<PAGE>
Registration No. 33-58131
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. 1
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 1
THE TRAVELERS FUND BD II FOR VARIABLE ANNUITIES
-----------------------------------------------
(Exact Name of Registrant)
THE TRAVELERS LIFE AND ANNUITY COMPANY
--------------------------------------
(Name of Depositor)
ONE TOWER SQUARE, HARTFORD, CONNECTICUT 06183
----------------------------------------------
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number, including area code: (203) 277-0111
--------------
ERNEST J. WRIGHT
Assistant 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: As soon as possible after
effective date of Registration
Statement.
<PAGE>
Pursuant to Rule 24f-2 of the Investment Company Act of 1940, the Registrant
hereby declares that an indefinite amount of Variable Annuity Contracts is being
registered under the Securities Act of 1933. Amount of registration fee: $500.
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
<PAGE>
THE TRAVELERS FUND BD II FOR VARIABLE ANNUITIES
Cross-Reference Sheet
Form N-4
Item
No. Caption in Prospectus
--- ----------------------
1. Cover Page Prospectus
2. Definitions Glossary of Special
Terms
3. Synopsis Prospectus Summary
4. Condensed Financial Not Applicable
Information
5. General Description of Registrant, The Insurance Company; The
Depositor, and Portfolio Companies Separate Account and the
Underlying Funds; Voting
Rights
6. Deductions Charges and Deductions;
Distribution of Variable
Annuity Contracts
7. General Description of Variable The Contract; Ownership
Annuity Contracts Provisions; Transfer
8. Annuity Period The Annuity Period
9. Death Benefit Death Benefit
10. Purchases and Contract Value The Contract; Distribution of
Variable Annuity Contracts
11. Redemptions Surrenders and Redemptions;
Miscellaneous Contract
Provisions
12. Taxes Federal Tax Considerations
13. Legal Proceedings Legal Proceedings and
Opinions
14. Table of Contents of the Statement Appendix B - Contents of the
of Additional Information Statement of Additional
Information
Caption in Statement of
Additional Information
----------------------
15. Cover Page Cover Page
16. Table of Contents Table of Contents
17. General Information and History The Insurance Company
18. Services Principal Underwriter;
Distribution and Management
Agreement
19. Purchase of Securities Being Offered Valuation of Assets
20. Underwriters Principal Underwriter
21. Calculation of Performance Data Performance Information
22. Annuity Payments Not Applicable
23. Financial Statements Financial Statements
<PAGE>
PART A
Information Required in a Prospectus
------------------------------------
<PAGE>
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PROSPECTUS
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This Prospectus describes an individual flexible premium variable annuity
contract (the "Contract") offered by The Travelers Life and Annuity Company
(the "Company"). The Contract is currently available for use in connection
with (1) individual nonqualified purchases; (2) Individual Retirement
Annuities (IRAs) pursuant to Section 408 of the Internal Revenue Code of 1986,
as amended (the "Code"); and (3) qualified retirement plans. Qualified
contracts include contracts qualifying under Section 401(a), 403(b), or 408(b)
of the Code.
Purchase Payments made under the Contract will accumulate on a fixed and/or
a variable basis, as selected by the Contract Owner. If on a variable basis,
the value of the Contract prior to the Maturity Date will vary continuously to
reflect the investment experience of The Travelers Fund BD II for Variable
Annuities ("Fund BD II"). Purchase Payments may currently be allocated to any
one or more of the sub-accounts (the "Sub-Accounts") available under Fund BD
II. The assets in each Sub-Account are invested in a separate series of shares
of a mutual fund. Each series of shares is a separate investment portfolio.
The investment portfolios currently available are: Smith Barney Income and
Growth Portfolio, Alliance Growth Portfolio, American Capital Enterprise
Portfolio, Smith Barney International Equity Portfolio, Smith Barney Pacific
Basin Portfolio, TBC Managed Income Portfolio, Putnam Diversified Income
Portfolio, G.T. Global Strategic Income Portfolio, Smith Barney High Income
Portfolio, MFS Total Return Portfolio, Smith Barney Money Market Portfolio and
AIM Capital Appreciation Portfolio of the Smith Barney/Travelers Series Fund
Inc.; and Smith Barney Total Return Portfolio of the Smith Barney Series Fund
(collectively, the "Underlying Funds").
This Prospectus provides the information about Fund BD II that you should
know before investing. Please read it and retain it for future reference.
Additional information about Fund BD II is contained in a Statement of
Additional Information dated September 22, 1995 which has been filed with the
Securities and Exchange Commission 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 Investor Services--5SHS, One Tower
Square, Hartford, Connecticut 06183-9061, or by calling 1-800-842-8573. The
Table of Contents of the Statement of Additional Information appears in
Appendix B of this Prospectus.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES FOR
THE UNDERLYING FUNDS. BOTH THIS CONTRACT PROSPECTUS AND 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.
THIS PROSPECTUS IS DATED SEPTEMBER 22, 1995
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<PAGE>
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TABLE OF CONTENTS
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<TABLE>
<S> <C>
GLOSSARY OF SPECIAL TERMS.................................................. iv
PROSPECTUS SUMMARY......................................................... v
FEE TABLE.................................................................. viii
THE INSURANCE COMPANY...................................................... 1
THE SEPARATE ACCOUNT AND THE UNDERLYING FUNDS.............................. 1
The Travelers Fund BD II For Variable Annuities (Fund BD II)............. 1
The Underlying Funds..................................................... 1
Underlying Fund Investment Managers...................................... 3
Substitution............................................................. 3
General.................................................................. 3
PERFORMANCE INFORMATION.................................................... 4
THE CONTRACT............................................................... 4
Purchase Payments........................................................ 5
Right to Return.......................................................... 5
Accumulation Units....................................................... 5
Net Investment Factor.................................................... 5
CHARGES AND DEDUCTIONS..................................................... 6
Contingent Deferred Sales Charge......................................... 6
Administrative Charges................................................... 7
Insurance Charge......................................................... 7
Reduction or Elimination of Contract Charges............................. 8
Underlying Fund Charges.................................................. 8
Premium Tax.............................................................. 8
Changes in Taxes Based Upon Premium or Value............................. 8
OWNERSHIP PROVISIONS....................................................... 9
Types of Ownership....................................................... 9
Beneficiary.............................................................. 9
Annuitant................................................................ 9
TRANSFERS.................................................................. 10
Dollar-Cost Averaging (Automated Transfers).............................. 10
Telephone Transfers...................................................... 11
SURRENDERS AND REDEMPTIONS................................................. 11
Systematic Withdrawals................................................... 11
</TABLE>
II
<PAGE>
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<TABLE>
<S> <C>
DEATH BENEFIT............................................................... 12
Death Proceeds Prior to the Maturity Date................................. 12
Death Proceeds After the Maturity Date.................................... 13
THE ANNUITY PERIOD.......................................................... 13
Maturity Date............................................................. 13
Allocation of Annuity..................................................... 14
Variable Annuity.......................................................... 14
Fixed Annuity............................................................. 15
PAYMENT OPTIONS............................................................. 15
Election of Options....................................................... 15
Annuity Options........................................................... 16
Income Options............................................................ 16
MISCELLANEOUS CONTRACT PROVISIONS........................................... 17
Termination............................................................... 17
Misstatement.............................................................. 17
Required Reports.......................................................... 17
Suspension of Payments.................................................... 17
FEDERAL TAX CONSIDERATIONS.................................................. 18
General Taxation of Annuities............................................. 18
Tax Law Diversification Requirements for Variable Annuities............... 18
Ownership of the Investments.............................................. 18
Penalty Tax for Premature Distributions................................... 19
Mandatory Distributions for Qualified Plans............................... 19
Nonqualified Annuity Contracts............................................ 19
Individual Retirement Annuities........................................... 20
Qualified Pension and Profit-Sharing Plans................................ 20
Federal Income Tax Withholding............................................ 20
VOTING RIGHTS............................................................... 21
DISTRIBUTION OF VARIABLE ANNUITY CONTRACTS.................................. 22
STATE REGULATION............................................................ 22
Conformity with State and Federal Laws.................................... 23
LEGAL PROCEEDINGS AND OPINIONS.............................................. 23
THE FIXED ACCOUNT........................................................... 23
Transfers................................................................. 24
APPENDIX A.................................................................. 25
APPENDIX B.................................................................. 27
</TABLE>
III
<PAGE>
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GLOSSARY OF SPECIAL TERMS
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The following terms are used throughout the Prospectus and 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 Maturity Date and the amount of the
monthly Annuity Payments depend.
ANNUITY PAYMENTS -- a series of periodic payments (a) for life; (b) for life
with either a minimum number of payments or a determinable sum assured; or
(c) for the joint lifetime of the Annuitant and another person ("Contingent
Annuitant") and thereafter during the lifetime of the survivor.
ANNUITY UNIT -- an accounting unit of measure used to calculate the amount of
Annuity Payments.
CASH SURRENDER VALUE -- the amount payable to the Contract Owner or other
payee upon full or partial surrender of the Contract during the lifetime of
the Annuitant.
COMPANY'S HOME OFFICE -- the principal offices of The Travelers Life and
Annuity Company located at One Tower Square, Hartford, Connecticut 06183-
9061.
CONTRACT DATE -- the date on which the Contract, benefits and the contract
provisions become effective.
CONTRACT OWNER (YOU, YOUR) -- the person or entity to whom the Contract is
issued.
CONTRACT VALUE -- the current value of Accumulation Units credited to the
Contract less any administrative charges.
CONTRACT YEARS -- twelve-month periods beginning on the Contract Date.
FIXED ACCOUNT -- an additional account into which Purchase Payments may be
allocated and which is included in the Contract Value. Purchase Payments
allocated to the Fixed Account will earn interest at a rate guaranteed by
the Company; this rate will change from time to time.
INCOME PAYMENTS -- optional forms of payments made by the Company which are
based on an agreed-upon number of payments or payment amount.
MATURITY DATE -- the date on which the first Annuity or Income Payment is to
begin.
PURCHASE PAYMENT -- a gross amount paid to the Company during the accumulation
period.
SEPARATE ACCOUNT -- assets set aside by the Company, the investment experience
of which is kept separate from that of other assets of the Company; for
example, Fund BD II.
SUB-ACCOUNT -- the portion of the assets of the Separate Account which is
allocated to a particular Underlying Fund.
UNDERLYING FUND(S) -- an open-end diversified management investment company
which serves as an investment option under the Separate Account.
VALUATION DATE -- generally, a day on which the Sub-Account is valued. A
Valuation Date is any day on which the New York Stock Exchange is open for
trading and the Company is open for business. 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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IV
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PROSPECTUS SUMMARY
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INTRODUCTION
The Contract described in this Prospectus is issued by The Travelers Life
and Annuity Company (the "Company"), an indirect wholly owned subsidiary of
Travelers Group Inc. The Company has established The Travelers Fund BD II for
Variable Annuities ("Fund BD II"), a registered unit investment trust separate
account, for the purpose of investing exclusively in shares of the Underlying
Funds described herein.
The purpose of the Contract is to provide for an individual flexible premium
variable annuity which allows you to invest in any or all of the Sub-Accounts
currently available under Fund BD II, as well as in the Fixed Account.
Certain changes and elections must be made in writing to the Company. Where
the term "written request" is used, it means that written information must be
sent to the Company's Home Office in a form and content satisfactory to the
Company.
RIGHT TO RETURN
You may return the Contract and receive a full refund of the Contract Value
(including charges) within twenty days after the Contract is delivered to you,
unless state law requires a longer period. The Contract Value returned may be
greater or less than your Purchase Payment; however, if applicable state law
so requires, your Purchase Payment will be refunded in full for some or all of
the "free-look" period. If you purchased the Contract as an Individual
Retirement Annuity (IRA), your Purchase Payment will be refunded in full for
the first seven days of the "free-look" period. (See "Right to Return," page
5.)
THE SEPARATE ACCOUNT AND THE UNDERLYING FUNDS
Fund BD II is registered with the Securities and Exchange Commission as a
unit investment trust under the Investment Company Act of 1940. Purchase
Payments allocated to the Sub-Accounts of Fund BD II will be invested at net
asset value in shares of the following Underlying Funds in accordance with the
selection made by the Contract Owner:
Smith Barney Income and Growth Portfolio
G.T. Global Strategic Income
Alliance Growth Portfolio Portfolio
American Capital Enterprise PortfolioSmith Barney High Income Portfolio
MFS Total Return Portfolio
Smith Barney International Equity Portfolio
Smith Barney Pacific Basin Portfolio Smith Barney Money Market Portfolio
TBC Managed Income Portfolio AIM Capital Appreciation Portfolio
Putnam Diversified Income Portfolio Smith Barney Total Return Portfolio
Each Underlying Fund is a separate series of shares of the Smith
Barney/Travelers Series Fund Inc., except for Smith Barney Total Return
Portfolio, which is a separate series of the Smith Barney Series Fund Inc. For
a description of each Fund's investment objectives, as well as the investment
advisers that provide investment management and advisory services for the
Funds, please refer to "The Underlying Funds" on page 1, and the prospectuses
for the Underlying Funds.
PURCHASE PAYMENTS
An initial lump-sum Purchase Payment of at least $5,000 must be made to the
Contract, and additional Purchase Payments of at least $500 may be made at any
time following the initial payment. In some states
V
<PAGE>
subsequent Purchase Payments are not allowed. All Purchase Payments will be
allocated to the Sub-Account(s) or the Fixed Account, as chosen by the Contract
Owner. (See "Purchase Payments," page 5.)
CHARGES AND EXPENSES
There is no sales charge deducted from Purchase Payments when they are
received. However, a Contingent Deferred Sales Charge ("surrender charge")
applies if you make a full or partial surrender of the Contract Value during
the first six years following each Purchase Payment. The maximum surrender
charge that could be assessed is 6% of the amount withdrawn. (See "Contingent
Deferred Sales Charge," page 6.)
The Company will deduct $30 annually from the Contract to cover
administrative expenses associated with the Contract. This charge will not
apply (1) at the time of a distribution resulting from the death of the
Contract Owner, or the death of the Annuitant with no Contingent Annuitant
surviving; (2) after an annuity payout has begun; or (3) if the Contract Value
is equal to or greater than $40,000 on the date of the assessment of the
charge. The Company will also deduct from each Sub-Account an amount equal to
0.15% on an annual basis of the average daily net asset value of the Sub-
Account for administrative and operating expenses related to the Sub-Accounts.
(See "Administrative Charges," page 7.)
An insurance charge is deducted daily from the Sub-Accounts of Fund BD II to
compensate for mortality and expense risks assumed by the Company. For those
Contract Owners who elect a standard death benefit, the insurance charge will
be equivalent on an annual basis to 1.02% of the daily net assets of the Sub-
Account. For those Contract Owners who elect an enhanced death benefit, the
insurance charge will be equivalent on an annual basis to 1.30% of the daily
net assets of the Sub-Account. (See "Insurance Charge," page 7.)
Premium taxes may apply to annuities in a few states. These taxes currently
range from 0.5% to 5.0%, depending upon jurisdiction. Where required, the
Company will deduct any applicable premium tax from the Contract Value either
upon death, surrender or 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. (See "Premium Tax," page 8.)
TRANSFERS
Prior to the Maturity Date, your investments may be reallocated among the
Fixed Account and any of the Sub-Accounts available under Fund BD II. You may
request a reallocation of your investment either in writing, sent to the
Company's Home Office, or by telephone in accordance with the Company's
telephone transfer procedures. Transfers between the Fixed Account and any of
the variable Sub-Accounts are subject to certain restrictions. (See
"Transfers," page 10, and "The Fixed Account," page 23.)
You may also request that the Company establish automated transfers of
Contract Values from the Fixed Account or any of the Sub-Accounts to other Sub-
Accounts through written request or other method acceptable to the Company. The
minimum automated transfer amount is $400. (See "Dollar-Cost Averaging
(Automated Transfers)," on page 10.)
SURRENDERS
You may also elect to surrender all or part of the Contract Value prior to
the Maturity Date, subject to certain charges and limitations. You will be
liable for income tax on the taxable portion of any full or
--------------------------------------------------------------------------------
VI
<PAGE>
partial surrender, and you will incur a 10% tax penalty if such surrender is
made prior to the age of 59 1/2, unless you qualify for a statutory exemption.
(See "Surrenders and Redemptions," page 11 and "Penalty Tax for Premature
Distributions" page 19.)
You may elect to take systematic withdrawals from the Contract by
surrendering a specified dollar amount of at least $100 on a monthly,
quarterly, semiannual or annual basis. All applicable surrender charges and
premium taxes will be deducted. The minimum Contract Value required to begin
systematic withdrawals is $15,000. (See "Systematic Withdrawals," on page 11.)
DEATH BENEFIT
A death benefit is payable to the Beneficiary upon the death of the Annuitant
prior to the Maturity Date with no Contingent Annuitant surviving. Two
different types of death benefits are available under the Contract: a Standard
Death Benefit and an Enhanced Death Benefit. The insurance charges under the
Contract will be higher for Contract Owners who elect the Enhanced Death
Benefit. The death benefits will vary based on the Annuitant's age at the time
of death. In addition, for nonqualified Contracts, upon distributions resulting
from the death of the Contract Owner prior to the Maturity Date and with the
Annuitant or Contingent Annuitant surviving, the value of the Contract will be
recalculated as if a Death Benefit had been payable based on the Contract
Owner's age at the time of death. Such value will be credited to the party
taking distributions upon the death of the Contract Owner with the Annuitant or
Contingent Annuitant surviving. This party may be either the surviving joint
owner, the succeeding owner, or the Beneficiary, depending upon all the
circumstances and the terms of the Contract. (See "Death Benefit," page 12.)
THE ANNUITY PERIOD
On the Maturity Date, or other agreed-upon payment date, the Company will
provide Annuity or Income Payments to the Contract Owner or his or her designee
in accordance with the payment option selected by the Contract Owner. If a
payment option has not been selected at or prior to the Maturity Date, the
Company will pay to the Contract Owner the first of a series of monthly
payments based on the life of the Annuitant, in accordance with Annuity Option
2 (Life Annuity with 120 Monthly Payments Assured), or for certain qualified
contracts, in accordance with Annuity Option 4 (Joint and Last Survivor Joint
Life Annuity -- Annuity Reduced on Death of Primary Payee) (the "Automatic
Option"). If a variable payout is selected, the payments will continue to vary
with the investment performance of the selected Underlying Fund. If monthly
Annuity Payments are less than $100, the Company reserves the right to reduce
the frequency of payments or to pay the Contract Value in one lump-sum payment.
(See "The Annuity Period," page 13.)
THE FIXED ACCOUNT
Although this Prospectus specifically applies only to the variable features
of the Contract, the Contract also allows you to allocate Purchase Payments to
a Fixed Account where they will earn interest at a rate guaranteed by the
Company, which interest rate will not be less than 3% per year. Transfers may
also be made from the Fixed Account to the Sub-Accounts twice a year during the
30 days following the semi-annual Contract Date anniversary in an amount of up
to 15% of the Fixed Account value on the semi-annual Contract Date anniversary.
Additionally, automated transfers from the Fixed Account to any of the Sub-
Accounts may begin at any time. Other restrictions may also apply. (See "The
Fixed Account," page 23.)
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VII
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FEE TABLE
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FUND BD II AND ITS UNDERLYING FUNDS
The purpose of the Fee Table is to assist Contract Owners in understanding
the various costs and expenses that Contract Owners will bear, directly or
indirectly, under the Contract. The information listed reflects expenses of
the Sub-Accounts as well as of the Underlying Fund Expenses. Additional
information regarding the charges and deductions assessed under the Contract
can be found on page 6. Expenses shown do not include premium taxes, which may
be applicable.
CONTRACT OWNER TRANSACTION EXPENSES
Contingent Deferred Sales Charge (as a percentage of purchase payments):
<TABLE>
<CAPTION>
LENGTH OF TIME FROM PURCHASE PAYMENT SURRENDER
(NUMBER OF YEARS) CHARGE
------------------------------------ ---------
<S> <C>
1 6%
2 6%
3 6%
4 3%
5 2%
6 1%
7 and thereafter 0%
</TABLE>
<TABLE>
<S> <C>
Annual Contract Administrative Charge
(Waived if Contract Value is $40,000 or more) $30
</TABLE>
ANNUAL SUB-ACCOUNT CHARGES
<TABLE>
<CAPTION>
STANDARD ENHANCED
DEATH BENEFIT DEATH BENEFIT
------------- -------------
<S> <C> <C>
Mortality and Expense Risk Fee (as a percentage
of daily net asset value) 1.02% 1.30%
Sub-Account Administrative Charge (as a
percentage of daily net asset value) 0.15% 0.15%
TOTAL SUB-ACCOUNT CHARGES 1.17% 1.45%
</TABLE>
UNDERLYING FUND EXPENSES
(as a percentage of average net assets of the Underlying Fund)
<TABLE>
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<CAPTION>
MANAGEMENT OTHER TOTAL UNDERLYING
FEE EXPENSES* FUND EXPENSES
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<S> <C> <C> <C>
Smith Barney Income and Growth
Portfolio 0.65% 0.10% 0.75%
Alliance Growth Portfolio 0.80% 0.10% 0.90%
American Capital Enterprise Portfo-
lio 0.70% 0.17% 0.87%
Smith Barney International Equity
Portfolio 0.90% 0.35% 1.25%
Smith Barney Pacific Basin Portfolio
0.90% 0.40% 1.30%
TBC Managed Income Portfolio 0.65% 0.22% 0.87%
Putnam Diversified Income Portfolio 0.75% 0.20% 0.95%
G.T. Global Strategic Income Port-
folio 0.80% 0.30% 1.10%
Smith Barney High Income Portfolio 0.60% 0.10% 0.70%
MFS Total Return Portfolio 0.80% 0.15% 0.95%
Smith Barney Money Market Portfolio 0.60% 0.10% 0.70%
AIM Capital Appreciation Portfolio 0.70% 0.20% 0.90%
Smith Barney Total Return Portfolio 0.75% 0.25% 1.00%
</TABLE>
* Other expenses are as of October 31, 1994, taking into account the current
expense limitations agreed to by the Managers. The Managers waived all of
their fees for the period and reimbursed the Funds for their expenses. If
such fees were not waived and expenses were not reimbursed, Total Underlying
Expenses for the Smith Barney/Travelers Series Fund Portfolios would have
been: Smith Barney Income and Growth Portfolio, 2.08%; Alliance Growth
Portfolio, 1.76%; American Capital Enterprise Portfolio, 2.66%; Smith Barney
International Equity Portfolio, 2.00%; Smith Barney Pacific Basin Portfolio,
2.82%; TBC Managed Income Portfolio, 2.91%; Putnam Diversified Income
Portfolio, 2.92%; G.T. Global Strategic Income Portfolio, 4.53%; Smith
Barney High Income Portfolio, 2.60%; MFS Total Return Portfolio, 2.51%;
Smith Barney Money Market Portfolio, 2.11%. If such fees were not waived and
expenses were not reimbursed, Total Underlying Expenses for the Smith Barney
Series Fund Total Return Portfolio would have been 4.14%.
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VIII
<PAGE>
EXAMPLE*
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
STANDARD DEATH BENEFIT ELECTION
<TABLE>
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<S> <C> <C> <C> <C>
A $1,000 investment If the Contract is
would be subject to NOT surrendered at
the following ex- the end of the pe-
penses, assuming a riod shown or if it
5% annual return on is annuitized, a
assets, if the Con- $1,000 investment
tract is surrendered would be subject to
or if certain income the following ex-
options are elected penses, assuming a
at the end of the 5% annual return on
period shown**: assets:
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<CAPTION>
ONE YEAR THREE YEARS ONE YEAR THREE YEARS
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<S> <C> <C> <C> <C>
Smith Barney Income and Growth
Portfolio $80 $123 $20 $63
Alliance Growth Portfolio 82 127 22 67
American Capital Enterprise Portfo-
lio 81 126 21 66
Smith Barney International Equity
Portfolio 85 138 25 78
Smith Barney Pacific Basin Portfolio
86 139 26 79
TBC Managed Income Portfolio 81 126 21 66
Putnam Diversified Income Portfolio 82 129 22 69
G.T. Global Strategic Income Port-
folio 84 133 24 73
Smith Barney High Income Portfolio 80 121 20 61
MFS Total Return Portfolio 82 129 22 69
Smith Barney Money Market Portfolio 80 121 20 61
AIM Capital Appreciation Portfolio 82 127 22 67
Smith Barney Total Return Portfolio 83 130 23 70
</TABLE>
ENHANCED DEATH BENEFIT ELECTION
<TABLE>
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<S> <C> <C>
A $1,000 investment If the Contract is
would be subject to NOT surrendered at
the following ex- the end of the pe-
penses, assuming a riod shown or if it
5% annual return on is annuitized, a
assets, if the Con- $1,000 investment
tract is surrendered would be subject to
or if certain income the following ex-
options are elected penses, assuming a
at the end of the 5% annual return on
period shown**: assets:
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<CAPTION>
ONE YEAR THREE YEARS ONE YEAR THREE YEARS
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Smith Barney Income and Growth
Portfolio $83 $131 $23 $71
Alliance Growth Portfolio 85 136 25 76
American Capital Enterprise Portfo-
lio 84 135 24 75
Smith Barney International Equity
Portfolio 88 146 28 86
Smith Barney Pacific Basin Portfolio
89 148 29 88
TBC Managed Income Portfolio 84 135 24 75
Putnam Diversified Income Portfolio 85 137 25 77
G.T. Global Strategic Income Port-
folio 87 142 27 82
Smith Barney High Income Portfolio 83 130 23 70
MFS Total Return Portfolio 85 137 25 77
Smith Barney Money Market Portfolio 83 130 23 70
AIM Capital Appreciation Portfolio 85 136 25 76
Smith Barney Total Return Portfolio 86 139 26 79
</TABLE>
* The Example reflects the $30 Annual Contract Administrative Charge as an
annual charge of 0.075% of assets based on an anticipated average account
value of $40,000.
