates reflecting the
higher returns required in the current real estate financing market.
Impaired loans were insignificant at December 31, 1997 and 1996.
Real estate held for sale is carried at the lower of cost or fair value
less estimated cost to sell. Fair value of foreclosed properties is
established at the time of foreclosure by internal analysis or external
appraisers, using discounted cash flow analyses and other accepted
techniques. Thereafter, an allowance for losses on real estate held for
sale is established if the carrying value of the property exceeds its
current fair value less estimated costs to sell. There was no such
allowance at December 31, 1996.
Short-term securities, consisting primarily of money market instruments and
other debt issues purchased with a maturity of less than one year, are
carried at amortized cost which approximates market.
F-7
<PAGE> 49
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Accrual of income, included in other assets, is suspended on fixed
maturities or mortgage loans that are in default, or on which it is likely
that future payments will not be made as scheduled. Interest income on
investments in default is recognized only as payment is received.
Included in investments are invested assets associated with Structured
Settlement Guaranteed Separate Accounts where the investment risk is borne
by the Company. See Note 6.
INVESTMENT GAINS AND LOSSES
Realized investment gains and losses are included as a component of pre-tax
revenues based upon specific identification of the investments sold on the
trade date. Also included are gains and losses arising from the
remeasurement of the local currency value of foreign investments to U.S.
dollars, the functional currency of the Company.
POLICY LOANS
Policy loans are carried at the amount of the unpaid balances that are not
in excess of the net cash surrender values of the related insurance
policies. The carrying value of policy loans, which have no defined
maturities, is considered to be fair value.
SEPARATE ACCOUNTS
The Company has separate account assets and liabilities representing funds
for which investment income and investment gains and losses accrue directly
to, and investment risk is borne by, the contractholders. Each of these
accounts have specific investment objectives. The assets and liabilities of
these accounts are carried at fair value, and amounts assessed to the
contractholders for management services are included in 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.
The Company also has a separate account for structured settlement annuity
obligations where the investment risk is borne by the Company. The assets
and liabilities of this separate account are included in investments,
future policy benefits and contractholder funds for financial reporting
purposes. See Note 6.
DEFERRED ACQUISITION COSTS AND VALUE OF INSURANCE IN FORCE
Costs of acquiring individual life insurance and annuity business,
principally commissions and certain expenses related to policy issuance,
underwriting and marketing, all of which vary with and are primarily
related to the production of new business, are deferred. Acquisition costs
relating to traditional life insurance are amortized in relation to
anticipated premiums; universal life in relation to estimated gross
profits; and annuity contracts employing a level yield method. A 10- to
25-year amortization period is used for life insurance, and a 10- to
20-year period is employed for annuities. Deferred acquisition costs are
reviewed periodically for recoverability to determine if any adjustment is
required. Adjustments, if any are charged to income.
F-8
<PAGE> 50
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
The value of insurance in force represents the actuarially determined
present value of anticipated profits to be realized from annuities
contracts at the date of acquisition using the same assumptions that were
used for computing related liabilities where appropriate. The value of
insurance in force was the actuarially determined present value of the
projected future profits discounted at an interest rate of 16% for the
business acquired. The value of the business in force is amortized using
current interest crediting rates to accrete interest and amortized
employing a level yield method. The value of insurance in force is reviewed
periodically for recoverability to determine if any adjustment is required.
Adjustments, if any, are charged to income.
FUTURE POLICY BENEFITS
Benefit reserves represent liabilities for future insurance policy
benefits. Benefit reserves for life insurance and annuity policies have
been computed based upon mortality, morbidity, persistency and interest
assumptions applicable to these coverages, which range from 3.0% to 7.5%,
including a provision for adverse deviation. These assumptions consider
Company experience and industry standards. The assumptions vary by plan,
age at issue, year of issue and duration.
CONTRACTHOLDER FUNDS
Contractholder funds represent receipts from the issuance of universal
life, certain individual annuity contracts, and structured settlement
contracts. Contractholder fund balances are increased by such receipts and
credited interest and reduced by withdrawals, mortality charges and
administrative expenses charged to the contractholders. Interest rates
credited to contractholder funds range from 3.9% to 7.2%.
PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company, domiciled in the State of Connecticut, prepares statutory
financial statements in accordance with the accounting practices prescribed
or permitted by the State of Connecticut Insurance Department. Prescribed
statutory accounting practices include certain publications of the National
Association of Insurance Commissioners as well as state laws, regulations,
and general administrative rules. Permitted statutory accounting practices
encompass all accounting practices not so prescribed. The impact of any
permitted accounting practices on the statutory surplus of the Company is
not material.
PREMIUMS
Premiums are recognized as revenues when due. Reserves are established for
the portion of premiums that will be earned in future periods.
OTHER REVENUES
Other revenues include surrender, mortality and administrative charges, and
fees earned on investment and other insurance contracts.
FEDERAL INCOME TAXES
The provision for federal income taxes is comprised of two components,
current income taxes and deferred income taxes. Deferred federal income
taxes arise from changes during the year in cumulative temporary
differences between the tax basis and book basis of assets and liabilities.
The deferred federal income tax asset is recognized to the extent that
future realization of the tax benefit is more likely than not, with a
valuation allowance for the portion that is not likely to be recognized.
F-9
<PAGE> 51
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Future Application of Accounting Standards
In December 1997, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of
Position 97-3, "Accounting by Insurance and Other Enterprises for
Insurance-Related Assessments" (SOP 97-3). SOP 97-3 provides guidance for
determining when an entity should recognize a liability for guaranty-fund
and other insurance-related assessments, how to measure that liability, and
when an asset may be recognized for the recovery of such assessments
through premium tax offsets or policy surcharges. This SOP is effective for
financial statements for fiscal years beginning after December 15, 1998,
and the effect of initial adoption is to be reported as a cumulative
catch-up adjustment. Restatement of previously issued financial statements
is not allowed. The Company has not yet determined when it will implement
this SOP and does not anticipate any material impact on the Company's
financial condition, results of operations or liquidity.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" (FAS 130). FAS 130 establishes
standards for the reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. All items
that are required to be recognized under accounting standards as components
of comprehensive income are to be reported in a financial statement that is
displayed with the same prominence as other financial statements. FAS 130
stipulates that comprehensive income reflect the change in equity of an
enterprise during a period from transactions and other events and
circumstances from non-owner sources. Comprehensive income will thus
represent the sum of net income and other comprehensive income, although
FAS 130 does not require the use of the terms comprehensive income or other
comprehensive income. The accumulated balance of other comprehensive income
shall be displayed separately from retained earnings and additional paid-in
capital in the statement of financial position. FAS 130 is effective for
fiscal years beginning after December 15, 1997. The Company anticipates
that the adoption of FAS 130 will result primarily in reporting unrealized
gains and losses on investments in debt and equity securities in
comprehensive income.
