-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RMHX0fl1VBsrRrJvq3xxc2nvjP3bj+1VcpDC8GoQ55393Hq+JeUDVN7YtJ/u6RSa 5zb/zynGsc+pS9q9DN8U0w== 0000950123-99-008891.txt : 19991227 0000950123-99-008891.hdr.sgml : 19991227 ACCESSION NUMBER: 0000950123-99-008891 CONFORMED SUBMISSION TYPE: N-4/A PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19990928 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRAVELERS SEPARATE ACCOUNT TEN FOR VARIABLE ANNUITIES CENTRAL INDEX KEY: 0001089811 STANDARD INDUSTRIAL CLASSIFICATION: [] FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-4/A SEC ACT: SEC FILE NUMBER: 333-82013 FILM NUMBER: 99718500 FILING VALUES: FORM TYPE: N-4/A SEC ACT: SEC FILE NUMBER: 811-09413 FILM NUMBER: 99718501 BUSINESS ADDRESS: STREET 1: FINANCEAL SERVICES LEGAL DIVISION STREET 2: ONE TOWER SQUARE CITY: HARTFORD STATE: CT ZIP: 06183 BUSINESS PHONE: 8602777379 MAIL ADDRESS: STREET 1: FINANCEAL SERVICES LEGAL DIVISION STREET 2: ONE TOWER SQUARE CITY: HARTFORD STATE: CT ZIP: 06183 N-4/A 1 PRE-EFFECTIVE AMENDMENT NO. 2 TO FORM N-4 1 Registration Statement No. 333-82013 811-09413 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-4 Pre-Effective Amendment No. 2 to the REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 And Pre-Effective Amendment No. 2 to the REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 THE TRAVELERS SEPARATE ACCOUNT TEN 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: (860) 277-0111 ERNEST J. WRIGHT 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 practicable following the effectiveness of the Registration Statement It is proposed that this filing will become effective (check appropriate box): N/A immediately upon filing pursuant to paragraph (b) of Rule 485. ----- N/A on ___________ pursuant to paragraph (b) of Rule 485. ----- N/A 60 days after filing pursuant to paragraph (a)(1) of Rule 485. ----- N/A on ___________ pursuant to paragraph (a)(1) of Rule 485. ----- If appropriate, check the following box: _____this post-effective amendment designates a new effective date for a previously filed post- effective amendment. 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. 2 Pre-Effective Amendment No. 1 to the Registration Statement filed on Form N-4 is hereby incorporated by reference in its entirety. 3 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholder The Travelers Life and Annuity Company: We have audited the accompanying balance sheets of The Travelers Life and Annuity Company as of December 31, 1998 and 1997, and the related statements of income, changes in retained earnings and accumulated other changes in equity from non-owner sources and cash flows for each of the years in the three-year period ended December 31, 1998. These 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, 1998 and 1997, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1998, in conformity with generally accepted accounting principles. /s/ KPMG LLP Hartford, Connecticut January 25, 1999 F-1 4 THE TRAVELERS LIFE AND ANNUITY COMPANY STATEMENTS OF INCOME ($ in thousands)
FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996 ---- ---- ---- REVENUES Premiums $ 23,677 $ 35,190 $ 17,462 Net investment income 171,003 168,653 151,326 Realized investment gains (losses) 18,493 44,871 (9,613) Fee income 14,687 5,004 1,336 Other 14,199 3,159 940 - -------------------------------------------------------------------------- ------------- -------------- Total Revenues 242,059 256,877 161,451 - -------------------------------------------------------------------------- ------------- -------------- BENEFITS AND EXPENSES Current and future insurance benefits 81,371 95,639 77,285 Interest credited to contractholders 51,535 35,165 35,607 Amortization of deferred acquisition costs and value in insurance in force 17,031 6,036 3,286 Operating expenses 3,937 10,462 5,691 - -------------------------------------------------------------------------- ------------- -------------- Total Benefits and Expenses 153,874 147,302 121,869 - -------------------------------------------------------------------------- ------------- -------------- Income before federal income taxes 88,185 109,575 39,582 - -------------------------------------------------------------------------- ------------- -------------- Federal income taxes: Current 18,917 33,859 29,456 Deferred expense (benefit) 11,783 4,344 (15,665) - -------------------------------------------------------------------------- ------------- -------------- Total Federal Income Taxes 30,700 38,203 13,791 - -------------------------------------------------------------------------- ------------- -------------- Net income $ 57,485 $ 71,372 $ 25,791 ========================================================================== ============= ==============
See Notes to Financial Statements. F-2 5 THE TRAVELERS LIFE AND ANNUITY COMPANY BALANCE SHEETS ($ in thousands)
DECEMBER 31, 1998 1997 - ------------------------------------------------------------------------------------------ ---------------- ----------------- ASSETS Fixed maturities, available for sale at fair value (cost, $1,707,347; $1,571,121) $1,838,681 $1,678,120 Equity securities, at fair value (cost, $25,826; $15,092) 26,685 16,289 Mortgage loans 174,565 160,247 Short-term securities 126,176 169,229 Other invested assets 136,122 121,242 - ------------------------------------------------------------------------------------------ ---------------- ----------------- Total Investments 2,302,229 2,145,127 - ------------------------------------------------------------------------------------------ ---------------- ----------------- Separate accounts 2,178,474 812,059 Deferred acquisition costs and value of insurance in force 194,213 90,966 Premium balances receivable 16,074 9,288 Deferred federal income taxes 12,395 33,661 Other assets 41,119 61,904 - ------------------------------------------------------------------------------------------ ---------------- ----------------- Total Assets $4,744,504 $3,153,005 - ------------------------------------------------------------------------------------------ ---------------- ----------------- LIABILITIES Future policy benefits $963,171 $971,602 Contractholder funds 947,411 818,971 Separate accounts 2,178,474 812,059 Other liabilities 114,690 84,712 - ------------------------------------------------------------------------------------------ ---------------- ----------------- Total Liabilities 4,203,746 2,687,344 - ------------------------------------------------------------------------------------------ ---------------- ----------------- SHAREHOLDER'S EQUITY Common stock, par value $100; 100,000 shares authorized, 30,000 issued and outstanding 3,000 3,000 Additional paid-in capital 167,314 167,314 Retained earnings 282,555 225,070 Accumulated other changes in equity from non-owner sources 87,889 70,277 - ------------------------------------------------------------------------------------------ ---------------- ----------------- Total Shareholder's Equity 540,758 465,661 - ------------------------------------------------------------------------------------------ ---------------- ----------------- Total Liabilities and Shareholder's Equity $4,744,504 $3,153,005 ========================================================================================== ================ =================
See Notes to Financial Statements. F-3 6 THE TRAVELERS LIFE AND ANNUITY COMPANY STATEMENTS OF CHANGES IN RETAINED EARNINGS AND ACCUMULATED OTHER CHANGES IN EQUITY FROM NON-OWNER SOURCES ($ IN THOUSANDS)
- ------------------------------------------------------ ---------------- ----------------- ------------------- STATEMENTS OF CHANGES IN RETAINED EARNINGS 1998 1997 1996 - ------------------------------------------------------ ---------------- ----------------- ------------------- Balance, beginning of year $225,070 $167,698 $157,907 Net income 57,485 71,372 25,791 Dividends to parent - 14,000 16,000 - ------------------------------------------------------ ---------------- ----------------- ------------------- Balance, end of year $282,555 $225,070 $167,698 ====================================================== ================ ================= =================== - ------------------------------------------------------ ---------------- ----------------- ------------------- STATEMENTS OF ACCUMULATED OTHER CHANGES IN EQUITY FROM NON-OWNER SOURCES - ------------------------------------------------------ ---------------- ----------------- ------------------- Balance, beginning of year $70,277 $33,856 $35,330 Unrealized gains (losses), net of tax 17,612 36,421 (1,474) - ------------------------------------------------------ ---------------- ----------------- ------------------- Balance, end of year $87,889 $70,277 $33,856 ====================================================== ================ ================= =================== - ------------------------------------------------------ ---------------- ----------------- ------------------- SUMMARY OF CHANGES IN EQUITY FROM NON-OWNER SOURCES - ------------------------------------------------------ ---------------- ----------------- ------------------- Net Income $57,485 $71,372 $25,791 Other changes in equity from non-owner sources 17,612 36,421 (1,474) - ------------------------------------------------------ ---------------- ----------------- ------------------- Total changes in equity from non-owner sources $75,097 $107,793 $24,317 ====================================================== ================ ================= ===================
See Notes to Financial Statements. F-4 7 THE TRAVELERS LIFE AND ANNUITY COMPANY STATEMENTS OF CASH FLOWS INCREASE (DECREASE) IN CASH ($ in thousands)
FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996 - ----------------------------------------------------------------------------------- --------------- --------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES Premiums collected $ 22,300 $ 34,553 $ 6,472 Net investment income received 146,158 170,460 71,083 Benefits and claims paid (90,872) (90,820) (70,331) Interest credited to contractholders (51,535) (35,165) (813) Operating expenses paid (75,632) (40,868) (5,482) Income taxes paid (25,214) (22,440) (23,931) Other (596) (7,702) (6,857) - ----------------------------------------------------------------------------------- --------------- --------------- ------------- Net Cash Provided by (Used in) Operating Activities (75,391) 8,018 (29,859) - ----------------------------------------------------------------------------------- --------------- --------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from maturities of investments Fixed maturities 113,456 81,899 20,301 Mortgage loans 25,462 8,972 37,789 Proceeds from sales of investments Fixed maturities 1,095,976 856,846 978,970 Equity securities 6,020 12,404 12,818 Mortgage loans - 5,483 22,437 Real estate held for sale - 4,493 - Purchases of investments Fixed maturities (1,320,704) (1,020,803) (994,443) Equity securities (13,653) (6,382) (5,412) Mortgage loans (39,158) (41,967) (21,450) Policy loans (2,010) (1,144) (1,750) Short-term securities, (purchases) sales, net 43,054 (88,067) (19,688) Other investments, (purchases) sales, net 1,110 (51,502) (6,160) Securities transactions in course of settlement 36,459 10,526 (51,703) - ----------------------------------------------------------------------------------- --------------- --------------- ------------- Net Cash Used in Investing Activities (53,988) (229,242) (28,291) - ----------------------------------------------------------------------------------- --------------- --------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES Contractholder fund deposits 211,476 325,932 96,490 Contractholder fund withdrawals (83,036) (89,145) (22,340) Dividends to parent company - (14,000) (16,000) - ----------------------------------------------------------------------------------- --------------- --------------- ------------- Net Cash Provided by Financing Activities 128,440 222,787 58,150 - ----------------------------------------------------------------------------------- --------------- --------------- ------------- Net increase (decrease) in cash (939) 1,563 - - ----------------------------------------------------------------------------------- --------------- --------------- ------------- Cash at December 31, $624 $1,563 $ - =================================================================================== =============== =============== =============