** The Contingent Deferred Sales Charge is waived if annuity payout has begun
or if an income option of at least five years' duration is begun after the
first Contract Year (see "Charges and Deductions--Contingent Deferred Sales
Charge," page 6.)
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IX
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THE INSURANCE COMPANY
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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 (203) 277-0111.
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THE SEPARATE ACCOUNT AND THE UNDERLYING FUNDS
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THE TRAVELERS FUND BD II FOR VARIABLE ANNUITIES (FUND BD II)
Fund BD II was established on February 22, 1995 and is registered with the
Securities and Exchange Commission as a unit investment trust under the
Investment Company Act of 1940, as amended (the '"1940 Act"). The assets of
Fund BD II will be invested exclusively in the shares of the Underlying Funds.
Fund BD II meets the definition of a separate account under the federal
securities laws, and will comply with the provisions of the 1940 Act.
Additionally, the operations of Fund BD II are subject to the provisions of
Section 38a-433 of the Connecticut General Statutes which authorizes the
Connecticut Insurance Commissioner to adopt regulations under it. Section 38a-
433 contains no restrictions on the investments of the Separate Account, and
the Commissioner has adopted no regulations under the Section that affect the
Separate Account.
Under Connecticut law, the assets of Fund BD II will be held for the
exclusive benefit of the owners of, and the persons entitled to payment under,
the Contract offered by this Prospectus and under all other contracts which
provide for accumulated values or dollar amount payments to reflect investment
results of the Separate Account. Income, gains and losses, whether or not
realized, for assets allocated to Fund BD II are in accordance with the
Contracts, credited to or charged against Fund BD II without regard to other
income, gains and losses of the Company. The assets held in Fund BD II are not
chargeable with liabilities arising out of any other business which the
Company may conduct. The obligations arising under the Contract are
obligations of the Company.
THE UNDERLYING FUNDS
Purchase Payments applied to the Sub-Accounts of Fund BD II will be invested
in one or more of the available Underlying Funds at net asset value in
accordance with the selection made by the Contract Owner. Contract Owners may
change their selection in accordance with the provisions of the Contract.
Underlying Funds available under the Contract may be added or withdrawn as
permitted by applicable law. Please read carefully the complete risk
disclosure in each Portfolio's prospectus before investing.
Fund BD II currently invests in the following Underlying Funds, each of
which is a separate series of shares of the Smith Barney/Travelers Series Fund
Inc.
SMITH BARNEY INCOME AND GROWTH PORTFOLIO. The objective of the Income and
Growth Portfolio is current income and long-term growth of income and
capital by investing primarily, but not exclusively, in common stocks.
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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 and whose rate of growth
is expected to exceed that of the U.S. economy over time. Current income
is only an incidental consideration.
AMERICAN CAPITAL ENTERPRISE PORTFOLIO. The Enterprise Portfolio's
objective is capital appreciation through investment in securities
believed to have above-average potential for capital appreciation. Any
income received on such securities is incidental to the objective of
capital appreciation.
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.
SMITH BARNEY PACIFIC BASIN PORTFOLIO. The Pacific Basin Portfolio's
objective is long-term capital appreciation through investment primarily
in equity securities of companies in Asian Pacific Countries.
TBC MANAGED INCOME PORTFOLIO. The objective of the Managed Income
Portfolio is to seek high current income consistent with prudent risk of
capital through investments in corporate debt obligations, preferred
stocks, and obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities.
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.
G.T. GLOBAL STRATEGIC INCOME PORTFOLIO. The Strategic Income Portfolio's
investment objective is primarily to seek high current income and
secondarily to seek capital appreciation. The Portfolio allocates its
assets among debt securities of issuers in the United States, developed
foreign countries, and emerging 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 (A BALANCED 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.
SMITH BARNEY MONEY MARKET PORTFOLIO. The investment objective of the Money
Market Portfolio is maximum current income and preservation of capital by
investing in high quality, short-term money market instruments.
AIM CAPITAL APPRECIATION PORTFOLIO. The investment objective of the AIM
Capital Appreciation Portfolio is to seek capital appreciation by
investing principally in common stock, with emphasis on medium-sized and
smaller emerging growth companies.
The following is a separate series of shares of the Smith Barney Series Fund
Inc., and is also an investment option under Fund BD II:
SMITH BARNEY TOTAL RETURN PORTFOLIO (AN EQUITY PORTFOLIO). The investment
objective of the Smith Barney Total Return Portfolio is to provide total
return, consisting of long-term capital appreciation
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<PAGE>
and income. The Portfolio will seek to achieve its goal by investing
primarily in a diversified portfolio of dividend-paying common stock.
UNDERLYING FUND INVESTMENT MANAGERS
The Underlying Funds receive investment management and advisory services
from the following investment professionals:
<TABLE>
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<CAPTION>
FUND INVESTMENT MANAGER SUB-ADVISER
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<S> <C> <C>
Smith Barney Income and Smith Barney Mutual Funds --
Growth Portfolio Management Inc.
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Alliance Growth Portfo- Smith Barney Mutual Funds Alliance Capital Management L.P.
lio Management Inc.
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American Capital Enter- Smith Barney Mutual Funds American Capital Asset Management, Inc.
prise Portfolio Management Inc.
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Smith Barney Interna- Smith Barney Mutual Funds --
tional Equity Portfolio Management Inc.
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Smith Barney Pacific Ba- Smith Barney Mutual Funds --
sin Portfolio Management Inc.
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TBC Managed Income Port- Smith Barney Mutual Funds The Boston Company Asset
folio Management Inc. Management, Inc.
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Putnam Diversified In- Smith Barney Mutual Funds Putnam Investment Management, Inc.
come Portfolio Management Inc.
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G.T. Global Strategic Smith Barney Mutual Funds G.T. Capital Management, Inc.
Income Portfolio Management Inc.
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Smith Barney High Income Smith Barney Mutual Funds --
Portfolio Management Inc.
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MFS Total Return Portfo- Smith Barney Mutual Funds Massachusetts Financial
lio Management Inc. Services Company
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Smith Barney Money Mar- Smith Barney Mutual Funds --
ket Portfolio Management Inc.
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AIM Capital Appreciation Smith Barney Mutual Funds AIM Capital Management, Inc.
Portfolio Management Inc.
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Smith Barney Total Re- Smith Barney Mutual Funds --
turn Portfolio Management Inc.
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</TABLE>
SUBSTITUTION
If shares of any of the Underlying Funds should not be available for
purchase by the appropriate Sub-Account, or if, in the judgment of the Company
further investment in such shares becomes inappropriate for the purposes of
the Contract, shares of another registered, open-end management investment
company may be substituted for shares of the Underlying Funds held in the Sub-
Accounts. Substitution may be made with respect to both existing investments
and the investment of any future Purchase Payments. However, no such
substitution will be made without notice to Contract Owners, state approval if
applicable, and without prior approval of the Securities and Exchange
Commission, to the extent required by the 1940 Act, or other applicable law.
The Company may also add other available Underlying Funds under the Contract
as it deems appropriate.
GENERAL
All investment income and other distributions of Fund BD II are reinvested
in shares of the Underlying Funds at net asset value. The Underlying Funds are
required to redeem fund shares at net asset value and
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to make payment within seven days. Shares of the Underlying Funds listed above
are currently sold only to life insurance company separate accounts to fund
benefits under variable annuity and variable life insurance contracts issued
by insurance companies. Fund shares are not sold to the general public.
More detailed information may be found in the current prospectuses for the
Underlying Funds. These prospectuses are included with and must accompany this
Prospectus. Read them carefully before investing. Additional copies of the
prospectuses may be obtained by contacting your registered representative or
by calling 1-800-842-8573.
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PERFORMANCE INFORMATION
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From time to time, the Company may advertise different types of historical
performance for the Sub-Accounts of Fund BD II. The Company may advertise the
"standardized average annual total returns" of the Sub-Accounts, calculated in
a manner prescribed by the Securities and Exchange Commission, as well as the
"non-standardized total return," as described below.
"Standardized average annual total return" will show the percentage rate of
return of a hypothetical initial investment of $1,000 for the most recent one-
, five- and ten-year periods (or fractional periods thereof). This
standardized calculation reflects the deduction of all applicable charges made
to the Contract, except for premium taxes which may be imposed by certain
states. "Non-standardized total return" will be calculated in a similar
manner, except non-standardized total returns will not reflect the deduction
of any applicable Contingent Deferred Sales Charge or the $30 annual contract
administrative charge, which would decrease the level of performance shown if
reflected in these calculations.
Performance information may be quoted numerically or may be presented in a
table, graph or other illustration. Advertisements may include data comparing
performance to well-known indices of market performance (including, but not
limited to, the Dow Jones Industrial Average, the Standard & Poor's (S&P) 500
Index and the S&P 400 Index, the Lehman Brothers Long T-Bond Index, the
Russell 1000, 2000 and 3000 Indices, the Value Line Index, and the Morgan
Stanley Capital International's EAFE Index). Advertisements may also include
published editorial comments and performance rankings compiled by independent
organizations (including, but not limited to, Lipper Analytical Services, Inc.
and Morningstar, Inc.) and publications that monitor the performance of Fund
BD II and the Underlying Funds.
The total return quotations are based upon historical earnings and are not
necessarily representative of future performance. A Contract Owner's Contract
Value at redemption may be more or less than original cost. The Statement of
Additional Information contains more detailed information about these
performance calculations, including actual examples of each type of
performance advertised.
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THE CONTRACT
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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. The
underlying product is an Annuity whereby Purchase Payments are paid to the
Company and credited to the Contract Owner's account to accumulate until the
Maturity Date. A variable annuity differs from a fixed annuity in that during
the accumulation period, the Contract Value may vary from day
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4
<PAGE>
to day. The Contract Owner assumes the risk of gain or loss according to the
performance of the selected Sub-Account(s). There is generally no guarantee
that the Contract Value at the Maturity Date will equal or exceed the total
Purchase Payments made under the Contract, except as specified or elected under
the Death Benefit provisions described on page 12.
PURCHASE PAYMENTS
The minimum initial Purchase Payment must be at least $5,000, and additional
payments of at least $500 may be made under the Contract at any time following
the initial payment. In some states, subsequent Purchase Payments are not
allowed. The initial Purchase Payment is due and payable before the Contract
becomes effective.
The Company will apply each Purchase Payment to purchase Accumulation Units
of the designated Sub-Account(s). The Company will apply the initial Purchase
Payment within two business days following its receipt at the Company's Home
Office. All subsequent Purchase Payments will be applied as of the next
valuation following their receipt.
RIGHT TO RETURN
The Contract may be returned for a full refund of the Contract Value
(including charges) within twenty days after delivery of the Contract to the
Contract Owners (the "free-look period"), unless state law requires a longer
period. The Contract Owner bears the investment risk during the free-look
period; therefore, the Contract Value returned may be greater or less than your
Purchase Payment. However, if you purchased the Contract as an Individual
Retirement Annuity, (1) your Purchase Payment will be refunded in full if you
return the Contract within the first seven days after delivery, and (2) the
Contract Value (including charges) will be refunded if you return the Contract
during the remainder of the free-look period. In addition, certain states
require that Purchase Payments be refunded in full for all Contracts or for
Contracts issued in replacement situations, during the entire free-look period
or for some portion of it. All Contract Values will be determined as of the
next valuation following the Company's receipt of the Owner's written request
for refund.
ACCUMULATION UNITS
The number of Accumulation Units of each Sub-Account to be credited to the
Contract once a Purchase Payment has been received by the Company will be
determined by dividing the Purchase Payment applied to the Sub-Account by the
current Accumulation Unit Value of the Sub-Account.
The initial Accumulation Unit Value for each Sub-Account will equal the
Accumulation Unit Value for the applicable Sub-Account available through Fund
BD as of the Valuation Period for which the initial allocation is made through
Fund BD II. (The dollar value of an Accumulation Unit for each Sub-Account
offered through Fund BD was originally 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 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.
NET INVESTMENT FACTOR
The net investment factor is used to measure the investment performance of a
Sub-Account from one Valuation Period to the next. The net investment factor
for a Sub-Account for any Valuation Period is equal
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to the sum of 1.000000 plus the net investment rate (the gross investment rate
less any applicable Sub-Account deductions during the Valuation Period relating
to the Insurance Charge and the Sub-Account Administrative Charge). The gross
investment rate of a Sub-Account is equal to (a - b) / c where:
(A) = investment income plus capital gains and losses (whether realized or
unrealized);
(B) = any deduction for applicable taxes (presently zero); and
(C) = the value of the assets of the Underlying Fund at the beginning of
the Valuation Period.
The gross investment rate may be either positive or negative. A Sub-Account's
assets are based on the net asset value of the Underlying Fund, and investment
income includes any distribution whose ex-dividend date occurs during the
Valuation Period.
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CHARGES AND DEDUCTIONS
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CONTINGENT DEFERRED SALES CHARGE
There are no sales charges deducted from Purchase Payments when they are
received and applied under the Contract. However, a Contingent Deferred Sales
Charge will be applied if a full or partial surrender of the Contract Value is
made during the first six years following a Purchase Payment. The length of
time from receipt of the Purchase Payment to the time of surrender determines
the amount of the charge.
The purpose of the surrender charge is to help defray expenses incurred in
the sale of the Contract, including commissions and other expenses associated
with the printing and distribution of prospectuses and sales material. However,
the Company expects that the Contingent Deferred Sales Charges assessed under
the Contract will be insufficient to cover these expenses; the difference will
be covered by the general assets of the Company which are attributable, in
part, to mortality and expense risk charges under the Contract which are
described below.
The charge is equal to a percentage of the amount withdrawn from the Contract
(not to exceed the aggregate amount of the Purchase Payments made under the
Contract), and is calculated as follows:
<TABLE>
<CAPTION>
LENGTH OF TIME FROM CONTINGENT
PURCHASE PAYMENT DEFERRED
(NUMBER OF YEARS) SALES CHARGE
------------------- ------------
<S> <C>
1 6%
2 6%
3 6%
4 3%
5 2%
6 1%
7 and thereafter 0%
</TABLE>
For purposes of determining the amount of any surrender charge, surrenders
will be deemed to be taken first from any applicable free withdrawal amount (as
described below); next from remaining Purchase Payments (on a first-in, first-
out basis); and then from contract earnings (in excess of any free withdrawal
amount). Unless the Company receives instructions to the contrary, the
surrender charge will be deducted from the amount requested.
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6
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No Contingent Deferred Sales Charge will be assessed (1) in the event of
distributions resulting from the death of the Contract Owner or the death of
the Annuitant with no Contingent Annuitant surviving; (2) if an annuity payout
has begun; or (3) if an income option of at least five years' duration is
begun after the first Contract Year.
FREE WITHDRAWAL ALLOWANCE. There is a 15% free withdrawal allowance
available each year after the first Contract Year. The available withdrawal
amount will be calculated as of the first Valuation Date of any given Contract
Year. The free withdrawal allowance applies to partial surrenders of any
amount and to full surrenders, except those full surrenders transferred
directly to annuity contracts issued by other financial institutions.
ADMINISTRATIVE CHARGES
CONTRACT ADMINISTRATIVE CHARGE. An administrative charge of $30 will be
deducted annually from the Contract to compensate the Company for expenses
incurred in establishing and administering the Contract. The contract
administrative charge will be deducted from the Contract Value on the fourth
Friday of August of each year by cancelling Accumulation Units in each Sub-
Account on a pro rata basis. 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. The
contract administrative charge will not be assessed upon distributions
resulting from the death of the Contract Owner or the Annuitant with no
Contingent Annuitant surviving, or after an annuity payout has begun, or if
the Contract Value is equal to or greater than $40,000 on the date of the
assessment of the charge.
SUB-ACCOUNT ADMINISTRATIVE CHARGE. A sub-account administrative charge is
deducted daily from the Sub-Accounts of Fund BD II in order to compensate the
Company for certain administrative and operating expenses of the Sub-Accounts.
The charge is equivalent, on an annual basis, to 0.15% of the daily net asset
value of the Sub-Accounts and is deducted on each Valuation Date at the rate
of 0.000411% for each day in the Valuation Period.
Neither the contract administrative charge nor the sub-account
administrative charge can be increased. The charges are 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, and the Company does not expect to
make a profit from these charges.
INSURANCE CHARGE
An insurance charge is deducted daily from the Sub-Accounts of Fund BD II.
This charge is intended to cover the mortality and expense risks associated
with guarantees which the Company provides under the Contract. As discussed
below, a portion of the insurance charge is for the assumption of mortality
risk, while the remainder is for the assumption of expense risk. The mortality
risk portion of the insurance charge compensates the Company for guaranteeing
to provide Annuity Payments to an Annuitant according to the terms of the
Contract regardless of how long the Annuitant lives and no matter what the
actual mortality experience of other Annuitants under the Contract might be,
and for guaranteeing to provide the standard or the enhanced death benefit if
an 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.
For those Contract Owners who have elected a standard death benefit
provision, the insurance charge is equivalent, on an annual basis, to 1.02% of
the daily net asset value of the Sub-Accounts. The Company
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reserves the right to lower this charge at any time. The charge is deducted on
each Valuation Date at the rate of 0.002795% for each day in the Valuation
Period. The Company estimates that approximately 75% of the standard death
benefit insurance charge is for the assumption of mortality risk.
For those Contract Owners who have elected an enhanced death benefit
provision, the insurance charge is equivalent, on an annual basis, to 1.30% of
the daily net asset value of the Sub-Accounts. The Company reserves the right
to lower this charge at any time. The charge is deducted on each Valuation Date
at the rate of .003562% for each day in the Valuation Period. The Company
estimates that approximately 80% of the enhanced death benefit insurance charge
is for the assumption of mortality risk.
If the amount deducted for 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 Contingent Deferred Sales Charge and the administrative charges under the
Contract may be reduced or eliminated when certain sales of the Contract result
in savings or reduction of sales expenses. The entitlement to such a reduction
in the Contingent Deferred Sales Charges or the administrative charges will be
based on the following: (1) the size and type of group to which sales are to be
made; (2) the total amount of Purchase Payments to be received; and (3) any
prior or existing relationship with the Company. 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 or the administrative charge be permitted
where such reduction or elimination will be unfairly discriminatory to any
person.
UNDERLYING FUND CHARGES
Fund BD II purchases shares of the Underlying Funds at net asset value. The
net asset value of each Underlying Fund reflects investment management fees and
other expenses already deducted from the assets of the Underlying Funds. For a
complete description of these investment advisory fees and other expenses,
refer to the prospectus for the Underlying Funds.
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. Where
required, 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.
CHANGES IN TAXES BASED UPON PREMIUM OR VALUE
If there is any change in a law assessing taxes against the Company based
upon the premiums of the contract gains in the contract or value of the
contract, we reserve the right to charge you proportionately for this tax. This
would include a tax based upon our reduced net capital gains in the Sub-
Accounts on which we are not currently taxed.
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OWNERSHIP PROVISIONS
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TYPES OF OWNERSHIP
OWNER. The Contract belongs to the Owner designated on the Contract
Specifications page, or to any other person subsequently named pursuant to a
valid assignment. An assignment of ownership or a collateral assignment may be
made only for nonqualified contracts. The Owner has sole power during the
Annuitant's lifetime to exercise any rights and to receive all benefits given
in the contract provided the Owner has not named an irrevocable beneficiary and
provided the Contract is not assigned.
The Owner is the recipient of all payments while the Annuitant is alive
unless the Owner directs them to an alternate recipient. An alternate recipient
under a payment direction does not become the Owner.
JOINT OWNER. For nonqualified contracts only, Joint Owners may be named in a
written request prior to the Contract Date. Joint Owners may independently
exercise transfers between the Sub-Accounts or between the Fixed Account and
the Sub-Accounts. All other rights of ownership must be exercised by joint
action. Joint owners own equal shares of any benefits accruing or payments made
to them. All rights of a Joint Owner end at death if the other Joint Owner
survives. The entire interest of the deceased Joint Owner in the Contract will
pass to the surviving Joint Owner.
SUCCEEDING OWNER. For nonqualified contracts only, if Joint Owners are not
named, the Contract Owner may name a Succeeding Owner in a written request. The
Succeeding Owner becomes the Owner if living when the Owner dies. The
Succeeding Owner has no interest in the Contract before then. The Owner may
change or delete a Succeeding Owner by written request.
BENEFICIARY
The Beneficiary is the party named by the Owner in a written request. The
Beneficiary has the right to receive any remaining contractual benefits upon
the death of the Annuitant. If there is more than one Beneficiary surviving the
Annuitant, the Beneficiaries will share equally in benefits unless different
shares are recorded with the Company by written request prior to the death of
the Annuitant.
With nonqualified contracts, the Beneficiary may differ from the designated
beneficiary as defined by the distribution provisions of the Contract. The
designated beneficiary may take the contract benefits in lieu of the
Beneficiary upon the death of the Contract Owner.
Unless an irrevocable Beneficiary has been named, the Owner has the right to
change any Beneficiary by written request during the lifetime of the Annuitant
and while the Contract continues.
ANNUITANT
The Annuitant is designated on the Contract Specifications page, and is the
individual on whose life the Maturity Date and the amount of the monthly
annuity payments depend. The Annuitant may not be changed after the Contract
Date.
For nonqualified contracts only, the Contract Owner may also name one
individual as a Contingent Annuitant by written request prior to the Contract
Date. A Contingent Annuitant may not be changed, deleted or added to the
Contract after the Contract Date.
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9
<PAGE>
If an Annuitant who is not also an owner or a joint owner dies prior to the
Maturity Date while this Contract is in effect and while the Contingent
Annuitant is living:
1) the Contract Value will not be payable upon the Annuitant's death;
2) the Contingent Annuitant becomes the Annuitant; and
3) all other rights and benefits provided by this Contract will continue in
effect.
When a Contingent Annuitant becomes the Annuitant, the Maturity Date remains
the same as previously in effect, unless otherwise provided.
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TRANSFERS
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Prior to the Maturity Date, the Contract Owner may transfer all or part of
the Contract Value between Sub-Accounts. Although there are currently no
charges, penalties or restrictions on the amount or frequency of transfers, the
Company reserves the right to charge a fee for any transfer request, and to
limit the number of transfers to no more than one in any six month period.
Some Underlying Funds have higher investment advisory fees than others.
Therefore, a transfer from one Sub-Account to another could result in a
Contract Owner's investment becoming subject to higher or lower investment
advisory fees. A transfer between Sub-Accounts has no other effect on the
amount or timing of any of the other charges under the Contract. Specifically,
for purposes of computing the applicability of the Contingent Deferred Sales
Charge, the date of the Purchase Payments made pursuant to the Contract will
not be affected by transfers among Sub-Accounts.
DOLLAR-COST AVERAGING (AUTOMATED TRANSFERS)
Dollar-cost averaging permits the Contract Owner to transfer the same dollar
amount to other Sub-Accounts on a regular basis so that more Accumulation Units
are purchased in a Sub-Account if the value per unit is low and less
Accumulation Units are purchased if the value per unit is high. Therefore, a
lower-than-average value per unit may be achieved over the long run.
You may establish automated transfers of Contract Values on a monthly or
quarterly basis from the Fixed Account and certain of the Sub-Accounts to other
Sub-Accounts through written request or other method acceptable to the Company.
You must have a minimum total Contract Value of $5,000 to enroll in the Dollar-
Cost Averaging program. The minimum total automated transfer amount is $400.
Certain restrictions apply for automated transfers from the Fixed Account
that do not apply to automated transfers from any of the Sub-Accounts. You may
establish automated transfers of Contract Values from the Fixed Account.
Automated transfers from the Fixed Account may not deplete your Fixed Account
Value in a period of less than twelve months from your enrollment in the
Dollar-Cost Averaging program.
You may start or stop participation in the Dollar-Cost Averaging program at
any time, but you must give the Company at least 30 days' notice to change any
automated transfer instructions that are currently in place. Automated
transfers are subject to all of the other provisions and terms of the Contract,
including provisions relating to the transfer of money between Sub-Accounts.
The Company reserves the right to suspend or modify transfer privileges at any
time and to assess a processing fee for this service.
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10
<PAGE>
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Before transferring any part of the Contract Value, Contract Owners should
consider the risks involved in switching between investments available under
this Contract. Dollar-cost averaging requires regular investments regardless
of fluctuating price levels, and does not guarantee profits or prevent losses
in a declining market. Potential investors should consider their financial
ability to continue purchases through periods of low price levels.
TELEPHONE TRANSFERS
A Contract Owner may also place a request for all or part of the Contract
Value to be transferred by telephone. The telephone transfer privilege is
available automatically; no special election is necessary for a Contract Owner
to have this privilege available. All transfers must be in accordance with the
terms of the Contract. Transfer instructions are currently accepted on each
Valuation Date between 9:00 a.m. and 4:00 p.m., Eastern time, at 1-800-842-
8573. Once instructions have been accepted, they may not be rescinded;
however, new telephone instructions may be given the following day. If the
transfer instructions are not in good order, the Company will not execute the
transfer and will promptly notify the caller.
The Company will make a reasonable effort to record each telephone transfer
conversation, but in the event that no recording is effective or available,
the Contract Owner will remain liable for each telephone transfer effected.