In June 1997, the FASB also issued Statement of Financial Accounting
Standards No. 131, "Disclosures About Segments of an Enterprise and Related
Information" (FAS 131). FAS 131 establishes standards for the way that
public enterprises report information about operating segments in annual
financial statements and requires that selected information about those
operating segments be reported in interim financial statements. FAS 131
supersedes Statement of Financial Accounting Standards No. 14, "Financial
Reporting for Segments of a Business Enterprise" (FAS 14). FAS 131 requires
that all public enterprises report financial and descriptive information
about its reportable operating segments. Operating segments are defined as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decisionmaker
in deciding how to allocate resources and in assessing performance. FAS 131
is effective for fiscal years beginning after December 15, 1997. The
Company's reportable operating segment will not change as a result of the
adoption of FAS 131.
F-10
<PAGE> 52
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
2. REINSURANCE
The Company participates in reinsurance in order to limit losses, minimize
exposure to large risks, provide capacity for future growth and to effect
business-sharing arrangements. The Company remains primarily liable as the
direct insurer on all risks reinsured.
Life insurance in force ceded to TIC at December 31, 1997 and 1996 was
$76.4 million and $90.7 million, respectively. Life insurance in force
ceded to non-affiliates at December 31, 1997 and 1996, was $4.5 billion and
$2.2 billion, respectively.
3. SHAREHOLDER'S EQUITY
Unrealized Investment Gains (Losses)
See Note 11 for an analysis of the change in unrealized gains and losses on
investments.
Shareholder's Equity and Dividend Availability
The Company's statutory net income was $80.3 million, $17.9 million and
$23.0 million for the years ended December 31, 1997, 1996 and 1995,
respectively.
Statutory capital and surplus was $328.2 million and $254.1 million at
December 31, 1997 and 1996, respectively.
The Company is currently subject to various regulatory restrictions that
limit the maximum amount of dividends available to be paid to its parent
without prior approval of insurance regulatory authorities. Statutory
surplus of $63.6 million is available in 1998 for dividend payments by the
Company without prior approval of the Connecticut Insurance Department.
4. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Derivative Financial Instruments
The Company uses derivative financial instruments, including financial
futures, equity options, forward contracts and interest rate swaps as a
means of hedging exposure to foreign currency, equity price changes and/or
interest rate risk on anticipated transactions or existing assets and
liabilities. The Company does not hold or issue derivative instruments for
trading purposes.
These derivative financial instruments have off-balance sheet risk.
Financial instruments with off-balance sheet risk involve, to varying
degrees, elements of credit and market risk in excess of the amount
recognized in the balance sheet. The contract or notional amounts of these
instruments reflect the extent of involvement the Company has in a
particular class of financial instrument. However, the maximum loss of cash
flow associated with these instruments can be less than these amounts. For
forward contracts and interest rate swaps, credit risk is limited to the
amounts calculated to be due the Company on such contracts. Financial
futures contracts and purchased listed option contracts have little credit
risk since organized exchanges are the counterparties.
F-11
<PAGE> 53
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
The Company monitors creditworthiness of counterparties to these financial
instruments by using criteria of acceptable risk that are consistent with
on-balance sheet financial instruments. The controls include credit
approvals, limits and other monitoring procedures.
The Company uses exchange traded financial futures contracts to manage its
exposure to changes in interest rates which arise from the sale of certain
insurance and investment products, or the need to reinvest proceeds from
the sale or maturity of investments. To hedge against adverse changes in
interest rates, the Company enters long or short positions in financial
futures contracts to offset asset price changes resulting from changes in
market interest rates until an investment is purchased or a product is
sold.
Margin payments are required to enter a futures contract and contract gains
or losses are settled daily in cash. The contract amount of futures
contracts represents the extent of the Company's involvement, but not
future cash requirements, as open positions are typically closed out prior
to the delivery date of the contract.
At December 31, 1997 and 1996, the Company held financial futures contracts
with notional amounts of $156.3 million and $20.3 million, respectively. At
December 31, 1997 and 1996, the Company's futures contracts had no fair
value because these contracts are marked to market and settled in cash
daily.
The off-balance sheet risks of equity options, forward contracts, and
interest rate swaps were not significant at December 31, 1997 and 1996.
Financial Instruments with Off-Balance Sheet Risk
In the normal course of business, the Company issues fixed and variable
rate loan commitments and has unfunded commitments to partnerships. The
off-balance sheet risk of these financial instruments was not significant
at December 31, 1997 and 1996.
Fair Value of Certain Financial Instruments
The Company uses various financial instruments in the normal course of its
business. Fair values of financial instruments that are considered
insurance contracts are not required to be disclosed and are not included
in the amounts discussed.
At December 31, 1997, investments in fixed maturities had a carrying value
and a fair value of $1.7 billion, compared with a carrying value and a fair
value of $1.5 billion at December 31, 1996. See Notes 1 and 11.
At December 31, 1997 and 1996, mortgage loans had a carrying value of
$160.2 million and $128.4 million, respectively, which approximates fair
value. In estimating fair value, the Company used interest rates reflecting
the higher returns required in the current real estate financing market.
The carrying values of $33.8 million and $22.7 million of financial
instruments classified as other assets approximated their fair values at
December 31, 1997 and 1996, respectively. The carrying values of $72.7
million and $38.5 million of financial instruments classified as other
liabilities also approximated their fair values at December 31, 1997 and
1996, respectively. Fair value is determined using various methods,
including discounted cash flows, as appropriate for the various financial
instruments.