See Notes to Financial Statements. F-5 8 THE TRAVELERS LIFE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Significant accounting policies used in the preparation of the accompanying financial statements follow. Basis of Presentation The Travelers Life and Annuity Company (the Company) is a wholly owned subsidiary of The Travelers Insurance Company (TIC), an indirect wholly owned subsidiary of Citigroup Inc. (Citigroup), formerly Travelers Group Inc. The financial statements and accompanying footnotes of the Company are prepared in conformity with generally accepted accounting principles. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and benefits and expenses during the reporting period. Actual results could differ from those estimates. The Company offers a variety of variable annuity products where the investment risk is borne by the contractholder, not the Company, and the benefits are not guaranteed. The premiums and deposits related to these products are reported in separate accounts. The Company considers it necessary to differentiate, for financial statement purposes, the results of the risks it has assumed from those it has not. See also Note 6. Certain reclassifications have been made to the prior year's financial statements to conform to the current year's presentation. ACCOUNTING CHANGES Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities Effective January 1, 1997, the Company adopted Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" (FAS 125). This statement establishes accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. These standards are based on an approach that focuses on control. Under this approach, after a transfer of financial assets, an entity recognizes the financial and servicing assets it controls and the liabilities it has incurred, derecognizes financial assets when control has been surrendered and derecognizes liabilities when extinguished. FAS 125 provides standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. Effective January 1, 1998, the Company adopted the collateral provisions of FAS 125 which were not effective until 1998 in accordance with Statement of Financial Accounting Standards No. 127, "Deferral of the Effective Date of Certain Provisions of SFAS 125". The adoption of the collateral provisions of FAS 125 created additional assets and liabilities on the Company's statement of financial position related to the recognition of securities provided and received as collateral. There was no impact on the results of operations from the adoption of the collateral provisions of FAS 125. F-6 9 THE TRAVELERS LIFE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) Reporting Comprehensive Income Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (FAS 130). FAS 130 establishes standards for the reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. All items that are required to be recognized under accounting standards as components of comprehensive income are required to be reported in an annual financial statement that is displayed with the same prominence as other financial statements. This statement stipulates that comprehensive income reflect the change in equity of an enterprise during a period from transactions and other events and circumstances from non-owner sources. Comprehensive income thus represents the sum of net income and other changes in equity from non-owner sources. The accumulated balance of other changes in equity from non-owner sources is required to be displayed separately from retained earnings and additional paid-in capital in the balance sheet. The adoption of FAS 130 resulted in the Company reporting unrealized gains and losses on investments in debt and equity securities in changes in equity from non-owner sources. See Note 3. Disclosures About Segments of an Enterprise and Related Information During 1998, Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information" (FAS 131) became effective. FAS 131 establishes standards for the way that public enterprises report information about operating segments in annual financial statements and requires that selected information about those operating segments be reported in interim financial statements. This statement supersedes Statement of Financial Accounting Standards No. 14, "Financial Reporting for Segments of a Business Enterprise". FAS 131 requires that all public enterprises report financial and descriptive information about its reportable operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decisionmaker in deciding how to allocate resources and in assessing performance. The Company only has one reportable operating segment and therefore, no additional disclosures are required under FAS 131. Accounting for the Costs of Computer Software Developed or Obtained for Internal Use During the third quarter of 1998, the Company adopted (effective January 1, 1998) the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants' Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" (SOP 98-1). SOP 98-1 provides guidance on accounting for the costs of computer software developed or obtained for internal use and for determining when specific costs should be capitalized or expensed. The adoption of SOP 98-1 had no impact on the Company's financial condition, statement of operations or liquidity. F-7 10 THE TRAVELERS LIFE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) ACCOUNTING POLICIES Investments Fixed maturities include bonds, notes and redeemable preferred stocks. Fair values of investments in fixed maturities are based on quoted market prices or dealer quotes or, if these are not available, discounted expected cash flows using market rates commensurate with the credit quality and maturity of the investment. The effective yield used to determine amortization is calculated based upon actual historical and projected future cash flows, which are obtained from a widely-accepted securities data provider. Fixed maturities are classified as "available for sale" and are reported at fair value, with unrealized investment gains and losses, net of income taxes, charged or credited directly to shareholder's equity. Equity securities, which include common and non-redeemable preferred stocks, are classified as "available for sale" and are carried at fair value based primarily on quoted market prices. Changes in fair values of equity securities are charged or credited directly to shareholder's equity, net of income taxes. Mortgage loans are carried at amortized cost. A mortgage loan is considered impaired when it is probable that the Company will be unable to collect principal and interest amounts due. For mortgage loans that are determined to be impaired, a reserve is established for the difference between the amortized cost and fair market value of the underlying collateral. In estimating fair value, the Company uses interest rates reflecting the current real estate financing market. Impaired loans were insignificant at December 31, 1998 and 1997. Short-term securities, consisting primarily of money market instruments and other debt issues purchased with a maturity of less than one year, are carried at amortized cost which approximates market. Other invested assets include real estate joint ventures and partnership investments accounted for on the equity method of accounting. All changes in equity of these investments are recorded in net investment income. Accrual of income, included in other assets, is suspended on fixed maturities or mortgage loans that are in default, or on which it is likely that future payments will not be made as scheduled. Interest income on investments in default is recognized only as payment is received. Included in investments are invested assets associated with Structured Settlement Guaranteed Separate Accounts where the investment risk is borne by the Company. See Note 6. F-8 11 THE TRAVELERS LIFE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) DERIVATIVE FINANCIAL INSTRUMENTS The Company uses derivative financial instruments, including financial futures contracts, options, forward contracts and interest rate swaps and caps, as a means of hedging exposure to interest rate and foreign currency risk. Hedge accounting is used to account for derivatives. To qualify for hedge accounting the changes in value of the derivative must be expected to substantially offset the changes in value of the hedged item. Hedges are monitored to ensure that there is a high correlation between the derivative instruments and the hedged investment. Gains and losses arising from financial futures contracts are used to adjust the basis of hedged investments and are recognized in net investment income over the life of the investment. Forward contracts, and options, and interest rate caps were not significant at December 31, 1998 and 1997. Information concerning derivative financial instruments is included in Note 4. INVESTMENT GAINS AND LOSSES Realized investment gains and losses are included as a component of pre-tax revenues based upon specific identification of the investments sold on the trade date. Also included are gains and losses arising from the remeasurement of the local currency value of foreign investments to U.S. dollars, the functional currency of the Company. POLICY LOANS Policy loans are carried at the amount of the unpaid balances that are not in excess of the net cash surrender values of the related insurance policies. The carrying value of policy loans, which have no defined maturities, is considered to be fair value. SEPARATE ACCOUNTS The Company has separate account assets and liabilities representing funds for which investment income and investment gains and losses accrue directly to, and investment risk is borne by, the contractholders. Each of these accounts have specific investment objectives. The assets and liabilities of these accounts are carried at fair value, and amounts assessed to the contractholders for management services are included in fee income. Deposits, net investment income and realized investment gains and losses for these accounts are excluded from revenues, and related liability increases are excluded from benefits and expenses. The Company also has a separate account for structured settlement annuity obligations where the investment risk is borne by the Company. The assets and liabilities of this separate account are included in investments, future policy benefits and contractholder funds for financial reporting purposes. See Note 6. F-9 12 THE TRAVELERS LIFE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) DEFERRED ACQUISITION COSTS AND VALUE OF INSURANCE IN FORCE Costs of acquiring individual life insurance and annuity business, principally commissions and certain expenses related to policy issuance, underwriting and marketing, all of which vary with and are primarily related to the production of new business, are deferred. Acquisition costs relating to traditional life insurance are amortized in relation to anticipated premiums; universal life in relation to estimated gross profits; and annuity contracts employing a level yield method. A 15 to 20 year amortization period is used for life insurance, and a 7 to 20 year period is employed for annuities. Deferred acquisition costs are reviewed periodically for recoverability to determine if any adjustment is required. Adjustments, if any, are charged to income. The value of insurance in force is an asset recorded at the time of acquisition of an insurance company. It represents the actuarially determined present value of anticipated profits to be realized from annuity contracts at the date of acquisition using the same assumptions that were used for computing related liabilities, where appropriate. The