Additionally, the Company is not liable for acting upon instructions believed
to be genuine and in accordance with the procedures described above. As a
result of this policy, the Contract Owner may bear the risk of loss in the
event that the Company follows instructions that prove to be fraudulent.
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SURRENDERS AND REDEMPTIONS
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A Contract Owner may redeem all or any portion of the Cash Surrender Value
of the Contract at any time prior to the Maturity Date. The Contract Owner
must submit a written request (in a form and content satisfactory to the
Company) specifying the Sub-Account (or the Fixed Account) from which
surrender is to be made. The Cash Surrender Value will be determined as of the
next valuation 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 the mail, but it is
its intent to pay as soon as possible. Requests for surrender that are not in
good order will not be processed until the deficiencies are corrected. The
Company will contact the Contract Owner to advise of the reason for the delay
and what is needed to act upon the surrender request.
The Cash Surrender Value on any date will be equal to the Contract Value
less any applicable surrender charge and any premium tax not previously
deducted. The Cash Surrender Value may be more or less than the Purchase
Payments made depending on the Contract Value at the time of surrender.
SYSTEMATIC WITHDRAWALS
Prior to the Maturity Date of the Contract, a Contract Owner may elect in
writing on a form provided by the Company to take systematic withdrawals from
the Contract by surrendering a specified dollar amount of at least $100 on a
monthly, quarterly, semiannual or annual basis. Any applicable surrender
charges above the free withdrawal allowance and any applicable premium taxes
will be deducted. The minimum Contract Value required to begin systematic
withdrawals is $15,000. The Company will process the withdrawals as directed
by surrendering on a pro-rata basis Accumulation Units from all Sub-Accounts
and/or the Fixed Account in which the Contract Owner has an interest, unless
otherwise directed. The Contract Owner may begin or discontinue systematic
withdrawals at any time by notifying the Company in writing, but at least 30
days' notice must be given to change any systematic withdrawal instructions
that are currently in place.
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The Company reserves the right to discontinue offering systematic withdrawals
or to assess a processing fee for this service upon 30 days' written notice to
Contract Owners.
Each systematic withdrawal is subject to federal income taxes on the taxable
portion. In addition, a 10% federal penalty tax may be assessed on systematic
withdrawals if the Contract Owner is under age 59 1/2. Contract Owners should
consult with their tax adviser regarding the tax consequences of systematic
withdrawals.
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DEATH BENEFIT
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A Death Benefit is payable to the Beneficiary upon the death of the Annuitant
prior to the Maturity Date with no Contingent Annuitant surviving. Two
different types of death benefits are available under the Contract: a Standard
Death Benefit and an Enhanced Death Benefit (the Enhanced Death Benefit may not
be available in all jurisdictions). Death Benefits are payable upon the
Company's receipt at its Home Office of due proof of death. A Beneficiary may
request that a death benefit payable under the Contract be applied to one of
the settlement options available under the Contract, subject to the contract
provisions. (See also "Nonqualified Annuity Contracts," page 19.) See Appendix
A for Contracts issued in the state of Florida.
In addition, for nonqualified contracts, if the Contract Owner dies
(including the first of joint owners) before the Maturity Date with the
Annuitant or Contingent Annuitant surviving, and if a distribution is made as a
result of such death, as required by the minimum distribution rules of the
federal tax law, the Company will recalculate the value of the Contract under
the provisions of "Death Proceeds Prior to the Maturity Date," below. The value
of the Contract, as recalculated, will be credited to the party taking
distributions upon the death of the Contract Owner with the Annuitant or
Contingent Annuitant surviving. This will generally be the surviving joint
owner or succeeding owner, or otherwise the Beneficiary in accordance with all
the circumstances and the terms of the Contract. This party may differ from the
Beneficiary who was named by the Owner in a written request and who would
receive any remaining contractual benefits upon the death of the Annuitant.
This part may be paid in a single lump sum, or by other options, but should
take distributions as required by minimum distribution rules of the federal tax
law. If the Contract Owner's spouse is the surviving joint or succeeding owner,
the spouse may elect to continue the Contract as owner in lieu of taking a
distribution under the Contract. (See generally, "Nonqualified Annuity
Contracts," page 19.) All references to age in the "Death Proceeds Prior to the
Maturity Date" section will be based on the Contract Owner's age rather than
the Annuitant's age.
DEATH PROCEEDS PRIOR TO THE MATURITY DATE
STANDARD DEATH BENEFIT. Under the standard death benefit, if the Annuitant
dies BEFORE AGE 75 and before the Maturity Date, the Company will pay to the
Beneficiary a death benefit in an amount equal to the greatest of (1), (2) or
(3) below, less any applicable premium tax or prior surrenders not previously
deducted:
1) the Contract Value;
2) the total Purchase Payments made under the Contract; or
3) the Contract Value on the fifth contract year anniversary immediately
preceding the date on which the Company receives due proof of death.
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If the Annuitant dies ON OR AFTER AGE 75, BUT BEFORE AGE 85 and before the
Maturity Date, the Company will pay to the Beneficiary a death benefit in an
amount equal to the greatest of (1), (2) or (3) below, less any applicable
premium tax or prior surrenders not previously deducted:
1) the Contract Value;
2) the total Purchase Payments made under the Contract; or
3) the Contract Value on the latest fifth contract year anniversary
occurring on or before the Annuitant's 75th birthday.
If the Annuitant dies ON OR AFTER AGE 85 and before the Maturity Date, the
Company will pay to the Beneficiary a death benefit in an amount equal to the
Contract Value, less any applicable premium tax.
See Appendix A for Contracts issued in the state of Florida.
ENHANCED DEATH BENEFIT. Under the enhanced death benefit, if the Annuitant
dies BEFORE AGE 75 and before the Maturity Date, the Company will pay to the
Beneficiary a death benefit equal to the greater of (1) the guaranteed death
benefit, or (2) the Contract Value less any applicable premium tax.
The guaranteed death benefit is equal to the Purchase Payments made to the
Contract (minus surrenders and applicable premium tax) increased by 5% on each
contract date anniversary, but not beyond the contract date anniversary
following the Annuitant's 75th birthday, with a maximum guaranteed death
benefit of 200% of the total of Purchase Payments minus surrenders and minus
applicable premium tax.
If the Annuitant dies ON OR AFTER AGE 75, BUT BEFORE AGE 85 and before the
Maturity Date, the Company will pay to the Beneficiary a death benefit in an
amount equal to the greater of (1) the guaranteed death benefit as of the
Annuitant's 75th birthday, plus additional purchase payments, minus surrenders
and applicable premium tax; or (2) the Contract Value less any applicable
premium tax.
If the Annuitant dies ON OR AFTER AGE 85 but before the Maturity Date, the
Company will pay to the Beneficiary a death benefit equal to the Contract Value
less any applicable premium tax.
DEATH PROCEEDS AFTER THE MATURITY DATE
If the Annuitant dies on or after the Maturity Date, the Company will pay the
Beneficiary a death benefit consisting of any benefit remaining under the
Annuity or Income Option then in effect.
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THE ANNUITY PERIOD
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MATURITY DATE
Annuity Payments will ordinarily begin on the Maturity Date stated in the
Contract. If no Maturity Date is elected, the Maturity Date will be the
Annuitant's 70th birthday for qualified contracts and the Annuitant's 75th
birthday, or ten years after the Contract Date, if later, for nonqualified
contracts. The Maturity Date is the date on which the Company will begin paying
the first of a series of Annuity or Income Payments in accordance with the
Settlement Option selected by the Contract Owner. Annuity or Income Payments
will begin on the Maturity Date unless the Contract has been fully surrendered
or the
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proceeds have been paid to the Beneficiary prior to the date. The Company may
require proof that the Annuitant is alive before Annuity Payments are made.
For nonqualified Contracts, at least 30 days before the original Maturity
Date, a Contract Owner may elect to extend the Maturity Date to any time prior
to the Annuitant's 85th birthday or, for qualified Contracts, to a later date
with the Company's consent. Certain annuity options taken at the Maturity Date
may be used to meet the minimum required distribution requirements of federal
tax law, or a program of partial surrenders may be used instead. These
mandatory distribution requirements take effect generally upon the death of the
Contract Owner, or with qualified contracts upon either the Contract Owner's
attainment of age 70 1/2 or the death of the Contract Owner. Independent tax
advice should be sought regarding the election of minimum required
distributions.
See Appendix A for Contracts issued in the state of Florida.
ALLOCATION OF ANNUITY
At the time election of one of the Annuity Options is made, the person
electing the Option may further elect to have the Contract Value applied to
provide a Variable Annuity, a Fixed Annuity, or a combination of both. If at
the time when Annuity Payments begin no election has been made to the contrary,
the value of a Sub-Account or the Fixed-Account shall be applied to provide an
annuity funded by that same Sub-Account or Fixed Account. A Contract Owner may
elect to transfer Contract Values from one account to another prior to the date
Annuity Payments commence in order to reallocate the basis on which Annuity
Payments will be determined. (See "Transfers," page 10.)
VARIABLE ANNUITY
ANNUITY UNIT VALUE. The initial value of an Annuity Unit for each Sub-Account
will equal the Annuity Unit Value for the applicable Sub-Account available
through Fund BD as of the Valuation Period for which the initial annuitization
takes effect. (The dollar value of an Annuity Unit for each Sub-Account offered
through Fund BD was established at $1.) The Annuity Unit Value for each Sub-
Account as of any Valuation Data is equal to (a) the value of the Annuity Unit
on the immediately preceding Valuation Date, multiplied by (b) the net
investment factor for that Sub-Account for the Valuation Period just ended,
divided by (c) the assumed net investment factor for the Valuation Period. (For
example, the assumed net investment factor based on an annual assumed net
investment rate of 3.0% for a Valuation Period of one day is 1.000081 and, for
a period of two days, is 1.000081 x 1.000081.) 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 Sub-Account by
the Sub-Account's Annuity Unit Value as of 14 days prior to the date Annuity
Payments commence. 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 Contract Value 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. A formula for determining the adjusted age is contained in the
Contract. The total first monthly Annuity Payment is
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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
satisfactory proof of age of any person on whose life Annuity Payments are
based before making the first payment under any of the Settlement Options.
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 Sub-
Account. The total amount of each Annuity Payment will be equal to the sum of
the basic payments in each Sub-Account. The actual amounts of these payments
are determined by multiplying the number of Annuity Units credited to each Sub-
Account by the corresponding Annuity Unit Value as of the date 14 days prior to
the date before payment is due.
See Appendix A for Contracts issued in the state of Florida.
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.
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PAYMENT OPTIONS
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ELECTION OF OPTIONS
On the Maturity 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 option must be
made in writing in a form satisfactory to the Company. Any election made during
the lifetime of the Annuitant must be made by the Contract Owner. While the
Annuitant is alive, the Contract Owner may change a Settlement Option election
by written request at any time prior to the Maturity Date. Once Annuity or
Income Payments have begun, no further election changes are allowed. During the
Annuitant's lifetime, if no election has been made prior to the Maturity Date,
the Company will pay to the Contract Owner the first of a series of monthly
Annuity Payments based on the life of the Annuitant, in accordance with Annuity
Option 2 (Life Annuity with 120 monthly payments assured). For certain
qualified contracts, Annuity Option 4 (Joint and Last Survivor Joint Life
Annuity -- Annuity Reduced on Death of Primary Payee) will be the automatic
option as described in the contract.
The minimum amount that can be placed under an Annuity or Income Option will
be $2,000 unless the Company consents to a lesser amount. If any monthly
periodic payment due any payee is less than $100, the Company reserves the
right to make payments at less frequent intervals, or to pay the Contract Value
in one lump-sum payment.
See Appendix A for Contracts issued in the state of Florida.
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ANNUITY OPTIONS
Subject to the conditions described in "Election of Options" above, all or
any part of the Cash Surrender Value of the Contract may be paid under one or
more of the following Annuity Options. Payments under the Annuity Options may
be elected on a monthly, quarterly, semiannual or annual basis.
OPTION 1 -- LIFE ANNUITY -- NO REFUND. The Company will make Annuity Payments
during the lifetime of the Annuitant, terminating with the last payment
preceding death. This option offers the maximum periodic payment, since there
is no assurance of a minimum number of payments or provision for a death
benefit for beneficiaries. (It would be possible under this option to receive
only one Annuity Payment if the Annuitant died before the due date of the
second Annuity Payment, only two if the Annuitant died before the third Annuity
Payment, etc.)
OPTION 2 -- LIFE ANNUITY WITH 120, 180 OR 240 MONTHLY PAYMENTS ASSURED. The
Company will make monthly Annuity Payments during the lifetime of the
Annuitant, with the agreement that if, at the death of that person, payments
have been made for less than 120, 180 or 240 months, as elected, payments will
be continued during the remainder of the period to the Beneficiary designated.
OPTION 3 -- 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.
OPTION 4 -- JOINT AND LAST SURVIVOR LIFE ANNUITY -- ANNUITY REDUCED ON DEATH
OF PRIMARY PAYEE. The Company will make Annuity Payments during the lifetime of
the two persons on whose lives payments are based. One of the two persons will
be designated as the primary payee, the other will be designated as the
secondary payee. On the death of the secondary payee, if survived by the
primary payee, the Company will continue to make monthly Annuity Payments to
the primary payee in the same amount that would have been payable during the
joint lifetime of the two persons. On the death of the primary payee, if
survived by the secondary payee, the Company will continue to make Annuity
Payments to the secondary payee in an amount equal to 50% of the payments which
would have been made during the lifetime of the primary payee. No further
payments will be made following the death of the survivor.
OPTION 5 -- OTHER ANNUITY OPTIONS. The Company will make any other
arrangements for Annuity Payments as may be mutually agreed upon.
INCOME OPTIONS
Instead of one of the Annuity Options described above, and subject to the
conditions described under "Election of Options," all or part of the Cash
Surrender Value of the Contract may be paid under one or more of the following
Income Options, provided that they are consistent with federal tax law
qualification requirements. Payments under the Income Options may be elected on
a monthly, quarterly, semiannual or annual basis:
OPTION 1 -- PAYMENTS OF A FIXED AMOUNT. The Company will make equal payments
of the amount elected until the Contract Value applied under this option has
been exhausted. The first payment and all later payments will be paid for each
Sub-Account or the Fixed Account in proportion to the Cash Surrender Value
attributable to that Account. The final payment will include any amount
insufficient to make another full payment.
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OPTION 2 -- PAYMENTS FOR A FIXED PERIOD. The Company will make payments for
the period selected. The amount of each payment will be equal to the remaining
Contract Value applied under this option divided by the number of remaining
payments.
OPTION 3 -- OTHER INCOME OPTIONS. The Company will make any other
arrangements for Income Payments as may be mutually agreed upon.
The amount applied to effect an Income Option will be the Contract Value as
of 14 days before the date Income Payments commence, less any applicable
premium taxes not previously deducted and any applicable contingent deferred
sales charge. The Contract Value used to determine the amount of any Income
Payment will be determined on the same basis as the Contract Value during the
Accumulation Period, including the deduction for mortality and expense risks
and the Sub-Account Administrative Charge. 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, payments are
unrelated to the actual life span of any person. Thus, the Annuitant may
outlive the payment period.
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MISCELLANEOUS CONTRACT PROVISIONS
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TERMINATION
No Purchase Payments after the first are required to keep the Contract in
effect. However, the Company reserves the right to terminate the Contract on
any Valuation Date if the Contract Value as of that date is less than $1,000
and no Purchase Payments have been made for at least two years, unless
otherwise specified by state law. Termination will not occur until 31 days
after the Company has mailed notice of termination to the Contract Owner at
his or her last known address and to any assignee of record. If the Contract
is terminated, the Company will pay to the Contract Owner the Cash Surrender
Value (Contract Value, in the states of Washington and New Jersey), less any
applicable administrative charge or premium tax.
MISSTATEMENT
If the Annuitant's or Contract Owner's sex or date of birth was misstated,
all benefits under the Contract are what the Purchase Payment paid would have
purchased at the correct sex and age. Proof of the Annuitant's or Contract
Owner's age may be filed at any time at the Company's Home Office.
REQUIRED REPORTS
As often as required by law, but at least once in each Contract Year before
the due date of the first Annuity Payment, the Company will furnish a report
showing the number of Accumulation Units credited to the Contract and the
corresponding Accumulation Unit Value as of the date of the report for each
Sub-Account in which the Contract Owner has invested during the applicable
period. The Company will keep all records required under federal or state
laws.
SUSPENSION OF PAYMENTS
The Company reserves the right to suspend or postpone the date of any
payment of any benefit or values for any Valuation Period (1) when the New
York Stock Exchange ("the Exchange") is closed; (2) when trading
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on the Exchange is restricted; (3) when an emergency exists as determined by
the Securities and Exchange Commission so that disposal of the securities held
in the Sub-Accounts is not reasonably practicable or it is not reasonably
practicable to determine the value of the Sub-Account's net assets; or (4)
during any other period when the Securities and Exchange Commission, by order,
so permits for the protection of securityholders.
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FEDERAL TAX CONSIDERATIONS
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The following description of the federal income tax consequences under this
Contract is not exhaustive and is not intended to cover all situations. Because
of the complexity of the law and the fact that the tax results will vary
according to the factual status of the individual involved, tax advice may be
needed by a person contemplating purchase of an annuity contract and by a
Contract Owner or Beneficiary who may make elections under a contract. For
further information, a qualified tax adviser should be consulted.
GENERAL TAXATION OF ANNUITIES
Amounts credited to the Contract are not generally taxable until they are
received by the Contract Owner or the Beneficiary, either in the form of
Annuity Payments or other distributions. Distributions from annuities that
include previously taxed amounts may be taxed on either an income-first basis
or an income-last basis, or on a pro-rata basis according to the type of plan
or due to other circumstances.
TAX LAW DIVERSIFICATION REQUIREMENTS FOR VARIABLE ANNUITIES
The Code requires that any nonqualified variable annuity contracts based on a
segregated asset account shall not be treated as an annuity for any period if
investments made in the account are not adequately diversified. Final tax
regulations define how segregated asset accounts must be diversified. The
Company monitors the diversification of investments constantly and believes
that its accounts are adequately diversified. The consequence of any failure is
essentially the loss to the contract owner of tax deferred treatment. The
Company intends to administer all contracts subject to this provision of law in
a manner that will maintain adequate diversification.
OWNERSHIP OF THE INVESTMENTS
Assets in the segregated asset accounts must be owned by the Company and not
by the contract owner for federal income tax purposes. Otherwise, the deferral
of taxes is lost and income and gains from the accounts would be includible
annually in the contract owner's gross income.
The Internal Revenue Service has stated in published rulings that a variable
contract owner will be considered the owner of the assets of a segregated asset
account if the owner possesses an incident of ownership in those assets, such
as the ability to exercise investment control over the assets. The Treasury
Department announced, in connection with the issuance of temporary regulations
concerning investment diversification, that those regulations "do not provide
guidance concerning the circumstances in which investor control of the
investments of a segregated asset account may cause the investor, rather than
the insurance company, to be treated as the owner of the assets of the
account." This announcement, dated September 15, 1986, also stated that the
guidance would be issued by way of regulations or rulings on the "extent to
which policyholders may direct their investments to particular subaccounts [of
a segregated
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asset account] without being treated as owners of the underlying assets." As of
the date of this prospectus, no such guidance has been issued.
The Company does not know if such guidance will be issued, or if it is, what
standards it may set. Furthermore, the Company does not know if such guidance
may be issued with retroactive effect. New regulations are generally issued
with a prospective-only effect as to future sales or as to future voluntary
transactions in existing contracts. The Company therefore reserves the right to
modify the contract as necessary to attempt to prevent contract owners from
being considered the owner of the assets of the accounts.
PENALTY TAX FOR PREMATURE DISTRIBUTIONS
Taxable distributions taken before the Contract Owner has attained the age of
59 1/2 will be subject to a 10% additional tax penalty unless the distribution
is taken in a series of periodic distributions for life or life expectancy, or
unless the distribution follows the death or disability of the Contract Owner.
Other exceptions may be available in certain tax-benefited plans.
MANDATORY DISTRIBUTIONS FOR QUALIFIED PLANS
Federal tax law requires that minimum annual distributions begin by April 1st
of the calendar year following the calendar year in which a participant under a
qualified plan, a Section 403(b) annuity, or an IRA attains age 70 1/2.
Distributions must also begin or be continued according to required patterns
following the death of the Owner or the Annuitant.
NONQUALIFIED ANNUITY CONTRACTS
Individuals may purchase tax-deferred annuities without tax law funding
limits. The Purchase Payments receive no tax benefit, deduction or deferral,
but increases in the value of the contract are generally deferred from tax
until distribution. If a nonqualified annuity is owned by other than an
individual, however, (e.g., by a corporation), the increases in value
attributable to Purchase Payments made after February 28, 1986 are includable
in income annually. Furthermore, for contracts issued after April 22, 1987, all
deferred increases in value will be includable in the income of a Contract
Owner when the Contract Owner transfers the contract without adequate
consideration.
If two or more annuity contracts are purchased from the same insurer within
the same calendar year, distributions from any of them will be taxed based upon
the amount of income in all of the same calendar year series of annuities. This
will generally have the effect of causing taxes to be paid sooner on the
deferred gain in the contracts.
Those receiving partial distributions made before the Maturity Date will
generally be taxed on an income-first basis to the extent of income in the
contract. If you are exchanging another annuity contract for this annuity,
certain pre-August 14, 1982 deposits into an annuity contract that have been
placed in the contract by means of a tax-deferred exchange under Section 1035
of the Code may be withdrawn first without income tax liability. This
information on deposits must be provided to the Company by the other insurance
company at the time of the exchange. There is income in the contract generally
to the extent the Cash Value exceeds the investment in the contract. The
investment in the contract is equal to the amount of premiums paid less any
amount received previously which was excludable from gross income. Any direct
or indirect borrowing against the value of the contract or pledging of the
contract as security for a loan will be treated as a cash distribution under
the tax law.
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The federal tax law requires that nonqualified annuity contracts meet minimum
mandatory distribution requirements upon the death of the Contract Owner,
including the first of joint owners. Failure to meet these requirements will
cause the surviving joint owner, the succeeding Contract Owner, or the
Beneficiary to lose the tax benefits associated with annuity contracts, i.e.,
primarily the tax deferral prior to distribution. The distribution required
depends, among other things, upon whether an Annuity Option is elected or
whether the new Contract Owner is the surviving spouse. Contracts will be
administered by the Company in accordance with these rules and the Company will
make a notification when payments should be commenced.
INDIVIDUAL RETIREMENT ANNUITIES
To the extent of earned income for the year and not exceeding $2,000 per
individual, an individual may make deductible contributions to an individual
retirement annuity (IRA). There are certain limits on the deductible amount
based on the adjusted gross income of the individual and spouse and based on
their participation in a retirement plan. If an individual is married and the
spouse does not have earned income, the individual may establish IRAs for the
individual and spouse. Purchase Payments may then be made annually into IRAs
for both spouses in the maximum amount of 100% of earned income up to a
combined limit of $2,250.
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.
QUALIFIED PENSION AND PROFIT-SHARING PLANS
Under a qualified pension or profit-sharing plan, Purchase Payments made by
an employer are not currently taxable to the participant and increases in the
value of a contract are not subject to taxation until received by a participant
or Beneficiary.
Distributions are taxable to the participant or Beneficiary as ordinary
income in the year of receipt. Any distribution that is considered the
participant's "investment in the contract" is treated as a return of capital
and is not taxable. Certain lump-sum distributions may be eligible for special
forward averaging tax treatment for certain classes of individuals.
FEDERAL INCOME TAX WITHHOLDING
The portion of a distribution which is taxable income to the recipient will
be subject to federal income tax withholding as follows:
1. ELIGIBLE ROLLOVER DISTRIBUTION FROM SECTION 403(B) PLANS OR ARRANGEMENTS
OR FROM QUALIFIED PENSION AND PROFIT-SHARING PLANS
There is a mandatory 20% tax withholding for plan distributions that are
eligible for rollover to an IRA or to another retirement plan but that
are not directly rolled over. A distribution made directly to a
participant or Beneficiary may avoid this result if:
(a)a periodic settlement distribution is elected based upon a life or
life expectancy calculation, or
(b) a term-for-years settlement distribution is elected for a period of
ten years or more, payable at least annually, or
(c) a minimum required distribution as defined under the tax law is
taken after the attainment of the age of 70 1/2 or as otherwise
required by law.
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A distribution including a rollover that is not a direct rollover will
be subject to the 20% withholding, and a 10% additional tax penalty may
apply to any amount not added back in the rollover. The 20% withholding
may be recovered when the participant or Beneficiary files a personal
income tax return for the year if a rollover was completed within 60
days of receipt of the funds, except to the extent that the participant
or spousal Beneficiary is otherwise underwithheld or short on estimated
taxes for that year.
2. OTHER NON-PERIODIC DISTRIBUTIONS (FULL OR PARTIAL REDEMPTIONS)
To the extent not described as requiring 20% withholding in 1 above, the
portion of a non-periodic distribution which constitutes taxable income
will be subject to federal income tax withholding, if the aggregate
distributions exceed $200 for the year, unless the recipient elects not
to have taxes withheld. If no such election is made, 10% of the taxable
distribution will be withheld as federal income tax. Election forms will
be provided at the time distributions are requested. This form of
withholding applies to all annuity programs.