F-12
<PAGE> 54
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
At December 31, 1997, contractholder funds with defined maturities had a
carrying value of $694.9 million and a fair value of $695.9 million,
compared with a carrying value of $546.5 million and a fair value of $545.2
million at December 31, 1996. The fair value of these contracts is
determined by discounting expected cash flows at an interest rate
commensurate with the Company's credit risk and the expected timing of cash
flows. Contractholder funds without defined maturities had a carrying value
of $98.5 million and a fair value of $93.9 million at December 31, 1997,
compared with a carrying value of $26.9 million and a fair value of $25.6
million at December 31, 1996. These contracts generally are valued at
surrender value.
The carrying values of short-term securities and policy loans approximated
their fair values.
5. COMMITMENTS AND CONTINGENCIES
Financial Instruments with Off-Balance Sheet Risk
The Company has, in the normal course of business, provided fixed rate loan
commitments and commitments to partnerships.
The off-balance sheet risks of fixed rate loan commitments, commitments to
partnerships and forward contracts were not significant at December 31,
1997 and 1996.
Litigation
The Company is a defendant in various litigation matters in the normal
course of business. Although there can be no assurances, as of December 31,
1997, 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.
6. STRUCTURED SETTLEMENT CONTRACTS
The Company has structured settlement contracts that provide guarantees for
the contractholders independent of the investment performance of the assets
held in the related separate account. The assets held in the separate
account are owned by the Company and contractholders do not share in their
investment performance.
The Company maintains assets sufficient to fund the guaranteed benefits
attributable to the liabilities. Assets held in the separate account cannot
be used to satisfy any other obligations of the Company.
The Company reports the related assets and liabilities in investments,
future policy benefit reserves and contractholder funds.
F-13
<PAGE> 55
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
7. BENEFIT PLANS
Pension and Other Postretirement Benefits
The Company participates in a qualified, noncontributory defined benefit
pension plan sponsored by an affiliate. In addition, the Company provides
certain other postretirement benefits to retired employees through a plan
sponsored by an affiliate. The Company's share of net expense for the
qualified pension and other postretirement benefit plans was not
significant for 1997, 1996 and 1995. Beginning January 1, 1996, the
Company's other postretirement benefit plans were amended to restrict
benefit eligibility to retirees and certain retiree-eligible employees.
Previously, covered employees could become eligible for postretirement
benefits if they reached retirement age while working for the Company.
401(k) Savings Plan
Substantially all of the Company's employees are eligible to participate in
a 401(k) savings plan sponsored by Travelers Group. Prior to January 1,
1996, the Company made matching contributions to the 401(k) savings plan on
behalf of participants in the amount of 50% of the first 5% of pre-tax
contributions made by the employee, plus an additional variable matching
contribution based on the profitability of The Travelers Insurance Group
Inc. (TIGI) and its subsidiaries. During 1996, the Company made matching
contributions in an amount equal to the lesser of 100% of the pre-tax
contributions made by the employee or $1,000. Effective January 1, 1997,
the Company discontinued matching contributions for the majority of its
employees. The Company's expenses in connection with the 401(k) savings
plan were not significant in 1997, 1996 and 1995.
8. RELATED PARTY TRANSACTIONS
The principal banking functions, including payment of salaries and
expenses, for certain subsidiaries and affiliates of TIGI, including the
Company, are handled by two companies. TIC handles banking functions for
the life and annuity operations of Travelers Life and Annuity and some of
its non-insurance affiliates. The Travelers Indemnity Company handles
banking functions for the property-casualty operations, including most of
its property-casualty insurance and non-insurance affiliates. Settlements
between companies are made at least monthly. TIC provides various employee
benefit coverages to certain subsidiaries of TIGI. The premiums for these
coverages were charged in accordance with cost allocation procedures based
upon salaries or census. In addition, investment advisory and management
services, data processing services and claims processing services are
provided by affiliated companies. Charges for these services are shared by
the companies on cost allocation methods based generally on estimated usage
by department.
TIC maintains a short-term investment pool in which the Company
participates. The position of each company participating in the pool is
calculated and adjusted daily. At December 31, 1997 and 1996, the pool
totaled approximately $2.6 billion and $2.9 billion, respectively. The
Company's share of the pool amounted to $145.5 million and $68.2 million at
December 31, 1997 and 1996, respectively, and is included in short-term
securities in the balance sheet.
The Company's TTM Modified Guaranteed Annuity Contracts are subject to a
limited guarantee agreement by TIC in a principal amount of up to $400
million. TIC's obligation is to pay in full to any owner or beneficiary of
the TTM Modified Guaranteed Annuity Contracts principal and interest as and
when due under the annuity contract to the extent that the Company fails to
make such payment. In addition, TIC guarantees that the Company will
maintain a minimum statutory capital and surplus level.
F-14
<PAGE> 56
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
The Company sells structured settlement annuities to an affiliate, The
Travelers Indemnity Company. Premiums and deposits were $70.6 million,
$36.9 million and $36.6 million for 1997, 1996 and 1995, respectively.
The Company began marketing variable annuity products through its
affiliate, Salomon Smith Barney, in 1995. Premiums and deposits
related to these products were $615.6 million, $300.0 million and $20.5
million in 1997, 1996 and 1995, respectively.
The Company participates in a stock option plan sponsored by Travelers
Group that provides for the granting of stock options in Travelers Group
common stock to officers and key employees. To further encourage employee
stock ownership, during 1997 Travelers Group introduced the WealthBuilder
stock option program. Under this program, all employees meeting certain
requirements have been granted Travelers Group stock options.
Most leasing functions for TIGI and its subsidiaries are handled by TAP.
Rent expense related to these leases are shared by the companies on a cost
allocation method based generally on estimated usage by department. The
Company's rent expense was insignificant in 1997, 1996 and 1995.
At December 31, 1997 and 1996, the Company had investments in Tribeca
Investments LLC in the amounts of $16.5 million and $7.8 million, included
in other invested assets.