value of insurance in force was the actuarially determined present value of the projected future profits discounted at an interest rate of 16% for the annuity business acquired. The annuity contracts are amortized employing a level yield method. The value of insurance in force is reviewed periodically for recoverability to determine if any adjustment is required. Adjustments, if any, are charged to income. FUTURE POLICY BENEFITS Benefit reserves represent liabilities for future insurance policy benefits. Benefit reserves for life insurance and annuity policies have been computed based upon mortality, morbidity, persistency and interest assumptions applicable to these coverages, which range from 3.0% to 7.5%, including a provision for adverse deviation. These assumptions consider Company experience and industry standards. The assumptions vary by plan, age at issue, year of issue and duration. CONTRACTHOLDER FUNDS Contractholder funds represent receipts from the issuance of universal life, certain individual annuity contracts, and structured settlement contracts. Contractholder fund balances are increased by such receipts and credited interest and reduced by withdrawals, mortality charges and administrative expenses charged to the contractholders. Interest rates credited to contractholder funds range from 3.3% to 7.2%. PERMITTED STATUTORY ACCOUNTING PRACTICES The Company, domiciled in the State of Connecticut, prepares statutory financial statements in accordance with the accounting practices prescribed or permitted by the State of Connecticut Insurance Department. Prescribed statutory accounting practices include certain publications of the National Association of Insurance Commissioners (NAIC) as well as state laws, regulations, and general administrative rules. Permitted statutory accounting practices encompass all accounting practices not so prescribed. The impact of any permitted accounting practices on the statutory surplus of the Company is not material. F-10 13 THE TRAVELERS LIFE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) The NAIC recently completed a process intended to codify statutory accounting practices for certain insurance enterprises. As a result of this process, the NAIC will issue a revised statutory Accounting Practices and Procedures Manual - version effective January 1, 2001 (the revised Manual) that will be effective January 1, 2001 for the calendar year 2001 statutory financial statements. It is expected that the State of Connecticut will require that, effective January 1, 2001, insurance companies domiciled in Connecticut prepare their statutory basis financial statements in accordance with the revised Manual subject to any deviations prescribed or permitted by the Connecticut insurance commissioner. The Company has not yet determined the impact that this change will have on its statutory capital and surplus. PREMIUMS Premiums are recognized as revenues when due. Reserves are established for the portion of premiums that will be earned in future periods. OTHER REVENUES Other revenues include surrender, mortality and administrative charges, and fees earned on investment and other insurance contracts. FEDERAL INCOME TAXES The provision for federal income taxes comprises two components, current income taxes and deferred income taxes. Deferred federal income taxes arise from changes during the year in cumulative temporary differences between the tax basis and book basis of assets and liabilities. The deferred federal income tax asset is recognized to the extent that future realization of the tax benefit is more likely than not, with a valuation allowance for the portion that is not likely to be recognized. FUTURE APPLICATION OF ACCOUNTING STANDARDS In December 1997, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position 97-3, "Accounting by Insurance and Other Enterprises for Insurance-Related Assessments" (SOP 97-3). SOP 97-3 provides guidance for determining when an entity should recognize a liability for guaranty-fund and other insurance-related assessments, how to measure that liability, and when an asset may be recognized for the recovery of such assessments through premium tax offsets or policy surcharges. This SOP is effective for financial statements for fiscal years beginning after December 15, 1998, and the effect of initial adoption is to be reported as a cumulative catch-up adjustment. Restatement of previously issued financial statements is not allowed. The Company plans to implement SOP 97-3 in the first quarter of 1999 and expects there to be no material impact on the Company's financial condition, results of operations or liquidity. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (FAS 133). This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments imbedded in other contracts, (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. F-11 14 THE TRAVELERS LIFE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign-currency-denominated forecasted transaction. The accounting for changes in the fair value of a derivative (that is, gains and losses) depends on the intended use of the derivative and the resulting designation. FAS 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. Upon initial application of FAS 133, hedging relationships must be designated anew and documented pursuant to the provisions of this statement. The Company has not yet determined the impact that FAS 133 will have on its financial statements. 2. REINSURANCE The Company participates in reinsurance in order to limit losses, minimize exposure to large risks, provide capacity for future growth and to effect business-sharing arrangements. The Company remains primarily liable as the direct insurer on all risks reinsured. Life insurance in force ceded to TIC at December 31, 1998 and 1997 was $69.6 million and $76.4 million, respectively. Life insurance premiums ceded were $4.2 million, $2.4 million and $1.3 million in 1998, 1997 and 1996, respectively. Life insurance premiums ceded to non-affiliates were insignificant. Life insurance in force ceded to non-affiliates at December 31, 1998 and 1997, was $8.8 billion and $4.5 billion, respectively. 3. SHAREHOLDER'S EQUITY Unrealized Investment Gains (Losses) See Note 11 for an analysis of the change in unrealized gains and losses on investments. Shareholder's Equity and Dividend Availability The Company's statutory net income (loss) was $(3.2) million, $80.3 million and $17.9 million for the years ended December 31, 1998, 1997 and 1996, respectively. Statutory capital and surplus was $328.2 million at both December 31, 1998 and 1997. The Company is currently subject to various regulatory restrictions that limit the maximum amount of dividends available to be paid to its parent without prior approval of insurance regulatory authorities. Statutory surplus of $32.8 million is available in 1999 for dividend payments by the Company without prior approval of the Connecticut Insurance Department. F-12 15 THE TRAVELERS LIFE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) TAX EFFECTS ALLOCATED TO EACH COMPONENT OF OTHER CHANGES IN EQUITY FROM NON-OWNER SOURCES
For the years ended December 31, PRE-TAX AMOUNT TAX EXPENSE/ AFTER-TAX ($ in thousands) (BENEFIT) AMOUNT ---------------------------------------------------------------- --------------- ---------------- -------------- 1998 Unrealized gain on investment securities: Unrealized holding gains arising during year $45,589 $15,957 $29,632 Less: reclassification adjustment for gains realized in net income 18,493 6,473 12,020 ---------------------------------------------------------------- --------------- ---------------- -------------- Other changes in equity from non-owner sources $27,096 $9,484 $17,612 ================================================================ =============== ================ ============== 1997 Unrealized gain on investment securities: Unrealized holding gains arising during year $100,903 $35,316 $65,587 Less: reclassification adjustment for gains realized in net income 44,871 15,705 29,166 ---------------------------------------------------------------- --------------- ---------------- -------------- Other changes in equity from non-owner sources $56,032 $19,611 $36,421 ================================================================ =============== ================ ============== 1996 Unrealized gain (loss) on investment securities: Unrealized holding gains (losses) arising during year $(11,881) $4,158 $(7,723) Less: reclassification adjustment for losses realized in net income (9,613) (3,364) (6,249) ---------------------------------------------------------------- --------------- ---------------- -------------- Other changes in equity from non-owner sources $(2,268) $794 $(1,474) ================================================================ =============== ================ ==============
4. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS Derivative Financial Instruments The Company uses derivative financial instruments, including financial futures, forward contracts and interest rate swaps as a means of hedging exposure to foreign currency, equity price changes and/or interest rate risk on anticipated transactions or existing assets and liabilities. The Company does not hold or issue derivative instruments for trading purposes. These derivative financial instruments have off-balance sheet risk. Financial instruments with off-balance sheet risk involve, to varying degrees, elements of credit and market risk in excess of the amount recognized in the balance sheet. The contract or notional amounts of these instruments reflect the extent of involvement the Company has in a particular class of financial instrument. However, the maximum loss of cash flow associated with these instruments can be less than these amounts. For forward contracts and interest rate swaps, credit risk is limited to the amounts that it would cost the Company to replace such contracts. Financial futures contracts and purchased listed option contracts have little credit risk since organized exchanges are the counterparties. F-13 16 THE TRAVELERS LIFE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) The Company monitors creditworthiness of counterparties to these financial instruments by using criteria of acceptable risk that are consistent with on-balance sheet financial instruments. The controls include credit approvals, limits and other monitoring procedures. The Company uses exchange traded financial futures contracts to manage its exposure to changes in interest rates and equity prices which arise from the sale of certain insurance and investment products, or the need to reinvest proceeds from the sale or maturity of investments. To hedge against adverse changes in interest rates and equity prices, the Company enters long or short positions in financial futures contracts which offset changes in the fair value of investments and liabilities resulting from changes in market interest rates or equity prices until an investment is purchased, a product is sold or a liability is settled. Margin payments are required to enter a futures contract and contract gains or losses are settled daily in cash. The contract amount of futures contracts represents the extent of the Company's involvement, but not future cash requirements, as open positions are typically closed out prior to the delivery date of the contract. At December 31, 1998 and 1997, the Company held financial futures contracts with notional amounts of $41.5 million and $156.3 million, respectively. At December 31, 1998 and 1997, the Company's futures contracts had no fair value because these contracts are marked to market and settled in cash daily. The Company enters into interest rate swaps in connection with other financial instruments to provide greater risk diversification and better match an asset with a corresponding liability. Under interest rate swaps, the Company agrees with other parties to exchange, at specific intervals, the difference between fixed-rate and floating-rate interest amounts calculated by reference to a notional principal