3. PERIODIC DISTRIBUTIONS (DISTRIBUTIONS PAYABLE OVER A PERIOD GREATER THAN
ONE YEAR)
The portion of a periodic distribution which constitutes taxable income
will be subject to federal income tax withholding under the wage
withholding tables as if the recipient were married claiming three
exemptions. A recipient may elect not to have income taxes withheld or
have income taxes withheld at a different rate by providing a completed
election form. Election forms will be provided at the time distributions
are requested. This form of withholding applies to all annuity programs.
As of January 1, 1994, a recipient receiving periodic payments (e.g.,
monthly or annual payments under an Annuity Option) which total $13,700
or less per year, will generally be exempt from periodic withholding.
Recipients who elect not to have withholding made are liable for payment of
federal income tax on the taxable portion of the distribution. All recipients
may also be subject to penalties under the estimated tax payment rules if
withholding and estimated tax payments are not sufficient to cover tax
liabilities.
Recipients who do not provide a social security number or other taxpayer
identification number will not be permitted to elect out of withholding.
Additionally, 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.
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
VOTING RIGHTS
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
The Contract Owner has certain voting rights in Fund BD II and the
Underlying Funds. The number of votes which a Contract 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. A Contract Owner's voting
rights will decline as the reserve for the Contract declines.
Upon the death of the Contract Owner, all voting rights will vest in the
Beneficiary of the Contract, except in the case of 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 Underlying Funds held by Fund BD II at regular and special meetings
of the Underlying Fund shareholders in accordance with instructions received
from persons having a voting interest in Fund BD II. The Company will vote
shares for which it has not received instructions in the same proportion as it
votes shares for
-------------------------------------------------------------------------------
21
<PAGE>
which it has received instructions. However, if the Investment Company Act of
1940 ("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 Underlying 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 Underlying
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 Underlying Fund.
Each person having a voting interest in Fund BD II will receive periodic
reports relating to the Underlying Fund(s) in which he or she has an interest,
as well as any proxy materials, including a form on which to give voting
instructions with respect to the proportion of the Underlying Fund shares held
by Fund BD II which correspond to his or her interest in the Sub-Account.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
DISTRIBUTION OF VARIABLE ANNUITY CONTRACTS
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
The Company intends to sell the Contracts in all jurisdictions where it is
licensed to do business and where the Contract is approved. The Contracts will
be sold by life insurance sales agents who represent the Company, and who are
licensed registered representatives of the Company or certain other registered
broker-dealers. The compensation paid to sales representatives will not exceed
8.5% of the payments made under the Contracts.
From time to time, the Company may pay or permit other promotional
incentives, in cash, credit or other compensation.
Any sales representative or employee will have been qualified to sell
Variable Annuities under applicable federal and state laws. Each broker-dealer
is registered with the Securities and Exchange Commission under the Securities
Exchange Act of 1934, and all are members of the National Association of
Securities Dealers, Inc. Tower Square Securities, Inc., an affiliate of the
Company, is the principal underwriter for the Contracts.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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 covering the operations of the
Company for the preceding year, as well as its financial conditions as of
December 31 of such year, must be filed with the Commissioner in a prescribed
format on or before March 1 of each year. The Company's books and assets are
subject to review or examination by the Commissioner or his agents at all
times, and a full examination of its operations is conducted at least once
every four years.
The Company is also subject to the insurance laws and regulations of all
other states in which it is licensed to operate. However, the insurance
departments of each of these states generally apply the laws of the
jurisdiction of domicile in determining the field of permissible investments.
--------------------------------------------------------------------------------
22
<PAGE>
CONFORMITY WITH STATE AND FEDERAL LAWS
The Contract is governed by the laws of the state in which it is delivered.
Any paid-up Annuity, Cash Surrender Value or death benefits that are available
under the Contract are not less than the minimum benefits required by the
statutes of the state in which the Contract is delivered. The Company may at
any time make any changes, including retroactive changes, in the Contract to
the extent that the change is required to meet the requirements of any law or
regulation issued by any governmental agency to which the Company, the Contract
or the Contract Owner is subject.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
LEGAL PROCEEDINGS AND OPINIONS
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
There are no pending material legal proceedings affecting Fund BD II. 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 reviewed by the General Counsel of
the Life and Annuities Division of the Company.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
THE FIXED ACCOUNT
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Purchase Payments allocated to the Fixed Account portion of the Contract and
any transfers 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 ("1933 Act"), nor is the
general account registered as an investment company under the 1940 Act.
Accordingly, neither the general account nor 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 periodic
annuity payment. The investment gain or loss of Fund BD II or any of the Sub-
Accounts does not affect the Fixed Account portion of the Contract Owner's
Contract Value, or the dollar amount of fixed annuity payments made under any
payout option.
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 BD II 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.
--------------------------------------------------------------------------------
23
<PAGE>
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 initial rate for any deposit into the Fixed Account is guaranteed for one
year from the date of such deposit. Subsequent renewal rates will be guaranteed
for the calendar quarter. 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 CREDIT TO THE FIXED ACCOUNT MAY NOT EXCEED THE
MINIMUM GUARANTEE OF 3% 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.
TRANSFERS
Transfers from the Fixed Account to any of the Sub-Accounts will be permitted
twice a year during the 30 days following the semiannual Contract Date
anniversary in an amount of up to 15% of the Fixed Account Value on the
semiannual Contract Date anniversary. (This restriction does not apply to
transfers from the Dollar-Cost Averaging Program.) Amounts previously
transferred from the Fixed Account to the Sub-Accounts may not be transferred
back to the Fixed Account for a period of at least six months from the date of
transfer. The Company reserves the right to waive either of these restrictions
in its discretion.
Automated transfers from the Fixed Account to any of the Sub-Accounts may
begin at any time. Automated transfers from the Fixed Account may not deplete
your Fixed Account value in a period of less than twelve months from your
enrollment in the Dollar-Cost Averaging Program.
--------------------------------------------------------------------------------
24
<PAGE>
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
APPENDIX A
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
FOR CONTRACTS ISSUED IN THE STATE OF FLORIDA
DEATH BENEFIT
The Enhanced Death Benefit is NOT available in Florida.
STANDARD DEATH BENEFIT. Under the standard death benefit, if the Annuitant
dies BEFORE AGE 75 and before the Maturity Date, the Company will pay to the
Beneficiary a death benefit in an amount equal to the greatest of (1), (2) or
(3) below, less any applicable premium tax or prior surrenders not previously
deducted:
(1) the Contract Value;
(2) the total Purchase Payments made under the Contract; or
(3) the Contract Value on the fifth contract year anniversary immediately
preceding the date on which the Company receives due proof of death.
IF THE ANNUITANT DIES ON OR AFTER AGE 75, BUT BEFORE AGE 90 and before the
Maturity Date, the Company will pay to the Beneficiary a death benefit in an
amount equal to the greatest of (1), (2) or (3) below, less any applicable
premium tax or prior surrenders not previously deducted:
(1) the Contract Value;
(2) the total Purchase Payments made under the Contract; or
(3) the Contract Value on the latest fifth contract year anniversary
occurring on or before the Annuitant's 75th birthday.
THE ANNUITY PERIOD
MATURITY DATE
The maturity date may not be any date beyond the Annuitant's 90TH birthday.
THE VARIABLE ANNUITY
Variable payouts are not permitted in Florida. Contract Owners may only have
their Contract Values applied to provide a Fixed Annuity.
Disregard the "Variable Annuity" section described on page 14.
ELECTION OF OPTIONS
ON THE MATURITY DATE, OR OTHER AGREED-UPON DATE, THE COMPANY WILL PAY AN
AMOUNT PAYABLE UNDER THE CONTRACT IN ACCORDANCE WITH THE PAYMENT OPTION
SELECTED BY THE CONTRACT OWNER. Election of an option must be made in writing
in a form satisfactory to the Company. Any election made during the lifetime
of the Annuitant must be made by the Contract Owner. While the Annuitant is
alive, the Contract Owner may change a Settlement Option election by Written
Request at any time prior to the Maturity Date. Once Annuity or Income
Payments have begun, no further election changes are allowed. During the
Annuitant's lifetime, if no election has been made prior to the Maturity Date,
the Company will pay to the Contract Owner the first of a series of monthly
Annuity Payments based on the life of the Annuitant, in
-------------------------------------------------------------------------------
25
<PAGE>
accordance with Annuity Option 2 (Life Annuity with 120 monthly payments
assured). For certain tax-qualified contracts, Annuity Option 4 (Joint and
Last Survivor Joint Life Annuity--Annuity Reduced on Death of Primary Payee)
will be the automatic option as described in the contract.
The minimum amount that can be placed under an Annuity or Income Option will
be $2,000 unless the Company consents to a lesser amount. If any monthly
periodic payment due any payee is less than $100, the Company reserves the
right to make payments at less frequent intervals, or to pay the Contract
Value in one lump-sum payment.
--------------------------------------------------------------------------------
26
<PAGE>
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
APPENDIX B
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information contains more specific information
and financial statements relating to the Separate Account and The Travelers
Life and Annuity Company. A list of the contents of the Statement of
Additional Information is set forth below:
The Insurance Company
Principal Underwriter
Distribution and Management Agreement
Valuation of Assets
Performance Information
Independent Accountants
Financial Statements
-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
COPIES OF THE STATEMENT OF ADDITIONAL INFORMATION DATED SEPTEMBER 22, 1995
(FORM NO. L-12540S ARE AVAILABLE WITHOUT CHARGE. TO REQUEST A COPY, PLEASE
CLIP THIS COUPON ON THE DOTTED LINE ABOVE, ENTER YOUR NAME AND ADDRESS IN THE
SPACES PROVIDED BELOW, AND MAIL TO: THE TRAVELERS LIFE AND ANNUITY COMPANY,
ANNUITY INVESTOR SERVICES--5SHS ONE TOWER SQUARE, HARTFORD, CONNECTICUT 06183-
9061.
Name: _________________________________________________________________________
Address: ______________________________________________________________________
_______________________________________________________________________________
-------------------------------------------------------------------------------
27
<PAGE>
PART B
Information Required in a Statement of Additional Information
-------------------------------------------------------------
<PAGE>
VINTAGE
STATEMENT OF ADDITIONAL INFORMATION
dated
September 22, 1995
for
THE TRAVELERS FUND BD II FOR VARIABLE ANNUITIES
ISSUED BY
THE TRAVELERS LIFE AND ANNUITY COMPANY
This Statement of Additional Information ("SAI") is not a prospectus but relates
to, and should be read in conjunction with, the Individual Variable Annuity
Contract Prospectus dated September 22, 1995. A copy of the Prospectus may be
obtained by writing to The Travelers Life and Annuity Company, Annuity Services
- 5 SHS, One Tower Square, Hartford, Connecticut 06183-9061, or by calling
1-800-842-8573.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
THE INSURANCE COMPANY.............................................. 1
PRINCIPAL UNDERWRITER.............................................. 1
DISTRIBUTION AND MANAGEMENT AGREEMENT.............................. 1
VALUATION OF ASSETS................................................ 1
PERFORMANCE INFORMATION............................................ 2
INDEPENDENT ACCOUNTANTS............................................ 4
FINANCIAL STATEMENTS............................................... 4
</TABLE>
<PAGE>
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 (203) 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.
PRINCIPAL UNDERWRITER
Tower Square Securities, Inc. ("TSSI"), an affiliate of the Company,
serves as principal underwriter for Fund BD II and the Contracts. The offering
is continuous. TSSI is an indirect wholly owned subsidiary of Travelers Group
Inc. and its principal executive offices are located at One Tower Square,
Hartford, Connecticut.
DISTRIBUTION AND MANAGEMENT AGREEMENT
Under the terms of the Distribution and Management Agreement among
Fund BD II, the Company and TSSI, the Company provides all administrative
services and mortality and expense risk guarantees related to variable annuity
contracts sold by the Company in connection with Fund BD II. TSSI performs
the sales functions related to the Contracts. The Company reimburses TSSI for
commissions paid, other sales expenses and certain overhead expenses connected
with sales functions. The Company also pays all costs (including costs
associated with the preparation of sales literature); all costs of qualifying
Fund BD II and the variable annuity contract with regulatory authorities;
the costs of proxy solicitation; and all custodian, accountant's and legal fees.
The Company also provides without cost to Fund BD II all necessary office
space, facilities, and personnel to manage its affairs.
VALUATION OF ASSETS
The value of the assets of each Underlying Fund is determined on each
Valuation Date as of the close of the New York Stock Exchange. Each security
traded on a national securities exchange is valued at the last reported sale
price on the 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
1
<PAGE>
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.
PERFORMANCE INFORMATION
From time to time, the Company may advertise several types of
historical performance for Sub-Accounts of Fund BD II. The Company may
advertise the "standardized average annual total returns" of the Sub-Accounts,
calculated in a manner prescribed by the Securities and Exchange Commission, as
well as the "non-standardized total return," as described below:
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 the Sub-Account, and then related to ending redeemable
values over one, five and ten year periods, or for a period covering the time
during which the Underlying Fund held in the Sub-Account has been in existence
if the Underlying Fund has not been in existence for one of the prescribed
periods. These quotations reflect the deduction of all recurring charges during
each period (on a pro rata basis in the case of fractional periods). The
deduction for the annual administrative charge ($30) is converted to a
percentage of assets based on the actual fee collected, divided by the average
net assets per contract sold under the Prospectus to which this Statement of
Additional Information relates. Each quotation assumes a total redemption at
the end of each period with the assessment of any applicable Contingent Deferred
Sales Charge at that time.
NON-STANDARDIZED METHOD. Non-standardized "total return" will be
calculated in a similar manner based on the performance of the Sub-Account over
a period of time, usually for the calendar year-to-date, and for the past one-,
three-, five- and seven-year periods. Non-standardized total return will not
reflect the deduction of any applicable Contingent Deferred
2
<PAGE>
Sales Charge or the $30 annual contract administrative charge, which, if
reflected, would decrease the level of performance shown. The contingent
Deferred Sales Charge is not reflected because the Contract is designed for
long-term investment.
GENERAL. Within the guidelines prescribed by the SEC and the National
Association of Securities Dealers, Inc. ("NASD"), performance information may be
quoted numerically or may be presented in a table, graph or other illustration.
Advertisements may include data comparing performance to well-known indices of
market performance (including, but not limited to, the Dow Jones Industrial
Average, the Standard & Poor's (S&P) 500 Index and the S&P 400 Index, the Lehman
Brothers Long T-Bond Index, the Russell 1000, 2000 and 3000 Indices, the Value
Line Index, and the Morgan Stanley Capital International's EAFE Index).
Advertisements may also include published editorial comments and performance
rankings compiled by independent organizations (including, but not limited to,
Lipper Analytical Services, Inc. and Morningstar, Inc.) and publications that
monitor the performance of Fund BD II and the Underlying Funds.
For Sub-Accounts that invest in Underlying Funds that were in
existence prior to the date the Underlying Funds became available under Fund BD
II, the standardized average total return and non-standardized total return
quotations will show the investment performance that such Underlying Funds would
have achieved (reduced by the applicable charges) had they been held as Sub-
Accounts under the Contract for the period quoted. The total return quotations
are based upon historical earnings and are not necessarily representative of
future performance. An Owner's Contract Value at redemption may be more or less
than original cost.
Average annual total returns for each of the Sub-Accounts computed
according to the standardized and non-standardized methods for the period ending
December 31, 1994 (beginning at inception date) are set forth in the following
table. (Parentheses indicate a negative number.)
TOTAL RETURN CALCULATIONS
SUB-ACCOUNTS OF FUND BD II
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
STANDARDIZED NON-STANDARDIZED
Regular Enhanced Regular Enhanced Inception
1 Year 1 Year 1 Year 1 Year Date
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Smith Barney Income
and Growth Portfolio (7.78)% (7.91)% (1.85)% (2.00)% 6/94
Alliance Growth Portfolio (1.32)% (1.48)% 4.72% 4.56% 6/94
American Capital Enterprise
Portfolio (2.18)% (2.33)% 3.86% 3.71% 6/94
Smith Barney International
Equity Portfolio (10.27)% (10.40)% (4.51)% (4.65)% 6/94
Smith Barney Pacific Basin
Portfolio (15.50)% (15.62)% (10.07)% (10.20)% 6/94
</TABLE>
3
<PAGE>
TOTAL RETURN CALCULATIONS
SUB-ACCOUNTS OF FUND BD II (Continued)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
STANDARDIZED NON-STANDARDIZED
Regular Enhanced Regular Enhanced Inception
1 Year 1 Year 1 Year 1 Year Date
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TBC Managed Income
Portfolio (6.35)% (6.48)% (0.33)% (0.48)% 6/94
Putnam Diversified
Income Portfolio (5.19)% (5.34)% 0.85% 0.70% 6/94
G.T. Global Strategic
Income Portfolio (11.21)% (11.34)% (5.51)% (5.64)% 6/94
Smith Barney High
Income Portfolio (7.20)% (7.34)% (1.24)% (1.39)% 6/94
MFS Total Return
Portfolio (8.03)% (8.17)% (2.12)% (2.46)% 6/94
Smith Barney Money
Market Portfolio (4.47)% (4.62)% 1.57% 1.42% 6/94
AIM Capital Appreciation -- -- -- -- 9/95
Portfolio
Smith Barney Total
Return Portfolio (4.99)% (5.02)% 1.36% 1.12% 11/94
</TABLE>
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., independent certified public accountants,
100 Pearl Street, Hartford, Connecticut, are the independent auditors for Fund
BD II. The services provided to Fund BD II include primarily the examination of
the Fund's financial statements.
FINANCIAL STATEMENTS
Financial Statements for Fund BD II are not available since the Fund
had no assets as of the effective date of this SAI. Financial statements for
The Travelers Life and Annuity Company are included in this SAI.
4
<PAGE> 1
THE TRAVELERS LIFE AND ANNUITY COMPANY
Financial Statements
for the years ended December 31, 1994, 1993 and 1992
<PAGE> 2
THE TRAVELERS LIFE AND ANNUITY COMPANY
FINANCIAL STATEMENTS
INDEX
Page
Independent Auditors' Reports 1-3
Financial Statements:
Statement of Operations and Retained Earnings
for the years ended December 31, 1994, 1993 and 1992 4
Balance Sheet - December 31, 1994 and 1993 5
Statement of Cash Flows
for the years ended December 31, 1994, 1993 and 1992 6
Notes to Financial Statements 7-26
Glossary of Insurance Terms 27-28
<PAGE> 3
Independent Auditors' Report
The Board of Directors and Shareholder of
The Travelers Life and Annuity Company:
We have audited the accompanying balance sheets of The Travelers Life and
Annuity Company as of December 31, 1994 and 1993, and the related statements of
operations and retained earnings and cash flows for the year ended December 31,
1994. 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, 1994 and 1993, and the results of its operations and
its cash flows for the year ended December 31, 1994 in conformity with
generally accepted accounting principles.
As discussed in Note 2 to the financial statements, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," in 1994.
/s/KPMG Peat Marwick LLP
Hartford, Connecticut
January 17, 1995
1
<PAGE> 4
Report of Independent Accountants
To the Board of Directors and Shareholder of
The Travelers Life and Annuity Company:
We have audited the statements of operations and retained earnings and cash
flows of The Travelers Life and Annuity Company for the year ended December 31,
1993. These financial statements are the responsibility of Company
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of The
Travelers Life and Annuity Company for the year ended December 31, 1993 in
conformity with generally accepted accounting principles.
/s/COOPERS & LYBRAND
Hartford, Connecticut
September 16, 1994
2
<PAGE> 5
Report of Independent Accountants
To the Board of Directors and Shareholder of
The Travelers Life and Annuity Company:
We have audited the statements of operations and retained earnings and cash
flows of The Travelers Life and Annuity Company for the year ended December 31,
1992. These financial statements are the responsibility of Company management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of The
Travelers Life and Annuity Company for the year ended December 31, 1992 in
conformity with generally accepted accounting principles.
As discussed in Notes 2, 7 and 9 to the financial statements, the Company
changed its method of accounting for postretirement benefits other than
pensions, accounting for income taxes and accounting for foreclosed assets in
1992.
/s/COOPERS & LYBRAND
Hartford, Connecticut
September 16, 1994
3
<PAGE> 6
THE TRAVELERS LIFE AND ANNUITY COMPANY
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
(for the year ended December 31, in thousands) 1994 | 1993 1992
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES |
Premiums $ 3,498 | $ 4,524 $ 4,781
Net investment income 66,093 | 58,044 63,912
Realized investment gains (losses) (2,074) | 11,955 21,403
Other 18,702 | 9,102 7,542
--------------------------------------------------------------------------------------------------------
86,219 | 83,625 97,638
--------------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES |
Current and future insurance benefits 55,596 | 67,489 68,253
General and administrative expenses 2,758 | 3,075 8,045
--------------------------------------------------------------------------------------------------------
58,354 | 70,564 76,298
--------------------------------------------------------------------------------------------------------
|
Income before federal income taxes and |
cumulative effects of changes in |
accounting principles 27,865 | 13,061 21,340
--------------------------------------------------------------------------------------------------------
Federal income taxes: |
Current 4,742 | 22,124 37,198
Deferred 4,798 | (22,672) (21,704)
--------------------------------------------------------------------------------------------------------
9,540 | (548) 15,494
--------------------------------------------------------------------------------------------------------
|
Income before cumulative effects of changes |
in accounting principles 18,325 | 13,609 5,846
Cumulative effect of change in accounting |
for postretirement benefits other than |
pensions, net of tax - | - (1,148)
Cumulative effect of change in accounting |
for income taxes - | - 4,171
--------------------------------------------------------------------------------------------------------
|
Net income 18,325 | 13,609 8,869
Retained earnings beginning of year 110,665 | 97,034 88,119
Preference stock tax benefit allocated by parent - | 22 46
--------------------------------------------------------------------------------------------------------
Retained earnings end of year $128,990 | $110,665 $97,034
--------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
4
<PAGE> 7
THE TRAVELERS LIFE AND ANNUITY COMPANY
BALANCE SHEET
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
(at December 31, in thousands) 1994 1993
---------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Fixed maturities, available for sale at market in 1994
(cost, $624,347); at lower of aggregate cost or market
in 1993 (market, $487,010) $ 559,142 $ 486,195
Equity securities, at market (cost, $14,252; $22,827) 16,064 24,666
Mortgage loans 152,359 246,965
Real estate held for sale, net of accumulated depreciation of $337; $0 6,810 30,983
Short-term securities 44,472 43,326
Other investments 72,190 75,708
---------------------------------------------------------------------------------------------------
Total investments 851,037 907,843
---------------------------------------------------------------------------------------------------
Cash 296 -
Investment income accrued 10,211 11,296
Reinsurance recoverable 573 523
Deferred federal income taxes 94,315 78,007
Separate accounts 820,384 949,772
Value of insurance in force 21,014 -
Other assets 3,539 15,703
---------------------------------------------------------------------------------------------------
Total assets $1,801,369 $1,963,144
---------------------------------------------------------------------------------------------------
LIABILITIES
Future policy benefits $ 691,108 $707,916
Current federal income taxes 26,071 20,305
Separate accounts 808,181 942,633
Other liabilities 17,889 11,383
---------------------------------------------------------------------------------------------------
Total liabilities 1,543,249 1,682,237
---------------------------------------------------------------------------------------------------
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 167,354 166,047
Unrealized investment gains (losses), net of taxes (41,224) 1,195
Retained earnings 128,990 110,665
---------------------------------------------------------------------------------------------------
Total shareholder's equity 258,120 280,907
---------------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity $1,801,369 $1,963,144
---------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
5
<PAGE> 8
THE TRAVELERS LIFE AND ANNUITY COMPANY
STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
(for the year ended December 31, in thousands) 1994 | 1993 1992
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES |
Premiums collected $ 3,498 | $ 4,524 $10,034
Net investment income received 57,240 | 53,944 64,304
Benefits and claims paid (72,298) | (74,660) (76,873)
Operating expenses paid (4,400) | (3,249) (6,562)
Income taxes refunded (paid) 1,030 | (10,661) (25,537)
Trading account investments (purchases) sales, net - | 35,093 (18,341)
Other 22,507 | (683) (19,101)
-----------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 7,577 | 4,308 (72,076)
-----------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES |
Investment repayments |
Fixed maturities 29,043 | 29,479 28,409
Mortgage loans 60,260 | 53,835 80,904
Proceeds from investments sold |
Fixed maturities 41,671 | 46,001 4,527
Equity securities 9,373 | 7,676 34,058
Mortgage loans 23,327 | 11,835 26,120
Real estate 34,181 | 26,014 20,025
Investments in |
Fixed maturities (204,412) | (206,682) (75,479)
Equity securities (375) | (5,280) (15,577)
Mortgage loans (5,607) | - (599)
Short-term securities, (purchases) sales, net (1,146) | (16,430) (26,310)
Other investments, (purchases) sales, net 682 | 46,595 (11,437)
Securities transactions in course of settlement 5,722 | 1,133 7,095
-----------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (7,281) | (5,824) 71,736
-----------------------------------------------------------------------------------------------------
Net increase (decrease) in cash $ 296 | $ (1,516) $ (340)
-----------------------------------------------------------------------------------------------------
Cash at December 31 $ 296 $ - $ 1,516
-----------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
6
<PAGE> 9
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Travelers Life and Annuity Company (the Company) is a wholly owned
subsidiary of The Travelers Insurance Company (TIC). TIC is a wholly
owned subsidiary of The Travelers Insurance Group Inc. (TIG). TIG is an
indirect wholly owned subsidiary of The Travelers Inc. Significant
accounting policies used in the preparation of the accompanying financial
statements follow.