9. FEDERAL INCOME TAXES
($ in thousands)
<TABLE>
<CAPTION>
EFFECTIVE TAX RATE
FOR THE YEAR ENDED DECEMBER 31, 1997 1996 1995
------------------------------- ---- ---- ----
<S> <C> <C> <C>
Income Before Federal Income Taxes $109,575 $39,582 $43,436
Statutory Tax Rate 35% 35% 35%
-------- ------- -------
Expected Federal Income Taxes 38,351 13,854 15,203
Tax Effect of:
Non-taxable investment income (24) (15) (13)
Other, net (124) (48) (671)
-------- ------- -------
Federal Income Taxes 38,203 $13,791 $14,519
======== ======= =======
Effective Tax Rate 35% 35% 33%
-------- ------- -------
COMPOSITION OF FEDERAL INCOME TAXES
Current:
United States 33,805 $29,435 $2,555
Foreign 54 21 -
-------- ------- -------
Total 33,859 29,456 2,555
-------- ------- -------
Deferred:
United States 4,344 (15,665) 11,964
-------- ------- -------
Total Net Earned Premiums $38,203 $13,791 $14,519
======== ======= =======
</TABLE>
F-15
<PAGE> 57
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
The net deferred tax assets at December 31, 1997 and 1996 were comprised of
the tax effects of temporary differences related to the following assets
and liabilities:
<TABLE>
<CAPTION>
($ in thousands) 1997 1996
---- ----
<S> <C> <C>
Deferred Tax Assets:
Benefit, reinsurance and other reserves $100,969 $79,484
Other 2,571 3,043
-------- -------
Total 103,540 82,527
-------- -------
Deferred Tax Liabilities:
Investments, net 42,933 12,113
Deferred acquisition costs and value of insurance in force 23,650 10,066
Other 1,226 662
------- -------
Total 67,809 22,841
------- -------
Net Deferred Tax Asset Before Valuation Allowance 35,731 59,686
Valuation Allowance for Deferred Tax Assets (2,070) (2,070)
------- -------
Net Deferred Tax Asset After Valuation Allowance $33,661 $57,616
------- -------
</TABLE>
Starting in 1994 and continuing for at least five years, TIC and its life
insurance subsidiaries, including the Company, has filed, and will file, a
consolidated federal income tax return. Federal income taxes are allocated
to each member on a separate return basis adjusted for credits and other
amounts required by the consolidation process. Any resulting liability has
been, and will be, paid currently to TIC. Any credits for losses have been,
and will be, paid by TIC to the extent that such credits are for tax
benefits that have been utilized in the consolidated federal income tax
return.
A net deferred tax asset valuation allowance of $2.1 million has been
established to reduce the 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 if
life/non-life consolidation is elected in 1999, the consolidated federal
income tax return of Travelers Group commencing in 1999, or a change in
circumstances which causes the recognition of the benefits to become more
likely than not. There was no change in the valuation allowance during
1997. The initial recognition of any benefit provided by the reversal of
the valuation allowance will be recognized by reducing goodwill.
In management's judgment, the $33.7 million "net deferred tax asset after
valuation allowance" as of December 31, 1997, is fully recoverable against
expected future years' taxable ordinary income and capital gains. At
December 31, 1997, 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 $2.0 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) would be
approximately $700 thousand.
F-16
<PAGE> 58
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
10. NET INVESTMENT INCOME
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
($ in thousands) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
GROSS INVESTMENT INCOME
Fixed maturities $120,900 $113,296 $105,821
Equity securities 704 554 835
Mortgage loans 14,905 18,278 14,974
Real estate held for sale 1,457 3,480 2,476
Other 32,459 19,854 2,537
-------- -------- --------
170,425 155,462 126,643
-------- -------- --------
Investment expenses 1,772 4,136 3,446
-------- -------- --------
Net investment income $168,653 $151,326 $123,197
-------- -------- --------
</TABLE>
11. INVESTMENTS AND INVESTMENT GAINS (LOSSES)
Realized investment gains (losses) for the periods were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
($ in thousands) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
REALIZED INVESTMENT GAINS (LOSSES)
Fixed maturities $29,236 $(11,491) $(4,240)
Equity securities 8,385 4,613 6,138
Mortgage loans (8) 1,979 725
Real estate held for sale 2,164 (73) (35)
Other 5,094 (4,641) 16,125
------- -------- -------
Total Realized Investment Gains (Losses) $44,871 $(9,613) $18,713
------- -------- -------
</TABLE>
Changes in net unrealized investment gains (losses) that are included as a
separate component of shareholder's equity were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
($ in thousands) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
UNREALIZED INVESTMENT GAINS (LOSSES)
Fixed maturities $34,451 $(23,953) $111,551
Equity securities (2,394) (746) 1,834
Other 23,975 22,431 4,390
------- -------- --------
Total Unrealized Investment Gains (Losses) 56,032 (2,268) 117,775
Related taxes 19,611 (794) 41,221
------- -------- --------
Change in unrealized investment gains (losses) 36,421 (1,474) 76,554
Balance beginning of year 33,856 35,330 (41,224)
------- -------- -------
Balance End of Year $70,277 $33,856 $35,330
------- -------- -------
</TABLE>
F-17
<PAGE> 59
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Fixed Maturities
Proceeds from sales of fixed maturities classified as available for sale
were $856.8 million and $2.1 billion in 1997 and 1996, respectively. Gross
gains of $38.1 million and $8.4 million and gross losses of $8.9 million
and $19.9 million in 1997 and 1996, respectively, were realized on those
sales.
Fair values of investments in fixed maturities are based on quoted market
prices or dealer quotes or, if these are not available, discounted expected
cash flows using market rates commensurate with the credit quality and
maturity of the investment. The fair value of investments for which a
quoted market price or dealer quote are not available amounted to $485.3
million and $360.1 million at December 31, 1997 and 1996, respectively.