amount. Generally, no cash is exchanged at the outset of the contract and no principal payments are made by either party. A single net payment is usually made by one counterparty at each due date. Swaps are not exchange traded and are subject to the risk of default by the counterparty. As of December 31, 1998 and 1997, the Company held interest rate swap contracts with notional amounts of $165.3 million and $17.3 million, respectively. The fair value of these financial instruments was $3.4 million (gain position) and $.7 million (loss position) at December 31, 1998 and was $.7 million (loss position) at December 31, 1997. The fair values were determined using the discounted cash flow method. The off-balance sheet risks of forward contracts were not significant at December 31, 1998 and 1997. Financial Instruments with Off-Balance Sheet Risk In the normal course of business, the Company issues fixed and variable rate loan commitments and has unfunded commitments to partnerships. The off-balance sheet risk of these financial instruments was not significant at December 31, 1998 and 1997. F-14 17 THE TRAVELERS LIFE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) Fair Value of Certain Financial Instruments The Company uses various financial instruments in the normal course of its business. Fair values of financial instruments that are considered insurance contracts are not required to be disclosed and are not included in the amounts discussed. At December 31, 1998, investments in fixed maturities had a carrying value and a fair value of $1.8 billion, compared with a carrying value and a fair value of $1.7 billion at December 31, 1997. See Notes 1 and 11. At December 31, 1998, mortgage loans had a carrying value of $174.6 million and a fair value of $185.7 million and in 1997 had a carrying value of $160.2 million and a fair value of $172.6 million. In estimating fair value, the Company used interest rates reflecting the current real estate financing market. The carrying values of $36.5 million and $54.4 million of financial instruments classified as other assets approximated their fair values at December 31, 1998 and 1997, respectively. The carrying values of $98.4 million and $70.5 million of financial instruments classified as other liabilities also approximated their fair values at December 31, 1998 and 1997, respectively. Fair value is determined using various methods, including discounted cash flows, as appropriate for the various financial instruments. At December 31, 1998, contractholder funds with defined maturities had a carrying value of $725.6 million and a fair value of $698.1 million, compared with a carrying value of $694.9 million and a fair value of $695.9 million at December 31, 1997. The fair value of these contracts is determined by discounting expected cash flows at an interest rate commensurate with the Company's credit risk and the expected timing of cash flows. Contractholder funds without defined maturities had a carrying value of $483.0 million and a fair value of $442.5 million at December 31, 1998, compared with a carrying value of $98.5 million and a fair value of $93.9 million at December 31, 1997. These contracts generally are valued at surrender value. The carrying values of short-term securities and policy loans approximated their fair values. 5. COMMITMENTS AND CONTINGENCIES Financial Instruments with Off-Balance Sheet Risk See Note 4. Litigation The Company is a defendant in various litigation matters in the normal course of business. Although there can be no assurances, as of December 31, 1998, the Company believes, based on information currently available, that the ultimate resolution of these legal proceedings would not be likely to have a material adverse effect on its results of operations, financial condition or liquidity. F-15 18 THE TRAVELERS LIFE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) 6. STRUCTURED SETTLEMENT CONTRACTS The Company has structured settlement contracts that provide guarantees for the contractholders independent of the investment performance of the assets held in the related separate account. The assets held in the separate account are owned by the Company and contractholders do not share in their investment performance. The Company maintains assets sufficient to fund the guaranteed benefits attributable to the liabilities. Assets held in the separate account cannot be used to satisfy any other obligations of the Company. The Company reports the related assets and liabilities in investments, future policy benefit reserves and contractholder funds. These contracts were purchased by the insurance subsidiaries of Travelers Property Casualty Corp. (TAP), an affiliate of the Company, in connection with the settlement of certain of their policyholder obligations. Effective April 1, 1998, all new contracts have been written by TIC. 7. BENEFIT PLANS Pension and Other Postretirement Benefits The Company participates in a qualified, noncontributory defined benefit pension plan sponsored by Citigroup. In addition, the Company provides certain other postretirement benefits to retired employees through a plan sponsored by The Travelers Insurance Group Inc. (TIGI), TIC's direct parent. The Company's share of net expense for the qualified pension and other postretirement benefit plans was not significant for 1998, 1997 and 1996. 401(k) Savings Plan Substantially all of the Company's employees are eligible to participate in a 401(k) savings plan sponsored by Citigroup. During 1996, the Company made matching contributions in an amount equal to the lesser of 100% of the pre-tax contributions made by the employee or $1,000. Effective January 1, 1997, the Company discontinued matching contributions for the majority of its employees. The Company's expenses in connection with the 401(k) savings plan were not significant in 1998, 1997 and 1996. F-16 19 THE TRAVELERS LIFE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) 8. RELATED PARTY TRANSACTIONS The principal banking functions, including payment of salaries and expenses, for certain subsidiaries and affiliates of TIGI, including the Company, are handled by two companies. TIC handles banking functions for the life and annuity operations of Travelers Life & Annuity and some of its non-insurance affiliates. The Travelers Indemnity Company handles banking functions for the property-casualty operations, including most of its property-casualty insurance and non-insurance affiliates. Settlements between companies are made at least monthly. TIC provides various employee benefit coverages to certain subsidiaries of TIGI. The premiums for these coverages were charged in accordance with cost allocation procedures based upon salaries or census. In addition, investment advisory and management services, data processing services and claims processing services are provided by affiliated companies. Charges for these services are shared by the companies on cost allocation methods based generally on estimated usage by department. TIC maintains a short-term investment pool in which the Company participates. The position of each company participating in the pool is calculated and adjusted daily. At December 31, 1998 and 1997, the pool totaled approximately $2.3 billion and $2.6 billion, respectively. The Company's share of the pool amounted to $93.1 million and $145.5 million at December 31, 1998 and 1997, respectively, and is included in short-term securities in the balance sheet. The Company's TTM Modified Guaranteed Annuity Contracts are subject to a limited guarantee agreement by TIC in a principal amount of up to $450 million. TIC's obligation is to pay in full to any owner or beneficiary of the TTM Modified Guaranteed Annuity Contracts principal and interest as and when due under the annuity contract to the extent that the Company fails to make such payment. In addition, TIC guarantees that the Company will maintain a minimum statutory capital and surplus level. The Company sold structured settlement annuities to the insurance affiliates of Travelers Property Casualty (TAP). Premiums and deposits were $8.9 million, $70.6 million and $36.9 million for 1998, 1997 and 1996, respectively. The reduction in premiums and deposits from 1997 to 1998 was a result of a decision to use TIC as the primary issuer of structured settlement annuities and the Company as the assignment company. Policy reserves and contractholder fund liabilities associated with these structured settlements were $808.7 and $842.3 million at December 31, 1998 and 1997, respectively. The Company began marketing variable annuity products through its affiliate, Salomon Smith Barney Inc. (SSB) in 1995. Premiums and deposits related to these products were $932.1 million, $615.6 million and $300.0 million in 1998, 1997 and 1996, respectively. In 1996, the Company began marketing various life products through SSB as well. Premiums related to such products were $42.1 million, $25.1 million and $20.5 million in 1998, 1997 and 1996, respectively. During 1998, the Company began marketing deferred annuity products through its affiliate Primerica Financial Services (Primerica). Deposits received were $216 million. The Company participates in a stock option plan sponsored by Citigroup that provides for the granting of stock options in Citigroup common stock to officers and key employees. To further encourage employee stock ownership, during 1997 the Company's ultimate parent introduced the WealthBuilder stock option program. Under this program, all employees meeting certain requirements are granted Citigroup stock options. F-17 20 THE TRAVELERS LIFE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) Most leasing functions for TIGI and its subsidiaries are handled by TAP. Rent expense related to these leases are shared by the companies on a cost allocation method based generally on estimated usage by department. The Company's rent expense was insignificant in 1998, 1997 and 1996. At December 31, 1998 and 1997, the Company had investments in Tribeca Investments, L.L.C., an affiliate of the Company in the amounts of $18.3 million and $16.5 million, included in other invested assets. 9. FEDERAL INCOME TAXES ($ in thousands) EFFECTIVE TAX RATE
--------------------------------------------------------- ----------------- ---------------- ----------------- FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996 --------------------------------------------------------- ----------------- ---------------- ----------------- Income Before Federal Income Taxes $88,185 $109,575 $39,582 Statutory Tax Rate 35% 35% 35% --------------------------------------------------------- ----------------- ---------------- ----------------- Expected Federal Income Taxes 30,865 38,351 13,854 Tax Effect of: Non-taxable investment income (20) (24) (15) Other, net (145) (124) (48) --------------------------------------------------------- ----------------- ---------------- ----------------- Federal Income Taxes $30,700 $38,203 $13,791 ========================================================= ================= ================ ================= Effective Tax Rate 35% 35% 35% --------------------------------------------------------- ----------------- ---------------- ----------------- COMPOSITION OF FEDERAL INCOME TAXES 1998 1998 1996 ---- ---- ---- Current: United States $18,794 $33,805 $29,435 Foreign 123 54 21 --------------------------------------------------------- ----------------- ---------------- ----------------- Total 18,917 33,859 29,456 --------------------------------------------------------- ----------------- ---------------- ----------------- Deferred: United States 11,783 4,344 (15,665) --------------------------------------------------------- ----------------- ---------------- ----------------- Federal Income Taxes $30,700 $38,203 $13,791 ========================================================= ================= ================ =================
F-18 21 THE TRAVELERS LIFE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) The net deferred tax assets at December 31, 1998 and 1997 were comprised of the tax effects of temporary differences related to the following assets and liabilities:
($ in thousands) 1998 1997 ---- ---- --------------------------------------------------------------------- ---------------- -------------- Deferred Tax Assets: Benefit, reinsurance and other reserves $121,150 $100,969 Other 2,810 2,571 --------------------------------------------------------------------- ---------------- -------------- Total 123,960 103,540 --------------------------------------------------------------------- ---------------- -------------- Deferred Tax Liabilities: Investments, net 56,103 42,933 Deferred acquisition costs and value of insurance in force 51,993 23,650 Other 1,399 1,226 --------------------------------------------------------------------- ---------------- -------------- Total 109,495 67,809 --------------------------------------------------------------------- ---------------- -------------- Net Deferred Tax Asset Before Valuation Allowance 14,465 35,731 Valuation Allowance for Deferred Tax Assets (2,070) (2,070) --------------------------------------------------------------------- ---------------- -------------- Net Deferred Tax Asset After Valuation Allowance $12,395 $33,661 --------------------------------------------------------------------- ---------------- --------------
TIC and its life insurance subsidiaries, including the Company, has filed, and will file, a consolidated federal income tax return. Federal income taxes are allocated to each member on a separate return basis adjusted for credits and other amounts required by the consolidation process. Any resulting liability has been, and will be, paid currently to TIC. Any credits for losses have been, and will be, paid by TIC to the extent that such credits are for tax benefits that have been utilized in the consolidated federal income tax return. The $2.1 million valuation allowance is sufficient to cover any capital losses on investments that may exceed the capital gains able to be generated in the life insurance group's consolidated federal income tax return based upon management's best estimate of the character of the reversing temporary differences. Reversal of the valuation allowance is contingent upon the recognition of future capital gains or a change in circumstances that causes the recognition of the benefits to become more likely than not. There was no change in the valuation allowance during 1998. The initial recognition of any benefit provided by the reversal of the valuation allowance will be recognized by reducing goodwill. F-19 22 THE TRAVELERS LIFE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) In management's judgment, the $12.4 million "net deferred tax asset after valuation allowance" as of December 31, 1998, is fully recoverable against expected future years' taxable ordinary income and capital gains. At December 31, 1998, 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 is approximately $2 million. Income taxes are not provided for on this amount because under current U.S. tax rules such taxes will become payable only to the extent such amounts are distributed as a dividend to exceed limits prescribed by federal law. Distributions are not contemplated from this account. At current rates the maximum amount of such tax would be approximately $700 thousand. 10. NET INVESTMENT INCOME
-------------------------------------------------------------- --------------- --------------- -------------- FOR THE YEAR ENDED DECEMBER 31, ($ in thousands) 1998 1997 1996 -------------------------------------------------------------- --------------- --------------- -------------- GROSS INVESTMENT INCOME Fixed maturities $130,825 $120,900 $113,296 Joint venture and partnership income 22,107 32,336 19,775 Mortgage loans 15,969 14,905 18,278 Other 3,322 2,284 4,113 -------------------------------------------------------------- --------------- --------------- -------------- 172,223 170,425 155,462 -------------------------------------------------------------- --------------- --------------- -------------- Investment expenses 1,220 1,772 4,136 -------------------------------------------------------------- --------------- --------------- -------------- Net investment income $171,003 $168,653 $151,326 -------------------------------------------------------------- --------------- --------------- --------------
11. INVESTMENTS AND INVESTMENT GAINS (LOSSES) Realized investment gains (losses) for the periods were as follows:
---------------------------------------------------------------- --------------- --------------- --------------- FOR THE YEAR ENDED DECEMBER 31, ($ in thousands) 1998 1997 1996 ---------------------------------------------------------------- --------------- --------------- --------------- REALIZED INVESTMENT GAINS (LOSSES) Fixed maturities $15,620 $29,236 $(11,491) Equity securities 1,819 8,385 4,613 Mortgage loans 623 (8) 1,979 Real estate held for sale - 2,164 (73) Other 431 5,094 (4,641) ---------------------------------------------------------------- --------------- --------------- --------------- Total Realized Investment Gains (Losses) $18,493 $44,871 $(9,613) ---------------------------------------------------------------- --------------- --------------- ---------------
F-20 23 THE TRAVELERS LIFE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) Changes in net unrealized investment gains (losses) that are included as accumulated other changes in equity from non-owner sources in shareholder's equity were as follows:
---------------------------------------------------------------- --------------- --------------- --------------- FOR THE YEAR ENDED DECEMBER 31, ($ in thousands) 1998 1997 1996 ---------------------------------------------------------------- --------------- --------------- --------------- UNREALIZED INVESTMENT GAINS (LOSSES) Fixed maturities $24,336 $34,451 $(23,953) Equity securities (338) (2,394) (746) Other 3,098 23,975 22,431 ---------------------------------------------------------------- --------------- --------------- --------------- Total Unrealized Investment Gains (Losses) 27,096 56,032 (2,268) Related taxes 9,484 19,611 (794) ---------------------------------------------------------------- --------------- --------------- --------------- Change in unrealized investment gains (losses) 17,612 36,421 (1,474) Balance beginning of year 70,277 33,856 35,330 ---------------------------------------------------------------- --------------- --------------- --------------- Balance End of Year $87,889 $70,277 $33,856 ---------------------------------------------------------------- --------------- --------------- ---------------
Fixed Maturities Proceeds from sales of fixed maturities classified as available for sale were $1.1 billion, $.9 billion and $1.0 billion in 1998, 1997 and 1996, respectively. Gross gains of $32.6 million, $38.1 million and $8.4 million and gross losses of $17.0 million, $8.9 million and $19.9 million in 1998, 1997 and 1996, respectively were realized on those sales. Fair values of investments in fixed maturities are based on quoted market prices or dealer quotes or, if these are not available, discounted expected cash flows using market rates commensurate with the credit quality and maturity of the investment. The fair value of investments for which a quoted market price or dealer quote are not available amounted to $427.0 million and $485.3 million at December 31, 1998 and 1997, respectively. F-21 24 THE TRAVELERS LIFE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) The amortized cost and fair values of investments in fixed maturities were as follows:
------------------------------------------------- ---------------- --------------- ---------------- --------------- DECEMBER 31, 1998 GROSS GROSS ($ in thousands) AMORTIZED COST UNREALIZED UNREALIZED FAIR GAINS LOSSES VALUE ------------------------------------------------- ---------------- --------------- ---------------- --------------- AVAILABLE FOR SALE: Mortgage-backed securities - CMOs and pass-through securities $220,105 $ 11,571 $(193) $231,483 U.S. Treasury securities and obligations of U.S. Government and government agencies and authorities 289,376 53,782 (274) 342,884 Obligations of states and political subdivisions 28,749 994 (17) 29,726 Debt securities issued by foreign governments 40,786 2,966 (375) 43,377 All other corporate bonds 1,124,298 75,870 (13,000) 1,187,168 Redeemable preferred stock 4,033 119 (109) 4,043 ------------------------------------------------- ---------------- --------------- ---------------- --------------- Total Available For Sale $1,707,347 $145,302 $(13,968) $1,838,681 ------------------------------------------------- ---------------- --------------- ---------------- ---------------
DECEMBER 31, 1997 GROSS GROSS ($ in thousands) AMORTIZED COST UNREALIZED UNREALIZED FAIR GAINS LOSSES VALUE ------------------------------------------------- ---------------- --------------- ---------------- --------------- AVAILABLE FOR SALE: Mortgage-backed securities - CMOs and pass-through securities $144,921 $ 8,254 $(223) $152,952 U.S. Treasury securities and obligations of U.S. Government and government agencies and authorities 248,081 34,111 (123) 282,069 Obligations of states and political subdivisions 14,560 392 (2) 14,950 Debt securities issued by foreign governments 85,367 6,194 (228) 91,333 All other corporate bonds 1,077,211 59,972 (1,387) 1,135,796 Redeemable preferred stock 981 48 (9) 1,020 ------------------------------------------------- ---------------- --------------- ---------------- --------------- Total Available For Sale $1,571,121 $108,971 $(1,972) $1,678,120 ------------------------------------------------- ---------------- --------------- ---------------- ---------------
The amortized cost and fair value of fixed maturities available for sale at December 31, 1998, by contractual maturity, are shown below. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. F-22 25 THE TRAVELERS LIFE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED)
----------------------------------------------------- ------------------ ------------------ ($ in thousands) AMORTIZED FAIR COST VALUE ----------------------------------------------------- ------------------ ------------------ MATURITY: Due in one year or less $ 21,149 $ 21,655 Due after 1 year through 5 years 249,251 256,032 Due after 5 years through 10 years 356,358 379,061 Due after 10 years 860,484 950,450 ----------------------------------------------------- ------------------ ------------------ 1,487,242 1,607,198 ----------------------------------------------------- ------------------ ------------------ Mortgage-backed securities 220,105 231,483 ----------------------------------------------------- ------------------ ------------------ Total Maturity $1,707,347 $1,838,681 ----------------------------------------------------- ------------------ ------------------
The Company makes significant investments in collateralized mortgage obligations (CMOs). CMOs typically have high credit quality, offer good liquidity, and provide a significant advantage in yield and total return compared to U.S. Treasury securities. The Company's investment strategy is to purchase CMO tranches which are protected against prepayment risk, including planned amortization class (PAC) tranches. Prepayment protected tranches are preferred because they provide stable cash flows in a variety of interest rate scenarios. The Company does invest in other types of CMO tranches if a careful assessment indicates a favorable risk/return tradeoff. The Company does not purchase residual interests in CMOs. At December 31, 1998 and 1997, the Company held CMOs with a market value of $181.6 million and $122.8 million, respectively. The Company's CMO holdings were 62.9% and 97.5% collateralized by GNMA, FNMA or FHLMC securities at December 31, 1998 and 1997, respectively. Equity Securities The cost and market values of investments in equity securities were as follows:
--------------------------------------------- ----------- ---------------------- ---------------------- ----------- EQUITY SECURITIES: GROSS UNREALIZED GROSS UNREALIZED FAIR VALUE ($ in thousands) COST GAINS LOSSES --------------------------------------------- ----------- ---------------------- ---------------------- ----------- DECEMBER 31, 1998 Common stocks $ 5,185 $889 $(292) $5,782 Non-redeemable preferred stocks 20,641 707 (445) 20,903 --------------------------------------------- ----------- ---------------------- ---------------------- ----------- Total Equity Securities $25,826 $1,596 $(737) $26,685 --------------------------------------------- ----------- ---------------------- ---------------------- ----------- DECEMBER 31, 1997 Common stocks $3,318 $ 583 $(70) $3,831 Non-redeemable preferred stocks 11,774 931 (247) 12,458 --------------------------------------------- ----------- ---------------------- ---------------------- ----------- Total Equity Securities $15,092 $1,514 $(317) $16,289 --------------------------------------------- ----------- ---------------------- ---------------------- -----------
F-23 26 THE TRAVELERS LIFE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) Proceeds from sales of equity securities were $6.0 million, $12.4 million and $12.8 million in 1998, 1997 and 1996, respectively. Gross gains of $2.6 million, $8.6 million and $4.7 million and gross losses of $815 thousand, $172 thousand and $155 thousand in 1998, 1997 and 1996, respectively were realized on those sales. Mortgage Loans Underperforming assets include delinquent mortgage loans, loans in the process of foreclosure and loans modified at interest rates below market. At December 31, 1998 and 1997, the Company's mortgage loan portfolios consisted of the following:
- ----------------------------------------------------- ------------- -------------- ($ in thousands) 1998 1997 - ----------------------------------------------------- ------------- -------------- Current Mortgage Loans $170,635 $160,247 Underperforming Mortgage Loans 3,930 - - ----------------------------------------------------- ------------- -------------- Total 174,565 160,247 - ----------------------------------------------------- ------------- --------------
Aggregate annual maturities on mortgage loans at December 31, 1998 are as follows:
- ----------------------------------------------------- ------- ($ in thousands) Past Maturity $ 129 1999 11,649 2000 11,309 2001 8,697 2002 16,272 2003 4,998 Thereafter 121,511 - ----------------------------------------------------- ------- Total 174,565 ===================================================== =======
Joint Venture In October 1997, TIC and Tishman Speyer Properties (Tishman), a worldwide real estate owner, developer and manager, formed a joint real estate venture with an initial equity commitment of $792 million. TIC and certain of its affiliates committed $420 million in real estate equity and $100 million in cash while Tishman committed $272 million in properties and cash. Both companies are serving as asset managers for the venture and Tishman is primarily responsible for the venture's real estate acquisition and development efforts. The Company's investment in the joint venture, which is included in other invested assets, totaled $62.4 million and $54.8 million at December 31, 1998 and 1997, respectively. F-24 27 THE TRAVELERS LIFE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) Concentrations The Company's significant individual investment concentrations included $53.3 million and $32.7 million in Bellsouth Corp. at December 31, 1998 and 1997, respectively. In addition, there was an investment of $50.8 million in the State of Israel in 1997. The Company participates in a short-term investment pool maintained by an affiliate. See Note 8. Included in fixed maturities are below investment grade assets totaling $102.4 million and $76.7 million at December 31, 1998 and 1997, respectively. The Company defines its below investment grade assets as those securities rated "Ba1" or below by external rating agencies, or the equivalent by internal analysts when a public rating does not exist. Such assets include publicly traded below investment grade bonds and certain other privately issued bonds that are classified as below investment grade bonds. The Company's three largest industry concentrations of investments, primarily fixed maturities, were as follows:
-------------------------------------------- ----------- ----------- ($ in thousands) 1998 1997 -------------------------------------------- ----------- ----------- Banking $160,713 $130,966 Transportation 155,116 138,903 Electric utilities 109,027 106,724 -------------------------------------------- ----------- -----------
Below investment grade assets included in the preceding table were not significant. Concentrations of mortgage loans by property type at December 31, 1998 and 1997 were as follows:
-------------------------------------------- ----------- ----------- ($ in thousands) 1998 1997 -------------------------------------------- ----------- ----------- Agricultural $78,579 $62,463 Office 51,813 47,453 -------------------------------------------- ----------- -----------
The Company monitors creditworthiness of counterparties to all financial instruments by using controls that include credit approvals, limits and other monitoring procedures. Collateral for fixed maturities often includes pledges of assets, including stock and other assets, guarantees and letters of credit. The Company's underwriting standards with respect to new mortgage loans generally require loan to value ratios of 75% or less at the time of mortgage origination. Non-Income Producing Investments There were no investments included in the balance sheets that were non-income producing for the preceding 12 months. F-25 28 THE TRAVELERS LIFE AND ANNUITY COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) Restructured Investments Mortgage loan and debt securities which were restructured at below market terms at December 31, 1998 and 1997 were insignificant. The new terms of restructured investments typically defer a portion of contract interest payments to varying future periods. The accrual of interest is suspended on all restructured assets, and interest income is reported only as payment is received. Gross interest income on restructured assets that would have been recorded in accordance with the original terms of such assets was insignificant. Interest on these assets, included in net investment income, was insignificant. 12. LIFE AND ANNUITY DEPOSIT FUNDS AND RESERVES At December 31, 1998, the Company had $1.9 billion of life and annuity deposit funds and reserves. Of that total, $1.5 billion were not subject to discretionary withdrawal based on contract terms. The remaining $.4 billion were life and annuity products that were subject to discretionary withdrawal by the contractholders. Included in the amount that is subject to discretionary withdrawal were $.2 billion of liabilities that are surrenderable with market value adjustments. An additional $.2 billion of life insurance and individual annuity liabilities are subject to discretionary withdrawals with an average surrender charge of 4.6%. The life insurance risks would have to be underwritten again if transferred to another carrier, which is considered a significant deterrent for long-term policyholders. Insurance liabilities that are surrendered or withdrawn from the Company are reduced by outstanding policy loans and related accrued interest prior to payout. 13. RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES The following table reconciles net income to net cash provided by (used in) operating activities:
------------------------------------------------------------------ ------------- ------------- ------------- FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996 ---- ---- ---- ($ in thousands) ------------------------------------------------------------------ ------------- ------------- ------------- Net Income From Continuing Operations $57,485 $71,372 $ 25,791 Adjustments to reconcile net income to cash provided by operating activities: Realized (gains) losses (18,493) (44,871) 9,613 Deferred federal income taxes 11,783 4,344 (15,665) Amortization of deferred policy acquisition costs and value of insurance in force 17,031 6,036 3,286 Additions to deferred policy acquisition costs (120,278) (56,975) (20,753) Investment income accrued (3,821) 908 1,308 Premium balances receivable (6,786) (3,450) (3,561) Insurance reserves and accrued expenses (8,431) 3,981 (16,459) Other (3,881) 26,673 (13,419) ------------------------------------------------------------------ ------------- ------------- ------------- Net cash provided by (used in) operations $(75,391) $8,018 $(29,859) ------------------------------------------------------------------ ------------- ------------- -------------
14. NON-CASH INVESTING AND FINANCING ACTIVITIES There were no significant non-cash investing and financing activities for 1998, 1997 and 1996. F-26 29 PART C Other Information Item 24. Financial Statements and Exhibits (a) The financial statements of the Registrant will not be provided since the Registrant will have no assets as of the effective date of the Registrant Statement. The financial statements of The Travelers Life and Annuity Company and the report of Independent Accountants, are contained in the Statement of Additional Information. The financial statements of The Travelers Life and Annuity Company include: Statements of Income for the years ended December 31, 1998, 1997 and 1996. Balance Sheets as of December 31, 1998 and 1997 Statements of Changes in Retained Earnings and Accumulated Other Changes in Equity from Non-Owner Sources for the years ended December 31, 1998, 1997 and 1996. Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996 Notes to Financial Statements (b) Exhibits 1. Resolution of The Travelers Life and Annuity Company Board of Directors authorizing the establishment of the Registrant. (Incorporated herein by reference to Exhibit 1 to the Registration Statement on Form N-4 filed June 30, 1999.) 2. Not Applicable. 3(a). Distribution and Principal Underwriting Agreement among the Registrant, The Travelers Life and Annuity Company and CFBDS, Inc. To be provided by amendment. 3(b). Selling Agreement. (Incorporated herein by reference to Exhibit 3(b) to Pre-Effective Amendment No. 1 to the Registration Statement on Form N-4, File No. 333-60215 filed November 9, 1998) 4. Variable Annuity Contract. Incorporated herein by reference to Exhibit 4 to Pre-Effective Amendment No. 1 to the Registration Statement filed on September 24, 1999. 5. Application. Incorporated herein by reference to Exhibit 5 to Pre-Effective Amendment No. 1 to the Registration Statement filed on September 24, 1999. 6(a). Charter of The Travelers Life and Annuity Company, as amended on April 10, 1990. (Incorporated herein by reference to Exhibit 6(a) to the Registration Statement on Form N-4, File No. 333-40191, filed November 13, 1998.) 6(b). By-Laws of The Travelers Life and Annuity Company, as amended on October 20, 1994. (Incorporated herein by reference to Exhibit 6(b) to the Registration Statement on Form N-4, File No. 333-40191, filed November 13, 1998.) 9. Opinion of Counsel as to the legality of securities being registered. (Incorporated herein by reference to Exhibit 9 to the Registration Statement on Form N-4 filed June 30, 1999.) 10. Consent of KPMG LLP, Independent Certified Public Accountants. Incorporated herein by reference to Exhibit 10 to Pre-Effective Amendment No. 1 to the Registration Statement filed on September 24, 1999. 13. Computation of Total Return Calculations - Standardized and Non-Standardized. Incorporated herein by reference to Exhibit 13 to Pre-Effective Amendment No. 1 to the Registration Statement filed on September 24, 1999. 30 15. Powers of Attorney authorizing Ernest J. Wright or Kathleen A. McGah as signatory for Michael A. Carpenter, J. Eric Daniels, Jay S. Benet, George C. Kokulis, Robert I. Lipp, Katherine M. Sullivan and Marc P. Weill. (Incorporated herein by reference to Exhibit 15 to the Registration Statement on Form N-4 filed June 30, 1999.)