Basis of presentation
In December 1992, Primerica Corporation (Primerica) acquired
approximately 27% of The Travelers Corporation's common stock (the
Acquisition). The Acquisition was accounted for as a purchase.
Effective December 31, 1993, Primerica acquired the approximately 73% of
The Travelers Corporation common stock which it did not already own, and
The Travelers Corporation was merged into Primerica, which was renamed
The Travelers Inc. This was effected through the exchange of .80423
shares of The Travelers Inc. common stock for each share of The Travelers
Corporation common stock (the Merger). All subsidiaries of The Travelers
Corporation were contributed to TIG.
The Acquisition and the Merger are being accounted for as a "step
acquisition." The step acquisition method of purchase accounting
requires that the assets and liabilities of the Company be recorded at
the fair values determined at each acquisition date (i.e., 27% of values
at December 31, 1992 as carried forward and 73% of the values at
December 31, 1993). These assets and liabilities are reflected in the
balance sheet at December 31, 1993 based upon management's then best
estimate of their fair values. Evaluation and appraisal of assets and
liabilities, including investments, the value of insurance in force,
reinsurance recoverable, other insurance assets and liabilities and
related deferred income taxes were completed during 1994. The excess of
the 27% share of assigned value of identifiable net assets over cost at
December 31, 1992, which was allocated to the Company through the
"pushdown" basis of accounting, was approximately $1.3 million and is
being amortized over ten years on a straight-line basis.
The statement of operations and retained earnings, the statement of cash
flows and the related accompanying notes for the year ended December 31,
1994, which are presented on a purchase accounting basis, are separated
from the corresponding 1993 and 1992 information, which is presented on a
historical accounting basis, to indicate the difference in valuation
bases.
Certain prior year amounts have been reclassified to conform with the
1994 presentation.
7
<PAGE> 10
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Investments
Fixed maturities include bonds, notes and redeemable preferred stocks.
Fixed maturities are valued based upon quoted market prices, or if
quoted market prices are not available, discounted expected cash flows
using market rates commensurate with the credit quality and maturity of
the investment. Securities are classified as "available for sale" and
are reported at fair value, with unrealized gains and losses, net of
income taxes, charged or credited directly to shareholder's equity at
December 31, 1994. As of December 31, 1993, in conjunction with the
Merger, all fixed maturities were classified as "available for sale" and
recorded at the lower of aggregate cost or market value.
Equity securities, which include common and nonredeemable preferred
stocks, are carried at market values that are based primarily on quoted
market prices. Changes in market values of equity securities are charged
or credited directly to shareholder's equity, net of applicable income
taxes.
Mortgage loans are carried at amortized cost. Real estate held for sale
is carried at the lower of cost or fair value less estimated costs to
sell. Fair value was established at time of foreclosure by appraisers,
both internal and external, using discounted cash flow analyses and
other acceptable techniques.
Accrual of income is suspended on fixed maturities or mortgage loans
that are in default, or on which it is likely that future interest
payments will not be made as scheduled. Interest income on investments
in default is recognized only as payment is received.
Forward commitments are not recorded in the balance sheet until the
commitments are fulfilled.
Investment Gains and Losses
Realized investment gains and losses are included as a component of
pretax revenues based upon specific identification of the investments
sold on the trade date and, prior to the Merger, included adjustments to
the valuation reserves. These adjustments reflected changes considered
to be other than temporary in the net realizable value of investments.
Also included are gains and losses arising from the translation of the
local currency value of foreign investments to U.S. dollars, the
functional currency of the Company.
Separate Accounts
Separate accounts primarily represent funds for which the assets of each
account are legally segregated and are not subject to claims that arise
out of any other business of the Company. Each account has specific
investment objectives. The liabilities associated with these separate
account products provide for guarantees of mortality, morbidity,
principal or interest and the related assets of these accounts are
carried at amortized cost except at December 31, 1993, when the assets
and liabilities of these accounts were recorded at the value assigned at
the acquisition dates. Amounts assessed to the contractholders for
management services are included in other revenues. Deposits and net
investment income for these accounts are excluded from revenues, and
related liability increases are excluded from benefits and expenses.
8
<PAGE> 11
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Value of Insurance In Force
The value of insurance in force represents the actuarially determined
present value of anticipated profits to be realized from annuities
contracts at the date of the Merger using the same assumptions that were
used for computing related liabilities where appropriate. The value of
insurance in force was the actuarially determined present value of the
projected future profits discounted at an interest rate of 16% for the
business acquired. The value of the business in force is amortized over
the contract period using current interest crediting rates to accrete
interest and using an amortization method based on a level yield method.
The value of insurance in force is reviewed periodically for
recoverability to determine if any adjustment is required.
Benefit Reserves
Benefit reserves represent liabilities for future insurance policy
benefits. Benefit reserves for traditional life insurance and annuity
policies have been computed based upon mortality, morbidity, persistency
and interest assumptions applicable to these coverages, which range from
5.5% to 7.3%, including a provision for adverse deviation. These
assumptions consider Company experience and industry standards and may
be revised if it is determined that the future experience will differ
substantially from that previously assumed. The assumptions vary by
plan, age at issue, year of issue and duration.
At December 31, 1994, the Company has $691.1 million of life and annuity
deposit funds and reserves, none of which are subject to discretionary
withdrawal based on contract terms and related market conditions.
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 a variety
of publications of the National Association of Insurance Commissioners
as well as state laws, regulations, and general administrative rules.
Permitted statutory accounting practices encompass all accounting
practices not so prescribed. The impact of any permitted accounting
practices on 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 as earned on investment and other insurance contracts.
9
<PAGE> 12
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Federal Income Taxes
The provision for federal income taxes is comprised of two components,
current income taxes and deferred income taxes. Deferred federal income
taxes arise from changes in the Company's deferred federal income tax
asset during the year. The deferred federal income tax asset is
recognized to the extent that future realization of the tax benefit is
more likely than not, with a valuation allowance for the portion that is
not likely to be recognized.
Accounting Standards not yet Adopted
Statement of Financial Accounting Standards No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures"
(FAS 118), and Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" (FAS 114), describe
how impaired loans should be measured when determining the amount of a
loan loss accrual. These statements also amend existing guidance on the
measurement of restructured loans in a troubled debt restructuring
involving a modification of terms. The adoption of these statements,
effective January 1, 1995, will not have a material effect on results of
operations or financial position.
2. CHANGES IN ACCOUNTING PRINCIPLES
Accounting for Certain Debt and Equity Securities
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt
and Equity Securities" (FAS 115), which addresses accounting and
reporting for investments in equity securities that have a readily
determinable fair value and for all debt securities. Investment
securities have been classified as "available for sale" and are reported
at fair value, with unrealized gains and losses, net of income taxes,
charged or credited directly to shareholder's equity. Previously,
securities classified as available for sale were carried at the lower of
aggregate cost or market value. Initial adoption of this standard
resulted in an increase of approximately $530 thousand (net of taxes) to
net unrealized gains in shareholder's equity. See note 11 for additional
disclosures.
Accounting and Reporting for Reinsurance Contracts
In the first quarter of 1993, the Company implemented Statement of
Financial Accounting Standards No. 113, "Accounting and Reporting for
Reinsurance of Short-Duration and Long-Duration Contracts" (FAS 113). FAS
113 requires the reporting of reinsurance receivables and prepaid
reinsurance premiums as assets and precludes the immediate recognition of
gains for all reinsurance contracts unless the liability to the
policyholder has been extinguished. Implementation of FAS 113 did not
have an impact on the Company's earnings, however, assets and liabilities
increased by like amounts. See note 3 for additional reinsurance
disclosures.
10
<PAGE> 13
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
2. CHANGES IN ACCOUNTING PRINCIPLES, Continued
Postretirement Benefits other than Pensions
In 1992, the Company adopted Statement of Financial Accounitng Standards
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" (FAS 106). As required, the Company changed its method of
accounting for retiree benefit plans effective January 1, 1992, to accrue
for the Company's share of the costs of postretirement benefits over the
service period rendered by employees. Previously these benefits were
charged to expense when paid. The Company elected to recognize
immediately the liability for postretirement benefits as the cumulative
effect of a change in accounting principle. This resulted in a noncash
after-tax charge to net income of $1.1 million. See Note 7 for
additional information relating to FAS 106.
Accounting for Income Taxes
In the third quarter of 1992, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109)
with retroactive application to January 1, 1992. FAS 109 establishes new
principles for calculating and reporting the effects of federal income
taxes in financial statements. FAS 109 replaces the income statement
orientation inherent in the prior income tax accounting standard with a
balance sheet approach. Under the new approach, deferred tax assets and
liabilities are generally determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted
tax rates in effect for the year in which the differences are expected to
reverse. FAS 109 allows recognition of deferred tax assets if future
realization of the tax benefit is more likely than not, with a valuation
allowance for the portion that is not likely to be recognized.
The implementation of FAS 109 resulted in a one time increase to earnings
of $4.2 million in the first quarter of 1992. This increase in earnings
was principally due to tax rate differences and the recognition of a
portion of previously unrecognized deferred tax assets. See note 9 for
further discussion of FAS 109.
Accounting for Foreclosed Assets
In February 1993, The Travelers Corporation announced its intent to
accelerate the sale of foreclosed real estate and, effective December 31,
1992, changed its method of accounting for foreclosed assets in
compliance with the American Institute of Certified Public Accountants'
Statement of Position 92-3, "Accounting for Foreclosed Assets" (SOP
92-3). This guidance requires that in-substance foreclosures and
foreclosed assets held for sale be carried at the lower of cost or fair
value less estimated costs to sell. Previously, all foreclosed assets
were carried at cost less accumulated depreciation. This accounting
change resulted in a $12.5 million pre-tax charge to realized investment
losses in 1992.
3. REINSURANCE
The Company participates in reinsurance to reduce overall risks,
including exposure to large losses and catastrophic events. The Company
remains primarily liable as the direct insurer on all risks reinsured.
11
<PAGE> 14
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
3. REINSURANCE, Continued
Life insurance in force ceded to affiliates at December 31, 1994 and 1993
was $106.0 million and $111.7 million, respectively.
4. SHAREHOLDER'S EQUITY
Unrealized Investment Gains (Losses)
An analysis of the change in unrealized gains and losses on investments
is shown in note 11.
Additional Paid-in Capital
As a result of the finalization of the evaluations and appraisals used
to assign fair values to assets and liabilities under purchase
accounting, additional paid-in capital was increased by $1.3 million in
1994. It was decreased by $70.4 million in 1993 based upon the initial
evaluations and appraisals.
Shareholder's Equity and Dividend Availability
The statutory net income was $5.7 million for the year ended December 31,
1994. The statutory net loss was $23.0 million and $35.3 million for the
years ended December 31, 1993 and 1992, respectively.
Statutory capital and surplus was $233.0 million and $220.1 million at
December 31, 1994 and 1993, respectively.
The Company is currently subject to various regulatory restrictions that
limit the maximum amount of dividends available to TIC without prior
approval of insurance regulatory authorities. Under statutory
accounting practices, there is no statutory surplus available in 1995
for dividends to TIC without prior approval.
5. DISCLOSURE ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF
FINANCIAL INSTRUMENTS
The Company has, in the normal course of business, provided fixed rate
loan commitments and commitments to partnerships. Also, the Company
uses forward contracts as a means of prudently hedging exposure to
foreign currency rate risk on existing assets. 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 credit
loss or cash flow associated with these instruments can be less than
these amounts. For unfunded commitments, credit exposure is the
contractual amount of the unfunded commitments.
12
<PAGE> 15
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
5. DISCLOSURE ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF
FINANCIAL INSTRUMENTS, 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. Many
transactions include the use of collateral to minimize credit risk and
lower the effective cost to the borrower.
A summary of contract or notional amounts is presented below:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Contract or
notional amount
(in thousands) 1994 1993
--------------------------------------------------------------------------------
<S> <C> <C>
Financial instruments whose contract
amount represents credit exposure:
Unfunded commitments to partnerships $9,606 $9,328
Fixed rate loan commitments 378 6,631
--------------------------------------------------------------------------------
</TABLE>
The Company has outstanding at any given time commitments to fund
partnerships. Generally these are simple forward commitments for
investment purposes. At December 31, 1994 and 1993, the terms of
unfunded commitments to partnerships approximate market value. Fixed
rate loan commitments are obligations to make investments at fixed rates.
At December 31, 1994 and 1993, the terms of fixed rate loan commitments
approximate market value.
The off-balance-sheet risks of forward contracts were not considered
significant at December 31, 1994 and 1993.
Fair Value of Certain Financial Instruments
The Company uses various financial instruments in the normal course of
its business. Fair values of financial instruments which are considered
insurance contracts are not required to be disclosed and are not
included in the amounts discussed.
At December 31, 1994 and 1993, investments in fixed maturities have a
fair value of $559.1 million and $487.0 million, respectively. See note
11.
At December 31, 1994, mortgage loans have a carrying value of $152.4
million, which approximates fair value, compared with a carrying value
and fair value of $247.0 million at December 31, 1993. In estimating
fair value, the Company used interest rates reflecting the higher
returns required in the current real estate financing market.
The carrying value of $2.4 million and $2.0 million of financial
instruments classified as other assets approximates their fair values at
December 31, 1994 and 1993, respectively. The carrying value of $14.2
million and $7.6 million of financial instruments classified as other
liabilities also approximates their fair values at December 31, 1994 and
1993, respectively. Fair value is determined using various methods
including discounted cash flows and carrying value, as appropriate for
the various financial instruments.
13
<PAGE> 16
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
5. DISCLOSURE ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF
FINANCIAL INSTRUMENTS, Continued
The assets of separate accounts providing a guaranteed return have a
carrying value and a fair value of $820.4 million and $757.2 million,
respectively, at December 31, 1994, compared to a carrying value of
$949.7 million which approximates fair value at December 31, 1993. The
liabilities of separate accounts providing a guaranteed return have a
carrying value and a fair value of $808.2 million and $681.4 million,
respectively, at December 31, 1994, compared to a carrying value of
$942.7 million which approximates fair value at December 31, 1993.
The carrying values of cash, short-term securities, and investment
income accrued approximate their fair values.
6. COMMITMENTS AND CONTINGENCIES
Financial Instruments with Off-Balance-Sheet Risk
See Note 5 for a discussion of financial instruments with
off-balance-sheet risk.
Litigation
The Company is a defendant in various litigation matters. Although there
can be no assurances, as of December 31, 1994, the Company believes,
based on information currently available, that the ultimate resolution of
these legal proceedings would not be likely to have a material adverse
effect on its results of operations, financial condition or liquidity.
7. BENEFIT PLANS
Pension Plans
The Company participates in qualified and nonqualified, noncontributory
defined benefit pension plans covering the majority of the Company's U.S.
employees. Benefits for the qualified plan are based on an account
balance formula. Under this formula, each employee's accrued benefit can
be expressed as an account that is credited with amounts based upon the
employee's pay, length of service and a specified interest rate, all
subject to a minimum benefit level. This plan is funded in accordance
with the Employee Retirement Income Security Act of 1974 and the Internal
Revenue Code. For the nonqualified plan, contributions are based on
benefits paid. The Company's share of net pension expense was not
significant for 1994, 1993 or 1992.
14
<PAGE> 17
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
7. BENEFIT PLANS, Continued
Other Benefit Plans
In addition to pension benefits, the Company provides certain health care
and life insurance benefits for retired employees through a plan
sponsored by TIG. Covered employees may become eligible for these
benefits if they reach retirement age while working for the Company.
These retirees may elect certain prepaid health care benefit plans. Life
insurance benefits generally are set at a fixed amount. The cost
recognized by the Company for these benefits represents its allocated
share of the total costs of the plan, net of employee contributions.
In the third quarter of 1992, TIG adopted FAS 106 and elected to
recognize the accumulated postretirement benefit obligation (i.e., the
transition obligation) as a change in accounting principle retroactive to
January 1, 1992. The Company's pretax share of the total cost of the
plan for 1994, 1993 and 1992 was $140 thousand, $155 thousand and $1.9
million, respectively.
The Merger resulted in a change in control of The Travelers Corporation
as defined in the applicable plans, and provisions of some employee
benefit plans secured existing compensation and benefit entitlements
earned prior to the change in control, and provided a salary and benefit
continuation floor for employees whose employment was affected. The
costs related to these changes have been assumed by TIG.
Savings, Investment and Stock Ownership Plan
Under the savings, investment and stock ownership plan available to
substantially all employees of TIG, the Company matches a portion of
employee contributions. Effective April 1, 1993, the match decreased
from 100% to 50% of an employee's first 5% contribution and a variable
match based on TIG's profitability was added. The Company's matching
obligation was $48 thousand, $94 thousand and $245 thousand in 1994, 1993
and 1992, respectively.
8. RELATED PARTY TRANSACTIONS
The principal banking functions for certain subsidiaries and affiliates
of TIG, and salaries and expenses for TIG and its insurance subsidiaries,
are handled by TIC. Settlements for these functions between TIC and its
affiliates are made regularly. TIC provides various insurance coverages,
principally life and health, to certain subsidiaries of TIG. The
premiums for these coverages were charged in accordance with normal cost
allocation procedures. In addition, investment advisory and management
services, data processing services and claims processing services are
provided by affiliated companies.
TIG and its subsidiaries maintain short-term investment pools in which
the Company participates. The positions of each company participating in
the pools are calculated and adjusted daily. At December 31, 1994 and
1993, the pools totaled approximately $1.5 billion and $1.3 billion,
respectively. The Company's share of the pools amounted to $44.5 million
and $43.2 million at December 31, 1994 and 1993, respectively, and is
included in short-term securities in the balance sheet.
15
<PAGE> 18
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
8. RELATED PARTY TRANSACTIONS, Continued
Amounts due to parent and affiliates included in other liabilities at
December 31, 1994 were $3.8 million. Amounts due from parent and
affiliates included in other assets at December 31, 1993 were $13.5
million.
Most leasing functions for TIG and its subsidiaries are handled by TIC.
Leasing expenses are shared by the companies on a cost allocation method
based generally on estimated usage by department.
9. FEDERAL INCOME TAXES
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
(in thousands) 1994 | 1993 1992
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Effective tax rate |
|
Income before federal |
income taxes $ 27,865 | $ 13,061 $ 21,340
---------------------------------------------------------------------------------------
Statutory tax rate 35% | 35% 34%
---------------------------------------------------------------------------------------
|
Expected federal income taxes $ 9,753 | $ 4,571 $ 7,256
Tax effect of: |
Nontaxable investment income (90) | (85) (83)
Adjustments to benefit and other reserves (117) | (4,705) 7,217
Adjustment to deferred tax asset for |
enacted change in tax rates from |
34% to 35% - | (255) -
Other (6) | (74) 1,104
---------------------------------------------------------------------------------------
Federal income taxes $ 9,540 | $ (548) $ 15,494
---------------------------------------------------------------------------------------
|
Effective tax rate 34% | (4)% 73%
---------------------------------------------------------------------------------------
|
Composition of federal income taxes |
Current: |
United States $ 4,742 | $ 22,124 $ 37,198
---------------------------------------------------------------------------------------
|
Deferred: |
United States 4,798 | (22,672) (21,704)
---------------------------------------------------------------------------------------
Federal income taxes $ 9,540 | $ (548) $ 15,494
---------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 19
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
9. FEDERAL INCOME TAXES, Continued
The net deferred tax assets at December 31, 1994 and 1993 were comprised
of the tax effects of the temporary differences related to the following
assets and liabilities:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
(in thousands) 1994 1993
------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Benefit, reinsurance and other reserves $ 70,729 $ 71,623
Investments 30,908 3,521
Investment income valuation reserve - 3,317
Other 2,766 1,616
------------------------------------------------------------------------------
Total 104,403 80,077
------------------------------------------------------------------------------
Deferred tax liabilities:
Value of insurance in force 7,355 -
Other 663 -
------------------------------------------------------------------------------
Total 8,018 -
------------------------------------------------------------------------------
Net deferred tax asset before valuation allowance 96,385 80,077
Valuation allowance for deferred tax assets (2,070) (2,070)
------------------------------------------------------------------------------
Net deferred tax asset after valuation allowance $ 94,315 $ 78,007
------------------------------------------------------------------------------
</TABLE>
Starting in 1994 and continuing for at least five years, TIC and its life
insurance subsidiaries 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 will be paid currently to
TIC. Any credits for losses 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. The Company has no receivable for
unreimbursed credits from its previous allocation agreement with the
Travelers Corporation.
A net deferred tax asset valuation allowance of $2.1 million has been
established to reduce the net deferred tax asset on investment losses to
the amount that, based upon available evidence, is more likely than not
to be realized. Reversal of the valuation allowance is contingent upon
the recognition of future capital gains in the Company's consolidated
life insurance company federal income tax return through 1998, and the
consolidated federal income tax return of The Travelers Inc. commencing
in 1999 or a change in circumstances which causes the recognition of the
benefits to become more likely than not. There was no net change in the
valuation allowance during 1994. The initial recognition of any benefit
provided produced by the reversal of the valuation allowance will be
recognized by reducing goodwill.
17
<PAGE> 20
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
9. FEDERAL INCOME TAXES, Continued
In management's judgment, the $94.3 million "net deferred tax asset after
valuation allowance" as of December 31, 1994, is fully recoverable
against expected future years' taxable ordinary income and capital gains.
At December 31, 1994, the Company has no ordinary or capital loss
carryforwards.
The "policyholders surplus account", which arose under prior tax law, is
generally that portion of the gain from operations that has not been
subjected to tax, plus certain deductions. The balance of this account,
which, under provisions of the Tax Reform Act of 1984, will not increase
after 1983, is estimated to be $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) is
approximately $700 thousand.
See note 2 for a discussion of the implementation of new principles for
accounting for income taxes.
10. NET INVESTMENT INCOME
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
(For the year ended December 31, in thousands) 1994 | 1993 1992
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross investment income |
----------------------- |
Fixed maturities $ 44,569 | $ 39,400 $ 34,429
Equity securities 827 | 930 1,221
Mortgage loans 17,178 | 25,258 37,846
Real estate 6,299 | 19,028 20,640
Other 4,265 | (4,273) (1,371)
-----------------------------------------------------------------------------------------
73,138 | 80,343 92,765
-----------------------------------------------------------------------------------------
|
Investment expenses 7,045 | 22,299 28,853
-----------------------------------------------------------------------------------------
Net investment income $ 66,093 | $ 58,044 $ 63,912
-----------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 21
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
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) 1994 | 1993 1992
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Realized |
|
Fixed maturities $ (908) | $ 8,659 $ (1,621)
Equity securities 1,675 | 1,580 4,065
Mortgage loans 36 | (1,564) 823
Real estate - | (8,310) (6,713)
Other (2,877) | 11,590 24,849
-----------------------------------------------------------------------------------------
Realized investment gains (losses) $ (2,074) | $ 11,955 $ 21,403
-----------------------------------------------------------------------------------------
</TABLE>
Changes in net unrealized investment gains (losses) that are included as a
separate component of shareholder's equity were as follow:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
(For the year ended December 31, in thousands) 1994 | 1993 1992
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized |
|
Fixed maturities $ (65,205) | $ (20,059) $ 20,730
Equity securities (27) | (1,389) 3,916
Other (28) | 8,524 (5,318)
-------------------------------------------------------------------------------------------
(65,260) | (12,924) 19,328
Related taxes (22,841) | (3,445) 6,571
-------------------------------------------------------------------------------------------
|
Net unrealized investment gains (losses) (42,419) | (9,479) 12,757
Balance beginning of year 1,195 10,674 | (2,083)
-------------------------------------------------------------------------------------------
Balance end of year $ (41,224) $ 1,195 | $ 10,674
-------------------------------------------------------------------------------------------
</TABLE>
The initial adoption of FAS 115 resulted in an increase of approximately
$530 thousand (net of taxes) to net unrealized investment gains in 1994.
Fixed Maturities
Proceeds from sales of fixed maturities classified as available for sale
were $41.7 million in 1994, resulting in gross realized gains of $869
thousand and gross realized losses of $1.9 million. There were no sales
of fixed maturities classified as available for sale in 1993 or 1992 as,
in conjunction with the Merger, all fixed maturities were first
classified as "available for sale" effective December 31, 1993.
19
<PAGE> 22
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
11. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
Prior to December 31, 1993, fixed maturities that were intended to be
held to maturity were recorded at amortized cost and classified as held
for investment. Proceeds from sales of such securities were $16.4
million and $5.1 million in 1993 and 1992, respectively. Gross gains of
$617 thousand in 1993 and gross losses of $2.2 million in 1992 were
realized on those sales.
Prior to December 31, 1993, the carrying values of the trading portfolio
fixed maturities were adjusted to market value as it was likely they
would be sold prior to maturity. Sales of trading portfolio fixed
maturities were $96.6 million and $39.0 million in 1993 and 1992,
respectively. Gross gains of $12.4 million and $1.2 million in 1993 and
1992, respectively, were realized on those sales.
The amortized cost and market values of investments in fixed maturities
were as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
December 31, 1994
----------------------------------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Market
(in thousands) cost gains losses value
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
Mortgage-backed securities -
CMOs and pass through
securities $ 60,102 $ 14 $ 4,624 $ 55,493
U.S. Treasury securities
and obligations of U.S.