The amortized cost and fair values of investments in fixed maturities were
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 GROSS GROSS
($ in thousands) AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
Mortgage-backed securities - CMOs and
pass-through securities $ 144,921 $ 8,254 $ (223) $ 152,952
U.S. Treasury securities and
obligations of U.S. Government and
government agencies and authorities 248,081 34,111 (123) 282,069
Obligations of states and political
subdivisions 14,560 392 (2) 14,950
Debt securities issued by foreign
governments 85,367 6,194 (228) 91,333
All other corporate bonds 1,077,211 59,972 (1,387) 1,135,796
Redeemable preferred stock 981 48 (9) 1,020
---------- -------- ------- ----------
Total Available For Sale $1,571,121 $108,971 $(1,972) $1,678,120
========== ======== ======= ==========
</TABLE>
F-18
<PAGE> 60
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1996 GROSS GROSS
($ in thousands) AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
Mortgage-backed securities - CMOs and
pass-through securities $154,788 $ 3,312 $(901) $157,199
U.S. Treasury securities and obligations of
U.S. Government and government agencies and
authorities 255,858 16,855 (61) 272,652
Obligations of states and political
subdivisions 16,124 263 (189) 16,198
Debt securities issued by foreign
governments 109,120 3,215 (1,447) 110,888
All other corporate bonds 904,831 28,204 (5,387) 927,648
Redeemable preferred stock 85 - - 85
---------- ------- ------- ----------
Total Available For Sale $1,440,806 $51,849 $(7,985) $1,484,670
========== ======= ======= ==========
</TABLE>
The amortized cost and fair value of fixed maturities available for sale at
December 31, 1997, by contractual maturity, are shown below. Actual
maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
($ in thousands) AMORTIZED FAIR
COST VALUE
<S> <C> <C>
MATURITY:
Due in one year or less $ 17,978 $ 18,312
Due after 1 year through 5 years 211,272 216,191
Due after 5 years through 10 years 381,690 401,338
Due after 10 years 815,260 889,327
---------- ----------
1,426,200 1,525,168
---------- ----------
Mortgage-backed securities 144,921 152,952
---------- ----------
Total Maturity $1,571,121 $1,678,120
========== ==========
</TABLE>
The Company makes significant investments in collateralized mortgage
obligations (CMOs). CMOs typically have high credit quality, offer good
liquidity, and provide a significant advantage in yield and total return
compared to U.S. Treasury securities. The Company's investment strategy is
to purchase CMO tranches which are protected against prepayment risk,
including planned amortization class (PAC) tranches. Prepayment protected
tranches are preferred because they provide stable cash flows in a variety
of interest rate scenarios. The Company does invest in other types of CMO
tranches if a careful assessment indicates a favorable risk/return
tradeoff. The Company does not purchase residual interests in CMOs.
F-19
<PAGE> 61
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
At December 31, 1997 and 1996, the Company held CMOs with a market value of
$122.8 million and $126.3 million, respectively. The Company's CMO holdings
were 97.5% and 97.6% collateralized by GNMA, FNMA or FHLMC securities at
December 31, 1997 and 1996, respectively.
Equity Securities
The cost and market values of investments in equity securities were as
follows:
<TABLE>
<CAPTION>
EQUITY SECURITIES: GROSS GROSS
($ in thousands) UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
---- ----- ------ ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Common stocks $ 3,318 $ 583 $ (70) $ 3,831
Non-redeemable preferred stocks 11,774 931 (247) 12,458
------- ------ ----- -------
Total Equity Securities $15,092 $1,514 $(317) $16,289
------- ------ ----- -------
DECEMBER 31, 1996
Common stocks $ 2,722 $3,441 $(163) $ 6,000
Non-redeemable preferred stocks 9,674 323 (95) 9,902
------- ------ ----- -------
Total Equity Securities $12,396 $3,764 $(258) $15,902
------- ------ ------ -------
</TABLE>
Proceeds from sales of equity securities were $12.4 million and $20.3
million in 1997 and 1996, respectively. Gross gains of $8.6 million and
$4.7 million and gross losses of $172 thousand and $155 thousand in 1997
and 1996, respectively, were realized on those sales.
Mortgage Loans and Real Estate Held For Sale
Underperforming assets include delinquent mortgage loans, loans in the
process of foreclosure, foreclosed loans and loans modified at interest
rates below market.
At December 31, 1997 and 1996, the Company's mortgage loan portfolios and
real estate held for sale consisted of the following:
<TABLE>
<CAPTION>
($ in thousands) 1997 1996
---- ----
<S> <C> <C>
Current Mortgage Loans $ 160,247 $128,292
Underperforming Mortgage Loans - 148
--------- --------
Total 160,247 128,440
--------- --------
Real Estate Held For Sale - 10,111
--------- --------
Total $ 160,247 $138,551
--------- --------
</TABLE>
F-20
<PAGE> 62
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Aggregate annual maturities on mortgage loans at December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
($ in thousands)
<S> <C>
Past Maturity $ -
1998 5,108
1999 8,773
2000 8,920
2001 11,352
2002 17,986
Thereafter 108,108
--------
Total $160,247
========
</TABLE>
Joint Venture
In October 1997, TIC and Tishman Speyer Properties (Tishman), a worldwide
real estate owner, developer and manager, formed a joint real estate
venture with an initial equity commitment of $792 million. TIC and certain
of its affiliates committed $420 million in real estate equity and $100
million in cash while Tishman committed $272 million in properties and
cash. Both companies are serving as asset managers for the venture and
Tishman is primarily responsible for the venture's real estate acquisition
and development efforts. The Company's investment in the joint venture
totaled $54.8 million at December 31, 1997.
Concentrations
At December 31, 1997 and 1996, the Company had investments of $50.8 million
and $75.1 million in the State of Israel, respectively. Additionally, in
1996 the Company had $40.6 million in Merrill Lynch Trust Series 45.
The Company participates in a short-term investment pool maintained by an
affiliate. See Note 8.
Included in fixed maturities are below investment grade assets totaling
$76.7 million and $81.7 million at December 31, 1997 and 1996,
respectively. The Company defines its below investment grade assets as
those securities rated "Ba1" or below by external rating agencies, or the
equivalent by internal analysts when a public rating does not exist. Such
assets include publicly traded below investment grade bonds and certain
other privately issued bonds that are classified as below investment grade
bonds.
The Company also had concentrations of investments, primarily fixed
maturities, in the following industries:
<TABLE>
<CAPTION>
($ in thousands) 1997 1996
---- ----
<S> <C> <C>
Transportation $138,903 $ 86,819
Banking 130,966 71,506
Electric utilities 106,724 76,426
------- ------
</TABLE>
Below investment grade assets included in the preceding table were not
significant.
F-21
<PAGE> 63
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Concentrations of mortgage loans by property type at December 31, 1997 and
1996 were as follows:
<TABLE>
<CAPTION>
($ in thousands) 1997 1996
---- ----
<S> <C> <C>
Agricultural $62,463 $49,801
Office 47,453 35,333
Retail 23,214 21,924
------ ------
</TABLE>
The Company monitors creditworthiness of counterparties to all financial
instruments by using controls that include credit approvals, limits and
other monitoring procedures. Collateral for fixed maturities often includes
pledges of assets, including stock and other assets, guarantees and letters
of credit. The Company's underwriting standards with respect to new
mortgage loans generally require loan to value ratios of 75% or less at the
time of mortgage origination.