Item 25. Directors and Officers of the Depositor Name and Principal Positions and Offices Business Address with Insurance Company - ---------------- ---------------------- Michael A. Carpenter* Director, Chairman of the Board J. Eric Daniels** Director, President and Chief Executive Officer Jay S. Benet** Director and Senior Vice President Chief Financial Officer, Chief Accounting Officer and Controller George C. Kokulis** Director and Executive Vice President Robert I. Lipp** Director Katherine M. Sullivan** Director and Senior Vice President Marc P. Weill* Director and Senior Vice President Stuart Baritz*** Senior Vice President Elizabeth C. Georgakopoulos** Senior Vice President Barry Jacobson** Senior Vice President Russell H. Johnson** Senior Vice President Marla Berman Lewitus** Senior Vice President and General Counsel Warren H. May** Senior Vice President Christine M. Modie** Senior Vice President Kathleen Preston** Senior Vice President Mary Jean Thornton** Senior Vice President David A. Tyson** Senior Vice President F. Denney Voss* Senior Vice President Virginia M. Meany** Vice President Ernest J. Wright** Vice President and Secretary Kathleen A. McGah** Assistant Secretary and Deputy General Counsel Donald R. Munson, Jr.** Second Vice President Anthony Cocolla** Second Vice President Scott R. Hansen** Second Vice President Principal Business Address: * Citigroup Inc. ** The Travelers Insurance Company 388 Greenwich Street One Tower Square New York, NY 10013 Hartford, CT 06183 *** Travelers Portfolio Group 1345 Avenue of the Americas New York, NY 10105
Item 26. Persons Controlled by or Under Common Control with the Depositor or Registrant Incorporated herein by reference to Exhibit 16 to Post-Effective Amendment No. 2 to the Registration Statement on Form N-4, File No. 333-27689, filed April 16, 1999. 31 Item 27. Number of Contract Owners Not applicable. Item 28. Indemnification Sections 33-770 to 33-778, inclusive of the Connecticut General Statutes ("C.G.S.") regarding indemnification of directors and officers of Connecticut corporations provides in general that Connecticut corporations shall indemnify their officers, directors and certain other defined individuals against judgments, fines, penalties, amounts paid in settlement and reasonable expenses actually incurred in connection with proceedings against the corporation. The corporation's obligation to provide such indemnification generally does not apply unless (1) the individual is wholly successful on the merits in the defense of any such proceeding; or (2) a determination is made (by persons specified in the statute) that the individual acted in good faith and in the best interests of the corporation and in all other cases, his conduct was at least not opposed to the best interests of the corporation, and in a criminal case he had no reasonable cause to believe his conduct was unlawful; or (3) the court, upon application by the individual, determines in view of all of the circumstances that such person is fairly and reasonably entitled to be indemnified, and then for such amount as the court shall determine. With respect to proceedings brought by or in the right of the corporation, the statute provides that the corporation shall indemnify its officers, directors and certain other defined individuals, against reasonable expenses actually incurred by them in connection with such proceedings, subject to certain limitations. Citigroup Inc. also provides liability insurance for its directors and officers and the directors and officers of its subsidiaries, including the Registrant. This insurance provides for coverage against loss from claims made against directors and officers in their capacity as such, including, subject to certain exceptions, liabilities under the federal securities laws. Rule 484 Undertaking Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. Item 29. Principal Underwriter (a) CFBDS, Inc. 21 Milk Street Boston, MA 02109 CFBDS, Inc. also serves as principal underwriter for the following : (a) CFBDS, the Registrant's Distributor, is also the distributor for CitiFunds(SM) International Growth & Income Portfolio, CitiFunds(SM) International Growth Portfolio, CitiFunds(SM) U.S. 32 Treasury Reserves, CitiFunds(SM) Cash Reserves, CitiFunds(SM) Premium U.S. Treasury Reserves, CitiFunds(SM) Premium Liquid Reserves, CitiFunds(SM) Institutional U.S. Treasury Reserves, CitiFunds(SM) Institutional Liquid Reserves, CitiFunds(SM) Institutional Cash Reserves, CitiFunds(SM) Tax Free Reserves, CitiFunds(SM) Institutional Tax Free Reserves, CitiFunds(SM) California Tax Free Reserves, CitiFunds(SM) Connecticut Tax Free Reserves, CitiFunds(SM) New York Tax Free Reserves, CitiFunds(SM) New York Tax Free Income Portfolio, CitiFunds(SM) National Tax Free Income Portfolio, CitiFunds(SM) California Tax Free Income Portfolio, CitiFunds(SM) Intermediate Income Portfolio, CitiFunds(SM) Balanced Portfolio, CitiFunds(SM) Small Cap Value Portfolio, CitiFunds(SM) Growth & Income Portfolio, CitiFunds(SM) Large Cap Growth Portfolio, CitiFunds(SM) Small Cap Growth Portfolio, CitiSelect(R) VIP Folio 200, CitiSelect(R) VIP Folio 300, CitiSelect(R) VIP Folio 400, CitiSelect(R) VIP Folio 500, CitiFunds(SM) Small Cap Growth VIP Portfolio, CitiSelect(R) Folio 100, CitiSelect(R) Folio 200, CitiSelect(R) Folio 300, CitiSelect(R) Folio 400, and CitiSelect(R) Folio 500. CFBDS is also the placement agent for Large Cap Value Portfolio, Small Cap Value Portfolio, International Portfolio, Foreign Bond Portfolio, Intermediate Income Portfolio, Short-Term Portfolio, Growth & Income Portfolio, U.S. Fixed Income Portfolio, High Yield Portfolio, Large Cap Growth Portfolio, Small Cap Growth Portfolio, International Equity Portfolio, Balanced Portfolio, Government Income Portfolio, Tax Free Reserves Portfolio, Cash Reserves Portfolio and U.S. Treasury Reserves Portfolio. CFBDS also serves as the distributor for the following funds: The Travelers Fund U for Variable Annuities, The Travelers Fund VA for Variable Annuities, The Travelers Fund BD for Variable Annuities, The Travelers Fund BD II for Variable Annuities, The Travelers Fund BD III for Variable Annuities, The Travelers Fund BD IV for Variable Annuities, The Travelers Fund ABD for Variable Annuities, The Travelers Fund ABD II for Variable Annuities, The Travelers Separate Account PF for Variable Annuities, The Travelers Separate Account PF II for Variable Annuities, The Travelers Separate Account QP for Variable Annuities, The Travelers Separate Account TM for Variable Annuities, The Travelers Separate Account TM II for Variable Annuities, The Travelers Separate Account Five for Variable Annuities, The Travelers Separate Account Six for Variable Annuities, The Travelers Separate Account Seven for Variable Annuities, The Travelers Separate Account Eight for Variable Annuities, The Travelers Fund UL for Variable Life Insurance, The Travelers Fund UL II for Variable Life Insurance, The Travelers Fund UL III for Variable Life Insurance, The Travelers Variable Life Insurance Separate Account One, The Travelers Variable Life Insurance Separate Account Two, The Travelers Variable Life Insurance Separate Account Three, The Travelers Variable Life Insurance Separate Account Four, The Travelers Separate Account MGA, The Travelers Separate Account MGA II, The Travelers Growth and Income Stock Account for Variable Annuities, The Travelers Quality Bond Account for Variable Annuities, The Travelers Money Market Account for Variable Annuities, The Travelers Timed Growth and Income Stock Account for Variable Annuities, The Travelers Timed Short-Term Bond Account for Variable Annuities, The Travelers Timed Aggressive Stock Account for Variable Annuities, The Travelers Timed Bond Account for Variable Annuities, Emerging Growth Fund, Government Fund, Growth and Income Fund, International Equity Fund, Municipal Fund, Balanced Investments, Emerging Markets Equity Investments, Government Money Investments, High Yield Investments, Intermediate Fixed Income Investments, International Equity Investments, International Fixed Income Investments, Large Capitalization Growth Investments, Large Capitalization Value Equity Investments, Long-Term Bond Investments, Mortgage Backed