Government and
government agencies
and authorities 188,043 25 24,301 163,767
Obligations of states and
political subdivisions 3,000 - 184 2,816
Debt securities issued by
foreign governments 20,076 - 2,157 17,919
All other corporate bonds 352,197 1,140 35,055 318,280
Redeemable preferred stock 929 13 76 867
------------------------------------------------------------------------------------------
Total $ 624,347 $ 1,192 $ 66,397 $ 559,142
------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 23
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
11. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
December 31, 1993
--------------------------------------------------------------------------------------------
Gross Gross
Carrying unrealized unrealized Market
(in thousands) value gains losses value
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
Mortgage-backed securities -
CMOs and pass through
securities $ 63,241 $ 462 $ 709 $ 62,994
U.S. Treasury securities
and obligations of U.S.
Government and
government agencies
and authorities 91,777 660 280 92,157
Debt securities issued by
foreign governments 9,211 179 - 9,390
All other corporate bonds 320,748 3,485 3,004 321,229
Redeemable preferred stock 1,218 24 2 1,240
--------------------------------------------------------------------------------------------
Total $ 486,195 $ 4,810 $ 3,995 $ 487,010
--------------------------------------------------------------------------------------------
</TABLE>
The amortized cost and market value of fixed maturities available for
sale at December 31, 1994, by contractual maturity, are shown below.
Actual maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
Maturity Amortized Market
(in thousands) Cost value
-----------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 4,105 $ 3,912
Due after 1 year through 5 years 35,433 32,495
Due after 5 years through 10 years 110,446 102,555
Due after 10 years 414,261 364,687
-----------------------------------------------------------------------
564,245 503,649
Mortgage-backed securities 60,102 55,493
-----------------------------------------------------------------------
Total $ 624,347 $ 559,142
-----------------------------------------------------------------------
</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,
primarily planned amortization class (PAC) tranches. Prepayment
protected tranches are preferred because they provide stable cash flows
in a variety of scenarios. The Company does invest in other types of CMO
tranches if a careful assessment indicates a favorable risk/return
tradeoff. The Company does not purchase residual interests in CMOs.
21
<PAGE> 24
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
11. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
At December 31, 1994 and 1993, the Company held CMOs with a market value
of $55.5 million and $63.0 million, respectively. Approximately 96% and
100% of the Company's CMO holdings are fully collateralized by GNMA, FNMA
or FHLMC securities at December 31, 1994 and 1993, respectively. The
majority of these are GNMA-backed securities. Virtually all of these
securities are rated AAA.
Equity Securities
The cost and market values of investments in equity securities were as
follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
December 31, 1994
------------------------------------------------------------------------------------------
Gross Gross
unrealized unrealized Market
(in thousands) Cost gains losses value
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stocks $ 6,141 $ 3,177 $ 654 $ 8,664
Nonredeemable preferred stocks 8,111 7 718 7,400
------------------------------------------------------------------------------------------
Total $ 14,252 $ 3,184 $ 1,372 $ 16,064
------------------------------------------------------------------------------------------
December 31, 1993
------------------------------------------------------------------------------------------
Common stocks $ 11,061 $ 1,779 $ 199 $ 12,641
Nonredeemable preferred stocks 11,766 260 1 12,025
------------------------------------------------------------------------------------------
Total $ 22,827 $ 2,039 $ 200 $ 24,666
------------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales of equity securities were $9.4 million in 1994,
resulting in gross realized gains of $2.8 million and gross realized
losses of $369 thousand.
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. The Company continues its strategy, adopted in
conjunction with the Merger, to dispose of these real estate assets and
some of the mortgage loans and to reinvest the proceeds to obtain current
market yields.
22
<PAGE> 25
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
11. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
At December 31, 1994 and 1993, the Company's mortgage loan and real
estate portfolios consisted of the following:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
(in thousands) 1994 1993
---------------------------------------------------------------------------
<S> <C> <C>
Current mortgage loans $ 134,868 $ 213,110
Underperforming mortgage loans 17,491 33,855
---------------------------------------------------------------------------
Total mortgage loans 152,359 246,965
---------------------------------------------------------------------------
Real estate held for sale 6,810 30,983
---------------------------------------------------------------------------
Total mortgage loans and real estate $ 159,169 $ 277,948
---------------------------------------------------------------------------
</TABLE>
Aggregate annual maturities on mortgage loans at December 31, 1994 are as
follows:
<TABLE>
<CAPTION>
----------------------------------------------------
(in thousands)
----------------------------------------------------
<S> <C>
Past maturity $ 4,567
1995 13,278
1996 26,317
1997 9,473
1998 24,000
1999 7,759
Thereafter 66,965
----------------------------------------------------
Total $ 152,359
----------------------------------------------------
</TABLE>
Concentrations
At December 31, 1994 and 1993, the Company had no concentration of credit
risk in a single investee exceeding 10% of shareholder's equity.
The Company participates in a short-term investment pool maintained by
TIG and its subsidiaries. This pool is discussed in note 8.
Included in fixed maturities are below investment grade assets totaling
$51.1 million and $78.0 million at December 31, 1994 and 1993,
respectively. The Company defines its below investment grade assets as
those securities rated "Ba1" or below by external rating agencies, or the
equivalent by internal analysts when a public rating does not exist.
Such assets include publicly traded below investment grade bonds, highly
leveraged transactions and certain other privately issued bonds that are
classified as below investment grade loans.
23
<PAGE> 26
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
11. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
The Company also has significant concentrations of investments in the
following industries:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
(in thousands) 1994 1993
--------------------------------------------------------------------------
<S> <C> <C>
Banking $ 42,191 $43,856
Oil and gas 39,749 39,348
Transportation 38,523 23,577
Chemical manufacturing 27,326 27,155
--------------------------------------------------------------------------
</TABLE>
Below investment grade assets included in the totals of the previous
table are as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
(in thousands) 1994 1993
--------------------------------------------------------------------------
<S> <C> <C>
Banking $ 5,124 $ 5,104
Oil and gas 4,002 2,822
Transportation 2,678 6,488
--------------------------------------------------------------------------
</TABLE>
At December 31, 1994 and 1993, significant concentrations of mortgage
loans were for properties located in highly populated areas in the states
listed below:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
(in thousands) 1994 1993
--------------------------------------------------------------------------
<S> <C> <C>
New York $ 23,710 $ 22,904
Arizona 21,074 36,708
Florida 19,638 23,073
California 18,636 53,373
West Virginia 15,106 15,924
Texas 12,077 21,119
--------------------------------------------------------------------------
</TABLE>
Other mortgage loan investments are fairly evenly dispersed throughout
the United States, with no holdings in any state exceeding $9.3 million
and $8.8 million at December 31, 1994 and 1993, respectively.
Concentrations of mortgage loans by property type at December 31, 1994
and 1993 are shown below:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
(in thousands) 1994 1993
--------------------------------------------------------------------------
<S> <C> <C>
Office $ 40,559 $ 47,456
Agricultural 32,890 49,851
Retail 31,712 48,125
Apartment 16,108 67,882
--------------------------------------------------------------------------
</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.
24
<PAGE> 27
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
11. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
Investment Valuation Reserves
At December 31, 1993 and 1992, total investment valuation reserves, which
are deducted from the applicable investment carrying values in the
balance sheet, were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
(in thousands) 1994 | 1993 1992
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning of year $ - | $ 41,443 $ 28,535
Increase - | 8,355 12,548
Impairments, net of gains/recoveries - | (6,887) 360
Purchase accounting adjustment - | (42,911) -
-------------------------------------------------------------------------------------------
End of year $ - $ - | $ 41,443
-------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1992, investment valuation reserves were comprised of
$28.9 million for mortgage loans and $12.5 million for real estate.
Increases in the investment valuation reserves were reflected as realized
investment losses.
Nonincome Producing
Investments included in the balance sheets that were nonincome producing
for the preceding 12 months were as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
(in thousands) 1994 1993
--------------------------------------------------------------------------
<S> <C> <C>
Mortgage loans $ 444 $ 1,408
Fixed maturities 90 1,537
Real estate - 4,925
--------------------------------------------------------------------------
Total $ 534 $ 7,870
--------------------------------------------------------------------------
</TABLE>
Restructured
The Company has mortgage loan and debt securities which were restructured
at below market terms totaling approximately $17.4 million and $30.7
million at December 31, 1994 and 1993, respectively. At December 31,
1993, the Company's restructured assets were recorded at purchase
accounting value. The new terms typically defer a portion of contract
interest payments to varying future periods. The accrual of interest is
suspended on all restructured assets, and interest income is reported
only as payment is received. Gross interest income on restructured
assets that would have been recorded in accordance with the original
terms of such assets amounted to $5.2 million in 1994 and $3.1 million in
1993. Interest on these assets, included in net investment income,
aggregated $1.4 million in 1994 and $471 thousand in 1993.
25
<PAGE> 28
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
12. RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
The following table reconciles net income to net cash provided by
operating activities:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
(For the year ended December 31, in thousands) 1994 | 1993 1992
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 18,325 | $ 13,609 $ 8,869
Reconciling adjustments |
Trading account investments, |
(purchases) sales, net - | 35,093 (18,341)
Realized gains (losses) 2,074 | (11,955) (21,403)
Investment income accrued 1,085 | (9,607) 708
Deferred federal income taxes 4,798 | (22,672) (21,704)
Cumulative effects of changes in |
accounting principles - | - (3,023)
Insurance reserves and accrued expenses (16,062) | 80,238 3,512
Other, including investment valuation reserves (2,643) | (80,398) (20,694)
------------------------------------------------------------------------------------------------
|
Net cash provided by (used in) |
operating activities $ 7,577 | $ 4,308 $ (72,076)
------------------------------------------------------------------------------------------------
</TABLE>
13. NONCASH INVESTING AND FINANCING ACTIVITIES
Significant noncash investing and financing activities include: a) the
1994 transfer of $5.6 million of mortgage loans from one of the Company's
separate accounts to the general account; b) changes in investment
valuation reserves in 1993 and 1992 for mortgage loans and/or investment
real estate (see note 11); c) acquisition of real estate through
foreclosures of mortgage loans amounting to $10.3 million, $7.7 million
and $8.1 million in 1994, 1993 and 1992, respectively.
26
<PAGE> 29
THE TRAVELERS LIFE AND ANNUITY COMPANY
GLOSSARY OF INSURANCE TERMS
ANNUITY - A contract that pays a periodic income benefit for the life of
a person (the annuitant), the lives of two or more persons or for a specified
period of time.
ASSUMED REINSURANCE - Business received as reinsurance from another
company. See "Reinsurance".
ASSUMPTION REINSURANCE - A transaction whereby the ceding company
transfers its entire obligation under the policy to the reinsurer, who becomes
directly liable to the policyholder in all respects, including collecting
premiums and paying benefits. See "Reinsurance."
CEDED REINSURANCE - Risks transferred to another company as reinsurance.
See "Reinsurance".
CLAIM - Request by an insured for indemnification by an insurance company
for loss incurred from an insured peril.
CONTRACTHOLDER FUNDS - Receipts from the issuance of universal life,
pension investment and certain individual annuity contracts. Such receipts are
considered deposits on investment contracts that do not have substantial
mortality or morbidity risks.
DEFERRED ACQUISITION COSTS - Commissions and other selling expenses which
vary with and are directly related to the production of business. These
acquisition costs are deferred and amortized to achieve a matching of revenues
and expenses when reported in financial statements prepared in conformity with
GAAP.
DEFINED BENEFIT PLANS - Type of pension plan under which benefits are
fixed in advance by formula, and contributions vary.
DEPOSITS AND OTHER CONSIDERATIONS - Consist of cash value deposits and
charges for mortality risk and expenses associated with universal life
insurance, annuities and group pensions.
FIDUCIARY ACCOUNTS - Accounts held on behalf of others.
GENERAL ACCOUNT - All of an insurer's assets other than those allocated
to separate accounts.
GUARANTEED INVESTMENT CONTRACTS (GICs) - Group contracts sold to pension
plans, profit sharing plans and funding agreements that guarantee a stated
interest rate for a specified period of time.
INDEMNITY REINSURANCE - A transaction whereby the reinsurer agrees to
indemnify the ceding company against all or part of the loss that the latter
may sustain under the policies it issued that are being reinsured. The ceding
company remains primarily liable as the direct insurer on all risks ceded. See
"Reinsurance."
INSURANCE - Mechanism for contractually shifting burdens of a number of
risks by pooling them.
27
<PAGE> 30
THE TRAVELERS LIFE AND ANNUITY COMPANY
LIFE CONTINGENCIES - Contingencies affecting the duration of life of an
individual or a group of individuals.
LONG-TERM CARE - Coverage for extended stays in a nursing home or home
health services.
MORBIDITY - The rate at which people become diseased, mentally or
physically, or physically impaired.
MORTALITY - The rate at which people die.
POLICY LOAN - A loan made by an insurance company to a policyholder on
the security of the cash value of the policy. Policy loans offset benefits
payable to policyholders.
REINSURANCE - The acceptance by one or more insurers, called reinsurers,
of all or a portion of the risk underwritten by another insurer who has
directly written the coverage. However, the legal rights of the insured
generally are not affected by the reinsurance transaction and the insurance
enterprise issuing the insurance contract remains liable to the insured for
payment of policy benefits.
RETENTION - The amount of exposure an insurance company retains on any
one risk or group of risks.
SEPARATE ACCOUNTS - Funds for which investment income and investment
gains and losses accrue directly to, and investment risk is borne by, the
contractholders. The assets of these separate accounts are legally segregated
and not subject to claims that arise out of any other business of the insurance
company.
STATUTORY ACCOUNTING PRACTICES - Those accounting practices prescribed or
permitted by the National Association of Insurance Commissioners or an
insurer's domicilary state insurance regulator for purposes of financial
reporting to regulators.
STATUTORY CAPITAL AND SURPLUS - The excess of statutory admitted assets
over statutory liabilities as shown on an insurer's statutory financial
statements.
STRUCTURED SETTLEMENTS - Periodic payments to an injured person or
survivor for a determined number of years or for life, typically in settlement
of a claim under a liability policy.
SURRENDER VALUE - The amount of money, usually the legal reserve under
the policy, less sometimes a surrender charge, which an insurance company will
pay to a policyholder who cancels a policy. This value may be used as
collateral for a loan.
UNDERWRITING - The assumption of risk for designated loss or damage in
consideration of receiving a premium. Also includes the process of examining,
accepting or rejecting insurance risks, and determining the proper premium.
28
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
--- THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
--- THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
_________________________
Commission file number 33-58131
_________________________
THE TRAVELERS LIFE AND ANNUITY COMPANY
(exact name of registrant as specified in its charter)
CONNECTICUT 06-0904249
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE TOWER SQUARE, HARTFORD, CONNECTICUT 06183
(Address of principal executive offices) (Zip Code)
(203) 277-0111
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes No X
----------- -----------
As of August 11, 1995, there were outstanding 30,000 shares of common
stock, par value $100, of the Registrant, all of which were owned by The
Travelers Insurance Company, an indirect subsidiary of Travelers Group Inc.
REDUCED DISCLOSURE FORMAT
The registrant meets the conditions set forth in General Instruction
H(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with
the reduced disclosure format.
<PAGE> 2
THE TRAVELERS LIFE AND ANNUITY COMPANY
FORM 10-Q
For the Quarter Ended June 30, 1995
Table of Contents
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
----
<S> <C>
Item 1. Financial Statements
Condensed Statement of Operations and Retained Earnings for the Quarter and
Six Months Ended June 30, 1995 and 1994 (unaudited) .......................................................................3
Condensed Balance Sheet as of June 30, 1995 (unaudited) and
December 31, 1994..........................................................................................................4
Condensed Statement of Cash Flows for the
Six Months Ended June 30, 1995 and 1994 (unaudited)........................................................................5
Notes to Condensed Financial Statements (unaudited)........................................................................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ......................................................................................7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K .................................................................................9
SIGNATURES ................................................................................................................10
</TABLE>
2
<PAGE> 3
THE TRAVELERS LIFE AND ANNUITY COMPANY
CONDENSED STATEMENT OF OPERATIONS AND RETAINED EARNINGS (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
--------------------- ----------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Premiums $ 212 $ 338 $ 291 $ 3,330
Net investment income 15,582 16,550 31,451 31,222
Realized investment gains (losses) 944 176 (4,675) (25)
Other 4,058 3,877 7,749 7,568
-------- -------- -------- --------
20,796 20,941 34,816 42,095
-------- -------- -------- --------
BENEFITS AND EXPENSES
Current and future insurance benefits 13,452 13,700 26,782 31,755
Amortization of value of insurance in force 312 -- 625 --
General and administrative expenses 668 599 1,342 1,365
-------- -------- -------- --------
14,432 14,299 28,749 33,120
-------- -------- -------- --------
Income before federal income taxes 6,364 6,642 6,067 8,975
Federal income taxes 2,202 2,307 2,075 3,107
-------- -------- -------- --------
Net income 4,162 4,335 3,992 5,868
Retained earnings beginning of period 128,820 112,198 128,990 110,665
-------- -------- -------- --------
Retained earnings end of period $132,982 $116,533 $132,982 $116,533
======== ======== ======== ========
</TABLE>
See notes to condensed financial statements.
3
<PAGE> 4
THE TRAVELERS LIFE AND ANNUITY COMPANY
CONDENSED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
---------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Investments $ 901,898 $ 851,037
Separate accounts 826,571 820,384
Deferred federal income taxes 61,205 94,315
Other assets 44,204 35,633
---------- ----------
Total assets $1,833,878 $1,801,369
========= ==========
LIABILITIES
Future policy benefits $ 680,618 $ 691,108
Separate accounts 811,272 808,181
Other liabilities 21,763 43,960
---------- ----------
Total liabilities 1,513,653 1,543,249
---------- ----------
SHAREHOLDER'S EQUITY
Capital stock, par value $100; 100,000
shares authorized, 30,000 issued and outstanding 3,000 3,000
Additional paid-in capital 167,356 167,354
Unrealized investment gains (losses), net of taxes 16,887 (41,224)
Retained earnings 132,982 128,990
---------- ----------
Total shareholder's equity 320,225 258,120
---------- ----------
Total liabilities and shareholder's equity $1,833,878 $1,801,369
========== ==========
</TABLE>
See notes to condensed financial statements.
4
<PAGE> 5
THE TRAVELERS LIFE AND ANNUITY COMPANY
CONDENSED STATEMENT OF CASH FLOWS (Unaudited)
INCREASE (DECREASE) IN CASH
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------
1995 1994
---- ----
<S> <C> <C>
Net cash provided by (used in) operating activities $ (40,891) $ 8,357
---------- --------
Cash flows from investing activities
Investment repayments
Fixed maturities 3,579 15,921
Mortgage loans 10,234 40,411
Proceeds from sales of investments, including real estate held for sale
Fixed maturities 124,442 4,775
Equity securities 4,879 2,943
Mortgage loans 2,081 -
Real estate held for sale - 12,369
Investments in
Fixed maturities (90,834) (102,554)
Equity securities (71) (86)
Short-term securities, (purchases) sales, net (11,100) 7,803
Other investments, net (2,824) 3,433
Securities transactions in course of settlement 210 7,404
---------- ---------
Net cash provided by (used in) investing activities 40,596 (7,581)
---------- ----------
Net increase (decrease) in cash (295) 776
Cash at beginning of period 296 -
---------- ---------
Cash at end of period $ 1 $ 776
========== =========
Supplemental disclosure of cash flow information
Income taxes paid $ 37,510 $ 162
========== =========
</TABLE>
See notes to condensed financial statements.
5
<PAGE> 6
THE TRAVELERS LIFE AND ANNUITY COMPANY
Notes to Condensed Financial Statements (Unaudited)
June 30, 1995
1. General
The interim financial statements of The Travelers Life and Annuity Company
(the Company), a wholly owned subsidiary of The Travelers Insurance Company
(an indirect, wholly owned subsidiary of Travelers Group Inc.), have been
prepared in conformity with generally accepted accounting principles (GAAP)
and are unaudited. They reflect all adjustments (none of which were other
than normal recurring adjustments) necessary, in the opinion of management,
for a fair statement of results for the periods reported. The accompanying
condensed financial statements should be read in conjunction with the
audited financial statements and related notes for the year ended December
31, 1994 included in the Company's Form S-2 registration statement filed
July 11, 1995 (File No. 33-58677).
Certain financial information that is normally included in financial
statements prepared in accordance with GAAP but is not required for interim
reporting purposes has been condensed or omitted.
2. Changes in Accounting Principles
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a
Loan", and Statement of Financial Accounting Standards No. 118, "Accounting
by Creditors for Impairment of a Loan - Income Recognition and Disclosures,"
which describe how impaired loans should be measured when determining the
amount of a loan loss accrual. These statements amended existing guidance on
the measurement of restructured loans in a troubled debt restructuring
involving a modification of terms. Their adoption did not have a material
impact on the Company's financial condition, results of operations or
liquidity.
3. Commitments and Contingencies
The Company's TTM Modified Guaranteed Annuity Contracts are subject to a
limited guarantee agreement by The Travelers Insurance Company in a
principal amount of up to $100 million. The obligation of The Travelers
Insurance Company 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.
The Company is a defendant in various litigation matters. Although there can
be no assurances, as of June 30, 1995, 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
<PAGE> 7
THE TRAVELERS LIFE AND ANNUITY COMPANY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's narrative analysis of the results of operations is presented in
lieu of Management's Discussion and Analysis of Financial Condition and Results
of Operations, pursuant to General Instruction H(2)(a) of Form 10-Q.
The Travelers Life and Annuity Company (the Company) primarily writes single
premium group annuity close-out contracts and individual structured settlement
annuities. The single premium group annuity contracts are typically purchased by
employer-sponsored pension plans upon termination of the plan, asset reversion
or other significant plan changes. As a result, sales activity can vary
significantly from period to period.
The individual structured settlement contracts are purchased by an affiliate,
The Travelers Indemnity Company, in connection with the settlement of certain of
its policyholder obligations. All structured settlement contracts are issued
through a separate account of the Company. Accordingly, the Company's other
revenues include structured settlement policyholder revenues net of the related
benefits and expenses.
The Company also writes a small amount of individual life insurance, which is
fully reinsured with The Travelers Insurance Company (the Company's parent).
SIX MONTHS ENDED JUNE 30, 1995 AND 1994
Net income for the six months ended June 30, 1995 was $4.0 million, compared to
$5.9 million for the same period in 1994. Excluding realized losses, operating
earnings increased from $5.9 million in the six months ended June 30, 1994 to
$7.0 million in the six months ended June 30, 1995, reflecting an increase in
retained investment margin and a reduction in current and future insurance
benefits.
Premiums and deposits amounted to $19.4 million for the six months ended June
30, 1995, a 24% decrease compared to the same period for 1994, reflecting a
decline in single premium group annuities and a small decline in structured
settlement sales. (Deposits relate to separate account receipts, and are thus
excluded from revenue).
Policyholder benefit reserves, including separate accounts, aggregated $1.5
billion at June 30, 1995, down from $1.6 billion at June 30, 1994 primarily as a
result of an $82.0 million decrease in separate account liabilities.
INSURANCE REGULATIONS
Risk-based capital requirements are used as early warning tools by the National
Association of Insurance Commissioners and the states to identify companies that
merit further regulatory action. At June 30, 1995, the Company had adjusted
capital in excess of amounts requiring any regulatory action.
7
<PAGE> 8
The Company is subject to various regulatory restrictions that limit the maximum
amount of dividends available to its parent without prior approval of insurance
regulatory authorities in the state of domicile. No statutory surplus is
available in 1995 for dividends to the Company's shareholder without prior
approval of the Connecticut Insurance Department.
ACCOUNTING STANDARDS NOT YET ADOPTED
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, Accounting for Long-Lived Assets and for
Long-Lived Assets to be Disposed Of (FAS 121). This statement establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be held and
used and for long-lived assets and certain identifiable intangibles to be
disposed of. This statement requires 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 of (e.g., real estate held for sale) to be carried at the
lower of cost or fair value less cost to sell and does not allow such assets to
be depreciated. This statement will be effective for 1996 financial statements,
although earlier adoption is permissible. The Company has not yet determined
when it will adopt FAS 121; however, the impact is not expected to be material
to its results of operations, financial condition or liquidity.
8
<PAGE> 9
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
No. Description Filing Method
--- ----------- -------------
<S> <C> <C>
3. Articles of Incorporation and By-laws
a. Charter of The Travelers Life and Annuity Company (the "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 on March 17, 1995.
b. By-laws of the Company as amended October 20, 1994, incorporated
herein by reference to Exhibit 6(b) to the Registration Statement
on Form N-4, File No. 33-58131, filed on March 17, 1995.
27. Financial Data Schedule Electronic
</TABLE>
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed by the Company during the quarter ended
June 30, 1995.
9
<PAGE> 10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE TRAVELERS LIFE AND ANNUITY COMPANY
--------------------------------------
(Registrant)
Date August 14, 1995 /s/ Jay S. Fishman
------------------- --------------------------------------
Jay S. Fishman
Chief Financial Officer
Date August 14, 1995 /s/ Christine B. Mead
------------------- --------------------------------------
Christine B. Mead
Vice President - Finance
and Controller
10
<PAGE>
VINTAGE
STATEMENT OF ADDITIONAL INFORMATION
Individual Variable Annuity Contract
issued by
The Travelers Life and Annuity Company
One Tower Square
Hartford, Connecticut 06183
L-12540S September, 1995
<PAGE>
PART C
Other Information
-----------------
Item 24. Financial Statements and Exhibits
(a) The audited financial statements of The Travelers Life and Annuity Company
and the Reports of Independent Accountants are contained in the Statement
of Additional Information. The financial statements of The Travelers Life
and Annuity Company include:
Statement of Operations and Retained Earnings for the years ended
December 31, 1994, 1993 and 1992
Balance Sheet as of December 31, 1994 and 1993
Statement of Cash Flows for the years ended December 31, 1994, 1993 and
1992
Notes to Financial Statements
The unaudited interim financial statements of The Travelers Life and
Annuity Company are contained in the Statement of Additional Information.