Non-Income Producing Investments
Investments included in the balance sheets that were non-income producing
for the preceding 12 months were insignificant.
Restructured Investments
The Company had mortgage loan and debt securities which were restructured
at below market terms totaling approximately $1.0 million at December 31,
1996. 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 assets was
insignificant. Interest on these assets, included in net investment income
was insignificant.
12. LIFE AND ANNUITY DEPOSIT FUNDS AND RESERVES
At December 31, 1997, the Company had $1.8 million of life and annuity
deposit funds and reserves. Of that total, $1.5 million were not subject to
discretionary withdrawal based on contract terms. The remaining $.3 million
were life and annuity products that were subject to discretionary
withdrawal by the contractholders. Included in the amount that is subject
to discretionary withdrawal were $.2 million of liabilities that are
surrenderable with market value adjustments. An additional $.1 million of
the life insurance and individual annuity liabilities are subject to
discretionary withdrawals with an average surrender charge of 4.8%. The
life insurance risks would have to be underwritten again if transferred to
another carrier, which is considered a significant deterrent for long-term
policyholders. Insurance liabilities that are surrendered or withdrawn from
the Company are reduced by outstanding policy loans and related accrued
interest prior to payout.
F-22
<PAGE> 64
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
13. RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES
The following table reconciles net income to net cash provided by (used in)
operating activities:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997 1996 1995
---- ---- ----
($ in thousands)
<S> <C> <C> <C>
Net Income From Continuing Operations $71,372 $ 25,791 $ 28,917
Adjustments to reconcile net income to cash provided by
operating activities:
Realized (gains) losses (44,871) 9,613 (18,713)
Deferred federal income taxes 4,344 (15,665) 11,964
Amortization of deferred policy acquisition costs and
value of insurance in force 6,036 3,286 1,563
Additions to deferred policy acquisition costs (56,975) (20,753) (3,109)
Investment income accrued 908 1,308 (819)
Premium balances receivable (3,450) (3,561) (2,277)
Insurance reserves and accrued expenses 3,981 (16,459) (20,081)
Other 26,673 (13,419) (46,076)
------ -------- --------
Net cash provided by (used in) operations $8,018 $(29,859) $(48,631)
------ -------- --------
</TABLE>
14. NON-CASH INVESTING AND FINANCING ACTIVITIES
There were no significant non-cash investing and financing activities for
1997, 1996 and 1995.
F-23
<PAGE> 65
TheTRAVELERS (logo umbrella)
THE TRAVELERS
VARIABLE ANNUITIES
INDIVIDUAL AND GROUP VARIABLE ANNUITY CONTRACTS
Issued By
THE TRAVELERS LIFE AND ANNUITY COMPANY
PENSION AND PROFIT-SHARING,
SECTION 403(b) AND SECTION 408, AND
DEFERRED COMPENSATION PROGRAMS
L-12428S TIC Ed. 5-98
Printed in U.S.A.
<PAGE> 66
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) The financial statements of the Registrant are not provided since the
Registrant had no assets as of the effective date of this amendment to this
Registration Statement.
The financial statements of The Travelers Life and Annuity Company and the
report of Independent Auditors are contained in the Statement of Additional
Information. The financial statements of The Travelers Life and Annuity
Company include:
Statements of Income and Retained Earnings for the years ended December
31, 1997, 1996 and 1995
Balance Sheets as of December 31, 1997 and 1996
Statements of Cash Flows for the years ended December 31, 1997, 1996
and 1995
Notes to Financial Statements
(b) Exhibits
1. Resolution of The Travelers Life and Annuity Company Board of
Directors authorizing the establishment of the Registrant.
(Incorporated herein by reference to Exhibit 1 to Post-Effective
Amendment No. 2 to the Registration Statement on Form N-4 filed April
30, 1996.)
2. Not Applicable.
3(a). Distribution and Management Agreement among the Registrant, The
Travelers Life and Annuity Company and Travelers Equities Sales, Inc.
(Incorporated herein by reference to Exhibit 3(a) to Post-Effective
Amendment No. 1 to the Registration Statement on Form N-4, filed
April 27, 1995.)
3(b). Specimen copies of Dealer Agreements between principal underwriter
and dealer. (Incorporated herein by reference to Exhibit 3(b) to
Post-Effective Amendment No. 2 to the Registration Statement on Form
N-4 filed April 30, 1996.)
4. Form of Variable Annuity Contract. (Incorporated herein by reference
to Exhibit No. 4 to Post-Effective Amendment No. 3 to the
Registration Statement on Form N-4, filed April 30, 1997.)
5. Form of Application. (Incorporated herein by reference to Exhibit No.
5 to Post Effective Amendment No. 3 to the Registration Statement on
Form N-4, filed April 30, 1997.)
6(a). Charter of The Travelers Life and Annuity Company, as amended on
April 10, 1990. (Incorporated herein by reference to Exhibit 6(a) to
the Registration Statement on Form N-4, File No. 33-58131, filed via
Edgar on March 17, 1995.)
6(b). By-Laws of The Travelers Life and Annuity Company, as amended on
October 20, 1994. (Incorporated herein by reference to Exhibit 6(b)
to the Registration Statement on Form N-4, File No. 33-58131, filed
via EDGAR on March 17, 1995.)
9. Opinion of Counsel as to the legality of securities being registered.
(Incorporated herein by reference to Exhibit 9 to Post-Effective
Amendment No. 3 to the Registration Statement on Form N-4 filed April
30, 1997.)
<PAGE> 67
10(a). Consent of KPMG Peat Marwick LLP, Independent Certified Public
Accountants.
13. Schedule for computation for each performance quotation -
Standardized and Non-Standardized. (Incorporated herein by reference
to Exhibit No. 13 to Post-Effective Amendment No. 3 to the
Registration Statement on Form N-4, filed April 30, 1997.)
15(a). Powers of Attorney authorizing Ernest J. Wright or Kathleen A. McGah
as signatory for Michael A. Carpenter, Jay S. Benet, George C.
Kokulis, Ian R. Stuart and Katherine M. Sullivan. (Incorporated
herein by reference to Exhibit 15(a) to Post-Effective Amendment No.