Investments, Municipal Bond Investments, Small Capitalization Growth Investments, Small 33 Capitalization Value Equity Investments, Appreciation Portfolio, Diversified Strategic Income Portfolio, Emerging Growth Portfolio, Equity Income Portfolio, Equity Index Portfolio, Growth & Income Portfolio, Intermediate High Grade Portfolio, International Equity Portfolio, Money Market Portfolio, Total Return Portfolio, Smith Barney Adjustable Rate Government Income Fund, Smith Barney Aggressive Growth Fund Inc., Smith Barney Appreciation Fund, Smith Barney Arizona Municipals Fund Inc., Smith Barney California Municipals Fund Inc., Balanced Portfolio, Conservative Portfolio, Growth Portfolio, High Growth Portfolio, Income Portfolio, Global Portfolio, Select Balanced Portfolio, Select Conservative Portfolio, Select Growth Portfolio, Select High Growth Portfolio, Select Income Portfolio, Concert Social Awareness Fund, Smith Barney Large Cap Blend Fund, Smith Barney Fundamental Value Fund Inc., Large Cap Value Fund, Short-Term High Grade Bond Fund, U.S. Government Securities Fund, Smith Barney Balanced Fund, Smith Barney Convertible Fund, Smith Barney Diversified Strategic Income Fund, Smith Barney Exchange Reserve Fund, Smith Barney High Income Fund, Smith Barney Municipal High Income Fund, Smith Barney Premium Total Return Fund, Smith Barney Total Return Bond Fund, Cash Portfolio, Government Portfolio, Municipal Portfolio, Concert Peachtree Growth Fund, Smith Barney Contrarian Fund, Smith Barney Government Securities Fund, Smith Barney Hansberger Global Small Cap Value Fund, Smith Barney Hansberger Global Value Fund, Smith Barney Investment Grade Bond Fund, Smith Barney Special Equities Fund, Smith Barney Intermediate Maturity California Municipals Fund, Smith Barney Intermediate Maturity New York Municipals Fund, Smith Barney Large Capitalization Growth Fund, Smith Barney S&P 500 Index Fund, Smith Barney Mid Cap Blend Fund, Smith Barney Managed Governments Fund Inc., Smith Barney Managed Municipals Fund Inc., Smith Barney Massachusetts Municipals Fund, Cash Portfolio, Government Portfolio, Retirement Portfolio, California Money Market Portfolio, Florida Portfolio, Georgia Portfolio, Limited Term Portfolio, New York Money Market Portfolio, New York Portfolio, Pennsylvania Portfolio, Smith Barney Municipal Money Market Fund, Inc., Smith Barney Natural Resources Fund Inc., Smith Barney New Jersey Municipals Fund Inc., Smith Barney Oregon Municipals Fund, Zeros Plus Emerging Growth Series 2000, Smith Barney Security and Growth Fund, Smith Barney Small Cap Blend Fund, Inc., Smith Barney Telecommunications Income Fund, Income and Growth Portfolio, Reserve Account Portfolio, U.S. Government/High Quality Securities Portfolio, Emerging Markets Portfolio, European Portfolio, Global Government Bond Portfolio, International Balanced Portfolio, International Equity Portfolio, Pacific Portfolio, AIM Capital Appreciation Portfolio, Alliance Growth Portfolio, GT Global Strategic Income Portfolio, MFS Total Return Portfolio, Putnam Diversified Income Portfolio, Smith Barney High Income Portfolio, Smith Barney Large Cap Value Portfolio, Smith Barney International Equity Portfolio, Smith Barney Large Capitalization Growth Portfolio, Smith Barney Money Market Portfolio, Smith Barney Pacific Basin Portfolio, TBC Managed Income Portfolio, Van Kampen American Capital Enterprise Portfolio, Centurion Tax-Managed U.S. Equity Fund, Centurion Tax-Managed International Equity Fund, Centurion U.S. Protection Fund, Centurion International Protection Fund, Global High-Yield Bond Fund, International Equity Fund, Emerging Opportunities Fund, Core Equity Fund, Long-Term Bond Fund, Global Dimensions Fund L.P., Citicorp Private Equity L.P., AIM V.I. Capital Appreciation Fund, AIM V.I. Government Series Fund, AIM V.I. Growth Fund, AIM V.I. International Equity Fund, AIM V.I. Value Fund, Fidelity VIP Growth Portfolio, Fidelity VIP High Income Portfolio, Fidelity VIP Equity Income Portfolio, Fidelity VIP Overseas Portfolio, Fidelity VIP II Contrafund Portfolio, Fidelity VIP II Index 500 Portfolio, MFS World Government Series, MFS Money Market Series, MFS Bond Series, MFS Total Return Series, MFS Research Series, MFS Emerging Growth Series, Salomon Brothers Institutional Money Market Fund, Salomon Brothers Cash Management Fund, Salomon Brothers New York Municipal Money Market Fund, Salomon Brothers National Intermediate Municipal Fund, Salomon Brothers U.S. Government Income Fund, Salomon 34 Brothers High Yield Bond Fund, Salomon Brothers Strategic Bond Fund, Salomon Brothers Total Return Fund, Salomon Brothers Asia Growth Fund, Salomon Brothers Capital Fund Inc, Salomon Brothers Investors Fund Inc, Salomon Brothers Opportunity Fund Inc, Salomon Brothers Institutional High Yield Bond Fund, Salomon Brothers Institutional Emerging Markets Debt Fund, Salomon Brothers Variable Investors Fund, Salomon Brothers Variable Capital Fund, Salomon Brothers Variable Total Return Fund, Salomon Brothers Variable High Yield Bond Fund, Salomon Brothers Variable Strategic Bond Fund, Salomon Brothers Variable U.S. Government Income Fund, and Salomon Brothers Variable Asia Growth Fund. (b) The information required by this Item 27 with respect to each director and officer of CFBDS is incorporated by reference to Schedule A of Form BD filed by CFBDS pursuant to the Securities and Exchange Act of 1934 (File No. 8-32417). (c) Not Applicable Item 30. Location of Accounts and Records (1) The Travelers Life and Annuity Company One Tower Square Hartford, Connecticut 06183 Item 31. Management Services Not Applicable. Item 32. Undertakings The undersigned Registrant hereby undertakes: (a) To file a post-effective amendment to this registration statement as frequently as is necessary to ensure that the audited financial statements in the registration statement are never more than sixteen months old for so long as payments under the variable annuity contracts may be accepted; (b) To include either (1) as part of any application to purchase a contract offered by the prospectus, a space that an applicant can check to request a Statement of Additional Information, or (2) a post card or similar written communication affixed to or included in the prospectus that the applicant can remove to send for a Statement of Additional Information; and (c) To deliver any Statement of Additional Information and any financial statements required to be made available under this Form N-4 promptly upon written or oral request. The Company hereby represents: (a). That the aggregate charges under the Contracts of the Registrant described herein are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by the Company. 35 SIGNATURES As required by the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has caused this amendment to this registration statement to be signed on its behalf, in the City of Hartford, and State of Connecticut, on this 28th day of September 1999. THE TRAVELERS SEPARATE ACCOUNT TEN FOR VARIABLE ANNUITIES (Registrant) THE TRAVELERS LIFE AND ANNUITY COMPANY (Depositor) By: *JAY S. BENET ---------------------------------------------- Jay S. Benet Senior Vice President, Chief Financial Officer Chief Accounting Officer and Controller As required by the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated on the 28th day of September 1999. *MICHAEL A. CARPENTER Director and Chairman of the Board - ---------------------------------- (Michael A. Carpenter) *J. ERIC DANIELS Director, President and Chief Executive Officer - ---------------------------------- (J. Eric Daniels) *JAY S. BENET Director, Senior Vice President, Chief - ---------------------------------- Financial Officer, Chief Accounting Officer (Jay S. Benet) and Controller *GEORGE C. KOKULIS Director and Executive Vice President - ---------------------------------- (George C. Kokulis *ROBERT I. LIPP Director - ---------------------------------- (Robert I. Lipp) *KATHERINE M. SULLIVAN Director and Senior Vice President - ---------------------------------- (Katherine M. Sullivan) *MARC P. WEILL Director and Senior Vice President - ---------------------------------- (Marc P. Weill)
*By: /s/Ernest J. Wright, Attorney-in-Fact -----END PRIVACY-ENHANCED MESSAGE-----