These financial statements include:
Condensed Statement of Operations and Retained Earnings for the six
months ended June 30, 1995
Condensed Balance Sheet as of June 30, 1995
Condensed Statement of Cash Flows for the six months ended June 30,
1995
Notes to Condensed Financial Statements
Financial statements of the Registrant will not be provided since the
Registrant will have no assets as of the effective date of the Registration
Statement.
(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 Registration Statement on Form
N-4, File No. 33-58131, filed via Edgar on March 17, 1995.)
2. Not Applicable.
3. Distribution and Management Agreement among the Registrant, The
Travelers Life and Annuity Company and Tower Square Securities, Inc.
4. Variable Annuity Contracts. (Incorporated herein by reference to
Registration Statement on Form N-4, File No. 33-58131, filed via
Edgar on March 17, 1995.)
5. Application.
6(a). Charter of The Travelers Life and Annuity Company, as amended on
April 10, 1990. (Incorporated herein by reference to 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 Registration
Statement on Form N-4, File No. 33-58131, filed via Edgar on March
17, 1995.)
<PAGE>
<TABLE>
<S> <C>
7. None.
8. None.
9. Opinion of Counsel as to the legality of securities being
registered. (Incorporated herein by reference to Registration
Statement on Form N-4, File No. 33-58131, filed via Edgar on
March 17, 1995.)
10(a). Consent of Coopers & Lybrand L.L.P., Independent Certified Public
Accountants, to the inclusion in this Form N-4 of their report on
the financial statements of The Travelers Life and Annuity Company
contained in Part B of this Registration Statement.
10(b). Consent of KPMG Peat Marwick LLP, Independent Certified Public
Accountants, to the inclusion in this Form N-4 of their report on
the financial statements of The Travelers Life and Annuity Company
contained in Part B of this Registration Statement.
11. None.
12. None.
13. Schedule for computation of each performance quotation.
(Incorporated herein by reference to Registration Statement on
Form N-4, File No. 33-73466, filed via Edgar on April 27, 1995.)
14. Representation concerning reliance upon No-Action Letter IP-6-88.
(Incorporated herein by reference to Registration Statement on Form
N-4, File No. 33-58131, filed via Edgar on March 17, 1995.)
15(a). Powers of Attorney authorizing Jay S. Fishman or Ernest J. Wright
as signatory for Donald T. DeCarlo and Christine B. Mead.
15(b). Powers of Attorney authorizing Jay S. Fishman or Ernest J. Wright as
a signatory for Michael A. Carpenter, Robert I. Lipp, Charles O.
Prince III, Marc P. Weill, and Irwin R. Ettinger. (Incorporated
herein by reference to Registration Statement on Form N-4, File No.
33-58131, filed via Edgar on March 17, 1995.)
27. Financial Data Schedule. (Incorporated herein by reference to
Exhibit 27 to Form 10-Q for the quarter ended June 30, 1995, File
No. 33-58131, filed on August 14, 1995.)
</TABLE>
<PAGE>
Item 25. Directors and Officers of the Depositor
---------------------------------------
Name and Principal Positions and Offices
Business Address with Depositor
---------------- ------------------------
Michael A. Carpenter* Director and Chairman
Robert I. Lipp* Director
Jay S. Fishman* Director and Chief Financial Officer
Charles O. Prince, III** Director
Marc P. Weill** Director and Chief Investment Officer
Irwin R. Ettinger** Director
Donald T. DeCarlo* Director, General Counsel and Secretary
Robert E. Evans* President
Stuart Baritz* Senior Vice President
Jay S. Benet* Senior Vice President
Russell H. Johnson Senior Vice President
Christine B. Mead* Vice President and Controller
William H. White* Vice President and Treasurer
Ian R. Stuart* Vice President and Financial Officer
Kathleen M. D'Auria* Vice President
Elizabeth C. Georgakopoulous* Vice President
Charles N. Vest* Vice President and Actuary
Robert Hamilton* Second Vice President
Bethann C. Maas* Second Vice President
Kyle Rotherie* Second Vice President
Ernest J. Wright* Assistant Secretary
Kathleen A. McGah* Assistant Secretary
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
<PAGE>
Item 26. Persons Controlled by or Under Common Control with the Depositor.
OWNERSHIP OF THE TRAVELERS LIFE AND ANNUITY COMPANY
<TABLE>
<CAPTION>
Company State of Organization Ownership Principal Business
------- --------------------- --------- ------------------
<S> <C> <C> <C>
The Travelers Inc. Delaware Publicly Held --------------
Associated Madison Companies Inc. Delaware 100.00 --------------
The Travelers Insurance Group, Inc. Connecticut 100.00 --------------
The Travelers Insurance Company Connecticut 100.00 Insurance
The Travelers Life and Annuity Company Connecticut 100.00 Insurance
</TABLE>
-------------------------------------------------------------------------------
PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
THE TRAVELERS LIFE AND ANNUITY COMPANY
<TABLE>
<CAPTION>
% of Voting
Securities
Owned Directly
State of or Indirectly by
Organization The Travelers, Inc. Principal Business
------------ ------------------- ------------------
<S> <C> <C> <C>
AC Health Ventures, Inc. Delaware 100.00 Inactive
AMCO Biotech, Inc. Delaware 100.00 Inactive
Associated Madison Companies, Inc. Delaware 100.00 Holding company.
American National Life Insurance (T & C), Ltd. Turks and Caicos Islands 100.00 Insurance
ERISA Corporation New York 100.00 Inactive
Mid-America Insurance Services, Inc. Georgia 100.00 Third party administrator
National Marketing Corporation Pennsylvania 100.00 Inactive
PFS Custodial Services, Inc. Georgia 100.00 General partner
PFS Distributors, Inc. Georgia 100.00 General partner
PFS Investments Inc. Georgia 100.00 Broker dealer
PFS Services, Inc. Georgia 100.00 General partner
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
% of Voting
Securities
Owned Directly
State of or Indirectly by
Organization The Travelers, Inc. Principal Business
------------ ------------------- ------------------
<S> <C> <C> <C>
Primerica Finance Corporation Delaware 100.00 Holding company
American Capital Custodial Services, Inc. Delaware 100.00 Limited partner
American Capital T.A., Inc. Delaware 100.00 Joint venture partner
Primerica Financial Services Home Mortgages, Inc. Georgia 100.00 Mortgage loan broker
Primerica Financial Services, Inc. Nevada 100.00 General agency
Primerica Financial Services Agency of New
York, Inc. New York 100.00 General agency licensing
Primerica Financial Services Insurance
Marketing of Connecticut, Inc. Connecticut 100.00 General agency licensing
Primerica Financial Services Insurance
Marketing of Idaho, Inc. Idaho 100.00 General agency licensing
Primerica Financial Services Insurance
Marketing of Nevada, Inc. Nevada 100.00 General agency licensing
Primerica Financial Services Insurance
Marketing of Pennsylvania, Inc. Pennsylvania 100.00 General agency licensing
Primerica Financial Services Insurance
Marketing of the Virgin Islands, Inc. United States Virgin Islands 100.00 General agency licensing
Primerica Financial Services Insurance
Marketing of Wyoming, Inc. Wyoming 100.00 General agency licensing
Primerica Financial Services Insurance
Marketing, Inc. Delaware 100.00 General agency licensing
Primerica Financial Services of Alabama, Inc. Alabama 100.00 General agency licensing
Primerica Financial Services of New Mexico, Inc. New Mexico 100.00 General agency licensing
Primerica Insurance Agency of Massachusetts, Inc. Massachusetts 100.00 General agency licensing
Primerica Insurance Marketing Services of
Puerto Rico, Inc. Puerto Rico 100.00 Insurance agency
Primerica Insurance Services of Louisiana, Inc. Louisiana 100.00 General agency licensing
Primerica Insurance Services of Maryland, Inc. Maryland 100.00 General agency licensing
Primerica Services, Inc. Georgia 100.00 Print operations
RCM Acquisition Inc. Delaware 100.00 Investments
SCN Acquisitions Company Delaware 100.00 Investments
SL&H Reinsurance, Ltd. Turks and Caicos Islands 100.00 Reinsurance
Southwest Service Agreements, Inc. North Carolina 100.00 Warranty/service agreements
Southwest Warranty Corporation Florida 100.00 Extended automobile warranty
The Travelers Insurance Group Inc. Connecticut 100.00 Holding company
Harbour Associates I, Inc. Delaware 100.00 Real estate holding
Deer Run II, Inc. Delaware 100.00 Real estate holding
Net & Twine II Corporation Delaware 100.00 Real estate holding
KP Properties Corporation Massachusetts 100.00 Real estate
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
% of Voting
Securities
Owned Directly
State of or Indirectly by
Organization The Travelers, Inc. Principal Business
------------ ------------------- ------------------
<S> <C> <C> <C>
KPI 85, Inc. Massachusetts 100.00 Real estate
KRA Advisers Corporation Massachusetts 100.00 Real estate
KRP Corporation Massachusetts 100.00 Real estate
La Metropole S.A. Belgium 98.83 P-C insurance/reinsurance
Principal Financial Associates, Inc. 100.00 Inactive
Winthrop Financial Group, Inc. 100.00 Leasing company.
The Plaza Corporation Connecticut 100.00 Holding company
Joseph A. Wynne Agency California 100.00 Inactive
The Copeland Companies New Jersey 100.00 Holding company
American Odyssey Funds Management, Inc. New Jersey 100.00 Investment advisor
American Odyssey Funds, Inc. Maryland 100.00 Investment management
Copeland Administrative Services, Inc. New Jersey 100.00 Administrative services
Copeland Associates, Inc. Delaware 100.00 Fixed/variable annuities
Copeland Associates Agency of Ohio, Inc. Ohio 99.00 Fixed/variable annuities
Copeland Associates of Alabama, Inc. Alabama 100.00 Fixed/variable annuities
Copeland Associates of Montana, Inc. Montana 100.00 Fixed/variable annuities
Copeland Benefits Management Company New Jersey 51.00 Investment marketing
Copeland Equities, Inc. New Jersey 100.00 Fixed/variable annuities
H.C. Copeland Associates, Inc. of
Massachusetts Massachusetts 100.00 Fixed annuities
Copeland Financial Services, Inc. New Jersey 100.00 Investment advisory
services.
Copeland Healthcare Services, Inc. New Jersey 100.00 Life insurance marketing
H.C. Copeland and Associates, Inc. of Texas Texas 100.00 Fixed/variable annuities
The Parker Realty and Insurance Agency, Inc. Vermont 57.98 Real estate
Travelers General Agency of Hawaii, Inc. Hawaii 100.00 Insurance agency
The Prospect Company Delaware 100.00 Investments
89th & York Avenue Corporation New York 100.00 Real estate
979 Third Avenue Corporation Delaware 100.00 Real estate
Meadow Lane, Inc. Georgia 100.00 Real estate development
Panther Valley, Inc. New Jersey 100.00 Real estate management
Prospect Management Services Company Delaware 100.00 Real estate management
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
% of Voting
Securities
Owned Directly
State of or Indirectly by
Organization The Travelers, Inc. Principal Business
------------ ------------------- ------------------
<S> <C> <C> <C>
The Travelers Asset Funding Corporation Connecticut 100.00 Investment adviser
Travelers Capital Funding Corporation Connecticut 100.00 Furniture/equipment
The Travelers Corporation of Bermuda Limited Bermuda 99.99 Pensions
The Travelers Indemnity Company Connecticut 100.00 P-C insurance
Commercial Insurance Resources, Inc. Delaware 100.00 Holding company
Gulf Insurance Company Missouri 100.00 P-C insurance
Atlantic Insurance Company Texas 100.00 P-C insurance
Gulf Risk Services, Inc. Delaware 100.00 Claims/risk management
Gulf Underwriters Insurance Company North Carolina 100.00 P-C ins/surplus lines
The Travelers Indemnity Company of Missouri Missouri 100.00 P-C insurance
Select Insurance Company Texas 100.00 P-C insurance
Countersignature Agency, Inc. Florida 100.00 Countersign ins policies
First Trenton Indemnity Company New Jersey 100.00 P-C insurance
Laramia Insurance Agency, Inc. North Carolina 100.00 Flood insurance
Lynch, Ryan & Associates, Inc. Massachusetts 100.00 Cost containment
The Charter Oak Fire Insurance Company Connecticut 100.00 P-C insurance
VIPortfolio Agency, Inc. Delaware 100.00 Insurance agency
The Phoenix Insurance Company Connecticut 100.00 P-C insurance
Constitution State Service Company Montana 100.00 Service company
The Travelers Indemnity Company of America Georgia 100.00 P-C insurance
The Travelers Indemnity Company of Connecticut Connecticut 100.00 Insurance
The Travelers Indemnity Company of Illinois Illinois 100.00 P-C insurance
The Premier Insurance Company of Massachusetts Massachusetts 100.00 Insurance
The Travelers Home and Marine Insurance Company Indiana 100.00 P-C insurance
The Travelers Lloyds Insurance Company Texas 100.00 Non-life insurance
TI Home Mortgage Brokerage, Inc. Delaware 100.00 Mortgage brokerage services
TravCo Insurance Company Indiana 100.00 P-C insurance
Travelers Medical Management Services Inc. Delaware 100.00 Managed care
The Travelers Insurance Company Connecticut 100.00 Insurance
Delaware Windtree Realty Corporation Delaware 100.00 Real estate holdings
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
% of Voting
Securities
Owned Directly
State of or Indirectly by
Organization The Travelers, Inc. Principal Business
------------ ------------------- ------------------
<S> <C> <C> <C>
Market Funding Corporation I Delaware 100.00 Real estate management
Market Funding Corporation II Delaware 100.00 Real estate management
Red Oak Plaza Holding Company, Inc. Delaware 100.00 Inactive
The Travelers Life and Annuity Company Connecticut 100.00 Life insurance
Three Parkway Inc. - I Pennsylvania 100.00 Investment real estate
Three Parkway Inc. - II Pennsylvania 100.00 Investment real estate
Three Parkway Inc. - III Pennsylvania 100.00 Investment real estate
Travelers Insurance Holdings Inc. Georgia 100.00 Holding company
AC RE, Ltd. Bermuda 100.00 Reinsurance
American Financial Life Insurance Company Texas 100.00 Insurance
Transport Life Insurance Company Texas 100.00 Insurance
Continental Life Insurance Company Texas 100.00 Insurance
Primerica Life Insurance Company Massachusetts 100.00 Life insurance
National Benefit Life Insurance Company New York 100.00 Insurance
Primerica Financial Services (Canada) Ltd. Canada 100.00 Holding company
PFSL Investments Canada Ltd. Canada 100.00 Mutual fund dealer
Primerica Financial Services Ltd. Canada 82.82 General agent
Primerica Life Insurance Company of Canada Canada 100.00 Life insurance
The Travelers Insurance Corporation Proprietary
Limited Australia 100.00 Inactive
The Travelers Marine Corporation California 100.00 General insurance brokerage
The Travelers Realty Investment Company Connecticut 100.00 Real estate investment
advisor
AdVision, Inc. Connecticut 100.00 Advertising agency
Constitution Plaza, Inc. Connecticut 100.00 Real estate brokerage
Travelers Asset Management International Corporation New York 100.00 Investment adviser
Travelers Canada Corporation Canada 100.00 Inactive
Tower Square Securities, Inc. Connecticut 100.00 Broker dealer
Travelers Mortgage Securities Corporation Delaware 100.00 Collateralized obligations
Travelers of Ireland Limited Ireland 99.90 Data processing
Travelers Specialty Property Casualty Company, Inc. Connecticut 100.00 Insurance management
CCC Holdings, Inc. Delaware 100.00 Holding company
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
% of Voting
Securities
Owned Directly
State of or Indirectly by
Organization The Travelers, Inc. Principal Business
------------ ------------------- ------------------
<S> <C> <C> <C>
Commercial Credit Company Delaware 100.00 Holding company.
American Health and Life Insurance Company Maryland 100.00 LH&A Insurance
Brookstone Insurance Company Vermont 100.00 Insurance managers
CC Finance Company, Inc. New York 100.00 Consumer lending
CC Financial Services, Inc. Hawaii 100.00 Financial services
CCC Fairways, Inc. Delaware 100.00 Investment company
City Loan Financial Services, Inc. Ohio 100.00 Consumer finance
Commercial Credit Banking Corporation Oregon 100.00 Consumer finance
Commercial Credit Consumer Services, Inc. Minnesota 100.00 Consumer finance
Commercial Credit Corporation <AL> Alabama 100.00 Consumer finance
Commercial Credit Corporation <CA> California 100.00 Consumer finance
Commercial Credit Corporation <IA> Iowa 100.00 Consumer finance
Commercial Credit Corporation <KY> Kentucky 100.00 Consumer finance
Certified Insurance Agency, Inc. Kentucky 100.00 Insurance agency
Commercial Credit Investment, Inc. Kentucky 100.00 Investment company
National Life Insurance Agency of Kentucky, Inc. Kentucky 100.00 Insurance agency
Union Casualty Insurance Agency, Inc. Kentucky 100.00 Insurance agency
Commercial Credit Corporation <MD> Maryland 100.00 Consumer finance
Action Data Services, Inc. Missouri 100.00 Data processing
Commercial Credit Plan, Incorporated <OK> Oklahoma 100.00 Consumer finance
Commercial Credit Corporation <NJ> New Jersey 100.00 Consumer finance
Commercial Credit Corporation <NY> New York 100.00 Consumer finance
Commercial Credit Corporation <SC> South Carolina 100.00 Consumer finance
Commercial Credit Corporation <WV> West Virginia 100.00 Consumer finance
Commercial Credit Corporation NC North Carolina 100.00 Consumer finance
Commercial Credit Europe, Inc. Delaware 100.00 Inactive
Commercial Credit Far East Inc. Delaware 100.00 Inactive
Commercial Credit Insurance Services, Inc. Maryland 100.00 Insurance broker
Commercial Credit Insurance Agency (P&C) of
Mississippi, Inc. Mississippi 100.00 Insurance agency
Commercial Credit Insurance Agency of Alabama, Inc. Alabama 100.00 Insurance agency
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
% of Voting
Securities
Owned Directly
State of or Indirectly by
Organization The Travelers, Inc. Principal Business
------------ ------------------- ------------------
<S> <C> <C> <C>
Commercial Credit Insurance Agency of Kentucky,
Inc. Kentucky 100.00 Insurance agency
Commercial Credit Insurance Agency of
Massachusetts, Inc. Massachusetts 100.00 Insurance agency
Commercial Credit Insurance Agency of Nevada, Inc. Nevada 100.00 Credit LH&A, P-C insurance
Commercial Credit Insurance Agency of New Mexico,
Inc. New Mexico 100.00 Insurance agency/Broker
Commercial Credit Insurance Agency of Ohio, Inc. Ohio 100.00 Insurance agency/broker
Commercial Credit International, Inc. Delaware 100.00 Holding company
Commercial Credit International Banking Corporation Oregon 100.00 International lending
Commercial Credit Corporation CCC Limited Canada 100.00 Second mortgage loans
Commercial Credit Services do Brazil Ltda. Brazil 99.00 Inactive
Commercial Credit Services Belgium S.A. Belgium 100.00 Inactive
Commercial Credit Services Israel Limited Israel 100.00 Equipment leasing
Industrial Leasing Services Limited Israel 99.71 Equipment leasing
Comlease Ltd. Israel 99.99 Equipment leasing
Commercial Credit Limited Delaware 100.00 Inactive
Commercial Credit Loan, Inc. <NY> New York 100.00 Consumer finance
Commercial Credit Loans, Inc. <DE> Delaware 100.00 Consumer finance
Commercial Credit Loans, Inc. <OH> Ohio 100.00 Consumer finance
Commercial Credit Loans, Inc. <VA> Virginia 100.00 Consumer finance
Commercial Credit Management Corporation Maryland 100.00 Intercompany services
Commercial Credit Plan Incorporated <TN> Tennessee 100.00 Consumer finance
Commercial Credit Plan Incorporated <UT> Utah 100.00 Consumer finance
Commercial Credit Plan Incorporated of Georgetown Delaware 100.00 Consumer finance
Commercial Credit Plan Industrial Loan Company Virginia 100.00 Consumer finance
Commercial Credit Plan, Incorporated <CO> Colorado 100.00 Consumer finance
Commercial Credit Plan, Incorporated <DE> Delaware 100.00 Consumer finance
Commercial Credit Plan, Incorporated <GA> Georgia 100.00 Consumer finance
Commercial Credit Plan, Incorporated <MO> Missouri 100.00 Consumer finance
Commercial Credit Securities, Inc. Delaware 100.00 Broker dealer
DeAlessandro & Associates, Inc. Delaware 100.00 Insurance consulting
Park Tower Holdings, Inc. Delaware 100.00 Holding company
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
% of Voting
Securities
Owned Directly
State of or Indirectly by
Organization The Travelers, Inc. Principal Business
------------ ------------------- ------------------
<S> <C> <C> <C>
CC Retail Services, Inc. Delaware 100.00 Leasing, financing
Troy Textiles, Inc. Delaware 100.00 Factoring. Company
is inactive.
COMCRES, Inc. Delaware 100.00 Inactive
Commercial Credit Development Corporation Delaware 100.00 Direct loan
Myers Park Properties, Inc. Delaware 100.00 Inactive
Penn Re, Inc. North Carolina 100.00 Management company
Plympton Concrete Products, Inc. Delaware 100.00 Inactive
Resource Deployment, Inc. Texas 100.00 Management company
The Travelers Bank Delaware 100.00 Banking services
The Travelers Bank USA Delaware 100.00 Credit card bank
Travelers Home Equity, Inc. North Carolina 100.00 Financial services
CC Consumer Services of Alabama, Inc. Alabama 100.00 Financial services
Commercial Credit Plan Consumer Discount Company Pennsylvania 100.00 Financial services
CC Home Lenders Financial, Inc. Georgia 100.00 Financial services
CC Home Lenders, Inc. Ohio 100.00 Financial services
Commercial Credit Corporation <TX> Texas 100.00 Consumer finance
Commercial Credit Financial of Kentucky, Inc. Kentucky 100.00 Consumer finance
Commercial Credit Financial of West Virginia, Inc. West Virginia 100.00 Consumer finance
Commercial Credit Services of Kentucky, Inc. Kentucky 100.00 Financial services.
Travelers Home Equity Services, Inc. North Carolina 100.00 Financial services
Verochris Corporation Delaware 100.00 Joint venture company
AMC Aircraft Corp. Delaware 100.00 Aviation
Triton Insurance Company Missouri 100.00 P-C insurance
World Service Life Insurance Company Colorado 100.00 Life insurance
D.I.R.E.C.T. Resources, Inc. Delaware 100.00 Fraud/subrogation recovery
Greenwich Street Capital Partners, Inc. Delaware 100.00 Investments
Greenwich Street Investments, Inc. Delaware 100.00 Investments
Greenwich Street Capital Partners Offshore Delaware 100.00 Investments
Holdings, Inc.
Margco Holdings, Inc. Delaware 100.00 Holding company
Berg Associates New Jersey 100.00 Inactive
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
% of Voting
Securities
Owned Directly
State of or Indirectly by
Organization The Travelers, Inc. Principal Business
------------ ------------------- ------------------
<S> <C> <C> <C>
Berg Enterprises Realty, Inc. <NY> New York 100.00 Inactive
Dublin Escrow, Inc. California 100.00 Inactive
M.K.L. Realty Corporation New Jersey 66.67 Holding company
MFC Holdings, Inc. Delaware 100.00 Inactive
MRC Holdings, Inc. Delaware 100.00 Real estate
The Berg Agency, Inc. <NJ> 100.00 Inactive
Mirasure Insurance Company, Ltd. Bermuda 100.00 Inactive
Intermediate Holdings Inc. Delaware 100.00 Holding company
Pacific Basin Investments Ltd. Delaware 100.00 Inactive
Primerica Corporation <WY> Wyoming 100.00 Inactive
Primerica, Inc. Delaware 100.00 Name saver
RCM Capital Trust Company California 100.00 Trust company
Smith Barney Corporate Trust Company 100.00 Trust company
Smith Barney Holdings Inc. Delaware 100.00 Holding company
Mutual Management Corp. New York 100.00 Inactive
Smith Barney Asset Management Co., Ltd. Japan 100.00 Investment management
R-H Sports Enterprises Inc Georgia 100.00 Sports representation
SB Cayman Holdings I Inc. Delaware 100.00 Holding company
SB Cayman Holdings II Inc. Delaware 100.00 Holding company
SBS Software Inc. Delaware 100.00 Computer licensing
Smith Barney (Delaware) Inc. Delaware 100.00 Holding company
1345 Media Corp. Delaware 100.00 Holding company
Americas Avenue Corporation Delaware 100.00 Inactive
Corporate Realty Advisors, Inc. Delaware 100.00 Realty trust adviser
CRA Acquisition Corp. Delaware 100.00 Inactive
IPO Holdings Inc. Delaware 100.00 Holding company
Institutional Property Owners, Inc. IV Delaware 100.00 Leaseback transactions
Institutional Property Owners, Inc. V Delaware 100.00 Investments
Institutional Property Owners, Inc. VI Delaware 100.00 General partner
Institutional Property Owners, Inc. VII Delaware 100.00 Never activated
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
% of Voting
Securities
Owned Directly
State of or Indirectly by
Organization The Travelers, Inc. Principal Business
------------ ------------------- ------------------
<S> <C> <C> <C>
MLA 50 Corporation Delaware 100.00 Limited partner
MLA GP Corporation Delaware 100.00 General partner
Municipal Markets Advisors Incorporated Delaware 100.00 Public finance
SBF Corp. Delaware 100.00 Merchant banking
investments
Smith Barney Acquisition Corporation Delaware 100.00 Offshore fund adviser
Smith Barney Commercial Corp. Delaware 100.00 Commercial credit
Smith Barney Funding Holding Corp. Delaware 100.00 Inactive
Smith Barney Global Capital Management, Inc. Delaware 100.00 Investment management
Smith Barney Investment, Inc. Delaware 100.00 Inactive
Smith Barney Offshore, Inc. Delaware 100.00 Decathlon Fund advisor
Decathlon Offshore Limited Cayman Islands 100.00 Commodity fund
Smith Barney Pension Advisors Corp. Delaware 100.00 Inactive
Smith Barney Realty Advisors, Inc. Delaware 100.00 Inactive
Smith Barney Realty, Inc. Delaware 100.00 Investments
Smith Barney Risk Investors, Inc. Delaware 100.00 Investments
Smith Barney Venture Corp. Delaware 100.00 Investments
First Century Company 100.00 Holding company
First Century Management Company 100.00 Investment adviser
Smith Barney Asia Inc. Delaware 100.00 Investment banking
Smith Barney Asset Management Group (Asia) Pte. Ltd. Singapore 100.00 Asset management
Smith Barney Canada Inc. Canada 100.00 Investment dealer
Smith Barney Capital Services Inc. Delaware 100.00 Derivative product
transactions
Smith Barney Cayman Islands, Ltd. Cayman Islands 100.00 Securities trading
Smith Barney Commercial Corporation Asia Limited Hong Kong 99.00 Commodities trading
Smith Barney Europe Holdings, Ltd. United Kingdom 100.00 Holding corp.