3 to the Registration Statement on N-4, filed April 30, 1997.)
15(b). Powers of Attorney authorizing Jay S. Fishman or Ernest J. Wright as
signatory for Robert I. Lipp, Charles O. Prince, III, Marc P. Weill,
Irwin R. Ettinger, Michael A. Carpenter and Donald T. DeCarlo.
(Incorporated herein by reference to Exhibit 15(b) to Post-Effective
Amendment No. 1 to the Registration Statement on Form
N-4, filed April 27, 1995.)
Item 25. Directors and Officers of the Depositor
<TABLE>
<CAPTION>
Name and Principal Positions and Offices
Business Address with Depositor
- ---------------- --------------
<S> <C>
Michael A. Carpenter* Director, Chairman of the Board,
President and Chief Executive Officer
Jay S. Benet* Director and Senior Vice President
George C. Kokulis* Director and Senior Vice President
Robert I. Lipp* Director
Ian R. Stuart* Director, Senior Vice President,
Chief Financial Officer, Chief
Accounting Officer and Controller
Katherine M. Sullivan* Director and Senior Vice President
and General Counsel
Marc P. Weill** Director and Senior Vice President
Stuart Baritz** Senior Vice President
Elizabeth C. Georgakopoulos* Senior Vice President
Barry Jacobson* Senior Vice President
Russell H. Johnson* Senior Vice President
Warren H. May* Senior Vice President
Christine M. Modie* Senior Vice President
David A. Tyson* Senior Vice President
F. Denney Voss* Senior Vice President
Paula Burton* Vice President
Virginia M. Meany* Vice President
Selig Ehrlich* Vice President and Actuary
Donald R. Munson, Jr.* Second Vice President
Ernest J. Wright* Vice President and Secretary
Kathleen A. McGah* Assistant Secretary and Counsel
</TABLE>
<TABLE>
<S> <C>
Principal Business Address:
* The Travelers Life and Annuity Company ** Travelers Group Inc.
One Tower Square 388 Greenwich Street
Hartford, Connecticut 06183 New York, New York 10013
</TABLE>
<PAGE> 68
Item 26. Persons Controlled by or Under Common Control with the Depositor or
Registrant
Incorporated by reference to Item 26 to Post-Effective Amendment No. 3 to the
Registration Statement on Form N-4, File No. 33-58151, filed April 10, 1998.
Item 27. Number of Contract Owners
As of March 1, 1998, there were no contract owners of variable annuity contracts
funded through the Registrant.
Item 28. Indemnification
Section 33-770 of the Connecticut General Statutes ("C.G.S.") regarding
indemnification of directors and officers of Connecticut corporations provides
in general that Connecticut corporations shall indemnify their officers,
directors and certain other defined individuals against judgments, fines,
penalties, amounts paid in settlement and reasonable expenses actually incurred
in connection with proceedings against the corporation. The corporation's
obligation to provide such indemnification generally does not apply unless (1)
the individual is 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 33-770 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. also provides liability insurance for its directors and
officers and the directors and officers of its subsidiaries, including the
Depositor. This insurance provides for coverage against loss from claims made
against directors and officers in their capacity as such, including, subject to
certain exceptions, liabilities under the Federal securities laws.
Rule 484 Undertaking
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liability (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE> 69
Item 29. Principal Underwriter
(a) Tower Square Securities, Inc.
One Tower Square
Hartford, Connecticut 06183
Tower Square Securities, Inc. also serves as principal underwriter for the
following :
The Travelers Growth and Income Stock Account for Variable Annuities
The Travelers Quality Bond Account for Variable Annuities
The Travelers Money Market Account for Variable Annuities
The Travelers Timed Growth and Income Stock Account for Variable Annuities
The Travelers Timed Short-Term Bond Account for Variable Annuities
The Travelers Timed Aggressive Stock Account for Variable Annuities
The Travelers Timed Bond Account for Variable Annuities
The Travelers Fund U for Variable Annuities
The Travelers Fund BD for Variable Annuities
The Travelers Fund BD II for Variable Annuities
The Travelers Fund BD III for Variable Annuities
The Travelers Fund BD IV for Variable Annuities
The Travelers Fund ABD for Variable Annuities
The Travelers Fund ABD II for Variable Annuities
The Travelers Fund UL for Variable Life Insurance
The Travelers Fund UL II for Variable Life Insurance
The Travelers Variable Life Insurance Separate Account One
The Travelers Variable Life Insurance Separate Account Three
The Travelers Variable Life Insurance Separate Account Two
The Travelers Variable Life Insurance Separate Account Four
The Travelers Separate Account QP for Variable Annuities
The Travelers Separate Account PF for Variable Annuities
The Travelers Separate Account PF II for Variable Annuities
<TABLE>
<CAPTION>
(b) Name and Principal Positions and Offices
Business Address * With Underwriter
------------------ ----------------
<S> <C>
Russell H. Johnson Chairman of the Board, Chief Executive Officer,
President and Chief Operating Officer
William F. Scully, III Member, Board of Directors,
Senior Vice President, Treasurer
and Chief Financial Officer
Cynthia P. Macdonald Vice President, Chief Compliance Officer
and Assistant Secretary
Joanne K. Russo Member, Board of Directors
Senior Vice President
William D. Wilcox General Counsel and Secretary
Kathleen A. McGah Assistant Secretary
Jay S. Benet Member, Board of Directors
George C. Kokulis Member, Board of Directors
Warren H. May Member, Board of Directors
Donald R. Munson, Jr. Senior Vice President
Stuart L. Baritz Vice President
Michael P. Kiley Vice President
Tracey Kiff-Judson Vice President
Robin A. Jones Second Vice President
Whitney F. Burr Second Vice President
Marlene M. Ibsen Second Vice President
</TABLE>
<PAGE> 70
<TABLE>
<CAPTION>
(b) Name and Principal Positions and Offices
Business Address* With Underwriter
------------------ ----------------
<S> <C>
John J. Williams, Jr. Director and Assistant Compliance Officer
Susan M. Curcio Director and Operations Manager
Dennis D. D'Angelo Director
Thomas P. Tooley Director
Nancy S. Waldrop Assistant Treasurer
</TABLE>
* Principal business address: One Tower Square, Hartford, Connecticut
06183
(c) Not applicable.