Smith Barney Europe, Ltd. United Kingdom 100.00 Securities brokerage
Smith Barney Shearson Futures, Ltd. United Kingdom 100.00 Inactive
Smith Barney Futures Management Inc. Delaware 100.00 Commodities pool operator
Harbourer Fund, Ltd. Bahama Islands 100.00 Commodity pool
Smith Barney Offshore Fund Ltd. 100.00 Commodity pool
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
% of Voting
Securities
Owned Directly
State of or Indirectly by
Organization The Travelers, Inc. Principal Business
------------ ------------------- ------------------
<S> <C> <C> <C>
Smith Barney Shearson Overview Fund PLC Dublin 100.00 Commodity fund
Smith Barney Inc. Delaware 100.00 Broker dealer
SBHU Life Agency, Inc. Delaware 100.00 Insurance brokerage
Robinson-Humphrey Insurance Services Inc. Georgia 100.00 Insurance brokerage
Robinson-Humphrey Insurance Services of Alabama,
Inc. Alabama 100.00 Insurance brokerage
SBHU Life & Health Agency, Inc. Delaware 100.00 Insurance brokerage
SBHU Life Agency of Arizona, Inc. Arizona 100.00 Insurance brokerage
SBHU Life Agency of Indiana, Inc. Indiana 100.00 Insurance brokerage
SBHU Life Agency of Utah, Inc. Utah 100.00 Insurance brokerage
SBHU Life Insurance Agency of Massachusetts, Inc. Massachusetts 100.00 Insurance brokerage
SBS Insurance Agency of Hawaii, Inc. Hawaii 100.00 Insurance brokerage
SBS Insurance Agency of Idaho, Inc. Idaho 100.00 Insurance brokerage
SBS Insurance Agency of Maine, Inc. Maine 100.00 Insurance brokerage
SBS Insurance Agency of Montana, Inc. Montana 100.00 Insurance brokerage
SBS Insurance Agency of Nevada, Inc. Nevada 100.00 Insurance brokerage
SBS Insurance Agency of North Carolina, Inc. North Carolina 100.00 Insurance brokerage
SBS Insurance Agency of Ohio, Inc. Ohio 100.00 Insurance brokerage
SBS Insurance Agency of South Dakota, Inc. South Dakota 100.00 Insurance brokerage
SBS Insurance Agency of Wyoming, Inc. Wyoming 100.00 Insurance brokerage
SBS Insurance Brokerage Agency of Arkansas, Inc. Arkansas 100.00 Insurance brokerage
SBS Insurance Brokers of Arizona, Inc. Arizona 100.00 Insurance brokerage
SBS Insurance Brokers of Kentucky, Inc. Kentucky 100.00 Insurance brokerage
SBS Insurance Brokers of Louisiana, Inc. Louisiana 100.00 Insurance brokerage
SBS Insurance Brokers of New Hampshire, Inc. New Hampshire 100.00 Insurance brokerage
SBS Insurance Brokers of North Dakota, Inc. North Dakota 100.00 Insurance brokerage
SBS Life Insurance Agency of Puerto Rico, Inc. Puerto Rico 100.00 Insurance brokerage
SLB Insurance Agency of Maryland, Inc. Maryland 100.00 Insurance brokerage
Smith Barney Life Agency Inc. Louisiana 100.00 Insurance brokerage
Smith Barney (France) S.A. France 100.00 Commodities trading
Smith Barney (Hong Kong) Limited Hong Kong 100.00 Broker dealer
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
% of Voting
Securities
Owned Directly
State of or Indirectly by
Organization The Travelers, Inc. Principal Business
------------ ------------------- ------------------
<S> <C> <C> <C>
Smith Barney (Netherlands) Inc. Delaware 100.00 Broker dealer
Smith Barney International Incorporated Oregon 100.00 Broker dealer
Smith Barney Pacific Holdings, Inc. British Virgin Islands 100.00 Holding company
Smith Barney (Asia) Limited Hong Kong 100.00 Broker dealer
Smith Barney (Singapore) Pte Ltd Singapore 100.00 Commodities
Smith Barney Securities Pte Ltd Singapore 100.00 Securities brokerage
HG Asia (Singapore) Pte. Ltd. Singapore 100.00 Inactive
The Robinson-Humphrey Company, Inc. Delaware 100.00 Broker dealer
Smith Barney Mortgage Brokers Inc. Delaware 100.00 Mortgage brokerage
Smith Barney Mortgage Capital Corp. Delaware 100.00 Mortgage-backed securities
Smith Barney Mortgage Capital Group, Inc. Delaware 100.00 Mortgage trading
Smith Barney Mutual Funds Management Inc. Delaware 100.00 Investment management
Smith Barney Strategy Advisers Inc. Delaware 100.00 Investment management
E.C. Tactical Management S.A. Luxembourg 100.00 Investment management
Smith Barney Private Trust Company (Cayman) Limited Cayman Islands 100.00 Trust company
Greenwich (Cayman) I Limited Cayman Islands 100.00 Corporate services
Greenwich (Cayman) II Limited Cayman Islands 100.00 Corporate services
Greenwich (Cayman) III Limited Cayman Islands 100.00 Corporate services
Smith Barney S.A. France 100.00 Commodities trading
Smith Barney Asset Management France SA France 100.00 Com. based asset management
Smith Barney Shearson (Chile) Corredora de Seguro Chile 100.00 Insurance brokerage
Limitada
Smith Barney Shearson (Ireland) Limited Ireland 100.00 Fund management
Structured Mortgage Securities Corporation Delaware 100.00 Mortgage-backed securities
The Travelers Investment Management Company Connecticut 100.00 Investment advisor
Smith Barney Private Trust Company New York 100.00 Trust company.
Smith Barney Private Trust Company of Florida Florida 100.00 Trust company
Tinmet Corporation Delaware 100.00 Inactive
Travelers Services Inc. Delaware 100.00 Holding company
TRV Employees Investments, Inc. Delaware 100.00 Investments
</TABLE>
<PAGE>
Item 27. Number of Contract Owners
-------------------------
As of September 1, 1995, there were no contract owners of variable annuity
contracts funded through the Registrant.
Item 28. Indemnification
---------------
Section 33-320a of the Connecticut General Statutes ("C.G.S.") regarding
indemnification of directors and officers of Connecticut corporations
provides in general that Connecticut corporations shall indemnify their
officers, directors and certain other defined individuals against
judgments, fines, penalties, amounts paid in settlement and reasonable
expenses actually incurred in connection with proceedings against the
corporation. The 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 33-320a provides an exclusive remedy; a Connecticut
corporation cannot indemnify a director or officer to an extent either
greater or less than that authorized by the statute, e.g., pursuant to its
certificate of incorporation, by-laws, or any separate contractual
arrangement. However, the statute does specifically authorize a
corporation to procure indemnification insurance to provide greater
indemnification rights. The premiums for such insurance may be shared with
the insured individuals on an agreed basis.
Travelers Group Inc. 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>
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 UL for Variable Life Insurance
The Travelers Variable Life Insurance Separate Account One
The Travelers Variable Life Insurance Separate Account Three
The Travelers Fund BD for Variable Annuities
The Travelers Fund VA for Variable Annuities
(b) Name and Principal Positions and Offices
Business Address * With Underwriter
------------------ ----------------
Russell H. Johnson Chairman and Chief Executive Officer
Donald R. Munson, Jr. Director, President and Chief
Operating Officer
George C. Kokulis Director
Gregory C. MacDonald Director and Assistant Secretary
Kathleen A. Preston Director and Executive Vice President
Robert C. Hamilton Director and Senior Vice President
Thomas P. Tooley Vice President, Life Marketing
George A. Ryan Vice President
Jeffrey A. Barker Regional Vice President
Walter Melnik, Jr. Regional Vice President
Raymond W. Sheridan Regional Vice President
William F. Scully, III Treasurer
William H. White Assistant Treasurer
Charles B. Chamberlain Assistant Treasurer
George M. Quaggin Assistant Treasurer
Kathleen A. McGah General Counsel and Secretary
Alison K. George Director of Compliance and Assistant
Corporate Secretary
* Principal business address: One Tower Square, Hartford, Connecticut
06183
(c) Not applicable.
<PAGE>
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;
(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; and
(d) To include in any registration statement filed in connection with a contract
used as a funding vehicle for retirement plans meeting the requirements of
Section 403(b) of the Internal Revenue Code, a representation that the
Registrant is relying upon No-Action Letter IP-6-88 issued to the American
Council of Life Insurance.
<PAGE>
SIGNATURES
----------
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant has caused this Pre-Effective Amendment to this
Registration Statement to be signed on its behalf, in the City of Hartford,
State of Connecticut, on this 18th day of September, 1995.
THE TRAVELERS FUND BD II
FOR VARIABLE ANNUITIES
By: The Travelers Life and Annuity Company
By: /s/ JAY S. FISHMAN
-----------------------
Jay S. Fishman
Chief Financial Officer
<PAGE>
SIGNATURES
----------
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant has caused this Pre-Effective Amendment to this
Registration Statement to be signed on its behalf, in the City of Hartford,
State of Connecticut, on this 18th day of September, 1995.
THE TRAVELERS LIFE AND ANNUITY COMPANY
(Depositor)
By: /s/JAY S. FISHMAN
-----------------------
Jay S. Fishman
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Pre-Effective
amendment to this Registration Statement has been signed below by the following
persons in the capacities indicated on September 18, 1995.
*MICHAEL A. CARPENTER Chairman of the Board
--------------------- and principal executive officer
(Michael A. Carpenter)
*ROBERT I. LIPP Director
---------------
(Robert I. Lipp)
/s/JAY S. FISHMAN Director and Chief Financial Officer
-----------------
(Jay S. Fishman)
*CHARLES O. PRINCE III Director
----------------------
(Charles O. Prince III)
*MARC P. Weill Director
--------------
(Marc P. Weill)
*IRWIN R. ETTINGER Director
------------------
(Irwin R. Ettinger)
*DONALD T. DeCARLO Director
------------------
(Donald T. DeCarlo)
/s/ CHRISTINE B. MEAD Vice President and Controller
---------------------
(Christine B. Mead)
*By: /s/Jay S. Fishman
---------------------
Jay S. Fishman, Attorney-in-Fact
<PAGE>
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 Registration Statement on
Form N-4, File No. 33-58131, filed via Edgar
on March 17, 1995.)
3. Distribution and Management Agreement. Electronically
4. Variable Annuity Contracts. (Incorporated herein
reference to Registration Statement on Form N-4,
File No. 33-58131, filed via Edgar on
March 17, 1995.)
5. Application. Electronically
6(a). Charter of The Travelers Life and Annuity Company,
as amended on April 10, 1990. (Incorporated
herein by reference to 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 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 by Registrant. (Incorporated herein
by reference to Registration Statement on Form N-4,
File No. 33-58131, filed via Edgar on March 17, 1995.)
10(a). Consent of Coopers & Lybrand L.L.P., Independent Certified Electronically
Public Accountants.
10(b). Consent of KPMG Peat Marwick LLP, Independent Electronically
Certified Public Accountants.
13. Schedule for computation of each performance quotation.
(Incorporated herein by reference to Registration
Statement on Form N-4, File No. 33-73466, filed via
Edgar on April 27, 1995.)
14. Representation concerning reliance upon No-Action
Letter IP-6-88. (Incorporated herein by reference to
Registration Statement on Form N-4, File No. 33-58131,
filed via Edgar on March 17, 1995.)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
15. Power of Attorney authorizing Jay S. Fishman or Electronically
Ernest J. Wright as signatory for Donald T. DeCarlo
and Christine B. Mead.
15. Powers of Attorney authorizing Jay S. Fishman or
Ernest J. Wright as signatory for Michael A. Carpenter,
Robert I. Lipp, Charles O. Prince III, Marc P. Weill,
and Irwin R. Ettinger. (Incorporated herein by reference
to Registration Statement on Form N-4, File No. 33-58131,
filed via Edgar on March 17, 1995.)
27. Financial Data Schedule. (Incorporated herein by
reference to Exhibit 27 to Form 10-Q for the quarter
ended June 30, 1995, File No. 33-58131, filed on
August 14, 1995.)
</TABLE>
<PAGE>
EXHIBIT 3
DISTRIBUTION AND MANAGEMENT AGREEMENT
DISTRIBUTION AND MANAGEMENT AGREEMENT made this 8th day of September, 1995,
by and among The Travelers Life and Annuity Company, a Connecticut stock
insurance company (hereinafter the "Company"), Tower Square Securities, Inc., a
Connecticut general business corporation (hereinafter "TSSI"), and The Travelers
Fund BD II for Variable Annuities (hereinafter "Fund BD II"), a separate account
of the Company established by its President and Chief Executive Officer pursuant
to a resolution of the Company's Board of Directors on February 22, 1995,
pursuant to Section 38-433 of the Connecticut General Statutes.
1. The Company hereby agrees to provide all administrative services
relative to variable annuity contracts and revisions thereof (hereinafter
"Contracts") sold by the Company, the net proceeds of which or reserves for
which are maintained in Fund BD II.
2. TSSI hereby agrees to perform all sales functions relative to the
Contracts. The Company agrees to reimburse TSSI for commissions paid, other
sales expenses and properly allocable overhead expenses incurred in performance
thereof.
3. For providing the administrative services referred to in paragraph 1
above and reimbursing TSSI for the sales functions referred to in paragraph 2
above, the Company will receive the deductions for sales and administrative
expenses which are stated in the Contracts.
4. The Company will furnish at its own expense and without cost to Fund BD
II the administrative expenses of Fund BD II, including but not limited to:
(a) office space in the offices of the Company or in such other place as may
be agreed upon from time to time, and all necessary office facilities
and equipment;
(b) necessary personnel for managing the affairs of Fund BD II, including
clerical, bookkeeping, accounting and other office personnel;
(c) all information and services, including legal services, required in
connection with registering and qualifying Fund BD II or the Contracts
with federal and state regulatory authorities, preparation of
registration statements and prospectuses, including amendments and
revisions thereto, and annual, semi-annual and periodic reports, notices
and proxy solicitation materials furnished to variable annuity Contract
Owners or regulatory authorities, including the costs of printing and
mailing such items;
(d) the costs of preparing, printing, and mailing all sales literature;
(e) all registration, filing and other fees in connection with compliance
requirements of federal and state regulatory authorities;
-1-
<PAGE>
(f) the charges and expenses of any custodian or depository appointed by
Fund BD II for the safekeeping of its cash, securities and other
property; and
(g) the charges and expenses of independent accountants retained by Fund BD
II.
5. The services of the Company and TSSI to Fund BD II hereunder are not to
be deemed exclusive and the Company and TSSI shall be free to render similar
services to others so long as its services hereunder are not impaired or
interfered with thereby.
6. The Company agrees to guarantee that the annuity payments will not be
affected by mortality experience (under Contracts the reserves for which are
invested in Fund BD II) and as such assumes the risks (a) that the actuarial
estimate of mortality rates among annuitants may prove erroneous and that
reserves set up on the basis of such estimates will not be sufficient to meet
the Company's variable annuity payment obligations, and (b) that the charges for
services and expenses of the Company set forth in the Contracts may not prove
sufficient to cover its actual expenses. For providing these mortality and
expense risk guarantees, the Company will receive from Fund BD II an amount per
valuation period of Fund BD II, as provided from time to time.
7. This Agreement will be effective on the date executed, and will remain
effective until terminated by any party upon sixty (60) days notice; provided,
however, that this agreement will terminate automatically in the event of its
assignment by any of the parties hereto.
8. Notwithstanding termination of this Agreement, the Company shall
continue to provide administrative services and mortality and expense risk
guarantees provided for herein with respect to Contracts in effect on the date
of termination, and the Company shall continue to receive the compensation
provided under this Agreement.
9. This Agreement is subject to the provisions of the Investment Company
Act of 1940, as amended, and the rules of the Securities and Exchange
Commission.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officials thereunto duly authorized and, in the case
of the Company and TSSI, seals to be affixed as of the day and year first above
written.
THE TRAVELERS LIFE AND ANNUITY COMPANY
(Seal)
By: /s/ Michael A. Carpenter
-------------------------------------------
Title: Chairman
----------------------------------------
ATTEST:
/s/ Ernest J. Wright
----------------------------
Assistant Secretary
-2-
<PAGE>
THE TRAVELERS FUND BD II FOR VARIABLE
ANNUITIES
By: /s/ Michael A. Carpenter
-------------------------------------------
WITNESS:
/s/ Ernest J. Wright
----------------------------
TOWER SQUARE SECURITIES, INC.
By: /s/ Russell Johnson
-------------------------------------------
Title: Chairman
-----------------------------------------
ATTEST: (SEAL)
/s/ Kathleen A. McGah
---------------------------
Corporate Secretary
-3-
<PAGE>
TravelersInsurance Vintage
A Member of TravelersGroup [LOGO APPEARS HERE] Application
Annuity Investor Services * One Tower Square * Hartford, CT 06183-9061
--------------------------------------------------------------------------------
Owner
--------------------------------------------------------------------------------
Name Address
--------------------------------------------------------------------------------
Date of Birth
--------------------------------------------------------------------------------
SS# Sex [_]M [_]F
--------------------------------------------------------------------------------
U.S. Citizen [_]Y [_]N The Owner stated above will be used for all
correspondence and tax reporting purposes
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
[_]Succeeding Owner [_] Joint Owner (check one, if any)
Relationship to Owner
--------------------------------------------------------------------------------
Name
SS# Date of Birth
--------------------------------------------------------------------------------
Annuitant (if different from owner)
--------------------------------------------------------------------------------
Name
SS# Date of Birth
--------------------------------------------------------------------------------
Sex [_]M [_]F If no Annuitant is specified, the Owner stated above will be
the Annuitant
--------------------------------------------------------------------------------
Contingent Annuitant (if any)
--------------------------------------------------------------------------------
Name
Date of Birth
--------------------------------------------------------------------------------
Beneficiary Information
--------------------------------------------------------------------------------
Full Name Relationship to Owner Percent
--------------------------------------------------------------------------------
%
--------------------------------------------------------------------------------
%
--------------------------------------------------------------------------------
Type of Plan Portfolio Allocation
--------------------------------------------------------------------------------
[_]IRA Rollover [_]Nonqualified
[_] Other __________________ Smith Barney Income & Growth %
--------------------------------------------------------------------------------
Replacement Information AIM Capital Appreciation Portfolio %
--------------------------------------------------------------------------------
Will the contract applied for Alliance Growth %
replace any existing annuity -------------------------------------------
contract or life insurance policy? American Capital Enterprise %
-------------------------------------------
[_]Y [_]N If Yes, specify company Smith Barney International Equity %
name and contract # in -------------------------------------------
Remarks section below. Smith Barney Pacific Basin %
--------------------------------------------------------------------------------
Remarks: TBC Managed Income %
-------------------------------------------
Putnam Diversified Income %
-------------------------------------------
GT Global Strategic Income %
-------------------------------------------
Smith Barney High Income %
-------------------------------------------
MFS Total Return %
-------------------------------------------
Smith Barney Money Market %
-------------------------------------------
Travelers Fixed Account %
-------------------------------------------
Smith Barney Total Return Portfolio %
-------------------------------------------
Total 100.000 %
--------------------------------------------------------------------------------
Acknowledgement Initial Purchase Payment $
--------------------------------------------------------------------------------
I understand the contract will take effect when the first purchase payment is
received and the application is approved in the Home Office of The Travelers
Life and Annuity Company. All payments and values provided by the contract
applied for, when based on investment experience of a separate account, are
variable and are not guaranteed as to a fixed dollar. No agent is authorized to
make changes to the contract or application. I acknowledge receipt of a current
prospectus. In Non-Qualified situations where the owner is a trust, I/we hereby
certify the trust is solely for the benefit of a natural person and not a
Deferred Compensation Plan.
_________________________________ ____________________________________
Contract Owner's Signature Signed at (City, State)
_________________________________ ____________________________________
Joint Contract Owner's Signature Date Completed
I acknowledge that all data representations and signatures recorded by me or in
my presence in response to my inquiry and request and all such representations
and signatures are accurate and valid to the best of my knowledge and belief.
Will the contract applied for replace any existing annuity contract or life
insurance policy? [_]Y [_]N
_________________________________ __________ _____________________
Licensed Agent's Signature Date Soc Sec #
_________________________________ ____________________________________
Print Name Agent's License #
--------------------------------------------------------------------------------
<PAGE>
EXHIBIT 10(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Pre-Effective Amendment No. 1 of this
Registration Statement on Form N-4 (File No. 33-58131) of our reports on the
statements of operations and retained earnings and cash flows for the years
ended December 31, 1993 and 1992 of The Travelers Life and Annuity Company (the
"Company") both dated September 16, 1994, which include an explanatory paragraph
regarding the change in the methods of accounting for postretirement benefits
other pensions, income taxes and foreclosed assets in 1992, on our audits of the
financial statements of the Company.
COOPERS & LYBRAND L.L.P.
/s/ Coopers & Lybrand, L.L.P.
Hartford, Connecticut
September 8, 1995
<PAGE>
EXHIBIT 10(b)
The Board of Directors
The Travelers Life and Annuity Company:
We consent to the inclusion in this Pre-Effective Amendment No. 1 to the
registration statement (No. 33-58131) on Form N-4, filed for The Travelers Fund
BD II for Variable Annuities, of our report on the financial statements of The
Travelers Life and Annuity Company, dated January 17, 1995. Our report refers
to a change in accounting for investments in accordance with the provisions of
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities."
/s/ KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Hartford, Connecticut
September 8, 1995
<PAGE>
EXHIBIT 15
THE TRAVELERS FUND BD II FOR VARIABLE ANNUITIES
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
That I, Donald T. DeCarlo of Douglaston, New York, director of The
Travelers Life and Annuity Company (hereinafter the "Company"), do hereby make,
constitute and appoint JAY S. FISHMAN, Director and Chief Financial Officer of
said Company, and ERNEST J. WRIGHT, Assistant Secretary of said Company, or
either one of them acting alone, my true and lawful attorney-in-fact, for me,
and in my name, place and stead, to sign registration statements on behalf of
said Company on Form N-4 or other appropriate form under the Securities Act of
1933 and the Investment Company Act of 1940 for The Travelers Fund BD II for
Variable Annuities, a separate account of the Company dedicated specifically to
the funding of variable annuity contracts to be offered by the Company, and
further, to sign any and all amendments thereto, including post-effective
amendments, that may be filed by the Company on behalf of said registrant.
IN WITNESS WHEREOF, I have hereunto set my hand this 28th day of April,
1995.
/s/Donald T. DeCarlo
Director
The Travelers Life and Annuity Company
<PAGE>
THE TRAVELERS FUND BD II FOR VARIABLE ANNUITIES
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
That I, Christine B. Mead of Avon, Connecticut, Vice President and
Controller of The Travelers Life and Annuity Company (hereinafter the
"Company"), do hereby make, constitute and appoint JAY S. FISHMAN, Director and
Chief Financial Officer of said Company, and ERNEST J. WRIGHT, Assistant
Secretary of said Company, or either one of them acting alone, my true and
lawful attorney-in-fact, for me, and in my name, place and stead, to sign
registration statements on behalf of said Company on Form N-4 or other
appropriate form under the Securities Act of 1933 and the Investment Company Act
of 1940 for The Travelers Fund BD II for Variable Annuities, a separate account
of the Company dedicated specifically to the funding of variable annuity
contracts to be offered by the Company, and further, to sign any and all
amendments thereto, including post-effective amendments, that may be filed by
the Company on behalf of said registrant.
IN WITNESS WHEREOF, I have hereunto set my hand this 1st day of June, 1995.
/s/Christine B. Mead
Vice President and Controller
The Travelers Life and Annuity Company