Item 30. Location of Accounts and Records
(1) The Travelers Life and Annuity Company
One Tower Square
Hartford, Connecticut 06183
Item 31. Management Services
Not applicable.
Item 32. Undertakings
The undersigned Registrant hereby undertakes:
(a) To file a post-effective amendment to this registration statement as
frequently as is necessary to ensure that the audited financial statements
in the registration statement are never more than sixteen months old for so
long as payments under the variable annuity contracts may be accepted;
(b) To include either (1) as part of any application to purchase a contract
offered by the prospectus, a space that an applicant can check to request a
Statement of Additional Information, or (2) a post card or similar written
communication affixed to or included in the prospectus that the applicant
can remove to send for a Statement of Additional Information; and
(c) To deliver any Statement of Additional Information and any financial
statements required to be made available under this Form N-4 promptly upon
written or oral request.
The Company hereby represents:
(a) That the aggregate charges under the Contract of the Registrant described
herein are reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by the Company.
<PAGE> 71
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the registrant certifies that it meets the requirements of Securities Act
Rule 485(b) for effectiveness of this post-effective amendment to this
registration statement and has caused this amendment to this registration
statement to be signed on its behalf in the City of Hartford, State of
Connecticut, on April 24, 1998.
THE TRAVELERS FUND VA FOR VARIABLE ANNUITIES
(Registrant)
and
THE TRAVELERS LIFE AND ANNUITY COMPANY
(Depositor)
By: *IAN R. STUART
-------------------------------------
Ian R. Stuart
Senior Vice President, Chief Financial Officer,
Chief Accounting Officer and Controller
As required by the Securities Act of 1933, this post-effective amendment to this
registration statement has been signed by the following persons in the
capacities indicated on April 24, 1998.
<TABLE>
<S> <C>
*MICHAEL A. CARPENTER Director, Chairman of the Board, President
- ------------------------------- and Chief Executive Officer
(Michael A. Carpenter)
*JAY S. BENET Director
- -------------------------------
(Jay S. Benet)
*GEORGE C. KOKULIS Director
- -------------------------------
(George C. Kokulis
*ROBERT I. LIPP Director
- -------------------------------
(Robert I. Lipp)
*IAN R. STUART Director, Senior Vice President, Chief
- ------------------------------- Financial Officer, Chief Accounting Officer
(Ian R. Stuart) and Controller
*KATHERINE M. SULLIVAN Director, Senior Vice President and
- ------------------------------- General Counsel
(Katherine M. Sullivan)
*MARC P. WEILL Director
- -------------------------------
(Marc P. Weill)
</TABLE>
By:
-------------------------------------
Ernest J. Wright, Attorney-in-Fact
<PAGE> 72
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
- --- ----------- ----------------
<S> <C> <C>
1. Resolution of The Travelers Life and Annuity Company
Board of Directors authorizing the establishment of the
Registrant. (Incorporated herein by reference to
Exhibit 1 to Post-Effective Amendment No. 2 to the
Registration Statement on Form N-4 filed April 30, 1996.)
3(a). Form of Distribution and Management Agreement among the
Registrant, The Travelers Life and Annuity Company and
Travelers Equities Sales, Inc. (Incorporated herein by reference
to Exhibit 3(a) to Post-Effective Amendment to the
Registration Statement on Form N-4, filed on April 27, 1995.)
3(b). Specimen copies of Dealer Agreements between principal
underwriter and dealer. (Incorporated herein by reference
to Exhibit 3(b) to Post-Effective Amendment No. 2 to the
Registration Statement on Form N-4 filed April 30, 1996.)
4. Form of Variable Annuity Contract. (Incorporated herein by
reference to Exhibit No. 4 to Post-Effective Amendment No. 3
to the Registration Statement on Form N-4, filed April 30, 1997.)
5. Form of Application. (Incorporated herein by reference to
Exhibit No. 5 to Post Effective Amendment No. 3 to the
Registration Statement on Form N-4, filed April 30, 1997.)
6(a). By-Laws of The Travelers Life and Annuity Company, as amended
on October 20, 1994. (Incorporated herein by reference to
Exhibit 6(a) to the Registration Statement on Form N-4,
File No. 33-58131, filed via Edgar on March 17, 1995.)
6(b). Charter of The Travelers Life and Annuity Company, as amended
on April 10, 1990. (Incorporated herein by reference to
Exhibit 6(b) to the Registration Statement on Form N-4,
File No. 33-58131, filed via Edgar on March 17, 1995.)
9. Opinion of Counsel as to the legality of securities being registered.
(Incorporated herein by reference to Exhibit 9 to Post-Effective
Amendment No. 3 to the Registration Statement on Form N-4 filed
April 30, 1997.)
10(a). Consent of KPMG Peat Marwick LLP, Independent Certified Electronically
Public Accountants.
13. Schedule for computation of each performance quotation -
Standardized and Non-Standardized. (Incorporated herein by
reference to Exhibit No. 13 to Post-Effective Amendment No. 3
to the Registration Statement on Form N-4, filed April 30, 1997.)
</TABLE>
<PAGE> 73
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
- --- ----------- ----------------
<S> <C>
15(a). Powers of Attorney authorizing Ernest J. Wright or Kathleen A.
McGah as signatory for Michael A. Carpenter, Jay S. Benet,
George C. Kokulis, Ian R. Stuart and Katherine M. Sullivan.
(Incorporated herein by reference to Exhibit No. 15(a) to Post-
Effective Amendment No. 3 to the Registration Statement on
Form N-4, filed April 30, 1997.)
15(b). Powers of Attorney authorizing Jay S. Fishman or Ernest J.
Wright as signatory for Michael A. Carpenter, Robert I. Lipp,
Charles O. Prince, III, Irwin R. Ettinger and Donald T. DeCarlo.
(Incorporated herein by reference to Exhibit 15(b) to Post-
Effective Amendment No. 1 to the Registration Statement on
Form N-4, filed on April 27, 1995.)
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<PAGE> 1
EXHIBIT 10(A)
Consent of Independent Certified Public Accountants
The Board of Directors
The Travelers Life and Annuity Company
We consent to the use of our report included herein and to the reference to our
firm as experts under the heading "Independent Accountants".
KPMG Peat Marwick LLP
Hartford, Connecticut
April 24, 1998